Implementing strategies management and operation issues Fakultas Ekonomi

Implementing strategies : management and operation issues

Fakultas Ekonomi dan Bisnis School Economics and Business The Nature of Strategy Implementation Telkom University Successful of strategy formulation does not guarantee successful strategy implementation. It is more difficult to do something than to say you are going to do it Strategy Formulation 1. Positioning forces before action 2. Focus on effectiveness 3. Primarily an intellectual process 4. Require good intuitive and analytical skills 5. Require coordination among a few individuals Strategy Implementation 1. Managing forces during the action 2. Focus on efficiency 3. Primarily an operational process 4. Require special motivation and leadership skill 5. Require coordination among many individuals 2 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Management Perspective Telkom University 1. Establishing Annual Objectives 8. Matching managers with 2. Devising policies strategies 3. Allocating resources 9. Developing strategy-supportive 4. Altering an existing culture organizational structure 10. Adapting production / operation 5. Restructuring and Reengineering processes 6. Revising reward and incentive 11. Developing an effective human plans 7. Minimizing resistance to change resources function 12. And if necessary downsizing 3 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Annual Objectives Telkom University Long-term Company Objective. Double company revenues in two years Through market development and Market penetration. (Current revenues $ 2 million) Division 1 Annual Objectives : Division 2 Annual Objectives : Increase divisional revenues by 40% this years and 40% next year. (Current revenues are $ 1 million) R & D Annual Objectives : Develop two new product this year that are successfully marketed Increase divisional revenues by 50% this years and 50% next year. (Current revenues are $ 0, 5 million) Marketing Annual Objective : Increase the number of sales people by 40 this year 4 Production Annual Objective : Increase production efficiency by 30% this year Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Establishing Annual Objectives Telkom University Is a decentralized activity that directly involves all managers in an organization. n Annual objective are essential for strategy implementation because they : n Ø Represent the basis for allocating resources Ø Are primary mechanism for evaluating managers Ø Are the major instrument for monitoring progress toward achieving long-term objective Ø Establish organizational, division, and department priority 5 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business The Company’s Revenues Expectations (in Million Euros) Telkom University 2009 Division 1 Revenues Division 2 Revenues Division 3 Revenues Total Company Revenues 1. 00 0. 50 2. 00 2011 1. 40 1. 96 0. 70 0. 98 0. 75 1. 125 2. 85 4. 065 1. Annual objective serve as guidelines for action, directing and channeling effort and activities of organization members 2. They provide a source of legitimacy in an enterprise by justifying activities to stake holders 3. They serve standard of performance 4. They serve as an important source of employee motivation and identification 5. They give incentives for managers and all employees to perform 6. They provide a basic for organization design 6 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Policies Telkom University On day-to-day basis, policies are needed to make a strategy implemented. n Policy refers to specific guidelines, methods, procedures, rules, forms and administrative practices establish to support and encourage work toward stated goals. n Example : Carnival’s paradise cruise ship has no a smoking policy anywhere, anytime aboard ship. n Policy provides a basis for management control, allow coordination across organizational units and reduce amount of time managers spend making decision n 7 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business A Hierarchy of Policies Telkom University Company Strategy Acquire a chain of retail stores to meet our sales growth and profitability objectives. Supporting Policies 1. “All stores will be open from 8 am to 8 pm Monday through Saturday” (this policy could increase retail sales if stores currently are open 40 hours a week) 2. “All stores must submit a Monthly Control Data Report” (this policy could reduce expense-to-sales ratio) 3. “All stores must support company advertising by contributing 5% of their total monthly revenues for this purpose (this policy could allow the company to establish a national reputation) 4. “All stores must adhere to the uniforms pricing guidelines set forth in the Company Handbook (this policy could help assure customers that the company offers a consistent product in terms of price and quality in all its stores) 8 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Telkom University Divisional Objectives Increase the division’s revenues from $ 10 million in 2007 to $ 15 million in 2008. Supporting Policies 1. “Beginning in January 2008 each one of this division’s salespersons must file weekly activity report” (this policy could ensure that salespersons do not place too great an emphasis in certain areas) 2. “Beginning in January 2008 this division will return to its employee 5% of its gross revenues in the form of holiday bonus” (this policy could increase productivity) 3. “Beginning in January 2008 inventory level carried in warehouse will be decreased by 30% in accordance with a just-in-time (JIT) manufacturing approach” (this policy could production expenses and thus free funds for increased marketing effort) 9 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Telkom University Production Department Objective Increase production from 20, 000 units in 2007 to 30, 000 units in 2008. Supporting Policies 1. “Beginning in January 2008 , employee will have the option of working up to 20 hours of overtime per week” (this policy could minimized the need to hire additional employees) 2. “Beginning in January 2008 perfect attendance award in the amount $ 100 will be given to all employee who do not miss a workday in a given year ” (this policy could decrease absenteeism and increase productivity) 3. “Beginning in January 2008 new equipment must be leased rather than purchased ” (this policy could reduce tax liabilities and thus allow more funds to be invested in modernizing production process) 10 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Resource Allocation Telkom University Resource allocation is a central management activity that allows for strategy execution. n Four types of resources : n Ø Financial Resources Ø Physical Resources Ø Human Resources Ø Technological Resources The real value of any resource allocation program lies in the resulting accomplishment of an organization’s objective q Effective resource allocation does not guarantee successful strategy implementation, programs, personal, control, and commitment must breathe life into the resources provided q 11 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Managing Conflict Telkom University Conflict can be defined as a disagreement between two or more parties on one or more issues. n Conflict will be there because : n Ø Individuals have different expectation and perception, schedule create pressure, personalities are incompatible, and misunderstanding with line manager. Ø Managers and strategist must trade-off : to emphasize short-term profit or long-term growth, profit margin or market share, market penetration or market development, growth or stability, high risk or low risk Conflict is not be bad, an absence of conflict signal indifference and apathy. n Various approach for managing conflict : n Ø Avoidance Ø Defusion Ø Confrontation 12 Creating the great business leaders

Matching Structure with Strategy • Structure largely dictates how objectives and policies will be established. Example objective & policies establish under a geographic will be different with under product group. Change in Strategy require change in Organizational Structure Why ? • Structure dictates how resource will be allocated. If an organization’s structure is based on customer group, then resource will be allocated in that manner, if based on functional business lines, then resource will be allocated by functional area

Chandler’s Strategy-Structure Relationship New Strategy Is Formulated New Administrative problems emerge Organizational performance improves Organizational performance declines A new organizational structure is established

Fakultas Ekonomi dan Bisnis School Economics and Business The Functional Structure Telkom University General Manager Marketing Manager Advertising Production Manager Sales 15 Quality Control Creating the great business leaders

The Functional Structure Advantage Disadvantage • Simple and inexpensive • Promotes specialization of labor • Encourage efficient use of managerial and technical talent • Minimize the need for an elaborate control system • Allow rapid decision making • Forces accountability to the top • Minimize career development opportunities • Line/staff conflict • Poor delegation of authority • Inadequate planning for product and markets

Fakultas Ekonomi dan Bisnis School Economics and Business The Divisional Structure Telkom University BOD General Affair Regional-1 Division General Affair Regional-2 Division Regional-3 Division Automotive Division Agriculture Division BOD General Affair Corporate Customer Division Insurance Division Small Business Division Retail Electrical Work Division 17 Glass Cutting Division Creating the great business leaders Painting Division

Fakultas Ekonomi dan Bisnis School Economics and Business The Divisional Structure Telkom University Divisional Structure by geographic • Org’ whose strategies need to be tailored to fit the particular need and characteristic of customers in different area Divisional Structure by product • It is most effective for implementing strategies when specific product or service need special emphasis Divisional Structure by customers • It is the effective way to implement strategies to cater to the requirement of clearly defined customer group Divisional Structure by process • It is similar to a functional structure, because activities are organized according to the way work is actually performed 18 Creating the great business leaders

The Divisional Structure Advantage Accountability is clear Allow local control of local situation Creates career dev’ chances Promotes delegation of authority Leads to competitive climate internally • Allow easy adding of new product or regions • Allow strict control and attention to product, customers and/or regions • • • Disadvantage Can be costly Duplication of functional activities Required a skilled management force Requires an elaborate control system Competition among division can become so intense as to be dysfunctional • Can lead to limited sharing of ideas and resources • Some regions/product/customers may receive special treatment • • •

Fakultas Ekonomi dan Bisnis School Economics and Business The Strategic Business Unit (SBU) Structure Telkom University Chief Executive Officer Conoco Product’s Org’ Chart Chief Strategy Officer (CSO) Chief Finance Officer (CFO) Chief Operating Officer (COO) Chief Information Officer (CIO) Industrial Product SBU Adhesive Packaging Division Tubes / Cores Division Paper Division VP Human Resource VP Marketing Consumer Product SBU Flexible Reels Division Packaging Division 20 High Density Film Division Creating the great Metal Ends Division business leaders Rigid Division

The Matrix Structure Fakultas Ekonomi dan Bisnis School Economics and Business Telkom University Chief Executive Officer Chief Operating Officer (COO) Chief Finance Officer (CFO) Chief Strategy Officer (CSO) Chief Information Officer (CIO) Project-1 A B C D E F Project-2 G H I J K L Project-3 M N O P 21 Q VP Human Resource VP Marketing R Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business The Matrix Structure Advantage Disadvantage • Requires excellent vertical and horizontal flows of communication • Costly because create more manager position • Violate unity of command principle • Creates dual lines of budget authority • Creates dual sources of reward and punishment • Creates shared authority and reporting • Requires mutual trust and understanding • Project objective are clear • Employee can clearly see result of their work • Shutting down a project is easily accomplished • Facilitates uses of special equipment/ personal/ facilities • Functional resources are shared instead of duplicated as in a divisional structure 22 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Adopting Best Practices and Striving for Continuous Improvement Telkom University A Best Practice is a technique for performing an activity or business process that at least one company has demonstrated works particularly well To qualify as a legitimate best practice : 1. Lowering cost 2. Improving quality or performance 3. Shortening time requirement 4. Enhancing safety 5. Delivering some other highly positive operating income. Benchmarking is the backbone of the process of identifying, studying and implementing outstanding practices, it involves being humble enough to admit that others have come up with world-class ways to perform particular activities yet wise enough to try to learn how to match, and even surpass them. 23 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Restructuring and Reengineering Telkom University Restructuring and Reengineering are becoming commonplace in the organization landscape across the United States and Europe. Restructuring also called downsizing, right sizing, or delayering involve reducing the size of the firm in term of number of employee, number of division, number of hierarchical level in the organization Reengineering, a firm uses information technology to breakdown functional barrier to create a work system based on business process, product, or outputs rather than on function or inputs. 24 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Telkom University Linking Performance and Pay to Strategies Profit Sharing, Gain Sharing, Bonus System Five tests to determine whether a performance-pay-plan will benefit An organization Does the plan capture attention ? Are people talking more about their activities and taking pride in early success under the plan ? Does employee understand the plan ? Can participants explain how it works and what they need to do to earn the incentive Is the plan improving communication ? Do employees know more than they used to about the company’s mission, plans & objective? Does the plan pay out when it should Are incentive being paid for desired result-and being withheld when objective are not met ? Is the company or unit performing better ? Are profits up ? Has market share grown ? Have gains resulted in part from the incentive ? 25 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Managing Resistance to Change Telkom University Almost any change in structure, technology, people, or strategies potential disrupt comfortable interaction patterns n People fear economic loss, inconvenience, uncertainty, and break in normal social patterns n Resistance to change can be considered the single greatest threat to successful strategy implementation. n Three various approach to implement changes : n Ø Force change strategy Ø Educative change strategy Ø Self-interest change strategy 26 Creating the great business leaders

Fakultas Ekonomi dan Bisnis School Economics and Business Creating a Strategy-Supportive Culture Telkom University Way for altering Linkage Culture to Strategy Strategist should strive to preserve, emphasize, and built upon aspect of an existing culture that support proposed new strategies 1. Formal statement of organizational philosophy, charter, creed, material used for recruitment and selection and socialization 2. Designing of physical spaces, facades, buildings 3. Deliberate role modeling, teaching, and coaching by leader 4. Explicit reward and status system, promotion criteria 5. Stories, legends, myths and parables about key people and events 27 • • • • Recruitment Training Transfer Promotion Restructuring Reengineering Role Modeling Positive Reinforcement Mentoring Revising vision and mission Redesigning space Reward system Policies, procedures Creating the great business leaders

Production / Operation Concern Types of Org’ Strategy being Implemented Production System Adjustment Hospital Adding a cancer center (Product Development) Purchase specialized equipment and add specialized people Bank Adding 10 new branches (Market Development) Perform site location analysis Beer Brewery Purchasing a barely farm operation (Backward Integration) Revise the inventory control system Steel Manufacturing Acquiring fast-food chain (Unrelated Diversification) Improve the quality control system Computer Co. Purchasing a retail distribution chain (Forward Integration) Alter the shiping, packaging, and transportation system

Human Resource Concern Human Resources Problem : 1. Disruption of social and political structure 2. Failure to match individual’s aptitude with implementation task 3. Inadequate top management support for implementation activities Employee Stock Ownership Plans (ESOP): Employee-benefit plan whereby employee purchase stock of the company through borrowed money or cash contribution. Balancing Work Life and Home Life

Fakultas Ekonomi dan Bisnis School Economics and Business Tugas M 9. Telkom University 1. 2. 3. 4. 5. 6. 7. Pelajari Case sesuai dengan kelompok anda. Identifikasi Annual objective dan hirarki objective Bagaimana perusahaan membuat policies untuk guidelines bagi para pegawai Apakah type struktur organisasinya, gambarkan ? Best practise apakah yang dimiliki oleh perusahaan tersebut? Apakah ada linkage antara performance dengan cash benefit buat pegawainya ? Tugas dikerjakan mulai saat ini dan dikumpulkan soft copy halaman paling lambat pada H-1 pertemuan berikut. 30 Creating the great business leaders