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Edinburgh Business School MBA AUC Academic Partner Strategic Planning Module 8 Implementing and Evaluating Strategy Instructor: Moataz Darwish, MBA
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Contents 1. Implementing Plans 8/2 2. Organizational Structure 8/3 3. Resource Allocation 8/6 1. Management of Change 8/6 2. Critical Success Factors 8/7 3. Management Style 8/7 4. Budgets 8/8 5. Incentives and Alignment 8/9 6. Setting Sales Targets 8/10 7. Resource Planning 8/11 4. Evaluation and Control 8/12 1. Monitoring Market Share 8/14 2. Monitoring Profitability 8/15 5. Feedback 8/18 6. The Augmented Process Model 8/19 7. Postscript: Strategic Planning Works 8/23 Introduction – Moataz Darwish 3
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Implementing Plans • Difficult to isolate implementation as an independent activity from planning in practice. • Choosing strategy is not an end in itself; unless there is a mechanism for making it happen it is a somewhat pointless activity. • Feedback process is of at most importance. • Feedback and continuous reaction are important elements of the process model. Introduction – Moataz Darwish 4
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Organizational Structure • The question of: whether structure follows strategy or vice versa? • Functional (U form) • Divisional (M form) • Holding company • Matrix • Networks • FUNCTIONAL STRUCTURE • Groups individuals according to their specialties rather than around products. • DIVISIONAL STRUCTURE (products or geographical boundaries) • Helps in resolving the principal/agent problem in that Divisional profitability can be more easily measured than functional returns. • The extent to which divisions are independent of the corporate centre varies among companies; • Differentiated product portfolio or operates in different countries Introduction – Moataz Darwish 5
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Organizational Structure 2 key questions to ask: How different forms of organisation are likely to contribute to the creation of value? Is the structure likely to be consistent with, or flexible enough to deal with, predicted changes? Introduction – Moataz Darwish 6
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Organizational Structure – Holding structure •the conglomerate has no particular logic to the incorporation of the individual businesses and the centre plays a less direct role in the determination of strategy than in the divisional company •much looser than the divisional structure, although the financial controls which it imposes on the individual businesses may be extremely strict. •several apparently unrelated products in the portfolios. But the Corporate function in the holding structure is confined to financial control while the divisional Corporate function extends to various dimensions of parenting. Introduction – Moataz Darwish 7
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Organizational Structure • A less common form of structure is the matrix - organising along more than one dimension. • two hierarchies and two bosses. • problems of direction and control. • can lead to employees lacking focus. • cause principal/agent problems. • Another approach is networks - work groups may be organised by function, geography or customer base. • relationships among groups are governed more by often changing implicit and explicit requirements of common tasks than by formal lines of authority. • raises problems of direction and control. Introduction – Moataz Darwish 8
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Structures advantages and disadvantages – value chain a domestic electrical appliance manufacturer located in England decided to expand into France; because of different specifications required in France and the different language the Board considered setting up a separate manufacturing division in France rather than producing in England and maintaining the functional structure. Introduction – Moataz Darwish 10
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Organizational Structure • When selecting the appropriate structure it is necessary to balance tradeoffs between • scale and scope economies, • transaction costs, • agency costs and • information flows. There is no single prescription, and the best organisation depends on individual circumstances. The structure must be seen as a method of resource allocation which is relevant to the company objectives, the competitive environment and the strategy being pursued. Introduction – Moataz Darwish 11
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Contents 1. Implementing Plans 8/2 2. Organizational Structure 8/3 3. Resource Allocation 8/6 1. Management of Change 8/6 2. Critical Success Factors 8/7 3. Management Style 8/7 4. Budgets 8/8 5. Incentives and Alignment 8/9 6. Setting Sales Targets 8/10 7. Resource Planning 8/11 4. Evaluation and Control 8/12 1. Monitoring Market Share 8/14 2. Monitoring Profitability 8/15 5. Feedback 8/18 6. The Augmented Process Model 8/19 7. Postscript: Strategic Planning Works 8/23 Introduction – Moataz Darwish 12
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Resource Allocation 1. Management of Change • reallocation of resources involves changing what people do. • faces ‘no change’ mentality problems • number of techniques which can be applied to implement change: • survey feedbacks, team building, confrontation and transactional analysis; • in the strategy context, managers must recognise when the organisation is in need of help in facilitating change. 2. Critical Success Factors: • events which must occur, or things which must be done, in order to ensure that the strategy succeed. • Needs detailed understanding of available resources, resources which will be required, sequence of events and how individuals are likely to react to the changes which they will experience. • Take the cases of attempting to convert a Question Mark to a Star compared with turning a Star into a Cash Cow. Four critical success factors have been identified that are common to both and the action associated with each is shown below. Introduction – Moataz Darwish 13
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Resource Allocation 3. Management Style: • skills which individual managers possess, leadership style is key. • company culture exert a significant impact on the ability of the organisation to undertake change. 4. Budgets: • The problem of allocating budgets – both Corporate and SBU levels • At the corporate level the overall budget is rationed among competing alternatives on the basis of proposals submitted by SBUs. • At the SBU or functional level resources are allocated to individual managers so that they can carry out the tasks which are required to achieve the objectives of each investment; • There are at least two approaches to corporate resource allocation: Competitive bidding (allocate capital between the groups according to the ratio of the total requested by each and the group manager then allocates capital to the SBUs using the criterion of value created) & directly to SBUs by ratio of value added. Introduction – Moataz Darwish 14
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Resource Allocation 5. Incentives and Alignment: • incentives should be related to the value creating activities • incentive system MUST BE aligned with the value creation objective. • For example, a production manager who is rewarded for minimising inventories can cause havoc with a marketing strategy aimed at achieving an increased market share. 6. Setting Sales Targets: • The allocation of resources to selling is a basic determinant of strategic success. 7. Resource Planning: • set up procedures to ensure that resources are used efficiently and that the components and linkages of the value chain are effective. • communications between marketing and production IS KEY. Introduction – Moataz Darwish 15
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Contents 1. Implementing Plans 8/2 2. Organizational Structure 8/3 3. Resource Allocation 8/6 1. Management of Change 8/6 2. Critical Success Factors 8/7 3. Management Style 8/7 4. Budgets 8/8 5. Incentives and Alignment 8/9 6. Setting Sales Targets 8/10 7. Resource Planning 8/11 4. Evaluation and Control 8/12 1. Monitoring Market Share 8/14 2. Monitoring Profitability 8/15 5. Feedback 8/18 6. The Augmented Process Model 8/19 7. Postscript: Strategic Planning Works 8/23 Introduction – Moataz Darwish 16
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Evaluation and Control • Necessary to measure and evaluate actual performance to find out if the expectations are being fulfilled. • When the component parts of the plan have been made explicit, the plan provides a benchmark against which actual outcomes can be compared, so that when variations between expected and actual outcomes occur their causes can be investigated. • The reason for the shortfall will suggest whether action should be taken to achieve the original objectives, or whether the plan itself needs revision in the light of events; it is essential to identify whether the deviation from the plan is due to causes within the control of the company. Introduction – Moataz Darwish 17
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Evaluation and Control • The steps in evaluation and control are: 1 - Decide what is to be measured. 2 - Decide how it is to be measured. 3 - Interpret the outcomes. 4 - Convert into policies. • Some companies rely largely on financial indicators, while others take into account a wider range of measures which reflect competitive positioning – ex balanced score card. Strategic control: - Uses combination of measurable and subjective criteria that enable judgements to be exercised in the light of changing circumstances. -Uses a variety of control methods and gives a balanced weighting to planning and control influences. Introduction – Moataz Darwish 18
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Evaluation and Control 1. Monitoring Market Share Net income = Total market × Market share × (Price − Unit cost) − Marketing expenditure 2. Monitoring Profitability many ways of measuring the profitability of a company, and different answers can be . obtained depending on which approach • Profit • Net Contribution: indicator of how effectively inputs are being converted into outputs. • Cash Flow Figure 8.2 BCG and cash flow Introduction – Moataz Darwish 19
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Contents 1. Implementing Plans 8/2 2. Organizational Structure 8/3 3. Resource Allocation 8/6 1. Management of Change 8/6 2. Critical Success Factors 8/7 3. Management Style 8/7 4. Budgets 8/8 5. Incentives and Alignment 8/9 6. Setting Sales Targets 8/10 7. Resource Planning 8/11 4. Evaluation and Control 8/12 1. Monitoring Market Share 8/14 2. Monitoring Profitability 8/15 5. Feedback 8/18 6. The Augmented Process Model 8/19 7. Postscript: Strategic Planning Works 8/23 Introduction – Moataz Darwish 20
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