Strategy and Management of Change

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Strategy and Management of Change

• Strategic Organization and Corporate Governance
• Professor Julian Lowe
• School of Business

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Overview

• Strategy stems from organisation and is
  implemented through organisation. How does
  strategy and organisation affect each other?
• A key issue in strategy, is Why do we have
  firms?
• Many of the excesses of the capitalist system
  are sometimes attributed to the equity funded
  limited liability company This is the main
  organisational form for large scale production.
• So how can organisation be designed to
  facilitate profitable production, without
  managerial excess?

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Organisational context and competitive advantage
External context
Competitive Advantage
Internal context
Assets Resources Organisation
Organisation enable assets and resources to be
put in place or developed as core competences
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Two Approaches

• 1. Saloner et al

initiative
Markets
Hierachies
Cooperation
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Two Approaches
2. De Witt and Meyer

• Some things need to be changed, others preserved
  the role of managers, organisations, leaders
• Strategy is a political process and also works
  through culture, structure, people, expectations
• Ideally strategy is implemented through the
  hierarchy. However there are problems of
  monitoring, co-ordination and leadership

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What is organisation?

• 7 S (waterman and peters)
• organisation Psychology, Physiology, anatomy
  (Bartlett and Ghoshal)
• (P)ARC People, Architecture, Routines, Culture
  (Saloner et al)
• McKinsey core processes innovation,
  relationships, operating infrastructure
• The company as a portfolio of processes
  entrepreneurial, integrating, renewal (Bartlett
  and Ghoshal) the individualised corporation
• Weber gtgtgtgt

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Fit and Alignment

• Organisation needs to fit strategy But stretch???
• Haute Couture clothes V Mass production (note
  LVMH)
• Undergraduate v Graduate education
• DesigngtgtgtgtManufacturegtgtgtgtMarketing
• DesignltltgtgtManufactureltltgtgtMarketing
• Economics of specialisation v Economics of
  innovation
• Fit at an enterprise and industry level
• Lawrence and Lorsch (1967) Differentiation and
  Integration

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Fit and Alignment
Qantas and Virgin
People Culture Operating processes Communication B
usiness model Hierarchy
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Fit and alignment
Inter industry Auto industry v advertising
industry Intra industry BMW v Ford Intra
Organisation Hewlett Packard/IBM/Microsoft/LVMH
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Short-run solution (getting more of both)
It takes good management to get to the frontier,
but until you do you can have more of both. Some
companies do it in steps two forward one back
etc. Roberts (2001)
Initiative
coordinate
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Long-run solution (getting more of both)
Expand investment in both. IT to enable better
monitoring. New systems to enable more scope for
individual action (Roberts)
Initiative
Cooperation
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The Incentive problem (how to get the right
amount of effort in the face of hidden
information)

• Whose incentive? Eg Auto production
• Design inventory shared parts costs
  profitability
• Whose incentive? Financial trusts
• Market makers back of office IT
• And also problems of monitoring and information.
  Corrupted systems

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The Coordination Problem

• How to achieve efficient deployment of assets
  without choking off individual excellence
• Hierarchies and bureaucracies can solve this
  problem in the face of perfect information. But
  again the system becomes corrupted. IBM CEO
  notes a loss of 20 information (bad news) as
  data moves up the hierarchy

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Meeting the challenge (P)ARC)

• People motivation cognitive scope place in
  groups
• Architecture Structure divisional,
  centralised, de-centralised, profit centres,
  cost centres. Informal v formal. Linkages
  personal, liaison, teams, knowledge integrators.
  Compensation and accountabilities. How far is
  decision making pushed to the front line?
• Routines Linear/formal and established
  interfaces and systems that are mandatory. Non-
  Linear/informal How decisions are made, what
  information is required. Both formal and
  informal suffer problems of drift and
  corruption.
• Culture HP way, IBM way, Public Service way,
  Health Service way etc. Inducing behaviour
  seamlessly. Culture influences behaviour in the
  absence of incentives

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(P)ARC analysis
(P)ARC analysis
Strategy Competitive advantage
incentives
coordination
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Defining the problem
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Assessing the firms response
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Generic Organisational Perspectives
Exploiters v Explorers James March Org Science
1991 A concept appropriate to organisations and
sub units. Most organisations have a mix but
may still have a dominant perspective. Eg Airbus
v Boeing BMW v Toyota Sony v Panasonic
(Matsushita) Japan v the West 1980 2000
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Other Issues
Tight coupling interdependence Loose coupling
independence Modularity task partitions within
an agreed structure
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Explorer and Exploiter Profiles
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Towards a dynamic analysis of (P)ARC

• How does (P)ARC operate through the politics of
  the organisation?
• What is the role of individual managers?
• Need the manager also be a leader?

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Organisational leadership v organisational
dynamics
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Nissan Case

• What happened in the turnaround of Nissan?
• Could (P)ARC solve the problem?
• What was the role of leadership in the case?
• What was the role of knowledge management in
  the case?
• How was change implemented?

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Corporate governance

• Principal Agent problems
• Audited requirements
• Scope of Firm
• Payments to Directors/Managers/CEO
• Joint CEO/Chairman
• Mergers and Acquisitions/Alliances
• Ethical/Legal Responsibilities
• Higgs Committee (UK)
• Sarbanes Oxley Act (US)
• Cromme (Germany)

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Corporate Governance and Strategy

• Captures the notion of organisational purpose
• Many high profile cases recently (Enron, HIH)
• Emphasises that strategy is about creating value
  but for whom.
• Rules and principles that establish how a firm
  and its strategy is managed.
• Managing top management from the perspective of
  shareholders (and society)

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Corporate Governance Mechanisms

• Governance is about protecting shareholders
  from managerial ineptitude and greed.
• It should reduce information asymmetries
• It should ensure independent representation on
  boards.