For today’s multi-business firms—from IBM to General Electric to Kraft—developing strategies and deploying human and financial resources is extremely complex given their highly-diversified operations and globally far-flung offices. How, then, do executives in such corporations optimize these activities? According to William Ocasio, Professor of Management and Organizations at the Kellogg School, and John Joseph, lecturer and doctoral candidate in the same department, the answer lies largely in the degree of governance channel “coupling” in a given firm.
Ocasio and Joseph observed further channel decoupling within GE under CEO Borch, who created the strategic business units (SBUs) to enhance strategic planning. While corporate staff reviewed SBU plans, planning itself was a decentralized activity. As a result, reporting, control (i.e., financial reporting), staff (SBU planning), and agenda management were disparate activities with limited coordination, which resulted in less overall attention to corporate-level initiatives. Borch’s successor Jones mitigated this decoupling by creating a set of strategy reviews that aligned corporate- and business-unit- level issues and initiatives more closely through regular, in-depth meetings between these areas. Instead of having only annual reviews, Jones introduced “cycle” reviews that took place throughout the year, tightly coupling strategic planning, financial planning, and human resource allocation. Jones’s replacement, the iconic Jack Welch, went even further, increasing coupling between strategy formulation and implementation. Specifically, GE transformed the parallel SBU and reporting structure in fifteen strategic businesses by changing the process by which reviews were conducted, from a mostly bottom-up communication to one characterized by a true two-way flow. In this way the channels began to cut across the organization, with loose articulation among them.
Based on their cumulative observations of GE, Ocasio and Joseph concluded that strategy formulation, rather than being the exclusive purview of the corporate office, takes place through the governance channel network that links the line and staff activities of the corporation, as well as connecting the operating units more closely with the corporate center. Further, the degree of channel coupling influences strategy formulation—largely by narrowing the broad reservoir of ideas and initiatives to those that warrant greater managerial attention. In this view, organizational strategy stems from initiatives and perspectives that emerge, in turn, from a network of tightly and loosely coupled decision-making channels. Ocasio and Joseph highlight two related issues: the need to pay close attention to agenda management channels and the need to develop a network of channels that links strategic agendas with specific components and priorities of business units.
The researchers also point out that firms’ decision-makers can generally control the content and degree of coupling of their organization’s governance channels. By altering the content, structure, and sequencing of channels, managers may improve coordination of bottom-up and top-down processes, as well as driving further integration between line and staff. However, Ocasio and Joseph caution that such changes cannot be implemented overnight: the channel aspect of organizational design results from decades of development. As the authors point out, GE managers acknowledge that Welch’s tightly coupled channel system would not have been possible without the organizational structure inherited from his predecessors in the 1970s or even the financial system initiated by Cordiner in the 1950s. Ocasio and Joseph note that it is easier to repurpose channels than create new ones, as illustrated by Welch, who created no new channels but modified extensively the content, structure, and process of GE’s existing ones. This approach is in line with Welch’s and GE’s general tack of innovation; even when the firm has not invented a particular practice, it is well-equipped to improve and popularize it (e.g., the adoption of Motorola’s Six Sigma under Welch).
As a follow-up to the work discussed here, Ocasio and Joseph are refining the methodology by which to measure the degree of channel coupling. To do this they are systematically analyzing GE’s decision-making process, especially in regard to governance channels, for further insights that will surely apply to multi-business firms across industries.
Ocasio, William P. (1997). “Towards an Attention-Based View of the Firm,” Strategic Management Journal, 18. (Summer Special Issue), 187-206.
Ocasio, William and John Joseph (2005). “An attention-based theory of strategy formulation: Linking decision making and guided evolution in strategy processes.” Advances in Strategic Management, Vol. 22, 39-61.