FormalPara Definition

Strategic implementation refers to the organizational and managerial actions required to realize a firm’s stated goals and objectives. This entails designing the organization to effectively and efficiently execute the central tasks inherent in the strategy while also executing short- and intermediate-term functional and business initiatives that will achieve expected competitive advantage and customer value.

To implement strategy, a firm must be organized in a way that effectively and efficiently executes its associated central tasks and activities. Over the past four decades, several different theories and related research streams have informed the question of why firms organize as they do. Transactions cost theory (Williamson 1975), agency theory (Jensen and Meckling 1976) and institutional theory (Scott 1995) have all offered distinct perspectives on this question. Strategic implementation relies most heavily on contingency theory, particularly the work of Thompson (1967) and Galbraith (1973). Within this perspective, comprehensive and detailed overviews of strategy implementation have been developed by Galbraith and Kazanjian (1986) as well as by Hrebiniak and Joyce (1984).

The central argument of contingency theory is that a firm’s form should be contingent upon its circumstances, and that performance is a function of ‘fit’ or the internal consistency of the organization’s design. Technology (Woodward 1965), size (Blau and Schoenherr 1971) and environment (Burns and Stalker 1961) were all theorized as prime contingencies. The general nature of these studies and their early interpretation were deterministic; organization form was seen as the result of these situational variables. Work by Child (1972) challenged this view by proposing that strategic choice on the part of top managers is a critical variable that influences organization through the selection of competitive domains in which the firm chooses to compete, and of the goals and objectives to be pursued. By this logic, a firm’s strategy emerges as its prime contingent factor, making contingency theory particularly suited for strategic implementation.

Aligning Organization to Strategy

The choice of organizational form responsive to any strategic setting consists of a comprehensive design of formal structure, information and decision processes, and human capital-related activities. Formal structure must generally align the firm’s hierarchy with the primary tasks derived from the strategy. As implementation-related activities unfold, information must be collected and shared to coordinate tasks, track performance and adjust activities according to intermediate outcomes. Human capital requirements must be well articulated, with appropriate selection, socialization, development and retention processes carefully planned for employees at all levels. Each of these elements must be responsive to the organization’s strategic intentions, but must also comprise an internally consistent package of design choices which are mutually reinforcing.

Formal Structure

Early and influential research by Chandler (1962) described how, as organizations changed their growth strategy, new administrative problems arose that were solved when the organizational structure was redesigned to fit the new strategy (Galbraith and Kazanjian 1986). For example, a functional structure is seen as an appropriate configuration to implement a strategy of competing in a single or dominant business. A functional structure is one where the central functions of R&D, engineering, manufacturing or operations, marketing, finance and other prime activities of the company comprise the main organizing units of the firm. The heads of these functions typically report directly to the chief executive of the organization. The functional structure provides specialization and standardization, which deliver efficiency, economies of scale and tight control of outcomes. Centralized functions also provide the opportunity for the aggregation of a critical mass of expertise and degrees of sub-specialization, which generate a depth of knowledge not typically available when functions are fragmented across product or geographic divisions. Given the focus on a single business with a relatively narrow product or service offerings, interfunctional coordination is more straightforward and direct.

Strategies of diversification present distinct administrative challenges. Firms that have diversified into related businesses must provide focus to the individually distinct businesses while also pursuing the economies of scope and potential synergies presented by cross-divisional cooperation. Economies of scope emerge from common activities at the corporate level, such as shared procurement, research or administrative services. Synergies might take the form of transferring elements of distinctiveness in functional or business practice across divisions. Multi-divisional structures (Chandler 1962; Williamson 1975) provide decentralized focus, authority and accountability at the business unit level. Each business unit has the functional resources critical to implement their tasks, allowing rapid response to market and competitive demands. The structure also facilitates resource allocation as each business unit offers a distinct investment opportunity which can be assessed relative to other businesses in the portfolio. However, the strategy of related diversification also requires a sizeable corporate office to pursue and deliver the associated economies of scope and synergies which are central to the strategy. These might take the form of shared procurement or R&D activities that benefit multiple business units. Within such a related portfolio, divisional activity would therefore also be influenced by corporate policies and direct involvement of corporate staff. Of course, for economic value to be created the administrative costs of the corporate centre must be less than the economies and synergies realized.

Alternatively, firms that diversify into unrelated businesses require a different structural form. Such firms, often called conglomerates, function more effectively in a holding company form (Dundas and Richardson 1982). Similar to related diversified firms, successful conglomerates organize each business in its own, largely self-contained and independent, operating entity. Given that the businesses of the firm are not related, there are few to no opportunities for economies of scope or synergy. Therefore, the corporate office is composed of a much smaller staff who concentrate on finance, control and capital allocation, both across the internal portfolio of existing businesses as well as for potential new acquisitions. Typically, financial controls and corporate review processes are tight and the reward system for business unit managers is used to align the business outcomes with corporate goals and objectives assigned to the business unit.

Information and Decision Processes

Formal organizational structures create differentiated subunits to pursue a defined task with focus and accountability. However, these subunits cannot operate in isolation as they are often interdependent with others. Therefore, the organization must also establish processes for information-sharing and decision-making, providing mechanisms to integrate and coordinate the differentiated subunits (Galbraith 1973). In almost all settings, the hierarchy of roles embedded in formal structure is the principal mechanism to resolve inter-unit disagreements – the problem gets referred upwards to a common superior who oversees the affected units. For regularly recurring issues, standard operating procedures or rules may be established as a substitute for hierarchical referral. Additionally, budgets, goals and schedules may be established to clarify expected outcomes. As issues emerge, units may contact each other to seek a mutually agreeable adjustment to resolve problems. Such processes are necessary in all settings, regardless of strategy.

However, some strategies may require additional process capability. For example, a single business firm may decide to compete through innovation and new product development. Such a strategy is characterized by uncertainty regarding market acceptance, technological feasibility and operational delivery. Given the potential number of problems that may well arise in the development of a new product, and the high degrees of functional interdependence, traditional coordinating processes will probably be insufficient. Therefore, the organization may designate a coordinating liaison for each function, or go further by creating a team of functional representatives to work interdependently on the project. This team may well be reviewed by the senior management of the business on a regular basis to gauge progress and resolve disagreements. Multiple new product initiatives may require multiple teams and corresponding review time with senior management. In summary, given greater uncertainty and subunit interdependence of the central tasks associated with the strategy, the firm must create additional information and decision-processing capability.

For related diversified firms, value creation may rest on the ability to transfer knowledge and experience, typically residing at the functional level, from one business unit to another. For example, manufacturing process advances developed within one business unit might have applicability to manufacturing processes in other business units. The same might be the case for advances in practice related to marketing, engineering or other functional areas. The sharing of such knowledge could be accomplished in part by the regular rotation of certain personnel across businesses. Additionally, however, it also will be advisable to establish regular processes of exchange among members of relevant functional groups, allowing them to share and discuss common problems and solutions, which could be accomplished through regularly scheduled meetings, teleconferences or electronic communities of practice.

These examples establish the fact that information exchange, managerial and review processes, and decision-making processes must be tailored to the central tasks of the strategy. However, regardless of strategy, it is critical that senior management maintain clear focus on the primary initiatives central to strategy that must be accomplished over a 1- to 3-year time horizon. These initiatives might include entering a new geographic market, identifying a new distribution chain, building additional operations capacity, refreshing a brand with a new marketing campaign or creating a new business through the cooperation of existing business units. Effective strategic implementation requires that these issues are regularly reviewed by senior executives, with managerial adjustments made as necessary. This concept has been termed the operations process by some authors (Bossidy and Charan 2002).

Human Capital Factors

The relationship of strategy to various elements of human capital has been widely researched. The overarching logic is that specific strategies are enabled through the recruitment, development and retention of individuals with critical skills that are responsive to the tasks of that strategy. Much of this work centres on the role and demographic composition of the top management team (Hambrick and Mason 1984). Functional background, gender (Dezso and Ross 2012), education, industry experience, managerial experience, and individual propensities such as risk orientation and tolerance for ambiguity (Gupta and Govindarajan 1984) of senior executives at both the individual and team level, have all been linked to successful strategic implementation. More recent work has also identified the effect of specific individuals to firm performance, suggesting that performance in organizations vary as the individuals in the firms vary (Mollick 2012), again highlighting the need for processes to identify, select and retain such individuals.

Incentives also play a central role in aligning the motivations and behaviours of individuals with their assigned objectives derived from strategy. The most relevant and extensive work on this topic has emerged from the development of the balanced scorecard (Kaplan and Norton 1992). Within this approach, strategies are deconstructed into specific short-and medium-term objectives assigned to specific managers. In addition to traditional financial objectives and measures, there are others associated with the customer outcomes, internal process performance and personnel development. The objectives focus individual managerial behaviour that is compatible with the objectives of other interdependent parties and consistent with the strategy. The measurement process, with regular updates, alerts the individual when performance deviates from expectations. Finally, with rewards linked to performance, desired behaviours and outcomes are reinforced.

Achieving Organizational Fit for Effective Strategic Implementation

The concept of organizational fit or congruence among all elements of an organization has been empirically demonstrated and is well accepted (Hrebiniak and Joyce 1984; Galbraith and Kazanjian 1986; Gresov and Drazin 1997). Germane to strategic implementation, strategy determines a priority of primary tasks the organization must complete to achieve its goals and objectives. The organization must be designed with the appropriate formal strategic implementation structure, information and decision processes, and human capital assets, to form an integrated whole. These activities must be internally consistent and mutually reinforcing in their effect on the behaviour of individual employees. Numerous studies have linked fit to strategic implementation and organizational performance (Drazin and Van de Ven 1985; Govindarajan 1988; Tushman et al. 2010).

See Also