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0TEACHING OBJECTIVES0
10. 20. 30. 40. Introduce the main elements of strategy implementationstructure, control systems, and cultureand their relationships to each other. Demonstrate how structure, control, and culture can build distinctive competencies at the functional level. Describe the use of structure, control, and culture in implementing a single-business firms generic business strategy. Discuss the use of restructuring and reengineering in improving the performance of a single-business firm.
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the interrelatedness of structure, control systems, and culture, which is shown in Dells centralization and subsequent decentralization, its taller then flatter structure, and so on.
LECTURE OUTLINE
I0. Overview A. A well thought-out strategy can lead to success only if it is properly implemented, thus the study of implementation is critical to an understanding of strategy. B0. This chapter introduces concepts related to implementation, with a focus on functional- and businesslevel strategy implementation. Strategy implementation refers to the ways a firm creates, uses, and combines organizational structure, control systems, and culture to pursue strategies that lead to a competitive advantage and superior performance. Implementing Strategy Through Organizational Structure, Control, and Culture A0. The first component of strategy implementation is organizational structure, which assigns employees to specific tasks and specifies how those tasks link together to realize a competitive advantage. The purpose of organizational structure is to coordinate and integrate the efforts of all employees at the corporate, business, and functional levels, and across functions and business units, so that they work together to help the firm achieve its strategies successfully. B. 000Another component of implementation is a strategic control system, which provides the incentives that motivate employees to help the firm achieve its strategies. Control systems also provide performance feedback to managers so that corrective action can be taken if needed. C0. Organizational culture is another important component of strategy implementation, and it consists of the values, norms, beliefs, and attitudes that are shared by people in an organization. Culture guides the way that employees interact with each other and with stakeholders outside the organization, and thus will have an important impact on the implementation of an organizations strategies. Show Transparency 71 Figure 12.1: Implementing Strategy III0. Building Blocks of Organizational Structure A0. One issue that managers must address as they design an organizational structure that will aid in accomplishing the firms strategic goals is the grouping of items. Tasks must be grouped into functions and functions grouped into divisions or businesses. B0. The tasks an organization must perform are based on its strategy, and therefore an organizations structure tends to match its strategy. C0. Tasks must be grouped into functions, which are a collection of people who work together and perform the same types of work or hold similar positions. Functions are designed to minimize 0bureaucratic coststhe costs of operating an organizational structure. 0Functions then are grouped into divisions. D0. One important characteristic of organizational structure is the way in which it allocates authority and responsibility. 10. The hierarchy of authority refers to the organizations chain of command, extending from the CEO down to the lowest-level employees. 20. Every manager at every level supervises some number of employees, which is called the span of control. 30. Managers decide how many levels to have in the organizational chain of command. Organizations with many levels are called tall, because of the long and vertical appearance of their organization charts. Organizations with few levels are called flat. Show Transparency 72 Figure 12.2: Tall and Flat Structures 40. As companies grow taller, problems may arise. a. Communication problems are prevalent in tall organizations, because the long delays that occur as messages move up and down numerous levels can lead to confusion.
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Another reason for communication problems is that the large number of levels leads to differing perceptions of the meaning of the messages. c. Another problem is that a tall organization has more managers, and managers are very expensive. To avoid these problems, managers should follow the principle of the minimum chain of command, that is, they should use the minimum number of hierarchical levels required for implementing a strategy successfully. Too many levels in the hierarchy cause a variety of problems. Decentralization of decision-making authority is one tactic for overcoming the disadvantages associated with a tall organizational structure. Decentralization delegates authority to lowerlevel employees.0 a. Decentralization reduces information overload because managers spend time making only those decisions that must be made at their organizational level. b. Decentralization gives lower level employees autonomy, increasing flexibility, motivation, and accountability. c. Decentralization reduces the need for expensive, high-level managers, because lower level employees can make their own decisions with little supervision.
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IV0. Strategic Control Systems A0. After managers establish an organizations strategy and structure, then they turn their attention to ensuring that the strategy and structure are, in fact, achieving the desired results. 0Strategic control systems provide the means by which a company monitors, evaluates, and changes the performance of its various functions and divisions. B0. Strategic control is not just about current performance; it also means keeping an organization on track and future focused. C0. Strategic control is important because it helps managers achieve superior efficiency, quality, innovation, and responsiveness to customers. D0. Strategic control systems consist of target-setting, monitoring, and feedback mechanisms; and the process contains four steps. Show Transparency 73 Figure 12.3: Steps in Designing an Effective Control System 10. Step 1 is to establish the standards against which performance is to be evaluated. Standards express the way the company chooses to evaluate its performance; they are generally derived from its strategy. 20. Step 2 requires managers to create the measuring and monitoring systems that indicate whether or not the targets are being achieved. This can be a complex task because many activities are difficult to evaluate. 30. In Step 3, managers compare actual performance against the established targets. If performance is lower than expected, it is often difficult to explain why. 40. Step 4 is about initiating corrective action when it is decided that the standards and targets are not being achieved. Appropriate corrections depend upon an appropriate diagnosis. Control systems are used to measure performance at all levels in the organizationcorporate, divisional, functional, and individual levels. Care must be taken to ensure that the controls used at different levels are compatible. Show Transparency 74 Figure 12.4: Levels of Organizational Control F0. There are several types of strategic controls. 10. One type is the balanced scorecard approach, which was discussed in Chapter 11. 20. Another type of control is personal control, in which superiors or peers interact face-to-face with an employee, influencing the employees behavior. 30. A third type of control is 0output control, which is used when a company forecasts performance goals and then monitors goal achievement. Output control is used at all levels of the organization. a. At the divisional level, challenging goals are set for efficiency, quality, innovation, and responsiveness to customers. b. At the functional level, goals are set for functional managers to develop skills leading to competitive advantage in support of divisional goals. c. Employees are given individual goals that support the achievement of divisional and functional goals. d. Output controls must be used carefully, because they can encourage conflict between units, as well as provide an incentive for dishonesty. 40. A fourth type of control is behavior control, which establishes rules and procedures to guide individual action. Rules specify how things are to be done and thus standardize behavior so that the result is predictable. a0. Operating budgets are one type of behavior control. They specify the amount of resources available to achieve goals. Managers decide how to allocate the funds across the various activities. Performance is then measured by looking at profits relative to resources.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry b0.
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0Standardization is also a very important means of behavior control. (1)0 Inputs can be standardized by screening them so that only high-quality inputs enter the company. (2)0 Conversion activities are standardized so that tasks are done in the same way time and time again. This improves predictability. (3)0 Organizational outputs are standardized by specifying performance characteristics of the final product. Only goods and services that meet these criteria are allowed to leave the organization. c0. Managers must periodically review behavior controls to ensure they are still effective. Companies tend to accumulate rules over time, reducing flexibility and ultimately reducing effectiveness. G0. Information technology (IT) is playing an increasing role in strategy implementation at many firms. 10. ITs ability to provide better and faster information aids managers as they use control systems. 20. IT can provide standardization, which can be used to control behavior or to perform output control. 30. IT is an integration mechanism, because of information sharing.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry organizations select only such people for employment. Hence the cultures of different organizations tend to become more distinct and different over time.
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Strategic control helps managers to set ambitious goals and then encourages employees to meet those goals. b. Strategic control enables organizational learning, as employees and their superiors work closely together. c. Output control is easy with a functional structure because each function can clearly see its contribution to the performance of the organization. d. Strategic control facilitates implementation of a fair, objective system of rewards. Functional structures make it easy to build a cohesive culture, which also supports effective control.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry C0. Strategy implementation aids firms in pursuing a cost leader strategy, because it can help them reduce expenses in all functions through improved coordination and control. 10. Managers must choose the combination of structure, control, and culture that will lead to the lowest costs. 20. Managers must continuously monitor their structure, control, and culture to ensure that costs are continuously driven down. D0. Strategy implementation aids firms that are pursuing a differentiation strategy, because it helps the company to add value and uniqueness to its products. 10. A differentiation strategy requires a broad product line, leading to high bureaucratic costs. Thus an effective coordination mechanism is especially important. 20. To successfully pursue a differentiation strategy, a companys functions must work cooperatively together. Behavior controls and culture are more effective than output controls in a cooperative situation, because its hard to measure the relative contribution of different groups when they are cooperating. 30. Thus, differentiators tend to have a very different culture than cost leaders. Differentiators tend to have a collegial or professional culture, based on expertise and cooperation. E0. As companies try to both increase differentiation and reduce costs simultaneously, strategy implementation becomes much more complex. This leads to new forms of structure and control systems. 10. To cope with the complexity of producing many products for many market segments, companies can adopt a product structure. a. To implement a product structure, a company must first group its products into categories targeted at specific groups of customers and managed by one set of managers. b. Support activities from the value chain are centralized to keep costs low. However, subgroups within each function specialize in meeting the needs of a particular product group. c. The organization then develops a control system that examines each product group separately. This creates an ability to rapidly spot problem areas, and also a way to give rewards for high performance. d. However, rewards still are closely tied to organizational, and not group, performance, to ensure that managers work together across units as needed.
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To group people into units based on the customers they serve, it is first important to clearly understand the needs of each customer group. b. Employees then become close to each customer segment, while support functions are centralized. Geographic structures are appropriate for firms that are attempting to expand their geographic reach. Show Transparency 79 Figure 12.8: Geographic Structure a. b. Geographic regions become the basis for grouping organizational activities. Activities at the level of the region are controlled by regional managers, but there is still control by top managers at the center, as well as centralized support from the specialist functions. Companies competing in a fast-changing, high-tech environment can use either the matrix or the product-team structure. a0. Fast-paced environments make the costs associated with lack of communication and coordination even greater. b0. Often the firm must organize around the needs of the R&D function. However, managers must work to ensure that the new high-tech products meet customer needs and are affordable. c0. A structure that addresses these concerns is the matrix structure, in which value chain activities are grouped in two different ways at the same time. Show Transparency 80 Figure 12.9: Matrix Structure (1)0 Activities are grouped by function, to obtain the advantages of a functional structure. (2)0 Activities are also grouped by product, to obtain those advantages. This results in a complex design of reporting relationships. (3)0 The matrix structure is very flat because above the functional bosses and the project bosses there is only the CEO. Mid- and lower-level managers and employees report to two bossesboth the functional boss and the project boss. The bosses are responsible for maintaining coordination between the functions and projects. (4)0 A matrix structure has the advantage of strong cross-functional integration, which improves the organizations speed and flexibility in dealing with change. (5)0 In the matrix structure, hierarchical control is minimal, and employees are expected to coordinate their own activities to get the work done. (6)0 Matrix structures also allow team members to join and then leave to join other teams, as their skills are needed. (7)0 Well-thought-out matrix structures can free managers from spending lots of time on operating matters, as employees and teams are self-directed to a great extent. (8)0 An effective implementation of the matrix structure requires a culture based on innovation and quality. (9)0 A disadvantage of the matrix structure is the time and effort that it spent just formulating the teams and getting them started on their tasks. (10)0 Another disadvantage is the conflict that can occur between the two bossesthe project manager and the functional managerdue to different goals. The former seek cost reduction; the latter seek improved quality. (11)0 Another disadvantage is the difficulty in monitoring ever-changing teams in which each worker is reporting to two bosses. Companies may also use the product-team structure in high-tech environments.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry Show Transparency 81 Figure 12.10: Product-Team Structure (1)0 The product-team structure is very similar to the matrix structure, except that the teams are permanent, rather than the temporary teams of the matrix design. (2)0 Product teams are formed at the beginning of the process, so that every function is involved in a project from the start. (3)0 Product teams also have decentralized authority and are ultimately responsible for new product development. (4)0 Product teams differ from the product structure, because support functions are not centralized, but are distributed to each team. (5)0 The costs of coordinating the teams activities are lower in a product team than in a matrix structure, but a company still obtains the gains from close cooperation across functional boundaries. Companies that compete with a focus strategy often use a functional structure, which both increases differentiation and reduces costs. 10. Focusers tend to be smaller firms, and therefore the functional structure may be sufficient for their integration and coordination needs. 20. A functional structure is also very flexible, which is important to focusers, who must adapt to customers constantly-changing requirements.
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