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					Strategy Implementation &
       Governance
       Dr. Payne (9)




                            1
             What is Strategy Implementation?
•   The sum total of the activates and choices required for the
    execution of a strategic plan – it is the process by which strategies
    are put into action through budgets, programs, and procedures.
•   Three key questions:
    1.    Who are the people who will carry out the strategic plan?
    2.    What specifically must be done?
    3.    How are they going to do what is needed?
•   Top 10 Problems in Implementation:
    1.    Slower implementation than originally planned.
    2.    Unanticipated major problems
    3.    Ineffective coordination of activities
    4.    Competing activities and crises that distract attention
    5.    Insufficient capabilities of the involved employees
    6.    Inadequate training and instruction of lower-level employees
    7.    Uncontrollable external environmental factors
    8.    Inadequate leadership and direction by departmental managers
    9.    Poor definition of key implementation tasks and activities
    10.   Inadequate monitoring of activities by the information system
                                                                          2
         Traditional Implementation


Formulate           Implement            Strategic
Strategies           Strategies          Control




• Best when in stable and simple environment.
• Goals and objectives should be measured easily with
     a high degree of certainty.
• Quantitative controls are typical.

                                                     3
          Contemporary Implementation

       Formulate                        Implement
       Strategies                        Strategies


  Informational                             Behavioral
     Control            Strategic            Control
                        Control


• Adaptive and anticipating – “two-way”
• Information controls ask “Are we doing the right things?”
• Behavioral controls ask “Are we doing things right?”
• Environmental Fit is key.
                                                         4
       Eight Components of Implementation

                           Allocating Resources
    Building a                                    Establishing Strategy-
    Capable                                       Supportive Policies
    Organization


                                Strategy                Instituting Best
Exercising
                             Implementer’s              Practices for
Strategic
                             Action Agenda              Continuous
Leadership
                                                        Improvement



 Shaping Corporate                                Installing Support
 Culture to Fit Strategy                          Systems to Carry
                           Tying Rewards          out Strategic Roles
                           to Achievement
                       of Key Strategic Targets                            5
                     Who Implements?

•   Implementation involves a the whole management
    team
    –   Every unit and all employees have a role and need to
        be committed
•   CEO, other senior executives, and heads of major
    organizational units, must lead the process and
    orchestrate major initiatives
    –   But they must rely on middle and lower-level managers
        to push things on the front line and see that strategy is
        well-executed on a daily basis



                                                                6
                     “The Corporate Problem”
 Individual shareholders, unless they are managers or hold a
  very large block of stock, have very little influence on the
  company.
 Managers are “agents” of shareholders and make most of the
  important decisions with regard to organizational operations.
    – Agency/TCE – suggest that managers serve their own interests at the
      expense of shareholders (Williamson, 1984).
    – Stewardship Theory – suggests that managers should be given maximum
      liberty to make decisions so that they are not encumbered by rules and
      influences that can jeopardize optimal performance (Davis, Schoorman, &
      Donaldson, 1997).
   Managers’ interests are often in conflict with shareholders.
       Consider dividend payments vs. reinvestment in the firm.


                            T. Payne                         7              7
                    Company Practices
• Issuing two classes of stock
   – Some companies may give different voting rights to
     different stockholders, even though the shares may have the
     same market value
• Dual Positioning of CEO and Chairman of the Board
   – This often shifts too much power to the managers, not
     allowing the other board members to exercise their power on
     the behalf of the shareholders.
      • Andrew Grove, chairman of Intel Corp. said, “The separation of the
        two jobs goes to the heart of the conception of a corporation. Is a
        company a sandbox for the CEO, or is the CEO and employee? If
        he’s an employee, he needs a boss, and that boss is the board. The
        chairman runs the board. How can the CEO be his own boss?”
      • What are the positives to the Dual positioning??


                       T. Payne                         8                 8
                Mechanisms for Governance
   Behavioral or Outcomes-based Contracts – specify how or
    what are to be rewarded.
   Boards of Directors – have fiduciary responsibility to safeguard
    stockholders’ investments. Made up of Insiders and Outsiders –
    Insiders have information and understanding; outsiders should monitor
    and oversee functions, but often lack objectivity and sophistication.
        Roles of BOD:
               Establish policies and objectives
               Elect, monitor, advise, evaluate and compensate officers.
               Protect the value of corporate assets.
               Monitor, approve, and report on the financial condition of
                company.
               Delegate selected board powers to others.
               Ensure that the charter and by-laws are enforced and revised.
               Maintain the integrity of the board.
   Pay-for-Performance of CEO – shown little correlation to
    company performance.
                                                                                9
                                Good BODs
INDEPENDENCE - No more than two directors should be current or former company
executives, and none should do business with the company or accept consulting or legal fees
from it. The audit, compensation, and nominating committees should be made up solely of
independent directors.

STOCK OWNERSHIP - Each director should own an equity stake in the company
worth at least $150,000, excluding stock options. The only exception: new board members
who haven't had time to build a large stake.

DIRECTOR QUALITY - Boards should include at least one independent director with
experience in the company's core business and one who is the CEO of an equivalent-size
company. Fully employed directors should sit on no more than four boards, retirees no more
than seven. Each director should attend at least 75% of all meetings.

BOARD ACTIVISM - Boards should meet regularly without management present and
should evaluate their own performance every year. Audit committees should meet at least
four times a year. Board should be frugal on executive pay, decisive when planning a CEO
succession, diligent in oversight responsibilities, and quick to act when trouble strikes.


                                                                                       10
               What Must Be Done?
• Three key implementation tasks:
   – Selecting people for key positions
      • Either insiders or skilled external implementation specialists
      • Consider culture, mix of skills, experience, beliefs, etc.
   – Developing skills, competencies and capabilities
   – Organizing processes and execution


                              Select able
                             people for key
                               positions

                  Develop skills, core competencies,
               managerial talents, competitive capabilities


            Organize business processes, value chain activities,
       and decision-making to promote successful strategy execution
                                                                         11
               How is it Going to Get Done?
                             Change Structure?

• Changes to structure are often keys to strategy implementation
  success.
• A Few hard and fast rules for organizing:
    – Main rule: Structure must support and facilitate good strategy
      execution.
• Research indicates:
     –   Structure affects performance
     –   Structure merits reassessment whenever strategy changes
     –   New strategy typically involves different skills and key activities
•   How work is structured is a means to an end                                     -
    - not an end in itself!
     –   All the basic structures have strategic advantages and disadvantages
     –   There is no ideal organization design
     –   To do a good job of matching structure to strategy
          • Pick a basic design
          • Modify as needed
          • Supplement with coordinating mechanisms and communication arrangements
                                                                               12
                                    Structural Forms
                                                                                                  Traditional
                                                                                                  Functional
                                                                               General Manager
                                                                                                    Structure
Process-Oriented
Functional Structure                                   Research &                                  Human
                                                                         Manufacturing
                                                       Development                                Resources
                      General Manager

                                                                                                          Finance &
                                                                 Engineering          Marketing
                                                                                                          Accounting




Foundry &      Screw                        Customer
                             Inspection
 Castings     Machining                      Service




       Milling &     Finishing &     Loading &     Billing &
       Grinding     Heat Treating     Shipping    Accounting

                                                                                                                13
                                  Structural Forms (2)
    Geographic                   CEO
                                                    Corporate
    Structure                                         Staff




                                                               GM
     GM            GM            GM            GM
                                                          Central Asia &
North America Latin America     Europe     Asia Pacific      Africa

                                                     District
                                                      Staff

                                                                                     Decentralized Line-of-
       Engineering &
        Prod. Design
                              Production
                                                  Marketing &
                                                  Distribution
                                                                                        Business Structure
                                                                                           CEO
                                                                   Corporate
                                                                    Services



                                                                      GM                  GM                     GM
                                                                    Business A          Business B            Business C


                                                                Functional/Process   Functional/Process   Functional/Process
                                                                  Departments          Departments          Departments
                                                                                                                      14
                                     Structural Forms (3)
                               CEO
    Corporate
    Services                                    SBU Structure

     Group VP                Group VP                 Group VP
      SBU I                   SBU II                   SBU III


Strategically Related   Strategically Related    Strategically Related                             Matrix Structure
   Business Units          Business Units           Business Units
                                                                                       General Manager



                                                                           Head             Head          Head          Head
                                                                           R&D            Manufacture    Marketing     Finance


                                                           Venture         R&D            Production     Marketing      Finance
                                                          Manager 1      Specialists      Specialists    Specialists   Specialists

                                                           Venture         R&D            Production     Marketing      Finance
                                                          Manager 2      Specialists      Specialists    Specialists   Specialists

                                                           Venture         R&D            Production     Marketing      Finance
                                                          Manager 3      Specialists      Specialists    Specialists   Specialists

                                                           Venture         R&D            Production     Marketing      Finance
                                                          Manager 4      Specialists      Specialists    Specialists   Specialists
                                                                                                                               15
        Achieving Flexibility & Competitiveness
                via Strategic Alliances
•   Allows firms to compete on a:
    –   Larger or global scale and
    –   Preserve independence
•   Types of alliances:
        •   Joint research efforts
        •   Technology-sharing
        •   Joint use of production facilities
        •   Marketing one another’s products
        •   Joint manufacturing or assembly
•   Guidelines:
        • Pick a compatible partner
        • Choose ally whose strengths complement products and customers
        • Learn thoroughly & rapidly about partner’s technology &
          management
        • Do not share competitively sensitive information
        • View alliance as temporary, not permanent
                                                                     16
     Benefits and Pitfalls of Strategic Alliances

•   Benefits of Alliances:
      •   Gain scale economies in production and/or marketing
      •   Fill gaps in technical expertise or knowledge of local markets
      •   Share distribution facilities and dealer networks
      •   Direct combined competitive energies toward defeating
          mutual rivals
•   Pitfalls of Alliances:
      •   Becoming too dependent on another firm for essential
          expertise over the long-term
      •   Different motives and conflicting objectives
      •   Time consuming
      •   Language and cultural barriers
      •   Mistrust when collaborating in competitively sensitive areas
      •   Clash of egos and company cultures
                                                                     17
                    Eli Lilly: Multiple Alliances
                Commercial Alliance
Takeda and Lilly are collaborating to copromote Takeda's novel insulin sensitivity enhancer, Actos,
in the United States and more than 70 other countries. Pioneered by Takeda, the thiazolidinedione
class of insulin sensitivity enhancers - TZDs - represent a new treatment for patients with type 2
diabetes that treats one of the underlying causes of the disease. Today, worldwide costs for treating
diabetes are estimated at more than $200 billion annually, and it is projected that, over the next
decade, those costs could double due to the related complications of diabetes, such as kidney
damage, limb amputation, and problems with eyesight.

                 R&D Alliance
Lilly and Ligand are collaborating to discover and develop products based upon Ligand's
intracellular receptor technology. The collaboration is focusing on products with broad applications
across metabolic diseases, including diabetes, obesity, dislipidemia, insulin resistance and
cardiovascular diseases associated with insulin resistance and obesity.

                     Manufacturing Alliance
Lilly and Lonza are collaborating on the development and manufacturing of Zovant. Lonza
Biologics, the leading contract manufacturer of proteins in mammalian cell culture is part of the
Lonza Group, the specialty chemical manufacturer headquartered in Switzerland. Zovant is a
treatment for severe sepsis.

                                                                                                    18
                How is it Going to Get Done?
                      Develop Functional Strategies
 Functional Strategies: The collective pattern of day-to-day
 decisions made and actions taken by employees responsible for
 value activities. These include…
• Marketing     Strategy                • R&D    Strategy
  • Customer Targeting                    • Research focus/orientation
  • Product/service positioning, mix,     • Project priorities (budget, quality, time)
    breadth, and pricing                  • Relationships to external organizations
  • Promotions practices                • Information      Systems
  • Distribution channels                 • Hardware/software capability and
  • Customer service policies               integration
  • Product/service policies              • Linkages to external organizations
  • Marketing research                    • Investments needed
• Operations    Strategy                • HR   Strategy
  • Capacity planning                     • Recruitment, Selection, Appraisals,
  • Location and layout   of facility      Salaries, Wages, Training, etc.
  • Equipment choices
                                        • Financial Strategy
  • Scheduling
                                          • Capital, Investments, Returns
  • Workforce policies
                                          • Resource allocation                19
                          Budgeting
•   Allocating resources in ways that support
    effective strategy execution involves:
    –   Funding capital projects that can make a contribution
        to strategy implementation
    –   Funding efforts to strengthen competencies and
        capabilities or to create new ones
    –   Shifting resources--downsizing some areas, upsizing
        others, Killing activities that are no longer justified,
        and funding new activities with a critical strategy role


                                                                   20
                    Policies and Procedures
• Provide top-down guidance regarding expected behaviors
• Help align internal actions with strategy, channeling efforts
  along the intended path
• Enforce consistency in performance of activities in
  geographically scattered units
• Serve as powerful lever for changing corporate culture to
  produce stronger fit with a new strategy
• Role of new policies
    –   Channel behaviors and decisions to promote strategy execution
    –   Counteract tendencies of people to resist chosen strategy
•   Too much policy can be as stifling as:
    –   Wrong policy or as
    –   Chaotic as no policy
•   Often, the best policy is a willingness to empower
    employees
                                                                        21
               Instituting Best Practices
             and Continuous Improvement
•   Searching out and adopting best practices is integral to
    effective implementation
•   Benchmarking has spawned new approaches to improve
    strategy execution:
    –   Reengineering – Aims at quantum gains (30 to 50% or
        more). Used to produce a good basic design yielding
        dramatic improvements.
    –   TQM & Continuous Improvement Programs – More long-
        term and incremental. Used to perfect process, gradually
      improving efficiency and effectiveness
•   Objectives of these Approaches (not mutually exclusive):
    –   Defect-free manufacture
    –   Superior product quality
    –   Superior customer service
    –   Total customer satisfaction
                                                              22
                  Installing Support Systems
•   Essential to promote successful strategy execution
•   Types of support systems:
    –   On-line data systems
    –   Internet and company intranets
    –   Electronic mail
    –   Web pages
• Mobilizing information and creating systems to use
  knowledge effectively can yield competitive advantage.
• Examples:
    – FedEx – Computerized parcel-tracking system and leading-edge
      flight operations systems.
    – Proctor & Gamble – System to obtain early warning signs of
      product problems and changing tastes.
    – Arthur Andersen – Electronic system, with data, voice, and video
      capabilities, linking more than 82,000 people in 360 cities in 76
      countries.
                                                                     23
                      Control and Rewards
•   Control:
    –   Challenge is how to ensure actions of employees stay
        within acceptable bounds
    –   Purpose of diagnostic control systems is to relieve
        managers of burden of constant monitoring
    –   Control methods establish boundaries on what not to
        do, allowing freedom to act with limits.
    –   Culture, rewards and boundaries are levers to control.
•   Rewards (Two Types):
    –   Monetary Incentives – Non-Monetary Incentives
         •   Salary raises         •   Praise
         •   Performance bonuses   •   Constructive criticism
         •   Stock options         •   Special recognition
         •   Retirement packages   •   More, or less, job security
         •   Promotions            •   Interesting assignments
         •   Perks                 •   More, or less, job responsibility
                                                                           24
    Essential Elements of Strategic Control

                                                 Rewards and
                                          incentives motivate
 Culture sets unwritten   Boundaries         performance and
 standards of behavior                 desired behavior. May
 in overall conduct.                    be the tool to develop
 Encourages                                        culture and
 identification with                               establishes
 organization.                                     boundaries

Examples:     Culture                  Rewards
FedEx
SW Airlines
3M
                                                           25
                           Rewards
•   Objectives:
    –   Generously reward those achieving objectives
    –   Deny rewards to those who don’t
    –   Make strategic performance measures the dominate
        basis for designing incentives
•   Designing a Rewards System:
    –   Create a results-oriented system
    –   Reward people for results, not for activity
    –   Define jobs in terms of what to achieve
    –   Incorporate several performance measures
    –   Tie incentive compensation to relevant outcomes
         •   Top executives - Key measures of overall firm
             performance
         •   Department heads, teams, and individuals - Strategic
             areas of responsibility



                                                                    26
 Strategy’s Relationship to Rewards & Controls


                                                      Primary Type of
                    Type of               Need for    Rewards and
Level of Strategy   Strategy          Interdependence Controls
Business-Level      Overall cost          Low         Quantitative
                    Leadership
Business-Level      Differentiation       High        Qualitative

Corporate-Level     Related               High        Qualitative
                    Diversification
Corporate-Level     Unrelated             Low         Quantitative
                    Diversification




                                                                        27

				
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