Organization Structure Firm Analysis Strategic Planning Structure Process

Fundamental Ideas in Organization Design Organization made up of “units” “Throughput” “Supporting” Organized by

Internal Value Chain (Porter) Supporting Activities: (purchasing, finance, legal, IT) INPUTS VALUE Core Processes

Organization Relationships Hierarchy Inter-related Create capabilities Try to see value/cost in each activity

Hierarchy – Responsibility Centers Wider View Longer Time Horizon Narrower View Shorter Time Horizon

SBU (Strategic Business Unit) Focus on market and value Identified set of customers/competitors Evaluated

The Firm Seen as a Collection of Strategic Business Units SBU SBU SBU

Investment Screen Analysis – Portfolio Management (1965) GE - Mc. Kinsey 0 + 0

Management Control Treats Each SBU as an Investment Center Could stand alone as a

Other Units Evaluated as Revenue or Cost Centers Each with own performance measures, including

Top Level View Firm could be seen as a “Portfolio” of SBU’s Might also

SWOT Popular in 1960’s Shown to be invalid in 1970’s Still use the language

Today: RBV – TCE RBV = Resource-Based View of the firm Firm as a

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Fundamental Ideas in Organization Design Organization made up of “units” “Throughput” “Supporting” Organized by “Responsibility Center” Controlled through performance measurement and resource allocation

Internal Value Chain (Porter) Supporting Activities: (purchasing, finance, legal, IT) INPUTS VALUE Core Processes (input output)

Organization Relationships Hierarchy Inter-related Create capabilities Try to see value/cost in each activity

Hierarchy – Responsibility Centers Wider View Longer Time Horizon Narrower View Shorter Time Horizon Allocates Resources, Integrates Activities More Specialized

SBU (Strategic Business Unit) Focus on market and value Identified set of customers/competitors Evaluated by strategic measures (competitive position) Few in number GE had only 12 -13 May be for planning purposes only

The Firm Seen as a Collection of Strategic Business Units SBU SBU SBU

Investment Screen Analysis – Portfolio Management (1965) GE - Mc. Kinsey 0 + 0 Industry Attractiveness - BCG ? Market Star Dog Cow 0 Firm Strength Invest – Hold – Divest

Management Control Treats Each SBU as an Investment Center Could stand alone as a separate businesses Managed by strategic goals and objectives Source of capabilities as well as financial returns Return on invested capital (ROAE) is primary performance measure Report strategically once/year or less frequently but report financially on shorter term (usually quarterly)

Other Units Evaluated as Revenue or Cost Centers Each with own performance measures, including non-financial measures Key Performance Indicators Different control cycles (longer cycle time, different key times)

Top Level View Firm could be seen as a “Portfolio” of SBU’s Might also be seen as a collection of “Competencies” Must also be seen from a “Stakeholder” Perspective.

SWOT Popular in 1960’s Shown to be invalid in 1970’s Still use the language Firm Environment + S + O W T

Today: RBV – TCE RBV = Resource-Based View of the firm Firm as a collection of resources “Competencies” TCE = Transaction Cost Economics Activities optimized over entire industry value chain Optimized within the firm Value/Cost Value Creation – Value Capture