strategic management ii - lesson 09 - updated 29.06

12/09/2010/ PK Sarkar / Master

Lesson 09 - Implementation 1/48

Strategic Management II Part Three – Strategy

Implementation, Control and Innovation

Lesson – 09Implementation

Pearce, Robinson and Mital -Tenth Edition

– Chapter 10 - Lesson 09



Strategic Management ModelCompany Mission

and social responsibility

External environment

Strategic Analysis and Choice

Long-termObjectives

Generic and Grand Strategies

Strategic Control, Innovation and Entrepreneurship

Short-term Objectives

Functional tactics Policies that empower

Organisational structure, Leadership and Culture.

possible?

desired?

Feed

back

Major impact

Minor impact

Feed

back

Internal analysis



Learning Objectives• Understand how short-term objectives are used in strategy

implementation.• Identify and apply the qualities of good short-term objectives to your

own experiences. • Illustrate what is meant by functional tactics and understand how

they are used in strategy implementation. • Gain a general sense of what outsourcing is and how it becomes a

choice in functional tactics decisions for strategy implementation. • Understand what policies are and how to use policies to empower

operating personnel in implementing business strategies and functional tactics.

• Understand the use of financial reward in executive compensation. • Identify different types of executive compensation and when to use

each in strategy implementation.



Strategy Implementation

“Planning their Work” “Working their Plan”

Strategy Formulation Strategy Implementation



Strategy Implementation

• To shift successfully from “planning their work” to “working their plan”, managers must do four things well:– Identify short-term objectives– Initiate specific functional tactics– Communicate policies that empower people in

the organisation– Design effective rewards. #



Short-Term Objectives



Short-Term Objectives – (1/3)• Short-term objectives provide specific guidance

for what is to be done, translating vision into action.

• Short-term objectives help implement strategies in three ways:– First, they operationalise the long-term objectives –

break down into sub-objectives.– Second, raise issues and potential conflicts within the

organisation that force coordination to avoid otherwise dysfunctional consequences.

– Third, they identify measurable outcomes of action plans or functional activities. #



Chief Executive Officer

Marketing Finance and Accounting Manufacturing

•Distribution channels•Customer service•Inventory obsolescence

•Communications and data processing•Carrying inventory

•Production supply alternatives•Warehousing•Transportation

•More inventory•Frequent short runs•Fast order processing•Fast delivery•Field warehousing

•Less inventory•Long production runs•Cheap order processing

•Lowest cost routing•Less warehousing •Plant warehousing

Obj

ectiv

esR

e spo

nsib

iliti e

sShort-Term Objectives – (2/3) - Potential

Conflicting Objectives and Priorities



Short-Term Objectives – (3/3)

• Short-term objectives are usually accompanied by action plans, which enhance these objectives in three ways.(relationship of short-term objectives to action plans):– First, action plans usually identify tactics and

activities – that is, specificity.– Second, provide a clear time frame– Third, is identification of who is responsible –

that is accountability is set.



Measurable

PrioritiesLinked to long-term objectives

Qualities of Effective Short-Term Objectives



Qualities of Effective Short-Term Objectives – Measurable – (1/2)

• Short-term objectives are more consistent when they clearly state what is to be accomplished, when it will be accomplished, and how its accomplishments will be measured.

• Such objectives can be used to monitor both the effectiveness of each activity and the collective progress across several interrelated activities.



Qualities of Effective Short-Term Objectives – Measurable – (2/2)

• Measurable objectives make misunderstanding less likely among interdependent managers who must implement action plans.

• It is far easier to quantify the objectives of lineunits than of certain staff areas.

• Difficulties in quantifying the objectives often can be overcome by initially focusing on measurable activity and then identifying measurable outcomes. #



To conduct a public opinion poll using random samples in the five largest Indian metropolitan markets to determine average scores on 10 dimensions of corporate responsibility by May 15, 2011. To increase our score on those dimensions by an average of 7.5 percent by May 1, 2011

To improve the firm’s image

To reduce the time lapse between order date and delivery by 8 percent (2 days) by June 1, 2011

To improve support of the sales effort

To reduce turnover (absenteeism, number of rejects, etc.) among sales managers by 10 percent by January 1, 2011Assumption: Morale is related to measurable outcomes (i.e., high and low morale are associated with different results)

To improve morale in the division (plant, department, etc.)

Examples of Objectives with Measurable Criteria for Performance

Examples of Deficient Objectives

Creating Measurable Objectives(Selected)



Qualities of Effective Short-Term Objectives – Priorities – (1/2)

• Although all annual objectives are important, some deserve priority because of a timing consideration or their particular impact on a strategy’s success.

• If such priorities are not established, conflicting assumptions about the relative importance of annual objectives may inhibit progress toward strategic effectiveness.



Qualities of Effective Short-Term Objectives – Priorities – (2/2)

• Priorities are established in various ways. • A simple ranking may be based on

discussion and negotiation during the planning process.

• Whatever the method, recognising priorities is an important dimension in the implementation value of short-term objectives.



Qualities of Effective Short-Term Objectives – Linked to Long-Term Objectives

• Short-term objectives can add breadth and specificity in identifying what must be accomplished to achieve long-term objectives.

• The link between short-term and long-term objectives should resemble cascades (= series of waterfalls) through the firm from basic long-term objectives to specific short-term objectives in key operation areas.



Give operating personnel a better understanding of their

role in a firm’s mission

Provide basis for accomplishing conflicting

concerns

Motivation – clarify personnel and group roles

in a firm’s strategies

Provide basis for strategic control

Value-Added Benefits of Short-Term Objectives And Action Plans



Functional Tactics That Implement Business Strategies



Key, routine activities that must be undertaken in each functional area to provide the business’s products and

services

Translate grand strategies into action designed to accomplish specific short-term objectives

What are Functional Tactics?



Corporate Strategy

Achieve 15-20 percent annual growth through existing businesses and carefully selected diversification into leisure-oriented, consumer-oriented product/service businesses to absorb increasing cash flow from theater and soft drink bottling operations

Concentration and market development

selectiveMaintain and selectively expand leading nationwide position in the movie exhibition industry to provide positive cash flow for corporate diversification

Functional Tactics – MarketingSeek only first-run films by outbidding competition in each local market; provide primarily family-oriented movies , and maintain an admission price only slightly above that of local competition

Functional Tactics – FinanceUse lease or sale and leaseback arrangements of each theater to maximize cash flow for corporate expansions; seek profitability thru’volume, not higher ticket prices

Functional Tactics – OperationsUse multiscreen facilities with minimal maintenance requirements and a joint service area to serve each minitheater

Soft drink bottling

Movie exhibition

Sunkist products

Corporate Strategy Business Strategies

Functional Tactics

Functional Tactics at General Cinema Corporation



Differences Between Business Strategies and Functional Tactics – (1/2)

• Time horizon• Specificity• Participants who develop them #



•Greater specificity of functional tactics contributes to successful implementation by

Ensuring functional managers focus on accomplishments

Clarifying for top managers how functional managers intend to accomplish business strategy

Facilitating coordination among operating units

•Shorter time horizon of functional tactics contributes to successful implementation by

Focusing attention on what needs to be done now

Allowing functional managers to adjust to changing current conditions

ParticipantsSpecificityTime Horizon

•General managers establish long-term objectives and overall business strategies•Operating managers establish short-term objectives and functional tactics leading to business level success

Differences Between Business Strategies and Functional Tactics – (2/2)



Outsourcing Functional Activities



Outsourcing Functional Activities –(1/4)

• A generation ago, it was conventional wisdom that a business has a better chance of success if it controls the doing of everything necessary to produce its products or services.

• Referring to value chain approach, the “wise”manager would have sought to maintain control of virtually all the “primary” activities and the “support” activities associated with the firm’s work. #




• Starting for most firms with the outsourcing of producing payroll each month, companies worldwide are now embracing the idea that the best way to implement their strategies is to retain responsibility for executing some functions while seeking outside people and companies to do key support and key primary activities where they can do so more effectively and more inexpensively.




• Outsourcing, then, is acquiring an activity, service, or product necessary to provide a company’s products or services from “outside”the people or operations controlled by that acquiring company.

• Outsourcing, endorsed as a cost-cutting measure by such management gurus as Peter Drucker and Tom Peters, has emerged as the most sweeping trend to hit management since reengineering.




• The important point to recognise at this point is that functional activities long associated with doing the work of any business organisation are increasingly subject to be outsourced if they can be done more cost effectively by other providers.

• So it becomes critical for managers implementing strategic plans to focus company activities on functions deemed central to the company’s competitive advantage and to seek others outside the firm’s structure to provide the functions that are necessary, but not within the scope of the firm’s core competencies.



Empowering Operating Personnel – The Role of

Policies



Empowerment and Policies – (1/2)

• Empowerment is the act of allowing an individual or team the right and flexibility to make decisions and initiate action.

• It is being expanded and widely advocated in many organisations today.

• Training, self-managed work groups, eliminating whole levels of management in organisations, and aggressive use of automation are some of the ways and ramifications of this fundamental change in the way business organisations function.



Empowerment and Policies – (2/2)

• At the heart of empowerment is the need to ensure that decision making is consistent with the mission, strategy, and tactics of the business while at the same time allowing considerable latitude to operating personnel.

• One way operating managers do this is through the use of policies.



What Are Policies?

• Policies are directives designed to guide the thinking, decisions, and actions of managers and their subordinates in implementing a firm’s strategy. #



Role of Policies in Implementing Strategy

• Often referred to as standard operating procedures (or instructions), policiesincrease managerial effectiveness by:• Standardising many routine decisions, and• Clarifying the discretion managers and

employees can exercise in implementing functional tactics.

• Logically, Policies should be derived from functional tactics with key purpose of aiding strategy execution. #



Creating Policies That Empower People – (1/3)

• Policies communicate guidelines to decisions. They are designed to control decisions while defining allowable discretion within which operational personnel can execute business activities; they do this in several ways: – (1/8)Establish indirect control over

independent action by clearly stating how things are to be done now




– (2/8) Promote uniform handling of similar activities

– (3/8) Ensure quicker decisions by standardising answers to previously answered questions

– (4/8) Institutionalise basic aspects of organisational behaviour

– (5/8) Reduce uncertainty in repetitive and day-to-day decision making.




– (6/8) Counter resistance to or rejection of chosen strategies by organisation members

– (7/8) Offer predetermined answers to routine problems

– (8/8) Afford managers a mechanism for avoiding hasty and ill-conceived decisions in changing operations #



Policies May Be Written and Formal Or Unwritten and Informal

• Informal, unwritten policies are usually associated with a strategic need for competitive secrecy. – Some policies of this kind, such as promotion from

within, are widely known (or expected) by employees and implicitly sanctioned by management.

– Managers and employees often like the latitude granted by unwritten and informal policies.

– However, such policies may detract from the long-term success of a strategy. #



Advantages of Formal Written Policies

• Require managers to think through policy’s meaning, content, and intended use

• Reduce misunderstanding• Make equitable and consistent treatment of problems

more likely• Ensure unalterable transmission of policies• Communicate authorisation or sanction of policies more

clearly• Supply a convenient and authoritative reference• Systematically enhance indirect control and

organisation-wide coordination of the key purpose of policies



Policies Empower People To Act

• Compensation, at least theoretically, rewards their action.

• The last decade has seen many firms realise that the link between compensation, particularly executive management compensation, and value-building strategic outcomes within their firms was uncertain.

• The recognition of this uncertainty has brought about increased recognition of the need to link management compensation with the successful implementation of strategies that build long-term shareholder value.



Executive Bonus Compensation Plans




• The goal of an executive bonus compensation plan is to motivate executives to achieve maximisation of shareholder wealth – the underlying goal of most firms.

• However, we know from agency theory that the goal of shareholder wealth maximisation is not the only goal that managers pursue.

• Hence, an executive compensation plan that contains a bonus component can be used to orient management’s decision making towards the owners’ goals.



Major Plan Types

Stock Options

Restricted Stock

Golden Handcuffs Golden Parachutes

Cash




No downside risk to executive, who always profits unlike other shareholders

Promotes longer executive tenure than other forms of compensation

Shares given to executive who is prohibited from selling them for a specific time period. May also include performance restrictions

Restricted stock plan

Movement in share price does not explain all dimensions of managerial performance

Provides incentive for executive to create wealth for shareholders as measured by increase in firm’s share price

Right to purchase stock in the future at price set now. Compensation is determined by “spread”between option price and exercise price

Stock option grants

ShortcomingsRationaleDescriptionBonus Type

Types of Executive Bonus Compensation Plans – (1/3)



Compensation is achieved whether or not wealth is created for shareholders. Rewards either success or failure

Offers an incentive for executive to remain with the firm

Executives have right to collect the bonus if they lose position due to takeover, firing, retirement, or resignation

Golden parachute

May promote risk-averse decision making due to downside risk borne by executive

Offers an incentive for executive to remain with the firm

Bonus income deferred in a series of annual installments. Deferred amounts not yet paid are forfeited with executive resignation

Golden Handcuffs





Weak correlation between earnings measures and shareholder wealth creation. Annual earnings do not capture future impact of current decisions

Offsets the limitations of focusing on market-based measures of performance

Bonus compensation based on accounting performance measures such as return on equity

Cash based on internal business performance using financial measures





Helps remove temptation for executive to evaluate takeover based on personal benefits

XDefend against unfriendly takeover

Risk associated with growth strategies warrants the use of this high-reward incentive

XCreate and support growth opportunities

Executive profits only if turnaround is successful in returning wealth to shareholders

XAchieve corporate turnaround

RationaleStock Options

Restricted Stock Plans

Golden Parachutes

Golden Handcuffs

CashStrategic Goal

Compensation Plan Selection Matrix – (1/4)



Accounting measures can identify periodic performance benchmarks

XGrow share price incrementally

Risk of expanding overseas requires a plan that compensates only for achieved success

XGlobaliseoperations

Compensates executive if job is lost due to a merger favorable to the firm

XEvaluate suitors objectively



Golden Parachutes

Golden Handcuffs

CashStrategic Goal




Handcuffs provide executive tenure incentive

XReduce executive turnover

Executive profits proportionally as asset growth leads to long-term growth in share price

XIncrease assets under management

Accounting measures represent observable and agreed-upon measures of performance

XImprove operational efficiency



Golden Parachutes

Golden Handcuffs

CashStrategic Goal




Rewards long-term focus on efficiency and cost control

XStreamline operations

Risk associated with major change with firm’s assets warrant use of this high-reward incentive

XRestructure organisation



Golden Parachutes

Golden Handcuffs

CashStrategic Goal


strategic management ii - lesson 09 - updated 29.06

Documents

examples of objectives

pk sarkar master lesson

feedback learning objectives

objectives of line units

innovation lesson

entrepreneurship lesson

measurable activity

measurable criteria