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1
Session 18
Strategy Implementation
Irwin/McGraw-Hill
© 2000 The McGraw-Hill Companies, Inc.
Strategic
Management Model
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Company mission &
social responsibility
External Environment
Possible?
Internal analysis
Desired?
Long-term objectives
Short-term
objectives; reward
system
Generic & grand strategies
Functional tactics
Feedback
Feedback
Strategic analysis & choice
Policies that empower action
Restructuring, reengineering & refocusing the organization
Legend
Major impact
Minor impact
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Strategic control & continuous improvement
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Strategy Implementation
Identify short-term
objectives
Involves
development
of support
systems that
Initiate specific
functional tactics
Communicate policies
to empower people
Design effective
support systems
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What are Short-Term Objectives?
Provide specific
guidance for what is to
be done, translating
vision into action
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Role of Short-Term Objectives in Implementing Strategy
1. “Operationalize” long-term objectives
2. Raise issues and potential conflicts requiring
coordination to avoid dysfunctional consequences
3. Identify measurable outcomes of functional
activities to be used to make feedback,
correction, and evaluation more relevant
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Potential Conflicting Objectives and Priorities
Objectives
Responsibilities
Chief Executive Officer
Marketing
Finance and accounting
•Distribution channels
•Customer service
•Inventory
obsolescence
•Communications
and data processing
•Carrying inventory
• More inventory
• Less inventory
• Frequent short runs
• Fast order processing
• Cheap order processing
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•Production supply
alternatives
•Warehousing
•Transportation
• Long production
runs
• Lowest cost routing
• Fast delivery
• Field warehousing
Manufacturing
• Less warehousing
• Plant warehousing
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Relationship of Functional Tactics (Action Plans) to
Short-Term Objectives
Specificity - Identify functional
activities to be undertaken to
build competitive advantage
Action plans
enhance shortterm objectives
in three ways
Provide a clear time frame
for completion
Identify who is responsible for
each action in the plan
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Qualities of Effective Short-term Objectives
Measurable
Prioritized
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Linked to longterm objectives
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Creating Measurable Objectives
Examples of
Deficient
Objectives
To improve
morale in the
division (plant,
department,
etc.)
Examples of Objectives with Measurable Criteria
for Performance
• To reduce turnover (absenteeism, number of rejects, etc.)
among sales managers by 10 percent by January 1, 2001.
Assumption: Morale is related to measurable outcomes (I.e.,
high and low morale are associated with different results).
• To reduce the time lapse between order data and delivery by 8
percent (two days) by June 1, 2001.
To improve
reduce the cost of goods produced by 6 percent to support a
support of sales • To
product price decrease of 2 percent by December 1, 2001.
effort
• To increase the rate of before- or on-schedule delivery by 5
To improve
firm’s image
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percent by June 1, 2001.
• To conduct a public opinion poll using random samples in the
five largest U.S. metropolitan markets to determine average
scores on 10 dimensions of corporate responsibility by May 15,
2001. To increase our score on those dimensions by an average
of 7.5 percent by May 1, 2002.
© 2000 The McGraw-Hill Companies, Inc.
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Value-Added Benefits of Short-Term Objectives
Give operating personnel a
better understanding of their
role in a firm’s mission
Provide basis for
accomplishing
conflicting concerns
Provide basis for
strategic control
Motivation - Clarify personal
and group roles in a firm’s
strategies
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What are Functional Tactics?
Key, routine activities
that must be undertaken in each
functional area to provide the
business’s products
Translate grand
strategies into action
designed to accomplish
specific short-term
objectives
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Functional Tactics at General Cinema Corporation
Corporate Strategy
Business Strategies
Corporate strategy
Achieve 15-20 %
annual growth
through existing
businesses and
carefully selected
diversification into
leisure-oriented,
consumer-oriented
product/service
businesses to
absorb increasing
cash flow from
theater and softdrink bottling
operations.
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Soft
drink
bottlers
Movie
exhibition
Sunkist
products
Concentration
and market
development
selective
Maintain and
selectively expand
leading
nationwide
position in the
movie exhibition
industry to
provide positive
cash flow for
corporate
diversification.
Functional Tactics
Functional tactics: Marketing
Seek only first-run films by
outbidding competition in each
local market; provide primarily
family-oriented movies; and
maintain an admission price only
slightly above that of local
competition.
Functional tactics: Finance
Use lease or sale and leaseback
arrangements of each theater to
maximize cash flow for corporate
expansions; seek profitability
through volume, not higher ticket
prices.
Functional tactics: Operations
Use multiscreen facilities with
minimal maintenance
requirements and a joint service
area to serve each minitheater.
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Differences Between Business Strategies and Functional Tactics
Time Horizon
• Shorter time horizon of
functional tactics
contributes to
successful
implementation by
• Focusing attention
on what needs to be
done now
• Allowing functional
managers to adjust
to changing current
conditions
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Specificity
• Greater specificity of
functional tactics
contributes to
successful
implementation by
• Ensuring functional
managers focus on
accomplishments
• Clarifying for top
managers how
functional managers
intend to accomplish
business strategy
• Facilitating
coordination among
operating units
Participants
• General managers
establish long-term
objectives and overall
business strategies
• Operating managers
establish short-term
objectives and
functional tactics
leading to business
level success
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Characteristics of Functional Tactics in
Production/Operations
Viewed as core function of an organization
 Involves converting inputs into value-enhanced
output
 Focuses on decisions regarding

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Basic nature of firm’s POM system,

Seeks optimum balance between investment input and
production/operations output

Location

Facilities design

Process planning on a short-term basis
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Key Functional Tactics in POM
Functional
Tactic
Facilities
and
equipment
Typical Questions the Functional Tactic Should Answer
• How centralized should the facilities be?
• How integrated should the separate processes be?
• To what extent should further mechanization or automation be
pursued?
• Should size and capacity be oriented toward peak or normal
operating levels?
• How many sources are needed?
• How should suppliers be selected, and how should relationships with
Sourcing
suppliers be managed over time?
• What level of forward buying (hedging) is appropriate?
• Should work be scheduled to order or to stock?
• What level of inventory is appropriate?
• How should inventory be used (FIFO/LIFO), controlled, and
Operations
planning
replenished?
and control • What are the key foci for control efforts?
• Should maintenance be oriented to prevention or to breakdown?
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Characteristics of Functional Tactics in Marketing
Lead to strategic success of the firm through the
profitable sale of products/services in target markets
 Clearly identify customer needs that products/services
aim to meet
 Identify where, when, and by whom products/services
are to be sold
 Define how firm will communicate with target
markets
 Directly influence supply, demand, profitability,
consumer perception, and regulatory response through
pricing

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Key Functional Tactics in Marketing
Functional
Tactic
Product or
service
Price
Place
Promotion
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Typical Questions the Functional Tactic Should Answer
•
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•
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•
•
Which products do we emphasize?
Which products/services contribute most to profitability?
What product/service image do we seek to project?
What consumer needs does the product/service seek to meet?
What changes should be influencing our customer orientation?
Are we competing primarily on price?
Can we offer discounts or other pricing modifications?
Are our pricing policies standard nationally, or is there regional control?
What price segments are targeting?
What is the gross profit margin?
What level of market coverage is necessary?
Are there priority geographic areas?
What are the key channels of distribution?
What are the channel objectives, structure, and management?
What sales organization do we want?
What are the key promotion priorities and approaches?
Which advertising/communication priorities and approaches are linked
to different products, markets, and territories?
• Which media would be most consistent with the total marketing
strategy?
© 2000 The McGraw-Hill Companies, Inc.
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Characteristics of Functional Tactics in Accounting
and Finance


Time frame of finance tactics varies because they direct
use of financial resources supporting the business
strategy, long-term goals, and annual objectives
Long-term tactics guide decisions in

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
Short-term tactics guide decisions in
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Long-term capital investment
Debt financing
Dividend allocation
Leveraging
Managing working capital and short-term assets
Accounting-focused tactics have taken on increased
strategic significance in last decade
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Key Functional Tactics in Finance and Accounting
Functional
Tactic
Typical Questions the Functional Tactic Should Answer
• What is an acceptable cost of capital?
• What is desired proportion of short- and long-term debt? Preferred
Capital
acquisition
Capital
allocation
Dividend
and
working
capital
management
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•
•
•
•
•
•
and common stock?
What balance is desired between internal and external funding?
What risk and ownership restrictions are appropriate?
What level and forms of leasing should be used?
What are the priorities for capital allocation projects?
On what basis should the final selection of projects be made?
What level of capital allocation can be made by operating managers
without higher approval?
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What portion of earnings should be paid out as dividends?
Are things other than cash appropriate as dividends?
What are the cash flow requirements? Minimum and maximum?
How liberal/conservative should credit policies be?
What limits, payment terms, and collection procedures are necessary?
What payment timing and procedure should be followed?
© 2000 The McGraw-Hill Companies, Inc.
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Characteristics of Functional Tactics in R&D
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
Assumed a key strategic role in
many firms due to increasing rate of
technological change

May be more critical instruments of
business strategy in some industries
than in others
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Key Functional Tactics in R&D
Functional
Tactic
Typical Questions the Functional Tactic Should Answer
Basic
• To what extent should innovation and breakthrough research be
research vs.
emphasized? In relation to the emphasis on product development,
refinement, and modification?
product and
• What critical operating processes need R&D attention?
process
development • What new products are necessary to support growth?
• Is the emphasis short-term or long-term?
• Which orientation best supports the business strategy? The marketing
Time
and production strategy?
horizon
Organizational fit
• Should R&D be done in-house or contracted out?
• Should R&D be centralized or decentralized?
• What should be the relationship between the R&D units and product
managers? Marketing managers? Production managers?
• Should the firm maintain an offensive posture, seeking to lead innovation
Basic R&D
posture
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in its industry?
• Should the firm adopt a defensive posture, responding to the innovations
of its competitors?
© 2000 The McGraw-Hill Companies, Inc.
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Characteristics of Functional Tactics in HRM
Assumed increasing strategic importance in the
1990s
 Aid long-term success in
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Development of managerial talent and competent
employees
Creating systems to manage compensation or
regulatory concerns
Guiding effective utilization of human resources to
achieve both the


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Firm’s short-term objectives
Employees’ satisfaction and development
© 2000 The McGraw-Hill Companies, Inc.
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Key Functional Tactics in HRM
Functional
Tactic
Typical Questions the Functional Tactic Should Answer
Career
development
and training
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Compensation
• What levels of pay are appropriate for the tasks we require?
• How can we motivate and retain good people?
• How should we interpret our payment, incentive, benefit, and seniority
Evaluation,
discipline,
and control
policies?
• How often should we evaluate our people? Formally or informally?
• What disciplinary steps should we take to deal with poor performance or
inappropriate behavior?
• In what ways should we “control” individual and group performance?
Labor
relations and
EEO
requirements
• How can we maximize labor-management cooperation?
• How do our personnel practices affect women/minorities/
• Should we have hiring policies?
Recruitment,
selection, and
orientation
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What key human resources are needed to support chosen strategy?
How do we recruit these human resources?
How sophisticated should our selection process be?
How should we introduce new employees to the organization?
What are our future human resource needs?
How can we prepare our people to meet these needs?
How can we help our people develop?
© 2000 The McGraw-Hill Companies, Inc.
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Role of Policies in Implementing Strategy

Directives designed to guide thinking, decisions,
and actions of managers and employees in
implementing strategy

Increase managerial effectiveness by
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
Standardizing many routine decisions

Clarifying discretion managers and employees can
exercise in implementing functional tactics
Should be derived from functional tactics with
key purpose of aiding strategy execution
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Why Policies Empower People
1. Establish indirect control over independent action by clearly stating how
things are to be done now
2. Promote uniform handling of similar activities
3. Ensure quicker decisions by standardizing answers to previously
answered questions
4. Institutionalize basic aspects of organization behavior
5. Reduce uncertainty in repetitive and day-to-day decision making
6. Counteract resistance to or rejection of chosen strategies by organization
members
7. Offer predetermined answers to routine problems
8. Afford managers a mechanism for avoiding hasty and ill-conceived
decisions in changing operations
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Advantages of Formal Written Policies
1. Require managers to think through policy’s meaning,
content, and intended use
2. Reduce misunderstanding
3. Make equitable and consistent treatment of problems more
likely
4. Ensure unalterable transmission of policies
5. Communicate authorization or sanction of policies more
clearly
6. Supply a convenient and authoritative reference
7. Systematically enhance indirect control and organizationwide coordination of the key purposes of policies
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Types of Executive Bonus Compensation
Bonus Type
Stock option
grants
Restricted
stock plan
Golden
handcuffs
Golden
parachute
Cash based on
internal
performance
using finance
measures
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Description
Rationale
Shortcomings
Right to purchase stock
in the future at a price set
now; compensation
determined by “spread”
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
Shares given to executive
who is prohibited from
selling them for a specific
time period
Bonus income deferred in
a series of annual
installments; forfeited
with executive
resignation
Executive has right to
collect bonus if loses
position due to takeover,
firing, retirement, or
resignation
Bonus compensation
based on accounting
performance measures
such as return on equity
Promotes longer
executive tenure than
other forms of
compensation
No downside risk to
executive, who always
profits unlike other
shareholders
May promote risk-averse
decision making due to
downside risk borne by
executive
Compensation is achieved
whether or not wealth is
created;rewards either
success or failure
Offers an incentive for
executive to remain with
the firm
Offers an incentive for
executive to remain with
firm
Offsets limitations of
focusing on market-based
measures of performance
Weak correlation between
earnings measures and
shareholder wealth
creation
© 2000 The McGraw-Hill Companies, Inc.