Organization Theory: Organization Theory: Strategy Strategy Implementation Process Implementation Process Steven E. Phelan Steven E. Phelan June, 2006 June, 2006 STRATEGY EXECUTION: STRATEGY EXECUTION: Structure, Systems, Rewards Structure, Systems, Rewards
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Organization Theory: Strategy Implementation Process
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• Economies of scale, avoids duplication, critical mass of know-how, clear career path
Divisional structure -> effectiveness• Traditional focus on products, markets or geography• New areas – customers, processes, solutions, segments• Profit contribution can be easily measured in product
divisions– Does this provide more monitoring/motivation as well?
Centralization v DecentralizationCentralization v Decentralization
• General principle Centralized = functional/efficient Decentralized = divisional/effective
• Text recommends a sequential process starting from the corporate level to group, division, and strategic business unit (SBU)
• Choice depends on what is important to management
Tall v FlatTall v Flat Large, more centralized companies often have taller
structures (I.e. more layers) Increasing the span of control to create flatter
structures can create benefits • Faster decision making, less bureaucracy, closeness to
customers, cost savings, and flexibility but can also suffer from problems such as:
• inertia, inadequate expertise, lack of responsibility, and lateral communication problems
• Not a universal cure all Corporate HQs are starting to include:
• Strategic management functions, executive education, and “centers of excellence” in addition to traditional HR, legal, IT etc.
Strategic DriversStrategic Drivers• Type of strategy
Global strategy often calls for matrix structure Low cost leadership = functional structure Focus/differentiation = divisional structure
• Market and technological relatedness Same customers, processes, distribution etc. Leads to increased centralization (or need for
Develop and use good objectives• Clear, relevant, measurable
Reward the doers Reward cooperation Face the brutal facts honestly Clarify responsibility and accountability Obtain timely and valid information Use the information for learning and adaptation
• Take action when actual results deviate from plan• Be sure to change as a result of lessons learned
Case 2: USA TodayCase 2: USA Today
• Identify the problem(s)
• Recommend: A strategy A structure A set of key lateral processes, and A reward system
That will solve (or at least address) the problem(s) at USA Today
Bebchuk and FriedBebchuk and Fried• CEO compensation
Critical analysis (compare to Chomsky)• Aggregate compensation of top-five executives
10%+ of earnings of public firms Limits on board independence to set rewards
• Incentive to be nominated/re-elected• CEO’s power to benefit directors• Friendship, loyalty, collegiality, authority, solidarity• Small personal cost of favoring CEO• Ratcheting
Dubious practicesDubious practices• A list
Camouflage and stealth compensation• To reduce ‘outrage’ costs
Gratuitous goodbye payments Windfall compensation
• Options tend to reward broad market movements and short-term spikes
Pension and deferred compensation
• Is the system broken? Are we rewarding executives too much? Will there be a backlash?