Topic 6 Strategy Implementation and Organisational Culture, Leadership and Rewards

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STRATEGY IMPLEMENTATION AND ORGANISATIONAL CULTURE,

LEADERSHIP AND REWARDS


Introduction
Strategy implementation involves translating formulated strategies into action. It entails moving
from “planning your work” to “working your plan”.

Noble‟s (1999a) strategy implementation framework is organized around four major stages of
the implementation effort:
- pre-implementation,
- organizing the implementation effort,
- managing the implementation process,
- maximizing cross-functional performance.
There are five managerial levers for these implementation phases:
- goals,
- organizational structure,
- leadership,
- communications, and
- incentives. According to Noble, the management of these factors changes through the
implementation stages (although they are all important in every single phase).
Considering these factors in combination with each major stage provides a useful
heuristic to improve strategy implementation. The framework is depicted in the table
below.

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Successful strategy implementation depends on the skills of working through others,
organizing, motivating, culture-building, and creating stronger fits between strategy and how
the organization operates. Ingrained behavior does not change just because a new strategy has
been announced.

Strategy implementation has to be tailored to the organization's overall condition and selling, to
the nature of the strategy and the amount of strategic change involved and to the manager's
own skills, style, and methods.

Four broad areas stand out:

1. Performing the recurring administrative tasks associated with strategy


implementation.

2. Creating "fits" between strategy and the various internal "ways of doing things" in order to
align the whole organization behind strategy accomplishment.

3 Figuring out an agenda and a set of action priorities that matches 1 up well with the
organization's overall situation and the context of the- sluing in which imple¬mentation must
take place.

4. What managerial approach and leadership style to adopt in inducing the needed
organizational changes.

The Administrative Aspects of Strategy Implementation

The Manager's role in the implementation process is to leading and keynoting the tone: pace, and
style of strategy implementation. There are many ways to proceed.
A strategy implementer can opt for an active, visible role or a low-key, behind the scenes role.
He or she can elect to make decisions authoritatively or on the basis of consensus, lo delegate
much or little, to be deeply involved in the detail* of implementation or to remain aloof from the
day-to-day problems.

To some extent, therefore, each strategy implementation situation is unique enough [to require
the strategy manager to tailor his or her action agenda to fit the specific 'organizational
environment at hand.
Three organizational issues stand out as dominant in strategy implementation:

• Developing an internal organization structure that is responsive to the


needs of the organization.

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• Developing the skills and distinctive competences in which the strategy grounded
and seeing that the organization has the managerial talents, technical expertise, and
competitive capabilities it needs.
• Selecting people for key positions.
Strategy implementation involves translating formulated strategies into action. It entails moving
from “planning your work” to “working your plan”. Successful implementation of strategy
requires the following;

 Strategies must be communicated and clearly defined for all affected employees.

 All affected employees must receive management support through having an appropriate
organizational structure, empowering policies, sound leadership and effective reward systems.

 Corporate and business-unit strategies must be translated into short-term objectives and
functional strategies.
1. Communicating strategy
A strategy has to be clearly understood before it can be implemented. This gives purpose to the
activities of each employee and allows the employee to link whatever task is at hand to the
overall organizational goal.
It also provides the employee with general guidance for making decisions and enables him/her to
direct efforts towards activities that are important.
2. Strategy and structure relationship
Structure is the sum total of the ways in which the organization divides its labour into distinct
tasks and then achieves coordination between them.
The structure breaks up the company’s work into well defined jobs, assigns these jobs to
departments and people and coordinates these jobs by defining formal lines of authority and
communication.

 A suitable organisation structure is essential to implement strategies and achieve stated


goals. According to Classical Organisation Theorists (Fayol, Taylor, Webber), the
manager generally determines the work activities to get the job done, writes job
descriptions, puts people into groups and assigns them to superiors. He then fixes goals
and deadlines and establishes standards of performance.
 The whole structure takes the shape of a pyramid. Thus, the term ‘organisation structure’
describes the framework of an organisation in which individual effort is coordinated. It is
nothing but a chart of relationships.
 The structural components are generally designed, keeping the requirements of
organisational members in mind, (where they are encouraged to take up the assigned

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jobs, meet the expectations of superiors, earn the rewards and keep the organisation
going).
 Structure, thus, is a means to an end and not an end in itself. It is there to facilitate the
smooth translation of organisational plans, strategies and policies into concrete action.
 Without a proper fit between strategy and structure, there will be chaos and confusion in
the organisation. Various parts do not move in harmony. Delays, duplications and waste
motions may occur with frustrating regularity.
 It may ultimately lead to improper use of facilities and failure to achieve goals. Research
evidence also suggests that structure follows strategy.
 Generally speaking, organisations perform more effectively when they implement
strategy with the most appropriate structure.
 While evaluating whether an organisation is properly structured and stuffed to meet the
requirements of the strategy, the following questions need a careful analysis:
Checklist for determining appropriateness of organisational structure:
 Is the structure compatible with the corporate profile and the corporate strategy?
 At the corporate level, is the structure compatible with the outputs of the firm’s
business units?
 Are there too few or too many hierarchical levels at either the corporate or
business unit level of analysis?
 Does the structure promote coordination among its parts?
 Does the structure allow for appropriate centralisation or decentralisation of
authority?
 Does the structure permit the appropriate grouping of activities?
It is, more or less, agreed now that changes in strategy lead to changes in organisational
structure. Structure should be designed to facilitate the strategic pursuit of a firm and,
therefore, follows strategy. Without a strategy or reasons for being (mission), structure
is not important.
Institutionalising a strategy definitely requires a strategy- structure fit.
While trying to relate the structure to strategy, managers have a wide choice based on
how authority relationships are prescribed, how departments are created etc. The design
choices basically revolve around the following types:

Types of organizational structures


1. Functional organizational structure
2. Geographic
3. Divisional

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4. Strategic business unit
5. Matrix/Complex
1. Functional organizational structure
It is where the organization units are defined by the nature of the work. Most organizations have
four basic functions; production, sales, finance and human resources.
Each of the functions may be broken down where necessary e.g. the production department may
be split into maintenance, quality control, engineering, manufacturing etc. Employees are
grouped by function and report to managers in the same area of functional expertise, who report
to the CEO. Such structure is often used in organizations with a similar or narrow product line.
Advantages
 Develops functional expertise
 Enhances efficient use of resources through specialization
 Centralized control of strategic decisions
Disadvantages
 Encourages narrow specialization when members of a functional group develop more loyalty
to the functional group’s goals.
 Conflict may develop among different departments striving for different goals
 Limits the development of general managers
 Decreases response time as the organization grows.
2. Geographic organizational structure
It is found in organizations that maintain physically dispersed and autonomous operations or
offices. It is commonly used by international organizations and those in the service industry e.g.
banks, insurance companies, retailers, restaurant and hotel chains.
Advantages
 Allows tailoring of strategy to the needs of each geographic market.
 Permits the use of local employees which creates customer goodwill and an awareness of local
feelings and tastes.
 Improves response time to the customer.
 Provides excellent training experience for general managers.
Disadvantages

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 Makes it difficult to maintain consistency of service/ image from area to area.
 Can result in duplication of staff services at headquarters and regional levels.
 Adds another layer of management.
 Creates the dilemma of deciding how much autonomy to give to regional offices.
3. Divisional organizational structures(customer or product-based structures)
They are the structures adopted by organizations characterized by diversified products and
unrelated customer groups.
The different businesses (divisions) are broken down first, then followed by a traditional
functional or geographic breakdown.
Each division operates as an autonomous profit centre headed by a division manager.
Organizations that have largely diversified products and customers use such a structure.
Advantages
 Authority is placed at the appropriate level for rapid response.
 Frees CEOs (top managers) to deal with corporate strategic issues.
 Provides a good training experience for strategic managers.
Disadvantages
 Can result in costly duplication of staff functions at corporate and divisional levels.
 Can enhance negative divisional rivalry for corporate resources.
 Creates the problem of deciding how much authority to delegate to divisional managers.
 Creates the problem of how to equitably distribute corporate resources and overhead costs.
4. Strategic business units
As the number, size and diversity of divisions or businesses grow, some organizations find it
advantageous to group the related businesses under senior managers, who then report directly to
the CEO. The groups created are called strategic business units (SBUs).
Advantages
 Provides coordination among divisions with similar strategic concerns and product markets.
 Directs accountability to distinct business units
Disadvantages
 Adds another layer of management

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 Can increase dysfunctional (negative) competition for corporate resources.
 Can present difficulties in defining the roles and authority of the CEO, the SBU managers and
divisional managers.
5. Matrix structure
Also called “project” structure is a way of forming project teams within the traditional
organization. A project is a combination of human, finance, raw material and machinery
resources pooled together in a temporary organization to achieve a specified purpose. The
development of a new product would be an example of a project.
Employees working on a project are officially assigned to the project and to their original
department. A project manager is given the authority for meeting the project objectives in terms
of cost, quality, quantity and completion time. When the project work is done, the project team is
dissolved and the functional personnel return to their departments.
It may also be in the form of a combination of a functional and a product or market structure
where employees are responsible both to functional managers and to product or market
managers.
Advantages
 Simultaneously accommodates several project- oriented business activities
 Facilitates co-operation and coordination of related activities.
 Provides for training experience for strategic managers.
Disadvantages
 Can result in confusion and contradicting policies.
 Requires a lot of vertical and horizontal coordination.
 May result in slow decisions.
 Hard to maintain a balance between functional and project loyalty.
Restructuring-- matching structure to strategy
This should be done by way of emphasizing on strategically critical activities.
Such activities include distribution, R&D, new product development etc. which should be made
the central building blocks for designing the organizational structure. This should be done with
consideration on the results to be delivered e.g. customer satisfaction, product differentiation,
lower costs, speed of delivery etc. Restructuring is achieved through;

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a. Downsizing; it means laying off large numbers of managerial staff and other employees. This
is aimed at reducing levels of management and widening the span of control to cut costs.
b. Outsourcing; means obtaining work previously done by employees inside the company.
During restructuring certain activities may be seen as not being strategically critical and may
even be done more competently by other outside businesses specializing in them.
Guidelines for designing effective organizational structures
1. A single product organization or one with a single dominant business should use a functional
structure.
2. An organization with regional, national or international locations should use a geographic
structure.
3. An organization with a small number of related lines of business should normally use a
divisional structure.
4. The one with several unrelated lines of business should be organized into strategic business
units.
Organizational Policies
A policy is a broad guide to thinking and action of organization members.
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Policies are directives designed to guide the thinking, decisions and actions of managers and
subordinates in implementing a firm’s strategy.
Whenever strategic changes are made, it is necessary to review current policies and determine
whether they need to be modified.
Matching culture to strategy
Organizational culture refers to the collective assumption and beliefs that pervade the
organization about how business should be conducted and how employees should behave and
should be treated.
A strong culture makes activities predictable i.e. management knows how employees will react
in certain situations.
Strategic change that requires activities different from those suggested by the culture may fail
unless attention is given to matching the strategy and culture.
Three basic considerations should be emphasized by firms seeking to manage a strategy-culture
relationship;
 Key changes should be linked to the basic company mission.

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 Emphasis should be placed on the use of existing personnel where possible to fill positions
created to implement the new strategy because existing personnel possess the shared values and
norms that help ensure cultural compatibility as major changes are made.
 Attention should be made to the changes that are least compatible with the current culture so
that current norms are not disrupted.
Strategy or Culture: Which Is More Important?

Although culture is much more than an “enabler” of strategy, it’s no substitute

“Culture eats strategy for breakfast.” These words, often attributed to Peter Drucker, are
frequently quoted by people who see culture at the heart of all great companies.

The argument goes something like this: “Strategy is on paper whereas culture determines
how things get done. Anyone can come up with a fancy strategy, but it’s much harder to build a
winning culture.

Moreover, a brilliant strategy without a great culture is ‘all hat and no cattle,’ while a
company with a winning culture can succeed even if its strategy is mediocre. Plus, it’s much
easier to change strategy than culture.” The argument’s inevitable conclusion is that strategy is
mere ham and eggs for culture.

But this misses a big opportunity to enhance the power of both culture and strategy. The two
most fundamental strategy questions are: 1. For the company, what businesses should you be in?
2. And for each of those businesses, what value proposition should you go to market with?

A company’s specific cultural strengths must be central to answering that first question i.e what
businesses should you be in

Likewise, companies whose identity and worth are based on discovery and innovation do not
belong in low-margin, price-competitive businesses. For example, pharmaceutical companies
that traditionally compete by discovering novel, patentable drugs and therapies will struggle to
add value to businesses competing in generics. The cultural requirements are just too different.
Maintaining cultural coherence across a company’s portfolio should be an essential factor
when determining a corporate strategy. No culture, however strong, can overcome poor choices
when it comes to corporate strategy.
The impact of culture on a company’s success is only as good as its strategy is sound.
Culture also looms large in answering the second question above i.e what value proposition
should you go to market with?

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Culture is an essential variable—much like your product offering, pricing policy, and
distribution channels—that should be considered when choosing strategies for your individual
businesses. This is especially so when the behavior of your people, and particularly your
frontline staff, can give you an edge with your customers.

Strategy must be rooted in the cultural strengths you have and the cultural needs of your
businesses. If culture is hard to change, which it is, then strategy is too. Both take years to build;
both take years to change. This is one of the many reasons that established companies struggle
with big disruptions in their markets.

Consigning strategy to just a morning meal for culture does injustice to both. Confining
culture to the narrow role of “enabling” strategy prevents it from strengthening strategy by being
part of it. It also weakens the power of strategy to turn your company’s cultural strengths into a
source of enduring advantage.

Don’t let culture eat strategy for breakfast. Have them feed each other.
Strategy and reward/ motivational systems

Highly motivated employees can increase the likelihood that organizational strategies will be
successfully implemented.
The organizational reward system is one of the most effective motivational tools.
The organizational rewards include all types of rewards both intrinsic and extrinsic, which are
received as a result of employment. Intrinsic rewards are such as recognition, responsibility
status, attention, advancement etc. Extrinsic rewards are external and are provided by the
organization and are such as adequate pay, allowances, insurance etc.
Incentive pay plans attempt to tie pay to performance and can be used to motivate employees to
work towards organizational objectives. Such plans will often include commissions, bonuses and
pay rises.
Tactical Issues in Strategy Implementation
For successful implementation of strategy, firstly short-range objectives must be established for
the entire organization. The short-range objectives translate long-range objectives into short-
range targets for eac Secondly, financial resources must be allocated to each organizational unit.
Thirdly strategies must be developed for each of the functional areas (marketing, finance,
production etc).
Short-range objectives
Long-range objectives do not provide the detail necessary to guide daily operations.

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Short-range objectives are more specific, usually focus on a time frame of one year or less and
are often quantifiable.
One way to ensure that short-range objectives are derived from long-range objectives is to use
the cascade approach to setting objectives which consists the following steps;
1. The objective setting process begins at the top of the organization with a statement of purpose
and mission.
2. Long-range objectives are established to achieve this purpose and mission.
3. Long-range objectives lead to the setting of short-range objectives and performance targets for
the overall organization.
4. Long-range and short-range objectives are established for each SBU, major divisions or units
in the organization
5. Short-range objectives are established for the functional areas in each SBU or division.
Benefits of short-term objectives
 They give operating personnel a better understanding of their role in the firm’s mission.
 They provide a basis for strategic control i.e. they provide a clear, measurable basis for
developing budgets and schedules for controlling the implementation of strategy.
 They can be powerful motivators of performance if they are linked to the firm’s reward
system.
Commitment to strategy implementation
Employee input is essential to successful strategy implementation because all decisions made by
strategic managers must ultimately be interpreted and implemented by individual employees.
The best way to achieve understanding and acceptance of strategic decisions is to involve as
many affected employees as possible in the strategic management process.

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