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Lecture 3: Strategy and Structure Outcomes


To understand the importance that a change in strategy can have on structure. ... Seiyu vs Aldi Supermarkets. Singapore. IACT916 - Lecture 3. 10 ... – PowerPoint PPT presentation

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Title: Lecture 3: Strategy and Structure Outcomes

Lecture 3 Strategy and Structure - Outcomes
  • To understand the importance that a change in
    strategy can have on structure.
  • To be able to explain the contemporary
    strategy-structure theories as they relate to
    modern organisations.

Done already Do it today
Do it tomorrow Do it day after
  • Determinants of
  • Organisational Structure
  • Strategy
  • Organisation size
  • Technology
  • Environment
  • Power-control
  • Applications
  • Managing the environment
  • Managing organisational change
  • Managing organisational culture
  • Managing organisational evolution

Organisational Structure
Organisational Effectiveness
  • Organisational Designs
  • Design options
  • Bureaucracy
  • Adhocarcy

  • What is Strategy
  • Dimensions of Strategy
  • Chandler,
  • Contemporary Strategy-Structure Theories
  • Miles Snow,
  • Porter,
  • Miller
  • Industry-Structure Relationship

What is strategy?
  • Strategy can be defined as the determination of
    the basic long-term goals and objectives of an
    enterprise, and the adoption of courses of action
    and the allocation of resources necessary for
    carrying out these goals.
  • Strategy is concerned with both means and ends.

The Strategy Imperative
  • Strategy influences structure.
  • Basic assumptions
  • The organisation strives to satisfy goals
  • It moves towards its goals rationally
  • Organisations transform economic inputs into
  • The environment within which the organisation
    operates is a given.

How Does Strategy Form?
  • Is it premeditated?
  • Planning mode
  • Does it just happen over time?
  • Evolutionary mode
  • See Henry Mintzberg (MIT) and the idea of
    creative strategy

Levels of Strategy
  • Corporate-level strategy
  • In what set of businesses should we be?
  • E.g. diversification (not at a product level)
  • Business-level strategy
  • How should we compete in each business?
  • For organisations in many lines of business, each
    division will seek its own strategy for its
  • IACT916 focus is on business-level strategy

Dimensions of Strategy I
  • Innovation strategy
  • Does the organisation pride itself on developing
    new products or services?
  • Sony vs Readers Digest
  • Marketing differentiation strategy
  • Does the organisation seek to create a favourable
    image for its product through advertising, market
    segmentation and prestige pricing?
  • Omega vs Swatch

Dimensions of Strategy II
  • Breadth strategy
  • Refers to the scope of the market to which the
    business caters the variety of customers, their
    geographical range and the number of products
  • Unilever (Lipton Bertolli, Findus, Dove Omo,
    Ponds Rexona ) vs Roses Only or Corochan
  • Cost-control strategy
  • Extent to which the organisation tightly controls
    costs, refrains from incurring unnecessary
    innovation or marketing expenses, and cuts prices
    in selling a basic product
  • Seiyu vs Aldi Supermarkets

Chandlers Strategy-Structure Thesis
  • Alfred Chandler (1960s)
  • Extensive case studies found that changes in
    corporate strategy preceded and led to changes in
    an organisations structure.
  • Unless structure follows strategy, inefficiency

The Chandler Argument
  • An organisation begins with a single line of
    business, or a single product.
  • As the demand for that product grows, the
    organisation begins to grow in size and
  • It introduces more products into its range in
    order to continue to grow and the organisations
    strategy becomes more ambitious and elaborate.
  • Ultimately the structure of the organisation
    changes as a results of the strategy change.

Chandlers Model
  • Was Chandlers thesis correct?
  • What assumptions did Chandler make?

Modern Strategy-Structure Theory
  • Miles and Snows Four Strategic Types
  • Porters Competitive Strategies
  • Millers Integrative Framework
  • Miller borrows strategy dimensions from Miles and
    Snow Porter to define an integrative framework

Miles and Snow, 4 Strategic Types
  • Defenders
  • Seek stability and efficiency Tight control
  • extensive division of labour centralised
  • Analysers
  • Seek stability but can cope with change
  • Moderately centralised controls tight controls
    for current activities, loose for new
  • Prospectors
  • Seek flexibility and dynamism Low degree of
  • Loose structure low division of labour
  • Reactors
  • Organisations that buckle under pressure and
    poorly implement one of the above no strategy
    defined, or wrong strategy is defined or top
    management fail to make strategy clear

Porters Competitive Strategies
  • Cost-leadership strategy
  • When an organisation sets out to be the low-cost
  • Must offer comparable products as that of rival
    or at least comparable to buyers
  • Differentiation strategy
  • Firm that seeks to be unique in its industry
  • Focus strategy
  • Exploit narrow segment of market, niche.
  • Stuck in the middle
  • Those companies without a clear strategy as
    defined above
  • Difficult to achieve long-term success in this

Questioning the Strategy Imperative
  • When can strategy influence organisation
    structure most?
  • What if a change in strategy by management is NOT
    followed by a change in structure?
  • Does structural change depend on the competitive
    pressures an organisation is facing?
  • What if structure determines strategy?
  • What is your opinion about these questions?

Industry-Structure Relationship
  • Simply knowing the industry in which an
    organisation operates allows one to know
    something about product life-cycles, required
    capital investments, long-term prospects, types
    of production technologies, regulatory
    requirements, and so forth.

2 variable analysis of industries
Industrial Networks
  • When organisations form alliances to pool
    resources together to aid one another to achieve
    goals, inter-firm structures are influenced.
  • Strategies of individual companies are both
    shaped and constrained by other companies with
    which they have commercial relationships.
  • Consider networks, clusters and alliances.

Size organisational structure
  • Outcomes
  • To understand the size imperative as it relates
    to organisational structure.
  • The ability to discuss why downsizing may take
    place in an organisation, and the benefits of
    that change.
  • To explain why downsizing is happening in the
    technology sector today.

  • Aspects of Organisational Size
  • The Size Imperative
  • The Problems of Large Organisations
  • The Downsizing Phenomenon
  • Inefficiencies in Downsizing

Defining Organisational Size
  • Most define size to be the total number of
    employees in a company.
  • What are your thoughts on this definition?
  • Any others you can think of?

Aspects of Size
  • Size is relative
  • How do you measure size
  • Full-time employees vs
  • Part-time employees vs
  • Seasonal employees?

  • What about the notion of small, medium and
    large-size firms?
  • A large-size hairdressing salon of 50 employees
    vs a large-size computer manufacturer of 100,000
  • E.g. a large firm in Australia or Singapore may
    be considered medium-size in the US

Opposing Beliefs on Size
  • Advocate of Size Imperative
  • Peter Blau concluded size is the most important
    condition affecting the structure of
  • Critics of Size Imperative
  • Chris Argyris analysed Blaus data and argued
    that civil-service organisations are unique.
    Argyris agreed that size can be linked to
    structure but did not cause it.

Size and Dimensions of Structure
  • Size and Complexity
  • Size is a predictor of the level of vertical
  • Larger the organisation, the more pronounced was
    the division of labour within it
  • Size and Formalisation
  • Formalisation increases with size
  • Size and Centralisation
  • Research is mixed on this point
  • As size increases a firm does not necessarily
    decentralise, it all depends

The Problem of Large Organisation Size
  • The growth of bureaucracy
  • The need to gather and process information and to
    turn it into knowledge
  • Extended timeframes for action
  • Knowing where the profits are being made and
    where the costs are being incurred
  • Difficulty in managing over a wide geographic

Coping with large organisations
  • Divide the organisation into manageable parts.
  • Outsource.
  • Finding a balance between what decisions should
    be centralised as opposed to decentralised.
  • Structuring to facilitate change.
  • Ensure that important tasks have someone
    responsible for them.

IT and Small Business
  • Though only 1 of businesses in Australia are
    considered large, they employ about 25 of the
  • Over 85 of businesses in Australia are
    considered small, but they employ only 25 of
    the workforce.
  • Situation in Singapore ?
  • In small business, the issues are different
  • The influence of the owner
  • Size as a factor of structure is less important
    as the organisation structure is generally flat
  • The small business faces control, accountability,
    efficiency and environmental issues instead.

The downsizing phenomenon
  • Why do companies downsize?
  • What do they hope to gain by downsizing?
  • Is downsizing a natural pattern within the
    lifecycle of a company?
  • What are the effects of downsizing?
  • Are they always positive?

Reasons Leading to Downsizing Benefits
  • Increased competition
  • Computerisation and automation
  • Technological obsolescence
  • Changes in strategy
  • Limitation of size advantage
  • Rise of outsourcing
  • Lowered overheads
  • Less bureaucracy
  • Faster decision making
  • Smoother communications
  • Greater entrepreneurship
  • Increased productivity

Ineffective Downsizing Practices
  • The use of voluntary retirement practices
  • Making across the board layoffs
  • Eliminating training and development programs
  • Cutting too deeply into the numbers of personnel
  • Placing remaining employees into jobs for which
    they have insufficient skills
  • Emphasising employee accountability over employee
  • Expect survivors to row harder
  • Implement layoffs slowly in phases over time
  • Promise high monetary rewards rather than careers

Investing in the Future
  • In times of downsizing it is tempting to cut
  • RD (research development) staff
  • New graduate positions
  • New product lines
  • Maintenance engineers
  • Expensive equipment needed to do work
  • But it is important to remember the long-term
    future of the company.
  • Band-aid solutions are short-term and only have
    short-term effects (on the problem but not

Admin things the exam, pt 1
  • There will be no exam questions which ask YOU to
    integrate material from strands 1 2 e.g. use
    Miles and Snow to explain the leadership gap in
    IT management
  • There may be a few questions which ask you to
    reflect critically on some strand 1 content e.g.
    how could IT be used to flatten the vertical
    hierarchy in an existing organisation
  • Chapters 9 15 in text not in exam, which is
    taken from lecture notes
  • Ill email a reference for some textbooks on ISM
  • Exam, part 2 on Tuesday

Managing new technologies
  • Business Intelligence (BI)
  • Knowledge Management (KM)
  • E-Commerce and C-Commerce
  • Supply Chain Managment
  • Customer relations management (CRM)
  • Enterprise Resource Planning (ERP)

Business Intelligence (BI)
  • The three main components of BI are
  • Data warehousing
  • Data Mining and
  • Online Analytical Processing
  • This material draws heavily on the article In
    pursuit of business intelligence by Chris Boon
    in Document World, (ISSN10259228) Volume 3,
    Issue  6, Pages 18-24. Despite the title, the
    article deals primarily with data warehousing. I
    have edited these notes to reflect the wider
    field of Business Intelligence (BI)

  • BI represents a response to the frustration of
    decision makers and knowledge workers who know
    that the data they are seeking to analyse is
    captured and stored somewhere in the organisation
    but find they are unable to access that data. For
    many non-technical managers this is an
    incomprehensible situation

Potential and Reality
  • BI has become established as a very high-profile
    sector of the IT industry.
  • It is not, however, essentially an IT fashion
    (like CASE, 4GLs, client/ server and so on) but
    more a business phenomenon.
  • BI is a combined business and IT initiative aimed
    at satisfying information requirements of the
    business community.

BI seeks to
  • provide access to data that has been integrated
    and cleansed so that it can be analysed,
    manipulated, transformed and combined to discover
    correlations, trends and patterns that add value
    to the data and provide new business insight.
    Because BI is business driven, it will survive
    far longer than IT fashions have tended to.

Applications of BI
  • More and more industries are perceiving the
    possibilities that BI presents. This includes not
    only the mainstream commercial sectors of finance
    retail and telecommunications, but also
    government agencies, the healthcare industry,
    policing and scientific institutions.

Business Drivers
  • There are a variety of business drivers for BI,
    all of which are concerned with responding more
    quickly and flexibly to an increasingly turbulent
    and competitive business environment.

Business Drivers include a need to
  • manage complex multinational organisations whose
    data is fragmented and dispersed.
  • consolidate data from different organisations
    that have been amalgamated through mergers or
  • integrate strategic and financial management data
    because traditional financial control systems
    have proved wholly inadequate for meeting the
    needs of the enterprise, especially in supporting
    the short-term responsiveness of the business.
  • The growing availability of valuable external
    data sources is motivating businesses to use
    data integration solutions.

Main Business Driver
  • corporations are demanding access to integrated
    and enriched data because of the business
    tendency towards a range of new marketing and
    sales concepts and techniques known collectively
    as customer relationship management (CRM).
  • CRM requires the use of a massive database
    engine for conducting complex analyses of
    customer behaviour and for defining and
    monitoring micro-segments of the market.

Project Failures
  • The query-intensive processing environment
    required for BI is very different from
    traditional transaction-based IT systems. As a
    result, the formula for success during the early
    years of the development of BI proved elusive
  • Many projects have failed, or at least stalled,
    while the enterprise attempted to overcome the
    major obstacles they encountered.

Project Failures II
  • Today, the failure rate for BI projects remains
    higher than 50 (and is estimated by many
    industry observers at around 70). But
    technological obstacles are very rarely
    responsible for these failures. Instead, the high
    rate of failure is almost always attributable to
    factors that may be classified as

The Leading Players
  • The BI market has traditionally comprised
    numerous players and, like all immature markets,
    has been in a state of continuous change.
  • The early BI user organisations had to acquire
    solution elements from a range of vendors
    (typically four or five different suppliers),
    design and write code for some parts of the
    solution themselves (typically the data
    extraction and transformation piece), and perform
    a systems integration task that is far more
    demanding than any they had encountered in online
    transaction processing (OLTP) systems

Implementation obstacles
  • BI involves a multitude of tasks and activities
    that need to be undertaken from the specialist
    perspective of a query-intensive environment.
    These range from a definition of business
    strategy and objectives through generating the
    Request for Proposal (RFP) to future-proofing the
    BI data warehouse (s) and applications.
  • This requires a new breed of system integration
    and project management expertise. It is also very
    valuable to have available the support of a
    methodology devised specifically for BI projects

Soft Issues
  • While the technical and systems integration tasks
    involved in BI implementation are challenging,
    they rarely constitute insurmountable
    difficulties. By far the most common causes of
    failure in BI projects are what may be termed
    'soft' issues. These include
  • Lack of project sponsorship.
  • Lack of business orientation.
  • Lack of user orientation.

Soft Issues II
  • Inadequate data quality.
  • Data ownership disputes.
  • Poor security management
  • Rapid deployment without considering long term
  • Lack of suitable experienced human resources.
  • Over-reliance on technology vendors.
  • Political and cultural resistance to change.
  • The difficulty of managing project risk.

Increased Focus on Applications
  • BI has had a dramatic impact on business
    thinking, particularly in the areas of marketing
    and strategy. This is evidenced by a number of
    separate trends in business planning which are
    directly related to the BI phenomenon.
  • A major impact of BI has been on the marketing
    and sales functions which have for a long period
    evaded effective automation. In many ways the
    computerisation of the marketing processes may
    be represented as the last great challenge to
    corporate information systems development.

Automating the marketing function
  • It was not easy to rigorously define requirements
    for applications in marketing, traditionally an
    obscure function comprising many discrete
  • BI has changed all that. It is common now for
    large and small organisations to have
    applications for promotion impact analysis,
    market segmentation, cross selling, customer
    care, targeted mailing, prospect analysis and
    customer retention. These applications have
    become more rigorously specified and are seen as
    general applications, as essential and
    mission-critical as the corporate billing system
    or payroll system. All of these applications are
    variants on data exploitation and require a BI
    infrastructure to exist as a pre-requisite.

Need for concrete applications
  • The increased focus on applications is a sign of
    the impact of BI.
  • In the early BI literature it was assumed that,
    at least initially, the business would not know
    precisely how the data was going to be exploited.
    The underlying assumption was that the hidden
    nuggets of value would be uncovered by users
    using ad-hoc query tools. That thinking has given
    way to a more realistic assessment of the value
    of BI with reference to concrete applications
    which have a clear business value.

Market Divergence
  • BI has enabled the growing divergence of markets
    as it has helped make businesses more aware of
    the different and distinct market segments that
    exist and which require different responses from
    the enterprise.
  • This divergence is quite marked in the retail
    sector where the introduction of loyalty cards
    (to capture increasingly detailed data) has led
    to huge growth in the volumes of data being
    captured and manipulated.

Market Divergence II
  • All of this is leading to the emergence of mass
    customised markets and a definite shift away from
    the old mass production industrial system.
  • It was always known that all customers are
    different. Now the enterprise can see how and in
    what way each customer is different. What this
    means for world commerce is not an incremental
    technology-enabled change but a fundamental
    change in the way that business is conducted and

Other examples of BI applications
  • The development of complex supply-chain
    integration applications in logistics services.
  • Finance, where the application focus is centred
    on activity-based costing, cost-discovery and
    risk management applications.
  • Policing and military planning.
  • Support of economic and social planning
    activities in government agencies.

Link to business vision
  • BI has been a phenomenal business success where
  • the business vision existed to understand the
    value of data
  • the technical competency existed to design the
    data exploitation infrastructure that was needed
    to deliver that vision.
  • A close partnership between business and IT has
    been, and remains, the principal key to success.
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