Course Instructor : Prof. Dr.

Anwar Hossain

Chapter 10

Implementing Strategy: capabilities, systems and structure

A model of Strategic Implementation: What to Change

The most famous model of strategic implementation is the McKinsey 7-S model, Developed in the early 1980s as an explanation of what were perceived to be the important implementation issues being addressed by successful organizations at that time. The seven factors were the strategy itself, the structure, systems, shared values, skills, style and staff. Since that time quite a lot of work has been undertaken. The winning wheel framework (see Figure 10.1) identified nine elements which winning organizations had in common. The nine elements were:

Effective execution (of processes and stated outcomes); Perfect alignment (of systems and processes); Ability to adapt rapidly (while maintaining control); Clear and fuzzy strategy; Leadership (teams), not leaders; Looking out (externally-focused) as well as looking in (internally-focused); Right (not best) people; Manage the downside; Balance everything.

Winning Organizations in Australia: The Winning Wheel Framework

Figure 10.1
Perfect Alignment Balance Everything Adapt Rapidly

Manage The Downside

Effective Execution

Clear Fuzzy Strategy

Right people Looking out, Looking in

Leadership Not Leaders

Capabilities

Capabilities are the fundamental link between the analysis and implementation aspects of strategy. The existence of current capabilities allows an organization to carry out its existing strategy. The lack of capability is a gap which must be overcome if the strategy is to be carried out in the future.

Effective Systems
It is not sufficient to simply have good systems. They must be effectively used. Hubbard et al. concluded that effective execution of systems had the following requirements:

clear processes which are accepted; operational and technical efficiency; people must take responsibility for their work; good control systems; rigorous performance measurement;

a culture of continuous improvement;

ability to adapt rapidly; no cross-subsidizing of business units.

Effective Systems (contd.)

There are actually many different types of systems in an organization, all of which may be of strategic importance. The following types will be discussed in this chapter:

Operating

Information
Control Financial and budgeting

Decision-making, and
Reward systems below

Effective Systems (contd.)

Operating systems:
Operating systems determine what is produced and how. Strategic change may require operational changes, e.g. reconfiguring the layout of operations to provide a better level

of service or allow for a new product range, changing shift

times and operations to provide longer hours of service, or even changing operating systems, as in moving from retail selling to e-commerce. It is important to discover how good the

operating systems are. Figure 10.5 provides a list of questions

which help to diagnose the quality of operating systems of an organization.

Effective Systems (contd.)

Figure 10.5 Desirable System and Processes for Operating Performance:
Does the organization:

1. Have a written statement of operating strategy that is understood by

employees? 2. Have comprehensive and structured planning process? 3. Include customer requirements and supplier capabilities in the planning process? 4. Have well established methods to measure the quality of its products or services? 5. Have standardized and well-documented operating procedures? 6. Proactively manage environmental protection issues?

7. Focus on industry and international best practice in its plans?

8. Know external customers current and future requirements? 9. Have an effective process for resolving external customer complaints? 10. Use customer complaints to initiate process improvements? 11. Systematically and regularly measure customer satisfaction?

Effective Systems (contd.)

Information systems:
Information systems determine what the organization is told about what is happening. They also determine who is told. If information is not available to say what has happened, the organization will struggle to control performance. Typically information systems involve a heavy emphasis on computer technology, which enables all kinds of information to be made available. The quality and comprehensiveness of information systems varies greatly from one organization to another. Typically small organizations start with poor information systems, being more concerned simply with operating. At some point through the growth stage of an organization, time needs to be spent on introducing appropriate information and control system.

Effective Systems (contd.)

Control systems:
Control systems which compare actual outcomes with expected outcomes are intrinsically part of information systems. Simons argued that control was necessary to balance three competing tensions in an organization. Balance was required between the:

limited attention spans of managers and the relatively unlimited opportunities for the organization; intended and emergent strategy; self-interest of individuals and the desire to contribute, achieve and create.

Effective Systems (contd.)

Hubbard et al. found that balance was one of the key elements for winning organizations. To maintain these balances, Simons argued that

organizations need four types of control systems:

Beliefs systems, which manage the core values of the organization. These systems provide individual behavioural control and group and corporate social control over the types of activities which the

organization encourages.
Boundary systems, which determine the risks to be avoided by limiting and focusing opportunity seeking behaviour. Diagnostic control systems, which represents the normal view of

systems- those that monitor, control, motivate and reward achievement

of specific goals through measurement of specific performance variable. Interactive control systems, which are used to manage strategic uncertainty by stimulating organizational learning and the emergence of

new ideas and strategies.

Effective Systems (contd.)

Financial and budgeting systems:
Financial systems translate operations (e.g. sales, production, returns, labour costs, credits, productivity) into a common language (money) so that they can be added and compared. Strictly financial and budgeting systems are part of the information and control systems of the organization. The value of a financial system depends on its speed, accuracy, how much of the information is actually understood and what action is actually taken.

Effective Systems (contd.)

Decision making systems:
In terms of implementation specifically, Hubbard et al. found that effective execution and the ability to adapt

rapidly- both of which depend on effective and

speedy decision-making systems-were important elements for winning organizations.

Effective Systems (contd.)

Reward systems:
Organizations are concerned with behaviour. Behaviour is
influenced by motivation, among other things, and motivation is influenced by reward systems (see Figure 10.6). Reward systems are there fore important in achieving desired behaviour. It has been recognized for a long time that sales people are motivated by reward systems.
Figure 10.6- Effect of Reward Systems on Behaviour

Reward systems

Motivation

Behaviour

Structure
The term structure generally refers to the
formal organization structure, i.e. how the activities in an efficient and effective way so that the business strategy of the organization can be delivered.

Structure

(contd.)

Organizational design principles:

A good formal structure can-and should-be helpful in assessing the organization to function well. In developing the design of the organization structure, there are several issues to consider:

What are the primary value creating activities in the organization? To what extent should jobs be specialized so that activities, skills knowledge and outputs can be standardized? How should activities and jobs be coordinated? How should jobs be grouped?

Structure (contd.)
Traditional structures:
There are several traditional structures which result form the above design principles. They are the functional structure (see Figure 10.7), the geographic structure (see Figure 10.8) and the product or service structure (see Figure 10.9). Typically, organizations begin life with no structure, first grouping together tasks that are similar and so forming functional structures. As they expend operations into wider geographic areas, forming geographic structures. Over time, as particular products or services become sufficiently large, geographic structures may be replaced with product or service structures. During the 1990s many organizations switched their structures towards product or service structures to coordinate more tightly the product/service processes involved.

Structure
Figure 10.7 Functional Structure CEO

(contd.)

Purchasing

Operations

Information technology

Sales and marketing

Human resources

Planning

Distribution

Accounting and finance

Legal

Structure
Figure 10.8 Geographic Structure CEO

(contd.)

GM NSW/Qld

GM Vic/SA/Tas

GM WA/NT

GM NZ

GM Asia

GM Rest of the world

Figure 10.8 Geographic Structure CEO

Red Wines

White wines

Champagne/ Sparkling wines

Fortified wines

Cellar door

Structure

(contd.)

Other pure structures also exist. Products may develop into whole business, resulting in the development of business unit structures (see Figure 10.10) Figure 10.10 Business Unit Structure

CEO

GM Wine

GM Beer

GM Hotels

GM Leisure resorts

Structure
Figure 10.11 Matrix Structure

(contd.)
CEO

Project manager Engineering

Project manager

Project manager

Project manager

Design
Construction Electrical Accounting Purchasing

Structure (contd.)
Knowledge-based organizational structures:
The emergence of knowledge as a key resource to be managed (rather than labour or capital), the consequent realization of the power of individual employees with specific knowledge, and the recognition that the economics of knowledge management are different from those of managing capital have resulted in the development of several new structures. Figure 10.12 suggests four different structures for different

types of such organizations-the infinity flat, inverted, spiders

web and starburst structure.

Four ways of organizing knowledge-based organizations

Figure 10.12
Structure

Issue Definition Of node Locus of Intellect Locus of customization Direction Of flow Method of leverage

Infinitely flat

Inverted

Spiders web

Starburst Business Units Centre and nodes Center and nodes Centre to nodes Additive

Individual

Individual

Individual

Centre

Nodes

Nodes

Nodes Center to nodes Multiplicative

Nodes Nodes to centre Distributive

Project Node to node Exponential

Examples

Brokerage firms, aircraft operations

Hospitals construction engineering

Internet, SABRE

Major movie studios, mutual fund groups

The Infinitely Flat Organization

Figure 10.13

The Inverted Organization

Figure 10.14
Customers Front line staff Managers Senior managers CEO

Figure 10.15

The Infinitely Flat Organization