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Implementing Strategy

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LEARNING OBJEC TIVES

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Studying this chapter should provide you with the knowledge to: at
1. Describe how the 7S model can be used to determine the level of alignment
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within a company and between the company and its environment.

2. Evaluate a strategic change effort and explain the underlying reasons why
@

the effort succeeded or failed.

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3. Discuss how creating effective line-of-sight measures can assist managers in

the strategy implementation process.
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Alphabet: Reorganizing to Create

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Value at Google
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@
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Google’s stock has always been a high flyer. Since the company went public in the
summer of 2004 until the close of 2016, its shares generated a total return of 1,440
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percent, a 23.4 percent compound annual growth rate.1 Even for a company with
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such strong share price appreciation, the gains surrounding the announcement on
July 16, 2015, of Google’s second quarter earnings stand out. During the next two
trading days, Google’s shares rose a little more than 20 percent, a gain not seen since
the earliest days of Google as a public company. On that July day, Google
announced solid, but not spectacular, revenue growth of 11 percent (year over year),

and earnings of $6.99 per share, which topped expectations of $6.75.2 Investors
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liked top line and bottom line growth, but what lit a fire under the shares was
buried in the mid-section of the income statement: Google’s newfound ability to

control costs.3 Cost control had never been a high priority at Google; however, with
its search business maturing, a system that kept costs in line would only become
more valuable.

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The person behind that system was Google’s new CFO Ruth Porat. Porat, the

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daughter of a Stanford physics professor and a psychologist, had been taught to aim
high her entire life. Her academic pedigree lists degrees from Stanford, Wharton,

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and the London School of Economics. She went to work for Morgan Stanley and

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rose to become the CFO in 2010, where she would earn the moniker “the most
powerful woman on Wall Street.”
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What did Porat bring to Google? First, she brought a wealth of experience in
helping tech companies deal with the financial world, based on her experiences as
@

the lead banker on the IPOs of tech start-ups including Amazon, eBay, Netscape,
oo

and Priceline. Second, Ruth added a deep knowledge of accounting, finance, and
investor relations—and how to drive financial change—in a large company
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environment. Third, she brought the cachet of a seasoned Wall Street veteran,
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including a stint advising the U.S. Treasury department during the financial crisis.4
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In hiring Porat, Google CEO Larry Page outlined her role: “We are tremendously
fortunate to have found such a creative, experienced, and operationally strong
executive…. I look forward to learning from Ruth as we continue to innovate in our
core—from search and ads, to Android, Chrome, and YouTube—as well as invest in

a thoughtful, disciplined way in our next generation of big bets.”5 Google had
become two businesses: a revenue- and profit-producing search business and a set
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of revenue- and profit-consuming businesses, including projects such as a self-

driving car and wearable “Google glasses” that would allow users a unique Internet
experience. Google executives hoped that Porat could help the company balance the
need for fiscal discipline in the core while investing prudently in new and exciting
product categories.

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Less than a month after issuing its earnings report, Google restructured the
company. Announced as “G is for Google,” Google unveiled a new corporate parent,

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Alphabet, that would act as an umbrella for all of Google’s varied businesses, from

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Android to the X lab, home of many moonshot products.6 Each unit of Alphabet

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would report its own financial performance, which pleased investors hungry for
at
more transparency in the company’s investment strategy. Investors drove up
Google’s shares another 4 percent on the day of the announcement. Alphabet aimed
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to improve performance in another way. By separating business units that had

different strategic imperatives, Alphabet hoped to create strategic ambidexterity
@

across business units.7 Mature businesses, such as Search and YouTube, would need
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to focus on current performance and had to be managed by a different set of rules

than the “big bets” about which Page spoke. Revenues and costs mattered in the
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core, but the logic of potential and investment would determine which of the big
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bets paid off in future growth.

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Google’s activities during the spring and summer of 2015, and investors’ positive
reaction, highlight the reality that how a company delivers on its unique value
proposition—our third fundamental question of strategy—contributes to its ability
to earn superior returns. From July to December 2015, Google (Alphabet) shares
appreciated 44 percent, but the company introduced no new products of note, nor
did it acquire another company that fueled growth. The company created
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shareholder value by acquiring the human capital it needed to manage in the

rapidly changing world of technology, and because it aligned its organization and
processes with the emerging demands of its strategy. Put simply, Google’s executive
team focused on strategy implementation, which proved to be just as valuable as
strategy formulation. A primary objective of this chapter is to introduce you to three
important skills strategists must possess if they hope to implement strategies:

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forging alignment between the key elements of the organization and its strategy,
leading effective change to accomplish that alignment, and creating measurement

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systems to refine the strategy and ensure its implementation.

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At one level, implementation is about action, or execution. The successful execution
of a strategy requires a process that translates broad strategic objectives into clearly
at
definable, everyday actions that make the strategy real, and then creates systems
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where people take those actions. Executive Larry Bossidy learned how to execute
strategy working for General Electric’s CEO Jack Welch. Bossidy ran GE’s capital
@

division and guided that business through a flurry of acquisitions. He then went on
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to successfully run Allied Signal and eventually Honeywell. Bossidy was known for
his ability to execute. His recipe for execution—outlined in his classic book The
ap

Discipline of Getting Things Done—involves four steps: (1) create a set of clear goals
for people to follow; (2) find ways to accurately measure performance; (3) hold
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people accountable for their performance; and (4) richly reward those who perform
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well.8

Ruth Porat came to Google with a clear objective for change: to help Google, now
Alphabet, control costs in a world where search became a mature business and to
provide greater transparency to Wall Street. The way she executed on those goals, at
least in the early stages, centered around the firm’s accounting and financial
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reporting systems—the essence of measurable performance in any organization.

With clear budget targets and rules for managing the different business units that
make up Alphabet, Porat and other executives could hold individual managers
accountable for business performance. Finally, Google had always rewarded high
performers, and Porat’s own compensation package proved that Alphabet would

continue to reward those who executed well.9 In July of 2023, Alphabet announced

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that Ruth Port would step down as Alphabet’s Chief Financial Officer and take on a
new role as President and Chief Investment Officer. “As our longest serving CFO,

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she has helped guide the company though an amazing period of growth, a global

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pandemic and the ongoing economic uncertainty that has followed,” Alphabet CEO

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Sundar Pichai said about Porat.10
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Many strategies fail because people in organizations just do not execute well. The
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strategy does not translate into a clear set of measurable goals and, for whatever
reason, people either do not have to answer for their actions or receive no rewards,
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or punishments, for excellent, or poor, performance.

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Alignment: The 7S Model

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Execution matters, but as you saw in the opening case, effective implementation

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requires forging alignment among the external environment, the strategy, and the

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internal elements of the firm. Most strategy researchers focus on strategy
formulation, what you have spent most of this course learning about. Little

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attention typically gets paid to implementation, as it seems to be a matter of
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execution.11 Implementation is as much a matter of alignment as it is of execution.
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Alignment means that the important elements of the organization are in the proper
relationship with each other—which means they fit well together and reinforce
@

each other. In an aligned organization all the elements support the strategy. This
raises the question: which elements?
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A strategist can answer this question in many different ways. The authors’
experience with the 7S model of organizational alignment leads us to recommend
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this model. Introduced by consultants at McKinsey and Company in the early

1980s, the model provides a broad yet succinct way to capture the key strategic
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elements of an organization.12 The model identifies seven important organizational

elements that must be aligned in order to ensure effective implementation of the
firm’s strategy. The seven Ss are strategy, structure, systems, staffing, skills, style, and

shared values.13 Figure 12.1 displays each S.

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FIGURE 12.1 The 7S Model

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Strategy
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Strategy is the plan, process, and related activities that create and sustain value for
stakeholders and a competitive advantage for a firm in its target markets. Strategy
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represents the most important S because all the others align around it. The ultimate
goal of any organization is excellent performance, whether it is a business,
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government, or not-for-profit. Strategy enables an organization to perform well by

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guiding resource allocation decisions that result in competitive advantage. Google’s

original strategy focused on creating software to facilitate Internet searches, and
moved into related applications such as Google Maps and Gmail. Google’s strategy
shifted over time to include hardware as well as software with investments in
activities and products such as a self-driving vehicle. As a mature company,
Google’s performance depends as much on good implementation—like cost control,
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market penetration and project discipline—as it does on new innovation or a push

for greater market share in each of its businesses.

Structure

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Structure answers two critical questions for an organization: Who does what? Who
reports to whom? Structure divides labor and tasks within the organization into

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separate units and, by doing so, defines the reporting or authority structure of the

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firm. This is important because it assigns accountability for particular tasks and

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allows for the measurement of performance by a particular organizational unit.

Managers can use structure to help align goals, skills, and environmental needs.14
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Strategy in Practice
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How to Use the 7S Model

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The 7S model represents a tool that can guide effective strategy

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implementation for the organization as a whole, as well as for its divisions,

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groups, or departments. To use this tool most effectively, follow these five
steps:
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1. Identify the current state of the organization and misalignments

There are several data sources and materials that are resources that
consultants and managers can use to understand the current 7S model.
For managers, interviews and surveys will be powerful tools.
Consultants or other outsiders will rely on a mix of interviews and
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other sources. Press releases, annual reports, news articles, and blogs
can provide useful insights about a company’s performance around
various Ss. The goal is to create an “as it is today” picture of the 7Ss in
the company.
2. Rank order misalignments based on the importance of
misalignment with strategy When step one is done well, managers

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will often see a number of misalignments, both within the 7Ss

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themselves and between the different elements in the model. It is easy
to get frustrated or feel overwhelmed! Managers need to ask, “Which

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misalignments keep us from reaching our strategic goals? Which ones

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dissipate rather than build competitive advantages?” This question will
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cull the list of misalignments down to the few that really need to be
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changed.
3. Develop plans to create alignment While some of the misalignments
@

will be company specific (particularly those that involve the soft square,
see below), managers and consultants should be open to looking at how
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other companies have solved these problems. There is no need for an

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executive team to reinvent the wheel in terms of compensation, for

example. Benchmarking other companies, or divisions within their own
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company, provides a starting point from which companies can

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customize their own solutions.

4. Understand how the proposed change affects other elements in the
model How will changes in one S affect others? For example, moving a
sales force from pure commission to a salary structure represents a

huge change in what motivates the staff.15 How will the company
attract and retain a sales force to fit the new pay scheme? What new
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skills will existing salespeople need to learn? Where will the new
system conflict with shared values? It is rarely the change of
compensation alone that dooms the program, it is the pushback from
the other Ss.
5. Adjust plans accordingly After managers begin the effort to create
realignment within the entire model, they need to adjust their plans. In

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the previous example, changing the compensation system may need to

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follow skill training for the existing sales force. Work on new hiring and
retention plans may need to happen at the same time, and the new

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system may precede and signal a change in shared values. In any case,

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managers come to understand that piecemeal changes rarely create
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alignment; a more complex and sophisticated approach is usually
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necessary. Wise managers will, however, sequence their efforts at
alignment to leverage the easy gains available at the beginning to make
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progress in more difficult areas.

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If you want to understand an organization’s structure, look at its organization chart.

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The horizontal boxes that run across the page describe the division of labor. For
example, a company might have vice presidents for geographic regions, with
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functional managers for smaller areas within each of those regions. This regional
structure presumes that the important differences in the firm’s market depend on
geography and the strategy is best served by tailoring operations to each region.

Alternatively, a company may organize by function and have a vice president of

marketing, vice president of operations, vice president of finance and accounting,
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and so on. The next level down might include titles such as director of marketing or
western regional director. With the formation of Alphabet, a holding company,
Google moved from a functional structure to one that created separate business
units that were focused on particular technologies or product markets. The
restructuring offered better transparency about operating performance, but it also
increased focus on the demands of each market.

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Companies may also want to structure using one of two Ms: a matrix structure or an

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M-form corporation. In a matrix structure, firms give significant decision-making

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authority, and the responsibility for profits and losses, to two managers. The most

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common matrix structure shares responsibility between a functional manager (e.g.,
marketing or sales) and product managers (e.g., laptop computers). The matrix
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builds on the assumption that both strong functional expertise and nuanced
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product knowledge play vital roles in creating competitive advantage. The matrix
makes life more complicated for managers and employees, but the structure hopes
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to create more value by combining expertise in decision making.

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The M-form is a corporate-level structure, and it builds on the idea of a corporate

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parent and business unit children. M-form stands for multidivisional form. In this
structure, each division is a separate business, and includes all the functions needed
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to run that business. Managers of M-form organizations can structure their

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business units in different ways; some may be functional, others product, and still
others a matrix. The M-form creates substantial redundancy across the corporation
(think of 20 separate accounting groups). The advantage of the M-form lies in
accountability. Because managers of an M-form run their own business, their
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successes and their failures can be traced back to their decisions. No one can claim
that “corporate made me do it,” or use other excuses.

Systems

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The systems category describes key processes that span a firm’s organizational
structure. Systems, are mechanisms, policies, or processes that coordinate and

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control work of the different units of the organization. They play two important

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roles: They coordinate and control work of the different units within the

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organization.16 Information systems such as inventory control allow sales people in
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the field to know which products are in stock, and which products are overstocked.
At the same time, the inventory control system lets the manufacturing division plan
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its production schedule based on those same stock levels. Finally, information about
which products are selling will help the accounting and finance department create
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accurate profit and loss reports, and they will help the firm’s managers decide
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which products and services to add or drop from the firm’s offerings. Part of
Google’s logic in bringing Ruth Porat in from Morgan Stanley lay in her knowledge
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about how to create and implement sophisticated financial control systems.

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Staffing
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Staffing refers to the human resource management processes in the organization:

recruitment, hiring, training, deployment, performance measurement, promotion,
and compensation. Some companies recruit only at elite universities, while others
target public universities, job fairs, or websites such as Indeed.com. Each model
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has its own advantages and drawbacks, depending on the skills and personality
types companies want to attract. Companies such as Marriott require managers to
engage in training every year, but other hotel chains expect people to learn on the
job. Finally, some companies promote from within, while others tend to hire from
the outside.

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Ruth Porat represented a very high-profile outside hire for Google. She lacked skills
and knowledge in the technology sector, but she brought a unique set of valuable

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skills that Google needed to continue to grow profitably.17

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Skills er
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Skills refer to the abilities of individuals within the firm, as well as how the firm has
combined those individual talents to build capabilities (processes), to create a
@

competitive advantage. Skills and staffing are related. Companies either hire people
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who have the skills they need or develop workers in-house through training.
Google, for example, considers itself primarily a software company, and if you want
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to get hired you would better have outstanding software engineering skills. For
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many years Google screened about 20,000 software engineers each year through a
software-programming tournament called Google Code Jam. Those Jams ended in
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2023 as the company looked for new ways to find the best coding talent.18 A series
of four “farewell rounds” took place on April 15, 2023.

Software engineers competed with each other in a timed software-coding

tournament, and the top 50 received job offers from Google. Apple also wants
employees with strong software engineering skills. However, because Apple creates
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hardware products, it also values design skills because the company believes design
is critical to its competitive advantage. In running its retail business, Apple had to
look far beyond its traditional skill sets to find the right executive. The company
hired Angela Ahrendts to run its retail operation and she served in that position
until 2019. Ahrendts had been the CEO of fashion firm Burberry and had very few

of Apple’s traditional skills in hardware, software, or technology.19 Skills, such as

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staffing, involve long-term investments by firms to make sure they have the right
employees who will help the company gain competitive advantage.

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Ethics and Strategy

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Creating an Ethical Climate and Culture Through the
7S Model
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James McNerney became CEO of Boeing, one of the world’s largest aerospace
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companies in July 2005, capping a long and successful executive career that
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began after he received his MBA from Harvard Business School in 1975. His
career included stints at Procter & Gamble and McKinsey and Company, 19
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years at General Electric, and a term as chairman and CEO of 3M. McNerney
came to Boeing as the company was trying to emerge from three major ethics
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crises. McNerney served as CEO for 10 years until July of 2015.

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In March of 2005, Boeing fired then CEO Henry Stonecipher for having an

illicit affair with a female Boeing executive.20 Stonecipher had become CEO to
replace Phillip Condit, who had his own checkered career as Boeing’s CEO.
Troubles at the top were not the only problems Boeing faced. After its
acquisition of McDonnell Douglas, Boeing began to compete more fiercely, and
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less ethically, for huge defense contracts. Boeing’s former Chief Financial
Officer Michael Sears and Manager Darleen Druyun were fired from the
company for ethics violations on an $18 billion fighter jet contract; Sears
served prison time for his crimes. That scandal followed revelations that a
Boeing employee stole and inappropriately disclosed more than 25,000 pages
of confidential documents belonging to competitor Lockheed Martin.

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McNerney saw his first and most important job as building an ethical culture

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at Boeing, and he had his work cut out for him. With more than 150,000

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employees, global operations, and infighting between divisions resulting from

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Boeing’s acquisition of McDonnell Douglas, Boeing was a large, bureaucratic
behemoth resistant to change. McNerney chose an interesting place to begin
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the cultural change: He relied on his personal style and what he referred to as
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“tone at the top.”

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Rather than holding the annual executive retreat at a posh resort, McNerney
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held a shorter retreat at a modest hotel. McNerney spoke directly and

forcefully about the ethics lapses, and he encouraged managers throughout the
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company to do the same. The culture of secrecy had to be changed. McNerney

chided leaders for a culture and environment where “‘management had gotten
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carried away with itself,’ that too many executives had become used to ‘hiding
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in the bureaucracy,’ that the company had failed to ‘develop the best

leadership.’”21 Before Boeing could solve the problems, the company had to
admit that problems existed and determine the extent of unethical behavior.
McNerney used his position and personal style to model the open
communication and concern for ethics he expected throughout the company.
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Style mattered, but McNerney used other elements of the 7S model as well.
The company also changed its structure. Boeing raised the profile of
compliance officers and set up an ethics hotline so that employees could report
violations without fear of management reprisal. The company required ethics
training for employees, which meant changes in its staffing protocols and skill
development programs. Importantly, McNerney changed the compensation

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system for Boeing’s managers; it now paid to make the ethical choice.
Managers would now receive part of their annual bonus based on compliance

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with ethics standards and for living, teaching, and displaying the core Boeing

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values of candor, openness, business performance, and ethical conduct.

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Style
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Style refers to the interpersonal relationships between people in the organization

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and, along with shared values, comprises the culture of the organization. Style
generally falls into one of two categories: formal or informal. In most German
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companies, for example, people usually dress up for work and refer to each other as
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Mr. or Ms., and respect each other’s work environment by keeping office doors
closed. Many Silicon Valley start-ups, by contrast, find people showing up to work
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in shorts, T-shirts, and flip-flops, call each other by first names or nicknames, and
work in large, open spaces to maximize interactions. We suspect that Ruth Porat
experienced classic “culture shock” when she moved from the buttoned-down style
of New York’s Morgan Stanley to the casual style of Silicon Valley.
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Shared Values
Shared values refer to the priorities, values, and virtues that members of the
organization see as important. Some people use the term superordinate goals, a set
of high-level goals that all stakeholders agree on, to capture the same thing as

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shared values. For example, Nordstrom strives to create shared values by focusing
on respect for the individual and extraordinary customer service. One way that

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Nordstrom works to create these shared values is by sharing stories with its

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associates and managers that provide examples of the behavior they want to

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encourage—such as the story of an employee accepting a customer’s returned tires
when Nordstrom does not even sell tires. The shared values of respect for the
at
individual and extraordinary customer service are both values and overarching
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goals for the company and representative of the organizational aspect of the
culture.
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Importantly, shared values must be at least held widely throughout the

organization. Many leaders have attempted to superimpose values on their
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organization and they may become values for a particular team or unit. Unless and
until they become adopted and accepted throughout the organization, they are not
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truly “shared values.”

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Strategy in Practice

How to Develop a Mission Statement

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A strong mission statement begins with the answers to three questions that
leaders ask:

What business are we in? Defining the business means more than identifying
the industry the firm competes in, or the products/services it sells. It begins by
listing the primary stakeholder groups the firm cares about (customers,

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employees, investors, etc.), and then asking what specific stakeholder needs
are met by the company. In other words, what job is to be done for that

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stakeholder? Finally, leaders articulate how that job is done, whether it is

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through products, services, after-sales support, brand, or some other business

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asset or activity.
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What do we want to achieve? The answer to this question should not be too
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focused, such as “our mission is to grow earnings per share by 15 percent each
year.” That goal works fine for a year, but might not be sustainable over time. A
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better goal might be “we work to create sustained growth in shareholder

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value.” Good mission statements may focus on outcomes (e.g., market share,
growth), processes (innovation, quality, speed, etc.), or a particular feeling they
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hope to evoke (such as premiere brand, best place to work, most loved by our
customers). A good mission focuses on only one or two goals for each
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important stakeholder group.

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What values and principles guide us? Here is where a mission really connects
with shared values, and where a mission helps an organization talk about the
foundational layer of its Pyramid. Consultant Patrick Lencioni talks about
three types of values every company has. Every company has two to three core
values that everyone believes, such as the value of customer connection,
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exciting innovation, or disciplined investing and cost control. Companies also

have aspirational values, or what they want to be in the future. Aspirational
values may include building a better community or society, or providing
development opportunities for employees. Finally, every company has
permission-to-play values, things like honest interactions, respect, punctuality,
or hard work. People without these values do not stick around long, whether

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they be investors, employees, suppliers, or even customers.22

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The answers to these three questions provide the basic inputs from which a

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mission statement, or a vision and values statement, will be written. The exact

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wording will be unique to each company, but including this foundational
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content helps a mission statement become a sustainable, living document for
the organization.
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The 7S model deals with ethical values as well as other business priorities. Our
Ethics and Strategy feature describes how one leader, James McNerney formerly of
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Boeing, used the 7S model to realign the ethical values at his company.
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Many companies choose to make their shared values explicit in a mission

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statement, or a statement of vision and values. These documents have been

maligned by critics, and a mission statement can be a waste of time if
organizational leaders do not live by the mission or values. When done well,
however, a mission statement provides a long-term, high-level guide to corporate
action. As leaders learn to “walk the talk” of their mission, vision, and values, these
documents become powerful summaries of the company’s shared values and
superordinate goals. Surveys indicate that having a mission, vision, and values
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continues plays an important role in creating alignment around strategy, rated as a

4.2 out of 5 for its effectiveness.23 Our Strategy in Practice feature describes how a
company (or an individual) can develop a mission statement.

If you look back to Figure 12.1, you will notice that strategy, structure, and systems
form a triangle, and that style, shared values, staffing, and skills form a square. This

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is no accident. Strategy, structure, and systems constitute the hard triangle of the

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model. The hard triangle represents a set of “hard” levers that managers can quickly
pull to create alignment, or realignment. Hard does not refer to difficulty, but,

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rather, tangibility. Structure appears on paper, strategy in a formal plan or

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document, and systems in policy manuals, computer programs, or equipment.
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The other four represent the soft square, the elements of style, staffing, skills, and
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shared values. These are parts of the 7S model. Soft square elements are often
difficult to codify, and usually they take a long time to influence and change, such
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as shared values. Strategists can change structure in a day, strategy in a week, or

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systems in a quarter. That does not mean the organization practices the new
strategy, works well in the new structure, or actually uses the new systems. How
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well those changes actually work depends on what happens in the soft Ss. Changing
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the organization’s skill set can take several months or years. Changing the style or
shared values may take decades.
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Figures 12.2 and 12.3 illustrate the concept of creating alignment. Notice that each
figure has two Ss in addition to the 7Ss of the core model: Stakeholders and
Situation. Stakeholders are those individuals and groups who affect, and are
affected by, the firm and its activities. When stakeholder needs or preferences
change, the firm may find itself out of alignment. The Situation describes the
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market and industry environment, social and technological trends, government

regulations, or any other element outside the firm where change will affect
alignment. It is important to remember that a firm may have solid internal
alignment, and yet be out of alignment with the situation or stakeholders. When the
organization finds itself out of alignment, it must change something in order to get
back to alignment. That involves the second important process of implementation:

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strategic change.

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FIGURE 12.2 Misalignment

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FIGURE 12.3 Alignment

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Strategic Change

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In this section, we will explain how managers effectively lead strategic change to

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move their organizations forward. We will also discuss how the tools of strategic

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change apply to individuals, since the most important firm we all manage is one
called “Me, Inc.” Managers who cannot lead change, in their own or their

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organization’s lives, find it difficult to thrive, and even survive, in a world of
turbulent change.
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The first time an entrepreneur sets a strategy to create unique value for customers
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in a particular market, they align the organization with that strategy. At every other
point in a company’s history, a change in strategy requires realigning the
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organization with the new direction. Realigning strategy entails changing the other
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six Ss, and that is not an easy thing to do. Recent evidence puts the failure rate for
organizational change at 60 percent to 70 percent, and that percentage has not
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changed for several decades.24 Change seems to be even harder for individuals. One
study found that, out of a group of people who had experienced coronary artery
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bypass surgery to save their lives, 90 percent failed to change their lifestyle to avoid

a repeat of the trauma.25 Part of the problem is that individuals and leaders do not
realize that change is a process with three distinct phases.

Strategy in Practice
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The 7S Model and AI

As business leaders think about the onset of AI and other advanced

technologies, they have no playbook to help them make these calls, but the 7S
model can help them understand the nature of the changes and how they
might respond. In terms of strategy, cost leaders will face opportunities to

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reshape their supply chains to mitigate risks and gain efficiencies. Cost leaders

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were most likely to see changes in the following elements:

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Systems: Inventory and supply chain systems are ripe for transformation

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through AI-based record keeping and tracking and things such as
blockchain verification of shipping, payments, and returns. These tools
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will be particularly valuable for large companies or those with complex
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and multinational supply chains.

Staffing: Some lower level clerical staff and many warehouse workers
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will see many of the mundane tasks they perform done through AI-
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driven robots or software.

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Differentiation-focused firms, particularly those whose advantage relies on

“high-touch” or location-based strategies, may see less impact from new
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technologies; however, here are some potential impacts:

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Structure: Many high-touch locations rely on local, decentralized

management to make decisions consistent with local markets. AI may
benefit information sharing and the identification of best practices.
Regional managers will need to balance what works globally with what
works locally.
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Skills: The skill base of workers will shifit in value. As AI performs more
routine tasks, and as technologies like blockchain offer greater security,
higher-order skills, such as creativity, problem-solving, and strategic
insight will become more valuable. Managers and leaders must have
these skills to continue to add value to their organizations.

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The Three Phases of Change

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Most of us think of change as the need to start doing something new, whether that
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is eating healthier or, in the case of an organization, focusing on a new market
segment, such as Google’s Project X. What most do not realize, however, is that
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effective change requires moving through three stages of a well-defined process. We

must first stop the activity, or set of activities, we want to change, then adopt new
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behaviors, and finally ingrain those new behaviors into our routines. Pioneering
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social psychologist Kurt Lewin used ice as a metaphor for change, and his three-

step model of change is outlined in Figure 12.4.26

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FIGURE 12.4 Three Key Phases of Change

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Unfreezing
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Unfreezing begins the change process as individuals and groups within the
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organization recognize and publicly admit that the current situation is not working.
Unfreezing entails moving away from certain actions, policies, or strategies before
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adopting anything new. When individuals, groups, or companies make a “stop

doing” list, they have begun the process of unfreezing.27 The process of unfreezing
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provides the fundamental motivation for change.

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Changing
The change process is how a company adapts to its environment and learns new
behaviors, and is the most difficult part of the process. Most individuals resist
change because of our innate desire to be good at what we do. Change means that
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we will adopt new behaviors we are not good at, and very few people enjoy that
feeling. In addition, few organizations encourage or reward their people to leave a
zone of competence and try new behaviors. Successful change efforts must
overcome these barriers. Change means moving from one set of behaviors and
activities to another.

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