CBMEC 413 Strategy Implementation Notes PDF

SUPPLEMENTARY NOTES 5 CBMEC 413 – STRATEGIC MANAGEMENT STRATEGY IMPLEMENTATION LEARNING OBJECTIVES At the end of the module, the learners must be able to: discuss what strategy implementation is; explain how developme...

SUPPLEMENTARY NOTES 5 CBMEC 413 – STRATEGIC MANAGEMENT STRATEGY IMPLEMENTATION LEARNING OBJECTIVES At the end of the module, the learners must be able to: discuss what strategy implementation is; explain how development of program, budget, and procedures contribute to successful strategy implementation; discuss the different types of tactics; and explain the strategy implementation process. STRATEGY IMPLEMENTATION Bamford, Hoffman, Hunger, and Wheelen (2018) stated that strategy implementation is the totality of activities and choices required for the execution of a strategic plan. It is the process by which objectives, strategies, and policies are put into action through the development of programs, tactics, budgets, and procedures. The following are the prerequisites of strategy implementation: 1. Institutionalization of strategy. It involves translating organizational conduct, mission, vision, policies, and strategic plans into general actions which guide the daily activities of an organization. 2. Developing proper organizational climate. It involves establishing cooperation, personnel development, degree of commitment, determination, and efficiency within an organization. 3. Formulation of operating plans. It involves aligning the different activities of an organization to the proposed strategies in order to attain objectives and generate positive results. 4. Developing proper organizational structure. It involves matching the requirements of the strategy to various designations, positions, and roles within an organization. 5. Periodic review of strategy. It involves monitoring the progress of implemented strategy and determining whether the strategy is relevant to the purpose of the organization. DEVELOPING PROGRAMS, BUDGETS, AND PROCEDURES Bamford et. al (2018) stated that strategy implementation involves establishing programs and tactics to create a series of organizational activities, budgets to allocate funds for the initiated activities, and procedures to monitor and control the progress of the activities as follows: 1. Programs. The purpose of a program or a tactic is to make a strategy action-oriented. In practice, a program is a collection of tactics, and a tactic is the individual action taken by the organization as an element of the effort to accomplish a plan. For example, when Xerox Corporation undertook a turnaround strategy, it needed to significantly reduce its costs and expenses. Management introduced Lean Six Sigma. This program was developed to identify and improve a poorly performing process. Xerox first trained its top executives in the program and then launched around 250 individual Six Sigma projects throughout the corporation. The result was US$6 million or 300 million pesos in savings in one year. Tactics can be offensive or defensive. The following are the different types of offensive tactics: 1  a. Frontal Assault. It involves matching the competitor in every business category from price to promotion and distribution channel. To be successful, the attacker must have not only superior resources, but also the willingness to persevere. This is generally a costly tactic and may serve to awaken a sleeping giant of depressing profits for the whole industry. EXAMPLE: This is what Kimberly-Clark did when it introduced Huggies disposable diapers against P&G’s market-leading Pampers. The resulting competitive battle between the two (2) firms depressed Kimberly-Clark’s profits. b. Flanking Maneuver. It involves attacking a part of the market where the competitor is weak. EXAMPLE: Texas Instruments avoided competing directly with Intel by developing microprocessors for consumer electronics, cell phones, and medical devices instead of computers. Taken together, these other applications are more profitable and influential than the computers, which Intel dominates. c. Bypass Attack. It involves cutting the market out from under the established defender by offering a new type of product that makes the competitor’s product unnecessary. EXAMPLE: Instead of competing directly against Microsoft’s Pocket PC and Palm Pilot for the handheld computer market, Apple introduced the iPod as a personal digital music player. It was the most radical change to the way people listen to music since the Sony Walkman. By redefining the market, Apple successfully sidestepped both Intel and Microsoft, leaving them to play “catch- up”. d. Encirclement. It occurs when an attacking company or unit encircles the competitor’s position in terms of products or markets. The “encircler” is known to have a greater product variety and/or serves more markets. EXAMPLE: Steinway was a major manufacturer of pianos in the United States until Yamaha entered the market with a broader range of pianos, keyboards, and other musical instruments. The company was taken private in 2013 and focused almost exclusively on the very high end of the market, producing their 600,000th piano in 2015. e. Guerrilla Warfare. It is characterized by the use of small, intermittent assaults on different market segments held by the competitor. In this way, a new entrant or small firm can make some gains without seriously threatening a large, established competitor and evoking some form of retaliation. To be successful, the firm or unit conducting guerrilla warfare must be patient enough to accept small gains and avoid pushing the established competitor to the point that it must respond or else lose face. EXAMPLE: Microbreweries, which make beer for sale to local customers, use this tactic against major brewers in the industry. The following are the types of defensive tactics. a. Raise Structural Barriers. It involves blocking a challenger’s logical avenues of attack by offering a full line of products in every market segment, raising switching costs, gaining exclusive agreements, and reducing product and services cost. EXAMPLE: Coca-Cola offers unprofitable non-carbonated beverages to block competitors’ entry point in non-carbonated products. b. Increase Expected Retaliation. It involves increasing the perceived threat of counterattack. For instance, management may strongly defend any erosion of market share by drastically cutting prices or matching a challenger’s promotion through a policy of accepting any price-reduction coupons for a competitor’s product. This counterattack is especially important in markets that are very important to the defending company or business unit. 2  EXAMPLE: When Clorox Company challenged P&G in the detergent market with Clorox Super Detergent, P&G retaliated by test marketing its liquid bleach of the time, Lemon Fresh Comet, in an attempt to scare Clorox into retreating from the detergent market. c. Lower the Inducement for Attack. It involves reducing a challenger’s expectations of future profits in the industry. EXAMPLE: Southwest Airlines can deliberately keep prices low and continuously invest in cost- reducing measures. With prices kept very low, there is little profit incentive for a new entrant. 2. Budgets. It is way for a corporation to check the feasibility of its selected strategy by identifying the significant cost which will be incurred during strategy implementation. An ideal strategy might be found to be completely impractical only after specific implementation programs and tactics are costed in detail. Mondelez is the world’s largest buyer of cocoa and in 2012 committed to dramatically increase the supply of sustainably grown cocoa in the six (6) big cocoa producing countries. The company budgeted US$400 million or 20 billion pesos to reach over 200,000 cocoa farmers by 2022. 3. Procedures. These are often called Standard Operating Procedures (SOPs), which typically detail the various activities that must be carried out to complete a corporation’s programs and tactical plans. Once in place, procedures must be updated to reflect any changes in technology as well as in strategy. For example, a company following a differentiation competitive strategy manages its sales force more closely than does a firm following a low-cost strategy. Differentiation requires long-term customer relationships created out of close interaction with the sales force. An in-depth understanding of the customer’s needs provides the foundation for product development and improvement. THE STRATEGY PROCESS Bossidy and Charan (2002) stated that the primary goal of any strategy is to win the customer’s preference and create a sustainable competitive advantage while ensuring the safety of shareholders investment. A strategy defines a business’s direction and positions a company to move in that direction. A good strategic planning process requires attention to the actual execution of the strategy. A robust strategy is not a compilation of forecasted numbers rather it must come from the minds of the people who are closest to the action and who understand their markets, their resources, and their strengths and weaknesses. A strategy of an organization must address different aspects involved in both short and long-term business engagement taking into consideration the internal and external conditions. The strategy process is about linking the people to operations. In building a strategic plan, the line people or staffs of an organization can help by collecting data and using analytical tools. In addition, business leaders must develop the substance of the strategic plan. The line people understand the business environment and the organization’s capabilities because they are directly exposed to it. They are in the best position to introduce ideas, to know which ideas will work in their marketplace and which ones won’t, to understand what new organizational capabilities may be needed, to weigh risks, to evaluate alternatives, and to resolve critical issues that planning should address but too often does not. Not everyone can learn to be a good strategic thinker, of course. But by working in a group, guided by a leader who has a comprehensive understanding of the business and its environment, and by using the robust dialogue that’s central to the execution culture, everyone can make their individual contribution. The following are considerations of business leaders in creating a strong strategic plan. 3  Assessment of external environment. Business leaders must scrutinize their environment and understand it well. They should examine everything from economic and demographic trends and regulatory shifts to new technologies, alliances between competitors, the drivers of increasing or decreasing demand for its products, among others. Understanding existing markets. Business leaders must be aware of the needs and buying behaviors of their customers. Identifying growth opportunities. Business leaders must assess the needs of their organization to gain potential progress and development. They must constantly identify the need for new products and/or services, marketing channels, and business expansion, among others. Recognizing the competition. Business leaders must continuously monitor the emergence of new entrants who have more attractive value propositions for their customers. Assessment of business capabilities. Business leaders must undertake a realistic evaluation of their company’s capabilities to execute a proposed strategy in terms of people, process, and resources. Creating strategic milestones. Business leaders must establish a timeline and metrics in measuring the progress of a strategic plan. Determining critical issues. Business leaders must identify the organizational problems which may affect the future growth of the business. Incorporating sustainability. Business leaders must ensure that their company operations exhibit economic stability to ensure the long run continuity of the organization. 4