Chapter 12

1. Explain the relationship between administrative factors and successfully implementation of

business strategies?
Answer: Administrative factors related to successful implementation of business strategies:
1. Business Unit Autonomy: Prospector business writs are likely to perform better on the critical
dimensions of new product success and increases in volume and market share when organizational
decision making is relatively decentralized and the SBU's managers have substantial autonomy to
make their own decisions. There are several reasons for this. First, decentralized decision making
allows the managers closest to the market to make more major decisions on their own. Greater
autonomy also enables the SBU's managers to be more flexible and adapt-able. It frees them from
the restrictions of standard procedures imposed from above, allows them to make decisions with
fewer consultations and participants, and disperses power. All of these help produce quicker and
more innovative responses to environmental opportunities. One caveat must be attached to the
above generalization, however. High levels of autonomy and independence can lead to
coordination problems across business units. This was the problem encountered by HP as the
growing popularity of the Internet caused its customers to attach greater importance to system
integration.
2. Shared program and facilities: Finns face a trade-off when designing strategic business units, An
SBU should he large enough to afford critical resources and to operate on an efficient scale. But it
should not be so large that its market scope is too broad or that it is inflexible and therefore cannot
respond to its unique market opportunities. Some firms attempt to avoid this tradeoff between
efficiency and adaptability by designing relatively small, narrowly focused business units (as HP
does). But then having two or more units share functional programs or facilities. Such as common
manufacturing plants. R&D programs, or a single sales force.
Sharing resources poses a particular problem for prospector business units.' Suppose for instance, a
business wants to introduce a new product but shares a manufacturing plant and sales force with other
SBUs. The business would have to negotiate a production schedule for the new product, and it may not
be able to produce adequate quantities as quickly as needed if other units sharing the plant arc trying to
maintain sufficient volumes of their own products. It also may be difficult to train salespeople on the
new product or to motivate them to reduce the time spent on established products to push the new item.
3. Evaluation and reward systems: Increasingly. U.S. firms are adopting some form of pay-forperformance compensation scheme. Some do it for individuals who meet specific goals Others on
the basis of the performance of the SBU or the company as a whole .In either case SBU managers
arc often motivated to achieve their objectives by bonuses or other financial incentives tied to one
or more dimensions of their unit's performance. The question is which dimensions of performance
should be rewarded?
In prospector businesses, on the other hand, basing too large a portion of managers' re-wards on current
profitability may cause problems. Such rewards may motivate managers to avoid innovative but risky

actions or investments that may not pay off for some years into the future.' Even successful new
product introductions can dramatically increase costs and drain profits early in the product's life cycle.
By the time the new product starts contributing to the unit's profits, the manager who deserves the
credit may have been transferred to a different business. Therefore Evaluation and reward systems that
place relatively more emphasis on sales volume or market share objectives, or on the percentage of
volume generated by new products. may be more appropriate for businesses pursuing prospector
strategies.

2. Show the relationship of implementation of marketing strategies with organizational and

interlunation factors?
Answer: Organizational factors related to successful implementation of business strategies:
Different strategies emphasize varying ways to gain a competitive advantage. Thus, a given functional
area may be key to the success of one type of strategy but less critical for others. For instance
competence in new product R&D is critical for the success of a prospector business but less so for a
low-cost defender.
Successful implementation of a given strategy is more likely when the business has the functional
competencies demanded by its strategy and supports them with substantial re-sources relative to
competitors: is organized suitably for its technical, market, and competitive environment; and has
developed appropriate mechanisms for coordinating efforts and resolving conflicts across functional
departments.
Functional competencies of the SBU: Competence in marketing, sales, product R&D, and
engineering is critical to the success of prospector businesses because those functions play pivotal roles
in new product and market development and thus must be supported with budgets set at a larger
percentage of sales than their competitors. Because marketing, sales, and R&D managers are closest to
the changes occurring in a business's market, competitive, and technological environments.Success
here is positively affected by the extent to which customer orientation is an integral part of the unit's
corporate culture.

Resource allocation across functions 294

Decision making influence and participation
SBUs organizational structure
Functional coordination and conflict resolution

3. Discuses different types of marketing organizational designs based on their formalization,

centralization and specialization?
Answer: Different types of marketing organizational designs based on their formalization,

centralization and specialization:

1. Functional organization: The functional form of organization is the simplest and most
bureaucratic design. At the SBU level, managers of each functional department, such as production
or marketing, re-port to the general manager. Within the marketing department, managers of
specific marketing activity areas, such as sales, advertising, or marketing research, report to the
marketing vice president or director.
These characteristics make the functional form simple, efficient, and particularly suit-able for
companies operating in stable and slow-growth industries where the environments are predictable.
Thus, the form is appropriate for low-cost defender SBUs attempting to maximize their efficiency and
profitability in mature or declining industries.
(I) the company remains small enough that the entrepreneur can personally supervise and coordinate
the various functions. (2) the firm is focused on a single product or product line targeted at one
customer segment, and (3) the entrepreneur's personal vision is an adequate source of innovation to
differentiate the entire company.
2. Product management organization: When a company or SBU has many product-market entries,
the simple functional form of organization is inadequate. A single manager finds it difficult to stay
abreast of functional activities across a variety of different product-markets or to coordinate them
efficiently.
A product management structure decentralizes decision making while increasing the amount of product
specialization within the SBU. If the product managers also are given substantial autonomy to develop
their own marketing plans and programs, this structure also can decrease the formalization within the
business. Finally, although the product man-agers arc responsible for obtaining cooperation from other
functional areas both within and outside the marketing department, they have no formal authority over
these areas. They must rely on persuasion and compromisein other words, more participative
methodsto overcome conflicts and objections when coordinating functional activities. These factors
make the product management form of organization less bureaucratic than the functional structure. It is
more appropriate, then, for businesses pursuing differentiated defender and analyzer strategies,
particularly when they operate in industries with complex and relatively unstable market and
competitive environments. Thus, many large consumer goods companies with multiple brands
competing in diverse segmentssuch as Nestle. Unilever. and General Motorsincorporate a product
management structure.
3. Market management organization: In some industries, an SBU may market a single product to a
large number of markets where customers have very different requirements and preferences. PepsiCola, for example is sold through restaurants, fast-food outlets, and supermarkets. The syrup needed to
make Pepsi is sold directly to institutions such as Kentucky Fried Chicken and Taco Bell. But

marketing Pepsi to consumers for home consumption involves the use of franchised bottlers who
process and package the product and distribute it to a variety of retail outlets. The intermediaries and
marketing activities involved in selling to the two markets are so different that it makes sense to have a
separate market manager in charge of each. Such a company or SBU might organize itself along the
lines shown in Exhibit 12.5. Some SBUs have adopted a combination of product and regional market
management organizational structures. A product manager has overall responsibility for planning and
implementing a national marketing program for the product, but several market mangers are also given
some authority and an independent budget to work with salespeople and develop promotion programs
geared to a particular user segment market. This kind of decentralization or regionalization has
become popular with consumer goods companies in their efforts to increase geographic
segmentation and cope with the growing power of regional retail chains.
4. Matrix organization: A business facing an extremely complex and uncertain environment may find
a matrix organization appropriate. The matrix form is the least bureaucratic or centralized and the most
specialized type of organization. It brings together two or more different types of specialists within a
participative coordination structure. One example is the product team. Which consists of
representatives from a number of functional areas assembled for each product or product line? As a
group, the team must agree on a business plan for the product and ensure the necessary resources and
cooperation from each functional area. This kind of participative decision making can be very
inefficient: it requires a good deal of time and effort for the team to reach mutually acceptable
decisions and gain approval from all the affected functional areas. But once reached, those decisions
are more likely to reflect the expertise of a variety of functional specialists, to be innovative, and to be
quickly and effectively implemented. Thus, the matrix form of organization particularly suits
prospector businesses and the management of new product development projects within analyzer or
differentiated defender businesses. Similarly. Hewlett-Packard created an E-Services Solutions Group,
a coordinating unit whose domain cuts across all the other SBUs and di-visions in the company and
who is charged with encouraging the other SBUs to work with each other and with outside partners to
develop new Web-based goods and services.