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.