Lecture 55: Strategy Implementation

Strategy Implementation

The lecture explains how organizational structure supports the implementation of strategy. Its central point is that strategy and structure are interdependent, but strategy generally has a stronger influence on structure. Choosing a new strategy often requires changes to reporting relationships, decision-making, controls, and coordination. Once established, however, structure can also shape current actions and future strategic choices.

This framework applies across different strategic approaches, including red-ocean and blue-ocean strategies. The lecture focuses on how firms’ structures commonly evolve as they grow.

How Organizational Structure Evolves

Firms often grow in a broad sequence:

1. By volume — increasing the amount of business they do.
2. By geography — serving more locations or markets.
3. By integration — expanding vertically or horizontally.
4. By diversification — adding products, businesses, or markets.

Growth can make an existing structure inadequate. A structure with limited procedures, reporting relationships, controls, or information systems may no longer support the coordination and decision-making required by a firm’s new strategy. Firms therefore need to reassess whether their structure still fits their size and strategic needs.

Three Broad Organizational Structures

Simple Structure

• The owner-manager makes major decisions and monitors activities.
• Employees typically report directly to the owner-manager.
• Relationships are informal, rules are few, tasks are not highly specialized, and information systems are relatively unsophisticated.
• This structure is common in small businesses such as local shops, restaurants, and repair businesses.
• As the business becomes more complex through additional employees, customers, locations, partners, or processes, managerial and structural challenges increase.

Functional Structure

• A CEO and a limited corporate staff oversee functional areas such as production, marketing, finance, research and development, engineering, and human resources.
• Specialization helps employees share knowledge and develop expertise within each function.
• Functions may become isolated, making communication and coordination difficult.
• The CEO must ensure that functional decisions serve the firm as a whole rather than only individual areas.

Multidivisional (M-Form) Structure

• The firm is organized into operating divisions, often representing separate businesses or profit centres.
• Corporate leaders delegate day-to-day operations and business-level strategy to division managers.
• This structure can better handle diversification, but it introduces more demanding coordination, information-processing, and control requirements.

Matching Functional Structures to Business-Level Strategies

The lecture connects the design of functional structures to three competitive strategies. Key design considerations include specialization, centralization, and formalization.

Cost Leadership

• The firm seeks to sell large volumes of standardized products to typical industry customers.
• Operations and process engineering receive emphasis, while new-product R&D is less central.
• A relatively large, centralized staff coordinates functions; reporting lines are simpler, and procedures are more formalized.
• The resulting structure is generally mechanistic, with highly structured roles.
• This arrangement can foster a low-cost culture in which employees look for ways to reduce the cost of work.
• Walmart is discussed as an example of a firm using a functional structure to support cost leadership.

Differentiation

• The firm offers products customers perceive as distinctive and valuable; the products are less standardized.
• Marketing and new-product R&D receive greater emphasis.
• Cross-functional product-development teams and flexible reporting relationships help the firm identify and develop new ideas.
• Decision-making is more decentralized, formalization is limited, and job roles are less structured.
• The resulting structure is more organic and supports innovation, including work with ambiguous or incomplete information.

Integrated Cost Leadership and Differentiation

• The firm combines activities intended to reduce costs with activities intended to create distinctive features.
• This requires greater coordination across functions.
• Decision-making is partly centralized and partly decentralized. Roles are semi-specialized, and work involves a mix of formal and informal procedures.

Matching Divisional Structures to Corporate-Level Strategies

As diversification increases, a functional structure may no longer be able to manage the firm’s coordination, information, and control demands. The lecture describes three forms of multidivisional structure.

Cooperative Form

• Supports related-constrained diversification, where divisions share corporate strengths.
• Divisions may be organized around products, markets, or both, and horizontal integration encourages cooperation.
• Corporate headquarters emphasizes centralized strategic planning and uses shared resources or integration mechanisms to connect divisions.
• Rewards and culture encourage cooperation and may consider overall corporate performance as well as divisional performance.
• Harley-Davidson is cited as an example: its motorcycle-related and financial-services divisions operate separately but share the company’s brand and reputation.

Strategic Business Unit (SBU) Form

• Suits firms whose divisions have related, but less tightly connected, businesses.
• The structure has three levels: corporate headquarters, SBUs, and divisions within each SBU.
• Divisions grouped within an SBU share product or market competencies and may gain economies of scope or scale.
• Strategic planning and approval are important headquarters responsibilities. Headquarters staff may serve as consultants rather than directing divisional product strategy.

Competitive Form

• Suits unrelated diversification, where divisions do not share common corporate strengths.
• Divisions operate independently and compete for corporate resources rather than being linked through cooperative integration mechanisms.
• Headquarters tends to maintain a small staff, with finance, auditing, and legal affairs prominent.
• Internal competition is intended to:
  1. Give the firm flexibility to allocate resources to divisions with strong potential.
  2. Challenge the status quo and organizational inertia.
  3. Motivate managers through competition with internal peers as well as external rivals.
• Corporate headquarters monitors and evaluates divisions, intervening when needed.
• Textron is presented as an example of this form.

Successful implementation depends on keeping strategy and structure aligned as the firm grows and changes. The lecture introduces the next session as a discussion of evaluating and auditing strategy implementation.

Speakers and Sources Featured

• Speaker: One lecturer, whose name is not stated in the subtitles.
• Source cited by the lecturer: Hitt, Ireland, and Hoskisson, Strategic Management: Concepts and Cases—Competitiveness and Globalization.
• Organizational examples mentioned: Airbnb, Uber, Walmart, SBI, Harley-Davidson, Microsoft, Disney, and Textron. These are discussed as illustrations, not as additional speakers.