16591680 strategic management chap011

8/9/2019 16591680 Strategic Management Chap011

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Chapter TitleChapter Title

16/e PPT16/e PPT

Building anOrganization

Capable of Good

Strategy Execution

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.

Troy University-Florida Region

McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.


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The best game plan inthe world never blocked

or tackled anybody.

Vince Lombardi


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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 StrategyExecution

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-drivenactivity

Successful strategy makingdepends on

Business vision

Perceptive analysis ofmarket conditions andcompany capabilities

Attracting and pleasing

customers

Outcompeting rivals

Using companycapabilities to forge acompetitive advantage

Executing the Strategy

Primarily an operations-driven activity

Successful strategyexecution depends on

Doing a good job ofworking through others

Good organization-building

Building competitive

capabilities

Creating a strategy-supportive culture

Getting things done anddelivering good results

Crafting vs. Executing Strategy


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An action-oriented, make-things happen task

involving managements ability to

Direct organizational change

Achieve continuous improvement inoperations and business processes

Move toward operating excellence

Create and nurture a

strategy-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 Adept Leadership

Implementinga new strategy

takes adeptleadership 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 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 bedeviling issues to be worked out

Demands good people management skills

Requires launching and managinga 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 acompanys whole management team and allemployees

Just as every part of a watch plays a role in making thewatch function properly, it takes all pieces of anorganization working cohesively for a strategyto be well-executed

Top-levelmanagers must leadthe

process and orchestrate major initiatives Butthey must rely on cooperation of

Middle and lower-level managers to see things go well invarious parts of an organization and

Employees to perform their roles competently


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Goals of the StrategyImplementing-Executing Process

Unite total organization behind strategy

See that activities are done in a manner that is

conducive to first-rate strategy execution

enerate commitmentso an enthusiastic

crusade emerges to carry out strategy

Fithow organization conducts its

operations to strategy requirements


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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 arecapable of working

Cuts across many aspects of how to manage

Characteristics of the StrategyImplementation Process


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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!

Characteristics of the StrategyImplementation Process (continued)


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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 consensus on how to proceed

Arouse enthusiasm for the strategy to turn

implementation process into a companywide crusade Empowersubordinates to keep process moving

Establish measures of progress and deadlines

Rewardthose who achieve

implementation milestones

Direct resources to the right places

Personally leadstrategic 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 thecompany.

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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BUILD

ING

ACA

PA

BLEBUILD

ING

ACA

PA

BLEORGANIZATIONORGANIZATION WHATWHAT

IS INVOLVED?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 team

may be suitable

Core executive group

may 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 companys people is an essential

ingredient of successful strategy execution

Biggest challenge facing companies

How to recruit and retain the bestand brightest talent with strong

skill sets and management potential

Intellectual capital, not tangible assets, is

increasingly being viewed as the most importantinvestment

Talented people are a prime source of competitive

advantage

Recruiting and Retaining TalentedEmployees: Implementation Issues


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Key Human Resource Practices toAttract and Retain Talented Employees

Spend considerable effort in screening job

applicants, selecting only those with

Suitable skill sets

Energy and initiative Judgment and aptitudes for learning

Ability to adapt to firms work

environment and culture

Put employees through trainingprograms throughout their careers

Give promising employees challenging, interesting,

and skills-stretching assignments


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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 environmentExert efforts to retain high-potential employees with

excellent salary and benefits

Coach average employees to improve their skills

Key Human Resource Practices to

Attract and Retain Talented Employees (continued)


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Building Core Competenciesand Competitive Capabilities

Craftingthe strategyinvolves

Identifyingthe desired competencies and

capabilities to build into the strategy to help

achieve a competitive advantage

Good strategy execution requires

Puttingdesired competencies and capabilities in

place,

Upgradingthem as needed, and

Modifyingthem as market

conditions evolve


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Example: Intels Core Competence

Design and mass production

of complex chipsfor personal computers


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Example: Procter & GamblesCore 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 ElectricsCore Competencies

Developing professional managers with

broad problem-solving skills and

proven ability to growglobal businesses


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Example: Disneys Core Competencies

Theme park operation and

family entertainment


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Example: Dells 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: Toyotas Core Competence

Legendary production system giving it

the capability to produce high-quality

vehicles at relatively low costs


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1. Develop abilityto do something

2. As experience builds,

abilitycan translate into acompetence or capability

3. Ifabilitycontinues to be polished andrefined, it can become a distinctive

competence, providing a path to

competitive advantage!

Three-Stage Process of DevelopingCompetencies and Capabilities


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Develop abilityto do something

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 organizationalability

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 orcapability

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



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If company masters the activity, performingit

better than rivals, the capabilityor

competencebecomes a

Distinctive competence and

Holds potential for

competitive advantage

This is the optimaloutcome of the process

of building capabilities-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 incrementallyfrom

various company efforts to respond to market

conditions

3. Leveraging competencies into competitive advantage

requires concentratingmore effortand talentthan

rivals on strengthening competencies to createvaluable capabilities

4. Sustaining competitive advantage requires adjusting

competencies to new conditions

Managing the Process of BuildingCompetences: Four Key Traits


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Internaldevelopmentinvolves either

Strengthening the companys base of skills,knowledge, and intellect or

Coordinating and networking the effortsof various work groups and departments

Partnering with key suppliers,forming strategic alliances, or maybeeven outsourcing certain activities to

specialists

Buying a companythat has the requiredcapabilities and integrating these competences intothe firms value chain

Approaches to Developing Competencies


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Competencies and capabilities must

continuously be modifiedand perhaps

even replaced with newones due to

New strategic requirements Evolving market conditions

Changing customer expectations

Ongoing efforts to keep core competencies up-to-

date can provide a basis forsustainingboth

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 difficultto 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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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 chainactivities 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 BigRule: Role andpurpose oforganization

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 ofdifferent 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 toPerform Internally and Which to Outsource

Involves decidingwhich activities are

essential to strategic success

Most strategies entail certain crucial business processes

or activities that must be performed exceedingly well orin 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

Criticalactivities


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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 wouldpoor execution seriously impair

strategic success?


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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

Potential Advantages ofOutsourcing Non-Critical Activities


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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 theresult 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 many people have criticized companies that

have outsourced functions once performed in-house

to foreign suppliers (who can perform the functions

more cheaply) because 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 competitivenessand thereby better protect the jobs of the remaining

employees. True or false? Explain.


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Assign managers of strategy-critical activities a

visible, influential position

Avoidfragmenting responsibility for strategy-critical

activities across many departments

Provide coordinating linkages

between related work groups

Meld into a valuable

competitive capability

Assign

managers

key roles

Primaryactivities

Strategic

relation-

ships

Coordi-

nation

Valuable

capability

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 integratedcompany

D

ivisional organizational structureA diversifiedcompany

Individual businesses, with each business unit operating

as independent profit center


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In a centralized structure

Top managers retain authority

for most decisions

In a decentralized structure

Managers and employees are

empowered to make decisions

Trendin most companies

Shift from authoritarian to decentralized

structures 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 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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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

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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Classicmethodofcoordinating activities Have

related units reportto 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

Formalreporting relationships often need to be

supplementedto facilitate coordination

Step 4: Provide for InternalCross-Unit Coordination


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Guard Against FunctionalDesigns That Fragment Activities

Scatteringpieces 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

Obsession with activity rather than result

Solution Business process reengineering Involves pulling strategy-criticalprocesses from

functional departments to create process departments

orcross-functionalwork groups


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Examples of FragmentedStrategy-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 tied

to group performance

Teamwork and cross-

departmental cooperation

Coordinating Mechanisms to Supplementthe 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 collaborative

efforts to enhance firms capabilities

and resource strengths

While collaborative relationships presentopportunities, nothing valuable is realized until

the relationship develops into an engine for

betterorganizationalperformance


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Get right people together

Promote good rapport

See plans for specific activitiesare developed and implemented

Help adjust internal procedures

and communication systems to Iron out operating dissimilarities

Nurture interpersonal ties

Roles of Relationship ManagersWith Strategic Partners


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Test Your Knowledge

Which one of the following tends to be most important in building an

organization capable of good strategy execution?

A. Selecting a capable management team and selecting and training

employees

B. Building and strengthening competencies and competitivecapabilities

C. Empowering employees and utilizing the advantages of

decentralized decision-making

D. Making strategy-critical activities the main building blocks in the

organizational schemeE. None of the above is necessarily more or less importantwhat

factors prove to be particularly important in building an organization

that is capable of good strategy execution can vary from company to

company and situation to situation.


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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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Centralizedor authoritarian structures have

often turned out to be a liabilitywhere

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

Drawbacks of CentralizedAuthoritarian Structures


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Organizational Structures ofthe Future: Overall Themes

Revolutionary changes in how workis organized

have been triggered by

New strategic priorities

Rapidly shifting competitive conditions

Tools oforganizationaldesign include

Empowered managers and workers

Reengineered work processes

Self-directed work teams Rapid incorporation ofInternet

technology

Networking with outsiders

The future

structure

will be . . .


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Characteristics ofOrganizations of the Future

Extensive use ofInternet technology

and 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 customersCapacityforchange and rapidlearning

Collaborative efforts among people in different

functions and geographic locations

Change &Learning

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