Importance of integrating strategy implementation with
Interrelationships between components or dimensions of strategy
Focus on structure and control related issues.
In 1983 Sears implements one-stop shopping banking-financial
Sears retail unit fell to #3 behind low-cost providers (Walmart
Specialty retailers (focused differentiators) such as The Gap,
The Limited, Toys-R-Us, and Kids-R-Us took market share.
Sears was outperformed by both low-cost and focused differentiators.
Sears initiated restructuring in 1992 after losing $3.8 billion.
What happened? Why did Sears fail so dramatically?
- Lost ability to control core business (too diversified). - Resources were taken from retail and given to new ventures. - Managers spent too much time on diversified businesses. - Managed retail segment using financial controls. - Sears suffered from post-merger drift.
Lost operational understanding of the competitive dynamics
in the retail industry.
Strategy Implementation Firm Strategy Firm Performance Task-Focus (Value) Structure Decision Processes and Controls Reward Systems People
Broad requirements for general managers and integrators Career development is inter-divisional, cross-functional, and corporate- divisional Aggressive, independent general managers of divisions Career development opportunities are primarily intra-divisional Primarily functional specialists Some inter-functional movement to develop some general managers People Bonus based on divisional and/or corporate performance Mix of objective and subjective performance measures Formula based bonus on ROI or profitability of divisions Strict objective, impersonal evaluation Performance against functional objectives Mix of objective and subjective performance measures Strategic controls Reward Systems Coordinate and integrate across businesses and between levels with planning integrating roles, integrating depths No integration across businesses Coordination and information flows between corporate and division levels around management information systems and budgets Coordination and integration thru structure, rules, planning, and budgeting Use of integrating roles for project activity across functions Decision Processes and Controls Multidivisional/profit centers Grouping of highly related businesses with some centralized functions within groups Delegated responsibility for operation Shared responsibility for strategy Highly decentralized product divisions/profit centers Small corporate office No centralized line functions Almost complete delegation of operations and strategy within existing businesses Control thru results, selection of management, and capital allocation Centralized functional Top control of strategic decisions Delegation of operations through plans and procedures Structure Realization of synergy from related product process, technology, and markets Resource allocation Diversification opportunities Synergistic economies Degree of diversity Types of business Resource allocation across business Entry and exit businesses Financial economies Degree of integration Market share and power Product line breadth Vertical economies Task Focus (Value) Related Diversified Growth thru internal development & some acquisition Unrelated Diversified Growth through Acquisition Dominant Business Vertically Integrated Strategy
Owner-manager makes decisions.
Little specialization of tasks.
Few rules, little formalization.
Provides high flexibility
Rapid product introduction
Few coordination problems
Accounting Legal Affairs HRM Finance Marketing R&D Production President
Centralized control of operations
Promotes in-depth functional expertise
Enhances operating efficiency where tasks are routine
Functional coordination problems
Overspecialization and narrow viewpoints
Hinders development of cross-functional experience
Slower to respond in turbulent environments
Government Affairs Legal Affairs Corporate R&D Lab Strategic Planning Corporate Human Resources Corporate Marketing Corporate Finance Product Division Product Division Product Division Product Division Product Division President
Organization based on products versus functions
Each division is a separate business in which day-to-day
decisions are delegated to divisional managers.
Divisions are managed using strategic controls – detailed
knowledge of firm operations allows managers to remain actively
Overdiversification leads to inability to process detailed information
and a reliance on financial controls to evaluate managers.
- Decentralized decision making - Each business is organized around products - Puts profit/loss accountability on managers - Facilitates rapid response to environmental changes - Allows efficient management of a large number of units
- May lead to costly duplication of functions - Inter-divisional rivalry - Corporate managers may lose in-depth understanding
Business Project Business Project Business Project R&D Production Marketing Finance Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists Specialists President
Contains aspects of both functional and product-divisional
- Creates checks and balances between competing viewpoints - Promotes holistic view of the firm - Encourages cooperation and consensus building
- Very complex and costly - Shared authority increases communication time - Difficult to respond rapidly - May promote bureaucracy and reduce innovation (in large firms).
Group of firms combine resources to
achieve together what they can’t achieve
- Firm’s emphasize their own core competencies - Rapid response time - Very flexible - Reduces capital intensity
- Asymmetric information - Technology expropriation - Trustworthiness of partners - Asset hold-up Focal Firm Partner Partner Partner Partner