24085211 Strategic Management Strategic Implementation

8/8/2019 24085211 Strategic Management Strategic Implementation

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Strategy ImplementationOperationalizing strategy

This phase is the translation of the agreed upon long termobjectives, the strategic plan, into organizational action.Here the focus shifts from strategy formulation to strategyimplementation.

There are four important things to be done well to make thistransition:

1. Identify short term objectives They translate long term objectives into annual targets for action.

They provide clarity and can be very powerful motivator and facilitatorof effective strategy implementation.


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2 . Initiate specific functional strategies They translate business strategy into daily activities. Functional managers are involved in developing these tactics and their

participation helps in clarifying what needs to be done to implementthe strategy.

3. Communicate policies that empower people in theorganization

Policies are empowerment tools that simplify decision making byempowering operational managers and their subordinates. They empower the people involved in execution by reducing the time

required to decide and act.

4. Design effective rewards It is aimed at rewarding the desired actions and results.


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Annual or short term objectivesThey provide a guidance to the people in the organization as towhat needs to be done currently to make the long termobjectives become reality.They provide specific guidelines about the things to be done.They "operationalize" long -term objectives. e.g. if the long term,say five year plan is to gain forty percent market share from the

current twenty percent, then what needs to be done in this yearto increase the current market share by "X" percentDiscussion and agreement on short-term strategies help raiseissues and potential conflicts that requires coordination to avoidserious consequences.It identifies measurable outcomes of action plans or functionalactivities, which can be used to make feedback, correction, andevaluation more relevant and acceptable.


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Short-term objectives are accompanied by action plans, whichhelp short-term objectives in three ways:

1. These action plans identify functional tactics and activitiesthat will be undertaken in the next week, month or quarterto build competitive advantage. They specify what exactlyneeds to be done.

2 . They provide a time frame for completion - a schedule withstarting and ending dates.

3. It identifies who is responsible for each action in the plan.


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Q ualities of effective short-term objectives1. M easurable

Short-term objectives are more consistent when they clearly state what is to be accomplished when it will be accomplished how its accomplishment will be measured

This helps in effectively monitoring each activity and theprogress across several interrelated activities.Measurable objectives make misunderstanding less likely amonginterdependent managers who must act on the plans.It is easier to quantify objectives of line units (e.g. production)

than staff areas (e.g. personal).Difficulties in quantifying objectives often can be overcome byinitially focusing on measurable activity and then identifyingmeasurable outcomes.


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2 . P rioritiesSome annual objectives would require higher priority either

because of the timing considerations or because of theireffect on a strategy's success. E.g. new product developmentmay be more important than promotional activities

Not prioritizing will lead to conflicting assumptions which mayinhibit progress towards strategic effectiveness.The various ways on which priorities can be established are:1. Ranking method2 . Terms such as primary, top and secondary can be used.3. Objectives can be given weights (e.g. 0 to 100 percent) to establish

and communicate the relative priority.


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3 . L inked to long-term objectivesShort-term objectives can add specificity in identifying what

must be accomplished to achieve long-term objective. e.g.Adobe systems has an long-term objective of achieving fivepercent of its total revenue to come from India in the next 5years. T o achieve this it can have a series of short-termobjectives like focusing on particular products.The link between the short-term and long-term objectivesshould resemble cascades through the firm, from basic long-term objectives to specific short-term objectives in keyoperational areas.

The cascading effect provides a clear reference forcommunications and negotiation, which may be necessary tointegrate and coordinate objectives and activities at theoperating level.


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4. Acceptable5. Flexible

6. Suitable7. Motivating8. Understandable9. Achievable


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The value-added benefits of short-term objectives and actionplans

Short-term objectives and action plans give the operationalpersonnel a better understanding of their roles in the firm'smission.

Such clarity of purpose can be a major force in helping thefirm in using its "people assets" more effectively.If the managers are part of the process of deciding the short-term objectives then it becomes a valid basis for addressingand accommodating conflicting concerns that might interferewith strategic effectiveness.

Meetings to set short-term objectives and action plansbecome the forum for raising and resolving conflicts betweenstrategic intentions and operating realities.


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They provide a basis for strategic control by providing clear,measurable basis for developing budgets, schedules, triggerpoints and other mechanisms for controlling andimplementing of strategy.They can be powerful motivators for employees when theobjectives are linked to the firm's reward structure.


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Developing Functional StrategiesFunctional strategies or functional tactics are the key, routine

activities that must be undertaken in each functional area likemarketing, finance, production, R&D, and HRM to provide thebusiness's products and services.

They are actions designed to accomplish specific short-termobjectives.Every activity in the value chain executes functional tacticsthat help to accomplish strategic objectives.


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Difference between Business strategies and functional tacticsThey are different in three fundamental ways:

1. Time horizon2 . Specificity3. Participants who develop them


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Advantages of creating policies that empower1. Policies establish indirect control over independent action by

clearly stating how things are to be done now. By definingdiscretion, policies in effect control decisions yet empoweremployees to conduct activities without direct interventionby top management. E.g. policies about defaults helpcustomer service personnel in credit card companies

2 . Policies promote uniform handling of similar activities. Thishelps reduce friction arising from favoritism, discriminationand disparate handling of common functions. E.g. purchasepolicies help in best deals for companies

3. Policies ensure quicker decisions by standardizing answers topreviously answered questions that otherwise would recurand be pushed up the management hierarchy again andagain. E.g. policies on replacement of defective products


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4. Policies institutionalize basic aspects of organization behavior.This minimizes conflicting practices and establish consistentpatterns of action in attempts to make strategy work. E.g. dresscode and timing for different departments help in discipline inthe institution

5. Policies reduce uncertainty in repetitive and day-to-daydecision making, thereby providing a necessary foundation for

coordinated, efficient efforts and freeing operating personnel toact. E.g. policies on travel helps salesmen to get their travel billscleared from accounts department

6. Policies counteract resistance to or rejection of chosenstrategies by organization members. When major strategicchange is undertaken, unambiguous operating policies clarifywhat is expected and facilitate acceptance. E.g. policies on worktimings and attendance help organizations avoid resistancefrom employees


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7. Policies offer predetermined answers to routine problems.This greatly expedites dealing with problems. E.g. policies oninventory to be maintained helps in routine reordering

8. Policies afford managers a mechanism for avoiding hasty andill-conceived decisions in changing operations. E.g. policieson overtime by employees help managers to take wellthought out decisions

9. Policies are directives designed to guide the thinking,decisions and actions of managers and their subordinates inimplementing a firm's strategy. E.g. Zero defectmanufacturing at Toyota

10. Policies increase managerial effectiveness by standardizingmany routine decisions and clarifying the discretionmanagers and subordinates can exercise in implementingfunctional tactics. E.g. scheduled maintenance of machines


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Policies empowers operating personnelPolicies are important to empower the operating personnel.

Empowering helps in serving the customer better thusachieving the objective of customer satisfaction.e.g. GE empowers its appliance repair personnel to takedecisions about warranty credits, Delta Airlines empowers itscustomer service personnel to take decisions on ticket pricingEmpowerment can be achieved through:

Training Self-managed work groups e.g. quality circles Eliminating whole level of management e.g. Toyota empowers the

employees to stop production if any quality problem exists Aggressive use of automation e.g. online booking in deciding ticket

prices


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Developing policiesIt is necessary to ensure that decision making is consistent

with the mission, strategy, and tactics of the business, whileat the same time allowing considerable latitude to operatingpersonnel. E.g. specifying the maximum discount that can begiven by a sales person

Policies must to derived from functional tactics (sometimesfrom corporate or business strategies) with the key purpose of aiding strategy execution. E.g. sales manage may beauthorized to give free samples of products to help inimproving market share

Policies can be externally imposed or internally derived. e.g.policies regarding environment usage are developed incompliance with external (government ) requirements. Pricingpolicies are internally derived.


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Characteristics of policiesPolicies may be written and formal or unwritten and informal.

Informal, unwritten policies are usually associated with astrategic need for competitive secrecy.

Formal, written policies have the following advantages:1. They require managers to think through the policy's meaning,

content and intended use.2 . They reduce misunderstanding.3. They make equitable and consistent treatment of problems more

likely.4. They ensure unalterable transmission of policies.5. They communicate the authorization or sanction of policies more

clearly.6. They supply a convenient and authoritative reference.7. They systematically enhance indirect control and organization wide

coordination of the key purposes of policies.


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The three basic levers through which the managers canimplement strategy:

1. Structure - the basic way in which the firm's differentactivities are organized.

2 . Leadership - the need for direction and building a team toexecute the strategy.

3. Culture - the shared values that create the norms of individual behavior.


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Structuring an effective organization


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Three fundamental trends are driving decisions about theeffective organizational structures in the twenty-first century:

1. Globalization2 . The Internet3. Speed of decision making


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G lobalizationOver two-thirds of all industries either operate globally (e.g.computers) or will do so soon.The need for global coordination and innovation is forcingconstant experimentation and adjustment to get the right mixof local initiative, information flow, leadership and corporateculture.

Today's globalization - when raw materials are taken fromaround the world, manufacturing is done at most efficientplaces, engineering happens where the right talent is available- the ramifications for organization structures are revolutionary.

e.g. Philips regularly moves its headquarters for different businessesto the "high voltage" markets.

At Ericson, top managers scrutinize compensation schemes to makemanagers pay attention to global performance while also attendingto their local operations.


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The InternetInternet allows anybody in the business to access informationinstantaneously.

It allows the global enterprise with different functions, officesand activities dispersed around the world to be seamlesslyconnected so that far-flung customers, employees andsuppliers can work together in real time.

Coordination, communication and decision-making functionsare accomplished real fast.Traditional organizational structures become slow, inefficientand noncompetitive.


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Speed of decision makingDigitizing of activities like employee benefits, accounts receivables,payroll can result in cost saving and improvements in speed.Leading edge technologies will enable employees throughout theorganization to seize opportunity as it arises.These technologies will allow all people involved with theenterprise and located at different places to coordinate to develop

markets, new products, and new processes.Globalization of business creates a potential situation whichincreases the sheer velocity of decisions that have to be made. Thiscreates a challenge for the traditional hierarchical organization.

e.g. Cisco may be negotiating 50-60 alliances at one time due to the

nature of its diverse operations. The speed at which thesenegotiations must be conducted and decisions made require a simpleand accommodating organizational structure, lest the opportunity belost.


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Useful guidelines and approaches to arrive at a suitableorganizational structure

1. Match structure to strategy e.g. software companies have differentheads for different verticals as their strategy is to focus on verticals

2 . Balance the demands for control/differentiation with the need forcoordination/integration e.g. even when focusing on differentverticals software companies offer integrated solutions tocustomers which needs coordination of different verticals

3. Restructure to emphasize and support strategically criticalactivities e.g. Infosys hived off its BPO for better focus

4. Reengineer strategic business processes5. Downsize and self-manage: Force decisions to operating level e.g.

regional marketing managers made to take decision on customersto target


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6. Allow multiple structures to operate simultaneously within theorganization to accommodate products, geography, innovation andcustomers e.g. vertical heads and geographic heads structure used

by software companies7. Take advantage of being a virtual organization e.g. Intel uses its

operations in different for its chip design8. Web-based organizations e.g. online companies like shaadi.com

have worldwide customers9. Remove structural barriers and create a boundaryless,

ambidextrous learning organization10. Redefine the role of corporate headquarters from control to

support and coordination


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M atch structure to strategyThe conclusion of a strategic management research thatexamined the evolution of a business over time and how thedegree of diversification from a firm's core business affectedthe choice of organizational structure are as follows:

1. A single-product firm or single dominant business firmshould employ a functional structure e.g. Karnataka milk

federation This structure allows for strong task focus through an emphasis on

specialization and efficiency, while providing for adequate controlsthrough centralized review and decision making.


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2 . A firm in several lines of business that are somehow relatedshould employ a multidivisional structure. e.g. DRDO Closely related divisions should be combined into groups within this

structure. When synergies are possible within such a group, the appropriate

location for decision making is at the group level, with less role forcorporate level staff.

The greater the degree of diversity across the firm's businesses, the

greater should be the extent to which the power of staff and decisionmaking authority is lodged within the division.


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3. A firm in several unrelated lines of business should beorganized into strategic business units e.g. ADAG group Although the strategic business unit structure resembles the

multidivisional structure, there are significant differences between thetwo.

With a strategic business unit structure finance, accounting, planning,legal and related activities should be centralized at the corporateoffice.

Since there are no synergies across the firm's businesses, thecorporate office serves largely as a capital allocation and controlmechanism.

All operational and business level strategic plans are delegated to thestrategic business units.

4. Early achievement of a strategy-structure fit can be acompetitive advantage If the strategy changes, it will lead to change in the structure.


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C hallenges of this approachResistance to changing the existing structure - "the way we dothings here"- is a major challenge to new strategies.As firms move from single product/service to multipleproduct/service, the reality that it requires differentstructures should be accommodated when implementinggrowth strategies.

Many firms have found value in multiple structures, operatingsimultaneously in their company.


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B alance the demands for control/differentiation with the needfor coordination/integrationSpecialization of work and effort allows a unit to developgreater expertise, focus and efficiency.

Firm's divide different activities into logical, commongroupings like sales, operations so that each set of activity canbe done most efficiently.

Dividing activities in this manner, sometimes called"differentiation", is an important structural decision.These separate activities however need to be coordinated andintegrated back together as a whole so the business functions

effectively.


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Demand for control and the coordination needs differ acrossdifferent types of businesses and strategic situations.

e.g. Coca-Cola changing in order to provide greatercoordination/integration in local markets where local managersindependently launch new flavored drinks.

GE changed its Medical Systems structure from allowing local productmanagers handle everything from product design to marketing to anew structure where the local managers and customers will give input

about product requirements to a centralized team who would designproducts for worldwide applications.


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R estructure to emphasize and support strategically criticalactivitiesRestructuring trend is the notion that some activities within abusiness's value chain are more critical to the success of thebusiness's strategy than others.During 1990s reengineering, downsizing and outsourcingwere prominent tools for strategists restructuring their

organizations. e.g. Wal-Mart's organizational structure is designed to ensure that it's

impressive logistics and purchasing competitive advantage operateflawlessly.

Cola-Cola emphasizes the importance of distribution activities,

advertising, and retail support to its bottlers in its organizationstructure.


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Two considerations are critical when a restructuring isundertaken to emphasize and support strategically criticalactivities.

1. Managers need to make the strategically relevant activitiesthe central building block for designing organizationstructure. E.g. off-shore model used by most Indian softwarecompanies focus on software development in India as central

to their organizational structure Those activities should be identified and separated as much as

possible into self-contained parts of the organization. Then the remaining structure must be designed so as to ensure

timely integration with other parts of the organization. It is usually found in functionally organized organizations that support

activities like finance, engineering and information processing oftenare obsessed with performing their own tasks more thenemphasizing the key results of the business as a whole.


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2 . The second consideration is to design the organizationstructure so that it helps coordinate and integrate thesupport activities to

maximize their support of strategy-critical primary activities does so in a way to minimize the costs for support activities and the

time spent on internal coordination.


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R eengineer strategic business processesBusiness Process Reengineering (BPR) is one of the mostpopular methods by which organizations worldwide areundergoing restructuring efforts to remain competitive.

BPR is intended to place the decision making authority that ismost relevant to the customer closer to the customer, in orderto make the firm more responsive to the needs of the

customer.Following are the steps pursued by companies that havesuccessfully reengineered their operations aroundstrategically critical business processes:

1. Develop a flowchart of the total business process, including the itsinterfaces with other value chain activities.2 . Try to simplify the process first, eliminating tasks and steps where

possible and analyzing how to streamline the performance of whatremains.


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3. Determine which part of the process can be automated (those thatare repetitive, time-consuming and require little thought or decision);consider introducing advanced technologies that can be upgraded toachieve next-generation capability and provide a basis for furtherproductivity gains down the road.

4. Evaluate each activity in the process to determine whether it isstrategy-critical or not. Strategy critical activities are candidates forbenchmarking to achieve best-in-industry performance status.

5. Weigh the pros and cons of outsourcing activities that are noncriticalor those that contribute little to organizational capabilities and corecompetencies.

6. Design a structure for performing the activities that remain;reorganize the personnel and groups who perform these activitiesinto new structure.


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D ownsize and self-manage: Force decisions to operating levelDownsizing is eliminating the number of employees, particularly middle-management in a company.

Scrutiny of the value added by the middle level with continuous improvementin information technology has helped downsizing.

One of the outcomes of downsizing was increased self-management atoperating level of the company.

Downsizing resulted in more work.

Spans of control have become larger due to information technology, running"lean and mean" and delegation to lower levels, allowing major managementdecisions to be made at operating levels.

This delegation, also known as empowerment, is accomplished throughconcepts like self-managed work groups, reengineering and automation.There is effort to create distinct businesses within business, conceiving abusiness as a confederation of many "small" businesses. E.g. creating strategicbusiness units within business in companies like Axis bank

Empowerment eliminates up to half the levels of management previouslyexisting in an organization structure.


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A llow multiple structures to operate simultaneously within theorganization to accommodate products, geography,innovation and customersThe Matrix organization was one of the early structure attemptsto do this so that skills and resources could be better assignedand used within a large company.People typically had a permanent assignment to a certain

organizational unit, usually a functional or staff department, yetthey were also frequently assigned o work in another project oractivity at the same time.The dual chains of command proved problematic for someorganizations, particularly in an international contextcomplicated by distance, language, time and culture.The product-team structure emerged as an alternative to thematrix approach to simply the focus on a narrow butstrategically important product, market, customer or innovation.


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The product-team structure assigns functional managers andspecialists (e.g. finance, marketing) to a new product, project, orprocess team that is empowered to make major decisions about their

product. E.g. teams created for creating Scorpio at Mahindra and Nanoat Tata MotorsThe team is usually created at the inception of the product idea andthey stay with it indefinitely if it becomes a viable business.Instead of being assigned on a temporary basis, as in the matrix

structure, team members are assigned permanently to that team inmost cases.The coordination cost is much lower and since every function isrepresented it usually reduces the number of management levelsabove the level needed to approve the team decisions.

The team generates cross functional understanding that irons outearly product or process design problems.It speeds up innovation and customer responsiveness becauseauthority rests with the team allowing decisions to be made quickly.


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Take advantage of being a virtual organization e.g. small firmsdoing business with each otherVirtual organization is defined as a temporary network of independentcompanies - suppliers, customers, subcontractors, even competitors -linked primarily by information technology to share skills, access tomarkets and costs.Outsourcing along with strategic alliances are integral in making avirtual organization work.

Outsourcing was an early driving force for the virtual organizationtrend.Outsourcing was a result of BRP which found many processes whichwere not adding value and could be done more efficiently outside theorganization.Strategic alliances with suppliers, partners, contractors and otherprovides help in providing value to the customer.They help in taking advantage of opportunities quickly without tying upmoney.


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W eb-based organizations e.g. Google, eBayWeb-based organizations use the web as in internet but they arealso organizations who are web like shaped in their structure.We have the pyramid and the web represent the vast change instructures.The pyramid structures have been eliminating layers to almosthaving an omnipotent CEO at its apex.

A web structured organization is flat, intricately woven form thatlinks partners, employees, external contractors, suppliers andcustomers in various collaborations.The players will grow more and more interdependent.

The future organizations will be internet-driven designed todeliver speed, customer service-enhanced products to savvycustomers from an integrated virtual web structure pullingtogether abundant, world-class resources digitally.


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Managing this intricate network of partners, spin-off enterprises, contractors and freelancers will be as importantas managing internal operations.An outsider will not be able to make out where an individualfirm begins and where it ends.


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R emove structural barriers and create a boundaryless,ambidextrous learning organizationThe evolution of virtual organization structure as an integralmechanism through which managers implement strategy has broughtthe focus on the role knowledge plays in this process.Knowledge may be in terms of know-how, understanding the customeror technology.Managers will become knowledge "nodes" through which intricatenetwork of players are constantly coordinated to bring togetherrelevant know-how and successful action.Boundaryless organizations are those that are able to generateknowledge, share knowledge and get knowledge to the places it couldbe best used to provide superior value.Internal divisions were being erased to enable people to move acrossfunctions, businesses and geographic boundaries .Organizations should encourage learning and sharing information.They should also be very flexible.


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R edefine the role of corporate headquarters from control tosupport and coordinationGlobally engaged multinationals are changing the role of corporate headquarters from one of control, resourceallocation and performance monitoring to one of coordinatorof linkages across multiple businesses, supporter and enablerof innovation and synergy.

One way to do this is to create a executive council having topmanagers from each businesses which will serve as a criticalforum for corporate decisions, discussions and analysis.


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Primary organizational structures and their strategies - Relatedpros and cons

The five basic primary structures are:

1. Functional2 . Geographic3. Divisional or Strategic Business Unit4. Matrix5. Product Team


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Functional organizational structureIt is predominant in firms with a single or narrow product focus.It provides well-defined skills and areas of specialization to buildcompetitive advantages in providing products or services.Dividing tasks into functional specialties enables the personnelof these firms to concentrate on only one aspect of thenecessary work.

This also allows use of latest technical skills and develops a highlevel of efficiency.Product, customer, or technology considerations determine theidentity of the parts in a functional structure.

e.g. A hotel may be organized around housekeeping, the front desk,maintenance, restaurant operations, reservations and sales,accounting and personnel.


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ChallengesEffective coordination of the functional units.

The narrow technical expertise achieved throughspecialization can lead to limited perspectives and todifferences in the priorities of the functional units.Specialists may see the firm' strategic issues primarily as"marketing" or "production" problems.

Integrating devices (such as project teams or planningcommittees) are frequently used in functionally organizedfirms to enhance coordination and to facilitate understandingacross functional areas.


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Geographic organizational structureStructuring by geographic areas is required to accommodatethe different approaches needed in different geographic areasin producing, providing and selling products.e.g. Holiday Inn is organized this way as differences exist intraveling requirements, lodging regulations and customer mix.


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Divisional or Strategic Business Unit structure e.g. HULWhen a firm diversifies its product/service lines, utilizesunrelated market channels or begins to serve heterogeneouscustomer groups, a functional structure becomes inadequate.A new structure is often necessary to meet the increasedcoordination and decision-making requirements that resultfrom increased diversity and size.

A divisional or strategic business unit (SBU) structure is themost suitable form.A SBU structure allows management to delegate authority forthe strategic management of distinct business entities - the

SBU.A division/SBU is usually given profit responsibility, whichfacilitates accurate assessment of profit and loss.


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Matrix organizational structureAs organizations grow and diversify into numerous products andprojects there arises a need for providing skills and resources where

and when they are most vital.People and other r resources have to be put temporarily in productdevelopment and projects as and when they are needed.Matrix is a structure where subordinates are assigned both to a basicfunctional area and to a project or product manager.

It provides dual channels of authority, performance responsibility,evaluation and control.This for of structure is intended to make the best use of talentedpeople within a firm by combining the advantage of functionalspecialization and product-project specialization.Matrix structure increases the number of middle managers whoexercise general management responsibilities, thus overcoming a keydeficiency of a functional structure while at the same time retainingthe advantages of functional structure.


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ChallengesIt is difficult to implement because of the dual chain of command.

Negotiating shared responsibilities, use of resources adpriorities can create misunderstanding among subordinates.To avoid these deficiencies, some firms are accomplishingparticular strategic tasks, by means of a "temporary" or

"flexible" overlay structure.This overlay structure is meant to take temporary advantageof a matrix-type while preserving an underlying divisionalstructure


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Organizational LeadershipWhy is leadership important?

The organizations of the twenty first century will increasinglydepend on the skills of the CEO and a host of subordinateleaders.The accelerated pace and complexity of business will continueto force corporations to push authority down through

increasingly horizontal management structures.Organization leadership involves action on two fronts.

1. Guiding the organization to deal with constant change.This requires CEOs who embrace change and do so by clarifying strategic intent.The strategic intent had to build their organization and shape their culture to fitwith opportunities and challenges change affords.

2 . Providing the management the skill to cope with ramifications of constant change.

This means identifying and supplying the organization with operating managersprepared to provide operational leadership and vision.


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Strategic leadership: Embracing changeThe blending of telecommunications, computers and internetcombined with globalization has increased the pace of changeexponentially.Change has become an integral part of what leaders andmanagers deal with daily.The leadership challenge is to galvanize commitment among

people within an organization as well as stake holders outsidethe organization to embrace change and implement strategiesintended to position the organization to do so.

This can be done through three interrelated activities:

1. Clarifying strategic intent2 . Building an organization

3. Shaping organizational culture


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Clarifying strategic intentLeaders help stakeholders embrace change by setting forth aclear vision of where the business's strategy needs to take theorganization.The strategic intent will be an articulation of what thecompany must become to establish and sustain globalleadership.

e.g. Former CEO of IBM, Lou Gerstner, understood that many people inIBM were focusing on the war that was lost, meaning the PC and PCsoftware. He understood the importance for IBM to become a leaderin "network-centric computing". He aggressively instilled network-centric computing as the strategic intent for IBM in the next decade.

For P&G its CEOA

lanA

lley had the strategic intent of its R&D focusingon outside opportunities rather than being inward looking.Outsourcing non-core activities though it had been well integratedvertically.


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Building an organizationLeaders spend considerable time shaping and refining theirorganizational structure and making it functional effectively toaccomplish strategic intent.Since embracing change often involves overcoming resistanceto change, leaders have to address a few concerns like:

ensuring a common understanding about organizational priorities

clarifying responsibilities among managers and organizational units. empowering newer managers and pushing authority lower in the

organization. Uncovering and remedying problems in coordination and

communication across the organization. gaining the personal commitment to a shared vision from managers

throughout the organization. keeping closely connected with "what's going on in the organization

and with its customers".


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Shaping organizational cultureIt is well known that values and beliefs shared throughout theirorganization will shape how the work of an organization is done.

Reshaping the organization culture is very important when changes areembraced in an organization.Leaders use reward systems and structure among other means toshape the organization's culture.

e.g. Traveller's Insurance Co. changed its reward system from salaryplus bonus to a system where rewards involved substantial cashbonuses and stock options. This improved the sales figures of thecompany.

The management support is needed for all the activities taken up bythe leadership.

Leaders look to managers as a source of leadership. They are expectedto accept risk and cope with the complexity that change brings about.Assignment of key managers is another leadership tool.


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R ecruiting and developing talented operational leadershipAs business get complex the decision making will be pushed down theorganization level.

The new decision makers will be global managers, change agents,strategists, motivators, strategic decision-makers, innovators andcollaborators.


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There are four characteristics, referred to as emotional intelligence,which are necessary to get the competencies referred in the previousdiagram.

1. Self-awareness It is the ability to read and understand one's emotions and assess one's

strengths and weaknesses, which comes from the confidence and positiveself-worth.

2 . Self management

In terms of control, integrity, conscientiousness, initiative and achievementoriented.

3. Social awareness In relation to sensing other's emotions (empathy). reading the organization

(organizational awareness) and recognizing customer's needs (serviceorientation).

4. Social skills In relation to influencing and inspiring others; communicating, collaborating

and building relationships with others; and managing change and conflict.


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Organizational CultureOrganizational culture is a set of important beliefs and valuesthat members of an organization share in common.

It is intangible, yet ever-present theme that providesmeaning, direction and the basis for action.It influences the opinions of members.The member becomes fundamentally committed to thebeliefs and values when he or she internalizes them.Beliefs and values are shared through internalization amongthe organization's individual members.


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Some of the ways to manage and create distinct culture are:Emphasize key themes or dominant values e.g. ethics atMindTree

Encourage dissemination of stories and legends about corevalues e.g. customer satisfaction at ToyotaInstitutionalize practices that systematically reinforce desiredbeliefs and values e.g. innovation at 3M and GoogleAdopt some very common themes in their own unique waysManaging organizational culture in a global organizationManaging the strategy-culture relationship

Link to mission e.g. IBM changing its business to network centric Maximize synergy e.g. Holiday Inn focusing on Manage around the culture e.g. Bajaj setting up new plant for

manufacturing bikes Reformulate the strategy or culture e.g. At&T and Merrill Lynch


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Emphasize key themes or dominant valuesLeaders should nurture key themes or dominant values (likequality, differentiation, cost advantage or speed) within theirorganization that reinforce competitive advantage they seekto maintain or build. E.g. FedEx for speed

The emphasis can be through wording in advertisements, allinternal communications, and in the new vocabulary used by

company personnel to explain "who we are". e.g. P&G key theme is quality, Du Pont's safety orientation - a report

on every accident must be on the chairman's desk within 2 4 hours -has resulted in a safety record that was 17 times better than thechemical industry average and 68 times better than the all-

manufacturing average, Wipro is focused on doing business ethically,


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Encourage dissemination of stories and legends about corevaluesCompanies with strong cultures are enthusiastic collectorsand tellers of stories, anecdotes and legends in support of basic beliefs.

These stories are very important in developing anorganizational culture, because organization members identify

strongly with them and come to share the beliefs and valuesthey share.

e.g. Reliance takes pride in the returns they have been offering to theirinvestors at all times, Frito-Lay's zealous emphasis on customer serviceis reflected in frequent stories about potato chips route salespeople

who have slogged through mud, hail, snow and rain to uphold the 99.5percent service level to customers, 3M tells innovation stories, P&Gand J&J tell quality stories


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Institutionalize practices that systematically reinforce desiredbeliefs and valuesCompanies with strong cultures take the process of shapingtheir beliefs and values very seriously.

The strategies of these companies is strongly influenced bythe beliefs and values.

E.g. Google encourages innovation where 2 0% of an employees office

time can be dedicated to her innovative projects e.g. McDonald's has a yearly contest to determine the best hamburger

cooker in its chain. First, there is a competition to determine the besthamburger cooker in each store; next, the store winners compete inregional championships; finally, the regional winners compete in the"All-American" contest. The winners, who are widely publicizedthroughout the company, get trophies and All-American patches towear on their McDonald's uniform


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A dopt some very common themes in their own unique waysThe most typical beliefs that shape organizational culture include:

a belief in being the best e.g. Intel a belief in superior quality and service e.g. Toyota a belief in the importance of people as individuals and a faith in their ability to

make a strong contribution e.g. Tata a belief in the importance of the details of execution, the nuts and bolts of

doing the job well e.g. Reliance

a belief that customers should reign supreme e.g. Honda a belief in inspiring people to do their best, whatever their ability a belief in the importance of informal communication a belief that growth and profits are essential to a company's well-being

Every company implements these beliefs differently and every companyhas a distinct culture which no other company can copy successfully.Stronger companies direct their culture towards customers and markets,whereas weak companies focus on internal politics.


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M anaging organizational culture in a global organizationOrganizations must recognize cultural diversity. E.g. Infosys

Social norms create differences across national boundariesthat influence how people interact.Values and attitudes about similar circumstances also varyfrom country to country. e.g. individualism is central to aNorth American's value structure, whereas the need for groupdominate the value structure of people in JapanReligion is yet another source of cultural differences.Education plays an important role in the development of different cultures across countries. Leaders should be

sensitive to global differences in approaches to education tomake sure their cultural education efforts are effective.


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M anaging the strategy-culture relationshipManagers understand that key components of the firm likestructure, staff, systems, people and style influence the way inwhich important managerial tasks are executed.

Implementation of a new strategy is largely concerned withadjustments in these components to accommodate theperceived needs of the strategy.

Managing the strategy-culture relationship requires:1. Sensitivity to the interaction between the changes necessary

to implement the new strategy2 . The compatibility or "fit" between those changes and the

firm's culture.


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Link to missionLet us consider a situation (like cell 1 in fig) where a firm isfaced with the following situation:

implementing a strategy requires changes in many cultural factors but where most of the changes are highly compatible with the existing

culture

Such firms are in a great advantage as they can pursue a strategy

requiring major changes but still benefit from the power of cultural reinforcement.

Four important considerations should be emphasized by suchfirms:

1. Key changes should be visibly linked to the basic companymission- Since the company mission provides a broad official foundation for the organization

culture, top executives should use all available internal and external forums to reinforcethe message that the changes are inextricably linked to it.

h h ld b l d h f l


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2 . Emphasis should be placed on the use of existing personnelwhere possible to fill positions created to implement the newstrategy Existing personnel embody the shared values and norms that help

ensure cultural compatibility as major changes are implemented.

3. Care should be taken if adjustments in the reward system areneeded

These adjustments should be consistent with the current rewardsystem. This ensures current and future reward systems approachesare related and changes in the reward system are justified.

4. Key attention should be paid to the changes that are leastcompatible with the current culture, so current norms are

not disturbed. A firm may choose to outsource an important step in a production

process because that step would be incompatible with the currentculture.

IBM' i i h I b d k


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e.g. IBM's strategy in entering the Internet based market. Serving this radically different market required numerous

organizational changes. To maintain maximum compatibility with its existing culture, IBM put

considerable external and internal efforts to link its new Internet focuswith its long-standing mission.

Numerous messages relating the network-centric computing to IBM'stradition of top quality service appeared on television and in

magazines and every IBM manager was encouraged to go online. Where feasible, IBM personnel were used to fill the new positions

created to implement the strategy. But because the software requirements were not compatible with

IBM's current operations, virtually all its initial efforts were linked to

newly acquired Lotus Notes Software.

M i i


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Maximize synergyConsider a situation (like in cell 2 in fig) where a firm needs:

few organizational changes to implement its new strategy those changes are potentially quite compatible with its current culture

A firm in this situation should emphasize two broad themes:1. Take advantage of the situation to reinforce and solidify the

current culture2 . Use this time of relative stability to remove organizational

roadblocks to the desired culture

H lid I ' i i bli


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e.g. Holiday Inn's move into casino gambling Holiday Inn saw casinos as resort locations requiring lodging, dining

and gambling/entertainment services It only had to incorporate gambling/entertainment expertise into its

management team, which was already capable of managing thelodging and dining requirements

It sold the change internally as completely compatible with itsmission of providing high-quality accommodations for business and

leisure travelers. The resignation of its CEO removed an organizational roadblock,

legitimizing a culture that placed its highest priority on quality serviceto the middle-to-upper-income business traveler, rather than aculture that placed its highest priority on family-oriented service

M d th lt


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M anage around the cultureConsider a situation (like in cell 3 in fig) where a firm needs:

a few major organizational changes to implement its new strategy these changes are potentially inconsistent with the firm's current

organizational culture

There are various ways in which a firm can manage around theculture:

Create a separate firm or division e.g. Bajaj set-up a new plant to manufacture its bikes which had a

different culture from the plant that was manufacturing scooters

Use task force, teams or program coordinators e.g. Mahindra set-up a team to conceive, design and build Scorpio

Subcontract e.g. HDFC website is subcontracted to be designed and maintained by

an third party

b i g i t id


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bring in an outsider e.g. IBM brought Louis Gerstner to bring a change in its culture

sell out e.g. Karnataka government sold NGEF as it could change its work

culture

R f l t th t t g lt


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R eformulate the strategy or cultureConsider a situation (like in cell 4 in fig) where a firm faces avery difficult challenge in managing the strategy-culturerelationship.A firm in this situation needs to make organizational changesthat are incompatible with its current, usually entrenched,values and norms.

The firm needs to ask if formulation of the strategy is appropriate It should ask if all the organizational changes really necessary Should the firm expect that the changes would be accepted

successfully

If the answers to the above questions is "yes" then massivechanges in management personnel are often necessary.If the answer to the above questions is "no" then reformulatethe strategy to be more compatible with the existing culture.

e g At&T offered early retirement to over 2 0 000 managers as


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e.g. At&T offered early retirement to over 2 0,000 managers aspart of a massive recreation of its culture to go along withmajor strategic changes.

Merrill Lynch wanted to pursue a product developmentstrategy in its brokerage business to be competitive in thederegulated financial services industry. It needs a change inthe culture where people who were selling services had to sell

products. This move was resisted by the brokerage employeesand Merrill Lynch had to refocus its brokerage more narrowlyon basic client investment needs.

C t S i l R ibilit


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Corporate Social ResponsibilityCorporate Social Responsibility is the idea that a business has aduty to serve society in general as well as the financial interestsof its stockholders.While some stakeholders like customers, society andgovernment expect organizations to give priority to general goodahead of the organization's good; the insiders expect to balance

the claims of outsiders in a way that protects the company'smission. E.g. water pollution by textile millsThe insiders also feel that the tax money given by organizationsshould be good enough as a social responsibility.The issues of CSR are numerous, complex and contingent onspecific situations.Each firm regardless of its size must decide how to meet itsperceived social responsibility.

Strategic managers can consider four types of social


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Strategic managers can consider four types of socialcommitments which will help them to understand the natureand range of social responsibilities and plan.1. Economic responsibilities2 . Legal responsibilities3. Ethical responsibilities4. Discretionary responsibilities

Economic responsibilities It is the most basic responsibility of a business. It requires managers to maximize profits whenever possible. It is the essential responsibility of business to be providing goods and

services to society at a reasonable cost. The company becomes socially responsible by providing productive

jobs for its workforce and tax payment for the state and centralgovernments.

Legal responsibilities


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Legal responsibilities It reflects the firm's obligations to comply with the laws that regulate

business activities.

The consumer and environmental movements were helpful in laws thatgovern business in the areas of pollution control and consumer safety.

Setting up consumer courts, printing of MRP, quantity, date of manufacture and date of expiry are results of consumer movement.

Protection of environmentally sensitive areas by not allowing any industryto be set up is a result of the environmental movement.

Ethical responsibilities It reflects the company's notion of right and proper business behavior. They are obligations that transcend legal requirements. Firms are expected, but not required, to behave ethically. Some actions that are legal might be considered unethical. e.g. selling of

cigarettes is legal but is considered unethical by many

D iscretionary responsibilities


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D iscretionary responsibilities These are responsibilities that are voluntarily assumed by a business

organization. They include public relations activities

Through public relations activities managers attempt to enhance the image of thecompanies products and services by supporting worth y causes. E.g. sponsoringmarathons to build health consciousnessThis form of discretionary responsibility has a self-serving dimension.

good citizenshipCompanies that adopt the good citizenship approach activity support ongoingcharities or issues in the public interest. E.g. Colgate collaborates with ID A for zerocavity

full corporate social responsibility.A

commitment to full corporate responsibility requires strategic managers to attacksocial problems with the same zeal in which they attach business problems. E.g.Green building by Godrej, green initiatives taken by ITC

Corporate Social Responsibility has become a priority to


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Corporate Social Responsibility has become a priority tocompanies due to three broad trends:

1. The resurgence of environmentalism2 . Increasing buyer power3. Globalization of business

Limitations of CSR strategies


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Limitations of CSR strategiesResearch suggests that embedding social responsibility andsustainability commitments in core strategies may beunrealistic for largest and more established corporations.Larger companies must move beyond the easy options of charitable donations but also steer clear of over reachingcommitments.

Companies need to review their overall strategy to CSR as animportant part of their overall strategy but not let thecommitment obscure their broad strategic business goals.CSR can also run afoul of the skeptics with serious

ramifications for reputation. e.g. Nike, despite its best efforts has been on the defensive in trying to

redeem its reputation.

Future of CSR


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Future of CSRIt is an irreversible part of the corporate fabric.It can confirm significant benefits in terms of

corporate reputation hiring motivation retention building valuable partnerships

Management Ethics


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Management EthicsEthics refers to the moral principles that reflect society'sbeliefs about the actions of an individual or a group that areright or wrong.The values of one individual, group or society may be at oddswith the values of another individual, group or society.

Approaches to ethicsThere are three fundamental ethical approaches forexecutives to consider

1. The utilitarian approach2 . The moral rights approach3. Social justice approach

The utilitarian approach


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he utilitarian approachManagers who adopt utilitarian approach judge the effects of a particular action on the people directly involved, in terms of what provides the greatest good for the greatest number of people.

This approach focuses on actions, rather than on the motivesbehind the actions.

If positive results outweigh negative results, the managertaking this approach will go ahead with the action.That some people might be adversely affected by the action isaccepted as inevitable.

The moral rights approach


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he moral rights approachManagers who follow this approach judge whether decisionsand actions are in keeping with the maintenance of fundamental individual and group rights and privileges.It includes the rights of human beings to life and safety, astandard of truthfulness , privacy, freedom of expression, andprivate property.

Social justice approach


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Social justice approachManagers who take this approach judge how consistent actions arewith equity, fairness, and impartiality in the distribution of rewards

and costs among individuals and groups.These ideas stem from two principles known as the liberty principleand the difference principle .

The liberty principle states that individuals have certain basicliberties compatible with similar liberties of other people.

The difference principle holds that social and economic inequitiesmust be addressed to achieve a more equitable distribution of goods and services.

Three implementing principles are essential to the social justice

approach: distributive-justice principle fairness principle natural-duty principle

D istributive-justice principle


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istributive justice principleAccording to this principle, individuals should not be treateddifferently on the basis of arbitrary characteristics such as race,sex, religion or national origin.

Fa irness principleThis means that employees must be expected to engage in

cooperative activities according to the rules of the company,assuming that the company rules are deemed fair.

N a tur a l-duty principle

This points to a number of general obligations, including theduty to help others who are in need or danger, the duty not tocause unnecessary suffering and the duty to comply with the

just rules of an institute.

Approaches to managing a company's ethical conduct


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pp oac es to a ag g a co pa y s et ca co ductThere are four basic forms:1. The unconcerned or nonissue approach2 . The damage control approach3. The compliance approach4. The ethical culture approach

T he unconcerned or nonissue approach


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he unconcerned or nonissue approachThis approach is prevalent at companies whose executivesare immoral and unintentionally amoral.

They believe that business ethics is a oxymoron and thatunder-the-table dealings can be good business.They believe the business of business is business, not ethicsand that if others are following unethical principles, it isacceptable to do it.These companies want profit at any cost.

The damage control approach


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g ppThis approach is favored at companies whose managers areintentionally amoral but who fear scandal and are desirous of containing any adverse fallout from claims that the company'sstrategy has unethical components.

Companies using this approach usually make someconcessions to window-dressing ethics, to prove innocence if

there is any exposure to the unethical behavior of thecompany.Although unethical practices are not endorsed, executivestook the other way when shady behavior occurs.A

t these companies employees do not operate with a strongethical context.What is preached about ethics is not followed.

The compliance approach


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p ppIn this approach light to forceful compliance is favored at

companies whose managers:

1. Lean toward being somewhat amoral but are highlyconcerned about having ethically upstanding reputations

2 . Are moral and see strong compliance methods as the bestway to impose and enforce ethical rules and high ethical

standards.

Companies that adopt a compliance mode usually do some


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p p p yor all of the following to display their commitment to ethicalconduct:

make the code of ethics a visible and regular part of communicationswith employees

implement ethics training programs appoint a chief ethics officer or ethics ombudsperson have ethics committee to give guidance on ethics matters institute formal procedures for investigating alleged ethics violations conduct ethics audits to measure and document compliance give ethics awards to employees for outstanding efforts to create an

ethical climate and improve ethical performance try to deter violations by setting up ethics hotlines for anonymous

callers to use in reporting possible violations.

Emphasis here is usually on securing broad compliance and


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p y g pmeasuring the degree to which ethical standards are upheldand observed.

The driving force stems from a desire to avoid the cost anddamage associated with is approach unethical conduct or togain favor from stakeholders for having a highly regardedreputation for ethical behavior.

The weakness of this approach is that ethics control resides inthe company's code of ethics and in the ethics compliancesystem rather than in the individual's own moral responsibilityfor ethical behavior.

The ethical culture approach


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ppA company using this approach seeks to gain employee buy-into the company's ethical standards, business principles andcorporate values.The ethical principles embraced in the company's code of ethics are seen as integral to the company's identity and waysof operating.

The top executives have to set the standard for ethicalconduct.The strategy must be ethical in all respects.Responsibilities for ethics compliance is widely dispersed

throughout all levels of management and the rank-and-file.People who follow ethical ways are recognized.

Why should company strategies be ethical?


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For the following reasons:

1. A strategy that is unethical in whole or part is morally wrong andreflects badly on the character of the company personnel involved Ethically strong managers consciously opt for strategic actions that has no

tolerance for strategies with controversial components. They walk the talk in displaying the company's stated values and living up to its

business principles and ethical standards.

2 . An ethical strategy is good business and in the self-interest of shareholders

Pursuing unethical strategies puts a company's reputation at high risk and can dolasting damage.

Rehabilitating a company's shattered reputation is time-consuming and costly. Consumers shun companies known for their shady behavior. Unethical companies have problem in recruiting and retaining talented

employees. Creditors do not like to lend to unethical companies.

Linking a company's strategy to its ethical principles and core


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valuesIf ethical standards and statements of core values are to have more

than a cosmetic role, board of directors and top executives mustwork diligently to see that they are observed in crafting thecompany's strategy and conducting every facet of the company'sbusiness.

The following questions need to be asked whenever a new strategicinitiative is taken:

1. Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be consideredethically objectable?

2. Is it apparent that this proposed action is in harmony with our corevalues? Are any conflicts or concerns evident?

Strategic initiatives that do not stand up this scrutiny are rejected.

Codes of Business ethics


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Codes of ethics help organizations to ensure consistency inthe application of ethical standards.

Cultural, societal and economic diversity in the operations of organizations provide challenges that need to be addressedthrough codes of ethics.

e.g. Nike products are manufactured by 660,000 contract

manufacturing units spread over 50 countries. It has its own code of ethics, which it calls a Code of Conduct, which is a set of ethicalprinciples intended to guide management decision making.

Trends in Codes of Ethics


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Codes of ethics have began to be coded and this has led toboth the proliferation of formal statements by companies andto their prominence among business documents.They are prominently displayed on corporate websites, annualreports and in posters on bulletin boards.Companies are adding enforcement measures to their codes.

These include: policies that are designed to guide employees on what to do if they

see violations occur sanctions that will be applied for violation including consequences on

their employment and civil and criminal charges.

Businesses are increasingly requiring all employees to sign theethics statement as a way of acknowledge that the have readand understood their obligations.

There is a trend of increased attention by companies in


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improving employee's training in understanding theirobligations under the company's code of ethics.

The objective of such training is to emphasize theconsideration of ethics during the decision making process.

e.g. MindTree gives the book defining the company's code of ethics toall its employees.


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24085211 Strategic Management Strategic Implementation

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