Chapter 10: Building an Organization Capable of Good Strategy Execution

Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

The best game plan in the world never blocked or tackled anybody.
Vince Lombardi

A second-rate strategy perfectly executed will beat a first-rate strategy poorly executed every time.
Richard M. Kovacevich
Chairman and CEO, Wells Fargo

Crafting vs. Executing Strategy

Crafting the Strategy Primarily a market-driven activity Successful strategy making depends on
Business vision Perceptive analysis of market conditions and company capabilities Attracting and pleasing customers Outcompeting rivals Using company capabilities to forge a competitive advantage

Executing the Strategy

Primarily an operations-

driven activity Successful strategy execution depends on Doing a good job of

working through others Good organizationbuilding Building competitive capabilities Creating a strategysupportive culture Getting things done and delivering good results
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Executing the Strategy

An action-oriented, make-things happen

task involving managements ability to

Direct organizational change

Achieve continuous improvement in operations and business processes Implementation

Move toward operating

excellence

involves . . .

Create and nurture a strategy-supportive culture Consistently meet or beat performance targets

Tougher and more time-consuming than

crafting strategy
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Implementing a New Strategy Requires Adept Leadership

Implementing a new strategy

takes adept leadership to

Convincingly communicate reasons for the new strategy Overcome pockets of doubt Secure commitment of concerned parties Build consensus and enthusiasm Get all implementation pieces in place and coordinated
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Why Executing Strategy Is a Tough Management Job

Overcoming resistance to change

Wide array of demanding managerial

activities to be performed
Numerous ways to tackle each activity Number of bedeviling issues to be worked out Demands good people management skills

Requires launching and managing

a variety of initiatives simultaneously

Hard to integrate efforts of many different

work groups into a smoothly-functioning whole

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Who Are the Strategy Implementers?

Implementing and executing strategy

involves a companys whole management team and all employees

Just as every part of a watch plays a role in making the watch function properly, it takes all pieces of an organization working cohesively for a strategy to be well-executed Top-level managers must lead the

process and orchestrate major initiatives

But they must rely on cooperation of

Middle and lower-level managers to see things

go well in various parts of an organization and Employees to perform their roles competently
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Goals of the Strategy Implementing-Executing Process

Unite total organization behind strategy See that activities are done in

a manner that is conducive to first-rate strategy execution

Generate commitment so an enthusiastic

crusade emerges to carry out strategy

Fit how organization conducts its

operations to strategy requirements

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Characteristics of the Strategy Implementation Process

Every manager has an active role No proven formula for implementing

particular types of strategies

There are guidelines, but no

absolute rules and must do it this way rules

Many ways to proceed that are

capable of working
Cuts across many aspects of how to

manage
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Characteristics of the Strategy Implementation Process (continued)

Each implementation situation occurs in a

different context, affected by differing

Business practices and competitive situations Work environments and cultures Policies Compensation incentives Mix of personalities and firm histories Approach to implementation/execution

has be customized to fit the situation

People implement strategies - Not

companies!
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Figure 10.1: The Eight Components of Strategy Execution

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What Top Executives Have to Do in Leading the Implementation Process

Communicate the case for change

Build consensus on how to proceed

Arouse enthusiasm for the strategy

to turn implementation process into a companywide crusade

Empower subordinates to keep process moving Establish measures of progress and deadlines

Reward those who achieve implementation

milestones
Direct resources to the right places Personally lead strategic change process

and the drive for operating excellence

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BUILDING A CAPABLE ORGANIZATION WHAT IS INVOLVED?

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Figure 10.2: The Three Components of Building an Organization Capable of Proficient Strategy Execution

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Putting Together a Strong Management Team

Assembling a capable management team is

a cornerstone of the organization-building task

Find the right people to fill each slot Existing management team may be suitable

Core executive group may need strengthening

Promote from within

Bring in skilled outsiders

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Selecting the Management Team: Key Considerations

Determine mix of Backgrounds Experiences and know-how

Beliefs and values

Styles of managing and personalities Personal chemistry must be right Talent base needs to be appropriate Picking a solid management team needs to

be acted on early in implementation process

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Recruiting and Retaining Talented Employees: Implementation Issues

The quality of a companys

people is an essential ingredient of successful strategy execution

Biggest challenge facing companies

How to recruit and retain the best and brightest talent with strong skill sets and management potential
Intellectual capital, not tangible assets, is

increasingly being viewed as the most important investment

Talented people are a prime source of competitive advantage
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Key Human Resource Practices to Attract and Retain Talented Employees

Spend considerable effort in screening

job applicants, selecting only those with

Suitable skill sets Energy and initiative Personality traits that mesh well with firms work environment and culture Judgment and aptitudes for learning Put employees through training

programs throughout their careers Give promising employees challenging, interesting, and skills-stretching assignments
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Key Human Resource Practices to Attract and Retain Talented Employees (continued)
Rotate employees through jobs with great

content, spanning functional and geographic boundaries Encourage employees to

Be creative and innovative Challenge existing ways of
doing things and offer better ways Submit ideas for new products or businesses

Foster a stimulating work environment

Exert efforts to retain high-potential employees

with excellent salary and benefits Coach average employees to improve their skills
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Building Core Competencies and Competitive Capabilities

Crafting the strategy involves Identifying the desired competencies and capabilities to build into the strategy to help achieve a competitive advantage

Good strategy execution requires

Putting desired competencies and capabilities in place, Upgrading them as needed, and Modifying them as market conditions evolve
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Example: Intels Core Competence

Design and mass production of complex chips for personal computers

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Example: Procter & Gambles Core Competencies

Superb marketing-distribution skills and R&D capabilities in five core technologies - fats, oils, skin chemistry, surfactants, emulsifiers

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Example: Ciba Specialty Chemicals Core Competence

Technology-based competencies allowing it to quickly manufacture products for customers wanting customized products relating to coloration, brightening and whitening, water treatment and paper processing, freshness, and cleaning

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Example: Disneys Core Competencies

Theme park operation Family entertainment

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Example: Toyotas Core Competence

Legendary production system giving it the capability to produce high-quality vehicles at relatively low costs

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Three-Stage Process of Developing Competencies and Capabilities

1. First develop ability to do something

2. Build experience and gradually transform the ability into a core competence and proven capability
3. Continue to refine and polish the competence/capability, striving to perform the activity better than rivals, thereby turning the core competence into a distinctive competence and providing a path to competitive advantage!
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Step 1 in Developing Competencies

Develop ability to do something consistently

well and at acceptable cost

Select people with relevant skills/experience Broaden or expand individual abilities as needed Mold efforts and work products of individuals into a cooperative effort to create organizational ability
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Step 2 in Developing Competencies

As experience builds and company learns

how to perform the activity consistently well and at acceptable cost, transform the ability into a core competence and capability Typically, a core competence or competitive capability emerges from establishing and nurturing collaborative relationships
Between individuals and groups in different departments Between a company and its strategic allies

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Step 3 in Developing Competencies

If and when a company masters the

activity, not just performing it really well but performing it better than rivals, the core competence (and now proven capability) becomes a
Distinctive competence and Holds potential for competitive advantage

This is the optimal outcome of the process of building competitively potent competencies and capabilities!
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Managing the Process of Building Competences: Four Key Traits

1. Competencies are bundles of skills and know-how growing from combined efforts of cross-functional departments 2. Normally, competencies emerge incrementally from various company efforts to deal effectively with market conditions 3. Leveraging competencies into competitive advantage requires concentrating more effort and talent than rivals on strengthening competencies to create valuable capabilities 4. Sustaining competitive advantage requires adjusting competencies to new conditions
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Approaches to Developing Competencies

Internal development involves either

Strengthening the companys base of skills,

knowledge, and intellect or

Coordinating and networking the efforts

of various work groups and departments

Partnering with key suppliers,

forming strategic alliances, or maybe even outsourcing certain activities to specialists

Buying a company that has the required

capabilities and integrating these competencies into the firms value chain
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Updating Competencies and Capabilities as Conditions Change

Competencies and capabilities must

continuously be modified and perhaps even replaced with new ones due to
New strategic requirements

Evolving market conditions

Changing customer expectations Ongoing efforts to keep core competencies

up-to-date can provide a basis for sustaining both

Effective strategy execution and

Competitive advantage
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Strategic Role of Employee Training

Training plays a critical role in

implementation when a firm shifts to a strategy requiring different

Skills or core competencies Competitive capabilities Managerial approaches Operating methods

Types of training approaches Internal universities Orientation sessions for new employees Tuition reimbursement programs Online training courses
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Competitive Advantage Potential of Competencies and Capabilities

When it is difficult to outstrategize rivals with a superior strategy . . . . . . Best avenue to industry leadership is to out-compete rivals with superior strategy execution! Building competencies and capabilities rivals cant match is one of the best ways to out-compete them!
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Execution-Related Aspects of Organizing Work Efforts

Few hard and fast rules for organizing One Big Rule: Role and purpose of organization structure is to support and facilitate good strategy execution! Each firms structure is idiosyncratic, reflecting Prior arrangements and internal politics Executive judgments and preferences about how to arrange reporting relationships How best to integrate and coordinate work effort of different work groups and departments
CEO

Vice President

Vice President

Vice President
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Figure 10.3: Structuring the Work Effort to Promote Successful Strategy Execution

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Step 1: Decide Which Value Chain Activities to Perform Internally and Which to Outsource
Involves deciding which activities are

essential to strategic success

Most strategies entail certain crucial business processes or activities that must be performed exceedingly well or in closely coordinated fashion if the strategy is to be executed with real proficiency

These processes/activities usually

need to be performed internally

Other activities, such as routine administrative housekeeping and some support functions, may be candidates for outsourcing

Critical activities

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Determining Strategy-Critical Activities: Issues to Consider

1. What functions or business processes have to be performed extra well or in timely fashion to achieve competitive advantage?

2. In what value-chain activities would poor execution seriously impair strategic success?

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Potential Advantages of Outsourcing Non-Critical Activities

A company improves its chances for outclassing

rivals in
Performing strategy-critical activities and Turning a core competence into a distinctive
competence

Streamlining of internal operations that flows

from outsourcing acts to

Decrease internal bureaucracies Flatten organization structure Speed decision-making Increase competitive responsiveness

Partnerships can add to a companys arsenal of

capabilities and contribute to better strategy execution

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Appeal of Outsourcing
Outsourcing non-critical activities allows a

firm to concentrate its energies and resources on those value-chain activities where it
Can create unique value
Can be best in the industry Needs direct control to

Build core competencies Achieve competitive advantage Manage key customer-supplier-distributor

relationships
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Potential Advantages of Partnering

By building, improving, and then leveraging

partnerships, a firm enhances its overall capabilities and builds resource strengths that
Deliver value to customers
Rivals cant quite match Consequently pave the way for competitive success

Partnering makes strategic sense when the result is to enhance a companys competencies and competitive capabilities.
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Dangers of Outsourcing
A company must guard against hollowing

out its knowledge base and capabilities

Way to guard against pitfalls of outsourcing

Avoid sourcing key components from a single supplier

Use two or three suppliers to minimize dependence on any one supplier Regularly evaluate suppliers

Work closely with key suppliers

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For Discussion: Your Opinion

While critics complain about companies that have outsourced functions once performed inhouse to foreign suppliers (who can perform the functions more cheaply) because such outsourcing results in involuntary layoffs or job cuts, it is really fairer and more accurate to view outsourcing as a means whereby a company can enhance its competitiveness, achieve acceptable financial performance, and thereby better protect the jobs of the remaining employees. True or false? Explain.
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Step 2: Make Strategy-Critical Activities the Main Building Blocks

Assign managers of strategy-critical

activities a visible, influential position

Avoid fragmenting responsibility for

strategy-critical activities across many departments

Provide coordinating linkages
Assign managers key roles Support functions Coordination Valuable capability
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between related work groups

Meld into a valuable competitive capability

Primary activities Strategic relationships

What Types of Organizational Structures Fit Which Strategies?

A company operating in one business

Functional department structure

A company with operations in various

parts of the world

Geographic organizational units A vertically integrated company

Divisional organizational structure

A diversified company Individual business units, with each business unit operating as independent profit center
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Step 3: Determine How Much Authority to Delegate to Whom

In a centralized structure Top managers retain authority for most decisions In a decentralized structure Managers and employees are empowered to make decisions Trend in most companies Shift from authoritarian to decentralized structures stressing empowerment
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Characteristics of Centralized Decision Making

Top executives retain authority For most strategic and operating decisions and Keep a tight rein on lower-level managers Minimal discretionary authority is granted to Frontline supervisors Rank-and-file employees Key advantage Tight control by top

managers fixes accountability

Disadvantages Lengthens response time to changing conditions Does not encourage responsibility among lower-level
managers and employees Discourages lower-level managers and employees from exercising initiative
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Advantages of a Decentralized Structure

Creates a more horizontal structure

with fewer management layers

Managers and employees develop

their own answers and action plans

Make decisions in their areas of responsibility Held accountable for results
Shortens organizational response times and spurs

New ideas Creative thinking and innovation Greater involvement of managers and employees
Jobs can be defined more broadly Fewer managers are needed Electronic communication systems provide quick, direct

access to data
Genuine gains in morale and productivity
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Maintaining Control in a Decentralized Structure

Place limits on authority empowered

employees can exercise

Hold people accountable for their decisions

Institute compensation incentives that

reward employees for doing their jobs in a manner contributing to good company performance
Create a corporate culture where

theres strong peer pressure on employees to act responsibly

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For Discussion: Your Opinion

A decentralized organization structure is more likely to further the cause of good strategy execution than is a centralized organization

structure. True or false? Explain.

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Step 4: Provide for Internal Cross-Unit Coordination

Classic method of coordinating activities

Have related units report to single manager

Upper-level managers have clout to coordinate efforts of their units Support activities should be

woven into structure to

Maximize performance of primary activities Contain costs of support activities Formal reporting relationships often need

to be supplemented to facilitate coordination

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Guard Against Functional Designs That Fragment Activities

Scattering pieces of critical business

processes across several specialized departments results in

Many hand-offs which

Lengthens completion time Drives up administrative costs Increases risk of details

falling through the cracks

Solution Business process

Obsession with activity rather than result

reengineering

Involves pulling strategy-critical processes from functional departments to create process departments or cross-functional work groups
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Examples of Fragmented Strategy-Critical Activities

Filling customer orders Speeding new products to market Improving product quality Supply chain management Building capability to conduct

business via the Internet

Obtaining feedback from customers, making

product modifications to meet their needs

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Coordinating Mechanisms to Supplement the Basic Organization Structure

Cross-functional task forces Dual reporting relationships Informal networking Voluntary cooperation Incentive compensation tied

to group performance
Teamwork and cross-

departmental cooperation
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Step 5: Provide for Collaboration With Outsiders

Need multiple ties at multiple levels to ensure

Communication
Coordination and control Find ways to produce collaborative

efforts to enhance firms capabilities and resource strengths

While collaborative relationships

present opportunities, nothing valuable is realized until the relationship develops into an engine for better organizational performance
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Roles of Relationship Managers With Strategic Partners

Get right people together Promote good rapport See plans for specific activities

are developed and implemented

Help adjust internal procedures

and communication systems to

Iron out operating dissimilarities Nurture interpersonal ties
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Current Organizational Trends

Numerous companies have completed

the task of remodeling traditional, hierarchical structures built on

Functional specialization and Centralized authority Corporate downsizing movement in the

late 1980s and early 1990s was aimed at

Recasting authoritarian, pyramidal organizational structures

Into flatter, decentralized structures

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Drawbacks of Centralized Authoritarian Structures

Centralized or authoritarian structures

have often turned out to be a liability where

Customer preferences shift from standardized to customized products Product life-cycles grow shorter Flexible manufacturing replaces mass production Customers want to be treated as individuals Pace of technological change accelerates

Market conditions are fluid

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Organizational Structures of the Future: Overall Themes

Revolutionary changes in how work is

organized have been triggered by

New strategic priorities Rapidly shifting competitive conditions Tools of organizational design include Empowered managers and workers Reengineered work processes Self-directed work teams Rapid incorporation of Internet technology Networking with outsiders
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Characteristics of Organizations of the Future

Extensive use of Internet technology

and e-commerce business practices Fewer barriers between Change & Different vertical ranks Learning Functions and disciplines Units in different geographic locations Company and its suppliers, distributors,
strategic allies, and customers
Capacity for change and rapid learning
Collaborative efforts among people in different

functions and geographic locations Assembling work teams including more members dispersed over a wider geographic area
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