MODERN STRATEGIC ANALYSIS Theme 4 Strategy implementation Strategy

MODERN STRATEGIC ANALYSIS Theme 4. Strategy implementation. Strategy of Growth Dr. Prof. Aleksandr Kozlov 01/11/2016

2 Organisation’s life cycle Size of an organisation Entering Growth Maturity New development Declining Time

3 Phases of a company growth Size of company Growth through collaboration Large Growth through coordination Crisis of control Crisis of mutual understanding Crisis of autonomy Crisis of Growth through delegation leadership Growth through direction Age Growth through creativity Small Young Evolution revolution Mature

4 Phase 1. Development through creativity • The company’s founders are usually entrepreneurially oriented, their energy is absorbed entirely in making and selling products • Communication among employees is frequent and informal • Long hours of work are rewarded by modest salary • Control of activities comes from immediate marketplace feedback

5 Leadership crisis • As a company grows larger production range require knowledge about efficiencies of manufacturing • Increased number of employees can not be managed through informal communication • New accounting procedures are needed • New employees are not so motivated as “pioneers”

6 Phase 2. Development through direction • A functional organisational structure is introduced to separate production and marketing • Accounting system for inventory, production and purchasing are introduced • Budget and performance standards are adapted • Communication becomes more formal

7 Autonomy crisis • Low-level managers are restricted by centralised hierarchy • They feel torn between following procedures and taking initiative of their own • Necessity to coordinate decisions with bosses slow down a decision-making process

8 Phase 3. Development through delegation • Much greater responsibility is given to managers • Profit centers and bonuses are used to motivate managers • The top executives at headquarters restrain themselves to managing by exceptions, based on periodic reports from the field

9 Phase 3. Decentralisation and centralisation • Decentralisation is the process of transferring and assigning of decisionmaking authority to the lower level of hierarchy • Centralisation is the process of transferring and assigning of decision-making authority to the higher level of hierarchy 9

10 Phase 3. Three types of decentralisation • Deconcentration. Weakest form of decentralisation, proposing redistribution of decision-making authority to the lower levels of the same centralised and totally controlled structure • Delegation. A more extensive form of decentralisation, proposing the transfer of decisionmaking authority to the lower levels not wholly controlled • Devolution. The transfer of decision-making authority to autonomous units and groups 10

11 Control crisis • The top executives sense that they are losing control over a highly diversified field operations • Autonomous field managers prefer to run their units without coordination with the rest of organisation

12 Phase 4. Development through coordination • Units are merged into product groups • Capital expenditures are very carefully weighted • Each product group is treated as an investment center and evaluated on ROI basis • Certain technical functions such as data processing personnel training centralised at headquarter

13 Micro-case study “Delta-M” or “Who is responsible for what? ” “Delta-M” is company set up by four former researchers in 2003. The main product is specialised clothing for workers, operating in different types of aggressive environment: firemen, worker at oil processing plants etc. They started from two small rooms, the first for manufacturing of fabric and other one for sewing with five sewing machines. Five first years were very successful. The annual sales growth was close to 30 %, the owners were working hard like real team, supporting each other, keeping all management functions in their hands. In the year of 2008 staff of “Delta-M” achieved 70 employees, working in two workshops and designing bureau. In the year of 2007 happened unpleasant surprise: growth of sales in the second half of this year was close to zero. Team of owners applied to consulting company for advice. During the first meeting after rituals of mutual presenting the consultant asked owners: “Who is responsible for sales? ”. And was shocked by given answer, better to say, answers. It was like chorus : “It’s me!”. “What about designing? ” – the same result. 13

14 Micro-case study “Delta-M” or “Who is responsible for what? ” Questions. 1. Identify the stage of growth of “Delta-M” 2. Suggest the real reason for low growth of sales in the second half of the year of 2007. 3. Propose the actions to be done by owners of “Delta-M”