Introduction to Strategic Management Session 10 Strategy implementation and organizational change Jens Schmidt
I. Managing strategic change
Do employees resist change?
Motivating people: Stick or carrot? Theory X (stick) People dislike work and avoid it if they can In order to achieve performance people therefore need to be controlled, directed and threatened with punishment People want to be directed, avoid responsibility, have little ambition and want above all security (McGregor, 1960) Theory Y (carrot) People like physical and mental effort at work Commitment is a function of rewards, and the most important reward is satisfaction of ego Under the right conditions, people learn to not only accept, but to seek responsibility Most people are able to use imagination, ingenuity and creativity to solve organizational problems
Nokia s new strategy and the burning platform memo
Stephen Elop s burning platform memo There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform s edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters. As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a burning platform, and he needed to make a choice. He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a burning platform caused a radical change in his behaviour. We too, are standing on a burning platform, and we must decide how we are going to change our behaviour.
Styles of change leadership
Styles of change leadership: Match style to context Participation Collaboration Direction if urgency Participation if time available Persuasion low Readiness high Johnson et al. (course book)
Change your organization: Top-down vs. bottom-up Kotter s top-down change leadership This is a checklist for top managers who want to drive change 1. Establish a sense of urgency 2. Form a powerful guiding coalition 3. Create a vision 4. Communicate the vision 5. Empower others to act on the vision 6. Plan for and create short-term wins 7. Consolidate improvements and produce still more change 8. Institutionalize new approaches Kotler (2007), Harvard Business Review, Leading change Hamel s bottom-up insurrection This is a checklist for normal employees who want to drive change 1. Establish a point of view 2. Write a manifesto 3. Create a coalition 4. Pick your targets 5. Co-opt and neutralize 6. Find a translator 7. Win small, win early, win often Hamel (2006), Harvard Business Review, Waking up IBM
II. Strategy implementation and organizing for success
Sensing and seizing and strategy implementation Sensing and getting support Realization that change is needed Understanding what needs to change and why Seizing and getting things done New or changing business model and strategic capabilities Organic development, alliances and acquisitions as ways to access needed capabilities Structure changes and organization design
The strategy process: Structure follows strategy Strategic analysis and diagnosis Strategy formulation Strategy implementation Structure follows strategy: Implementation of a strategy requires organizational changes
The strategy process: But structure also influences strategy Structure and organization design also influence strategy through enabling or limiting strategic renewal, e.g. allowing bottom-up initiatives
Elements of organization design to support strategy implementation Organizational structure Division of labor: who does what, roles and responsibilities Communication and coordination: what information is exchanged through which channels, how interaction and coordination are organized Goals and motivation Alignment of goals, shared goals KPIs and reward systems Control systems Direct or indirect monitoring and control
Types of control systems Planning systems Performance targeting Cultural systems Internal markets input output Input vs. output focus Johnson et al. (course book)
A holistic view on organization design: McKinsey s 7S framework
A start-up company: Creating structure You found a company with 2 friends. How do you structure the company? Founder 1 Founder 2 Founder 3 Sales Finance Administration Sales Coding Coding Cooking In the beginning: No structure, divide responsibilities based on competences and what needs to get done
Managing a (growing) single business Your company has grown to 50 employees. How do you structure the company? Management team Sales director CEO CTO Sales & marketing Customer service Finance & admin Operations R&D A functional structure
Diversifying: Adding products / countries Your company is growing nicely and you diversify into new product categories and/or expand into new countries. How do you structure the company? Headquarters Finance HR Business unit Business unit Sales & marketing Sales & marketing Operations Operations A multidivisional structure
Managing complex businesses You want to extract synergies between your different businesses. How do you structure the company? Headquarters Business unit Business unit Business unit Sales & marketing Operations R&D A matrix structure
Project or network structure Individual Project group Project group
Organizing around the customer: From product to solution organization Product organization Solution organization Headquarters Back-end Strategic center Front-end Product units Business unit Business unit Business unit Customer units Service units
An example: IBM 1993-2003 Up to 1983 had a virtual stranglehold on the computing industry From 1983-1993 IBM experienced increased challenges in computing cased by a shift to smaller open system In 1993 IBM experienced the largest loss in their history with US 8.1 billion From 1993-2003 IBM transformed itself from a hardware company to a customer centric solutions provider IBM as a computer company 1993 Strategic transformation IBM as an integrated solution provider 2003
Implementing the new strategy Restructure organization to focus on customers Focus strategy on offering complete solutions rather than single products Refocus organization on customer problems rather than IBM products Teams of R&D, software engineers and industry consultants focusing on industry specific needs Common systems and processes to support strategy Portfolio adjustments in line with new strategy Invest in e-business and consulting Sell off major assets such as PC business to Lenovo Strategic focus: execution vs. renewal Initially focus on execution of new strategy Later increased focus on renewal (systematic approach to new business development using three horizons approach and separate organization to manage innovative new ventures)
III. Summary of the course
Mapping the field of strategy Strategy content Strategy process Corporate strategy Competitive strategy
Strategic analysis: Match internal and external Understanding a complex and confusing world The two sides of strategic analysis and creating a match
Understanding the environment The broad environment Legal Political Focal firm Economic Ecological Technological Sociocultural Threat of New Entrants The industry Bargaining Power of Suppliers Competitive Rivalry Bargaining Power of Customers Threat of Substitutes Competitors
Competitive advantage, strategic capabilities and business model Competitive advantage Markets and customers Strategic capabilities Business model
Corporate strategy & managing a business portfolio: Synergies Organization Diversification Portfolio management Parenting & synergies
International strategy Locational advantages The internationalization process Managing the global-local dilemma Organizing the multinational firm
Dynamics, innovation and renewal: Sensing and seizing Avoiding strategic drift Industry lifecycle and timing advantages The challenge of disruption
Ecosystems, alliances and M&A Managing complementors and co-opetition Strategic options for strategy implementation
Strategy process Top-down and bottom-up mechanisms of strategy formation Evaluating alternatives
Strategy implementation and organizational change Managing strategic change Strategy implementation and organization design
IV. Some links
Strategy from the perspective of different company functions These functions often have a strategic role Operations strategy manufacturing, supply chain management, service operations, sourcing Marketing strategy sales, marketing and distribution; customer analytics; new product/ service development R&D and technology strategy R&D, innovation, new product/service development Information technology (IT) strategy systems and infrastructure, business platforms, IT-based services Human resource (HR) strategy leadership, skills, motivation
Strategy and numbers (finance & accounting) Finance and accounting are closely tied to strategy CFO vs. CSO/strategy director Strategy supplies the content behind the numbers E.g., what are sources of synergies vs. are the synergies large enough to justify an acquisition Evaluation of strategic alternatives: strategic and financial considerations To understand numbers you need to understand what is behind them Strategic planning and numbers Accounting provides numbers on which strategies are judged (KPIs, actual vs. planned performance) New investments require both strategic rationale (link to strategy and goals) and a business case (i.e. numbers support the decision) Beware that numbers are not objective and thus need to be interpreted when it comes to strategy numbers can be highly sensitive to assumptions (e.g., future cash flow projections) Numbers are not good or bad but are interpreted as being good or bad
Suggestions for further reading about strategy
Information about the exam The exam consists of two parts (total 60 points) multiple choice questions (max. 30 points) 2 types: (1) true or false, (2) select the right answer from 3 or 4 options correct answer: 1 point, no answer: 0 points, wrong answer -0.5 points (subtraction for wrong answer so don t guess if you don t know the answer) essay questions (max. 30 points) questions about concepts and frameworks from the book and lectures analysis of a short case (similar to the case pre-readings) there will be alternative questions to choose from Check out the questions that have been posted after each lecture on the course website More detailed information posted on the course website Summary and relevant chapters of the book
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