Strategy and Management of Change Strategic Organization and Corporate Governance Professor Julian Lowe School of Business
Strategy stems from organisation and is implemented through organisation. How does strategy and organisation affect each other? • A key issue in strategy, is ‘Why do we have firms’? • Many of the ‘excesses’ of the capitalist system are sometimes attributed to the equity funded ‘limited liability company’ This is the main organisational form for large scale production. • So how can ‘organisation’ be designed to facilitate profitable production, without managerial excess? Overview
Organisational context and competitive advantage External context Competitive Advantage Internal context Assets Resources Organisation Organisation enable assets and resources to be put in place or developed as core competences
Two Approaches • 1. Saloner et al initiative Markets Hierachies Cooperation
Two Approaches 2. De Witt and Meyer • Some things need to be changed, others preserved – the role of managers, organisations, leaders • Strategy is a political process and also works through culture, structure, people, expectations • Ideally strategy is implemented through the hierarchy. However there are problems of monitoring, co-ordination and leadership
What is organisation? • 7 S (waterman and peters) • organisation – Psychology, Physiology, anatomy (Bartlett and Ghoshal) • (P)ARC – People, Architecture, Routines, Culture (Saloner et al) • McKinsey core processes – innovation, relationships, operating infrastructure • The company as a portfolio of processes – entrepreneurial, integrating, renewal (Bartlett and Ghoshal) – the individualised corporation • Weber >>>>
Fit and Alignment Organisation needs to fit strategy But stretch??? • Haute Couture clothes V Mass production (note LVMH) • Undergraduate v Graduate education Design>>>>Manufacture>>>>Marketing Design<<>>Manufacture<<>>Marketing • Economics of specialisation v Economics of innovation Fit at an enterprise and industry level Lawrence and Lorsch (1967) Differentiation and Integration
Fit and Alignment Qantas and Virgin People Culture Operating processes Communication Business model Hierarchy
Fit and alignment Inter industry: Auto industry v advertising industry Intra industry: BMW v Ford Intra Organisation: Hewlett Packard/IBM/Microsoft/LVMH
Short-run solution (getting more of both) It takes good management to get to the frontier, but until you do you can have more of both. Some companies do it in steps – two forward one back etc. Roberts (2001) Initiative coordinate
Long-run solution (getting more of both) Expand investment in both. IT to enable better monitoring. New systems to enable more scope for individual action (Roberts) Initiative Cooperation
The Incentive problem (how to get the right amount of effort in the face of hidden information) • Whose incentive? Eg Auto production • Design; inventory; shared parts; costs; profitability • Whose incentive? Financial trusts • Market makers; back of office IT; • And also problems of monitoring and information. Corrupted systems
The Coordination Problem • How to achieve efficient deployment of assets without choking off individual excellence • Hierarchies and bureaucracies can solve this problem in the face of perfect information. But again the system becomes corrupted. IBM CEO notes a loss of 20% information (bad news) as data moves up the hierarchy
Meeting the challenge (P)ARC) • People: motivation; cognitive scope; place in groups • Architecture: Structure: divisional, centralised, de-centralised, profit centres, cost centres. Informal v formal. Linkages: personal, liaison, teams, knowledge integrators. Compensation and accountabilities. How far is decision making pushed to the front line? • Routines: Linear/formal and established interfaces and systems that are mandatory. Non- Linear/informal: How decisions are made, what information is required. Both formal and informal suffer problems of drift and ‘corruption’. • Culture: HP way, IBM way, Public Service way, Health Service way etc. Inducing behaviour seamlessly. Culture influences behaviour in the absence of incentives
(P)ARC analysis (P)ARC analysis Strategy Competitive advantage incentives coordination
Generic Organisational Perspectives Exploiters v Explorers James March Org Science 1991 A concept appropriate to organisations and sub – units. Most organisations have a mix but may still have a dominant perspective. Eg: Airbus v Boeing; BMW v Toyota; Sony v Panasonic (Matsushita) Japan v the West 1980 – 2000
Other Issues Tight coupling – interdependence Loose coupling – independence Modularity – task partitions within an agreed structure
Towards a dynamic analysis of (P)ARC • How does (P)ARC operate through the politics of the organisation? • What is the role of individual managers? • Need the manager also be a leader?
Nissan Case • What happened in the turnaround of Nissan? • Could (P)ARC solve the problem? • What was the role of leadership in the case? • What was the role of knowledge management in the case? • How was change implemented?
Corporate governance • Principal – Agent problems • Audited requirements • Scope of Firm • Payments to Directors/Managers/CEO • Joint CEO/Chairman • Mergers and Acquisitions/Alliances • Ethical/Legal Responsibilities • Higgs Committee (UK) • Sarbanes – Oxley Act (US) • Cromme (Germany)
Corporate Governance and Strategy • Captures the notion of organisational purpose • Many high profile cases recently (Enron, HIH) • Emphasises that strategy is about creating value – but for whom. • Rules and principles that establish how a firm and its strategy is managed. • Managing top management from the perspective of shareholders (and society)
Corporate Governance Mechanisms • Governance is about protecting shareholders from managerial ineptitude and greed. • It should reduce information asymmetries • It should ensure independent representation on boards.