Strategy - 8. Design, Structure & Evaluation and Leadership & Change

Incentive problem

- "The principle agent problem" - How to make sure that the CEO's and other employees' goal in the organisation is the same as the goal of the owener (shareholder) of the firm

Coordination problem

- "Why do firms exist?" - Individuals could buy the things they need from other individuals

Strengths of matrix organisational structure

- Achieves coordination necessary to meet dual demands from customers - Flexible sharing of human ressources across products - Suited to complex decisions and frequent chanfges in unstable environment - Provides opportunity for both functional and product skill development - Best in medium-sized organisations with multiple products

Basic tasks of an organisation

- Achieving high levels of productivity requires specialisation - Specialisation by individuals requires coordination - For coordination to be effective requires cooperation - But goals of employess are not equal to the goals of the owners (The agency problem) - Organisational challenge: Design structure and systems that: - Permit specialisation - Facilitate coordination by grouping individuals & link groups with systems of communication, decision making & control - Deploy incentives to align individual and firm goalls

Strengths of functional organisational structure

- Allows economies of scale within functional departments - Enables in-depth knowledge and skill development - Enables organisation to accomplish functional goals - Is best with only one or a few products - CEO in touch with all operations - Reduces/simplifies control mechanisms - Clear definition of responsibilities

Ways (levers) of limiting the incentive and coordination problems

- Architecture: Subunits, relationship between them, formal and informal, compensation, etc. - Routines: "The way in which we do things here", repetition leads to standard ways to handleproblems, issues, etc. - Culture: The common held beliefs and values of individuals in the organisation

Weaknesses of matrix organisational structure

- Causes participants to experience dual authority, which can be frustrating and confusing - Means participants need good interpersonal skills and extensive training - Is time-consuming; involves frequent meetings and conflict resolution sessions - Will not work unless participants understand it and adopt collegial rather than vertical-type relationships - Requires great effort to maintain power - Unclear cost and profit responsibilities - Slow decision time

Levers for managing change

- Challenging the taken for granted - Changing operational processes and routines - Power and political processes - Change tactics

Roles in managing change

- Change agent - Strategic leader - Middle manager - Outsiders

Two leadership categories

- Charismatic - Instrumental

Types of management problems

- Coordination problem - Incentive problem

Symptoms of structural deficiency

- Decision-making is delayed ot lacking in quality - The organisation does not respond innovatively to a changing encironment - Too much conflict is evident

Strategic leader

- Defines purpose and vision and aligns people, processes, and values - Often linked to the management of change

Styles of managing change

- Education - Participation - Intervention - Direction - Coercion/edict

Weaknesses of divisional organisational structure

- Eliminates economies of scal in functional departments - Leads to poor coordination across product lines - Eliminates in-depth competence and technical specialisation - Makes integration and standardisaition across product lines difficult

2 Types of context leading to a possible competitive advantage

- External context - Internal context

Market processes

- Here market processes typically involve some formalised system of 'contracting' for resources or inputs from other parts of an organisation and for supplying outputs to other parts of an organisation. - process of paying for item and then research and development

How hierarchy economizes on coordination

- In a self organising team there will be many more interactions thus more waste of time ressources and lower execution speed. - In a hierarchy there will be less and predetermined interactions ehich allows for swift execution

How hierarchy alllows flexible adaption

- In a self organising team they are tigthly-coupled in a integrated system where change in any part of the system requires system-wide adaption - In a hierarchy they are loose-coupled in a modular hierarchy where organising a complex system into syb-systems and components linked by standardized interfaces permits decentralized adaption

Charismatic leader

- Mainly concerned with building a vision for the organisation and energising people to achieve it. - These leaders have particularly beneficial impact on performance when the people who work for them see the organisation facing uncertainty.

Relevance bridge role

- Middle managers act as a crucial relevance bridge bwteen top management and members of the organisation at lower levels. - Translate change initiatives into a message that is locally relevant.

Performance comparison analyses

- Organisaitonal targets: Relative to own (management) announced targets - Trends over time: Is performance (how ever we measure it) declining or improving over time - Comparator organisations: Other companies in the same industry, market index, etc.

Typical performance measures

- Product markets: Sales growth, market share, number of cusotmers - Profitability: Profit margin, ROE, ROS, EVA - Financial market: Share price, analysts recommendations

Alternative ways to organise

- Project organisation: Temporary structures - Honeycomb organisation: Self organisation

Weber's Principles of Bureaucracy

- Rational-legal authority - Specialisaiton of labor - Hierarchical structure - Coordination and control througjh rules and standard operating pricedures (SOP) - Standardisation employment practices - Seperation of jobs and people - Formalisation of administrative acts, decisions and rules 1. A manager's formal authority derives from the position he holds in the organization. 2. People should occupy positions because of their performance, not because of their social standing or personal contacts. 3. The extent of each position's formal authority and task responsibilities and it's relationship to other positions should be clearly specified. 4. Authority can be exercised effectively when positions are arranged hierarchically, so employees know whom to report to and who reports to them. 5. Managers must create a well-defined system of rules, standard operating procedures, and norms so they can effectively control behavior .

Performance targets

- Relate to the outputs of an organisation (or part of an organisation), such as product quality, prices or profit - Key performance indicators (KPIs) - Judged, either internally or externally, on its ability to meet these targets.

Weaknesses of functional organisational structure

- Slow reponse time to envirnmental changes - May cause decisions to pile on top, hierarchy overload - Leads to poor hohorizontal coordination among departments - Results in less innovation - Involves restructed view of organisational goals - Senior managers overburdened with routine matters - Senior manager neglect strategic issues - Difficult to cope with diversity - Failure to adapt

Factors of consideration in determining the change management style

- Stage in the change process - Time and scope - Power structure - Personality types - Styles are not mutually exclusive

Ways in which planning can support strategy

- Standardisation of work processes - Enterprise resource planning systems - Centralised planning approaches often use a formula for controlling resource allocation

Challenging the taken for granted as a lever for managing change

- Strategic analysis: and use of strategic tools - Scenario planning: Showing people the possible different futures and the implications for the organisation - Challenging assumptions: Surfacing assumptions and encourageing people to quesiton and challenge these

Strengths of divisional organisational structure

- Suited to fast change in unstable environment - Leads to client satisfaction because product responsibility and contact points are clear - Involves high coordination across functions - Allows units to adapt to differences in products, regions andclients - Best in large organisations with several products - Decentralises decision-making

What is ideally required from leadership

- The ability to tailor the strategic leadership style to context - The most successful strategic leaders are able to do just this

Balanced scorecards

- The best-known and most widely used performance measurement system - Combine both qualitative and quantitative measures, acknowledge the expectations of different stakeholders and relate an assessment of performance to choice of strategy - Provide a concise yet overall picture of an organization's performance. Can be used to measure the effectiveness of specific initiatives, entire departments, or the entire organization

Five roles of the middle-management in the context of managing strategic change

- The implementation and control role - Sense making of strategy - Reinterpretation and adjustment of strategic reponses as events unfold - Relevance bridge - Advisors

Leadership roles

- Top managers: Future strategies, aligning the organisation to deliver strategy, embodying change - Middle managers: Advisers to top mnagement, sense making of strategy, reinterpretation and adjustment

Key management issues of strategy in action

- Types of organisational structure that will best suit the strategies of the organisation (functions, divisions) - Organisational processes needed to deliver the chosen strategy within any structure (Supervision, planning processes, performance targets) - Managing of strategic change, raising such issues as leadership, power and politics, and managerial tactics

Designing the Hierarchy: The Basis for Defining Organizational Units and their Relationships

- Units may be defined on the basis oof common tasks, products, geographical proximity, or process - Critical issue: Intensity of coordination - Employees with the greatest interdependence should be grouped into same organisational unit - Additional criteria: Economies of scale, economies of utilisation, learning, standardisation of control systems

Situations in which performance targets are particularly appropriate

- Within large businesses; for control - In regulated markets; control through agreed PIs - In the public services; industry moving from input control to output control

Functional organisational structure

- groups together people with similar skills who perform similar tasks - Is based on the primary activities that have to be undertaken by an organisation such as production, finance, etc.

Instrumental leader

- or transactional leader - Focus more on designing systems and controlling the organisation's activities.

matrix organizational structure

A combination of structures which could take the form of product and geographical divisions or functional and divisional structures operating in tandem

Middle manager

A manager who implements the strategy and major policies developed by top management

Divisional Organizational Structure

An organizational structure in which divisions are separated by product, customer, market or region

project organizational structure

An organizational structure that groups people by major projects

Types of change

Based on two dimensions: - Speed of change: Incremental vs. Big Bang - Extent of change: Transformation vs. Realignment Four types: - Evolution - Adaption - Revolution - Reconstruction

Reconstruction change

Change undertaken to realign the way in which the organisation operates with many initiative implemented simultaneously; often forced and reactive because of a changing competitive context

Adaption change

Change undertaken to realign the way in which the organisation operates; implemented in a series of steps

Change management style: Intervention

Coordination of and authority over processes of change by a change agent who delegates elements of the change process Means/context: Change agent retains co-ordination/control: Delegates elemtns of change Benefits: Process is guided/controlled bt involvement takes place Problems: Risk or perceived manipulation Circumstances of effectiveness: Incremental or non-crisis transformational change

Sense making of strategy role

How a strategic direction is made sense of in specific contexts os up to the middle managers. If misinterpretation is to be avoided, middle managers need to understand and feel ownership of the strategic direction.

The implementation and control role

Implementers of top management plans by making sure that resources are allocated and controlled appropriately, monitoring performance and behaviour of staff

Change management style: Participation

In the change process, is the involvement of those who will be affected by strategic change in the change agenda Means/context: Involvement in setting the strategic agenda and/or resolving strategic issues by task forces or groups Benefits: Increasing ownership of a decision or process; May improve quality of decision Problems: Time-consuming; Solutions/outcome within existing paradigm Circumstances of effectiveness: Incremental change or long-time horizontal transformational change

Changing operational processes and routines as a lever for managing change

In the end, strategies are delivered through day-to-day processes and routines of the operations of the organisation. There is therefore a need for planning operational change: the identification of the key changes in the routines of the organisation. In effect, strategic change needs to be considered in terms of the re-engineering of organisational processes.

Change management style: Education

Involves the explanation of the reasons for and means of strategic change Means/context: Group briefings assume internalisation of stratgic logic and trust of top management Benefits: Overcoming lack of information or misinformation Problems: Time-consuming; Direction or progress may be unclear Circumstances of effectiveness: Incremental change or long-time horizontal transformational change

McKinsey 7-S: Style

Leadership style of top management. Need to fit other apsects of the framework

Examples of political mechanisms in organisations

Mechanisms in: Building the power base; Overcoming resistance; Achieving compliance, in terms of following activity areas - Resources (e.g. control/withdrawal/giving) - Elites (e.g. Sponsorship/Breakdown/Removal) - Subsystems (Alliance/Momentum/partial implementation) - Symbolic (e.g. build on/remove/applause) - Key problems (e.g. time/low power base/convertion)

Advisor role

Middle managers act as advisors to more senior management on what are likely to be blockages and requirements for change

McKinsey 7-S: Shared goals

Mission, values and goals of the organisation

Outsider

New executives, managers, consultants or other stakeholders, coming from the outside that can have influence on the management of strategic change and bring a new perspective on the organisation and to the context at hand

Cultural processes

Processes concerned with organisaitonal culture and the standardisation of norms

Reinterpretation role

Reinterpretation and adjustment of strategic reponses as events unfold. This is a vital role for which middle managers are uniquely qualified because they are in day-to-day contact with such aspects of the organisation and its environment.

McKinsey 7-S: Skills

Skills of the staff or their capabilities

Mechanistic Organizational Structure

Structure characterized by formal rules and procedures designed to facilitate the operations of a large-scale complex organization where coordination of activities is critical to success: - Task definition: Rigid & higly specialised - Coordination & control: Rules & directives imposed from above - Communication: Mainly vertical - Commitment & loyalty: To immediate superior - Environmental context: Stable with low technological uncertainty

Change management style: Coercion/edict

The imposition of change or the issuing of edicts about change Means/context: Explicit use of power through edict Benefits: May be successful on crises or state of confusion Problems: Least successful unless crises Circumstances of effectiveness: Crisis, rapid transformational change or change in established autocratic cultures

internal context

The problem and the levers

Leadership

The process of influencing an organisation (or group within an organisation) in its efforts towards achieving an aim or goal

McKinsey 7-S: Staff

The type of people in the organisation, e.g. recruitment, socialisation and rewards

Change management style: Direction

The use of personal managerial authority to establish a clear strategy and how change will occur Means/context: Use of authority to set direction and means of change Benefits: Clarity and speed Problems: Risk of lack of acceptance and ill-conceived strategy Circumstances of effectiveness: Transformational change

McKinsey 7-S Framework

Theory of coordination of all the different aspects of the organisation: Structure, Strategy, Systems, Style, Staff, Skills, Superordinate goals

Change tactics

Timing: - Building on actual or perceived crisis - Windows of opportunity - Symbolic signalling of timeframes Visible short-term wins: - Some actions should be seen as successful quickly - Creates commitment to the strategy

Evolution change

Transformational change implemented gradually trough inter-related initiative; likely to be proactive change undertaken in anticipation of the need for future change

Revolution change

Transformational change that occurs via simultaneous initiatives on many fronts; more likely to be forced and reactive because of the changing competitive conditions that the organisation is facing

Power and political processes as a lever for managing change

Understanding stakeholder relationships in and around the organisation. There is also a need to consider the management of strategic change within this 'political' context. This may also be important because, to effect change, powerful support may be required from an individual or groups.

Dual Authority Arrangement

a second managerial level is created with two members given authority over two specific areas. It works well when the task is divisible, however the added managerial level makes communication more difficult and it takes longer to get tasks accomplished

Organic Organizational Structure

a type of organization structure characterized by people who work together in an informal arrangement, sharing ideas and information, and performing a variety of tasks based on whatever is needed to accomplish the group's task. - Task definition: Flexible; less specialized - Coordination & control: Mutual adjustment, cultural control - Communication: Horisontal and vertical - Commitment & loyalty: To the organisation and its goals and values - Environmental context: Dynamic, ambiguous, technological uncertainty

Direct supervision

direct control of strategic decisions by one or a few individuals

Planning processes

plan and control the allocation of resources and monitor their utilisation

Change agent

the individual or group that effects strategic change in an organisation