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Strategy Implementation: Organizing for Action

Chapter 9

Learning Objectives

Develop programs, budgets and procedures to implement strategic change

Understand the importance of achieving synergy during strategy implementation

List the stages of corporate development and the structure that characterizes each stage

Identify the blocks to changing from one stage to another

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After reading this chapter, you should be able to:

Develop programs, budgets and procedures to implement strategic change

Understand the importance of achieving synergy during strategy implementation

List the stages of corporate development and the structure that characterizes each stage

Identify the blocks to changing from one stage to another

Learning Objectives

Construct matrix and network structures to support flexible and nimble organizational strategies

Decide when and if programs such as reengineering, Six Sigma and job redesign are appropriate methods of strategy implementation

Understand the centralization versus decentralization issue in multinational corporations

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After reading this chapter, you should be able to:

Construct matrix and network structures to support flexible and nimble organizational strategies

Decide when and if programs such as reengineering, Six Sigma and job redesign are appropriate methods of strategy implementation

Understand the centralization versus decentralization issue in multinational corporations

Strategy Implementation

Strategy implementation

the sum total of all activities and choices required for the execution of a strategic plan

Who are the people to carry out the strategic plan?

What must be done to align company operations in the intended direction?

How is everyone going to work together to do what is needed?

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Strategy implementation is the sum total of the activities and choices required for the execution of a strategic plan.

To begin the implementation process, strategy makers must consider these questions:

■ 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?

Common Strategy Implementation Problems

Took more time than planned

Unanticipated major problems

Ineffective coordination

Competing activities and crises created distractions

Employees with insufficient capabilities

Lower-level employees were inadequately trained

Uncontrollable external environmental factors

Poor departmental leadership and direction

Inadequately defined implementation tasks and activities

Inefficient information system to monitor activities

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A survey of 93 Fortune 500 firms revealed that more than half of the corporations experienced the following 10 problems when they attempted to implement a strategic change. These problems are listed in order of frequency:

1. Implementation took more time than originally planned.

2. Unanticipated major problems arose.

3. Activities were ineffectively coordinated.

4. Competing activities and crises took attention away from implementation.

5. The involved employees had insufficient capabilities to perform their jobs.

6. Lower-level employees were inadequately trained.

7. Uncontrollable external environmental factors created problems.

8. Departmental managers provided inadequate leadership and direction.

9. Key implementation tasks and activities were poorly defined.

10. The information system inadequately monitored activities.

Developing Programs, Budgets and Procedures

Program

a collection of tactics where a tactic is the individual action taken by the organization as an element of the effort to accomplish a plan

The purpose of a program or a tactic is to make a strategy action-oriented.

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In practice, a program is a collection of tactics where a tactic is the individual action taken by the organization as an element of the effort to accomplish a plan.

The purpose of a program or a tactic is to make a strategy action-oriented.

Timing Tactics: When to Compete

Timing tactic

deals with when a company implements a strategy

First mover

first company to manufacture and sell a new product or service

Late movers

may be able to imitate the technological advances of others, keep risks down by waiting until a new technological standard or market is established and take advantage of the first mover’s natural inclination to ignore market segments

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A timing tactic deals with when a company implements a strategy. The first company to manufacture and sell a new product or service is called the first mover (or pioneer).

Late movers may be able to imitate the technological advances of others (and thus keep R&D costs low), keep risks down by waiting until a new technological standard or market is established and take advantage of the first mover’s natural inclination to ignore market segments

Market Location Tactics: Where to Compete

Market location tactic

deals with where a company implements a strategy.

Offensive tactic

usually takes place in an established competitor’s market location

Defensive tactic

usually takes place in the firm’s own current market position as a defense against possible attack by a rival

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A market location tactic deals with where a company implements a strategy. A company or business unit can implement a competitive strategy either offensively or defensively. An offensive tactic usually takes place in an established competitor’s market location. A defensive tactic usually takes place in the firm’s own current market position as a defense against possible attack by a rival.

Offensive Tactics

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Some of the methods used to attack a competitor’s position are:

Frontal assault

Flanking maneuver

Bypass attack

Encirclement

Guerilla warfare

Frontal assault

Flanking maneuver

Bypass attack

Encirclement

Guerilla warfare

Defensive Tactics

Raise structural barriers

Increase expected retaliation

Lower the inducement for attack

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These tactics deliberately reduce short-term profitability to ensure long-term profitability: raise structural barriers, increase expected retaliation and lower the inducement for attack.

Developing Programs, Budgets and Procedures

Planning a budget is the last real check a corporation has on the feasibility of its selected strategy.

Procedures

detail the various activities that must be carried out to complete a corporation’s programs

Standard operating procedures

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Planning a budget is the last real check a corporation has on the feasibility of its selected strategy. After the divisional and corporate budgets are approved, procedures must be developed. Often called Standard Operating Procedures (SOPs), they typically detail the various activities that must be carried out to complete a corporation’s programs and tactical plans.

Achieving Synergy

Synergy

exists for a divisional corporation if the return on investment is greater than what the return would be if each division were an independent business

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Synergy is said to exist for a divisional corporation if the return on investment (ROI) of each division is greater than what the return would be if each division were an independent business.

Forms of Synergy

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According to Goold and Campbell, synergy can take place in one of six forms:

Shared know-how

Coordinated strategies

Shared tangible resources

Economies of scale or scope

Pooled negotiating power

New business creation

Shared know-how

Coordinated strategies

Shared tangible resources

Economies of scale or scope

Pooled negotiating power

New business creation

Structure Follows Strategy

changes in corporate strategy lead to changes in organizational structure

New strategy is created

New administrative problems emerge

Economic performance declines

New appropriate structure is invented

Profit returns to its previous level

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In a classic study of large U.S. corporations such as DuPont, General Motors, Sears and Standard Oil, Alfred Chandler concluded that structure follows strategy—that is, changes in corporate strategy lead to changes in organizational structure

Chandler, therefore, proposed the following as the sequence of what occurs:

1. New strategy is created.

2. New administrative problems emerge.

3. Economic performance declines.

4. New appropriate structure is created.

5. Economic performance rises.

Factors Differentiating Stage I, II and III Companies

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The differences among these three structural stages of corporate development in terms of typical problems, objectives, strategies, reward systems and other characteristics are specified in detail in Table 9–1.

Stages of Corporate Development

Simple Structure

Flexible and dynamic

Functional Structure

Entrepreneur is replaced by a team of managers

Divisional Structure

Management of diverse product lines in numerous industries

Decentralized decision making

Beyond SBU’s

Matrix

Network

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Successful, large conglomerate organizations have tended to follow a pattern of structural development as they grow and expand. Beginning with the simple structure of the entrepreneurial firm (in which everybody does everything), these organizations tend to get larger and organize along functional lines, with marketing, production and finance departments.

Blocks to Changing Stages

Internal

Lack of resources

Lack of ability

Refusal of top management to delegate

External

Economic conditions

Labor shortages

Lack of market growth

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Blocks to development may be internal (such as lack of resources, lack of ability or refusal of top management to delegate decision making to others) or external (such as economic conditions, labor shortages and lack of market growth).

Blocks to Changing Stages (Entrepreneurs)

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Entrepreneurs who start businesses generally have four tendencies that work very well for small new ventures but become Achilles’ heels for these same individuals when they try to manage a larger firm with diverse needs, departments, priorities and constituencies:

Loyalty to comrades

Task oriented

Single-mindedness

Working in isolation

Loyalty to comrades

Task oriented

Single-mindedness

Working in isolation

Organizational Life Cycle

Organizational life cycle

describes how organizations grow, develop and decline

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The organizational life cycle describes how organizations grow, develop and eventually decline. It is the organizational equivalent of the product life cycle in marketing. These stages are Birth (Stage I), Growth (Stage II), Maturity (Stage III), Decline (Stage IV) and Death (Stage V). The impact of these stages on corporate strategy and structure is summarized in Table 9–2.

Advanced Types of Organizational Structures

Matrix structures

functional and product forms are combined simultaneously at the same level of the organization

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In matrix structures, functional and product forms are combined simultaneously at the same level of the organization.

Matrix Structure

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Figure 9-1

(See Figure 9–1.) Employees have two superiors, a product or project manager, and a functional manager.

Advanced Types of Organizational Structures

Conditions for matrix structures include:

Ideas need to be cross-fertilized across projects or products

Scarcity of resources

Abilities to process information and to make decisions needs to be improved

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The matrix structure is often found in an organization or SBU when the following three conditions exist:

■ Ideas need to be cross-fertilized across projects or products.

■ Resources are scarce.

■ Abilities to process information and to make decisions need to be improved.

Advanced Types of Organizational Structures

Phases of matrix structure development

Temporary cross-functional task forces

Product/brand management

Mature matrix

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Davis and Lawrence, authorities on the matrix form of organization, propose that three distinct phases exist in the development of the matrix structure:

Temporary cross-functional task forces

Product/brand management

Mature matrix

Advanced Types of Organizational Structures

Network structure

virtual elimination of in-house business functions

Virtual organization

composed of a series of project groups or collaborations linked by constantly changing nonhierarchical, cobweb-like electronic networks

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A network structure could be termed a “nonstructure” because of its virtual elimination of in-house business functions. A corporation organized in this manner is often called a virtual organization because it is composed of a series of project groups or collaborations linked by constantly changing nonhierarchical, cobweb-like electronic networks

Network Structure

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Figure 9-1

A newer and somewhat more radical organizational design is the network structure (see Figure 9–1).

Cellular/Modular Organization: A New Type of Structure?

Cellular/Modular structure

composed of cells (self-managing teams, autonomous business units, etc.) which can operate alone but which can interact with other cells to produce a more potent and competent business mechanism

Beginning to appear in firms that are focused on rapid product and service innovation

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According to Miles and Snow et al., “a cellular organization is composed of cells (self-managing teams, autonomous business units, etc.) which can operate alone but which can interact with other cells to produce a more potent and competent business mechanism.”

Reengineering and Strategy Implementation

Reengineering

the radical redesign of business processes to achieve major gains in cost, service or time

effective program to implement a turnaround strategy

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Reengineering is the radical redesign of business processes to achieve major gains in cost, service or time. It is not in itself a type of structure, but it is an effective program to implement a turnaround strategy.

Principles for Reengineering

Organize around outcomes, not tasks

Have those who use the output of the process perform the process

Subsume information-processing work into real work that produces information

Treat geographically-dispersed resources as though they were centralized

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Michael Hammer, who popularized the concept of reengineering, suggests the following principles for reengineering:

Organize around outcomes, not tasks

Have those who use the output of the process perform the process

Subsume information-processing work into real work that produces information

Treat geographically-dispersed resources as though they were centralized

Principles for Reengineering

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

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Some other principles are:

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

Six Sigma

analytical method for achieving near perfect results on a production line

emphasis is on reducing product variance in order to boost quality and efficiency

Lean Six Sigma

includes the removal of unnecessary steps in any process and fixing those that remain

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Six Sigma is an analytical method for achieving near-perfect results on a production line. A new program called Lean Six Sigma is becoming increasingly popular in companies.

Process of Six Sigma

Define a process where results are poorer than average

Measure the process to determine current performance

Analyze the information to pinpoint where things are going wrong

Improve the process and eliminate the error

Establish controls to prevent future defects from occurring

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The process of Six Sigma encompasses five steps.

1. Define a process where results are poorer than average.

2. Measure the process to determine exact current performance.

3. Analyze the information to pinpoint where things are going wrong.

4. Improve the process and eliminate the error.

5. Establish controls to prevent future defects from occurring.

Designing Jobs to Implement Strategy

Job design

the study of individual tasks in an attempt to make them more relevant to the company and to the employees

Job enlargement

combining tasks to give a worker more of the same type of duties to perform

Job rotation

moving workers through several jobs to increase variety

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Job design refers to the study of individual tasks in an attempt to make them more relevant to the company and to the employee(s).

To minimize some of the adverse consequences of task specialization, corporations have turned to new job design techniques: job enlargement (combining tasks to give a worker more of the same type of duties to perform) and job rotation (moving workers through several jobs to increase variety).

Designing Jobs to Implement Strategy

Job characteristics

using task characteristics to improve employee motivation

Job enrichment

altering the jobs by giving the worker more autonomy and control over activities

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To minimize some of the adverse consequences of task specialization, corporations have turned to new job design techniques: job characteristics (using task characteristics to improve employee motivation) and job enrichment (altering the jobs by giving the worker more autonomy and control over activities).

International Issues in Strategy Implementation

Multinational corporation (MNC)

a highly developed international company with a deep involvement throughout the world, plus a worldwide perspective in its management and decision making

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A multinational corporation (MNC), in contrast, is a highly developed international company with a deep involvement throughout the world, plus a worldwide perspective in its management and decision making.

Drivers for Strategic Fit among Alliance Partners

Partners must agree on values and vision

Alliance must be derived from business, corporate and functional strategy

Alliance must be important to partners, especially top management

Partners must be mutually dependent for achieving objectives

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Key drivers for strategic fit between alliance partners are the following:

■ Partners must agree on fundamental values and have a shared vision about the potential for joint value creation.

■ Alliance strategy must be derived from business, corporate and functional strategy.

■ The alliance must be important to both partners, especially to top management.

■ Partners must be mutually dependent for achieving clear and realistic objectives.

■ Joint activities must have added value for customers and the partners.

■ The alliance must be accepted by key stakeholders.

■ Partners contribute key strengths but protect core competencies.

Stages of International Development

Stage 1: Domestic company

Stage 2: Domestic company with export division

Stage 3: Primarily domestic company with international division

Stage 4: Multinational corporation with multidomestic emphasis

Stage 5: Multinational corporation with global emphasis

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Corporations operating internationally tend to evolve through five common stages, both in their relationships with widely dispersed geographic markets and in the manner in which they structure their operations and programs. These stages of international development are:

Stage 1: Domestic company

Stage 2: Domestic company with export division

Stage 3: Primarily domestic company with international division

Stage 4: Multinational corporation with multidomestic emphasis

Stage 5: Multinational corporation with global emphasis

Centralization versus Decentralization

Product group structure

enables the company to introduce and manage a similar line of products around the world

enables the corporation to centralize decision making along product lines and to reduce costs

Geographic area structure

allows the company to tailor products to regional differences and to achieve regional coordination

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The product-group structure of American Cyanamid enables the company to introduce and manage a similar line of products around the world. This enables the corporation to centralize decision making along product lines and to reduce costs.

The geographic-area structure allows a company to tailor products to regional differences and to achieve regional coordination.

Geographic Area Structure for an MNC

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Figure 9-2

Two examples of the usual international structure are Nestlé and American Cyanamid. Nestlé’s structure is one in which significant power and authority have been decentralized to geographic entities. This structure is similar to that depicted in Figure 9–2, in which each geographic set of operating companies has a different group of products.

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