Chapter 6፡- Strategy Implementation

6.1 Strategy implementation

Strategy implementation is the sum total of the
activities and choices required for the execution of a
strategic plan.
It is the process by which objectives, strategies, and
policies are put into action through the development of
programs and tactics, budgets, and procedures.
Implementation should be evaluated as strategy is being
formulated although many companies separate the two.
Implementation is the key part of strategic management
for without implementation we have nothing.
1
 Con’t…

Strategy formulation and strategy implementation should

be considered as two sides of the same coin.

The implementation process requires strategy makers to

consider these questions:

■ Who are the people who will carry out the strategic plan?

■ What must be done to align the company’s operations in

the new intended direction?

■ How is everyone going to work together to do what is

2
needed?
 Who Implements Strategy?
Depending on how a corporation is organized, those who
implement strategy will probably be a much more diverse
set of people than those who formulate it.
From large, multi-industry corporations to small
entrepreneurial ventures, the reality is that the
implementers of strategy are everyone in the organization.
Vice presidents of functional areas and directors of
divisions or strategic business units (SBUs) work with
their subordinates to put together large-scale
implementation plans. Plant managers, project managers,
and unit heads put together plans for their specific plants,
departments, and units.
3
  What Must Be Done?
The managers of divisions and functional areas work

with their fellow managers to develop programs,

budgets, and procedures for the implementation of
strategy.
They also work to achieve synergy among the

divisions and functional areas in order to establish and

maintain a company’s distinctive competence.

4
 Con’t…

Strategy implementation involves establishing

programs and tactics to create a series of new
organizational activities, budgets to allocate funds to
the new activities, and procedures to handle the day-
to-day details

5
  Achieving Synergy
One of the goals to be achieved in strategy
implementation is synergy between and among functions
and business units.
Synergy is said to exist for a divisional corporation if the

return on investment of each division is greater than what

the return would be if each division were an independent
business.
According to Goold and Campbell, synergy can take

6 place in one of six forms:

 Con’t…

1. Shared know-how: Combined units often benefit

from sharing knowledge or skills.
2. Coordinated strategies: Aligning the business
strategies of two or more business units may give a
corporation significant advantage by reducing inter
unit competition and developing a coordinated
response to common competitors (horizontal strategy)
3.Shared tangible resources: Combined units can
sometimes save money by sharing resources, such as a
common manufacturing facility or R&D lab

7
 Con’t…

4. Economies of scale or scope: Coordinating the flow

of products or services of one unit with that of
another unit can reduce inventory, increase capacity
utilization, and improve market access.
5. Pooled negotiating power: Units can combine their
volume of purchasing to gain bargaining power over
common suppliers to reduce costs and improve
quality
6. New business creation: Exchanging knowledge and
skills can facilitate new products or services by
extracting discrete activities from various units and
combining them in a new unit or by establishing joint
8 ventures among internal business units
 How Is Strategy to Be Implemented?
 Structure Follows Strategy:
Changes in corporate strategy lead to changes in
organizational structure.
Therefore, the following as the sequence of what
occurs:
1. New strategy is created.
2. New administrative problems emerge.
3. Economic performance declines.
4. New appropriate structure is created.
5. Economic performance rises.
9
Con’t…
Stages of Corporate Development

Successful, large conglomerate organizations have tended to follow a pattern of

structural development as they grow and expand.

Beginning with the simple structure of the entrepreneurial firm (in which every

body does everything), these organizations tend to get larger and organize along

functional lines, with marketing, production, and finance departments. With

continuing success, the company adds new product lines in different industries and

organizes itself into interconnected divisions.

 Simple Structure

 Functional Structure

 Divisional Structure

10
 Beyond SBU’s
 Reengineering and Strategy Implementation
 Reengineering is the radical redesign of business processes to

achieve major gains in cost, service, or time. It is not in itself a type

of structure, but it is an effective program to implement a
turnaround strategy.
 Business process reengineering strives to break away from the old

rules and procedures that develop and become ingrained in every

organization over the years.
 They may be a combination of policies, rules, and procedures that

have never been seriously questioned because they were

11 established years earlier.
 Con’t…

 Michael Hammer, who popularized the concept of reengineering, suggests

the following principles for reengineering:

■ Organize around outcomes, not tasks: Design a person’s or a department’s

job around an objective or outcome instead of a single task or series of
tasks.

■ Have those who use the output of the process perform the process: With
computerbased information systems, processes can now be reengineered so
that the people who need the result of the process can do it themselves.

■ Subsume information-processing work into the real work that produces the
information: People or departments that produce information can also
process it for use instead of just sending raw data to others in the
12
organization to interpret.
 Con’t…

■ Treat geographically dispersed resources as though they were centralized:

With modern information systems, companies can provide flexible service
locally while keeping the actual resources in a centralized location for
coordination purposes.

■ Link parallel activities instead of integrating their results: Instead of having

separate units perform different activities that must eventually come together,
have them communicate while they work so they can do the integrating.

■ Put the decision point where the work is performed and build control into the
process: The people who do the work should make the decisions and be self-
controlling.

■ Capture information once and at the source: Instead of having each unit
develop its own database and information processing activities, the
13information can be put on a network so all can access it.
 Con’t…

More time than planned

Unanticipated problems
Activities ineffectively coordinated
Crises deferred attention away
Problems in Employees w/o capabilities
Implementing Inadequate employee training
Strategic plans Uncontrollable external factors
Inadequate leadership
Poorly defined tasks
Inadequate information systems

14
 Chapter 7፡- Evaluation and Control
Monitoring and Evaluation

Monitor:- The ongoing process of collecting and using standardized

information to assess progress
 towards objectives, resource usage and achievement of outcomes and

impacts.
 It usually involves assessment against agreed performance indicators

and targets. In conjunction with evaluation information,

 Effective monitoring and reporting should provide decision-makers and

stakeholders with the knowledge they need to identify whether the

implementation and outcomes of a project, program or policy initiative
are unfolding as expected and to manage the initiative on an ongoing
15
basis.
 Types of control
Controls can be established to focus on actual performance results

(output), the activities that generate the performance (behavior), or on

resources that are used in performance (input).

a. Output controls specify what is to be accomplished by focusing on

the end result of the behaviors through the use of objectives and
performance targets or milestones.

b. Behavior controls specify how something is to be done through

policies, rules, standard operating procedures, and orders from a
superior.

c. Input controls emphasize resources, such as knowledge, skills,

16 abilities, values, and motives of employees.
 Cont…

Evaluation:- The systematic and objective assessment of an ongoing

or completed initiative, its design, implementation and results. The
aim is to determine the relevance and fulfillment of objectives,
efficiency, effectiveness, impact and sustainability. The development
of an evaluation framework entails consideration of a range of
matters, including identification of the types of data that could inform
an evaluation.

Indicator.:- A parameter that points to, provides information about

or describes a given state. Usually
 represented by a data element for a specified time, place and other

characteristics, it gives value as an instrument used in performance

17
assessment
 …
Con’t

Strategy evaluation is vital to an organization’s well-

being; timely evaluations can alert management to

problems or potential problems before a situation
becomes critical.
Strategy evaluation includes three basic activities:

1. Examining the underlying bases of a firm’s strategy,

2. Comparing expected results with actual results, and

3. Taking corrective actions to ensure that performance

18 conforms to plans.
 Con’t …

Strategy evaluation is important because

organizations face dynamic environments in which
key external and internal factors often change quickly
and dramatically.
Success today is no guarantee of success tomorrow!

An organization should never be lulled into

complacency with success. Countless firms have
thrived one year only to struggle for survival the
19
following year.
  Criteria for Evaluating Strategies
1. Consistency

A strategy
 should not present inconsistent goals and policies. Organizational conflict

and interdepartmental bickering are often symptoms of managerial disorder, but

these problems may also be a sign of strategic inconsistency. Three guidelines help

determine if organizational problems are due to inconsistencies in strategy:

• If managerial problems continue despite changes in personnel and if they tend to be

issue-based rather than people-based, then strategies may be inconsistent.

• If success for one organizational department means, or is interpreted to mean,

failure for another department, then strategies may be inconsistent.

• If policy problems and issues continue to be brought to the top for resolution, then

strategies may be inconsistent.

20
Con’t…

2. Consonance
Consonance refers to the need for strategists to examine

sets of trends, as well as individual trends, in evaluating

strategies. A strategy must represent an adaptive response

to the external environment and to the critical changes

occurring within it. One difficulty in matching a firm’s key

internal and external factors in the formulation of strategy

is that most trends are the result of interactions among

21 other trends.
 Con’t…

3. Feasibility
A strategy must neither overtax available resources

nor create unsolvable sub problems. The final broad

test of strategy is its feasibility; that is, can the strategy
be attempted within the physical, human, and financial
resources of the enterprise? The financial resources of
a business are the easiest to quantify and are normally
the first limitation against which strategy is evaluated

22
Con’t…

4. Advantage
A strategy must provide for the creation and/or

maintenance of a competitive advantage in a

selected area of activity.
Competitive advantages normally are the result of

superiority in one of three areas: (1) resources, (2)

skills, or (3) position.

23
Con’t…

Why strategy evaluation is more difficult today

include the following trends:
1. A dramatic increase in the environment’s
complexity
2.The increasing difficulty of predicting the future
with accuracy
3. The increasing number of variables
4. The rapid rate of obsolescence of even the best
plans
5. The increase in the number of both domestic and
world events affecting organizations
6. The decreasing time span for which planning can be
24
done with any degree of certainty
 Essences of Evaluation & Control
The evaluation and control process
Ensure that a company is achieving what it set out to
accomplish. It compares performance with desired result and
provides the feed back necessary for management to evaluate
results and take corrective action, as needed.
Strategic Evaluation and control is the process of determining

the effectiveness of a given strategy in achieving the

organizational objectives and taking corrective action where
25 ever required
 Steps in strategy Evaluation & Control

1. Determine what to measure

2. Set appropriate performance indicators

3. Establish standards of performance

4. Measure actual performance Compare actual performance

with the standard

5. Take corrective action

29
Con’t…

1 2 3 4 5
Does
No
Determine Establish Measure perfor
m-
Take
what to predetermined performanc ance
corrective
measure. standards. stand- action.
e. match
ards?

Yes

STOP

30
 Measuring Performances
 Measures that are essential for achieving a desired
strategic option.
 Select measures to assess performance based on the
organizational unit to be appraised and the objectives to be
achieved.
 The objectives that were established earlier in the strategy
formulation part of the strategic management process
(dealing with profitability, market share, and cost
reduction, among others) should certainly be used to
measure corporate performance once the strategies have
been implemented

31
Some key financial Indicators
 Return on investment (ROI)

 Return on equity (ROE)

 Profit margin

 Market share

 Debt to equity

 Earnings per share

 Sales growth

 Asset growth
32
Setting Appropriate Measures
Measures should be designed in line with the predetermined plan objectives
Shall be quantifiable
Should be consistent with the standards established
Differ across organizations

The Balanced Scorecard (BSC)

An
 effective Balanced Scorecard contains a carefully chosen combination of

strategic and financial objectives tailored to the company’s business

Customer
 service, employee morale, product quality, business ethics, social

responsibility, community involvement, and other such items are equally as

important as financial measures

33
 Con’t

The Balanced Scorecard analysis requires that firms seek

answers to the following 3 questions:

1. How well is the firm continually improving and creating

value along measures such as innovation, technological

leadership, product quality, operational process
efficiencies, and others?
2. How well is the firm sustaining and even improving

upon its core competencies and competitive advantages?

3.
34
How satisfied are the firm’s customers
Con’t…

The Balanced Scorecard approach to strategy

evaluation aims to balance long-term with short-term
concerns, to balance financial with nonfinancial
concerns, and to balance internal with external
concerns.
Balanced Scorecard examines at least six key issues in
evaluating its strategies:
1. Customers,
2. Managers/Employees,
3. Operations/Processes,
4. Community/Social Responsibility,
5. Business Ethics/Natural Environment, and
35 6. Financial issues