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MANAGEMENT POLICY AND STRATEGY Implementing Strategy Functional Tactics and Policies
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Strategy Implementation
Identify short-term objectives Involves developme nt of support systems that Initiate specific functional tactics Communicate policies to empower people Design effective support systems
Irwin/McGraw-Hill
2000 The McGraw-Hill Companies, Inc.
Provide specific guidance for what is to be done, translating vision into action
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Raise issues and potential conflicts requiring coordination to avoid dysfunctional consequences Identify measurable outcomes of functional activities to be used to make feedback, correction, and evaluation more relevant
2000 The McGraw-Hill Companies, Inc.
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Marketing
Fast order processing Cheap order processing Fast delivery Less warehousing
Objectives
Less inventory
Manufacturi ng
Field warehousing
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Measurable
Priorities
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Functional Tactics at General Cinema Corporation Corporate Strategy Business Strategies Functional Tactics
Corporate strategy Achieve 15-20 % annual growth through existing businesses and carefully selected diversification into leisureoriented, consumeroriented product/service businesses to absorb increasing cash flow from theater Irwin/McGraw-Hill
Soft drink bottler s
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Concentration and market development selective Maintain and selectively expand leading nationwide position in the movie exhibition industry to provide positive cash flow for corporate
Movie exhibitio n
Sunkis t produc ts
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 through volume, not higher ticket prices. Functional tactics: Operations Use multiscreen facilities with minimal maintenance requirements and a joint service area serve each 2000to The McGraw-Hill Companies, Inc.
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Specificity
Greater specificity
of functional tactics contributes to successful implementation by Ensuring functional managers focus on accomplishments Clarifying for top managers how functional managers intend to accomplish business strategy Facilitating
Participants
General
managers establish longterm objectives and overall business strategies managers establish short-term objectives and functional tactics leading to business level success
2000 The McGraw-Hill Companies, Inc.
Focusing
Operating
Allowing
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Involves Focuses
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relationships with suppliers be managed over time? What level of forward buying (hedging) is appropriate? Should work be scheduled to order or to stock? What level of inventory is appropriate? Operatio How should inventory be used (FIFO/LIFO), controlled, and replenished? ns planning What are the key foci for control efforts? Should maintenance be oriented to prevention or to and breakdown?
How many sources are needed? How should suppliers be selected, and how should
Sourcing
control
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Lead to strategic success of the firm through the profitable sale of products/services in target markets Clearly identify customer needs that products/services aim to meet Identify where, when, and by whom products/services are to be sold Define how firm will communicate with target markets Directly influence supply, demand, profitability, consumer perception, and regulatory response through pricing
2000 The McGraw-Hill Companies, Inc.
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Price
Typical Questions the Functional Tactic Should Answer Which products do we emphasize? Which products/services contribute most to profitability? What product/service image do we seek to project? What consumer needs does the product/service seek to meet? What changes should be influencing our orientation? customer Are we competing primarily on price? Can we offer discounts or other pricing modifications? Are our pricing policies standard nationally, or is there regional control? What price segments are targeting? What is the gross profit margin?
2000 The McGraw-Hill Companies, Inc.
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Typical Questions the Functional Tactic Should Answer What level of market coverage is necessary? Are there priority geographic areas? What are the key channels of distribution? What are the channel objectives, structure, and management? What sales organization do we want?
approaches? Which advertising/communication priorities and approaches are linked to different products, markets, and territories? Which media would be most consistent with the total marketing strategy?
2000 The McGraw-Hill Companies, Inc.
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Long-term capital investment Debt financing Dividend allocation Leveraging Managing working capital and short-term assets
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Function Typical Questions the Functional Tactic al Tactic Should Answer What is an acceptable cost of capital? What is desired proportion of short- and long-term debt? Preferred and common Capital stock? acquisiti What balance is desired between internal on and external funding? What risk and ownership restrictions are appropriate? What and forms offor leasing should be What level are the priorities capital allocation used? projects? Capital allocatio On what basis should the final selection of projects be made? n What level of capital allocation can be made by operating managers without higher approval?
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2000 The McGraw-Hill Companies, Inc.
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Function Typical Questions the Functional Tactic al Tactic Should Answer What portion of earnings should be paid out as dividends? Are things other than cash appropriate Dividend as dividends? and What are the cash flow requirements? working Minimum and maximum? capital How liberal/conservative should credit manage- policies be? ment What limits, payment terms, and collection procedures are necessary? What payment timing and procedure should be followed?
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2000 The McGraw-Hill Companies, Inc.
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a key strategic role in many firms due to increasing rate of technological change
May
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Typical Questions the Functional Tactic Should Answer Should R&D be done in-house or contracted out? Organizatio Should R&D be centralized or nal fit decentralized? What should be the relationship between the R&D units and product managers? Should the firm maintain anProduction offensive Marketing managers? posture, seeking to lead innovation in its Basic R&D managers? industry? posture Should the firm adopt a defensive posture, responding to the innovations of its competitors?
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2000 The McGraw-Hill Companies, Inc.
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Functional Typical Questions the Functional Tactic Tactic Should Answer How often should we evaluate our people? Evaluation Formally or informally? , What disciplinary steps should we take to discipline, deal with poor performance or and inappropriate behavior? In what ways should we control control individual and group performance? How can we maximize labor-management Labor cooperation? relations How do our personnel practices affect and EEO women/minorities/ requireme nts Should we have hiring policies?
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Emerging HRM Ideas Emphasis on total contribution to firm Expectation of innovative and creative behavior Tolerance of ambiguity and change Accepting responsibility for making decisions Broad continuous development Emphasis placed on processes / means
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Cross-functional integration Labor force seen as critical investment Management and work force are partners
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Directives designed to guide thinking, decisions, and actions of managers and employees in implementing strategy Increase managerial effectiveness by
Standardizing many routine decisions Clarifying discretion managers and employees can exercise in implementing functional tactics
Should be derived from functional tactics with key purpose of aiding strategy execution
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6. Supply a convenient and authoritative reference 7. Systematically enhance indirect control and organization-wide coordination of the key purposes of policies
2000 The McGraw-Hill Companies, Inc.
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3 M Corporation has a personnel policy, called the 15 percent rule, that allows virtually any employee to spend up to 15 per cent of the workweek on anything that he or she wants to, as long as its product related. (This policy supports 3Ms corporate strategy of being a highly innovative manufacturer, with each division required to have a quarter of its annual sales come from products introduced within the past five years.) Wendys has a purchasing policy that gives local store managers the authority to buy fresh meat and produce locally, rather than from regionally designated or company-owned sources. (This policy supports Wendys functional strategy of having fresh, unfrozen hamburgers daily).
2000 The McGraw-Hill Companies, Inc.
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General Cinema has a financial policy that requires annual capital investment in movie theaters not to exceed annual depreciation. (By seeing that capital investment is no greater than depreciation, this policy supports General Cinemas financial strategy of maximizing cash flow-in this case, all profit - to its growth areas. The policy also reinforces General Cinemas financial strategy of leasing as much as possible.) IBM had a marketing policy of not giving free IBM personal computers (PCs) to any person or organization. (This policy attempted to support IBMs image strategy by maintaining its image as professional, high-value, service business at it sought to dominate the PC market).
2000 The McGraw-Hill Companies, Inc.
Contd...
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Grown, Cork, and Seal Company has an R&D policy of not investing any financial or people resources in basic research. (This policy supports Crown, Cork, and Seals functional strategy, which emphasized customer services, not technical leadership). Nations Bank of South Carlina has an operating policy that requires annual renewal of the financial statement of all personal borrowers. (This policy supports NationsBanks financial strategy, which seeks to maintain a loan-to-loss ratio below the industry norm.)
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Bonus Type
Stock option grants Restricted stock plan Golden handcuffs
Description
Right to purchase stock in the future at a price set now; compensation determined by spread Shares given to executive who is prohibited from selling them for a specific time Bonus income period deferred in a series of annual installments; forfeited with executive resignation
Rationale
Provides incentive for executive to create wealth for shareholders as measured by increase in firms share price Promotes longer executive tenure than other forms of compensation Offers an incentive for executive to remain with the firm
Shortcomings
Movement in share price does not explain all dimensions of managerial performance No downside risk to executive, who always profits unlike other shareholders May promote riskaverse decision making due to downside risk borne by executive
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Bonus Type
Golden parachute
Cash based on internal performanc e using finance measures
Description
Executive has right to collect bonus if loses position due to takeover, firing, retirement, or resignation Bonus compensation based on accounting performance measures such as return on equity
Rationale
Offers an incentive for executive to remain with firm Offsets limitations of focusing on market-based measures of performance
Shortcomings
Compensation is achieved whether or not wealth is created;rewards either success or failure
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Cash
Golden Handcuf fs
Stock Options
Rationale
Executive profits only if turnaround is successful in returning wealth to shareholders Risk associated with growth strategies warrants use of this highreward incentive Helps remove temptation for executive to evaluate takeover based on personal benefits Compensates executive if job is lost due to a merger favorable to the firm Risk of expanding overseas requires a plan that compensates only for achieved success Accounting measures can identify periodic performance benchmarks
2000 The McGraw-Hill Companies, Inc.
X X X X X X
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Cash
Golden Handcuf fs
Stock Options
Rationale
Accounting measures represent observable and agreed-upon measures of performance Executive profits proportionally as asset growth leads to longterm growth in share price Handcuffs provide executive tenure incentives
Risk associated with major change in firms assets warrant use of this high-reward incentive Rewards long-term focus on efficiency and cost control
2000 The McGraw-Hill Companies, Inc.
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General Electric - An Introduction July 1997 - Business Week issue cited GE as Most Valuable Company with worldwide market capitalization of $198.09 billion. GE - established in 1878 with a group of investors joining together to finance Edisons incandescent lamp. Company grew; by 1939 sales $342 million; due to WWII increased to $1.4 billion in 1943. Case illustrate systematic implementation of strategic planning at GE to market performance in four phases over a span of 50 years - 47 to 97.
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2000 The McGraw-Hill Companies, Inc.
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Contd...
1947 CEO Charles Wilson tells Cordiner to study managing the fast paced growth. Cordiner identified three areas of change - (1) More decentralized decision making (2) Long range planning system and (3) More entrepreneurial minded managers to meet growth challenges. 1950 - Cordiner becomes CEO, Identifies GEs new Marketing Concept PR I, PR II, (SP) (Target) This phase originated the GE Strategic Planning concept
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Think like entrepreneurs Make markets and customer values central focus for strategic planning Once market opportunities identified, plan and make resource allocations. Plan so that available resources can be leveraged for long term objectives. Managers evaluated on performance against intermediate goals set in long term plan. Reinvest profits for long-term goals
2000 The McGraw-Hill Companies, Inc.
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Phase II: Borch and Implementing Strategic Planning Concept (63 to 71) 1963 - Borch succeeds Cordiner as CEO inheriting three problems (1) Implementing and integration of marketing concept (2) Greater corporate control over 70 semi-independent division vice-presidents (3) Reviewing and presentation process for BSU plans too bureaucratic With aid of Mckinsey Borch integrates marketing concept in GEs system with the development of Strategic Business Units (Staff / Line Groups) Again withMcKinseys aid identifies the method for developing and managing SBUs through the concept of Portfolio Management Irwin/McGraw-Hill 2000 The McGraw-Hill Companies, Inc.
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Phase III: Implementing Strategic Planning Concept (72 to 81) 1972 - Reginald Jones succeeds Borch Identified six important sectors which divided GEs business into six broad areas. Sector vice-presidents named to plan and have related units reporting to them. They would report to two senior vice-chairman. Enabled strategic planning concept to become worldwide concept Simplified presentations of SBU plans-without visual aids. Review layers in SBU plans reduced from 43 to 6. Six strategic sectors in which GE will compete in for the future; GEs intent for venturing for alliances around the world. Irwin/McGraw-Hill 2000 The McGraw-Hill Companies, Inc.
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Phase IV: Welch: Strategic Thining and Visionary Leadership 1981 - Jack Welch becomes CEO Two basic objectives: SBUs should be number one or two in their markets; compete in three interrelated circles (high technology markets, service markets, core marketengines, appliances etc.). Long term stretch goals-externally oriented for comparisons against total market. Incremental goals internally oriented. Renetrated newer markets - India, China, Mexico Removed layers of management and bureaucracy in planning process. One page Reports submitted on key issues. Irwin/McGraw-Hill 2000 The McGraw-Hill Companies, Inc. Formulated strategy for 21st century - penetrate global
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Learning From GE
Focus on improving both internally and externally Marketing Concept - without marketings input strategic planning is useless. Disciplined yet flexible approach- SBU managers free to use any methods to analyze markets and operate. Focus on long-range performance and fit rather than incremental gains. CEO - selection is of utmost importance and central to strategic planning
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