Corporate strategy and the structure of the organizations Strategic management Lecture 11 Corporate strategy and the structure of the organizations

Process of strategic management Expectations and purposes The environment Resources, competences and capability Strategic analysis Bases of strategic choice Organisation structure and design Strategy implemen- tation Strategic choice Resource allocation and control Strategic options Strategy evaluation and selection Managing strategic change 12

Development of Apple’s structure 1. Stage: entrepreneurial startup Jobs and Wozniak entrepreneurs Part-time workers 2, Stage: Small business Jobs and Wozniak Owner and managers Sales supervisor Purchasing agent Production supervisor Accountant Board 3. Stage: Multimational busuiness CEO Sales Marketing Production Finance

Why Have a Structure? All businesses have to organise what they do A clear structure makes it easier to see which part of the business does what There are many ways to structure a business

The Basic Tasks of Organization THE ORGANIZATIONAL CHALLENGE: Achieving high levels of productivity requires SPECIALIZATION Specialization by individuals necessitates COORDINATION For coordination to be effective requires COOPERATION But goals of employees == goals of owners THE AGENCY PROBLEM THE ORGANIZATIONAL CHALLENGE: To design structure & systems that: Permit specialization Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control Create incentives to align individual & firm goals

Organization design Organization design is the process of beveloping an organization sttructure. The organizaton structure consist of four elements: The assignment of taska and responsibilities that define the jobs of individuals and units, The clustering of individual positions into units and units into departments and larger units to form an organization’s hierarchy, The various mechanisms required to facilitate vertical coordunation, such as the number of individual reporting to any given managerial position and degree of delegation of authority, The various mechanisms needed to fostar horizontal coordination, such as task forcas and interdepartnemtal teams

Job-design A job: is a collection of tasks performed in support of organizational objectives. The jobs are defined by the job description: specification of task activities associated with a particular job There are four major approaches to job design: Job simplification: The process of configuring jobs so that jobholders have only a small number of narrow activities to perform, Job rotation: Practice of periodically shifting workers through a set of jobs, Job enlargement: Allocatioion of a wilder variety of similar task to a job, Job enrichment: the process of ungrading and increase of the decisionmaking authority of the jobholder

Some Key Terms Define of jobs Span of control Empowerment, and delegation Chain of command Groupings of activities Flat or tall structure Hierarchy

Span of Control This term is used to describe the number of employees that each manager/supervisor is responsible for. The span of control is said to be wide if a superior is in charge of many employees and narrow if the superior is in charge of a few employees.

Empowerment Empowerment is the process of enabling or authorizing an individual to think, behave, take action, and control work and decision making in autonomous ways. It is the state of feeling self-empowered to take control of one's own destiny.

Chain of command A system whereby authority passes down from the top through a series of executive positions or military ranks in which each is accountable to the one directly superior.

Groupings: a ways to structure a business By function: arranging the business according to what each section or department does By product or activity: organising according to the different products made By area: geographical or regional structure

Groupings: a ways to structure a business By customer: where different customer groups have different needs By process: where products have to go through stages as they are made What are the advantages/disadvantages of different types of business structure?

Tall Structure Organisation In its simpliest form a tall organisation has many levels of management and supervision. There is a “long chain of command” running from the top of the organisation eg Chief Executive down to the bottom of the organisation eg shop floor worker.

Diagram: Tall Structure

Advantages Disadvantages Employees can be closely supervised. There is a clear management structure. The function of each layer will be clear and distinct. There will be clear lines of responsibility and control. There is a narrow span of control . The freedom and responsibility of employees (subordinates) is restricted. Decision making could be slowed down Communication has to take place through many layers of management. High management costs

Flat Structure Organisation In contrast to a tall organisation, a flat organisation will have relatively few layers or just one layer of management. This means that the “Chain of Command” from top to bottom is short and the “span of control is wide”. Due to the small number of management layers, flat organisations are often small organisations.

Diagram: Flat Structure

Advantages of flat Organisations Disadvantages of flat Organisations More/Greater communication between management and workers. Better team sprit. Less bureaucracy and easier decision making. Fewer levels of management:includes benefits – lower management costs. Workers may have more than one manager/boss. May limit the growth of the organisation. Structure limited to small organisations. Function of each department/person could be blurred and merge into the job roles of others.  

Hierarchical Organisation In a hierarchical organisation employees are ranked at various levels within the organisation, each level is one above the other. At each stage in the chain, one person has a number of workers directly under them, within their span of control. The chain of command (ie the way authority is organized) is a typical pyramid shape

Evolution of the Modern Corporation The business environment Strategic changes Organizational consequences Early 19th century Local markets Firms specialized & Small firms. Transport slow focused on local Simple manage- Limited mechanization markets ment structures Late 19th century Introduction of Geographical and Functional struct- railroads, telegraph vertical expansion ures. Line/staff industrialization separation. Accou- nting systems Early 20th century Excess capacity in Product & Development of distribution. Growth multinational multidivisional of financial institut- diversification corporation ions & world trade

A Functional Structure

A Multidivisional Structure

A Multinational Matrix Structure

The building blocks of organisations Strategic apex Ideology Support staff Techno structure Middle line Operating core

Organizational iceberg model These components are: Publicly observable Generally rational, Cognitiveli derived Overt organization Structure, Job-description, span of control, rules, roles These conponents are: Hidden, Generally affective, Emotionally derived Covert organization Emergent power and influence pattern, Emotional feeling, Group norms Individual role perception, Needs, and desires

A Transnational Structure Exploits knowledge across borders Gets the best of multi-domestic and global strategy High local responsiveness High global coordination National units operate independently, but are a source of ideas and capabilities for the whole organisation National/regional units achieve greater scale economies by specialising Corporate centre manages global network

Diagram: Hierarchical Organisation

Advantages Disadvantages Authority and responsibility and clearly defined Clearly defined promotion path. There are specialists managers Employees are very loyal to their department within the organisation. The organisation can be bureaucratic and respond slowly to changing customer needs and the market Communication across various sections can be poor especially horizontal communication. Departments can make decisions -rivalry  

Matrix ( or project-based) organisations A Matrix structure organisation contains teams of people created from various sections of the business. These teams will be created for the purposes of a specific project and will be led by a project manager. Often the team will only exist for the duration of the project and matrix structures are usually deployed to develop new products and services.

The Matrix structure

The advantages of a matrix include Individuals can be chosen according to the needs of the project.                               The use of a project team which is dynamic and able to view problems in a different way as specialists. Project managers are directly responsible for completing the project within a specific deadline and budget. The disadvantages include A conflict of loyalty between line managers and project managers over the allocation of resources. If teams have a lot of independence can be difficult to monitor. Costs can be increased if more managers (ie project managers) are created through the use of project teams.

The most important people are the employees who are at the forefront of serving the customers.  The rest of the hierarchy is there to enable the employees to do their job.  So rather than the workers being responsible to their bosses, the bosses are there to service the needs of the workers as they go about their company’s business.

Pros and Cons of Different Structures This depends on the business type, size and structure used Let’s look at a functional structure: Board of Directors Chief Executive Production Marketing Accounts Personnel IT

Functional Structure Advantages Disadvantages Specialisation – each department focuses on its own work Accountability – someone is responsible for the section Clarity – know your and others’ roles Disadvantages Closed communication could lead to lack of focus Departments can become resistant to change Coordination may take too long Gap between top and bottom

An Example of Organisation by Product/Activity Hewlett Packard Imaging and Printing Group Personal Systems Group Enterprise Systems Group HP Services HP Financial Services

Organisation by Product/Activity Advantages Clear focus on market segment helps meet customers’ needs Positive competition between divisions Better control as each division can act as separate profit centre Disadvantages Duplication of functions (e.g. different sales force for each division) Negative effects of competition Lack of central control over each separate division

Hewlett-Packard’s Headquarters Worldwide Organisation by Area Hewlett-Packard’s Headquarters Worldwide Hewlett Packard Americas Houston, Texas Europe, Middle East, Africa Geneva, Switzerland Asia Pacific Hong Kong

Organisation by Area Advantages Disadvantages Serve local needs better Positive competition More effective communication between firm and local customers Disadvantages Conflict between local and central management Duplication of resources and functions

Other Organisational Structures By Customer: Similar effects to structuring by product By Process: Similar to structuring by function

Organising for Success – Outline (1) Key challenges in organising for success Control, knowledge management, coping with change, response to globalisation Structural types of organisations Strengths and weaknesses Organisational processes Planning systems, performance targets Management of internal and external relationships Help or hinder success

Organising for Success – Outline (2) Three reinforcing strands for organising configurations Structure, processes and relationships Implications of configurations for organisational performance and change

Multinational Structures

Comparison of Structures Challenge Structure Control Change Knowledge Globalisation Functional *** * ** Multidivisional Holding Matrix Transnational Team Project Exh 8.6 adapted

Strategic Planning

Financial Control

Strategic Control

Configurational Dilemmas