Pengurusan Strategic 2 MARA ppt

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Information about Pengurusan Strategic 2 MARA ppt
Education

Published on April 15, 2008

Author: Silvia

Source: authorstream.com

PART TWO:  PART TWO STRATEGIC MANAGEMENT PERSPECTIVE IN REAL LIFE THE STRATEGIC MANAGEMENT PERSPECTIVE:  THE STRATEGIC MANAGEMENT PERSPECTIVE Work of senior managers - executives with responsibilities for running an entire business. Harry Truman captured a great deal of it when he said,”The buck stops here. The executive is responsible for the results of the corporation’s behavior, the earning, the balance sheet, the quality of the company in the towns and countries where it operates - everything. At the same time, customers look to the executive as the ultimate salesperson for the company. The people of the organization look to him or her for personal leadership. All actions and words are interpreted for meaning, and inconsistencies are duly noted. Cont...:  Cont... An important characteristics of the executives is simply their stamina. Physicals and intellectual toughness is key attributes of business leaders. BUSINESS POLICY Business policy “is study of the functions and responsibilities of senior management, the crucial problem that affect the success of the total enterprise, and the decisions that determine the direction of the organization, shape its future, and, when well implemented, secure its achievement”. A CONCEPT OF “STRATEGIC MANAGEMENT”:  A CONCEPT OF “STRATEGIC MANAGEMENT” It is useful to consider it in terms of three roles, strategist, organization builder,and doer. These three roles encompass the task of:- Crafting the strategy of the organization and communicating it to the organization. Managing the resource allocation process that it reflects the strategy. Managing the selection, training, and progress of the people in the organization and building a positive work environment, designing the structure and systems that provides context for the operations-both so that capabilities increase in areas that permit moving toward strategic objectives. Intervening personally where necessary to drive forward and raise the quality of day - to - day performance. THE SENIOR MANAGER AS STRATEGIST:  THE SENIOR MANAGER AS STRATEGIST Need to coordinate activity around a common goal and that the goal had better be realistic. This is a key component of the work - it involves thinking about what needs to be done, communicating what has been decided, and motivating others to contribute their efforts. It relates to work of marshalling and allocating resources so that the capabilities of the organization are directed in line with strategy, And it involves to a critical degree shaping the character of the people of the organization and the environment in which they work. THE SENIOR MANAGER AS ORGANIZATION BUILDER:  THE SENIOR MANAGER AS ORGANIZATION BUILDER Whether an organization is successful over time depends as much on its capabilities. Achieving more means that those capabilities must be improved. Giving shape to processes and practices involves designing the organizations and its systems for measure and information, for planning, for budgeting and control, and for reward and punishment. These architectural activities are complemented by choosing ventures and projects that build the strength of the organization. THE SENIOR MANAGER AS DOER:  THE SENIOR MANAGER AS DOER The way a general manager uses time in the day has an enormous impact on the organization. His or her ethical and intellectual standards, working hours, approach to people, attention to customers, and consideration of family are the models for the senior management. Their example is education for the subordinate executives. In this way, the individual shapes the behavior of the company and its reputation in the community. THE SKILLS OF THE SENIOR MANAGER:  THE SKILLS OF THE SENIOR MANAGER In performing these three roles, general managers draw on many skills. General managers must have sufficient analytic skill to be capable of diagnosing both the economic and administrative components of the situation. Must be able to deal with vital details as well as the big picture Strength is the ability to see patterns in detail and link these to useful concepts. Need to develop good judgement. Apply their experience and analysis quickly and decisively. Intuition is “knowledge and experience processed so as to be instantly available wisdom.” Senior managers also need creativity, the ability to take risks, and the ability to integrate. Cont...:  Cont... Repeatedly, the skill that distinguishes an effective leader is the ability to invent a solution that turns a problem into an opportunity. They see when taking a risk is worth the potential cost and move forward boldly. Both creativity and risk taking in management are aided by an integrative perspective. The ability to link vision and exhaustive detail in a comprehensive view enhances the chance for success and reduces the likelihood of surprise outcomes. An absolutely vital skill is the ability to communicate clearly one’s vision and logic. Finally, and perhaps most valuable of all, senior managers rely on their skills with people. This leads us directly into the interrelated work of building and transforming organizations. PHIL KNIGHT:CEO AT NIKE:  PHIL KNIGHT:CEO AT NIKE I have always felt that if we had the right product at the most economical cost, we’ll figure out a way to sell it. Everybody talks about our marketing, and it has a good product with enough margins for the right marketing expense. And it’s all worked because of the people we’ve had – Phil Knight, Spring 1983. HISTORY In 1962, during his final semester at Stanford Business School, Phil Knight wrote a term paper about a business opportunity to create a better track shoe. In spring 1983, he reflected on the term paper and the origins of his business idea: Adidas shoes were beginning to dominate the U.S. market, and it didn’t make any sense. Following graduation in 1962, Knight visited Japan and presented himself as a shoe importer, using the name “Blue Ribbons Sports” (BRS), to Onitsuka, the manufacturer of Tiger brand shoes. Cont…:  Cont… When the first 50 pairs arrived in 1964, Knight and coach Bowerman each invested $500 and officially launched BRS. 1969 - Bowerman’s design changes, and the company was building a strong brand name among serious athletes. By 1972, sales were $2million, and Onitsuka decided it wanted to do its own U.S. distribution. Onitsuka offered to buy 51 percent of BRS and threatened to end all supplies if company refused. The new shoe were called NIKE ( a name Jeff Johnson, NIKE’s first full-time employee, said appeared to him in a dream) and bore the “swoosh” logo (created by a now - famous graduate design student for $35). Knight recalled: I can remember in 1976 … we’d never had a guy make the Olympic team in NIKE shoes. Sales had risen to $649 million by year - end 1982, from $2million 10 years before, and over the same period. NIKE had displaced Adidas as the dominant force in the United States. THE ATHLETIC FOOTWEAR INDUSTRY:  THE ATHLETIC FOOTWEAR INDUSTRY In the 1970s came the revolution: America discovered jogging, and health and fitness in general became national obsessions, particularly for the younger and more affluent. One industry observer commented: Running was never the lifeblood of running shoe sales. Comfort was. And anyone who tried on a running shoe was reluctant to step back into a less comfortable conventional shoe. No wonder women want to walk to work with high heels under their arms and running shoes on their feet. In 1982, NIKE dominated the branded athletic shoe market with an estimated 30%market share; Adidas followed with 19%, then Converse (9 %), Puma (7%), and Keds (7%). NIKE’s EVOLVING STRATEGY:  NIKE’s EVOLVING STRATEGY NIKE exploited its design capabilities, market channels, and its name recognition to other sports (soccer, football, tennis, etc.), to other users (joggers, nonathletes, children), to other features (greater specialization of sole, lacing, and external materials for different individual’s comfort), and to other products (leisure shoes, apparel). Nike mangers viewed the footwear market as a pyramid, with a small peak (serious athletic). During the 1970s, the company maintained its strong position at the top of this pyramid. NIKE spent about $20 million in 1982 on promotion. At the same time, NIKE remained active at the grassroots level, sponsoring local races, presenting clinics for area high school coaches and trainers, and donating shoes to promising local athletes. NIKE employees themselves, typically athletes or former athletes, added credibility to these business efforts. NIKE MANAGEMENT:  NIKE MANAGEMENT Phil Knight’s Leadership The source of NIKE’s leadership and spirit was Phil Knight, considered a man with strong passion and an overriding commitment to excellent products. A person unafraid of making decisions when necessary, he also strongly believed in teamwork and maintaining an informal, open atmosphere across the organization. A major strength was his ability to gain commitment at the highest practical level. Remarked a senior manager: One thing Knight has taught us is that you can always do something better. The values of competition, excellence, individual effort, team commitment, and a never - ending pursuit of improvement could be traced to Knight. You can’t make a silk purse out of a sow’s ear. But take an athlete with some talent, and with motivation and desire, he can do much more than a supper talent who sits on his ass. ORGANIZATIONAL EVOLUTION:  ORGANIZATIONAL EVOLUTION Knight kept NIKE’s formal structure relatively flat, functional, and flexible. He believed that this “simpler setup” had been a help to the growing company. MEETINGS Most meetings were scheduled in response to needs rather than according to preset cycles. Managers appeared able to discuss issues along multiple dimensions, and several often took the lead in moving a session forward. “We don’t invite the organization chart to a meeting,” Bob Woodell said, “we invite people who can contribute to the issue.” REPORTS AND REWARDS:  REPORTS AND REWARDS Woodell saw the budget as a “scorecard” rather than a planning tool. Most people considered NIKE an exciting place to work, for the company, in effect. Woodell expressed it, “What we like is for people to come in and say, “I want to contribute.” In return, management “took care of” people, in part with pay, but more with opportunities for growth, responsibility, and contribution. As Knight explained, “It’s really not so much salary as it is job responsibility, or the perception of it.” There was a general sense within NIKE that the company was “fair.” CHALLENGES:  CHALLENGES NIKE’s success to date was due in large part to the unconventional, freewheeling, entrepreneurial people. NIKE, more than anything, is a group of people who have learned how to work well together, how to bring the best out of each other. Being Number One, I worry that we’ll become arrogant and start to believe we deserve the success, that we’ll get lazy and stop reading the market. CRAFTING OF STRATEGIES:  CRAFTING OF STRATEGIES STRATEGY DEFINED The concept of corporate strategy was developed to help managers think about questions of this magnitude. Strategy has to do with the life and death of firms. Whatever is precedent setting, has a major impact, or affects the values and goals of a firm is strategic. Andrew’s definition of corporate strategy as “the goals of the firm and the pattern of policies and programs designed to achieve those goals.” In this sense every firm has a strategy to the extent that its behavior is guided by some purpose. In order to identify the strategy of a firm we need to answer a series of questions about products and processes. Cont...:  Cont... Over the long term, what is the firm trying to accomplish? What are the products and services that the firm sells? To which markets does it sell them? What is the economic model? What are its principal functional policies? What are its principal management policies? For example, Nike designs athletic footwear, even performing R&D, but does not own factories. It adds value through skillful design, sourcing, marketing, distribution, and coordination of these functions. In contrast, Honda adds value through great design and manufacturing skill. They are master manufacturers. EXPLICIT STRATEGY:  EXPLICIT STRATEGY Mintzberg calls “emergent strategy”, reflecting its origins in the unfolding history of the firm, in contrast to intended strategy, which is the product of more or less rational analysis of appropriate purpose. Michael Porter has introduced the idea of competitive strategy. What has made Porter’s analysis so popular is that having adopted a broad definition of strategy it then narrows focus on the economic dimensions of strategy, providing for the reader a powerful framework for analyzing industry and competitive forces Strategy is a logic of ends and means. Its use can inspire or demoralize an organization. SOUND STRATEGY:  SOUND STRATEGY At its essence, a sound strategy must be internally consistent and congruent with its environment. Internal Consistency - involves the basic matter of whether the company has full complement of resources to undertake its objective. Environment Consistency - Equally important to the soundness of a strategy is the validity of the environmental analysis on which it is based. The capabilities that they apply to the business are not appropriate to meet customer needs. Together they make the point that strategy is about fit among the many elements of a firm’s activities and between the firm and its environment. Long - term success is always associated with this kind of strategic fit. In making it happen the concept of strategy plays three roles: Market Opportunity. Corporation’s capabilities. Clear understanding of the mission and values that guide their diverse activities. A STRATEGIC VIEW OF MARKET OPPORTUNITY:  A STRATEGIC VIEW OF MARKET OPPORTUNITY An absolutely essential idea underlying the concept of corporate strategy is that the same markets pose different opportunities for individual companies. To understand why tiny Canon could successfully attack giant Xerox’s hold on the copier market. Canon conceived that there would be a big demand for small copiers that could be located near each group of desks in an office. A STRATEGIC VIEW OF CAPABILITIES:  A STRATEGIC VIEW OF CAPABILITIES A strategic view measures the resources of a company against the needs of customers and the strength of competitors. Whether a company possesses “competence” is determined by competitors and customers, not just internal assessments. Knowing what skills are key helps greatly in knowing where to invest. In the 1950s, the sociologist Philip Selznick developed the idea of “distinctive competence.” Led the development of its formidable technical capabilities, IBM was able to hold share in the information system markets of the early 1950s on the basis of its sales force’s strength - IBM’s sales force was “selling solutions”. Cont...:  Cont... Understanding the commercial data processing needs of their customers was a distinctive competence of IBM. At Harvard Business School, where the authors work, our predecessors saw the importance of teaching about management by simulating the process of management problem solving in the classroom using cases. Using “the case method” is a distinctive competence of our school. What Selznick saw was that leaders had to understand the distinctive competence of their organization so that the missions they undertook were congruent with the task that could be performed well. WAL - MART STORES, INC:  WAL - MART STORES, INC In Forbes magazine’s annual ranking of the richest Americans, the heirs of Sam Walton held spots five through nine in 1993 with $4.5 billion each. Sales per square foot of nearly $300 at Wal - Mart surpassed the industry average of $220. Wal - Mart was the first retailers to invest heavily in information technology, and it was a widely held belief that Wal - Mart had revolutionized many aspects of retailing. The company went from sales of $16 billion in 1987 to $67 billion in 1993. The main issue faced by Glass and Soderquist was how to sustain the company’s phenomenal performance. DISCOUNT RETAILING - GENERAL BACKGROUND:  DISCOUNT RETAILING - GENERAL BACKGROUND Discount stores extended this approach to general merchandise by charging gross margins that were 10 - 15% lower than those of conventional department stores. To compensate, discount stores cut costs to the bone: fixtures were distinctly unluxurious, in - store selling was limited, and ancillary services, such as tailoring, delivery, and credit, were scare. Sales grew at a compound annual rate of 25% from $2 billion in 1960 to $19 billion in 1970. Of the top 10 discounters operating in 1962, the year Wal - Mart opened for business, not one remained in 1993. WAL - MART HISTORY:  WAL - MART HISTORY Providing value was a part of the Wal - Mart culture from the time Sam Walton opened his first Ben Franklin franchise store in 1945. After his idea for opening stores in small towns was turned down by the Ben Franklin franchise, Sam and his brother Bud opened the first “Wal - Mart Discount City” store in 1962. Our strategy was to put good - sized stores into little one - horse towns which everybody else was ignoring. About one - third of Wal - Mart stores were located in areas that were not served by any of its competitors. By 1993, 55% of Wal - Mart stores faced competition from Kmart stores, and 23% from Target. By 1993, it operated in 45 states. SAM’S LEGACY:  SAM’S LEGACY Sam Walton died in April of 1992 at the age of 74 after a long fight with cancer. He believed in the value of the dollar and was obsessed with keeping price below everybody else’s. On buying trips, Sam’s rule of thumb was that trip expenses should never exceed 1% of the purchases, which meant sharing hotel rooms and walking instead of taking taxis. Sam spent as much time as possible in his own stores and checking out the competition. He was known to count the number of cars in Kmart and Target parking lots, and tape - measure shelf space and note sale prices in Ames. Sam knew his competitors intimately and copied their best ideas. Cont...:  Cont... Sam said that the most important ingredient in Wal - Mart's success was the way the company treated its associates. If you want the staff in the stores to take care of the customers. Sam described his “management by walking and flying around.” Others at Wal - Mart described it as “management by wearing you down” and “management by looking over your shoulder.” On managing people, he said, “You’ve got to give folks responsibility, you’ve got to trust them, and then you’ve got to check up on them. Sam ran the business as an open book and maintained an open - door policy. Cont...:  Cont... The corporate mission was to excel by empowering associates, maintaining technological superiority, and building loyalty among associates, customers, and suppliers. MARKETING Wal – Mart’s promotional strategy is “everyday low – prices”. At Wal – Mart, advertising expense was typically 0.5% of sales, versus 1.8% at Kmart, 2.7% at Sears, and the 1.2% industry average. Wal – Mart’s “satisfaction guaranteed” policy meant merchandise could be returned to any Wal – Mart store with no question asked. Majority of its sales consisted of nationally advertised branded product. However, private label apparel made up about 25% of apparel sales in Wal – Mart. In an effort to replace foreign – source goods sold in Wal – Mart stores with American – made goods, Wal – Mart developed its “Buy American” program. Cont…:  Cont… It converted or retained over $1.7 billion in purchases, at retail, that would have been placed or produced offshore, and created or retained over 41,000 jobs for the American workforce. STORE OPERATIONS The company leased about 70% of Wal – Mart stores and owned the rest. An average Wal – Mart store was 80,000 square feet, with the newer units about 100,000 square feet. Electronic scanning of the Uniform Product Code (UPC) at the point of sale begin in Wal – Mart stores in 1983. Kmart began installing UPC scanning in mid – 1986. Shelf labeling rather than product price tags was used. Electronic scanning and the need for improved communication between stores, distribution centers, and the head office in Bentonville, Arkansas, led to the investment in a satellite system. A satellite was launched in 1983 to solve this problem. From 1987 to 1993, Wal – Mart spent over $700 million on its satellite communications network, computers, and related equipment. HUMAN RESOURCE MANAGEMENT:  HUMAN RESOURCE MANAGEMENT There are no superstar at Wal – Mart. We’re a company of ordinary people overachieving. Wal – Mart introduced programs to involve the associates in the business. In the “Yes We Can Sam” suggestion program, associates suggested ways to simplify, improve, or eliminate work. Associates implemented over 400 suggestions in 1991 resulting in an estimated savings of over $38 million. Wal – Mart employed 520,000 full and part – time staff and was the largest employer after the federal government and General Motors. HUMAN RESOURCE MANAGEMENT - Cont...:  HUMAN RESOURCE MANAGEMENT - Cont... CHALLENGES Wal–Mart intends to go international by entering into a joint venture with Mexico’s largest retailer, Cifra.. Kmart planning to open in Singapore & Wal–Mart in Thailand, China, and Indonesia. Many small towns groups accused Wal–Mart of forcing local merchants out of business. Wal–Mart was found guilty of pricing pharmaceutical items below cost. Three independent pharmacies won the court case, and Wal–Mart was ordered to stop selling below cost. BUILDING STRATEGY:  BUILDING STRATEGY It is much easier to get a thoughtful analysis of a company’s positions in an industry and what might be done about it than it is to develop a useful approach to changing the policies and capabilities of the firm. The reasons are many. Action in a company turns on concrete phenomena, not on abstractions or labels. Consequently in assessing opportunities and capabilities, accurate understanding of the company and its competitors is fundamental. Almost inevitably, a careful examination of where opportunity may lie in the future means that a shift in the firm’s center of gravity will be necessary. A final kind of problem can be peculiar blindness to new technological ideas that the customers find uninteresting. THE PROCESS OF STRATEGIC DEVELOPMENT:  THE PROCESS OF STRATEGIC DEVELOPMENT It is hard to see when the premises of a business are being undermined. In general laying an effective foundation for making new strategic arrangements involves the following steps: Awareness of the need for change must be shared with a critical mass of top executives. “Five forces” analysis may be appropriate. Operating managers must be involved. Out of this process will come plans for change. HARWARD BUSINESS SCHOOL:  HARWARD BUSINESS SCHOOL In 1908, the Harvard Graduate School of Business Administration, with a faculty of 15 including its dean, opened its door to 24 regular MBA students and 35 “special” students taking one or more courses. Charles W. Eliot’s 40-year-long Harvard presidency. “What can I do with my boy? I want to give him a practical education that will prepare him better than I was prepared to follow my business or any other active calling”. Eliot raised the school’s standards for admission, instruction, and examination, which gradually elevated it to preeminence in its field. Eliot pushed for higher standards. Cont…:  Cont… We seek at Harvard to put all the various sciences and arts into practice so that public advantage may result. We seek to train doers, achievers-men whose successful personal careers are made subservient to the public good. ELIOT’S CONTROVERSIAL CREATION Within this context, Eliot was sympathetic to a proposal for training business leaders: “A considerable number of executives have told me a great deal of urgency that the universities were not supplying the great business corporation with well-trained young men who would make responsible managers.” However, others in the business community doubted whether universities could contribute anything useful, as expressed by one skeptic. GAY’S INITIAL CHALLENGE:  GAY’S INITIAL CHALLENGE Edwin Gay faced a formidable array of challenges. Foremost among these was a question of invention: What was a graduate school of business administration? What sort of intellectual capital should it attempt to generate? What sort of graduate should it hope to produce? He developed the Case Method of teaching. By gathering information on agricultural techniques and crop yield from large numbers of farmers, the department had been able to provide individual farmers with standards of productivity. Cont...:  Cont... Their mission seemed modest: To establish definitively the costs of operating a retail shoe business. Decided to organize a committee of manufacturers to establish a standard classification of accounts for retailers in the shoe industry. Over 130 stores were included in the survey, most of them visited in person to explain the purposes of the study and to overcome through dogged persistence the merchants ‘reluctance to divulge what they considered proprietary information. Cont…:  Cont… “Why, damn it, man, you’re asking for the guts of this business ,” complained one president of a New York department store. Wholesale shoe firms, wholesale grocers, retail general stores, retail hardware dealers, retail jewelers, and department and specialty stores were subsequently studied. It earned for the Harvard Business School a reputation for integrity and competence. The knowledge that the figures would be employed for the general good. BUSINESS POLICY:  BUSINESS POLICY Shaw and Gay agreed upon the concept of a required second-year course, to be called Business Policy. CURRICULUM DESIGN A new array of specialized offerings appeared. THE CASE STUDY The student should be required in each course to investigate facts, to sort undigested material, to state problems, to analyze problems, to reach conclusions, and to present the subject matter and his decision orally and in writing as he will be required to do in business. It was facts, meticulously recorded by firsthand observation, that would recreate the reality of business for the student and enable him to enhance his “executive judgment.” Cont…:  Cont… Searching in particular for the reality of decision making. Later he wrote, “I distrust intensely principles disconnected from facts. By 1923, two-thirds of the school’s courses were taught by the case system. By October of 1921, some $25,000 had been spent on case writing. By the summer of 1925, 5,000 cases had been produced. FROM APPLIED ECONOMICS TO THE HUMAN FACTOR In the summer of 1925, Donham sought out George Elton Mayo, an Australian scholar and philosopher who had combined a variety of clinical and practical experiences to forge a new discipline: industrial sociology. Cont...:  Cont... His studies had focused on the psychological and psychological aspects of factory work. Mayo responded to an invitation in 1928 to assist in interpreting the conflicting data then emerging from a company-sponsored research projects at Western Electric’s Hawthorne Works. This manufacturing facility employed over 40,000 workers, who manufactured most of the telephone made in America. Mayo proposed an indirect approach. Rather than interrogation, he argued for sympathetic listening. “If all fear of bullyraging can be taken out of supervision, and if a majority of supervisors are trained interviewers,” “industry will enter upon a new and undreamed era of active collaboration that will make possible an almost incredible human advance.” EDUCATIONAL IMPACT:  EDUCATIONAL IMPACT SUMMER SLICHTER STIPULATED Something should happen to men who come to the Business School which could not happen to them anywhere else in the world, and which will leave its mark on them for the rest of their lives. BUILDING ORGANIZATIONAL CAPABILITIES:  BUILDING ORGANIZATIONAL CAPABILITIES Crafting a strategy is an iterative process. Feedback from operations gives notice of changing resources to which strategy must be adjusted. To stay competitive, a business strategy must change in response to factors such as evolving knowledge and skills of its members, changes in the markets it serves, and as fundamental a matter as the success or failure of the basic ideas in which the strategy is grounded. As organization builder, the manager’s immediate challenge is to ensure that existing capabilities are tailored and applied to the strategic tasks at the hand. BUILDING ORGANIZATION CAPABILITY:  BUILDING ORGANIZATION CAPABILITY Ensuring the fit of the organization structure and systems with present strategic tasks is a vital responsibility of the manager. Without that fit, the existing capabilities of the company are likely to be diffused or even misused. Building new organization capabilities is even more important for long-term performance of the corporation. Equally challenging to senior managers is the fact that as they build new capabilities, they must attend to maintaining and renewing old ones from time to time. If maintenance activities are neglected, core organizational capabilities erode; if renewal activities are absent, the capability may become obsolete-out of sync with the competitive strategy. Cont…:  Cont… Most work environment address certain common issues. The necessity of maintaining an outward orientation toward customers, competitors, suppliers, and other potentially important groups at the same time that enormous effort is exerted inwardly to achieve efficiency and cooperation. The necessity of avoiding complacency, of maintaining a sense of urgency in the face of the organization’s desire for the peace of routine relationships and activity. The necessity of shared purpose that makes pursuit of corporate objective a unifying and exciting enterprise. THE LINCOLN ELECTRIC COMPANY:  THE LINCOLN ELECTRIC COMPANY We are the best manufacturing company in the world. George E. Willis, president of the The Lincoln Electric Company, described what he saw as his company’s distinctive competence. For more than 30 years, Lincoln had been the world’s largest manufacturer of arc welding products. COMPANY HISTORY:  COMPANY HISTORY Lincoln Electric was founded by John C. Lincoln in 1895 to manufacture electric motors and generators. James F. Lincoln, John’s younger brother, joined the company in 1907. The brothers’ skills and interests were complementary. John was a technical genius. During his lifetime he was awarded more than 50 patents for inventions. James’s skills were in management and administration. He began as a salesman but soon took over as general manager. The Lincoln Electric Company was undeniably built in his image. In 1911, the company introduced its first arc welding machine. STRATEGY:  STRATEGY The company’s strength was in manufacturing. Management believed that Lincoln could built quality products at a lower cost than their competitors. Their strategy was to concentrate on reducing costs and passing the savings through to the customer by continuously lowering prices. Under the Lincoln incentive system, employees were handsomely rewarded for their productivity, high quality, cost reduction ideas, and individual contributions to the company. Lincoln’s strategy had remained virtually unchanged for decades. COMPANY PHILOSOPHY:  COMPANY PHILOSOPHY James F. Lincoln, a rugged individualist who believed that through competition and adequate incentives every person could develop to his or her fullest potential. Competition is the foundation of man’s development. Competition will mean the disappearance of the lazy and incompetent, be they workers, industrialists, of distributions. Competition determines who will be the leader. Any nation and any people disappear if life becomes too easy. The worker must have a reward that he feels is commensurate with his contribution. If the customer does not have a part of the saving in lower prices, he will not buy the increased output. COMPENSATION POLICIES:  COMPENSATION POLICIES Wages based solely on piecework output for most factory job. A year-end bonus which could equal or exceed an individual’s full annual regular pay, and Guaranteed employment for all workers. EMPLOYEE VIEWS The employee turnover rate was far below that of most other companies, and once a new employee made it through the first month or so, he rarely left for another firm. One employee explained, “It’s like trying out for a high school football team. If you make it through the first few practices, you’re usually going to stay the whole season, especially after the games start.” Tiny explained why: The thing I like here is that you’re pretty much your own boss as long as you do your job. MANAGEMENT STYLE:  MANAGEMENT STYLE Willis felt that open and frank communication between management and workers had been a critical factor in Lincoln’s success, and he believed that the company’s Advisory Board, consisting of elected employee representatives, had played a very important role in achieving this. The board met twice a month, providing a forum in which employees could bring issues of concern to top management’s attention, question company policies, and make suggestions for their improvement. Management saw management’s concern for the worker as an essential ingredient in his company’s formula for success. An employee, whose wife had recently died, and noted that for several weeks he had been drinking heavily and reporting to work late. The manager has spent time discussing the situation with him to console him and see if the company could help in any way. It is important for employees to know that the president is interested in their welfare. PERSONNEL:  PERSONNEL Lincoln Electric had a strict policy of filling all the positions by promoting from within the company. An outsider generally could join the company in one of two ways: either taking a factory job at an hourly or piece rate, or entering Lincoln’s training programs in sales or engineering. Lincoln’s organizational hierarchy was flat, with few levels between the bottom and the top. MARKETING A Lincoln welding machine often had a useful life of 30 years or more. Although certain competitors might meet Lincoln costs and quality in selected products, management believed that no company could match the line overall. Cont…:  Cont… Another important competitive edge for Lincoln was its sales force. Al Patnik, vice president of sales development, explained: Most competitors operate through distributors. We have our own top field sales force. We start out with engineering graduates and put them through our 7 months training program. They learn how to weld, and we teach them everything we can about equipment, metallurgy, and design. Then they spend time on the rebuild line [where machines brought in from the field are rebuilt] and even spend time in the office seeing how orders are processed. Finally, before the trainees go out into the field, they have to go into our plant and find a better way of making something. Cont…:  Cont… Then they make presentation to Mr. Irrgang, just as if he were one of one customers. Our approach to the customer is to go in and learn what he is doing and show him how to do it better. That’s how we sell them. I had a boss who used to say, “Once we’re in, Lincoln never loses a customer except on delivery.” “It’s basically true. The orders I lost last year were because we couldn’t deliver fast enough”. MANUFACTURING :  MANUFACTURING It was obvious that employees worked very fast and efficiently with few breaks. Even during the 10-minute smoke breaks in the morning and afternoon, employees often continued to work. Raw materials entered one side of the plant and finished goods came out the other side. There was no central stock-room for materials or work-in-process. Many of the operations in plant were automated. Much of the manufacturing equipment was proprietary, designed and built by Lincoln. In some cases, the company had modified machines built by others to run two or three times as fast as when originally delivered. LINCOLN’S FUTURE:  LINCOLN’S FUTURE Prediction by a union leader from the Cleveland area: The thing Lincoln holds out to the men is high earnings. They work like dogs at Lincoln, but it pays off. If the day comes when they can’ offer those big bonuses, or his people decide there’s more to life than killing yourself making money. I predict the Lincoln Electric Company is in for trouble. Looking forward, the director saw no need to alter Lincoln’s strategy or its policies. TRANSFORMING AN ORGANIZATION:  TRANSFORMING AN ORGANIZATION Effective organizations are not forever. General managers often find themselves in situations that require major organizational surgery or other forms of transformation. Indeed, the ability to effect major transformation became more critical to the survival of organizations in the 1980s and 1990s than it had been for the preceding several decades. Several broad external forces have contributed: Global competition. The development of technologies that make existing strategies obsolete. The development of progressively higher standards for winning and keeping customers. The growing utilization of different organizational forms, including strategic alliances. INGREDIENTS OF SUCCESSFUL PLANNED CHANGE:  INGREDIENTS OF SUCCESSFUL PLANNED CHANGE Transformation involves managing three ingredients of planned change - the motivation to change, the vision of new strategy and organization to guide change efforts, and the transition processes themselves. Each ingredient is essential - the absence or weakness of any one of the three can doom a planned change. All three ingredients must be present to some threshold level. 1) Building Motivation The greater the magnitude of change contemplated, the higher the level of motivation required. Leaders can generate and sharpen two types of motivation for change - dissatisfaction with the status quo and positive interest in an alternative future. They must create a shared dissatisfaction. Obvious examples are a shared dissatisfaction with recent performance on the marketplace -loss of market share or profit shortfalls. Cont...:  Cont... Positive motivation to pull the change depends ultimately upon the nature of the vision of the future toward which change will be directed and whether or not it is attractive and reasonable. 2) Formulating a Vision Some preference about the future must provide a foundation for planned change in strategy and organization. Usually the vision is not a complete picture; it specifies some features of the ideal future, such as an “empowered workforce” or a “customer focused organization” or “a world-class competitor”. It is intended to provide directional guidance rather than define the end state or specify how to get there. The vision needs to be clear, compelling, and credible. The vision was effective because it eventually was widely shared and embraced. Above all, we learn that the vision must be ambitious or it will not be compelling or provide the basis for a process of major transformation. Cont...:  Cont... 3) Managing the Process of Change Pilot site such as a plant or division be appropriate for testing the new concepts and flushing out problems of implementation. An effective transformation requires that an enormous amount of attention be given to how the rationale for change, the nature of the change, and the planned steps will be communicated to all members of the organization. A critical step to be worker out is how to deal with inertia and even active resistance to change. The mix of “fostering” and “forcing” techniques needs to be thought through. Ensure that the necessary knowledge and competence are brought to bear. Consultants may be used to help in the design and implementation of the changes, such as total quality management, empowering, and reengineering. Cont...:  Cont... Even more important is the training and education of members of the organization to perform effectively in the “new” organization. The process of business and management performance measurement. This in turn relates to the processes by which incentives are designed and managed. CONTINUAL RENEWAL The situation in a company that brings a general manager to plan the kind of fundamental change that we have called transformation is not inevitable. These situations can be avoided if managers regularly track the changing environment, frequently test the premises and logic of their business strategies, and continually review the liveliness of their organization. A FRAMEWORK FOR MANAGING STRATEGIC CHANGE:  A FRAMEWORK FOR MANAGING STRATEGIC CHANGE Understanding processes of strategic change Diagnosing strategic change needs Managing the strategic change process Styles of managing change Changing organizational routines Symbolic activity Political activity Leadership and change agency 1. UNDERSTANDING PROCESSES OF STRATEGIC CHANGE:  1. UNDERSTANDING PROCESSES OF STRATEGIC CHANGE More transformational change may come about either because the organization is faced with major external events that demand such large-scale change, or because the organization anticipates such changes and therefore initiates action to make major shifts in its own strategy, or because the cumulative effects of strategic drift lead to deteriorating performance and require transformational strategic change. 2. DIAGNOSING STRATEGIC CHANGE NEEDS:  2. DIAGNOSING STRATEGIC CHANGE NEEDS There is, then, a need to assess what type and magnitude of change is appropriate in an organization. There are two key requirements of such a diagnosis. The first is to assess the extent to which incremental or transformational change is required. The second is to identify the specific barriers to change that exist. 2.1 DETECTING STRATEGIC DRIFT:  2.1 DETECTING STRATEGIC DRIFT It is important to gauge when incremental change has given rise to strategic drift and therefore in what circumstances more fundamental change may be required. There is no absolute set of conditions which describe a state of strategic drift. However, some of the symptoms might be as follows: a) a highly homogeneous organizational culture and internalized paradigm. Particularly if there is little toleration of questioning or challenge in the organization and a readiness to dismiss new ideas with ‘we’ve tried this before and it didn’t work’. b) major power blockages to change. Problem is our senior managers: they’ve been there years. c) an organization with little focus on its external environment, particularly its markets, might also face a risk of drift. d) finally, deteriorating relative performance is a sign of strategic drift. 2.2 IDENTIFYING BARRIERS TO STRATEGIC CHANGE:  2.2 IDENTIFYING BARRIERS TO STRATEGIC CHANGE It is useful to identify the barriers to strategic change in order to decide what levers and mechanisms of change are likely to be useful. Routines, control systems, structures, symbols and power or dependency relationships can therefore be important blockages to change. However, the identification of such blockages can help to provide an agenda for considering appropriate mechanisms for change. 3. MANAGING THE STRATEGIC CHANGE PROCESS:  3. MANAGING THE STRATEGIC CHANGE PROCESS Deals with the processes, or approaches, which need to be considered by the change agent. These include the style of managing change; and the tactics of change management. 3.1 STYLES OF MANAGING STRATEGIC CHANGE:  3.1 STYLES OF MANAGING STRATEGIC CHANGE a) Education and communication might be appropriate if there is a problem in managing change which is based on misinformation or lack of information. b) Participation in the change process can be helpful in increasing ownership of a decision or change process and strengthening commitment to it. c) With the intervention approach the change agent retains the co-ordination of and authority for such processes, but delegates aspects of the change process. 3.1 STYLES OF MANAGING STRATEGIC CHANGE CONT...:  3.1 STYLES OF MANAGING STRATEGIC CHANGE CONT... d) However, on occasions it might be necessary to manipulate the context of change: for example, to present an apparent crisis or a favorable picture for change. Certainly, the evidence is that some form of trigger is necessary for change to occur, and especially if transformational change is required. e) Coercion or edict is the imposition of change or the issuing of directives about change. It is the explicit use of power. The evidence is that coercion and edict is the least successful style of managing change unless time is short or, perhaps, there is such a crisis or state of confusion in the organization that people welcome it as a way of clarifying and smoothing the situation. 3.2 POLITICAL PROCESSES:  3.2 POLITICAL PROCESSES It is likely that there will be a need for the reconfiguration of power structures in the organization, especially if transformational change is required. This may well go hand in hand with the legitimizing of dissent from those in the organization who are questioning the existing ways of operating. In order to effect this reconfiguration of power it is likely that the momentum for change will need powerful advocacy within the organization, typically from the chief executive. POLITICAL MECHANISMS IN ORGANIZATIONS :  POLITICAL MECHANISMS IN ORGANIZATIONS Activity areas Mechanisms Key problems Resources Elites Subsystems Symbolic Building the Control of Sponsorship by Alliance Building Time required for power base resources an elite building on legitimation for building Acquisition Association with Team building Perceived duality of of/identification an elite ideals with expertise Perceived as threat by Acquisition of existing elites additional resources Overcoming Withdrawal of Breakdown or Foster Attack or Striking from too low a resistance resources division of elites momentum remove power base Use of ‘counter- Association with for change legitimation Potentially destructive: intelligence’ with respected Sponsorship / Foster confusion, need for rapid rebuilding information outsider reward of conflict and change agents questioning Achieving Giving Removal of Partial Applause / Converting the body of compliance resources resistant elites implementation reward the organization Need for visible and participation Reassurance Slipping back ‘change hero’ Implantation of Symbolic ‘disciples’ confirmation Support for ‘young Turks’ 4. LEADERSHIP AND CHANGE AGENCY:  4. LEADERSHIP AND CHANGE AGENCY The manager faced with managing change needs to consider carefully the extent to which various components have already been discussed: a) First, does the change agent have a clarity of direction or vision which can be communicated clearly to others? Clear objectives or mission may be very important here. b) Second, the importance of context needs to be emphasized. The change agent needs to be especially sensitive to the type of change required. c) Third, the successful change agent will be able to employ an appropriate style of managing change, adapting that style to the circumstances rather than imposing his or her style without regard to the specific context of change. d) Linked to this is the ability to use the political processes that provide the levers and mechanisms of change.

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