CHAPTER a

STRATEGY
IMPLEMENTATION
AND EVALUATION

LEARNING OUTCOMES
After studying this chapter, you will be able to:
♦ Describe the process of Strategy Management: From Formulation to
Implementation
♦ Evaluate the salience of strategy implementation.
♦ Explain Strategic Change through Digital Transformation
♦ Differentiate between Organisation Structure (hard) and Culture (soft)
♦ Signify the meaning and importance of Strategic Leadership
♦ Discuss the role of Strategic Control
♦ Identify and Classify Strategic Performance Measures
“Effective leadership is not about making speeches or being liked; leadership is
defined by results not attributes”. - Peter Drucker
“A leader is one who knows the way, goes the way, and shows the way”
- John Maxwell

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5.2 STRATEGIC MANAGEMENT

CHAPTER OVERVIEW

Interrelationship
between
Strategy
Formulation and
Strategic Strategic
Implementation
Performance Change
Measures through Digital
Transformation
Strategy
Implementation
and Evaluation
Organisation
Strategic Structure
Control (hard) and
Culture (soft)
Strategic
Leadership

5.1 INTRODUCTION
Strategy implementation and evaluation are critical phases of the process of
strategic management in an organization. Implementation involves putting the
plans and initiatives developed as part of the strategy into action, while evaluation
refers to the process of measuring and assessing the effectiveness of these actions.
In this chapter, we will explore various implementation and evaluation methods that
organizations can use to assess the success of their strategy implementation and
identify areas for improvement. This chapter will provide a comprehensive overview
of the implementation and evaluation process and equip readers with the
knowledge and skills needed to effectively execute and assess their organization's
strategies. To begin with an overview of the process of strategic management is
provided in the next section.

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5.2 STRATEGIC MANAGEMENT PROCESS

The process of developing an organisation’s strategy is quite methodical. The
organisation first develops a clear vision, mission, values and goals. They then must
then discuss and analyse a number of themes to determine which options are most
promising. All these aspects come together in a strategic plan that details the
organisation’s vision, mission, values, goals, strategic themes, a high-level
implementation plan and key performance measures. The key performance
measures are included in the strategic plan and are used to link the themes back
to the organisation’s goals and to measure the success of the strategy after it is
implemented.
The strategic management process is dynamic and continuous. A change in any
one of the major components in the model can necessitate a change in any or all
of the other components. For instance, a shift in the economy could represent a
major opportunity and require a change in long-term objectives and strategies; a
failure to accomplish annual objectives could require a change in policy; or a major
competitor’s change in strategy could require a change in the firm’s mission.
Therefore, strategy formulation, implementation, and evaluation activities should
be performed on a continual basis, not just at the end of the year or semi-annually.
The strategic management process never really ends.

Environmental
Analysis

Develop Vision, Generate, Strategic

Implement
Mission and Analyse and Evaluation and
Strategies
Objectives Select Strategies Control

Organisation
Appraisal

Formulation Implementation Evaluation

Figure: Strategic Management Model (Fred R David)

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5.4 STRATEGIC MANAGEMENT

The strategic management process can best be studied and applied using a model.
Every model represents some kind of process. The model illustrated in the Figure:
Strategic Management Model (Fred R David) is a widely accepted, comprehensive.
This model like any other model of management does not guarantee sure-shot
success, but it does represent a clear and practical approach for formulating,
implementing, and evaluating strategies. Relationships among major components
of the strategic management process are shown in the model.
In practice, strategists do not go through the process in lockstep fashion. Generally,
there is give-and-take among hierarchical levels of an organisation. The process
essentially is iterative and involves a lot of back-and-forth considerations across
different stages in the strategic management process. Many organisations conduct
formal meetings semi-annually to discuss and update the firm’s vision/mission,
opportunities/threats, strengths/weaknesses, strategies, objectives, policies, and
performance. Creativity from participants is encouraged in meeting. Good
communication and feedback are needed throughout the strategic management
process.

5.2.1 Stages in Strategic Management

Crafting and executing strategy are the heart and soul of managing a business
enterprise. But exactly what is involved in developing a strategy and executing it
proficiently? And who besides top management has strategy – formulation –
executing responsibility?
Strategic management involves the following stages:
1. Developing a strategic vision and formulation of statement of mission, goals
and objectives.
2. Environmental and organisational analysis.

3. Formulation of strategy.
4. Implementation of strategy.
5. Strategic evaluation and control

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Stage 1: Strategic Vision, Mission and Objectives

First a company must determine what directional path the company should take
and what changes in the company’s product – market – customer – technology –
focus would improve its current market position and its future prospect. Deciding
to commit the company to one path versus other pushes managers to draw some
carefully reasoned conclusions about how to try to modify the company’s business
makeup and the market position it should carve out. Top management’s views and
conclusions about the company’s direction and the product-customer-market-
technology focus constitute a strategic vision for the company. A strategic vision
delineates management’s aspirations for the organisation and highlights a
particular direction, or strategic path for it to follow in preparing for the future and
molds its identity. A clearly articulated strategic vision communicates
management’s aspirations to stakeholders and helps steer the energies of company
personnel in a common direction.
Mission and Strategic Intent: Managers need to be clear about what they see as the
role of their organisation, and this is often expressed in terms of a statement of
mission. This is important because both external stakeholders and other managers
in the organisation need to be clear about what the organisation is seeking to
achieve and, in broad terms, how it expects to do so. At this level, strategy is not
concerned with the details of SBU competitive strategy or the directions and
methods the businesses might take to achieve competitive advantage Rather, the
concern here is overall strategic direction.
Corporate goals and objectives flow from the mission and growth ambition of the
corporation. Basically, they represent the quantum of growth the firm seeks to
achieve in the given time frame. They also endow the firm with characteristics that
ensure the projected growth. Through the objective setting process, the firm is
tackling the environment and deciding the focus it should have in the environment.
The objective provides the basis for major decisions of the firm and also help the
organisational performance to be realized at each level. The managerial purpose of
setting objectives is to convert the strategic vision into specific performance targets
– basically the results and outcomes the management wants to achieve - and then
use these objectives as yardsticks for tracking the company’s progress and
performance.

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5.6 STRATEGIC MANAGEMENT

Ideally, managers ought to use the objective-setting exercise as a tool for truly
stretching an organisation to reach its full potential. Challenging company
personnel to go all out and deliver big gains in performance pushes an enterprise
to be more inventive, to exhibit some urgency in improving both its financial
performance and its business position, and to be more intentional and focused in
its actions.
Objectives are needed at all organisational levels. Objective setting should not stop
with top management’s establishing of companywide performance targets.
Company objectives need to be broken down into performance targets for each
separate business, product line, functional department, and individual work unit.
Company performance can’t reach full potential unless each area of the
organisation does its part and contributes directly to the desired companywide
outcomes and results. This means setting performance targets for each
organisation unit that support-rather than conflict with or negate-the achievement
of companywide strategic and financial objectives.
Stage 2: Environmental and Organisational Analysis
This stage is the diagnostic phase of strategic analysis. It entails two types of
analysis:
1. Environmental scanning
2. Organisational analysis
The external environment of a firm consists of economic, social, technological,
market and other forces which affect its functioning. The firm’s external
environment is dynamic and uncertain. So, the management must systematically be
analysed various elements of environment to determine opportunities and threats
for the firm in future.
Organisational analysis involved a review of financial resources, technological
resources, productive capacity, marketing and distribution effectiveness, research
and development, human resource skills and so on. This would reveal
organisational strengths and weaknesses which could be matched with the threats
and opportunities in the external environment. This would provide us a framework
for SWOT analysis (Strength, Weakness, Opportunity and Threat) which could be in

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the form of a table highlighting various strengths and weaknesses of the firm and
opportunities and threats which the environment we create for the firm.
Stage 3: Formulating Strategy
The first step in strategy formulation is developing strategic alternatives in the light
of organisation strengths and weaknesses, and opportunities and threats in the
environment. The second step is the deep analysis of various strategic alternatives
for the purpose of choosing the most appropriate alternative which will serve as
the strategy of the firm.
A company may be confronted with several alternatives such as:
i. Should the company continue in the same business carrying on the same
volume of activities?
ii. If it should continue in the same business, should it grow by expanding the
existing units or by establishing new units or by acquiring other units in the
industry?
iii. If it should diversify, should it diversify into related areas or unrelated areas?
iv. Should it get out of an existing business fully or partially?

The above strategic alternatives may be designated as stability strategy,

growth/expansion strategy and retrenchment strategy. A company may also follow
a combination of these alternatives called combination strategy.
Stage 4: Implementation of Strategy
Implementation and execution are an operations-oriented activity aimed at
shaping the performance of core business activities in a strategy-supportive
manner. It is the most demanding and time-consuming part of the strategy-
management process. To convert strategic plans into actions and results, a
manager must be able to direct organisational change, motivate people, build and
strengthen company competencies and competitive capabilities, create a strategy-
supportive work climate, and meet or beat performance targets.
In most situations, strategy-execution process includes the following principal
aspects:

♦ Developing budgets that steer ample resources into those activities critical to
strategic success.

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5.8 STRATEGIC MANAGEMENT

♦ Staffing the organisation with the needed skills and expertise, consciously
building and strengthening strategy-supportive competencies and
competitive capabilities and organising the work effort.
♦ Ensuring that policies and operating procedures facilitate rather than impede
effective execution.
♦ Using the best-known practices to perform core business activities and
pushing for continuous improvement.

♦ Installing information and operating systems that enable company personnel

to better carry out their strategic roles day in and day out.
♦ Motivating people to pursue the target objectives energetically.
♦ Creating a company culture and work climate conducive to successful
strategy implementation and execution.
♦ Exerting the internal leadership needed to drive implementation forward and
keep improving strategy execution. When the organisation encounters
stumbling blocks or weaknesses, management has to see that they are
addressed and rectified quickly.

Good strategy execution involves creating strong “fits” between strategy and
organisational capabilities, between strategy and the reward structure, between
strategy and internal operating systems, and between strategy and the
organisation’s work climate and culture.
Stage 5: Strategic Evaluation and Control
The final stage of strategic management process – evaluating the company’s
progress, assessing the impact of new external developments, and making
corrective adjustments – is the trigger point for deciding whether to continue or
change the company’s vision, objectives, strategy, and/or strategy-execution
methods. So long as the company’s direction and strategy seem well matched to
industry and competitive conditions and performance targets are being met,
company executives may decide to stay the course. Simply fine-tuning the strategic
plan and continuing with ongoing efforts to improve strategy execution are
sufficient.

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But whenever a company encounters disruptive changes in its external

environment, questions need to be raised about the appropriateness of its direction
and strategy. If a company experiences a downturn in its market position or
shortfalls in performance, then company managers are obligated to ferret out
whether the causes relate to poor strategy, poor execution, or both and then to
take timely corrective action. A company’s direction, objectives, and strategy have
to be revisited anytime external or internal conditions warrant. It is to be expected
that a company will modify its strategic vision, direction, objectives, and strategy
over time.

Proficient strategy execution is always the product of much organisational learning.

It is achieved unevenly – coming quickly in some areas and proving nettlesome and
problematic in others. Periodically assessing what aspects of strategy execution are
working well and what needs improving is normal and desirable. Successful strategy
execution entails vigilantly searching for ways or continuously improve and then
making corrective adjustments whenever and wherever it is useful to do so.

5.2.2 Strategy Formulation

Corporate Strategy
Planning entails choosing what has to be done in the future (today, next week, next
month, next year, over the next couple of years, etc.) and creating action plans. An
essential element of effective management is adequate planning. Choosing a path
of action to achieve defined goals is a part of planning.

The game plan that really directs the company towards success is called “corporate
strategy”. Planning may be operational or strategic. Senior management develops
strategic plans for the entire organisation after evaluating the organization's
strengths and weaknesses in light of potential possibilities and dangers in the
outside world. They involve gathering and allocating resources in order to achieve
organisational goals. But operational plans on the other hand are made at the
middle and lower-level management. They provide specifics on how the resources
are to be used effectively to achieve the goals.

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5.10 STRATEGIC MANAGEMENT

Corporate Strategy

Strategic planning Operational planning

Characteristics of
Characteristics of
Strategic planning
Operational planning
Shapes the organisation and its
Deals with current deployment
resources.
of resources.
Assesses the impact of
Develops tactics rather than
environmental variables.
strategy.
Takes a holistic view of the
Projects current operations into
organisation.
the future.
Develops overall objectives and
Makes modifications to the
strategies.
business functions but not
Is concerned with the long-term
fundamental changes.
success of the organisation.
Is the responsibility of
Is a senior management
functional managers.
responsibility.

Strategic Planning: The game plan that really directs the company towards success
is called “corporate strategy”. The success of the company depends on how well
this game plan works. Because of this, the core of the process of strategic planning
is the formation of corporate strategy. The formation of corporate strategy is the
result of a process known as strategic planning.
♦ Strategic planning is the process of determining the objectives of the firm,
resources required to attain these objectives and formulation of policies to
govern the acquisition, use and disposition of resources.

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♦ Strategic planning involves a fact of interactive and overlapping decisions

leading to the development of an effective strategy for the firm.
♦ Strategic planning determines where an organisation is going over the next
year or more and the ways for going there.
♦ The process is organisation-wide or focused on a major function such as a
division or other major function.
Strategic uncertainty and how to deal with it?
Strategic uncertainty refers to the unpredictability and unpredictability of future
events and circumstances that can impact an organization's strategy and goals. It
can be driven by factors such as changes in the market, technology, competition,
regulation, and other external factors. Dealing with strategic uncertainty can be
challenging and organizations need to have the flexibility, resilience, and agility to
quickly respond to changes in the environment and minimize its impact. To be
manageable, they need to be grouped into logical clusters or themes. It is then
useful to assess the importance of each cluster in order to set priorities with respect
to Information gathering and analysis.
♦ Flexibility: Organizations can build flexibility into their strategies to quickly
adapt to changes in the environment.
♦ Diversification: Diversifying the organization's product portfolio, markets,
and customer base can reduce the impact of strategic uncertainty.
♦ Monitoring and Scenario Planning: Organizations can regularly monitor
key indicators of change and conduct scenario planning to understand how
different future scenarios might impact their strategies.
♦ Building Resilience: Organizations can invest in building internal resilience,
such as strengthening their operational processes, increasing their financial
flexibility, and improving their risk management capabilities.
♦ Collaboration and Partnerships: Collaborating with other organizations,
suppliers, customers, and partners can help organizations pool resources,
share risk, and gain access to new markets and technologies.
Impact of uncertainty: Each element of strategic uncertainty involves potential
trends or events that could have an impact on present, proposed, and even
potential businesses., a trend toward natural foods may present opportunities for

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5.12 STRATEGIC MANAGEMENT

juices for a firm producing aerated drinks on the basis of a strategic uncertainty.
The impact of a strategic uncertainty will depend on the importance of the
impacted SBU to a firm. Some SBUs are more important than others. The
importance of established SBUs may be indicated by their associated sales, profits,
or costs. However, such measures might need to be supplemented for potential
growth as present sales, profits, or costs may not reflect the true value.

5.2.3 Strategy Implementation

Strategy implementation concerns the managerial exercise of putting a freshly
chosen strategy into action. It deals with the managerial exercise of supervising the
ongoing pursuit of strategy, making it work, improving the competence with which
it is executed and showing measurable progress in achieving the targeted results.
Strategic implementation is concerned with translating a strategic decision into
action, which presupposes that the decision itself (i.e., the strategic choice) was
made with some thought being given to feasibility and acceptability. The allocation
of resources to new courses of action will need to be undertaken, and there may
be a need for adapting the organization’s structure to handle new activities as well
as training personnel and devising appropriate systems.
Relationship with strategy formulation
Many managers fail to distinguish between strategy formulation and strategy
implementation. Yet, it is crucial to realize the difference between the two because
they both require very different skills. Also, a company will be successful only when
the strategy formulation is sound and implementation is excellent. There is no such
thing as successful strategic design. This sounds obvious, but in practice the
distinction is not always made. Often people, blame the strategy model for the
failure of a company while the main flaw might lie in failed implementation. Thus,
organizational success is a function of good strategy and proper implementation.
The matrix in the figure below represents various combinations of strategy
formulation and implementation:

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A B

Strategy Formulation
Sound
C D
Flawed Weak Excellent

Figure: Strategy formulation and implementation matrix

The above-mentioned figure depicts the distinction between sound/flawed
strategy formulation and excellent/ weak strategy implementation.
Square A is the situation where a company apparently has formulated a very
competitive strategy but is showing difficulties in implementing it successfully. This
can be due to various factors, such as the lack of experience (e.g. for startups), the
lack of resources, missing leadership and so on. In such a situation the company
will aim at moving from square A to square B, given they realize their
implementation difficulties. Square B is the ideal situation where a company has
succeeded in designing a sound and competitive strategy and has been successful
in implementing it.

Square D is the situation where the strategy formulation is flawed, but the company
is showing excellent implementation skills. When a company finds itself in square
D the first thing, they have to do is to redesign their strategy before readjusting
their implementation/execution skills.
Square C is denotes for companies that haven’t succeeded in coming up with a
sound strategy formulation and in addition are bad at implementing their flawed
strategic model. Their path to success also goes through business model redesign
and implementation/execution readjustment.
Taken together all the elements of business strategy, it is to be seen as a chosen
set of actions by means of which a market position relative to the competing
enterprises is sought and maintained. This gives us the notion of competitive
position.

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5.14 STRATEGIC MANAGEMENT

It needs to be emphasized that ‘strategy’ is not synonymous with ‘long-term plan’

but rather consists of an enterprise’s attempts to reach some preferred future state
by adapting its competitive position as circumstances change. While a series of
strategic moves may be planned, competitors’ actions will mean that the actual
moves will have to be modified to take account of those actions.
In contrast to this view of strategy there is another approach to management
practice, which has been followed in many organizations. In organizations that lack
strategic direction there has been a tendency to look inwards in times of stress, and
for management to devote their attention to cost cutting and to shedding
unprofitable divisions. In other words, the focus has been on efficiency (i.e., the
relationship between inputs and outputs, usually with a short time horizon) rather
than on effectiveness (which is concerned with the attainment of organisational
goals - including that of desired competitive position). While efficiency is essentially
introspective, effectiveness highlights the links between the organization and its
environment. The responsibility for efficiency lies with operational managers, with
top management having the primary responsibility for the strategic orientation of
the organization.
Strategic Formulation

Effective Ineffective
Operational Management

Efficient 1 2
Thrive Die
Slowly

Inefficient 3 4
Survive Die
Quickly

Figure: Principal combinations of efficiency and effectiveness

An organization that finds itself in cell 1 is well placed and thrives, since it is
achieving what it aspires to achieve with an efficient output/input ratio. In contrast,
an organization in cell 2 or 4 is doomed, unless it can establish some strategic
direction. The particular point to note is that cell 2 is a worse place to be than is
cell 3 since, in the latter, the strategic direction is present to ensure effectiveness

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even if rather too much input is being used to generate outputs. To be effective is
to survive whereas to be efficient is not in itself either necessary or sufficient for
survival.
In crude terms, to be effective is to do the right thing, while to be efficient is
to do the thing right. An emphasis on efficiency rather than on effectiveness is
clearly wrong. But who determines effectiveness? Any organization can be
portrayed as a coalition of diverse interest groups each of which participates in the
coalition in order to secure some advantage. This advantage (or inducement) may
be in the form of dividends to shareholders, wages to employees, continued
business to suppliers of goods and services, satisfaction on the part of consumers,
legal compliance from the viewpoint of government, responsible behaviour
towards society and the environment from the perspective of pressure groups, and
so on.

Even the most technically perfect strategic plan will serve little purpose if it is not
implemented effectively. Many organizations tend to spend an inordinate amount
of time, money, and effort on developing the strategic plan, treating the means and
circumstances under which it will be implemented as afterthoughts. Change comes
through implementation and evaluation, not through the plan. A technically
imperfect plan that is implemented well will achieve more than the perfect plan
that never gets off the paper on which it is typed.

Successful strategy formulation does not guarantee successful strategy

implementation. It is always more difficult to do something (strategy
implementation) than to say you are going to do it (strategy formulation).

5.2.4Difference between Strategy Formulation

and Implementation
Although inextricably linked, strategy implementation is fundamentally different
from strategy formulation. Summarized are the key distinctions between strategy
formulation and strategy implementation:

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5.16 STRATEGIC MANAGEMENT

Strategy Formulation Vs. Strategy Implementation

Strategy Formulation Strategy Implementation

Strategy Formulation includes Strategy Implementation involves all
planning and decision-making those means related to executing the
involved in developing organization’s strategic plans.
strategic goals and plans.
In short, Strategy Formulation In short, Strategy Implementation
is placing the Forces before the is managing forces during the action.
action.
An Entrepreneurial Activity based An Administrative Task based on
on strategic decision-making. strategic and operational decisions.

Emphasizes on effectiveness. Emphasizes on efficiency.

Primarily an intellectual Primarily an operational process.

and rational process.
Requires co-ordination among few Requires co-ordination among many
individuals at the top level. individuals at the middle and lower
levels.
Requires a great deal of initiative, Requires specific motivational and
logical skills, conceptual intuitive leadership traits.
and analytical skills.
Strategic Formulation precedes Strategy Implementation follows
Strategy Implementation. Strategy Formulation.

Strategy formulation concepts and tools do not differ greatly for small, large, for -
profit, or non-profit organizations. However, strategy implementation varies
substantially among different types and sizes of organizations. Implementation of
strategies requires such actions as altering sales territories, adding new
departments, closing facilities, hiring new employees, changing an organization’s
pricing strategy, developing financial budgets, developing new employee benefits,
establishing cost-control procedures, changing advertising strategies, building new
facilities, training new employees, transferring managers among divisions, and
building a better management information system. These types of activities

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obviously differ greatly among manufacturing, service, and governmental

organizations.
It is to be noted that the division of strategic management into different phases is
only for the purpose of orderly study. In real life, the formulation and
implementation processes are intertwined. Two types of linkages exist between
these two phases of strategic management. The forward linkages deal with the
impact of strategy formulation on strategy implementation while the backward
linkages are concerned with the impact in the opposite direction.

5.2.5 Linkages and Issues in Strategy Implementation

Linkages
Noteworthy is the fact that while strategy formulation is primarily an
entrepreneurial activity, based on strategic decision-making, the implementation
of strategy is mainly an administrative task based on strategic as well as operational
decision-making.
♦ Forward Linkages: The different elements in strategy formulation starting
with objective setting through environmental and organizational appraisal,
strategic alternatives and choice to the strategic plan determine the course
that an organization adopts for itself. With the formulation of new strategies,
or reformulation of existing strategies, many changes have to be affected
within the organization. For instance, the organizational structure has to
undergo a change in the light of the requirements of the modified or new
strategy. The style of leadership has to be adapted to the needs of the
modified or new strategies. In this way, the formulation of strategies has
forward linkages with their implementation.
♦ Backward Linkages: Just as implementation is determined by the
formulation of strategies, the formulation process is also affected by factors
related with implementation. While dealing with strategic choice, remember
that past strategic actions also determine the choice of strategy.
Organizations tend to adopt those strategies which can be implemented with
the help of the present structure of resources combined with some additional
efforts. Such incremental changes, over a period of time, take the
organization from where it is to where it wishes to be.

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Issues in Strategy Implementation

This section focuses on the various issues involved in the implementation of
strategies. The different issues involved in strategy implementation cover
practically everything that is included in the discipline of management studies. A
strategist, therefore, has to bring a wide range of knowledge, skills, attitudes, and
abilities. The implementation tasks put to test the strategists’ abilities to allocate
resources, design organisational structure, formulate functional policies, and to
provide strategic leadership.

♦ The strategic plan devised by the organization proposes the manner in which
the strategies could be put into action. Strategies, by themselves, do not lead
to action. They are, in a sense, a statement of intent. Implementation tasks
are meant to realise the intent. Strategies, therefore, have to be activated
through implementation.
♦ Strategies should lead to formulation of different kinds of programmes. A
programme is a broad term, which includes goals, policies, procedures, rules,
and steps to be taken in putting a plan into action. Programmes are usually
supported by funds allocated for plan implementation.

♦ Programmes lead to the formulation of projects. A project is a highly specific

programme for which the time schedule and costs are predetermined. It
requires allocation of funds based on capital budgeting by organizations.
Thus, research and development programme may consist of several projects,
each of which is intended to achieve a specific and limited objective, requires
separate allocation of funds, and is to be completed within a set time
schedule.
Implementation of strategies is not limited to formulation of plans, programmes,
and projects. Projects would also require resources. After resources have been
provided, it would be essential to see that a proper organizational structure is
designed, systems are installed, functional policies are devised, and various
behavioural inputs are provided so that plans may work.

Given below in sequential manner the issues in strategy implementation which are
to be considered:
♦ Project implementation

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♦ Procedural implementation
♦ Resource allocation
♦ Structural implementation

♦ Functional implementation
♦ Behavioural implementation
It should be noted that the sequence does not mean that each of the above
activities are necessarily performed one after another. Many activities can be
performed simultaneously, certain other activities may be repeated over time; and
there are activities, which are performed only once. Thus, there can be overlapping
and changes in the order in which these activities are performed.
In all but the smallest organizations, the transition from strategy formulation to
strategy implementation requires a shift in responsibility from strategists to
divisional and functional managers. Implementation problems can arise because of
this shift in responsibility, especially if strategic decisions come as a surprise to
middle and lower-level managers. Managers and employees are motivated more
by perceived self-interests than by organizational interests, unless the two coincide.
Therefore, it is essential that divisional and functional managers be involved as
much as possible in the strategy-formulation process. similarly, strategists should
also be involved as much as possible in strategy-implementation activities.
Management issues central to strategy implementation include establishing annual
objectives, devising policies, allocating resources, altering an existing
organizational structure, restructuring and reengineering, revising reward and
incentive plans, minimizing resistance to change, developing a strategy-supportive
culture, adapting production/operations processes, developing an effective human
resource system and, if necessary, downsizing. Management changes are
necessarily more extensive when strategies to be implemented move a firm in a
new direction.
Managers and employees throughout an organization should participate early and
directly in strategy-implementation activities. Their role in strategy implementation
should build upon prior involvement in strategy-formulation activities. Strategists’
genuine personal commitment to implementation is a necessary and powerful
motivational force for managers and employees. Too often, strategists are too busy

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5.20 STRATEGIC MANAGEMENT

to actively support strategy-implementation efforts, and their lack of interest can

be detrimental to organizational success. The rationale for objectives and strategies
should be understood clearly throughout the organization. Major competitors’
accomplishments, products, plans, actions, and performance should be apparent to
all organizational members. Major external opportunities and threats should be
clear, and managers and employees’ questions should be answered satisfactorily.
Top-down flow of communication is essential for developing bottom-up support.
Firms need to develop a competitor focus on all hierarchical levels by gathering
and widely distributing competitive intelligence; every employee should be able to
benchmark her or his efforts against best-in-class competitors so that the challenge
becomes personal. This is a challenge for strategists of the firm. Firms should
provide training for both managers and employees to ensure that they have and
maintain the skills necessary to be world-class performers.

5.3 STRATEGIC CHANGE THROUGH DIGITAL

TRANSFORMATION
Organizations are being pushed harder than ever to shift digitally in order to stay
competitive. Digital transformation, however, may be a difficult and complicated
process. To guarantee that projects for digital transformation are effective, change
management is crucial. We will now examine change management's function in the
digital transformation.

5.3.1 Strategic Change

The changes in the environmental forces often require businesses to make
modifications in their existing strategies and bring out new strategies. Strategic
change is a complex process that involves a corporate strategy focused on new
markets, products, services and new ways of doing business.
Steps to initiate strategic change: For initiating strategic change, three steps can
be identified as under:
(i) Recognize the need for change: The first step is to diagnose which facets of
the present corporate culture are strategy supportive and which are not. This
basically means going for environmental scanning involving appraisal of both

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internal and external capabilities may be through SWOT analysis and then
determining where the lacuna lies and scope for change exists.
(ii) Create a shared vision to manage change: Objectives of both individuals
and organization should coincide. There should be no conflict between them.
This is possible only if the management and the organization members follow
a shared vision. Senior managers need to constantly and consistently
communicate the vision to all the organizational members. They have to
convince all those concerned that the change in business culture is not
superficial or cosmetic. The actions taken have to be credible, highly visible
and unmistakably indicative of management’s seriousness to new strategic
initiatives and associated changes.
(iii) Institutionalise the change: This is basically an action stage which requires
implementation of changed strategy. Creating and sustaining a different
attitude towards change is essential to ensure that the firm does not slip back
into old ways of thinking or doing things. Capacity for self-renewal should be
a fundamental anchor of the new culture of the firm. Besides, change process
must be regularly monitored and reviewed to analyse the after-effects of
change. Any discrepancy or deviation should be brought to the notice of
persons concerned so that the necessary corrective actions are taken. It takes
time for the changed culture to prevail.
Kurt Lewin’s Model of Change: To make the change lasting, Kurt Lewin proposed
three phases of the change process for moving the organization from the present
to the future. These stages are unfreezing, changing and refreezing.
(a) Unfreezing the situation: The process of unfreezing simply makes the
individuals aware of the necessity for change and prepares them for such a
change. Lewin proposes that the changes should not come as a surprise to the
members of the organization. Sudden and unannounced change would be
socially destructive and morale lowering. The management must pave the way
for the change by first “unfreezing the situation”, so that members would be
willing and ready to accept the change.

Unfreezing is the process of breaking down the old attitudes and behaviours,
customs and traditions so that they start with a clean slate. This can be

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achieved by making announcements, holding meetings and promoting the

new ideas throughout the organization.
(b) Changing to the new situation: Once the unfreezing process has been
completed and the members of the organization recognise the need for
change and have been fully prepared to accept such change, their behaviour
patterns need to be redefined. H.C. Kellman has proposed three methods for
reassigning new patterns of behaviour. These are compliance, identification
and internalization.
● Compliance: It is achieved by strictly enforcing the reward and
punishment strategy for good or bad behaviour. Fear of punishment,
actual punishment or actual reward seems to change behaviour for the
better.
● Identification: Identification occurs when members are psychologically
impressed upon to identify themselves with some given role models
whose behaviour they would like to adopt and try to become like them.
● Internalization: Internalization involves some internal changing of the
individual’s thought processes in order to adjust to the changes
introduced. They have given freedom to learn and adopt new behaviour
in order to succeed in the new set of circumstances.
(c) Refreezing: Refreezing occurs when the new behaviour becomes a normal
way of life. The new behaviour must replace the former behaviour completely
for successful and permanent change to take place. In order for the new
behaviour to become permanent, it must be continuously reinforced so that
this new acquired behaviour does not diminish or extinguish.
Change process is not a one-time application but a continuous process due
to dynamism and ever changing environment. The process of unfreezing,
changing and refreezing is a cyclical one and remains continuously in action.

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5.3.2 How does digital transformation work?

The use of digital technologies to develop fresh, improved, or entirely new
company procedures, goods, or services is known as "digital transformation." It's a
fundamental adjustment that can be challenging to identify and even more
challenging to implement.
Change management enters into the picture here. Organizations can plan, prepare
for, and carry out changes to their operations, including digital transformations,
with the aid of the discipline of change management. When implemented correctly,
change management may assist firms in overcoming the obstacles posed by the
digital transition and reaping the full rewards of their investment.
But how does change management appear when applied to digital transformation?
Change management in the digital transition consists of four essential elements:
1. Defining the goals and objectives of the transformation
2. Assessing the current state of the organization and identifying gaps

3. Creating a roadmap for change that outlines the steps needed to reach the
desired state
4. Implementing and managing the change at every level of the organization
To navigate a digital transformation successfully, each of these elements is
necessary. But what matters most is how they collaborate to support organisations
in achieving their goals.
How does change management work?
Change management is a process or set of tools and best practices used to manage
changes in an organization. It assists in making changes in a safe and regulated
manner, reducing the possibility of detrimental effects on the company. Any sort
of organisation, including enterprises, organisations, governmental bodies, and
even families, can utilise change management to manage changes.
Change management models and methods come in a wide variety, but they all have
key things in common. These include creating a clear vision for the change,
involving stakeholders in the process, coming up with a plan for putting the change
into action, and keeping an eye on the results. Although change management is

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frequently viewed as a difficult and complicated process, it is vital for ensuring that
digital transformation projects are successful.
The role of change management in digital transformation
Digital transformation is a process of organizational change that enables an
organization to use technology to create new value for customers, employees, and
other stakeholders. A good change management strategy is necessary for a
successful digital transformation.
Change management is the process of planning, implementing, and monitoring
changes in an organization. It provides organizations in achieving their objectives
while reducing risks and disruptions. For any organisation undergoing a digital
transition, change management is crucial.
A properly implemented change management strategy can help an organization
to:
♦ Specify the parameters and goals of the digital transformation
♦ Determine which procedures and tools need to be modified.
♦ Make a plan for implementing the improvements.
♦ Involve staff members and parties involved in the transformation process.
♦ Track progress and make required course corrections
A crucial component of any digital transition is change management. Why it gains
more importance in the current times is because organizations can improve their
chances of success by approaching change in a proactive and organized manner.

5.3.3Change Management Strategies for Digital

Transformation
One of the most important area of focus for guaranteeing a successful
transformation is change management. Businesses nowadays increasingly find
themselves responsible for managing more than simply their staff, clients, and
products. Additionally, they are handling the introduction of new technology, the
unexpected emergence of new market opportunities, and changes in customer
preferences regarding the brands they choose, interact with, and hold to. In
essence, modern firms must be able to manage change. They must modify their

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management techniques in order to achieve this. The five best practices for
managing change in small and medium-sized businesses are:
1. Begin at the top: A focused, invested, united leadership that is on the same
page about the company's future is reflected in change that begins at the top.
The culture that will motivate the rest of the organisation to accept change
can only be generated and promoted in this way.

2. Ensure that the change is both necessary and desired: The fact that
decision-makers are unaware of how to properly handle a digital
transformation and the effects it will have on their firm is one of the main
causes of this. If a corporation doesn’t have a sound strategy in place,
introducing too much too fast can frequently become a major issue down the
road.
3. Reduce disruption: Employee perceptions of what is required or desirable
change can differ by department, rank, or performance history. It's crucial to
lessen how changes affect staff. The introduction of new tactics or
technologies intended to improve management and corporate operations
causes employee concern about change. It is possible to reduce workplace
disruption by:

a. Getting the word out early and preparing for some interruption.
b. Giving staff members the knowledge and tools, they need to adjust to
change.
c. Creating an environment that encourages transformation or change.
d. Empowering change agents to provide context and clarity for changes,
such as project managers or team leaders.
e. Ensuring that IT department is informed of changes in technology or
infrastructure and is prepared to support them.
4. Encourage communication: Create channels so that workers may contact you
with queries or complaints. Encourage departmental collaboration to
propagate ideas and innovations as new procedures take root.
Communication promotes efficiency and has the power to influence culture,
just like your vision. The people who will be affected the most by these

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changes are reassured that they are not in danger through effective
communication, which keeps everyone on the same page.
5. Recognize that change is the norm, not the exception: Change readiness
may be defined as “the ability to continuously initiate and respond to change
in ways that create advantage, minimize risk, and sustain performance.” In
order to keep up with the customers, businesses must also adapt their
operations. They must prepare for change in advance and expect them. It may
run into difficulties because change is not a project but rather an ongoing
process.

5.3.4How to manage change during digital

transformation?
Any organisation may find the work of digital transformation challenging and
overwhelming. To ensure that a digital transition is effective, change management
is essential. Here are some pointers for navigating change during the digital
transformation:
1. Specify the digital transformation’s aims and objectives: What is the
intended outcome? What are the precise objectives that must be
accomplished? It will be easier to make sure that everyone is on the same page
and pursuing the same aims if everyone has a clear grasp of the goals.
2. Always, always, always communicate: It might be challenging for people to
accept change and adjust to it. Ensure that you routinely and honestly discuss
the objectives of the digital transformation and how they will affect
stakeholders, including employees, clients, and other parties.

3. Be ready for resistance: Even when a change is for the better, it can be
challenging for people to embrace it. Have a strategy in place for dealing with
any resistance that may arise.
4. Implement changes gradually: Changes should ideally be implemented
gradually rather than all at once. In order to avoid overwhelming individuals
with too much change at once, this will give people time to become used to
the new way of doing things.

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5. Offer assistance and training: Workers will need guidance in the new
procedures, software applications, etc.

In conclusion, effective completion of the massive project known as digital

transformation depends on meticulous planning and change management. Digital
transformation efforts are more likely to fail without change management.
Organizations can successfully integrate a new digital system by planning for and
managing the changes that must take place. Any project involving digital
transformation must include it.

5.4 ORGRANISATIONAL FRAMEWORK

The McKinsey 7S Model refers to a tool that analyzes a company’s “organizational
design.” The goal of the model is to depict how effectiveness can be achieved in an
organization through the interactions of hard and soft elements. The McKinsey 7s
Model focuses on how the "Soft Ss" and "Hard Ss" elements are interrelated,
suggesting that modifying one aspect might have a ripple effect on the other
elements in order to maintain an effective balance.
Hard elements are:
Strategy: What steps does the company
intend to take to address current and futures
challenges?
Structure: How is work divided, how do
different departments work and collaborate?
Systems: Which formal and informal
processes is the company’s structure based
on?

Soft elements are:

Shared Values: What is the idea the
organization subscribes to? Is this idea
communicated credibly to others?
Staff: This elements refers to employees
development and relevant processes,
performances and feedback programs etc.
Skill: What is the company’s base of skills and
competencies?
Style: This depicts the leadership style and
how it influences the strategic decisions of the
organization.

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The Hard elements are directly controlled by the management. The following
elements are the hard elements in an organization.
♦ Strategy: the direction of the organization, a blueprint to build on a core
competency and achieve competitive advantage to drive margins and lead
the industry
♦ Structure: depending on the availability of resources and the degree of
centralisation or decentralization that the management desires, it choses
from the available alternatives of organizational structures.
♦ Systems: the development of daily tasks, operations and teams to execute
the goals and objectives in the most efficient and effective manner.
The Soft elements are difficult to define as they are more governed by the culture.
But these soft elements are equally important in determining an organization’s
success as well as growth in the industry. The following are the soft elements in this
model;
♦ Shared Values: The core values which get reflected within the organizational
culture or influence the code of ethics of the management.

♦ Style: This depicts the leadership style and how it influences the strategic
decisions of the organisation. It also revolves around people motivation and
organizational delivery of goals.
♦ Staff: The talent pool of the organisation.
♦ Skills: The core competencies or the key skills of the employees play a vital
role in defining the organizational success.

But like any other strategic model, this model has its limitations as well;
♦ It ignores the importance of the external environment and depicts only the
most crucial elements within the organization.

♦ The model does not clearly explain the concept of organizational effectivness
or performance.
♦ The model is considered to be more static and less flexible for deicion making.
♦ It is generally criticized for missing out the reals gaps in conceptualization
and execution of strategy.

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5.4.1 Organization Structure

The ideal organizational structure is a place where ideas filter up as well as down,
where the merit of ideas carries more weight than their source, and where
participation and shared objectives are valued more than executive order.
– Edson Spencer

Changes in corporate strategy often require changes in the way an organization is

structured for two major reasons. First, structure largely dictates how operational
objectives and policies will be established to achieve the strategic objectives. For
example, objectives and policies established under a geographic organizational
structure are couched in geographic terms. Objectives and policies are stated largely
in terms of products in an organization whose structure is based on product groups.
The structural format for developing objectives and policies can significantly impact
all other strategy-implementation activities.
The second major reason why changes in strategy often require changes in
structure is that structure dictates how resources will be allocated to achieve
strategic objectives. If an organization’s structure is based on customer groups,
then resources will be allocated in that manner. Similarly, if an organization’s
structure is set up along functional business lines, then resources are allocated by
functional areas.

According to Chandler, changes in strategy lead to changes in organizational

structure. Structure should be designed or redesigned to facilitate the strategic
pursuit of a firm and, therefore, structure should follow strategy. Chandler found a
particular structure sequence to be often repeated as organizations grow and
change strategy over time. There is no one optimal organizational design or
structure for a given strategy. What is appropriate for one organization may not be
appropriate for a similar firm, although successful firms in a given industry do tend
to organize themselves in a similar way. For example, consumer goods companies
tend to emulate the divisional structure-by-product form of organization. Small firms
tend to be functionally structured (centralized). Medium-size firms tend to be
divisionally structured (decentralized). Large firms tend to use an SBU (strategic
business unit) or matrix structure. As organizations grow, their structures generally
change from simple to complex as a result of linking together of several basic
strategies.

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New Organizational
New strategy is
administrative performance
formed
problems emerge declines

Organizational
A new organizational
performance
structure is established
improves

Figure: Chandler’s Strategy-Structure Relationship

Every firm is influenced by numerous external and internal forces. But no firm can
change its structure in response to each of these forces, because to do so would
lead to chaos. However, when a firm changes its strategy, the existing
organizational structure may become ineffective. Symptoms of an ineffective
organizational structure include too many levels of management, too many
meetings attended by too many people, too much attention being directed toward
solving interdepartmental conflicts, too large a span of control, and too many
unachieved objectives. Changes in organisational structure can facilitate strategy-
implementation efforts, but changes in structure should not be expected to make
a bad strategy good, to make bad managers good, or to make bad products sell.
Structure can also influence strategy. If a proposed strategy required massive
structural changes, it would not be an attractive choice. In this way, structure can
shape the choice of strategy. But a more important concern is determining what
types of structural changes are needed to implement new strategies and how these
changes can best be accomplished. We will examine this issue by focusing on the
following basic types of organizational structure: functional, divisional by
geographic area, divisional by product, divisional by customer, divisional process,
strategic business unit (SBU), and matrix.

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In order to implement and manage strategies that have been formulated, all
companies need some form of organizational structure. And, as companies
formulate new strategies, increase in size, or change their level of diversification,
new organizational structures may be required.
Types of Organization Structure
Organizational structure is the company’s formal configuration of its intended
roles, procedures, governance mechanisms, authority, and decision-making
processes. Organizational structure, influenced by factors such as an organization’s
age and size, acts as a framework which reflects managers’ determination of what
a company does and how tasks are completed, given the chosen strategy. The most
important issue is that the company’s structure must be congruent with or fit with
the company’s strategy.
A Simple Structure
Simple organizational structure is most appropriate for companies that follow a
single-business strategy and offer a line of products in a single geographic market.
The simple structure also is appropriate for companies implementing focused cost
leadership or focused differentiation strategies. A simple structure is an
organizational form in which the owner-manager makes all major decisions directly
and monitors all activities, while the company’s staff merely serves as an executor.
Little specialization of tasks, few rules, little formalization, unsophisticated
information systems and direct involvement of owner-manager in all phases of day-
to-day operations characterise the simple structure. In the simple structure,
communication is frequent and direct, and new products tend to be introduced to
the market quickly, which can result in a competitive advantage. Because of these
characteristics, few of the coordination problems that are common in larger
organizations exist.

A simple organizational structure may result in competitive advantages for some

small companies relative to their larger counterparts. These potential competitive
advantages include a broad-based openness to innovation, greater structural
flexibility, and an ability to respond more rapidly to environmental changes.
However, if they are successful, small companies grow larger. As a result of this
growth, the company outgrows the simple structure. Generally, there are significant
increases in the amount of competitively relevant information that requires

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processing. More extensive and complicated information-processing requirements

place significant pressures on owner-managers (often due to a lack of
organizational skills or experience or simply due to lack of time).
Thus, it is incumbent on the company’s managers to recognise the inadequacies or
inefficiencies of the simple structure and change it to one that is more consistent
with company’s strategy.
To coordinate more complex organizational functions, companies should abandon
the simple structure in favour of the functional structure. The functional structure
is used by larger companies and by companies with low levels of diversification.
B Functional Structure
A widely used structure in business organisations is functional type because of its
simplicity and low cost. A functional structure groups tasks and activities by
business function, such as production/operations, marketing, finance/accounting,
research and development, and management information systems. Besides being
simple and inexpensive, a functional structure also promotes specialization of
labour, encourages efficiency, minimizes the need for an elaborate control system,
and allows rapid decision making.

Chief Executive Officer

Strategic
Corporate Corporate Corporate Corporate
Planning
R&D Finance Marketing Human

Sales & Human

Finance Production Engineering Accounting
Marketing Resource

Figure: Functional Structure

The functional structure consists of a chief executive officer or a managing director
and supported by corporate staff with functional line managers in dominant
functions such as production, financial accounting, marketing, R&D, engineering,
and human resources. The functional structure enables the company to overcome
the growth-related constraints of the simple structure, enabling or facilitating
communication and coordination.

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However, compared to the simple structure, there also are some potential
problems. Differences in functional specialization and orientation may impede
communications and coordination. Thus, the chief executive officer must integrate
functional decision-making and coordinate actions of the overall business across
functions. Functional specialists often may develop a myopic (or narrow)
perspective, losing sight of the company’s strategic vision and mission. When this
happens, this problem can be overcome by implementing the multidivisional
structure.
C Divisional Structure
As a firm, grows year after year it faces difficulty in managing different products
and services in different markets. Some form of divisional structure generally
becomes necessary to motivate employees, control operations, and compete
successfully in diverse locations. The divisional structure can be organized in one
of the four ways: by geographic area, by product or service, by customer, or by
process. With a divisional structure, functional activities are performed both
centrally and in each division separately.

Chief Executive

Corporate Finance Corporate Legal/PR

General Manager Division A General Manager Division B

Marketing Marketing

Production Production

Personnel Personnel

Figure: Divisional Structure

A divisional structure has some clear advantages. First and the foremost,
accountability is clear. That is, divisional managers can be held responsible for sales
and profit levels. Because a divisional structure is based on extensive delegation of
authority, managers and employees can easily see the results of their good or bad

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performances. As a result, employee morale is generally higher in a divisional

structure than it is in centralized structure. Other advantages of the divisional
design are that it creates career development opportunities for managers, allows
local control of local situations, leads to a competitive climate within an
organization, and allows new businesses and products in be added easily.
The divisional design is not without some limitations. Perhaps the most important
limitation is that a divisional structure is costly, for a number of reasons. First, each
division requires functional specialists who must be paid. Second, there exists some
duplication of staff services, facilities, and personnel; for instance, functional
specialists are also needed centrally (at headquarters) to coordinate divisional
activities. Third, managers must be well qualified because the divisional design
forces delegation of authority better-qualified individuals requires higher salaries.
A divisional structure can also be costly because it requires an elaborate,
headquarters-driven control system. Finally, certain regions, products, or customers
may sometimes receive special treatment, and It may be difficult to maintain
consistent, companywide practices. Nonetheless, for most large organizations and
many small firms, the advantages of a divisional structure more than offset the
potential limitations.
A divisional structure by geographic area is appropriate for organizations whose
strategies are formulated to fit the particular needs and characteristics of customers
in different geographic areas. This type of structure can be most appropriate for
organizations that have similar branch facilities located in widely dispersed areas.
A divisional structure by geographic area allows local participation in decision
making and improved coordination within a region.
The divisional structure by product (or services) is most effective for implementing
strategies when specific products or services need special emphasis. Also, this type
of structure is widely used when an organization offers only a few products or
services, when an organization’s products or services differ substantially. The
divisional structure allows strict control over and attention to product lines, but it
may also require a more skilled management force and reduced top management
control. For example, General Motors, DuPont, and Procter & Gamble use a
divisional structure by product to implement strategies.

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When a few major customers are of paramount importance and many different
services are provided to these customers, then a divisional structure by customer
can be the most effective way to implement strategies. This structure allows an
organization to cater effectively to the requirements of clearly defined customer
groups. For example, book-publishing companies often organize their activities
around customer groups such as colleges, secondary schools, and private commercial
schools. Some airline companies have two major customer divisions: passengers and
freight or cargo services. Bulks are often organised in divisions such as personal
banking corporate banking, etc.

A divisional structure by process is similar to a functional structure, because

activities are organized according to the way work is actually performed. However,
a key difference between these two designs is that functional departments are not
accountable for profits or revenues, whereas divisional process departments are
evaluated on these criteria.
D Multi Divisional Structure
Multidivisional (M-form) structure is composed of operating divisions where each
division represents a separate business to which the top corporate officer delegates
responsibility for day-to-day operations and business unit strategy to division
managers. By such delegation, the corporate office is responsible for formulating
and implementing overall corporate strategy and manages divisions through
strategic and financial controls.
Multidivisional or M-form structure was developed in the 1920s, in response to
coordination- and control-related problems in large firms. Functional departments
often had difficulty dealing with distinct product lines and markets, especially in
coordinating conflicting priorities among the products. Costs were not allocated to
individual products, so it was not possible to assess an individual product’s profit
contribution. Loss of control meant that optimal allocation of firm resources
between products was difficult (if not impossible). Top managers became over-
involved in solving short-run problems (such as coordination, communications,
conflict resolution) and neglected long-term strategic issues.
Multidivisional structure calls for:
♦ Creating separate divisions, each representing a distinct business
♦ Each division would house its functional hierarchy;

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♦ Division managers would be given responsibility for managing day-to-day

operations;
♦ A small corporate office that would determine the long-term strategic
direction of the firm and exercise overall financial control over the semi-
autonomous divisions.
This would enable the firm to more accurately monitor the performance of
individual businesses, simplifying control problems, facilitate comparisons between
divisions, improving the allocation of resources and stimulate managers of poorly
performing divisions to seek ways to improve performance.
When the firm is less diversified, strategic controls are used to manage divisions.
Strategic control refers to the operational understanding by corporate officers of
the strategies being implemented within the firm’s separate business units.
An increase in diversification strains corporate officers’ abilities to understand the
operations of all of its business units and divisions are then managed by financial
controls, which enable corporate officers to manage the cash flow of the divisions
through budgets and an emphasis on profits from distinct businesses.

However, because financial controls are focused on financial outcomes, they

require that each division’s performance be largely independent of the
performance of other divisions. So, the Strategic Business Units come into picture.
E Strategic Business Unit (SBU) Structure
This concept is relevant to multi-product, multi-business enterprises. It is
impractical for an enterprise with a multitude of businesses to provide separate
strategic planning treatment to each one of its products/businesses; it has to
necessarily group the products/businesses into a manageable number of
strategically related business units and then take them up for strategic planning.
The question is: what is the best way of grouping the products/businesses of such
large enterprises?
An SBU is a grouping of related businesses, which is amenable to composite
planning treatment. As per this concept, a multi-business enterprise groups its
multitude of businesses into a few distinct business units in a scientific way. The
purpose is to provide effective strategic planning treatment to each one of its
products/businesses.

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The three most important characteristics of a SBU are:

♦ It is a single business or a collection of related businesses which offer scope
for independent planning and which might feasibly standalone from the rest
of the organization.
♦ It has its own set of competitors.
♦ It has a manager who has responsibility for strategic planning and profit
performance, and who has control of profit-influencing factors.
Historically, large, multi-business firms were handling business planning on a
territorial basis since their structure was territorial. And in many cases, such a
structure was the outcome of a manufacturing or distribution logistics. Often, the
territorial structure did not suit the purpose of strategic planning.
When strategic planning was carried out treating territories as the units for
planning, it gave rise to two kinds of difficulties: (i) since a number of territorial
units handled the same product, the same product was getting varied strategic
planning treatments; and (ii) since a given territorial planning unit carried different
and unrelated products, products with dissimilar characteristics were getting
identical strategic planning treatment.
The concept of strategic business units (SBU) breaks away from this practice. It
recognises that just because a firm is structured into a number of territorial units,
say six units, it is not necessarily in six different businesses. It may be engaged in
only three distinct businesses. It is also possible that it is engaged in more than six
businesses. The endeavour should be to group the businesses into an appropriate
number of strategic business units before the firm takes up the strategy formulation
task.
The SBU structure is composed of operating units where each unit represents a
separate business to which the top corporate officer delegates responsibility for
day-to-day operations and business unit strategy to its managers. By such
delegation, the corporate office is responsible for formulating and implementing
overall corporate strategy and manages SBUs through strategic and financial
controls. Hence, the SBU structure groups similar products into strategic business
units and delegates authority and responsibility for each unit to a senior executive
who reports directly to the chief executive officer. This change in structure can

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facilitate strategy implementation by improving coordination between similar

divisions and channelling accountability to distinct business units.

President

Corporate Corporate Strategic Corporate Corporate Human

R&D Finance Planning Marketing Resources

Strategic Strategic Strategic Strategic

Business Unit A Business Unit B Business Unit C Business Unit D

Division Division Division Division Division Division

Figure: SBU Structure

A strategic business unit (SBU) structure consists of at least three levels, with a
corporate headquarters at the top, SBU groups at the second level, and divisions
grouped by relatedness within each SBU at the third level.
This enables the company to more accurately monitor the performance of
individual businesses, simplifying control problems. It also facilitates comparisons
between divisions, improving the allocation of resources and can be used to
stimulate managers of poorly performing divisions to seek ways to improve
performance.
This means that, within each SBU, divisions are related to each other, as also that
SBU groups are unrelated to each other. Within each SBU, divisions producing
similar products and/or using similar technologies can be organised to achieve
synergy. Individual SBUs are treated as profit centres and controlled by corporate
headquarters that can concentrate on strategic planning rather than operational
control so that individual divisions can react more quickly to environmental
changes.
For example, Sony has been restructuring to match the SBU structure with its ten
internal companies as organised into four strategic business units. Because it has
been pushing the company to make better use of software products and content
(e.g., Sony’s music, films and games) in its televisions and audio gear to increase

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Sony’s profitability. By its strategy, Sony is one of the few companies that have the
opportunity to integrate software and content across a broad range of consumer
electronics products.
The principle underlying the grouping is that all related products-related from the
standpoint of “function”-should fall under one SBU. In other words, the SBU
concept helps a multi-business corporation in scientifically grouping its businesses
into a few distinct business units. Such a grouping would in its turn, help the
corporation carry out its strategic management endeavour better. The concept
provides the right direction to strategic planning by removing the vagueness and
confusion often experienced in such multi-business enterprises in the matter of
grouping of the businesses.
The attributes of an SBU and the benefits a firm may derive by using the SBU
Structure are as follows:
♦ A scientific method of grouping the businesses of a multi-business
corporation which helps the firm in strategic planning.
♦ An improvement over the territorial grouping of businesses and strategic
planning based on territorial units.
♦ An SBU is a grouping of related businesses that can be taken up for strategic
planning distinct from the rest of the businesses. Products/businesses within
an SBU receive same strategic planning treatment and priorities.
♦ The task consists of analysing and segregating the assortment of
businesses/portfolios and regrouping them into a few, well defined, distinct,
scientifically demarcated business units. Products/businesses that are related
from the standpoint of “function” are assembled together as a distinct SBU.
♦ Unrelated products/businesses in any group are separated. If they could be
assigned to any other SBU applying the criterion of functional relation, they
are assigned; accordingly, otherwise they are made into separate SBUs.

♦ Grouping the businesses on SBU lines helps the firm in strategic planning by
removing the vagueness and confusion generally seen in grouping
businesses; it also facilitates the right setting for correct strategic planning
and facilitates correct relative priorities and resources to the various
businesses.

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♦ Each SBU is a separate business from the strategic planning standpoint. In the
basic factors, viz., mission, objectives, competition and strategy-one SBU will
be distinct from another.
♦ Each SBU will have its own distinct set of competitors and its own distinct
strategy.
♦ Each SBU will have a CEO. He will be responsible for strategic planning for
the SBU and its profit performance; he will also have control over most of the
factors affecting the profit of the SBU.
The questions posed at the corporate level are, first, whether the corporate
body wishes to have a related set of SBUs or not; and if so, on what basis. This
issue of relatedness in turn has direct implications on decisions about
diversification relatedness might exist in different ways:
♦ SBUs might build on similar technologies, or all provide similar sorts of
products or services.
♦ SBUs might be serving similar or different markets. Even if technology or
products differ, it may be that the customers are similar. For example, the
technologies underpinning frozen food, washing powders and margarine
production may be very different; but all are sold through retail operations, and
Unilever operates in all these product fields.
♦ Or it may be that other competences on which the competitive advantage of
different SBUs are built have similarities. Unilever would argue that the
marketing skills associated with the three product markets are similar
example.
The identification of SBUs is a convenient starting point for planning. Once the
company’s strategic business units have been identified, the responsibilities for
strategic planning can be more clearly assigned.
F Matrix Structure
Most organizations find that organising around either functions (in the functional
structure) or around products and geography (in the divisional structure) provides
an appropriate organizational structure. The matrix structure, in contrast, may be
very appropriate when organizations conclude that neither functional nor divisional

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forms, even when combined with horizontal linking mechanisms like strategic
business units, are right for the implementation of their strategies. In matrix
structure, functional and product forms are combined simultaneously at the same
level of the organization. Employees have two superiors, a product or project
manager and a functional manager. The “home” department - that is, engineering,
manufacturing, or marketing - is usually functional and is reasonably permanent.
People from these functional units are often assigned temporarily to one or more
product units or projects. The product units or projects are usually temporary and
act like divisions in that they are differentiated on a product-market basis.

A matrix structure is the most complex of all designs because it depends upon both
vertical and horizontal flows of authority and communication (hence the term
matrix). In contrast, functional and divisional structures depend primarily on vertical
flows of authority and communication. A matrix structure can result in higher
overhead because it has more management positions. Other characteristics of a
matrix structure that contribute to overall complexity include dual lines of budget
authority (a violation of the unity command principle), dual sources of reward and
punishment, shared authority, dual reporting channels, and a need for an extensive
and effective communication system.

Despite its complexity, the matrix structure is widely used in many industries,
including construction, healthcare, research and defence. Some advantages of a
matrix structure are that project objectives are clear, there are many channels of
communication workers can see the visible results of their work, and shutting down
a project is accomplished relatively easily.
In order for a matrix structure to be effective, organizations need planning, training,
clear mutual understanding of roles and responsibilities, excellent internal
communication, and mutual trust and confidence. The matrix structure is used more
frequently by businesses because they are pursuing strategies add new products,
customer groups, and technology to their range of activities. Out of these changes
are coming product managers, functional managers, and geographic managers, all
of whom have important strategic responsibilities. When several variables such as
product, customer, technology, geography, functional area, have roughly equal
strategic priorities, a matrix organization can be an effective structural form.
Matrix structure was developed to combine the stability of the functional structure
with the flexibility of the product form. It is very useful when the external

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environment (especially its technological and market aspects) is very complex and
changeable. It does, however, produce conflicts revolving around duties, authority,
and resource allocation. To the extent that the goals to be achieved are vague and
the technology used is poorly understood, a continuous battle for power between
product and functional mangers is likely.

Top Management

Manufacturing Sales Finance Personnel

Manufacturing Personnel
Sales Unit Finance Unit
Unit Unit

Manufacturing Personnel
Sales Unit Finance Unit
Unit Unit

Manufacturing Personnel
Sales Unit Finance Unit
Unit Unit

Manufacturing Personnel
Sales Unit Finance Unit
Unit Unit

Figure: Matrix Structure

The matrix structure is often found in an organization or within an SBU when the
following three conditions exists: 1) Ideas need to be cross-fertilised across projects
or products, 2) Resources are scarce and 3) Abilities to process information and to
make decisions need to be improved.
Changing organizational design

Old Organizational Design New Organizational Design

♦ One large corporation ♦ Mini-business units and cooperative

relationships

♦ Vertical communication ♦ Horizontal communication

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♦ Centralised top-down decision ♦ Decentralised participative decision

making making

♦ Vertical integration ♦ Outsourcing & virtual organizations

♦ Work/quality teams ♦ Autonomous work teams

♦ Functional work teams ♦ Cross-functional work teams

♦ Minimal training ♦ Extensive training

♦ Specialised job design focused ♦ Value-chain team-focused job design

on individual

For development of matrix structure Davis and Lawrence, have proposed three
distinct phases:
1. Cross-functional task forces: Temporary cross-functional task forces are
initially used when a new product line is being introduced. A project manager
is in charge as the key horizontal link.
2. Product/brand management: If the cross-functional task forces become
more permanent, the project manager becomes a product or brand manager
and a second phase begins. In this arrangement, function is still the primary
organizational structure, but product or brand managers act as the integrators
of semi permanent products or brands.

3. Mature matrix: The third and final phase of matrix development involves a
true dual-authority structure. Both the functional and product structures are
permanent. All employees are connected to both a vertical functional superior
and a horizontal product manager. Functional and product managers have
equal authority and must work well together to resolve disagreements over
resources and priorities.
However, the matrix structure is not very popular because of difficulties in
implementation and trouble in managing.
G Network Structure
A radical organizational design, the network structure is an example of what could
be termed a “non-structure” by its virtual elimination of in-house business
functions. Many activities are outsourced. A corporation organized in this manner
is often called a virtual organization because it is composed of a series of project

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groups or collaborations linked by constantly changing non-hierarchical, cobweb-

like networks. The network structure becomes most useful when the environment
of a firm is unstable and is expected to remain so. Under such conditions, there is
usually a strong need for innovation and quick response. Instead of having salaried
employees, it may contract with people for a specific project or length of time.
Long-term contracts with suppliers and distributors replace services that the
company could provide for itself through vertical integration. Electronic markets
and sophisticated information systems reduce the transaction costs of the
marketplace, thus justifying a “buy” over a “make” decision. Rather than being
located in a single building or area, an organization’s business functions are
scattered at different geographical locations. The organization is, in effect, only a
shell, with a small headquarters acting as a “broker”, electronically connected to
some completely owned divisions, partially owned subsidiaries, and other
independent organisation. In its ultimate form, the network organization is a series
of independent firms or business units linked together by a common system that
designs, produces, and markets a product or service.

Designers Accounting Suppliers

Corporate Head Quarters (Broker)

Customer
Manufacturers Distributors
Support

Figure: Network Structure

Companies like Airtel use the network structure in their operations function by
subcontracting manufacturing to other companies in low-cost.

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The network organization structure provides an organization with increased

flexibility and adaptability to cope with rapid technological change and shifting
patterns of international trade and competition. It allows a company to concentrate
on its distinctive competencies, while gathering efficiencies from other firms who
are concentrating their efforts in their areas of expertise. The network does,
however, have disadvantages. The availability of numerous potential partners can
be a source of trouble. Contracting out functions to separate suppliers/distributors
may keep the firm from discovering any synergies by combining activities. If a
particular firm over specialises on only a few functions, it runs the risk of choosing
the wrong functions and thus becoming non-competitive.
The new structural arrangements that are evolving typically are in response to social
and technological advances. While they may enable the effective management of
dispersed organizations, there are some serious implications, The learning
organization that is a part of new organizational forms requires that each worker
become a self-motivated, continuous learner. Employees may lack the level of
confidence necessary to participate actively in organization-sponsored learning
experiences. The flatter organizational structures that accompany contemporary
structures can seem intrusive as a result of their demand for more intense and
personal interactions with internal and external stakeholders. Combined, the
conditions above may create stress for many employees.
H Hourglass Structure
In the recent year’s information technology and communications have significantly
altered the functioning of organizations. The role played by middle management is
diminishing as the tasks performed by them are increasingly being replaced by the
technological tools. Hourglass organization structure consists of three layers with
constricted middle layer. The structure has a short and narrow middle-management
level. Information technology links the top and bottom levels in the organization
taking away many tasks that are performed by the middle level managers. A
shrunken middle layer coordinates diverse lower-level activities. Contrary to
traditional middle level managers who are often specialist, the managers in the
hourglass structure are generalists and perform wide variety of tasks. They would
be handling cross-functional issues emanating such as those from marketing,
finance or production.

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Figure: Hourglass Organisation Structure

Hourglass structure has obvious benefit of reduced costs. It also helps in enhancing
responsiveness by simplifying decision making. Decision making authority is shifted
close to the source of information so that it is faster. However, with the reduced
size of middle management the promotion opportunities for the lower levels
diminish significantly. Continuity at same level may bring monotony and lack of
interest and it becomes difficult to keep the motivation levels high. Organisations
try to overcome these problems by assigning challenging tasks, transferring
laterally and having a system of proper rewards for performance.

5.4.2 Organization Culture

Every organisation has a unique organizational culture. It has its own philosophy
and principles, its own history, values, and rituals, its own ways of approaching
problems and making decisions, its own work climate. It has its own embedded
patterns of how to do things. Its own ingrained beliefs and thought patterns, and
practices that define its corporate culture.

Corporate culture refers to a company’s values, beliefs, business principles,

traditions, ways of operating, and internal work environment.

Where Does Corporate Culture Come From?

A company’s culture is manifested in the values and business principles that
management preaches and practices, in its ethical standards and official policies, in
its stakeholder relationships (especially its dealings with employees, unions,
stockholders, vendors, and the communities in which it operates), in the traditions
the organization maintains, in its supervisory practices, in employees’ attitudes and
behaviour, in the legends people repeat about happenings in the organization, in

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the peer pressures that exist, in the organization’s politics that permeate the work
environment. All these sociological forces, some of which operate quite subtly,
combine to define an organization’s culture, beliefs and practices that become
embedded in a company’s culture can originate anywhere: from one influential
individual, work group, department, or division, from the bottom of the
organizational hierarchy or the top
Frequently, a significant part of a company’s culture emerges from the stories that
get told over and over again to illustrate to newcomers the importance of certain
values and beliefs and ways of operating.
Culture: ally or obstacle to strategy execution?
An organization’s culture is either an important contributor or an obstacle to
successful strategy execution. The beliefs, vision, objectives, and business
approaches and practices underpinning a company’s strategy may or may not be
compatible with its culture. When they are compatible, the culture becomes a
valuable ally in strategy implementation and execution. When the culture is in
conflict with some aspect of the company’s direction, performance targets or
strategy, the culture becomes a stumbling block that impedes successful strategy
implementation and execution.
Role of culture in strategy execution
Strong culture promotes good strategy execution when there’s fit and impedes
execution when there’s negligible fit. A culture grounded in values, practices, and
behavioural norms that match what is needed for good strategy execution helps
energize people throughout the company to do their jobs in a strategy-supportive
manner, adding significantly to the power and effectiveness of strategy execut ion.
For example, a culture where frugality and thrift are values strongly shared by
organizational members is very conducive to successful execution of a low-cost
leadership strategy. A culture where creativity, embracing change, and challenging
the status quo are pervasive themes is very conducive to successful execution of a
product innovation and technological leadership strategy. A culture built around
such business principles as listening to customers, encouraging employees to take
pride in their work, and giving employees a high degree of decision-making
authority is very conducive to successful execution of a strategy of delivering
superior customer value.

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A work environment where the culture matches the conditions for good strategy
execution provides a system of informal rules and peer pressure regarding how to
conduct business internally and how to go about doing one’s job. Strategy-
supportive cultures shape the mood, temperament, and motivation the workforce,
positively affecting organizational energy, work habits and operating practices, the
degree to which organizational units cooperate, and how customers are treated.
A strong strategy-supportive culture nurtures and motivates people to do their jobs
in ways conducive to effective strategy execution; it provides structure, standards,
and a value system in which to operate; and it promotes strong employee
identification with the company’s vision, performance targets, and strategy. All this
makes employees feel genuinely better about their jobs and work environment and
the merits of what the company is trying to accomplish. Employees are stimulated
to take on the challenge of realizing the company’s vision, do their jobs
competently and with enthusiasm, and collaborate with others as needed to bring
the strategy to fruition.
Perils of Strategy-Culture Conflict: When a company’s culture is out of sync with
what is needed for strategic success, the culture has to be changed as rapidly as
can be managed – this, of course, presumes that it is one or more aspects of the
culture that are out of whack rather than the strategy. While correcting a strategy-
culture conflict can occasionally mean revamping strategy to produce cultural fit,
more usually it means revamping the mismatched cultural features to produce
strategy fit. The more entrenched the mismatched aspects of the culture, the
greater the difficulty of implementing new or different strategies until better
strategy-culture alignment emerges. A sizable and prolonged strategy-culture
conflict weakens and may even defeat managerial efforts to make the strategy
work.
Creating a strong fit between strategy and culture: It is the strategy maker’s
responsibility to select a strategy compatible with the “sacred” or unchangeable
parts of prevailing corporate culture. It is the strategy implementer’s task, once
strategy is chosen, to change whatever facets of the corporate culture hinder
effective execution.
Changing a problem culture: Changing a company’s culture to align it with
strategy is among the toughest management tasks--easier to talk about than do.

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Changing a problem culture is very difficult because of the heavy anchor of deeply
held values and habits-people cling emotionally to the old and familiar. It takes
concerted management action over a period of time to replace an unhealthy culture
with a healthy culture or to root out certain unwanted cultural obstacles and instil
ones that are more strategy-supportive.
The first step is to diagnose which facets of the present culture are strategy
supportive and which are not. Then, managers have to talk openly and forthrightly
to all concerned about those aspects of the culture that have to be changed. The
talk has to be followed swiftly by visible, aggressive actions to modify the culture-
actions that everyone will understand are intended to establish a new culture more
in tune with the strategy. The menu of culture-changing actions includes revising
policies and procedures in ways that will help drive cultural change, altering
incentive compensation (to reward the desired cultural behaviour), visibly praising
and recognizing people who display the new cultural traits, recruiting and hiring
new managers and employees who have the desired cultural values and can serve
as role models for the desired cultural behaviour, replacing key executives who are
strongly associated with the old culture, and taking every opportunity to
communicate to employees the basis for cultural change and its benefits to all
concerned.
Implanting the needed culture-building values and behaviour depends on a
sincere, sustained commitment by the chief executive coupled with extraordinary
persistence in reinforcing the culture at every opportunity through both words and
deed. Neither charisma nor personal magnetism is essential. However, personally
talking to many departmental groups about the reasons for change is essential;
organizational changes are seldom accomplished successfully from an office.
Moreover, creating and sustaining a strategy-supportive culture is a job for the
whole management team. Major cultural change requires many initiatives from
many people. Senior managers, department heads, and middle managers have to
reiterate values and translate the organization’s philosophy into everyday practice.
In addition, for the culture-building effort to be successful, strategy implementers
must enlist the support of first line supervisors and employee opinion leaders,
convincing them of the merits of practicing and enforcing cultural norms at the
lowest levels in the organization. Until a big majority of employees join the new
culture and share an emotional commitment to its basic values and behavioural

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norms, there’s considerably more work to be done in both instilling the culture and
tightening the culture strategy fit.
The task of making culture supportive of strategy is not a short-term exercise. It
takes time for a new culture to emerge and prevail; it’s unrealistic to expect an
overnight transformation. The bigger the organization and the greater the cultural
shift needed to produce a culture-strategy fit, the longer it takes. In large
companies, changing the corporate culture in significant ways can take two to five
years. In fact, it is usually tougher to reshape a deeply ingrained culture that is not
strategy-supportive than it is to instill a strategy-supportive culture from scratch in
a brand-new organization.
In conclusion, an excessive focus on the hard management, at best will result in a
linear improvement in performance. On the other hand, performance can be
improved exponentially by concentrating on the soft side of the management. The
optimal management approach probably would be somewhere between these
extremes. Accordingly, every organisation has to maintain a fine balance between
a range of "hard" and "soft” management as even though a structure is appropriate
for the time it is established, by the time it is implemented, reality has already
changed, especially in today's world.

5.5 STRATEGIC LEADERSHIP

A leader is best when people barely know he exists, when his work is done, his aim
fulfilled, they will say: we did it ourselves.
—Lao Tzu

Strategic leadership sets the firms direction by developing and communicating

vision of future, formulate strategies in the light of internal and external
environment, brings about changes required to implement strategies and inspire
the staff to contribute to strategy execution. A manager as a strategic leader has to
play many leadership roles to play: visionary, chief entrepreneur and strategist,
chief administrator, culture builder, resource acquirer and allocator, capabilities
builder, process integrator, crisis manager, spokesperson, negotiator, motivator,
arbitrator, policy maker, policy enforcer, and head cheerleader. Sometimes it is
useful to be authoritarian; sometimes it is better to be a perceptive listener and a

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compromising decision maker; sometimes a strongly participative, and sometimes

being a coach and adviser is the proper role.
A strategic leader is a change agent to initiates strategic changes in the
organisations and ensure that the changes successfully implemented. For the most
part, major change efforts have to be top-down and vision-driven. Leading change
has to start with diagnosing the situation and then deciding which of several ways
to handle it. Managers have five leadership roles to play in pushing for good
strategy execution:
1. Staying on top of what is happening, closely monitoring progress, solving out
issues, and learning what obstacles lie in the path of good execution.
2. Promoting a culture of esprit de corps that mobilizes and energizes
organizational members to execute strategy in a competent fashion and
perform at a high level.
3. Keeping the organization responsive to changing conditions, alert for new
opportunities, bubbling with innovative ideas, and ahead of rivals in
developing competitively valuable competencies and capabilities.
4. Exercising ethical leadership and insisting that the company conduct its affairs
like a model corporate citizen.

5. Pushing corrective actions to improve strategy execution and overall strategic

performance.
For example, N. R. Narayan Murthy, is known as a celebrated business leader
because of the values he had institutionalised over his tenure as CEO of Infosys.
One of the great legacies he left with Infosys is a strong management development
program that builds management talent and strategic leader with ethical values.
Dhirubhai Ambani, pioneer of Reliance Group, was an icon in himself because of
his ability to conceptualise and create sweeping strategies, to reach corporate
goals, and proficiency in implementing his strategic vision. Dhirubhai Ambani had
the ability to provide clear direction for the company and had strong interpersonal
skills that inspired the employees to contribute their best for the accomplishment
of strategic vision. These qualities made him an excellent strategic leader in the
corporate world.

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Leadership role in implementation: The strategic leaders must be able to use the
strategic management process effectively by guiding the company in ways that
result in the formation of strategic intent and strategic mission, facilitating the
development and implementation of appropriate strategic plans and providing
guidance to the employees for achieving strategic goals.

Figure: Strategy Design and Implementation: Interrelationship of Elements

Strategic leadership entails the ability to anticipate, envision, maintain flexibility,
and empower others to create strategic change as necessitated by external
environment. In other words, strategic leadership represents a complex form of
leadership in companies. A manager with strategic leadership skills exhibits the
ability to guide the company through the new competitive landscape by influencing
the behaviour, thoughts, and feelings of co-workers, managing through others and
successfully processing or making sense of complex, ambiguous information by
successfully dealing with change and uncertainty.

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Effective Strategic Leadership

Shapes the formulation of

Strategic Intent Strategic Mission

Influence

Successful Strategic Action

Formulation of Implementation of
Strategies Strategies

Strategic Competitiveness
Above-Average Returns

Figure: Effective Strategic Leadership

In the today’s competitive landscape, strategic leaders are challenged to adapt their
frames of reference so that they can deal with rapid, complex changes. A
managerial frame of reference is the set of assumptions, premises, and accepted
wisdom that bounds a manager’s understanding of the company, the industry in
which it competes, and the core competencies that it exploits in the pursuit of
strategic competitiveness (and above-average returns). In other words, a manager’s
frame of reference is the foundation on which a manager’s mindset is built.
The importance of a manager’s frame of reference can be seen if we perceive those
competitive battles are not between companies or products but between mindsets
or managerial frames. This implies that effective strategic leaders must be able to
deal with the diverse and cognitively complex competitive situations that are
characteristic of today’s competitive landscape.
A Strategic leader has several responsibilities, including the following:
♦ Making strategic decisions.
♦ Formulating policies and action plans to implement strategic decision.

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♦ Ensuring effective communication in the organisation.

♦ Managing human capital (perhaps the most critical of the strategic leader’s
skills).
♦ Managing change in the organisation.

♦ Creating and sustaining strong corporate culture.

♦ Sustaining high performance over time.
Thus, the strategic leadership skills of a company’s managers represent resources
that affect company performance. And these resources must be developed for the
company’s future benefit.
Strategic leadership sets the firm’s direction by developing and communicating a
vision of future and inspire organization members to move in that direction. Unlike
strategic leadership, managerial leadership is generally concerned with the short-
term, day-to-day activities.
Two basic approaches to leadership can be transformational leadership style and
transactional leadership style.

♦ Transformational leadership style uses charisma and enthusiasm to inspire

people to exert them for the good of the organization. Transformational
leadership style may be appropriate in turbulent environments, in industries
at the very start or end of their life-cycles, in poorly performing organizations
when there is a need to inspire a company to embrace major changes.
Transformational leaders offer excitement, vision, intellectual stimulation and
personal satisfaction. They inspire involvement in a mission, giving followers
a ‘dream’ or ‘vision’ of a higher calling so as to elicit more dramatic changes
in organizational performance. Such a leadership motivates followers to do
more than originally affected to do by stretching their abilities and increasing
their self-confidence, and also promote innovation throughout the
organization.
♦ Transactional leadership style focuses more on designing systems and
controlling the organization’s activities and are more likely to be associated
with improving the current situation. Transactional leaders try to build on the
existing culture and enhance current practices. Transactional leadership style
uses the authority of its office to exchange rewards, such as pay and status.

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They prefer a more formalized approach to motivation, setting clear goals

with explicit rewards or penalties for achievement or non-achievement.
Transactional leadership style may be appropriate in static environment, in mature
industries, and in organizations that are performing well. The style is better suited
in persuading people to work efficiently and run operations smoothly.

5.6 STRATEGIC CONTROL

Controlling is one of the important functions of management and is often regarded
as the core of the management process. It is a function intended to ensure and
make possible the performance of planned activities and to achieve the pre-
determined goals and results. Control is intended to regulate and check, i.e., to
structure and condition the behaviour of events and people, to place restraints and
curbs on undesirable tendencies, to make people conform to certain norms and
standards, to measure progress to keep the system on track. It is also to ensure
that what is planned is translated into results, to keep a watch on proper use of
resources, on safeguarding of assets and so on.
The controlling function involves monitoring the activity and measuring results
against pre-established standards, analysing and correcting deviations as necessary
and maintaining/adapting the system. It is intended to enable the organisation to
continuously learn from its experience and to improve its capability to cope with
the demands of organisational growth and development.

The process of control has the following elements:

(a) Objectives of the business system which could be operationalized into
measurable and controllable standards.

(b) A mechanism for monitoring and measuring the performance of the system.
(c) A mechanism (i) for comparing the actual results with reference to the
standards (ii) for detecting deviations from standards and (iii) for learning new
insights on standards themselves.
(d) A mechanism for feeding back corrective and adaptive information and
instructions to the system, for effecting the desired changes to set right the
system to keep it on course.

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Primarily there are three types of organizational control, viz., operational control,
management control and strategic control.
Operational Control: The thrust of operational control is on individual tasks or
transactions as against total or more aggregative management functions. For
example, procuring specific items for inventory is a matter of operational control, in
contrast to inventory management as a whole. One of the tests that can be applied
to identify operational control areas is that there should be a clear-cut and
somewhat measurable relationship between inputs and outputs which could be
predetermined or estimated with least uncertainty.
Many of the control systems in organisations are operational and mechanistic in
nature. A set of standards, plans and instructions are formulated. The control
activity consists of regulating the processes within certain ‘tolerances’, irrespective
of the effects of external conditions on the formulated standards, plans and
instructions. Some of the examples of operational controls can be stock control
(maintaining stocks between set limits), production control (manufacturing to set
programmes), quality control (keeping product quality between agreed limits), cost
control (maintaining expenditure as per standards), budgetary control (keeping
performance to budget).
Management Control: When compared with operational control, management
control is more inclusive and more aggregative, in the sense of embracing the
integrated activities of a complete department, division or even entire organisation,
instead or mere narrowly circumscribed activities of sub-units.
The basic purpose of management control is the achievement of enterprise goals
– short range and long range – in a most effective and efficient manner. The term
management control is defined by Robert Anthony as ‘the process by which
managers assure the resources are obtained and used effectively and efficiently in
the accomplishment of the organisation’s objectives. Controls are necessary to
influence the behaviour of events and ensure that they conform to plans.

Strategic Control: According to Schendel and Hofer “Strategic control focuses on

the dual questions of whether: (1) the strategy is being implemented as planned;
and (2) the results produced by the strategy are those intended.”

There is often a time gap between the stages of strategy formulation and its
implementation. A strategy might be affected on account of changes in internal

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and external environments of organisation. There is a need for warning systems to

track a strategy as it is being implemented. Strategic control is the process of
evaluating strategy as it is formulated and implemented. It is directed towards
identifying problems and changes in premises and making necessary adjustments.
Types of Strategic Control: There are four types of strategic controls, which are
as follows:
♦ Premise control: A strategy is formed on the basis of certain assumptions or
premises about the complex and turbulent organizational environment. Over
a period of time these premises may not remain valid. Premise control is a
tool for systematic and continuous monitoring of the environment to verify
the validity and accuracy of the premises on which the strategy has been built.
It primarily involves monitoring two types of factors:
(i) Environmental factors such as economic (inflation, liquidity, interest
rates), technology, social and legal-regulatory.
(ii) Industry factors such as competitors, suppliers, substitutes.

It is neither feasible nor desirable to control all types of premises in the

same manner. Different premises may require different amount of
control. Thus, managers are required to select those premises that are
likely to change and would severely impact the functioning of the
organization and its strategy.
♦ Strategic surveillance: Contrary to the premise control, the strategic
surveillance is unfocussed. It involves general monitoring of various sources
of information to uncover unanticipated information having a bearing on the
organizational strategy. It involves casual environmental browsing. Reading
financial and other newspapers, business magazines, attending meetings,
conferences, discussions and so on can help in strategic surveillance.
♦ Strategic surveillance may be loose form of strategic control but is capable of
uncovering information relevant to the strategy.
♦ Special alert control: At times, unexpected events may force organizations
to reconsider their strategy. Sudden changes in government, natural
calamities, terrorist attacks, unexpected merger/acquisition by competitors,
industrial disasters and other such events may trigger an immediate and

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intense review of strategy. To cope up with such eventualities, the

organisations form crisis management teams to handle the situation.
♦ Implementation control: Managers implement strategy by converting major
plans into concrete, sequential actions that form incremental steps.
Implementation control is directed towards assessing the need for changes
in the overall strategy in light of unfolding events and results associated with
incremental steps and actions.
Strategic implementation control is not a replacement to operational control.
Unlike operational control, it continuously monitors the basic direction of the
strategy. The two basic forms of implementation control are:
(i) Monitoring strategic thrusts: Monitoring strategic thrusts helps
managers to determine whether the overall strategy is progressing as
desired or whether there is need for readjustments.
(ii) Milestone Reviews: All key activities necessary to implement strategy
are segregated in terms of time, events or major resource allocation. It
normally involves a complete reassessment of the strategy. It also
assesses the need to continue or refocus the direction of an
organization.

Strategic Surveillance

Premise Control

Special Alert Control

Implementation Control
Strategy Formulation

Strategy Implementation
Time 1 Time 2 Time 3

Source: John A Pearce II, Richard B Robinson, Jr. and Amita Mital “Strategic Management-
Formulation, Implementation and Control”.

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These four strategic controls steer the organisation and its different sub-systems
to the right track. They help the organisation to negotiate through the turbulent
and complex environment.

5.7 STRATEGIC PERFORMANCE MEASURES

A company's performance depends heavily on execution of strategy. Companies that
continuously outperform their competitors are those who execute well. Executives in
a variety of businesses should explore about utilizing strategic performance
measurement (SPM). SPM is a method that increases line executives' understanding
of an organization's strategic goals and offers a continuous system for tracking
progress towards these objectives using clear-cut performance measurements. SPM
helps to eliminate silos by establishing a common language among all divisions of
the organisation so they may communicate openly and productively.
Strategic performance measures are key indicators that organizations use to track
the effectiveness of their strategies and make informed decisions about resource
allocation. The measures provide a snapshot of the organization's performance,
enabling leaders to assess whether their strategies are aligned with their goals and
objectives and to make necessary adjustments to improve their performance.
Key performance measures and indicators must be created, selected, combined into
reports and acted upon so that strategy implementation can have tangible
outcomes. Firstly, there needs to be a clear cause and effect relationship between
the indicators and strategic outcomes. Secondly, KPIs need to be carefully chosen
because they will influence the behaviour of people within the organisation.
However, managers should be aware of paralysis by over analysis.
Managing the political aspects of implementing a strategy
People involved in the planning process for the implementation of a strategy may
be affected by two sets of forces. The "rational" forces of openness, communication,
and self-analysis can exist on the one hand. On the other hand, there could be
political forces concerned with preserving empires and fostering internal rivalry
that urge knowledge retention, selective communication, and caution. When these
two techniques conflict, the politically acceptable aspects may end up in the explicit
strategy while the sensitive elements may form an unspoken plan that contains the
implicit strategy.

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Types of Strategic Performance Measures

There are various types of strategic performance measures, including:

♦ Financial Measures: Financial measures, such as revenue growth, return on
investment (ROI), and profit margins, provide an understanding of the
organization's financial performance and its ability to generate profit.
♦ Customer Satisfaction Measures: Customer measures, such as customer
satisfaction, customer retention, and customer loyalty, provide insight into
the organization's ability to meet customer needs and provide high-quality
products and services.
♦ Market Measures: Market measures, such as market share, customer
acquisition, and customer referrals, provide information about the
organization's competitiveness in the marketplace and its ability to attract
and retain customers.
♦ Employee Measures: Employee measures, such as employee satisfaction,
turnover rate, and employee engagement, provide insight into the
organization's ability to attract and retain talented employees and create a
positive work environment.
♦ Innovation Measures: Innovation measures, such as research and
development (R&D) spending, patent applications, and new product
launches, provide insight into the organization's ability to innovate and create
new products and services that meet customer needs.
♦ Environmental Measures: Environmental measures, such as energy
consumption, waste reduction, and carbon emissions, provide insight into the
organization's impact on the environment and its efforts to operate in a
sustainable manner.

Toward More Holistic Measures of Strategic Performance

Development of management thought and practice has persistently pushed the

frontier of strategic performance beyond financial metrics. Thus, the Triple
Bottom Line framework (TBL) emphasises People and Planetary Concerns
besides profitability or Economic Prosperity alone. The Quadruple Bottomline
adds the 4th P to add a spiritual dimension named ‘Purpose.’

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The Importance of Strategic Performance Measures

Strategic performance measures are essential for organizations for several reasons:
♦ Goal Alignment: Strategic performance measures help organizations align
their strategies with their goals and objectives, ensuring that they are on track
to achieve their desired outcomes.
♦ Resource Allocation: Strategic performance measures provide organizations
with the information they need to make informed decisions about resource
allocation, enabling them to prioritize their efforts and allocate resources to
the areas that will have the greatest impact on their performance.
♦ Continuous Improvement: Strategic performance measures provide
organizations with a framework for continuous improvement, enabling them
to track their progress and make adjustments to improve their performance
over time.
♦ External Accountability: Strategic performance measures help
organizations demonstrate accountability to stakeholders, including
shareholders, customers, and regulatory bodies, by providing a clear and
transparent picture of their performance.

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Choosing the Right Strategic Performance Measures

Organizations should choose strategic performance measures that are aligned with
their goals and objectives and that provide relevant and actionable information. In
selecting the right measures, organizations should consider the following factors:
♦ Relevance: The measure should be relevant to the organization's goals and
objectives and provide information that is actionable and meaningful.
♦ Data Availability: The measure should be based on data that is readily
available and can be collected and analyzed in a timely manner.
♦ Data Quality: The measure should be based on high-quality data that is
accurate and reliable.
♦ Data Timeliness: The measure should be based on data that is current and
up-to-date, enabling organizations to make informed decisions in a timely
manner.
These measures provide a way for organizations to assess the success of their
strategies, identify areas for improvement, and make informed decisions about how
to allocate resources and adjust their strategies to achieve their desired outcomes.
Effective strategic performance measures should be relevant, meaningful, and easy
to understand and should be regularly reviewed and updated to ensure their
continued alignment with the organization's goals and objectives.

SUMMARY
The chapter on Strategy Implementation and Evaluation provides a comprehensive
overview of the processes and factors involved in executing and assessing the
effectiveness of organizational strategies. The following are the main learning
objectives covered in the chapter:
♦ The process of Strategy Implementation: The chapter describes the process
of strategy implementation, including the formulation vs. implementation
matrix, the linkages and issues involved, and the role of clear communication,
effective leadership, and proper resource allocation.
♦ Strategic Change through Digital Transformation: The chapter explores the
impact of digital transformation on strategy implementation and the role of
technology in driving strategic change.

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♦ Organisation Structure (hard) vs Culture (soft): The chapter differentiates

between hard factors, such as structure and systems, and soft factors, such as
culture and leadership, in strategy implementation and explains their impact
on organizational performance.
♦ Strategic Leadership: The chapter discusses the role of strategic leadership in
the implementation process and the importance of leaders who are visionary,
innovative, and able to motivate and engage their teams.
♦ Strategic Control: The chapter explains the role of strategic control in the
implementation process and the importance of monitoring progress,
adapting to changes in the environment, and making informed decisions
based on data and analysis.
♦ Strategic Performance Measures: The chapter identifies key strategic
performance measures, including customer satisfaction, market share, return
on investment, employee satisfaction, innovation, and environmental
sustainability, and explains their importance in tracking progress and making
informed decisions about resource allocation.
♦ In conclusion, the chapter provides a comprehensive overview of the key
elements of effective strategy implementation and evaluation and equips
readers with the knowledge and skills needed to execute and assess their
organization's strategies.

TEST YOUR KNOWLEDGE

Multiple Choice Questions
1. ______________leadership style may be appropriate in turbulent environment.
(a) Transactional

(b) Transformational
(c) Autocratic
(d) None of these

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2. An organizational structure with constricted middle level is:

(a) Divisional structure

(b) Network structure
(c) Hour Glass structure
(d) Matrix structure
3. You are the head of operations of a company. When you focus on total or
aggregate management functions in the sense of embracing the integrated
activities of a complete department et al, you are practicing: -
(a) Strategic Control
(b) Management control
(c) Administrative Control
(d) Operations Control
4. Which of the following would be chosen by the core strategist to implement
operational control: -
(a) Premise Control
(b Special Alert Control
(c) Implementation Control
(d) Budgetary Control
5. Compliance, Identification and Internalization are the three processes involved
in:
(a) Refreezing
(b) Defreezing

(c) Changing behavior patterns

(d) Breaking down old attitudes

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6. Which one is NOT a type of strategic control?

(a) Operational control
(b) Strategic surveillance

(c) Special alert control

(d) Premise control

Scenario Based Questions

1. Ramesh, is owner of a popular brand of Breads. Yashpal, his son after completing
Chartered Accountancy started assisting his father in running of business. The
approaches followed by father and son in management were very different.
While Ramesh preferred to use authority and having a formal system of defining
goals and motivation with explicit rewards and punishments, Yashpal believed
in involving employees and generating enthusiasm to inspire people to deliver
in the organization.
Discuss the difference in leadership style of father and son.
2. Suresh Sinha has been recently appointed as the head of a strategic business
unit of a large multiproduct company. Advise Mr Sinha about the leadership
role to be played by him in execution of strategy.

3. KaAthens Ltd., a diversified business entity having business operations across

the globe. The company leadership has just changed as Mr. D. Bandopadhyay
handed over the pedals to his son Aditya Bandopadhyay, due to his poor health.
Aditya is a highly educated with an engineering degree from IIT, Delhi. However,
being very young he is not clear about his role and responsibilities,
In your view, what are the responsibilities of Aditya Bandopadhyay as CEO of
the company.
4. Manoj started his telecom business in 2010. Over next five years, he gradually
hired fifty people for various activities such as to keep his accounts,
administration, sell his products in the market, create more customers, provide
after sales service, coordinate with vendors.
Draw the organization structure Manoj should implement in his organization
and name it.

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5. Moonlight Private Limited deals in multi-products and multi-businesses. It has

its own set of competitors. It seems impractical for the company to provide
separate strategic planning treatment to each one of its product or businesses.
As a strategic manager, suggest the type of structure best suitable for Moonlight
Private Limited and state its benefits.
6. Sanya Private Limited is an automobile company. For the past few years, it has
been observed that the progress of the company has become stagnant. When
scrutinized, it was found that the planning department was performing fairly
well but the plans could not be implemented due to improper use of resources,
undesirable tendencies of workers and non-conformance to norms and
standards. You are hired as a Strategic Manager. Suggest the elements of
process of control to overcome the problem.

Descriptive Questions
1. What is a strategic business unit? What are its advantages?
2. Draw 'Divisional Structure' with the help of a diagram. Also, give advantages
and disadvantages of this structure in brief.
3. What is an ‘hourglass structure’? How can this structure benefit an organization?
4. How can you differentiate between transformational and transactional leaders?
5. What is strategic change? Explain the change process proposed by Kurt Lewin
that can be useful in implementing strategies?
6. What are the differences between operational control and management control?
7. What is strategic control? Briefly explain the different types of strategic control.
8. What is implementation control? Discuss its basic forms.

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ANSWERS/SOLUTIONS
Multiple Choice Questions
1 (b) 2 (c) 3 (b) 4 (d) 5 (c) 6 (a)

Answers to Scenario Based Questions

1. Ramesh is a follower of transactional leadership style that focuses on
designing systems and controlling the organization’s activities. Such a leader
believes in using authority of its office to exchange rewards, such as pay and
status. They prefer a more formalized approach to motivation, setting clear
goals with explicit rewards or penalties for achievement or non-achievement.
Transactional leaders try to build on the existing culture and enhance current
practices. The style is better suited in persuading people to work efficiently
and run operations smoothly.
On the other hand, Yashpal is follower of transformational leadership style.
The style uses charisma and enthusiasm to inspire people to exert them for
the good of the organization. Transformational leaders offer excitement,
vision, intellectual stimulation and personal satisfaction. They inspire
involvement in a mission, giving followers a ‘dream’ or ‘vision’ of a higher
calling so as to elicit more dramatic changes in organizational performance.
Such a leadership motivates followers to do more than originally affected to
do by stretching their abilities and increasing their self-confidence, and also
promote innovation throughout the organization.
2. Leading change has to start with diagnosing the situation and then deciding
which of several ways to handle it. Managers have five leadership roles to play
in pushing for good strategy execution:
(i) Staying on top of what is happening, closely monitoring progress,
solving out issues, and learning what obstacles lie in the path of good
execution.
(ii) Promoting a culture of esprit de corps that mobilizes and energizes
organizational members to execute strategy in a competent fashion and
perform at a high level.

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(iii) Keeping the organization responsive to changing conditions, alert for

new opportunities, bubbling with innovative ideas, and ahead of rivals
in developing competitively valuable competencies and capabilities.
(iv) Exercising ethical leadership and insisting that the company conduct its
affairs like a model corporate citizen.
(v) Pushing corrective actions to improve strategy execution and overall
strategic performance.

3. Aditya Bandopadhyay, an effective strategic leader of KaAthens Ltd. must be

able to deal with the diverse and cognitively complex competitive situations
that are characteristic of today’s competitive landscape.

A Strategic leader has several responsibilities, including the following:

♦ Making strategic decisions.
♦ Formulating policies and action plans to implement strategic decision.

♦ Ensuring effective communication in the organisation.

♦ Managing human capital (perhaps the most critical of the strategic
leader’s skills).

♦ Managing change in the organisation.

♦ Creating and sustaining strong corporate culture.
♦ Sustaining high performance over time.
4. Manoj has started a telecom business. Accounts, Administration, Marketing
(customer creation, after sales service, vendor coordination) are the functional
areas that are desired in the organisational structure. Further there is inherent
need to have a department for the management of telecom services/
operations.

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Thus, the functional structure in the telecom business of Manoj can be as

follows:

Chairman (Managing
Director/ CEO)

Administration
Telecom Accounts
Marketing Human
Operations and Finance
Resource, etc.

Sales
After Sales Vendor
(Customer
Service Coordination
Creation)

5. It is advisable for Moonlight Private Limited to follow the strategic business

unit (SBU) structure.
Moonlight Private Limited has a multi-product and multi-business structure
where, each of these businesses has its own set of competitors. In the given
case, Strategic Business Unit (SBU) structure would best suit the interests of
the company.
SBU is a part of a large business organization that is treated separately for
strategic management purposes. It is separate part of large business serving
product markets with readily identifiable competitors. It is created by adding
another level of management in a divisional structure after the divisions have
been grouped under a divisional top management authority based on the
common strategic interests.
Very large organizations, particularly those running into several products, or
operating at distant geographical locations that are extremely diverse in terms
of environmental factors, can be better managed by creating strategic
business units, just as is the case for Moonlight Private Limited. SBU structure
becomes imperative in an organization with increase in number, size and
diversity.

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Benefits of SBUs:

1. Establishing coordination between divisions having common strategic

interest.
2. Facilitate strategic management and control.

3. Determine accountability at the level of distinct business units.

4. Allow strategic planning to be done at the most relevant level within the
total enterprise.

5. Make the task of strategic review by top executives more objective and
more effective.
6. Help to allocate resources to areas with better opportunities.
Thus, an SBU structure with its set of advantages would be most suitable for
the company with the given diverse businesses having separate identifiable
competitors, but a common organizational goal.
6. Sanya Private Limited deteriorating performance due to poor implementation
of plans that is improper use of resources, undesirable tendencies of the
workers, and non-conformance to norms and standards, all point towards
weak controls in the organization. Implementation of plans cannot assure
results unless strong and sufficient controls are put in place. The management
of the company should focus diligently on developing controls especially in
the identified problem areas.
The process of control has the following elements:
(a) Objectives of the business system which could be operationalized into
measurable and controllable standards.
(b) A mechanism for monitoring and measuring the performance of the
system.

(c) A mechanism (i) for comparing the actual results with reference to the
standards (ii) for detecting deviations from standards and (iii) for
learning new insights on standards themselves.

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(d) A mechanism for feeding back corrective and adaptive information and
instructions to the system, for effecting the desired changes to set right
the system to keep it on course.
Above elements of control would ensure a proper check on improper use of
resources, undesirable tendencies of the workers, and non-conformance to
norms and standards and ensure a result oriented implementation of plans.

Answers to Descriptive Questions

1. A strategic business unit (SBU) is any part of a business organization which is
treated separately for strategic management purposes. The concept of SBU is
helpful in creating an SBU organizational structure. It is discrete element of
the business serving product markets with readily identifiable competitors and
for which strategic planning can be concluded. It is created by adding another
level of management in a divisional structure after the divisions have been
grouped under a divisional top management authority based on the common
strategic interests.
Advantages of SBU are:
♦ Establishing coordination between divisions having common strategic
interests.
♦ Facilitates strategic management and control on large and diverse
organizations.
♦ Fixes accountabilities at the level of distinct business units.
♦ Allows strategic planning to be done at the most relevant level within
the total enterprise.
♦ Makes the task of strategic review by top executives more objective and
more effective.
♦ Helps allocate corporate resources to areas with greatest growth
opportunities.

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2. Divisional structure is that organizational structure which is based on extensive

delegation of authority and built on division basis. The divisional structure can
be organized in one of the four ways: by geographic area, by product or
service, by customer, or by process. With a divisional structure, functional
activities are performed both centrally and in each division separately.

Chief Executive

Corporate Finance Corporate Legal/PR

General Manager Division A General Manager Division B

Marketing Marketing

Production Production

Personnel Personnel

Figure: Divisional Structure

Advantages of Divisional Structure
♦ Accountability is clear: Divisional managers can be held responsible
for sales and profit levels. Because a divisional structure is based on
extensive delegation of authority, managers and employees can easily
see the results of their good or bad performances and thus their morale
is high.
♦ Other advantages: It creates career development opportunities for
managers, allows local control of local situations, leads to a competitive
climate within an organization, and allows new businesses and products
to be added easily.

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Disadvantages of Divisional Structure

♦ Higher cost: Owing to following reasons: (i). requires qualified
functional specialist at different divisions and needed centrally (at
headquarters); (ii). It requires an elaborate, headquarters –driven
control system.
♦ Conflicts between divisional managers: Certain regions, products, or
customers may sometimes receive special treatment, and it may be
difficult to maintain consistent, company-wide practices.
3. In the recent years information technology and communications have
significantly altered the functioning of organizations. The role played by
middle management is diminishing as the tasks performed by them are
increasingly being replaced by the technological tools. Hourglass organization
structure consists of three layers in an organisation structure with constricted
middle layer. The structure has a short and narrow middle management level.
Information technology links the top and bottom levels in the organization
taking away many tasks that are performed by the middle level managers. A
shrunken middle layer coordinates diverse lower level activities.

Hourglass Organization Structure

Hourglass structure has obvious benefit of reduced costs. It also helps in

enhancing responsiveness by simplifying decision making. Decision making
authority is shifted close to the source of information so that it is faster.
However, with the reduced size of middle management, the promotion
opportunities for the lower levels diminish significantly.

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4. Difference between transformational and transactional leadership

1. Transformational leadership style uses charisma and enthusiasm to

inspire people to exert them for the good of organization. Transactional
leadership style uses the authority of its office to exchange rewards such
as pay, status symbols etc.
2. Transformational leadership style may be appropriate in turbulent
environment, in industries at the very start or end of their cycles, poorly
performing organisations, when there is a need to inspire a company to
embrace major changes. Transactional leadership style can be
appropriate in static environment, in growing or mature industries and
in organisations that are performing well.
3. Transformational leaders inspire employees by offering excitement,
vision, intellectual stimulation and personal satisfaction. Transactional
leaders prefer a more formalized approach to motivation, setting clear
goals with explicit rewards or penalties for achievement and non-
achievement. Transactional leaders focus mainly to build on existing
culture and enhance current practices.
5. The changes in the environmental forces often require businesses to make
modifications in their existing strategies and bring out new strategies.
Strategic change is a complex process and it involves a corporate strategy
focused on new markets, products, services and new ways of doing business.
To make the change lasting, Kurt Lewin proposed three phases of the change
process for moving the organization from the present to the future. These
stages are unfreezing, changing and refreezing.
(a) Unfreezing the situation: The process of unfreezing simply makes the
individuals or organizations aware of the necessity for change and
prepares them for such a change. Lewin proposes that the changes
should not come as a surprise to the members of the organization.
Sudden and unannounced change would be socially destructive and
morale lowering. The management must pave the way for the change by
first “unfreezing the situation”, so that members would be willing and
ready to accept the change.

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Unfreezing is the process of breaking down the old attitudes and

behaviours, customs and traditions so that they start with a clean slate. This
can be achieved by making announcements, holding meetings and
promoting the ideas throughout the organization.
(b) Changing to New situation: Once the unfreezing process has been
completed and the members of the organization recognise the need for
change and have been fully prepared to accept such change, their
behaviour patterns need to be redefined. H.C. Kellman proposed three
methods for reassigning new patterns of behavior as compliance,
identification and internalisation.
(c) Refreezing: Refreezing occurs when the new behaviour becomes a
normal way of life. The new behaviour must replace the former
behaviour completely for successful and permanent change to take
place. In order for the new behaviour to become permanent, it must be
continuously reinforced so that this newly acquired behaviour does not
diminish or extinguish.
Change process is not a one time application but a continuous process
due to dynamism and ever changing environment. The process of
unfreezing, changing and refreezing is a cyclical one and remains
continuously in action.
6. Differences between Operational Control and Management Control are
as under:
(i) The thrust of operational control is on individual tasks or transactions as
against total or more aggregative management functions. When
compared with operational, management control is more inclusive and
more aggregative, in the sense of embracing the integrated activities of
a complete department, division or even entire organisation, instead or
mere narrowly circumscribed activities of sub-units. For example,
procuring specific items for inventory is a matter of operational control, in
contrast to inventory management as a whole.

(ii) Many of the control systems in organisations are operational and

mechanistic in nature. A set of standards, plans and instructions are
formulated. On the other hand, the basic purpose of management

© The Institute of Chartered Accountants of India

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5.76 STRATEGIC MANAGEMENT

control is the achievement of enterprise goals – short range and long

range – in an effective and efficient manner.
7. Strategic Control focuses on the dual questions of whether: (1) the strategy is
being implemented as planned; and (2) the results produced by the strategy
are those intended.
There are four types of strategic control:

♦ Premise control: A strategy is formed on the basis of certain

assumptions or premises about the environment. Premise control is a
tool for systematic and continuous monitoring of the environment to
verify the validity and accuracy of the premises on which the strategy
has been built.

♦ Strategic surveillance: Strategic surveillance is unfocussed. It involves

general monitoring of various sources of information to uncover
unanticipated information having a bearing on the organizational
strategy.

♦ Special alert control: At times, unexpected events may force

organizations to reconsider their strategy. Sudden changes in government,
natural calamities, unexpected merger/acquisition by competitors,
industrial disasters and other such events may trigger an immediate and
intense review of strategy.

♦ Implementation control: Managers implement strategy by converting

major plans into concrete, sequential actions that form incremental
steps. Implementation control is directed towards assessing the need
for changes in the overall strategy in light of unfolding events and
results.
8. Managers implement strategy by converting major plans into concrete,
sequential actions that form incremental steps. Implementation control is
directed towards assessing the need for changes in the overall strategy in light
of unfolding events and results associated with incremental steps and actions.
Strategic implementation control is not a replacement to operational control.
Strategic implementation control, unlike operational controls continuously

© The Institute of Chartered Accountants of India

 STRATEGY IMPLEMENTATION AND EVALUATION 5.77
a

monitors the basic direction of the strategy. The two basic forms of
implementation control are:
(i) Monitoring strategic thrusts: Monitoring strategic thrusts help
managers to determine whether the overall strategy is progressing as
desired or whether there is need for readjustments.
(ii) Milestone Reviews. All key activities necessary to implement strategy
are segregated in terms of time, events or major resource allocation. It
normally involves a complete reassessment of the strategy. It also
assesses the need to continue or refocus the direction of an
organization.

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India