Topic 9: Strategy Execution

Transitioning from Formulating to Implementing Strategies

The strategic-management process does not end when the firm decides what strategy or strategies to pursue.
There must be a translation of strategic thought into strategic action. This translation is much easier if managers and
employees of the firm understand the business, feel a part of the company, and through involvement in strategy-
formulation activities have become committed to helping the organization succeed. Without understanding and
commitment, strategy-implementation efforts face major problems. Implementing strategy affects an organization from top
to bottom; it affects all the functional and divisional areas of a business. It is beyond the purpose and scope of this text to
examine all of the business administration concepts and tools important in strategy implementation. Even the most
technically perfect strategic plan will serve little purpose if it is not implemented. Many organizations tend to spend an
inordinate amount of time, money, and effort on developing the strategic plan, treating the means and circumstances
under which it will be implemented as after thoughts. Change comes through implementation and evaluation, not through
the plan. A technically imperfect plan that is implemented well will achieve more than the perfect plan that never gets off
the paper on which it is typed. Successful strategy formulation does not guarantee successful strategy implementation. It
is always more difficult to do something (strategy implementation) than to say you are going to do it (strategy formulation).
Although inextricably linked, strategy implementation is fundamentally different from strategy formulation.
Strategy formulation and implementation can be contrasted in the following ways:
 Strategy-formulation concepts and tools do not differ greatly for small, large, for-profit, or nonprofit organizations.
However, strategy implementation varies substantially among different types and sizes of organizations. Implementing
strategies requires such actions as altering sales territories, adding new departments, closing facilities, hiring new
employees, changing an organization’s pricing strategy, developing financial budgets, developing new employee benefits,
establishing cost-control procedures, changing advertising strategies, building new facilities, training new employees,
transferring managers among divisions, and building a better management information system. These types of activities
obviously differ greatly between manufacturing, service, and governmental organizations .

Match Structure with Strategy

Changes in strategy often require changes in the way an organization is structured for two major reasons:
• First, structure largely dictates how objectives and policies will be established. For example, objectives and
policies established under a geographic organizational structure are couched in geographic terms. Objectives and
policies are stated largely in terms of products in an organization whose structure is based on product groups.
The structural format for developing objectives and policies can significantly impact all other strategy-
implementation activities.
• The second major reason why changes in strategy often require changes in structure is that structure dictates
how resources will be allocated. If an organization’s structure is based on customer groups, then resources will be
allocated in that manner.
There is not just one optimal organizational design or structure for a given strategy or type of organization. Changes in
strategy lead to changes in organizational structure. Structure should be designed to facilitate the strategic pursuit of a
firm and, therefore, follow strategy. Without a strategy or reasons for being (mission), companies find it difficult to design
an effective structure

Structure follows strategy is a business principle coined by A.D. Chandler in 1962 that states that organizational structure
of corporation (the divisions, departments, teams, processes and technology) are designed to achieve a firm's strategy.
Chandler covered the crucial role of the company's strategy and pointed to the close relationship between the company's
strategy and structure thanks to the research conducted on US corporations operating in the years 1850-1920. Chandler
is the author of the quote: If the structure does not support the strategy, the result is inefficiency. He described the
strategy as a way to set long-term goals and understood the structure as a way of operating the organization through
which the strategy should be implemented. His observations were accurate, as they described the problems of modern
American business. American business at the time created many monopolists, who began to lose their dynamism and
competitiveness due to the excessive bureaucracy and internal activities that acted to the detriment of customers.
Reasons of existence of this relationship was that:
• employees and resources are key factors of every strategy, and need to be acquired in order to achieve its goals
• proper division of work in form of functional structure and departmental structure increase efficiency of strategic
actions
• growth of the firm and acquisition of new markets require strong organizational basis
Types of Organizational Structure
A. Functional Structure
• The most widely used structure is the functional or centralized type because this structure is the simplest and
least expensive of the seven alternatives.
• Besides being simple and inexpensive, a functional structure also promotes specialization of labor, encourages
efficient use of managerial and technical talent, minimizes the need for an elaborate control system, and allows
rapid decision making.
• Some disadvantages of a functional structure are that it forces accountability to the top, minimizes career
development opportunities, and is sometimes characterized by low employee morale, line/staff conflicts, poor
delegation of authority, and inadequate planning for products and markets.
• A functional structure often leads to short-term and narrow thinking that may undermine what is best for the firm.
Thus, communication is often not as good in a functional structure

B. Divisional Structure
The divisional or decentralized structure is the second most common type used by U.S. businesses. As a small
organization grows, it has more difficulty managing different products and services in different markets. The divisional
structure can be organized in one of four ways: by geographic area, by product or service, by customer, or by process.
With a divisional structure, functional activities are performed both centrally and in each separate division.
I. A divisional structure by geographic area is appropriate for organizations whose strategies need to be tailored to fit
the needs and characteristics of customers in different geographic areas. This type of structure can be most
appropriate for organizations that have similar branch facilities located in widely dispersed areas. A divisional
structure by geographic area allows local participation in decision making and improved coordination within a region.
II. The divisional structure by product (or services) is most effective for implementing strategies when specific products
or services need special emphasis. Also, this type of structure is widely used when an organization offers only a few
products or services or when an organization’s products or services differ substantially. The divisional structure allows
strict control over and attention to product lines, but it may also require a more skilled management force and reduced
top management control.
III. A divisional structure by customer can be the most effective way to implement strategies. This structure allows an
organization to cater effectively to the requirements of clearly defined customer groups. For example, book publishing
companies often organize their activities around customer groups such as colleges, secondary schools, and private
commercial schools.
IV. A divisional structure by process is like a functional structure because activities are organized according to the way
work is performed. However, a key difference between these two designs is that functional departments are not
accountable for profits or revenues, whereas divisional process departments are evaluated on these criteria. The
divisional structure by process can be particularly effective in achieving objectives when distinct production processes
represent the thrust of competitiveness in an industry. A divisional structure by process is similar to a functional
structure, because activities are organized according to the way work is actually performed. However, a key difference
between these two designs is that functional departments are not accountable for profits or revenues, whereas
divisional process departments are evaluated on these criteria. An example of a divisional structure by process is a
manufacturing business organized into six divisions: electrical work, glass cutting, welding, grinding, painting, and
foundry work. In this case, all operations related to these specific processes would be grouped under the separate
divisions. Each process (division) would be responsible for generating revenues and profits. The divisional structure
by process can be particularly effective in achieving objectives when distinct production processes represent the
thrust of competitiveness in an industry.

C. Strategic Business Unit (SBU) Structure

As the number, size, and diversity of divisions in an organization increase, controlling and evaluating divisional
operations become increasingly difficult for strategists. Increases in sales often are not accompanied by similar increases
in profitability. The span of control becomes too large at top levels of the firm.
Two disadvantages of an SBU structure: (1) requires an additional layer of management, which increases salary
expenses, and (2) do not outweigh the advantages of improved coordination and accountability.
Advantage of the SBU structure: the tasks of planning and control by the corporate office more manageable
D. Matrix Structure
A matrix structure is the most complex of all designs because it depends upon both vertical and horizontal flows of
authority and communication (hence the term matrix). A matrix structure can result in higher overhead because it creates
more management positions. Other disadvantages of a matrix structure that contribute to overall complexity include dual
lines of budget authority (a violation of the unity-of-command principle), dual sources of reward and punishment, shared
authority, dual reporting channels, and a need for an extensive and effective communication system.

Strategic Production/Operation Issues

Production/operations capabilities, limitations, and policies can significantly enhance or inhibit the attainment of
objectives. Production processes typically constitute more than 70 percent of a firm’s total assets. Thus, a major part of
the strategy-implementation process takes place at the production site. Strategic production-related decisions on plant
size, plant location, product design, choice of equipment, kind of tooling, size of inventory, inventory control, quality
control, cost control, use of standards, job specialization, employee training, equipment and resource utilization, shipping
and packaging, and technological innovation can determine the success or failure of strategy-implementation efforts.
Four production/operations issues:
1. Restructuring and Reengineering
Restructuring and reengineering are becoming commonplace on the corporate landscape. Restructuring involves
reducing the size of the firm in terms of number of employees, number of divisions or units, and number of hierarchical
levels in the firm’s organizational structure. This reduction in size is intended to improve both efficiency and effectiveness.
Restructuring is concerned primarily with shareholder well-being rather than employee well-being.
The primary benefit sought from restructuring is cost reduction. For some highly bureaucratic firms, restructuring can
actually rescue the firm from global competition and demise. But the downside of restructuring can be reduced employee
commitment, creativity, and innovation that accompanies the uncertainty and trauma associated with pending and actual
employee layoffs.
The recent falling euro and weak economy in Europe forced many European companies to downsize, laying off managers
and employees. This practice was historically rare in Europe because labor unions and laws required lengthy negotiations
or huge severance checks before workers could be terminated. In contrast to the United States, labor union executives of
large European firms sit on most boards of directors. Job security in European companies is slowly moving toward a U.S.
business model, in which firms lay off almost at will. From banks in Milan to factories in Mannheim, European employers
are starting to show people the door in an effort to streamline operations, increase efficiency, and compete against
already slim and trim U.S. firms. European firms still prefer to downsize by attrition and retirement, rather than by blanket
layoffs because of culture, laws, and unions.
In contrast to restructuring, reengineering is concerned more with employee and customer well-being than shareholder
well-being. Reengineering involves reconfiguring or redesigning work, jobs, and processes for the purpose of improving
cost, quality, service, and speed. Reengineering does not usually affect the organizational structure or chart, nor does it
imply job loss or employee layoffs. Whereas restructuring is concerned with eliminating or establishing, shrinking or
enlarging, and moving organizational departments and divisions, the focus of reengineering is changing the way work is
actually carried out. Reengineering is characterized by many tactical (short-term, business-function-specific) decisions,
whereas restructuring is characterized by strategic (long-term, affecting all business functions) decisions.
2. Manage Resistance to Change
No organization or individual can escape change. But the thought of change raises anxieties because people fear
economic loss, inconvenience, uncertainty, and a break in normal social patterns. Almost any change in structure,
technology, people, or strategies has the potential to disrupt comfortable interaction patterns. For this reason, people
resist change. The strategic management process can impose major changes on individuals and processes. Reorienting
an organization to get people to think and act strategically is not an easy task. Strategy implementation can pose a threat
to many managers and employees. New power and status relationships are anticipated and realized. New formal and
informal groups’ values, beliefs, 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 social and political
structures that accompany strategy execution must be anticipated and considered during strategy formulation and
managed during strategy implementation.
Resistance to change may be the single-greatest threat to successful strategy implementation. Resistance regularly
occurs in organizations in the form of sabotaging production machines, absenteeism, filing unfounded grievances, and an
unwillingness to cooperate. People often resist strategy implementation because they do not understand what is
happening or why changes are taking place. In that case, employees may simply need accurate information. Successful
strategy implementation hinges on managers’ ability to develop an organizational climate conducive to change. Change
must be viewed by managers and employees as an opportunity for the firm to compete more effectively, rather than being
seen as a threat to everyone’s livelihood.
Resistance to change can emerge at any stage or level of the strategy-implementation process. Although there are
various approaches for implementing changes, three commonly used strategies are a force change strategy, an educative
change strategy, and a rational or self-interest change strategy. A force change strategy involves giving orders and
enforcing those orders; this strategy has the advantage of being fast, but it is plagued by low commitment and high
resistance. The educative change strategy is one that presents information to convince people of the need for change; the
disadvantage of an educative change strategy is that implementation becomes slow and difficult. However, this type of
strategy evokes greater commitment and less resistance than does the force change strategy. Finally, a rational change
strategy or self-interest change strategy is one that attempts to convince individuals that the change is to their personal
advantage. When this appeal is successful, strategy implementation can be relatively easy. However, implementation
changes are seldom to everyone’s advantage.
Strategists can take a number of positive actions to minimize managers’ and employees’ resistance to change. For
example, individuals who will be affected by a change should be involved in the decision to make the change and in
decisions about how to implement the change. Strategists should anticipate changes and develop and offer training and
development workshops so that managers and employees can adapt to those changes. They also need to effectively
communicate the need for changes. Strategy implementation is basically a process of managing change.
The most successful organizations today continuously adapt to changes in the competitive environment. It is not sufficient
today to simply react to change. Managers need to anticipate change and be the creator of change. Viewing change as a
continuous process is in stark contrast to an old management doctrine regarding change, which was to unfreeze behavior,
change the behavior, and then refreeze the new behavior. The new “continuous organizational change” philosophy should
mirror the popular “continuous quality improvement philosophy.”
3. Decide Where and How to Produce Goods
In China, about 700,000 assembly workers at manufacturing contractors such as Foxconn put together Apple products. It
would be virtually impossible to bring those jobs to the United States for at least three reasons. First of all, Foxconn—
China’s largest private employer and the manufacturer of an estimated 40 percent of the world’s consumer electronic
devices—pays its assembly workers far less than U.S. labor laws would allow. A typical salary is about $18 a day.
Second, unlike U.S. plants, Foxconn and other Chinese manufacturing operations house employees in dormitories and
can send hundreds of thousands of workers to the assembly lines at a moment’s notice. on the lines, workers are
subjected to what most Americans would consider unbearable long hours and tough working conditions. That system
gives tech companies the efficiency needed to race products out the door, so speed is a bigger factor than pay. Finally,
most of the component suppliers for Apple and other technology giants are also in China or other Asian countries. That
geographic clustering gives companies the flexibility to change a product design at the last minute and still ship on time.

Examples of adjustments in production systems that could be required to implement various strategies are provided in
Table 10-11 for both for-profit and nonprofit organizations. For instance, note that when a bank formulates and selects a
strategy to add 10 new branches, a production-related implementation concern is site location. The largest bicycle
company in the United States, Huffy, recently ended its own production of bikes and now contracts out those services to
Asian and Mexican manufacturers. Huffy focuses instead on the design, marketing, and distribution of bikes, but it no
longer produces bikes itself. The Dayton, Ohio, company closed its plants in ohio, Missouri, and Mississippi.
Just-in-time (JIT) production approaches have withstood the test of time. Just-in-time significantly reduces the costs of
implementing strategies. Parts and materials are delivered to a production site just as they are needed, rather than being
stockpiled as a hedge against later deliveries. Harley-Davidson reports that at one plant alone, JIT freed $22 million
previously tied up in inventory and greatly reduced reorder lead time.
Factors that should be studied before locating production facilities include the availability of major resources, the
prevailing wage rates in the area, transportation costs related to shipping and receiving, the location of major markets,
political risks in the area or country, and the availability of trainable employees. Some of these factors explain why many
manufacturing operations in China are moving back to Mexico, or to Vietnam, or even back to the United States. Table
10-12 lists ways that companies today are reducing labor, production, and operations costs to stay financially sound.

4. Employee Stock Ownership Plans (ESOPs)

Besides reducing worker alienation and stimulating productivity, employee stock ownership plans (ESOPs) allow firms
other benefits, such as substantial tax savings. An ESOP is a tax- qualified, defined-contribution, employee-benefit plan
whereby employees purchase stock of the company through borrowed money or cash contributions. These plans
empower employees to work as owners; this is a primary reason why the number of ESOPs has grown dramatically. “The
ownership culture really makes a difference, when management is a facilitator, not a dictator,” observes Corey Rosen,
executive director of the National Center for Employee Ownership.

Strategic Human Resources Issues

Human resource issues can make or break successful strategy implementation. Thus, seven human resource issues are
as follows:
1. Linking Performance and Pay to Strategy
• Decisions on salary increases, promotions, merit pay, and bonuses need to support the long-term and annual
objectives of the firm.
• To better link performance and pay to strategies, many companies have recently instituted policies to allow their
shareholders to vote on executive compensation policies.
• Firms are also establishing profit sharing, gain sharing, and bonus systems.
 • For employees, bonus and incentives, companies are using profit to more closely link employees’ incentives to
spending and budget decisions instead of stock prices.
• For upper-level executives, stock price is still the major variable used for compensation incentives, but for mid
and lower-level managers and employees, stock price is dependent on too many extraneous variables for it to be
an effective compensation variable.
• Gain sharing requires employees or departments to establish performance targets; if actual results exceed
objectives, all members get bonuses.
• Criteria such as sales, profit, production efficiency, quality, and safety could also serve as bases for an effective
bonus system. A bonus system can be an effective tool for motivating individuals to support strategy
implementation efforts.
• A combination of reward strategy incentives, such as salary raises, stock options, fringe benefits, promotions,
praise, recognition, criticism, fear, increased job autonomy, and awards, can be used to encourage managers
and employees to push hard for successful strategic implementation.
• The range of options for getting people, departments, and divisions to actively support strategy-implementation
activities in a particular organization is almost limitless.
• Start with an appraisal system that gives genuine feedback and differentiates performance because concise,
constructive feedback is the fuel workers use to get better.
2. Balancing Work Life and Home Life
• Work and family strategies now represent a competitive advantage for those firms that offer such benefits as elder
care assistance, flexible scheduling, job sharing, adoption benefits, onsite summer camp, employee help lines,
pet care, and even lawn service referrals.
• New corporate titles such as Work and Life Coordinator and Director of Diversity are becoming common.
• A corporate objective to become leaner and mean must today include consideration for the fact that a good home
life contributes immensely to a good work life. The work and family issue are no longer just a women’s issue.
• Some specific measures that firms are taking to address this issue are providing spouse relocation assistance as
an employee benefit; supplying company resources for family recreational and educational use; establishing
employee country clubs and creating family and 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 given a chance to see exactly what other family members do
each day. Family days are inexpensive and increase the employee’s pride in working for the organization.
• Flexible working hours during the week are another human resource response to the need for individuals to
balance work life and home life.
3. Develop a Diverse Workforce
• An organization can perhaps be most effective when its workforce mirrors the diversity of its customers. For
global companies, this goal can be optimistic, but it is a worthwhile goal.
• Six benefits of having a diverse workforce are as follows:
1. Women and minorities have different insights, opinions, and perspectives that should be considered.
2. A diverse workforce portrays a firm committed to nondiscrimination.
3. A workforce that mirrors a customer base can help attract customers, build customer loyalty, and design/offer
products/services that meet customer needs/wants.
4. A diverse workforce helps protect the firm against discrimination lawsuits.
5. Women and minorities represent a huge additional pool of qualified applicants.
6. A diverse workforce strengthens a firm’s social responsibility and ethical position.
4. Using Caution in Hiring in Rival’s Employees
• The practice of hiring employees from rival firms has a long tradition, but increasingly in our lawsuit-happy
environment, firms must consider whether that person(s) had access to the “secret sauce formula, customer list,
 programming algorithm, or any proprietary or confidential information” of the rival firm.
• If the person has that information and joins your firm, lawsuits could follow that hiring, especially if the person was
under contract at the rival firm or had signed a “noncompete agreement.”
• Thus, it is not illegal to interview and hire employees from rival firms, and it has been done for centuries, but
increasingly this is becoming a strategic issue to be managed, to avoid litigation.
5. Create a Strategy Supportive Culture
• All organizations have a unique culture.
• Strategists should strive to preserve, emphasize, and build on aspects of an existing culture that support
proposed new strategies.
• Changing a firm’s culture to fit a new strategy is usually more effective than changing a strategy to fit an existing
culture.
• Schein indicated that the following elements are most useful in linking culture to strategy:
1. Formal statements of organizational philosophy, charters, creeds, materials used for recruitment and
selection, and socialization
2. Designing of physical spaces, facades, and buildings
3. Deliberate role modeling, teaching, and coaching by leaders
4. Explicit reward and status system and promotion criteria
5. Stories, legends, myths, and parables about key people and events
6. What leaders pay attention to, measure, and control
7. Leader reactions to critical incidents and organizational crises
8. How the organization is designed and structured
9. Organizational systems and procedures
10. Criteria used for recruitment, selection, promotion, leveling off, retirement, and “excommunication” of people
• Weak linkages between strategic management and organizational culture can jeopardize performance and
success.

6. Use Caution in Monitoring Employees’ Social Media

• Proponents of companies monitoring employees’ social media activities emphasize that (1) a company’s
reputation in the marketplace can easily be damaged by disgruntled employees venting on social media sites and
(2) social media records can be subpoenaed, like email, and used as evidence against the company.
• Proponents say companies have a responsibility to know the nature of employees’ communication through social
media as related to clients, patients, suppliers, distributors, coworkers, managers, technology, patents,
procedures, policies, and much more.
• Companies should never use social media to discriminate based on age, race, ethnic background, religion,
sexuality, or handicapped issues.
 • Arguments against the practice of companies monitoring employees’ social media activities say it is an invasion of
privacy and too often becomes “a fishing expedition” sifting through tons of personal information irrelevant to a
company or its business.
• Rejecting potential employees because of private behavior unrelated to work is unfair. However, for some jobs,
such as law enforcement, due diligence may require firms to monitor social media activities to help assure their
entire workforce is not involved in drugs, child pornography, gangs, and so on.
• The bottom line is that companies have the legal right to monitor employees’ conduct but have the legal duty to do
so only if there is sufficient reason for concern.
7. Develop a Corporate Wellness Program
• Most companies therefore now have both “carrots,” such as giving employee discounts on insurance premiums or
even extra cash, and “sticks,” such as imposing surcharges on premiums for those who do not make progress
towards getting healthy.
• Health insurance is expensive, and companies desire a healthy workforce.
• Practices such as “providing abundant bicycle racks,” “conducting walking meetings,” and “offering five-minute
stress breaks” are becoming common at companies to promote a corporate wellness culture.