Lecture 6Strategy Implementation – Organizing for action

Strategy Implementation Sum total of all activities and choices required for the

execution of a strategic plan Questions to be considered by strategy makers

◦ Who are the people who will carry out the strategic plan?◦ What must be done to align the company’s operations in

the new intended direction?◦ How is everyone going to work together to do what is

needed? These need to be considered right at the time of

making the choices Revisit before implementation Who implements strategy?

◦ Everyone in the organization◦ Complete buy-in is very important by all especially the

operational people

What must be done?Developing programs, budgets and procedures

◦ Programs: purpose of a program is to make strategy action-oriented Feasibility: coherent stable system? Ease of transition Sequence of execution: where should change begin? Does

sequence change affect success Location: where to implement? Pace and nature of change: slow or fast? Incremental or

radical? Stakeholder evaluations: buy-in from stakeholders? More inputs

needed?

◦ Budgets: Last chance to identify any problems in the strategic plan. program, divisional and corporate budgets

◦ Procedures: Standard operating procedures, need to be revisited from time to time, ensures consistency over time and location

Achieving Synergy One of the goals to be achieved in strategic

implementation is synergy Synergy happens when a division independently

would earn less than what it would earn as a part of the organization

Synergy can happen through◦ Shared know-how◦ Coordinated strategies◦ Shared tangible resources◦ Economies of scale or scope◦ Pooled negotiating power◦ New Business Creation

Organizing for actionAny change in strategy leads to

some change in the way an organization is structured

Structure follows strategyStages of Corporate

Development

Stages of corporate developmentFunction Stage I Stage II Stage III

Sizing Up – Major Problems

Survival and growth dealing with short-term operating problems

Growth, rationalization, and expansion of resources, providing for adequate attention to products

Trusteeship in mgmt and control of large & diversified resources; deal with probs at divisional level

Objectives Personal and subjective

Profits and meeting functionally oriented budgets &performance targets

ROI, profits, earnings per share

Strategy Implicit and personal; exploitation of immediate opportunities seen by owner

Functionally oriented moves restricted to “one product” scope

Growth and product diversification; exploitation of general business opportunities

Stages of corporate developmentFunction Stage I Stage II Stage III

Organization: characteristic of structure

One unit, “one-man show”

One unit, functionally specialized group

Multiunit general staff office and decentralized operating division

Measurement & Control

Personal, subjective control based on simple accounting system and daily communication

Control grows beyond one person; assessment of functional operations; structured controls

Complex formal systems geared to comparative assessment of performance measures

KPIs Personal criteria, relationships with owner, operating efficiency, ability to solve operating problems

Functional and internal criteria such as sales, performance compared to budget, size of empire, status in group etc.

More impersonal application of comparisons such as profits, ROI, P/E ratio, sales etc.

Stages of corporate developmentFunction Stage I Stage II Stage III

Reward-punishment system

Informal, personal, subjective; used to maintain control and divide small pool of resources to provide personal incentives for key performers

More structured; usually based to a great extent on agreed policies as opposed to personal opinion and relationships

Allotment by “due process” of a wide variety of different rewards and punishments on a formal and systematic basis. Companywide policies usually apply to many different classes of managers and workers with few major exceptions for individual cases

Stages of corporate developmentStage I: Simple structure

◦ Crisis of leadership due to entrepreneur flounderingStage II: Functional structure

◦ Challenge for the founder to change management styleStage III: Divisional structure

◦ Crisis of control due to the various divisions acting independently

◦ Red tape crisisStage IV: Beyond SBUsBlocks to changing stages

◦ Internal: lack of resources, ability, refusal of top mgmt to delegate decision making

◦ External: economic conditions, labor shortages, lack of market growth

External Environment & Structure

Dynamic

• High rate of change• Use team-based, network, or

other organic structure

Stable

• Steady conditions, predictable change

• Use mechanistic structure

Complex

• Many elements (such as stakeholders)

• Decentralize

Simple

• Few environmental elements• Less need to decentralize

Diverse

• Several products, clients, regions

• Use divisional form aligned with the diversity

Hostile

• Competition and resource scarcity

• Use organic structure for responsiveness

Integrated

• Single product, client, place• Use functional structure, or

geographic division if global

Munificent

• Plenty of resources and product demand

• Less need for organic structure

External Environment & Structure (con’t)

Organizational lifecycleStage I Stage II Stage

IIIStage IV

Stage V

Dominant Issue

Birth Growth Maturity Decline Death

Popular Strategies

Concentration in a niche

Horizontal and vertical growth

Concentric and conglomerate diversification

Profit strategy followed by retrenchment

Liquidation or bankruptcy

Likely structure

Entrepreneur dominated

Functional management emphasized

Decentralization into profit or investment centers

Structural surgery

Dismemberment of structure

OrganizationalStructureElements

Span ofControl

Centralization

Department-alization

Formalization

Elements of Organizational Structure

Formal decision making authority is held by a few people, usually at the top

Centralization

Decision making authority isdispersed throughout the organization

Decentralization

Centralization and Decentralization

FormalizationThe degree to which organizations standardize

behavior through rules, procedures, formal training, and related mechanisms.

Formalization increases as firms get older, larger, and more regulated

Problems◦ Reduces organizational flexibility◦ Work rules can undermine productivity◦ Employees feel disempowered◦ Rules become focus of attention

Advanced types of Org Structures – Matrix Structure

Advantageous when external environment is complex and changing

Conditions for typically having matrix structure◦ Ideas need to be cross fertilized across projects or products◦ Resources are scarce◦ Abilities to process information and to make decisions need

to be implemented Distinct phases of development

of matrix structure◦ Temporary cross-functional task

forces◦ Product/ Brand Management◦ Mature Matrix

CoreFirm

Productdevelopmen

t partner(U.S.A.)

Call centerpartner(India)

Accounting partner

(Canada)

Package design partner

(UK)

Assembly partner

(Mexico)

Network Organizational Structure

Advanced types of Org Structures – Network Structure

Virtual elimination of in-house business functions

Virtual organizationKey characteristics

◦ Heavily dependant on outsourcing◦ Organizations business functions are spread◦ Most useful when the environment of a firm is

unstable and is expected to remain so◦ Organization is in effect only a shell with a small

headquarters acting as a broker electronically connected to some completely owned divisions, partially owned subsidiaries and other independent companies

Reengineering and strategy implementation Reengineering is the radical redesign of business

processes to achieve major gains in cost, service or time

Principles for reengineering◦ Organizing around outcomes and not tasks◦ Have those who use the output of the process perform

the process◦ Subsume information-processing work into real work that

produces the information◦ Treat geographically dispersed resources as though they

were centralized◦ Link parallel activities instead of integrating their results◦ Put the decision point where the work is performed and

build control into the process◦ Capture information once and at the source

Designing jobs to implement strategyStrategy implementation also

involves redesigning the way jobs are done

Job design refers to the design of individual tasks in an attempt to make them more relevant to the company ◦Job Enlargement◦Job Rotation◦Job Enrichment

International issues in strategy implementationStages in international development

◦ Stage I (Domestic company)◦ Stage II (Domestic company with export division)◦ Stage III (Primarily domestic company with international

division)◦ Stage IV (Multinational corporation with multi-domestic

emphasis)◦ Stage V (Multinational corporation with global emphasis)

Sequence might not be always as shown aboveSame organization can be at a different stage with

respect to its multiple productsCentralization vs Decentralization

◦ Product group structure e.g. American Cynamid◦ Geographic area structure e.g Nestle