Chapter 8 - Delivering The Selected Strategy

Question 1

1.
Organization Configuration and Structure
Identify three major groups of challenges for 21st century organization structures?

Answer 1

1) Flexibility of organizational design:
The rapid pace of environmental change and increased levels of environmental uncertainty demand flexibility of organizational design.

2) Effective systems:
The creation and exploitation of knowledge requires Effective systems to link the people who have knowledge with the application that need it.

3) Globalization:
Creates new types of a new scale of technological complexity in information systems and diversity of culture and approaches to personal relationships bringing their own new problems of organizational form.

Question 2

1.1
Organizational Configuration

Answer 2

An organization’s configuration consists of the structures, processes and relationships through which the organization operates, Johnson et al 2005.

Three Elements that form part of an organization’s configuration:
a) Structure:
Has it’s conventional meaning of organizational structure.
b) Processes:
They Drive and support people, and they define how strategies are made and controlled, and how the organization’s people interact.

c) Relationships:
Are the connection between people within the organization and between those inside it and those outside.

Question 3

1.2
Organization Structure

Answer 3

An organization’s formal structure reveals much about it in three ways namely:
a) It shows who is responsible for what.
b) It shows who communicates with whom, both in procedural practice and to great extent in less formal ways.

c) The upper levels of the structure reveal the skills the organization values.

Johnson et al 2005: Seven basic self contained structural types.
- Functional
- Multi-Divisional
- Holding Company
- Matrix
- Transnational
- Team
- Project.

Question 4

1.3
Functional Structure

Answer 4

In a functional organization structure departments are defined by their functions, eg in a manufacturing company, Primary functions might be production, sales, finance. Sub departments of marketing might be selling, advertising, distribution and warehousing.

For the diagram, refer to page 273.

Advantages of the Functional departmentation:
a) It is based on work specialisim and is therefore logical.
b) The firm can benefit from Economies of Scale.
c) It offers a carrer structure.

Disadvantages of the Functional structure
1) It does not reflect the actual business process by which value is created.
2) It is hard to identify where profits and losses are made on individual products.
3) People do not have an understanding of how the whole business works.
4) There are problems of coordinating the work of different specialisims.

Question 5

1.4
The Multi- Divisional and Holding Company Structure

Answer 5

The Multi-Divisional Structure divides the organization into semi-autonomous divisions that may be Differentiated by territory, product or marketing, eg the Holding Company, ZESCO Holdings.
Divisionalisation is the division of a business into autonomous regions each with its own revenue, expenditure and profits.
Communication between divisions and Heas office is restricted.
Influence is maintained by head office power to higher and fire the managers who run each division.
Divisionalisation is a function of organization size, in numbers and in product market activities.

Problems in Divisionalisation
1) Different product market divisions might function better as independent companies.
2) A division is partly insulated by the Holding Company from shareholders, which ultimately reward performance.
3) The divisions are more bureaucratic than they would be as independent corporations because of the performance measures imposed by the strategic Apex.
4) Head Office management have a tendency to asap divisional profits by management charges and cross subsidies.
5) It is impossible to identify completely independent products or markets for which divisions will be appropriate.
6) Divisionalisation is only possible at a fairly senior management level because there is a limit to how much independence in the division of work can be arranged.
7) It is a halfway house relying on personal control over performance by senior managers and forcing cross subsidisation.
8) Many of the problems of Divisionalisation are those of Conglomerate Diversification.

Advantages of Divisionalisation
1) It focuses the attention of subordinate management on business performance and results.
2) Management by objectives is the natural control default.
3) It gives more authority to junior managers and therefore provides them with the work that grooms them for more senior positions.
4) It provides an organization structure which reduces the number of levels of management.

The Two forms of the Holding structure are:
-Simple Divisionalisation and Holding Company Structure.

1) Simple Divisionalisation:
Simple Divisionalisation enables concentration on particular product-market areas, overcoming problems of functional specialization at a large scale at a large scale. Head office has too much power control resources. Central functions might be dublicated.

2) The Holding Company Group Structure is a radical form of Divisionalisation where Subsidiaries are separate legal entities.
The legal company can be a firm with a permanent investment and the subsidiaries may have other shareholders.

For diagrams refer to page 275.

Question 6

1.5
The Matrix Structure

Answer 6

Matrix Structure maintains Functional Department and formalises management control between different functions.
It can be a mixture of a Functional, Product and Territorial organization and they attempt to ensure co-ordination across Functional lines by the embodiment of dual Authority in the organization structure.
A golden rule of classical management theory is unity of command, an individual should have one boss.

Question 7

1.6
Matrix Organization

Answer 7

In a Matrix Structure, we will have the Functional departments on top, ie Production Dept, Sales Dept, Finance Dept, Distribution Dept, Marketing Dept, etc and below that will be Various Product Departments, ie Product Manager A, Product Manager B, etc.

The Product Managers may each have their own Marketing team, in which case the Functional Marketing Dept would be small or non- existent.
Division of Authority between Product Managers and Functional Managers must be carefully defined.

Question 8

1.7
The Transnational Structure

Answer 8

The Transnational structure attempts to reconcile global scope and scale with local responsiveness.
The Transnational structure attempts to combine the best features of the approach and the multi-domestic approach in order to create competences of global relevance, responsiveness to local conditions and innovation and learning on an organization-wide scale.

Johnson et al 2005 note that Transnational has three specific operational characteristics:

a) National units are independent operating entities, but also provide capabilities, such as R & D, that are utilized by the rest of the organization.
b) Such shared capabilities allow national units to achieve global, or at least regional, Economies of Scale.
c) The Global corporate parent adds value by establishing the basic role of each national unit and then supporting the systems, relationships and culture, which enables them to work together as an effective unit.

Defined Managerial roles, relationships and boundaries are a must for Transnational Structure to work:

a) Managers of global Products or Businesses have responsibilities for Strategies, Innovation, Resources and transactions that transcend both national and functional boundaries.

b) Country managers must feed back local requirements and build unique local competences.

c) Functional managers nurture Innovation and spread best practice.

d) Managers at the corporate parent lead, facilitate and integrate all other Managerial activity.

Question 9

1.8
The Team-Based Structure

Answer 9

The Team-based structure extends the Matrix Structure’s use of both vertical functional links and horizontal activity based ones, by utilizing cross functional teams, eg a Purchasing team might contain Procurement specialists, design and production engineers, and marketing specialists in order to ensure that outsourced equipment are properly specified.

Question 10

1.9
The Project-Based Structure

Answer 10

Is similar to the Team-based structure except that projects by definition have finite life and so do project teams dealing with them. Have a defined life span.

Question 11

1.10
Choosing a Structure

Answer 11

An organization structure must respond to three challenges which are:
Rapid Change,
Knowledge Management and
Globalization.

Johnson at el 2005 emphasizes that no single structure is suitable for all purposes.
In the table on page 279 choices can be made, as to which challenges they regard as most pressing.

Question 12

1.10
Nine Tests of choosing a structure, Goold and Campbell 2002

Answer 12

The first 4 relate to the organization’s objectives and restraints under which it operates.

a) Market advantage. Where processes must be closely co-ordinated in order to achieve market advantage, they should be in the same structural element.

b) Parenting Advantage, The structure should support the Parenting role played by the corporate center.

c) People Test. The Structure must be suited to the skills and experience of the people that have to function within it.

d) Feasibility Test.

The next tests are matters of design principle.

e) Specialized Cultures. Specialists should be able to collaborate.

f) Difficult links

g) Redundant hierarchy.

i) Accountability.

j) Flexibility. The structure must allow for requirements to change in the future.

Refer to page 279 for the diagram.

Question 13

1.11.1
Centralization

Answer 13

Centralization means control is retained at the center of an organization, ie at the Head Office.

In other words, Centralization means a greater degree of central control.

Question 14

1.11.2
Advantages of Centralization

Answer 14

1) Senior management can exercise greater control over activities.

2) Standardization. Procedures can be standardized throughout the organization.

3) Corporate view. Decisions are made by senior managers for the whole organization.

4) Balance of power. Between different functions and departments.

5) Experience counts.

6) Lower overheads .

7) Leadership. Strong leadership.

Question 15

1.11.3
Decentralization and it’s Advantages

Answer 15

Decentralization means a greater degree of delegated authority to regions or sub-units.
Decentralization utilizes talent and local knowledge.

Advantages of Decentralization:

a) Workload: It reduces burdens of senior management.

b) Job: It gives subordinates greater job satisfaction.

c) Local Knowledge:

d) Flexibility and Speed: Decision making will be quicker.

e) Training.

f) Control.

Some organizations do combine centralization with Decentralization.

Question 16

1.12
Other types of organisation structure

Answer 16

1.12.1 - Boundaryless Organizational Structure:
These have structured their operations to allow for collaboration with external parties, eg in Joint Ventures, franchising and licensing firms.
Various forms of boundaryless Organizational structures are:
Hollow,
Modular,
Virtual, and
Network.

1.12.2 - Hollow Organizational Structure:
It shares some similarities with the Networking Organizational structure.
Buchanan and Huczynski 2010 note that outsourcing none core processes gives an organization competitive advantage, as it concentrates on its core value adding activities.
Outsourcing certain functions makes the organization a hollowed entity allowing it yo reduce it’s workforce and cut costs.

1.12.3
Modular Organizational Structure:
Buchanan and Huczynski 2010 note
that a Modular Structure shares some features as the Hollow structure.
A Modular Organizational structure outsources some parts or components of it’s production and specialist providers.
It outsources value added or primary activities from the value Chain analysis.

1.12.4 - Aliiances:
Structures such as Francises and Joint ventures will depend on the management of relationships on the legal form other than marketing terms to allow for cost sharing, between the organizations.

1.12.5 - Network Organizational Structure:
The idea of a Network structure is applied within an organization and between organizations.
Within the organization it describes informal relationships that exists, alongside the formal structure.
Network approach is also common in outsourcing.
1.12.6 - Virtual Organizational Structure:
Is a geographically distributed network with little formal structure, held together by it applications, partnerships and collaborations.
A Virtual Organization is a temporary or permanent collection of geographically dispersed individuals, groups, Organizational units or entire organizations that depend on electronic linking.

Question 17

1.13
Outsourcing, Offshoring and Shared Servicing

Answer 17

1.13.1: Outsourcing involves an organization contracting out certain internal business functions to a third party.

1.13.2: Offshoring.
Buchanan and Huczynski 2010 note
that Offshoring is a form of outsourcing that involves an external entity based in a different country providing the organization with a process it has previously been provided in-house.

Advantages of Offshoring:
1) Cost savings are often seen as the main motivation behind the decision to offshore.
2) Focus on core activities and outsource the rest.
3) Capability. Offshoring can help firms which lacks expertise in delivering processes.
4) Skills. Some countries lend themselves to Offshoring due to local conditions. Eg in India they are a number of highly skilled people.
5) Flexibility : Offshoring may increase the flexibility of operations.

Disadvantages of Offshoring:
1) Quality. Allowing third party providers to act as an interface between the firm and its customers increases the scope of quality issues.
2) Public perception. Organizations may receive bad press if customers think that Offshoring leads to job losses for the locals.
3) Loss of Control. Offshoring increases the scope of third parties not to meet service levels.

Question 18

1.13.3
Shared Servicing

Answer 18

Shared Service centers consolidate the transaction processing activities of many operations within a company.
Shared Servicing reduces costs and improve service levels through use of standardized technology and processes.
Many organizations have moved to centralize their IT support functions, opposed to individual divisions or departments having their own designated IT support.

Question 19

1.13.3
Shared Servicing

Answer 19

Shared Service centers consolidate the transaction processing activities of many operations within a company.
Shared Servicing reduces costs and improve service levels through use of standardized technology and processes.
Many organizations have moved to centralize their IT support functions, opposed to individual divisions or departments having their own designated IT support.

Question 20

1.13.3
Shared Servicing

Answer 20

Shared Service centers consolidate the transaction processing activities of many operations within a company.
Shared Servicing reduces costs and improve service levels through use of standardized technology and processes.
Many organizations have moved to centralize their IT support functions, opposed to individual divisions or departments having their own designated IT support.

Question 21

1.13.3
Shared Servicing

Answer 21

Shared Service centers consolidate the transaction processing activities of many operations within a company.
Shared Servicing reduces costs and improve service levels through use of standardized technology and processes.
Many organizations have moved to centralize their IT support functions, opposed to individual divisions or departments having their own designated IT support.

Question 22

1.14
The Shamrock Organizational Structure

Answer 22

Handy 1989 defines the Shamrock organization as a core of essential executives and workers supported by outside contractors and part time help.
This structure permits the buying-in of services as needed, with consequent reductions in overhead costs.
It is also known as the flexible firm.

The leafs of the Flexible Firm are:
1) Professional Core
2) Contractual Fringe
3) Flexible Labour Force
4) Customers.

Question 23

2.
The Relationship between Structure and Strategy

Answer 23

Chandler 1962 concludes that Structure is determined by Strategy, whilst Johnson at el 2005 suggests that Structure and Strategy turned to support and preserve each other,
through reinforcing cycles of behavior and configuration dilemmas.

2.1 - Reinforcing Cycles:
Johnson at el 2005 highlights the tendency of things to get worse before they get better as illustrated by the change and performance J Curve.

Page 286 for the diagram.

Change turns to lead to a fall in performance and continues until a set of reinforcing factors, is assembled, only then can performance improve, past it’s original level.

Attention must be paid simultaneously to all three of Structure, Process and Relationships, if the change is to be carried through successfully.

Question 24

2.2
Configuration Dilemmas

Answer 24

Johnson at el 2005.
All organizational structures have both advantages and disadvantages.
Johnson at el 2005 suggest that, such dilemmas can be managed in three ways:
1) Dual Core approach - The organization may be divided into different approaches used in each part.
2) A combination of features may be possible, if difficult to to achieve.
3) Frequent reorganization may be used to prevent any particular approach, from becoming dominant in the long-term.

Strategy and Structure tend to support and preserve each other.

Question 25

3.
Control Processes

Answer 25

Control Processes determines how organizations function. They may be analyzed according to whether they deal with inputs or outputs and whether they involve direct management action or Indirect effects

Question 26

3.1
Types of Control Processes

Answer 26

For the Diagram, refer to page 288.

Direct Input Control Processes:
3.2.1 - Supervision
Johnson at el 2005 suggest that Direct Supervision can be used for strategic control. Managers must thoroughly understand all aspects of the business, in this technique.

Direct - Input Processes
3.2.2 - Planning Processes
Planning Processes refers to budgetary control they also regard scheme Standardization of work process and IT-based Enterprise resource planning systems like Sage X3.

Indirect - Input Control Systems
3.2.3 - Self-Control:
Control can be exercised indirectly by promoting a high degree of employee motivation. Leadership is of fundamental importance to this technique and depends particularly on providing role models supporting autonomous Processes in providing resources.

Indirect - Input Control Processes
3.2.4 - Cultural Processes.
These are Indirect and internalized by employees as they absorb the prevailing culture and its noms of behavior and performance.
Cultural Processes also form important links between organizations that are highly dependent on the talent and the knowledge of the employees.
There is also a negative aspect to Cultural Processes and that they can create rigidity of thought and behavior, fossilising what was successful once but may come to form an obstacle to progress.

Market Control Processes.
Organizations are used to market relationships with entities like suppliers outside the boundaries of their own systems. Attempts have been made to bring the responsiveness and efficiency of the market inside those boundaries, eg autonomous central service units such as IT Consultants and the use of transfer pricing between divisions.

3.2.6 - Problems with Market Control Process according to Johnson at el 2005.
1) Distraction of Cultural collaboration.
2) Disfinctional competition and legalistic contracting.
3) Tendency for the creation of new bureaucracy to monitor effects.
4) Excessive management time spent Bargaining.

Direct - Output Processes
3.3,1 - Performance Target:
Johnson at el 2005 suggests that performance can be judged against pre-set targets or Key Performance Indicators (KPIs).

Direct - Output Processes
3.3.2 - Balanced Scorecard:
Kaplan and Norton’s 1992 Balanced Scorecard emphasis the need for a broad range of Key Performance Indicators ( KPIs) and builds a rational structure, that reflects longer term prospects and immediate performance. The Balanced Scorecard seeks to translate Mission and Strategy into objectives and measures and focuses on 4 percepectives as per diagram on Page 290.
The Scorecard is balanced in the sense that managers have to think in terms of all four perspectives to prevent improvements being made in one area at the expense of another.
The 4 Perspectives are:
Financial Perspectives,
Customer Perspectives,
Internal Business Processes Perspectives,
Innovation and Learning Perspectives.

According to Kaplan it may be necessary to add other two Perspectives:
Environmental Perspectives,
Employment Perspectives.

Limitations of the Balanced Scorecard
1) Conflicting measures. eg Research funding and cost reduction may conflict.
2) Selecting measures. Not only do appropriate measures have to be devised, but the number of measures used must be agreed on.
3) Expertise. Measurement is only useful if it initiates appropriate action. Non-financial managers may have difficulties with the usual profit measures.
4) Interpretation. Even Financial managers may have difficulties in putting the figures into an overall perspective.

Question 27

4
Business Strategy and Business Plans

Answer 27

4.1 Refer to page 293 for the plans.
4.1 Strategic Plans and Business Plans.
The differences between Strategic Plans and Business Plans are:
Refer to Page 292

Question 28

4.2
Business Model

Answer 28

The Business Model is the mechanism through which the company generates it’s revenue and profits.
The Business Model describes how the Company is positioned within it’s Industry’s value Chain, and how it organises it’s relations with its suppliers, clients, and partners in order to generate profits.