Business of Managing
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Example Organizational
Development Perspective
People
Structure
Organization Design Optimization
Organization Diagnostics
Organization Assessment
New Organization Start-up
“White Space” Effectiveness
Written, Unwritten, Virtual
Process
Strategy
Leadership Development
Succession Planning
Talent Management Strategies
Roles & Responsibilities
Knowledge, Skills & Experience
Internal Redeployment
Change Management
Feedback
Vision/Mission
Strategic Planning
New Business/Markets
Strategic Change Management
Knowledge Management
Building Sponsorship
Acquisitions
Benchmarking
Program Management
Business Process Development
Strategic Partnerships
Inter-organizational alignment
Process improvement / Re-engineering
Interdependencies
Reinforcement
Communication Systems
Cultural Change
Reward Processes
Annual Priority Alignment
Balanced Scorecard
Virtual Team / Global Team Management
Adapted from “Designing Organizations” by Jay Galbraith
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Topic Agenda
• Managing an Enterprise Within Its Environment
–– What
Is Strategy
& Why Is It Important
Management
& Strategy
– Creating & Executing Business Processes Around Strategy
• Organizing the Enterprise
– Categorizing Jobs Within the Organization
– Determining Who & What Authority
– Determining Form of the Organization
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Types or Levels of Strategy
• Enterprise
–
–
–
–
Revenue & Market Share Growth Objectives
Product Lines to Maintain/Grow or Enter
Markets (Foreign/New Region) to Enter/Develop
Growth by Acquisition; Growth by Partnerships, etc.
• Business or Competitive
– Supply & Value Chain Definitions
– Marketing & Promotion Campaigns
– Cost Cutting Initiatives
• Functional
– Planning & Execution KPI Tracking & Management
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Why Strategy?
Every organization operates on a Theory of the Business,
that is, a set of assumptions as to:
– What its business is
– What its objectives are
– How it defines results
– Who its customers are
– What the customers value and pay for
Strategy converts this into performance!
Peter Drucker, Management Challenges for the 21st Century
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Does Strategy Need to Evolve?
“The things I tend to be paranoid about vary. I worry about
products getting screwed up, and about products getting
introduced prematurely. I worry about factories not performing
well and about having too many factories. I worry about hiring
the right people and about morale slacking off. And of course, I
worry about competitors. I worry about other people figuring out
how to do what we do better or cheaper, and displacing us with
our customers. But these worries pale in comparison to how I
feel about strategic inflection points.”
Andy Grove, CEO Intel, “Only the Paranoid Survive”
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So What is a Strategic Inflection Point?
• Time in a business when its fundamentals are about to change
• Full-scale changes in the way business is conducted.. More than
technology or competition
• “Companies that begin a decline as a result of its changes rarely
recover their previous greatness”
• Growth opportunity vs. beginning of the end
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Topic Agenda
• Managing an Enterprise Within Its Environment
– What is Strategy & Why Is It Important
Creating&&Executing
Executing
Business
ProcessesAround
Around
Strategy
– Creating
Business
Processes
Strategy
• Organizing the Enterprise
– Categorizing Jobs Within the Organization
– Determining Who & What Authority
– Determining Form of the Organization
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Strategy Converts Business Theory Into Performance
Clarity About What the Key Goals of the Organization Are
Commitment to Initiatives That Promote Key Goals
Accountability For Actions That Affect The Key Goals
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Example: General Electric
• $125 Billion in Sales (Intel $27B, MS $32B)
• 310,000 Employees
• Spans Manufacturing, Services & Even Media
(NBC Television Network) Sectors
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General Electric Produces
•
•
•
•
•
•
•
•
Aircraft engines
Locomotives & other transportation equipment
Appliances (kitchen and laundry equipment)
Lighting, electric distribution & control
equipment
Generators and turbines
Nuclear reactors
Medical imaging equipment
Plastics
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GE Capital Provides
• Commercial finance
• Consumer finance
• Equipment management
• Insurance
• Accounts for nearly half of GE's sales
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GE Strategy for Performance: Six Sigma
• Basic Definition of Six Sigma:
Application of statistical methods to business
processes to improve operating efficiencies
• Six Sigma Provides:
Companies with a series of interventions &
statistical tools to improve both profits & quality
• Key Metric of Six Sigma:
A Six Sigma Quality Level is 3.4 Defects Per Million
Operations in a Manufacturing or Service Process 13
GE Strategy for Performance: Six Sigma
• 1995 Jack Welch initiates & within a year:
– 200 Projects on Six Sigma
– 30,000 employees trained
– $200 million training expense
• 1996
– 3000 Projects
– Bonuses for entire company
• 60% based on financials
• 40% Six Sigma results
– Stock option grants especially for black belts
• 1997 6000 Projects
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GE’s Six Sigma Results
• 1997
– Strategic Target of $150 Million Productivity Gains &
Profits
– Actual Productivity Gains & Profits: $320 Million
• 1998
– Actual Productivity Gains & Profit: $750 Million
– Still between 3 to 4 defects per million or $8-12
BILLION a year in inefficiencies and lost productivity
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Extending Six Sigma to Customers
• Aircraft Engines
– 1500 Projects
– Over 50 Airlines
– $230 Million Operating Margin Earned by Customers
• Medical Systems
– 1000 Projects
– $100+ Million Operating Margin Earned by Hospitals
Both of these are for 2000..
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Topic Agenda
• Managing an Enterprise Within Its Environment
– Defining Enterprise Strategy
– Creating & Executing Business Processes Around Strategy
• Organizing the Enterprise
CategorizingJobs
JobsWithin
Withinthe
theOrganization
Organization
–– Categorizing
– Determining Who & What Authority
– Determining Form of the Organization
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Simple Form, Lean Staff
“Along with bigness comes complexity, unfortunately. And most
big companies respond to complexity in kind, by designing
complex systems and structures. They then hire more staff to
keep track of all this complexity, and that’s where the mistake
begins. The paradox is clear. On the one hand, size generates
legitimate complexity, and a complex systems or structural
response. On the other hand, making an organization work has
everything to do with keeping things understandable for the tens
or hundreds of thousands who make things happen. And that
means keeping things simple.”
Tom Peters, “In Search of Excellence”
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Core Considerations of Organizing
Categorizing Jobs
Organization
•• Categorizing
JobsWithin
Withinthethe
Organization
– Specializations
– Departments
• Determining Who & What Authority
– Levels of Authority
– Type of Authority
• Determining Form of Organization
– Functional, Divisional, Matrix, International
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Categorizing Jobs: Specialization
• Determining Who Will Do What Specific Tasks
• Matching Employees with Skills to Specific Tasks
• Some Different Examples:
– Laughter Therapists
– Vermiculturist – Worm Farmer (www.happydranch.com)
– Heritage Management Officer (Archeology Degree Required)
– Golf Ball Marshal
– Frito-Lay QA Expert
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Categorization of Jobs: Departments
• Grouping Jobs into Logical Units
• Ways of Departmentalizing
– Functional
– Geographic
– Product
– Customer
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Basic Functional Departments
• Sales & Marketing
– High Level: 5 Year Sales Forecast
– Detailed Level: Order Tracking, Customer Mgmt
• Research & Development
– High Level: Product Trends, Technology Directions
– Detailed Level: Design Collaboration & Prototype
• Manufacturing/Operations/Planning
– High-Level: 5-Year Operating Plan or Supply Chain
– Detailed Level: Machine Control, Plant Scheduling
• Finance
– High-Level: 5-Year Budget Forecasting, Cost Analysis
– Detailed Level: Securities Trading, Cash Mgmt
• Accounting
– High-Level: Profit Planning
– Detailed Level: Payroll, Accounts Payable, Accounts Receivable
• Human Resources
– High Level: Personnel & Recruitment Planning
– Detailed Level: Relocation, Compensation, Training & Development
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Don’t Forget the Leadership Team!
Thomas Bus
Chairman, President and Chief Executive Officer
Dave Berry
Bill Helmsmen
Jane Hedrick
Roger Hurst
Senior Vice President &
Secretary
Senior Vice President,
Treasurer, Chief Financial Officer
Senior Vice President &
General Counsel
Senior Vice President


Finance Leadership Team
Legal
 Corporate Security


Human Resources
Jose Garcia
Rich Temple
Badri Krishna
Terri West
Senior Vice President
Executive Vice President
Senior Vice President
Senior Vice President
Controller
Semiconductor
Materials & Controls
 Educational & Productivity
 Digital Imaging



Public Affairs


Communications
Investor Relations
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Other Departmentalization Options
• Organize Around Geographic Sales Areas
– Examples:
• Global: EMEA (Europe, Middle East, Africa) vs. NA
• National: Northeast vs. Southwest
• Organize Around Customer Base
– Example: P&G Customer Support
• VMI Customers
• Web-Customers
• EDI (Electronic Data Interchange) Customers
• Organize Around Products or Services
– Example:
• Semiconductor Purchasing: Silicon, Gases, Hazardous
• Semiconductor Selling: DSP, ASIC, Memory, Microprocessors
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Core Considerations of Organizing
• Categorizing Jobs Within the Organization
– Specializations
– Departments
Determining Who
•• Determining
Who&&What
WhatAuthority
Authority
– Levels of Authority
– Type of Authority
• Determining Form of Organization
– Functional, Divisional, Matrix, International
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Some Hierarchy-Related Buzz Words
• Responsibility – Assigned to Perform a Task
• Authority – Ability to Make Decisions on Task
• Delegation – Assign Task to Subordinate
• Accountability – Consequences for Results
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Hierarchy Attributes
• Centralized vs. Decentralized
• Flat vs. Tall
• Span of Control at each Level
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Tall Organizations
• Advantages
– Allow for categorized work
– Provide predictable career & compensation ladder
– Establish clear accountability
– Value Experience
• Disadvantages
– Expensive, time-consuming & resistant to change
– Promote self-importance, status, buck passing, bureaucratic
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Flat Organizations
• Advantages
–
–
–
–
–
–
Promote ownership of tasks
Eliminate redundancy
More responsive to change
Facilitate creativity & innovation
Put people closer & more responsive to customers
Empower employees
• Disadvantages
–
–
–
–
Fewer opportunities for advancement
Put more responsibility & stress on individuals
Require skilled, experienced employees
Reduce independent checks, balances & controls
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Flat Organization Example: Nokia R&D
• #1 Manufacturer of Cell Phones
• Founded 1865 as Forest Product Company
• 1992: Shed All Divisions Except Mobile Communications
• Two Divisions Now: Cell Phones & Mobile Networks
• 2001 $27 Billion Sales
• 2001 Roughly 54,000 Employees
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Nokia’s R&D Team
• 1992: Yrjo Neuvo joins from Finland University (EE)
• 18,000 Engineers, Designers & Socialogists
• 69 Sites from Boston to Bangalore
• Flat Hierarchy & Free-Range Engineering Culture
• Promotes “Hacker Spirit”
Example:
2000 Addition of Text Messaging in 3310 Model
Last Minute w/out Manager Approval…
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Nuevo’s Five Rules
• Don’t Locate All R&D in One Place
(Make it Global & Spread from HQ)
• Keep Teams Small (Less than 50 People)
• Flatten Hierarchy & Stay Close to Engineers
• Celebrate Secret Tinkering & Side Projects
• Welcome Mistakes
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Forms of Authority
• Line Authority – flows up & down chain of command
Example: TI Fab Managers, Mfg Plant Manager
• Staff Authority – based on job expertise/specialization
Example: HR Manager Assigned to a Business Unit
• Committee/Team Authority – groups play central role
Example: Corporate Logistics Group Oversees & Evaluates
Performance of Regional DCs
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Core Considerations of Organizing
• Categorizing Jobs Within the Organization
– Specializations
– Departments
• Determining Who & What Authority
– Levels of Authority
– Type of Authority
Determining Form
•• Determining
FormofofOrganization
Organization
– Functional, Divisional, Matrix, International
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Basic Forms of Organization Structure
• Functional
– Typically small to medium size enterprises
– Organize around basic functions (I.e., sales, R&D, ops)
• Divisional/Business Unit
– Overall enterprise made up of independent businesses
– Typically segmented across
• Product Departmentalization
Campbell’s: Soup, Franco-American, Godiva, Pace, Pepperidge Farm
• Acquisitions
Safeway: Randalls/Tom Thumb, Vons (So. Cal), Dominicks (Chicago)..
• Matrix
– Cross-functional teams with individuals reporting to two or more managers
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Example Business Unit Organization
WW ASIC
Steve James
Product
Development
Preston Popoff
Human
Resources
Toni Rodman
Asia ASIC
Willie Wang
Internet
Infrastructure BU
Billy Smith
Advanced
Technology
Brad Milken
WW Design
Center Manager
Francis Laroux
Japan ASIC
Rob Meddars
WW Quality
Dave Nowitzki
Europe ASIC
Jill Reeves
India ASIC
Gautam Mitra
Operations,
Customer Engr &
Finance
Tracy Person
Wireless
Infrastructure
Clint Addis
Legal
Katie Williams
ASIC = Application
Specific Integrated
Circuits
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Change to Matrix: Royal Dutch/Shell
• #3 Oil & Gas Group (Behind Exxon & BP)
• $135 Billion in Sales; 91,000 Employees
• 9.5 Billion Barrels of Oil Reserves
• 55.8 Trillion Cu. Ft. Gas Reserves
• 46,000 Gas Stations World-Wide
• Operations in 130+ Countries
• Headquarters in both London & The Hague
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Royal Dutch/Shell Before 1994-1995
• 1993 Cornelius Herkstroter Promoted to CEO
• Attributes:
– Insular company, introverted control freaks
– Managers who rarely talked to rank and file
– Risk adverse, headquarters based six man committee of
managing directors (CMD)
– 100+ country CEOs act as local chieftains
– Public relations bombs (associations w/Nigerian
dictatorship that executed environmentalist)
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Royal Dutch/Shell After 1994-1995
• 30% cut of 3000 HQ jobs
• Deep cuts in many regional & functional areas
• Committees to oversee global operations:
 Exploration & Production




Oil products
Gas & coal
Chemicals
Central staff functions
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Matrix Organization Results?
• Lower prices for raw materials as single giant buyer
• Better alignment of supply chain to customer locations (I.e.,
Louisiana vs. Britain in chemicals)
• Net Income & Return on Average Capital Employed**:
** ROACE is the main measure of financial success in the oil business
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