Topic 7
Implementing Strategy:
1. Short-term Objectives
2. Leadership (Culture and Reward System)
3. Strategic Control
Strategy Implementation
Strategy Formulation
“Planning your Work”
Strategy Implementation
“Working your Plan”
Role of Short-Term Objectives in
Implementing Strategy
1. “Operationalize” long-term objectives
2. Raise issues and potential conflicts that
require coordination among divisions
3. Identify measurable outcomes of
functional activities
Qualities of Effective Short-Term
Objectives
Measurable
Priorities
Linked to
long-term
objectives
Strategic Leadership: Embracing
Change
Activities
involved in
solidifying
commitment
to change
Shaping organizational
culture
Designing Effective
Rewards …
What is Organizational Culture?
The set of important
assumptions (often unstated)
that members of an
organization share in common.
Organizational Culture
Common ways to manage or create:
•Emphasize key themes or values
•Encourage stories/legends about core
values
•Institutionalize reinforcements
•Make common themes unique
Example: Features of the Corporate
Culture at Wal-Mart …
• Dedication to customer satisfaction
• Zealous pursuit of low costs
• Belief in treating employees as partners
• Sam Walton’s legendary frugality
• Ritualistic Saturday morning meetings
• Executive commitment to
– Visit stores
– Talk to customers
– Solicit employees’ suggestions
Design Effective Rewards …
Remember agency theory?
Executive Bonus Compensation Plans
The goal of an executive bonus compensation
plan is to motivate executives to achieve
maximization of shareholder wealth – the
underlying goal of most firms
Executive Bonus Compensation Plans
Major Plan Types
Stock Options
Restricted Stock
Golden Handcuffs
Cash
Golden Parachutes
Types of Executive Bonus
Compensation Plans
Bonus Type
Description
Rationale
Shortcomings
Stock option
grants
Right to purchase stock in
the future at price set
now. Compensation is
determined by “spread”
between option price and
exercise price
Provides incentive
for executive to
create wealth for
shareholders as
measured by
increase in firm’s
share price
Movement in
share price does
not explain all
dimensions of
managerial
performance
Restricted
stock plan
Shares given to executive
who is prohibited from
selling them for a specific
time period. May also
include performance
restrictions
Promotes longer
executive tenure
than other forms
of compensation
No downside risk
to executive, who
always profits
unlike other
shareholders
Bonus Compensation Plans (contd.)
Bonus Type
Description
Rationale
Shortcomings
Golden
Handcuffs
Bonus income deferred in
a series of annual
installments. Deferred
amounts not yet paid are
forfeited with executive
resignation
Offers an
incentive for
executive to
remain with the
firm
May promote
risk-averse
decision making
due to downside
risk borne by
executive
Golden
parachute
Executives have right to
collect the bonus if they
lose position due to
takeover, firing,
retirement, or resignation
Offers an
incentive for
executive to
remain with the
firm
Compensation is
achieved whether
or not wealth is
created for
shareholders.
Rewards either
success or failure
Bonus Compensation Plans (contd.)
Bonus Type
Cash based
on internal
business
performance
using
financial
measures
Description
Bonus compensation
based on accounting
performance measures
such as return on equity
Rationale
Offsets the
limitations of
focusing on
market-based
measures of
performance
Shortcomings
Weak correlation
between earnings
measures and
shareholder
wealth creation.
Annual earnings
do not capture
future impact of
current decisions
What is Strategic Control?
Tracks a strategy as it is
implemented, detects problems
or changes in its underlying
premises, and makes necessary
adjustments
Definitions of Strategic Controls
1. Premise Control – Designed to check
systematically and continuously whether
premises on which the strategy is based
are still valid (primarily environmental and industry)
2. Strategic Surveillance – Designed to
monitor a broad range of events inside and
outside the firm that are likely to affect the
course of its strategy
Definitions of Strategic Controls
3. Special Alert Control – Thorough, and often
rapid, reconsideration of the firm’s strategy
because of a sudden, unexpected event
4. Implementation Control – Designed to assess
whether the overall strategy should be changed
in light of the results associated with the
incremental actions that implement the overall
strategy
–
–
monitor strategic projects
milestone reviews