Module 7 - Strategy Implementation

LEARNING OBJECTIVES:

By the end of this lesson, students should be familiar with:

• Functional strategies and their importance to strategy implementation.

• Various organizational structures, their strengths and weaknesses, and how they are
used to support strategy.
• Organization culture and energy and their importance in bringing about positive
organizational change.
• Tactics firms use to foster innovation and entrepreneurship.

CHAPTER TOPICS:

Strategy implementation goes hand-in-hand with strategy formulation. Business-level strategies

are implemented through functional strategies that define the day-to-day decisions made at
the operating level of the firm. Furthermore, the competitive advantages and distinctive
competencies that are sought by firms are often embedded in the skills, resources, and
capabilities at the functional level. Following a detailed discussion of functional strategies, the
chapter moves to organizational structure. The organizational structure should work to align
resources and lines of communication in ways that focus the efforts of the organization.
Organizational culture and energy should also be supportive of the strategies of the firm.
Finally, the chapter discusses how firms can foster innovation and entrepreneurship.

CHAPTER OUTLINE:

I. Opening Vignette—Hewlett-Packard

Hewlett-Packard Company (HP) is one of the leading providers of personal computing devices;
imaging and printing-related products; enterprise information technology (IT); and technology
services, consulting, and outsourcing. The company has made several large acquisitions in
recent years, including computer industry rivals Compaq and Electronic Data Systems. HP is
now the market share leader in desktop personal computers, portable personal computers,
inkjet printers, and laser printers. While acquisitions have contributed to substantial growth in
company revenues, HP’s increasing profit margins are more a function of cost-cutting and
internal efficiency measures.

One of HP’s most successful efficiency programs is what the company calls its “information
technology transformation.” The company completely rebuilt its IT infrastructure and processes
to reduce costs, provide more reliable information, improve business continuity, create a more
simplified system, and support company growth.

Mark Hurd, the CEO, is leading HP’s quest for internal efficiency. He is a numbers-oriented
manager who uses a personal spreadsheet program to track and analyze his own daily
schedule. He not only preaches internal efficiency to internal managers and employees but is
known to share HP’s philosophy with other stakeholders as well. Looking forward, Hurd
believes that HP’s significant competitive advantages include “a strong balance sheet,
diversified revenues with one-third of our revenue and well over half of our profits from
recurring sources such as services and supplies, a lean, variable cost structure and commitment
to continue to eliminate all costs that do not core to the company’s success, and proven
financial and operational discipline.”

II. Functional Strategies

A. The collective pattern of day-to-day decisions made and actions were taken by employees
responsible for value activities creates functional strategies that implement the growth and
competitive strategies of the business.

B. Well-developed functional strategies should have the following characteristics:

1. Decisions made within each function will be consistent with each other.

2. Decisions made within one function will be consistent with those made in other
functions.

3. Decisions made within functions will be consistent with the strategies of the business.

C. Marketing strategy is the plan for investing marketing efforts and resources to achieve
business goals.

1. To support growth strategies, marketing identifies new customer opportunities, suggests

product opportunities, creates advertising and promotional programs, arranges distribution
channels, and creates pricing and customer service policies, which help position the company’s
products for the proper customer groups.

2. If a company pursues a stability or retrenchment strategy within one of its businesses,

marketing may manage a reduction in the number of customer groups, distribution channels,
and products in the product line—all in an attempt to focus on the more profitable and
promising aspects of the business.

3. The competitive strategy of the firm also influences marketing decisions. Low-cost
competitive strategies require low-cost channels of distribution and low-risk product and
market development activities. Differentiation strategies require that marketing identify the
attributes of products and services that customers will value, price, and distribute the product
or service in ways that capitalize on the differentiation, and advertise and promote the image of
difference.

D. Operations strategy is the plan for aligning the product and/or service operations of the
firm with the intended business strategies. The task of operations managers is to design and
manage an operations organization that can create the products and services the firm must
have to compete in the marketplace.

1. Supply chain management, one of the most important areas in operations management,
involves, at a minimum, the integration of the interests of the focal company, the company’s
customers, and the company’s suppliers.

2. Growth strategies may require capacity expansion, hiring of new employees, and new
sourcing arrangements.

3. Retrenchment strategies often target the activities of operations first: line employees are
laid-off, equipment is idled, plants (offices and stores) are closed.

4. Differentiation strategies based on flexibility and high-quality service may require a

flexible or temporary workforce, special arrangements with suppliers, and very high levels of
training for employees.

E. A firm’s R&D strategy should define the priorities for new product and service
development, long-range innovation efforts, the role of intellectual protection, and any alliances
or partnerships needed to advance innovation goals.

F. An organization’s human resources strategy defines its approach to recruitment,

selection, training, performance evaluation, performance rewards, and other key human
resource management practices.

1. Although the HR staff serves as a resource, most of the actual HR decisions are made by
line managers. All managers, whether they are involved in marketing, operations, R&D, or
information systems, play key roles in deciding employee performance levels, training needs,
selection criteria, and salary levels.

2. As companies become more global, the challenges of managing human resources are
becoming more complex.

G. The primary purpose of a financial strategy is to provide the organization with the capital
structure and funds that are appropriate for implementing growth and competitive strategies.
1. The finance group decides the appropriate levels of debt, equity, and internal financing
needed to support strategies by weighing the costs of each alternative, the plans for the funds,
and the financial interests of various internal and external stakeholder groups.

2. Finance also determines dividend policies and, through the preparation of financial
reports, influences how financial performance will be interpreted and presented to
stockholders.

3. All expenditures in capital and expense budgets should be linked back to the strategies of
the firm.

H. The purpose of the information systems strategy is to provide the organization with the
technology and systems that, at a minimum, are necessary for operating, planning, and
controlling the business.

1. Well-designed integrated information systems serve as the foundation for a competitive

advantage by allowing more aggressive cost management than competitors, providing more
effective use of timely market information, or allowing integrated transactions within the supply
chain of customers and suppliers.

2. Some organizations have built their entire competitive strategy on the effective use of
information systems.

3. Many organizations are creating enterprise resource planning (ERP) systems to manage
the flow of information throughout the entire organization.

a. An ERP system supports a wide variety of functions, such as operations and supply
chain management, finance and accounting, human resources, distribution, and customer
relationship management, from a shared data source.

b. Each functional area may have its own software and applications that contribute to
drawing what is needed from a common database. The information contained in the database
should be current, reliable, and easily accessible.

c. ERP systems are useful in achieving the goal of integration across functional
strategies. The effectiveness of strategy implementation efforts is increased in firms in which
employees work as a coordinated system with all of their separate but interdependent efforts
directed toward the goals of the firm.

III. Organizational Structure

A. The formal organizational structure specifies the number and types of departments or
groups and provides the formal reporting relationships and lines of communication among
internal stakeholders. The underlying assumption is that a strategy-structure fit will lead to
superior organizational performance.
B. A functional structure is organized around the inputs or activities that are required to
produce products and services, such as marketing, operations, finance, and R&D.

1. This sort of structure causes people to become focused on a particular function in the
firm. They become experts, which can enhance the quality and efficiency of what they do.

2. In the functional structure, the general manager will tend to make all of the key strategic
decisions for the firm. It is centralized.

C. A divisional structure is organized around the outputs of the organization, such as

products, customers, or geographical regions. People may still work in a functional department
such as marketing or operations, but reporting is through a division manager.

1. Divisional structures are frequently referred to as multidivisional, although some might

argue that the term multidivisional is better suited to the largest and most highly diversified
firms.

2. Divisional structures come in a wide variety of forms. A product structure is organized

around the products of the firm. For instance, an electronics firm might be divided into hand-
held electronics, military guidance systems, and home alarm systems. Divisions might also
represent customer groups, such as consumer or military, or markets, such as the Southern
division, Northern division, Midwestern division, and Western division.

3. A disadvantage is that the same functions are performed by more than one person or
group in a divisional structure. For instance, there is potential for overlap of functions in areas
such as marketing, R&D, and purchasing.

4. In the divisional structure, strategic decisions are shared between the general manager
and the product managers.

D. A hybrid structure that combines some elements of both functional and product/market
forms is called a matrix structure.

1. Project matrix structures are most common in organizations that experience their
workload in the form of projects (construction firms, consulting firms, architectural firms, movie
and television production, and engineering firms).

2. Matrix structures can be disconcerting for employees because of the “too many
bosses” problem. The overall complexity of the structure can create ambiguity and conflict
between functional and product managers and between individuals.

E. The network structure is very decentralized and organized around customer groups or
geographical regions. Network structure represents a web of independent units, with little or
no formal hierarchy to organize and control their relationship.
1. A network structure may not be appropriate when high levels of coordination and
resource sharing are required since it represents an extreme form of decentralization, with
executive-level management serving primarily an advisory function and lower-level managers
controlling most decisions.

2. The weaknesses of the network structure include the potential for lost control of the
autonomous units and high costs from the extensive duplication of resources.

F. When an organization is broadly diversified with several businesses in its portfolio,

management may choose to form strategic business units (SBU), with each unit incorporating a
few businesses that have something in common.

G. The increasing need for strategic flexibility in an increasingly competitive global

marketplace has led to the adoption of alternative, less structured corporate forms of
organization.

1. Sometimes called “modular,” “virtual,” or “network,” these are loosely interconnected

organizational components with boundaries that are not well defined, which are analogous to
the network structure described earlier. They differ in that they involve an extended network of
relationships with external firms, including suppliers, subcontractors, distributors, technology
partners, and other groups as appropriate.

2. In these types of firms, production can involve many firms simultaneously through a
variety of cooperative relationships and joint ventures. They are joined through common goals
and allow components to be recombined into a variety of configurations.

3. Often these types of structures are supplemental to an existing hierarchical

structure within the firm (such as those described in this chapter).

H. Foreign subsidiaries lay one of three roles: local implementation by focusing on one
country, specialized contribution by playing a unique role as a member of an interdependent
network of subsidiaries, or global mandate by managing an entire global business.

IV. Organizational Culture and Energy

A. An organization’s culture is its system of shared values that guides employee decision-
making.

1. Organizational culture often reflects the values and leadership styles of executives and
managers who guide the firm.

B. Organization energy can be described in terms of its intensity and quality.

1. High intensity, positive energy = Passion

2. High intensity, negative energy = Aggression

3. Low intensity, positive energy = Comfort

4. Low intensity, negative energy = Resignation

5. The role of executive leadership is to define and live by the sought-after values, and
harness or redirect the organization’s energy toward the important strategic priorities of the
company.

V. Fostering Innovation and Entrepreneurship

A. Entrepreneurship creates new firm value from innovative ideas.

B. Innovation and entrepreneurship are essential for a firm to differentiate its goods or
services from competitors and create additional or new value for customers, both of which are
critical to achieving competitive advantage.

1. Firms with lots of innovation and entrepreneurship have a strategic direction;

culture; and leaders who encourage creativity, learning, and risk-taking.

2. Information flows easily throughout these organizations, both in face-to-face

interactions and through the firm’s information system.

3. It is also helpful if the firm has slack financial resources, which are those that are not
completely committed to paying existing obligations. High liquidity reflected in higher-than-
necessary cash balances and low debt levels allows a firm the flexibility it may need to pursue
promising new ventures.

4. Furthermore, human resources systems reward behavior that leads to innovation

and entrepreneurship.

5. Also, systems are in place to facilitate the creation of new products, processes, or
services that create value. These systems include a simple approval process for obtaining firm
resources to pursue innovative ideas.

C. Innovative firms learn from their own internal research and development processes,
but they also learn from external stakeholders such as customers, suppliers, and venture
partners. They can learn through communications and transactions with them and pursue new
collaborations with them. Collaborative innovation can be defined as “the pursuit of
innovations across firm boundaries through the sharing of ideas, knowledge, expertise and
opportunities.”