FS Chapter 9: Realizing StrategyTeam 1: Brandon Seitz, Laycie Duncan, Dylon Wieland, Regan

Raines

Opening Case: BP Oil● Environmental disasters

○ Deepwater Horizon and Texas City

● Potential reasons for why this happened

○ BP’s forward agenda

○ Improper corporate goals

○ Incorrect performance measures

○ Decentralized business

Strategy to Execution● Formulation Vs Implementation

○ Intended strategy redirected by emergent strategy

● Intended strategy incomplete

○ Implementation fills gaps and makes changes

● Formulation linked to implementation

Linking Strategy to Action● Small enterprises

○ Can operate without explicit strategy

● Businesses comprised of more than one

○ Strategy formulation more explicit

● Larger Companies

○ Strategy formulation more formalized

Annual Strategic Planning Cycle● Large companies usually plan regularly

○ Document endorsed by highest level created

● Strategic planning process

○ Assembles information

○ Shares perceptions

○ Conducts analysis

○ Reaches decisions

○ Ensures consistency

○ Commits to course of action

● Varies between organizations

● Becomes more systematized during maturity

○ Plans tend to be 3 to 5 years

Costco Vs WalmartCostco Strategic Planning Process:

● Plan on expanding membership

● Implement increased marketing/product choice

● Expand outside US

Walmart Strategic Planning Process:

● Plan on low cost products and market position

● Implement improvements to liquidity position

● Fix legal standing and views of company

Planning Cycle StepsPlanning Process:

1. CEO typically initiates with clear indications

a. Strategic planning unit provides assumptions/forecasts

2. Different organizational units create strategic plans

a. Plans presented at review meetings

b. Revisions based off of CEO commentary

3. Business plans integrated into strategic plan

a. Presented to board for approval

Typical Content of Strategic Plans● Corporate Priorities

○ Strategic and financial

● Priorities of Business

○ Basis of competitive advantage

● Strategic Milestones

○ Target dates for for performance goals

● Resource Commitments

● Performance Targets and Financial Projections

Implementation & Operating Plans● Strategy process achieves nothing unless the strategy is implemented

○ Key to strategy execution→ linking the strategy process to action through operating the plan; to

motivation and accountability; through performance management; through capital budgeting

● Implementing requires breaking down medium-term planning into a series of

short-term plans

○ Targets are both financial and operational

● Management by objectives; start broad with overall company goals and then

moved to departmental goals

● Performance targets built into operating budget

Allocating Resources: Capital Expenditure Budgeting● Capital Expenditure Budgets→ established to estimate major projects during the

planning period as well as capital expenditures involved

○ Expenditure budgets for the company as a whole and for individual business units

○ Then up to individual units for specific projects

● Strategy implementation ebcompasses entire design of the organization

○ Determines capacity for action

○ Organizational superiority has played critical role in military success

● Strategic management is a quest for unique solutions to the matching of internal

resources and capabilities to external business opportunity

● Every organized human activity requires two fundamental and opposing

requirements

○ Division of labor into various tasks

○ Coordination of these tasks to accomplish the activity

Specialization & Division of Labor● Firms exist because of efficiency advantages in producing goods and services

○ Henry Ford→ productivity gains from assembly line

● The cooperation problem:

○ Different goals in terms of agency

■ Agency relationship- one agent meets another agent on behalf of principal

○ Agency problems don’t just exist between managers and owners of firm

○ Departments frequently have their own subgoals and these can be at odds with those of other

departments

● Control. Mechanism- through hierarchical supervision

● Performance incentives

● Shared Values

The Coordination Problem● Lack of a common goal

● Coordination devices found in all firms:

○ Rules and instructions

○ Routines

○ Mutual adjustment

● Hierarchy in organizational design

○ Fundamental feature of organizational structure

○ Primary means by which companies achieve specialization, cooperation and coordination

● Hierarchy as control: bureaucracy

● Hierarchy as coordination: modularity

Contingency Approaches● What is the best way of organizing?

○ Mechanistic form

○ Organic form

Feature Mechanistic Form Organic Form

Coordination/ Control Rules/ directives vertical Common culture

Communication Vertical Vertical/ Horizontal

Knowledge Centralized Dispersed

Commitment/ Loyalty To supervisor To organization

Environmental context Stable/ low uncertainty Uncertainty/ ambiguity

Task definition Rigid/ highly specialized Flexible/ broadly defined

Contingency Approaches● CONTINGENCY THEORY- the idea there was no one best way to organize; it

depended upon the strategy being pursued, the technology employed and the

surrounding environment

○ Google vs McDonalds

● Is the environment stable?

● Contingency factors: What activities are being organized?

● Turbulence and uncertainty can cause a retreat back to top-down control

○ Financial crisis of 2008

Defining Organizational Units ● HOW SHOULD WE GROUP EMPLOYEES? (ex. COSTCO)

○ Common Tasks:

■ Group A: Food court cooks

■ Group B: Cashiers

○ Products:

■ Group A: Kitchen goods

■ Group B: Hardware

○ Location:

■ Group A: Lubbock, Tx

■ Group B: Dallas, Tx

○ Process (functions):

■ Group A: Warehousing

■ Group B: Shipping

Defining Organizational UnitsWHAT IS THE INTENSITY OF COORDINATION NEEDS?

● Pooled interdependence

● Sequential interdependence

● Reciprocal interdependence

BASIC ORGANIZATIONAL FORMS:

● Functional structure

● Multidivisional structure

● Matrix structure

Trends in Organizational Design● Hierarchy remains to be the basic structural form of almost all companies but in

recent years there have been changes within these familiar features.

● These changes are delayering, adhocracy and team-based organizations,

project-based organizations, network structures, and permeable organizational

boundaries.

● Delayering - This is where big companies are making their hierarchies flatter by

reducing the number of hierarchy layers in their organization. (Tata Steel)

● Adhocracy - these are organizations that have shared values, high levels of

participation, flexible communication, and spontaneous coordination. Tend to

exsist where problem solving is predominate and where expertize is prized.

(Google)

Trends in Organizational Design Cont.● Project-Based Org. - A key feature of these organizations are recognition that

work assignments are for a finite duration, which mean this organizational

structure needs to be dynamically flexible. (construction, consulting, oil

exploration)

● Network Structures - Viewing organizational structures in terms of networks

derives from social network analysis where organizations are thought of in terms

of the social relationship between individuals and organizational units within

them.

● Permeable Organizational Behavior - Firms have sought out to narrow their

corporate scope through outsourcing and refocusing upon core business activities,

while relying on close relationships with partner firms for more expertise.

Trends in Organizational Design Cont.● These emerging organizational phenomena share several common characteristics:

○ A focus on coordination rather than on control

○ Reliance on informal coordination where mutual adjustment replaces rules and directions

○ Individuals in multiple organizational roles

Organizational Culture● Edgar Schien defines organizational culture as: “A pattern of shared basic

assumptions that was learned by a group as it solved its problems of external

adaptation and internal integration, that has worked well enough to be considered

valid, and therefore, to be taught to new members as the correct way you perceive,

think and feel in relation to those problems.”

● Corporate culture - values and ways of thinking that senior managers wish to

encourage within their organization.

● There are also two types of cultures: Strong and Weak cultures

Describing and Classifying Cultures● Johnson's “Cultural Web” - This includes the organizations mission and values,

control systems, organizational structures, power structures, rituals, routines,

stories and myths. Identifying these elements managers may be able to influence

them.

● Schein’s 3 different levels of culture -

○ The first level would be anything a person notices the first time they walk in your organization. For

example, company logo, the way employees dress, and the stories people tell. ( Google and

Microsoft)

○ The second level would be the values and attitudes that organizational members express.

○ The third and final level would be the “unspoken rules” and tacit beliefs. Most influential and

hardest to change.

○ Nokia failure

Can Organizational Culture be Changed? / Does a Strong Corporate Culture Have an Impact?● Organizational culture can be changed if it is done the right way but it can be very

difficult do accomplish.

○ Getting all employees on board

○ Making sure the new culture is the right one

○ Actually implementing

● There is limited empirical evidence that a strong corporate culture has an impact

because it is hard to measure.

○ A large number of business practitioners believe a strong corporate culture has a big impact.

○ The culture has to be valuable, rare and inimitable.