19e section6 ln chapter10

8/10/2019 19e Section6 LN Chapter10

1/10

Chapter 10 Building an Organization Capable of Good Strategic Execution 659

659

CHAPTER 10

BUILDING AN

ORGANIZATION CAPABLE OFGOOD STRATEGIC EXECUTION

CHAPTER SUMMARY

Chapter Ten examines the process of executing an organizational strategy. It has an emphasis on the conversion

of a strategy into actions and good results for organizations. The chapter explores how executing strategy is an

operations-driven activity that revolves around the management of people and business processes. It denotes that

successfully executing a strategy depends on doing a good job of working with and through others, building and

strengthening competitive capabilities, motivating and rewarding people in a strategy-supportive manner, and

instilling a discipline of getting things done.

LECTURE OUTLINE

I. Introduction

1. Just because senior managers announce a new strategy does not mean that organizational members

will agree with it or enthusiastically move forward in implementing it. It takes adept managerial

leadership to convincingly communicate the new strategy and the reasons for it, overcome pockets

of doubt and disagreements, secure the commitment and enthusiasm of concerned parties, build

consensus on all the hows of implementation and execution, and move forward to get all the piecesinto place.

2. Executing strategy is a job for the whole management team, not just a few senior managers.

3. Strategy execution requires every manager to think through the answer to What does my area

have to do to implement its part of the strategic plan and what should I do to get these things

accomplished effectively and efciently?

II. A Framework for Executing Strategy

1. Executing strategy entails guring out all the howsthe specic techniques, actions, and behaviors

that are needed for a smooth strategy-supportive operationand then following through to get

things done and deliver results.

CORE CONCEPT

Good strategy execution requires a team eort. All managers have strategy-executing responsibility in their areas of authority, and all employees areparticipants in the strategy execution process.

2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.

This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


2/10


2. Managements handling of the strategy implementation process can be considered successful if

and when the company achieves the targeted strategic and nancial performance and shows good

progress in making its strategic vision a reality.

A. ThePrincipalManagementComponentsoftheStrategyExecutingProcess

1. Despite the need to tailor a companys strategy-executing approaches to the particulars of its

situation, certain managerial bases have to be covered no matter what the circumstances.

2. Figure10.1,TheTenBasicTasksoftheStrategyExecutionProcess, depicts the eight managerial

tasks that come up repeatedly in a companys efforts to execute strategy.

3. The eight managerial tasks that crop up repeatedly in company efforts to execute strategy include:

a. Staff the organization with managers and employees capable of executing the strategy well.

b. Build the organizational capabilities required for successful strategy execution.

c. Create a strategy-supportive organizational structure.

d. Allocate sufcient budgetary (and other) resources to the strategy execution effort.

e. Institute policies and procedures that facilitate strategy execution.

f. Adopt best practices and business processes that drive continuous improvement in strategy

execution activities.

g. Install information and operating systems that enable company personnel to carry out their

strategic roles prociently.

h. Tie rewards and incentives directly to the achievement of strategic and nancial targets.

i. Instill a corporate culture that promotes good strategy execution.

j. Exercise the internal leadership needed to propel strategy implementation forward.

4. In devising an action agenda for implementing and executing strategy, the place for managers to

start is with a probing assessment of what the organization must do differently and better to carry out

the strategy successfully. They should then consider precisely how to make the necessary internal

changes as rapidly as possible.

5. When strategies fail, it is often because of poor executionthings that were supposed to get done

slip through the cracks.

6. The bigger the organization, the more that successful strategy execution depends on the cooperation

and implementing skills of operating managers who can push needed changes at the lowest

organizational levels and deliver results.

7. Regardless of the organizations size and the scope of the changes, the most important leadershiptrait is a strong, condent sense of what to do and how to do it.

8. Whats Covered in Chapters 10, 11, and 12 - This chapter and the next two will explore what is

involved in performing the ten key managerial tasks that shape the process of implementing and

executing strategy.

a. This chapter explores the rst three of these tasks (1) stafng the organization with people

capable of executing the strategy well, (2) building the organizational capabilities needed for

successful strategy execution, and (3) creating an organizational structure supportive of the

strategy execution process.




3/10


b. Chapter 11 concerns the tasks of allocating resources, instituting strategy-facilitating policies

and procedures, employing business process management tools and best practices, installing

operating and information systems, and tying rewards to the achievement of good results.

c. Chapter 12 deals with the two remaining tasks: creating a strategy-supportive corporate culture

and exercising the leadership needed to drive the execution process forward.

III. Building

an

Organization

Capable

of

Good

Strategy

Execution:

Where

to

Begin

1. Building a capable organization is always a top priority in strategy execution. Three types of

organization-building actions that are paramount include:

a. Stafng the organization

b. Building and strengthening core competencies and competitive capabilities

c. Structuring the organization and work effort

2. Figure10.2,BuildinganOrganizationCapableofProcientStrategyExecution:ThreeTypes

of Paramount Actions, looks at the three components necessary for building a capable organization.

IV. Stafng the Organization

1. No company can hope to perform the activities required for successful strategy execution without

attracting and retaining talented managers and employees with suitable skills and intellectual

capital.

A.

Putting

Together

a

Strong

Management

Team

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

2. The task of implementing challenging strategic initiatives must be assigned to executives who have

the skills and talents to handle them and who can be counted on to get the job done well.

B. Recruiting and Retaining Capable Employees

1. Stafng the organization with the right kinds of people must go much deeper than managerial jobs

in order to build an organization capable of effective strategy execution.

2. In high-tech companies, the challenge is to staff work groups with gifted, imaginative, and energetic

people who can bring life to new ideas quickly.

3. Illustration

Capsule

10.1,Build From Within: P&Gs Approach to Management Development ,

describes Proctor and Gambles approach to developing a high-caliber management team.

ILLUSTRATION CAPSULE 10.1

Build From Within: P&Gs Approach to Management Development

Discussion Question:Identify the ve key elements of P&Gs management development life cycle.

Answer: The management pipeline is created through ve key stages including (1) a rigoroustraining process, (2) extensive on the job and formal training opportunities, (3) detailed developmentand career planning, (4) clear path to leadership, and (5) actively managed succession planning.




4/10


4. In many industries adding to a companys talent base and building intellectual capital is more

important to strategy execution than additional investments in plants, equipment, and capital

projects.

5. The practices listed next are common among companies dedicated to stafng jobs with the most

capable people they can nd:

a. Putting forth considerable effort on screening and evaluating job applicants

b. Providing employees with training programs that continue throughout their careers.

c. Offering promising employees challenging, interesting, and skill-stretching assignments.

d. Rotating people through jobs that span functional and geographic boundaries.

e. Making the work environment stimulating and engaging so employees will consider the com-

pany a great place to work.

f. Striving to retain talented high-performing employees via promotions, salary increases,

performance bonuses, stock options and equity ownership, fringe benet packages, and other

perks.

g. Coaching average performers to improve their skills while weeding out underperformers and

benchwarmers

V. Acquiring, Developing, and Strengthening Key Resources and Capabilities

1. A top organization-building priority in the strategy implementing/executing process is the need to

build and strengthen competitively valuable core competencies and organizational capabilities.

A. ThreeApproachestoBuildingandStrengtheningCapabilities

1. Building core competencies and competitive capabilities is a time consuming, managerially chal-

lenging exercise. The capability building process has three common approaches.

2. Developing Capabilities Internally First, the organization must develop the ability to do

something, however imperfectly or inefciently. Second, as experience grows and company

personnel learn how to perform the activity consistently well and at an acceptable cost, the ability

evolves into a tried and true competence or capability. Third, should the organization continue

to polish and rene its know-how and otherwise sharpen its performance such that it becomes

better than rivals at performing the activity, the core competence rises to the rank of a distinctive

competence, thus providing a path to competitive advantage.


Toyotas Legendary Production System: A Capability That Translates into

Competitive Advantage

Discussion Question: What two TPS techniques do you think are the most unusual? How do youthink these help Toyota to pursue a more ecient manufacturing operation?

Answer: Students should select two choices from among the eight listed in this example. Studentresponses will vary, but students should be exhibiting some personal viewpoints or perspectivesthat otherwise may not have been brought to light. This sharing should facilitate further classroomdiscussion about quality control.




5/10


3. Acquiring capabilities through mergers and acquisitions Sometimes a company can refresh

and strengthen its competencies by acquiring another company with attractive resources and

capabilities. The primary advantage of this method is speed and these types of acquisitions are

essential in two situations. First, when a market opportunity can slip by faster than a needed

capability can be created internally. Second, when industry conditions, technology, or competitors

are moving at such a rapid clip that time is of the essence.

4. Accessing capabilities via collaborative partnerships Sometimes a company can access

capabilities via collaborative partnerships with suppliers, competitors, or other companies having

the cutting-edge expertise. First, Outsource the function requiring the capabilities to a key supplier

or another provider. Second, Collaborate with a rm that has complementary resources and

capabilities in a joint venture, strategic alliance, or other type of partnership established for the

purpose of achieving a shared strategic objective. Third, Engage in a collaborative partnership for

the purpose of learning how the partner does things, internalizing its methods and thereby acquiring

its capabilities.

B. The Strategic Role of Employee Training

1. Training and retraining are important when a company shifts to a strategy requiring different skills,

competitive capabilities, managerial approaches, and operating methods.

2. The strategic importance of training has not gone unnoticed. Over 600 companies have established

internal universities to lead the training effort, facilitate continuous organizational learning, and

help upgrade company competencies and capabilities.

C. Strategy Execution Capabilities and Competitive Advantage

1. Superior strategy execution capabilities allow companies to get the most from their organizational

resources and competitive capabilities.

2. Superior strategy execution capabilities are the only source of sustainable competitive advantage

when strategies are easy for rivals to copy.

VI.

Organizing

the

Work

Effort

with

a

Supportive

Organizational

Structure

A. DecidingWhichValueChainActivitiestoPerformInternallyandWhichtoOutsource

1. Outsourcing assorted administrative support activities and perhaps even core or primary value

chain activities can enable the company to concentrate its full energies and resources on even more

competently performing those value chain activities that are at the core of its strategy and for which

it can create unique value.

2. Figure

10.3,

Structuring

the

Work

Effort

to

Promote

Successful

Strategy

Execution, looks at

some of the considerations that are common to most all organizations.

3. When a company uses outsourcing to zero in on even better performance of those truly strategy-

critical of those truly strategy-critical activities where its expertise is most need, then it may be ableto realize three very positive benets.

a. The company improves its chances for outclassing rivals in the performance of those activities

and turning a core competence into a distinctive competence.

b. The streamlining of internal operations that ows from outsourcing often acts to decrease

internal bureaucracies, atten the organization structure, speed internal decision making and

shorten the time it takes to respond to changing market conditions.

c. Partnerships can add to a companys arsenal of capabilities and contribute to better strategy

execution.




6/10


4. As a general rule, companies refrain from outsourcing those value chain activities over which they

need direct strategic and operating control in order to build core competencies, achieve competitive

advantage, and effectively manage key customer-supplier-distributor relationships.

5. A company that goes overboard on outsourcing can hollow out its knowledge base so as to leave

itself at the mercy of outside suppliers and short of the resource strengths to be master of its own

destiny.

B. AligningtheFirmsOrganizational StructurewithItsStrategy

1. Some activities in the value chain are always more critical to strategic success and competitive

advantage than others.

CORE CONCEPT

A rms organizational structure comprises the formal and informal arrangement oftasks, responsibilities, lines of authority, and reporting relationships by which the rmis administered.


Which Value Chain Activities Does Apple Outsource and Why?

Discussion Question: What key value chain activities does Apple outsource and not outsource, andwhy did the rm select them?

Answer: Apple has chosen to focus their internal resources on their key success factors in newproduct development and product design as these provide the company with a sustainablecompetitive advantage. The company has outsourced manufacturing because it does not providea unique competitive advantage. Flexible manufacturing process are well developed and easily

copied.

2. MakingStrategyCriticalActivitiestheMainBuildingBlocksofOrganizationalStructure

The rationale for making strategy-critical activities the main building blocks in structuring a business

is compelling: if activities crucial to strategic success are to have the resources, decision-making

inuence, and organizational impact they need, they have to be centerpieces in the organizational

scheme.

3. Matching Typeof Organizational Structure to Strategy ExecutionRequirements Organ-

izational structures can be classied into a limited number of standard types. The type that is most

suitable for a given rm will depend on the rms size and complexity as well as its strategy.

a. Simple Structure A simple structure is one in which a central executive (often the owner-manager) handles all major decisions and oversees the operations of the organization with the

help of a small staff.

b. Functional Structure A functional structure is one that is organized along functional lines,

where a function represents a major step in the rms value chain, such as R&D, engineering

and design, manufacturing, sales and marketing, logistics, and customer service.

c. Multidivisional Structure A multidivisional structure is a decentralized structure consisting

of a set of operating divisions organized along market, customer, product, or geographic lines,

and a central corporate headquarters, which monitors divisional activities, allocates resources,

performs assorted support functions, and exercises overall control.




7/10


d. Matrix Structure A matrix structure is a combination structure in which the organization

is organized along two or more dimensions at once (e.g., business, geographic area, value

chain function) for the purpose of enhancing cross-unit communication, collaboration, and

coordination.

CORE CONCEPT

A simple structureconsists of a central executive who handles all major decisionsand oversees all operations with the help of a small sta.

CORE CONCEPT

A functional structureis organized into functional departments, with departmentalmanagers who report to the CEO and small corporate sta.

CORE CONCEPT

A multidivisional structureis a decentralized structure consisting of a setof operating divisions organized along business, product, customer group, orgeographic lines, and a central corporate headquarters that allocates resources,provides support functions, and monitors divisional activities.

CORE CONCEPT

A matrix structureis a structure that combines two or more organizational forms,with multiple reporting relationships. It is used to foster cross-unit collaboration.

C. Determining the Degree of Authority and Independence to Give Each Unit and Each Employee

1. The two extremes are to centralize decision-making at the top (the CEO and a few close lieutenants)

or to decentralize decision-making by giving managers and employees considerable decision-

making latitude in their areas of responsibility.

2. Table 10.1, Advantages and Disadvantages of Centralized versus Decentralized Decision-

Making, shows the two approaches to decision-making are based on sharply different underlying

principles and beliefs, with each having pros and cons.

3. Centralized Decision-Making: Pros and Cons In a highly centralized organization structure,

top executives retain authority for most strategic and operating decisions and keep a tight rein on

business-unit heads, department heads, and the managers of key operating units; comparatively

little discretionary authority is granted to front-line supervisors and rank and le employees.

a. Key advantages include: (1) Fixes accountability through tight control from the top (2) Elim-

inates potential for conicting goals and actions on the part of lower-level managers (3)

Facilitates quick decision making and strong leadership under crisis situations

b. Key disadvantages include: (1) Lengthens response times by those closest to the market conditions

because they must seek approval for their actions (2) Does not encourage responsibility among

lower-level managers and rank-and-le employees (3) Discourages lower-level managers and

rank-and-le employees from exercising any initiative




8/10


4. DecentralizedDecision-Making: ProsandConsIn a highly decentralized organization, decision-

making authority is pushed down to the lowest organizational level capable of making timely,

informed, competent decisions. The objective is to put adequate decision-making authority in the

hands of those closest to and most familiar with the situation and train them to weigh all the factors

and exercise good judgment.

a. Key advantages include: (1) Encourages company employees to exercise initiative and actresponsibly (2) Promotes greater motivation and involvement in the business on the part of

more company personnel (3) Spurs new ideas and creative thinking (4) Allows for fast response

to market change (5) Entails fewer layers of management

b. Key disadvantages include: (1) Higher-level managers may be unaware of actions taken by

empowered personnel under their supervision (2) Puts the organization at risk if empowered

employees happen to make bad decisions (3) Can impair cross-unit collaboration

5. CapturingCross-BusinessStrategicFitsinaDecentralizedStructure: Diversied companies

striving to capture cross-business strategic ts have to beware of giving business heads full rein to

operate independently when cross-business collaboration is essential in order to gain strategic t

benets.

D. Facilitating Collaboration with External Partners and Strategic Allies

1. Someone or some group must be authorized to collaborate with each major outside constituency

involved in strategy execution.

2. Building organizational bridges with external allies can be accomplished by appointing relationship

managers with responsibility for making particular strategic partnerships or alliances generate the

intended benets.

3. Organizing and managing a network structure provides another mechanism for encouraging more

effective collaboration and cooperation among external partners.

CORE CONCEPT

A network structureis the arrangement linking a number of independentorganizations involved in some common undertaking.

E. FurtherPerspectivesonStructuringtheWorkEffort

1. All organization designs have their strategy-related strengths and weaknesses. To do a good job of

matching structure to strategy, strategy implementers rst have to pick a basic design and modify it

as needed to t the companys particular business lineup. They must then:

a. Supplement the design with appropriate coordinating mechanisms (cross-functional task forces,

special project teams, self-contained work teams, and so on) and

b. Institute whatever networking and communications arrangements it takes to support effective

execution of the rms strategy.

2. Effectively managing both internal organization processes and external collaboration to create

and develop competitively valuable organizational capabilities remains a top challenge for senior

executives in todays companies.




9/10


ASSURANCE OF LEARNING EXERCISES

1. The heart of Toyotas strategy in motor vehicles is to out compete rivals by manufacturing world-class,

quality vehicles at lower costs and selling them at competitive price levels. Executing this strategy requires

top-notch manufacturing capability and super-efcient management of people, equipment, and materials.

Illustration Capsule 10.2, discusses the principles, practices, and techniques grounded in Toyotas famed

Toyota Production System. How does Toyotas philosophy of dealing with defects, empowering employees,and developing capabilities impact strategy execution? Why are its slogans such as Never be satised and

Ask yourself Why? ve times important?

Answer:The student should identify that the slogans discussed serve as constant reminders of the underlying

values of quality and continuous improvement. The use of slogans in highlighting important values is a key

component in developing and maintaining a positive culture.

2. Procter and Gambles systematic approach to management development is discussed in Illustration Capsule

10.1. Based upon the information provided in the capsule, explain how the companys approach to recruiting

and its promotion from within policy helps build managerial talent. Explain why its formal training

opportunities and career planning efforts help the company retain its most valuable employees. How does

Procter and Gamble make sure that its managers are good at knowing what needs to be done and are skilled

in making it happen.

Answer:The student should identify that Proctor and Gamble has formalized the entire process of developing

and training their management in order to ensure that the company can continue to grow as existing managers

retire and leave the rm and as the company develops new business opportunities. P&Gs management

pipeline is created through ve key stages including (1) a rigorous training process, (2) extensive on

the job and formal training opportunities, (3) detailed development and career planning, (4) clear path to

leadership, and (5) actively managed succession planning. Through this detailed and formalized process, the

rm can be sure that it has a sustainable supply of managers that are skilled at making it happen.

3. Review the Careers link on LOrals worldwide corporate Web site (www.loreal.comand click on the

companys worldwide corporate Web site option). The section provides extensive information about personal

development, international learning opportunities, integration of new hires into existing teams, and otherareas of management development. How do the programs discussed help LOral to hire good people and

build core competencies and competitive capabilities? Please use the chapters discussions of recruiting,

training, and retaining capable employees and building core competencies and competitive capabilities as a

guide for preparing your answer.

Answer:The student should note that the textbook discussion on building core competencies and competitive

capabilities begins on page 336 and they should use this as a guide for preparing their answers. Specically,

answers could include a discussion of company-specic competencies and capabilities that have been

instrumental in driving the companys success in its marketplace. Students should be able to dene what

makes these features into competitive competencies and capabilities.

For example, one of the four traits related to building core competencies and competitive capabilities is

they can be viewed as bundles of skills and know-how that often grow out of the combined efforts of cross-functional work groups and departments performing complementary activities at different locations in a

rms value chain. Students should point out that LOreal has several career programs which are likely to

facilitate this trait. They include the management trainee program (can include hands-on assignments in

eld sales, category management, market research, nance, and marketing services); LOreal Fit (a two-

year personalized integration and support program adaptable to the needs of all new employees); and a

growth and personal development program (includes training programs, eld visits, and distance learning

opportunities based on an individuals professional needs). Students should recognize these programs are

managerial activities to strengthen the companys base of skills, knowledge, and intellect that are related to

developing core competencies and competitive capabilities.


http://www.loreal.com/http://www.loreal.com/


10/10


4. Examine the overall corporate organizational structure chart for Exelon Corporation. The chart can be found

by going to www.exeloncorp.comand using the Web site search feature to locate organizational charts.

Does it appear that strategy-critical activities are the building blocks of Exelons organizational arrangement?

Is its organizational structure best characterized as a departmental structure tied to functional, process,

or geographic departments? Is the companys organizational structure better categorized as a divisional

structure? Would you categorize Exelons organizational structure as a matrix arrangement? Explain your

answer.

Answer:In examining the site, the student should nd that the Exelon family of companies includes Exelon

Generation, Exelon Transmission Company, ComEd, and PECO which share a corporate services and support

unit, Exelon Business Services Company. With a nationwide reach and strong positions in the Midwest and

Mid-Atlantic regions, it appears Exelon has designed its organizational structure based on key value chain

activities that are the main building blocks in its structure generation, transmission, and delivery. Regarding

strategic success, Exelon was ranked #134 on the 2009 FORTUNE 500 list, and #1 on the Utilities: Gas and

Electric industry list. In addition, it was named #7 in Businessweeks list of 50 top performing companies

in 2008. Exelons organizational structure is best characterized as a divisional structure. The major building

blocks of this structure are generation and marketing, transmission, and delivery. The Web site link is http://

www.exeloncorp.com/peopleandculture/ corporatestructure/overview.aspx.

5. Using Google Scholar or your university librarys access to EBSCO, InfoTrac, or other online databases, doa search for recent writings on decentralized decision making and employee empowerment. According to the

articles you nd in the various management journals, what are the conditions under which decision making

should be pushed down to lower levels of management?

Answer: The student should note that possible databases include Academic Search Premier, EBSCO,

LexisNexis Academic, or Business Source Premier. Students should provide cited information from

the articles they choose and demonstrate the relevance to decentralized decision making and employee

empowerment. Criteria for the effective use of these management approaches should be demonstrated in

student discussions. Using the search terms of decision making and employee empowerment, several

articles were located. Two of the recent scholarly journal articles are provided below:

High-Involvement Work Practices: Are They Really Worth It?Maura J Mills, Satoris S Culbertson.

The Academy of Management Perspectives. Briarcliff Manor: Aug 2009. Vol. 23, Iss. 3; p. 93

Employee Empowerment: A Conceptual Analysis. Manoj K Sharma, Gurvinder Kaur.Journal of

Global Business Issues. Burbank: Summer 2008. Vol. 2, Iss. 2; p. 7 (6 pages)

2014 by McGraw Hill Education This is proprietary material solely for authorized instructor use Not authorized for sale or distribution in any manner
http://q/Freelance/Boardwork/19e/18e_IM_Lecture%20Notes/http/www.exeloncorp.comhttp://q/Freelance/Boardwork/19e/18e_IM_Lecture%20Notes/http/www.exeloncorp.com

19e section6 ln chapter10

Documents