Organisational Structuring in Corporate Strategic Management

1. ITU / BDT Workshop Cairo, Egypt, 19 – 22 December 2005 Corporate Strategic Management Lecture 16 Country paper Experience of organisational structuring ITU/BDT/ HRD Corporate Strategic Management

2. Organisational structure • Organisational Structure defines formal division of tasks into jobs, grouping and coordination basing on: • Specialisation; • Departmentalisation; • Chain of command; • Span of control; • Centralisation/decentralisation; • Formalisation • Organisation structure is one of levers applied in implementing change ITU/BDT/ HRD Corporate Strategic Management

3. Concept of Strategic Business Unit A SBU is a managerial entity with a relative autonomy for its own management to focus on a specific business within the overall business portfolio of the whole company. A SBU should have a clear and formal relationship with other entities in the company, especially for the costing of services provided by and received from these entities. The purpose of such an organisation is to have a separate accounting system and a better efficiency. It is then possible to set the real cost for providing services to end customers. However, the internal transactions are not paid in physical money. ITU/BDT/ HRD Corporate Strategic Management

4. First example of SBU Chief Executive Officer Vice President, Corporate Services Vice President, Operating Support SBU SBU SBU General Manager Mobile Networks General Manager Fixed Network General Manager, ISP Manager, HR Personnel Personnel Manager, Accounting & Finance Accounting & Control Accounting & Control Manager, Network Planning Network Planning & Development Divisional Planning Manager, Marketing & Sales Marketing & Sales Sales & Marketing Manager, Operation & Maintenance Manager, Operations Head, Operations ITU/BDT/ HRD Corporate Strategic Management

5. Personnel Second example of SBU Chief Executive Officer Supporting departments SBU SBU SBU General Manager Mobile Networks General Manager Fixed Network General Manager, ISP Accounting & Finance Logistics Manager, Network Planning Network Planning & Development Divisional Planning Manager, Marketing & Sales Marketing & Sales Sales & Marketing Manager, Operation & Maintenance Manager, Operations Head, Operations ITU/BDT/ HRD Corporate Strategic Management

6. Cost Centre • A cost centre is an organisational unit which provides a certain range of services, in a specific domain, to other entities of the company. • The objective associated to a cost centre is to narrowly control the cost and the quality of the internal services provided to other units. • Examples: • Training centre • Repair centre • Internal garage • Health unit • Etc. ITU/BDT/ HRD Corporate Strategic Management

7. Centralization / Decentralization • The balance between centralization and decentralization is highly modified. • Telecommunications systems are more integrated with digitalization, maintenance and operations are automated and some previous activities are decreased and can be achieved remotely. • Supporting centers are centralized in such a manner that the volume of activities increases to reach a threshold of competencies. They operate remotely, they have multidisciplinary teams ITU/BDT/ HRD Corporate Strategic Management

8. Revenue centre A revenue centre is an organisational unit which provides a range of services to external customers and collectes the corresponding revenues. A revenue centre receives internal services from different cost centres of the company. The objective of a revenue centre is to narrowly control the sales in order to increase them. ITU/BDT/ HRD Corporate Strategic Management

9. Profit Centre: towards SBU A profit centre is a revenue as well as cost centre. Its activies are related to a precise market segment for which the top management wants to control the profit. A profit centre becomes a real SBU when relationship between profit centres are more formal. As such, the Concept of SLA (Service Level Agreement) is applied to describe in detail the specifications of internal services level with the expected targets of service quality ITU/BDT/ HRD Corporate Strategic Management

10. Example of transferred prices between SBUs Terminating Traffic in paid minutes Leased lines BTS – BSC - MSC SBU Mobiles SBU Fixed network Traffic in paid minutes Leased lines for ISP Traffic in paid minutes Leased lines SBU Corporate customers SBU Internet The transferred prices are counted in with the costs of the receiving department and with the revenues of the producing department ITU/BDT/ HRD Corporate Strategic Management

11. Criteria to implement SBU • To set up a SBU at national level grouping all activities related to a specific market segment. • e.g. Mobiles, Internet services, data communication, Corporate customers • To set up SBUs at a regional or district level, e.g. area office combining commercial outlet, operating centre and customer services, • To set up a SBU for a specific network segment • e.g. long distance network, international network • To set up a SBU for a supporting activity considered as an alternative to an outsourcing approach • e.g. training centre ITU/BDT/ HRD Corporate Strategic Management

12. Advantages of SBU:Advantage 1: management efficiency Managers can focus on the important aspects of the strategy. Decision Making Centre is closer to customers and field staff,thus resulting in less internal barriers as compared to a huge bureaucratic entity. There are less hierarchical levels. SBUs are an opportunity to implement BPR SBUs help focusing on activities essential to meet strategic objectives. ITU/BDT/ HRD Corporate Strategic Management

13. Advantage 2:pressure on expenses SBU managers have enough authority to buy internal services only when they are necessary, and to bargain the cost of such services. Consequently, there is a much stronger pressure to avoid non essential activities and to decrease the expenses for the internal services exchanged between SBU. ITU/BDT/ HRD Corporate Strategic Management

14. Advantage 3:pressure on Quality of Service Supporting units have stronger and clearer obligations for the internal services provided to SBUs. Because a SLA is set by Units, there is much control within the value chain in order to control the quality provided (from all supporting units to the end customers). As there is clarification of activities, it is easier to perform the needed cause -effect analysis for detecting the sources of any defaults in the value chain ITU/BDT/ HRD Corporate Strategic Management

15. Advantage 4:knowledge of elements for setting up costs based tariffs SBU implementation is an opportunity to implement analytical accounting and ABC (Activity Based Costing). Allocation of all expenses and assets provides the right tool to determine the costs related to the activities associated to the target market segment or a service segment. This advantage is of huge importance in a competitive environment. ITU/BDT/ HRD Corporate Strategic Management

16. Advantage 5:organisational structure is more flexible and easier to change Any SBU can be changed with less impact on the other units, since relationship among SBUs and / or supporting units is minimal, and more formal. Any SBU can have a different evolution: an opportunity for a transition towards a subsidiary or a complete outsourced entity ITU/BDT/ HRD Corporate Strategic Management

17. Some risks and limitation in the SBU approach The financial system required for an accounting separation is complex. As such, to split all expenses and all assets and to allocate them into each unit (like the ABC model) is a big issue. Possible redundancy of staff and assets may generate higher fixed costs. Formal relationships between SBUs may require expensive transversal processes. They are some risks of individualistic behaviour between SBUs. ITU/BDT/ HRD Corporate Strategic Management

18. Internal restructuring“Shape up or Ship out” • To Improve the efficiency of the Incumbent Operator and increase value to shareholders. • New culture oriented towards business process • Strategic Management driven by competition and survival needs in a changing environment. • Internal Reorganization that supports the strategic Management. • Quality of service is perceived with the point of view of customers. ITU/BDT/ HRD Corporate Strategic Management

19. Integrated Marketing Integrated marketing consists to build up the overall strategy of the company from the marketing plan and to consider all other functional plans as a supporting function of the marketing plan. The marketing plan translates the vision, the mission and the strategy of the company in action plans for all the elements concerning the relationships with the customers: sales, services provisioning, tariffs, customer care,... Other functional plans, such as plans for network construction and operation, Information systems, human resource and finance, are designed to provide all supports requested by the marketing plan. ITU/BDT/ HRD Corporate Strategic Management

20. Planning process relies on a commercial approach Vision, Mission, Strategy Marketing Plan Catalogue of products and services Networks construction & operations Customer care HR, IT Tariffs Revenues Business Plan, Action Plans, Budget ITU/BDT/ HRD Corporate Strategic Management

21. Cross-functional teams • Enterprises rely more on cross-functional teams (i.e., teams that cross organization boundaries) composed of knowledge workers organized in a horizontal fashion. • The goal of these cross-functional teams is to produce the enterprise’s products most effectively by focusing on the product processes, not the organization of the enterprise itself. ITU/BDT/ HRD Corporate Strategic Management