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Session 19Session 19
Strategy Implementation
© 2000 The McGraw-Hill Companies, Inc.
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2Strategic Strategic Management ModelManagement Model Company mission &
social responsibility
Long-term objectives Generic & grand strategies
Short-term objectives; reward
systemFunctional tactics Policies that empower action
Restructuring, reengineering & refocusing the organization
Strategic control & continuous improvement
External Environment Internal analysis
Strategic analysis & choice
Legend
Major impact
Minor impact
Fee
db
ack
Feed
back
Possible?
Desired?
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Strategy Implementation Strategy Implementation
Identify short-term objectives
Initiate specific functional tactics
Communicate policies to empower people
Design effective support systems
Involves development
of support systems that
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What are Short-Term Objectives?What are Short-Term Objectives?
Provide specific
guidance for what is to
be done, translating
vision into action
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Role of Short-Term Objectives in Implementing StrategyRole of Short-Term Objectives in Implementing Strategy
1. “Operationalize” long-term objectives1. “Operationalize” long-term objectives
2. Raise issues and potential conflicts requiring coordination to avoid dysfunctional consequences
2. Raise issues and potential conflicts requiring coordination to avoid dysfunctional consequences
3. Identify measurable outcomes of functional activities to be used to make feedback, correction, and evaluation more relevant
3. Identify measurable outcomes of functional activities to be used to make feedback, correction, and evaluation more relevant
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Potential Conflicting Objectives and PrioritiesPotential Conflicting Objectives and Priorities
Chief Executive Officer
Marketing Finance and accounting Manufacturing•Distribution channels
•Customer service
•Inventory obsolescence
•Communications and data processing
•Carrying inventory
•Production supply alternatives
•Warehousing
•TransportationRes
pon
sib
iliti
esO
bje
ctiv
es
•More inventory •Less inventory
•Frequent short runs •Long production runs
•Fast order processing •Cheap order processing
•Fast delivery •Lowest cost routing
•Field warehousing •Less warehousing •Plant warehousing
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Relationship of Functional Tactics (Action Plans) to Relationship of Functional Tactics (Action Plans) to Short-Term ObjectivesShort-Term Objectives
Specificity - Identify functional activities to be undertaken to build competitive advantage
Provide a clear time frame for completion
Identify who is responsible for each action in the plan
Action plans enhance short-term objectives in three ways
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Qualities of Effective Short-term ObjectivesQualities of Effective Short-term Objectives
Prioritized
Measurable
Linked to long-term objectives
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Creating Measurable ObjectivesCreating Measurable Objectives
Examples of Deficient Objectives
Examples of Objectives with Measurable Criteriafor Performance
To improve morale in the division (plant, department, etc.)
To improve support of sales effort
To improve firm’s image
• To reduce turnover (absenteeism, number of rejects, etc.) among sales managers by 10 percent by January 1, 2001.
• To reduce the time lapse between order data and delivery by 8 percent (two days) by June 1, 2001.
• To reduce the cost of goods produced by 6 percent to support a product price decrease of 2 percent by December 1, 2001.
• To increase the rate of before- or on-schedule delivery by 5 percent by June 1, 2001.
• To conduct a public opinion poll using random samples in the five largest U.S. metropolitan markets to determine average scores on 10 dimensions of corporate responsibility by May 15, 2001. To increase our score on those dimensions by an average of 7.5 percent by May 1, 2002.
Assumption: Morale is related to measurable outcomes (I.e., high and low morale are associated with different results).
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Value-Added Benefits of Short-Term ObjectivesValue-Added Benefits of Short-Term Objectives
Provide basis for accomplishing
conflicting concerns
Give operating personnel a better understanding of
their role in a firm’s mission
Motivation - Clarify personal and group roles in a firm’s
strategies
Provide basis for strategic control
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What are Functional Tactics?What are Functional Tactics?
Key, routine activities that must be undertaken in each
functional area to provide the
Translate grand strategies into action
designed to accomplish specific short-term
objectives
business’s products
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Functional Tactics at General Cinema CorporationFunctional Tactics at General Cinema Corporation
Soft drink
bottlers
Movie exhibition
Sunkist products
Concentration and market
development selective
Maintain and selectively expand leading nationwide position in the movie exhibition industry to provide positive cash flow for corporate diversification.
Functional tactics: MarketingSeek only first-run films by outbidding competition in each local market; provide primarily family-oriented movies; and maintain an admission price only slightly above that of local competition.
Functional tactics: FinanceUse lease or sale and leaseback arrangements of each theater to maximize cash flow for corporate expansions; seek profitability through volume, not higher ticket prices.
Functional tactics: OperationsUse multiscreen facilities with minimal maintenance requirements and a joint service area to serve each minitheater.
Corporate Strategy Business Strategies Functional Tactics
Corporate strategy
Achieve 15-20 % annual growth through existing businesses and carefully selected diversification into leisure-oriented, consumer-oriented product/service businesses to absorb increasing cash flow from theater and soft-drink bottling operations.
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Differences Between Business Strategies and Functional TacticsDifferences Between Business Strategies and Functional Tactics
Time Horizon
•Shorter time horizon of functional tactics contributes to successful implementation by
•Focusing attention on what needs to be done now
•Allowing functional managers to adjust to changing current conditions
Specificity
•Greater specificity of functional tactics contributes to successful implementation by
•Ensuring functional managers focus on accomplishments
•Clarifying for top managers how functional managers intend to accomplish business strategy
•Facilitating coordination among operating units
Participants
•General managers establish long-term objectives and overall business strategies
•Operating managers establish short-term objectives and functional tactics leading to business level success
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Characteristics of Functional Tactics in OperationsCharacteristics of Functional Tactics in Operations
Viewed as core function of an organizationInvolves converting inputs into value-enhanced
outputFocuses on decisions regarding
Basic nature of firm’s POM system, Seeks optimum balance between investment input and
production/operations output
Location Facilities design Process planning on a short-term basis
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Key Functional Tactics in POMKey Functional Tactics in POM
Functional Tactic Typical Questions the Functional Tactic Should Answer
Facilities and equipment
Sourcing
Operations planning and control
• How centralized should the facilities be?• How integrated should the separate processes be?• To what extent should further mechanization or automation be
pursued?• Should size and capacity be oriented toward peak or normal
operating levels?
• How many sources are needed?• How should suppliers be selected, and how should relationships with
suppliers be managed over time?• What level of forward buying (hedging) is appropriate?
• Should work be scheduled to order or to stock?• What level of inventory is appropriate?• How should inventory be used (FIFO/LIFO), controlled, and
replenished?• What are the key foci for control efforts?• Should maintenance be oriented to prevention or to breakdown?
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Characteristics of Functional Tactics in MarketingCharacteristics of Functional Tactics in Marketing
Lead to strategic success of the firm through the profitable sale of products/services in target markets
Clearly identify customer needs that products/services aim to meet
Identify where, when, and by whom products/services are to be sold
Define how firm will communicate with target markets
Directly influence supply, demand, profitability, consumer perception, and regulatory response through pricing
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Key Functional Tactics in MarketingKey Functional Tactics in Marketing
Functional Tactic Typical Questions the Functional Tactic Should Answer
Product or service
Price
• Which products do we emphasize?• Which products/services contribute most to profitability?• What product/service image do we seek to project?• What consumer needs does the product/service seek to meet?• What changes should be influencing our customer orientation?• Are we competing primarily on price?• Can we offer discounts or other pricing modifications?• Are our pricing policies standard nationally, or is there regional control?• What price segments are targeting?• What is the gross profit margin?
Place
• What level of market coverage is necessary?• Are there priority geographic areas?• What are the key channels of distribution?• What are the channel objectives, structure, and management?• What sales organization do we want?
Promotion
• What are the key promotion priorities and approaches?• Which advertising/communication priorities and approaches are linked
to different products, markets, and territories?• Which media would be most consistent with the total marketing
strategy?
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Characteristics of Functional Tactics in Accounting Characteristics of Functional Tactics in Accounting and Financeand Finance
Time frame of finance tactics varies because they direct use of financial resources supporting the business strategy, long-term goals, and annual objectives
Long-term tactics guide decisions in Long-term capital investment Debt financing Dividend allocation Leveraging
Short-term tactics guide decisions in Managing working capital and short-term assets
Accounting-focused tactics have taken on increased strategic significance in last decade
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Key Functional Tactics in Finance and AccountingKey Functional Tactics in Finance and Accounting
Functional Tactic Typical Questions the Functional Tactic Should Answer
Capital acquisition
Capital allocation
Dividend and working capital manage-ment
• What is an acceptable cost of capital?• What is desired proportion of short- and long-term debt? Preferred
and common stock?• What balance is desired between internal and external funding?• What risk and ownership restrictions are appropriate?• What level and forms of leasing should be used?• What are the priorities for capital allocation projects?• On what basis should the final selection of projects be made?• What level of capital allocation can be made by operating managers
without higher approval?
• What portion of earnings should be paid out as dividends?• Are things other than cash appropriate as dividends?• What are the cash flow requirements? Minimum and maximum?• How liberal/conservative should credit policies be?• What limits, payment terms, and collection procedures are necessary?• What payment timing and procedure should be followed?
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Characteristics of Functional Tactics in R&DCharacteristics of Functional Tactics in R&D
Assumed a key strategic role in many firms due to increasing rate of technological change
May be more critical instruments of business strategy in some industries than in others
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Key Functional Tactics in R&DKey Functional Tactics in R&D
Functional Tactic Typical Questions the Functional Tactic Should Answer
Basic research vs. product and process development
Time horizon
• To what extent should innovation and breakthrough research be emphasized? In relation to the emphasis on product development, refinement, and modification?
• What critical operating processes need R&D attention?• What new products are necessary to support growth?• Is the emphasis short-term or long-term?• Which orientation best supports the business strategy? The marketing
and production strategy?
Organiza-tional fit
• Should R&D be done in-house or contracted out?• Should R&D be centralized or decentralized?• What should be the relationship between the R&D units and product
managers? Marketing managers? Production managers?
Basic R&D posture
• Should the firm maintain an offensive posture, seeking to lead innovation in its industry?
• Should the firm adopt a defensive posture, responding to the innovations of its competitors?
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Characteristics of Functional Tactics in HRMCharacteristics of Functional Tactics in HRM
Assumed increasing strategic importance in the 1990s
Aid long-term success in Development of managerial talent and competent
employees Creating systems to manage compensation or
regulatory concerns Guiding effective utilization of human resources to
achieve both the Firm’s short-term objectives Employees’ satisfaction and development
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Key Functional Tactics in HRMKey Functional Tactics in HRMFunctional Tactic Typical Questions the Functional Tactic Should Answer
Recruitment, selection, and orientation
Career development and training
• What key human resources are needed to support chosen strategy?• How do we recruit these human resources?• How sophisticated should our selection process be?• How should we introduce new employees to the organization?
• What are our future human resource needs?• How can we prepare our people to meet these needs?• How can we help our people develop?
Compensa-tion
• What levels of pay are appropriate for the tasks we require?• How can we motivate and retain good people?• How should we interpret our payment, incentive, benefit, and seniority
policies?
Evaluation, discipline, and control
• How often should we evaluate our people? Formally or informally?• What disciplinary steps should we take to deal with poor performance or
inappropriate behavior?• In what ways should we “control” individual and group performance?
Labor relations and EEO requirements
• How can we maximize labor-management cooperation?• How do our personnel practices affect women/minorities/• Should we have hiring policies?
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Role of Policies in Implementing StrategyRole of Policies in Implementing Strategy
Directives designed to guide thinking, decisions, and actions of managers and employees in implementing strategy
Increase managerial effectiveness by Standardizing many routine decisions
Clarifying discretion managers and employees can exercise in implementing functional tactics
Should be derived from functional tactics with key purpose of aiding strategy execution
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Why Policies Empower PeopleWhy Policies Empower People
1. Establish indirect control over independent action by clearly stating how things are to be done now
1. Establish indirect control over independent action by clearly stating how things are to be done now
2. Promote uniform handling of similar activities 2. Promote uniform handling of similar activities
3. Ensure quicker decisions by standardizing answers to previously answered questions
3. Ensure quicker decisions by standardizing answers to previously answered questions
4. Institutionalize basic aspects of organization behavior 4. Institutionalize basic aspects of organization behavior
5. Reduce uncertainty in repetitive and day-to-day decision making 5. Reduce uncertainty in repetitive and day-to-day decision making
6. Counteract resistance to or rejection of chosen strategies by organization members
6. Counteract resistance to or rejection of chosen strategies by organization members
7. Offer predetermined answers to routine problems 7. Offer predetermined answers to routine problems
8. Afford managers a mechanism for avoiding hasty and ill-conceived decisions in changing operations
8. Afford managers a mechanism for avoiding hasty and ill-conceived decisions in changing operations
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Advantages of Formal Written PoliciesAdvantages of Formal Written Policies
1. Require managers to think through policy’s meaning, content, and intended use
1. Require managers to think through policy’s meaning, content, and intended use
2. Reduce misunderstanding2. Reduce misunderstanding
3. Make equitable and consistent treatment of problems more likely
3. Make equitable and consistent treatment of problems more likely
4. Ensure unalterable transmission of policies4. Ensure unalterable transmission of policies
5. Communicate authorization or sanction of policies more clearly
5. Communicate authorization or sanction of policies more clearly
6. Supply a convenient and authoritative reference6. Supply a convenient and authoritative reference
7. Systematically enhance indirect control and organization-wide coordination of the key purposes of policies
7. Systematically enhance indirect control and organization-wide coordination of the key purposes of policies
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Types of Executive Bonus CompensationTypes of Executive Bonus CompensationBonus Type RationaleDescription Shortcomings
Stock option grants
Restricted stock plan
Golden handcuffs
Golden parachute
Cash based on internal performance using finance measures
Provides incentive for executive to create wealth for shareholders as measured by increase in firm’s share price
Promotes longer executive tenure than other forms of compensation
Offers an incentive for executive to remain with the firm
Offers an incentive for executive to remain with firm
Offsets limitations of focusing on market-based measures of performance
Right to purchase stock in the future at a price set now; compensation determined by “spread”
Shares given to executive who is prohibited from selling them for a specific time periodBonus income deferred in a series of annual installments; forfeited with executive resignationExecutive has right to collect bonus if loses position due to takeover, firing, retirement, or resignation
Bonus compensation based on accounting performance measures such as return on equity
Movement in share price does not explain all dimensions of managerial performance
No downside risk to executive, who always profits unlike other shareholders
May promote risk-averse decision making due to downside risk borne by executive
Compensation is achieved whether or not wealth is created;rewards either success or failure
Weak correlation between earnings measures and shareholder wealth creation
