Operational Effectiveness is not enough, on its own, I posted about this some months ago.
However, good strategy is not enough on its own either. The two must be combined in implementation.
The Red Cross (a voluntary organisation) does not use the language of competition internally, and does not necessarily "compete" with other organisations to serve "customers", however it still takes part in a competitive marketplace for the resources it needs. Example u8p8
If an organisation like the red cross is inefficient, this will be reflected in the percentage of its income spent on administration costs. This can affect people's perception of the organisation, and as an organisation relying on public goodwill, this can affect income. A reduction in income can directly affect the organisation's ability to carry out its strategy. This is one example of how strategy depends on operational effectiveness. But operational effectiveness can also depend on strategy. Your strategy can drive or even define how you tackle operational effectiveness. If you find your organisation becoming inefficient, a new strategy can be implemented to change this. Control systems, part of your strategy, can help implement and measure operational effectiveness, and models such as Levers of Control (Simon) can be useful here.
Porter says that your strategy allows you to have "a particular set of activities to deliver a unique mix of value". Continuous improvement of operational effectiveness alone is not the basis of advantage. Your competitiors can copy that. Porter suggests that one reason that Sony and Matsushita (and I guess, Japanese car firms) are becoming less competitive is that their success was based predominantly on operational efficiency (quality, just-in-time, lean manufacturing etc) and their competitors have copied them and their lead in some sectors has been almost eradicated. Porter suggests that they now have to learn strategy.
In the 1980s the market positioning view of strategy was dominant, however in the 1990s the resource-based view took over. They are alternative views, although the reasoning today is that they should not be considered mutually exclusive because both are essential to understanding strategy.
Similarly, strategy and operational effectiveness are different and distinct, but both are key to an organisation's survival.
Certainly, at $EMPLOYER, there is currently a shift in $DEPARTMENT towards more operational effectiveness. "Lean" methods are being introduced, clean desk policy, orderly offices, etc (Look on Wikipedia for 5S). However this shift may well be due to a confusion of the difference between strategic positioning and operational efficiency.
Sunday 27 March 2011
Reaching a conclusion - the dynamics of strategy u8
Unit 8 is the final unit of B820.
Its aim is to help
Strategy makes a difference to the potential long-term survival of organisations and has developed because of its practical importance to all types of organisations.
To be a strategic practitioner, is to be identifying issues that make a difference.
Its aim is to help
- explain why and in what ways strategy matters for organisations
- understand that strategy is about exercising judgement, in whatever context
- appreciate the context of continuous change in which strategy has to be formulated and implemented
- develop an overview of the scope and content of the subject of strategy, an ability to work with its frameworks and apply them appropriately to managerial decision making
- demonstrate that while the content of strategies will differ across sectors, the requirement for strategy does not
Strategy makes a difference to the potential long-term survival of organisations and has developed because of its practical importance to all types of organisations.
To be a strategic practitioner, is to be identifying issues that make a difference.
Monday 21 March 2011
Managing multinationals - international cultural issues u7 p118
Conflict arising from differences in cultural styles can be made worse by people's ignorance of such differences. People tend to react adversely to behaviour that is culturally different to their own, and they also tend to interpret the behaviour of others by their own cultural standards.
There are examples of different attitudes to control systems in box 5.8 p120 u7
Hofstede's four core cultural dimensions (1980) u7 p121
Power distance - the extent to which a society accepts that power in institutions and organisations is distributed unequally
Uncertainty avoidance - the level of anxiety in a society when faced with unstructured or ambiguous situations
Individualism vs collectivism - individualists take care of themselves and their immediate families only, collectivists remain emotionally integrated into in-groups which protect them in exchange for loyalty
Masculinity or femininity - masculine societies have strongly differentiated gender roles, whereas femine have overlapping gender roles. Tough vs supportive.
1 and 2 above are most relevant at organisational level, 3 and 4 most relevant at personal level.
Woolsey et al carried out an analysis into the gulf between Asian and Western notions of industries and markets. For example, Westerners assume that social relations in a market lead to price fixing and other collusion. Western capitalism dictates that economic actors are kept apart.
Asian economies are organised through social networks and have institutions that encourage and maintain ties between people.
The role of the state is crucial to understanding management accounting and control in developing economies, as it is normally the major source of capital, controlling a large proportion of GDP and employment opportunities. Here, account must be taken of the interaction between subcultures and family sub-units, ethnic groups and status systems. Example cited by Hopper et al (2003) of a mine in Ghana where conflicts over rewards occurred between miners and office workers from different ethnic groups.
It is not a valid assumption that western norms of legal rationality will prevail in developing nations, or that decisions are based on collective goals, appointments are made on merit and that employees accept the hierarchy of authority. In many countries loyalty may lie with familym village, ethnic or religious group in precedence to employer.
There are examples of different attitudes to control systems in box 5.8 p120 u7
Hofstede's four core cultural dimensions (1980) u7 p121
Power distance - the extent to which a society accepts that power in institutions and organisations is distributed unequally
Uncertainty avoidance - the level of anxiety in a society when faced with unstructured or ambiguous situations
Individualism vs collectivism - individualists take care of themselves and their immediate families only, collectivists remain emotionally integrated into in-groups which protect them in exchange for loyalty
Masculinity or femininity - masculine societies have strongly differentiated gender roles, whereas femine have overlapping gender roles. Tough vs supportive.
1 and 2 above are most relevant at organisational level, 3 and 4 most relevant at personal level.
Woolsey et al carried out an analysis into the gulf between Asian and Western notions of industries and markets. For example, Westerners assume that social relations in a market lead to price fixing and other collusion. Western capitalism dictates that economic actors are kept apart.
Asian economies are organised through social networks and have institutions that encourage and maintain ties between people.
The role of the state is crucial to understanding management accounting and control in developing economies, as it is normally the major source of capital, controlling a large proportion of GDP and employment opportunities. Here, account must be taken of the interaction between subcultures and family sub-units, ethnic groups and status systems. Example cited by Hopper et al (2003) of a mine in Ghana where conflicts over rewards occurred between miners and office workers from different ethnic groups.
It is not a valid assumption that western norms of legal rationality will prevail in developing nations, or that decisions are based on collective goals, appointments are made on merit and that employees accept the hierarchy of authority. In many countries loyalty may lie with familym village, ethnic or religious group in precedence to employer.
Sunday 20 March 2011
Managing multinationals
So your existing domestic market is saturated and you decide to branch out internationally. One of the decisions you have to make is how to set up your structure and capabilities to realise the options available.
There are issues in international strategy implementation, including operational issues, international management processes, centre<->periphery issues and network management issues. Normally, the most problematic is that of cross-cultures.
The trade off to be made is between
the search for global integration and scale efficiencies
the need for responsiveness to local markets and customer preferences
All international strategy decisions are/should be made with this trade off in mind. This approach is contingent upon context, and emphasises the optimal functioning of MNCs in the markets in which they operate. See Diagram 5.1 u7 p99
There is a need for strategic flexibility in international operations. Achieving this in practice is very difficult.
It takes a lot of skill to integrate and co-ordinate internationally. Mistakes can be highly visible (eg Dasani in Europe, u7 p102)
Previous posts have discussed that in a complex MNC, resources, responsibilities and decision-making are dispersed across all types of units, not just concentrated at the centre or the periphery. The units themselves may be asymmetrical in size and duration. This is what Bartlett and Ghoshal (1993) mean in "Beyond the M-form" where M is multidivisional. The N-form (Network) is here (Hedlund, 1994). In an N-form organisation, co-ordinating mechanisms are vital and senior management's role is different. There are many different types of co-ordinating mechanisms. Example - HP, P103, U7.
Bartlett et al (2004) say that the main responsibilities of managers in new transnational organisations are
close interplay between three key roles
frontline entrepeneurs
coaches (for the integration process)
corporate leaders (for the renewal process)
Each type of organisational structure resolves some problewms but causes others, and there can be competition for organisational resources. Close examination of the relationship between MNCs and their subsidiaries is a recent development within the field. Many organisations appear to neglect the creative potential of their subsidiaries.
Traditionally the subsidiary's role has been seen as reflecting the importance of its local market and its own competence. It was to identify local tastes by gathering market intelligence and then act as a local antenna to send signals about changing demand back to HQ. This is now perceived as a view that is much too narrow. In fact it sits an an interface with three sorts of markets.
Local market - competitors, suppliers, customers, regulatory bodies - all local stakeholders.
Internal market - head office and all other subsidiaries and related businesses
Global market - competitors, customers and suppliers beyond local and internal markets.
This is effectively viewing each subsidiary as operating in its own environment, with a "tunnel" through which it links itself to HQ.
Alliances can be an effective way of implementing your international strategy. Not all companies will be able to allocate resources or develop capabilities themselves for consistent management of quality and responsiveness across geographic boundaries. The favoured form of the firm has become a federal structure of operating divisions drawing on a common source of internal expertise, but where each division belonging to the federation is free to outsource expertise if it so desires (Buckley and Casson, 1998)
Rugman and D'Cruz (1997) concept of the flagship firm provides a good illustration as to how international collaborative networks and virtual organisations work in practice. A flasgship firm provides direction and strategic leadership to a network consisting of four other sets of partners
key suppliers
key customers
selected competitors
the non-business infrastructure (education, training, trade associations, government bodies, trade unions etc).
The presence of the flagship firm pulls the network together and provides strategic leadership for the network as a whole, and firms exist that have established key relationships with the flagship. Flagship firms are always an MNC. It is often in competition with other similar networks addressing the same end consumer. The flagship sets the strategy and the partners are intimately involved in implementing it but do not have any control over it. Example - DaimlerChrysler.
Many international strategies are now realised through strategic alliances. Stimuli for creating partnerships may be both external and internal. These are not just confined to the private sector. Virtual organisations require as much, if not more, management time, skill, effort and resources and have at least as many management pressures as wholly owned structures.
Example: the ending of the amazon/toys r us relationship, p117 u7
Virtual and network MNC forms are not easier options. Just different ones.
There are issues in international strategy implementation, including operational issues, international management processes, centre<->periphery issues and network management issues. Normally, the most problematic is that of cross-cultures.
The trade off to be made is between
the search for global integration and scale efficiencies
the need for responsiveness to local markets and customer preferences
All international strategy decisions are/should be made with this trade off in mind. This approach is contingent upon context, and emphasises the optimal functioning of MNCs in the markets in which they operate. See Diagram 5.1 u7 p99
There is a need for strategic flexibility in international operations. Achieving this in practice is very difficult.
It takes a lot of skill to integrate and co-ordinate internationally. Mistakes can be highly visible (eg Dasani in Europe, u7 p102)
Previous posts have discussed that in a complex MNC, resources, responsibilities and decision-making are dispersed across all types of units, not just concentrated at the centre or the periphery. The units themselves may be asymmetrical in size and duration. This is what Bartlett and Ghoshal (1993) mean in "Beyond the M-form" where M is multidivisional. The N-form (Network) is here (Hedlund, 1994). In an N-form organisation, co-ordinating mechanisms are vital and senior management's role is different. There are many different types of co-ordinating mechanisms. Example - HP, P103, U7.
Bartlett et al (2004) say that the main responsibilities of managers in new transnational organisations are
close interplay between three key roles
frontline entrepeneurs
coaches (for the integration process)
corporate leaders (for the renewal process)
Each type of organisational structure resolves some problewms but causes others, and there can be competition for organisational resources. Close examination of the relationship between MNCs and their subsidiaries is a recent development within the field. Many organisations appear to neglect the creative potential of their subsidiaries.
Traditionally the subsidiary's role has been seen as reflecting the importance of its local market and its own competence. It was to identify local tastes by gathering market intelligence and then act as a local antenna to send signals about changing demand back to HQ. This is now perceived as a view that is much too narrow. In fact it sits an an interface with three sorts of markets.
Local market - competitors, suppliers, customers, regulatory bodies - all local stakeholders.
Internal market - head office and all other subsidiaries and related businesses
Global market - competitors, customers and suppliers beyond local and internal markets.
This is effectively viewing each subsidiary as operating in its own environment, with a "tunnel" through which it links itself to HQ.
Alliances can be an effective way of implementing your international strategy. Not all companies will be able to allocate resources or develop capabilities themselves for consistent management of quality and responsiveness across geographic boundaries. The favoured form of the firm has become a federal structure of operating divisions drawing on a common source of internal expertise, but where each division belonging to the federation is free to outsource expertise if it so desires (Buckley and Casson, 1998)
Rugman and D'Cruz (1997) concept of the flagship firm provides a good illustration as to how international collaborative networks and virtual organisations work in practice. A flasgship firm provides direction and strategic leadership to a network consisting of four other sets of partners
key suppliers
key customers
selected competitors
the non-business infrastructure (education, training, trade associations, government bodies, trade unions etc).
The presence of the flagship firm pulls the network together and provides strategic leadership for the network as a whole, and firms exist that have established key relationships with the flagship. Flagship firms are always an MNC. It is often in competition with other similar networks addressing the same end consumer. The flagship sets the strategy and the partners are intimately involved in implementing it but do not have any control over it. Example - DaimlerChrysler.
Many international strategies are now realised through strategic alliances. Stimuli for creating partnerships may be both external and internal. These are not just confined to the private sector. Virtual organisations require as much, if not more, management time, skill, effort and resources and have at least as many management pressures as wholly owned structures.
Example: the ending of the amazon/toys r us relationship, p117 u7
Virtual and network MNC forms are not easier options. Just different ones.
Types of international strategy u7 p73
Many national markets are segments within a broader global market.
MNCs carry out global strategies, produce standard products with minor variations and market them around the world, sourcing assets and activities on an optimal cost basis and adapting where necessary to local cultures and tastes.
Their organisation can be anywhere from a centralised structure to a decentralised network of companies. The opportunity for a variety of different international strategies exists.
There are two basic types of international industry structure and strategy: 'multinational' industries and 'global' industries.
Multinational industries: significant differences exist between country markets. Each national market is standalone and requires a standalone multinational strategy that treats competition in each country or region as separate. Porter (1986) calls these multidomestics
Global industries: those which have significant similarities across all country markets. That makes possible integrated global strategies across countries and regions.
examples: p&g p74, philips p74+
Trying to follow a multinational strategy in a global industry will result in significant cost disadvantage to globally-organised competitors. Likewise, following a global strategy in a multinational industry is likely to be disadvantageous as individual country markets are too different to be treated in a homogeneous way.
There are four approaches to being international: multinational, global, international and transnational. You may pass through different stages during your own international development. You may also pursue different strategies in different countries in which you operate. The differences may weaken the company by creating an inflated cost structure, unnecessary duplication, confused image and poor bargaining power, as happened at Nestlé and Philips. It may be that the duplication of dedicated overhead and varied positioning is the reason for success.
The important thing is that different strategies are viable in different context, for different products in different markets.
The 4 most frequently adopted approaches are:
As already mentioned,
1. Multinationals (multidomestic) - treat each country market as independent and best serviced by local subsidiary
2. Global - emphasise worldwide strategies to benefit from operational scale. Heavily centralised.
Plus
3. International - copy from the centre to transfer and share knowledge around the various business units to allow the whole organisation to benefit from experience gained in any one part
4. Transnationals - generate and transfer knowledge and expertise both locally and centrally - the ability to learn from any part of the organisation
See table 4.1 p78
The development from one international organisational form to another is path dependent. The forms can be transitional, but need not be. They may represent the optimal organisational form for the context, at least for a period.
Multinational, multidomestic, and multilocal are all different words for the same thing.
Often, sales and marketing functions are performed locally, even in a Global industry. Ghoshal's "organising framework" (1987) presents the benefits of global strategies in terms of effectiveness in managing efficiency, risk and innovation. These are achieved through the ability to exploit comparative advantage, economies of scale and economies of scope.
While porter's diamond helps explain how national conditions can affect the international competitiveness of firms, Ghoshal's organising framework gives specific guidance on the relevance of global strategy for individual organisations. He helps us to think about and answer "What is the point of having a global strategy?"
This framework can be used prescriptively. In other words if you cannot identify any of these nine elements to justify a potential global strategy, then you should not be thinking about developing a global strategy at all.
Branding could be an example of achieving economies of scope, and as an MNC you will select key brands to standardise and send a consistent worldwide message, and promote one brand, one packaging etc. Simplified brand portfolios help realised scale and scope economies. eg Access->Mastercard, Marathon->Snickers, Bounty->Plenty, Jif->Cif etc.
The transnational is a result of the continuing search for international organisation structures to match the complexity of evolving international strategies. It could be considered as a state of mind or an attitude, rather than just a structure.
It is a state of mind within a flexible structure which is adaptable and which sees efficiency across international boundaries as something that can be achieved through learning and sharing that learning. It requires managers to be global and multinational at the same time.Standardisation rately means the same product in all markets, but rather local adaptations around a standardised core. The question is how to tailor the global marketing concept to fit each business (Quelch and Hoff 1986, p67). This has become known as glocalisation. Example - KFC & nappies, p85.
It is possible to provide variety at low cost through mass customisation via automation. Global strategies should not focus only on the benefits of standardisation as skill at adaptation is becoming more important. Global firms sell almost no standardised products. They all have some degree of adjustment suited to the local consumer, whether it is how it is packaged or the foltage at which it operates. These trends for glocalisation and mass customisation require complex and flexible organisations to make them work across borders. That is what the transnational can do.
Bartlett and Ghoshal (1989) define the transnational as an integrated network. They say that "simple global" organisations have a centralised hub where key roles and influence are located. Communications go from the centre out to the peripheries - top down. Multinationals have the peripheries where the roles and influences are and the centre is just for co-ordination, communications go in from the peripheries to the centre, a multidomestic, multilocal, multinational or now a "decentralised federation".
In the transnational type, communications are bidirectional and multilateral, there is no one central area of influence or co-ordination. This is the emegence of the N-form - "beyond the M form" - |Bartlett and Ghoshal 1993. One way of understanding the structure of a transnational organisation is as an effective international learning organisation.
Example - Siemens, p88
Nonaka (1990) says that MNCs that can manage globalisation are doing it as part of a self-renewing process. This involves continuous information creation, requiring internal cross-border integration and establishment multiple corporate headquarters.
International service delivery is about providing a standard quality service to the customer. In service, it is often the customer who internationalises first, with the service company following to meet the needs of important clients. Examples are Interpublic and WPP.
Branding of services has become an important international guarantee of reputation, quality and consistency around the world. Service industries and multinational service firms have distinct characteristics that add risk and delivery problems to the design and implementation of global strategies for services.
These include those of intangibility (of the service itself) and simultaneity (simultaneous production and consumption of a service). This makes management of the quality of the experience for the customer or client critical.
Normally the way to do this is through standardisation. International strategy literature has given relatively little attention to service industries.
Service firms have historically located close to the customer due to simultaneity. For example, fast food chains. However they do not always need to, eg software outsourcing in india.
Much modern international strategy literature suggests that global stgrategy is declining in influence, or has possibly never actually been global and that regional strategy is becoming more significant. Arising from the formation of regional trading blocs, regionalisation may be viewed as a stepping stone to full globalisation. It may also be viewed as an entirely different construction of resources, trading partners and patterns. It is therefore possible to make a case for globalisation as the obsolete concept with regionalisation emerging as the dominant form!
The triad of Europe-North America-Asia is dominant. Only 1 of the top 49 retail MNCs is global with at least 20% of sales in each region of the triad (Rugman 2003). The world's largest retailers are mainly strongly segmented regional (not global) players.
It is also possible to argue that regional strategies are replacing national ones, at least in some key parts in the value chain.
Hart and Christensen(2002) argued that the poor of the world are inadequately served by MNCs. They suggested that international strategies should focus on customers in emerging markets and transition economies, rather than developed countries. This would be to focus on the "base of the pyramid" (There are approx 4bn people in the world who are at the bottom of the economic pyramid but aspire to join the market economy).
MNCs carry out global strategies, produce standard products with minor variations and market them around the world, sourcing assets and activities on an optimal cost basis and adapting where necessary to local cultures and tastes.
Their organisation can be anywhere from a centralised structure to a decentralised network of companies. The opportunity for a variety of different international strategies exists.
There are two basic types of international industry structure and strategy: 'multinational' industries and 'global' industries.
Multinational industries: significant differences exist between country markets. Each national market is standalone and requires a standalone multinational strategy that treats competition in each country or region as separate. Porter (1986) calls these multidomestics
Global industries: those which have significant similarities across all country markets. That makes possible integrated global strategies across countries and regions.
examples: p&g p74, philips p74+
Trying to follow a multinational strategy in a global industry will result in significant cost disadvantage to globally-organised competitors. Likewise, following a global strategy in a multinational industry is likely to be disadvantageous as individual country markets are too different to be treated in a homogeneous way.
There are four approaches to being international: multinational, global, international and transnational. You may pass through different stages during your own international development. You may also pursue different strategies in different countries in which you operate. The differences may weaken the company by creating an inflated cost structure, unnecessary duplication, confused image and poor bargaining power, as happened at Nestlé and Philips. It may be that the duplication of dedicated overhead and varied positioning is the reason for success.
The important thing is that different strategies are viable in different context, for different products in different markets.
The 4 most frequently adopted approaches are:
As already mentioned,
1. Multinationals (multidomestic) - treat each country market as independent and best serviced by local subsidiary
2. Global - emphasise worldwide strategies to benefit from operational scale. Heavily centralised.
Plus
3. International - copy from the centre to transfer and share knowledge around the various business units to allow the whole organisation to benefit from experience gained in any one part
4. Transnationals - generate and transfer knowledge and expertise both locally and centrally - the ability to learn from any part of the organisation
See table 4.1 p78
The development from one international organisational form to another is path dependent. The forms can be transitional, but need not be. They may represent the optimal organisational form for the context, at least for a period.
Multinational, multidomestic, and multilocal are all different words for the same thing.
Often, sales and marketing functions are performed locally, even in a Global industry. Ghoshal's "organising framework" (1987) presents the benefits of global strategies in terms of effectiveness in managing efficiency, risk and innovation. These are achieved through the ability to exploit comparative advantage, economies of scale and economies of scope.
While porter's diamond helps explain how national conditions can affect the international competitiveness of firms, Ghoshal's organising framework gives specific guidance on the relevance of global strategy for individual organisations. He helps us to think about and answer "What is the point of having a global strategy?"
This framework can be used prescriptively. In other words if you cannot identify any of these nine elements to justify a potential global strategy, then you should not be thinking about developing a global strategy at all.
Branding could be an example of achieving economies of scope, and as an MNC you will select key brands to standardise and send a consistent worldwide message, and promote one brand, one packaging etc. Simplified brand portfolios help realised scale and scope economies. eg Access->Mastercard, Marathon->Snickers, Bounty->Plenty, Jif->Cif etc.
The transnational is a result of the continuing search for international organisation structures to match the complexity of evolving international strategies. It could be considered as a state of mind or an attitude, rather than just a structure.
It is a state of mind within a flexible structure which is adaptable and which sees efficiency across international boundaries as something that can be achieved through learning and sharing that learning. It requires managers to be global and multinational at the same time.Standardisation rately means the same product in all markets, but rather local adaptations around a standardised core. The question is how to tailor the global marketing concept to fit each business (Quelch and Hoff 1986, p67). This has become known as glocalisation. Example - KFC & nappies, p85.
It is possible to provide variety at low cost through mass customisation via automation. Global strategies should not focus only on the benefits of standardisation as skill at adaptation is becoming more important. Global firms sell almost no standardised products. They all have some degree of adjustment suited to the local consumer, whether it is how it is packaged or the foltage at which it operates. These trends for glocalisation and mass customisation require complex and flexible organisations to make them work across borders. That is what the transnational can do.
Bartlett and Ghoshal (1989) define the transnational as an integrated network. They say that "simple global" organisations have a centralised hub where key roles and influence are located. Communications go from the centre out to the peripheries - top down. Multinationals have the peripheries where the roles and influences are and the centre is just for co-ordination, communications go in from the peripheries to the centre, a multidomestic, multilocal, multinational or now a "decentralised federation".
In the transnational type, communications are bidirectional and multilateral, there is no one central area of influence or co-ordination. This is the emegence of the N-form - "beyond the M form" - |Bartlett and Ghoshal 1993. One way of understanding the structure of a transnational organisation is as an effective international learning organisation.
Example - Siemens, p88
Nonaka (1990) says that MNCs that can manage globalisation are doing it as part of a self-renewing process. This involves continuous information creation, requiring internal cross-border integration and establishment multiple corporate headquarters.
International service delivery is about providing a standard quality service to the customer. In service, it is often the customer who internationalises first, with the service company following to meet the needs of important clients. Examples are Interpublic and WPP.
Branding of services has become an important international guarantee of reputation, quality and consistency around the world. Service industries and multinational service firms have distinct characteristics that add risk and delivery problems to the design and implementation of global strategies for services.
These include those of intangibility (of the service itself) and simultaneity (simultaneous production and consumption of a service). This makes management of the quality of the experience for the customer or client critical.
Normally the way to do this is through standardisation. International strategy literature has given relatively little attention to service industries.
Service firms have historically located close to the customer due to simultaneity. For example, fast food chains. However they do not always need to, eg software outsourcing in india.
Much modern international strategy literature suggests that global stgrategy is declining in influence, or has possibly never actually been global and that regional strategy is becoming more significant. Arising from the formation of regional trading blocs, regionalisation may be viewed as a stepping stone to full globalisation. It may also be viewed as an entirely different construction of resources, trading partners and patterns. It is therefore possible to make a case for globalisation as the obsolete concept with regionalisation emerging as the dominant form!
The triad of Europe-North America-Asia is dominant. Only 1 of the top 49 retail MNCs is global with at least 20% of sales in each region of the triad (Rugman 2003). The world's largest retailers are mainly strongly segmented regional (not global) players.
It is also possible to argue that regional strategies are replacing national ones, at least in some key parts in the value chain.
Hart and Christensen(2002) argued that the poor of the world are inadequately served by MNCs. They suggested that international strategies should focus on customers in emerging markets and transition economies, rather than developed countries. This would be to focus on the "base of the pyramid" (There are approx 4bn people in the world who are at the bottom of the economic pyramid but aspire to join the market economy).
The growth of the multinational u7p57
MNCs are complex organisations, difficult to manage, unpopular in the press and with the public, often decline into bureaucracy, inflexible and unresponsive, slow to change and sometimes guilty of fraud or corrpution (Enron etc). So what's the point?!
Well there are advantages. Strategic benefits include flexibility and options. In international competition, options allow you to choose between ways of doing things. Once you go global, you have a wider range of strategies available. For example, you can exploit market imperfections.
It's a fair point that if there was one global market, then global strategies would be irrelevant, they could be identical to your national strategy.
Trade barriers include high tariffs, import quotas, refusal to grant licences, nationalistic purchasing and ownership policies, centralise command economies and excessively nationalistic domestic demand. Your job as a global firm is to try and exploit the barriers which favour you and avoid those that don't
Governments are careful to tax at levels just high enough to produce useful revenue without being so high as to force corporations to shift investments elsewhere. They may actually try to convince you to invest through capital grants, regional grants (eg in low employment areas), tax free zones etc.
It can pay to be larger. Kogut (1985) points out that production shifting (eg outsourcing IT function to India), tax minimisation, financial markets, information arbitrage (transfer of knowledge), global co-ordination and reducing political risk are all options open to larger MNCs.
Example, Wipro, p59
Multinational companies have part of their activities located outside their home base and operate in international markets. The location is influenced by comparative costs, risks and regulatory contexts.
Trade may be carried out in different ways. The four types are exporting, foreign direct investment (FDI), licensing and joint ventures/strategic alliances. Rugman et al developed a rational decision tree for choosing between the various strategic options (1985, p130), u7p61.
International strategy and structure
Remember chandler said "structure follows strategy" - his view was that where there were economies of scale and scope to be had then these lead to national and international concentration, so competition becomes oligopolistic (only a few large organisations).
Stopford and Wells developed a simple descriptive model to illustrate the typical stages of development for companies progressively moving towards an international organisation structure. They saw this as a process driven by two dimensions.
1. Foreign product diversity, ie. the number of products sold internationally,
2. The importance of international sales to the company (foreign sales as a percentage of total sales)
They suggested that you should set up your international division at an early stage of internationalisation when the figures for diversity and percentage were low. Then you will follow either a pathway leading to a worldwide product division structure due to substantial foreign product diversity or if you expand overseas without increasing diversity you will adopt a geographical area structure. But when both foreign sales and the diversity of products are high you will have a global matrix. You often see MNCs with a geographic dimension and a product group dimension in a matrix structure.
Example: Nestlé, p63.
According to the Uppsala model (Johanson and Vahlne, 1977), you will increase your international involvement in stages, beginning in countries culturally most similar to yourself/your own before broadening out as you gain increased knowledge of and commitment to foreign markets.
Kogut (1985) says that once you become an MNC, you can take advantage of the comparative advantage of the nations in which you carry out FDI (foreign direct investment) and achieve competitive advantage by investing in your value chain. International configuration of the value chain allows you to identify sources of comparative (country) and competitive (firm) advantage.
Why internationalise? "Global strategies rest on the interplace of the competitive advantage of firms and the comparative advantage of countries" - Kogut 1985. An MNC may pick and choose between the comparative advantages of countries, a luxury not available to you if you stay local.
An organisation that competes internationally can benefit from the geographic dispersion of its activities through configuration of the international value chain. You must decide how to spread the activities of your value chain among countries. All organisations have a wide choice of how to configure their value chain, but if you operate across borders you should use your choice of configuration as a source of advantage.
You have different issues that arise depending on how you configure your value chain. For example, if you configure your value chain so that all R&D is centralised, you have few co-ordination issues, except to ensure it is in touch with all your markets. If it is distributed, you have to co-ordinate to ensure you are not duplicating effort, which can be costly.
High levels of co-ordination may result in higher costs. These additional costs must be weighed against the cost savings in other parts of the value chain. eg. Mexico's lower labour costs were almost cancelled out by the higher costs associated with its poor transport infrastructure. Grant says the benefits derived from breaking the value chain and locating individual activities in different countries must be traded off against the costs of weaker linkages between stages in the chain.
The configuration of the value chain will also depend on the type of strategy being pursued. For example, Dell Computers, with its strategy of fast delivery and customising for individual customer requirements, needs to locate manufacturing close to its markets. Conversely Acer competes mainly on price and has located its manufacturing mainly in Asia.
Three of the most common approaches to the international value chain are
A - seeking scale efficiencies - everything is geared to scale. Can form the basis of a global cost-based strategy
B - Seeking efficiency in each separate link in the chain. This treats each part of the chain equally
C - Seeking efficiency in the links and through the linkages.
Successful international competitors "seek out competitive advantages from global configuration/coordination anywhere in the value chain, and overcome the organisational barriers to exploiting them" (Porter, 1986, p56)
Well there are advantages. Strategic benefits include flexibility and options. In international competition, options allow you to choose between ways of doing things. Once you go global, you have a wider range of strategies available. For example, you can exploit market imperfections.
It's a fair point that if there was one global market, then global strategies would be irrelevant, they could be identical to your national strategy.
Trade barriers include high tariffs, import quotas, refusal to grant licences, nationalistic purchasing and ownership policies, centralise command economies and excessively nationalistic domestic demand. Your job as a global firm is to try and exploit the barriers which favour you and avoid those that don't
Governments are careful to tax at levels just high enough to produce useful revenue without being so high as to force corporations to shift investments elsewhere. They may actually try to convince you to invest through capital grants, regional grants (eg in low employment areas), tax free zones etc.
It can pay to be larger. Kogut (1985) points out that production shifting (eg outsourcing IT function to India), tax minimisation, financial markets, information arbitrage (transfer of knowledge), global co-ordination and reducing political risk are all options open to larger MNCs.
Example, Wipro, p59
Multinational companies have part of their activities located outside their home base and operate in international markets. The location is influenced by comparative costs, risks and regulatory contexts.
Trade may be carried out in different ways. The four types are exporting, foreign direct investment (FDI), licensing and joint ventures/strategic alliances. Rugman et al developed a rational decision tree for choosing between the various strategic options (1985, p130), u7p61.
International strategy and structure
Remember chandler said "structure follows strategy" - his view was that where there were economies of scale and scope to be had then these lead to national and international concentration, so competition becomes oligopolistic (only a few large organisations).
Stopford and Wells developed a simple descriptive model to illustrate the typical stages of development for companies progressively moving towards an international organisation structure. They saw this as a process driven by two dimensions.
1. Foreign product diversity, ie. the number of products sold internationally,
2. The importance of international sales to the company (foreign sales as a percentage of total sales)
They suggested that you should set up your international division at an early stage of internationalisation when the figures for diversity and percentage were low. Then you will follow either a pathway leading to a worldwide product division structure due to substantial foreign product diversity or if you expand overseas without increasing diversity you will adopt a geographical area structure. But when both foreign sales and the diversity of products are high you will have a global matrix. You often see MNCs with a geographic dimension and a product group dimension in a matrix structure.
Example: Nestlé, p63.
According to the Uppsala model (Johanson and Vahlne, 1977), you will increase your international involvement in stages, beginning in countries culturally most similar to yourself/your own before broadening out as you gain increased knowledge of and commitment to foreign markets.
Kogut (1985) says that once you become an MNC, you can take advantage of the comparative advantage of the nations in which you carry out FDI (foreign direct investment) and achieve competitive advantage by investing in your value chain. International configuration of the value chain allows you to identify sources of comparative (country) and competitive (firm) advantage.
Why internationalise? "Global strategies rest on the interplace of the competitive advantage of firms and the comparative advantage of countries" - Kogut 1985. An MNC may pick and choose between the comparative advantages of countries, a luxury not available to you if you stay local.
An organisation that competes internationally can benefit from the geographic dispersion of its activities through configuration of the international value chain. You must decide how to spread the activities of your value chain among countries. All organisations have a wide choice of how to configure their value chain, but if you operate across borders you should use your choice of configuration as a source of advantage.
You have different issues that arise depending on how you configure your value chain. For example, if you configure your value chain so that all R&D is centralised, you have few co-ordination issues, except to ensure it is in touch with all your markets. If it is distributed, you have to co-ordinate to ensure you are not duplicating effort, which can be costly.
High levels of co-ordination may result in higher costs. These additional costs must be weighed against the cost savings in other parts of the value chain. eg. Mexico's lower labour costs were almost cancelled out by the higher costs associated with its poor transport infrastructure. Grant says the benefits derived from breaking the value chain and locating individual activities in different countries must be traded off against the costs of weaker linkages between stages in the chain.
The configuration of the value chain will also depend on the type of strategy being pursued. For example, Dell Computers, with its strategy of fast delivery and customising for individual customer requirements, needs to locate manufacturing close to its markets. Conversely Acer competes mainly on price and has located its manufacturing mainly in Asia.
Three of the most common approaches to the international value chain are
A - seeking scale efficiencies - everything is geared to scale. Can form the basis of a global cost-based strategy
B - Seeking efficiency in each separate link in the chain. This treats each part of the chain equally
C - Seeking efficiency in the links and through the linkages.
Successful international competitors "seek out competitive advantages from global configuration/coordination anywhere in the value chain, and overcome the organisational barriers to exploiting them" (Porter, 1986, p56)
Anti-globalisation (AG) u7 p34
AG pressure groups cite free trade, trade and wages, employment, exporting of jobs, the environment, the role of multinationals, intellectual property, migration and cultural imperialism all as issues affected negatively by globalisation.
There have been many NGOs, student groups and trade unions that have applied pressure to firms such as Gap and Nike to improve working conditions in developing economies where they do much manufacturing. The following are common criticisms of globalisation
Geography no longer matters
Big firms always win
The "race to the bottom"
Globalisation is a zero-sum game
1. Geography - Ohmae argued that business is now borderless, however this perspective does have limitations, for example transport costs. If these are high, the industry is uinlikely to become global and more likely to remain local. Geography still matters also because the "clusters" mentioned in previous posts are geographically located, and can often not be found elsewhere in the world or be easily imitated.
2. Big firms always win? - SMEs are typically more flexible and have faster response times to changing environments than large organisations. They can begin to compete on economies of scale in some ways as they can now use the internet to achieve purchasing economies of scale. Many big firms become inefficient and inflexible and gradually die. Look what happened to DaimlerChrysler.
3. Race to the bottom? Worker exploitation? Widening inequalities? Using developing economies as dumping grounds for products and processes no longer acceptable in rich countries? Global firms are accused of playing off governments and workforces against each other in a battle for the lowest wages and costs - ie striving to source competive advantate from comparative advantage. It depends on point of view. Efficiency for global firms translates into exploitation by the critics of those firms.
4. Globalisation is zero-sum? This suggests that for some people to benefit from globalisation, others must lose. This may be true, but there are winners and losers on both sides. Consumers in developed economies benefit from lower costs due to outsourcing, and lowering of trade barriers. But those same countries also see "losers" because of potential outsourcing, or the decline of "traditional" industries.
Example: Agriculture, p37
Globalisatioin is reversible. Apart from the AG movement, regionalism and protectionism can prevent globalisation.
Groups of countries have formed regional trading blocs or Free Trade areas. For example the EU, NAFTA, APEC, ASEAN etc.
The formation of most of the worlds economies into trading blocs could be a significant blocker for globalisation. Regional trade is seen as incompatible with global or world trade. Trade barriers are moved outwards from individual countries to regions. Regions such as Africa are outside the main blocs and likely to remain so. India and China are likely to exist as trading blocs in their own right.
There have been many NGOs, student groups and trade unions that have applied pressure to firms such as Gap and Nike to improve working conditions in developing economies where they do much manufacturing. The following are common criticisms of globalisation
Geography no longer matters
Big firms always win
The "race to the bottom"
Globalisation is a zero-sum game
1. Geography - Ohmae argued that business is now borderless, however this perspective does have limitations, for example transport costs. If these are high, the industry is uinlikely to become global and more likely to remain local. Geography still matters also because the "clusters" mentioned in previous posts are geographically located, and can often not be found elsewhere in the world or be easily imitated.
2. Big firms always win? - SMEs are typically more flexible and have faster response times to changing environments than large organisations. They can begin to compete on economies of scale in some ways as they can now use the internet to achieve purchasing economies of scale. Many big firms become inefficient and inflexible and gradually die. Look what happened to DaimlerChrysler.
3. Race to the bottom? Worker exploitation? Widening inequalities? Using developing economies as dumping grounds for products and processes no longer acceptable in rich countries? Global firms are accused of playing off governments and workforces against each other in a battle for the lowest wages and costs - ie striving to source competive advantate from comparative advantage. It depends on point of view. Efficiency for global firms translates into exploitation by the critics of those firms.
4. Globalisation is zero-sum? This suggests that for some people to benefit from globalisation, others must lose. This may be true, but there are winners and losers on both sides. Consumers in developed economies benefit from lower costs due to outsourcing, and lowering of trade barriers. But those same countries also see "losers" because of potential outsourcing, or the decline of "traditional" industries.
Example: Agriculture, p37
Globalisatioin is reversible. Apart from the AG movement, regionalism and protectionism can prevent globalisation.
Groups of countries have formed regional trading blocs or Free Trade areas. For example the EU, NAFTA, APEC, ASEAN etc.
The formation of most of the worlds economies into trading blocs could be a significant blocker for globalisation. Regional trade is seen as incompatible with global or world trade. Trade barriers are moved outwards from individual countries to regions. Regions such as Africa are outside the main blocs and likely to remain so. India and China are likely to exist as trading blocs in their own right.
Globalisation u7 p28
IT IS INDUSTRIES AND MARKETS THAT GLOBALISE, not countries. Sorry for the emphasis but it is important!
It's true that as a result of the global strategies of organisations which operate in global industries, greater linkages and interdependencies between nations can arise.
In a globalising industry, you may find that your position in one country is affected by your position in another country. That is part of the definition of a global industry. A global industry can be defined as global if there is some competitive advantage to integrating activities on a worldwide basis (Porter, 1986). A market can be defined as global if consumers worldwide can be treated as homgeneous. It's more common for market segments to be global rather than the entire market.
Global industries and organisations can have an effect on the countries in which they operate by creating a strong "interconnectedness" which can have social and political consequences.
What are the drivers of Globalisation? The 5 most powerful are:-
1. Cultural Homogenisation
2. Economies of scale and scope
3. Technological Developments
4. Deregulation and the lowering of trade barriers
5. Strong international competitors
Cultural homogenisation - national cultures are becoming more alike, usually as a result of global media, increased international travel. Brands are part of culture and global brands appear which become recognisable in very different national cultures. Where this hapens, similar products/services can be sold to similar groups of customers around the world. There's an implication of the potential for eventual convergence of markets and the emergence of a global marketplace.
The global village view may be unrealistic, however. National cultural diversity definitely exists.
A| better approach may be to consider global market segments - international groupings of consumers who can be found in all country markets with common needs, eg. the youth market, the business traveller etc. They have more in common with their counterparts in outher nations than with other segments in their own country.
Economies of scale and scope - In more and more industries size matters in determining competitive levels of efficiency. Consider the global car industry. There have been many mergers and acquisitions solely aimed at increasing the size of world car companies to benefit from these factors. Indeed, the ford Mondeo was so named because it was ford's "World Car" - the car they wanted to sell everywhere.
Technological Developments - these have no geographic boundaries and is a very strong globalisation driver. Some entire new industries have been created eg. mobile which could not have existed without their enabling technology.
Deregulation - the removal of tariff and non-tariff barriers to trade. eg 1992 Single Market act in europe, NAFTA in North America.
Strong international competitors - national champions may not be significant in international terms. As soon as one firm globalises in an industry, the availability of potential economies of scale and scope, and comparative advantage giving rise to additional competitive advantage rears its head. Other firms may *have* to globalise too, to compete. Example - selling books in china, p32
It's true that as a result of the global strategies of organisations which operate in global industries, greater linkages and interdependencies between nations can arise.
In a globalising industry, you may find that your position in one country is affected by your position in another country. That is part of the definition of a global industry. A global industry can be defined as global if there is some competitive advantage to integrating activities on a worldwide basis (Porter, 1986). A market can be defined as global if consumers worldwide can be treated as homgeneous. It's more common for market segments to be global rather than the entire market.
Global industries and organisations can have an effect on the countries in which they operate by creating a strong "interconnectedness" which can have social and political consequences.
What are the drivers of Globalisation? The 5 most powerful are:-
1. Cultural Homogenisation
2. Economies of scale and scope
3. Technological Developments
4. Deregulation and the lowering of trade barriers
5. Strong international competitors
Cultural homogenisation - national cultures are becoming more alike, usually as a result of global media, increased international travel. Brands are part of culture and global brands appear which become recognisable in very different national cultures. Where this hapens, similar products/services can be sold to similar groups of customers around the world. There's an implication of the potential for eventual convergence of markets and the emergence of a global marketplace.
The global village view may be unrealistic, however. National cultural diversity definitely exists.
A| better approach may be to consider global market segments - international groupings of consumers who can be found in all country markets with common needs, eg. the youth market, the business traveller etc. They have more in common with their counterparts in outher nations than with other segments in their own country.
Economies of scale and scope - In more and more industries size matters in determining competitive levels of efficiency. Consider the global car industry. There have been many mergers and acquisitions solely aimed at increasing the size of world car companies to benefit from these factors. Indeed, the ford Mondeo was so named because it was ford's "World Car" - the car they wanted to sell everywhere.
Technological Developments - these have no geographic boundaries and is a very strong globalisation driver. Some entire new industries have been created eg. mobile which could not have existed without their enabling technology.
Deregulation - the removal of tariff and non-tariff barriers to trade. eg 1992 Single Market act in europe, NAFTA in North America.
Strong international competitors - national champions may not be significant in international terms. As soon as one firm globalises in an industry, the availability of potential economies of scale and scope, and comparative advantage giving rise to additional competitive advantage rears its head. Other firms may *have* to globalise too, to compete. Example - selling books in china, p32
Porter's Diamond framework u7 p22
This framework can be used to emphasise the place of comparative advantage in international competitive advantage.
He introduces (Porter, 1990) the concept of "home base" - the cultural, social, economic, political, financial, regulatory and ethical context within you develop your identity, resources & capabilities, and how you manage. The home base influence comes from the national environment within which you are operating.
For a country to keep competitive advantage in an industry or sector over time, individual firms must innovate and continuously upgrade the quality of their resources and capabilities. Therefore home base advantage may wane if firms in the sector do not invest in innovation. Home base advantage is therefore dynamic, not static. Governments can influence the conditions for this, eg by investments or lack of in transport, education, etc.
The four parts of the diamond are:-
Factor conditions
Demand Conditions
Related and supporting industries
Firm strategy, structure and rivalry
In the benetton example (u7 p23):-
Factor conditions - availability of highly skilled and cheap labour in a poor part of Italy due to the hundreds of years of skill and experience of the people in textiles
Demand conditions - the italians *want* fashionable clothing, they are passionate about fashion and spend a high proportion of their clothing and income on accessories, creating a demand for the product. But because they are so critical about the product, if your product survives in Italy, it should survive other international markets too.
Related and supporting industries - Italy has a cluster of fashion lablels, houses and designers, but also in many related industries such as leather, furniture and design. All these industries share common factors such as high design skills and knowledge of materials.
Firm strategy, structure and rivalry - firms that are located in competitive industries with high levels of national rivalry are most likely to do well in international markets, due to their efficiency etc. If they can survive in a cut-throat environment they can survive in other environments. Those with few or no national rivals are unlikely to cope as well internationally. Benetton is in a crowded industry and so has benefited from the experience of competing in that industry.
These are the home base and domestic industry conditions that are critical to your international success, according to Porter. Ohmae, on the other hand, disagrees. His view is that national roots must be left behind to be successful internationally. Porter views the national diamond as the springboard to your international success. Ohmae regards the world as borderless, where nations are less important, either as home bases or as sources of identity. u7 p25
Both agree that international firms emerge from their national origins which have helped establish their competitiveness. They disagree on the attributes of a firm with a successful global strategy.
Ohmae argues you should shake off your origins.
Porter argues that you should preserve them.
Ohmae criticises nearsightedness. He says MNCs are dominated by HQ who give too much weight to their domestic customers. He insists that global managers must act as if equidistant from all customers, wherever they may be. This is becoming an insider in all markets - an honorary citizen perceived as a direct investor in each home market that you operate in. He argues that if you have an insider mindset, you will be free of the standardising force of home base HQ.
Example - HSBC, which shook off its Asian history and roots.
Porter says that global strategy builds on local roots, and that continuous enhancements of comparative local factor endowments are the basis of distinctive capabilities and the source of dynamic advantage. Dynamic advantage means sustainable long term advantage. Porter's examples are Nestle, Sony and IBM, and sees a global strategy as supplementing the competitive advantage created at home base and that companies need to retain those elements when they expand abroad.
Where there are "clusters" of critical masses in one place of unusual competitive success in particular fields (porter, 1998, p78) it is often a straightforward task to demonstrate a strong national diamond. Well known examples include Hollywood (film industry) & Bollywood, Bangalore & Silicon Valley (IT), Bordeaux, Burgundy, Champagne, California, Southern Australian states (Wine) etc. etc.
Porter sees these clusters of excellence in terms of nations. Within a nation, demand conditions (one of the points on the diamond) are affected by its government's macro-economic policy; the nature of competition by its anti-trust and trade policies, the level and type of skills and knowledge from the education systems and the attitudes of staff, managers, customers caused by culture.
Sometimes government policies adopted to support local industries can be counter-productive in the long term since they will protect national firms from competitive pressure, relieving the burden of efficiency and innovation. Government intervention to protect domestic industries can actually hurt them.
So porter argues that despite global sourcing and excellent global communications and distribution infrastructures, that location still matters. Therefore your strategy in a country needs to be linked to the country's comparative advantage and should complement it, and vice versa. Therefore you can easily be more successful in some countries than in others.
He introduces (Porter, 1990) the concept of "home base" - the cultural, social, economic, political, financial, regulatory and ethical context within you develop your identity, resources & capabilities, and how you manage. The home base influence comes from the national environment within which you are operating.
For a country to keep competitive advantage in an industry or sector over time, individual firms must innovate and continuously upgrade the quality of their resources and capabilities. Therefore home base advantage may wane if firms in the sector do not invest in innovation. Home base advantage is therefore dynamic, not static. Governments can influence the conditions for this, eg by investments or lack of in transport, education, etc.
The four parts of the diamond are:-
Factor conditions
Demand Conditions
Related and supporting industries
Firm strategy, structure and rivalry
In the benetton example (u7 p23):-
Factor conditions - availability of highly skilled and cheap labour in a poor part of Italy due to the hundreds of years of skill and experience of the people in textiles
Demand conditions - the italians *want* fashionable clothing, they are passionate about fashion and spend a high proportion of their clothing and income on accessories, creating a demand for the product. But because they are so critical about the product, if your product survives in Italy, it should survive other international markets too.
Related and supporting industries - Italy has a cluster of fashion lablels, houses and designers, but also in many related industries such as leather, furniture and design. All these industries share common factors such as high design skills and knowledge of materials.
Firm strategy, structure and rivalry - firms that are located in competitive industries with high levels of national rivalry are most likely to do well in international markets, due to their efficiency etc. If they can survive in a cut-throat environment they can survive in other environments. Those with few or no national rivals are unlikely to cope as well internationally. Benetton is in a crowded industry and so has benefited from the experience of competing in that industry.
These are the home base and domestic industry conditions that are critical to your international success, according to Porter. Ohmae, on the other hand, disagrees. His view is that national roots must be left behind to be successful internationally. Porter views the national diamond as the springboard to your international success. Ohmae regards the world as borderless, where nations are less important, either as home bases or as sources of identity. u7 p25
Both agree that international firms emerge from their national origins which have helped establish their competitiveness. They disagree on the attributes of a firm with a successful global strategy.
Ohmae argues you should shake off your origins.
Porter argues that you should preserve them.
Ohmae criticises nearsightedness. He says MNCs are dominated by HQ who give too much weight to their domestic customers. He insists that global managers must act as if equidistant from all customers, wherever they may be. This is becoming an insider in all markets - an honorary citizen perceived as a direct investor in each home market that you operate in. He argues that if you have an insider mindset, you will be free of the standardising force of home base HQ.
Example - HSBC, which shook off its Asian history and roots.
Porter says that global strategy builds on local roots, and that continuous enhancements of comparative local factor endowments are the basis of distinctive capabilities and the source of dynamic advantage. Dynamic advantage means sustainable long term advantage. Porter's examples are Nestle, Sony and IBM, and sees a global strategy as supplementing the competitive advantage created at home base and that companies need to retain those elements when they expand abroad.
Where there are "clusters" of critical masses in one place of unusual competitive success in particular fields (porter, 1998, p78) it is often a straightforward task to demonstrate a strong national diamond. Well known examples include Hollywood (film industry) & Bollywood, Bangalore & Silicon Valley (IT), Bordeaux, Burgundy, Champagne, California, Southern Australian states (Wine) etc. etc.
Porter sees these clusters of excellence in terms of nations. Within a nation, demand conditions (one of the points on the diamond) are affected by its government's macro-economic policy; the nature of competition by its anti-trust and trade policies, the level and type of skills and knowledge from the education systems and the attitudes of staff, managers, customers caused by culture.
Sometimes government policies adopted to support local industries can be counter-productive in the long term since they will protect national firms from competitive pressure, relieving the burden of efficiency and innovation. Government intervention to protect domestic industries can actually hurt them.
So porter argues that despite global sourcing and excellent global communications and distribution infrastructures, that location still matters. Therefore your strategy in a country needs to be linked to the country's comparative advantage and should complement it, and vice versa. Therefore you can easily be more successful in some countries than in others.
The international contexts u7 p13
Ignoring protective legislation, then thinking to Exxon etc in a previous post; in each sector, the terms and conditions of trade for local providers of goods and services are affected by the most efficient potential providers of each product/service.
Typically, the bigger the provider, the greater their resources, better economy of scale, and hence greater efficiency.
Internationalisation allows this position to be reached. It has happened in consumer electronics, retailing, coffee shops, restaurants, wine, cleaning services, media, advertising, energy, utilities, insurance, healthcare and children's toys.
Everyone can think of small local stores trying to stay in business against the greater product choice and cheapher prices of the new supermarket.
The basis for competition for these stores has changed to convenience.
Many not for profits are also international in scope.
Examples of successful international firms include BP, Wal-Mart, Ikea, Honda.
There is a traditional view that international trade is based on the principle of comparative costs between nations, and gains from trade result from specialisation on the basis of comparative cost.
Comparative advantage can be expressed as international differences in the opportunity costs of goods. In other words, the quantity of other goods (B, C, D etc) sacrificed to make one more unit of good A in one country rather than another country.
For years this principle underlaid internatioanl trade, which was mostly in commodity goods. Countries are differently endowed with land, labour and capital. Exchange between countries should therefore be possible to the advantage of all.
Porter (1990) stresses (u7 p16)
internationally mobile factors of production - labour and capital are no longer physically fixed, unlike land.
fast-changing technology
mobility barriers - powerful ones include know-how or immovable strategic assets, or trusted brands - see also 5 forces model.
He argues that only "advanced factors" now lead to competitive advantage, such as Human Resources, Physical Resources, and Knowledge Resources, capital resources and infrastructure.
It is important not to forget the difference between comparative advantage and competitive advantage.
Typically, the bigger the provider, the greater their resources, better economy of scale, and hence greater efficiency.
Internationalisation allows this position to be reached. It has happened in consumer electronics, retailing, coffee shops, restaurants, wine, cleaning services, media, advertising, energy, utilities, insurance, healthcare and children's toys.
Everyone can think of small local stores trying to stay in business against the greater product choice and cheapher prices of the new supermarket.
The basis for competition for these stores has changed to convenience.
Many not for profits are also international in scope.
Examples of successful international firms include BP, Wal-Mart, Ikea, Honda.
There is a traditional view that international trade is based on the principle of comparative costs between nations, and gains from trade result from specialisation on the basis of comparative cost.
Comparative advantage can be expressed as international differences in the opportunity costs of goods. In other words, the quantity of other goods (B, C, D etc) sacrificed to make one more unit of good A in one country rather than another country.
For years this principle underlaid internatioanl trade, which was mostly in commodity goods. Countries are differently endowed with land, labour and capital. Exchange between countries should therefore be possible to the advantage of all.
Porter (1990) stresses (u7 p16)
internationally mobile factors of production - labour and capital are no longer physically fixed, unlike land.
fast-changing technology
mobility barriers - powerful ones include know-how or immovable strategic assets, or trusted brands - see also 5 forces model.
He argues that only "advanced factors" now lead to competitive advantage, such as Human Resources, Physical Resources, and Knowledge Resources, capital resources and infrastructure.
It is important not to forget the difference between comparative advantage and competitive advantage.
International and Cross-cultural strategy
Every action taken by an international firm has an impact in a local market. Whether local firms known it or not they are competing in international market for their goods/services.
If you are a small local petrol retailer, you are competing against big companies like Exxon, Shell etc.
If you are a small local store you are competing against the same, plus against other retailers.
24-hour opening, cafe & parcel services, these are examples of global companies developing a strong offering for a local market.
International strategy is about the pursuit of international advantage. The essence of international strategy is the exercise of options and opportunities arising from the existence of different skills and resources in different country markets.
International Strategy concerns the interplay between the your competitive advantage and the comparative advantage posessed by a country or region.
Effective international strategies are less about content than about understanding how to create the operational flexibility with which to benefit from uncertainty, risk and market imperfections. Ultimately it is the search for strategic flexibility - the skills and resources needed to coordinate your international activities, bearing in mind differing market, competitive, regulatory and political environments.
The concept is "managing across borders". MNC = Multinational Company. Your company may carry out no international activities but you can still be strongly affected by international trade and the strategies of people like Exxon etc. above.
When you expand outside your home country for the first time, everything you do becomes more complex. You will face more challenges. Risks are greater, problems are more numerous. An example is selecting markets for international expansion.
There are trade barriers, tariffs, import quotas, foreign ownership rules, differences in laws, planning regulations, infrastructure for distribution, language, currencies, exchange rates, cultures, consumer prefernces, political systems, legal systems and norms and standards of behaviour.
Should you adapt your products, management, or investment plans to take account of these differences? Yes, the harder question is how much? There are many fine judgements to be made.
So, strategic thinking happens within a dymanic context. We have covered that already. But international strategy exists within the most dynamic and complex context of all.
If you are a small local petrol retailer, you are competing against big companies like Exxon, Shell etc.
If you are a small local store you are competing against the same, plus against other retailers.
24-hour opening, cafe & parcel services, these are examples of global companies developing a strong offering for a local market.
International strategy is about the pursuit of international advantage. The essence of international strategy is the exercise of options and opportunities arising from the existence of different skills and resources in different country markets.
International Strategy concerns the interplay between the your competitive advantage and the comparative advantage posessed by a country or region.
Effective international strategies are less about content than about understanding how to create the operational flexibility with which to benefit from uncertainty, risk and market imperfections. Ultimately it is the search for strategic flexibility - the skills and resources needed to coordinate your international activities, bearing in mind differing market, competitive, regulatory and political environments.
The concept is "managing across borders". MNC = Multinational Company. Your company may carry out no international activities but you can still be strongly affected by international trade and the strategies of people like Exxon etc. above.
When you expand outside your home country for the first time, everything you do becomes more complex. You will face more challenges. Risks are greater, problems are more numerous. An example is selecting markets for international expansion.
There are trade barriers, tariffs, import quotas, foreign ownership rules, differences in laws, planning regulations, infrastructure for distribution, language, currencies, exchange rates, cultures, consumer prefernces, political systems, legal systems and norms and standards of behaviour.
Should you adapt your products, management, or investment plans to take account of these differences? Yes, the harder question is how much? There are many fine judgements to be made.
So, strategic thinking happens within a dymanic context. We have covered that already. But international strategy exists within the most dynamic and complex context of all.
Saturday 19 March 2011
Unit 6 - Strategy Implementation - to sum up
Implementing strategy involves change to strucutre, culture and/or systems. They are continuously revisited, reviewed and redirected as the consequences of change arise.
You can't begin to change until you understand the causes of change, which can be internal or external.
Consequences of change depends on the situation. Different speeds and types of change will result in various internal and external issues, which act as resistance to change. This is stronger and harder to overcome where the change involves modifying the existing paradigm.
Strategic drift can happen when your strategy and your change fails to keep up with your external environment.
Johnson's Cultural web is a useful framework to help with change, particularly in identifying hard and soft factors.
Managing change is complex because so many interconnected things are affected. You need to have a high level view yet low level knowledge.
Managing change well is a capability and is a potential source of competitive advantage in itself.
To re-iterate, strategy implementation is part of a continuous strategic management process, and needs to consider the inter-relationships between the structure, systems and culture of your organisation. They are the organisational levers that you can operate to implement your strategy. Do not focus solely or too heavily on structure and control systems without considering culture too. Strategy implementation should take at least as long as strategy development.
You can't begin to change until you understand the causes of change, which can be internal or external.
Consequences of change depends on the situation. Different speeds and types of change will result in various internal and external issues, which act as resistance to change. This is stronger and harder to overcome where the change involves modifying the existing paradigm.
Strategic drift can happen when your strategy and your change fails to keep up with your external environment.
Johnson's Cultural web is a useful framework to help with change, particularly in identifying hard and soft factors.
Managing change is complex because so many interconnected things are affected. You need to have a high level view yet low level knowledge.
Managing change well is a capability and is a potential source of competitive advantage in itself.
To re-iterate, strategy implementation is part of a continuous strategic management process, and needs to consider the inter-relationships between the structure, systems and culture of your organisation. They are the organisational levers that you can operate to implement your strategy. Do not focus solely or too heavily on structure and control systems without considering culture too. Strategy implementation should take at least as long as strategy development.
Tipping point leadership u6p83
Tipping point leadership identifies four hurdles to organisational change:-
The concept is by Kim and Mauborgne (2003).
- Breaking through the cognitive hurdle - convincing people that change is needed and winning people over to the idea.
- Sidestep the resource hurdle - most strategic change can only be achieved with limited resource.
- Jump the motivational hurdle - motivating the majority of staff quickly and at low cost. Kingpins - key influencers. Fishbowl management - way to motivate kingpins. Atomisation - how the strategic challenge is framed - breaking down the challenge into more manageable parts.
- Knock over the political hurdle - deal with fierce internal opposition and vested interests.
The concept is by Kim and Mauborgne (2003).
Wednesday 16 March 2011
Managing Strategic Change: A cultural perspective u6 p80
It is complex to manage change. There are interconnected sets of causes and consequences. As mentioned in earlier posts, there may be resistance to change proposals; this will make strategy implementation harder.
Sometimes people are enthusiastic and willing to contribute towards ideas for change.
You have to be aware of the overall strategic direction of the organisation and also have deep knowledge of operational activities at individual level. The capability to handle change is a potential source of competitive advtantage, and a highly valued managerial competence in its own right.
Studies of corporate turnarounds (see previous posts) recommend hiring new leaders and managers from outside the organisation, arguing that insiders are often reluctant to undertake sufficient radical change necessary for recovery. However, process theorists (Johnson, Mintzberg etc) consider, for example, that managing change is all about politics. Johnson said it is a patient process of coaching, bargaining and manoeuvring to change minds, as change is primarily about people.
A plan alone is unlikely to be enough to change people and the way they behave. If you are serious about change you will be trying to alter deeply embedded taken-for-granted beliefs and assumptions that people hold, and that the organisation holds as a single entity.
Johnson (1987, 2000) proposed the cultural web as a model for mapping and managing change. It is a tool to surface and explore the core assumptions of your paradigm. He argues that the everyday aspects of the organisation are altered as part of a change programme. This may entail changing cultural identifiers such as processes, behaviours, routines or symbols. The cultural web has the following elements that make it up:-
paradigm - the set of assumptions about an organisation which is held in common and taken for granted
power structures - apply to the most powerful groups of managers in the organisation, likely to be the ones most strongly supporting the core assumptions and beliefs
organisational structure - likely to reflect the power structures and highlight key internal relationships and emphasise what is important. It will include formal and informal structures and norms.
control systems - measurement and reward systems that monitor and focus attention on the activities that the organisation values and considers important
routines - ways in which members of the organisation behave towards each other, and that link different parts of the organisation. The "way we do things around here" and taken-for-granted assumptions.
- rituals - reinforce the routines and consist of special occasions and events that signal what is valued, eg collecting money for presents on special occasions, or working late at night or at weekends because everyone else does.
stories - told by members of the organisation to each other, to outsiders, new recruits etc to flag up important historical info and personalities, as well as organisational "mavericks". They may sometimes be myths, ie not true. Their power is in what they are telling members of the organisation about what matters.
symbols - logos, offices (size and style), parking spaces, perks, job titles, language and vocabulary.
The cultural web shows how these elements come together to determine the nature of the organisation's paradigm (core identity).
Three are soft, intangible - symbols, stories, rituals/routines. Three are hard, tangible - power structure, organisation structure and control systems.
Often, most attention is paid to the tangible areas, partly because they look easiest to change. Johnson argues that the only way to really change an organisation is to adress the soft areas, which is a great deal more difficult.
Sometimes people are enthusiastic and willing to contribute towards ideas for change.
You have to be aware of the overall strategic direction of the organisation and also have deep knowledge of operational activities at individual level. The capability to handle change is a potential source of competitive advtantage, and a highly valued managerial competence in its own right.
Studies of corporate turnarounds (see previous posts) recommend hiring new leaders and managers from outside the organisation, arguing that insiders are often reluctant to undertake sufficient radical change necessary for recovery. However, process theorists (Johnson, Mintzberg etc) consider, for example, that managing change is all about politics. Johnson said it is a patient process of coaching, bargaining and manoeuvring to change minds, as change is primarily about people.
A plan alone is unlikely to be enough to change people and the way they behave. If you are serious about change you will be trying to alter deeply embedded taken-for-granted beliefs and assumptions that people hold, and that the organisation holds as a single entity.
Johnson (1987, 2000) proposed the cultural web as a model for mapping and managing change. It is a tool to surface and explore the core assumptions of your paradigm. He argues that the everyday aspects of the organisation are altered as part of a change programme. This may entail changing cultural identifiers such as processes, behaviours, routines or symbols. The cultural web has the following elements that make it up:-
paradigm - the set of assumptions about an organisation which is held in common and taken for granted
power structures - apply to the most powerful groups of managers in the organisation, likely to be the ones most strongly supporting the core assumptions and beliefs
organisational structure - likely to reflect the power structures and highlight key internal relationships and emphasise what is important. It will include formal and informal structures and norms.
control systems - measurement and reward systems that monitor and focus attention on the activities that the organisation values and considers important
routines - ways in which members of the organisation behave towards each other, and that link different parts of the organisation. The "way we do things around here" and taken-for-granted assumptions.
- rituals - reinforce the routines and consist of special occasions and events that signal what is valued, eg collecting money for presents on special occasions, or working late at night or at weekends because everyone else does.
stories - told by members of the organisation to each other, to outsiders, new recruits etc to flag up important historical info and personalities, as well as organisational "mavericks". They may sometimes be myths, ie not true. Their power is in what they are telling members of the organisation about what matters.
symbols - logos, offices (size and style), parking spaces, perks, job titles, language and vocabulary.
The cultural web shows how these elements come together to determine the nature of the organisation's paradigm (core identity).
Three are soft, intangible - symbols, stories, rituals/routines. Three are hard, tangible - power structure, organisation structure and control systems.
Often, most attention is paid to the tangible areas, partly because they look easiest to change. Johnson argues that the only way to really change an organisation is to adress the soft areas, which is a great deal more difficult.
Resistance to change
Various constraints may arise which can act as resistances to change, including
Internal (individual)
Fear of failure
ignorance
loss of job/career status
inertia (nee d for paradigm shift)
uncertain consequences
Reduction in role/influence
External (organisational)
Board members
culture
structure
sunk costs
limited resources
contractual agreements
beliefs and recipes
investors
suppliers
collaborators
regulators
media
politics
Examples - HP/Compaq, p78
Where change actions go outside the existing paradigm, resistance is usually stronger. People may be expected to alter their core beliefs or accepted ways of operating substantially. The organisation may become bogged down in trying to achieve the change and lose focus on the strategy. Johnson(1992)'s strategic drift starts to happen.
Strategic drift happens when the rate of change in the organisation becomes less responsive to and in line with the rate of change in its operating environment, leading to divergence between the two rates. There is a view that strategic drift has happened with big Japanese consumer electronics companies such as Sony. Often the drift will be noticed when there is a drop in performance or when a suitable signal is received from the environment, usually occuring after a period of indecisive flux. (phase 2). Examples include a rapid drop in credit rating or share value or public confidence or quality measures etc. At the end of the period of flux, revolutionary change is attempted. If it works, the organisation's strategic drift reduces (but the cycle may repeat). If the organisation is not capable of handling and integrating the revolutionary change, or it is too late to make the change anyway, then it may not manage to reduce the drift and fails (which may mean bankrupcy, closure, takeover etc).
Internal (individual)
Fear of failure
ignorance
loss of job/career status
inertia (nee d for paradigm shift)
uncertain consequences
Reduction in role/influence
External (organisational)
Board members
culture
structure
sunk costs
limited resources
contractual agreements
beliefs and recipes
investors
suppliers
collaborators
regulators
media
politics
Examples - HP/Compaq, p78
Where change actions go outside the existing paradigm, resistance is usually stronger. People may be expected to alter their core beliefs or accepted ways of operating substantially. The organisation may become bogged down in trying to achieve the change and lose focus on the strategy. Johnson(1992)'s strategic drift starts to happen.
Strategic drift happens when the rate of change in the organisation becomes less responsive to and in line with the rate of change in its operating environment, leading to divergence between the two rates. There is a view that strategic drift has happened with big Japanese consumer electronics companies such as Sony. Often the drift will be noticed when there is a drop in performance or when a suitable signal is received from the environment, usually occuring after a period of indecisive flux. (phase 2). Examples include a rapid drop in credit rating or share value or public confidence or quality measures etc. At the end of the period of flux, revolutionary change is attempted. If it works, the organisation's strategic drift reduces (but the cycle may repeat). If the organisation is not capable of handling and integrating the revolutionary change, or it is too late to make the change anyway, then it may not manage to reduce the drift and fails (which may mean bankrupcy, closure, takeover etc).
Managing strategic change u6 p73
Implementing strategy involves change. Most organisations are operating in continuously changing circumstances and so some level of continuous change is inevitable. Therefore structures, cultures and systems together should be continously reviewed and updated. This is the definition of the dynamics of strategy implementation.
Change has an impact on strategy implementation.
Many factors can cause change
external factors such as technological advances changing how you interact with your suppliers or your customers, or opening up new ways to sell to your customers (eg e-commerce)
Internal factors, such as managers attempting to pre-empt changes required for growth.
Or in $EMPLOYER's context, the dramatic changes to funding in our sector.
Change may have consequences. For example, sudden strike action by employees unhappy with the proposed change. So you need to understand the dynamics and consequences of change in context.
Change has
content (what is changed)
process (the way it is implemented)
It's reasonable to approach managing change in a manner contingent on the situation or context.
You should evaluate your internal and external environments as a starting point to change.
Perspectives of change
The planned perspective. Similar to the planning school of strategy, this is where the outcome is based on careful, objective analysis and planning by management. An example is to modify an existing product line to meet an immediate competitive move. Or a planned change in strategic direction to enter new markets based on existing resources. This perspective ignores, for example, the cultural "way we do things round here" of the organisation - a problem. Planned change approaches like this therefore do not address the in-depth problems required to make the change a success.
The incremental perspective - "logical incrementalism". Change that proceeds incrementally in sensible small stages. In this way past decisions are built on by future decisions, and past decisions help shape future strategy. This is in tune with the process view of strategy, and sees change implementation as a negotiated process, characterised as a series of decisions, compromises and adjustments subject to managerial and cultural influences. This type of change also has drawbacks - you become a prisoner of your own paradigm. The momentum needed to break out of this increases as the number of years of incremental change increases. "Unlearning" may be necessary.
This type of "Convergent change" refers to adaptations within the existing ways of doing things, leading to extension and continuity from past successes, but also the momentum or inertia described. "Revolutionary change" prokes a culminating crisis due to long periods of convergence maybe.
The consequences of change often vary by organisation. The debate centres on whether the consequences vary as change proceeds through incremental and continuous steps, or through alternating periods of convergent change and revolutionalry change. In the former scenario, your change happens on an ongoing basis in keeping with the changing environment. In the latter scenario, change "emerges as an undramatic, unglamourous process of continuous manoeuvre ... punctuated occasionally by brief moments of opportunism and achievement (Whittington 2001 p114) - the punctuated equilibrium model. This happens where environmental changes happen less frequently, resulting in longer periods of sustained competitive advantage. Where these periods are shorter the organisation is forced to change in a more dynamic way. Exmaple - sao paulo state symphony orchestra, p75.
Both models are equally vallid and can apply to you. Continuous change models usually apply to organisations experiencing rapid changes in products, markets and technologies. Some argue that continuous change can achieve the same results as revolutionary change by doing so incrementally over time, leading to less disruption.
Change has an impact on strategy implementation.
Many factors can cause change
external factors such as technological advances changing how you interact with your suppliers or your customers, or opening up new ways to sell to your customers (eg e-commerce)
Internal factors, such as managers attempting to pre-empt changes required for growth.
Or in $EMPLOYER's context, the dramatic changes to funding in our sector.
Change may have consequences. For example, sudden strike action by employees unhappy with the proposed change. So you need to understand the dynamics and consequences of change in context.
Change has
content (what is changed)
process (the way it is implemented)
It's reasonable to approach managing change in a manner contingent on the situation or context.
You should evaluate your internal and external environments as a starting point to change.
Perspectives of change
The planned perspective. Similar to the planning school of strategy, this is where the outcome is based on careful, objective analysis and planning by management. An example is to modify an existing product line to meet an immediate competitive move. Or a planned change in strategic direction to enter new markets based on existing resources. This perspective ignores, for example, the cultural "way we do things round here" of the organisation - a problem. Planned change approaches like this therefore do not address the in-depth problems required to make the change a success.
The incremental perspective - "logical incrementalism". Change that proceeds incrementally in sensible small stages. In this way past decisions are built on by future decisions, and past decisions help shape future strategy. This is in tune with the process view of strategy, and sees change implementation as a negotiated process, characterised as a series of decisions, compromises and adjustments subject to managerial and cultural influences. This type of change also has drawbacks - you become a prisoner of your own paradigm. The momentum needed to break out of this increases as the number of years of incremental change increases. "Unlearning" may be necessary.
This type of "Convergent change" refers to adaptations within the existing ways of doing things, leading to extension and continuity from past successes, but also the momentum or inertia described. "Revolutionary change" prokes a culminating crisis due to long periods of convergence maybe.
The consequences of change often vary by organisation. The debate centres on whether the consequences vary as change proceeds through incremental and continuous steps, or through alternating periods of convergent change and revolutionalry change. In the former scenario, your change happens on an ongoing basis in keeping with the changing environment. In the latter scenario, change "emerges as an undramatic, unglamourous process of continuous manoeuvre ... punctuated occasionally by brief moments of opportunism and achievement (Whittington 2001 p114) - the punctuated equilibrium model. This happens where environmental changes happen less frequently, resulting in longer periods of sustained competitive advantage. Where these periods are shorter the organisation is forced to change in a more dynamic way. Exmaple - sao paulo state symphony orchestra, p75.
Both models are equally vallid and can apply to you. Continuous change models usually apply to organisations experiencing rapid changes in products, markets and technologies. Some argue that continuous change can achieve the same results as revolutionary change by doing so incrementally over time, leading to less disruption.
National vs organisational culture
Organisational cultures exist within national cultures.
National culture definition:-
...the values, beliefs and assumptions learned in early childhood that distunguish one group of people from another. The notion of national culture relates directly to the software of the mind - ie the common theories of behaviour or mental programs that are shared [within a social group] (Newman and Nollen, 1996, p754). In this respect, as with any social group, corporate cultures, and incorporate [cultural and behavioural] elements of other outside societies: for example, cultural difference associated with managerial social classes, hourly wages, ethnic cultures. (Grant 2002, p167)
There were several studies examining the relative success of Japanese firms in the 1980s. The conclusion was that national values, through expression in organisational practice, were the key to Japan's economic philosophy and competitiveness. National cultures do differ and so do management practices within them. These include
human resource management practices
leadership style
decision making
Troompenaars, Hoftstede and Schneider & DeMeyer all argue that these differences affect the strategic performance of organisations. 3M example, p69.
Managers in France,Belgium, Italy, Spain and Portugal are more likely to interpret a difficult strategic issue as a threat than their counterparts in the UK or Germany. Studies have found that performance improves where business practices and national culture are congruent. Some authors argue that the effects of national culture on strategy are inconsistent. They propose that national culture may affect values and views of the world, it may not have the same effect on other aspects of organisational or individual beliefs. They argue that national culture is less important than the political workings of the organisation, or managers professional experience and training.
So to summarise the section on the relationship between strategy and culture:-
Structures and systems work only as well as the people who make them up and operate in them. Culture shapes those people, and therefore the behaviour, personality and practices of the whole organisation.
Organisations work as a social system through culture, and culture therefore strongly affects the strategy process.
Culture can be a tacit feature of your organisation, making it difficult for your competitors to imitate
There is no one best culture that fits all organisations or strategies, just as with systems and structure.
Remember your culture is just part of a national "superculture" and so you need to take that into account also during strategy implementation.
To be an organisational strength, culture must support strategy. Often, change in strategic direction requires adjustments to culture.
National culture definition:-
...the values, beliefs and assumptions learned in early childhood that distunguish one group of people from another. The notion of national culture relates directly to the software of the mind - ie the common theories of behaviour or mental programs that are shared [within a social group] (Newman and Nollen, 1996, p754). In this respect, as with any social group, corporate cultures, and incorporate [cultural and behavioural] elements of other outside societies: for example, cultural difference associated with managerial social classes, hourly wages, ethnic cultures. (Grant 2002, p167)
There were several studies examining the relative success of Japanese firms in the 1980s. The conclusion was that national values, through expression in organisational practice, were the key to Japan's economic philosophy and competitiveness. National cultures do differ and so do management practices within them. These include
human resource management practices
leadership style
decision making
Troompenaars, Hoftstede and Schneider & DeMeyer all argue that these differences affect the strategic performance of organisations. 3M example, p69.
Managers in France,Belgium, Italy, Spain and Portugal are more likely to interpret a difficult strategic issue as a threat than their counterparts in the UK or Germany. Studies have found that performance improves where business practices and national culture are congruent. Some authors argue that the effects of national culture on strategy are inconsistent. They propose that national culture may affect values and views of the world, it may not have the same effect on other aspects of organisational or individual beliefs. They argue that national culture is less important than the political workings of the organisation, or managers professional experience and training.
So to summarise the section on the relationship between strategy and culture:-
Structures and systems work only as well as the people who make them up and operate in them. Culture shapes those people, and therefore the behaviour, personality and practices of the whole organisation.
Organisations work as a social system through culture, and culture therefore strongly affects the strategy process.
Culture can be a tacit feature of your organisation, making it difficult for your competitors to imitate
There is no one best culture that fits all organisations or strategies, just as with systems and structure.
Remember your culture is just part of a national "superculture" and so you need to take that into account also during strategy implementation.
To be an organisational strength, culture must support strategy. Often, change in strategic direction requires adjustments to culture.
The implications of culture on the strategy implementation process u6 p62
Who implements strategy? Employees (and managers). Strategy implementation requires that your resources and capabilities are directed effectively and efficiently to achieve your goals. Culture influences the behaviour of your employees and managers, as well as their decision making and actions. It therefore strongly affects your ability to see through your strategy.
CULTURE MUST SUPPORT STRATEGY
You will often see firms (attempt to) adjust their culture alongside a change in strategic direction, to try and achieve this.
There is no one best culture that fits all organisations and their strategies.
To be appropriate, your culture must support purpose and strategy.
So a challenge exists, then, to align strategy and culture. How?
Most problems arise when there already exists a strong or deeply embedded established culture which will have a natural ability to resist change. Example, NTFE p63. Change in strategy is not likely to be successful if it simply contradicts the culture of the organisation, leading to employee change resistance. If culture is not compatible it can actually become a serious weakness. Culture's direct impact on the success or otherwise of your strategy may lead you to ask whether culture can be managed as an organisational capability.
Dynamic culture (u6 p66).
Some experts see culture as a controllable organisational variable, others sThe performance of your organisation depends on which its cultural values and norms can be aligned with your strategy, but can culture be manipulated (or manipulated enough) to allow this. Those who see culture as wholly changeable are regarded as "trait theorists" (Deal & Kennedy, Ouchi). Critics of trait theorists accuse them of downplaying the inherent differences that can exist across societies, industries, organisations. They include Barney and Kotter & Heskett. They argue that cultural traits have an adaptability, and that this affects how much culture can be changed to influence performance. Example: Montblanc pen maker, p67. The argument is that because cultural traits have differing adaptability, culture may be manipulated even though it may not be completely controlled.
"Paradigm Shift" :)
To change an organisation's "paradigm" - the deeper level of basic assumptions and beliefs that are commonly shared amongst its members (which operate unconsciously and define in...a fashion an organisation's view of itself and its environment) - to change this effectively, it is crucial for managers and "change consultants" to understand the relationships between those processes that coordinate activities or enable organisational members to interact.
Before attempting to change culture, management must
Evaluate what a particular change in strategy means to the culture
Assess if a change in culture is needed at all
Decide if an attempt to change the culture is worth the likely costs to the whole strategy process
The direction of cultural change and its impact cannot be handled systematically or rationally. It is a dynamic process.
National vs Organisational culture
CULTURE MUST SUPPORT STRATEGY
You will often see firms (attempt to) adjust their culture alongside a change in strategic direction, to try and achieve this.
There is no one best culture that fits all organisations and their strategies.
To be appropriate, your culture must support purpose and strategy.
So a challenge exists, then, to align strategy and culture. How?
Most problems arise when there already exists a strong or deeply embedded established culture which will have a natural ability to resist change. Example, NTFE p63. Change in strategy is not likely to be successful if it simply contradicts the culture of the organisation, leading to employee change resistance. If culture is not compatible it can actually become a serious weakness. Culture's direct impact on the success or otherwise of your strategy may lead you to ask whether culture can be managed as an organisational capability.
Dynamic culture (u6 p66).
Some experts see culture as a controllable organisational variable, others sThe performance of your organisation depends on which its cultural values and norms can be aligned with your strategy, but can culture be manipulated (or manipulated enough) to allow this. Those who see culture as wholly changeable are regarded as "trait theorists" (Deal & Kennedy, Ouchi). Critics of trait theorists accuse them of downplaying the inherent differences that can exist across societies, industries, organisations. They include Barney and Kotter & Heskett. They argue that cultural traits have an adaptability, and that this affects how much culture can be changed to influence performance. Example: Montblanc pen maker, p67. The argument is that because cultural traits have differing adaptability, culture may be manipulated even though it may not be completely controlled.
"Paradigm Shift" :)
To change an organisation's "paradigm" - the deeper level of basic assumptions and beliefs that are commonly shared amongst its members (which operate unconsciously and define in...a fashion an organisation's view of itself and its environment) - to change this effectively, it is crucial for managers and "change consultants" to understand the relationships between those processes that coordinate activities or enable organisational members to interact.
Before attempting to change culture, management must
Evaluate what a particular change in strategy means to the culture
Assess if a change in culture is needed at all
Decide if an attempt to change the culture is worth the likely costs to the whole strategy process
The direction of cultural change and its impact cannot be handled systematically or rationally. It is a dynamic process.
National vs Organisational culture
Strategy and culture u6 p57
Previous study already pointed out that Mintzberg stresses the importance of ideology. Simons control levers talk about beliefs and boundary systems as bases of control mechanisms. The structure and systems of an organisation undoubtedly affect the morale and behaviour of its people. Whittington said that structures are primarily about people, and that structures can "work only so well as their constituents are capable". (2003, p343).
In effect culture is another system. A social system, shaped by the formal and informal interactions of your staff, as they perform productive activities. Those people establish norms, beliefs, behaviours, relationships and social groupings irrespective of those defined by management.
Being successful, then, depends not only on having a strategy consisting of the right systems and organisational structures, but also on the willing participation and commitment of people. This shapes the personality and practices of the whole organisation. Culture affects in particular the implementation part of the strategy circular process.
There are links between organisational culture and the study of anthropology and sociology.
Schein's two challenges:
integrating individuals into an effective whole
adapting effectively to the external environment
The collective learning that goes on while you're meeting those challenges creates a set of shared values and beliefs - culture.
Ogbonna and Harris define culture as "a dynamic set of assumptions, values and artefacts whose meanings are collectively shared in a given social unit at a particular point in time"
There is a distinction between corporate and organisational cultures. To clarify, there are two questions to be asked.
1. Who owns culture?
2. Is culture something that an organisation is, or something it has?
If culture is something that an organisation has, then it can be treated as another contingency which has an impact on structures, people and processes, and can be seen to be owned by the management of the organisation and is capable of being manipulated in some way, eg to improve efficiency. It may even be a resource, a source of competitive advantage.
If culture is something that an organisation is, then it is the product of negotiated and shared meanings that emerge from social and personal interactions. In this case culture is created and re-created by its participants in a process that is continuous and not imposed. It's possible to imagine links between organisational culture and emergent strategy. Corporate culture is more akin to deliberate strategy, but what you end up with is an emergent strategy and an organisational culture that have been moulded from the deliberate strategy and corporate culture by your people. Emergent strategy may also be a byproduct of your organisational culture, even if your deliberate strategy took corporate culture into account.
Corporate culture refers to and reflects managers' values, interpretations and preferred way of doing things. Organisational culture may embrace many sub-cultures and is more intangible. Managers often assume that their understanding of the corporate culture is fully reflected in the organisational culture, whereas in effect it is only part of it. They also confuse compliance to corporate culture with the existence of a homogeneous organisational culture.
Culture normally reflects organisational purpose:-
this is what we are about
this is what we do
and even this is how we do it - which becomes "the way things are done around here".
It shapes the behaviour and attitude of people. Your culture will be distinct in intensity (depth) and integration (breadth) to any other organisation (Wheelen and Hunger, 2002, p89(.
To clarify those terms:-
Cultural Intensity:
The degree to which members of a unit accept the norms, values or other cultural content associated with the unit - depth.
Tends to be stronger in mature orgs, eg service at SIA. In intensive cultures, employees are expected to behave more consistently than employees in less intensive cultures.
Cultural Integration:
The extent to which units throughout an organisation share a common culture - breadth. In a hierarchical structure (eg military), culture is highly integrated.
Culture fulfills the following functions:
Internal and external identity can be reflected and reinforced
Your staff's values and norms can be aligned to those of the organisation
It enables the organisation to work as a social system
It provides a frame of reference for employees to draw upon when undertaking productive activities and serves as a guide for appropriate behaviour.
As previously mentioned, culture can heavily influence the strategy process. A culture that fosters strategic flexibility and renewal can help the organisation adapt better in dynamic environments. Where resources and capabilities are embedded in culture, they will form a tacit feature of your operational effectiveness which is difficult for your competitors to copy.
"...culture is what determines how people behave when they are not being watched" - Tom Tierney, Bain Consultancy.
AOL and Time Warner - attempt to merge a sharp e-culture with a traditional controlled media culture - disastrous.
The ways managers interact can help to set the tone.
GE under Jack Welch had a well-forged culture, tough q&a sessions with managers.
Wal-Mart's money saving culture is reinforced by the company's weekly Saturday Morning meetings for managers and families, and low spending habits by which their chief executive sets an example.
Cultures are influenced by the sort of people who are recruited. Enron's MBA talent recruitment resulted in a poorly controlled, self-absorbed management hierarchy.
The biggest single influence on a culture is the boss. Employees set their behaviour by the leader at the top.
Many recent large corporate failures (tyco, Global Crossing, Worldcom) resulted from hastily bundled together mergers of organisations that lost their distinctive cultural norms and found nothing to replace them.
Consistency can lead to a healthy culture, and one aid to this is for key messages to be repeated over and over. Richard Branson repeatedly tells his Virgin staff that 'common sense counts more than pure intellect'.
Culture can therefore influence the success of failure of your organisation because
Culture has a direct influence over how your employees and managers interact within their given structures. It is embedded over time by big events (mergers) as well as small (cakes on birthdays).
It affects the selection and type of people the organisation recruits, and can provide a way to retain the right people.
Cultural consistency leads to greater coherence in the development of your capabilities. This can help explain how belief systems work in the Simons control levers model. It can lead to ways of doing things and organisational learning that can underpin operational effectiveness and become a source of competitive advantage in its own right.
The right culture can be used to reinforce staff commitment to strategic goals. Leadership personalities can really help here. If leaders are committed to the culture then employees perception of that culture is improved and they are more likely to adopt it too.
Culture can be a "sticky" factor (as previously covered) which can lock the organisation into particular commitments of resource and strategic trajectories (and lock others out).
In effect culture is another system. A social system, shaped by the formal and informal interactions of your staff, as they perform productive activities. Those people establish norms, beliefs, behaviours, relationships and social groupings irrespective of those defined by management.
Being successful, then, depends not only on having a strategy consisting of the right systems and organisational structures, but also on the willing participation and commitment of people. This shapes the personality and practices of the whole organisation. Culture affects in particular the implementation part of the strategy circular process.
There are links between organisational culture and the study of anthropology and sociology.
Schein's two challenges:
integrating individuals into an effective whole
adapting effectively to the external environment
The collective learning that goes on while you're meeting those challenges creates a set of shared values and beliefs - culture.
Ogbonna and Harris define culture as "a dynamic set of assumptions, values and artefacts whose meanings are collectively shared in a given social unit at a particular point in time"
There is a distinction between corporate and organisational cultures. To clarify, there are two questions to be asked.
1. Who owns culture?
2. Is culture something that an organisation is, or something it has?
If culture is something that an organisation has, then it can be treated as another contingency which has an impact on structures, people and processes, and can be seen to be owned by the management of the organisation and is capable of being manipulated in some way, eg to improve efficiency. It may even be a resource, a source of competitive advantage.
If culture is something that an organisation is, then it is the product of negotiated and shared meanings that emerge from social and personal interactions. In this case culture is created and re-created by its participants in a process that is continuous and not imposed. It's possible to imagine links between organisational culture and emergent strategy. Corporate culture is more akin to deliberate strategy, but what you end up with is an emergent strategy and an organisational culture that have been moulded from the deliberate strategy and corporate culture by your people. Emergent strategy may also be a byproduct of your organisational culture, even if your deliberate strategy took corporate culture into account.
Corporate culture refers to and reflects managers' values, interpretations and preferred way of doing things. Organisational culture may embrace many sub-cultures and is more intangible. Managers often assume that their understanding of the corporate culture is fully reflected in the organisational culture, whereas in effect it is only part of it. They also confuse compliance to corporate culture with the existence of a homogeneous organisational culture.
Culture normally reflects organisational purpose:-
this is what we are about
this is what we do
and even this is how we do it - which becomes "the way things are done around here".
It shapes the behaviour and attitude of people. Your culture will be distinct in intensity (depth) and integration (breadth) to any other organisation (Wheelen and Hunger, 2002, p89(.
To clarify those terms:-
Cultural Intensity:
The degree to which members of a unit accept the norms, values or other cultural content associated with the unit - depth.
Tends to be stronger in mature orgs, eg service at SIA. In intensive cultures, employees are expected to behave more consistently than employees in less intensive cultures.
Cultural Integration:
The extent to which units throughout an organisation share a common culture - breadth. In a hierarchical structure (eg military), culture is highly integrated.
Culture fulfills the following functions:
Internal and external identity can be reflected and reinforced
Your staff's values and norms can be aligned to those of the organisation
It enables the organisation to work as a social system
It provides a frame of reference for employees to draw upon when undertaking productive activities and serves as a guide for appropriate behaviour.
As previously mentioned, culture can heavily influence the strategy process. A culture that fosters strategic flexibility and renewal can help the organisation adapt better in dynamic environments. Where resources and capabilities are embedded in culture, they will form a tacit feature of your operational effectiveness which is difficult for your competitors to copy.
"...culture is what determines how people behave when they are not being watched" - Tom Tierney, Bain Consultancy.
AOL and Time Warner - attempt to merge a sharp e-culture with a traditional controlled media culture - disastrous.
The ways managers interact can help to set the tone.
GE under Jack Welch had a well-forged culture, tough q&a sessions with managers.
Wal-Mart's money saving culture is reinforced by the company's weekly Saturday Morning meetings for managers and families, and low spending habits by which their chief executive sets an example.
Cultures are influenced by the sort of people who are recruited. Enron's MBA talent recruitment resulted in a poorly controlled, self-absorbed management hierarchy.
The biggest single influence on a culture is the boss. Employees set their behaviour by the leader at the top.
Many recent large corporate failures (tyco, Global Crossing, Worldcom) resulted from hastily bundled together mergers of organisations that lost their distinctive cultural norms and found nothing to replace them.
Consistency can lead to a healthy culture, and one aid to this is for key messages to be repeated over and over. Richard Branson repeatedly tells his Virgin staff that 'common sense counts more than pure intellect'.
Culture can therefore influence the success of failure of your organisation because
Culture has a direct influence over how your employees and managers interact within their given structures. It is embedded over time by big events (mergers) as well as small (cakes on birthdays).
It affects the selection and type of people the organisation recruits, and can provide a way to retain the right people.
Cultural consistency leads to greater coherence in the development of your capabilities. This can help explain how belief systems work in the Simons control levers model. It can lead to ways of doing things and organisational learning that can underpin operational effectiveness and become a source of competitive advantage in its own right.
The right culture can be used to reinforce staff commitment to strategic goals. Leadership personalities can really help here. If leaders are committed to the culture then employees perception of that culture is improved and they are more likely to adopt it too.
Culture can be a "sticky" factor (as previously covered) which can lock the organisation into particular commitments of resource and strategic trajectories (and lock others out).
Sunday 13 March 2011
Strategy and systems u6 p37
Organisations have internal mechanisms through which resources and capabilities are transformed into competitive advantages
Mechanisms include
identifying, acquiring, deploying, coordinating, maintaining, controlling, cutting back resources and capabilities.
These mechanisms are systems - they involve formal and informal flows of information used flor planning, decision making, co-ordenation, cooperation and control at operational and strategic levels.
Grant 2002 p213 defines systems as
management systems provide the mechanisms for communication, decision-making, and control that allow the organisation to operate and develop. These systems are the primary means through which organisations solve the basic problems of achieving both coordination and cooperation.
Systems can be operational - those that underlie the efficient use and deployment of resources and capabilities.
Systems can be control systems - those that monitor the achievement of strategic goals.
Operational systems act as building blocks for organisational capabilities to develop.They become significant when they allow resources and capabilities to interact/interrelate, and create value.
Garvin defines operationial systems as "collections of tasks and activities that together - and only together - transform inputs into outputs, where inputs and outputs include materials, information and people"
Examples:
Retail: new product development, order fulfilment, customer service, resource allocation, decision making
Voluntary: ways of keeping records and mailing lists, preparing funding and donations proposals, fund raising processes.
Government: policy-making systems
Systems are tailored to suit the organisation, to help it pursue its goals. They need to fit the strategy and help the organisation deliver on it.They must include features that enable or allow the organisation to change core capabilities over time since ability to change is always critical. Operational systems that can achieve all this may be genuine sources of distinctiveness in their own right.
Organisations create routines around key tasks. Some are tacit, others are made explicit through codification. Grant states that tacit knowledge (less easily written down) underlies some skills, making it difficult to articulate and more easily expressed through actually doing it, eg. riding a bicycle. Operational system can contribute to making integration of knowledge, people & practices more efficient. There is a danger in large organisations that operational systems actually become sources of inefficiencies. The organisation may actually become slow and unresponsive to change if the systems become too routinised or bedded in. This is another reason why operational systems must be flexible.
Operational structures have the challenge of developing and transferring knowledge internally and changing behaviour and attitudes towards learning and integrating new knowledge (Grant 2002).
Successful management of strategy can also require processes of unlearning (Nystrom and Starbuck, 1984) where existing capabilities become obsolete owing to significant environmental shifts and need to be unlearned to adapt in new and better ways. eg ABB, u6 p41
Control systems u6 p43
Strategic control and organisational structure are intrinsically linked. Control systems make sure that all parts of the organisation are following the strategic roadmap - governed by strategic decisions - and are accountable for their performance.
These decisions may be made at corporate, business or internal levels. The control systems fulfil multiple roles throughout the firm. Some are imposed by outside stakeholders (eg regulations). Others are selected as appropriate by decision-makers.
Structure and control systems are similar - there is no one set of control systems appropriate for all organisations, circumstances or strategies.
Systems->Control Systems->Financial control systems
Financial control systems are information based, their key metrics are numbers, which are used to define activities relative to budgets and financial targets. Grant says 'the budgetary process includes setting and monitoring financial esitmates with regard to income and expenditure for a fixed period' (Grant 2002 p165).
Budgetary processes are normally evaluated/reviewed annually. Forecasts may be linked to the implementation of strategic initiatives. Generally speaking the sophistication and formality of financial controls rises as organisations become more complex (as is to be expected).
This applies in non-profits too!
Managers should pay close attention to weaknesses underpinning control systems, eg Compagnie du Froid, p44 u6. Any kind of control mismanagement can be disastrous, and this could happen with financial or administrative systems. Irresponsibility and fraud can and do happen. .
Simons (1994, 1995) explored the concept of
Dynamic Control Systems (p46)
His argument is that if we want strategic flexibility and innovative capabilities in a dynamic context, then the control mechanism needs to promote those things. Simon's approach integrates feedback and feed-forward mechanisms based on broader organisational criteria eg culture.
Simon's four levers of control, which can reconcile the conflict between flexibility and control are
Belief systems
Boundary systems
Interactive Control Systems
Diagnostic Control Systems.
Belief systems are the values derived from and encapsulated in your mission statement. Strategic decisions are overseen by these systems and they are often concise and inspirational eg "Pursuit of Excellence". They promote the commitment of employees to your central core strategic goal values.
Boundary systems indicate the 'acceptable domain of activity" and can be closely associated with the belief systems of an organisation. Examples include codes of conduct and other codified or non-codified ethical principles - these are conduct boundary systems. Others include eg planning documents, mandates, etc which are 'strategic boundary systems'. Simon's view of boundary systems is that they act like your brakes and every organisation needs them to avoid activities that are off-limits or avoid risks. They tell you what you can and can't do.
Interactive Control Systems stimulate search and learning, permitting new strategies to develop throughout while your staff and managers analyse and respond to opportunities and threats (but no SWOT on B820!) An effective interactive control system should
-keep strategic information up to date for management
-organise information and make it accessible to all levels of management
-encourage strategic decision making in a process of dialogue horizontally and vertically
-serve as a catalyst for ongoing debate and encourage critical thinking abou underlying data, assumptions and action plans.
Diagnostic control systems allow measurement of outputs and assessment against your expected standards of performance. A feedback loop operates allowing you to adjust and modify inputs and processes so that future outputs will more closely match goals - similar to financial control systems.
Collectively the control levers reinforce one another. They all perform a specific task in helping managers harness the creativity and commitment of employees, while at the same time setting up mechanisms to measure and report the achievement of your targets (operational and strategic).
P52 U6 for Eisenhardt and Sull's arguments that Simon's control levers are still not flexible enough to apply to highly turbulent/creative environments. Examples given are Yahoo, ebay and AOL.
They argue that control not by complex systems but by simple rules is more appropriate for the "new economy". Their work was published prior to the dot com bubble bursting, however! Eisenhardt and Sull's rules fall into five categories.
How-to rules - rules describing how things are done
Boundary rules - rules proscribing what can/can't be done
Priority rules - rules defining what should be focused on
Timing Rules - rules defining when things should happen
Exit rules - rules defining when something becomes yesterday's priority
The rules must be tailored to a single process and regularly reviewed. Cisco example u6 p55
Summary
Systems are different for every organisation and include both formal and informal mechanisms of co-ordination and control
They provide the mechanisms for commitment, coordination, decision-making and control
Operational systems underlie the use and deployment of resources and capabilities.
Control systems underlie the monitoring of strategic goal achievements
Operational systems allow resources and capabilities to interact and interrelate
Operational systems are your repository of knowledge
There is no one set of control systems appropriate for all organisations, situations or strategies
In dynamic contexts, your effective control systems promote strategic flexibility in your organisation. They also promote innovative capabilities and contribute to the morale and behaviour of people who work in the organisation.
Mechanisms include
identifying, acquiring, deploying, coordinating, maintaining, controlling, cutting back resources and capabilities.
These mechanisms are systems - they involve formal and informal flows of information used flor planning, decision making, co-ordenation, cooperation and control at operational and strategic levels.
Grant 2002 p213 defines systems as
management systems provide the mechanisms for communication, decision-making, and control that allow the organisation to operate and develop. These systems are the primary means through which organisations solve the basic problems of achieving both coordination and cooperation.
Systems can be operational - those that underlie the efficient use and deployment of resources and capabilities.
Systems can be control systems - those that monitor the achievement of strategic goals.
Operational systems act as building blocks for organisational capabilities to develop.They become significant when they allow resources and capabilities to interact/interrelate, and create value.
Garvin defines operationial systems as "collections of tasks and activities that together - and only together - transform inputs into outputs, where inputs and outputs include materials, information and people"
Examples:
Retail: new product development, order fulfilment, customer service, resource allocation, decision making
Voluntary: ways of keeping records and mailing lists, preparing funding and donations proposals, fund raising processes.
Government: policy-making systems
Systems are tailored to suit the organisation, to help it pursue its goals. They need to fit the strategy and help the organisation deliver on it.They must include features that enable or allow the organisation to change core capabilities over time since ability to change is always critical. Operational systems that can achieve all this may be genuine sources of distinctiveness in their own right.
Organisations create routines around key tasks. Some are tacit, others are made explicit through codification. Grant states that tacit knowledge (less easily written down) underlies some skills, making it difficult to articulate and more easily expressed through actually doing it, eg. riding a bicycle. Operational system can contribute to making integration of knowledge, people & practices more efficient. There is a danger in large organisations that operational systems actually become sources of inefficiencies. The organisation may actually become slow and unresponsive to change if the systems become too routinised or bedded in. This is another reason why operational systems must be flexible.
Operational structures have the challenge of developing and transferring knowledge internally and changing behaviour and attitudes towards learning and integrating new knowledge (Grant 2002).
Successful management of strategy can also require processes of unlearning (Nystrom and Starbuck, 1984) where existing capabilities become obsolete owing to significant environmental shifts and need to be unlearned to adapt in new and better ways. eg ABB, u6 p41
Control systems u6 p43
Strategic control and organisational structure are intrinsically linked. Control systems make sure that all parts of the organisation are following the strategic roadmap - governed by strategic decisions - and are accountable for their performance.
These decisions may be made at corporate, business or internal levels. The control systems fulfil multiple roles throughout the firm. Some are imposed by outside stakeholders (eg regulations). Others are selected as appropriate by decision-makers.
Structure and control systems are similar - there is no one set of control systems appropriate for all organisations, circumstances or strategies.
Systems->Control Systems->Financial control systems
Financial control systems are information based, their key metrics are numbers, which are used to define activities relative to budgets and financial targets. Grant says 'the budgetary process includes setting and monitoring financial esitmates with regard to income and expenditure for a fixed period' (Grant 2002 p165).
Budgetary processes are normally evaluated/reviewed annually. Forecasts may be linked to the implementation of strategic initiatives. Generally speaking the sophistication and formality of financial controls rises as organisations become more complex (as is to be expected).
This applies in non-profits too!
Managers should pay close attention to weaknesses underpinning control systems, eg Compagnie du Froid, p44 u6. Any kind of control mismanagement can be disastrous, and this could happen with financial or administrative systems. Irresponsibility and fraud can and do happen. .
Simons (1994, 1995) explored the concept of
Dynamic Control Systems (p46)
His argument is that if we want strategic flexibility and innovative capabilities in a dynamic context, then the control mechanism needs to promote those things. Simon's approach integrates feedback and feed-forward mechanisms based on broader organisational criteria eg culture.
Simon's four levers of control, which can reconcile the conflict between flexibility and control are
Belief systems
Boundary systems
Interactive Control Systems
Diagnostic Control Systems.
Belief systems are the values derived from and encapsulated in your mission statement. Strategic decisions are overseen by these systems and they are often concise and inspirational eg "Pursuit of Excellence". They promote the commitment of employees to your central core strategic goal values.
Boundary systems indicate the 'acceptable domain of activity" and can be closely associated with the belief systems of an organisation. Examples include codes of conduct and other codified or non-codified ethical principles - these are conduct boundary systems. Others include eg planning documents, mandates, etc which are 'strategic boundary systems'. Simon's view of boundary systems is that they act like your brakes and every organisation needs them to avoid activities that are off-limits or avoid risks. They tell you what you can and can't do.
Interactive Control Systems stimulate search and learning, permitting new strategies to develop throughout while your staff and managers analyse and respond to opportunities and threats (but no SWOT on B820!) An effective interactive control system should
-keep strategic information up to date for management
-organise information and make it accessible to all levels of management
-encourage strategic decision making in a process of dialogue horizontally and vertically
-serve as a catalyst for ongoing debate and encourage critical thinking abou underlying data, assumptions and action plans.
Diagnostic control systems allow measurement of outputs and assessment against your expected standards of performance. A feedback loop operates allowing you to adjust and modify inputs and processes so that future outputs will more closely match goals - similar to financial control systems.
Collectively the control levers reinforce one another. They all perform a specific task in helping managers harness the creativity and commitment of employees, while at the same time setting up mechanisms to measure and report the achievement of your targets (operational and strategic).
P52 U6 for Eisenhardt and Sull's arguments that Simon's control levers are still not flexible enough to apply to highly turbulent/creative environments. Examples given are Yahoo, ebay and AOL.
They argue that control not by complex systems but by simple rules is more appropriate for the "new economy". Their work was published prior to the dot com bubble bursting, however! Eisenhardt and Sull's rules fall into five categories.
How-to rules - rules describing how things are done
Boundary rules - rules proscribing what can/can't be done
Priority rules - rules defining what should be focused on
Timing Rules - rules defining when things should happen
Exit rules - rules defining when something becomes yesterday's priority
The rules must be tailored to a single process and regularly reviewed. Cisco example u6 p55
Summary
Systems are different for every organisation and include both formal and informal mechanisms of co-ordination and control
They provide the mechanisms for commitment, coordination, decision-making and control
Operational systems underlie the use and deployment of resources and capabilities.
Control systems underlie the monitoring of strategic goal achievements
Operational systems allow resources and capabilities to interact and interrelate
Operational systems are your repository of knowledge
There is no one set of control systems appropriate for all organisations, situations or strategies
In dynamic contexts, your effective control systems promote strategic flexibility in your organisation. They also promote innovative capabilities and contribute to the morale and behaviour of people who work in the organisation.
Sunday 6 March 2011
Summary of U6 S2 Strategy and Structure
Strategy and structure are interdependent. Strategy follows structure like left foot follows right. The needs for structure must be considered as strategy is developed and implemented - and vice versa.
No single structure is universally effective for every organisation. Each organisation is unique in size, purpose, outputs, people and culture
Different structural configurations exist that represent different 'ideal' types of organisations (mintzberg's blobby model!) suitable under specific contingencies as the most effective mix of structural features and options
As organisations grow in size and complexity, so does their structural complexity. Some of the main forms of complex structures include: the multidivisional structure, the holding structure, the matrix structure and the network structure.
Dynamic organisational forms are required in more dynamic environments. Two essential features for dynamic structures: they enable the flow of knowledge, and they enhance the strategic flexibility of the organisation to respond to change effectively
Structure may provide a source of advantage when aligned with systems and culture.
No single structure is universally effective for every organisation. Each organisation is unique in size, purpose, outputs, people and culture
Different structural configurations exist that represent different 'ideal' types of organisations (mintzberg's blobby model!) suitable under specific contingencies as the most effective mix of structural features and options
As organisations grow in size and complexity, so does their structural complexity. Some of the main forms of complex structures include: the multidivisional structure, the holding structure, the matrix structure and the network structure.
Dynamic organisational forms are required in more dynamic environments. Two essential features for dynamic structures: they enable the flow of knowledge, and they enhance the strategic flexibility of the organisation to respond to change effectively
Structure may provide a source of advantage when aligned with systems and culture.
Dynamic Structures u6 s2.4 p27
More dynamic and responsive structures are needed in turbulent environments.
We already know that organisations may outperform competitors by responding more effectively to their changing compeitive and technological contexts.
Organisations need to create dynamic capabilities and compete flexibly. This is an important source of advantage.
Sanchez on dynamic structures:-
Creating modular product development capability is key.
Strategic flexibility is also an important capability.
Example SMART car (Swatch Mercedes ART) from MCC was developed from a modular car design, and Smart was a networked organisation.
Must be careful though, managing the relationships between the multiple collaborators and partners can sometimes be difficult or a source of trouble in itself. Therefore the efficiency of structure and partnerships must be continuously re-assessed. Dynamic structures must
enable dynamic capabilities related to leverageing and managing the flow of knowledge internal and external to the organisations, and
enhance the strategic flexibility of the organisation to respond effectively to change.
Mintzberg's Adhocracies tend to be dynamic and flexible structures, suited to contexts characterised by high degrees of continuous change and innovation.They encourage experts (people whose knowledge and skills have been highly developed) to interact and ideas to flow freely (Grant 2002).
Such structures can be utilised to enhance innovative and creative capabilities within organisations where 'knowledge' is the key strategic asset.
Examples include hospitals, universities, research centres, consulting/professional services firms, ad agencies, biomedical companies, but also possibly design houses such as Gucci or Armani. Miles (1997) calls these "cellular" form.
Adhocracies continuously evolve. Eisenhardt and Brown (1999) describe the evolution of adhocracies in practice as 'patching' and 'coevolution'. See unit 5.
Patching changes are often small in scale and undertaken on a frequent basis in the light of changing circumstances - evolution not revolution.
Adhocracies also apply to market-based or client-based projects that require flexibility. In general, adhocracies tend to push responsibility toward the point of customer contact, flatten the hierarchical strucutre and move away from centralised "command and control" as found in complex structures.
Example: WPP U6 P34
WPP is a cross between a divisionlised form and an adhocracy. Managers in adhocracies rarely give orders or outline procedures, but tend to act in a liaison capacity.
We already know that organisations may outperform competitors by responding more effectively to their changing compeitive and technological contexts.
Organisations need to create dynamic capabilities and compete flexibly. This is an important source of advantage.
Sanchez on dynamic structures:-
Creating modular product development capability is key.
Strategic flexibility is also an important capability.
Example SMART car (Swatch Mercedes ART) from MCC was developed from a modular car design, and Smart was a networked organisation.
Must be careful though, managing the relationships between the multiple collaborators and partners can sometimes be difficult or a source of trouble in itself. Therefore the efficiency of structure and partnerships must be continuously re-assessed. Dynamic structures must
enable dynamic capabilities related to leverageing and managing the flow of knowledge internal and external to the organisations, and
enhance the strategic flexibility of the organisation to respond effectively to change.
Mintzberg's Adhocracies tend to be dynamic and flexible structures, suited to contexts characterised by high degrees of continuous change and innovation.They encourage experts (people whose knowledge and skills have been highly developed) to interact and ideas to flow freely (Grant 2002).
Such structures can be utilised to enhance innovative and creative capabilities within organisations where 'knowledge' is the key strategic asset.
Examples include hospitals, universities, research centres, consulting/professional services firms, ad agencies, biomedical companies, but also possibly design houses such as Gucci or Armani. Miles (1997) calls these "cellular" form.
Adhocracies continuously evolve. Eisenhardt and Brown (1999) describe the evolution of adhocracies in practice as 'patching' and 'coevolution'. See unit 5.
Patching changes are often small in scale and undertaken on a frequent basis in the light of changing circumstances - evolution not revolution.
Adhocracies also apply to market-based or client-based projects that require flexibility. In general, adhocracies tend to push responsibility toward the point of customer contact, flatten the hierarchical strucutre and move away from centralised "command and control" as found in complex structures.
Example: WPP U6 P34
WPP is a cross between a divisionlised form and an adhocracy. Managers in adhocracies rarely give orders or outline procedures, but tend to act in a liaison capacity.
Tuesday 1 March 2011
Complex Structures u6p19
As an organisation grows and expands, its structural complexity increases.
Chandler 1962 was the first to note this. He said that the more an organisation grows in size and complexity, the more it struggles to operate as a connected business. Increasing diversity leads to increasing separation of the individual parts of the business.
Williamson 1975 and Chandler 1962 proposed two structural types for complex structures
1. Multidivisional structures
2. Holding structures
Multidivisional Structures
Also known as M-form. A structure with multiple divisions and a head office organised by function. There is disagreement over whether strategy is decided by head office or the subsidiaries and divisions. In that case, strategy follows structure.
Advantages of an M-form
Disadvantages of an M-form
This groups together a number of diverse businesses that have grouped together by mergers and acquisitions or by joint ventures under a central head office. Example is Daimler Benz
Advantages
Allows for multiple ownership and greater spread of risks
Accesses knowledge through collaboration in different areas of expertise
Flexibility to tap into new market opportunities
Disadvantages
Minimal parental control and intervention over strategic issues
Possibility of isolation, increased for under-performing SBUs
Conflicts and competition within collaborations
Both these types of structures can become bureaucratic as the organisations grow and become more complex. Formal programmes and rigid procedures and systems can take priority over strategic thinking and operational effectiveness.
Therefore matrix structures and network structures are considered more suitable alternatives for large and complex organisations. They give closer horizontal and vertical linkages and collaborations. They integrate the product, functioinal and geographical dimensions of such organisations in one structure.
Matrix Structure
Already covered by Mintzberg as a liaison device. Characterised by a high degree of dependency between two or more (depending on the number of dimensions of the matrix) types of groupings, such as functional with market (or one kind of market with another, eg regional and product). It is a combination of functional and holding structures.
Haberberg and Rieple's definition, p21-22 u6
Advantages
Encourages collaboration in overlapping businesses or opportunities
Enables flexibility to adapt to changing strategic conditions
Provides for dual responsibility or more in strategic decision-making and accountability
Disadvantages
May be confusing and slow in strategic decisions that involve several participants
Mix-up over roles and repsonsibilities
Possibilities for tensions and conflicts, particularly in teams where individuals are not seen to cooperate equally
Integrating strategy under a matrix structure is complex and highly challenging (should probably go under disadvantages). Example given of matrix structures at Christian Aid p22 u6
Network Structures
This is a flexible, non-hierarchical organisational form that groups together a series of independent organisations or SBUs to design, produce and market a given product or service. It can be composed of numerous individuals, project groups or collaborations linked together by continuously changing formal or informal relationships, resembling an octopus or spider's web.
Its centre (the head) forms a small headquarters and acts like a broker or agent. The various parts are usually linked by some information system as divisions or independent partnerships to the head. The distinguishing feature of networks is that the organisational boundaries are less distinct, and are permeable. Grant calls this "boundaryless" (2002).
Normally, the majority of productive activities are outsourced to suppliers and distrubutors. Use of temporary staff is common. Typical in dynamic and complex environments where creativity, innovation, and speed of response are key sources of advantage.
Example: Cisco u6p25
As organisations grown larger & more diverse, so their structures become more complex. This complexity multiplies as organisationis grow internationally diverse. In those situations, country and regional issues have to be considered alongside product and functional areas.
Chandler 1962 was the first to note this. He said that the more an organisation grows in size and complexity, the more it struggles to operate as a connected business. Increasing diversity leads to increasing separation of the individual parts of the business.
Williamson 1975 and Chandler 1962 proposed two structural types for complex structures
1. Multidivisional structures
2. Holding structures
Multidivisional Structures
Also known as M-form. A structure with multiple divisions and a head office organised by function. There is disagreement over whether strategy is decided by head office or the subsidiaries and divisions. In that case, strategy follows structure.
Advantages of an M-form
- Focuses on growth areas
- Eases conflicts between functional areas
- Increases accountability towards strategic performance
- Encourages leadership at lower levels
Disadvantages of an M-form
- Duplication of functional resources
- Internal competition between divisions
- Discourages cross-sharing functional experts
- Conflicts over relationships with head office
This groups together a number of diverse businesses that have grouped together by mergers and acquisitions or by joint ventures under a central head office. Example is Daimler Benz
Advantages
Allows for multiple ownership and greater spread of risks
Accesses knowledge through collaboration in different areas of expertise
Flexibility to tap into new market opportunities
Disadvantages
Minimal parental control and intervention over strategic issues
Possibility of isolation, increased for under-performing SBUs
Conflicts and competition within collaborations
Both these types of structures can become bureaucratic as the organisations grow and become more complex. Formal programmes and rigid procedures and systems can take priority over strategic thinking and operational effectiveness.
Therefore matrix structures and network structures are considered more suitable alternatives for large and complex organisations. They give closer horizontal and vertical linkages and collaborations. They integrate the product, functioinal and geographical dimensions of such organisations in one structure.
Matrix Structure
Already covered by Mintzberg as a liaison device. Characterised by a high degree of dependency between two or more (depending on the number of dimensions of the matrix) types of groupings, such as functional with market (or one kind of market with another, eg regional and product). It is a combination of functional and holding structures.
Haberberg and Rieple's definition, p21-22 u6
Advantages
Encourages collaboration in overlapping businesses or opportunities
Enables flexibility to adapt to changing strategic conditions
Provides for dual responsibility or more in strategic decision-making and accountability
Disadvantages
May be confusing and slow in strategic decisions that involve several participants
Mix-up over roles and repsonsibilities
Possibilities for tensions and conflicts, particularly in teams where individuals are not seen to cooperate equally
Integrating strategy under a matrix structure is complex and highly challenging (should probably go under disadvantages). Example given of matrix structures at Christian Aid p22 u6
Network Structures
This is a flexible, non-hierarchical organisational form that groups together a series of independent organisations or SBUs to design, produce and market a given product or service. It can be composed of numerous individuals, project groups or collaborations linked together by continuously changing formal or informal relationships, resembling an octopus or spider's web.
Its centre (the head) forms a small headquarters and acts like a broker or agent. The various parts are usually linked by some information system as divisions or independent partnerships to the head. The distinguishing feature of networks is that the organisational boundaries are less distinct, and are permeable. Grant calls this "boundaryless" (2002).
Normally, the majority of productive activities are outsourced to suppliers and distrubutors. Use of temporary staff is common. Typical in dynamic and complex environments where creativity, innovation, and speed of response are key sources of advantage.
Example: Cisco u6p25
As organisations grown larger & more diverse, so their structures become more complex. This complexity multiplies as organisationis grow internationally diverse. In those situations, country and regional issues have to be considered alongside product and functional areas.
Subscribe to:
Posts (Atom)