Strategy implementation - Arab Open University

Block 5Strategyimplementation

B301 Making sense of strategy

Produced for the course team by Geoff Mallory,Alex Wright and Terry O’Sullivan with contributionsfrom Roshan Boojihawon

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This publication forms part of the Open University course B301 Making sense of strategy. Details of this and other OpenUniversity courses can be obtained from the Student Registration and Enquiry Service, The Open University, PO Box 197, MiltonKeynes MK7 6BJ, United Kingdom (tel. +44 (0)845 300 60 90; email [email protected]).

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The Open University, Walton Hall, Milton Keynes, MK7 6AA

First published 2010

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ISBN 978 1848 7 3316 9

1.1

Contents

Introduction to Block 5 5

Learning outcomes 8

Unit 1: Introducing implementation 9Introduction 91.1: Barriers to implementation 91.2: Facilitating implementation 131.3: Structure and culture as levers of organisational control 231.4: Structure, systems, culture and people 25Summary 35

Unit 2: Structure, systems and culture 37Introduction 372.1: Structure 372.2: Systems 612.3: Strategy and culture 75Summary 84

Unit 3: People 86Introduction 863.1: Strategy as a social activity 863.2: Senior managers 953.3: Middle managers 983.4: External consultants 103Summary 108

Unit 4: Managing strategic change 109Introduction 1094.1: Pressures for change 1094.2: Perspectives on how change happens 1104.3: Scale and scope of change 1134.4: Diagnosing the context of change 1164.5: Managing cultural factors related to change 1244.6: A model for implementing strategic change 132Summary 140

Block 5 Conclusion 141

References 142

Acknowledgements 147

Course Team 148

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Introduction to Block 5

As a way of introducing the topic of implementing strategy, consider the

following scenario:

You are contemplating moving house in response to a felt need or

change in circumstances, such as a move to the country, a downsizing

pending retirement, a change in your job or a move into a particular

school’s catchment area.

The reasoning is strategic from your point of view – in other words, it will

have long-term consequences and involve substantial resources. After having

taken the initial decision to move, you will have worked through the various

possible areas you might wish to move to, worked out how much resources

you need to commit and decided that any evident gaps could probably be

filled. For example, you might need a loan to convert a run-down property in

an attractive area, or you might have to consider the practicalities of living

in a rural location rather than in a town or city. You will have looked at

various properties that fit your criteria of type, size and price bracket, and

taken the strategic decision to buy one.

Now you have to execute the decision: make an offer for the house and, if it

is accepted, sell your existing house, finalise the finance and actually move.

A question: which part of this scenario relates to the analysis stage of

strategy formulation, which is decision making and where does

implementation start and end?

The vision and concept plus the resource analysis could be seen as the

analysis stage of strategy formulation. This would make buying the house a

strategic decision and actually moving in the implementation phase. This

might suggest a clear separation of the analysis, choice and implementation

parts of the process, but there are activities which might be as easy to place

into one part as another, for example, bridging any resource gap. Also, a

failure to, for example, find a house in the desired area, a sudden and

unanticipated event like losing the house to another buyer at the last minute,

or a sudden shift in family circumstances may force a rethink of both the

decision and the strategy. So an end position may well emerge which is very

different to that which was intended, due to problems arising in either

decision making or implementation. This suggests that the transition between

these stages is not seamless, as a simple sequential model of the strategy

process might at first suggest; that the three parts of the process cannot be

treated as discontinuous, and that there might well be an element of feedback

which causes a review of the strategy or the decision.

The example of buying a house is one which may be familiar to us all – if

not through our own experience, then through what we know about the

experience of others. It is a good example of a strategic undertaking at a

personal level. As we have pointed out, it involves significant commitment

of resources, and has a relatively long-term effect on one’s life. But it is, like

any strategic undertaking, open to changes between its initiation and its

completion, changes which underline the importance of what happens in the

strategy process after the stages of analysis and choice appear to be

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complete. As an example it gives credence to the concept of emergent

strategies or change driven by actions other than those of the obvious

decision makers – whether they be house purchasers, or senior managers in

an organisation. This block explores the complex nature of this messy but

highly practical aspect of strategy. We shall examine the kinds of issues that

accompany putting strategy into practice, and how managers and/or

strategists might address them effectively and realistically.

There are a number of subsidiary aspects to these questions. For example, is

there a link between strategy and implementation independent of that

between strategy and decision making? Can strategy be made to work

without any decisions actually being made? One possibility, which may be

familiar to you from Reading 6 of Readings for Blocks 1 and 2, ‘Crafting

strategy’ by Henry Mintzberg, is that strategy might be best understood as

an ‘umbrella’, an overarching framework which delineates what actions are

acceptable or not, thus preventing decisions on a case-by-case basis. In this

sense, a strategy’s utility lies in providing a guide to behaviour rather than

initiating specific actions, as the work of Gerard Hodgkinson et al. (2006)

and Annie Pye (1995) implies.

A further, perhaps more controversial, proposition about the nature of

strategy implementation is that managers talking strategy is just that: talk

(Pye, 1995). We are used to the paired opposition of ‘talk’ and ‘action’, as

in the criticism that some people are ‘all talk and no action’ (suggesting that

they never get round to doing anything, in spite of their volubility). Pye

claims that 75 per cent of managerial time is spent in conversation with

others (1995, p. 448). Her view of how strategy works sees talk as a key

resource that managers use to shape meaning in organisations, and to get

things done as a result. If we subscribe to this view, then strategy becomes a

construct created through a series of dialogues to communicate or coordinate

the actions of different units and levels within an organisation. It is also a

way to buttress management’s rhetoric or some statement of mission, image

or corporate culture. We shall explore the related concept of strategy as

telling stories in Block 6, but part of our interest in the current block will be

in the social nature of strategy implementation, the way it proceeds through

interactions and conversations between people in organisations.

In the first unit of this block we outline some of the key barriers which

managers face when implementing decisions and discuss tools and

techniques which can be deployed to overcome them. We then anticipate

some of the major themes of the subsequent units in the block by dealing

briefly with the way in which organisations can try to make their attempts at

strategy implementation more certain of success by structuring their

activities, and by managing culture (insofar as that is possible). Towards the

end of the unit we introduce a third key theme: people. We touch on the role

of leadership, arguing that many influential recent approaches to strategy

underplay the importance of the human factor. Finally this introductory unit

briefly addresses the nature of change – so often a key aspiration of strategy,

as organisations attempt to realign themselves with external opportunities, or

to recruit and develop the new resources and capabilities necessary for

success.

Block 5: Strategy implementation

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Unit 2 looks in detail at the structures adopted by organisations facing

different strategic contexts, exploring how such structures can facilitate,

hamper, and even provide the occasion for strategy. An essential aspect of

how organisations promote effective action is through the notion of systems,

and the second part of Unit 2 seeks to create an understanding of how

systems help to integrate and control what happens in organisations so that

the desired outcomes result. The final part of the unit assesses the role of

culture in the implementation process, particularly where this involves

significant change.

Unit 3 addresses the subject of people, returning to the theme of strategy-as-

practice introduced in Block 1. A key argument in this unit, drawing on

recent research into how people in organisations conceive and carry out

strategy, is that leadership is by no means the sole preserve of senior

management. Middle managers and others also have a role to play in

creating and implementing strategy.

Unit 4 rounds off the block by tackling the subject of strategic change. As

we have already mentioned, change is often a key requirement of strategy.

But in order to carry through and sustain change, managers need to

understand what parts of their organisation are amenable to change –

choosing their territory wisely. The unit takes a critical look at some of the

tools and techniques available to change agents, and considers in what

circumstances they are likely to be most effective. In particular we make use

of papers in Readings for Blocks 5 and 6 to explore the concept of the

cultural web (Reading 5) as a way of understanding the context of strategic

change, and illustrate the relevance of Hrebeniak’s implementation model as

a guide to making strategy work (Reading 1).

The block as a whole completes the trajectory through the strategy process

(started in Block 3) of ‘analysis, choice and implementation’. But, as with

Block 3, and the course as a whole, it strives to raise productive questions

about the generalisability and continued relevance of many of the concepts

and models covered. In doing so, it points the way to the final block of the

course, which looks at strategy and the future.

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Learning outcomes

This block contributes to the following learning outcomes of the course:

Knowledge and understanding

. of the nature of strategy and the issues it raises for organisations (course

learning outcome 1)

. of key theories underpinning the strategy process, including how

organisations analyse their environments and their capabilities, choose

between potential strategic options, and overcome the challenges of

implementing their strategies (course learning outcome 3).

. of the different levels at which strategies are made and implemented in

organisations (course learning outcome 6).

Cognitive skills

. critical thinking, analysis and synthesis, including identifying and

questioning assumptions, weighing evidence appropriately, identifying

and challenging false logic or reasoning, and generalising in a way which

recognises the limits of knowledge in strategy (course learning outcome

8)

. evaluation and comparison of competing perspectives from a variety of

sources, including some informed by current issues or research

developments (course learning outcome 9)

. the ability to argue relevantly and justify a point of view (course learning

outcome 10).

Key skills

. communication of complex information, arguments and ideas in ways

appropriate to a business context and audience (course learning outcome

11)

. selecting and using information and communication technologies for

business purposes (course learning outcome 14).

Practical and professional skills

. engagement, as appropriate, with practical and professional business

strategy skills and ethical issues (course learning outcome 16).


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Unit 1: Introducing implementation

Introduction

Our purpose in this unit is to start by developing an understanding of

reasons why implementation fails. Then we go on to introduce the themes of

structure and systems, culture, people and change on which organisations

rely to make their implementation efforts more effective. We shall build on

these themes in the later units of this block to extend your critical

appreciation of how these elements work in practice.

By the end of this unit, you should be able to:

. list and explain a range of major obstacles to the successful

implementation of strategy

. demonstrate a basic understanding of the importance of organisational

structure, systems and culture in guiding strategy implementation

. recognise and outline the role that leadership plays in implementation.

1.1: Barriers to implementation

Why, given all the intelligence, care, resources and time spent on their

development and selection, do strategies fail – as Roger Wery and Marc

Waco (2004) ask? Why do some companies make acquisitions to support

strategies of market growth or capability enhancement and then quickly

dispose of them again, wasting months or years of planning, and effectively

throwing away vast quantities of investment? Why is it that some joint

ventures between companies to exploit a market or technology end in the

corporate equivalent of tears, while others succeed? In a rational world, why

is this happening?

According to Paul Nutt (1999), at least half the decisions made in

organisations result in failure. He has identified that many decisions fail to

attain their objectives during the implementation phase. Furthermore, the

cause of failure generally stems from elements under management control

rather than from outside events. Simply put, the managers just got it wrong!

In spite of the potential of management scholarship to shed light on the

reasons behind implementation failure, this is a relatively neglected area.

Two key papers that discuss the effective implementation of strategy

(Alexander, 1985; and Reading 1 – to which we turn in Activity 1.1), though

published some 21 years apart, comment on the lack of research in the area

of implementation.

Larry Alexander (1985) surveyed 93 private sector firms in order to

determine which implementation problems occurred most frequently. This

survey data was then supplemented by telephone interviews with the chief

executive officers (CEOs) of 22 firms, and 25 interviews from another study

of public sector organisations in order to get a balanced sample of situations.

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Alexander’s study identified the five key obstacles to successful

implementation as follows:

1 Key tasks were not defined in enough detail.

2 Problems requiring intervention by top management were not

communicated to them fast enough.

3 Changes in roles and responsibilities were not clearly defined.

4 The key formulators of the strategic decision did not play an active

enough role in implementation.

5 Major problems surfaced during implementation which had not been

identified beforehand.

The picture which emerges may sound familiar to anyone with experience of

trying to get things done in an unpredictable environment. Lack of clarity in

defining tasks and roles (the first and third items in the list) sound as if they

might be addressed by more thorough planning. But, as the fifth point

suggests, even the most comprehensive plans can fall foul of the unexpected

(though, clearly, planning will help to bring foreseeable obstacles to the

surface). Note the implications of items 2 and 4. Here the problem seems to

be with the human element. A hierarchical organisation with clear levels of

authority can seem to be an ideal situation for getting things done quickly

and effectively. But if lower ranks are reluctant to feed back news of

difficulties in carrying out plans to their superiors, failure is likely to ensue.

This might be at least part of the story behind the second item in the list.

Another familiar human story in organisations is the reluctance of people to

participate in change where they have not been involved in the decision

making which precedes it – popularly known as the ‘not invented here’

syndrome. Item 4 in the list adds weight to the argument against drawing a

hard and fast line between devising a strategy and putting it into practice.

Activity 1.1: Barriers to implementation

Allow 90 minutes for this activity (including 30 minutes for participation in your tutor

group forum – TGF – discussion).

Purpose: to review a research study on why strategy implementation runs

into difficulty

Laurence Hrebiniak is an American strategy academic and consultant who

makes a speciality of studying strategy implementation. Reading 1 in

Readings for Blocks 5 and 6 (‘Obstacles to effective strategy implementation’)

is a summary of his research-based insights into why things go wrong in

implementation – based on two distinct sources of data. The first is

Hrebiniak’s personal experience as a consultant over 20 years of working

with organisations on strategy, and the second is data from surveys involving

443 responses from managers involved in strategy implementation.

Read the article up to the section beginning ‘Overcoming the obstacles and

implementing strategy successfully’. As you read, make a list of the main

categories of problem Hrebiniak describes, and see if you can provide an

example of each from your own experience or reading.


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Then join the ‘Block 5, Activity 1.1’ discussion in your TGF to explore what, if

any, common patterns emerge. For example:

. Are some of these problems aspects of a larger underlying trend?

. Do you think there is any way in which the two different data sources

used might have produced different conceptions as to what causes

failure?

. How does Hrebiniak’s list of problems in 2006 relate to Alexander’s from

1985?

Feedback

Here is my list (points 1–5 are from Hrebiniak’s account of his personal

experience; points 6–11 are from his survey research):

1 Managers are trained to plan, not to execute. This criticism could be

levelled at many training consultancies and business schools, but it

explains the emphasis that the Open University Business School places

on practice-based learning (i.e., the priority given to students’ own

experience in the learning process).

2 Implementation has low status. Customer service is often one of the

lowest-status roles in an organisation (if pay and conditions are anything

to go by). But it can make all the difference to retaining and developing

business. It is odd that more organisations do not reflect this in their

thinking about status.

3 Failure to realise that planning and execution are interdependent. In

rehearsal (and even during the run of a play), a director will often cut lines

and stage props which might make sense on the page, but prove to be

cumbersome in performance. Similarly, part of the art of playwriting is

knowing what ‘works’ on stage.

4 Implementation takes longer than planning.

5 Implementation involves more people.

Points 4 and 5 mean that there is more time and opportunity for things to

go wrong, or for complications to develop. Any long-term or large-scale

project has the potential for delay, distractions and defections (think of

preparations for major sporting events, for example: a favourite topic of

adverse media reporting around the world).

6 An inability to manage change. I’m sure we all have experience of the

unsettling nature of change and our tendency to resist it. We tend to be

more comfortable with things as they are, but – whether in a personal or a

professional context – staying in the same place too long can lead to

problems.

7 Poor or vague strategy. Perhaps it is too easy to blame the planners for

coming up with unrealistic targets and timescales. This is just the other

side of the earlier point about the interdependence of planning and

execution – plans need to be feasible (as in my example from the

theatre).

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8 Lack of guidelines or a model to guide implementation efforts. Hrebiniak

suggests that strategists need to be much more detailed in their

instructions, and he devotes part of the rest of his article to outlining just

such a model. Without clear guidelines on implementation, and faced with

the unfamiliar, managers (or consultants) may be tempted to fall back on

methods which have worked in the past but are no longer relevant.

9 Poor or inadequate information sharing. With the pressure to achieve

results, often in a situation where there are a number of actors (as in a

major civil engineering project, for example), it is not surprising that

coordination gets overlooked.

10 Unclear responsibility and accountability. This can be seen as a

consequence of the lack of guidelines to support implementation

mentioned earlier.

11 Working against the organisational power structure. We mentioned in the

block introduction the need for managers to choose their ground carefully

when it comes to driving change. I can think of several examples of

managers who have been recruited from outside an organisation to

manage change, who have then fallen foul of political forces once in post.

Your tutor will feed back on the other questions raised in this activity in the

TGF.

Let’s return to the house buying scenario which featured in the introduction

to this block. What sort of things might feature in a list of what could go

wrong, during the time between you making an offer on the house to

preparing to move in?

My list would include the following:

1 You are told that your offer price has been beaten by another buyer after

it had been verbally accepted by the seller (this might or might not be a

problem depending on the legal system of the country in question).

2 The survey turns up some catastrophic defect (is the property really going

to fall into the sea?) and you need to withdraw or renegotiate the price

originally agreed to take account of this.

3 Your mortgage lender refuses additional funds.

4 Your family circumstances change unexpectedly.

5 You or someone else involved in the purchase changes their mind

inexplicably (this has been known to happen – buying and selling houses

is not always a very rational process).

6 The purchase is one of a ‘chain’ of transactions, and one or more parts of

the chain falls through, leaving you unable to proceed.

Thinking back to Hrebiniak’s categorisation of implementation problems in

Activity 1.1, those in my list seem to correspond to issues like major

problems surfacing during implementation, lack of a clear strategy, perhaps

even poor information-sharing and inability to manage change (depending on

the precise circumstances). A common theme is that the circumstances

involved, for the most part, are beyond your control. And remember: this list

doesn’t cover the whole of the implementation process regarding the house


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purchase; it refers to possible problems only up to the stage of preparing to

move in. Other things can and probably will arise before implementation,

such as delays in the availability of removals services, or unforeseen legal

complications. However, the fact that you are able to make a list at all

indicates that you have some sense of being able to predict what is either

possible or probable, and therefore you could think out a response by

coming up with a plan. The next section of this unit explores the potential of

planning to anticipate and work round implementation problems.

1.2: Facilitating implementation

Block 1 cites the Scots poet Robbie Burns’s warning that ‘The best laid

schemes o’ mice an’ men/Gang aft a-gley’. But the potential unreliability of

planning does not stop people (and possibly rodents) from making plans as a

way of trying to ensure that what they want to happen does indeed turn out

as they wish. Professor Chris Higgins (former director of the Bradford

Management Centre in Yorkshire, England), has a related aphorism:

‘Managers don’t plan to fail, they just fail to plan.’ Given the potential

unreliability of planning, then, compounded by deficiencies in such planning

as does take place, it is not surprising, as we noted earlier, that strategies

have an estimated 50 per cent failure rate (Nutt, 1999). Bounded rationality

means that, unfortunately, managers just can’t see everything which might

derail their schemes and therefore they fail to plan for them happening.

In one of the key papers on the success of decision making, David Hickson

et al. (2003) point out that while the study of making strategic decisions is

well developed (witness the various theories we discussed in Block 3 of this

course), the study of implementation processes is not. This view is echoed

by C. B. Dobni and George Luffman:

Our research and consultancy work tells us that the current key

challenge for management lies in the implementation of strategy, as

opposed to the formulation of it. We believe that the key to successful

implementation lies in the ability to guide and manage employee

behaviour on a collective basis.

(2003, p. 577)

Yet the world of organisations is full of people trying to make decisions

work in practice – in other words, people busily engaged in implementation.

They are acquiring the resources needed for a particular course of action,

designing advertising campaigns, actively looking for new partners or

markets and so on. To what body of theory can they look for guidance in

implementation? What kind of principles, in Dobni and Luffman’s neat

phrase, are ‘co-aligning the key behaviours’ of the various parties needed for

success? (2003, p. 577).

One section of the literature in particular, that on project planning, is well

developed and it does offer some insights into implementation issues.

‘Projects’ of one sort or another are a common feature of organisational life,

and project managers (or those with similar responsibilities) draw on a wide

range of techniques, from critical path analysis to Gantt charts, for managing

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the disparate resources needed to achieve implementation. We shall consider

each of these in turn.

Critical path analysis (also known as network analysis) is used in large or

specialist projects in order to reveal the way in which some tasks are

dependent on others, while other tasks can be scheduled more flexibly. In

other words, some tasks in a project will rely on the completion of others

before they can go ahead. A string of such ‘critical’ tasks makes a path

through the project. The potential timing of the project will be dictated by

the duration of the critical path. Effectively, a critical path sets limits on the

minimum time you can expect a project to last. There are a number of

software packages which offer network analysis support, but the basic idea is

very simple, as illustrated in Box 1.1.

Box 1.1: Critical path analysis

Figure 1.1 shows part of a critical path for a project to convert part of a

factory into a warehouse.

Each task is represented by an arrow; the figure in brackets with each

arrow represents the number of days the task is expected to last. Note

that the length of the arrow is irrelevant to the length of the task.

Normally the junctions where arrows meet would be called ‘nodes’ and

would be numbered, but for the purposes of illustration this is a

simplified diagram.

Also, you may encounter a variety of terms used to describe more or

less the same things in different software packages – but the core

principles of discovering which tasks need to be in sequence, and

allocating timings to them, are constant.

In our diagram the analysis has thrown up one critical path, indicated by

the thick arrows. Each of the tasks in this path is dependent on the

previous one. So, putting racking in depends on the minor works being

completed, and the minor works themselves cannot start without

agreement having been confirmed. The other tasks in the diagram are

not dependent on each other in the same way (though clearly the

efficiency of the project might be increased by having some of them in a

particular order).


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As you look at the diagram, answer this question: from the evidence

before you, what is the minimum time the project can be expected to

last?

Set up ord

eringsyste

ms (20) Send off first orders (5)

Confirmagreement

(2)

Carry outminor works

(20)

Installracking(10)

Receivestock

Confirm lines (5)Decide layout etc. (10)

Decide staffing (2)Recru

it andtrain s

taff (18)

Installsignage(7)

Figure 1.1: Part of a critical path for a project to convert part of a factory

into a warehouse

(Source: Tyler, 2007, p. 140)

The answer is 32 days – 2 days for agreement, 20 for minor works, and

10 for putting in the racking. All the other activities can run parallel to

these, and none of them last more than 32 days. A wise manager

would, of course, include a few more days for slippage – particularly in

a complex task.

Applied to something like our house purchase example, you can see how

critical path analysis might improve the chances of a successful outcome by

forcing you to list all the things that need to be done, estimate the time that

should be allowed for each one, and put each of them in the order in which

they need to be done. For example, unless you have a lot of money of your

own, you could not actually transfer funds to complete the transaction

without first arranging finance.

Another form of project management tool is the Gantt chart, named after its

inventor, the American engineer Henry Gantt (1861–1919). It consists of a

visual representation of the sequence of tasks involved in a project, with

dates arranged along the horizontal axis. It takes the form of a bar chart,

with each task represented by a horizontal line stretching from start date to

finish. Gantt charts can highlight tasks like those in a critical path whose

initiation depends on a previous task’s completion. As with critical path

analysis, software packages can generate sophisticated Gantt charts capable

of helping to coordinate multi-partner, complex projects.

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Useful as these and similar project planning tools are, Hickson et al. (2003)

identify that there is ‘an awkward disjunction between that work [project

management research] and research on decision making’ (p. 1804). Project

management literature tends to be based on projects involving multiple

organisations coordinated by a lead organisation, for example major civil

engineering projects such as the Crossrail project in London. Approved by

an act of Parliament in 2008, Crossrail involves many contractors and sub-

contractors, led by Transport for London (the local government body

responsible for most aspects of transport in the Greater London area). There

is clearly some common ground between the challenges facing a composite

organisation such as Crossrail, and those facing managers responsible for

implementing a strategic decision in a unitary organisation. But there are

also important differences. As you read Box 1.2, think about what they

might be.

Box 1.2: Crossrail – delivering a major projectthrough composite organisation

Crossrail is a new railway for London and the south-east of England.

It will connect the City of London, Canary Wharf, the West End and

Heathrow Airport to commuter areas east and west of the capital.

It will:

. relieve congestion on many London Underground and surface rail

lines

. provide new connections and new services

. introduce new, modern trains

. provide eight new stations in central London.

Crossrail is vital to underpin jobs growth in London. The new railway will

add 10 per cent to London's overall transport capacity and provide 40

per cent of the extra rail capacity that London needs.

It is a scheme of national significance and benefit which will see the

largest addition to the London and south-east transport network in the

last 50 years.

Main construction of the railway will begin in 2010, with services

commencing in 2017.

(Source: adapted from www.crossrail.co.uk).


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Activity 1.2: Scaling down

Allow 20 minutes for this activity

Purpose: to consider the usefulness and limitations of project planning

techniques to managers tasked with implementing strategic decisions in

organisations

Consider the Crossrail example in Box 1.2, or any other example of a major

project involving partners and a central coordinating body (such as the

hosting of an Olympic games). Make a list of three ways in which it differs

from, and three ways in which it resembles, the implementation of a strategic

decision in an organisation.

Feedback

The precise content of your list will depend on the examples you have in

mind, but here are some suggestions.

Differences

Scale – the time, people and finance involved will tend to be far greater than

those involved in a single organisation. The potential magnitude of large

projects comes into focus when you see that Crossrail has a £15.9 billion

funding package in place.

Boundedness – a major project, however big, will have a beginning, a middle

and an end. Strategy implementation in organisations tends to be an ongoing,

iterative process (as discussed earlier in this unit).

Focus – related to its ‘boundedness’ above, the only purpose of a project is

its outcome. It is entirely focused on achieving this (and will be organised and

resourced accordingly). In contrast, strategy implementation in organisations

tends to have to compete with other ongoing tasks and may struggle to

achieve the necessary priority.

Similarities

The need for control – whatever the scale of a piece of implementation, the

resources (time, people, finance) available will be limited by the budget. So it

is necessary to have systems in place to ensure that deviations from plan are

picked up early and necessary action taken to get back on course. The

familiar management tool of the ‘control loop’ is one way of doing this – as

detailed in Box 1.3.

Change management – both organisational strategies and major projects

involve change on many levels. Irrespective of scale, change management

presents a number of challenges – which we address in some detail in Unit 4

of this block.

Risk – the commitment of resources always involves a measure of risk, and

part of the art of implementation is to assess and manage this.

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Box 1.3: Too controlling?

You may well be familiar with the management control process, but if

you are not (or even as a refresher), here is an account of it, with some

concluding thoughts about its continuing usefulness.

Most management textbooks show the control process as an iterative

model or ‘control loop’ (Figure 1.2).

Possible action:reviseobjectives

1. Set objectives and establishstandards of performance

4. Act on results ofmonitoring and takecorrective actionif necessary

Possible action:adjust task/resources 2. Plan tasks, identify

performance measures,carry out tasks andmeasure performance

Possible action:do nothing

3. Monitor progress and compareperformance to standards

Figure 1.2: Stages in the control process

(Source: Tyler, 2007, p. 321)

Typically the stages involve:

. Setting objectives and establishing standards of performance. This

means specifying the overall aim (for example, setting up a new

factory on time and within budget), which will then be divided into

specific, measurable, agreed, realistic and timed objectives.

Standards of performance will be derived from these objectives.

. Planning tasks, identifying performance measures, carrying out tasks

and measuring performance. Often this is where a Gantt chart or

network analysis will come into play, in order to set out the series

and sequence of necessary actions.

. Monitoring progress by comparing performance against standards

and objectives. Monitoring techniques can be formal or informal.

They include observation, regular reports, exception reporting (when

any deviation – ‘exception’ – from the plan is reported) and routine

statistics.

. Acting on results of monitoring to take whatever corrective action is

necessary. Such corrective action might take the form of revising the

objectives, adjusting the tasks to be completed, providing additional

resources, or simply doing nothing.


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While enduringly popular as a way of conceptualising management

control, the loop as just described can be criticised for making the kind

of assumptions we have associated throughout this course with the

rational view of strategy. In other words, its operation depends on an

organisation that runs like a machine rather than as a collection of

human beings, and that operates in a stable environment where

standardised performance is the route to success. It could be argued

that highly effective control processes can actually hinder change by

keeping an organisation fixed on predetermined standards while the

requirements of the external world (and customers) have moved on.

In response to such criticism, Chris Argyris and Donald Schön (1978)

have developed the concept of ‘double-loop learning’, where the

measurement of achievement of the organisation’s goals (on which the

traditional control loop turns) is paralleled by a further loop assessing

the continuing appropriateness of the goals currently being pursued by

the organisation. This encourages critical thinking on the part of

managers: ‘thinking outside the box’ (or, in this case, outside the loop).

The problem is, of course, that critical thinking can be difficult and

unsettling, particularly in organisations where bureaucratic structures

make it difficult for managers to think for themselves.

Gareth Morgan (1986) suggests the following ways of making sure that

double-loop learning is possible:

. Encourage and value an open and reflective approach: error and

uncertainty should be acknowledged as part of the environment

managers face. Rather than promoting a blame culture where

mistakes are condemned and vilified, they should be treated as

opportunities for learning and reflection.

. Encourage the use of multiple viewpoints: allowing constructive

conflict and debate helps to define the nature of the complex

problems contemporary organisations face, and to generate possible

solutions.

. Do not impose overly specific goals, objectives and targets: too

inflexible an adherence to controls can prevent change and learning.

As you may be thinking by now, Morgan’s prescriptions for the

facilitation of double-loop learning are demanding, and perhaps not

entirely realistic in many contexts. But they point towards the danger of

controls becoming an end in themselves and actually rendering an

organisation and its strategies irrelevant to the needs of customers and

other stakeholders. In the post-industrial economy a premium is often

placed on commitment, responsiveness and flexibility, rather than

obedience and conformity.

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Hickson et al. (2003) acknowledge that there is common ground between

project management and strategy implementation, but make a telling

distinction based on their research into the latter:

Planning, of itself, does not lead directly to success. It must achieve a

state of accord. Only if people are comfortable with what is going on

and so are generally supportive, or at least do not oppose it, will

planned implementation have the most favourable chance of moving

forward to success.

(p. 1823)

In Activity 1.1 we discussed factors which Hrebiniak identified as hindering

implementation. Hickson and his colleagues set themselves the opposite task.

Building on a previous long-running study of decision making in a

representative sample of organisations, Hickson and his colleagues

interviewed managers in order to ascertain what factors were present when

implementation was successful. They were careful to define what they meant

by success. After all, decisions themselves, even when implemented

perfectly, may turn out to have been wrong – and even the success of good

decisions may fluctuate over time. The researchers based their definition of

success on how the decision and its implementation had lived up to

expectations – what they called ‘achievement … the extent to which the

performance over time of what was done was as intended or better’

(p. 1811).

Their research identified eight factors which were consistently present in

various combinations where implementation had been successful:

. Familiarity: where managers had already done something similar they

were more successful in carrying out implementation.

. Assessability: the clarity with which targets could be set (i.e., assessed in

advance).

. Specificity: the extent to which the various tasks and actions involved

could be set out in detail (compare this with the project planning tools

we have discussed).

. Resourcing: the extent to which appropriate levels of finance, personnel

and time were available.

. Acceptability: how acceptable those involved found the implementation.

. Receptivity: to what extent the implementation worked with the

prevailing norms of the organisation. You might remember the point that

Hrebiniak (Reading 1 of Readings for Blocks 5 and 6) makes about not

working against power structures if you want to implement strategy

successfully (see Activity 1.1 above).

. Structural facilitation: the availability of appropriate organisation, such as

the establishment of a project team.

. Priority: how high a priority the implementation enjoyed compared with

other work going on at the time.


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These may seem largely commonsense findings. What else might you expect,

based on a description of successful implementation? But analysing their

interrelationships in different situations led the researchers to suggest that

there are two broad approaches to managing successful implementation

which can be applied by organisations in search of a normative theory on

implementation.

The first relies on making sure that the experience of managers is matched to

the task in hand. If they have done something similar before, managers will

be able to assess, specify and resource an implementation programme far

more surely than if they are facing something unfamiliar. In turn this will

increase the acceptability of the implementation to those involved. Hickson

et al. call this the ‘Planned’ option. The second approach is observed where

managers lack experience (for example, in a context of radical innovation

where there is little or no experience available). Here the recipe for success

consists of making sure the organisation is as ready as possible for what the

implementation involves. The responsible managers choose their opportunity

so that they take advantage of any existing climate of opinion they can work

with (receptivity). They ensure that an appropriate structure is in place to

facilitate the process, as well as communicating its importance to all

concerned (priority). Hickson et al. call this the ‘Prioritised’ option. Its

success relies on the organisation being ready to accept the implementation.

An example might be an organisation where all the members are conscious

of a particular threat (for example, the loss of a contract) or an opportunity

(perhaps a new product) and work together to make the appropriate strategy

a reality.

The two options are summarised in Table 1.1.

Table 1.1: A theory of management action in decision implementation

Planned option Prioritised option

CONDITION: experience CONDITION: readiness

• Allowing:

assessing of aims and performance,

specifying and resourcing of activities

• Gaining:

acceptance

• Achieving:

success

• Allowing:

prioritising and facilitating structure

• Achieving:

success

(Source: adapted from Hickson et al., 2003, p. 1823)

The options can be seen as complementary as well as alternative. Indeed, in

the example Hickson and his colleagues supply (reproduced as Box 1.4) both

work together very effectively.

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Box 1.4: A transparent success: the case of themulti-million glass plant

The management of a large UK glass manufacturer decided to replace

two smaller obsolete plants with a dramatically larger facility

incorporating leading-edge float glass technology. The company, a lead

player in the oligopolistic world market of only a handful of global

manufacturers dominated by American, French and Japanese firms, had

originally invented and developed the technology. Implementation

required the construction of huge premises and also the design and

installation of equipment and processes; a complex exercise, requiring

the co-ordination of multiple tasks and personnel, to an agreed budget

and deadline. Although there were many innovations, management did

have experience gained from previous development. Further, though the

new plant was on an unprecedented scale, they had designed and

commissioned new plants previously. So they had considerable

familiarity with what had to be done. This understanding made the

critical targets more assessable and allowed managers to specify key

steps along the way with some precision. They could also ensure

appropriate resourcing. There was confidence that those responsible

knew what they were doing, which ensured its acceptability in the

knowledge that the outcome would be ‘the best plant in the world’

(quoted from one manager).

The company had grown through a strategy of product leadership, a

reputation for technological innovation contributing to a developed

positional capability (Hall, 1992). The construction of a sophisticated

production facility continued this strategy. Implementation was thus

launched in a receptive climate; it accorded with what those in the

company expected of this kind of firm. This meant that tasks could be

structured around the right people, who were given clear authority to

make things happen and for whom it was top priority. Experts from

production, engineering, marketing, transportation and warehousing

were brought together in a project team to push implementation through.

Nothing was allowed to get in the way, and nothing did. On schedule,

within four years, the plant had reached full production. A most

successful implementation.

(Source: Hickson et al., 2003, p. 1810)

The glass factory exemplifies the way that the options are best exercised in

combination. Often conditions will prevent such combinations; it could be

seen as a barrier to the wider applicability of the theory that it favours

organisations which are already well placed to implement successful strategy,

or whose situation galvanises their members single-mindedly to accept what

might be uncomfortable change.

The authors point out that each option has its own advantages. The

‘Prioritised’ option promotes learning, for example, by taking the

organisation consciously into new territory (rather like ‘double-loop learning’


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in practice). The ‘Planned’ option goes further than the somewhat

mechanistic project-planning theory we discussed earlier in this unit, by

stressing the importance of gaining acceptance and buy-in from those

involved in an implementation process. As Hickson et al. conclude: ‘In

decision implementation, the human element is always crucial for success’

(2003, p. 1824).

1.3: Structure and culture as levers of

organisational control

Stripped back to a very basic level of analysis, organisations exist to enable

us to do things that it would be difficult, if not impossible, for us to do

alone. We live in a very developed world of organisations with intricate

patterns of exchange which make us highly interdependent with others for

the supply of our needs and wants. But even in a self-sufficient world (could

we imagine such a thing) where we produced ourselves everything that we

needed for subsistence, some forms of organisation would exist (for

example, at a family or community level) in order to fulfil our social needs.

Given that organisations exist to facilitate joint action, their structure centres

around how the overall task or tasks to be accomplished are divided, and

how the consequent different sub-tasks are integrated or managed to

accomplish the overall purpose or objective. The way that these tasks are

broken down and reintegrated is called structuring, and the particular

configuration of structuring these activities is called organisation structure.

Such structure not only enables activities to be carried out, but helps ensure

that they are in line with the overall purpose. Structure is thus a form of

control mechanism – keeping the organisation on track. It enables the

operation of control systems, such as the traditional management control

loop discussed in Box 1.3 above. The control loop is a popular way of

thinking about how organisational structure works in practice to control

activity (structuring it into stages of objective setting, carrying out tasks,

monitoring progress and taking corrective action).

We can conceive of the organisational structure of a firm operating at several

levels, from the form of the overall organisation, through its sub-units or

functions, right down to the level where product is made or service

delivered. In this block we look at each of these levels. In particular, we

consider the role of organisation in implementing or managing change, from

the conventional project teams set up to implement specific parts of an

overall strategic decision, to the ways that some organisations have built in

capability for change to their regular routines or modes of operating – for

example, continuous improvement activity by work teams.

Yet structure is only one part of the story. Over the last few decades

organisation theorists and practitioners have focused very closely on the

concept of organisation culture as an alternative control mechanism.

Following the runaway success of Japanese firms such as Sony and Toyota

towards the end of the last century there emerged the notion that a strong or

cohesive culture, particularly at the workplace level, obviated the need for

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Black plate (24,1)

tight control through traditional structural mechanisms such as standard

procedures and control systems (Peters and Waterman, 1982).

Despite the exciting possibilities opened up by such authors, this particular

‘movement’ seems to have had its day, like so many management fads

before it. Culture is a complex phenomenon, and its precise relationship to

organisational success is difficult to pin down. Attempts to engineer or

change culture in organisations towards specific ends are highly

questionable. However, one lasting legacy of writers such as Tom Peters and

Bob Waterman is the attention drawn to culture and the issues it opens up

for managing change in organisations (see Box 1.5).

Box 1.5: Peters and Waterman, In Search ofExcellence

Peters and Waterman examined 43 of the 500 top performing

companies identified by Fortune magazine (known as the Fortune 500).

One of the drivers for carrying out their research was to prove that

certain established methods of their day – particularly heavily

systemised philosophies and practices – were wrong. Peters wanted to

prove how crucial people are to business success, and to release

business from the ‘tyranny of the bean counters’ (his somewhat

derogatory term for accountants). Peters preached (and has continued

to advocate in his later work) control though values, not numbers.

They came up with eight themes, which also form the eight chapters of

the book:

1 A bias for action – active decision making, ‘getting on with it’.

2 Close to the customer – learning from the people served by the

business.

3 Autonomy and entrepreneurship – fostering innovation and nurturing

‘champions’.

4 Productivity through people – treating rank and file employees as a

source of quality.

5 Hands-on, value-driven – management philosophy that guides

everyday practice: management showing its commitment.

6 Stick to the knitting – stay with the business that you know.

7 Simple form, lean staff – some of the best companies have minimal

HQ staff.

8 Simultaneous loose-tight properties – autonomy in shop-floor

activities, combined with centralised values.

Since the 1980s, many managers have come to realise that while it

might not be possible to build these strong cultures in organisations

(e.g., to actually engineer the simultaneous ‘loose/tight properties’

advocated), attention to culture does give us a different view on what

‘levers’ can and cannot be pulled in order to effect change in

organisations.


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Attempts to control the outputs of an organisation, whether by structure or

culture, need a guiding principle. What does the organisation see as success?

What, in general, guides its activities? For some organisations success

simply boils down to financial results. Others (both not-for-profit and

commercial) take a more sophisticated view, seeing strategic outcomes in

wider terms than just the bottom line. And how is progress towards success

monitored? As we have seen, control systems can be formal or informal,

consultative or coercive. Such questions raise issues about the overall

philosophy underlying an organisation’s approach to strategy. For example,

as we saw in Block 2 of this course, particularly in Reading 3 of Readings

for Blocks 1 and 2 (‘Theories of strategy’ by Richard Whittington), the

classical school of strategy is premised on profit maximisation as its goal,

whereas other schools of thought introduce broader notions of what

constitutes success. The point to be taken from this is that there is an

iterative relationship between organisational structure, culture and purpose,

rather than a simple unidirectional causal one.

Organisations have a further component that has a significant impact on

implementing strategic decisions and managing change: that is, those who

actually do the work. We noted as early as Block 1 of this course that

traditional views of strategy have tended to neglect the people factor, but it

is central to understanding implementation. To repeat a quote from Hickson

et al. (2003, p. 1824): ‘In decision implementation, the human element is

always crucial for success’. Whether their work is directing and/or

strategising, allocating resources, designing products, marketing, accounting

or manufacturing or delivery, it is the members of an organisation who

ultimately deliver through the ways in which they behave. This behaviour at

work is delineated by the structures, cultures and controls arising from

processes that may be either deliberately designed, or emergent.

In the next section of this unit we look at the impact of these themes, that is

to say:

. structure, systems and culture – the control elements of organisation

. the people who do the work, the managers and the leaders

. how they interact together in the successful implementation of strategy.

1.4: Structure, systems, culture and people

What is it about certain organisations that promotes effective

implementation? From your work on the resource-based view of strategy in

Block 3 of this course you will understand that the sorts of capabilities

which put some organisations ahead of the competition can come from a

variety of sources – tangible, intangible and human. Here we briefly review

some of the most important intangible and human ones.

The importance of organisation structure

We introduced the work of Alfred Chandler (1918–2007) in Block 2 of this

course (see also Box 1.6). His research offers us a broad but very realistic

empirically derived view of why strategies do or don’t work in practice. The

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Black plate (26,1)

key lies in the title of his book Strategy and Structure (1962). Chandler

found that when a new strategy was adopted by the organisations he studied,

administrative inefficiencies often inhibited the realisation of the full benefits

of the strategic change. Thus he concluded that structural change was needed

to fully reap those benefits. Hence, for him, structure follows strategy – a

significant and important conclusion which we shall explore more fully in

Unit 2 of this block.

But what exactly did he mean by ‘structural change’? Looking at the big

picture we can see (as could Chandler) organisations creating new divisions

to cope with new ventures and strategies. For example, a strategy of

expansion into international markets with or without new products

(Ansoff, 1987) is likely to place strain on existing structures and necessitate

the addition of new parts of an organisation such as, in this example, an

overseas division. This kind of change would be a reasonable response to the

growing performance inefficiencies caused by managers trying to handle new

products with different characteristics, or customers, or modes of distribution

through an organisation which had until then only had to handle a single

product in a familiar market.

Box 1.6: Chandler’s contribution

Chandler was a professor of business history at Harvard Business

School. His work supports the contingency view that an appropriate

structure for an organisation depends on its strategy. In particular, he

sets forth the generalisable finding that organisations first seek growth

through a strategy which expands volume from a single product from a

single site and creates the need for an administrative function.

In other words, organisations start with a simple organisation structure

but a distinct managerial hierarchy. Geographical growth for a company

then creates multiple units with the same products, and functional

departments (such as accounting or marketing) begin to emerge. As

firms grow further by diversifying their product range, a multidivisional

form of organisation emerges. This line of thinking can be extended to

growth through internationalisation.

Activity 1.3: Strategy and structure

Allow 15 minutes for this activity.

Purpose: to illustrate the relationship between strategy and structure with

reference to an example from your reading or experience

From your reading or experience, choose an organisation which has changed

its strategy. What, if any, changes to structure has this occasioned? Make

brief notes on your conclusions.


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Feedback

Your answer to this activity will depend on the organisation you have chosen.

However, for the purposes of illustration, we have chosen an organisation

whose strategy is very clearly linked to structure. Chandler’s exclusive focus

on growth strategy (and the structural changes it occasions) is

understandable given the conditions of expanding markets at the time and

place of his research. But in today’s stable and sometimes shrinking markets,

we have seen over the last decade or so some organisations pursuing more

survival-related objectives through the reverse of growth. This has involved

retrenchment into core businesses and downsizing. According to this view,

then, structural change should occur in the opposite direction and thus a

divisionalised form should revert to a functional form.

Our example, therefore, is a UK textile manufacturer which closed several of

its product divisions as it could not compete with imports. This company

reverted to a functional form for the remaining (much smaller) core business

and survived.

The importance of systems

Systems (at least in organisational terms) can be described as the micro

structures that actually make organisations work. They tell people and

machines what to do, monitor performance and provide the basis for an

overall evaluation of the organisation’s performance. They are the building

blocks around which capabilities develop.

Robert Grant (2008) suggests that:

Management systems provide the mechanisms for communication,

decision-making and control that allow companies to solve the

problems of achieving both coordination and cooperation.

(p. 192)

Routines are a particularly important subset of systems in strategic terms,

because they can be the source of competitive advantage for an organisation.

Gerry Johnson et al. (2005, p. 527) define them as ‘the organisationally

specific “ways we do things round here” which tend to persist over time and

guide people’s behaviour.’ As we saw in Block 3, Unit 2, we can think of

them as being to the organisation what skills are to the individual. They

increase efficiency and effectiveness by embodying the tacit and explicit

knowledge that is necessary for the standardised performance of a task, or

group of tasks.

Systems provide the link between strategy and operational effectiveness.

They perform in two ways:

1 as operational systems – that is, those mechanisms, including working

practices and routines, that underlie the efficient use and deployment of

resources and capabilities

2 as control systems – that is, those mechanisms that monitor the

achievement of strategic goals.

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The importance of culture

Culture can have a significant impact on how strategy is formulated (see

Johnson, 1988) through the way that managers see their world (Smircich and

Stubbart, 1985). You will recall from Block 2 of this course how sense-

making is an inevitable part of organisational life as managers engage in

active interpretation of what is happening around them (Weick, 1995).

Culture can be an important filter for their perceptions. This has a major

impact not only on how strategic change is decided upon, but also on how it

is subsequently managed.

We argued earlier that control through culture was seen as an important

alternative to control of behaviour via structuring and thus may be an

important lever for implementing strategy. Yet can cultures be changed in the

same way that structures can? It is probably not as straightforward as the

work of some early writers on culture might suggest. We briefly summarised

the findings of Peters and Waterman (1982) in Box 1.5 earlier. Another pair

of influential writers in this field from the same era were Terry Deal and

Allan Kennedy (1982) (see Box 1.7).

Box 1.7: Culture club

As you may recall from your previous studies, Deal and Kennedy

identified four generic cultures from their research in the 1980s which

are still recognisable in many organisations today:

The tough-guy macho culture – organisations dominated by rugged

individualists who thrive on risk and quick results. Examples include

management consultants, venture capitalists and the entertainment

industry.

The work-hard, play-hard culture – relatively risk-averse, but very busy,

with an accent on activity and the short term. Organisations dominated

by sales operations often fit this category (e.g., the home-improvements

industry, direct marketers, retailers).

The bet-your-company culture – high-risk decisions, with long-term

consequences, are the order of the day here. Mineral exploration and

exploitation companies, and airlines are good examples of organisations

with long lead times and high capital investment.

The process culture – characterised as low risk, with slow feedback.

Deal and Kennedy point to insurance, banking and public sector

organisations as their examples here – though you may well disagree

with their categorisation if you work in any of these industries in the 21st

century!


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Their memorable classification of cultures can also be expressed as a

two-by-two matrix (see Figure 1.3).

Quick Slow

Risk

High

Low

Tough-guy macho Bet-your-company

Work-hard/play-hard Process

Feedback

Figure 1.3: Four types of corporate culture

(Source: adapted from Deal and Kennedy, 1982)

As well as giving advice on how to diagnose culture from external and

internal indicators, the better to negotiate with or succeed in an

organisation, Deal and Kennedy suggest that cultures can be reshaped

– though they also strike a note of caution, describing the process as a

‘black art’ with which they are no more familiar than anyone else (1982,

p. 164). In spite of this humility, they offer the following guidance:

. recognise that peer group consensus will be the major influence on

acceptance or willingness to change

. convey and emphasise two-way trust in all matters (and especially

communications) related to change

. think of change as skill-building and concentrate on training as part

of the change process

. allow enough time for the change to take hold

. encourage people to adapt the basic idea of the change to fit the

real world around them (i.e., allow cultural change to be modified

and adapted by the people concerned, rather than imposed on

them).

Deal and Kennedy’s five principles, enumerated in Box 1.7 (consensus, two-

way trust, skill-building, patience and flexibility), have a good deal in

common with Hickson et al.’s (2003) advice about organisational readiness

as a condition for successful implementation, which we discussed earlier in

this unit. The concepts of ‘acceptability’, ‘receptivity’ and getting those

involved to prioritise implementation have strong parallels with Deal and

Kennedy’s list. Difficult as managing cultural change may be, there is no

denying the relevance of organisational culture to the successful execution of

strategy.

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We have been discussing cultural change up to this point without properly

defining our terms. So what is culture? It is first and foremost a

multilayered, highly interconnected construct. It ranges through various

groupings, from conceptions of national culture and identity, through

professions and occupational groups and beyond, to more personal

affiliations. Only when we conceive of the overarching idea of an

organisation perhaps made up of multiple nationalities, professions and/or

occupational groupings can we begin to gain an idea of the complexity of

the concept of culture as applied to strategy implementation.

Culture is a bit like the wind; you can’t see it but you can see its effects and

sense it. But is it how we make sense of the culture within our workplace

that matters, or is there in fact some imposed notion of what an

organisation’s culture should be? ‘Is culture something that an organisation

has or something that it is?’ has become a central question in organisational

analysis. And a range of answers has been suggested. At one end there is the

view suggested by Deal and Kennedy or Peters and Waterman that

organisations have a lever (or, more likely, a set of levers) called ‘culture’

that managers can pull to change things. At the other end there are those

who argue that culture is created and re-created by the members of an

organisation themselves. It just ‘is’: something that is constructed by

individuals, which may or may not be shared by all members. The possible

answers to this question have several implications in terms of how change

might be managed.

Activity 1.4: Engineering change


Purpose: to reflect on the issues surrounding culture change with reference to

a specific case

Please access the Block 5 area of the course website to watch the interview

which forms the basis of this activity.

As you watch the video clip, an interview with John Roberts, former chief

executive of United Utilities (Roberts, 2009), note down what he had to do to

change the culture at United Utilities.

There is a transcript of the interview in the online Course resources, should

you need to refer to it.

Feedback

Roberts talks about ‘changing the culture of the business’, implying that he

sees culture as something which the organisation ‘has’ and which he, and his

external consultants, could change. But note how he also views culture on an

individual level, something that the engineers brought from their professional

backgrounds to their attempts at people management at United Utilities. So

perhaps in this case our distinction between ‘has’ and ‘is’ culture becomes

difficult to maintain. Roberts’s way of talking about the process suggests he


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thinks it possible to change culture, but his recognition of the embeddedness

of culture through individual mindsets makes it clear that change was not

going to be easy. It would require, in Roberts’s words, an investment and not

just a cost.

However, we suggest that the key message here is the notion of investment

in people. This was the key to successfully achieving the changes required. It

is also interesting to note, in view of Deal and Kennedy’s advice to think of

change as ‘skill building’, how prominently the issue of training and

development features in this story.

Clearly people are fundamentally important to making change happen.

Based on his research in a number of organisations engaged in strategic

change over an extended period of time, the UK strategy academic Gerry

Johnson (author of Reading 5 of Readings for Blocks 5 and 6, which you

will study in Unit 4) suggests the concept of the paradigm as a way of

capturing the relevance of culture to strategic change. Central to his

understanding is that patterns of change are evolutionary. In other words

decisions taken today are invariably influenced by what has gone before,

and, in consequence, the managers of an organisation construct a consistent

and shared set of core beliefs over time which shape the way they view both

the internal and the external contexts that they face. This is not, of course, to

suggest that all managers in an organisation hold a set of completely

homogenous beliefs. Indeed they might hold quite varying sets of

assumptions about certain aspects of their organisation’s world. Furthermore,

different groups of managers within an organisation might be united by

professional affiliations to form belief sub-groups within the overall

organisational culture. But there will always be a core set of beliefs

influencing the organisation as a whole, and this set of shared beliefs is what

Johnson calls the ‘paradigm’. He defines this as:

the set of beliefs and assumptions held relatively common through the

organisation, taken for granted and discernable in the stories and

explanations of the managers, which plays a central role in the

interpretation of environmental stimuli and configuration of

organisationally relevant strategic responses.

(Johnson, 1988, p. 84)

We shall return to this idea and its implications for managers facing the

challenges of implementation in Unit 4 of this block. However, it is a useful

concept to have in mind when considering the importance of the human

factor in strategy implementation as we now turn to the topic of people.

The importance of people

Neither the strategy analysis literature nor much of that devoted to decision

making talks very much about managers or people. If human beings feature

at all, it is as part of the rather disembodied concept of interest groups/

stakeholders. While membership of one or other of these groups can act as a

powerful determinant of behaviour, how do managers themselves influence

or shape how implementation happens?

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Black plate (32,1)

Change, or almost anything else, in organisations does not and cannot

happen without people. It is managers who devise strategies and make

decisions; they set the parameters of an organisation’s activity and make the

decisions which make their vision a reality. It is usually people who actually

do the work and, despite the advent of automation, ensure that the goods go

out of the door or the service gets delivered. It is people working with other

people as customers and suppliers that ensure this happens.

In this section we shall look at the roles that people play, concentrating on

that of the CEO or senior manager. In the next activity Cynthia Montgomery

describes this role as that of the arbiter or steward of strategy. The leader

reminds others of what it is that the organisation does and, perhaps more

important, does not do. In all the apparatus of analysis that surrounds

strategy formulation, the strategic leadership role risks disappearing.

Activity 1.5: Reclaiming leadership


Purpose: to explore the idea of the need for leadership in strategy with

reference to an article aimed at practising managers

Read and make notes on Reading 2 of Readings for Blocks 5 and 6, a short

paper by Cynthia Montgomery entitled ‘Putting leadership back into strategy’.

As you do so, bear in mind the following question:

. What is the basis of Montgomery’s case that strategy is a continuous

activity and that the CEO should be the ‘steward’?

Once you have read the article, write a brief paragraph in answer to the

question without consulting your notes – and then check it against them to

see if there is anything more you could add.

Feedback

Essentially Montgomery argues that strategic management, while striving to

be analytic, leaves some basic questions unanswered, particularly: ‘What

kind of company do we want to be?’ The subsidiary questions she outlines

are very hard to deal with, yet have a crucial impact not only on strategy

making but also on the whole process of choosing and carrying out strategy.

The stewardship function involves interpreting, articulating and clarifying

strategy. Montgomery cites several examples where judgements and action

by the CEO were needed to give purpose to and direction to managers.

While we can relate to the notion of the leader as a single figure at the apex

of an organisational structure, leadership behaviour can be enacted by more

than one person. Indeed some would argue that anyone who is in a position

to influence anyone else is a leader. Certainly there are significant roles to be

played by managers other than CEOs in implementing what are sometimes


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Black plate (33,1)

referred to as ‘functional strategies’; for example, developing and initiating

new marketing plans or projects. The next activity looks at leadership in a

department of a much larger organisation.

Activity 1.6: Change in the Finance Department


Purpose: to reflect on the role of a leader of change with reference to a

specific case

Please access the Block 5 area of the course website to watch the interview

which forms the basis of this activity.

The video clip is an interview with Amy Butte, formerly chief finance officer

(CFO) of the New York Stock Exchange (Butte, 2009). As you listen to her

talking about change in the Finance Department, make notes on the extent to

which she embodies Montgomery’s idea of the strategist as leader.

There is a transcript of the interview in the online Course resources, should

you need to refer to it.

Feedback

Montgomery argues that purpose should be at the heart of strategy. Butte’s

emphasis is very clearly on the purpose of her department ‘becoming a

strategic partner’ with the wider organisation. Montgomery also stresses the

holistic nature of strategy – for her it requires ‘continuous, not periodic

leadership’. Butte’s commitment to building relationships both within and

outside the department suggests she shares this long-term approach. She

appears to see success in terms of the wider effect of change on the people

working for her – relating stories of finding it in ‘unexpected places’. Having

described the required change in technical terms as a complete overhaul of

infrastructure, alignment and processes, what Butte emphasises in the clip is

the cultural challenge of changing mindsets. As she says at one point, ‘the

case studies don’t tell you about people’.

As with change across an entire organisation, change in the Finance

Department meant that Butte had to align the goals with the people

concerned, to ensure their ‘buy-in’ and their development. Note the stories

she tells of those whom she promoted and how their working lives were

transformed. Again, with reference to Deal and Kennedy’s 1982 advice, note

the importance of training and skills in this process.

Arguably, our discussion thus far has been implicitly tied to the model of

‘top-down’ driven change very prevalent in much of the management

literature. There is also proactive, so-called ‘bottom-up’ change to be looked

at. This recognises that ideas can and should come from the operatives or

the middle management. Such ideas can challenge the view of top managers

and lead to new ways of thinking. Probably the earliest and most simplistic

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Black plate (34,1)

manifestation of this can be seen in the notion of the ‘suggestion box’,

where all employees are invited to suggest product, or more usually process,

improvements and are rewarded by management if their ideas are taken up.

More recently firms have introduced group working, where employees are

responsible and accountable to managers for their output but not necessarily

for how that is accomplished in terms of work methods and practice. This

gives scope to embed new ideas from employees in everyday working

practices. The motor manufacturer Toyota, for example, has pioneered

continuous improvement teams of employees reviewing quality and process

issues.

How do these elements interact?

Attempting to answer this question in an introductory unit is difficult, but

one way to start is by considering whether managing a global petrochemical

business (BP, say) is the same as managing a theatre company (for example,

Hull Truck Company), or an international hotel chain (such as Accor), or an

energy utility (EDF, for instance).

By now your answer would probably be, ‘No, but … ’: a recognition that

while there might be similarities between such organisations, there are also

differences in the environments they face, the tasks they have to accomplish,

the technology they employ and the scale on which they conduct operations.

As a consequence there may very well be differences in the strategies they

pursue, the structure of their organisations and so on. To this list we can

now add systems, culture and of course people.

Activity 1.7: International chemistry


Purpose: to consider the interplay of structure, systems, culture and people

on the task of implementing strategy

Make brief notes in answer to the following questions:

. Is managing a petrochemical plant in France different from managing one

in Thailand, or is a chemical plant a chemical plant no matter where it is

located? What differences and similarities might you expect?

Feedback

Some similarities might include these:

1 The technology employed to produce the ‘stuff’ – which would probably

lead to commonalities as far as systems and routines are concerned.

2 The effective scale of operation. Surprisingly perhaps, manufacturing

plants tend to come in sizes; this is governed by the volume constraint of

the production process and the economic efficiency of manufacturing

quantities. This might lead to structural similarities.


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Black plate (35,1)

Differences might include the following:

1 The impact of the regulatory environment. Some nations might have well-

developed employment protection laws, health and safety provisions and

so on. Others might not.

2 The people involved might have different expectations of their employment

contracts, different views on the legitimacy of management authority, even

different levels of basic education. Crucially, because of the influence of

national culture, ways of thinking which would be taken for granted in one

plant might be difficult to comprehend in another.

You may have generated several more variables in your response to this

activity, but in this relatively short list we should be able to see the elements

that managers have to work with in order to manage the plant and to manage

change. Given what we have said about their importance (and the challenges

they present) in managing implementation, it is perhaps significant that the

‘culture’ and ‘people’ elements are a source of ‘difference’ here.

In the remaining three units of Block 5 we shall develop our understanding

of these elements and themes further. Unit 4 concludes by considering the

practical issues of achieving change.

Summary

Our introduction to the topic of implementation has noted that, for all its

importance to the success of strategy, it is a relatively neglected area of

theorising compared with the amount of support that managers have received

from research in analysis and decision making. We began by enumerating a

number of barriers to the effective implementation of strategy, drawn from

the work of Alexander (1985) and Hrebiniak (see Reading 1 of Readings for

Blocks 5 and 6). Broadly summarised, these included:

. lack of detailed definition of tasks or clear guidelines

. poor information sharing (both generally, and specifically to managers

about things going wrong)

. lack of clarity about changed responsibilities or roles

. the failure of strategy formulators to play a role in implementation

. unforeseen problems, and the fact that implementation tends to take

longer and be more labour-intensive than expected

. lack of management training in implementation

. the low status accorded to implementing strategy

. failure to link strategy to the practicalities of implementation

. poor or vague strategy in the first place

. inability to manage change

. trying to work against existing power structures.

Happily, there is also research which points to conditions favourable to

successful implementation. Hickson et al. (2003) summarise these as the

‘Planning’ option and the ‘Prioritising’ option.

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Black plate (36,1)

The Planning option builds on project-planning tools (such as critical path

analysis and Gantt charts) to match experienced managers with

implementation situations whose requirements they can assess accurately,

leading to the specification of detailed plans and adequate resourcing. This

promotes the acceptability of the implementation to those involved. As

conceived by Hickson et al., the option goes further than existing project

planning literature by emphasising the importance of gaining acceptance for

change.

The Prioritising option comes into play where there is insufficient experience

available. It depends on ensuring the organisation is as ready as possible for

the implementation to take place, by judging the time and mood to ensure

receptivity, establishing an appropriate facilitative structure (such as a project

team) and effectively communicating the priority of the implementation to

those affected by it. The Prioritising option is highly receptive of learning.

We then reviewed the elements of structure, systems, culture and people in

organisations as they relate to implementation and change. Structure, systems

and culture are ways in which things get done in organisations, but they are

also ways in which behaviour and outputs are controlled.

Our introduction to structure revisited the work of Alfred Chandler, whom

we first met in Block 2. His empirical studies of US businesses in the mid

20th century led him to conclude that if an organisation’s strategy changes,

its structure will follow suit.

Structure allows systems and routines to operate. Systems are particularly

important in controlling what happens in implementation in order to keep

things on track. We reviewed the familiar model of the management control

loop, pointing to the dangers it poses in a dynamic environment, but

referring also to the remedy proposed by ‘double-loop learning’ (Argyris and

Schön, 1978), and advice from Morgan (1986) to encourage an open and

reflective approach, the use of multiple viewpoints, and flexibility in

management control.

Culture is a complex, multilayered entity which operates in organisations at

national, professional and occupational levels (at least). We reviewed the

classic contributions of Peters and Waterman (1982) and Deal and Kennedy

(1982) on the subject of organisational culture, warning that the limited

potential these authors saw for deliberately engineering cultures which would

promote successful strategy implementation has not proved a very fruitful

avenue. We argued that Deal and Kennedy’s generic division of

organisational culture along the lines of risk and speed of feedback on action

(tough guy, work hard/play hard, bet your company and process) still have

intuitive appeal, but might be less relevant in the 21st century than when

they were first elaborated. However, the advice on culture change provided

by these authors (emphasising consensus, two-way trust, skill building,

patience and flexibility) does resonate with more recent theorising.

Finally we took account of recent work on the importance of strategic

leadership at an individual level as an example of how the relatively

neglected aspect of human agency is central to the successful implementation

of strategic decisions.

This introductory unit has primed you for the remaining units of Block 5.


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Black plate (5,1)

Unit 2: Structure, systems andcultureIntroduction

This unit develops our discussion of the roles of organisational structure,systems and culture in facilitating the implementation of strategy. The veryconcept of organisation involves dividing work up into manageablecomponents – not only manageable in the sense of making them more easilydoable, but also manageable in the sense of being something that can becontrolled and guided to support the overall aims of the organisation. Inlarge organisations this involves hierarchies of control which attachresponsibility to individuals through the roles they are allocated, and ensuresaccountability through reporting lines. Smaller organisations will tend tohave less elaborate structures, but there will still be ways in which work is‘managed’ to check progress and results, and to ensure that resources areallocated and used appropriately. Human resource and financial controlsystems are explicit ways of doing this – creating formal frameworks withinwhich people work, conscious of the rules which govern what is acceptable.But alongside the visible and formal structures and systems of anyorganisation is a third, more mysterious but no less powerful, form ofcontrol – culture.

An organisation’s ability to implement strategy successfully depends on howwell its structure, systems and culture are aligned with what it is trying todo. This unit aims to examine some of the ways in which theorists haveargued that such alignment operates in order that managers may be moresuccessful in creating (or maintaining) the right climate for strategic change.


. appreciate the link between structure and strategy in organisationsimplementing strategic change

. demonstrate familiarity with some common organisational forms and theirstrengths and weaknesses with respect to implementation issues

. recognise and outline the role that systems play in implementation

. differentiate between corporate and organisational culture, and take aview on the extent to which culture can be managed to facilitate strategicchange.

2.1: Structure

Does structure follow strategy? The role of structure in operationaleffectiveness has been well documented in the strategy literature. This ispredicated on the assumption that an organisation relies on its structure inorder to coordinate its activities and that it may help the organisation todeliver a unique mix of value. Structural mechanisms include the ways inwhich people interact and interface in doing their work, the flow of

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Unit 2: Structure, systems and culture

Black plate (6,1)

information throughout the organisation, and the coordination and control ofessential activities and practices.

For example, if an organisation adopts a cost-leadership strategy then itsproducts must be produced both reliably and cost-effectively. This, in turn,requires a structure that facilitates coordination and minimises the costs ofproduct design, supply, operations and distribution. The same is true for anot-for-profit voluntary organisation with a strong sense of mission. If itaims to maximise public donations and credibility, its structure mustminimise its administrative costs and provide sufficient flexibility to delegateresponsibility (where appropriate) to its voluntary members. Structure caneven be an expression of what the organisation stands for. For example,Oxfam, an international development charity founded in England in 1942, by1995 became part of a federal organisation, Oxfam International, with twelveother regionally based Oxfam organisations, in order to underline thecharity’s mission of partnership rather than patronising the people withwhom it works.

Such examples appear to bear out Alfred Chandler’s (1962) logic that‘structure follows strategy’ and that organisations choose their structures tosupport their strategic direction. However, this is not always the case. Theconverse view would argue that it is ‘strategy that follows structure’. Whatthat means is that an organisation’s structure, culture and the operationalpractices that go with them can dictate future strategy. Thinking back towhat we said in Unit 1 about Gerry Johnson’s concept of paradigm, you cansee how this might happen. If you get used to a particular way of doingthings (including the existing structure of your organisation), this mindsetwill affect what you consider desirable, or even possible, as future strategy.

In Chandler’s (1962) view, which we outlined in the previous unit and whichyou will also remember from Block 2, strategy needs to be developed first,and only then do we consider an appropriate structure to ensure the effectiveimplementation of that strategy. This is because a new strategy may createnew demands on resources in terms of new staff, machinery or infrastructure,which could change the way the organisation operates, making a newstructure necessary. Chandler’s approach assumes that the strategic choice ofstrategy/structure relationship is a rational process undertaken only by thesenior management of a given organisation.

Chandler’s arguments influenced the development of contingency theory,which remains one of the leading approaches to issues of organisationalstructure – though it has also been applied to other aspects of organisationallife, such as leadership style (Fiedler, 1967). The UK strategy scholar LexDonaldson has made a specialism of contingency theory as it affectsstructure. He describes it thus: ‘organisational effectiveness results fromfitting characteristics of the organisation, such as its structure, tocontingencies that reflect the situation of the organisation’ (Donaldson, 2001,p. 1). Contingency theory thus sees structure as a response to the particularcontingencies (i.e., circumstances or events) that the organisation faces, andthat affect its strategy (for example, changes in technologies or markets).Failure to consider such contingencies in designing structure leads to poorperformance. In effect, this implies some sort of cause-and-effect relationshipin operation where a number of contingencies – which could be an


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Black plate (7,1)

organisation’s size, or the beliefs and expectations of its managers aboutparticular outcomes – are strongly associated with the design oforganisational structure. Taken to its extreme, the contingency view treats theorganisation as almost passive in the adoption of a structure contingent onits circumstances.

Contingency theory, then, argues against universal rules of organisationaldesign to suggest that there are as many right ways of structuring anorganisation as there are situations to face. This is in sharp contrast to theviews of F. W. Taylor (1911), who maintained that success for anyorganisation lay in the maximum level of formalisation or specialisation.Taylor’s ‘one best way’ recommendations may have been appropriate for histime if we accept that the business environment from which he developedhis theory was far more stable than those which face today’s organisations.Flexibility seems like a better idea in today’s world of dynamic change. Butwe could accuse contingency theory of encouraging too much flexibility,viewing organisations and their managers as merely responding to situationsrather than trying actively to design structures or change the contingencies.Where does this theory leave innovation, for instance? Or what if anorganisation has strong views about, for example, participation byemployees, or a basic ideological commitment to a particular form oforganisation such as a cooperative? In this sense, arguments from theresource-based view of strategy which see organisations actively changingtheir environments to create new market opportunities could be turnedagainst contingency theory. A final point to keep in mind as we continue ourdiscussion of structure following strategy is that the relationship proposed bycontingency theory is unidirectional, whereas (as we have argued in Block 2)causal relationships in complex phenomena are reciprocal. Box 2.1 gives anexample of a very successful strategy that actually followed a structuralchange by accident, but which could not have happened without thestructural change. It is interesting to note, while we are challenging theorthodox view of structure following strategy, who the strategists were inthis case – not the ‘official’ strategists, but the customer-facing employees.

Box 2.1: Strategy follows structure?

Air Liquide, a French industrial gases producer, is an example of a

company where structural change has actually caused a change in

strategy. In order to serve the specific needs of its customers, it had

developed a way of manufacturing specialist gases on site at various

customer locations. This meant that a growing number of Air Liquide’s

workforce was almost permanently on loan to customers, and this

closeness allowed them to notice various aspects of the customers’

business where they could make a difference to quality and costs. What

really cleared the way for them to take the initiative was, however, a

company-wide reorganisation which took place for completely unrelated

reasons. One effect of this was to give the on-site teams greater

freedom, which they exercised in getting even closer to their customers

and taking on specialised technical work such as troubleshooting,

quality management and stock control. This expert consultancy

business, which had represented only 7 per cent of turnover in 1991,

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Black plate (8,1)

rose to 25 per cent by 2004 and offered much higher margins than the

core gas manufacturing business, which was in danger of becoming

commoditised in the face of price competition from other producers. So

it not only made the company a disproportionate amount of money, but it

also had some hope of sustainability. Had the unrelated reorganisation

not taken place, the on-site teams would not have been given authority

to go ahead by the old centralised hierarchy. By happy accident, the

new organisational structure caused the strategic initiative to develop

and flourish.

(Source: adapted from Slywotsky and Nadler, 2004)

The main elements of organisational structure

In this section we look at the many different types of configuration intowhich organisations form themselves as they endeavour to structure forsuccess. Here the term ‘configurations’ refers to the natural clusters orgroupings that result when the key elements of structure are combined. Theidea behind this is that formal structures and processes need to be aligned sothat they can more comprehensively influence the informal processes andrelationships that occur in all organisations. This is based on the belief thatif the formal and informal sides of an organisation are closely connected, itbecomes easier to undertake more effective strategy work.

A configuration consists of both the broader and the more micro structuresthat an organisation establishes, and includes the processes and relationshipsthrough which organisations develop and accomplish their strategies. Thethree essential aspects of any configuration are therefore its structural design,processes and relationships:

. Structural design can deeply influence the sources of an organisation’sadvantage, particularly with regard to how knowledge is created andmanaged. As we have argued, the wrong (or an inappropriate) structuraldesign can mean that strategies are not implemented, or that essentialknowledge and skills are not developed. However, good structure alone isnot enough.

. Processes drive and support what people do within and around anorganisation. Processes, both formal and informal, can have a majorinfluence on success or failure. They help define how strategies arecreated, and are the ways and means by which employees interact whenthey are implementing strategy in action.

. Relationships connect people within the organisation and are formed withthose outside of the organisation who impact upon the ability of a firm tobe successful. Specifically, relationships are formed internally betweenthe corporate centre and those located away from the central hub, indispersed organisational units and at peripheries. Externally, relationshipsare developed through routine activity with consultants, shareholders andother stakeholders.

Organisation charts are a typical way in which managers describe theirorganisation and can be useful in depicting formal relations. They represent


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Black plate (9,1)

the different ‘levels’ within the organisation and give some indication ofreporting lines. Often, restructuring attempts become most visible in redrawnorganisation charts, signifying a change of emphasis in an organisation’sactivities as they suggest that a new set of skills is being seen as crucial tothe future success of the organisation. For example, a new organisation chartwhich includes a ‘director of strategy’ role that didn’t appear previously,clearly makes the statement that strategy has become more of a concern forthe organisation and more important to its future success.

In the following activity, the speaker underlines the need to make sure thatpeople know where they are in the organisation and what they are supposedto be doing in any new organisational structure, and indicates theorganisation chart as a useful tool in confirming and managing change. Healso underlines the importance of filling the top posts in new organisationalstructures with credible managers, in order to gain people’s commitment tothe change.

Activity 2.1: The human side of restructuringAllow 10 minutes for this activity.

Purpose: to reflect on the issues surrounding structural change with reference

to a specific case

Please access the course website to watch the clip which forms the basis of

this activity (Judge, 2009).

As you watch the video clip, from Sir Paul Judge, former chief executive of

Cadbury Typhoo, make brief notes on how he managed the change from a

functional to a unit (or divisional) structure.

There is a transcript of the clip in the online Course resources, should you

need to refer to it.

Feedback

When Sir Paul Judge took over at Cadbury Typhoo he inherited a portfolio of

major brands, but an organisation which was not as nimble as it needed to

be in order to take advantage of the opportunities they provided. He therefore

made the classic move from a functional to a divisional structure – a textbook

example of the process which Chandler (1962) describes as advisable for an

expanding business. Sir Paul describes how, in order to make the change, it

is necessary to convince people beforehand of the need for it, and then to

carry it out in a way which is sensitive to the human side of the organisation.

By this he means taking account of the understandable anxieties of

managers faced with change, the need for people to know ‘where they are’ in

terms of the company’s structure, and the need for a respectful approach

(including promoting the right sort of candidates to senior positions in any

new structure). The communication techniques he suggests – individual

meetings with key staff, widely circulated memos describing the change and

its consequences in detail, and giving everyone a copy of the new

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Black plate (10,1)

organisation chart – sound a little old-fashioned, even if they have proved

effective. Or do you think the personal touch is what counts in a situation like

this?

The Cadbury Typhoo restructuring sounds very deliberate – even down tothe way in which Sir Paul was able to write a memo covering it in detailbefore it took place. As you might expect from his position on strategyformation in general, Henry Mintzberg (1979; 1990) argues that therelationship between structure and strategy is less deliberate than ‘emergent’in nature. On the one hand, structure needs to be matched with a series ofinterlinked internal organisational characteristics that determineorganisational performance. On the other, strategic decisions cannot beseparated from existing structures, as in practice structures both enable andconstrain strategies. In effect, strategy and structure are inseparable – that is,‘structure follows strategy as the left foot follows the right’ (Mintzberg,1990, p. 3).

It is likely that in your previous studies you will have encountered thecontrast between the ‘hierarchical’ structure and the ‘matrix’ structure. Ahierarchical structure holds several levels of management in a top-down flowwith different degrees of authority and responsibility. A matrix structurecombines managerial responsibilities from two or more relevant areas ofbusiness. Hierarchies have acquired a poor image and are seen as rigid andbureaucratic. Yet in the right circumstances they are able to deliver a productor a service efficiently and consistently. The problem is that in fast-changingenvironments the rigidity of a hierarchical organisation may make it lessresponsive and therefore less effective. Organisations seeking potentialadvantage from the design of their organisational structure have for a longtime been using more complex organisational forms than simple hierarchies.However, alternative, more modern structures, such as matrix structures, alsopresent difficulties. These difficulties may arise from the increasedcomplexity of using two, three (or more) dimensions around which to buildthe matrix. Frequently, this has led to confusion for the managers trying tomake them work effectively. New variations of organisation types andstructures have emerged, such as network structures, which we shall discussin the sections that follow.

To begin this more detailed examination of the elements that contribute tostructure, we return to the work of Mintzberg. His approach to therelationship between strategy and structure begins by exploring the basicelements that make up organisational structures. The next reading is one ofMintzberg’s most influential: in it, he makes a strong argument against anyunilateral approach to structure.


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Activity 2.2: Mintzberg on organisational structureAllow 120 minutes for this activity.

Purpose: to read and reflect on Henry Mintzberg’s ‘The structuring of

organisations’

Please turn to Reading 3 of Readings for Blocks 5 and 6, Mintzberg’s ‘The

structuring of organisations’. As usual, Mintzberg’s writing style is attractive

and accessible (and the piece is lavishly illustrated with diagrams). But it will

help to take it in if you try to think of examples of the basic parts,

coordinating mechanisms, design parameters, situational factors and, finally,

configurations that he outlines.

When you have finished reading, make brief notes in answer to the following

questions:

. Where do you think Mintzberg stands in relation to the contingency theory

of organisational structure, as discussed earlier in this section?

. Which of Mintzberg’s configurations corresponds to the product-based

structure chosen by Sir Paul Judge at Cadbury Typhoo?

Feedback

Like contingency theorists, Mintzberg does not believe there is ‘one best way’

to design an organisation in all circumstances. But Mintzberg goes beyond

the contingency argument that context determines structure to suggest that

‘characteristics of organisations appear to fall into natural clusters or

configurations’. This means that the elements within the clusters themselves

have an interdependent influence on structure: ‘no one factor – structural or

situational – determines the others; rather all are often logically formed into

tightly knit configurations’. This can be seen as a ‘third way’ of understanding

how structure is arrived at. In this view, elements of the structure themselves

affect each other. An analogy might be that in a restaurant your choice of

main course may well dictate what other things you have to eat as a starter

and a dessert, or what vegetables you choose. Some things go together

better than others to make a satisfying meal. The same is true for

organisational elements. Mintzberg argues, furthermore, that organisations

can affect their environments. He claims that they do not just passively shape

themselves in response to whatever is ‘out there’.

Effectively, Mintzberg consolidates the views of the contingency theorists into

a single framework. This allows him to explore the relationship between

strategy and structure in a more organic, holistic manner. He argues that,

when structures are designed, organisations need to be viewed as a whole.

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As you will recall, Mintzberg describes two essential elements making up the

structure of any organisation:

. The six basic parts, which he calls: (1) the operating core, (2) the

strategic apex, (3) the middle line, (4) the technostructure, (5) support

staff, and (6) ideology. Each contributes in different ways towards

organisational goals.

. The six ‘coordinating mechanisms’ which link the basic parts together

(direct supervision, mutual adjustment and the standardisation of work

processes, outputs, skills and norms). These form the ‘glue’ that links

together the roles and tasks of every employee or team in getting the

overall work done.

Mintzberg suggests that when these two elements are combined with the

centralisation or decentralisation of power in an organisation, the resulting

combinations provide six structural configurations. Just to clarify the

terminology: structure is centralised when the decision-making power rests at

a single point in the organisation, and decentralised when the power is

relatively dispersed among many individuals or levels within the organisation.

Mintzberg explains that ‘an organisation is pulled in six different directions,

one by each of its parts. When conditions favour one of these pulls over

others, a particular organisation is drawn to structure itself as one of the

configurations’.

As we have seen in Activity 2.2, in Mintzberg’s configurations the product-

based structure of Cadbury Typhoo after Sir Paul Judge’s reforms

corresponds most closely to the ‘divisionalised form’. The different product

areas form diversified entities, each with their own structures and

administrative support. Each represents a distinct area of focus, speeding up

decision making and increasing flexibility compared with the functional

organisation which preceded them.

In the next section we shall present and discuss some of the organisationalconfigurations that organisations display. First, we review Mintzberg’s sixideal structural types. This is a neat schematic representation and a goodplace to start any consideration of the varieties of structure, as the types arepresented simply and clearly. However, like any brief summary, it lacksdetail and needs fleshing out. So, after this, we present individualconfigurations in more depth. Some of them have been identified byMintzberg; others have become more important since Mintzberg’s work. Weconclude the section by considering whether and how organisations choosetheir structures.

Mintzberg’s six ideal structural types

Mintzberg’s work distinguishes six coordinating mechanisms, connectingwhat he regards as the basic parts of an organisation. As we have seen, thesemechanisms form the glue that, in his view, links together the roles and tasksof every employee or team in getting the overall work done. In Mintzberg’sterms, the process of implementing strategy is unique to each individualsituation and to the internal complexity faced by every organisation.Decisions to design an organisation that is centralised or decentralised, tall


44

Black plate (13,1)

or flat, flexible or more rigid, with more or less formal policies andprocedures, are essentially umbrella decisions about how an organisation’sstrategy is to be achieved. They represent the means or framework throughwhich an organisation’s formal configuration impacts upon its ability torealise its strategy.

Mintzberg acknowledges that, in most cases, managers must strike a balancebetween a wide variety of conflicting situational factors (such as the age andsize of the organisation, its technical systems and environment) and reconcilemany apparently difficult internal organisational issues (such as culturalclashes or conflicts between finance and marketing) before reaching anydecision on how to structure the organisation. Therefore, Mintzberg suggests,any given structure can be a source of advantage if it is aligned with theorganisation’s strategies, processes and ideologies, and with its externalcontexts and relationships.

Overall, Mintzberg provides some useful guidance as to the kinds ofstructure to recommend for organisations in differing circumstances, andtheir implications for strategy. His framework is equally applicable tounderstanding the structures of organisations in non-profit sectors (e.g., the‘missionary’ form, where the organisation is ideologically driven) and smallto medium-sized enterprises, or SMEs (i.e., ‘simple’ structures). It is alsouseful in explaining what might happen as the organisation grows – forexample, from a small entrepreneurial organisation to a larger form withseveral product ranges and divisions (i.e., from ‘simple’ structure to‘machine bureaucracy’ or ‘divisionalised’ form).

Note that Mintzberg’s configurations need to be interpreted with caution.These configurations deliberately oversimplify the types of organisationalcombination that can be achieved in practice. That is why they are called‘ideal types’, rather than completely real types of structural forms. Mintzberghimself warns that each of the configurations is idealised and generic, andthat no real organisation is exactly like any one of them. For example, it canbe argued that Mintzberg’s divisionalised form is rather vague and of limitedvalue in understanding large complex organisations which simultaneouslyoperate and manage structures crossing diverse products, geographical andfunctional boundaries. We discuss complex organisation structures further inthe next section.

In summary, Mintzberg’s six ideal structural types provide a usefulintroduction to the idea of organisational configurations, but need to beinterpreted with caution. It would be a mistake to draw sweepingconclusions from the information presented in Table 2.1, as theconfigurations oversimplify the types of organisational combinations that canbe achieved in practice. Mintzberg himself warns that each of theconfigurations is idealised and generic, and that no real organisation isexactly like any one of them. However, they are a useful point of departurefrom which to begin our discussion, as they provide a language forunderstanding the importance of structures to strategy.

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Black plate (14,1)


46

Table

2.1:Mintzberg’s

sixidealstructuraltypes

Sim

ple

structure

Mach

inebureaucracy

Profess

ional

bureaucracy

Divisionalised

form

Adhocracy

Missionary

Keypart

Strategic

apex

Tech

nostructure

Operatin

gco

reMiddle

line

Supportstaff

Ideology

Coordinatin

gmech

anism

Direct

supervision

Standardisatio

nof

work

proce

sses

Standardisatio

nof

skills

Standardisatio

nofoutputs

Mutualadjustment

Standardisatio

nof

norm

s

Dominantpull

to:

Centralise

Standardise

Profess

ionalise

Balkanise

Colla

borate

Eva

ngelise

Dece

ntralisatio

nNone(centralised)

Lim

itedhorizo

ntal

Horizo

ntal

Lim

itedve

rtical

Selectivehorizo

ntal

andve

rtical

Fulldece

ntralisatio

n

Planningand

control

Little

Actionplanning

Little

Much

perform

ance

control

Lim

itedaction

planning

Little

Liaisondevice

sFew

Few

Administrativ

esy

stems

Few

Manythroughout

Few

Exa

mples

Smallownermanager

organisatio

ns

undertakingsimple

activities,

e.g.,sm

all

shops

Fast-foodch

ains;

airlin

es;

telephone

banking

Hosp

itals;co

lleges;

law

firms(orother

profess

ionalse

rvice

firmsorpartnerships)

Large

conglomerates

Creativ

eadve

rtising

agencies;

besp

oke

software

boutiq

ues

Eva

ngelicalch

urches;

revo

lutio

nary

move

ments

(Source:adaptedfrom

Reading3ofReadingsforBlock

s5and6)

Black plate (15,1)

Activity 2.3: Matching the idealAllow 30 minutes for this activity.

Purpose: to explore Mintzberg’s ideal structural types using a real example

Consider your own organisation (or one with which you are familiar). Which of

Mintzberg’s six ideal structural types most closely reflects its configuration?

If none of the types accurately represents your organisation, then, in an ideal

world, which should be your organisation’s configuration?

In both instances, give reasons for your answer.

Feedback

Clearly your response to this activity will depend on the organisation you

choose. I picked one with which I am familiar as a customer: the small,

family-run garage where I get my car serviced. It looks like a ‘simple’

structure. A father and his two sons work in the garage and own the

business, and there are at least two other mechanics. There is also a

secretary or administrator, as she sometimes answers the telephone when I

ring to book my car in. Customers come in with requests for services or

repairs, they receive estimates, and the accepted work is allocated by the

‘strategic apex’ of the firm (one of the owners).

Nevertheless, the coordinating mechanisms at work are a little more

complicated than direct supervision alone. A certain amount of

standardisation (of work, skills and output) is necessary in order to be able to

name a price in advance for a car service or roadworthiness test. The

mechanics need to be able to specify the output fairly consistently in terms of

the likely labour and materials – though significant deviations from the

estimate are subject to further agreement with the customer by telephone.

The dominant pull is towards centralisation, as one might expect in a family-

owned business. Planning and control are adequate to keep the business

going at a healthy rate (if the usual wait for a service appointment is anything

to go by) and liaison devices are informal and personal. All incoming jobs are

written in the diary, for example, to make sure the mechanics can cope with

the work stream. The business is well established (it has been going since

1967, according to the sign above the door) and does not appear to be

expanding, though as a family firm this might not be a very high priority. Its

technical systems are adequate, though unsophisticated. It does not, for

example, have a computer database of customers (which means that I have

to remember when a service is due, rather than receiving a reminder as

might be the case with a larger company).

As far as the ‘ideal world’ is concerned, the organisation as it stands appears

to be thriving. Its structure is, in overall terms, appropriate to its strategy of

making a good living from ‘business as usual’. One possible route to

expansion, should this be deemed desirable, might be to increase the

specialisation of jobs in order to have dedicated staff look after the sales side

47


Black plate (16,1)

of the business (there is a small showroom of used cars next to the service

bay). If this part of the business showed significant growth there might even

be a case for some kind of divisionalisation, in other words setting it up with

its own support functions such as marketing and finance.

Simple, complex and innovation-orientated structures

We now move from Mintzberg’s account of organisational structure to ourown list of structural forms that are widely recognisable in contemporaryorganisations. Some of these amplify Mintzberg’s ideas; some of them (forexample, ‘functional’ and ‘multidivisional’ structures) also remind us of thework of Chandler (1962). For convenience we have placed them into threemain categories:

. simple structure (functional)

. complex structure (multidivisional, holding, matrix, network andtransnational)

. innovation-orientated structure (project-based and adhocracy).

It needs to be stressed, however, that innovation and strategic change cantake place through more than one kind of structure and, of course, that mostorganisations, while having some recognisable features which correspond toa particular structure, will have characteristics of more than one.

Simple structureAt an early stage of development an organisation tends to have a simplestructure whose design reflects how work is divided between a number ofsections or departments according to function. For convenience we refer tothis as a functional structure.

The functional structureThe functional structure is perhaps the simplest and most basic form oforganisational structure. It divides responsibilities according to theorganisation’s primary roles, such as production, finance and accounting,marketing, human resources, and research and development. Figure 2.1represents a typical organisation chart for a business structured alongfunctional lines. This type of configuration is usually found in smallercompanies, or those with narrow, rather than diverse, product ranges. Whenorganisations of this type become larger and more complex, and evolve intomultidivisional forms (see below), the divisions themselves often retain theirfunctional configuration.

The advantages of a functional structure are associated with its basic andsimple form. Some of these are:

. the CEO can keep in touch easily with all functions and operations

. it reduces and simplifies control mechanisms

. responsibility and reporting mechanisms are clearly defined and easilyunderstood

. specialists are located at senior and middle management levels and areclearly identified within the overall structure.


48

Black plate (17,1)

The disadvantages associated with the functional structure are also connectedwith its simple and basic configuration. Some of these are:

. senior managers can become overburdened with routine matters andoperational detail as they focus on their functional responsibilities

. senior managers may neglect strategic issues as they become inward-looking and overlook the external context

. diversity can become difficult to cope with as functional lines becomerigid

. coordination between functions becomes difficult as functional barriersare reinforced

. organisations with this configuration can fail to adapt to changingorganisational size and changes in the external environment.

Complex structureMoving on from simple beginnings, organisations tend to become morecomplex in structure as they develop.

The multidivisional structureThe multidivisional structure (or the ‘M-form’) is a configuration built up bymultiple divisions based on products, services or geographical areas, and acentral head office organised by function.

Divisionalisation often comes about as an attempt to overcome the problemsthat functional structures have in dealing with diversity or expansion, asoutlined above. This typically occurs when domestic organisations expanddue to globalisation efforts and change their configuration to be better ableto manage their growing enterprises. Each division, in a multidivisionalstructure, is able to respond to the specific requirements of its product/market strategy, using its own set of functional departments.

This type of configuration exists in many public services, where theorganisation is structured around service departments such as recreation,social services and education. Alternatively, the Gucci group discussed inBlock 3, Unit 5, Figure 5.3 might provide a for-profit example of themultidivisional structure (see Figure 2.2 here).

49


Chief executive

Productiondepartment

Sales andmarketing

department

Finance andaccountingdepartment

HRdepartment

Figure 2.1: A functional structure

Black plate (18,1)

The advantages of the multidivisional structure are:

. flexibility, as divisions can be added or divested as appropriate

. divisions can be controlled through monitoring performance measures

. accountability can be increased in terms of the strategic performance ofdivisions

. divisional managers have greater ownership of their own divisionalstrategies

. specialisation can be based on competencies that develop with a clearerfocus on a particular product group, technology or customer group

. growth areas can be clearly identified and focused upon

. conflicts between functional areas can be eased

. divisional managers can prepare for a move to the corporate centre byadopting a strategic leadership role within their division.

The disadvantages of the multidivisional structure are:

. duplication of central and divisional activity can occur as functionsbehave more like independent businesses

. fragmentation and non-cooperation can emerge, as divisional prioritiestake over from those at the corporate centre

. internal competition between divisions can occur as they ‘compete’ forscarce central resources

. cross-sharing of functional experts, and the sharing of experiences andlearning, becomes harder and may actually be discouraged

. conflicts over relationships with head office may emerge

. loss of central control becomes a real danger.

The holding structureA holding structure groups together a number of diverse businesses, under acentral head office, that have grown together through mergers andacquisitions, or by joint ventures.

In holding structures, decision-making authority is decentralised as everydivision operates autonomously as a strategic business unit (SBU). Head


50

Head office

Central services

Division Division Division Division Division

Functions Functions Functions FunctionsFunctions

Figure 2.2: A multidivisional structure

Black plate (19,1)

office becomes a central coordinator evaluating each individual SBU basedon its performance. Sometimes, small organisations may also adopt ‘holding’strategies as a fast-growth track to exploit new opportunities. Also, sincethey hold together groups of organisations, with varying conditions ofshareholdings and partnership, Korean chaebol (such as Samsung, Hyundaiand LG; see Block 3, Unit 5, Box 5.5) and Japanese keiretsus (such asMitsubishi, Mitsui and Sumitomo) are all, in practice, holding structures (seeFigure 2.3).

The advantages of a holding structure are:

. allowing for multiple ownership and greater spread of risk around thecompanies making up the group

. greater access to diverse sources of knowledge through collaborationsbetween the SBUs with different areas of expertise

. flexibility to tap into new market opportunities.

The disadvantages of a holding structure are:

. minimal parental control and intervention over strategic issues

. the possibility that under-performing SBUs become isolated and difficultto manage

. the potential for conflicts and competition to emerge between SBUs.

The matrix structureA matrix structure combines different structural dimensions simultaneously;for example, product divisions and geographical territories, or productdivisions and functional specialisms. The matrix form combines aspects offunctional and holding structures into a more complex, hybrid structure.Matrix structures appeal to multiproduct, multinational and multifunctionalorganisations that are coordinating activities across functions, products andgeographical areas (Grant, 2008). Kraft Foods, the world’s second largestfood and beverage company, operates as a matrix structure in so far as itmanages and offers different products in different geographic locations. Forexample, it offers Oreos in North America, In-A-Biskit in Australia,Chipsmore in Asia and Dairylea in Europe.

Strategy implementation under a matrix structure is complex and highlychallenging, given the varied and simultaneous coordination requirements ofdifferent businesses and different countries or regions. However, thepotential benefits of this configuration are that it can be especially effectivefor knowledge management because it allows separate areas of knowledge to

51


Mitsui group

Fuji photofilm

Mitsuireal estate

Mitsukoshidepartment

stores

Suntorybrewing and

distilling

Toshibacorporation

Figure 2.3: The holding structure of Mitsui group

A chaebol is a Koreanterm meaning a largefamily-ownedconglomerate. In Japan,keiretsus are tight-knitgroups of companiescentred around aworking relationshipwith a bank.

Black plate (20,1)

be integrated across organisational boundaries. Particularly in professionalservice organisations, matrix configurations can help in applying particularknowledge specialisms to different market or geographical segments. Forexample, in order to serve a particular client, a consulting firm may draw onpeople from groups with specific knowledge specialisms (e.g., strategy orinformation communication technology) and combine them with others thathave specific industry sector or geographic knowledge, to present a more all-encompassing offering. Therefore matrix configurations are particularlyattractive to organisations operating globally, because of the possible mixbetween local and global dimensions. The structure allows global products orservices to be localised and thus to better supply individual markets.

The advantages of a matrix structure are that it:

. encourages collaboration in overlapping businesses or opportunities

. allows knowledge and learning to be integrated across locations

. enables flexibility to adapt to changing strategic conditions

. provides for responsibility to be assumed by two or more players interms of strategic decision making and accountability.

The disadvantages of a matrix structure are that it may:

. be confusing and slow in cases of strategic decision making that involveseveral participants

. create a mix-up over roles and responsibilities, which may lead to unclearjob and task allocation

. mean unclear cost and profit responsibilities

. create the possibility for tensions and conflicts to emerge, particularly inteams where individuals have divided loyalties.

The network structureThe network structure is a flexible, non-hierarchical organisationalconfiguration that groups together a series of independent organisations orSBUs in order to design, produce and market a given product or service. Itcan be composed of numerous individuals, project groups or collaborationslinked together by continuously changing formal or informal relationships.The essential feature of networks is that the boundaries of the organisation


52

Trading companies

Europe North America Far East

Pro

duct

div

isio

ns Product group A

Product group B

Product group C

Theoperations

Figure 2.4: The matrix structure of a multinational organisation

(Source: Johnson et al., 2005, p. 403)

Black plate (21,1)

are less distinct and permeable, so that the organisation becomes‘boundaryless’ (Grant, 2008).

In a network structure, the majority of the organisation’s productive activitiesare outsourced to suppliers and distributors. Its functions and capabilities arenot located in a single location, but scattered worldwide. Staff are notemployed on a long-term basis; instead, their skills and competencies arehired for specific projects for particular lengths of time.

The network structure is common in dynamic and complex environmentswhere creativity, innovation and speed of response are key sources ofadvantage and fundamental to the effectiveness of the organisation.Examples where the network structure can be found are in companiesproducing highly complex products – such as bespoke sports cars – andthose ICT companies that are at the forefront of the network economy (likeCisco Systems in the USA; see Figure 2.5), which draws upon a variety ofindependent operators to provide its service offerings.

The advantages of the network structure are that:

. the form allows the organisation increased flexibility and potential toadapt to rapid change

. the organisation concentrates on its distinctive areas of competency whileintegrating efficiencies from other firms, with each concentrating on theirown distinct areas of expertise.

The disadvantages of the network structure are that:

. relationships and links are transitional, unstable and subject to tensions

. high levels of trust are required, and cultures may diverge as theorganisations/groups develop

. coordination through numerous partnerships and collaborations can be asource of conflict

. continuous outsourcing of key activities keeps the firm from developingits own potential or from discovering the efficiencies of combiningactivities on its own

. economies of scale and scope must be achieved through collaboration.

53


Access Optical Storage Core routing

Aggregation

Ethernetaccess

VoiceNetworkmanagement

Internet switchingand services

Wireless

TechnologiesCisco Systems: Cisco

Connection Online

Figure 2.5: The network structure of Cisco Systems

Black plate (22,1)

The transnational structureThe transnational structure is a means of managing internationally which isparticularly effective in making best use of knowledge spread across borders.The transnational structure seeks to maximise the benefits from two extremeinternational strategies: the multidomestic strategy and the global strategy. Amultidomestic strategy involves a portfolio of separate national companieswith a coordinating centre, where the separate national companies have littlecontact or interaction. A global strategy, on the other hand, sees anorganisation seeking to gain maximum scale economies throughstandardisation of products, so the same product is offered in many differentnational markets (Segal-Horn and Faulkner, 2010). A global strategy wouldbe supported by global product divisions (for example, worldwidemanufacturing systems); a multidomestic strategy would be supported bylocal subsidiaries with a substantial amount of autonomy in the design,manufacture and marketing of products.

A transnational structure is adopted when firms seek to combine the best ofboth approaches, both global and local (multidomestic). When Toyotaembarked on its own transnational journey, its president, Fujio Cho,described its approach as ‘global localization’ (Segal-Horn and Faulkner,2010, p. 347). A similar term, ‘glocalisation’, has been coined to describethis approach. It is essentially about achieving high local responsivenessaligned with high global coordination.

The advantage of this organisation form is that the benefits of globalcoordination, particularly in terms of scale and scope, are coupled with themerits of being flexible enough to adapt to local market needs andpreferences.

The transnational configuration has the following detailed characteristics:

. Each national unit operates independently, but is a source of ideas andcapabilities for the whole corporation. For example, the Anglo-Dutchconglomerate Unilever locates its worldwide centre for innovation inhaircare products in France.

. National units achieve greater scale economies through specialisation onbehalf of the whole corporation, or at least by dividing operations intolarge regions. Unilever in Europe has replaced its web of small nationalfood manufacturing units with a few specialised larger factories thatexport its products to other European countries.

. The corporate centre manages this global network by first establishing therole of each business unit, and then sustaining the systems, relationshipsand culture to make the network of business units operate effectively.Unilever has established a system of ‘forums’, bringing managerstogether internationally to help them swap experiences and coordinatetheir needs.

The disadvantages of a transnational structure are that:

. it requires managers to be willing to focus their work on both their localand their international responsibilities, which can be quite demanding

. responsibilities to the local and the global can sometimes be complex andconfusing, and can sometimes conflict


54

Black plate (23,1)

. internal politics and politicking can sometimes take over from effectivestrategy work.

Innovation-orientated structureOur final two structures are associated with organisations with a particularintention to innovate. They share many of the characteristics of networkorganisations as described in the previous section, but go even further in thedirection of dynamic flexibility.

The project-based structureA project-based structure is one where teams are created, undertake theirwork (for example, on internal or external contracts), usually for a finite lifespan, and then dissolve. This can be particularly appropriate fororganisations that deliver large and expensive goods or services – e.g., civilengineering (the Crossrail project mentioned in Unit 1, Box 1.2 is oneexample of this), information systems, films –, or those delivering time-limited events – sporting events, festivals or consulting engagements. Theorganisation structure is a constantly changing collection of project teamscreated, steered and glued together loosely by a small corporate group. Manyorganisations use such teams in a more ad hoc way to complement the‘main’ structure. For example, taskforces are set up to make progress on newelements of strategy, or to provide momentum where current activities arenot progressing appropriately.

The project-based structure can be highly flexible, with projects being set upand dissolved as required. Because project teams should have clear tasks toachieve within a defined life, accountability and control mechanisms aregenerally transparent. As project team members will typically be drawn fromdifferent departments within the firm, projects can be effective at knowledgeexchange. Projects can also draw members internationally and, becauseproject life spans are typically short, project teams may be more willing towork temporarily around the world. Project teams have been growing inimportance because of their inherent flexibility. This is their main advantage,as such flexibility can be vital in a fast-moving world where individualknowledge and competencies need to be redeployed and integrated quicklyand in novel ways.

The disadvantages of the project-based structure are that:

. the very success of project-based structures can lead to them being usedinappropriately, so that every issue or problem is seen as best beingaddressed by forming a project team (governments are often beset bythis)

. projects require strong programme management if they are not to drift infocus or activity

. the constant use and breaking up of project teams can hinder thedevelopment of specialist knowledge and expertise, which may delayorganisational learning.

AdhocraciesMintzberg suggests adhocracies are innovation-orientated organisationalforms. They have a flexible, organic structure with a minimal formalisationof behaviour and a maximisation of innovation potential. They encourage

55


Black plate (24,1)

experts to interact and ideas to flow freely (Grant, 2008). The emphasis is onthe usefulness of such structures to enhance innovative and creativitycapabilities within organisations where ‘knowledge’ is the key strategicasset.

Adhocracies rely on a variety of expertise to get their contracts and areprimarily organised around experts or areas of expertise. These range fromhospitals, universities and research centres, to consulting firms (indeed allprofessional service firms), advertising agencies and biomedical companies.Adhocracies are also beginning to appear in high-end fashion design andretailing organisations (e.g., Italian fashion houses such as Gucci andArmani) that are focused on rapid product development and serviceinnovations to provide unique or state-of-the-art offerings in keeping withcontinuous change. Raymond Miles et al. (1997) describe such organisationsas the ‘cellular’ form, because they not only rely on their knowledge-basedassets but must also be highly fluid and adaptive to change in performingcomplex tasks.

Organisations that are adhocracies can also operate around market-based orclient-based projects that may often require flexibility and coordinationacross multifunctional teams of expertise, such as drug research or newproduct development in the pharmaceuticals industry. These configurationsare similar to the project-based ones discussed above, as their focus is drivenby the design, development and delivery of tailor-made projects. The keydifference is timescale: project teams tend to be set up for a specific purposewithin a specific time horizon, whereas adhocracies are ongoingconstructions.

In essence, adhocracies tend to push responsibility outward to the point ofcontact with the customer. They all tend to remove hierarchical layers and‘flatten’ the organisation wherever possible. They look for faster and moreresponsive actions to deal with the customisation and personalisation ofproducts, services or customers’ requirements. All require moving away fromthe centralised command-and-control modes that we saw in complexstructures. But each remains unique in its purpose and management.

Evaluating and choosing structures

Following a brief look at Mintzberg’s six ideal structural types, we haveexamined eight organisational forms that have stood the test of time andappear to still be relevant for organisations today. In reality, feworganisations adopt a structure that is just like one of the pure structuralconfigurations we have looked at. Similarly, it would oversimplify things tosay that a company adopts one form and has no traces of any of the othertypes within its structure. In practice, firms often comprise many microstructures within one or more macro structure. Structures, therefore, are oftenblends of different types that have been either consciously formed, or, morelikely, have evolved as the organisation progresses and faces new challenges.

For those organisations that make conscious decisions to adopt a specificstructure, Michael Goold and Andrew Campbell (2002) offer nine designtests against which evaluations can be made about the most appropriateconfiguration. This can be a useful way for managers to assess whether theformal structure they are working to establish is appropriate and covers the


56

Black plate (25,1)

main issues they are seeking to address. The first four tests stress fit with thekey objectives and constraints of the organisation:

1 The market advantage test. This test of fit with market strategy isfundamental, following Alfred Chandler’s classic principle that ‘structurefollows strategy’. For example, if coordination between two steps in aproduction process is important to market advantage, then these stepsshould probably be placed in the same structural unit.

2 The parenting advantage test. This holds that the structural design shouldfit the ‘parenting’ role of the corporate centre. For example, if thecorporate centre aims to add value as a synergy manager, then it shoulddesign a structure that places important integrative specialisms (such asmarketing or research) at the centre.

3 The people test. This test maintains that structural design must fit thepeople available. It is dangerous to switch completely from a functionalstructure to a multidivisional structure if, as is likely, the organisationlacks managers with competence in running decentralised business units.

4 The feasibility test. This is a catch-all category, indicating that thestructure must fit legal, stakeholder, trade union, or similar constraints.For example, after scandals involving biased research, investment banksin the UK are now required by financial regulators to separate theirresearch and analysis departments from their deal-making departments.

Goold and Campbell (2002) then propose five tests based on good generaldesign principles, as follows:

1 The specialised cultures test. This test reflects the value of bringingtogether specialists so that they can develop their expertise in closecollaboration with each other. A structure fails if it breaks up importantspecialist cultures.

2 The difficult links test. This test asks whether a proposed structure willset up links between parts of the organisation that are important butbound to be strained. For example, extreme decentralisation to profit-accountable business units is likely to strain relationships with a centralresearch and development department. Unless compensating mechanismsare put in place, this kind of structure is likely to fail.

3 The redundant hierarchy test. Any structural design should be checked incase it has too many layers of management, causing undue blockages andexpense. De-layering in response to redundant hierarchies has been animportant structural trend in recent years.

4 The accountability test. This test stresses the importance of clear lines ofaccountability, ensuring the control and commitment of managersthroughout the structure. Because of their dual lines of reporting, matrixstructures are often accused of lacking clear accountability.

5 The flexibility test. In a fast-moving world, an important test is the extentto which a design will allow for change in the future. For instance,divisional domains should be specified broadly enough to allowdivisional managers to follow new opportunities as they emerge.

Goold and Campbell’s nine tests provide a useful screen for effectiveconfiguration-forming. However, even if a structural design passes these

57


Black plate (26,1)

tests, the structure still needs to match with other aspects of theorganisation’s configuration, its processes, relationships and cultures.

Activity 2.4: A structural testAllow 40 minutes for this activity.

Purpose: to gain insight into Goold and Campbell’s nine tests by applying

them to examples

Use the following matrix below to evaluate the multidivisional structure, matrix

structure and network structure organisational configurations against Goold

and Campbell’s nine design test list. Re-read each of the subsections above

on these tests, particularly the parts relating to their advantages and

disadvantages, and consider the examples given for each one.

Multidivisional structure: Gucci

Matrix structure: Kraft

Network structure: Cisco

Where you feel a structure scores strongly against a particular test, insert ***;

where it clearly scores, insert **; where it scores weakly, insert *; and where it

scores not at all, leave a blank. When you have completed the exercise,

reflect upon the usefulness of Goold and Campbell’s nine design test list.

Three structures and nine design test list matrix

Nine design tests Multidivisional structure Matrix structure Network structure

The market advantage test

The parenting advantage test

The people test

The feasibility test

The specialised cultures test

The difficult links test

The redundant hierarchy test

The accountability test

The flexibility test


58

Black plate (27,1)

Feedback

You’ll notice we have not provided an ‘answer’ to this activity. This is because

where to put the stars, and how many of them, is quite difficult to determine

with any exactness because of the lack of detailed information about each

organisation. However, this does mirror the kind of situation you may

encounter in the workplace. Rarely would you approach a task like this with

full information, or with the time to search for missing data that would help

you in your efforts. All you have to go on in this instance are the descriptions

of the three structures with their advantages and disadvantages identified.

Goold and Campbell’s nine design test list, therefore, may be interpreted as

an ideal that, in practice, is a rough rule of thumb. Its value is that it helps us

adopt a more critically informed attitude to company structure. How, if at all,

does it align to organisational purposes (as in the first four tests) and what

are its inherent strengths as a structure (the second five tests)?

If we look at the multidivisional structure first (in terms of Goold and

Campbell’s nine tests), we might say that this form scores strongly against

the market advantage and parenting advantage tests, as it is felt to be

flexible, is good for monitoring performance measures and emphasises

accountability – though we can perhaps say that it would not score well

against the difficult links test, as duplication, fragmentation and internal

competition are possible disadvantages with this structure. The multidivisional

structure also seems to encourage rather than discourage hierarchical layers,

and so it would probably fail the redundant hierarchy test. It would, however,

score reasonably well against the accountability and flexibility tests because

of the reasons outlined earlier.

The matrix structure may score well against the market advantage test, as it

encourages collaboration when overlapping opportunities are identified, but

may score low, or not at all, against the parenting advantage test, as the

global parent appears to be absent from this structure. The people and

accountability tests might score weakly here, because of the sometimes

confusing lines of responsibility in a matrix. But the matrix would score highly

against the specialised cultures test, and reasonably well in the difficult links

test.

The network structure will score well against the market advantage, flexibility

and specialised cultures tests, due to its emphasis on flexibility and ability to

respond to rapid change. Specialised cultures are almost certain to form in

this structure. Links to the parent do exist, but may become weaker as the

organisation develops, so the parenting advantage test may alter over time.

High levels of trust are needed to make this structure work, so the people

test is important, but difficult to pin down with the information we have – as is

the feasibility test. Due to its reliance on outsourcing, the network structure

scores high against the redundant hierarchy test, but low against the difficult

links and accountability tests, as these would require careful management in

this organisation form.

While applying the Goold and Campbell evaluation may be useful formanagers in highlighting aspects of structure they would not normallyconsider, it is not without its dangers or unresolved issues. The chief risklies in managers consciously or unconsciously ‘cherry-picking’ those tests

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where their favoured structure scores most highly, perhaps ignoring thosewhere it does not come out so well. Unresolved issues include whether thetests are all equally important, or whether in knowledge-intensive industries,for example, the people and difficult links tests are more important than theaccountability test, say. Similarly, are the tests all mutually compatible, ordoes scoring highly in the difficult links and parenting advantage testsmitigate against a structure that reduces unnecessary hierarchical layers? Aswith all frameworks of this kind, the Goold and Campbell nine design testsneed to be adapted to specific circumstances and applied thoughtfully, notmindlessly by rote. As ever in strategy, there is always the danger that anuncritical trust in a model can lead to sub-optimal outcomes.

Summary: structure

Strategy and structure are interdependent; structural change should beconsidered as part of the process of strategic change.

No one structure is universally effective for all organisations. Organisationsface different contingencies, such as purpose, outputs, technologies and soon.

Mintzberg identified six ideal types of organisation: simple structure,machine bureaucracy, professional bureaucracy, divisionalised form,adhocracy and missionary. This typology includes elements relevant to awide range of organisations. However, the structural configurations that existin practice do not usually conform to the ideal types as organisations areusually in transition, i.e., changing.

As organisations grow in size they tend to move away from a simple,functional structure to a more complex one, having more levels and divisionsto coordinate and integrate. Multidivisional, matrix, network, holding andinternational structures are examples of complex structures. Whereinnovation is central to the organisational purpose, innovation-orientatedstructures such as project structures or adhocracies are common.

Goold and Campbell (2002) propose nine ‘tests’ to aid the evaluation of aparticular structure. Four address how well the structure copes with the keyobjectives and constraints relevant to a specific organisation (marketadvantage, parenting advantage, people and feasibility tests), and five arebased on good general design principles (specialised cultures, difficult links,redundant hierarchy, accountability and flexibility tests). Like any rule ofthumb, they need to be used with intelligent criticality, but they can offeruseful insights.

Structure may provide a source of advantage when aligned to systems andculture.

And we now turn our attention to these two elements.


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2.2: Systems

Systems are the powerful integration and control mechanisms which enable,specify, guide and control behaviours in organisations. They allow theresources and capabilities of an organisation to interact and interrelate inorder to create value. They both facilitate and control activity, and aretherefore key to strategy implementation.

In a retail environment, such systems could include new productdevelopment, order fulfilment, customer service, and others that are lessobvious but equally important, such as resource allocation and decisionmaking (often referred to as ‘back office’ systems). In voluntaryorganisations, systems include ways of keeping records and mailing lists,preparing funding and sponsorship proposals, and routines that are requisiteto any fundraising process. In governments, civil service systems includeformal procedures to handle major policy decisions and theirimplementation.

A mismatch between strategy and systems can have a damaging effect on anorganisation’s ability to implement successfully. Sometimes a business isgrowing so fast that its systems have difficulty keeping up, or they developin directions which are less than ideal. The following short case-basedactivity illustrates how a new manager got systems to work in managingstrategy at Microsoft during a rapid period of growth.

Activity 2.5: Inside Microsoft balancing creativity and disciplineAllow 50 minutes for this activity.

Purpose: to illustrate with a practical example how control systems bring

clarity to strategic management

Please access the course website to watch the video clip which forms the

basis of this activity (Herbold, 2009). This is an interview with Robert

Herbold, former chief operating officer of Microsoft.

After watching the video clip, read the information in Box 2.2. Then reflect on

the following question:

. Why do you think Microsoft changed from an informal to a more

systematic approach to developing new products?



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Box 2.2: Inside Microsoft

Robert J. Herbold joined Microsoft from Proctor and Gamble in 1994, as

the chief operating officer. A few weeks on, he was in a meeting where

Bill Gates was questioning a young manager about a new product

proposal. After the meeting he asked Gates what the next steps would

be. Would the manager prepare a memo summarising the arguments,

something top management could review before final approval? Gates

replied, ‘No that’s it. The key decision’s got made. Now his group better

hurry to implement things – or else.’ This ad hoc quality and

freewheeling informality in delegation and responsibility were what

characterised the innovative culture of Microsoft. For the same reasons,

however, there was a lack of clarity in its management.

Herbold was handed the key task to lead and create central systems

that would bring greater coherence and give managers instant access to

information from each business and geographical unit, thereby

improving efficiency. Herbold’s task, however, was made more difficult

as he faced the dilemma of balancing centralised discipline and

individual innovation.

He boldly opted to standardise some functional practices, using IT and

the web in particular. Herbold selected some key common operating

areas, such as finance, manufacturing, procurement and human

resources. He then standardised them, using a handful of seasoned IT

and functional experts. Take finance: the general managers of

Microsoft’s business and geographical units were extremely erratic in

reporting their financial performances. Some would redefine or change,

for their own purposes or needs, their financial reporting systems, while

others would analyse their financial performance in ways suiting the

environment of their country of operation. This led to disastrous

inconsistencies in the interpretation of financial results and to

considerable inefficiency in staffing. For example, the German

subsidiary which was meant to be a sales subsidiary had over 70 IT

professionals on the payroll to run its highly sophisticated customer

database.

As a solution, Herbold created a single global financial reporting system,

having put just one finance manager and one IT specialist in charge of

the project. To make the financial information easy to access, the

software was programmed to generate a variety of data with standard

metrics and was stored centrally. Following this, managers worldwide

could access the company’s monthly and quarterly results instantly,

which eliminated delays and kept them up to date on financial

information. Similar web-based initiatives were implemented in areas of

purchasing and human resources performance evaluation.

Subsequently, suppliers’ relationships with Microsoft and managerial

effectiveness were improved. Microsoft was also better at attracting and

retaining its creative talents.


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Overall, accelerating decision making meant that even an organisation

as big, heterogeneous and dispersed as Microsoft was able to stay

creative, controlled, small and agile.

(Source: adapted from Herbold, 2002)

Feedback

Operational and control systems are different for every organisation: they are

tailored to suit the operating logic of management in pursuing the

organisation’s strategic goals. At Microsoft, before the recruitment of Herbold

from Proctor and Gamble (a highly structured organisation), the operating

mode appeared to be deliberately informal and freewheeling, and thus in tune

with a working environment necessary to exploit the creativity and efficiencies

of its experts. This allowed it to deliver high-end software and technologies to

the information and technology market. This ad hoc approach proved

essential to Microsoft in keeping pace with the rapid flow of innovations within

the highly competitive software industry. However, as Microsoft grew, this way

of working may have created significant operational incoherence in terms of

poor communication and coordination of activities, duplication of efforts and

resources, and inappropriate handling of partner–supplier relations essential

to managing and maintaining Microsoft’s competitive position.

Herbold’s challenge was not only to resolve these operational inconsistencies

but to do so without disrupting the ‘creativity’ needed to sustain Microsoft’s

competitive advantage. This explains why he had to be selective in bringing

order and discipline to Microsoft’s internal organisation. He chose to

standardise and centralise only those functional areas, like finance and HR,

which were common to several businesses and to the regional offices of

Microsoft, and which would not be disruptive to the work of its professionals.

The result was overall improved coordination and control.

The case also illustrates how the functionality and power of operational and

control systems can be enhanced with the effective and intelligent integration

of ICTs. In fact, information systems underpinning the exchanges,

interactions, interfaces and communication between Microsoft’s financial

processes, for example, greatly improved organisational transparency and the

collective effectiveness of team-based capabilities spread across businesses

and geographies. In particular, network-based ICTs – like email, information

databases, intranets and the internet – can allow organisations to lower

costs, speed up the internal flow of information and radically redesign both

the structure and systems underlying strategy implementation.

A key issue in designing operational and control systems concerns exactlyhow the formal and informal mechanisms are undertaken in various parts ofthe organisation, since it is these mechanisms that enable the flow ofinformation, integrate knowledge and build value within productiveactivities.

In dynamic environments, operational systems must include features thatallow the organisation to change core capabilities over time – in production,technology or marketing – since the organisation’s ability to learn, to

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innovate and to meet emerging opportunities in products and markets willdepend on that ability to change. Operational systems that embody thesequalities may be genuine sources of distinctiveness.

We now move on to look at how operational systems can assist or hinder anorganisation in learning and developing.

Operating systems and learning

As organisations create systems and routines around key tasks, a potentialproblem is that some remain tacit while others are made explicit throughcodification. Tacit knowledge is that knowledge which is less easily writtendown. Grant (2008) states that the knowledge underlying some skills islargely tacit in nature and, hence, is difficult to articulate and more easilyexpressed through performance – such as the know-how required to ride abicycle.

Tacit systems are ways of doing things which members of an organisationtake for granted, to the point where the knowledge involved in what is doneis never written down. Codified systems, on the other hand, are explicitlydocumented – like recipes. One could argue that this is the distinctionbetween routines, which often embody tacit knowledge, and systems, whichtend to be more explicit. Routines are more of a manifestation of culture,while systems are more of a formal structural device.

Implementing strategy requires the integration of many types of knowledgeembodied in people and practices across the organisation. In dynamicenvironments, a key challenge is to enable this integration in ways thatpreserve the operational efficiencies of the organisation. Operational systemscan contribute to making this process more efficient and also enable theorganisation to use its knowledge to adapt to its changing circumstances.This is achieved through organisational learning. ‘Routines’ are keyrepositories of an organisation’s knowledge at any one time.

The process of learning is different for every organisation. In an architecturaldesign company, for example, the brainstorming and creative activities of itsemployees in meeting clients’ requirements are tacit, complex, but unique tothe organisation. Such an organisation will have a flatter hierarchy (like anadhocracy) that will support and encourage close and frequent face-to-facecontact between the professionals. Operational systems must be flexible andadaptable in order to support such interactions through which newknowledge is developed and transferred.

The situation is likely to be different in larger organisations with complexstructures. In such organisations the danger is that operational systemsbecome sources of inefficiencies – that is, they become so routinised in day-to-day working that over time the organisation becomes slow andunresponsive to change, gradually transforming into bureaucratic rigidity.Grant (2008) argues that such structures have the dual challenge of not onlydeveloping and transferring knowledge internally, but also of changingbehaviour and attitudes towards learning and integrating new knowledge.

This means that managers, therefore, must recognise that the successfulmanagement of strategy can also require processes of unlearning (Nystromand Starbuck, 1984), where existing capabilities become obsolete due to


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significant environmental shifts and need to be unlearned in order to adapt innew and better ways. In Reading 2 of Readings for Blocks 5 and 6,Montgomery makes a similar point when she argues that the search fornarrowly defined competitive advantage can actually blind organisations tothe need to adjust and develop their activities over time. Unlessorganisations are prepared to relinquish old ways of doing things and adoptnew ones they risk becoming locked into an outmoded view of their ownsuccess.

Control systems

Questions on how to structure an organisation naturally lead to questionsabout strategic control. Within a given structure, how does an organisationensure the employees do what is right for its performance? In this section,we explore how control systems are needed to help maintain focus on theorganisation’s strategic goals.

Control systems ensure that individuals, locations and activities are governedby strategic decisions and are accountable for their performance. Thesedecisions may be made at different levels; that is, corporate vs. business vs.internal unit levels, and in different parts of the organisation.

Control systems fulfil multiple roles within the organisation and takedifferent shapes and forms. Some are imposed by outside stakeholders andothers are chosen by management. Nonetheless, all of them must contributeto managing performance. Just like structural configurations, however, thereis no one set of control systems appropriate for all organisations, situationsor strategies. We discuss this further by looking at two different types ofcontrol systems: financial and dynamic.

Financial control systemsMore often than not, control of performance centres on financial planningand budgetary review mechanisms. Financial control systems are informationbased (and, as we noted in the case of Microsoft in Activity 2.5, increasinglyweb-based).

‘Numbers’ are the key metrics used to define budgetary activities andfinancial targets. Hence the budgetary process includes setting andmonitoring financial estimates with regard to income and expenditure for afixed period for the organisation as a whole.

Budgets are in part an estimate of incomes and expenditures for the future,in part a target of required financial performance in terms of revenues andprofits, and in part a set of authorisations for expenditure up to specifiedbudgetary limits.

The review and evaluation of the budgetary process is an annual activity inmost organisations. This involves the review of the previous year’sperformance, reviews and forecasts for the next three years (or whatever theagreed period might be), and related analyses and adjustments linked to theimplementation of strategic initiatives. Despite conventional accountingpractices and policies, there is no generic format for presenting financialplans – organisations and industries are very diverse. This diversity alsomakes the use of financial plans somewhat varied and ambiguous. Generally,

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the more complex the organisation, the more sophisticated and formalisedthe financial control processes. Nevertheless, the final result of the budgetaryprocess is the same for most organisations: a written document agreed by topmanagement and ratified by the board of directors (Grant, 2008).

Such financial planning and budgetary processes of course also apply to not-for-profit organisations where financial integrity and accountability areespecially important. To keep fully informed on financial performance atmost charitable organisations, for example, the trustees, being accountable tothe relevant regulating authority (in the UK this is the Charity Commission),require regular statements on the financial health of the organisation.Examples of such reports include income and expense statements, balancesheets and cash flow statements.

Any kind of control mismanagement can be disastrous for the organisation,though perhaps they are particularly catastrophic in the world of charitiesbecause of the potential loss of trust which can ensue. This can happenwithin any financial or administrative function. Irresponsibility and fraud dohappen and can be fatal to the whole organisation. Control must be rigorous;and in assessing strategic performance it must be open to include issuesother than financial criteria alone (such as the ethical behaviour ofemployees or their creative achievements).

Next, we look at models of control systems that include such broadercriteria: dynamic control systems.

Dynamic control systems

Robert Simons (1995) advocates a comprehensive approach for establishingcontrol systems in organisations faced with continuous change. He arguesthat, particularly in fast-changing contexts, an effective control mechanism isone that promotes the strategic flexibility and innovative capabilities theorganisation needs to adapt to change, but in a controlled manner.

Unlike the financial control systems we saw earlier, Simons’s approach tocontrol integrates both feedback and feed-forward mechanisms based onbroader organisational criteria, such as an organisation’s culture. Usingstrong empirical evidence, he describes four ‘levers’ of control, which whenused collectively can reconcile the conflict between flexibility and control.The interrelationships between these levers are shown in Figure 2.6.

We can explain these in more detail:

1 Belief systems. These are the explicit values of the business encapsulatedin an organisation’s mission statement. They inspire and guide thestrategy process and provide a framework for implementation decisions.Typically, expressions of belief systems are concise and inspirational(e.g., ‘Pursuit of excellence’, or ‘IBM means service’). Belief systemspromote the commitment of employees to the organisation’s core valuesin pursuing its strategic goals.

2 Boundary systems. These indicate the boundaries of the ‘acceptabledomain of activity’ and can be closely associated with the belief systemsof an organisation. Codes of conduct and ethical principles are commonexamples of ‘business conduct boundaries’, while planning documents,


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mandates and activities, which define the scope of an organisation’sactivities, are ‘strategic boundary systems’. Simons (1995) suggests thatthese act as an ‘organisation’s brakes’, and every organisation needs themto avoid activities that are off-limits, or unacceptable risks.

3 Interactive control systems. These stimulate search and learning,permitting new strategies to develop throughout the organisation asindividuals respond to perceived opportunities and threats. Here the focusis on strategic uncertainties and challenging existing assumptions.Typically, an effective interactive control should include four distinctfeatures:

◦ it keeps strategic information up-to-date for management

◦ the information is organised and accessible to managers at alllevels in the organisation

◦ it encourages strategic decision making in a process of dialoguebetween superiors, subordinates and peers

◦ it serves as a catalyst for ongoing debate and critical thinkingabout underlying data, assumptions and action plans.

4 Diagnostic control systems. Managers measure the outputs and comparethem with expected standards of performance on a periodic basis.Feedback from this exercise enables them to adjust and modify inputsand processes so that future outputs will more closely match goals. Suchdiagnostic systems help managers track the progress of individuals anddivisions towards achieving strategically important goals.

Box 2.3 considers the case of Barings Bank, which seems to be an instancewhere existing control mechanisms were abused for personal gain, leading tothe collapse of the entire organisation. The effect in terms of financial losses,damaged reputations and job losses was enormous and caught the publicimagination in more ways than one. The figure at the centre of the scandal,Nick Leeson, has been celebrated in a 1999 feature film, published a book

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Beliefsystems

Boundarysystems

Core values Risks tobe avoided

Businessstrategy

Strategicuncertainties

Criticalperformance

variables

Interactivecontrol systems

Diagnosticcontrol systems

Figure 2.6: Basic control levels

(Source: Simons, 1995)

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about the debacle in the same year and has co-authored a book about stressmanagement (Leeson and Tyrrell, 2005).

Box 2.3: Rogue trader

The collapse of the UK’s oldest merchant bank – the Barings Bank – in

1995 is perhaps the classic tale of financial risk management gone

wrong. Though since eclipsed by more recent global financial disasters,

in the last decade of the twentieth century Barings’s debacle sent

shockwaves through the banking world and beyond. The failure was

completely unexpected: overnight, the bank went from a position of

apparent strength, backed by a respected history and tradition, to

bankruptcy. What was most surprising is that the failure was due to the

actions of one trader based in a small office in Singapore. His name

was Nick Leeson.

Leeson joined Baring Securities Limited (BSL) in 1989. In 1992 he was

posted by BSL to Baring Futures (Singapore) Ltd (BFS) as general

manager, to establish the settlement operations of BFS. His roles,

however, grew over time. By 1993 he was head trader and left in charge

to take advantage of differences between the prices in trades between

SIMEX (Singapore Exchange) and Nikkei 225 (Tokyo Stock Exchange).

In addition to financial trading, his responsibilities also gave him

complete control of back office operations. This is normally

unacceptable practice and so should have alerted Barings’s senior

management, but no one seemed to notice.

Leeson traded unauthorised speculative funds primarily in futures linked

to the Nikkei 225 and Japanese government bonds (JGB). He hid his

trading in an unused BFS error account, number 88888. Exactly why

Leeson was doing this was unclear. He claims that he originally used

the 88888 account to hide some embarrassing losses resulting from

mistakes made by his traders. However, Leeson had begun trading

actively in the 88888 account almost as soon as he started work in

Singapore and he had traded unauthorised transactions from the

beginning. By the end of 1992, the 88888 account was £2 million in

deficit. In February 1995 Leeson vanished, leaving behind an £827

million hole in Barings’s balance sheet.

Over this period, the Baring Group as a whole was undergoing an

organisational restructuring with the creation of the Baring Investment

Bank Group (BIB), which was to have an integrated structure in order to

conduct the banking and securities businesses together. Further, Leeson

reported both to his local managers in BFS and to his product managers

in London. This did not work in practice. Leeson’s local managers

viewed BFS as Leeson’s own responsibility and thus did not check his

activities. On the other hand, the Baring Group management in London

maintained that BFS was a Singaporean company accountable in the

first instance to its local managers. Investigation of the fraud pointed to

the 1994 internal audit report which identified Leeson’s control of both

the front and back offices of BFS as a problem, and stated that local


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An account where fundsarising from errors intrading are storedtemporarily until theerrors are corrected.

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managers of BFS had agreed to rectify the situation by assuming control

of Leeson’s back office activities. Local management did not do this.

The financial controls department of the Baring Group also apparently

did not discover the existence of account 88888, although it might have

been expected to do so. This was due in part to the limited view of the

group’s finance director. The financial controls department never had an

accurate idea of the true profits and losses of the Baring Group. With

particular reference to BFS, the department did not properly track the

cost of the funding of the Baring Group’s trades executed by Leeson.

When it tried to determine the funding costs, the department found this

to be a complex exercise which it never completed successfully.

Activity 2.6: Out of control?Allow 30 minutes for this activity.

Purpose: to explore Simons’s concept of control levers

With reference to the case study in Box 2.3, use Simons’s control levers to

assess the corporate failures in Barings. You may find it helpful to annotate

Figure 2.6, or to draw a similar diagram yourself.

Feedback

Barings was a diverse, complex organisation which operated in highly

competitive markets. In such situations, managers cannot spend their time

and effort ensuring, by means of personal control, that everyone is doing

what is expected. Instead, employees (like Leeson) are empowered, by giving

them the flexibility to define the most appropriate ways of doing their jobs.

They are encouraged to use their creativity in assessing risks in profitable

investments, and apply their entrepreneurial instincts in decision making.

However, control in such environments demands a very elaborate approach.

Simple profit plans are not enough.

The collapse was the result of failures on several fronts: legal, moral,

managerial and financial. It was due to serious errors in judgement by

management; lack of clarity in reporting structures and responsibilities; a lack

of clear ethical boundaries; and irresponsible behaviour by employees and

managers, which eventually contaminated the whole organisation. If we look

through the lens of Simons’s levers of control we get further insights into the

possible causes of the bank’s collapse.

1 Belief systems. We cannot tell with certainty, from the information

available, whether or not the belief systems of Barings inspired

commitment to the organisation’s core values from people like Leeson.

2 Boundary systems. As a credible and trustworthy financial institution,

Barings had clearly defined codes of practice to guide the work of its

professionals. However, such codes of practice were not managed

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properly. Leeson was not controlled. Unfortunately, the value of boundary

systems is not always recognised until such scandals have gone public or

an internal investigation is needed. Even then organisations and

managers do not always seem to learn.

Furthermore, for Barings and probably for all financial organisations,

reputation built on trust is a key competitive resource. Once compromised,

it is difficult to regain. Effective managers in such environments need to

anticipate the inevitable temptations and pressures within which

professionals work. Managers should spell out the rules of the game

based on risks inherent in their strategy, and communicate them clearly

and unambiguously so that boundaries are understood. This was

obviously handled very poorly by Barings’s managers.

3 Interactive control systems. All of the features of interactive control

systems appear to have been impaired in the case of Barings. Leeson

misdirected his managers during interaction by providing false details of

transactions. He used an error account. This meant he was never

challenged to explain the meaning of his abnormal profits or any other

anomalies in his activities.

4 Diagnostic control systems. Managers did not execute such diagnostic

systems effectively. Leeson’s reports of considerable profitability were

applauded but were not examined for details of how he had achieved

those results.

Collectively, Simons’s levers of control reinforce one another and can help

integrate organisation-wide financial and strategic goals into targets for

individual employees and groups. Each of the four control levers fulfils a

distinct purpose for managers attempting to harness the creativity and

commitment of employees, while at the same time setting up mechanisms to

measure and report the achievement of preset targets at operational as well

as strategic levels. Implementation and adjustment to the levers of control

might meet with resistance or, as in the case here, evasion and neglect.

Clearly controls need adequate enforcement if they are to be effective,

whatever the context.

Control is also the art of the possible. There are elements of any businessenvironment which are beyond the control of an organisation – in factsometimes STEP factors are called the ‘uncontrollable’ environment, asdistinct from internal organisational factors which are deemed controllable.And sometimes managers’ preoccupations fasten on what seems to be urgent,but cannot be influenced. The following activity emphasises the need toprioritise what you can control in order to make the best of changingcircumstances in the uncontrollable environment. It provides an example ofhow internal control can meet external opportunity in a way which confersclear competitive advantage.


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Activity 2.7: Controlling what you canAllow 10 minutes for this activity.

Purpose: to illustrate the competitive importance of appropriately focused

management control

Please access the course website to watch a video clip featuring Sir Nick

Scheele, formerly president and chief operating officer of the Ford Motor

Company (Scheele, 2009).

As you watch the clip, make brief notes on the key areas that Sir Nick

prioritised for control at the company.



Feedback

The main message lies in the title: Sir Nick Scheele advocates working on

the things you can control rather than worrying about what you can’t.

Taking over at Ford Mexico, Sir Nick was faced with spiralling inflation in the

economy, which had severe consequences for the business. However, he

saw that his major task was to bring the company to face the key issues

which it could do something about. That focus would help position the

company for the time when (it was hoped) inflation was under control. Rather

than allow his managers to waste time speculating about external factors, he

got them to concentrate on controlling quality, productivity (both in the office

and in the factory) and product variety in order to make their offerings more

attractive. When external conditions improved, Ford had the edge over its

competitors.

Control via simple rules

The discussion of Barings suggests that Simons’s model might not besufficiently flexible to be applied in highly turbulent and relatively creativeenvironments. Kathleen Eisenhardt and Donald Sull (2001) argue that suchenvironments require an altogether different perspective on control.

They give examples of organisations which have done remarkably well inhighly chaotic environments despite few apparent resources, and which haveused constantly evolving strategies to make the most of unanticipated, one-off opportunities (examples include web-based organisations like Google,Yahoo! and eBay).

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Their secret seems to have been their ability to handle strategy as a set ofsimple rules:

Strategy as simple rules makes sense for all kinds of organisationsbecause the new economy’s profound strategic implication is thatorganisations must capture unanticipated, [passing] opportunities inorder to succeed. Managers of such companies – like Yahoo! and eBay– know that the greatest opportunities for competitive advantage lie inmarket confusion, so they jump into chaotic markets, probe foropportunities, build on successful [attacks], and shift flexibly amongopportunities as circumstances dictate. The difference arises fromfocusing on key strategic processes and developing simple rules thatshape those processes.

(Eisenhardt and Sull, 2001, p. 106)

Control not by complicated systems, but by simple rules, is an approachmost suited to organisations in the new economy. They have to survive inmarkets that are both rapidly changing and ambiguous.

Take the example of Yahoo!. Initially, Yahoo!’s managers focused theirstrategy just on the company’s branding and product innovation processes.The firm was run by four simple rules:

. know the priority rank of each product in development

. ensure that every engineer can work on every project

. maintain the Yahoo! look in the user interface

. launch products quietly.

As long as they followed these four rules, Yahoo! product developers couldchange products in any way they wished, come to work at any hour, wearanything they liked and bring their pets or their partners to work with them.Eisenhardt and Sull (2001) give a helpful example of how these four simplerules worked in practice. One developer was inspired in the middle of thenight to build a new sports web page covering the European football (soccer)championships. Within 48 hours this had become Yahoo!’s most popularpage, with more than 100,000 hits per day. Because he understood the rules,the developer felt free to run with his inspiration when it occurred to him. Aday later he returned to working on his main project once again.

From a wider organisational perspective, the simple rules, in particular therule that required every engineer to be able to work on every project,enabled Yahoo! to change 50 per cent of its code for the My Yahoo! servicejust four weeks before launch in order to adjust to changing marketconditions.

Simple strategy rules, then, are not broad or vague; they are specific andflexible, so that managers can approach each opportunity in a controlled anddisciplined manner. Eisenhardt and Sull’s (2001, p. 114) simple rules fallinto five broad categories:

1 How-to rules spell out key features of how a process is executed. Forexample, the how-to rules of Akamai (an e-business consultancy in theUSA) state that customer service staff must be technical gurus, every


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question must be answered on the first call or email, and R&D staff mustserve a stint in customer service.

2 Boundary rules focus managers on which opportunities can be pursuedand which are outside the organisation’s scope. See, for example, theearly acquisitions rule of Cisco Systems (the US company providingnetwork solutions): companies to be acquired must have no more than 75employees, 75 per cent of whom are engineers.

3 Priority rules help managers rank the accepted opportunities. The UScomputer components manufacturer Intel, for instance, has a rule forallocating manufacturing capacity: allocation is based on a product’sgross margin.

4 Timing rules help managers synchronise the pace of emergingopportunities with other parts of the organisation. For example, the rulesfor product development in Nortel (the US telecommunications business)state that project teams must know when a product has to be delivered tothe leading customer in order to win, and that product development timemust be less than eighteen months.

5 Exit rules help managers decide when to pull out of yesterday’sopportunities. The Danish hearing-aid manufacturer Oticon, for instance,has a rule regarding projects in development: if a key team-member –manager or not – leaves the project for another within the organisation,the project is killed as the key competence is lost.

To be effective the simple rules must be tailored to a single process and theyneed to be frequently reviewed, since they are best applied in highlydynamic and creative contexts which will, by definition, be rapidly changing.To keep the rules simple it is also important that there are not too many ofthem. Eisenhardt and Sull (2001) recommend between two and seven. Theirresearch found that young companies often had too few rules to be effectiveand more mature companies usually had too many.

When in its early days Cisco began to go aggressively on the acquisitiontrail, its ‘75 people, 75 per cent engineers’ rule worked very well, ensuring agood match with the organisation’s entrepreneurial culture. However, asCisco developed its US home market focus it recognised the need for a fewmore rules in the acquisition process. Now it has five:

. a target must share Cisco’s vision of where the industry is headed

. it must have potential for short-term wins with its current products

. it must have potential for long-term wins with its follow-on products

. it must have geographic proximity to Cisco

. its culture must be compatible with Cisco’s.

If a potential acquisition target meets all five criteria, then it gets a greenlight. If it meets four criteria, it gets a yellow light, meaning that furtherconsideration is required. If it meets fewer than four criteria, it gets a redlight. The Cisco CEO John Chambers has said that he believes these simplerules have helped Cisco resist the common temptation to make unsuitableacquisitions. These acquisition rules of Cisco’s are a combination ofEisenhardt and Sull’s ‘how-to’ rules, ‘boundary’ rules and ‘priority’ rules.

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More recently, the rule of proximity has been relaxed as Cisco movestowards new technologies and new customers. This last point suggests anunderstanding of where the best simple rules come from: usually fromexperience and especially from earlier mistakes.

The simple rules approach to organisational control arises from focusingtightly on key strategic processes specific to each organisation anddeveloping simple rules to shape (control) those key processes. It is anapproach to control best suited to the new economy sectors and other chaoticmarkets characterised by uncertainty, rapid change and unpredictability. Thesimple rules create consistency while still leaving a great deal of room forstrategic flexibility, which is essential if such industry sectors are to addresstheir turbulent markets.

In conditions of uncertainty it is an approach worth considering since, asEisenhardt and Sull (2001, p. 116) say, ‘when business becomescomplicated, strategy should be simple’.

Activity 2.8: Keep it simpleAllow 10 minutes for this activity.

Purpose: to reflect on control through culture and through systems

Make brief notes in answer to the following question:

. To what extent are simple rules a matter of control through culture rather

than formal control systems?

Feedback

By using simple rules managers have come up with a way of stimulating

action. The simple rules referred to above describe the ‘way things are done

around here’. There is no need for formal procedures; everyone knows what

to do and how to do it. That the rules are also added to and developed

suggests that managers are aware of and are reacting to shifts in their

environment and business models. In this sense, simple rules sound rather

like organisational routines – although the fact that organisations can

articulate them as specifically as indicated in our examples suggests they are

explicit and codifiable rather than tacit.

It is instructive to note, furthermore, that our example companies tend to be

from the same kind of informal, fast-moving industry – which argues that

‘simple rules’ may be significant as a cultural badge.


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Summary: systems

These are the learning points we want to emphasise on the relationshipbetween strategy and systems:

. Systems are different for every organisation and include both formal andinformal mechanisms of coordination and control.

. Systems provide the mechanisms for commitment, coordination, decisionmaking and control that allow an organisation to operate and develop.

. Operational systems refer to those mechanisms that underlie the use anddeployment of resources and capabilities; while control systems includethose mechanisms that monitor the achievement of strategic goals.

. Operational systems are significant in allowing resources and capabilitiesto interact and interrelate to create value in the organisation in whichthey are embedded. Operational systems are also an organisation’srepositories of knowledge; they play a crucial role in enabling theorganisation to learn and adapt to change.

. There is no one set of control systems appropriate for all organisations,situations or strategies. In this section we have distinguished betweenfinancial and dynamic control systems.

. In dynamic contexts, effective control systems promote strategicflexibility and innovative capabilities, and also contribute to the moraleand behaviour of people who work in the organisation.

The next section explores the cultural issues that underlie the structure andsystems of organisations.

2.3: Strategy and culture

The structure and systems of an organisation affect not only its operationalefficiency but also the morale and behaviour of people who work in it. Youwill recall that Mintzberg includes ‘ideology’ (the halo of beliefs andtraditions surrounding an organisation) as one of the basic elements ofstructure in Reading 3 of Readings for Blocks 5 and 6. Similarly, Simons’s(1995) control levers emphasise beliefs and boundary systems as bases ofeffective control mechanisms. These are human artefacts, reminding us of the‘people’ element of strategy (to which we shall return in the next unit), asdoes Richard Whittington’s observation that ‘structures are primarily aboutpeople, and work only so well as their constituents are capable’ (2003,p. 343).

Within given structures people need to come together in a coordinated andcontrolled manner in order to work effectively. In this process, theorganisation becomes a social system shaped by the formal and informalinteractions of people performing productive activities. In doing so, peopleestablish their own norms, beliefs, behaviours, relationships and socialgroupings alongside and often irrespective of those formally defined bymanagement.

Building a successful organisation requires the willing participation,commitment and satisfaction of its people. This shapes the personality and

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practices of the whole organisation – its culture, in short. In this section, weexplore how culture influences the strategy implementation process.

Why is culture important?

The cultural perspective on organisations borrows heavily from the fields ofanthropology and sociology. One of its most prominent exponents is EdgarSchein (2004). Schein explains that as organisations evolve over time, theyface two basic challenges: integrating individuals into an effective whole,and adapting effectively to the external environment in order to survive. Asorganisations find solutions to these problems, they engage in a kind ofcollective learning that creates the set of shared values and beliefs called‘culture’.

Schein (2004, p. 1) writes that ‘Culture is both a dynamic phenomenon thatsurrounds us at all times, being constantly enacted and created by ourinteractions with others, and shaped by leadership behaviour, and a set ofstructures, routines, rules and norms that guide and constrain behaviour’.Notice that he sees culture as a guide and a constraint on behaviour – whichexplains its fascination for strategists trying to implement change. Notice toohis characterisation of culture as both enacted by peers and created byleaders. In fact, he argues a little later in the same passage that ‘leadershipand culture are two sides of the same coin’, explaining:

I believe that cultures begin with leaders who impose their own valuesand assumptions on a group. If that group is successful, and theassumptions come to be taken for granted, we then have a culture thatwill define for later generations what kinds of leadership are acceptable.

(Schein, 2004, p. 2)

In time this leads to a situation where culture effectively defines leadership;but should the organisation get out of step with its environment, effectiveleadership will both detect the fact and be prepared to change things toremedy matters. Thus leadership goes back to defining what acceptableculture is, and the process continues. Schein concludes that the ‘ability toperceive the limitations of one’s own culture and to evolve the cultureadaptively is the essence and ultimate challenge of leadership’ (2004, p. 2).This concept of culture as something that develops at specific moments, inresponse to particular challenges and driven by particular charismaticindividuals, emphasises its dynamic nature. If culture is subject to change,then perhaps managers can deliberately change it in order to facilitate newstrategic directions. But Schein warns this is far from easy – you willremember our brief discussion of attempts to manipulate culture inconnection with writers like Deal and Kennedy (1982) in the previous unit.

Schein maintains that culture manifests itself at three levels in anorganisation:

1 The level of observable artefacts (corporate identity, dress code,buildings, etc.). This level is easy to observe, but difficult to interpret foran outsider.

2 The shared espoused beliefs and values of the organisation (‘espoused’because they are the ones that people will claim they have, even though


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their actual behaviour may be different). These are significant, but maybe aspirations rather than reality.

3 The shared basic assumptions of the organisation. These are the bedrockof culture. They actually do guide behaviour, but they are so taken forgranted that it is very difficult to change them without changing thecognitive structures which keep them in place.

Schein warns that the only way to understand culture properly is to engage,with inevitable difficulty, with the third level:

Any group’s culture can be studied at these three levels – the level ofits artefacts, the level of its espoused beliefs and values, and the levelof its basic underlying assumptions. If one does not decipher thepattern of basic assumptions that may be operating, one will not knowhow to interpret the artefacts correctly, or how much credence to giveto the articulated values. In other words, the essence of a culture lies inthe pattern of basic underlying assumptions, and once one understandsthose one can easily understand the other more surface levels and dealappropriately with them.

(Schein, 2004, p. 36)

Emmanuel Ogbonna and Lloyd Harris share Schein’s view of the changingbut historically defined nature of culture, describing it as ‘a dynamic set ofassumptions, values and artefacts whose meanings are collectively shared ina given social unit at a particular point in time’ (Ogbonna and Harris, 2002,p. 674).

The strategy literature distinguishes between corporate and organisationalcultures. This distinction is at the heart of the question we introduced in ourintroduction to the issue of culture towards the end of Unit 1 of this block:‘Is culture something that an organisation is, or something an organisationhas?’ (Smircich, 1983). If culture is something an organisation ‘has’, then itcan be treated as another variable, another contingency which has an impacton structures and processes. As such it can be seen to be owned by themanagement of the organisation and is capable of being manipulated orchanged in some way in order to improve efficiency or effectiveness. If,however, culture is something that an organisation ‘is’, then it is the productof negotiated and shared meanings that emerge from social and personalinteractions. In this case culture is created and re-created by its participantsin a process that is continuous and is not imposed. Corporate culturerefers to and reflects managers’ values, interpretations and preferred way ofdoing things. Organisational culture is a much broader concept. It mayembrace many sub-cultures and is almost impossible to define in concreteterms. The problem for managers is that they frequently assume that theirunderstanding of the corporate culture is fully reflected in the organisationalculture, whereas in effect it is only part of it. They also confuse compliancewith corporate culture with the existence of a homogeneous organisationalculture.

Culture shapes the behaviour and attitude of people in an organisation,which means that every culture is distinct in terms of intensity (its ‘depth’)and integration (its ‘breadth’). Cultural intensity is ‘the degree to which

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members of a unit accept the norms, values, or other cultural contentassociated with the unit. This shows the culture’s depth’ (Wheelen andHunger, 2002, p. 89). Mature organisations may promote particular valuesstrongly (such as service quality at Singapore Airlines), or may have moreintensive cultures compared with new start-ups whose values will be lessestablished. Employees in intensive cultures are expected to behave moreconsistently (that is, they tend to act similarly over time) than employees inless intensive ones. Cultural integration is ‘the extent to which unitsthroughout an organisation share a common culture. This is the culture’sbreadth’ (Wheelen and Hunger, 2002, p. 89). In a hierarchical structurewhere there is a single hierarchy of command and control, like a militaryorganisation, culture is highly integrated as soldiers are trained to adhere tosimilar cultural norms and values, especially within their units. We cancontrast this with a matrix structure, which is composed of diverse sub-divisions, each with its own possible sub-culture. In an organisation,therefore, culture fulfils several important functions:

. it reflects and reinforces a common sense of identity internally andexternally

. it aligns employees’ values and norms to those of the organisation

. it enables the organisation to work as a social system

. it provides a frame of reference for employees to draw upon whenundertaking productive activities and serves as a guide for appropriatebehaviour.

Strategically speaking, a strong culture will not only promote survival butalso reinforce the organisation’s sources of advantage. For example, acontinuous emphasis on strategic flexibility and renewal can help theorganisation adapt better in dynamic environments. When an organisation’sresources and capabilities are embedded in its culture, they will form a tacitfeature of its operational effectiveness which is difficult for the competitionto imitate (as pointed out by Jay Barney in Reading 5, ‘Looking inside forcompetitive advantage’, of Readings for Blocks 1 and 2, and elaboratedfurther in Block 3’s discussion of the resource-based view of strategy).

Activity 2.9: Cultural asset?Allow 10 minutes for this activity.

Purpose: to reflect on the issues surrounding corporate culture with reference

to a specific case


basis of this activity (Sharman, 2009).

As you watch the video clip, featuring Lord Sharman, former chairman of

KPMG Management Consulting worldwide, make brief notes on what he sees

as the advantages and disadvantages of a strong corporate culture.




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Feedback

Strong corporate culture means that if you recruit a new member of staff they

swiftly become absorbed. The same seems to be true of acquiring a new

company, but when KPMG bought a technology consultancy in order to get a

foothold in a new market, the ‘gravitational pull’ of its culture swallowed up

the newly acquired company and rid it of the distinctiveness (and ability to

reach new markets) that had justified the takeover in the first place. So,

strong culture can be a disadvantage in certain circumstances (particularly in

mergers and acquisitions) if your aim by expanding is to diversify into

markets. It can be done (Sharman mentions the achievements of Martin

Sorrell at WPP, the global marketing services group). But on the strength of

this clip, perhaps the main advantage of a strong culture is in exploiting

existing markets rather than exploring new opportunities.

How does culture affect strategy?

Strategy implementation requires that the organisation’s resources andcapabilities are directed most effectively and efficiently to achieveorganisational goals. Because culture exerts a powerful influence onbehaviour, decision making and actions, it strongly affects an organisation’sability to follow its strategy. This means that, like structure and systems,culture must support strategy.

As with systems and structure, there is no one best culture that fits allorganisations and their strategies. An appropriate culture is one that supportsan organisation’s purpose and strategy. A key challenge for management,therefore, is to align strategy and culture. This issue often arises when facedwith a strong, or deeply embedded, established culture. Such a culture has atendency to resist any attempt at change. It acts to preserve those values,beliefs, relationships and patterns of behaviour that have been the veryreason for its success in the first place. The case of NFTE (Network forTeaching Entrepreneurship; see Case study 2.1), which we discuss inActivity 2.10, represents exactly such a dilemma.

Activity 2.10: Cultural incompatibilityAllow 40 minutes for this activity.

Purpose: to reflect on the effect of incompatible organisational cultures in a

consultancy exercise

Please read Case study 2.1 and make brief notes in response to the

following question:

. Do you think NFTE will have to change its culture to expand any further?

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Case study 2.1: Culture clash at NFTE

NFTE (Network for Teaching Entrepreneurship) was founded in 1987 by

Steve Mariotti, a New York businessman turned educationalist. It is a

non-profit organisation teaching entrepreneurship to young people on

low incomes. Over the years, it has expanded to become a $19 million

organisation that teaches over 45,000 youths annually in the USA and

abroad. At a crucial stage in its development, NFTE received a

$100,000 grant from the Goldman Sachs (charitable) Foundation to

develop a strategic growth plan, with the help of McKinsey & Company

(the US management consultancy). It would receive an extra $900,000

once a strategy was set in place. Goldman Sachs Foundation believed

that NFTE needed to have a clear growth strategy in place before it

could be entrusted with the extra funding.

NFTE is an organisation that promotes entrepreneurial education as a

way of teaching academic skills to and developing the characters of

young people. It has the following cultural characteristics:

Creative atmosphere – creativity and initiative are encouraged at all

levels in the organisation. The ability of staff to innovate is considered to

be a constant source of energy and passion in the range of creative

programmes offered by NFTE.

Committed leadership – Steve Mariotti, the founder, and his team drive

the mission and vision of NFTE. They are admired and respected for

their passion towards NFTE as leaders, and they share strong personal

and professional commitment.

Inclusive – everyone within the organisation is involved in the strategic

decision-making process.

Hands on – Mariotti says his favourite activity is teaching and close

involvement with students and teachers. This value of ‘closeness to

client’ is adopted as a philosophy throughout the organisation.

Collaborative – the breadth and depth of partnerships reveals that NFTE

has prospered by making and sustaining connections and spreading the

word about its mission. It has successfully created a number of external

alliances with: funders – e.g., Goldman Sachs, Koch, NASDAQ;

affiliates – e.g., universities and colleges (Babson, Harvard, Stanford,

Georgetown); and other for-profit organisations such as Microsoft.

Unlike NFTE, McKinsey has a very competitive and profit-motivated

culture. When assigned, the McKinsey team approached their task with

this mindset. Their attitudes and approaches as consultants created a

lot of tension as they challenged the very fundamentals of NFTE. To

assess NFTE’s growth strategy, McKinsey used the same standard off-

the-shelf planning materials that it normally uses on commercial clients.

Its analyses and advice were based on systematic analysis, were data-

driven and were devoid of non-profit commitment and motivation.

From the start of the McKinsey assessment, there was ambiguity about

who was going to lead the evaluation process. McKinsey chose to work

independently, with exclusive access to all aspects of the organisation.


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The team’s conclusions questioned NFTE’s leadership and culture. To

them, tough strategic decisions are impossible when everyone is

involved. They wanted the board of directors to be more active in setting

the plans for NFTE’s strategic growth. Further, McKinsey insisted on a

more focused approach to NFTE’s service delivery. To McKinsey, for

NFTE to succeed it had to decide which programmes should drive future

growth. NFTE was asked to make difficult choices around becoming

more ‘business-like’ – for example, rationalising its provision to be more

economical, but less personal.

Eventually, McKinsey created a strategic growth plan that was neither

owned nor embraced by the staff of NFTE. Developing and

implementing McKinsey’s suggestions required considerable behavioural

changes across the organisation, particularly from its leaders. The

leaders, in turn, felt that McKinsey’s approach did not understand

NFTE’s culture, and did not adapt to the realities NFTE faced in order to

succeed. McKinsey’s plan demanded a strong sense of commitment and

organisational discipline that contradicted the existing attitude of

management and that of its leaders. Moreover, McKinsey’s suggestion

to adopt a more standardised and structured model of programme

delivery also meant further isolation of the centre from the ultimate

beneficiaries of its programmes (which included the students and the

teachers). The McKinsey plan eventually remained just that: ‘The

McKinsey Plan’. It was never implemented.

(Source: adapted from Grossman and Curran, 2002 and NFTE, 2008)

Feedback

NFTE has in fact continued to expand after it ignored the consultants’ plan,

with a mission-led strategy of increasing its fundraising income (which moved

from 70 per cent of income in 2002 to 81 per cent in 2009) rather than

rationalising its business model. But it is difficult to say whether the McKinsey

plan’s recommendations would have led to even better performance.

The dilemma of NFTE illustrates the significant influence that culture can

have on the strategy of an organisation. Prior to the Goldman Sachs

Foundation’s proposition, NFTE was already a highly successful not-for-profit

organisation that had relentlessly and successfully expanded its programmes.

The backbone of this success was not primarily financial resources (because

NFTE was still small in size) but, rather, some strongly held cultural

characteristics and values that were centrally aligned to support the

realisation of what NFTE stood for. These cultural characteristics included its

creative atmosphere, the inclusive attitude of management, the collaborative

attitude among everybody involved, and its closeness with the students.

These cultural features were the very core of NFTE’s success, until they were

challenged by McKinsey.

McKinsey concluded that the problems for NFTE were not only inadequate

financial resources but also the precise cultural traits that had accounted for

its success. These were becoming the main constraints to its further

progress, and needed changing. McKinsey demanded more proactivity from

NFTE’s leaders in strategic planning, and more discipline and focus in the

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operations and products it delivered. For example, according to McKinsey,

the inclusive culture slowed down strategic decision making. Similarly, the

breadth of its teaching curriculum meant that NFTE was in danger of losing

focus on its main purpose. These were certainly sensible observations that

could help the growth of NFTE. The suggestions of the McKinsey review

aimed to streamline NFTE’s activities and operations, and focus its

investments in ways that would promote its purpose. But the McKinsey plan

was rejected by NFTE because the suggestions were perceived to be too

radical in relation to its ‘shared basic assumptions’ (Schein, 2004). Perhaps a

McKinsey plan that had paid more attention to carefully integrating the key

cultural traits and values of NFTE in its assessment would have been more

successful and attractive to NFTE’s stakeholders.

Change in strategy is not likely to be successful if it simply contradicts theculture of the organisation. In such circumstances, employees are likely toresist change in order to preserve existing ways of doing things and patternsof behaviour. Like structure and systems, if an organisation’s culture iscompatible with its strategy, it becomes an internal strength. But if theculture is not compatible with the strategy, it can become a seriousweakness. The direct impact of culture on the success or failure of strategyraises the question as to whether culture can be managed as anorganisational capability.

Changing cultures

As we have noted in Unit 1 of this block, culture is a variable that is verydifficult to change. The strategy literature has a range of views on the extentto which culture can be managed. Some see culture as a controllableorganisational variable prone to manipulation. Some see it as partlycontrollable, i.e., management can influence it only in given circumstances.In this section we reflect further on this debate and the process of culturechange.

As we have suggested, the culture/strategy relationship assumesorganisational culture to be a variable that can be controlled effectively andaligned to support strategy implementation. Research into culture as anorganisational concept has attracted the interests of strategists in universitiesand industry for two main reasons: first, in the belief that culture andperformance are linked; and second in the belief that culture can bemanipulated in line with management intentions (Ogbonna andHarris, 2002).

In the strategy literature, it is widely accepted that the overall performanceof an organisation depends on the strength of its culture. As we have seen,interest in the impact of ‘cultural traits’ on strategic performance started inthe late 1970s and early 1980s. This is when culture was identified as thekey factor explaining the success of Japanese organisations of that period(see, for example, Deal and Kennedy, 1982; Ouchi, 1981). These authorscame to be known as the ‘trait writers’. They put forward the notion of a setof universally appropriate cultural characteristics, ranging from ‘closeness tothe customer’ to ‘constant innovation’, as sources of competitive advantage.Their suggestions became popular among practitioners because of their


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simplicity, their attractiveness and the apparent solution to poor performancethey offered. They were among those who asserted that culture can bechanged or manipulated. However, overall, the prescriptions of the ‘trait’theorists met with limited success as they did not address issues relating tocultural depth (Schein, 2004).

Using more elaborate methodologies to study culture, critics challenged the‘trait’ assumption that common or universal cultural characteristics exist inall types of organisations. Essentially, the trait writers downplayed theinherent differences that could exist across societies, industries and evenorganisations. Their critics (who include Barney, 1986, 1991; Kotter andHeskett, 1992) argued that the extent to which culture will influenceperformance is contingent on the adaptability of cultural traits. Notably, asmentioned earlier, Barney uses a resource-based perspective to argue thatsuperior performance arises from the generation of organisationalcapabilities, which are embedded in an organisation’s unique culture tobecome rare, non-imitable by competition and adaptable in times of change.

The potential adaptability of cultural traits means that even though culturemay not be completely controlled by management, it may be manipulatedunder certain circumstances in order to align it more effectively with strategy– i.e., it is ‘partly controlled’ (see, for example, Johnson, 1988, 2000;Schein, 2004). According to these authors, culture cannot be completelycontrolled because that would imply significant disruptions to theorganisation’s ‘paradigm’ – the term Johnson (1988) uses to denote the setof shared basic assumptions that Schein identifies as the foundation oforganisational culture.

Authors such as Johnson (2000) demonstrate that, more often than not, it isvery difficult to dissociate or isolate those norms and assumptions peculiar toan organisation from its day-to-day activities (as we saw in the case ofNFTE). Instead, they should be perceived as part of a ‘complex interactionof interpersonal cognitive processes, power dependencies, and contextualconstraints’ (Ranson et al., 1980, p. 1). Hence, to change the paradigmeffectively it is crucial for managers (as well as outside consultants broughtin to act as change agents) to understand the relationships between theprocesses that coordinate productive activities or enable organisationalmembers to interact. We shall address how a cultural change can bemanaged using Johnson’s ‘cultural web’ later in this block.

The multiplicity of views on whether or not culture can be changed duringstrategy implementation shows the complexity and dynamism of the culture/strategy relationship. A realistic conclusion to draw might be that althoughculture can change, this can often take a long time and much effort from thewhole organisation. To ease the process and before attempting to changeculture, management must:

1 evaluate what a particular change in strategy means to the culture

2 assess if a change in culture is needed at all

3 decide if an attempt to change the culture is worth the likely costs to thewhole strategy process (see Wheelen and Hunger, 2002).

The direction and impact of change cannot be handled entirely systematicallyor rationally. In fact, Ogbonna and Harris (2002, p. 677) argue that

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‘managing culture may be seen as a dynamic process which could involveattempts to establish a new culture or cultures, preserve an existing culture,modify the existing culture or discard the existing culture’.

Therefore, how managers see culture and how they engage in developing,reinforcing or attempting to change it in order to support strategy revealculture as a powerful source of either advantage or inertia.

Summary: strategy and culture

These are the learning points we want to emphasise on the relationshipbetween strategy and culture:

. To paraphrase Whittington (2003), whom we cited at the start of thisdiscussion, structures and systems primarily rely on people, and workonly as well as those people are capable of doing.

. Culture shapes the people and, therefore, the behaviour, personality andpractices of the whole organisation.

. Culture enables the organisation to work as a social system and exerts apowerful influence on the whole strategy process.

. Culture forms a tacit feature of an organisation’s operationaleffectiveness, and makes imitation by competitors more difficult.

. As with systems and structure, there is no one best culture that fits allorganisations and their strategies. To be an organisational strength,culture must support strategy.

. Often, change in strategic direction requires adjustments to culture.

Summary

Our discussion of structure started with a rehearsal of well-worn argumentsaround the relationship between strategy and structure, glancing back to thework of Chandler (1962) and dwelling briefly on contingency theory, whichbroadly follows the same line. However, we sounded a note of criticalcaution, observing that while strategy and structure clearly relate to oneanother, the nature of the relationship and the direction of its causes aremore complicated than the unidirectional assumptions of basic contingencytheory will allow. For an antidote, we turned to Mintzberg in Reading 3 ofReadings for Blocks 5 and 6. Unsurprisingly, given his position on howstrategy takes place in organisations, Mintzberg believes that organisationalstructure is emergent. Derived from research in a range of organisations, histypology of six ideal organisations provided us with a useful starting pointfor considering a further eight varieties of structure. Some of these aresimilar to ones from Mintzberg, some not. But all are recognisable, in part atleast, in organisations with which we are familiar.

It is worth noting again Mintzberg’s use of ‘ideal’ in connection with his sixforms. None of them is likely to be found intact in the real world for verylong. Organisations, like the people in them, evolve, age, reproduce andchange shape quite a lot over their lives. The same is true for the eightstructures (divided into simple, complex and innovation-orientated structures)we described. But, broadly speaking, these are useful categories and can help


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strategists shape organisations in a way which gives their implementationwork the best chance of success.

We ended our reflections on structure with a look at Goold and Campbell’s(2002) nine design tests (four related to specific organisational purpose andfive addressing the principles of design in general) and how they might beused (depending on the circumstances) to help determine the optimumstructure in order for a particular implementation to succeed.

We then turned our attention to systems – the mechanisms, some explicit,some tacit, which specify, guide and control behaviour in organisations. Likestructure, they have a dual role of enabling and controlling action.Strategically, they have the important role of allowing an organisation tocreate value from its resources and capabilities in a unique and hard toimitate way. Operational systems help people work together to do this.Control systems ensure their efforts are guided in the right way and ensureaccountability and strategic focus. Systems and routines also embodyorganisational learning – they are as skills are to people. But sometimesskills become out of date and are no longer useful, and sometimes theknowledge embodied in systems has to be ‘unlearned’ as the world moveson. Among the control systems we discussed were financial controls,Simons’s (1995) control levers – which have been argued to be moreapplicable to a dynamic environment – and the emerging area of control by‘simple rules’ which have been found useful by informal and fast-growingcompanies who need a convenient heuristic for their behaviour.

The final topic covered was culture – again something which can facilitate orcontrol behaviour (and thus the implementation process) in an organisation.We discussed this role for culture briefly in Unit 1 of this block and shallreturn to it at the end. Culture, according to Schein (2004), is constantlyenacted and created by our interactions with others, as well as shaped byleadership behaviour. It is thus both organisational (at the employee level)and corporate (regarded as a variable that can be leveraged to managerialadvantage). Clearly, strong culture has an effect on strategy – but (as withthe idea of having to unlearn systems) it can be a hindrance as well as ahelp if the organisation wants to do something different from what it hasalways done. A popular expression to connote culture, ‘the way we dothings round here’, could also be heard as a manifesto against change. Thetwin facts that culture develops over time and that particular cultures areassociated with strategic success encouraged the growth of ‘trait’ theory inthe 1980s – but subsequent research has thrown doubt on its ability tochange cultures deliberately in search of specific results.

Like structure, and systems, culture needs the presence of people – thestrategic asset to which we turn in the next unit.

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Unit 3: People

Introduction

Although people are involved in all aspects of the strategy process, orthodox

strategic theory (as inspired by economics) tends to overlook their presence.

The subject of implementation makes them very hard to ignore, however.

This unit aims to explore the human side of strategy. Because this has been

a relatively neglected area in the field of strategy research since the middle

of the twentieth century, this gives us the opportunity to take account here of

some important recent research which focuses on strategy as a social activity.

In particular, we will carry out a structured reading of an important academic

research article which explores how different kinds of managers carry out

strategy in organisations.


. explain the structure and conventions of an academic research article

. demonstrate an understanding of the different roles of senior and middle

management in strategy formation and implementation

. contribute to a critical discussion of the role of strategy consultants.

3.1: Strategy as a social activity

This section on people links with your earlier work in Block 1, where you

came across a view of strategy from a sociological perspective. This framed

strategy as something people do, rather than something organisations have.

In Block 1 you were introduced to a definition of strategy as a ‘situated,

socially accomplished activity’ (Jarzabkowski et al., 2007, pp. 7–8). It is the

‘socially’ aspect that we are going to look at now. ‘Socially’, in the context

we are using the term here, simply means ‘done by people’. It is the purpose

of this unit to unpick this a little, by looking at the different categories of

people who get involved in strategy (senior and middle managers, strategy

consultants) and trying to understand what they may do. By doing this, we

shall get closer to understanding how strategy work is actually carried out in

organisations. Once we have done this, you will, as students, be in a better

position to evaluate the relevance and merit of the strategy tools, approaches

and theory you have been introduced to.

Furthermore, a clearer understanding of people’s activity when they

formulate or implement strategy is likely to be of practical help in avoiding

the difficulties which implementation often encounters. As you may recall

from Unit 1 of this block, a constant theme in research on barriers to

implementation (e.g., Alexander, 1985; Reading 1 of Readings for Blocks 5

and 6) is how people actually behave as opposed to how, schooled in

strategic models and plans, we think they ought to behave. No matter how

well thought-out the strategy, it can still come unstuck if junior staff are

reluctant to communicate implementation problems to their seniors, or

because the people who formulate strategy do not see it as their job to get

involved in its implementation. In Reading 1, Laurence Hrebiniak points to


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the bias against implementation in management training and status; the

failure to integrate planning and execution; weaknesses in managing change,

and in information and accountability; and the frequently fatal error of

ignoring existing power structures. These are essentially issues about what

people do (or don’t do), not because they are lazy or irresponsible, but

simply because that is how they see their jobs. Understanding organisational

culture (as suggested in Unit 2 of this block) can get us some of the way

towards appreciating and working with (rather than against) how people see

their roles in strategic change. But examining the fine detail of managerial

behaviour in the context of strategy formulation and implementation may

give us further clues as to how to understand and work with people’s

behaviour, rather than expecting them to translate plans into action in a

bloodless, textbook manner.

As you saw in Block 1, Unit 1, the relative neglect of ‘people’ as a subject

in strategic research to date has led to the emergence of the practice

perspective in strategy, a research approach that specifically focuses on what

strategists do when they are strategising. If we (students and researchers) are

going to make progress in making sense of strategy, it follows that we

should endeavour to focus on what strategists are doing; if we don’t, we run

the danger of becoming more proficient at understanding something that does

not happen in practice (a charge laid by some strategy-as-practice researchers

against traditional strategy researchers). Gaining a more realistic appreciation

about what senior and middle managers do can then lead us to make more

informed evaluations about these activities, where their strengths lie and

what limitations they may hold. Once we know this, we can begin looking

for more effective processes, ones better able to build on the strengths and

address the limitations.

The approach of this unit

This unit takes a slightly different approach from those which have preceded

it in this block and elsewhere in this course in that it is largely devoted to a

structured reading of a single academic article, Reading 4 of Readings for

Blocks 5 and 6: ‘Strategy creation in the periphery: inductive versus

deductive strategy making’, by Patrick Regnér. Regnér does not confine

himself to the implementation stage of strategy alone but focuses on what he

calls ‘strategy activities’. However, his findings have clear implications for

our assumptions about how strategy is implemented. As we shall see, the

article is written for academic readers. It therefore has a particular structure

and tone which sets it apart from the other readings we have studied to this

point. So far in this block (and in this course in general) our readings have

been orientated towards a practitioner audience, or at least a mixed audience

of academic and practitioner readers. The insights they offer are founded on

rigorous academic research, but the writing style is accessible to a wide

readership.

Articles in academic journals, however, are written according to formal

conventions, some of which may appear obscure to the uninitiated reader.

They are there to guarantee the validity and reliability of published findings,

ensuring that when research is disseminated through more popular channels

(such as practitioner journals, textbooks, and courses offered by business

schools) it is based on solid foundations. Academic writers like Regnér take,

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as we shall see, considerable pains to explain exactly what they are

contributing to the stock of management knowledge, where it fits into the

existing structure of what we know, what the evidence for it is, and how

such evidence has been gathered. This is all in order to help their work

withstand the kind of (positively) critical scrutiny it will receive from other

academics as together, building on each others’ efforts, they move forward

the boundaries of knowledge in strategy research.

The structure of an academic research article: CARS and IMRD

In this section we explore and explain some of the conventions of writing

academic journal articles, to prepare you to get the most out of Reading 4.

Academic researchers spread their ideas in a number of ways, but perhaps

the most important for the progress of knowledge in a particular discipline

involves publishing articles in academic journals. Block 2, Unit 2 briefly

touched on the way in which science has progressed over the last few

hundred years as researchers have built on the work of their predecessors to

establish new knowledge. Academic journals tend to be where such new

knowledge appears in published form for the first time – enabling other

researchers to share, debate and extend it into new areas.

What and where you publish can have a significant effect on your career as

an academic and the funding your institution receives, so the publication

process is extremely competitive. The most important basis for such

competition is the originality and contribution to knowledge made by an

article. Editors and reviewers (the anonymous experts who assess the

suitability of incoming material for publication) need to be sure that they are

giving space only to the most worthwhile and significant research.

This means that there is a considerable incentive for academic writers to

make it absolutely clear very early on in an article that they are saying

something important and new. John Swales (1990) has analysed a large

number of article introductions and devised what he calls the CARS (Create

a Research Space) model to explain how researchers demonstrate that their

work is filling a gap in the existing knowledge and understanding of a

particular field. We shall see that this is what Regnér does in his introduction

to his article when we turn to read it.

The introduction is the first element of an article’s structure. The remaining

elements deal with how the research was done (method), what it found out

(results) and what the significance of this is (discussion). Different academic

disciplines may have different names for each section, but the overall

structure of an academic article, whatever its subject, tends to reflect this

Introduction, Method, Results and Discussion (IMRD) format (Lillis and

North, 2006, p. 137).

We have already explained the ‘create a research space’ function of the

introduction – to establish that there is a gap in our knowledge and

understanding, and that this particular article is going to fill it. A time-

honoured way of delineating the gap is the ‘literature review’ – an account

of what has already been published in the area, demonstrating where the gap

is and how your work relates to what has gone before. In this course, as you

will have gathered, when we refer to ‘the strategy literature’ we refer to what

has been written and published on the subject. Within this overall literature


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there are hundreds of specialist areas – such as that devoted to ‘strategy

process research’ (i.e., how strategy takes place). This is the literature to

which Regnér’s paper is relevant and, as we shall see, Regnér uses the

introduction to his article to point out exactly what the gap is in our

knowledge of how strategy takes place, and how his article is addressing it.

The method section of any article anticipates the properly critical reader’s

requirement to ‘look behind’ the text in order to judge the plausibility of

what is being claimed as findings. By setting out in detail how the research

was done, the writer is assuring any reader that the results are based on a

thorough and systematic process of enquiry which is appropriate to the

questions being asked. Regnér uses a case study method. As learners, we are

used to the idea of a ‘case study’ meaning an example of something from

real life used for illustrative purposes. In research terms its meaning has a

similar emphasis on real life: ‘an empirical investigation of a particular

contemporary phenomenon within its real life context using multiple sources

of evidence’ (Robson, 1993, p. 5). The advantage is that the case study

method gives you knowledge in depth about your case. The disadvantage is

that it may be difficult to generalise beyond the case or cases you have

studied to argue that what is true for them will be true more widely. Regnér

focuses, as we shall see, on just four organisations, but finds (in spite of

their differences) a number of points in common about how their senior and

middle managers perform strategy.

The results and discussion sections are self-explanatory. They are the parts

of an article which tend to be of most interest to academics seeking to build

on what has gone before. They contain the new knowledge and an

interpretation of its implications. Having ‘created a research space’, the

writer uses the results and their discussion to fill it and to confirm the

importance of this new piece in the jigsaw of knowledge. We shall

accordingly devote most of our attention to the results and discussion in

Regnér’s article – but only after we have carefully read what precedes it.

Introducing Reading 4

The academic paper which forms Reading 4 is one of the few so far that

aims to identify how senior managers and middle managers work in different

ways to create strategies. Before we begin the process of reading the paper,

it would be informative to learn a little bit more about the author, where his

paper was published and the broader themes it tackles. Remember, in

Block 1, when we introduced you to the idea of reading texts critically we

stressed the importance of reading behind and around the words, and of

understanding something of the context of the publication, as this helps us to

become more aware of the intentions of the author and the agendas of which

the paper is part.

The author, Patrick Regnér, is an academic based at Stockholm School of

Economics. Regnér adopts an unusual approach in his research for this

paper, but one that is becoming increasingly popular. His findings are drawn

from a single case study that he conducted specifically for this paper, and

from the retrospective re-analysis of three other cases (all Scandinavian

multinational corporations). All four organisations have something in

common – they have recently changed, or are in the process of changing,

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strategy in some important respect. Regnér combines the data from all four

cases and analyses them by examining the strategising activities of those

located at corporate centres (senior managers) and those based at what

Regnér calls the peripheries (middle and lower level managers).

The article was published in The Journal of Management Studies (JMS), a

UK-based publication that is regarded as an excellent European journal. JMS

publishes research by academics for academics, so its target readership is

academics, not practitioners. This means that the style of writing is geared

towards academic readers and therefore may be considered ‘too dry’ for

most practitioners. This is why you should allow a good block of time to

read it via the activities in this unit. Try not to be put off by the language,

and make notes as you read as these will be helpful when completing the

reading activities and for revision purposes. The main focus of your note

taking is likely to be those sections in the article that relate how senior

managers and middle managers from the four companies create strategy (the

‘findings’ and ‘discussion’ sections), but in this unit we are dividing the

reading of the article into three separate activities.

One final point before you begin: the issue the paper was published in,

volume 40, issue 1, was a ‘Special Issue’. Usually academic journals publish

a variety of articles in each issue (within the overall theme of the journal

itself) but in a special issue the editor devotes all of a particular edition to a

single subject. This is usually a sign that the subject of the special issue is a

growing focus of interest for researchers. This special issue of JMS was the

first in any journal to have as its theme ‘strategy-as-practice’, meaning that

all the papers in this particular issue were on this topic.

Activity 3.1: Reading 4 introduction


Purpose: to understand how Regnér creates a research space for his insights

on what senior and middle managers do when creating and developing

strategy

Please turn to Reading 4 of Readings for Blocks 5 and 6, and read from the

beginning, up to but not including the ‘Methodology’ section. Make notes in

answer to the following questions:

. What gap does Regnér indicate in the strategy process research (i.e.,

research into the way that strategy ‘happens’)?

. How does Regnér position what he has to say in his paper relative to the

existing strategy process literature?

. What practical benefits does Regnér suggest may result from a detailed

investigation of different types of strategists and their activities?


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Feedback

Regnér creates a research space by pointing out that writers on the strategy

process (e.g., Henry Mintzberg, some of whose work on strategy process you

read in Blocks 1 and 2) have treated the topic at a general level but said little

about the micro level, i.e., the day-to-day activities that, put together,

constitute the praxis of strategy. He describes this area as a ‘residue’ left

behind, so to speak, by existing research. This is the gap in the literature that

his work is intended to fill.

Regnér differentiates what he has to say in his paper from existing work on

the strategy process by pointing to the fact that his research concentrates

specifically on strategy creation and development involving new markets and

new products. He cites Joseph Schumpeter (1934) – a classic reference – in

connection with this, but you will be familiar with this classification of strategic

options from your work on Ansoff in Block 3. Regnér also emphasises that

his research looks at a wider range of actors than has been covered before

(top management and middle or junior managers) and a wider category of

activities. In particular he is concerned with how managers find out about new

strategy and make sense of it as he explores ‘links between activity,

understanding and strategy outcomes’.

As to the practical advantages which might result from a more detailed

understanding of precisely who does what, and with what long-term strategic

effects, Regnér justifies this area of research by saying that it will add to a

clearer understanding of how strategy is made, how it contributes to strategic

change, and what goes into the mix of mysterious ingredients that produces

competitive advantage for an organisation. Regnér cites Jay Barney in this

connection – and you will remember from Block 2 that one of the sources of

competitive advantage to which Barney points in Reading 5 of Readings for

Blocks 1 and 2 is that of ‘socially complex resources’. Detailed attention to

the social complexity of what strategists actually do might help unlock the

secrets of such resources. A little later in the introduction, Regnér argues that

his work will be of particular interest to managers and firms trying to take new

directions in search of growth.

The introduction to his paper sets up our expectations of what Regnér has to

say. He summarises this in the introduction and in the abstract (another

convention in academic writing which gives a very short summary of the

paper in order to save other researchers time when trying to find relevant

material) – including his findings that junior and senior managers have two

different ways of acting strategically. Regnér calls their respective

approaches ‘inductive’ and ‘deductive’, and we shall explore what these

terms mean in more detail after Activity 3.3. For the moment, let us turn to

the way in which Regnér did his research: the method section of the paper.

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for Block 3 compared

deductive and inductive

methodologies as ways

to develop decision-

making models.

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Activity 3.2: Reading 4 method


Purpose: to understand the research process behind Reading 4

Continue Reading 4, from the beginning of the ‘Methodology’ section, up to

but not including the ‘Findings’ section. As you read, make notes in answer to

the following questions:

. Why did Regnér use a case study approach in his research (as opposed

to any other form of data collection, such as a questionnaire-based

survey)?

. How did Regnér choose which organisations to research?

. What data collection methods did Regnér use?

. How did he analyse his data?

Feedback

Regnér used an ‘embedded longitudinal case methodology’ for both the

single in-depth case and the retrospective study of three organisations with

which it is combined. In this context ‘embedded’ means that he spent an

extended period in each organisation, and ‘longitudinal’ means that the

research was conducted over time to detect change and development in each

organisation. Regnér justifies the use of case study methodology on a

number of grounds, including that management research is ‘pre-paradigmatic’

– in other words, there is not yet as fixed a way of doing things (another

meaning of the term ‘paradigm’) in management research as there is in other

disciplines, like medicine for example. A less abstract reason is that other

methods (such as survey research) would not have captured the subtleties or

political nuances (‘sensitivities’) of the process of strategy formation. He

argues that case studies are particularly good at exploring a situation and

helping to generate hypotheses (potential explanations which are open to

proof or disproof through subsequent research), and this is appropriate to

what he is trying to do here. He mentions ‘grounded theory’: an approach to

data which tries not to have any pre-set ideas as to what the data may mean,

but expects the meaning (‘theory’) to emerge from the data where it lies

‘grounded’ ready to be discovered. Finally, Regnér argues that case studies

are good for various kinds of ‘validity’ – in other words, being sure that you

are measuring what you set out to measure in a piece of research.

Regnér’s choice of organisation was led by what he calls ‘theoretical

sampling’. You may be familiar with the idea of a sample as a random dip

into a population in search of a ‘representative’ selection of voters or

consumers. There are other ways of sampling, however, and ‘theoretical’

sampling involves actively seeking examples of something that corresponds

to an idea you are developing from your ongoing research. So, for example, if

you were studying an aspect of strategy in a firm in one industry you might

want to test if what you found held true for a similar sized firm in another

industry. Your choice of firm to study next (i.e., your sample) would thus be


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guided by theory. This way of sampling goes hand in hand with the grounded

theory approach where, as ideas (theory) emerge from the data, the

researcher may wish to check them out in new situations chosen for the

purpose. Regnér’s interest, as he says in the introduction, was in strategy

creation and development, so this ‘theoretical’ interest led him to select

organisations which had experienced significant strategic change in the

previous ten years. He also needed an internal sponsor (someone who

invited him in and facilitated his presence). Getting access to busy

organisations is always a challenge for a researcher. Finally, as he puts it

slightly confusingly, the firms were selected ‘in order to alter the context of

each’. In other words they were chosen to provide a variety of contexts for

the research. The sample includes four very different industries and types of

firm (the manufacture of truck/trailer couplings, telecommunications, industrial

gas supply and pharmaceuticals). For convenience, all were based in

Sweden. Four were enough for his purposes. Regnér mentions ‘theoretical

saturation’ as a reason for not looking further. Theoretical saturation means

that you have reached the point where your data is not telling you anything

new, but just repeating what you have found out so far by using grounded

theory methods.

The data collection methods Regnér used were: individual interviews,

observation (in other words sitting in on events such as meetings and taking

notes either there or immediately afterwards), and examining company

documents. He contrasts ‘real time’ research (i.e., researching as things

happen) with retrospective research (which relies on people’s recollections).

Because his study was longitudinal, Regnér’s method needed to allow him to

look at strategy processes at different stages. Overall he collected a large

volume of data – he mentions 500 pages.

Regnér analysed his data using grounded theory which, as we have already

explained, focuses on allowing meaning to ‘emerge’ from the data rather than

having the researcher approach it with any fixed ideas or hypotheses. In

order for such interpretation to build on what we already know and

understand about a subject, grounded theory also encourages researchers to

read relevant literature alongside their data analysis. This ‘iterative’ process

then leads back to the data, and so it continues. Because it begins with the

data (rather than with a hypothesis to be proved or disproved) this process is

called ‘inductive’ reasoning – an important word for Regnér as it is also the

name he gives to how he sees middle managers behave in connection with

strategy.

We have now covered the introduction and method of the article. It is time

to move on to the most substantial part of this or any other article: results

and discussion – in other words, what Regnér found out and what it means.

As the longest section of the paper, it will take you longer to read than the

two earlier parts. But the material in this part of the article is relatively

straightforward.

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Activity 3.3: Reading 4 results and discussion


Purpose: to understand Regnér’s findings in Reading 4

Please complete your study of Reading 4. When you have finished reading

the article, answer the following questions:

. How does Regnér describe the way his case organisations perceived their

external contexts (environments), and their internal contexts?

. Give some examples of strategy activities at what Regnér calls the

periphery.

. Give some examples of strategy activities at what Regnér calls the centre.

. Name one ‘everyday’ activity from the data that turned out to have

strategic consequences.

Feedback

Regnér describes the external context (STEP environment) as complex,

uncertain and met with vague strategic understanding by the case

organisations. Each of them failed to understand the strategic potential of

their emerging initiatives (whether a new form of coupling technology leading

to the birth of a new industry sector in vehicle surveillance, or what was to

become Nicorette gum, or the wide appeal of mobile phones, or, indeed, the

prospect of thriving new geographical markets). This finding is quite arresting

when you consider the account of environmental analysis we have provided

in Block 3. Even with the aid of diagnostic models, such as STEP, interpreting

the actual nature of the environment and what it means remains a challenge

to organisations. The internal context (structure, systems, culture, etc.) of all

four organisations showed a dichotomy (a two-way split) between the senior

managers at the centre and the middle managers at the periphery (as Regnér

puts it) – organised as they are in the different cases as a subsidiary, a

business unit and an ad hoc group.

Examples of strategy activities at the periphery included:

. knowledge assimilation – finding out strategically relevant information

through externally directed contact with consultants, customers,

competitors and conference attendance; using direct experience rather

than relying on reports

. working with partners from other industries

. trial and error

. exploration and experimentation.

Regnér characterises these activities as ‘inductive’ – in other words, they

involve developing understanding from experience. The middle managers at

the periphery adopted fresh perspectives on what was going on, and on

developing the right strategy to match it, as opposed to the more hidebound

approach of the senior managers.


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Strategy activities at the centre included the following:

. knowledge assimilation from internal sources – concentrating on the

existing organisation and industry to find out about strategies

. working within established models of technology and markets to exploit

what they have rather than exploring in search of new opportunities

. seeing things in terms of prior experience

. having a more fixed view of strategy than the periphery.

Regnér characterises the senior managers’ activities as ‘deductive’. In other

words, they had an established view of the world and were at pains to make

things fit this ‘hypothesis’, as it were. For example, Couplet’s senior

managers did not feel that the technological innovations being worked on by

SRA (Couplet’s subsidiary) were really appropriate for their industry. They

deduced (wrongly as it turned out) that the oil and chemical industries were

the natural route to market for non-mechanical couplings.

An apparently mundane ‘everyday’ action which turned out to have strategic

long-term consequences was the simple hiring by SRA of two engineers from

a customer company in order to gain access to a particular piece of

technological know-how. This event marked a turning point in the

organisation’s capability to change its technology base, and led to the

creation of a new industry. Regnér’s respondents reported a number of such

incidents and their consequences, which caused tension between the centre

and the periphery, but he points out that the ones which were most

controversial tended to be the ones with the greatest strategic impact.

Let us now turn to a summary discussion of what Regnér concludes about

the activities of senior managers and how they contribute to strategy in his

case study organisations.

3.2: Senior managers

Table 5 in the article provides an overview of the senior managers’

strategising activities that Regnér discerned from his data and compares

these with those of middle managers (discussed in the next section below).

These are explained in Table 3.1, using extracts from Regnér’s original table.

Table 3.1: Senior managers’ strategy activities (part 1)

Strategy contexts Senior managers’ activity

Inner context Centre: corporate and divisional management, board

of directors

Outer context Order

Strategy making Deductive

What Regnér is doing here is simply stating that within organisations ‘the

centre’ refers to senior managers. Their perception of their external

environments is one that gives priority to order and, by implication, stability.

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Within this world view the dominant mode of strategy making is described

as deductive. As we have mentioned previously, ‘deduction’ is a term used

in social science research that views knowledge as progressing through a

process of hypothesising fundamental laws and then deducing what kinds of

observation will demonstrate the truth or falsity of these hypotheses

(Easterby-Smith et al., 2002). What Regnér appears to be suggesting is that

senior managers’ strategy making can be thought of as analogous with this,

meaning that ideas are formed (loosely speaking, they are hypothesised

according to accepted norms in the organisation or industry) and then

investigations are undertaken to find out if these hypotheses are right or

wrong.



Action direction Industry focused: planning, analysis, use of

expertise

Basic action mechanisms Exploitation of prevailing resources and

industry:

. formal reports, documents, intelligence

. industry experience and routines

As summarised in Table 3.2, Regnér appears to be saying that when senior

managers are identifying the direction in which they want to take their

organisations, they focus their search within their current industries, so they

do not seem to think outside of their current contexts. This is reinforced by

their use of formal planning and analysis techniques, and their propensity to

draw on experts from within their existing industry (consultants, for

example). The mechanisms that senior managers use seem focused on

exploiting existing resources within the current industry. Regnér describes

how Ericsson and Couplet relied on formal industry reports, which

concluded that their markets held little potential and were not attractive.



Sense-making Established strategy implementation patterns and

structures

Knowledge structure Emphasising current knowledge structure

Strategy content Refinement of existing resource and industry

factors: perfection of prevailing strategy

Table 3.3 summarises how Regnér’s senior managers appeared to make sense

of their organisations’ strategy-making activities through established routines

and through the formal implementation channels that were in place. Current

knowledge structures are emphasised. The content of the strategies

established through such approaches tends to be characterised as a

refinement of existing resources and industry factors and a perfecting of

existing strategies. Regnér cautions that this did not help much in terms of

developing new strategic issues. He suggests that Couplet’s senior managers


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were constrained by their current capabilities and knowledge structures, were

‘very hesitant’ and saw ‘great difficulties’ ahead.

Because Regnér’s paper is based on data constructed from a small number of

case studies, he does not claim that his findings are generalisable to other

organisations. He merely says that they are appropriate findings based on the

organisations he studied. So, there is a danger that his analysis is applicable

only to those organisations included in his research. However, the merit of

his work is based on whether what he puts forward is a plausible explanation

for how senior managers create strategy. As readers, we make our own

judgements about that.

Regnér’s work is interesting and useful to our understanding of what senior

managers do in the process of strategising because, at the moment, there is

very little other research that challenges this by putting forward alternative

explanations. So, in a way, we have to go with what we have. The picture

that emerges does resonate with what one might expect of senior managers

in one sense. Thinking back to the idea of the managerial ‘paradigm’ which

we introduced in the Unit 1, it is highly likely that a senior management

paradigm favours the status quo which, after all, includes senior managers’

own positions and authority. On the other hand, as we shall see in Unit 4 of

this block, change can also be resisted by middle and junior managers who

lack the overall perspective of their senior colleagues (see Roberts, 2009: the

video clip on the course website about managing opposition to culture

change, which you watched in Unit 1, Activity 1.4 of this block).

Activity 3.4: Senior managers and strategy


Purpose: to reflect on the nature of senior managers’ contribution to strategy

Based on your study of Reading 4, make brief notes on what you consider to

be the strengths and limitations of the senior managers’ strategy work that

Regnér describes.

Feedback

Your response to this exercise may depend to some extent on what you see

as the appropriate way to develop and implement strategy. Please check your

notes against the following lists.

Some of the strengths may include:

. a clear focus on current industry to maximise efficiency

. the use of formal industry expertise

. a structured, analytical approach

. the exploiting of current knowledge base and thus playing to the

organisation’s strengths

. the refining of existing strategy.

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Some of the limitations may include:

. too much focus on existing sources of knowledge

. too much focus on formal sources of knowledge

. an overly short-term focus on exploitation rather than on exploration

. too much faith put in formal analysis mechanisms

. characterising the external environment as more stable and ordered than

it actually is.

In the next section we discuss how middle managers have been characterised

in the strategy literature. We also return to the Regnér article to look at its

findings relating to middle managers operating at the peripheries of

organisations.

3.3: Middle managers

Here we review the role traditionally assigned to middle managers, and then

look at how recent research is challenging this and advancing a view of

middle managers as ‘strategists’, albeit of a different kind to senior

managers. First, we need to define who we mean when we talk of ‘middle

managers’. We shall adopt a definition by Quy Nguyen Huy (2001) that

middle managers are typically those staff who work two levels below the

CEO and one level above production-line workers or professional staff. So,

we are dealing with nurse managers, rather than nurses; heads of

departments, rather than teachers. In the for-profit sectors we are looking at

the activities of team leaders, departmental and section heads.

We begin by looking at how middle managers have been traditionally

portrayed within strategy.

Middle managers: the traditional view

Let us return to the idea that the strategy process can be usefully divided up

into three phases: analysis, choice and implementation. Within this

understanding, if middle managers are considered at all, they are generally

seen as implementers of the wishes and strategic choices of senior managers.

Choice (thinking) and action (doing) are separated, and the contribution of

middle managers is firmly located in the doing and not the thinking part.

Strategy making, in the classical view, is assumed to be fundamentally a

decision-making process involving a small group of top managers; the

central questions it addresses revolve around how to formulate and

implement high-quality strategic decisions. This is representative of a top-

down, directive model of strategy, where the role of middle managers is

restricted to taking these decisions and putting them into effect. Middle

managers here are seen to act out the senior management’s orders, but with

limited discretion.

This interpretation of middle managers’ contribution to strategy making is

coming under increasing criticism. Christine Meyer (2006) states that if we

are to develop our understanding of strategy-making processes, the simplistic


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view of middle managers suggested by the classical perspective has to be

replaced with one that more faithfully represents their contribution in

practice. Over ten years prior to Meyer’s comments, Robert Burgelman

(1994) challenged the assumption that top management is necessarily the

prime mover in strategy, suggesting that frequently it is the strategic

initiatives of middle managers that drive strategy making within firms.

Middle managers are now being credited with a more creative role in

strategy making, one that recognises that frequently they act to fill the voids

left by senior managers’ strategic inaction (Vilà and Canales, 2008). Middle

managers act strategically to construct strategies that are contextually

meaningful; they are the driving force behind emergent strategy making, and

they are more sensitive to the emotional stress (Meyer, 2006) which strategic

change can induce. These issues are explored below, highlighting how

middle managers are actively involved in strategy making.

Middle managers as strategists

There has been a steady stream of academic literature examining the role of

middle managers in strategy work. This has gained pace into the 21st

century as researchers have become more concerned with how strategies are

produced and enacted, rather than with what strategies organisations possess.

The list below is a distillation of insights drawn from some of these studies

(e.g., Dutton et al., 1997; Burgelman, 1994; Wooldridge et al., 2008;

Mantere, 2008; Currie and Proctor, 2005) and highlights how this research

focus is beginning to challenge conventionally accepted ideas about how

organisations actually do strategy.

Middle managers should be taken seriously as strategists because of the

following kinds of characteristic activity:

. Void filling. One characteristic of middle manager strategy work is that it

fills the voids left by senior managers’ absence. A surprising insight

shared by many of the studies mentioned above is that middle manager

strategising seems to be stimulated in a large number of cases by senior

managers’ inactivity. Where this occurs, middle managers are moved to

act to fill the strategic void this creates. Middle managers, it seems, have

expectations as to how senior managers should act strategically. When

these expectations are not fulfilled they feel compelled to step into this

void and begin their own strategising efforts.

. Issue selling. Middle managers can be more than implementers; they can

actually have influence ‘upwards’, as it were, and reshape the strategic

thinking of senior managers. This process has been characterised as issue

selling: i.e., middle managers ‘sell’ ideas to senior managers, changing

their perceptions of strategic phenomena. This can result in middle

managers influencing how strategies are formed and what they contain.

. Contextualising. Middle managers can take the strategies created by

senior managers and provide them with the necessary contextual

specificity to make them relevant to organisational staff. This can involve

either modifying the original strategic intent to make it practical, or

studying and developing the organisational processes associated with

building and renewing the capabilities the strategy requires.

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. Managing emotion. Middle managers are also ideally placed to address

the emotional stress among employees which strategic change can induce.

This is particularly important in complex, pluralist organisations that

require distributed and interactive leadership throughout, where middle

managers mediate the relationships between otherwise disconnected

actors.

. Adapting strategy to make it workable. Middle managers can orchestrate

and become the chief architects of emergent strategy, deliberately not

implementing the official strategy because they feel it is not workable in

the particular environments within which they work. This involves

championing alternatives and modifying senior managers’ original

intentions. Middle managers engaged in this type of strategic activity

propose direct alternatives to the intended strategy, and get them

accepted, so gaining senior managers’ support to enact an emergent

strategy different from the planned original.

. Ignoring strategy to improve it. Alternatively, middle managers can and

do ignore strategies created at corporate centres because they lack

relevance to their specific work contexts. This creates a strategic gap that

they then fill by creating their own strategies which are more relevant

and meaningful to their work environments. These tend not to be formal

strategies, in the sense of official formal documents, but informal and

unofficial ways of working that influence their activities. Strategies

created in this way tend not to be formed through the kind of deductive

reasoning and analysis that Regnér argues is carried out by senior

managers at the corporate centre. Rather, they are formed through

inductive efforts, such as conversations within internal networks and with

external contacts, and in trial and error processes through which context-

relevant strategies are crafted.

. Participating. This approach applies to the public sector, where middle

managers’ strategising activities have been facilitated by government

policy developments under the drive for New Public Management (NPM)

(Hood, 2005). This approach emphasises the proactive nature of their

input, identifying this as crucial if government policy intentions are to be

realised. It calls for middle managers in the public sector to be strategic

in both their thinking and their acting.

We now return to Regnér’s paper and in a series of extracts from his Table 5

take a closer look at how he characterises middle managers’ approaches to

their strategy work.

Table 3.4: Middle managers’ strategy activities (part 1)

Strategy contexts Middle managers’ activity

Inner context Periphery: subsidiaries, projects, business and

technology units

Outer context Complexity

Strategy making Inductive

As summarised in Table 3.4, Regnér identifies middle managers as operating

at the peripheries of organisations. This does not necessarily just mean


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geographic peripheries (although it may include these), but may also include

being at the peripheries of organisational power and decision making.

Middle managers are said to conceptualise their contexts as complex and to

favour inductive approaches. As we have seen, induction is a social science

research term that describes how knowledge is built up from our experience

of things. Because this experience is necessarily personal, it can be argued

that induction views knowledge as intimately connected with the knower.

What this means is that the researcher and researched are connected and that

different researchers will identify different knowledge claims (Easterby-

Smith et al., 2002). For middle managers, Regnér appears to be saying that

who they are and where they are located influences what strategy

intelligence they construct.



Action direction Externally focused: trial and error, probing

environment, use of heuristics

Basic action mechanisms Exploration of new resources and industries:

. informal contacts and encounters

. technology and market experiments

Regnér’s key point, as illustrated in Table 3.5, is that middle managers

appear to be externally focused in their outlook. He describes some of their

strategising acts as involving ‘trial and error’, which is emblematic of an

inductive approach in that when people are unsure how to proceed they try

different approaches until one proves successful. This may not be very

rational or objective, but perhaps it is a more realistic way of viewing

middle managers’ strategy work. Such managers seem concerned with

exploring through informal, external contacts and the use of technology to

identify useful strategy information. Regnér relates how Couplet’s middle

managers formed informal partnerships with a German company in order to

access knowledge they didn’t currently have; later the same middle managers

acquired a different company to learn new skills in truck electronics.



Sense-making Trying out, adjusting and generating new strategy

interpretations

Knowledge structure Establishing new knowledge structures

Strategy content New combinations of old and new

Resource and industry factors

Strategy creation

Table 3.6 summarises how middle managers’ strategy sense-making seems to

be characterised by flexibility, through developing interpretations by

adjusting and generating new strategic insights. New knowledge structures

are established using informal as well as formal mechanisms. The point

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about the strategy produced by middle managers is that it is specific to their

needs, and this is achieved through blending old and new strategic insights

into a meaningful whole. Regnér’s findings show how Ericsson’s middle

managers had no rules to follow when the company entered new markets.

Unable to stick to the familiar conventions, the middle managers discarded

them and relied upon their informal contacts and intuition.

Activity 3.5: Middle managers and strategy


Purpose: to reflect on the nature of middle managers’ contribution to strategy

Based on your study of Reading 4, make brief notes on what you consider to

be the strengths and limitations of the middle managers’ strategy work that

Regnér describes.

Feedback

As with the previous activity, your response to this exercise may depend to

some extent on what you see as the appropriate way to develop and

implement strategy. Please check your notes against the following lists.

Some of the strengths may include:

. acknowledging the complexity of external contexts

. being outward-focused

. being flexible and adaptable

. having knowledge that is specific and relevant

. utilising both informal and formal knowledge structures.

Some of the limitations may include:

. ignoring centrally produced strategies

. possibly lacking industry focus

. individual biases possibly driving strategic opportunity searches

. possibly seeing fragmentation within the organisation

. ownership of strategies residing with individuals or small groups.

Regnér’s findings appear plausible, and may well resonate with your own

experience of senior and middle management – possibly as such a manager

yourself, or as a member of an organisation in either the public or the

private sector where your working life is affected by the kinds of decisions

such managers take. You may find it useful to reflect on the ‘periphery/

centre’ split when thinking about how senior managers create strategy and

how middle managers respond.


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Furthermore, what are the implications for senior managers when their junior

colleagues undertake their own strategy work? It’s generally accepted in the

world of work that having plenty of initiative and being a ‘self-starter’ are

admirable qualities. But what happens when middle managers ignore

strategies created at corporate level and do their own thing? Finally, what is

the best way to integrate the activities of senior and middle managers to the

benefit of the organisation as a whole? It may be that thinking through some

of the concepts with which we have been dealing so far in this block (as

applied to systems, structure and culture) will hold the clue to how we may

answer such questions.

3.4: External consultants

The final category of people we discuss in this unit comprises external

consultants. While there has been little research that has looked specifically

at the actions of strategy consultants, there has been a steady stream of

research activity that has focused on management consultancy more

generally. This work has tended to change direction quite markedly as it has

developed. Early work in the field arose from an organisational development

(OD) perspective (e.g., Schein, 1987; 1988). This tended to draw analogies

between consulting and medicine and advanced a doctor–patient model of

consulting, with consultants seen as the expert helper and curer of the

client’s problems.

A more critical perspective has emerged in the 21st century, one which

condemns the OD perspective as largely self-congratulatory, written by

practising consultants/academics and containing unreflective accounts of their

own consultancy interventions (Fincham and Clark, 2002). Indeed, the most

strident criticisms of the actions of management consultants have described

them as ‘witchdoctors’ (Sturdy, 2009, p. 459), conning gullible and naive

managers. An earlier critical perspective on management consultancy also

questions the assumption that consultants are engaged by clients to help

solve their problems, offering the view that companies often employ

consultancy firms to confer legitimacy on what they are already doing

(Starbuck, 1992). By attaching a consultancy firm’s name to what an

organisation wants to do, the reputation of that firm is seen to add authority

and legitimacy to the decision that has already been taken. It is felt that

internal staff, and external actors such as suppliers, customers and other

stakeholders, will accept a sometimes controversial decision if it has a high-

profile consultant’s name attached to it. Many downsizing strategies or

performance-related-pay schemes have been introduced on the back of

reports produced by well-known consultancy firms. Box 3.1 provides some

further background on the context of strategy consulting as an industry.

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Box 3.1: Consulting room

What drives the fortunes of strategy consulting? According to received

wisdom, consultants, like accountants and undertakers, do well in good

times and in bad. But in spite of claims that it is an acyclical industry,

there is evidence in the first decade of the 21st century that strategy

consulting is employing fewer people, as clients delay or postpone

initiatives for economic reasons, or simply do more strategising

themselves.

Arthur D. Little, which can lay claim to having been the first strategy

consulting business, closed its doors in 2002 after injudicious spending

on research and development had led to its collapse. Another famous

name, McKinsey, took a knock to its reputation when clients Enron,

Global Crossing and Swissair all went broke in spite of its advice.

It could be argued that the writing was on the wall for expert strategy

consultants as soon as personal computing power became cheap

enough to make the ability to run sophisticated spreadsheets available

to a wide audience in the 1980s. Suddenly the kind of numbers-driven

performance analysis which had been the preserve of consultants

became something any senior (or indeed junior) manager could perform

for herself.

Another blow to the exclusivity of consultant expertise has been the rise

of business schools, which have democratised access to strategy

models. Many strategy consultants rose to prosperity on the back of

offering clients once-exclusive methodologies which are now widely

taught (such as matrix models).

Finally, the 21st century, quite apart from its economic vicissitudes, has

so far failed to produce the kind of ‘Big New Idea’ which strategy

consultants thrive on. Waves of projects spurred by ideas such as Total

Quality Management or Business Process Re-engineering kept strategy

consultants comfortably afloat in the 1980s and 1990s, but the agenda

for the early 21st century seems a lot less clear.

New growth industries in the BRIC countries (Brazil, Russia, India and

China) will no doubt sustain strategy consultants (new and old) in years

to come. Chief executives in western companies will still need

inspiration or (more cynically, perhaps) somebody to blame for painful

decisions. Furthermore, the increased emphasis on corporate

governance also creates the need for strategic advice on a regular

basis. But it may also be the case that the way consultants work needs

to change. Instead of placing brilliant and expensive young MBAs in

clients’ offices as extra human resources, they may become more like

ideas factories or sounding boards for clients, offering advice based on

specific expertise outside the mainstream of strategy such as

behavioural economics – the fashionable new discipline which reduces

financial activity to psychological first principles.

(Source: adapted from The Economist, 2002; 2008)


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Strategy, consultants and consultancies

It has been acknowledged for some time that consultancy firms have

contributed more to the development of strategy than any other management

discipline (Payne, 1986). Furthermore, academics have been quick to

communicate the ideas of consultants to their students as constituting

strategy (to some degree, this course does the same). Indeed, many strategy

academics also work as consultants, and, by the same token, consultants’

ideas about strategy have actually shaped how strategy has been taught. For

example, many analytical tools developed by consultancies have become

synonymous with how strategy has traditionally been understood (Hambrick

and Chen, 2008). However, this influence has gone largely unscrutinised by

the kind of rigorous review process that, for example, a paper like Reading 4

would be subjected to before publication. As long ago as 1987 Paul Nutt

identified that we know little about how consultants work with clients,

describing their activities and the benefits they create as ‘shrouded in

secrecy’ (Nutt, 1987, p. 13). But, as yet, little or no research has been

published that aims to unlock the secret workings of strategy consultants.

The situation in which we find ourselves is that there is a growing

recognition of the importance of strategy consultancies to how we have

made and do make sense of strategy, but we know little about their

activities. In a sense, we have more questions than answers. What we shall

do here, then, is to set out some of these questions. It may be that you can

discuss some of these in your organisation (if you work in one which uses

consultants) to learn more about how your own organisation has used

strategy consultants. If this is not possible, or your organisation has not used

strategy consultants (this is itself revealing and worth probing more deeply –

why hasn’t your organisation used consultants?), it may be that others within

your tutor group have and they could share their experiences with you.

Alternatively, your tutor may be able to share his/her experiences with you

as a way of generating discussion.

Alex Wright (2008) sets out a research agenda which proposes six questions

about strategy consultants and their effect on the organisations in which they

work. This forms the basis for this final section. Each question here is

followed by a brief commentary about the issues which underlie it. As with

Reading 4, the emphasis here is on what activities people (consultants,

clients, other stakeholders) are actually performing, and why. Read through

the questions and consider the commentaries, ask questions of your own

organisation, and then share your thoughts in your TGF.

1. How and why are strategy consultancies engaged by organisations?

This question helps set the context for the engagement of consultancies by

organisations. Strategy involves informal activity before the formal activity

kicks in. The informal work shapes the subsequent formal activity, so how

and why strategy consultancies are engaged gives an indication of what the

resulting strategy work will look like. The reasons for employing consultants

(for example, improving strategy capacity, or legitimising a strategy

approach) signals what acts will be taken under the heading of ‘strategy’.

When consultancy firms have worked previously with organisations from the

same sector, or are recommended by peers to a client, it is likely that the

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strategy work that subsequently emerges will look similar to theirs. In effect,

when consultancy firms work with several clients from the same sector, their

strategies begin to resemble each others.

2. What tools and approaches do consultants encourage organisations to use?

When consultancy firms are engaged, their consultants bring with them a

cache of tools and approaches that they are familiar with or that they prefer.

These are then offered to the client as a means of creating implementable

strategies. Use of specific tools and approaches is not neutral, but signals

ways of thinking that subsequently shape understandings about strategy. For

example, a consultancy firm that advocates scenario planning (which we

shall encounter in Block 6) as an approach to strategising, implicitly

communicates to clients that the future is unpredictable and unknowable.

Acknowledging this unpredictability, the most effective way of thinking

strategically about this is to develop multiple plausible scenarios about how

the future may pan out. By holding these scenarios in continual tension,

managers become – so scenario planning advocates would say – more

flexible and responsive to environmental cues in their actions. Where more

static models are used (Porter’s five forces, for example), the external

environment is itself conceptualised as fixed and knowable. Therefore, a

different conceptualisation of strategy emerges, one that advocates a ‘fit’

between the external environment and internal resources and capabilities.

3. What texts do consultants produce and who reads them?

Strategy work in organisations produces a lot of paper! Some of this is left

on office shelves gathering dust, while some contains the strategic intentions

of organisations and are seen as vital if implementation is to take place.

What role do consultants play in creating these? In what sense do they,

rather than their clients, write them? If these documents are written by

consultants, how does their authorial hand shape what ultimately becomes

known as ‘the organisation’s strategy’? In Block 6 the authoring role that

consultants have is considered in more detail and is discussed as an example

of consultants using their power to get across their own ideas and

preferences while discarding those of their client. This clearly indicates that

consultants shape what becomes an organisation’s strategy.

4. How do consultants influence the strategies they help organisations to

create?

Following on from the previous question on who writes key strategic texts,

consultants have a wider role in shaping the strategies their clients create. Of

course, this may be why they have been engaged in the first place. But to

what extent do the strategies that consultants help their clients to create

represent the views of the consultants or those of the client? This is difficult

to discern in retrospect, of course. But questions could be asked of key

internal stakeholders about the influence they perceive the consultants had on

what strategy was produced. Consultants also influence how strategies are

talked about through the unintended consequences of their actions. In one

example, scenario planning was referred to by consultants in a PowerPoint

presentation as a ‘tool’ and this term subsequently took hold within the

client workforce. The scenario planning textbooks, however, describe it in

terms that suggest it is more than a mere tool; rather, such planning is


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considered something that can help managers reframe their strategic

thinking. Labelling it a ‘tool’ suggests it can be used within existing

managerial mindsets, whereas its advocates see it as something that can

challenge mindsets rather than working within them. This may seem a

pedantic point, but the way in which strategy is talked about does influence

what sense is made of it (this is a theme we return to in Block 6 when we

look at strategy as discourse).

5. How do consultants help organisations move towards implementing/

activating strategies?

The difficulty of implementing strategies has been highlighted earlier in this

block. How do strategy consultants help their clients to do this? Creating

strategies is, to some extent, the easy bit; getting them implemented is much

more difficult. What are the techniques, approaches and mechanisms that

consultants advise clients to implement in order to ensure strategies are

realised? It appears commonly accepted that implementation is very

demanding, yet it must be assumed that consultancies have been advising

clients on this for many years. How do they do it?

6. What are the results of strategy consultants working with their clients?

Do organisations that use strategy consultants have improved performance?

Do they understand strategy differently compared with those that create their

strategies themselves? Are their strategy processes significantly different

from those of organisations that do it all in-house? These are questions that

are yet to be addressed by strategy researchers, although they seem

fundamental to understanding if the actions of strategy consultants are

beneficial. Not to consider such questions would mean their activity remains

‘shrouded in secrecy’ (Nutt, 1987, p. 13).

A final question for you to consider is how consultants might fit into

Regnér’s typology of periphery versus centre. Many of the most successful

consultancies have very strong corporate cultures. The Boston Consulting

Group (BCG) has been going since the 1960s and several of its ex-

employees have left to take ‘the BCG way’ with them into their new

companies (The Economist, 2002). It might be feasible, then, to conceive of

consultants as a kind of peripheral group apart – akin to the AGA

‘skunkworks’ in Regnér’s article. Part of what they offer their clients might

be an external, exploratory perspective – which again would ally them to the

periphery, with its external orientation. On the other hand, the consultant is,

at least on the face of it, a hired gun, putting his or her expertise at the

service of the client’s brief and thus acknowledging the world view at the

‘centre’ as dominant. Perhaps it depends, like so much else, on the context –

even though, as we have suggested in the previous discussion, the context of

hiring a consultant may well be ambiguous and multilayered.

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Summary

This unit has discussed an often neglected aspect of strategy scholarship:

people. Strategies are created and constituted by people and we have

considered and discussed how senior managers, middle managers and

strategy consultants may contribute to how organisations think and act

strategically. In doing so we have drawn extensively on an important

academic article written in the emerging field of strategy as practice

(Reading 4 of Readings for Blocks 5 and 6).

Senior managers are often assumed to be the sole strategic actors within

organisations. This is partly because strategy is seen as a high-status activity,

so being allowed to strategise is frequently associated with hierarchy and

appears to be something that senior managers are ‘rewarded’ with. However,

recent research is beginning to question this notion, and through Regnér we

have seen that strategies produced by elite senior managers are sometimes

ignored by the staff they are aimed at and who are assumed to be there

merely to implement them. Middle managers are no longer restricted to

being the unthinking implementers of the strategic thinking of senior

managers. Middle managers, it seems, can and do have significant roles in

an organisation’s strategy work. Strategic thinking is not just a senior

manager activity, but something that middle managers and others in

organisations also carry out. One challenge seems to be how to capture this

fact to ensure it is productive for organisations and not destructive.

Lastly, we moved outside of the organisation to discuss and think about how

strategy consultants impact upon what organisations do. The development of

strategic thought has been heavily shaped by the contributions which

strategy consultants have made. This has been helpful in increasing the

popularity of strategy among organisations, but perhaps has been allowed to

go unscrutinised for too long. A more questioning attitude towards what

consultants do and how they do it may help to ensure that their interventions

truly benefit organisations as they face the challenges that lie ahead of them.


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Unit 4: Managing strategic changeIntroduction

Strategy implementation tends to involve change in structure, culture,

systems and human resources, leading to further change as the consequences

unfold in the light of new contexts. This is what is meant by the dynamics

of strategy implementation. An organisation’s ability to review, redirect and

renew strategy as contexts change defines the basis of the sustainability of its

competitive advantage. Managing strategic change, therefore, consists of

‘managing changes which specific strategies give rise to and imply’ (Whipp,

2003, p. 241). This unit explores the role of change in strategy

implementation.


. describe the pressures that lead to strategic change

. differentiate between different views of change and defend your own

understanding of how change happens

. offer a diagnosis of the context of change in a particular situation with

reference to Johnson’s notion of the cultural web (Reading 5)

. analyse the potential resistance to change in a given situation

. use Hrebiniak’s model of implementation (Reading 1) to guide strategic

change.

4.1: Pressures for change

Before undertaking any approach to change, it is useful to understand what

causes it. Change can be occasioned by external and internal pressures.

External pressures on an organisation could be, for example, rapid

technological developments transforming the ways in which suppliers and

customers interact. Internal pressures could include growth, or the proactive

behaviour of senior or middle managers recognising the need to counter

potential threats or exploit new opportunities. Managers realise that the

external or internal environment has somehow changed, make sense of that

change and then formulate a response. They then initiate a process of

change, commit resources and manage the consequences.

Even though managers can evaluate risks to a certain extent, some

consequences of change are always difficult to describe or estimate – for

example, sudden strike action by employees unhappy with change proposals,

or the way in which share prices react to a restructuring. It is important,

therefore, to understand as far as possible the dynamics and consequences of

change in the context of strategies proposed. Such understanding can be

applied to suggest how a change process can be managed in principle.

The content of change (what is actually changed) and the process (the way

change is implemented) are both influenced by the internal as well as the

external contexts of change. A feasible approach to managing change is

therefore dependent (‘contingent’) on the specific situation or context faced

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by each organisation. As Julia Balogun and Veronica Hope Hailey (2008,

p. 2) argue: ‘successful change requires the development of a context-

sensitive approach. There are no formulae or ready-made prescriptions that

can be rolled out’. Rather than hoping to apply a formula, managers facing

strategic change as a task would do better to carefully evaluate internal and

external environments as a starting point, and to identify pertinent influences

before determining appropriate ways of managing change.

It sometimes seems difficult to separate out the literature associated with

managing change at a micro (work group or individual) level and initiating

and managing change at a macro (strategic) level. Our emphasis in this

course on the potentially strategic importance of micro-level activity supports

this overlap – and arguably Whipp’s (2003) definition of strategic change

with which we started this unit sees it as any change which results from or

is implicit in strategy. One of the key pieces of work which brings these

different levels of change together is Gerry Johnson’s study of strategic

change in three UK companies (Reading 5 of Readings for Blocks 5 and 6),

which you will read as part of this unit.

4.2: Perspectives on how change happens

As you might expect with any complex phenomenon, opinion is divided as

to how change happens. Here we review two perspectives – planned change

and incremental change – before introducing a third perspective (punctuated

equilibrium) which combines elements of both.

The planned perspective

Much like the planning school of strategy which you encountered in Blocks

1 and 2, this view suggests that change is the outcome of careful, objective

analysis and planning by management. This implies that management has

systematically examined the strategic position and deliberately formulated a

new strategy which requires the organisation and its members to operate

differently in some way, specifying the changes necessary to implement this

as well as how to make such changes take place.

An example would be a decision to modify an existing product line to meet

an immediate competitive need, requiring relatively minor changes to the

organisation and remaining well within the familiar boundaries of its

operation. Alternatively, there could be an elaborate planned change in

strategic direction (for instance, launching totally new product lines to enter

new markets), with profound implications for the structure, systems and

culture of the organisation.

The problem with this view of planned change is that it ignores many of the

processes that we have, so far, seen to be central to strategy implementation.

Among others, these include the socio-cultural realities associated with

existing ways of doing things in the organisation, as well as the familiar

objections to planning in any strategic connection (e.g., bounded rationality,

or the political nature of organisational decision making which we reviewed

in Block 3). To reiterate what we have said elsewhere (in Block 2) about

planning in general as an approach to strategy, analytical and planned


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approaches to change can be useful thinking frameworks for conceiving

change and its consequences, but they do not address the in-depth problems

(for example, internal political resistances) underpinning the process of

change.

The incremental perspective

A second view on the nature of change processes can be explained by the

rationale of ‘logical incrementalism’ – again, a perspective on strategy with

which you will be familiar from our discussion of it in Blocks 2 and 3. This

suggests that change proceeds incrementally, that is, in small stages (Quinn,

1978; Johnson, 1988) within an overall direction that makes sense to

managers as they carry change out. Johnson, in particular, argues that there

are clear patterns of strategic development that organisations go through over

time. Fundamental shifts in strategic direction that require drastic

readjustments in organisation and strategy are relatively rare. More common

is incremental change in which related strategic decisions, in small stages,

build upon one another, so that past decisions shape future strategy (Balogun

and Hope Hailey, 2008).

This approach sees change implementation as a negotiated process. It is

characterised by a series of decisions, compromises and adjustments subject

to both managerial and cultural influences. Such decision processes are

unique to every organisation and occur in different ways in each context,

highlighting important implications for the whole strategy process.

The drawback of such incremental change is that organisations become

prisoners of their own ‘paradigm’. Small changes become an expression of

managerial consensus rather than a way of adapting the organisation to the

challenge of new threats or opportunities. Organisations can become trapped

in a strategic inertia built up within their culture over previous years of

success. This solution may be handled through a gradual process of

‘unlearning’, as discussed in Unit 2 of this block, or through radical

turnarounds requiring revolutionary change – usually prompted by a severe

external shock and thus carried out at a pace and to an agenda not of the

organisation’s choosing. This brings us to our third perspective, which takes

an alternation between gradual and sudden change as the norm.

The punctuated equilibrium model of change

This perspective combines elements of both planned and incremental change.

It regards change as a two-speed process. Organisations take small steps of

convergent change over extended periods of relative stability. (Convergent

change is adaptation within an organisation’s existing way of doing things.)

But these periods of relative equilibrium are punctuated at intervals by

revolutionary change – which affects structure, systems and culture, and

introduces new ways of doing things. Elaine Romanelli and Michael

Tushman (1994) call this the ‘punctuated equilibrium model’.

The punctuated equilibrium model is more familiar where changes to the

competitive environment occur less frequently, so that an organisation is able

to remain competitive for a longer period without making any changes to the

way it operates – that is, until sufficient pressure gathers for radical and

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provocative action. Case study 4.1 illustrates the way in which the iconic US

automobile manufacturer General Motors (GM) has changed over the last 30

years. To what extent does it represent punctuated equilibrium?

Case study 4.1: The road to perdition

General Motors has a special place in the history of strategy because of

its connection with Alfred P. Sloan, whose book My Years with General

Motors (1963) is still regarded as a key reference in the development of

strategic thought. Until 2008, when it was overtaken by Toyota, it was

the world’s largest car manufacturer, producing over 9 million vehicles a

year in 34 different countries. In early 2009, it employed 234,500

workers, 91,000 of them in America, where it also funds healthcare and

pension benefits for almost half a million retired workers. Fatally, in the

same year, against assets of $82.2 billion it had liabilities of $172 billion

in the worst US car sales slump for 26 years. In spite of a healthy range

of new models, promising prospects in non-American markets and

several attempts at restructuring and refinancing, GM filed for

bankruptcy in June 2009, invoking the American legal resort of

Chapter 11 to protect it from creditors. It emerged on the other side of

the process as a new entity in July, 61 per cent owned by the US

government, having cut 4,000 white collar jobs (including 450 top

managers) and shed a number of its less profitable brands. The reborn

company refocused on just four brands: Buick, Cadillac, Chevrolet and

GMC.

A hundred and one years of car-making history started when GM

founder Billy Durant bought 39 companies (including Pontiac and

Chevrolet) between 1908 and 1920 and ran them as separate entities.

This somewhat chaotic arrangement muddled along until it almost went

bankrupt in 1923, but was rescued by the intervention of Alfred P. Sloan,

who had made his fortune in ball-bearing manufacturing. He brought

financial discipline and coherence to the product line, but the pattern of

separate company brands continued under the umbrella of GM as it

expanded into 15 countries and acquired further brands such as

Vauxhall in the UK and Opel in Germany.

Afloat on post-World-War-Two revenues, GM negotiated annual cost of

living rises, free healthcare and generous pensions with the United Auto

Workers union. Enlightened at the time, in later years these

commitments contributed to the debt that eventually brought the

company to its knees. GM’s sheer scale as an organisation masked

serious internal inefficiencies in the 1950s and 1960s. With over 50 per

cent of the car market, it was more worried about falling foul of

American anti-trust (i.e., competition) law than it was about reducing

costs or reforming its systems.

The first major shock came in the 1970s with the oil crises which sent

petrol prices soaring. Suddenly the fuel-thirsty limousines beloved of the

American market became prohibitively expensive to run. Japanese

imports, cheaper and more economical, were beginning to make an

impact. GM responded with a new range of models which met new fuel


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consumption standards, but were uninspiring and less reliable than the

Japanese alternatives.

By the 1980s, GM management decided that the principle of ‘if you can’t

beat ’em, join ’em’ applied, and entered into a joint manufacturing

venture with Toyota in California. GM learned the virtues of lean

manufacturing, but interpreted the practice in such a way as to impact

further on quality. The kind of ‘operational efficiency’ whose limitations

Michael Porter (1996) points out took over as GM’s guiding principle,

leading to cost-cutting, less attractive models and depressed prices.

The late 1980s brought some relief, with lower petrol prices and the

discovery of a loophole in fuel efficiency standards regulations. Trucks

were allowed more leeway than cars. GM enthusiastically changed its

product line from low-margin cars to profitable pick-up trucks (aimed at

passengers rather than freight) and sports utility vehicles (SUVs). The

days of gas-guzzling glory were back and American drivers responded

with glee.

In spite of this shot in the arm for revenue and profit (though not for the

environment), GM’s historic liabilities were mounting steadily. Higher

interest rates and the economic downturn which heralded the 21st

century meant the company was facing a benefits crisis between

pensions and healthcare. Its newer competitors were unencumbered by

such commitments. GM’s American market share had stabilised at 28

per cent, with profits of $4 billion, but even this was not enough to stave

off trouble. The chief executive focused on generating cash to keep the

company afloat – maintaining high production, subsidising dealers,

offering cheap credit and catering for the fleet market with rock-bottom

prices. These essentially short-term measures left the fundamental

problems of the company untouched and by 2007, with demand for new

cars stymied by the crisis in US housing prices, the writing was on the

wall for the once great GM.

(Source: adapted from The Economist, 2009; Kollewe, 2009)

4.3: Scale and scope of change

None of the alternative perspectives on change which we have briefly

reviewed in the last section has a final claim to being accurate in all cases.

Rather, each may be true of different organisations, or even of the same

organisation at different points in its history. It is plausible, for example, to

imagine that a new company in a highly competitive industry will be better

attuned to external and internal factors (and more nimble in its response)

than a mature organisation which has become accustomed to doing things

and seeing things in a particular way. Our case study of GM in Case study

4.1 suggests that during the 1960s the company was too fixated on one

particular aspect of its external environment (anti-trust law) to pay attention

to the difficult issues of long-term liabilities and inefficient systems which

were storing up costs internally. Its very size and complexity condemned

GM to a pattern of incremental change punctuated by sudden lurches in

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direction to take advantage of external opportunities (such as the loophole

which made pick-up trucks a lucrative market), or react to perceived threats

(such as the clumsy early attempts at fuel-efficient models).

Whatever we end up believing to be the most reliable model of change, it is

helpful to consider the type of change required in a particular situation in

response to the elements, internal and external, that may both facilitate and

hinder the change process. In Block 1, Unit 2, in the overview of this block

on implementation, you were introduced to the matrix developed by Balogun

and Hope Hailey (2008). The matrix suggests four categories of change

based on the speed of the change (whether sudden or more gradual) and how

far-reaching its scope is.

As shown in Figure 4.1, the vertical axis (labelled ‘Nature of change’)

covers how swiftly the change is implemented. This ranges from ‘Big Bang’

where, usually following some kind of external crisis, change needs to be

implemented practically instantaneously. One could imagine this being true

of one of the sudden lurches in the punctuated equilibrium model. At the

other end of the scale is ‘Incremental’ change, where change stays firmly

within the boundaries of familiar operations. The horizontal axis (‘Scope of

change’) varies from ‘Transformation’ (involving a change in organisational

culture) to ‘Realignment’ (a less radical change which leaves the

organisation’s paradigm intact).

It is probably easier to handle change if it is incremental. This kind of

change will build on the skills, routines and beliefs of those already in the

organisation and thus should not require much intervention. In contrast, as

hinted at above, a more fundamental or ‘Big Bang’ type of change, which

goes beyond the scope of the existing paradigm, will require more

intervention. If the change requires members of the organisation to alter their

core beliefs or their accepted ways of operating, this represents a substantial


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Scope of change

RealignmentTransformation

Natureofchange

Evolution

Incremental

Adaptation

BigBang

Revolution Reconstruction

Figure 4.1: Types of strategic change

(Source: Balogun and Hope Hailey, 2008, p. 21)

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management challenge. In such situations, the organisation may have lost its

strategic focus, or become so complacent that the most appropriate strategy

is not implemented and opportunities are missed. This is what Johnson (in

Reading 5 in Readings for Blocks 5 and 6 which you will read in

Activity 4.1) means by ‘strategic drift’.

Strategic drift can be explained by errors arising from the failure to

implement the most appropriate strategy. It leads to a gradual divergence

between the rates of organisational change and environmental change.

Johnson argues that at first managers do not act upon this divergence,

because the discrepancies between environmental and organisational change

are too small to notice. Managers continue to take strategic decisions on the

basis that the historic strategies are still appropriate. In other words, they

take only the actions or measures that are most compatible with their

existing model of operation. You may recall from the previous unit, in the

discussion of Reading 4 of Readings for Blocks 5 and 6, Patrick Regnér’s

description of senior managers as focused inwardly on the industry and

organisation, engaged in deductive strategising where they run the risk of

being blinkered by their existing hypotheses about how the world works.

Such a limited perspective can increase the divergence between

organisational change and environmental change, until the organisation has

‘drifted’ away from its environment – together with the strategic thinking of

its managers. We have seen some evidence of this in Case study 4.1. There

is also a view that this is precisely what has happened in the big Japanese

consumer electronics companies such as Sony. They were very successful in

the 1980s and early 1990s, but seem to have gradually lost their competitive

edge since then, as the range of competition facing their industry has

broadened as we move further into the 21st century.

The notion of the paradigm also relates to variations along the scope for

change axis in Figure 4.1. It poses the question: can the proposed change

occur within the existing paradigm? If the answer is ‘yes’, then change can

be thought of as a realignment; if it is not, a more transformational change is

needed.

To summarise the types of change:

. Adaptation: change can be accommodated within the current paradigm

and thus occurs incrementally.

. Reconstruction: the change may need to be rapid-response but does not

fundamentally need a paradigm shift. This could be a turnaround

situation in a division or subsidiary whose performance has deteriorated

rapidly. It may be that a structural change or a cost-cutting drive will

deal with this situation.

. Evolution: the change will require a paradigm shift, but this can occur

over time and there is no real sense of crisis or emergency. This could be

thought of as a planned approach to change.

. Revolution: a response to a situation where major strategic change

requires a significant paradigm shift. Strategic drift may have reached a

point where evolution will not work and a radical rethink of market,

business model or value proposition is needed. The various crises

currently facing automobile manufacturers provide one example of this:

the paradigm of expansion and growth by building a product portfolio

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Black plate (12,1)

covering all sectors of the market, from ‘town cars’ to ‘muscle cars’ and

luxury cars, which spawned a series of acquisitions of such companies as

Jaguar, Volvo, Saab and Aston Martin, has given way to a cost-cutting

paradigm where such acquisitions are being sold.

How can strategists managing change get a view of whether or not the

changes can be accommodated within the bounds of the existing paradigm,

the better to facilitate them? The key to this question is to diagnose the

context of change.

4.4: Diagnosing the context of change

Balogun and Hope Hailey emphasise the context-specific nature of change as

they advise that ‘the design and management of any change process should

be dependent on the specific situation or context of each organisation. It is

dangerous to apply change formulae that worked in one context directly into

another’ (2008, p. 7). The first task for the strategic change agent is,

therefore, to analyse the external and internal contexts for change.

The external context is likely to be the more clearly understood of the two,

particularly if the strategy driving change has been occasioned by the

organisation’s reading of its external environment. It can be used to create a

sense of urgency in the face of hesitation by members of an organisation.

Ram Charan (2006) tells a nice story to illustrate this, concerning the change

programme instigated at the ailing US home improvements retailer Home

Depot in the early 2000s. Faced with competition from stylish new

competitors such as Lowe’s (an upscale home goods and furnishing chain

which was quickly gaining ground), the new chief executive, Robert

Nardelli, was urging immediate and radical change. However, ‘a comment

that was frequently made at some early open meetings for employees [was]

that the company needed to pace the changes being proposed – and

Nardelli’s quick response [was] “Good point. Give me five minutes. I’m

going to call Lowe’s and ask them to slow down for us”’ (Charan, 2006,

p. 69).

In addition to the question of timing, the following factors need to be borne

in mind when diagnosing the context of change. Some are external

contextual factors; others span the boundary of the organisation and its

environment:

. Preservation. What needs to be maintained? Look back to Unit 2,

Activity 2.5 (about Microsoft) and note that while change was required,

technical expertise and agility needed to be preserved.

. Power. Does the leadership have the power to effect change, or do

external stakeholders need to be consulted and/or informed? We can

think of institutional investors, corporate headquarters, government

agencies or departments as just some of the potential holders of power in

a change situation. This is in addition to the internal power structure

which may include several vested interests.

. Resources. Are the required resources, such as cash or people, available

to the organisation?


116

We return to the story of

Nardelli and Home

Depot later in Case study

4.2 of this unit.

Black plate (13,1)

. Some of these issues should, of course, be taken into account at the

decision-making part of the change process, once again reinforcing the

interrelationship between strategy, decision making and implementation.

The internal context is likely to be the one which has most importance for

the change agent, yet be imperfectly understood. We return to the notion of

the paradigm which, as we have argued in the previous section, sets the

parameters for the scope and scale of change necessary. In Unit 2 of this

block, we cited Edgar Schein arguing that strategists intent on change need

to achieve a deep understanding of the culture of an organisation: ‘the

essence of a culture lies in the pattern of basic underlying assumptions, and

once one understands those one can easily understand the other more surface

levels and deal appropriately with them’ (Schein, 2004, p. 36).

This ‘pattern of basic underlying assumptions’ is virtually identical to

Johnson’s paradigm. Now we move to how such an understanding can be

operationalised – by introducing as our tool of analysis Johnson’s framework

of the cultural web. As illustrated in Figure 4.2, this is a comprehensive way

of analysing the paradigm in an organisation which is also simple enough to

be of use to managers seeking to understand which elements of the

organisation’s culture might help, and which hinder, change. Johnson’s

elaboration of it in the reading which follows takes as its starting point the

question of what guides strategy in an organisation. His research leads him

to the conclusion that there is more to it than the commonly accepted view

of logical incrementalism (where managers advance strategy step by step,

aware of the limitations of what is possible, but moving in the same logical

direction). Instead he argues that the guiding light of strategic change is

organisational culture, and that it is possible to apply some precision to our

understanding of the relationship between the two by auditing culture

through the framework he calls the cultural web. This sees the paradigm as

constructed and held in place by six elements:

. symbols

. power structures

. organisational structures

. control systems

. rituals and routines

. stories and myths.

Some of these are more visible than others, but they are all capable of giving

precise clues to the paradigm. Johnson’s analysis has similarities with the

three levels of culture that Schein (2004) describes – those of observable

artefacts, shared espoused beliefs and values, and, finally, the basic

assumptions which underlie them – but Johnson offers a practical guide to

investigating culture in an organisation.

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Activity 4.1: Exploring strategy, culture and action


Purpose: to read and take notes on Reading 5 of Readings for Blocks 5 and

6, ‘Managing strategic change – strategy, culture and action’ by Gerry

Johnson

As you read Johnson’s paper, annotate Figure 4.2 with more detailed notes

about each of the elements of the cultural web, based on your own

experience of a particular organisation.

Feedback

Your response to this activity will clearly depend on the organisation you

chose to focus on. I have annotated the figure to create Figure 4.3 which

refers to a company where I once worked.

The company had a very strong historical tradition of being a good employer,

but had become slightly paternalistic in its approach (even down to having

three different grades of staff restaurant frequented by different grades of

staff). In terms of power, there was intense rivalry between the two marketing

directors who between them oversaw a portfolio of famous brands, but were

united in their antagonism towards the sales directors. Informal groupings

were extremely important in the power structures. There was a rumour, for


118

Storiesand myths

Symbols

Rituals androutines

ParadigmPower

structures

Controlsystems

Organisationalstructure

Figure 4.2: The cultural web

(Source: Johnson, in Segal-Horn, 2002)

Black plate (15,1)

example, that many careers had prospered through membership of the

company’s amateur dramatics society, of which one of the marketing directors

was a leading light. One of the most important forms of control was what your

colleagues thought of you – the culture looked down on pushy individuals,

preferring team players. Rituals included an annual cycle of planning

meetings in conjunction with the company’s advertising agencies, and equally

regular rounds of parties and social events. Because of the age of the

company, it had no shortage of stories and myths. A previous marketing

director, for example, had been a great source of new product ideas, many of

which had apparently been direct imitations of similar products he had

encountered on his travels and thought were a good idea. The overall

paradigm was that the company was a nice place to work if you fitted in.

However, it eventually became a takeover target – perhaps because investors

felt it was not as aggressive strategically as it needed to be in its market,

which had become a lot more competitive than the company liked to admit.

Here is a convenient summary of the elements of the cultural web before we

move on to an example of how it can be used in practice:

. The paradigm is the set of assumptions about an organisation which is

held in common and taken for granted within the organisation.

. Power structures apply to the most powerful managerial groupings in the

organisation. These are likely to be the ones most strongly supporting the

organisation’s existing core assumptions and beliefs.

. The organisational structure is likely to reflect the power structures,

highlight key internal relationships and emphasise what is important in

the organisation. It will include both formal structures and more informal

systems and norms.

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Stories and myths• Legendary marketingdirectors of the past• Advertising heritage• Company ethos

Symbols• Different dining areasfor different staff• Factory and officeson the same site• Corporate identity

Rituals and routines• Brand reviews• Annual plans• New pack schedules• Office parties

Paradigm• Old-fashioned

values

Power structures• Board of directors• Rival marketingdirectors• Informal groupings

Control systems• Budgets• Moving annual totals(volume and revenue)• Staff appraisal• Peer esteem

Organisationalstructure• Brand groups• Sales force• Production• Finance

Figure 4.3: An annotated cultural web

Black plate (16,1)

. The formalised control systems are measurements and reward systems

that monitor and focus attention on the activities that the organisation

values and considers important.

. Routines are ways in which members of the organisation behave towards

each other, and which link different parts of the organisation. In some

organisations everyone addresses everyone else, regardless of seniority,

by their first names. In other organisations such informality would be

unthinkable. Some organisations ban any memos of more than one page;

in others, the length of a report is regarded as a significant part of its

quality. Such routines are particularly difficult to change.

. The rituals of organisational life reinforce the ‘way we do things round

here’ and consist of special occasions and events that signal what is

especially valued. They may include things like collecting money for

presents whenever a member of the organisation has a new baby, or

alternatively they may be about always working late at night and at

weekends because everybody else does.

. The stories told by members of the organisation to each other, to

outsiders, to new recruits and so on, embed the present in its

organisational history and flag up important events and personalities as

well as mavericks who ‘deviate from the norm’. They legitimise certain

sorts of behaviour. An example of such a tale, as might be told to new

police recruits, might be the officer who stopped a speeding motorist and

ended up escorting the car to hospital to get a woman in labour to the

delivery room in time. These stories may not be actually true (i.e., they

may be myths), but their power lies in what they are telling members of

the organisation about what matters.

. Other symbolic aspects of the organisations include logos, offices (big,

small, private, open-plan), cars or car parking spaces, job titles, or the

type of language and vocabulary commonly used. These symbols become

a shorthand representation of the nature of the organisation.

The six separate elements of the cultural web all contribute to determining

the nature of the organisation’s paradigm (core identity). The three ‘soft’

(intangible – symbols, stories and myths, and rituals and routines) and the

three ‘hard’ (tangible – power structures, organisation structure and control

systems) elements of the cultural web together capture life in any

organisation. All six elements enable us to discover and understand the

nature of its individual paradigm. It is very important to note that in most

change programmes all the effort tends to be directed towards the three

‘hard’ areas, partly because they look easier to change. However, you will

recall that Johnson tries to show in Reading 5 that the only way to really

change an organisation is to address the three ‘soft’ areas, which is

obviously a great deal more difficult. Box 4.1 gives an example of a

practical application of the framework in the context of changes in a public

sector organisation.


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Box 4.1: The power of the paradigm in action

A strategy workshop brought together departmental managers from a

local authority to explore the cultural barriers to implementing a new

strategy focused on the needs of local users. The managers split into

departmental groups, each with a blank cultural web diagram. The task

was to complete it with reference to their department. The Technical

Services Department diagram (see Figure 4.4) revealed the following:

. there was a strong commitment to high-quality service, but led by

professional standards rather than a commitment to user satisfaction

. there was little or no communication between departments, whose

chief officers worked closely with the elected members of the local

government rather than each other

. the management style was hierarchical and mechanistic, with a

strong emphasis on structuring and budgeting

. the service provided to users was reactive rather than proactive

. there was a blame culture.

Stories and myths• Leadership style• Characters• How thingsused to be

Symbols• Reserved parking• Back door for staff• Dress code

Rituals and routines• Committees• Formal induction• Deference• Blame someone

Paradigm• Good service• Professionalstanding• Problem solvers

Power structures• Chief Officer• Triumvirate• Committees• Elected members

Control systems• Budgetary• Service plan• Complaints• Contract compliance

Organisationalstructure• Functional• Hierarchical• Autocratic• Devolvedbranches

Figure 4.4: The cultural web of a local authority

The workshop concluded that ‘culture was managing strategy’, so that

the current culture would be unable to sustain the future strategy. The

current culture emphasised the maintenance of high professional

standards but not necessarily the needs of users. Yet user need was the

key point of the authority’s new strategy to address local issues, which

would require cooperation across departments. The group then identified

barriers to change. These included: firefighting, departmental barons,

the formality of management, stories of the good old days and the

blame culture. The managers re-mapped their cultural web with

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behaviours that would be needed to support a new strategy. The team

then compared the two cultural webs, identified the changes that would

be required, assessed how difficult it would be to manage those

changes and identified those changes that would have a high impact.

Clearly a major paradigm shift was needed if the strategy was to move

from being a statement on paper to become a reality. The departments

needed to move from a strong internal belief in high-quality service to a

focus on the customer, rather than maintaining a professional definition

of ‘good’ service with an emphasis on cooperation across departments.

The following list summarises the necessary changes aligned with their

positions in the cultural web framework:

. Structure: there was to be a change from a strong departmental or

‘silo’ mentality towards more short-term project teams or task groups,

accompanied by a move away from hierarchy and bureaucracy

towards flatter structures, to improve communication.

. Power structure: devolved power would replace the hierarchical

reporting lines reinforced and preserved by budgetary controls and

committees.

. Symbols: rather than allocating car parking spaces according to

office rank, there would be a system based on need.

. Stories: stories based on assigning blame needed to give way to

ones praising actions supporting the new paradigm. There was to be

an emphasis on success and not failure.

. Ritual: senior officers were to work directly with customers and staff,

creating opportunities for listening rather than telling.

. Systems: there was to be a move away from budgetary control to

business plans. Direct feedback was to be sought, via customer

surveys.

(Source: adapted from Johnson, 2001; Cabinet Office, 2004)

Activity 4.2: Change through engagement with stakeholders


Purpose: to explore the mechanism of cultural change in a non-profit setting

Please access the course website to watch the media clip which forms the

basis of this activity (Thomson, 2009a).

This clip features an interview with Wendy Thomson, the former head of the

UK Office of Public Services Reform.

As you view the clip, try to relate the strategic shift and the mechanisms used

in Box 4.1 to some of those identified by Thomson.




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Feedback

Thomson emphasises the importance of having a simply expressed vision

that can be easily communicated (reminding us of Sanjiv Ahuja in Block 1,

Unit 1). More important from the point of view of the scenario outlined in

Box 4.1 are the practical mechanisms she developed to create a more

listening and responsive organisation: the use of stakeholder surveys,

bringing together staff and customers and even sending senior managers

(and herself) out on to the streets of the borough to interview and visit the

client/customer base. She found that this had perhaps had the most dramatic

impact on the attitudes of the staff towards achieving their new strategy.

One of the potential implications of achieving change as revolutionary as

those depicted in the examples we have offered is that in cases needing

radical change, organisations may need to be prepared to throw everything

away and start from scratch. The phrase in common parlance is that there is

a risk of throwing the baby out with the bath water. Yet this need not

necessarily be the case. Some parts of the existing cultural web may actually

facilitate the changes or support the new paradigm. This is why a thorough

cultural audit is necessary as part of the analysis of the internal context for

change. As you will recall from Unit 1 of this block, Hickson et al. (2003)

have identified a number of factors whose presence facilitates change. They

include acceptability, receptivity, structural facilitation and priority – all of

which are closely related to elements of the cultural web (for example,

power and organisational structure can offer structural facilitation; control

systems and rituals can support acceptability; stories, myths and symbols

promote receptivity and priority). The next activity explores the way in

which strategic change agents can press existing cultural factors into service

to support their plans.

Activity 4.3: Hang on to what is good in times of change


Purpose: to explore positive levers for cultural change through a real example


basis of this activity (Thomson, 2009b).

This clip features another interview with Wendy Thomson, the former head of

the UK Office of Public Services Reform.

As you view the clip, reflect on what Thomson ‘hung on to’ when initiating

strategic change at the NGO Turning Point.



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Feedback

Turning Point’s relationship with its major stakeholder had shifted towards a

more commercial ‘business’ orientation. But Thomson was conscious of the

qualities that the staff had developed for dealing with those who needed care

in the community under the old paradigm – and it was these very qualities

which she needed from them if she was to deliver under the new funding

regime.

She really does use the metaphor of the baby and the bath water to describe

the danger of trying to change her workers into ‘grey-suited executives’ rather

than people who could relate to clients at street level. As she puts it at the

end of the clip: ‘You really need to build on and recognise the assets and the

strengths of the culture that was there and just add what was necessary.’

4.5: Managing cultural factors related tochange

We began this unit by reflecting on the overlap between theory relevant to

strategic change (i.e., change resulting from or implicit in strategy) and

micro-level operational change. An influential change theorist whose work

you may well have encountered in your studies before this course is Kurt

Lewin (1890–1947). A pioneering American social psychologist, Lewin is

credited with the ‘three-stage’ theory of change, which involves unfreezing a

situation, effecting change and refreezing it – a rule of thumb which can

help managers think through change at a number of levels (though, like all

simple theories, it needs to be used reflectively). The theory also implies a

belief in change as something episodic that can be planned for. As we have

indicated earlier in this unit, this perspective risks underestimating the

complexities of organisational life, but it can still be a useful way of

structuring one’s thinking about the process implied in a particular change.

Lewin’s 1951 book Field Theory in Social Science contains the concept of

‘force field analysis’, which is highly relevant to any consideration of how

to put into practice the insights gained from a cultural audit using Johnson’s

cultural web framework. Lewin’s book provides a framework for looking at

the factors (forces) that influence a situation and keep it in equilibrium. As

someone writing from the background of social science, Lewin was

originally addressing social situations. He interpreted society as the result of

many forces in tension (and in some respects in conflict), which created a

delicate balance or equilibrium. Any change in the relative power of the

forces involved would result in a change in the equilibrium as the social

forces came to a new resting place representing the new balance of power.

Applied to the social setting of an organisation faced with strategic change,

as in Figure 4.5, force field analysis helps us to recognise forces that are

either driving movement towards change (helping forces), or blocking

movement towards change (hindering forces). Forces can vary not only in

direction, but also in strength. Having identified the forces in play in a

situation, the next step is to prioritise which ones to deal with (as did the

managers in the local authority example in Box 4.1).


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In our context this analysis allows three key questions to be asked:

. What aspects of the current cultural web might aid change?

. What might block change?

. What needs to be introduced to aid change?

Activity 4.4: Force field analysis in practice


Purpose: to practise force field analysis with reference to a real life example

Look back at the strategy workshop in Box 4.1 and try to identify three forces

that help change, three that don’t, and three that might need developing.

Feedback

You may have had to make some assumptions in your answer (given the

brevity of the case), but check it against this list:

Those that are pushing for change could be:

. commitment to high-quality service

. hardworking ethos

. devolved services.

Those resisting change could be:

. departmentalism

. departmental heads maintaining power bases

. formality of the control systems

. blame-giving stories.

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Weak forceWeak force

Weak force

Weak force

Strong force Strong force

Equilibrium

Medium force

Figure 4.5: Force field analysis

(Source: adapted from Lewin, 1951)

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Those that may need development:

. direct feedback from customers

. listening executives

. talking about success

. symbols of sharing, not status

. business plans, not budgets.

The human side of change

Sheila Tyler (2007, p. 219) identifies three groups of people involved in

managing change of any sort:

. change strategists or initiators, who initiate and set the direction of

change

. change implementers, who are responsible for the coordination and

implementation of particular changes

. change recipients, who are strongly affected by the change and its

implementation.

While this categorisation has some appeal to common-sense notions of how

change might be organised, it runs the risk of ignoring the inevitable overlap

between strategic change, implementation and their consequences. Even

though certain individuals are likely to be specifically tasked with devising

or leading change, initiators, implementers and recipients might be better

considered as separate aspects of the same people in organisations rather

than necessarily as separate groups. In any social system, such as an

organisation, no single member can stand outside as if they are detached

from what is going on. Thus even change strategists, who might consider

themselves above the business of implementation or reception of change, are

inevitably implicated in both. In Reading 1 of Readings for Blocks 5 and 6,

Laurence Hrebiniak counsels against a lack of integration between strategy

and implementation, as you will remember from Unit 1 of this block. The

same principle holds true for strategic change.

In Unit 3 of this block we identified and discussed the roles that middle

managers can and do play in implementation. Unsurprisingly, given their

prominence in implementing strategy, they also have a vital role in

facilitating and managing strategic change. ‘Change agents’ (a term

originally associated with Igor Ansoff) can come from any level within an

organisation. Senior executives may envisage their role as driving down

change from the top, but leadership can take many forms and guises in the

managing of change. Furthermore, because strategic change involves

managing complex transitions at the same time as keeping the organisation

running, the formation of ad hoc organisational structures and/or the

engagement of external consultants is common. Whatever the organisational

form adopted to handle change, however, the key elements centre on

communicating clear and simple messages and/or visions of the future state

of the organisation, as we shall observe in the next activity.


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Activity 4.5: Change is simple


Purpose: to reflect on a practitioner model of change


basis of this activity (Strachan, 2009).

The clip features an interview with James Strachan of the UK’s Audit

Commission.

As you watch, note the steps that Strachan identifies and consider – in the

light of what we have been discussing about managing strategic change –

whether or not these steps are indeed that easy. You might also wish to note

what he has to say about the role of top managers in leading change.



Feedback

Strachan identifies four steps:

1 Have a crystal clear vision of where you want to be, be able to paint a

convincing picture of the promised land and communicate it.

2 Get the right people around you. This may be a way of dealing with any

resistance to change (which we shall explore a little later).

3 Delegate to others, but remember that the buck stops with you.

4 Praise success.

To some extent this clip is about setting the direction and the climate for

change, rather than engaging with the detailed aspects of the cultural web

which we have been discussing. Strachan’s perspective on change is one of

top managers leading not by command or coercion but by communicating a

direct and simple message.

In contrast, middle managers can be thought of as translators of strategy,

developing adjustments and reinterpretations. They can act as advisors to

senior managers and mentors to more junior staff.

As suggested in our brief review of research findings on middle managers

and strategy in Unit 3 of this block, such managers may contribute to

galvanising commitment to the change process, or they may block it and thus

reduce commitment.

Resistance to change

Generally speaking, change in organisations is uncomfortable and unsettling,

even when it is necessary. Human beings tend to prefer a stable environment

and familiar routines – hence the concept of the ‘comfort zone’ out of which

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we are reluctant to be taken. As a result, attempts to instigate and manage

strategic change frequently encounter resistance. In Unit 1 of this block,

Activity 1.4 looked at the way in which John Roberts of United Utilities led

a three-and-a-half year process to make his organisation more customer-

orientated, less bureaucratic and more focused on results. This involved

enlisting the help of external consultants to run a programme which reached

every one of the organisation’s 4,500 employees. Naturally some of them

were less keen than others on changing their way of doing things. The next

activity returns to Roberts commenting on the resistance he encountered.

Activity 4.6: The last 15 per cent


Purpose: to reflect on resistance to change with reference to a specific case


basis of this activity (Roberts, 2009).

This clip features an interview with John Roberts, former chief executive of

United Utilities.

As you watch the clip, note what Roberts says about the source and

motivation of resistance to change in his organisation.



Feedback

The media clips for this block have often implied resistance to change, but

Roberts is very explicit about it here.

He goes so far as to group employees into three distinctive categories: those,

say 15 per cent, who support the change; another 15 per cent who are

opposed to change, and the other 70 per cent, who are passive, i.e., neither

supporting nor actively resisting. He stresses the importance of getting the

‘passives’ onside, thus securing an 85 per cent majority, which is probably

about the best that can be hoped for.

Different paces and patterns of change give rise to different kinds of internal

and external difficulties and constraints that act as sources of resistance to

change. Some examples are given in Table 4.1. As can be seen, change or

the threat of change can heighten individuals’ insecurities about losing their

jobs, expertise or career position as a result of new strategic directions. The

organisation as a whole can be a source of different kinds of blockages,

which may be direct or indirect in nature. To emphasise this point, Box 4.2

highlights the resistance to change created by key stakeholders during a

controversial merger.


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Table 4.1: Resistance to change

Internal resistance (individuallevel)

Internal resistance(organisational level)

Externalresistance

. Fear of failure

. Ignorance

. Loss of jobs or careerstatus

. Inertia

. Uncertain consequences

. Reduction in personal roleand influence

. Board members

. Culture

. Structure

. Sunk costs

. Limited resources

. Beliefs and recipes

. Investors

. Suppliers

. Collaborators

. Regulators

. Media

. Politics

(Source: adapted from Whipp, 2003, p. 259)

Box 4.2: The HP/Compaq merger: the stakeholdersdecide

The 2002 merger between computer giants Hewlett-Packard (HP) and

Compaq received tremendous press coverage not so much because of

the fact that together they would represent the world’s largest PC

volume manufacturer, but because of the colourful power struggles

between stakeholders from both sides in determining the outcome of

one of the biggest acquisitions in the computer industry.

In 1999, Carly Fiorina was appointed as the CEO of HP with a mandate

for radical change. HP was struggling to keep its competitive position.

Her plan to take HP out of the doldrums centred on a merger with rival

Compaq. Together she saw the two of them having the potential to

transform into a computing powerhouse that could provide end-to-end

product and services.

Despite such prospects, the investors were not impressed. HP’s shares

drooped as soon as the acquisition was announced. Investors doubted

the credibility and quality of Compaq’s products, and worried about the

difficulties of integrating two such large businesses. Fiorina worked hard

to convince the majority of the institutional shareholders to support the

merger. Just when she thought that the deal would go ahead, Walter

Hewlett, a board member and son of HP’s co-founder, publicly

announced his opposition to the deal. His actions gradually influenced

all of the HP board. As uncertainties grew the merger began to look

increasingly shaky, and a public battle between Fiorina and the board

opened up.

Fiorina, however, was determined that the deal would not fall apart. She

convinced the non-executive board members to speak in her favour, and

eventually they were powerful enough to dismiss Walter Hewlett’s

objections. She also carried out an internal poll which showed the

majority of staff supported the acquisition. Fiorina’s change proposals

were finally approved, but the deal had been deeply threatened because

of failure to gauge the commitment of the key stakeholders.

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At first the completed merger appeared to have been a great success,

vindicating Fiorina’s passionate advocacy. However, subsequent

reporting periods revealed that the underlying weaknesses which had

led HP to consider this radical step had still not gone away. In spite of

early promise, the Compaq acquisition failed to deliver the profits or

shareholder value Fiorina had banked on. In 2005, after a six-year

tenure of office, she was invited to a strategy review meeting with the

board. It unexpectedly turned into a highly critical indictment of her

leadership style and the misfiring merger. After a shock dismissal she

walked away with a $21 million settlement. HP’s share price rose

several points at the news. Fiorina has now forsaken business for

politics.

(Source: adapted from Balogun and Hope Hailey, 2004, p. 90; La

Monica, 2005; Corn, 2008)

Box 4.2 indicates that obstacles can be thrown in the way of a CEO’s

ambitions from many sources, in this case her own board. There were clearly

internal political forces at work here that we cannot fully understand as

outsiders, but it is tempting to speculate about the motivation behind the

board and Hewlett family’s objections.

In this case we might be inclined to infer that the opposition had something

to do with preserving the reputation that HP had built up for the technical

excellence of its product line. There might very well have been a fear that

Compaq’s products, about which there had been rumours of concern, would

not match HP’s stringent performance requirements and thus dilute the

brand. This would in turn have a knock-on effect on financial performance

and thus share price – a key external stakeholder measure. In cultural web

terms, Fiorina’s proposed change ran foul of power structures (the family

and board) and the stories and myths with which they were bound up. She

managed to push the change through nevertheless, but was held ruthlessly to

account for its failure to deliver by those who had originally opposed it.

Ironically for a business leader turned politician, organisational politics were

responsible for bringing her down.

Power and politics as factors in change

This leads us conveniently to a consideration of power and political activity

as legitimate levers to manage change. You may recall that in Block 3,

Unit 6, in introducing the impact of power and political action on strategic

decision-making behaviour, we reproduced the following quotation:

Politics are the observable, but often covert, actions by which

executives enhance their power to influence a decision. These actions

include behind-the-scenes coalition formation, offline lobbying and

cooptation attempts, withholding information, and controlling agendas.

Politics contrast with the straightforward influence tactics of open and


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forthright discussion, with full sharing of information, in settings open

to all decision makers.

(Eisenhardt, cited in Schwenk, 1995, p. 476)

In simplistic terms, power stems from the basic division of labour that exists

within and between organisations. This statement hides many complexities,

but the basic point is fairly straightforward in that the (inter)dependencies

created result in differential access to or control of essential resources. This

means that the controlling unit or stakeholder can supply the essential needs

of other units and thus enjoys a dominant relationship over them.

Understanding the power structure element of the cultural web is crucial for

any change agent if they are to successfully manage change. If they seek to

shift the existing network of dependence relations they will more often than

not encounter active rather than passive resistance. Maybe that is why in the

clip for Activity 4.5 above Strachan suggested ‘changing people’ as a second

step in managing change.

Activity 4.7: Power play


Purpose: to reflect on power and political action as resources for managing

change

Make brief notes listing some potential actions (besides firing people!) that

would enable you, in a situation of your choice, to cope with or break down

resistance to change by using power or political levers.

Feedback

Your answer to this activity, as an effective change agent in the making, will

be specific to the context of the change you are considering. You could,

however, try the following tactics, although a couple of them depend on top

management support – which appears to be a critical lever for change:

. reallocate resources

. initiate top-management-led structural change

. associate with respected outsiders such as consultants or institutional

investors

. foster confusion and initiate public questioning.

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4.6: A model for implementing strategicchange

We end this block on implementation by completing our reading of the paper

from Hrebiniak (Reading 1 of Readings for Blocks 5 and 6) with which we

started Unit 1 of this block. In the earlier part of the paper, which you read

as part of Unit 1’s first activity, Hrebiniak identifies several obstacles to

implementing strategy or managing strategic change. He argues that

managers need a more explicit guideline to help them implement effectively.

The remaining part of the reading sets out a model for implementation which

he offers as such a guideline.

Activity 4.8: Reading 1 revisited


Purpose: to complete reading and note taking on Reading 1, ‘Obstacles to

effective strategy implementation’ by Laurence Hrebiniak

At this point you should complete your reading of the Hrebiniak paper

(Reading 1) introduced in Unit 1 of this block. Start reading at the section

beginning ‘Overcoming the obstacles and implementing strategy

successfully’, and read to the end of the article.

As you read, summarise the model Hrebiniak offers in about 300 words,

making links as appropriate with other concepts we have explored in this unit

on managing change.

Feedback

Hrebiniak’s model of execution embraces levels of corporate and business

strategy and structure, looks at incentives and controls, and gives examples

of strategy implementation.

He identifies size of change and time available for change as critical

variables. In this unit we have evoked these ideas in our discussion of

Balogun and Hope Hailey’s (2008) matrix plotting scope of change (similar to

what Hrebiniak calls size of change) against nature of change (similar to what

Hrebiniak sees as the time available). These ideas we have elaborated and

developed in this unit by using Johnson’s notion of the paradigm alongside

Balogun and Hope Hailey’s model to create a framework for diagnosing and

managing change.

Hrebiniak also distinguishes between what he calls sequential and complex

change, ideas which parallel the differences between incremental and more

radical change discussed in the second section of this unit.

Interestingly, his contextualisation of the implementation process within the

four factors of change management, culture, organisational power structure


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and leadership also offer parallels to issues raised by the cultural web in this

unit, as well as themes dealt with elsewhere in this block.

Hrebiniak’s model (Figure 4.6) draws attention to the relationship between

corporate and business strategy – which you will remember was a focus of

Block 3, Unit 5 (referred to there as corporate and competitive strategy). He

emphasises how there is a logical sequence to thinking through the

practicalities of implementing strategic change, which begins with an

awareness of what the corporate strategy is, and how strategy at a business

unit (or competitive) level needs to contribute to it. He takes as his example

the way in which corporate strategy is often concerned with the allocation of

resources across a group of business units in order to be able to compete in

chosen markets. This involves the generation of income in individual

businesses which will be allocated as investment in other parts of the

corporate whole (referring to the familiar idea of ‘milking’ a cash cow). If

the individual businesses do not conform their competitive strategy to this

overall plan, the corporate strategy will not survive.

He also describes a parallel process within business strategy itself as longer-

term goals are broken down into shorter-term objectives, which can be

measured. Hrebiniak’s use of the term ‘metrics’ in this context is reminiscent

of the familiar mnemonic for articulating objectives: they should be SMART

(Specific, Measurable, Agreed, Realistic and Timed).

Hrebiniak underlines the key relationship between strategy and structure

which you will remember as a focus of Unit 2 of this block. He goes further

than reminding us that structures can facilitate or block strategic intentions

by highlighting the role of integration within and between structures. This is

similar to the ‘O for organisation’ in Jay Barney’s account of internal

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Corporatestrategy

Corporatestructure/integration

Business strategyand short-term

operating objectives Businessstructure/integration

Incentivesand controls

Figure 4.6: A model of implementation

(Source: Reading 1 of Readings for Blocks 5 and 6)

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sources of competitive advantage (Reading 5 of Readings for Blocks 1 and

2). Without the facility of lateral communication and the ability to manage

across organisational boundaries, implementation efforts are likely to

encounter frustration.

The final element of the model – incentives and control – reduces the

strategy to the individual level (having taken it through the corporate and

business ones). Here is an example of a strategic model which does, for

once, include people. Hrebiniak points out that unless workers’ individual

goals can be aligned with those of the organisation through appropriate

incentives (or indeed sanctions), strategic change is unlikely to get very far.

The empirical research into implementation on which his model is based

comes to similar conclusions to those of Regnér (Reading 4 of Readings for

Blocks 5 and 6) on the vulnerability of strategy to indifference or subversion

at an individual level.

Hrebiniak is also acutely aware of the importance of feedback in the process

of implementation, though (as he acknowledges) it could be more explicitly

represented in his model. You might want to consider how the model could

be better drawn in this respect – perhaps with additional arrows leading from

the ‘Incentives and controls’ element back to the ‘Business strategy…’ and

‘Corporate strategy’ elements to suggest how learning from implementation

needs to be incorporated into the formulation of ongoing and future strategy.

Case study 4.2, concerning strategic change in an American home

improvement retail chain, gives us a chance to reflect on the validity of

Hrebiniak’s model. As described by Charan (2006), the process in question

corresponds to what Hrebiniak terms ‘complex’ change, as the incoming

CEO was convinced that time was fast running out if the organisation was to

be prevented from going into reverse.

Case study 4.2: Strategic change in Home Depot

Home Depot, the world’s largest home improvement retailer, first opened

its doors in Atlanta, USA in 1978. By the end of 2000, it had grown to

more than 1,100 ‘big box’ warehouse-style outlets with a turnover of $40

billion, making it the fastest-growing retailer in history. The company’s

recipe for its early success was based on stores that looked and felt like

warehouses rather than showrooms, with lots of stock and crowded

aisles on the ‘pile it high, sell it cheap’ principle. This unsophisticated

display style went along with low prices and a great deal of local

autonomy for store managers to respond to what they saw as market

demand in their particular locality. Managers were encouraged to spend

time on the shop floor with customers rather than engaging with

communications or policy from head office. The company’s founders,

Arthur Blank and Bernie Marcus, set a tone of informality,

entrepreneurial flair and healthy disrespect for hierarchy. The resulting

company culture was ideal in the exciting period of rapid expansion

which characterised Home Depot’s first 20 years.

By the year 2000, however, conditions had changed. Blank and Marcus

were ready to retire, new competition had entered the market, growth

was inevitably slowing and the downside of the company’s famously


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freewheeling corporate culture was beginning to show. As it had

mushroomed in size, the company began to realise that a stronger

central organisation was becoming necessary to avoid confusion and

missed opportunities. For example, if a regional buyer struck a deal with

a supplier to offer feature displays in return for a company-wide

discount, it was not unknown for individual store managers to take the

discount but not allocate a special display because they had other

plans. This clearly compromised the business’s ability to negotiate

effectively. Furthermore, Home Depot’s decentralised structure meant a

lack of integrated staff development systems and career pathways. As a

result, managerial talent was defecting to other employers or being

wasted. A third problem lay in the fact that the focus on individual

autonomy and high-volume sales was eroding the profitability of the

business. Home Depot simply was not achieving the economies of scale

expected for a company of its size.

The board’s answer was to recruit a new chief executive officer, Bob

Nardelli, in December 2000. Against the grain for a company which had

traditionally made a point of promoting from within, Nardelli came from

General Electric (GE), where he had recently been passed over for the

job of CEO. He had no experience of consumer business or retailing,

having spent his entire career in the power-generation business dealing

with large corporate customers and government. What he did have,

however, was a clear strategic vision with three elements:

. to improve profitability

. to diversify into related services such as equipment hire and home

installation of Home Depot products

. to increase market coverage, taking the Home Depot offer to new

customer groups such as major construction contractors.

He also brought with him his colleague Dennis Donovan from GE to

head up the human resources function at Home Depot. Nardelli

recognised that in order to realise his strategic intentions for his new

company, its famously strong culture would be an essential element of

the change process – making a focus on people crucial to success.

Nardelli’s plans for Home Depot rested on its ability to take advantage

of its size. Some functions, such as purchasing, would have to be

centralised – leading to a decrease in autonomy for individual stores,

but an overall increase in margins. Merchandising and display needed

to be sharpened up. Cluttered aisles and minimal signage were looking

tired against the slick decor of new competition such as Lowe’s (which

had entered the market after Home Depot, with brighter stores and

fashionable home furnishing items, in search of upscale, female

shoppers). Training needed to be stepped up. The store assistants

needed to add detailed product knowledge to the cheery approach that

had helped the business grow so fast. Nardelli commented that: ‘What

so effectively got Home Depot from zero to $50 billion in sales wasn’t

going to get it to the next $50 billion.’

A central plank in the strategy was to establish and share standardised

performance measurement systems throughout the company. Managers

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who had hitherto relied on their entrepreneurial intuition now had to

come to terms with systematic data. Individuals had to pull together to

achieve company-wide targets, not see their stores as independent

fiefdoms separate from the centre. The game was no longer about

short-term sales figures, but longer-term profitability.

Unsurprisingly, these changes met with strong opposition. In his first

year Nardelli accepted the resignations of a number of the top executive

team. Others saw the sense of the new strategy, given the way the

business needed to avoid stalling and stagnation. For the rest of the

company, Nardelli and Donovan concentrated on challenging the

existing paradigm and how it affected staff behaviour, beliefs, social

interaction and decision making. Realising the importance of people to

the company’s present and future success, the changes took account of

psychological as well as operational factors. They focused on four key

areas of innovation:

. metrics (on the principle of ‘what gets measured gets done’)

. processes (the systems which both facilitate and constrain action

towards overall company goals)

. programmes (which provide a tactical framework for change in key

areas)

. structures (which are shaped by, and help shape, new strategy –

particularly by re-concentrating decision-making power from one part

of an organisation to another).

Nardelli and Donovan’s new metrics confronted the managers with the

uncomfortable truth that aspects of the business they had taken for

granted were not going as well as they had assumed. Customer

perceptions of store layout and decor, which had been assumed to be

fine, revealed significant dissatisfaction. Staff appraisal, previously an

informal and subjective process which varied between stores, was

standardised with clear performance measures. The result galvanised

managers into a more positive approach to areas of underperformance

previously glossed over. A third, crucial, effect of company-wide metrics

was to sharpen everyone’s sense of the importance of profitability and

what they could do about it. Managers who, in the glory days of the

early expansion, had focused exclusively on sales volume, now began

to see the importance of margins, stock levels, cash flow and other

performance indicators at a store, regional and company-wide level. The

psychological effect was to get managers to pull together, rather than

act as individual entrepreneurs.

The processes which Nardelli put in place to embed his new culture

included a strong focus on communication. Monday mornings were

devoted to a regular two-hour conference call with the senior

management team across the company. Individual reports at these

meetings led to increased accountability and a clearer sense of

priorities. Monday afternoons then featured a simultaneous videocast to

all 1,800 Home Depot stores to make sure everyone was aware of

upcoming promotions, new product introductions and sales targets for

the period in question. Resource allocation across the company was

formalised into an annual eight-day meeting of top executives to


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hammer out which initiatives needed funding on the grounds of having

the best chance of achieving corporate revenue targets in a three-year

cycle. Known as SOAR (Strategic Operating And Resource planning),

this encouraged the executives to think about the future (rather than

being reliant on their past experience) and to collaborate rather than

defend their personal empires. Process reforms also included a radical

review of HR operations in the company, to change the way people

were recruited and developed internally.

Programmes included a major scheme of educating managers on why

the changes were necessary. As we have already indicated, a

considerable number of senior managers left the company as an

immediate consequence of Nardelli’s arrival. But there were still many

managers at different levels who were opposed to change even 18

months into his period of office. Their concerns seemed vindicated by

negative press coverage, which noted the fall of the company’s share

price to $20 from a pre-Nardelli peak of $70. To some extent this was

the working out of trends which Nardelli’s strategy was in place to

counteract. It also reflected the slowdown in the home improvement

market accompanying the economic uncertainty of the beginning of the

decade (do-it-yourself is notoriously sensitive to movements in the

economy, house prices and consumer confidence). Dennis Donovan set

up a programme of five-day workshops for district and store managers

(nearly 2,000 people in all) and got them to role-play the decisions that

the board was taking under Nardelli’s influence. This participative

process impressed on them that the strategy made sense, and helped

reinforce grassroots support across the organisation. At a more detailed

level, new programmes included introducing a bar-coding system for

stock control. The executive responsible canvassed the views of depot

staff whose jobs would be affected by the change, and even spent a

shift working alongside them to get a deeper understanding of the tasks

involved in receiving goods in.

Structural change was a further necessity for the new strategy. Nardelli

inherited nine separate divisional purchasing offices, often with different

arrangements in respect of the same supplier. Decentralisation had

been the hallmark of the Home Depot culture when it had been a

network of 200 stores, but at nearer ten times that number potential

economies of scale in purchasing were being wasted and the company

risked looking mildly chaotic to its supply chain. Introducing a new

structure was difficult, given the complexity of the current arrangement

and the separate hierarchies of jobs it had spawned. Nardelli tasked

Donovan with the project of reorganising purchasing on a central basis,

and insisted it be concluded in a 90-day period. This timescale

culminated in a crucial weekend meeting bringing 60 top executives

from the regions and divisions to company headquarters in Atlanta for a

final morning of intense negotiations and appointments to the new

structure, which was announced the following Monday.

Not all of Nardelli’s strategic initiatives were as successful. The new

metrics included a focus on stock levels, and store managers were

exhorted to improve their stock turnover figures so that less money was

tied up in excess stock on the shelves. Unused to managing stock using

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the kinds of forecasting tools which had been second nature to

managers in GE (Nardelli’s previous company), Home Depot managers

responded crudely by cutting their orders. This led to empty shelves in a

number of stores, causing lost sales and customer frustration. Having

been informed of the problem, Nardelli immediately back-pedalled on

this part of his plan, and switched to a programme of providing the

relevant managers with stock control tools and training in how to use

them. Another change which misfired was Nardelli’s plan to cut staff

costs by increasing the proportion of part-time sales floor staff from 30

per cent to 50 per cent of the relevant staff mix. This not only alienated

customers, who complained of a deterioration in customer service from

less committed floor staff, but also upset existing staff by appearing to

devalue the sales expertise on which the company’s success had been

founded. Nardelli acknowledged that he had made a wrong move, and

rescinded the initiative.

Research five years into the change process suggested that it was

taking hold. Staff satisfaction, which in 2002 (according to surveys) was

recorded as one percentage point below average for the industry, had

climbed to eight points above it in 2004. While the meteoric growth of its

first 20 years will never be repeated, the company was still showing

robust growth and, more important, profitability. Revenue had reached

$80 billion by 2005 and earnings per share had doubled. Furthermore,

Nardelli’s strategy had created a new culture which built on many of the

strengths of the old, and provided a solid basis for future development.

(Source: adapted from Charan, 2006; Home Depot, 2010)

Activity 4.9: Reviewing Hrebiniak’s implementation modelAllow 30 minutes for this activity.

Purpose: to review Hrebiniak’s implementation model against a practical

example of strategic change

Re-read Case study 4.2 and make notes on how the implementation of Bob

Nardelli’s strategy for Home Depot corresponds to Hrebiniak’s model.

Feedback

Nardelli’s corporate strategy for Home Depot was to improve profitability,

develop the product offering into new areas, and develop the market in

search of new customer groups. Reading the case study it’s a little difficult to

trace exactly how all three of these strategies worked out in practice, as the

main focus is on the detail of how he tackled culture and structure, but we

can interpret this as being his way of readying the organisation for the longer-

term pursuit of product and market development.


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Immediate profit improvement lay behind the drive to integrate how

information (‘metrics’) was generated, shared and used across the company,

as well as the decision to integrate the purchasing function into a centralised

core rather than the existing divisionalised structure Nardelli inherited. These

actions correspond to the ‘Corporate structure/Integration’ element of

Hrebiniak’s model quite straightforwardly.

Slightly less clear-cut is how to recognise the ‘Business strategy’ and

‘Business structure…’ elements of the model in the case. We can make a

decision to treat the individual stores as the ‘business’ level to correspond to

the model, but it feels slightly uncomfortable when one considers that this

implies there are approximately 1,800 business strategies to envisage. This is

an example of how models need to be approached flexibly – a consistent

theme in this course. Individual store managers, used to considerable

autonomy before Nardelli took over, now had to conform their display and

merchandising plans to the overall strategy handed down by head office. One

can envisage how such strategies might be translated store by store into

shorter-term measurable operating objectives involving revenue, customer

satisfaction levels, staff retention and so on. At a more general level, the

case indicates programme activities which clearly also have a SMART

dimension (educating a specific number of managers on change within a

specific period, the installation of a new bar-coding system, even the reform

of purchasing within a limit of 90 days).

In terms of business structure and integration it is difficult, from the

information in the case, to draw a definite line between this level and the

corporate level, but Nardelli’s emphasis on sharing data and communicating

with his fellow directors (the Monday morning conference call) and with the

entire network of stores (the Monday afternoon videocast) demonstrates a

determination to improve the lateral flow of information (and accountability),

thus enabling cross-boundary management to take place.

We must also consider the ‘Incentives and controls’ element. Incentives now

appear to be centred on a more systematic approach to staff development

and career planning within the company. Nardelli and Dennis Donovan

applied themselves to an overhaul of the HR system with this in mind. An

alternative perspective on this might, of course, suggest it was more about

controlling staff than offering them incentives. Certainly, the formalisation of

appraisal systems would have the double-edged effect of rewarding staff who

complied with change, while imposing sanctions on those who didn’t. As for

other controls, the new company-wide metrics ought to be providing feedback

to guide ongoing strategy at both corporate and store levels. The final

paragraph of the case suggests that one metric at least – staff satisfaction –

appears to be offering positive feedback on the change.

As to the speed of change, Nardelli appears to have opted for what Hrebiniak

calls ‘complex’ rather than ‘sequential’ change. Hrebiniak acknowledges that

complex change has the advantage of being quick and creating an ésprit de

corps, but concludes that it is too risky to opt for unless you have no

alternative. Nardelli might argue that he had no alternative when he took

over, but from a political point of view he may have wanted to create a sense

of urgency and impress his new board with his energy and radical vision for

the company. There is evidence of some of his initiatives running into trouble

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Black plate (36,1)

(in the areas of stock control and the part-time/full-time floor staff mix) –

perhaps because he was trying to achieve too much at once. Reading

between the lines of the case, we can speculate that what began as complex

change in the first 18 months or so settled down into a more sequential

pattern as Nardelli’s strategies took hold.

Summary

Strategy implementation frequently involves ‘change’. Continuous change

requires that all three organisational elements, that is, structure, culture and

systems (together) are continuously revisited, reviewed and redirected as the

consequences of change unfold. Any approach to change must first

understand the causes and context of change. Change can be the result of

both internal and external pressures.

The consequences of change are unique to different organisations in different

contexts. Different rates and patterns of change give rise to different kinds of

internal and external difficulties and constraints that act as ‘resistances’ to

change. The resistance is stronger when the change actions go beyond the

scope of the existing paradigm. By analysing the context of change using a

model such as Balogun and Hope Hailey’s (2008) matrix, change facilitators

can prepare for more effective implementation.

Managing change depends on the specific situation or context faced by each

organisation. However, frameworks such as the cultural web may be helpful

in all contexts of organisational change. The cultural web sees the paradigm

of the organisation as created and held in place by three ‘hard’ factors:

power structures, organisational structures and control systems; and three

‘soft’ factors: rituals and routines, stories and myths, and symbols. Change

facilitators must address themselves to both groups in order to ensure the

best chance of success for change. Force-field analysis (Lewin, 1951) offers

a potentially useful guide to prioritising and targeting change on specific

elements of a situation revealed by cultural audit.

Managing change is a complex process because of the interconnected

processes involved. Handling the change process demands an awareness of

the ‘overall’ strategic direction of the organisation as well as deep

knowledge of its operational activities at individual level. A logical model

such as Hrebiniak’s implementation model can provide a useful framework

for thinking through strategic change and its consequences.

The ability to manage change is a potential source of competitive advantage

and a highly valued managerial competency.


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Block 5 conclusion

Our focus in this block has been on strategy implementation. We centred our

discussion on the four key organisational elements that underpin the

operational effectiveness of an organisation, namely its structure, systems,

culture and people. As we conclude the discussion it is worth reflecting that

strategy implementation is part of a continuous strategic management

process. Even at the implementation stage, a strategy must be continuously

revisited to identify and deal with strategic issues as they arise, from both

internal and external contexts. The evidence from empirical research into

what does and does not work in implementation points unequivocally to the

wisdom of integrating it into the strategy activities of the organisation rather

than considering it as a separable and discrete phase.

Furthermore, strategy implementation needs to consider the interrelationships

between the structure, systems, culture and human resources of the

organisation. A change in any one will require changes in the others.

Structure, systems, culture and people are the key organisational levers that

work together in order for the implementation of a strategy to take place.

However, the management of strategic change most often fails because

managers concentrate too much (or even exclusively) on structure and

control systems, while ignoring the significance of elements that define and

support the organisation’s culture.

Implementing strategy is a complex process because its consequences affect

everyone in the organisation and everything they do – including, of course,

the strategists and change agents themselves. Therefore, managers must

spend as much (if not more) time and energy in implementing strategies as

in choosing them in the first place.

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Block 5 conclusion

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Acknowledgements

Block 5

Grateful acknowledgement is made to the following sources:

Text

Box 1.4: Hickson, D. J., Miller, S. J. and Wilson, D.C. (2003) ‘Planned or

prioritized? Two options in managing the implementation of strategic

decisions’, Journal of Management Studies, vol. 40, no. 7, November,

Blackwell Publishing Ltd. John Wiley & Sons, Inc.;

Box 2.1: Slywotzky, A. and Nadler, D. (2004) ‘The strategy is the structure’,

Harvard Business Review, vol. 82, no. 2. Harvard Business Review;

Box 2.2: Herbold, R. J. (2002) ‘Inside Microsoft: balancing creativity and

discipline’, Harvard Business Review, vol. 80, no. 1, January. Harvard

Business Review;

Tables

Table 4.1: Whipp, R. (2003) ‘Managing strategic change’ in Faulkner and

Campbell (eds) The Oxford Handbook of Strategy. Oxford University Press;

Figures

Figure 1.3: Deal, T. and Kennedy, A. (1982) Corporate Cultures: the Rites

and Rituals of Corporate Life. Addison-Wesley;

Figure 2.4: Johnson, G., Scholes, K. and Whittington, R. (2005) Exploring

Corporate Strategy: Text and Cases (7th edn). Pearson Education, Inc.;

Figure 2.6: Simons, R. (1995) ‘Control in an age of empowerment’, Harvard

Business Review, vol. 73, no. 2, March–April. Harvard Business Review;

Figure 4.1: Balogun, J. and Hope Hailey, V. (2008) Exploring Strategic

Change (3rd edn). Pearson Education, Inc.;

Figure 4.5: Lewin, K. (1951) Field Theory in Social Science. Harper & Row;

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Acknowledgements

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Course Team

The academic course team

Terry O’Sullivan (course team chair and course author)

Chris Bollom (course manager)

Val O’Connor (course team assistant)

Dev Boojihawon (course author)

Ysanne Carlisle (course author)

Loykie Lomine (associate lecturer advisor)

Geoff Mallory (course author)

Howard Viney (course author)

Brian Webb (regional manager)

Nik Winchester (course author)

Alex Wright (course author)

Course production

Julie Fletcher (media project manager)

Lee Johnson (media project manager)

Martin Brazier (graphic designer)

Anne Brown (media assistant)

Sarah Cross (assistant print buyer)

Sue Dobson (graphic artist)

Zaheeda Hanif (media assistant)

Diane Hopwood (rights)

Gary Lister (proof-reader)

Diana Russell (copy-editor)

Emily Yossarian (editorial media developer)

Critical readers

Frank Campbell

David Newman

Tony Stapleton


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