Strategy implementation and organizational design

Hello and welcome to this series of introductory talks on business strategy. My name is Robert Grant. I'm a professor of strategic management at Bocconi University in Milan, Italy. I'm also the author of Contemporary Strategy Analysis, a leading strategic management textbook used in business programs throughout the world.

How are resources, especially human resources, integrated into capabilities? This is the fundamental organizational challenge that faces all firms. People need to specialize in order to be good at what they do, but supplying any good or service typically requires the efforts of many different specialists. There are two dimensions to this organizational problem. First, there is the cooperation problem. Every person has his or her own goals and preferences. How do we get people to subordinate these goals to the goals of the organization, that is, how does the firm achieve cooperation? This typically happens through exerting control and through the provision of incentives and penalties. It can also be achieved by ensuring that everybody commits to the same organizational values and norms. Second, there's the coordination problem. Even if people want to cooperate, they still need to be organized to ensure that their efforts are coordinated with everyone else's efforts. How do organizations integrate the efforts of multiple individuals into operationally effective teams? The key is to establish processes that permit every organizational member to make their own individual contribution while coordinating with the efforts of others. Have you seen a Formula 1 pit crew change the tires of a racing car? It typically takes between two and three seconds. This is not because the individuals are brilliant wheel changers, it is because of a finely honed process. Why is it that scheduled airlines offer the world's safest mode of travel? It is because airplane flight and airplane maintenance and airplane manufacture are governed by a vast network of processes that have become perfected over decades. The same goes for every business to achieve sustained success, it is home to an integrated network of expertly performed processes that become embedded in routines, and these routines are continually improved over time. But how are these processes integrated to ensure that the business develops in the direction that the strategy intends? This is where organizational structure is so important. The key principle here is that the processes which need to coordinate most closely with one another need to be located in the same organizational unit. This principle gives rise