CHAPTER 7

STRATEGY FORMULATION Positioning forces before action Effectiveness Intellectual Intuitive, analytical skills Coordination among few individuals STRATEGY IMPLEMENTATION Managing forces during action Efficiency Operational Motivation and leadership skills Coordination among many individuals

3 categories of managing conflict: o Avoidance ignore problem or physically separate conflicting groups o Defusion play down differences & accentuate similarities, compromise, resort of majority rule, appeal to higher authority, redesign present positions o Confrontation exchange members of conflicting parties so each gains an appreciation of the others POV, or hold meeting

Annual Objectives
Establishing them is a decentralized activity that directly involves all managers in an org. Essential for strategy implementation bec.: a) Basis for resource allocation b) Primary mechanism for evaluating managers c) Monitor progress in achieving long-term objectives d) Establish org., divisional and departmental priorities Horizontal consistency of obj. just as important as vertical Measurable, consistent, challenging, clear, reasonable, communicated towards whole org., appropriate time dimension, accompanied by rewards and sanctions

Matching Structure w/ Strategy

Why changes in strategy require structure changes: o Structure dictates how objectives and policies will be established o Structure dictates how resources will be allocated Tendency for firms: o Small firms functionally structured (centralized) o Medium firms divisionally structured (decentralized) o Large firms strategic business unit or matrix Symptoms of ineffective org. structure o Too many levels of mgt. o Too many meetings attended by too many people o Too large span of control o Too many unachieved objectives o Too much attention for solving interdept. conflicts

Policies
Needed to make strategies work on day-to-day basis Specific guidelines, methods, etc. to support and encourage work toward stated goals Mechanism for implementing strategies and obtaining objectives

Resource Allocation Central management activity for strategy execution At least four types for all orgs.: o Financial o Human o Physical o Technological Factors prohibiting effective resource alloc.: o Overprotection of resources o Too great emphasis on short-run financial criteria o Org. politics o Vague strategy targets o Reluctance to take risks o Lack of sufficient knowledge Strategic mgt. sometimes referred to as resource alloc. Process

The Functional Structure Groups tasks and activities by business function Advantages o Most widely used, simplest, least expensive o Promotes specialization of labor o Encourages effective use of managerial & technical talent o Minimizes need for elaborate control system o Rapid decision making Disadvantages o Forces accountability to the top o Minimizes career devt. opportunities o Low employee morale, line/staff conflicts, poor delegation of authority, inadequate planning o Can lead to short-term & narrow thinking The Divisional Structure Functional activities are performed both centrally & in each separate division By geographic area o For orgs whose strategies need to be tailored to fit particular needs of customers in diff. geographic areas By product / service o When products/services need special emphasis o When org. offers only a few products/services or when they differ substantially By customer o When a few major customers are of paramount importance & many diff. services are provided to them

Managing Conflict
Conflict: disagreement bet. 2 or more parties on 1 or more issues Establishing objectives can lead to conflict o Trade-offs happen bec. no firm has enough resoures to pursue all beneficial strategies Absence of conflict could mean apathy

By process o Similar to functional structure, activities are organized to the way work is actually performed o But functional dept. are not accountable for profits and revenues, whereas divisional dept. are Advantages o Accountability is clear o Employee morale generally higher o Creates career devt. opportunities for managers o Allows local control of situations o Leads to competitive climate in org. o Allows new businesses/products to be added easily Disadvantages o Costly Each division requires functional specialists Duplication of staff services & personnel Managers must be well-qualified higher salaries Competition can be so intense limits sharing of ideas & resources

o Dont use president for top person, use it for division top managers o Do not recommend dual title for just one executive Split chairperson of board and CEO positions in publicly held companies o Below CEO is COO, who division presidents report to o Controller/treasurer report to CFO Avoid having a particular person report to more than 1 person above o Violates unity of command principle As consumption patterns become more similar worldwide, division by product is most effective

Restructuring, Reengineering & E-Engineering

Restructuring o Reducing size of firm in terms of employees, divisions/units and hierchichal levels o Shareholder well-being rather than employee well-being o Characterized by strategic decisions o Employed when ratios appear out of line w/ competitors through benchmarking o Primary benefit sought: cost reduction o Downsides: Reduce employee commitment, creativity, innovation Uncertainty and trauma Makes managers job an invisible, thankless role Reengineering o More concerned with employee and customer well-being o Reconfiguring work, jobs and processes to improve cost, quality, service, speed o Characterized by tactical decisions o 6 Sigma: quality-boosting process, entails training key personnel to monitor & improve processes o Uses info technology to break down functional barriers & create work system based on processes, products or outputs o Decentralization, reciprocation, information sharing o Downside: can raise manager & employee anxiety

SBU Structure In multidivisional orgs., can greatly facilitate strategy implementation Groups similar divisions into SBUs and delegates each to a senior executive who reports to the CEO Advantages o Improved coordination bet. similar divisions o Channeling accountability to distinct business units o Makes task of planning and control by corporate office more manageable Disadvantages o Additional layer of mgt. salary expenses o Role of group vice president is often ambiguous Matrix Structure Most complex, depends on both vertical and horizontal flows of authority and communication Effective when several variables have roughly equal strategic priorities Advantages: o Objectives are clear o Many channels of communication o Workers can see visible results of their work o Shutting down a project is relatively easy Disadvantages: o Higher overhead due to more mgt. positions o Dual lines of budget authority o Dual sources of reward & punishment o Shared authority o Dual reporting channels o Need for extensive and effective communication system Some Dos & Donts In Developing Org. Charts Reserve title of CEO for top executive of the firm

Linking Performance & Pay to Strategies

Dual bonus system based on both annual objectives and long-term objectives is becoming common Important that bonuses not be based solely on short-term results Profit sharing Gain sharing: requires employees/depts. to establish targets; if these are exceeded, everyone gets a bonus Other bases for effective bonus system: sales, profit, production efficiency, quality, safety 5 tests whether performance-pay plan will benefit org.: o Does plan capture attention? o Do employees understand the plan? o Is the plan improving communication? o Does the plan pay out when it should? o Is the company or unit performing better?

Managing Resistance to Change

Can be single greatest threat to successful strategy implementation Often bec. people do not understand what is happening or why 3 Strategies: o Force change: give & enforce orders, fast but low commitment & high resistance o Educative change: presents information to convince people, but slow and difficult, though less resistance o Rational / self-interest change: convince people that change is to their personal advantage 4 steps of rational change strategy: o Employees invited to participate in process of change & details of transition o Motivation or incentive to change o Communicate purpose of change o Give and receive feedback Org. change: continuous process rather than project or event = continuous quality improvement

Reduces worker alienation and stimulates productivity, substantial tax savings Does not work in firms w/ fluctuating payroll and profits

Balancing Work Life & Home Life Companies w/ more female execs and directors outperform other firms mix of thinking styles is key to mgt. effectiveness Glass ceiling: invisible barrier that bars women and minorities from top level mgt. positions Benefits of Diverse Workforce Org. most effective when workforce mirrors customer diversity Corporate Wellness Programs Require employees to get healthier or pay a premium Health examination Healthiness becoming more of a hiring factor

Creating a Strategy-Supportive Culture

When attachments to a culture are severed in orgs attempt to change direction, employees & managers can experience grief Weak links between strategic mgt. and org. culture can jeopardize performance

Chapter 8
Nature of strategy implementation Less than 10% of strategies formulated were implemented Managers, supervisors, and all employees are affected

Current Marketing issues

1. 2. 3. 4. 5. 6. 7. Use exclusive dealership or multiple channels of distribution Use heavy, light or no tv advertising Limit or not the share of business done with a single customer Price leader or price follower Complete or limited warranty To reward sales people with straight salary, commission or salary/commission To advertise online or not

Production/Operations Concerns When Implementing Strategies

Can significantly enhance/inhibit attainment of objectives Production: over 70% of firms total assets Just-in-time: parts delivered to production site when needed, reduces costs For high-tech companies, production flexibility is more important than prod. costs Cross-training of employees can facilitate strategy implementation

Human Resource Concerns When Implementing Strategies

Furloughs: temporary lay-offs Strategic responsibilities of HR manager: o Assess staffing needs and costs for alternative strategies o Develop staffing plan for implementing strategies o How to manage spiraling health care insurance costs o How to motivate when layoffs are common & workloads are high Reasons for HR problems o Disruption of social and political structures o Failure to match individuals aptitudes w/ implementation tasks o Inadequate top mgt. support for implementation activities Concern: jobs have specific and static responsibilities, while people are dynamic in personal devt.

New Principles in Marketing 1. Dont just talk to the customer work with them throughout the marketing process 2. Give consumers a reason to participate 3. Listen to and join to online conversations outside your companys website 4. Resist the temptation to sell. Attract instead 5. Dont control online conversations. Let it flow freely 6. Find a marketing technologist 7. Embrace text messaging and chatting Advertising Media Ages 18-27 spend more time on the internet Internet active viewer of ads, more difficult to reach vs. TV passive viewers Companies are redesigning wedbsites to make it more interactive Purpose Based marketing Show customers how to improve their lives

Employee Stock Ownership Plans (ESOP) Tax-qualified, defined-contribution, employee-benefit plan where employees purchase company stock through borrowed money / cash contributions

Need to build trust and emotional connection to the customer to differentiate the product Promote the price but at the same time show intrinsic value

Most common type of budget = cash budget

Research and Devt issues

Developing new products that will allow effective strategy implementation 1. Emphasize product or process improvement 2. stress basic or applied research 3. be leaders or followers in R&D 4. develop robotics or manual type 5. spend a high, ave, or low amount in R&D 6. perform R&D within the firm or outsource 7. Use university researchers or private sector researchers

Market Segmentation
better for small and specialized firms subdividing distinct subsets of customers according to needs and buying habits. It is important because: 1. market devt, penetration, product devt, diversification need marketing segmentation approach 2. helps firms operate using limited resources 3. directly affect marketing mix

Product Positioning
Steps required: 1. select key criteria 2. diagram a two dimensional product positioning map based on criteria 3. plot competitor in matrix 4. Identify areas in positioning map where company would be competitive 5. Develop marketing plan based on that Rules for using product positioning as a strategy implementation 1. look for hole or vacant niche 2. Dont serve 2 segments with same strategy 3. Dont position yourself in the middle of the map

Finance and accounting issues

1. 2. 3. 4. 5. 6. 7. Raise capital with short-term long-term debt, preferred stock or common stock Lease or buy fixed assets Determine appropriate dividend payout ratio Use LIFO, FIFO Extend time of A/R Establish certain percentage discount on accounts within a specified period Determine amount of cash

Projected financial statements Projected financial statement analysis allows an org to examine expected results of various actions and approaches. 6 steps: 1. Prepare projected income statement before the bal sheet 2. Use percentage sales method to project COGS 3. Calculate projected net income 4. Subtract from the NI any dividends to be paid for that year 5. Project the balance sheet items Financial Budgets Document that details how funds will be obtained and spent for a specified period of time