The Nature of Strategy Implementation

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:

• Strategy formulation is positioning forces before the action.

• Strategy implementation is managing forces during the action.
• Strategy formulation focuses on effectiveness.
• Strategy implementation focuses on efficiency.
• Strategy formulation is primarily an intellectual process.
• Strategy implementation is primarily an operational process.
• Strategy formulation requires good intuitive and analytical skills.
• Strategy implementation requires special motivation and leadership skills.
• Strategy formulation requires coordination among a few individuals.
• Strategy implementation requires coordination among many individuals.

Strategy-formulation concepts and tools do not differ greatly for small, large, for-profit, or nonprofit
organizations. However, strategy implementation varies substantially among different types and sizes
of organizations. 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, and
transferring managers among divisions, and building a better management information system. These
types of activities obviously differ greatly between manufacturing, service, and governmental
organizations.

Merger/Acquisition
Merger and acquisition are two commonly used ways to pursue strategies. A merger occurs when two
organizations of about equal size unite to form one enterprise. An acquisition occurs when a large
organization purchases (acquires) a smaller firm, or vice versa. When a merger or acquisition is not
desired by both parties, it can be called a takeover or hostile takeover. In contrast, if the acquisition is
desired by both firms, it is termed a friendly merger. Most mergers are friendly. There were numerous
examples in 2009 of hostile takeover attempts. For example, Swiss drug company Roche Holding AG
in 2009 launched an $86.50-a-share hostile takeover for the 44.2 percent of Genentech Inc. that it did
not already own. Genentech’s board of directors strongly urged shareholders not to accept the Roche
Holding offer, saying that Roche’s $40 billion offer was inadequate. Genentech’s board said the firm
was worth $112 per share at the time. A few weeks later, Roche increased its bid to $93 per share.
Headquartered near each other in California, Emulex Corp. in May 2009 rejected a hostile takeover
bid from Broadcom Corp. even though the Broadcom offer represented a 40 percent premium over the
Emulex current stock price. Emulex installed a “poison pill” in January 2009 as protection against
hostile takeover offers. Both companies produce and sell networking equipment that connect servers
in data centers. As stock prices have plunged in many companies, their rivals with cash are eyeing
them as takeover candidates. Fertilizer producer Agrium recently offered to buy rival Deerfield,
Illinois–based CF Industries Holdings for $3.6 billion, which created a threeway hostile takeover
battle because CF at the time had a hostile takeover offer on the table to acquire Terra Industries.
Private-equity-led buyouts, which accounted for 15 percent of all merger and acquisition in 2007, fell
to 6 percent of the total in 2008. That smaller percentage is likely to remain in place in 2009 as big
cross-border deals are unlikely in the near term. Private equity investing in tech companies fell almost
80 percent in 2008 to $26.3 billion as sources of debt financing became scarce. Private-equity firms
such as Blackstone Group Inc. and Kohlberg Kravis Roberts & Co. that led the massive acquisition
trend in 2006–2007 are still around, but they operate much more carefully now. Such firms are trying
today to purchase the agricultural-sciences division (Agro Sciences) of Dow Chemical. Dow needs
cash to complete its own acquisition of Rohm & Haas Co. Agro Sciences should be worth between $7
and $10 billion. A rival Swiss firm named Syngenta AG also is interested in acquiring Agro Sciences.
For all of 2008, global merger and acquisition volume fell 29 percent to $3.06 trillion, which was on
par with 2005. Big deals in 2008 included Mars Inc.’s $23 billion acquisition of Wm. Wrigley Jr. Co.,
InBev NV’s $52 billion purchase of Anheuser-Busch, and HP’s $13.2 billion acquisition of EDS. In a
stock deal that created the nation’s largest home builder, Pulte Homes recently acquired Centex Corp.
for $1.3 billion. This merger signalled a bottom in the housing market, which had dropped so
drastically in the United States in 2008 and early 2009.

A leveraged buyout (LBO) occurs when a corporation’s shareholders are bought (hence buyout) by
the company’s management and other private investors using borrowed funds (hence leverage).36
Besides trying to avoid a hostile takeover, other reasons for initiating an LBO are senior management
decisions that particular divisions do not fit into an overall corporate strategy or must be sold to raise
cash, or receipt of an attractive offering price. An LBO takes a corporation private.

Potential Benefits of Merging with or Acquiring

Another Firm
• To provide improved capacity utilization
• To make better use of the existing sales force
• To reduce managerial staff
• To gain economies of scale
• To smooth out seasonal trends in sales
• To gain access to new suppliers, distributors, customers, products, and creditors
• To gain new technology
• To reduce tax obligations