Strategy, Structure & Systems

Prof. Subir Verma Organization Behavior IIM Ranchi

Firm as an Open System

Boundary of the firm

Strategic Logic of the firm

Flow of decisions, resources, information, knowledge and incentives

Management Processes Resources and Capabilities

Flow of data and resources

Resource

Operations Products

markets

Competition for resources

Product Market

Product competition

Competitors

T he system is co m posed o f subsystem s as diagra m med be low :

E nviron m ent Raw m aterial People Inform ation resources Financia l resources

Input

T ransform ation O utput Pro cess

P roduct and Services

Subsystem s

B oundary Production, B oundary S panning M aintenance, S panning Ada ptation M anageme nt

Organizations, Resources and Capabilities, And Competitive Sustainable Competitive Advantage requires Advantage

competing from inside out. Capability based competition is related to the amount of resources an organization has and controls (vis--vis others in an open environment) Organizations attempt to manage their transactions with the environment to ensure access to resources.

A Model of Organizational Design

Structure
y to r His

Work Processes

Style/ Shared Values

Staff/Skills

Systems

Strategy

Design for sustainable excellence: Internal and External Structure Fit

y to r His

Work Processes
Internal Fit

Staff/Skills Style/ Shared Values

Systems
External Fit

Strategy

Environment

The Organizational Environment

1.

Sources of Uncertainty in the Organizational Environment Environmental complexity: the strength, number,
and interconnectedness of the specific and general forces that an organization has to manage Environmental dynamism: the degree to which forces in the specific and general environments change quickly over time Environmental richness: the amount of resources available to support an organizations domain

2.

3.

Three Factors Causing Uncertainty

Environmental Uncertainty and Structure

Mechanistic and Organic Structures

Task and Role Relationships

Organizational Structure
Definition Structure refers to the formal configuration between individual and groups with respect to the allocation of tasks, responsibilities, and authority within an organization.

Organizational Structure
At times built; Could be/Are imitations; Reflect the current fad in their design.

They are emergent, a medium of control and a

product of interaction. They are both constituted and constitutive!

Structure perform 3 functions 1. They produce organisational outcomes and achieve organisational goals. 2. They are designed to minimise/ regulate individual variations on the organisation. 3. Structures are settings in which power is exercised, in which decisions are made and in which organisation activities are carried out

Dimensions of Structure 1. Complexity 2. Formalization 3. Centralization

Symptoms of Structural Deficiency

1. Decision making is delayed or lacking in quality: WHY? Hierarchy Insufficient Delegation Information may not reach the right people Inadequate Horizontal or Vertical Linkages

Symptoms of Structural Deficiency 2. The organisation does not respond innovatively to a changing environment: WHY? Lack of co-ordination between relevant departments: Marketing, R&D and Strategic

Symptoms of Structural Deficiency

3.

Too much conflict is evident:

WHY?

Horizontal linkage mechanisms are not adequate.

Choice points for Vertical Linking Mechanisms

High Degree of Vertical Coordination Required

Vertical information system Add positions to hierarchy

Rules and Regulations Hierarchical referral Low Information capacity of the mechanism High

Choice points for Horizontal Linking Mechanisms

High

Teams Full Time Integrators

Degree of Horizontal Coordination Required

Task Forces Liaison Roles Direct Contact

Low Information capacity of the mechanism

High

Structure, Contingency and Configuration

No best structure It depends on the contingency faced by the organization Contingencies relate to

Environment, Strategy Technology Size

Structure & Orgs need for Efficiency and Learning

Functional Functional +

teams/integrators Divisional Matrix Horizontal Horizontal: Coordination, innovation Learning, flexibility

Vertical: Control, efficiency, stability, reliability

A comparison of organizational Functionalstructures Divisional Matrix Network

Division of Labour Coordination By inputs Hierarchy + plans Highly centralized Core/periphery low Inter-functional By outputs Division GM By input & outputs Dual reporting By knowledge Cross functional teams Highly decentralized Porous & changing high Shifting coalitions

Decision rights

Separation of shared strategy & execution Internal & external mkt modest Corp division General Mgt Multiple interfaces considerable Along matrix Negotiating resources

Boundaries Informal structure Politics

Basis of authorityPositional & functional

Relative advantages & disadvantages of diff structures Functional Divisional Matrix Network
Resource efficiency Time efficiency Responsiveness Adaptability Accountability excellent poor moderate Good

Poor Poor Poor Good

Good Moderate Good Excellent

moderate Good Moderate Poor

Excellent excellent Excellent Moderate Volatile

Environment best Stable suited for Strategy best suited Focused/low cost

Heterogeneous Complex

diversified

responsiven innovation ess

Front-back hybrid organization: emerging Organizational form

Factors shaping global organization

Level of international development:

export, JV, subsidiary Role assigned to subsidiary % of assets and management located outside the home country Fixed costs Homogeneity of products and markets Customers, competitors and suppliers Transportability

Cross border coordination

Active Host Government Diversity of International Business Portfolio: degree to which the business logic is same or diverse.

Hybrid organisation:
A two line organisation front end: focused on the customer back end: focused on products

Front end can be geographical or market segment based Back end supplies all customers Both are multifunctional units This model separates the value chain in to two specialised halves

Examples-IBM,citibank

Front-back structure:
CEO

Need/requirement:

To simultaneously achieve global scale and local customer responsiveness Back end provides the global scale. For e.g. R&D, procurement, manufacturing Front end achieves responsiveness by being located closer to the customer

Unique structure:

Difference from matrix structurenone of the functions have two bosses From country organisationfront and back end units located in same country are separate profit centres Worldwide business unit structure back end equally serves all the front ends

Examples: citibank

Front end is structured around industry and subdivided by customers Back end is organised around products to take the advantage of the scale and expertise A global relationship manager is assigned to each customer and local relationship managers report to them and not country managers

Citibanks structure

Factors behind hybrid structure:

Customers can buy all products Customer want single point of contact Customer want sourcing partnership Customer wants solutions and system Opportunity for cross selling and bundling Customer specific value addition Advantages to be gained by better customer and segment knowledge

Challenges:

Challenges due to complexity and inherent conflicts How to integrate front and back end to produce a viable organisation three approaches to manage conflictsuse of management processes use of market mechanism only using front or back end and partnering with other company to perform other function

New questions:

Which function belong to which end? Some times depends on the customers dictates Trend is towards moving more activities towards the front end Some times this is resolved by division of function in back and front end Eg. Marketing, production

Balance:

What is the balance between the front and the back? One way is by making one end as profit center and another as cost center If both profit centers then give priority Balance can be achieved by dialogue between the two ends

links

What are the links between the front and the back ? Some kind of matrix structure can be used for this A nodal person can be appointed to facilitate the link A different reward system can help in facilitating link

Integration by market:

Back and front end organisations are linked by market forces SBU(strategic business units )for back end and RBU(regional business unit) for front end Interaction between two is purely commercial Eg. Acer

Interorganizational Strategies for Managing Uncertainties because of Resource Dependencies to be Interdependencies that needs
managed.

Symbiotic interdependencies: interdependencies that exist between an organization and its suppliers and distributors Competitive interdependencies: interdependencies that exist among organizations that compete for scare inputs and outputs

Strategic Response to Competition and Uncertainty

Grow: by being unique through pioneering customized, highly differentiated, high quality and technologically superior new products Manage Risk by controlling the environment through forward and backward integration, lobbying and strategic alliances Buffet/Insulate: by sticking to the knitting, controlling, centralizing and emphasizing internal efficiency and technical efficiency.

Top Management Styles

Management Styles are styles of top management with respect to its integrating ideology, strategic orientation, goal setting performance control, coordination and staff motivation.

Top Management Styles

Conservative .. Entrepreneurial
Strategic goals

Intuitive Professional Processes in Decision making Authoritarian Participative Style & Mechanisms of Decision Making Bureaucratic Organic Mode of Management Familial Altruistic Concerns of the organizational Goals

Organizing in India: Public Sector Enterprises

Strategic development organizations in domains that were either critical for economic development or unattractive for private investments Employed High End and the Best Human Capital In a situation of resource scarcity, emphasis on costs, control, efficiency and accountability. Management style was bureaucratic, conservative and authoritative

Some findings from recent survey

Air India Kingfisher Airlines Indian Airlines Power Grid TCS CSC HSS GECIS Nokia CNBC Reliance Info Com Dabur Pharma

ICICI Bank ICICI Lombard PNB RBI Dupont IFFCO Tata Steel NTPC ONGC Tata Motors Maruti Ranbaxy Delphi

Strategic Domain of the organizations

V. no. Dimension High Performers Low Performers

01 02

Turbulence in input and output 58.5 44.1 market Complexity in extent of regulation, factors, client preferences/demand Richness in terms of competition and market Overall Strategic Domain favourable for innovation 71.1
54.8

46.3
43.7

68.4
58.4

03

77.2
55.8

63.5
54.2

68.9
51.6

61.2
52.0

Strategic Choices by the organizations V. no. Dimension High

01 Strategic choice to be unique 76.5 and to grow through 60.5 pioneering, customized, highly differentiated, high quality, technologically superior product and services Management of Risk through 62.1 51.1 forward and backward integration, lobbying and collaborating.

Performers

Low Performers

55.4
52.5

02

68.2
51.5

Top Management Styles

V. no. Dimension High Performers 72.8 57.7 72.9 58.9 70.0 58.2 75.2 61.4 68.0 57.7 Low Performers 56.7 46.2 62.6 51.0 55.0 46.9 64.7 64.0 54.5 45.4

01 02 03 04 05

Entrepreneurial Style Professional Style Organic Style Altruistic Style Participative Style

Management Style favourable 71.8 58.8 to Growth

58.7
50.5

Management Practices for Growth thru V. no. Dimension High Low Innovation Performers Performers
01 02 03 04 05 06 07 08 09 Brainstorming Boundary Spanning Benchmarking Quality Orientation Technical Collaboration Operational Flexibility Planning for innovation Reward System for creative ideas Post implementation review of innovation 69.9, 61.6 71.7,62.2 73.8, 66.8 76.0, 67.6 69.9, 60.5 64.9, 55.1 70.9, 60.1 73.8, 59.7 72.0, 58.4 59.1,56.1 55.0,49.2 62.0, 50.2 61.8,49.7 56.9, 45.4 54.1, 47.4 63.9, 48.0 52.8, 46.4 58.8, 46.7

Management Practices for Growth thru

V. no. Dimension Innovation 10 11 12 13 14 15 16 Cross functional teams Top Management Support Intrapraneurship High Performers 65.8, 57.7 74.7, 65.6 64.3, 55.6 Low Performers 51.4, 43.1 62.2, 51.1 48.7, 40.1 54.7, 43.0 55.8, 44.7 62.5, 49.5 61.5, 49

Strategy for forcing pace of innovation 73.3, 59.2 Focus on product innovation Implementation of new processes 64.5, 54.8 76.5, 61.2

Implementation of administrative and 70.8, 59.6 managerial innovations

Management Practices for managing risk

V. no. Dimension 1 2 3 4 5 Product Differentiation Forward Integration Backward Integration Lobbying Collaboration High Performers 65, 57 59, 45 57, 45 56, 49 74, 63 Low Performers 68,55 64,46 63, 49 70, 56 75, 57

Corporate Excellence
V. no. Dimension High Performers Low Performers 57.2 48.6 61.6 57.1

Overall Management Practices and 70.8 organizational processes favourable to 60.4 growth Corporate Effectiveness 81.0 67.9

Org designs for Innovative Excellence Top

Strategic Domain of Organizations Turbulence Complexity Richness Management Styles Entrepreneurial Professional Organic Participative Bureaucratic Altruistic Growth Risk Management of Innovation Corporate Excellence

Framework for Your Organizations Transformation. ?? Leadership

y to r His

En vi ro nm

en t

Talent

Culture

Work Processes

Structure

Corporate Transformation Model

Quality of integrat ion across units Corporatization Integrate across units Regeneration Balance discipline, support, stretch and trust A

Rationalization Instill discipline and support

Revitalization Build stretch and trust

Quality of Performance of each unit

Remember
Most people most of the time do not imagine a future different from the present.

BEST of LUCK and GOD BLESS