2.2 The Role of Policies in Empowering Operating Personnel
For strategy to be implemented effectively, personnel at the operating level should be empowered to make certain decisions or to act in order to fulfill client’s needs since they are the first points of contact between a firm and its customers.
Methods of Empowerment
? Training
? Instituting self-managed work groups
? Eliminating whole levels of management in organizations
? Aggressive use of automation
It must be noted, however, that employee empowerment—allowing considerable discretion to operating personnel—should be underpinned by the need to ensure that decision making is consistent with the mission, strategy, and tactics of the business. One way operating managers achieve this is through the use of policies.
Creating Policies That Empower
? Standardizing many routine decisions, and
? Clarifying the discretion managers and subordinates are allowed to exercise in implementing functional tactics.
Policies achieve this in a number of ways:
1. Policies establish indirect control over independent action by clearly specifying how action is to be taken now. In addition, by defining discretion, policies in effect control decisions while empowering employees to act without direct intervention from top management.
2. They promote uniform handling of similar activities hence facilitating the coordination of tasks. This reduces antagonism arising from favoritism, discrimination, and the diverse ways of handling common functions that often hampers operating personnel.
3. Ensure quicker decisions by standardizing answers to previously answered questions that would otherwise recur and waste a lot of top management’s time. The operating personnel can thus take decisions without constant recourse to their managers.
4. Policies institutionalize basic aspects of organization behavior thereby minimizing conflicting practices and establishing consistent patterns of action in implementing strategy. This empowers operating personnel to act.
5. Reducing uncertainty in repetitive and day-to-day decision making. Operating staffs are thus provided with the necessary foundation for coordinated and efficient efforts.
6. Policies check resistance to or rejection of chosen strategies by organization members. When a major strategic change is done, precise operating policies clarify what is accepted and facilitate acceptance, especially if the operating managers participate in policy development.
7. Offer predetermined answers to routine problems hence speeding up handling of both simple and complicated problems.
8. Availing to managers a mechanism for avoiding hasty and ill-conceived decisions in changing operations.
Prevailing policy can always be cited for not accepting emotion-based, expedient or seemingly valid arguments for altering laid down procedures and practices.
Forms of Policies
? Written and formal
? Unwritten and informal
The latter are usually associated with the strategic need for competitive secrecy. Managers and employees often like the exercise of discretion offered by informal policies. But unwritten policies may deviate from the long-term success of a strategy.
Advantages of Formal, Written Policies
1. Managers are required to think through the policy’s meaning, content, and intended use.
2. They reduce misunderstanding.
3. More likely to ensure equitable and consistent treatment of problems.
4. Ensure unalterable transmission of policies.
5. They communicate the authorization or sanction of policies more clearly.
6. They offer a convenient and authoritative reference.
7. Systematically enhance indirect control and organizational coordination of the key purposes of policies.
Policies vary in strategic importance and origin. Some are internal routine procedures such as staff Medicare refunds that are not linked to strategy implementation. Others are virtually functional strategies as in the case of a company requiring its branches to invest a given percentage of gross revenue to advertising. Policies can be internally derived or externally imposed. For instance, equal employment practices are often developed in compliance with government requirements. Policies regarding real estate management may be influenced by tax regulations.
It must be pointed out that policies need periodical reviewing to ensure that they guide and control operations in a manner consistent with current business and functional strategies.
3. IMPLEMENTING STRATEGY THROUGH STRUCTURE.
3.1 Why should we consider structure?
? Structure is basically the best way to organize a firm in order to accomplish its objectives.
? It acts as the medium that facilitates the accomplishments of the organizational goals.
? It also helps to identify the key activities of the organizational processes and how they are coordinated.
? Successful strategy implementation depends to a large extent on the firm’s primary organizational structure.
? A primary organizational structure comprises the firm’s major elements, components, or differentiated units.
? Other means of getting organized are through reward systems, coordination terms, planning procedures, alliances, information, and budgetary systems.
? However, it is through the primary structure that strategists attempt to position the firm to execute its strategy in a manner that balances internal efficiency and overall effectiveness.
3.2 Primary Organizational Structures and their Strategy-Related Pros And Cons.
Primary structures can be classified under the following categories:
? Functional Structure
? Geographic Structure
? Divisional Structure
? Strategic Business Units
? Matrix Organization
We will address each one of them.
3.2.1 Functional Structure:
Mainly occur in organizations with single or narrow product focus, require well-defined skills and areas of specialization to build competitive advantage in providing their products/services.
Dividing work into functional specialties enables personnel to concentrate on only one aspect of the necessary work. This allows use of latest technical skills and develops a high level of efficiency.
Functional areas can be divided into engineering, production, human resource, finance and accounting and marketing.
Another way of dividing could be: purchasing, receiving and inventory, order entry, wholesales, retail sales, accounting, billing and customer service.
Example of this structure can be found in East Africa Breweries Limited, Barclays Bank of Kenya.
Advantages:
1. Achieves efficiency through specialization
2. Helps in developing of functional expertise
3. It involves differentiation and delegation of daily operating decisions.
5. Retains centralized control of strategic decision
6. It tightly links structure to strategy by designating key activities as separate units
Disadvantages
1. It promotes narrow specialization and functional rivalry or conflict
2. It creates difficulties in functional coordination and inter-functional decision making
3. Limits development of general managers
4. It has a strong potential for inter-functional conflicts arising from priorities being placed on functional areas and not the entire business
3.2.1. Geographical Structure
It is common in firms that have grown by expanding the sale of their products of services to new geographical areas.
In these areas, they frequently encounter differences that necessitate different approaches in producing, providing or selling services or products.
The key strategic advantage of this structure is responsiveness to local market conditions. E.g. Coca Cola, Africa Online, Total Kenya Limited.
Advantages
1. Allows tailoring of strategy to needs of each geographic market.
2. It delegates profit or loss responsibility to lowest strategic level
3. It improves functional coordination within the target market
4. It takes advantage of economies of local operations
5. It provides excellent training grounds for higher level general managers
Disadvantages
1. It poses problems of deciding whether head office should impose geographic uniformity or diversity should be allowed
2. It makes it more difficult to maintain consistent company image or reputation from area to area
3. Adds a layer of management with the responsibility of running geographic units
4. It can result in duplication of customer services at head office and local levels
3.2.2 Divisional Structure
This structure is used when a firm diversifies its product/service lines, utilizes unrelated market channels or begins to serve heterogeneous customer groups.
This is often as a result of the functional structure being unable to meet the increased coordination and decision-making requirements that result from increased diversity and size.
Examples of this structure can be seen in CMC Motors, Unga Limited and Nation Media Group.
Advantages
1. Forces coordination and authority down to the appropriate level for rapid response
2. Places strategic development and implementation in close proximity to the unique environment of each division.
3. It frees the CEO to be involved in broader strategic decision-making.
4. Shortly focuses accountability for performance
5. It helps retain functional specialization within each division
6. It provides a good training ground for strategic managers
Disadvantages
1. It fosters potentially dysfunctional competition for corporate level resources
2. It presents the problem of determining how much authority should be given down to divisional managers.
3. Creates a potential for policy inconsistencies among divisions
4. It presents the problem of determining how to distribute corporate overhead costs in a way acceptable to divisional managers.
3.2.5 Strategic Business Units
This structure arises in order to counter difficulties in evaluating and controlling the operations of the divisions and the diversity, size and number of units continues to increase.
To deal with this a firm may need to add another layer of management to improve strategy implementation, to promote synergy and to gain control over the firm’s diverse business interests.
This can be accomplished by creating groups that combine various divisions in terms of common strategic elements. These groups are known as Strategic Business Units and are usually based on the independent product-market segments served by the firm.
Examples of this can be seen in Unilever, Sameer Group, Matsu*censored*a Corporation and Lonhro East Africa.
Advantages
1. It improves coordination among divisions with similar strategic concerns and market environments.
2. It tightens the strategic management and control of large and diverse business interests.
3. Facilitates distinct and in-depth business planning at the corporate and business levels.
4. It helps channel accountability to distinct business units.
Disadvantages
1. It places another layer of management between the division and corporate management.
2. It may increase dysfunctional competition for corporate resources.
3. May present difficulties in defining the goal of the group Vice President.
4. It may present difficulties in defining how much autonomy should be given to the group Vice President and Divisional Managers.
3.2.5 Matrix Organization
As large companies increase diversity, the result is the upsurge of numerous product and project effort of major strategic importance.
This may need an organization form that provides skills and resources when and where they are most vital. The Matrix Organization meets this need by providing dual channels of authority, performance responsibility, evaluation and control.
Essentially, subordinates are assigned both to a basic functional area and to a project/product manager.
This structure increases the number of middle level managers who exercise general management responsibilities.
Although the Matrix structure is easy to design, it’s difficult to implement. The dual chains of command challenge fundamental organization orientations.
Examples of this structure can be seen in Citicorp and Shell Oil.
Advantages
1. It accommodates a wide variety of project oriented business activities.
2. Provides good training ground for strategic managers.
3. It maximizes the efficient use of functional managers.
4. It helps foster creativity and provides multiple sources of diversity.
5. Gives middle management broader exposure to strategic issues.
Disadvantages
1. It may result in confusion and contradictory policies.
2. It necessitates tremendous horizontal and vertical coordination.
3. Can cause information jams and result to excess reporting.
4. Can lead to loss of accountability.
3.3. Guidelines to match structure to strategy
Considerable research has shown that the structure of the organization is dependent upon the strategy it adopts.
The following are some guidelines that have a great significance in matching the two.
? Restructure to emphasize and enforce strategically critical activities.
? Reengineer strategic business processes
? Downsize, outsource and self manage
? Strategy and structure evolution
Restructure to emphasize and enforce strategically critical activities.
Restructuring has been very core to modern businesses. It arises from the fact that some activities within a business’s value chain are more critical to the success of a business than others.
Examples of this can be seen in Motorola and Coca Cola
Motorola has its organizational structure designed in such a manner as to protect and nurture its legendary R & D and new product development capabilities.
Coca Cola on the other hand emphasizes on the importance of distribution, advertising and written support to its bottlers.
Two critical considerations arise when restructuring organizations.
? First, managers need to make the strategically critical activities the central building blocks for designing the organization structure. Those activities should be identified and separated into self-contained parts.
? The second consideration is to design the organization structure so that it helps coordinate and integrate these activities to be able to maximize the support of strategy/critical primary activities in the firms value chain and does so in a way to minimize the const of supporting activities and the time spent on internal coordination.
Managerial efforts to do this in the 1990’s have placed reengineering, downsizing and outsourcing as prominent tools for strategists restructuring the organizations.
Reengineering will be looked at later on in details.
3.3.1 Downsizing
This is eliminating the number of employees particularly those in middle management.
This has been due to the arrival of a global market place, information technology and intense competition, which has caused companies to reevaluate middle management activities to determine just what value, is being added to the company’s products and services.
The result of this scrutiny along with continuous improvement in information processing technology has been a major cause of downsizing. Nowadays, job cuts or reductions are not an alarming phenomenon.
Most of companies in the Kenya corporate sector are undergoing through this scenario both those in the service as well as manufacturing industry. Mass retrenchments are the order of the day from banks in Nairobi Central Business Districts to manufacturing concerns in Industrial area and to rural agricultural industries.
3.3.2. Self Management
This has been a direct outcome of downsizing.
Cutbacks in the number left those that remained with more work to do. The result was that they had to give up a good measure of control to workers and they had to rely on the workers to help out.
Spans of control traditionally thought to maximize fewer than ten people, have become much larger due to information technology leading to a lot of delegation to lower levels.
This delegation includes empowerment through self-managed work groups. The result is that major decisions can be handled at operating levels. This is evident in American oriented service companies.
3.3.3. Outsourcing
This one has also arisen from downsizing.
This simply means obtaining work previously done by employees inside the company from sources outside the company.
Managers have found that as they attempt to restructure the organization particularly if they do so from a business process orientation, numerous activities can often be found in their company that is not strategically critical activities. This has been particularly the case of numerous staff activities and administrative control processes, previously the domain of various middle level management. Further scrutiny has led managers to conclude that these activities not only add little value or no value to the product or services, but that they are either unnecessary or they can be done much more cost effectively by other businesses specializing in these activities.