Strategy Implementation
- 1. STRATEGY IMPLEMENTATION --SWAGAT VYAS (RP14051) -
- 2. INTRODUCTION Strategy Formulation and Strategy Implementation are inseparable twins “Even if Compass Bearing is firm , in actual navigation , the ship may veer off its course for many miles. Without a compass bearing, the ship would neither find its port not be able to estimate the time required to get there”~ Peter Drucker A technically imperfect plan that is implemented well will achieve more than the perfect plan that never gets off the paper on which it is typed Strategy Implementation involves analyzing change, organization structure , organization culture and implementation approach
- 3. ANALYZING CHANGE What will be the impact of strategy on organization after change? Change in terms of what ?
- 4. FACTORS OF CHANGE Market Appeals : Packaging changes , Price Changes , Promotion Changes and Distribution Changes Products : New Product, Higher/Lower Range Product , Variant , etc Organization : Changing of organization structure/Culture Industry
- 5. THE DIFFERENCE Strategy Formulation Strategy Implementation Positioning forces before action Managing Forces during action Focuses on effectiveness Focuses on efficiency An intellectual Process An operational process Intuitive and analytical skills required Motivation and leadership skills required Coordination among few select individuals Coordination among many individuals required
- 6. DIMENSIONS OF ORGANIZATION STRUCTURE Structure consists of organizing people efficiently and effectively to achieve organization goals
- 8. FORMALIZATION The continuum of formalization has two extremes: one where there is no formality thereby making a firm an informal organization and the other where the formality is very high making the firm highly formal and rigid. A strategist should give due consideration to both the types of structures before he takes any decision regarding implementation of strategy
- 9. FACTORS INFLUENCING CHOICE OF ORGANIZATIONAL STRUCTURE 1. Strategy-critical Value Chain activities 2. Make or Buy decision 3. Extent of centralization and delegation 4. Availability of cross-unit coordination 5. Availability of collaboration and coordination with outsiders
- 10. TYPES OF ORGANIZATIONAL STRUCTURES 1. SIMPLE ORGANIZATION STRUCTURE The responsibility of strategy formulation and implementation is solely with the owner- manager and the success is contingent upon the calibre he possesses. Strategy implementation takes place at a high pace because of ability to respond quickly to external changing environment This structure is more suitable for small sized business, which may involve single product and market configuration
- 11. . Advantages: This structure offers following advantages: Simple motivation and control systems Quick decision making and response to changing external environmental factors Disadvantages: Following are its disadvantages: Keeps the manager tied up too much with day- to-day matters thereby depriving him of time to formulate future strategies Not suitable when the firm grows
- 12. 2.FUNCTIONAL ORGANIZATIONAL STRUCTURE Under this structure, similar tasks and activities are grouped together as separate functional units within the organization such as marketing, production, design or engineering, finance, personnel, etc. A university may structure its activities by major functions that include academic affairs, student services, alumni relations, athletics, maintenance, and accounting. This structure facilitates specialization, which in turn contributes towards greater expertise, efficiency and refinement in each area. Usually multi-disciplinary teams are set to foster understanding across functions and integrate functions under the supervision of the CEO
- 13. . Though very simple and widely used , this structure comes with demerits Schein gives an example of a communication problem in a functional structure: The word “marketing” will mean product development to the engineer, Studying customers through market research to the product manager, Merchandising to the salesperson, and Constant change in design to the manufacturing manager. Then when these managers try to work together, they often attribute disagreements to personalities and fail to notice the deeper, shared assumptions that vary and dictate how each function thinks
- 14. . Most large companies have abandoned the functional structure in favor of decentralization and improved accountability. However, two large firms that still successfully use a functional structure are Nucor Steel, based in North Carolina, and Sharp, the $17 billion consumer electronics firm.ADVANTAGES DISADVANTAGES Simple and inexpensive Accountability forced to top Minimizes need for elaborate control system Minimizes career development Allows rapid decision making Leads to short term, narrow thinking and communication problems Greater specialization resulting in expertise and efficiency Potential inter-functional rivalry
- 15. 3.DIVISIONAL/DECENTRALIZED ORGANIZATIONAL STRUCTURE Under this structure, divisions are formed on the basis of products, markets, distribution channels or geographic areas All divisions are independent of each other and have their products or markets different from each other. Each division has its own functional personnel organized into departments.
- 16. . Hershey Foods is an example of a company organized using the divisional by geographic region type of structure. Hershey’s divisions are United States , Canada, Mexico, Brazil, and Other. Analysts contend that this type of structure may not be best for Hershey because consumption patterns for candy are quite similar worldwide. An alternative—and perhaps better—type of structure for Hershey would be divisional by product because the company produces and sells three types of products worldwide: (1)chocolate, (2) non-chocolate, and (3) grocery.
- 17. . The divisional structure allows strict control over and attention to product lines, but it may also require a more skilled management force and reduced top management control General Motors, DuPont, and Procter & Gamble use a divisional structure by product to implement strategies. Huffy, the largest bicycle company in the world, is another firm that is highly decentralized based on a divisional-by- product structure. Based in Ohio, Huffy’s divisions are the (i)Bicycle division, (ii)the Gerry Baby Products division, (iii)the Huffy Sports division, (iv) YLC Enterprises, and (v)Washington Inventory Service.
- 18. . Merrill Lynch is organized into separate divisions that cater to different groups of customers, including wealthy individuals, institutional investors, and small corporations. Motorola’s semiconductor chip division is also organized divisionally by customer, having three separate segments that sell to (1) the automotive and industrial market, (2) the mobile phone market, and (3) the data-networking market. A divisional structure by process is similar to a functional structure, because activities are organized according to the way work is actually performed. However, a key 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.
- 19. . ADVANTAGES DISADVANTAGES Accountability is clear Can be Costly Local control of local situations Duplication of functional activities Creates career development chances Requires a skilled management force Competitive climate internally Cross-divisional competition can become dysfunctional Easy adding of new products/regions Can lead to limited sharing of ideas Allows CEO to concentrate on broader strategic decision making Problems in distributing company overheads among divisions Fosters grooming of strategic managers who would be capable of taking corporate level responsibilities Possibility of policy-inconsistency between divisions
- 20. 4. STRATEGIC BUSINESS UNIT (SBU) ORGANIZATIONAL STRUCTURE Under this structure, divisions that have some commonality between them in terms of products or markets or manufacturing or selling are placed in one group called strategic business unit Such divisions usually have similar opportunities and threats and may foster strategy formulation and implementation For Eg :Increases in sales often are not accompanied by similar increases in profitability. The span of control becomes too large at top levels of the firm. A new position is created to oversee the management of the strategic business units at a level higher than the divisional managers and reporting to the CEO
- 21. . When a firm has too many divisions or diversity, the CEO finds it difficult to evaluate and control them effectively, and the SBU structure becomes advisable. For example, in a large conglomerate organization composed of 90 divisions, such as ConAgra, the chief executive officer could have difficulty even remembering the first names of divisional presidents. In multidivisional organizations, an SBU structure can greatly facilitate strategy-implementation efforts. ConAgra has put its many divisions into three primary SBUs: (1) food service (restaurants), (2) retail (grocery stores), and (3) agricultural products.
- 22. . In a 100-division conglomerate, the divisions could perhaps be regrouped into 10 SBUs according to certain common characteristics, such as competing in the same industry, being located in the same area, or having the same customers. Citigroup in 2009 reorganized the whole company into two SBUs: (1) Citigroup, which includes the retail bank, the corporate and investment bank, the private bank, and global transaction services; and (2) Citi Holdings, which includes Citi’s asset management and consumer finance segments, CitiMortgage, CitiFinancial,
- 23. . The huge computer firm Dell Inc., reorganized in 2009 into two SBUs. One SBU is Consumer Products and the other is Commercial. Within its Commercial segment, there are now three worldwide units: (1) large enterprise, (2) public sector, and (3) small and midsize businesses. Atlantic Richfield Fairchild Industries, and Honeywell International are examples of firms that successfully use an SBU-type structure.
- 24. . Sonoco’s SBUs—Industrial Products and Consumer Products—each have four autonomous divisions that have their own sales, manufacturing, R&D, finance, HRM, and MIS functions.
- 25. . ADVANTAGES DISADVANTAGES Improved coordination and accountability. Requires an additional layer of management, which increases salary expenses Makes the tasks of planning and control by the corporate office more manageable. Role of the group vice president is often ambiguous. Fosters grooming of strategic managers who would be capable of taking corporate level responsibilities Defining authority of divisional managers and SBU head is often difficult
- 26. 5.MATRIX ORGANIZATIONAL STRUCTURE A matrix structure is the most complex of all designs because it depends upon both vertical and horizontal flows of authority and communication (hence the term matrix). In contrast, functional and divisional structures depend primarily on vertical flows of authority and communication. Matrix organization provides for dual channels of authority (vertical from the functional managers and horizontal from the project managers), performance responsibility, evaluation and control Under this structure the departmental heads have functional responsibility for all projects or programmes while the project managers have project responsibility for implementing strategy
- 27. . Functional groups provide development of expertise in functional areas while Project departments provide for scheduling, budgeting and general administration for various projects Despite its complexity, the matrix structure is widely used in many industries, including construction, health care, research, and defense. When several variables, such as product, customer, technology, geography, functional area, and line of business, have roughly equal strategic priorities, a matrix organization can be an effective structural form. This structure is suitable for those firms that have various projects or programmes to be pursued simultaneously.
- 28. . A typical matrix structure is illustrated in Figure 7-5. Note that the letters (A through Z4) refer to managers. For example, if you were manager A, you would be responsible for financial aspects of Project 1, and you would have two bosses: the Project 1 Manager on site and the CFO off site.
- 29. . Walt Disney Corp. relies on a matrix structure. For a matrix structure to be effective, organizations need participative planning, training, clear mutual understanding of roles and responsibilities, excellent internal communication , and mutual trust and confidence. ADVANTAGES DISADVANTAGES Project objectives are clear Requires excellent vertical and horizontal flows of communication Employees can clearly see results of their work Costly because creates more manager positions Shutting down a project is easily accomplished Violates unity of command principle Facilitates uses of special equipment/ personnel/facilities Creates dual lines of authority , reward and reporting
- 30. . Thus, we may state the following: 1. All forms of organizational structure are not equally effective in implementing strategy. 2. Structures have a life. 3. Growth of firms may necessitate change in organizational structure. 4. Choice of the structure is an indication of the strategy of the firms.
- 31. ORGANIZATIONAL CULTURE Organizational culture is defined as ‘a category of important stated and unstated assumptions that members of an organization share in common’ There are two types of assumptions—beliefs and values. Beliefs are assumptions about the world and how it functions, whereas values are assumptions about ideals that are worthy of being chased Culture may be a strength or a weakness A culture that simplifies communication, improves decision making, provides for better control and generates a spirit of cooperation reflects strength.
- 32. LEADERSHIP Leaders have to play following five roles in order to implement strategy Monitor progress, identifying and ironing out issues that obstruct good execution Promote esprit de corps(pride and mutual loyalty) Keep the organization tuned to environment so as to take advantages of the opportunities and minimize the impact of threats Ensure ethical conduct of business Take corrective actions to improve implementation
- 33. DIFFERENT APPROACHES TO IMPLEMENTATION There are five C-approaches to strategy implementation: Commander approach Change approach Collaborative approach Cultural approach and Crescive approach
- 34. COMMANDER APPROACH Under this approach, the manager is not actively involved in strategy implementation. All he does is formulate strategy using various analytical tools and leaves the implementation to the subordinates. Suitability of the approach Environment should be reasonably stable. Manager should be capable of wielding sufficient power to command implementation. Advantages of the approach By clearly splitting the process of strategic management into two, that is, strategy formulation and strategy implementation, focus is sought on both the aspects. Limitations of the approach People not involved in strategy formulation may be more inclined not to be committed to the strategy and its implementation.
- 35. COMMANDER APPROACH Under this approach, the manager is not actively involved in strategy implementation. All he does is formulate strategy using various analytical tools and leaves the implementation to the subordinates. Suitability of the approach Environment should be reasonably stable. Manager should be capable of wielding sufficient power to command implementation. Advantages of the approach By clearly splitting the process of strategic management into two, that is, strategy formulation and strategy implementation, focus is sought on both the aspects. Limitations of the approach People not involved in strategy formulation may be more inclined not to be committed to the strategy and its implementation.
- 36. CHANGE APPROACH Here the manager’s role is to engineer systems to effectively implement strategy and involve the organization in implementing the strategy. This includes changing organizational structure and using other organizational change techniques. Suitability of the approach This approach is more suitable for small firms. Environment should be reasonably stable. Advantages of the approach This approach is more effective than the commander approach as it employs behavioural tools and involves the organization. It is used to implement difficult strategies. Limitations of the approach This approach is time consuming.
- 37. COLLABORATIVE APPROACH Under this approach the manager involves different people to discuss strategy formulation and implementation. Thus, his role is limited to facilitate generation and discussion of good ideas. Suitability of the approach This approach is suitable for firms that have managers who are well informed and have a wider mental horizon. Advantages of the approach Strong commitment of people to strategy implementation as they are actively involved both in strategy formulation as well as implementation. Diverse views can be discussed. Limitations of the approach Although different people are involved in discussions, powerful managers may be able to influence them. Since the strategy formulation is a result of either a consensus or majority opinion or is negotiated, the best suited strategy may not be accepted and implemented.
- 38. CULTURAL APPROACH Under this approach the lower level of the management is included in the strategy formulation and implementation. The manager merely impresses his vision and mission for the firm and encourages others to come up with operating details of implementing strategy. Suitability of the approach It is more suitable when people are well informed and have wider mental horizons. Firms should have sufficiently large resources at their disposal. Advantages of the approach This approach dissolves the barriers between thinkers and doers or strategy planners and strategy executives. Strong commitment of people to strategy implementation as they are actively involved both in strategy formulation as well as implementation. Limitations This approach is time consuming. In case of firms with strong cultures, there is a likely resistance to any change or deviation. The approach may result into inbreeding and homogeneity.
- 39. CRESCIVE APPROACH Under this approach strategy formulation and implementation follows the bottom-up approach. It is the subordinates that come up with the formulation as well as implementation. Suitability of the approach This approach is more suitable for large and diversified firms. Advantages and limitations are the same as in case of cultural approach.
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