Organization Theory: Strategy Implementation Process

1
Organization Theory Strategy Implementation
Process

• Steven E. Phelan
• June, 2006
• STRATEGY EXECUTION
• Structure, Systems, Rewards

2
Overview

• Syriana Discussion
• Structure and Execution
• Hrebiniak Chapter 4
• USA Today
• Integration
• Hrebiniak Chapter 5
• Brache Strategy implementation
• Bossidy- Letter to a new leader
• AHA
• Incentives and controls
• Hrebiniak Chapter 6
• Bebchuk Pay without performance

3
Syriana

• Analyze the movie from the perspective of
• Chaos and complexity theory
• Critical theory
• Corporate social responsibility

4
The Star Model
Strategy
People
Structure
Rewards
Processes (Integration)
from Galbraith, Designing Organizations
5
Structure

• Key principles
• Functional organization -gt efficiency
• Economies of scale, avoids duplication, critical
  mass of know-how, clear career path
• Divisional structure -gt effectiveness
• Traditional focus on products, markets or
  geography
• New areas customers, processes, solutions,
  segments
• Profit contribution can be easily measured in
  product divisions
• Does this provide more monitoring/motivation as
  well?

6
Centralization v Decentralization

• General principle
• Centralized functional/efficient
• Decentralized divisional/effective
• Text recommends a sequential process starting
  from the corporate level to group, division, and
  strategic business unit (SBU)
• Choice depends on what is important to management

7
Tall v Flat

• Large, more centralized companies often have
  taller structures (I.e. more layers)
• Increasing the span of control to create flatter
  structures can create benefits
• Faster decision making, less bureaucracy,
  closeness to customers, cost savings, and
  flexibility
• but can also suffer from problems such as
• inertia, inadequate expertise, lack of
  responsibility, and lateral communication
  problems
• Not a universal cure all
• Corporate HQs are starting to include
• Strategic management functions, executive
  education, and centers of excellence in
  addition to traditional HR, legal, IT etc.

8
Strategic Drivers

• Type of strategy
• Global strategy often calls for matrix structure
• Low cost leadership functional structure
• Focus/differentiation divisional structure
• Market and technological relatedness
• Same customers, processes, distribution etc.
• Leads to increased centralization (or need for
  coordination)
• Growth/size
• Increased decentralization

9
Emerging Trend

• Customer centric mindset
• To find as many new and existing products to sell
  to a customer as possible
• To create and customize solutions for a customer
• To appear as one company to each customer
• To develop an on-going customer relationship
• Contrasted with a product-centric company whose
  mission is to find as many uses and customers for
  each product as possible

10
Customer-focused structure

• The front/back structure
• Front End customers and market
• Back End products and technologies
• Example of a hybrid structure

11
Telstra

• Customer Divisions
• Sales, direct marketing, sales engineers
• Corporate, Government, Business, Residential
• Product Management
• Product marketing and product engineers
• Basic access, DSL, prepaid cellphones
• Network Engineering
• Technologies, platforms, infrastructure
• Switching, transmission, access
• Broadband, wireless, microwave

12
Thoughts

• Art or science?
• Is organizational design more art than science?
• Diversity (in customers, technology, distribution
  etc. ) is grounds for differentiation
• Need to choose primary form of departmentalization
  
• Integration processes can compensate for inherent
  weaknesses
• Need to be aware of pros and cons

13
Case 1 American Heart Association

• Case Study
• Was the first restructure a sound move?
• What problems did it create?
• As an org design consultant, what changes would
  you recommend to the existing structure
• At the regional level?
• At the national level?

14
Integration

• Interdependence
• Pooled
• Low coordination requirements
• Rules/SOPs/Hierarchy
• Sequential
• High coordination
• Scheduling, JIT, transfer pricing issues
• Reciprocal
• Very high coordination
• Meetings, trust, group incentives

15
More integration ideas

• Voluntary (or informal)
• Rotation, interdepartmental events, co-location,
  mirror image departments, consistent rewards,
  common language
• E-coordination
• Web pages, databases, CRM, email, discussion
  groups, instant messaging/chat
• Formal group
• Regular meetings need for leadership/conflict
  mgt skills

16
More integration ideas ctd.

• Full-time integrators
• Project managers, brand managers, process
  managers etc.
• Put teams together across departments
• Matrix organization
• Level of coordination grows but so does cost and
  difficulty of implementation
• What about tie-breakers and two-boss bosses? GEs
  Workout program?

17
Responsibility Plotting

• Responsibility Matrix
• Major tasks by key people
• R responsibility
• A accountability (final say)
• I must be informed
• Cmust be consulted
• ? dont know
• Useful tool

18
Brache v Bossidy

• Systems of strategy implementation
• Brache is more structural (hard)
• Establish an initiative identification priority
  setting system (to favor fewer initiatives),
• Put in place the right structure, people
  (sponsors, leaders, teams), and culture to
  support implementation initiatives
• Create a reporting system to monitor progress on
  initiatives
• Bossidy is people oriented (soft)
• Know yourself, know your people (potential
  performance of top 1/3), know your customers
• Be open, honest, realistic always learn
• Attract, reward, retain the doers (the A-players)
  that get things done
• What works?

19
Rewards Controls

• Hrebiniaks prescriptions
• Develop and use good objectives
• Clear, relevant, measurable
• Reward the doers
• Reward cooperation
• Face the brutal facts honestly
• Clarify responsibility and accountability
• Obtain timely and valid information
• Use the information for learning and adaptation
• Take action when actual results deviate from plan
• Be sure to change as a result of lessons learned

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Case 2 USA Today

• Identify the problem(s)
• Recommend
• A strategy
• A structure
• A set of key lateral processes, and
• A reward systemThat will solve (or at least
  address) the problem(s) at USA Today

21
Bebchuk and Fried

• CEO compensation
• Critical analysis (compare to Chomsky)
• Aggregate compensation of top-five executives
  10 of earnings of public firms
• Limits on board independence to set rewards
• Incentive to be nominated/re-elected
• CEOs power to benefit directors
• Friendship, loyalty, collegiality, authority,
  solidarity
• Small personal cost of favoring CEO
• Ratcheting

22
Dubious practices

• A list
• Camouflage and stealth compensation
• To reduce outrage costs
• Gratuitous goodbye payments
• Windfall compensation
• Options tend to reward broad market movements and
  short-term spikes
• Pension and deferred compensation
• Is the system broken? Are we rewarding executives
  too much? Will there be a backlash?