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1. STRATEGIC MANAGEMENT
Prof . Dr. Subash Ch. Nath

2. Chapter Outline…..
 Issues in Strategy Implementation
 Resource Allocation
 Structural Considerations
 Structures for Strategies
 Organizational Design and Change
 Functional Strategies- marketing, finance, HR,
Operations and R & D Policies
 Mc Kinsey’s 7-S framework.

3. Strategy Implementation - introduction
 Strategy Implementation means Sum total of activities &
choices required for strategic plan execution.
 Elements required for Strategic Implementation:
Strategy
Implementation
1. Identify short-term objectives
2. Initiate specific
functional tactics
3. Communicate
policies to empower
people
4. Design effective rewards

4. 1. What are Short-Term Objectives?
Provide specific guidance for what is
to be done, translating vision into
action
Role of Short-Term Objectives in Implementing Strategy
• “Operationalize” long-term objectives
• Raise issues and potential conflicts requiring coordination to
avoid dysfunctional consequences
• Identify measurable outcomes of functional activities to be used
to make feedback, correction, and evaluation more relevant and
acceptable
Qualities of Effective Short-Term Objectives:
These should be Measurable, having Priorities & Linked to long-term objectives

5. 2. Initiate specific functional tactics
What is Functional Tactics?
 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.

6. 3. Communicate policies to empower people
 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:
– Previously referred to as standard operating procedures, policies
increase managerial effectiveness by
• Standardizing many routine decisions
• Clarifying discretion managers and employees can exercise in
implementing functional tactics
– Should be derived from functional tactics with key purpose of aiding
strategy execution.

7. Creating Policies That Empower
1. Policies establish indirect control over independent action.
2. Policies promote uniform handling of similar activities.
3. Policies ensure quicker decisions by standardizing answers to recurring
questions.
4. Policies institutionalize basic aspects of organization behavior.
5. Policies reduce uncertainty in repetitive and day-to-day decision making.
6. Policies counteract resistance.
7. Policies offer predetermined answers to routine problems.
8. Policies afford managers a mechanism for avoiding hasty decisions 10-7

8. 4. Design effective rewards
The goal of Design effective rewards is to motivate
executives to achieve maximization of shareholder wealth –
the underlying goal of most firms
 Stock options provide the executive with the right to purchase
company stock at a fixed price in the future
 Restricted stock is designed to provide benefits of direct executive
stock ownership
 Golden handcuffs occur where the stock compensation is deferred
until vesting time provisions are met or a bonus is deferred
 Golden parachutes are a form of bonus compensation that is
designed to retain talented executives
 Cash bonuses based on accounting measures
Bonus Compensation Plans

9. Influence of Context on Strategic Change
Exhibit 10.3

10. Styles of managing strategic change
Exhibit 10.5

11. Why do strategies fail?
 Some answers:
– Purpose (unclear, Impossible, too easy, generic, not shared with others,
incongruent).
– Process (Not clearly defined, Too detailed, Information not available,
Responsibilities not clearly defined, People not capable).
– Resources (Unavailable, Unattainable, Time as a resource, Accountability, Not
delivered on time, Lack of control).
– People involvement (Not involved in planning, Not trained, Lack of authority, Not
clear accountability, “You get what you pay for”, Motivation).
– Support Systems (Accessible, Versatility, Up to date, Coordinated,
Understandable).
– Follow up (Do not Micro Manage, Set Key Indicators, Set parameters, Establish
a routine, Set time for reflection, Be flexible, Stay current)

12. 1. Issues in Strategy Implementation
 When a strategic change is poorly introduced, managers may
actually spend more time implementing changes resulting from
the new strategy than was spent in selecting it.
 Strategy implementation involves both:
- macro-organizational issues (e.g., technology, reward systems,
decision processes, and structure), and
- micro-organizational issues (e.g., organization culture and
resistance to change).

13. macro-organizational issues
 Macro-organizational issues are large-scale, system-wide issues that
affect many people within the organization.
 Galbraith and Kazanjian argue that there are several major internal
subsystems of the organization that must be coordinated to successfully
implement a new organization strategy.
 These subsystems include technology, reward systems, decision
processes, and structure. As with any system, the subsystems are
interrelated, and changing one may impact others.

14. Decisions pertaining to resource
allocations, job responsibilities, and
priorities are just some of the decisions
that cannot be completely planned
until implementation begins. Decision
processes help the organization make
mid-course adjustments to keep the
implementation on target.
Organizational structure is the forma
pattern of interactions and coordination
developed to link individuals to their jobs
and jobs to departments. It also involves
the interactions between individuals
and departments within the organization.
Current research supports the idea that
strategies may be more successful when
supported with structure consistent with
the new strategic direction.
Technology can be defined as the
knowledge, tools, equipment, and
work methods used by an organization
in providing its goods and services.
The technology employed must fit
the selected strategy for it to be
successfully implemented.
Reward systems or incentive
plans include bonuses and other
financial incentives, recognition,
and other intangible rewards such as
feelings of accomplishment and
challenge. Reward systems can be
effective tools for motivating
individuals to support strategy
Implementation efforts.

15. micro-organizational issues
 Micro-organizational issues pertain to the behavior of individuals within the
organization and how individual actors in the larger organization will view
strategy implementation.
 Implementation can be studied by looking at the impact organization culture
and resistance to change has on employee acceptance and motivation to
implement the new strategy.
Peters and Waterman focused attention
on the role of culture in strategic
management. Organizational culture is
more than emotional rhetoric; the culture
of an organization develops over a
period of time is influenced by the values,
actions and, beliefs of
individuals at all levels of the organization.

16. Peters and Waterman focused attention
on the role of culture in strategic
management. Organizational culture is
more than emotional rhetoric; the culture
of an organization develops over a
period of time is influenced by the values,
actions and, beliefs of
individuals at all levels of the organization.
What many managers fail to realize is that the information that may make
one strategic alternative an obvious choice is not readily available to the
individual employees who will be involved in the day-to-day implementation
of the chosen strategy. These employees are often comfortable with the old
way of doing things and see no need to change. The result is that
management sees the employee as resisting change.
Employees generally do not regard their response to change as either positive
or negative. An employee's response to change is simply behavior that makes
sense from the employee's perspective. Managers need to look beyond what
they see as resistance and attempt to understand the employee's frame of
reference and why they may see the change as undesirable.

17. 2. Resource Allocation
 Resource allocation is used to assign the available resources in an
economic way.
 It is the process of allocating resources among the various projects or
business units.
Why is Resource Allocation needed?
 Because of increasing demand and rising costs to provide
the services.

18. In strategic planning, resource allocation is a plan for
using available resources, for example human resources,
especially in the near term, to achieve goals for the future.
– The plan has two parts:
• Firstly, there is the basic allocation decision:
The basic allocation decision is the choice of which items to fund in
the plan, and what level of funding it should receive, and which to
leave unfunded: the resources are allocated to some items, not to
others.
• Secondly there are contingency mechanisms.
There are two contingency mechanisms. There is a priority ranking
of items excluded from the plan, showing which items to fund if
more resources should become available; and there is a priority
ranking of some items included in the plan, showing which items
should be sacrificed if total funding must be reduced.

19. 3. Structural Considerations
 Organisational structure describes:
– Who is responsible for what
– Patterns of communication and knowledge exchange
– Skills required to move up the organisation
 Types of structure
– Emphasis on one structural dimension
• Functional; Multidivisional; Holding
 Types of structure
– Mixture of structural dimensions
• Matrix; Transnational; Team; Project

20. Five steps to determine Organizational
Structure
 Determine the change in strategic intent
 Determine the new organizational capability
 Determine the predominant forces and forms best suited
the organization
 Determine leadership style and culture
 Define the formal structure

21. Comparison of Structures
Exhibit 8.6

22. Building Blocks of Organizational Structure
 Grouping tasks, functions, and divisions
– Organizational structure follows the range and variety of tasks that an
organization pursues
– Companies group people and tasks into functions and then functions
into divisions
 Allocating authority and responsibility
– Hierarchy of authority (chain of command)
– Span of control (number of subordinates)
– Tall and flat organizations
– Drawbacks of taller organizations
• Less flexibility and slower response time
• Communication problems
• Distortion of commands
• Expense

23. Managing Corporate Strategy Through
the Multidivisional Structure
 Functional or product structures are not sufficient when a company enters
new industries.
 Multidivisional structure innovations
– Divisions (operating responsibility)
– Corporate headquarters staff to monitor divisions (strategic
responsibility)
– Each division may be organized differently

24. Multidivisional Structure

25. Efforts to Improve Traditional Structures
 Redefine the role of corporate headquarters from
control to support and coordination
 Balance the demands for control/differentiation with
the need for coordination/integration
 Restructure to emphasize and support strategically
critical activities
 Reengineer strategic business processes
 Downsize and self-manage
11-25

26. Mintzberg (1991) Model
 The strategic drivers that dictate how an organization
has to behave to achieve its strategic intent.
 7 forces identified by Mintzberg (1991)
– Direction – vision or intent of the organization
– Proficiency – ability to achieve results
– Innovation – implementation of new ideas
– Concentration – focused energy
– Efficiency – optimising use of resources and skills
– Co-operation – working together within and across
corporate boundaries
– Competition – constructive conflict.

27.  The shape the organization needs to take to respond
optimally to the forces.
 7 forms listed by Mintzberg (1991)
– Entrepreneurial – power in one individual
– Professional – centred on knowledge owners
– Adhocracy – project form
– Machine – process-driven, bureaucratic
– Ideological – belief centred
– Political – centred around conflicting aims

28. Organisation Design
 Challenges shaping structure
– Organisational size
– Extent of diversification
– Type of technology
– Control
– Change
– Knowledge
– Globalisation

29. FUNCTIONAL STRATEGIES
EVERY BUSINESS UNIT DEVELOPS FUNCTIONAL STRATEGIES FOR
EACH MAJOR DEPARTMENT
 MARKETING STRATEGY
 FINANCIAL STRATEGY
 RESEARCH & DEVELOPMENT STRATEGY
 OPERATIONS STRATEGY
 PURCHASING STRATEGY
 LOGISTICS STRATEGY
 HUMAN RESOURCES STRATEGY
 INFORMATION TECHNOLOGY STRATEGY

30. BASIC MARKET-PRODUCT STRATEGIES
THE CUSTOMER-PRODUCT DECISION
WHO IS OUR PRIMARY CUSTOMER?
WHAT KIND OF PRODUCT DO WE INTEND TO OFFER?
CUSTOMERS
EXISTING NEW
EXISTING - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
MARKET MARKET
PENETRATION DEVELOPMENT
PRODUCTS OR - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SERVICES
PRODUCT DIVERSIFICATION
DEVELOPMENT INNOVATION
NEW - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

31. MARKETING STRATEGIES:
THE CUSTOMER-PRODUCT DECISION
MARKET PENETRATION STRATEGY
(Stay in current markets with existing products)
INCREASE RATE OF PURCHASE/CONSUMPTION
ATTRACT RIVAL’S CUSTOMERS
BUY OUT RIVALS
CONVERT NON-USERS INTO CURRENT USERS
MARKET DEVELOPMENT STRATEGY
(Find new markets for current products)
ENTER NEW GEOGRAPHICAL MARKETS
FIND NEW USES FOR EXISTING PRODUCTS
FIND NEW TARGET MARKETS
PRODUCT DEVELOPMENT STRATEGY
(Develop new products for existing markets)
IMPROVE FEATURES
IMPROVE QUALITY/RELIABILITY/DURABILITY
ENHANCE AESTHETICS/STYLING
ADD MODELS
DIVERSIFICATION STRATEGY
(Develop new products for new markets)

32. THE 4 “P’S” OF MARKETING
 MARKETING MIX ISSUES
– Product Strategy
Specifying the exact product or service to be offered
• New or existing product? …for new or existing customers?
– Promotion Strategy
How the product or service is to be communicated to customers
• “Push” - spend $$$ on promotions and discounts to push products
• “Pull” - spend $ to build brand awareness so consumers will ask for
it by name
– Channel or “Place” Strategy
Selecting the method for distributing the product or service
• Distribute through dealer networks or through mass merchandisers?
• Sell directly to consumers through own stores or through internet?
– Price Strategy
Establishing a price for the product or service
• “Skim pricing” (high) when you are a pioneer
• “Penetration pricing” (low) builds market shares
• “Dynamic pricing” (prices vary frequently) based on
demand/availability

33. FINANCIAL MANAGEMENT STRATEGIES
CAPITAL ACQUISITIONS
– Debt Leverage, Stock Sales, & Gains from Operations
• Equity financing is preferred for related diversification
• Debt financing is preferred for unrelated diversification
• Leveraged buyouts (LBOs) make the acquired firm pay off the debt
CAN WE GROW BY RELYING ON ONLY INTERNAL CASH FLOWS?
DO STOCK SALES DILUTE OWNERSHIP CONTROL?
DOES A LARGE DEBT RATIO CRIPPLE FUTURE GROWTH?
DOES STRONG LEVERAGE BOOST EARNINGS PER SHARE?
DOES HIGH DEBT DETER TAKEOVER ATTEMPTS?
DO MOST LBOs UNDERPERFORM 3-4 YEARS AFTER THE BUYOUT?
RESOURCE ALLOCATIONS
– Dividends, Stock Price, & Reinvestment
• Reinvest earnings in fast-growing companies
• Keeping the stockholders contented with consistent dividends
• Use of stock splits ( or reverses) to maintain high stock prices
• Tracking stock keeps interest in company, but doesn’t allow takeover

34. RESEARCH & DEVELOPMENT STRATEGIES
 LEVEL OF INNOVATION
– Pioneer (Leader) v. Copy Cat (Follower)
• Technological leadership fits well with differentiation
• A “follower” strategy makes sense with cost-leader
strategies
• Are we better at finding applications and customer
adaptations than actually inventing something really
new?
– Different types of R & D (basic, product,
process)
• Where is the firm’s historic expertise / advantage?
• How competent are the R & D Personnel?
 ACQUISITION OF TECHNOLOGY
– Internally developed v. acquired from outside
• Technology “Scouts”
• Strategic Technology Alliances
• Acquire minority stake in promising high-tech
ventures

35. OPERATIONS STRATEGIES
 MANUFACTURING LOCATION
– Internal Production v. Outsourcing
– Domestic Plants v. International Locations
 SYSTEM LAYOUT
– Product v. Process Layouts
• Job Shops v. Mass Production
• Job shop/small batch production fits well with a
differentiation strategy
• Continuous production / dedicated transfer lines helps
achieve cost leadership
• Use of robots and CAD/CAM v. Labor intense manufacturing
• Modular Manufacturing and just-in-time delivery of sub-
assemblies
• Continuous improvement systems lower costs and increase
quality

36. PURCHASING STRATEGIES
 SOURCING COMPONENTS AND SUPPLIES
WHERE CAN THE HIGHEST QUALITY COMPONENTS BE
FOUND?
– Outsourcing (our firm buys everything)
• Buying on the Open Market (Spot) (prices fluctuate)
• Long-Term Contracts with Multiple Suppliers (low bid)
• Sole Sourcing (only one supplier) improves quality
• Parallel Sourcing (two suppliers) provides protection
– Backward Integration (our firm has an ownership
stake in the suppliers we use)
• Quasi-integration (minority ownership position in a
supplier)
• Tapered (produce some of what we need, but not all)
• Full (produce all of our own needs)
– Use of Component Inventories v. Just-in-time supply
delivery

37. LOGISTICS STRATEGIES
DO WE HAVE GOODS THAT MUST BE TRANSPORTED OR DELIVERED?
 TYPE OF MATERIALS TRANSPORTED (Bulky or Compact?)
– Raw Materials, Supplies, & Components
– Finished Goods
 BEST MODE OF TRANSPORTATION
– AIR
– RAIL
– TRUCK
– BARGE
DO WE WANT DEPENDABILITY, LOW COST, OR HIGH QUALITY SERVICE?
 OUTSOURCE TRANSPORTATION OR DO IT YOURSELF?
– CONTRACT WITH OTHERS
• Use Multiple Shippers v. Just One (UPS)?
• Consider batch deliveries v. Just-in-time arrangements?
– OWNERSHIP IN DISTRIBUTION CHAIN
• Quasi
• Tapered
• Full

38. HUMAN RESOURCES STRATEGIES
 TALENT ACQUISITION
– Recruit from Outside v. Internal Development
– Require experienced, highly-skilled workers v. “we will train
you”
– Offer “top dollar” wages & benefits v. mentoring and a career
 WORK ARRANGEMENTS
– Individual Jobs v. Team Positions
– Narrowly-defined jobs v. Positions with discretion and autonomy
– On-premises Work v. Telecommuting Options
 MOTIVATION & APPRAISAL
– Extrinsic v. Intrinsic Reward Systems
– Assessment for development v. assessment for rewards
– Incentives for ideas & originality v. incentives for conformity?

39. INFORMATION SYSTEMS STRATEGIES
WORKER PRODUCTIVITY & CONNECTIVITY
– Employees can be networked together across the globe
– Instant translation software for global firms
– “Follow the Sun Management”…pass projects on to the
next team
SALES & INVENTORY MANAGEMENT
– Internet sales and development of customer databases
– Instant sales reports allow immediate inventory reorders
SHIPPING & TRACKING GOODS
– FEDEX PowerShip software…stores addresses, prints
labels, etc.
– Tracking the progress of package shipment…FEDEX &
UPS

40. WHICH FUNCTIONS CAN WE OUTSOURCE?
 GLOBAL OUTSOURCING – INCREASES EFFICIENCY & QUALITY
– Averages 9% reduction in costs and 15% increase in capacity and quality
– Up to 70% of Boeing planes are outsourced..built in just 4 mos v. 1 year
 AMA SURVEY -- 94% OUTSOURCE AT LEAST ONE ACTIVITY
– 78% General & Administrative activities
– 77% Human Resources
– 66% Transportation & Distribution
– 63% Information Systems
– 56% Manufacturing
– 51% Marketing
– 18% Finance & Accounting
25% were disappointed in their outsourcing results
51% brought the outsourced activity back “in-house”
 MOST LIKELY ACTIVITIES TO OUTSOURCE
– Customer Service
– Bookkeeping/Financial/Clerical
– Sales/Telemarketing
– Software Programming
– Mailroom

41. OUTSOURCING DISADVANTAGES
 CUSTOMER COMPLAINTS & UNEXPECTED DELAYS
 LOCKED INTO LONG-TERM CONTRACTS THAT AREN’T COMPETITIVE
 THE FIRM DOESN’T LEARN NEW SKILLS & DEVELOP CORE COMPETENCIES
A SURVEY OF 129 OUTSOURCING FIRMS
Half of the projects undertaken failed to achieve the anticipated savings
Software produced in India had 10% more bugs than comparable US projects
SEVEN MAJOR OUTSOURCING ERRORS
 Outsourcing activities that shouldn’t be outsourced
– Failed to keep core activities “in-house”
 Selecting the wrong vendor
– Picked a vendor that wasn’t trustworthy, or who lacks state-of-the art processes
 Writing a poor contract
– Balance of power favors the vendor…locked in over a long period of time
 Overlooking personnel issues…my area of expertise was outsourced!
 Losing Control over the Outsourced Activity…We’re at their mercy!
 Overlooking the hidden costs of outsourcing…Transaction fees?
 Failing to plan an exit strategy…How can we reverse out of this deal?

42. SUCCESSFUL OUTSOURCING
KEY TO SUCCESS:
ONLY OUTSOURCE ACTIVITIES THAT ARE NOT RELATED TO THE FIRM’S
DISTINCTIVE COMPETENCIES
TOTAL VALUE-ADDED to Firm’s
PRODUCTS & SERVICES
LOW
HIGH HIGH - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - -
TAPERED FULL
VERTICAL
INTEGRATION
INTEGRATION
ACTIVITY’S Produce Some Produce All
POTENTIAL FOR Internally Internally
COMPETITIVE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ADVANTAGE OUTSOURCE OUTSOURCE
COMPLETELY COMPLETELY
Buy on Open Market Use Long-Term Contracts
LOW - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

43. STRATEGIES TO AVOID
DUMB STRATEGIES
FOLLOW THE LEADER
We can do that too…but maybe it’s not worth copying
HIT ANOTHER HOME RUN
A pioneer company looking to get lucky again
ARMS RACE
Battles which increase costs and decrease revenues
DO EVERYTHING
Offering something for everyone…trying to please everyone
LOSING HAND
Pouring $$ down the knothole…investment because of prior
commitments
NONE OF THESE STRATEGIES WILL CREATE A
SUSTAINABLE COMPETITIVE ADVANTAGE FOR THE
FIRM

44. McKinsey 7-S framework model
The 7-S framework of McKinsey is a
Value Based Management (VBM)
model that describes how one can
holistically and effectively organize a
company. Together these factors
determine the way in which a
corporation operates.

45. MCKINSEY’S 7S FRAMEWORK

47. Strategy: the direction and scope of the company over the
long term.
Structure: the basic organization of the company, its
departments, reporting lines, areas of expertise and
responsibility (and how they inter-relate).
Systems: formal and informal procedures that govern
everyday activity, covering everything from management
information systems, through to the systems at the point of
contact with the customer (retail systems, call center
systems, online systems, etc).
THE HARD S’s

48. THE SOFT S’s
Skills: the capabilities and competencies that exist within
the company. What it does best.
Shared values: the values and beliefs of the company.
Ultimately they guide employees towards 'valued'
behavior.
Staff: the company's people resources and how the are
developed, trained and motivated.
Style: the leadership approach of top management and the
company's overall operating approach.

49. MCKINSEY’S APPROACH
TO PROBLEM-SOLVING
•The problem is not always the problem
•Create structure through “M.E.C.E.”
•Don’t reinvent the wheel
•Every client is unique (no cookie cutter solutions)
•Don’t make the facts fit your solution
•Make sure your solution fits your client
•Sometimes let the solution come to you
•No problem is too tough to solve