Business Strategy, Short-Term Objectives

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Each operating unit must create its own business strategy–focused on products, services and how it will compete in the marketplace. In practice, business strategy focuses on how to create and sustain a competitive advantage in the chosen industry. Business-level strategy must mesh and align with corporate level strategy if the organization is to perform well. To execute the business strategy, strategic plans and objectives must then be translated into short-term objectives the business unit is responsible to achieve. In parallel with this, appropriate short-term metrics must also be developed.

Developing an organizational structure is an essential part of making strategy work, but it’s only half the story. Integration and coordination is also required, even more so today when many enterprises have operating units located around the world. Coordination the work of these different parts of the business and getting everyone on the same page is absolutely vital.

Just as there are two generic types of organizational structure, there are three types of interdependence when it comes to the interaction between different units within an organization:

1. Pooled interdependence: where each business unit pretty much does its own thing and there is little need for the manager of one unit to know what’s happening at other units. A performance bonus might depend on the performance of the organization as a whole, so there will be some interest in happenings elsewhere, but to direct opportunities to influence other business units.

Manager
↓ ↓ ↓ ↓
A B C D

2. Sequential interdependence: where the work flows from one unit to another and so on until it goes to the customer. In this case, the people in unit B depend on unit A finishing the work before they can get started, and so forth. A problem at unit A will have an impact on units B and C.

Manager
↓
A→B→C

3. Reciprocal interdependence: where the people in each function or unit deal with the people in all the other functions or units all of the time. One unit can change the rules and affect everyone else at any time

A→ B
↓ ↓
C→ D

The way you get each business unit working together and coordinated than varies depending on the type of interdependence relationship that exists:

For pooled interdependence situations, you would use a set of rules or standard operating procedures to get everyone on the same page. If that fails, the fact there is a hierarchy means any issues that crop up can be dealt with definitively.

In the case of sequential interdependence, it becomes necessary to standardize rules and operating procedures. A coordination plan might need to be agreed upon between the heads of each operating unit to manage the flow of work and information, and to ensure the actions of one unit don’t impact negatively on the operations of another business unit. In addition, there will need to be some sort of agreement on the transfer pricing of products and services sold by one unit of the organization to another.

Reciprocal interdependence is much harder to coordinate and will require more resources. In this case, it’s vital that every unit shares information with the others as problems in one area can negate the work performed elsewhere. If at all feasible, face-to-face interaction should be used where all the key players regularly talk with each other and thrash out any problems that arise.

Note that the corporate strategy and the business strategy will affect the type of business structure that should be used to quite an extensive degree. The strategy will determine the optimum organizational structure, which in turn iwll impact on the best type of interdependence that will need to exist between the different units of the same company.

Choosing appropriate coordination methods will help avoid problems of ‘under-coordination’ by matching coordination methods with the task at hand. It will also help avoid problems of ‘over-coordination,’ such as setting up committees and other burdensome, time-consuming tasks when they’re not needed.

–Lawrence Hrebiniak