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.

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.

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.

Strategy Implementation

Structure Decision Processes and Controls

Task-Focus (Value) Firm Strategy

Firm Performance

People

Reward Systems

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

Reward Systems

Performance measures Compensation Promotion Job design

People

Recruiting and selection Leader style Transfer and promotion Training and development

Strategy

Dominant Business Vertically Integrated Degree of integration Market share and power Product line breadth Vertical economies

Unrelated Diversified Growth through Acquisition Degree of diversity Types of business Resource allocation across business Entry and exit businesses Financial economies

Related Diversified Growth thru internal development & some acquisition Realization of synergy from related product process, technology, and markets Resource allocation Diversification opportunities Synergistic economies

Task Focus (Value)

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 Performance against functional objectives Mix of objective and subjective performance measures Strategic controls Primarily functional specialists Some inter-functional movement to develop some general managers

No integration across businesses Coordination and information flows between corporate and division levels around management information systems and budgets Formula based bonus on ROI or profitability of divisions Strict objective, impersonal evaluation

Coordinate and integrate across businesses and between levels with planning integrating roles, integrating depths

Reward Systems

Bonus based on divisional and/or corporate performance Mix of objective and subjective performance measures

People

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 corporatedivisional

Strategy Implementation

Organization Structures

Simple Structure

President

Owner-manager makes decisions. Little specialization of tasks. Few rules, little formalization. Advantages: - Provides high flexibility - Rapid product introduction - Few coordination problems

Employees

Organization structure

Functional structure

President Accounting Legal Affairs

HRM

Finance

Marketing

R&D

Production

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

Organization structure

Product-divisional structure

President Government Affairs Corporate Human Resources Product Division Legal Affairs

Corporate R&D Lab

Strategic Planning

Corporate Marketing

Corporate Finance

Product Division

Product Division

Product Division

Product Division

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.

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

Matrix Structure

President

R&D

Production

Marketing

Finance

Business Project Business Project Business Project

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

Specialists

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).

Strategy Implementation

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

Partner

Partner

Advantages: - Firms emphasize their own core competencies - Rapid response time

Focal Firm

- Very flexible - Reduces capital intensity Disadvantages - Asymmetric information - Technology expropriation

Partner

Partner

- Trustworthiness of partners - Asset hold-up