44_47_02 July 02 Strategy, Organization and Business Development for Telecommunications Operators.

44_47_02 July 02 Strategy, Organization and Business Development for Telecommunications Operators

44_47_02 1 - July 02 Objectives l Get a business strategic approach, based on benchmark, in order : To acquire an understanding of the current economic, technological, regulatory and competitive trends that affect telecommunications companies to day, as well as the future challenges ; To understand the strategies of telecommunications companies (former monopolies and new entrants) in the new competitive context. l Acquire concepts, tools and methods commonly used to: Formulate an overall diagnosis of a telecommunication operator. Formulate corporate, then business strategies for a telecommunication operator. Prioritise amongst different business opportunities and implement business plan for new business projects. Translate strategic choices into action plans and cost them. Translate strategic choices into actions of change in the Companys organization.

44_47_02 2 - July 02 Strategy, organization & Business Development for telecommunications operators l Introductory presentation: the major changes in the telecom industry and the strategies of adaptation of the large national operators. l The different levels in a company's decision- making process. l Concepts, tools and the methodology for the diagnosis and formulation of strategy as used by telecommunication operators. l The links between telecommunications network technologies and capabilities for services offering. l Implementing strategy. l Organization and structure for telecommunication operators.

44_47_02 3 - July 02 Some Key Strategic Issues l As a dominant operator : How to keep ones status/how to survive in the hyper competitive and ever changing world of telecommunications ? How to defend ones existing positions and to win new competitive positions in the business field, in order to keep a decent level of activity, revenue and employment within the company ? l As a new entrant : How to choose the business field(s) to be in ? With which strategic positioning in order to win market shares & build defendable positions ?

44_47_02 4 - July 02 Statements of principles (1) l Survival in a more and more competitive world requires clear strategic moves in order to adapt the company to the major changes within the telecommunications industry. l Scarceness of resources, whatever the size of the company, requires a clear vision of priorities in the process of : Allocating resources to business fields. Choosing the right kind of competitive advantage in order to build and defend its competitive position in each of the business fields. Building on resources and competences within the organization.

44_47_02 5 - July 02 Statements of principles (2) l Strategy formulation without strategy implementation is nothing !. l Strategy indicates the direction to be followed for the years to come. Strategic decision must be translated into : operational projects and/or functions based action plans in order to build on resources and competences which are required within each primary function (production, research & development, marketing & sales, personnel) ; actions of change concerning staff, organization and processes in order to match individual and organizational behaviour to the new business requirements.

44_47_02 6 - July 02 New Services and Businesses development as a strategic necessity l Increased competition on basic existing services means : tariff erosion faster than traffic growth, i.e gradual drop in the companys overall revenues ; more possibilities for customers to switch from one supplier to another, i.e higher rates of churn and costs of retention. l New services development is the key for : increasing Average Revenue Per User (ARPU) ; creating differentiation and retaining existing customers; Improving the costs structure for infrastructure & service delivery by increasing traffic & by making better use of the investment in new network technologies such as Intelligent Network (IN) functionalities.

44_47_02 July 02 Presentation one The major changes in the telecommunication industry and the strategic and organizational responses of the main national operators

44_47_02 8 - July 02 The main steps of the business presentation Environment Evolutions Regulation Technology Customers Competition... New Key Factors for Success Strategic Responses Priorities amongst business fields New skills & resources to be built Organizational Responses Structure Processes Human resources Managerial practices

44_47_02 9 - July 02 Changes in competition Required changes In the skills and resources of telecom operators Changes in markets and customers Changes in regulations Technological changes The Major Changes in the Telecommunications Industry

44_47_02 79 - July 02 The Strategic Diagnosis l It enables one to evaluate the solidity of a company's strategic position both on its business fields" and on its "core-competences". l It is based on the following steps: The segmentation of the company into " strategic business units" (S.B.U) and identification of the "core- competences" of the company. The evaluation of the company's "business fields" in terms of "attractiveness" or "value". The evaluation of the company's "competitive position" or "strengths" in each of its "business fields". The development of a "business fields portfolio matrix" enabling one to visualize the company's solidity in each of its"business fields", then as a whole. The evaluation of the company's "core-competences", leading to a balance-sheet of its "distinctive / missing competences". l It leads to decisions about the "allocation of resources" to be carried out by the company towards its "business fields and/or its "core- competences".

Net + fin" title="44_47_02 90 - July 02 Relative market share Financing Needs 2510.50.250.200.05 5 % 10 % 20 % Star High profitability High financial needs => Net + fin">

44_47_02 90 - July 02 Relative market share Financing Needs 2510.50.250.200.05 5 % 10 % 20 % Star High profitability High financial needs => Net + financial flow Cash cow High profitability Low financial needs => Very positive Net financial flow Lame ducks Low profitability Low financial needs => Net + financial flow Dilemma Low profitability High financial needs => Very negative net financial flow Profitability Business field's growth rate Boston consulting group portfolio Matrix

44_47_02 91 - July 02 2510.50.250.200.05 5 % 10 % 20 % Maintain leading position Drive for better profitability Abandon Double the stakes Relative market share or maintain without investing or re-segment or abandon Growth rate of the field Deciding on allocating resources to business fields

44_47_02 92 - July 02 10 k100 k1 m2 m4 m10 m $10 $25 $50 $100 $150 $ 200 Unit cost Average weighted sales price/unit Ex-works The unit cost (at a nominal value) decreases by the same percentage whenever the cumulative volume of production doubles. The reasons for the"learning effects" are:. learning by experience. Economies of scale. Product and processes' innovation Cumulative Production Average cost of production/unit (effect of experience: 26%) "Experience is earned" ! Example of "learning curve": pocket-calculator industry (end 1975)

44_47_02 93 - July 02 Cost dynamic according to the importance of the "experience effect" Total volume of production 0,1 0,2 0,4 0,6 0,8 1,0 124681020406080100 E = 30% E = 25% E = 20% E = 15% E = 10% E = 5% Unit costs

44_47_02 94 - July 02 Cumulative volume Costs Prices Costs and prices Cumulative volume Costs Prices Costs and prices Abandonment strategy Cumulative volume Costs Prices Costs and prices Cumulative volume Costs Prices Costs and prices Catch-up strategy "Umbrella" pricing strategy Dominant strategy "Learning effect" and pricing policies

44_47_02 95 - July 02 Key factors for success Degree of the company's Mastery over K.F.S. Complementary skills And/or assets to be Acquired or strengthened General K.F.S. 1. 2. 3. 4. F.C.S.. by specific business fields S.B.U. 1 1. 2. 3. 4. 123 Diagnosis of a company's competitivity: "diagram of skills and resources"

44_47_02 96 - July 02 Diversification: criteria for entry into a new business field l The field targeted must be attractive (ability to increase a company's potential for profitability and growth, level of controllable risk). l It must share with the company's current activities: Resources, leading to cost sharing, Know-how, But must also, if possible: Be compatible in terms of image and cultural connotations.

44_47_02 97 - July 02 Ways of entering a new activity or accessing complementary competences or/and assets l Choose between: Internal development, Mergers and/or acquisitions, Joint developments and strategic alliances. l Criteria to be considered: The "time" factor ("windows" of opportunity; Time needed to build a position in a market...), The kind of "skills" and/or "assets" sought, The "financial means" needed in relation to existing means, The degree of "operational control" needed by the company, The degree of "management commitment" needed in relation to available management resources.

44_47_02 98 - July 02 Internal development l It ensures a good degree of control over operations. l It takes a long time to reach a significant position: specific assets and skills have to be created from scratch. l It is an ineffective way when the "entry charge" is high, or when a company does not control the essential: key factors for success required by the new business; field, or when "speed" is needed in order to take advantage of a "window" in the market or in the technology. l Example: the creation of an overseas subsidiary, development carried out from a company's own means.

44_47_02 99 - July 02 Development through acquisition l Brings an immediate critical mass. l Its cost is always high - cost of acquisition, cost of re-floating. l The management commitment needed is always high ensuring the integration of working methods, decision-making systems, company cultures. l It is the relevant method when the assets or skills which one wants to access are specific and, also, undissociable and central to the core-business of the company which has them.

44_47_02 100 - July 02 Development through alliance l Brings less operational control over the business. l Enables rapid access to critical mass for a reduced initial investment. l Preserves a company's strategic flexibility. l Management commitment required is high - due to a climate of conflict / cooperation between partners. l Relevant method when it involves access to specific assets or skills which are undissociable but can be shared at a low marginal cost (channels of distribution or telecommunication network with excess capacity). l Method which cannot be avoided if the assets or skills sought are peripheral to the core-business of the company which has them.

44_47_02 July 02 Strategy implementation

44_47_02 102 - July 02 Constitutive elements of the problematic of strategy implementation l The strategy shows the direction to be followed (performance levels to be reached, activities to be developed, competitive advantage to be set up, skills and resources to be reinforced). l The aim of strategy implementation is: To bring individual and group behaviour into line around the common gaols expressed by the company's strategy; To put resources and skills into position at each step of the "value chain". Strategy implementation is based on several organizational and human factors The structure; The management system and style; The organizational culture; The company's planning process.

44_47_02 103 - July 02 The two dimensions of the strategy implementation l Translate the strategy into projects and/or functions based policies and action plans: Calculate the cost of the strategy, Implement the tools to follow-up the strategy implementation. l Translate the strategy into actions of change concerning staff, organization and processes in order to match individual and organizational behaviour to the external requirements.

44_47_02 104 - July 02 Company policy Corporate strategy and Business strategies Function based policies and action plans Actions of change Mission statement. Staff. Organization. Processes. Management practices. Sales/marketing. Industrial/logistics. Human resources. Financial Value charter The two dimensions of the implementation of the strategy

44_47_02 105 - July 02 Actions of change l Deal with the improvements needed in terms of: Company structure; Working practices; Information and management systems; Company culture and working behaviour. l Their aims are: To eliminate internal malfunctions; To improve productivity; To shorten the "cycle time"; In general, to increase a company's reaction time as well as its strategic capability as an organization.

44_47_02 106 - July 02 Structure Specialization of Tasks/coordination Of work-teams Culture/identity Values / business as strong means of. Identification. Mobilization Systems. Of information. Of decision-making. Of control Human resources. Qualification. Motivation. Involvement Know-how/ Professionalism. Distinctive skills. Common skills Management style. Autonomy v. control. Task oriented v staff oriented management Strategy Performances Achieved. Quantified objectives (Growth, profitability). Choice of activities And competitive Advantages to be Developed The human and organizational driving forces and constraints of strategic change

44_47_02 107 - July 02 The organization's structure: a definition l Ordered network of roles, functions, means and activities. l It defines the methods of task specialization and coordination that a company has decided to privilege. l It is a framework in which the assignment of skills and responsibilities, the negotiation of objectives, the allocation of means as well as the follow-up and control of operations, will take place.

44_47_02 108 - July 02 l The structure is an efficient "driving force" if: Tasks and responsibilities are clearly defined and do not overlap; Individual potential is used well; The methods of task specialization and coordination are relevant to the "kind" of activities and degree of complexity to be dealt with. l It must evolve as changes occur in: The "kind" of activities (from a flow-based to a project-based logic) and their variety (which increases the complexity to be dealt with); Environmental characteristics (degree of heterogeneity and uncertainty). The organization structure as a "driving force" in the strategy implementation

44_47_02 109 - July 02 The organization structure as a constraint on the implementation of strategy l The structure can become a "constraint" when: An excessive number of hierarchical levels does not allow a good flow of vertical information: information from people on the ground does not move upwards properly and the organization lacks reactivity; The effects of inter-departmental divisions do not allow a good flow of horizontal information: the organization is not able to run "lateral projects": product lines hit "bottle-necks"; Key undertakings (branching out into a new activity: acquiring a missing skill: eliminating malfunctions) are not properly dealt with because of a lack of appropriate human and organizational support; The structure is too elementary in relation to the high level of complexity involved; The lack of clarity in the definition of functions creates counter productive inter-departmental competition and/or a dilution of responsibilities.

44_47_02 110 - July 02 The management system: a definition l The management system covers all the tools, methods and organizational devices needed to run a company both in its struggle to adapt to major changes in its environment and also in its daily action. l The management system is a process which links together the following steps of the "management loop": strategic and operational planning, objective-based management, measurements of achievements and failures, corrective actions and sanctions-rewards associated to performances. l It lays down the information necessary to the management in order to: Develop realistic objectives and measure their implementation, Anticipate risks of failure and set off any corrective action which might re- establish harmony between objectives and achievements. l It provides the basis for strategic and management decisions as well as for the control of activities.

44_47_02 111 - July 02 The management system as "driving force" and/or as a constraint in strategy implementation l Planning, programming, budgeting and monitoring processes allow consistency between short and long term, between day to day management and strategic management. l The development of objectives and action programmes, well structured and linked together, clearly stated and accepted by men and teams, forms a powerful instrument for coordinating the various functions of a company around the strategy as a common goal. l It can be a source of expense, of bureaucratic heaviness, of a lack of reaction time because of its "routine" nature. l It must evolve as the company's sort of activities and environmental characteristics also change.

44_47_02 112 - July 02 Company culture: a definition l The company culture is the product of its history. It consists of a certain number of values/ beliefs/ problem-solving methods, which are shared by members of the organization. l These values/beliefs/problem-solving methods which are shared by members of the organization lead to common perceptions, a common language and codes, and standards of behaviour which control ways of doing things within an organization.

44_47_02 113 - July 02 Company culture as a "driving force" in strategy implementation l A strong culture is a way of giving coherence to behaviour and encouraging internal integration which reinforce the company against external attacks and "put it on guard" in order better to focus its energies on end results which most people can identify with. l When there is a relative harmony between the organizational culture and the strategic changes to be implemented, the company culture is a power full driving force for change.

44_47_02 114 - July 02 Company culture as a "brake" in the implementation of strategy l The organizational culture can be conservative, backward looking, self satisfied and "resting on its laurels". It can be manifested by attitudes of collective opposition to change and to adapting to external changes. l When there is a divergence between the organizational culture and the strategic changes to be carried out, one must act upon the culture and make it change. This involves putting into operation a whole raft of methods (information/ internal communication/ changes in management practice and criteria for evaluating performance; Implementation laying down a company's value charter).

44_47_02 115 - July 02 Which product Range (wide? Narrow ? Standard? Made to Measure?. Choice of an organizational style (culture, Valves) Choice of an organizational structure Choice of formal decision- Making procedures (Planning/ monitoring systems) Choice in terms of information system Which target Market (wide ? Narrow ?) Which policy for - distribution ? - sales forces ? - communication? Which manufacturing choices (flexibility/ Productivity ? quantity/quality? Automation? Manufacture? Sub-contract? Which Personnel policy (training, recruitment, working Conditions, incentive system) ? Which policy for Purchasing? Stock management? Production management ? quality control ? Which R& D Policy ? (product Development?/Procedure development? Purchase of licences?/ Joint- ventures?) Which financial Policy? (Autonomy) and Management Control policy ! Aims/general Objectives -> Strategy - Profitabilitywhere? - Growth(field of activity) - Market-sharewith which weapons ? - Taxes (competitive - Benefits to advantages) society TRANSLATINGSTRATEGYINTOTRANSLATINGSTRATEGYINTO FUNCTION-BASEDPOLICIESFUNCTION-BASEDPOLICIES ANDACTIONPLANSANDACTIONPLANS

44_47_02 116 - July 02 Function-based policies and action plans l Function-based policies lay out, in synthetic terms,the main concepts which orientate action within each function. They refer: Not only to the strategy to be put into operation; But also to the gaps in skills and resources which must be bridged; As well as to malfunctions which must be eliminated. l Function-based action plans outline in detail, actions to be undertaken by precisely positioning them in time. They lay down: The results expected; The methods to be implemented and the associated cost elements. They supply all elements necessary to calculate the cost of the strategy.

Surveys of market trends, design... The choice between two alternative positioning">

44_47_02 117 - July 02 Various definitions of the Company's core-business High-volume production Stressing a price Advantage Council housing and Large public building sites Markets targeted by Priority. Low prices: long production runs. High volume sales Production Key factors for success. Standard products: Narrow targeted range Marketing products/ Range Direct selling, by tenderSales/distribution Technical and economy Oriented:marketing Relationships/key accounts Communication Specialist & automated Plant & machinery, Long production runs. Production choices Unskilled (except for Machine operators) Personnel policy Process oriented -> "value analysis" cost control Research development "Industrial handicrafts" stressing advantage through image, Product differentiation Private housing and renovation. New products with a handmade feel. Rapid design/production/sale cycle. Differentiated "trendy"products Sales through classic sales outlets To "general public" through Specialist magazines, samples, Exhibitions.... Flexible / partially automated plant. short production runs: quality control. Stable/adaptable, quality-oriented, capable of working autonomosly. Product development - oriented -> Surveys of market trends, design... The choice between two alternative positioning

44_47_02 118 - July 02 Plant/machinery - Automated - Specialized Long production Runs Client: architects Public & industrial purchasing Managers Value analysis Product testing ConceptionManufacturingMarketing/sales Information system -> monitoring cost oriented Technology: automated processes Replying to Invitations to tender Close contact With key accounts Purchasers K.F.S. - Competitive price - Ability to supply high volumes within time limits - Conformity to Standards Strictest Techniques Mass despatch To building Sites Out bond Logistic Standard tiles, aimed at "high volume" markets (council houses, public authorities projects) 1-

quality, creativity, working autonomously - Flexible plant/ Machinery - Management of short Production runs - High quality Work-force - Quality control of final products Marketing to " General public": - Sales force quality and Penetration - Presence at Exhibitions and Trade shows K.F.S. - "In fashion" products with high creative and aesthetic content - Products "Pulled" by the Market-place - Ability to deliver the right product at the right time and at the right place - technical & sales support Quality of Logistics and Regional "warehouses" - Sales and technical Support Conception Manufacturing Marketing/sales Out bond Logistic Top of the range/fashionable tiles aimed at private housing 2-">

44_47_02 119 - July 02 Client: architects Distributors - Surveys of Trends - Product Marketing - Design - Developers' Creativity Information system -> reaction time / management of the Product "range" oriented Human resources -> quality, creativity, working autonomously - Flexible plant/ Machinery - Management of short Production runs - High quality Work-force - Quality control of final products Marketing to " General public": - Sales force quality and Penetration - Presence at Exhibitions and Trade shows K.F.S. - "In fashion" products with high creative and aesthetic content - Products "Pulled" by the Market-place - Ability to deliver the right product at the right time and at the right place - technical & sales support Quality of Logistics and Regional "warehouses" - Sales and technical Support Conception Manufacturing Marketing/sales Out bond Logistic Top of the range/fashionable tiles aimed at private housing 2-

44_47_02 120 - July 02 Reviewing action Plans Functional, organizational and strategic diagnosis Formulation of an overall strategy Function - based policy and action plans: - Means - in time - In cost Financial planning (year N+1, N+2, N+3...) Programming Budgeting Controlling Testing The financial Feasibility of The strategy Corrective actions Operationalize, calculate the cost of the strategy: set up tools for strategic control and management

44_47_02 121 - July 02 Calculating the cost of a strategy l Test the financial feasibility of a strategy: In relation to growth targets activity forecasts In relation to profitability targets estimated profit and loss accounts In relation to liquidity risks calculate needs for working capital Statement of "source and application of funds Forcast turnover Projected net results Net cash flow Annual cash diffferential

44_47_02 122 - July 02 Elements for costing a strategy

44_47_02 123 - July 02 Funding plan/statement of source and application of funds YEARS Application of funds Investments Increase in working requirements Repayments of loans Repayments of current accounts Distribution of dividends Total application of funds N+1N+2N+3N+4N+5 TOTAL Sources of funds Cash flow/funds from operations Increase in capital Assets in current accounts Loans medium-long term Diminution of working requirements Disinvestments Total sources of funds Annual cash differential Cash-budget Y X Y Z X (Initial finances)Z

44_47_02 124 - July 02 The three levels of corporate planning

44_47_02 125 - July 02 Set up control indicators and documents Budgets: - Investment - Production - Sales 1-2 september overall review by senor management. Quantification. Backward & forward modifications - Synthesis Examination of rough drafts (planning department, division and unit management) Units (operational departments) draw up a rough draft 1/2 march strategy seminar (CEO, divisional and functional Management) CEO's guide lines Operational Plan formalized Formal Strategic plan 31 December Strategic Review Implementation of The strategy Budgeting 31 July 15 October 15 March 1 January 15 May 15 April: rough drafts handed in For years N+1, +2, +3 Adjustments after examination The planning cycle

44_47_02 126 - July 02 Involvement of participants in the decision-making process (Information-consultation-initiation) Reduction of cognitive bras during diagnosis and development Development of staff motivation Mobilization of the company's creative potential Variety of the contributors/participants Participants close to the ground Participants make ones' the firm's objectives Understanding Experimentation Sensitivity to problems The effects of involving the participants in the decision-making process

44_47_02 127 - July 02 Year 1 Budget forecast (1year) Action programmes (1 year) Schedule of major strategic moves Approximate finance plan Key people Major uncertainties Picture on the relevant horizon Elements of an integrated strategic plan

44_47_02 128 - July 02 Strategic Analysis Operating Diagnosis Priorities among strategy Problems (key factors For success to be acquired) Prioritize among operating problems to be solved (steps leading to improvements) Set up "problem-solving groups" Under a project leader Operational action Plans by divisions/ Functions Action programmes with contractual commitment(taskes / contributions / time limits / estimated costs / expected results) Financial plans/budgets Guidance/follow up Budget control and management of operations Strategic monitoring of strategy implementation

44_47_02 July 02 Organization and Structure

44_47_02 130 - July 02 Different approaches to the organization l The organizational approach:group of interdependent people working together to reach common goals. l The psychological approach:takes the point of view of an individual within the organization. l The sociological approach: takes the point of view of members of informal groups. The classical mechanical approach, like the managerial systemic approach, considers the organization as a tool serving management efficiency.

44_47_02 131 - July 02 The organization structure: a definition l An ordered network of roles, functions, means and activities. l It defines formally and at a certain point in time, the methods of job specialization and the methods of coordinating the people undertaking these jobs. l It constitutes the framework within which the delegation of skills and responsibilities, the negotiation of objectives and the allocation of resources as well as the follow-up and the monitoring of achievements, have to operate.

44_47_02 132 - July 02 Characteristics of the structure (1/2) 1.According to the means of specialization preferred: By functions; By activities (by products, markets, projects, geographical areas): The case of divisional structures which model the "segmentation of the organization" on the "strategic segmentation of businesses". The case of the matrix structure which gives equal weight to two or three different dimensions. 2.According to the means of coordination preferred: By hierarchy; By mechanisms of lateral integration: Temporary: operational committees, "task-forces". Permanent: product or project managers, matrix structure.

44_47_02 133 - July 02 3.According to the degree of formalization i-e the amount of detail included in the description of functions and relationships between functions: Definition of tasks or assignments associated with functions; Description of hierarchical and lateral links attached to the functions; Leading to a contingent approach to organization structure. Characteristics of the structure (1/2)

44_47_02 134 - July 02 Characteristics of an efficient structure (1) l As a "tool for processing information". l It must have the necessary degree of variety/complexity. l In respect of:the diversity/heterogeneity of the activities to be managed. The degree of uncertainty of the environments which the company must face. From the solar structure:- To the Matrix structure - To the Network structure. Solar structure and pyramid hierarchical structure. Functional structure. Divisional structure. Matrix structure. Network structure

44_47_02 135 - July 02 Chef Executive Solar structure Pyramid hierarchical structure Archaic structural characteristics

44_47_02 136 - July 02 General management Administration/finance SalesResearch/developmentProduction The functional structure

44_47_02 137 - July 02 General management Administration/financeResearch General secretariat Administration/finance Human resources Operations Countries/regions The functional structure

44_47_02 138 - July 02 The functional structure with product or project managers General management Human resourcesFinance/management Operations Research and Development MarketingSales Develop- ment Market research Region 1 Product Managers 1 2 3 Region 2 Develop- ment Homolo- gation Region 3 Project managers Site 1 Site 2 Research

44_47_02 139 - July 02 General management Planning/strategy Communication Management control Human resources Finance Marketing Research Division 1 Research and development production Sales Personnel Management Division 1 Multi-divisional structure

44_47_02 140 - July 02 Activity 1 General management Strategy Communication Management Human resources Finances Research Activity 2 Activity 3 Research and Development Marketing/ Sales OperationsLogistics Matrix structure

44_47_02 141 - July 02 The spectrum of structures

44_47_02 142 - July 02 Degree of uncertainty Functional/ organic / Decentralized structureUncertainties + Routines - Network organization Functional Structure/ Product managers Matrix structure Functional structure Centralized/mechanism Multi-divisional Structure Mono-activityMulti-activity +- Degree of heterogeneity of activities Adaptation of structures

which degree of flexibility? According to the position on the grid => which degree of decentralization? global and local">

44_47_02 143 - July 02 Characteristics of an efficient structure (3) l The "overall design" of the structure is drawn up following a relevant way of specializing task and of segmenting the organization. If the environment is homogeneous (few business fields or markets) and / or is quite stable (low degree of uncertainty/ routine processes...). Functional structure allowing a concentration of means: a gathering of functional skills which lead to efficiency and control. If the environment is heterogeneous (many business fields with their own characteristics). Divisional structure with ways of structuring and functioning suited to each business field characteristics. According to the degree of uncertainty=> which degree of flexibility? According to the position on the grid => which degree of decentralization? global and local

44_47_02 144 - July 02 Company/group Corporate headquarters Strategic bases Marketing segments Strategic fields of activity Branches/subsidiaries Product /client centres Product/ market centres Divisions Characteristics of an efficient structure (4) l A structure whose the way of segmentating is based on the strategic segmentation of the activities....and, at the same time, a structure which organizes the sharing of resources within common entities serving the group e.g: - functional services of the headquarters - support services with a transversal/lateral vocation - subsidiary/division taking over a stage of the "value chain" on behalf of the group.

44_47_02 145 - July 02 Characteristics of an efficient structure (5) l So that each entity is properly suited to the field of business it has to deal with, an efficient structure should allow different ways of functioning and organizing to exist within it. The differentiation principle (Lawrence + Lorsch) which is expressed through differences in respect of: The organization's degree of formalism; The time horizon for its actions and the frequency of checks; The degree of autonomy allowed to the entity and the people working within the entity (close control focussed on the task or objectives v. Self regulating teams working on a "mutual adjustment" base).

44_47_02 146 - July 02 Characteristics of an efficient structure (6) l It includes mechanisms of integration which are as powerful as the degree of differentiation required by the nature of its activities is high: Differentiation/integration principle (Lawrence + Lorsch) Acts on the whole "range" of integration mechanisms through: The hierarchical way; The the headquarters "technostrucure" and "support" staff, whose action is supported by systems and procedures such as the planning/ budgeting/ control process, human resources management practices, quality control procedures. The development of lateral relationships such as: Working committees, Product or project managers or a matrix structure Management through "shared values".

44_47_02 147 - July 02 Ways and means of coordination within an organisation

44_47_02 148 - July 02 An efficient structure l Ensures good transversal relations: To anticipate "bottle-necks": A good running of "transversal projects"; A good share of skills; A good connection between the needs of the market and product development. l Ensures rapid reaction times / a good organizational flexibility: Reduce the number of hierarchical levels; Eliminate interdepartmental partitions. l Allows the development of innovation and cross-fertilization processes. l Clearly defines areas of responsibility with all the means needed to implement and control them.

44_47_02 149 - July 02 The diagnosis of an existing structure (1/2) 1.Analyse mal-functions and power struggles within the organization: Effects of internal divisions leading to the inability to run "transversal projects" or to prevent "bottle-necks"; Excessive length of the hierarchical line and interdepartmental partitions leading to long reaction times; "Missing" functions bringing about a lack of organizational support for new activities or skills to be acquired; Effects of "clannishness" due to "feudalism" and "warring" bosses.

44_47_02 150 - July 02 The diagnosis of an existing structure (2/2) 2.Take into account the strategic stakes: Start with strategic priorities: activities to be promoted, key skills/ resources to be put into place; Start with the analysis of the key factors for success required by current or projected activities, by emphasizing : The elements of difference between activities (K.F.S. and different competitive contexts); The sharing of resources and skills between activities.

44_47_02 151 - July 02 Conditions/guidelines for a new structure (1/2) 1.Chose the best way of segmenting the organization : By function by product, strategic fields, projects.... By activity by client groups or/and geographical areas. 2.Chose the way of structuring and of functioning of each unit of the organization: By functions, projects, by product-client centres; What degree of formalization? what degree of autonomy? What frequency of checks?

44_47_02 152 - July 02 Conditions/guidelines for a new structure (2/2) 3.Chose methods of coordination to be put into place between unit: Management committees; Working committees; Task forces; Lateral coordination (product, markets, projects managers); Partial or total matrix structure. 4.Set up information/decision-making/monitoring procedures and systems: Planning systems (product plan x country or market plans); Systems for aims, performance monitoring, sanctions-rewards; Staff management system: quality control procedures.