BPSM Mod 6 Implementing Strategy

7/27/2019 BPSM Mod 6 Implementing Strategy

http://slidepdf.com/reader/full/bpsm-mod-6-implementing-strategy 1/35

BPSM: Module 6 ImplementingStrategy

1

Business Policy & Strategic ManagementModule 6

Implementing Strategy

N.R.Govinda Sharma



Crisis at Infosys• Crisis at Infosys

• Infosys reported its worst ever quarterlyoperating margin of 23.6% which has fallen from31% in the December 2011 quarter

• FY14 guidance is anything but assuring. – At the lower end of the 6-10% revenue guidance, the

company expects the top line to grow at just over1.5% on an average every quarter in the currentfiscal.

• Source: Economic Times, 13 April 2013, http://articles.economictimes.indiatimes.com/2013-04-13/news/38511370_1_infosys-technologies-operating-margin-lodestone


2



Crisis at Infosys• Growth and profitability at Infosys has reached such a

low level that even an upstart company like Cognizantdisplaced it to the third place from its second place


3

FirmRevenues(FY 2012) Employees

TCS $10.17 billion 254,076

Cognizant Technology $7.05 billion 185,045

Infosys $6.69 billion 153,761

Wipro $ 5.73 billion 140,569

HCL Technology $4.3 billion 85,335



Crisis at Infosys• Why?

• Of the many reasons, one reason that is ofinterest to us now is that the post of ChiefOperating Officer (COO) was left unfilled andCEO was unable to manage both the tasks

– Shibulal was the COO prior to becoming the CEOand Managing Director

» On 21 August 2011, he took over his new role

from Kris Gopalakrishnan and since then the postof COO is left unfilled


4



Crisis at Infosys• Other reasons attributed are

– Low margin business of Lodestone, which would taketime to get the benefits of offshoring

– Under-utilisation of the employees (bench rate ofnearly 30% as on June 2012) (see “Infosys, TCS, Wipro, iGate, UST Global devise new

ways to keep benched staff occupied”, Economic Times, 20 July 2012, http://articles.economictimes.indiatimes.com/2012-07-20/news/32764704_1_bench-internal-projects-utilisation-rate)

– The wage hike

– From what Mr Nagarajan Srinivasan, Infosys, said on

9 August 2013, the fundamentals of Infosys are goodand the drop is due to time lag in implementation to a“higher trajectory”


5



Crisis at Infosys• With NRN taking on the mantle of executive chairman

again (01 June 2013), the market did react favourably• The favourable reaction is due to the expectation that

NRN will be able to galvanise the culture and thestructure of the organisation

• But one question remains

– Did Infosys break its promise by allowing Rohan Murthy to workat Infosys even as an adviser?

• Picture abhi baki hai, mere dost☺ (Only time will let us know if these

expectations are well-founded)


6



Relation between strategy,structure and culture

• As the story of Infy suggests, the profitability of

an organisation is influenced by – The Organisational structure and

– the culture

• As we know, strategy is all about increasingfirm’s competitive advantage

• So, managers choose an organisation’s

structure and inculcate an organisational culturethat enable implementation of strategies thatlead to competitive advantage


7



Strategy implementation throughOrganisational Design

• Strategy implementation involves use of

Organisational Design – Organisational Design is the process of deciding how

a company should create, use and combine

organisational structure, control system and culture topursue a business model

• Which means the structure, control system and culture atCost Leader company like Walmart will be different as

compared to a Differentiated company like Google as theirbusiness models will be different!


8



Implementing Strategy throughOrganisational Design


9

OrganisationalDesign

Organisational

Structure

OrganisationalControl Systems

OrganisationalCulture

Coordinate andmotivateemployees

To achieve superior:

• Efficiency• Quality• Innovation• Responsiveness to customers



Organisational structure• So, Organisational Design has three

components, viz., Organisational Structure,Control Systems and Culture

– So, what is organisational structure?

• Organisational structure assigns employees to specific valuecreation tasks and roles and specifies how these roles andtasks are to be linked together in a way that increases

– Efficiency

– Quality

– Innovation and

– Responsiveness to customers


10



Control Systems• Organisation structure provides a set of relations

between members of the organisation but something else is additionally required to motivate theparticipants

• It is the control system which provides themanagers with

– A set of incentives to motivate employees

– Specific feedback on how well this system is workingto improve the building blocks of competitiveadvantage


11



Balance Score Card (BSC)• Balance Score Card (BSC) is a strategic control system

that goes beyond the conventional financial controlssuch as ROIC to measure and evaluate organisationalperformance (p 362 – 364 of text)

• While financials results indicate the results of decisions

already taken; the other measures balance this pictureby informing strategic managers how organisations hasin place building blocks that drive future performance


12



Case study on BSC• Let us take up in the next class discussion of the case

• “Using strategy maps (read p 399 – 403 of “Concepts and cases in Strategic

Management – A dynamic perspective” by Carpenter, Sanders and Salwan) andbalanced score card: The case of Manpower Australia”

• This is the last of the case and I insist on thoroughpreparation by the students

• May ask a few students to run the case completely


13



Orgnisational Culture• Organisational culture is the collection of values,

norms, beliefs and attitudes that are shared bypeople and groups in the organisation andinfluence the way they interact with each other

and with stakeholders outside the organisation – “Open culture” where employees feel free to interact

with the highest manager

– or the “Bureaucratic culture” of levels and hierarchy

– Founding fathers have a strong influence on theculture of the organisation, as you can recollect fromInfosys story


14



Implementing Strategy throughOrganisational Design

• Organisational structure, control and culture

shape people’s behaviours, values and attitudesand determine how they will implement anorganisation’s business model and strategy

• Conversely, top managers devise a plan toreorganise or change the company’s structure,control system and culture to improve

coordination and motivation, especially inchanged circumstances


15



Strategy, Tasks and Functions• Tasks that an organisation pursues are a function of its

strategy, companies choose structure to match theorganisational strategy

• Let us try to understand this by following the strategyand the corresponding tasks of Toyota Motors

• At the heart of Toyota’s strategy in motor vehicles is tooutcompete rivals by manufacturing world-class qualityvehicles at lower prices and selling them at competitive

prices• When Toyota entered USA in 1980 and came up with its

first car….


16



Toyota, 1983• Toyota Tercel wagon,

1983-87, an ugly car

– Boxy hatchbacks aren'tinherently ugly, but when youadd in odd angles and arearmost window that lookslike it dropped out of a Lego

kit, things start to go wrong – It goes completely wrong when

you circle around back andrealize some joker has slappedan ATM on the back of yourcar

• Source: “Top ten ugly cars” by Cars.comStaff, Cars.com,

http://www.cars.com/go/advice/Story.jsp?section=top&subject=more&story=top10ugly,downloaded on 7 August 2013


17



Toyota 2013• Toyota Lexus 2013 is

a luxury sedan carvaluedbetween $72,885 -

$120,805 is asculpted car!• Source:

http://buyersguide.caranddriver.co

m/lexus/ls/price#featuresdownloaded on 7 August 2013


18



Toyota – High Value Vehicle tomatch every customer

• From its ugly car in 1980 to a sculpted beauty in 2000s, Toyota hasmoved from being a

– Cost leader to

– Differentiator!

• Ploughing back its profit into improving the styling of its vehicles andcontinuously reducing its production cost (though not its prices!)

• See Strategy in Action 5.4, p 169 of text

• This has required building tasks and functions such as R&D, brandbuilding and positioning (Marketing) and production systems(famously known as Toyota Production Systems (TPS) comprising

of JIT, Kaizen..) (See p 380, Illustration Capsule 11.2, “Crafting and Executing Strategy” by Thompson, Strickland, Gamble & Jain)

• Thus Toyota pursued functions and tasks suited to implement itsstrategy of moving from being a cost leader to a differentiator,perhaps simultaneously


19



Combining cost leaderleadership and differentiation

• Companies like Toyota combine both the aspects of cost

leadership and differentiation

20

GoodOrganisational

design

Economies inBureaucratic costs

Enhances value chainCompetencies andcapabilities

Leading to low costStructure and ability toChoose low price option

Leading to differentiationAdvantage and option ofCharging premium price

This leads to competitiveAdvantage, profitability

And superior return

on investment



Functions and tasks• After having understood task, it is advantageous

to understand what it means by a function – A functions is a collection of people who work

together and perform the same type of task

– For example, R&D engineers and scientists at Toyotawould be carrying the task of researching anddeveloping better and more stylish cars, taking itthrough wind tunnels and hence belong the R&D

function


21



Principle of organisational design• Centralisation vs decentralisation

– Authority is centralised when authorities at the upperlevels of a company retain the authority to make themost important decisions

– It is decentralised when authority is vested inmanagers at the lower levels

• Decentralisation helps to reduce bureaucraticcosts and improve market response


22



Example of strategic decentralisation• See Strategy in Action 12.2 on page 387 of text

• Case of decentralisation

– Union Pacific (UP), biggest rail freight carrier in the US,experience crisis in 1990 due to increased amount of freight tobe handled

– Delays led to increase in customer complaints

– Problem stemmed from UP’s decision to centralise authority,regarding scheduling and routing, high in organisation to cut cost

– Now recognising that efficiency had to be balanced with cost,CEO took a decision that regional, and not top managers, will

have authority to take operational decisions; they could alterscheduling and routing to accommodate customer requests evenif it raised costs

– So, the decision to centralise was reversed


23



Example of strategic centralisation• If decentralisation is so effective, why

don’t all companies decentralise?!

• Case of centralisation• See Strategy in Action 12.2 on page 387 of text

– Yahoo!, after the failed merger with Microsoft wasfacing intense competition and the CEO Carol Bartz

recentralised authority – She decided to recentralise functions such as product

development and market, previously performed bydifferent units

– This would cut down cost

– She held “town hall” meetings with the employeesseeking “what would you do if you were me?” todecrease dissent and improve involvement amongstemployees


24



Different Organisational Structures• A firm can choose different types organisation structure

to suit its strategy• Functional structure

– Activities are organised according to functions such asoperations, finance, marketing and R&D

• Product structure – Organisation is based on products such as Mobile phones,

multimedia smart phones, wireless phone networks etc., as inNokia

• Matrix structure – Is a combination of Functional and Product Structure


25



Functional structure

• Functional structure works well in small organisation (SMEs)

• It fosters efficiency and cost saving as people with same skill worktogether and can learn the trade from each other

• But as firms grow, the functional structure tends to becomedysfunctional because each function focuses too narrowly and tendslose sight of other functions

BPSM: Module 6 ImplementingStrategy 26

Corporate Office

Operations Marketing / Sales Finance R&D



Product structure

• For a company like Nokia, which offers many products as a strategy,product structure is most suitable

• The idea is to divide the company’s growing product lines intomanageable subunits to reduce bureaucratic costs

• Thereby, needs of various consumer groups are best taken care ofwhile keeping the number of levels of hierarchy minimum (principle

of minimum chain of command (p 384) 27

CEO

Finance Marketing Operations R&D

Mobile phones Multimedia smart phones Wireless corporateinternet products

Wireless phone networks



Matrix structure


President

Functional

Managers for

Engineering Sales & Mkt Finance R & D Purchase

Product A

Product B

Product C

Product D

P r o d u c t

M a n a g e r s f o r



Implementing cost leadership• Now let us see how strategy implementation a cost

leader company differs from differentiator• A company pursuing cost leadership should reducecosts across all functions, for example,

– R&D

• Efforts will perhaps focus on product and process developmentrather than expensive new product innovation

– Marketing & Sales

• Introducing standard products that require little sales and marketing

– Production• Standard products and production methods that require less

resources




Implementing cost leadership• Structure

– In cases of companies pursuing cost leadership, functionalstructure is most suitable with care being taken to selectintegrating mechanism that will reduce communication andmeasurement problems

• Control system

– Output control measures are more suited as they are the easiestand cheapest

• Culture

– Culture is based on values that emphasise on bottom line• For example, Walmart insisting that cost of travel expense should not

exceed 1% of purchase amount




Implementing Differentiation• To make its product unique in the eyes of the customers, the

company opting for differentiation strategy must design its structure,control and culture around the particular source of its competitive

advantage• So, products have to be customised for different groups of

customers, rather than standardised as in the case of cost leader,

– The demands on communication, and measurement increase calling for

a more sophisticated control systems such as• Behavioural control system(*), rather than output control as in the case of cost leader,

will be more appropriate

• (*) See page 392 of text, Intent of behavioural control is not to specify the goals but tostandardise the ways and means of reaching goals

• Developing a culture of sharing rather than competition will be thekey

• HP, Coca-Cola, Google exemplify companies adopting professionalculture




Implementing Differentiation• This explains as to why more formal and sharing

culture, rather than the culture that focuses onthe bottom line as in cost leader such asWalMart, exists in companies such as Google as

the particular source of their competitiveadvantage is human resource




Summary of the module• Strategy is action biased

– Strategy is as good as it is implemented

• Strategy is implemented through organisational design whichcomprises of developing

– Organisational structure

– Organisational control

– Organisational culture• Effective organisational design increases profitability in two ways

– It economises bureaucratic cost (Principle of minimum chain ofcommand

– It enhances ability of a company’s value creation functions to achievesuperior efficiency, quality, innovativeness, and customerresponsiveness




Summary of the module• Centralisation and decentralisation is important issue in designing

organisational structure – Centralisation allows greater control and hence controls cost

– Decentralisation allows for better customer response and efficiency

• Strategic control provides for monitoring and incentive systemnecessary to make organisational structure work as intended andextends corporate governance to all levels of the organisation

• Main forms of control are – Output control

– Behavioural control and personal control

• Culture is the set of shared values

• Cost leadership and differentiation each different type of structureand control systems – Pressure to increase differentiation is to be balanced against the pressure to

reduce cost




Summary of the module• Different type of organisational structure are

• Functional – Suitable for smaller orgnisations and helps reduce cost but tends to unsuitable

as organisations grow

• Product – Helps to cater to consumer groups based on product but helps group support

activities to reduce cost• Matrix

– Combines the benefits of product and functional organisational structure

• End of the module


Documents

BPSM Mod 6 Implementing Strategy