CHAPTER 13

Matching Structure & Control to Strategy

STRUCTURE AND CONTROL AT THE FUNCTIONAL LEVEL

We now examine the way strategic managers can create a structure and control system to encourage the development of various distinctive functional competencies or skills.

Manufacturing
Functionality usually canters on improving efficiency, quality and responsiveness to customers.

R&D
The functional strategy for a research and development department is to develop a distinctive competency in innovation and to develop technology that results in products that fit customers needs.

Sales
As with research and development, the sales function usually has a flat structure. Most commonly, three hierachical levels sales director, regional or product sales manager and individual salespeople can accomodate even large sales forces.

STRUCTURE & CONTROL AT THE BUSINESS LEVEL

Building competitive advantage through organizational design starts at the functional level. However, the key to successful strategy implementation is a structure that links and combines the skills and competencies of of a company s value creation functions, allowing it to pursue a business-level strategy successfully. business-

Generic Business-Level Strategies BusinessHaving implemented the right structure and control system for each individual function, the company must then implement the organizational arrangements so that all the function scan can be managed together to achieve business-level strategy businessobjectives.

CostCost-Leadership and Structure

The aim of the cost leadership strategy is to make the company pursuing it the low-cost lowproducer in the market.

Differentiation Strategy and Structure

T o pursue a differentiation strategy a company must develop a distinctive competency in a function such as research and development or marketing and sales.

Implementing a Combined Differentiation and CostCostLeadership Strategy

As discussed in Chapter 6, pursuing a combined differentiation and low-cost strategy is the most lowdifficult challenge facing a company at the business level. For many companies in this situation, the answer has been the product-team structure productdiscussed in Chapter 11.

Focus Strategy and Structure Focus strategy was defined in Chapter 6 as a strategy directed at a particular market or customer segment. A company focuses on a product or range of products aimed at one sort of customer or region.

DESIGNING A GLOBAL STRUCTURE

In Chapter 8 we note that the strategies of most large companies have a global dimension if the firms produce and sell their products in international market. In this section we will examine the how each of the four principal global strategies affects a companys choice of structure and control.

A multidomestic strategy is oriented toward local responsiveness An international strategy is based on R&D and marketing being centralize at home and all of the other value creation functions being decentralized to national units A global strategy is oriented towards cost reduction, with all the principal value creation functions centralized at the optimal global location A transnational strategy is focused so that it can achieve both local responsiveness and global integration so that some functions are centralized while others are decentralized.

Multidomestic Strategy and Structure

When a company pursues a multi domestic strategy, it generally operates with a global area structure. When using this structure, a company duplicates all value creation activities and establishes a foreign division in every country or world area in which it operates.

International Strategy and Structure

A company pursuing an international strategy adopts a different route to global expansion. Normally, the compnay shifts to this strategy when it begins selling its domestically made products in foreign markets.

Global Strategy and Structure

A company embarks on a global strategy when it starts to locate manufacturing and all the other value creation activities in the lowest-cost lowestglobal location to increase efficiency, quality and innovation. Coordination and integration problems are usually solved for many company's through a global product-group structure. product-

Translational Strategy & Structure

The main failing of the global products group structure is that while it allows a company to achieve superior efficiency and quality, it is weak when it comes to responsiveness to customers because the focus is still on centralized control to reduce costs. More and More companies are therefore adopting global-matrix structures which entails globalusing superior innovation and customer responsiveness to increase efficiency.

STRUCTURE & CONTROL AT THE CORPORATE LEVEL

At the corporate level, strategic managers need to choose the organizational structure that will allow them to operate a number of different businesses efficiently.

Unrelated Diversification
Because there are no linkages among divisions, unrelated diversification is the easiest and cheapest strategy to manage, it is associated with the lowest level of bureaucratic costs. The main requirement of the structure and control system is that it allows corporate managers to evaluate divisional performance easily and accurately.

Vertical Integration
This is a more expensive strategy to manage than unrelated diversification because sequential resource flows from one division to the next must be coordinated. The multidivisional structure affects such coordination.

Related Diversification
In the case of related diversification, divisions share R&D knowledge, information, customer bases and goodwill to obtain gains from synergies.

SPECIAL ISSUES IN STRATEGY/STRUCTUREC CHOICE

In Chapter 10 we noted that today, many organizations are changing their corporate level strategies and restructuring their organizations to find new ways to use their resources and capabilities to create value.

Mergers, Acquisitions & Structure

As we noted in Chapter 10, mergers and acquisitions are the principal vehicles by which companies enter new product markets and expand the size of their operations.

Internal New Ventures and Structure

The main alternative to growth through acquisition and merger is for a company to develop new businesses internally. In Chapter 10 we call this strategy internal new venturing.

Network Structure & the Virtual Organization

As we discussed in Chapters 9 and 10, the use of outsourcing is increasing rapidly as organizations recognize the many opportunities it offers to reduce costs and increase their flexibility. In order to implement outsourcing effectively, strategic managers must decide what organizational arrangements to adopt. Increasingly, a network structure, is becoming the structure of choice.

Chapter 14

Implementing Strategic Change

STRATEGIC CHANGE
This is the movement of a company away from its present state toward some desired future state to increase its competitive advantage.

Reengineering
This is the fundamental rethinking and radical redesign of business process to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed .

Restructuring
1)

2)

There are two basic steps to restructuring: An organization reduces its level of differentiation and integration by eliminating divisions, departments or levels in the hierarchy. AN organization downsizes by reducing the number of its employees to reduce operating costs.

Innovation
Innovation is the process by which organizations use their skills and resources to create new technologies or goods and services so that they can change and better respond to the needs of their customers.

DETERMINING NEED FOR CHANGE

The first step in the process is for strategic mangers to recognise the need for change. Sometimes this need is obvious, as when divisions are fighting or when competitors introduce a product that is clearly superior to anything that the company now has in production.

DETERMINING THE OBSTACLES TO CHANGE

Restructuring, reengineering, innovation and other forms of strategy change are often resisted by groups inside an organization.

Types of Obstacles to Change

Corporate Obstacles at this level, changing strategy or structure, even seemingly trivial ways, may significantly affect a company s behaviour. Divisional Obstacles change is difficult at the divisional level if divisions are highly interrelated and trade resources, because a shift in one divisions operations affects other divisions.

Functional Obstacles A with divisions, different functions have different strategic orientations and goals and react differently to the changes management purpose. Individual Obstacles at the individual level, two, people are notoriously resistant to change, because change implies uncertainly

Organizational Conflict: An Important Obstacle to Change

Organizational conflict is the struggle that arises when the goalgoaldirected behaviour of one organizational group blocks the goalgoal-directed behaviour of another.

IMPLEMENTATING STRATEGIC CHANGE & THE ROLE OF ORGANIZATIONAL POLITICS

Organizational politics are tactics that strategic managers engage in to obtain and use power to influence organizational goals and change strategy and structure to further their own interests.

Sources of Organizational Politics

To understand why politics is an integral part of strategic change, it is useful to contrast the rational view of organizational decision making with the political view of how strategic decisions get made. The rational view assumes that complete information is available and no uncertainty exists about outcomes, but the political view suggests that strategic mangers can never be sure that they are making the best decisions.

Legitimate Power and Politics

Power can be defined as the ability of one individual, function, or division to cause another individual, function or division to do something that it would not otherwise have done. Perhaps the simplest way to understand power is to look at its sources: LEGITIMATE POWER is the authority a manager possesses by virtue of holding a formal position in the hierarchy.

Informal Sources of Power & Politics

Different strategies make some functions or divisions, and thus their managers, more important than others in achieving the corporate mission and thus confer a greater ability to implement strategic change.

Ability to Cope with Uncertainty

A function or division gains power if it can reduce uncertainty for another function or division.

Centrality
Power also derives from the centrality of a division or function. Centrality refers to the extent to which a division or function is at the center of resource transfers among divisions.

Control Over Information

Functions and divisions are also central if they are at the heart of the information flow that is, if they can control the flow of information to other functions or divisions (or both).

Nonsubstitutability
A function or division can accrue power proportionately to the degree to which its activities are nonsubstitutable that is, cannot be duplicated.

Control over Contingencies

Over time, the contingencies that is, the opportunities and threats facing a company from the competitive environment change as the environment changes. The functions and divisions that can deal with deal with the problems confronting the company and allow it to achieve its objectives gain power.

Control over Resources

The final informal source of power examined here is the ability to control and allocate scarce resources.

Effects of Power and Politics on Strategic Change

Power and politics strongly influence a company s choice of strategy and structure, for a company has to maintain an organizational context that is responsive both to the aspirations of the various divisions, functions and managers and to changes in the external environment. The problems companies face is that the internal structure of power always lags behind changes in the environment because, in general, the environment changes faster than companies can respond.

MANAGING AND EVALUATING CHANGE

Even with the political situation under control, implementing change that is, managing and evaluating change raises several questions. For instance, who should actually carry out the change: internal managers or external consultants?

Generally, a company can take two main approaches to managing change:

TopTop-Down Change a strong CEO or to management team analyzes how to alter strategy and structure, recommends a course of action, and then moves quickly to restructure and implement change in the organization. BottomBottom-Up Change is much more gradual. Top management consults with managers at all levels in the organization. Then overtime, it develops a detailed plan for change with a timetable of events and stages that the company will go through.