CHAPTER 5

THE ORGANIZATIONAL CONTEXT

Learning Objectives

 After reading this chapter, you should be able to:

 Identify different elements of an H&T organization's internal environment.

 Discuss the complexity of H&T organizations' internal environment.

 Analyze an H&T organization's internal environment.

 Evaluate the influence of organizational variables/factors on strategy formulation and implementation,

and provide recommendations to overcome potential challenges in this process.

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 Opening Case

 How would you describe the management structure of the case study organization? You should provide
evidence to illustrate your answer.

 Identify different control tactics used by the case study organization to ensure that the strategy is properly
implemented.

 What is the importance of country managers in developing and implementing strategy in different country
markets?

 What are the implications of a tight, centralized management structure?

Different Stakeholders

 A stakeholder is any group/individual who can affect or is affected by the achievement of a firm’s
objectives (Freeman, 1984)

 To meet the needs of these groups, you need to answer three general questions about stakeholders:

 Who are they?

 What do they want?

 How are they going to try to get it?

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 Organizational Functions

 The operations function

 The marketing function

 The human resources function

 The finance function

 Information technology/Research and development

Resources, Core Competencies, and Distinctive Competencies

 Tangible assets

 Intangible assets

 Core capabilities refer to those areas that an H&T company does exceedingly well

 Distinctive competencies refer to those areas and activities that an H&T company
excels at and is better than its competitors

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 Organizational Structure

 A functional structure

 A multidivisional structure

 A matrix structure

Centralized versus Decentralized Organizational Structure

 Centralized structure: Decision making is concentrated at the top, formal checks, controls, discipline,
standardization, and single mindedness

 Decentralized structure: Minimal hierarchical levels, free-flow communication

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 Class Discussion

 What are the advantages of centralized and decentralized structure?

Levers of Control

 Diagnostic Systems
 Give an opportunity to the managers to measure outcomes and compare results with preset profit
plans and performance goals

 Interactive Systems
 Managers use one system interactively, such as the profit planning systems and the intelligence
systems that report information about social, political, and technical business issues

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 Levers of Control

 Belief Systems
 The explicit set of organizational definitions formally communicated by senior managers through
mission statements and credos that give basic values, purpose, and direction

 Boundary Systems
 These systems ensure that organizational members’ activities fall within the acceptable domain of
activity. These systems ensure that business activities occur in defined product markets at acceptable
level of risk

Influence of Leadership

 Leaders act as the initiators of change

 Leaders can facilitate organizational learning
 Leaders have the ability to sense dynamic changes
 Leaders should possess entrepreneurial skills and attributes
 Leaders are creative and good reflectors
 Leaders employ a “hands-on” management style
 Leaders utilize their creative and flexible thinking
 Leaders can take calculated risk
 Leaders should undertake the role of creating a “supportive culture”
 Leaders should employ persuasive communication, negotiation, and listening skills

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 Organizational Culture

 Components of organizational culture (symbols, heroes, rituals, and values)

 Organizational culture fulfills four important functions

 Conveys a sense of identity for the organizational members

 Facilitates the generation of commitment

 Enhances social system stability

 Serves as a sense-making device that can guide and shape behavior

 Determinants of organizational culture

 Characteristics of the industry

 Founders and key leaders’ values

 Company heritage

Elements of Organizational Culture

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 International Risks

 Political risks
 Refugee crisis

 Terrorism and extremism

 Political confrontations and wars

 Economic barriers
 Brexit

 Economic recession in Europe

 Currency fluctuations

International Risks

 Socio-cultural risks
 Food-borne illnesses

 Cyber Security

 Aging population

 Environmental risks
 Natural disasters

 Climate change

 Loss of biodiversity

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 Summary

 An organization's environment is comprised of different important factors that have influence on and
bearing of its functioning.

 It is essential to identify an H&T company's stakeholders, tangible and intangible assets, core
competencies, and distinctive competencies.

 When analyzing the internal environment of an H&T organization, it is essential to look at four functional
areas - operations, marketing, finance, and human resources - and to identify strengths and weaknesses.

 Organisational structure, culture, and leadership are three important factors that influence both strategy
formation and implementation.

Summary

 Organizations need to manage the centralization - decentralization organizational structure continuum.

 When understood and successfully managed, organizational culture can lead to innovative business practices
and sustainable sources of competitive advantage.

 It is important that we understand the likely impacts of the international environment on an organization's
internal functioning.

 When analyzing an H&T organization's internal environment, it is recommended to look at all of the key areas.