STRATEGIC

MANAGEMENT
Functional Strategies

HRM Strategy
IT Strategy
 HRM Strategy
Right People, Right Work
Employee
Productivity Quality
satisfaction

Diverse workforce can

be a competitive
advantage.

Research reveals that

firms with a high degree
of racial diversity
following a growth
strategy
A complete 360-degree appraisal, in which input is gathered
from multiple sources, is now being used by more than 10% of U.S.
corporations and has become one of the most popular and effective tools in
developing employees and new managers
 Information Technology Strategy
information system as a distinctive competency

•Follow-the-sun management

•Instant Translation Services

•Staff Training and Developments

online

Mattel has cut the time it takes to develop new products by 10% by enabling
designers and licensees in other countries to collaborate on toy design
 1. Develop company’s IT catalogue by FY2023 and
make it accessible to suppliers, employees,
distributors.
2. Streamline operations to automate at least ten
repetitive tasks in 2022.
3. Enhance digital experience of customers and
employees by creating an e-commerce website by
Functional Strategies 2024.
4. Increase the transactions via incentive systems in
2023.
5. Generate an equity payment scheme in Quarter 3
of 2023
6. Analyze trends in 5-year data sets.
7. Increase the efficiency of the bookkeeping by 10%
8. Implement mandatory trainings on money
laundering and corruption
 Today’s Agenda
■ Develop programs, budgets, and procedures
to implement strategic change
■ Understand the importance of achieving
synergy during strategy implementation
■ List the stages of corporate development
and the structure that characterizes eachWhitegoods
stage
■ Identify the blocks to changing from one
stage to another
■ Decide when and if programs such as
reengineering, Six Sigma, and job redesign
are appropriate methods of strategy
implementation
 Chandler’s proposition
that structure follows
strategy (as well
as the reverse
Strategy Structure proposition that structure
influences strategy
 Stages of Corporate Development

Stage 1 Simple
Entrepreneurial
Stage 2 Functional
Limited managerial Growth and
Stage 3 Divisional
functions rationalization
Growth and
Everyone does Functionally diversification
everything specialized
Multi-unit structure
Appearance of policies
and management Formal systems and
stuctures processes
labeled by Greiner Management and
as a crisis of leadership performance indicators
 Stages of International Development
Stage 1 (Domestic company)
Stage 2 (Domestic company with export division)
Stage 3 (Primarily domestic company with international division)
Stage 4 (Multinational corporation with multidomestic emphasis)
Stage 5 (MNC with global emphasis)
 Strategic Errors
poor choice in strategy or organizational design.

WalMart – a cost leader.

Though by 2007, Target,
Costco, Kroger, Safeway, According to Olson, van Bever, and Verry, the stall
Walgreens, CVS, and Best points occurred due to four root causes
Buy were all
growing faster than Wal Mart 1. Premium position backfires

At Levi Strauss & Company,

2. Innovation management breaks down
for example, sales topped $7
billion in 1996—extending 3. Core business abandoned
growth
that had more than doubled
over the previous decade. 4. Talent and capabilities run short
From that high-water mark,
sales plummeted
until they reached $4.6 in
2000—a 35% decline
Typical Challenges with Strategy
Implementation

Think-Pair-Share
Typical Challenges with Strategy Implementation
A survey of 93 Fortune 500 firms. Over 50% experienced the
following 10 problems when they attempted to implement a
strategic change. listed in order of frequency:

1. Implementation took more time than originally planned.

2. Unanticipated major problems arose.
3. Activities were ineffectively coordinated.
4. Competing activities and crises took attention away from
implementation.
5. The involved employees had insufficient capabilities to perform
their jobs.
6. Lower-level employees were inadequately trained.
7. Uncontrollable external environmental factors created
problems.
8. Departmental managers provided inadequate leadership and
direction.
9. Key implementation tasks and activities were poorly defined.
10. The information system inadequately monitored activities
 Strategy Implementation

Strategy Programs
Formulati
on

Strategy Budgets
Implementation

Procedures

Who are the people who will carry out the strategic plan?
What must be done to align the company’s operations in the new intended direction?
How is everyone going to work together to do what is needed?
Tools for Strategy Implementation
 Tools for Alignment with Strategy

SF refers to the causes for success whereas KPI

refers to the effects of success

Practice:
Develop company’s IT catalogue by FY2023 and make it accessible to
suppliers, employees, distributors.
 Tools for Alignment with Strategy
Example 1: A restaurant
Goal: Increase profit by 5% by January next year through increasing output by 10% in lunch
and dinner trade without reducing our gross margins.
CSF KPI Target

Market share % of business within a 5km radius 10%

Customer satisfaction % of customers who are satisfied 95%

% of meals returned because of poor

Meal quality 2%
quality

Example 2: Whitegoods manufacturer

Goal: Increase the operating profit of a washing machine manufacturer by 5% within two years.

CSF KPI Target

High product quality Number of warranty claims per 100 units 3

High process yields % rolled throughput yield 95%

Low production costs Average variable costs <$350

Market share % of the market 15%

 Most corporate
Designing Programs headquarters have
around 10 to 30
programs in effect at
Speed of Order of Transition any one time
Change Change Process
 Applying Change Matrix Further
Pace and
Sequence of Stakeholder
Feasibility Location Nature of
Execution Evaluations
Change

Do the proposed Where should the Are we better off Should the Have we
programs and change begin? instituting the new change be slow overlooked any
activities How does the programs at a new or fast, important
constitute a sequence affect site, or can we incremental or activities or
coherent, stable success? Are reorganize radical? interactions?
system? there reasonable the existing Which blocks of Should we get
Are the current stopping points? facilities at a current activities further input from
activities reasonable cost? must be interested
coherent and changed at the stakeholders?
stable? Is the same time? Which new
transition likely programs and
to be difficult? current
activities offer
the greatest
sources of value?
 Budgets Procedures
vs Financial vs Financial Strategy
Strategy

Standard Operating
An ideal strategy might Procedures (SOPs)
be found to be completely
impractical only after
e.g. In a retail store, procedures ensure
specific implementation that the day-to-day store operations will
programs are costed in be consistent
detail. over time (that is, next week’s work
activities will be the same as this
week’s) and consistent
among stores (that is, each store will
operate in the same manner as the
others).
Standard Operating Procedures (SOPs)
 Six Sigma
An analytical method for achieving near-perfect results on a production
line. Ephasis is on reducing product variance in order to boost quality
and efficiency. In statistics, the Greek letter sigma denotes variation in
the standard bell-shaped curve. One sigma equals 690,000 defects
per 1 million. Most companies are able to achieve only three sigma, or Success: General Electric,
Allied Signal, ABB, and
66,000 errors per million. Six Sigma reduces the defects to only 3.4
Ford Motor Company.
per million—thus saving money by preventing waste. Six Sigma
encompasses five steps. About 35% of U.S.
companies now have a Six
1. Define a process where results are poorer than average. Sigma program in place
2. Measure the process to determine exact current performance.
3. Analyze the information to pinpoint where things are going wrong.
4. Improve the process and eliminate the error.
5. Establish controls to prevent future defects from occurring
 Strategic Synergy
Between functions and business units
Should be higher than the sum of its units

Shared Tangible New Business

Resources
Shared know-how Renault and Nissan Creation
P&G and Gillete
Economies of Scale extracting discrete activities
from various units and
and Scope
Coordinated Delta Airlines acquisition of
combining them in a new
unit or by establishing joint
Strategies Northwest Airlines ventures. E.g. Oracle
Eliminate inter-unit purchased software
competition companies to create a suite
Pooled Negotiated of software codenamed
Power “Project Fusion”.
Macy’s and the May
Company

Authors: Goold and Campbell

 Purchasing Strategy
Typically incorporated within Operations Strategy
Accounts for about 50% of manufacturing cost
Multiple Parallel Sole
Sourcing Sourcing Sourcing

Company orders a Two suppliers are the Relies on only

particular part from sole suppliers of two one supplier for a
several vendors. different parts, but they particular part.
are also backup
Competition among suppliers
suppliers for each Just-In-Time (JIT) delivery
Consistent supply
In-house supplier reps
other’s parts Reduces transaction costs

Research has found that buyer-supplier collaboration and joint problem

solving with both parties dependent upon the other results in the
development of competitive capabilities, higher quality, lower costs, and
better scheduling
Functional Strategy and Sourcing
■ Functional Strategy typically focuses on Distinctive Competency
■ If No Distinctive Competency

• Efficiency
Outsourcing
• Quality

According to an American Management Association survey of member

companies, 94% of the responding firms outsource at least one activity.

General and administrative (78%), human resources (77%),

transportation and distribution (66%), information systems (63%),
manufacturing (56%), marketing (51%), and finance and accounting
(18%).
Functional Strategy and
Sourcing
• Efficiency
• Quality

Offshoring

Financial Attractiveness – 2.77

People, skills and availability – 0.66
Business environment – 1.56
Digital Resonance – 0.56
Outsourcing Errors
1. Outsourcing activities that should not be outsourced: Companies failed to keep core
activities in-house.
2. Selecting the wrong vendor: Vendors were not trustworthy or lacked state-of-the-art
processes.
3. Writing a poor contract: Companies failed to establish a balance of power in the
relationship.
4. Overlooking personnel issues: Employees lost commitment to the firm.
5. Losing control over the outsourced activity: Qualified managers failed to manage the
outsourced activity.
6. Overlooking the hidden costs of outsourcing: Transaction costs overwhelmed other
savings.
7. Failing to plan an exit strategy: Companies failed to build reversibility clauses into the
contract.
Outsourcing Matrix
Strategic Choice
CONSTRUCTING CORPORATE SCENARIOS
■ pro forma (estimated future) balance sheets and income statements that forecast
the effect each alternative strategy and its various programs will likely have on
division and corporate return on investment.
Strategic Choice Process
Each resulting alternative (O, P, ML) must be rigorously evaluated in terms of its ability
to meet four criteria:
■ Mutual Exclusivity, Success. Completeness. Internal Consistency:
Evaluation Techniques
■ Devil’s advocate
■ Dialectical inquiry