Strategic Control and Restructuring Chapter 7 Strategic Control and Restructuring Foundations in Strategic Management, 2e.

The Strategic Management Process Internal and External Analysis Strategy Formulation (corporate and business level) Strategic Direction Strategy Implementation and Control Strategic Restructuring Foundations in Strategic Management, 2e.

Strategic Control System A system to support managers in - assessing whether the organization’s strategy is accomplishing goals as intended - identifying areas needing attention From the perspective of top executives, a strategic control system is a system to support managers in assessing the relevance of the organization's strategy to its progress in the accomplishment of its goals, and when discrepancies exist, to support areas needing attention" 1Many existing control systems are based almost exclusively on accounting measures such as return on investment (ROI). According to some control experts, accounting-based measures are "too late, too aggregated, and too distorted to be relevant for managers' planning and control decisions." The chief problem with using accounting information to control operations-- managing by remote control--is the tendency for businesses to lose sight of the processes by which people and customers make a company competitive and profitable. Foundations in Strategic Management, 2e.

Foundations in Strategic Management, 2e. Types of Control Feedback - Provides managers with performance information so that they can make adjustments if necessary Concurrent - Provides real-time information used to control organizational processes Feedforward - Helps managers anticipate changes in the external and internal environments Foundations in Strategic Management, 2e.

Elements in a Feedback Control System Establishment of broad goals Identification of key result areas Establishment of specific targets and time frames Assignment of responsibility Development of an action plan Effective feedback controls are one way to help ensure that the strategies are indeed moving the organization in an appropriate direction. They create specific objectives or targets, which ensures that managers at various levels and areas in the organization understand the plans and strategies that guide organizational decisions. Feedback control systems motivate managers to pursue organizational interests as opposed to purely personal interests, because they know they will be held accountable for the results of their actions. Feedback control systems help managers decide when and how to intervene in organizational processes by identifying areas that require further attention. Without good control systems, managers can fall into the trap of spending too much time dealing with issues and problems that are not particularly important to the future of the organization. Foundations in Strategic Management, 2e.

Foundations in Strategic Management, 2e. Feedback Controls Budgets Ratio Analysis Goal Setting and Evaluation Surveys Audits Examples of feedback controls include budgets, financial ratios, goal setting and evaluation, etc. Foundations in Strategic Management, 2e.

Foundations in Strategic Management, 2e. Concurrent Controls Process Controls Statistical Process Control Real-time Inventory Control Behavioral Controls Bureaucratic Controls Rules and Procedures Policies--general guides to action Clan Control Socialization processes that dictate appropriate behavior Human Resources Systems such as screening, selection, training and rewards processes may also influence human outputs Concurrent controls are very similar to feedback controls, except that the time horizon is shortened to “real time.” Some of the most common types of concurrent controls are those associated with production and service processes and with quality standards. Another category of concurrent controls is associated with control of behavior. Within an organization, managers must depend on employees to perform their duties properly, even when management is not around. Behavioral controls work to encourage employees to comply with organizational norms and procedures. Foundations in Strategic Management, 2e.

Feedforward Control Systems Environmental discontinuities (major, unexpected changes) make good feedforward controls necessary and important Premise Control--evaluates whether information used to establish strategies and goals is still valid Strategic Surveillance--helps organizations determine what is going on in their external environment. Business intelligence is the outcome from strategic surveillance. Feedforward control systems help managers predict changes that may occur in their external and internal environments, based on analysis of inputs from stakeholders and the broad environment. Good feedforward control systems are important because of environmental discontinuities, which are major, unexpected changes in the social, economic, technological and political environments that necessitate change within organizations. Feedforward controls are an integral part of the strategic management process advanced in this book. Much of the distinction between the “strategic planning” of the 1960s and 1970s and the “strategic management” of today is the recognition of the importance of excellent control systems. Premise control, a type of feedforward control, involves periodically assessing the assumptions, or premises, that underlie strategic choices. The periodic reevaluation of assumptions is a foundation concept in the iterative, on-going assessment of the environment in strategic management. Premise control helps organizations avoid situations in which their established strategies and goals are no longer appropriate. Foundations in Strategic Management, 2e.

Foundations in Strategic Management, 2e. Stakeholders and Environment FEEDFORWARD CONTROL Missions and Goals Implementation (targets, tolerances, concurrent controls) time Strategies Performance Comparison of Performance with Targets The learning processes associated with both feedforward and feedback control form the basis for changes to strategic direction, strategies, implementation plans or even the targets themselves, if they are found to be unreasonable given current conditions. Comprehensive strategic control systems should include feedback, feedforward and concurrent controls. A comprehensive strategic control system should provide feedback for on-going, iterative adjustments in direction, resources allocations, and management priorities. Discussion Prompt: Identify some examples of formal and informal feedback, concurrent, and feedforward control systems that you encounter in your daily life. Consider course grading and progress in your degree program, your performance evaluations on your first job, and your reading of traffic patterns as you drive to a particular destination. Assessment of Cause and Effect FEEDBACK CONTROL Foundations in Strategic Management, 2e.

The Strategic Management Process Internal and External Analysis Strategy Formulation (corporate and business level) Strategic Direction Strategy Implementation and Control It is well known that no strategy or organization design works indefinitely. If a firm is successful with its strategies, that success alone will create a need for change, because the increases in sales volume and organization size will demand different management methods and organization structures. What is just as typical, however, is for customers, competitors, and technologies to interact to create a changing business environment, which will require that the organization make changes also. Researchers have observed that as organizations evolve over time they tend to move through a period of convergence, followed by a period of reorientation or radical adjustment, with a continuation of the convergence-reorientation cycle over time. During the convergence stage, the organization makes minor adaptive changes to strategies, but for the most part follows a consistent approach. Managers develop certain mental models, or mindsets, about how the industry and the organization work. As long as the premises that underlie these mental models do not change, the mental models represent useful experience that should be brought to bear on decisions. When premises do change, however, the established mental models may prevent the executives, managers, and employees from recognizing the need for change at all. A reorientation is a significant realignment of organization strategies, structure, and processes with the new environmental realities. Strategic Restructuring Foundations in Strategic Management, 2e.

Restructuring Approaches Refocusing Assets : Down-scoping Retrenchment: Down-sizing Chapter XI Reorganization Leveraged Buyout (LBO) Changes to Organizational Design Restructuring typically involves a renewed emphasis on the things an organization does well, combined with a variety of tactics to revitalize the organization and strengthen its competitive position. Refocusing corporate assets is generally viewed favorably by external stakeholders such as the financial community. Refocusing entails trimming businesses that are not consistent with the strategic direction of the organization. This type of refocusing is often called downscoping. Simple sell-offs are quickly being replaced by another form of divestiture called a spin-off. Refocusing may also involve new acquisitions or new ventures to round out a corporate portfolio or add more strength in an area that is essential to corporate distinctive competencies. Retrenchment is a turnaround strategy. It can involve such tactics as work force reductions, closing unprofitable plants, outsourcing unprofitable activities, implementation of tighter cost or quality controls, or new policies that emphasize quality or efficiency. The evidence is mounting that downsizing does not reduce expenses as much as desired, and that sometimes expenses may actually increase. Studies have shown that the "surviving" employees experience feelings of guilt and fear, which may hurt productivity or organizational loyalty. An organization that is in serious financial trouble can voluntarily file for Chapter XI protection under the Federal Bankruptcy Code: Chapter XI provides a proceeding for an organization to work out a plan or arrangement for solving its financial problems under the supervision of a federal court. One of the major disadvantages of Chapter XI is that, after filing, all subsequent managerial decisions of substance must be approved by a court. Leveraged buyouts (LBOs) involve the private purchase of a business unit by managers, employees, unions or private investors. They are called leveraged because much of the money that is used to purchase the business unit is borrowed from financial intermediaries (often at higher-than-normal interest rates). Some researchers have discovered that LBOs stifle innovation and research and development, similar to mergers and acquisitions. Organizational structure, which was discussed in detail in Chapter 6, can be a potent force in restructuring efforts. In an effort to increase control, some organizations are actually splitting their operations into multiple, public corporations. Discussion Prompt: Some management scholars argue that major restructuring efforts are an indication of the failure of management to correctly employ strategic control systems and to effectively management the organization. If What do you think? Foundations in Strategic Management, 2e.