Strategy Implementation

HCAD 5390
Strategy Implementation

● Good strategic planning is not enough

● Process by which strategies are put into
action
● Process details are unique to each
organization and each strategy
● Sub-strategies, programs, action plans,
policies, procedures, resource allocations,
budgets, authority/responsibility delegation,
teams and task forces, reward and control
systems, and individual assignments
Keys to Strategy Implementation

● Resources and competencies

● Functional area sub-strategies
● Specific decisions and actions
Resources and Competencies

● Strategy implementation depends on resources and

competencies possessed by the firm
● These include:
– Money in certain amounts
– Physical space of certain dimensions
– Particular types of equipment
– Specified numbers of people with …
– Certain skills, capabilities, and competencies
– Control and reporting systems
– Attitude, intuition, and imagination
Resources and Competencies:
Systems

● Collections of policies, procedures, and

protocols, backed by EDP and communications
equipment, and people who work with them
● Purpose is to simplify and regularize the
performance of routine, high-volume tasks
● Producing results that are as uniform and
predictable as possible
● Modern business organizations depend on them
Examples of Organizational Systems

● Accounting and budgeting system

● Management information system
● Manufacturing control system
● Compensation and reward system
● Planning system
Resources and Competencies:
Human Resources

● People possess competencies and carry out

details of strategic plans
● Personnel costs are high proportion of operating
budget in health care organizations
● Ensure enough people in the right places with
the right competencies
● Balance operational and strategic duties
● Think of strategic human resource management
Resources and Competencies:
Organizational Structure

● Taken for granted and assumed immutable

● Formal framework of departments, units, and
groups into which people and the activities they
perform are organized
● Some structures are better suited to certain
strategies than other structures
● A carefully chosen structure can give an
organization a sustainable competitive
advantage
Organizational Structure

● Organizational design
– Selecting the structure and control
systems that are most strategically
effective for pursuing sustainable
competitive advantage.
● The role of structure and control
– To coordinate strategy implementation.
– To motivate and provide incentives for superior
performance.
The Role of Organizational
Structure

● Building blocks of organizational structure

– Differentiation in the allocation of people and
resources to create value.
● Vertical differentiation in the
distribution of decision-making
authority.
● Horizontal differentiation in
dividing up people and tasks
into functions and divisions.
– Integration
● The means used in coordinating people and functions to
accomplish organizational tasks.
Differentiation, Integration,
Bureaucratic Costs

● Bureaucratic costs and strategy

implementation:
– Bureaucratic costs increase with
organizational complexity.
– More differentiation = more managers.
– More integration = more coordination.
– Better strategy implementation = better bottom-
line performance and profitability.
Vertical Differentiation

● Span of control (division of authority)

– The number of subordinates that a single
manager directly manages.
● Organizational hierarchy choices
– Flat structures
● Few organizational levels
● Wide spans of control
– Tall structures
● Many organizational levels
● Narrow spans of control
Tall and Flat Structures
Problems with Tall Structures

● Principle of minimum chain of command

– Maintaining a hierarchy with the least number of
levels of authority needed to achieve a strategy.
● Sources of bureaucratic costs:
Centralization or Decentralization

● Authority patterns in organizations:

– Centralized
● Decision making retained in the
hands of upper-level managers.
– Decentralized
● Decisions delegated to lower
levels in the organization.
Centralization (Structural) Choice?
● Advantages of
decentralization
– Reduced information
overload on upper
managers.
– Increased motivation and
accountability throughout
organization.
– Fewer managers; lower
bureaucratic costs.
● Advantages of
centralization
– Easier coordination of
organizational activities.
– Decisions fitted to broad
organizational
objectives.
– Exercise of strong
leadership in crisis.
– Faster decision making
and response.
Horizontal Differentiation

● Focus is on division and grouping of tasks to

meet business objectives.
● Simple structure:
– Characteristic of small entrepreneurial companies.
– Entrepreneur takes on most managerial roles.
– No formal organization arrangements.
– Horizontal differentiation is low.
 ● Structure Follows Strategy:

– Changes in corporate strategy lead to changes

in organizational structure

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 ● Structure Follows Strategy:
• New strategy is created
• New administrative problems emerge
• Economic performance declines
• New appropriate structure is invented
• Profit returns to its previous levels

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 ● Stages of corporate development

● Simple Structure
● Functional Structure
● Divisional Structure
● Beyond SBU’s

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 ● Simple Structure:
– Stage I:
● Entrepreneur
– Decision making tightly controlled
– Little formal structure
– Planning short range/reactive
– Flexible and dynamic

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 ● Functional Structure:
– Stage II:
● Management team
● Functional specialization
● Delegation decision making
● Concentration/specialization in industry

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 ● Divisional Structure:
– Stage III:
● Diverse product lines
● Decentralized decision making
● SBU’s
● Almost unlimited resources

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 ● Beyond SBU’s:
– Stage IV:
● Increasing environmental uncertainty
● Technological advances
● Size & scope of worldwide businesses
● Multi-industry competitive strategy
● Better educated personnel

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Functional Structure
● Advantages
– Task grouping facilitates
specialization and
productivity.
– Better monitoring of work
processes, reduced
costs.
– Greater control over
organizational activities.
● Disadvantages
– Functional orientation
creates communication
problems.
– Performance and
profitability measurement
problems.
– Location versus function
problems (coordination).
– Strategic problems due
to structural (vertical and
horizontal) mismatches.
Functional Structure
Mutlitdivisional Structure
● Advantages
– Enhanced corporate
control by division
– Enhanced strategic
control of each SBU in
portfolio
– Growth is easier. New
units don’t have to be
integrated across
organization
– Stronger pursuit of
internal efficiencies.
Performance of
individual units is readily
measurable.
● Disadvantages
– Establishing the
divisional-corporate
authority relationship
– Distortion of information
by divisions
– Competition for
resources by divisions
– Transfer pricing problems
between divisions
– Short-term research and
development focus
– Bureaucratic costs
Multidivisional Structure
Matrix Structure
● Advantages
– Flexibility of the structure and membership
– Minimum of direct hierarchical control
– Maximizes use of employees’ skills
– Motivates employees;
frees up top management
● Disadvantages
– High bureaucratic costs
– High costs (time and money) for building
relationships
– Two-boss employee’s role conflict
Matrix
Structure
● Two-boss employee
 ● Network Structure:
– “non structure” – elimination of in-house
business functions
– Termed “virtual organization”
● Useful in unstable environments
● Need for innovation and quick response

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 Network Structure

Package
rs
Designer Supplier
s s
Corporat
Headquarters
e
(Broker)

Manufacturers Distribut
ors
Promotio
Advertisi
n/
Agencie
ng
s

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 ● Effective implementation requires:
– Leadership
● Leading people to use their abilities and skills most
effectively and efficiently to achieve organizational
objectives

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 ● Staffing follows strategy:
– Matching the manager to the strategy
● Executive type
– Executives with a particular mix of skills and
experiences

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Leadership: Three Interdependent
Activities

● Leadership is the process of transforming

organizations from what they are to what the
leader would have them become
● Leadership should be
– Proactive
– Goal-oriented
– Focused on the creation and implementation of a
creative vision
 ● Managing corporate culture:
– Corporate culture
● Affects firm’s ability to shift its strategic direction
● Strong tendency to resist change
● Corporate culture should support the strategy

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 ● Strategy-Culture Compatibility:
– Consider the following:
● Is the planned strategy compatible with the firm’s
current culture?
● Can the culture be easily modified to make it more
compatible with new strategy?
● Is management willing to make major organizational
changes?
● Is management committed to implementing the
strategy?

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 ● Managing corporate culture:
– Communication
● Key to effective management of change
● Rationale for strategic change should be
communicated to all

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What Is Organizational Culture?

● Culture
– The collection of values and norms shared by people and
groups in an organization.
– Shared values and a common culture increase integration
and improve coordination.
● Values
– Beliefs and ideas about common goals and proper
behaviors.
● Norms
– Act as guidelines or expectations that prescribe acceptable
behavior by organizational members.
Organizational Culture

● Ways of transmitting organizational culture:

Culture and Strategic Leadership

● The influence of the founder

– Initial cultural values and management
style is imprinted on the organization
by its founder.
● Organizational structure
– Structure follows strategy.
Strategic leadership affects
the cultural norms and values
that develop in the organization.
Strategic Reward Systems
● Individual reward systems
– Piecework plans
– Commission systems
– Bonus plans
– Promotion
● Group and organizational
reward systems
– Group-based bonus systems
– Profit sharing systems
– Employee stock option systems
– Organization bonus systems
Functional Area Sub-Strategies

● Strategies are implemented by front-line

personnel in the functional areas
● Functional area managers participate in
corporate strategic planning process
● Not enough to just take functional area
concerns into account
Functional Area Strategic Contributions

● Provide background to initial thinking about

strategic possibilities
● Suggest specific strategies to address
opportunities identified
● Perform activities that make chosen strategies a
reality
Marketing Strategy Contributions (I)

● Closest contact to market and external

environment
● Strategic knowledge inputs:
– market segments,
– customers preferences,
– firm’s reputation and market position,
– competitor intelligence,
– market threats and opportunities,
– industry and general environment
Marketing Strategy Contributions (II)

● Growth strategy recommendations:

– new products or services
– enhancements of existing products or services
– new customers to be served
– unmet customers’ needs
– new technologies with market appeal
– customer service improvements
– new distribution channels
– new market segments
Marketing Strategy Contributions (III)

● Roles in strategy implementation:

– Publicize strategic innovations to customers
– Explain value of new product features
– Boost demand through aggressive advertising,
price promotions, personal selling, and direct
marketing
– Communications link between the business and
its market
Operations Strategic Contributions

● Core of the business, creating products and

services sold to customers
● If strategic goal is to increase sales …
– Does operations have the capacity?
● If strategy based on new products or features
…
– Can operations manufacture them?
● Low-cost leadership or retrenchment
strategies
– Depend on cost-cutting in operations
R&D Strategic Contributions

● May dominate the business (pharma,

biotech) or be non-existent (physician
practice)
● Pharmaceutical company research pipelines
● Shift research into new scientific area or
away from an existing area
● Ability to develop new products or features
called for by
Information System
Strategic Contributions (I)

● Critical functional area in health care industry

● Perform typical business functions:
– Cost accounting
– Inventory control
– HR and employee benefits
– Customer relations
– Corporate communications
Information System
Strategic Contributions (II)

● Perform unique health care functions:

– Tracking services delivered to support claims filed
– Claims submission and collection
– Carry out physician clinical orders
– Maintain record of patient conditions and treatments
– Gather and correlate clinical outcomes data
– Gather data on treatment costs and efficacy
– Evaluate physicians regarding resource utilization and clinical
outcomes
– Transmit all these data among organization stakeholders
Information System
Strategic Contributions (III)

● Specific strategic roles:

– Basis for differentiation from competitors
– Capacity to handle increased volume of customers or
sales
– Facilitate cost-cutting by streamlining operational
processes and identifying points of cost inefficiency
– Reveal value chain points at which differentiated
value added is possible
Human Resources
Strategic Contributions (I)

● Supports all other functions in carrying out

operational and strategic responsibilities
● Assure that right numbers and types of
personnel are available for strategic initiatives
● Hire and develop employees to ensure that
appropriate competencies are available when
needed
Human Resources
Strategic Contributions (II)

● Recommend motivational and reward activities

to enhance organizational performance
● Propose organizational structures better suited
to new strategies
● Oversee workforce reduction during
retrenchment
Creating Functional Area Strategies

● Each functional area creates a strategic plan

● A plan that supports and meshes with the
organization-wide plan
● A plan that is synchronized with plans in
other functional areas
● Functional area managers must participate in
organization-wide planning and be in
communication with each other
Strategy Implementation Actions (I)

● Overall strategy broken down into

manageable parts
● Scope of each part defined in detail
● Goals and deadlines set for accomplishment
● Appropriate resources allocated
Strategy Implementation Actions (II)

● Right numbers and types of people assigned

● Policies and procedures to guide their
actions
● One person assigned overall responsibility
for each part
● Progress measured and tracked
● Changes and adjustments when appropriate
Examples of Strategy Implementation
Actions (I)

● Marketing campaigns – new, refocus, expand or

contract, discontinue, different media, test pilots
● Facilities – new, expand, repurpose, close
● Products/services – new (create, develop,
invent), redesign, add new features, discontinue
● Product prices – raise, lower, bundle or
unbundle products
Examples of Strategy Implementation
Actions (II)

● Operating processes – reengineer, tasks (new,

reorder, combine, separate, perform differently
or less expensively)
● Departments, offices, teams – new, refocus,
discontinue, expand, split up
● Employees – new, transfer, retrain or develop,
lay off
● New systems for monitoring and measuring
operating performance
Delegating Implementation Tasks

● Best if implementers involved in planning

● Task content must fit expertise and skills of
person assigned
● If right person not available?
– Temporary stand-in for operational duties
– Special training for another employee
– Worth hiring a new, trained employee
● Involve HR in strategic planning
Delegation Through the
Organizational Hierarchy

● Functional area heads work with the managers of

departments, facilities, and units
● Together they formulate sub-strategies to carry out
the area strategies
● Managers break the work down into bundles of tasks
for assignment to teams, task forces, and work
groups (ad hoc or permanent)
● Programs or projects may be set up to implement
specific strategic elements
● Tasks are assigned to individual employees
Elements in a Strategy Action Plan

● Policies
● Procedures
● Methods
● Rules
● Objectives
● Time deadlines
● Personnel assignments
Allocation of Resources

● People, space, equipment, supplies, website

space, agenda time at meetings, authority,
discretion, and money
● Money is usually the most critical strategic
resource
● Purpose of capital expenditures
– Replace existing capital assets
– Acquire new non-strategic capital assets
– Carry out strategic plans
Choosing Strategic Capital
Expenditures (I)

● Identify and describe all capital spending requests

– amount
– timing
– assets acquired
– purposes
● Describe non-financial benefits of each request
– patient satisfaction
– less maintenance downtime
– lower employee turnover
– speedier member enrollment
Choosing Strategic Capital
Expenditures (II)

● Set priorities on basis of urgency factors

– relevance to current operations
– response to legal mandate
– response to competitors’ moves
– critical element in strategic plans
● Project cash flows for each request
● Perform financial analysis of each request
– Net present value
– Discounted cash flow
– Payback period
Choosing Strategic Capital
Expenditures (III)

● Compare and evaluate financial and non-

financial benefits of all capital requests
– Using standard criteria decided beforehand
● Decide which to fund and in what amounts
Strategic Objectives and Deadlines

● Long and short-term objectives

● Accompanied by dates for achievement
● Purposes served:
– Guide and motivate employees
– Basis for measuring progress and evaluating
employees, particularly managers
– Establish priorities for each unit or subunit
– Basis for allocating resources
Examples of Strategic Objectives

● May be applied to market segments,

geographic areas, products/services,
facilities, operating unit
● May be stated in terms of sales, profits,
market share, patient volume, employees
hired/trained, or other metrics showing
strategic progress
● Good objectives are measurable,
challenging, achievable, publicized,
consistent, time-based
Potential Implementation Problems (I)

● Original plan poorly conceived

● Took more time than planned
● Unanticipated internal/external problems
arose
● Poor coordination of activities
● Crises or competing activities diverted
attention
● Assigned employees lacked necessary skills
Potential Implementation Problems (II)

● Assigned employees were inadequately

trained
● Insufficient allocation of resources
● Uncontrollable external environmental factors
● Inadequate lower-level leadership and
direction
● Poorly defined key tasks and activities
● Inadequate monitoring of activities and
progress