Category Archives: MBA Strategy

Book 10: International Strategies: Competing Across Borders

MBA Strategy, OUBS October 9, 2003 Comments: 3

(Originally published on OUBS Blog)

Even if you do not carry out international activities within your organisation, you will be affected by international trade and strategies of MNCs (Multinational corporations). Delivering robust strategies across borders is very dynamic and complex.

Internation competition: the management of internation trade

Activities of multinationals are based on foreign direct investment (FDI), which also led to much of internation trade now being internal to these MNC, who oversee immense resources rivaling all but the richest countries. Over time, the overseas parts of the companies became more independant with managers tasks being planning, control and administration. Now the entire value chain could be redesigned. High skills in co-ordination and integration across borders are needed. This skill has lead to the emergence of partnerships and alliances.

The law of comparative costs and comparative advantage underlies all international trade and countries have different capabilities in land, labour and capital.

Porter (1990) identified some factors of production influencing international movements:
- internationally mobile factors of production (mobility of labout increasing)
- fast-changing technology
- mobility barriers, entry or exit barriers

To gain competitive advantage, the following factors play a role:
- human resources
- physical resources
- knowledge resources
- capital resources
- infrastructure

It is important to understand where a competitive advantage comes from though. In the case study about Komatsu and Caterpillar, Komatsu’s formulation and implementaion of a long-term strategy to become established in world markets, enabled existing sources of comparative advantage (cost) to support internation competitive advantage.

There are four main types of international trade:
- exporting
- Foreign direct investment
- licensing
- joint ventures or strategic alliances

Rugman et al. (1985) developed a rational decision tree to decide which one is right for you.

Are there barriers to free trade?
-> No -> Export
-> Yes
Is there a risk of dissipation of knowledge
-> Yes -> FDI
-> No -> License
-> Containable
But is there a resource limitation?
-> Yes -> Strategic alliance

Remember that the approach needs to fit your company, industry and time… and of course your company :)

You can either be:
- Multinational: decentralised and self-sufficient in each nation, working with local opportunities, retaining knowledge within units
- Global: centralised but scaled globally, implementing the strategies of the parent company, with knowledge at the center retained
- International: core competencies central, using parent company capabilities, knowledge from center outwards
- Transnational: dispersed, interdependent, specialised, different contributions integrated, knowledge jointly developed and shared

Governments play a large role though, in both directions, as they also have to cope with MNCs moving elsewhere. The regulatory authority is there ‘to provide the conditions for the market to work and if necessary correct potential excesses.’

The benefit of being an MNC is that you have more flexibility and options. You can try to exploit those barriers that are good for you and avoid the others. Large organisations have some advantages here, identified by Kogut (1985) as:
- production shifting
- tax minimisation
- financial markets
- information arbitrage
- global co-ordination
- reducting political risk

Comparative Advantage and International Competitive Advantage

Kogut suggested that “Gobal strategies rest on the interplay of the competitive advantage of firms and the comparative advantage of countries.“

National markets are now becoming only parts of a global market and levers for internationalisation can be said to be world trade and FDI. Porter’s national ‘diamond’ is interesting here to understand the different in national positions. Here Demand Conditions; Factor Conditions; Firm Strategy, Structure and Rivalry; Related and Supporting Industries interact.

Next, looking at the value chain. Configuration refers to where the value chain activities are performed and a choice of configuration can be a source of advantage. Co-ordination is about how it is managed. These two interact, as the co-ordination needs to be between different parts dependent on how the value chain is configured. There are three different options for the value chain, one being scale efficiencies by putting on part of the value chain in one location and putting them emphasis here. The other option would be seek efficiency in each link of the chain and the last option would be to look across the entire chain and optimize the linkages across it.

Ghoshal’s organisation framework is helpful in finding out what the point is of a global strategy. In the frame work there are
Strategic objectives:
- Achieving efficiency in current operations
- Managing risks
- Innovation, learning and adaptation

and Sources of competitive advantage
- National differences
- Scale economics
- Scope economics

The point of a global strategy would then be on of the strategic objectives, achievable through the said competitive advantages

Economy of scope can be best defined through the example of Gillette buying Duracell.

using a resource [a global distribution network for razors] acquired for one purpose for additional purposes [selling batteries] at little or no extra cost.

International Industries and International Firms

There are different strategies here:
- Multidomestic or Multilocal = each country or region on a stand-alone basis
- Global = integrated approach

There can also be a mix in global strategy for some products and regional one for others, depending on what is warranted for the product. As markets are converging and differences (social, economic and cultural) shrinking, there are more options to at least go global on part of your strategy, building arround a standardised core while offereing local variations.

Some argue though that the problem starts to appear that there are real differences between countries and even intra-country fragmentation happening. Maybe the standardisation has gone too far.

Ikea has benefited from building universal appeal for their products, allowing standardised marketing and distribution. You can benefit in global operations from: design, purchasing, manufacturing operations, packaging, distribution, marketing, advertising, customer service and software development. Mixing advantages from global operations and local ones is known as glocalisation. A good example here is that the chinese would like their shampoos in sachets rather than bottles and buy them in barber shops. This is something that needs to be known but the same shampoo as such, the same production process, etc. can still potentially be used.

There are different kinds of international firms. The most advanced system of those is what Bartlett and Ghoshal (1993) named ‘beyond the M-form’, with M for multidivisional. Rather it’s an emerging N-form with N standing for network. Here the importance is on co-ordination and providing a shared corporate purpose.

In service industries you are selling an intangible experience. Globalisation is about delivering a similar service for a mobile customer base. The service needs to be consistent and often the customer internationalises first. Branding is an important part of providing, or at least suggesting a quality and consistency across borders. Staff training is very important here and the more can be decoupled from the customer into the back-office value chain, the grater the reconfiguration advantages for scale and scope.

International Strategy Development

The decision tree should tell you that in absense of barriers of free trade, you should simply export. If there are no risk of dissipating knowledge, then FDI is needed. The mid way would be a strategic alliance.

You need to take into account the partners’ cultures, attitude and expectations as well as the potential loss of control and limit of alternative opportunities.

Reason for strategic alliances might be:
- faster penetration and exploitation of key markets
- new strategic directions otherwise not possible
- potential payoffs higher than costs
- immediate access
- cost-reduction
- synergies
- need for complex resource bundles
- safety by spreading financial risks, novelty risks, political risks, volatility, standards
- a way of building defences

Harrigan argued that alliances fail because operating managers do not make them work, not because contracts are poorly written.

Faulkner (1994) found four factors for successful management of alliances:
- positive partner attitudes
- clear organisational arrangements
- a learning philosophy
- congruent long-term goals

There are several types of analysis:
- joint ventures
- collaborations
- consortia

To make them work you can use a gateway system, a gatekeeper to avoid misunderstandings. The mission of gateway executives is boundary-spanning. You should also only gradually increase areas of involvement for incompatibilities to be reduced. Many successful alliances also have divorce procedures.

Book 9: Corporate Strategy

MBA Strategy, OUBS August 31, 2003 Comments: 2

(Originally published on OUBS Blog)

Corporate strategy signifies an overarching strategy, above and beyond that of one of the businesses of that corporation. The idea is to achieve superior returns through the combination of different businesses.

The book starts with a case on VWs acquisitions of Seat and Skoda and the potential benefits achieved through the integration and combination of those. For one, the company now has different brands in different market segments, but built on a standard platform to achieve economies of scale and scope. The problem that starts to appear is that the differentiation between the different brands is shrinking.

VW is saving some $500 million but this is only an advantage as long as Ford or Toyota cannot cut the costs the same amount.

All this combination stuff has come from portfolio management, which is about combining a portfolio of diversified strategic business units. Important here is also BCG’s growth-share matrix. The idea is to use internal cash flows for financing and manageing the cycle of declining businesses and growing ones. You take the stars, invest in them to make them cash cows which will provide the cash for the next stars.

The problem with portfolio management is that the only idea behind it is the management of cash flows. In the late 1980s, strategy moved back to focussing on core businesses. The thing is that in balancing cash cows and stars, the manager acts as the shareholder. The shareholder can do that himself though and it is sometimes unclear where the manager can add value or if the shareholder should not decide about his exposure to risk himself. Agency theory even suggests that portfolio diversification is bad for shareholders.

Now in the 1990s, strategy moved away from markets and more to capabilities though, which brings us to the notion of synergies.

The thing is that merely putting some companies in a portfolio does not add value, but synergy will need to be created, managed. The idea is to combine activities so that 2+2 = 5 (which can also fail and end up as 3 :) ). The thing is that you need to clearly identify what the capabilities will be that will be needed for the synergies to work out.

Complementary benefits can be achieved through combination of physical assets for economies of scale, higher capacity utilisation and an improved product mix. Invisible assets may also be transfered from one business to another.

Itami (1992) suggested that there are combinatorial benefits, like opening a resort for the summer in a sky resort, and synergy which is multiplicative rather than additive, e.g. that by good reputation visitors in any season might come in the other too.

The thing is that some things are limited by some thing like for example capacity. Using a Plant that is used 70% more, can only lead to 100% usage, after that it is finished. This is also unlikely to be of lasting effect as other companies can do the same thing in the end. Invisible, information-based assets will likely remain unique to the company and will not run out or be exhausted.

Adding time to the mix brings you to static combination benefits, which are the integration of two strategies at one point in time and dynamic combination benefits, where they are integrated over time (e.g. reuse of extraction ptis as waste management depositories). Beyond that we come to dynamic synergy.

Prahalad and Hamel identify companies as collections of core competencies and core products. The thing is that core competencies do not diminish with use, as they put it. Rather, they are enhanced by use. In that sense, markets should be moved in that exploit an existing or develop a new competency. To test if these are core, as yourself:
- do they provide potential access to many markets (is it transferable for combination benefits)
- do they make a significant contribution to the perceived customer benefit of the end product
- are they difficult to imitate

If all three fit, the source is likely to be dynamic. Theodore Levitt (1960) argued that many companies focus on their products instead on what the customer wants and one might even argue that they should relate their core competencies to that.

Honda for example did not exploit their products like VW but their core competencies by using the Honda brand across many different products that would not eat away each others profit margins.

Rumelt (1994) established four key components of core competence competition:
- corporate span
- temporal dominance (of products)
- learning-by-doing (to enhance them)
- competitive locus
The thing is that superior corporate performance based on core competencies allows for dynamics.

Diversification and Divestment

There are two possibilities for superior performance, entering an attractive industry or possessing a competitive advantage. What are the motives for diversification in that light?
- growth
- investment risk-spreading
- profitability (evaluated against Porter’s (1987) three tests for diversification value-creation)

Economies of scope are the main source of corporate superior performance as of Grant. These need to be more cheaply attained through internalising than out-sourcing (cost economics theory). There is a great figure (3.1) on page 9-26 to test for diversification strategies.

What if an activity does not work well, should it be divested or a recovery started? Kathy Harrigan (1988) sees declining industies as opportunities for end game strategies. In this game, you can either go for a quick sale, harvest it for cash, find a niche or go for leadership in which you believe that after the others leave, profitabilty will return.

Harrigan believes that companies either need to flee or fight. Grinyer et al. (1988) studied strategies with companies in delicne followed by dramatic and sustained improvement and found something they found sharpbenders. These will often have major management change, improved marketing, reduced production costs, improved quality and service.

Another usefulness of core competencies is that they allow you to see if you should divest and risk loosing that competency. Otherwise it might be wise to outsource.

Strategies for corporate structure

In Book 7 Alfred Chandler’s (1962) thesis was that ‘structure follow strategy’. Rumelt (1974) argued that for some ‘structure follows fashion’. Divisionalised structure was very in fashion until the 1970s, when the advantage of adopting it was removed as everybody was doing that. Corporate strategy as a management activity originated from the structure though.

The thing is that co-ordination and decentralisation are not easy to reconcile. Especially when leveraging invisible assets or core competencies, or at least trying too. You should also not forget the national interest and government policy when thinking about corporate strategy and the potential structure it entails or brings with it.

Chandler’s work (1962) was born out of the thesis that the devisionalised corporation evolved out of diversification and growth strategies of large enterprises. The thing is though that in different social and economic conditions things work very differently, which is examplified in a case about russias emerging conglomerate corporations. Here the setting that things were taking place in, needed some specific strategies which resulted in some specific structures.

This leads us to the idea that corporations need to understand values and norms behind competitors’ strategies. In the UK and USA there is a market oriented relationship between shareholders and corporations. In the Rhenish model banks play a more important role for long-term loan and equity, bringing more friendly capital and stability. In Japan, companies often have their origins in diversified, family-controlled zaibatsu merchant houses of the seventeenth century. Here the subsidiaries raise 49% of the cash needed for the company letting the family maintain control. These zaibatsu have evolved into keiretsu, involving interconnected members with support from keiretsu banks with interlocking minority shareholding.

You therefor need to understand regulation, government, socio-economics and cultural context to really see the structures in their full bloom.

Multidivisional structure removed the responsibility for the entire enterprise from routine operational tasks. Responsibility was often pushed down with minimal interconnections between different parts of the same corporation, with profit centers being decentralized resulting in less gains from scale and scope and less coherence of the corporation as a whole.

The thing is that if superior performance is about synergy and compination, then decentralisation might be a bad move. Management can managed the corporate portfolio, invididual business or internal linkages. This is not an easy dilemma and managers will always have to choose between centralisation or decentralisation and integration or independence and control or collaboration.

Networks and Corporations

One thing you can do is to accept this tension and get away from it (Sloan, 1963). In Japan instead of a formal hierarchy there are informal networks based on trust and relationships. A simple choice of make or buy is not enough here, even though the structures can be critized for less than free flow of information and capital in the general market.

Kay (1993) identified co-operative relational contracting as an alternative to classical or spot contracts. In Europe these might be:
- network of italian suppliers for benetton
- professional service firms who link complementary skills or locations

Four main drivers might encourage the formation of networks:
- rising global competition
- deepening industry convergence
- battels over technical standards
- positioning

In the end, we need to extend ‘make or buy’ to ‘make, buy or co-operate’. The corporate management needs to include network co-ordination then, co-ordinating joint decision-making. For alliances to fulfil their obligations Gomes-Cassares identified two main methods:
- establishing group norms and standards
- leadership in group decision-making (network leader or agreed compromise or consensus method)

The tighter the collaboration, the blurrier the boundary, the more the joined the firms are and the more will they put their economic weight into the battle as one unit.

Potential sources of advantage for networks come from:
- flexible capabilities
- specialisation and division of labour
- learning
- increased options

Remember though that networks are very complex, in itself and to be managed.

Book 8: Organisational capabilities: culture and power

MBA Strategy, OUBS August 30, 2003 1 Comment

(Originally published on OUBS Blog)
The organisational paradigm are the beliefs and assumptions that make up “an organisation’s view of itself and its environment” (Johnson, 1988). Together with:
- stories and myths
- symbols
- rituals and routines
- control systems
- organisational structures
- power structures
- symbols
it builds the “cultural web” or an organisation.
Deal and Kennedy (1982) defined culture as ‘the way we do things around here’. Some of the elements of the cultural web are formal mechanism and others are informal. The meaning of those are what is significant. This is again made visible through the stories and myths, often used for sensemaking of events and hence not always accurate but more about getting the point across. Stories can be enhanced through rituals and routines.
A richer culture definition comes from Wilson and Rosenfeld (1990, p.229):
…the basic values, ideologies and assumptions which guide and fashion individual and business behaviour. These values are evident in more tangible factors such as stories, ritual, language, and jargon, office decoration and layout and prevailing modes of dress among staff.
This shows that organisational culture (what the “other” members value) is a very difficult to define beast, with corporate culture (what the dominant members value) being a small part of it. Often the values of the dominant are more important than of other individuals or even of society.
Culture can also be a capability or resource, also because in case it is a strong and homogeneous one, you might need less formal systems and procedures as control. To homogeneous can also mean group think though, which combined with a limited corporate (rather than organisational) view of culture can lead to too narrow horizons. A strong culture will include commitment to a strategic intent over a long time, making subsequent strategic shifts harder. A culture is a “sticky” factor that locks in an organisation.
In the public sector it is often tried to make responsiveness to the citizen part of the culture.
Many of our deep routed values have been shaped when we were young, teaching us what is right and what is wrong. Not all of them have to be codified in law. The question is whether working ethically will lead to success and Hosmer (1994) argued that equitable acts lead to trust, which leads to commitment. This commitment, when it is co-operative and innovate, can lead to success. To behave ethically you need to go above the law though, to work within norms and values in a worldwide community/society.
There is a close link between national cultures and organisational cultures, which can be seen in the difference between Japanese and Western way of doing things. The Japanese are using something called ‘simultaneous loose-tight coupling’ meaning that they have tight conformity to core values with looser control systems. These differences are not only rooted in culture though, but include financial, investment and policy for example. An analysis of 116000 IBM employees in the same or similar jobs found that culture, in relation to nationality, has some distinct dimensions that influence it:
- Power Distance: Acceptance of unequal power distribution
- Uncertainty Avoidance: Tolerance of uncertainty
- Individualism: Personal over Group achievement
- Masculinity: Dominance of masculine tendencies
The paradigm is empirically driven, built on experiences rather than a model of how things should be. They are built on beliefs that have repeatedly been validated. How can managers use this? In a top-down system the manager only pays attention to what he or she wants to pay attention to. In a bottom-up system, the management does not interfere with data.
As strategy making is a collective activity, we need to share each others maps and models of the corporation and the environment to find a collective course of action. This shows again that strategy is not linear and rational but more of a social and cultural contruct. The paradigm defines environmental ‘reality’. This makes it a powerful tool for coping with complex situations but also something that is a liability under change conditions. When performance of a company does not work out, we can fist find tighter control of our implementation, then we might reconstruct the strategy and only then would we attack and change our paradigm.
A knowledge creating company needs a special kind of culture and power structure. An example in the book is the middle-up-down process of knowledge management suggested by Japanese economics (Nonaka, 1991; Nonaka and Takeuchi, 1995).
Top down management assumes that only top managers are able to create knowledge and it only exists to be processed and/or implemented. It is good for dealing with explicit knowledge. Buttom-up management makes work autonomous allowing knowledge to be created at the bottom. It is good for tacit knowledge but due to the inherent autonomy this knowledge is extremely hard to communicate.
In the top-down model the fate of the company might be aligned with the fate of a few top managers and bottom-up knowledge creation can be very slow as it rests on the patience and talent of the individual.
Japanese companies seem to create knowledge in the middle management through a spiral conversion process involving top and front-line employees. They serve as the strategic knot. Knowledge can be interpreted differently in a different context and middle-management is used to orient knowledge creation towards a purposeful end, making available frameworks to sense making of new knowledge. Top management creates a dream and middle management develops concrete concepts for the front-line.
Culture, Power and Change
The paradigm is the outcome of all elements of the cultural web and cultural change likely needs to attack this paradigm head on, it must be challenged, discredited and devalued. This can be done by:
- use of an outsider who has little commitment to the current paradigm
- exposing the paradigm
- power reconfiguration
- advocating and legitimising dissent
- powerful advocacy
Senge sees leadership as culture-formation through building shared vision.
In terms of recovery and turnaround strategies there are a few things that generally are done (Slatter, 1984):
- change of management
- strong central financial control
- organisational change and decentralisation
- product-market re-orientation
- improving marketing
- growth via acquisitions
- asset reduction
- cost reduction
- investment
- dept rstructuring and other financial strategies
Important here is cash flow. It is also important to focus on those 20 per cent of the factors involved that have 80% of the impact (Pareto principle).
Power
Mintzberg (1983): Power is the capacity to effect (or affect) organisational outcomes
A relationship is needed for power to be present. This relationship leads to interdependencies and then one can argue that power is about the degree of dependence on the othe part of the relationship. The power of a unit can be seen in:
- the importance of the resource
- the control over allocation
- the substitutability of the resource
Important relationships are your stakeholders and the most important ones as of a study chaired by Sir Anthony Cleaver are:
- shareholders
- employees
- customers
- suppliers
- community
The power of any of those relationships depends on your paradigm and the setting of your cultural web.
Remember the following about managing strategy and power:
- power is present in all ofrms of the organisation
- understand power structures and how to management them
- restructure dependencies and resource allocation to manage power
- long-term external relationships are gaining importance and shared expectations are needed here
- you need to balance power
Lord Acton (1887): Power tends to corrupt and absolute power corrupts absolutely.

Book 7: Organisational capabilities: structures and systems

MBA Strategy, OUBS August 23, 2003 Leave a comment

(Originally published on OUBS Blog)

In this book structure refers to the boundaries of the organisation and the ways the activities inside are co-ordinated. Systems are about information types and flows. Burns and Stalker (1961) describe two possibly systems: mechanistic and organismic.

structural components, contingencies and configurations

This is based on Henry Mintzberg’s article “The structuring of organisations“.

Mintzberg’s six ideal structural types:

  Simple Structure Machine bureaucracy Professional bureaucracy Divisionalised form Adhocracy Missionary
Key part Strategic apex Technostructure Operating core Middle line Support staff Ideology
Co-ordinating mechanism Direct supervision Standardisation of work processes Standardisation of skills Standardisation of outputs Mutual adjustment Standardisation of norms
Dominant pull to: Centralise Standardise Professionalise Balkanise Collaborate Evangelise
Decentralisation None (centralised) Limited horizontal Horizontal Limited vertical Selective horizontal and vertical Full decentralisation
Planning and control Little Action planning Little Much performance control Limited action planning Little
Liason deviced Few Few In administration Few Many throughout Few
Typical examples Small owner-manager firms undertaking simple activities Fast food chains, airlines, telephone banking Hospitals, colleges, law firms Large conglomerates Creative advertising agencies, bespoke software boutiques Kibbutz, Revolutionary movements

Mintzberg argues that “organisations can select their situations in accordance with their structural designs just as much as they can select their designs in accordance with their situations.“

Strategy and Systems

When Daft and Macintosh (1984) studied 86 firms, the same six sub-systems apeared most often for the formulation of strategy:
- strategic plans
- long rang plans (5 years +)
- annual operating budgets
- periodic statistical reports
- performance appraisal
- policies and procedures

Band and Sanlan (1995) identified some more:
- structural devices like audits
- MIS
- budget and profit planning processes
- HR management arrangements
- R&D programmes
- work practices and norms
- explicit organisational values
- use of external instruments (e.g. benchmarks)

Remember that the information requirements are different from a hierarchical company to an adhocracy and telecommunications often made location less important.

As a control system for middle management, feedback is the most simply, comparing things to a standard and triggering action at variances. Problems are that there is a log between strategy formulation and feedback, feedback is vulnerable to poor specifications, misunderstanding and the feedback mechanism is sometimes designed too simple, e.g. only based on profitability.

Band and Scanlan (1995) suggest “feedforward” control:
- premise control (are our premises correct?)
- implementation control (are things happening as thought?)
- strategic surveillance (monitor threatening events)
- special alert control (scan for low-probability events)

A more comprehensive approach comes from Simons (1995), using both feedback and feedforward integrating corporate culture.
- Belief systems provide core values that are guiding for business strategy
- Boundary systems show risks to be avoided
- Diagnostic control systems (e.g. budgets) show critical performance variables
- Interactive control systems (stimulate search and learning) show strategic uncertainties and allow for challenging assumptions

Strategy, Structure and Systems

You should try to put structure and systems together to form a competitive advantage, a long term one. This will be a changing progression of different strategies, structures and systems, put together by Greiner in 1972.

(Phase, evolution stages – revolution stages, check Table 4.1)
Phase 1. Growth through creativity leads to crisis of leadership
Phase 2. Growth through direction leads to crisis of autonomy
Phase 3. Growth through delegation leads to crisis of control
Phase 4. Growth through co-ordination leads to crisis of red tape
Phase 5. Growth through collaboration leaders to Crisis of ?

Miller (1986) tried to show the close fit between strategy and structure:
The theme we wish to pursue here is that there are ties that unite strategy and structure; that given a particular strategy there are only a limited number of suitable structures and vice versa.

Structural change brings a process of organisational innovation, which can as of Chandler (1977) either be an adaptive response or a creative innovation going beyond the existing practices. A Competitive advantage also comes from being different though and hence, after the multidivisional structure had become the norm by the 1970s, firms having adopted it stopped to have superior performance by the 1970s.

Innovation in structures are always emerging. Some reasons are:
- erosion of advantage through immitation of old ones
- impact of new IT
- competitive pressure for flexibility and low prices
- rapid race for competitive innovation
- competitive focus on time as a source of competitive advantage
- growing importance of knowledge based assets

Galbraith and Lawler (1993) identified some new functional structures in organizations:
- modified function unit with fewer levels and less functions for faster response
- lateral unit with cross function teams
- superfunctions unit grouped arround core processes e.g. product generation at HP includes R&D, manufacturing and purchasing
- front-end/back-end hybrid (front around customer, end around products with lateral integration)
- network organization (seperate companies integrated through a network)
- function specialist (single function within informal network)

A closer look at those follow.

Transaction cost economics (TCE, Book 4) are used to identify whether to make or buy. An entire organization can be viewed as a system of exchange transactions. Information asymmetry (somebody has different info than somebody else) leads to transaction costs related to incomplete or missing information. This can be:
- search costs
- contracting or negotiation costs
- transaction control, regulation and audit costs
- maintenance costs to develp the contract or transaction

Based on this belief, the hierarchy was established to overcome imperfections in otherwise efficient markets. Changes in information technology has led to more efficient markets enabling:
- modified function unit uses IT to speed up information flow
- the superfunction unit re-aligns structures with key processes (based on customer needs)
- perfect markets can come from better access to information

These are just examples where information technology led to different flows of information enabling radical rethinking of structures

Network technologies also enable new ways of working with transactions now being conducted through markets, hierarchies and teams.

A lateral unit is a cross-functionl team-based organization like a team of specialists interacting through e-mail, groupware and open databases. The front-end/back-end hybrid requires effective integration of two different structurs with different integration needs to bring a good product or service.

Network organizations require a lead partner to integrate the network and function specialists simply rely on their specialist skills which are needed for a number of different informal networks.

Organization Structure and MAnagement Systems by Grant

MBA Strategy August 23, 2003 Comments: 2

(Originally published on OUBS Blog)

Ultimately, there may be no long-term sustainable advantage other than tha ability to organize and manage. – Jay Galbraith and Ed Lawler

The evolution of the corporation

At the end of the 19th century there were only big corporations in plantations, all the rest was personal business with lots of interation between different people. The emergence of factories made the contractor system with market relationships among workers, machine owners and merchants, inefficient.

The markets – firms difference is central here. In markets you have price mechanisms which direct the organization and in firms you have managerial direction. Which version you choose depends on efficiency. The idea is that when the administrative costs would be less than the transaction costs in a market, then firms a the more wise choice.

Railroads and the telegraph system allowed for multiple locations to be managed from one central office. Next came the devisionalised structure, the result of margers that started to happen in the 1920s. These started to not be devided by function but also by product. Here the strategic part of centralised while the operational was localised at a devision level.

Organizational Design

In general an organized human activity, as of Mintzberg, needs division of labor into tasks as well as coordinations of these task to the activity. In terms of division of labor, specialization will lead to immense productivity gains, as long as the coordination need as well as detatchment from the product of the individual does not become too big. Things that can be used for coordination are price (e.g. transfer prices between departments), rules and directives, mutual adjustment and routines.

In general, for individuals to work together, they need to see a reason to do so, something that can be called incentives. Different individuals have different goals though, which leads to the so called agency problem. Here the Principal contracts with the agent to act on in the principal’s interest. An example here would be the use of stock options for managers to allign their interest with that of the shareholders.

In the chapter, Bruce Henderson, founder of the Boston Consulting Group is quoted as saying: “Every production man’s dream is a factory that always runs at full capacity making a single product that requires no change… every salesman would like to give every customer whatever he wants immediately.“

Alignement can be achieved by:
- control mechanisms
- reward incentrives
- shared values

Hierarchy in organizational design

Coordination: Modularity will lead to hierarchy, is one belief. If looked at this broadly, hierarchy is adaptable, evolving and decomposable. You can even use loose coupling which enables things to change swiftly with the general architecture staying the same. Hierarchy will also allow coordination with less interaction (5 people either need 10 interactions between each other or one person with 4 interactions with the others).

Control: Bureaucracy, administrative hierarchies, have some principles:
- rational-legal authority
- specialization
- hierarchical structure
- coordination and control through rules and standards
- standardized employment rules and norms
- separation of jobs and people
- formalization
Therefor these are often called machine bureaucracies

There are mechanistic and organic forms, in which the organismic form is less formalized, more flexible and multidirectional.

Today we are rethinking hierarchy as the world arround us is changing ever faster which means that it is less predictable and stable, needing less bureaucratic systems.

designing organizations

You need to reconcile specialization with coordination and cooperation, which a solution being the hierarchy. How shall this be designed?

First, units need to be defined based on:
- common tasks (maintenance department, finance office, quality control)
- products (department story)
- geography (Wal-Mart)
- process

A basis can be the intensity of interaction. Whereever the most interaction is needed, there should be a unit grouping. Other factors of influence are:
- economies of scale
- economies of utilization
- learning
- standardization of control systems

alternative structural forms

The functional structure is often used with single-business firms, where centralization of functions can lead to scale economics, learning and capability building. With growth in size, the groups build their own values, norms and vocabularies and integration and establishment of semi-autonomous profit centers becomes difficult.

The multidivisional structure started with diversification within companies, as they offer the possibility of decentralized decision making. Matrix structure came about with the realisation that coordination needs to happen across functions, products and geographical areas in the end. The matrix structure was adopted a lot during the 1960s and 1970s and there’s a figure of the Shell Matrix pre-1996 on page 210 of the book. Looks interesting ;)

Nonhierarchical coordination structures are another thing, something that many companies have experimented with. Here are some:
- project-based organizations (e.g. oil exploration with highly differentiated project for limited time)
- adhocracies (innovation-oriented and organic, no standardization)
- shamrock organizations (as of Charles Handy, downsized, first-leaf is the tightly integrated professional core, second-leaf outsourced things from manufacturing to payrole, third-leaf temporary or part-time lowly integrated core support)
- Honeycomb organizations (self-organizing groups, like ants’ nests, complexity theory, example: AES Honeycomb)

Common features of nonhierarchical structures are:
- focus on coordination rather than control
- reliance on mutual adjustment
- individuals have multiple organizational roles

Management System for Coordination and Control

Four are of primary importance:
- information systems: the ability to supervise depends on the flow of information upwards
- strategic planning systems: whether formal or informal, systematic or ad hoc, it is a strong means of coordination. A strategic plan often includes: a statement of goals, a set of assumptions or forecasts, a qualitative statement, specific action steps, a set of financial projections
- financial planning and control system
- capital expenditure budget
- the operating budget
- human resource system
- corporate culture as a control mechanism
- integrating different control mechanisms

The Structuring of Organizations by Henry Mintzberg

MBA Strategy, OUBS August 23, 2003 1 Comment

(Originally published on OUBS Blog)
In this article, Mintzberg argues that “parameters of organizational design should logically configure into internally consistent groupings.”

There are six basic parts of an organization:

  • operating core: here production happens
  • strategic apex: tom management
  • middle line: middle management
  • technostructure: e.g. analysts that design systems, processes, etc…
  • support staff: support outside of operating workflow
  • ideology: halo of beliefs and traditions.

There are also 6 basic co-ordination mechansims
- mutual adjustment (among the core, people coordinate among themselves, only means under extremely difficult circumstances)
- direct supervision (from the top to the core)
- standardization of work processes (by technostructure to core)
- standardization of outputs (not what is done but what the result will be)
- standardization of skills (the worker is standardized)
- standardization of norms (common set of beliefs)

There are some design parameters that can be changed. These fall into different categories:
(individual positions)
- job specialisation
- behaviour formalisation
- training
- indoctrination
(superstructure to knit it together)
- unit grouping
- unit size
(lateral linkages)
- planning (ahead of time) and control (afterwards) systems
- liaison devices
(decision-making systems)
- vertical decentralisation
- horizontal decentralisation

Next we have the situational factors, which influence the choice of the design parameters and vice versa:
1. Age and size:
- the older, the more formalized the behaviour
- the larger, the more formalized the behaviour
- the larger, the more elaborate the structure
- the larger, the larger the average unit
- the structure reflects the age of founding of the industry

  1. Technical systems:
  2. the more regulating, the more formalized and bureaucratic the work
  3. the more complex the more elaborate the administrative structure

  4. the automation of the operating core moved a bureaucratic administrative structure into an organic one

  5. Environment
    : The more dynamic the more organic the structure

  6. the more complex, the more decentralized the structure
  7. the more diversified the markets, the more propensity to split into market-based units
  8. extreme hostility drives centralized structure temporarily

  9. disparity in environment call for differentiated work constellations

  10. Power

  11. the greater external control the more centralized and formalized the structure
  12. power needs of individuals foster centralized structures
  13. fashion favors the structure of the day

This leads us to six basic configurations (Table 12.1 has a great summary here)
- the simple structure: just some operating core and top management
- the machine bureaucracy: more elaborate administration with technostructure and support.
- professional bureaucracy: standardization of skill rather than processes and hence a bigger support than technostructure
- divisionalized form: several sup-structures
- adhocracy: this is for companies that need project structures, creative teams dominated by a pull to collaborate.
- the missionary: pull to evangelize, loose divisions of labour, little specialization, often very young company

The leader’s new york by Peter M. Senge

MBA Strategy, OUBS August 19, 2003 Leave a comment

(Originally published on OUBS Blog)
The leader’s new york: building learning organizations, by Peter M. Senge is part of Book 8 and about the organization of the future, “a consummately adaptive enterprise” as of Fortune magazine. The impulse to learn is an impulse to expand our capability.
Leaders are often believed to be heroes but in learning organizations they are not the charismatic decision maker but rather designers, teachers and stewards. Their role is to build a shared vision, bring out and challenge mental models and to bring about more systemic patterns of thinking. Leaders are responsible for learning.
You start with creative tension, meaning the natural tension due to the gap between a vision and the ‘current reality’. Here an accurate picture of the current reality as well as a compelling picture of the desired future is important. The energy for change needs to come from the vision though, as it makes motivation intrinsic. In change coming from current reality youare likely to be problem solving which is more extrinsic and short lived.
New Roles
You will need a few new roles, or new role definitions:
-> The leader as designer
On an ocean liner, the leadership role can be said to be the designer. What this means is that without good design, being an organizational leader is fruitless. To design an organization you need to first design what Senge calles the governing ideas (purpose, vision, core values). You then move on to policies, strategies and structures to guide busiiness decisions. Behind those though, you need effective learning processes to ensure that everything is continuously improved.
-> The leader as teacher
Here it is important to help to gain a better grasp of current reality which needs real attention to people’s mental models as we all only carry assumptions in our heads, not realities as such. Leaders can influence people in three ways:
- Systemic structure (generative): addresses causes of behaviour where patterns of behaviour can be changed
- Patterns of behaviour (responsive): Assess long term trends and their implications
- Events (reactive): who did what to whom
They largely teach by example.
-> The leader as steward
This is more a matter of attitude. You serve first and that makes you lead. People will be inclined to learn when they do something they consider worthy of their fullest commitment. (Stewardship: the careful and responsible management of something entrusted to one’s care)
New Skill
These new leadership roles require new skills.
1. You need to build a shared vision, which means you need to:
- encourage personal vision as people’s capacity for caring is personal
- communicate and ask for support (‘Is this vision worthy of your commitment?’)
- see visioning as an ongoing process, not as a fixed wording on a web page, but rather as a the continuous question of what you want to achieve
- blend extrinsic (beat competitor a) and intrinsic (build the best product) vision
- distinguish positive (aspiration) and negative (fear) visions
2. You need to bring to surface and test mental models by:
- seeing leaps of abstration, meaning confusion of generalization with observable data
- balancing inquiry and advocacy
- distinguishing espoused theory from theory in use (e.g. you proclaim people trustworthy but lend no money to friends)
- recognising and defusing defensive routines, which often needs a high degree of self disclosure of your own defensiveness
3. Finally you need systems thinking, focussing less on the day-to-day events but on the underlying trends and forces of change. You need to:
- see interrelations , not things, and processes, not snapshots
- move beyond blame
- distinguish detail complexity and dynamic complexity
- focus on areas of high leverage
- avoid symtomatic solutions
New Tools
To do all this you need new tools. One option might be to be aware of system archetypes that exist and happen again and again.
- you might need to balance a process that has delays and might overshoot
- growth is limited
- shifting the burden and using short-term solutions
- eroding goals (when all else fails, lower your standards)
- escalation
- tragedy of the commons
- growth is stopped with underinvestment
Another thing to do might be to look at strategic dilemmas in a different way. An example here would be to stop looking at low costs – high quality as a choice of either or. To do this, Chargles Hampden-Turner suggested several steps:
- Identify the opposing values
- Map them at opposing axes
- Get rid of nouns to describe them (local control becomes growing local initiatives)
- frame and contextualise by making each side the frame or context of the other
- sequence all the steps without thinking about time
- take into account that there might be high and low cycles
- synergise
Senge ends this one with a quote:
The wicked leader is he who the people despise.
The good leader is he who the people revere.
The great leader is he who the people say,
‘We did it outselves.’

Book 6: Putting process into strategy

MBA Strategy, OUBS August 16, 2003 Comments: 2

(Originally published on OUBS Blog)
The book starts with Agenti’s (1980) corporate planning process. This goes through five stages, from target setting, gap analysis, strategic appraisal, strategy formulation to strategy implementation. There is a good figure on page 6-6 for this one. In essence it says that analysis should preceed choice and choice should preceed implementation.
In reality, Johnson and Scholes (1993) argue that choice, analysis and implementation are overlapping process of the entire process and only in a deliberate strategy do they follow one after the other.
Time is a crucial competitive advantage when moving from part to part of the process, to be able to learn. Value chain analysis can help in speeding up the process.
To speed things up you either need to complete each process faster or do them next to each other at the same time. There is a list of Eccles’ factors for strategic change on page 6-11
strategic decisions
As of Simon (1977) at the heart of strategic management lies the concept of making decisions to reach corporate objectives. This leads to the decision making process in which you need to first recognize that a decision needs to be made, search for information, evaluate that information, decide and then to a post decision evaluation. There are a number of ways to come to a decisions though.
- Nesting: breaking it down into smaller decisions
- Snowballing: minor decisions develop into a strategy
- Recurrence: you take the same decision, or look to take it, several times over
Impediments and delays (as of Hickson et al.) come from:
- sequencing: other issues believed to be more important
- co-ordinating: waiting for resources
- timing
- searching: waiting for information
- problem solving
- supplying: waiting for availability of resources
- recycling: reconsidering earlier decisions
- internal resistance
- external resistance
Not all decisions are alike. Constricted decisions involve many sources of expertise but no additional information is looked for.
Sporadic decisions are characterised by delays and impediments and flued decisions involve variable information, negotiation, senior management involvement and need less time.
Patterns of strategic decisions
Mintzberg and Water (1985) define strategy as “a pattern in a stream of actions”.
Politics, MacMillan (1978) defines them as processes where actors try to influence to reach their goals, is part of strategy formulation. You should:
- analyse the power and influence of each stakeholder group
- determine allies and opponents
- negotiate with allies
- formulate offensive and defensive strategies for opponents
Power can be used to restructure situations, influence and modify the perceptions of others. Power and influence together determine political ability.
Morgen (1986) identified the following power bases:
- formal authority
- control of scarce resources
- organisational structures and procedures
- control of decision process
- control of knowledge and information
- boundary management
- ability to manage uncertainty
- control of technology
- alliances and information networks
- countervailing power
- symbolism and the management of meaning
- gender power
To find allies and opponents you can use the actor/issue matrix, which puts the issues in relation to the actors. You can also use a relationship matrix to find out who will support whom. Force field analysis is another important point, which shows you forces for and against change.
A tactician will try to find reasons and sourclles of opposition trying to reduce them.
Political strategy formulation goes through the following steps:
- set objectives you can reach against opposition
- select allies
- use political capability as bargaining base
- do not accept an agreement with an allie that achieves less than acting alone
- select a compination of allies
- match your and your allies strenght and weakneses against those of your opponents
When preparing for negoations, MacMillan (1978) suggest to:
- collect relevant facts beforehand
- classify them in relation to issues likely to arrise
- clarify and prioritise objectives
- choose sequence
- choose strategy for negotiation
Three factors must be kept in mind:
- timing
- information
- options available
Strategies are often developed in incremental processes, as it needs to adapt to outside and internal changes. The strategiest needs to be able to look outside even though there will be a lot of negotiation and bargaining inside of the company.
There are three ways that a strategy can develop. Through:
1 leadership, participative or authoritarian, using
- involvement and participation
- education and communication
- support and facilitation
- negotiation
- manipulateing
- co-opt
- coerce
The style needs to fit the circumstance and it has a great influence on the culture of the organisation.
2 culture
Myths and stories communicate a collective experience. Managers develop similar menthal models, which leads to resistance with models not consistent with their own.
3 Enforced choice
This is illustrated in Mintzberg’s imposed strategy
The strategy development process has been put into an integrated model by Bailey and Johnson (1995), which includes six dimensions of strategy development: Planning, Political, Incrementalism, Command, Cultural, Enforced choice. In each company there are different degrees of the different dimensions.
Strategic Thinking
Weick and Roberts (1993) argue that strategic thinking is not only about the right mental model and cognitive style, but also about a feeling for actions and mental models of others.
Organisational Learning
Organisations that are learning more successfully build a greater pool of capabilities. Walsh and Ungson (1991) found six sources of information that can be learning from:
- culture, with heroes, symbols, … can be guiding
- transformations can be copied
- structures (specialist knowledge)
- ecology, physical floor layout holds information about status for example
- external archives
- individuals
Watching individuals actions are likely one of the most important points of learning in an organisation.
Management writing is an external source but it needs to be tailored to the own organisation.
Single-loop learning means changing your mental models incrementally. Double-loop learning is about re-evaluating our mental models and radical change. We kind of evaluate our way of evaluating too.
Learning organisations try to promote learning at all levels of the organisation. Schein (1992) believes that the learning culture needs:
- belief that the strategic environment can be influenced
- encouragement to solve problems proactively
- everyone can be questioned
- there is no best way
- look into the future
- open communication
- diversity with communication
- acceptance of complexity

Book 5: Choosing Strategies

MBA Strategy, OUBS August 6, 2003 Leave a comment

(Originally published on OUBS Blog)

The purpose of this book is to “explain the wide choice of strategies available and to identify criteria to aid the strategist’s choice”.

Formulation and sources of competitive advantage

When thinking about strategies keep in mind what the company objectives are (book 2) as well as strategic fit (book 1). To find a feasible strategy, ask three questions:

  • Where are we now? (resources and capabilities)
  • Where do we want to go?
  • How do we get there?

Remember that your strategic choices could be limited by different things like legal reasons. To find those limits you can use:

  • Mandate analysis by looking at what must be done, what could be done and what must be not be done
  • Stakeholder analyis by looking at what the stakeholder groups think success is.

Sources of corporate success as of Kay (1993) comes from

  • Relationships matching -> distinctive capabilities and strategic assets based on -> a competitive advantage derived from -> corporate success

A way to find success is to find “rent” (value added), which only happens when your company works better than another company in the same industry.

Kay believes that there are three distinctive capabilities:
- architecture (relationships)
- reputation (with suppliers and customers, need to be maintained)
- innovation (compete more efficiently)

Strategic assets can also be a source of competitive advantage:
- natural monopolies
- sunk costs
- exclusivity

generic strategies

Porter has talked about generic strategies being available to a company:

  • cost leadership: you set out to be a low cost provider, which gives you additional flexibility in your pricing structures
  • differentiation: select attributes for your products that are perceived as important to be able to have a price premium. You still need a good cost position
  • focus: using cost or differentiation you outperform your competition by focusing on a special part of the market

For a cost based strategies you have several drivers of your cost advantage:
- economies of scale
- economies of learning
- process technology
- product design
- process design
- capacity utilisation
- input costs
- residual differences in operating efficiency

You need to find out what the cost position of your competition is though as only the difference between you and them provides an advantage.

Differentiation based strategies is about a balance of unique benefits with the associated additional costs in the case of a broad differentiation and finding a unique segment that is willing to pay extra in terms of focus.

To put the generic strategies in perspective it should be kept in mind that the industry structure is important and the position needs to fit that market and keep in mind new entrants.

Bowman and Asch (1996) added that in our complex world, a lot need to be kept in mind. Customers for example do not care about the input side (costs) and not all differentiators lead to a price premium. You need to pay attention that you are not forcing yourself into one box.

Miller (1986) suggests that you can either use asset intensity (efficiency of asset usage) or asset parsimony (maximum variety out of assets)

Innovation as a source of competitive advantage is important as it can lead to creative destruction (Schumpeter, 1934), meaning large shifts in industry structure. Banbury and Mitchell (1995) believe that incremental product innovation are crucial to survival of a business. Your innovation might also depend on complementary innovation (MP3 downloads need high bandwidth). Freeman suggests that techno-economic paradigm changes, changes of innovations, organisational and institutional changes, are very important.

strategic options

He the book talks about Ansoff’s product/market matrix (1965) which puts different strategies into a matrix of present and new in both market and product category.

present/present
- market penetration: get existing market share by competitive advantage or changing basis of competition
- consolidation: firms need to grow in line with market, in mature markets market shares are stable, in declining markts assets change between companies
- liquidation: if resources are better deployed elsewhere

present products in new markets
- market development: geographically or in terms of customer needs. often in small or emergent markets; high risk strategy

new products in present markets
- product or service development: where existing products do not fully exploit all available opportunities

new products in new markets
- diversification: horizontal integration can lead to value greater than the sum of its parts; biggadike (1979) found that this normally needs 8 years to bear fruit

This matrix provides us with a deeper look at selecting generic strategies.

Testing options and choices

Johnson and Scholes (1988) suggest testing for:
- suitability
- feasibility
- acceptability

Rumelt (1955) suggest:
- consistency
- consonance
- advantage
- feasibility

There is risk in not looking at the probability of the foreseen outcomes, which does not mean that you need to remove uncertainty. Perceived risk is largely in the eye of the person thinking about it.

Tapiero suggests looking at all forecasts and then estimating their probabilities

The real world is about weighting risk and return. These need to be weighted (could be in a matrix after Day 1990)

Cost Advantage

MBA Strategy, OUBS July 1, 2003 Leave a comment

(Originally published on OUBS Blog)

In this capter Grant puts the focus on price as the principal source of competitive advantage.

Economies of Experience

In 1968 the Boston Consulting Group published an article called Perspectives in Experience which brought to light the experience curve. This lead ot the “Law of Experience”:

The unit cost of value added to a standard product declines by a constant percentage (typically between 20 and 30 percent) each time cumulative output doubles. (unit cost of value added = total cost – cost of bought components and materials)

In logarithmic form, the curve becomes a straight line with the formuly being Cn = C1 * n^-a where n is the cumulative volume and a the cost elasticity.

This leads to several implications. For one, your cost relative to your competitors depends on your relative cumulative output and in that sense, market share is a strategic goal. Honda priced its motorcycles to meet market share objectives because of that, which is different than pricing based on current costs. It’s about pricing your products in regard to likely future costs in relation to future market share. There are still questions though if market share is really the right thing to achieve, because::
- association is no the same as causation (does market share or profit come first?)
- market share can still be unprofitable
- fallacy of competition … if everyone tries to get the market share and there are many everyones, then you get into trouble.

The sources of cost advantage

You need to identify the cost drivers of your specific environment. You also need to understand where a companies unit costs come from and how it could improve them.

Economies of scale arise from:
- technical input-output relationship (a 10000 barrel tank does not cost 5 times a 2000 barrel tank)
- indivisibility (no small sizes)
- specialization (no division of labor to promote learning, avoid time loss,…)

Scale economies are seldom in production but for consumer goods are often found in marketing. It costs the same to market Coca Cola than Pepsi but for Coca Cola, it costs a lot less per bottle. This is also something that is very hard to take away.

(The next chapter starts with a quote here, from Warren Buffet, who through Berkshire Hathaway is Coca-Cola’s biggest shareholder, which I’d like to quote here: If you gave me $100 billion and said, “Take away the soft drink leadership of Coca-Cola in the world,” I’d give it back to you and say, “It can’t be done.”)

Consolidation in the automotive industry also comes from costs associated with new model development. The same is true for the airline industry and in software especially.

Limits to scale economies comes in places where:
- product differentiation leads to small segments highly profitable
- flexibility doesn’t work well with scale-efficient production
- problems of motivation and coordination come with big units

Economies of learning as such are important because through repetition you cut time used and waste and defects. With active-matrix flat screens, yield rate is key, and hence companies that are already in the market have a considerable lead because they have gained a lot of experience.

Process technology and design can be used to reduce the (monetary total) units of inputs for the same output. Changes in these processes often need supporting changes in a lot of different parts of the organisation. Often, changes with the greatest effect come from process changes in organizations processes rather than in technology.

Business process reengineering was defined by Michael Hammer and James Champy as follows: the fundamental rethinking and redical redesign of business processes to achieve dramatic improvements in ciritical contemporary measures of performance, such as costs, quality, service, and speed.

You ask yourself how you would design a given process in case you were starting from zero. The book lists examples here of things that often happen, which is not the right approach though in my mind as it will limit you in your thinking. This is not about doing more of the same but about doing more totally new things. The important thing is to really understand the process you are trying to reengineer.

Product design can lead to cost savings when you design-to-manufacture for example.

Capacity utilization becomes important in industry where fixed costs are high, like the airline industry.

Input costs can be (made) important when:
- locational differences are there
- you own low-cost sources
- non-union labor
- bargaining power is on your side

Residual efficiency is about removing slack in your orgnization. Think gap analysis, just any gap.

Using the value chain to analyze costs

Disaggregate your company’s value chain to find the costs associated with each activity and better analyse each step, linkages and find potentials of outsourcing. Figure 8.6 is very thorough here.

Managing cost cutting

There are dynamic aspects of cost efficiency and companies should focus on the long term through continuous improvements. Radical cost surgery are needed in cases where major changes are needed boost financial performance and/or regain investor confidence. This needs a tough top down hand.

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