Business Re-Engineering 1. FUNCTIONAL TACTICS Functional tactics are the key, routine activities that must be undertaken in each functional area that is human resource management, marketing, finance, production/operations and research and development to provide the business ‘s products and services. Hence functional tactics translate thought (grand strategy) into action designed to accomplish specific short- term objectives. Every value chain activity in a company executes functional tactics that support the business’s strategy and help accomplish strategic objectives. 1.1 Differences Between Business Strategies and Functional Tactics Functional tactics are different from business or corporate strategies in three fundamental ways: i. Time horizon.
ii. Specificity. iii. Participants who develop them. Time Horizon Functional tactics identify activities to be undertaken “now” or in the immediate future. Business strategies focus on the firm’s posture three to five years out. The shorter time horizon of functional tactics is critical to the successful implementation of a business strategy for two reasons.
i. First, it focuses the attention of functional managers on what needs to be done now to make the business strategy work. ii. Secondly, it allows functional managers to adjust to changing current conditions. Specificity Functional tactics are more specific than business strategies. Business strategies provide general direction.
Functional tactics identify the specific activities that are to be undertaken in each functional area and thus allow operating managers to work out how their unit is expected to pursue short-term objectives. Helping ensure that functional managers know what needs to be done and can focus on accomplishing results. Clarifying for top management how functional managers intend to accomplish the business strategy, which increases top management’s confidence in and sense of control over the business strategy. Facilitating coordination among operating units within the firm by clarifying areas of interdependence and potential conflict. Participants Different people participate in strategy development at the functional and business levels.
Business strategy is the responsibility of the general manager of a business unit. That manager typically delegates the development of functional tactics to subordinates charged with running the operating areas of the business. The manager of a business unit must establish long- term objectives and a strategy that corporate management feels contributes to corporate level goals. Similarly, key-operating managers must establish short- term objectives and operating strategies that contribute to business level goals. Just as business strategies and objectives are approved through negotiation between corporate managers and business managers, so too, are short-term objectives and functional tactics approved through negotiation between business managers and operating managers.
Involving operating managers in the development of functional tactics improves their understanding of what must be done to achieve long- term objectives and thus, contributes to successful implementation. It also helps ensure that functional tactics reflect the reality of the day-to-day operating situation. Most importantly it can increase the commitment of operating managers to the strategies developed. 1.2 Functional Tactics in Human Resource Management (HRM) HRM tactics aid long term success in the development of managerial talent and competent employees; the creation of systems to manage compensation or regulatory concerns and guiding the effective utilization of human resources to achieve both the firm’s short term objectives and employees’ satisfaction and development. The recruitment, selection, and orientation should establish the basic parameters for bringing new people into a firm and adapting them to “the way things are done” in the firm. The career development and training component should guide the action that personnel takes to meet the future human resources needs of the overall business strategy. Current trends in HRM’s “paradigm shift” involve looking at people expense as an investment in human capital.
This involves looking at the business’s value chain and the “value” of human resource components along the various links in that chain. One of the results of this shift in perspective has been the downsizing phenomenon of the late 1980s and 1990s. While this has been traumatic for millions of employees in companies worldwide, its underlying basis involves an effort to examine the use of human capital to create value in ways that maximize the human contribution. 1.3 Functional Tactics in Marketing The role of marketing function is to achieve the firm’s objectives by bringing about the profitable sale of the business’s products/services in target markets. Marketing tactics should guide sales and marketing managers in determining who will sell what, where, to whom, in what quantity, and how. Marketing tactics at a minimum should address four fundamental areas: products, price, place and promotion.
The figure below highlights typical questions marketing tactics should address. Functional Tactic Typical questions that the functional tactic should answer Product (or service) Which products do we emphasize? Which products/services contribute most to profitability? What products/service image do we seek to project? What consumer needs does the product/service seek to meet? What changes should be influencing our customer orientation? Price Are we competing primarily on price? Can we offer discounts or other pricing modifications? Are our pricing policy standards nationally, or is their regional control? What price segments are we targeting (high, medium, low) What is the gross profit margin? Do we emphasis cost/demand or competition-oriented pricing? Place What level of marketing coverage is necessary? Are there priority geographic areas? What are the key channels of distribution? What are the channel objectives, structure and management? Should the marketing managers change their degree of reliance on distributors, sales reps and direct selling? Is the sales force organized around territory, market or product? Promotion What are the key promotion priorities and 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? In addition to the basic issues raised above marketing tactics today must guide managers addressing the impact of the communication revolution and the increased diversity among market niches worldwide. The Internet and the accelerating blend of computers and telecommunications has facilitated instantaneous access to several places around world. Diversity has accelerated because of communication technology, logistical capability worldwide and advancements in flexible manufacturing systems. 1.4 Functional Tactics in Accounting And Finance Financial tactics with longer time perspective guide financial managers in long term capital investment, debt financing, dividend allocation and leveraging. Financial tactics designed to manage working capital and short-term assets have a more immediate focus. Managerial accounting, where managers are responsible for keeping records of costs and the use of funds within their company, has taken on increased strategic significance in the 1990s these change has involved two tactical areas: 1. How to account for costs of creating and providing their business’s products and services.
2. Valuing the business, particularly among publicly traded companies. Another area of concern is value that is whether or not business strategies and management actions are creating real value for stockholders. The most prominent technique that has guided tactical decisions for many companies during the last five years is economic value added (EVA). EVA is simply a way of measuring an operation’s real profitability.
It takes into account the “true” cost of capital – after-tax operation profit minus the total annual cost of capital. Incredibly most corporate groups have looked at the cost of their borrowed capital, but the cost of equity capital that shareholders have contributed appears nowhere in their financial statements. Until managerial accounting this takes this into account so that managers know whether they are covering all their costs and adding value to the company, company managers won’t achieve the benefits that have accrued to several companies. 1.5 Functional Tactics in Production/Operations Management (POM) POM is the core function of every organization. That function converts inputs (raw materials, supplies, machines and people) into value enhanced output. The POM function is most easily associated with manufacturing firms, but it also applies to all other types of businesses.
POM tactics must guide decisions regarding: 1. The basic nature of the firm’s POM system, seeking an optimum balance between investment input and production/operations output, 2. Location, facilities design, and process planning on a short-term basis. Key Functional Strategies in POM Functional Strategy – Typical questions that the functional strategy should answer Facilities and Equipment How centralized should the facilities be? How integrated should the separate process be? To what extend should further mechanization or automation be pursued? Should size and capacity be oriented toward peak or normal operating levels? Purchasing How many sources are needed? How should suppliers be selected, and how should relationships with suppliers be managed over time? What level of forward buying (hedging) is appropriate? Operations planning and Control Should work be scheduled to order or to stock? What level of inventory is appropriate? How should inventory be used (FIFO/LIFO), controlled and replenished? What are the key foci for control efforts (quality, labor cost, downtime, and product use)? Should maintenance efforts be oriented to prevention or to breakdown? What emphasis should be placed on job specialization? Plant safety? The use of standards? 1.6 Functional Tactics in Research and Development (R & D) With the increase rate of technological change in most competitive industries, R & D has assumed a key strategic role in many firms. In the technology intensive computer and pharmaceutical industries, for example, firms typically spend between 4 and 6 percent of their sales dollars on R & D.
In other industries, such as the hotel/motel and construction industries, R & D spending is less than 1 percent of sales. Thus, functional R & D tactics may be more critical instruments of the business strategy in some industries than in others. First R & D tactics should clarify whether basic research or product development research will be emphasized. Several major oil companies now have solar energy subsidiaries in which basic research is emphasized, while the smaller oil companies emphasize product development research. The choice of emphasis between basic research and product development also involves the time horizon for R & D efforts. Should these efforts be focused on the near term or the long term? The solar energy subsidiaries of the major oil companies have long- term perspectives, while the smaller oil companies focus on creating products now in order to establish a competitive niche in the growing solar industry.
R & D tactics also involve organization of the R & D function. For example, should R & D work be conducted solely within the firm, or should portions of that work be contracted out? What emphasis should be placed on process R & D versus product R & D? If a firm’s posture is offensive, as is true for small high-technology firms, the firm will emphasize technological innovation and new product development as the basis for its future success. This orientation entails high risks (and high payoffs) and demands considerable technological skill, forecasting expertise, and the ability to quickly transform innovations into commercial products. A defensive R & D posture emphasize product modification and the ability to copy or acquire new technology. A converse shoe is a good example of a firm with such an R & D posture. Faced with the massive R & D budgets of Nike and Reebok, converse placed R & D emphasis on bolstering the product life cycle of its prime products (particularly canvas shoes). Large companies with some degree of technological leadership often use a combination of offensive and defensive R & D strategy.
General Electric in the electrical industry, IBM in the computer industry, and Du Pont in the chemical industry all have a defensive R & D posture for currently available products and an offensive R & D posture in basic, long term research. 2. IMPLEMENTING STRATEGY THROUGH ACTION PLANS, FUNCTIONAL TACTICS AND EMPLOYEE EMPOWERMENT After strategies have been formulated, alternative strategies analyzed, and a particular option with its long-term objectives, generic and grand strategies selected, the next crucial stage is implementation. The implementation phase is referred to as the action phase of the strategic management process, and involves three interrelated vital steps: i. Setting up clear action plans and short-term objectives, ii. Developing specific functional tactics that create competitive advantage, and iii.
Empowering operating personnel through policies to guide decisions. 2.1 Action Plans Action plans are derived from long-term objectives, which are then translated into current, short-term actions and targets. In other words, the personnel in an organization that actually “do the work” must be guided precisely on what should be done in the short-term, today and tomorrow, to ensure that the long-term objectives are achieved. Action plans and short-term objectives provide more specific guidance for what is to be done, and offer a clear break down of actions to be taken. They differ from long term objectives in time frame, specificity, and measurement.
To be effective, the action plans must incorporate four elements: Identify functional tactics and actions to be done in the next week, month or quarter as part of a business’s effort in building competitive advantage Have a clear time frame for completion, when the action will begin and when it will be accomplished. Identify and assign individual responsibility for each action in the plan. Short-term objectives should be identified that “operationalise” long term objectives. For instance, if company A intends to increase its market share by 30% over the next 5 years, what progressive increase in market share must it attain on a monthly or annual basis? Short-term objectives are very vital to action plans. Qualities of effective short-term objectives a) Measurable STOs should state what is to be accomplished, when it will be accomplished and how the accomplishment will be measured. Measurable STOs reduce the possibility of misunderstanding among interdependent managers who must implement action plans.
b) Priorities Although all STOs are important, priority must be accorded to some either because of a timing consideration or because of their impact on a strategy’s success. Priorities should therefore be ranked to avoid assumptions regarding their relative importance. There are various ways of setting priorities: (i) A simple ranking may be based on discussion and negotiation during the planning process. Such terms as primary, top or secondary may be used to indicate priority. (ii) Assigning percentage weights along a 0-100 continuum. Recognizing priorities is vital in implementing value of STOs. c) Linked to Long Term Objectives To be effective in strategy implementation, STOs should be integrated and coordinated – they should be linked to LTOs. Short-term objectives can add breadth and specificity in identifying what must be done to achieve LTOs.
As pointed out above, if a company aspires to obtain 30% market share is 5 years, that objective can be enhanced if specific short term objectives spell out what must be accomplished each year to achieve the long term objectives. The qualities of LTOs discussed in the previous presentation’ acceptable, flexible, suitable, motivating, understandable and achievable also apply to STOs. Value Added Benefits of Action Plans and STOs 1. Operating personnel attain a better understanding of their role in a firm’s overall Mission. 2.
Meetings to set action plans and STO provide a forum for raising and resolving conflicts between strategic intentions and operating realities thereby enhancing strategic effectiveness. 3. Provide a basis for strategic control. They provide guidelines for developing budgets, schedules and other mechanisms for controlling the implementation of strategy. 4.
Act as a motivating factor in managerial performance especially when personal and group roles in achieving the objectives are linked to the firms reward structure. Note: Action plans and short term objectives should be reduced into a few pages with minimal wording so that they can easily be reviewed, updated, and discussed at regular management meetings. 2.2 The Role of Policies in Empowering Operating Personnel For strategy to be implemented effectively, personnel at the operating level should be empowered to make certain decisions or to act in order to fulfill client’s needs since they are the first points of contact between a firm and its customers. Methods of Empowerment Training Instituting self-managed work groups Eliminating whole levels of management in organizations Aggressive use of automation It must be noted, however, that employee empowerment – allowing considerable discretion to operating personnel – should be underpinned by the need to ensure that decision making is consistent with the mission, strategy, and tactics of the business. One way operating managers achieve this is through the use of policies.
Creating Policies That Empower Standardizing many routine decisions, and Clarifying the discretion managers and subordinates are allowed to exercise in implementing functional tactics. Policies achieve this in a number of ways: 1. Policies establish indirect control over independent action by clearly specifying how action is to be taken now. In addition, by defining discretion, policies in effect control decisions while empowering employees to act without direct intervention from top management. 2. They promote uniform handling of similar activities hence facilitating the coordination of tasks.
This reduces antagonism arising from favoritism, discrimination, and the diverse ways of handling common functions that often hampers operating personnel. 3. Ensure quicker decisions by standardizing answers to previously answered questions that would otherwise recur and waste a lot of top management’s time. The operating personnel can thus take decisions without constant recourse to their managers. 4. Policies institutionalize basic aspects of organization behavior thereby minimizing conflicting practices and establishing consistent patterns of action in implementing strategy. This empowers operating personnel to act.
5. Reducing uncertainty in repetitive and day-to-day decision making. Operating staffs are thus provided with the necessary foundation for coordinated and efficient efforts. 6. Policies check resistance to or rejection of chosen strategies by organization members.
When a major strategic change is done, precise operating policies clarify what is accepted and facilitate acceptance, especially if the operating managers participate in policy development. 7. Offer predetermined answers to routine problems hence speeding up handling of both simple and complicated problems. 8. Availing to managers a mechanism for avoiding hasty and ill-conceived decisions in changing operations. Prevailing policy can always be cited for not accepting emotion-based, expedient or seemingly valid arguments for altering laid down procedures and practices.
Forms of Policies Written and formal Unwritten and informal The latter are usually associated with the strategic need for competitive secrecy. Managers and employees often like the exercise of discretion offered by informal policies. But unwritten policies may deviate from the long-term success of a strategy. Advantages of Formal, Written Policies 1. Managers are required to think through the policy’s meaning, content, and intended use. 2.
They reduce misunderstanding. 3. More likely to ensure equitable and consistent treatment of problems. 4. Ensure unalterable transmission of policies. 5. They communicate the authorization or sanction of policies more clearly.
6. They offer a convenient and authoritative reference. 7. Systematically enhance indirect control and organizational coordination of the key purposes of policies. Policies vary in strategic importance and origin. Some are internal routine procedures such as staff Medicare refunds that are not linked to strategy implementation. Others are virtually functional strategies as in the case of a company requiring its branches to invest a given percentage of gross revenue to advertising.
Policies can be internally derived or externally imposed. For instance, equal employment practices are often developed in compliance with government requirements. Policies regarding real estate management may be influenced by tax regulations. It must be pointed out that policies need periodical reviewing to ensure that they guide and control operations in a manner consistent with current business and functional strategies. 3.
IMPLEMENTING STRATEGY THROUGH STRUCTURE. 3.1 Why should we consider structure? Structure is basically the best way to organize a firm in order to accomplish its objectives. It acts as the medium that facilitates the accomplishments of the organizational goals. It also helps to identify the key activities of the organizational processes and how they are coordinated. Successful strategy implementation depends to a large extent on the firm’s primary organizational structure.
A primary organizational structure comprises the firm’s major elements, components, or differentiated units. Other means of getting organized are through reward systems, coordination terms, planning procedures, alliances, information, and budgetary systems. However, it is through the primary structure that strategists attempt to position the firm to execute its strategy in a manner that balances internal efficiency and overall effectiveness. 3.2 Primary Organizational Structures and their Strategy-Related Pros And Cons. Primary structures can be classified under the following …