Content M-3: The role of organization in corporate strategy

Question 1

Effective strategy building has four business blocks. What are those blocks?

Answer 1

• Clarifying decision rights
  > Decision rights often blur as companies grow
  > Designate accountability unambiguously.
• Aligning motivators
  > Once made, decisions should not be second-guessed
  > Enhanced decision rights, and individually track achievement.
• Designing information flows
  > Share important information with decision makers quickly.
  > Information should freely flow across organizational boundaries, horizontally.
• Making changes to structure
  > Delegate enhanced decision rights to lower levels
  > Put the right persons together in units

Question 2

Recap: What is corporate strategy?

Answer 2

The way a company creates value through the configuration and coordination of its multi-business activities.

Question 3

What are five parameters used that guide organization design in light of dynamic capabilities used?

Answer 3

1. BU Strategic autonomy: Scope and discretion of BU managers to take decisions.
2. BU Strategic similarity: Similarity between (relatedness) of BUs, in a broad sense.
3. Coordination across levels: Level of coordination between more central units (e.g. HQ) and BUs.
4. Coordination across BUs: Level of inter-BU coordination
5. Performance measures and BU orientation: Measures used to judge BU performance and degree of corporate identification.

Question 4

What are five organizational configurations?

Answer 4

1. Provoked learning / Encouraged learning
2. Leveraging
3. Reconfiguration of support activities.
4. Reconfiguration of core activities
5. Integration.

Question 5

What are the three fundaments?

Answer 5

• Specialization
• Coordination
• Cooperation

Question 6

What are the three principles?

Answer 6

• Silos
• Linking
• Nesting

Question 7

How can you create a collaborative organization?

Answer 7

• Attain benefits of scale through effective global collaboration by:
  > Building lateral networks
  > Reducing network silos
• Drive work force engagement and performance by:
  > Creating energizing ties
• Align collaborations with external partners and stakeholders by:
  > Identifying individual units that engage in innovative interactions with external actors and assessing their role internally.
• Minimize network inefficiencies and collaborative cost by:
  > Considering role-based factors
  > Considering personal factors

Question 8

Knowledge strategies pursues by organizations can be rubricized along two categories. What are these categories?

Answer 8

• Codification strategy: Provide high quality, reliable, and fast information-systems implementation by reusing codified (written) knowledge.
• Personalization strategy: Provide creative, analytically rigorous advice on high level strategic problems by channeling individual expertise.

Question 9

There are two forms of knowledge strategies. What are some examples based on which you would choose a codification strategy over a personalization strategy?

Answer 9

• When knowledge needs to be scalable
• When knowledge needs to be available in real time
• When replication is likely
• In organizations with high personnel turnover
• In highly regulated industries
• To overcome obstacles of distance between personnel

Question 10

There are two forms of knowledge strategies. What are some examples based on which you would choose a personalization strategy over a codification strategy?

Answer 10

• When face-to-face interaction is needed to explain ideas and motivate action.
• To transfer contextual knowledge and ideas about solutions to specific situations
• When IT is not a strong part of culture
• When bureaucracy is a barrier of trust
• To instill a sense of belonging to the organizational community
• When “positive deviants” constitute more attractive vessels for relaying information than bosses.

Question 11

Creating knowledge: SECI Model
Based on which two factors in this model based? And which four categories/quadrants does it have?

Answer 11

The matrix is based on whether knowledge is Tacit or Explicit.

Four categories:
- When going from Tacit to Tacit knowledge: Socialization
- When going from Tacit to Explicit knowledge: Externalization
- When going from Explicit to Tacit knowledge: Internalization
- When going form Explicit to Explicit knowledge: Combination

Question 12

What is “nesting”?

Answer 12

Nesting means that silos and linkages continue to exist as one trickles down organizational layers.

“A silo consists of sub-silos and linkages between them; those sub-silos consist of another set of sub-sub-silos and linkages and so on.

Question 13

Knowledge sharing hinges on two subprocesses that each demand different organizational requirements. What are these two subprocesses?

Answer 13

• Knowledge seeking
  > Key objective to identify relevant knowledge
  > Problem-oriented
• Knowledge transfer
  > Key objective to integrate knowledge in existing routines and operations
  > Solution-oriented

Question 14

Organizational units facilitate knowledge sharing by focusing on three elements. What are these elements?

Answer 14

1. Path length of indirect relations
   > Shorter paths brings actors closer to each other.
2. Number of direct links and their relatedness
   > Increased pool of available and accessible knowledge
3. Knowledge codification
   > Increased transferability but often reduces value

Question 15

What are interunit relations?

Answer 15

Regularly occurring network model that seeks to advance understanding of knowledge sharing in multiunit firms.

Question 16

The main arguments of the paper/article: explaining effective knowledge sharing in multiunit companies.

1. Regarding indirect relations (i.e. connection through intermediaries), task teams in focal BUs with short path lengths in a knowledge network (few intermediaries are needed to connect with other BUs) are likely to obtain more knowledge from other BUs and perform better than those with long path lengths because of search benefits accruing to BUs with short path lengths.
2. A focal unit’s direct established relations in a knowledge network are a two-edged sword: while they provide immediate access to other business units that possess related knowledge, they’re also costly to maintain.

Question 17

What are some effects of indirect relations in knowledge networks?

Answer 17

• It can be an important conduit for information about opportunities.
• BUs in the network may not be able to pass on product-specific knowledge directly, but a team that hears about opportunities through the network can contact the source directly to obtain the knowledge.
• Indirect relations are beneficial because information about opportunities is likely to be passed on by intermediary units and eventually reach the focal team. BUT! It’s not prefect information as the information gets passed on across people form different units (e.g. misunderstanding, forgetting details, filtering, deliberating withholding aspects) –> Information distortion!

Due to information distortion when relying on intermediary units, a focal team is likely to benefit from short path lengths in the knowledge network.

Question 18

What are some effect of direct relations in knowledge networks?

Answer 18

• The shortest possible path length is to have a direct relation to all BUs in the knowledge network (no information distortion).
• These direct relations need to be maintained by people in the focal BU and require their own set of activities that take time.

They maintain maintenance costs! But, can also provide benefits:
- When the team identifies knowledge that requires effort to be moved form the source unit and incorporated into the project.
- When a team is experiencing transfer difficulties because the knowledge is non-codified.
- Reduces the time to explain the knowledge and understand one another.

Question 19

In summary, when are indirect relations beneficial and when direct relationships?

Answer 19

• Indirect: they serve intermediaries that provide a focal unit with nonredundant information.
• Direct: to transfer noncodified knowledge, implying that the benefit of having intermediaries supplying non-redundant information is relative.

Question 20

What are several reasons why transfers of knowledge between units within a given structure may be inadequate to fully realize the knowledge synergies within the firm?

Answer 20

1. Divisional boundaries are epistemic (boundaries are distinct interpretive schemes and cognitive frames). The transfer of knowledge across these boundaries may be difficult.
2. Boundedly rational actors within large firms will have a limited understanding of the knowledge residing in other parts of the firm. Due to this, they may fail to discover and exploit potential synergies.
3. Divisions within a firm may be in competition with each other and may be reluctant to share knowledge if doing so would comprise their own performance or rob them of credit.
4. Transfers of knowledge between units may be helpful in sharing knowledge that’s codifiable and teachable but they may be less valuable in transmitting knowledge that’ tacit and causally ambiguous and therefore sticky.
5. It may not be efficient since maintaining knowledge links between units is costly.

Question 21

What is structural recombination?

Answer 21

Changes in business units as their resources and market activities are reorganized by merging units together.

Question 22

What is the benefit of structural recombination?

Answer 22

It enables the recombination of knowledge resources within the firm, bringing knowledge resources that were previously separated closer together and removing the internal boundaries between them. Structural integration may enable the recombination of previously distinct knowledge.

Question 23

What are some risks/drawbacks of structural recombination?

Answer 23

• It may disrupt the firm’s existing knowledge and capabilities
• Changes in organizational structure may disrupt the organizational routines, communities of practice, social relationships and organizational climate within which organizational knowledge is created –> depletion of firm’s existing knowledge.
• May lead to increase conflict and uncertainty, further suppressing firm innovation.

Overall, the potential for intraorganizational knowledge recombination resulting from structural recombination may be offset by the disruptive effects of structural change.

Question 24

The extent to which structural recombination enable the realization of intraorganizational knowledge synergies will depend on the extent of the firm’s knowledge coherence.

What are reasons why knowledge coherence ay enable the realization of intraorganizational knowledge synergies through structural recombination?

Answer 24

1. The greater the relatedness between the knowledge resources of the firm, the greater the value of innovation form the recombination of this internal knowledge.
2. Greater relatedness between internal knowledge resources will lower the coordination and communication costs between different units within the firm, enabling them to work together more easily.
3. Individuals in related knowledge spaces may already have prior informal ties form being members of a shares community of practice, making the formation of new ties easier.

Thus, knowledge coherence is a necessary condition for the firm to realize intraorganizational knowledge synergies through structural recombination!

Question 25

The quality for the firm’s existing knowledge will positively influence the effect of structural recombination in two ways…

Answer 25

1. The presence of high-quality resources may offset the disruptive effect of structural recombination because firms with high-quality knowledge resources may exhibit inertia, maintaining their old routines even after structural change.
2. Firms with strong knowledge resources are also likely to have superior absorptive capacity, enabling them to better combine knowledge resources to realize synergies.

Question 26

Structural recombination has a positive impact on innovation where the firm has significant complementarities between its knowledge resources, where it has high quality knowledge resources or where path dependence is low. It has a negative impact otherwise.

True or false?

Answer 26

True!

Question 27

What are the three dimensions of a value chain?

Answer 27

1. Activities (e.g. R&D, manufacturing, sales)
2. Output (e.g. cars, motors, lawn mowers)
3. Users

Two value chains may be largely identical in terms of activities and outputs, but may supply two different categories of users of the output.

Question 28

Basic principles about the design of organizational structures (Nesting, Silos and Linking)

Answer 28

1. Nesting: The firm can be seen as one big grouping but as you look at the next layer, you see large divisions that are linked to each other and at the next layer, departments are linked to each other and so on.
2. Silos: Boxes in an organizational chart enhance the integration of activities within them, but also impede integration across activities in different boxes. Organizational chart designing face hard choices which activities to prioritize for integration by placing them together within a box. Integration benefits within units and the “silo syndrome” between units are two sides of the same con and are both consequences of grouping decision.
3. Linking: provides “residual integration” that (1) cannot be provided by the grouping structure (boxes), (2) but are still desirable (3) even if not fully achievable.

Question 29

What are the prototypes of organizational structures?

Answer 29

• Pure forms: Correspond to grouping activities along 1 of the 3 dimensions (activity, output, user).
  > Functional form (F-form): emphasizes integration across all similar value chain activities.
  > Multi-divisional form (M-form): emphasizes integration across all the activities that are necessary to generate an outcome.
  > Customer-centric form: emphasizes integration across all the value chain activities meant to cater the needs of a particular user.
• Non-pure forms
  > Matrix form: represents the idea that the same activity could belong to multiple groupings (boxes) at the same time.
  > Hybrid form: the direction of grouping can be different for different parts of the value chain.

Question 30

The need for structural change in organizations can arise from external and/or internal factors. What are two broad external factors that could cause reorganization?

Answer 30

1. Change in competitive environment: choose one of the generic strategies (differentiation or cost advantage) but avoid being stuck in the middle.
2. Shift in technology: could create periods in which it’s better to pursue both differentiation and cost advantage simultaneously as the efficiency frontier moves.

Question 31

The need for structural change in organizations can arise from external and/or internal factors. What are two broad internal factors that could cause reorganization?

Answer 31

1. Opportunity costs: arising from the activities “left out” of the formal groupings. At some stage, management may find these opportunity costs to be past a tolerance level and initiate a reorganization.
2. Informal organization = the off-the-chart pattern of linkages and connection between individuals and the culture of an organization.

Question 32

What is the goal of corporate strategists?

Answer 32

To exploit synergies through administrative control that cannot be replicated by mere investors.

Question 33

Corporate advantage comes broader from which two mechanisms?

Answer 33

• Portfolio assembly (selection)
• Portfolio modification (synergy)

Question 34

A corporate strategy based on pure portfolio assembly requires being able to systematically spot and access under-valued opportunities and exit businesses when good opportunities arise. Which strategic capabilities is needed for such an approach?

Answer 34

• Environment scanning for new opportunities: primarily involves strategy expertise (e.g. understanding sources of competitive advantage, industry structure, regulatory environment, technological and demand changes).
• Expertise at M&A and alliances: are important for broadening the scope of the multi-business but are also useful within businesses to build them out or strengthen them.
• Expertise at refocusing: refocusing through various forms of divestiture and outsourcing should actively be under consideration by a H with a pure portfolio assembly approach to corporate advantage.

Question 35

What are CMFs?

Answer 35

Stands for “Corporate Management Functions (CMF)”. Examples include treasury, risk management, financial reporting, company secretary, legal counsel, investors relations etc. Often referred to as the “obligatory staffing” of the HQ.

Question 36

There are two critical dimensions of influence of the HQ on the businesses in the portfolio of the multi-business organization. Which are two are they?

Answer 36

• Standalone vs. linkage influence: horizontal relationships
  > Standalone: HQ doesn’t encourage any meaningful B2B relationships and is solely felt through vertical HQ-to-business relationship. The HQ Is the locus of intangible resources and capabilities that have connection / customization synergies with the business value chains (e.g. corporate brand, management expertise, strategic alliances, best practices).
  > Linkage influence: HQ encourages businesses to work together in alliance-like fashion and the HQ Influence is felt through the B2B relationship fostered and administered under the supervision of the HQ. The HQ exerts authority to enable the extraction of synergies of all kinds between businesses.
• Evaluative vs. directive influence: vertical relationships
  > Directive influence: refers to control that the HQ exerts on businesses by directly influencing their strategic decisions and actions through approving, vetoing, or ordering (e.g. resource allocations).
  > Evaluative influence: refers to the control by the HQ Of businesses, primarily through setting financial performance targets and evaluating outcomes but the business units may have a high degree of autonomy in terms of their decisions.

Question 37

Based on the model of HQ influence (Standalone/Linkage vs Evaluative/Directive) there are four prototypes. What are they?

Answer 37

• Standalone, Evaluative (SE)
• Standalone, Directive (SD)
• Linkage, Directive (LD)
• Linkage, Evaluative (LE)

Question 38

Based on the model of HQ influence (Standalone/Linkage vs Evaluative/Directive) there are four prototypes. What does the Standalone, Evaluative (SE) model entail?

Answer 38

Influence model comes closest to the pure portfolio assembly model, yet it differs form it as there’s some attempt at indirect modification of business through evaluative control.

Question 39

Based on the model of HQ influence (Standalone/Linkage vs Evaluative/Directive) there are four prototypes. What does the Standalone, Directive (SD) model entail?

Answer 39

Influence model is associated with restructuring orientation. Like pure portfolio assembly, the selection of businesses in an important HQ activity, but unlike pure portfolio assembly there’s an active attempt at modifying the businesses through directive control.

Question 40

Based on the model of HQ influence (Standalone/Linkage vs Evaluative/Directive) there are four prototypes. What does the Linkage, Directive (LD) model entail?

Answer 40

Influence model explicitly focuses on actively managing operational synergies through linkages between businesses by directive control. HQs are likely to have strategic planning teams, corporate development functions, and centers of expertise.

Question 41

Based on the model of HQ influence (Standalone/Linkage vs Evaluative/Directive) there are four prototypes. What does the Linkage, Evaluative (LE) model entail?

Answer 41

Influence model explicitly focuses on managing operational synergies through linkages between businesses, but does so passively rather than actively. Rather than direct businesses to realize synergies between them, the goal is to create context tha tallows business to collaborate on synergy realization.

Question 42

Resource allocation in multi-business organizations involves decisions about how to spread investment across a portfolio of businesses, and not only whether or not to invest in a particular business. This raises two challenges. Which ones?

Answer 42

1. Synergy: There are interactions between the business in a multi-business organization which could be in the form of synergies or di-synergies. How should one take these into account when allocation resources across the portfolio?
2. Uncertainty: How to balance investment in businesses likely to do well (exploitation) vs. investment in businesses with uncertain outcomes (exploration) which may turn out to be “the next big thing”.

Question 43

When both incoming and outgoing benefits are positive, the businesses is two-sided synergistic. What is it called?

Answer 43

These synergies are called “fits”.

Question 44

The synergistic portfolio framework tackles both synergies and uncertainty in resource allocation decisions. Two axis, which are…?

Answer 44

• Incoming benefit: how much does this business gain or lose in value from belonging to this portfolio?
• Outgoing benefits: how much value do the other businesses gain or lose from the presence of this business in the portfolio?

When both incoming and outgoing benefits are positive, the business is two-sided synergistic (fits).

Question 45

What are errors of ommission?

Answer 45

Believing an opportunity was below the threshold (synergistic portfolio framework) when in fact it was above it.