The Strategic Planning Process

In the 1970's, many large firms adopted a formalized top-down strategic planning model.
Under this model, strategic planning became a deliberate process in which top executives
periodically would formulate the firm's strategy, then communicate it down the
organization for implementation. The following is a flowchart model of this process:

The Strategic Planning Process

Mission
|
V
Objectives
|
V
Situation Analysis
|
V
Strategy Formulation
|
V
Implementation
|
V
Control

This process is most applicable to strategic management at the business unit level of the
organization. For large corporations, strategy at the corporate level is more concerned
with managing a portfolio of businesses. For example, corporate level strategy involves
decisions about which business units to grow, resource allocation among the business
units, taking advantage of synergies among the business units, and mergers and
acquisitions. In the process outlined here, "company" or "firm" will be used to denote a
single-business firm or a single business unit of a diversified firm.

Mission
A company's mission is its reason for being. The mission often is expressed in the form of
a mission statement, which conveys a sense of purpose to employees and projects a
company image to customers. In the strategy formulation process, the mission statement
sets the mood of where the company should go.

Objectives

Objectives are concrete goals that the organization seeks to reach, for example, an
earnings growth target. The objectives should be challenging but achievable. They also
should be measurable so that the company can monitor its progress and make corrections
as needed.

Situation Analysis

Once the firm has specified its objectives, it begins with its current situation to devise a
strategic plan to reach those objectives. Changes in the external environment often
present new opportunities and new ways to reach the objectives. An environmental scan
is performed to identify the available opportunities. The firm also must know its own
capabilities and limitations in order to select the opportunities that it can pursue with a
higher probability of success. The situation analysis therefore involves an analysis of both
the external and internal environment.

The external environment has two aspects: the macro-environment that affects all firms
and a micro-environment that affects only the firms in a particular industry. The macro-
environmental analysis includes political, economic, social, and technological factors and
sometimes is referred to as a PEST analysis.

An important aspect of the micro-environmental analysis is the industry in which the firm
operates or is considering operating. Michael Porter devised a five forces framework that
is useful for industry analysis. Porter's 5 forces include barriers to entry, customers,
suppliers, substitute products, and rivalry among competing firms.

The internal analysis considers the situation within the firm itself, such as:

• Company culture
• Company image
• Organizational structure
• Key staff
• Access to natural resources
• Position on the experience curve
• Operational efficiency
• Operational capacity
• Brand awareness
• Market share
• Financial resources
• Exclusive contracts
 • Patents and trade secrets

A situation analysis can generate a large amount of information, much of which is not
particularly relevant to strategy formulation. To make the information more manageable,
it sometimes is useful to categorize the internal factors of the firm as strengths and
weaknesses, and the external environmental factors as opportunities and threats. Such an
analysis often is referred to as a SWOT analysis.

Strategy Formulation

Once a clear picture of the firm and its environment is in hand, specific strategic
alternatives can be developed. While different firms have different alternatives depending
on their situation, there also exist generic strategies that can be applied across a wide
range of firms. Michael Porter identified cost leadership, differentiation, and focus as
three generic strategies that may be considered when defining strategic alternatives.
Porter advised against implementing a combination of these strategies for a given
product; rather, he argued that only one of the generic strategy alternatives should be
pursued.

Implementation

The strategy likely will be expressed in high-level conceptual terms and priorities. For
effective implementation, it needs to be translated into more detailed policies that can be
understood at the functional level of the organization. The expression of the strategy in
terms of functional policies also serves to highlight any practical issues that might not
have been visible at a higher level. The strategy should be translated into specific policies
for functional areas such as:

• Marketing
• Research and development
• Procurement
• Production
• Human resources
• Information systems

In addition to developing functional policies, the implementation phase involves

identifying the required resources and putting into place the necessary organizational
changes.

Control

Once implemented, the results of the strategy need to be measured and evaluated, with
changes made as required to keep the plan on track. Control systems should be developed
and implemented to facilitate this monitoring. Standards of performance are set, the
actual performance measured, and appropriate action taken to ensure success.
Dynamic and Continuous Process

The strategic management process is dynamic and continuous. A change in one

component can necessitate a change in the entire strategy. As such, the process must be
repeated frequently in order to adapt the strategy to environmental changes. Throughout
the process the firm may need to cycle back to a previous stage and make adjustments.

Drawbacks of this Process

The strategic planning process outlined above is only one approach to strategic
management. It is best suited for stable environments. A drawback of this top-down
approach is that it may not be responsive enough for rapidly changing competitive
environments. In times of change, some of the more successful strategies emerge
informally from lower levels of the organization, where managers are closer to customers
on a day-to-day basis.

Another drawback is that this strategic planning model assumes fairly accurate
forecasting and does not take into account unexpected events. In an uncertain world,
long-term forecasts cannot be relied upon with a high level of confidence. In this respect,
many firms have turned to scenario planning as a tool for dealing with multiple
contingencies.

PEST Analysis

A PEST analysis is an analysis of the external macro-environment that affects all firms.
P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of
the external macro-environment. Such external factors usually are beyond the firm's
control and sometimes present themselves as threats. For this reason, some say that "pest"
is an appropriate term for these factors. However, changes in the external environment
also create new opportunities and the letters sometimes are rearranged to construct the
more optimistic term of STEP analysis.

Many macro-environmental factors are country-specific and a PEST analysis will need to
be performed for all countries of interest. The following are examples of some of the
factors that might be considered in a PEST analysis.

Political Analysis

• Political stability
• Risk of military invasion
• Legal framework for contract enforcement
• Intellectual property protection
• Trade regulations & tariffs
• Favored trading partners
 • Anti-trust laws
• Pricing regulations
• Taxation - tax rates and incentives
• Wage legislation - minimum wage and overtime
• Work week
• Mandatory employee benefits
• Industrial safety regulations
• Product labeling requirements

Economic Analysis

• Type of economic system in countries of operation

• Government intervention in the free market
• Comparative advantages of host country
• Exchange rates & stability of host country currency
• Efficiency of financial markets
• Infrastructure quality
• Skill level of workforce
• Labor costs
• Business cycle stage (e.g. prosperity, recession, recovery)
• Economic growth rate
• Discretionary income
• Unemployment rate
• Inflation rate
• Interest rates

Social Analysis

• Demographics
• Class structure
• Education
• Culture (gender roles, etc.)
• Entrepreneurial spirit
• Attitudes (health, environmental consciousness, etc.)
• Leisure interests

Technological Analysis

• Recent technological developments

• Technology's impact on product offering
• Impact on cost structure
• Impact on value chain structure
• Rate of technological diffusion
The number of macro-environmental factors is virtually unlimited. In practice, the firm
must prioritize and monitor those factors that influence its industry. Even so, it may be
difficult to forecast future trends with an acceptable level of accuracy. In this regard, the
firm may turn to scenario planning techniques to deal with high levels of uncertainty in
important macro-environmental variables.

The Value Chain

To better understand the activities through which a firm develops a competitive

advantage and creates shareholder value, it is useful to separate the business system into a
series of value-generating activities referred to as the value chain. In his 1985 book
Competitive Advantage, Michael Porter introduced a generic value chain model that
comprises a sequence of activities found to be common to a wide range of firms. Porter
identified primary and support activities as shown in the following diagram:

Porter's Generic Value Chain

M
A
Outboun Marketing
Inbound R
> Operations > d > & > Service >
Logistics G
Logistics Sales
I
N

Firm Infrastructure
HR Management
Technology Development
Procurement

The goal of these activities is to offer the customer a level of value that exceeds the cost
of the activities, thereby resulting in a profit margin.

The primary value chain activities are:

• Inbound Logistics: the receiving and warehousing of raw materials, and their
distribution to manufacturing as they are required.
• Operations: the processes of transforming inputs into finished products and
services.
• Outbound Logistics: the warehousing and distribution of finished goods.
 • Marketing & Sales: the identification of customer needs and the generation of
sales.
• Service: the support of customers after the products and services are sold to them.

These primary activities are supported by:

• The infrastructure of the firm: organizational structure, control systems, company

culture, etc.
• Human resource management: employee recruiting, hiring, training, development,
and compensation.
• Technology development: technologies to support value-creating activities.
• Procurement: purchasing inputs such as materials, supplies, and equipment.

The firm's margin or profit then depends on its effectiveness in performing these
activities efficiently, so that the amount that the customer is willing to pay for the
products exceeds the cost of the activities in the value chain. It is in these activities that a
firm has the opportunity to generate superior value. A competitive advantage may be
achieved by reconfiguring the value chain to provide lower cost or better differentiation.

The value chain model is a useful analysis tool for defining a firm's core competencies
and the activities in which it can pursue a competitive advantage as follows:

• Cost advantage: by better understanding costs and squeezing them out of the
value-adding activities.
• Differentiation: by focusing on those activities associated with core
competencies and capabilities in order to perform them better than do
competitors.

Cost Advantage and the Value Chain

A firm may create a cost advantage either by reducing the cost of individual value chain
activities or by reconfiguring the value chain.

Once the value chain is defined, a cost analysis can be performed by assigning costs to
the value chain activities. The costs obtained from the accounting report may need to be
modified in order to allocate them properly to the value creating activities.

Porter identified 10 cost drivers related to value chain activities:

• Economies of scale
• Learning
• Capacity utilization
• Linkages among activities
• Interrelationships among business units
• Degree of vertical integration
• Timing of market entry
 • Firm's policy of cost or differentiation
• Geographic location
• Institutional factors (regulation, union activity, taxes, etc.)

A firm develops a cost advantage by controlling these drivers better than do the
competitors.

A cost advantage also can be pursued by reconfiguring the value chain. Reconfiguration
means structural changes such a new production process, new distribution channels, or a
different sales approach. For example, FedEx structurally redefined express freight
service by acquiring its own planes and implementing a hub and spoke system.

Differentiation and the Value Chain

A differentiation advantage can arise from any part of the value chain. For example,
procurement of inputs that are unique and not widely available to competitors can create
differentiation, as can distribution channels that offer high service levels.

Differentiation stems from uniqueness. A differentiation advantage may be achieved

either by changing individual value chain activities to increase uniqueness in the final
product or by reconfiguring the value chain.

Porter identified several drivers of uniqueness:

• Policies and decisions

• Linkages among activities
• Timing
• Location
• Interrelationships
• Learning
• Integration
• Scale (e.g. better service as a result of large scale)
• Institutional factors

Many of these also serve as cost drivers. Differentiation often results in greater costs,
resulting in tradeoffs between cost and differentiation.

There are several ways in which a firm can reconfigure its value chain in order to create
uniqueness. It can forward integrate in order to perform functions that once were
performed by its customers. It can backward integrate in order to have more control over
its inputs. It may implement new process technologies or utilize new distribution
channels. Ultimately, the firm may need to be creative in order to develop a novel value
chain configuration that increases product differentiation.

Technology and the Value Chain

Because technology is employed to some degree in every value creating activity, changes
in technology can impact competitive advantage by incrementally changing the activities
themselves or by making possible new configurations of the value chain.

Various technologies are used in both primary value activities and support activities:

• Inbound Logistics Technologies

o Transportation
o Material handling
o Material storage
o Communications
o Testing
o Information systems

• Operations Technologies
o Process
o Materials
o Machine tools
o Material handling
o Packaging
o Maintenance
o Testing
o Building design & operation
o Information systems

• Outbound Logistics Technologies

o Transportation
o Material handling
o Packaging
o Communications
o Information systems

• Marketing & Sales Technologies

o Media
o Audio/video
o Communications
o Information systems

• Service Technologies
o Testing
o Communications
o Information systems

Note that many of these technologies are used across the value chain. For example,
information systems are seen in every activity. Similar technologies are used in support
activities. In addition, technologies related to training, computer-aided design, and
software development frequently are employed in support activities.

To the extent that these technologies affect cost drivers or uniqueness, they can lead to a
competitive advantage.

Linkages Between Value Chain Activities

Value chain activities are not isolated from one another. Rather, one value chain activity
often affects the cost or performance of other ones. Linkages may exist between primary
activities and also between primary and support activities.

Consider the case in which the design of a product is changed in order to reduce
manufacturing costs. Suppose that inadvertantly the new product design results in
increased service costs; the cost reduction could be less than anticipated and even worse,
there could be a net cost increase.

Sometimes however, the firm may be able to reduce cost in one activity and consequently
enjoy a cost reduction in another, such as when a design change simultaneously reduces
manufacturing costs and improves reliability so that the service costs also are reduced.
Through such improvements the firm has the potential to develop a competitive
advantage.

Analyzing Business Unit Interrelationships

Interrelationships among business units form the basis for a horizontal strategy. Such
business unit interrelationships can be identified by a value chain analysis.

Tangible interrelationships offer direct opportunities to create a synergy among business

units. For example, if multiple business units require a particular raw material, the
procurement of that material can be shared among the business units. This sharing of the
procurement activity can result in cost reduction. Such interrelationships may exist
simultaneously in multiple value chain activities.

Unfortunately, attempts to achieve synergy from the interrelationships among different

business units often fall short of expectations due to unanticipated drawbacks. The cost of
coordination, the cost of reduced flexibility, and organizational practicalities should be
analyzed when devising a strategy to reap the benefits of the synergies.

Outsourcing Value Chain Activities

A firm may specialize in one or more value chain activities and outsource the rest. The
extent to which a firm performs upstream and downstream activities is described by its
degree of vertical integration.
A thorough value chain analysis can illuminate the business system to facilitate
outsourcing decisions. To decide which activities to outsource, managers must understand
the firm's strengths and weaknesses in each activity, both in terms of cost and ability to
differentiate. Managers may consider the following when selecting activities to
outsource:

• Whether the activity can be performed cheaper or better by suppliers.

• Whether the activity is one of the firm's core competencies from which stems a
cost advantage or product differentiation.
• The risk of performing the activity in-house. If the activity relies on fast-changing
technology or the product is sold in a rapidly-changing market, it may be
advantageous to outsource the activity in order to maintain flexibility and avoid
the risk of investing in specialized assets.
• Whether the outsourcing of an activity can result in business process
improvements such as reduced lead time, higher flexibility, reduced inventory,
etc.

The Value Chain System

A firm's value chain is part of a larger system that includes the value chains of upstream
suppliers and downstream channels and customers. Porter calls this series of value chains
the value system, shown conceptually below:

The Value System

Supplier Firm Channel Buyer

... > > > >
Value Chain Value Chain Value Chain Value Chain

Linkages exist not only in a firm's value chain, but also between value chains. While a
firm exhibiting a high degree of vertical integration is poised to better coordinate
upstream and downstream activities, a firm having a lesser degree of vertical integration
nonetheless can forge agreements with suppliers and channel partners to achieve better
coordination. For example, an auto manufacturer may have its suppliers set up facilities
in close proximity in order to minimize transport costs and reduce parts inventories.
Clearly, a firm's success in developing and sustaining a competitive advantage depends
not only on its own value chain, but on its ability to manage the value system of which it
is a part.

The BCG Growth-Share Matrix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce

Henderson of the Boston Consulting Group in the early 1970's. It is based on the
observation that a company's business units can be classified into four categories based
on combinations of market growth and market share relative to the largest competitor,
hence the name "growth-share". Market growth serves as a proxy for industry
attractiveness, and relative market share serves as a proxy for competitive advantage. The
growth-share matrix thus maps the business unit positions within these two important
determinants of profitability.

BCG Growth-Share Matrix

This framework assumes that an increase in relative market share will result in an
increase in the generation of cash. This assumption often is true because of the experience
curve; increased relative market share implies that the firm is moving forward on the
experience curve relative to its competitors, thus developing a cost advantage. A second
assumption is that a growing market requires investment in assets to increase capacity
and therefore results in the consumption of cash. Thus the position of a business on the
growth-share matrix provides an indication of its cash generation and its cash
consumption.

Henderson reasoned that the cash required by rapidly growing business units could be
obtained from the firm's other business units that were at a more mature stage and
generating significant cash. By investing to become the market share leader in a rapidly
growing market, the business unit could move along the experience curve and develop a
cost advantage. From this reasoning, the BCG Growth-Share Matrix was born.

The four categories are:

• Dogs - Dogs have low market share and a low growth rate and thus neither
generate nor consume a large amount of cash. However, dogs are cash traps
because of the money tied up in a business that has little potential. Such
businesses are candidates for divestiture.
• Question marks - Question marks are growing rapidly and thus consume large
amounts of cash, but because they have low market shares they do not generate
 much cash. The result is a large net cash comsumption. A question mark (also
known as a "problem child") has the potential to gain market share and become a
star, and eventually a cash cow when the market growth slows. If the question
mark does not succeed in becoming the market leader, then after perhaps years of
cash consumption it will degenerate into a dog when the market growth declines.
Question marks must be analyzed carefully in order to determine whether they are
worth the investment required to grow market share.
• Stars - Stars generate large amounts of cash because of their strong relative
market share, but also consume large amounts of cash because of their high
growth rate; therefore the cash in each direction approximately nets out. If a star
can maintain its large market share, it will become a cash cow when the market
growth rate declines. The portfolio of a diversified company always should have
stars that will become the next cash cows and ensure future cash generation.
• Cash cows - As leaders in a mature market, cash cows exhibit a return on assets
that is greater than the market growth rate, and thus generate more cash than they
consume. Such business units should be "milked", extracting the profits and
investing as little cash as possible. Cash cows provide the cash required to turn
question marks into market leaders, to cover the administrative costs of the
company, to fund research and development, to service the corporate debt, and to
pay dividends to shareholders. Because the cash cow generates a relatively stable
cash flow, its value can be determined with reasonable accuracy by calculating the
present value of its cash stream using a discounted cash flow analysis.

Under the growth-share matrix model, as an industry matures and its growth rate
declines, a business unit will become either a cash cow or a dog, determined soley by
whether it had become the market leader during the period of high growth.

While originally developed as a model for resource allocation among the various business
units in a corporation, the growth-share matrix also can be used for resource allocation
among products within a single business unit. Its simplicity is its strength - the relative
positions of the firm's entire business portfolio can be displayed in a single diagram.

Limitations

The growth-share matrix once was used widely, but has since faded from popularity as
more comprehensive models have been developed. Some of its weaknesses are:

• Market growth rate is only one factor in industry attractiveness, and relative
market share is only one factor in competitive advantage. The growth-share
matrix overlooks many other factors in these two important determinants of
profitability.
• The framework assumes that each business unit is independent of the others. In
some cases, a business unit that is a "dog" may be helping other business units
gain a competitive advantage.
• The matrix depends heavily upon the breadth of the definition of the market. A
business unit may dominate its small niche, but have very low market share in the
 overall industry. In such a case, the definition of the market can make the
difference between a dog and a cash cow.

While its importance has diminished, the BCG matrix still can serve as a simple tool for
viewing a corporation's business portfolio at a glance, and may serve as a starting point
for discussing resource allocation among strategic business units.

Scenario Planning

Traditional forecasting techniques often fail to predict significant changes in the firm's
external environment, especially when the change is rapid and turbulent or when
information is limited. Consequently, important opportunities and serious threats may be
overlooked and the very survival of the firm may be at stake. Scenario planning is a tool
specifically designed to deal with major, uncertain shifts in the firm's environment.

Scenario planning has its roots in military strategy studies. Herman Kahn was an early
founder of scenario-based planning in his work related to the possible scenarios
associated with thermonuclear war ("thinking the unthinkable"). Scenario planning was
transformed into a business tool in the late 1960's and early 1970's, most notably by
Pierre Wack who developed the scenario planning system used by Royal Dutch/Shell. As
a result of these efforts, Shell was prepared to deal with the oil shock that occurred in late
1973 and greatly improved its competitive position in the industry during the oil crisis
and the oil glut that followed.

Scenario planning is not about predicting the future. Rather, it attempts to describe what
is possible. The result of a scenario analysis is a group of distinct futures, all of which are
plausible. The challenge then is how to deal with each of the possible scenarios.

Scenario planning often takes place in a workshop setting of high level executives,
technical experts, and industry leaders. The idea is to bring together a wide range of
perspectives in order to consider scenarios other than the widely accepted forecasts. The
scenario development process should include interviews with managers who later will
formulate and implement strategies based on the scenario analysis - without their input
the scenarios may leave out important details and not lead to action if they do not address
issues important to those who will implement the strategy.

Some of the benefits of scenario planning include:

• Managers are forced to break out of their standard world view, exposing blind
spots that might otherwise be overlooked in the generally accepted forecast.
• Decision-makers are better able to recognize a scenario in its early stages, should
it actually be the one that unfolds.
• Managers are better able to understand the source of disagreements that often
occur when they are envisioning different scenarios without realizing it.
The Scenario Planning Process

The following outlines the sequence of actions that may constitute the process of scenario
planning.

1. Specify the scope of the planning and its time frame.

2. For the present situation, develop a clear understanding that will serve as the
common departure point for each of the scenarios.
3. Identify predetermined elements that are virtually certain to occur and that will be
driving forces.
4. Identify the critical uncertainties in the environmental variables. If the scope of
the analysis is wide, these may be in the macro-environment, for example,
political, economic, social, and technological factors (as in PEST).
5. Identify the more important drivers. One technique for doing so is as follows.
Assign each environmental variable two numerical ratings: one rating for its range
of variation and another for the strength of its impact on the firm. Multiply these
ratings together to arrive at a number that specifies the significance of each
environmental factor. For example, consider the extreme case in which a variable
had a very large range such that it might be rated a 10 on a scale of 1 to 10 for
variation, but in which the variable had very little impact on the firm so that the
strength of impact rating would be a 1. Multiplying the two together would yield
10 out of a possible 100, revealing that the variable is not highly critical. After
performing this calculation for all of the variables, identify the two having the
highest significance.
6. Consider a few possible values for each variable, ranging between extremes while
avoiding highly improbable values.
7. To analyze the interaction between the variables, develop a matrix of scenarios
using the two most important variables and their possible values. Each cell in the
matrix then represents a single scenario. For easy reference in later discussion it is
worthwhile to give each scenario a descriptive name. If there are more than two
critical factors, a multidimensional matrix can be created to handle them but
would be difficult to visualize beyond 2 or 3 dimensions. Alternatively, factors
can be taken in pairs to generate several two-dimensional matrices. A scenario
matrix might look something like this:

Scenario Matrix

VARIABLE 1

Outcome 1A Outcome 1B
| |
V V
 V
A
R Outcome 2A --> Scenario 1 Scenario 2
I
A
B
L
E Outcome 2B --> Scenario 3 Scenario 4
2

One of these scenarios most likely will reflect the mainstream views of the future.
The other scenarios will shed light on what else is possible.

8. At this point there is not any detail associated with these "first-generation"
scenarios. They are simply high level descriptions of a combination of important
environmental variables. Specifics can be generated by writing a story to develop
each scenario starting from the present. The story should be internally consistent
for the selected scenario so that it describes that particular future as realistically as
possible. Experts in specific fields may be called upon to devlop each story,
possibly with the use of computer simulation models. Game theory may be used
to gain an understanding of how each actor pursuing its own self interest might
respond in the scenario. The goal of the stories is to transform the analysis from a
simple matrix of the obvious range of environmental factors into decision
scenarios useful for strategic planning.
9. Quantify the impact of each scenario on the firm, and formulate appropriate
strategies.

An additional step might be to assign a probability to each scenario. Opinions differ on

whether one should attempt to assign probabilities when there may be little basis for
determining them.

Business unit managers may not take scenarios seriously if they deviate too much from
their preconceived view of the world. Many will prefer to rely on forecasts and their
judgement, even if they realize that they may miss important changes in the firm's
environment. To overcome this reluctance to broaden their thinking, it is useful to create
"phantom" scenarios that show the adverse results if the firm were to base its decisions on
the mainstream view while the reality turned out to be one of the other scenarios.
WHY IMPLEMENTING STRATEGY IS
A TOUGH MANAGEMENT JOB

• Tougher & more time-consuming than strategy-making due to

o Variety of managerial activities
o Many different ways to tackle each activity
o People management skills required
o Perseverance & wave-making it takes to launch a variety of initiatives
o Number of bedeviling issues to be worked through
o Resistance to change to overcome

Implementing a NEW STRATEGY takes adept managerial leadership to

• Overcome pockets of doubt & disagreement

• Build consensus for how to proceed
• Secure commitment & cooperation of concerned parties

CHARACTERISTICS OF STRATEGY IMPLEMENTATION

PROCESS

• Every manager has an active role

• No 10-step checklists & few concrete guidelines
o It’s the least charted, most open-ended part of strategy management
• Best evidence of do’s & don’ts comes from personal experiences, anecdotal
reports, & case studies
o But wisdom yielded is inconsistent
• Get all implementation pieces in placeEach implementation situation occurs in a
different context, affected by differing
o Business practices & competitive situations
o Work environments & cultures
o Policies
o Compensation incentives
o Mixes of personalities & firm histories
• Approach to implementation should be customized
• People implement strategies -- Not companies!

WHAT IS THE GOAL OF

STRATEGY IMPLEMENTATION?

• Unite total organization behind strategy

 • See that activities are done in a manner that tightly matches requirements for first-
rate strategy execution
• Generate such a determined commitment at all organizational levels that an
enthusiastic crusade emerges to carry out strategy
• Create a series of strategy-supportive “fits”

WHO ARE THE

STRATEGY IMPLEMENTERS?

• Implementing strategy is a job for whole management team

• Persons most responsible for implementation effort
o Chief Executive Officer
o Heads of major organizational units
• Implementation involves every organization unit
• Top management has to orchestrate major implementation initiatives
o But they must rely on middle & lower-level managers to get things done
Eight Managerial Components of Implementing Strategy

Corporate

Strategy

Building a

Capable

Organization

Allocating Resources

Establishing Strategy-

Supportive Policies

Instituting Best

Practices for

Continuous

Improvement

Installing Support

Systems for Carrying

Out Strategic Roles

Tying Rewards

to the Achievement

of Key Strategic Targets

Exercising Strategic

Leadership

Shaping Corporate

Culture to Strategy
PRINCIPAL TASKS OF
STRATEGY IMPLEMENTATION

• Building a capable organization

• Allocating ample resources to strategy-critical activities
• Establishing strategy supportive policies & procedures
• Instituting best practices & mechanisms for continuous improvement
• Building a capable organization
• Allocating ample resources to strategy-critical activities
• Establishing strategy supportive policies & procedures
• Instituting best practices & mechanisms for continuous improvement

WAYS TO LEAD
IMPLEMENTATION PROCESS

• Take active, visible role OR low-key, behind the scenes role

• Make decisions on basis of consensus OR authoritatively
• Delegate much OR little
• Be personally involved in implementation details OR coach others carrying day-
to-day burden
• Proceed swiftly to achieve results OR move deliberately, content with gradual
progress over a long time frame

FACTORS INFLUENCING MANAGER IN LEADING

IMPLEMENTATION PROCESS

• His/her experience & accumulated knowledge about business

• Whether manager is new to job or seasoned
• Manager’s network of personal relationships
• Manager’s own diagnostic, administrative, interpersonal, & problem-solving
skills
• Authority which manager has been given
• Leadership style manager is most comfortable with
• Manager’s conclusions about role he/she should play in light of what has to be
done
• Context of organization’s situation

SELECTING PEOPLE
FOR KEY POSITIONS

• What kind of core management team is needed to carry out strategy

• Finding the right people to fill each slot
 o Existing management team may be suitable
o Core executive group may need strengthening
 Promoting from within
 Bringing in skilled management talent from outside
• Determining mix of backgrounds, experiences, know-how, values, styles of
managing, & personalities to
o Contribute to successful strategy execution
• Putting together strong management team with right personal “chemistry” & mix
of skills
o Needs to be acted on early in implementation process

BUILDING A CORE COMPETENCE

• When it is difficult to outstrategize rivals with a superior strategy --

o Next best avenue to industry leadership is to outexecute them --
 Beat them with superior strategy implementation!
o Building core competencies that rivals can’t match is one of the best ways
to outexecute them

Strategically-relevant core competencies

• Greater proficiency in product development

• Better manufacturing know-how
• Superior cost-cutting skills
• Better marketing & merchandising skills
• Capability to provide better after-sale service
• Ability to respond quickly to changes in customer needs

STRATEGIC ROLE OF
TRAINING & RETRAINING

• Training takes on strategic importance in efforts to build a skills-based

competence
• Training is a strategy-critical activity in businesses where technical know-how is
changing or advancing rapidly
• Strategy implementers ensure training function is
o Adequately funded and
o Effective training programs are in place
MATCHING ORGANIZATION STRUCTURE TO STRATEGY

Design internal organization structure

around tasks & activities most critical

to success of a firm’s strategy

Principle

Matching structure to strategy requires

making strategy-critical activities and

organization units the main building

blocks in the organizational structure!

1. Pinpoint primary activities & key tasks critical to successful strategy

execution

2. Establish ways to achieve necessary coordination when it doesn’t

make sense to group all facets of an activity under a single manager

3. Determine degree of authority each unit needs to carry out its

assignment effectively

4. Determine whether non-critical activities can be outsourced more

efficiently than performed internally

Guidelines

• Vary according to
o Particulars of a firm’s strategy
o Value chain make-up
o Competitive requirements
• Identifying a firm’s strategy-critical activities
1. What functions have to be performed extra well & on time to
achieve sustainable competitive advantage?2. In what value-chain
activities would malperformance endanger success?