Strategy Implementation

1. Strategy Implementation • What must we do to put the strategy in place, execute it proficiently, and produce good results? • Creating FITS between strategy and external environment and creating FITS inside the organization • Control, coordination, and motivation issues

2. Components of the Strategy Execution/Implementation Process The Action Agenda for Implementing Strategy

3. The Strategic Management Process

4. Chapter 11: Organizational Structure (OS) and Controls • Overview: • Define OS and controls and differences between strategic and financial controls • Describe relationship between strategy & structure • Describe the functional structures for business- level strategies • Three versions of multi-divisional (M-form) structure for different diversification strategies • OS for implementating three international strategies • Strategic networks and implementation of center firm

5. Organizational Structure & Controls • Organizational structure and controls provide framework within which strategies are used • Different structures and controls are required to effectively implement different strategies • Must match structure and controls to strategy and strategy implementation • Fit between strategy and structure affects above average returns and performance • Better fit = Better performance

6. Organizational Structure & Controls • Organizational Structure • Specifies the firm’s formal reporting relationships, procedures, controls, authority, and decision-making processes • In other words, specifies work to be done and how to do it • Effective use of firm’s strategies facilitated when structure is properly aligned • Structure should allow for both • Structural stability: Capacity firm requires to consistently and predictably manage its daily work routines • Structural flexibility: Opportunity to explore competitive advantages firm will need to be successful in the future • Structure is a critical component of effective strategy implementation

7. Organizational Structure & Controls • Some structural characteristics defined • Specialization • Concerned with the type and number of jobs required to complete work • Centralization • Degree to which decision-making authority is retained at higher managerial levels • Formalization • Degree to which formal rules and procedures govern work • Other structural characteristics • Authority, Responsibility, Degree of Integration, how Coordination is achieved, Reporting relationships, Standardization

8. The Relationship Between Strategy and Structure • Modifying current strategy or selecting a new one calls for changes to organizational structure • Reciprocal relationship - change to one causes change in the other • No one structure is superior to the others • No best or optimal structure for all firms • Strategy-structure fit can lead to a competitive advantage and above average returns • Structure must match strategy • Structural choice should be based on control, coordination, and motivation issues • Several structure forms can be used to implement strategies

9. Strategy and Structure Growth Pattern

10. Strategy and Structure • Three major types of organizational structures • Simple • Owner-manager makes all major decisions and monitors all activities • Informal relationships, few rules, limited task specialization • Matched with focus strategies and business-level strategies • As firm grows more complex, need to add layers and controls • Functional • Multidivisional (M-form)

11. Functional Structure for Implementing a Cost Leadership Strategy

12. Functional Structure for Implementing a Differentiation Strategy

13. Three Variations of the Multidivisional Structure

14. Cooperative Form of the Multidivisional Structure for Implementing a Related Constrained Strategy

15. SBU Form of the Multidivisional Structure for Implementing a Related Linked Strategy • Structural integration among divisions within SBUs, but independence across SBUs • Strategic planning may be the most prominent function in headquarters for managing the strategic planning approval process of SBUs for the president • Each SBU may have its own budget for staff to foster integration • Corporate headquarters staff serve as consultants to SBUs and divisions, rather than having direct input to product strategy, as in the cooperative form

16. Competitive Form of the Multidivisional Structure for Implementing an Unrelated Strategy

17. Additional Characteristics of the Multidivisional Structure (Table 11.1)

18. Worldwide Geographic Area Structure for Implementing a Multidomestic Strategy

19. Worldwide Product Divisional Structure for Implementing a Global Strategy • The HQ circle indicates centralization to coordinate information flow among worldwide divisions • Corporate HQ uses many intercoordination devices to facilitate global economies of scale and scope • Corporate HQ also allocates financial resources in a cooperative way • High formalization, global integration

20. Hybrid Form of the Combination Structure for Implementing a Transnational Strategy • Assets and operations may be centralized/decentralized • Functions may be integrated/nonintegrated • Relationships may be formal/informal • Coordination mechanisms may leverage efficiency/flexibility • Mandates to subsidiaries may be global/specialized-contribution/ localized-implementation • There are competing objectives

21. Matches between Cooperative Strategies and Strategic Network Structures • Network strategy: Partners form several alliances in order to improve the performance of the alliance network itself through cooperative endeavors • Strategic network: Group of firms that form [around core] to create value to participating in multiple cooperative arrangements • Business-level complementary alliances • Vertical and Horizontal CSAs • Used to facilitate product & market diversification • Franchising

22. Organizational Structure & Controls • Organizational Controls • Guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable • Are an important aspect of structure • Help managers recognize when it is time to adjust structure • Firms use strategic, financial, and behavioral controls to support their strategies • The relative use of these types of controls varies by type of strategy • Must properly balance the use of them

23. Organizational Structure & Controls • Strategic Controls: largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company’s competitive advantages • Concerned with fit between what firm might do vs. what it can do • Used to evaluate degree to which firm focuses on the requirements to implement its strategies • Help the firm understand what it takes to be successful • Focus on the content of strategic actions • Emphasized by firms pursuing differentiation at business level, related diversification at corporate level, and using a multidomestic international strategy

24. Organizational Structure & Controls • Financial Controls: largely objective criteria used to measure firm’s performance against previously established quantitative standards • Usually accounting or market-based measures • ROI, ROA, economic value added • Involves comparison of current performance with past performance and with industry averages and competitors’ performance • Focus on short-term financial outcomes • Emphasized by firms pursuing low cost strategy at business level, unrelated diversification at corporate level, and using a global international strategy

25. Organizational Structure & Controls • Behavioral Controls: the regulation of activities and behaviors within organizations • Used to adjust or bring about conformity to specifications or objectives • Can be achieved through the use of culture, structure, rewards, and policies/procedures • Includes controlling ethical behavior