Chapter 7 Implementing Strategies: Management Issues

Strategic Management: Concepts and Cases Fred R. David

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Ch 7-1

Chapter Outline
The nature of Strategy Implementation Annual Objectives Policies Resource Allocation
Fred R. David Prentice Hall Ch 7-2

Chapter Outline
Managing Conflict Matching Structure with Strategy Restructuring, Reengineering, and EEngineering Linking Performance and Pay to Strategies
Fred R. David Prentice Hall Ch 7-3

Chapter Outline
Managing Resistance to Change Managing the Natural Environment Creating a Strategy-Supportive Culture
Ch 7-4

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Chapter Outline
Production/Operations Concerns When Implementing Strategies Human Resource Concerns When Implementing Strategies
Fred R. David Prentice Hall Ch 7-5

Implementing Strategies: Management Issues

Pretend that every single person you meet has a sign around his or her neck that says, Make me feel important. -- Mary Kay Ash, CEO of Mary Kay, Inc.

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Ch 7-6

Implementing Strategies: Strategy Analysis Issues & Choice Management

Contrasting strategy formulation and strategy implementation
Formulation is positioning forces before the action Implementation is managing forces during the action

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Ch 7-7

Implementing Strategies: Strategy Analysis Issues & Choice Management

Contrasting strategy formulation and strategy implementation
Formulation focuses on effectiveness Implementation focuses on efficiency

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Ch 7-8

Implementing Strategies: Strategy Analysis Issues & Choice Management

Contrasting strategy formulation and strategy implementation
Formulation is primarily an intellectual process Implementation is primarily an operational process

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Ch 7-9

Implementing Strategies: Strategy Analysis Issues & Choice Management

Contrasting strategy formulation and strategy implementation
Formulation requires good intuitive and analytical skills Implementation requires special motivation and leadership skills
Fred R. David Prentice Hall Ch 7-10

Implementing Strategies: Strategy Analysis Issues & Choice Management

Contrasting strategy formulation and strategy implementation
Formulation requires coordination among a few individuals Implementation requires coordination among many persons
Fred R. David Prentice Hall Ch 7-11

Implementing Strategies: Strategy Analysis Issues & Choice Management

Strategy implementation
Varies among different types and sizes of organizations

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Ch 7-12

Implementing Strategies: Strategy Analysis Issues & Choice Management

Strategy implementation Actions
Altering sales territories Adding new departments Closing facilities Hiring new employees Cost-control procedures Changing advertising strategies Building new facilities
Fred R. David Prentice Hall Ch 7-13

Management Perspectives
Formulation to Implementation transition
Shift in responsibility
From strategists to division and functional managers

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Ch 7-14

Management Issues

Annual Objectives Policies Resources Organizational structure Restructuring Rewards/Incentives

Management Issues

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Ch 7-15

Management Issues (continued)

Resistance to Change Managers & strategy Supportive culture Production/operations Human resources Downsizing

Management Issues

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Ch 7-16

Annual Objectives

Decentralized activity Involves all managers in the firm

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Ch 7-17

Annual Objectives
1. Basis for allocating resources 2. Primary mechanism for evaluating managers 3. Major instrument for monitoring progress toward long-term objectives 4. Establish organizational, divisional, and departmental priorities
Fred R. David Prentice Hall Ch 7-18

Annual Objectives

Horizontal consistency of objectives Vertical consistency of objectives

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Ch 7-19

Annual Objectives
Objectives should state
Quantity Quality Cost Time

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Ch 7-20

Policies

Policies facilitate solving recurring problems and guide the implementation of strategy

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Ch 7-21

Policies
Policies set
Boundaries Constraints limits

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Ch 7-22

Policies
Example Issues requiring management policy - To offer extensive or limited management development workshops and seminars To centralize or decentralize employee-training activities To recruit through employment agencies, college campuses, and/or newspapers To promote from within or hire from the outside To establish a high- or low-safety stock of inventory To buy lease, or rent new production equipment
Fred R. David Prentice Hall Ch 7-23

Resource Allocation
Resource Allocation A central management activity that allows for strategy execution

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Ch 7-24

Resource Allocation
Four types of resources
1. 2. 3. 4. Financial resources Physical resources Human resources Technological resources

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Ch 7-25

Managing Conflict
Conflict Disagreement between two or more parties on one or more issues

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Ch 7-26

Managing Conflict
Conflict is not always bad Absence of conflict
Signal indifference or apathy

Can energize opposing groups to action May help managers identify problems

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Ch 7-27

Managing Conflict
Conflict Management and Resolution
Avoidance Defusion Confrontation

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Ch 7-28

Matching Structure with Strategy

Changes in Strategy

Changes in Structure

1. Structure largely dictates how objectives and policies will be established. 2. Structure dictates how resources will be allocated
Fred R. David Prentice Hall Ch 7-29

Chandlers Strategy-Structure Relationship

New strategy Is formulated New administrative problems emerge Organizational performance declines

Organizational performance improves

New organizational structure is established

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Ch 7-30

Basic Forms of Structure

1. Functional Structure
Groups tasks and activities by business function

1. Divisional Structure
Decentralized and organized by geography, product, customer, or process

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Ch 7-31

Basic Forms of Structure

3. Strategic Business Unit Structure (SBU)
Groups similar divisions; delegates authority and responsibility to SBU executive

4. Matrix Structure
Most complex of all designs. Depends upon both vertical and horizontal flows of authority and communication
Fred R. David Prentice Hall Ch 7-32

Restructuring
Restructuring Reducing the size of the firm in terms of number of employees, divisions, or units, and the number of hierarchical levels in the firms organizational structure
Ch 7-33

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Restructuring
Also called
Downsizing Rightsizing Delayering

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Ch 7-34

Restructuring
Employed when ratios out of line with benchmarked competitors Primary benefit sought is cost reduction

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Ch 7-35

Reengineering
Reengineering Involves reconfiguring or redesigning work, jobs, and processes to improve cost, quality, service and speed.

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Ch 7-36

Reengineering
Also called
Process management Process innovation Process redesign

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Ch 7-37

Reengineering
Reengineering Concerned more with employee and customer well-being than shareholder well-being

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Ch 7-38

Linking Performance and Pay to Strategies

Most companies practicing pay-forperformance

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Ch 7-39

Linking Performance and Pay to Strategies

Dual bonus system becoming more common
Based on both annual objectives and long-term objectives

Profit Sharing Gain Sharing

Incentive compensation used by 30% of companies

Performance targets set for employees or departments

Fred R. David Prentice Hall Ch 7-40

Tests for Performance-Pay Plans

Does the plan capture attention?

Do employees understand the plan?

Is the plan improving communication?

Does the plan pay out when it should?

Is the company or unit performing better?

Fred R. David Prentice Hall Ch 7-41

Managing Resistance to Change

Change raises anxiety over fear of:
Economic loss Inconvenience Uncertainty Break in status-quo

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Ch 7-42

Managing Resistance to Change

Resistance to change
Single greatest threat to successful strategy implementation

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Ch 7-43

Change Strategies

Force Change Strategy Educative Change Strategy Rational or Self-Interest Change Strategy

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Ch 7-44

Managing the Natural Environment

Wide appreciation for firms that conduct operations that mend rather than harm the environment.

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Ch 7-45

Creating a Strategy-Supportive Culture

Strategists should strive to preserve, emphasize, and build upon aspects of existing culture that support new strategies.

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Ch 7-46

Creating a Strategy-Supportive Culture

Elements linking culture to strategy:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Formal statements of philosophy, charters, etc. used for recruitment and selection, and socialization Designing of physical spaces, facades, buildings Deliberate role modeling, teaching and coaching Explicit reward and status system, promotion criteria Stories, legends, myths about key people and events What leaders pay attention to, measure and control Leader reactions to critical incidents and crises How the organization is designed and structured Organizational systems and procedures Criteria used for recruitment, selection, promotion, retirement
Ch 7-47

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Production/Operations Concerns
Production processes typically constitute more than 70% of firms total assets Decisions on:
Plant size Inventory/inventory control Quality control Cost control Technological innovation
Fred R. David Prentice Hall Ch 7-48

Human Resource Concerns

Assessing staffing needs and costs Develop performance incentives ESOPs Child-care policies Work-life balance

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Ch 7-49

Key Terms

Annual objectives Avoidance Benchmarking Bonus system Conflict Confrontation Culture Defusion Delayering
Fred R. David Prentice Hall Ch 7-50

Key Terms

Decentralized structure Divisional structure Downsizing Educative change strategy Employee Stock Ownership Plan (ESOP)

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Ch 7-51

Key Terms

Establishing annual objectives Force change strategy Functional structure Gain sharing Horizontal consistency of objectives Just in time Matrix structure Policy Profit sharing
Fred R. David Prentice Hall Ch 7-52

Key Terms

Rational change strategy Reengineering Resistance to change Resource allocation Restructuring Rightsizing Self-interest change Triangulation Vertical consistency of objectives
Fred R. David Prentice Hall Ch 7-53