BBA 502 – Business Strategy

Unit 4 : Implementation of Strategy

4.1 Strategy and Organizational Structure
4.2 Different types of Organizational Structure
4.3 Strategy implementation, and its process
4.4 Organizational Resource Allocation
4.5 Developing Functional Strategies.

Prashant Singh Kutaula

Professor of Practice
School of Management
Graphic Era Hill University

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4.1 Organizational Structure and Controls
Organizational structure specifies:
• the firm’s formal reporting relationships, procedures, controls, and
authority and decision-making processes
• the work to be done and how to do it, given the firm’s strategy or
strategies.
It is critical to match organizational structure to the firm’s strategy.

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4.1 Organizational Structure
Effective structures provide:
• stability
• flexibility
Structural stability provides:
• the capacity required to consistently
and predictably manage daily work
routines.
Structural flexibility provides for:
• the opportunity to explore
competitive possibilities.
• the allocation of resources to
activities that shape needed
competitive advantages.
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4.1 Organizational Controls
Strategic Organizational Financial
Controls Controls Controls

Strategic Controls: Subjective criteria Financial Controls: Objective criteria

• Concerned with examining the fit between: • Accounting-based measures

• what the firm might do (opportunities in its external • Return on investment

environment). • Return on assets
• what the firm can do (competitive advantages). • Market-based measures
• Evaluate the degree to which the firm focuses on the • Economic Value Added (EVA)
requirements to implement its strategy

Relative use of controls varies by type of strategy.

• Large diversified firms using a cost leadership strategy emphasize financial controls.
• Firms and business units using a differentiation strategy emphasize strategic controls.

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4.1 Structure Follows Strategy – Alfred Chandler
Strategy and structure have a reciprocal relationship
• Structure flows from or follows the selection of the firm’s strategy, but…
• once in place, structure can influence current strategic actions as well as choices about future
strategies.
In a classic study of large U.S. corporations such as DuPont, General Motors, Sears, and Standard Oil,
Alfred Chandler concluded that structure follows strategy—that is, changes in corporate strategy lead to
changes in organizational structure.
Chandler, therefore, proposed the following as the sequence of what occurs:
1. New strategy is created.
2. New administrative problems emerge.
3. Economic performance declines.
4. New appropriate structure is created.
5. Economic performance rises.

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4.1 Evolutionary Patterns of Structure and Org. Structure
Firms grow in predictable patterns:
• first by volume; then by geography; then integration (vertical,
horizontal)
• and finally through product/business diversification.

A firm’s growth patterns determine its structural form.

• All organizations require some form of organizational structure to

implement and manage their strategies.
• Firms frequently alter their structure as they grow in size and
complexity.
• Three basic structure types
• Simple structure
• Functional structure
• Multidivisional structure (M-form)

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4.2 Different
types of
Organizational
Structures
• Simple
• Functional
• Divisional
• Strategic business
units
• Conglomerate

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4.2 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

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4.2 Strategy and Structure: Simple Structure
• No functional or product categories
• Appropriate for a small entrepreneur-dominated
company with one or two product lines that operate
in a reasonably small, easily identifiable market
niche
• Employees tend to be generalists and jack of all
trades
• In terms of Stages of Development, this is a Stage I
company

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4.2 Strategy and Structure: Simple Structure
Owner-manager
• Makes all major decisions directly
• Monitors all activities

Staff
• Serves as an extension of the manager’s supervisor authority

Matched with focus strategies and business-level strategies

• Commonly complete by offering a single product line in a single geographic market

Growth creates:
• complexity
• managerial and structural challenges

Owner-managers:
• commonly lack organizational skills and experience.
• become ineffective in managing the specialized and complex tasks involved with multiple organizational functions.

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4.2 Strategy and Structure: Functional Structure
• Appropriate for a
medium sized firm with
several product lines in
one industry
• Employees tend to be
specialists in the Chief Executive Officer (CEO)
business functions that • Limited corporate staff
are important to that Functional line managers in dominant organizational
industry such as areas of:
manufacturing,
marketing, finance and • production / marketing / Engg./ HR / accounting/ R&D
human resources Supports use of business-level strategies and some
corporate-level strategies
• In terms of Stages of
Development, this is a • Single or dominant business with low levels of
Stage II company diversification
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4.2 Strategy and Structure: Functional Structure
Differences in orientation among organizational functions can:
• impede communication and coordination.
• increase the need for CEO to integrate decisions and actions of business
functions.
• facilitate career paths and professional development in specialized
functional areas.
• cause functional-area managers to focus on local versus overall company
strategic issues.

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4.2 Strategy and Structure: Divisional Structure
• Appropriate for a large
corporation with many product
lines in several related industries
• Employees tend to be functional
specialists organized according
to product/market distinctions
• In terms of Stages of
Development, this is a Stage III
company

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4.2 Strategy and Structure: Multidivisional Structure
Strategic Control
• Operating divisions function as separate businesses or profit centers.
Top corporate officer delegates responsibilities to division managers:
• for day-to-day operations.
• for business-unit strategy.
Appropriate as firm grows through diversification
Three Major Benefits
1. Corporate officers are able to more accurately monitor the performance of each
business, which simplifies the problem of control.
2. Facilitates comparisons between divisions, which improves resource allocation process.
3. Stimulates managers of poorly performing divisions to look for ways of improving
performance.
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Blocks to Changing Stages Blocks to Changing Stages (Entrepreneurs)
Internal • Loyalty to comrades (Favoritism)
• Lack of resources • Task oriented (Excessive attention to
• Lack of ability detail)
• Refusal of top • Single-mindedness (Grand vision to
management to delegate Tunnel Vision)
External • Working in isolation (Disastrous for CEO
• Economic conditions with multiple constituencies)
• Labor shortages
• Lack of market growth

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4.2 Strategy and Structure

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4.2 Strategy and Structure

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Organizational life cycle
• describes how organizations grow, develop, and decline
Flexible 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.
• Employees have two superiors, a product or project manager, and a
• Resources are scarce. functional manager.
• The “home” dept.—that is, manufacturing, or sales—is usually
• Abilities to process information and to functional and is reasonably permanent.
make decisions needs to be improved. • People from these functional units are often assigned temporarily to
one or more product units or projects.
• The product units or projects are usually temporary and act like
divisions in that they are differentiated on a product-market basis.

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Flexible Types of Organizational Structures – Matrix Structure
Advantages
• Pioneered in the aerospace industry, the matrix structure was
developed to combine the stability of the functional
structure with the flexibility of the product form.
• The matrix structure is very useful when the external
environment (especially its technological and market
aspects) is very complex and changeable.

Disadvantages:
• produce conflicts revolving around duties, authority, and
resource allocation
• To the extent that the goals to be achieved are vague and the
technology used is poorly understood, a continuous battle for
power between product and functional managers is likely.

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Flexible Types of Organizational Structures
Network Structure
• virtual elimination of in-house biz.
functions as most of the activities
are outsourced
• Enabled by rapid development of
internet based tools that allow
collaboration without physical
presence
• Also, useful when external envt. is
unstable and expected to remain
so
Virtual organization
• Composed of a series of project
groups or collaborations linked by
constantly changing non-
hierarchical, cobweb-like
electronic networks

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Flexible Types of Organizational Structures – Network Structure

Advantages :
• Increased flexibility and adaptability to cope with rapid technological
changes and shifting patterns of International Trade and competition
• Allows co. to concentrate on its distinctive competencies
Disadvantages
• Really only a transitional structure because it is inherently unstable
and subject to tensions.
• Availability of numerous potential partners can be a source of trouble.
• Contracting out individual activities to separate suppliers/distributors
may keep the firm from discovering any internal synergies by
combining these activities.
• If a particular firm overspecializes on only a few functions, it runs the
risk of choosing the wrong functions and thus becoming non-
competitive.

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Centralization versus Decentralization
A basic dilemma an MNC faces is how to organize authority
centrally so it operates as a vast interlocking system that
achieves synergy and at the same time decentralize
authority so that local managers can make the decisions
necessary to meet the demands of the local market or host
government. To deal with this problem, MNCs tend to
structure themselves either along product groups or
geographic areas
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
• Example - The geographic-area structure of Nestlé
allows the company to tailor products to regional
differences and to achieve regional coordination. For
instance, Nestlé markets 200 different varieties of its
instant coffee, Nescafé. The geographic-area structure
decentralizes decision making to the local subsidiaries.

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4.3 Strategy Implementation and its Process
Strategy implementation is the sum total of the activities and choices required for the
execution of a strategic plan. It is the process by which objectives, strategies and
policies are put into action through the development of programs and tactics, budgets
and procedures.
To begin the implementation process, strategy makers must consider these questions:
1.Who are the people who will carry out the strategic plan?
2.What must be done to align the company’s operations in the new intended direction?
3. How is everyone going to work together to do what is needed?

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4.3 Strategy Implementation
• Strategy implementation is “a dynamic, iterative and complex process, which is
comprised of a series of decisions and activities by managers and employees –
affected by a number of interrelated internal and external factors – to turn strategic
plans into reality in order to achieve strategic objectives.
• It is concerned with the managerial exercise of putting a freshly chosen strategy into
place.
• Strategies, by themselves, do not lead to action.
• They are, in a sense, a statement of intent: implementation tasks are meant to
realise the intent.
• Strategies, therefore, have to be activated through implementation.

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Strategy Implementation: Implications
Characteristics: Barriers:
• Action orientation 1. An inability to manage change
2. Poor or vague strategy
• Comprehensive in scope
3. No guidelines or a model to guide implementation efforts
• Integrated process
4. Poor or inadequate information sharing
• Wide-ranging involvement 5. Unclear responsibility and accountability
• Demanding varied skills 6. Took more time than planned
7. Unanticipated major problems
8. Ineffective coordination
9. Competing activities and crises created distractions
10. Employees with insufficient capabilities
11. Lower-level employees were inadequately trained
12. Uncontrollable external environmental factors
13. Poor departmental leadership and direction
14. Key implementation tasks and activities were poorly defined
15. The information system inadequately monitored activities

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4.3 Strategy Implementation: Overcoming Barriers
Adopting a clear model of strategy implementation:
A clear model of the strategy implementation process that provides unambiguous
guidelines to the managers implementing the strategy. Such a model should lay down
the elements, or at least the major themes, of implementation process so that there
is a high level of understanding of how the process has to proceed.

Effective management of change in complex situations:

Implementation almost always creates the need to manage change in complex
organisational contexts. Many of these areas of change are behavioural in nature and
are therefore multifaceted and messy in nature.

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 2-Way Linkage between Formulation and Implementation of Strategy

Forward Linkages: Backward Linkages:

• Different elements in strategy formulation • Past strategic actions also determine the
starting with the various constituents of choice of strategy.
strategic intent through envt. and
organisational appraisal, strategic • Organisations tend to adopt those
alternatives, strategic analysis and choice to strategies which can be implemented with
the strategic plan determine the course that the help of the present structure of
an organisation adopts for itself. resources combined with some additional
efforts.
• With the formulation of new strategies, or
reformulation leading to modified strategies, • Such incremental changes, over a period of
many changes have to be effected within the time, take the organisation from where it is
organisation. to where it wishes to be.
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Mintzberg’s Conception of the Types of Strategy

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4.3 Model of Strategy Implementation

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3 Major Themes in Strategy Implementation
• Activating strategies: The theme of activating strategies serves to prepare the
ground for managerial tasks and activities of strategy implementation.

• Managing change: Two sets of activities under this theme that should enable us to
cover most of the major implementation are tasks: structural implementation and
behavioural implementation.

• Achieving effectiveness: The last theme in strategy implementation is the outcome

of the process. This theme covers two sets of activities of functional and operational
implementation.

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Theme of Managing Change
Degree of change: Changes are usually classified as being radical or incremental, the
difference being in the degree of change that occurs.
Timing of change: It focuses on the question: when to change? Organisations have
choice. They can change either as a reaction to a crisis within or an eventful
happening outside in which case it will be a reactive change. When organisations
choose to foresee change and prepare to face it, it is anticipatory change.
Activity areas of change: The literature on change management mentions several
activity areas of changes sometimes called the methods or types of change. For
instance, available to technology, new products and services, job redesign, and
organisation redesign.

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The Theme of Achieving Effectiveness
Organisational effectiveness means the degree to which an organisation is able
to achieve its objectives.
Organisational effectiveness is a recurring theme in management. Like the theme
of managing change, the theme of achieving effectiveness is of great interest to
managers and scholars of management.
In strategic management, organisational effectiveness is the end that we seek to
attain through implementation of strategies.
There are several issues in management and organisational studies literature on
the theme of organisational effectiveness. There are several approaches or
models available to help us understand what is organisational effectiveness.

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Models of Organizational Effectiveness
• Goal model suggests measuring how well the organisation achieves its goals.
• Profitability, Growth, Market Share, Quality, Efficiency

• Resource-based model lays emphasis on the ability of the organisation to obtain

resources.
• Ability to obtain Finance, Raw Materials, HR, Information

• Internal process model focuses on the internal activities of an organisation to

assess how well they are working.
• Quality of Corporate Culture, Organisation Climate, Teamwork and Communication

• Conflicting values model is an integrative framework that attempts to consolidate

different viewpoints and suggests that organisations do many things and have many
outcomes so diverse indicators of performance should be used simultaneously.

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Pyramid of Strategy Activation
• Strategies should lead to plans.
For instance, if expansion
strategies have been adopted,
various types of expansion plans
will have to be formulated.

• Plans result in different kinds of

programmes.

• A programme is a broad term

which includes goals, policies,
procedures, rules and regulation,
and other steps to be taken in
putting a plan into action.

• Programmes lead to the formulation of projects.

• A project is a highly specific programme for which the time schedule and costs are predetermined. It requires
allocation of funds based on capital budgeting by organisations.

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4.3 Developing Programs, Budgets, and Procedures
Program
• a collection of tactics
Tactics
• individual action taken by the organization as an element of the effort to
accomplish a plan
• Specific operating plan that details how a strategy is to be implemented in
terms of when and where it is to be put into action

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

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Example of Program Implementation at Wipro
• Wipro is the world’s first CMMi* level 5 Six Sigma
certified software company. • analytical method for achieving near perfect results on
a production line
• Earlier it was a vegetable oil company and • emphasis on reducing product variance in order to
boost quality and efficiency
converted itself into global IT services
giant after liberalization. As WIPRO Lean Six Sigma
changed its field of operations, it faced a • includes the removal of unnecessary steps in any
process and fixing those that remain
lot of problems.
Process of Six Sigma
• Managers felt that there was a need of 1. Define a process where results are poorer than
aligning business operations with average.
customer needs and continuous 2. Measure the process to determine current
performance.
improvement. 3. Analyze the information to pinpoint where things are
going wrong.
• Therefore, Wipro began moving towards a 4. Improve the process and eliminate the error.
focus on Quality, thereby creating a 5. Establish controls to prevent future defects from
learning environment that lead to the occurring.
implementation of six sigma.
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Example of Program Implementation at Wipro
Results of the 6 Sigma Program
1. Reduce the data transfer time.
2. Reduce the risk
3. Avoid interruption due to LAN/WAN downtime.
They decided to solve such problems by implementing six sigma.

It has developed a mature Six Sigma program that ensures 91% of projects are
completed on schedule much above industry average of 55%
At Wipro, six sigma meant :
1. To have products and services meet global benchmark.
2. Ensure robust processes within the organisation.
3. Consistently meet & exceed costumer expectation.
4. Make quality a culture within.

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Budgets and Procedures
Planning a budget is the last real check a corporation has on the
feasibility of its selected strategy.
Procedures
• detail the various activities that must be carried out to
complete a corporation’s programs
• standard operating procedures

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Timing Tactics: When to Compete
Timing tactic
• deals with when a company implements a strategy
First mover (Pioneer)
• first company to manufacture and sell a new product or service
Late movers (Imitators)
• may be able to imitate the technological advances of others,
• keep risks down by waiting until a new technological standard or market is
established, and
• take advantage of the first mover’s natural inclination to ignore market
segments

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Advantages of being a First Mover
• Company is able to establish reputation as an industry leader
• Can move down the learning curve to assume cost leader position
• Earn temporarily high profits from buyers who value the product or service very
highly
• Can also set the standard for all subsequent products in the industry
• Results in greater market share and shareholder wealth
• Examples
• Microsoft – Windows Operating System
• Gillette – Leadership position in Razors by continuously introducing new
products

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Timing Tactics: When to Compete
Late movers (Imitators)
• Tend to be large firms with considerable resources and related experience
• Example – Microsoft
• Netscape had set the standard for internet browser in the 1990s
• Microsoft used its resources to directly attack Netscape’s position with its
Internet explorer
• It did not want Netscape to also set standard in intranet market
• By 2004, Netscape was a minor presence

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Market Location Tactics: Where to Compete
Market location tactic
• deals with where a
company implements a
strategy
Offensive tactic
• usually takes place in an
established competitor’s
market location
Defensive tactic
• usually takes place in
the firm’s own current
market position as a
defense against possible
attack by a rival

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 Offensive Tactics - Offensive Tactics -
•
Frontal assault
Attacking firm goes head to head with its competitor
Flanking Maneuvre
• Attacking firm attacks a part of the market
• Matches competitor in every category from price to where the competitor is weak
promotion to distribution to channel
• International Example – Texas Instruments (TI)
• Attacker must have superior resources and willingness
to persevere vs Intel
• Generally a very expensive tactic and may awaken a • TI developed microprocessors for consumer
sleeping giant; depressing profits for the whole electronics, cell phones and medical
industry devices instead of computers where Intel
• Indian Example – Ice Cream Industry dominates
• Amul was the market leader in Mumbai market for • Indian Example – TV Industry
liquid milk. • LG launched Sampoorna Color TV for Rural
• Mother Dairy lunched a frontal attack on Amul by India
launching a blitz of brand awareness campaign,
• Indian Example – Ice Cream Industry
better discount to distribution channel, better
packaging, and ensuring a reach equal to that of • Amul launched Amul Kool and Amul Masti
Amul. Dahi at a low price with same level of quality
• In some time, Mother Dairy has gained respectable as that of competitors in the market
market share in Mumbai market.

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Offensive Tactics - Bypass Attack
• Rather than directly attacking the
established competitor frontally or on its
flanks, a company or business unit may
choose to change rules of game
• Offering a new type of product that makes
competitor’s product unnecessary
• International Example – Apple iPod vs
Microsoft Pocket PC / Palm Pilot
• Apple introduced ipod as a personal digital
music player
• Most radical change to the way people listen to
music since Sony Walkman

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 Offensive Tactics - Offensive Tactics -
Encirclement Guerrilla Warfare
• Usually evolving out of a frontal assault or • Instead of a continual and extensive resource-
flanking maneuver, encirclement occurs as expensive attack on a competitor, a firm or a
an attacking company or unit encircles the business unit may choose to hit and run.
competitor’s position in terms of products or • Small intermittent assaults on different market
markets or both segments held by the competitor
• Encircler has greater product variety ( a • A new entrant or small firm can make some
complete product line, ranging from low to gain without seriously threatening a large,
high price) and serves more markets established competitor and evoking some form
• International Example – Piano Industry of retaliation
• Steinway was a major manufacturer of • Firm conducting guerilla warfare must be
Pianos in US until Yamaha entered US patient enough to accept small gains and avoid
with a broader range of pianos, keyboards pushing established competitor to the point
and other musical instruments that it must respond or lose face.
• Example - Dollar Shaving Club challenged
Gillette with a $1 razor

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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

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Achieving Synergy –
one of the major goals of Strategy Implementation
Synergy
• exists for a divisional corporation if the return on investment is greater than
what the return would be if each division were an independent business

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Six Forms of Synergy
1. Shared know-how 4. Economies of scale or scope
• Coordinating flow of products or services of one
• P&G purchased Gillette for its knowledge
unit with that of another unit can reduce inventory,
of male consumer
increase capacity utilization and improve market
2. Coordinated strategies access – eg Air India – Vistara Merger

• Merger between Jiocinema and Disney 5. Pooled negotiating power

– Hotstar will give the company • Units can combine their volume of purchasing to
significant bargaining strength and gain bargaining power over common suppliers to
flexibility with advertisers reduce costs and improve quality;
3. Shared tangible resources 6. New business creation
• Save money by sharing resources – • Exchanging knowledge and skills can facilitate new
common manufacturing facility or R&D products or services by extracting discrete
Lab; big pharma cos. – savings – Big activities from various units and combining them in
mergers – Pfizer-Wyeth a new unit or by establishing JVs, example – Google
has acquired more than 100 cos. over past 5 years
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Project and Project Management
Project is a temporary group activity designed to produce a unique product, service or
result.
Project management is the application of knowledge, skills and techniques to execute
projects effectively and efficiently.
It’s a strategic competency for organizations, enabling them to tie project results to
business goals — and thus, better compete in their markets.
A project is defined as a temporary endeavour irrespective of how big it is, how much
money is spent, and what time is required.

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Project Management : Sequential Processes
Initiating: Projects are initiated as a part of a programme used to execute a plan to
implement strategies.
Planning: A project plan document is prepared providing details of identification of
activities, sequence of activities, cost estimates, time schedules, resource requirements,
and risk assessment.
Executing: The major part of project management where the activities, identified in the
project plan, are put into action.
Monitoring and controlling: Keeping track of the execution process and exercising controls
on cost, time, resource utilisation, and risk.
Closing: The formal end of the project involving administrative closure and handing over to
operative personnel.

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Strategy Implementation through Project Management: Process 1

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Procedural Implementation Procedural
Implementation in Action
• Regulation is a fact of life for businesses • Organisations react to regulation and restrictions
and industries. by way of non-market strategies.

• Governments and regulators are among • These non-market strategies rely on use of soft
the more important stakeholders of firms. power and influence to gain political and social
leverage. Among non-market strategies are public
• Despite deregulation, that is intended to relations, corporate societal marketing,
loosen the controls - within which any philanthropy, and corporate political activity.
industry or business operates - and let the
market forces determine supply and • Strategist can try to conform to the regulations,
confront the regulations by informed criticism and
demand for products and services, there
lobbying and public relations or work with the
is still more regulation around the world.
government to improve the regulatory framework.
• Often, old regulation is replaced with • At the same time they can adopt an 'existentialist'
newer ones as novel challenges arise and view and continually look for opportunities within
societies and governments respond to the business environment as such an environment
them is substantially affected by government plans,
priorities, policies and actions.

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Regulatory Mechanisms in India Regulatory Elements to be Reviewed
• Regulatory mechanisms for trade, commerce, and • Formation of a company
industry in India span a wide legal framework • Procedures for industrial assistance
consisting of Constitution of India, Directives
Principles, Central laws, State laws, general laws, • Facilitation for fair competition
sector-specific laws, and industry-specific laws, • Procedures for foreign collaboration
and rules and procedures prescribed by the • Procedures for foreign trade
implementing authorities at various levels of Govt.
• Protection of intellectual property
• Following procedures laid down for project
• Requirements of labour legislation
implementation constitutes an important
component of strategy implementation in Indian • Requirements for consumer
context. protection
• Govt. has an elaborate set of procedures depending • Requirements for investor protection
on the type of projects to be implemented. • Requirements for corporate
sustainability
• Govt. agencies at the Central and State levels play a
major role while some procedures require the • Requirements for availing incentives
involvement of the local govt. agencies too. and facilities
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4.4 Resource Allocation
Resource allocation deals with the procurement, commitment, and distribution of
financial, human, informational, and physical resources to strategic tasks for the
achievement of organisational objectives.
Resources allocation is both a one-time and a continuous process. When a new
project is implemented, it would require allocation of resources. An on-going
concern would also require continual infusion of resources.
Strategy implementation should deal with both these types of resources allocation.
Resource allocation especially for financial and physical resources could be done
through budgeting.

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4.4 Strategic Budgeting
The main instrument for resource
allocation is a budget. Budgeting is a
common technique used as a planning,
coordination, and control device in
management. Its usage is widespread in
organisations.
A top-down approach where resources are
distributed through a process of
segregation down to the operating levels.

A bottom-up approach where resources

are allocated after a process of aggregation
from the operating level.
3rd type of approach is a mix of these two
and involves an iterative form of strategic
decision-making between different levels
of management. This approach has been
termed as strategic budgeting.
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4.4 Aligning Resource Allocation to Strategy
• Aligning resource allocation to strategy the basic challenge before the strategists is
how to allocate scarce resources to competitive strategic tasks that lead to the
accomplishment of organisational objectives and realisation of strategic intent.
• A good strategy serves the purpose of telling the managers clearly where their
priorities lie.
• In the absence of guidance from the strategy, managers can easily end up
misallocating resources.
• Such misallocation of resources can take place in two ways.
• First, resources get allocated to tasks that are really not necessary from the strategic point of
view.
• Secondly, tasks that are strategically important may be starved of resources.

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4.4 Factors Affecting Resource Allocation
Objectives of the organisation: There are a number of objectives. Some are official (or
explicit) while others are operative (or implicit). Employees of any organisation tend to
judge the importance given by strategists to tasks on the basis of the amount of
resource allocated to those tasks.
Preference of dominant strategists: The dominant strategists - most often the CEO -
tend to affect the process of resource allocation.
Internal politics : The ownership of resources is often misconstrued as possession of
power.Those departmental units which are able to attract more resources are perceived
as being more powerful.
External influences: Apart from internal politics, external influences also affect
resource allocation. These influences arise due to government policy and stipulations,
the demands of external shareholders, financial institutions, community, and others.

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4.4 Difficulties in Resource Allocation
Scarcity of resources: The major difficulty arises due to a scarcity of resources.
Financial, physical, and human resources are hard to find.
Restrictions on generating resources: The usual budgeting for existing SBUs,
divisions, and departments places restrictions on generating resources for newer units
and those with a greater potential for growth.
Overstatement of needs: Another frequent problem, especially, in a bottom-up
approach to resource allocation is of overstatement of need for resources.
Tendency to imitate competitors: As companies move from one strategy to the next,
often the resource allocation patterns fail to respond to the strategic changes. So,
different companies following different strategies may have similar resource allocation
process and identical resource configurations.

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4.5 Developing Functional Strategies
Functional strategy
• the approach a functional area takes to achieve corporate and business unit (BU) objectives and strategies by
maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide
a co. or BU with a competitive advantage.

• Just as a multidivisional corporation has several BUs, each with its own business strategy (BS), each BU has its own
set of departments, each with its own functional strategy (FS)

• The orientation of a FS is dictated by its parent business unit’s strategy. For example, a BU following a competitive
strategy of differentiation through high quality needs a MFG FS that emphasizes expensive quality assurance
processes over cheaper, high-volume production; a HR FS that emphasizes the hiring and training of a highly skilled,
but costly, workforce; and a marketing functional strategy that emphasizes distribution channel “pull,” using
advertising to increase consumer demand, over “push,” using promotional allowances to retailers.

• If a BU were to follow a low-cost competitive strategy, however, a different set of functional strategies would be
needed to support the business strategy.

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4.5 Developing Functional Strategies - Marketing Strategy
Marketing Strategy
• deals with pricing, selling, and distributing a product
Market Development strategy
• a company or business unit can:
• capture a larger share of an existing market for current products through market saturation and
market penetration (example – P&G, Unilever are experts at using advt. and promotion to implement
a market saturation/penetration strategy to gain dominant market share in a product category.
• develop new uses and/or markets for current products (e.g. – Nestle launched Milkmaid in India as
a substitute for milk; product was unable to grasp customer attention. Nestle extended PLC by
introducing the product as a dessert ingredient)
Product Development Strategy
• a company or unit can:
• develop new products for existing markets (example – Nestle generated new uses for its product
by reformulating it as a Fruit yoghurt and Funshakes)
• develop new products for new markets
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4.5 Developing Functional Strategies - Marketing Strategy
Brand extension
• using a successful brand name to market other products (e.g. – Dettol, originally an antiseptic
company, the co. now sells shaving creams, soaps, etc.)
Push strategy
• spending a large amount of money on trade promotion in order to gain or hold shelf space in retail
outlets

Pull strategy
• advertising to “pull” products through the distribution channels
Skim pricing
• offers the opportunity to “skim the cream” from the top of the demand curve with a high price while
the product is novel and competitors are few
Penetration pricing
• attempts to hasten market development and offers the pioneer the opportunity to use the
experience curve to gain market share with low price and then dominate the industry

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HRM Strategy IT Strategy
HRM strategy
Follow-the-sun
• addresses the issue of whether a co. or management
business unit should hire a large no. of low- • project team members living
in one country can pass their
skilled employees who receive low pay,
work to team members in
perform repetitive jobs, and will most likely quit another country in which the
after a short time (the fast-food restaurant
work day is just beginning

strategy) or hire skilled employees who receive

relatively high pay and are cross-trained to

participate in self-managing work teams

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Financial Strategy R & D Strategy
Financial strategy Research and development (R&D) strategy
• examines the financial implications of • deals with product and process innovation and
corporate and business-level strategic improvement
options and identifies the best financial • also deals with the appropriate mix of different types
course of action of R&D and question of how new technology should
be accessed
The management of dividends and stock
price is an important part of a corporation’s Technological leader
financial strategy.
• pioneering an innovation
Leveraged buyout Technological follower
• company is acquired in a transaction • imitating the products of competitors
financed largely by debt usually obtained
from a third party Open innovation
Reverse stock split • firm uses alliances and connections with corporate,
government, academic labs, and consumers to
• investor’s shares are split in half for the develop new products and processes
same total amount of money

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Operations Logistics Purchasing Strategy
strategy strategy • deals with obtaining raw materials, parts and
supplies needed to perform the operations
• determines how and • deals with the function
where a product or flow of products • 3 Types - multiple, sole, and parallel sourcing
service is to be into and out of
manufactured, the the Multiple sourcing
manufacturing • the purchasing company orders a particular part
level of vertical process from several vendors
integration in the
production process, Sole sourcing
Trends include:
the deployment of • relies on only one supplier for a particular part
physical resources, • centralization
Parallel sourcing
and relationships • outsourcing
• two suppliers are the sole suppliers of two
with suppliers • Internet different parts, but they are also backup
suppliers for each other’s parts

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