Strategy Implementation in Business Functions

Strategy implementation is a critical phase in strategic management, where formulated plans are put into action across an organization's various functions. While strategies are carefully devised, less than 10 percent are successfully implemented, often due to issues like market segmentation failures or resistance from employees. This article provides a comprehensive overview of how strategy implementation impacts and relies on key business functions, serving as a vital guide for students. For a thorough analysis of strategy implementation in business functions, understanding each department's role is crucial.

Understanding Strategy Implementation in Business Functions

Successful strategy implementation requires strong cooperation among all functional and divisional managers. It affects everyone in the organization, and resistance can occur if individuals don't understand or commit to the new strategies. Effective information systems greatly facilitate this process.

The Nature of Strategy Implementation: A Summary

Strategies can only be successfully implemented when an organization effectively markets its goods and services and secures the necessary working capital. Key challenges include failing to segment markets, overpaying for acquisitions, and falling behind in R&D. The goal is to avoid foot-dragging and sabotage by ensuring understanding and commitment across the workforce.

Strategic Marketing Issues in Strategy Implementation

Marketing departments play a pivotal role, particularly in strategies requiring increased sales in new areas or with new products. Several strategic marketing issues are vital for successful implementation:

• Engage Customers in Social Media: Marketing has evolved to build two-way relationships. Companies must involve customers on their websites, soliciting suggestions for product development and customer service. Social media managers are often hired to manage online presence.
• Segment Markets Effectively: This is crucial for strategy implementation, especially for small, specialized firms. Market segmentation subdivides a market into distinct customer subsets based on needs and buying habits.
• Develop and Use Product-Positioning/Perceptual Maps: These schematic representations show how products compare to competitors on key industry dimensions, helping meet specific consumer group needs.

Market Segmentation: A Key Strategy Implementation Tool

Market segmentation is essential for three main reasons:

1. Supports growth strategies: Strategies like market development, product development, market penetration, and diversification require new or improved segmentation approaches to boost sales.
2. Optimizes limited resources: It allows firms to operate effectively with limited resources, enabling small companies to compete with larger ones by maximizing per-unit profits and per-segment sales.
3. Directly affects marketing mix variables: Product, place, promotion, and price decisions are directly influenced by market segmentation. Common bases for segmentation include geographic, demographic, psychographic, and behavioral factors.

Product Positioning and Perceptual Mapping: An Implementation Guide

After segmenting markets, firms must determine customer wants and expectations. Product positioning, or perceptual mapping, helps visualize product comparisons against competitors. The process involves:

1. Selecting key criteria to differentiate products or services.
2. Diagramming a two-dimensional product-positioning map.
3. Plotting major competitors' products or services.
4. Identifying areas for competitive advantage, looking for vacant niches (unserved market segments).
5. Developing a marketing plan to appropriately position the products or services.

Rules for effective product positioning include looking for vacant niches, avoiding serving two segments with the same strategy, and not positioning in the middle of the map unless unique competitive dynamics suggest otherwise. An effective strategy uniquely distinguishes a company and leads customers to expect slightly less service than delivered (underpromise and overdeliver).

Strategic Finance and Accounting Issues

Finance and accounting managers must devise cost-effective and low-risk approaches for strategy implementation. Key concepts include acquiring capital, developing projected financial statements, preparing financial budgets, and evaluating business worth.

Capital Acquisition and EPS/EBIT Analysis

Successful strategy implementation often demands additional capital, sourced from debt or equity. Determining the optimal mix is vital. EPS/EBIT analysis is a widely used technique to assess whether debt, stock, or a combination is best for raising capital. Considerations include potential profit levels, organizational flexibility for future capital needs, and control implications (e.g., dilution of ownership with new stock issuance).

Projected Financial Statements: Forecasting Strategy Outcomes

Projected financial statement analysis is a central implementation technique to examine the expected results of strategies. This analysis forecasts the impact of decisions like increasing promotion expenditures or R&D. It involves a seven-step process:

1. Prepare the projected income statement, starting with sales forecasts.
2. Use the percentage-of-sales method for cost of goods sold and expenses.
3. Calculate projected net income.
4. Subtract dividends to determine retained earnings.
5. Project balance sheet items, starting with retained earnings.
6. Use the cash account as the plug figure to balance assets and liabilities/net worth.
7. List comments and explanations for significant changes.

Financial Budgets: Allocating Resources for Implementation

A financial budget details how funds will be obtained and spent over a specified period. It's a method for specifying what must be done to successfully complete strategy implementation. Budgets are not merely for limiting expenditures but for achieving the most productive and profitable use of resources. Common types include cash budgets, operating budgets, and capital budgets.

Budgets have limitations, such as becoming too detailed and expensive, or acting as substitutes for objectives. They can also hide inefficiencies or cause frustration if not managed participatively.

Corporate Valuation: Assessing Business Worth

Evaluating a business's worth is central to strategies involving acquisitions (integrative, intensive, diversification) or sales (retrenchment, divestiture). Valuation involves financial facts, common sense, and judgment, especially for intangible assets like a loyal customer base or patents. Different methods yield different results. Goodwill, an intangible asset, is recorded when a purchase price exceeds the fair value of identifiable assets and assumed liabilities.

Strategic Research and Development (R&D) Issues

R&D personnel are integral to strategy implementation, charged with developing new products and improving existing ones. Their tasks include transferring complex technology, adapting processes to local markets, and altering products to specific tastes. Strategies like product development, market penetration, and related diversification heavily rely on successful R&D.

Key strategic R&D issues include:

• Emphasizing product or process improvements.
• Stress basic or applied research.
• Being a leader or follower in R&D.
• Developing robotics or manual processes.
• Determining spending levels on R&D.
• Performing R&D internally or contracting externally.
• Using university or private-sector researchers.

There are three major R&D approaches for implementing strategies:

1. First-to-market: A glamorous but risky strategy to be the pioneer of new technological products.
2. Innovative imitator: Minimizes risk by allowing a pioneer to develop the first version, then developing a similar product. This requires excellent R&D and marketing.
3. Low-cost producer: Mass-producing similar, less expensive products once a new product gains customer acceptance. This requires substantial investment in plant and equipment.

A current trend in R&D is increased collaboration, even among competitors, due to competitive pressures, rising research costs, and accelerated product development.

Strategic Management Information Systems (MIS) Issues

Effective management information systems (MIS) are crucial for competitive advantage, differentiating successful from unsuccessful firms. MIS facilitates strategic management by enabling efficient information collection, retrieval, and storage. Information is a valuable organizational asset that can create competitive advantages through cross-selling, monitoring suppliers, keeping employees informed, coordinating activities, and managing funds.

A good information system can reduce costs (e.g., online orders shortening material ordering time) and improve quality and service (e.g., direct communications linking the value chain).

Key MIS issues include:

• Mobile Tracking of Employees: Companies use mobile devices and software to track employee location, movement, and communications, common in industries with service calls.
• Mobile Apps for Customers: Firms increasingly develop customer-facing apps, using the resultant data to devise improved strategies for attracting customers, such as speeding up hotel check-ins with smartphone room unlocking.

FAQ: Strategy Implementation in Business Functions

What are the main challenges in strategy implementation?

Less than 10 percent of strategies are successfully implemented. Main challenges include failing to appropriately segment markets, overpaying for new acquisitions, falling behind competitors in R&D, and internal resistance or lack of understanding from managers and employees regarding the new strategic direction.

How does marketing contribute to strategy implementation?

Marketing is critical for strategies requiring increased sales. Its key contributions include engaging customers through social media, effectively segmenting markets to target specific groups, and using product positioning (perceptual maps) to differentiate offerings and identify market opportunities or vacant niches.

What role do finance and accounting play in implementing strategies?

Finance and accounting managers are responsible for devising cost-effective and low-risk approaches. This involves acquiring necessary capital (often through EPS/EBIT analysis), developing projected financial statements to forecast strategy impacts, preparing financial budgets for resource allocation, and evaluating the worth of a business for acquisitions or divestitures.

Why is a Management Information System (MIS) important for strategy implementation?

An effective MIS provides competitive advantages by efficiently gathering, assimilating, and evaluating external and internal information. It facilitates strategic management by enabling superior information collection, retrieval, and storage, which can reduce costs, improve quality, coordinate activities, and inform decision-making.

What are the different R&D approaches to strategy implementation?

There are three major R&D approaches: being the first firm to market new technological products (pioneer), being an innovative imitator of successful products (minimizing start-up risks), or being a low-cost producer by mass-producing less expensive versions of recently introduced products.