10 – Strategy Implementation

Introduction

The process of putting an organization’s numerous strategies into action by setting annual or short-term targets, assigning resources, developing programmes, policies, structures, functional strategies, and so on is known as strategy implementation. Even the best strategic strategy will be rendered ineffective if it is not adequately implemented. As a result, strategy implementation is the most challenging aspect of the strategic management process. This is because there must be a “fit” between the strategy and the organisation.

10.1 Activating Strategies

There is no guarantee that a well-designed strategy will be automatically adopted and implemented. As a result, the strategic leader must defend the plan from every viewpoint, articulate how the approach, if adopted, will benefit the entire organisation, and gain the enthusiastic support of personnel at all levels. To keep things on track, he can write down priorities, programme execution processes, budgets, and other details so that nothing is left to chance.

While giving the strategy concrete form, he should also take note of the regulatory systems that control economic activities and ensure that everything is in order. Some of the most crucial things to remember are as follows:

1. Formation of a company:

This must be done by the terms of the Companies Act, 1956, which addresses issues such as company formation, registration, acquiring appropriate permits before beginning operations, and raising funds from diverse sources according to the provisions of the SEBI Act 1992.

2. Operations of a company:

The company must compete pretty and earn profits through legally sanctioned channels while adhering to the following provisions:

(a) competition law provisions;

(b) import/export restrictions;

(c) FERA regulations (FEMA regulations, 2000);

(d) Patent, trademark, copyright (Indian Patents Act 1995, The Trade and Merchandise Marks Act 1958, The Copyrights Act 1957, etc.) stipulations;

(e) Labour Laws (regarding employment of women and children, payment of wages,
providing welfare amenities, keeping healthy industrial relations
etc.);

(f) environmental protection (The Environment Protection Act 1986),

(g) pollution control requirements;

(h) consumer protection measures etc.

3. Winding up operations:

Even if the corporation decides to exit a venture/business, the game rules must be strictly followed (whether in offering a golden handshake to employees or asking all the employees to quit in one go).

After the approach has been institutionalised in the manner described above, action plans can be developed. These are essentially functional-level strategies implemented at the departmental level, typically addressing a plan’s operational aspects. However, the action plans must attempt to translate the overarching strategic plan in letter and spirit, with no deviations. Issues such as who will do what, what kind of support is required at certain stages, what sort of privileges must be established while implementing active plans, how a specific active plan contributes to the strategy’s overall objectives, and so on must all be carefully considered. Once the action plans are complete, the strategist must address concerns about allocating finite resources across the organisation.

10.2 The Characteristics of Strategy Implementation

The design of a successful plan does not guarantee the implementation of that strategy. It impacts an organisation from top to bottom, including all divisional and functional areas of business. It necessitates properly aligning the strategy with numerous activities and processes inside the organisation.

The complexity in the implementation process stems from the requirement for many organisational adjustments over a long period and the need to match them all to the plan. Key people must be added or reassigned, resources must be mobilised and allocated, functional strategies and policies must be designed, organisational structure may need to be changed, a strategy-supportive culture must be developed, reward and incentive plans must be revised, and restructuring, re-engineering, and redesigning may be required. In short, the activities associated with change provide challenges that affect organisational adjustments. To a considerable extent, the success of strategy implementation is consequently dependent on how the change management task is carried out.

10.3 Barriers and Issues in Strategy Implementation

Management must consider the following critical challenges when implementing strategy, as well as how empowering systems may relate to such issues.

1. Time Horizon:

Long-term and short-term dimensions are present in such systems. For example, short-term awards like productivity bonuses should be based on quantifiable performance measurements. Conversely, long-term awards should be linked to qualitative measurements and a few pertinent quantitative measures.

2. Risk Considerations:

When risk-taking behaviour is sought, qualitative measurements of achievement, such as bonuses or stock options, may be more helpful. Quantitative measures may lead to risk-averse behaviour to prevent failure rather than risk-taking behaviour to achieve outcomes.

3. Bases of Individual Rewards:

Individual reward systems should be related to an individual’s capacity, effort, and job satisfaction. When rewards are focused solely on one component, it may hurt performance in other areas.

4. Bases of Group Rewards:

Whether to have individual or group incentives is a key problem in reward systems. Individual effort and achievement may be arduous to reward unless the organisational structure allows individual performance to be separated from that of others. Individual awards, for example, may be advantageous and suitable for managerial contributions to business performance because individual contributions are relatively independent of others. On the other hand, if individual contributions are relatively dependent, methods based on group performance would be appropriate. Individuals may need to be rewarded again if entrepreneurial or creative behaviours are to be fostered. Group reward schemes, on the other hand, might be preferable if increased cooperation and teamwork are desired to be rewarded.

5. Corporate and SBU Perspectives:

In multi-divisional organisations, reward systems should be created with a balanced attitude toward company goals and Strategic Business Unit (SBU) interests, with business units having increased autonomy and independence. Similarly, if the SBUs are unlikely to impact company performance, unit-based reward plans might be preferable. However, for directors and general managers assigned to units with the dual responsibility of accomplishing unit and corporate objectives, care must be provided to create a balanced, empowering environment.

10.4 Model for Strategy Implementation

According to Steiner and Miner, “implementing policies and strategies is concerned with designing and managing systems to achieve the best integration of people, structures, processes and resources in reaching organisational purposes”. Therefore, strategy implementation involves several interrelated decisions, choices, and a broad range of activities. It requires an integration of people, structures, processes, etc.

McKinsey’s 7-S model effectively expresses the importance of these factors in strategy implementation.

The 7-S framework was created in the 1970s by the well-known consulting firm McKinsey Company in the United States.

The 7-S Framework

This approach is primarily concerned with organisational change. The primary thrust of change is not solely related to the organization’s strategy. The intricate links between strategy, structure, systems, style, personnel, skills, and superordinate goals must be understood. These are referred to as the organization’s 7-S.

According to the 7-S framework, various elements influence an organization’s ability to adapt. Because the variables are interrelated, changing one may affect other connected components. As a result, significant changes in any variable will need adjustments in all variables. Because there is no starting point or indicated hierarchy in the diagram design, it is unclear which of the seven elements would be the driving force in changing a particular organisation at a specific time. All of the components are equally vital. The critical variables of transformation may differ amongst organisations. They may also vary within the same organisation. Fundamentally, the framework emphasises that good strategy execution involves a combination of talents, styles, structures, processes, staff, and superordinate goals.

Super-ordinate Objectives: “Super-ordinate goals” are “higher-order goals that convey the values, vision, and mission senior management provides to the organisation.”

These are the core concepts upon which a business is constructed. As a result, they symbolise an organization’s core principles and goals. They are broad concepts of future direction. They are equal to “organisational objectives.” For example, IBM’s superordinate objective has been “customer service,” whereas Hewlett-has Packard’s been “innovative individuals at all levels of the organisation.” When properly articulated, superordinate goals can offer a firm foundation for an organization’s stability in a quickly changing environment by giving people working for the organisation a basic meaning.

Structure: “Structure” refers to the company’s organizational structure. Top management is responsible for creating organizational structure, which refers to the more long-lasting organizational arrangements and interactions. It specifies the formal linkages between distinct jobs and activities, communication routes, and duties that various members of an organisation must play.

The organisational structure serves four key purposes:

1. It decreases outside uncertainty.

2. It decreases internal uncertainty caused by unexpected, varied, and random human behaviour.

3. It offers a wide range of methods, such as departmentalization, specialisation, division of labour, delegation of authority, and so on.

4. It aids in coordinating the organization’s varied activities and emphasising its goals.

The organisational structure must be built to meet the plan’s needs. According to Chandler, the structure must come after strategy. In other words, changes in strategy must be accompanied by changes in organisational structure.

McKinsey contends that while the link between strategy and structure is crucial, it rarely yields distinctive structural solutions. Quite often, the biggest issue with a plan is its execution.

Systems:

“Systems” refer to the procedures that enable the organisation to function. They include the written and informal rules, regulations, and procedures that supplement the organisational structure. Production planning and control systems, cost accounting procedures, capital budgeting systems, performance assessment systems, and so on are examples of systems. Adjustments in strategy frequently necessitate changes in systems.

Style:

“Style” refers to how a firm conducts its operations. Top executives can use style to effect change. Organizations’ “working styles” differ from one another. According to the McKinsey framework, an organization’s style emerges from the patterns of actions made by the top management team over time.

Consequently, building and fostering a strong ‘fit’ between culture and strategy is a key aspect of managing change.

Staff:

“staff” refers to people who need to be developed, challenged, and supported. It should be ensured that the workforce can contribute to achieving objectives. The following are three critical features of staff:

1. Choosing deserving individuals for specific organisational responsibilities.

2. Developing their abilities and skills to take on hard assignments.

3. Encouraging them to give their all to attain strategic objectives.

Skills:

“Skills” are an organization’s most important traits or competencies. The 7-S framework’s skills are equivalent to “distinctive competencies.” Hindustan Lever, for example, is known for its marketing abilities, TELCO for its engineering abilities, IBM for its customer service, Du Pont for its research and development abilities, and Sony for its new product development abilities. Skills are acquired over time and as a result of various situations. As a result, to implement a new plan, new talents must be developed.

Strategy: “Strategy” refers to an organization’s long-term direction and scope. It is the path taken by the organisation to achieve competitive success.

The Framework’s Alignment

The successful implementation of strategy necessitates the proper alignment of many aspects inside the organisation. McKinsey consultants refer to strategy, structure, and systems as the “hard components” of the organisation. In contrast, the other four Ss, namely style, skills, staff, and super-ordinate goals, are referred to as the “soft aspects” of the organisation. The complex elements are more tangible and specific. Therefore, they frequently receive more attention; however, the soft elements are equally vital, even if they are more challenging to measure, assess, and plan.

Advantages of the 7-S Framework

1. The 7-S framework highlights several essential organisational relationships and their function in promoting transformation. It simply explains that the primary goal of strategy implementation is to bring all seven Ss into harmony. When the 7-S are aligned, a company is ready and eager to execute the strategy to the best of its ability.

2. Second, the McKinsey model provides a handy checklist for determining whether an organisation is ready to implement the strategy. It also aids in determining why the strategy’s implementation results fall short of expectations and, as a result, what additional ‘fits’ are necessary.

3. Third, the framework assists strategists in analysing their organisations across each of the seven dimensions, finding organisational strengths and weaknesses.

4. Finally, McKinsey’s 7-S framework is an effective expository tool. However, changing organisational elements is not easy, but this should not deter anyone from working to effect change.

The 7-S Framework’s Limitations

1. The 7-S framework demonstrates the existence of relationships and provides some limited hints as to what makes more effective strategy implementation. However, there is no exact explanation beyond this. The framework, for example, says little about the how and why of interrelationships. As a result, the model falls short of explaining the logic and process used to establish the links between the pieces.

2. Another flaw is that the framework does not highlight or stress other topics that have since been regarded as strategically essential. These are the areas:

-Creativity

-Expertise

-Customer-Centered service

-Quality

The aspects listed above are all equally crucial for the success of any organisation.

Despite the limitations listed above, the 7-S framework gives a method for assessing the organisation and what contributes to its success. It does a beautiful job of conveying the significance of the connections between the various pieces. That’s why McKinsey consultants used it as a jumping-off point for their search for more specific relationships.

10.5 Allocation of Resources

Most strategies require resources to be allocated to them to be correctly implemented. Let us look at some unusual conditions that may impact resource allocation.

The procurement and commitment of financial, physical, and human resources to strategic tasks to achieve organisational goals is referred to as resource allocation. This is allocating resources to specific business units, divisions, functions, and so on to carry out strategies. Every organisation has at least five different categories of resources:

1. Physical Resources
2. Financial Resources
3. Human Resources
4. Technological Resources
5. Intellectual Resour

These resources may already exist inside the organisation or must be obtained. Decisions about resource allocation are crucial since they determine the firm’s operational strategy. Decisions on how much to invest in which business areas strengthen the strategy and commit the organisation to the chosen plan.

10.5.1 Importance of Resource Allocation

The ability of a corporation to acquire the resources required to support new strategic initiatives and direct them to the relevant organizational units has a significant impact on the strategy implementation process. Too little money, whether due to limited financial resources or sluggish managerial action, slows progress and impedes organizational units’ ability to execute their share of the strategic plan effectively.

Simultaneously, excessive funding consumes organisational resources and undermines financial performance. Both extremes highlight the importance of management exercising caution when allocating resources. Resource allocation becomes a vital task when there are significant shifts from previous plans in terms of product/market breadth. For example, suppose the firm’s strategy is to expand in one line, withdraw from another, and maintain stability in the remaining lines. In that case, more resources must be directed toward the first and less toward the second and third. Similarly, if the objective is to gain a competitive advantage through product development, more resources must be allocated to R&D.

As it sends signals to all parties involved, resource allocation is a powerful technique for communicating the strategy within the organisation. It will show what strategy is actually in use.

Decisions on resource allocation should be made with caution because applying a formula approach (i.e., assigning cash as a percentage of sales or profits) may be improper and counterproductive. It is important to ensure that resources are neither allocated nor withdrawn based on their ease of availability or scarcity.

For example, cutting R&D budgets in response to a quick drop in profitability should be avoided because such expenditure is crucial for establishing future competitive advantage.

Decisions on resource distribution are often tied to objectives. For example, dividend payment decisions are tied to the company’s ability to recruit money. The distribution of predicted profits among investors, employees, and the company’s requirements is a significant resource allocation choice regarding the strategy’s long-term ramifications.

10.5.2 Resolving Resource Conflicts

The most prevalent method of allocating resources is through a budgetary framework. However, other additional tools can be used for this purpose. The following are some of the most essential tools for resource allocation:

The BCG Matrix

The BCG matrix, commonly used for portfolio analysis, can also be used as a resource allocation guideline. Surplus resources from “cash cows” can be redistributed to “stars” or “question marks.” Businesses classified as “dogs” may not require any thrust because of their low growth and market share, and resources can be progressively withdrawn from such businesses and invested in other potential businesses.

The BCG matrix is a practical resource allocation tool because it emphasises a portfolio approach to resource allocation. In the long term, it aids in avoiding over-investment in any one sort of business and under-investment in prospective firms. Despite its usefulness, the BCG matrix should be used cautiously and just as a guideline. It does not provide a specific metric for making a more informed decision, particularly across businesses of the same type.

PLC-based Budgeting

Resource allocation can also be connected to various Product Life Cycle (PLC) stages. A product in its initial and growth stages may necessitate more resources than a product in its mature and declining stages.

Zero-based Budgeting (ZBB)

The primary distinction between ZBB and traditional budgeting is that ZBB forces managers to justify their budget demands in detail from the start rather than relying on previous budget allocations. As a result, rather than using the previous year’s budget to estimate future allocations, ZBB requires managers to re-examine objectives and operations and justify budget requests. As a result, ZBB is a sort of budget that demands managers to rejustify previous objectives, projects, and budgets and determine future priorities. It entails recalculating all organisational operations to determine which should be abolished or financed at a lower or higher level.

Capital Budgeting

Capital Budgeting strategies can be used for long-term resource commitments such as capital investments in mergers, acquisitions, joint ventures, and the establishment of new factories. Various methodologies, such as payback duration, net present value, internal rate of return, and so on, can be used to determine which investments will yield the highest returns.

Operating Budgets

Operating budgets are required for more normal resource allocation to run operations. Systems are classified into two types:

1. Fixed budgeting system:

This system commits resources based on activity levels. In this style of budgeting, committed resources may be kept even if activity levels are not met, depriving other divisions of resources with greater potential.

2. Flexible budgeting system:

This method allows funds to be transferred from one unit to another if real activity levels in a particular unit are predicted to reduce, resulting in better resource utilisation. However, this method has the disadvantage of increasing indifference to fiscal allocations.

10.5.3 Criteria for Resource Allocation
Process

The corporate office of large, diverse firms plays a significant role in allocating resources among numerous plans proposed by its operating units or divisions. Product groups, business units, or functional areas may often bid for cash to support their strategy plans.

Three criteria might be applied when allocating resources.

1. Contribution to achieving organisational goals: The resource allocation task at the organisation’s heart is to direct resources away from areas that are bad at delivering the organization’s objectives and toward those that are excellent at fulfilling the organization’s goals.

2. Promotion of essential strategies: The problem with resource allocation in many circumstances is that the funding requests frequently exceed the normally available sums. As a result, there must be some selection mechanism in place in addition to accomplishing the organization’s mission and objectives. The second criterion is concerned with two aspects of resource analysis:

3. Core competency support: Resources should be used to create and improve core competencies, which will help gain a competitive advantage.

4. Enhancement of value chain activities: Resources should be directed primarily toward value chain activities that assist the organisation in achieving low cost or differentiation and, as a result, enhancing and sustaining the firm’s competitive advantage.

5. The organization’s risk-acceptance level: The more significant the risk, the less likely the approach will be successful. Some businesses are more willing to absorb higher amounts of risk than others. As a result, the criterion in this scenario must be assessed regarding the organization’s risk-acceptance level.

10.5.4 Factors Affecting Resource Allocation

The allocation of resources is not always a totally ‘rational’ decision-making process. It is also a behavioural and political process involving individuals whose various goals may be driven. The following are some of the primary elements influencing resource allocation:

1. Organizational aims: People motivated by various objectives influence project funding. There are two kinds of goals: official (explicit) goals and operational (implicit) goals. The allocation of resources is influenced more by implicit objectives than by explicit objectives. Formal and informal organisations also influence the view of which initiatives should be funded.

2. Strong units: Strong SBU leaders can sometimes receive a larger fund distribution than their “due share.”

3. Dominant strategists: The preferences of dominant strategists, such as the CEO, Directors, SBU heads, and so on, are reflected in the allocation of resources. Divisional and department heads know that such preferences matter and try to express their needs.

4. Internal politics: Resources are frequently viewed as power, and units that gain significant resources are perceived as more powerful than others. Internal politics within the organisation to secure more resources impact the resource allocation process.

5. External impacts: Besides internal politics, external forces such as government legislation, shareholder demands, financial institutions, community, and others influence resource allocation. Legal obligations, for example, may necessitate additional funds for labour welfare and social security, pollution control, safety equipment, and energy conservation. Dividends may be increased, and resources must be focused on them. Financial institutions may impose limits or require businesses to spend on R&D and technology upgrades. Similarly, the firm’s social duties necessitate the provision of enough cash. As a result, external influences impact the resource allocation process.

To summarise, ‘behavioural’ and ‘political’ considerations are unavoidable in a typical organisation, but they must not overpower ‘rational’ considerations in resource allocation. Otherwise, inappropriate financial allocation may compromise successful strategy implementation and cause difficulties in accomplishing the intended strategic shift.

10.5.5 Difficulties in Resource Allocation

The resource allocation process can get quite complex, posing various challenges for strategists. Some of the complications that can cause issues are as follows:

1. Scarcity of Resources: Resources are scarce. Even if financing is available, the cost of capital may be a barrier. Another issue could be a scarcity of highly skilled individuals.

2. Restrictions on Resource Generation: Within organisations, new units with more future growth potential may be unable to create resources in the short run. Allocating resources on par with current SBUs, divisions, and departments through the standard budgeting procedure will disfavour them.

3. Exaggerated Demands: Unit managers may occasionally submit inflated or exaggerated requests for funds to avoid budget cuts, which undermines the decision-making process.

4. Negative Attitude: Units that do not receive the necessary allocations may acquire a negative attitude toward corporate executives. They may work against one another, obstructing the accomplishment of the targeted approach.

5. Budget Wars: The actual allocation of funds to any unit significantly impacts the unit’s work environment and the manager’s career. If a manager loses the ‘budget battle,’ his staff may feel betrayed and refuse to collaborate.

6. Budgeting Process: If the budgetary process is not linked to the firm’s strategic aims, it might cause complications. Any targeted strategy is difficult to succeed if top management fails to communicate shifts in strategic plans and lower levels are uninformed.

7. New SBUs: The budgetary process is linked to how units and divisions are organised organizationally. New SBUs may be disadvantaged if they are unfamiliar with the complexities of their organisations’ budget procedures.

To overcome the issues above, strategists should pay close attention to resource allocation and ‘prioritise’ budgetary allocations in the early phases while keeping overall objectives in mind.

Many ‘budget conflicts’ can be avoided if targets, resource sharing, priority, mid-point changes, and other decisions are made in an atmosphere of cooperation and involvement, particularly at the departmental and divisional levels.

Allocating resources to certain divisions and departments does not guarantee successful strategy implementation. If large strategic alterations occur, the organisational structure and resource allocation are likely to change.