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C HAPTE R

strategy
implementation:
organizing for Action

9.1 Strategy Implementation


Strategy implementation is the sum total of the activities and choices required for the execution
of a strategic plan.
To begin the implementation process, strategy makers must consider these questions:
Who are the people who will carry out the strategic plan?
_ What must be done to align the companys operations in the new intended direction?
_ How is everyone going to work together to do what is needed?
_

10 problems when they attempted to implement a strategic change


These problems are listed in order of frequency:
1. Implementation took more time than originally planned.
2. Unanticipated major problems arose.
3. Activities were ineffectively coordinated.
4. Competing activities and crises took attention away from implementation.
5. The involved employees had insufficient capabilities to perform their jobs.
6. Lower-level employees were inadequately trained.
7. Uncontrollable external environmental factors created problems.
8. Departmental managers provided inadequate leadership and direction.
9. Key implementation tasks and activities were poorly defined.
10. The information system inadequately monitored activities. 6

9.2 Who Implements Strategy?


In most large, multi-industry corporations, the implementers are everyone in the organization.
Vice presidents of functional areas and directors of divisions or strategic business units (SBUs) work with their subordinates to put
together large-scale implementation plans.

9.3 What Must Be Done?


The managers of divisions and functional areas work with their fellow managers to develop
programs, budgets, and procedures for the implementation of strategy.

DEVELOPING PROGRAMS, BUDGETS, AND PROCEDURES


Strategy implementation involves establishing programs to create a series of new organizational
activities, budgets to allocate funds to the new activities, and procedures to handle the
day-to-day details

Programs
The purpose of a program is to make a strategy action oriented.
Brynjolfsson, Renshaw, and Van Alstyne proposed a matrix of change to help managers decide
how quickly change should proceed, in what order changes should take place, whether to
start at a new site, and whether the proposed systems are stable and coherent.
The matrix of change can be used to address the following types of questions:
Feasibility: Do the proposed programs and activities constitute a coherent, stable system?
Are the current activities coherent and stable? Is the transition likely to be difficult?
_ Sequence of execution: Where should the change begin? How does the sequence affect
success? Are there reasonable stopping points?
_ Location: Are we better off instituting the new programs at a new site, or can we reorganize
the existing facilities at a reasonable cost?
_ Pace and nature of change: Should the change be slow or fast, incremental or radical?
Which blocks of current activities must be changed at the same time?
_ Stakeholder evaluations: Have we overlooked any important activities or interactions?
Should we get further input from interested stakeholders? Which new programs and current

activities offer the greatest sources of value?

The matrix offers useful guidelines on where, when, and how fast to implement change.10

Budgets
After programs have been developed, the budget process begins. Planning a budget is the last
real check a corporation has on the feasibility of its selected strategy.

Procedures
After the program, divisional, and corporate budgets are approved, procedures must be developed.
Often called Standard Operating Procedures (SOPs), they typically detail the various
activities that must be carried out to complete a corporations programs.
Also known as organizational routines, procedures are the primary means by which organizations accomplish
much of what they do.12

ACHIEVING SYNERGY
Synergy is said to exist for a divisional corporation if the return on investment (ROI)
of each division is greater than what the return would be if each division were an independent
business.
According to Goold and Campbell, synergy can take place in one of six forms
Shared know-how: Combined units often benefit from sharing knowledge or skills. This
is a leveraging of core competencies
_ Coordinated strategies: Aligning the business strategies of two or more business units
may provide a corporation significant advantage by reducing inter-unit competition and
developing a coordinated response to common competitors (horizontal strategy
_ Shared tangible resources: Combined units can sometimes save money by sharing resources,
such as a common manufacturing facility or R&D lab
_ Economies of scale or scope: Coordinating the flow of products or services of one unit
with that of another unit can reduce inventory, increase capacity utilization, and improve
market access.
_ Pooled negotiating power: Combined units can combine their purchasing to gain bargaining
power over common suppliers to reduce costs and improve quality.
New business creation: Exchanging knowledge and skills can facilitate new products or
services by extracting discrete activities from various units and combining them in a new
unit or by establishing joint ventures among internal business units.

9.4 How Is Strategy to Be Implemented?


Organizing for Action
STRUCTURE FOLLOWS STRATEGY

structure follows strategythat is, changes in corporate strategy lead to changes in organizational structure.
Chandler, therefore, proposed the following as the sequence of what occurs:
1. New strategy is created.
2. New administrative problems emerge.
3. Economic performance declines.
4. New appropriate structure is invented.
5. Profit returns to its previous level.

STAGES OF CORPORATE DEVELOPMENT


The differences among these three structural stages of corporate development in
terms of typical problems, objectives, strategies, reward systems, and other characteristics are
specified in detail in Table 91.

Stage I: Simple Structure


Stage I is typified by the entrepreneur, who founds a company to promote an idea (a product
or a service).
If the entrepreneur falters, the company usually flounders. This is labeled by Greiner
as a crisis of leadership.21
The greatest strengths of a Stage I corporation are its flexibility and dynamism. Its greatest weakness
is its extreme reliance on the entrepreneur to decide general strategies as well as detailed procedures.

Stage II: Functional Structure


Stage II is the point when the entrepreneur is replaced by a team of managers who have functional
specializations.
The great strength of a Stage II corporation lies in its concentration and specialization in one industry. Its great weakness is that all its
eggs are in one basket.
A crisis of autonomy can now develop, in which people managing diversified product lines need more decision-making freedom than
top management is willing to delegate to them.

Stage III: Divisional Structure


Stage III is typified by the corporations managing diverse product lines in numerous industries;
it decentralizes the decision-making authority.
A crisis of control can now develop, in which the various units act to optimize their own sales and profits without regard to the overall
corporation, whose headquarters seems far away and almost irrelevant.
The greatest strength of a Stage III corporation is its almost unlimited resources. Its most significant weakness is that it is usually so
large and complex that it tends to become relatively inflexible.

Stage IV: Beyond SBUs


The use of SBUs may result in a red tape crisis in which the corporation has grown too large and complex to be
managed through formal programs and rigid systems, and procedures take precedence over problem solving.
According to Greiner, it is likely that this stage of development will have its own crisis as wella sort of pressure-cooker crisis

ORGANIZATIONAL LIFE CYCLE


the organizational life cycle describes how organizations grow, develop, and eventually decline
These stages are Birth (Stage I), Growth (Stage II), Maturity (Stage III), Decline (Stage IV), and Death (Stage V).
core rigidities that are no longer able to adapt to changing conditionsthus the company moves into Decline

ADVANCED TYPES OF ORGANIZATIONAL STRUCTURES

Matrix Structure
In matrix structures, functional and product forms are combined simultaneously at the same level of the organization.
Davis and Lawrence, authorities on the matrix form of organization, propose that three distinct phases exist in the development of the
matrix structure
1. Temporary cross-functional task forces: These are initially used when a new product
line is being introduced.
2. Product/brand management: If the cross-functional task forces become more permanent,
the project manager becomes a product or brand manager and a second phase begins.
3. Mature matrix: The third and final phase of matrix development involves a true dualauthority
structure. Both the functional and product structures are permanent.

Network StructureThe Virtual Organization


network structure is an example of what could be termed a non-structure because of its virtual
elimination of in-house business functions.
A corporation organized in this manner is often called a virtual organization because it is composed of a series of project
groups or collaborations linked by constantly changing nonhierarchical, cobweb-like electronic networks.

Cellular/Modular Organization: A New Type of Structure?


a cellular organization is composed of cells (self-managing teams, autonomous business units, etc.) which can operate alone
but which can interact with other cells to produce a more potent and competent business mechanism.

REENGINEERING AND STRATEGY IMPLEMENTATION


Reengineering is the radical redesign of business processes to achieve major gains in cost,
service, or time.

Michael Hammer, who popularized the concept of reengineering, suggests the following
principles for reengineering:
1. Organize around outcomes, not tasks
2. Have those who use the output of the process perform the process:
3. Subsume information-processing work into the real work that produces the information:
4. Treat geographically dispersed resources as though they were centralized:
5. Link parallel activities instead of integrating their results:
6. Put the decision point where the work is performed and build control into the process: _ Capture information
once and at the source:

SIX SIGMA
Six Sigma is an analytical method for achieving near-perfect results on a production line.
In statistics, the Greek letter sigma denotes variation in the standard bell-shaped curve.
The process of Six Sigma encompasses five steps.
1. Define a process where results are poorer than average.
2. Measure the process to determine exact current performance.
3. Analyze the information to pinpoint where things are going wrong.
4. Improve the process and eliminate the error.
5. Establish controls to prevent future defects from occurring.53
A new program called Lean Six Sigma is becoming increasingly popular in companies.
This program incorporates the statistical approach of Six Sigma with the lean manufacturing
program originally developed by Toyota. Like , it includes the removal of unnecessary
steps in any process and fixing those that remain. This

DESIGNING JOBS TO IMPLEMENT STRATEGY


Job design refers to the study of individual tasks in an attempt to make them more relevant
to the company and to the employee(s).
new job design techniques:
job enlargement (combining tasks to give a worker more of the same type of duties to perform)
job rotation (moving workers through several jobs to increase variety)
job enrichment (altering the jobs by giving the worker more autonomy and control over activities).

9.5 International Issues in Strategy Implementation


A multinational corporation (MNC), in contrast, is a highly developed international company with a deep involvement throughout
the world, plus a worldwide perspective in its management and decision making.

STAGES OF INTERNATIONAL DEVELOPMENT


Stage 1 (Domestic company): The primarily domestic company exports some of its products
through local dealers and distributors in the foreign countries.
Stage 2 (Domestic company with export division): Success in Stage 1 leads the company
to establish its own sales company with offices in other countries to eliminate the
middlemen and to better control marketing
Stage 3 (Primarily domestic company with international division): Success in earlier
stages leads the company to establish manufacturing facilities in addition to sales and service
offices in key countries
Stage 4 (Multinational corporation with multidomestic emphasis): Now a full-fledged
MNC, the company increases its investments in other countries.
Stage 5 (MNC with global emphasis): The most successful MNCs move into a fifth stage
in which they have worldwide human resources, R&D, and financing strategies.

CENTRALIZATION VERSUS DECENTRALIZATION


The product-group structure of American Cyanamid enables the company to introduce
and manage a similar line of products around the world
The geographic-area structure of Nestle, in contrast, allows the company to tailor products to regional differences
and to achieve regional coordination.