Strategic Management

Presentation on

Structural Implementation
Under the guidance of
Dr. Vikas Madhukar

Submitted by
Satyam
Roll no 2946
 Structural Implementation

We usually conceive of an organisation

structure as a chart consisting of boxes in
which the names of position or designations
of personnel are in a hierarchical order. To as
strategist, an organisation structure is not only
a chart but much more.
 WHAT IS STRUCTURE ?
• The diagrammatical representation of
structure could be an organisation chart, but a
chart shows only the skeleton. The ‘flesh and
blood’ that makes an organisation alive is the
several administrative mechanisms, such as
controls, that support the structure.
An organisation structure specifies three key
components that are enumerated below:
 
• 1. It identifies the formal reporting
relationship, including the number of levels in
the hierarchy and the span of control of
managers.
• 2. It specifies the grouping of individuals into
departments and of departments into the
total organisation .

• 3. It consist of design of systems to ensure

effective communication, coordination and
integration of efforts across departments.
 
• The first two components constitute the
structural framework, which is the vertical
structure created through the process of
differenciation. Third component refers to
pattern of interactions among members of the
organisation and is the horizontal structure,
created through the process of integration
that involves cross-functional information
systems and team work.
Typically, the vertical structure will have these
characteristics:
• Specialised tasks
• Hierarchy of authority
• Rules and regulations.
• Vertical communication and formal reporting
systems
• Centralised decision making
• Emphasis of efficiency
The horizontal structure will have these
characteristics:
• Shared tasks
• Flexible authority
• Few rules and regulations
• Horizontal communication and sharing of
information
• Decentralised decision making
• Emphasis on learning
 Vertical structures
• Vertical structures lead to many layers of
management, thick boundaries between
layers preventing smooth communication,
tight controls, rigidity, centralized decision-
making and too many specific ways of doing
things stifling creativity. On the positive side,
these structures are well-suited for efficient
and tightly-con-trolled operations.
 Vertical structures
• These types of structures are best suited for
organizations making standarised products
and services in large volumes, through mass
production systems with established
technologies. Large manufacturing companies
government bureaucracies
Vertical structure
 Horizontal structures
• Horizontal structures are lean and mean organisations
with few layers of management, a liberal exchange of
information between different layers and across
departments, flexible systems, much delegation of
authority leading to decentralized decision-making and
having an organisation climate conducive to innovation.
On the negative side, such structures often result in loss
of control and high costs of coordination and require
highly qualified employees with multiple skills. Such
structures are also called flat structures.
 Horizontal structures
• These types of structures are suited to
organizations that make differentiated
products and service through batch
production system, with advanced
technologies, serving niche markets with
customers seeking premium items for
consumption. Small-sized service
organisations.
Horizontal structure
• The challenging aspect of creating an organisation
structure is that requirements for vertical and
horizontal structures coexist at the same time.
• In a bank for instance, cheque processing is a fairly
standardized activity requiring a low level of skills
and repetitive operations with high centralization of
authority. In the same bank, the investment division
or marketing, department may perform specialized
activities requiring organisations, are mutually
contradictory, resulting in an inherent tension.
 Nutshell
• Structure in the context of strategic
management is they way in which tasks and
sub-tasks required to implement a strategy are
arranged. The relationship of structure and
strategy creates its own special requirements
that should be satisfied by the structure
 Nutshell
• Organisation structure is distinguished into vertical
and horizontal structures. The veridical structure is
designed primarily for exercising control by
superiors over subordinates work in the
organisation. The horizontal structure is designed
for coordination and collaboration of work among
peers in the organisation. The challenging aspect of
creating an organisation structure is that
requirements for vertical and horizontal structures
coexist at the same time.
 Relation among environment, structure &
strategy
• When structure follows strategy, it is an
illustration of the forward linkage, the
structure flows from strategy. Once in place,
the structure tends to influence how present
strategies are implemented and also how
future strategies would be formulated. That is
how structural considerations also affect
strategy, which is a case of backward linkage.
 Two-way relationship of structure and
strategy
• Strategy determines the structure in a major
way. It does this by providing the necessary
infrastructure and administrative mechanisms
that enable implementation of the chosen
strategy. The structure conversely impact the
strategy, but to a lesser extent.
• The two –way relationship between strategy
and structure helps us to understand what is
structural implementation.
 An example
• Sometime in 2003, the top management at Bajaj
Allianz realized that its multilayered pyramidal
structure with centralized authority may not work in
the emerging scenario. There was a CEO assisted by
deputy chief operating officer, chief financial officer,
president of R&D and heads of sales and marketing.
At the operational level, the underwriting authority
of the branch head was restricted and proposals
were sent up to the head office for decisions,
leading to delays and customers dissatisfaction.
• Post-2004, the company went into high gear and started
implementing a rapid expansion strategy. Authority was
decentralized, with branch offices given autonomy to
accept or reject proposals. The product portfolio was
strengthened and the distribution network was
expanded. Was some heartburn among the existing top
managers. The company had to poach managers from
rivals to make up for the shortfall. The net result of the
structural implementation is that the company is able to
perform effectively and regularly posts good financial
result.
 Nutshell

• There is a relationship between the environment,

strategy and structure. Changing environment
impacts which in turns determines the type of
structure to have. We have taken a position that
strategy and structure affect each other though the
forward impact is more visible. Structure and
strategy have a two-way, reciprocal relationship. The
relationship between strategy and structure is
spanned by environment in one direction and
effectiveness in the other
 Nutshell

• Structural implementation is more concerned

with the match that should exist between
strategy and structure. In other words, a
particular strategy creates special
requirements that should be fulfilled by the
structure.
 Stages of Development of organisations

• Stage I - organisations are small-scale enterprises usually

managed by a single person who is the entrepreneur-owner-
manager. These organisations are characterized by simplicity
of objectives.

• Stage II - organisations are bigger than stage I organisations

in terms of size and have a wider scope of operations. They
are characterized by functional specialisation or process
orientation. The organizational or process orientation. The
organizational form is simple functional.
•  
• Stage III organisations are large and widely scattered
organisations, generally having, units or plants at
different places. Each division is semi-autonomous
and linked to the headquarters but functionally
independent.
• Stage IV organisations are the most complex. They
are generally large, multi-plant, multi-product
organisations that result from the adoption of
related and unrelated diversification strategies. The
organizational form is divisional.
Business Today makes an interesting analysis of chronological
evolution of organization structure within Indian firms
 
• One-man organisation (Pre-1940)
• The classic triangle (1940-50)
• The managing agency (1950-60)
• The functional structure (1960-70)
• The cross-holding structure (1970-80)
• The conglomerate (1980-90)
• The streamlined group (post-1990)
 
  
Nutshell

• Stages of development help to explain how an

organisation matures from simplicity to
complexity in terms of structure. The life cycle
of organisations could be divided into four
stages that are not distinct and may overlap.
The stages of development theories present a
convenient way to understand the way in
which the structure may evolve as the
organisation moves from one stage to the next.
 Types of organizational structures
 

Entrepreneurial structure
• Most elementary form of structure and is
appropriate for an organisation that is owned
and managed by one person. A small-scale
industrial unit, a small proprietary concern or a
mini-service outlet may exhibit the
characteristics of organisations which are based
on an entrepreneurial structure.
•  
 Entrepreneurial structure

Owner - manager

employees
Functional Structure
• As the volume of business expands, the
entrepreneurial structure may outlive its
usefulness. The need arises for specialized
skills and delegation of authority to m
managers who can look after the different
functional areas. A typical functional structure
is shown
 Functional Structure

CEO

PR

FINANCE MKT’ING HR
Divisional Structure
• There comes a time in the life of organisations
when growth and increasing complexity in
term of geographic expansion, market
segmentation and diversification make the
functional structure inadequate. Some form of
divisional structure is necessary to deal with
such situations.
SBU Structure
• A strategic business unit (SBU) any part of business
organisation which is treated separately for strategic
management purposes. When organisations face
difficulty in managing divisional operations due to
increasing diversity, size and number of divisions, it
becomes difficult for the top management to exercise
strategic control. The concept of SBU is helpful in
creating an SBU organizational structure.
•  
SBU Structure

CEO

SBU-1 SBU-2
Matrix Structure
• In large organisations, there is often a need to
work on major products or projects, each of
which is strategically significant. The result is
the requirement of a matrix type of
organisation structure. Such a type of structure
is created by assigning functional specialists to
work on a special project or a new product or
service.
Network Structure
  The increasing volatility of environment, coupled
with the emergence of knowledge-based industries,
has led to the creation of a network structure. Also
known as the ‘Spider’s web structure of the ‘virtual
organisation’ the network structure is ‘composed of
a series of project groups or collaborations linked by
constantly changing non-hierarchical, cobweb-like
networks’.
 
• An emerging strand of organizational structure
is that of establishing horizontal relationship .
• The structures to support interorganisational
are horizontal structures, extending externally
to partner organisations.
• Called strategic businesses nets, such a network of
organisations is interconnected with the purpose of
achieving common strategic purpose.

• An example of interorganisational relationship is of airline

companies partnering with hotel chains, car rental, cruise
liner and catering companies, other airline companies,
logistics providers and a host of other organisations, in a
massive joint effort at serving their clientele better and
thereby enhancing their effectiveness.
•  
 Organizational design

• Organisational design is based on the key activities

derived out of the mission and objectives.
• Five steps required for organisational design are:
identifying key activities, grouping of similar activities that
need a common set of skills to be performed, choice of
structure that could accommodate the different groups of
activities, creation of departments, divisions, etc. to which
the group of activities could be assigned and establishing
the interrelationship between the different departments
for the purpose of coordination and communication.
• The purpose of organisation design is to create
the right structure that fits the requirements
of the strategy to be implemented. It is an
extremely difficult propositioning to decide
which type of structure would satisfy the
requirements of a particular strategy.
Organisational design has two dimension: -
• structural dimensions describe the internal
characteristics of an organisation and
• contextual dimensions describe the
organizational setting that influences and
shapes the structural dimensions.
 Structural dimension

• Formalisation
• Specialization
• Centralisation
• Professionalism
• Hierarchy
• Personnel ratios
 Contextual dimensions

• Environment
• Goals and strategy
• Culture
• Technology
• Size
• NIIT a global IT learning and knowledge solutions
company that has undergone several structural changes
over a period of time. In 1989, it had a divisional
structure that served its purpose of rapid growth for the
next five years. In 1995, it adopted a global matrix
structure in line with the requirements of its
internationalization strategies that have taken it to more
than 30 countries. Yet again, after five years, in 2000, it
adopted an independent business unit structure with a
corporate centre, with several systemic changes.
 Organizational change

• Organizational change takes place along two

board dimension: the structural changes and
the accompanying behavioral changes. All
organisations make changes in their strategies,
structure and administrative procedures from
time to time.
• Significant changes in thinking related to
organisation structural design have been
taking place worldwide and is impacting
Indian companies too. Some of the major
ideas in this context are of restricting,
reorganization, reengineering, delayering,
flatter structures, etc.
• Reengineering (or business process reengineering)
is the fundamental rethinking and radical redesign
of business processes to achieve dramatic gains in
areas such as cost, quality, service and speed.

• Delayering is communication within the

organisation. Flatter structures result due to
delayering.
 
 Structures for business strategies
Structures for Diversification strategies

• Depending on whether the diversification is related

or unrelated, structures would also reflect the
differences.

• Related diversification
• Unrelated diversification
 
Structures for internationalization strategies
There are four types of internationalization
strategies:
• international
• multidomestic
• global
• transnational
 GLOBAL TRANSNATIONA
STRATEGY - L STRATEGY -
global product global matrix
structure structure

INTERNATIONAL MULTIDOMESTI
STRATEGY - C STRATEGY -
international global graphic
division structure structure