BUSINESS STRATEGY

October 11 & 18, 2010

 BUSINESS STRATEGY

Is strategy development a reactive process or a proactive process?

REACTIVE: MORE INTERNAL

• Internal resources, strengths and weaknesses
• Competitive capabilities

PROACTIVE: MORE EXTERNAL

• Changing market needs
• New technologies
• Customer preferences
• Regulatory framework
• Emerging business opportunities
 BUSINESS STRATEGY
Small Business Context:
Legacy of founder’s influence, developing relationships for funding facility expansion, market expansion

MNC Context:
Allocation of resources to different units, coordination of operational logistics

Service Organisation Context:

Delivering intangible excellence through soundness of advice, prompt attention

PSU Context:
Influenced more by political than market condition, privatisation of unproductive units
 BUSINESS STRATEGY

Structure

Configuration

Relationships Processes

CHALLENGES:
• Speed of change
• Importance of knowledge creation and sharing
• Rise of globalisation
 BUSINESS STRATEGY
STRUCTURAL TYPES

FUNCTIONAL STRUCTURE:
CEO with functional heads reporting in

Advantages:
• CEO in touch with operations
• Simplified control
• Clear responsibility definition
• Specialists at senior and middle mgmt levels

Disadvantages:
• Seniors overburdened with routine
• Seniors neglect strategic issues
• Coping with diversity difficult
• Coordination between functions difficult
• Failure to adapt
 BUSINESS STRATEGY
STRUCTURAL TYPES

MULTIDIVISIONAL STRUCTURE:
Divisions around products, services and geography

Advantages:
• Flexible to add or divest divisions
• Control by performance
• Ownership of strategy
• Specialisation of competencies
•Training in strategic view

Disadvantages:
• Additional costs
• Duplication at divisional level
• Fragmentation and non-cooperation
 BUSINESS STRATEGY
STRUCTURAL TYPES

HOLDING COMPANY STRUCTURE:

An investment company holding control over separate business entities

Advantages:
• Extremely flexible
• Ability to bring in equity from alliances
• Buy or sell subsidiaries
• Very useful in emerging economies or where capital markets underdeveloped

Disadvantages:
• Poor or lack of control on operations, hands-off management
• Knowledge sharing virtually non-existent
 BUSINESS STRATEGY
STRUCTURAL TYPES

MATRIX STRUCTURE:
Combines different dimensions – products, geographies, services

Advantages:
• Effective in knowledge management through integration across boundaries
• Use of resources from the pool based on exposure desired
• Very flexible
• Suitable to organisations operating globally

Disadvantages:
• Matrix structure has complications of not having formal line of authorities
• Decision making may take longer time – too many inputs from diverse points
• Two structural dimension may result in dual reporting
 BUSINESS STRATEGY
STRUCTURAL TYPES

TRANSNATIONAL STRUCTURE:
Managing internationally through expertise across borders
(Global strategy - having global products division / Multidomestic Strategy –
having all divisions within the country eg UNILEVER /HUL

Advantages:
• National units achieve economies of scale
• Share expertise through common forums of managers across the globe
• Global heads focus as ‘innovators’ for products / technologies & ‘talent spotters’
• Domestic heads to act as ‘sensors’ and be a ‘contributor’ to the company
Disadvantages:
• Same as that of matrix organisation
 BUSINESS STRATEGY
STRUCTURAL TYPES

TEAM BASED STRUCTURE:

Combines both horizontal & vertical coordination through cross-functional teams

Advantages:
• Small self-managed teams are often highly motivated & adaptable
• Can dedicate full time away from routine on specific issues
• Does away with formal reporting and controls
• Suitable in large complacent organisations

Disadvantages:
• Problems of scaling up to organisational level
• Usually sets in huge amount of dissonance within people in the company
 BUSINESS STRATEGY
STRUCTURAL TYPES

PROJECT BASED STRUCTURE:

Teams created to undertake a project and then dissolved

Advantages:
• Highly flexible – teams are created and dissolved after task is accomplished
• Well-defined task- hence accountability is good
• Many times multi-discipline expertise is drawn for achieving breakthrough

Disadvantages:
• Poor coordination may result in proliferating projects
• May reflects inability of managers in control to make breakthrough changes
 BUSINESS STRATEGY
COMPARISON OF STRUCTURES

CHALLENGE FUNCTIONAL MULTIDIV HOLDING MATRIX TRANSNATNL TEAM PROJECT

Control

Change

Knowledge

Globalisation
 BUSINESS STRATEGY
CHOOSING STRUCTURE

GOOLD & CAMPBELL’s - 9 DESIGN TESTS

Market Advantage Test: Fit to market strategy critical

Parenting Advantage Test: Role of Corporate HQ critical as synergy manager

People Test: Structure to fit the people available and competencies

Feasibility Test: catch-all category, stakeholders, legal, trade union, bankers, investors
(5 below are good design principles)

Specialised Test: Specialists are brought to develop expertise

Difficult Links Test: Alienation of bearing R&D Cost centre overheads in Profit centric unit

Redundant Hierarchy Test: Delayering levels to improve delays & blockages

Accountability Test: Clarity on accountability, ensure control, commitment

Flexibility Test: Structure to have enough modularity

 BUSINESS STRATEGY
PROCESSES
TYPES OF CONTROL PROCESSES

Input Output

Direct Supervision
Direct Performance Targets (KPIs)
Planning Processes

Finding markets
Cultural Processes
Indirect Self-control
Internal Markets within the group
companies/ units

Cultural Processes:
Organisation culture –
can be both favorable
& unfavorable

PLANNING PROCESS:
• Standardisation of Work Processes
• ERP: Integrate entire business operations
• Centralised Planning to control resources
• Bottom-up inputs but not dependent
 BUSINESS STRATEGY
PROCESSES
TYPES OF CONTROL PROCESSES

Direct Supervision

Planning Processes

Standardisation of Work Processes

ERP
Self-control & Personal Motivation: IT

Cultural Processes
Performance Targeting processes

Market Processes
 BUSINESS STRATEGY
PROCESSES

BALANCED SCORECARD -NORTON & KAPLAN (ITS 4 PERSPECTIVES)

• Customer Perspective – How do customers see us?

• Internal Business Perspective – What must we excel at?

• Innovation & Learning Perspective – Can we continue to improve & create value?

• Financial Perspective – How do we look at shareholders?

Combines both qualitative & quantitative measures

Acknowledges expectations of different stake-holders

Covers both short-term & long-term perspectives

Specifies performance indicators into lead & lag measures

Body weight, for eg is a lag measure - it is a result of choices made
Lead measures are the no of calories consumed & the no burnt through exercise
Sales volume is also a lag indicator because sales are a result of other activities
 STRATEGIC CHALLENGES – AGRI-BUSINESS
F= Financial, C= Customer, I= Internal, L&G = Learning & Growth

 Increasing market share & its sustainability in emerging competitive environment F (C&F)
 Profitable growth F (C&F)
 Sustain EVA positive F (C&F)
 Enhancing customer value proposition C (C)
 Ensuring enhancement of farm income C (C&F)
 Facilitate Government Thinking on Fertilizer Policies I (F)
 Managing sustainable alliances I (C&F)
 Securitization of Traded Products I (C)
 Quality Assurance for Traded Products I (C&F)
 Franchisee Alignment I (C&F)
 Managing supply chain I (C)
 Excellence in Customer management and shared services processes I (C)
 IT usage I (C)
 Attracting, Nurturing and Retaining Talent to Meet Challenges & Aspirations L&G (F)
 Building R&D capability L&G/I F)
 Building key competencies for new businesses (Franchisee, Agronomist, Employees) L&G (F)
 Creating a Climate of Excellence L&G (C)
(Relentless Cost Focus, Speedy Execution, Collaborative Responsiveness)
 BUSINESS STRATEGY
RELATIONSHIPS
RELATING INTERNALLY:

RELATING TO CENTRE:
Devolution of power to delegate decision-making

RELATING OVER STRATEGY:

How responsibilities are to be divided between centre and business units?

STRATEGIC PLANNING:
Centre is master planner defines roles, responsibilities, deliverables

FINANCIAL CONTROL:
Centre sets targets, allocates resources, appraises performance
Business Managers are accountable to meet the targets

STRATEGIC CONTROL:
Centre’s role is one of parent as ‘strategic shaper’ influencing behaviour in business units
 BUSINESS STRATEGY
RELATIONSHIPS
RELATING EXTERNALLY
OUTSOURCING –
Components, services, processes out of value chain analysis

STRATEGIC ALLIANCES –
Preferred supplier to alliance partner status

NETWORKS –
Outsourcing, alliances & virtuality (teleworking, federations/ associations of industry, one-stop),

VIRTUAL ORGANISATIONS –
Most processes/services outsourced, its operations run through partnerships, networking, collaborations
 BUSINESS STRATEGY
CONFIGURATIONS
STEREOTYPICAL CONFIGURATIONS –
• Simple Configuration: dominated by CEO or promoter (small enterprise)

• Machine Bureaucracy Configuration: Structured around functional depts – tends towards

centralisation - organisations offering generic or commodity products & services

• Professional Bureaucracy Configuration: Standardised knowledge & competencies but

less centralised

• Divisionalised Configuration: multidivisional structure with devolved relationship

• Adhocracy Configuration: faced by constant change – rely on cultural processes &

self-control – seen in consulting organisations

• Missionary organisations: rely on cultural processes than formal structure – seen in

voluntary org

REINFORCING CYCLES – (Strategic Drift)

Gravity from individuals, groups, teams to resist particularly in any orbit shifting strategy,
elements of organisation’s strategic position (environment, resources, expectations)
It is strategy resulting from a configuration, rather than configuration as an outcome
for strategy implementation -

CONFIGURATION DILEMMAS –
 BUSINESS STRATEGY
SOME DILEMMAS IN ORGANISING SUCCESS

Hierarchies
versus
networks

Vertical
Holistic solution
Dilemmas in Accountability
V/s
organising V/s
best practice
for success Horizontal
in each element
Integration

Empowering
Centralised or V/s holding
devolving the ring
(tight or loose)

Resolving dilemmas: Subdividing structure, combining structure and frequent reorganisation to prevent
any one exerting more influence (balancing)
 BUSINESS STRATEGY
SOME DILEMMAS IN ORGANISING SUCCESS

EMERGENT AND DELIBERATE STRATEGIES

Intended Deliberate Realized

Strategy Strategy Strategy

Unrealized Emergent
Strategy Strategy

From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh