Module 5 Strategy Implementation: Organizing for Action

Learning objectives:
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
• 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 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

1. Took more time than planned

2. Unanticipated major problems
3. Ineffective coordination
4. Competing activities and crises created distractions
5. Employees with insufficient capabilities
6. Lower-level employees were inadequately trained
7. Uncontrollable external environmental factors
8. Poor departmental leadership and direction
9. Inadequately defined implementation tasks and activities
10. Inefficient information system to monitor activities

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- 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. (Pioneer)

 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

Market Location Tactics: Where to Compete

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.

 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

Offensive Tactics

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

 Frontal assault- In a frontal attack, competitors take on a market leader head-on, matching everything from their
price to their placement and promotions in a bid to overtake the leader.

 Flanking maneuver- a competitive marketing strategy in which one company attacks another in a weak spot,
commonly by paying maximum attention to either a geographic region or a market segment in which the rival is
under-performing.

 Bypass attack- The Bypass Attack is the most indirect marketing strategy adopted by the challenging firm with a
view to surpassing the competitor by attacking its easier markets. The purpose of this strategy is to broaden the
firm's resources by capturing the market share of the competing firm.

 Encirclement- a competitive strategy used by a strong challenger to attack the market leader; the market
challenger launches an attack on several fronts at once in an attempt to break the leader's grip on the market.

 Guerilla warfare- A Guerrilla warfare is the marketing strategy adopted by the challenger firm intended to launch
the intermittent attacks with an intention to harass or demoralize the competitor. This strategy is more a
preparation for the war than an actual war.
Defensive Tactics

These tactics deliberately reduce short-term profitability to ensure long-term profitability:

 Raise structural barriers

 Increase expected retaliation
 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
** 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.

 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.
- 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

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

Structure Follows Strategy

 Structure Follows Strategy
 changes in corporate strategy lead to changes in organizational structure
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 invented
5. Profit returns to its previous level

Stages of Corporate Development

I. Simple Structure
 Flexible and dynamic
II. Functional Structure
 Entrepreneur is replaced by a team of managers
III. Divisional Structure
 Management of diverse product lines in numerous industries
 Decentralized decision making
IV. Beyond SBU’s
 Matrix
 Network
**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
 Internal Lack of ability
 Refusal of top management to delegate
 External
 Economic conditions
 Labor shortages
 Lack of market growth

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)

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

Organizational life cycle- describes how organizations grow, develop and decline. It is the organizational equivalent of
the product life cycle in marketing.

DOMINANT ISSUE POPULAR STRATEGIES LIKELY STRUCTURE

Stage I- BIRTH Concentration in niche Entrepreneur dominated
Stage II- GROWTH Horizontal and vertical growth Functional management emphasized
Stage III- Maturity Concentric and conglomerate Decentralization into profit or
diversification. investment centers.
Stage IV- Decline Profit strategy followed by Structural Surgery
retrenchment.
Stage V- Death Liquidation and Bankruptcy Dismemberment of structure

Advanced Types of Organizational Structures

 Matrix structures- functional and product forms are combined simultaneously at the same level of the
organization
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
Phases of matrix structure development
 Temporary cross-functional task forces
 Product/brand management
 Mature matrix

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

**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
**A newer and somewhat more radical organizational design is the network structure.

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. (Miles and Snow et al.)

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

Reengineering and Strategy Implementation

 Reengineering
- 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

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
• 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.

Process of Six Sigma

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

**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).

 Job characteristics- using task characteristics to improve employee motivation

 Job enrichment- altering the jobs by giving the worker more autonomy and control over activities

I**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

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
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

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

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.