Topic 5 Overview

Short-term Objectives and Functional Tactics

Learning Objectives
Critically discuss how short-term objectives are used in strategy implementation

Understand what activities and functions are appropriate to outsource in order to gain
or strengthen competitive advantage
Design corporate functional tactics to be used in a company of your choice

Construct corporate scenarios to evaluate strategic options

Introduction
So far, we have been discussing in the previous topics the use of intelligence and
information for the formulation of long term strategies, always in line with the
companys mission statement. As we said, a mission statement guides a companys
operations for 5 years. A companys long term strategy runs for 3 to 5 years. Clearly,
mission and long term strategies are critically important in crafting a successful
future, but are simply not enough. Undoubtedly, we cannot jump from Monday to
Friday. To make our mission and long term strategies become a reality, we need
short-term strategies and objectives that span from 6 months to a year; and functional
tactics that run on a weekly to monthly basis. Following this mapping, we fill in the
operation gaps as follows:
Mission Statement (5 Years Formulation Stage)
Long-Term Objectives (3 to 5 Years Formulation Stage)
Short-Term Objectives and Strategies (6 months to 1 Year Implementation)
Functional Tactics (week to a month Operation Stage)

In this topic, we pass from formulation to implementation. In other words, the

strategies that are discussed and formulated by strategists behind closed doors is one

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 thing; and the implementation of these strategies is another. Short-term strategies/
objectives guide implementation by converting long-term strategies/ objectives into
short-term actions and targets. So let us see some of their characteristics below:

Dichotomy between Formulation and Implementation

Long-term Strategies/Objectives Short-term strategies/ objectives
Formulation Implementation
Searching & Brainstorming Action
Planning & Crafting First line Function
Building Strategy Delivering Activity
Strategists/ Top Management Employees who actually do the work

Main Analysis
Short-term Objectives
Short-term objectives are measurable outcomes achievable in one year or less. Discussion
about short-term objectives helps raise issues and potential conflicts within an organization
and assists strategy implementation by identifying measurable outcomes of action plans or
functional activities, which can be used to make feedback, correction, and evaluation more
relevant and acceptable. In contradiction to the mission statement, which is abstract and
general, Short term objectives should provide:

Specificity (for instance: what exactly is to be done)

Time-frame for completion (when the effort will begin and when its results will be
accomplished)
Accountability (who is responsible for what. This accountability is very important
to ensure action plans are acted upon).

A very interesting example of specific, timed and accountable short-term objectives appears
in the webpage of Seep Networking & Advocacy corporation here:
http://networks.seepnetwork.org/ppt-newhtml/step6-shortTerm.html.

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To see the full analysis and figures please visit the Seep webpage here:
http://networks.seepnetwork.org/ppt-newhtml/step6-shortTerm.html.
As you can see, Seeps example suggests short-term objectives that offer Specificity, time
frame and accountability. At the same time, however, short term objectives should be
characterized by specific qualities, as follows:

Measurable
Short-term objectives are more consistent when they clearly state what is to be
accomplished, when it will be accomplished, and how its accomplishment will be
measured. Measurement can help monitoring both the effectiveness of each activity and
the collective progress across several interrelated activities. Also, measurable objectives
make misunderstanding less likely among interdependent managers.

Priorities
Although all objectives are important, some deserve priority because of timing
consideration or their particular impact on a strategys success (Pearce and Robinson,
2011: 269). If such priorities are not established, conflicting assumptions about their

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 relative importance of annual objectives may inhibit progress toward strategic
effectiveness.

Linked to Long-Term Objectives

The link between short-term objectives and long-term objectives should be flowing
through the firms key operations. This flow has a clear effect on communication and
operations.

The figure below presents three short-term objectives:

Moreover, short term o bjectives specify and quantify the goals or targets towards which leadership,
willpower, effort, the investment of resources, and the use of enterprise capability are to be directed such
that mission and strategic intent are achieved. At the same time, short term objectives offer a number of
value-added benefits such as:

They give operating personnel a better understanding of their role in the firms
mission

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 The process of developing them becomes a forum for raising and resolving
conflicts between strategic intent and operational reality
They provide a basis for developing budgets, schedules, trigger points and other
sources of strategic control
They can be powerful motivators, especially when connected to the reward system

Think Theory 1

How does the concept translate thought into action

bear on the relationship between business strategy and
operating strategy?

Functional Strategy and Tactics

Functional strategy is the approach a functional area takes to achieve corporate and business
unit objectives and strategies by maximizing resource productivity. According to Wheelen
and Hunger (2012:238) it is concerned with developing and nurturing a distinctive
competence to provide a company or business unit with a competitive advantage. Each
business unit has its own set of departments, each with its own functional strategy and
functions, including the:
Marketing Department
Finance Department
Research and Development (R&D)
Operations
Logistics
Human Resource Management (HRM) and
Information Technology and Information Systems (IT/IS)

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For example, a business unit following a competitive strategy of differentiation through high
quality needs a manufacturing functional strategy that emphasizes expensive quality
assurance processes over cheaper, high-volume production; a human resource functional
strategy that emphasizes the hiring and training of a highly skilled, but costly, workforce; and
a marketing functional strategy that emphasizes distribution channel pull, using advertising
to increase consumer demand, over push, using promotional allowances to retailers. If a
business unit were to follow a low-cost competitive strategy, however, a different set of
functional strategies would be needed to support the business strategy.

Just as competitive strategies may need to vary from one region of the world to another,
functional strategies may need to vary from region to region. For example, When Mr. Donut
expanded into Japan, it had to market donuts not as breakfast, but as snack food. Because the
Japanese had no breakfast coffee-and-donut custom, they preferred to eat the donuts in the
afternoon or evening. Mr. Donut restaurants were thus located near railroad stations and
supermarkets. All signs were in English to appeal to the Western interests of the Japanese.

Functional tactics are the key, routine activities that must be undertaken in each functional
area to provide the businesss products and services. In a sense, functional tactics translate
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 thought into action. Every value chain activity in a company executes functional tactics
that support the businesss strategy and help accomplish strategic objectives.

Functional tactics, moreover, are different from business or corporate strategies in three
fundamental ways:
1. Time horizon: Functional tactics identify activities to be undertaken now or
in the immediate future.
2. Specificity: Functional tactics are more specific than business strategies. As
opposed to business strategies that provide general direction, functional tactics
identify 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.
3. Participants who develop them: Different people participate in strategy
development at the functional and business levels. According to Pearce and
Robinson (2007), 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 fells contributes to
corporate-level goals. Similarly, key operating managers must establish short-
term objectives and operating strategies that contribute to business-level-goals.

Think Theory 2
Identify a variety of functional strategies that can be
used to achieve organizational goals and objectives
at your workplace

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 Outsourcing Functional Activities

For a functional strategy to have the best chance of success, it should be built on a distinctive
competency residing within that functional area. If a corporation does not have a distinctive
competency in a particular functional area, that functional area could be a candidate for
outsourcing.

According to Wheelen and Hunger (2012), outsourcing is purchasing from someone else a
product or service that had been previously provided internally. Thus, it is the reverse of
vertical integration. Also, Pearce and Robinson (2011) define outsourcing as acquiring an
activity, service, or product necessary to provide a companys products or services from
outside the people or operations controlled by that acquiring company.

Outsourcing is becoming an increasingly important part of strategic decision making and an

important way to increase efficiency and often quality. In a study of 30 firms, outsourcing
resulted on average in a 9%reduction in costs and a 15% increase in capacity and quality.

For example, Boeing used outsourcing as a way to reduce the cost of designing and
manufacturing its new 787 Dreamliner. Up to 70% of the plane was outsourced. In a break
from past practice, suppliers make large parts of the fuselage, including plumbing, electrical,
and computer systems, and ship them to Seattle for assembly by Boeing. Outsourcing enabled
Boeing to build a 787 in 4 months instead of the usual 12.

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Outsourcing can save valuable time and money for many organizations. For instance, a firm
in a highly competitive market may have to cut costs in key areas and decide it can only do so
by outsourcing to lower cost producers. For example, a hotel may outsource its laundry
facilities. Instead of operating its own in-house laundry housekeeping department, the hotels
management may cooperate with company that specializes in laundry services.

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(If you just Google the phrase Laundry cleaning services, you will get endless
examples of companies offering exactly this service. One of these examples is the
Manhattan Linen LLC company: http://www.manhattanlinenllc.com/).

The laundry cleaning service would collect all dirty clothes early in the morning, and drop off
the clean & ironed clothes that have been collected the previous day. With this strategy, the
hotels management will save the following costs:
1. Operating costs for designated personnel in the laundry department
2. Initial and operating costs for purchasing laundry machines, including their regular
service
3. Operating costs: energy
4. Operating costs: raw materials for cleaning linens and clothes
5. Operating costs: employee training

Instead, the company may outsource this service at a cost that is lower from the sum of all
those stated above. This is clearly a cost reduction decision. In this way, the make or buy
decision for a particular activity or component is therefore critical. This is the outsourcing
decision. There is a wide range of businesses that now offer the benefits of outsourcing. Of
course, the more an organisation outsources, the more its ability to influence the performance
of other organisations in the value network may become a critically important competence in
itself and even a source of competitive advantage. At the same time, however, cost reductions
may result in an inability to pursue a differentiation strategy. For example, outsourcing
Information Technology (IT) systems for reasons of cost efficiency may mean that no one
takes a strategic view of how competitive advantage might be achieved through IT.

If IT, nevertheless, is not that central in the operations of a company, outsourcing would be a
good idea as the competitive advantage is not influenced whatsoever. An interesting example
of outsourcing IT services is that of XEROX Corporation.

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 (online at: http://www.acs-inc.com/information-technology-outsourcing.aspx)

According to Yahoo Finance, Xerox Corporation provides business process and information
technology (IT) outsourcing, and document management services worldwide. Its business
process outsourcing services include human resources services; finance and accounting
services; healthcare payers and pharma; customer management solutions; healthcare provider
solutions; technology-based transactional services for retail, travel, and non-healthcare
insurance companies; programs for federal, state, county, and town governments;
transportation solutions; and government healthcare solutions. The company is involved in
designing, developing, and delivering IT solutions, such as comprehensive systems support,
systems administration, database administration, systems monitoring, batch processing, data
backup, and capacity planning services; telecommunications management services; and
desktop services. Its document outsourcing services comprise managed print services that
optimize, rationalize, and manage the operation of Xerox and non-Xerox print devices; and
communication and marketing services that deliver design, communication, marketing,
logistic, and distribution services through SMS, Web, email, and mobile, as well as print
media. The company also manufactures and sells products, including desktop monochrome,
color and compact printers, multifunction printers, copiers, digital printing presses, and light

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production devices for small/mid-size businesses and large enterprises (online at:
http://finance.yahoo.com/q/pr?s=xrx, accessed 28/02.2013).

Indicatively, all of the following activities can be outsourced:

Payroll
Manufacturing
Maintenance
Warehousing/ transportation/ distribution
Information Technology
Travel
Temporary Service
HR Activities
Product Design
R&D (Research & Development)
Marketing

According to an American Management Association survey of member companies, 94% of

the responding firms outsource at least one activity. The outsourced activities are general and
administrative (78%), human resources (77%), transportation and distribution (66%),
information systems (63%), manufacturing (56%), marketing (51%), and finance and
accounting (18%). The survey also reveals that 25% of the respondents have been
disappointed in their outsourcing results. Fifty-one percent of the firms reported bringing an
outsourced activity back in-house. Nevertheless, authorities not only expect the number of
companies engaging in outsourcing to increase, they also expect companies to outsource an
increasing number of functions, especially those in customer service, bookkeeping,
financial/clerical, sales/telemarketing, and the mailroom. It is estimated that 50% of U.S.
manufacturing will be outsourced to firms in 28 developing countries by 2015.

Also, outsourcing can be achieved in the form of offshoring. According to Wheelen and
Hunger (2012), offshoring is the outsourcing of an activity or a function to a wholly owned
company or an independent provider in another country. Offshoring is a global phenomenon
that has been supported by advances in information and communication technologies, the

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development of stable, secure, and high-speed data transmission systems, and logistical
advances like containerized shipping.

According to Bain & Company, 51% of large firms in North America, Europe, and Asia
outsource offshore. Although India currently has 70% of the offshoring market, countries
such as Brazil, China, Russia, the Philippines, Malaysia, Hungary, the Czech Republic, and
Israel are growing in importance. These countries have low-cost qualified labour and an
educated workforce. These are important considerations because more than 93% of
offshoring companies do so to reduce costs.

For example, Mexican assembly line workers average $3.50 an hour plus benefits compared
to $27 an hour plus benefits at a GM or Ford plant in the U.S. Less skilled Mexican workers
at auto parts makers earn as little as $1.50 per hour with fewer benefits.

Also, software programming and customer service, in particular, are being outsourced to
India. For example, General Electrics back-office services unit, GE Capital International
Services, is one of the oldest and biggest of Indias outsourcing companies. From only $26
million in 1999, its annual revenues grew to over $420 million by 2004.61 As part of this
trend, IBM acquired Daksh eServices Ltd., one of Indias biggest suppliers of remote
business services.

Outsourcing, including offshoring, has significant disadvantages. For example, mounting

complaints forced Dell Computer to stop routing corporate customers to a technical support
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call center in Bangalore, India.63 GEs introduction of a new washing machine was delayed
three weeks because of production problems at a suppliers company to which it had
contracted out key work. Some companies have found themselves locked into long-term
contracts with outside suppliers that were no longer competitive.

Empowering Operating Personnel: Policies

Another important practice in strategic management is empowerment. According to Pearce
and Robinson (2011), meeting customer needs these days is a buzzword regularly cited as a
key priority by most business organizations. Efforts to do so often fail because employees
that are real the contact point between the business and its customers are not empowered to
make decisions or act to fulfill customer needs. One solution has been to empower operating
personnel by pushing down decision making to their level. For example:

General Electric allows appliance repair personnel to decide about warranty credits on the
spot, a decision that used to take several days and multiple organizational levels.

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 American Air Lines allows customer service personnel and their supervisors a wide range in
resolving customer ticket pricing decisions.

Federal express couriers make decisions and handle package routing information that once
involced five management levels in the U.S. Postal Service.
Empowerment is the act of allowing an individual or team the right and flexibility to make
decisions and initiate action (linked to decision making). Differently, Empowerment is the
process of enhancing the capacity of individuals or groups to make choices and to transform
those choices into desired actions and outcomes.

Think Theory 3
Thin and write down five powerment practices at
your workplace. Practices that empower you or
your colleagues

In addition, Policies are directives designed to guide the thinking, decisions, and actions of
managers and their subordinates in implementing a firms strategy. In other words, policies
empower operating personnel by defining guidelines for making decisions. They do this in
the following way:
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 1. Policies establish indirect control over independent action
2. Policies promote uniform handling of similar activities
3. Policies ensure quicker decisions by standardizing answers to recurring questions
4. Policies institutionalize basic aspects of organization behavior
5. Policies reduce uncertainty in repetitive and day-to-day decision making
6. Policies counteract resistance
7. Policies offer predetermined answers to routine problems
8. Policies afford managers a mechanism for avoiding hasty decisions

Also, formal, written policies have at least 7 advantages, which are:

1. They require managers to think through the policys meaning, content, and intended
use
2. They reduce misunderstanding
3. They make equitable and consistent treatment of problems more likely
4. They ensure unalterable transmission of policies
5. They communicate the authorization or sanction of policies more clearly
6. They supply a convenient and authoritative reference
7. They systematically enhance indirect control and organization wide coordination of
the key purposes of policies

Think Theory 4
Write a one-page analysis, listing and discussing
the formal policies that you have come across at
your workplace recently

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 Summary
As we discussed in the foregoing analysis, the first concern in the implementation of business
strategy is to translate that strategy into action throughout the organisation. This Topic
discussed a number of considerations for accomplishing this. For example, short term
objectives are derived from long term objectives, which are then translated into current
actions and targets. They differ from long-term objectives in time frame, specificity, and
measurement. Functional tactics are derived from the business strategy. They identify the
specific immediate actions that must be taken in key functional areas to implement the
business strategy. Outsourcing of selected functional activities have become a central tactical
agenda for virtually every business firm in todays global economy. Employee empowerment
through policies provides another means for guiding behaviour, decisions, and actions at the
firms operating levels in a manner consistent with its business and functional strategies.

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