POKHARA UNIVERSITY

1. Chapter-V
INSTITUTIONALIZING
STRATEGY
1

2. What a Difference a Century Can Make
(Contrasting Views of the Corporation)
2
Characteristic 20th Century 21st Century
Organization
Focus
Style
Source of Strength
Structure
Resources
Operations
Products
Reach
Financials
The Pyramid
Internal
Structured
Stability
Self-sufficiency
Atoms – physical assets
Vertical integration
Mass production
Domestic
Quarterly
The Web or Network
External
Flexible
Change
Interdependencies
Bits – information
Virtual integration
Mass customization
Global
Real-time

3. What a Difference a Century Can Make
(contd...)
3
Characteristic 20th Century 21st Century
Inventories
Strategy
Leadership
Workers
Job Expectations
Motivation
Improvements
Quality
Months
Top-down
Dogmatic
Employees
Security
To compete
Incremental
Affordable best
Hours
Bottom-up
Inspirational
Employees/ free agents
Personal growth
To build
Revolutionary
No compromise

4. Structuring an effective organization
Management issue
• Matching structure with strategy
• Change in strategy=changes in structure
• Structure dictates how objectives and policies
will be established
• Structure dictates how resources will be
allocated.
4

5. Chandler’s Strategy-Structure
Relationship
5
New Strategy
Formulated
New administrative
problems arise
Organizational
performance declines
New Organizational
structure is established
Organizational
performance
improves

6. Basic Forms of Structure
• Simple Structure
• Functional Structure
• Divisional Structure
• Strategic Business Unit Structure
• Matrix Structure
6

7. Simple Organizational Structure
A simple organizational structure is one where
there is an owner and, usually, a few
employees and where the arrangement of
tasks, responsibilities, and communication is
highly informal and accomplished through
direct supervision.
7

8. Contd…
Most business around the globe are of this type.
Many survive for a period of time, then go out of
business because of financial, market or owners
conditions. Some grow, having been built on an
idea or capability that taps a great need for what
the company does. As they grow, the need to “get
organized” is increasingly heard among owners and
a growing number of employees in the growing
company. That fortunate circumstance historically
led to the need for a functional organizational
structure.
8

9. Functional Organizational Structure
9
Engineering Production Personnel Finance
and
Accounting
Marketing
CEO

10. Process-Oriented Functional Structure
10
Purchasing Receiving
and
Inventory
Order entry Wholesale
sales
Retail
sales
Accounting
and
billing
Customer
service
CEO

11. Functional Organizational Structure
11
Strategic Advantages
• Achieves efficiency through specialization
• Develops functional expertise
• Differentiates and delegates day-to-day operating
decisions
• Retains centralized control of strategic decisions
• Tightly links structure to strategy by designing key
activities as separate units

12. Contd…
12
Strategic Disadvantages
• Promotes narrow specialization and functional rivalry
or conflict
• Creates difficulties in functional coordination and
inter-functional decision making
• Limits development of general managers
• Has a strong potential for inter-functional conflict –
priority placed on functional areas, not the entire
business

13. Divisional Organizational Structure(Geographic)
13
Corporate Staff
Finance & Accounting
Personnel
Marketing, etc.
General Manager,
Western District
General Manager,
Southern District
District Staff
Personnel
Accounting and
Control
Engineering Production Marketing
General Manager,
Central District
General Manager,
Northern District
General Manager,
Eastern District
Chief Executive

14. Divisional Structure
• Second most common type of structure
• Can be organized by:
- Geographic area
- Product or service
- Customer
- Process
14

15. Divisional Structure
• Advantages
- Clear accountability
- Higher employee morale
- Creates career development opportunities
- Allows local control of situation
- Leads to competitive climate within an
organization
- Allows new products and businesses to be
added quickly
15

16. Divisional Structure
• Disadvantages
- Can be costly to set up
- Each division requires functional specialists
- Duplication of staff service, facilities, and personnel
- Manager must be well qualified
- Requires an elaborated, headquarters-driven control
system
- Competition between divisions may become so
intense that it is dysfunctional
16

17. Appropriateness of Divisional
Structure
• Geographic area: Organizations whose
strategies need to be modified to fit the needs
and characteristics of customers in different
geographic areas.
• Product or service: When specific products or
services need special emphasis
• Process: When each process (division) is
responsible for generating revenue and profit
17

18. Strategic Business Unit Structure
18
Manager
Prod/Operation
Manager
Marketing/Sales
Manager, HR
Manager, Acctg/
Finance
Manager, R&D
Personnel
Acctg/Control
Division Planning
Marketing
Prod/Operation
Marketing
Prod/Operation
Personnel
Acctg/Control
Division Planning
Chief Executive Officer
GM
SBU A
GM
SBU B
GM
SBU C
VP-Admn Services VP-Operating Support

19. The SBU Structure
Advantages
- In multidivisional organizations, an SBU structure
can greatly facilitate strategy implementation
efforts
- Advantage of improved coordination and
accountability
Disadvantages
- Requires an additional layer of management
- Role of group vice-president is often ambiguous
19

20. Matrix Structure
20
Engineering
Staff
Engineering
Staff
Engineering
Staff
Production
Staff
Production
Staff
Production
Staff
Purchasing
Agent
Purchasing
Agent
Purchasing
Agent
Administration
Coordinator
Administration
Coordinator
Administration
Coordinator
Chief Executive
Officer
Vice President,
Engineering
Vice President,
Production
Vice President,
Purchasing
Vice President,
Administration
Project
Manager
A
Project
Manager B
Project
Manager
C

21. Matrix Organizational Structure
21
Strategic Advantages
• Accommodates a wide variety of project-oriented
business activity
• Provides good training grounds for strategic
managers
• Maximizes efficient use of functional managers
• Fosters creativity and multiple sources of diversity
• Gives middle management broader exposure to
strategic issues

22. Contd…
22
Strategic Disadvantages
• May result in confusion and contradictory policies
• Necessitates tremendous horizontal and vertical
coordination
• Can proliferate excess reporting
• Can trigger territory battles and loss of accountability

23. Organizational Leadership
23
Effective Strategic
Leadership
Determining Strategic
Direction
Establishing Balanced
Organizational Control
Sustaining an Effective
Organizational Culture
Emphasizing
Ethical Practices
Effectively Managing the
firm’s Resource Portfolio

24. Implementing a Newly Chosen Strategy
Requires Adept Leadership
24
• Implementing a new strategy takes
adept leadership to
– Convincingly communicate reasons
for the new strategy
– Overcome pockets of doubt
– Build consensus and enthusiasm
– Secure commitment of concerned parties
– Get all implementation pieces in place and
coordinated

25. What is Organizational Culture?
25
The set of important assumptions (often
unstated) that members of an organization
share in common.

26. Managing the Strategy-Culture
Relationship
26
Link changes to
basic mission
and
fundamental
organizational
norms
Reformulate
strategy or
prepare carefully
for long-term,
difficult cultural
change
Synergistic –
focus on
reinforcing
culture
Manage around
the culture
1 4
2 3
High Low
Many
Few
Potential compatibility of changes
with existing culture
Changes in
key
organizati
onal
factors
that are
necessary
to
implement
the new
strategy

27. Management Issues
• Elements linking culture to strategy:
-Formal statements of philosophy and view used for
recruitment , selection, socialization…
-Designing of physical spaces, frontages, building
-Deliberate role modeling, teaching and supporting
-Explicit reward and status system, promotion criteria
- Stories, legends, myths about key people and event
27

28. Management Issues
• Elements linking culture to strategy:
-What leaders pay attention to, measure and control
-Leaders reaction to critical incidents and crises
-How the organization is designed and structured
-Organization system and procedure
-Criteria used for recruitment, selection, promotion,
retirement
28

29. Matching Organizational Structure to Strategy
• Few hard and fast rules for organizing
– The One Big Rule: The role and purpose of
the organizational structure is to support
and facilitate good strategy execution!
• Each firm’s structure is idiosyncratic, reflecting
– Prior arrangements and internal politics
– Executive judgments and preferences about
how to arrange reporting relationships
– How best to integrate and coordinate work
effort of different work groups and
departments
29

30. Structuring the Organization to Promote Successful
Strategy Execution
30
AN ORGANIZATIONAL
STRUCTURE
MATCHED TO THE
REQUIREMENTS OF
SUCCESSFUL
STRATEGY
EXECUTION
Identify strategy - critical value
chain activities
Decide value chain activities to perform internally
and those to outsource
Make internally-performed strategy- critical
value chain activities, the main building blocks in
the structure
Decide how much authority to centralize at the top
and how much to delegate to managers and
employees
Provide cross-unit coordination and collaboration
to build/strengthen internal competencies and
capabilities
Provide the necessary collaboration and
coordination with outsiders

31. BUILDING A CAPABLE
ORGANIZATION—WHAT IS
INVOLVED?
31

32. The Components of Building a Capable Organization
32
Staffing the Organization
•Putting together a strong management team
•Recruiting and retaining talented employees
AN ORGANIZATION
CAPABLE OF GOOD
STRATEGY
EXECUTIONBuilding Core Competencies and
Competitive Capabilities
•Developing a competence/capability portfolio suited
to current strategy
•Updating and reshaping the portfolio as external
conditions and strategy change
Structuring the Organization and the
Work Effort

33. Strategically-Relevant
Core or Distinctive Competencies
33
• Greater proficiency in product development
• Better manufacturing know-how
• Capability to provide better after-sale service
• Faster response to changing customer needs
• Superior cost-cutting skills
• Capacity to speed new products to market
• Superior inventory management systems
• Better marketing and merchandising skills
• Specialized depth in unique technologies
• Greater effectiveness in promoting union/management
cooperation

34. Power of Unique
Competencies and Capabilities
34
When it is difficult to outstrategize rivals
with a superior strategy . . .
. . . Best avenue to industry
leadership is to out-compete rivals
with superior strategy execution!
Building competencies and capabilities rivals can’t
match is one of the best ways to out-compete
them!

35. Strategic Management Principle
35
Building core competencies, resource
strengths, and organizational capabilities
is a sound foundation for sustainable
competitive advantage !

36. Example: Honda’s Core Competency
36
Expertise in gasoline engine technology
and small engine design

37. Process of Building
Organizational Capabilities
37
1. Develop ability to do something
– Select people with relevant skills/experience
– Upgrade individual abilities as needed
– Mold work of employees into cooperative effort
2. As experience builds, ability can
translate into a competence and/or capability
3. Capability becomes a distinctive
competence, resulting in a
potential competitive advantage

38. Managing Internal Organization
Management Issues
• Annual Objectives
• Policies
• Resources
• Organizational Structure
• Restructuring
• Reward/Incentive
38

39. Restructuring
Restructuring can be:
• Downsizing
• Rightsizing
• Delayering
Reducing the size
• Of the firm
• Of the employees
• Of the divisions and/or units
• Of the hierarchical levels
39

40. Reengineering
• Reconfiguring or redesigning work, jobs, and
process to improve cost, quality, service or
speed
• Process management
• Process innovation
• Process redesign
40

41. INSTALL SUPPORT
SYSTEMS
41

42. Installing Support Systems
• Essential to promote successful strategy execution
• Types of support systems
– On-line data systems
– Internet and company intranets
– Electronic mail
– E-commerce systems
• Mobilizing information and creating systems to use
knowledge effectively can yield
– Competitive advantage
42

43. Examples: Support Systems
Airlines
Computerized reservation system
Federal Express
Computerized parcel-tracking system, leading-edge
flight operations systems, and e-business tools

44. Examples: Support Systems
Otis Elevator
Sophisticated maintenance support system
Arthur Andersen
Internet and digital technology (Knowledge Xchange
system has data, voice, and video capabilities) links
more than 70,000 people in 382 offices in 81 countries

45. Examples: Support Systems
Domino’s Pizza
Computerized systems at each outlet facilitate
ordering, inventory, payroll, cash flow, and work
flow functions
Mrs. Fields’ Cookies
System to monitor sales, at 15-minute intervals, to
suggest product mix changes and to improve
customer response

46. Strategic Management Principle
Innovative, state-of-the-art
support systems can be a basis
for competitive advantage if
they give a firm capabilities
that rivals can’t match!
46

47. Formal Reporting of
Strategy-Critical Information
• Accurate, timely information is essential to guide
action
• Prompt feedback on implementation activities is
needed before actions are fully completed
• Key strategic performance indicators must be
tracked as often as practical
• Barometers of overall performance
– Statistical information
– Reports and meetings
– Personal contact
47

48. What Areas Should
Information Systems Address?
• Customer data
• Operations data
• Employee data
• Supplier/partner/collaborative ally data
• Financial performance data
48

49. DESIGN STRATEGY-SUPPORTIVE
REWARD SYSTEMS
49

50. Gaining Commitment: Components
of an Effective Reward System
Monetary Incentives
– Salary raises
– Performance bonuses
– Stock options
– Retirement packages
– Promotions
– Bonuses
Non-monetary Incentives
– Praise
– Constructive criticism
– Special recognition
– Job security
– Interesting assignments
– More, or less, job
responsibility
50

51. Approaches: Motivating People
to Execute the Strategy Well
• Inspire employees to do their best
• Get employees to buy into strategy
• Structure individual efforts in teams
to facilitate a supportive climate
• Allow employees to participate in decisions
about their jobs
• Make jobs interesting and satisfying
• Devise strategy-supportive motivational
approaches
51

52. Examples: Motivational Practices
No Lay-Off Policies
Japanese automobile producers, along with several U.S.
based companies (Southwest Airlines, FedEx, Lands’ End,
and Harley Davidson) have no lay-off policies, using
employment security both as a positive motivator and a
means of reinforcing good strategy execution.

53. Examples: Motivational Practices
Stock Options
More than 35 of the 58 publicly held companies on the
1999 list of the 100 Best Companies to Work for/ in
America (includes Cisco Systems, Procter & Gamble, Merck,
Charles Schwab, General Mills, Amgen, and Tellabs) provide
stock options to all employees. Having employee-owners
sharing in a company’s success is widely viewed as a
positive motivator.

54. Examples: Motivational Practices
Cisco Systems
Offers on-the-spot bonuses of up to $2,000 for
exceptional performance.
Nordstrom
Pay salespeople higher than prevailing rates, plus
commission. “Rule #1: Use good judgment in all
situations. There will be no additional rules.”

55. Examples: Motivational Practices
Lincoln Electric
Rewards productivity by paying for each piece produced.
Bonuses of 50 to 100% are common.
Microsoft
Team members enjoy working 60-80 hours
per week for a leading edge company,
accompanied by attractive pay and
lucrative stock options.

56. Balancing Positive vs. Negative Rewards
• Elements of both are necessary
– Challenge and competition are necessary for
self-satisfaction
• Prevailing view
– Positive approaches work
better than negative ones
in terms of
• Enthusiasm
• Effort
• Creativity
• Initiative
56

57. Linking the Reward System
to Performance Outcomes
• Rewards are the single most powerful tool to win
commitment to the strategy
• Objectives
– Generously reward those achieving
objectives
– Deny rewards to those who don’t
perform well
– Make strategic performance measures
the dominant basis for designing
incentives, evaluating efforts, and handing out
rewards
57

58. Strategic Management Principle
A properly designed reward structure is
management’s most powerful tool for
mobilizing organizational commitment
to successful strategy execution!
58

59. Strategic Management Principle
The unwavering standard
for judging whether individuals, teams, and
organizational units have done a good job must be
whether
they achieve performance targets consistent with
effective strategy execution!
59

60. Key Considerations in
Designing Reward Systems
• Create a results-oriented system
• Reward people for results, not for activity
• Define jobs in terms of what to achieve
• Incorporate several performance measures
• Tie incentive compensation to relevant
outcomes
– Top executives—Key
measures of overall firm performance
– Department heads, teams, and individuals
Incentives tied to achieving performance targets in
their areas of responsibility
60

61. Guidelines for Designing an
Effective Compensation System
1. Payoff must be a major, not
minor, piece of total
compensation package
2. Incentive plan should extend
to all employees
3. Administer system with
scrupulous fairness
4. Link incentives to achieving
only the performance
targets in strategic plan
5. Targets- each person is
expected to achieve must
involve outcomes that can
be personally affected
6. Keep time between
performance review and
payment short
7. Make liberal use of non-
monetary rewards
8. Avoid ways of rewarding
non-performers
61

62. Thank
You
62