STRATEGY IMPLEMENTATION
Prof. K. Chander
Strategy Implementation
Interrelationship between formulation and implementation
Forward Linkage Backward Linkage
Issues in strategy implementation
Project implementation Procedural implementation Structural implementation Resource allocation Functional implementation Behavioral implementation
Implementation of Strategies
Interrelationship between formulation and implementation. Division of Strategic Management into different Phases is only for the purpose of orderly study. In real life Formulation & Implementation are intertwined
Forward Linkage
The different elements in strategy formulation starting with objective setting through environmental and organizational analysis, strategic alternatives and choices to strategic plan determine the course that an organization adopts. With changed new strategies or modified existing strategies, organizational structure, style of leadership have to be adopted for changed strategies. This way formulation has forward linkage with implementation.
Backward Linkage
Past strategic action also determines the choice of strategy. Organizational trend to adopt those strategy which can be implemented with existing structure, manpower, resources & some incremental changes. Note:
Strategy Formulation is entreprenual activity. Implementation is Administrative, task based on strategic & operational decision making.
Issues in Strategy Implementation
All management issues get covered in strategy implementation. Strategist has to bring wide range of knowledge, skills, attitudes and abilities. Implementation task puts to test Strategists ability to allocate resources, design structure, formulate functional policies, taking into account leadership style. Strategies by themselves do not lead to action, Statement of Intent Implementation Task is to realize the intent.
Issues in Strategy Implementation
Strategies, therefore have to be activated through implementation. Strategies Leads to Plans; examples are:
Stability Strategy Expansion Strategy Modernization Plan Expansion Plan New plant
or additional capitalization. Diversification New Product development strategy.
Plan result into programmes.
Issues in Strategy Implementation
Programme is a broad term which includes (a) goals, policies, procedures & rules & steps to put plan into action. Programmes lead to Projects. A project is a highly specific programme for which the time schedule is laid. Costs are pre determined Ex. R & D Projects. Projects create the needed infrastructure for day to day operations in an organization.
Project Implementation
Project Management is defined as a one-shot, onetimetime-limited, goal-directed, major undertaking, goalrequiring the commitment of varied skills & resources. The goals for the project are derived from the plans & programmes, which are based on strategies adopted.
Project Implementation
Phases of Project Conception phase Definition phase Planning and organizing phase Implementation phase Clean up phase
Phases of Project
Conception Phase:Phase:
An extension of the strategy formulation phase. Ideas generated during the strategic alternations form core for future projects.
Definition Phase: Phase:
After selection & Prioritizing the projects, they have to be subjected to a preliminary project analysis, which examines the marketing, technology, Financial and economic aspects. Project will stand scrutiny of Financial institutions. Results are documented in Feasibility Report. Report.
Exhibit: The contents of a typical feasibility report
Project reports are prepared for internal as well as external purposes. Internally, the reports may be presented to the top management committees or Board of Directors for approval and sanction. Externally, the reports are submitted to financial institutions which evaluate the project proposals for the purpose of granting financial assistance. Currently, the central financial institutions (IDBI, ICICI, IFCI, etc.) seek the following information for the purpose of financial assistance.
1. General information such as name, form of organization, location, nature of project (new, expansion, modernization, diversification), etc. 2. Information regarding project promoters. 3. Particulars of the industrial concern seeking financial assistance. 4. Particulars of the project (details regarding capacity, process, technical arrangements, management, locating, fixed assets, raw materials, utilities, schedule of implementation, etc.) 5. Cost of the project including land and site development, buildings plots and machinery. 6. Means of financing (share capital, rupee loans, foreign currency loans, debentures, internal cash accruals). 7. Marketing and selling arrangements. 8. Profitability and cash flow. 9. Economic considerations (prices of competing products, economic benefits to the country and region, development of industrially backward areas, development of ancillaries). [Link] consideration (water and air pollution, effluent disposal and energy conservation). 11. Government consents including letter of intent, industrial license, clearance of regulatory authorities and so on.
Planning and organizing Phase: Phase:
Detailed planning, such as infrastructure, engineering design, schedules, & budgets. A project structure which would deal with the organization and manpower, systems and procedures
Implementation Phase:Phase: Detailed engineering, order placement for equipment, material, awarding construction contracts, etc. leading to testing, trial, and commissioning of plant.
CleanClean-up Phase: Disbanding project infrastructure.
Procedural Implementation
Formation of Company Licensing procedure Security and Exchange Board of India requirement Foreign collaboration FEMA requirements MRTP requirements Labour legislation requirement Import and export requirements (Exim Policy) Patenting & Trade Mark requirements Incentives and facilities benefits Pollution control and environment protection Human rights and consumer protection
Formation of Company
The formation of Company is under Company Act 1956 and consist of:
Promotion; Registration; and Floatation.
Registration involves:
Registration of the memorandum of the company, Article of Association; and Agreement with Register of companies, who incorporate & issue a Certificate.
Floatation
Raising of funds.
Licensing Procedures
A License is a written permission from the Government for stetting up a industrial unit. After liberalization (1991) the licensing is abolished irrespective of the level of investment for all industries except few. Industries requiring licensing relate to defense and environmental concerns.
SEBI Requirement
The SEBI Act, 1992 has replaced the Capital Issues Control Act, 1956, to deal with Capital Markets. It is to develop securities market & protect interest of small investors. It has judicial powers & covers primary, secondary market, mutual funds & foreign institution investors. For the purpose of strategy implementation, this act is relevant so far as the provision of financial resources is concerned and this act also affects mergers and amalgamations.
MRTP (Monopolies & Restrictive Trade Practices Requirement.
Restrictive Trade Practices include such as:
Collusion or cartel formation by companies; Price discrimination among different groups of customers. Forcing dealer to sell full line or area restriction.
The MRTP act is to be replaced by comprehensive competition law with the purpose of fostering fair competition among Indian Industry and shall be compatible with WTO norms.
Foreign Collaboration Procedures
Many strategic alliance call for Foreign collaboration and investment. All proposals to setup projects with Foreign collaboration require prior government approval. The regulatory framework deals with the need for foreign technology, royalty payment & Foreign investment.
Foreign Collaboration Procedures
Joint ventures are considered special route for investment into and outside India. Government policy to encourage joint ventures outside India. At present one needs to apply for approval to the concerned authority in Government for collaboration agreement.
FEMA (Foreign Exchange Management Act) 2000
FEMA replaced FERA in June 2000. The FEMA 2000 has substantially liberalized provisions and rules of dollar accounts by exporters, remittance of foreign exchange for visitors abroad, agency commission, export claims, and reimbursement of expenses. Export of goods & services are governed by Foreign Exchange Regulation 2000. In keeping with imperatives of globalization FE regimes has been liberalized.
Import and Export Requirement
The department of Commerce is responsible for countrys External Trade and all matter concerned with Commercial trade relations with other countries. Exim policy/ FTP is declared for Five Years. It is important for strategist to understand the rationale for the development and regulation of Import & Exports. Most companies have to rely on exports & import in the course of strategy implementation. Specialized knowledge and advise is required to follow the procedures which are quite detailed & comprehensive.
Patenting & Trademark Requirement
Patents, Trademark, Copyrighters, Design & so on are assuming greater significance due to WTO requirement TRIPs (Trade Related Intellectual Property Rights). Indian Patent Act 1970 has been amended in 1995. These acts define the terms, prescribe the procedure for registration, and mention the rights & duties of the entities holding the patents, trade marks, and copyrights.
Labour Legislation Requirements
Different Labour Laws governing the company labour force have to be taken care at the time of the implementation of strategy being a critical resource (Retrenchment Strategy). The matter of procedural implementation regarding labour legislation has significant bearing on objective-setting, social responsibility objectiveand human resource management & operation management.
Environment Protection & Pollution Control Requirement & Consumer Protection Req.
The major responsibility to deal with Environment issues lies with the State Pollution Control Board. Any new project has to seek a no-objection nocertificate from the board, which then regulates, the emission of smoke and vapour, effluents and Noise. In India Consumer Protection is ensured through a Plethora of Legislation. Some of these are essential Commodity Act, Trademarks and Merchandise Act, Sales of Goods Act, etc.
Procedures of availing benefits from Incentives and facilities
A number of Industries are critically depended on Government Purchases. The Director General of Supplies and Disposal is the largest purchasing agency in the Country. The various State Governments and Union Territory administrations offer incentives and Scheme for opening a small scale industries or 100% Export Oriented Units (EOUs) to avail concessions on taxes and other incentives are available under Exim policies i.e. DEPB and EPCG.
RESOURCE ALLOCATION
Approaches to resource allocation Means of resource allocation Factor affecting resource allocation Difficulties in resource allocation
Resource Allocation
Procedural implementation provides the GOGOahead Signal. Without Resource allocation nothing happens. Resource allocation is both a one time and continuous process.
Procurement of Resources
The different types of Resources are:
Financial; Physical; and Human.
Long-term & Short term Finance. Long Internal Resources are:
Reserves; Depreciation provisions etc.
Procurement of Resources..
External Resources are
Equity; Bank credit; hire purchase; Debt; trade credit and Fix deposit (Generally short term)
Management Policy related to Financing. The cost of capital from different sources.
IFCI; ICICI; IDBI, etc.
Approach of Resource Allocation
Main Instrument for Resource allocation is budget. Three approaches:
Ist (Top Down)
Board of Director M.D./ Senior Executive allocate to operating level.
2nd approach
Bottom up approach.
Mixed approach. BCG Matrix, PLC etc.
Means of Resource Allocation
Strategic Budget is presented (as shown next slide) Capital Budget,
Zero Based Budgeting & Parta System are used by different companies.
Making of a strategic budget
Levels of management Budgeting process Resource availability Top management Corporate Policy guidelines Desired long and Short run goals Strategic Budget Approval & sanction
Minimizing goals Executive management Position papers (e.g. Environment, distinctive Competencies, marketing, Past performance, etc). Operating management Targets/ operational plans
Proposals
Implementation
Factors Effecting Resource Allocation
Resource are scarce hence allocation is complex.
CEO power allocates SBU dept used as Internal Politic External Influence
due to Govt. policies.
Share holders demand, Financial Institutions.
Difficulties in Resource Allocation
Major difficulty is scarcity of Finance. Cost of Finance. Creditworthiness of Firm Physical Resources like M/c & Tech. to be imported. F. E. Cost. Internal disputes between SBU/ Dept. Over Statement of requirement. Powerful Executive who do not get the resource. Do not allow corporate plan to succeed. Budget Battles due to vested Interests. CEO Plays major role in balancing.
Structure Implementation What is Structure
1. Organizational structure is the way how task and subtask are required to be arranged for implementation of strategy. 2. Organizational chart is diagrammatical representation of structure.
Structure Implementation Structure Mechanisms
The different mechanisms are:
1. Defining the Major Task required to implement strategy. 2. Grouping tasks on the basis of common skill requirement. 3. Sub-division of responsibility and delegation of authority to perform tasks. 4. Coordination of divided responsibility. 5. Design and administration of information system.
Structure Mechanisms.
6. 7. 8. 9.
Design & Administration control system. Design & Administration Appraisal system. Design & Administration of motivation system. Design & Administration of the dev. System. system.
10. Design & Administration of the planning
Structure Mechanisms. The first four of these mechanisms will lead to the creation of structure. The other six mechanism are devised to hold and sustain the structure (we call them org. systems) The organizational chart illustrates five major aspects of organization structure:
1. 2. 3. 4. 5. Division of work. Manager and subordinate relation Combination or grouping of work Type of work being performed Level of management
Role of Structure
Organizational chart follows the gross strategy of organization i.e. strategy exerts more influence than does structure in effective organizational A stage wise development sequence exist for the strategies & structures of organization. Organization do not change their structure until provoked by competition.
Strategy > structure Structure > Strategy
Structure follows strategies
CHANDLER is best known for above statement
Structure Mechanism.
Growth strategy provide new managerial problems that are generally solved by the reshaping of the organizational structure to fit the new strategy. Organizational, as it grows in size and diversity, moves from the simple to a complex organizational form.
Types of Structures
1. Entrepreneurial structure
Advantages Quick Decision Informal & simple organization. organization. Excessive Reliance on owner manger & proves to the demanding. demanding. May divert attention of owner manger and spend time on day to day operational matters and ignore strategic decisions. decisions. Owner - Manager Employees
Timely response to environmental changes
Disadvantages
Functional Type
President MISMIS-PR Staff Function Production/ Operation Finance/ Accounting Legal
Marketing
Engineering
Advantages Efficient distribution of work through specialization. Delegation of day to day operation functions. Provide tune for top management to focus on strategic decisions Disadvantages Creates difficulty in coordinates. Creates specialists which result in narrow specialization at the cost of overall benefit of organization. Lead to functional and line and staff conflicts.
Matrix Type
President
Vice President Research & Development Vice President Engineering Vice President Production Vice President Purchasing Vice President Personnel
Projects
Project Manager - A
R&D Group
Engineering Group
Production Group
Purchasing Group
Personnel Group
R&D Group Project Manager - A R&D Group Project Manager - A
Engineering Group
Production Group
Purchasing Group
Personnel Group
Engineering Group
Production Group
Purchasing Group
Personnel Group
Project Authority
Line Authority
Advantages of Matrix Structure Allows individual specialist to be assigned where their talent is the most needed. Fosters Creativity because of pooling of diverse talent. Provides good exposure is specialists in general management. Disadvantages Dual accountability creates confusion and difficulty. Requires a high level of vertical horizontal coordination. Shared authority my create communication problem.
Product Division Type
President
Executive Vice President Life Insurance Underwriting Executive Vice President Health Insurance Underwriting Executive Vice President Auto Insurance Underwriting Executive Vice President Auto Insurance Underwriting
Claims
Claims
Claims
Claims
Marketing
Marketing
Marketing
Marketing
Administration
Administration
Administration
Administration
Personnel
Personnel
Personnel
Personnel
Advantages of Product Division Type Structure Enables grouping of functions required fro the performance of activities related to a division. Generates quick response to environment changes affecting the Business. Enables Top Management to focus on strategic matters. Allocation of resources & corporate over heads. Inconsistency arising from sharing of authority between corporate & divisional level. Policy inconsistencies between the different divisions.
Disadvantages
Customer Base Type
President
Retail Consumer Sales Production Operations Management
Government Sales Industrial Sales
Production Operations Management
Production Operations Management
Marketing
Marketing
Marketing
Finance
Finance
Finance
Territory Base Type
President
U. S. Operations
Finance Production
Canadian Operations
Finance Production
Third World
Finance Production
European Operations
Finance Production
Personal
Personal
Personal
Personal
Marketing
Marketing
Marketing
Marketing
Legal
Legal
Legal
Legal
Network Type
Manufacturing Contractor Distribution Contractor
Network Company staff
Design Contractor
Receivables Factoring Contractor.
Information System.
Information system coordinates divided responsibility. Provides information to perform task effectively. Advances in technology provide information to all important level including top management. As the complexity & diversity of operation increases, the need for MIS & informal system becomes essential.
Control System
Essentially deal with the measurement and correction of the performance activities of SubSubordinates to meet objective and plans of organization. Control ensures that the implementation of strategy takes place according to predetermined plans. Control is needed due to dispersal of total strategic task. Control are devices to enforce strategic behaviour for achieving organizational goals.
Appraisal System
Performs role of evaluating managerial performance. Part of total control system. Provides inputs for promotion, incentives, Reward etc. It is essential to have mix of quantitative or objective Factors and quantitative factors so that results of appraisal are reliable & valid. Appraisal Methods are
Rating Forms; Ranking Appraisal; behaviroval Methods.
Procedures of Appraisal i.e. who makes Appraisal.
Motivation System: Plays a positive role in inducing strategically desired behaviour to work towards goal of organization. Development system: Process of gradual, systemic Improvement in knowledge, skills, Attitudes and performance. Career Planning & Development.
Planning System: Role of planning in Modified & new strategy. Forward linkages between the formulation of strategy and the implementation of plans do exist. People who formulate & who implement relation matters.
Emerging at UB Group
The UB group is newly structured group of 64 companies, most of which have traditionally been in the liquor and brewery business set up by the well-known industrialist, the Vittal Malaya who was the father of present Group Chairman, Vijay Mallya. The management style of both father and son is a study in contrast. While Vittal Mallyas style could be characterized as conservative, Vijay Mallyas style is flamboyant and extroverts. The predominant strategy followed earlier was that of stability, consolidation, and slow expansion. The current strategy is of fast-paced growth and expansion through diversification, mainly from the liquor and brewery business to the petrochemicals sector. The structural changes slow a distinct shift from a centralized to the divisionalised structure presently consisting of eleven business groups of divisions. The UB Group is unique in the sense that it allows for a limited entrepreneurial structure to coexist with this main structure The organizational system characteristics at the UB Group could be indicated Below:
1. Information System Change from a restrictive style of decision-making to a participative style sported by better communication through a decentralized structure.
Emerging at UB Group
2.. Control System Change from a system of monthly performance reports to more resultoriented review and control mechanism with updates operating results of each line of business through monthly operating reviews by presidents/ group VPs. 3. Appraisal system Change from a traditional appraisal to a performance based appraisal system aimed at creating an atmosphere which supports professionalism. 4. Motivation System Change to a informal an accommodating style of management from a restrictive, traditional style; traditional style; compensation packages for managers based on assigned job values system and not aon designation. Beyond a certain rank, there is only a minimum for a salary grade and no maximum. There are no fixed increments. 5. Development system For senior mangers, a planned system of deputation from corpoate planning to line function exists. External recruitment is done if positions cannot be filled throguh promotion from within. 6. Planning system Change form an entrepreneurial style of planning and decision making to a participative mode. The planning function is performed by a corporate executive committee comprising the Group Chairman, all President and Group VPs, which meets frequently and, besides a review of implementation, evaluates new proposals and recommends strategic action. A full-fladged corporte plannign and coordination group suports and planning ssytem.
