MANAGEMENT POLICY AND STRATEGY SESSION - X

1
MANAGEMENT POLICY AND STRATEGYSESSION - X

• Implementing Strategy
• Restructuring, Reengineering and Leadership
• Prof. Sushil
• Department of Management Studies
• Indian Institute of Technology, Delhi
• INDIA
• Email sushil_at_dms.iitd.ernet.in

2
McKinsey 7-S Framework
3
Key Levers to Implement Strategy
4
Functional Organization Structure
5
Process-Oriented Functional Structure
(continued)
6
Process-Oriented Functional Structure (concluded)
Strategic Advantages 1. Achieves efficiency
through specialization 2. Develops functional
expertise 3. Differentiates and delegates
day-to-day operating decisions 4. Retains
centralized control of strategic decisions 5.
Tightly links structure to strategy by
designating key activities as separate units
Strategic Disadvantages 1. Promotes narrow
specialization and functional rivalry or
conflict 2. Creates difficulties in functional
coordination and interfunctional decision
making 3. Limits development of general
managers 4. Has a strong potential for
interfunctional conflict - priority placed on
functional areas, not the entire business
7
Geographic Organizational Structure
8
Geographic Organizational Structure (concluded)
Strategic Advantages 1. Allows tailoring of
strategy to needs of each geographic market 2.
Delegates profit/loss responsibility to lowest
strategic level 3. Improves functional
coordination within the target market 4. Takes
advantage of economies of local operations 5.
Provides excellent training grounds for higher
level general managers
Strategic Disadvantages 1. Poses problem of
deciding whether headquarters should impose
geographic uniformity or geographic diversity
should be allowed 2. Makes it more difficult to
maintain consistent company image from area to
are 3. Adds layer of management to run the
geographic units 4. Can result in duplication of
staff services at headquarters and district levels
9
Matrix Organizational Structure
10
Matrix Organizational Structure (concluded)
Strategic Advantages 1. Accommodates a wide
variety of project-oriented business activity 2.
Provides good training grounds for strategic
managers 3. Maximizes efficient use of functional
managers 4. Fosters creativity and multiple
sources of diversity 5. Gives middle management
broader exposure to strategic issues
Strategic Disadvantages 1. May result in
confusion and contradictory policies 2.
Necessitates tremendous horizontal and vertical
coordination 3. Can proliferate information
logjams and excess reporting 4. Can trigger turf
battles and loss of accountability
11
Product-Team Structure
Chief Executive Officer
Operations
Engineering
Research and Development
Finance
Sales and Marketing
Product or process teams
12
STRATEGIC BUSINESS UNITS

• Some firms encounter difficulty in evaluating and
  controlling the operations of their divisions as
  the diversity, size, and number of these units
  continue to increase.
• Under these conditions, a firm may add another
  layer of management to improve strategy
  implementation, to promote synergy, and to gain
  greater control over the firms diverse business
  interest.
• This can be accomplished by creating groups that
  combine various divisions (or parts of some
  divisions) in terms of common strategic elements.

13
STRATEGIC BUSINESS UNITS Contd...

• These groups, commonly called strategic business
  units (SBUs), usually are based on the
  independent product-market segments served by the
  firm.
• The SBU structures main value appears to be that
  it provides a way for the largest companies to
  regain focus in different parts of their business
  that were central to earlier success yet which
  became lost or dysfunctional in the complexity
  and size brought on by the companys success.

14
STRATEGIC BUSINESS UNIT ORGANIZATIONAL STRUCTURE
Chief Executive Officer
Vice President Operating Support
Vice President Administrative Services
Group Vice President SBU 1
Group Vice President SBU 3
Group Vice President SBU 2
Divisions
Divisions
Divisions
A B C
G H I
D E F
15
STRATEGIC BUSINESS UNIT ORGANIZATIONAL
STRUCTURE Contd...

• Strategic Advantages
• Improves coordination between divisions with
  similar strategic concerns and product-market
  environments
• Tightens the strategic management and control of
  large, diverse business enterprises
• Facilitates distinct and in-depth business
  planning at the corporate and business levels.
• Channels accountability to distinct business
  units

• Strategic Disadvantages
• Places another layer of management between the
  divisions and corporate management
• May increase dysfunctional competition for
  corporate resources.
• May present difficulties in defining the role of
  the group vice president.
• May present difficulties in defining how much
  autonomy should be given to the group vice
  presidents and division managers.

16
Guidelines to Match Structure to Strategy
Restructure to emphasize and support
strategically critical activities
Reengineer strategic business processes
Downsize, outsource, and self-manage
Recognize that strategy and structure often
evolve in a predictable pattern
17
Restructuring to Support Strategically Critical
Activities

• Concept - Some activities within a businesss
  value chain are more critical to the success of
  the strategy than others
• Considerations in restructuring
• Strategically critical activities must be the
  central building blocks for designing the
  organization structure
• Organizational structure must be designed to help
  coordinate and integrate support activities to
• Maximize their support of strategy-critical
  primary activities
• Minimize their costs and time spent on internal
  coordination

18
Reengineering Strategic Business Processes (BPR)

• Concept - Involves reorganizing a company to
  create value for the customer by eliminating
  barriers that create distance between employees
  and customers
• Potential outcomes of BPR
• Reduces fragmentation by crossing traditional
  department lines
• Reduces overhead by compressing formerly separate
  tasks that are strategically intertwined in the
  process of focusing on the customer

19
CORE BUSINESS PROCESSES

• Insurance industry, the actual work that leads to
  a balance of competitive premium for customers,
  and profit after claims for the company, is a
  core business process.
• Company with strategic alliances, alliance
  management becomes a core business process.
• Beer brewing, marketing and brand management is a
  core process.
• Electronics and semi-conductor industries, new
  product development is a core process.
• Reduction of lead time by a company by
  three-fourths or more, is a core process the
  lead time being defined as starting from order
  entry, and the factory process starting with
  order fulfilment.

20
GENERIC BUSINESS PROCESSES TO BE REDESIGNED

• Process pertaining to development and delivery of
  product(s) and/or service(s) These may include
  research, design, engineering, manufacturing, and
  logistics, besides purchasing/ procurement and
  materials management.
• Processes involving interface(s) with customers
  These usually include marketing, advertising,
  order fulfilment, and service.
• Processes comprising management activities These
  include strategy formulation, planning and
  budgeting, performance measurement and reporting,
  human resource management, and building of
  infrastructure.

21
Steps Involved in Business Process Reengineering
Develop a flow chart of the total business process
Try to simplify the process first, eliminating
unnecessary tasks and streamlining remaining tasks
Determine which parts of the process can be
automated
Benchmark strategy-critical activities
Consider outsourcing non-critical activities
Design a structure for performing remaining
activities and reorganize personnel accordingly
22
Downsizing, Outsourcing, and Self-Management

• Downsizing - Eliminating employees, particularly
  middle managers, in a company
• Self-management - Delegating work to lower,
  operating levels of an organization
• Outsourcing - Obtaining work previously done by
  employees inside a company from sources outside
  the company

23
REENGINEERING AND OTHER CHANGE PROGRAMS
Restructuring Reporting relationships Organizatio
n Functional Occasionally emphasized Usually
incremental Usually one time

• Assumptions questioned
• Focus of change
• Orientation
• Role of IT
• Improvement goals
• Frequency

• Rightsizing (downsizing)
• Staffing
• Staffing, Job responsibilities
• Functional
• Often, blamed
• Usually incremental
• Usually one time

Reengineering Fundamental Radical changes over
broad core entities Processes Key Dramatic and
significant Usually one time
24
Guidelines Regarding the Strategy-Structure Fit
1. A single-product firm or dominant product
business should employ a functional structure
2. A firm in several related businesses should
employ a multidivisional structure
3. A firm in several unrelated lines of business
should be organized into strategic business units
4. Early achievement of a strategy-structure fit
can be a competitive advantage
25
Key Considerations of Organizational Leadership
26
Strategic Leadership Embracing Change
Clarifying strategic intent
Building an organization
Shaping organizational culture
27
Questions Involved in Managerial Assignments
1. Which persons hold the leadership positions
that are especially critical to execution of the
strategy?
2. Do these persons have the characteristics
needed to ensure effective implementation of the
strategy?
28
Using Existing Executives Versus Bringing in
Outsiders
Using existing executives to implement a new
strategy

• Advantages
• Already know key people, practices, and
  conditions
• Personal qualities are better known and
  understood by associates
• Have established relationships with peers,
  subordinates, suppliers, and buyers
• Symbolizes organizational commitment to
  individual careers

• Disadvantages
• Less adaptable to major strategic changes because
  of their knowledge, attitudes, and values
• Past commitments hamper the hard decisions
  required in executing a new strategy
• Have less ability to become inspired and credibly
  convey the need for change

29
Using Existing Executives Versus Bringing in
Outsiders
Bringing in outsiders to implement a new strategy

• Advantages
• May already believe in and have lived the new
  strategy
• Are unencumbered by internal commitments to
  people
• Come to the new assignment with heightened
  commitment and enthusiasm
• Can send powerful signals throughout the
  organization that change is expected

• Disadvantages
• Is often costly in terms of compensation and
  learning-to-work-together time
• Candidates suitable in all respects may not be
  available, leading to compromise choice
• Uncertainty in selecting the right outsiders to
  bring in
• Morale costs
• What to do with poor ol Fred problem

30
What is Organizational Culture?
The set of important assumptions (often unstated)
that members of an organization share in common.
31
Approaches to Shaping Organizational Culture
Emphasize key themes or dominant values
Encourage dissemination of stories and legends
about core values
Institutionalize practices that systematically
reinforce desired beliefs and values
Adopt some very common themes in their own
unique ways
32
Managing the Strategy-Culture Relationship
33
Themes for Success Structure, Leadership, and
Culture in the 21st Century
Truly customer-focused leadership and culture
Fluid, network-based organizational structures
A network-based personal touch culture
A propensity to partner
And partner with key customers
Acquire talent, not sales growth
Demand excellence and share success
34
FORMS OF RESTRUCTURING BUSINESS FIRMS

• Expansion
• Mergers and Acquisitions
• Tender Offers
• Joint Ventures
• Sell-offs
• Spin -offs
• Split - offs
• Split - ups
• Divestitures
• Equity Carve - outs

35
FORMS OF RESTRUCTURING BUSINESS
FIRMS Contd.

• Corporate control
• Premium Buy-backs
• Standstill Agreements
• Antitakeover Amendments
• Proxy Contests
• Changes in Ownership Structure
• Exchange Offers
• Share Repurchases
• Going Private
• Leveraged Buy - outs

36
REASONS FOR INTERNATIONAL M A s

• Growth
• To achieve long-run strategic goals
• For growth beyond the capacity of saturated
  domestic market.
• Market extension abroad and protection of market
  share at home
• Size and economies of scale required for
  effective global competition.
• Technology
• To exploit technological knowledge advantage
• To acquire technology where it is lacking.
• Extend advantages in differentiated products
• Strong correlation between multi-nationalization
  and product differentiation. This may indicate an
  application of the parents (acquirers) good
  reputation.
• Government policy
• To circumvent protective tariffs, quotas, etc.
• To reduce dependence on exports

37
REASONS FOR INTERNATIONAL M A s Contd.

• Exchange rates
• Impact on relative costs of foreign versus
  domestic acquisitions
• Impact on value of repatriated profits.
• Political and economic stability
• To invest in a safe, predictable environment
• Differential labour costs, productivity of labour
• To follow clients (especially for banks)
• Diversification
• By product line
• Geographically
• To reduce systematic risk
• Resource - poor domestic economy
• To obtain assured sources of supply

38
THEORIES OF M A ACTIVITY

• Efficiency
• Differential efficiency
• Operating synergy
• Diversification
• Financial synergy
• Undervaluation
• Information - Signaling
• Agency Problems
• Control device
• Managerialism
• Winners curse-hubris
• Tax Consideration
• Market Power

39
3 M COMPANY INTEGRATING EUROPE

• 3MS array of 60,000 products were organized into
  four sectors.
• The most visible driver of innovation was a rule
  known as 15 rule.
• A strong issue of self -discipline ensured the
  frugal expenditure of the co. assets.
• Management tried to develop a risk taking
  mentality in its employees.
• Individuals who delivered growth, profits and
  innovation were showed rewards and recognition.
• New products were often developed in response to
  an identified need in the market place.

40
3 M COMPANY INTEGRATING EUROPE Contd

• The wide assortment of products was the creative
  combination of approximately two dozen
  core-technologies.
• Access to the free use of the formulas, processes
  and patents across different units.
• Number of lifetime employees was much higher than
  in most of the other companies due to promotion
  policies.
• Due to corporate objective of continual
  Innovation, manufacturing function was widely
  acclaimed for its strong competency in
  flexibility.
• 3Ms sales philosophy had always been to sell to
  the people who actually used the products.

41
3 M COMPANY INTEGRATING EUROPE Contd

• Besides RD, the close customer contact provided
  a strong source of ideas and product development.
• Conservative approach for marketing new products.
• The local language and culture that provided
  within Country Subsidiary Organizations (CSOs)
  gave 3M a very local image.
• To increase competitiveness in Europe, products
  were specially developed for European market.
• European Management Action Teams (EMATs) pulled
  key sales and marketing managers from larger CSOs
  into responsible teams.

42
3 M COMPANY INTEGRATING EUROPE Contd

• Differentiated pricing prompted a significant
  amount across border sales.
• European customers were more sensitive to the
  product pricing, thus, the pricing pressure
  became more intense due to presence of global
  competitors.
• An overall management committee called the
  European Operating Committee (EOC) was proposed
  to oversee the new European Organization.
• Biggest difficulties for European Business Centre
  (EBC) heads was to compete for talent and
  availability of people with proper skills.
• Most of the EBCs were located with planned logic
  such as proximity to lab or manufacturing
  expertise.

43
3 M COMPANY INTEGRATING EUROPE Contd

• New pan-European structure shifted the profit and
  loss responsibility to product line structures
  (EBCs).
• New organization was truly decentralized.
• Language and cultural differences were a barrier
  that the EBC teams were working to overcame.
• Primary role of RSOS was to provide the resources
  required to support the EBCs business strategies.
• EBC provided the direction on what type and how
  much product a manufacturing facility should
  produce.
• The customer focused marketing programme helped
  to integrate the EBCs.

44
3 M COMPANY INTEGRATING EUROPE Contd

• The human resource policies and systems were
  vague which was bothersome to the lower level
  managers in EBCs.
• Rapid services was an important area that was
  expected to benefit from new organization.
• With the enhanced ties to the global strategy,
  ongoing issue with the European labs was likely
  to be resolved.
• With the ongoing pressure on resources, it was
  clear that the company could not continue in some
  instances, to duplicate research around the globe.