11 Building an Chapter Title Organization Capable of

11 Building an Chapter Title Organization Capable of Good Strategy Execution 15/e PPT Mc. Graw-Hill/Irwin Screen graphics created by: Jana F. Kuzmicki, Ph. D. Troy University-Florida Region © 2007 The Mc. Graw-Hill Companies, Inc. All rights reserved.

“The best game plan in the world never blocked or tackled anybody. ” Vince Lombardi 11 -2

“A second-rate strategy perfectly executed will beat a first-rate strategy poorly executed every time. ” Richard M. Kovacevich 11 -3

Chapter Roadmap u. A Framework for Executing Strategy u The Principal Managerial Components of the Strategy Execution Process u Building an Organization Capable of Good Strategy Execution u Staffing the Organization u Building Core Competencies and Competitive Capabilities u Execution-Related Aspects of Organizing the Work Effort u Current Organizational Trends 11 -4

Crafting vs. Executing Strategy Crafting the Strategy u Primarily a market-driven activity u Successful strategy making depends on è Business vision è Perceptive analysis of market conditions and company capabilities è Attracting and pleasing customers è Outcompeting rivals è Using company capabilities to forge a competitive advantage Executing the Strategy u Primarily an operationsdriven activity u Successful strategy execution depends on è Doing a good job of working through others è Good organizationbuilding è Building competitive capabilities è Creating a strategysupportive culture è Getting things done and delivering good results 11 -5

Executing the Strategy u An action-oriented, make-things happen task involving management’s ability to è Direct organizational change Implementation involves. . . è Achieve continuous improvement in operations and business processes n Move toward operating excellence è Create and nurture a strategy-supportive culture è Consistently u Tougher meet or beat performance targets and more time-consuming than crafting strategy 11 -6

Implementing a New Strategy Requires Adept Leadership u Implementing a new strategy takes adept leadership to è Convincingly communicate reasons for the new strategy è Overcome è Secure è Build è Get pockets of doubt commitment of concerned parties consensus and enthusiasm all implementation pieces in place and coordinated 11 -7

Why Executing Strategy Is a Tough Management Job u Overcoming resistance to change u Wide array of demanding managerial activities to be performed u Numerous u Number ways to tackle each activity of bedeviling issues to be worked out u Demands good people management skills u Requires launching and managing a variety of initiatives simultaneously u Hard to integrate efforts of many different work groups into a smoothly-functioning whole 11 -8

Who Are the Strategy Implementers? u Implementing and executing strategy involves a company’s whole management team and all employees è Just as every part of a watch plays a role in making the watch function properly, it takes all pieces of an organization working cohesively for a strategy to be well-executed u Top-level managers must lead the process and orchestrate major initiatives è But they must rely on cooperation of n Middle and lower-level managers to see things go well in various parts of an organization and n Employees to perform their roles competently 11 -9

Goals of the Strategy Implementing-Executing Process u Unite total organization behind strategy u See that activities are done in a manner that is conducive to first-rate strategy execution u Generate commitment so an enthusiastic crusade emerges to carry out strategy u Fit how organization conducts its operations to strategy requirements 11 -10

Characteristics of the Strategy Implementation Process u Every manager has an active role u No proven “formula” for implementing particular types of strategies u There are guidelines, but no absolute rules and “must do it this way” rules u Many ways to proceed that are capable of working u Cuts across many aspects of “how to manage” 11 -11

Characteristics of the Strategy Implementation Process (continued) u Each implementation situation occurs in a different context, affected by differing è Business è Work practices and competitive situations environments and cultures è Policies è Compensation è Mix incentives of personalities and firm histories u Approach to implementation/execution has be customized to fit the situation u People implement strategies - Not companies! 11 -12

Fig. 11. 1: The Eight Components of the Strategy Execution Process 11 -13

What Top Executives Have to Do in Leading the Implementation Process u Communicate u Build the case for change consensus on how to proceed u Arouse enthusiasm for the strategy to turn implementation process into a companywide crusade u Empower subordinates to keep process moving u Establish measures of progress and deadlines u Reward those who achieve implementation milestones u Direct resources to the right places u Personally lead strategic change process and the drive for operating excellence 11 -14

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. 11 -15

BUILDING A CAPABLE ORGANIZATION — WHAT IS INVOLVED? 11 -16

Fig. 11. 2: The Three Components of Building an Organization Capable of Proficient Strategy Execution 11 -17

Putting Together a Strong Management Team u Assembling a capable management team is a cornerstone of the organization-building task u Find the right people to fill each slot è Existing management team may be suitable è Core executive group may need strengthening n Promote from within n Bring in skilled outsiders 11 -18

Selecting the Management Team: Key Considerations u Determine mix of è Backgrounds è Experiences è Beliefs è Styles and values of managing and personalities u Personal u Talent and know-how chemistry must be right base needs to be appropriate u Picking a solid management team needs to be acted on early in implementation process 11 -19

Recruiting and Retaining Talented Employees: Implementation Issues u The quality of a company’s people is an essential ingredient of successful strategy execution u Biggest challenge facing companies è How to recruit and retain the best and brightest talent with strong skill sets and management potential u Intellectual capital, not tangible assets, is increasingly being viewed as the most important investment è Talented people are a prime source of competitive advantage 11 -20

Key Human Resource Practices to Attract and Retain Talented Employees u Spend considerable effort in screening job applicants, selecting only those with è Suitable skill sets è Energy and initiative è Judgment and aptitudes for learning è Ability to adapt to firm’s work environment and culture u Put employees through training programs throughout their careers u Give promising employees challenging, interesting, and skills-stretching assignments 11 -21

Key Human Resource Practices to Attract and Retain Talented Employees (continued) u Rotate employees through jobs with great content, spanning functional and geographic boundaries u Encourage employees to è Be creative and innovative è Challenge existing ways of doing things and offer better ways è Submit ideas for new products or businesses u Foster a stimulating work environment u Exert efforts to retain high-potential employees with excellent salary and benefits u Coach average employees to improve their skills 11 -22

Building Core Competencies and Competitive Capabilities u Crafting the strategy involves è Identifying the desired competencies and capabilities to build into the strategy to help achieve a competitive advantage u Good strategy execution requires è Putting desired competencies and capabilities in place, è Upgrading them as needed, and è Modifying them as market conditions evolve 11 -23

Example: Intel’s Core Competence Design and mass production of complex chips for personal computers 11 -24

Example: Procter & Gamble’s Core Competencies Superb marketing-distribution skills and R&D capabilities in five core technologies - fats, oils, skin chemistry, surfactants, emulsifiers 11 -25

Example: General Electric’s Core Competencies Developing professional managers with broad problem-solving skills and proven ability to grow global businesses 11 -26

Example: Disney’s Core Competencies Theme park operation and family entertainment 11 -27

Example: Dell’s Core Competencies Capabilities to deliver state-of-the-art products to customers within days of nextgeneration components coming available and at attractively low costs 11 -28

Example: Toyota’s Core Competence Legendary “production system” giving it the capability to produce high-quality vehicles at relatively low costs 11 -29

Three-Stage Process of Developing Competencies and Capabilities 1. Develop ability to do something 2. As experience builds, ability can translate into a competence or capability 3. If ability continues to be polished and refined, it can become a distinctive competence, providing a path to competitive advantage! 11 -30

Step 1 in Developing Competencies u Develop è Select ability to do something people with relevant skills/experience è Broaden or expand individual abilities as needed è Mold efforts and work products of individuals into a cooperative effort to create organizational ability 11 -31

Step 2 in Developing Competencies u As experience builds and company learns how to perform the activity consistently well and at acceptable cost, the ability evolves into a competence or capability u Typically, a capability or competence emerges from establishing and nurturing collaborative relationships between è Individuals and groups in different departments and/or è A company and its external allies 11 -32

Step 3 in Developing Competencies u If company masters the activity, performing it better than rivals, the “capability” or “competence” becomes a è Distinctive competence and è Holds potential for competitive advantage This is the optimal outcome of the process of building capabilities-competencies! 11 -33

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 efforts to respond to 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 11 -34

Approaches to Developing Competencies u Internal development involves either è Strengthening the company’s base of skills, knowledge, and intellect or è Coordinating and networking the efforts of various work groups and departments u Partnering with key suppliers, forming strategic alliances, or maybe even outsourcing certain activities to specialists u Buying a company that has the required capabilities and integrating these competences into the firm’s value chain 11 -35

Updating Competencies and Capabilities as Conditions Change u Competencies and capabilities must continuously be modified and perhaps even replaced with new ones due to è New strategic requirements è Evolving market conditions è Changing customer expectations u Ongoing efforts to keep core competencies up-todate can provide a basis for sustaining both è Effective strategy execution and è Competitive advantage 11 -36

Strategic Role of Employee Training u Training plays a critical role in implementation when a firm shifts to a strategy requiring different è Skills or core competences è Competitive capabilities è Managerial approaches è Operating methods u Types of training approaches è Internal “universities” è Orientation sessions for new employees è Tuition reimbursement programs è Online training courses 11 -37

Competitive Advantage Potential of Competencies and Capabilities When it is difficult to outstrategize rivals with a superior strategy. . . Best avenue to industry leadership is to out-compete rivals with superior strategy execution! Building competencies and capabilities rivals can’t match is one of the best ways to out-compete them! 11 -38

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. 11 -39

Execution-Related Aspects of Organizing Work Efforts u Few hard and fast rules for organizing è One Big Rule: Role and purpose of organization structure is to support and facilitate good strategy execution! u Each firm’s structure is idiosyncratic, reflecting è Prior arrangements and internal politics è Executive judgments and preferences about how to arrange reporting relationships è How best to integrate and coordinate work effort of different work groups and departments CEO Vice President 11 -40 Vice President

Fig. 11. 3: Structuring the Work Effort to Promote Successful Strategy Execution 11 -41

Step 1: Decide Which Value Chain Activities to Perform Internally and Which to Outsource u Involves deciding which activities are essential to strategic success è 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 n These processes/activities usually need to be performed internally è Other activities, such as routine administrative housekeeping and some support functions, may be candidates for outsourcing 11 -42 Critical activities

Determining Strategy-Critical Activities: Issues to Consider 1. What functions or business processes have to be performed extra well or in timely fashion to achieve competitive advantage? 2. In what value-chain activities would poor execution seriously impair strategic success? 11 -43

Potential Advantages of Outsourcing Non-Critical Activities u. A company improves its chances for outclassing rivals in è Performing strategy-critical activities and è Turning a core competence into a distinctive competence u Streamlining of internal operations that flows from outsourcing acts to è Decrease internal bureaucracies è Flatten organization structure è Speed decision-making è Increase competitive responsiveness u Partnerships can add to a company’s arsenal of capabilities and contribute to better strategy execution 11 -44

Appeal of Outsourcing u Outsourcing non-critical activities allows a firm to concentrate its energies and resources on those value-chain activities where it è Can create unique value è Can be best in the industry è Needs direct control to n Build core competencies n Achieve competitive advantage n Manage key customer-supplier-distributor relationships 11 -45

Potential Advantages of Partnering u By building, improving, and then leveraging partnerships, a firm enhances its overall capabilities and builds resource strengths that è Deliver è Rivals value to customers can’t quite match è Consequently pave the way for competitive success Partnering makes strategic sense when the result is to enhance a company’s competencies and competitive capabilities. 11 -46

Dangers of Outsourcing u. A company must guard against hollowing out its knowledge base and capabilities u Way to guard against pitfalls of outsourcing è Avoid sourcing key components from a single supplier è Use two or three suppliers to minimize dependence on any one supplier è Regularly è Work evaluate suppliers closely with key suppliers 11 -47

For Discussion: Your Opinion While many people have criticized companies that have outsourced functions once performed in-house to foreign suppliers (who can perform the functions more cheaply) because outsourcing results in involuntary layoffs or job cuts, it is really fairer and more accurate to view outsourcing as a means whereby a company can enhance its competitiveness and thereby better protect the jobs of the remaining employees. True or false? Explain. 11 -48

Step 2: Make Strategy-Critical Activities the Main Building Blocks u Assign managers of strategy-critical activities a visible, influential position u Avoid fragmenting responsibility for strategy-critical activities across many departments coordinating linkages between related work groups Assign managers key roles u Provide è Meld into a valuable competitive capability Primary activities Strategic relationships 11 -49 Support functions Coordination Valuable capability

What Types of Organizational Structures Fit Which Strategies? u. A company operating in one business è Functional department structure u. A company with operations in various parts of the world è Geographic u. A vertically integrated company è Divisional u. A organizational units organizational structure diversified company è Individual businesses, with each business unit operating as independent profit center 11 -50

Step 3: Determine How Much Authority to Delegate to Whom u In a centralized structure è Top managers retain authority for most decisions u In a decentralized structure è Managers and employees are empowered to make decisions u Trend in most companies è Shift from authoritarian to decentralized structures stressing empowerment 11 -51

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Characteristics of Centralized Decision Making u Top executives retain authority For most strategic and operating decisions and è Keep a tight rein on lower-level managers è u Minimal discretionary authority is granted to Frontline supervisors è Rank-and-file employees è Key advantage – Tight control by top managers fixes accountability u Disadvantages u Lengthens response time to changing conditions è Does not encourage responsibility among lower-level managers and employees è Discourages lower-level managers and employees from exercising initiative è 11 -53

Advantages of a Decentralized Structure u Creates a more horizontal structure with fewer management layers u Managers and employees develop their own answers and action plans è Make è Held u decisions in their areas of responsibility accountable for results Shortens organizational response times and spurs è New ideas è Creative è Greater thinking and innovation involvement of managers and employees u Jobs can be defined more broadly u Fewer managers are needed u Electronic communication systems provide quick, direct access to data u Genuine gains in morale and productivity 11 -54

Maintaining Control in a Decentralized Structure u Place limits on authority empowered employees can exercise u Hold people accountable for their decisions u Institute compensation incentives that reward employees for doing their jobs in a manner contributing to good company performance u Create a corporate culture where there’s strong peer pressure on employees to act responsibly 11 -55

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. 11 -56

Step 4: Provide for Internal Cross-Unit Coordination u Classic method of coordinating activities – Have related units report to single manager è Upper-level managers have clout to coordinate efforts of their units u Support activities should be woven into structure to è Maximize è Contain performance of primary activities costs of support activities u Formal reporting relationships often need to be supplemented to facilitate coordination 11 -57

Guard Against Functional Designs That Fragment Activities u Scattering pieces of critical business processes across several specialized departments results in è Many hand-offs which n Lengthens completion time n Drives up administrative costs n Increases risk of details falling through the cracks è Obsession u Solution with activity rather than result Business process reengineering è Involves pulling strategy-critical processes from functional departments to create process departments or cross-functional work groups 11 -58

Examples of Fragmented Strategy-Critical Activities u Filling customer orders u Speeding new products to market u Improving product quality u Supply chain management u Building capability to conduct business via the Internet u Obtaining feedback from customers, making product modifications to meet their needs 11 -59

Coordinating Mechanisms to Supplement the Basic Organization Structure u Cross-functional u Dual task forces reporting relationships u Informal networking u Voluntary cooperation u Incentive compensation tied to group performance u Teamwork and crossdepartmental cooperation 11 -60

Step 5: Provide for Collaboration With Outsiders u Need multiple ties at multiple levels to ensure è Communication è Coordination and control u Find ways to produce collaborative efforts to enhance firm’s capabilities and resource strengths u While collaborative relationships present opportunities, nothing valuable is realized until the relationship develops into an engine for better organizational performance 11 -61

Roles of Relationship Managers With Strategic Partners u Get right people together u Promote good rapport u See plans for specific activities are developed and implemented u Help adjust internal procedures and communication systems to è Iron out operating dissimilarities è Nurture interpersonal ties 11 -62

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. 11 -63

Current Organizational Trends u Numerous companies have completed the task of remodeling traditional, hierarchical structures built on è Functional specialization and è Centralized authority u Corporate downsizing movement in the late 1980 s and early 1990 s was aimed at è Recasting authoritarian, pyramidal organizational structures è Into flatter, decentralized structures 11 -64

Drawbacks of Centralized Authoritarian Structures u Centralized or authoritarian structures have often turned out to be a liability where è Customer preferences shift from standardized to customized products è Product life-cycles grow shorter è Flexible manufacturing replaces mass production è Customers è Pace want to be treated as individuals of technological change accelerates è Market conditions are fluid 11 -65

Organizational Structures of the Future: Overall Themes u Revolutionary changes in how work is organized have been triggered by è New strategic priorities è Rapidly shifting competitive conditions u Tools of organizational design include è Empowered managers and workers è Reengineered work processes è Self-directed work teams è Rapid incorporation of Internet technology è Networking with outsiders 11 -66 The future structure will be. . .

Characteristics of Organizations of the Future u Extensive use of Internet technology and e-commerce business practices u Fewer barriers between è Different vertical ranks è Functions and disciplines è Units in different geographic locations è Company and its suppliers, distributors, strategic allies, and customers u Capacity Change & Learning for change and rapid learning u Collaborative efforts among people in different functions and geographic locations 11 -67