Q50837 What are the Issues/ Barriers in the Strategy Implementation?

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Answer:

1.  Management Issues central to Strategy Implementation

Undoubtedly, the transition from strategy formulation to strategy implementation demands a shift in the responsibilities from strategists to divisional and functional managers, which naturally raises varied implementation problems and issues. These issues become crucial and intense when the strategy formulation decisions are presented by the organization as the surprise to the middle-and-lower-level managers. On other side, factually the managers and employees are generally motivated more by their perceived self- interests, rather than by the organizational interests. This demands voluntary balancing of the organizational interests with the individuals’ perceived self interests which may emerge effortlessly and naturally, if the divisional and functional managers are involved as much as possible to strategy-formulation activities, as well the strategy implementation activities. The strategists’ genuine personal commitment to the implementation of the strategy is necessary and the most powerful motivational force for the manager and the employees.

The various strategic management implementation activities involves., establishing annual objectives, devising policies, allocating resources, altering an existing organizational structure, restructuring and re engineering, 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 resources functions, and, if necessary, downsizing. Moreover, when the strategic changes to implemented affects the organization in the broader and prolonged manner the implementation of such managerial changes becomes extensive. It goes without saying that strategy implementation directly affects the performance of the plant managers, division managers, department managers, sales managers, staff

managers, supervisors, and all employees. However, in few situations, the individuals totally kept isolated during the strategy formulation process, may also appreciate, understand, and accept the assumptions, logic and vision behind the strategy formulation. While, on the other side of the coin, there may even be those managers and employees who maybe get convinced and deny the strategy formulation efforts and commitment to the strategy implementation process. Therefore, it is inevitable that the managers and employees throughout an organization should participate early and directly in strategy-implementation decisions based on their involvement in the strategy formulation activities. But in real practice, strategists are too busy to actively support strategy implementation efforts, and lessen their interest in implementation process which affects adversely to the organizations’ success.

In order to keep the zeal of strategy implementation live, the rationale for objectives and strategies should be understood and clearly communicated throughout an organization and across the various levels of organization. The crucial components of the competitors’ environment, such as, accomplishments, products, plans, actions, and performance should be screened and presented to all the organizational members.Apart from this, the firm needs to develop the competitors’ focus at all hierarchical levels by assimilating and widely disseminating the competitive intelligence. All the employees in the firm should be able to benchmark his/her efforts in order to pose the personal challenge.

Also, the major external environmental scanning contents, opportunities and threats, should be clarified, and the queries of the managers and the organizations to the same shall be addressed. The organization can rely upon the top-down flow of communication which will further result into bottom-up support.

Strategies has to be implemented successfully in organization that do market goods and services well, in firms that can raise needed working capital firms that produce technologically superior products, or in firms that have a strong information system. This can be made possible only after examining the marketing, finance/accounting, R & D, and management information systems (MIS) issues that are central to effective strategy implementation.

2.  Marketing Issues central to the Strategy Implementation:

Strategy implementation affects and is affected by the each and every position in the firm as well as the each of the functional areas of the organization. Some of the various marketing variables, which affects the success or failure of the strategy implementation, which are as given below:

• To use exclusive dealerships or multiple channels of distribution;
• To use heavy, light, or no TV advertising;
• To limit (or not) the share of business done with a single customer;
• To be a price leader or a price follower;
• To offer a complete or limited warranty;
• To reward salespeople based on straight salary, straight commission, or a combination salary/ commission;
• To advertise online or not.

The marketing issue of increasing concern to consumers is the extent to which companies can track individuals’ movements on the Internet. Marketing companies such as, Double click, Fly cast, Ad Knowledge, Ad force, and Real Media have applied sophisticated methods to identify the consumer and the particular interests of the consumers.

Apart from this, the two important marketing variables central to the strategy implementation, namely, market segmentation and product positioning are discussed in detail below:

Market Segmentation: Market segmentation is widely used in implementing strategies, especially for small and specialized firms. Market segmentation can be defined as the subdividing of a market into distinct subsets of customers according to the needs and buying habits. Market segmentation is an important variable in strategy implementation for the following reasons:

• Strategies such as market development, product development, market penetration, and diversification require increased sales through new markets and products, for which new or improved market- segmentation approaches are required;
• Market segmentation allows a firm to operate with limited resources because mass production, mass distribution, and mass advertising are not required;
• Market segmentation decisions directly affect marketing mix variables, such as, product, place, promotion and price.

Product Positioning: Identifying target customer group on whom the marketing efforts shall be focused to meet their needs and wants, is followed by the positioning step. Positioning entails developing schematic sensations that reflect how the products and services of the company compared to the competitors’ are important to succeed in the industry, which also used as one of the tool for the effective implementation of strategy. Some rules for using the product positioning as the strategy implementation tool are as given below:

• Look for the hole or vacant niche; as the best strategic opportunity might be an unserved segment;
• Don’t squat between segments, as any advantage from squatting is offset by a failure to satisfy one segment;
• Don’t serve two segments with the same strategy, a strategy successful with one segment cannot be directly transferred to another segment;
• Don’t position yourself in the middle of the map. The middle usually means a strategy that is not clearly perceived to have any distinguishing characteristics;

Thus, an effective positioning strategy meets two criteria:

• Firstly, it exclusively differentiates the company from the competition;
• Secondly, it leads customers to expect slightly less service than a company can deliver.

Hence, the firms should not create expectations that exceed the service the firm can or will deliver. This a constant challenge for marketers. Firms need to inform customers about what to expect and then exceed the promise. Thus, the key is under-promising and over-delivering.

3.  Financial/Accounting Issues central to the Strategy Implementation:

The several finance/accounting concepts considered to be central to the strategy implementation, acquiring needed capital, developing projected financial statements, preparing financial budgets, and evaluating the worth of a business. Some illustrations of such decisions that may require finance/accounting policies are given below:

• To raise capital with the short-term debt, long-term debt, preferred stock, or common stock;
• To lease or buy fixed assets;
• To determine an appropriate dividend payout ratio;
• To use LIFO (Last-in-First-Out), FIFO (First-in-First-Out), or a market-value (an accounting approach);
• To extend the time of accounts receivable;
• To establish a certain percentage discount on accounts within a specified period of time;
• To determine the amount of cash that should be kept on hand.

Successful implementation of strategies involves various issues from the Accounting/Financial contexts, such as, acquiring capital to implement strategies; projecting of the financial statements; preparation of the financial budgets, evaluating the worth of a business, and deciding on whether to go public or not, which are discussed below:

• Acquiring Capital to Implement Strategies: Successful implementation often requires additional capital. Besides net profit from operations and the sale of assets, two basic sources of capital for an organization are debt and equity.

Determining an appropriate mix of debt and equity in a firm’s capital structure can be vital to successful strategy implementation. An Earnings Per Share/Earnings Before Interest and Taxes (EPS/EBIT) analysis is the most widely used techniques for determining whether the debt, stock, or a combination of debt and stock is the best alternative for raising capital to implement strategies. Through this technique the impact of the debt versus stock financing on earnings per share under various assumptions as to EBIT is examined. Theoretically, an enterprise should have enough debt in its capital structure to boost return on investment. While, in during the low earning periods, too much debt in the capital structure on an organization can endanger stockholders’ returns and jeo- paradise the survival of the organization. Fixed obligations generally must be met regardless of circumstances.

EPS/EBIT analysis is a valuable tool for making the capital financing decisions needed to implement strategies, but several considerations should be made whenever use this technique, such as, profit levels may be higher for stock or debt alternative when the levels are lower, flexibility of the organizations’ capital structure with the future capital needs, performing the controlling function as when additional stock is issued to finance strategy implementation, ownership and control of the enterprise are diluted, which can be a serious concern in today’s business environment of hostile takeovers, mergers and acquisitions. When using EPS/ EBIT analysis, consideration of timing in relation to movements of stock prices, interest rates, and bond prices also becomes the crucial. However, during the depressed stock prices, debt may prove to be the most suitable alternative form, both a cost and a demand standpoint. However, when cost of capital (interest rates) is high, stock issuances become more attractive.

• Projected Financial Statements: Projected financial statement analysis is a central strategy- implementation technique as it enables an organization to examine the expected results of various actions and approaches. This type of analysis can be used to forecast the impact of various implementations decisions. Nearly all financial institutions require at least three years of projected financial statements whenever the business seeks capital. A projected income statement and balance sheet allows an organization to compute the projected financial ratios under various strategy- implementation scenarios.    When compared to prior years and to industry averages, financial ratios provide valuable insights for the feasibility of various strategy implementation approaches.
• Preparation of the Financial Budgets: The document that details the obtainment and the spending of the funds for specified period of time is called as the financial budget. Fundamentally, financial budgeting is a method for specifying what must be done to complete strategy implementation successfully. Financially budgeting should not be thought of as a tool for controlling expenditure but rather as a method for obtaining the most optimum use of the organization’s resources. They are also referred to as the planned allocation of the firms’ resources based on the forecasts of the future. Generally, at times of the organizational financial difficulties, budgets guide the strategy implementation.

There are almost as many different types of financial budgets as there are types of organizations. Some common types of budgets include cash budgets, operating budgets, sales budgets, profit budgets, expense budgets, divisional budgets, variable budgets, flexible budgets and fixed budgets.

However, financial budgets have some limitations. Firstly, over-budgeting or under-budgeting can cause problems. Secondly, financial budgets can become a substitute for objectives. A budget is tool and not an end in itself. Thirdly, budgets can hide inefficiencies if based solely on precedent rather than on periodic evaluation of circumstances and standards. Finally, budgets are sometimes used as instruments of tyranny, which results in frustration, resentment, absenteeism, and high turnover.

• Evaluating the worth of the Business: Evaluating the worth of a business is central to strategic implementation because integrative, intensive, and diversification strategies are often implemented by acquiring other firms. Other strategies, such as retrenchments and divestiture, may result in the sale of a division of an organization or of the firm itself.

All these various methods for determining a business’s worth can be grouped into three main approaches: what a firm owns, what a firm earns, or what a firm will bring in the market. But, as valuation is not an exact science, although the valuation of a firm’s worth is based on the financial facts, some degree of common sense and intuitive judgments does enter the process. The assigning of the monetary value to some factors, such as, loyal customer base, a history of growth, legal suits pending, dedicated employees, a favorable lease, a bad credit rating, or good patents becomes difficult practically, due to which they may not be accurately reflected in the firm’s financial statements.

The firms’ worth differs on the basis of the varied valuation methods adopted by the firm in its calculation. There is no best prescribed approach for certain situation. Also, evaluating the worth of a business truly requires both qualitative and quantitative skills.

Business evaluations in various aspects are becoming integral part of the organizations for varied strategic situations. Businesses have many strategy-implementation reasons for determining their worth, in addition to preparation to sell or purchase other companies. Employee plans, taxes,

retirement packaged, mergers, acquisitions, expansions plans, banking relationships, death of a principal, divorce, partnership agreements, and audits are other reasons for the periodic valuation. It is just good business to have a reasonable understanding of what your firm is worth. Thus, a good business must have the reasonable understanding of about the firms’ worth which will enable the firm to protect the interests of all the stakeholders.

• Deciding on Whether to Go Public or Not: Going public means selling off a percentage of your company to others in order to raise capital; consequently, it refers to the diluting of the owners’ control of the firm. For the companies with less than $ 10 million in sales, going public is not recommended due to high initial costs experiences by the firm to generate sufficient cash flow in worthwhile going public decision, in addition to the costs and obligations associated with reporting and management in a publicly held firm. However, for firms with more than $10 million in sales, going public can prove to be beneficial, as it enable the firm to raise capital, to develop new products, build products, build plants, expand, grow, and market products and services more effectively.

4.  Research and Development (R & D) Issues central to the Strategy Implementation

Research and Development (R & D) personnel can play an integral role in strategy implementation. The research personnel are generally charged with developing new products and improving old products in a way that will allow effective strategy implementation. R & D employees and managers perform tasks that include transferring complex technology adjusting processes to local raw materials, adapting processes to local markets, and altering the products to particular tastes and specifications. Strategies such as product development, market penetration, and related diversification emphasize on the successful development of the new products and significant improvements of the old products. However, the level management support for R & D is often constrained by the resource availability.

Technological improvements that affect the consumer and industrial products and services usually shorten product life cycles. Virtually, the companies in every industry are relying on the development of new products and services to accelerate the profitability and growth, with the help of the varied R & D strategies, which links the organization with the strategic external opportunities to the internal strengths, and thereby the objectives. In other words, the well formulated R & D policies match the market opportunities with the internal capabilities. The Research & Development policies can enhance strategy implementation efforts in the following ways:

• Emphasize the product or process improvements;
• Stress Basic or Applied Research;
• Be leaders or followers in R & D;
• Develop robotics or manual-type processes;
• Spend a high, average, or low amount of money on R & D;
• Perform R & D within the firm or to contract R & D to outside firms;
• Use university researchers or private-sector researchers.

There must be effective interactions between R & D departments and other functional departments in implementing different types of generic business strategies. Conflict between marketing, finance/accounting, R & D, and information systems departments can be minimized with clear policies and objectives by applying the following guidelines:

• When the rate of technical progress is slow, the rate of market growth is moderate, and there are significant barriers to possible new entrants, in-house R & D is the preferred solution, which enables the company to exploit temporary products or processes monopoly;
• When technology is changing rapidly and the market is growing slowly, then it is risky to make major effort in R & D, as it may lead to development of an ultimately obsolete technology or one for which there is no market;
• When technology is changing slowly, the market is growing quickly, and there is generally no enough time for in-house development, obtainment of R & D expertise on an exclusive or nonexclusive basis from an outside firm;
• If both technical progress and market growth are fast, R&D expertise can be obtained through acquisition of the well-established firm in the industry.

In this context, the three major R & D approaches for implementing strategies are available which are as pointed out:

• The first strategy is to be the first firm to market new technological products, i.e, Market Leadership, which is both the attractive and exciting strategy, but at the same time, is also dangerous

For instance, the Firms such as, 3M and General Electric have been successful with this approach, but many other pioneering firms have fallen, with rival firms seizing the initiative.

• A second approach is to be an “Innovative Imitator” of successful products, enabling the minimization of the risks and costs of start-ups. This approach entails allowing a pioneer firm to develop the first version of the new product and demonstrate that a market exists;

• The third approach is to be laggard firm, by developing the similar product, which demands excellent R&D strategy, requires substantial investment in plant and equipment. However, this approach requires fewer expenditure in R&D strategy as compared to the other discussed approaches

5.   Management Information Systems (MIS) Issues central to the Strategy Implementation

The world has evolved as the concrete composition of the varied information and the linkages of the information sources. It has become essential for any organization to gather, assimilate, and evaluate external and internal information most effectively in order to gain competitive advantage over other firms. Information is, thus, the basis for decision making of the firm, determining its success or failure. The process of strategic management is facilitating intensively to the firms with the effective information systems, with the blend of the technical knowledge of the computer experts and the vision of the senior management.

Thus, recognizing the importance of having an effective Management Information System (MIS) no more exist as the optional decision, but, has emerged as inevitable requirement. Information collection, retrieval, and storage offers varied competitive advantages, such as, cross-selling to customers, monitoring suppliers, keeping managers and employees informed, coordinating activities among divisions, and managing funds.

Information has also now been recognized as a valuable organizational asset that can be controlled and managed. A good information system can allow the firm to reduce costs.

Direct communications between suppliers, manufacturers, marketers, and customers can link together elements of the value chain as though they were one organization. Improved quality and service often result from an improved information system.

The organizational management methods are also getting transformed, with the developing role of the management information systems. In many firms, information technology is doing away with the workplace and allowing employees work at home or anywhere, anytime. The mobile concept of work allows employees to work the traditional 9-to-5 workday across nay of the 24 time zones around the globe.Any manager or employee who travels a lot away from the office is a good candidate for working at home rather than in an office provided by the firm. Salespersons or consultants are good examples, but any person whose job largely involves talking to others or handling information could easily operate at home with the proper computer system and software.

However, the firms are and must be increasingly concerned about the computer hackers and take specific measures to secure and safeguard corporate communications, files, orders, and business conducted over the Internet. Many companies, in the presently, are adversely affected by the computer hackers who include disgruntled employees, competitors, bored teens, sociopaths, thieves and hired agents. Computer vulnerability is a giant, expensive headache.