Organization Theory:
Strategy Implementation
Process
Steven E. Phelan
June, 2006
STRATEGY EXECUTION:
Structure, Systems, Rewards
Overview
• Syriana Discussion
• Structure and Execution
 Hrebiniak Chapter 4
 USA Today
• Integration
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Hrebiniak Chapter 5
Brache – Strategy implementation
Bossidy- Letter to a new leader
AHA
• Incentives and controls
 Hrebiniak Chapter 6
 Bebchuk – Pay without performance
Syriana
• Analyze the movie from the perspective of:
 Chaos and complexity theory
 Critical theory
 Corporate social responsibility
The Star Model
Strategy
People
Structure
Rewards
from Galbraith, Designing Organizations
Processes
(Integration)
Structure
• Key principles
 Functional organization -> efficiency
• Economies of scale, avoids duplication, critical mass of
know-how, clear career path
 Divisional structure -> effectiveness
• Traditional focus on products, markets or geography
• New areas – customers, processes, solutions, segments
• Profit contribution can be easily measured in product
divisions
– Does this provide more monitoring/motivation as well?
Centralization v Decentralization
• General principle
 Centralized = functional/efficient
 Decentralized = divisional/effective
• Text recommends a sequential process starting
from the corporate level to group, division, and
strategic business unit (SBU)
• Choice depends on what is important to
management
Tall v Flat
 Large, more centralized companies often have taller
structures (I.e. more layers)
 Increasing the span of control to create flatter
structures can create benefits
• Faster decision making, less bureaucracy, closeness to
customers, cost savings, and flexibility
 but can also suffer from problems such as:
• inertia, inadequate expertise, lack of responsibility, and
lateral communication problems
• Not a universal cure all
 Corporate HQs are starting to include:
• Strategic management functions, executive education, and
“centers of excellence” in addition to traditional HR, legal, IT
etc.
Strategic Drivers
• Type of strategy
 Global strategy often calls for matrix structure
 Low cost leadership = functional structure
 Focus/differentiation = divisional structure
• Market and technological relatedness
 Same customers, processes, distribution etc.
 Leads to increased centralization (or need for
coordination)
• Growth/size
 Increased decentralization
Emerging Trend
• Customer centric mindset
 To find as many new and existing products to
sell to a customer as possible
 To create and customize solutions for a
customer
 To appear as one company to each customer
 To develop an on-going customer relationship
 Contrasted with a product-centric company
whose mission is to find as many uses and
customers for each product as possible
Customer-focused structure
• The front/back structure
 Front End = customers and market
 Back End = products and technologies
 Example of a hybrid structure
Telstra
• Customer Divisions
 Sales, direct marketing, sales engineers
 Corporate, Government, Business, Residential
• Product Management
 Product marketing and product engineers
 Basic access, DSL, prepaid cellphones
• Network Engineering
 Technologies, platforms, infrastructure
 Switching, transmission, access
 Broadband, wireless, microwave
Thoughts
• Art or science?
 Is organizational design more art than
science?
 Diversity (in customers, technology,
distribution etc. ) is grounds for differentiation
 Need to choose primary form of
departmentalization
 Integration processes can compensate for
inherent weaknesses
 Need to be aware of pros and cons
Case 1: American Heart
Association
• Case Study
 Was the first restructure a sound move?
 What problems did it create?
 As an org design consultant, what changes
would you recommend to the existing
structure…
• At the regional level?
• At the national level?
Integration
• Interdependence
 Pooled
• Low coordination requirements
• Rules/SOPs/Hierarchy
 Sequential
• High coordination
• Scheduling, JIT, transfer pricing issues
 Reciprocal
• Very high coordination
• Meetings, trust, group incentives
More integration ideas
• Voluntary (or informal)
 Rotation, interdepartmental events, co-location,
mirror image departments, consistent rewards,
common language
• E-coordination
 Web pages, databases, CRM, email, discussion
groups, instant messaging/chat
• Formal group
 Regular meetings – need for leadership/conflict
mgt skills
More integration ideas ctd.
• Full-time integrators
 Project managers, brand managers, process
managers etc.
 Put teams together across departments
• Matrix organization
 Level of coordination grows but so does cost
and difficulty of implementation
 What about tie-breakers and two-boss
bosses? GE’s Workout program?
Responsibility Plotting
• Responsibility Matrix
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Major tasks by key people
R = responsibility
A = accountability (final say)
I = must be informed
C=must be consulted
? = don’t know
• Useful tool
Brache v Bossidy
• Systems of strategy implementation
 Brache is more structural (hard)
• Establish an initiative identification & priority setting system (to
favor fewer initiatives),
• Put in place the right structure, people (sponsors, leaders,
teams), and culture to support implementation initiatives
• Create a reporting system to monitor progress on initiatives
 Bossidy is people oriented (soft)
• Know yourself, know your people (potential & performance of top
1/3), know your customers
• Be open, honest, realistic – always learn
• Attract, reward, retain the doers (the A-players) that get things
done
 What works?
Rewards & Controls
• Hrebiniak’s prescriptions
 Develop and use good objectives
• Clear, relevant, measurable
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Reward the doers
Reward cooperation
Face the brutal facts honestly
Clarify responsibility and accountability
Obtain timely and valid information
Use the information for learning and adaptation
• Take action when actual results deviate from plan
• Be sure to change as a result of lessons learned
Case 2: USA Today
• Identify the problem(s)
• Recommend:
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A strategy
A structure
A set of key lateral processes, and
A reward system
That will solve (or at least address) the
problem(s) at USA Today
Bebchuk and Fried
• CEO compensation
 Critical analysis (compare to Chomsky)
• Aggregate compensation of top-five executives
10%+ of earnings of public firms
 Limits on board independence to set rewards
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Incentive to be nominated/re-elected
CEO’s power to benefit directors
Friendship, loyalty, collegiality, authority, solidarity
Small personal cost of favoring CEO
Ratcheting
Dubious practices
• A list
 Camouflage and stealth compensation
• To reduce ‘outrage’ costs
 Gratuitous goodbye payments
 Windfall compensation
• Options tend to reward broad market movements and shortterm spikes
 Pension and deferred compensation
• Is the system broken? Are we rewarding
executives too much? Will there be a backlash?