Strategy Implementation Concept of Strategy Implementation Necessity of

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

Strategy Implementation • Sears example q In 1983 Sears implements one-stop shopping banking-financial services power. q Sears retail unit fell to #3 behind low-cost providers (Walmart and K-Mart). q Specialty retailers (focused differentiators) such as The Gap, The Limited, Toys-R-Us, and Kids-R-Us took market share. q Sears was outperformed by both low-cost and focused differentiators. q Sears initiated restructuring in 1992 after losing $3. 8 billion.

Strategy Implementation • Sears example q What happened? Why did Sears fail so dramatically? - 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.

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

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

Strategy Dominant Business Vertically Integrated Unrelated Diversified Growth through Acquisition Related Diversified Growth thru internal development & some acquisition Task Focus (Value) Degree of integration Market share and power Product line breadth Vertical economies Degree of diversity Types of business Resource allocation across business Entry and exit businesses Financial economies Realization of synergy from related product process, technology, and markets Resource allocation Diversification opportunities Synergistic economies Structure Centralized functional Top control of strategic decisions Delegation of operations through plans and procedures Highly decentralized product divisions/profit centers Small corporate office No centralized line functions Almost complete delegation of operations and strategy within existing businesses Control thru results, selection of management, and capital allocation Multidivisional/profit centers Grouping of highly related businesses with some centralized functions within groups Delegated responsibility for operation Shared responsibility for strategy Decision Processes and Controls Coordination and integration thru structure, rules, planning, and budgeting Use of integrating roles for project activity across functions No integration across businesses Coordination and information flows between corporate and division levels around management information systems and budgets Coordinate and integrate across businesses and between levels with planning integrating roles, integrating depths Reward Systems Performance against functional objectives Mix of objective and subjective performance measures Strategic controls Formula based bonus on ROI or profitability of divisions Strict objective, impersonal evaluation Bonus based on divisional and/or corporate performance Mix of objective and subjective performance measures People Primarily functional specialists Some inter-functional movement to develop some general managers Aggressive, independent general managers of divisions Career development opportunities are primarily intra-divisional Broad requirements for general managers and integrators Career development is inter-divisional, cross-functional, and corporatedivisional

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

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

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

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

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

Strategy Implementation § Organization structure • Product-divisional structure q 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 q Disadvantages - May lead to costly duplication of functions - Inter-divisional rivalry - Corporate managers may lose in-depth understanding

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

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

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