02 Dec Explain why firms experience evolutionary cycles in which there is
Please respond to the following:
- Explain why firms experience evolutionary cycles in which there is a fight between strategy and structure, punctuated with periods in which strategy and structure are reshaped. Provide examples of global firms that have experienced this pattern.
- Choose a CEO of a prominent firm that you believe exemplifies the positive aspects of strategic leadership.
- What actions does this CEO take that demonstrate effective strategic leadership?
- What are the effects of those actions on the firm's performance?
Senior Seminar in Business Administration BUS 499
Strategic Leadership
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Strategic Leadership.
Please go to the next slide.
Objectives
Upon completion of this lesson, you will be able to:
Analyze strategic leadership
Upon completion of this lesson, you will be able to:
Analyze strategic leadership.
Please go to the next slide.
Supporting Topics
Strategic Leadership and Style
The Role of Top-Level Managers
Managerial Succession
Key Strategic Leadership Actions
In order to achieve this objective, the following supporting topics will be covered:
Strategic leadership and style;
The role of top-level managers;
Managerial succession; and
Key strategic leadership actions.
Please go to the next slide.
Strategic Leadership
Involves
Managing through others
Managing an entire enterprise
Coping with change
Influence human behavior
Ability to attract and manage human capital
Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. Multifunctional in nature, strategic leadership involves managing through others, managing an entire enterprise rather than a functional subunit, and coping with change that continues to increase in the global economy.
Because of the global economy’s complexity, strategic leaders must learn how to effectively influence human behavior, often in uncertain environments. By word or by personal example, and through their ability to envision the future, effective strategic leaders meaningfully influence the behaviors, thoughts, and feelings of those with whom they work.
The ability to attract and then manage human capital may be the most critical of the strategic leader’s skills, especially in light of the fact that not being able to fill key positions with talented human capital constrains firm growth.
Please go to the next slide.
Leadership Styles
Transformational Leadership
Most effective
Motivating followers to exceed expectations
Enrich capabilities
Place interests of organization above their own
Develop and communicate a vision
The styles used to provide leadership often affect the productivity of those being led. Transformational leadership is the most effective strategic leadership style. This style entails motivating followers to exceed the expectations other have of them, to continuously enrich their capabilities, and to place the interests of the organization above their own.
Transformational leaders develop and communicate a vision for the organization and formulate a strategy to achieve the vision. They make followers aware of the need to achieve valued organizational outcomes. And they encourage followers to continuously strive for higher levels of achievement. These types of leaders have a high degree of integrity and character.
Please go to the next slide.
The Role of Top-level Managers
Roles
Make certain that their firm is able to effectively formulate and implement strategies
Develop firm’s organizational structure and reward system
Primary Factors That Determine the Amount of Decision-Making Discretion
External environmental sources
Characteristics of the organization
Characteristics of the manager
A team of executives require strategic leadership
Top-level managers are charged to make certain that their firm is able to effectively formulate and implement strategies. Managers use their discretion when making strategic decisions. The primary factors that determine the amount of decision-making discretion held by a managers are:
External environmental sources;
Characteristics of the organization;
Characteristics of the manger;
In addition, top-level managers develop firm’s organizational structure and reward system. They also have a major effect on a firm’s culture.
In most firms, the complexity of challenges and the need for substantial amounts of information and knowledge require strategic leadership by a team of executives.
Please go to the next slide.
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Managerial Succession
Leadership Screening Systems
Internal managerial labor market
Firm’s opportunity for managerial positions
Qualified employees within the firm
External managerial labor market
Collection of managerial career opportunities
Benefits of Using an Internal Labor Market
Many organizations use leadership screening systems to identify individual with managerial and strategic leadership potential. These individuals are selected from two types of markets: internal and external. An internal managerial labor market consists of a firm’s opportunity for managerial positions and the qualified employees within the firm. An external managerial labor market is the collection of managerial career opportunity and the qualified people who are external to the organization in which the opportunities exist.
There are several benefits when internal labor market is used. Insiders are familiar with the company and also internal hiring produce lower turnover among existing personnel. In addition, hiring from inside keeps the important knowledge necessary to sustain performance. On the other side, long tenure with a firm may reduce strategic leaders’ to firm success.
Please go to the next slide.
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Key Strategic Leadership Actions
Effective Strategic Leadership
Determining Strategic Direction
Effectively Managing the Firm’s Resource Portfolio
Sustaining an Effective Organizational Culture
Establishing Balanced Organizational Controls
Emphasizing Ethical Practices
Certain actions characterize strategic leadership; the most important ones are shown on the figure on the slide.
Determining the strategic directions involves specifying the image and character the firm seeks to develop over time. The strategic direction is framed within the context of the conditions strategic leaders expect their firm to face in roughly the next three to five years.
Effectively managing the firm’s portfolio of resources may be the most important strategic leadership task. The firm’s resources are categorized as financial capital, human capital, social capital, and organizational capital.
Organizational culture is a complex set of ideologies, symbols, and core values that are shared throughout the firm and influence the way business is conducted. Because the organizational culture influences how the firm conducts its business and helps regulate and control employees’ behavior, it can be a source of competitive advantage and is a critical factor in promoting innovation.
The effectiveness of processes used to implement the firm’s strategies increases when they are based on ethical practices. Ethical companies encourage and enable people at all organizational levels to act ethically when doing what is necessary to implement strategies.
The challenge strategic leaders face is to verify their firm is emphasizing financial and strategic controls so that firm performance improves. The Balance Scoreboard is a tool that helps strategic leaders assess the effectiveness of the controls. The balanced scorecard is a framework firms can use to verify that they have established both strategic and financial controls to assess their performance.
Please go to the next slide.
Check Your Understanding
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Summary
Strategic Leadership and Style
The Role of Top-Level Managers
Managerial Succession
Key Strategic Leadership Actions
We have reached the end of this lesson. Let’s take a look at what we have covered.
First, we discussed strategic leadership. Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. Multifunctional in nature, strategic leadership involves managing through others, managing an entire enterprise rather than a functional subunit, and coping with change that continues to increase in the global economy.
Next, we went over leadership styles. The styles used to provide leadership often affect the productivity of those being led. Transformational leadership is the most effective strategic leadership style.
Finally to conclude the lesson we talked about strategic leadership actions. These include determining strategic direction, establishing balanced organizational controls, managing the firm’s resource portfolio, sustaining an effective organizational culture, and emphasizing ethical practices.
This completes this lesson.
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Senior Seminar in Business Administration BUS 499
Organizational Structure and Controls
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Organizational Structure and Controls.
Please go to the next slide.
Objectives
Upon completion of this lesson, you will be able to:
Describe the relationship between strategy and organizational structure
Upon completion of this lesson, you will be able to:
Describe the relationship between strategy and organizational structure.
Please go to the next slide.
Supporting Topics
Organizational Structure and Controls
Relationships Between Strategy and Structure
Evolutionary Patterns of Strategy and Organizational Structure
Implementing Business-Level Cooperative Strategies
Implementing Corporate-Level Cooperative Strategies
Implementing International Cooperative Strategies
In order to achieve these objectives, the following supporting topics will be covered:
Organizational structure and controls;
Relationships between strategy and structure;
Evolutionary patterns of strategy and organizational structure;
Implementing business-level cooperative strategies;
Implementing corporate-level cooperative strategies; and
Implementing international cooperative strategies.
Please go to the next slide.
Organizational Structure and Controls
What is Organizational Structure
Specifications
Formal reporting relationships
Procedures
Controls
Authority and decision-making processes
Firm’s Structure
Specifies the work to be done and how to do it
Organizational structure specifies the firm’s formal reporting relationships, procedures, controls, and authority and decision-making processes. Developing an organizational structure that effectively supports the firm’s strategy is difficult, especially because of the uncertainty about cause-effect relationships in the global economy’s rapidly changing and dynamic competitive environments. When a structure’s elements are properly aligned with one another, the structure is a critical component of effective strategy implementation processes.
A firm’s structure specifies the work to be done and how to do it, given the firm’s strategy or strategies. Thus, organizational structure influences how managers work and the decisions resulting from that work. Supporting the implementation of strategies, structure is concerned with processes used to complete organizational tasks.
Please go to the next slide.
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Organizational Structure and Controls, continued
What are Organizational Controls
Guide the use of strategy
Indicate how to compare actual results with expected results
Suggests corrective actions when difference is unacceptable
Strategic Controls
Financial Controls
Organizational controls are an important aspect of structure. Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable. When fewer differences separate actual from expected outcomes, the organization’s controls are more effective.
It is difficult for the company to successfully exploit its competitive advantages without effective organizational controls. Properly designed organizational controls provide clear insights regarding behaviors that enhance firm performance. Firms use both strategic controls and financial controls to support using their strategies.
Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company’s competitive advantages.
Financial controls are largely objective criteria used to measure the firm’s performance against previously established quantitative standards.
Please go to the next slide.
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Relationships Between Strategy and Structure
Strategy and Structure
Reciprocal relationship
Highlights interconnectedness between strategy formulation and implementation
Can influence current and future strategic actions
Stability is important
Flexibility for future advantages
Strategy and structure have a reciprocal relationship. This relationship highlights the interconnectedness between strategy formulation and strategy implementation. Once in place though, structure can influence current strategic actions and future strategies. Research that strategy has a much more important influence on structure than the reverse. Regardless of the strength of the reciprocal relationships between strategy and structure, those choosing the firm’s strategy and structure should be committed to matching each strategy with a structure that provides the stability needed to use current competitive advantages. We also want to make sure that there is flexibility to develop future advantages. As a result of this a firm should simultaneously consider the structure that will be needed to support use of the new strategy. By properly matching strategy and structure can create a competitive advantage.
Next slide.
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Evolutionary Patterns of Strategy and Organizational Structure
Three Types of Organizational Structures
Simple
Functional
Multidivisional
Simple Structure
Owner makes all major decisions
Functional Structure
Chief executive officer and limited corporate staff
Multidivisional Structure
Operating divisions that represent separate businesses
Firms choose from among three major types of organizational structures:
Simple;
Functional; and
Multidivisional.
Across time, successful firms move from the simple to the functional to the multidivisional structure to support changes in their growth strategies.
The simple structure is a structure in which the owner-manager makes all major decisions and monitors all activities while the staff serves as an extension of the manager’s supervisory authority.
The functional structure consists of a chief executive officer and a limited corporate staff with functional line managers in dominant organizational areas such as production, accounting, marketing, resource and development, engineering, and human resources. This structure allows for functional specialization, thereby facilitating active sharing of knowledge within each functional area.
The multidivisional structure consists of operating divisions, each representing a separate business or profit center in which the top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to division managers.
Please go to the next slide.
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Evolutionary Patterns of Strategy and Organizational Structure, continued
Three Structural Characteristics
Specialization
Centralization
Formalization
Cost Leadership Strategy
Differentiation Strategy
Continuous product innovation
Firms use different forms of the functional organizational structure to support implementing the cost leadership, differentiation, and integrated cost leadership/ differentiation strategies. The differences in these forms are accounted for primarily by different uses of three important structural characteristics which include:
Specialization;
Centralization; and
Formalization.
Firms using the cost leadership strategy sell large quantities of standardized products to an industry’s typical customer. Firms using this strategy need a structure and capabilities that allow them to achieve efficiencies and produce their goods at costs lower than those of competitors. In terms of centralization, decision- making authority is centralized in a staff function to maintain a cost- reducing emphasis within each organizational function. While encouraging continuous cost reductions, the centralized staff also verifies that further cuts in costs in one function won’t adversely affect the productivity levels in other functions. Jobs are highly specialized in the cost leadership functional structure; work is divided into homogeneous subgroups. Organizational functions are the most common subgroup, although work is sometimes batched on the basis of products produced or clients served. Specializing in their work allows employees to increase their efficiency, resulting in reduced costs. Guiding individuals’ work in this structure are highly formalized rules and procedures, which often emanate from the centralized staff.
Firms using the differentiation strategy produce products that customers hopefully perceive as being different in ways that create value for them. With this strategy, the firm wants to sell nonstandardized products to customers with unique needs. From this structure emerges a development- oriented culture in which employees try to find ways to further differentiate current products and to develop new, highly differentiated products. Continuous product innovation demands that people throughout the firm interpret and take action based on information that is often incomplete or uncertain. Following a strong focus on the external environment to identify new opportunities, employees often gather this information from people outside the firm. Commonly, rapid responses to the possibilities indicated by the collected information are necessary, suggesting the need for decentralized decision-making responsibility and authority. It also requires building a strong technological capability and strategic flexibility, which allow the organization to take advantage of opportunities created by changes in the market. To support the creativity needed and the continuous pursuit of new sources of differentiation and new products, jobs in this structure are not highly specialized. This lack of specialization means that workers have a relatively large number of tasks in their job descriptions. Few formal rules and procedures also characterize this structure.
Please go to the next slide.
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Evolutionary Patterns of Strategy and Organizational Structure, continued
Integrated Cost Leadership/Differentiation Strategy
Products create value
Relatively low cost
Reasonable sources of differentiation
Level of Diversification
Decision function
Number and type of businesses it compete with
How it will manage the business
Changes
Firms using the integrated cost leadership/ differentiation strategy sell products that create value because of their relatively low cost and reasonable sources of differentiation. The cost of these products is low relative to the cost leader’s prices while their differentiation is reasonable when compared with the clearly unique features of the differentiator’s products. Although challenging to implement, the integrated cost leadership/ differentiation strategy is used frequently in the global economy. The challenge of using this strategy is due largely to the fact that different primary and support activities are emphasized when using the cost leadership and differentiation strategies. To achieve the cost leadership position, production and process engineering need to be emphasized, with infrequent product changes.
The firm’s level of diversification is a function of decisions about the number and type of businesses in which it will compete as well as how it will manage the businesses. Using a diversification strategy requires the firm to change from the functional structure to the multidivisional structure to develop an appropriate strategy/ structure match. Corporate- level strategies have different degrees of product and market diversification. The demands created by different levels of diversification highlight the need for a unique organizational structure to effectively implement each strategy.
Please go to the next slide.
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Evolutionary Patterns of Strategy and Organizational Structure, continued
Cooperative Form
M-form structure
Liaison Roles
Temporary teams or task forces
Matrix Organization
Dual structure combining functional specialization and business product
Can lead to improved coordination
Strategic Controls Importance
The cooperative form is an M- form structure in which horizontal integration is used to bring about interdivisional cooperation. Divisions in a firm using the related constrained diversification strategy commonly are formed around products, markets, or both. Research suggests that informal ties may be even more important than formal coordination devices in achieving cooperation. Sharing divisional competencies facilitates the corporation’s efforts to develop economies of scope. Economies of scope are linked with successful use of the related constrained strategy. Interdivisional sharing of competencies depends on cooperation, suggesting the use of the cooperative form of the multidivisional structure.
Sometimes, liaison roles are established in each division to reduce the time division managers spend integrating and coordinating their unit’s work with the work occurring in other divisions. Temporary teams or task forces may be formed around projects whose success depends on sharing competencies that are embedded within several divisions. Ultimately, a matrix organization may evolve in firms implementing the related con-strained strategy. A matrix organization is an organizational structure in which there is a dual structure combining both functional specialization and business product or project specialization. Although complicated, an effective matrix structure can lead to improved coordination among a firm’s divisions. The success of the cooperative multidivisional structure is significantly affected by how well divisions process information. However, because cooperation among divisions implies a loss of managerial autonomy, division managers may not readily commit themselves to the type of integrative information- processing activities that this structure demands.
Strategic controls are important because divisional managers’ performance can be evaluated at least partly on the basis of how well they have facilitated interdivisional cooperative efforts. In addition, using reward systems that emphasize overall company performance helps overcome problems associated with the cooperative form. Still, the costs of coordination and inertia in organizations limit the amount of related diversification attempted.
Please go to the next slide.
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Evolutionary Patterns of Strategy and Organizational Structure, continued
Related Linked Diversification Strategy
Strategic Business Unit
M-form structure
Three Levels
Corporate headquarters
Strategic business units
SBU divisions
Using SBU Structures
Firms with fewer links or less constrained links among their divisions use the related linked diversification strategy. The strategic business unit form of the multidivisional structure supports implementation of this strategy. The strategic business unit or SBU form is an M- form structure consisting of three levels which include:
Corporate headquarters;
St
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