L20 - Implementing strategic change

Question 1

What are the 3 elements of strategic management?

Answer 1

Strategic management can be thought of as having 3 main elements: understanding the strategic position of an organisation, assessing strategic choices for the future and managing strategy in action

Question 2

What are 3 topics fundamental to achieving strategy in action?

Answer 2

(1) Structures: the formal roles, responsibilities and lines of reporting in organisations.
(2) Systems: supporting and controlling people within and around an organisation
(3) Leading strategic change , in particular the styles of leadership employed and the purposes and characteristics of different strategic change programmes.

Question 3

What is the functional structure?

Answer 3

Divides responsibilities according to the organisation’s primary specialist roles such as production, research and sales

Especially relevant for small start-ups or larger organisations with narrow product ranges

Can be multidivisional – divisions are split up according to functional departments

Question 4

What are the strengths of the functional structure?

Answer 4

Allows economies of scale within functional departments

Enables in-depth specialist knowledge and skill development

Enables organization to accomplish functional goals

Is best with only one or a few products

Question 5

What are the weaknesses of the functional structure?

Answer 5

Slow response time to environmental changes (no department has responsibility)

Top management overloaded with decisions; hierarchy overload

Strong vertical control but poor horizontal coordination between departments

Poor management of innovation/New Product Development -less innovation

Restricted, static view of organizational goals within assumed static environment

Question 6

What is the divisional structure?

Answer 6

Built up of separate divisions on the basis of products, services or geographical areas

Attempt to overcome problems of functional structures in dealing with diversity

Each division can respond to the specific requirements of its product/market strategy, using its own set of functional departments

Question 7

What are the strengths of the divisional structure?

Answer 7

Suited to fast change in unstable product environment

Promotes customer satisfaction because product responsibility and contact points are clear

High coordination between functions in support of product lines

Allows units to adapt to differences in products, regions, clients

Best in large organizations with several products

Decentralizes decision-making compared to functional org.

Question 8

What are the weaknesses of the divisional structure?

Answer 8

Eliminates economies of scale in functional departments

Poor coordination across product lines, may begin to compete

Decentralization encourages loss of integration and standardization across product lines

Question 9

What is the matrix structure?

Answer 9

Combines different structural dimensions simultaneously, e.g. product divisions and geographical territories or product divisions and functional specialisms

Staff typically report to 2 managers

Useful as ideal types to consider when an organization experiences Symptoms of Structural Deficiency
e.g. decision making is delayed and/or not addressing strategic challenges

Now the question of how and if “organizational change” is necessary

In practice “elements” of dual responsibility may be introduced –or eliminated

Question 10

What are the strengths of the matrix structure?

Answer 10

In principal achieves coordination necessary to meet dual demands from customers

In principal, flexible sharing of human resources across product lines

In principal, suited to complex decisions and frequent changes in unstable environment

In principal, suited to medium-sized organizations with multiple products

Question 11

What are the weaknesses of the matrix structure?

Answer 11

Front line staff subject to two lines of managerial authority; chaotic variation and loading of work and unable to satisfy either unless…

Staff and managers need good interpersonal skills and trust in each other (trust?)

Intrinsically time consuming; involves high management overhead, frequent meetings and conflict resolution sessions

Will not work unless participants adopt collegial rather than vertical-type relationships

Question 12

Which structure should be chosen if the company has a diversification, an internationalisation and an innovation strategy respectively?

Answer 12

Diversification (control and accountability difficulties). Divisional structure should allow enough decentralised responsibility while corporate parent can exercise control

Internationalisation (global scale, horizontal coordination and local adaption challenges) – matrix would accommodate both sides

Innovation requires knowledge creation and sharing. Matrix good for horizontal sharing whereas functional effective for centralising resources e.g. R&D

Question 13

What are planning systems?

Answer 13

Plan and control the allocation of resources and monitor their utilisation. Focus on direct control of inputs (financial, human, long-term investments).

Question 14

What are three strategy styles (of planning systems)?

Answer 14

The strategic planning style – archetypal. Combines both a strong planning influence on strategic direction from corporate centre with relatively relaxed performance accountability for the business units (centre sets plans, centre thus responsible). The centre focuses on inputs in terms of allocating resources and exercising high direct control over the plan

The financial control style – little central planning. Each BU develop own strategic plans and are strictly accountable. Fits with portfolio manager role

The strategic control style – in the middle with a more consensual development of the strategic plan between the corporate centre and BU and moderate levels of BU accountability. Centre typically act as coach to BU managers. Relies on strong cultural systems to foster trust and mutual understanding. Associated with synergy manager or parental developer

Question 15

When are each of the 3 strategy styles useful?

Answer 15

Strategic planning style makes sense where there are large, risky and long-range investments to be allocated

Financial control style is suitable where investments are small, relatively frequent and well understood – typically in mature non-capital-intensive business

Strategic control suitable where there are opportunities for collaborating across businesses and there is a need to nurture new ones

Question 16

What are 3 key cultural systems?

Answer 16

Indirect form of control rather than direct supervision: it becomes a matter of willing conformity or self -control by employees

(1) Selection - Here cultural conformity may be attempted by the selection of appropriate staff who will ‘fit’ with the desired strategy.
(2) Socialisation – employee behaviours shaped by social processes, integration of new staff, training, symbols
(3) Reward – encouraging appropriate behaviour

Question 17

What are performance targeting systems?

Answer 17

Focus on the outputs of an organisation (or part of an organisation) such as product quality, revenues or profits. Key performance indicators (KPIs)

Question 18

What are 3 potential problems with targets (performance targeting systems)?

Answer 18

(1) Inappropriate measures of performance
(2) Inappropriate target levels (managers might want to set targets easy to meet, superiors may set too demanding)
(3) Excessive internal competition

Question 19

What is a more balanced approach to target-setting?

Answer 19

Balanced scorecards set performance targets according to a range of perspectives, not only financial. Combine four specific perspectives: the financial perspective, the customer perspective, the internal perspective (with targets relating to operational effectiveness), and the future-orientated innovation and learning perspective , which targets activities that will be important to the long-run performance of the organisation.
Attending to targets relevant to all four perspectives seeks
to ensure that managers do not focus on one set of targets at the expense of others, while also keeping an eye to the future

Question 20

What are market systems?

Answer 20

Can be brought inside organisations to control activities internally

Typically involve some formalised system for ‘contracting’ for resources or inputs from other parts of an organisations and supplying to other parts of the organisation

Transfer prices

Work well where complexity or rapid change makes detailed direct or input controls impractical

Can create problems of increases bargaining between units, consuming management time, increase bureaucracy, dysfunctional competition

Question 21

What is a configuration?

Answer 21

A set of organisational design elements than interlink in order to support the intended strategy. A well-known means of considering this is the McKinsey 7-S framework
which highlights the importance of fi t between strategy, structure, systems, staff , style, skills and superordinate goals.

Question 22

What is style, staff, skills and superordinate goals in the McKinsey 7-S framework?

Answer 22

Style: refers to the leadership style of top managers. Should fit other aspects of the framework

Staff: the kinds of people in the organisation and how they are developed, systems of recruitment, socialisation and reward

Skills: capabilities in general, not only staff skills but also issues to do with how these skills are embedded in and captured by the organisation as a whole

Superordinate goals: refers to the overarching goals or purpose of the organisation as a whole (mission, vision and objectives – organisational purpose). All other elements of the framework should support these

Question 23

The McKinsey 7-S framework highlights at least three aspects of organising. Which?

Answer 23

First, organising involves a lot more than just getting the organisational structure right; there are many other
elements to attend to. Second, the 7-S framework emphasises fit between all these elements: everything from structure to skills needs to be connected together. Third, if managers change one element of the 7-S, the concept of fit suggests they are likely to have to change all the other
elements as well in order to keep them all appropriately aligned to each other. Changing one element in isolation is liable to make things worse until overall fit is restored.

Question 24

What distinguishes leadership from management?

Answer 24

‘Coping with change’ is what distinguishes leadership from the bringing of order and consistency to operational aspects of organisations that characterises ‘good management’

Question 25

What are 3 roles that are especially significant for top management in leading strategic change?

Answer 25

(1) Envisioning future strategy – clear and compelling vision of the future both internally and to external stakeholders
(2) Aligning the organisation to deliver the strategy. Ensuring commitment, motivation and empowering.
(3) Embodying change – role model

Question 26

What are 4 roles for middle managers in the context of strategic change?

Answer 26

(1) Advisers to top management on requirements for change
(2) ‘Sense making’ of strategy
(3) Reinterpretation and adjustment of strategic responses as events unfold
(4) Local leadership of change: middle managers therefore have the roles of aligning and embodying change, as do top management, but at a local level.

Question 27

What are 2 leadership styles?

Answer 27

Transformational (or charismatic) leaders: emphasise building a vision for the organisation, creating an organisational identity around collective values and beliefs to support that vision and energising people to achieve it. Has beneficial impact on people’s motivation and job performance, and wider business performance, especially in situations of uncertainty

Transactional leaders: focus more on ‘hard’ levers of change such as designing systems and controlling the organisation’s activities. The emphasis here, then, is more likely to be on changes of structures, setting targets to be achieved, financial incentives, careful project management and the monitoring of organisational and individual performance.

In practice: two ends of a continuum with many feasible points between. The notion of situational leadership encourages leaders to adjust their leadership style to the context they face – hence, the appropriate leadership styles changes according to the specific demands of the situation

Question 28

What is the extent of change and the nature and urgency of change concerned with?

Answer 28

In terms of the extent of change, the question is whether change can occur in line with the current business model and within the current culture as a realignment of strategy.
Or is the change required more significant in terms of the current business model or culture, in effect more transformational change? The nature of change is concerned with the speed at which change needs to happen. Arguably, it is beneficial for change in an organisation to be incremental since this allows time to build on the skills, routines and beliefs of those in the organisation. However, if an organisation faces crisis or needs to change direction fast, a ‘ big bang ’ approach to change might be needed.

Question 29

What are 4 generic types of strategic change?

Answer 29

Adaption, reconstruction, revolution and evolution

Question 30

What is adaption?

Answer 30

(Extent – realignment, nature – incremental) Change is gradual, building on or amending what the organisation has been doing in the past and in line with the current business model and organisational culture. This might include changes in product design or methods of production, launches of new products or related diversification

Question 31

What is reconstruction?

Answer 31

(Extent – realignment, nature – big bang). Rapid, may involve a good deal of upheaval. Does not fundamentally change culture or business model. Referred to as a turnaround strategy, where the emphasis is on speed of change and rapid cost reduction and/or revenue generation. The need is to prioritise the things that give quick and significant improvements. Typically it is a situation where a directive approach to change is required.

Question 32

What are 5 main elements of turnaround strategies?

Answer 32

(1) Crisis stabilisation - aim is to regain control over the deteriorating position. This requires a focus on cost reduction and/or revenue increase, typically involving a reduction of labour and senior management costs, productivity improvement, the reduction of inventory, the tightening of financial control and the identification and elimination of non-profitable products or services
(2) Management changes – (a) old management were in charge when problems developed and (b) bring in management with experience of turnaround management
(3) Gaining stakeholder support
(4) Clarifying target market(s) and core products – ensuring clarity on the target market or market segments most likely to generate cash and grow profits. Improving flow of marketing info, opportunity to discontinue or outsource products
(5) Financial restructuring

Question 33

What is revolution?

Answer 33

(Extent – transformation, nature – big bang). Revolution differs from turnaround (or reconstruction) in two ways that make managing change especially challenging. First, the need is not only for fast change but, very likely, also
for cultural change. Second, it may be that the need for change is not as evident to people in the organisation as in a turnaround situation, or that they have reasons to deny the need for change.

Question 34

What are 4 elements leading revolution may involve?

Answer 34

(1) Clear strategic direction
(2) Top management changes - Existing top management may be embedded within the past culture and their network of colleagues, customers or suppliers. Also signals significant change
(3) Culture change - identifying those aspects of culture that can be built upon and developed and those that have to be changed – in effect a forcefield approach
(4) Monitoring change

Question 35

What is evolution?

Answer 35

(Extent – transformation, nature – incremental). Two ways it may be achieved. Organisational ambidexterity means both the exploitation of existing capabilities and the
search for new capabilities

Question 36

How might transformational change be achieved through evolution?

Answer 36

Structural ambidexterity: Organisations may maintain the main core of the business devoted to exploitation with tighter control and careful planning but create separate units or temporary, perhaps project-based, teams for exploration

Diversity rather than conformity: diversity of managers’ experience, different views

The role of leadership: encourage and value different views, have authority, legitimacy and recognition

Tight and loose systems: there needs to be a balance between ‘tight’ systems of strategy development that can exploit existing capabilities – perhaps employing
the disciplines of strategic planning – and ‘looser’ systems that encourage new ideas and experimentation.

Question 37

What is a forcefield analysis?

Answer 37

A forcefield analysis provides a view of forces at work in an organisation that act to prevent or facilitate change . It allows some key questions to be asked:

What aspects of the current situation would block change, and how can these be overcome?

What aspects of the current situation might aid change in the desired direction, and how might these be reinforced?

What needs to be introduced or developed to aid change?

Use of stakeholder mapping, the cultural web and the 7-S framework

Question 38

What is Kotter’s change model?

Answer 38

Describes a process of change as a series of steps that lead eventually to the institutionalisation of change

1. Establish a sense of urgency – see need for change
2. Form a powerful guiding coalition – team to coordinate and communicate change
3. Create a vision
4. Communicate the vision
5. Empower others to act on vision
6. Create short-term wins
7. Consolidate gains and build more change – keep looking for improvements
8. Institutionalise the new approaches – continue until old habits are replaced