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.

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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

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 managementDisadvantages

– High bureaucratic costs– High costs (time and money) for building

relationships– Two-boss employee’s role conflict

Matrix Structure

Two-boss employee

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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 StructureNetwork Structure

Packagers

Designers Suppliers

Distributors

Corporate Headquarters

(Broker)

Promotion/ Advertising Agencies

Manufacturers

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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

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

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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

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 theOrganizational 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