Strategy Implementation Concept of Strategy Implementation Necessity of fit Necessity of fit...

Strategy ImplementationStrategy Implementation

Concept of Strategy ImplementationConcept of Strategy Implementation

• Necessity of fitNecessity of fit

Importance of integrating strategy implementation with Importance of integrating strategy implementation with strategy formulation.strategy formulation.

Interrelationships between components or dimensions of strategyInterrelationships between components or dimensions of strategy implementation.implementation.

• Focus on structure and control related issues.Focus on structure and control related issues.


• Sears exampleSears example

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

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

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

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

Sears initiated restructuring in 1992 after losing $3.8 billion.Sears initiated restructuring in 1992 after losing $3.8 billion.


• Sears exampleSears example

What happened? Why did Sears fail so dramatically?What happened? Why did Sears fail so dramatically?

- Lost ability to control core business (too diversified).- Lost ability to control core business (too diversified).

- Resources were taken from retail and given to new ventures.- Resources were taken from retail and given to new ventures.

- Managers spent too much time on diversified businesses.- Managers spent too much time on diversified businesses.

- Managed retail segment using financial controls.- Managed retail segment using financial controls.

- Sears suffered from post-merger drift.- Sears suffered from post-merger drift.

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


FirmFirmStrategyStrategy

Firm Firm PerformancePerformance

Task-FocusTask-Focus (Value)(Value)

StructureStructure

Decision Decision ProcessesProcessesand and ControlsControls

RewardRewardSystemsSystems

PeoplePeople


Task-FocusTask-Focus (Value)(Value) StructureStructure

UncertaintyUncertainty DiversityDiversity InterdependenceInterdependence

Division of laborDivision of labor DepartmentalizationDepartmentalization ShapeShape Distribution of powerDistribution of power

Decision Decision ProcessesProcesses

and and ControlsControls

Planning and control systemsPlanning and control systems Integration rolesIntegration roles Information systemsInformation systems Decision making proceduresDecision making procedures

RewardRewardSystemsSystems PeoplePeople

Recruiting and selectionRecruiting and selection Leader styleLeader style Transfer and promotionTransfer and promotion Training and developmentTraining and development

Performance Performance measuresmeasures CompensationCompensation PromotionPromotion Job designJob design

StrategyStrategy Dominant BusinessDominant BusinessVertically IntegratedVertically Integrated

Unrelated DiversifiedUnrelated DiversifiedGrowth through AcquisitionGrowth through Acquisition

Related DiversifiedRelated DiversifiedGrowth thru internal development & Growth thru internal development & some acquisitionsome acquisition

Task FocusTask Focus(Value)(Value)

Degree of integrationDegree of integrationMarket share and powerMarket share and powerProduct line breadthProduct line breadthVertical economiesVertical economies

Degree of diversityDegree of diversityTypes of businessTypes of businessResource allocation across businessResource allocation across businessEntry and exit businessesEntry and exit businessesFinancial economiesFinancial economies

Realization of synergy from relatedRealization of synergy from related product process, technology, and product process, technology, and marketsmarketsResource allocationResource allocationDiversification opportunitiesDiversification opportunitiesSynergistic economiesSynergistic economies

StructureStructure Centralized functionalCentralized functionalTop control of strategic decisionsTop control of strategic decisionsDelegation of operationsDelegation of operations through plans and proceduresthrough plans and procedures

Highly decentralized productHighly decentralized product divisions/profit centersdivisions/profit centersSmall corporate officeSmall corporate officeNo centralized line functionsNo centralized line functionsAlmost complete delegationAlmost complete delegation of operations and strategy within existing of operations and strategy within existing businessesbusinessesControl thru results, selectionControl thru results, selection of management, and capital allocationof management, and capital allocation

Multidivisional/profit centersMultidivisional/profit centersGrouping of highly relatedGrouping of highly related businesses with some centralized businesses with some centralized functions within groupsfunctions within groupsDelegated responsibility forDelegated responsibility for operation operation Shared responsibility for strategyShared responsibility for strategy

Decision ProcessesDecision Processesand Controlsand Controls

Coordination and integration thruCoordination and integration thru structure, rules, planning, and structure, rules, planning, and budgetingbudgetingUse of integrating roles forUse of integrating roles for project activity across functionsproject activity across functions

No integration across businessesNo integration across businessesCoordination and information flowsCoordination and information flows between corporate and division levels between corporate and division levels around management information systems around management information systems and budgetsand budgets

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

Reward SystemsReward Systems Performance against functionalPerformance against functional objectivesobjectivesMix of objective and subjective Mix of objective and subjective performance measuresperformance measuresStrategic controlsStrategic controls

Formula based bonus on ROI orFormula based bonus on ROI or profitability of divisionsprofitability of divisionsStrict objective, impersonal evaluationStrict objective, impersonal evaluation

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

PeoplePeople Primarily functional specialistsPrimarily functional specialistsSome inter-functional movement toSome inter-functional movement to develop some general managersdevelop some general managers

Aggressive, independent general managers Aggressive, independent general managers ofof divisionsdivisionsCareer development opportunities areCareer development opportunities are primarily intra-divisionalprimarily intra-divisional

Broad requirements for generalBroad requirements for general managers and integratorsmanagers and integratorsCareer development is inter-divisional,Career development is inter-divisional, cross-functional, and corporate-cross-functional, and corporate- divisionaldivisional


Organization StructuresOrganization Structures

• Simple StructureSimple Structure

PresidentPresident

EmployeesEmployees

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

- Provides high flexibilityProvides high flexibility- Rapid product introductionRapid product introduction- Few coordination problemsFew coordination problems

AccountingAccountingLegalLegal

AffairsAffairs

HRMHRM FinanceFinance MarketingMarketing R&DR&D ProductionProduction

PresidentPresident

Organization structureOrganization structure

• Functional structureFunctional structure



• Functional structureFunctional structure

AdvantagesAdvantages

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

DisadvantagesDisadvantages

- Functional coordination problemsFunctional coordination problems- Inter-functional rivalryInter-functional rivalry- Overspecialization and narrow viewpointsOverspecialization and narrow viewpoints- Hinders development of cross-functional experienceHinders development of cross-functional experience- Slower to respond in turbulent environmentsSlower to respond in turbulent environments

GovernmentGovernmentAffairsAffairs

LegalLegalAffairsAffairs

CorporateCorporateR&D LabR&D Lab

StrategicStrategicPlanningPlanning

CorporateCorporateHumanHuman

ResourcesResources

CorporateCorporateMarketingMarketing

CorporateCorporateFinanceFinance

ProductProductDivisionDivision





PresidentPresident


• Product-divisional structureProduct-divisional structure




Organization based on products versus functionsOrganization based on products versus functions

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

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

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




AdvantagesAdvantages

- Decentralized decision making- Decentralized decision making

- Each business is organized around products- Each business is organized around products

- Puts profit/loss accountability on managers- Puts profit/loss accountability on managers

- Facilitates rapid response to environmental changes- Facilitates rapid response to environmental changes

- Allows efficient management of a large number of units- Allows efficient management of a large number of units


- May lead to costly duplication of functions- May lead to costly duplication of functions

- Inter-divisional rivalry- Inter-divisional rivalry

- Corporate managers may lose in-depth understanding- Corporate managers may lose in-depth understanding

BusinessBusinessProjectProject



R&DR&D ProductionProduction MarketingMarketing FinanceFinance

SpecialistsSpecialists





SpecialistsSpecialists SpecialistsSpecialists






PresidentPresident• Matrix StructureMatrix Structure



• Matrix structureMatrix structure

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

Advantages:Advantages:

- Creates checks and balances between competing viewpoints- Creates checks and balances between competing viewpoints

- Promotes holistic view of the firm- Promotes holistic view of the firm

- Encourages cooperation and consensus building- Encourages cooperation and consensus building

Disadvantages:Disadvantages:

- Very complex and costly- Very complex and costly

- Shared authority increases communication time- Shared authority increases communication time

- Difficult to respond rapidly- Difficult to respond rapidly

- May promote bureaucracy and reduce innovation (in large firms).- May promote bureaucracy and reduce innovation (in large firms).


FocalFocalFirmFirm

PartnerPartner

PartnerPartner

PartnerPartner

PartnerPartner

• Network structureNetwork structure Group of firms combine resources to Group of firms combine resources to achieve together what they can’t achieveachieve together what they can’t achieve alone.alone.

Advantages:Advantages:

- Firm’s emphasize their own core - Firm’s emphasize their own core competenciescompetencies

- Rapid response time- Rapid response time

- Very flexible- Very flexible

- Reduces capital intensity- Reduces capital intensity


- Asymmetric information- Asymmetric information

- Technology expropriation- Technology expropriation

- Trustworthiness of partners- Trustworthiness of partners

- Asset hold-up- Asset hold-up

Strategy Implementation Concept of Strategy Implementation Necessity of fit Necessity of fit...

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