1. Lecture 6 Strategy Implementation – Organizing for action

2. Strategy Implementation Sum total of all activities and choices required for the execution of a strategic plan Questions to be considered by strategy makers ◦ Who are the people who will carry out the strategic plan? ◦ What must be done to align the company’s operations in the new intended direction? ◦ How is everyone going to work together to do what is needed? These need to be considered right at the time of making the choices Revisit before implementation Who implements strategy? ◦ Everyone in the organization ◦ Complete buy-in is very important by all especially the operational people

3. What must be done? Developing programs, budgets and procedures ◦ Programs: purpose of a program is to make strategy action-oriented  Feasibility: coherent stable system? Ease of transition  Sequence of execution: where should change begin? Does sequence change affect success  Location: where to implement?  Pace and nature of change: slow or fast? Incremental or radical?  Stakeholder evaluations: buy-in from stakeholders? More inputs needed? ◦ Budgets: Last chance to identify any problems in the strategic plan. program, divisional and corporate budgets ◦ Procedures: Standard operating procedures, need to be revisited from time to time, ensures consistency over time and location

4. Achieving Synergy One of the goals to be achieved in strategic implementation is synergy Synergy happens when a division independently would earn less than what it would earn as a part of the organization Synergy can happen through ◦ Shared know-how ◦ Coordinated strategies ◦ Shared tangible resources ◦ Economies of scale or scope ◦ Pooled negotiating power ◦ New Business Creation

5. Organizing for action Any change in strategy leads to some change in the way an organization is structured Structure follows strategy Stages of Corporate Development

6. Stages of corporate development FunctionStage IStage IIStage III Sizing Up – Major Problems Survival and growth dealing with short- term operating problems Growth, rationalization, and expansion of resources, providing for adequate attention to products Trusteeship in mgmt and control of large & diversified resources; deal with probs at divisional level ObjectivesPersonal and subjective Profits and meeting functionally oriented budgets &performance targets ROI, profits, earnings per share StrategyImplicit and personal; exploitation of immediate opportunities seen by owner Functionally oriented moves restricted to “one product” scope Growth and product diversification; exploitation of general business opportunities

7. Stages of corporate development FunctionStage IStage IIStage III Organization: characteristic of structure One unit, “one- man show” One unit, functionally specialized group Multiunit general staff office and decentralized operating division Measurement & Control Personal, subjective control based on simple accounting system and daily communication Control grows beyond one person; assessment of functional operations; structured controls Complex formal systems geared to comparative assessment of performance measures KPIsPersonal criteria, relationships with owner, operating efficiency, ability to solve operating problems Functional and internal criteria such as sales, performance compared to budget, size of empire, status in group etc. More impersonal application of comparisons such as profits, ROI, P/E ratio, sales etc.

8. Stages of corporate development FunctionStage IStage IIStage III Reward- punishment system Informal, personal, subjective; used to maintain control and divide small pool of resources to provide personal incentives for key performers More structured; usually based to a great extent on agreed policies as opposed to personal opinion and relationships Allotment by “due process” of a wide variety of different rewards and punishments on a formal and systematic basis. Companywide policies usually apply to many different classes of managers and workers with few major exceptions for individual cases

9. Stages of corporate development Stage I: Simple structure ◦ Crisis of leadership due to entrepreneur floundering Stage II: Functional structure ◦ Challenge for the founder to change management style Stage III: Divisional structure ◦ Crisis of control due to the various divisions acting independently ◦ Red tape crisis Stage IV: Beyond SBUs Blocks to changing stages ◦ Internal: lack of resources, ability, refusal of top mgmt to delegate decision making ◦ External: economic conditions, labor shortages, lack of market growth

10. External Environment & Structure Dynamic High rate of change Use team-based, network, or other organic structure Stable Steady conditions, predictable change Use mechanistic structure Complex Many elements (such as stakeholders) Decentralize Simple Few environmental elements Less need to decentralize

11. Diverse Several products, clients, regions Use divisional form aligned with the diversity Hostile Competition and resource scarcity Use organic structure for responsiveness Integrated Single product, client, place Use functional structure, or geographic division if global Munificent Plenty of resources and product demand Less need for organic structure External Environment & Structure (con’t)

12. Organizational lifecycle Stage IStage IIStage IIIStage IVStage V Dominant Issue BirthGrowthMaturityDeclineDeath Popular Strategies Concentrat ion in a niche Horizontal and vertical growth Concentric and conglomer ate diversificati on Profit strategy followed by retrenchm ent Liquidation or bankruptcy Likely structure Entreprene ur dominated Functional manageme nt emphasize d Decentraliz ation into profit or investment centers Structural surgery Dismembe rment of structure

13. OrganizationalStructureElements Span of Control Centralization Department-alization Formalization Elements of Organizational Structure

14. Formal decision making authority is held by a few people, usually at the top Centralization Decision making authority is dispersed throughout the organization Decentralization Centralization and Decentralization

15. Formalization The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms. Formalization increases as firms get older, larger, and more regulated Problems ◦ Reduces organizational flexibility ◦ Work rules can undermine productivity ◦ Employees feel disempowered ◦ Rules become focus of attention

16. Advanced types of Org Structures – Matrix Structure Advantageous when external environment is complex and changing Conditions for typically having matrix structure ◦ Ideas need to be cross fertilized across projects or products ◦ Resources are scarce ◦ Abilities to process information and to make decisions need to be implemented Distinct phases of development of matrix structure ◦ Temporary cross-functional task forces ◦ Product/ Brand Management ◦ Mature Matrix

17. Core Firm Product developmen t partner (U.S.A.) Call center partner (India) Accounting partner (Canada) Package design partner (UK) Assembly partner (Mexico) Network Organizational Structure

18. Advanced types of Org Structures – Network Structure Virtual elimination of in-house business functions Virtual organization Key characteristics ◦ Heavily dependant on outsourcing ◦ Organizations business functions are spread ◦ Most useful when the environment of a firm is unstable and is expected to remain so ◦ Organization is in effect only a shell with a small headquarters acting as a broker electronically connected to some completely owned divisions, partially owned subsidiaries and other independent companies

19. Reengineering and strategy implementation Reengineering is the radical redesign of business processes to achieve major gains in cost, service or time Principles for reengineering ◦ Organizing around outcomes and not tasks ◦ Have those who use the output of the process perform the process ◦ Subsume information-processing work into real work that produces the information ◦ Treat geographically dispersed resources as though they were centralized ◦ Link parallel activities instead of integrating their results ◦ Put the decision point where the work is performed and build control into the process ◦ Capture information once and at the source

20. Designing jobs to implement strategy Strategy implementation also involves redesigning the way jobs are done Job design refers to the design of individual tasks in an attempt to make them more relevant to the company ◦ Job Enlargement ◦ Job Rotation ◦ Job Enrichment

21. International issues in strategy implementation Stages in international development ◦ Stage I (Domestic company) ◦ Stage II (Domestic company with export division) ◦ Stage III (Primarily domestic company with international division) ◦ Stage IV (Multinational corporation with multi-domestic emphasis) ◦ Stage V (Multinational corporation with global emphasis) Sequence might not be always as shown above Same organization can be at a different stage with respect to its multiple products Centralization vs Decentralization ◦ Product group structure e.g. American Cynamid ◦ Geographic area structure e.g Nestle