Structure Follows Strategy: Using Dangote Cement Plc as a Case Study
CHAPTER ONE
PREAMBLE TO THE STUDY
The purpose of structure is to organize your resources in such a way that you are able to deliver your strategy. So the first guideline is to ensure you have coherence of direction before embarking on the journey to determine your structure. You must be able to articulate what the structure has to enable in order to build an effective organization.
CHAPTER TWO
LITERATURE REVIEW
CONCEPTUAL FRAMEWORK
Size Matters
With a small business of up to 12 people firms naturally run as a family cluster. Once they reach 24-30 they start to operate as an extended family, and everyone still knows everyone. The big changes start to kick in when the group size exceeds our ability to function like a family. The more people, and the more complex the interactions, the more you will need to clearly define how your structure works. By the time you get to 80 people the family feel has been replaced by multiple families, a tribe or has transformed into one of the organising principles discussed in the next section. Some firms attempt to impose heavy structures on small firms, that are still at the ‘family size’ end of the spectrum, and this usually leads to problems of unnecessary bureaucracy, slowing down the organisation rather than enabling it. It is akin to trying on your dad’s suit when you are still a kid. There is no need to complicate structures too soon. This article is aimed at organizations in the 80 – 10,000 employee size. For much larger organizations, over 50,000, issues of control re-assert themselves. Some attempt to tackle the problem by imposing a strong command and control culture, aimed at quality assurance, health and safety and budget control. Others allow divisional structures to adapt to suit specific local needs whilst ensuring their reporting structures are consistent and aligned.
The Organizing Principle and Structural Archetypes
Behind every structure is an inherent organising principle. As Yuval Harari helped us understand, in his wonderful book ‘Sapiens: A brief history of humankind’, as a species we are in a constant search for an organising principle around which to cluster. Our rise to dominance, on this fragile planet, is in large part attributable to our ability to organise very large numbers of people around a compelling idea, such as a belonging to a tribe, region, political party or sporting club. It gives us a massive advantage over other species. Millions of people follow Dongote group of company even though the majority get to the company. Organising principles are powerful catalysts and, of course, are also active in our working lives. So the fourth principle in structural design is to match the organising principle of your structure to the needs of your strategy.
Structure, Strategy and the Organization
Structure is the design of the organization through which strategy is administered. Changes in an organization‘s strategy can lead to new administrative problems which will require a new structure for the successful implementation of the new strategy. The structural design describes roles, responsibilities and lines of reporting in organizations and can deeply influence the sources of organization ‘s advantage. Thus, failure to adjust structures appropriately can totally undermine implementation. Chandler (1962) showed how firms developed over time by identifying four sequential stages:
- acquisition of resources such as employees and raw materials and the buildup of marketing and distribution channels
- establishment of functional structures to increase efficiency
- adoption of growth and diversification strategy: diversification into new markets and products to overcome limits of home market
- the creation of the then revolutionary diversionalised form to manage large conglomerates.
It is important to note that Chandler believed that strategy is given and therefore, even before coming up with a structure, there is a strategy at the back of the mind. That is exactly why, after coming up with functional structures, then strategists adopt the already given -existing- strategy (Mintzberg, 1987).
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
Brief Profile of Dangote Cement PLC
Benue Cement Company was a product of the industrialisation moves of the Federal Government of Nigeria in the years following Nigeria’s independence. Following the discovery of limestone traces in Mbayion, Gboko Local Government Area of Benue State in 1960, the federal and regional governments initiated the project to build a cement plant in the region and invited Cementia Holding AG of Zurich to carry out a confirmative study of the feasibility of establishing a cement plant in the region. Eventually the Benue Cement Company (BCC) was incorporated in July 1975 as a private limited liability company but commenced operations in August 1980. At this time of incorporation, Cementia Holding AG of Zurich, which carried out the design and construction of the cement factory, became the management partners. At the official commissioning in 1981, the cement plant had a rated capacity of 900,000 metric tonnes per annum. Following the 1990 privatisation of the company, the company’s name was changed to Benue Cement Company Plc in March 1992. In another round of federal government’s privatisation program in 2000, Dangote Industries Limited acquired federal government’s majority 65% equity in BCC and effectively took over the management of the company in 2004. Until the Merger, Dangote Cement is the majority shareholder, as it owns 74.76% of BCC’s total outstanding shares. BCC’s principal activities are the manufacture and sale of cement. In 2004 when Dangote Industries took over the management of BCC, the company had an annual capacity of 900,000 tonnes and capacity utilisation was largely below 50%, with frequent maintenance challenges due to the obsolete state of the plant. Management thus embarked on an aggressive upgrading and rehabilitation of the plant, which transformed it into a new state-of-the-art cement factory with two 1.4 million tonnes lines, thereby increasing the company’s annual capacity by more than three-fold. The first cement line was commissioned in late 2007, while the second became operation in 2008. Unlike the Obajana plant that was primarily built to operate on gas (although can also operate on fuel oil), BCC’s plants were built to use Low Pour Fuel Oil (LPFO) – although the process of adapting the plant to be dual-firing capable of using coal is presently on-going.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Conclusion
Conclusively, it cannot be succinctly stated that efficiently designed organisational structure facilitates managerial issues, provides great potential for improving organisation’s competitive power, innovation capability, and labour force relations while lowering expenses, as this was obvious in the just concluded research in Dangote Cement PLC Gboko Plant. Furthermore effective organisational structure is sine qua non to management effectiveness and organisational performance. Thus, organisation structure should be effectively designed for it provides the framework for the activities of the organisation, its competitive ability and should be harmonise with the organisation’s goals and objectives. Since the organisation is already using a conventional structure that is well tailored to the need of the organisation, management of the organisation should sustain the effectiveness of the structure to enhance their performance and accelerate their competitive ability. The organisation should sustain the centralisation, formalisation and effective organisation communication system already existing in the organisation, this will enable them to get the best from their management team, increase their market share and enhance performance and profitability
Recommendation
Top management must ultimately be involved in monitoring the organizational structure from the beginning of strategy crafting through to implementation and aligning it with the remote environment.
When strategy comes first, the subsequent structure must be aligned to the strategy. The structure must support the strategy for competitiveness to be realized.
Top management must therefore be on the lookout and make sure there is a close fit between strategy and structure, and the environment.
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