Strategy Implementation and Control PDF

Topic 6. Strategy implementation and control Corporate strategy Pág. 1 Agenda 6.1 6.2 Strategy Strategic control implementation...

Topic 6. Strategy implementation and control Corporate strategy Pág. 1 Agenda 6.1 6.2 Strategy Strategic control implementation Bibliography: Grant, R. (2022):Chapter Navas and Guerras (2022). Chapter 14, 15 and 16 Rothaermel (2024):Chapter11 and 12 Topic 6. Implementation of the Corporate Strategy Pág. 2 6.0 Preamble Previously on… The AFI framework of the strategy BUSINESS ANALYSIS AND STRATEGY Analysis Block I. Concept of strategy and strategic direction (A) Block II. Strategic analysis (A) Block III. Competitive strategy formulation(F) Formulation CORPORATE STRATEGY Block I. Formulation of corporate strategies (F) Block II.Implementation of the strategy(D) Implementation Topic 6. Implementation of the Corporate Strategy Pág. 3 6.0 Preamble Introduction The formulation of an effective competitive and corporate strategy is a necessary but not sufficient condition for obtaining and maintaining a competitive advantage. A good strategy implementation and proper control are even more important than the analysis or formulation itself. Some academics have referred to implementation as the "graveyard of strategy.“ Example:Yahoo Topic 6. Implementation of the Corporate Strategy Pág. 4 6.0 Preamble Introduction. Implementation Strategy formulation à what to do Implementation of the strategyà how to put it into practice Strategic proposals that are not implemented are not truly strategy, but rather a plan. Strategy must be applied (the final part of the process). The strategic implementation refers to the organization, coordination and integration of the work necessary to implement the formulated strategy It is key to obtaining and maintaining a competitive advantage Analysis, Formulation and Implementation must be part of a reciprocal and interdependent process to ensure the success (and, above all, the survival) of the company. Topic 6. Implementation of the Corporate Strategy Pág. 5 6.0 Preamble Introduction. Control There are tools used to guide the implementation and correct the implemented strategy: organizational controls. These controls compare actual results with expected outcomes and, in the case of deviations, suggest actions In this comparison we need to know: what we want to achieve (objectives) and what we have achieved (information) It is very common to use KPIs: key indicators or measures of business results For KPIs to be useful, they must meet the SMART criteria: specific (S), measurable (M), achievable (A), relevant (R) and time-bound (T). Topic 6. Implementation of the Corporate Strategy Pág. 6 6.0 Preamble Introduction Some important issues to successfully execute a strategy Source: Harvard Business Review(2008) Organizational Effectiveness Simulator (PwC): https://www.simulator-orgeffectiveness.com/strategyand Topic 6. Implementation of the Corporate Strategy Pág. 7 7 6.1 Implementation of the strategy Pág. 8 6.1 Implementation of the strategy Implementation of the strategy KEY ISSUES FOR CORRECT STRATEGIC IMPLEMENTATION Select the correct one Have a good Have a good ORGANIZATIONAL STRATEGIC CORPORATE STRUCTURE LEADERSHIP GOVERNANCE Topic 6. Implementation of the Corporate Strategy Pág. 9 6.1 Implementation of the strategy Organizational structures and strategic positioning The organizational structure details what work (activities) must be carried out in the company and how it should be done. Specifically, it defines how tasks are divided (level of specialization), outlines the hierarchical relationships upward and downward (type of hierarchy), defines the formal communication channels (level of formalization), and prescribes how people and teams coordinate their work efforts (level of centralization). In order to obtain and maintain competitive advantage, the organizational structure must fit (be consistent with) the competitive and corporate strategy. Topic 6. Implementation of the Corporate Strategy Pág. 10 6.1 Implementation of the strategy Organizational structures and strategic positioning Since strategy is not static, neither is the organizational structure. As the company grows in size and complexity, the structure must evolve in a similar way. Successful companies often first grow in their home markets (market penetration and/or product diversification), then offer their product or service in other geographic markets (geographic diversification), and eventually diversify further through greater vertical integration and unrelated diversification. These different levels of growth require different organizational structures Topic 6. Implementation of the Corporate Strategy Pág. 11 6.1 Implementation of the strategy Organizational structures and strategic positioning There are four major types of organizational structures: (1) Simple; (2) Functional; (3) Multidivisional; and (4) Matrix Multi- Matrix divisional structure structure Company size Functional structure Simple structure Organizational complexity Fountain:Rothaermel(2024) Topic 6. Implementation of the Corporate Strategy Pág. 12 6.1 Implementation of the strategy Organizational structures and strategic positioning Simple structure It is generally used by smaller companies with low organizational complexity. They offer a single product or service (or several closely related ones) in one or a few geographic markets (within the same country). The CEO (often the founder) makes the important strategic decisions. Positions are related in a flat (non-hierarchical) structure and operate in a decentralized manner. Additionally, they exhibit a low degree of formalization and specialization. As the company grows, it creates an overload for the general manager: is a change in structure necessary? Example: Facebook in 2004 Topic 6. Implementation of the Corporate Strategy Pág. 13 6.1 Implementation of the strategy Organizational structures and strategic positioning Functional structure When sales figures increase, companies tend to adopt a functional structure. This is also known as a U-form structure (due to the idea of unity: a single product or several closely related products) Employees are grouped into different areas of activity (functions) according to their expertise. The functional areas correspond to the various stages of the company's value chain (R&D, manufacturing, marketing and sales, HR, finance, and accounting...). This allows for a greater degree of specialization, which facilitates gaining more experience in the tasks performed (productivity). The work of the different areas is coordinated centrally by the Chief Executive Officer (CEO). Bottlenecks can occur as the number of products and geographical markets increases. Topic 6. Implementation of the Corporate Strategy Pág. 14 6.1 Implementation of the strategy Organizational structures and strategic positioning Typical example of a functional structure CEO Marketing Human Finance and R&D Production and sales Resources Accounting Source:Rothaermel(2024) Topic 6. Implementation of the Corporate Strategy Pág. 15 6.1 Implementation of the strategy Organizational structures and strategic positioning Functional structure A functional structure is recommended when a company has little product diversification and its geographic footprint is small (corporate strategies) It is compatible with any of the generic competitive strategies seen in Topic 1: cost leadership and differentiation In any case, the functional structure must be adapted to the characteristics of the competitive strategy followed by the company. Topic 6. Implementation of the Corporate Strategy Pág. 16 6.1 Implementation of the strategy Functional structure with a cost leadership strategy CEO Middle management Marketing Human Finance and R&D Production and sales Resources Accounting Mechanized and well-defined tasks (economies of experience) Production is one of the most important activities (reducing costs) It is important to promote process innovation in order to further reduce costs. Formalized and automated processes allow the low-cost culture to emerge. Topic 6. Implementation of the Corporate Strategy Pág. 17 6.1 Implementation of the strategy Functional structure with a differentiation strategy CEO R&D Marketing Marketing Human Finance and R&D Production and sales Resources Accounting Decision-making is decentralized to make it more flexible: fostering innovation, creativity and adjustment between areas R&D and marketing are the most important activities (allowing for an improvement in competitive advantage). Processes are less formalized: ideas for new products and process changes are implemented more easily (more open innovation). Topic 6. Implementation of the Corporate Strategy Pág. 18 6.1 Implementation of the strategy Organizational structures and strategic positioning Functional structure The main disadvantages of this structure are: a. Lack of communication channels between departments. Division between functional areas can be useful to strengthen the relationship (improve communication) between members of the same department, but often there is a lack of effective communication channels between members of different departments. b. It cannot effectively address a medium-high level of product or geographic diversification. As the company grows, it will need to evolve towards new structures that allow it to better implement this higher level of diversification. Topic 6. Implementation of the Corporate Strategy Pág. 19 6.1 Implementation of the strategy Organizational structures and strategic positioning Multidivisional Structure It is used by companies that are quite diversified in terms of product (several business units) or market (several countries). It is also called an M-shaped organization because it consists of multiple divisions or business units (BUs). Each BU is autonomous (“quasi-enterprise”) and corresponds to a specific grouping of products-customers or markets-customers. In addition, each BU is led by a CEO, who is responsible for managing the strategy and daily operations of that unit. The executive directors of each BU must, in turn, answer to the general CEO, who is responsible for coordinating the strategic actions of the different business units and allocating resources to each of them. Example:Zappos Topic 6. Implementation of the Corporate Strategy Pág. 20 6.1 Implementation of the strategy Organizational structures and strategic positioning Typical example of structuremultidivisional (redo) CEO General CEO CEO CEO CEO UN1 UN2 UN3 UN4 Marketing R&D Production and sales Topic 6. Implementation of the Corporate Strategy Pág. 21 6.1 Implementation of the strategy Organizational structures and strategic positioning Matrix structure It is used by companies that are highly diversified both in terms of product (several BUs) and geographically (several countries). The matrix structure uses two axes: (1) it divides into different BU(as in the M shape) and (2) it differentiates by geographic areas (usually countries or regions). It combines the benefits of the M-form (expertise in each unit, economies of scale and efficient information processing) with those of the functional structure (responsiveness and decentralized approach). It provides the company with more flexibility, allowing it to more quickly detect problems or opportunities linked to a specific product line (BU) in a specific market or geographic area. Topic 6. Implementation of the Corporate Strategy Pág. 22 6.1 Implementation of the strategy Organizational structures and strategic positioning Typical example of structure Matrix structure CEO General CEO CEO CEO CEO UN1 UN2 UN3 UN4 Geographic area 1 Geographic area 2 Topic 6. Implementation of the Corporate Strategy Geographic Pág. 23 area 3 6.1 Implementation of the strategy Relationship between the differenttypes of product diversificationand the organizational structure Corporate strategies Organizational structures Unique business Simple or functional structure Dominant business Simple structureeitherfunctional Multidivisional structure (M-shaped) Centralized decision making High level of integration at corporate headquarters Related diversification Coopetition between business units Cooperation to achieve global objectives (synergies, sharing knowledge, etc.) Competition for resources Multidivisional structure (Frequently, holding company) Decentralized decision making Unrelated diversification Little possibility of global coordination (there are hardly any global objectives) General management (head office) is limited to exercising financial control Topic 6. Implementation of the Corporate Strategy Pág. 24 6.1 Implementation of the strategy Relationship between different types of internationalization strategies (global integration-local adaptation) and the organizational structure Internationalization strategy Structure International strategy Functional structure Multidivisional structure Multi-domestic strategy Geographical areas Decentralization of the decision-making process Multidivisional structure Global standardization strategy Product divisions Centralized decision-making process Matrix structure Transnational strategy Balancing centralized and decentralized decision-making Additional layer of hierarchy to coordinate both: Geographic areas and product divisions Topic 6. Implementation of the Corporate Strategy Pág. 25 6.1 Implementation of the strategy Strategic Leadership Jack Ma, founder of Alibaba Jeff Bezos, founder of Amazon Topic 6. Implementation of the Corporate Strategy Pág. 26 Mark Zuckerberg, founder of Facebook 6.1 Implementation of the strategy Strategic Leadership Paul Isla, former president of Inditex The former president of Inditex debated with Pau Gasol about the role of leaders in organizations during the first day of the event (South Summit) for entrepreneurs held in Madrid in June: “There are many forms of leadership, but if I had to choose the one I consider most relevant it is that of not treating everyone equally", said the former Inditex executive “Not everyone is the same.The biggest challenge for a leader is to identify the best in each member of his team and make the best of him shine..Some are more sensitive than others, you cannot ask everyone the same or in the same way” Topic 6. Implementation of the Corporate Strategy Pág. 27 6.1 Implementation of the strategy Strategic Leadership Topic 6. Implementation of the Corporate Strategy Pág. 28 6.1 Implementation of the strategy Strategic Leadership Topic 6. Implementation of the Corporate Strategy Pág. 29 6.1 Implementation of the strategy Strategic Leadership How should a leader act to get the best out of his company? There are no magic formulas. Each organization requires its own approach because no two are alike. Some of the actions that usually work: ü Participate in the company's mission, vision and values (in case the CEO is not the founder) If you don't believe in what you're doing, chances are things will go wrong. ü Convey (know how to sell) that vision and culture to all members of the company. ü Communicate the objectives and strategic actions clearly. ü Value and “listen” to all employees ü Celebrating intermediate achievements ü Consolidate the improvements obtained ü Institutionalize new approaches: promote the correlation between new behaviors and corporate successes. Topic 6. Implementation of the Corporate Strategy Pág. 30 6.1 Implementation of the strategy Strategic Leadership Topic 6. Implementation of the Corporate Strategy Pág. 31 Fountain:Hitt,IrelandandHoskisson(2019) 6.1 Implementation of the strategy Strategic Leadership How to become a good leader? According to upper echelons theory, organizational results are a reflection of the actions and values of the senior management team. Upper echelons theory favors the idea that good strategic leadership is the result of: ü Innate abilities ü Learning Topic 6. Implementation of the Corporate Strategy Pág. 32 6.1 Implementation of the strategy Strategic Leadership Some skills to be a good leader ü Desire for achievements ü Communication skills ü Ambition ü Ability to influence ü Motivational capacity ü Initiative ü Eloquence ü Energy and tenacity ü Honesty and integrity ü Self-confidence ü Reliable ü Emotional stability ü Cognitive ability ü Psychological resistance Topic 6. Implementation of the Corporate Strategy Pág. 33 6.1 Implementation of the strategy Strategic Leadership Learning from a good leader Topic 6. Implementation of the Corporate Strategy Pág. 34 6.1 Implementation of the strategy Importance of corporate governance In many companies, ownership is separated from control. The owners (principal) hire managers (agent) to run the companies. In these organizations, there is an agency relationship between the principal and the agent. The way in which owners can monitor and control the decisions and actions of managers significantly affects strategy implementation. This highlights the importance of corporate governance Topic 6. Implementation of the Corporate Strategy Pág. 35 6.1 Implementation of the strategy Importance of corporate governance Corporate governance is a relationship between the main stakeholders that determines the direction of the company and controls its performance. Effective corporate governance that aligns managers' decisions with shareholder interests can help generate a competitive advantage for the company. To control the agency problem, governance mechanisms (or corporate governance) are established. Main mechanisms: 1. Ownership concentration 2. The board of directors 3. Executive compensation Topic 6. Implementation of the Corporate Strategy Pág. 36 6.1 Implementation of the strategy Importance of corporate governance 2. The board of directors The board of directors is composed of internal members, related external members, and unrelated external members. It is expected to represent the interests of the shareholders. Currently, the percentage of external members on many boards exceeds the percentage of internal members. Regulations from bodies such as the CNMV (or equivalents like the Securities and Exchange Commission) aim to allow large shareholders to propose new directors. These regulatory changes are beginning to shift the balance in favor of external and independent members. Topic 6. Implementation of the Corporate Strategy Pág. 37 6.1 Implementation of the strategy Importance of corporate governance 3. Executive compensation It is a very visible (and often highly criticized) governance mechanism. The salary, bonuses, and long-term incentives for executives are used to align their interests with those of the shareholders. A company's board of directors is responsible for determining the effectiveness of the company's executive compensation system. An effective compensation system results in management decisions that do not seek self-interest but rather pursue the interests of shareholders. Topic 6. Implementation of the Corporate Strategy Pág. 38 6.1 Implementation of the strategy Importance of corporate governance Effective governance mechanisms ensure that the interests of all stakeholders are respected. They are considered effective when they allow the satisfaction of, at least, part of the interests of all stakeholders in the capital market (e.g., shareholders), in the product market (e.g., customers and suppliers), and within the organization itself (e.g., executives and employees). Effective governance mechanisms contribute to the adoption of ethical behavior in the formulation and implementation of strategies. Business ethics is becoming increasingly important. Corporate governance structures vary greatly worldwide, with significant differences between countries. Topic 6. Implementation of the Corporate Strategy Pág. 39 6.2 Control of the strategy Pág. 40 6.2 Strategy control Strategic control Organizational controls guide the strategic management process (especially in implementation and (re)formulation). It is difficult for a company to have a successful strategy without effective organizational controls. Effective organizational controls provide clear information on actions that help improve the company’s performance. Applying a balanced scorecard helps assess and evaluate the company’s situation, relying on a balance between strategic and financial controls. ERPs (a type of software) provide a wealth of information on different parts of the company, from a multidimensional and real-time perspective, which can help in the strategic control phase. Topic 6. Implementation of the Corporate Strategy Pág. 41 6.2 Strategy control Strategic control. The balanced scorecard It is a strategic tool proposed by Kaplan and Norton to help managers achieve their strategic objectives. The balanced scorecard provides an integrated view of the company and its environment, allowing a better assessment of the concept of competitive advantage. Its objective is to leverage multiple dimensions of internal and external performance to balance financial and strategic objectives. Managers develop strategic objectives for the balanced scorecard by answering four key questions: (1) How do customers see us? (2) How do we create value? (3) What core competencies do we need? (4) How do shareholders see us? Topic 6. Implementation of the Corporate Strategy Pág. 42 6.2 Strategy control Strategic control. The balanced scorecard Topic 6. Implementation of the Corporate Strategy Pág. 43 6.2 Strategy control Strategic control. The balanced scorecard. Advantages Translate the company's vision into measurable objectives Design and plan business processes Complement traditional metrics in the accounting and finance areas with operational measures related to customer satisfaction, internal processes, or innovation and improvement activities within the company. It helps modify and adapt strategic objectives (re-formulate) when necessary, thanks to all the feedback it collects. Topic 6. Implementation of the Corporate Strategy Pág. 44 6.2 Strategy control Strategic control. The balanced scorecard. Example Topic 6. Implementation of the Corporate Strategy Pág. 45 Topic 6. Strategy implementation and control Corporate strategy Pág. 46