Chapter 11

Strategy Implementation

FORMULATION AND IMPLEMENTATION

Strategy formulation The central, integrated, externally oriented concept of how we will achieve our objectives Strategy implementation

Analyze the external And internal environments Define strategic intent and mission Formulate strategies

Implementation Levers & Strategic Leadership

STRATEGIES OF VOLKSWAGENWERK 1920 - 1992

BEFORE 1948 FERDINAND PORSHE - PEOPLES CAR 1920s GOVERNMENT SUPPORT 1934 - PLANT ON STREAM
1939 1939 WAR - PLANT TURNED TO PRODUCTION OF WAR VEHICLES 1948 NORDHOFF PUT IN CHARGE 1948 NORDHOFF TAKES HALF A STRATEGY - PEOPLES CAR ADDS EMHPASIS ON QUALITY, TECHNICAL, EXPORT, SERVICE STANDARDS 1949 - 1958 INTENDED STRATEGY REALIZED CAR IDEAL FOR POST WAR CONDITIONS RAPID EXPANSION IN VOLUME NO NEW MODELS (WORK ON NEW MODEL HALTED IN 1954)

1959
INCREASED COMPETITION AND CHANGES IN TASTES RESPONSE - INCREASED ADVERTISING - DESIGN STARTED FOR 1500 ORIGINAL STRATEGY UNCHANGED IN ESSENTIALS 1960 - 1964 1500 MODEL INTRODUCED SALES INCREASED BUT PROFITS SQUEEZED 1965 - 1975 PRESSURES OF COMPETITION BECOME SEVERE NEW STRATEGY FROM AUDI - FRONT WHEELED DRIVE, STYLISH, WATERCOOLED OTHER LINES DROPPED PRODUCTION RATIONALISED ON WORLD BASIS MARKETING EMPHASISED PERFORMANCE, RELIABILITY AND SERVICE

1976 - 1989 GOLF ESTABLISHED AS MARKET LEADER CONTINUED EMPHASIS ON TECHNICAL EXCELLENCE OLD DESIGNS PERIODICALLY FASHIONABLE MAIN EUROPEAN COMPETITOR SEEN AS FIAT SOME PRESSURE FROM JAPANESE MANUFACTURING

1990 - 1996 INCREASING PRESSSURE ON COSTS FROM JAPANESE MANUFACTURERS GERMAN LABOUR COSTS AND EXCHANGE RATE ARE DISADVANTAGEOUS LATTERLY EUROPEAN RECESSION INCREASES PRESSURE COST CUTTING MEASURES - EAST EUROPEAN PLANT - AGGRESSIVE PURCHASING 1997 - 2000 DEVELOPING SEPARATE BRANDING STRATEGIES TO OCCUPY DIFFERENT MARKET SEGMENTS DEVELOP SEPARATE PRODUCTS FROM COMMON PLATFORMS TO REDUCE COST CONTINUE AGGRESSIVE COST REDUCTION AND PROCESS IMPROVEMENT

Why Does Implementation Matter?

Inappropriate strategy can be partially offset by proper implementation, but poor implementation will usually result in a company performing poorly in the marketplace

Implementation Mistakes made by Companies

Six silent killers of implementation
Top-down or laissez-faire senior management style Unclear strategy and conflicting priorities Ineffective senior management team Poor vertical communication Poor coordination across functions, business, or borders Inadequate down-the-line leadership skills and development

Framework for Implementation

Human Assets

Partnerships

Processes

Business Model Leadership

Organizational Structure

Culture

Systems

MCKINSEYS 7S FRAMEWORK

THE HARD Ss
Strategy: the direction and scope of the company over the long term. Structure: the basic organization of the company, its departments, reporting lines, areas of expertise and responsibility (and how they inter-relate). Systems: formal and informal procedures that govern everyday activity, covering everything from management information systems, through to the systems at the point of contact with the customer (retail systems, call center systems, online systems, etc).

THE SOFT Ss
Skills: the capabilities and competencies that exist within the company. What it does best. Shared values: the values and beliefs of the company. Ultimately they guide employees towards 'valued' behavior. Staff: the company's people resources and how they are developed, trained and motivated.

Style: the leadership approach of top management and the company's overall operating approach.

KEY FACETS OF STRATEGIC IMPLEMENTATION

13

Organization structure
Systems and processes People and rewards
Intended Strategy

Implementation Levers

Realized & Emergent Strategies

Strategic Leadership Lever and resource allocation decisions Communicating the strategy to stakeholders
intended strategy-- plan for action emergent strategy-- process realized strategy--- outcome - source- Henry Mintzberg, 1987

MINTZBERGS CONCEPT OF EMERGENT STRATEGIES NOT ALL INTENDED STRATEGIES ARE REALISED and ... NOT ALL REALISED STRATEGIES ARE INTENDED

DELIBERATIVE STRATEGIES

UNREALISED STRATEGIES

EMERGENT STRATEGIES

Emergent strategies derive from the shared understanding of managing the resources of the organization The concept of emergent strategies therefore has a particular significance for operations strategy

Intended Strategy

Deliberate Strategy

Realised Strategy

Unrealized Strategy

Emergent Strategy

Mintzbergs concept of emergent strategy

Plans are intended strategy, whereas patterns are realised strategy; from this we can distinguish deliberate strategies, where intentions that existed previously were realised, and emergent strategies where patterns developed in the absence of intentions, or despite them.

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ORGANIZATIONAL STRUCTURE ALIGNED TO STRATEGY

Organizational Structure
Insures Control Coordinates Information, Decisions, and activities

Strategy

SIX FORMS OF ORGANIZATIONAL STRUCTURE

Functional Multidivisional Matrix

18

Network
Partnerships Franchises

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FUNCTIONAL STRUCTURE

Corporate Office

Finance

Marketing/ Sales

Operations

R&D

Organizes activities according to the specific functions that a company performs

Example Platypus Technologies has 30 employees organized into small departments: finance, marketing, HR, and R&D

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MULTIDIVISIONAL STRUCTURE
Headquarters One solution to problems of managing activities in multiple markets or managing multiple products

Business Group A
Finance

Business Group B
Finance

Business Group C
Finance

Marketing
Operations

Marketing
Operations Example

Marketing
Operations

GM is organized according to product division (GM Trucks, Chevrolet, Buick, Cadillac, Pontiac, Saturn, etc. Each maintains its own finance, marketing, and other support functions

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MATRIX STRUCTURE
Headquarters
Product or Region A R&D Hybrid between functional and multidivisional structure Product or Region B Product or Region C Product or Region D

Operations

Marketing

Finance

Source: http://www.cio.com/archive/090103/hs_reload.html

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NETWORK STRUCTURE

Project group

Project group

Small, semiautonomous, and potentially temporary groups brought together for a specific purpose

Example Gores 6,000 employees spread across the world work in small teams and are encouraged to seek out colleagues on their own

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PARTNERSHIPS AND FRANCHISES

Partnerships The company is organized as a group of partners who own shares or units in the corporation Example Most law firms

Franchises
Company not only transfers ownership of local facilities to franchisees, but license all local management responsibility

Example Burger King

Organizational Controls
Purposes of Organizational Controls:
Guide the use of strategy.
Indicate how to compare actual results with expected results.

Suggest corrective actions to take when the difference between actual and expected results is unacceptable.

Two Types of Organizational Controls

Strategic controls Financial controls

Organizational Controls
Strategic Controls Organizational Controls Financial Controls

Strategic Controls: Subjective criteria

Are concerned with examining the fit between: What the firm might do (opportunities in its external environment). What the firm can do (competitive advantages). Evaluate the degree to which the firm focuses on the requirements to implement its strategy.

Organizational Controls
Strategic Controls Organizational Controls Financial Controls

Financial Controls: Objective criteria

Accounting-based measures include:
Return on investment Return on assets Market-based measures include: Economic Value Added (EVA)

Strategic Control Systems

Four basic building blocks
Control and efficiency Control and quality Control and innovation Control and responsiveness to customers

Steps in Designing an Effective Control System

Levels of Organizational Control

Types of Strategic Control System

Personal control
Face-to-face interaction

Output control
Performance goals for each division, department, and employee

Behavior control
Rules and procedures to direction actions or behaviors of divisions, functions, and individuals
Operating budget Standardization

Strategic and Financial Controls in a Balanced Scorecard Framework

Financial

Cash flow Return on equity Return on assets Assessment of ability to anticipate customer needs Effectiveness of customer service needs Percentage of repeat business Quality of communications with customers

Customer

Adapted from Figure 12.5

Strategic and Financial Controls in a Balanced Scorecard Framework

Internal Business Processes Learning and Growth
Asset utilization improvements Improvements in employee morale Changes in turnover rates

Improvements in innovation ability Number of new products compared to competitors Increases in employees skills

Adapted from Figure 12.5

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BALANCED SCORECARD IS A MEASUREMENT SYSTEM TO MANAGE STRATEGY IMPLEMENTATION

Financial To Objective Measure Initiative succeed s Targetss financially, s how should we appear to our shareholders?

External To achieve Objective Measure Initiative our vision, s s Targetss how should we appear to our customers?

Vision and Strategy

To satisfy Internal Business Process our Objective Measure Initiative shareholder s s Targetss s and customers, at what business pro-cesses must we excel?

Learning and Growth To achieve Objective Measure Target Initiative our vision, s s s s how will we sustain our ability to change and improve?

Source: Kaplan & Norton, 1996

STRATEGY MAPS HELP LINK ALL PERFORMANCE METRICS TO STRATEGY

Implementation levers34

Sustaining an Effective Organizational Culture

An organizational culture consists of a complex set of ideologies, symbols, and core values that is shared throughout the firm and influences the way it conducts business Shaping the firms culture is a central task of effective strategic leadership

Sustaining an Effective Organizational Culture

An appropriate organizational culture encourages the development of an entrepreneurial orientation among employees and an ability to change the culture as necessary Reengineering can facilitate this process

Sustaining an Effective Organizational Culture Changing Culture and Business Reengineering

The benefits of business reengineering are maximized when employees believe that:
every job in the company is essential and important all employees must create value through their work

Sustaining an Effective Organizational Culture Changing Culture and Business Reengineering

Constant learning is a vital part of every persons job Teamwork is essential to successful implementation Problems are solved only when teams accept the responsibility for the solution

Generic Organizational Culture Types

External
Entrepreneurial
- Unbounded by rules and precedents - Willing to take risks - Flexible - Innovative

Adaptive
- Proactively identifies issues - Good at planning and setting goals - Responsive to market changes - Outcome oriented

Commitment
- Emphasizes internal cohesion, participation, teamwork, and loyalty

Bureaucratic
- Emphasizes stability, established routines, and formal authority

Internal Low
Specificity

High

Human Assets
Recruitment
Refers to the formal task of searching for the right employees

Selection
Is the process of making hiring decisions and formal job offers

Development
Providing the employee a professional development plan to accentuate individual strengths and improve on weaknesses

Retention
Constantly evaluating and ranking employees to ensure the company provides the best work environment and best total compensation packages

 Patterns of interaction, coordination, communication, and decision-making that employees use to standardize how work is done. These must be configured by firms during implementation:
Resource-allocation processes Human resources management processes Manufacturing and distribution processes Payment and billing processes Customer support/handling processes

Processes

PEOPLE AND REWARDS

Successful CEOs attended to people first [and] strategy second. They got the right people on the bus, moved the wrong people off, ushered the right people to right seats and then they figured out where to drive it Jim Collins JetBlue and Southwest Airlines both expend considerable effort making sure new hires will fit the firm

People

Rewards

Implementation levers42

PEOPLE AND REWARDS

People

Reward systems have two components Performance evaluation and feedback Rewards Compensation (e.g., salary, bonuses, stock, promotions, coveted office space) They can serve as a force of control over outcomes or behaviors

GE which owns several unrelated companies, links division manager pay to the performance of the unit they manage

Implementation levers43

Leadership
The Roles of Company Leadership
Responsible for building the capacities needed for strategy implementation Designing structures and systems Setting roles and responsibilities Allocating resources Assigning managers

Leadership (contd)
The Role of Top Leadership
Think strategically Communicate persuasively Act decisively Demonstrate ethical behavior and strong character Build a sense of momentum for their firm

STRATEGIC LEADERSHIP IS RESPONSIBLE FOR 2 KEY OBJECTIVES

Making substantive implementation

lever and resource allocation decisions

Communicating the strategy to key

stakeholders

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STRATEGIC LEADERSHIP COMMUNICATING WITH KEY STAKEHOLDERS

Convince top management of a new strategy (e.g., Intels shift to microprocessors) Upward Managers must sufficiently communicate in 4 directions Downward Win cooperation of external stakeholders including customers and distributors (e.g., Compaq failed to do this with retailers)

Win support of other units within the firm

Across

Outward

Enlist support of those who implement

Strategic Leadership47

THREE CS OF STRATEGY COMMUNICATION

C ontacts C ultural understanding C redibility

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STRUCTURAL OPTIONS
Multinational configuration Resembles a decentralized federation much like the relationship between US federal government and 50 states SAP pre 1990 International configuration Coordinated group of federations over which more administrative control is exerted by home country headquarters SAP post 1990

Descriptio n

Global configuration
Foreign offices are used to access customers, but demand is filled by centralized production Japanese companies 1970s & 1980s

Transnational configuration Structure allows dispersion, specialization, and interdependenc e networked control system McDonalds

Examples

Global and Dynamic contexts

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FIRM RESPONSES TO DYNAMIC CONTEXTS

Challenges of dynamic, high velocity contexts

Two common responses

Ambidextrous
organization

Patching

Global and Dynamic contexts

50

THE AMBIDEXTROUS ORGANIZATION

Corporate Office
Structural barriers preventing interference and interactions between existing and emerging businesses

Existing Business

Emerging Business

Manufacturing

Sales

R&D

Manufacturing

Sales

R&D

Existing organization with historic implementation levers

New organization develops its own levers consistent with the needs of the radical innovation

Ambidextrous organizations establish units that are structurally independent from all other units. The emerging business units are to develop their own structures, processes, systems, cultures, strategies, etc. They are only integrated into the mother organization at the level of senior management
Global and Dynamic 51 contexts

PATCHING
Example: HP Laser printing business Patching: regularly remapping businesses in accordance with changing market conditions and restitching them into internal business ventures

New technologies

New business unit

Global and Dynamic52 contexts

SUMMARY
1 Understand the interdependence between strategy formulation and implementation 2 Demonstrate how to use organizational structure as a strategy implementation levers 3 Understand the use of systems and processes as strategy implementation levers 4 Identify the roles of people and rewards as implementation levers 5 Explain the dual roles that strategic leadership plays in strategy implementation 6 Understand how global and dynamic contexts affect the use of implementation levers 53