CHAPTER 8

STRATEGY ANALYSIS AND CHOICE

The important components of comprehensive strategic management model are follows

● There must be some clear ideology including the vision, mission and objectives
● An analyses of internal environment that keep the business save from any issues
preventing the business perform at its best.
● An analyses of external environment and risks existing there
● A user friendly maps and charts that guide the business in better decision making.
● Must include definite accountability for the outcomes.
● An effective comprehensive strategic management model is always flexible to meet all
the needs of the business. But, keep in mind the components for the development of
strategic plan.

• Strategy analysis and choice seek to determine alternative courses of action that could best
enable the firm to achieve its mission and objectives. They involve subjective decisions making
based on the objective information. This article focuses on generating and evaluating alternative
strategies, as well as selecting strategies to pursue. It introduces concepts that can help
strategists generate feasible alternatives, evaluate those alternatives, and choose a specific
course of action.

• Behavioral aspects of strategy formulation are described, including politics, culture, ethics, and
social responsibility considerations. Modern tools for formulating strategies are described, and
appropriate role of a board of directors is discussed. Special attention is paid to the process of
generating and selecting strategies including a comprehensive strategy-formulation framework,
as well as the cultural aspect and the politics of strategy choice.

Nature of Strategy Analysis and Choice

Focuses on generating and evaluating alternative strategies, as well as selecting strategies to
pursue.

Strategy analysis and choice seek to determine alternative courses of action that could best
enable the firm to achieve its mission and objectives. The firm’s present strategies, objectives,
and mission, coupled with the external and internal audit information, provide a basis for
generating and evaluating feasible alternative strategies.

THE PROCESS OF GENERATING AND SELECTING STRATEGIES

Strategies never consider feasible alternatives that could benefit the firm because there are an
infinite number of possible actions and an infinite number of ways to implement those actions.

Therefore, a manageable set of the most attractive alternative strategies must be developed.
The advantages, disadvantages, trade-offs, cists, and benefits of these strategies should be
determined.

Identifying and evaluating alternative strategies should involve many of the managers and
employees who earlier assembled the organizational vision and mission statements, performed
the external audit, and conducted the internal audit. Representatives from each department and
division of the firm should be included in this process, as was the case in previous strategy-
formulation activities. Recall that involvement provides the best opportunity for managers and
employees to gain an understanding of what the firm is doing and why and to become
committed to helping the firm accomplish its objectives.

All participants in the strategy analysis and choice activity should have the firm’s external and
internal audit information by their sides. This information, coupled with the firm’s mission
statement, will help participants crystallize in their own minds particular strategies that they
believe could benefit the firm most. Creativity should be encouraged in this thought process.

Alternative strategies proposed by participants should be considered and discussed in a

meetings or series of meetings. Proposed strategies should be listed in writing. When all
feasible strategies identified by participants are given and understood, the strategies should be
ranked in order of attractiveness by all participants, with

1 = should not be implemented,

2 = possibly should be implemented,
3 = probably should be implemented,
4 = definitely should be implemented.

This process will result in a prioritized list of best strategies that reflect the collective wisdom of
the group

A Comprehensive Strategy Formulation Framework

Important strategy-formulation techniques can be integrated into a three-stage decision-making
framework. The tools presented in this framework are applicable to all size and types of
organizations and can help strategists identify, evaluate and select strategies.
 ❖ Stage 1, of the formulation framework consists of the EFE Matrix, the IFE Matrix, and the
Competitive Profile Matrix (CPM). Called the Input Stage, Stage 1 summarizes the basic
input information needed to formulate strategies.

❖ Stage 2, called the Matching Stage focuses upon generating feasible alternative
strategies by aligning key external and internal factors. Stage 2 techniques include the
Strengths-Weaknesses Opportunities-Threats (SWOT) Matrix, the Strategic Position and
Action Evaluating (SPACE) Matrix, the Boston Consulting group (BCG) Matrix, the
Internal-External (IE) Matrix, and Grand Strategy Matrix.

❖ Stage 3, called the Decision Stage, involve a single technique, the Quantitative Strategic
Planning Matrix (QSPM). A QSPM uses input information from Stage 1 to objectively
evaluate feasible alternative strategies identified in Stage 2. A QSPM reveals the relative
attractiveness of alternative strategies and thus provides objective basis for selecting
specific strategies.

The Input Stage

The input tools require strategists to quantify subjectivity during early stages of the strategy
formulation process. Making small decisions in the input matrices regarding the relative
importance of external and internal factors allows strategists to more effectively generate and
evaluate alternative strategies. Good intuitive judgment is always needed in determining
appropriate weights and ratings

The Matching Stage

Strategy is sometimes defined as the match an organization makes between its internal
resources and skills and opportunities and risks created by its external factors. (Grant, 1991)

The Stage 2 focuses on generating feasible alternative strategies by aligning key external and
internal factors. Stage 2 techniques include Strengths-Weaknesses OpportunitiesThreats
(SWOT) Matrix, Strategic Position and Action Evaluation (SPACE) Matrix, Boston Consulting
Group (BCG) Matrix, Internal-External (IE) Matrix, and Grand Strategy Matrix.

A. SWOT matrix
SWOT matrix, in theory, presents a mechanism for facilitating the linkage among company
strengths and weaknesses, and threats and opportunities in the marketplace.

● It also provides a framework for identifying and formulating strategies. SWOT matrix
helps managers develop four types of strategies:
 ● SO (strengths-opportunities) strategies SO strategies use a firm’s internal strengths to
take advantage of external opportunities

● WO (weaknesses-opportunities) strategies WO strategies improve internal weaknesses

by taking advantage of external opportunities.

● ST (strengths-threats) strategies ST strategies use a firm’s strengths to avoid or reduce

the impact of external threats.

● WT (weaknesses-threats) strategies WT strategies are defensive tactics directed at

reducing internal weaknesses and avoiding environmental threats (Weihrich, 1982).

B. Strategic Position and Action Evaluation (SPACE) Matrix

Strategic Position and Action Evaluation (SPACE) Matrix analysis is based on two internal
dimensions and two external dimensions (Rowe et al., 1994).

The internal dimensions; financial strength (FS) and competitive advantage (CA), are the major
determinants of the organization’s strategic position, whereas the external dimensions of
environmental stability (ES) and industry strength (IS) characterise the strategic position of the
entire industry (Radder and Louw, 1998). FA and ES are located on y-axis and CA and IS are
located on x-axis of the SPACE matrix.
Factors influencing financial strength (FS) include:
★ return on investment
★ Leverage
★ Liquidity
★ required/available capital
★ ease of exit from the market
★ risk involved in business

Critical elements of competitive advantage (CA) comprises

★ market share
★ product quality
★ product life cycles
★ product replacement cycles
★ customer loyalty
★ competition’s capacity utilization
 ★ technological know-how
★ vertical integration

The key dimensions which determine environmental stability (ES) include

★ technological change
★ rate of inflation
★ demand variability
★ price range of competing products
★ barriers to entry into the market
★ competitive pressure, and price elasticity of demand.

Factors determining industry strength (IS) include

growth and profit potential
financial stability
technological know-how, resource utilization
capital intensity
ease of entry into the market and productivity or capacity utilization (Radder and Louw, 1998).

In developing a SPACE matrix the analyst is required to pursue the following steps
1. selecting a set of variables to define internal and external strategic position;

2. assigning a value ranging from +1 (worst) to +6 (best) variables making up FS and IS and
value ranging from -1 (best) to -6 (worst) to variables making up ES and CA;

3. calculating the average score for FS, CA, IS, and ES;

4. plotting the average scores for each dimension on the suitable axis on the matrix;

5. adding two scores on the x-axis and finding the resultant point on X and adding two scores on
the yaxis and finding the resultant point on Y, and then plotting the intersection point;

6. drawing a directional vector from the origin of the SPACE matrix through the intersection
point.

On the SPACE matrix there are four types of strategies: aggressive, competitive, conservative
and defensive.

● Aggressive strategy
Aggressive strategy is typical in an attractive industry with stable economic conditions. Financial
strength usually enables an organisation with this strategy to protect its competitive advantage.
Such an organisation may also take full advantage of opportunities in its own or related
industries, look for acquisition candidates, increase market share and/or allocate resources to
products that have a definite competitive edge. Entry of new competitors is, however, a crucial
factor.

Aggressive strategies include market penetration, market development, product development,

backward integration, forward integration, horizontal integration, conglomerate diversification,
concentric diversification, and horizontal diversification.

● Competitive strategy
Competitive strategy is characteristic of an attractive industry in a relatively unstable
environment. The organisation with such a strategy is at a competitive advantage and could
acquire financial resources to increase marketing thrust, add to the sales force, and extend the
product line. Such an organisation could also invest in productivity, cut costs, or merge with a
cashrich organisation. Financial strength is, however, of critical importance. Competitive
strategies include backward, forward, and horizontal integration; market penetration; market
development; product development; and joint ventures.

● Conservative strategy
Conservative strategy is distinctive of a low growth but stable market. The focus is on financial
stability, while product competitiveness is the critical factor. In this situation organisations could
reduce their product lines, cut costs, make cash flow improvements, protect competitive
products, focus on new product developments, and try to enter into more attractive markets.
Conservative strategies most often include market penetration, market development, product
development, and concentric diversification.

● Defensive strategy
Defensive strategy is an unattractive industry where competitiveness is the key factor. The
organisation finding itself in this dimension often lacks a competitive product and financial
strength. It could prepare for retreat from the market, discontinue marginally profitable products,
reduce costs and capacity, and defer or minimize investments (Radder and Louw, 1998).
Defensive strategies include retrenchment, divestiture, liquidation, and concentric diversification

C. Boston Consulting Group (BCG) Matrix

Business models are based on providing products or services that are profitable now, but they
also attempt to identify changes in offerings that will keep the company profitable in the future.
The current moneymakers are easy to identify now, but a good business strategy also asks,
“What about the future?”

Created by the Boston Consulting Group, the BCG matrix – also known as the Boston or growth
share matrix – provides a strategy for analyzing products according to growth and relative
market share. The BCG model has been used since 1968 to help companies gain insights on
what products best help them capitalize on market share growth opportunities and give them a
competitive advantage.

Reeves Martin, senior partner and managing director of the Boston Consulting Group, said that
nearly 50 years after its inception, the BCG matrix model remains a valuable tool for helping
companies understand their potential.

The four quadrants are designated Stars (upper left), Question Marks (upper right), Cash Cows
(lower left) and Dogs (lower right).

Place each of your products in the appropriate box based on where they rank in market share
and growth. Where you choose to set the dividing line between each quadrant depends in part
on how your company compares to the competition.

Here is a breakdown of each BCG matrix quadrant:

➢ Stars: The business units or products that have the best market share and generate the
most cash are considered stars. Monopolies and first-to-market products are frequently
termed stars. However, because of their high growth rate, stars consume large amounts
of cash. This generally results in the same amount of money coming in that is going out.
Stars can eventually become cash cows if they sustain their success until a time when a
high growth market slows down. A key tenet of BCG strategy for growth is for companies
to invest in stars.
 ➢ Cash Cows: A cash cow is a market leader that generates more cash than it consumes.
Cash cows are business units or products that have a high market share but low growth
prospects. According to NetMBA, cash cows provide the cash required to turn a question
mark into a market leader, cover the administrative costs of the company, fund research
and development, service the corporate debt, and pay dividends to shareholders.
Companies are advised to invest in cash cows to maintain the current level of
productivity or to “milk” the gains passively.

➢ Dogs: Dogs, or pets as they are sometimes referred to, are units or products that have
both a low market share and a low growth rate. They frequently break even, neither
earning nor consuming a great deal of cash. Dogs are generally considered cash traps
because businesses have money tied up in them, even though they are bringing back
basically nothing in return. These business units are prime candidates for divestiture.

➢ Question Marks: These parts of a business have high growth prospects but a low
market share. They consume a lot of cash but bring little in return. In the end, question
marks lose money. However, since these business units are growing rapidly, they have
the potential to turn into stars in a high growth market. Companies are advised to invest
in question marks if the product has the potential for growth, or to sell if it does not.

In this four-quadrant BCG matrix template, market

share is shown on the horizontal line (low left, high
right) and growth rate is found along the vertical
line (low bottom, high top). The four quadrants are
designated Stars (upper left), Question Marks
(upper right), Cash Cows (lower left) and Dogs
(lower right).

Place each of your products in the appropriate box

based on where they rank in market share and
growth. Where you choose to set the dividing line
between each quadrant depends in part on how
your company compares to the competition.

D. Internal-External (IE) Matrix

The Internal-External (IE) Matrix positions an organization’s various divisions in a nine cell
matrix. The IE Matrix is a strategic management tool which is used to analyze the current
position of the divisions and suggest the strategies for the future.

The Internal-External (IE) Matrix is based on an analysis of internal and external business
factors which are combined into one suggestive model. The IE matrix is a continuation of the
EFE matrix and IFE matrix models.

The Internal-External (IE) Matrix can be divided into three major regions that have different
strategy implications.

● First, the prescription for divisions that fall into cells I, II, or IV can be described as grow
and build. Intensive (market penetration, market development, and product
development) or integrative (backward integration, forward integration, and horizontal
integration) strategies can be most appropriate for these divisions.
 ● Second, divisions that fall into cells III, V, or VII can be managed best with hold and
maintain strategies; market penetration and product development are two commonly
employed strategies for these types of divisions.

● Third, a common prescription for divisions that fall into cells VI, VIII, or IX is harvest or
divest. Successful organizations are able to achieve a portfolio of businesses positioned
in or around cell I in the IE Matrix.

• The Internal-External (IE) Matrix is similar to the BCG Matrix in that both tools involve plotting
organization divisions in a schematic diagram; this is why they are both called portfolio matrices.
Also, the size of each circle represents the percentage sales contribution of each division, and
pie slices reveal the percentage profit contribution of each division in both the BCG and IE
Matrix. But there are some important differences between the BCG Matrix and IE Matrix.

• First, the axes are different. Also, the IE Matrix requires more information about the divisions
than the BCG Matrix. Further, the strategic implications of each matrix are different. For these
reasons, strategists in multidivisional firms often develop both the BCG Matrix and the IE Matrix
in formulating alternative strategies.

• A common practice is to develop a BCG Matrix and an IE Matrix for the present and then
develop projected matrices to reflect expectations of the future. This before and after analysis
forecasts the expected effect of strategic decisions on an organization’s portfolio of divisions.

E. Grand Strategy Matrix

The Grand Strategy Matrix has become a popular tool for formulating feasible strategies, along
with the SWOT Analysis, SPACE Matrix, BCG Matrix, and IE Matrix. Grand strategy matrix is
the instrument for creating alternative and different strategies for the organization. All
companies and divisions can be positioned in one of the Grand Strategy Matrix’s four strategy
quadrants.

The Grand Strategy Matrix is based on two dimensions: competitive position and market growth.
Data needed for positioning SBUs in the matrix is derived from the portfolio analysis. This matrix
offers feasible strategies for a company to consider which are listed in sequential order of
attractiveness in each quadrant of the matrix.

Quadrant I (Strong Competitive Position and Rapid Market Growth)

Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic position.

The first quadrant refers to the firms or divisions with strong competitive base and operating in
fast moving growth markets. Such firms or divisions are better to adopt and pursue strategies
such as market development, market penetration, product development etc.

The idea behind is to focus and make the current competitive base stronger. In case such firms
possess readily available resources they can move on to integration strategies but should never
be at the cost of diverting attention from current strong competitive base.

Quadrant II (Weak Competitive Position and Rapid Market Growth)

Firms positioned in Quadrant II need to evaluate their present approach to the marketplace
seriously. Although their industry is growing, they are unable to compete effectively, and they
need to determine why the firm’s current approach is ineffectual and how the company can best
change to improve its competitiveness.

The suitable strategies for such firms are to develop the products, markets, and to penetrate
into the markets. Because Quadrant II firms are in a rapid-market-growth industry, an intensive
strategy (as opposed to integrative or diversification) is usually the first option that should be
considered. To achieve the competitive advantage or becoming market leader Quadrant II firms
can go into horizontal integration subject to availability of resources.

However if these firms foresee a tough competitive environment and faster market growth than
the growth of the firm, the better option is to go into divestiture of some divisions or liquidation
altogether and change the business.

Quadrant III (Weak Competitive Position and Slow Market Growth)

The firms fall in this quadrant compete in slow-growth industries and have weak competitive
positions. These firms must make some drastic changes quickly to avoid further demise and
possible liquidation.

Extensive cost and asset reduction (retrenchment) should be pursued first. An alternative
strategy is to shift resources away from the current business into different areas. If all else fails,
the final options for Quadrant III businesses are divestiture or liquidation.

Quadrant IV (Strong Competitive Position and Slow Market Growth)

Finally, Quadrant IV businesses have a strong competitive position but are in a slow-growth
industry. Such firms are better to go into related or unrelated integration in order to create a vast
market for products and services. These firms also have the strength to launch diversified
programs into more promising growth areas. Quadrant IV firms have characteristically high cash
flow levels and limited internal growth needs and often can pursue concentric, horizontal, or
conglomerate diversification successfully. Quadrant IV firms also may pursue joint ventures

Generally, strategies listed in the first quadrant of Grand Strategy Matrix are intended to
maintain a firm’s competitive edge and boost rapid growth, while the other three quadrants
represent appropriate actions to take to reach the best position, which is the first quadrant.
Increasing market share, expanding to new markets and creating new products are common
strategies.

The Decision Stage

• Stage 3 involves a single technique, the Quantitative Strategic Planning Matrix (QSPM). A
QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies
identified in Stage 2. A QSPM reveals the relative attractiveness of alternative strategies and
thus provides objective basis for selecting specific strategies.

• This technique allows top managers to assess alternative strategies objectively based on a
firm’s internal strengths/weaknesses and external opportunities/threats (David, 1986).

• In QSPM, left column consists of key external and internal factors from Stage 1, and the top
row includes feasible alternative strategies from Stage 2. Specifically, the left column of a
QSPM includes information obtained directly from the EFE Matrix and IFE Matrix.

• In a column adjacent to the critical success factors, the respective weights received by each
factor in the EFE Matrix and the IFE Matrix are recorded. The top row of a QSPM includes
alternative strategies derived from the SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and
Grand Strategy Matrix. These matching tools usually generate similar feasible alternatives
(David, 2007).

CULTURAL ASPECTS OF STRATEGY CHOICE

Organizational culture includes the set of shared values, beliefs, attitudes, customs, norms,
rites, rituals, personalities, heroes, and heroines that describe a firm. Culture is the unique way
an organization does business.

It is the human dimension that creates solidarity and meaning, and it inspires commitment and
productivity in an organization when strategy changes are made. All human beings have a basic
need to make sense of the world, to feel in control, and to make meaning. When events
threaten meaning, individuals react defensively.

Managers and employees may even sabotage new strategies in an effort to recapture the status
quo. For these reasons, it is beneficial to view strategy analysis and choice from a cultural
perspective, because success often rests on the degree of support that strategies receive from
a firm’s culture. If a firm’s strategies are supported by an organization’s culture, then managers
often can implement changes swiftly and easily. However, if a supportive culture does not exist
and is not cultivated, then strategy changes may be ineffective or even counterproductive.

A firm’s culture can become antagonistic to new strategies, and the result of that antagonism
may be confusion and disarray.

Strategies that require fewer cultural changes may be more attractive because extensive
changes can take considerable time and effort. Whenever two firms merge, it becomes
especially important to evaluate and consider culturestrategy linkages. Organizational culture
can be the primary reason for difficulties a firm encounters when it attempts to shift its strategic
direction, as the following statement explains:
Not only has the “right” corporate culture become the essence and foundation of corporate
excellence, but success or failure of needed corporate reforms hinges on management’s
sagacity and ability to change the firm’s driving culture in time and in tune with required
changes in strategies.

THE POLITICS STRATEGY CHOICE

All organizations are political. Unless managed, political maneuvering consumes valuable time,
subverts organizational objectives, diverts human energy, and results in the loss of some
valuable employees. Sometimes political biases and personal preferences get unduly
embedded in strategy choice decisions. Internal politics affect the choice of strategies in all
organizations.

The hierarchy of command in an organization, combined with the career aspirations of different
people and the need to allocate scarce resources, guarantees the formation of coalitions of
individuals who strive to take care of themselves first and the organization second, third, or
fourth.

Coalitions of individuals often form around key strategy issues that face an enterprise. A major
responsibility of strategists is to guide the development of coalitions, to nurture an overall team
concept, and to gain the support of key individuals and groups of individuals.

In the absence of objective analyses, strategy decisions too often are based on the politics of
the moment. With development of improved strategy-formation analytical tools, political factors
become less important in making strategic decisions. In the absence of objectivity, political
factors sometimes dictate strategies, and this is unfortunate. Managing political relationships is
an integral part of building enthusiasm and esprit de corps in an organization.

A classic study of strategic management in nine large corporations examined the political tactics
of successful strategists.9 Successful strategists were found to let weakly supported ideas and
proposals die through inaction and to establish additional hurdles or tests for strongly supported
ideas considered unacceptable but not openly opposed. Successful strategists kept a low
political profile on unacceptable proposals and strived to let most negative decisions come from
subordinates or a group consensus, thereby reserving their personal vetoes for big issues and
crucial moments.

Successful strategists did a lot of chatting and informal questioning to stay abreast of how things
were progressing and to know when to intervene. They led strategy but did not dictate it. They
gave few orders, announced few decisions, depended heavily on informal questioning, and
sought to probe and clarify until a consensus emerged.

Successful strategists generously and visibly rewarded key thrusts that succeeded. They
assigned responsibility for major new thrusts to champions, the individuals most strongly
identified with the idea or product and whose futures were linked to its success. They stayed
alert to the symbolic impact of their own actions and statements so as not to send false signals
that could stimulate movements in unwanted directions.

Successful strategists ensured that all major power bases within an organization were
represented in, or had access to, top management. They interjected new faces and new views
into considerations of major changes.

This is important because new employees and managers generally have more enthusiasm and
drive than employees who have been with the firm a long time. New employees do not see the
world the same old way; nor do they act as screens against changes.
Successful strategists minimized their own political exposure on highly controversial issues and
in circumstances in which major opposition from key power centers was likely. In combination,
these findings provide a basis for managing political relationships in an organization.

Because strategies must be effective in the marketplace and capable of gaining internal
commitment, the following tactics used by politicians for centuries can aid strategists:
1. Achieving desired results is more important that imposing a particular method; therefore,
consider various methods and choose, whenever possible, the one(s) that will afford the
greatest commitment from employees/managers.

2. Achieving satisfactory results with a popular strategy is generally better than trying to achieve
optimal results with an unpopular strategy.

3. Often, an effective way to gain commitment and achieve desired results is to shift from
specific to general issues and concerns.

4. Often, an effective way to gain commitment and achieve desired results is to shift from short-
term to long-term issues and concerns.

5. Middle-level managers must be genuinely involved in and supportive of strategic decisions,

because successful implementation will hinge on their support.

GOVERNANCE ISSUES
What Is Corporate Governance in Strategic Management?
Corporate governance is an important part of strategic management that can improve firm
performance. Despite its importance, many people are unclear about what corporate
governance is precisely. Both managers and investors should understand what corporate
governance is and the role that it plays in firms. Being aware of what corporate governance is
will allow them to see how it affects their respective businesses.

Corporate governance, in strategic management, refers to the set of internal rules and policies
that determine how a company is directed. Corporate governance decides, for example, which
strategic decisions can be decided by managers and which decisions must be decided by the
board of directors or shareholders.

History
Corporate governance is a concept that emerged following the growth of corporations in the
20th century. In particular, following the stock market crash in 1929, scholars began to argue for
corporate governance mechanisms that would allow shareholders to keep companies in check.
In the latter half of the 20th century this continued, with corporate governance structures being
introduced to control managers and to ensure that their actions are in line with shareholder
interests.

Purpose
The central purpose of corporate governance is to make managers accountable to
shareholders. Without a corporate governance structure, managers would be free to make
decisions that are in their own interest, but not necessarily in the interest of the firm. Corporate
governance keeps managers in check by limiting their power and, often, by tying their pay to
firm performance.

Benefits
Firms with good corporate governance models perform better because their managers are more
inclined to make decisions that favor the business. They also will tend to have higher stock
prices because investors are more confident that they can control the firm. Firms with good
corporate governance models also will find it easier to attract financing because they are
perceived as being more accountable

CHAPTER 9
Executing The Strategies: MANAGEMENT & OPERATIONS ISSUES

What is strategy execution?

• Strategic execution is the implementation of a strategic plan used to achieve an organization's
goals.
• Strategic execution uses processes, systems or a series of decisions to clarify goals for
employees and define steps or actions the company needs to take in order to reach its goals.
It's helpful to consider which of these approaches is best to implement your strategy.

What are the benefits of strategy execution?

Strategy execution can benefit a company and its employees in these ways:
❖ Provides clarity
Strategy execution helps a business to clarify and achieve its goals. It does this by defining
tasks and assigning each one to an employee, with details on how and when to complete the
task. Strategy execution emphasizes communication and ensures that information gets shared
with everyone who needs it.

❖ Increases engagement
Strategic execution engages shareholders, business executives, managers and their teams in
the planning process. This is beneficial for accomplishing goals because more people are
working toward a common achievement. Engaging employees also aids in job satisfaction by
letting them play a role in the decision-making processes that affect them.

❖ Activates initiatives
Strategy execution helps activate company initiatives by implementing plans to further goals.
This helps companies with growth and innovation. For example, an initiative may be to diversify
the workplace and a strategy can help activate this initiative by including processes that require
the company to hire more talent.

Mainstream approaches to strategy execution

There are three approaches to strategy execution:

★ Approach strategy execution as a process

One approach to strategy execution is to view it as a process. A process can help identify
important aspects of strategy execution and define the steps a team needs to take in order to
implement the strategy. When you approach strategy execution as a process, it's important to
identify the following:

➔ People: Determining who the strategy involves is an important step in planning the
strategy. Consider who your shareholders, employees, business owners, executives and
consumers are and how they fit into your strategy.

➔ Strategy: Developing a strategy with the goals you want to accomplish and steps to
accomplish them is key to strategy execution.

➔ Operations: Determine what software systems, teams or workflows to involve in the

strategy. Identifying the tools that your team needs to implement the strategy is a benefit
of using a process that helps ensure preparedness.
 ★ Approach strategy execution as a system
You can also approach strategy execution as a system. A system is an organized set of
procedures or principles and managers can use these to guide the execution of strategy. This
approach outlines these six stages to implement the strategy:

1. Develop the strategy. When you develop a strategy, decide on a method for implementing
your plan. This involves channels for communication, identification of those the strategy affects
and the goals a strategy seeks to accomplish.

2. Create a plan for the strategy. The second stage of the strategy execution system is to
outline the plan for how to accomplish the goals. This plan defines tasks and identifies the
employee or team responsible for completing them.

3. Align the strategy with company goals. It's important that business strategies align with
company goals to help the business further its overall goals. You can ensure the strategy helps
achieve company goals by choosing performance metrics associated with the goal you want to
accomplish.

4. Coordinate business operations. Coordinating operations means scheduling regular

meetings to discuss progress with strategy implementation. It's important to discuss the
progress at each stage of implementation in case the strategy needs adjustments.

5. Monitor performance of the strategy and the team. While strategy execution is in
progress, managers can monitor the progress of goals and of each team member. Consider
using task management software to help track employee progress and receive updates on task
completion.

6. Test and adjust the strategy. The final stage in a strategy execution system is to test the
strategy in your company. It's helpful to implement a new strategy in one department at a time
because the small scale helps reduce risk and shows how successful the strategy is.

★ Approach strategy execution as a decision-making process

Some approach strategy execution as a decision-making process. This involves a series of
decisions that help implement a strategy. For example, if a sales team uses the decision-making
process approach to strategy execution, they would list questions and topics they need to make
decisions about, such as their target audience, product offers and marketing budget, and then
use the following steps to make their decision:

1. Identify the issue: Determine the issue and what decision you need to make.
2. Collect information: Gather details about the problem and who or what your decision may
affect.
3. Consider alternatives: Before deciding, be sure to consider all the possibilities to solve the
problem.
4. Decide: Analyze the advantages and disadvantages of each choice and then make your
decision.

This approach helps the team to understand the strategy and create a pattern in decision-
making that leads to a successful business strategy.

4 steps for strategy execution

You can follow these fours steps to help you execute your strategy:
1. Create a plan for communication
Good communication can help to ensure the success of your execution strategy. Make a plan to
facilitate team communication at each step of strategy implementation. Scheduling regular
meetings and choosing a channel for daily communication, such as email, can help facilitate
communication. Managers can establish clear communication amongst their team by being
excellent communicators.

2. Identify goals
In order to execute a strategy, you need to identify your goals and what you want to accomplish,
such as updating technology systems to increase efficiency. By identifying goals, managers can
develop the steps to reach the goal successfully. For this example, the strategy may involve
getting new computers, updating software and training employees how to use the software.

3. Determine tasks and priorities

With goals in mind, managers can determine which tasks to complete in order to accomplish
them. It's also helpful to prioritize these tasks so that team members know when to complete
each one. In determining tasks, consider who on the team is best suited for each job and ensure
they know how and when their task needs to be completed. Using a project management tool,
such as a process diagram, can help organize steps in a strategy.

4. Evaluate the strategy

The last step of strategy execution is to evaluate your strategy. Using performance metrics, you
and your team can determine how the strategy is effective and where you can make
improvements. One way to evaluate your strategy is to gather feedback from the team. This can
provide valuable insight into goals, task completion, processes and workflows.

The Nature Of Strategy Implementation

The implementation of organization strategy involves the application of the management
process to obtain the desired results. Particularly, strategy implementation includes designing
the organization's structure, allocating resources, developing information and decision process,
and managing human resources, including such areas as the reward system, approaches to
leadership, and staffing.

Each of these management functions has been the subject of extensive writing and research by
scholars and practitioners and has covered in management books.

Since full coverage of each management function is beyond the scope of this thesis, I shall
focus only on the factors that are most critical to effective implementation strategy.

Concept Of Strategy Implementation

Strategy implementation is "the process of allocating resources to support the chosen
strategies". This process includes the various management activities that are necessary to put
strategy in motion, institute strategic controls that monitor progress, and ultimately achieve
organizational goals.

● According to Steiner, "the implementation process covers the entire managerial activities
including such matters as motivation, compensation, management appraisal, and control
processes".

● As Higgins has pointed out, "almost all the management functions -planning, controlling,
organizing, motivating, leading, directing, integrating, communicating, and innovation -
are in some degree applied in the implementation process".
 ● Pierce and Robinson say that "to effectively direct and control the use of the firm's
resources, mechanisms such as organizational structure, information systems,
leadership styles, assignment of key managers, budgeting, rewards, and control
systems are essential strategy implementation ingredients".

The implementation activities are in fact related closely to one another, and decisions about
each are usually made simultaneously.

Strategy Implementation And The Strategic Management Process

The strategy implementation and strategy formulation processes are closely interrelated. The
desired results of an organization are established during the strategy formulation process.

Implementation consists of the issues involved in putting the formulated strategy to work. It is
necessary to spell out more precisely how the strategic choice will come to be. No strategy, no
matter how brilliantly formulated, will succeed if it cannot be implemented.

Mintzberg's Model
Traditionally, the relationship between strategy formulation, strategy implementation, and
organizational performance has been depicted as shown in Figure 1-2. In this model,
organizations begin strategy formulation by carefully specifying their mission, goals, and
objectives, and then they engage in SWOT analysis to choose appropriate strategies.

Henry Mintzberg suggests that the traditional way of thinking about strategy implementation
focuses only on deliberate strategies. Minztberg claims that some organizations begin
implementing strategies before they clearly articulate mission, goals, or objectives. In this case
strategy implementation actually precedes strategy formulation.

Minztberg calls strategies that unfold in this way emergent strategies. Implementation of
emergent strategies involves the allocation of resources even though an organization has not
explicitly chosen its strategies.

Most organizations make use of both deliberate and emergent strategies. Whether deliberate or
emergent, however, a strategy has little effect on an organization's performance until it is
implemented.

The Relation Between Strategy Formulation And Strategy Implementation

In order to achieve its objectives, an organization must not only formulate but also implement its
strategies effectively. The Figure represents the importance of both tasks in matrix form and
suggests the probable outcomes of the four possible combinations of these variables:

- Success is the most likely outcome when strategy is appropriate and implementation good.
- Roulette involves situation wherein a poor strategy is implemented well.
- Trouble is characterized by situations wherein an appropriate strategy is poorly implemented.
- Failure involves situations wherein a poor strategy is poorly implemented.

Diagnosing why a strategy failed in the roulette, trouble, and failure cells in order to find a
remedy requires the analysis of both formulation and implementation.

S.Certo and J. Peter proposed a five-stage model of the strategy implementation process:
❖ determining how much the organization will have to change in order to implement the
strategy under consideration, under consideration;
❖ analyzing the formal and informal structures of the organization;
 ❖ analyzing the "culture" of the organization;
❖ selecting an appropriate approach to implementing the strategy;
❖ implementing the strategy and evaluating the results.

Implementation is successfully initiated in three interrelated stages:

❖ Identification of measurable, mutually determined annual objectives.
❖ Development of specific functional strategies.
❖ Development and communication of concise policies to guide decisions.

5 KEYS TO SUCCESSFUL STRATEGY EXECUTION

Strategy execution is the implementation of a strategic plan in an effort to reach organizational
goals. It comprises the daily structures, systems, and operational goals that set your team up for
success.

Even the best strategic plans can fall flat without the right execution. In fact, 90 percent of
businesses fail to reach their strategic goals, which researchers believe is due to a gap between
strategic planning and execution.

Keys to successful strategy execution:

1. Commit to a Strategic Plan
Before diving into execution, it’s important to ensure all decision-makers and stakeholders agree
on the strategic plan.

Committing to a strategic plan before beginning implementation ensures all decision-makers

and their teams are aligned on the same goals. This creates a shared understanding of the
larger strategic plan throughout the organization.

Strategies aren’t stagnant—they should evolve with new challenges and opportunities.
Communication is critical to ensuring you and your colleagues start on the same page and stay
aligned as time goes on.

2. Align Jobs to Strategy

One barrier many companies face in strategy execution is that employees’ roles aren’t designed
with strategy in mind.

This can occur when employees are hired before a strategy is formulated, or when roles are
established to align with a former company strategy.

3. Communicate Clearly to Empower Employees

When it comes to strategy execution, the power of clear communication can’t be overlooked.
Given that a staggering 95 percent of employees don’t understand or are unaware of their
company’s strategy, communication is a skill worth improving.

Strategy execution depends on each member of your organization's daily tasks and decisions,
so it’s vital to ensure everyone understands not only the company's broader strategic goals, but
how their individual responsibilities make achieving them possible.

4. Measure and Monitor Performance

Strategy execution relies on continually assessing progress toward goals. For this to be
possible, key performance indicators (KPIs) should be determined during the strategic planning
stage, and success should be defined numerically.
A numeric goal allows you and your team to regularly track and monitor performance and
assess if any changes need to be made based on that progress.

5. Balance Innovation and Control

While innovation is an essential driving force for company growth, don’t let it derail the execution
of your strategy.

To leverage innovation and maintain control over your current strategy implementation, develop
a process to evaluate challenges, barriers, and opportunities that arise. Who makes decisions
that may pivot your strategy’s focus? What pieces of the strategy are non-negotiable?
Answering questions like these upfront can allow for clarity during execution.

Also, remember that a stagnant organization has no room for growth. Encourage employees to
brainstorm, experiment, and take calculated risks with strategic goals in mind.

Key Concepts In Strategy Implementation

➢ Annual Objectives
Establishing annual objectives is a decentralized activity that directly involves all
managers in an organization. Active participation in establishing annual objectives can
lead to acceptance and commitment.

Annual objectives are essential for strategy implementation because they

(1) represent the basis for allocating resources;
(2) are a primary mechanism for evaluating managers;
(3) are the major instrument for monitoring progress toward achieving long-term objectives; and
(4) establish organizational, divisional, and departmental priorities.

Considerable time and effort should be devoted to ensuring that annual objectives are well
conceived, consistent with long-term objectives, and supportive of strategies to be implemented.

The purpose of annual objectives can be summarized as follows:

a. Annual objectives serve as guidelines for action,
b. Directing and channeling efforts and activities of organization members.
c. They provide a source of legitimacy in an enterprise by justifying activities to stakeholders.
d. They serve as standards of performance.
e. They serve as an important source of employee motivation and identification.
f. They give incentives for managers and employees to perform. They provide a basis for
organizational design

Clearly stated and communicated objectives are critical to success in all types and sizes of
firms. Annual objectives, stated in terms of profitability, growth, and market share by business
segment, geographic area, customer groups, and product, are common in organizations.

• Annual objectives should be measurable, consistent, reasonable, challenging, clear,

communicated throughout the organization, characterized by an appropriate time dimension,
and accompanied by commensurate/appropriate rewards and sanctions. Too often, objectives
are stated in generalities, with little operational usefulness. Annual objectives, such as “to
improve communication” or “to improve performance,” are not clear, specific, or measurable.

• Objectives should state quantity, quality, cost, and time—and also be verifiable.

• Terms and phrases such as maximize, minimize, as soon as possible, and adequate should
be avoided.
• Clear annual objectives do not guarantee successful strategy implementation, but they do
increase the likelihood that personal and organizational aims can be accomplished.

• Overemphasis on achieving objectives can result in undesirable conduct, such as faking the
numbers, distorting the records, and letting objectives become ends in themselves.

• Managers must be alert to these potential problems.

➢ Policies
On a day-to-day basis, policies are needed to make a strategy work. Policies facilitate
solving recurring problems and guide the implementation of strategy. Broadly defined,
policy refers to specific guidelines, methods, procedures, rules, forms, and
administrative practices established to support and encourage work toward stated goals.

Policies are instruments for strategy implementation. Policies set boundaries,

constraints, and limits on the kinds of administrative actions that can be taken to reward
and sanction behavior; they clarify what can and cannot be done in pursuit of an
organization’s objectives.

• Policies let both employees and managers know what is expected of them, thereby increasing
the likelihood that strategies will be implemented successfully. They provide a basis for
management control, allow coordination across organizational units, and reduce the amount of
time managers spend making decisions.

• Policies also clarify what work is to be done and by whom. They promote delegation of
decision making to appropriate managerial levels where various problems usually arise. Many
organizations have a policy manual that serves to guide and direct behavior.

➢ Resource Allocation
• Resource allocation is a central management activity that allows for strategy execution. In
organizations that do not use a strategicmanagement approach to decision making, resource
allocation is often based on political or personal factors. Strategic management enables
resources to be allocated according to priorities established by annual objectives.

• Effective resource allocation does not guarantee successful strategy implementation because
programs, personnel, controls, and commitment must breathe life into the resources provided.
Strategic management itself is sometimes referred to as a “resource allocation process.”

➢ Managing Conflict
• Interdependency of objectives and competition for limited resources often leads to conflict.
Conflict can be defined as a disagreement between two or more parties on one or more issues.

• Establishing annual objectives can lead to conflict because individuals have different
expectations and perceptions, schedules create pressure, personalities are incompatible, and
misunderstandings between line managers (such as production supervisors) and staff
managers (such as human resource specialists) occur. For example, a collection manager’s
objective of reducing bad debts by 50 percent in a given year may conflict with a divisional
objective to increase sales by 20 percent.
• Establishing objectives can lead to conflict because managers and strategists must make
tradeoffs, such as whether to emphasize short-term profits or long-term growth, profit margin or
market share, market penetration or market development, growth or stability, high risk or low
risk, and social responsiveness or profit maximization. Trade-offs is necessary because no firm
has sufficient resources pursue all strategies to would benefit the firm.
Various approaches for managing and resolving conflict can be classified into three categories:
avoidance, diffusion, and confrontation.

• Avoidance includes such actions as ignoring the problem in hopes that the conflict will resolve
itself or physically separating the conflicting individuals (or groups).

• Diffusion can include playing down differences between conflicting parties while
accentuating/highlighting similarities and common interests, compromising so that there is
neither a clear winner nor loser, resorting to majority rule, appealing to a higher authority, or
redesigning present positions.

• Confrontation is exemplified by exchanging members of conflicting parties so that each can

gain an appreciation of the other’s point of view or holding a meeting at which conflicting parties
present their views and work through their differences.

➢ Matching Structure with Strategy

• 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.

For example, objectives and policies established under a geographic organizational

structure are couched in geographic terms. Objectives and policies are stated largely in
terms of products in an organization whose structure is based on product groups. The
structural format for developing objectives and policies can significantly impact all other
strategy-implementation activities.

➔ The second major reason why changes in strategy often require changes in structure is
that structure dictates how resources will be allocated.

If an organization’s structure is based on customer groups, then resources will be

allocated in that manner. Similarly, if an organization’s structure is set up along
functional business lines, then resources are allocated by functional areas. Unless new
or revised strategies place emphasis in the same areas as old strategies, structural
reorientation commonly becomes a part of strategy implementation.

• Changes in strategy lead to changes in organizational structure. Structure should be designed

to facilitate the strategic pursuit of a firm and, therefore, follow strategy.

• Without a strategy or reasons for being (mission), companies find it difficult to design an
effective structure. The structural format for developing objectives and policies can significantly
impact all other strategyimplementation activities.

➢ Restructuring, Reengineering, And E-engineering

A. Reshaping Corporate Landscape

1. Restructuring, also called downsizing, rightsizing, or delayering, involves reducing the size of
the firm in terms of number of employees, divisions or units, and hierarchical levels in the firm’s
organizational structure.

a. Recessionary economic conditions have forced many European companies to downsize,

laying off managers and employees. Job security in European companies is slowly moving
toward a U.S. scenario, in which firms lay off almost at will.
2. Reengineering, also called process management, process innovation, or process redesign,
involves reconfiguring or redesigning work, jobs, and processes for the purpose of improving
cost, quality, service, and speed. Reengineering is characterized by many tactical decisions,
whereas restructuring is characterized by strategic decisions

B. Restructuring
1. Firms often employ restructuring when various ratios appear out of line with competitors, as
determined through benchmarking exercises.

2. The primary benefit sought from restructuring is cost reduction. The downside of restructuring
can be reduced employee commitment, creativity, and innovation that accompanies the
uncertainty and trauma associated with pending and actual employee layoffs.

3. Another downside of restructuring is that many people today do not aspire to become
managers, and many present-day managers are trying to get off the management track.

C. Reengineering
1. In reengineering, a firm uses information technology to break down functional barriers and
create a work system based on business processes, products, or outputs rather than on
functions or inputs.

2. A benefit of reengineering is that it offers employees the opportunity to see more clearly how
their particular jobs affect the final product or service being marketed by the firm.

➢ Linking Performance And Pay To Strategies

A. Pay-for-Performance
1. A recent Bloomberg Businessweek article says companies should install five policies to
improve their compensation practices:

a. Provide full transparency to all stakeholders.

b. Reward long-term performance with long-term pay, rather than annual incentives.
c. Base executive compensation on actual company performance, rather than on stock price.
d. Extend the time-horizon for bonuses.
e. Increase equity between workers and executives.

2. How can an organization’s reward system be more closely linked to strategic performance?

a. One aspect of the deepening global recession is that companies are instituting policies to
allow their shareholders to vote on executive compensation policies.
b. In an effort to cut costs and increase productivity, more and more Japanese companies are
switching from seniority-based pay to performance approaches.

3. Profit sharing is another widely used form of incentive compensation.

4. Gain sharing requires employees or departments to establish performance targets; if actual

results exceed objectives, all members get bonuses.

5. Criteria such as sales, profit, production efficiency, quality, and safety could also serve as
bases for an effective bonus system.

B. Five tests are often used to determine whether a performance-pay plan will benefit an
organization:
1. Does the plan capture attention?
2. Do employees understand the plan?
3. Is the plan improving communication?
4. Does the plan pay out when it should?
5. Is the company or unit performing better?

C. In addition to a dual bonus system, a combination of reward strategy incentives, such as

salary raises, stock options, fringe benefits, promotions, praise, recognition, criticism, fear,
increased job autonomy, and awards, can be used to encourage managers and employees to
push hard for successful strategic implementation.

D. There is rising public resentment over executive pay, and there are government restrictions
on compensation. The average pay package for CEOs in the United States in 2010 was 24
percent higher than a year earlier, reversing two years of declines.

➢ Managing Resistance To Change

A. Resistance to Change
1. Resistance to change can be considered the single greatest threat to successful strategy
implementation.
2. It may take on such forms as sabotaging production machines, absenteeism, filing unfounded
grievances, and an unwillingness to cooperate.
3. Resistance to change can emerge at any stage or level of the strategy-implementation
process.
4. There are three commonly used strategies for implementing change:

a. Force change strategy – involves giving orders and enforcing those orders.
b. Educative change strategy – presents information to people
c. Rational or Self-interest change strategy – attempts to convince individuals that the change is
to their personal advantage.

5. Organizational change should be viewed today as a continuous process rather than as a

project or event.

➢ Creating A Strategy-supportive Culture

A. Strategists should strive to preserve, emphasize, and build on aspects of an existing culture
that support proposed new strategies.

B. Numerous techniques are available to alter an organization’s culture, including recruitment,

training, transfer, promotion, restructure of an organization’s design, role modeling, positive
reinforcement, and mentoring.

➢ Production/Operations Concerns When Implementing Strategies

A. Production/operations capabilities, limitations, and policies can significantly enhance or inhibit
attainment of objectives. Production processes typically constitute more than 70 percent of a
firm’s total assets.

B. Examples of adjustments in production systems that could be required to implement various

strategies are provided in Table 7-11 for both for-profit and nonprofit organizations.

C. Just-in-time (JIT) production approaches have withstood the test of time. With JIT, parts and
materials are delivered to a production site just as they are needed, rather than being stockpiled
as a hedge against later deliveries.
D. A common management practice, cross-training of employees, can facilitate strategy
implementation and can yield many benefits.

➢ Human Resource Concerns When Implementing Strategies

A. Resource Concerns
1. More and more companies are instituting furloughs, or temporary layoffs, to cut costs as an
alternative to laying off employees. Table 7-12 lists ways that companies today are reducing
labor costs to stay financially sound.

2. Strategic responsibilities of the human resource manager include assessing the staffing
needs and costs for alternative strategies proposed during strategy formulation and developing
a staffing plan for effectively implementing strategies.

3. The human resource department must develop performance incentives that clearly link
performance and pay to strategies.

4. Human Resource problems that arise when businesses implement strategies can usually be
traced to one of three causes:
a. Disruption of social and political structures.
b. Failure to match individuals’ aptitudes with implementation tasks.
c. Inadequate top management support for implementation activities.

5. Perhaps the best method for preventing and overcoming human resource problems in
strategic management is to actively involve as many managers and employees as possible in
the process.

B. 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.

2. ESOPs empower employees and reduce worker alienation, stimulate productivity, and allow
substantial tax savings for the firm