Chapter 10: Building an Organization Capable of Good Strategy Execution

1. Chapter 10: Building an Organization Capable ofGood Strategy Execution Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

2. “The best game plan inthe world never blockedor tackled anybody.” Vince Lombardi

3. “A second-rate strategy perfectly executed will beat a first-rate strategy poorly executed every time.” Richard M. Kovacevich Chairman and CEO, Wells Fargo

4. Chapter Learning Objectives • Gain command of what managers must do to promote successful strategy execution. • Understand why good strategy execution requires astute managerial actions to build core competencies and competitive capabilities. • 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. • Become aware of the pros and cons of centralized and decentralized decision making in implementing and executing the chosen strategy.

5. 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

6. Crafting vs. Executing Strategy • Crafting the Strategy • Primarily a market-drivenactivity • 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-drivenactivity • 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 10-6

7. Implementation involves . . . Executing the Strategy • An action-oriented, make-things happen task involving management’s ability to • Direct 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

8. 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

9. 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

10. 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 leadtheprocess 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

11. Goals of the Strategy Implementing-Executing Process • Unite total organizationbehind strategy • See that activitiesare done ina manner that is conducive tofirst-rate strategy execution • Generate commitment so an enthusiasticcrusade emerges to carry out strategy • Fithow organization conducts itsoperationsto strategy requirements

12. Characteristics of the Strategy Implementation Process • 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”

13. Characteristics of the Strategy Implementation Process (continued) • 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!

14. Figure 10.1: The Eight Components of Strategy Execution 10-14

15. What Top Executives Have to Do inLeading the Implementation Process • Communicate the case for change • Build consensus on how to proceed • Arouse enthusiasm for the strategyto 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 processand the drive for operating excellence

16. 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.

17. BUILDING A CAPABLE ORGANIZATION — WHAT IS INVOLVED? 10-17

18. Figure 10.2: The Three Components of Building anOrganization Capable of Proficient Strategy Execution 10-18

19. Putting Together aStrong Management Team • 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

20. 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

21. Recruiting and Retaining Talented Employees: Implementation Issues • The quality of a company’speople is an essential ingredientof successful strategy execution • Biggest challenge facing companies • How to recruit and retain the bestand 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

22. 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

23. Key Human Resource Practices to Attract and Retain Talented Employees(continued) • 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

24. Building Core Competenciesand Competitive Capabilities • Crafting the strategy involves • Identifying the desired competenciesandcapabilitiesto build into the strategy to helpachieve a competitive advantage • Good strategy execution requires • Putting desired competenciesand capabilities in place, • Upgradingthem as needed, and • Modifyingthem as marketconditions evolve

25. Example: Intel’s Core Competence Design and mass productionof complex chipsfor personal computers 10-25

26. Example: Procter & Gamble’sCore Competencies Superb marketing-distribution skills and R&D capabilities in five core technologies - fats, oils, skin chemistry, surfactants, emulsifiers 10-26

27. 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 10-27

28. Example: Disney’s Core Competencies Theme park operation Family entertainment 10-28

29. Example: Toyota’s Core Competence Legendary “production system” giving it the capability to produce high-quality vehicles at relatively low costs 10-29

30. Three-Stage Process of Developing Competencies and Capabilities 1. First develop ability to do something 2. Build experience and gradually transform the ability into a core competence andproven 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!

31. Step 1 in Developing Competencies • 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

32. Step 2 in Developing Competencies • As experience builds and company learns how to perform the activity consistently well and at acceptable cost, transform the ability into a core competenceand capability • Typically, a core competence or competitive capability emerges from establishing and nurturing collaborative relationships • Between individuals and groups in different departments • Between a company and its strategic allies

33. Step 3 in Developing Competencies • If and when a company masters the activity, not just performing it really well but performingitbetter than rivals, the “core competence” (and now “proven capability”) becomes a • Distinctive competence and • Holds potential forcompetitive advantage This is the optimal outcome of the process of building competitively potent competencies and capabilities!

34. Managing the Process of Building Competences: Four Key Traits 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 talentthan rivals on strengthening competencies to create valuable capabilities 4. Sustaining competitive advantage requires adjusting competencies to new conditions

35. Approaches to Developing Competencies • Internal development involves either • Strengthening 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

36. Updating Competencies andCapabilities as Conditions Change • 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 sustainingboth • Effective strategy execution and • Competitive advantage

37. Strategic Role of Employee Training • 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

38. Competitive Advantage Potentialof Competencies and Capabilities When it is difficultto outstrategize rivals with a superior strategy . . . . . . Best avenue to industry leadershipis to out-competerivals withsuperior strategy execution! Building competenciesandcapabilitiesrivals can’t match is one of thebest ways to out-compete them! 10-38

39. 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.

40. CEO Vice President Vice President Vice President 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

41. Figure 10.3: Structuring the Work Effort toPromote Successful Strategy Execution 10-41

42. Critical activities Step 1: Decide Which Value Chain Activities to Perform Internally and Which to Outsource • Involves decidingwhich activitiesareessentialto 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

43. 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?

44. Potential Advantages ofOutsourcing Non-Critical Activities • 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 company’s arsenal of capabilities and contribute to better strategy execution

45. 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

46. 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.

47. 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

48. 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.

49. Assign managers key roles Support functions Primary activities Valuable capability Coordi- nation Strategic relation- ships Step 2: Make Strategy-CriticalActivities the Main Building Blocks • Assign managers of strategy-critical activities a visible, influential position • Avoid fragmenting responsibility for strategy-critical activities across many departments • Providecoordinating linkages between related work groups • Meld into a valuablecompetitive capability

50. 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 diversifiedcompany • Individual business units, with each business unit operating as independent profit center