Strategic Management S3STR401

- Session 9 -

Alexandre PerrinStrategy Department - Office 272 (ECE)

Tel: 02 40 37 45 56Mail: aperrin@audencia.com

The syllabus

Strategic Management

Part 1. Diagnosis

Part 2. Choices

Part 3. Deployment

1. Scanning theenvironment

2. Exploring and exploiting capabilities

1. Diversification or Specialisation (Corporate)

2. Managing the portfolio of activities (SBU)

1. Implementing and controlling decisions

2. Managing change fordeploying strategy

Implementing and controlling decisions

A) Decisions and structuresB) Informal control of decisionsC) Formal control of decisions

Decisions and structures

• ‘Structure follows strategy’ (Chandler 1962)

Adapt the organisation according to the strategy

• ‘Strategy follows structure’ (Hall & Saias1980)

Existing organisational structure determines strategic opportunities

• ‘Structure follows strategy as the left foot follows the right’ (Minzberg 1990)

Reciprocal relationship

Organizational structure

• Organizational structure describes:Who is responsible for what

Patterns of communication and knowledge exchange

Skills required to move up the organisation

Nature of organizational structures

1. Formal structuresFunctional

Multidivisional

Matrix

Multinational

2. Temporary structuresTeam

Projects

3. Informal structuresSocial networks

Communities of practice

Functional structure

Multidivisional structure

A matrix structure

A multinational structure

Comparison of structures

XXXXXXXXGlobalisation

XXXXXXXKnowledge

XXXXXXXXXChange

XXXXXXXXControl

TransnationalMatrixDivisionalFunctionalCriteria

Nature of organizational structures

1. Formal structuresFunctional

Multidivisional

Matrix

Multinational

2. Temporary structuresTeam

Projects

3. Informal structuresSocial networks

Communities of practice

Project-based structure

• Teams created, undertake the work, then dissolvedFor large expensive projects or limited time events

Constantly changing organisational structure

Contains mixture of specialists

DisadvantagesPossible lack of

coordination Proliferation of projects

Breaking up teams hinders knowledge accumulation (lost

knowledge)

AdvantagesFlexibleGood accountability and control

(clear tasks/defined time)Real-time knowledge exchangeAttract complementary members

due to short project times

Project

MKTFIN

QUA

SAL

COM

Example. Direction de la Recherche

Projets de Recherche

Chef Projet 1

Chef Projet 2

Chef Projet 3

Chef Projet N

Chef Projet 4

CKO

Knowlegde coordinator

Directeur

Adjoint au directeur

Directeur d’objectifs Réseaux Directeur d’objectifs Utilisation Directeur d’objectifs des Générales

ProgrammeGaz naturel liquéfié

ProgrammeClients

Programme Etudes éco. et générales

Programme Transport

Programme Distribution

ProgrammeClients industriels

Programme Nouveaux marchés

Pole Techniques de Transport

Pôle Techniques de Distribution

Pôle Métrologie et Matériels Réseaux

Pôle Qualité et Gaz

Pôle Environnement

Pôle Etudes cryogéniques

Pôle Cogénération – Gaz Naturel pour Véhicules

Pôle Gaz pour l’Habitat et le tertiaire

Pôle Bâtiment

Pôle Génie climatique

Pôle industrie

Pôle Moyens d’Essais pour l’Industrie

Service Certification

Pôle combustion, catalyse et mécanique des

fluides

Pôle téléserviceDomotique

Pôle procédés atomiques et systèmes

Pôle SI gaziers, optimisation et

simulation

Pôle économie, statistiques et sociologie

Laboratoire Prototype

Appuis :

- Cabinet de Direction- Relation institutionnelles France- Relations institutionnelles Europe- Relations institutionnelles Partenariat industriels- Mission valorisation- Propriété intellectuelle- Mission connaissance, information, veille- Département achat contrôle de gestion- Service achat- Mission QHSE – Normalisation- Equipe prévention sécurité- Département informatique- Service infrastructure Informatique- Service Informatique métier- Service Intranet Groupware- Ressources humaines- Développement des RH- Contrat de travail- Recrutement mobilité- Solidarité- Service logistique Site- Service comptable et financier

Nature of organizational structures

1. Formal structuresFunctional

Multidivisional

Matrix

Multinational

2. Temporary structuresTeam

Projects

3. Informal structuresSocial networks

Organization as knowledge transfer

• We live and work with static, rational ideas about our organizations…

What would an organization be like if it mirrored reality?

The Silicon Systems organization chart Silicon Systems at work

These diagrams are taken from: Krackhardt, David. “The Strength of Strong Ties: The Importance of Philos in Organizations.” In Nohria & Eccles (Eds), Networks and Organizations. Boston: Harvard Business School Press. 1992, pp.. 216-239.

Social networks

• The informal network is not official, however, it has a very important function in a company to understand:

Who knows who

Givers and takers of information

Strong ties and weak ties

• 4 key roles in this informal network have been identified:

The Central Connector

The Boundary Spanner

The Information Broker

The Peripheral Specialist

The central connector

The person everyone in the group talks the most.

Difficulty:> finding a way to rewardthese central connectors> some central connectors, if ineffective, can create bottlenecks.

The boundary spanner

Group’s eyes and ears in the wider world = connection with people outside the informal network.

Useful when people need to share different kinds of expertise but very rare people…

The information broker

He/She connects the various sub-networks in the company

He/She knows a lot of people but not very well (weak ties)

> A departure of the information broker could be a severe blow

The peripheral specialist

Serves as an expert

He is not well socialized and nottightly integrated in theinformal network

Often new hires

What is networking ?

• It means building social structures for people who share common interests:

social networking (making friends)

business networking (selling things andbuilding business relationships)

job networking (finding a job) ex. Corporate alumnis (McKinsey)

• Knowledge networking is building relationships in order to shareknowledge and learn from each otherin order to work more effectively.

Implementing and controlling decisions

A) Decisions and structuresB) Informal control of decisionsC) Formal control of decisions

How to coordinate tasks ?

• Formal control (Top-down)Coercitive

Standardisation of practices

Organization chart

• Informal control (Bottom-up)Participative

Multiplicity of practices

Social networks

How to control deployment?

RatiosRulesFormal control

PoliticalRoutinesInformalcontrol

Output (results)

Input (use of resources)

Informal - Social control by middle managers

• Social control relies on indirect supervision by:

Middle managers Routines

• Middle managers :interpret and adjust strategy as events unfold in the organizationare responsible for implementing plans determined at the topare bridge between senior executives and lower levels in the organization help change occuradvise top management about change.

Informal - Social control by routines

• Organizational routines are the “way we do things around here”

Persist over time (accumulation of knowledge)

Guide people’s behaviour

Can become core rigidities

• Organizational culture is the basic assumptions and beliefs that are shared by members of an organization, that operate unconsciously and define an organisation’s view of itself and its environment.

Informal - Political & Power

• Power is the ability of individuals or groups to persuade, induce or coerce others intofollowing certains courses of action.

• Power is related toFormal aspects

Hierarchy

Competences

Control of strategic resources

Decision ability

Informal aspectsPossession of information & knowledge

Social capital

Implementing and controlling decisions

A) Decisions and structuresB) Informal control of decisionsC) Formal control of decisions

Formal – Rules & Processes

• A process is a collection of steps that use people to create a service or a product.

• It is a description of tasks and outcomes associated with a business activity:

Are often expressed with a verb

It explains how people are working in the structure

Formal – Ratios

• Ratios are selected values on financial statements or objectives completion

Financial ratios allow for comparisons:between companies between industries between different time periods for one company between a single company and its industry average

Profitability ratiosGross margin Companies

= (Revenue - Cost of sales) / Revenue= (Net sales - Cost of goods sold) / Net sales= Operating earnings / Net sales

Economic Value Added Companies= (Return on Capital - Cost of Capital) (Capital Invested in Project)

Return on capital employed (ROCE) Industry= Profit After Tax (Net Profit) / Capital Employed * 100

Example of formal control : the Balanced Scorecard

• A performance management tool:for measuring whether the smaller-scale operational activities (SBU) are aligned with its larger-scale objectives in terms of vision and strategy.focusing not only on financial outcomes but also on the operational, marketing and intangibles inputs.

• Four general perspectives have been proposed by the Balanced Scorecard:

Financial PerspectiveCustomer Perspective Internal process Perspective Innovation & Learning Perspective

The Balanced Scorecard by Kaplan & Norton

Managing change for deploying strategy

A) Why managing change?B) Tools for mapping change

Why change management?

1. The environment is changing…Tendency towards organisational inertia and resistance to change

2. People have difficulty to adapt…Top and middle managers are responsible for strategic change

3. Companies need to implement changes…Evolution of resources

Change is successful if it is internalised and owned by those who will implement it

Types of change

Examples of change management for deploying strategy

• Adaptation is change that can be accommodated with the current culture

Example: Name/logo changing

• Reconstruction is change that may be rapid and involve a deep evolution of the organization

Example: Divestment / cost cutting program

• Evolution is change in the strategy that requires cultural change but in a long term

Example: Ethics / Sustainable Dvlpt / Customer orientation

• Revolution is change that requires rapid and major strategic but also culture change

Example: General Motors in 2008

Managing change for deploying strategy

A) Why managing change?B) Tools for mapping change

Tools to manage change

Tool 1. The “cultural web mapping”

Mapping the cultural web

• The cultural web: a representation of the taken-for-granted assumptions, or paradigm, of an organisation and the physical manifestations of organizational culture.

• Can be used to:map current and required culture

analyse changes needed for strategic success

Compagnie des Services Pétroliers (CSP)

Mapping the cultural web in a medium size company

1. The cultural web of CSP

Paradigm

- Engineers clan- Pragmatism

- Prospector spirit

Symbols

- « Impossible Missions »

- French vs US

Routines

- Onsite integration- If successful career

is guaranteed

Structure- Procedures not well

formalized-Decentralized

- Direct relations

Power- Dominated by

Engineers-Acquired on

the field

Results of the analysis

• CSP is an engineer clan where power is obtained thanks to a rite of passage in the field.

• But the core business evolves from oil exploration & onsite measurement to data analysis.

What was a peripheral activity becomes core activityNecessity to hire top-level computer analysts

Former prospectors not as competitive as external hires

These specialists have a different paradigm:Lower commitment than prospectors

Lower loyalty

Listed on the the stock exchangeNeed for high-level competence in finance, tax and law

2. The future cultural web of CSP

Paradigm

- Engineers clan- Pragmatism

Symbols

« Impossible Missions »

Change of thename

Routines

Onsite integrationTraining

Structure

Formalized chart

Power

Dominated by Engineers +

managers

Pros & Cons of consultants & general manager programs

• For the consultantsToo radical the change may be rejected by those who are in charge (executive committee)

Some good ideas for evolution: CFO, Change the name

• For the general managerSeems to be more applicable

This company needs evolution not revolution……even if the real issue is “how the managers of this company can evolve themselves?”

Conclusion on strategy implementation

• Controlling strategic decisions is based on formal and informal aspects

Formal structure: organization charts + processes + rulesInformal structure: social networks + local practices + culture

• Managing informal structure is much more difficult than managing formal one

Cultural webLeadership from managers

Next week

• Final session

• Quizz (Sessions 7-9)

• JC Decaux Case Study in team