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Implementing Strategies - Management and Operations Issues Ch 07

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CHAPTER 7

IMPLEMENTING STRATEGIES: MANAGEMENT AND
OPERATIONS ISSUES

CHAPTER OUTLINE

| |The Nature of Strategy Implementation |
| |Annual Objectives |
| |Policies |
| |Resource Allocation |
| |Managing Conflict |
| |Matching Structure with Strategy |
| |Restructuring, Reengineering, and E-Engineering |
| |Linking Performance and Pay to Strategies |
| |Managing Resistance to Change |
| |Creating a Strategy-Supportive Culture |
| |Production/Operations Concerns When Implementing Strategies |
| |Human Resource Concerns When Implementing Strategies |

CHAPTER OBJECTIVES

After studying this chapter, you should be able to do the following:

|1. |Explain why strategy implementation is more difficult than strategy formulation. |
|2. |Discuss the importance of annual objectives and policies in achieving organizational commitment for strategies to be implemented. |
|3. |Explain why organizational structure is so important in strategy implementation. |
|4. |Compare and contrast restructuring and reengineering. |
|5. |Describe the relationships between production/operations and strategy implementation. |
|6. |Explain how a firm can effectively link performance and pay to strategies. |
|7. |Discuss employee stock ownership plans (ESOPs) as a strategic-management concept. |
|8. |Describe how to modify an organizational culture to support new strategies. |

CHAPTER OVERVIEW

The strategic-management process does not end when the firm decides which strategy or strategies to pursue. There must be a translation of strategic thought into strategic action. This translation is much easier if managers and employees of the firm understand the business, feel a part of the company, and, through involvement in strategy-formulation activities, have become committed to helping the organization succeed. Without understanding and commitment, strategy-implementation efforts face major problems.

Excellent Strategic Management Showcased – IKEA
IKEA is a very well-managed, privately held, international home products company that designs and sells ready-to-assemble furniture such as beds, desks, appliances, and home accessories. IKEA is the world’s largest furniture retailer. IKEA is an example firm with excellent management practices.

EXTENDED CHAPTER OUTLINE

I. THE NATURE OF STRATEGY IMPLEMENTATION

A. The Strategy-Implementation Stage of Strategic Management

1. The strategy-implementation stage of strategic management is revealed in Figure 7-1.

2. Successful strategy formulation does not guarantee successful strategy implementation. It is always more difficult to do something (strategy implementation) than to say you are going to do it (strategy formulation).

B. Management Perspectives

1. In all but the smallest organizations, the transition from strategy formulation to strategy implementation requires a shift in responsibility from strategists to divisional and functional managers.

2. As indicated in Table 7-1, management issues central to strategy implementation include establishing annual objectives, devising policies, allocating resources, altering an existing organizational structure, restructuring and reengineering, 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 resource function, and, if necessary, downsizing.

3. Managers and employees throughout an organization should participate early and directly in strategy-implementation decisions.

II. ANNUAL OBJECTIVES

A. Establishing Annual Objectives

1. Establishing annual objectives is a decentralized activity that directly involves all managers in an organization.

2. Annual objectives are essential for strategy implementation because they:

a. Represent the basis for allocating resources; b. Are a primary mechanism for evaluating managers; c. Are the major instrument for monitoring progress towards achieving long-term objectives; and d. Establish organizational, divisional, and departmental priorities.

3. Clearly stated and communicated objectives are critical to success in all types and sizes of firms. Figure 7-2 illustrates how the Stamus Company could establish annual objectives based on long-term objectives. Table 7-2 reveals associated revenue figures that correspond to the objectives in Figure 7-2.

a. Objectives should be consistent across hierarchical levels and form a network of supportive aims. Horizontal consistency of objectives is as important as vertical consistency of objectives.

b. Annual objectives should be measurable, consistent, reasonable, challenging, clear, communicated throughout the organization, characterized by an appropriate time dimension, and accompanied by commensurate rewards and sanctions. (SMART – specific, measurable, attainable, realistic, timely)

c. Too often, objectives are stated in generalities, with little operational usefulness.

4. Annual objectives should be compatible with employees’ and managers’ values and should be supported by clearly stated policies.

III. POLICIES

A. Changes in a firm’s strategic direction do not occur automatically. On a day-to-day basis, policies are needed to make a strategy work.

B. Broadly defined, policy refers to specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work toward stated goals.

C. Policies let both employees and managers know what is expected of them, thereby increasing the likelihood that strategies will be implemented successfully.

D. Examples of policies that support a company strategy, a divisional objective, and a departmental objective are given in Table 7-3.

E. Some example issues that may require a management policy are provided in Table 7-4.

IV. RESOURCE ALLOCATION

A. Resource allocation is a central management activity that allows for strategy execution.

1. In organizations that do not use a strategic-management approach to decision making, resource allocation is often based on political or personal factors.

2. Strategic management enables resources to be allocated according to priorities established by annual objectives.

B. All organizations have at least four types of resources that can be used to achieve desired objectives:

1. Financial resources 2. Physical resources 3. Human resources 4. Technological resources

V. MANAGING CONFLICT

A. Resource-Specific Conflict

1. Interdependency of objectives and competition for limited resources often leads to conflict.

2. Conflict can be defined as a disagreement between two or more parties on one or more issues.

3. Establishing objectives can lead to conflict because managers and strategists must make trade-offs. Table 7-5 reveals some important management trade-off decisions required in strategy implementation.

4. Conflict is unavoidable in organizations, and is not always bad. An absence of conflict can signal indifference and apathy.

B. Approaches for Managing and Resolving Conflict

Various approaches for managing and resolving conflict can be classified into three categories: avoidance, diffusion, and confrontation.

1. Avoidance includes such actions as ignoring the problem in hopes that the conflict will resolve itself or physically separating the conflicting individuals (or groups).

2. Diffusion can include playing down differences between conflicting parties while accentuating similarities and common interests, compromising so that there is neither a clear winner nor loser, resorting to majority rule, appealing to a higher authority, or redesigning present positions.

3. Confrontation is exemplified by exchanging members of conflicting parties so that each can gain an appreciation of the other’s point of view, or holding a meeting at which conflicting parties present their views and work through their differences.

VI. MATCHING STRUCTURE WITH STRATEGY

A. Changes in Strategy Often Require Changes in Structure

1. Changes in strategy often require changes in the way an organization is structured for two major reasons.

a. First, structure largely dictates how objectives and policies will be established. For example, objectives and policies established under a geographic organizational structure are couched in geographic terms. Objectives and policies are stated largely in terms of products in an organization whose structure is based on product groups. The structural formula for developing objectives and policies can significantly impact all other strategy-implementation issues.

b. The second major reason why changes in strategy often require changes in structure is that structure dictates how resources will be allocated.

2. Changes in strategy lead to changes in organizational structure. Structure should be designed to facilitate the strategic pursuit of a firm and, therefore, follow strategy.

3. There is not just one optimal organizational design or structure for a given strategy or type of organization.

4. As illustrated in Table 7-6, symptoms of an ineffective organizational structure include too many levels of management, too many meetings attended by too many people, too much attention being directed toward solving interdepartmental conflicts, too large a span of control, and too many unachieved objectives.

B. The Functional Structure

1. The most widely used structure is the functional or centralized type because this structure is the simplest and least expensive of the seven alternatives.

2. A functional structure groups tasks and activities by business function such as product/operations, marketing, finance/accounting, R&D, and computer information systems.

a. Advantages: Besides being simple and inexpensive, a functional structure also promotes specialization of labor, encourages efficiency, minimizes the need for an elaborate control system, and allows rapid decision-making.

b. Disadvantages: Some disadvantages of a functional structure are that it forces accountability to the top, minimizes career development opportunities, and is sometimes characterized by low employee morale. Line/staff conflicts, poor delegation of authority, and inadequate planning for products and markets are other potential disadvantages.

3. Most large companies have abandoned the functional structure in favor of decentralization and improved accountability. Table 7-7 summarizes the advantages and disadvantages of a functional organizational structure.

4. Netflix’s organizational structure is highlighted in Figure 7-3.

C. The Divisional Structure

1. The divisional or decentralized structure is the second most common type used by U.S. businesses.

2. The divisional structure can be organized in one of four ways: by geographic area, by product or service, by customer, or by process. With a divisional structure, functional activities are performed both centrally and in each separate division.

a. Advantages: A divisional structure has some clear advantages. First, and perhaps foremost, accountability is clear. Other advantages of the divisional structure are that it creates career development opportunities for managers, allows local control of local situations, leads to a competitive climate within an organization, and allows new businesses and products to be added easily.

b. Disadvantages: Perhaps the most important limitation is that a divisional structure is costly.

c. Table 7-8 summarizes the advantages and disadvantages of divisional organizational structure.

3. A divisional structure by geographic area is appropriate for organizations whose strategies need to be tailored to fit the particular needs and characteristics of customers in different geographic areas. Coca-Cola operates from a divisional-by-geographic region type organizational structure, as illustrated in Figure 7-4.

4. A division structure by product is most effective for implementing strategies when specific products or services need special emphasis.

5. A divisional structure by customer can be the most effective way to implement strategies when a few major customers are of paramount importance and many different services are provided to these customers.

6. A division structure by process is similar to a functional structure, because activities are organized according to the way work is actually performed. A key difference is that functional departments are not accountable for profits or revenues, whereas divisional process departments are evaluated on these criteria.

D. The Strategic Business Unit (SBU)

1. The SBU structure groups similar divisions into strategic business units and delegates authority and responsibility for each unit to a senior executive who reports directly to the CEO.

2. Advantages: This change in structure can facilitate strategy implementation by improving coordination between similar divisions and channeling accountability to distinct business units. Another advantage of the SBU structure is that it makes the tasks of planning and control by the corporate office more manageable.

3. Disadvantages: Two disadvantages of an SBU structure are that it requires an additional layer of management, which increases salary expenses. Also, the role of the group vice president is often ambiguous.

4. Figure 7-6 illustrates the SBU Structure used by Sonoco Products Corporation.

E. The Matrix Structure

1. It is the most complex of all designs because it depends upon both vertical and horizontal flows of authority and communication.

2. It can result in higher overhead because it creates more managerial positions.

3. It also creates dual lines of budget authority, dual sources of reward and punishment, shared authority, and dual reporting channels.

4. As indicated in Table 7-9, some advantages and disadvantages of a matrix structure. Advantages are that project objectives are clear, there are many channels of communication, workers can see visible results of work, and projects can be shut down easily. This structure also facilitates the use of specialized personnel, equipment, and facilities.

5. For a matrix structure to be effective, organizations need participative planning, training, clear mutual understanding of roles and responsibilities, excellent internal communication, and mutual trust and confidence.

F. Some Do’s and Don’ts in Developing Organizational Charts

1. Reserve the title of CEO for the top person in the organization and use the term President for division top managers, if there are divisions in the firm.

2. Functional business executives should have titles like Chief, Vice President, Manager, or Officer.

3. It is best to have a COO reporting to the CEO and all divisional presidents will report to the COO.

4. Figure 7-8 illustrates an organizational chart for top managers of a large firm.

VII. RESTRUCTURING, REENGINEERING, AND E-ENGINEERING

A. Reshaping Corporate Landscape

1. Restructuring, also called downsizing, rightsizing, or delayering, involves reducing the size of the firm in terms of number of employees, divisions or units, and hierarchical levels in the firm’s organizational structure.

a. Recessionary economic conditions have forced many European companies to downsize, laying off managers and employees. Job security in European companies is slowly moving toward a U.S. scenario, in which firms lay off almost at will.

2. Reengineering, also called process management, process innovation, or process redesign, involves reconfiguring or redesigning work, jobs, and processes for the purpose of improving cost, quality, service, and speed.

Reengineering is characterized by many tactical decisions, whereas restructuring is characterized by strategic decisions.

B. Restructuring

1. Firms often employ restructuring when various ratios appear out of line with competitors, as determined through benchmarking exercises.

2. The primary benefit sought from restructuring is cost reduction. The downside of restructuring can be reduced employee commitment, creativity, and innovation that accompanies the uncertainty and trauma associated with pending and actual employee layoffs.

3. Another downside of restructuring is that many people today do not aspire to become managers, and many present-day managers are trying to get off the management track.

C. Reengineering

1. In reengineering, a firm uses information technology to break down functional barriers and create a work system based on business processes, products, or outputs rather than on functions or inputs.

2. A benefit of reengineering is that it offers employees the opportunity to see more clearly how their particular jobs affect the final product or service being marketed by the firm.

VIII. LINKING PERFORMANCE AND PAY TO STRATEGIES

A. Pay-for-Performance

1. A recent Bloomberg Businessweek article says companies should install five policies to improve their compensation practices:

a. Provide full transparency to all stakeholders. b. Reward long-term performance with long-term pay, rather than annual incentives. c. Base executive compensation on actual company performance, rather than on stock price. d. Extend the time-horizon for bonuses. e. Increase equity between workers and executives.

2. How can an organization’s reward system be more closely linked to strategic performance?

a. One aspect of the deepening global recession is that companies are instituting policies to allow their shareholders to vote on executive compensation policies. b. In an effort to cut costs and increase productivity, more and more Japanese companies are switching from seniority-based pay to performance approaches.

3. Profit sharing is another widely used form of incentive compensation.

4. Gain sharing requires employees or departments to establish performance targets; if actual results exceed objectives, all members get bonuses.

5. Criteria such as sales, profit, production efficiency, quality, and safety could also serve as bases for an effective bonus system.

B. Five tests are often used to determine whether a performance-pay plan will benefit an organization:

1. Does the plan capture attention? 2. Do employees understand the plan? 3. Is the plan improving communication? 4. Does the plan pay out when it should? 5. Is the company or unit performing better?

C. In addition to a dual bonus system, a combination of reward strategy incentives, such as salary raises, stock options, fringe benefits, promotions, praise, recognition, criticism, fear, increased job autonomy, and awards, can be used to encourage managers and employees to push hard for successful strategic implementation.

D. There is rising public resentment over executive pay, and there are government restrictions on compensation. The average pay package for CEOs in the United States in 2010 was 24 percent higher than a year earlier, reversing two years of declines.

IX. MANAGING RESISTANCE TO CHANGE

A. Resistance to Change

1. Resistance to change can be considered the single greatest threat to successful strategy implementation.

2. It may take on such forms as sabotaging production machines, absenteeism, filing unfounded grievances, and an unwillingness to cooperate.

3. Resistance to change can emerge at any stage or level of the strategy-implementation process.

4. There are three commonly used strategies for implementing change:

a. Force change strategy – involves giving orders and enforcing those orders. b. Educative change strategy – presents information to people c. Rational or Self-interest change strategy – attempts to convince individuals that the change is to their personal advantage.

5. Organizational change should be viewed today as a continuous process rather than as a project or event.

X. CREATING A STRATEGY-SUPPORTIVE CULTURE

A. Strategists should strive to preserve, emphasize, and build on aspects of an existing culture that support proposed new strategies.

B. As indicated in Table 7-10, numerous techniques are available to alter an organization’s culture, including recruitment, training, transfer, promotion, restructure of an organization’s design, role modeling, positive reinforcement, and mentoring.

XI. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES

A. Production/operations capabilities, limitations, and policies can significantly enhance or inhibit attainment of objectives. Production processes typically constitute more than 70 percent of a firm’s total assets.

B. Examples of adjustments in production systems that could be required to implement various strategies are provided in Table 7-11 for both for-profit and nonprofit organizations.

C. Just-in-time (JIT) production approaches have withstood the test of time. With JIT, parts and materials are delivered to a production site just as they are needed, rather than being stockpiled as a hedge against later deliveries.

D. A common management practice, cross-training of employees, can facilitate strategy implementation and can yield many benefits.

XII. HUMAN RESOURCE CONCERNS WHEN IMPLEMENTING STRATEGIES

A. Resource Concerns

1. More and more companies are instituting furloughs, or temporary layoffs, to cut costs as an alternative to laying off employees. Table 7-12 lists ways that companies today are reducing labor costs to stay financially sound.

2. Strategic responsibilities of the human resource manager include assessing the staffing needs and costs for alternative strategies proposed during strategy formulation and developing a staffing plan for effectively implementing strategies.

3. The human resource department must develop performance incentives that clearly link performance and pay to strategies.

4. Human Resource problems that arise when businesses implement strategies can usually be traced to one of three causes:

a. Disruption of social and political structures. b. Failure to match individuals’ aptitudes with implementation tasks. c. Inadequate top management support for implementation activities.

5. Perhaps the best method for preventing and overcoming human resource problems in strategic management is to actively involve as many managers and employees as possible in the process.

B. Employee Stock Ownership Plans (ESOPs)

1. An ESOP is a tax-qualified, defined-contribution, employee benefit plan whereby employees purchase stock of the company through borrowed money or cash contributions.

2. ESOPs empower employees and reduce worker alienation, stimulate productivity, and allow substantial tax savings for the firm.

ISSUES FOR REVIEW AND DISCUSSION

1. IKEA is a globally strong firm. What are the three major threats you see that face IKEA in your country?

Answer: Student answers may vary, the possible three major threats are:

2. List in order of importance the six management issues you feel are most central to strategy implementation. Give your rationale.

Answer: The six management issues are:

1. Develop vision and mission; and long term objectives. 2. Analysis of external and internal environment 3. Generate, evaluate and select strategies 4. Implement strategies – Management issues 5. Implement strategies – Marketing, Finance, Accounting, R&D, and MIS issues 6. Measure and Evaluate Performance

3. List the five major benefits of a firm having clearly defined annual objectives.

Answer: • essential for strategy implementation because they represent the basis for allocating resources; • a primary mechanism for evaluating managers; • major instrument for monitoring progress toward achieving long-term objectives; and establish organizational, divisional, and departmental priorities.

4. Which approach to conflict resolution would you use to resolve a disagreement between top-level managers regarding a firm’s strategic plan?

Answer: Student answers may vary. Three possible approaches are:

• Avoidance –such as ignoring the problem in hope that the conflict will resolve itself or physically separating the conflicting individual (or groups) • Diffusion – playing down differences between conflicting parties while accentuating similarities and common interests, compromising so that there is neither a clear winner or loser, resorting to majority rule, appealing to higher authority, or redesigning present positions • Confrontation – exchanging members of conflicting parties so that each can gain an appreciation of other’s point of view or holding a meeting at which conflicting parties present their views and work through their differences.

5. Diagram a functional organizational chart.

Answer: In drawing a functional organization chart, students must show the tasks and activities of the various business functions. For example: Marketing Vice President, Finance Vice President, Human Resources Vice President – in equal ranking reporting to Chief Executive Officer.

6. Diagram a divisional organizational chart.

Answer: The divisional organizational chart could be organized in one of four ways: • By geographic area • By product or service • By customer • By process

7. Diagram a strategic business unit organizational chart.

Answer: Student answers may vary, but the concepts remain the same. As the number, size and diversity of divisions in an organization increase, controlling and evaluating divisional operations becomes increasingly difficult. Hence, in multidivisional organizations, the organization will diagram its chart accordingly to its primary business units, for example, (1) food service (restaurants); (2) retail (3) fashion.

8. Diagram a matrix organizational chart.

Answer: It is the most complex of all designs because it depends upon vertical and horizontal flows of authority and communications.

Hence, students’ diagram should reflect vertical and horizontal flows.

9. List ten do’s and don’ts regarding development of organizational charts.

Answer: 1. Reserve the title CEO for the top executive of the firm. 2. Don’t use the title ‘president” for the top person; use it for the division top managers, if there are divisions within the firm 3. Do not use title “president” for functional business executives 4. Do not recommend dual titles ( for example, “CEO and President”) for just one executive 5. In developing an organization chart, avoid having a particular person reporting to more than one person above in the chain of command. 6. Do not have CFO, CIO, CSO, human resource officer, or other functional positions report to COO. All these positions report directly to CEO. 7. If the firm has no divisions, determine whether the firm would operate better with divisions 8. If the firm is large with numerous divisions; decide whether an SBU type is more feasible 9. Directly below the CEO, is the COO with any division presidents reporting directly to COO 10. In public listed companies, split the chairperson of the board and CEO positions.

10. Compare and contrast restructuring and reengineering.

Answer: Restructuring – also called downsizing, rightsizing, or delayering – involves reducing size of firms in terms of number of employees, number of divisions or units, and number of hierarchical levels in firm’s organizational structure. This is intended to improve both efficiency and effectiveness. Restructuring concerned primarily with shareholder well-being rather than employee well-being.

Reengineering – is concerned more with employees and customer well-being than shareholder well-being. Reengineering, also called process management, process innovation, or process redesign – involves configuring or redesigning work, jobs, and process for the purpose of improving cost, quality, service and speed.

Reengineering does not usually affect organization structure, not does it imply job loss or employee layoff.

Restructuring is concerned with eliminating or establishing, shrinking, or enlarging, and moving organization departments and divisions.

11. Describe five ways a firm could link performance and pay to strategies.

Answer: • Paying bonuses based on sales, profits and inventory performance • Allowing shareholders to vote on executive compensation policies • Switching from seniority – based pay to performance – based approaches • Profit sharing amongst employees • Gain sharing – requiring employees or departments to establish performance targets; if actual results exceed objectives, all employees get bonuses. • Students should also note that there are five tests often used to determine whether a performance pay plan will benefit an organization: • Does the plan capture attention? • Do employees understand the plan? • Is the plan improving communication? • Does the plan pay out when it should? • Is the company or unit performing better?

12. List in order of importance eight ways and means for altering an organization’s culture. Explain why.

Answer: Students should list any 8 of the following in order of importance: 1. Recruitment 2. Training 3. Transfer 4. Promotion 5. Restructuring 6. Reengineering 7. Role modeling 8. Positive reinforcement 9. Mentoring 10. Revising vision and/or mission 11. Redesigning physical spaces/facades 12. Altering reward system 13. Altering organizational policies/procedures/practices

13. Why are so many firms today installing corporate wellness programs?

Answer: Firms are introducing wellness programs due to the accelerating costs of employees’ health care insurance premiums. Michael Porter, co-author of Redefining Health Care: “We can’t afford to let individuals drive up company costs because they are not willing to address their own health problems”.

14. Discuss how business attitudes towards “balancing work life and home life” vary across three countries that you are familiar with today. Businesses have adopted positive attitudes towards “balancing work life and home life.”

Answer: Student answers may vary. Topics for discussion include: care for elderly family members, flexible working hours, job sharing, adoption benefits, employee help lines, pet care, family days and so on.

15. Discuss the glass ceiling in your country versus the United States.

Answer: Student answers will vary. For example, let’s look at Singapore. Like the United States it has removed the glass ceiling. There are many female leading domestic as well as multinational corporations in Singapore. For example, Singapore Mass Rapid Transport (SMRT) the provider of buses and trains in Singapore is headed by Ms Saw Phaik Hua, President and Chief Executive Officer.

16. Discuss ESOPs in your country versus the United States.

Answer: Student answers may vary but students should show an understanding of ESOPs. An ESOP is a tax-qualified; defined-contribution, employee-benefit plan whereby employees purchase stock of the company through borrowed money or cash contributions. ESOPs empower employees to work as owners.

17. In order of importance in your opinion, list six advantages of a matrix organizational structure.

Answer: a. Project objectives are clear b. Many channels of communications c. Employees can clearly see results of their work d. Shutting down a project is easily accomplished e. Facilitates uses of special equipment/personnel/facilities f. Functional resources are shared instead of duplicated as in a divisional structure

18. Do you think horizontal consistency of objectives is as important as vertical consistency? Explain and give an example. In an organization, hierarchy of annual objectives can be established based on an organization structure.

Answer: Objectives should be consistent across hierarchical levels and form a network of supportive aims.

Therefore, horizontal consistency of objectives is as important as vertical consistency of objectives.

For example, it would not be effective for manufacturing to achieve more than its annual objective of units produced if marketing could not sell the additional units.

19. Define policies. Give four examples of policies for a bank.

Answer: Policies refer to specific guidelines, methods, procedures, rules, forms and administrative practices established to support and encourage work toward stated goals. Policies are instruments for strategy implementation. Policies set boundaries, constraints, and limits on the kinds of administrative actions that can be taken to reward and sanction behavior, they clarify what can and what cannot be done in pursuit of an organization’s behavior.

Four policies of a bank may include:

• All counter sales staff must wear the bank’s official blazer • All bank branches will be opened for business transactions from 9.30am – 3.30pm • All Customer Service Officers must be transparent in their sales presentations and answer to customer enquiries • Any gift which is over the amount of Fifty Dollars should be declared to the Human Resource Department

20. Discuss your preference on each of the trade-off decisions required for strategy implementation. Explain why.

Answer: Students will have differing preferences; however, students should justify their trade-off decision in the strategy implementation

21. List three categories or approaches for conflict resolution. Which approach would you use for a salesperson who has a disagreement with a client regarding value of a property to be listed for sale. Student answers may vary.

Answer: Three categories for conflict resolution are:

Avoidance – ignoring the problem in hope that conflict will resolve itself or physically separating the conflicting individuals.

Diffusion – playing down differences between conflicting parties while accentuating similarities and common interests, compromising so that there is neither a clear winner nor loser, resorting to majority rule.

Confrontation – exchanging members of conflicting parties so that each gain an appreciation of the other’s point of view or holding a meeting at which conflicting parties present their views and work through their differences.

Confrontation is the preferred choice for such an example.

22. In order of importance, list six symptoms of an ineffective organizational structure.

Answer: Students may list six symptoms out of the following eight:

• Too many levels of organization • Too many meetings attended by too many people • Too much attention being directed toward solving interdepartmental conflicts • Too large span of control • Too many unachieved objectives • Declining corporate or business performance • Losing ground to rival firms • Revenue and / or earnings divided by number of employees and / or number of managers is low compared to rival firms.

23. Explain why the functional organizational structure is the most widely used globally.

Answer: A functional organizational structure categorizes tasks and activities by business function, such as production/operations, marketing, finance/accounting, research and development, management and information systems.

This is the most widely used globally because this structure is the simplest and least expensive of the seven alternatives.

24. List the advantages versus disadvantages of a functional versus divisional structure.

Answer:

|Functional Structure |
|Advantages |Disadvantages |
|Simplest and least expensive |Forces accountability to the top management |
|Promotes specialization of labor |Minimizes career development opportunities; leading to low |
| |employee morale; line/staff conflicts; poor delegation of |
| |authority |
|Encourages efficient use of managerial and technical |Inadequate planning for products and markets |
|talent | |
|Minimizes the need for an elaborate control system | |
|Allows rapid decision making | |

|Divisional Structure |
|Advantages |Disadvantages |
|Clear accountability |Costly, requires functional specialists |
|Managers and employees can easily see results – as this |Duplication of some staff services, facilities, and personnel |
|structure is based on extensive delegation of authority | |
|Employee morale is generally higher |Managers must be well qualified, which requires higher |
| |salaries |
| |May require an elaborate headquarters-driven control system |
| |Competition between divisions may become so intense that it is|
| |dysfunctional and leads to limited sharing of ideas and |
| |resources for the common good of the firm. |

25. How should a firm decide between a divisional-by-product versus divisional-by-geographic region type organizational chart?

Answer: A divisional-by-product is most effective for implementing strategies when specific products or services need special emphasis. Widely used when an organization’s products or services differ substantially. This structure allows strict control over and attention to product lines, but it may also require a more skilled management force and reduced top management control.

A divisional-by-geographical-region type is appropriate for organizations whose strategies need to be tailored to fit the particular needs and characteristics of customers in different geographical area. This type of structure can be most appropriate for organizations that have similar branch facilities located in widely dispersed area. This structure allows local participation in decision making and improved coordination within a region.

26. A divisional-structure-by-process organizational chart is quite uncommon. Give two examples of the type of companies when this would be appropriate.

Answer: A structure where activities are organized according to the way work is actually performed. In this structure, divisional process departments are evaluated on criteria of profits and revenues.

Students should bear the above in mind, in giving examples of this type of structure.

27. Diagram a matrix-type structure for a hospital.

Answer: Student answers may vary.

28. Compare and contrast restructuring versus reengineering.

Answer: Firms often employ restructuring when various ratios appear out of line with competitors as determined through benchmarking exercises whereas in reengineering, a firm uses information technology to break down functional barriers and create a work based on business process, products, or outputs rather than on functions or inputs.

29. Explain why it is so important to link performance and pay to strategies.

Answer: As firms acquire other firms in other countries, pay differences can cause resentment and even turmoil

30. Describe five tests that often are used to determine whether a performance-pay plan will benefit an organization.

Answer: The five tests that are often used to determine whether a performance-pay plan will benefit an organization are as follows:

1. Does the plan capture attention? Are people talking more about their activities and taking pride in early successes under the plan? 2. Do employees understand the plan? Can participants explain how it works and what they need to do to earn the incentive? 3. Is the plan improving communication? Do employees know more that they used to about the company’s mission, plans and objectives? 4. Does the plan pay out when it should? Are incentives being paid for desired results – and being withheld when objectives are not met? 5. Is the company or unit performing better? Are profits up? Has market share grown? Have gains resulted in part from the incentives?

31. Describe three commonly used strategies to minimize employee resistance to change. Which approach would you most often use? Why?

Answer: A ‘force change’ strategy involves giving orders and enforcing those orders; this strategy has the advantage of being fast, but it is plagued by low commitment and high resistance. The ‘educative change’ strategy is one that presents information to convince people of the need for change; the disadvantage of an ‘educative change’ strategy is the implementation becomes slow and difficult. However, this type of strategy evokes greater commitment and less resistance than does the force change strategy. Finally, a ‘rational or self-interest change’ strategy is one that attempts to convince individuals that the change is to their personal advantage

32. Give a hypothetical example of each labor cost-saving tactic listed in the chapter.

Answer: Student answers may vary.

33. Do some research on the Internet to find five companies in your country that operate based on an ESOP. Bring your list to class.

Answer: Student answers may vary. However, students should show the understanding of ESOP.

34. Give some advantages of a firm operating based on an ESOP.

Answer: An ESOP is a tax-qualified defined-contribution, employee-benefit plan whereby employees purchase stock of the company through borrowed money or cash contributions. ESOP reduces worker alienation and stimulating productivity, ESOPs allow firms other benefits, such as substantial tax savings.

35. List four benefits of having a diverse workforce.

Answer: A diverse workforce enables organizations to understand the needs of a diverse customer base. A diverse workforce may give the organization a more competitive knowledge of its marketing programs

36. Define and give an example of a glass ceiling.

Answer: Glass ceiling refers to the in invisible barrier in many firms that bars women and minorities from top-level management positions. Students answer may vary on the examples given.

37. How many divisions would a firm have to have for you to recommend an SBU type structure? Why?

Answer: When the number, size and diversity of division in an organization increase; controlling and evaluating divisional operations become increasingly difficult and a SBU type of structure is feasible.

To be effective, the organization should have at least three divisions in different industries.

38. Explain when a matrix type structure may be the most effective.

Answer: A matrix type of structure is most effective in situations where there are many divisions with many channels of communications without clear objectives. A matrix type structure gives clear objectives with clear communication channels within the organization.

It can also be used when it involves the use of specialized personnel, equipment and facilities and in organizations where there is a great need to share specialized resources.

39. How would you link compensation of your employees to performance of your business?

Answer: There are no widely accepted answers to this question. One way of doing it, is to base on the percentage of bonus to the percentage of results achieved. Other ways include: profit sharing, gain sharing and an employee stock ownership scheme.

However, there are 5 tests to determine whether it is effective: • Does the plan capture attention? • Do employees understand the plan? • Is the plan improving communication? • Doe the play pay out when it should? • Is the company or unit performing better?…...

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