Short-term objectives translate long-term strategy into specific, measurable goals for functional areas. Functional tactics are the key activities each function undertakes to achieve objectives and strategy. Policies guide employee decisions within boundaries to empower them while ensuring consistency with strategy. Executive compensation plans like stock options, restricted stock, and bonuses motivate executives to maximize shareholder wealth.

1. CHAPTER 9 Implementing Strategy Through Short-Term Objectives, Functional Tactics, Reward System, and Employee Empowerment

3. Strategy Implementation “ Planning their Work” “ Working their Plan” Strategy Formulation Strategy Implementation

4. Strategy Implementation Identify short-term objectives Initiate specific functional tactics Communicate policies to empower people Design effective rewards

5. What are Short-Term Objectives? Provide specific guidance for what is to be done, translating vision into action

8. Relationship of Action Plans to Short-Term Objectives Specificity – Identify functional activities to be undertaken to build competitive advantage Provide a clear time frame for completion Identify who is responsible for each action in the plan

9. Qualities of Effective Short-Term Objectives Measurable Priorities Linked to long-term objectives

10. Ex. 9-3: Creating Measurable Objectives (Selected) To conduct a public opinion poll using random samples in the five largest U.S. metropolitan markets to determine average scores on 10 dimensions of corporate responsibility by May 15, 2004. To increase our score on those dimensions by an average of 7.5 percent by May 1, 2005 To improve the firm’s image To reduce the time lapse between order date and delivery by 8 percent (2 days) by June 1, 2004 To improve support of the sales effort To reduce turnover (absenteeism, number of rejects, etc.) among sales managers by 10 percent by January 1, 2004 Assumption: Morale is related to measurable outcomes (i.e., high and low morale are associated with different results) To improve morale in the division (plant, department, etc.) Examples of Objectives with Measurable Criteria for Performance Examples of Deficient Objectives

11. Value-Added Benefits of Short-Term Objectives Give operating personnel a better understanding of their role in a firm’s mission Provide basis for accomplishing conflicting concerns Motivation – clarify personnel and group roles in a firm’s strategies Provide basis for strategic control

12. What are Functional Tactics? Key, routine activities that must be undertaken in each functional area to provide the business’s products and services Translate grand strategies into action designed to accomplish specific short-term objectives

13. Ex. 9-4: Functional Tactics at General Cinema Corporation Corporate Strategy Achieve 15-20 percent annual growth through existing businesses and carefully selected diversification into leisure-oriented, consumer-oriented product/service businesses to absorb increasing cash flow from theater and soft drink bottling operations Concentration and market development selective Maintain and selectively expand leading nationwide position in the movie exhibition industry to provide positive cash flow for corporate diversification Functional Tactics – Marketing Seek only first-run films by outbidding competition in each local market; provide primarily family-oriented movies , and maintain an admission price only slightly above that of local competition Functional Tactics – Finance Use lease or sale and leaseback arrangements of each theater to maximize cash flow for corporate expansions; seek profitability thru’ volume, not higher ticket prices Functional Tactics – Operations Use multiscreen facilities with minimal maintenance requirements and a joint service area to serve each minitheater Soft drink bottling Movie exhibition Sunkist products Corporate Strategy Business Strategies Functional Tactics

14. Business Strategies and Functional Tactics … are different in three ways Time horizon Specificity Participants who develop them

16. Empowerment and Policies Training, self-managed work groups, eliminating whole levels of management in organizations, and aggressive use of automation are some of the ways of empowering employees. At the heart of empowerment is the need to ensure that decision making is consistent with the mission, strategy, and tactics of the business while at the same time allowing considerable latitude to operating personnel. One way operating managers do this is through the use of policies

17. What Are Policies? Policies are directives designed to guide the thinking, decisions, and actions of managers and their subordinates in implementing a firm’s strategy

22. Executive Bonus Compensation Plans The goal of an executive bonus compensation plan is to motivate executives to achieve maximization of shareholder wealth – the underlying goal of most firms

23. Executive Bonus Compensation Plans Major Plan Types Stock Options Restricted Stock Golden Handcuffs Golden Parachutes Cash

24. Ex. 9-8: Types of Executive Bonus Compensation Plans No downside risk to executive, who always profits unlike other shareholders Promotes longer executive tenure than other forms of compensation Shares given to executive who is prohibited from selling them for a specific time period. May also include performance restrictions Restricted stock plan Movement in share price does not explain all dimensions of managerial performance Provides incentive for executive to create wealth for shareholders as measured by increase in firm’s share price Right to purchase stock in the future at price set now. Compensation is determined by “spread” between option price and exercise price Stock option grants Shortcomings Rationale Description Bonus Type

25. Ex. 9-8 (contd.) Compensation is achieved whether or not wealth is created for shareholders. Rewards either success or failure Offers an incentive for executive to remain with the firm Executives have right to collect the bonus if they lose position due to takeover, firing, retirement, or resignation Golden parachute May promote risk-averse decision making due to downside risk borne by executive Offers an incentive for executive to remain with the firm Bonus income deferred in a series of annual installments. Deferred amounts not yet paid are forfeited with executive resignation Golden Handcuffs Shortcomings Rationale Description Bonus Type

26. Ex. 9-8 (contd.) Weak correlation between earnings measures and shareholder wealth creation. Annual earnings do not capture future impact of current decisions Offsets the limitations of focusing on market-based measures of performance Bonus compensation based on accounting performance measures such as return on equity Cash based on internal business performance using financial measures Shortcomings Rationale Description Bonus Type

27. Ex. 9-9: Compensation Plan Selection Matrix Helps remove temptation for executive to evaluate takeover based on personal benefits X Defend against unfriendly takeover Risk associated with growth strategies warrants the use of this high-reward incentive X Create and support growth opportunities Executive profits only if turnaround is successful in returning wealth to shareholders X Achieve corporate turnaround Rationale Stock Options Restricted Stock Plans Golden Parachutes Golden Handcuffs Cash Strategic Goal

28. Ex. 9-9 (contd.) Accounting measures can identify periodic performance benchmarks X Grow share price incrementally Risk of expanding overseas requires a plan that compensates only for achieved success X Globalize operations Compensates executive if job is lost due to a merger favorable to the firm X Evaluate suitors objectively Rationale Stock Options Restricted Stock Plans Golden Parachutes Golden Handcuffs Cash Strategic Goal

29. Ex. 9-9 (contd.) Handcuffs provide executive tenure incentive X Reduce executive turnover Executive profits proportionally as asset growth leads to long-term growth in share price X Increase assets under management Accounting measures represent observable and agreed-upon measures of performance X Improve operational efficiency Rationale Stock Options Restricted Stock Plans Golden Parachutes Golden Handcuffs Cash Strategic Goal

30. Ex. 9-9 (contd.) Rewards long-term focus on efficiency and cost control X Streamline operations Risk associated with major change with firm’s assets warrant use of this high-reward incentive X Restructure organization Rationale Stock Options Restricted Stock Plans Golden Parachutes Golden Handcuffs Cash Strategic Goal