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Transcript of Strategy 4 Th Unit
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UNIT IV
Strategy implementation
The process in between strategy formulation and strategy adoption is calledstrategy 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
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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 whichnew 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
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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
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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 thestrategies 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
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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 Finance Human resources
Production
Workers Workers Workers
Workers
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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 Human resources Finance
Division 2
Marketing
Marketing
Operations
Operations
Advantages of this structure
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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 2
SBU 3
Marketing Marketing
Marketing
Operations Operations
Operations
Human resources Human resources
Human resources
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Finance Finance
Finance
Strategies
Each business units follows their own business level strategies like costleadership, 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 Finance
Human resources Production
Project 1
Project 2
Project 3
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
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6. Design and administration of planning system
1. Information System:
(i) It enables the managers to know what they need to grasp in
order to perform their tasks.
(ii) To coordinate the activities with others.
(iii) This system is more feasible for the middle and low level
management.
(iv) Technological advancement in the processing and usage of
information has been achieved by increasing the application of
computers as an aid in management.
(v) In the initial growth phase- simple type of information type.
(vi) In the growth Expansion phase - more formal information type.
(vii) 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
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(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.
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- 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
Monitory
Non-Monitory(iii) -Small organizations need informal motivation system & monitory
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.
Individual
Characteris
New
ExperienceOrganizatio
ns
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(iii) Recruitment, training, education, career planning and
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:
Managerial Behavior
Performance
ormanagerial
Experien Learnin
Management
Developmen
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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) Weak Culture
(ii) 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.
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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.
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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.
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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.
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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.
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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.
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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.
2. Measurement of performance:
Measuring the actual performance against the standard
performance through varies evaluation techniques. The three important
aspects related with measurements are,
(i) Difficulties in measurement.
(ii) Timing of measurement.
(iii) Periodicity in measurement.
3. Analyzing variances:
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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)
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Responsibility control center analyze.
CSF analyzes.
Generic strategies approach.
2. Strategic leap control (Unstable environment) Strategic issue management.
Strategic field analysis.
System modeling.
Scenario.