Strategy

Execution
Chapter Ten

1
Chapter Objectives
1. Construct effective organizational chart.
2. Explain why corporate wellness has become so important in strategic planning.
3. Explain why strategy implementation is more difficult than strategy formulation.
4. Discuss the importance of annual objectives and policies in achieving
organizational commitment for strategies to be implemented.
5. Explain why organizational structure is so important in strategy implementation.
6. Compare and contrast restructuring and reengineering.
7. Describe the relationships between production/ operations and strategy
implementation.
8. Explain how a firm can effectively link performance and pay to strategies.
9. Discuss employee stock ownership plans (ESOPs) as strategic management
concept.
10.Describe how to modify an organizational culture to support new strategies.

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Comprehensive Strategic-Management Model

3
 4

The Nature of Strategy Implementation

Strategy Formulation Strategy Implementation

• positioning forces before • managing forces during

the action. positioning the action.
forces before the action. • focuses on efficiency
• focuses on effectiveness • primarily an operational
process. primarily an
• primarily an intellectual
operational process.
process
• requires good intuitive
• requires special motivation
and leadership skills.
and analytical skills requires special motivation
and leadership skills.
Some Management Issues Central to Strategy
Implementation

5
Annual Objectives

1. Represent the basis for allocating resources.

2. Are a primary mechanism for evaluating
managers.
3. Are the major instrument for monitoring
progress toward achieving long-term
objectives.
4. Establish organizational, divisional, and
departmental priorities.

6
The Stamus Company’s Hierarchy of Aims

7
Policies
• specific guidelines, methods, procedures, rules, forms,
and administrative practices established to support and
encourage work toward stated goals
• instruments for strategy implementation
• set boundaries, constraints, and limits on the kinds of
administrative actions that can be taken to reward and
sanction behavior
• clarify what can and cannot be done in pursuit of an
organization’s objectives

8
A Hierarchy of Policies

9
Some Issues That May Require a Management Policy

10
Resource Allocation
• Resource allocation
o Types of resources are:
1. Financial
2. Physical
3. Human
4. Technological
o central management activity that allows for strategy execution
o often based on political or personal factors
o A number of factors commonly prohibit effective resource allocation,
including:
 Overprotection of resources
 Overemphasis on short-run financial criteria
 Organizational politics
 Vague strategy targets
 Reluctance to take risks
 Lack of sufficient knowledge
• Strategic management enables resources to be allocated
according to priorities established by annual objectives
11
Managing Conflict
• Conflict: disagreement between two or more
parties on one or more issues
• Establishing annual objectives can lead to
conflict because:
o individuals have different expectations and
perceptions
o schedules create pressure
o personalities are incompatible
o misunderstandings occur between line
managers and staff managers

12
Managing Conflict
• Avoidance
o includes such actions as ignoring the problem in hopes
that the conflict will resolve itself or physically
separating the conflicting individuals
• Defusion
o includes playing down differences between conflicting
parties while accentuating similarities and common
interests
• Confrontation
o exemplified by exchanging members of conflicting
parties so that each can gain an appreciation of the
other’s point of view or holding a meeting at which
conflicting parties present their views and work through
their differences
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Some Management Trade-Off Decisions Required
in Strategy Implementation

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Matching Structure With Strategy
• Changes in strategy often requires changes in the way an
organization is structured because:
o Structure largely dictates how objectives and policies will be established
o Structure dictates how resources will be allocated

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 16

Basic Concepts
• Organizational architecture: The organizational structure,
control systems, culture, and human resources
management systems that together determine how
efficiently and effectively organizational resources are
used.
• Organizational structure: A formal system of task and
reporting relationships that coordinates and motivates
organizational members to work together to achieve
organizational goals.
• Organizational design: The process by which managers
make specific choices that result in a particular kind of
organizational structure.
• Job design: The process by which managers decide how
to divide tasks into specific jobs.
 17

Factors Affecting Organizational Structure

Organizational
Organizational Technology
Technology
environment
environment

Determine
Determinethe thedesign
design
of organizational
of organizational
structure
structure

Human
Human
Strategy
Strategy resources
resources
 18

Designing Organizational Structure

Issues in designing structure:
CEO
• How to group tasks into
individual jobs
Structure: Result of Manage
• How to group jobs into
r
organization design functions and divisions
Function Function Function Function • How to allocate authority
1 2 3 4
and coordinate or integrate
functions and divisions

Jobs: Result of job Job

Job
Job11 Job
Job22 Job33 Job
Job44
design

Task
Task Task
Task Task
Task Task
Task
11 22 33 44
Tasks: Basic
elements of jobs
 19

Functional Structure

Top
TopManagement
Management

Purchasing
Purchasing Manufacturing
Manufacturing Marketing
Marketing Finance
Finance

Buying Plants Sales Accounting

Units Units Units
 20

Functional Design: Potential Benefits and Pitfalls

Potential Benefits Potential Pitfalls

 Supports skill  Inadequate communication

specialization across functional areas
 Reduces duplication of  Conflicts over product
resources & increases priorities
coordination with the  Focus on departmental
function rather than organizational
 Enhances career issues and goals
development & training  Develops managers who
within functional area
are experts only in a
 Allows superiors and
narrow field
subordinates to share
common expertise
 Promotes high-quality
technical decision making
 21

Product Structure

Product
Divisions

Functions
 22

Product Structure: Potential Benefits and Pitfalls

Potential Benefits Potential Pitfalls

 Permits fast changes in a  Inefficient utilization of

product line skills and resources
 Allows greater product  Not fostering coordination
line visibility of activities across product
 Fosters a concern for lines
customer demand  Encourages politics and
 Clearly defines conflicts in resource
responsibilities for each allocation across product
product line lines
 Develops managers who  Limits career mobility for
can think across personnel outside their
functional lines own product lines
 23

Geographic Structure

Geographic
Divisions

Functions
 24

Geographical Design: Potential Benefits

and Pitfalls
Potential Benefits Potential Pitfalls
 Facilities and the  Duplication of functions, to
equipment used for varying degrees, at each
production and/or regional or individual unit
distribution all in one place, location
saving time and costs  Conflict between each
 Able to develop expertise location’s goals and the
in solving problems unique organization’s goals
to one location  Adds levels of
 Understanding of management and
customers’ problems and extensive use of rules and
desires in the location regulations to coordinate
 Getting production closer and ensure uniformity of
to raw materials and quality among locations
suppliers
 25

Market (Customer) Structure

Market
Divisions

Functions
The Functional Structure
• groups tasks and activities by business function,
such as production/operations, marketing,
finance/accounting, research and development,
and management information systems

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Advantages and Disadvantages of a Functional
Organizational Structure

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The Divisional Structure
o functional activities are performed both centrally
and in each separate division
o Geographic area, product or service, customer, process

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Advantages and Disadvantages of a Divisional
Organizational Structure

29
 The Strategic Business Unit (SBU) Structure
• SBU structure
o groups similar
divisions into strategic
business units and
delegates authority
and responsibility for
each unit to a senior
executive who reports
directly to the chief
executive officer
o can facilitate strategy
implementation by
improving
coordination between
similar divisions and
channeling
accountability to
distinct business units
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The Matrix Structure
• Matrix structure
o most complex of all designs because it depends upon both vertical
and horizontal flows of authority and communication
o For a matrix structure to be effective, organizations need
participative planning, training, clear mutual understanding of roles
and responsibilities, excellent internal communication, and mutual
trust and confidence

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 32

Matrix Structure
CEO
CEO

Functional
Functional
Managers
Managers

Sales
Sales&& Product
Product
Engineering
Engineering RR&&DD Manufacturing
Manufacturing
Marketing
Marketing Design
Design

Product
Product
Team
TeamAA

Product
Product
Team
ProductTeam

Team
TeamBB
Managers
Managers
Product

Product
Product
Team
TeamCC

Product
Product
Team
TeamDD

Two-boss employee Product team

Advantages and Disadvantages of a Matrix Structure

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Typical Top Managers of a Large Firm

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Restructuring
o involves reducing the size of the firm in terms of
number of employees, number of divisions or units, and
number of hierarchical levels in the firm’s organizational
structure
o also called downsizing, rightsizing, or delayering

Reengineering
o involves reconfiguring or redesigning work, jobs, and
processes for the purpose of improving cost, quality,
service, and speed
o also called process management, process innovation,
or process redesign

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Linking Performance and Pay to Strategies
Recommended policies to improve compensation practices:
1. Provide full transparency to all stakeholders
2. Reward long-term performance with long-term pay,
rather than annual incentives
3. Base executive compensation on actual company
performance, rather than on stock price
4. Extend the time-horizon for bonuses. Replace short-
term with long-term incentives
5. Increase equity between workers and executives;
Delete many special perks and benefits for executives

36
Linking Performance and Pay to Strategies
Five tests are often used to determine whether a
performance-pay plan will benefit an organization:
1. Does the plan capture attention?
2. Do employees understand the plan?
3. Is the plan improving communication?
4. Does the plan pay out when it should?
5. Is the company or unit performing better?

37
Examples of Merit and Pay for Performance Plans

Merit Pay Guidelines

Performance – based Guidelines
Unsatisfactory Needs Competent Commendable Superior
Performance Level Improvement

1 2 3 4 5

Merit Increases 0 2-4% 4-6% 5-7% 6-8%

Performance – and Position – Based Guidelines

Performance Rating
Unsatisfactory Needs Competent Commendable Superior
Improvement

4th Quartile 0% 0% 4% 5% 6%
3rd Quartile 0% 0% 5% 6% 7%
Position 2nd Quartile 0% 0% 6% 7% 8%
in Range
1st Quartile 0% 2% 7% 8% 9%
Below minimum 0% 3% 8% 9% 10%
range
 39

Examples of Merit and Pay for Performance Plans

Straight Piece Rate Plan
Piece rate standard as determined by time and motion studies = 10 units/hour
Guaranteed minimum wage when standard is not met (output < or = 10 units) = $5/unit
Incentive rate for units above the standard of 10 units = $0.50/unit
Example of worker output Wage

10 unit or less $5.00/hour (as guaranteed)

20 units 20 X $0.50 = $10/hour

30 units 30 X $0.50 = $15/hour

Scanlon Plan
2003 Data (base year) for MGT 501 Company
SVOP (Sales Value of Production) = $10,000,000
Total wage bill = 4,000,000
Total wage bill / SVOP = 4,000,000/10,000,000 = 0.40 = 40%
Operating Month, March 2014
SVOP = $950,000
Allowable wage bill = 0.40(950,000) = 380,000
Actual wage bill (March) = 330,000
Savings = 380,000 – 330,000 = 50,000
Amount available for distribution = 50,000
(usually 75% distributed and 25% kept in emergency
fund)
 40

Organizational Change

A state where A state where

routines and Need to responsiveness
Need to
predictability are respond to and
favored improve unpredictability
new
operations are required
events

Managers must balance the need for an organization to

improve the way it currently operates and the need for
it to change in response to new, unanticipated events.
 41

Lewin’s Force-field Theory of Change

Forces from structure, culture,
and control systems

Organization at level of
performance P1 is at
Resistance to change Resistance to change
balance. The forces for
change and against
change are evenly

Level of performance
balanced. In this case the
P2
organization is in inertia. ge
n
To overcome inertia (make
C ha
change), organizations
must increase forces to
change or reduce P1
resistance to change or
both in order to reach
new state of performance
P2 (an inertia at a new Forces to change Forces to change
level
Time

Forces from changing task and general

environment factors
Managing Resistance to Change
• Strategies introduce change
• Change is resisted
• Resistance to change can be considered the single greatest threat
to successful strategy implementation
• Resistance is exhibited in varieties of form to include sabotage of
machines, filing of unfounded grievances, excessive absenteeism,
unwillingness to cooperate
• There many ways to manage change including:
1. Force change strategy: involves giving orders and enforcing those
orders
2. Educative change strategy: one that presents information to
convince people of the need for change
3. Self-interest change strategy: one that attempts to convince
individuals that the change is to their personal advantage

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 43

Evolutionary and Revolutionary Change

• Change in organizations has to broad types:

1. Evolutionary Change: Change that is gradual, incremental, and narrowly
focused. It involves constant attempts to improve, adapt, and adjust.
2. Revolutionary Change: Change that is rapid, dramatic, and broadly
focused. It involves reengineering, restructuring, or innovation. It has
impact on major aspects of the organization.

Managing Change
Assess
Assessthe
theneed
need Decide
Decideon
onthe
the Implement
Implementthe
the Evaluate
Evaluatethe
the
for change
for change change to make
change to make change
change change
change
• • Decide how
• • Decide what is Decide how
• • Recognize Decide what is change
Recognize the changewill
will • • Compare
Comparepre-
that theideal
ideal pre-
thatthere
thereisisaa future
occur
occurtop-
top- change and
problem futurestate
state down or
change and
post-change
problem would be down or post-change
• • Identify the would be bottom-up performances
Identify the • • Identify bottom-up performances
source Identify • • Introduce • • Use
sourceofofthe
the obstacles Introduceand
and Use
problem obstaclestoto manage benchmarking
benchmarking
problem change manage
change change
change
Creating a Strategy-Supportive Culture
The following elements are most useful in linking culture to strategy (E. H.
Schein, 1983):
1. Formal statements of organizational philosophy, charters, creeds,
materials used for recruitment and selection, and socialization
2. Designing of physical spaces, facades, buildings
3. Deliberate role modeling, teaching, and coaching by leaders
4. Explicit reward and status system, promotion criteria
5. Stories, legends, myths, and parables about key people and events
6. What leaders pay attention to, measure, and control
7. Leader reactions to critical incidents and organizational crises
8. How the organization is designed and structured
9. Organizational systems and procedures
10. Criteria used for recruitment, selection, promotion, leveling off, retirement,
and “excommunication” of people

44
Ways and Means for Altering an Organization’s Culture

45
Production Management and Strategy Implementation

46
Human Resource Concerns When Implementing Strategies

• Human resource problems that arise when business

implement strategies can usually be due to one of three
causes:
1. Disruption of social and political structures
2. Failure to match individuals’ aptitudes with
implementation tasks
3. Inadequate top management support for
implementation activities
• Perhaps the best way to avoid HR problems in
implementation is to involve as many managers and
employees as possible in the formulation stage.
Labor Cost-Saving Tactics

48
The Key to Staying Healthy, Living to 100, and Being a
“Well” Employee

49