INTEGRATING ORGANIZATIONAL STRUCTURE AND
CORPORATE CULTURE IN STRATEGY FORMULATION
ARIZONA STATE UNIVERSITY
WPC 480 - STRATEGIC MANAGEMENT
WEEK 3
A.
Strategy Formulation:
Strategy formulation is the process of preparing future steps intended to build an
organization's vision and mission, set strategic and financial goals, and design strategies to
achieve these goals in order to provide the best customer value.
Morton (1996: 17-22) says that there is a mutually supportive attachment between
Organizational Structure & Corporate Culture, Technology, Individual Roles, Organizational
Structure and Management Processes influenced by External Socio-Economic Environment
and External Technological Environment in the formation methodology.
There are several steps that companies need to take as follows:
1. Identify the environment that the company will enter in the future. Determine the
company's mission to achieve the vision envisioned in that environment.
2. Analyze the internal and external environment to measure the strengths and weaknesses
as well as the opportunities and threats the company will face in undergo mission and
achieve a competitive advantage competitive advantage.
3. Formulate key success factors in accordance with changes in the environment.
4. Define objectives and measurable targets, identify and evaluate alternative strategies
and formulate a preferred strategy to achieve the objectives and measures of success. At
this stage, the strategist must analyze the options that are have company by considering
the resources owned with the external facts faced. Determine the most desirable
strategic option among the existing options in accordance with the organization's
mission. Determine the long-term goals and main strategies to achieve the most desired
option.
5. Set annual targets and short-term strategies that align with long-term goals and key
strategies.
6. Formulation is a form of simplifying the real situation into a mathematical form,
formulation has 5 stages of implementation as follows:
a.
Phase I; Gathering and Analyzing Strategic Information. It is the task of
organizational executives to be able to assess current and future trends, both
externally (market, competition, technology, regulation, and economic
conditions) and internally (organizational values, advantages and capabilities,
product and market results, and past strategic policies).
b.
Phase II; Strategy Formulation. It is the team that must examine several
alternative futures and select them, and create a strategic profile or vision that
focuses on the nine questions the nine questions. The strength of the formulation
is highly dependent on the strength of the process that the team goes through or
experiences in making decisions.
c.
Phase III; Strategic Master Project Planning. Using sophisticated and correct
project management methods where plans are organized, described, prioritized,
phased, scheduled, resourced and implemented and monitored, then the projects
can be optimized in a portfolio.4.
d.
Stage IV; Strategy Implementation. This stage is the implementation stage where
the quality of a project is required. For this reason, a reliable, fast and accurate
communication system is needed, starting from the low level (lower
management) to the high level (top management).5.
e.
Stage V; Monitoring, Reviewing and Updating the Strategy. This stage requires
external indicators (the validity of the underlying assumptions that created the
vision). Feedback.
from various sources of activities both for the short, medium and long term must
be optimized in continuously. Many companies or organizations that spend a lot
spend their resources (money, time, energy) to develop the best a powerful
strategic plan. However, we must remember that change will only happen through
action (implementation), not just planning. Technically less perfect strategy
formulation if implemented well, will get better results than perfect strategy
formulation but only on paper.
B.
Strategy Implementation:
Strategy Implementation is the sum total of activities and choices needed to carry out
strategic planning. Strategic implementation is the process by which strategies and policies
are turned into action through the development of programs, budgets and procedures.
Although implementation is usually only considered after the strategy has been formulated,
implementation is the key to successful strategic management. Strategy formulation and
strategy implementation should be seen as two sides of a coin.
To begin the implementation process, strategists should consider the following
questions:
1. Who are the people who will carry out strategic planning.
2. What to do to straighten out some of the new operating instructions that the company
expects.
3. How to get everyone to do what you want them to do.
These questions and others similar to them may be discussed initially when several
alternative strategies' pros and cons have been analyzed. Decision-makers will have to
discuss them again before providing any implementation plans. The best planned strategy
may not deliver the desired results unless top management can satisfactorily answer some of
these fundamental questions.
A survey of 93 Fortune 500 companies showed that more than half of these
companies experienced ten problems when they attempted to implement a strategic change.
These problems are listed in order of frequency of occurrence as follows:
1. Implementation goes more slower than originally planned.
2. Major problems arose that could not be anticipated.
3. Activities are coordinated less effectively.
4. Competition of activities and crises that attract attention in implementation.
5. The workers involved lacked the skills to do their jobs.
6. Lower-level workers lack adequate training.
7. The creation of problems due to uncontrolled external environmental factors.
8. Department managers are inadequate in providing leadership and direction.
9. Some key implementation tasks and activities are poorly stated.
10. System Information less adequate to monitor some activities.
Almost all of these problems were experienced by Pepsico in its Brazilian expansion,
except for the first one. The preparation, drive and purpose of Pepsico's corporate culture
would not tolerate a slow implementation process. Most of the problems company Most
Brazilian corporate problems result in the company being less willing to implement all of its
strategies, unless the pace is extremely dangerous.
▪ Pepsico chose a manager with relatively little experienced to implement the strategy. In
starting an implementation, it was done in haste, so that the company failed to inquired
about Charles Beach's past. As a Cocacola bottle manager in Western California, Beach
had pleaded no contest in 1987 to a pricing demand. Beach's optimistic aggressiveness fit
right in with Pepsico's high-emphasis on changing past corporate culture.
▪ Pepsico pushed Beach for too long. After establishing Puerto Rico's monopoly rights,
Beach had given up Argentina's monopoly rights in 1989. In 1994, Beach gave Southtern
Cone of South America ten times the size of the market it had managed in the previous
year. In contrast to Coca cola, which enlarged its bottling every year, inviting them to
add territory slowly. According to a Solomon Brother's analysis, "Beach was a good
operator, but he did not have the experience to take over the whole of Southtern Cone in
one year".
▪ Both Pepsico and Beach's Baesa assumed that by being firm and hard-nosed, changing
past strategic expansions it would be possible to catch up on some of the implementation
details. In a little over a year, Beach had built four state-of-the-art bottling plants and a
complete distribution system to sell untested or untried cold drinks. People were quickly
hired and placed in key positions with insufficient training. No time was given to
develop and coordinate implementation procedures. The same influx of money and talent
from Pepsico was unable to keep the Brazilian operations from deteriorating and falling
apart.
C.
Who Implements the Strategy?
Depending on how the corporation is organized, the party who are involved in
implement There will probably be more strategy implementers than those who formulate
strategy. In most multi-industry companies the strategy implementer is everyone in the
organization. Functional vice presidents and divisional or strategic business unit (SBU)
directors work with their subordinates to implement the entire plan specifically, in detail, and
on a smaller scale according to the plants, departments, and units they lead, so every
operational manager must be able to supervise the first line and to support this, every
employee is involved in the various strategy implementation processes that exist, both at the
corporate, business unit, and functional levels.
Many people in the organization who play an important role in determining the
success of strategy implementation may have had little involvement in developing the
company's strategy. Therefore, they are likely to refuse to work and to beprovide the
necessary data in the formulation of a strategic planning process. Resistance and reluctance to
participate will be more evident if changes to the company's mission, goals, strategies and
key policies are not communicated clearly and transparently to all operational managers.
The operational managers hope to influence the top management to abandon the
planned new changes and start over with the old ways. That is why to avoid such adverse
eventualities, it is possible to involve middle-level managers in the whole process, both in the
formulation and implementation process to achieve better organizational performance.
D.
What to Do?
Divisional and functional area managers should work with their fellow managers to
develop programs, budgets and procedures to support implementation Strategy. Brands must
also work together to achieve synergies among various divisions and functional areas in order
to create and maintain company-specific competencies.
1. Develop Programs, Budgets and Procedures:
a. Program:
The purpose of the program is to make actions strategy-oriented. For example, Ajax
Continental has chosen vertical downstream integration as its best strategy for growth. Ajax
Continental bought another company's retail outlet (Jones Surplus) rather than building its
own. To integrate the new stores into the company, various new programs have been
developed, including the following:
1) A restructuring program to transition Jones Surplus stores into the Ajax Continental
marketing chain of command, with store managers reporting to the The area manager
reports to the merchandise manager, and the merchandise manager reports to the vice
president in charge of marketing.
2) Advertising program (Jones Surplus is now part of Ajax Continental, "Lower prices,
more choices").
3) A training program for managers of newly hired stores and for this training, cooperation
with Jones Surplus managers was chosen.
4) The program to develop reporting procedures will integrate Jones Surplus stores into the
Ajax Continental accounting system.
5) The program modernized Jones Surplus stores and prepared for their official opening.
b. Budget:
The budget process begins after the program is developed. Planning a budget is a
corporation's real final check on the feasibility of its chosen strategy. An ideal strategy may
be found to be impractical only after specific implementation programs are financed in detail.
c. Procedure:
Once programmatic, divisional and corporate budgets are approved, standard
operating procedures must be developed. They detail the specific activities that must be
carried out to complete the corporate programs. In addition, they must be updated to represent
any technological changes as outlined in the strategy. In the case of Ajax Corporation's
acquisition of Jones Surplus retail stores, new operating procedures had to be developed such
as: store promotions, inventory ordering, item selection, and product development
merchandise, customer relations, credit shopping facilities, warehouse distribution, pricing,
limits on payment by cheque, handling of customer complaints, and promotions and periodic
promotions of employees. These procedures will ensure that the daily operations of the store
will be constant and stable over time (i.e. the next week's activities will be the same as this
week's activities) and consistent among stores (i.e. each store will operate at the same
standard of service as the others).
E.
Achieving Synergy:
One of the objectives to be achieved in strategy implementation is synergy among the
various functions and business units. This is the reason why many companies generally
reorganize after an acquisition. Synergies are said to exist for a divisional corporation if the
return on investment (ROI) on each division is greater than the return on the other divisions
obtained by the divisions when separated as independent business units (Vasconcellons,
1990:11).
Acquisition or expansion with the addition of a battery product line is often used as an
excuse to gain an advantage in a particular functional area within a company. For example,
when Ralston Purina acquired Carbide's Eveready and Energizer product lines, Ralston
leaders argued that by making the acquisition the Ralston company would gain greater profit
margins in the battery product line than Union Carbide because of Ralston's expertise in
developing and marketing consumer products brands. Ralston Purina considered that the
acquisition would result in lower battery prices due to synergy advantages in advertising,
promotion and distribution.
F.
How are strategies implemented and actions organized?
Before plans can show actual performance, the company must be well organized,
programs must involve sufficient staff, and activities must be directed towards achieving the
desired scope of objectives. Some changes in corporate strategy are likely to require changes
in the way the organization is structured, and the kinds of skills required in particular
positions. Managers should carefully discuss the way their company is structured in order to
decide on the changes that should be made in the work pace perfectly.
Are activities grouped differently? Is the authority to make key decisions centralized
at the headquarters or decentralized to managers at different locations? Will the company be
managed like a "tight ship" with few rules and oversight or by "loosy" rules and controls?
Will the corporation be organized into a "tall" structure with multiple layers of managers,
each of whom has a close margin of control (i.e. few workers per supervisor) to keep a close
eye on subordinates, or will it be organized into a flat structure with fewer layers of
managers, each of whom has a wide margin of control (i.e. many workers per supervisor) to
give more freedom to subordinates?
G.
Structure Follows Strategy:
In a classic study extensively conducted by Alfrend Chandler on American companies
such as: DuPont, General Motors, Sears, and Standard Oil, it has been concluded that
structure follows strategy, i.e. changes in strategy. Strategy changes in the company's
strategy show changes in the organizational structure. Chandler also concluded that some
organizations also follow a pattern of development of one of the following structural
arrangements others as they have expanded or developed. According to Chandler, these
structural changes occur as a result of the old structure being pushed too far because it is less
efficient and has experienced many obstacles if it is maintained. As a result of what
happened, Chandler proposed the following:
1. The creation of a new strategy.
2. The emergence of some issues about the new administration.
3. Declining economic performance.
4. A new, more suitable structure was found.
5. Returns profit for the previous level.
Chandler found that in its early years, companies like DuPont, tended to have a
centralized functional organizational structure that suited its limited scope of production and
level of product sales. As companies added new product lines, purchased supply resources
and created their own distribution networks, they became too complex for such a centralized
structure high. To be successful, this type of organization requires a shift towards a
decentralized structure with some semi-autonomous divisions.
Alfred P. Sloan, a past CEO of General Motors, has detailed how General Motors
made structural changes in the 1920s. He regarded the decentralized structure as "the pairing
of centralized policy-making with decentralized management operations". After top
management developed a strategy for the corporation as a whole, individual divisions
(Chevrolet, Buick and others) were free to choose how to implement the strategy. After
working with DuPont, General Motors found the decentralized multidivisional structure very
effective in providing maximum freedom in developing products using ROI as a financial
control.
Research has generally supported Chandler's proposition that structure follows
strategy. As mentioned earlier, changes in the environment tend to lead to changes in
corporate strategy and ultimately lead to changes in corporate structure. Strategy, structure
and environment must be related to each other, otherwise the performance of the organization
will be destroyed. For example, a business unit following a differential strategy requires more
freedom from the top to achieve its success than another business unit following a low-cost
strategy.
Although it is agreed that organizational structure should vary with different
environmental conditions, which will ultimately affect an organization's strategy. There is no
agreement on an optimal organizational design. What worked for DuPont and General
Motors in the 1920s may no longer work for today.
However, companies in the same industry tend to emulate General Motors' concept of
divisional decentralization, just as consumer goods tend to cater to the management concept
(a type of matrix structure) pioneered by Procter and Gamble. The general conclusion is that
companies pursuing the same strategy in the same industry tend to adopt the same structure.
H.
Stages of Company Development
That successful companies tend to follow a pattern of structural development as they grow
and develop. In the beginning, with the structure of entrepreneurial firms (where everyone
does something), they usually (if they are successful) acquire larger and organize functional
lines in the departments marketing department, production, and Finance.
With continued success, the company adds new product lines in different industries
and organizes itself into related divisions.
1) Stage I: Simple Structure:
The first stage is characterized by the existence of the entrepreneur, the person who
sets up a company to realize his or her idea (product or service). The entrepreneur tends to
make all important decisions individually and is involved in every smallest part and stage of
the organization. In stage I, the company has fewer formal structures that help the
entrepreneur directly supervise the various activities of each employee (see figure 4.4 for an
illustration of simple, functional and divisional structures).
Planning is usually short-term and reactive. The typical managerial functions of
planning, organizing, directing, staffing, and supervising are all established only to a limited
degree. The greatest strength of the company in stage I is its flexibility and dynamic nature.
The entrepreneur's great desire and passion energize the organization in its quest for growth.
The greatest weakness, however, is the heavy reliance on the entrepreneur to shape the entire
organization and its detailed procedures for implementation.
If the entrepreneur fails to manage well, the company will usually float in the dark.
This is associated with a leadership crisis.
Phase I depicts Oracle, a computer software company, under the management of its
owner, Lawrence Ellison. The company was pioneering a new approach to rescues existing
data, which is called structured query language (SQL). Oracle's success was achieved when
IBM created its SQL standard.
Unfortunately, Ellison's technical genius was not enough to manage the company.
Often while working at home, Ellison lost sight of the details of managing the company
beyond his technical interests. Although the company's sales were increasing rapidly, the
company's financial oversight was so weak that it prompted the management to reorganize
the entire year's revenue to fix the mess. After the company recorded its first loss, Ellison put
several functional managers in place to run the company but limited their focus to new
product development.
2) Phase II: Simple Structure:
Stage II is the point at which the entrepreneur is replaced by a team of functionally
specialized managers. The transition to this stage requires a substantial change in managerial
style for the head of the corporate office, if he was primarily an entrepreneur in stage I. He
must learn to delegate, so that additional staff can benefit the organization. He must learn to
delegate, so that the additional staff can benefit the organization.
The earlier example of Lawrence Ellison stepping back from top management at
Oracle Corporation for new product development is one way that a technically savvy founder
was able to find new ways to empower functional managers. Once in stage II, corporate
strategy favors protection through industry dominance, i.e. through vertical and horizontal
growth. Key strengths of companies in stage II is concentration and specialization in one
industry. The main weakness in stage II is that all investments are in one industry.
By concentrating on one industry, while that industry is still attractive, stage II
companies such as Oracle Corporation in computer software can achieve great success. Once
a diversified functional structure company goes into other products in a different industry, the
advantages of the functional structure will disappear. A crisis of autonomy will develop, as
people managing different product lines need more freedom in decision-making than top
management is willing to delegate to them. The company needs to change to a different
structure.
3) Phase III: Divisional Structure
In stage III, the company focuses its attention on managing multiple lines products
across its various industries and decentralized decision-making authority. These organizations
grow through their various product lines and expand to cover a wider geography.
They change the divisional structure to one headquarters and decentralize the
operating divisions each division or business unit is a functionally organized stage II
company. They should also use a conglomerate structure if top management chooses to divest
the additional units it owns in stage II by operating autonomously.
Divisions new This have developed strategic business units (SBUs) to better think
about product market considerations. The head office seeks to organize the activities of its
divisions or SBUs around performance and Results-oriented reporting and control systems
and techniques that emphasize corporate planning.
These units are not strictly controlled but acquire responsibility for their own
performance results. To be effective the company must have a decentralized decision process.
The main strength of a Stage III company is that it has unlimited resources. While its main
weakness lies in the size of the company which is too large and complex which tends to make
the company slow and inflexible. General Electric, DuPont, and General Motors are
companies that are in stage III.
4) Phase IV: System Business Units (SBUs):
With the evolution of the development stage into strategic business units during the
1970s and 1980s, the divisional form is a thing of the past in organizational structures. Under
the conditions of (1) Increased environmental uncertainty. (2) Using greater experience in
technological production methods and information systems. (3) Increased size and scope of
corporate business worldwide. (4) Greater emphasis on multi-industry competitive strategies.
(5) Educating more cadres of managers and employees, new forms of organizational structure
have been up and running during the late mid-20th century.
Matrices and networks are two possibilities that represent the fourth stage in corporate
development, a stage that not only emphasizes horizontal-vertical relationships between
people and groups, but also organizes the work of temporary projects around which the
corresponding information systems support collaborative activities.
❖
Constraints in Changing Stages:
Companies often find themselves at a disadvantage because they are restricted from
movement to logically move into the next stage of development next stage of development.
Development constraints may be internal (such as lack of resources, lack of capability or top
management's refusal to delegate decision-making to others) or may be internal (such as
economic conditions, lack of manpower and lack of market growth).
For example, Chandler states in his study that the successful founder of a company is
rarely the one who creates a new structure that fits the new strategy being developed, as this
is the structure of the transition process from one stage to the next, which is difficult and
painful. This is justified by General Motors Corporation under the management of William
Durant, Ford Motor Company under founder Henry Ford I, Polaroid Corporation under
Edwin Land, Apple Computer under Steven Jobs, and Hayess Microcomputer Products under
the leadership of Dennis Hayes.
These difficulties are compounded by the tendency of founders to direct the need to
carefully delegate the hiring, training and coaching of their own management team. This team
tends to retain the influence of the founders in the overall organization, even long after the
founders have passed away. While this situation may be a strength of the company, it may
also be a weakness, forming a culture that favors the status quo and resists needed change.
