Strategy Implementation and Control

Topic 6: Strategy Implementation and Control

• The formulation of a good competitive and corporate strategy is crucial for gaining and maintaining a competitive advantage
• Effective strategy implementation and control are even more important than the analysis and formulation stages.
• Some academics refer to implementation as the "graveyard of strategy" (e.g., Yahoo)
• Strategy formulation is about what to do, while implementation is about how to put it into practice
• Strategic proposals that are not implemented are merely plans, not strategies
• Strategic implementation involves organizing, coordinating and integrating work to execute the formulated strategy
• This is vital for obtaining and maintaining competitiveness and the survival of a company
• Analysis, formulation and implementation are interconnected and interdependent processes

6.1 Implementation of the Strategy

• Implementing a successful strategy requires a company to have:
  • The correct organizational structure
  • Strong strategic leadership
  • Effective corporate governance
• Key issues in correct strategy implementation include
  • Organizational structure
  • Strategic leadership
  • Corporate governance
• Organizational structures and strategic positioning:
  • The structure details what work is done, how it's done, specializations, levels of hierarchy and formal communication
  • Formalization levels and centralization
  • Structure must fit the company's competitive and corporate strategies; adapting to growth and diversification (Market Penetration, Product Diversification, Geographic Diversification, Vertical Integration, and Unrelated Diversification)
• Organizational structures include
  • Simple (smaller companies with one or few products/markets, flat structure, CEO makes major decisions, less formalization)
  • Functional (companies with increasing sales and a single or a few related products, specialized employees grouped by functions, centralized coordination by CEO, more specialization, can lead to bottlenecks as growth increases)
  • Multidivisional (highly diversified, more than one BU, each BU is autonomous, led by a CEO)
  • Matrix (highly diversified both in product and geographic areas)
• The relationship between corporate strategies (unique business, dominant business, related diversification, unrelated diversification) and the organizational structure
• The functional structure is recommended when the company has little product diversification and a small geographic footprint.
• The form of internationalization strategy (International strategy, Multi-domestic strategy) influences the organizational structure

### 6.2 Strategic Control

• Organizational controls are essential for a successful strategy implementation and (re)formulation
• Effective organizational controls provide clear information for improvement
• Applying a balanced scorecard (financial and strategic objectives) assesses the company's situation
• ERPs (Enterprise Resource Planning) offer multidimensional, real-time information for strategic control

6.2 Strategic Control: The Balanced Scorecard (Advantages)

• Translate vision into measurable objectives, design and plan business processes
• Complement financial metrics with operational metrics (customer satisfaction, internal processes, innovation)
• Adaptability to modifications (re-formulation) through feedback mechanisms

6.2 Strategic Control: The Balanced Scorecard (Example)

• The example examines a strategic map (Zara) that considers Financial Perspective, Customer Perspective, Internal Processes Perspective, and Learning & Growth Perspective
• The interconnectedness of these perspectives enhances understanding and adaptation

Strategic Leadership

• Leaders need to set and communicate a clear vision, mission, and values, particularly in organizations with new leadership
• Good leaders understand and engage all their employees
• The actions and values of senior management impact organizational success.
• Key skills: desire for achievements, ambition, initiative, energy, tenacity, self-confidence, emotional stability, cognitive ability, psychological resistance, communication, ability to influence, motivation, eloquence, honesty, and integrity
• Effective leaders foster institutionalization of positive changes for improved performance
• The pyramid structure (Level 1: Highly Capable Individual, Level 2: Contributing Team Member, Level 3: Competent Manager, Level 4: Effective Leader, Level 5: Executive) illustrate leadership levels. 

Importance of Corporate Governance

• Ownership and control are often separated in companies.
• Agency relationships arise from this separation and need to be managed
• Corporate governance aligns managers’ actions with shareholders' interests, influencing strategy implementation.
• Key Governance Mechanisms are
  • Ownership Concentration
  • Board of directors (composed of internal, related, and unrelated external members)
  • Executive Compensation (to align executive interests with shareholder interests)