organization theory: strategy implementation process

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Organization Theory: Organization Theory: Strategy Strategy Implementation Process Implementation Process Steven E. Phelan Steven E. Phelan June, 2006 June, 2006 STRATEGY EXECUTION: STRATEGY EXECUTION: Structure, Systems, Rewards Structure, Systems, Rewards

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Organization Theory: Strategy Implementation Process. Steven E. Phelan June, 2006 STRATEGY EXECUTION: Structure, Systems, Rewards. Overview. Syriana Discussion Structure and Execution Hrebiniak Chapter 4 USA Today Integration Hrebiniak Chapter 5 Brache – Strategy implementation - PowerPoint PPT Presentation

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Page 1: Organization Theory:  Strategy Implementation Process

Organization Theory: Organization Theory: Strategy Implementation Strategy Implementation

ProcessProcessSteven E. PhelanSteven E. Phelan

June, 2006June, 2006

STRATEGY EXECUTION:STRATEGY EXECUTION:

Structure, Systems, RewardsStructure, Systems, Rewards

Page 2: Organization Theory:  Strategy Implementation Process

OverviewOverview• 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

Page 3: Organization Theory:  Strategy Implementation Process

SyrianaSyriana

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

Page 4: Organization Theory:  Strategy Implementation Process

The Star ModelThe Star Model

People

Rewards Processes(Integration)

Structure

Strategy

from Galbraith, Designing Organizations

Page 5: Organization Theory:  Strategy Implementation Process

StructureStructure

• Key principles Functional organization -> efficiency

• Economies of scale, avoids duplication, critical mass of know-how, clear career path

Divisional structure -> 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?

Page 6: Organization Theory:  Strategy Implementation Process

Centralization v DecentralizationCentralization 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

Page 7: Organization Theory:  Strategy Implementation Process

Tall v FlatTall 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.

Page 8: Organization Theory:  Strategy Implementation Process

Strategic DriversStrategic 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

Page 9: Organization Theory:  Strategy Implementation Process

Emerging TrendEmerging 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

Page 10: Organization Theory:  Strategy Implementation Process

Customer-focused structureCustomer-focused structure

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

Page 11: Organization Theory:  Strategy Implementation Process

TelstraTelstra• 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

Page 12: Organization Theory:  Strategy Implementation Process

ThoughtsThoughts• 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

Page 13: Organization Theory:  Strategy Implementation Process

Case 1: American Heart Case 1: American Heart AssociationAssociation

• 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?

Page 14: Organization Theory:  Strategy Implementation Process

IntegrationIntegration• Interdependence

Pooled • Low coordination requirements• Rules/SOPs/Hierarchy

Sequential• High coordination• Scheduling, JIT, transfer pricing issues

Reciprocal• Very high coordination• Meetings, trust, group incentives

Page 15: Organization Theory:  Strategy Implementation Process

More integration ideasMore 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

Page 16: Organization Theory:  Strategy Implementation Process

More integration ideas ctd.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? GE’s Workout program?

Page 17: Organization Theory:  Strategy Implementation Process

Responsibility PlottingResponsibility Plotting• Responsibility Matrix

Major tasks by key people R = responsibility A = accountability (final say) I = must be informed C=must be consulted ? = don’t know

• Useful tool

Page 18: Organization Theory:  Strategy Implementation Process

Brache v BossidyBrache 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?

Page 19: Organization Theory:  Strategy Implementation Process

Rewards & ControlsRewards & Controls• Hrebiniak’s 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

Page 20: Organization Theory:  Strategy Implementation Process

Case 2: USA TodayCase 2: USA Today

• Identify the problem(s)

• Recommend: A strategy A structure A set of key lateral processes, and A reward system

That will solve (or at least address) the problem(s) at USA Today

Page 21: Organization Theory:  Strategy Implementation Process

Bebchuk and FriedBebchuk 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• CEO’s power to benefit directors• Friendship, loyalty, collegiality, authority, solidarity• Small personal cost of favoring CEO• Ratcheting

Page 22: Organization Theory:  Strategy Implementation Process

Dubious practicesDubious 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?