STRATEGIC MAGEMENT 4. Strategy implementation Features of the Hungarian firms 1.

STRATEGIC MAGEMENT 4. Strategy implementation

Features of the Hungarian firms

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Types of implementation strategies

At the time of implementation the types of corporate strategies in the US were analysed in the framework of more than 150 interviews with managers of great firms ( Farkas – de Backer). 5 main types were distinguished (in the practice however often their mix can be adopted).

1. In spite of the general recognition of the importance of a strategy only 20 % of the US managers think, that their main task is the development of this strategy. These firms are so called strategy-based ones. Their managers concentrated on the future – on the coordination of the development of the strategy and the control of its fulfilment.

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2. The main goal of some – so called HR based -strategies is the development of managerial talent and competent employees, to achieve both the firm’s objectives and the employees’ satisfaction.

Here the manager (boss) first of all aims at the creation of a team. He knows as many employees as possible personally. He always enter into conversation with them on firm’s values, decision-making and performances. He takes part in the carrier-planning and the development of the staff’s human relations.

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3. Other strategy-type is the expert based one. Here the CEO and the other managers are specialised in some areas (products, technologies etc.), in which the firm has market advantages, and they work hard to distribute their knowledge among the firm’s units, which is the base of competitiveness.

4. In some firms the manager has a box-oriented strategy. Here exact regulatory systems, strict rules, fixed processes determine the employees’ actions, and the control is an important task of managers. In the US this is often the strategy in banks .

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5. Exchange management is the fifth strategy type. It can be adopted at firms, where managers think, that a fundamental exchange (e.g. a rapid adaptation) or continuous exchanges are needed for success. So, he destroys the traditional systems and familiarize employees with the lack of the continuity.

Firms apply all of these strategies parallel (but the proportions of their application is different). The main task of all managers is to introduce first of all the type of the strategy, which suits the situation and opportunities of his firm.

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HR managementKey factors of strategies’ implementation are

always human resources (behaviour of managers, employees). Utilisation of its give a lot of tasks for the management.

1. After the plan has been accepted, it has to be presented (in a communication process) to the employees (being responsible for the realisation). They have to know the details which imply their tasks. But often the wide publication of some strategic goals is an effective method of publicity as well.

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2. Human resources strategies begin with recruitment and the selection of employees. There are many tools for these works (e.g. poster, advertisement, interviews, jury, tests, exams …).

Parkinson’s remark: effectivity of that methods is always uncertain.

3. Traditional tools of HR management are motivation and respect (fixing of salaries and bonuses, laudation or abuse, titles, rewards or penalties, promotion).

4. Participation (e.g. when the firm gives employees possibilities to influence how they do their jobs) can be also a good manner to increase productivity.

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A market leading firm has to be a learning organisation, where the staff collects new ideas systematically from their customers and suppliers etc., R&D is part of the business process and employees always change their knowledge.

5. Effective tools of the development of the intellectual power of employees are the post-graduate schools and trainings. The mobility (scholarships, exchange of posts in the firm, or between firms) helps the development of young people. In the developed economies employees have to adapt to the requirements of the long-life learning as well.

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Implementation decisionsDevelopment of a traditional production (service)

strategy can be supported by the decision-making in many questions. E.g.:

• the rational extent of the production can be decided by break-even analysis (see the next slides),

• the effective proportions of production „factors” (e.g. labour and capital) can be analysed by iso-curves (see above),

• good production scheduling can be determined by flow-charts etc. (see the third coming slides).

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Profitable extent of the productionBreak-even analysis compares the revenues and

total costs (sum of fixed and variable costs) and helps the managers determine the minimal volume from which the production can be profitable (the point at which the these functions are equal).

Variable costs are those that vary as a function of operations. Fixed costs are those that do not vary if the level of production changes. Total costs are the sum of the two mentioned.

Often planners presume that the functions of revenues and costs are linear, but sometimes a non-linear analysis is needed as well (figure).

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Linear functions Non-linear functions

Dollars Dollars

Volume of output (Q) Q

Revenues

Total costs

Break even point

loss profit

R

TC

Max. profit

Break-even points

profit

Source: own figure based on many publications

Exercise. Determination the rational proportion of the production factors by break-even analysis.

In Paris-lines KLM’s old airplanes can transport 200 passengers, one flight costs 78.200 USD (overhead) and 420 USD pro passenger. New airplanes can transport 300 passengers, the flight costs 85.400 USD and 360 USD pro passenger.

In case of how many passengers would it be rational to replace old plains by the modern type? (See the next figure as well)

420 x + 78.200 = 360 x + 85.400 x = 12014

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Costs

Number of passengers

78.200

85.400

120

old

new

Red line: the rational decision about the utilisation of airplaine’s type

Proportions of the resources of the production

According to the classical theories the main production „factors” (resources) are labour and capital. Theoretically we can determine their optimal proportion in production by iso-curve analysis. The optimal proportion is, where the iso-cost line is tangential to the iso-quant curve (figure).

Iso-cost line: volumes of production factors, aggregated value of which are the same.

Iso-quant: volumes of production factors, utilisation of which the volume of the production will be the same.

Often in the practice this analyse can be realised by the help of break-even analysis as well (exercise).

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Iso-curve analysis

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Labour

Capital

Iso-cost Q1

Qn

Iso-quants

Source: own figure based on many publications

SchedulingMany production processes are very complex. To

organise and control them it is essential for managers to have a good scheduling technique.

A traditional – and simple – method for scheduling is the graphic Gantt diagram (flow-chart), a bar chart where each bar represent a project task and the row of bars depict the overlap of scheduled actions as well (see the next slide).

Another technique is PERT (Project Evaluation and Review Technique) or CPM (Critical Path Method).

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Gantt diagram Tasks

Time

Completed works Remaining works

Actual time

Milestones

Milestone: planned event, which proves the execution of a taskSource: own figure based on many publications

PERT identifies the activities necessary in a project, developing a network that specifies the interrelationships among those activities, determining how much time each activity will take (and how much they will cost).

A specific advantage of PERT is the determination of the critical path (the longest path through the project) and the opportunity to reduce it.

There are good computer programs to optimize PERT (e.g. to minimise the time of the implementation).

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PERT

3 4 1

1 1 1 1

Critical path: A – B – F - G

C D E

A B F G

A, B, C … : project’s activities1, 3, 4 … : times, which are necessary to their realisation

Source: own figure based on many publications

New techniques of production strategy (e.g. outsourcing and strategic alliances) concentrate on adaptability.

Outsourcing is the action, when a large firm transfers one part of its production to subcontractors where it is cheaper. E.g. maquiladoras, which are assembly plants built in Northern Mexico close to the US border.

Strategic alliance is a cooperation agreement of large firms to work together, e.g. to develop new products or technologies, to get raw materials, to enter a new market etc.

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Control of the implementation

In the framework of monitoring, the manager observes external and internal processes which influence the realisation of a strategy.

Controlling is the process of monitoring and adjusting firm’s activities towards goal attainment. It is a traditional management function. During the last decades its methods developed rapidly creating and adapting some systems of strategic indices like Balanced Scorecard or SAP.

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Features of the Hungarian firmsThere are two enterprise statistics in Hungary.Registered firms are units which figure in the

register of treaty.Active firms are units which supplied tax reports

or statistical information.The number of (registered) Hungarian firms is 1,6

millions (table), so on average there are 16 firms owned by 100 Hungarians. This latter number is more than two times higher than in the EU. But the number of great firms is, limited (table).

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Analysis of enterprise situationThere are some effective techniques of an analysis

on the situation, problems, goals and behaviour of enterprises. I.e.:

• Interviews of managers, employees, which can map the views of the questioned persons.

• Survey. The main factors determining the credibility of a survey result are the random selection, and a „high” number of questioned persons. (In case of a simple „yes/no” question this number is high, if it is greather than 30)

GKI realises always many enterprise surveys.28

According to the survey results the main competitiveness problems of the Hungarian firms are in their marketing. The methods used are simple. Usually products are developed by the firm, R&D cooperation is exceptional. Price-policy is growth oriented, sales promotions are frequent, the practice of product differentiation is quite unknown. In most of the cases channels of purchasing are traditional. Publicity is concentrated on throwaways and fly-bills, high quality catalogues are very rare. Only a small proportion of firms protect their image (tables).

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Distribution of firms according to the level of competitiveness of their products, services

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Source: Enterprise survey of GKI.

Distribution of firms according to the level of competitiveness of their prices

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Source: Enterprise survey of GKI.

Distribution of firms according to the level of competitiveness of their purchasing network

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Source: Enterprise survey of GKI.

Distribution of firms according to the level of competitiveness of their marketing

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Source: Enterprise survey of GKI.

Proportions of firms (%) declaring that the given factor is an important obstacle of their growth

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Source: Enterprise survey of GKI.

Thank you for your attention!

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