Lesson 5: Strategic

Implementation
 Strategy Implementation
• Strategy Implementation is The process of putting
strategies and policies into action through the
development of:
• Programs - statements of activities or steps needed
to accomplish a single-use plan.
• Budgets - statements of a corporation’s programs in
dollar terms.
• Procedures - systems of sequential steps or
techniques that describe in detail how to perform
particular tasks or jobs.
 The Nature of Strategy
Implementation
The greatest strategy is doomed if it’s implemented badly.
Successful strategy formulation does not guarantee successful
strategy implementation.

• Less than 10% of strategies formulated are successfully

implemented!
• Implementation may fail due to:
– Paying too much for a new acquisition
– Not recognizing benefit of computers in managing
information
– “We would be in some form of denial if we didn’t see that
execution is the true measure of success.” C. Michael
Armstrong
 Strategic Implementation

“AT&T, Campbell Soup, Gillette, Eastman Kodak,

Xerox. All these companies should be succeeding
but aren’t. Why? Because they don’t know how
to execute.”
Larry Bossidy, Chairman
and former CEO of Honeywell.
 Strategic Implementation
“When you manage these processes in depth, you get
robust results. You get answers to critical questions:
Are our products positioned optimally in the
marketplace?
Can we identify how we are going to turn the plan
into specific results for growth and productivity?
Are we staffed with the right kinds of people to
execute the plan?
How do we make sure the operating plan has
sufficient specific programs to deliver the outcome?”
 Strategic Implementation
• Most know what it is: few know how to get
things done.
• Three keys to keep in mind:
• Execution is a discipline, and integral to strategy.
• Execution is the major job of the business leader.
• Execution must be a core element of an organization’s
culture.
 Implementation is Different
• Operation-driven rather than market-driven.
• Action-oriented, make-things-happen tasks.
• Strategy requires few; execution requires
everyone.
 Implementation is Tougher
• Why is it tougher?
• More time consuming challenge
• Wide array of managerial challenges
• Many options to proceed
• Demanding people-management skills
• Perseverance to get initiatives moving
• Number of unexpected issues
• Resistance to change, misunderstandings.
• Difficulties of integrating efforts across groups.
Formulation vs. Implementation
• Formulation focuses on effectiveness
• Implementation focuses on efficiency
• Formulation is primarily an intellectual process
• Implementation is primarily an operational process
• Formulation requires good intuitive & analytical skills
• Implementation requires special motivational &
leadership skills
• Formulation requires coordination among a few
individuals
• Implementation requires coordination among many
individuals
 Strategic Implementation
• Among other things, implementation has to do
with;
• Rigorously discussing ‘hows’ and ‘whats’, questioning,
tenaciously following through.
• Ensuring accountability
• Making assumptions about the business environment
• Assessing the organization’s capabilities
• Linking strategy to operations and the people who are
going to implement
• Linking rewards to outcomes
• Changing assumptions as the environment changes
• Upgrading the company’s capabilities to meet the
challenges of an ambitious strategy.
 Strategic Implementation

“The heart of execution lies in the three core

processes: the people processes, the strategy
processes and the operations processes.”
Larry Bossidy, Execution. The
Discipline of Getting Things Done.
 A Framework for Executing Strategy.
• Entails converting the organization’s strategic
plan into action and results.
• Job for the whole management team.
• Affects every part of the firm.
• Each manager must answer, ‘what has to be done in
my area to implement our part of the strategic plan,
and what must I do to get these things accomplished?’
• All managers become strategic implementers in their
areas and all employees are participants.
 A Framework for Strategy Implementation.

• Implementation should be addressed initially

when the pros and cons of strategic
alternatives are analyzed.
• Some strategies cannot be executed by some
companies!
• Form follows function – can vary even by
department.
The ‘Big 8’ Components of Implementation.

Build an organization
with the competencies,
Exercise the strategic capabilities, and resource Allocating ample
leadership needed to strengths needed for resources to
drive implementation successful strategy strategy-critical
forward. execution. activities.

Shaping the work The Strategy Establish

Implementer’s
environment and strategy-supportive
Action Agenda
corporate culture policies.
• what to do now vs. later?
to fit the strategy
• What requires much
time and personal attention?
• What can be delegated to
others. Instituting best practices
and pushing for
Tying rewards and continuous improvement.
incentives to the
achievement of key
strategic targets. Installing information, operating
and operating systems that enable
company personnel to better carry
out their strategic roles proficiently.
 Implementation Activities

•Altering sales territories

•Adding new departments
•Closing facilities
•Hiring new employees
•Cost-control procedures
•Modifying advertising strategies
•Building new facilities
Nature of Strategy Implementation

Management Perspectives
• Shift in responsibility

Division or
Strategists Functional
Managers
 Management Issues

Annual Objectives

Resources
Management
Issues Organizational structure

Restructuring
 Management Issues (cont’d)

Resistance to Change

Management
Issues Production/Operations
Management Issues
Purpose of Annual Objectives --

Basis for resource allocation

Mechanism for management (e.g. IT
management) evaluation
Metric for gauging progress on long-
term objectives
Establish priorities (organizational,
division, & departmental)
Management Issues
Requirements of Annual Objectives
Measurable
Consistent
Reasonable
Challenging
Clear
Understood
Timely
Management Issues

Annual Objectives Should State

Quantity
Quality
Cost
Time
Be Verifiable
 Management Issues
• Resource Allocation
• Central management activity that allows for the
execution of strategy
• enables resources to be allocated according to priorities
established by annual objectives. However it may cause
conflict. Is this good or bad?
1. Financial resources
2. Physical resources
3. Human resources
4. Technological resources
 Management Issues

• Matching Structure w/ Strategy

• Changes in strategy = Changes in structure
• Structure dictates how objectives & policies
will be established and how resources will be
allocated; e.g. is structure based on location
or based on the product…
Structure should be designed to facilitate the
strategic pursuit of a firm

Organizational
New strategy New administrative
performance
Is formulated problems emerge
declines

Organizational
New organizational
performance
structure is established
improves
Management Issues

Restructuring
-- Reducing the size of the firm –
# of employees, divisions and/or
units,
# of hierarchical levels; e.g. The
Internet is ushering in a new wave of
business transformations…
 Reengineering
• In reengineering, a firm uses information
technology to break down functional barriers
and create a work system based on business
processes… Reconfiguring or redesigning
work, jobs, & processes to improve cost,
quality… (alteration of Scott Morton’s value
chain) Think of an example.
 Management Issues

• Resistance to Change -- Single greatest threat

to successful strategy implementation
• Raises anxiety; fear concerning: economic
loss, Inconvenience or Uncertainty
 Force Change Strategy
 Educative Change Strategy
 Rational or Self-Interest Change Strategy
 Management Issues

• Production/Operations Concerns
• Production processes typically constitute
more than 70% of firm’s total assets
 Decisions concern e.g. :
 Plant size
 Quality control
 Technological innovation
The Nature of Strategy Implementation
Strategy Implementation can have a low success rate
Failing to segment markets appropriately
Paying too much for a new acquisition
Falling behind competition in R&D
Not recognizing benefit of computers in managing
information
 Successful Strategy
Implementation
• Market goods & services well
• Raise needed working capital
• Produce technologically sound goods
• Sound information systems
 Marketing Issues
• Marketing variables affect success/failure of
strategy implementation
1.Market segmentation
2.Product positioning
Market Segmentation: Subdividing of a market
into distinct subsets of customers according to
needs and buying habits
• Market segmentation variables:
– Product
– Place
– Promotion
– Price
 Marketing Mix – Component Factors
Product Place Promotion Price

Distribution
Quality Advertising Level
channels
Distribution Discounts &
Features Personal selling
coverage allowances

Style Outlet location Sales promotion Payment terms

Brand name Sales territories Publicity

Inventory
Packaging
levels/locations
Transportation
Product line
carriers

Warranty

Service level

32
Marketing Issues

Product Positioning

Schematic representations that reflect how

products/services compare to competitors’ on
dimensions most important to success in the industry;
I.e. according to customer wants and customer needs
 Product Positioning Steps

1. Select Key Criteria

2. Diagram Map

Product 3. Plot competitors’

Positioning products
Steps
4. Look for niches

5. Develop Marketing
Plan
 Marketing Issues

• Product Positioning as Strategy

Implementation Tool
• Look for vacant niche
• Avoid sub optimization
• Do’s serve 2 segments w/ same strategy
• Don’ts position in the middle of the map
 Finance/Accounting Issues

• Essential for implementation

• Acquiring needed capital
• Developing projected financial statements
• Preparing financial budgets
• Evaluating worth of a business
 Research & Development Issues
New products and improvement of existing products
that allow for effective strategy implementation
• Use an R&D strategy that ties external opportunities
to internal strengths and is linked with objectives
• 3 Major R&D approaches to implementing strategies
1. 1st firm to market new technological products
2. Innovative imitator of successful products
3. Low-cost producer of similar but less expensive
products
 Management Information
Systems (MIS) Issues

Information is the basis for understanding

the firm. One of the most important
factors differentiating successful from
unsuccessful firms

• MIS used to :
• Information collection, retrieval, & storage
• Keeping managers informed
• Coordination of activities among divisions
• Allow firm to reduce costs
 MIS Issues

Functions of MIS

• Information collection, retrieval, & storage

• Keeping managers informed
• Coordination of activities among divisions
• Allow firm to reduce costs
 Strategic Implementation
• One make-or-break determinant is how well top
management leads the process.
• Middle and lower management need to push actions
to the front lines and see the strategy is well
executed.
• The real implementation skill is being good at
determining what it will take to execute the strategy
proficiently.
 Strategic Implementation
• Senior management communicate, communicate
and then communicate some more:
• Communicate the case for change
• Build consensus for how to proceed
• Install strong allies in key positions
• Urging and empowering to get process moving
• Establish measures and deadlines
• Reward those who achieve milestones
• Reallocate resources
• Personally preside over the strategic change process
 Strategic Implementation
• Most important leadership trait is a strong,
confident sense of ‘what to do’ to achieve the
desired results.
• Knowing what to do comes from understanding
the circumstances of both the organization and
the industry as a whole.
• This is not about ‘micromanaging’ but about
assigning tasks, making sure that people
understand priorities, asking incisive questions,
staffing and then following up with measurement.
 Organizational Structure
•Organizational design
– Selecting the structure and control
systems that are most strategically
effective for pursuing sustainable
competitive advantage.
•The role of structure and control
– To coordinate strategy implementation.
– To motivate and provide incentives for superior
performance.
 The Role of Organizational Structure
•Building blocks of organizational structure
– Differentiation in the allocation of people and
resources to create value.
• Vertical differentiation in the
distribution of decision-making
authority.
• Horizontal differentiation in
dividing up people and tasks
into functions and divisions.
– Integration
• The means used in coordinating people and functions
to accomplish organizational tasks.
Differentiation, Integration, Bureaucratic Costs

•Bureaucratic costs and strategy

implementation:
– Bureaucratic costs increase with
organizational complexity.
– More differentiation = more managers.
– More integration = more coordination.
– Better strategy implementation = better
bottom-line performance and profitability.
 Vertical Differentiation
•Span of control (division of authority)
– The number of subordinates that a single manager
directly manages.
•Organizational hierarchy choices
– Flat structures
• Few organizational levels
• Wide spans of control
– Tall structures
• Many organizational levels
• Narrow spans of control
Tall and Flat Structures
 Problems with Tall Structures

•Principle of minimum chain of command

– Maintaining a hierarchy with the least number of
levels of authority needed to achieve a strategy.
•Sources of bureaucratic costs:
 Centralization (Structural) Choice?
•Advantages of •Advantages of centralization
decentralization – Easier coordination of
– Reduced information overload organizational activities.
on upper managers. – Decisions fitted to broad
– Increased motivation and organizational objectives.
accountability throughout – Exercise of strong leadership in
organization. crisis.
– Fewer managers; lower – Faster decision making and
bureaucratic costs. response.
 Horizontal Differentiation

•Focus is on division and grouping of tasks to

meet business objectives.
•Simple structure:
– Characteristic of small entrepreneurial
companies.
– Entrepreneur takes on most managerial roles.
– No formal organization arrangements.
– Horizontal differentiation is low.
• Structure Follows Strategy:
– Changes in corporate strategy lead to
changes in organizational structure
• New strategy is created
• New administrative problems emerge
• Economic performance declines
• New appropriate structure is invented
• Profit returns to its previous levels

51
• Staffing follows strategy:
– Matching the manager to the strategy
• Executive type
– Executives with a particular mix of skills and experiences

52
Matching Chief Executive “Types” with Strategy

Business Strength/Competitive Position

Strong Average Weak

Growth—Concentration Retrenchment—
Save Company
Dynamic Industry Expert
Turnaround
High

Specialist
Industry Attractiveness

Stability
Medium

Cautious Profit Planner

Low

Growth—Diversification Retrenchment—
Close Company
Analytical Portfolio
Manager Professional
Liquidator

53
 Strategic Reward Systems
•Individual reward systems
– Piecework plans
– Commission systems
– Bonus plans
– Promotion
•Group and organizational
reward systems
– Group-based bonus systems
– Profit sharing systems
– Employee stock option systems
– Organization bonus systems
 Strategy: Evaluation and Implementation

• Evaluation
– importance of weighing up alternative strategies
• how feasible are they?
• how do they relate to the firm's goals?
• how will they affect the firm's competitive position?
• Implementation
– need to assess the following
• resourcing
• business culture and structure
• managing change
 Second Stage: Strategy implementation
• Strategy implementation requires a firm to establish annual
objectives, devise policies, motivate employees, and allocate
resources so that formulated strategies can be executed;
• strategy implementation includes developing a strategy-supportive
culture, creating an effective organizational structure. Redirecting
marketing efforts, preparing budgets, developing and utilizing
information systems, and linking employee compensation to
organizational performance.
• Strategy implementation often is called the action stage of strategic
management.
• Implementing strategy means mobilizing employees and managers to
put formulated strategies into action.
• Often considered to be the most difficult stage in strategic
management, strategy implementation requires personal discipline,
commitment, and sacrifice.
 Second Stage: Strategy implementation…
• Successful strategy implementation hinges upon managers’ ability to
motivate employees, which is more an art than a science.
• Strategies formulated but not implemented serve no useful purpose.
•  Interpersonal skills are especially critical for successful strategy
implementation.
• Strategy-implementation activities affect all employees and managers in an
organization.
• Every division and department must decide on answers to questions such as
“What must we do to implement our part of the organization’s strategy?”
and “How best can we get the job done?”
• The challenge of implementation is to stimulate managers and employees
throughout an organization to work with pride and enthusiasm toward
achieving stated objectives.
•  
3. Strategy Implementation

Programs

Strategy
Implementation Budgets

Procedures

4. Evaluation & Control

- Continuous process
Chapter 1
Ronaldo Parente Wheelen & Hunger – 10ed 59
Strategy implementation: Organizing
for action
• Strategy implementation is the sum total of the
activities and choices required for the execution
of strategic plan by which strategies and policies
are put into action through the development of
programs , budgets and procedures. Although
implementation is usually considered after
strategy has been formulated, implementation is
a key part of strategic management. Thus
strategy formulation and strategy
implementation are the two sides of same coin.
 Implementing strategy

• Depending on how the corporation is organized those

who implements strategy will probably be a much
more divorced group of people than those who
formulate it. Most of the people in the organization
who are crucial to successful strategy implementation
probably had little to do with the development of
corporate and even business strategy. Therefore they
might be entirely ignorant of vast amount of data and
work into formulation process. This is one reason why
involving middle managers in the formulation as well
as in the implementation of strategy tends to result in
better organizational performance.
 Developing programs, budgets and
procedures
• The managers of divisions and functional
areas worked with their fellow managers to
develop programs, budgets and procedures
for implementation of strategy. They also
work to achieve synergy among the divisions
and functional areas in order to establish and
maintain a company’s distinctive competence.
 Programs

• A program is a statement of the activities or

steps needed to accomplish a single use plan.
The purpose of program is to make a strategy
action oriented.
 Budgets

• A budget is a statement of corporation’s

program in monatory terms. After programs
are developed, the budget process begins.
Planning a budget is the last real check a
corporation has on the feasibility of its
selected strategy. An ideal strategy might
found to be completely impractical only after
specific implementation programs are costed
in detail.
 Procedures

• Procedures are system of sequential steps or

techniques that describe in detail how a
particular task or job is to be done.
 Synergy achievement

• One of the goals to be achieved in strategy

implementation is synergy between functions
and business units, which is why corporations
commonly reorganize after an acquisition. The
acquisition or development of additional
product lines is often justified on the basis of
achieving some advantages of scale in one or
more of company’s functional areas.
 Stages of corporate development

• Successful Corporation tend to follow a pattern of

structural development called stages of development
as they grow and expand. Beginning with the simple
structure of the entrepreneurial firm, they usually get
larger and organize along functional lines with
marketing production and finance department. With
continuing success the company adds new product
lines in different industries and organizes itself into
interconnected divisions. The differences among these
three stages of corporate development in terms of
typical problems, objectives strategies, reward systems
and other characteristics as specified in detail in table
 Organizational life cycle

• The organizational life cycle describes how the

organization grow, develop and eventually
decline. The stages of organization life cycles are
• 1. Birth
• 2. Growth
• 3. Maturity
• 4. Decline
• 5. Death
 The impact of these stages on corporate and structure are summarized in the
table
Organizational life cycle
Stage I Stage II Stage I Stage II Stage I Stage II Stage I Stage II
Stage III Stage IV Stage III Stage IV Stage III Stage IV Stage III Stage IV
Stage V Stage V Stage V Stage V
Dominate issue Birth Dominate issue Birth Dominate issue Birth Dominate issue Birth
Growth Maturity Growth Maturity Growth Maturity Growth Maturity
Decline Death Decline Death Decline Death Decline Death
ation in a Popular strategies Concentration in a Popular strategies Concentration in a Popular strategies Concentration in a Popular strategies Concentration in a
l and niche Horizontal and niche Horizontal and niche Horizontal and niche Horizontal and
c and vertical integration Concentric and vertical integration Concentric and vertical integration Concentric and vertical integration Concentric and
conglomerate diversification conglomerate diversification conglomerate diversification conglomerate diversification
renchment Profit strategy followed by retrenchment Profit strategy followed by retrenchment Profit strategy followed by retrenchment Profit strategy followed by retrenchment
Liquidation or bankruptcy Liquidation or bankruptcy Liquidation or bankruptcy Liquidation or bankruptcy
neur Likely structure Entrepreneur Likely structure Entrepreneur Likely structure Entrepreneur Likely structure Entrepreneur
l dominated Functional dominated Functional dominated Functional dominated Functional
management emphasized management emphasized management emphasized management emphasized
investment Decentralization into profit or investment Decentralization into profit or investment Decentralization into profit or investment Decentralization into profit or investment
l surgery centers Structural surgery centers Structural surgery centers Structural surgery centers Structural surgery
Dismemberment of struc Dismemberment of struc Dismemberment of struc Dismemberment of struc

Stage I Stage II Stage I Stage II Stage I Stage II Stage I Stage II

Stage III Stage IV Stage III Stage IV Stage III Stage IV Stage III Stage IV
Stage V Stage V Stage V Stage V
Dominate issue Birth Dominate issue Birth Dominate issue Birth Dominate issue Birth
Growth Maturity Growth Maturity Growth Maturity Growth Maturity
Decline Death Decline Death Decline Death Decline Death
tion in a Popular strategies Concentration in a Popular strategies Concentration in a Popular strategies Concentration in a Popular strategies Concentration in a
and niche Horizontal and niche Horizontal and niche Horizontal and niche Horizontal and
Strategy implementation: staffing and
leading
• Strategy implementation: staffing and leading
• Staffing
• Staffing focuses on the selection and utilization of
employees. The implementation of new
strategies and policies often calls for new human
resource management priorities and a different
utilization of personnel. This may mean hiring
new people with new skills and/or training
existing employees to learn new skills. ng
 Hiring and Training Requirements
Change
• Once a new strategy is formulated, either
different kinds of people may be needed or the
current employees may need to be retrained to
implement the new strategy. Training and
development is one way to implement a
company’s corporate or business strategy.
Training is also important when implementing a
retrenchment strategy. As suggested earlier,
successful downsizing means that the company
has to invest in its remaining employees
 Company Match the Manager

• The most appropriate type of general

manager needed to effectively implement a
new corporate or business strategy depends
on the strategic direction that firm or business
unit desires. A certain type may be paired with
a specific corporate strategy for best result.
 Selection and Management
Development
• Selection and development are important not
only to ensure that people with the right mix
of skills and experiences are hired initially, but
also to help them grow on the job and
prepared for future promotion
 Executive Succession

• It is the process of replacing a key top manager.

Given that the typical large U.S. Corporation
changes its chief executive every 8 years firms
need to plan for his eventuality. Prosperous firms
tend to look outside for CEO candidates only if
they have no obvious internal candidates. Boards
realize that the best way to move to a new
strategy and to ensure its implementation is to
hire a new CEO with no connections to the
current strategy.
 Abilities Be Identified and Potential
Developed
• A company can identify and prepare its people for important positions in
several ways. One approach is to establish a sound performance appraisal
system, which not only evaluates a person’s performance, but also
identifies promotion potential.
• Many large organizations are using assessment centers, a method of
evaluating a person’s suitability for an advanced position. Because each is
specially tailored to its corporation. These assessment centers are unique.
They use special interviews, management games, in-basket exercises,
leaderless group discussions, case analysis and oral presentations to
assess the potential of employees for specific positions. Many assessment
centers have proved to be highly predictive of subsequent job
performance.
• Many large corporations use job rotation, moving people from one job to
another, to ensure that employees are gaining the appropriate mix of
experiences to prepare them for future responsibilities.
 Retrenchment Create Problems

• Downsizing refers to the planned elimination of positions or jobs.

Companies commonly use this program to implement
retrenchment strategies. Because the financial community is likely
to react favorably to announcement of downsizing from a company
in difficulty, such a program may provide some short-term benefits
such as raising the company’s stock price. Following are some
guidelines for successful downsizing.
• 1. Eliminate unnecessary work instead of making across-the-board
cuts
• 2. contract out work that others can do cheaper
• 3. plan for long-run efficiencies
• 4. communicate the reasons for action
• 5. invest in the remaining employees
• 6. develop value-added jobs to balance out job elimination
 Leading
•
• Implementation also involves leading:
motivating people to use their abilities and
skills most effectively and efficiently to
achieve organizational objectives. Leading
may take the form of management leadership
communicated norms of behavior from the
corporate culture or agreement among
workers in autonomous work groups.
 Company Manage Corporate Culture

• Because an organization’s culture can exert a powerful influence on the behavior

of all employees, it can strongly affect a company’s ability to shift its strategic
direction. An optimal culture is one that best supports the mission and strategy of
the company of which it is a part. This means that, like structure and staffing,
corporate culture should follow strategy. A key job of management is therefore to
evaluate
• 1. what a particular strategy change will mean to the corporate culture
• 2. whether a change in culture will be needed
• 3. Whether an attempt to change the culture will be worth the likely costs.

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• Communication Be Used To Manage Culture. Communication is crucial to
effectively managing change. Companies in which major cultural changes have
successfully taken place had the following characteristics in common:
– 1. The CEO and other top managers had a strategic vision of what the company could become
and communicated this vision to employees at all levels.
– 2. The vision was translated into the key elements necessary to accomplish that vision.
 Diverse Cultures Be managed In an
Acquisition Growth Strategy
• When merging with or acquiring another company top
management must consider a potential clash of cultures.
The four general methods of managing two different
cultures are integration, assimilation, separation and
enculturation. Integration involves a relatively balanced
give –and –take of culture and managerial practices
between the mares and no strong imposition of culture
change on either company. Assimilation involves the
domination of one organization by another. Separation is
characterized by a separation of the two companies’
culture. Deculturation involves the disintegration of one
company’s culture resulting from unwanted and extreme
pressure from the other to impose its culture and practices.
 Action Planning

• Activities can be directed towards accomplishing

strategic through action planning at a minimum
an action plan states what actions are going to be
taken by whom during what timeframe and with
what expected results. Actions serve as a link
between strategy formulation and evaluation and
control. The action plan specifies what needs to
be done differently from the way operations are
currently carried out. The explicit assignment of
responsibilities for implementing and monitoring
the programs may improve motivation.
 Management by Objectives (MBO)

• MBO is an organization-wide approach to help assure

purposeful action toward desired objectives by liking
organizational objectives with individual behavior.
• The MBO process involves:
• 1. Establishing and communicating organizational
objectives.
• 2. Setting individual objectives that help implement
organizational ones.
• 3. Developing an action plan of activities needed to achieve
the objectives.
• 4. Periodically reviewing performance as it replace to the
objectives and including the results in the annual
performance appraisal.
 Total Quality Management (TQM)

• TQM is an operational philosophy that stresses commitment to customer

satisfaction and continuous improvement.
• It has four objectives:
• 1. Better, less-variable quality of the product and service
• 2. Quicker, less-variable response to customer needs
• 3. Greater flexibility in adjusting to customers’ shifting requirement
• 4. Lower cost through quality improvement and elimination of no value-adding
work.

• The essential ingredients of TQM are:

– 1. An intense focus on customer satisfaction

– 2. Customers are internal as well as external
– 3. Accurate measurement of every critical variable in a company’s operations.
– 4. Continuous improvement of products and services.
– 5. New work relationships based on trust and teamwork
 Evaluation and Control

• It is the process of by which corporate activities and

performance results are monitored so that actual
performance can be compared with desired
performance. This process can be viewed as a five step
feedback model.
• 1. Determine what to measure.
• 2. Establish standards of performance.
• 3. Measure actual performance.
• 4. Compare actual performance with the standard.
• 5. Take corrective action.
 Evaluation and Control in Strategic
Management
• Evaluation and control information consists of
performance data and activity reports. Top
management need not involved. If however, the
processes themselves cause the undesired
performance, both top managers and operational
managers must know about it so that they can develop
new implementation programs or procedures.
• Evaluation and control information must be relevant to
what is being monitored. One of the obstacles to
effective control is the difficulty in developing
appropriate measures of important activities and
outputs.
 Using of measures

• Returns on Investment (ROI) are appropriate for

evaluating the corporation’s or division’s ability
to achieve profitability objectives. This type of
measure, however, is adequate for evaluating
additional corporate objectives such as social
responsibility or employee development. A firm
therefore needs to develop measures that
predict likely profitability. These are referred to
as steering controls because they measure those
variables that influence future profitability
 Differing of behavior and output
control
• Controls can be established to focus either on actual performance
results or on the activities that generates the performance.
Behavior controls specify how something is to be done through
policies, rules, standard operating procedures and orders from a
superior. Output controls specify what is to be accomplished by
focusing on the result on the end result of the behavior through the
use of objectives or performance targets or milestones. They are
not interchangeable. Behavior controls are most appropriate when
performance results are hard to measure and a clear cause-effect
connection exists between activities and results. Output controls
are most appropriate when specific output measures are agreed
upon and no clear cause-effect connection exists between activities
and results.
 Value of activity-based costing

• Activity based costing (ABC) is a new accounting

method for allocating indirect and fixed costs to
individual products or product lines based on the
value-added activities going into that product.
This method is very useful in doing a value-chain
analysis of a firm’s activities for making
outsourcing decisions. It allows accountants to
charge costs more accurately because it allocates
overhead far more precisely. It can be used in
much type of industries.
 Corporate performance

• The most commonly used measure of corporate

performance is ROI. It is simply the result of
dividing net income before taxes by total assets.
Return on investment has several advantages. It
is a single comprehensive figure that is influenced
by everything that happens. It measures how
well a decision manager uses the division’s assets
to generate profits. It is a common denominator
that can be compared with other companies and
business units. It provides an incentive to use
existing assets efficiently and to buy new once
only when it would increase profits
 Stakeholder Measures

• Each stakeholder has its own set of criteria to

determine how well the corporation is
performing. Top management should
establish one or more simple measures for
each stakeholder category so that it can keep
tack of stakeholder concerns
 Shareholder value

• It is defined as the present value of the anticipated

future streams cash flows from the business plus
the value of the company if liquidated. The value
of corporation is thus the value of its cash flows
discounted back to their present value, using the
business cost of capital as the discount rate.
• Economic value added (EVA) is after tax operating
profit minus the total annual cost of capital. It
measures the pre-strategy value of the business.
 Responsibility Centers

• Responsibility centers are used to isolate a unit

so that it can be evaluated separately from the
rest of the corporation. The center resources to
produce a service or a product.
• Five major types of responsibility centers is used
• 1. Standard cost centers.
• 2. Revenue centers.
• 3. Expense centers.
• 4. Profit centers.
• 5. Investment centers.
 Guideline for Proper Control.

• Measuring performance is a crucial part of

evaluation and control. Without objective and
timely measurements, making operational, let
alone strategic, decisions would be extremely
difficult. Nevertheless, the use of timely,
quantifiable standards does not guarantee
good performance.
 The following guidelines are
recommended:

• 1. Controls should involve only the minimum amount of

information needed to give a reliable picture of events.
• 2. Control should monitor only meaningful activities and
results, regardless of measurement difficulty.
• 3. Controls should be timely.
• 4. Control should be long term and short-term.
• 5. Control should pinpoint exceptions.
• 6. Controls should be used to reward meeting or exceeding
standards rather than to punish failure to meet standards.
 Distinguishing Strategy from Tactics

• Strategy is the overall plan for

deploying resources to establish a
favorable position
• Tactic is a scheme for a specific
maneuver