Structure, information, control and reward systems

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Structure, information, control and reward
systems

• Chapter 10

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What are structures and control systems supposed
to do?

• Ensure strategy implementation
• Provide chain of command
• Allocate resources and roles
• Enable effective communication
• Minimise duplication
• Simplify / standardise activities
• Allow specialist expertise to develop
• Make organisation intelligible
• Motivate staff to fulfil management aims

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Organisation Structure

• Changes as organisation grows, matures
• Contingent on particular factors
• Size, product/industry characteristics,
• Preferences / experience of key managers
• Economic and environmental conditions

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The Best Structure Enables..

• Cooperative / coordinated links where most
  needed/important
• between or across layers
• top to bottom
• across functions and/or divisions
• between firm and collaterals
• Stability and predictability
• Responsiveness and flexibility

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Some tensionsin the battle to minimise
bureaucratic costs

• Tall structure - vs - flat structure
• Wide - vs - narrow span of control
• Flexibility (diversity) vs control (uniformity)
• Centralisation (low cost) vs
  decentralisation (customisation)
• Differentiation - vs - Integration
• Differentiation - vs - Teamworking

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Structure reflects and shapes key dimensions of
strategy

• Standardised products/services across firm?
• centralised structure / large powerful HQ
• detailed bureaucratic controls, unit cost targets
• customer responsiveness?
• Delegation / empowerment / small HQ
• output or market controls, profit/mkt. share
  targets
• flow of innovative products?
• matrices, cross functional teams

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Contingency theory

• Most organisations
• Start with a simple structure
• Migrate to a functional structure as
• products and customers proliferate
• one top manager can no longer handle it all
• Encounter problems as
• organisation becomes more diverse
• environments get less stable
• single set of processes no longer enough

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Greiners five stages of growthSource Larry
Greiner, Evolution and Revolution as
Organisations Grow, HBR 1972
Crisis of red tape
Crisis of control
Firm Size
Growth through collaboration
Crisis of autonomy
Growth through coordination
Crisis of leadership
Growth through delegation
Growth through direction
Growth through creativity
Time
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Five phases of growthSource Larry Greiner,
Evolution and Revolution as Organisations Grow,
HBR 1972
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Five phases of growth

• Simple structure
• Few formal job descriptions
• Responsibility and power come with skill
• Informal systems

Small
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Five phases of growth
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Five phases of growth

• Functional structure
• Fast decisions in simple, stable conditions

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Five phases of growth
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Five phases of growth

• Divisionalised organisation
• Delegation to reflect complexity
• Can spawn bureaucracy

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Five phases of growth
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Five phases of growth

• Division-alised organi-sation
• Powerful central functions

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Five phases of growth
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Five phases of growth
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Five phases of growth
Knowledge Mgt?
Small
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Most firms we look at must choose between

• Multi-divisional structure
• Matrix structure
• Network structure
• Newer, hybrid forms
• Federalism
• Twin hierarchies - expertise and formal status
  position
• task groups / temporary alliances

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Tall or flat?

• DEPENDS ON
• Control
• Autonomy
• Innovation
• Feed-Back
• IS/IT

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A simple hierarchy for a large firm
Chief executive x 1
Subsidiary company managing directors x 3
Functional directors x 12
Functional managers x 40
Unit managers x 150
Supervisors x 600
Employees x 2000
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The simple structure
Manager / owner
Employee
Employee
Employee
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Simple structures

• Hard to maintain in large organisations
• where complex tasks undertaken
• Where large range of customers serviced

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The Functional Structure
R D Director
Finance Director
CHIEF EXECUTIVE
Product development RD staff
Marketing Director
Production Director
Finance staff
Human Resources Director
Sales and marketing staff
Production, manufacturing and operations staff
Personnel staff
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Functional structures

• Allows different control and reward systems
• Problem of cooperation
• Potential for cultural/functional conflict
• Potential for functional rigidity

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A simple multi-divisional structure
CHIEF EXECUTIVE
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Skandias multi-divisional structure
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Sony's multi-divisional structure
(Electronics Business)
Home Network Company
Personal IT Network Company
Sony Computer Entertainment
Core Technology and Network Company
Broadcasting and Professional Systems
Company
Sony in 1999 had a total of 1041 consolidated
subsidiaries and 65 affiliated companies
Entertainment Business
Insurance and Finance Business
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Divisional structures

• Allows concentration on different customer /
  product mix
• Managed using different systems and structures
• Allows different performance targets
• but
• Issues of economies of scale and synergy
• Duplication of functions / costs
• Problems of divisional coordination

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The Matrix Structure
Function C
Function A
Function B
Product A
Product B
Manager A
Product D
Manager B
Product C
Manager C
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Matrix Organisations

• Flexible use of staff/expertise
• projects
• task forces
• Specialist skills can be nurtured
• Whom do you report to?

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Hybrids - IBM's Customer-Product Structure
Customer Segments
Product Groups
Financial Services
Client Server Computing
Retailing
Personal Computers
Consumer Goods
Storage Products
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The Network Structure
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Network Structures

• Allows specialisation
• Essential in complex projects?
• but
• Problems of coordination
• IS/IT
• Cooperation / co-opetition
• Issue of trust
• Social networks
• Risk of hold-up
• Minimised by cross shareholdings or other legal
  mechanisms

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Strategic Alliances within the pharmaceutical
industry Merck Co
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The Individualised Corporation (Ghoshal and
Bartlett 1998)
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The Integration Process

• Top-level managers institutionalising a set of
  norms and values to support cooperation and trust
• Middle managers linking dispersed knowledge,
  skills and best practices across units
• Frontline managers attracting and developing
  competencies managing operational
  interdependencies

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Strategic control and reward systems

• Vital elements of strategy implementation
• Contingent on organisation and industry type
• Signals strategic priorities
• What gets controlled / rewarded gets done
• linked to management action
• goals must be realistic related to culture

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External control systems
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External controls

• Customers and competitors influence
• often underestimated
• Governments and regulators
• Market mechanisms
• Competitive bidding for finance and resources
• Share price evidence

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Internal control systems
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Performance Targets

• Establish goal congruence and incentives
• challenging but achievable?
• impossible targets to change perceptions?
• easy targets to overcome fear of failure?
• Avoid perverse effects (agency problems)
• Appropriate measures for organisation
• not always easiest to collect
• balanced scorecard
• Move away from individual targets

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A hierarchy of targets
Organisations goals - low costs

• Divisional targets
• costs of 20 as a percentage of sales over 3
  month period

• Production department targets-
• 5 capacity under-utilisation
• 5 down-times
• 2 wastage due to poor quality

• Individual targets
• 2 numbers of sub-standard products passed
  incorrectly through inspection process
• scheduling targets

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Balanced Scorecard
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Balanced Scorecard
Financial ROCE, debtors. value added/employee
Internal Process Rework costs, faults per million
parts produced
Customer Customer satisfaction, market share
No 1 in Quality
Learning and Growth Employees morale Employee
suggestions
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Bureaucratic control

• Procedures
• Can be explicit or implicit, formal or informal
• Custom and practice

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Cultural control

• Relational Contracts
• bonds of trust (external and internal)
• peer group pressure
• Mission, vision, strategic intent
• shared understanding of the purpose of the
  organisation
• ability to cope with previously unencountered
  situations
• individual objectives coincide with firms
• reduces agency costs
• Self control
• Develops as result of recruitment and
  socialisation
• Effective in uncertain or fast-changing
  environments

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Reward systems

• Salaries / pay
• Move to reward performance not time
• problem of equitable rewards
• Perks
• symbolic and cultural effects
• Sanctions
• dismissals
• marginalisation from key decision-making fora

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Trade-offs in control systems
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Sonys new organisational structure and
communication channels
Digital Network Solutions Division Sony
Communication Network Corporation- So-Net
Corporate Labs-Research Center, Product
Development, Architecture, Media Processing,
Systems Solutions, D21
Group Boardmake decisions and supervises
(Electronics Business)
Music Business
Management Committeecarries out day-to-day
management
Home Network Company
Pictures Business
Personal IT Network Company
Quasi-autonomous SBU support services-
accounting - general affairs - Sony Human
Capital, Inc.
Sony Computer Entertainment
Insurance finance leasing, credit
card,entertainment complex-development businesses
Core Technology and Network Company
Strategic alliance partners- Fujitsu, Toshiba,
Philips Electronics, Sharp Corporation
Candescent Technologies, and Toyoda Automatic
Loom Works.
Manufacturing facilities- Japan, USA, Europe,
and Asia. Also Malaysia, Indonesia Mexico,
Eastern Europe