Strategy Implementation Chapter 12 Strategy Implementation

Objectives 1 understand the importance of strategy implementation in the overall process of strategic management identify and explain key implementation issues with respect to organisational resources, structure and systems understand how to analyse culture and how to manage culture change in an organisation self explanatory Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Objectives 2 apply a robust risk analysis and management strategy to a selected strategy Apply an integrated performance planning framework to coordinate the implementation of strategic, business and individual performance plans know how to avoid common mistakes that cause strategy implementation to fail self explanatory Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Conceptual link between strategy development and implementation External analysis Where to? Options to achieve goals and targets Budget Functions Teams Resources Skills Marketing Process / System SWOT Goals / targets Strategy Action plans Internal analysis Where from? Preferred option Implementation Performance Measures Strategy implementation is the culmination of the strategy formulation process, the former requiring conceptual and abstract skills, and the latter more concrete skills. Ideally managers would possess both sets of skills but in reality few people manage to successfully combine them. This is the stage of the process where the SWOT analysis is converted into specific strategic objectives with strategic targets and the selection of preferred strategies takes place. Once the strategy has been determined, then a set of action plans with performance measures is developed. This process should also include a risk analysis, complete with the development of an appropriate set of contingency plans. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Key issues in strategy implementation corporate-level resource planning task approach historical approach competitive parity approach resource allocation at the SBU level Corporate-level resource planning task approach - each SBU presents an argument for funding which is then decided on by the corporate-level executive team. This approach is used on the basis that is is necessary to have an understanding of the overall mission and strategy to allocate resources appropriately. historical approach - resources are allocated on the basis of previous year plus or minus a given percentage. competitive parity approach -allocates resources on the basis of effectiveness of competition to match rivals resource allocations. Resource allocation at the SBU level - include interest rates, nature of corporate strategy, track record, merits of the case. On the basis of these factor decisions are made on the allocation of resources to the SBU. Resource allocation at the SBU level- requires attention to three basic issues: what resources will any given strategy require for implementation? to what extent do these resources already exist in the organisation? are the required resources available and can they be integrated with one another? Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Organisational structures functional structure regional structure product structure matrix structure SBU structure Functional structure - revolves around each major organisational function. Useful when success depends on performing one or more functions well. Regional structure - revolves around each major geographic market of the organisation. Useful when different skills are needed to market a product in each geographic area. Product structure - revolves around the actual product the organisation provide. Useful when different skills are required to market the product. Matrix structure - revolves around skills and resources used in specific projects. Requires only those people necessary to be involved in projects. SBU structure - revolves around multi-functional, multi-product, multi-market organisations. Useful when seeking improved coordination between wide range of activities. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Implementing organisational restructuring customer requirements and restructuring flattening the organisational structure alternatives to hierarchical structure beyond the hierarchy: network organisations Customer requirements and restructuring - MacMillan and Jones (1984) claim that this requires asking four questions: What value needs to be delivered to the customer to create sustainable competitive advantage? How should tasks be grouped within the organisation to deliver this value most effectively? What linkages are necessary between each major grouping? What support systems are needed? Flattening the organisational structure - flatter structures have important repercussions for management styles. Managers need to focus on providing employees with intrinsic rewards as the extrinsic rewards of promotion tend to diminish in the new structure. Alternatives to hierarchical structure - streamlined administration, increased competition, more-demanding customers, specialists managed by generalists, and other factors all combine to produce the need for flatter organisational structures. Beyond the hierarchy: network organisations -some solutions to overcome the top-down decision making are: decentralisation cross-functional teams Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Hub and Spoke Structure Direction setting and coordinating function Team A Team F Team E Team D Team C Team B goals, plans and budgets Cooperation The hub and spoke structure is one of the organisational frameworks which is more suited to the changes in organisational demands for less hierarchical structures. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Network Structure Customer needs Stakeholder needs Impact of competitors Function Unit A Customer needs Customer needs Function Unit B Function Unit D Stakeholder needs Stakeholder needs The network organisation moves away from the linear approach to organisational management and allows for a quicker response to changing environments. Peer-to peer networking - based on the belief that each member of the organisation is equally important depending on the circumstance. Requires establishment and subsequent dismantling of task forces assigned to specific jobs. There are times when authority needs to be exerted but for the most part teams work on an equal footing. Function Unit C Impact of competitors Impact of competitors Impact of competitors Stakeholder needs Customer needs Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Network organisation Client 3 Functional area A Function area D area E CEO General Manager area B area C Project 1 N Client 1 Project 2 2 Project 3 Project 4 4 Project 5 Project N The key characteristics of the network organisation are: each function area is a centre of specialisation the entire organisation has a strategic vision the entire focus of the structure is on satisfying client needs or fulfilling the requirements of defined projects or programs task forces will change composition in response to needs of clients and projects - experience and knowledge gained through cross team membership is transferable to other areas each team focuses strongly on the client, project or program needs and develops its own goals and purposes each team is responsible for developing its own external network teams may include members from the client organisation Essentially the concept of thinking by superiors and doing by subordinates is removed as is the formalised bureaucratic structure. A major challenge to this way of operating is the expectation by both managers and workers that they will be working in a traditional hierarchical structure. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Organisational systems 1 coordinating activities managerial hierarchy interdepartmental communication committees span of management authority Managerial hierarchy - to implement strategy effectively there needs to be a clear designation of authority. Interdepartmental communications - horizontal communication between managers in different departments, particularly when the value chain flows through several areas. Committees - coordination is the prime objective these groups but unfortunately they can fail due to uncooperative participants. Span of management - variables include level of management concerned economic considerations importance of efficiency as a general rule, most spans of management should lie somewhere between ten and twenty people Authority - refers to the ability of a person to hold the respect of others. line authority exists where people have direct responsibility for achieving primary organisational goals. staff authority refers to a person whose main function is to provide expert advice or service to line staff. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Organisational systems 2 coordinating activities delegation motivation decision-making systems reward and remuneration systems Delegation is the process by which a manager assigns the responsibility and authority for a task to a subordinate. Motivation - most motivational systems are based on Maslow’s hierarchy of needs and Herzberg’s two factor theory. Both are based on the concept that once the basic needs of an individual are met they will move on to more advanced tasks. Decision-making systems - decision avoidance is common in 'reactive' organisations. Some organisations make decisions based on informational bases, others intuitively. Reward and remuneration systems - rewards are vital to organisational success. Rewards should reflect the organisational culture. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Corporate Culture 1 identifying and nurturing shared values the vision of the organisation the kind of human organisation staff want to create principles for managing corporate culture role modelling style of management autocratic collaborative participative Cohesion within an organisation plays an important part in determining future success. Developing the vision and from it specific values will in turn attract the kind of staff that is needed to make this happen. Principles for managing corporate culture are pretty well self explanatory – important point is not do what I say but do what I do – role modelling acceptable behaviours is important for managers. To be effective the style of management will need to reflect the vision of the organisation. A caring sharing vision won’t last long with an autocratic leader. Autocratic – division between thinkers and doers – edict based – senior manage decide others obey Collaborative – staff and management working together through committees and teams to determine best strategies Participative – top down bottom up approach – rewards for appropriate behaviours Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Corporate Culture 2 building consensus positive reinforcement communications recruitment advancement physical design of work environment Building consensus - an organisation which works on building consensus is less likely to have problems with change. Positive reinforcement - all behaviours which are consistent with the values of the organisation should be positively reinforced – failure to do this will undermine the organisation Communications – open and effective communication networks are essential for developing a strong culture. Recruitment – can be used to reinforce current culture or by bringing in ‘new blood’ the culture can be changed. Advancement – internal promotions tend to reinforce current culture and encourage employees to strive for promotion through adherence to the culture of the organisation. Physical design of work environment – has consistently been found to influence working habits and attitudes. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Major factors affecting cultural change Size and complexity Cultural homogeneity Large Small Low High Quadrant 1 Quadrant 2 Moderate difficulty in Great difficulty in implementing cultural change implementing cultural change Quadrant 4 Quadrant 3 Relative ease in implementing Moderate difficulty Membership of an organisation does not guarantee participation in that organisation's culture. The cultural management task has two elements ensuring that employees' behaviours are consistent with the organisation's strategy and to encourage as many employees as possible into willing adoption of the norms of the organisation. This figure shows some of the major factors that will influence change within the culture of an organisation and the likely level of difficulty in implementing cultural change. The larger and more complex the organisational structure, the more difficultly there is likely to be in the cultural change process. In Quadrant 2 organisations where homogeneity is high and the the organisation is large, the greatest difficulty is likely to be experienced whereas in Quadrant 4 where the reverse position is held managers will experience the least difficulty. Where the task of changing the culture appears to be of less value than trying to change it managers can use a number of approaches as a substitute for change. in implementing cultural change cultural change Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Cultural change in organisations 4 options ignore culture manage around the culture change the strategy to fit the culture managing culture change Ignore culture -where the organisation is well placed in its industry and working effectively, changing culture may be too great a task to undertake. In this case the manager can ignore the culture which is commonly practised. Manage around the culture - all organisations are made up of the component parts of staff, systems, structures, and skills. These elements can be managed and combined to implement a particular strategy without changing the culture. Change the strategy to fit the culture - strategies can be altered to fit the prevailing culture of the organisation in the interests of cultural harmony. In cases of this kind the incremental approach targeting small groups of people is more likely to achieve long term cultural change. Managing cultural change - if it is essential for change to take place it is imperative that the change process be carefully planned and controlled. In this case if an ad hoc approach is adopted, the organisation is likely to be fragmented and the change in culture unlikely to materialise. It is better not to attempt change than to do it badly. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Strategic Performance Management Accountability Framework scorecard Figure 12.9 Corporate strategy Current Year priorities Business plan Organisational Capability profile This framework is developed around current year projects and is encompassed in specific staff member’s performance agreement. By locking the project to the staff members at the end of the year it can clearly be seen the level of achievement in each area. The current year priorities are specified in the Business Plan which contains four categories of requirement: Key projects that must be completed in the current year Operational improvements that must be implemented Leadership/management improvements that will support the strategy Capabilities/skills that need improvement to implement the strategy. These requirements are allocated between executives to ensure that all project, operational process, leadership and staff capabilities are in someone’s performance agreement. Project outcomes Operational outcomes Leadership outcomes Capability outcomes Executive accountability schedules / performance agreements Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

Strategy implementation Risk management Integrated performance management Why strategy implementation fails Steps in risk managment Identify the key elements of the new strategy – those that must be achieved if the strategy is to succeed For each identified element, nominate the type of risk that might be encountered, for example financial loss, resource unavailability, customer service, and so on. Decide the level of risk (high, medium or low) Specify what action should be taken to prevent this risk form occurring (risk management strategy) Specify the action that will be taken if this risk does in fact occur (contingency plan). Integrated performance management Treat planning as the foundation of performance management Accountability for achieving planned outcomes must be allocated unambiguously “T Bar” planning is required Overlay the planning framework and the organisational structure Look for the 80/20 opportunity Build top down and bottom up Apply universal rules Operationally owned, expert supported Support the maintenance of budget discipline “Chunk” the implementation process Why strategy implementation fails Inadequate or inappropriate resources Inappropriate structure Application of the incorrect systems Mismanagement of culture/shared values Inadequate risk management Poor performance management. Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia