Strategy Implementation

1. Concept of Strategy Implementation • Necessity of fit Strategy Implementation • Importance of integrating strategy implementation with strategy formulation. • Interrelationships between components or dimensions of strategy implementation. • Focus on structure and control related issues.

2. Sears example • In 1983 Sears implements one-stop shopping banking-financial services power. Strategy Implementation • Sears retail unit fell to #3 behind low-cost providers (Walmart • and K-Mart). • Specialty retailers (focused differentiators) such as The Gap, The Limited, Toys-R-Us, and Kids-R-Us took market share. • Sears was outperformed by both low-cost and focused differentiators. • Sears initiated restructuring in 1992 after losing $3.8 billion.

3. Sears example • What happened? Why did Sears fail so dramatically? Strategy Implementation - Lost ability to control core business (too diversified). - Resources were taken from retail and given to new ventures. - Managers spent too much time on diversified businesses. - Managed retail segment using financial controls. - Sears suffered from post-merger drift. • Lost operational understanding of the competitive dynamics • in the retail industry.

4. Strategy Implementation Structure Decision Processes and Controls Task-Focus (Value) Firm Performance Firm Strategy Reward Systems People

5. Decision Processes and Controls Task-Focus (Value) Strategy Implementation Structure • Uncertainty • Diversity • Interdependence • Division of labor • Departmentalization • Shape • Distribution of power • Planning and control systems • Integration roles • Information systems • Decision making procedures • Performance measures • Compensation • Promotion • Job design Reward Systems People • Recruiting and selection • Leader style • Transfer and promotion • Training and development

7. President Employees • Organization Structures • Simple Structure Strategy Implementation • Owner-manager makes decisions. • Little specialization of tasks. • Few rules, little formalization. • Advantages: • Provides high flexibility • Rapid product introduction • Few coordination problems

8. President Accounting Legal Affairs HRM Finance Marketing R&D Production • Organization structure • Functional structure

9. Organization structure • Functional structure Strategy Implementation • Advantages • Centralized control of operations • Promotes in-depth functional expertise • Enhances operating efficiency where tasks are routine • Disadvantages • Functional coordination problems • Inter-functional rivalry • Overspecialization and narrow viewpoints • Hinders development of cross-functional experience • Slower to respond in turbulent environments

10. President Government Affairs Legal Affairs Corporate R&D Lab Strategic Planning Corporate Human Resources Corporate Marketing Corporate Finance Product Division Product Division Product Division Product Division Product Division • Organization structure • Product-divisional structure

11. Organization structure • Product-divisional structure Strategy Implementation • Organization based on products versus functions • Each division is a separate business in which day-to-day decisions are delegated to divisional managers. • Divisions are managed using strategic controls – detailed knowledge of firm operations allows managers to remain actively involved. • Overdiversification leads to inability to process detailed information and a reliance on financial controls to evaluate managers.

12. Organization structure • Product-divisional structure Strategy Implementation • Advantages - Decentralized decision making - Each business is organized around products - Puts profit/loss accountability on managers - Facilitates rapid response to environmental changes - Allows efficient management of a large number of units • Disadvantages - May lead to costly duplication of functions - Inter-divisional rivalry - Corporate managers may lose in-depth understanding

13. President R&D Production Marketing Finance Business Project Business Project Business Project Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists • Matrix Structure

14. Organization structure • Matrix structure Strategy Implementation • Contains aspects of both functional and product-divisional structures. • Advantages: - Creates checks and balances between competing viewpoints - Promotes holistic view of the firm - Encourages cooperation and consensus building • Disadvantages: - Very complex and costly - Shared authority increases communication time - Difficult to respond rapidly - May promote bureaucracy and reduce innovation (in large firms).

15. Partner Partner Partner Partner Focal Firm Strategy Implementation • Network structure • Group of firms combine resources to achieve together what they can’t achieve alone. • Advantages: - Firm’s emphasize their own core competencies - Rapid response time - Very flexible - Reduces capital intensity • Disadvantages - Asymmetric information - Technology expropriation - Trustworthiness of partners - Asset hold-up