Build execution into strategy Blue Ocean Strategy Chapter

Build execution into strategy Blue Ocean Strategy Chapter 8

Strategy to the whole company � Strategy is best carried out when everyone is on board with it � Everyone, from top management down to front line employees, need to understand why they are implementing change � Implementation can be hindered if people do not understand why things are being changed

An Execution Failure • Lubber liquid coolants example – choosing right coolant is a delicate process – strategy to eliminate complexity & costs – sales process was dramatically simplified

Lubber continued � Strategic move was doomed from the start ◦ sales reps saw the shift as a direct threat ◦ felt their contributions went unappreciated ◦ worked against the expert system ◦ deal with management risk up front

Fairness in the Process � What is Fair Process? ◦ Means Procedural Justice or the fairness of the steps or processes taken to resolve a dispute or allocate resources � How does this Procedural Justice affect business? ◦ People who believe what they are doing is right will be more effective and efficient

How Fair Process Affects People’s Attitudes and Behavior Strategy Formulation Process Fair Process Engagement Explanation Expectation Clarity Trust and Commitment Attitudes Behavior Strategy Execution “I feel my opinion counts” Voluntary Cooperation “I’ll go beyond the call of duty” Exceeds Expectations Self-Initiated

Three E Principles of Fair Process � 1 st ◦ ◦ Principle: Engagement Involving individuals in the strategic decisions Communicates respect for Individuals Sharpens everyone’s thinking Results in better strategic decisions

Three E Principles of Fair Process � 2 nd Principle: Explanation ◦ Understand why final strategic decisions are made ◦ Allows employees to trust manager’s intentions ◦ Powerful feedback loop

Three E Principles of Fair Process � 3 rd Principle: Expectation Clarity ◦ State clearly the new rules of the game

A Tale of Two Plants � How do the 3 E principles of fair process work affect strategy execution? ◦ Elco example �Late 1980’s: sales were on a decline in elevator industry �Decrease in domestic demand lead Elco to pursue a blue ocean strategy �Elco set out to offer buyers a leap in value while lowering its costs �Elco realized it needed to replace its batchmanufacturing with a cellular approach

How Do the 3 Principles Work � The Process ◦ Install system at Plant A first �Had decertified their own unions �Ideal work force for the change �Expected a positive spillover effect on Plant B

How Do the 3 Principles Work � Plant A � Plant B ◦ ◦ Process undermined employees’ trust Only saw negative side Fights erupted Employee’s rejected the transformation ◦ Introduced consultants to employees ◦ Held plant-wide meetings ◦ Calmed employees from the thought of layoffs

How Do the 3 Principles Work � The results ◦ Plant A �Change led to disorder and rebellion �Cost and quality were in free fall �Wanted to unionize ◦ Plant B �Accepted the strategic shift �Felt they were treated fairly �Willingly participated in the execution

How Do the 3 Principles Work �A closer look- Elco managers violated all 3 principles of fair process in Plant A ◦ ◦ Failed to engage employees in the decision Manager was always absent Managers didn’t explain why the decision was made Managers also neglected to make clear what was expected under the new process

Why Does Fair Process Matter? �It comes down to intellectual and emotional recognition. � Emotionally individuals seek recognition of their value not at “labor” or “personnel” but as someone respected regardless of their hierarchical level. � Intellectually , individuals seek recognition that their ideas are sought after and given thoughtful reflection.

The Execution Consequences of the Presence and Absence of Fair Process in Strategy Making Fair Process Violation of Fair Process Intellectual & Emotional Recognition Intellectual & Emotional Indignation Trust & Commitment Distrust & Resentment Voluntary Cooperation in Strategy Execution Refusal to Execute Strategy

Fair process and blue ocean strategy � Commitment, trust, and voluntary cooperation as intangible capital ◦ Trust brings heightened confidence in one another’s intentions and actions ◦ Commitment enables people to override personal self-interest in the interest of the company

Take Aways � Poor process can ruin a strategy Execution ◦ Lubber � Fair Process (three E principles) ◦ Engagement ◦ Explanation ◦ Clarity of expectations �Violating fair process can make your best employees turn into the worst, but if managers practice fair process it can make your worst employees turn into your best � Intellectual and Emotional Recognition Theory ◦ When people feel emotionally recognized they are inspired to do better