Summary Chapter 11 - STRUCTURE AND CONTROLS WITH ORGANIZATION

MM 5012 BUSINESS STRATEGY AND ENTERPRISE MODELLING

SUMMARY CHAPTER 11

R48A

Henny Zahrany 29112551

MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2014

STRUCTURE AND CONTROLS WITH ORGANIZATION  Organizational structure specifies the firm’s formal reporting relationships, procedures, controls, and authority and decision-making processes.  Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference between actual and expected results is unacceptable.  Strategic controls are largely subjective criteria intended to verify that the firm is using strategies that are appropriate given the conditions in the external environment and the company’s competitive advantages. Thus, strategic controls are concerned with examining the fit between what the firm might do (external environment) and what it can do (its competitive advantages).  Financial controls are largely objective criteria used to measure the firm’s performance against previously established quantitative standards, and these include accounting-based (e.g., return on investment, return on assets) and market-based (e.g., Economic Value Added) measures.

EVOLUTIONARY PATTERNS OF STRATEGY AND ORGANIZATIONAL STRUCTURE Chandler found that firms tended to grow in somewhat predictable patterns: volume  geography  integration (vertical, horizontal)  product/business diversification. A simple structure is an organizational form in which the owner-manager makes all major decisions directly and monitors all activities, and the firm’s staff is merely an extension of the manager’s supervision authority. The functional structure consists of a chief executive officer and limited corporate staff with functional line managers in dominant functions—e.g., production, accounting, marketing, R&D, engineering, human resources. The multidivisional (M-form) structure is composed of operating divisions where each division represents a separate business to which the top corporate officer delegates responsibility for dayto-day operations and business unit strategy to division managers.

Matches between Business-Level Strategies and the Functional Structure Different forms of the functional organizational structure are used to support implementation of the cost leadership, differentiation, and integrated cost leadership/differentiation strategies. The differences in these forms are accounted for primarily by different uses of three important structural characteristics or dimensions—specialization (the type and number of jobs required to complete work), centralization (the degree to which decision-making authority is retained at higher managerial levels), and formalization (the degree to which formal rules and procedures govern work). A strategic network is a grouping of organizations that has been formed to create value by participating in an array of cooperative arrangements. It is often a loose federation of partners who participate in the network’s operations on a flexible basis. A strategic center firm is the one around which the network’s cooperative relationships revolve. IMPLEMENTING BUSINESS-LEVEL COOPERATIVE STRATEGIES Horizontal complementary strategic alliances are much more difficult to manage than are vertical complementary strategic alliances because, in a horizontal alliance, it is difficult to select a strategic center firm when several network members have been aggressive competitors. IMPLEMENTING CORPORATE-LEVEL COOPERATIVE STRATEGIES It is less difficult to select a strategic center firm in corporate-level cooperative strategic alliances structured as centralized franchise networks than in those that are decentralized sets of diversified strategic alliances. IMPLEMENTING INTERNATIONAL COOPERATIVE STRATEGIES  distributed strategic networks are formed  multiple regional strategic centers are established

A Distributed Strategic Network While the distributed strategic network has a primary or main strategic center firm, it also is characterized by multiple strategic center firms that are distributed throughout the world.

THE MULTIUNIT ENTERPRISE Multiunit enterprise: a geographically dispersed organization built from standard units such as branches, service centers, hotels, restaurants, and stores, which are aggregated into larger geographic groupings such as districts, regions, and divisions. The Challenges of Multiunit Enterprises: 1) Multiunit enterprises find it hard to maintain consistency 2) Multiunit organizations must ensure some degree of customization even as they pursue standardization 3) The sharp division of responsibilities between corporate headquarters and the field organization causes many problems 4) Multiunit enterprises often struggle to get the best out of field managers, who are surprisingly hard to classify. The Four Levels of Field Managers  Store managers  Responsible for both day to day operations and the execution of new initiatives. Overall store managers have little control over what they must do but considerable discretion over how to assign, sequence, and accomplish tasks.  Management Action Planning (MAP) system  The impact store managers have on company P&L statement comes from paying attention to customer service, improving the store environment, keeping employees engaged, and assigning employees according to their skills.  District Managers District managers focus on ensuring consistent execution, improving performance, and developing bench strength in all their stores.  Regional Vice President These managers focus on markets, key competitors, growth opportunities, and systemic problems. They are critical intermediaries between the field organization and headquarters, linking stores with company goals.

 Division Presidents and Senior Vice Presidents They also focus on new initiatives, growth opportunities, and systemic problem solving. Their distinguishing features are the ability to direct the organization’s attention to major problems and the greater responsibility they bear for representing the field organization in corporate decisions. The challenge is they have difficulty distinguishing between their roles and those of regional vice presidents.

What are the main ideas of the reading materials? Multiunit enterprises have become the norm in several industries, many of them are large corporations. Overall multiunit enterprises employ four levels of field managers and use five organizational-design principles to implement strategy effectively. What are the requirements for implementing the ideas in your own context? The multiunit enterprises have four levels from bottom to top: store managers, district managers, regional vice presidents, and division presidents or senior vice presidents. The strategy creates a set of general management jobs with overlapping responsibilities, they form a multilayered net to catch all of the problems that can affect strategy implementation. What are practical implications for you? Successful corporate performance requires more than well-designed strategy, the job of these managers, as individuals and as a group, is to tackle the breakdowns that interfere with employees’ efforts to get things done. What are the lessons learned? In multiunit enterprises, field jobs entail responsibility both for general management and for execution. Store managers must ensure coordination and integration of activities at a single site. District managers must ensure coordination, development, and integration of talent across the district labor pool. Regional vice president must ensure coordination and integration of product offerings and competitive positioning across their market areas. Division presidents and senior vice presidents must ensure coordination and integration of staff and line departmens between headquarters and their field organizations.