Strategic Case Study Paper 3.4 (ICAG Level 3) PDF

Session 6 Strategic Case Study Paper 3.4 (ICAG Level 3) MSL Business School The ICAG Strategic Case Study (SCS) Syllabus  Other Strategic Product and Service Development Models continued MSL Business School  Forecasting Tools For Strategic Planning...

Session 6 Strategic Case Study Paper 3.4 (ICAG Level 3) MSL Business School The ICAG Strategic Case Study (SCS) Syllabus  Other Strategic Product and Service Development Models continued MSL Business School  Forecasting Tools For Strategic Planning System Modelling Trend forecasting can be used to estimate future values for one variable (such as sales revenue) or a small number of variables. However, sometimes simple trend analysis is insufficient and unreliable, because there may be a number of different factors that will influence future outcomes. In other cases, an organisation may want to make forecasts for a large number of different items (‘factors’). In such cases, the organisation may construct a model for the system that it is forecasting. A system model will have a number of ‘input variables’ or factors that will affect the future outcome. It may also have a number of different items or ‘output variables’ that it is trying to forecast. By experimenting with the model, and varying the values of the input variables, an organisation can look at a range of possible future outcomes, and prepare a strategic plan on the basis of the potential variations in outcomes that might occur. For example, a strategic planning model may include, as input variables: Historical growth in markets Current prices and Current costs Current employee numbers Strength of customer attitudes to the organisation’s product or service (as a quantitative measure) Use of robots (as a quantitative measure, such as costs of investments) Outputs from the model might include: Total market size for the product or service The organisation’s sales and the organisation’s profits Employee numbers By changing values for any or all of the input variables, different forecasts can be produced for the output variables. The various outputs for different scenarios can then be used to make a ‘most likely’ strategic forecast. Using system modelling to make forecasts is a complex form of quantitative forecasting.  Forecasting Tools For Strategic Planning Delphi Technique The Delphi technique is a method of qualitative forecasting, in which a consensus forecast is developed from the opinions of a number of different experts. A questionnaire is sent out to each of the experts, and their anonymous responses are aggregated and shared with all the experts in the group. The experts are able to compare their own forecasts with those of the other (anonymous) experts. Another round of questionnaires follows, and the experts submit their views again, this time in the knowledge of what the other experts think. This process continues a number of times, with round after round of questionnaires. Each time the experts are told what their anonymous colleagues now think, and they are allowed to adjust their answers in each subsequent round. The responses of the experts should change in each subsequent round, based on the information they receive each time about the current views of the other experts. Since the responses of the participant experts are anonymous, individuals do not have to worry about what others think about their opinions or forecasts. Consensus is reached over time as opinions change in each round. The questionnaire rounds can be repeated as many times as necessary to achieve a general sense of consensus. The aim of the Delphi method is that eventually, the experts will reach agreement or consensus in their forecasts, and this becomes the forecast for the purpose of strategic planning. The main disadvantage of the Delphi method for long-range forecasting is that it might take the experts a long time and many rounds of questionnaires to reach a consensus.  Assessment of Business Strategy SFA - Suitability, Feasibility, Acceptability The basis for assessing business strategy Before deciding whether or not to choose a particular business strategy, an assessment should be carried out to judge whether the strategy is acceptable. Johnson and Scholes suggested that when judging the strengths or weaknesses of a proposed strategy, the strategy should be evaluated for its: 1. Suitability: does it address the strategic requirements, given the circumstances and the situation? 2. Acceptability: does it address the strategic requirements in a way that will be acceptable to significant stakeholders? 3. Feasibility: is it practical? Included within an assessment of acceptability or feasibility should be a financial analysis of the proposed strategy. Strategies might be suitable, and they might succeed in achieving their business objectives. However, if the expected financial return is too low, or if the strategy could only be implemented at a loss, it should not be undertaken. An assessment of strategy must always consider the financial aspects. In your examination, you should bear this in mind. If you are asked to recommend a business strategy for the organisation in the case study in your examination, you should not recommend anything that is financially unacceptable!  Assessment of Business Strategy SFA - Suitability, Feasibility, Acceptability Suitability of a strategy A strategy is suitable if it would achieve the strategic objective for which it is intended. If the purpose of the strategy is to gain competitive advantage, it is necessary to assess how the strategy might do this, and how effective the strategy might be. Will the strategy succeed in reducing costs, if this is its purpose? Will the strategy succeed in adding value, if adding value is the purpose? If the purpose of the strategy is market development, how successful might the strategy be? Similarly, how suitable are the chosen strategies for market development, product development or diversification? Is the business risk in the strategy acceptable, or might the risk be too high? Several techniques might be used to assess the suitability of a strategy. These include: life cycle analysis and the life cycle portfolio matrix an assessment of resources and competencies business profile analysis.  Assessment of Business Strategy SFA - Suitability, Feasibility, Acceptability Feasibility of a strategy The feasibility of a strategy is concerned with whether it will work. A strategy is feasible if it can be implemented successfully. Assessing whether or not a strategy is feasible will require some judgement by management. Some of the questions to consider are as follows: Is there sufficient finance for the strategy? Can we afford it? Can we achieve the necessary level of quality that the strategy will require? Do we have the marketing skills to reach the market position that the strategy will expect us to achieve? Do we have enough employees with the necessary skills to implement this strategy successfully? Can we obtain the raw materials that will be needed to implement this strategy? Will our technology be sufficient to implement the strategy successfully? For example, will our IT systems be good enough? If there are serious doubts about the feasibility of a strategy, it should not be selected. An important aspect of strategy evaluation is the financial assessment. Will the strategy provide a satisfactory return on investment? Is the risk acceptable for the level of expected return? What will be the expected costs and benefits of the strategy? How will it affect profitability? What effect is the strategy likely to have on the share price?  Assessment of Business Strategy SFA - Suitability, Feasibility, Acceptability Acceptability of a strategy The acceptability of a strategy is concerned with whether it will be acceptable to key stakeholders. If it is not acceptable to a key stakeholder, the stakeholder will oppose the strategy. Management should then consider whether a strategy that is not acceptable to a key stakeholder should be undertaken or not. In most cases, management are likely to reject a strategy that will not be acceptable to a key stakeholder. There are several aspects of ‘acceptability’. Management will not regard a strategy as acceptable if the expected returns on investment are too low, or if the risk is too high in relation to the expected return. Investors might regard a strategy as unacceptable if they will be expected to provide a large amount of additional investment finance. Employees and investors might consider a strategy unacceptable if they regard it as unethical.  Ethical Influences and Corporate Social Responsibility Ethical stance The business ethics of a company can also be described as an ethical stance. An ethical stance is the extent to which an entity will exceed its minimum legal and ethical obligations to stakeholders and society in general. There is a range of different ethical stances that a company might take, but it is useful to group them into four broad positions on a scale from position 1 to position 4. 1. Position 1. The company takes the view that its only interests should be the short-term interests of its shareholders. Business decisions should be taken with satisfying shareholder interests as the only objective. 2. Position 2. The company takes the view that the interests of its shareholders are the most important concern, but that in the long term the company will benefit by showing some concerns for the interests of employees, communities, the general public and the environment. The company therefore acts in its ‘enlightened self-interest’. 3. Position 3. The company recognises an obligation not only to its shareholders, but to other stakeholder groups. 4. Position 4. The company has an ethical obligation towards society as a whole, and should be a ‘shaper of society’, creating a fair and just society for everyone. Financial objectives should be of secondary importance. ‘Ethical behaviour’ by companies is generally associated with an ethical stance around position 2 or position 3. Read page 190 to 194 of the ICAG Manual  Strategy Selection The process of strategy evaluation provides an assessment of the suitability, feasibility and acceptability of different strategies. Strategy proposals that are not suitable, not feasible or not acceptable can be rejected. This might still leave several different alternative strategies to consider. If so, the preferred strategies must be selected from the strategy options that are available. 1. Formal evaluation Where there is a free choice from several available strategies, the selection might be based on a formal financial evaluation and strategic evaluation of the expected returns and the risks, over the long term as well as the short term. 2. Enforced choice In some cases, management might take the view that they have no real choice, and that they are ‘forced’ to adopt a particular strategy. The reasons for having to select an enforced strategy might be that: a key stakeholder, such as a major shareholder, is insisting on a particular strategy, or every competitor is doing the same thing. However, it is probably a sign of weak management that a strategy is considered necessary or unavoidable. Strategy selection should be positive. Management should be looking for the strategies that are most likely to achieve the corporate objectives.  Strategy Selection 3. Learning and experience A distinction can be made in strategy selection between experience and learning. Experience is acquired over time. With experience, an entity should develop skills and competencies. Strategic opportunities should arise that enable the entity to use its skills and experience to develop its businesses. Using acquired skills to develop and grow is consistent with the logical incremental model of strategic management. Learning is the acquisition of new ideas. An entity might select a strategy that forces it to learn something new. This might require a significant change in behaviour as well as skills. Although the learning process can be rapid, strategies based on new learning are likely to introduce change more suddenly. This type of strategy might therefore be fairly risky. 4. The learning organisation An entity is more likely to sustain its competitive advantage if it is able to adapt and change ahead of its competitors. A learning organisation is an entity that recognises the importance of its employees in the processes of innovation and change. To remain competitive, and organisation needs elements of a learning organisation. A learning organisation has been defined as: ‘an organisation that facilitates the learning of all its members and continually transforms itself’ (the Learning company: a Strategy for Sustainable Development, Pedler, Burgoyne and Boydell) an organisation ‘where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free and where people are continually learning to see the whole together’ (Senge).  Strategy Selection 4. The learning organisation (continued) Pedler, Burgoyne and Boydell identified the following characteristics in a learning organisation: A learning approach to strategy. Strategy development is based in experimentation and feedback, and learning from the experimenting and testing. Participative policy-making. All members of a learning organisation have the opportunity to contribute to policy-making, as part of the learning process. Information. Using information, not as a method of management control, but as a resource for the entire organisation to use. Formative accounting and control. Accounting systems are designed so that they assist learning. In particular accounting systems provide information about how cash, the key resource, is generated and used. Internal exchange. The concept of the ‘internal customer’ is encouraged. Work done for someone else within the organisation is work for an internal customer. An internal customer should be given the same consideration and customer care that would be given to an external customer. The needs of the internal customer should be recognised and satisfied. Rewarding flexibility. Members of the organisation should be encouraged to see the various rewards they get from doing their job, not just their money rewards (pay). There is also openness about why some individuals are paid more than others. Enabling structures. Structures within the organisation, including management structures and physical structures (such as the layout of an office and its desks) should be seen as temporary arrangement. The structure can be changed at any time in response to changing needs. Boundary workers as environment scanners. Members of the organisation who come into contact with the external environment (sales representatives, customer service staff, buyers and so on) should pass on to others within the organisation all the information they gather from the environment.  Strategy Selection 4. The learning organisation (continued) Pedler, Burgoyne and Boydell identified the following characteristics in a learning organisation: Inter-company learning. The organisation learns from other organisations, for example through benchmarking. Learning climate. The organisation has a learning culture. Members understand that a part of their task is to keep on improving their knowledge and to share their knowledge with other members of the organisation. Self-development opportunities for all. Resources and facilities for self- development are made available to all members of the company – employees at all levels and, ideally, external stakeholders too.  Strategy Implementation MSL Business School  Strategy Implementation Organising for Success MSL Business School  Organisation Structure Organisation structure is an aspect of strategy implementation. Strategy is implemented through actions, and actions are planned and controlled through the management and decision-making structure within the entity. Organisation structures differ between entities. The organisation structure of an entity should be appropriate for the size of the entity, the nature of its operations, and what it is trying to achieve. Most important, the organisation structure must enable the entity to develop plans and implement them effectively. There are several different types of organisation structure. Within a single entity, particularly a large entity, there might be a mixture of different organisation structures, with different structures in different parts of the entity. From a strategic perspective, however, the key question is: ‘What is the most appropriate structure for a particular entity that will help it to achieve its strategic objectives in the most efficient way?’ You should also be familiar with the following basic structures that might exist within any entity or part of an entity: an entrepreneurial organisation structure a functional structure a divisional structure a matrix organisation.  Organisation Structure Entrepreneurial Organisation An entrepreneurial organisation is an entity that is managed by its entrepreneurial owner. The main features of an entrepreneurial organisation are usually that: the entrepreneur takes all the main decisions, and does not delegate decision-making to anyone else the entity is therefore organised around the entrepreneur and there is no formal management structure operations and processes are likely to be simple, and the entity will probably sell just a small number of products or services. An entrepreneurial structure is appropriate when an entity is in the early phase of its life. As it grows larger, however, an entrepreneurial structure will become inefficient, and a formal management structure is needed.  Organisation Structure Functional Organisation Structure A functional structure is usually the next stage in the development of the organisation structure of a growing entity. In a functional organisation structure, decision-making authority is delegated in a formal arrangement, and responsibilities are divided between the managers of different activities or functions. Typically, functions in a manufacturing entity include production (or operations), marketing and sales, and finance and accounting. There might also be a human relations function, an IT function, a research and development function, and so on. Each function has its own management structure and its own staff.  Organisation Structure Divisional Organisation Structure As entities grow still further, and develop their business operations into different product-markets, a divisional structure might become appropriate. A division is an area of operations, defined by: markets in different geographical areas (for example, the European and the North American divisions) different products (for example the bus division and the rail division of a transport company) different customers (for example, industrial products and consumer products). A division might be a strategic business unit of the entity (group). Each division has its own functional departments, such as marketing and sales, operations (production), accounting and finance, and so on. Authority is delegated from head office to the divisional management (led perhaps by a divisional managing director), and responsibility for the implementation of product-market strategy is mainly at divisional level. Head office retains overall control, and there may be some head office functions providing support services to all the divisions, such as corporate strategy, IT and research and development. The simple organisation chart on the next slide shows the organisation structure for a divisionalised organisation with two divisions, where IT and research and development are head office support functions.  Organisation Structure Divisional Organisation Structure  Organisation Structure Conglomerate Organisation Structure A conglomerate is an organisation structure consisting of two or more companies operating in entirely different industries, but which are part of the same group and under the same control. Typically a conglomerate consists of a parent company and a number of subsidiary companies (and sub-subsidiaries etc). This type of structure is appropriate when a group of companies operates in several different industries or industry sectors. The advantages of a conglomerate structure are that: Each subsidiary within the group can focus on its own special area of operations Adding new subsidiaries to the group in an acquisition, or selling off businesses in a disposal is relatively straightforward. Most, if not all, major global companies have a conglomerate structure.  Organisation Structure Matrix Organisation Structure Some entities have developed a matrix organisation structure for some of their activities. The matrix organisation originated in the 1950s and 1960s, in entities where it was recognised that different functions within the entity needed to work closely together. Horizontal relationships across different functions were as important as the ‘traditional’ reporting relationship within functions. Matrix organisations and project organisation structures were both first used in the defence and aerospace industries, where companies were required to carry out major projects for customers, such as building a quantity of aircraft for a government customer. The challenge was to complete projects on time and on budget. However, the traditional functional structure within the construction companies meant that no one was responsible for the project as a whole. A matrix organisation or project management organisation was introduced to overcome the problem. Project managers were appointed with overall responsibility for individual projects. Project managers had to organise the efforts of individuals in all the different functions. At the same time, functional managers such as management of engineering, production and sales and marketing, retained their decision- making authority. In this way, a dual command structure was created. In a matrix organisation, the traditional vertical command structure has an overlay of horizontal authority or influence. A matrix organisation has been defined as: ‘any organisation that employs a multiple command system that includes not only a multiple command structure but also related support mechanisms and an associated organisational culture and behaviour pattern’ (Davis and Lawrence 1977).  Organisation Structure Matrix Organisation Structure The difference between a matrix organisation structure and a project organisation is that with a project organisation, the project management comes to an end when the project ends. With matrix organisation, the matrix structure of authority and command is permanent.  Organisation Structure Matrix Organisation Structure In the diagram on the previous slide, the person shown is a quality control expert and is responsible to the quality control manager for technical aspects of the job, maintaining quality systems and so on. The person is also responsible to the manager of Project B. That manager will be concerned with completing the project on time, within the cost budget and to the proper standard. Obviously conflicts can arise: the project manager might want to skip some tests to make up time, but the quality control department won’t want to do that. Both can put the employee under some pressure. However the matrix structure should allow the employee to ask the two managers to discuss the problem, as it is plain that they are both involved. Overall, matrix structures should: encourage communication place emphasis on ‘getting the job done’ rather than each manager defending his or her own position.  Organisation Structure Project-Based and Team-Based Structures Project-based and team-based structures In addition to having a formal management structure, entities might also use project teams and other management teams to implement some activities. Project teams are usually assembled to accomplish a specific task, such as introducing a new system or a new process. The project team should consist of members from different disciplines or functions, so that a wide range of skills is assembled to implement the project. Project teams might be used for implementing planned strategic changes.  Organisation Structure Span of Control The span of control refers to the number of people who directly report to a manager in a hierarchical management ‘command’ structure. There are two extreme shapes: Tall-narrow. In this type of structure, each manager has a small number of subordinates reporting directly to him. As a result, in a large organisation, there are many layers of management from the top down to supervisor level. The span of control is narrow, and the shape of the organisation structure is tall, because of the many layers of management. Wide-flat. In this type of structure each manager has a large number of subordinates reporting directly to him. As a result, even in a large organisation, there are only a few layers of management from the top down to supervisor level. The span of control is wide, and the shape of the organisation structure is flat, because of the small number of management levels.  Organisation Structure Span of Control The tall-narrow structure often has the following characteristics. Formality in relationships between managers and subordinates. Close supervision, with managers spending much of their time monitoring the work of subordinates and giving them directions Task specialisation, with a small group of manager and subordinates specialising in a very narrow aspect of the entity’s operations A strong cultural and procedural emphasis on formal roles, job titles and job descriptions Slow vertical communication. Because of the many levels of management, it can take a long time for information to get from top to bottom of the management hierarchy, and from bottom to top. As a result, tall-narrow organisations can be slow to react to change. The wide-flat organisation structure often shows the following characteristics, where the work is fairly complex and non-routine. Greater egalitarianism. ‘Bosses’ and ‘subordinates’ will often respect each other for their skills and experience, and will treat each other as equals. Team-work and co-operation. Greater delegation of responsibility to subordinates. Managers have too many subordinates to apply close control. Managers must therefore trust subordinates to get on with their work, with relatively little supervision. Flexibility. There is less emphasis on roles and job descriptions, and individuals are more willing to switch from doing one type of task to another, as the demands of the work change. There is rapid vertical communication and decision-making. Information travels quickly from top to bottom of the organisation structure and from bottom to top.  Organisation Structure Span of Control Wider and flatter organisation structures have replaced tall bureaucratic structures in many organisations. The reasons why wide-flat organisations are often preferred are as follows. Wide-flat structures are more suitable to rapidly-changing business environments, where entities must respond to changes quickly and with flexibility. An organisation in which information travels quickly and decisions can be made quickly is more appropriate in these circumstances than a structure that is more formal and hierarchical. Cost savings. It has been argued that in a tall-narrow organisation, managers spend too much time managing each other, instead of adding value. If middle managers do not add value, they should be eliminated from the organisation structure. Organisational processes Actions are implemented within an entity through established processes. The processes that are used within an entity vary. As explained above, they differ between tall-narrow organisation structures and wide-flat organisations. Processes affect the way that plans are made and implemented, and activities are controlled. The nature of planning and control can differ widely between different entities. At one extreme, actions are controlled through direct and close supervision of the work of individuals by their supervisor or superior manager. At the other extreme, there is minimal supervision, and control is exercised mainly by the individual himself.  Strategy Implementation Internal & External Relationships MSL Business School  Internal Relationships Centralisation versus Decentralisation An important aspect of internal relationships is the extent to which decision- making is centralised, so that major planning decisions are made (and implemented) by ‘head office’, or decentralised. In a centralised organisation, senior management retain most (or all) of the authority to make the important decisions. In a decentralised organisation, the authority to take major decisions is delegated to the management of units at lower levels in the organisation structure, such as SBU managers, and divisional managers. The choice between a centralised and a decentralised organisation depends to some extent on the preference of senior management. However, the size and complexity of the entity also influence the extent to which decision-making, planning and control are centralised or decentralised (‘devolved’). It is difficult to control a large and complex entity from head office, without delegating substantial amounts of authority to divisional managers. Advantages of centralisation Advantages of centralisation are as follows. Decisions by management are more likely to be taken with regard for the corporate objectives of the entity as a whole. There is a very strong argument in favour of making strategic decisions centrally. Decisions by management should be co-ordinated more effectively if all the key decisions are taken centrally. In a crisis, it is easier to make important decisions centrally.  Internal Relationships Centralisation versus Decentralisation Advantages of decentralisation/devolution of authority Advantages of decentralisation are as follows. In many situations, junior (‘local’) managers have better knowledge than senior management about operational conditions. Tactical and operational decisions are probably better when taken by local management, particularly in a large organisation. Giving authority to managers at divisional level and below helps to motivate the management team. Decisions can be taken more quickly at a local level, because they do not have to be referred to head office. In a large and complex organisation, many decisions have to be made – probably too many for senior management at head office. The appropriate amount of centralisation or decentralisation for an entity will depend on the circumstances. It has already been suggested (Greiner’s growth model) that as it gets larger, an entity might go through periods of centralisation, decentralisation and co- ordination between local management and head office.  External Relationships Outsourcing External Relationships An entity might use external relationships to deliver a particular strategy. These are relationships with other entities, or with individuals who are not a part of the entity but are external to it. External relationships may take the form of: strategic alliances value networks outsourcing of functions virtual organisation Outsourcing An entity does not need to carry out operations itself. Instead, it can outsource work to a sub-contractor. Outsourcing is common in certain industries, such as the construction industry. It is also common to outsource ‘non-core’ activities, such as the management of the entity’s fleet of motor vehicles, security services, some IT work and some accountancy work (for example, payroll operations). The size of an entity, and its organisation structure, will depend to some extent on how much of its operational activities it chooses to outsource.  External Relationships Outsourcing The reasons for outsourcing Outsourcing is consistent with the view that an entity achieves competitive advantage by concentrating on its core competencies. It does not achieve competitive advantage doing work that can be done just as well – if not much better – by another entity. The entity should therefore focus activities within the entity on core competencies, with the aim of gaining more competitive advantage in these core areas. The entity should outsource work to entities that have core competencies in these areas of work. They should be able to add value more effectively than the entity would if it were to carry out the work internally instead of outsourcing it. The outsourced work might require specialist skills that the entity cannot employ internally, because it cannot offer enough work or a career structure to full-time specialists. It therefore outsources its specialist work to specialist firms. Problems with outsourcing The nature of the relationship with suppliers of outsourced work is critical to the successful implementation of strategy. A potential problem with outsourcing is the loss of control over the outsourced activities. This can be significant when something goes wrong, and action performance does not meet expectations. For example a company might outsource its IT work and might commission a software company to write some new software. The software, when written, might not function properly. The problem is then to manage the external relationship with the software company, to find a satisfactory solution to the problem.  External Relationships The Virtual Organisation The virtual company or virtual organisation does not have an identifiable physical existence, in the sense that it does not have a head office or operational premises. It might not have any employees. A virtual organisation is operated by means of: IT systems and communications networks – normally telephone and e-mail business contacts for outsourcing all operations. Many small businesses operate as virtual organisations. For example, a house builder might operate his business from his home. When asked to build a new house, he can hire all the labour – skilled and unskilled – that he needs to do the work, supervise it and check it. He can employ a firm of accountants to deal with the invoicing and payments. The builder does not need an office, or full-time employees. His core competence is his personal skill and experience, which he should use to give his firm its competitive advantage over rival house builders. In the same way, there is no reason why a larger business should not be operated as a virtual company. For example, a company that sells branded footwear could operate as a virtual company, using its brand name as its major core competence. It could outsource all its value chain and support activities. Manufacture could be outsourced to producers in developing countries; warehousing companies could be used to hold inventories. A network of self- employed sales representatives might be used to sell the footwear into retail organisations, and marketing activities might be outsourced to an external agency. One person, or a small number of individuals, can operate a virtual organisation and indirectly control the actions of many ‘external’ entities and individuals. A key to a successful virtual organisation is the successful management of all the different external relationships, and successful co-ordination of their activities.  Strategy Implementation The Most Appropriate Organisation Structure MSL Business School  Contingency Theory of Organisation Structure Burns & Stalker: Mechanistic & Organic Structures Contingency theory of organisation structure Contingency theory of organisation structure is that the most effective organisation structure for an entity depends on the circumstances. An entity should use the organisation structure that is best suited to its size, complexity and strategies. Organisation structure will vary according to differences in organisational processes and internal and external relationships. Burns and Stalker: mechanistic and organic structures An example of contingency theory is the management study of Burns and Stalker. They identified two categories of organisation structure, a mechanistic structure and an organic structure. The differences between the two types of structure are set out in the table on the next slide. Burns and Stalker found from their research that one type of organisation is not necessarily better than the other. However, they did find that: an organic structure is better-suited to an entity that needs to be responsive to change in its products and markets, and in its environment a mechanistic structure is better suited to an entity in a stable environment, where change is gradual. Burns and Stalker also found that entities with an organisation structure better suited to their environment perform better than entities whose structure is not well suited to their environment. For example an entity with a mechanistic structure performs better in a stable market than an entity with an organic structure.  Contingency Theory of Organisation Structure Burns & Stalker: Mechanistic & Organic Structures  Mintzberg’s five Building Blocks for Organisational Configurations Mintzberg argues that an organisation structure exists to co-ordinate the activities of different individuals and work processes, and to implement plans into action. The nature of the organisation structure varies with differences in processes and internal and external relationships. He suggested that there are five elements or ‘building blocks’ in an organisation. The way in which an entity is organised most effectively depends on which of these elements is dominant. These five elements are shown in the diagram below. Strategic apex. This is the top management in the organisation Operating core. This represents the basic work of the organisation, and the individuals who carry out this work. Middle line. These are the managers and the management structure between the strategic apex and the operating core. Support staff. These are the staff who provide support for the operating core, such as secretarial staff, cleaning staff, repair and maintenance staff, IT staff and so on. Technostructure. These are staff without direct line management responsibilities, but who seek to standardise the way the organisation works. They produce procedures and systems manuals that others are expected to follow.  Mintzberg’s five Building Blocks for Organisational Configurations Mintzberg argued that the group that has the greatest influence determines the way in which the entity is organised, and the way that its processes and its relationships operate. When the strategic apex is powerful, the organisation is entrepreneurial. The leaders give the organisation its sense of direction and take most of the decisions. When the technostructure is dominant, the organisation often has the characteristics of a bureaucracy, with organising, planning and controlling prominent activities. The organisation continually seeks greater efficiency. When the organisation is divisionalised and local managers are given extensive authority to run their own division in the way that they consider best, the middle line is dominant. Some organisations are dominated by their operating core, where the basic ‘workers’ are highly-skilled and seek to achieve proficiency in the work that they do. Examples might be schools, universities, and hospitals, where the teachers and doctors can have an exceptionally strong influence. In a professional bureaucracy, such as a firm of accountants or lawyers, the middle line tends to be short (close contact between the partners and staff). Unexpectedly, in view of the amount of standardised audit documentation, the technostructure is small. This is because, although the documentation is extensive, the use of the documentation is unique for each client. No two audits or law cases are the same, so standardisation must be limited.  Mintzberg’s six Organisational Configurations Mintzberg identified six different organisational configurations, each having a different mix of the five building blocks. He suggested that the most suitable organisational configuration would depend on the type and complexity of the work done by the entity. The six configurations are: simple structure machine bureaucracy professional bureaucracy divisionalised form Adhocracy missionary organisation Simple structure This is found in an entrepreneurial company. The strategic apex exercises direct control over the operating core, and there is no middle line. There is also little or no support staff or technostructure. The strategic apex might be an owner- director of the company. This type of structure is very flexible, and can react quickly to changes in the environment, because the strategic apex controls the operating core directly. Machine bureaucracy In a machine bureaucracy, the technostructure is the dominant element in the organisation. The entity is controlled and regulated by a bureaucracy and the emphasis is on control through regulation. It is difficult for an entity with this type of organisation to react quickly to environmental change. This structure is therefore more suitable for entities that operate in a stable business environment.  Mintzberg’s six Organisational Configurations Professional bureaucracy In this type of structure, the operating core is the dominant element. Mintzberg gave the name ‘professional bureaucracy’ to this type of structure because it is often found in entities where the operating core consists of highly-skilled professional individuals (such as investment bankers in a bank, programmers in a software firm, doctors in a hospital, accountants and lawyers in a professional practice, and so on). Divisionalised form In this type of structure, the middle line is the dominant element. There is a large group of powerful executive managers, and the organisation structure is a divisionalised structure, each led by a divisional manager. In some divisionalised structures, divisional managers are very powerful, and are able to restrict the influence of the strategic apex on decision-making. Adhocracy Mintzberg identified a type of organisation that he called an ‘adhocracy’. This is an organisation with a complex and disordered structure, making extensive use of teamwork and project-based work. This type of organisation will be found in a complex and dynamic business environment, where innovation is essential for success. These organisations might establish working relationships with external consultancies and experts. The ‘support staff’ element can therefore be very important. Missionary organisations In this type of organisation, all the members share a common set of beliefs and values. There is usually an unwillingness to compromise or accept change. This type of organisation is only appropriate for small entities that operate in simple and fairly static business environments. Mintzberg’s six Organisational Configurations Differences between the six  Collaborative Working and Resource Sharing Collaboration Effective collaboration allows the various departments of the organisation to work together to meet the common goals and objectives of the organisation. Workplace collaboration involves several elements: Teamwork: working together to solve a problem or complete a task. Brainstorming and ideas-sharing: gaining input from individuals and teams from across the company and pooling that knowledge Sense of purpose: there should be a reason for working together, and doing so should benefit each party as well as the organisation as a whole Equality: effective collaboration treats everyone involved as equals, thus encouraging ideas from all levels within the organisation. The extent to which collaboration can be achieved has been greatly aided, and driven forward, by technological advancements such as faster internet connections, intranets, cloud computing and collaborative software. There are a number of benefits, both to the organisation and the workforce, of establishing collaboration within the workplace: Employee motivation: workplace collaboration plays a key role in developing employee satisfaction and happiness, and therefore motivation. This is because it instils a sense of community within the organisation and gives employees a greater sense of belonging. This makes them more driven to working towards the goals of the organisation.  Collaborative Working and Resource Sharing Collaboration (continued) Knowledgeable workforce: Collaboration increases the amount of information that is available to employees. They also have more direct contact with other departments, functions or services and so gain an understanding of what those areas do and how the organisation works together as a whole. This results in a workforce that is highly knowledgeable about the organisation for which it works. Improved decision-making: The enhanced knowledge of the workforce, along with the ability to pool skills from across the company, results in more informed decision-making leading to better decisions being made. Improved efficiency: staff working in a collaborative environment have easier access to information, more knowledge of the organisation as a whole and the various departments and improved working relationships with others across the organisation. These factors allow individuals to carry out their own tasks with increased levels of efficiency, making for a more efficient organisation overall. Resource sharing Collaboration in the workplace is supported by resource sharing which allows for the best use to be made of the information held within the organisation. Resource sharing through the development of intranets is commonly used within organisations to manage the information and various information systems. Virtual Private Networks (VPNs) take this further by extending the private network securely over a public network to allow remote access to the organisation’s network and intranet.  Collaborative Working and Resource Sharing Resource sharing (continued) Linked information systems by which data is input once, at source, and transferred automatically to all the relevant systems within the organisation. Benefits of resource sharing: Ease of access: The systems, software, files etc can be accessed from any location with an internet connection thus supporting collaborative working and home working in organisations as physical barriers are removed Accuracy: Sharing information means that there will be a single source of data, rather than multiple similar versions scattered around the organisation. This makes the information accessed and used by the individuals around the organisation more reliable as it will be based on accurate information Cost saving: Avoids the duplication of work. Several departments generating similar data for similar purposes is not an effective use of time, and as such is expensive. Resource sharing allows data to be produced only once and used by multiple departments or individuals for their own needs. This reduces inefficiencies and therefore represents overall cost savings for the organisation Facilitates remote working: This increases flexibility as work can be completed from any location, and at any time of the day, which has benefits for the employee in terms of motivation. It also allows for home working to be established which has the potential to create significant savings for the organisation. Transparency: Resource sharing increases transparency within the organisation  Strategy Implementation Business Plans MSL Business School  Business Plans A typical business plan will adopt the following layout: Title page Table of contents Introduction Executive summary Body of the report ○ Business description ○ Business environment analysis Industry background Competitor analysis Market analysis ○ Operating plans ○ Management summary ○ Financial plan Conclusions and recommendations Appendices ○ Detailed financial information ○ CVs of key management  Business Plans Title page The title page is there to attract the reader to the report and assist them in finding the report at a later date. You would typically include: Title (and any sub-titles) – this should distinguish the report and ensure it is easily identifiable from others Author (internal reports only) Your organisation’s name (external reports only) Any reference numbers Degree of confidentiality Date You might also include some kind of unobtrusive artwork such as logos (your organisation and the client) plus a simple graphic that relates to the report subject. Table of contents A table of contents is a list of all the sections that are included in the report (in the same order in which they appear) plus relevant page numbers. Introduction The introduction prepares the reader for the report itself by reminding them of what they already know i.e. why the report has been written and the question that the report answers.  Business Plans Introduction (continued) The introduction should address the following: Make the subject of the report clear State the purpose of the report Briefly explain the methods used to get the information Executive summary The benefit of including an executive summary is that for senior people with little time it is the one section they will read. Therefore, a succinct, clear and well written executive summary should always reach the reader. The executive summary should include: What the report is about What the problems are The conclusions you arrived at What you recommend The skill in writing an executive summary is to give the overall picture without including too much detail. One useful by-product of writing the executive summary is that by going through the writing process you will be able to check that the report itself is logical.  Business Plans Body of the report The body of the report should be split into sections with logical headings and sub- headings. These will likely reflect the groupings and sub-groupings you created during the planning and structuring phase. The headings are essentially ‘signposts’ that allow the reader to navigate to the relevant detail in a logical fashion to further investigate something they have read in the executive summary. Typical components would include: Business description, which briefly explains: ○ Overall mission and objectives ○ History and ownership ○ Products and services Business environment analysis ○ Industry background PESTEL analysis: A PESTEL analysis describes the political (P), economic (E), social (S), technological (T), Ecological (E) and Legal (L) factors that impact the business. SWOT analysis: A SWOT analysis describes a business’s strengths (S), weaknesses (W), opportunities (O) and threats (T). ○ Competitor analysis Who are the main competitors? ○ Market analysis Size, segmentation, growth/decline  Business Plans Body of the report (continued) Operating plans ○ Marketing plan ○ Operations plan Management summary ○ Who the key management personnel are and their backgrounds ○ Organisation chart (summary only – can include more detail as an appendix) Financial plan ○ Summary financial information – income statement, statement of financial position and cash flow statement Conclusions and recommendations The conclusions and recommendations must follow logically from the rest of the report. When writing the conclusions and recommendations section, consider the following: Do the conclusions and recommendations follow logically from the rest of the report? ○ Draw out the main point(s) of the report and present a considered judgement of them ○ Only draw conclusions that are justified by the evidence and facts contained in the body of the report ○ Make recommendations based only on your discussion and conclusions ○ Never introduce a new line of argument or material in the conclusions and recommendations section Check the conclusions and recommendations against the original objective of the report  Business Plans Conclusions and recommendations (continued) Make sure you have answered the reader’s key question Finish with the final impression you want to make Appendices The appendices should include detailed information that the reader can essentially do without in order to make sense of the main body of the report. For example: calculations, examples, questionnaires and CVs. They are effectively the bottom level of the logical pyramids you constructed during the structuring phase. In summary, appendices should be: Included only if absolutely necessary Non-essential for understanding the main arguments Referred to somewhere in the body of the text i.e. there must be a link. Mentioned as the final item in the table of contents An alternative approach is to exclude appendices but invite the reader to contact the author should they wish to see a copy of the detail. However, as a minimum most business plans would include the following two appendices: Detailed financial information – more detail than in the financial plan in the main body CVs of key management – certainly board members but also include for other key management personnel  Strategy Implementation Models for Evaluating Strategic Performance MSL Business School  The Balanced Scorecard The balanced scorecard The balanced scorecard can be used to measure performance in relation to long- term objectives. For a commercial business, the most important objective is a financial objective. However, in order to achieve financial objectives over the long term, it is also necessary to achieve goals or targets that are non-financial in nature, as well as financial. The concept of the balanced scorecard is that there are several key aspects of performance (‘perspectives on performance’) and targets should be set for each of them. These different ‘perspectives’ may sometimes appear to be in conflict with each other, because achieving an objective for one aspect of performance could mean having to make a compromise with other aspects of performance. The aim should be to achieve a satisfactory balance between the targets for each of the different perspectives on performance. These targets, taken together, provide a balanced scorecard, and actual performance should be measured against all the targets in the scorecard. A balanced scorecard approach should remove the emphasis on financial targets and short-term results. However, although a balanced scorecard approach takes a longer-term view of performance, it is possible to set shorter-term targets for each item on the scorecard. In this way it is possible to combine a balanced scorecard approach to measuring performance with the annual budget cycle, and any annual incentive scheme that the entity may operate.  The Balanced Scorecard The balanced scorecard: four perspectives of performance In a balanced scorecard, critical success factors are identified for four aspects of performance, or four ‘perspectives’: customer perspective internal perspective innovation and learning perspective financial perspective. Of these four perspectives, three are non-financial in nature. For each perspective, Kaplan and Norton argued that an entity should identify key performance measures and key performance targets. The four perspectives provide a framework for identifying what those measures should be, although the specific measures used by each entity will vary according to the nature of the entity’s business. The Balanced Scorecard Kaplan and Norton argued that although the main objectives of a business are financial, it is essential for long-term success that the organisation should be able to meet the needs of its customers (the customer perspective). In order to satisfy customers, it must have internal processes that are efficient and effective in delivering the goods or services that customers need (the internal perspective). Also to have effective and efficient internal processes, an organisation needs people with knowledge and skills, as well as a capacity to continue innovating (the innovation and learning perspective). Several measures of performance may be selected for each perspective, or just one. Using a large number of different measures for each perspective adds to the complexity of the performance measurement system.  The Performance Pyramid Another performance evaluation model is the performance pyramid. The concept of a performance pyramid is based on the idea that an organisation operates at different levels. Each level has different concerns, but these should support each other in achieving the overall business objectives. Performance can therefore be seen as a pyramid structure, with a large number of operational performance targets supporting higher-level targets, leading to targets for the achievement of overall corporate objectives at the top. The performance pyramid was developed by Lynch and Cross (1991). They argued that traditional performance measurement systems were not as effective as they should be, because they had a narrow financial focus – concentrating on measures such as return on capital employed, profitability, cash flow and so on. They argued that in a dynamic business environment, achieving strategic business objectives depends on good performance with regard to: Customer satisfaction (a ‘marketing’ objective: here, the focus is on external/market effectiveness) Flexibility (the flexibility objective relates to both external effectiveness and internal efficiency within the organisation) Productivity (resource utilisation: here, the focus is on internal efficiency, much of which can be measured by financial performance) These key ‘driving forces’ can be monitored at the operational level with performance measures relating to quality, delivery, cycle time and waste. Lynch and Cross argued that within an organisation, there are different levels of management and each has its own focus. However, there must be consistency between performance measurements at each management level, so that performance measures at the operational level support the corporate strategy. The Performance Pyramid  The Performance Pyramid Interpreting the performance pyramid The performance pyramid links strategic objectives with operational targets, and internally-focused with externally-focused objectives. Objectives and targets are set from the top level (corporate vision) down to the operational level. Performance is measured from an operational level upwards. If performance targets are achieved at the operational level, targets should be achieved at the operating systems level. Achieving targets for operating systems should help to ensure the achievement of marketing and financial strategy objectives, which in turn should enable the organisation to achieve its corporate objectives. A key level of performance measurement is at the operating systems level – achieving targets for customer satisfaction, flexibility and productivity. To achieve performance targets at this level, operational targets must be achieved - for quality, delivery, cycle time and waste. With the exception of flexibility, which has both an internal and an external aspect, performance measures within the pyramid (and below the corporate vision level) can be divided between: ○ market measures, or measures of external effectiveness, and ○ financial measures,or measures of internal efficiency. The measures of performance are inter-related, both at the same level within the pyramid and vertically, between different levels in the pyramid. Lynch and Cross argued that the performance measures that are chosen should link operations to strategic goals. All operational departments need to be aware of how they are contributing to the achievement of strategic goals. Performance measures should be a combination of financial and non- financial measures that are of practical value to managers. Reliable information about performance should be readily available to managers whenever it is needed.