Strategy Implementation Session 8 – Formal Structure

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Strategy ImplementationSession 8 Formal
Structure
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Agenda

• Quiz Friday
• Intro Structure Re-organization
• Shell
• Break
• Shell Update
• Formal Structure

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Structure has come up all over.
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The integrating elements of implementation.

• The traditional approach to re-org began with
  formal structure, but this proved a path to
  failed initiatives and the re-organization
  merry-go-round.

Informal Organization
Formal Structure
People
Planning
Partnerships
Projects
Processes
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What is the goal of good design?

• Goold Campbell Structured Networks
• Create units that are self-managing on all
  matters except those where influence from the
  hierarchy or designed-in processes are needed to
  optimize the work.

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Shell

• What were the distinctive features of Shells
  organizational structure prior to 1995?
• How well suited was Shells structure to the
  competitive conditions and key success factors in
  the world oil, gas and chemicals industry?
• To what extent did the 19956 reorganization
  remedy the deficiencies of Shells structure and
  systems?
• How far did the further organizational changes of
  19972000 resolve the remaining problems of
  Shells 19956 reorganization?
• What additional changes to Shells organizational
  structure and management systems would you
  recommend to the current chairman of the
  Committee of Managing Directors, Mark
  Moody-Stuart?

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Break
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Update

• A driving force of the changes was increased
  individual accountability
• Case A key element of the organizational
  changes pushed by Moody-Stuart was the desire to
  replace Shells traditional consensus-based
  decision making with greater individual
  leadership and individual accountability. p.197
  (142)
• Moody-Stuart We have entered a new period where
  executive decisions have to be made rapidly and
  business accountability must be absolutely
  clear. p.197 (142)
• Van den Bergh As a consequence, today we have
  global businesses headed by personally
  accountable CEOs. p.199 (144)
• How could Shell stumble on issues of
  accountability right after a re-organization
  targeting increased personal accountability?

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My Take on Shell Complementarities (linkages)
are a key element of organizational structure.
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Complementarities make change challenging and
risky

• They create inertia and increase the likelihood
  of failure
• Its extremely difficult to get all the
  complementarities right on the first try. And
  mistakes can be costly.

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Key Issues An architectural approach to formal
structure

• Structure shapes attention information flow.
• Complex structures support multidimensional
  capabilities.
• The advantages of simple structures are often
  overlooked in redesigns.

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The Key Organizing Principles
Grouping Principles What are the separable
activities?
Linking Principles How are the disparate groups
coordinated?
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In business, what is worse than having
departments? They dont talk to each other. You
have to make open behavior something that is
rewarded. Finding an idea, sharing it, spreading
it becomes rewarded behavior. Boundarylessness
says that every time you meet somebody, youre
looking for a better and newer and bigger idea.
(J. Welch)
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Design comes down to groups and links.

• Group activities that require closer coordination
• To achieve scale, build knowledge, or adapt
  regularly to changes
• The principles for grouping determine
• Who talks with whom people closer physically
  speak much more often
• Where attention is focused people repeat and
  amplify information they have in common
• Where easy and frequent adaptation and
  coordination occur.
• Create links across groups to coordinate
  interdependent decisions share resources.
• Linking creates complexity, however, which can
  constrain change.

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Linking mechanisms vary from formal to informal.
Hierarchy
Structural Linking Mech.
Processes Systems
Informal Organization
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Linking alternatives vary in their capacity,
cost, and complementarities.
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Connecting Units Self-Correcting vs. Difficult
Links
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Processes people are complements and
substitutes for structural links.

• Strategic management processes
• e.g. Planning and resource allocation across
  units
• Business management processes
• e.g. Meshed product development at Chrysler
• Support processes
• e.g. Knowledge management systems at Cap Gemini
• Informal processes
• e.g. Socialization in professional services firms
• Informal networks
• e.g. Personal networks spanning groups increase
  loan approval
• Entrepreneurial roles
• e.g. Synthesize info, champion products, span
  boundaries, sponsor unusual projects

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Goold Campbells fit tests
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Insights from the fit tests
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Goold and Campbells Design Tests
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Insights from the Design Tests
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Simple vs. Complex Structures

• Simple Structures
• Clear product/market focus
• Autonomous, self-contained units
• Strong unit profit accountability

• Complex Structures
• Multiple dimensions of focus
• Interdependent units
• More complex, less specific
• accountability

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Worldwide matrix design
Headquarters
Worldwide
Worldwide
Worldwide
Product
Product
Product
Group A
Group B
Group C
RD
RD
RD
Finance
Finance
Finance
Accounting
Accounting
Accounting
Domestic and
Domestic and
Domestic and
World Production
World Production
World Production
Domestic Sales
Domestic Sales
Domestic Sales
Foreign Subsidiaries
Foreign Subsidiaries
Foreign Subsidiaries
for Sales, Production,
for Sales, Production,
for Sales, Production,
or Raw Material
or Raw Material
or Raw Material
Sourcing
Sourcing
Sourcing
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• What does the book name as simple structures? Why
  are these simple?
• How many people in the class have reported within
  a strategic business unit based on product
  market(s)?
• Did your unit have true autonomy?

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Simple Structures Strategic Business Units
Goold Campbell p. 113
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Simple structures

• Redesigns sometimes discount the value of simple
  structures.
• Learn evolve within product markets
  Bertelsmann, Mondavi
• Encourage of entrepreneurial behavior within
  corporations EMAP publishing
• Difficult tradeoffs are best made by general
  managers with rich market knowledge IBM
• Even with simple structures, designs often miss
  necessary fit complements.
• Accountability getting the incentives
  monitoring right
• Define Role of Parent where how is corporate
  value added?
• Maintain True Autonomy encourage cooperation
  without undermining autonomy

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• Why have firms been adding complexity to these
  SBU structures?
• What kind of cooperation did your firm
  require/need between units to accomplish its
  strategic goals?
• Did this cooperation take place? If yes, why? If
  not, what inhibits it?

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Complex Structures Managing Interdependence
Goold Campbell p. 138
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Complex Structures

• Many strategies require firms to manage along
  multiple dimensions
• IBM product innovation customer solutions
• Citibank
• Bertelsmann
• Complex structures enable multiple focuses
• Complex structures are more likely to be the home
  of capabilities that are difficult to imitate.
• Eg Zaras design production chain with
  coordination feedback through the design unit.
• Complex structures are more difficult to monitor
  to change as markets evolve.
• The guiding principle should be to maintain
  autonomy and self-correcting relationships in as
  many areas as possible.

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Top Insights from the Design Tests
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Formal structure key issues

• Structure shapes attention and information flow
  in an organization.
• Complex structures support multidimensional
  capabilities.
• The advantages of simple structures are often
  overlooked in redesigns.
• Linkages, or complementarities, between different
  elements of design (and culture) are often
  difficult to see and manage.

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Common missteps with implementation formal
structure.

• Leading re-organization with changes to formal
  structure rather than culture and informal
  organization.
• Adding complexity to design without fully
  considering the flexibility and speed costs of
  additional links.
• Ignoring the value of simple designs.
• Missing the invisible complements to design
• Even, maybe especially, in simple designs.

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Next Up Knowledge Authority

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• Link here.

• Does SK-II have the potential to become a global
  brand within Procter Gambles worldwide
  operations? Why or why not?
• Which of the three market options should Paolo
  DeCesare recommend to the GLT? What risks do you
  see?
• How should he implement your recommended option?
  What are the implications for PGs new
  post-O2005 organization?