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CHAPTER 10

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

(c) 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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THIS CHAPTER WILL HELP YOU UNDERSTAND:

LO 1 What managers must do to execute strategy successfully.

LO 2 Why hiring, training, and retaining the right people constitute a key component of the strategy execution process.

LO 3 That good strategy execution requires continuously building and upgrading the organization’s resources and capabilities.

LO 4 What issues to consider in establishing a strategy-supportive organizational structure and organizing the work effort.

LO 5 The pros and cons of centralized and decentralized decision making in implementing the chosen strategy.

EXECUTING STRATEGY

Strategy Execution

Is 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.

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A FRAMEWORK FOR EXECUTING STRATEGY

Committing 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).

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Good strategy execution requires a team effort. All managers have strategy-executing responsibility in their areas of authority, and all employees are active participants in the strategy execution process.

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CORE CONCEPT

FIGURE 10.1

The 10 Basic Tasks of the Strategy Execution Process

Chapter 10

Chapter 12

Chapter 11

The Action Agenda for Executing Strategy

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Staff the organization with managers and employees capable of executing the strategy well.

Develop the resources and organizational capabilities required for successful strategy execution.

Create a strategy-supportive organizational structure.

Allocate sufficient (budgetary and otherwise) resources to the strategy execution effort.

Institute policies and procedures that facilitate strategy execution.

Adopt best practices and business processes that drive continuous improvement in strategy execution activities.

Install information and operating systems that enable company 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 PROCESS

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When 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.

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STRATEGIC MANAGEMENT PRINCIPLE

BUILDING AN ORGANIZATION CAPABLE OF GOOD STRATEGY EXECUTION: THREE KEY ACTIONS

Staffing: 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.

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FIGURE 10.2

Building an Organization Capable of Proficient Strategy Execution: Three Types of Paramount Actions

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Putting 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.

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STRATEGIC MANAGEMENT PRINCIPLE

STAFFING THE ORGANIZATION

Putting 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 managers

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In many industries, adding to a company’s talent base and building intellectual capital are more important to good strategy execution than additional investments in capital projects.

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STRATEGIC MANAGEMENT PRINCIPLE

RECRUITING, TRAINING, AND RETAINING CAPABLE EMPLOYEES

Intensively screen and evaluate applicants to ensure selecting those who are best-suited and best-fitted.

Provide training programs throughout employee careers.

Offer challenging, interesting, and skill-stretching assignments.

Rotating people through jobs that span functional and geographic boundaries.

Make the work environment stimulating and engaging so that the firm is considered a great place to work.

Encourage employees to propose creative ways of better operating, and to push ideas for new products or businesses.

Use assorted financial incentives and perks to retain employees.

Coach average performers to improve their skills and capabilities, while weeding out underperformers.

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Management Development at Deloitte Touche Tohmatsu Limited

ILLUSTRATION CAPSULE 10.1

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Management Development at Deloitte Touche Tohmatsu Limited

Clear path to partnership

Formal training programs

Special programs for high performers

Sponsorship, not mentorship

Learning and development programs that contribute to Deloitte’s successful execution of its talent strategy

ILLUSTRATION CAPSULE 10.1

The best companies make a point of recruiting and retaining talented employees—the objective is to make the firm’s entire workforce (managers and rank-and-file employees) a genuine competitive asset.

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STRATEGIC MANAGEMENT PRINCIPLE

DEVELOPING AND BUILDING CRITICAL RESOURCES AND CAPABILITIES

Develop capabilities internally

Acquire capabilities through mergers and acquisitions

Access capabilities via collaborative partnerships

Approaches to Build Building and Strengthening Capabilities

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Building 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.

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STRATEGIC MANAGEMENT PRINCIPLE

DEVELOPING CAPABILITIES INTERNALLY

Coordinate and integrate the efforts of work groups and departments

Strengthen the firm’s base of skills, knowledge, and intellect

Managerial Actions to Develop Competencies and Capabilities

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A company’s capabilities must be continually refreshed and renewed to remain aligned with changing customer expectations, altered competitive conditions, and new strategic initiatives.

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STRATEGIC MANAGEMENT PRINCIPLE

SETTING STRETCH GOALS: FROM CAPABILITY TO COMPETENCE

Thinking

strategically

about a firm’s

knowledge and skills base

Thinking strategically

about a firm’s

opportunities and challenges

Setting a stretch goal of developing an organizational ability to do something well

Evolving the ability into a competence or capability by performing it well and at an acceptable cost

Refreshing, updating, and upgrading competencies and capabilities as necessary to gain and maintain competitive advantage

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ACQUIRING CAPABILITIES THROUGH MERGERS AND ACQUISITIONS

A Question of Market Opportunity

When a market opportunity can slip by faster than a needed capability can be created internally.

A Question of Competitive Necessity

When industry conditions, technology, or competitors are moving at such a rapid clip that time is of the essence.

A Question of Successful Integration

Tacit knowledge and complex routines may not transfer readily from one organizational unit to another.

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ACCESSING CAPABILITIES THROUGH COLLABORATIVE PARTNERSHIPS

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Outsource the function requiring the capabilities to a key supplier or another provider

Collaborate with a firm that has complementary resources and capabilities

Engage in a collaborative partnership for the purpose of learning how the partner does things

Approaches to acquiring capabilities from an external source

THE STRATEGIC ROLE OF EMPLOYEE TRAINING

Training 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.

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STRATEGY EXECUTION CAPABILITIES AND COMPETITIVE ADVANTAGE

Superior 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.

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Strategy focused on rapid value chain execution:

Quick and flexible design-to-production process

Close proximity to manufacturing factories

Lower percentage of commitment to fashion lines than competitors to keep in-store items fresh

Small lot-size orders reduce retail discounting, encourage impulse-buying and frequent of shopping

Placement of goods in proximity to high-fashion stores as substitute for advertising

Zara’s Strategy Execution Capabilities: Fast Fashion Retailer

ILLUSTRATION CAPSULE 10.2

Superior strategy execution capabilities are the only source of sustainable competitive advantage when strategies are easy for rivals to copy.

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STRATEGIC MANAGEMENT PRINCIPLE

MATCHING ORGANIZATIONAL STRUCTURE TO THE STRATEGY

Ensuring that Structure Follows Strategy By:

Deciding which value chain activities to perform internally and which to outsource.

Aligning the firm’s organizational structure with its strategy.

Determining how much authority to delegate.

Facilitating collaboration with external partners and strategic allies.

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A company’s organizational structure should be matched to the particular requirements of implementing the firm’s strategy.

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STRATEGIC MANAGEMENT PRINCIPLE

FIGURE 10.3

Structuring the Work Effort to Promote Successful Strategy Execution

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DECIDING WHICH VALUE CHAIN ACTIVITIES TO PERFORM INTERNALLY AND WHICH TO OUTSOURCE

Outsourcing’s Execution-Related Benefits:

Helps in outperforming rivals in strategy-critical activities and in turning a competence into a distinctive competence.

Decreases bureaucracies, flattens structure, speeds decision making, and shortens respond time to changing market conditions.

Adds to a firm’s capabilities and contributes to better strategy execution through partnerships with suppliers and channel partners.

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Wisely choosing which activities to perform internally and which to outsource can lead to several strategy-executing advantages—lower costs, heightened strategic focus, less internal bureaucracy, speedier decision making, and a better arsenal of organizational capabilities.

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STRATEGIC MANAGEMENT PRINCIPLE

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How important is outsourcing to Apple’s 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?

Which Value Chain Activities Does Apple Outsource and Why?

ILLUSTRATION CAPSULE 10.3

ALIGNING THE FIRM’S ORGANIZATIONAL STRUCTURE WITH ITS STRATEGY

Organizational Structure

Comprises 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.

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A firm’s organizational structure comprises the formal and informal arrangement of tasks, responsibilities, lines of authority, and reporting relationships by which the firm is administered.

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CORE CONCEPT

MATCHING TYPE OF ORGANIZATIONAL STRUCTURE TO STRATEGY EXECUTION REQUIREMENTS

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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 Control

A 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.

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CORE CONCEPTS

A 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.

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CORE CONCEPTS

DETERMINING HOW MUCH AUTHORITY TO DELEGATE

Organizational Approaches to Decision-Making

Decentralized Decision Making

Centralized Decision Making

Authority is retained by top management

Authority delegated to lower-level managers and employees

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The ultimate goal of decentralized decision making is to put authority in the hands of those persons closest to and most knowledgeable about the situation.

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STRATEGIC MANAGEMENT PRINCIPLE

CAPTURING CROSS-BUSINESS STRATEGIC FIT IN A DECENTRALIZED STRUCTURE

Centralizing related functions requiring close coordination at the corporate level

Enforcing close cross- business collaboration to avoid duplication of effort

Capturing Cross-Business Strategic Fit

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Efforts 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.

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STRATEGIC MANAGEMENT PRINCIPLE

FACILITATING COLLABORATION WITH EXTERNAL PARTNERS AND STRATEGIC ALLIES

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Strategic alliances

Outsourcing arrangements

Joint ventures

Cooperative partnerships

Creating a Network Structure: Using “relationship managers” to build and maintain cooperative arrangements of value both parties

A network structure is the arrangement linking a number of independent organizations involved in some common undertaking.

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CORE CONCEPT

FURTHER PERSPECTIVES ON STRUCTURING THE WORK EFFORT

Pick a basic organizational design that matches structure to strategy

Supplement design with appropriate coordinating mechanisms

Institute collaborative networking and communication arrangements

Matching Structure to Strategy

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