1-1 CHAPTER 6 CHAPTER 6 Superior Superior Strategy Strategy Execution— Execution— Another Path to Another Path to Competitive Competitive Advantage Advantage McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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CHAPTER 6CHAPTER 6
Superior Strategy Superior Strategy Execution—Another Execution—Another Path to Competitive Path to Competitive
AdvantageAdvantage
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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Developing a Sustainable Developing a Sustainable Competitive AdvantageCompetitive Advantage
Building and sustaining competitive advantage requires: A solid fit between a company’s situation and its
strategic approach
Proficient strategy execution
Good strategy execution is ultimately determine by management’s ability to create and deploy essential human, information, and organizational capital
Financial
Revenues, Profits, Productivity Objectives
Customer
Strategies to create value for customers
Human Capital Information Capital Organizational Capital
Operations Management
Processes
Customer Management
Processes
Innovation Processes
Regulatory and Social Processes
Customer RelationshipsProduct/Service Attributes Brand Image
Revenues, Profits, Long-Term
Shareholder Value
Learning and Growth
Actions and initiatives to align, integrate and enhance intangible assets to support the organization’s strategy
Internal Processes
Strategies to improve value-creating processes
Balanced ScorecardPerspectives
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The Resources and Actions That The Resources and Actions That Drive Strategy ExecutionDrive Strategy Execution
Staffing the organization with people having the right skills and expertise.
Installing information and operating systems that enable company personnel to perform essential activities.
Exerting the internal leadership needed to propel implementation forward.
Adopting an organizational structure that supports strategies intended to create customer value.
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Actions That Drive Strategy Actions That Drive Strategy ExecutionExecution
Developing strategy-supportive policies and procedures.
Creating a company culture that support successful strategy execution
Pushing for continuous improvement in how activities are performed.
Allocating ample resources to strategy critical areas.
Tying rewards and incentives to performance objectives.
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Internal LeadershipInternal Leadership
Managers at all levels of the organization must:
Stay on top of what is happening
Push the organization for good results and operating excellence
Display ethical integrity and spearhead social responsibility initiatives
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Aligning Organizational Structure Aligning Organizational Structure with Strategywith Strategy
A company’s key value adding activities and processes should be the building blocks of its organizational structure
Attempting to carry out a strategy with an ill-fitting organizational structure is unwise
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Types of Organizational StructuresTypes of Organizational Structures
Departmental Structure—Organizes strategy critical activities into distinct functional, product, geographic, process, or customer groups
Divisional Structure—Organizes value chain activities involved in making a product or service available to consumers into a common division
Matrix Structure—Allow for dual reporting relationships between divisional heads and departmental heads
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Authority in Decision MakingAuthority in Decision Making
In a centralized structure Top managers retain authority
for most decisions
In a decentralized structureManagers and employees are
empowered to make decisions
Trend in most companiesShift from authoritarian
to decentralized structures stressing empowerment
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Characteristics of Centralized Characteristics of Centralized Decision MakingDecision Making
Top executives retain authority Keep a tight rein on lower-level managers
Minimal discretionary authority is granted to Frontline supervisors and rank-and-file
employees
Key advantage – Tight control by topmanagers fixes accountability
Disadvantages Lengthens response time to changing conditions Decision making must be granted to managers at
the scene in companies with widely scattered operations
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Advantages of Decentralized Advantages of Decentralized Decision MakingDecision Making
Makes individuals closest to and most familiar with the situation responsible for the decision
Exploits the intellectual capabilities of all employees
Empowered employees are best able to satisfy customer expectations
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Exercising Control Over the Actions Exercising Control Over the Actions of Empowered Employeesof Empowered Employees
Placing limits on the authority of empowered employees
Holding employees accountable for results of decisions
Linking incentives with activities contributing to good performance
Creating a culture where there’s strong peer pressure to act responsibly
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Allocating Resources to Strategy Allocating Resources to Strategy Critical ActivitiesCritical Activities
Allocating resources in ways to support effective strategy execution involves
Funding proposals that hold promise, while turning down those that don’t
Providing the proper amount of funding to support new strategic initiatives
New strategies call for the reallocation of resources
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Instituting Strategy Supportive Instituting Strategy Supportive Policies and ProceduresPolicies and Procedures
Policies and procedures facilitate good strategy execution by:Providing top-down guidance
regarding how things need to be doneEnforcing consistency in how
strategy-critical activities are to be performed
Promote a work climate that facilitates good strategy execution
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When Do Policies and Procedures When Do Policies and Procedures Become “Excessive?”Become “Excessive?”
Too much policy can be as stifling as Wrong policy or as
Chaotic as no policy
Often, the best policy is empowering employees, letting them operate between the “white lines” anyway they think best
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Corporate CultureCorporate Culture
A company’s corporate culture includes its Core values, beliefs, and business
principlesIts style of operatingIngrained behaviors and attitudes
Corporate culture is the company’s organizational DNA
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Corporate CultureCorporate Culture
A corporate culture or work climate is the product of work practices and behaviors that define Define “How we do things here”Its approach to people managementThe chemistry of its work environment
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Unhealthy Corporate CulturesUnhealthy Corporate Cultures
Highly politicized internal environmentIssues resolved on basis of political
clout
Hostility to changeAvoid risks Experimentation and efforts to
alter status quo discouraged
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Unhealthy Corporate CulturesUnhealthy Corporate Cultures
Insular, inwardly focused “Not-invented-here” mindsetCompany personnel discount need to
look outside for best practices
Disregard for high ethical standards and overzealous pursuit of wealth by key executives
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High-Performance CulturesHigh-Performance Cultures
Standout cultural traits includeA can-do spiritPride in doing things rightNo-excuses accountabilityA results-oriented work climate in which
people go the extra mile to achieve performance targets
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High-Performance CulturesHigh-Performance Cultures
Strong sense of involvement by all employees
Emphasis on individual initiative and creativity
Performance expectations are clearly stated
Issues are promptly addressed Constructive pressure to achieve
good results
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Adaptive CulturesAdaptive Cultures
Adaptive cultures are well-suited to fast-changing industries
Characteristics of adaptive cultures includeWillingness to accept change and
embrace challenge of introducing new strategies
Risk-taking, experimentation, and innovation to satisfy stakeholders
Internal entrepreneurship is encouraged and rewarded
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Dominant Traits of Adaptive Dominant Traits of Adaptive CulturesCultures
Any changes in operating practices and behaviors
Must not compromise core values and long-standing business principles
Must be “legitimate” in the sense of serving the best interests of key stakeholders (customers, employees, shareholders, suppliers, communities)
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Changing a Problem CultureChanging a Problem Culture
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Substantive Culture Changing Substantive Culture Changing ActionsActions
Replace key executives strongly associated with old culture
Promote individuals who have desired cultural traits and can serve as role models
Appoint outsiders who have desiredcultural attributes to high-profile positions
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Substantive Culture Changing Substantive Culture Changing ActionsActions
Screen all candidates for new positions carefully, hiring only those who fit in with the new culture
Mandate all company personnel attend culture-training programs
Designing compensation systems that boost the pay of those who display desired behaviors
Revising policies and procedures in ways that drive cultural change
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Symbolic Culture Changing Symbolic Culture Changing ActionsActions
Lead by example – Walk the talk
Ceremonial events to praise people and teams who “get with the program”
Visible awards to honor heroes
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Striving for Continuous Striving for Continuous Improvement in Internal ProcessesImprovement in Internal Processes
Searching out and adopting best practicesis integral to effective implementation
Benchmarking is the backbone of theprocess of identifying, studying, andimplementing best practices
Key tools to promote continuous improvement
Six Sigma quality control
Business process reengineering
TQM
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Using Rewards and IncentivesUsing Rewards and Incentives
Reward systems should include both monetary rewards and non-monetary rewards
Monetary Monetary
Base pay increases Bonuses Profit sharing plans Stock options Piecework
incentives
Non-MonetaryNon-Monetary
Praise and recognition
Stimulating assignments
Autonomy Rapid promotion
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Guidelines for Designing Monetary Guidelines for Designing Monetary Incentive PlansIncentive Plans
Make contingent compensation a major, not minor, piece of total compensation
Incentive plan should extend to all employees
Administer system with scrupulous fairness
Link incentives to achieving only the performance targets in the strategic plan
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Guidelines for Designing Monetary Guidelines for Designing Monetary Incentive PlansIncentive Plans
Targets a person are expected to achieve must involve outcomes that can be personally affected
Keep time between performance review and payment short
Make liberal use of non-monetary rewards
Avoid skirting the system to reward non-performers
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Common Non-Monetary Rewards Common Non-Monetary Rewards Used to Enhance MotivationUsed to Enhance Motivation
Provide attractive perks and fringe benefits Rely on promotion from within when
possible Act on suggestions from employees Create a work atmosphere where there is
genuine sincerity, caring, and mutual respect among all employees
Share financial and strategic information with employees
Have attractive office spaces and facilities
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Information Capital and Strategy Information Capital and Strategy ExecutionExecution
Good information and operating systems are essential for first-rate strategy execution
Information systems are needed to track and report:Customer data
Operations data
Employee data
Supplier data
Financial data
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Trends in Information SystemsTrends in Information Systems
Up-to-the-minute reporting
Manufacturers have daily production reports
Retail companies have real-time inventory and sales records for each item
Manufacturers and retailers are able to use online systems to monitor inventories and track shipments and deliveries
Real-time information systems allow management to quickly make changes if operations drift off course
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Building Human Capital Needed to Building Human Capital Needed to Execute the StrategyExecute the Strategy
Assembling a capable management team is a cornerstone of the organization-building task
Find people who can “make it happen” to fill each slot
Existing management team may be suitableCore executive group may need
strengthening
• Promote from within
• Bring in skilled outsiders
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Recruiting and Retaining a Capable Recruiting and Retaining a Capable WorkforceWorkforce
The quality of a company’s people is an essential ingredient of successful strategy execution
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Recruiting and Retaining a Capable Recruiting and Retaining a Capable WorkforceWorkforce
Tactics commonly used to staff an organization with the best people include Careful screening of applicants
Investing in employee training
Providing promising employees with skill-stretch assignments
Rotating people through jobs in different functional areas or geographic regions
Striving to retain high-performers via promotions and pay increases
Coaching average performers to improve their abilities
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