Scenario Analysis

Scenario analysis is the process of estimating the expected value of a portfolio after a given period of time,
assuming specific changes in the values of the portfolio's securities or key factors take place, such as a
change in the interest rate.

Scenario analysis is commonly used to estimate changes to a portfolio's value in response to an unfavorable
event and may be used to examine a theoretical worst-case scenario.

As a technique, scenario analysis involves computing different reinvestment rates for expected returns that
are reinvested within the investment horizon.

Based on mathematical and statistical principles, scenario analysis provides a process to estimate shifts in
the value of a portfolio based on the occurrence of different situations—referred to as scenarios—
following the principles of "what if" analysis, or sensitivity analysis. Sensitivity analysis is simply how
different values of an independent variable affect a dependent variable under specific conditions.

Strategic Analysis
A huge part of developing a strategic plan is a reliable, in-depth strategic analysis. An organization is
separated into internal and external environments. Both components should be scrutinized to identify
factors influencing organizations and guiding decision-making.

Strategic analysis is the process of researching and analyzing an organization along with the business
environment in which it operates to formulate an effective strategy. This process of strategy analysis usually
includes defining the internal and external environments, evaluating identified data, and utilizing strategic
analysis tools.

Types Of Strategic Analysis

When it comes to strategic analysis, businesses employ different approaches to gain insights into their inner
workings and the external factors influencing their operations.

Internal strategic analysis

The focus of internal strategic analysis is on diving deep into the organization's core. It involves a careful
examination of the company's strengths, weaknesses, resources, and competencies. By conducting a
thorough assessment of these aspects, businesses can pinpoint areas of competitive advantage, identify
potential bottlenecks, and uncover opportunities for improvement.

This introspective analysis acts as a mirror, reflecting the organization's current standing, and provides
valuable insights to shape the path that will ultimately lead to achieving its mission statement.
External strategic analysis

On the other hand, external strategic analysis zooms out to consider the broader business environment. This
entails conducting market analysis, trend research, and understanding customer behaviors, regulatory
changes, technological advancements, and competitive forces. By understanding these external dynamics,
organizations can anticipate potential threats and uncover opportunities that can significantly impact their
strategic decision-making.
The external strategic analysis acts as a window, offering a view of the ever-changing business landscape.

McKinsey 7S Model

What is the McKinsey 7S Model?

The McKinsey 7S Model refers to a tool that analyzes a company’s “organizational design.” The goal of
the model is to depict how effectiveness can be achieved in an organization through the interactions of
seven key elements – Structure, Strategy, Skill, System, Shared Values, Style, and Staff.
The focus of the McKinsey 7s Model lies in the interconnectedness of the elements that are categorized by
“Soft Ss” and “Hard Ss” – implying that a domino effect exists when changing one element in order to
maintain an effective balance. Placing “Shared Values” as the “center” reflects the crucial nature of the
impact of changes in founder values on all other elements.

Structure of the McKinsey 7S Model

Structure, Strategy, and Systems collectively account for the “Hard Ss” elements, whereas the remaining
are considered “Soft Ss.”

1. Structure

Structure is the way in which a company is organized – the chain of command and accountability
relationships that form its organizational chart.

2. Strategy

Strategy refers to a well-curated business plan that allows the company to formulate a plan of action to
achieve a sustainable competitive advantage, reinforced by the company’s mission and values.

3. Systems

Systems entail the business and technical infrastructure of the company that establishes workflows and the
chain of decision-making.

4. Skills

Skills form the capabilities and competencies of a company that enables its employees to achieve its
objectives.

5. Style

The attitude of senior employees in a company establishes a code of conduct through their ways of
interactions and symbolic decision-making, which forms the management style of its leaders.

6. Staff

Staff involves talent management and all human resources related to company decisions, such as training,
recruiting, and rewards systems

7. Shared Values

The mission, objectives, and values form the foundation of every organization and play an important role
in aligning all key elements to maintain an effective organizational design.
Strategy Implementation

Strategy implementation is the sum total of activities required for the successful execution of the strategy.
It is the working of the outlined plans.

Strategy implementation is the process by which objectives, strategies, and policies are put into action
through developing programs, budgets, and procedures. – Wheelen and Hunger

Strategy implementation is nothing but the turning of the strategy into action. It involves the translation of
strategic thoughts into strategic action.

9 Step Process

The success of a company lies in how it executes its outlined plans and strategies. The following are the
essential steps for victorious strategy implementation.

Strategy Operationalization

The first step in process of strategy implementation is the operationalization of strategy throughout the
organization. Operationalization links the everyday works of the organization to the strategy.

For strategy operationalization, you can have a number of tools such as annual objectives, functional
planning, policies, development of programs, budgets, guidelines, policies, and communication.

Development of Programs, Budget, and Procedures

Programs – The program makes a strategy action-oriented. It should be developed to match the new
strategies. The new strategy involves a sequence of new programs and activities. The new programs should
not conflict with each other.

Budget – A budget is the quantitative expression of a plan. After programs have been developed, the
budgeting process begins. A budget ensures the feasibility of the strategy. It provides the detailed costs of
programs.

Procedures – The implementation of a new strategy may demand changes in current procedures. After the
programs and budgets are approved, procedures must be developed. They detail the various activities that
must be carried out to complete programs.

Manage Conflicts

Conflict is the disagreement between two or more parties on a certain issue. Establishing an annual objective
can lead to conflict.

For example, the finance department’s objective of reducing bad debts by 50% in a given year may conflict
with the sales department’s objective to increase sales by 30%.
Conflict is unavoidable in organizations, it has both negative and positive aspects. And, negative aspects
should be avoided or resolved and vice versa.

Match Strategy with Structure

When a firm changes its strategy, the existing organizational structure may become ineffective. Changes in
strategy often require changes in organizational structure. The structure should be designed to facilitate the
strategic pursuit of the firm.

Restructuring and Reengineering

Restructuring involves reducing the size of the firm in terms of the number of employees, units, and
hierarchies. It is primarily concerned with shareholder well-being rather than employee well-being.

Reengineering is concerned more with employee and customer well-being. It does not affect the structure
of the organization. It changes the way of the work process.

Linking Performance and Pay to Strategies

Victorious implementation of strategy demands linking performance and pay to strategies. Salary increases,
promotions, merit pay, and bonuses should be closely aligned to support the long-term objectives of the
company.

A dual bonus system based on both annual objectives and long-term objectives is becoming common in
this regard. Performance-based approaches, not seniority based are followed to cut costs and increase
productivity.

Manage Resistance To Change

Resistance to change can be considered the single greatest threat to successful strategy execution. People
often resist strategy implementation because they do not understand why the changes are taking place.

Create A Strategy Supportive Culture

New strategies may demand different cultures. Aspects of an existing culture that are incompatible with a
proposed strategy should be identified and changed.

Changing a firm’s culture to fit a new strategy is usually more effective than changing a strategy to fit the
existing culture.

Evaluation and Control

This involves monitoring organizational performance to ensure that the direction of strategy execution is in
the right way. The assumptions about the internal and external environment in which the current strategy is
based should be reviewed and the actual performance is measured. Eventually, corrective actions are taken
if necessary.

organizational life cycle

The organizational life cycle is a theoretical model based on the changes organizations experience as they

grow and mature.

Just as living organizations grow and decline in predictable patterns, so do organizations.

Modern sources generally recognize Mason Haire’s 1959 Modern Organizational Theory as the first study

using a biological model for organizational growth.

Organizational life cycle models

From the 1960s to the 1990s, scholars and consultants proposed many models of life cycles. Although the

models have many similarities, there are differences in the perspectives and the research methods.

We present here some of the most well-known models for comparison.

Lippitt and Schmidt model

In 1967, Gordon L Lippitt and Warren H Schmidt applied personality development theories to the creation,

growth, maturity, and decline of a business organization.

Their purpose was to predict the results of handling critical concerns of critical issues in the lifecycle stages

of birth, youth, and maturity.

They found that the managerial handling of six predictable crises determined the organization’s

developmental stage rather than their size, market share, or sophistication.

Birth

In the birth stage, the critical concerns are creating the new organization and surviving as a viable system.

The key issues are deciding what to risk and what to sacrifice.

Youth

In the organization’s youth, those concerns are gaining stability, reputation, and pride.

It is also concerned about how to organize and evaluate itself.

Maturity

In maturity, the organization must concern itself first with achieving uniqueness and adaptability. It must

decide how to change itself to sustain its competitive position.

And, it must choose how to contribute to society by selecting what to share.

Here is a summary of the developmental phases according to Lippit and Schmidt:

Developmental Consequences if concern is not

Critical concern Key issues
stage met

1. To create a new
Birth What to risk Frustration and inaction
organization

2. To survive as a What to Death of organization

viable system sacrifice Further subsidy by “faith” capital

Reactive, crisis-dominated
How to organization
Youth 3. To gain stability
organize Opportunistic rather than self-
directing attitudes and policies
 Difficulty in attracting good
4. To gain reputation How to review personnel and clients
and develop pride and evaluate Inappropriate, overly aggressive,
and distorted image building

Unnecessarily defensive or
5. To achieve
Whether and competitive attitudes; diffusion
Maturity uniqueness and
how to change of enerfy
adaptability
Loss of most creative personnel

Possible lack of public respect

6. To contribute to Whether and
and appreciation
society how to share
Bankruptcy or profit loss

Source: Lippit and Schmidt, “Crises in a developing Organization.” Harvard Business Review, 1967.

Lippitt and Schmidt also give us examples of the consequences of handling or mishandling each of the six

managerial crises:

Result if the issue is resolved Result if the issue is resolved

Critical issue
correctly incorrectly

Idea remains abstract. Company is

New corporate system comes undercapitalized and cannot
Creation into adequately
being and begins operating. develop and expose product or
service.

Organization fails to adjust to

Organization accepts realities, realities of its
learns environment and either dies or
Survival
from experience, becomes remains
viable. marginal–demanding continuing
sacrifice.

Organization develops Organization overextends itself and

efficiency and returns
Stability
strength, but retains flexibility to survival stage, or establishes
to change. stabilizing
 patterns which block future
flexibility.

Organization places more effort on

Organization’s reputation
image
reinforces
creation than on quality product, or it
Pride and reputation efforts to improve quality of
builds
goods
an image which misrepresents its
and service.
true capability.

Organization develops too narrow a

Organization changes to take specialty
fuller to ensure secure future, fails to
advantage of its unique discover its
Uniqueness and
capability and uniqueness and spreads its efforts
adaptability
provides growth opportunities into
for its inappropriate areas, or develops a
personnel. paternalistic
stance which inhibits growth.

Organization gains public

respect and Organization may be accused of
Contribution appreciation for itself as an “public be
institution damned” and similar attitudes.
contributing to society.

Source: Lippit and Schmidt, “Crises in a developing Organization.” Harvard Business Review, 1967.

Greiner Growth Model

Larry E. Greiner based his growth model on the age and size of the organization on the premise that

organizational practices change over time and that “management problems and principles are rooted in

time.”

He based his theory on European psychologists who hold that past events and experiences shape our

behavior.

Greiner showed that leaders hold on to obsolete structures to consolidate their power.
So, instead of looking inward to develop the organization, they focus exclusively on external forces. The

consequent stagnation leads to revolutionary phases that shake up the organization.

The resolution of the revolution decides whether the company will move forward or decline.

Market forces determine the duration of the evolutionary and revolutionary phases of the organizational life

cycle.

When profits are plentiful, evolution prevails, but those profits only buy time before a revolutionary

upheaval.

Greiner presents five phases of growth, interspersed by periods of revolution. Each phase results from the

previous one and causes the next.

Phase 1: Creativity

In the creativity stage, the organization creates a product and a market.

Leadership is entrepreneurial and visionary, reacting to the market.

The lack of structure and management creates a leadership crisis.

Phase 2: Direction

If the entrepreneurs are savvy enough to engage skilled business management, a structure begins to form,

with systems, work standards, and a hierarchical reporting structure.

Phase 3: Delegation

A crisis of autonomy occurs when decision-making is too centralized to be effective.

Organizations try to adapt with delegation, but if the organization isn’t ready, talent will leave.

Successful delegation allows companies to expand but often results in autonomous managers with a

parochial attitude, creating a “silo” effect resulting in a crisis of control.

Phase 4: Coordination

A successful reaction to the control crisis is formal systems for planning, control, and resource management.

Eventually, a divide grows between headquarters and field managers, and a “red-tape crisis” results from

the organization becoming too large and complex to operate under formal and rigid systems.

Phase 5: Collaboration

If the organization survives the fourth revolution, red tape is supplanted by collaboration, social control,

and self-discipline.

Greiner correctly predicted that Phase 5 would create a crisis in the psychological saturation of emotionally

and physically exhausted employees breaking under the burden of excessive teamwork and pressure to

innovate.

We are already seeing the result of the revolutionary phase as companies now focus on employee wellbeing,

rest, and revitalization.

We observe that Phase 6 is already well underway with a different social contract between the organization

and its employees, as leaders understand that people are the organization.

Organizational Structure
A new strategy may require more flexible characteristics than the traditional functional or divisional
structure can offer.

New organizational structures greatly emphasize collaboration over competition in the management of
multiple overlapping projects and developing businesses. This stage of structure development not only
emphasizes horizontal over vertical connections between people and groups but also organizes work around
projects in which information systems can support collaborative activities.

Strategic Business Unit (SBU) Structure

What is a Strategic Business Unit Structure?

The strategic business unit (SBU) has emerged as an evolved version of a divisional structure, to
better reflect product-market considerations. This SBU structure groups similar divisions into
strategic business units and delegates authority and responsibility for each unit to a senior executive
who reports directly to the chief executive officer.

As the number, size, and diversity of divisions in an organization increase, controlling and evaluating
divisional operations become increasingly difficult for management. The span of control becomes too large
at the top levels of the firm.

Thus, firms have to abandon divisional structures and move to strategic business unit structures.

In this form, headquarters attempt to coordinate the activities of its SBUs through performance-oriented
and results-oriented control and reporting system. The strategic business units are held responsible for their
own performance results.

Advantages and Disadvantages of a SBU Structure

One of the main advantages of this structure is that it can facilitate strategy implementation by improving
coordination between similar divisions and channeling accountability to distinct strategic business units.

Another advantage of this structure is that it makes the tasks of planning and controlling by the corporate
office much more manageable.

Two disadvantages of this structure are that it (1) requires an additional layer of management which in turn
increases costs, (2) makes the role of group vice president somewhat ambiguous.

Matrix Structure
What is a Matrix Structure?

In matrix structures, functional and product forms are combined simultaneously at the same level of
organization.
A matrix structure depends upon both vertical and horizontal flows of authority and communication (hence
the term matrix). In contrast, functional and divisional structures depend primarily on vertical flows of
authority and communication.

The matrix structure is often found in an organization or SBU when the following 3 conditions exist: (1)
ideas need to be cross-fertilized across projects or products, (2) resources are scarce, and (3) abilities to
process information and to make decisions need to be improved.

The matrix structure is being used because firms are pursuing strategies that add new products, customer
groups, and technology to their range of activities. Out of these changes are coming product managers,
functional managers, and geographic-area managers, all of whom have important strategic responsibilities.

Thus, when several variables, such as product, customer, technology, geography, functional area, and line
of business, have roughly equal strategic priorities, a matrix organization can be an effective structural
form.

In a matrix organization, employees now have two superiors, a product or product manager, and a
functional manager.

The home department of employees is usually functional and is reasonably permanent. These employees
are then assigned temporarily to one or more product units or projects. The product units or projects are
usually temporary and act like divisions.

For a matrix structure to be effective, organizations need participative planning, training, a clear
mutual understanding of roles and responsibilities, excellent internal communication, and mutual
trust and confidence.

Despite its complexity, the matrix structure is widely used in many industries, including construction, health
care, research, and defense.

Note that not every organization is a good candidate to use a matrix structure.

Organizations such as engineering and consulting firms that need to maximize their flexibility to service
projects of limited duration can benefit from the use of a matrix.

Matrix structures are also used to organize research and development departments within many large
corporations. In each of these settings, the benefits of organizing around teams are so great that they often
outweigh the risks of doing so.

Advantages of a Matrix Structure

One major advantage of a matrix structure is that it facilitates the use of specialized personnel,
equipment, and facilities.
Functional resources are shared in a matrix structure, rather than duplicated as in a divisional structure.
Individuals with a high degree of expertise can divide their time as needed among projects, and they, in
turn, develop their own skills and competencies more than in other structures.

Another major advantage of a matrix structure is that it relies heavily on horizontal relationships,
unlike functional or divisional structures where vertical linkages between bosses and subordinates
are the most elements.

This advantage, in turn, maximizes the organization’s flexibility, enhancing communication across
functional lines, and creating a spirit of teamwork and collaboration.

The third advantage of the matrix structure is that it can help develop new managers.

In particular, a person without managerial experience can be put in charge of a relatively small project as a
test to see whether the person has a talent for leading others.

Disadvantages of a Matrix Structure

A disadvantage of a matrix structure is that it may contribute to the overall complexity of the
organization.

This includes dual lines of budget authority, dual sources of reward and punishment, shared authority, dual
reporting channels, and a need for an extensive and effective communication system.

Another disadvantage of a matrix structure is that it violates the unity of command principle because
each employee is assigned, multiple bosses.

Specifically, any given individual reports to a functional area supervisor as well as one or more project
supervisors. This creates confusion for employees because they are left unsure about who should be giving
them direction.

Violating the unity of command principle also creates opportunities for unsavory employees to avoid
responsibilities by claiming to each supervisor that a different supervisor is currently depending on their
efforts.

Another disadvantage of a matrix structure is the potential for conflicts between project managers,
or between project and product managers.

In reality of any organization, some workers are more talented and motivated than others. Within a matrix
structure, each project/product manager naturally will want the best people assigned to her project because
their boss evaluates these managers based on how well their projects perform. Because the best people are
a scarce resource, infighting and politics can flare-up. Thus, the battle between project/product managers
can happen at any time.
Development Phases of a Matrix Structure

In developing the matrix structure, the organization may go through 3 distinct phases.

Phase 1: temporary cross-functional task forces

A new product line is being introduced and a project manager is likely in charge as the key horizontal link.

Phase 2: product/brand management

When cross-functional task forces become more permanent, the project manager becomes a product or
brand manager and with this, the second phase begins.

The function is still the primary organizational structure, but the product or brand managers act as the
integrators of semi-permanent products or brands.

Phase 3: mature matrix

This phase involves a true dual-authority structure. Both the functional and product structures are
permanent. All employees are connected to both a vertical functional superior and a horizontal product
manager.

Functional and product managers have equal authority and must work together to resolve disagreements
over resources and priorities.

Network Structure (Virtual Organization)

What is a Network Structure?

In its ultimate form, a network organization is a series of independent firms or business units linked
together by computers in an information system that designs, produces, and markets a product or
service.

Network structure can be considered non-structure because of its virtual elimination of in-house business
functions with many outsourced activities.

A corporation organized in this matter is often called a virtual organization because it is composed of a
series of project groups or collaborations linked by constantly changing nonhierarchical networks.

Entrepreneurial ventures often start out as network organizations. Large companies use the network
structure in their operations by outsourcing manufacturing to other companies in low-cost locations around
the world.

Rather than being located in a single building or area, the functions are scattered worldwide. The
organization is only a shell with a small headquarters acting as a broker, connected to some completely
owned divisions, partially-owned subsidiaries, or other independent companies.
The network structure becomes most useful when the environment of a firm is unstable and is expected to
remain so. There is usually a strong need for innovation and quick response, so the company may contract
with people for a specific project or length of time. Long-term contracts with suppliers and distributors
replace services that the company could provide for itself through vertical integration.

Advantages of Network Structure

Network organizational structure provides an organization with increased flexibility and adaptability to
cope with rapid technological change and shifting patterns of trade and competition.

It allows a company to concentrate on its distinctive competencies while gathering efficiencies from other
firms that are concentrating their efforts in their areas of expertise.

Disadvantages of Network Structure

Network structure can sometimes be viewed as only a transitional structure because it is unstable and subject
to tensions.

The availability of numerous potential partners can be a source of trouble. Contracting out individual
activities to separate suppliers and distributors may keep the firms from discovering their core competencies
and internal synergies by combining these activities.

Cellular (Modular) Structure

What is a Cellular Structure?

Decades of the evolution of organizational forms are leading to the cellular structure. A cellular
organization is composed of cells, that are self-managing teams, or autonomous business units.

These cells can operate alone but can also interact with other cells to produce a more potent and competent
business mechanism.

This structure emerges under the pressure of a continuous process of innovation in all industries. Each cell
has an entrepreneurial responsibility to the larger organization.

This structure is used when it is possible to break up a company product into self-contained modules or
cells, and then interfaces can be specified when the cells are joined together.

This combination of independence and interdependence allows this organizational form to generate and
share knowledge and expertise needed to produce continuous innovation. Beyond knowledge creation and
sharing, this form adds value by keeping the organization’s total knowledge more fully than any other type
of structure.

REENGINEERING AND STRATEGY IMPLEMENTATION Reengineeringis the radical redesign of

business processes to achieve major gains in cost, service, or time. It is not in itself a type of structure,
but it is an effective program to implement a turnaround strategy. Business process reengineering strives to
break away from the old rules and procedures that develop and become ingrained in every organization
over the years. They may be a c o mb i na t i o n o f p o l i c i es , r u l es , a n d p r o c ed u r es t ha t ha v e
n ev er b een s er i o u s l y questioned because they were established years earlier. These may range from
“Credit decisions are made by the credit department” to “Local inventory is needed for good
customer service.” These rules of organization and work design may have been based on
assumptions about technology, people, and organizational goals that may no longer be relevant.
Rather than attempting to fix existing problems through minor adjustments and fine-tuning of
existing processes, the key to reengineering is asking “If this were a new company, how would we run
this place?”

organizational culture and leadership

Organizational culture and leadership is a set of values that defines a company and how the company's
leadership exemplifies and reinforces those values. It defines the behaviors and actions the company expects
employees to take to create a positive environment while helping the business succeed. Organizational
culture also guides a company's mission and objectives, making it important to clearly define so each
employee fully understands the mission they're working towards.