Strategic Implementation

Prof. Rushen Chahal

Learning Outcomes
y y y y y

Understand where strategy implementation fits into strategic process Understand the role of resource planning in strategic implementation Understand how corporate culture is important to strategy implementation Understand the link between structure and strategy Understand change management

The Process
Strategic Analysis

Strategic Selection

Strategic Implementation

Introduction
U.S. managers spend more than $10 billion each year on strategic analysis and making strategy y Managers report that less than half the strategic plans made are implemented y Outside observers estimate that only 10% of strategic plans are implemented
y

Implementation: Doing the Strategy

y

3 questions:
How well is the strategy resourced? How well do the culture, structure and internal systems fit the strategy? How will the process of change be managed?

Strategy Implementation

Structure Decision Processes and Controls

TaskTask-Focus (Value) Firm Strategy

Firm Performance

People

Reward Systems

How well is the strategy resourced?

Do the resources need to be increased or decreased? y Resources include:
y

Physical Financial Human Intellectual/intangible

Resource Audit
y

Used to assess resources for:

Sufficiency Adequacy Availability

Resource Planning
y y

Hand in hand with resource audits are plans to make sure the needs of the strategy are met Includes:
Financial planning (budgeting) Human resource planning Physical resource planning Intellectual resource planning

Does the culture fit the strategy?

y y

Assessment of the culture determines if the organization is ready to take on the strategy Use Miles and Snows culture types
Defender Prospector Analyser Reactor

Does the structure fit the strategy?

y y y

Height layers of the organization Width the extent to which power is decentralized Complexity the extent to which there is a formal hierarchy
Formal/informal matrix

Methods of division
Simple Structure Functional Product Network

Strategy Implementation

Organization Structures Simple Structure

President

OwnerOwner-manager makes decisions. Little specialization of tasks. Few rules, little formalization. Advantages: - Provides high flexibility - Rapid product introduction - Few coordination problems

Employees

Organization structure
Functional structure

President Accounting Legal Affairs

HRM

Finance

Marketing

R&D

Production

Strategy Implementation

Organization structure
Functional structure Advantages - Centralized control of operations - Promotes in-depth functional expertise in- Enhances operating efficiency where tasks are routine Disadvantages - Functional coordination problems - Inter-functional rivalry Inter- Overspecialization and narrow viewpoints - Hinders development of cross-functional experience cross- Slower to respond in turbulent environments

Organization structure
ProductProduct-divisional structure

President Government Affairs Legal Affairs

Corporate R&D Lab

Strategic Planning

Corporate Human Resources

Corporate Marketing

Corporate Finance

Product Division

Product Division

Product Division

Product Division

Product Division

Strategy Implementation

Organization structure
ProductProduct-divisional structure Organization based on products versus functions Each division is a separate business in which day-to-day day-todecisions are delegated to divisional managers. Divisions are managed using strategic controls detailed knowledge of firm operations allows managers to remain actively involved. Overdiversification leads to inability to process detailed information and a reliance on financial controls to evaluate managers.

Strategy Implementation

Organization structure
ProductProduct-divisional structure Advantages - Decentralized decision making - Each business is organized around products - Puts profit/loss accountability on managers - Facilitates rapid response to environmental changes - Allows efficient management of a large number of units Disadvantages - May lead to costly duplication of functions - Inter-divisional rivalry Inter- Corporate managers may lose in-depth understanding in-

Matrix Structure

President

R&D

Production

Marketing

Finance

Business Project Business Project Business Project

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Strategy Implementation

Organization structure
Matrix structure Contains aspects of both functional and product-divisional productstructures. Advantages: - Creates checks and balances between competing viewpoints - Promotes holistic view of the firm - Encourages cooperation and consensus building Disadvantages: - Very complex and costly - Shared authority increases communication time - Difficult to respond rapidly - May promote bureaucracy and reduce innovation (in large firms).

Strategy Implementation
Network structure Group of firms combine resources to achieve together what they can t achieve alone. Advantages: - Firm s emphasize their own core competencies - Rapid response time

Partner

Partner

Focal Firm

- Very flexible - Reduces capital intensity Disadvantages - Asymmetric information - Technology expropriation - Trustworthiness of partners - Asset hold-up hold-

Partner

Partner

How to manage change in implementation

y y y y y

Often, new strategy brings change Willingness to change depends on culture, size, structure, age, product, and positioning Challenge: how to overcome inertia From physics: a body at rest tends to stay at rest Inertia may result from:
Lack of understanding Lack of trust Fear Uncertainty about the future

Lewins 3 Steps of Change

Unfreezing y Moving to a new level y Refreezing
y

Step Change vs. Incremental Change

Step change = rapid change y Incremental change = small changes over time
y

Models for Managing Change

Managerialist approach y Change agent approach
y

Managerialist Approach
Using a variety of managerial approaches to effect change y Should include:
y

Education Communication Negotiation and participation Coercion (maybe)

Change agent approach

One individual manages the entire change process y May be a key manager, or an outside consultant
y

Strategy Implementation
Sears example In 1983 Sears implements one-stop shopping banking-financial onebankingservices power. Sears retail unit fell to #3 behind low-cost providers (Walmart lowand K-Mart). KSpecialty retailers (focused differentiators) such as The Gap, The Limited, Toys-R-Us, and Kids-R-Us took market share. ToysKidsSears was outperformed by both low-cost and focused differentiators. lowSears initiated restructuring in 1992 after losing $3.8 billion.

Strategy Implementation
Sears example What happened? Why did Sears fail so dramatically? - Lost ability to control core business (too diversified). - Resources were taken from retail and given to new ventures. - Managers spent too much time on diversified businesses. - Managed retail segment using financial controls. - Lost operational understanding of the competitive dynamics in the retail industry.