Strategy Implementation

1
Strategy Implementation

• Concept of Strategy Implementation

• Necessity of fit

• Importance of integrating strategy
  implementation with
• strategy formulation.
• Interrelationships between components or
  dimensions of strategy
• implementation.

• Focus on structure and control related issues.

2
Strategy Implementation

• Sears example

• In 1983 Sears implements one-stop shopping
  banking-financial
• services power.

• Sears retail unit fell to 3 behind low-cost
  providers (Walmart
• and K-Mart).

• Specialty retailers (focused differentiators)
  such as The Gap,
• The Limited, Toys-R-Us, and Kids-R-Us took
  market share.

• Sears was outperformed by both low-cost and
  focused differentiators.

• Sears initiated restructuring in 1992 after
  losing 3.8 billion.

3
Strategy Implementation

• Sears example

• What happened? Why did Sears fail so
  dramatically?

- Lost ability to control core business (too
diversified).
- Resources were taken from retail and given to
new ventures.
- Managers spent too much time on diversified
businesses.
- Managed retail segment using financial
controls.
- Sears suffered from post-merger drift.

• Lost operational understanding of the
  competitive dynamics
• in the retail industry.

4
Strategy Implementation
Structure
Decision Processes and Controls
Task-Focus (Value)
Firm Performance
Firm Strategy
Reward Systems
People
5
Strategy Implementation
Decision Processes and Controls
Task-Focus (Value)
Structure

• Uncertainty
• Diversity
• Interdependence

• Division of labor
• Departmentalization
• Shape
• Distribution of power

• Planning and control systems
• Integration roles
• Information systems
• Decision making procedures

• Performance
• measures
• Compensation
• Promotion
• Job design

Reward Systems
People

• Recruiting and selection
• Leader style
• Transfer and promotion
• Training and development

6
Strategy Dominant Business Vertically Integrated Unrelated Diversified Growth through Acquisition Related Diversified Growth thru internal development some acquisition
Task Focus (Value) Degree of integration Market share and power Product line breadth Vertical economies Degree of diversity Types of business Resource allocation across business Entry and exit businesses Financial economies Realization of synergy from related product process, technology, and markets Resource allocation Diversification opportunities Synergistic economies
Structure Centralized functional Top control of strategic decisions Delegation of operations through plans and procedures Highly decentralized product divisions/profit centers Small corporate office No centralized line functions Almost complete delegation of operations and strategy within existing businesses Control thru results, selection of management, and capital allocation Multidivisional/profit centers Grouping of highly related businesses with some centralized functions within groups Delegated responsibility for operation Shared responsibility for strategy
Decision Processes and Controls Coordination and integration thru structure, rules, planning, and budgeting Use of integrating roles for project activity across functions No integration across businesses Coordination and information flows between corporate and division levels around management information systems and budgets Coordinate and integrate across businesses and between levels with planning integrating roles, integrating depths
Reward Systems Performance against functional objectives Mix of objective and subjective performance measures Strategic controls Formula based bonus on ROI or profitability of divisions Strict objective, impersonal evaluation Bonus based on divisional and/or corporate performance Mix of objective and subjective performance measures
People Primarily functional specialists Some inter-functional movement to develop some general managers Aggressive, independent general managers of divisions Career development opportunities are primarily intra-divisional Broad requirements for general managers and integrators Career development is inter-divisional, cross-functional, and corporate- divisional

7
Strategy Implementation

• Organization Structures

• Simple Structure

• Owner-manager makes decisions.
• Little specialization of tasks.
• Few rules, little formalization.
• Advantages

• Provides high flexibility
• Rapid product introduction
• Few coordination problems

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• Organization structure

• Functional structure

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Strategy Implementation

• Organization structure

• Functional structure

• Advantages

• Centralized control of operations
• Promotes in-depth functional expertise
• Enhances operating efficiency where tasks are
  routine

• Disadvantages

• Functional coordination problems
• Inter-functional rivalry
• Overspecialization and narrow viewpoints
• Hinders development of cross-functional
  experience
• Slower to respond in turbulent environments

10

• Organization structure

• Product-divisional structure

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Strategy Implementation

• Organization structure

• Product-divisional structure

• Organization based on products versus functions

• Each division is a separate business in which
  day-to-day
• decisions are delegated to divisional
  managers.

• Divisions are managed using strategic controls
  detailed
• knowledge of firm operations allows managers
  to remain actively
• involved.

• Overdiversification leads to inability to
  process detailed information
• and a reliance on financial controls to
  evaluate managers.

12
Strategy Implementation

• Organization structure

• Product-divisional structure

• Advantages

- Decentralized decision making
- Each business is organized around products
- Puts profit/loss accountability on managers
- Facilitates rapid response to environmental
changes
- Allows efficient management of a large number
of units

• Disadvantages

- May lead to costly duplication of functions
- Inter-divisional rivalry
- Corporate managers may lose in-depth
understanding
13

• Matrix Structure

14
Strategy Implementation

• Organization structure

• Matrix structure

• Contains aspects of both functional and
  product-divisional
• structures.

• Advantages

- Creates checks and balances between competing
viewpoints
- Promotes holistic view of the firm
- Encourages cooperation and consensus building

• Disadvantages

- Very complex and costly
- Shared authority increases communication time
- Difficult to respond rapidly
- May promote bureaucracy and reduce innovation
(in large firms).
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Strategy Implementation

• Network structure

• Group of firms combine resources to
• achieve together what they cant achieve
• alone.

• Advantages

- Firms emphasize their own core competencies
- Rapid response time
- Very flexible
- Reduces capital intensity

• Disadvantages

- Asymmetric information
- Technology expropriation
- Trustworthiness of partners
- Asset hold-up