STRATEGIC MANAGEMENT

1 PERSPECTIVES ON STRATEGIC MANAGEMENT

THE CONTENT OF STRATEGY- COMPETITIVE ADVANTAGE THE FOCAL POINT OF STRATEGY

THE PROCESS OF STRATEGIC MANAGEMENT-THE RATIONAL PLANNING PERSPECTIVE-THE INCREMENTAL PERSPECTIVE(STREAM OF DECISION MAKING

STRATEGIC ANALYSIS
EXTERNAL ANALYSIS OF THE ENVIRONMENT INTERNAL ANALYSIS OF THE FIRM STATIC MODELS SWOT , FIVE FORCES MODEL A DYNAMIC MODEL

STRATEGY FORMULATION
OPERATIONS LEVEL STRATEGY TQM AND CPR PRIMARY CORE PROCESSES BUSINESS LEVEL STRATEGY COMPETING IN THE 3 DIMENSIONS PRODUCTS/SERVICES, CUSTOMERS TECHNOLOGIES CORPORATE LEVEL STRATEGIES SIZE AND SCOPE HOW LARGE AND HOW DIVERSIFIED A FIRM SHOULD BE GLOBAL DIVERSIFICATION EVALUATING THE BENEFITS OF DIVERSIFICATION STRATEGY IMPLEMENTATION THE CHALLENGES OF CHANGE AND ORGANISATIONAL LEARNING CONTEXT LEVERS THE IMPORTANCE AND DIMENSIONS OF CONTEXT MACRO ORGANISATIONAL STRUCTURE

MICRO ORGANISATIONAL STRUCTURE INFORMAL NETWORKS ORGANISATIONAL CULTURE SYSTEMS LEVERS SYSTEMS AS IMPLEMENTATIONAL LEVERS INFORMATION RESOURCING SYSTEMS HUMAN RESOURCING SYSTEMS CAPITAL RESOURCING SYSTEMS CONTROL SYSTEMS

ACTION LEVERS
POWER AND INFLUENCE THROUGH PERSONAL ACTIONS ORGANISATIONAL P0LITICS THE MANAGER AS NEGOTIATOR COMMUNICATION THE LEADER AS ROLE MODEL

ADVANTAGES AND DISADVANTAGES OF A FUNCTIONAL STRUCTURE ADVANTAGES CENTRALISED DECISION MAKING ENHANCES ORGANISATIONAL PERSPECTIVE ACROSS FUNCTIONS EFFICIENT USE OF TECHNICAL AND MANAGERIAL TALENT POOLING OF SPECIALISTS ENHANCES COORDINATION AND CONTROL CAREER PATHS AND PROFESSIONAL DEVELOPMENT IN SPECIALISED AREAS ARE FACILITATED

DISADVANTAGES DIFFERENCES IN FUNCTIONAL AREA ORIENTATION IMPEDE COMMUNICATION AND COORDINATION FUNCTIONAL AREA CONFLICTS MAY OVERBURDEN TOP LEVEL DECISION MAKERS DIFFICULT TO ESTABLISH UNIFORM PERFORMANCE STANDARDS TENDENCY FOR SPECIALISTS TO DEVELOP SHORT TERM PERSPECTIVE AND OVERLY NARROW FUNCTIONAL ORIENTATION

ADVANTAGES AND DISADVANTAGES OF A DIVISIONAL/SBU STRUCTURE ADVANTAGES MINIMIZES PROBLEMS ASSOCIATED WITH SHARING RESOURCES ACROSS FUNCTIONAL AREAS QUICK RESPONSE TO ENVIRONMENTAL CHANGES INCREASED FOCUS ON PRODUCTS AND MARKETS FACILITATES DEVELOPMENT OF GENERAL MANAGERS INCREASES STRATEGIC AND OPERATIONAL CONTROL PERMITTING CORPORATE LEVEL EXECUTIVES TO ADDRESS STRATEGIC ISSUES

STRATEGIC MANAGEMENT- II
COURSE OUTLINE
Objective To complete the conceptual framework that was initiated in the first term. What was addressed then, was,the nature of strategy, the focal point being recognized as developing and sustaining competitive advantage. Two alternative perspectives were considered, the grand plan perspective and the incremental perspective which perceived strategy as flowing from an emergent pattern of decision making which incorporated the changes in the firms business environment, and related to the ability of management to recognize and respond to these changes. We next studied strategic analysis and strategy formulation. In the present course we will be exposed to the last part of strategic management which looks at strategy implementation. We will also cover an important part of strategic formulation namely Operations Strategy. Beyond that we will attempt to study the Indian business environment through a series of cases in which both the similarities and the differences of doing business in India compared to the challenges of managing in developed countries, can be observed, commented on, and learnt from. Strategy Implementation In the earlier course, we had seen some of the reasons why change is so difficult to in the first place, recognize ,and then to respond effectively to. We also studied various types of organizational learning and the need to look forward to higher rather than lower level learning. The current course will expose us to the change levers which are instrumental in implementing strategic management as a response to or through anticipation of changes in the business environment. Context Levers This part of the course helps in understanding the importance of organizational context as a subtle but powerful means of influencing the behaviour of people throughout the organization. Context is viewed in two dimensions firstly in the formal/informal dimension and then in the organization wide versus the subunit dimension. We look at the macro organizational alternatives starting from the

simple organizational structure and moving to more sophisticated and complex organizational forms including matrix structures. The second part of the context lever chapter is about micro structures that are prevalent in organizations. It has to do with the way groups are formed and distinguishes between groups and teams. The chapter also deals with the way teams are formed and led, and which types of teams do well in different situations. We further learn about informal networks in organizations which are communication channels outside the formal chain of command, why they are important and in how many forms these networks can exist depending upon the organizational situation and need. The final part of this chapter deals with organizational culture explains its importance and suggests how the culture can be changed safely, and without damaging fallout. Systems Levers Here we consider how an organizations support systems can facilitate or hinder implementation of strategy. The focus moves from describing Core Processes which require the support systems, to identifying resourcing and control systems and showing how they help in shaping both an organizations actions and the strategy emergent from these actions. We also look at systems that allocate three basic resources: information, people and capital. Later in the chapter we see how organizations control the use of allocated resources and monitor the organizations progress towards its goals effectively using control systems as levers for strategic implementation. Action Levers The last of the change levers that we study in the course, has a lot to do with leadership. We examine the notion that leaders through their own individual actions, can exert power and influence over which strategies are implemented and how organizations are changed. We discuss the difference between power and authority and observe the different forms of power and influence as reflected in the actions of managers and leaders. The four most influential types of leadership actions are covered. These include organizational politics, negotiation, communication and serving as role models. Each of these leadership actions is relevant to the situation in which it is called for.

Operations Level Strategy This is a part of strategy formulation which was largely covered in the earlier course on Strategy. Here we learn about developing capabilities in process execution that will yield competitive advantages for a firm. This involves applying strategic management concepts to what is known as the operations level. This is the level at which work inside the organization actually takes place. We revisit those famous process improvement techniques Total Quality Management(TQM), and Core Process Reengineering(CPR). We see how these processes are in fact complementary to each other in improving process capabilities. Guidelines are offered for managing TQM and CPR efforts. Finally we are exposed to emerging best practices in the three core processes namely Product Development, Demand Management, and Order Fulfillment. Case Studies It has been amply realized and therefore suggested that the conceptual input for the course needs to be supported with real life situations which would illustrate the concepts and also validate them. To this end the students will be required to do case studies specifically those that deal with Indian companies and their competitive situations. It has been further suggested and accepted that the student groups not number more than six or seven at most. The idea is that we will be exposed to a variety and number of situations and we all can benefit from the learning. Attempts will be made to make these analyses as comprehensive as possible through questioning and critiquing, and finally preserve the analysis/presentations for future batches.

CONTEXT LEVERS
The Importance and Dimensions of context If we are asked to identify the person with the greatest impact on the success of a pleasure cruise aboard a luxury liner, most would identify the ships captain. Others might identify the chef or the person responsible for leisure activities. Almost nobody would come up with the right answer which is the ships designer. It is the designer who determines the context within which all the other individuals who man the ship would work. In the same way those who design organizations and the context within which others will work, have a tremendous influence on their success. The CEO has been described as the organizational architect who has much the same influence as the ships designer in her ability to shape the context within which her team and individual team members go about their everyday business. The two most important context levers are organizational structure and the informal networks and practices linking people together , the value systems and the culture. Macro organizational Structure The way in which a firm is formally organized,that is its structure, is what we refer to as the Macro structure. The structure of its subunits such as groups and teams is referred to as its Micro structure. We will first look at Macro structure Firms choose various types of macro organizational structural forms to further their strategic aims. Small firms with narrow product market scope typically adopt and maintain simple structures. When firms grow in overall revenue or engage in vertical integration, a functional structure becomes more suitable. As firms grow in product market scope into unrelated areas, they generally decentralize operations and adopt divisional structure. Matrix structures address unique sets of organizational contingencies involving the need for both functional area expertise and coordination across divisional lines. As firms expand globally, they choose combination structures which are a blend of the above to match a particular strategic direction. Most Indian companies with any reasonable degree of organizational complexity, adopt functional structures. The large groups such as Tatas and Birlas tend to adopt combination structures. Diversified single companies like L&T have divisional structures with profit responsibility devolving on the divisional units.

Simple Structure Simple structure represents one of the oldest organizational forms. Organisations with simple structures are typically owner managed, and are restricted to a single product or a narrow product line. The owner manager makes decisions directly, and attempts to monitor all activities . Staff serve as extensions of the top executives personality. The organization here is typically informal but the decision making is highly centralized. There is little specialization in organizations of this type. There are few rules and regulations and there is a conspicuous absence of information systems. Many of these organizations have computers and computer literate people but very little appreciation, let alone presence of computerized information systems. In India there are many organizations, with a turnover of up to Rs. 20 crores ,and a few dozen employees which are run with simple structures. They are nimble and responsive to changes in their market place,but are not capable of making the transition to larger entities, mainly because they lack systems Advantages These structures enjoy considerable flexibility. Being small and highly centralized, a firm with a simple structure can move quickly to take advantage of market opportunities. Also its flat structure allows fast and direct communication and new product strategies can be implemented quickly. While we think of Reliance Industries today as a giant, there was a time say twenty five years ago when it was a smallish company with a simple structure and how well it has worked for the Ambanis. Now it is no longer possible to run Reliance with that simple structure. Disadvantages The lack of rules and regulations that is characteristic of a firm with a simple structure invariably brings problems. Individuals may not clearly understand their responsibilities, which can lead to conflict. Others may act in their own self interest which will lead to decrease in motivation and satisfaction. Further a small organizations flat structure provides little opportunity for upward mobility making it difficult to recruit and more importantly to retain quality personnel. Functional Structure As firms begin to grow, they introduce similar products into additional markets, penetrating further into existing markets, and integrating vertically. They then migrate to functional structures. These structures work best in businesses with high production volumes, single or closely related lines of products and services, or vertical integration. Functional structures provide a

high level of centralization, and help maintain the tight integration and control necessary for linking related product market activities through the multiple stages of the value chain. Most companies in our country of any respectable size, and with claims of being professionally managed, have functional structures with the attributes described above. Advantages Functional structures offer several advantages. Centralised decision making enables the Chief Executive to integrate operating and strategic issues. The pooling of functional expertise maximizes its contribution across the entire organization. Functional structures work particularly well where a high degree of homogeneity exists between products and markets accessed by the firm. Finally it provides clearly marked career paths for specialist making it easier to hire and retain them. Disadvantages Coordination and communication become difficult because each functional area has its own value system, time and cost orientation and its own vocabulary. Typically people in the finance and accounting function value cost more than time, are sticklers for rules and compliance. People in marketing and sales value speed, initiative and getting ahead for the company be itthrough gaining market share, distribution reach or introducing new products. Functional area conflicts tend to take up a disproportionate amount of senior management time. Finally evaluation and control become more difficult since each functional areas contribution overlaps with other functional area contribution and merges with the overall performance outcome of the firm. Managers often feel therefore, that their particular contributions are not adequately evaluated and rewarded. Divisional or Strategic Business Unit Structure A divisional or strategic business unit structure covers a set of relatively autonomous entities governed by a centralized administration. General Motors was one of the first companies to adopt a divisional organizational structure in the 1920s. with its Cadillac, Pontiac, Chevrolet, Buick and Oldsmobile product divisions. As firms diversify into new product market activities, single functional departments cannot cope with the increased complexities. To address the problems attendant to this development, firms organize divisional structures around products and/or markets, often identified as SBUs. Each division or SBU focuses on its own particular issues. Today in the U.S. and the rest of the developed world, for diversified companies the divisionalised arrangement is the preferred structure. A divisionalised structure is beneficial for firms that pursue unrelated diversification like G.E. However for firms that are vertically integrated this structure does not work very well. Many large

Indian companies claim that they have divisionalised structures. In the absence of profit center responsibility, they remain just technology groupings within a largely functional structure. L&T, Tisco and Telco are good examples. Advantages In this structure, managers concentrate on their own particular product lines or markets, and have access to resources and staff functional specialists. Delegating decisions to lower managerial levels moves decisions closer to the products and markets, which facilitates faster decisions from those who are more specialized and knowledgeable in the product area. This improves a firms ability to adapt during rapid environmental change. As organizations increase their product market diversity, they need more general managersindividuals who can comprehend and integrate activities from diverse functional areas. Divisional structures facilitate the training and development of general managers, because these managers are given the authority for formulating and implementing strategy. And because general managers are held accountable for results, internal controls are generally facilitated by a divisional structure. Disadvantages Maintaining a divisionalised structure increases costs along with the number of personell and the overhead expense. Administrative functions multiply and so do operating and capital costs. Also with the additional hierarchical levels, information may be distorted and communication slowed. It is further observed that there is a tendency to over emphasise short term profitability. This often results in divisions of the same firm competing with each other for corporate resources and trying to look good to top management rather than concentrating on their fundamental responsibility of competing in their respective market places. Maintaining a consistent corporate image may also be more difficult in a divisionally structured organization with a single product failure contributing disproportionately to an adverse image for a firm. Witness the problems that Intel had with the failure and recall of its Pentium 1 chip or Firestone with one of its tyre products on a single Ford model-both the tyre manufacturer and the car manufacturer saw their corporate reputations badly mauled. Matrix Structure While managers must typically choose between functional and divisional structures, some firms face a situation in which departments need both expertise within functions and coordination across divisional lines. Matrix structures offer a potential solution. This is accomplished by establishing formal, lateral channels of communication that complement existing hierarchical channels. Thus the matrix structure attempts to combine the advantages of both functional and divisional structures. Aerospace firms

starting with Boeing were among the first to use a matrix structure in the early 1960s, when technology developed rapidly. This structure combines two lines of authority: a vertical line from the functional managers, and a horizontal line from the project programme, geographical area or divisional director. Functional departments contribute specialist groupings and functional area expertise, while project departments provide the direction for scheduling, budgeting and general administration for particular projects. Advantages Several potential advantages are associated with the matrix structure. These include flexibility, faster response time, close working relationships among departments, and better coordination through enhanced communication. Matrix structures are intended to respond to market changes more quickly. This structure also allows more efficient utilization of resources, and a number of projects or products share individuals or groups of technical specialists as well as equipment. Employees who work in Matrix organizations seem to be more motivated and career development is perceived to be fast and effective. Typically IT firms prefer matrix structures, and boast of their superiority over other forms of structure. Telco in its heyday in the 1970s and 80s employed this structure- but on a temporary basis- while introducing seminal new products like their Light Commercial Vehicle(LCV). Disadvantages The potential advantages of this structure are often difficult to fully realize . If dual authority structures are not carefully and explicitly documented, informal mechanisms may develop to coordinate critical tasks leaving employees uncertain about their accountability to various supervisors. Disagreement among project and functional supervisors over shared resources may lead to power struggles. When project managers and functional managers disagree on project goals and the use of available technology, they may escalate conflict by referring decisions up the chain of command, thus defeating the objective of freeing upper management from such day to day responsibilities. Sometimes too, the dual command structure characteristic of the matrix organization, leads to an excessive number of managers. Again some matrix organizations become top heavy through commitment of project managers to too few projects. International Operations: Implications for organizational structure Global strategies are driven by economic pressures that require managers to view operations in different geographical areas as only one of several managerial components. Firms with low levels of product diversity may find the worldwide functional structure appropriate. Firms with higher levels of product diversity may opt for a worldwide product division structure or a worldwide matrix structure depending on their levels of foreign sales.

Emerging Horizontal Organisations Customer orientation is a large contributing factor behind the shifts to managing processes rather than the functions. This is why airline customers are handled with greater speed and efficiency and are able to avoid doing things for themselves that they earlier had to do like load their check in luggage on the conveyor belts, and take them off post flight. Also the emergence of Data Base management has taken out the drudge of duplication of data supply and data entry. The key is in communication between departments of the serving company to ensure that their customers are served in the best way possible. Call centers specialize in keeping data relevant to their customers and retrieving and using parts at appropriate times to ensure high quality service and customer care, much to the relief and sometimes to the delight of their clients. Organisations are increasingly seeing themselves as horizontally aligned with respect to their customers. They identify the core processes necessary to establishing and maintaining competitive advantage. They organize significant chunks of the organization around these processes. They assign owners and cross functional teams to each core process. They use customer satisfaction as a measure of success and they change the appraisal and reward system to one that stresses team results. They also revamp support systems like training, budgeting and planning to facilitate the new structure. Selecting the Appropriate Structure We have been through many options of structures but how one may ask does an organization choose the right macro structure? It depends on your organizations strategy and its environment. If a firm is pursuing a low cost strategy in a mature stable industry, it would be most appropriate to work with a simple functional structure. If on the other hand a firm operates in a more volatile environment, in which customer needs are changing, it will probably be best served by a divisional structure. Such organizations sacrifice day to day efficiency at the altar of strategic nimbleness. They are into higher level learning, but not so good at lower level learning which tends to improve operating efficiencies. Organisations which require both types of learning and that want to combine the strengths of functional and divisional structures would best be served by a matrix organization. Infosys the IT major works with a matrix organization which suits its strategic needs of serving a customer base which is relatively small in number but large in complexity.