Learning Outcomes After completing this Section you should be able to: 1. Analyse and discuss the use of organisational design as a drive for strategic implementation 2. Realise and evaluate the importance of resource allocation as a driver for strategy implementation 3. Apply and discuss the role of short-term goals, functional tactics and policies as instruments for strategic implementation Introduction Strategy implementation is a tremendous challenge to organisations as was made clear in the previous chapter. In order to steer strategy implementation efforts in the right direction organisations make use of several strategy implementation drivers: 1. Leadership Organisational culture Reward systems Organisational structure (design) yeep Resource allocation The first three drivers, namely leadership, organisational culture and reward systems are critical to the cotemporary organisation as they concern the people of the organisation. Since the 1990s the organisational environment has been increasingly characterised by uncertainty, rapid change and turbulence. In order to remain competitive, organisations have to embrace constant change in a volatile business environment. Strategic change requires strong leadership and adaptive organisational cultures. Along with the strategy implementation drivers, organisations also make use of various instruments to aid the strategy implementation process. These are as follows: Short-term goals 2. Funetional tactics 3. Policies Lecturer — Chief Chirango. 0735 697 941 Pa, fo BM3 Notes 0774 376 975 chiefehirango@gmail.comTRATEGY IMPLEMENTATI 1, LEADERSHIP AS A DRIVER OF The Role Of Leadership In Strategy Impler itation ‘The process of implementing a chosen strategy or strategies forces change within an organisation Sometimes incremental change is sufficient to implement the strategy; often revolutionary change is more appropriate, The required organisational change does not occur spontaneously nor does a strategy implement itself. Somewhere in the organisation someone must have a vision of the ideal state and be willing to guide the organisation to the achievement of this vision through suecessful strategy implementation. Such a person is a strategic leader. Strategic leadership drives strategic change, and strong leadership is perhaps the most important “tool” that a strategist can have in the implementation toolkit to give direction and purpose to integrated strategy formulation, implementation and control. Leadership is vital in strategy implementation as itis only through effective strategic leadership that organisations are able to use the strategic management process successfully. Who are the strategic leaders in an organisation? Strategic leadership could be equated with the whole top management team, including the board of directors. In recent years the roles of both the chief financial officer (CFO) and the chief human resources officer (also referred to as the human resources director) have changed and they are expected to be business partners to the chief executive officer (CEO) and the organisation, to supplement the leadership skills of the CEO and to strengthen the overall organisational strategic leadership. In very large global organisations, the executive teams of regional subsidiaries could also be expected to fulfil the role of strategic leaders. In South Africa’s government departments, the top echelons of national, provincial and local departments would be expected to fulfil the role of strategic leadership. Even though strategic leadership and the responsibility for strategy lie with the top management team, leadership is found at all levels of an organisation, and indeed at all levels of society. Successful strategy implementation and strategic change also depend on the leaders and managers distributed throughout an organisation. Of great concem to many organisations is the Lecturer — Chief Chirango. 0735 697 941 BM Notes 0774 376 975 chiefelirango@gmailcomworldwide shortage of leadership skills. Most organisations therefore embark on extensive leadership development activities for managers all levels of the organisation. What makes a leader? Strategic leadership can be defined as the ability “to anticipate, envision, maintain flexibility and to empower others to create strategic change as necessary” (Hitt, Ireland & Hoskisson, 2003:386), to articulate a strategic vision for the organisation and to motivate others to buy into it, Strategic leadership involves managing through others and influencing human behaviour in order to achieve certain goals. ‘The challenge that strategy implementation imposes on leaders is that of inspiring commitment among both internal and external stakeholders to implement strategies and embrace change. In spite of intensive research efforts, it has proved difficult to isolate specific personal traits shared by leaders. There is some indication that strategic leaders tend to share certain key characteristics, such as the ability to create a vision and the capability to communicate that vision; eloquence; commitment, the ability to empower; the willingness to delegate and to make courageous yet pragmatic decisions; and the ability to create organisational trust. One of the most significant contributions to the field of leadership and leadership traits is the research done by Daniel Goleman, Goleman (2004) found that effective leaders are similar in one very important respect, namely that they all have a high degree of emotional intelligence. His research found a direct link between emotional intelligence and measurable business results. Although IQ and technical skills are also important, emotional intelligence explains why jes makes a someone with good, but not exceptional, intellectual and technical skills som: better leader than a highly intelligent, highly skilled individual who is promoted position and then does not live up to expectations. EMOTIONAL INTELLIGENCE Emotional intelligence includes aspects such as self-awareness, self-regulation, motivation, empathy and social skills. Self-awareness, self-regulation and motivation are self management Lecturer — Chief Chirango. 0735 697 941 BM3 Notes 0774 376 975 chiefchivango@gmailcomskills. Empathy and social skills focus on an individual’s ability to manage relationships with other people. 1, Self-Awareness - Refers to the extent to which an individual is aware of his or her emotions, strengths, weaknesses, needs and drivers. Those with a high degree of self-awareness are not unrealistic about their own capabil feelings and emotions affect both them and other people and affect their job performances. ies and are not overly critical; they recognise how their Self-awareness also reflects the extent to which an individual is aware of and understands his or her own goals. Leaders with a high degree of self-awareness are able to assess themselves realistically, are self-confident and often have a self-deprecating sense of humour. 2. Self-regulation - Refers to the extent that people are in control of their emotions, feelings and impulses. Even people who are self-regulating may have bad moods and emotional impulses, but unlike individuals with low self-regulation, those with a high degree of emotional intelligence find ways to control their emotions and even to channel them in useful ways, Self-regulating individuals are reasonable, thoughtful, self-reflecting, comfortable with ambiguity, open to change and able to create an environment of trust and faimess, 3. Motivation - Leaders have a deep desire to achieve for the sake of achievement and not for large salaries or status and are driven to exceed expectations. Motivated people have a passion for their work, thrive on creative challenges and enjoy constantly learning. Leaders and individuals with a high degree of motivation have a lot of energy, are optimistic and even during setbacks and are committed to the organisation and to their jobs. 4, Empathy ~ Refers to the extent that a leader can thoughtfully consider employees’ feelings in the process of making decisions, Empathy also refers to the extent that a leader is able to sense and understand the viewpoints of his or her team. It also plays a role in managing cultural diversity. A leader who is empathetic has a deep understanding of the existence, importance and complexity of cultural and racial differences, 5. Social skills - Good social skills in the context of emotional intelligence do not simply imply friendliness. Instead they are about friendliness with the purpose of leading people in the desired direction, being able to establish a rapport with anybody (regardless of his or her background), being able to network and interact with a wide circle of acquaintances, being capable of managing teams and being able to build relationships throughout the organi Lecturer — Chief Chirango. 0735 697 941 BM3 Notes 0774 376 975 chiefehirango@gmail.comLeaders vs Managers Leadership differs from management in various ways as shown below: Management “Teadership [is about coping with complexity. Ts about coping with change” 1S concerned with directing others in the pursuit of ends and by the use of means both of which have been selected by the manager. Ts concemed with guiding, encouraging and faelitating | others inthe pursuit of ends by the use of means, both of Which they have either selected or approved. ‘As far as approach to work is concemed managers tend to be more analytical, structured and controlled and see their work as a quantitative science. Leaders tend to be more experimental, visionary, exible and creative, and value the intuitive side of their work “Managers focus on the details and instruct and apply TTeaders focus on the bigger picture, inspire and apply influence. authority while In similar vein, Louw and Venter (200:365) differentiate between visionary leaders and managerial leaders Differences between visionary and managerial leadership ‘VISIONARY LEADERS F e ‘Are proactive, shape ideas, change the way people think about what is desirable, possible and | necessary. MANAGERIAL LEADERS: ‘Are reactive, adopt passive attitudes towards goals. Their goals arise out of necessity and not out of desires and dreams and are often are based on the 2, Work to develop choice and fresh approaches to past. Tong-standing problems and work from his-rsk | 2. View work as an enabling process involving some positions. combination of ideas and people interacting to 3. Are concemed with ideas, relate to people in establish strategies. intuitive and empathetic ways. 3. Relate to people according to their roles inthe 4, Feel separate from their environment; they work in, | decision-making process. ‘but do not belong to, organisations in other words | | 4. Sce themselves as conservators and regulators ofthe their sense of who they are does not depend on their | existing order. Their sense of who they are depends work. (on ther role in the organisation. 5, Influence the attitudes and opinions of others in| 5. Influence the actions and decisions of those with “organisations. ‘whom they work Are involved in situations and contexts characteristic of day-to-day activities, 6. Are concemed with ensuring the future of the ‘organisation especially through development and ‘management of people. Are concemed with, more comfortable in, 7. Are more embedded in complexity, ambiguity and functional areas of responsibility. information overload; they engage in 8. Are experts in their functional area, ‘multifunctional, integrative tasks. 9. Ate less likely to make value-based decisions. 8. Know less than their functional experts about functional areas. ‘Are more likely to make decisions based on values. ‘Are more willing to invest in innovation, in human ‘capital and in creating and maintaining an effective culture to ensure long term viability. Engage in and support short term led cost behaviour to enhance financial performance figures. It is important to note that leadership is not better than management, or visionary leadership ‘more important than managerial leadership; neither are they replacements for one another. The Lecturer — Chief Chirango. 0735 697 941 _BM3 Notes 0774 376 975 chiofehirango@ gmail.com Pagdifferent attributes of leaders and managers or visionary leaders as opposed to managerial leaders, complement each other and expertise in both types of leadership is necessary for successful strategy implementation and survival in the contemporary business environment, A. critical element of strategic success is the ability of top management, through superior leadership and management skills, to respond swiftly to changes in the global business environment, Key responsibilities of a strategic leader Leadership is a key component in the strategy implementation process. Strategic leaders are typically responsible for the following activities: 1. Developing an appropriate vision or strategic direction for the organisation in which as many stakeholders as possible have participated. 2. Communicating the vision and strategic direction to all the employees and other stakeholders of the organisation. Inspiring and motivating the employees to achieve the strategic goals of the organisation, With top management, designing appropriate reward systems and organisational structure(s). Developing and maintaining an effective organisational culture. au ee ‘With managers, ensuring that the organisation continually incorporates good corporate governance principles into its strategies and operations. Aligning the strategic leadership team Strategy formulation and implementation are key tasks not only of the CEO but of the entire top management team. An essential factor related to this responsibility is alignment within the top management team. Research by the Sloane Management School found that misalignment within the strategic leadership is one of the most significant “silent killers” of strategy implementation efforts. An aligned top management team is a top management team in which the team members function as the collective stewards, overseers and drivers of organisational success. The executive team is their primary team and they function in an open and supportive way with one another (McKnight, 2009:30). Yet in many organisations top leadership teams are not aligned. There are several causes of this misalignment as follows: Lecturer — Chief Chirango. 0735 697 941 BM3 Notes 0774 376 975 chiefchirango@gmail.com1, Few executive reward systems reward team performance; most focus on the performance of the individual 2, Too many leaders have been trained to compete and not to cooperate 3. Lastly there may be a lack of emphasis on the common task and responsibility of the team as awhole Organisations place a lot of emphasis on team work within and across the various functional areas. Top management teams in organisations capable of successful strategy implementation collaborate not only during the strategy development process, but also with regard to strategy implementation activities such as building a strong culture aligned to the strategy organisational design and resource allocation. Matching leadership styles with the chosen strategy As the environment in which the organisation operates changes, so does the choice of strategi In order to ensure a continuous tight fit between strategy and leadership, a change in strategy also necessitates a change in leaders Different types of strategy require different types of leadership style as shown below STRATEGY | er TED = LEADERSHIP STYLE. When a growth strategy is followed, itis important thatthe leaders pay attention to | Growth strategy | managing relationships, inspiring people and communicating the goals and stategis to them, Decline strategies need leaders who are ask oriented and who Tocus on reducing assets and costs; such a leader will often be more autocratic than when a growth strategy is followed. Decline strategy | Corporate | Corporate combination strategies require a leader who can integrate different cultures and Combination value systems and identify synergies and who possesses a combination of people and task strategy skills, There is also evidence of a correlation between the position of the organisation in its life cycle and its leadership style. Rothschild (19960 proposes that an organisation in its start-up or embryonic phase needs a risk taker as leader, Risk takers are highly intuitive, aggressive visionaries with an entrepreneurial leadership style. Once the organisation has reached a certain size and moves into its rapid growth phase, it needs a caretaker who builds on strengths and creates gradual change, with commitment to the longer term, Leadership in this phase is often directive. Lecturer — Chief Chirango. 0735 697 941 mn BM3 Notes 0774 376 975 chiefchirango@gmailcomLeadership stvles & the organisational life cycle | surgeon Undertaker Caretake Risk taker Birth/embryonic Rapid growth Maturity/ slow growth Death/decline As the organisation matures, yet another leadership style is required namely that of a surgeon. Such a leader is selective, decisive and delegative, knows what is attractive and is able to make tough decisions. Organisations in the mature phase of the organisational life cycle often undergo “refocused restructuring and re-engineering which starts another rapid growth phase, In thi growth” phase the leadership style is participative, with strong emphasis on teams. Organisations that do not undergo this second phase of growth may have to be “put to rest”, and an undertaker takes over. Such as task-oriented leader will be face with tough decisions. Leadership styles & the orga mnal life, Surgeon | Too Undertaker Caretaker Risk taker Birihfembryonfe Rapid growth Maturity’ slow growth | Death/decline Lecturer — Chief Chirango. 0735 697 941 Pa, BM3 Notes 0774 376 975 chiofehirango@gmail.comLeadership, corporate governance & ethies From the beginning of the 21* century, ethics and corporate governance have been highlighted as, requirements for ll organisations. In South Africa the Institute of Directors provides extensive guidelines on the requirements of leadership in the King Reports on Corporate Governance. ‘The King Report on Corporate Governance 2002 (King IT Report) already emphasised the role of leadership in corporate governance. It stated that corporate governance is essentially about leadership and that leadership comprise four dimensions: efficiency; probity (honesty and decency); responsibility; and transparency and accountability. In order for organisations to compete effectively in the global economy, leadership must be efficient. Leadership for probity is important as it assures investors that the management of an organisation will behave honestly and with integrity towards its shareholders and others. Addressing legitimate social concerns related to the organisation’s activities provides proof of responsible leadership. Above all, leadership must be transparent and accountable for its activities. Strategic leaders must be openly and unequivocally committed to corporate governance in order for it to become ingrained in an organisation’s activities. Top management must ensure that entire workforce understands the organisation’s corporate governance and ethical code. It is also the responsibility of strategic leaders to encourage employees not only to observe the organisation’s ethical code, but also to report ethical or corporate governance violations. The actions of top management must serve as an example of ethical behaviour and establish a tradition of integrity inside and outside the organisation, The King II] Report emphasise this important role of leadership in corporate governance and corporate citizenship. Moral Duties for Strategic Leaders & Company Directors Building on the principles established in the King II Report, the King III Report (2009:56) includes five moral duties (the five Cs) for strategic leaders and company directors, namely: 1. Conscience — Strategic leaders and directors should act with intellectual honesty in the best interests of the organisation and all its stakeholders, and independence of mind should prevail. Lecturer — Chief Chirango. 0735 697 941 BM3 Notes 0774 376 975 chiefehirango@gmail.com2. Care — A director should devote serious attention to the affairs of the organisation. 3. Commitment — A director should have be diligent in performing director’s duties and responsibilities 4. Competence ~ A director should have the knowledge and skills required for governing an organisation effectively. 5. Courage — A director should have the courage to take the risks associated with directing and controlling a successful sustainable organisation but also have the courage to act with integrity in all strategic decisions and activities With the advent of the financial crisis and global economic recession, even more pressure will be placed on directors, top management and C-level executives to exhibit high levels of ethical behaviour and ensure organisational sustainability and solid corporate governance and corporate citizenship. Both the internal and external stakeholders of the organisation would also expect leaders to incorporate ethical behaviour and a mindset of strong corporate governance and citizenship into the culture of the organisation. ORGANISATIONAL CUL! ‘The role of organisational culture in strategy implementation Organisational culture refers to “the way we do things around here”. Organisational culture can be defined as the set of important often unstated assumptions, beliefs, behavioural norms and values that the members of an organisation share. An organisation’s culture is its personality. It is a system of taken-for-granted practices that determines how activities for which there are no rules are performed. An organisation’s culture is manifested in its stories, legends and traditions, its ways of approaching problems and making decisions, its values and its dos and don’ts. It is also manifested in the organisation's belief system and behaviour and thought pattems; its philosophy about how business ought to be conducted; its policies; its stakeholder relationships and its approach to corporate governance and ethics. An organisational culture that is rare and not easily imitated can be a source of competitive advantage. Lecturer — Chief Chirango, 0735 697 941 BM3 Notes 0774 376 975 chiefehirango@gmail.comEvery organisation has its own unique culture or personality. Organisational culture guides the actions of the organisational members and acts as a tie that binds them together. The most important manifestation of culture is found in the assumptions, values and beliefs of top management and also influence the attitudes of employees. Organisational size does affect organisational culture. It is much easier to create and maintain an organisational culture in a smaller than in a larger organisation, Organisational culture can be either a valuable ally or a stumbling block to successful strategy implementation. When the organisation’s beliefs, visions and goals underpinning its chosen strategy are compatible with its organisational culture, this Reshaping organisational culture is a complex and time-consuming task, yet in order to execute strategies successfully, top management must establish a tight fit between the chosen strategy and culture. Organisational culture and leadership are closely related. Leaders are responsible for creating an organisational culture and their attitudes, beliefs and values are an important manifestation of the organisation's culture. An organisation’s founders are particularly important in determining culture, as they often imprint their values and leadership style on the organisation’s way of doing things. As the organisation grows, it typically attracts managers and recruits employees who share in the founders’ values and belief system. Consequently, an organisation’s culture becomes more and more distinct as its workforce becomes more similar. G es on how leaders can manage and create distinct cultures ‘An important question that can be asked is: How do organisations create and manage a distinct culture? The following are some of the guidelines on how leaders can manage and create distinct cultures 1. Emphasise the key themes or dominant values that reinforce the competitive advantage that the organisation is seeking to build. 2. Encourage the dissemination of stories and legends about core values. Institutionalise practices that systematically reinforce desired beliefs and values. 4, Adapt common themes such as “being the best” so that they are organisation-specific. Lecturer — Chief Chirango. 0735 697 941 a BM3 Notes 0774 376 975 chiefehirango@ gmail.com‘Types of organisational culture Several strategic management authors divide culture into four broad categories as follows: and: 1. Strong — Ina strong organisational culture, values, norms and beliefs are deeply ingrained and difficult to climinate. If. tight fit exists between the chosen strategy and a strong culture, itis a valuable asset. A strong culture that does not match the chosen strategy or strategies is a liability to the organisation and the strategy implementation process. 2. Weak — A weak organisational culture is a fragmented one. There are few traditions, and few values and beliefs are shared. Subcultures exist; there is very little cohesion and organisational members do not have a sense of corporate identity. Weak cultures seldom serve as a driver for strategy implementation, 3. Unhealthy — An organisational culture is classified as being unhealthy if it has a oliticised internal environment where influential managers operate in autonomous “kingdoms”. Unhealthy organisational cultures are also characterised by a hostile resistance to change and to people who advocate new ways of doing things. Entrepreneurial skills are not reward in unhealthy organisational cultures. Furthermore, such an organisation would seldom benchmark its practices and processes against those of industry leaders, clinging to the belief that it has all the solutions and answers. 4, Adaptive Cultures — In an adaptive organisational culture, members shares a feeling of confidence that the organisation can neutralise the threats and exploit the opportunities that cross its path. Adaptive cultures are characterised by receptiveness to risk taking, innovation and experimentation. A proactive approach to strategic change is evident and strategies are changed whenever necessary. Most organisations do not have a single homogenous culture. Different hierarchical levels and different departments or functional areas will have different cultures, especially large organisations such as Absa, Liberty and Telkom. There may also be regional differences within ; Mercedes Benz South Africa may have different culture from its multinational companit parent company in Germany, Lecturer — Chief Chirango. 0735 697 941 BM3 Notes 0774 376 975 chiefhirango@gmail.com‘Transforming culture to match the chosen strategy Its the strategy formulator’s responsibility to take the existing corporate culture into consideration when selecting a strategy. It is the strategy implementer’s responsibility, once a strategy has been selected, to change those components of an organisational culture that may hinder successful strategy implementation. In order to implement a new chosen strategy, it is necessary to change “the way we do things around here”. A tight strategy-eulture fit supports strategy implementation in the sense that it creates structure, standards, a value system and informal rules that align “the way we do things around here” with the strategy implementation process. The match between strategy and culture promotes employee identification with the organisation’s vision and strategy, which in turn motivates employees to support strategy implementation activities. In order to establish a tight fit between the chose strategy and the organisation’s culture, a change in organisational culture may be required. Pearce and Robinson (2005) developed a matrix that can be used as a framework for managing the strategy-culture relationship. Framework for managing the strategy-culture relationship Hn Changes need 10 be linked wo | Focus on synery and Potential basic mission and central reinforcement of current culture compatibility of organizational nonna change in key en als factors and xing D organisational culture Strategy should be reformulated co organisational eulture should be changed. The latter is difficult and requires a long-term | Manage around the culture focus Mary <> Few Key factors that need to be changed in order 10 insplement the new statery In cell A the organisation needs to make numerous changes to key organisational factors in order to implement the new strategy. These changes are compatible with the current organisational Lecturer — Chief Chirango, 0735 697 941 BM3 Notes 0774 376 975 chifehirango@gmail.comcultures. Pearce and Robinson (2003) suggest that organisations that find themselves in this position should link the changes to the mission and adjust the reward system accordingly, use existing employees to fill positions affected by strategy implementation and focus on the necessary changes that are least compatible with the existing organisational culture. Organisations faced with a situation where there are only a few changes required — and where these are highly compatible with the existing organisational culture (cell B) ~ should reinforce the existing culture and make use of the opportunity to remove any barriers to the desired culture. In cell C, organisations are faced with the necessity of making a few major changes that are mostly incompatible with the current culture, Here organisations should create a way of achieving the required change that avoids confronting the incompatible culture, An organisation mn or make use of faced with this situation could for example create a separate divi subcontracting The most difficult challenge in managing the strategy-culture relationship is found in cell D. Here an organisation needs to make many major changes to key organisational culture and a complete transformation of it is necessary. Changing an organisation’s culture to align it with the chosen strategy is one of the most complex and arduous long-term challenges faced by strategic leaders. Cultural change is difficult to accomplish as habits and values are often deeply embedded in the organisation and people tend to cling emotionally to the old and familiar. An organisation faced with such a situation should determine whether reformulation of the strategy is not pethaps the most appropriate solution. 3. REWARD SYSTEMS AS A DRIVER FOR STRATEGY IMPLEMENTATION Another critical success factor is motivating managers and employees to commit to the implementation of the new chosen strategy. New strategies involve risks and imply changes in leadership, culture and structure and may cause uncertainty about the future. Encouraging employees and managers to work towards the achievement of strategic goals is a significant challenge to top management. One of the ways organisations can improve employee Lecturer — Chief Chirango, 0735 697 941 BM3 Notes 0774 376 975 chiefehirango@ gmail.comcommitment and encourage behaviour consistent with the new strategy is to improve their understanding of the strategy and the required implementation process, Another way of ensuring that specific strategy-supportive tasks are performed and implementation goals are met is through the establishment or reward systems. In recent years many organisations have started to use the term total reward when referring to ion, many organisations have realised that recognition is also very their reward systems. In ad important to employees and managers and many organisations seek to retain both through customised reward and recognition initiatives and programmes. ‘The role of reward systems in strategy implementation Reward systems can be defined as the umbrella term for the different components considered in performance evaluation and the assignment of monetary and non-monetary rewards to them. Reward systems play an important role in strategy implementation and should be created in such a way that they are tightly linked to the strategy, encourage a change in behaviour to support strategy implementation, and reward managers for performance over the long term. In addition, reward systems have to be tied to achieving the specific outcomes necessary to make the new strategy work and must emphasise rewarding people for showing results not just for dutifully performing their assigned tasks. It is important to note that reward systems reflect top ‘managements attitude to performance and also influence organisational culture and leadership styles. Reward systems are too often designed with a short term focus and for top management only. In order to be an effective motivator for strategy implementation reward systems should extend to middle and levels of management and really be used for the entire workforce ‘Types of reward systems ‘Reward systems can be based on either monetary or non-monetary compensation includes salary increases, profit sharing, share options, cash bonuses and retirement packages. Examples of non- monetary rewards include status, recognition, awards, job security, promotion, perks, stimulating assignments and the proverbial comer office. Reward systems may also focus on the Lecturer — Chief Chirango. 0735 697 941 BM3 Notes 0774 376 975 chiefehirango@gmailcomperformance of the individual or on the performance of the group. Throughout the last decade of the previous century, alot of emphasis was placed on teamwork. Consequently, many organisations make use of group-based reward systems to encourage high team performance. 1. SHARE OPTIONS Share option programmes link individual rewards to organisational performance. They are based on the premise that members of top management, through share options, will be motivated to pursue long term goals in line with shareholders’ expectations, rather than focusing on short term goals that might be detrimental to the maximisation of shareholders’ wealth. Top management teams rewarded with share options may be more entreprencurial and concerned with quality and innovation. A share option plan provides executives with the right to purchase company shares at a fixed price in the future. The amount of compensation is based on the spread of or difference between the share’s initial price (also referred to as the strike price) and its selling price. Thus the executive receives a bonus only if the organisation’s share price appreciates; in other words, the executive is compensated through share options only when wealth is created for the stakeholders. If the price of the organisation’s shares decreases and drops below that of the initial price, the share options become worthless and no financial benefit will be gained from the share option plans. Some of the criticism against share options plans is that they provide unlimited upside potential, yet only incur opportunity cost on the downside. This may cause executives to take undue risks. Another disadvantage of using share options is that share price performances are affected by the prevailing market conditions. A steep rise in the share price in a bullish market is not necessarily the result of increased organisational performance nor do falling share prices in a bear market indicate poor performance. 2. RESTRICTED SHARE PLAN ‘A restricted share plan also uses an incentive for executives. Under such a plan an executive is typically given a certain number of shares, but may not sell them for a specified period of time. Should the executive leave the company before the restricted period ends, the shares are forfeited. ‘The rationale behind a restricted share plan is that it promotes longer executive tenure Lecturer — Chief Chirango. 0735 697 941 BM Notes 0774 376 975 chiofchirango@gmail.comthan other forms of compensation. One of the reasons for the failure of strategy implementation is that strategy formulators often leave before imiplementation has been completed. The use of restricted share plans is one way of overcoming this problem. 3. GOLDEN HANDCUFFS Offers incentives for executives to remain with the company. Under such a plan, cash bonuses are deferred in a series of annual instalments. Should the executive leave the company before a certain time, compensation is forfeited. This type of reward system is also used to ret specialised skills. 4, GOLDEN PARACHUTES Are used to retain talented executives. Under such a compensation plan, an executive retains a substantial cans bonus regardless of whether he or she quits, resigns or is fired. The disadvantage of using golden parachutes as a reward system is that the executive is compensated regardless of suecess or failure. 5. CASH BONUSES ‘Whereas share option plans are often used to reward only executives and the top management, team, the use of cash bonuses as a reward system is more widespread in organisations. Bonuses can be calculated using accounting measures such as return on equity, earnings per share and growth ratios. Profit sharing is also a widely used form of compensation that is based on accounting measures. One of the disadvantages of using accounting measures as a basis for bonuses is that all accounting systems have flaws. Another disadvantage is that management could focus on achieving short term profits to ensure bonuses, thus sacrificing investment in training and future growth. Recognition as a component of reward systems More and more organisations are realising that employees and managers not only want to be rewarded but also want recognition. Recognition and its role in strategy implementation through employee and manager retention is still a rather new concept in strategic management. Nevertheless, various studies in the last few years have found that recognition is not only a very Lecturer — Chief Chirango. 0735 697 941 oT BM3 Notes 0774 376 975 chiefchirango@gmail.comimportant component of employee motivation but also an important source of organisational mobilisation and engagement during strategic change Recognition Approaches Brun and Dugas (2008:719) identify four approaches to recognition, namely 1. The ethical perspective, 2. The humanistic and existential view, 3. The work psychodynamic school and 4. The behavioural outlook. ‘These four approaches are expressed through four employee recognition practices: 1. Existential recognition, 2. Recognition of the way work is performed, 3. Recognition of job dedication and 4. . Recognition of results. Person Product/Service Existential Recognition of way Recognition of Recognition of results Recognition work is performed jab dedication In an organisation recognition (or the lack thereof) is expressed through various types of interaction, On the organisational level, employee recognition is expressed through the organisation’s policies and formal recognition programmes. Interaction on a vertical or archical level is related to the process of recognition between manager and employee and horizontal interaction refers to recognition between peers and team members (Brun & Duga, 2008). ‘The table below provides examples of recognition practices on each of these levels. Aligning reward systems with the chosen strategy If there is a change in strategy, reward systems should also be altered to ensure a continued tight fit with the chosen strategy. Different organisational life-cycle phases necessitate different strategies and the accompanying different reward systems. Different types of reward system will accomplish different purposes. Although there is no single recipe for matching reward systems with specific strategies, the following can be used as a guideline: Lecturer — Chief Chirango. 0735 697 941 Pa Er BMB Notes 074 376 975 chiefchirango@gmail.com1. Organisations that are pursuing growth strategies in the start-up phase of the organisation life cycle should incorporate large salaries and equity into their reward systems. 2. In the rapid-growth phase of the organizational life cycle, reward systems should include a salary plus large bonuses for growth targets, plus equity for key people. 3. Organisations faced with maturity should link reward systems of efficiency and profit-margin performance. 4, During the decline phase, reward systems should be linked to cost savings. Reward Systems & Corporate Governance Reward systems affect the kinds of norms, values and culture that develop in an organisation. They also affect the way managers and employees behave. Therefore, itis important to design reward systems in such a way that they ensure the instilment of good corporate governance practices within an organisation. In line with the 2002 worldwide shareholders’ and stakeholders’ drive for transparent and ethical reward systems, the King ITI Report made various recommendations on how remuneration in an organisation should be controlled in order to ensure good corporate governance. According to the King II Report, one of the responsibilities of a board of directors is to monitor remuneration, It suggests that organisations should appoint a remuneration committee to make recommendations to the board of directors on the organisation’s framework of executive remuneration and to determine specific remuneration packages for each of the executive directors. Furthermore, organisations should provide full disclosure of director remuneration and give details of earnings, share options, restraint payments and all other benefits. The King Il Report also provides guidelines for the allocation of share options. Another recommendation of the King II Report is that the performance related elements of remuneration should constitute a substantial portion of the total remuneration package of executives in order to align their interest with that of the shareholders. Reward systems should Lecturer — Chief Chirango. 0735 697 941 BM3 Notes 0774 376 975 chiefchirango@gmail.combe designed in such a way that they provide incentives to perform at the highest operational standards. Lastly, organisations should establish a formal and transparent procedure for developing a policy on executive and director remuneration which should be supported by a statement of remuneration philosophy in the annual report. regarding executive reward and compensation the King III Report, recommends that 1. Companies should not pay “balloon payments” to directors who leave, or termination payments to directors who have been fired 2. Share prices should not be repriced to benefit directors when the company’s shares are not performing well or the share price is low. 3. Companies should publish a remuneration report that details director remuneration and. explains why directors receive this remuneration and this should be out to shareholder vote. Conclusion Strategy implementation is a crucial component of the strategic management process. The ability to implement strategies successfully can serve as a competitive advantage in a business environment characterised by increased ambiguity and rapid change. During the latter part of the 20" century, organisations shifted their internal focus from their products to their people. Leadership, organisational culture and reward systems are strategy implementation drivers that focus on the people inside an organisation. These are also the drivers through which good ional life. Ina corporate governance principles can be incorporated into every aspect of organis ‘way, these three drivers form the comerstone of strategy implementation and are perhaps the ‘most significant strategy implementation tools. 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