Intermediate Strategic Management. Marco Clemente Spring 2014 3 rd session – 5 March 2014. Structure and Strategy. Strategy. Structure. Philips vs. Matsushita. A comparison of attempts to shift strategies. Matsushita. Philips. Degree of centralization.
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3rd session – 5 March 2014
Philips vs. Matsushita
Ability to adapt to local market conditions
No economy of scale in manufacturing
Strong National Organizations
NOs often working against each other
Employee centric values
Organization with “lifers”
Focus on R&D / technical innovation
Inability to commercialize innovation
How Matsushitas’ strengths and core competencies became its weaknesses
Broad line of products (5000 vs. Sony’s 80)
Bloated operations & excess capacity
Centralized structure in Japan
Developing local footprint
Strong culture at centre
Over-reliance on centre for innovation
Fast follower strategy
Weak entrepreneurial / innovation ability
Rewards, Incentives, Motivation
Preparation Outotec and PwC
Youhavebeenappointedconsultants at a newlymergedUniversity. The Universityhas set and communicated a strategy of focusing on basicresearchexcellence and delivery of internationallyrecognizedMScprograms. In line with the strategy the organizationhasrecentlybeenrestructured. Whatshouldleadershipdonext to fosterimplementation of the strategy?
“If Wal-Mart wants to achieve its strategy, it needs to get its 2.1 million employees pointing to the right direction”
“Systems support and control people as they carry out structurally defined roles and responsibilities”
* Johnson, Whittington and Scholes, Exploring Strategy 9th edition, p.431
Input: Resources ( financial, human commitment)
Output: It is about results (achieving targets/objectives)
Direct: close supervision or monitoring
Indirect: “hands-off”, controlling the condition on how people make decisions
The direct control of strategic decisions of employees by one or few individuals
Where it is found
Focus on the output of an organization (or part of an organization), such as product quality, revenues or profit
Key Performance Indicators (KPIs)
You get what you measure
Inappropriate measures of performance
Inappropriate target levels
Excessive internal competition
They set performance targets according to a range of perspectives, not only financial
They link different performance targets into a mutually supportive causal chain supporting strategic objectives
More in the PwC presentation
They involve some formalized system of “contracting” for resources or inputs form other parts of an organization and for supplying outputs to other parts of an organization
Competitive internal markets
Transfer prices: between internal business units (extensively regulated in practice)
Service-level agreement: to ensure appropriate service
It can produce highly innovative ideas:
66$ in 2008 / 16$ in 2009 / 55$ in 2010
They plan and control the allocation of resources and monitor their utilization
Planning influence: Top-down vs. bottom-up
Accountability of the business units: Low vs. high
“South-west” corner: Relax combination
“North-east” corner: Harsh combination
What motivates you?
We hope for… But we often reward for…
Long term growth Quarterly earnings
Teamwork Individual effort
Setting stretch goals Achieving goals
Downsizing Adding staff
Candor Reporting good news (even if not true)
Incentive Life-cycles: Learning and the division of value in firms (Obloj and Sengul2012)
Employees perception of the fairness of treatment received from organization, e.g. if a company makes layoffs, it can affect the performance of the employees who remain
Another TED video: http://www.ted.com/talks/dan_ariely_on_our_buggy_moral_code
What is the best way to take out bandage?
“Given the fact that the nurse thought her intuition was right, it was very difficult for her to accept doing a difficult experiment to check if she was wrong”
From low pain to high pain
From high pain to low pain
“How better your life would be, if you will be willing to test systematically your intuitions”
(earn a reward / avoid a punishment)
TU-91.1012 Intermediate strategic management
A systematic plan for five to ten years
Enter the Planner:
Strategies as formal plans
Planning is a formalized procedure to produce articulated results by using an integrated system of decisions
“Take the SWOT model, divide into neatly delineated steps, articulate each of these with lots of checklists and techniques, and give special attention to the setting of objectives on the front end and the elaboration of budgets and operating plans on the back end” (p. 49)
Begin with the SWOT model
Divide it into neatly delineated steps
Use checklists and techniques
Strategic planning model
Quantify goals into numerical objectives
Forecasts about future conditions
Strengths and weaknesses checklist
Use of formal measures
Decomposition into substrategies
Planning the plan
Figure 3.2 Stanford Research Institute’s proposed ‘system of plans’ Source: Figure Courtesy of SRI International
The elaboration of a plan can become very elaborated: “System of Plans” by Stranford Research Institute’s
A European traveller with an interest in Eastern philosophy asked a guru for clarification of certain aspects of traditional Hindu theory of the universe.
“Is it true,” he said, “that you believe that the earth is supported by elephants?”
“Yes,” answered the guru, “it is true”.
“If this is the case, what supports these elephants?”, asked the traveller.
“The elephants stand on top of other elephants,” answered the guru, “and they in turn, stand on top of other elephants.”
“And what supports the entire thing?”, asked the traveller..
The guru thought for a moment and said:
“It is elephants all the way down…”
“Strategic Planning” an oxymoron
Extrapolation or modification of existing strategies (positions within perspective)
Imitation strategies (‘industry recipes’)
What works sometimes is
A leader’s perspective of some desired future state
Are these characteristics innate or acquired?
Strategy making is dominated by active search for new opportunities.
Power is centralized in the hands of the chief executive.
Strategy is characterized by dramatic leaps forward in the face of uncertainty.
Growthis the dominant goal.
Can you have a consistent pattern of success by luck?
ENVISION: Create the future
ENGAGE: Build relationships &
ENERGIZE: Inspire others
ENABLE: Build capability
EXECUTE: Deliver outstanding results
Genius or crazy? Saints or heretics?
“Identities as lenses: how organizational identitfy affects audiences’ evaluation of organizational performance” (Smith, 2011)
Nonconformist organizations (hedge funds) are excessivelypenalized if they are unsuccessful
Nonconformist organizations (hedge funds)are excessivelyrewarded if they are successful