Strategy Implementation &
Dr. Payne (9)
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
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.
Control Strategic 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.
Eight Components of Implementation
Building a Establishing Strategy-
Capable Supportive Policies
Strategy Instituting Best
Implementer’s Practices for
Action Agenda Continuous
Shaping Corporate Installing Support
Culture to Fit Strategy Systems to Carry
Tying Rewards out Strategic Roles
of Key Strategic Targets 5
• Implementation involves a the whole management
– Every unit and all employees have a role and need to
• 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
“The Corporate Problem”
Individual shareholders, unless they are managers or hold a
very large block of stock, have very little influence on the
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, &
Managers’ interests are often in conflict with shareholders.
Consider dividend payments vs. reinvestment in the firm.
T. Payne 7 7
• 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
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
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
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.
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
people for key
Develop skills, core competencies,
managerial talents, competitive capabilities
Organize business processes, value chain activities,
and decision-making to promote successful strategy execution
How is it Going to Get Done?
• Changes to structure are often keys to strategy implementation
• A Few hard and fast rules for organizing:
– Main rule: Structure must support and facilitate good strategy
• 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
Functional Structure Research & Human
Foundry & Screw Customer
Castings Machining Service
Milling & Finishing & Loading & Billing &
Grinding Heat Treating Shipping Accounting
Structural Forms (2)
GM GM GM GM
Central Asia &
North America Latin America Europe Asia Pacific Africa
GM GM GM
Business A Business B Business C
Functional/Process Functional/Process Functional/Process
Departments Departments Departments
Structural Forms (3)
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
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
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
• Joint use of production facilities
• Marketing one another’s products
• Joint manufacturing or assembly
• Pick a compatible partner
• Choose ally whose strengths complement products and customers
• Learn thoroughly & rapidly about partner’s technology &
• Do not share competitively sensitive information
• View alliance as temporary, not permanent
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
• 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
Eli Lilly: Multiple Alliances
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.
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.
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.
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
• Capital, Investments, Returns
• Workforce policies
• Resource allocation 19
• 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
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
Instituting Best Practices
and Continuous Improvement
• Searching out and adopting best practices is integral to
• Benchmarking has spawned new approaches to improve
– Reengineering – Aims at quantum gains (30 to 50% or
more). Used to produce a good basic design yielding
– 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
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.
– 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
Control and Rewards
– 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
Essential Elements of Strategic Control
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
Examples: Culture Rewards
– 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
• Department heads, teams, and individuals - Strategic
areas of responsibility
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
Business-Level Differentiation High Qualitative
Corporate-Level Related High Qualitative
Corporate-Level Unrelated Low Quantitative