Copyright © 2012 Pearson Canada Inc. 0 Chapter 8 Implementing Strategy

Copyright © 2012 Pearson Canada Inc. 1 LEARNING OBJECTIVES 1. Outline the interdependence between strategy formulation and implementation. 2. Demonstrate how organizational structure serves as a lever when implementing strategy. 3. Illustrate the use of systems as levers when implementing strategy. 4. Describe why managers need to be prepared to hold their subordinates accountable. 5. Explain the dual roles that top management plays in strategy implementation. 6. Explain how implementation produces a strategy that was not as intended.

Copyright © 2012 Pearson Canada Inc. 2 Strategy Implementation When a firm is experiencing difficulties, it’s good to ask three questions Is its strategy flawed? Is the implementation of its strategy flawed? Are both the strategy and implementation flawed?

Copyright © 2012 Pearson Canada Inc. 3 Strategy Implementation Strategy formulationStrategy implementation The central, integrated, externally oriented concept of how we will achieve our objectives Arenas Staging Vehicles Differentiators Economic logic Strategy Implementation, Levers & Strategic Leadership

Copyright © 2012 Pearson Canada Inc. Managing the Company 1. ORGANIZATIONAL ELEMENTS Structure Systems Measurement Systems Rewards System Staffing Fit of the Organizational Elements Changing Organization Elements 2. CULTURE 3. PERFORMANCE CRITERIA 4

Copyright © 2012 Pearson Canada Inc. Managing the Company ORGANIZATIONAL ELEMENTS Every strategy has an economic model that explains how it is going to make money. Associated with the model are decisions concerning which activities are in the value chain and how they are performed so that they produce the desired value curve for customers. People then have to be organized so that the business performs the necessary work. 5

Copyright © 2012 Pearson Canada Inc. Managing the Company Structure Most new businesses start small, with an owner/manager and a few employees. Once a business grows beyond this basic size, top management has to address how the work will be organized and controlled. 6

Copyright © 2012 Pearson Canada Inc. Managing the Company Systems Organizational structure (allocation of decision rights) alone is not enough. Systems and their component subsystems or “processes” are also needed. These provide the means to initiate, carry forward, control, and stop actions within the business. Within every functional area there are specific systems that help the functional activities add value. 7

Copyright © 2012 Pearson Canada Inc. Managing the Company Measurement Systems Measurement systems enable managers to gather, aggregate, disseminate, and evaluate information on activities of the business, departments, and individuals. Rewards System The rewards system provides incentives that induce people to join the organization and to make value-enhancing decisions. 8

Copyright © 2012 Pearson Canada Inc. Managing the Company Staffing Top management has the power to make the ultimate decisions about structure systems and top managers. Having set the structure, the right people have to be put into jobs. The right people are those with the right skills, knowledge, and attitudes. Staffing is increasingly important in every business because people are an important but intangible resource. A business is less likely to be successful today unless it has the right people filling the jobs in the organizational structure. 9

Copyright © 2012 Pearson Canada Inc. Managing the Company Fit of the Organizational Elements While we have described the three elements of organizational architecture separately, they are highly interdependent in operation. The way one element is designed has implications for how the others are designed. This means that they have to be designed to fit together so that they reinforce one another. Creating organizational fit takes years of sustained effort but pays off by creating competitive advantages that rivals can’t copy easily. 10

Copyright © 2012 Pearson Canada Inc. Managing the Company Changing Organization Elements A particular organizational design is appropriate at a point in time and, as things change both in the business and around the business, periodic restructuring makes sense. But changing structure or any other element requires compensating change in the other elements because they are interdependent. For example, a change in organizational structure will require a change in both measurement and rewards systems, while a change in strategy will require large-scale changes in organizational elements. 11

Copyright © 2012 Pearson Canada Inc. Managing the Company CULTURE Characteristics of the formal organization associated with the culture are: the extent of individual initiative the extent of risk tolerance the clarity of direction the degree of integration the extent of management support the extent of control the granting of rewards the tolerance of conflict communication patterns 12

Copyright © 2012 Pearson Canada Inc. Managing the Company PERFORMANCE CRITERIA Leadership also sets the goals for the business. These provide the criteria that measure the aggressiveness and pace at which the business pursues its vision. Leadership can set goals that require big changes quickly or small changes gradually. Leadership also determines the criteria that must be satisfied to get resources. These criteria help ensure that resources are channelled to the activities that support the strategy. 13

Copyright © 2012 Pearson Canada Inc. Managing Change STEP 1: CREATING A SENSE OF URGENCY Before change can start, people have to feel change is necessary. This means the first step is to build a sense of urgency that change has to start NOW. STEP 2: BUILDING COALITIONS The term leadership immediately conjures up the concept of the heroic leader, someone who gives orders and makes sure that people obey. But businesses of today have allowed decision rights to migrate to those of specific knowledge so that leadership is more collaborative. 14

Copyright © 2012 Pearson Canada Inc. Managing Change STEP 3: DETERMINE DIRECTION People need a sense of where change will be taking them and the organization. As described in Chapter 2, management uses different mechanisms to achieve this. STEP 4: COMMUNICATE DIRECTION The direction, once established, only serves the business when people throughout the business know what it is, understand it, appreciate it, and are ready to commit to achieving it. This requires extensive, persuasive communication. 15

Copyright © 2012 Pearson Canada Inc. Managing Change STEP 5: EMPOWER EMPLOYEES For this step the leadership group has to make the changes to structure, systems, and staffing. These administrative changes should remove most barriers to change and allow employees to develop new ideas, approaches, and the required behaviours that support the new strategy. STEP 6: GENERATE SMALL WINS The argument for generating short-term wins comes from putting together two features of change. First, achieving the full organizational changes needed to support the strategy takes a long time. Second, successful change creates excitement, certainty, and momentum, and it also serves to answer critics. 16

Copyright © 2012 Pearson Canada Inc. Managing Change STEP 7: CONSOLIDATE GAINS Continuing short-term wins add up to a long-term win. The sequencing of the actions that produce short-term wins is determined by management as it makes staging decisions. STEP 8: INSTITUTIONALIZE THE NEW DESIGN Having achieved all the changes necessary to have an organization that supports the strategy being pursued, leaders must ensure that the changes are permanent. 17

Copyright © 2012 Pearson Canada Inc. 18 Intended Strategy Realized Strategy Managing Administration Managing Change Urgency, Coalitions, Direct Formulation, Direct Communication, Empowerment, Small Wins, Consolidation, Institutionalization Structure, Systems, Staff, Culture, Criteria Managing Change – Sources of Deviations

Copyright © 2012 Pearson Canada Inc. Intended Strategy and Realized Strategy Neither managing administration nor managing change is a precise process that produces the intended results. Intended results cannot be achieved while things happen that were not intended. The consequence of challenges in implementation is that the realized strategy is never quite what was intended. 19