Business Strategy can be described as the plan which guides organizations in the selection and application of resources that will help them obtain a competitive advantage. It is more concerned with how a business competes in a particular market. It consists of strategic decisions about the choice of products, meeting the needs of customers, exploiting/creating opportunities, etc. In simple terms, it can be defined as a plan that says where a business/organization wants to go and how it envisages getting there.
Often the difference between the market leaders and other players in the industry is the ability to execute strategy. Effective strategy implementation involves getting people’s buy in, choosing the right metrics and tracking performance on an ongoing basis. Much of strategy implementation involves managing change. So the behavioral issues involved, must not be overlooked.
Effective strategy implementation allows the company to be more successful in pursuing a cost leader or differentiation strategy.
- Strategy implementation aids firms in pursuing a cost leader strategy, because it can help them reduce expenses in all functions through improved coordination and control.
- Managers must choose the combination of structure, control, and culture that will lead to the lowest costs.
- Managers must continuously monitor their structure, control, and culture to ensure that costs are continuously driven down.
- Strategy implementation aids firms that are pursuing a differentiation strategy, because it helps the company to add value and uniqueness to its products.
- A differentiation strategy requires a broad product line, leading to high bureaucratic costs. Thus an effective coordination mechanism is especially important.
- To successfully pursue a differentiation strategy, a company’s functions must work cooperatively together. Behavior controls and culture are more effective than output controls in a cooperative situation, because it’s hard to measure the relative contribution of different groups when they are cooperating.
- Thus, differentiators tend to have a very different culture than cost leaders. Differentiators tend to have a collegial or professional culture, based on expertise and cooperation.
- As companies try to both increase differentiation and reduce costs simultaneously, strategy implementation becomes much more complex. This leads to new forms of structure and control systems.
- To cope with the complexity of producing many products for many market segments, companies can adopt a product structure.
- To implement a product structure, a company must first group its products into categories targeted at specific groups of customers and managed by one set of managers.
- Support activities from the value chain are centralized to keep costs low. However, sub-groups within each function specialize in meeting the needs of a particular product group.
- The organization then develops a control system that examines each product group separately. This creates an ability to rapidly spot problem areas, and also a way to give rewards for high performance.
- However, rewards still are closely tied to organizational, and not group, performance, to ensure that managers work together across units as needed.
The following are useful guidelines for strategy implementation.
- Unlearn the past: Often past strategies stand in the way. So unlearning is important.
- Increase commitment at lower levels: People at lower levels in an organization are often skeptical about the practical utility of a strategic plan. Without taking the lower level employees along, strategy implementation is difficult.
- Avoid over ambitious strategies: Functional managers are used to a way of working. They may not be able to adjust suddenly to a new strategy.
- Identify responsibilities and milestones: The list of specific tasks each function must perform, specific milestones and the names of the individuals who accept responsibility for each major functional program, must be identified.
- Communicating downward is as important as communicating upward: It is the functional and lower level operating managers who hold the key to the successful implementation of a strategy. Half hearted commitment from functional managers can thwart the goals set for the business.
The important components of strategy implementation are Organizational Structure, Control, and Culture.
- The first component of strategy implementation is organizational structure, which assigns employees to specific tasks and specifies how those tasks link together to realize a competitive advantage. The purpose of organizational structure is to coordinate and integrate the efforts of all employees at the corporate, business, and functional levels, and across functions and business units, so that they work together to help the firm achieve its strategies successfully.
- Another component of implementation is a strategic control system, which provides the incentives that motivate employees to help the firm achieve its strategies. Control systems also provide performance feedback to managers so that corrective action can be taken if needed.
- Organizational culture is another important component of strategy implementation, and it consists of the values, norms, beliefs, and attitudes that are shared by people in an organization. Culture guides the way that employees interact with each other and with stakeholders outside the organization, and thus will have an important impact on the implementation of an organization’s strategies.
The key to execution is shaping the attitudes and behavior of people. A culture of trust and commitment motivates people to execute the agreed strategy. People’s minds and hearts must align with the new strategy so that they embrace it willingly, going beyond compulsory execution to voluntary cooperation.
To build people’s trust and commitment, Chan Kim and Renee Mauborgne emphasize the importance of getting people’s buy-in, building trust and creating a perception that a level playing field exists. Only then will people cooperate voluntarily in implementing strategic decisions. This approach called Fair process has three main components: engagement, explanation and expectation clarity.
- Engagement means involving individuals in strategic decisions by asking for their inputs and encouraging them to critically examine the merits of the ideas and assumptions of different people.
- Explanation means that everyone involved and affected should understand why important decisions are made as they are. An explanation of the thinking that underlies decisions makes people confident that managers have considered their opinions and have made objective decisions in the overall interest of the company.
- Expectation clarity requires that, managers state clearly the new rules of the game. Although the expectations may be demanding, employees should know up front what standards they will be judged by and the penalties for failure. When the expectations are clearly defined, political jockeying and favoritism are minimized, and the focus shifts to execution.
By organizing strategic planning around the principles of fair process, execution can be built into strategy making from the start. People will realize that compromises and sacrifices are necessary to achieve the organizational goals. The ensuing discipline and increased collaboration levels will facilitate strategy execution.