strategy 4 th unit

8/3/2019 Strategy 4 Th Unit

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UNIT IV

Strategy implementation

The process in between strategy formulation and strategy adoption is calledstrategy implementation.

Integration of strategy formulation and strategy implementation is called

Forward linkage.

Integration of strategy implementation and strategy adoption is called

Backward linkage.

To implement the strategies, a strategist should know the following

things

Details about the project

Procedures required in implementing the strategies

Resource allocation

Organization structure

Behaviour of the organization

Functions of the organization

Pyramid of strategy implementation

Strategy

Policies

Programmes

Projects

Budgets

Procedures, rules and regulations


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Strategy leads to different policies, for example expansion strategy leads to

new product development, new market development, merger, acquisition

etc.

Policies leads to different programmes , for example new product

development leads to Research and Development programme through whichnew product can be developed.

Programme leads to different projects, for example conducting several

projects in Research and development.

Projects are funded through resource allocation and different types of

budgeting.

All the activities are taken based on specified rules and regulations.

Project implementation

The different phases of a project through which strategies are implemented

1.Conception phase-formulation of different concepts

2.Definition phase-evaluating the different concepts through various

feasibility studies like economic feasibility, technical feasibility, market

feasibility and production feasibility.

3.Planning and organizing phase-managing the resources need like man,material and money. Scheduling and organizing those resources to carry out

the project.

4.Implementation phase-erection and commissioning of the projects.

5.Cleanup phase-after completion of the projects hand over to operating

personals.

Procedural implementation

It means the procedures required to implement the chosen strategies

Formation of a company

Licensing procedures

SEBI requirements


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Monopolies and Restrictive Trade practices

Foreign exchange collaborations

Import/export requirements

Patenting and trade mark requirements

Environmental protection requirements

Consumer protection requirements

Resource allocation

Definition- the factors of production are called as resources. Example: Man,

material, money etc

Procurement of resources-from financial institutions, investors and from

one business to other business.

Means of resource allocation- through various types of budgeting

resources are allocated for the different projects.

Strategic budgeting- budgeting based on environmental changes and

corporate core competencies.

BCG based budgeting- budgeting based on BCG matrix analysis.

PLC based budgeting- budgeting based on product life cycle.

Capital budgeting- budgeting for different projects at initial stage.

Zero based budgeting-without considering the past values, budgeting from

the zero level.

Factors affecting resource allocation

Objectives of the organization

Preference of dominant strategists

Internal politics

External politics


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Structural implementation

Definition-Structure defines as how job tasks are formally divided, grouped

and coordinated .This is the skeleton of an organization.

For strategists, organization structure is important one to carry out thestrategies from top to bottom.

Structure mechanism-It includes the creation of structure and the

techniques to hold and sustain the structure.

Steps in creation of structure (development of organization

structure)

1. Identification of key activities

2. Grouping of activities on the basis of common skill requirements

3. Subdivision of responsibility and delegation of authority

4. Choosing structure that could accommodate the different group of

activities

5. Creation of departments/divisions

6. Establishing interrelationship between different departments

Different types of structure

1.Entrepreneural structure

2.Functional structure

3.Divisional structure

4.SBU structure

5.Matrix structure

Entrepreneural structure

This structure exists at the initial stage of the company. In this the owner

acts as a manager.

It looks like as follow


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Manager

Workers

Advantages of this structure

1.Decissions are taken as quick as possible because the manager is the

owner

2.Controlling is easy due to minimum resources.

3.coordination is very effective.

4.Low expenses.

5.Communication-easy and speedy communication.

Disadvantages

1.Dependency-Management is highly dependent on workers.

2.Authority-It is centralized, it may affect speedy decision making.

Strategies

Normally in the initial stage of the organization, stable environment may

exists. So the companies follow stability strategies.

Functional structure

This structure exists at the growth stage of the company. In this stage, a

manager need functional specialists to carry out the more number of

increased tasks.

So the structure changes as follows

Manager

Marketing Finance Human resources

Production

Workers Workers Workers

Workers


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1.Dependency-Management is less dependent on workers.

2.Authority-It is decentralized, decision making may be faster.

3.Controlling because of various functional specialists controlling is easy.

Disadvantages

1.Decission making-may take time due more layers in the

structure(especially in autocratic leadership style)

2.coordination- coordination between different departments is not easy.

3.High expenses.

4.Communication-because of more number of layers , communication gap

may exist.

Strategies

Normally in the growth stage of the organization, the companies follow

stability strategies and Concentric expansion strategies.

Divisional structure

This structure exists at maturity stage of the company.

The structure looks as follows

CEO

Division 1 Human resources Finance

Division 2

Marketing

Marketing

Operations

Operations



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1.Dependency-Management is less dependent on workers.

2.Authority-It is decentralized, decision making may be faster.

3.Controlling because of various functional specialists controlling is easy.

Disadvantages

1.Decission making-may take time due more layers in the

structure(especially in autocratic leadership style)

2.coordination- coordination between different departments is not easy.

3.High expenses.

4.Communication-because of more number of layers , communication gap

may exist.

Strategies

Normally in the mature stage of the organization, the companies follow

different types of expansion strategies.

SBU structure

This structure exists at maturity stage of the company.


CEO

SBU 1 SBU 2

SBU 3

Marketing Marketing

Marketing

Operations Operations

Operations

Human resources Human resources

Human resources


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Finance Finance

Finance

Strategies

Each business units follows their own business level strategies like costleadership, differentiation, focus etc. Additionally they follow the corporate

level strategies like expansion, stability etc.

Advantages& disadvantages

Use the common factors to explain the advantages and disadvantages

Matrix structure


CEO

Marketing Finance

Human resources Production

Project 1

Project 2

Project 3

Companies adopting matrix structure usually faces dynamic environment, so

they concentrate on expansion strategies.

To keep and sustain the developed organization structure,

strategists have to design the various systems as follows.

1.Design and administration of information system

2. Design and administration of control system

3. Design and administration of appraisal system

4. Design and administration of motivation system

5. Design and administration of development system


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6. Design and administration of planning system

1. Information System:

(i) It enables the managers to know what they need to grasp in

order to perform their tasks.

(ii) To coordinate the activities with others.

(iii) This system is more feasible for the middle and low level

management.

(iv) Technological advancement in the processing and usage of

information has been achieved by increasing the application of

computers as an aid in management.

(v) In the initial growth phase- simple type of information type.

(vi) In the growth Expansion phase - more formal information type.

(vii) Stability strategies require rigid policy stance, mainframe

computers and transaction processing systems.

(viii) Expansion strategies require flexible policy stance, micro

computer and decision support systems.

2. Control System:(i) It deals with the measurement and correction of the

performance of the activities in order to make sure that

enterprise objective and plan devised to attain them are being

accomplished.

(ii) Control System consists of 4 steps.

Step 1: Establishing Standards

Step 2: Measuring actual performance

Step 3: Evaluating actual performance against standards

Step 4: Determining the corrective performance


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(iii) Strategies have to consider the following issues, So that the

control system works effectively.

1. Need for the Control System to co-ordinate the responsibilities

which are dispersed throughout organizational structure.

2. Type of controls:

(a) Formal based on quantitative and objective date

(E.g. Financial control)

(b) Informal qualitative and subjective factors

(E.g. Ethical standards)

(iv) In the lower level management

More formal control

Less informal control

(v) In the higher level management

Less formal control

More informal control

(vi) Stability Strategies higher proportion of formal controls

Expansion Strategies require informal controls

3. Appraisal System:

This system evaluates managerial performance in the light of

organizational objectives.

The major issues considered by the strategies regarding appraisal

system are..,

(1) Choice of factors used in managerial appraisal.

- Use multiple criteria rather than single criteria

(2) Relevance of the appraisal method to strategy.


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- Should satisfy the strategy.

> For Stability Strategy Short term, objective criteria.

> For Expansion Strategy Long term, Subjective, broad based

Appraisal system.

(3) Procedure of appraisal system

- Timing (when?)

- Person (who?)

4. Motivation System:

(i) It deals with a positive role in inducing strategically desired behavior so

that managers are encouraged to work towards the achievement of

organizational objectives.

(ii) Two types of motivation

Monitory

Non-Monitory(iii) -Small organizations need informal motivation system & monitory

type.

- When the expansion formal motivation is suitable & non-monitory

type.

5. Development System:

(i) Process of gradual, systematic improvement in the knowledge, skills,

attitudes and performance of those individuals in an organization who carry

management responsibilities.

(ii) Process of management development.

Individual

Characteris

New

ExperienceOrganizatio

ns


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(iii) Recruitment, training, education, career planning and

organizational development.

Stability Strategy Internal focused, Programmed, Promotion of

Personnel.

Expansion Strategy Need based; recruitment from outside; use

Of OD techniques.

6. Planning System:

(i) It deals with the participation of middle level managers in planning

and implementation of strategy.

(ii) In functional and entrepreneurial structure planning system is

centralized directive.

(iii) In Divisional level structure planning system is Decentralized

Participation system.

CORPORATE CULTURE:

Managerial Behavior

Performance

ormanagerial

Experien Learnin

Management

Developmen


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Corporate or organizational culture is the set of important

assumptions that members of an organization share in common.

Composition of culture:

There are two assumptions (i) Beliefs and (ii) Values.

Beliefs are assumptions about reality and are derived and reinforced by

experience.

Values are assumptions about ideals that are desirable and worth striving

for.

Impact of culture:

1. Culture affects the way of behavior of employees.

2. It affects the decisions taken by the managers.

3. Culture can facilitate communications, decisions making and control

and create co-operations and commitments.

4. Culture may obstruct the smooth implementation of strategy by

creating resistance to change.

Types of Culture:

(i) Weak Culture

(ii) Strong Culture

Weak Culture:

(a) It exists when few values and behavioral norms are shared and

traditions are rare.

(b) We are culture exhibits

Politicized organizational environment.

Hostility to change.

Promoting the bureaucracy in preference to creativity and

entrepreneurship and

Unwillingness to look outside the organization for best practices.


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Strong Culture:

Strong culture exists when it conducts its business according to a

clear and explicit set or principles and values which the management

devotes considerable time to communicating to employees and which values

are shared widely across the organization.

Building Strong Culture:

The three main factors are contribute in the building strong culture are

1. Founder or an influential leader who established desirable values

2. A sincere and dedicated commitment to operate the business of the

organization according to these desirable values.

3. A genuine concern for the well being of the organizations stakeholders.

Functional implementation:

It is done through functional plans and policies (strategies).

FINANCIAL PLAN AND POLICIES:

Sources of funds:

Deals with financing (or) capital mix decision.

Capital structure

Procurement of capital and working capital borrowings

Reserves and surplus as sources of funds.

Relationship with lenders, banks and financial institutions.Expansion time:

Example- Ingasoll rand ltd 80% of profit after tax, not dependent on

external borrowings, decreasing in interest.

LT- external commercial borrowings and foreign currency loan.


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Max India Ltd Qualified Institutions Placement (QIP)

Conversion of warrants, preferential allotment and issue, market purchase

and transfer of shares.

Venture Capital Internet Company and online manufacturing.

Usage of Funds:

Deals with investment or asset mix decisions.

Capital investment, fixed asset acquisitions, current assets, loans and

advances, dividend decisions and relationship with shareholders.

At expansion strategies implementation of projects this capital works in

progress and current assets.

Example:

West coast paper mills Ltd for their expansions, invest 75% of the

project cost in acquiring fixed assets.

Dividend policy as government India guidelines, all profit making public

sectors companies pay dividend the higher of minimum dividend of 20% on

equity or a minimum dividend payout of 20% of post tax profit.

- ONIGC, oil companies, chemicals 30% dividend.

Management of Funds:

Deals with decisions related to the systematic aspects of financial

management.

The systems of finance, accounting and budgeting, management control

system, cash, credit and risk management, cost control and reductions, tax

planning and advantages.


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Good management of funds often creates the difference between

strategically successful and unsuccessful company.

Example:-

Indian Airlines cost control decreases the facilities of staff.

Cut- overtime payment, freeze on recruitment and VRS, temporary positions.

Sared 102 cr in 02 03

190 cr in 03 04

148 cr in 04 - 05

Marketing plans and policies:

Formulated on the basis of 4 Ps of the marketing mix.

PRODUCT policies regarding quality, features, choice of models, brand

name, packaging etc.

Example: Godrejs, Bajaj.

PRICING Discounts, Mode of payment, allowances, payment period, credit

terms etc.

Example: Premium Vs Low cost.

PLACE Channels to be used, transportation, inventory management,

storage management etc.

PROMOTION advertising, personal selling, sales promotion and publicities.

Operation policy:

Production system: Capacity, location, layout, product or service design,

work systems, degree of automation, extent of vertical integrations and such

factors.


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Operations planning and control: Aggregate production planning, materials

supply, inventory, costs and quality management, maintenance of plant and

machinery.

Here the available resources are highly utilized in day to day

operations.

Research and Development:

Policies regarding product development, personnel and facilities, level of

technology used technology transfer and absorption.

Personnel plans and policies:

Personnel System

Manpower planning, recruitment, selection, development, training,

compensation and appraisal.

Organizing the employees characteristics

Image of the organization and image of employees working in the

organization

Industrial relations

Union and management relations, welfare facilities

Strategic Control:

Strategy is formulated on the basis of several assumptions

related to environment and organizational factors. These are dynamic in

nature.

There is a time gap between strategy formulations and

implementation. During this period, these assumptions on which strategy

formulated may vary.


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Strategy controls take into account the changing assumptions

that determine a strategy, continually evaluate the strategy as it is being

implemented, and take the necessary steps to adjust the strategy to the new

requirements.

FOUR STEPS OF STRATEGIC CONTROL:

1. Premise control

2. Implementation control

3. Strategic surveillance

4. Special alert control

1. Premise control:

It is necessary to identify the key assumptions and keep

track of any change in them so as to asses their impact and validity on

strategy and its implementation.

This enables the strategist to take corrective actions at the

right time rather than continuing with the strategy on error assumptions.

2. Implementation control:

Implementation control is aimed at evaluating

whether the plans, programs, projects and resource allocated are actually

guiding the organization towards its predetermined objectives or not.

3. Strategic surveillance:

This is more generalized and overarching control

designed to monitor a board range of events inside and outside the

company that are likely to threaten the course of a firms strategy.


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It can be done through a broad based, general

monitoring on the basis of selected information sources to uncover events

that are likely to affect the strategy.

4. Special alert control:

This control is aimed to rapid response and immediate

reassessment of strategy in the light of sudden and unexpected events.

Special alert control is exercised through the formulation

of contingency strategy.

Operational control:

It is aimed at the allocation and use of organizational

resources through an evaluation of the performance of organizational

units with in order to achieve the organizational objectives.

Process of evaluation:

1. Setting standards of performance.- Key managerial tasks.

- The special requirements for the performance of the key tasks.

- Performance indicators based on quantitative and qualitative.

2. Measurement of performance:

Measuring the actual performance against the standard

performance through varies evaluation techniques. The three important

aspects related with measurements are,

(i) Difficulties in measurement.

(ii) Timing of measurement.

(iii) Periodicity in measurement.

3. Analyzing variances:


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Analyze the difference between standard performance and

actual performance. The following three situations may arise,

(i) Actual performance = Standard performance

This is ideal and not possible.

(ii) Actual performance > Standard performance

Check the standards and performance indicators.

(iii) Actual performance < Standard performance

Identify the areas where performance is below standard and go into

the causes of variation take corrective actions.

4. Taking corrective actions:

Reformulates strategies, plans and objectives.

Evaluation of techniques for operation control:

1. Internal analysis:

Value chain analysis.

Quantitative analysis.

Qualitative analysis.

2. Comparative analysis:

Historical analysis.

Industry norms analysis.

Bench marking.

3. Comprehensive analysis:

Balanced scorecard analysis.

Key factor rating analysis.

Evaluation of techniques for strategic control:

Two types:

1. Strategic momentum control (Stable environment)


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Responsibility control center analyze.

CSF analyzes.

Generic strategies approach.

2. Strategic leap control (Unstable environment) Strategic issue management.

Strategic field analysis.

System modeling.

Scenario.

strategy 4 th unit

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