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MANAGEMENT POLICY AND STRATEGY
SESSION - X
Implementing Strategy
Restructuring, Reengineering and Leadership
Prof. Sushil
Department of Management Studies
Indian Institute of Technology, Delhi
INDIA
Email: sushil@dms.iitd.ernet.in
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McKinsey 7-S Framework
Strategy
Structur
e
Systems
Shared
Values
(culture)
Style
Skills
(management)
(leadership)
Staff
(management)
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Key Levers to Implement Strategy
Structure
(Organization of firm’s
activities)
Leadership
Culture
(Style, staffing, and
skills)
(Shared values creating
behavioral norms)
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Functional Organization Structure
CEO
Engineering
Personnel
Production
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Marketing
Finance &
accounting
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Process-Oriented Functional Structure
5
(continued)
CEO
Purchasing
Order
entry
Receiving
&
inventory
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Retail
sales
Wholesale
sales
Customer
service
Accountin
g & billing
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Process-Oriented Functional Structure (concluded)
Strategic Advantages
1. Achieves efficiency through
specialization
2. Develops functional expertise
3. Differentiates and delegates
day-to-day operating decisions
4. Retains centralized control of
strategic decisions
5. Tightly links structure to
strategy by designating key
activities as separate units
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Strategic Disadvantages
1. Promotes narrow specialization
and functional rivalry or conflict
2. Creates difficulties in
functional coordination and
interfunctional decision making
3. Limits development of general
managers
4. Has a strong potential for
interfunctional conflict - priority
placed on functional areas, not
the entire business
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Geographic Organizational Structure
Chief Executive
General Mgr.
Western
District
General Mgr.
Southern
District
General Mgr.
Central
District
Corporate Staff
Finance & Accounting
Personnel
Marketing
Legal
Planning
Research & Development
General Mgr.
Northern
District
General Mgr.
Eastern
District
District Staff
Personnel
Accounting & Control
Engineering
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Production
Marketing
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Geographic Organizational Structure (concluded)
Strategic Advantages
1. Allows tailoring of strategy to
needs of each geographic
market
2. Delegates profit/loss
responsibility to lowest
strategic level
3. Improves functional
coordination within the target
market
4. Takes advantage of economies
of local operations
5. Provides excellent training
grounds for higher level general
managers
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Strategic Disadvantages
1. Poses problem of deciding
whether headquarters should
impose geographic uniformity
or geographic diversity should
be allowed
2. Makes it more difficult to
maintain consistent company
image from area to are
3. Adds layer of management to
run the geographic units
4. Can result in duplication of
staff services at headquarters
and district levels
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Matrix Organizational Structure
Chief Executive Officer
Vice
President,
Engineering
Vice
President,
Production
Vice
President,
Purchasing
Vice
President,
Administration
Project
Manager
A
Engineering
Staff
Production
Staff
Purchasing
Agent
Administration
Coordinator
Project
Manager
B
Engineering
Staff
Production
Staff
Purchasing
Agent
Administration
Coordinator
Project
Manager
A
Engineering
Staff
Production
Staff
Purchasing
Agent
Administration
Coordinator
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Matrix Organizational Structure (concluded)
Strategic Advantages
1. Accommodates a wide
variety of project-oriented
business activity
2. Provides good training
grounds for strategic
managers
3. Maximizes efficient use of
functional managers
4. Fosters creativity and
multiple sources of diversity
5. Gives middle management
broader exposure to
strategic issues
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Strategic Disadvantages
1. May result in confusion and
contradictory policies
2. Necessitates tremendous
horizontal and vertical
coordination
3. Can proliferate information
logjams and excess
reporting
4. Can trigger turf battles and
loss of accountability
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Product-Team Structure
Chief Executive Officer
Research and
Development
Engineering
Operations
Finance
Sales and
Marketing
Product
or
process
teams
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STRATEGIC BUSINESS UNITS



Some firms encounter difficulty in evaluating and
controlling the operations of their divisions as the
diversity, size, and number of these units continue to
increase.
Under these conditions, a firm may add another layer of
management to improve strategy implementation, to
promote synergy, and to gain greater control over the
firm’s diverse business interest.
This can be accomplished by creating groups that combine
various divisions (or parts of some divisions) in terms of
common strategic elements.
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STRATEGIC BUSINESS UNITS
13
Contd...


These groups, commonly called strategic business units
(SBUs), usually are based on the independent productmarket segments served by the firm.
The SBU structure’s main value appears to be that it
provides a way for the largest companies to regain focus
in different parts of their business that were central to
earlier success yet which became “lost” or dysfunctional
in the complexity and size brought on by the company’s
success.
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STRATEGIC BUSINESS UNIT ORGANIZATIONAL
STRUCTURE
Chief Executive Officer
Vice President
Operating Support
Vice President
Administrative Services
Group Vice President
SBU 1
Group Vice President
SBU 2
Divisions
Divisions
A
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B
C
D
E
F
Group Vice President
SBU 3
Divisions
G
H
I
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STRATEGIC BUSINESS UNIT
ORGANIZATIONAL STRUCTURE
Contd…...
Strategic Advantages
 Improves coordination between
divisions with similar strategic
concerns and product-market
environments
 Tightens
the
strategic
management and control of
large,
diverse
business
enterprises
 Facilitates distinct and in-depth
business
planning
at
the
corporate and business levels.
 Channels
accountability
to
distinct business units
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Strategic Disadvantages
 Places
another
layer
of
management between the divisions
and corporate management
 May
increase
dysfunctional
competition
for
corporate
resources.
 May present difficulties in defining
the role of the group vice president.
 May present difficulties in defining
how much autonomy should be
given to the group vice presidents
and division managers.
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Guidelines to Match Structure to Strategy
Restructure to emphasize and support strategically
critical activities
Reengineer strategic business processes
Downsize, outsource, and self-manage
Recognize that strategy and structure often evolve
in a predictable pattern
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Restructuring to Support Strategically Critical
Activities


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Concept - Some activities within a business’s value
chain are more critical to the success of the
strategy than others
Considerations in restructuring


Strategically critical activities must be the central
building blocks for designing the organization structure
Organizational structure must be designed to help
coordinate and integrate support activities to


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Maximize their support of strategy-critical primary activities
Minimize their costs and time spent on internal coordination
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Reengineering Strategic Business Processes
(BPR)


Concept - Involves reorganizing a company to create
value for the customer by eliminating barriers that
create distance between employees and customers
Potential outcomes of BPR


Reduces
fragmentation
department lines
by
crossing
traditional
Reduces overhead by compressing formerly separate
tasks that are strategically intertwined in the process of
focusing on the customer
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CORE BUSINESS PROCESSES


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
Insurance industry, the actual work that leads to a balance of
competitive premium for customers, and profit after claims
for the company, is a core business process.
Company with strategic alliances, alliance management
becomes a core business process.
Beer brewing, marketing and brand management is a core
process.
Electronics and semi-conductor industries, new product
development is a core process.
Reduction of lead time by a company by three-fourths or
more, is a core process; the lead time being defined as
starting from order entry, and the factory process starting
with order fulfilment.
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GENERIC BUSINESS PROCESSES TO BE
REDESIGNED



Process pertaining to development and delivery of
product(s) and/or service(s):
These may include
research, design, engineering, manufacturing, and
logistics, besides purchasing/ procurement and
materials management.
Processes involving interface(s) with customers:
These usually include marketing, advertising, order
fulfilment, and service.
Processes comprising management activities: These
include strategy formulation, planning and budgeting,
performance measurement and reporting, human
resource management, and building of infrastructure.
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Steps Involved in Business Process Reengineering
Develop a flow chart of the total business process
Try to simplify the process first, eliminating unnecessary
tasks and streamlining remaining tasks
Determine which parts of the process can be automated
Benchmark strategy-critical activities
Consider outsourcing non-critical activities
Design a structure for performing remaining activities and
reorganize personnel accordingly
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Downsizing, Outsourcing, and SelfManagement



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Downsizing - Eliminating employees, particularly
middle managers, in a company
Self-management - Delegating work to lower,
operating levels of an organization
Outsourcing - Obtaining work previously done
by employees inside a company from sources
outside the company
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REENGINEERING AND OTHER CHANGE
PROGRAMS
Assumptions
questioned
Focus of change
Rightsizing
(downsizing)
Staffing
Restructuring
Reengineering
Reporting
relationships
Organization
Fundamental
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Staffing, Job
Radical changes
responsibilities
over
Functional
Orientation
Functional
broad core entities
Occasionally
Role of IT
Often, blamed
Processes
emphasized
Key
Improvement goals Usually incrementalUsually incremental Dramatic and
significant
Frequency
Usually one time Usually one time Usually one time
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Guidelines Regarding the Strategy-Structure Fit
1. A single-product firm or dominant product business
should employ a functional structure
2. A firm in several related businesses should employ
a multidivisional structure
3. A firm in several unrelated lines of business should
be organized into strategic business units
4. Early achievement of a strategy-structure fit can
be a competitive advantage
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Key Considerations of Organizational Leadership
Strategic
leadership
Management
skills to cope with
uncertainty
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Strategic Leadership: Embracing Change
Clarifying strategic intent
Activities
involved in
galvanizing
commitment
to change
Building an organization
Shaping organizational culture
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Questions Involved in Managerial Assignments
1. Which persons hold the leadership positions that
are especially critical to execution of the
strategy?
2. Do these persons have the characteristics needed
to ensure effective implementation of the
strategy?
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Using Existing Executives Versus Bringing in
Outsiders
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Using existing executives to implement a new strategy
Advantages
Disadvantages
• Already know key people,
practices, and conditions
• Personal qualities are better
known and understood by
associates
• Have established
relationships with peers,
subordinates, suppliers, and
buyers
• Symbolizes organizational
commitment to individual
careers
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• Less adaptable to major
strategic changes because of
their knowledge, attitudes,
and values
• Past commitments hamper
the hard decisions required in
executing a new strategy
• Have less ability to become
inspired and credibly convey
the need for change
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Using Existing Executives Versus Bringing in
Outsiders
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Bringing in outsiders to implement a new strategy
Advantages
Disadvantages
• May already believe in and
have “lived” the new
strategy
• Is often costly in terms of
compensation and “learningto-work-together” time
• Are unencumbered by
internal commitments to
people
• Candidates suitable in all
respects may not be
available, leading to
compromise choice
• Come to the new assignment
with heightened commitment
and enthusiasm
• Can send powerful signals
throughout the organization
that change is expected
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• Uncertainty in selecting the
right outsiders to bring in
• “Morale costs”
• “What to do with poor ol’
Fred” problem
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What is Organizational Culture?
The set of important assumptions
(often unstated) that members of an
organization share in common.
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Approaches to Shaping Organizational Culture
Emphasize key themes
or dominant values
Encourage
dissemination of
stories and legends
about core values
Institutionalize
practices that
systematically
reinforce desired
beliefs and values
Adopt some very common
themes in their own
unique
ways
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Managing the Strategy-Culture Relationship
Many
Changes in
key
organizational
factors
necessary to
implement
the new
strategy
Link changes to basic
mission and
fundamental
organizational norms.
Reformulate strategy
or prepare carefully
for long-term, difficult
cultural change.
1
4
2
3
Synergistic--focus on
reinforcing culture.
Manage around the
culture.
Few
High
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Low
Potential compatibility of
changes with existing culture
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Themes for Success: Structure, Leadership,
and Culture in the 21st Century
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Truly customer-focused leadership and culture
Fluid, network-based organizational structures
A network-based “personal touch” culture
A propensity to partner
And partner with key customers
Acquire talent, not sales growth
Demand excellence and share success
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FORMS OF RESTRUCTURING BUSINESS
FIRMS
Expansion
 Mergers and Acquisitions
 Tender Offers
 Joint Ventures
Sell-offs
 Spin -offs
 Split - offs
 Split - ups
 Divestitures
 Equity Carve - outs
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FORMS OF RESTRUCTURING BUSINESS
FIRMS
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Contd….
Corporate control
 Premium Buy-backs
 Standstill Agreements
 Antitakeover Amendments
 Proxy Contests
Changes in Ownership Structure
 Exchange Offers
 Share Repurchases
 Going Private
 Leveraged Buy - outs
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REASONS FOR INTERNATIONAL M & A s
Growth




To achieve long-run strategic goals
For growth beyond the capacity of saturated domestic market.
Market extension abroad and protection of market share at home
Size and economies of scale required for effective global
competition.
Technology


To exploit technological knowledge advantage
To acquire technology where it is lacking.
Extend advantages in differentiated products

Strong correlation between multi-nationalization and product
differentiation. This may indicate an application of the parent’s
(acquirer’s) good reputation.
Government policy


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To circumvent protective tariffs, quotas, etc.
To reduce dependence on exports
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REASONS FOR INTERNATIONAL M & A s
Contd….
Exchange rates


Impact on relative costs of foreign versus domestic
acquisitions
Impact on value of repatriated profits.
Political and economic stability

To invest in a safe, predictable environment
Differential labour costs, productivity of labour
To follow clients (especially for banks)
Diversification



By product line
Geographically
To reduce systematic risk
Resource - poor domestic economy

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To obtain assured sources of supply
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THEORIES OF M & A ACTIVITY






Efficiency
 Differential efficiency
 Operating synergy
 Diversification
 Financial synergy
Undervaluation
Information - Signaling
Agency Problems
 Control device
 Managerialism
 Winner’s curse-hubris
Tax Consideration
Market Power
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39
3 M COMPANY INTEGRATING EUROPE
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
3M’S array of 60,000 products were organized into four
sectors.
The most visible driver of innovation was a rule known as
“15% rule.”
A strong issue of self -discipline ensured the frugal
expenditure of the co. assets.
Management tried to develop a risk taking mentality in its
employees.
Individuals who delivered growth, profits and innovation were
showed rewards and recognition.
New products were often developed in response to an
identified need in the market place.
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3 M COMPANY INTEGRATING EUROPE
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Contd……





The wide assortment of products was the creative
combination of approximately two dozen core-technologies.
Access to the free use of the formulas, processes and
patents across different units.
Number of lifetime employees was much higher than in most
of the other companies due to promotion policies.
Due to corporate objective of continual Innovation,
manufacturing function was widely acclaimed for its strong
competency in flexibility.
3M’s sales philosophy had always been to sell to the people
who actually used the products.
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3 M COMPANY INTEGRATING EUROPE
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Contd……





Besides R&D, the close customer contact provided a strong
source of ideas and product development.
Conservative approach for marketing new products.
The local language and culture that provided within Country
Subsidiary Organizations (CSOs) gave 3M a very local image.
To increase competitiveness in Europe, products were
specially developed for European market.
European Management Action Teams (EMATs) pulled key
sales and marketing managers from larger CSOs into
responsible teams.
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3 M COMPANY INTEGRATING EUROPE
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Contd……



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
Differentiated pricing prompted a significant amount across
border sales.
European customers were more sensitive to the product
pricing, thus, the pricing pressure became more intense due
to presence of global competitors.
An overall management committee called the European
Operating Committee (EOC) was proposed to oversee the
new European Organization.
Biggest difficulties for European Business Centre (EBC) heads
was to compete for talent and availability of people with
proper skills.
Most of the EBCs were located with planned logic such as
proximity to lab or manufacturing expertise.
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3 M COMPANY INTEGRATING EUROPE
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Contd……
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
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

New pan-European structure shifted the profit and loss
responsibility to product line structures (EBCs).
New organization was truly decentralized.
Language and cultural differences were a barrier that the EBC
teams were working to overcame.
Primary role of RSOS was to provide the resources required
to support the EBCs business strategies.
EBC provided the direction on what type and how much
product a manufacturing facility should produce.
The customer focused marketing programme helped to
integrate the EBCs.
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3 M COMPANY INTEGRATING EUROPE
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Contd……

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

The human resource policies and systems were vague
which was bothersome to the lower level managers in
EBCs.
Rapid services was an important area that was expected
to benefit from new organization.
With the enhanced ties to the global strategy, ongoing
issue with the European labs was likely to be resolved.
With the ongoing pressure on resources, it was clear
that the company could not continue in some instances,
to duplicate research around the globe.
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