UNIT IV Strategy implementation The process in between strategy formulation and strategy adoption is called strategy 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

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 which new 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

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

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 the strategies 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

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 Production Workers Workers

Finance

Human resources

Workers

Workers

Advantages of this structure 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 Division 2 Marketing Marketing Operations Operations Advantages of this structure

Human resources

Finance

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. The structure looks as follows CEO

SBU 1 SBU 3 Marketing Marketing Operations Operations Human resources Human resources

SBU 2

Marketing

Operations

Human resources

Finance Finance Strategies

Finance

Each business units follows their own business level strategies like cost leadership, 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 The structure looks as follows CEO

Marketing Human resources Production Project 1 Project 2 Project 3

Finance

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

6. Design and administration of planning system

1. Information System: (i) (ii) (iii) (iv) It enables the managers to know what they need to grasp in order to perform their tasks. To coordinate the activities with others. This system is more feasible for the middle and low level management. Technological advancement in the processing and usage of information has been achieved by increasing the application of computers as an aid in management. (v) (vi) (vii) In the initial growth phase- simple type of information type. In the growth Expansion phase - more formal information type. 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

(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.

- 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 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. Monitory Non-Monitory

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

Individual Characteris tics

Organizatio ns Characterist

New Experience

Manageria l Behavior

Performance or managerial Function

Experien ce

Learnin g

Management Developmen (iii) Recruitment, training, education, career planning and t

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:

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) (ii) Weak Culture 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.

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.

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.

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.

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.

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.

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. Measuring the actual performance against the standard performance through varies evaluation techniques. The three important aspects related with measurements are, (i) (ii) (iii) Difficulties in measurement. Timing of measurement. Periodicity in measurement.

2. Measurement of performance:

3. Analyzing variances:

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)

 Responsibility control center analyze. CSF analyzes.

Generic strategies approach. 2. Strategic leap control (Unstable environment) Strategic issue management. Strategic field analysis. System modeling. Scenario.