Strategy

Implementation
Chapter VII

Presented by:
Manalili, Jake
Bengco, Mark Anthony
David, Rosvi
Dizon, Keren Lois
The Nature of Strategy Implementation
The strategy-implementation stage of strategic management is revealed in Figure
Successful strategy formulation does not guarantee successful strategy implementation.
It is always more difficult to do something (strategy implementation) than to say you are
going to do it (strategy formulation)! Although inextricably linked, strategy implementation
is fundamentally different from strategy formulation. Strategy formulation and
implementation can be contrasted in the following ways:

• Implementing strategies requires such actions as altering sales territories,

adding new departments, closing facilities, hiring new employees, changing an
organization’s pricing strategy, developing financial budgets, developing new
employee benefits, establishing cost-control procedures, changing advertising
strategies, building new facilities, training new employees, transferring managers
among divisions, and building a better management information system. These
types of activities obviously differ greatly between manufacturing, service, and
governmental organizations.
 Example :
Related Diversification - PEAC have a new client but they the implement difficult
because its lack of communication with client regional offices.

Annual Objectives

• Establishing annual objectives is a decentralized activity that directly involves all

managers in an organization.

• Annual objectives serve as guidelines for action, directing and channeling efforts
and activities of organization members. They provide a source of legitimacy in an
enterprise by justifying activities to stakeholders.

• Annual objectives should be measurable, consistent, reasonable,

challenging, clear, communicated throughout the organization.
Match Structure with Strategy
Alfred Chandler promoted the notion that “changes in strategy lead to changes in
organizational structure.”

Changes in strategy often require changes in the way an organization is structured, for
two major reasons. First, structure largely dictates how objectives and policies will be
established. The second major reason why changes in strategy often require changes in
structure is that structure dictates how resources will be allocated.
An organizational structure defines how your business will function. The structure
you choose to implement in your business will dictate how employees, departments,
and divisions work or don’t work with each other, and how work will be channeled
through your organization. Because certain organizational structures work better than
others when applied to different organizations, it is very important to consider how
well the structure you select will work in your type of company.
Types of Organizational Structure
There are seven basic types of organizational structure:
1. Functional
2. Divisional by geographic area
3. Divisional by product
4. Divisional by customer
5. Divisional by process
6. Strategic business unit (SBU)
7. Matrix
The Functional Structure
This is the most widely used structure because this is the simplest and least expensive
of the seven alternatives. It can also be called the centralized type. A functional
structure is the one that divides the major functions of a firm into different groups.

A functional structure is used to organize workers. They are grouped based on their
specific skills and knowledge. Functional organizations contain specialized units that
report to a single authority, usually called top management.

In a functional structure, each department is headed by an experienced functional

manager and skilled employees due to repetitive work which means high productivity,
efficiency and the best performance; thus, helping the organization in achieving their
objectives. Most small industries with only a few products use this type of structure.

The Divisional Structure

This is the second-most common type. The divisional structure is a type of
organizational structure that groups each organizational function into a division. Each
division contains all the necessary resources and functions within it to support that
product line or geography (for example, its own finance, IT, and marketing
departments). The divisional structure is useful because failure of one division doesn’t
directly threaten the other divisions.

Divisions are sometimes referred to as segments, profit centers, or business units.

Some form of divisional structure generally becomes necessary to motivate employees,
control operations, and compete successfully in diverse locations.
The divisional structure can be organized in one of four ways:
(1) by geographic area
(2) by product or service
(3) by customer
(4) by process

A divisional structure by geographic area is appropriate for organizations whose

strategies need to be tailored to fit the particular needs and characteristics of customers
in different geographic areas. Geographic structuring is especially important if tastes
and brand responses differ across regions, as it allows for flexibility in product offerings
and marketing strategies. This type of structure is best for organizations that need to be
near sources of supply and/or customers. This type of structure can be most
appropriate for organizations that have similar branch facilities located in widely
dispersed areas. For example, McDonald’s is well-known for its geographic structure
and localization strategy for food preferences. The McDonald’s in you can order the
McD Chicken Porridge, Chicken McDo w/ McSpaghetti in the Philippines, Cadbury
Crème Egg Mcflurry in Canada & Australia and Loco Moco Burger in Japan.
The divisional structure by product (or services) is a framework in which a business
is organised in separate divisions, each focusing on a different product or service and
functioning as an individual unit within the company. It is ideal for organizations with
multiple products and can help shorten product development cycles. GE, for example,
has structured six product-specific divisions supported by six centralized service
divisions. (1) Energy, (2) Capital (3) Home & Business Solutions, (4) Healthcare, (5)
Aviation, and (6) Transportation. Product divisions work well where products are more
technical and require more specialized knowledge.
 The divisional structure by customer is appropriate when the organization’s product
or service needs to be tailored to specific customers. Companies that offer services,
such as health care, tend to use a customer-based structure. While similar to the
product structure, the different business segments at the bottom are each split into a
specific customer group—for example, outpatient, urgent care, and emergency care
patients. Since the customers differ significantly, it makes sense to customize the
service. Employees can specialize around the type of customer and be more productive
with that type of customer.

The customer-based structure is ideal for an organization that has products or services
unique to specific market segments, especially if that organization has advanced
knowledge of those segments.

A divisional structure by process is similar to a functional structure, because activities

are organized according to the way work is actually performed. However, a key difference
between these two designs is that functional departments are not accountable for profits
or revenues, whereas divisional process departments are evaluated on these criteria. An
example of a divisional structure by process is a manufacturing business organized into
six divisions: electrical work, glass cutting, welding, grinding, painting, and foundry work.
In this case, all operations related to these specific processes would be grouped under the
separate divisions. Each process (division) would be responsible for generating revenues
and profits. The divisional structure by process can be particularly effective in achieving
objectives when distinct production processes represent the thrust of competitiveness in
an industry.

Strategic Business Unit (SBU)

A strategic business unit or SBU is a fully-functional unit of a business that has its own
visions, missions, objectives, and course. Typically, a strategic business unit operates
as an independent entity, but it has to report directly to the headquarters of the
organization about the status of its operation. It operates independently and is focused
on a target market. It is big enough to have its own support functions such as HR,
training departments etc. This principle works best for organizations which have multiple
product structure.
The best example of SBU are companies like Proctor and Gamble and LG. These
companies have different product categories under one roof. For example, LG as a
company makes consumer durables. It makes refrigerators, washing machines, air
conditioners as well as televisions. These small units are formed as separate SBUs so
that revenues, costs as well as profits can be tracked independently. Once a unit is
given an SBU status, it can make its own decisions, investments, budgets etc.
P&G operates through six industry-based Sector Business Units or SBUs: Fabric and
Home Care, Baby and Feminine Care, Family Care and P&G Ventures, Beauty,
Grooming, and Health Care. They manage their 10 product categories within these
SBUs.

Matrix Structure
A matrix structure is the most complex of all designs because it depends on both
vertical and horizontal flows of authority and communication (hence the term matrix). A
matrix organization is defined as one in which there is dual or multiple managerial
accountability and responsibility. In a matrix there are usually two chains of command,
one along functional lines and the other along project, product, or client lines. This type
of structure is often useful when skills need to be shared across departments to
complete a task and can allow companies to utilize a wide range of talents and
strengths. The matrix structure can also help businesses achieve quick market
adaptation to changing customer needs, as it can decrease the lead time to produce a
new product. This structure is most suitable for businesses operating in a dynamic
environment. A company choose a matrix structure when it wants to promote
innovation and speed up new product development process.
For a matrix structure to be effective, organizations need participative planning,
training, clear mutual understanding of roles and responsibilities, excellent internal
communication, and mutual trust and confidence.
Strategic Production/Operations Issues

Production/operations capabilities, limitations, and policies can significantly enhance or

inhibit the attainment of objectives. Production processes typically constitute more than
70 percent of a firm’s total assets. Thus, a major part of the strategy-implementation
process takes place at the production site.

Strategic production-related decisions on plant size, plant location, product design,

choice of equipment, kind of tooling, size of inventory, inventory control, quality control,
cost control, use of standards, job specialization, employee training, equipment and
resource utilization, shipping and packaging, and technological innovation can
determine the success or failure of strategy- implementation efforts.

Four Production/Operations Issues

1. Restructuring and Reengineering

Restructuring also called downsizing, rightsizing, or delayering—involves reducing the

size of the firm in terms of number of employees, number of divisions or units, and
number of hierarchical levels in the firm's organizational structure. This reduction in size
is intended to improve both efficiency and effectiveness. Restructuring is concerned
primarily with shareholder well-being rather than employee well-being.

Reengineering is concerned more with employee and customer well-being than

shareholder well-being. also called process management, process innovation, or 6
process redesigns— involves reconfiguring or redesigning work, jobs, and processes for
the purpose of improving cost, quality, service, and speed. Reengineering does not
usually affect the organizational structure or chart, nor does it imply job loss or
employee layoffs. Whereas restructuring is concerned with eliminating or establishing,
shrinking or enlarging, and moving organizational departments and divisions, the focus
of reengineering is changing the way work is actually carried out.

2. Manage Resistance to Change

No organization or individual can escape change. But the thought of change raises
anxieties because people fear economic loss, inconvenience, uncertainty, and a break
in normal social patterns. Almost any change in structure, technology, people, or
strategies has the potential to disrupt comfortable interaction patterns.

Resistance to change may be the single-greatest threat to successful strategy

implementation. Resistance regularly occurs in organizations in the form of sabotaging
production machines, absenteeism, filing unfounded grievances, and an unwillingness to
cooperate. People often resist strategy implementation because they do not understand
what is happening or why changes are taking place.
Resistance to Change
• It may take on such forms as sabotaging production machines,
absenteeism, filing unfounded grievances\criticisms, and an unwillingness
to cooperate.
• Resistance to change can emerge at any stage or level of the strategy
implementation process.
• There are three commonly used strategies for implementing change:

1. Force change strategy - involves giving orders and enforcing those

orders; this strategy has the advantage of being fast, but it is plagued by
low commitment and high resistance.
2. Educative change strategy: present information to convince people of
the need for change. The disadvantage of an educative change strategy is
that implementation becomes slow and difficult. However, this type of
strategy evokes greater commitment and less resistance than does the
force change strategy
3. Self-interest change strategy. Convince people than change for their
personal advantage. When this appeal is successful, strategy
implementation can be relatively easy. However, implementation changes
are seldom to everyone’s advantage.

3. Decide Where and How to Produce Goods

There are factors that should be consider before locating production facilities such
as; ● Availability of major resources

● Prevailing wage rates in the area,

● Transportation costs related to shipping and receiving
● The location of major markets
● Political risks in the area or country
● The availability of trainable employees.
 • Foxconn Technology Group is better known as Foxconn, is a Taiwanese
multinational electronics contract manufacturer. In 2010, it was the world's
largest provider of electronics manufacturing services and the third-largest
technology company by revenue. The company is the largest private
employer in China and one of the largest employers worldwide
• Apple Inc. is an American multinational technology company that specializes
in consumer electronics, computer software, and online services. Apple
has been a growing company in the technology industry for years now and
has surpassed all others to become the world's most valued company in
the industry.
• Apple made the decision to outsource and use Foxconn factories to produce
their products, reducing costs.

Conclusion

Steve Jobs and Apple Computer once built a "factory of the future" in Fremont,
California. They spent $20,000,000 and then closed it after just two years. Today,
Apple's net worth is more than Poland. So, what went wrong in 1984? And what is going
right today?
What went wrong was not cheap overseas labor. It was their failure to integrate
Marketing Strategy with Manufacturing Strategy. Or, more likely, Apple failed to even
consider the issues of Manufacturing Strategy. Later, when Apple partnered with
Foxconn, Apple and Foxconn did not repeat the earlier mistakes.
Examples of adjustments in production systems that could be required to implement
various strategies are provided in Table 10-11 for both for-profit and nonprofit
organizations. For instance, note that when a bank formulates and selects a strategy to
add 10 new branches, a production-related implementation concern is site location.
 4. Employee Stock Ownership Plans (ESOPs)

1.An ESOP is a tax-qualified, defined-contribution, employee benefit plan whereby

employees purchase stock of the company through borrowed money or cash
contributions. These plans empower employees to work as owners.

2. ESOPs reduce worker alienation\estrangement, stimulate productivity, and allow

substantial tax savings for the firm.

An Employee Stock Ownership Plan (ESOP) refers to an employee benefit plan that
gives the employees an ownership stake in the company. The employer allocates a
certain percentage of the company’s stock shares to each eligible employee at no
upfront cost. The distribution of
shares may be based on the employee’s pay scale, terms of service, or some other
basis of allocation.
Benefits of an ESOP
• Tax benefits for employees - the employees do not pay tax on the contributions
to an ESOP. Employees are only taxed when they receive a distribution from
the ESOP after retirement or when they otherwise exit the company. Any gains
accumulated over time are taxed as capital gains.
• Higher employee engagement - Companies with an ESOP in place tend to see
higher employee engagement and involvement. It improves awareness among
employees since they are given the opportunity to influence decisions about
products and services. Employees can see the big picture of the company’s
plans in the future and make recommendations on the kind of direction the
company wants to take. An ESOP also increases employee trust in the
company.
• Positive outcomes for the company - Employee stock ownership plans not only
benefit the employees but also result in positive outcomes for the company
and increased the likelihood of company survival.
Strategic Human Resource Issues

Strategic human resource management is the connection between a company’s

human resources and its strategies, objectives, and goals. The aim of strategic
human resource management is to:
• Advance flexibility, innovation, and competitive advantage.

• Develop a fit for purpose organizational culture.

• Improve business performance.

7 Human Resource Issues

1. Linking performance and pay to strategy

2. Balancing work life with home life

3. Developing a diverse work force

4. Using caution in hiring a rival’s employees

5. Creating a strategy-supportive culture

6. Using caution in monitoring employees’ social media

7. Developing a corporate wellness program

1. Linking performance and pay to strategy

An organization’s compensation system needs to be aligned with strategic outcomes.

Decisions on salary increases, promotions, merit pay, and bonuses need to support
the long-term and annual objectives of the firm.
Schein indicated that the following elements are most useful in linking culture to strategy:

1. Formal statements of organizational philosophy, charters, creeds, materials

used for recruitment
and selection, and socialization
2. Designing of physical spaces, facades, and buildings
3. Deliberate role modeling, teaching, and coaching by leaders
4. Explicit reward and status system and promotion criteria
5. Stories, legends, myths, and parables about key people and events
6. What leaders pay attention to, measure, and control
7. Leader reactions to critical incidents and organizational crises
8. How the organization is designed and structured
9. Organizational systems and procedures
10. Criteria used for recruitment, selection, promotion, leveling off,
retirement, and “excommunication”
of people.
 2. Balancing work life with home life

Work/family strategies have become so popular among companies that the

strategies now represent a competitive advantage for those firms that offer such
benefits as elder care assistance, flexible scheduling, job sharing, and so on.

3. Developing a diverse work force

Capable of understanding the varying cultural, gender, or ethnic backgrounds of their

workforce can optimize collaboration and minimize any friction that may arise because
of these differences.
Six benefits of having a diverse workforce are as follows:

1. Women and minorities have different insights, opinions, and perspectives that
shouldbe considered.
2. A diverse workforce portrays a firm committed to nondiscrimination. 3. A workforce
that mirrors a customer base can help attract customers, build customer loyalty, and
design/offer products/services that meet customer needs/wants. 4. A diverse workforce
helps protect the firm against discrimination lawsuits. 5. Women and minorities
represent a huge additional pool of qualified applicants. 6. A diverse workforce
strengthens a firm’s social responsibility and ethical position.

4. Using caution in hiring a rival’s employees

In recruiting terms, “poaching” is a dramatic way to say hiring current or former

employees from a competitor or similar company. You have open roles that call for
certain experience and knowledge and a person who already works in your industry
likely has the attributes you’re looking for.
5. Creating a strategy-supportive culture

All organizations have a unique culture. Strategists should strive to preserve,

emphasize, and build on aspects of an existing culture that support proposed
new strategies.

6. Using caution in monitoring employees’ social media

You may be using social media to benefit your company by engaging

customers, networking with colleagues, increasing website and blog traffic, and
building brand awareness. But there are potential liabilities, too. Employers can
be held liable for actions their employees take within the course and scope of
employment.
 7. Developing a corporate wellness program

Designing and managing an employee wellness program is an important step in

improving the health and productivity of employees and potentially improving the
overall cost of employer- provided health care.
Wellness programs can benefit employers by:
• Lowering health care costs.

• Reducing absenteeism.

• Achieving higher employee productivity.

• Reducing workers' compensation and disability-related costs. •

Reducing injuries.

• Improving employee morale and loyalty