Presentation on theme: "MANAGEMENT POLICY AND STRATEGY SESSION - IX"— Presentation transcript:
1 MANAGEMENT POLICY AND STRATEGY SESSION - IX Implementing StrategyFunctional Tactics and PoliciesProf. SushilDepartment of Management StudiesIndian Institute of Technology, DelhiINDIA
2 Strategy Implementation Identify short-term objectivesInvolves development of support systems thatInitiate specific functional tacticsCommunicate policies to empower peopleDesign effective support systems
3 What are Short-Term Objectives? Provide specific guidance for what is to be done, translating vision into action
4 Role of Short-Term Objectives in Implementing Strategy 1. “Operationalize” long-term objectives2. Raise issues and potential conflicts requiring coordination to avoid dysfunctional consequences3. Identify measurable outcomes of functional activities to be used to make feedback, correction, and evaluation more relevant
5 Potential Conflicting Objectives and Priorities Chief Executive OfficerMarketingFinance and accountingManufacturingDistribution channelsCustomer serviceInventory obsolescenceCommunications and data processingCarrying inventoryProduction supply alternativesWarehousingTransportationResponsibilitiesObjectivesMore inventoryLess inventoryFrequent short runsLong production runsFast order processingCheap order processingFast deliveryLowest cost routingField warehousingLess warehousingPlant warehousing
6 Relationship of Action Plans to Short-Term Objectives Specificity - Identify functional activities to be undertaken to build competitive advantageAction plans enhance short-term objectives in three waysProvide a clear time frame for completionIdentify who is responsible for each action in the plan
7 Qualities of Effective Short-term Objectives MeasurablePrioritiesLinked to long-term objectives
8 Value-Added Benefits of Short-Term Objectives Give operating personnel a better understanding of their role in a firm’s missionProvide basis for accomplishing conflicting concernsProvide basis for strategic controlMotivation - Clarify personal and group roles in a firm’s strategies
9 What are Functional Tactics? Key, routine activities that must be undertaken in each functional area to provide theTranslate grand strategies into action designed to accomplish specific short-term objectivesbusiness’s products
10 Functional Tactics at General Cinema Corporation Corporate StrategyBusiness StrategiesFunctional TacticsFunctional tactics: MarketingSeek only first-run films by outbidding competition in each local market; provide primarily family-oriented movies; and maintain an admission price only slightly above that of local competition.Corporate strategyAchieve % annual growth through existing businesses and carefully selected diversification into leisure-oriented, consumer-oriented product/service businesses to absorb increasing cash flow from theater and soft-drink bottling operations.Concentration and market development selectiveMaintain and selectively expand leading nationwide position in the movie exhibition industry to provide positive cash flow for corporate diversification.Soft drink bottlersFunctional tactics: FinanceUse lease or sale and leaseback arrangements of each theater to maximize cash flow for corporate expansions; seek profitability through volume, not higher ticket prices.Movie exhibitionFunctional tactics: OperationsUse multiscreen facilities with minimal maintenance requirements and a joint service area to serve each minitheater.Sunkist products
11 Differences Between Business Strategies and Functional Tactics Time HorizonShorter time horizon of functional tactics contributes to successful implementation byFocusing attention on what needs to be done nowAllowing functional managers to adjust to changing current conditionsSpecificityGreater specificity of functional tactics contributes to successful implementation byEnsuring functional managers focus on accomplishmentsClarifying for top managers how functional managers intend to accomplish business strategyFacilitating coordination among operating unitsParticipantsGeneral managers establish long-term objectives and overall business strategiesOperating managers establish short-term objectives and functional tactics leading to business level success
12 Characteristics of Functional Tactics in Production/Operations Viewed as core function of an organizationInvolves converting inputs into value-enhanced outputFocuses on decisions regardingBasic nature of firm’s POM system,Seeks optimum balance between investment input and production/operations outputLocationFacilities designProcess planning on a short-term basis
13 Key Functional Tactics in POM Typical Questions the Functional Tactic Should AnswerFacilities and equipmentHow centralized should the facilities be?How integrated should the separate processes be?To what extent should further mechanization or automation be pursued?Should size and capacity be oriented toward peak or normal operating levels?SourcingHow many sources are needed?How should suppliers be selected, and how should 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?How should inventory be used (FIFO/LIFO), controlled, and replenished?What are the key foci for control efforts?Should maintenance be oriented to prevention or to breakdown?Operations planning and control
14 Characteristics of Functional Tactics in Marketing Lead to strategic success of the firm through the profitable sale of products/services in target marketsClearly identify customer needs that products/services aim to meetIdentify where, when, and by whom products/services are to be soldDefine how firm will communicate with target marketsDirectly influence supply, demand, profitability, consumer perception, and regulatory response through pricing
15 Key Functional Tactics in Marketing Typical Questions the Functional Tactic Should AnswerProduct or serviceWhich products do we emphasize?Which products/services contribute most to profitability?What product/service image do we seek to project?What consumer needs does the product/service seek to meet?What changes should be influencing our customer orientation?PriceAre we competing primarily on price?Can we offer discounts or other pricing modifications?Are our pricing policies standard nationally, or is there regional control?What price segments are targeting?What is the gross profit margin?
16 Key Functional Tactics in Marketing Contd... Typical Questions the Functional Tactic Should AnswerPlaceWhat level of market coverage is necessary?Are there priority geographic areas?What are the key channels of distribution?What are the channel objectives, structure, and management?What sales organization do we want?PromotionWhat are the key promotion priorities and approaches?Which advertising/communication priorities and approaches are linked to different products, markets, and territories?Which media would be most consistent with the total marketing strategy?
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 objectivesLong-term tactics guide decisions inLong-term capital investmentDebt financingDividend allocationLeveragingShort-term tactics guide decisions inManaging working capital and short-term assetsAccounting-focused tactics have taken on increased strategic significance in last decade
18 Key Functional Tactics in Finance and Accounting Typical Questions the Functional Tactic Should AnswerCapital acquisitionWhat is an acceptable cost of capital?What is desired proportion of short- and long-term debt? Preferred and common stock?What balance is desired between internal and external funding?What risk and ownership restrictions are appropriate?What level and forms of leasing should be used?Capital allocationWhat are the priorities for capital allocation projects?On what basis should the final selection of projects be made?What level of capital allocation can be made by operating managers without higher approval?
19 Key Functional Tactics in Finance and Accounting Contd…. Typical Questions the Functional Tactic Should AnswerDividend and working capital manage-mentWhat portion of earnings should be paid out as dividends?Are things other than cash appropriate as dividends?What are the cash flow requirements? Minimum and maximum?How liberal/conservative should credit policies be?What limits, payment terms, and collection procedures are necessary?What payment timing and procedure should be followed?
20 Characteristics of Functional Tactics in R&D Assumed a key strategic role in many firms due to increasing rate of technological changeMay be more critical instruments of business strategy in some industries than in others
21 Key Functional Tactics in R&D Typical Questions the Functional Tactic Should AnswerBasic research vs. product and process developmentTo what extent should innovation and breakthrough research be emphasized? In relation to the emphasis on product development, refinement, and modification?What critical operating processes need R&D attention?What new products are necessary to support growth?Time horizonIs the emphasis short-term or long-term?Which orientation best supports the business strategy? The marketing and production strategy?
22 Key Functional Tactics in R&D Contd... Typical Questions the Functional Tactic Should AnswerOrganizational fitShould R&D be done in-house or contracted out?Should R&D be centralized or decentralized?What should be the relationship between the R&D units and product managers? Marketing managers? Production managers?Basic R&D postureShould the firm maintain an offensive posture, seeking to lead innovation in its industry?Should the firm adopt a defensive posture, responding to the innovations of its competitors?
23 Characteristics of Functional Tactics in HRM Assumed increasing strategic importance in the 1990sAid long-term success inDevelopment of managerial talent and competent employeesCreating systems to manage compensation or regulatory concernsGuiding effective utilization of human resources to achieve both theFirm’s short-term objectivesEmployees’ satisfaction and development
24 Key Functional Tactics in HRM Typical Questions the Functional Tactic Should AnswerRecruitment, selection, and orientationWhat key human resources are needed to support chosen strategy?How do we recruit these human resources?How sophisticated should our selection process be?How should we introduce new employees to the organization?Career development and trainingWhat are our future human resource needs?How can we prepare our people to meet these needs?How can we help our people develop?Compensa-tionWhat levels of pay are appropriate for the tasks we require?How can we motivate and retain good people?How should we interpret our payment, incentive, benefit, and seniority policies?
25 Key Functional Tactics in HRM Contd…. Typical Questions the Functional Tactic Should AnswerEvaluation, discipline, and controlHow often should we evaluate our people? Formally or informally?What disciplinary steps should we take to deal with poor performance or inappropriate behavior?In what ways should we “control” individual and group performance?Labor relations and EEO requirementsHow can we maximize labor-management cooperation?How do our personnel practices affect women/minorities/Should we have hiring policies?
26 Emerging Implications for HRM Tactics Traditional HRM IdeasEmphasis solely on physical skillsExpectation of predictable, repetitious behaviorComfort with stability and conformityAvoidance of responsibility and decision makingTraining covering only specific tasksEmphasis placed on outcomes / resultsEmerging HRM IdeasEmphasis on total contribution to firmExpectation of innovative and creative behaviorTolerance of ambiguity and changeAccepting responsibility for making decisionsBroad continuous developmentEmphasis placed on processes / means
27 Emerging Implications for HRM Tactics Contd…. Traditional HRM IdeasHigh concern for quantityConcern for individual efficiencyFunctional and subfunctional specializationLabor force seen as unnecessary expenseWork force is management’s adversaryEmerging HRM IdeasHigh concern for total customer valueConcern for overall effectivenessCross-functional integrationLabor force seen as critical investmentManagement and work force are partners
28 Role of Policies in Implementing Strategy Directives designed to guide thinking, decisions, and actions of managers and employees in implementing strategyIncrease managerial effectiveness byStandardizing many routine decisionsClarifying discretion managers and employees can exercise in implementing functional tacticsShould be derived from functional tactics with key purpose of aiding strategy execution
29 Why Policies Empower People 1. Establish indirect control over independent action by clearly stating how things are to be done now2. Promote uniform handling of similar activities3. Ensure quicker decisions by standardizing answers to previously answered questions4. Institutionalize basic aspects of organization behavior5. Reduce uncertainty in repetitive and day-to-day decision making6. Counteract resistance to or rejection of chosen strategies by organization members7. Offer predetermined answers to routine problems8. Afford managers a mechanism for avoiding hasty and ill-conceived decisions in changing operations
30 Advantages of Formal Written Policies 1. Require managers to think through policy’s meaning, content, and intended use2. Reduce misunderstanding3. Make equitable and consistent treatment of problems more likely4. Ensure unalterable transmission of policies5. Communicate authorization or sanction of policies more clearly6. Supply a convenient and authoritative reference7. Systematically enhance indirect control and organization-wide coordination of the key purposes of policies
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 objective to be number one in market capitalization).America Online: The company could have used a policy stating that a new marketing program would not be implemented until proper support was in place.
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).
33 SELECTED POLICIES THAT AID 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).
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.)
35 Types of Executive Bonus Compensation Bonus TypeDescriptionRationaleShortcomingsStock option grantsRight to purchase stock in the future at a price set now; compensation determined by “spread”Provides incentive for executive to create wealth for shareholders as measured by increase in firm’s share priceMovement in share price does not explain all dimensions of managerial performanceRestricted stock planShares given to executive who is prohibited from selling them for a specific time periodPromotes longer executive tenure than other forms of compensationNo downside risk to executive, who always profits unlike other shareholdersGolden handcuffsBonus income deferred in a series of annual installments; forfeited with executive resignationOffers an incentive for executive to remain with the firmMay promote risk-averse decision making due to downside risk borne by executive
36 Types of Executive Bonus Compensation Contd... Bonus TypeDescriptionRationaleShortcomingsGolden parachuteExecutive has right to collect bonus if loses position due to takeover, firing, retirement, or resignationOffers an incentive for executive to remain with firmCompensation is achieved whether or not wealth is created;rewards either success or failureCash based on internal performance using finance measuresBonus compensation based on accounting performance measures such as return on equityOffsets limitations of focusing on market-based measures of performanceWeak correlation between earnings measures and shareholder wealth creation
37 Compensation Plan Selection Matrix Type of Bonus CompensationGolden ParachutesRestricted Stock PlansStock OptionsGolden HandcuffsCashStrategic GoalRationaleXAchieve corporate turnaroundCreate and support growth opportunitiesDefend against unfriendly takeoverExecutive profits only if turnaround is successful in returning wealth to shareholdersRisk associated with growth strategies warrants use of this high-reward incentiveHelps remove temptation for executive to evaluate takeover based on personal benefitsEvaluate suitors objectivelyGlobalize operationsCompensates executive if job is lost due to a merger favorable to the firmRisk of expanding overseas requires a plan that compensates only for achieved successGrow share price incrementallyAccounting measures can identify periodic performance benchmarks
38 Compensation Plan Selection Matrix (concluded) Type of Bonus CompensationGolden ParachutesRestricted Stock PlansStock OptionsGolden HandcuffsCashStrategic GoalRationaleXImprove operational efficiencyIncrease assets under managementAccounting measures represent observable and agreed-upon measures of performanceExecutive profits proportionally as asset growth leads to long-term growth in share priceReduce executive turnoverHandcuffs provide executive tenure incentivesRestructure organizationStreamline operationsRisk associated with major change in firm’s assets warrant use of this high-reward incentiveRewards long-term focus on efficiency and cost control
39 STRATEGIC LEADERSHIP AT GENERAL ELECTRIC: 1947 TO 1997 General Electric - An IntroductionJuly Business Week issue cited GE as “Most Valuable Company” with worldwide market capitalization of $ 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.
40 STRATEGIC LEADERSHIP AT GENERAL ELECTRIC: 1947 TO 1997 Contd... Phase I: Coordiner’s Enterpreneurial Era1947 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.Cordiner becomes CEO, Identifies GE’s new “Marketing Concept” PR I, PR II, (SP) (Target)This phase originated the GE Strategic Planning concept
41 STRATEGIC LEADERSHIP AT GENERAL ELECTRIC: 1947 TO 1997 Contd... Phase I: Coordiner’s Enterpreneurial EraThink like entrepreneursMake markets and customer values central focus for strategic planningOnce 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
42 STRATEGIC LEADERSHIP AT GENERAL ELECTRIC: 1947 TO 1997 Contd... Phase II: Borch and Implementing Strategic Planning Concept ( to 71)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 bureaucraticWith 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
43 STRATEGIC LEADERSHIP AT GENERAL ELECTRIC: 1947 TO 1997 Contd... Phase III: Implementing Strategic Planning Concept (72 to 81)Reginald Jones succeeds BorchIdentified 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 conceptSimplified 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.
44 STRATEGIC LEADERSHIP AT GENERAL ELECTRIC: 1947 TO 1997 Contd... Phase IV: Welch: Strategic Thining and Visionary LeadershipJack Welch becomes CEOTwo 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, MexicoRemoved layers of management and bureaucracy in planning process. One page Reports submitted on key issues.Formulated strategy for 21st century - penetrate global market; service contracts with large customers of both GE and non-GE equipment.
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