THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria

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Strategic Management MGT603

Lesson 31

THE NATURE OF STRATEGY IMPLEMENTATION

Learning objective

Strategy in action means strategy implementation. This chapter guides you to understand how to

implement the strategy and what problems an organization faced in order to implement strategy. This

chapter also explains objective and policies.

The Nature of Strategy Implementation

It is possible to turn strategies and plans into individual actions, necessary to produce a great business

performance. But it's not easy. Many companies repeatedly fail to truly motivate their people to work with

enthusiasm, all together, towards the corporate aims. Most companies and organizations know their

businesses, and the strategies required for success. However many corporations - especially large ones -

struggle to translate the theory into action plans that will enable the strategy to be successfully

implemented and sustained. Here are some leading edge methods for effective strategic corporate

implementation. These advanced principles of strategy realization are provided by the very impressive

Foresight Leadership organization, and this contribution is gratefully acknowledged.

Most companies have strategies, but according to recent studies, between 70% and 90% of organizations

that have formulated strategies fail to execute them.

A Fortune Magazine study has shown that 7 out of 10 CEOs, who fail, do so not because of bad strategy,

but because of bad execution.

In another study of Times 1000 companies, 80% of directors said they had the right strategies but only

14% thought they were implementing them well.

Only 1 in 3 companies, in their own assessment, were achieving significant strategic success.

The message clear - effective strategy realization is key for achieving strategic success. Successful strategy

formulation does not guarantee successful strategy implementation. It is always more difficult to do

something (strategy implementation) than to say you are going to do it (strategy formulation)! Although

inextricably linked, strategy implementation is fundamentally different from strategy formulation. Strategy

formulation and implementation can be contrasted in the following ways:

Strategy formulation is positioning forces before the action.

Strategy implementation is managing forces during the action.

Strategy formulation focuses on effectiveness.

Strategy implementation focuses on efficiency.

Strategy formulation is primarily an intellectual process.

Strategy implementation is primarily an operational process.

Strategy formulation requires good intuitive and analytical skills.

Strategy implementation requires special motivation and leadership skills.

Strategy formulation requires coordination among a few individuals.

Strategy implementation requires coordination among many persons.

Strategy-formulation concepts and tools do not differ greatly for small, large, for profit, or nonprofit

organizations. However, strategy implementation varies substantially among different types and sizes of

organizations. Implementing strategies requires such actions as altering sales territories, adding new

departments, closing facilities, hiring new employees, changing an organization's pricing strategy,

developing financial budgets, developing new employee benefits, establishing cost-control procedures,

changing advertising strategies, building new facilities, training new employees, transferring managers

among divisions, and building a better computer information system. These types of activities obviously

differ greatly between manufacturing, service, and governmental organizations.

Management Perspectives

In all but the smallest organizations, the transition from strategy formulation to strategy implementation

requires a shift in responsibility from strategists to divisional and functional managers. Implementation

problems can arise because of this shift in responsibility, especially if strategy-formulation decisions come

as a surprise to middle- and lower-level managers. Managers and employees are motivated more by

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perceived self-interests than by organizational interests, unless the two coincide. Therefore, it is essential

that divisional and functional managers be involved as much as possible in strategy-formulation activities.

Of equal importance, strategists should be involved as much as possible in strategy-implementation

activities.

Management issues central to strategy implementation include establishing annual objectives, devising

policies, allocating resources, altering an existing organizational structure, restructuring and reengineering,

revising reward and incentive plans, minimizing resistance to change, matching managers with strategy,

developing a strategy-supportive culture, adapting production/operations processes, developing an

effective human resource function and, if necessary, downsizing. Management changes are necessarily

more extensive when strategies to be implemented move a firm in a major new direction.

Managers and employees throughout an organization should participate early and directly in strategy-

implementation decisions. Their role in strategy implementation should build upon prior involvement in

strategy-formulation activities. Strategists' genuine personal commitment to implementation is a necessary

and powerful motivational force for managers and employees. Too often, strategists are too busy to

actively support strategy-implementation efforts, and their lack of interest can be detrimental to

organizational success. The rationale for objectives and strategies should be understood and clearly

communicated throughout an organization. Major competitors' accomplishments, products, plans, actions,

and performance should be apparent to all organizational members. Major external opportunities and

threats should be clear, and managers' and employees' questions should be answered. Top-down flow of

communication is essential for developing bottom-up support.

Firms need to develop a competitor focus at all hierarchical levels by gathering and widely distributing

competitive intelligence; every employee should be able to benchmark her or his efforts against best-in-

class competitors so that the challenge becomes personal. This is a challenge for strategists of the firm.

Firms should provide training for both managers and employees to ensure they have and maintain the

skills necessary to be world-class performers.

Annual Objectives

Introduction

Objectives set out what the business is trying to achieve.

Objectives can be set at two levels:

(1) Corporate level

These are objectives that concern the business or organization as a whole

Examples of "corporate objectives might include:

· We aim for a return on investment of at least 15%

· We aim to achieve an operating profit of over £10 million on sales of at least £100 million

· We aim to increase earnings per share by at least 10% every year for the foreseeable future

(2) Functional level

E.g. specific objectives for marketing activities

Examples of functional marketing objectives" might include:

· We aim to build customer database of at least 250,000 households within the next 12 months

· We aim to achieve a market share of 10%

· We aim to achieve 75% customer awareness of our brand in our target markets

Both corporate and functional objectives need to conform to the commonly used SMART criteria.

The SMART criteria

Specific - the objective should state exactly what is to be achieved.

Measurable - an objective should be capable of measurement so that it is possible to determine whether

(or how far) it has been achieved

Achievable - the objective should be realistic given the circumstances in which it is set and the resources

available to the business.

Relevant - objectives should be relevant to the people responsible for achieving them

Time Bound - objectives should be set with a time-frame in mind. These deadlines also need to be

realistic.

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Establishing annual objectives is a decentralized activity that directly involves all managers in an

organization. Active participation in establishing annual objectives can lead to acceptance and

commitment. Annual objectives are essential for strategy implementation because they

(1) Represent the basis for allocating resources

(2) Are a primary mechanism for evaluating managers?

(3) Are the major instrument for monitoring progress toward achieving long-term objectives?

(4) Establish organizational, divisional, and departmental priorities.

Considerable time and effort should be devoted to ensuring that annual objectives are well conceived,

consistent with long-term objectives, and supportive of strategies to be implemented. Approving, revising,

or rejecting annual objectives is much more than a rubber-stamp activity. The purpose of annual

objectives can be summarized as follows:

Annual objectives serve as guidelines for action, directing and channeling efforts and activities of

organization members. They provide a source of legitimacy in an enterprise by justifying activities to

stakeholders. They serve as standards of performance. They serve as an important source of employee

motivation and identification. They give incentives for managers and employees to perform. They provide

a basis for organizational design.

Clearly stated and communicated objectives are critical to success in all types and sizes of firms. Annual

objectives, stated in terms of profitability, growth, and market share by business segment, geographic area,

customer groups, and product are common in organizations.

Annual objectives should be measurable, consistent, reasonable, challenging, clear, communicated

throughout the organization, characterized by an appropriate time dimension, and accompanied by

commensurate rewards and sanctions. Too often, objectives are stated in generalities, with little

operational usefulness. Annual objectives such as "to improve communication" or "to improve

performance" are not clear, specific, or measurable. Objectives should state quantity, quality, cost, and

time and also be verifiable. Terms such as "maximize," "minimize," "as soon as possible," and "adequate"

should be avoided.

Annual objectives should be compatible with employees' and managers' values and should be

supported by clearly stated policies. More of something is not always better! Improved quality or reduced

cost may, for example, be more important than quantity. It is important to tie rewards and sanctions to

annual objectives so that employees and managers understand that achieving objectives is critical to

successful strategy implementation. Clear annual objectives do not guarantee successful strategy

implementation but they do increase the likelihood that personal and organizational aims can be

accomplished. Overemphasis on achieving objectives can result in undesirable conduct, such as faking the

numbers, distorting the records, and letting objectives become ends in themselves. Managers must be alert

to these potential problems

Policies

Changes in a firm's strategic direction do not occur automatically. On a day-to-day basis, policies are

needed to make a strategy work. Policies facilitate solving recurring problems and guide the

implementation of strategy. Broadly defined, policy refers to specific guidelines, methods, procedures, rules,

forms, and administrative practices established to support and encourage work toward stated goals.

Policies are instruments for strategy implementation. Policies set boundaries, constraints, and limits on the

kinds of administrative actions that can be taken to reward and sanction behavior; they clarify what can

and cannot be done in pursuit of an organization's objectives. For example, Carnival's new Paradise ship

has a no-smoking policy anywhere, anytime aboard ship. It is the first cruise ship to comprehensively ban

smoking. Another example of corporate policy relates to surfing the Web while at work. About 40 percent

of companies today do not have a formal policy preventing employees from surfing the Internet, but

software is being marketed now that allows firms to monitor how, when, where, and how long various

employees use the Internet at work.

Policies let both employees and managers know what is expected of them, thereby increasing the

likelihood that strategies will be implemented successfully. They provide a basis for management control,

allow coordination across organizational units, and reduce the amount of time managers spend making

decisions. Policies also clarify what work is to be done by whom. They promote delegation of decision

making to appropriate managerial levels where various problems usually arise. Many organizations have a

policy manual that serves to guide and direct behavior.

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Policies can apply to all divisions and departments (for example, "We are an equal opportunity employer").

Some policies apply to a single department ("Employees in this department must take at least one training

and development course each year"). Whatever their scope and form, policies serve as a mechanism for

implementing strategies and obtaining objectives. Policies should be stated in writing whenever possible.

They represent the means for carrying out strategic decisions.

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