Appunti di Leadership and organizational change

HRM, R&D…).

Here the problem is differentiation, the internal sub environments are an outcome

of the external environment is intrinsically differentiated; the firms must

differentiate from other companies.

It differs from the previous model of Burns and Stalker, because before the

environment was unique, undifferentiated, homogeneous.

In the L&L productive and R&D activities can be organised in a realistic way and the

external environment varies in a slow way tech management is not complex

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the internal functions can be organised in a mechanistic way. Company as a

machine; rigid interactions through workers; no room for change. What about the

borders with the environment? Every company operates in a turbulent market?

Markets change in a fast way so the marketing function has to be organised in an

organic way (no standardisation of activities) focus on results and goals even if

activities are not so efficient but the importance lies in reaching the customers.

All functions are not organised in this way in different firms.

Differentiated task environment high differentiated functions high

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differentiated organisation.

3 types or organisations: mechanistic, organic or somewhere in between.

If high differentiation you need very strong integration mechanisms, otherwise each

function can operate by pursuing its own goals and not including the entire’s

organisations’ goals.

High differentiation strong integrating mechanism is required;

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Low differentiation features of functions are similar strong integrating

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mechanism is not required;

1) Differentiation analysis to understand how much similar or different are all

function in the environment (link functions to sub environments)

2) Mix the operating mechanisms to obtain the most adequate mechanisms that

will ensure the integration of these functions.

Outsourcing processes that are not produced by the company. Transactional costs

theory.

Digital transformation regards all companies starting from line functions, and

revolutionises every organisational structure.

Cost and power ensure the correct degree of integration.

High degree of differentiation you need a high level of cost and power for a high

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integration.

Low degree of differentiation low cost and power for a low integration.

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From the top of the scheme we have cheaper integrating mechanisms:

Jack Welch was a famous manager, CEO at GE in the 80’s-90’s: he was famous for

writing a letter to the shareholder every year, containing the 1st page of the financial

statements. “Once you appoint a manager, it is like giving order to building licence”

at the beginning of the manager’s activity, he starts building walls against the

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boss because if results are not achieved you are being punished + hierarchy starts

building a shield with subordinates otherwise they can substitute him.

The marketing area tries to capture customers and ask them what they want, so the

it starts collecting data and grow a document without specification coming from the

customer, the firm promises the customer they will receive it, but most of the time

they are not given; this document comes to R&D area but sometimes these cannot

be produced/designed so what they do is alter the existing products in a huge way

the outcome is a different document which has to be approved by marketing

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area. Then from the R&D area it goes to the production area, their reaction is that

they can’t produce the product (lack of competencies, resources, no efficiency…) so

the document is modified again and passed to the R&D area and finally to the

production area. Marketing R&D Production

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In Italy, the company Fiat produced the car “Duna”, the ugliest model ever made, and

this was the result of this process; it took 7 years for this process to happen.

This is a silo effect no communication/integration between each other.

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The Japanese decided to make transversal product teams, from different functions:

they wanted to make sure from the beginning that they can ensure the availability of

materials for the production (suppliers); no costly, requires communication.

Many of the most relevant changes in all organisations starting in the 2nd half of the

70’s were a chance to import the same organisational approach very used in the

Japanese world managerial revolution relied on the lean philosophy. But the

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organisation cannot be replicated (organisational advantage).

Summary

Life cycle approach small family business that expands in size (product portfolio -

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only shoes) and geographically, but it requires a new organisation because of the

internal disorder which didn’t allow the company to catch market opportunities:

- Functional organisational form (1st organisational level) there is hierarchy,

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the director is responsible for the strategic direction of the specific

department/function. Although managers start acting independently from

other functions, there are pros but also cons.

The external environment:

Burns & Stalker mechanistic and organic system

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Lawrence & Lorsch differentiation (of responses to the external

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environment) and integration concepts. Differentiation comprehends all the

functions; the higher it is, the stronger the integrating mechanisms needed

(which act as a glue).

The western companies tried to import the Japanese model based on the lean

production approach, but it failed because it was born in a specific cultural

environment:

western very individualistic, in which they stress individual results and interests;

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eastern they are much concerned with the sense of belonging to a group.

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You can’t import an ecosystem because it developed in the specific legal, financial,

institutional environment.

Let’s suppose the CEO of a company adopts the L&L model, that everything is

consistent with the environment, and that also a necessary degree of integration is

ensured. The entrepreneur decides to diversify the business’ product portfolio, this

strategic decision is moving from a single product line to the production of other

products, technically related to the previous ones: e.g. luggages and bags.

Differentiation = why the customer should choose our product over the

competitors’.

Diversification = regards production of different products; the segments could be

the same.

- Soft diversification: low degree of d. In which the inputs used are almost the

same.

- Hard diversification: if you decide to also offer clothes you need a deep

modification of the production system.

Company who decided to introduce two more product lines: overall we have shoes,

leather accessories and leather luggages and bags. The strategic shift related but

diversified, increases the risk associated.

2 more types of functions: procurement, logistics, production, sales/mrktg, R&D.

These are very differentiated.

Staff functions: Finance and control (F&C) and HRM, we can also have

communication… produce services and serve the CEO and the functions, but they

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share the same organisational level since they all report to the CEO (1 degree of

upper report).

Line functions operate directly on the value added activities (procurement of raw

materials, transformation, sales).

Here the structure is well integrated and the CEO can exert control over technical

expertise and technical components of specific kinds of operations efficiency by

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including similar operations (in kind) within the same organisational unit.

Modified functional organisation (product manager)

In order to be effective, you need strict monitoring of each product line. This is

ensured even when the company pursues a low degree of diversification by using

other specific integrating mechanisms from Lawrence and Lorsh, from the smallest

ones. E.g. the introduction of a product manager, in our case 3, same number as the

product lines. Why product managers? This introduction happens because you need

results over outcomes for each product line. You need a new accounting system (to

manage efficiency at functional levels but also at the product lines).

2 levels to monitor: functions and product line.

What is the main task of product managers? They must integrate all activities for

each function related to the product line over which managers have control over.

You obtain a matrix: the product managers integrate the activities from line

functions regarding the product lines.

Who would be the boss if I was the product manager? The CEO.

How to manage this new organisational structure? You need new operating

mechanisms (such as the accounting system, to monitor results for each product

line).

Product managers need particular skills just because they all hold the same power

over functions, they must behave in a way which requires caution to not exert

power over functional managers (otherwise conflict).

Functional managers can present resistance to change; you also need very

competent product managers who have certain skills.

Product managers can be therefore fired because product lines do not perform as

wanted because of destroying resources and no profit generation. Depending on the

interrelations between product lines, the dismantling of a product line does not

affect the other products.

A good HRM system is essential for the success of product lines, which depend on

the reach of annual objectives of product managers.

The main indicator that evaluates how well a product manager is performing?

Revenues from the product line - Direct Costs specific to the product line (Variable

and Fixed Costs) = Product Line Margin.

To this organisational model we can add the figure of the key product manager:

In this second chart PMs are not under the CEO but the boss is the Marketing; this

happens in organisations where there is a marketing maturity level, and is the most

crucial area (standardised products, commodities), and typical of very large

organisations (Multinationals as P&G, Unilever…). It could be very difficult for a PM

to integrate all line activities because of the large size of the company so they are

located under the marketing umbrella.

There is another organisational level Brand Management (each one introduces a

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product line).

Which is the organisational level of PM? 3rd = 3 levels of reporting to the CEO.

Their activities are much more focused on the integration of all marketing activities.

Modified functional organisation (project manager)

An alternative of the Product Managers is the introducing the Project managers:

The project managers are adopted by firms who must exert control over projects.

E.g. engineering company products are the result of a customised order (1

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specific customer).

Project managers are