Chapter 7 Implementing Strategies: Management & Operations Issues Strategic Management: Concepts & Cases 12th Edition Fred David Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy implementation ‘Strategy implementation is the process by which strategies and policies are put into action through the development of programs, budgets, and procedures’. the implementation of strategy directly or indirectly connects to all facts of management. Thus it is fundamental to follow a holistic approach when analyzing and assessing complex issues of strategy implementation. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The importance of strategy implementation phase In spite of all the energy and resources spent in the pursuit of the wonderful strategy, it is surprising to consider how little effort is dedicated towards its implementation. Most managers stumble in the implementation stage. A current economic survey found that a discouraging 57 percent of firms failed at carrying out strategic initiatives over the past three years, according to their senior operating executives Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy implementation Hunger and Wheelen (2003) stress that a good strategy can result in a disaster through poor strategy implementation, therefore strategy formulation and strategy implementation should be considered as two sides of the same coin. Allison and Kaye (2005) claim that there are two main obstacles facing the effective implementation of the strategy: The difficulty of transformation big ideas into particular steps. The difficulty of protecting the focus that was accomplished through the planning process. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy implementation They address the first difficulty by developing annual operating plans, and address the second one by assessing the plan and setting up regular monitoring of the plan. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Nature of Strategy Implementation Formulation vs. Implementation Formulation focuses on effectiveness Implementation focuses on efficiency Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

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). Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Management Perspectives In all but the smallest organizations, the transition from strategy formulation to strategy implementation requires a shift in responsibility from strategists to divisional and functional managers. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Organizational Structure Management Issues Annual Objectives Policies Management Issues Resources Organizational Structure Restructuring Rewards/Incentives Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Management Issues (cont’d) Resistance to Change Natural Environment Management Issues Supportive Culture Production/Operations Human Resources Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Management Perspectives Management issues central to strategy implementation include establishing annual objectives, devising policies, allocating resources, altering an existing organizational structure, restructuring and reengineering, revising reward and incentive plans, minimizing resistance to change, matching managers with strategy, developing a strategy-supportive culture, adapting production/operations processes, developing an effective human resource function, and, if necessary, downsizing. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Management Perspectives Managers and employees throughout an organization should participate early and directly in strategy-implementation decisions. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Divisional or Functional Managers Nature of Strategy Implementation Management Perspectives Shift in responsibility Strategists Divisional or Functional Managers Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

ANNUAL OBJECTIVES 1. Establishing annual objectives is a decentralized activity that directly involves all managers in an organization. 2. Annual objectives are essential for strategy implementation because they: a. Represent the basis for allocating resources. b. Are a primary mechanism for evaluating managers. c. Are the major instrument for monitoring progress towards achieving long-term objectives. d. Establish organizational, divisional, and departmental priorities. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Purpose of Annual Objectives – Management Issues Purpose of Annual Objectives – Basis for resource allocation Mechanism for management evaluation Metric for gauging progress on long-term objectives Establish priorities (organizational, divisional, and departmental) Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Annual objectives Annual objectives should be measurable, consistent, reasonable, challenging, clear, communicated throughout the organization, characterized by an appropriate time dimension, and accompanied by commensurate rewards and sanctions. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

POLICIES Changes in a firm’s strategic direction do not occur automatically. On a day-to-day basis, policies are needed to make a strategy work. Broadly defined, policy refers to specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work toward stated goals. Policies let both employees and managers know what is expected of them, thereby increasing the likelihood that strategies will be implemented successfully. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Four Types of Resources Management Issues Four Types of Resources Financial resources Physical resources Human resources Technological resources Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

MANAGING CONFLICT A. 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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Approaches for Managing and Resolving Conflict Avoidance includes such actions as ignoring the problem in hopes that the conflict will resolve itself or physically separating the conflicting individuals (or groups). Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Approaches for Managing and Resolving Conflict Diffusion can include playing down differences between conflicting parties while emphasis 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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Approaches for Managing and Resolving Conflict 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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Management Issues Managing Conflict Conflict not always “bad” No conflict may signal apathy Can energize opposing groups to action May help managers identify problems Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

MATCHING STRATEGY WITH STRUCTURE A. Changes in Strategy Often Require Changes in Structure 1. Changes in strategy often require changes in the way an organization is structured for two major reasons. a. 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. b. The second major reason why changes in strategy often require changes in structure is that structure dictates how resources will be allocated. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

MATCHING STRATEGY WITH STRUCTURE Changes in strategy lead to changes in organizational structure. Structure should be designed to facilitate the strategic pursuit of a firm and, therefore, follow strategy. 3. There is not just one optimal organizational design or structure for a given strategy or type of organization. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Basic Forms of Structure Management Issues Basic Forms of Structure Functional Structure Divisional Structure Strategic Business Unit Structure (SBU) Matrix Structure Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Functional Structure 1. The most widely used structure is the functional or centralized type because this structure is the simplest and least expensive of the four alternatives. 2. A functional structure groups tasks and activities by business function such as product/operations, marketing, finance/accounting, R&D, and computer information systems. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Functional Structure Advantages: Besides being simple and inexpensive, a functional structure also promotes specialization of labor, encourages efficiency, minimizes the need for an elaborate control system, and allows rapid decision-making. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Functional Structure b. Disadvantages: Some disadvantages of a functional structure are that it forces accountability to the top, minimizes career development opportunities, and is sometimes characterized by low employee morale. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Divisional Structure 1. The divisional or decentralized structure is the second most common type used by American businesses. The divisional structure can be organized in one of four ways: by geographic area, product or service, customer, or process. With a divisional structure, functional activities are performed both centrally and in each separate division. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Divisional Structure Advantages: A divisional structure has some clear advantages. First, and perhaps foremost, is accountability. Other advantages of the divisional structure are that it creates career development opportunities for managers, allows local control of local situations, leads to a competitive climate within an organization, and allows new businesses and products to be added easily. b. Disadvantages: Perhaps the most important limitation is that a divisional structure is costly. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Divisional Structure 3. A divisional structure by geographic area is appropriate for organizations whose strategies need to be tailored to fit the particular needs and characteristics of customers in different geographic regions. 4. A division structure by product is most effective for implementing strategies when specific products or services need special emphasis. 5. A division structure by process is similar to a functional structure, because activities are organized according to the way work is actually performed. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Strategic Business Unit (SBU) Structure The SBU structure groups similar divisions into strategic business units and delegates authority and responsibility for each unit to a senior executive who reports directly to the CEO. Advantages: This change in structure can facilitate strategy implementation by improving coordination between similar divisions and channeling accountability to distinct business units. It also makes the task of planning and control by the corporate office more manageable. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Strategic Business Unit (SBU) Structure Disadvantages: Two disadvantages of an SBU structure are that it requires an additional layer of management, which increases salary expenses, and the role of the group vice president is often ambiguous. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

The Matrix Structure It is the most complex of all designs because it depends upon both vertical and horizontal flows of authority and communication. It can result in higher overhead because it creates more managerial positions. It also creates dual lines of budget authority, dual sources of reward and punishment, shared authority, and dual reporting channels. Its advantages are that project objectives are clear, there are many channels of communication, workers can see visible results of work, and projects can be shut down easily. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Reshaping Corporate Landscape 1. Restructuring, also called downsizing, rightsizing, or delayering, involves reducing the size of the firm in terms of number of employees, divisions or units, and hierarchical levels in the firm’s organizational structure. 2. The Internet is ushering in a new wave of business transformations. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Reshaping Corporate Landscape Reengineering is concerned more with employee and customer well-being than with shareholder well-being. Reengineering, also called process management, process innovation, or process redesign, involves reconfiguring or redesigning work, jobs, and processes for the purpose of improving cost, quality, service, and speed. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Restructuring 1. Firms often employ restructuring when various ratios appear out of line with competitors, as determined through benchmarking exercises. 2. The primary benefit sought from restructuring is cost reduction. The downside of restructuring can be reduced employee commitment, creativity, and innovation that accompanies the uncertainty and trauma associated with pending and actual employee layoffs. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review Allocating resources can be a political and an ad hoc activity in firms that do not use strategic management. Why is this true? Does adopting strategic management ensure easy resource allocation? Why? Allocating resources can be ad hoc and political in the absence of strategic management because no good substitute approach for making major decisions exists. Intuition, subjectivity, and emotions are not adequate for making resource allocation decisions that have strategic ramification for an entire organization. Strategic management does not assure easy resource allocation, but it generally results in more effective resource allocation. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review Compare strategy formulation with strategy implementation in terms of each being an art or a science. The strategy-formulation process is more of a science, whereas strategy implementation is more of an art. Strategy implementation involves motivating employees. However, neither strategy formulation nor strategy implementation is a pure science or art because, for example, intuition and good subjective judgment are always essential in strategy formulation. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review Identify and discuss three policies that apply to your present business policy class. Answers to this question will vary for each class. Policies that may be discussed include grading policies, attendance policies, and honor code policies. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review Explain the following statement: Horizontal consistency of goals is as important as vertical consistency. This is a true statement. Horizontal consistency of objectives is as important as vertical consistency. An example of horizontal consistency could be that “there is no need for the marketing department to plan on doubling sales if the production department cannot produce the additional units.” Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review In your opinion, what approaches to conflict resolution would be best for resolving a disagreement between a personnel manager and a sales manager over the firing of a particular salesperson? Why? Various approaches for minimizing and resolving conflict can be classified in three ways: avoidance, defusion, and confrontation. Depending on the situation, any of these three alternative approaches could justifiably be most effective in solving a dispute between a personnel manager and sales manager. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review In your opinion, how many separate divisions could an organization reasonably have without using an SBU-type organizational structure? Why? The answer to this question depends on the size and type of divisions, but, generally speaking, a firm that has six or more divisions could benefit from an SBU-type of organizational structure. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review As production manager of a local newspaper, what problems would you anticipate in implementing a strategy to increase the average number of pages in the paper by 40 percent? Problems that could be encountered include the need to obtain additional advertising to cover the cost of additional pages, as well as needing additional employees. A problem could arise in deciding whether to raise the price of the paper. There may need to be an increase in the market area coverage of the paper. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review Explain why successful strategy implementation often hinges on whether the strategy-formulation process empowers managers and employees. Managers and employees make or break a firm. More and more, firms are empowering managers and employees through involvement in the strategic-management process. Lack of involvement or “empowering” often results in a lack of commitment to see the firm do well. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review Discuss three ways the book discusses linking performance and pay to strategies. Some methods of linking performance to pay include profit sharing, gain sharing, and bonus systems. Profit sharing is widely used but can be a less than desirable criterion since individuals may not be clearly able to affect profits. Gain sharing requires employees or departments to establish performance targets. If actual results exceed objectives, all members get bonuses. In a bonus system, if an organization meets certain agreed-upon objectives, every member of the enterprise shares in the benefits. Criteria for bonus systems include sales, profit, production efficiency, quality and safety. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall