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CONTEMPORARY STRATEGY ANALYSIS tenth edition Robert M. Grant John Wiley & Sons Ltd., 2019 Chapter 6 Organizational Structure and Management Systems: The Fundamentals of Strategy Implementation 1 Organization Structure and Management Systems: The Fundamentals of Strategy Implementation OUTLINE • Strategy Formulation and Strategy Implementation • The Fundamentals of Organizing • Developing Organizational Capability • Organizational Design Copyright © 2019 John Wiley & Sons, Inc. 2 STRATEGY FORMULATION AND STRATEGY IMPLEMENTATION The Strategic Planning Cycle Corporate Guidelines Draft Business Plans Discussions with Corporate Revised Business Plans Approval by Board Corporate Plan Forecasts/ Scenarios/ Planning Assumptions Operating Plan/ Operating Budget Performance Review Copyright © 2019 John Wiley & Sons, Inc. Performance Targets Capex Budget THE FUNDAMENTALS OF ORGANIZING Basic Tasks of Organizing: Cooperation and Coordination High productivity requires specialization The efforts of specialized individuals need to be integrated. This creates two problems: The need for cooperation The need for coordination –The Agency Problem: Employees’ goals ≠ Owners’ goals –Managing interdependency Organizational solutions: • • • • Control through hierarchical supervision Performance incentives to align individual and firm goals Shared values to create common purpose Persuasion Organizational solutions: • Rules and directives • Organizational routines • Mutual adjustment ORGANIZATIONAL DESIGN: THE FUNDAMENTALS OF ORGANIZING Emergence of the Modern Corporation Key drivers: 1) Technological and economic developments • Developments in transportation (e.g. railroads) enabled firms to serve wider markets • Developments in communication (e.g. telegraph, telephone) allowed firms to organize across a wider geographical area. 2) Legal developments • The corporation as a legal entity • Limited liability. 3) Organizational innovations • Line and staff structure—the creation of corporate headquarters that administered multiple operating units • The holding company—financial group of companies linked by parentsubsidiary relationships • The multidivisional structure—integrated companies with corporate headquarters responsible for financial and strategic control and divisions operating the individual businesses. Copyright © 2019 John Wiley & Sons, Inc. DEVELOPING ORGANIZATIONAL CAPABILITY Integrating Resources to Create Organizational Capability ORGANIZATIONAL CAPABILITIES Processes Organizational Structure Motivation RESOURCES TANGIBLE INTANGIBLE •Financial •Physical •Technology •Reputation •Culture © 2019 Robert M. Grant, www.contemporarystrategyanalysis.com HUMAN •Skills/know-how •Capacity for communication & collaboration •Motivation DEVELOPING ORGANIZATIONAL CAPABILITY Resources & capabilities in professional soccer ORGANIZATIONAL CAPABILITIES Footballing capability On-field capabilities: Attack, Defence, Set-piece, Off-field capabilities, Scouting, Player appraisal, Team selection, Commercial capability Financial mgt., Sponsor relations, Negotiation, Marketing & distribution Processes Structure Motivation RESOURCES Players, Coaches, Scouts, Medical personnel (doctors, physios), Nutritionists, Psychologists, Executives, Fans Finance, Training facilities, Stadium Brand, Relationships Culture DEVELOPING ORGANIZATIONAL CAPABILITY Reorganizing to Accommodate Capability Development: Booz Allen Hamilton (Worldwide Commercial Business), 1992-1998 FUNCTIONAL PRACTICES Strategy Operations IT Financial services NY Project Teams Tokyo Project Teams I N D U S T R Y London Project Teams [A] 1992: “A colony of artists” Copyright © 2019 John Wiley & Sons, Inc. P R A C T I C E S Energy Telecom Consumer Engineering Chemicals /Pharma NY Tokyo London Project Teams [B] 1998: Organizing for Capability ORGANIZATIONAL DESIGN Hierarchy as Control: Weber’s Principles of Bureaucracy • Rational-legal authority • Specialization of labor • Hierarchical structure • Coordination and control through rules and standard operating procedures • Standardization of employment practices • Separation of positions and people: authority assigned to a position, not a person • Formalization of administrative acts, decisions, and rules Copyright © 2019 John Wiley & Sons, Inc. ORGANIZATIONAL DESIGN Hierarchy as Coordination:  Hierarchy Economizes on Coordination Costs (a) Self Organizing Team: (b) Hierarchy: 10 interactions 4 interactions But what about effectiveness of coordination? –Depends upon the organization’s task Copyright © 2019 John Wiley & Sons, Inc. 6 THE FUNDAMENTALS OF ORGANIZING Hierarchy as Coordination:  Loosely-Coupled Modular Systems Allow Decentralized Adaptation Tightly-coupled, integrated system: Change in any part of the system requires systemwide adaptation Copyright © 2019 John Wiley & Sons, Inc. Loose-coupled, modular hierarchy: partially-autonomous modules linked by standardized interfaces permits decentralized adaptation and innovation ORGANIZATIONAL DESIGN The Hierarchical Structure of Organizational Capabilities: Oil and Gas Exploration Copyright © 2019 John Wiley & Sons, Inc. ORGANIZATIONAL DESIGN Ryanair Holdings plc: Organizational structure Board of Directors CEO (Michael O’Leary) Finance Legal & Regulatory Copyright © 2019 John Wiley & Sons, Inc. Operations Marketing Human Resources Technology ORGANIZATIONAL DESIGN General Electric: Organizational Structure, January 2018 Corporate Executive Office Chairman & CEO Corporate Staff -Business Development -Legal -Commercial & Public Relations -Global Research -Human Resources -Finance GE GE GE Renewable Power Capital Energy GE Digital Copyright © 2019 John Wiley & Sons, Inc. GE Health care GE Aviation Current GE powered Transby GE portation Baker Hughes ORGANIZATIONAL DESIGN Royal Dutch/Shell Group, 1994: A Matrix Structure © 2016 Robert M. Grant, www.contemporarystrategyanalysis.com ORGANIZATIONAL DESIGN Mechanistic versus organic organizational forms Feature Mechanistic forms Organic forms Task definition Rigid and highly specialized Rules and directives vertically imposed Flexible and broadly defined Mutual adjustment, common culture Communication Vertical Vertical and horizontal Knowledge Centralized Dispersed Commitment and loyalty To immediate superior To the organization and its goals Environmental context Stable with low Dynamic with significant technological uncertainty technological uncertainty and ambiguity Coordination and control Copyright © 2019 John Wiley & Sons, Inc. ORGANIZATIONAL DESIGN Recent Trends in Organizational Design • Limited evidence of a “revolution in organizational design”—basic features of organizations (e.g. hierarchy, financial control mechanisms, strategic planning) are still present Major trends of past two decades: • Delayering—organizational hierarchies becoming flatter • Adhocracy and team-based organization—emphasis shared values, high participation, flexible roles and communication, lack of authority • Project-based organizations—dynamic structures with timelimited project teams • Network structures—organizations and groups of organizations where coordination based upon informal social linkages Copyright © 2019 John Wiley & Sons, Inc.