1

MANAGEMENT POLICY AND

STRATEGY

Implementing Strategy
Functional Tactics and
Policies

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Strategy Implementation

Identify short-term
objectives

Involves Initiate specific

developme functional tactics
nt of
support
systems Communicate policies
that to empower people

Design effective
support systems
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 3

What are Short-Term Objectives?

Provide specific
guidance for what is to
be done, translating
vision into action

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Role of Short-Term Objectives in

Implementing Strategy

1. “Operationalize” long-term objectives

2. Raise issues and potential conflicts

requiring coordination to avoid
dysfunctional consequences

3. Identify measurable outcomes of

functional activities to be used to make
feedback, correction, and evaluation more
relevant
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 5

Potential Conflicting Objectives and

Priorities
Chief Executive Officer
Responsibilities

Finance and Manufacturi

Marketing
accounting ng
•Distribution •Communicatio •Production
channels ns and data supply
•Customer processing alternatives
service •Carrying •Warehousing
•Inventory inventory •Transportation
•More inventory •Less inventory
obsolescence
•Long
Objectives

•Frequent short runs

production
•Fast order processing
•Cheap order processing runs
•Lowest cost
•Fast delivery
routing
•Field warehousing •Less warehousing •Plant warehousing
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Relationship of Action Plans to

Short-Term Objectives
Specificity - Identify
functional activities to be
undertaken to build
Action
competitive advantage
plans
enhance
short-term Provide a clear time
objectives frame for completion
in three
ways
Identify who is
responsible for each
action in the plan
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 7

Qualities of Effective Short-term

Objectives

Measurable

Linked to long-
Priorities term objectives

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 8

Value-Added Benefits of Short-Term

Objectives
Give operating
personnel a better
understanding of their
role in a firm’s mission

Provide basis for

accomplishing Provide basis for
conflicting strategic control
concerns

Motivation - Clarify
personal and group
roles in a firm’s
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strategies © 2000 The McGraw-Hill Companies, Inc.
 9

What are Functional Tactics?

Key, routine activities

that must be
undertaken in each
functional area to provide
the
business’s products

Translate grand
strategies into action
designed to accomplish
specific short-term
objectives

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 10
Functional Tactics at General Cinema
Corporate Strategy Corporation
Business Strategies Functional Tactics

Functional tactics: Marketing

Seek only first-run films by
Corporate outbidding competition in
Soft Concentration
strategy each local market; provide
drink
bottler
and market primarily family-oriented
Achieve 15-20 % s development movies; and maintain an
selective admission price only slightly
annual growth
above that of local
through existing competition.
businesses and Maintain and
selectively Functional tactics: Finance
carefully Use lease or sale and
Movie expand
selected exhibitio leaseback arrangements of
diversification leading each theater to maximize
n
into leisure- nationwide cash flow for corporate
oriented, position in the expansions; seek profitability
consumer- movie through volume, not higher
exhibition ticket prices.
oriented
Sunkis industry to Functional tactics:
product/service
t provide Operations
businesses to Use multiscreen facilities
produc positive cash
absorb ts with minimal maintenance
increasing cash flow for
requirements and a joint
flow from theater corporate service area
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 11

Differences Between Business

Strategies and Functional Tactics
Time Horizon Specificity Participants
•Shorter time •Greater specificity •General
horizon of of functional managers
functional tactics contributes establish long-
tactics to successful term objectives
contributes to implementation by and overall
successful •Ensuring business
implementation functional strategies
by managers focus •Operating
•Focusing on
managers
attention on accomplishments establish
what needs to •Clarifying for top short-term
be done now managers how objectives and
functional functional
•Allowing managers intend tactics leading
functional to accomplish to business
managers to business strategy level success
adjust to
changing
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 12

Characteristics of Functional Tactics in

Production/Operations
 Viewed as core function of an organization
 Involves converting inputs into value-
enhanced output
 Focuses on decisions regarding
 Basic nature of firm’s POM system,
 Seeks optimum balance between investment input and
production/operations output
 Location
 Facilities design
 Process planning on a short-term basis

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Key Functional Tactics in POM

Function Typical Questions the Functional Tactic Should
al Tactic Answer
• How centralized should the facilities be?
Facilitie • How integrated should the separate processes be?
s and • To what extent should further mechanization or
equipme automation be pursued?
nt • Should size and capacity be oriented toward peak
or normal operating levels?
• How many sources are needed?
• How should suppliers be selected, and how should
Sourcing relationships with suppliers be managed over time?
• What level of forward buying (hedging) is
appropriate?
• Should work be scheduled to order or to stock?
• What level of inventory is appropriate?
Operatio • How should inventory be used (FIFO/LIFO),
ns controlled, and replenished?
planning • What are the key foci for control efforts?
and • Should maintenance be oriented to prevention or to
breakdown?
control
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 14

Characteristics of Functional Tactics in

Marketing

 Lead to strategic success of the firm through the

profitable sale of products/services in target
markets
 Clearly identify customer needs that
products/services aim to meet
 Identify where, when, and by whom
products/services are to be sold
 Define how firm will communicate with target

markets
 Directly influence supply, demand, profitability,

consumer perception, and regulatory response

through pricing
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 15

Key Functional Tactics in

Marketing
Functio Typical Questions the Functional Tactic
nal
Tactic Should Answer
•Which products do we emphasize?
•Which products/services contribute most to
profitability?
Product •What product/service image do we seek to
or project?
service •What consumer needs does the
product/service seek to meet?
•What changes should be influencing our
•customer orientation?
Are we competing primarily on price?
•Can we offer discounts or other pricing
modifications?
Price •Are our pricing policies standard nationally,
or is there regional control?
•What price segments are targeting?
•What is the gross profit margin?

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 Key Functional Tactics in 16

Marketing
Contd...
Functio Typical Questions the Functional Tactic
nal
Tactic Should Answer
•What level of market coverage is necessary?
•Are there priority geographic areas?
•What are the key channels of distribution?
Place •What are the channel objectives, structure,
and management?
•What sales organization do we want?
•What are the key promotion priorities and
approaches?
•Which advertising/communication priorities
Promoti and approaches are linked to different
on products, markets, and territories?
•Which media would be most consistent with
the total marketing strategy?

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 17

Characteristics of Functional Tactics in

Accounting and Finance

 Time frame of finance tactics varies because they

direct use of financial resources supporting the
business strategy, long-term goals, and annual
objectives
 Long-term tactics guide decisions in
 Long-term capital investment
 Debt financing
 Dividend allocation
 Leveraging
 Short-term tactics guide decisions in
 Managing working capital and short-term assets
 Accounting-focused tactics have taken on increased
strategic significance in last decade
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 18

Key Functional Tactics in Finance and

Accounting
Function Typical Questions the Functional Tactic
al Tactic Should Answer
•What is an acceptable cost of capital?
•What is desired proportion of short- and
Capital long-term debt? Preferred and common
stock?
acquisiti
on •What balance is desired between internal
and external funding?
•What risk and ownership restrictions are
appropriate?
•What
What level and
are the forms offor
priorities leasing should
capital be
allocation
Capital used?
projects?
allocatio •On what basis should the final selection of
n projects be made?
•What level of capital allocation can be made
by operating managers without higher
approval?

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 Key Functional Tactics in Finance and 19

Accounting
Contd….

Function Typical Questions the Functional Tactic

al Tactic Should Answer
•What portion of earnings should be paid
out as dividends?
•Are things other than cash appropriate
Dividend as dividends?
and •What are the cash flow requirements?
working Minimum and maximum?
capital •How liberal/conservative should credit
manage- policies be?
ment
•What limits, payment terms, and
collection procedures are necessary?
•What payment timing and procedure
should be followed?

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 20

Characteristics of Functional
Tactics in R&D

 Assumed a key strategic role in

many firms due to increasing rate
of technological change

 May be more critical instruments of

business strategy in some
industries than in others

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 21

Key Functional Tactics in R&D

Functional Typical Questions the Functional Tactic
Tactic Should Answer
Basic •To what extent should innovation and
research breakthrough research be emphasized?
vs. In relation to the emphasis on product
product development, refinement, and
and modification?
process •What critical operating processes need
developme R&D attention?
nt •What new products are necessary to
support growth?
•Is the emphasis short-term or long-term?
Time •Which orientation best supports the
horizon business strategy? The marketing and
production strategy?

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 22

Key Functional Tactics in R&D

Contd...

Functional Typical Questions the Functional Tactic

Tactic Should Answer
•Should R&D be done in-house or
contracted out?
Organizatio •Should R&D be centralized or
nal fit decentralized?
•What should be the relationship between
the R&D units and product managers?
•Should the firm
Marketing maintain anProduction
managers? offensive
posture, seeking to lead innovation in its
Basic R&D managers?
industry?
posture
•Should the firm adopt a defensive
posture, responding to the innovations of
its competitors?

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 23

Characteristics of Functional Tactics in

HRM

 Assumed increasing strategic importance in

the 1990s
 Aid long-term success in

 Development of managerial talent and

competent employees
 Creating systems to manage compensation or

regulatory concerns
 Guiding effective utilization of human resources

to achieve both the

 Firm’s short-term objectives
 Employees’ satisfaction and development
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 24

Key Functional Tactics in HRM

Functional Typical Questions the Functional Tactic

Tactic Should Answer
Recruitme •What key human resources are needed to
nt, support chosen strategy?
selection, •How do we recruit these human resources?
and •How sophisticated should our selection
orientatio process be?
n •How should we introduce new employees
Career to the organization?
•What are our future human resource
developme needs?
nt and
training •How can we prepare our people to meet
•these needs?of pay are appropriate for the
What levels
•tasks we we
How can require?
help our people develop?
Compensa- •How can we motivate and retain good
tion people?
•How should we interpret our payment,
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incentive, benefit, and seniority policies?
© 2000 The McGraw-Hill Companies, Inc.
 25

Key Functional Tactics in HRM

Contd….

Functional Typical Questions the Functional Tactic

Tactic Should Answer
•How often should we evaluate our people?
Evaluation Formally or informally?
, •What disciplinary steps should we take to
discipline, deal with poor performance or
and inappropriate behavior?
control •In what ways should we “control”
individual and group performance?
Labor •How can we maximize labor-management
relations cooperation?
and EEO •How do our personnel practices affect
requireme women/minorities/
nts •Should we have hiring policies?

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Emerging Implications for HRM
Tactics
Traditional HRM Ideas
•Emphasis solely on
physical skills
•Expectation of predictable,
repetitious behavior
•Comfort with stability and
conformity
•Avoidance of responsibility
and decision making
•Training covering only
specific tasks
•Emphasis placed on
outcomes / results
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26
Emerging HRM Ideas
•Emphasis on total
contribution to firm
•Expectation of innovative
and creative behavior
•Tolerance of ambiguity and
change
•Accepting responsibility for
making decisions
•Broad continuous
development
•Emphasis placed on
processes / means
© 2000 The McGraw-Hill Companies, Inc.
 Emerging Implications for HRM
Tactics
Traditional HRM Ideas
•High concern for quantity
•Concern for individual
efficiency
•Functional and
subfunctional specialization
•Labor force seen as
unnecessary expense
•Work force is
management’s adversary
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27
Contd….
Emerging HRM Ideas
•High concern for total
customer value
•Concern for overall
effectiveness
•Cross-functional integration
•Labor force seen as critical
investment
•Management and work
force are partners
© 2000 The McGraw-Hill Companies, Inc.
 28

Role of Policies in Implementing

Strategy

 Directives designed to guide thinking, decisions, and

actions of managers and employees in implementing
strategy
 Increase managerial effectiveness by
 Standardizing many routine decisions
 Clarifying discretion managers and employees can
exercise in implementing functional tactics
 Should be derived from functional tactics with key
purpose of aiding strategy execution

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 29

Why Policies Empower People

1. Establish indirect control over independent action by
clearly stating how things are to be done now

2. Promote uniform handling of similar activities

3. Ensure quicker decisions by standardizing answers to

previously answered questions

4. Institutionalize basic aspects of organization behavior

5. Reduce uncertainty in repetitive and day-to-day

decision making
6. Counteract resistance to or rejection of chosen
strategies by organization members

7. Offer predetermined answers to routine problems

8. Afford managers a mechanism for avoiding hasty and

ill-conceived decisions in changing operations
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Advantages of Formal Written

Policies
1. Require managers to think through policy’s
meaning, content, and intended use

2. Reduce misunderstanding

3. Make equitable and consistent treatment of

problems more likely

4. Ensure unalterable transmission of policies

5. Communicate authorization or sanction of

policies more clearly

6. Supply a convenient and authoritative reference

7. Systematically enhance indirect control and
organization-wide coordination of the key
purposes of policies
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 31

SELECTED POLICIES THAT AID STRATEGY

IMPLEMENTATION
 A Policy is a broad guideline for decision making that
links the formulation of strategy with its implementation.
Companies use policies to make sure that employees
throughout the firm make decisions and take actions that
support the corporation’s mission, objectives, and
strategies.
 Maytag Company: Maytag will not approve any cost

reduction proposal if it reduces product quality in any

way. (This policy supports Maytag’s strategy for Maytag
brands to compete on quality rather than on price.)
 Intel: Cannibalize your product line (undercut the
sales of your current products) with better products
before a competitor does it to you. (This supports Intel’s
objective of market leadership.)
 General Electric: GE must be number one or two

wherever it competes. (This supports GE’s

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 32

SELECTED POLICIES THAT AID STRATEGY

IMPLEMENTATION
Contd...
 3 M Corporation has a personnel policy, called the 15 percent
rule, that allows virtually any employee to spend up to 15 per
cent of the workweek on anything that he or she wants to, as
long as it’s product related.
(This policy supports 3M’s corporate strategy of being a highly
innovative manufacturer, with each division required to have a
quarter of its annual sales come from products introduced
within the past five years.)
 Wendy’s has a purchasing policy that gives local store
managers the authority to buy fresh meat and produce locally,
rather than from regionally designated or company-owned
sources.
(This policy supports Wendy’s functional strategy of having
fresh, unfrozen hamburgers daily).

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 SELECTED POLICIES THAT AID 33

STRATEGY IMPLEMENTATION
Contd...
 General Cinema has a financial policy that requires
annual capital investment in movie theaters not to
exceed annual depreciation.
(By seeing that capital investment is no greater than
depreciation, this policy supports General Cinema’s
financial strategy of maximizing cash flow-in this case,
all profit - to its growth areas. The policy also reinforces
General Cinema’s financial strategy of leasing as much
as possible.)
 IBM had a marketing policy of not giving free IBM
personal computers (PCs) to any person or organization.
 (This policy attempted to support IBM’s image strategy
by maintaining its image as professional, high-value,
service business at it sought to dominate the PC
market).
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 34
SELECTED POLICIES THAT AID STRATEGY
IMPLEMENTATION
Contd...

 Grown, Cork, and Seal Company has an R&D policy

of not investing any financial or people resources in
basic research.
(This policy supports Crown, Cork, and Seal’s functional
strategy, which emphasized customer services, not
technical leadership).
 Nations Bank of South Carlina has an operating
policy that requires annual renewal of the financial
statement of all personal borrowers.
 (This policy supports NationsBank’s financial strategy,
which seeks to maintain a loan-to-loss ratio below the
industry norm.)

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 35

Types of Executive Bonus Compensation

Bonus
Description Rationale Shortcomings
Type
Right to purchase Provides incentive Movement in share
stock in the future for executive to price does not
Stock create wealth for
at a price set now; explain all
option compensation
shareholders as
dimensions of
grants measured by
determined by increase in firm’s managerial
“spread”
Shares given to share price performance
No downside risk
executive who is Promotes longer
to executive, who
Restricted prohibited from executive tenure
always profits
stock plan selling them for a than other forms of
unlike other
specific time
Bonus income compensation
shareholders
May promote risk-
period
deferred in a series Offers an incentive
of annual averse decision
Golden installments;
for executive to
making due to
handcuffs forfeited with remain with the
downside risk
executive firm
resignation borne by executive

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 36

Types of Executive Bonus Compensation

Contd...

Bonus
Description Rationale Shortcomings
Type
Executive has right Compensation is
to collect bonus if achieved whether
Offers an incentive
Golden loses position due or not wealth is
to takeover, firing, for executive to
parachute remain with firm
created;rewards
retirement, or either success or
resignation
Bonus failure
Cash based compensation Offsets limitations Weak correlation
on internal based on of focusing on between earnings
performanc
e using accounting market-based measures and
finance performance measures of shareholder wealth
measures measures such as performance creation
return on equity

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 37

Compensation Plan Selection Matrix

Type of Bonus Compensation
Strategi Golden Golden Restrict
Stock
Cash Handcuf Parachu ed Stock Rationale
c Goal fs tes Plans
Options
Achieve Executive profits only if
corporate turnaround is successful
turnaroun X in returning wealth to
d
Create shareholders
and Risk associated with
support growth strategies
growth X warrants use of this high-
opportuni reward incentive
ties
Defend Helps remove temptation
against for executive to evaluate
unfriendly X takeover based on
takeover personal benefits
Evaluate Compensates executive if
suitors job is lost due to a
objectivel X merger favorable to the
y firm
Risk of expanding
Globalize
overseas requires a plan
operation X that compensates only
s
for achieved success
Grow Accounting measures can
share price
increment X identify periodic
ally performance benchmarks
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 38

Compensation Plan Selection Matrix

(concluded)
Type of Bonus Compensation
Strategi Golden Golden Restrict
Stock
Cash Handcuf Parachu ed Stock Rationale
c Goal fs tes Plans
Options

Improve Accounting measures

operation represent observable and
al X agreed-upon measures of
efficiency performance
Increase Executive profits
assets proportionally as asset
under X growth leads to long-
managem term growth in share
ent price
Reduce Handcuffs provide
executive X executive tenure
turnover incentives
Restructu Risk associated with
re major change in firm’s
organizati X assets warrant use of this
on high-reward incentive
Streamlin
Rewards long-term focus
e
operation X on efficiency and cost
control
s
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 39

STRATEGIC LEADERSHIP AT
GENERAL ELECTRIC: 1947 TO 1997
General Electric - An Introduction
 July 1997 - Business Week issue cited GE as “Most

Valuable Company” with worldwide market

capitalization of $198.09 billion.
 GE - established in 1878 with a group of investors

joining together to finance Edison’s incandescent

lamp.
 Company grew; by 1939 sales $342 million; due to

WWII increased to $1.4 billion in 1943.

 Case illustrate systematic implementation of
strategic planning at GE to market performance in
four phases over a span of 50 years - 47 to 97.

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 STRATEGIC LEADERSHIP AT GENERAL
40

ELECTRIC: 1947 TO 1997

Contd...
Phase I: Coordiner’s Enterpreneurial Era

 1947 CEO Charles Wilson tells Cordiner to study managing

the fast paced growth.
 Cordiner identified three areas of change - (1) More
decentralized decision making (2) Long range planning
system and (3) More entrepreneurial minded managers to
meet growth challenges.
 1950 - Cordiner becomes CEO, Identifies GE’s new
“Marketing Concept” PR I, PR II, (SP) (Target)
 This phase originated the GE Strategic Planning concept

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 STRATEGIC LEADERSHIP AT GENERAL
41

ELECTRIC: 1947 TO 1997

Contd...
Phase I: Coordiner’s Enterpreneurial Era

 Think like entrepreneurs

 Make markets and customer values central focus for
strategic planning
 Once market opportunities identified, plan and make
resource allocations.
 Plan so that available resources can be leveraged for long
term objectives.
 Managers evaluated on performance against intermediate
goals set in long term plan.
 “Reinvest” profits for long-term goals

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 STRATEGIC LEADERSHIP AT GENERAL
42

ELECTRIC: 1947 TO 1997

Contd...
Phase II: Borch and Implementing Strategic Planning
Concept (63 to 71)
 1963 - Borch succeeds Cordiner as CEO inheriting three

problems
 (1) Implementing and integration of marketing concept

 (2) Greater corporate control over 70 semi-independent

division vice-presidents
 (3) Reviewing and presentation process for BSU plans too

bureaucratic
 With aid of Mckinsey Borch integrates marketing concept in

GE’s system with the development of Strategic Business

Units (Staff / Line Groups)
 Again withMcKinsey’s aid identifies the method for
developing and managing SBUs through the concept of
Portfolio Management
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 STRATEGIC LEADERSHIP AT GENERAL
43

ELECTRIC: 1947 TO 1997

Contd...
Phase III: Implementing Strategic Planning Concept
(72 to 81)
 1972 - Reginald Jones succeeds Borch

 Identified six important sectors which divided GE’s business

into six broad areas.

 Sector vice-presidents named to plan and have related

units reporting to them. They would report to two senior

vice-chairman.
 Enabled strategic planning concept to become worldwide

concept
 Simplified presentations of SBU plans-without visual aids.

Review layers in SBU plans reduced from 43 to 6.

 Six strategic sectors in which GE will compete in for the

future; GE’s intent for venturing for alliances around the

world.
Irwin/McGraw-Hill © 2000 The McGraw-Hill Companies, Inc.
 STRATEGIC LEADERSHIP AT GENERAL
44

ELECTRIC: 1947 TO 1997

Contd...

Phase IV: Welch: Strategic Thining and Visionary

Leadership
1981 - Jack Welch becomes CEO
 Two basic objectives: SBUs should be number one or two in

their markets; compete in three interrelated “circles” (high

technology markets, service markets, core market-
engines, appliances etc.).
 Long term “stretch” goals-externally oriented for
comparisons against total market. Incremental goals
internally oriented.
 Renetrated newer markets - India, China, Mexico

 Removed layers of management and bureaucracy in

planning process. One page Reports submitted on key

issues.
 Formulated strategy for 21st century
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- penetrate global
© 2000 The McGraw-Hill Companies, Inc.
 45

Learning From GE

 Focus on improving both internally and externally

 Marketing Concept - without marketing’s input

strategic planning is useless.

 Disciplined yet flexible approach- SBU managers

free to use any methods to analyze markets and

operate.
 Focus on long-range performance and fit rather

than incremental gains.

 CEO - selection is of utmost importance and central

to strategic planning

Irwin/McGraw-Hill © 2000 The McGraw-Hill Companies, Inc.