Cha 7 S

Chapter 7
Implementing Strategies: Management &

Operations Issues, Marketing,
Finance/Accounting, R&D, & MIS Issues
Strategic Management:
Concepts & Cases
13th Edition
Fred David
Copyright © 2011 Pearson Education, Inc. Ch 7 -1

Publishing as Prentice Hall
Strategy Formulation vs.
Implementation
Strategy Formulation (SF) Strategy Implementation
 Positioning forces (SI)
before the action  Managing forces during
 Focus on effectiveness the action

 Primarily intellectual  Focus on efficiency
 Requires good intuitive  Primarily operational
and analytical skills  Requires special

motivation and
 Requires coordination leadership skills
 Requires coordination
among a few people
among many people
Nature of Strategy Implementation
Strategy-formulation concepts and tools do not differ greatly for small, large, for-profit, or
nonprofit organizations.
However, strategy implementation varies substantially among different types and sizes of
organizations.
Implementing strategies requires such actions as;

-altering sales territories,
- adding new departments,
- closing facilities,
- hiring new employees,
- changing an organization’s pricing strategy,
- developing financial budgets,
- developing new employee benefits,
- establishing cost-control procedures,
- changing advertising strategies,
- building new facilities,
- training new employees,
- transferring managers among divisions, and building a better management information
system.
These types of activities obviously differ greatly between manufacturing, service, and
governmental organizations.
Nature of Strategy Implementation
SI problems can arise because of the shift in responsibility, especially if SF
decisions come as a surprise to middle- and lower-level managers.
Therefore, it is essential to involve divisional and functional managers in
SF.
 Shift in responsibility
Divisional or
Strategists Functional
Managers

Management Issues Central to
Strategy Implementation
 Establish annual objectives  Match managers to strategy
 Devise policies  Develop a strategy-
 Allocate resources supportive culture
 Alter existing  Adapt production/operations
organizational structure processes
 Restructure & reengineer  Develop an effective human
 Revise reward & incentive resources function
plans  Downsize & furlough as
 Minimize resistance to needed
change  Link performance & pay to
strategies
Purpose of Annual Objectives
Basis for resource allocation

Mechanism for management evaluation
Major instrument for monitoring progress
toward achieving long-term objectives
Establishpriorities (organizational, divisional,
and departmental)

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

Managing Conflict
Conflict – a disagreement between two or more
parties. Interdependency of objectives and
competition for limited resources can cause
conflict.
 Conflict not always “bad”

 Lack of conflict may signal apathy
 Can energize opposing groups to action
 May help managers identify problems

Approaches of conflict
 Avoidance
 Defusion
 Confrontation

Approaches of conflict
Avoidance includes such actions as ignoring the problem in hopes that
the conflict will resolve itself or physically separating the conflicting
individuals (or groups).
Defusion can include playing down differences between conflicting
parties while accentuating similarities and common interests,
compromising so that there is neither a clear winner nor loser,
resorting to majority rule, appealing to a higher authority, or
redesigning present positions.
Confrontation is exemplified by
 exchanging members of conflicting parties so that each can gain an
appreciation of the other’s point of view

 or holding a meeting at which conflicting parties present their views
and work through their differences.

MATCHING STRUCTURE WITH STRATEGY
 Changes in strategy often require changes in the way an

organization is structured because:
(1) structure largely dictates how objectives and policies will be
established (e.g., objectives and policies established under a
geographic organizational structure are couched in geographic
terms) and
(2) structure dictates how resources will be allocated (e.g., if an
organization’s structure is based on customer groups, then
resources will be allocated in that manner).
 Structure should be designed to facilitate the strategic pursuit of
a firm and, therefore, follow strategy.
 When a firm changes its strategy, the existing organizational
structure may become ineffective. For example, new strategies
to reduce payroll costs may require a change in span of control.

Basic Forms of Structure
 Functional Structure
 Divisional Structure
 Strategic Business Unit Structure
(SBU)
 Matrix Structure

Functional Structure
 Groups tasks and activities by business

function (e.g., production, finance,
marketing, R&D, HR, IT, etc.).

Functional Structure

Divisional Structure
 Canbe organized in one of four

ways:
 By geographic area
 By product or service
 By customer
 By process

Divisional Structure

Strategic Business Unit Structure
(SBU)
 Groups similar divisions into
strategic business units and
delegates authority and
responsibility for each unit to a
senior executive who reports
directly to the chief executive
officer.
Matrix Structure
 The most complex of all structures

because it depends upon both
vertical and horizontal flows of
authority and communication.

Matrix Structure

Restructuring
 Restructuring - reducing the size of an organization. Also

called:
Downsizing
Rightsizing
Delayering
These methods involve, respectively, reducing the number
of employees, number of divisions, and number of
hierarchical levels in a firm’s organizational structure.
Reducing the size of an organization is intended to improve
its efficiency and effectiveness.

Reengineering
 In contrast, reengineering is concerned more
with employee and customer well-being than
shareholder well-being. Reengineering—also
called process management, process
innovation, or process redesign—involves
reconfiguring or redesigning work, jobs, and
processes for the purpose of improving cost,
quality, service, and speed.

Reengineering
 Reengineering does not usually affect the
organizational structure or chart, nor does it
imply job loss or employee layoffs. Whereas
restructuring is concerned with eliminating or
establishing, shrinking or enlarging, and
moving organizational departments and
divisions, the focus of reengineering is
changing the way work is actually carried out.

Managing Resistance to Change
 No organization or individual can escape

change. But the thought of change raises
anxieties because people fear economic loss,
inconvenience, uncertainty, and a break in
normal social patterns. Almost any change in
structure, technology, people, or strategies
has the potential to disrupt comfortable
interaction patterns. For this reason, people
resist change.
 The strategic-management process itself can impose
major changes on individuals and processes.
 Reorienting an organization to get people to think and act
strategically is not an easy task.
 Resistance to change can be considered the single
greatest threat to successful strategy implementation.
 Resistance regularly occurs in organizations in the form of
sabotaging production machines, absenteeism, filing
unfounded grievances, and an unwillingness to cooperate.
Ch 7 -26
Copyright © 2011 Pearson Education, Inc.
 People often resist strategy implementation

because they do not understand what is
happening or why changes are taking place.
 In that case, employees may simply need
accurate information.
 Successful strategy implementation hinges upon
managers’ ability to develop an organizational
climate conducive to change.
 Change must be viewed as an opportunity rather
than as a threat by managers and employees.
Approaches for implementing
changes
 Resistance to change can emerge at any
stage or level of the strategy-implementation
process.
 Although there are various approaches for
implementing changes, three commonly used
strategies are a force change strategy, an
educative change strategy, and a rational or
self-interest change strategy.

Creating a Strategy-Supportive Culture
1. Formal statements of organizational

philosophy
2. Design of physical spaces
3. Deliberate role modeling, teaching,
and coaching
4. Explicit reward and status system
5. Stories, legends, myths, and parables
Creating a Strategy-Supportive Culture
6. What leaders pay attention to

7. Leader reactions to critical incidents and
crises
8. Organizational design and structure
9. Organizational systems and procedures
10. Criteria for recruitment, selection,
promotion, leveling off, retirement, and
“excommunication” of people
Production/Operations Decision
Examples
Plant size
Inventory / Inventory control
Quality control
Cost control
Technological innovation
Human Resource Concerns
Assessing staffing needs and costs.
Selection Methods.
Employee Training.
Motivating Employees – Developing
Performance Incentives; Work-Life
Balance Issues; etc.
Selecting Appropriate Leadership
Styles.
Implementing Strategies: Marketing,
Finance/Accounting, R&D, & MIS Issues
Strategic
Management:
Concepts
Strategic & Cases
Management:
Concepts & Cases 11th
11th Edition
Edition Fred David
Fred David
Copyright 2007 Prentice Hall Ch 8-34

The Nature of Strategy
Implementation
Strategy implementation means change; strategy

implementation could also be termed as change
management
Less than 10% of strategies formulated are

successfully implemented!

Implementation
Why is there low success rate in strategy
implementation?
Here are some examples:

 Failing to segment markets appropriately
 Paying too much for a new acquisition
 Falling behind competition in R&D
 Not recognizing benefit of computers in managing
information

Implementation
Some examples of successful strategy
implementation
 Marketing goods & services well

 Raising needed working capital
 Producing technologically sound goods
 Creating sound information systems

Marketing Issues
Marketing variables affect success/failure of strategy

implementation
Examples of marketing decisions requiring

policies
 Exclusive dealerships – multiple channels
of distribution
 Heavy, light, or no TV advertising
 Price leader or price follower
 Advertise online or not
 Offer complete or limited warranty

Marketing Issues
Two marketing variables centrally important

to strategy implementation are:
1. Market segmentation
2. Product positioning

Marketing Issues: market segmentation
 Market segmentation is the subdividing of a
market into distinct subsets of customers
according to needs and buying habits
Why market segmentation could be a strategic issue?

 Key to matching supply & demand
 Market development, product-development,
market penetration & diversification strategies
require increased sales through new
products/markets
 Allows operating with limited resources
 Enables small firms to compete successfully
Marketing Issues: market
segmentation
Market Segmentation
 Directly affect marketing mix variables:

 Product
 Place
 Promotion
 Price

Marketing Mix – Component Factors
Product Place Promotion Price
Distribution
Quality Advertising Level
channels
Distribution Discounts &
Features Personal selling
coverage allowances
Style Outlet location Sales promotion Payment terms
Brand name Sales territories Publicity
Inventory
Packaging
levels/locations
Transportation
Product line
carriers
Warranty
Service level

Marketing Issues: market
segmentation
Geographic
Demographic
Four bases for

market segmentation Psychographic
Behavioral

Marketing Issues: bases for segmentation
Geographic: Demographic:
 Region  Age
 Province size  Family Size
 City size  Family Life Cycle
 Density  Income/Occupation
 Climate  Education
 Religion
 Race/Nationality
Behavioral:
 Use occasion
 Benefits sought
Psychographic:
 Social Class
 User status
 Lifestyle
 Usage rate
 Personality
 Loyalty status
 Readiness stage
 Attitude toward
product
Marketing Issues: product
positioning
Product positioning is the schematic representations

that reflect how products/services compare to
competitors’ on dimensions most important to
success in the industry
Product
Positioning
Customer Wants Customer Needs

Product Positioning Steps
1. Select Key Criteria for differentiating products/ services in industry
2. Diagram Map with two-dimensional product positioning map
3. Plot competitors’ products in the four-quadrant matrix
4. Look for niches in the positioning map
5. Develop Marketing Plan to position company’s product/services

Example of Product Positioning Map
Very latest,
Menswear retail store
fashionable menswear
Average
Specialty
chain
Low price High price
Average Average
mass Department
merchandize store
r
or
discounter Conservative,
Everyday menswear
Marketing Issues
Product Positioning as Strategy
Implementation Tool
 Look for vacant niche as the best opportunity

may be unserved segment
 Avoid sub optimization by squatting between
two segments
 Don’t serve two segments with the same
strategy
 Don’t position in the middle of the map

Finance/Accounting Issues
Financial/Accounting issues are

central to strategy implementation
Examples of financial/accounting
issues essential for
implementation
 Acquiring needed capital
 Developing projected financial statements
 Preparing financial budgets
 Evaluating worth of a business

Decisions based on Finance/Accounting

 Raise capital – short-term, long-term, preferred, or
common stock
 Lease or buy fixed assets
 Determine appropriate dividend payout ratio
 LIFO, FIFO, or market-value accounting approach
 Extend time of AR
 Establish % discount on accounts for terms
 Determine the amount of cash kept on hand

Successful strategy implementation often

requires additional capital.
Sources of capital to implement strategies (besides net profit
from operations and sales of assets) are:
 Debt
 Equity
Determining the appropriate mix of debt and equity in a

firm’s capital structure can be vital to successful strategy
implementation

Finance/Accounting Issues: debt/equity
Debt vs. Equity Decisions

Choosing between debt and equity requires analysis
based on EPS/EBIT for determining whether debt,
equity, or their combination is the best alternative to
raise capital for strategy implementation
 EPS/EBIT analysis involves an examination of
the impact of debt versus equity financing on
earnings per share
 Earnings per share/Earnings before interest and taxes



Projected Financial Statements
 Projected financial statements analysis enables

an organization to examine the expected results
of various actions and approaches in strategy
implementation.

Projected Income Statement for Litten Company (in
millions)
Projected Year
Prior Year 2005 2006 Remarks
Projected Income Statement

Sales 100 150.00 50% increase
Cost of Goods Sold 70 105.00 70% of sales
Gross Margin 30 45.00
Selling Expense 10 15.00 10% of sales
Administrative Expense 5 7.50 5% of sales
EBIT 15 22.50
Interest 3 3.00
EBT 12 19.50
Taxes 6 9.75 50% rate
Net Income 6 9.75
Dividends 2 5.00
Retained Earnings 4 4.75

Finance/Accounting Issues: financial
budget
-- Financial budget details how funds will be obtained
and spent for a specified period of time.
Various types of budgets

 Cash budgets
 Operating budgets
 Sales budgets
 Profit budgets
 Factory Budgets
 Expense Budgets
 Divisional budgets
 Variable budgets
 Flexible budgets
 Fixed budgets

Evaluating Worth of a Business

 Central to strategy implementation – integrative,
intensive, & diversification strategies often
implemented through acquisitions of other firms
Three basic approaches to evaluating a

business:
 What a firm owns: net worth or
stockholder’s equity
 What a firm earns: future benefits through
net profits
 What a firm will bring in the market when
Copyrightsold
2007 Prentice Hall Ch 8-58
Research & Development
Issues
New products and improvement of

existing products that allow for effective
strategy implementation
Examples of strategy implementation actions in

R & D:
 Transferring complex technology
 Adjusting processes to local raw materials
 Adapting processes to local markets
 Altering products to specific customer
preferences and tastes
Research & Development
Issues
R & D policies can enhance strategy implementation
efforts to:
 Emphasize product or process improvements
 Stress basic or applied research
 Be leaders or followers in R & D
 Develop robotics or manual-type processes
 Spend a high, average or low amount on R&D
 Perform R&D within the firm or to contract it outside
 Use university researchers or private-sector
researchers

Research & Development Issues
Three R&D approaches for strategy

implementation:
 Be the first firm to market new technological
products
 Be an innovative imitator of successful
products
 Be a low-cost producer by mass producing
products similar to but less expensive than
products recently introduced

Management Information
Systems (MIS) Issues
 Firms that gather, assimilate, and evaluate
external and internal information more
effectively gain competitive advantage over
other firms
 Information is the basis for understanding the
firm. It is one of the most important factors
differentiating successful from unsuccessful
firms
 Strategic management process is greatly
facilitated greatly in firms having an effective
information system

MIS Issues
Functions of MIS
Information collection, retrieval, & storage can be used to

create competitive advantage. Examples of such
actions are:
 Cross-selling to customers
 Monitoring suppliers
 Keeping managers and employees informed
 Coordination of activities among divisions
 Allow firm to reduce costs

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Chapter 7

Implementing Strategies: Management &

Copyright © 2011 Pearson Education, Inc. Ch 7 -1

 Focus on effectiveness the action

 Requires good intuitive  Primarily operational

and analytical skills  Requires special

Implementing strategies requires such actions as;

Copyright © 2011 Pearson Education, Inc. Ch 7 -5

Basis for resource allocation

Copyright © 2011 Pearson Education, Inc. Ch 7 -7

Four Types of Resources

Copyright © 2011 Pearson Education, Inc. Ch 7 -8

 Conflict not always “bad”

Copyright © 2011 Pearson Education, Inc. Ch 7 -9

Copyright © 2011 Pearson Education, Inc. Ch 7 -10

appreciation of the other’s point of view

and work through their differences.

Copyright © 2011 Pearson Education, Inc. Ch 7 -11

 Changes in strategy often require changes in the way an

Copyright © 2011 Pearson Education, Inc. Ch 7 -12

Copyright © 2011 Pearson Education, Inc. Ch 7 -14

 Groups tasks and activities by business

Copyright © 2011 Pearson Education, Inc. Ch 7 -15

Copyright © 2011 Pearson Education, Inc. Ch 7 -16

 Canbe organized in one of four

Copyright © 2011 Pearson Education, Inc. Ch 7 -17

Copyright © 2011 Pearson Education, Inc. Ch 7 -18

 The most complex of all structures

Copyright © 2011 Pearson Education, Inc. Ch 7 -20

Copyright © 2011 Pearson Education, Inc. Ch 7 -21

 Restructuring - reducing the size of an organization. Also

Copyright © 2011 Pearson Education, Inc. Ch 7 -22

Copyright © 2011 Pearson Education, Inc. Ch 7 -23

Copyright © 2011 Pearson Education, Inc. Ch 7 -24

 No organization or individual can escape

 People often resist strategy implementation

Copyright © 2011 Pearson Education, Inc. Ch 7 -28

1. Formal statements of organizational

6. What leaders pay attention to

Copyright 2007 Prentice Hall Ch 8-34

Strategy implementation means change; strategy

Less than 10% of strategies formulated are

Copyright 2007 Prentice Hall Ch 8-35

Here are some examples:

Copyright 2007 Prentice Hall Ch 8-36

 Marketing goods & services well

Copyright 2007 Prentice Hall Ch 8-37

Marketing variables affect success/failure of strategy

Examples of marketing decisions requiring

Copyright 2007 Prentice Hall Ch 8-38

Two marketing variables centrally important

Copyright 2007 Prentice Hall Ch 8-39

Why market segmentation could be a strategic issue?

 Directly affect marketing mix variables:

Copyright 2007 Prentice Hall Ch 8-41

Style Outlet location Sales promotion Payment terms

Brand name Sales territories Publicity

Copyright 2007 Prentice Hall Ch 8-42

Four bases for

Copyright 2007 Prentice Hall Ch 8-43

Product positioning is the schematic representations

Customer Wants Customer Needs

Copyright 2007 Prentice Hall Ch 8-45