1. Chapter 7 Implementing Strategies: Management & Operations Issues
Strategic Management: Concepts & Cases
12th Edition
Fred David
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3. Nature of Strategy Implementation
Formulation vs. Implementation
Formulation focuses on effectiveness
Implementation focuses on efficiency
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4. 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).
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5. 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.
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6. Organizational Structure
Management Issues
Annual Objectives
Policies
Management
Issues
Resources
Organizational Structure
Restructuring
Rewards/Incentives
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7. Management Issues (cont’d)
Resistance to Change
Natural Environment
Management
Issues
Supportive Culture
Production/Operations
Human Resources
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8. 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.
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9. Management Perspectives
Managers and employees throughout an organization should participate early and directly in strategy-implementation decisions.
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10. Divisional or Functional Managers
Nature of Strategy Implementation
Management Perspectives
Shift in responsibility
Strategists
Divisional or Functional Managers
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11. 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.
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12. 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)
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13. 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.
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14. 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.
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15. Four Types of Resources
Management Issues
Four Types of Resources
Financial resources
Physical resources
Human resources
Technological resources
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16. 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.
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17. 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.
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18. 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).
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19. 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.
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20. 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.
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21. Management Issues Managing Conflict Conflict not always “bad”
No conflict may signal apathy
Can energize opposing groups to action
May help managers identify problems
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22. 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.
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23. 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.
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25. Basic Forms of Structure
Management Issues
Basic Forms of Structure
Functional Structure
Divisional Structure
Strategic Business Unit Structure (SBU)
Matrix Structure
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26. 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 seven 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.
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27. 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.
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28. 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.
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29. 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.
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30. 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.
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31. 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.
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32. 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.
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33. 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.
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35. 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.
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38. 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.
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39. 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.
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40. 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.
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41. Management Issues Restructuring Downsizing Rightsizing Delayering
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42. LINKING PERFORMANCE AND PAY TO STRATEGIES
Profit sharing is a widely used form of incentive compensation.
Gain sharing requires employees or departments to establish performance targets; if actual results exceed objectives, all members get bonuses.
Criteria such as sales, profit, production efficiency, quality, and safety could also serve as bases for an effective bonus system.
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43. Tests for Performance-Pay Plans
Does the plan capture attention?
Do employees understand the plan?
Is the plan improving communication?
Does the plan pay out when it should?
Is the company or unit performing better?
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44. Natural Environment Perspective In Hiring, Do Companies Consider Environmental Training?
77% of corporate recruiters believe it’s important to hire students with an awareness of social and environmental responsibility
Most schools do not incorporate environmental training in core curriculum
Research suggest that business schools need to do more to prepare students
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45. MANAGING RESISTANCE TO CHANGE
A. Resistance to Change
It may take on such forms as sabotaging production machines, absenteeism, filing unfounded grievances, and an unwillingness to cooperate.
Resistance to change can emerge at any stage or level of the strategy-implementation process.
There are three commonly used strategies for implementing change:
a. Force change strategy
Educative change strategy
Self-interest change strategy
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46. Creating a Strategy-Supportive Culture
Strategists should strive to preserve, emphasize, and build on aspects of an existing culture that support proposed new strategies.
Jack Duncan described triangulation as an effective, multimethod technique for studying and altering a firm’s culture.
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47. Creating a Strategy-Supportive Culture
Triangulation includes the combined use of prominent observation, self-administered questionnaires, and personal interviews to determine the nature of a firm’s culture.
The process of triangulation reveals needed changes in a firm’s culture that could benefit strategy.
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48. The Mexican Culture
1. Mexico always has been and still is an authoritarian society in terms of schools, churches, businesses, and families. Employers seek workers who are agreeable, respectful, and obedient, rather than innovative, creative, and independent. Mexican workers tend to be activity oriented rather than problem solvers.
2. Mexican employers are paternalistic, providing workers with more than a paycheck, but in return, they expect allegiance\loyality.
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49. The Japanese Culture
1. The Japanese place great importance on group loyalty and consensus, a concept called wa. Nearly all corporate activities in Japan encourage wa among managers and employees. Wa requires that all members of a group agree and cooperate; this results in constant discussion and compromise.
2. Most Japanese managers are reserved, quiet, distant, introspective\thoughtful, and other oriented, whereas most U.S. managers are talkative, insensitive, impulsive\rash, direct, and individual oriented.
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50. Creating a Strategy-Supportive Culture
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52. Management Issues
Production/Operations Concerns
Production/operations capabilities, limitations, and policies can significantly enhance or inhibit attainment of objectives.
Production processes typically constitute more than 70% of firm’s total assets
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53. Inventory/Inventory control Quality control Cost control
Management Issues
Examples on adjustment of Production/Operations Decisions
Plant size
Inventory/Inventory control
Quality control
Cost control
Technological innovation
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54. Assessing staffing needs/costs Developing performance incentives ESOPs
Management Issues
Human Resource Strategic Responsibilities
Assessing staffing needs/costs
Developing performance incentives
ESOPs
Child-care policies
Work–life balance issues
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55. Human Resource problems that arise when businesses implement strategies:
Disruption of social and political structures
Failure to match individuals’ aptitudes\abilities with implementation tasks
Inadequate top management support for implementation activities
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56. Employee Stock Ownership Plans (ESOPs)
. 1. An ESOP is a tax-qualified, defined-contribution, employee benefit plan whereby employees purchase stock of the company through borrowed money or cash contributions.
2. ESOPs reduce worker alienation\estrangement, stimulate productivity, and allow substantial tax savings for the firm.
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57. Balancing Work Life and Home Life
Work/family strategies have become so popular among companies that the strategies now represent a competitive advantage for those firms that offer such benefits as elder care assistance, flexible scheduling, job sharing, and so on.
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58. Benefits of a Diverse Workforce
The Wall Street Journal identified the following major benefits of having diverse workforce:
improves corporate culture
improves employee morale
leads to a higher retention of employees
leads to an easier recruitment of new employees
decreases complaints and litigation\ lawsuit
increases creativity
decreases interpersonal conflict between employees
enables the organization to move into emerging markets
improves client relations
increases productivity
improves the bottom line
maximizes brand identity
reduces training costs
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60. 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.
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61. 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.
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62. 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.
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63. 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.”
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64. 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.
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65. 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.
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66. 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.
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67. 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.
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68. 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.
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