1

Objectives

• To evaluate the 7-S framework

• To introduce the concept of the ‘intellectual holding company’

• To analyze aspects of executive remuneration from a strategic management perspective

Organization structure and design - 2

2

Leadership and organizational factors in strategy

Challenge to managers• Large organizations have difficulty with learning which crosses

functional lines

• Impetus for change should come from within the organization, rather than being imposed from without

• The central task of management is continuous building of knowledge base which contributes to the learning process

3

The 7-S framework – a new view of the organization

Super-ordinate

goals

Structure

Systems

Style

Staff

Skills

Strategy

4

Organizational effectiveness stems from the interaction of several factors

• Multiplicity of actors that influence and organization's ability to change and its proper mode of change

• “interconnectedness’ of variables: it is difficult to make significant progress in one area without making progress in others

• 90% of carefully planned strategies don’t work (Fortune) - failures in execution, resulting from inattention to all S’s

• No starting point or implied hierarchy; a priori it is not obvious which factor will be the driving force for change

5

Structure

The issue is no longer how to divide tasks (Decentralization, matrix, etc)

It is one of emphasis and co-ordination – how to make the whole thing work: developing the ability to focus on dimensions currently important to the organization’s evolution

Strategy

“Strategy follows structure” “Chandler, 1962) where strategy is the way a company aims to improve its position vis-a vis competition: how do we create unique value?

If there is little wrong with their structures, and companies are replete with strategy, why can they not implement it?

6

Systems

Formal and informal procedures which make the organization “tick”

Style

Style is patterns of action; the power of style is essentially manageable … style is symbolic behaviour (Quinn)

7

Staff (= People)

Morale Appraisal systemsAttitude Pay scales

Motivation Formal trainingBehaviour Hr Planning

How do organizations shape the basic values of their management cadre?

8

Skills

The nation of skills captures the crucial attributes of an organization

We do not characterize a company by its strategies and structures, but by what it does best

Organizations facing large discontinuities in business conditions must do more than shift strategic focus – the need to add new capability, new skills

Super ordinate goals

Guiding concepts – the fundamental values and aspirations going beyond the conventional formal statement of corporate objectives

These goals are the starting points on which a system is built: the ultimate test of their value is not their loc but the usefulness of the systems that ensue

9

THE HR STRATEGY FRAMEWORK

• Skill sets• Talent sketch• Knowledge & experience• Managerial skills

• Organization structure depicting the key positions, reporting relationship, job profile analysis and performance measurement system

• The JCPC model is as follows:

Job RecastStrategy linkProcess Driven

Competency Mapping

Performance Management System

(PMS)

Quarterly Performance Appraisal Training & Development

• Internal• External

• Targets• Achievements

Three options based on competency sketch• Immediate Fitment• Redeployment• Post Training Positioning

S SituationT TackingA ActionR Result

10

Learning to love the hollow organization (Mintzberg)

For each activity, the organization must ask: are we really competitive with the world’s best here? If not, can intelligent outsourcing improve our long term position?

Manufacturing industries are becoming loosely structured networks of service enterprises which join together for one purpose – yet are each other’s suppliers, competitors or customers elsewhere

The move is now away from vertical integration which allows and organization to command and co-ordinate a constantly changing network of the world’s best production and service suppliers on a global basis

11

The task of the leader is to redefine the ‘ focused company’

• True focus in strategy is the capacity to bring more power to bear on a selected sector than anyone else can

• Dominate a set of service skills that has importance to its customers

• Obtain at least strategic parity through necessary outsourcing

• Block competitors from entering the market (where a competitor in the broadest sense is defined as “someone” with substitutable skill bases, not necessarily with similar product lines”)

12

Executive remuneration

At executive level, job evaluation and conventional salary structuring are not directly applicable, and do not consider strategic direction

13

Policy decisions

Programming decisions

Interpreting

Decisions

Routine decisions

Semi-skilled

Unskilled

14

Executive remuneration …

Factors which typically determine executive remuneration may include:

• Turnover• Number of employees• Value of tangible assets• Salary and wage bill

• Net profit before tax• Industry sector• Company structure

15

Remuneration structure

Perquisites

Long term incentives

Short term incentives

Benefits

Basic salary

Job evaluation grade

Pay (log scale)

16

Remuneration structure

Perquisites

Long term incentives

Short term incentives

Benefits

Basic salary

Job evaluation grade

Pay (log scale)

17

Market cycle impact

Salary Low Moderate High Moderate

Benefits Low Moderate Moderate Moderate

ST incentive Low Moderate High Moderate

LT incentive High High Moderate Low

Perks Low Low Moderate High

Compensation element

Threshold Growth Maturity Decline

18

Tends in variable pay

CEO

Long term

Short term

Fixed pay

Senexecs

100

80

60

40

20

0

19

The scaling of bonuses needs to be achieved following the principle that, at target level, the level of the bonus puts the executive in the same position as if he/ she received a fixed package of market- related remuneration

Bonus % of basic remuneration

60 80 100 120 140Target

Cap CEO

Cap Sen execs

100

80

60

40

20

20

Interface with the remuneration system

Long term bonus

Package compared to market at this level

Short term bonus

Fringe benefits

Guaranteed pay

21

Merit and competency pay

1 2 3 4 5

Outstanding 100 105 110 115 120

Good 90 95 100 105 110

Average 80 85 90 96 100

Performance rating

Fixed remuneration is determined in the bottom row at the selected competency level. Job-related performance will be assessed on the vertical axis at the end of the year, and a bonus paid as a percentage of basic remuneration

Experience and competency grading

22

Principles of executive remuneration

• Basic fixed remuneration, with short-term performance bonuses, remunerates executives for their contractually-agreed contribution to corporate performance

• Long-term bonuses are • Addition rewards for outstanding entrepreneurial achievement

• Proportional to corporate performance (not personal performance)

• Geared towards some economic partnership