Implementing Strategies: Management and Operations Issues

Learning Outcomes
After studying this unit, you should be able to do the following: Explain why strategy implementation is more difficult than strategy formulation. Discuss the importance of annual objectives and policies in achieving organisational commitment for strategies to be implemented. Explain why organisational structure is so important in strategy implementation. Compare and contrast restructuring and reengineering. Describe relationships between production operations and strategy implementation. Explain how a firm can effectively lin! performance and pay strategies. Describe how to modify an organisational culture to support new strategies.

The Nature of Strategy Implementation

"uccessful strategy formulation does not guarantee successful strategy implementation. #t is always more difficult to do something $strategy implementation% than to say you are going to do it $strategy formulation%& Although inextricably lin!ed, strategy implementation is fundamentally different from strategy formulation. "trategy formulation and implementation can be contrasted in the following ways: "trategy formulation is positioning forces before the action. "trategy implementation is managing forces during the action.
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Strategic Management in Health Unit: 7 Lecturer: alal Mohammed

"trategy formulation focuses on effectiveness. "trategy implementation focuses on efficiency. "trategy formulation is primarily an intellectual process. "trategy implementation is primarily an operational process. "trategy formulation re(uires good intuitive and analytical s!ills. "trategy implementation re(uires special motivation and leadership s!ills. "trategy formulation re(uires coordination among a few individuals. "trategy implementation individuals. re(uires coordination among many

"trategy)formulation concepts and tools do not differ greatly for small, large, for)profit, or nonprofit organi*ations. +owever, strategy implementation varies substantially among different types and si*es of organi*ations. #mplementing strategies re(uires such actions as altering sales territories, adding new departments, closing facilities, hiring new employees, changing an organi*ation,s pricing strategy, developing financial budgets, developing new employee benefits, establishing cost) control procedures, changing advertising strategies, building new facilities, training new employees, transferring managers among divisions, and building a better management information system. -hese types of activities obviously differ greatly between manufacturing, service, and governmental organi*ations.

Management !erspecti"es
#n all but the smallest organi*ations, the transition from strategy formulation to strategy implementation re(uires a shift in responsibility from strategists to divisional and functional managers. #mplementation problems can arise because of this shift in responsibility, especially if strategy)formulation decisions come as a surprise to middle) and lower) level managers. .anagers and employees are motivated more by
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perceived self)interests than by organi*ational interests, unless the two coincide. -herefore, it is essential that divisional and functional managers be involved as much as possible in strategy)formulation activities. 0f e(ual importance, strategists should be involved as much as possible in strategy)implementation activities.

.anagement issues central to strategy implementation include establishing annual objectives, devising policies, allocating resources, altering an existing organi*ational structure, restructuring and reengineering, revising reward an incentive plans, minimi*ing resistance to change, matching managers with strategy, developing a strategy) supportive culture, adapting production operations processes, developing an effective human resources function, and, if necessary, downsi*ing. .anagement changes are necessarily more extensive when strategies to be implemented move a firm in a major new direction.

.anagers and employees throughout an organi*ation should participate early and directly in strategy)implementation decisions. -heir role in strategy implementation should build upon prior involvement in strategy) formulation activities. "trategists, genuine personal commitment to implementation is a necessary and powerful motivational force for managers and employees. -oo often, strategists are too busy to actively support strategy)implementation efforts, and their lac! of interest can be detrimental to organi*ational success. -he rationale for objectives and strategies should be understood and clearly communicated throughout an organi*ation. .ajor competitors, accomplishments, products, plans, actions, and performance should be apparent to all organi*ational members. .ajor external opportunities and threats should be clear, and managers, and employees, (uestions should be answered. -op)down flow of communication is essential for developing bottom)up support.

1irms need to develop a competitor focus at all hierarchical levels by gathering and widely distributing competitive intelligence2 every employee should be able to benchmar! her or his efforts against best)in) class competitors so that the challenge becomes personal. -his is a challenge for strategists of the firm. 1irms should provide training for both managers and employees to ensure that they have and maintain the s!ills necessary to be world)class performers.
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#nnual O$%ecti"es
Establishing annual objectives is a decentrali*ed activity that directly involves all managers in an organi*ation. Active participation in establishing annual objectives can lead to acceptance and commitment. Annual objectives are essential for strategy implementation because they $'% represent the basis for allocating resources2 $/% are a primary mechanism for evaluating managers2 $3% are the major instrument for monitoring progress toward achieving long)term objectives2 and $4% establish organi*ational, divisional, and departmental priorities. Considerable time and effort should be devoted to ensuring that annual objectives are well conceived, consistent with long)term objectives, and supportive of strategies to be implemented. Approving, revising, or rejecting annual objectives is much more than a rubber)stamp activity. -he purpose of annual objectives can be summari*ed as follows: Clearly stated and communicated objectives are critical to success in all types and si*es of firms. Annual objectives, stated in terms of profitability, growth, and mar!et share by business segment, geographic area, customer groups, and product, are common in organi*ations. 0bjectives should be consistent across hierarchical levels and form a networ! of supportive aims. +ori*ontal consistency of objectives is as important as vertical consistency of objectives. 1or instance, it would not be effective for manufacturing to achieve more than its annual objective of units produced if mar!eting could not sell the additional units.

Annual objectives should be measurable, consistent, reasonable, challenging, clear, communicated throughout the organi*ation, characteri*ed by an appropriate time dimension, and accompanied by commensurate rewards and sanctions. -oo often, objectives are stated in Annual objectives serve as guidelines for action, directing and channeling efforts and activities of organi*ation members. -hey provide a source of legitimacy in an enterprise by justifying activities to sta!eholders. -hey serve as standards of performance. -hey serve as an important source of employee motivation and identification. -hey give incentives for managers and employees to perform. -hey provide a basis for organi*ational design.
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generalities, with little operational usefulness. Annual objectives, such as 5to improve communication6 or 5to improve performance,6 are not clear, specific, or measurable. 0bjectives should state (uantity, (uality, cost, and time)))and also be verifiable. -erms and phrases such as maximi*e, minimi*e, as soon as possible, and ade(uate should be avoided.

Annual objectives should be compatible with employees, and managers, values and should be supported by clearly stated policies. .ore of something is not always better. #mproved (uality or reduced cost may, for example, be more important than (uantity. #t is important to tie rewards and sanctions to annual objectives so that employees and managers understand that achieving objectives is critical to successful strategy implementation. Clear annual objectives do not guarantee successful strategy implementation, but they do increase the li!elihood that personal and organi*ational aims can be accomplished. 0veremphasis on achieving objectives can result in undesirable conduct, such as fa!ing the numbers, distorting the records, and letting objectives become ends in themselves. .anagers must be alert to these potential problems.

!olicies
Changes in a firm,s strategic direction do not occur automatically. 0n a day)to)day basis, policies are needed to ma!e a strategy wor!. 7olicies facilitate solving recurring problems and guide the implementation of strategy. 8roadly defined, policy refers to specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage wor! toward stated goals. 7olicies are instruments for strategy implementation. 7olicies set boundaries, constraints, and limits on the !inds of administrative actions that can be ta!en to reward and sanction behavior2 they clarify what can and cannot be done in pursuit of an organi*ation,s objectives. 1or example, Carnival,s 7aradise ship has a no)smo!ing policy anywhere, anytime aboard ship. #t is the first cruise ship to comprehensively ban smo!ing. Another example of corporate policy relates to surfing the 9eb while at wor!. About 4: percent of companies today do not have a formal policy preventing employees from surfing the #nternet, but software is being mar!eted now that allows firms to monitor how, when, where, and how long various employees use the #nternet at wor!.
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7olicies let both employees and managers !now what is expected of them, thereby increasing the li!elihood that strategies will be implemented successfully. -hey provide a basis for management control, allow coordination across organi*ational units, and reduce the amount of time managers spend ma!ing decisions. 7olicies also clarify what wor! is to be done and by whom. -hey promote delegation of decision ma!ing to appropriate managerial levels where various problems usually arise. .any organi*ations have a policy manual that serves to guide and direct behavior. 9al).art has policy that it calls the 5': 1oot6 <ule, whereby customers can find assistance within ': feet of anywhere in the store. -his is a welcomed policy in =apan where 9al).art is trying to gain a foothold2 ;> percent of all retailers in =apan are mom)and)pop stores and consumers historically have had to pay 5top yen6 rather than 5discounted prices6 for merchandise.

7olicies can apply to all divisions and departments $for example, 59e are an e(ual opportunity employer6%. "ome policies apply to a single department $5Employees in this department must ta!e at least one training and development course each year6%. 9hatever their scope and form, policies serve as a mechanism for implementing strategies and obtaining objectives. 7olicies should be stated in writing whenever possible. -hey represent the means for carrying out strategic decisions.

"ome example issues that may re(uire a management policy are as follows: -o offer extensive or limited management development wor!shops and seminars -o centrali*e or decentrali*e employee)training activities -o recruit through employment agencies, college campuses, and or newspapers -o promote from within or to hire from the outside -o promote on the basis of merit or on the basis of seniority

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-o tie executive compensation to long)term and or objectives -o offer numerous or few employee benefits -o negotiate directly or indirectly with labor unions

annual

-o delegate authority for large expenditures or to centrally retain this authority -o allow much, some, or no overtime wor! -o establish a high) or low)safety stoc! of inventory -o use one or more suppliers -o buy, lease, or rent new production e(uipment -o greatly or somewhat stress (uality control -o establish many or only a few production standards -o operate one, two, or three shifts -o discourage using insider information for personal gain -o discourage sexual harassment -o discourage smo!ing at wor! -o discourage insider trading -o discourage moonlighting

&esource #llocation
<esource allocation is a central management activity that allows for strategy execution. #n organi*ations that do not use a strategic) management approach to decision ma!ing, resource allocation is often based on political or personal factors. "trategic management enables resources to be allocated according to priorities established by annual objectives.
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Aothing could be more detrimental to strategic management and to

.anagers normally have many more tas!s than they can do. .anagers must allocate time and resources among these tas!s. 7ressure builds up. Expenses are too high. -he CE0 wants a good financial report for the third (uarter. "trategy formulation and implementation activities often get deferred. -oday,s problems soa! up available energies and resources. "crambled accounts and budgets fail to reveal the shift in allocation away from strategic needs to currently s(uea!ing wheels. organi*ational success than for resources to be allocated in ways not consistent with priorities indicated by approved annual objectives.

All organi*ations have at least four types of resources that can be used to achieve desired objectives: financial resources, physical resources, human resources, and technological resources. Allocating resources to particular divisions and departments does not mean that strategies will be successfully implemented. A number of factors commonly prohibit effective resource allocation, including an overprotection of resources, too great an emphasis on short)run financial criteria, organi*ational politics, vague strategy targets, a reluctance to ta!e ris!s, and a lac! of sufficient !nowledge.

8elow the corporate level, there often exists an absence of systematic thin!ing about resources allocated and strategies of the firm. Bavit* and Aewman explain why:

-he real value of any resource allocation program lies in the resulting accomplishment of an organi*ation,s objectives. Effective resource allocation does not guarantee successful strategy implementation because programs, personnel, controls, and commitment must breathe life into the resources provided. "trategic management itself is sometimes referred to as a 5resource allocation process.6
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Managing 'onflict
#nterdependency 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. Establishing annual objectives can lead to conflict because individuals have different expectations and perceptions, schedules create pressure, personalities are incompatible, and misunderstandings between line managers $such as production supervisors% and staff managers $such as human resource specialists% occur.

Establishing objectives can lead to conflict because managers and strategists must ma!e trade)offs, such as whether to emphasi*e short) term profits or long)term growth, profit margin or mar!et share, mar!et penetration or mar!et development, growth or stability, high ris! or low ris!, and social responsiveness or profit maximi*ation. Conflict is unavoidable in organi*ations, so it is important that conflict be managed and resolved before dysfunctional conse(uences affect organi*ational performance. Conflict is not always bad. An absence of conflict can signal indifference and apathy. Conflict can serve to energi*e opposing groups into action and may help managers identify problems.

Carious approaches for managing and resolving conflict can be classified into three categories: avoidance, defusion, and confrontation. Avoidance includes such actions as ignoring the problem in hopes that the conflict will resolve itself or physically separating the conflicting individuals $or groups%. Defusion can include playing down differences between conflicting parties while accentuating 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. 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 view and wor! through their differences.

Matching Structure (ith Strategy

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Changes in strategy often re(uire changes in the way an organi*ation is structured for two major reasons. 1irst, structure largely dictates how objectives and policies will be established. 1or example, objectives and policies established under a geographic organi*ational structure are couched in geographic terms. 0bjectives and policies are stated largely in terms of products in an organi*ation whose structure is based on product groups. -he structural format for developing objectives and policies can significantly impact all other strategy)implementation activities.

-he second major reason why changes in strategy often re(uire changes in structure is that structure dictates how resources will be allocated. #f an organi*ation,s structure is based on customer groups, then resources will be allocated in that manner. "imilarly, if an organi*ation,s structure is set up along functional business lines, then resources are allocated by functional areas. Enless new or revised strategies place emphasis in the same areas as old strategies, structural reorientation commonly becomes a part of strategy implementation.

Changes in strategy lead to changes in organi*ational structure. "tructure should be designed to facilitate the strategic pursuit of a firm and, therefore, follow strategy. 9ithout a strategy or reasons for being $mission%, companies find it difficult to design an effective structure. -here is no one optimal organi*ational design or structure for a given strategy or type of organi*ation. 9hat is appropriate for one organi*ation may not be appropriate for a similar firm, although successful firms in a given industry do tend to organi*e themselves in a similar way. 1or example, consumer goods companies tend to emulate the divisional structure)by)product form of organi*ation. "mall firms tend to be functionally structured $centrali*ed%. .edium)si*ed firms tend to be divisionally structured $decentrali*ed%. Farge firms tend to use a strategic business unit $"8E% or matrix structure. As organi*ations grow, their structures generally change from simple to complex as a result of concatenation, or the lin!ing together of several basic strategies.

Aumerous external and internal forces affect an organi*ation2 no firm could change its structure in response to every one of these forces, because to do so would lead to chaos. +owever, when a firm changes its
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strategy, the existing organi*ational structure may become ineffective. "ymptoms of an ineffective organi*ational structure include too many levels of management, too many meetings attended by too many people, too much attention being directed toward solving interdepartmental conflicts, too large a span of control, and too many unachieved objectives. Changes in structure can facilitate strategy)implementation efforts, but changes in structure should not be expected to ma!e a bad strategy good, to ma!e bad managers good, or to ma!e bad products sell.

"tructure undeniably can and does influence strategy. "trategies formulated must be wor!able, so if a certain new strategy re(uired massive structural changes it would not be an attractive choice. #n this way, structure can shape the choice of strategies. 8ut a more important concern is determining what types of structural changes are needed to implement new strategies and how these changes can best be accomplished. 9e examine this issue by focusing on seven basic types of organi*ational structure: functional, divisional by geographic area, divisional by product, divisional by customer, divisional process, strategic business unit $"8E%, and matrix.

The )unctional Structure -he most widely used structure is the functional or centrali*ed type because this structure is the simplest and least expansive of the seven alternatives. A functional structure groups tas!s and activities by business function, such as production operation, mar!eting, finance accounting, research and development, and management information systems. A university may structure its activities by major functions that include academic affairs, student services, alumni relations, athletics, maintenance, and accounting. 8esides being simple and inexpensive, a functional structure also promotes speciali*ation of labor, encourages efficient use of managerial and technical talent, minimi*es the need for an elaborate control system, and allows rapid decision ma!ing.

"ome disadvantages of a functional structure are that it forces accountability to the top, minimi*es career development opportunities, and is sometimes characteri*ed by low employee morale, line staff

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conflicts, poor delegation of authority, and inade(uate planning for products and mar!ets.

A functional structure often leads to short)term and narrow thin!ing that may undermine what is best for the firm as a whole. 1or example, the research and development department may strive to overdesign products and components to achieve technical elegance, while manufacturing may argue for low)frills products that can be mass produced more easily. -hus, communication is often not as good in a functional structure.

The *i"isional Structure -he divisional or decentrali*ed structure is the second)most common type used by businesses. As a small organi*ation grows, it has more difficultly managing different products and services in different mar!ets. "ome form of divisional structure generally becomes necessary to motivate employees, control operations, and compete successfully in diverse locations. -he divisional structure can be organi*ed in one of four ways: by geographic area, by product or service, by customer, or by process. 9ith a divisional structure, functional activities are performed both centrally and in each separate division.

A divisional structure has some clear advantages. 1irst and perhaps foremost, accountability is clear. -hat is, divisional managers can be held responsible for sales and profit levels. 8ecause a divisional structure is based on extensive delegation of authority, managers and employees can easily see the results of their good or bad performances. As a result, employee morale is generally higher in a divisional structure than it is in a centrali*ed structure. 0ther advantages of the divisional design are that it creates career development opportunities for managers, allows local control of situations, leads to a competitive climate within an organi*ation, and allows new businesses and products to be added easily.

-he divisional design is not without some limitations, however. 7erhaps the most important limitation is that a divisional structure is costly, for a number of reasons. 1irst, each division re(uires functional specialists who must be paid. "econd, there exists some duplication of staff services,
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facilities, and personnel2 for instance, functional specialists are also needed centrally $at head(uarters% to coordinate divisional activities. -hird, managers must be well (ualified because the divisional design forces delegation of authority2 better)(ualified individuals re(uire higher salaries. A divisional structure can also be costly because it re(uires an elaborate, head(uarters)driven control system. 1ourth, competition between divisions may become so intense that it is dysfunctional and leads to limited sharing of ideas and resource for the common good of the firm.

A divisional structure by geographic area is appropriate for organi*ations whose strategies need to be tailored to fit the particular needs and characteristics of customers in different geographic areas. -his type of structure can be most appropriate for organi*ations that have similar branch facilities located in widely dispersed areas. A divisional structure by geographic area allows local participation in decision ma!ing and improved coordination within a region.

A divisional structure by product $or services% is most effective for implementing strategies when specific products or services need special emphasis. Also, this type of structure is widely used when an organi*ation offers only a few products or services or when an organi*ation,s products or services differ substantially. -he divisional structure allows strict control over and attention to product lines, but it may also re(uire a more s!illed management force and reduced top management control.

9hen a few major customers are of paramount importance and many different services are provided to these customers, then a divisional structure by customer can be the most effective way to implement strategies. -his structure allows an organi*ation to cater effectively to the re(uirements of clearly defined customer groups. 1or example, boo! publishing companies often organi*e their activities around customer groups, such as colleges, secondary schools, and private commercial schools. "ome airline companies have two major customer divisions: passengers and freight or cargo services. .errill Fynch is organi*ed into separate divisions that cater to different groups of customers, including wealthy individuals, institutional investors, and small corporations. .otorola,s semiconductor chip division is also organi*ed divisionally by
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customer, having three separate segments that sell to $'% the automotive and industrial mar!et, $/% the mobile phone mar!et, and $3% the data) networ!ing mar!et. -he automotive and industrial segment is doing well, but the other two segments are faltering, which is a reason why .otorola is trying to divest its semiconductor operations.

A divisional structure by process is similar to a functional structure, because activities are organi*ed according to the way wor! is actually performed. +owever, a !ey difference between these two designs is that functional departments are not accountable for profits or revenues, whereas divisional process departments are evaluated on these criteria. An example of a divisional structure by process is a manufacturing business organi*ed into six divisions: electrical wor!, glass cutting, welding, grinding, painting, and foundry wor!. #n this case, all operations related to these specific processes would be grouped under the separate divisions. Each process $division% would be responsible for generating revenues and profits. -he divisional structure by process can be particularly effective in achieving objectives when distinct production processes represent the thrust of competitiveness in an industry.

The Strategic +usiness Unit ,S+U- Structure As the number, si*e, and diversity of divisions in an organi*ation increase, controlling and evaluating divisional operations become increasingly difficult for strategists. #ncreases in sales often are not accompanied by similar increases in profitability. -he span of control becomes too large at top levels of the firm. 1or example, in a large conglomerate organi*ation composed of D: divisions, such as ConAgra, the chief executive officer could have difficulty even remembering the first names of divisional presidents. #n multidivisional organi*ations, an "8E structure can greatly facilitate strategy)implementation efforts. ConAgra has put its many divisions into three primary "8Es: $'% food service $restaurants%, $/% retail $grocery stores%, and $3% agricultural products.

-he "8E 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 chief executive officer. -his change in structure can facilitate strategy implementation by improving
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coordination between similar divisions and channeling accountability to distinct business units. #n a '::)division conglomerate, the divisions could perhaps be regrouped into ': "8Es according to certain common characteristics, such as competing in the same industry, being located in the same area, or having the same customers.

-wo disadvantages of an "8E structure are that it re(uires an additional layer of management, which increases salary expenses. Also, the role of the group vice president is often ambiguous. +owever, these limitations often do not outweigh the advantages of improved coordination and accountability. Another advantage of the "8E structure is that it ma!es the tas!s of planning and control by the corporate office more manageable.

Some *o.s and *on.ts in *e"eloping Organi/ational 'harts "tudents analy*ing strategic management cases are often as!ed to revise and develop a firm,s organi*ational structure. -his section provides some basic guideline for this endeavor. -here are some basic do,s and don,ts in regard to devising or constructing organi*ational charts, especially for midsi*e to large firms. 1irst of all, reserve the title CE0 for the top executive of the firm. Don,t use the title 5president6 for the top person2 use it for the division top managers if there are divisions within the firm. Also, do not use the title 5president6 for functional business executives. -hey should have the title 5chief,6 or 5vice president,6 or 5manager,6 or 5officer,6 such as 5Chief #nformation 0fficer,6 or 5C7 of +uman <esources.6 1urther, do not recommend a dual title $such as 5CE0 and 7resident6% for just one executive. -he Chairman of the 8oard and CE0 of 8ristol).yers "(uibb, 7eter Dolan, gave up his title as chairman in /::;. Actually, 5chairperson6 is much better than 5chairman6 for this title.

Directly below the CE0, it is best to have a C00 $chief operating officer% with any division presidents reporting directly to the C00. 0n the same level as the C00 and also reporting to the CE0, draw in your functional business executives, such as a C10 $chief financial officer%, C7 of +uman <esources, a C"0 $Chief "trategy 0fficer%, a C#0 $Chief #nformation 0fficer%, a C.0 $Chief .ar!eting 0fficer%, a C7 of <GD, a C7 of Fegal Affairs, a #nvestment <elations 0fficer, .aintenance "uperintendent, and
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so on. Aote in 1igure @)? that these positions are labeled and placed appropriately. Aote that a controller and or treasurer would normally report to the C10.

#n developing an organi*ational chart, avoid having a particular person reporting to more than one person above them in the chain of command. -his would violate the unity)of)command principle of management that 5every employee should have just one boss.6 Also, do not have the C10, C#0, C"0, +uman <esource officer, or other functional positions report to the C00. All these positions report directly to the CE0.

A !ey consideration in devising an organi*ational structure concerns the divisions. Aote whether the divisions $if any% of a firm presently are established based upon geography, customer, product, or process. #f the firm,s organi*ational chart is not available, you oftentimes can devise a chart based on the titles of executives. An important case analysis activity is for you to decide how the divisions of a firm should be organi*ed for maximum effectiveness. Even if the firm presently has no divisions, determine whether the firm would operate better with divisions. #n other words, which type of divisional brea!down do you $or your group or team% feel would be best for the firm in allocating resources, establishing objectives, and devising compensation incentivesH -his important strategic decision faces many midsi*e and large firms $and teams of students analy*ing a strategic)management case%. As consumption patterns become more and more similar worldwide, the divisional)by)product form of structure is increasingly the most effective. 8e mindful that all firms have functional staff below their top executive and often readily provide this information, so be wary of concluding prematurely that a particular firm utili*es a functional structure. #f you see the word 5president6 in the titles of executives, coupled with financial) reporting segments, such as by product or geographic region, then the firm is divisionally structured.

#f the firm is large with numerous divisions, decide whether an "8E type of structure would be more appropriate to reduce the span of control reporting to the C00. Aote in 1igure @)4 that the "onoco 7roducts, strategic business units $"8Es are based on product groupings. An alternative "8E structure would have been to base the division groupings
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on location. 0ne never !nows for sure if a proposed or actual structure is indeed most effective for a particular firm. Aote from Chandler,s strategy) structure relationship illustrated previously in this chapter that declining financial performance signals a need for altering the structure.

Lin0ing !erformance and !ay to Strategies

+ow can an organi*ation,s reward system be more closely lin!ed to strategic performanceH +ow can decisions on salary increases, promotions, merit pay, and bonuses be more closely aligned to support the long)term strategic objectives of the organi*ationH -here are no widely accepted answers to these (uestions, but a dual bonus system based on both annual objectives and long)term objectives is becoming common. -he percentage of a manager,s annual bonus attributable to short)term versus long)term results should vary by hierarchical level in the organi*ation. A chief executive officer,s annual bonus could, for example, be determined on a @; percent short)term and /; percent long) term basis. #t is important that bonuses not be based solely on short)term results because such a system ignores long)term company strategies and objectives. 7rofit sharing is another widely used form of incentive compensation. .ore than 3: percent of E.". companies have profit sharing plans, but critics emphasi*e that too many factors affect profits for this to be a good criterion. -axes, pricing, or an ac(uisition would wipe out profits, for example. Also, firms try to minimi*e profits in a sense to reduce taxes.

"till another criterion widely used to lin! performance and pay to strategies is gain sharing. Iain sharing re(uires employees or departments to establish performance targets2 if actual results exceed objectives, all members get bonuses. .ore than /? percent of E.". companies use some form of gain sharing2 about @; percent of gain sharing plans have been adopted since 'D>:. Carrier, a subsidiary of Enited -echnologies, has had excellent success with gain sharing in its six plants in "yracuse, Aew Bor!2 1irestone,s tire plant in 9ilson, Aorth Carolina, has experienced similar success with gain sharing.

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Criteria such as sales, profit, production efficiency, (uality, and safety could also serve as bases for an effective bonus system. #f an organi*ation meets certain understood, agreed)upon profit objectives, every member of the enterprise should share in the harvest. A bonus system can be an effective tool for motivating individuals to support strategy)implementation efforts. 8an!America, for example, recently overhauled its incentive system to lin! pay to sales of the ban!,s most profitable products and services. 8ranch managers receive a base salary plus a bonus based both on the number of new customers and on sales of ban! products. Every employee in each branch is also eligible for a bonus if the branch exceeds its goals. -homas 7eterson, a top 8an!America executive, says, 59e want to ma!e people responsible for meeting their goals, so we pay incentives on sales, not on controlling costs or on being sure the par!ing lot is swept.6

1ive tests are often used to determine whether a performance)pay plan will benefit an organi*ation:

'. *oes the plan capture attention1 Are people tal!ing more about their activities and ta!ing pride in early successes under the planH /. *o employees understand the plan1 Can participants explain how it wor!s and what they need to do to earn the incentiveH 3. Is the plan impro"ing communication1 Do employees !now more than they used to about the company,s mission, plans, and objectivesH 4. *oes the plan pay out (hen it should1 Are incentives being paid for desired results)))and being withheld when objectives are not metH ;. Is the company or unit performing $etter1 Are profits upH +as mar!et share grownH +ave gains resulted in part from the incentivesH

#n addition to a dual bonus system, a combination of reward strategy incentives, such as salary raises, stoc! options, fringe benefits,
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promotions, praise, recognition, criticism, fear, increased job autonomy, and awards, can be used to encourage managers and employees to push hard for successful strategic implementation. -he range of options for getting people, departments, and divisions to activity support strategy) implementation activities in a particular organi*ation is almost limitless.

Managing &esistance to 'hange

Ao organi*ation or individual can escape change. 8ut the thought of change raises anxieties because people fear economic loss, inconvenience, uncertainty, and a brea! in normal social patterns. Almost any change in structure, technology, people, or strategies has the potential to disrupt comfortable interaction patterns. 1or this reason, people resist change. -he strategic)management process itself can impose major changes on individuals and processes. <eorienting an organi*ation to get people to thin! and act strategically is not an easy tas!.

<esistance to change can be considered the single greatest threat to successful strategy implementation. <esistance regularly occurs in organi*ations in the form of sabotaging production machines, absenteeism, filing unfolded grievances, and an unwillingness to cooperate. 7eople often resist strategy implementation because they do not understand what is happening or why changes are ta!ing place. #n that case, employees may simply need accurate information. "uccessful strategy implementation hinges upon managers, ability to develop an organi*ational climate conducive to change. Change must be viewed as an opportunity rather than as a threat by managers and employees.

<esistance to change can emerge at any stage or level of the strategy) implementation process. Although there are various approaches for implementing changes, three commonly used strategies are a force change strategy, an educative change strategy, and a rational or self) interest change strategy. A force change strategy involves giving orders and enforcing those orders2 this strategy has the advantage of being fast, but it is plagued by low commitment and high resistance. -he educative change strategy is one that presents information to convince people of the need for change2 the disadvantage of an educative change strategy is
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that implementation becomes slow and difficult. +owever, this type of strategy evo!es greater commitment and less resistance than does the force change strategy. 1inally, a rational or self)interest change strategy is one that attempts to convince individuals that the change is to their personal advantage. 9hen this appeal is successful, strategy implementation can be relatively easy. +owever, implementation changes are seldom to everyone,s advantage.

-he rational change strategy is the most desirable, so this approach is examined a bit further. .anagers can improve the li!elihood of successfully implementing change by carefully designing change efforts. =ac! Duncan described a rational or self)interest change strategy as consisting of four steps. 1irst, employees are invited to participate in the process of change and in the details of transition2 participation allows everyone to give opinions, to feel a part of the change process, and to identify their own self)interests regarding the recommended change. "econd, some motivation or incentive to change is re(uired2 self)interest can be the most important motivator. -hird, communication is needed so that people can understand the purpose for the changes. Iiving and receiving feedbac! is the fourth step: everyone enjoys !nowing how things are going and how much progress is being made.

8ecause of diverse external and internal forces, change is a fact of life in organi*ations. -he rate, speed, magnitude, and direction of changes vary over time by industry and organi*ation. "trategists should strive to create a wor! environment in which change is recogni*ed as necessary and beneficial so that individuals can more easily adapt to change. Adopting a strategic)management approach to decision ma!ing can itself re(uire major changes in the philosophy and operations of a firm.

"trategists can ta!e a number of positive actions to minimi*e managers, and employees, resistance to change. 1or example, individuals who will be affected by a change should be involved in the decision to ma!e the change and in decisions about how to implement the change. "trategists should anticipate changes and develop and offer training and development wor!shops so that managers and employees can adapt to those changes. -hey also need to effectively communicate the need for
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changes. -he strategic)management process can be described as a process of managing change. 0rgani*ational change should be viewed today as a continuous process rather than as a project or event. -he most successful organi*ations today continuously adapt to changes in the competitive environment, which themselves continue to change at an accelerating rate. #t is not sufficient today to simply react to change. .anagers need to anticipate change and ideally be the creator of change. Ciewing change as a continuous process is in star! contrast to an old management doctrine regarding change, which was to unfree*e behavior, change the behavior, and then refree*e the new behavior. -he new 5continuous organi*ational change6 philosophy should mirror the popular 5continuous (uality improvement philosophy.6

Managing the Nature 2n"ironment

All business functions are affected by natural environment considerations or by striving to ma!e a profit. +owever, both employees and consumers are especially resentful of firms that ta!e from more than give to the natural environment2 li!ewise, people today are especially appreciative of firms that conduct operations in a way that mend rather than harm the environment. 8ut a rapidly increasing number of companies are implementing tougher environmental regulation because it ma!es economic sense.

Earth itself has become a sta!eholder for all business firms. Consumer interest in businesses preserving nature,s ecological balance and fostering a clean, healthy environment is high. As indicated in the 5Aatural Environment 7erspective,6 an increasing number of businesses today are considering the amount of formal training in environmental matters that prospective managers have received. -he annual 8usiness)Environment) Fearning)Feadership $8EFF% Conference focuses on which colleges and universities do an especially good or bad job in covering natural environment issues in business administration curricula.

-he ecological challenge facing all organi*ations re(uires managers to formulate strategies that preserve and conserve natural resources and
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control pollution. "pecial natural environment issues include o*one depletion, global warming, depletion of rain forests, destruction of animal habitats, protecting endangered species, developing biodegradable products and pac!ages, waste management, clean air, clean water, erosion, destruction of natural resources, and pollution control. 1irms increasingly are developing green product lines that are biodegradable and or are made from recycled products. Ireen products sell well. .anaging as if Earth matters re(uires an understanding of how international trade, competitiveness, and global resources are connected. .anaging environmental affairs can no longer be simply a technical function performed by specialists in a firm2 more emphasis must be placed on developing an environmental perspective among all employees and managers of the firm. .any companies are moving environmental affairs from the staff side of the organi*ation to the line side, thus ma!ing the corporate environmental group report directly to the chief operating officer.

"ocieties have been plagued by environmental disasters to such an extent recently that firms failing to recogni*e the importance of environmental issues and challenges could suffer severe conse(uences. .anaging environmental affairs can no longer be an incidental or secondary function of company operations. 7roduct design, manufacturing, and ultimate disposal should not merely reflect environmental considerations, but also be driven by them. 1irms that manage environmental affairs will enhance relations with consumers, regulators, vendors, and other industry players)))substantially improving their prospects of success.

1irms should formulate and implement strategies from an environmental perspective. Environmental strategies could include developing or ac(uiring green businesses, divesting or altering environment)damaging businesses, striving to become a low)cost producer through waste minimi*ation and energy conservation, and pursuing a differentiation strategy through green)product features. #n addition to creating strategies, firms could include an environmental representative on the board of directors, conduct regular environmental audits, implement bonuses for favorable environmental results, become involved in environmental issues and programs, incorporate environmental values in mission statements, establish environmentally oriented objectives,
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ac(uire environmental s!ills, and provide environmental programs for company employees and managers.

training

'reating a Strategy3Supporti"e 'ulture

"trategists should strive to preserve, emphasi*e, and build upon aspects of an existing culture that support proposed new strategies. Aspects of an existing culture that are antagonistic to a proposed strategy should be identified and changed. "ubstantial research indicates that new strategies are often mar!et)driven and dictated by competitive forces. 1or this reason, changing a firm,s culture to fit a new strategy is usually more effective than changing a strategy to fit an existing culture. Aumerous techni(ues are available to alter an organi*ation,s culture, including recruitment, training, transfer, promotion, restructure of an organi*ation,s design, role modeling, and positive reinforcement.

"chein indicated that the following elements are most useful in lin!ing culture to strategy:

'. 1ormal statements of organi*ational philosophy, charters, creeds, materials used for recruitment and selection, and sociali*ation. /. Designing of physical spaces, facades, buildings. 3. Deliberate role modeling, teaching, and coaching by leaders. 4. Explicit reward and status system, promotion criteria. ;. "tories, legends, myths, and parables about !ey people and events. ?. 9hat leaders pay attention to, measure, and control. @. Feader reactions to critical incidents and organi*ational crises. >. +ow the organi*ation is designed and structured. D. 0rgani*ational systems and procedures. ':. Criteria used for recruitment, selection, promotion, leveling off, retirement, and 5excommunication6 of people.
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#n the personal and religious side of life, the impact of loss and change is easy to see. .emories of loss and change often haunt individuals and organi*ations for years. #bsen wrote, 5<ob the average man of his life illusion and you rob him of his happiness at the same stro!e.6 9hen attachments to a culture are severed in an organi*ation,s attempt to change direction, employees and managers often experience deep feelings of grief. -his phenomenon commonly occurs when external conditions dictate the need for a new strategy. .anagers and employees often struggle to find meaning in a situation that changed many years before. "ome people find comfort in memories2 others find solace in the present. 9ea! lin!ages between strategic management and organi*ational culture can jeopardi*e performance and success.

Human &esource Strategies

'oncerns

4hen

Implementing

-he job of human resource manager is changing rapidly as companies continue to downsi*e and reorgani*e. "trategic responsibilities of the human resource manager include assessing the staffing needs and costs for alternative strategies proposed during strategy formulation and developing a staffing plan for effectively implementing strategies. -his plan must consider how best to manage spiraling healthcare insurance costs. Employers, health coverage expenses consume an average /? percent of firms, net profits, even though most companies now re(uire employees to pay part of their health insurance premiums. -he plan must also include how to motivate employees and managers during a time when layoffs are common and wor!loads are high.

-he human resource department must develop performance incentives that clearly lin! performance and pay to strategies. -he process of empowering managers and employees through their involvement in strategic)management activities yields the greatest benefits when all organi*ational members understand clearly how they will benefit personally if the firm does well. Fin!ing company and personal benefits is a major new strategic responsibility of human resource managers. 0ther new responsibilities for human resource managers may include establishing and administering an employee stoc! ownership plan $E"07%, instituting an effective child)care policy, and providing leadership for
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managers and employees in a way that allows them to balance wor! and family.

A well)designed strategic)management system can fail if insufficient attention is given to the human resource dimension. +uman resource problems that arise when businesses implement strategies can usually be traced to one of three causes: $'% disruption of social and political structures, $/% failure to match individuals, aptitudes with implementation tas!s, and $3% inade(uate top management support for implementation activities.

"trategy implementation poses a threat to many managers and employees in an organi*ation. Aew power and status relationships are anticipated and reali*ed. Aew formal and informal groups, values, beliefs, and priorities may be largely un!nown. .anagers and employees may become engaged in resistance behavior as their roles, prerogatives, and power in the firm change. Disruption of social and political structures that accompany strategy execution must be anticipated and considered during strategy formulation and managed during strategy implementation.

A concern in matching managers with strategy is that jobs have specific and relatively static responsibilities, although people are dynamic in their personal development. Commonly used methods that match managers with strategies to be implemented include transferring managers, developing leadership wor!shops, offering career development activities, promotions, job enlargement, and job enrichment.

A number of other guidelines can help ensure that human relationships facilitate rather than disrupt strategy)implementation efforts. "pecifically, managers should do a lot of chatting and informal (uestioning to stay abreast of how things are progressing and to !now when to intervene. .anagers can build support for strategy)implementation efforts by giving few orders, announcing few decisions, depending heavily on informal (uestioning, and see!ing to probe and clarify until a consensus emerges. Jey thrusts that succeed should be rewarded generously and visibly.

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#t is surprising that so often during strategy formulation, individual values, s!ills, and abilities needed for successful strategy implementation are not considered. #t is rare that a firm selecting new strategies or significantly altering existing strategies possesses the right line and staff personnel in the right positions for successful strategy implementation. -he need to match individual aptitudes with strategy)implementation tas!s should be considered in strategy choice.

#nade(uate support from strategists for implementation activities often undermines organi*ational success. Chief executive officers, small business owners, and government agency heads must be personally committed to strategy implementation and express this commitment in highly visible ways. "trategists, formal statements about the importance of strategic management must be consistent with actual support and rewards given for activities completed and objectives reached. 0therwise, stress created by inconsistency can cause uncertainty among managers and employees at all levels.

7erhaps the best method for preventing and overcoming human resource problems in strategic management is to actively involve as many managers and employees as possible in the process. Although time) consuming, this approach builds understanding, trust, commitment, and ownership and reduces resentment and hostility. -he true potential of strategy formulation and implementation resides in people.

+alancing 4or0 Life and Home Life

9or! family strategies have become so popular among companies today that the strategies now represent a competitive advantage for those firms that offer such benefits as elder care assistance, flexible scheduling, job sharing, adoption benefits, an on)site summer camp, employee help lines, pet care, and even lawn service referrals. Aew corporate titles such as 9or! Fife Coordinator and Director of Diversity are becoming common.

+uman resource managers need to foster a more effective balancing of professional and private lives because nearly ?: million people in the
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Enited "tates are now part of two)career families. A corporate objective to become more lean and mean must today include consideration for the fact that a good home life contributes immensely to a good wor! life.

-he wor! family issue is no longer just a women,s issue. "ome specific measures that firms are ta!ing to address this issue are providing spouse relocation assistance as an employee benefit2 providing company resources for family recreational and educational use2 establishing employee country clubs, such as those at #8. and 8ethlehem "teel2 and creating family wor! interaction opportunities. A study by =oseph 7lec! of 9heaton College found that in companies that do not offer paternity leave for fathers as a benefit, most men ta!e short, informal paternity leaves anyway by combining vacation time and sic! days.

"ome organi*ations have developed family days, when family members are invited into the wor!place, ta!en on plant or office tours, dined by management, and given a chance to see exactly what other family members do each day. 1amily days are inexpensive and increase the employee,s pride in wor!ing for the organi*ation. 1lexible wor!ing hours during the wee! are another human resource response to the need for individuals to balance wor! life and home life. -he wor! family topic is being made part of the agenda at meetings and thus is being discussed in many organi*ations.

"trategies have no chance of being implemented successfully in organi*ations that do not mar!et goods and services well, in firms that cannot raise needed wor!ing capital, in firms that produce technologically inferior products, or in firms that have a wea! information system. -his chapter examines mar!eting, finance accounting, <GD, and management information systems $.#"% issues that are central to effective strategy implementation. "pecial topics include mar!et segmentation, mar!et positioning, evaluating the worth of a business, determining to what extend debt and or stoc! should be used as a source of capital, developing pro forma financial statements, contracting <GD outside the firm, and creating an information support system. .anager and employee involvement and participation are essential for success in mar!eting finance accounting, <GD, and .#" activities.
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Note: #ll notes for this chapter are sourced from the follo(ing te5t $oo0: *a"id6 ) 78876 Strategic Management: Cases and Concepts, !earson 2ducation6 Ne( ersey

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