chapter 10: building an organization capable of good strategy execution
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Chapter 10: Building an Organization Capable of Good Strategy Execution. Screen graphics created by: Jana F. Kuzmicki , Ph.D. Troy University. “The best game plan in the world never blocked or tackled anybody.”. Vince Lombardi. - PowerPoint PPT PresentationTRANSCRIPT
McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
Chapter 10: Building an Chapter 10: Building an
Organization Capable ofOrganization Capable of
Good Strategy ExecutionGood Strategy Execution
Screen graphics created by:Jana F. Kuzmicki, Ph.D.
Troy University
““The best game plan inThe best game plan in
the world never blockedthe world never blocked
or tackled anybody.”or tackled anybody.”
Vince LombardiVince Lombardi
““A second-rate strategy A second-rate strategy perfectly executed will beat a perfectly executed will beat a
first-rate strategy poorly first-rate strategy poorly executed every time.”executed every time.”
Richard M. KovacevichRichard M. KovacevichChairman and CEO, Wells FargoChairman and CEO, Wells Fargo
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Chapter Learning Objectives
1. Gain command of what managers must do to promote successful strategy execution.
2. Understand why good strategy execution requires astute managerial actions to build core competencies and competitive capabilities.
3. Learn what issues to consider in organizing the work effort and why strategy-critical activities should be the main building blocks of the organizational structure.
4. Become aware of the pros and cons of centralized and decentralized decision making in implementing and executing the chosen strategy.
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Chapter Roadmap
A Framework for Executing Strategy
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
Crafting vs. Executing Strategy
Crafting the Strategy Primarily a market-driven
activity Successful strategy making
depends on Business vision Perceptive analysis of
market conditions and company capabilities
Attracting and pleasing customers
Outcompeting rivals Using company
capabilities to forge a competitive advantage
Executing the Strategy Primarily an operations-
driven activity Successful strategy
execution depends on Doing a good job of
working through others Good organization-
building Building competitive
capabilities Creating a strategy-
supportive culture Getting things done and
delivering good results
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An action-oriented, make-things happen task involving management’s ability toDirect organizational change
Achieve continuous improvement in operations and business processes
Move toward operatingexcellence
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 Adept Leadership
Implementing a new strategytakes adept leadership to
Convincingly communicatereasons 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 managerialactivities 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 a company’s wholemanagement team and all employees Just as every part of a watch plays a role in
making the watch function properly, it takesall pieces of an organization working cohesively for a strategy to be well-executed
Top-level managers must lead theprocess and orchestrate major initiatives But they must rely on cooperation of
Middle and lower-level managers to see things go well in various parts of an organization and
Employees to perform their roles competently
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Goals of the Strategy Implementing-Executing Process
Unite total organization behind strategy
See that activities are done ina manner that is conducive tofirst-rate strategy execution
Generate commitment so an enthusiasticcrusade emerges to carry out strategy
Fit how organization conducts itsoperations 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 are capable of working
Cuts across many aspects of “how to manage”
Characteristics of the Strategy Implementation 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 Strategy Implementation Process (continued)
Figure 10.1: The Eight Components of Strategy Execution
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Communicate the case for change Build consensus on how to proceed Arouse enthusiasm for the strategy
to turn implementation process intoa 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.
BUILDING A CAPABLE BUILDING A CAPABLE
ORGANIZATION — WHAT ORGANIZATION — WHAT
IS INVOLVED?IS INVOLVED?
Figure 10.2: 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’speople is an essential ingredientof 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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Key Human Resource Practices toAttract and Retain Talented Employees
Spend considerable effort in screeningjob applicants, selecting only those with Suitable skill sets Energy and initiative Personality traits that mesh well with firm’s work
environment and culture Judgment and aptitudes for learning
Put employees through training programs throughout their careers
Give promising employeeschallenging, interesting, andskills-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 environment Exert 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
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
Example: Intel’s Core Competence
Design and mass productionof complex chips
for personal computers
Example: Procter & Gamble’sCore Competencies
Superb marketing-distribution skills and R&D
capabilities in five core technologies - fats,
oils, skin chemistry, surfactants, emulsifiers
Example: Ciba Specialty Chemicals Core Competence
Technology-based competencies allowing it to quickly manufacture products for customers
wanting customized products relating to coloration, brightening and whitening, water treatment and
paper processing, freshness, and cleaning
Example: Disney’s Core Competencies
Theme park operation
Family entertainment
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. First develop ability to do something
2. Build experience and gradually transform the ability into a core competence and proven capability
3. Continue to refine and polish the competence/capability, striving to perform the activity better than rivals, thereby turning the core competence into a distinctive competence and providing a path to competitive advantage!
Three-Stage Process of Developing Competencies and Capabilities
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Develop ability to do something consistently well and at acceptable cost
Select people with relevant skills/experience
Broaden or expandindividual abilities as needed
Mold 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, transform the ability into a core competence and capability
Typically, a core competence or competitive capability emerges from establishing and nurturing collaborative relationshipsBetween individuals and groups in different
departmentsBetween a company and its strategic allies
Step 2 in Developing Competencies
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If and when a company masters the activity, not just performing it really well but performing it better than rivals, the “core competence” (and now “proven capability”) becomes aDistinctive competence and
Holds potential forcompetitive advantage
Step 3 in Developing Competencies
This is the optimal outcome of the process of building competitively potent competencies and capabilities!
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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 effortsto deal effectively with market conditions
3. Leveraging competencies into competitive advantage requires concentrating more effort and talent than rivals on strengthening competencies to create valuable capabilities
4. Sustaining competitive advantage requires adjusting competencies to new conditions
Managing the Process of Building Competences: Four Key Traits
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Internal development involves eitherStrengthening the company’s 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 maybe even outsourcingcertain activities to specialists
Buying a company that has the required capabilities and integrating these competencies 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 competencies 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
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 idiosyncratic, reflecting Prior arrangements and internal politics Executive judgments and preferences about how
to arrange reporting relationships How best to integrate and coordinate work effort
of different work groups and departments
Vice President Vice President Vice President
CEO
Figure 10.3: Structuring the Work Effort toPromote Successful Strategy Execution
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Step 1Step 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 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 becandidates for outsourcing
Criticalactivities
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Determining Strategy-Critical Activities: Issues to Consider
1. What functions or business processeshave to be performed extra well or intimely fashion to achieve competitive advantage?
2. In what value-chain activities wouldpoor execution seriously impairstrategic success?
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A company improves its chances for outclassing rivals inPerforming strategy-critical activities andTurning a core competence into a distinctive
competence Streamlining of internal operations that flows
from outsourcing acts toDecrease internal bureaucraciesFlatten organization structureSpeed decision-makingIncrease competitive responsiveness
Partnerships can add to a company’s 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 can’t quite match
Consequently pave the wayfor competitive success
Partnering makes strategic sense when theresult is to enhance a company’s
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 minimizedependence on any one supplier
Regularly evaluate suppliers
Work closely with key suppliers
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For Discussion: Your Opinion
While critics complain about companies that have outsourced functions once performed in-house to foreign suppliers (who can perform the functions more cheaply) because such outsourcing results in involuntary layoffs or job cuts, it is really fairer and more accurate to view outsourcing as a means whereby a company can enhance its competitiveness, achieve acceptable financial performance, and thereby better protect the jobs of the remaining employees. True or false? Explain.
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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
Meld into a valuablecompetitive capability
Assignmanagerskey roles
Primary activities
Strategicrelation-
ships
Coordi-nation
Valuablecapability
Supportfunctions
Step 2Step 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 business units, 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 3Step 3:: Determine How MuchAuthority to Delegate to Whom
Table 10.1: Advantages and Disadvantages ofCentralized versus Decentralized Decision Making
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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 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 structurewith fewer management layers
Managers and employees developtheir own answers and action plansMake decisions in their areas of responsibility
Held accountable for results
Shortens organizational response times and spursNew 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
to coordinate 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 4Step 4: Provide for InternalCross-Unit Coordination
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Guard Against FunctionalDesigns That Fragment Activities
Scattering pieces of critical business processes across several specialized departments results in Many hand-offs which
Lengthens completion time Drives up administrative costsIncreases risk of details
falling through the cracks Obsession with activity rather than result
Solution Business process reengineering Involves pulling strategy-critical processes
from functional departments to create process departments or cross-functional work groups
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Examples of Fragmented Strategy-Critical Activities
Filling customer orders
Speeding new products to market
Improving product quality
Supply chain management
Building capability to conductbusiness 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 5Step 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 relationshipspresent opportunities, nothingvaluable is realized until therelationship develops into an enginefor better organizational performance
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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 competitive capabilities
C. Empowering employees and utilizing the advantages of decentralized decision-making
D. Making strategy-critical activities the main building blocks in the organizational scheme
E. None of the above is necessarily more or less important—what 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 completedthe 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 Internettechnology
Networking with outsiders
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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 Assembling work teams including more members
dispersed over a wider geographic area
Change &Learning