Strategy Implementation  Concept of Strategy Implementation Necessity of fit Necessity of fit Importance of integrating strategy implementation with  Importance of integrating strategy implementation with strategy formulation. strategy formulation.  Interrelationships between components or dimensions of strategy implementation. implementation. Focus on structure and control related issues. Focus on structure and control related issues.

Strategy Implementation Sears example Sears example In 1983 Sears implements one-stop shopping banking-financial  In 1983 Sears implements one-stop shopping banking-financial services power. services power.  Sears retail unit fell to #3 behind low-cost providers (Walmart and K-Mart). and K-Mart).  Specialty retailers (focused differentiators) such as The Gap, The Limited, Toys-R-Us, and Kids-R-Us took market share. The Limited, Toys-R-Us, and Kids-R-Us took market share.  Sears was outperformed by both low-cost and focused differentiators.  Sears initiated restructuring in 1992 after losing $3.8 billion.

Strategy Implementation Sears example 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. in the retail industry.

Strategy Implementation FirmStrategy FirmPerformance Task-Focus (Value) (Value) Structure DecisionProcessesandControls RewardSystems People

Strategy Implementation Task-Focus (Value) (Value) Structure  Uncertainty  Diversity  Interdependence  Division of labor  Departmentalization  Shape  Distribution of power DecisionProcessesandControls  Planning and control systems  Integration roles  Information systems  Decision making procedures RewardSystemsPeople  Recruiting and selection  Leader style  Transfer and promotion  Training and development  Performance measures measures  Compensation  Promotion  Job design

Strategy Dominant Business Vertically Integrated Unrelated Diversified Growth through Acquisition Related Diversified Growth thru internal development & some acquisition Task Focus (Value) Degree of integration Market share and power Product line breadth Vertical economies Degree of diversity Types of business Resource allocation across business Entry and exit businesses Financial economies Realization of synergy from related product process, technology, and product process, technology, and markets markets Resource allocation Diversification opportunities Synergistic economies Structure Centralized functional Top control of strategic decisions Delegation of operations through plans and procedures through plans and procedures Highly decentralized product divisions/profit centers divisions/profit centers Small corporate office No centralized line functions Almost complete delegation of operations and strategy within existing businesses of operations and strategy within existing businesses Control thru results, selection of management, and capital allocation of management, and capital allocation Multidivisional/profit centers Grouping of highly related businesses with some centralized businesses with some centralized functions within groups functions within groups Delegated responsibility for operation operation Shared responsibility for strategy Decision Processes and Controls Coordination and integration thru structure, rules, planning, and structure, rules, planning, and budgeting budgeting Use of integrating roles for project activity across functions project activity across functions No integration across businesses Coordination and information flows between corporate and division levels between corporate and division levels around management information systems around management information systems and budgets and budgets Coordinate and integrate across businesses and between levels with businesses and between levels with planning integrating roles, integrating planning integrating roles, integrating depths depths Reward Systems Performance against functional objectives objectives Mix of objective and subjective performance measures performance measures Strategic controls Formula based bonus on ROI or profitability of divisions profitability of divisions Strict objective, impersonal evaluation Bonus based on divisional and/or corporate performance corporate performance Mix of objective and subjective performance measures performance measures People Primarily functional specialists Some inter-functional movement to develop some general managers develop some general managers Aggressive, independent general managers of divisions divisions Career development opportunities are primarily intra-divisional primarily intra-divisional Broad requirements for general managers and integrators managers and integrators Career development is inter-divisional, cross-functional, and corporate- cross-functional, and corporate- divisional divisional

Strategy Implementation  Organization Structures Simple Structure Simple Structure President Employees  Owner-manager makes decisions.  Little specialization of tasks.  Few rules, little formalization.  Advantages: - Provides high flexibility - Rapid product introduction - Few coordination problems

AccountingLegalAffairs HRMFinanceMarketingR&DProduction President  Organization structure Functional structure Functional structure

Strategy Implementation  Organization structure 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

GovernmentAffairsLegalAffairs Corporate R&D Lab StrategicPlanningCorporateHumanResourcesCorporateMarketingCorporateFinance ProductDivisionProductDivisionProductDivisionProductDivisionProductDivision President  Organization structure Product-divisional structure Product-divisional structure

Strategy Implementation  Organization structure 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. decisions are delegated to divisional managers.  Divisions are managed using strategic controls – detailed knowledge of firm operations allows managers to remain actively knowledge of firm operations allows managers to remain actively involved. involved.  Overdiversification leads to inability to process detailed information and a reliance on financial controls to evaluate managers. and a reliance on financial controls to evaluate managers.

Strategy Implementation  Organization structure Product-divisional structure 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

BusinessProject BusinessProject BusinessProject R&DProduction Marketing Finance Specialists Specialists Specialists Specialists Specialists SpecialistsSpecialists Specialists Specialists Specialists Specialists SpecialistsPresident Matrix Structure Matrix Structure

Strategy Implementation  Organization structure Matrix structure Matrix structure  Contains aspects of both functional and product-divisional structures. 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).

Strategy Implementation FocalFirm Partner Partner Partner Partner Network structure Network structure  Group of firms combine resources to achieve together what they can’t achieve achieve together what they can’t achieve alone. alone.  Advantages: - Firm’s emphasize their own core competencies competencies - Rapid response time - Very flexible - Reduces capital intensity  Disadvantages - Asymmetric information - Technology expropriation - Trustworthiness of partners - Asset hold-up