Embed Size (px)
Citation preview
BUSINESS STRATEGY-2
By Prof K K Jain
Business Strategy II
Objective
The objective of this course is to familiarize students with contemporary thought and practice in strategy implementation as well as other advanced issues in Business Strategy.
Objective contd.
Implementing strategy is one of the major tasks and challenges faced by a general manager/chief executive.
The objective of this course is to provide a framework for
addressing the problems of implementing strategy based on the assumption that strategy has already been determined and is not subject to sudden change.
In practice, of course, strategies are constantly changing and adapting to new circumstances.
Objective contd
• The Framework for strategy implementation:
(1) Define the key implementation tasks: - creating “Fits” (Two types: {i}. fits between strategy and functional policies and {ii}. between the strategy and the organization structure, processes, and systems).
(2) Review the variety of approaches mangers can apply to these tasks, and
(3) Identify the key skills - analytic, administrative, and leadership skills.“Failure of many an organization lies in shortcomings in strategy implementation and success therefore lies in learning the nuances of effective implementation.”
Reference Books REFERENCE BOOKS Author - Publication
Exploring Corporate Strategy – Text and Cases
Keven Scholes & Jerry Johnson – Pearson – VII ed
Introduction to Business Strategy IUP
Crafting and Executing Strategy – the Quest for Competitive Advantage – Concepts & Cases, 14th edition
Thompson et al. Tata McGraw Hill - 2006
Competing for the Future Prahalad, CK/Hamel, Gary. Free Press-1996
Mergers, Restructuring and Corporate Control
Weston, J Fred et al. Prentice Hall, India
International Business Rugman, Alan M / Hodgells, Richard M. McGraw Hill
The International Business Environment: Text & Cases
Sundaram, Anant K / Balck, Stewart. Prentice Hall, India
Managing Across Borders – The Transnational Solution
Bartlett, Christopher / Ghoshal, Sumantra . HBS Press
Syllabus
• Implementation of Strategy : Organizing for success – structural types – simple structure, functional structure, multidivisional structure, holding company structure, Matrix structure, team based structure, project structure, intermediate structure.
• Process – direct supervision, planning and control systems, performance targets, market mechanism, social cultural processes. Relationships and boundaries – centralization vs. decentralization – boundaries – networks.
• McKinsey 7s framework – reengineering, reverse engineering, quality as a strategy.
• Internal development : - Mergers and acquisitions – joint developments and strategic alliances, Success criteria – suitability, acceptability, feasibility.
• Corporate Restructuring & Turnaround management : Why restructuring, Forms of Corporate restructuring – Business, Financial and organization Restructuring Outcomes, Numerator and Denominator Management as expressed by Hamel and Prahalad.
Syllabus
• Turn Around Management Strategies : • Managing Strategic Change :• Diagnosing the change situation – types of strategic change – importance
of context – organizational culture as context – forcefield analysis. • Change management – styles and roles – styles of managing change –
role in managing change. • Levers for managing strategic change – structure and control systems –
organizational routines – symbolic processes – power and political processes – communicating change – change tactics.
• Competing for future : Alternative views of competitive strategy – Beyond reengineering and restructuring and restructuring views of Goshal – Sweet & Sour – Present and Future Competition – Strategy as stretch and leverage – Concept of Strategic Intent – Views of Hamel and Prahalad Vs. Tarun Khanna & Krishna Palepu.
Syllabus
• Contemporary Concepts: Balanced Scorecard; Managing Global Strategy; Blue Ocean strategy; CSR as a strategy; Business Model Innovation; Competitive Innovation; Scenario Planning; Value Capture Vs value creation; Strategic Leadership; Quality as the differentiator; Targeting the bottom of the pyramid; Strategy Mapping.
• (These concepts need to be taught through cases/assignments/projects) • Cases • Business Transformation at Telefónica De España • JCPenney’s People Strategy: Setting the Right Climate for Human
Resource Development • Coral Divers Resort (Revised) • The Hutchison Essar Acquisition: Vodafone’s Foray into an Emerging
Market
Cases
• Volkswagen’s Acquisition of Skoda Auto: A Central European Success Story
• The Betapharm Acquisition: DRL’s Inorganic Growth Strategy in Europe • BenQ Corp.’s Failed Acquisition of Siemens’ Mobile Devices Division • Tata Motors and Fiat Auto: Joining Forces • eBay’s Problems in China • Corporate Turnaround of Pharmacia & Upjohn • Alan Mulally’s Challenges at Ford Motor Company • SC Johnson’s CSR Initiatives: Testing the ‘Base of the Pyramid’ Protocol • Innovation at Whirlpool: Creating a New Competency • Strategic Planning at United Parcel
Cases
• Tesco’s ‘Steering Wheel’: A Tool for Strategic Value Creation and Business Transformation
• Priceline’s Pricing Strategy: Name Your Own Price (NYOP) & Beyond • Restructuring Pantaloon Retail: The ‘Future Group’ Initiative • The Body Shop: Social Responsibility or Sustained Greenwashing? • Innovation at Cirque du Soleil • MTV Networks International: Localizing Globally • Source: Case Studies in Business Strategy Vol-VII
Schedule of SessionsTopic No of Sessions
Implementation of Strategy 5 (4)
Internal Development 4 (4)
Corporate Restructuring & Turnaround Management 5 (4)
Managing Strategic Change 3 (2)
Competing for the Future 3 (2)
Cases/alternative methods 13 (12)
Total sessions 33 (28)
Model For Elements Of Strategic Management
THE ENVIRON
MENT
THE STRATEGIC CAPABILITY
EXPECTATIONS AND PURPOSE
THE STRATEGIC POSITION
STRATEGIC CHOICES
STRATEGY INTO ACTION
BUSINESS LEVEL
STRATEGY
CORPORATE LEVEL &
INTERNATIONAL
DEVELOPMENT DiRECTIONS &
METHODS
ORGANISING
ENABLING
MANAGING CHANGE
The strategic position
• Understanding the strategic position is concerned with impact on strategy of the external environment, internal resources and competences, and the expectations and influence of stakeholders
Strategic choices
• “Strategic choices” include the underlying bases of choices at both the corporate and business levels and the directions and methods of development.
Translating strategy into Action
• “Translating strategy into action” is concerned with issues of structuring, resourcing to enable future strategies and managing change.
Components of Strategic Management Process
The five components of strategic management process are:1. Selection of Corporate mission & major corporate goals2. Analysis of the organization’s external competitive
environment to identify opportunities and threats3. Analysis of the organization’s internal operating
environment to identify its strengths and weaknesses4. Selection of strategies that build on the organization’s
strengths and correct its weaknesses ,to meet ext.envirn.5. Strategy implementation
Strategy Implementation/Execution
• Strategy Implementation concerns the managerial exercise of putting a freshly chosen strategy into place.
• Strategy execution deals with the managerial exercise of supervising the ongoing pursuit of strategy, making it work, improving the competence with which it is executed, and showing measurable progress in achieving the targeted result
Strategy Implementation/Execution
• Strategy execution is fundamentally an action-oriented. Make-it-happen process – the key tasks are developing competencies and capabilities , budgeting, policy making, motivating, culture-building, and leadership.
Components of Strategic Management Process
The five components of strategic management process are:
1. Selection of Corporate mission & major corporate goals2. Analysis of the organization’s external competitive
environment to identify opportunities and threats3. Analysis of the organization’s internal operating
environment to identify its strengths and weaknesses4. Selection of strategies that build on the organization’s
strengths and correct its weaknesses ,to meet external environment.
5. Strategy implementation.
Strategy Implementation/Execution
• Strategy execution is fundamentally an action-oriented. Make-it-happen process – the key tasks are developing competencies and capabilities , budgeting, policy making, motivating, culture-building, and leadership.
Principle of Unintended Consequences
“Principle of Unintended Consequences” says - : “If a strategic decision is taken with certain intended consequences in
mind, you should not be surprised that just the opposite may happens i.e the un-intended consequences happens.
Un-intended consequence happens because, when a strategic move is
done by the organization, the environment reacts to nullify the change (Le Chatelier’s Principle on Chemical Equilibrium). If all the possible reactions are not envisaged earlier and provided for, these reactions would prevail and the un-intended consequences would happen.”
This is the thin line of difference between success of strategy
implementation and failure.
Organizing for Success
Role of Organization in Strategy
• Most important resource in an organization is its people. Therefore the role they play the processes they use and the interaction they have with others in-side the organization and outside the organization are most important things for implementation of the strategies.
• How the people interact within and outside the organization is largely determined by the organization structure or on how the things are organized in the organization.
• The traditional top down approach of ‘command and control’ does not work where the organization is working in knowledge based industry. Today more and more of the industries are moving to knowledge based operations, and hence the concept of static organization structure becomes less appropriate.
• Harnessing the valuable knowledge that lies throughout the organization requires more than top down formal hierarchies. Informal relationships and processes are vital to generating and sharing the knowledge, which is fundamental to achieving competitive advantage.
The Concept of Organizational Configuration
• In an organization, the formal organization and processes need to get aligned with the informal organization and processes and relationships.
• This leads to the concept of Organizational Configuration. The organizational configuration consists of the structures, processes and relationships through which the organization operates.
• The structure, the processes and the relationships should fit together to meet the challenges of the strategy implementation.
• Thus the study of the organization, the processes and the relationships provide the key inputs for organizing for successful implementation of strategies.
• The concept of fit of these elements can be seen from the diagram shown in the next slide.
Organizational configuration :Structure, Processes & relationships
SSTRUCTURES
RELATIONSHIPS PROCESSES
CONFIGURATION
Functional Structure
Chief Executive
Production Department
Sales & Marketing
Department
Finance & accounts
Department
Personnel Department
Functional StructureAdvantages Disadvantages
Chief Executive is in touch with all operations
Senior Managers overburdened with routine matters
Reduces/simplifies control mechanisms
Senior managers neglect strategic issues
Clear definition of responsibilities Difficult to cope with diversity
Specialist at senior and middle management levels.
Coordination between functions is difficult.Failure to adapt to changing business environment.
Functional Structure at Electrolux Home Products
EHP EUROPE
Purchasing, production &
Product Development
Supply Chain Management
& Logistics
Product businesses,
brand Mgmt & key account
management
Sales Clusters
Multi-division Structure – Product based
Functions Functions Functions Functions Functions
Head Office
Product A
Product B
Product C
Product D
Product E
Central Services
Multi-division Structure - Geographic
Functions Functions Functions Functions Functions
Head Office
Europe -div
North America
South America Africa South
Asia
Central Services
Multi-Division StructureAdvantages Disadvantages
Flexible (add or divest divisions) Additional cost of the centre
Control by performance Duplication at the divisional level
Ownership of strategy Fragmentation and non-cooperation
Specialization of competences
Training in strategic view
Matrix Structure
• A Matrix structure combines different structural dimensions simultaneously. For example product divisions and geographical territories or product divisions and functional specializations.
• Matrix structures have several advantages. They are effective at knowledge management because they allow separate areas of knowledge to be integrated across organizational boundaries.
• Particularly in professional service organizations, matrix organization can be helpful in applying particular knowledge specialization to different markets or geographical segments.
• Matrix organization has been particularly helpful in managing multi-division organizations at branch levels. With this, at each of the branch, multi-division organization would exist.
• Matrix Organization results in dual reporting structure at the branches. The functional reporting to the divisional head at HO and administrative reporting to the location head – Branch Manager.
Example of Matrix Structure
N Zone S Zone W Zone E Zone Prod A Prod B Fin & Accounts Personnel Mgmt Services
Chief Executive
Div Head – Prod A
Div Head Prod B
Head Personnel
Head Fin & Accounts
Head Mgmt Services
Matrix StructureAdvantages Disadvantages
Integrate Knowledge Length of time to take decisions
Flexible Unclear job and task responsibility
Allow dual dimensions Unclear cost and profit responsibilities
Specialization of competences High degree of conflict due to dual reporting
Holding Company Structure
• A holding company is an investment company consisting of shareholding in a variety of separate business operations. These subsidiary businesses may operate independently, have other shareholders and retain their original company names.
• Holding companies are extremely flexible, with ability to bring in outside shareholders as partners and to buy and sell their subsidiaries as conditions change.
• However, the companies are hard to control, because of the hands off management style and the rights of outside shareholders.
• As subsidiaries are autonomous, sharing knowledge and skills is difficult. The subsidiaries may be operating in unrelated areas with no synergy in their operations. Due to these reasons, holding companies have fallen out of favour in western economies.
• However, in many emerging economies like India, Russia and South America, holding companies still play a prominent role.
Major Holding Companies in India
• Bajaj Holding & Investment Ltd• Vardhman holding Ltd• Deccan Chronicle Holding Ltd• United Breweries Holding Ltd• Rane Holding Ltd• Piramal Holding Ltd• Suraj Holding Ltd• Ganesh Holding Ltd• McDowell Holding Ltd• Agarwal Holding Ltd• IVRCL Capital Holding Ltd.• Reliance Holding Ltd
The Transnational Structure
• The transnational structure is a means of managing internationally which is particularly effective in exploiting knowledge across borders. The transnational structure seeks to obtain the best from the two extreme international strategies, the multi-domestic strategy and the global strategy.
• There can be extremes in requirement of local units independence and need for global coordination. The structure evolved would need to assess these needs and evolve the organization accordingly.
• If the need for global coordination is low, local units independence is high, we would need to build local subsidiaries.
• If we have a requirement of high global coordination and high local independence, then transnational structure is called for. The transnational structure attempts to achieve both high local responsiveness and high global coordination.
The Transnational Structure
The transnational structure has following characteristics : • Each national unit operates independently, but is a source of ideas and
capabilities for the whole corporation. For example, in Unilever, the centre for innovation in hair-care products worldwide, is in France.
• National units achieve greater scale economies through specialization on behalf of the whole corporation. Unilever in Europe has replaced its web of small national food manufacturing units with a few specialized larger factories that export its products to other European countries.
• The corporate centre manages this global network by first establishing the role of each business unit, then sustaining the system, relationships and culture, to make the network of business units operate effectively. Unilever has established a system of ‘forum’ bringing managers together internationally to help them swap experience and coordinate their work.
The Transnational Structure
Global co-ordination Low High Low
Local IndependenceAndResponsiveness
High
International Divisions
Global ProductDivisions
Local Subsidiaries
Transnational Corporations
Team Based Structure
• Another way of trying to integrate knowledge in a flexible fashion is using team based structure. A team based structure attempts to combine both horizontal and vertical coordination through structuring people into cross-functional teams – often built around business processes.
• For example, an Information Systems company might have development teams, product teams and application teams who respectively are responsible for : (a) new product development, (b) Service and support of standard products, and (c) Customizing products to particular customers. Each of these teams would comprise of specialists within it – particularly software specialists and customer service specialist and domain specialists.
• Bringing all these specialists together has great benefits for knowledge sharing and knowledge development.
Team based Structure at SAAB
• In the 1990s Saab Training Systems was a high-tech company working in the defense industry. It was a fully owned subsidiary of the Swedish company Saab. In 1997 it had 260 employees and a turnover of 78 Million Euros.
• It sold computer added equipment for military training – like laser-based simulators. The market was characterized by long, complicated and politicized negotiations. The company also needed to drastically cut down on the development and delivery times for the equipment.
• The company had a functional organization (production, development, marketing & purchase). This created problems of coordination and longer lead times for development.
• The company decided to abandon its functional structure in favour of a more flexible team based structure and a more business process oriented way of doing business.
• In the new structure 40 teams were created that reported to the senior management. Each team comprised of 6 to 8 persons only. The teams were built around the business processes.
Team based Structure at SAAB
• There were five business teams who negotiated contracts with customers and monitored contracts. Each team was responsible for one or more products and a particular geographic market. When a contract was signed, it became a project to which other teams were assigned.
• Finally production was assigned to one of 14 product teams, who were also responsible for product development.
• In addition to these front line teams, there were central functions such as personnel and finance.
• Coordination of the various teams involved in a customer’s order was very important since the particular mix of teams assigned to that order was temporary. The team was dissolved as soon as the order was delivered to the customer.
• The product teams were working on more than one project at a time.
Team based Structure at SAAB
• The questions arise before us are :1. Why did the functional structure not suit the company’s strategy? 2. How did the team based structure help? 3. What problems could the team based approach create?
Project based Structure
• For some organizations, teams are built around projects that have a finite life span. A project bases structure is one where teams are created, undertake the work and then dissolve after the project is over.
• This can be particularly appropriate for organizations that deliver large, expensive and durable goods or services (like - civil engineering, information systems etc) or those delivering time-limited events – such as conferences, sporting events (Commonwealth Games).
• The organization structure is a constantly changing collection of project teams crated, steered and glued together loosely by a small corporate group. The requirements of the team are different at different stages of the project.
• The project based structure can be highly flexible, with projects being set up and dissolved as required. Because project teams should have clear tasks to achieve within a defined life, accountability and control are good.
Choosing Structure
• From the discussions we have now an idea of the advantages and disadvantages of each type of structure. This alone would help us in evolving suitable organization for the business we have.
Challenge Functional
Multi-division
Holdingcompany
Matrix Trans-national
Teams Project
Control *** ** * * ** * **
Change * ** *** *** *** ** ***
Knowledge ** * * *** *** *** **
Globalization * ** ** *** *** * **
Choosing Structure
• The Market Advantage Test : This test of fit with market strategy is fundamental. This is in line with Alfred Chandler’s classic principle that says ‘Structure follows strategy’.
• Parenting Advantage Test : The structural design should fit the ‘parenting’ role of the corporate centre. For example – if the corporate centre aims to add value as a synergy manager, then it should design a structure that places important integrative functions, such as Human resources or research at the centre.
• The People Test : The structure design must fit the people available. It is dangerous to switch completely from a functional structure to a multi-divisional structure if, as is likely, the organization lacks managers with competence in running decentralized business units.
• The Feasibility Test : This is a catch all category, indicating that the structure must fit legal, stakeholder, trade union or similar constraints.
Choosing Structure
Goold and Campbell proposed five tests based on good general design principles. These tests are as below:
• The specialized Culture Test : This test reflects the value of bringing together specialists so that they can develop their expertise in close collaboration with each other.
• The difficult links Test : This test asks whether a proposed structure will set up links between parts of the organization that are important, but likely to be stained.
• The Redundant Hierarchy Test : Any structure designed should be checked in case it has too many layers of management, causing undue blockages and expenses.
• The accountability Test : This test stresses the importance of clear lines of accountability, ensuring the control and commitment of managers.
• The Flexibility Test : In a fast moving world, an important test is the extent to which a design will allow for change in future.
Processes
• Structure is a key ingredient of organizing for success. But within any structure what makes an organization work are the formal and informal organizational processes.
• These processes can be thought of as controls on the organization’s operations. Thus the processes can help or hinder the translation of strategy into actions.
• Control processes can be sub-divided in two ways. First they have to emphasize either control over inputs or control over outputs.
• Input control processes concern with resources consumed in the strategy, especially financial resources and human commitment.
• Output control processes focus on ensuring satisfactory results like meeting of financial targets like turnover, profits, market share etc.
WHAT IS A BUSINESS PROCESS
• A business process is a well defined sequence of rationally linked activities performed to meet definite organizational objectives. Every process has recognizable beginning and end points, interfaces, and organizational units.
• Organizations have well defined business processes. These can be manual or computerized processes. ISO 9001 certification also calls for complete documentation of the processes used.
• Developing a new product, ordering goods from a supplier, creating a marketing plan, insurance claim processing etc are examples of different kinds of processes.
• Having well defined processes implemented makes the process performance less dependent on people.
Types of control processes
INPUTS OUTPUTS
DIRECT
INDIRECT
1. Direct supervision 2. Planning processes
5. Performance targeting
3. Self Control 4. Cultural processes 6. Internal Markets
Major Control Processes
• There are six major control processes happening in an organization. These are:
1. Direct supervision2. Planning processes3. Self Control and personal motivation4. Cultural Processes5. Performance targeting processes6. Market Processes
Direct Supervision
• Direct supervision is the direct control of strategic decisions by one or few individuals. It is a dormant process in small organizations. It is focused on monitoring the effort put into the business by employees.
• This is often found in family run businesses. Direct supervision requires that the controllers thoroughly understand what is entailed by the jobs they supervise.
• Direct supervision is easiest implemented on a single site. Although, application of IT based systems now enable bridge the distance gap and makes it possible to implement close control on remote basis as well. (BLA Example).
• Direct supervision can also be effective during a crisis period. It brings out the natural leaders to lead at times of the crisis. (LMW case)
Planning Processes
• Planning processes are administrative controls where the successful implementation of strategies is achieved through processes that plan and control the allocation of resources and monitor their utilization.
• The focus is on inputs - particularly for financial inputs. The plan is generally reflected in the budget. These budgets would specify to whom and how much financial allocation is given and for achieving what results.
• These budgets can be monitored continuously. • The detailed way in which planning can support strategy varies. However
these details can be summarized as below: • Planning can be achieved by standardization of work (such as product or
service features). Some times these processes are subjected to rigorous audit by agencies like ISO 9000. IT (Information Technology) is also enabler of standardization of processing.
Planning Processes
• Enterprise Resource Planning (ERP) Systems supplied by specialists such as SAP or Oracle use sophisticated IT systems to achieve planning type control. SAP has as many as 800 best in class business processes embedded in it.
• Today, most of these ERP systems also make available systems for supply chain management (SCM) and Customer Relationship Management, thus extending the use of ERP beyond the organizational boundaries to its business partners. Similarly E-Commerce is also available as part of the ERP systems, which enable automatic ordering if the inventory levels fall below pre-specified levels.
• SNR Roulements – France, provides all its major clients access to its materials system which would indicate to them what bearings are available in stock. For bearing not in stock, at what stage their order is in progress and by when their order is planned to be delivered, can be queried by the dealers.
ERP at Bharat Petroleum
• Bharat Petroleum is India’s top three petroleum refining and distribution companies. It has 4854 gas stations and 1000 kerosene dealers.
• To integrate its complex operations, it decided to go for implementation of SAP.
• The aim of implementing SAP was mainly to gain control over the company’s operation through improved information in areas like inventories, product dispatches and customer service.
• The SAP implementation was not taken as an IT project. The implementation was headed by chief of personnel and out of 60 persons in the project team, only 10 were from IT function. SAP was taken as a business project rather than as IT project.
• Implementation of SAP was not merely automation of business processes. Its main purpose was de-layering and restructuring of the company around 6 new strategic business units. The project was named as ENTRANS (Enterprise Transformation).
ERP at Bharat Petroleum
• The implementation was scheduled over 24 months. The pilot was first implemented in Mumbai and subsequently it was spread over the entire organization.
• Most of the senior managers at BPL felt that ERP’s formalization of the processes contributed greatly to the discipline amongst the staff.
• In the year after the implementation, BPL achieved 24% sales growth. • SAP itself rated Bharat Petroleum as in top quartile of SAP - ERP
implementations. • Questions • What is the significance of ERP implementation not being headed by IT?• What possible dangers might be there in embedding of detailed business
processes in an ERP system?• What should BPL do with the large team of SAP specialized personnel after
SAP project is complete?
Self Control & Personal Motivation
• With rapid change, increasing complexity and the need to exploit knowledge, employee motivation is increasingly important to performance.
• Promoting self-control and personal motivation can be an effective means of control, influencing the quality of employee input without direct intervention.
• This is what we call as theory ‘y’ of management, which assumes that, every one is always trying to give his best to the organization. It is the job of management to create a conducive environment for employees to deliver their best.
• Managers also need to provide leadership style that promotes employee motivation. Managers need to create an environment of trust, credibility and transparency.
Cultural Processes
• Cultural processes are concerned with organizational culture and the standardization of norms.
• Culture is indirect, internalized as employees become part of the culture. Control is exerted on the input of employees, as the culture defines norms of appropriate effort and initiative.
• Cultural processes are particularly important in organizations facing complex and dynamic environments.
• Collaborative cultures can foster ‘communities of practice’, in which expert practitioners inside or even outside the organization share their knowledge to generate innovative solutions to the problems. Industry associations generally provide effective platform for such interaction.
• In Xerox Corpn, engineers would exchange information about problems and solutions over the informal breakfast meetings.
• Deeply ingrained cultural ethos can also result in resistance to change.
Cultural Processes – Networking in Silicon Alley
• With the internet boom in 1990s, New York developed a rival industrial district to West Coast Silicon Valley, and was named as Silicon Alley.
• Silicon Alley emerged along a stretch of Broadway running from Flatiron District thru Greenwich Village and into SoHo. These areas were full of young creative people attracted by New York University.
• During the 1990s, these creative people began to experiment with new media technologies such as CD ROMs, electronic bulletin board and Worldwide Web.
• The electronic bulletin board became a virtual community of 3500 members. The organized get-togethers in local bars . The New York Media Association grew to 8000 members bringing together entrepreneurs, consultants, venture capitalists, musicians, graphic artists and lawyers.
• At the height of internet boom, Silicon Alley had 4000 firms and 138000 workers. But when the dotcom bust came, many of the businesses failed resulting in pink slips to many. Consulting company Thehiredguns.com launched ‘pink slip parties’, during this period.
Performance Targeting Processes
• Performance targets focus on the outputs of an organization (such as product quality, revenues or profits). These targets are often known as ‘Key Performance Indicators’ (KPIs).
• The performance of an organization is judged, either internally or externally, on its ability to meet these targets.
• Many managers find it difficult to develop a useful set of targets. One reasons for this is that, any particular set of indicator is likely to give only a partial view of the over all picture.
• Recently, ‘balanced scorecards’ have been used as a way of widening the scope of performance indicators.
• Balanced Scorecards combine both qualitative and quantitative measures, acknowledge the expectations of different stakeholders and relate an assessment of performance to choice of strategy.
The Balanced Scorecard : an Example
Financial perspective----------------------------------------------------- CSF MEASURES----------------------------------------------------- Survival Cash Flow
Customer perspective--------------------------------------------------
CSF MEASURES --------------------------------------------------- Customer Service Delivery time (Standard Products) Maintenance response time
Internal perspective----------------------------------------------------- CSF MEASURES------------------------------------------------------IT systems Performance Development per dollar spent• Features vs. competition• Cost
Innovation and learning perspective-------------------------------------------------
CSF MEASURES --------------------------------------------------- Service Speed to market leadership (new standards) Speed of imitation (Robustness)
Market Processes
• Market processes are dominant way in which organizations relate to their external suppliers, distributors and competitors in capitalist economies. Similarly internal markets manage the process of interaction between the employees.
• It is not surprising that managers (and even politicians) have attempted to use internal markets to control their own organizations. Market processes involve some formalized system of contracting for resources or inputs from other parts of an organization and for supplying output to other parts of an organization.
• Internal markets can be used in a variety of ways. There might be competitive bidding, perhaps through the creation of an internal investment bank at the corporate centre for top sliced resources.
• In Japanese management, it is understood that in an organization, every person is a customer to some one and is also a seller of his services to some one else. It is fundamentally a new way of looking at the organization and its processes.
Internal Market Processes
• Internal markets work well where complexity or rapid change make detailed direct or input controls impractical.
• However, this can create problems also. • First problem is that it can increase bargaining between units,
consuming important management time.• Second problem is that it can create new bureaucracy monitoring all the
internal transfer of resources. • The third problem is that, an overzealous use of market mechanisms can
lead to dysfunctional competition and destroy cultures of collaboration and relationships.
• These have been the major complaints against the over use of internal market mechanisms.
• For smooth implementation of strategies, a control over these internal market mechanism is necessary.
Relationships
• A key aspect of organization’s configuration is the ability to integrate the knowledge and activities of different parts of an organization – both horizontally and vertically, and also with other organizations (particularly with the partners in the value chain).
• The basic issue in both internal and external relationships is how these relationships are built and maintained, and whether the processes which help make the relationships are fluid enough to respond to uncertain environment. The issues for this are:– Relating internally, especially with regards to where the
responsibility and authority for operational and strategic decisions should be vested in the organization.
– Relating externally, for example through outsourcing, alliances, networks and virtuality.
Relating Internally and externally
Relationships
Internal External
Centre Strategy Outsourcing Alliances Virtuality Network
Relating Internally – Centralization vs decentralization
• One of the important and continual debate going on is concerned with extent to which the devolution of decision making between the centre and the business units.
• People who advocate close control by the centre talk of maximum amount of centralization of decision making.
• While people who advocate high amount of delegation of responsibility and powers to the business units talk of decentralization. They talk of maximum extent of devolution of decision making process.
• However the desirable extent of centralization/devolution would depend upon type of business. In fast moving markets, it is often better to place decision making authority close to the action rather than force decisions up thru the hierarchies. (HLL & Voltas examples)
Relating Externally
• Relating externally requires getting performance from the organizations outside the company. These may be outsourced companies, su
• Outsourcing : Outsourcing profusely impacts the organization. Due to high costs in the western world, new businesses like ITES, BPO, KPO contract research, Clinical trials on contract basis have evolved.
• Two important principles have been established when searching for candidates for outsourcing:– First is that an outside supplier can provide better value for money than in-
house provision.– Second is that core competences should not normally be outsourced since
these activities critically underpin competitive advantage. • Outsourcing requires managers to be much more competent at
maintaining performance through relationship management rather as compared to by management control systems within the organization.
Relating Externally
• Alliances :• Alliances is another way of relating for providing better services to
customers. Alliances can be with specialized knowledge companies, or it can be with the companies offering related products for better customer satisfaction.
• Alliance is a more stable arrangement as compared to outsourcing which is by and large a contractual arrangement.
• Maruti has entered into alliances with SBI finance and Bajaj Insurance for car finance and insurance respectively. This helps them provide all the services under one roof to the customer. These strategic alliances help Maruti to offer better customer satisfaction to its customers and improves its competitive strength.
Relating Externally
Networks :• Outsourcing, alliances and virtuality are particular cases of general trend
to rely on network relationships outside the organizational boundaries. Taken together, they mean that more organizations have become dependent on internal and external networks to ensure success.
• Today IT technology permits collaborative working between the people located across different geographic locations and people across nations.
• This has opened up new vistas of collaborative working. Airbus 380 development and production are live examples before us of such networked working.
Mintzberg’s six Organizational Configurations
Situational Factors Design Parameters
Configuration Environment Internal Typical structure
Key Processes Typical relationships
Simple Simple/dynamic Hostile
Small Young Simple tasks
CEO Control
Direct Supervision Centralized
Machine Bureaucracy
Simple/static Old, LargeRegulated tasks,Technical controls
Functional
Planning Systems Centralized Strategic Planning
Professional Bureaucracy
Complex/static Simple systemsProfessional Control
Functional
Cultural Processes, Self Control
Developed
Divisionalised
Simple/staticDiversity
Old, Very LargeDivisible tasks,Middle-line controls, often young
Multi-divisional
Performance targetsMarkets
DevelopedFinancial or Strategic controls
Adhocracy Complex/ Dynamic
Complex tasksExpert controls
Project Cultural processes self control
Devolved networks and alliances
Missionary Simple/static Middle-aged,Simple systems
Teams Cultural processes Networks
Some Dilemmas of Organizing for Success
Hierarchies versus networks
Holistic solutions and best practice on each element
Vertical accountability
versus horizontal integration Dilemmas in
organizing for success
Centralizing and devolving
Empowering versus holding the ring
(tight-loose)
Does Structure Follow Strategy
• Alfred Chandler, Professor of Business History at Harvard Business School, proposes one of the fundamental rules of strategy management : “Unless structure follows strategy; inefficiency results”.
• This logical sequence fits the ‘design lens’ for strategy, but it assumes that structure is very much sub-ordinate to strategy : structures can easily be fixed once the big strategic decisions are made. But some authors warn that this dangerously underestimates structure’s role. Some times strategy needs to follow the structure.
• Chandler’s rule is based on the historical experience of companies like General Motors, Exxon and DuPont.
• DuPont was originally was an explosive company. During the first world war, however, the company anticipated peaceful times and deliberately diversified into new civil markets like plastics, paints etc.
• Yet all the end of ware plunged DuPont into crisis. All the new businesses were loss making; only explosives made profits.
Strategic Planning
CENTRE (Master Planner)
BUSINESS UNITS
Detailed Budget Employment
Imposed services and
infrastructure
Bargaining (item by item)Capital
allocation
Procedures and rule
books
Financial Control
CENTRE ( Shareholder/banker)
BUSINESS UNITS
Profit targets Capital bids Performance
appraisal
Strategic Controls
CENTRE (Master Planner)
BUSINESS UNITS
PoliciesAgreed
Business plan
Optional services & infrastruct.
Capital allocation
Performance assessment
Overall strategy, balance
Short term constraints - employment
Does Structure Follow Strategy
• The problem was not the diversification strategy, but the structure that DuPont used to manage the new civil businesses.
• DuPont had retained its old functional structures, so that the responsibilities for production and marketing were still with single centralized functional heads.
• The solution was not to abandon the diversification strategy, but to adopt a new multi-divisiontheal structure with each business headed by a divisional heads.
• DuPont thrives today, with a variant of this multi-divisional structure. • Hall and Saias accepted the importance of strategy for structure, but
warn that the caussality can go the other way. • An organization’s existing structure very much determines the kinds of
strategic opportunities that the management will see and want to grasp.
