Strategy Implementation

Strategy Implementation

Strategy Implementation:
– Sum total of the activities and choices
required for the execution of a strategic
plan.
– Process by which strategies and policies
are put into action through programs,
budgets, and procedures.

2
 Strategy Implementation

Implementation Process Questions:

– Who are the people to carry out the
strategic plan?
– What must be done to align operations
with new direction?
– How is work going to be coordinated?

3
Strategy Formulation vs. Implementation
Strategy
StrategyImplementation
Formulation (SF)(SI)
• Positioningforces
Managing forcesduring
beforethe
theaction
action
• Focus on efficiency
effectiveness
• Primarily operational
intellectual
• Requires special
good intuitive
motivation
and analytical
and leadership
skills skills
• Requires coordination among many people
• Requires coordination among a few people
Nature of Strategy Implementation
SI problems can arise because of the shift in responsibility, especially if
SF decisions come as a surprise to middle- and lower-level managers.
Therefore, it is essential to involve divisional and functional managers
in SF.

• Shift in responsibility

Divisional or
Strategists Functional
Managers
 Management Issues Central to Strategy
Implementation
• Establish annual objectives
• Devise policies
• Allocate resources
• Alter existing organizational
structure
• Restructure & reengineer
• Revise reward & incentive
plans
• Minimize resistance to
change
• Match managers to strategy
• Develop a strategy-supportive
culture
• Adapt production/operations
processes
• Develop an effective human
resources function
• Downsize & furlough as needed
• Link performance & pay to
strategies
 MATCHING STRUCTURE WITH STRATEGY

• Changes in strategy often require changes in the way an organization is

structured because: (1) structure largely dictates how objectives and
policies will be established (e.g., objectives and policies established under
a geographic organizational structure are couched in geographic terms)
and (2) structure dictates how resources will be allocated (e.g., if an
organization’s structure is based on customer groups, then resources will
be allocated in that manner).
• Structure should be designed to facilitate the strategic pursuit of a firm
and, therefore, follow strategy.
• When a firm changes its strategy, the existing organizational structure may
become ineffective. For example, new strategies to reduce payroll costs
may require a change in span of control.
 Organizational Structure
•Organizational design
– Selecting the structure and control
systems that are most strategically
effective for pursuing sustainable
competitive advantage.
•The role of structure and control
– To coordinate strategy implementation.
– To motivate and provide incentives for superior
performance.
 The Role of Organizational Structure
•Building blocks of organizational structure
– Differentiation in the allocation of people and
resources to create value.
• Vertical differentiation in the
distribution of decision-making
authority.
• Horizontal differentiation in
dividing up people and tasks
into functions and divisions.
– Integration
• The means used in coordinating people and functions to
accomplish organizational tasks.
Differentiation, Integration, Bureaucratic Costs

•Bureaucratic costs and strategy implementation:

– Bureaucratic costs increase with
organizational complexity.
– More differentiation = more managers.
– More integration = more coordination.
– Better strategy implementation = better bottom-line
performance and profitability.
 Vertical Differentiation
•Span of control (division of authority)
– The number of subordinates that a single manager
directly manages.
•Organizational hierarchy choices
– Flat structures
• Few organizational levels
• Wide spans of control
– Tall structures
• Many organizational levels
• Narrow spans of control
Tall and Flat Structures
 Problems with Tall Structures

•Principle of minimum chain of command

– Maintaining a hierarchy with the least number of
levels of authority needed to achieve a strategy.
•Sources of bureaucratic costs:
Centralization or Decentralization
•Authority patterns in organizations:
– Centralized
• Decision making retained in the
hands of upper-level managers.
– Decentralized
• Decisions delegated to lower
levels in the organization.
 Centralization (Structural) Choice?
•Advantages of centralization
decentralization
– Easier
Reducedcoordination
informationof overload
organizational
on upper
activities.
managers.
– Decisions
Increasedfitted
motivation
to broad
andorganizational
accountabilityobjectives.
throughout organization.
– Exercise
Fewer managers;
of strong leadership
lower bureaucratic
in crisis. costs.
– Faster decision making and response.
 Horizontal Differentiation

•Focus is on division and grouping of tasks to

meet business objectives.
•Simple structure:
– Characteristic of small entrepreneurial
companies.
– Entrepreneur takes on most managerial roles.
– No formal organization arrangements.
– Horizontal differentiation is low.
• Structure Follows Strategy:

– Changes in corporate strategy lead to

changes in organizational structure

18
• Structure Follows Strategy:
• New strategy is created
• New administrative problems emerge
• Economic performance declines
• New appropriate structure is invented
• Profit returns to its previous levels

19
 Strategy Implementation

Organizational Life Cycle:

– Describes how organizations grow,
develop and eventually decline.
• Stages:
– Birth Stage
– Growth
– Maturity
– Decline
– Death

21
 Organizational Life Cycle

Stage I Stage II Stage III1 Stage IV Stage V

Dominant Issue Birth Growth Maturity Decline Death
Popular Concentration Horizontal Concentric and Profit strategy Liquidation or
Strategies in a niche and vertical conglomerate followed by bankruptcy
growth diversification retrenchment
Likely Entrepreneur- Functional Decentralization Structural Dismemberment
Structure dominated management into profit or surgery of structure
emphasized investment centers
Note: 1. An organization may enter a Revival Phase either during the Maturity or Decline Stages and thus
extend the organization’s life.

22
 Changing Structural Characteristics of
Modern Corporation
Old Organizational Design New Organizational Design
One large corporation Mini-business units & cooperative relationships
Vertical communication Horizontal communication
Centralized top-down decision making Decentralized participative decision making
Vertical integration Outsourcing & virtual organizations
Work/quality teams Autonomous work teams
Functional work teams Cross-functional work teams
Minimal training Extensive training
Specialized job design focused on individual Value-chain team-focused job design

23
• Stages of corporate development

• Simple Structure
• Functional Structure
• Divisional Structure
• Beyond SBU’s
24
• Simple Structure:
– Stage I:
• Entrepreneur
– Decision making tightly controlled
– Little formal structure
– Planning short range/reactive
– Flexible and dynamic

25
• Functional Structure:
– Stage II:
• Management team
• Functional specialization
• Delegation decision making
• Concentration/specialization in industry

26
• Divisional Structure:
– Stage III:
• Diverse product lines
• Decentralized decision making
• SBU’s
• Almost unlimited resources

27
• Beyond SBU’s:
– Stage IV:
• Increasing environmental uncertainty
• Technological advances
• Size & scope of worldwide businesses
• Multi-industry competitive strategy
• Better educated personnel

28
 Functional Structure
•Advantages
– Task grouping facilitates
specialization and productivity.
– Better monitoring of work
processes, reduced costs.
– Greater control over
organizational activities.
•Disadvantages
– Functional orientation creates
communication problems.
– Performance and profitability
measurement problems.
– Location versus function
problems (coordination).
– Strategic problems due to
structural (vertical and
horizontal) mismatches.
Functional Structure
 Mutlitdivisional Structure
•Advantages
– Enhanced corporate control by division
– Enhanced strategic control of each•Disadvantages
SBU in portfolio
– Growth is easier. New units don’t have to be integrated
– Establishing across
the divisional-
organization
corporate authority
– Stronger pursuit of internal efficiencies. Performance of individual units
relationship
is readily measurable.
– Distortion of information by
divisions
– Competition for resources by
divisions
– Transfer pricing problems
between divisions
– Short-term research and
development focus
– Bureaucratic costs
Multidivisional Structure
 Matrix Structure

•Advantages
– Flexibility of the structure and membership
– Minimum of direct hierarchical control
– Maximizes use of employees’ skills
– Motivates employees;
frees up top management
•Disadvantages
– High bureaucratic costs
– High costs (time and money) for building
relationships
– Two-boss employee’s role conflict
Matrix Structure
 Two-boss employee
• Network Structure:
– “non structure” – elimination of in-house
business functions
– Termed “virtual organization”
• Useful in unstable environments
• Need for innovation and quick response

35
 Network Structure

Packagers

Designers Suppliers

Corporate
Headquarters
(Broker)

Manufacturers Distributors

Promotion/
Advertising
Agencies

36
• Effective implementation requires:
– Leadership
• Leading people to use their abilities and skills most
effectively and efficiently to achieve organizational
objectives

37
• Staffing follows strategy:
– Matching the manager to the strategy
• Executive type
– Executives with a particular mix of skills and experiences

38
• Executive Types:
– Dynamic industry expert
– Analytical portfolio manager
– Cautious profit planner
– Turnaround specialist
– Professional liquidator

39
Matching Chief Executive “Types” with
Strategy
Business Strength/Competitive Position

Strong Average Weak

Growth—Concentration Retrenchment—
Save Company
Dynamic Industry Expert
Turnaround
High

Specialist
Industry Attractiveness

Stability
Medium

Cautious Profit Planner

Low

Growth—Diversification Retrenchment—
Close Company
Analytical Portfolio Manager
Professional
Liquidator

40
• Managing corporate culture:
– Corporate culture
• Affects firm’s ability to shift its strategic direction
• Strong tendency to resist change
• Corporate culture should support the strategy

41
• Strategy-Culture Compatibility:
– Consider the following:
• Is the planned strategy compatible with the firm’s current
culture?
• Can the culture be easily modified to make it more
compatible with new strategy?
• Is management willing to make major organizational
changes?
• Is management committed to implementing the strategy?

42
• Managing corporate culture:
– Communication
• Key to effective management of change
• Rationale for strategic change should be
communicated to all

43
What Is Organizational Culture?

•Culture
– The collection of values and norms shared by people and groups in
an organization.
– Shared values and a common culture increase integration and
improve coordination.
•Values
– Beliefs and ideas about common goals and proper behaviors.
•Norms
– Act as guidelines or expectations that prescribe acceptable
behavior by organizational members.
 Organizational Culture

•Ways of transmitting organizational culture:

 Culture and Strategic Leadership
•The influence of the founder
– Initial cultural values and management
style is imprinted on the organization
by its founder.
•Organizational structure
– Structure follows strategy.
Strategic leadership affects
the cultural norms and values
that develop in the organization.
 Strategic Reward Systems
•Individual reward systems
– Piecework plans
– Commission systems
– Bonus plans
– Promotion
•Group and organizational
reward systems
– Group-based bonus systems
– Profit sharing systems
– Employee stock option systems
– Organization bonus systems