Further, the company’s development is connected to its transition to professional
management and the establishment of a reliable system of corporate governance. There is no
evidence of a board of directors with independent members which would be able to regulate
the interaction between the two owners as well their interaction with investors.
According to PAEI, Nikolaev’s leadership style may be described as PaEi which ideally
comports with the Go–Go stage. But at the next stage — Adolescence — the implementation of
a more formalized administrative system is needed. Here, as Adizes suggests, growth is to be
slowed down and the emphasis is to be on formal management and the development of new
administrative systems during the change-over to the Adolescence stage of the corporate life
cycle.
highlighted problems.
Normal
Abnormal
• Conflicts between partners or
decision makers
• Temporary loss of vision
• Founder’s acceptance of
organizational sovereignty
• Incentive systems rewarding wrong
behavior
• Yo-yo delegation of authority
• Policies made but not adhered to
• Board of directors’ attempt to exert
controls
• Love-hate relationship between the
organization and its entrepreneurial
leadership
• Difficulty changing leadership style
• Entrepreneurial role monopolized and
personalized
• Integration role monopolized
• Lack of controls
• Lack of accountability
• Low morale
• Lack of profit–sharing scheme
• Rising profits, flat sales
• Return to Go–Go and the founder’s
trap
• Inconsistent goals
• Founder’s removal
• Bonuses for individual achievement
while the organization is losing money
• Organizational paralysis during
endless power shifts
• Rapid decline in mutual trust and
respect
• Board’s dismissal of the
entrepreneurial leader
• Excessive internal politics
• Unchanging, dysfunctional leadership
style
• Entrepreneur’s refusal to delegate the
role to a depersonalized role
• Divide-and-rule management
• Imposition of excessive and expensive
controls
• Profit responsibility delegated without
capability to manage it
• Excessive salaries to retain employees
• Premature introduction of a profit-
sharing scheme
•
Rising profits, falling sales
Source: Adizes, 2004, p. 91.
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Before giving an answer, students should analyze changes in the organizational structure
which were introduced between 2003 and 2007. On the one hand, these changes were
objective as they were grounded in the change of the company’s strategy, its diversification,
and the establishment of new business lines. On the other hand, the business diverged into
two lines because of the subjective reason that both of the company’s owners wanted to be in
The 2003 functional organizational structure met the major requirements of the business and
enabled the company to reach its objectives, e.g. to establish a unique and extraordinary shop,
premium tea procurement, sales management, and experience transfer through a network of
sales assistants, and other means.
high frequency of lateral job rotation, and the establishment of many multifunctional groups.
Lateral job rotation helps to increase the loyalty of employees, build a team spirit and is
based on the diversification strategy of the company. The employees being rotated laterally
become quickly and fully involved in new projects and to react promptly to any future
changes.
Another important characteristic of Untsiya’s organizational design which may be thought of
as a discretionary decision of ownership is the management of the company by two owners.
To date, the scale of operations allows the combination of ownership and management
functions. But two owners with significantly different approaches to management would be
incompatible with the strategy of a large company because their very different styles of
One possible alternative for the further development of the company is a redistribution of
responsibilities. For example, Nikolaev could be a head of the company as a director general
and take responsibility for strategic development of business (CEO). Asvarishch could be an
executive director responsible for current operations of the chain (COO). This variant of
division of labor between the two partners is based on essential features of their characters
TCJ06-01-04TN
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For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.
is more oriented towards E – entrepreneurial role (development of business ideas) and I –
integrating role (creating a climate of collaboration and team work), and Asvarishch is more
oriented towards P – producing the results, and A – administrative role.
participation of all the personnel with the majority of the personnel engaged in the decision-
making process.
Question 3. Analyze the strategic alternatives for the company’s development. Which
factors determine the strategy to choose?
• grow large
• be innovative
• pursue only related diversification
• enter new market segments as it tries to achieve market differentiation.
In view of these restrictions consider the potential project of creating a tea shop chain under
For diversification analysis we recommend using the concept of the value creation chain
(Porter, 1987) which defines the two types of interrelations that may create synergy. The first
is a company’s ability to transfer skills or expertise among similar value chains. The second
is ability to share activities. The value chain (the chain of activities that adds value to a
product) helps clarify the focus of corporate strategy. The transfer of skills among business
Students will need to carry out an analysis of the value creation chain in both the “retail tea
sales via exclusive stores” and “tea shop chain” businesses. The only common feature of
these two forms of business is the use of the same commercial areas. From the perspective of
the value creation chain, the given forms of business do not intersect on a practical level and
require a different expertise and knowledge base. For example selling tea by weight over the
investment during business development.
Following the suggested criteria the discussion can then proceed to the company’s strategies
of entrenching its positions in the regions of Russia. Here suggestions and alternatives can
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The choice between strategic development alternatives also may be done with the help of a
SWOT analysis which allows screening the best line of development through weighting
strengths and weaknesses of each alternative as well as the environmental threats and
opportunities. A variant of a SWOT analysis of Untsiya might look like this:
Strengths:
• Unique business concept (nothing
similar in Russian market)
• Easily scalable system of management
• High service standard
• Powerful corporate culture (the club
and informal meetings of employees)
Weaknesses:
• Simultaneous development of several
projects – dilution of resources.
• Lack of clearly fixed responsibilities
and authorities (frequent lateral
rotation of employees)
• Dependency on key employees (may
be clearly seen on organizational chart
where the names of these employees
are stated)
• Dependency on tea suppliers
Opportunities:
• The stable demand for tea in Russia
• Unsatisfied demand for premium
(which is illustrated by the fast
development of franchising Untsiya )
Threats:
• Hostile environment for business
development in Russia (see Exhibit 6)
• Insufficient number of small retail
company)
From this analysis we may derive the next strategic development alternatives. Students
should evaluate the quality of each strategy based on the criteria identified at the beginning of
this question.
and enlarging the services for franchisees.
Strategy WO – concentration on most profitable lines of business: retail sales in Moscow and
Saint-Petersburg.
Strategy ST – development of the wholesale division and the production division: expanding
TCJ06-01-04TN
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For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.
Strategy WT – implementation of regular management practices and increasing performance
of business processes; vertical integration backward into tea production.
Epilogue
In 2008, Untsiya developed as follows:
Sales growth was 45 percent and annual revenue was US$ 8.5M.
The breakdown of company profits among three lines of business was approximately one
third — their own retail chain, one third — franchising, one third — wholesale trade.
Three new projects were begun.
The first one — a new brand, Vintage, was launched and developed exclusively for
tea in Germany. The in-house production of the tea was planned to be started in November,
2008, and a special investment plan was developed and the funds were allocated for this
purpose.
The second project was started in January 2008 and was named Sladosty (“Sweeties”). The
organized some customer focus groups.
The third project was about reorganizing the management system of the company’s retail
chain. The main purpose of the organizational change was to increase service quality in
chain stores. According to Sergey Nikolaev, reduction of service quality occurred over time
in connection with the loss of the sensation of novelty for the salesmen and the managers.
service.
As of 2009, the organizational structure of the company has changed in regard to the
responsibilities of the two owners: Nikolaev became the director general and now is in
charge of new lines of business, Asvarishch became the executive director and currently is
responsible for current operations of the chain.
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Reference List
Adizes I. Managing Corporate Lifecycles: How to Get and Stay at the Top. Adizes Institute
Publishing, 2004.
organizations, Organizational Dynamics. Summer 1979. 3-25.
Adizes I. Mastering Change. Adizes Institute Publications, 1992
Adizes I. How to Solve The Mismanagement Crisis: Diagnosis and Treatment of
management Problems. USA. California. The Adizes Institute Publications. 1979.
Code of Change. Boston, 2000. 1-33.
Churchill, N.C. & Virginia L. Lewis. The five stages of small business development,
Harvard Business Review. 30-49. 1983
Porter M.E. From competitive advantage to corporate strategy. Harvard Business Review.
May-June, 1987. 43-59.
TCJ06-01-04TN
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For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.