Strategy Implementation HCAD 5390
Strategy Implementation • Good strategic planning is not enough • Process by which strategies are put into action • Process details are unique to each organization and each strategy • Sub-strategies, programs, action plans, policies, procedures, resource allocations, budgets, authority/responsibility delegation, teams and task forces, reward and control systems, and individual assignments
Keys to Strategy Implementation • Resources and competencies • Functional area sub-strategies • Specific decisions and actions
Resources and Competencies • Strategy implementation depends on resources and competencies possessed by the firm • These include: • Money in certain amounts • Physical space of certain dimensions • Particular types of equipment • Specified numbers of people with … • Certain skills, capabilities, and competencies • Control and reporting systems • Attitude, intuition, and imagination
Resources and Competencies:Systems • Collections of policies, procedures, and protocols, backed by EDP and communications equipment, and people who work with them • Purpose is to simplify and regularize the performance of routine, high-volume tasks • Producing results that are as uniform and predictable as possible • Modern business organizations depend on them
Examples of Organizational Systems • Accounting and budgeting system • Management information system • Manufacturing control system • Compensation and reward system • Planning system
Resources and Competencies:Human Resources • People possess competencies and carry out details of strategic plans • Personnel costs are high proportion of operating budget in health care organizations • Ensure enough people in the right places with the right competencies • Balance operational and strategic duties • Think of strategic human resource management
Resources and Competencies:Organizational Structure • Taken for granted and assumed immutable • Formal framework of departments, units, and groups into which people and the activities they perform are organized • Some structures are better suited to certain strategies than other structures • A carefully chosen structure can give an organization a sustainable competitive advantage
Organizational Structure • Organizational design • Selecting the structure and control systems that are most strategically effective for pursuing sustainable competitive advantage. • The role of structure and control • To coordinate strategy implementation. • To motivate and provide incentives for superior performance.
The Role of Organizational Structure • Building blocks of organizational structure • Differentiation in the allocation of people and resources to create value. • Vertical differentiation in the distribution of decision-making authority. • Horizontal differentiation in dividing up people and tasks into functions and divisions. • Integration • The means used in coordinating people and functions to accomplish organizational tasks.
Differentiation, Integration, Bureaucratic Costs • Bureaucratic costs and strategy implementation: • Bureaucratic costs increase with organizational complexity. • More differentiation = more managers. • More integration = more coordination. • Better strategy implementation = better bottom-line performance and profitability.
Vertical Differentiation • Span of control (division of authority) • The number of subordinates that a single manager directly manages. • Organizational hierarchy choices • Flat structures • Few organizational levels • Wide spans of control • Tall structures • Many organizational levels • Narrow spans of control
Problems with Tall Structures • Principle of minimum chain of command • Maintaining a hierarchy with the least number of levels of authority needed to achieve a strategy. • Sources of bureaucratic costs:
Centralization or Decentralization • Authority patterns in organizations: • Centralized • Decision making retained in the hands of upper-level managers. • Decentralized • Decisions delegated to lower levels in the organization.
Advantages of decentralization Reduced information overload on upper managers. Increased motivation and accountability throughout organization. Fewer managers; lower bureaucratic costs. Advantages of centralization Easier coordination of organizational activities. Decisions fitted to broad organizational objectives. Exercise of strong leadership in crisis. Faster decision making and response. Centralization (Structural) Choice?
Horizontal Differentiation • Focus is on division and grouping of tasks to meet business objectives. • Simple structure: • Characteristic of small entrepreneurial companies. • Entrepreneur takes on most managerial roles. • No formal organization arrangements. • Horizontal differentiation is low.
Structure Follows Strategy: • Changes in corporate strategy lead to changes in organizational structure
Structure Follows Strategy: • New strategy is created • New administrative problems emerge • Economic performance declines • New appropriate structure is invented • Profit returns to its previous levels
Stages of corporate development • Simple Structure • Functional Structure • Divisional Structure • Beyond SBU’s
Simple Structure: • Stage I: • Entrepreneur • Decision making tightly controlled • Little formal structure • Planning short range/reactive • Flexible and dynamic
Functional Structure: • Stage II: • Management team • Functional specialization • Delegation decision making • Concentration/specialization in industry
Divisional Structure: • Stage III: • Diverse product lines • Decentralized decision making • SBU’s • Almost unlimited resources
Beyond SBU’s: • Stage IV: • Increasing environmental uncertainty • Technological advances • Size & scope of worldwide businesses • Multi-industry competitive strategy • Better educated personnel
Advantages Task grouping facilitates specialization and productivity. Better monitoring of work processes, reduced costs. Greater control over organizational activities. Disadvantages Functional orientation creates communication problems. Performance and profitability measurement problems. Location versus function problems (coordination). Strategic problems due to structural (vertical and horizontal) mismatches. Functional Structure
Advantages Enhanced corporate control by division Enhanced strategic control of each SBU in portfolio Growth is easier. New units don’t have to be integrated across organization Stronger pursuit of internal efficiencies. Performance of individual units is readily measurable. Disadvantages Establishing the divisional-corporate authority relationship Distortion of information by divisions Competition for resources by divisions Transfer pricing problems between divisions Short-term research and development focus Bureaucratic costs Mutlitdivisional Structure
Matrix Structure • Advantages • Flexibility of the structure and membership • Minimum of direct hierarchical control • Maximizes use of employees’ skills • Motivates employees; frees up top management • Disadvantages • High bureaucratic costs • High costs (time and money) for building relationships • Two-boss employee’s role conflict
Two-boss employee Matrix Structure
Network Structure: • “non structure” – elimination of in-house business functions • Termed “virtual organization” • Useful in unstable environments • Need for innovation and quick response
Packagers Designers Suppliers Corporate Headquarters (Broker) Manufacturers Distributors Promotion/ Advertising Agencies Network Structure
Effective implementation requires: • Leadership • Leading people to use their abilities and skills most effectively and efficiently to achieve organizational objectives
Staffing follows strategy: • Matching the manager to the strategy • Executive type • Executives with a particular mix of skills and experiences
Leadership: Three Interdependent Activities • Leadership is the process of transforming organizations from what they are to what the leader would have them become • Leadership should be • Proactive • Goal-oriented • Focused on the creation and implementation of a creative vision
Managing corporate culture: • Corporate culture • Affects firm’s ability to shift its strategic direction • Strong tendency to resist change • Corporate culture should support the strategy
Strategy-Culture Compatibility: • Consider the following: • Is the planned strategy compatible with the firm’s current culture? • Can the culture be easily modified to make it more compatible with new strategy? • Is management willing to make major organizational changes? • Is management committed to implementing the strategy?
Managing corporate culture: • Communication • Key to effective management of change • Rationale for strategic change should be communicated to all
What Is Organizational Culture? • Culture • The collection of values and norms shared by people and groups in an organization. • Shared values and a common culture increase integration and improve coordination. • Values • Beliefs and ideas about common goals and proper behaviors. • Norms • Act as guidelines or expectations that prescribe acceptable behavior by organizational members.
Organizational Culture • Ways of transmitting organizational culture:
Culture and Strategic Leadership • The influence of the founder • Initial cultural values and management style is imprinted on the organization by its founder. • Organizational structure • Structure follows strategy. Strategic leadership affects the cultural norms and values that develop in the organization.
Strategic Reward Systems • Individual reward systems • Piecework plans • Commission systems • Bonus plans • Promotion • Group and organizational reward systems • Group-based bonus systems • Profit sharing systems • Employee stock option systems • Organization bonus systems
Functional Area Sub-Strategies • Strategies are implemented by front-line personnel in the functional areas • Functional area managers participate in corporate strategic planning process • Not enough to just take functional area concerns into account
Functional Area Strategic Contributions • Provide background to initial thinking about strategic possibilities • Suggest specific strategies to address opportunities identified • Perform activities that make chosen strategies a reality
Marketing Strategy Contributions (I) • Closest contact to market and external environment • Strategic knowledge inputs: • market segments, • customers preferences, • firm’s reputation and market position, • competitor intelligence, • market threats and opportunities, • industry and general environment
Marketing Strategy Contributions (II) • Growth strategy recommendations: • new products or services • enhancements of existing products or services • new customers to be served • unmet customers’ needs • new technologies with market appeal • customer service improvements • new distribution channels • new market segments