Strategic managementStrategic management

Lecture 11 Lecture 11

Corporate strategy and the Corporate strategy and the structure of the organizationsstructure of the organizations

Organisationstructure

and design

Resourceallocation

andcontrol

Managingstrategicchange

Strategyevaluation

and selection

Strategicoptions

Bases ofstrategicchoice

Strategicchoice

Strategyimplemen-

tation

Strategicanalysis

Resources,competencesand capability

Expectationsand purposes

Theenvironment

Process of strategic management

Development of Apple’s structureDevelopment of Apple’s structure

1. Stage: entrepreneurial startup

2, Stage: Small business

3. Stage: Multimational busuiness

Jobs and Wozniakentrepreneurs

Part-time workers

Jobs and WozniakOwner and managers

Purchasing agent Sales supervisor Production supervisor Accountant

Board

CEO

Marketing Production SalesFinance

Why Have a Structure?Why Have a Structure?

All businesses have to organise All businesses have to organise what they dowhat they do

A clear structure makes it easier to see A clear structure makes it easier to see which part of the business does whatwhich part of the business does what

There are many ways There are many ways to structure a businessto structure a business

The Basic Tasks of OrganizationThe Basic Tasks of OrganizationThe Basic Tasks of OrganizationThe Basic Tasks of Organization

THE ORGANIZATIONAL CHALLENGETHE ORGANIZATIONAL CHALLENGE: : To design structure & systems that:To design structure & systems that: Permit specializationPermit specialization Facilitate coordination by grouping individuals & Facilitate coordination by grouping individuals &

link groups with systems of communication, link groups with systems of communication, decision making, & controldecision making, & control

Create incentives to align individual & firm goals Create incentives to align individual & firm goals

Achieving high levels of productivity requires SPECIALIZATION

Specialization by individuals necessitates COORDINATION

For coordination to be effective requires COOPERATION

But goals of employees == goals of owners THE AGENCY PROBLEM

Organization designOrganization design

Organization design is the process of beveloping an Organization design is the process of beveloping an organization sttructure. The organizaton structure consist organization sttructure. The organizaton structure consist of four elements: of four elements:

1.1. The assignment of taska and responsibilities that define The assignment of taska and responsibilities that define the jobs of individuals and units, the jobs of individuals and units,

2.2. The clustering of individual positions into units and units The clustering of individual positions into units and units into departments and larger units to form an into departments and larger units to form an organization’s hierarchy, organization’s hierarchy,

3.3. The various mechanisms required to facilitate vertical The various mechanisms required to facilitate vertical coordunation, such as the number of individual reporting coordunation, such as the number of individual reporting to any given managerial position and degree of to any given managerial position and degree of delegation of authority, delegation of authority,

4.4. The various mechanisms needed to fostar horizontal The various mechanisms needed to fostar horizontal coordination, such as task forcas and interdepartnemtal coordination, such as task forcas and interdepartnemtal teams teams

Job-designJob-design

A job: is a collection of tasks performed in support A job: is a collection of tasks performed in support of organizational objectives. of organizational objectives.

The jobs are defined by the job description: The jobs are defined by the job description: specification of task activities associated with a specification of task activities associated with a particular jobparticular job

There are four major approaches to job design: There are four major approaches to job design: Job simplification: The process of configuring jobs so Job simplification: The process of configuring jobs so

that jobholders have only a small number of that jobholders have only a small number of narrow activities to perform, narrow activities to perform,

Job rotation: Practice of periodically shifting workers Job rotation: Practice of periodically shifting workers through a set of jobs, through a set of jobs,

Job enlargement: Allocatioion of a wilder variety of Job enlargement: Allocatioion of a wilder variety of similar task to a job, similar task to a job,

Job enrichment: the process of ungrading and Job enrichment: the process of ungrading and increase of the decisionmaking authority of the increase of the decisionmaking authority of the jobholder jobholder

Some Key TermsSome Key Terms

Define of jobsDefine of jobs Span of controlSpan of control EmpowermentEmpowerment, and d, and delegationelegation Chain of commandChain of command Groupings of activitiesGroupings of activities Flat or tall structure Flat or tall structure HierarchyHierarchy

Span of Control

•This term is used to describe the number of employees that each manager/supervisor is responsible for.

•The span of control is said to be wide if a superior is in charge of many employees and narrow if the superior is in charge of a few employees.

•Empowerment is the process of enabling or authorizing an individual to think, behave, take action, and control work and decision making in autonomous ways.

•It is the state of feeling self-empowered to take control of one's own destiny.

Empowerment

A system whereby authority passes down from the top through a series of executive positions or military ranks in which each is accountable to the one directly superior.

Chain of command

Groupings: a ways to structure a business

• By function: arranging the business according to what each section or department does

• By product or activity: organising according to the different products made

• By area: geographical or regional structure

Groupings: a ways to structure a business

• By customer: where different customer groups have different needs

• By process: where products have to go through stages as they are made

• What are the advantages/disadvantages of different types of business structure?

Tall Structure Organisation

•In its simpliest form a tall organisation has many levels of management and supervision.

•There is a “long chain of command” running from the top of the organisation eg Chief Executive down to the bottom of the organisation eg shop floor worker.

Diagram: Tall Structure

Diagram: Tall Structure

Advantages Disadvantages

•Employees can be closely supervised. •There is a clear management structure.• The function of each layer will be clear and distinct. •There will be clear lines of responsibility and control. •There is a narrow span of control .

• The freedom and responsibility of employees (subordinates) is restricted.• Decision making could be slowed down •Communication has to take place through many layers of management.•High management costs

Flat Structure Organisation

•In contrast to a tall organisation, a flat organisation will have relatively few layers or just one layer of management.

•This means that the “Chain of Command” from top to bottom is short and the “span of control is wide”.

• Due to the small number of management layers, flat organisations are often small organisations.

Diagram: Flat Structure

Diagram: Flat Structure

Advantages of flat Organisations

Disadvantages of flat Organisations

•More/Greater communication between management and workers. •Better team sprit. •Less bureaucracy and easier decision making. •Fewer levels of management:includes benefits – lower management costs.

•Workers may have more than one manager/boss.• May limit the growth of the organisation. •Structure limited to small organisations.•Function of each department/person could be blurred and merge into the job roles of others.

Hierarchical Organisation

•In a hierarchical organisation employees are ranked at various levels within the organisation, each level is one above the other.• At each stage in the chain, one person has a number of workers directly under them, within their span of control.•The chain of command (ie the way authority is organized) is a typical pyramid shape

Evolution of the Modern CorporationEvolution of the Modern CorporationEvolution of the Modern CorporationEvolution of the Modern Corporation

The businessenvironment

Organizationalconsequences

Strategic changes

Late 19thcentury

Early19thcentury

Early20thcentury

Local markets Firms specialized & Small firms.Transport slow focused on local Simple manage- Limited mechanization markets ment structures

Introduction of Geographical and Functional struct-railroads, telegraph vertical expansion ures. Line/staffindustrialization separation. Accou-

nting systems

Excess capacity in Product & Development of distribution. Growth multinational multidivisionalof financial institut- diversification corporationions & world trade

A Functional StructureA Functional Structure

A Multidivisional StructureA Multidivisional Structure

A Multinational Matrix StructureA Multinational Matrix Structure

Strategic apex

Operating core

Middle line

Technostructure

Support staff

Ideology

The building blocks of organisations

Organizational iceberg model

Overt organization

Covert organization

•These components are: •Publicly observable•Generally rational, •Cognitiveli derived

These conponents are:•Hidden, •Generally affective, •Emotionally derived

Structure,Job-description, span of control, rules, roles

Emergent power and influence pattern, Emotional feeling, Group normsIndividual role perception, Needs, and desires

A Transnational StructureA Transnational Structure

Exploits knowledge across bordersExploits knowledge across borders Gets the best of multi-domestic and global strategyGets the best of multi-domestic and global strategy High local responsiveness High local responsiveness High global coordinationHigh global coordination National units operate independently, but are a National units operate independently, but are a

source of ideas and capabilities for the whole source of ideas and capabilities for the whole organisationorganisation

National/regional units achieve greater scale National/regional units achieve greater scale economies by specialisingeconomies by specialising

Corporate centre manages global networkCorporate centre manages global network

Diagram: Hierarchical Organisation

Advantages Disadvantages

•Authority and responsibility and clearly defined •Clearly defined promotion path. There are specialists managers • Employees are very loyal to their department within the organisation.

•The organisation can be bureaucratic and respond slowly to changing customer needs and the market •Communication across various sections can be poor especially horizontal communication. •Departments can make decisions -rivalry

Matrix ( or project-based) organisations 

•A Matrix structure organisation contains teams of people created from various sections of the business.

•These teams will be created for the purposes of a specific project and will be led by a project manager.• •Often the team will only exist for the duration of the project and matrix structures are usually deployed to develop new products and services.

The Matrix structure

The advantages of a matrix include

•Individuals can be chosen according to the needs of the project.                               •The use of a project team which is dynamic and able to view problems in a different way as specialists.• Project managers are directly responsible for completing the project within a specific deadline and budget.

The disadvantages include•A conflict of loyalty between line managers and project managers over the allocation of resources. •If teams have a lot of independence can be difficult to monitor. •Costs can be increased if more managers (ie project managers) are created through the use of project teams.

•The most important people are the employees who are at the forefront of serving the customers.  •The rest of the hierarchy is there to enable the employees to do their job. 

• So rather than the workers being responsible to their bosses, the bosses are there to service the needs of the workers as they go about their company’s business.

Pros and Cons of Different Pros and Cons of Different StructuresStructures

This depends on the business type, This depends on the business type, size and structure usedsize and structure used

Let’s look at a functional structure:Let’s look at a functional structure:

Production Marketing Accounts Personnel IT

Chief Executive

Board of Directors

Functional StructureFunctional Structure

AdvantagesAdvantages Specialisation – each Specialisation – each

department focuses department focuses on its own workon its own work

Accountability – Accountability – someone is someone is responsible for the responsible for the sectionsection

Clarity – know your Clarity – know your and others’ rolesand others’ roles

DisadvantagesDisadvantages Closed Closed

communication could communication could lead to lack lead to lack of focusof focus

Departments can Departments can become resistant become resistant to changeto change

Coordination Coordination may take too longmay take too long

Gap between top and Gap between top and bottombottom

An Example of Organisation An Example of Organisation by Product/Activity by Product/Activity

Imaging andPrinting Group

PersonalSystems Group

EnterpriseSystems Group

HP ServicesHP Financial

Services

Hewlett Packard

Organisation by Organisation by Product/Activity Product/Activity

AdvantagesAdvantages Clear focus on market Clear focus on market

segment helps meet segment helps meet customers’ needscustomers’ needs

Positive competition Positive competition between divisionsbetween divisions

Better control as Better control as each division can act each division can act as separate profit as separate profit centrecentre

DisadvantagesDisadvantages Duplication of Duplication of

functions (e.g. functions (e.g. different sales force different sales force for each division)for each division)

Negative effects of Negative effects of competitioncompetition

Lack of central Lack of central control over each control over each separate divisionseparate division

Organisation by AreaOrganisation by Area

Hewlett-Packard’s Hewlett-Packard’s Headquarters WorldwideHeadquarters Worldwide

AmericasHouston, Texas

Europe, Middle East, AfricaGeneva, Switzerland

Asia PacificHong Kong

Hewlett Packard

Organisation by AreaOrganisation by Area

AdvantagesAdvantages

Serve local needs Serve local needs better better

Positive competitionPositive competition More effective More effective

communication communication between firm and between firm and local customerslocal customers

DisadvantagesDisadvantages

Conflict between local Conflict between local and central and central managementmanagement

Duplication of Duplication of resources and resources and functionsfunctions

Other Organisational Other Organisational StructuresStructures

By Customer:By Customer:

Similar effects to structuring Similar effects to structuring by productby product

By Process:By Process:

Similar to structuring by functionSimilar to structuring by function

Organising for Success – Outline (1)Organising for Success – Outline (1) Key challenges in organising for successKey challenges in organising for success

• Control, knowledge management, coping Control, knowledge management, coping with change, response to globalisationwith change, response to globalisation

Structural types of organisationsStructural types of organisations• Strengths and weaknessesStrengths and weaknesses

Organisational processesOrganisational processes• Planning systems, performance targetsPlanning systems, performance targets

Management of internal and external Management of internal and external relationshipsrelationships• Help or hinder successHelp or hinder success

Organising for Success – Outline (2)Organising for Success – Outline (2) Three reinforcing strands for organising Three reinforcing strands for organising

configurationsconfigurations• Structure, processes and relationshipsStructure, processes and relationships

Implications of configurations for Implications of configurations for organisational performance and organisational performance and changechange

Multinational StructuresMultinational Structures

Comparison of StructuresComparison of Structures ChallengeChallenge

StructureStructureControlControl ChangeChange KnowledgeKnowledge GlobalisationGlobalisation

FunctionalFunctional ****** ** **** **

MultidivisionalMultidivisional **** **** ** ****

HoldingHolding ** ****** ** ****

MatrixMatrix ** ****** ****** ******

TransnationalTransnational **** ****** ****** ******

TeamTeam ** **** ****** **

ProjectProject **** ****** **** ****

Exh 8.6 adapted

Strategic PlanningStrategic Planning

Financial ControlFinancial Control

Strategic ControlStrategic Control

Configurational DilemmasConfigurational Dilemmas

Inverting the organisational pyramid

C ustom ers/m arkets/com petition

C ham pions of C hange

M a na g e m e nt

Econom y/finance

Em p lo ye e sTechnologyLegis la tion

Sha re ho ld e rs