Strategy Implementation HCAD 5390

Strategy Implementation Good strategic planning is not enough Process by which strategies are put into action Process details are unique to each organization and each strategy Sub-strategies, programs, action plans, policies, procedures, resource allocations, budgets, authority/responsibility delegation, teams and task forces, reward and control systems, and individual assignments

Keys to Strategy Implementation Resources and competencies Functional area sub-strategies Specific decisions and actions

Resources and Competencies Strategy implementation depends on resources and competencies possessed by the firm These include: Money in certain amounts Physical space of certain dimensions Particular types of equipment Specified numbers of people with … Certain skills, capabilities, and competencies Control and reporting systems Attitude, intuition, and imagination

Resources and Competencies: Systems Collections of policies, procedures, and protocols, backed by EDP and communications equipment, and people who work with them Purpose is to simplify and regularize the performance of routine, high-volume tasks Producing results that are as uniform and predictable as possible Modern business organizations depend on them

Examples of Organizational Systems Accounting and budgeting system Management information system Manufacturing control system Compensation and reward system Planning system

Resources and Competencies: Human Resources People possess competencies and carry out details of strategic plans Personnel costs are high proportion of operating budget in health care organizations Ensure enough people in the right places with the right competencies Balance operational and strategic duties Think of strategic human resource management

Resources and Competencies: Organizational Structure Taken for granted and assumed immutable Formal framework of departments, units, and groups into which people and the activities they perform are organized Some structures are better suited to certain strategies than other structures A carefully chosen structure can give an organization a sustainable competitive advantage

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 decentralization Reduced information overload on upper managers. Increased motivation and accountability throughout organization. Fewer managers; lower bureaucratic costs. Advantages of centralization Easier coordination of organizational activities. Decisions fitted to broad organizational objectives. Exercise of strong leadership in crisis. 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

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

Stages of corporate development Simple Structure Functional Structure Divisional Structure Beyond SBU’s

Simple Structure: Stage I: Entrepreneur Decision making tightly controlled Little formal structure Planning short range/reactive Flexible and dynamic

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

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

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

Functional Structure Disadvantages Advantages Functional orientation creates communication problems. Performance and profitability measurement problems. Location versus function problems (coordination). Strategic problems due to structural (vertical and horizontal) mismatches. Advantages Task grouping facilitates specialization and productivity. Better monitoring of work processes, reduced costs. Greater control over organizational activities.

Functional Structure

Mutlitdivisional Structure Disadvantages Establishing the divisional-corporate authority relationship Distortion of information by divisions Competition for resources by divisions Transfer pricing problems between divisions Short-term research and development focus Bureaucratic costs Advantages Enhanced corporate control by division Enhanced strategic control of each SBU in portfolio Growth is easier. New units don’t have to be integrated across organization Stronger pursuit of internal efficiencies. Performance of individual units is readily measurable.

Multidivisional Structure

Matrix Structure Advantages Disadvantages 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

Network Structure Packagers Designers Suppliers Distributors Corporate Headquarters (Broker) Promotion/ Advertising Agencies Manufacturers

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

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

Leadership: Three Interdependent Activities Leadership is the process of transforming organizations from what they are to what the leader would have them become Leadership should be Proactive Goal-oriented Focused on the creation and implementation of a creative vision

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

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?

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

What Is Organizational 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

Functional Area Sub-Strategies Strategies are implemented by front-line personnel in the functional areas Functional area managers participate in corporate strategic planning process Not enough to just take functional area concerns into account

Functional Area Strategic Contributions Provide background to initial thinking about strategic possibilities Suggest specific strategies to address opportunities identified Perform activities that make chosen strategies a reality

Marketing Strategy Contributions (I) Closest contact to market and external environment Strategic knowledge inputs: market segments, customers preferences, firm’s reputation and market position, competitor intelligence, market threats and opportunities, industry and general environment

Marketing Strategy Contributions (II) Growth strategy recommendations: new products or services enhancements of existing products or services new customers to be served unmet customers’ needs new technologies with market appeal customer service improvements new distribution channels new market segments

Marketing Strategy Contributions (III) Roles in strategy implementation: Publicize strategic innovations to customers Explain value of new product features Boost demand through aggressive advertising, price promotions, personal selling, and direct marketing Communications link between the business and its market

Operations Strategic Contributions Core of the business, creating products and services sold to customers If strategic goal is to increase sales … Does operations have the capacity? If strategy based on new products or features … Can operations manufacture them? Low-cost leadership or retrenchment strategies Depend on cost-cutting in operations

R&D Strategic Contributions May dominate the business (pharma, biotech) or be non-existent (physician practice) Pharmaceutical company research pipelines Shift research into new scientific area or away from an existing area Ability to develop new products or features called for by

Information System Strategic Contributions (I) Critical functional area in health care industry Perform typical business functions: Cost accounting Inventory control HR and employee benefits Customer relations Corporate communications

Information System Strategic Contributions (II) Perform unique health care functions: Tracking services delivered to support claims filed Claims submission and collection Carry out physician clinical orders Maintain record of patient conditions and treatments Gather and correlate clinical outcomes data Gather data on treatment costs and efficacy Evaluate physicians regarding resource utilization and clinical outcomes Transmit all these data among organization stakeholders

Information System Strategic Contributions (III) Specific strategic roles: Basis for differentiation from competitors Capacity to handle increased volume of customers or sales Facilitate cost-cutting by streamlining operational processes and identifying points of cost inefficiency Reveal value chain points at which differentiated value added is possible

Human Resources Strategic Contributions (I) Supports all other functions in carrying out operational and strategic responsibilities Assure that right numbers and types of personnel are available for strategic initiatives Hire and develop employees to ensure that appropriate competencies are available when needed

Human Resources Strategic Contributions (II) Recommend motivational and reward activities to enhance organizational performance Propose organizational structures better suited to new strategies Oversee workforce reduction during retrenchment

Creating Functional Area Strategies Each functional area creates a strategic plan A plan that supports and meshes with the organization-wide plan A plan that is synchronized with plans in other functional areas Functional area managers must participate in organization-wide planning and be in communication with each other

Strategy Implementation Actions (I) Overall strategy broken down into manageable parts Scope of each part defined in detail Goals and deadlines set for accomplishment Appropriate resources allocated

Strategy Implementation Actions (II) Right numbers and types of people assigned Policies and procedures to guide their actions One person assigned overall responsibility for each part Progress measured and tracked Changes and adjustments when appropriate

Examples of Strategy Implementation Actions (I) Marketing campaigns – new, refocus, expand or contract, discontinue, different media, test pilots Facilities – new, expand, repurpose, close Products/services – new (create, develop, invent), redesign, add new features, discontinue Product prices – raise, lower, bundle or unbundle products

Examples of Strategy Implementation Actions (II) Operating processes – reengineer, tasks (new, reorder, combine, separate, perform differently or less expensively) Departments, offices, teams – new, refocus, discontinue, expand, split up Employees – new, transfer, retrain or develop, lay off New systems for monitoring and measuring operating performance

Delegating Implementation Tasks Best if implementers involved in planning Task content must fit expertise and skills of person assigned If right person not available? Temporary stand-in for operational duties Special training for another employee Worth hiring a new, trained employee Involve HR in strategic planning

Delegation Through the Organizational Hierarchy Functional area heads work with the managers of departments, facilities, and units Together they formulate sub-strategies to carry out the area strategies Managers break the work down into bundles of tasks for assignment to teams, task forces, and work groups (ad hoc or permanent) Programs or projects may be set up to implement specific strategic elements Tasks are assigned to individual employees

Elements in a Strategy Action Plan Policies Procedures Methods Rules Objectives Time deadlines Personnel assignments

Allocation of Resources People, space, equipment, supplies, website space, agenda time at meetings, authority, discretion, and money Money is usually the most critical strategic resource Purpose of capital expenditures Replace existing capital assets Acquire new non-strategic capital assets Carry out strategic plans

Choosing Strategic Capital Expenditures (I) Identify and describe all capital spending requests amount timing assets acquired purposes Describe non-financial benefits of each request patient satisfaction less maintenance downtime lower employee turnover speedier member enrollment

Choosing Strategic Capital Expenditures (II) Set priorities on basis of urgency factors relevance to current operations response to legal mandate response to competitors’ moves critical element in strategic plans Project cash flows for each request Perform financial analysis of each request Net present value Discounted cash flow Payback period

Choosing Strategic Capital Expenditures (III) Compare and evaluate financial and non-financial benefits of all capital requests Using standard criteria decided beforehand Decide which to fund and in what amounts

Strategic Objectives and Deadlines Long and short-term objectives Accompanied by dates for achievement Purposes served: Guide and motivate employees Basis for measuring progress and evaluating employees, particularly managers Establish priorities for each unit or subunit Basis for allocating resources

Examples of Strategic Objectives May be applied to market segments, geographic areas, products/services, facilities, operating unit May be stated in terms of sales, profits, market share, patient volume, employees hired/trained, or other metrics showing strategic progress Good objectives are measurable, challenging, achievable, publicized, consistent, time-based

Potential Implementation Problems (I) Original plan poorly conceived Took more time than planned Unanticipated internal/external problems arose Poor coordination of activities Crises or competing activities diverted attention Assigned employees lacked necessary skills

Potential Implementation Problems (II) Assigned employees were inadequately trained Insufficient allocation of resources Uncontrollable external environmental factors Inadequate lower-level leadership and direction Poorly defined key tasks and activities Inadequate monitoring of activities and progress