Strategy ImplementationOperationalizing strategy• This phase is the translation of the agreed upon long term

objectives, the strategic plan, into organizational action. • Here the focus shifts from strategy formulation to strategy

implementation.• There are four important things to be done well to make this

transition:1. Identify short term objectives

– They translate long term objectives into annual targets for action.– They provide clarity and can be very powerful motivator and

facilitator of effective strategy implementation.

2. Initiate specific functional strategies– They translate business strategy into daily activities. – Functional managers are involved in developing these tactics and their

participation helps in clarifying what needs to be done to implement the strategy.

3. Communicate policies that empower people in the organization– Policies are empowerment tools that simplify decision making by

empowering operational managers and their subordinates. – They empower the people involved in execution by reducing the time

required to decide and act.

4. Design effective rewards– It is aimed at rewarding the desired actions and results.

Annual or short term objectives• They provide a guidance to the people in the organization as to

what needs to be done currently to make the long term objectives become reality.

• They provide specific guidelines about the things to be done.• They "operationalize" long -term objectives. e.g. if the long

term, say five year plan is to gain forty percent market share from the current twenty percent, then what needs to be done in this year to increase the current market share by "X" percent

• Discussion and agreement on short-term strategies help raise issues and potential conflicts that requires coordination to avoid serious consequences.

• It identifies measurable outcomes of action plans or functional activities, which can be used to make feedback, correction, and evaluation more relevant and acceptable.

Short-term objectives are accompanied by action plans, which help short-term objectives in three ways:

1. These action plans identify functional tactics and activities that will be undertaken in the next week, month or quarter to build competitive advantage. They specify what exactly needs to be done.

2. They provide a time frame for completion - a schedule with starting and ending dates.

3. It identifies who is responsible for each action in the plan.

Qualities of effective short-term objectives1. Measurable• Short-term objectives are more consistent when they clearly state

– what is to be accomplished– when it will be accomplished– how its accomplishment will be measured

• This helps in effectively monitoring each activity and the progress across several interrelated activities.

• Measurable objectives make misunderstanding less likely among interdependent managers who must act on the plans.

• It is easier to quantify objectives of line units (e.g. production) than staff areas (e.g. personal).

• Difficulties in quantifying objectives often can be overcome by initially focusing on measurable activity and then identifying measurable outcomes.

2. Priorities• Some annual objectives would require higher priority either

because of the timing considerations or because of their effect on a strategy's success. E.g. new product development may be more important than promotional activities

• Not prioritizing will lead to conflicting assumptions which may inhibit progress towards strategic effectiveness.

• The various ways on which priorities can be established are:1. Ranking method2. Terms such as primary, top and secondary can be used.3. Objectives can be given weights (e.g. 0 to 100 percent) to establish

and communicate the relative priority.

3. Linked to long-term objectives• Short-term objectives can add specificity in identifying what

must be accomplished to achieve long-term objective. e.g. Adobe systems has an long-term objective of achieving five percent of its total revenue to come from India in the next 5 years. T o achieve this it can have a series of short-term objectives like focusing on particular products.

• The link between the short-term and long-term objectives should resemble cascades through the firm, from basic long-term objectives to specific short-term objectives in key operational areas.

• The cascading effect provides a clear reference for communications and negotiation, which may be necessary to integrate and coordinate objectives and activities at the operating level.

4. Acceptable5. Flexible6. Suitable7. Motivating8. Understandable9. Achievable

The value-added benefits of short-term objectives and action plans

• Short-term objectives and action plans give the operational personnel a better understanding of their roles in the firm's mission.

• Such clarity of purpose can be a major force in helping the firm in using its "people assets" more effectively.

• If the managers are part of the process of deciding the short-term objectives then it becomes a valid basis for addressing and accommodating conflicting concerns that might interfere with strategic effectiveness.

• Meetings to set short-term objectives and action plans become the forum for raising and resolving conflicts between strategic intentions and operating realities.

• They provide a basis for strategic control by providing clear, measurable basis for developing budgets, schedules, trigger points and other mechanisms for controlling and implementing of strategy.

• They can be powerful motivators for employees when the objectives are linked to the firm's reward structure.

Developing Functional Strategies • Functional strategies or functional tactics are the key, routine

activities that must be undertaken in each functional area like marketing, finance, production, R&D, and HRM to provide the business's products and services.

• They are actions designed to accomplish specific short-term objectives.

• Every activity in the value chain executes functional tactics that help to accomplish strategic objectives.

Difference between Business strategies and functional tactics• They are different in three fundamental ways:1. Time horizon2. Specificity3. Participants who develop them

Advantages of creating policies that empower1. Policies establish indirect control over independent action by

clearly stating how things are to be done now. By defining discretion, policies in effect control decisions yet empower employees to conduct activities without direct intervention by top management. E.g. policies about defaults help customer service personnel in credit card companies

2. Policies promote uniform handling of similar activities. This helps reduce friction arising from favoritism, discrimination and disparate handling of common functions. E.g. purchase policies help in best deals for companies

3. Policies ensure quicker decisions by standardizing answers to previously answered questions that otherwise would recur and be pushed up the management hierarchy again and again. E.g. policies on replacement of defective products

4. Policies institutionalize basic aspects of organization behavior. This minimizes conflicting practices and establish consistent patterns of action in attempts to make strategy work. E.g. dress code and timing for different departments help in discipline in the institution

5. Policies reduce uncertainty in repetitive and day-to-day decision making, thereby providing a necessary foundation for coordinated, efficient efforts and freeing operating personnel to act. E.g. policies on travel helps salesmen to get their travel bills cleared from accounts department

6. Policies counteract resistance to or rejection of chosen strategies by organization members. When major strategic change is undertaken, unambiguous operating policies clarify what is expected and facilitate acceptance. E.g. policies on work timings and attendance help organizations avoid resistance from employees

7. Policies offer predetermined answers to routine problems. This greatly expedites dealing with problems. E.g. policies on inventory to be maintained helps in routine reordering

8. Policies afford managers a mechanism for avoiding hasty and ill-conceived decisions in changing operations. E.g. policies on overtime by employees help managers to take well thought out decisions

9. Policies are directives designed to guide the thinking, decisions and actions of managers and their subordinates in implementing a firm's strategy. E.g. Zero defect manufacturing at Toyota

10. Policies increase managerial effectiveness by standardizing many routine decisions and clarifying the discretion managers and subordinates can exercise in implementing functional tactics. E.g. scheduled maintenance of machines

Policies empowers operating personnel• Policies are important to empower the operating personnel.• Empowering helps in serving the customer better thus

achieving the objective of customer satisfaction.• e.g. GE empowers its appliance repair personnel to take

decisions about warranty credits, Delta Airlines empowers its customer service personnel to take decisions on ticket pricing

• Empowerment can be achieved through:– Training– Self-managed work groups e.g. quality circles– Eliminating whole level of management e.g. Toyota empowers the

employees to stop production if any quality problem exists– Aggressive use of automation e.g. online booking in deciding ticket

prices

Developing policies • It is necessary to ensure that decision making is consistent

with the mission, strategy, and tactics of the business, while at the same time allowing considerable latitude to operating personnel. E.g. specifying the maximum discount that can be given by a sales person

• Policies must to derived from functional tactics (sometimes from corporate or business strategies) with the key purpose of aiding strategy execution. E.g. sales manage may be authorized to give free samples of products to help in improving market share

• Policies can be externally imposed or internally derived. e.g. policies regarding environment usage are developed in compliance with external (government ) requirements. Pricing policies are internally derived.

Characteristics of policies• Policies may be written and formal or unwritten and informal. • Informal, unwritten policies are usually associated with a

strategic need for competitive secrecy.Formal, written policies have the following advantages:

1. They require managers to think through the policy's meaning, content and intended use.

2. They reduce misunderstanding.3. They make equitable and consistent treatment of problems more

likely.4. They ensure unalterable transmission of policies.5. They communicate the authorization or sanction of policies more

clearly.6. They supply a convenient and authoritative reference.7. They systematically enhance indirect control and organization wide

coordination of the key purposes of policies.

The three basic levers through which the managers can implement strategy:

1. Structure - the basic way in which the firm's different activities are organized.

2. Leadership - the need for direction and building a team to execute the strategy.

3. Culture - the shared values that create the norms of individual behavior.

Structuring an effective organization

Three fundamental trends are driving decisions about the effective organizational structures in the twenty-first century:

1. Globalization2. The Internet3. Speed of decision making

Globalization• Over two-thirds of all industries either operate globally (e.g.

computers) or will do so soon.• The need for global coordination and innovation is forcing

constant experimentation and adjustment to get the right mix of local initiative, information flow, leadership and corporate culture.

• Today's globalization - when raw materials are taken from around the world, manufacturing is done at most efficient places, engineering happens where the right talent is available - the ramifications for organization structures are revolutionary.– e.g. Philips regularly moves its headquarters for different businesses

to the "high voltage" markets.– At Ericson, top managers scrutinize compensation schemes to make

managers pay attention to global performance while also attending to their local operations.

The Internet• Internet allows anybody in the business to access information

instantaneously.• It allows the global enterprise with different functions, offices

and activities dispersed around the world to be seamlessly connected so that far-flung customers, employees and suppliers can work together in real time.

• Coordination, communication and decision-making functions are accomplished real fast.

• Traditional organizational structures become slow, inefficient and noncompetitive.

Speed of decision making• Digitizing of activities like employee benefits, accounts receivables,

payroll can result in cost saving and improvements in speed.• Leading edge technologies will enable employees throughout the

organization to seize opportunity as it arises.• These technologies will allow all people involved with the

enterprise and located at different places to coordinate to develop markets, new products, and new processes.

• Globalization of business creates a potential situation which increases the sheer velocity of decisions that have to be made. This creates a challenge for the traditional hierarchical organization.– e.g. Cisco may be negotiating 50-60 alliances at one time due to the

nature of its diverse operations. The speed at which these negotiations must be conducted and decisions made require a simple and accommodating organizational structure, lest the opportunity be lost.

Useful guidelines and approaches to arrive at a suitable organizational structure

1. Match structure to strategy e.g. software companies have different heads for different verticals as their strategy is to focus on verticals

2. Balance the demands for control/differentiation with the need for coordination/integration e.g. even when focusing on different verticals software companies offer integrated solutions to customers which needs coordination of different verticals

3. Restructure to emphasize and support strategically critical activities e.g. Infosys hived off its BPO for better focus

4. Reengineer strategic business processes 5. Downsize and self-manage: Force decisions to operating level e.g.

regional marketing managers made to take decision on customers to target

6. Allow multiple structures to operate simultaneously within the organization to accommodate products, geography, innovation and customers e.g. vertical heads and geographic heads structure used by software companies

7. Take advantage of being a virtual organization e.g. Intel uses its operations in different for its chip design

8. Web-based organizations e.g. online companies like shaadi.com have worldwide customers

9. Remove structural barriers and create a boundaryless, ambidextrous learning organization

10. Redefine the role of corporate headquarters from control to support and coordination

Match structure to strategy• The conclusion of a strategic management research that

examined the evolution of a business over time and how the degree of diversification from a firm's core business affected the choice of organizational structure are as follows:

1. A single-product firm or single dominant business firm should employ a functional structure e.g. Karnataka milk federation– This structure allows for strong task focus through an emphasis on

specialization and efficiency, while providing for adequate controls through centralized review and decision making.

2. A firm in several lines of business that are somehow related should employ a multidivisional structure. e.g. DRDO– Closely related divisions should be combined into groups within this

structure.– When synergies are possible within such a group, the appropriate

location for decision making is at the group level, with less role for corporate level staff.

– The greater the degree of diversity across the firm's businesses, the greater should be the extent to which the power of staff and decision making authority is lodged within the division.

3. A firm in several unrelated lines of business should be organized into strategic business units e.g. ADAG group– Although the strategic business unit structure resembles the

multidivisional structure, there are significant differences between the two.

– With a strategic business unit structure finance, accounting, planning, legal and related activities should be centralized at the corporate office.

– Since there are no synergies across the firm's businesses, the corporate office serves largely as a capital allocation and control mechanism.

– All operational and business level strategic plans are delegated to the strategic business units.

4. Early achievement of a strategy-structure fit can be a competitive advantage– If the strategy changes, it will lead to change in the structure.

Challenges of this approach• Resistance to changing the existing structure - "the way we do

things here"- is a major challenge to new strategies.• As firms move from single product/service to multiple

product/service, the reality that it requires different structures should be accommodated when implementing growth strategies.

• Many firms have found value in multiple structures, operating simultaneously in their company.

Balance the demands for control/differentiation with the need for coordination/integration

• Specialization of work and effort allows a unit to develop greater expertise, focus and efficiency.

• Firm's divide different activities into logical, common groupings like sales, operations so that each set of activity can be done most efficiently.

• Dividing activities in this manner, sometimes called "differentiation", is an important structural decision.

• These separate activities however need to be coordinated and integrated back together as a whole so the business functions effectively.

• Demand for control and the coordination needs differ across different types of businesses and strategic situations.– e.g. Coca-Cola changing in order to provide greater

coordination/integration in local markets where local managers independently launch new flavored drinks.

– GE changed its Medical Systems structure from allowing local product managers handle everything from product design to marketing to a new structure where the local managers and customers will give input about product requirements to a centralized team who would design products for worldwide applications.

Restructure to emphasize and support strategically critical activities

• Restructuring trend is the notion that some activities within a business's value chain are more critical to the success of the business's strategy than others.

• During 1990s reengineering, downsizing and outsourcing were prominent tools for strategists restructuring their organizations.– e.g. Wal-Mart's organizational structure is designed to ensure that it's

impressive logistics and purchasing competitive advantage operate flawlessly.

– Cola-Cola emphasizes the importance of distribution activities, advertising, and retail support to its bottlers in its organization structure.

Two considerations are critical when a restructuring is undertaken to emphasize and support strategically critical activities.

1. Managers need to make the strategically relevant activities the central building block for designing organization structure. E.g. off-shore model used by most Indian software companies focus on software development in India as central to their organizational structure– Those activities should be identified and separated as much as

possible into self-contained parts of the organization.– Then the remaining structure must be designed so as to ensure

timely integration with other parts of the organization.– It is usually found in functionally organized organizations that

support activities like finance, engineering and information processing often are obsessed with performing their own tasks more then emphasizing the key results of the business as a whole.

2. The second consideration is to design the organization structure so that it helps coordinate and integrate the support activities to – maximize their support of strategy-critical primary activities– does so in a way to minimize the costs for support activities and the

time spent on internal coordination.

Reengineer strategic business processes• Business Process Reengineering (BPR) is one of the most

popular methods by which organizations worldwide are undergoing restructuring efforts to remain competitive.

• BPR is intended to place the decision making authority that is most relevant to the customer closer to the customer, in order to make the firm more responsive to the needs of the customer.

• Following are the steps pursued by companies that have successfully reengineered their operations around strategically critical business processes:1. Develop a flowchart of the total business process, including the its

interfaces with other value chain activities.2. Try to simplify the process first, eliminating tasks and steps where

possible and analyzing how to streamline the performance of what remains.

3. Determine which part of the process can be automated (those that are repetitive, time-consuming and require little thought or decision); consider introducing advanced technologies that can be upgraded to achieve next-generation capability and provide a basis for further productivity gains down the road.

4. Evaluate each activity in the process to determine whether it is strategy-critical or not. Strategy critical activities are candidates for benchmarking to achieve best-in-industry performance status.

5. Weigh the pros and cons of outsourcing activities that are noncritical or those that contribute little to organizational capabilities and core competencies.

6. Design a structure for performing the activities that remain; reorganize the personnel and groups who perform these activities into new structure.

Downsize and self-manage: Force decisions to operating level • Downsizing is eliminating the number of employees, particularly middle-

management in a company.• Scrutiny of the value added by the middle level with continuous improvement

in information technology has helped downsizing.• One of the outcomes of downsizing was increased self-management at

operating level of the company.• Downsizing resulted in more work.• Spans of control have become larger due to information technology, running

"lean and mean" and delegation to lower levels, allowing major management decisions to be made at operating levels.

• This delegation, also known as empowerment, is accomplished through concepts like self-managed work groups, reengineering and automation.

• There is effort to create distinct businesses within business, conceiving a business as a confederation of many "small" businesses. E.g. creating strategic business units within business in companies like Axis bank

• Empowerment eliminates up to half the levels of management previously existing in an organization structure.

Allow multiple structures to operate simultaneously within the organization to accommodate products, geography, innovation and customers

• The Matrix organization was one of the early structure attempts to do this so that skills and resources could be better assigned and used within a large company.

• People typically had a permanent assignment to a certain organizational unit, usually a functional or staff department, yet they were also frequently assigned o work in another project or activity at the same time.

• The dual chains of command proved problematic for some organizations, particularly in an international context complicated by distance, language, time and culture.

• The product-team structure emerged as an alternative to the matrix approach to simply the focus on a narrow but strategically important product, market, customer or innovation.

• The product-team structure assigns functional managers and specialists (e.g. finance, marketing) to a new product, project, or process team that is empowered to make major decisions about their product. E.g. teams created for creating Scorpio at Mahindra and Nano at Tata Motors

• The team is usually created at the inception of the product idea and they stay with it indefinitely if it becomes a viable business.

• Instead of being assigned on a temporary basis, as in the matrix structure, team members are assigned permanently to that team in most cases.

• The coordination cost is much lower and since every function is represented it usually reduces the number of management levels above the level needed to approve the team decisions.

• The team generates cross functional understanding that irons out early product or process design problems.

• It speeds up innovation and customer responsiveness because authority rests with the team allowing decisions to be made quickly.

Take advantage of being a virtual organization e.g. small firms doing business with each other

• Virtual organization is defined as a temporary network of independent companies - suppliers, customers, subcontractors, even competitors - linked primarily by information technology to share skills, access to markets and costs.

• Outsourcing along with strategic alliances are integral in making a virtual organization work.

• Outsourcing was an early driving force for the virtual organization trend.

• Outsourcing was a result of BRP which found many processes which were not adding value and could be done more efficiently outside the organization.

• Strategic alliances with suppliers, partners, contractors and other provides help in providing value to the customer.

• They help in taking advantage of opportunities quickly without tying up money.

Web-based organizations e.g. Google, eBay• Web-based organizations use the web as in internet but they are

also organizations who are web like shaped in their structure.• We have the pyramid and the web represent the vast change in

structures.• The pyramid structures have been eliminating layers to almost

having an omnipotent CEO at its apex. • A web structured organization is flat, intricately woven form that

links partners, employees, external contractors, suppliers and customers in various collaborations.

• The players will grow more and more interdependent.• The future organizations will be internet-driven designed to

deliver speed, customer service-enhanced products to savvy customers from an integrated virtual web structure pulling together abundant, world-class resources digitally.

• Managing this intricate network of partners, spin-off enterprises, contractors and freelancers will be as important as managing internal operations.

• An outsider will not be able to make out where an individual firm begins and where it ends.

Remove structural barriers and create a boundaryless, ambidextrous learning organization

• The evolution of virtual organization structure as an integral mechanism through which managers implement strategy has brought the focus on the role knowledge plays in this process.

• Knowledge may be in terms of know-how, understanding the customer or technology.

• Managers will become knowledge "nodes" through which intricate network of players are constantly coordinated to bring together relevant know-how and successful action.

• Boundaryless organizations are those that are able to generate knowledge, share knowledge and get knowledge to the places it could be best used to provide superior value.

• Internal divisions were being erased to enable people to move across functions, businesses and geographic boundaries .

• Organizations should encourage learning and sharing information. They should also be very flexible.

Redefine the role of corporate headquarters from control to support and coordination

• Globally engaged multinationals are changing the role of corporate headquarters from one of control, resource allocation and performance monitoring to one of coordinator of linkages across multiple businesses, supporter and enabler of innovation and synergy.

• One way to do this is to create a executive council having top managers from each businesses which will serve as a critical forum for corporate decisions, discussions and analysis.

Primary organizational structures and their strategies - Related pros and cons

The five basic primary structures are:1. Functional2. Geographic3. Divisional or Strategic Business Unit4. Matrix5. Product Team

Functional organizational structure• It is predominant in firms with a single or narrow product focus.• It provides well-defined skills and areas of specialization to build

competitive advantages in providing products or services.• Dividing tasks into functional specialties enables the personnel

of these firms to concentrate on only one aspect of the necessary work.

• This also allows use of latest technical skills and develops a high level of efficiency.

• Product, customer, or technology considerations determine the identity of the parts in a functional structure.– e.g. A hotel may be organized around housekeeping, the front desk,

maintenance, restaurant operations, reservations and sales, accounting and personnel.

Challenges• Effective coordination of the functional units.• The narrow technical expertise achieved through

specialization can lead to limited perspectives and to differences in the priorities of the functional units.

• Specialists may see the firm' strategic issues primarily as "marketing" or "production" problems.

• Integrating devices (such as project teams or planning committees) are frequently used in functionally organized firms to enhance coordination and to facilitate understanding across functional areas.

Geographic organizational structure• Structuring by geographic areas is required to accommodate

the different approaches needed in different geographic areas in producing, providing and selling products.

• e.g. Holiday Inn is organized this way as differences exist in traveling requirements, lodging regulations and customer mix.

Divisional or Strategic Business Unit structure e.g. HUL• When a firm diversifies its product/service lines, utilizes

unrelated market channels or begins to serve heterogeneous customer groups, a functional structure becomes inadequate.

• A new structure is often necessary to meet the increased coordination and decision-making requirements that result from increased diversity and size.

• A divisional or strategic business unit (SBU) structure is the most suitable form.

• A SBU structure allows management to delegate authority for the strategic management of distinct business entities - the SBU.

• A division/SBU is usually given profit responsibility, which facilitates accurate assessment of profit and loss.

Matrix organizational structure• As organizations grow and diversify into numerous products and

projects there arises a need for providing skills and resources where and when they are most vital.

• People and other r resources have to be put temporarily in product development and projects as and when they are needed.

• Matrix is a structure where subordinates are assigned both to a basic functional area and to a project or product manager.

• It provides dual channels of authority, performance responsibility, evaluation and control.

• This for of structure is intended to make the best use of talented people within a firm by combining the advantage of functional specialization and product-project specialization.

• Matrix structure increases the number of middle managers who exercise general management responsibilities, thus overcoming a key deficiency of a functional structure while at the same time retaining the advantages of functional structure.

Challenges• It is difficult to implement because of the dual chain of

command.• Negotiating shared responsibilities, use of resources ad

priorities can create misunderstanding among subordinates.• To avoid these deficiencies, some firms are accomplishing

particular strategic tasks, by means of a "temporary" or "flexible" overlay structure.

• This overlay structure is meant to take temporary advantage of a matrix-type while preserving an underlying divisional structure

Organizational LeadershipWhy is leadership important?• The organizations of the twenty first century will increasingly

depend on the skills of the CEO and a host of subordinate leaders.

• The accelerated pace and complexity of business will continue to force corporations to push authority down through increasingly horizontal management structures.

Organization leadership involves action on two fronts.1. Guiding the organization to deal with constant change.

• This requires CEOs who embrace change and do so by clarifying strategic intent.• The strategic intent had to build their organization and shape their culture to fit

with opportunities and challenges change affords.

2. Providing the management the skill to cope with ramifications of constant change.• This means identifying and supplying the organization with operating managers

prepared to provide operational leadership and vision.

Strategic leadership: Embracing change• The blending of telecommunications, computers and internet

combined with globalization has increased the pace of change exponentially.

• Change has become an integral part of what leaders and managers deal with daily.

• The leadership challenge is to galvanize commitment among people within an organization as well as stake holders outside the organization to embrace change and implement strategies intended to position the organization to do so.

This can be done through three interrelated activities:1. Clarifying strategic intent2. Building an organization3. Shaping organizational culture

Clarifying strategic intent• Leaders help stakeholders embrace change by setting forth a

clear vision of where the business's strategy needs to take the organization.

• The strategic intent will be an articulation of what the company must become to establish and sustain global leadership.– e.g. Former CEO of IBM, Lou Gerstner, understood that many people

in IBM were focusing on the war that was lost, meaning the PC and PC software. He understood the importance for IBM to become a leader in "network-centric computing". He aggressively instilled network-centric computing as the strategic intent for IBM in the next decade.

– For P&G its CEO Alan Alley had the strategic intent of its R&D focusing on outside opportunities rather than being inward looking. Outsourcing non-core activities though it had been well integrated vertically.

Building an organization• Leaders spend considerable time shaping and refining their

organizational structure and making it functional effectively to accomplish strategic intent.

• Since embracing change often involves overcoming resistance to change, leaders have to address a few concerns like:– ensuring a common understanding about organizational priorities– clarifying responsibilities among managers and organizational units.– empowering newer managers and pushing authority lower in the

organization.– Uncovering and remedying problems in coordination and

communication across the organization.– gaining the personal commitment to a shared vision from managers

throughout the organization.– keeping closely connected with "what's going on in the organization

and with its customers".

Shaping organizational culture• It is well known that values and beliefs shared throughout their

organization will shape how the work of an organization is done.• Reshaping the organization culture is very important when changes

are embraced in an organization.• Leaders use reward systems and structure among other means to

shape the organization's culture.– e.g. Traveller's Insurance Co. changed its reward system from salary

plus bonus to a system where rewards involved substantial cash bonuses and stock options. This improved the sales figures of the company.

• The management support is needed for all the activities taken up by the leadership.

• Leaders look to managers as a source of leadership. They are expected to accept risk and cope with the complexity that change brings about.

• Assignment of key managers is another leadership tool.

Recruiting and developing talented operational leadership• As business get complex the decision making will be pushed down the

organization level.• The new decision makers will be global managers, change agents,

strategists, motivators, strategic decision-makers, innovators and collaborators.

• There are four characteristics, referred to as emotional intelligence, which are necessary to get the competencies referred in the previous diagram.

1. Self-awareness– It is the ability to read and understand one's emotions and assess one's

strengths and weaknesses, which comes from the confidence and positive self-worth.

2. Self management– In terms of control, integrity, conscientiousness, initiative and achievement

oriented.

3. Social awareness– In relation to sensing other's emotions (empathy). reading the organization

(organizational awareness) and recognizing customer's needs (service orientation).

4. Social skills– In relation to influencing and inspiring others; communicating, collaborating

and building relationships with others; and managing change and conflict.

Organizational Culture• Organizational culture is a set of important beliefs and values

that members of an organization share in common.• It is intangible, yet ever-present theme that provides

meaning, direction and the basis for action.• It influences the opinions of members.• The member becomes fundamentally committed to the

beliefs and values when he or she internalizes them.• Beliefs and values are shared through internalization among

the organization's individual members.

Some of the ways to manage and create distinct culture are:• Emphasize key themes or dominant values e.g. ethics at

MindTree• Encourage dissemination of stories and legends about core

values e.g. customer satisfaction at Toyota • Institutionalize practices that systematically reinforce desired

beliefs and values e.g. innovation at 3M and Google• Adopt some very common themes in their own unique ways• Managing organizational culture in a global organization• Managing the strategy-culture relationship

– Link to mission e.g. IBM changing its business to “network centric”– Maximize synergy e.g. Holiday Inn focusing on – Manage around the culture e.g. Bajaj setting up new plant for

manufacturing bikes– Reformulate the strategy or culture e.g. At&T and Merrill Lynch

Emphasize key themes or dominant values• Leaders should nurture key themes or dominant values (like

quality, differentiation, cost advantage or speed) within their organization that reinforce competitive advantage they seek to maintain or build. E.g. FedEx for speed

• The emphasis can be through wording in advertisements, all internal communications, and in the new vocabulary used by company personnel to explain "who we are".– e.g. P&G key theme is quality, Du Pont's safety orientation - a report

on every accident must be on the chairman's desk within 24 hours - has resulted in a safety record that was 17 times better than the chemical industry average and 68 times better than the all-manufacturing average, Wipro is focused on doing business ethically,

Encourage dissemination of stories and legends about core values

• Companies with strong cultures are enthusiastic collectors and tellers of stories, anecdotes and legends in support of basic beliefs.

• These stories are very important in developing an organizational culture, because organization members identify strongly with them and come to share the beliefs and values they share.– e.g. Reliance takes pride in the returns they have been offering to

their investors at all times, Frito-Lay's zealous emphasis on customer service is reflected in frequent stories about potato chips route salespeople who have slogged through mud, hail, snow and rain to uphold the 99.5 percent service level to customers, 3M tells innovation stories, P&G and J&J tell quality stories

Institutionalize practices that systematically reinforce desired beliefs and values

• Companies with strong cultures take the process of shaping their beliefs and values very seriously.

• The strategies of these companies is strongly influenced by the beliefs and values.– E.g. Google encourages innovation where 20% of an employees office

time can be dedicated to her innovative projects – e.g. McDonald's has a yearly contest to determine the best hamburger

cooker in its chain. First, there is a competition to determine the best hamburger cooker in each store; next, the store winners compete in regional championships; finally, the regional winners compete in the "All-American" contest. The winners, who are widely publicized throughout the company, get trophies and All-American patches to wear on their McDonald's uniform

Adopt some very common themes in their own unique ways• The most typical beliefs that shape organizational culture include:

– a belief in being the best e.g. Intel– a belief in superior quality and service e.g. Toyota– a belief in the importance of people as individuals and a faith in their ability to

make a strong contribution e.g. Tata– a belief in the importance of the details of execution, the nuts and bolts of

doing the job well e.g. Reliance– a belief that customers should reign supreme e.g. Honda– a belief in inspiring people to do their best, whatever their ability – a belief in the importance of informal communication– a belief that growth and profits are essential to a company's well-being

• Every company implements these beliefs differently and every company has a distinct culture which no other company can copy successfully.

• Stronger companies direct their culture towards customers and markets, whereas weak companies focus on internal politics.

Managing organizational culture in a global organization• Organizations must recognize cultural diversity. E.g. Infosys• Social norms create differences across national boundaries

that influence how people interact.• Values and attitudes about similar circumstances also vary

from country to country. e.g. individualism is central to a North American's value structure, whereas the need for group dominate the value structure of people in Japan

• Religion is yet another source of cultural differences.• Education plays an important role in the development of

different cultures across countries. Leaders should be sensitive to global differences in approaches to education to make sure their cultural education efforts are effective.

Managing the strategy-culture relationship• Managers understand that key components of the firm like

structure, staff, systems, people and style influence the way in which important managerial tasks are executed.

• Implementation of a new strategy is largely concerned with adjustments in these components to accommodate the perceived needs of the strategy.

• Managing the strategy-culture relationship requires:1. Sensitivity to the interaction between the changes necessary

to implement the new strategy2. The compatibility or "fit" between those changes and the

firm's culture.

Link to mission• Let us consider a situation (like cell 1 in fig) where a firm is

faced with the following situation:– implementing a strategy requires changes in many cultural factors– but where most of the changes are highly compatible with the existing

culture

• Such firms are in a great advantage as they can pursue a strategy requiring major changes but still benefit from the power of cultural reinforcement.

Four important considerations should be emphasized by such firms:

1. Key changes should be visibly linked to the basic company mission- Since the company mission provides a broad official foundation for the organization

culture, top executives should use all available internal and external forums to reinforce the message that the changes are inextricably linked to it.

2. Emphasis should be placed on the use of existing personnel where possible to fill positions created to implement the new strategy– Existing personnel embody the shared values and norms that help

ensure cultural compatibility as major changes are implemented.

3. Care should be taken if adjustments in the reward system are needed– These adjustments should be consistent with the current reward

system. This ensures current and future reward systems approaches are related and changes in the reward system are justified.

4. Key attention should be paid to the changes that are least compatible with the current culture, so current norms are not disturbed.– A firm may choose to outsource an important step in a production

process because that step would be incompatible with the current culture.

e.g. IBM's strategy in entering the Internet based market.– Serving this radically different market required numerous

organizational changes.– To maintain maximum compatibility with its existing culture, IBM put

considerable external and internal efforts to link its new Internet focus with its long-standing mission.

– Numerous messages relating the network-centric computing to IBM's tradition of top quality service appeared on television and in magazines and every IBM manager was encouraged to go online.

– Where feasible, IBM personnel were used to fill the new positions created to implement the strategy.

– But because the software requirements were not compatible with IBM's current operations, virtually all its initial efforts were linked to newly acquired Lotus Notes Software.

Maximize synergy• Consider a situation (like in cell 2 in fig) where a firm needs:

– few organizational changes to implement its new strategy – those changes are potentially quite compatible with its current culture

A firm in this situation should emphasize two broad themes:1. Take advantage of the situation to reinforce and solidify the

current culture2. Use this time of relative stability to remove organizational

roadblocks to the desired culture

e.g. Holiday Inn's move into casino gambling– Holiday Inn saw casinos as resort locations requiring lodging, dining

and gambling/entertainment services– It only had to incorporate gambling/entertainment expertise into its

management team, which was already capable of managing the lodging and dining requirements

– It sold the change internally as completely compatible with its mission of providing high-quality accommodations for business and leisure travelers.

– The resignation of its CEO removed an organizational roadblock, legitimizing a culture that placed its highest priority on quality service to the middle-to-upper-income business traveler, rather than a culture that placed its highest priority on family-oriented service

Manage around the culture• Consider a situation (like in cell 3 in fig) where a firm needs:

– a few major organizational changes to implement its new strategy– these changes are potentially inconsistent with the firm's current

organizational culture

There are various ways in which a firm can manage around the culture:

• Create a separate firm or division – e.g. Bajaj set-up a new plant to manufacture its bikes which had a

different culture from the plant that was manufacturing scooters

• Use task force, teams or program coordinators – e.g. Mahindra set-up a team to conceive, design and build Scorpio

• Subcontract – e.g. HDFC website is subcontracted to be designed and maintained by

an third party

• bring in an outsider – e.g. IBM brought Louis Gerstner to bring a change in its culture

• sell out – e.g. Karnataka government sold NGEF as it could change its work

culture

Reformulate the strategy or culture• Consider a situation (like in cell 4 in fig) where a firm faces a

very difficult challenge in managing the strategy-culture relationship.

• A firm in this situation needs to make organizational changes that are incompatible with its current, usually entrenched, values and norms.– The firm needs to ask if formulation of the strategy is appropriate– It should ask if all the organizational changes really necessary– Should the firm expect that the changes would be accepted

successfully

• If the answers to the above questions is "yes" then massive changes in management personnel are often necessary.

• If the answer to the above questions is "no" then reformulate the strategy to be more compatible with the existing culture.

• e.g. At&T offered early retirement to over 20,000 managers as part of a massive recreation of its culture to go along with major strategic changes.

• Merrill Lynch wanted to pursue a product development strategy in its brokerage business to be competitive in the deregulated financial services industry. It needs a change in the culture where people who were selling services had to sell products. This move was resisted by the brokerage employees and Merrill Lynch had to refocus its brokerage more narrowly on basic client investment needs.

Corporate Social Responsibility• Corporate Social Responsibility is the idea that a business has a

duty to serve society in general as well as the financial interests of its stockholders.

• While some stakeholders like customers, society and government expect organizations to give priority to general good ahead of the organization's good; the insiders expect to balance the claims of outsiders in a way that protects the company's mission. E.g. water pollution by textile mills

• The insiders also feel that the tax money given by organizations should be good enough as a social responsibility.

• The issues of CSR are numerous, complex and contingent on specific situations.

• Each firm regardless of its size must decide how to meet its perceived social responsibility.

• Strategic managers can consider four types of social commitments which will help them to understand the nature and range of social responsibilities and plan.1. Economic responsibilities2. Legal responsibilities3. Ethical responsibilities4. Discretionary responsibilities

Economic responsibilities– It is the most basic responsibility of a business.– It requires managers to maximize profits whenever possible.– It is the essential responsibility of business to be providing goods

and services to society at a reasonable cost.– The company becomes socially responsible by providing productive

jobs for its workforce and tax payment for the state and central governments.

Legal responsibilities– It reflects the firm's obligations to comply with the laws that regulate

business activities.– The consumer and environmental movements were helpful in laws that

govern business in the areas of pollution control and consumer safety.– Setting up consumer courts, printing of MRP, quantity, date of

manufacture and date of expiry are results of consumer movement.– Protection of environmentally sensitive areas by not allowing any industry

to be set up is a result of the environmental movement.

Ethical responsibilities– It reflects the company's notion of right and proper business behavior.– They are obligations that transcend legal requirements.– Firms are expected, but not required, to behave ethically.– Some actions that are legal might be considered unethical. e.g. selling of

cigarettes is legal but is considered unethical by many

Discretionary responsibilities– These are responsibilities that are voluntarily assumed by a business

organization.– They include – public relations activities

• Through public relations activities managers attempt to enhance the image of the companies products and services by supporting worthy causes. E.g. sponsoring marathons to build health consciousness

• This form of discretionary responsibility has a self-serving dimension.

– good citizenship • Companies that adopt the good citizenship approach activity support ongoing

charities or issues in the public interest. E.g. Colgate collaborates with IDA for zero cavity

– full corporate social responsibility.• A commitment to full corporate responsibility requires strategic managers to

attack social problems with the same zeal in which they attach business problems. E.g. Green building by Godrej, green initiatives taken by ITC

• Corporate Social Responsibility has become a priority to companies due to three broad trends:

1. The resurgence of environmentalism2. Increasing buyer power3. Globalization of business

Limitations of CSR strategies• Research suggests that embedding social responsibility and

sustainability commitments in core strategies may be unrealistic for largest and more established corporations.

• Larger companies must move beyond the easy options of charitable donations but also steer clear of over reaching commitments.

• Companies need to review their overall strategy to CSR as an important part of their overall strategy but not let the commitment obscure their broad strategic business goals.

• CSR can also run afoul of the skeptics with serious ramifications for reputation.– e.g. Nike, despite its best efforts has been on the defensive in trying to

redeem its reputation.

Future of CSR• It is an irreversible part of the corporate fabric.• It can confirm significant benefits in terms of

– corporate reputation – hiring– motivation– retention– building valuable partnerships

Management Ethics• Ethics refers to the moral principles that reflect society's

beliefs about the actions of an individual or a group that are right or wrong.

• The values of one individual, group or society may be at odds with the values of another individual, group or society.

Approaches to ethics• There are three fundamental ethical approaches for

executives to consider1. The utilitarian approach2. The moral rights approach3. Social justice approach

The utilitarian approach• Managers who adopt utilitarian approach judge the effects of

a particular action on the people directly involved, in terms of what provides the greatest good for the greatest number of people.

• This approach focuses on actions, rather than on the motives behind the actions.

• If positive results outweigh negative results, the manager taking this approach will go ahead with the action.

• That some people might be adversely affected by the action is accepted as inevitable.

The moral rights approach• Managers who follow this approach judge whether decisions

and actions are in keeping with the maintenance of fundamental individual and group rights and privileges.

• It includes the rights of human beings to life and safety, a standard of truthfulness , privacy, freedom of expression, and private property.

Social justice approach• Managers who take this approach judge how consistent actions are

with equity, fairness, and impartiality in the distribution of rewards and costs among individuals and groups.

• These ideas stem from two principles known as the liberty principle and the difference principle.

• The liberty principle states that individuals have certain basic liberties compatible with similar liberties of other people.

• The difference principle holds that social and economic inequities must be addressed to achieve a more equitable distribution of goods and services.

• Three implementing principles are essential to the social justice approach:– distributive-justice principle– fairness principle– natural-duty principle

Distributive-justice principle• According to this principle, individuals should not be treated

differently on the basis of arbitrary characteristics such as race, sex, religion or national origin.

Fairness principle• This means that employees must be expected to engage in

cooperative activities according to the rules of the company, assuming that the company rules are deemed fair.

Natural-duty principle• This points to a number of general obligations, including the

duty to help others who are in need or danger, the duty not to cause unnecessary suffering and the duty to comply with the just rules of an institute.

Approaches to managing a company's ethical conductThere are four basic forms:1. The unconcerned or nonissue approach2. The damage control approach3. The compliance approach4. The ethical culture approach

The unconcerned or nonissue approach• This approach is prevalent at companies whose executives

are immoral and unintentionally amoral.• They believe that business ethics is a oxymoron and that

under-the-table dealings can be good business.• They believe the business of business is business, not ethics

and that if others are following unethical principles, it is acceptable to do it.

• These companies want profit at any cost.

The damage control approach• This approach is favored at companies whose managers are

intentionally amoral but who fear scandal and are desirous of containing any adverse fallout from claims that the company's strategy has unethical components.

• Companies using this approach usually make some concessions to window-dressing ethics, to prove innocence if there is any exposure to the unethical behavior of the company.

• Although unethical practices are not endorsed, executives took the other way when shady behavior occurs.

• At these companies employees do not operate with a strong ethical context.

• What is preached about ethics is not followed.

The compliance approachIn this approach light to forceful compliance is favored at

companies whose managers:1. Lean toward being somewhat amoral but are highly

concerned about having ethically upstanding reputations2. Are moral and see strong compliance methods as the best

way to impose and enforce ethical rules and high ethical standards.

• Companies that adopt a compliance mode usually do some or all of the following to display their commitment to ethical conduct:– make the code of ethics a visible and regular part of communications

with employees– implement ethics training programs– appoint a chief ethics officer or ethics ombudsperson– have ethics committee to give guidance on ethics matters– institute formal procedures for investigating alleged ethics violations– conduct ethics audits to measure and document compliance– give ethics awards to employees for outstanding efforts to create an

ethical climate and improve ethical performance– try to deter violations by setting up ethics hotlines for anonymous

callers to use in reporting possible violations.

• Emphasis here is usually on securing broad compliance and measuring the degree to which ethical standards are upheld and observed.

• The driving force stems from a desire to avoid the cost and damage associated with is approach unethical conduct or to gain favor from stakeholders for having a highly regarded reputation for ethical behavior.

• The weakness of this approach is that ethics control resides in the company's code of ethics and in the ethics compliance system rather than in the individual's own moral responsibility for ethical behavior.

The ethical culture approach• A company using this approach seeks to gain employee buy-in

to the company's ethical standards, business principles and corporate values.

• The ethical principles embraced in the company's code of ethics are seen as integral to the company's identity and ways of operating.

• The top executives have to set the standard for ethical conduct.

• The strategy must be ethical in all respects.• Responsibilities for ethics compliance is widely dispersed

throughout all levels of management and the rank-and-file.• People who follow ethical ways are recognized.

Why should company strategies be ethical?For the following reasons:1. A strategy that is unethical in whole or part is morally wrong and

reflects badly on the character of the company personnel involved– Ethically strong managers consciously opt for strategic actions that has no

tolerance for strategies with controversial components.– They walk the talk in displaying the company's stated values and living up to its

business principles and ethical standards.

2. An ethical strategy is good business and in the self-interest of shareholders– Pursuing unethical strategies puts a company's reputation at high risk and can do

lasting damage.– Rehabilitating a company's shattered reputation is time-consuming and costly.– Consumers shun companies known for their shady behavior.– Unethical companies have problem in recruiting and retaining talented

employees.– Creditors do not like to lend to unethical companies.

Linking a company's strategy to its ethical principles and core values

• If ethical standards and statements of core values are to have more than a cosmetic role, board of directors and top executives must work diligently to see that they are observed in crafting the company's strategy and conducting every facet of the company's business.

The following questions need to be asked whenever a new strategic initiative is taken:

1. Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be considered ethically objectable?

2. Is it apparent that this proposed action is in harmony with our core values? Are any conflicts or concerns evident?

• Strategic initiatives that do not stand up this scrutiny are rejected.

Codes of Business ethics• Codes of ethics help organizations to ensure consistency in

the application of ethical standards.• Cultural, societal and economic diversity in the operations of

organizations provide challenges that need to be addressed through codes of ethics.– e.g. Nike products are manufactured by 660,000 contract

manufacturing units spread over 50 countries. It has its own code of ethics, which it calls a Code of Conduct, which is a set of ethical principles intended to guide management decision making.

Trends in Codes of Ethics• Codes of ethics have began to be coded and this has led to

both the proliferation of formal statements by companies and to their prominence among business documents.

• They are prominently displayed on corporate websites, annual reports and in posters on bulletin boards.

• Companies are adding enforcement measures to their codes. These include:– policies that are designed to guide employees on what to do if they

see violations occur – sanctions that will be applied for violation including consequences on

their employment and civil and criminal charges.

• Businesses are increasingly requiring all employees to sign the ethics statement as a way of acknowledge that the have read and understood their obligations.

• There is a trend of increased attention by companies in improving employee's training in understanding their obligations under the company's code of ethics.

• The objective of such training is to emphasize the consideration of ethics during the decision making process.– e.g. MindTree gives the book defining the company's code of ethics to

all its employees.