MOD – VI (Part-1)

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).

Strategy implementation• A firm is not judged by its strategy but by its

success as a business. Business success comes from implementation.

• The discipline and skill needed to implement or deploy a strategy is every bit as rare as the expertise and dedication required to craft strategy.

• The two must be seen as complimentary to each other

Strategy Implementation• Sears example

In 1983 Sears implements one-stop shopping banking-financial services power.

Sears retail unit fell to #3 behind low-cost providers (Walmartand K-Mart).

Specialty retailers (focused differentiators) such as The Gap, The Limited, Toys-R-Us, and Kids-R-Us took market share.

Sears was outperformed by both low-cost and focuseddifferentiators.

Sears initiated restructuring in 1992 after losing $3.8 billion.

Strategy Implementation• Sears example

What happened? Why did Sears fail so dramatically?

- Lost ability to control core business (too diversified).

- Resources were taken from retail and given to new ventures.

- Managers spent too much time on diversified businesses.

- Managed retail segment using financial controls.

- Sears suffered from post-merger drift.

- Lost operational understanding of the competitive dynamics in the retail industry.

Framework of Strategic 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 strategies and policies are put into action through the development of programs, budgets and procedures.

• To begin with 3 questions need to be answered: Who are the people who will implement ? What must be done? How it is to be done?

Programs Budgets & Procedures• Programs

- A program is a statement of the activities or steps related to accomplish a plan. It makes a strategy action oriented.

• Budgets- A budget is a statement of a company’s programs in terms of money.

• Procedures- are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done.

7

Management Issues in Implementation

ManagementIssues

Resources

Organizational Structure

Restructuring

Rewards/Incentives

Annual Objectives

Policies

Management Issues in Implementation

ManagementIssues

Supportive Culture

Production/Operations

Human Resources

Resistance to Change

Natural Environment

Issues related to Resources

1. Financial resources

2. Physical resources

3. Human resources

4. Technological resources

Four Types of Resources

RESOURCE ALLOCATION• Resource allocation is a central management

activity that allows for strategy execution. • In organizations that do not use a strategic-

management 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.

Managing Resource-specific 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.

Approaches for Managing and Resolving Conflict

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

2. Diffusion can include playing down differences between conflicting parties while emphasize 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.

Approaches for Managing and Resolving Conflict

3. 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.

Approaches for Managing and Resolving Conflict

Conflict not always “bad”

No conflict may signal apathy/indifference

Can energize opposing groups to action

May help managers identify problems

Strategy – Structure Relationship• Two way relationship – structure should be

according to the need of strategy to ensure its effective implementation. Structure of the organisation plays a critical role in choice of a strategy.

• Neither structure nor strategy can be determined independently of each other.

• If structure can not stand alone without strategy, it is equally true that strategy can rarely succeed without an appropriate structure.

Relating Structure to Strategy• An organisation should try to design/modify the

structure according to the needs of the strategy for its effective implementation.

• To test the adequacy of an organisation structure , the strategy should be precise, clear and definite.

• Strategist must build up his information system in such a way that he is able to monitor organisational adequacy.

• Organisation structure should be analysed in the context of both internal and external factors to be able to pinpoint the exact nature of problem and consequently the remedial action.

Mechanism for relating structure to Strategy

• Structure must support implantation of all activities pertaining to the strategy without any duplication.

• An activity’s contribution to strategy should determine its rank and placement in the organisation heirarchy. For example a key activity should never be subordinated to a non key activity.

Mechanism for relating Structure to Strategy

• Strategic principles helpful for relating Relate significant areas of authority and

responsibility to results desired in given markets, industries or sets of customers. Delegate authority and decentralize strategic

planning and operations for businesses which aerelatively mature, predictable and stable .Emphasis should be on result – centered rather

than profit centered decentralization. Neither centralization nor decentralization are cut & dried propositions

MATCHING STRATEGY WITH STRUCTURE• Changes in Strategy Often Require Changes in Structure because: 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 formula for developing objectives and policies can significantly impact all other strategy-implementation issues.

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

Basic Forms of Organisation Structure

Functional Structure

Divisional Structure

Strategic Business Unit Structure (SBU)

Matrix Structure

Accounting LegalAffairs

HRM Finance Marketing R&D Production

President

• Functional structure

• Functional structure

Advantages

- Centralized control of operations- Promotes in-depth functional expertise- Enhances operating efficiency where tasks are routine

Disadvantages

- Functional coordination problems- Inter-functional rivalry- Overspecialization and narrow viewpoints- Hinders development of cross-functional experience- Slower to respond in turbulent environments

GovernmentAffairs

LegalAffairs

CorporateR&D Lab

StrategicPlanning

CorporateHuman

Resources

CorporateMarketing

CorporateFinance

ProductDivision

ProductDivision

ProductDivision

ProductDivision

ProductDivision

President

• Product-divisional structure

• Product-divisional structure

Organization based on products versus functions

Each division is a separate business in which day-to-day decisions are delegated to divisional managers.

Divisions are managed using strategic controls – detailedknowledge of firm operations allows managers to remain activelyinvolved.

Overdiversification leads to inability to process detailed informationand a reliance on financial controls to evaluate managers.

• Product-divisional structure

Advantages

- Decentralized decision making- Each business is organized around products

- Puts profit/loss accountability on managers

- Facilitates rapid response to environmental changes

- Allows efficient management of a large number of units

Disadvantages

- May lead to costly duplication of functions

- Inter-divisional rivalry

- Corporate managers may lose in-depth understanding

Functional Organization of an SBU and Its Marketing Department

BusinessProject

BusinessProject

BusinessProject

R&D Production Marketing Finance

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

President

• Matrix Structure

• Matrix structure

Contains aspects of both functional and product-divisional structures.

Advantages:

- Creates checks and balances between competing viewpoints

- Promotes holistic view of the firm

- Encourages cooperation and consensus building

Disadvantages:

- Very complex and costly

- Shared authority increases communication time

- Difficult to respond rapidly

- May promote bureaucracy and reduce innovation (in large firms).