The main elements of an organisational structure u6 p14

Hierarchical organisations have gained an image of being rigid and bureaucratic. However they are capable of delivering your product/service efficiently and consistently. In turbid environments rigidity can be a problem, however.

Modern approaches such as the matrix structure also present difficulties. Because of the difficulties and complexity of operating multidimensional structures, more modern structures have emerged, such as network structures.

Mintzberg wrote an article "The Structuring of organisations". In it he says that "in sharp contrast to [...] contingency theory, [...] organisations can select their situations in accordance with their structural designs just as much as they can select their designs in accordance with their situations".For example, diversified firms may divisionalise, but there is evidence that divisionalised firms may diversify more. Bureaucracies can be encouraged to form by stable environments, but again bureaucracies have a habit of trying to stabilise their environments. Entrepeneurial forms, which operate in dynamic environments, need to maintain flexible structures, but they also seek out and try to remain in dynamic environments in which they can outmanoeuvre the bureaucracies.

Mintzberg defined six basic parts of the organisation
1. The Operating Core (where the work of producing the product/service gets done)
2. The Strategic Apex (the home of top management)
3. The middle line (all managers that stand between the strategic apex and the operating core)
4. The technostructure (left blob, where organisational systems are designed)
5. The support staff (right blob, all the staff who support the organisation outside its normal workflow, eg HR, PR etc in a traditional firm - provided it wasn't an HR or PR firm where that would be at the operating core)
6. The ideology (a halo of beliefs and traditions surrounding the whole)


Within the organisation, various methods of co-ordination exist to ensure that output is produced. Mintzberg defined 6 of those, too
1. Mutual adjustment. This is where the people in the operating core achieve co-ordination by the simple process of informal communication.Used in simple organisations, the most obvious way to co-ordinate. But also the most complex, and often used where extremely difficult problems need solving.
2. Direct supervision. This is where the managers at the strategic apex directly control what the operational core does. This comes into play when an organisation is too big to be suitable for mutual adjustment alone. A team manager may manage his players this way, or the entrepeneurial boss of a small firm may manage his staff this way.

The above two are ad-hoc in nature. There are also four more formal methods of co-ordination
3. Standardisation of work processes, where the technostructure produce and provide well defined business processes that staff in the operational core are expected to follow. These processes are tailored to the job in hand.
4. Standardisation of outputs. This is where the technostructure produce and provide an overall well defined process which details the interfaces between jobs in the operational core, defining what must happen to the inputs to produce the output and how the outputs of one stage are passed to the inputs of the next.
5. Standardisation of skills. This could be where staff in the operating core have well defined skills (surgeon, anaethetist etc) which they will have learned outside of the organisation and already know how to interact and co-ordinate with other expert staff as they know what to expect of them.
6. Standardisation of norms. This is where the operating core workers share a common set of beliefs and can achieve co-ordination based on it. An example might be a religious order where every member shares a belief in the importance of attracting converts.

Your firm divides up the work to produce its outputs amongst its individuals and teams. This is known as division of labour. Mintzberg says that these methods of co-ordination serve to knit together the divided labour of the organisation and serve as the most basic elements of structure - the glue that holds the organisation together.

The design for this "knitting" could be considered to have ten parameters which influence the division of labour and subsequent co-ordination. These fall into four groups.

Group 1. Design of individual positioins

Job Specialisation
This is where you decide what each person will do - how specialised will each job be, how many distinct tasks should it contains and how much control over those tasks should the person who does the job have? This allows you to design the division of labour of the organisation. Jobs with a few narrow tasks are horizontally specialised. Those with many broad ones are horizontally enlarged. Jobs that involve little control by those who do them are vertically specialised, those which are thoroughly controlled by the worker are vertically enlarged.

Unskilled jobs are generally those which are specialised horizontally and vertically. Many professional jobs are horizontally specialised (narrow range of tasks) but vertically enlarged (lots of control over how you do them).

Behaviour formalisation
Worker behaviour is formalised to reduce its variability, ultimately to predict and control it. Thus behaviour formalisation is a means to achieve vertical specialisation. 
Bureaucracies tend to rely highly on formalisation of behaviour. Mintzberg regards any structure that relies on standardization for co-ordination to be bureaucratic, not just standardisation of processes.

Training
The behaviour required of some tasks is too complex to be proscribed directly by the technostructure's analysts. In this case, training is required for the people in the operational core before they can do their work. In other words, they must acquire some standardised body of knowledge and skills.

Formalisation and training are basically substitutes for one another. Formalisation for the unskilled workers, training for the professional workers. Formalisation takes power from the worker and puts it into the technostructure. Training enables the worker to take power from all the other parts of the organisation and puts it into the hands of the professional workers.

Indoctrination
Socialisation refers to the process by which a new member learns the value system, the norms, and the required behaviour patterns. Much of this happens as new organisational members interact with old, informally and unoficially. Some also takes place officially, eg induction schemes.


Group 2. The superstructure of the organisation
Unit Grouping
Jobs ("positions" in mintzberg-speak) are groupd into units, each under its own manager. These are then clustered into larger units under their own managers and the cycle repeats until the whole organisation comes under a single manager at the strategic apex. Formal power is granted through a hierarchy of authority. Organisational Chart (organigram, from French) only documents the formal power structure, and is often superseded by informal power.
Grouping establishes a system of common supervision among positions and units, requires positions and units to share common resources (and facilitates that), allows p&u to be assessed on common measures of performance, and encourages mutual adjustment amongst units and groups with a tendency to be physically located together or in proximity.

Positions and units can be grouped by function (eg knowledge, process etc) or by market (product/service, client, place), or in other words by means or by ends.

Unit size is also important, but the assumption that no team should be bigger than about 5 or 6 for supervision reasons assumes that direct supervision is the only option. It is not the case. The greater the use of standardisation, the larger the work unit can be. The greater the need for mutual adjustment, the smaller the work unit would normally be.


Group 3. The design of lateral linkages
Planning and Control systems standardise outputs. They allow you to standardise outputs ahead of time. Control allows you to determine whether the standards have been met. Action planning systems focus on before-the-fact determination of outputs, whereas performance control systems refer to monitoring of results after-the-fact.

Liaison Devices
Although mutual adjustment may occur naturally in small work units, it needs to be encouraged across units where grouping has the known tendency to discourage it. This has often been left to chance. Liaison devices are formal parameters of structural design that have been developed to stimulate mutual adjustment across units. Mintzberg's most important four are (in ascending order!):-

Liaison positons - jobs created to co-ordinate the work of two units directly, without having to pass through vertical managerial channels - typically have no power per se and have to rely on negotiation skills
Task forces and standing committees - intitutionalised forms of meetings which bring members of a number of different units together on a more intensive basis
Integrating managers - essentially liaison personnel with formal authority. This is not authority over the units they link, but usually of something important to those units, for example approval of decisions or control over budgets.
Matrix Structure - carries liaison to its natural conclusion. This is a way of balancing two ways of grouping, for example functional with market, or region with product. A dual authority structure exists. Matrixes can be permanent (where the units/positions remain in place all the time) or shifting (as is the case with much project work, where units & positions move around frequently).
Liaison devices are most logically used with work that is horizontally specialised (few narrow tasks), professional, and interdependent. They tend to destroy bureaucratic priority.


Group 4. The design of the decision-making system

Vertical and horizontal decentralisation

Decentralisation:- the sharing of decision making power.
Power at a single point - centralised structure. Power is dispersed - decentralised.
Vertical decentralisation - the delegation of formal power down the hierarchy to line managers.
Horizontal decentralisation - the extent to which formal power is dispensed out of the line managemenent hierarchy to non-managers (operators, workers, support staff).
Decentralisation allows the organisation to respond quickly to local conditions in many places and can serve as a stimulus for motivation, since capable people require significant room to manoeuvre if they are to perform at full capacity.

So thinking back to the six co-ordinating mechanisms
Direct supervision - full horizontal centralisation - all power rests with managers. Vertical centralisation since dependence on direct supervision - this is type 1 decentralisation.
The various types of standardisation co-ordinating mechanisms lead to different degrees of decentralisation. Standardisation of work processes leads to limited horizontal decentralisation - type 2 in Mintzberg's figure 13.6 (reader p257).
Standardisation of output leads to limited vertical decentralisation (type 3).
Standardisation of skills leads to extreme horizontal decentralisation - a bottom-heavy organisation, type 4.
Mutual adjustment leads to selective horizontal and vertical decentralisation - type 5.
Standardisation of norms leads to organisations allowing members considerable freedom to act, and therefore plain decentralisation (type 6).


The situational factors
Mintzberg says that many factors influence how you go about determining your design parameters and vice versa. For example, the age and size of your organisation, its systems, its environment (stability and complexity) and its power system (Is it tightly controlled from the outside).

Age and size hypotheses
H1. The older the organisation, the more formalised the behaviour (seen it all before syndrome, or even not invented here syndrome)
H2. The larger the organisation, the more formalised its behaviour (seen it all before often)
H3. The larger the organisation, the more elaborate its structure (the big barber shop can afford a specialist to cut children's hair, the smaller one cannot)
H4. The larger the organisation, the larger the size of its average unit (makes sense, with growth this happens)
H5. Structure reflects the age of founding of the industry (interesting. Industries that predate the industrial revolution seem to favour one kind of structure, more modern industries another. Compare the traditional academic hierarchy in universities which is based on ancient practices to that of a modern software company, for example)

Technical systems hypotheses
H6. The more regulating the technical system - that is, the more it controls the work of the operators - the more formalised the operating work and the more bureaucratic the structure of the operating core - eg mass production assembly lines render that work highly routine and predictable, encourage its specialisation and formalisation, and this creates the conditions for bureaucracy
H7. The more complex the technical system, the more elaborate the administrative structure, especially the larger and more professional the support staff, the greater the selective decentralisation (to that staff) and the greater the use of liaison devices to co-ordinate the work of that staff! Phew! Complex machinery requires skilled experts, who have the capability to design, select and even modify it. Those people then are given considerable power to make decisions concerning that machinery and they must therefore be encouraged to use liaison devices to ensure mutual adjustment among them.
H8. The automation of the operating core transforms a bureaucratic administrative structure into an organic one. Unskilled work co-ordinated by standardisation of work processes creates a bureaucratic structure-friendly environment. An obsessive control mentality exists. But where that work is automated, social relationships change - the obsession with control disappears. The managers and analysts needed to look after staff in the operational core are no longer needed in such numbers. Automation results in a reduction of line authority in favour of staff expertise. Organisations get humanised by the automation of their operating work :)

Environmental Hypotheses
H9. The more dynamic the environment, the more organic the structure - the organisational structure cannot stabilise while the environment is not stable.
H10. The more complex the environment, the more decentralised the structure - the prime reason to decentralise a structure is that all the decision making information cannot be held in one brain. Complex environments lead to a requirement to process more information
H11. The more diversified the organisation's markets, the greated the propensity to split it into market-based units, or divisions, given favourable economies of scale - diversification breeds divisionalisation. This reduces the need to co-ordinate across units.
H12. Extreme hostility in its environment drives any organisation to centralise its structure temporarily. - Notwithstanding H10, social science says that when threatened, the tendency for groups (and thus orgs) is to centralise power, in other words fall back and regroup under direct supervision.
H13. Disparities in the environment encourage the organisation to decentralise selectively to differentiated work constellations. What a large amount of management-speak in this hypothesis! But it's simple. Where an organisation faces more than one type of environment (eg turbid and stable) which would normally require different structures, the tendency is to create "work constellations" to deal with each and differentiate the structure. Each constellation is given the power to make decisions related to its own "subenvironment". This is selective decentralisation.

Power Hypotheses

H14. The greater the external control of the organisation, the more centralised and formalised its structure - do you have a parent firm or organisation? If so you tend to centralise power at your strategic apex to formalise behaviour - the CEO is likely to be held responsible for the organisation's actions.
H15. The power needs of the members tend to generate structures that are excessively centralised - everyone wants to increase their own power, right? Or at least to keep others from having power over them. Its human nature. But of course, the authority structure in place can be used to subdue this desire.
H16. Fashion favours the structure of the day (and of the culture), sometimes even when inapppropriate - don't forget the latest trendy management fad! Many organisations will try to adopt design parameters that aren't necessarily appropriate for themselves!

Configurations
The elements of structure tend to cluster naturally in a certain number of ways - Mintzberg calls them Configurations. 6 methods of co-ordination, parts of the organisation, types of decentralisation. They all fit together to describe the essence of six basic configurations - table 13.1 p 263+4 reader. Each of the parts of the organisation can pull the organisation in its own direction. When conditions favour one of these pulls over the others, a particular organisation is drawn to structure itself appropriately.

The pulls create the following configurations
Simple Structure
The name tells it all. One large unit consisting of one or a few top managers, one of whom dominates by the pull to centralise, and a group of operators who do the basic work. Standardisation - absent. No analysts (technostructure absent). Little use of planning, training or liaison devices. Few middle line managers. Organic structure. Typically operates in a dynamic environment as that is often the only place it can outsmart the bureaucracies. But although environment is dynamic, it is also simple. Typically a young organisation, as few old simple structures exist. Time would normally drive a simple structure to bureaucracy and where it doesn't their vulnerability causes them to fail. Many are often small as bureaucracy often comes with size. Classic entrepeneurial firm. Sometimes under crisis conditions, large organisations also revert temporarily to simple structures to allow forceful leaders to save them.



Machine Bureaucracy
This is the offspring of the industrial revolution, says Mintzberg. Jobs became highly specialised and work became highly standardised. Requires a large technostructure which has a good deal of informal power, limited amount of horizontal decentralisation. A large hierarchy of middle line managers, usually structured on a functional basis all the way to the top, so centralised vertically. Environment and production system must be fairly simple. A natural fit with mass production.


Professional Bureaucracy
This is another bureaucratic configuration, but one that relies on the standardisation of skills rather than work processes or outputs. The pull to professionalise dominates. For example, hospitals, universities. Highly decentralised horizontally, power over many decisions, both operating and strategic, flows down the hierarchy to the operating core. Small technostructure since standardisation occurs as a result of training that takes place outside the organisation.


Divisionalised Form
Like the professional bureaucracy in that it is a set of rather independent entities coupled together by a loose administrative structure. In a professional bureaucracy those entities are individuals, here they are units in the middle line, generally called divisions. They exert a dominant pull to balkanise. It is not a complete structure but a partial one superimposed on others. Kind of a structure of structures, where individual divisions have their own structures, probably machine bureaucracies in themselves. This happens where product lines are diversified, in large and mature organisations. Mintzberg says they tend to have run out of opportunities or become bored. Headquarters relies on performance control systems - the standardisation of outputs. A small technostructure maintains these.


Adhocracy
None of these structures suits modern industries, particularly aerospace, film making, consulting or petrochemicals. Innovation is essential. Bureaucratic structures are too inflexible and simple structures are too autocratic. Project structures fuse experts drawn from different specialities into smoothly functioning creative teams. Adhocracy fills this role and is dominated by the experts' pull to collaborate. Co-ordination for mutual adjustment amongst its experts is critical and so liaison devices are used, integrating managers, standing committees, task forces and matrix structures are used here. Experts are grouped in functional units for housekeeping, but deployed in market-based project teams to actually do their work. Power is delegated to these teams. Decentralisation happens selectively in the vertical and horizontal dimensions. This results in power distributed unevenly all over the structure according to expertise and need. The environments of adhocracies are both complex and dynamic. Some adhocracies fail, and others end up converting themselves to a form of bureaucracy.


Missionary
This is what happens when an organisation is dominated by a pull to evangelise. This results in members pulling together, loose division of labour and little job specialisation. There's also little differentiation of the strategic apex from the rest or between divisions and so on. The missionary structure is held together by its standardisation of norms. This is achieved through the design parameter of indoctrination. Once the new member is indoctrinated into the organisation they will identify with the common beliefs and given considerable freedom to make decisions. The missionary has virtually no technostructure. Beyond a certain size it tends to divide itself into smaller units that look much like the parent.


In summary, Mintzberg's structural model is a way to take a very complex subject matter and make it manageable by considering how the various dimensions (coordinating mechanisms, organisational parts, design parameters, situational factors etc) cluster together to form distinct types of organisations. This is more realistic than trying to consider all of the permutations and combinations of these dimensions, or trying to deal with them all in a fragmented way.

The relationship between strategy and structure - u6 s2p9

Structure
- tells you who has what authority
- tells you the limits of that authority
- tells you who reports to whom
- tells you who holds which resources
- tells you what career paths are available
- tells you how knowledge flows within the organisation (whittington 2003)

and

- can be expressed in an organisational chart (formal structure)
- cannot always be expressed in an organisational chart (informal structure)

- provides ways for an organisation to coordinate its activities and deliver a unique mix of value (porter 1996)

But, does structure follow strategy (chandler 1962)? Or does strategy follow structure?

Structure is one of the levers of strategic implementation. Mintzberg provides models to show how different structures fit different strategies. eg the two different strucutres at Novotel prior to 1992 and after the mid 90's reorganisation. Structure can be difficult to change, and one organisation can have a number of structures within it, so maybe it's not as clear cut as Mintzberg's model implies. Not all strategy is deliberate (Mintzberg & Waters) so it could be argued that the structure influences strategy. In a dynamic business environment, change is inevitable and recurrent. Adaptable structures exist because of the need to adapt strategy on an ongoing basis. It could be argued that an adaptable strcuture needs to be in place before new adaptable strategies can be implemented.

Structure follows strategy:
For example, if an organisation follows a cost leadership strategy, then its products must be produced reliably and cost effectively, necessitating a structure that facilitates coordination and minimises product design, supply, operations and distribution (see value chain).

Thinking about non-profits, the same is true of a non-profit voluntary organisation with a strong sense of mission (eg people's supermarket). If it aims to maximise public donations and credibility, its structure must minimise admin costs and provide flexibility.

These examples agree with Chandler's assertion, however it assumes that the management of the strategy/structure relationship is a rational process undertaken only by senior management.

However contingency theory implies a cause-and-effect relationship between eg the dynamic environment and the design of organisational structure. In this situation, it could be said that it is the environment that drives structural change.

In the Agilent example (u5 p11-12) strategic change drove a need for structural change at the wider level. However lower down the organisation change was needed and structural change and strategic change went hand-in-hand.

At $EMPLOYER, one could consider that currently structure restricts strategy. The wider organisational structure and structure in departments is quite rigid.

Contingency theory can consider contingencies too much in isolation, however. Employees are more likely to contribute positively if they work within an appropriate structure.

Mintzberg and Miller argue that the relationship between structure and strategy is more 'emergent' in nature.

Mintzberg (1990) said "Structure follows strategy as the left foot follows the right".

Unit 6 - Strategy Implementation. Structure, systems, culture and change

Distinctive capabilities and/or market positioning usually need to be combined with operational effectiveness for success. Porter asserts that operational effectiveness and effective strategy are both needed for superior performance.

The relationship between strategy and operations is therefore key. The chosen strategy must also consider the consquences on operations of its implementation. This means understanding our structure, systems and culture, and how they might be utilised or affected.

You often hear of organisations with a clear strategy but lose their sense of direction during implementation. This gap is the difference between "intended" and "realised" strategy as discussed earlier on this blog.

For example, an intended strategy is unlikely to become realised if our systems - internal workings and processes - are undermined.

Implementing strategy is complex. And it occurs in dynamic and changing external environments.

Implementation of strategy will see the foundations for the strategy itself continuously and repeatedly tested, with forces acting for redirection or renewal of the strategy as the environment changes.

It is important to note, therefore:-

Strategy implementation is a continuous process. A chosen strategy must be revisited continuously in order to identify and deal with strategic issues as they arise.
The Continuous process of strategy implementation must always consider the inter-relationships between the strategy and structure, systems and culture. A change in one part will require changes in the other two.

It is important that strategic thinking is applied throughout the process of implementation. You will need to spend as much time implementing the strategy as you did developing it (if not more so!)

Carefully selected strategies can fail because of poor approaches to implemetation. Go ahead, with confidence, even in changing conditions.

So Unit 6 on this course teaches how to

understand the key elements that affect strategy implementation
appreciate the different types of organisation structure and their influences on strategy
recognise the systems that underlie strategy implementation
understand how the culture of an organisation impacts on strategy
appreciate the influence of internal and external change on strategy implementation

Management issues affecting strategic alliances u5p92

Alliances can fail because "operating managers do not make them work, not because contracts are poorly written" (harrigan 1984)

Strategic Alliances fail more often than they should (hitt et al 2003).

Managers from partner companies often have different corporate and national cultural backgrounds. They may be used to working in a hierarchical way, rather than making decisions based on consensus. Therefore strategic alliances are often referred to as "co-operative strategies".

Faulkner (1994)'s four factors of successful alliances:-

Positive attitudes between the partners
clear organisational arrangements for the alliance
A philosophy of organisational learning
Congruent long-term goals

(more info u5 p93)

Strategic Alliances u5p91 & reader p355 - hitt 2003

Stimulii for creating partnerships may be external or internal, and include globalisation and intense competition necessitating a need to maximise resources, overcome resource shortfalls, gain time, improve competitive positions etc. because:-


organic growth will be too slow and faster penetration and exploitation of key markets is needed.

alliances create opportunities to grown in directions which may not be possible for one partner alone

potential payoffs are felt to offset the costs and risks of collaboration

alliances can grant immediate access to markets/resources/funds/skills/tech

economies of scale can lead to cost reductions for both partners

synergies can be created through blending complementary strengths or assets

there may be a need for complex resource bundles

an alliance can lead to safety by spreading financial risk, sharing novelty risks, reducing political risk, reducing market volatility, rationalising standards or influencing new industry developments

an alliance can be a strategic defence.

Mergers and Acquisitions (u5 p87)

Merger - an agreement between two organisations to integrate on a relatively equal basis.
Acquisitions - one organisation buys a controlling interest in the other organisation

Acquisitions often become an operating subsidiary, but sometimes will be totally integrated.


m&a can increase an organisation's market power, through horizontal integration. An ability to make m&a work repeatedly may be considered a capability posessed by a serial acquirer, for example Cisco, Electrolux.


m&a can be risky though. Often, managers can become primarly focused on assimilating the two firms and can lose sight of the core business, leading to a deterioration in performance.

Vertical and Horizontal Integration u5 p86

Benetton's diversification was from designing & manufacturing fashion into retailing. This can be thought of as forward vertical integration as retail is nearer to the end user market than is manufacturing (its core business).

Some firms may choose to integrate backwards (towards the raw material). BSkyB did this when purchasing Amstrad (a manufacturer of satellite set top boxes)

Forwards - towards consumer. Backwards - towards the raw material.All are vertical integration.

A firm which acquires a provider of complementary services is undertaking horizontal integration. BSkyB/Amstrad does not fit into this category because STBs are a necessity to receive Sky's service and part of the supply chain (Sky supplied the boxes even before they bought Amstrad). But Sky buying a TV manufacturer would be horizontal integration.

Similarly, an electricity supplier diversifying into gas would be horizontally integrating. But if they were to buy the generating company they would be vertically integrating.

Related and unrelated Diversification Iu5 p79

Related Diversification - a development beyond the existing product or market, but one that still sits within the same broad industry
Unrelated Diversification - where the organisation moves beyond the boundaries of its existing industry

It is possible to pursue different degrees of diversification. This can be evaluated by assessing the percentage of total revenue attributable to a single business.

Wrigley's - not very diversified. Siemens - very diversified.

Creation of value through diversification is achieved through economies of scope. Synergy exists when the value created by business units working together exceeds the value those units create working alone. The whole is greater than the sum of the parts. This can be difficult to realise in reality.Relates closely to the discussion of resources and capabilities.

Ansoff's 1965 growth matrix u5 p67 on

Horizontal Axis: Product/Service (Present vs new)
Vertial Axis: Market (New vs Present)

Top left: Present product, present market - market penetration strategy for growth
Top right: Present Market, New product - Product development
Bottom Left: New Market, Present Product - Market development
Bottom right: Related & Unrelated Diversification

Options for related and unrelated diversification include

Vertical and horizontal integration
Mergersrs and acquisitions
Joint ventures, strategic alliances, consortia p69

Market Penetration - eg Dell (although this is probably prior to its entry into the mobile devices market). A risk-averse strategy based on avoiding

• a reliance on underdeveloped skills
• seeking new customers and markets
• acquiring and mastering new technology
• building new delivery and supply channels
• developing new promotional ability
• facing new competitors

Typically in mature industries or those resistant to major technological change. May be an option where a market is in decline to "harvest" the remaining opportunities as competitors exit.
This strategy includes consolidation, eg BA/Go/Easyjet in growing market, raising profile in a mature market, or turning an old technology into a niche (vinyl records).


Product and Market Development

These both aim for growth through extending organisastional scope.

Market Development
Taking your existing products into new markets. This can, eg, be firms moving outside their own geographic area such as wholesale wines into new geographic markets, or it can be where a firm purchases a rival or brand to allow it to enter a market where that brand is seen as dominant (rather than to enter a market with the products associated with the brand are different to the acquirer's own). Brand building (eg unilever's global brands) is a key telltale of this strategy.


Product development is expanding your product range to address new markets and opportunities. For example, different flavours of the established kitkat brand, or offering regional variations of products to suit local markets.KFC & McDonalds are often using this strategy to push new (often limited edition) products to try and capture sales in their mature market.

Corporate Strategy and Parenting Theory (p324-334 reader)

Goold/Campbell/Alexander 1998

Summary

• Many of the business units in multibusiness companies could be viable as stand-alone entities: To justify its existence, the corporate parent must influence the businesses collectively to perform better than they would as stand-alone entities
• Parent companies compete with each other for the ownership of businesses: The objective of corporate strategy should be to add more value to the businesses in the portfolio than other rival parent organisations would
• All multibusiness organisations have inherent and pervasive tendencies to destroy value: Corporate strategies should recognise these tendencies and be designed to minimise value destruction as much as to maximise value creation
• The importance of lateral synergies in creating value in multibusiness companies has been systematically overrated: corporate parents should pay relatively more attention to other sources of value creation, in particular their ability to improve performance in each individual business as a stand-alone entitiy
• Value creation seldom occurs unless the corporate parent perceives a few large opportunitites for business performance enhancement, and develops distinctive skills, resources and influencing processes that address these opportunities: Corporate parents should focus their efforts on building special competences that fit the particular opportunities they are targeting
• Corporate centres, functions and processes designed to achieve general best practice lack sufficient focus to achieve outstanding results: They should be designed more idiosyncratically to fit with the specific opportunities targeted by the corporate level strategy
• Past measures of diversity based on conventional concepts of relatedness have proved unsatisfactory: To avoid excessive diversity, corporate parents should build their portfolios around businesses with similarities in terms of parenting needs and opportunities
• Many corporate parents are over-ambitious about the speed with which they can build new skills and understand new types of buisnesses: Good corportate strategies should maintain a balance between 'stretch' for new opportunities and 'fit' with the parent's existing skills
• Business unit boundaries and corporate reporting structures have a profound impact on both the balue creation opportunities and the value destruction risks for the corporate parent: Decisions on unit definitions and corporate structures should be determined by careful analysis of their likely impact on net value creations, not by history ambition and politics

How to assess the potential of your strategy. u5s3p52

Johnson & Scoles suggested three sets of testing critera,

• suitability - does it fit with eg the market key sucess factors and does it adequately address the problem/opportunity, is it based on resource capitalisation and does it fit your objectives/mission
• feasibility - can you do it?! are the required performance measures necessary for the strategy achievable, do you have the resource and can you cope with the reaction of your competitors to your new strategy (will your new low prices spark a price war, for example)
• acceptability - should you do it? what is the cost-benefit? What are the risks? Consider all organisational stakeholders. What is the effect of the strategy on your internal systems and procedures. Will there be knock-on effects?

These are a good set of initial tests, but Rumelt (1995) also suggests considering additional factors.

• Consistency - is the strategy consistent with the other things you do and present a consistent or inconsistent view of the organisation?  Are you sending out mixed messages? Does it create more value than it costs, and does it compete with other organisations that are also trying to adapt and prosper?
• Consonance - tricky concept - Does it create social value, eg benefit all stakeholders appropriately, is it what the market is looking for, is it acceptable to your customers or will it alienate them?
• Advantage - will it allow you to capture the value it creates? It must provide for creation/maintenance of competitive advantage from one or more of superior skills, resources or position.
• Feasibility - as above

Digging deeper into Porter's Generic Strategies u5s3p39

Sandberg(1996) claimed the model does not allow segment differentiation, meaning it didn't account for organisations that attempted different approaches in the different segments in which they operate.

Generally speaking, Mintzberg (1995) claimed 6 ways of strategic differentiation, which you might expect to mix or combine together.

• price
• image
• support
• design
• quality
• undifferentiated (or non-differentiated).

Price and image are often combined, particularly with designer brands which desire to be perceived as expensive (or cheap!) Price may be part of the image.

Mintzberg also proposed breaking down the broad/narrow market continuum into finer granularity

• unsegmented
• segmented
• niche
• customised

Can draw a matrix based on four market definitions and six strategies. A customised market strategy is likely to demand a high level of customer-support differentiation.

Generic strategies are strategies for growth. Not all strategies realise their intended objectives, and sometimes satisficing is sufficient (u5s3p44).

Where strategies fail, what can you do?

Slatter (1984) u5s3p45 suggests turnaround is possible and divesting of the struggling part of your business is not the only way to achieve this.

Sometimes companies are so successful at turnaround that they go on to outperform the market. Gringyer (1988) calls these companies "sharpbenders". Sharpbenders usually occur where the strategy includes
major changes in management
stronger financial controls
new product-market focus
improved marketing
significant reductions in production costs
improved quality and service

particularly, more sharpbenders improved marketing and reduced their production costs. Fewer pursued acquisition as a route to change. Sharpbenders managed it "because of the range and effectiveness of the measures they used and the timing of them". - eg Caterpillar .

REMEMBER - turnaround strategies only apply to organisations, not whole industry sectors. Where the sector is problematic this may be more due to environmental factors.

"Tipping point leadership" can lead to turnaround - this involves a set of four hurdles that each have to be "tipped". They are cognitive - understanding the problem, resource - being able to deal with it, motivational - wanting to deal with it, and political - dealing with opponents to your approach.

Porter's Generic Strategies - revisited

• Cost Leadership
• Differentiation
• Focus (cost & product)
• Integrated cost leadership and differentiatioin

A cost-leadership strategy means you aim to be the firm with the lowest cost-base in the broad sector or industry.
A cost-focus strategy aims for cost advantage within a specific segment
A broad-differentiation involves a differentiated product or service across  a broad range or industry
A differentiation-focus strategy aims for differentiation within a specific segment
An integrated cost-leadership/differentiation strategy involves offering a differentiated product at a relatively low price. (instead of the more usual price premium).

Cost-based strategies (Grant 2002) have 8 drivers:-

1. economies of scale and scope - sources include
• technical input-output relatioinships
• indivisibility
• specialisation
2. economies of learning
3. process technology
4. process design
5. product service design
6. capacity utulisation
7. input costs u5s3p24
• locational differences in input prices
• ownership of low-cost sources of supply
• non-union labour
• bargaining power
8. residual differences in operating efficiency

A broad cost-leadership strategy is a good fit where number 1 above is possible and product differentiation would be hard. Value chain analysis is appropriate.


Differentiation focus can be achieved through customer service relationships or product, for example. You need to provide unique benefits while minimising the additional cost across the value chain, so that additional income generated more than covers the cost of providing the unique benefits.

A differentiation focus might be appropriate where a target segment has unique needs and is willing to pay a premium for the right product or service features. BMW can be considered to operate a differentiation strategy. u5s2p27.


The increased complexity of many competive environments has led to an additional 5th "box" on the generic strategies matrix, right in the middle. This reflects recognition that it is possible to offer a differentiated product or service at the same time as operating with low costs. This is a difficult strategy to operate. It is a departure from Porter's original analysis.

The relationship between competitive and corporate strategy u5s2p12

Competitive - "how the firm competes within a particular industry or market" (Grant 2002, p24)
Corporate - "define the scope of the firm in terms of the industries and markets in which it competes" (grant again)

So, competitive is "how" and corporate is "what".



Corporate strategy sets "the basic direction for strategic actions" whereas competitive sets how that direction is followed.

Corporate deals with the interrelationships between business units, and therefore defines the scope of the organisation.

Four dimensions of scope -

Segment scope - the variety of products or services produced and buyers served
Vertical scope - the extent to which activities are performed in house.
Geographic scope - the range of regions, countries or groups of countries in which a firm competes
Industry scope - the ranges of related industries in which an org competes with a co-ordinated strategy

The greater the scope the greater the potential for competitive advantage.

Limitations of the rational planning approach (classical school) - Whittington 2001 u5s2p9

Remember - rational approach is considered too "top down" and inflexible for modern, fast-moving environments, and less conducive to more ambitious strategies based on stretch.

Think of flexibility, closeness to the customer, swiftness of decision making etc. If your competitive strategies are based on these, it is not very compatible with the rational approach. It is very similar to the waterfall approach in software development and has many of the same weaknesses. Mintzberg 1994 argues that such rigidity discourages innovation.

Don't forget the usefulness of some elements of strategic planning.

Decision making should be based on the availability of appropriate data to support that decisioin. When selecting a strategic option, justification should be clear based on the analysis phase.

Any decision should contribute to achieving the organisation's objectives - when selecting a strategic option, there should be a clear understanding of how it will help to achieve the long-term objectives of the organisation

The link between analysis and choice should be clear. It is a useful device for visualising the relationship between the different stages of the process.

Reflection on unit 5

And so now we are onto the Choose phase of Johnson & Scoles' cycle.

A reminder of the different levels of strategy

Corporate
Business
Functional

Evaluation and choice of strategic options occurs at the business strategy level - how and where the organisation will compete (competitive strategy). Heavily influenced by corporate strategy issues.

4 key areas to unit 5
- relationship between competitive and corporate strategy
- types of competitive strategies and decision making evaluation
- corporate strategy options, scope of the organisation and the role of the corporate parent
- corporate strategy options for multi-business organisations

Learning outcomes - be able to
1. Analyse the org's competitive strategy and why it has chosen to compete this way
2. Understand corporate strategy and the rationale behind your organisations decisions to pursue particular corporate or competitive strategies in its chosen industries or sectors
3. undertake an evaluation of the organisational strategic choices made, using a variety of evaluative measures to comment upon its congruence with organisational aims and objectives.

How we compete within our given industries and sectors is the focus of competitive strategy, whilst corporate strategy is about the interrelationships between businesses (business units).

These interrelationships between business or business units can have a powerful effect on competitive advantage as they could benefit from eg. shared activities.

Two key questions. What options are available, and how and why do we choose between them?

Remember it's an iterative process as organisational life is messy! Organisational decision-making processes are untidy.

If it were an interative process it would be U5s2p8:-

• Develop or define organisation’s objective
• Analysis and projection of the environment surrounding organisation (macro-economic analysis, political climate, etc.)
• Reconsider objective (and change if environment requires this)
• Develop strategy options
• Select option against likelihood of achieving objective
• Implement chosen strategy option

In a small business there may not be much of a plan other than what is in the owner/entrepeneur's head.

As these busineses need to grow they may need to develop strategic plans to help them secure additional capital for that growth.

Larger organisations, particularly those with many business units will not only have a formal business plan but also often a dedicated strategic planning process and even function or team.

It also encourages consistency in the decision making at all levels of the organisation.

end u5s2p8