our focus is on capability development and organizational structure as they apply to strategy implementation. For this critical thinking assignment, read Chapter 6, “Organizational Structure and Management Systems: The Fundamentals of Strategy Implementation” and evaluate a KSA company and their processes of strategy execution.
- How does the strategy developed in the strategic planning processes translate into action for this company? Consider the role of capital expenditure budgets, operating plans, and performance management systems.
- What role do resources, processes, motivation, play in strategy execution in this company and what stands in the way?
- How does this company’s structure and management system promote the effective implementation of the company’s strategy?
- What specific organizational capability should the company develop to support implementation?
CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 6
Organizational Structure and
Management Systems:
The Fundamentals of Strategy
Implementation
1
Organization Structure and Management
Systems: The Fundamentals of Strategy
Implementation
OUTLINE
•
Strategy Formulation and Strategy Implementation
•
The Fundamentals of Organizing
•
Developing Organizational Capability
•
Organizational Design
Copyright © 2019 John Wiley & Sons, Inc.
2
STRATEGY FORMULATION AND STRATEGY IMPLEMENTATION
The Strategic Planning Cycle
Corporate
Guidelines
Draft
Business
Plans
Discussions
with
Corporate
Revised
Business
Plans
Approval
by
Board
Corporate
Plan
Forecasts/
Scenarios/
Planning
Assumptions
Operating Plan/
Operating Budget
Performance
Review
Copyright © 2019 John Wiley & Sons, Inc.
Performance
Targets
Capex
Budget
THE FUNDAMENTALS OF ORGANIZING
Basic Tasks of Organizing:
Cooperation and Coordination
High productivity requires specialization
The efforts of specialized individuals need to be integrated.
This creates two problems:
The need for cooperation
The need for coordination
–The Agency Problem:
Employees’ goals ≠ Owners’ goals
–Managing interdependency
Organizational solutions:
•
•
•
•
Control through hierarchical supervision
Performance incentives to align
individual and firm goals
Shared values to create common
purpose
Persuasion
Organizational solutions:
•
Rules and directives
•
Organizational routines
•
Mutual adjustment
ORGANIZATIONAL DESIGN: THE FUNDAMENTALS OF ORGANIZING
Emergence of the Modern Corporation
Key drivers:
1) Technological and economic developments
•
Developments in transportation (e.g. railroads) enabled firms to serve wider
markets
•
Developments in communication (e.g. telegraph, telephone) allowed firms to
organize across a wider geographical area.
2) Legal developments
•
The corporation as a legal entity
•
Limited liability.
3) Organizational innovations
•
Line and staff structure—the creation of corporate headquarters that
administered multiple operating units
•
The holding company—financial group of companies linked by parentsubsidiary relationships
•
The multidivisional structure—integrated companies with corporate
headquarters responsible for financial and strategic control and divisions
operating the individual businesses.
Copyright © 2019 John Wiley & Sons, Inc.
DEVELOPING ORGANIZATIONAL CAPABILITY
Integrating Resources to Create
Organizational Capability
ORGANIZATIONAL
CAPABILITIES
Processes
Organizational
Structure
Motivation
RESOURCES
TANGIBLE
INTANGIBLE
•Financial
•Physical
•Technology
•Reputation
•Culture
© 2019 Robert M. Grant,
www.contemporarystrategyanalysis.com
HUMAN
•Skills/know-how
•Capacity for
communication
& collaboration
•Motivation
DEVELOPING ORGANIZATIONAL CAPABILITY
Resources & capabilities in
professional soccer
ORGANIZATIONAL CAPABILITIES
Footballing capability
On-field capabilities: Attack, Defence, Set-piece,
Off-field capabilities, Scouting, Player appraisal, Team selection,
Commercial capability
Financial mgt., Sponsor relations, Negotiation, Marketing & distribution
Processes
Structure
Motivation
RESOURCES
Players, Coaches, Scouts, Medical personnel (doctors, physios),
Nutritionists, Psychologists, Executives, Fans
Finance, Training facilities, Stadium
Brand, Relationships
Culture
DEVELOPING ORGANIZATIONAL CAPABILITY
Reorganizing to Accommodate Capability Development:
Booz Allen Hamilton (Worldwide Commercial Business), 1992-1998
FUNCTIONAL PRACTICES
Strategy
Operations
IT
Financial
services
NY
Project Teams
Tokyo
Project Teams
I
N
D
U
S
T
R
Y
London
Project Teams
[A] 1992: “A colony of artists”
Copyright © 2019 John Wiley & Sons, Inc.
P
R
A
C
T
I
C
E
S
Energy
Telecom
Consumer
Engineering
Chemicals
/Pharma
NY
Tokyo
London
Project Teams
[B] 1998: Organizing for Capability
ORGANIZATIONAL DESIGN
Hierarchy as Control:
Weber’s Principles of Bureaucracy
• Rational-legal authority
• Specialization of labor
• Hierarchical structure
• Coordination and control through rules and standard
operating procedures
• Standardization of employment practices
• Separation of positions and people: authority assigned to
a position, not a person
• Formalization of administrative acts, decisions, and rules
Copyright © 2019 John Wiley & Sons, Inc.
ORGANIZATIONAL DESIGN
Hierarchy as Coordination:
[1] Hierarchy Economizes on Coordination Costs
(a) Self Organizing Team:
(b) Hierarchy:
10 interactions
4 interactions
But what about effectiveness of coordination?
–Depends upon the organization’s task
Copyright © 2019 John Wiley & Sons, Inc.
6
THE FUNDAMENTALS OF ORGANIZING
Hierarchy as Coordination: [2] Loosely-Coupled
Modular Systems Allow Decentralized Adaptation
Tightly-coupled,
integrated system:
Change in any part of the
system requires systemwide adaptation
Copyright © 2019 John Wiley & Sons, Inc.
Loose-coupled, modular
hierarchy: partially-autonomous
modules linked by standardized
interfaces permits decentralized
adaptation and innovation
ORGANIZATIONAL DESIGN
The Hierarchical Structure of
Organizational Capabilities: Oil and Gas
Exploration
Copyright © 2019 John Wiley & Sons, Inc.
ORGANIZATIONAL DESIGN
Ryanair Holdings plc:
Organizational structure
Board of Directors
CEO
(Michael O’Leary)
Finance
Legal &
Regulatory
Copyright © 2019 John Wiley & Sons, Inc.
Operations
Marketing
Human
Resources
Technology
ORGANIZATIONAL DESIGN
General Electric: Organizational
Structure, January 2018
Corporate Executive Office
Chairman & CEO
Corporate Staff
-Business Development
-Legal
-Commercial & Public Relations -Global Research
-Human Resources
-Finance
GE
GE
GE
Renewable Power Capital
Energy
GE
Digital
Copyright © 2019 John Wiley & Sons, Inc.
GE
Health
care
GE
Aviation
Current
GE
powered
Transby GE
portation
Baker
Hughes
ORGANIZATIONAL DESIGN
Royal Dutch/Shell Group, 1994: A Matrix Structure
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
ORGANIZATIONAL DESIGN
Mechanistic versus organic organizational forms
Feature
Mechanistic forms
Organic forms
Task definition
Rigid and highly
specialized
Rules and directives
vertically imposed
Flexible and broadly
defined
Mutual adjustment,
common culture
Communication
Vertical
Vertical and horizontal
Knowledge
Centralized
Dispersed
Commitment and loyalty
To immediate superior
To the organization and its
goals
Environmental context
Stable with low
Dynamic with significant
technological uncertainty technological uncertainty
and ambiguity
Coordination and control
Copyright © 2019 John Wiley & Sons, Inc.
ORGANIZATIONAL DESIGN
Recent Trends in Organizational Design
• Limited evidence of a “revolution in organizational design”—basic
features of organizations (e.g. hierarchy, financial control
mechanisms, strategic planning) are still present
Major trends of past two decades:
• Delayering—organizational hierarchies becoming flatter
• Adhocracy and team-based organization—emphasis shared
values, high participation, flexible roles and communication, lack
of authority
• Project-based organizations—dynamic structures with timelimited project teams
• Network structures—organizations and groups of organizations
where coordination based upon informal social linkages
Copyright © 2019 John Wiley & Sons, Inc.
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