Chap011

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Chapter TitleChapter Title

Building an Organization Capable of

Good Strategy Execution

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“A second-rate

strategy perfectly

executed will beat a

first-rate strategy

poorly executed every

time.”Richard M. Kovacevich

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Chapter Roadmap

A Framework for Executing Strategy The Principal Managerial Components of the Strategy

Execution Process Building an Organization Capable of Good Strategy

Execution Staffing the Organization Building Core Competencies and Competitive

Capabilities Execution-Related Aspects of Organizing the Work

Effort Current Organizational Trends

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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 organization-

building Building competitive

capabilities Creating a strategy-

supportive culture Getting things done and

delivering good results

Crafting vs. Executing Strategy

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An action-oriented, make-things happen task involving management’s ability to Direct organizational change

Achieve continuous improvement inoperations and business processes Move toward operating excellence

Create and nurture astrategy-supportive culture

Consistently meet or beat performance targets

Tougher and more time-consuming than crafting strategy

Implementation involves . . .

Executing the Strategy

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Implementing a New StrategyRequires practiced Leadership

Implementing a new strategytakes expert leadership to

Convincingly communicatereasons for the new strategy

Overcome pockets of doubt

Secure commitment of concerned parties

Build harmony and enthusiasm

Get all implementation pieces in place and coordinated

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Why Executing Strategy Isa Tough Management Job

Overcoming resistance to change Wide array of demanding managerial

activities to be performed Numerous ways to tackle each activity Number of complex 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 company’s 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 theprocess and coordinate 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 best strategy execution

Generate commitment so an enthusiasticmovement emerges to carry out strategy

Fit how organization conducts itsoperations to strategy requirements

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Fig. 11.1: The Eight Components of the Strategy Execution Process

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Communicate the case for change Build harmony 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

What Top Executives Have to Do inLeading the Implementation Process

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Test Your Knowledge

Management's handling of the strategy implementation/execution process can be considered successful

A. so long as a company is profitable.

B. if and when the company meets or beats its performance targets and shows good progress in achieving its strategic vision for the company.

C. once the company's management team convinces a majority of company personnel that the company is headed in the right direction.

D. if management is able to put the strategy in place within 6 months.

E. once a capable top management team has been hired, employees have been appropriately empowered, and effective training programs for company personnel have been put in place.

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BUILDING A CAPABLE BUILDING A CAPABLE

ORGANIZATION — ORGANIZATION —

WHAT IS INVOLVED?WHAT IS INVOLVED?

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Fig. 11.2: The Three Components of Building anOrganization Capable of Proficient Strategy Execution

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Assembling a capable management team is a cornerstone of the organization-building task

Find the right people to fill each slot

Existing management teammay be suitable

Core executive groupmay need strengthening

Promote from within

Bring in skilled outsiders

Putting Together aStrong Management Team

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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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The quality of a company’s people is an essential ingredient of successful strategy execution

Biggest challenge facing companies How to recruit and retain the best

and brightest talent with strongskill 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

Recruiting and Retaining Talented Employees: Implementation Issues

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Building Core Competenciesand Competitive Capabilities

Crafting the strategy involves

Identifying the desired competencies andcapabilities to build into the strategy to helpachieve a competitive advantage

Good strategy execution requires

Putting desired competencies and capabilities in place,

Upgrading them as needed, and

Modifying them as marketconditions evolve

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Example: Intel’s Core Competence

Design and mass productionof complex chips

for personal computers

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Example: Procter & Gamble’sCore Competencies

Superb marketing-distribution skills and R&D

capabilities in five core technologies - fats,

oils, skin chemistry, surfactants, emulsifiers

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Example: General Electric’sCore Competencies

Developing professional managers with

broad problem-solving skills and

proven ability to grow

global businesses

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Example: Disney’s Core Competencies

Theme park operation and family entertainment

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Example: Dell’s Core Competencies

Capabilities to deliver state-of-the-art

products to customers within days of next-

generation components coming available and

at attractively low costs

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Example: Toyota’s Core Competence

Legendary “production system” giving it

the capability to produce high-quality

vehicles at relatively low costs

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1. Develop ability to do something

2. As experience builds,ability can translate into acompetence or capability

3. If ability continues to be polished and refined, it can become a distinctive competence, providing a path tocompetitive advantage!

Three-Stage Process of Developing Competencies and Capabilities

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Develop ability to do something

Select people with relevant skills/experience

Broaden or expand individual abilities as needed

shape efforts and work products ofindividuals into a cooperative effortto create organizational ability

Step 1 in Developing Competencies

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As experience builds and company learns how to perform the activity consistently well and at acceptable cost, the ability evolves into a competence or capability

Typically, a capability or competence emerges from establishing and nurturing collaborative relationships between Individuals and groups in different departments and/or A company and its external allies

Step 2 in Developing Competencies

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If company masters the activity, performing it better than rivals, the “capability” or “competence” becomes a

Distinctive competence and

Holds potential forcompetitive advantage

This is the optimal outcome of the process of building capabilities-competencies!

Step 3 in Developing Competencies

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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 respond to 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

Managing the Process of Building Competences: Four Key Traits

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Internal development involves either Strengthening the company’s 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 competences into the firm’s value chain

Approaches to Developing Competencies

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Competencies and capabilities mustcontinuously be modified and perhapseven 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

Updating Competencies andCapabilities as Conditions Change

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Training plays a critical role in implementation when a firm shifts to a strategy requiring different Skills or core competences Competitive capabilities Managerial approaches Operating methods

Types of training approaches Internal “universities” Orientation sessions for new employees Tuition reimbursement programs Online training courses

Strategic Role of Employee Training

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Competitive Advantage Potentialof Competencies and Capabilities

When it is difficult to outstrategize rivals with a superior strategy . . .

. . . Best avenue to industry leadership is to out-compete

rivals withsuperior strategy execution!

Building competencies and capabilitiesrivals can’t match is one of the

best ways to out-compete them!

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Test Your Knowledge

When it is difficult or impossible to out-strategize rivals (beat them with a superior strategy), the other main avenue to competitive advantage is to

A. institute a lower cost organization structure.

B. outcompete them with smarter managers.

C. do a better job of selecting and training employees.

D. outexecute them (beat them by performing certain value chain activities in superior fashion).

E. do a better job of empowering and motivating employees.

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Execution-Related Aspectsof 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 firm’s structure is distinctive, 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

Vice President Vice President Vice President

CEO

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Fig. 11.3: Structuring the Work Effortto 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 areessential 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 isto 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 becandidates for outsourcing

Criticalactivities

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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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Dangers of Outsourcing

A company must guard against hollow 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 minimizedependence on any one supplier

Regularly evaluate suppliers

Work closely with key suppliers

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Assign managers of strategy-critical activities a visible, influential position

Avoid fragmenting responsibility for strategy-critical activities across many departments

Provide coordinating linkages between related work groups

join into a valuablecompetitive capability

Assignmanagerskey roles

Primary activities

Strategicrelation-

ships

Coordi-nation

Valuablecapability

Supportfunctions

Step 2: Make Strategy-CriticalActivities the Main Building Blocks

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What Types of OrganizationalStructures 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 businesses, with each business unit operating

as independent profit center

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In a centralized structure

Top managers retain authorityfor most decisions

In a decentralized structure

Managers and employees areempowered to make decisions

Trend in most companies

Shift from authoritarian to decentralizedstructures stressing empowerment

Step 3: Determine How MuchAuthority to Delegate to Whom

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Characteristics ofCentralized Decision Making

Top executives retain authority For most strategic and operating decisions and Keep a tight restriction on lower-level managers

Minimal discretionary authority is granted to Frontline supervisors Rank-and-file employees

Key advantage – Tight control by topmanagers 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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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 wherethere’s strong peer pressure onemployees to act responsibly

Maintaining Control ina Decentralized Structure

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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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Classic method of coordinating activities – Have related units report to single manager

Upper-level managers have clout tocoordinate efforts of their units

Support activities should bewoven into structure to

Maximize performance of primary activities

Contain costs of support activities

Formal reporting relationships often need to be supplemented to facilitate coordination

Step 4: Provide for InternalCross-Unit Coordination

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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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Cross-functional task forces

Dual reporting relationships

Informal networking

Voluntary cooperation

Incentive compensation tiedto group performance

Teamwork and cross-departmental cooperation

Coordinating Mechanisms to Supplement the Basic Organization Structure

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Step 5: Provide forCollaboration With Outsiders

Need multiple ties at multiple levels to ensure

Communication

Coordination and control

Find ways to produce collaborativeefforts to enhance firm’s capabilitiesand 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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Get right people together

Promote good bonding.

See plans for specific activitiesare developed and implemented

Help adjust internal procedures and communication systems to

flatten operating dissimilarities

Nurture interpersonal ties

Roles of Relationship ManagersWith Strategic Partners

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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 thelate 1980s and early 1990s was aimed at

Recasting authoritarian, pyramidalorganizational structures

Into flatter, decentralized structures

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Centralized or authoritarian structures have often turned out to be a liability where

Customer preferences shift fromstandardized 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

Drawbacks of CentralizedAuthoritarian Structures

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Organizational Structures ofthe 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

The future structure

will be . . .

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Characteristics ofOrganizations of the Future

Extensive use of Internet technologyand e-commerce business practices

Fewer barriers between Different vertical ranks 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

Change &Learning