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Ch18 Organising and Planning for Effective Implementation
– A business’s success is determined by two aspects of strategic fit:
➔ First: its competitive and marketing strategies must fit the needs and desires of its target
customers and the competitive realities of the marketplace.
➔ But even if a firm’s competitive strategy is appropriate for the circumstances, it must be capable
of implementing that strategy effectively. This is where the second aspect of strategic fit enters
the picture. A business’s organizational or else implementation will fall short.
➔ Organizational fit: the fit between a business’s competitive and marketing strategies and the
organizational structures, policies, processes, and plans necessary to effectively implement those
strategies.
18.1: Designing Appropriate Administrative Relationships for the Implementation of Different Competitive
Strategies
❖ The chosen competitive strategy tends to influence the marketing strategies pursued by individual product
offerings within the business unit, at least in the short term
❖ Because different competitive strategies seek to satisfy customers and gain a sustainable advantage in
varying ways, different organizational structures, policies, and resources are necessary to effectively
implement them. For one thing, the administrative relationships between the unit and corporate
headquarters influence the ability of SBU managers, including its marketing personnel, to implement
specific competitive and marketing strategies successfully.
❖ This section examines three aspects of the corporate business unit relationship that can affect the SBU’s
success in implementing a particular competitive strategy:
1. The degree of autonomy provided each business unit manager.
2. The degree to which the business unit shares functional programmes and facilities with other units.
3. The manner in which the corporation evaluates and rewards the performance of its SBU managers.
1. Business-Unit Autonomy
❖ Prospector business units are likely to perform better on the critical dimensions of new product success
and increases in volume and market share when organizational decision making is relatively
decentralized and the SBU’s managers have substantial autonomy to make their own decisions.
❖ There are several reasons for this.
➔ First, decentralized decision making allows the managers closest to the market to make more
major decisions on their own. Greater autonomy also enables the SBU’s managers to be more
flexible and adaptable. It frees them from the restrictions of standard procedures imposed from
above, allows them to make decisions with fewer consultations and participants, and disperses
power. All of these help produce quicker and more innovative responses to environmental
opportunities.
❖ One caveat must be attached to the above generalization. High levels of autonomy and independence can
lead to coordination problems across business units. This can have a negative effect on market performance
in situations where a firm’s business units are narrowly defined and focused on a single product category or
technology but the firm’s customers want to buy integrated systems incorporating products or services from
different units
➔ One possible solution to this coordination problem is to redefine SBUs with a focus on customer
or application segments rather than on narrowly defined product categories
❖ Low-cost defender SBUs perform better on ROI and cash flow by giving their managers relatively little
autonomy. For a low-cost strategy to succeed, managers must relentlessly pursue cost economies and
productivity improvements. Such efficiencies are more likely to be attained when decision making and
control are relatively centralized.
➔ The relationship between autonomy and the ROI performance of differentiated defenders is
more difficult to predict.
➔ On the one hand, such businesses defend existing positions in established markets and their
primary objective is ROI rather than volume growth.
➔ Thus, the increased efficiency and tighter control associated with relatively low autonomy
should lead to better performance.
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❖ On the other hand, such businesses can maintain profitability only if they continue to differentiate
themselves by offering superior products and services. As customers’ wants change and new competitive
threats emerge, the greater flexibility and market focus associated with greater autonomy may allow these
businesses to more successfully maintain their differentiated positions and higher levels of ROI over time.
❖ These arguments suggest that the relationship between autonomy and performance for differentiated
defenders may be mediated by the level of stability in their environments and by the proportion of offensive
or proactive marketing strategies they employ.
2. Shared Programs and Facilities
❖ Sharing resources poses a particular problem for prospector business units.
➔ The business would have to negotiate a production schedule for the new product, and it may not
be able to produce adequate quantities as quickly as needed if other units sharing the plant are
trying to maintain sufficient volumes of their own products.
➔ It also may be difficult to train salespeople on the new product or to motivate them to reduce the
time spent on established products to push the new item.
❖ Sharing sales and distribution programmes across consumer package goods SBUs.
➔ Prospector’s new product may have an easier time obtaining retailer support and shelf space if
its represented by salespeople who also sell established brands to the same retail outlets.
❖ The increased efficiencies gained through sharing functional programmes and facilities often boost the
ROI performance of low-cost defender SBUs.
❖ The inflexibility inherent in sharing is usually not a major problem for such businesses because their
markets and technologies tend to be mature and relatively stable.
❖ The impact of shared programmes on the performance of differentiated defenders is more difficult to
predict because they often must modify their products and marketing programmes in response to
changing market conditions to maintain their competitive advantage over time. Greater functional
independence in areas directly related to the SBU’s differential advantage – such as R&D, sales, and
marketing – tends to be positively associated with the long-run ROI performance of such businesses.
But greater sharing of facilities and programmes in less-crucial functional areas, such as manufacturing
or distribution, also may help improve their efficiency and short–run ROI levels.
3. Evaluation and Reward Systems
❖ SBU managers are often motivated to achieve their objective by bonuses or other financial incentives
tied to one or more dimensions of their unit’s performance.
❖ Tying a relatively large portion of managers’ incentive compensation to short-term profits seems
sensible. This can be done either through bonuses based on last year’s profit performance or economic
value added(EVA) or through options keyed to increases in the firm’s stock price.
❖ In prospector businesses, on the other hand, basing too large a portion of managers’ rewards on current
profitability may cause problems. Such rewards may motivate managers to avoid innovative but risky
actions or investments that may not pay off for some years into the future.
❖ Even successful new product introductions can dramatically increase costs and drain profits early in
the product’s life cycle. By the time the new product starts contributing to the unit’s profits, the
manager who deserves the credit may have been transferred to a different business.
❖ Therefore, evaluation and reward systems that place relatively more emphasis on sales volume or
market share objectives, or on the percentage of volume generated by new products, may be more
appropriate for businesses pursuing prospector strategies.
18.2: Designing Appropriate Organization Structures and Processes for Implementing Different Strategies
❖ Successful implementation of a given strategy is more likely when the business has the functional
competencies demanded by its strategy and supports them with substantial resources relative to
competitors; is organized suitably for its technical, market, and competitive environment; and has
developed appropriate mechanisms for coordinating efforts and resolving conflicts across functional
departments.
Exhibit 18.3 Organizational and interfunctional factors related to the successful
implementation of business strategies
Business strategies
Organizational factor
Prospector
Differentiated defender
Low-cost defender
Functional competencies of the
SBU
SBU will perform best on critical
volume and share-growth
dimensions when its functional
strengths include marketing, sales,
SBU will perform best on critical
ROI dimension when its
functional strengths include sales,
financial management and control
SBU will perform best on critical
ROI and cash-flow dimensions
when its functional strengths
include process engineering,
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product R&D and engineering.
and those functions related to its
differential advantage (e.g.
marketing, product R&D).
production, distribution and
financial management and control.
Resource allocation across
functions
SBU will perform best on volume
and share-growth dimensions
when percentage of sales spent on
marketing, sales and product
R&D are high and when gross
fixed assets per employee and
percentage of capacity utilization
are low relative to
competitors’.
SBU will perform best on the ROI
dimension when percentage of
sales spent on the salesforce, gross
fixed assets per employee,
percentage of capacity utilization
and percentage of sales devoted to
other functions related to the
SBU’s differential advantage are
high relative to competitors’.
SBU will perform best on ROI
and cash flow dimensions when
marketing, sales and product
R&D expenses are low, but
process R&D, fixed assets per
employee and percentage of
capacity utilization are high
relative to competitors’.
Decision-making influence and
participation
SBU will perform best on volume
and share-growth dimensions
when managers from marketing,
sales, product R&D and
engineering have substantial
influence on unit’s business and
marketing-strategy decisions.
SBU will perform best on ROI
dimension when financial
managers, controller and
managers of functions related to
unit’s differential advantage have
substantial
influence on business and
marketing- strategy decisions.
SBU will perform best on ROI
and cash flow when
controller, financial and
production managers have
substantial influence on
business and marketing-strategy
decisions.
SBU’s organizational
structure
SBU will perform best on volume
and share-growth dimensions
when structure has low levels of
formalization and centralization,
but high level of specialization.
SBU will perform best on ROI
dimension when structure has
moderate levels of formalization,
centralization and specialization.
SBU will perform best on ROI
and cash flow dimensions when
structure has high levels of
formalization and centralization,
but low level of specialization.
Functional co-ordination and
conflict resolution
SBU will experience high
levels of interfunctional
conflict; SBU will perform best
on volume and share-growth
dimensions when participative
resolution mechanisms are used
(e.g. product teams).
SBU will experience moderate
levels of interfunctional conflict;
SBU will perform best on ROI
dimension when resolution is
participative for issues related to
differential advantage, but
hierarchical for others (e.g.
product managers, product
improvement teams, etc.).
SBU will experience low levels of
interfunctional conflict; SBU will
perform best on ROI and cash-
flow dimensions when conflict-
resolution mechanisms are
hierarchical (e.g. functional
organization).
I. Functional Competencies and Resource Allocation
❖ Competence in marketing, sales, product R&D, and engineering is critical to the success of prospector
businesses because those functions play pivotal roles in new product and market development and thus
must be supported with budgets set at a larger percentage of sales than their competitors.
❖ Bottom-up strategic planning systems are particularly well-suited to prospector businesses operating in
unstable environments. Success here is positively affected by the extent to which customer orientation is an
integral part of the unit’s corporate culture.
❖ In low-cost defender businesses, on the other hand, the functional areas most directly related to operating
efficiency, such as financial management and control, production, process R&D, and distribution or
logistics, play the most crucial roles in enabling the SBU to attain good ROI performance.
II. Additional Considerations for Service Organizations
❖ Service organizations pursue the same kinds of business-level competitive strategies as goods
producers, they must meet the same functional and resource requirements to implement those strategies
effectively.
❖ Service organizations – and manufacturers that provide high levels of customer service as part of their
product offering – often need some additional functional competencies because of the unique problems
involved in delivering quality service.
❖ This is particularly true for services involving high customer contact. Because the sale, production, and
delivery of such services occur almost simultaneously, close coordination between operations, sales,
and marketing is crucial.
❖ Also, because many different employees may be involved in producing and delivering the service
production planning and standardization are needed to reduce variations in quality from one
transaction to the next.
❖ Competence in human resource development is more crucial for service businesses pursuing
prospector strategies- and perhaps also for defenders and analyzers who differentiate their offerings on
the basis of good service– than for those focused primarily on efficiency and low cost.
❖ In prospector service organizations, employees play a critical role in identifying potential new service
offerings and in introducing them to potential customers.
III. Organizational Structures
❖ Three structural variables – formalization, centralization, and specialization – are important in shaping
both an SBU’s and its marketing department’s performance within the context of a given competitive
strategy.
➔ Formalization is the degree to which formal rules and standard policies and procedures govern
decisions and working relationships.
➔ Centralization refers to the location of decision authority and control within an organization’s
hierarchy. In highly centralized SBUs or marketing departments, only one or a few top
managers hold most decision-making authority. In more decentralized units, middle– and lower-
level managers have more autonomy and participate in a wider range of decisions.
➔ Specialization refers to the division of tasks and activities across positions within the
organizational unit. A highly specialized marketing department, for instance, has a large number
of specialists, such as market researchers, advertising managers, and sales promotion managers,
who perform a narrowly defined set of activities often as consultants to product managers.
❖ Highly structured business units and marketing departments are unlikely to be very innovative or quick
to adapt to a changing environmental circumstance. Adaptiveness and innovativeness are enhanced
when (1) decision-making authority is decentralized, (2) managerial discretion and informal
coordination mechanisms replace rigid rules and policies, and (3) more specialists are present.
❖ Thus, prospector business units and their marketing departments are likely to perform better when they
are decentralized, have little formalization, and are highly specialized.
❖ Differentiated defenders perform best when their organization structures incorporate moderate levels of
formalization, centralization, and specialization.
❖ Several common organizational designs incorporate differences in both the structural variables
(formalization, centralization, and specialization) and the mechanisms for resolving interfunctional
