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Five Strategic Choices that Create Sustainable, Profitable Growth Tony Loyd [email protected]

Five Strategic Choices that Create Sustainable, Profitable Growth

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This presentation is about choices – it is about making hard decisions that create sustainable, profitable growth. Our English word decide comes from the Latin word decidere which literally means "to cut off.“ For most of us, we don’t like the idea that by choosing one path we are cutting off the possibility of other paths, at least for a time. And yet, we know that it’s true that we cannot simultaneously be successful in every market with every product for every customer segment in every geography. We have to choose. A sure formula for failure is to not make hard decisions, therefore confusing both our customers and our employees. Here's what you'll learn: The importance of choosing Models for making clear choices Methods for understanding the connections between choices The power of winning aspirations The importance of customer segmentations and insights How to create a competitive advantage Methods for deciding on the right value propositions How to select the right criteria to design your organization The power of business models How to categorize work to create maximum efficiency and effectiveness How to choose the right structure for your organization How to create processes and linkages that cut across structure Methods to align recognition and rewards with strategic choices How to align talent management to your strategic choices

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Page 1: Five Strategic Choices that Create Sustainable, Profitable Growth

Five Strategic Choices that Create Sustainable, Profitable Growth

Tony [email protected]

Page 2: Five Strategic Choices that Create Sustainable, Profitable Growth

Who Can Benefit

• Customers who want a clear value proposition that aligns to their needs

• Shareholders who want sustainable, profitable growth

• Executives who want both a systemic (holistic) and a systematic (linear) approach to strategy and actions

• Leaders of Business Units, Regions or Functions who want to create an aligned, high-performing enterprise

• Employees who are waiting for clear, authentic direction. Choices lead to engagement and execution

Page 3: Five Strategic Choices that Create Sustainable, Profitable Growth

What You will Learn

• The importance of choosing

• Models for making clear choices

• Methods for understanding the connections between choices

• The power of winning aspirations

• The importance of customer segmentations and insights

• How to create a competitive advantage

• Methods for deciding on the right value propositions

• How to select the right criteria to design your organization

• The power of business models

• How to categorize work to create maximum efficiency and effectiveness

• How to choose the right structure for your organization

• How to create processes and linkages that cut across structure

• Methods to align recognition and rewards with strategic choices

• How to align talent management to your strategic choices

Page 4: Five Strategic Choices that Create Sustainable, Profitable Growth

The Central Goal

Sustainable

ProfitableGrowth

Strategy must create both sustainability and scalability

Page 5: Five Strategic Choices that Create Sustainable, Profitable Growth

You Already Know What Does NOT Work

Chasing the individual components of strategy does not work.

Unfocused, reactive behavior wastes resources and discourages employees

Page 6: Five Strategic Choices that Create Sustainable, Profitable Growth

Beware the Simple Solution

“For every complex problem there is an answer that is clear, simple…and wrong.”

There are no silver bullets

H. L. MenckenWriter, Editor, Satirist

Page 7: Five Strategic Choices that Create Sustainable, Profitable Growth

Lead From the System Level

Copying a best practice from another company doesn’t work. What you need is a best system.

- Dave UlrichAuthor, Speaker

Sustainable, profitable growth requires sustained effort at the system level

Page 8: Five Strategic Choices that Create Sustainable, Profitable Growth

Here’s What Works

Strategy is the process of choosing what NOT to do

Page 9: Five Strategic Choices that Create Sustainable, Profitable Growth

“Strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition.“

- A. G. LafleyFormer P&G CEO

Strategic Choices

Strategy is a series of integrated choices

Page 10: Five Strategic Choices that Create Sustainable, Profitable Growth

Five Strategic Choices

1. Who are we and how do we create differentiated value for our target customers?

2. What unique capabilities and activities create value? How do we best organize to deliver value to our customers?

3. How will we create alignment through processes and linkages that cut across the structure?

4. How will we align recognition and rewards to our strategic choices?

5. What people-processes must we create to support our strategic choices?

Page 11: Five Strategic Choices that Create Sustainable, Profitable Growth

How to Choose

As leaders, we have an unlimited number of options from which to choose.

How do you know which choices are right?

With so many choices, how will you choose?

Page 12: Five Strategic Choices that Create Sustainable, Profitable Growth

Why We Need Models

• Models provide a framework for decision-making – we begin by deciding how we will decide.

• Models create common language for the choices to be made.

• Models align decisions with strategy – all choices cascade from one another, starting with the strategy.

• Models balance the natural tension between alignment and flexibility.

• Once decisions are made, models provide criteria to evaluate outcomes, understand root causes and make adjustments.

Page 13: Five Strategic Choices that Create Sustainable, Profitable Growth

Star Model

Organization Design Criteria

Structure

Process

People

Rewards

Strategy influences how to make trade-offs between various organizational options

Structure determines the placement of authority in the organization

Processes cut across an organization’s structure and determine it’s functioning. Vertical processes allocate scarce resources while lateral processes enable effective work flow

Rewards align the goals of Team Members and managers with organizational goals. Rewards must be congruent with structure and processes to implement strategy effectively

People processes produce the talent that is required by the strategy and structure of the organization

Source: Designing Your Organization: Using the STAR Model to Solve 5 Critical Design Challenges by Amy Kates and Jay R. Galbraith

Strategy

Page 14: Five Strategic Choices that Create Sustainable, Profitable Growth

Strategy is a Series of Choices

How will we win?

How will we win?

What management systems are required?

What management systems are required?

What is our winning

aspiration?

What is our winning

aspiration?

What capabilities must be in

place ?

What capabilities must be in

place ?

Where will we play?

Where will we play?

The right playing field: Where we will compete: our geographies,

product categories, consumer segments, channels and vertical stages of production.

The unique right to win: Our value proposition Our competitive advantage

The support systems: Systems, structures and measures

required to support our choices

The set of capabilities require to win: Our reinforcing activities Our specific configuration

The purposeof the enterprise: Our guiding

aspirations

Source: Playing to Win: How Strategy Really Works, A.G. Lafley and Roger L. Martin

Page 15: Five Strategic Choices that Create Sustainable, Profitable Growth

Project Overview

Fact-based Analysis

• Strategic Alignment• Five Forces• External Scan• Internal Scan• Interviews• Gap Analysis• Business Implications• Current Work• SWOT Analysis• Key Issues

Design Decisions and Metrics

StrategiesKey Initiatives,

Programs / Projects

• Discovery Workshop• Purpose / Vision• Goals• Business Model

Definition• Activities• Processes

• Same Store Sales• Net Revenue• Net Promoter Score• Employee

Engagement & Retention

• Number of ready-now leaders

Metrics

2. Strategy 2

2.1

2.3

2.2

3. Strategy 3

3.1

3.2

3.3

1. Strategy 1

1.1

1.2

1.3

Discover Design Deploy

Impl

icat

ions

Develop

Page 16: Five Strategic Choices that Create Sustainable, Profitable Growth

Discovery: Gather Data

Before we can make data-driven decisions, we need…

data!

Page 17: Five Strategic Choices that Create Sustainable, Profitable Growth

Discover Phase

External Environmenta

l Scan

• Porter’s Five Competitive Forces

• Current State Stakeholder Analysis of Shareholders, Customers, Regulators and Communities in which we work

Outcome Analysis

• Desired Stakeholder outcomes for Shareholders, Leaders, Customers, Employees and Communities

• Desired Metrics• Gap Analysis

between Current Metrics and Desired Metrics

Discover

Internal Environmenta

l Scan

• SWOT Analysis• Current State

Stakeholder Analysis of Leaders and Employees

• Leadership Interviews

• Current Strategy• Assessment of

Integration, Complexity and Customer-Centric

• Current Business Model

• Current Capabilities, Activities and Processes

• Current MetricsRequirementsResults

Page 18: Five Strategic Choices that Create Sustainable, Profitable Growth

Porter’s Five Competitive Forces

Industry Rivalry

Buyers(Buying Power)

Substitutes

(Threat of Substitutes)

Potential Entrants(Threat of Mobility)

Suppliers(Supplier Power)

Bargaining power of suppliers:• Supplier concentration• Availability of substitute inputs• Importance of supplier’s input to buyer• Supplier’s product differentiation• Importance of industry to suppliers• Buyer’s switching cost to other input• Suppliers’ threat of forward integration

Rivalry among existing competitors:• Number of competitors (concentration)• Relative size of competitors (balance)• Industry growth rate• Fixed cost vs. variable cost• Product differentiation• Diversity of competitors

Threat of substitute products or services:• Relative price of substitute• Relative quality of substitute• Switching cost to the buyer

 Bargaining power of buyers:• Number of buyers relative to sellers• Product differentiation• Switching costs• Buyer’s profit margins• Buyer’s use of multiple sources• Buyer’s threat of backwards integration• Importance of the product to the buyer• Buyer’s volume

Threat of new entrants:• Barriers to entry:

• Economies of scale• Product differentiation• Capital requirements• Switching cost to buyers• Access to distribution channel• Government policies

• Incumbent’s defense of market share• Industry growth rate

Source: Competitive Advantage by Michael Porter

Page 19: Five Strategic Choices that Create Sustainable, Profitable Growth

Project Overview

Fact-based Analysis

• Strategic Alignment• Five Forces• External Scan• Internal Scan• Interviews• Gap Analysis• Business Implications• Current Work• SWOT Analysis• Key Issues

Design Decisions and Metrics

StrategiesKey Initiatives,

Programs / Projects

• Discovery Workshop• Purpose / Vision• Goals• Business Model

Definition• Activities• Processes

• Same Store Sales• Net Revenue• Net Promoter Score• Employee

Engagement & Retention

• Number of ready-now leaders

Metrics

2. Strategy 2

2.1

2.3

2.2

3. Strategy 3

3.1

3.2

3.3

1. Strategy 1

1.1

1.2

1.3

Discover Design Deploy

Impl

icat

ions

Develop

Page 20: Five Strategic Choices that Create Sustainable, Profitable Growth

Dis

covery

Design Phase

Strategy

• Strategic Intent, Purpose, Vision & Values

• Where to Play / Target Segments and Customers

• How to Win / Value Proposition / Differentiation Strategy

• Goals• Metrics

Macro Structure

• Business Model

• Org Design Criteria / Required Capabilities

• Management Systems

• Activities and Processes Mapping

• Categorization of Work

• Processes and Lateral Linkage

Micro Structure

• Organizing Structure

• Governance / Decision Rights

• Information Management

• Program Management

• People• Rewards

Design

Page 21: Five Strategic Choices that Create Sustainable, Profitable Growth

Choice 1

Who are we and how do we create differentiated value for

our target customers?

Page 22: Five Strategic Choices that Create Sustainable, Profitable Growth

Choice #1

Who are we and how do we create differentiated value for our target customers?

Customer Segment

Competitive AdvantageWinning Aspiration

Value Propositions

Page 23: Five Strategic Choices that Create Sustainable, Profitable Growth

Start with Our Aspiration

How will we win?

How will we win?

What management systems are required?

What management systems are required?

What is our winning

aspiration?

What is our winning

aspiration?

What capabilities must be in

place ?

What capabilities must be in

place ?

Where will we play?

Where will we play?

The right playing field: Where we will compete: our geographies,

product categories, consumer segments, channels and vertical stages of production.

The unique right to win: Our value proposition Our competitive advantage

The support systems: Systems, structures and measures

required to support our choices

The set of capabilities require to win: Our reinforcing activities Our specific configuration

The purposeof the enterprise: Our guiding

aspirations

Source: Playing to Win: How Strategy Really Works, A.G. Lafley and Roger L. Martin

Page 24: Five Strategic Choices that Create Sustainable, Profitable Growth

It’s not About the Boxes

If you start strategic design with Org charts, you’re…

…dead meat.

Strategy Flows from a Higher Purpose, Focused on Customer Needs

Page 25: Five Strategic Choices that Create Sustainable, Profitable Growth

What is an Aspiration?

Less about us…

Grow our market share in the China medical device market (internally-focused)

Serve superior coffee sourced from the world’s best global production regions (product-centric)

Grow earnings per share by greater than ten percent (performance-centric)

More about the customer…

Alleviate pain, restore health and extend life (Medtronic)

To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time (Starbucks)

Ladies and Gentlemen serving Ladies and Gentlemen (Ritz-Carlton)

Winning Aspirations Begin with the Customer in Mind

Page 26: Five Strategic Choices that Create Sustainable, Profitable Growth

The Purpose of an Aspiration

“It is impossible to have a great life unless it is a meaningful life. And it

is very difficult to have a meaningful life without meaningful

work.”

- Jim Collins

Page 27: Five Strategic Choices that Create Sustainable, Profitable Growth

Where will we Play?

How will we win?

How will we win?

What management systems are required?

What management systems are required?

What is our winning

aspiration?

What is our winning

aspiration?

What capabilities must be in

place ?

What capabilities must be in

place ?

Where will we play?

Where will we play?

The right playing field: Where we will compete: our geographies,

product categories, consumer segments, channels and vertical stages of production.

The unique right to win: Our value proposition Our competitive advantage

The support systems: Systems, structures and measures

required to support our choices

The set of capabilities require to win: Our reinforcing activities Our specific configuration

The purposeof the enterprise: Our guiding

aspirations

Source: Playing to Win: How Strategy Really Works, A.G. Lafley and Roger L. Martin

Page 28: Five Strategic Choices that Create Sustainable, Profitable Growth

Sustainable, Profitable Growth

Where will we Play?

CustomerSegmentation

The central goal

Which Segment?Based on research of attitudes,

behaviors and firmographics /demographics of target

customers

Page 29: Five Strategic Choices that Create Sustainable, Profitable Growth

Sustainable, Profitable Growth

CustomerSegmentation

The central goal

• Geography• Product Category• Channel• Vertical/horizontal

in the value chain

Which Segment?Based on research of attitudes,

behaviors and firmographics /demographics of target

customers

Where will we Play?

Page 30: Five Strategic Choices that Create Sustainable, Profitable Growth

How will we Win?

How will we win?

How will we win?

What management systems are required?

What management systems are required?

What is our winning

aspiration?

What is our winning

aspiration?

What capabilities must be in

place ?

What capabilities must be in

place ?

Where will we play?

Where will we play?

The right playing field: Where we will compete: our geographies,

product categories, consumer segments, channels and vertical stages of production.

The unique right to win: Our value proposition Our competitive advantage

The support systems: Systems, structures and measures

required to support our choices

The set of capabilities require to win: Our reinforcing activities Our specific configuration

The purposeof the enterprise: Our guiding

aspirations

Source: Playing to Win: How Strategy Really Works, A.G. Lafley and Roger L. Martin

Page 31: Five Strategic Choices that Create Sustainable, Profitable Growth

Value

Benefits - Cost = Value

Page 32: Five Strategic Choices that Create Sustainable, Profitable Growth

Competitive Advantage

Valu

e

Cost

Marg

in

Valu

e

Cost

Marg

in

Valu

e

Cost

Marg

in

Value

Cost

Margin

Average Competitor Cost Leader Differentiator

To be Sustainable, You Must Choose Between Cost Leadership or Differentiation

Page 33: Five Strategic Choices that Create Sustainable, Profitable Growth

Four Competitive Strategies

Overall Low-Cost Provider

Broad Differentiator

Focused Low-Cost Provider

Focused Differentiator

Competitive AdvantageM

ark

et

Covera

ge

Cost Leader DifferentiatorLi

mit

ed R

ange o

fM

ark

et

Sect

ors

Bro

ad R

ange o

fM

ark

et

Sect

ors

Source: Essentials of Strategic Management by John Gamble and Arthur Thompson Jr.

Page 34: Five Strategic Choices that Create Sustainable, Profitable Growth

Sustainable, Profitable Growth

CompetitiveAdvantage

CustomerSegment

The central goal

Type of advantage

Low cost Differentiated

Bro

ad

Nar

rowS

cop

e o

fad

van

tag

e

How will we Win?

• Geography• Product Category• Channel• Vertical/horizontal

in the value chain

Which Segment?Based on research of attitudes,

behaviors and firmographics /demographics of target

customers

Page 35: Five Strategic Choices that Create Sustainable, Profitable Growth

Sources of Advantage

How The Firm WinsHow The Firm WinsCost Cost

DifferentiationDifferentiation

Cost Scale Learning Linkages Pattern of capacity

utilization

Integration Timing Policies

Differentiation Product features andperformance

Services provided Intensity of an activity Content of an activity Technology employed Information employed Process Training and employee

skill

Linkages Timing Location Learning Interrelationships Integration Scale Institutional factors Branding

Source: Competitive Advantage by Michael Porter

Page 36: Five Strategic Choices that Create Sustainable, Profitable Growth

A Value Proposition is…

EITHERA statement that summarizes why a customer should buy a product or use a service. It describes what we stand for relative to the benefits sought by the customer. It is the answer to the customer’s question “why should I buy from you?”

ORA differentiated bundle of products and/or services that create value for target customers.

Page 37: Five Strategic Choices that Create Sustainable, Profitable Growth

The Results of Choice #1

• Your Winning Aspiration

• Customer Segments with Research-Based Insights

• A Competitive Advantage

• Value Propositions

Who are we and how do we create differentiated value for our target customers?

Page 38: Five Strategic Choices that Create Sustainable, Profitable Growth

Choice 2

What unique capabilities and activities create value? How

do we best organize to deliver value to our customers?

Page 39: Five Strategic Choices that Create Sustainable, Profitable Growth

Choice #2

What unique capabilities and activities create value? How do we best organize to deliver value to our customers?

Structure

Categorization of WorkOrganizational Capabilities /

Design Criteria

Business Model

Page 40: Five Strategic Choices that Create Sustainable, Profitable Growth

Capabilities

How will we win?

How will we win?

What management systems are required?

What management systems are required?

What is our winning

aspiration?

What is our winning

aspiration?

What capabilities must be in

place ?

What capabilities must be in

place ?

Where will we play?

Where will we play?

The right playing field: Where we will compete: our geographies,

product categories, consumer segments, channels and vertical stages of production.

The unique right to win: Our value proposition Our competitive advantage

The support systems: Systems, structures and measures

required to support our choices

The set of capabilities require to win: Our reinforcing activities Our specific configuration

The purposeof the enterprise: Our guiding

aspirations

Source: Playing to Win: How Strategy Really Works, A.G. Lafley and Roger L. Martin

Page 41: Five Strategic Choices that Create Sustainable, Profitable Growth

Capabilities are NOT Competencies

CAPABILITIES ≠ COMPETENCIES

Capabilities belong to organizations

Competencies belong to individuals

Page 42: Five Strategic Choices that Create Sustainable, Profitable Growth

The Context of Organizational Capabilities

Target Customers

Who, specifically is our target customer and what benefits do they seek?

Competitive Advantage

How do we differentiate ourselves in the eyes of our target customers?

Value Proposition / Offerings

What do we / can we offer benefits that our target customers value?

Capabilities

In order to deliver value, what specifically do we have to be good at – better than our competition?

Page 43: Five Strategic Choices that Create Sustainable, Profitable Growth

What are Organizational Capabilities?

Capabilities are integrated processes, systems, and abilities. In order to be differentiating, they must be unique to your company and difficult to replicate. They are created by an organization (never sourced). Differentiating capabilities are developed, perfected and protected within the company.

If a capability is not unique, is easily copied or can be bought in the marketplace, then it is not differentiating. A Primary Value-Add of HR is the Creation of Corporate Capabilities

Page 44: Five Strategic Choices that Create Sustainable, Profitable Growth

“How to Win” Decisions Create Different Capability Requirements

Different Competitive Strategies Drive Different Capability Requirements

Which capabilities

are important

to your company

depends on your

differentiation strategy.

Page 45: Five Strategic Choices that Create Sustainable, Profitable Growth

Star Model

Organization Design Criteria

Structure

Process

People

Rewards

Strategy

Page 46: Five Strategic Choices that Create Sustainable, Profitable Growth

Organization Design Criteria

Organization Design Criteria

• Strategy drives organizational choices• Strategic Choices become capability requirements• The unique capabilities required to execute against

our differentiation strategy determines the design of the organization

Strategy

Organizational Capabilities = Design Criteria

Page 47: Five Strategic Choices that Create Sustainable, Profitable Growth

Guidelines: Writing Good Design Criteria

Guideline Poor Criteria . . . Better Criteria . . .

1. Specific: not too broad, measurable

Make the best products

Design products that meet the needs of our target accounts

2. Differentiating: not simply table stakes

Use technology effectively

Create technology solutions that support our clients in servicing their customers

3. Actionable: start with a verb Be a good organization to work for

Build a reputation as a good community citizen in our key communities

4. Future oriented: aspirational Reduce costOperate state-of-the art, cost-effective customer service centers

5. About Capability: not activity Select the best people Create a leadership pipeline

to support global growth

Source: Designing Your Organization: Using the STAR Model to Solve 5 Critical Design Challenges by Amy Kates and Jay R. Galbraith

Page 48: Five Strategic Choices that Create Sustainable, Profitable Growth

Capabilities Define Competitive Activities

Target Customers

Who, specifically is our target customer and what benefits do they seek?

Competitive Advantage

How do we differentiate ourselves in the eyes of our target customers?

Value Proposition / Offerings

What do we / can we offer benefits that our target customers value?

Capabilities

In order to deliver value, what specifically do we have to be good at – better than our competition?

Activities

Page 49: Five Strategic Choices that Create Sustainable, Profitable Growth

Categorization of Work

• No company can (or should) be world-class at everything. It is important to be most effective at work that differentiates the company.

• Not all work is equal. While work may be essential, not all work directly creates differentiated value for the target customers

• Work can be categorized as competitive (directly impacts the customer experience), enabling (enables competitive work), essential (such as payroll) or compliance (we do it because we are required to do so).

• Strive for effectiveness with competitive and enabling work. Strive for efficiency with essential and compliance work.

Page 50: Five Strategic Choices that Create Sustainable, Profitable Growth

Work Categorization

CompetitiveActivities

(Greatest Return)

EnablingActivities

Compliance(No Return, but high risk)

EssentialActivities

Does this work directly make our strategy happen?

Does it directly impact our value offering(s)?

Will it create sustainable differentiation? If we were forced to give up control of work, would this be the last thing we would give up?

Are the outputs of this process used by or consumed by Competitive Work?

Does it enable Competitive Work?

Does the corporation consider this an enabler because of its values/ beliefs?

Do we do this because we don’t want to go to jail or get fined?

If allowed, would we stop doing this work?

Is it essential to the business, but not to gaining market share?

Is it only a potential disadvantage?

Could we afford to be at par with our competitors?

Effectiveness EfficiencySource: AlignOrg Solutions

Page 51: Five Strategic Choices that Create Sustainable, Profitable Growth

Sourcing Decisions

Outsource to a Strategic Partner

(Develop Best Strategic Vendors)

Deliver Internally

(Develop Best Internal Capability)

Outsource to Low-Cost Provider

(Develop Most Cost-Effective &

Compliant Source)

Maintain Internally

(Must be at least On-Par with the

Industry)

Enabling Work

Essential & Compliance

Work

Unique / Proprietary Activities

GenericActivities

NOTE: Always maintain

Competitive work internally

Page 52: Five Strategic Choices that Create Sustainable, Profitable Growth

The Business Model

What is a business model?• A business model is a logical description

of customers, value offerings, infrastructure and financial viability.

• It provides a very high-level map of work processes that create value and support the strategy. It indicates linkages between processes.

Page 53: Five Strategic Choices that Create Sustainable, Profitable Growth

The Business Model

Source: Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder and Yves Pigneur

Page 54: Five Strategic Choices that Create Sustainable, Profitable Growth

Key Partners Key Activities

Cost Structure

Key Resources

Value Propositions Customer Relationships

Channels

Customer Segments

Revenue Streams

Distributors

Mid-Small

Customers

Products (Chemicals, Machines , Tools)

Sales Reps

Distributors

Wide range of

floor care

products

Full machine

line-ups

Indirect

channel,

DistributorsDistributors’

sales

Sales

Technical

support

Training &

SeminarDistributor

Support

Providing

solutionProviding

solution

JBMA (Japan

Building

Maintenance

Association)

Value chain

Sales

promotion

Training

Machine

CTS

Advertising

Agency

Value chainRD&E

Machine

maintenance

service

Tradeshow

Advertising

Technical

support

Advertising

Example

Technical

Support

Page 55: Five Strategic Choices that Create Sustainable, Profitable Growth

Structure

Organization Design Criteria

Structure

Strategy

Page 56: Five Strategic Choices that Create Sustainable, Profitable Growth

Structure Choices Depend on…

Activities

• Structure defines capabilities, which imply activities, which are part of a larger business model. These decisions drive structural choices. Creative, customer-centric businesses tend to organize around customer segments and geographies while a product-centric businesses tend to organize around products.

Size & Complexity

• Start-ups need more generalists and less structure. Global Organizations need high overarching structure with local flexibility. Span of control may shift as business units, regions and functions grow.

Culture

• Are you an autocratic culture or a more egalitarian culture? What is your organization’s readiness for different structural options?

History

• Structures evolve over time. Because of decisions made in the past, it might be more difficult to shift the organizational structure.

Personnel

• Some organizations make structural decisions around strong personalities. This can lead to choices that are less efficient and effective.

Sm

art

er

Ch

oic

es

Poore

r C

hoic

es

Page 57: Five Strategic Choices that Create Sustainable, Profitable Growth

Some Structure Options

CEO

Cardio-vascular

Diabetes Neuro

Product Structure

CEO

Americas EMA ASIA

Regional Structure

GM

R&D Ops Marketing

Functional Structure

GM

HealthCare

Education Gov.

Market (Customer Segment) Structure

GM

New Prod. Dev.

Order Fulfillment

Customer Acq.

Process Structure

CEO

BU President

Regional Head

Functional Head

Matrix Structure

Regional Functional

Support

Page 58: Five Strategic Choices that Create Sustainable, Profitable Growth

Advantages / Disadvantages of Structural Choices

Option Advantages Disadvantages

1. Function Organized around major activity groups such as research and development, operations, marketing, finance, human resources, etc.

Increased knowledge sharing within functions

Ability to build depth and specialization—attracts and develops experts who “speak the same language”

Leverage with vendors Economies of scale Standardization of processes and

procedures

Difficult to manage diverse product and service lines

Cross-functional processes cause contention

Different departments have different priorities; the customer's interest can get overlooked

Integration tends to occur only at the leadership team level

2. GeographyOrganized around physical locations such as states, countries, or regions

Local focus and customization Relationships with active local

governments Reduces transportation costs

Difficult to mobilize and share resources across regional boundaries

3. ProductOrganized into product divisions, each with its own functional structure to support product lines

Rapid product development cycles Focus allows for "state of the art" research Profit and loss responsibility for each

product is located at the division level with a general manager

Positive team identity develops around product lines—clear line of sight between decisions and success of business

Divergence among product lines in focus and standards

Loyalty to product division may make it hard to recognize when a product should be changed or dropped

Duplication of resources and functions Lost economies of scale when functions

are spread out Multiple points of contact for the customer

4. CustomerOrganized around major market segments such as client groups, industries, or population groups

Customize for customers Build in-depth relationships and customer

loyalty Create more value-added product and

service bundles and solutions Avoid commoditized products and

competition on price alone

Divergence among customer/market segments in focus and standards

Duplication of resources and functions Challenge of measuring customer

profitability and identifying appropriate segments

Source: Designing Your Organization: Using the STAR Model to Solve 5 Critical Design Challenges by Amy Kates and Jay R. Galbraith

Page 59: Five Strategic Choices that Create Sustainable, Profitable Growth

The Evolution of Dance:Organizational Structure

Start-up

Bureaucratic

Functional

Divisional (Business Unit or Product)

Matrix

Siz

e &

Com

ple

xit

y o

f th

e O

rgan

izati

on

Page 60: Five Strategic Choices that Create Sustainable, Profitable Growth

The Results of Choice #2

• Organizational Capabilities

• Design Criteria

• Categorization of Work

• Business Model

• Initial Organizational Structure

What unique capabilities and activities create value? How do we best organize to deliver value to our customers?

Page 61: Five Strategic Choices that Create Sustainable, Profitable Growth

CAUTION: To create sustainable, profitable growth, you cannot stop here. You have to dig into the details: processes, linkages, rewards and people strategies.

Page 62: Five Strategic Choices that Create Sustainable, Profitable Growth

Choice 3

How will we create alignment through processes and

linkages that cut across the structure?

Page 63: Five Strategic Choices that Create Sustainable, Profitable Growth

Choice #3

How will we create alignment through processes and linkages that cut across the structure?

Processes

Linking Mechanisms

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Processes

Organization Design Criteria

Structure

Process

Strategy

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What is a Process?

“Process is a series of connected activities that move information up and down and across the organization. This includes work processes…It also includes management processes…”

- Jay GalbraithDesigning Your

Organization

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Roles & Responsibilities

Business Units

P&L responsibility.

Choices & trade-offs

Regions

Local leadership,

execution and expertise

Functions

Excellence, standard-setting &

harmonization

Begin in broader swaths

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Processes Link & Align

Vertical Processes Lateral Processes

• Allocate funds & talent• Business planning• Budget planning

• Workflow• Hand-offs• RACI

Structure defines shape. Processes define flow.

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Map the Processes

Process maps define work flow, activities and linkages

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RACI Charts

R = ResponsibilityResponsible for making and/or carrying out the decision. If more than one person is responsible, they all have to agree to the decision.

A = Accountability May not make the decision, but will be ultimately held Accountable

C = Consult Must be Consulted and give input before the decision is madeI = Informed Needs to be Informed about the decision after it is made

RolesRole 1 Role 2 Role 3 Role 4

Key Decisions

Create Job Description C A I A

Set Salary for Role R C A ISource Candidates

for Role R C I A

Screen Candidates R C A I

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Swim Lanes

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Current State

Desired State

Importance of Alignment

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Alignment Creates Agility

Current State

Desired State

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Operating Mechanisms

Regional orFunctional Plan

Annual Operating Plan

Strategy

QBRs

Strategic Direction

Individual Objectives

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Linkage Choices

Com

ple

xit

y

Effectiveness

LOWER

LOWER

HIGHER

HIGHER

Rules & policies

Informal networks

Liaison roles, job exchange

Cross-discipline teams

Matrixorganizatio

n

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Team-Level Alignment

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The Results of Choice #3

• Definitions of Roles & Responsibilities

• Process maps – SIPOCS and Swim Lanes

• RACI Charts

• Operating Mechanisms

• Linkages

• P-GRPI

• Alignment

How will we create alignment through processes and linkages that cut across the structure?

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Choice 4

How will we align recognition and rewards to our strategic

choices?

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Choice #4

How will we align recognition and rewards to our strategic choices?

Reinforcement based on emotional needs

Reinforcement based on rational needs

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Star Model

Organization Design Criteria

Structure

ProcessRewards

Strategy

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Rewards begin with Metrics

You can only manage what you measure…

…and you can only recognize and reward what you measure.

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Reinforcement

For a reinforcement theory, see:

http://www.slideshare.net/tloyd/abcsquared

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What Motivates Your Employees?

1. Praise and recognition

2. Personal and written thanks by one’s manager for good performance

3. Public praise for good performance

4. Morale building meetings to celebrate successes

5. Pay for Performance

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Recognition

Positive Immediate Certain

Negative Future Uncertain

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Rewards

• Whose behavior / results should be rewarded?

• How do you reward geographies and functions for business unit growth and profitability?

• How far down in the organization do rewards cascade?

• What key behaviors are measured and reinforced?

• What is the evaluation process?

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The Results of Choice #4

• Recognition and reward systems

• Reward structures

• Reward and recognition budgets

How will we align recognition and rewards to our strategic choices?

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Choice 5

What people-processes must we create to support our

strategic choices?

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Choice #5

What people-processes must we create to support our strategic choices?

Human Resources philosophies, policies, procedures and processes

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Star Model

Organization Design Criteria

Structure

Process

People

Rewards

Strategy

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Change Management

Communication

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What could go wrong?

Why decisions don’t get made

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What Stands in the Way?

• Choices do not get made– Continual study of

unresolved “issues”– Decision gridlock

• Choices appear to get made, but fall apart– Weak consensus– False consensus

• Choices are not robust– Invalid data– Untested inferences

• Choices get made, but action is not timely– Drawn-out choice process– Time consuming “buy-in”

process

• Choices are not sufficiently focused– Choices not clear on what

will “not” be done– Too much flexibility results

in limited differentiation

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What next?

How do we get started?

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Project Overview

Fact-based Analysis

• Strategic Alignment• Five Forces• External Scan• Internal Scan• Interviews• Gap Analysis• Business Implications• Current Work• SWOT Analysis• Key Issues

Design Decisions and Metrics

StrategiesKey Initiatives,

Programs / Projects

• Discovery Workshop• Purpose / Vision• Goals• Business Model

Definition• Activities• Processes

• Same Store Sales• Net Revenue• Net Promoter Score• Employee

Engagement & Retention

• Number of ready-now leaders

Metrics

2. Strategy 2

2.1

2.3

2.2

3. Strategy 3

3.1

3.2

3.3

1. Strategy 1

1.1

1.2

1.3

Discover Design Deploy

Impl

icat

ions

Develop

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DRAFT: Project Plan

Phase 1

Phase 2

Phase 3

Phase 4

Phase 5

Phase 6

Phase 7

Phase 8

Design team develops a clear understanding of stakeholder requirements, gains clarity around the value offering and design principles. Categorize work activities. Organizing rationale is discussed and agreed-upon.

Any outstanding organizing rationale work is completed. Begin detailed analysis around the volume of work and where to best source that work Process redesign is initiated.

Choose stakeholders and design team members. Contract around problem statements, project goals and process to be followed. Launch stakeholder. Conduct Executive Stakeholder interviews.

Conduct workshop for design team. Create understanding and alignment around approach and tools.

Continue Phase 4 activities. Gain clarity around decision rights. Map RACI.

Create first draft of new design for consumption and discussion.

Update roadmap draft. Provide budget guidance.

Begin socialization of roadmap.

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Resources

Video:

YouTube Video: The Inspirational Power of Purpose (30 Minutes)

YouTube Video: Business Model Canvas Explained

Harvard Business Publishing video on Porter’s Five Forces

Books:

Playing to Win: How Strategy Really Works

Designing Your Organization: Using the STAR Model to Solve 5 Critical Design Challenges

Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers

Purpose: The Starting Point of Great Companies

Competitive Strategy: Techniques for Analyzing Industries and Competitors

Bringing Out the Best in People

Other resources:

Beam, Inc. Blog on Depth & Duration of Innovation & Transformation

AlignOrg Solutions