IMPLEMENTATION ISSUES Half of all acquisitions fail to achieve what was expected of them One-quarter of all international ventures launched do not succeed

IMPLEMENTATION ISSUES

• Half of all acquisitions fail to achieve what was expected of them• One-quarter of all international ventures launched do not succeed.

PROBLEMS:Poor communicationUnrealistic synergy expectationsStructural problemsMissing master planLost momentumLack of top management commitmentUnclear strategic fit

• WHO is responsible to see that the implementation activities get done?• WHAT exactly must be done and HOW should it be accomplished?• WHERE and by WHEN do we need to take action?

IMPLEMENTATION PROBLEMSA FORTUNE 500 SURVEY

• MORE TIME WAS NEEDED THAN ORIGINALLY PLANNED

• UNANTICIPATED MAJOR PROBLEMS AROSE

• INEFFECTIVE COORDINATION OF ACTIVITIES

• CRISES TOOK ATTENTION AWAY FROM IMPLEMENTATION

• UNCONTROLLABLE EXTERNAL ENVIRONMENT

• INSUFFICIENT EMPLOYEE CAPABILITIES TO DO THE JOB

• WORKERS WERE INADEQUATELY TRAINED

• MANAGERS GAVE INADEQUATE LEADERSHIP & DIRECTION

• POOR DEFINITION OF KEY TASKS & ACTIVITIES

• INADEQUATE MONITORING OF ACTIVITIES

QUESTIONS TO ANSWER ABOUT IMPLEMENTATION

– ARE WE APPROPRIATELY ORGANIZED AND STRUCTURED?

– ARE WE ADEQUATELY STAFFED AND TRAINED?

– ARE ADEQUATE PHYSICAL & FINANCIAL RESOURCES AVAILABLE?

– ARE INFORMATION & CONTROL SYSTEMS IN PLACE?

– ARE MOTIVATION AND REWARD SYSTEMS IN PLACE?

– WILL THE CORPORATE CULTURE SUPPORT US?

– WILL WE HAVE COMPETENT STRATEGIC LEADERSHIP?

– IS OUR PLANNING COMPLETE?

BUILDING A CAPABLE ORGANIZATION

• DEVELOPING A SUPPORTIVE STRUCTURE– SIMPLE

– FUNCTIONAL

– DIVISIONAL • GEOGRAPHIC LOCATION

• PRODUCT

• SERVICE

• CUSTOMER

– MATRIX

– NETWORK

– CELLULAR

• FINDING PEOPLE FOR KEY POSITIONS– INSIDERS v. OUTSIDERS

• DO THEY HAVE ESSENTIAL SKILLS & PROVEN ABILITIES?

• WILL THEY NEED ADDITIONAL TRAINING OR UPDATING?

DEPARTMENTALIZATION

HOW TO GROUP JOBS TOGETHER SO THAT KEY TASKS ARE COORDINATED

BY FUNCTION (or TASK)MANUFACTURING, MARKETING, HUMAN RESOURCES, ACCOUNTING

BY GEOGRAPHY OR TERRITORYWESTERN DIVISION, CANADIAN DIVISION, EUROPEAN DIVISION

BY PRODUCT OR BUSINESS LINEBICYCLES, MUSICAL INSTRUMENTS, TABLEWARE, BUILDING SUPPLIES

BY PROCESS (Sequential)CASTING, GRINDING, SANDING, FINISHING, PACKING

BY CUSTOMERRETAIL, WHOLESALE, GOVERNMENT, INDUSTRIAL

WITHIN A SINGLE COMPANY, SEVERAL DIFFERENT APPROACHES TO DEPARTMENTALIZATION MAY CO-EXIST…FOR EXAMPLE:

Accounting is functionally organized, Marketing is by customer within territory, Manufacturing is by process, and Research & Development is by product.

ORGANIZATIONAL “LIFE CYCLE” STAGESTANSIK (80)

STAGE STRATEGY STRUCTURE

BIRTH CONCENTRATE SIMPLEON A NICHE (Entrepreneural)

GROWTH HORIZ & VERTICAL FUNCTIONALINTEGRATION (Managerial)

MATURITY DIVERSIFICATION DIVISIONAL(SBU)

DECLINE RETRENCHMENT CONSOLIDATIONOR PROFIT (Structural Surgery)

DEATH LIQUIDATION DISMEMBERMENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

MAY HAVE A REVIVAL PHASE DURING THE MATURITY-DECLINE STAGES, THUS EXTENDING THE ORGANIZATION’S LIFE

THE CRISIS-EVOLUTION VIEW OF THE FIRMGREINER (72)

EACH GROWTH STAGE EVENTUALLY LEADS TO A CRISIS

THE SUCCESSFUL FIRM MUST EVOLVE TO THE NEXT LEVEL

THE FIRM EVENTUALLY FACES ANOTHER CRISIS

THE FIRM MUST EVOLVE AGAIN TO REMAIN SUCCESSFUL

STAGE OF LEADS TO STRUCTURAL ORGANIZATIONAL

EVOLUTION A CRISIS OF FORM STRATEGY

CREATIVITY LEADERSHIP SIMPLE SURVIVE & GROW

DIRECTIONAUTONOMY FUNCTIONAL CONCENTRIC/GROW

DELEGATION CONTROL DIVISIONAL DIVERSIFY

COORDINATION RED-TAPE STAGE 4 CONSOLIDATE

SIMPLE STRUCTURES

STRUCTURAL CHARACTERISTICS

Low specialization and departmentalization

Wide span of control and a flat structure

Centralized authority with little formalization

ADVANTAGES

Fast, flexible, inexpensive to maintain

Accountability is clear

Workers are generalists

DISADVANTAGES

Workers require guidance on a regular basis

No specialists or experts

Owner can become overloaded…too many things to decide daily

Works best if the firm is small --- and stays that way

FUNCTIONAL ORGANIZATION

CHARACTERISTICS

Specialization and formalized rules and regulations

A tall structure, grouped functionally, with narrow spans of control

Centralized authority and decision making that follows the chain

ADVANTAGES

Highly efficient and effective in a predictable, routine environment

Promotes skill specialization & career development within departments

Rules and procedures maintain consistency, only exceptions referred up

DISADVANTAGES

Develops experts (managers) in narrow fields, not generalist managers

If there’s no rule to follow, we don’t know what to do! (No discretion)

Doesn’t adapt well to change, or unexpected events in the environment

DIVISIONALIZED BY GEOGRAPHY OR TERRITORY

DIVISIONALIZED BY TERRITORY OR LOCATION

ADVANTAGESA “branch” location means faster, convenient service to customersEach branch location is identical to the others – each has “full service”De-emphasizes expertise & specialization – makes generalist managers

DISADVANTAGESAll functions are duplicated at each location (inefficient?)Conflicts may arise between local and corporate objectivesDiscretionary decisions may vary at each location – how to maintain uniform policies and actions?

DIVISIONALIZED BY PRODUCT, SERVICE OR CUSTOMER

DIVISIONALIZED BY PRODUCT OR SERVICEADVANTAGES

Allows greater product / service visibility and customer sensitivityDevelops managers who can think across functional lines

DISADVANTAGESDifficult to coordinate across product or service lines (no similarity)Resource allocation decisions become more political

DIVISIONALIZED BY CUSTOMERADVANTAGES

Skilled specialists can deal with unique customers or customer groups.DISADVANTAGES

The number of salespeople appears to be excessive (inefficient)A large administrative staff is needed to integrate activities of the various departments.

MATRIX STRUCTURES

ADVANTAGES

Uses functional experts on special projects ( both function & product)

Very flexible, adaptable to environmental changes

Emphasizes cooperation and coordination to get the job done

Reduces the amount of vertical communication needed within the firm

DISADVANTAGES

Violates the “Unity of Command” principle (one boss)

A costly, inefficient structure; with overlap, duplication and waste

Conflict potential is high due to power struggles between units

Workers can experience much stress with dual assignments & overloads

NETWORK (VIRTUAL) STRUCTURES

CHARACTERISTICSHIGHLY CENTRALIZED LITTLE OR NO DEPARTMENTALIZATION

ADVANTAGESDon’t have to actually own or operate all business functionsOutsources (contracts) with experts to provide cutting-edge servicesCan focus your energy and capital at what you do bestVery flexible, can get in and /or out of business quicklyCan be very sensitive to cost and quality

DISADVANTAGESNo ability to expedite or control many of the key operationsContracts must be negotiated – terms are not permanentNo managerial expertise is developed in managing contracted areasHard to identify where the organization is located

STAGES OF INTERNATIONAL DEVELOPMENT

STAGES OF INTERNATIONAL DEVELOPMENT

DOMESTIC COMPANYMAY EXPORT PRODUCTS THROUGH LOCAL DEALERS IN FOREIGN MARKETS

DOMESTIC COMPANY WITH EXPORT DIVISIONSETS UP SALES OFFICES IN FOREIGN MARKETS

PRIMARILY DOMESTIC COMPANY WITH INTERNATIONAL DIVISIONESTABLISHES MANUFACTURING IN FOREIGN MARKETS IN ADDITION TO SALES & SERVICE OFFICES

MULTINATIONAL CORPORATION WITH MULTIDOMESTIC EMPHASISESTABLISHES A LOCAL OPERATING DIVISION IN THE COUNTRY. PRODUCT LINE IS BROADENED AND RELATED BUSINESSES ACQUIRED. OPERATES AUTONOMOUSLY

MULTINATIONAL CORPORATION WITH GLOBAL EMPHASISHAS WORLDWIDE STAFF, R&D, & FINANCIAL STRATEGIES. DENATIONALIZES OPERATIONS. ALL MANAGERS THINK GLOBALLY.

INTERNATIONAL “STRUCTURES”

INTERNATIONAL STRATEGIC ALLIANCES

LICENSING AGREEMENTS

JOINT VENTURES

MNC “DIVISIONAL” STRUCTURES

GEOGRAPHIC-AREA STRUCTURES

CLUSTERED BY COUNTRY

PRODUCT-GROUP STRUCTURESSIMILAR PRODUCTS WHICH CAN BE SOLD WORLDWIDE

MNC “VIRTUAL” STRUCTURESSCATTERED “CORPORATE” OFFICES

SELECTING PEOPLE FOR KEY POSITIONS

STRATEGY TYPE OF MANAGER

HORIZ/VERT GROWTH DYNAMIC INDUSTRY EXPERTAggressive, with a lot of industry experience

DIVERSIFICATION ANALYTICAL PORTFOLIO MGRKnows several industries, can manage diversity

STABILITY CAUTIOUS PROFIT PLANNERConservative, cost-conscious manager

RETRENCHMENT TURNAROUND SPECIALISTChallenge-oriented, has record of success

DIVESTMENT PROFESSIONAL LIQUIDATORBankruptcy expert, knows how to get max

value

MATCHING PEOPLE WITH CORPORATE STRATEGY

BUSINESS STRENGTH / COMPETITIVE POSITION

STRONG AVERAGE WEAK

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

HIGH Dynamic Industry Dynamic Industry TurnaroundExpert Expert Specialist

LONG-TERM - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

INDUSTRY AVERAGE Industry Expert & Cautious Profit Turnaround

ATTRACTIVENESS Portfolio Manager Planner Specialist

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Analytical Portfolio Analytical PortfolioProfessional

LOW Manager Manager Liquidator

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

WHAT KIND OF MANAGEMENT EXPERTISE IS NEEDED TO BE SUCCESSFUL?

LINKING BUDGETS WITH STRATEGY

1- WHAT ARE OUR STRATEGIC PRIORITIES?

How Much is Allocated to Each Project?

2- IF TOO LITTLE FUNDING IS PROVIDED…

The Plan Can’t be Implemented Properly

3- IF TOO MUCH FUNDING IS PROVIDED…

Organizational Resources Will Be Wasted

DECISION MAKERS MUST BE WILLING TO SHIFT RESOURCES WHEN STRATEGIES CHANGE

STRATEGY MUST DRIVE HOW BUDGET ALLOCATIONS ARE MADE…NOT POLITICS!!!

FINANCIAL IMPLEMENTATION ISSUES

1- HOW MUCH NEW FUNDING WILL WE NEED TO SUCCESSFULLY IMPLEMENT OUR STRATEGY?

WHERE IS YOUR DETAILED CAPITAL BUDGET? SHOW AND JUSTIFY AMOUNTS BY PROJECT AND BY YEAR

HOW MUCH WILL BE INVESTED IN EACH CAPITAL PROJECT?

YEAR 1 YEAR 2 YEAR 3 TOTAL

NEW INVESTMENT IN R & D $ 10 Mill 10 Mill 10 Mill 30 MillSALES TERRITORY EXPANSION 3 Mill 3 Mill 3 Mill 9 MillNEW ADVERTISING BLITZ 6 Mill 6 Mill 7 Mill 19 MillOPEN NEW RETAIL STORE -- 12 Mill -- 12 Mill

TOTAL $ 19 Mill 31 Mill 20 Mill $ 70 Mill

2- WHERE ARE THE CAPITAL FUNDS COMING FROM?

INTERNAL SOURCES OF FUNDSEXTERNAL DEBT OR STOCK SALES

CAPITAL FUNDING SOURCES

A. INTERNAL CASH RESERVESDid you leave enough working capital?

B. REALLOCATION OF EXISTING CAPITAL BUDGETSCan we really do this and still have a viable firm?Politically, can this be accomplished?

C. CASH GENERATED FROM SALES AND PROFITSAre the projections of sales and profits overly optimistic?Are there enough earnings to continue paying dividends?

D. LOANS AND NOTESHow much more debt can the firm take on right now?What is the rate of interest? How large will the annual payments be?Can we adequately cover these payments?

E. STOCK SALESHow many shares can we sell? For what price?Is there anyone interested in buying our stock right now?

F. SALE OF OTHER ASSETSWhat’s this other asset worth? Are buyers available?Should we sell it? Do we need this asset to survive?

A FIVE-YEAR CAPITAL BUDGET

CAPITAL REQUIREMENTS

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

BUILD A NEW PLANT $ 8.0 Mill 4.0 Mill -- -- --

EQUIPMENT FOR PLANT -- 1.5 Mill 5.5 Mill -- --

ESTABLISH SALES OFFICES -- .5 Mill 2.5 Mill 1.0 Mill --

SET UP DISTRIBUTION -- -- 2.0 Mill 2.5 Mill .5 Mill

TOTAL REQUIRED $ 8.0 Mill 6.0 Mill 10.0 Mill 3.5 Mill .5 Mill

SOURCES OF FUNDS

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

STOCK SALES $ 5.0 Mill -- $ 5.0 Mill -- --

CASH FROM CURR SALES -- 2.0 Mill 2.0 Mill 2.0 Mill .5 Mill

GAIN FROM SALE OF

TASTYGRAM DIVISION -- 3.0 Mill -- -- --

RETAINED EARNINGS 3.0 Mill 1.0 Mill 3.0 Mill 1.5 Mill --

TOTAL SOURCES $ 8.0 Mill 6.0 Mill 10.0 Mill 3.5 Mill .5 Mill

A PRO-FORMA INCOME STATEMENT - 1

PRO-FORMA INCOME STATEMENT (optimistic sales estimate)

(in thousands $) YEAR 1 YEAR 2 YEAR 3 YEAR 4YEAR 5

NET SALES $ 650 715 765 803 827COST OF GOODS SOLD 455 490 513 538 554

OPERATING+SELLING EXP 156 172 184 201 207INTEREST EXPENSE 60 60 60 60 45TAXES -- -- 2.4 1.2 6.3

NET PROFIT $ (21) ( 7) 5.6 2.8 14.7

ASSUMES:

Initial sales projections of $650,000 for the first year. Sales are expected to grow by 10% in the second year, 7% in third year, 5% in fourth year, and 3% in fifth year.

COGS is expected to be 70% in year one, but will drop to 68.5% in year 2. In years 3-5, COGS is expected to be about 67% of sales.

Operating & Selling Expenses are expected to be 24% of Sales in years 1-3, and then will rise to 25% in years 4 and 5.

Interest expense on loans will be about $60,000 per year for years 1-4, then will drop to $45,000 in year 5. We assume no additional debt of any kind will be floated in the next five years.

We pay taxes on 30% of net income before taxes.


PRO-FORMA INCOME STATEMENT (pessimistic sales estimate)



OPERATING+SELLING EXP 138 151 160 173 177INTEREST EXPENSE 60 60 60 60 45TAXES -- -- -- -- .6

NET PROFIT $ (33) (20) ( 8) (13) 1.4

ASSUMES:







PRO-FORMA INCOME STATEMENT (most likely sales forecast)



OPERATING+SELLING EXP 144 158 168 182 185INTEREST EXPENSE 60 60 60 60 45TAXES -- -- .9 -- 4.5

NET PROFIT $ (24) (10) 2.1 ( 2) 10.5

ASSUMES:






INFORMATION SYSTEMS STRATEGIC MONITORING

1- CUSTOMER DATANAMES AND ADDRESSES

DEMOGRAPHIC DATA

RECENT PURCHASES/SERVICES

CUSTOMER SATISFACTION REPORTS

2- OPERATIONS DATAINVENTORIES

PRODUCTION REPORTS

LABOR PRODUCTIVITY

3- EMPLOYEE DATACUSTOMER CONTACTS

EFFICIENCY AND PERFORMANCE REPORTS

4- FINANCIAL PERFORMANCE DATASALES REPORTS

PROFIT AND LOSS STATEMENTS

KEY RATIOS

INFORMATION AND REPORTING SYSTEMS

1- SHOULD PROVIDE NO MORE DATA THAN IS NEEDED TO GIVE A RELIABLE PICTURE OF WHAT IS GOING ON

Avoid adding “interesting” data to reports

2- REPORTS HAVE TO BE TIMELY

Is it too late to take corrective action?

3- KEEP THE STATISTICS SIMPLE

Avoid complicated reports – focus on critical data

4- GENERATE “EARLY WARNING SIGNS” RATHER THAN JUST INFORMATION

Are big variances from the plan “flagged?”

These are the data the decision maker must see!

MOTIVATIONAL PRACTICES

HERZBERG

“If you want people motivated to do a good job, give them a good job to do.”

How a company’s incentives are structured signals what sorts of behavior and performance management wants.

EXAMPLES

MARS INC – 10% bonus for coming to work on time each day

MARY KAY COSMETICS – Inspirational meetings, speeches, songs

IBM – Gatherings where managers talk about the state of the company

TEXAS INSTRUMENTS – Teams set their own goals, use of group incentives

PROCTOR & GAMBLE – Encourages internal competition among brands

USE OF TEAMS AND EMPOWERED GROUPS

DEFINE JOBS AND ASSIGNMENTS IN TERMS OF RESULTS TO BE ACCOMPLISHED, NOT THE DUTIES AND FUNCTIONS TO BE PERFORMED

LINK REWARDS TO GROUP ACCOMPLISHMENT

REWARD AND INCENTIVE SYSTEMS

PERFORMANCE PAYOFF MUST BE A MAJOR PIECE OF THE TOTAL COMPENSATION PACKAGE (20+%)

THE INCENTIVE PLAN SHOULD IDEALLY EXTEND TO ALL MANAGERS AND ALL WORKERS

THE REWARD AND INCENTIVE SYSTEM MUST BE ADMINISTERED WITH SCRUPULOUS CARE AND FAIRNESS

INCENTIVES MUST BE TIGHTLY LINKED TO ACHIEVING ONLY PERFORMANCE TARGETS SPELLED OUT IN THE STRATEGIC PLAN

PERFORMANCE TARGETS SHOULD INVOLVE OUTCOMES THAT THE INDIVIDUAL OR GROUP HAS THE ABILITY TO AFFECT OR CONTROL

BUILDING A SPIRIT OF HIGH PERFORMANCE

DOES MANAGEMENT…

STAY IN TOUCH WITH WHAT IS GOING ON IN THE ORGANIZATION?

EMPHASIZE ACHIEVEMENT AND EXCELLENCE?

INSPIRE PEOPLE TO DO THEIR BEST?

EMPOWER EMPLOYEES TO USE INITIATIVE AND CREATIVITY?

RECOGNIZE AND REWARD PEOPLE WHO TURN IN WINNING PERFORMANCES?

REMOVE MANAGERS WHO CONSISTENTLY PERFORM POORLY?

STRATEGIC LEADERSHIP THROUGH ACTION PLANNING

ACTION PLANSWHAT ACTIONS MUST BE TAKEN?

BY WHOM?

DURING WHAT TIME FRAME?

WITH WHAT EXPECTED RESULTS?

SIX ELEMENTS OF ACTION PLANNING (Camillus 86)

1- SPECIFIC ACTIONS TO BE TAKEN

2- DATES TO BEGIN AND END EACH ACTION

3- PERSON RESPONSIBLE FOR CARRYING OUT EACH ACTION

4- PERSON RESPONSIBLE FOR MONITORING THE TIMELINESS AND EFFECTIVENESS OF EACH ACTION

5- EXPECTED FINANCIAL AND PHYSICAL CONSEQUENCES OF EACH ACTION

6- CONTINGENCY PLANS – FOR WHEN SOMETHING GOES WRONG

Documents

IMPLEMENTATION ISSUES Half of all acquisitions fail to achieve what was expected of them One-quarter of all international ventures launched do not succeed