Crafting & Executing Strategy 19e

CHAPTER 10BUILDING AN ORGANIZATION CAPABLE OF GOOD STRATEGY EXECUTION: PEOPLE, CAPABILITIES, AND STRUCTURE

Gain command of what managers must do to execute strategy successfully.Learn why hiring, training, and retaining the right people constitute a key component of the strategy execution process.Understand that good strategy execution requires continuously building and upgrading the organizations resources and capabilities.Recognize what issues to consider in establishing a strategy-supportive organizational structure and organizing the work effort.Become aware of the pros and cons of centralized and decentralized decision making in implementing the chosen strategy.10#EXECUTING STRATEGYStrategy ExecutionIs operations-driven, involving management of both people and business processes.Is a job for the whole management team, not just a few senior managers.Can take years longer to develop as a real proficiency than implementing strategy. Requires a determined commitment to change, action, and performance.103A FRAMEWORK FOR EXECUTING STRATEGYCommitting to Executing a Strategy:Entails figuring out the specific techniques, actions, and behaviors necessary for a smooth strategy-supportive operation.Following through to get things done and deliver results.Making things happen (leadership) and making them happen right (management).104FIGURE 10.1The 10 Basic Tasks of the Strategy Execution Process

Chapter 10Chapter 12Chapter 11The Action Agenda for Executing Strategy105Staff the organization with managers and employees capable of executing the strategy well.Build the organizations capabilities required for successful strategy execution.Create a strategy-supportive organizational structure.Allocate sufficient budgetary (and other) resources to the strategy execution effort.Institute policies and procedures that facilitate strategy execution.Adopt best practices and business processes that drive continuous improvement of execution activities.Install information and operating systems that enable personnel to carry out their strategic roles proficiently.Tie rewards and incentives directly to the achievement of strategic and financial targets.Instill a corporate culture that promotes good strategy execution.Exercise the internal leadership needed to propel strategy implementation forward.THE PRINCIPAL COMPONENTS OF THE STRATEGY EXECUTION PROCESS106When strategies fail, it is often because of poor execution. Strategy execution is therefore a critical managerial endeavor.The two best signs of good strategy execution are whether a company is meeting or beating its performance targets and whether they are performing value chain activities in a manner that is conducive to companywide operating excellence.107STRATEGIC MANAGEMENT PRINCIPLEBUILDING AN ORGANIZATION CAPABLE OF GOOD STRATEGY EXECUTION: THREE KEY ACTIONSStaffing: Assemble a strong management team and a cadre of competent employees.Developing: Renew, upgrade, and revise resources and capabilities to match chosen strategy.Structuring: Create strategy-supportive organization capable of good strategy execution.108

FIGURE 10.2Building an Organization Capable of Proficient Strategy Execution: Three Types of Paramount Actions109Putting together a talented management team with the right mix of experiences, skills, and abilities to get things done is one of the first steps to take in launching the strategy-executing process.1010STRATEGIC MANAGEMENT PRINCIPLESTAFFING THE ORGANIZATIONPutting Together a Strong Management Team:Planners who ask tough questions and figure out what needs to be done.Implementers who can select, manage, and lead the right people.Executors who turn decisions into actions that drive the changes that produce sustainable competitive advantage.Key Takeaway:A critical mass of talented activist managers1011In many industries, adding to a companys talent base and building intellectual capital are more important to good strategy execution than additional investments in capital projects.1012STRATEGIC MANAGEMENT PRINCIPLERECRUITING, TRAINING, AND RETAINING CAPABLE EMPLOYEESIntensively screen and evaluate applicants to ensure selecting those who are best-suited and best-fitted.Provide training programs throughout employee careers.Rotate promising people through challenging, and skill-stretching international assignments.Make the work environment stimulating and engaging so that the firm is considered a great place to work.Use an assortment of financial incentives and other perks to retain employees.Coach average performers to improve their skills and capabilities, while weeding out underperformers.1013The best companies make a point of recruiting and retaining talented employeesthe objective is to make the firms entire workforce (managers and rank-and-file employees) a genuine competitive asset.1014STRATEGIC MANAGEMENT PRINCIPLEILLUSTRATION CAPSULE 10.1Build From Within: P&Gs Approachto Management DevelopmentWhy would you want to work as a manager for Proctor and Gamble?What long-term organizational problems could result from a heavy reliance on promote-from-within?1015ACQUIRING, DEVELOPING,AND STRENGTHENING KEY RESOURCES AND CAPABILITIESDevelopcapabilities internallyAcquire capabilities through mergers and acquisitionsAccess capabilities via collaborative partnershipsApproaches to Build Building and Strengthening Capabilities1016Building new competencies and capabilities is a multistage process that occurs over a period of months and years. It is not something that is accomplished overnight.1017STRATEGIC MANAGEMENT PRINCIPLEDEVELOPING CAPABILITIES INTERNALLYCoordinate and integrate the efforts of work groups and departmentsStrengthen the firms base of skills, knowledge, and intellectManagerial Actions to Develop Competencies and Capabilities1018A companys capabilities must be continually refreshed and renewed to remain aligned with changing customer expectations, altered competitive conditions, and new strategic initiatives.1019STRATEGIC MANAGEMENT PRINCIPLESETTING STRETCH GOALS: FROM CAPABILITY TO COMPETENCEThinkingstrategicallyabout a firmsknowledge and skills baseThinking strategicallyabout a firmsopportunitiesand challengesSetting a stretch goal of developing an organizational ability to do something wellEvolving the ability into a competence or capability by performing it welland at an acceptable costRefreshing, updating, and upgrading competencies and capabilities as necessary to gain and maintain competitive advantage1020ACQUIRING CAPABILITIES THROUGH MERGERS AND ACQUISITIONSA Question of Market Opportunity When a market opportunity can slip by faster than a needed capability can be created internally.A Question of Competitive NecessityWhen industry conditions, technology, or competitors are moving at such a rapid clip that time is of the essence.A Question of Successful IntegrationTacit knowledge and complex routines may not transfer readily from one organizational unit to another.1021ILLUSTRATION CAPSULE 10.2Toyotas Legendary Production System: A Capability that Translates into Competitive AdvantageWhat about the Toyota Production System (TPS) makes it so difficult for competitors to imitate successfully?What is the relationship between continuous improvement and efficiency in the TPS?Why would an Ishikawa (fish bone) diagram be helpful in solving problems in the TPS?1022ACCESSING CAPABILITIES THROUGH COLLABORATIVE PARTNERSHIPSOutsource the function requiring the capabilities to a key supplier or another providerCollaborate with a firm that has complementary resources and capabilitiesEngage in a collaborative partnership for the purpose of learning how the partner does things Approaches to acquiring capabilities from an external source1023THE STRATEGIC ROLE OF EMPLOYEE TRAININGTraining Is Important In:Executing a strategy that requires different skills, competitive capabilities, and operating methods.Organizational efforts to build skills-based competencies.Supplying technical know-how to employees when rapidly changing technology puts a firm in danger of losing its ability to compete.1024STRATEGY EXECUTION CAPABILITIESAND COMPETITIVE ADVANTAGESuperior Strategy Execution Capabilities:Are difficult to imitate and socially complex process that take a long time to develop.Maximize organizational resources and competitive capabilities in support of the business model.Lower costs and permit firms to deliver more value to customers.Enable a firm to react more quickly to market changes, beat competitors to market with new products and services, and gain uncontested market dominance.1025Superior strategy execution capabilities are the only source of sustainable competitive advantage when strategies are easy for rivals to copy.1026STRATEGIC MANAGEMENT PRINCIPLEMATCHING ORGANIZATIONAL STRUCTURE TO THE STRATEGYEnsuring that Structure Follows Strategy By:Deciding which value chain activities to perform internally and which to outsource.Aligning the firms organizational structure with its strategy.Determining how much authority to delegate.Facilitating collaboration with external partners and strategic allies.1027 FIGURE 10.3Structuring the Work Effort to Promote Successful Strategy Execution

1028DECIDING WHICH VALUE CHAIN ACTIVITIES TO PERFORM INTERNALLY AND WHICH TO OUTSOURCEOutsourcings Execution-Related Benefits:Helps in outclassing rivals in strategy-critical activities and in turning a core competence into a distinctive competence.Decreases bureaucracies, flattens structure, speeds decision making, and shortens respond time to changing market conditions.Adds to a firms capabilities and contributes to better strategy execution through partnerships with suppliers and channel partners.1029Wisely choosing which activities to perform internally and which to outsource can lead to several strategy-executing advantageslower costs, heightened strategic focus, less internal bureaucracy, speedier decision making, and a better arsenal of organizational capabilities.1030STRATEGIC MANAGEMENT PRINCIPLEALIGNING THE FIRMS ORGANIZATIONAL STRUCTURE WITH ITS STRATEGYOrganizational StructureComprises the formal and informal arrangement of tasks, responsibilities, lines of authority, and reporting relationships for the firm.Structure Is Aligned with Strategy When:Its design contributes to the creation of value for customers.Its parts are aligned with one another and also matched to the requirements of the strategy.It lowers operating costs through lower bureaucratic costs and operational efficiencies.1031A firms organizational structure comprises the formal and informal arrangement of tasks, responsibilities, lines of authority, and reporting relationships by which the firm is administered.1032CORE CONCEPTHow important is outsourcing to Apples marketplace success?Is outsourcing to low-wage overseas manufacturers to avoid paying higher wages in markets where it sells the majority of its products a failure of corporate social responsibility by Apple?ILLUSTRATION CAPSULE 10.3 Which Value Chain Activities Does Apple Outsource and Why?1033MATCHING TYPE OF ORGANIZATIONAL STRUCTURE TO STRATEGY EXECUTION REQUIREMENTS

Simple Structure(Line-and-Staff)Functional Structure(Departmental or Unitary)Multidivisional Structure(Divisional or M-form)Matrix Structure(Composite or Combination) Strategy Execution Requirements: Chosen Strategy

Capabilities and Competencies

Centralized or Decentralized Control1034A simple structure (line-and-staff structure) consists of a central executive (often the owner-manager) who handles all major decisions and oversees all operations with the help of a small staff.A functional structure is organized into functional departments, with departmental managers who report to the CEO and small corporate staff.1035CORE CONCEPTSA multidivisional structure is a decentralized structure consisting of a set of operating divisions organized along business, product, customer group, or geographic lines, and a central corporate headquarters that allocates resources, provides support functions, and monitors divisional activities.A matrix structure combines two or more organizational forms, with multiple reporting relationships. It is used to foster cross-unit collaboration.1036CORE CONCEPTSDETERMINING HOW MUCH AUTHORITY TO DELEGATEOrganizational Approach to Decision-MakingDecentralized Decision MakingCentralized Decision MakingAuthority is retained by top managementAuthority delegated to lower-level managers and employees 1037TABLE 10.1Advantages and Disadvantages of Centralized versus Decentralized Decision MakingCentralized Organizational StructuresDecentralized Organizational StructuresBasic Tenets Basic Tenets Decisions on most matters of importance should be in the hands of top-level managers who have the experience, expertise, and judgment to decide what is the best course of action Lower-level personnel have neither the knowledge, the time, nor the inclination to properly manage the tasks they are performingStrong control from the top is a more effective means for coordinating the firms actionsDecision-making authority should be put in the hands of the people closest to, and most familiar with, the situation Those with decision-making authority should be trained to exercise good judgmentA firm that draws on the combined intellectual capital of all its employees can outperform a command-and-control firm1038Centralized Organizational StructuresDecentralized Organizational StructuresChief Advantages Chief Advantages Fixes accountability through tight control from the topEliminates potential for conflicting goals and actions on the part of lower-level managersFacilitates quick decision making and strong leadership under crisis situationsEncourages employees to exercise initiative and act responsiblyPromotes greater motivation and involvement in the business on the part of more company personnelSpurs new ideas and creative thinkingAllows fast response to market changeEntails fewer layers of managementAdvantages and Disadvantages of Centralized versus Decentralized Decision Making (contd)TABLE 10.11039Centralized Organizational StructuresDecentralized Organizational StructuresPrimary Disadvantages Primary Disadvantages Lengthens response times by those closest to the market conditions because they must seek approval for their actionsDoes not encourage responsibility among lower-level managers and rank-and-file employeesDiscourages lower-level managers and rank-and-file employees from exercising any initiativeHigher-level managers may be unaware of actions taken by empowered personnel under their supervisionPuts the organization at risk if empowered employees happen to make bad decisionsCan impair cross-unit collaborationAdvantages and Disadvantages of Centralized versus Decentralized Decision Making (contd)TABLE 10.11040The ultimate goal of decentralized decision making is to put authority in the hands of those persons closest to and most knowledgeable about the situation.1041STRATEGIC MANAGEMENT PRINCIPLECAPTURING CROSS-BUSINESS STRATEGIC FIT IN A DECENTRALIZED STRUCTURECentralizing related functions requiring close coordination at the corporate levelEnforcing close cross-business collaboration to avoid duplication of effortCapturing Cross-BusinessStrategic Fit1042Efforts to decentralize decision making and give company personnel some leeway in conducting operations must be tempered with the need to maintain adequate control and cross-unit coordination.1043STRATEGIC MANAGEMENT PRINCIPLEFACILITATING COLLABORATION WITH EXTERNAL PARTNERS AND STRATEGIC ALLIES

Strategic alliancesOutsourcing arrangementsJoint ventures Cooperative partnershipsCreating aNetwork Structure:Using relationship managers to build and maintain cooperativearrangements of value both parties1044A network structure is the arrangement linking a number of independent organizations involved in some common undertaking.1045CORE CONCEPTFURTHER PERSPECTIVES ON STRUCTURING THE WORK EFFORTPick a basic organizational design that matches structure to strategySupplement design with appropriate coordinating mechanismsInstitute collaborative networking and communication arrangementsMatching Structure to Strategy1046