Strategy Implementation
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Concept of Strategy Implementation
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Necessity of fit
 Importance of integrating strategy implementation with
strategy formulation.
 Interrelationships between components or dimensions of strategy
implementation.
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Focus on structure and control related issues.
Strategy Implementation
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Sears example
 In 1983 Sears implements one-stop shopping banking-financial
services power.
 Sears retail unit fell to #3 behind low-cost providers (Walmart
and K-Mart).
 Specialty retailers (focused differentiators) such as The Gap,
The Limited, Toys-R-Us, and Kids-R-Us took market share.
 Sears was outperformed by both low-cost and focused differentiators.
 Sears initiated restructuring in 1992 after losing $3.8 billion.
Strategy Implementation
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Sears example
 What happened? Why did Sears fail so dramatically?
- Lost ability to control core business (too diversified).
- Resources were taken from retail and given to new ventures.
- Managers spent too much time on diversified businesses.
- Managed retail segment using financial controls.
- Sears suffered from post-merger drift.
- Lost operational understanding of the competitive dynamics
in the retail industry.
Strategy Implementation
Structure
Task-Focus
(Value)
Firm
Strategy
People
Decision
Processes
and
Controls
Reward
Systems
Firm
Performance
Strategy Implementation
Task-Focus
(Value)
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Structure
Uncertainty
Diversity
Interdependence
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Reward
Systems
Decision
Processes
and
Controls
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Division of labor
Departmentalization
Shape
Distribution of power
Performance
measures
Compensation
Promotion
Job design
People
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Planning and control systems
Integration roles
Information systems
Decision making procedures
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Recruiting and selection
Leader style
Transfer and promotion
Training and development
Strategy
Dominant Business
Vertically Integrated
Unrelated Diversified
Growth through Acquisition
Related Diversified
Growth thru internal development &
some acquisition
Task Focus
(Value)
Degree of integration
Market share and power
Product line breadth
Vertical economies
Degree of diversity
Types of business
Resource allocation across business
Entry and exit businesses
Financial economies
Realization of synergy from related
product process, technology, and
markets
Resource allocation
Diversification opportunities
Synergistic economies
Structure
Centralized functional
Top control of strategic decisions
Delegation of operations
through plans and procedures
Highly decentralized product
divisions/profit centers
Small corporate office
No centralized line functions
Almost complete delegation
of operations and strategy within existing
businesses
Control thru results, selection
of management, and capital allocation
Multidivisional/profit centers
Grouping of highly related
businesses with some centralized
functions within groups
Delegated responsibility for
operation
Shared responsibility for strategy
Decision Processes
and Controls
Coordination and integration thru
structure, rules, planning, and
budgeting
Use of integrating roles for
project activity across functions
No integration across businesses
Coordination and information flows
between corporate and division levels
around management information systems
and budgets
Coordinate and integrate across
businesses and between levels with
planning integrating roles, integrating
depths
Reward Systems
Performance against functional
objectives
Mix of objective and subjective
performance measures
Strategic controls
Formula based bonus on ROI or
profitability of divisions
Strict objective, impersonal evaluation
Bonus based on divisional and/or
corporate performance
Mix of objective and subjective
performance measures
People
Primarily functional specialists
Some inter-functional movement to
develop some general managers
Aggressive, independent general managers of
divisions
Career development opportunities are
primarily intra-divisional
Broad requirements for general
managers and integrators
Career development is inter-divisional,
cross-functional, and corporatedivisional
Strategy Implementation
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Organization Structures
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Simple Structure
President
Employees
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Owner-manager makes decisions.
Little specialization of tasks.
Few rules, little formalization.
Advantages:
- Provides high flexibility
- Rapid product introduction
- Few coordination problems
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Organization structure
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Functional structure
President
Legal
Affairs
Accounting
HRM
Finance
Marketing
R&D
Production
Strategy Implementation
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Organization structure
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Functional structure
 Advantages
- Centralized control of operations
- Promotes in-depth functional expertise
- Enhances operating efficiency where tasks are routine
 Disadvantages
-
Functional coordination problems
Inter-functional rivalry
Overspecialization and narrow viewpoints
Hinders development of cross-functional experience
Slower to respond in turbulent environments
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Organization structure
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Product-divisional structure
President
Government
Affairs
Legal
Affairs
Corporate
R&D Lab
Strategic
Planning
Corporate
Human
Resources
Product
Division
Product
Division
Product
Division
Corporate
Marketing
Corporate
Finance
Product
Division
Product
Division
Strategy Implementation
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Organization structure
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Product-divisional structure
 Organization based on products versus functions
 Each division is a separate business in which day-to-day
decisions are delegated to divisional managers.
 Divisions are managed using strategic controls – detailed
knowledge of firm operations allows managers to remain actively
involved.
 Overdiversification leads to inability to process detailed information
and a reliance on financial controls to evaluate managers.
Strategy Implementation
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Organization structure
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Product-divisional structure
 Advantages
- Decentralized decision making
- Each business is organized around products
- Puts profit/loss accountability on managers
- Facilitates rapid response to environmental changes
- Allows efficient management of a large number of units
 Disadvantages
- May lead to costly duplication of functions
- Inter-divisional rivalry
- Corporate managers may lose in-depth understanding
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Matrix Structure
President
R&D
Production
Marketing
Finance
Business
Project
Specialists
Specialists
Specialists
Specialists
Business
Project
Specialists
Specialists
Specialists
Specialists
Business
Project
Specialists
Specialists
Specialists
Specialists
Strategy Implementation
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Organization structure
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Matrix structure
 Contains aspects of both functional and product-divisional
structures.
 Advantages:
- Creates checks and balances between competing viewpoints
- Promotes holistic view of the firm
- Encourages cooperation and consensus building
 Disadvantages:
- Very complex and costly
- Shared authority increases communication time
- Difficult to respond rapidly
- May promote bureaucracy and reduce innovation (in large firms).
Strategy Implementation
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Network structure
Partner
Partner
 Group of firms combine resources to
achieve together what they can’t achieve
alone.
 Advantages:
- Firm’s emphasize their own core
competencies
- Rapid response time
- Very flexible
Focal
Firm
- Reduces capital intensity
 Disadvantages
- Asymmetric information
- Technology expropriation
Partner
Partner
- Trustworthiness of partners
- Asset hold-up