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Strategic Management - DOC

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Successful strategy formulation does not at all guarantee successful strategy implementation. Although inextricably interdependent, strategy formulation and strategy implementation are characteristically different. In a single word, strategy implementation means Change. It is widely agreed that “the real work begins after strategies are formulated”. Successful strategy implementation requires support, discipline, motivation and hard work from all managers and employees. It is some time frightening to think that a single individual can sabotage strategy-implementation efforts irreparably. Formulating the right strategies is not enough, because managers and employees must be motivated to implement those strategies. Management issues considered central to strategy implementation include matching organizational structure with strategy, linking performance and pay to strategies, creating an organizational climate conducive to change, managing political relationships, creating a strategy-supportive culture, adapting production/ operations process, and managing Human Resources. Establishing annual objectives, devising policies, and allocating resources are central strategyimplementation activities common to all organizations. Depending on the size and type of organization, other management issues could be equally important to successful strategy implementation. The Strategic Human Resource Management program prepares senior line and HR executives to maximize their impact on the most vital resource of the organization— its human resources. Senior executives, in partnership with talented human resource (HR) executives, have an enormous influence on the success of an organization. Together, they can build one of the most critical sources of sustainable competitive advantage—an organization whose design, culture, and people are aligned with strategy and values. To many people, strategic planning is something meant only for big businesses, but it is equally applicable to small businesses.


Strategic management can be defined as,
“The art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives”.

As this definition implies, strategic management focuses on integrating management, marketing, finance or accounting, production or operations, research and development, and computer information system to achieve organizational success.

Stages Of Strategic Management:
The strategic management process consists of three: strategy formulation strategic implementation, and strategy evaluation.

Strategic management
Strategy Formulation

Strategy Implementation

Strategy Evaluation

Strategy Formulation:
It includes developing a business mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy formulation issues include deciding what new business to enter, what new business to abandon, how to allocate resources, whether to expend operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover.


Strategy Implementation:
It is often called the action stage of strategic management. Implementing means Mobilizing employees and managers to put formulated strategies into action. Often considered the most difficult stage in strategic management, strategic implementation requires personal discipline, commitment, and sacrifice. Successful strategy implementation hinges upon manager’s ability to motivate employees, which is more an art than science. The challenges of implementation are to stimulate managers and employees throughout an organization to work with pride and enthusiasm towards achieving stated objectives.

Strategy Evaluation:
It is the final stage of the strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies all subject to future modification because internal and external factors are constantly changing.

Human Resources may be the most misunderstood of all corporate departments, but it’s also the most necessary. Those who work in Human Resources are not only responsible for hiring and firing; they also handle contacting job references and administering employee benefits. It’s true that any individual who works in Human Resources must be a “people person.” Since anyone in this department deals with a number of employees, as well as outside individuals, on any given day, a pleasant demeanor is a must.

Managing employees is a major job, so those in Human Resources must be equal to the task. Ten or twenty years ago, Human Resources personnel were rarely seen. Instead they worked behind the scenes to ensure personnel records were in order and employee benefits were being properly administered, but the job stopped there. Today’s Human Resources personnel don’t only handle small administrative tasks. They are responsible for staffing major corporations. This is no minor feat.


Human Resource Planning:
Human resource planning activities are used to predict how changes in management strategy will affect future human resource needs. These activities are becoming increasingly important with the rapid changes in external market demands. HR planners must continually chart the course of the organization and its plans, programs, and action.

Equal Employment Opportunity:
Equal employment opportunity activities are intended to satisfy both the legal and moral responsibilities of the organization through the prevention of discriminatory policies, procedures, and practices. This includes decisions affecting hiring, training, appraising, and compensating employee.

Employee (Labour) Relation:
Employee labour relations activities include developing a communications system through which employees can address their problems and grievances. In a unionized organization, labour relations will include the development of working relations with each labour union, as well as contract negotiations and administration.

Health Safety And Security:
Health safety and security activities seek to promote a safe and healthy work environment. It can include actions such as safety, training, employee assistance programs, and health and wellness programs. Human resource development activities are intended to ensure that organizational members have the skills or competencies to meet current and future job demands. This, quite obviously, is the focus of this book. Other functions may be shared by HRM units include the following:  Organization / job design activities are concerned with interdepartmental relations and the organization and definition of jobs.  Performance management and performance appraisal systems are used for establishing and maintaining accountability throughout the organization.  Research and development systems (including human resource information systems) are necessary to make enlightened resource decisions.


The job of Human Resource managers is changing rapidly as companies downsize and reorganize.

Strategic Responsibilities Of The Human Resource Manager:
Strategic responsibilities of the human resource manager include assessing;
1. 2. 3.


The staffing needs and costs for alternative strategies proposed during strategy formulation. Developing a manpower plan for effectively implementing strategies. This plan must consider. How best to manage spiraling health-care insurance cost. Employers’ health coverage expenses consume an average 26percent of firms’ net profits, even though most companies now require employees to pay part of their health-insurance premiums. The plan must also include how to motivate employees and managers during time when layoffs are common and workloads are high.

Performance Incentives:
The human resource department must develop performance incentives that clearly link performance and pay to strategies. The process of empowering managers and employees though involvement in strategic-management activities yields the greatest benefits when all organizational members understand clearly how they will benefit personally if the firm does well. Linking company and personal benefits is a major new strategic responsibility of human resource manager. Other new responsibilities for human resource managers may include establishing and administrating an Employee Stock Ownership Plan (ESOP), instituting an effective child-care policy, and providing leadership for managers and employees to balance work and family.

Causes Of Strategic Management System Failure:
A well-designed strategic-management system can fail if insufficient attention is given to human resource dimensions. Human resource problems that arise when businesses implement strategies can usually be traced to one of three causes:
 

Disruption of social and political structures. Failure to match the individuals’ aptitudes with implementation tasks.

 

Inadequate top management support for implementation activities.

Disruption of social and political structures:

Strategy implementation poses a threat to many managers and employees in and organization. New power and status relationships are anticipated and realized. New formal and informal groups are formed whose values, benefits and priorities may be largely unknown. Managers and employees may become engaged in resistance behavior as their roles, prerogatives, and power in the firm change. Disruption of political and social structures that accompany strategy execution must be anticipated and considered during strategy formulation and managed during strategy implementation.

Match the individuals’ aptitudes with implementation tasks:

A concern in matching managers with strategy is that job has specific and relatively static responsibilities, while people are dynamic in their personal development. Commonly used methods that match managers with strategies to be implemented include transferring managers, developing leadership workshops, offering care development activities, promotions, job enlargements, and job enrichment.

Inadequate top management support:

Inadequate support from strategists for implementation activities often undermines organizational success. Chief executive officers, small business owners, and government agencies head must be personally committed to strategy implementation and express this commitment in highly visible ways. Strategists’ formal statement about the importance of strategic management must be consistent with actual support and reward given for activities completed and objectives reached. Otherwise, stress created by inconsistency can cause uncertainty among managers and employees at all levels.

Balance Work Life And Home Life:
Human resource managers need to foster more effective balancing of professional and private lives. The corporate objective is to more lean and mean must today include consideration of the fact that a good home life contributes immensely to a good work life.

Some specific measures that firms are taking to address this issue are providing spouse relocation assistance as an employee benefit, providing company resources for family recreational and educational use, establishing employees country clubs and creating family/work interaction opportunities. Some organizations have developed family days,


when family members are invited into the workplace, taken on plant or office tours, dined by management, and give a chance to exactly what other family do each day. Family days are inexpensive and increase the employees pride in working for the organization.

Flexible Working Hours:
Flexible working hours during a week is another human resource response to the need for individuals to balance work life and home life. The work / family topic is being made part of agenda at meeting and thus is becoming discussable in many organizations.

Research indicates that employees who are dissatisfied with child-care arrangement are more likely to be absent or unproductive. Some benefits of on-site child-care facilities are improved employee relation, reduced absenteeism and turn over, increased productivity, enhance recruitment, and improved community relations. Other common child-care arrangements include employer-sponsored day care, child-care information, and referral services.

Employee Stock Ownership Plans (ESOPs):
What Is an ESOP?
An ESOP is a kind of employee benefit plan. Governed by ERISA (Employee Retirement Income Security Act), ESOPs were given a specific statutory framework in 1974. In the ensuing 12 years, they were given a number of other tax benefits. Like other qualified deferred compensation plans, they must not discriminate in their operations in favor of highly compensated employees, officers, or owners. To assure that these rules are met, ESOPs must appoint a trustee to act as the plan fiduciary. This can be anyone, although larger companies tend to appoint an outside trust institution, while smaller companies typically appoint a manager or create an ESOP trust committee. The most sophisticated use of an ESOP is to borrow money (a "leveraged" ESOP). In this approach, the company sets up a trust. The trust then borrows money from a lender. The company repays the loan by making tax-deductible contributions to the trust, which the trust gives to the lender. The loan must be used by the trust to acquire stock in the company. Proceeds from the loan can be used by the company for any legitimate business purpose. The stock is put into a "suspense account," where it is released to employee accounts as the loan is repaid. However, for purposes of calculating the various contribution limits described below, the employee is considered to have received only his or her share of the principal paid that year, not the value of the


shares released. After employees leave the company or retire, the company distributes to them the stock purchased on their behalf, or its cash value. In practice, banks often require a second step in the loan transaction of making the loan to the company instead of the trust, with the company reloaning the proceeds to the ESOP. In return for agreeing to funnel the loan through the ESOP, the company gets a number of tax benefits, provided it follows the rules to assure employees are treated fairly. First, the company can deduct the entire loan contribution it makes to the ESOP, within certain payroll-based limits described below. That means the company, in effect, can deduct interest and principal on the loan, not just interest. Second, the company can deduct dividends paid on the shares acquired with the proceeds of the loan that are used to repay the loan itself (in other words, the earnings of the stock being acquired help pay for the stock itself). Again, there are limits, as described below in sections on the rules of the loan and contribution limits. The ESOP can also be funded directly by discretionary corporate contributions or cash to buy existing shares or simply by the contribution of shares. These contributions are tax-deductible, generally up to 25% of the total eligible payroll of plan participants.

How ESOPs Are Used:
The ESOP can buy both new and existing shares, for a variety of purposes.
1. The most common application for an ESOP is to buy the shares of a departing

owner of a closely held company. Owners can defer tax on the gain they have made from the sale to an ESOP if the ESOP holds 30% or more of the company's stock (and certain other requirements are met). Moreover, the purchase can be made in pretax corporate dollars. 2. ESOPs are also used to divest or acquire subsidiaries, buy back shares from the market (including public companies seeking a takeover defense), or restructure existing benefit plans by replacing current benefit contributions with a leveraged ESOP. 3. The use of ESOPs first envisioned by ESOP creator Louis Kelso was to buy newly issued shares in the company, with the borrowed funds being used to buy new capital. The company can, in effect, finance growth or acquisitions in pretax dollars while these same dollars create an employee benefit plan. 4. The above uses generally involve borrowing money through the ESOP, but a company can simply contribute new shares of stock to an ESOP, or cash to buy existing shares, as a means to create an employee benefit plan. As more and more companies want to find ways to tie employee and corporate interests, this is becoming a more popular application. In public companies especially, an ESOP contribution is often used as part or all of a match to employee deferrals to a

401(k) plan. (401(k) Plans; Section 401(k) plans allow employees to defer part of their pay on a pretax basis into an investment fund set up by the company. The company usually offers at least four alternative investment vehicles. Because the law requires that participation in the plans not be too heavily skewed towards more highly paid people, companies generally offer a partial match to encourage broad participation in these voluntary plans. This match can be in any investment vehicle the company chooses, including company stock. There is a limit of 25% of eligible pay that the company can contribute to the plan on a tax-deductible basis. This limit is reduced by other employer contributions to defined contribution plans.)

Employee Ownership and Employee Motivation:
Employees did like being owners. The more shares they owned, the more committed they were to their company, the more satisfied they were with their jobs, and the less likely they were to leave. Naturally, some employees in some companies liked being owners more than others. Individual employee response to ownership was primarily a response to how much stock they got each year. After that, employees responded more favorably if they had ample opportunities to participate in decisions affecting their jobs, worked in companies whose management really believed in the concept of ownership and not just the tax breaks, and were provided regular information about how the ownership plan operated. The continued growth of employee ownership reflects, above all, a changing view of the role of employees in the workplace. To be sure, for some time companies have been saying that "people are our most important resource." This was little more than rhetoric, however, for all but a handful of companies. Investors, capital, technology, and, above all, top management, were really seen as the keys to the company's future. Employees would be laid off or have their compensation limited before these other assets were harmed. Increasingly, however, companies are coming to the view that attracting and retaining good people at all levels, then giving them the authority to make more decisions about more things, is essential to being an effective competitor. In large part, this is a function of technology. The vast amounts of information, and the speed with which it can be processed, leaves companies with little choice but to get more people involved in more things. As people are asked to take more responsibility for the company, it simply makes sense for them to be rewarded accordingly.

Corporate Fitness Programs:
Employees now offer programs to improve or maintain their health, such as programs to stop smoking, reduce cholesterol, promote regular exercise, and control high blood pressure. Firms also offer on-site, fully equipped centers to promote good employee


health. Perhaps the leaders in this area which provide an fitness center, aerobics and other exercise classes, seminars on AIDS and alcohol abuse, and an in door track. J & J program is called Live for Life.



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