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LEARNING OBJECTIVES

After reading this chapter, you should be able to:

LO10-1 Recognize what managers must do to build an organization capable of good strategy execution.

LO10-2 Explain why resource allocation should always be based on strategic priorities.

LO10-3 Understand why policies and procedures should be designed to facilitate good strategy execution.

LO10-4 Understand how process management programs that drive continuous improvement help an organization achieve operating excellence.

LO10-5 Recognize the role of information and operating systems in enabling company personnel to carry out their strategic roles proficiently.

LO10-6 Explain how and why the use of well-designed incentives and rewards can be management’s single most powerful tool for promoting operating excellence.

LO10-7 Explain how and why a company’s culture can aid the drive for proficient strategy execution.

LO10-8 Recognize what constitutes effective managerial leadership in achieving superior strategy execution.

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Once managers have decided on a strategy, the emphasis turns to converting it into actions and good results. Putting the strategy into place and getting the organization to execute it well call for different sets of managerial skills. Whereas crafting strategy is largely a market-driven and resource-driven activity, strategy implementation is an

operations-driven activity primarily involving the man- agement of people and business processes. Successful strategy execution depends on management’s ability to direct organizational change and do a good job of allocating resources, building and strengthening com- petitive capabilities, instituting strategy-supportive poli- cies, improving processes and systems, motivating and rewarding people, creating and nurturing a strategy- supportive culture, and consistently meeting or beat- ing performance targets. While an organization’s chief

executive officer and other senior managers are ultimately responsible for ensuring that the strategy is executed successfully, it is middle and lower-level managers who must see to it that frontline employees and work groups competently perform the strategy-critical activities that allow companywide performance targets to be met. Hence, strategy execu- tion requires every manager to think through the answer to the question “What does my area have to do to implement its part of the strategic plan, and what should I do to get these things accomplished effectively and efficiently?”

The Principal Managerial Components of Strategy Execution Executing strategy entails figuring out the specific techniques, actions, and behaviors that are needed to get things done and deliver results. The exact items that need to be placed on management’s action agenda always have to be customized to fit the par- ticulars of a company’s situation. The hot buttons for successfully executing a low-cost provider strategy are different from those in executing a differentiation strategy. Imple- menting a new strategy for a struggling company in the midst of a financial crisis is dif- ferent from improving strategy execution in a company where the execution is already pretty good. While there’s no definitive managerial recipe for successful strategy execu- tion that cuts across all company situations and all types of strategies, certain manage- rial bases have to be covered no matter what the circumstances. Eight managerial tasks crop up repeatedly in company efforts to execute strategy (see Figure 10.1).

1. Building an organization with the capabilities, people, and structure needed to execute the strategy successfully

2. Allocating ample resources to strategy-critical activities

3. Ensuring that policies and procedures facilitate rather than impede effective strat- egy execution

4. Adopting process management programs that drive continuous improvement in how strategy execution activities are performed

5. Installing information and operating systems that enable company personnel to perform essential activities

6. Tying rewards directly to the achievement of performance objectives

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

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7. Fostering a corporate culture that promotes good strategy execution

8. Exerting the internal leadership needed to propel implementation forward

How well managers perform these eight tasks has a decisive impact on whether the outcome is a spectacular success, a colossal failure, or something in between. In the remainder of this chapter, we will discuss what is involved in performing the eight key managerial tasks that shape the process of implementing and executing strategy.

Building an Organization Capable of Good Strategy Execution: Three Key Actions

Proficient strategy execution depends heavily on competent personnel, better-than- adequate competitive capabilities, and an effective internal organization. Building a capable organization is thus always a top priority in strategy execution. Three types of organization building actions are paramount:

1. Staffing the organization—putting together a strong management team, and recruit- ing and retaining employees with the needed experience, technical skills, and intel- lectual capital

Recognize what managers must do to build an organization capable of good strategy execution.LO10-1

The Action Agenda for Implementing

and Executing Strategy

Exerting strong leadership to drive

execution forward and attain operating

excellence

Allocating ample resources to strategy-

critical activities

Instituting policies and procedures that

facilitate strategy execution

Installing information and operating systems that enable company personnel to carry out their strategic

roles proficiently

Tying rewards and incentives directly to the

achievement of performance targets

Instilling a corporate culture that promotes

good strategy execution

Adopting process management programs that drive continuous

improvement in strategy execution activities

Building an organization with the capabilities, people,

and structure needed to execute the strategy

successfully

The Eight Components of Strategy ExecutionFIGURE 10.1

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2. Acquiring, developing, and strengthening strategy-supportive resources and capabilities— accumulating the required resources, developing proficiencies in performing strategy-critical value chain activities, and updating them to match changing mar- ket conditions and customer expectations

3. Structuring the organization and work effort—organizing value chain activities and business processes, establishing lines of authority and reporting relationships, and deciding how much decision-making authority to push down to lower-level manag- ers and frontline employees

Staffing the Organization No company can hope to perform the activities required for successful strategy execu- tion without attracting and retaining talented managers and employees with suitable skills and intellectual capital.

Building Managerial Talent Assembling a capable management team is a corner- stone of the organization-building task.1 While company circumstances sometimes call for different mixes of backgrounds, experiences, management styles, and know-how, the most important consideration is to fill key managerial slots with people who are good at figuring out what needs to be done and skilled in “making it happen” and delivering good results.2 Without a capable, results-oriented management team, the implementation– execution process ends up being hampered by missed deadlines, misdirected or waste- ful efforts, and/or managerial ineptness.3 Weak executives are serious impediments to getting optimal results because they are unable to differentiate between ideas that have merit and those that are misguided. In contrast, managers with strong strategy- implementing capabilities have a talent for asking tough, incisive questions. They know enough about the details of the business to be able to challenge and ensure the sound- ness of the approaches of the people around them, and they can discern whether the resources people are asking for make sense strategically. They are good at getting things done through others, typically by making sure they have the right people under them and that these people are put in the right jobs. They consistently follow through on issues and do not let important details slip through the cracks.

Sometimes a company’s existing management team is suitable; at other times, it may need to be strengthened or expanded by promoting qualified people from within or by bringing in outsiders. The overriding aim in building a management team should be to assemble a critical mass of talented managers who can function as agents of change and further the cause of first-rate strategy execution. When a first-rate manager enjoys the help and support of other first-rate managers, it’s possible to create a managerial whole that is greater than the sum of individual efforts: talented managers who work well together as a team can produce organizational results that are dramatically better than what one- or two-star managers acting individually can achieve.4

Recruiting and Retaining a Capable Workforce Assembling a capable man- agement team is not enough. Staffing the organization with the right kinds of peo- ple must go much deeper than managerial jobs in order for value chain activities to be performed competently. The quality of an organization’s people is always an essen- tial ingredient of successful strategy execution—knowledgeable, engaged employees are a

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company’s best source of creative ideas for the nuts-and-bolts operating improvements that lead to operating excellence. Companies such as Mercedes-Benz, Google, Boston Con- sulting Group, and Procter & Gamble make a concerted effort to recruit the best and brightest people they can find and then retain them with excellent compensation pack- ages, opportunities for rapid advancement and professional growth, and challenging and interesting assignments. Having a pool of “A players” with strong skill sets and lots of brainpower is essential to their business. Facebook makes a point of hiring the very brightest and most talented programmers it can find and motivating them with both good monetary incentives and the challenge of working on cutting-edge technology projects. The leading global accounting firms screen candidates not only on the basis of their accounting expertise but also on whether they possess the people skills needed to relate well with clients and colleagues. Southwest Airlines goes to considerable lengths to hire people who can have fun and be fun on the job; it uses special interviewing and screening methods to gauge whether applicants for customer-contact jobs have outgo- ing personality traits that match its strategy of creating a high-spirited, fun-loving, in- flight atmosphere for passengers. Southwest Airlines is so selective that only about 3 percent of the people who apply are offered jobs.

The tactics listed here are common among companies dedicated to staffing jobs with the best people they can find:

1. Putting forth considerable effort in screening and evaluating job applicants— selecting only those with suitable skill sets, energy, initiative, judgment, aptitudes for learning, and adaptability to the company’s culture

2. Investing in training programs that continue throughout employees’ careers

3. Providing promising employees with challenging, interesting, and skill-stretching assignments

4. Rotating people through jobs that span functional and geographic boundaries

5. Striving to retain talented, high-performing employees via promotions, salary increases, performance bonuses, stock options and equity ownership, fringe ben- efit packages, and other perks

6. Coaching average performers to improve their skills and capabilities, while weed- ing out underperformers and benchwarmers

Acquiring, Developing, and Strengthening Key Resources and Capabilities High among the organization-building priorities in the strategy execution process is the need to build and strengthen competitively valuable resources and capabilities. As explained in Chapter 1, a company’s ability to perform value-creating activities and real- ize its strategic objectives depends upon its resources and capabilities. In the course of crafting strategy, it is important for managers to identify the resources and capabilities that will enable the firm’s strategy to succeed. Good strategy execution requires put- ting those resources and capabilities into place, refreshing and strengthening them as needed, and then modifying them as market conditions evolve. “Fast fashion” retailer Zara has developed valuable resources and capabilities that allow it to execute its strat- egy with great proficiency; see Concepts & Connections 10.1.

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ZARA’S STRATEGY EXECUTION CAPABILITIES

Concepts Connections 10.1

Zara, a member of Inditex Group, is a “fast fashion” retailer. As soon as designs are seen in high-end fashion houses such as Prada, Zara’s design team sets to work altering the clothing designs so that they can produce high fashion at mass-retailing prices. Zara’s strategy is clever but by no means unique. The company’s competitive advantage is in strategy execution. Every step of Zara’s value chain execution is geared toward putting fashionable clothes in stores quickly, realizing high turnover, and strategically driving traffic.

The first key lever is a quick production process. Zara’s design team uses inspiration from high fashion and nearly real- time feedback from stores to create up-to-the-minute pieces. Manufacturing largely occurs in factories close to headquarters in Spain, northern Africa, and Turkey, all areas considered to have a high cost of labor. Placing the factories strategically close allows for more flexibility and greater responsiveness to mar- ket needs, thereby outweighing the additional labor costs. The entire production process, from design to arrival at stores, takes only two weeks, while other retailers take six months. While tra- ditional retailers commit up to 80 percent of their lines by the start of the season, Zara commits only 50 to 60 percent, mean- ing that up to half of the merchandise to hit stores is designed and manufactured during the season. Zara purposefully manu- factures in small lot sizes to avoid discounting later on and also to encourage impulse shopping, as a particular item could be gone in a few days. From start to finish, Zara has engineered its production process to maximize turnover and turnaround time, creating a true advantage in this step of strategy execution.

Zara also excels at driving traffic to stores. First, the small lot sizes and frequent shipments (up to twice a week per store) drive customers to visit often and purchase quickly. Zara shop- pers average 17 visits per year, versus 4 to 5 for The Gap. On average, items stay in a Zara store only 11 days. Second, Zara spends no money on advertising, but it occupies some of the most expensive retail space in town, always near the high- fashion houses it imitates. Proximity reinforces the high-fashion association, while the busy street drives significant foot traffic.

Overall, Zara has managed to create competitive advantage in every level of strategy execution by tightly aligning design, pro- duction, advertising, and real estate with the overall strategy of fast fashion: extremely fast and extremely flexible.

Note: Developed with Sara Paccamonti.

Sources: Suzy Hansen, “How Zara Grew into the World’s Largest Fashion Retailer,” New York Times, November 9, 2012, www.nytimes .com/2012/11/11/magazine/how-zara-grew-into-the-worlds- largest-fashion-retailer.html?pagewanted=all (accessed February 5, 2014) ; and Seth Stevenson, “Polka Dots Are In? Polka Dots It Is!” Slate, June 21, 2012, www.slate.com/articles/arts/operations/ 2012/06/zara_s_fast_fashion_how_the_company_gets_new_ styles_to_stores_so_quickly_.html (accessed February 5, 2014).

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Three Approaches to Building and Strengthening Capabilities Build- ing core competencies and competitive capabilities is a time-consuming, managerially challenging exercise. But with deliberate effort and continued practice, it is possible for a firm to become proficient at capability building. Indeed, by making capability- building activities a routine part of their strategy execution, some firms are able to

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develop dynamic capabilities that assist them in man- aging resource and capability change, as discussed in Chapter 4. The most common approaches to capability building include (1) internal development, (2) acquir- ing capabilities through mergers and acquisitions, and (3) accessing capabilities via collaborative partnerships.5

Developing Capabilities Internally Capabilities develop incrementally along an evolutionary path as organizations search for solutions to their problems. The pro- cess is complex because capabilities are the product of bundles of skills and know- how. In addition, capabilities tend to require the combined efforts of teams that are often cross-functional in nature, spanning a variety of departments and locations. For instance, the capability of speeding new products to market involves the collaborative efforts of personnel in R&D, engineering and design, purchasing, production, market- ing, and distribution.

Because the process is incremental, the first step is to develop the ability to do some- thing, however imperfectly or inefficiently. This entails selecting people with the requi- site skills and experience, upgrading or expanding individual abilities as needed, and then molding the efforts of individuals into a collaborative effort to create an organiza- tional ability. At this stage, progress can be fitful since it depends on experimentation, active search for alternative solutions, and learning through trial and error.6 As experi- ence grows and company personnel learn how to perform the activities consistently well and at an acceptable cost, the ability evolves into a tried-and-true competence.

It is generally much easier and less time-consuming to update and remodel a company’s existing capabili- ties as external conditions and company strategy change than it is to create them from scratch. Maintaining capa- bilities in top form may simply require exercising them continually and fine-tuning them as necessary. Simi- larly, augmenting a capability may require less effort if it involves the recombination of well-established company capabilities and draws on existing company resources.7 For example, Williams-Sonoma first developed the capability to expand sales beyond its brick-and-mortar location in 1970, when it launched a catalog that was sent to customers throughout the United States. The company extended its mail-order busi- ness with the acquisitions of Hold Everything, a garden products catalog, and Pottery Barn, and entered online retailing in 2000 when it launched e-commerce sites for Pottery Barn and Williams-Sonoma. The ongoing renewal of these capabilities has allowed Williams-Sonoma to generate revenues of nearly $5 billion in 2016 and become the 13th-largest online retailer in the United States.

Acquiring Capabilities Through Mergers and Acquisitions Sometimes a company can build and refresh its competencies by acquiring another company with attractive resources and capabilities.8 An acquisition aimed at building a stronger port- folio of resources and capabilities can be every bit as valuable as an acquisition aimed at adding new products or services to the company’s lineup of offerings. The advantage of this mode of acquiring new capabilities is primarily one of speed, since developing new capabilities internally can take many years. Capabilities-motivated acquisitions are

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.

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

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essential (1) when a market opportunity can slip by faster than a needed capability can be created internally and (2) when industry conditions, technology, or competitors are moving at such a rapid clip that time is of the essence.

At the same time, acquiring capabilities in this way is not without difficulty. Capabili- ties tend to involve tacit knowledge and complex routines that cannot be transferred read- ily from one organizational unit to another. This may limit the extent to which the new capability can be utilized by the acquiring organization. For example, since 2005 Face- book has spent more than $23 billion to acquire producers of augmented reality, voice recognition, image filters, language translation, face recognition, and other technologies to add capabilities that might enhance the social media experience. Transferring and inte- grating these capabilities to other parts of the Facebook organization prove easier said than done, however, as many technology acquisitions fail to yield the hoped-for benefits.

Accessing Capabilities Through Collaborative Partnerships Another method of acquiring capabilities from an external source is to access them via collab- orative partnerships with suppliers, competitors, or other companies having the cutting- edge expertise. There are three basic ways to pursue this course of action:

1. Outsource the function or activity requiring new capabilities to an outside provider. As discussed in Chapter 6, outsourcing has the advantage of conserving resources so the firm can focus its energies on those activities most central to its strategy. It may be a good choice for firms that are too small and resource-constrained to execute all the parts of their strategy internally.

2. Collaborate with a firm that has complementary resources and capabilities in a joint venture, strategic alliance, or other type of partnership to achieve a shared strategic objective. Since the success of the venture will depend on how well the partners work together, potential partners should be selected as much for their management style, culture, and goals as for their resources and capabilities.

3. Engage in a collaborative partnership for the purpose of learning how the partner per- forms activities, internalizing its methods and thereby acquiring its capabilities. This may be a viable method when each partner has something to learn from the other. But in other cases, it involves an abuse of trust and puts the cooperative venture at risk.

Matching Organizational Structure to the Strategy Building an organization capable of good strategy execution also relies on an organiza- tional structure that lays out lines of authority and reporting relationships in a manner that supports the company’s key strategic initiatives. The best approach to settling on an organizational structure is to first consider the key value chain activities that deliver value to the customer. In any business, some activities in the value chain are always more critical than others. For instance, hotel/motel enterprises have to be good at fast check-in/check-out, housekeeping, food service, and creating a pleasant ambience. In specialty chemicals, the strategy-critical activities include R&D, product innovation, getting new products onto the market quickly, effective marketing, and expertise in assisting customers. It is important for management to build its organization structure around proficient performance of these activities, making them the centerpieces or main building blocks on the organization chart.

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The rationale for making strategy-critical activities the main building blocks in struc- turing a business is compelling: If activities crucial to strategic success are to have the resources, decision-making influence, and organizational impact they need, they have to be centerpieces in the organizational scheme. In addition, a new or changed strategy is likely to entail new or different key activities or capabilities and therefore to require a new or different organizational structure.9 Attempting to carry out a new strategy with an old organizational structure is usually unwise.

Types of Organizational Structures It is common for companies engaged in a single line of business to utilize a functional (or departmental) organizational structure that organizes strategy-critical activities into distinct functional, product, geographic, pro- cess, or customer groups. For instance, a technical instruments manufacturer may be organized around research and development, engineering, supply chain management, assembly, quality control, marketing technical services, and corporate administration. A company with operations scattered across a large geographic area or many countries may organize activities and reporting relationships by geography.

Many diversified companies utilize a multidivisional (or divisional) organizational structure consisting of a set of operating divisions organized along market, customer, product, or geographic lines, along with a central corporate headquarters, which moni- tors divisional activities, allocates resources, and exercises overall control. A multidivi- sional structure is appropriate for a diversified building materials company that designs, produces, and markets cabinets, plumbing fixtures, windows, and paints and stains. The divisional structure organizes all of the value chain activities involved with making each type of home construction product available to home builders and do-it-yourselfers into a common division and makes each division an independent profit center. Therefore the paint division, plumbing products division, cabinets division, and windows division all operate separately and report to a central corporate headquarters.

Matrix organizational structures is a combination structure in which the organiza- tion is organized along two or more dimensions at once (e.g., business, geographic region, value chain function) for the purpose of enhancing cross-unit communication, collaboration, and coordination. In essence, it overlays one type of structure onto another type. Matrix structures are managed through multiple reporting relationships, so a middle manager may report to several bosses. For example, in a matrix structure based on product line, region, and function, a sales manager for plastic containers in Georgia might report to the manager of the plastics division, the head of the southeast sales region, and the head of marketing.

Organizational Structure and Authority in Decision Making Responsibil- ity for results of decisions made throughout the organization ultimately lies with man- agers at the top of the organizational structure, but in practice, lower-level managers might possess a great deal of authority in decision making. Companies vary in the degree of authority delegated to managers of each organization unit and how much decision-making latitude is given to individual employees in performing their jobs. The two extremes are to centralize decision making at the top (the CEO and a few close lieutenants) or to decentralize decision making by giving managers and employees con- siderable decision-making latitude in their areas of responsibility. The two approaches are based on sharply different underlying principles and beliefs, with each having its pros and cons. In a highly decentralized organization, decision-making authority is pushed

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down to the lowest organizational level capable of making timely, informed, competent decisions. The objective is to put adequate decision-making authority in the hands of the people closest to and most familiar with the situation and train them to weigh all the factors and exercise good judgment. Decentralized decision making means that the managers of each organizational unit are delegated lead responsibility for deciding how best to execute strategy.

The case for empowering down-the-line managers and employees to make decisions related to daily operations and executing the strategy is based on the belief that a com- pany that draws on the combined intellectual capital of all its employees can outper- form a command-and-control company.10 Decentralized decision making means, for example, employees may be empowered to do what it takes to please customers and increase sales. At TJX, parent company of T. J. Maxx, Marshalls, and four other fashion and home decor retail store chains, buyers are encouraged to be intelligent risk takers in deciding what items to purchase for TJX stores—there is the story of a buyer for a seasonal product category who cut her own budget to have dollars allocated to other categories where sales were expected to be stronger. Another example of employee empowerment involves an employee at Starbucks who enthusiastically offered free cof- fee to waiting customers when a store’s computerized cash register system went offline.

Pushing decision-making authority deep down into the organization structure and empowering employees presents its own organizing challenge: how to exercise adequate control over the actions of empowered employees so that the business is not put at risk at the same time that the benefits of empowerment are realized. Maintaining adequate organiza- tional control over empowered employees is generally accomplished by placing limits on the authority that empowered personnel can exercise, holding people accountable for their decisions, instituting compensation incentives that reward people for doing their jobs in a manner that contributes to good company performance, and creating a corporate culture where there’s strong peer pressure on individuals to act responsibly.

In a highly centralized organization structure, top executives retain authority for most strategic and operating decisions and keep a tight rein on business-unit heads, department heads, and the managers of key operating units; comparatively little discretionary authority is granted to frontline supervisors and rank-and-file employees. The command-and-control paradigm of centralized structures is based on the underlying assumptions that front- line personnel have neither the time nor the inclination to direct and properly control the work they are performing and that they lack the knowledge and judgment to make wise decisions about how best to do it.

The big advantage of an authoritarian structure is that it is easy to know who is accountable when things do not go well. But there are some serious disadvantages. Hier- archical command-and-control structures make an organization sluggish in responding to changing conditions because of the time it takes for the review/approval process to run up all the layers of the management bureaucracy. Also, centralized decision mak- ing is often impractical—the larger the company and the more scattered its operations, the more that decision-making authority has to be delegated to managers closer to the scene of the action.

Facilitating Collaboration with External Partners and Strategic Allies Strategic alliances, outsourcing arrangements, joint ventures, and cooperative part- nerships can contribute little of value without active management of the relation- ship. Building organizational bridges with external partners and strategic allies can be

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accomplished by appointing “relationship managers” with responsibility for fostering the success of strate- gic partnerships. Relationship managers have many roles and functions: getting the right people together, promoting good rapport, facilitating the flow of infor- mation, nurturing interpersonal communication and cooperation, and ensuring effective coordination.11 Communication and coordination are particularly important since information sharing is required to make the relationship work and to address conflicts, trouble spots, and changing situations.

Communication and coordination are also aided by the adoption of a network structure that links inde- pendent organizations involved in cooperative arrange- ments to achieve some common undertaking. A well-managed network structure typically includes one firm in a more central role, with the responsibility of ensuring that the right partners are included and the activities across the network are coordi- nated. The high-end Italian motorcycle company Ducati operates in this manner, assembling its motorcycles from parts obtained from a hand-picked, integrated network of parts suppliers.

Allocating Resources to Strategy-Critical Activities

Early in the process of implementing and executing a new or different strategy, top man- agement must determine what funding is needed to execute new strategic initiatives, to bolster value-creating processes, and to strengthen the company’s capabilities and com- petencies. This includes careful screening of requests for more people and new facilities and equipment, approving those that hold promise for making a contribution to strat- egy execution, and turning down those that do not. Should internal cash flows prove insufficient to fund the planned strategic initiatives, then management must raise addi- tional funds through borrowing or selling additional shares of stock to willing investors.

A company’s ability to marshal the resources needed to support new strategic initiatives has a major impact on the strategy execution process. Too little funding slows progress and impedes the efforts of organizational units to execute their pieces of the strategic plan proficiently. Too much funding wastes organizational resources and reduces financial performance. Both outcomes argue for managers to be deeply involved in reviewing budget proposals and directing the proper amounts of resources to strategy-critical organization units.

A change in strategy nearly always calls for budget reallocations and resource shifting. Previously important units having a lesser role in the new strategy may need downsizing. Units that now have a bigger strategic role may need more people, new equipment, additional facilities, and above-average increases in their operating budgets. Strategy implementers have to exercise their power to put enough resources behind new

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

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

Explain why resource allocation should always be based on strategic priorities.LO10-2

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strategic initiatives to make things happen, and they have to make the tough decisions to kill projects and activities that are no longer justified.

Google’s strong support of R&D activities helped it to grow to a $527 billion giant in just 18 years. In 2013, however, Google decided to kill its 20 percent time policy, which allowed its staff to work on side projects of their choice one day a week. While this side project program gave rise to many innovations, such as Gmail and AdSense (a big contributor to Google’s revenues), it also meant that fewer resources were avail- able to projects that were deemed closer to the core of Google’s mission. In the years

since Google killed the 20 percent policy, the com- pany has consistently topped Fortune, Forbes, and Fast Company magazine’s “most innovative companies” list for ideas such as Google Chromebooks and its Waymo self-driving automobile project.

Instituting Strategy-Supportive Policies and Procedures

A company’s policies and procedures can either assist or become a barrier to good strategy execution. Anytime a company makes changes to its business strategy, manag- ers are well advised to carefully review existing policies and procedures, and revise or discard those that are out of sync. Well-conceived policies and operating procedures act to facilitate organizational change and good strategy execution in three ways:

1. Policies and procedures help enforce needed consis- tency in how particular strategy-critical activities are performed. Standardization and strict conformity are sometimes desirable components of good strat- egy execution. Eliminating significant differences in the operating practices of different plants, sales

regions, or customer service centers helps a company deliver consistent product quality and service to customers.

2. Policies and procedures support change programs by providing top-down guidance regarding how certain things now need to be done. Asking people to alter established habits and procedures always upsets the internal order of things. It is normal for pockets of resistance to develop and for people to exhibit some degree of stress and anxiety about how the changes will affect them. Policies are a particularly use- ful way to counteract tendencies for some people to resist change—most people refrain from violating company policy or going against recommended practices and procedures without first gaining clearance or having strong justification.

3. Well-conceived policies and procedures promote a work climate that facilitates good strategy execution. Managers can use the policy-changing process as a powerful lever for changing the corporate culture in ways that produce a stronger fit with the new strategy.

A company’s strategic priorities must drive how capital allocations are made and the size of each unit’s operating budgets.

Understand why policies and procedures should be designed to facilitate good strategy execution.

LO10-3

Well-conceived policies and procedures aid strategy execution; out-of-sync ones are barri- ers to effective implementation.

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McDonald’s policy manual spells out detailed procedures that personnel in each McDonald’s unit are expected to observe to ensure consistent quality across its 31,000 units. For example, “Cooks must turn, never flip, hamburgers. If they haven’t been purchased, Big Macs must be discarded in 10 minutes after being cooked and French fries in 7 minutes.” To get store personnel to dedicate themselves to outstanding cus- tomer service, Nordstrom has a policy of promoting only those people whose personnel records contain evidence of “heroic acts” to please customers, especially customers who may have made “unreasonable requests” that require special efforts.

One of the big policy-making issues concerns what activities need to be rigidly pre- scribed and what activities allow room for independent action on the part of empow- ered personnel. Few companies need thick policy manuals to prescribe exactly how daily operations are to be conducted. Too much policy can be confusing and erect obstacles to good strategy implementation. There is wisdom in a middle approach: Prescribe enough policies to place boundaries on employees’ actions; then empower them to act within these boundaries in whatever way they think makes sense. Allowing company personnel to act anywhere between the “white lines” is especially appropriate when individual creativity and initiative are more essential to good strategy execution than standardization and strict conformity.

Striving for Continuous Improvement in Processes and Activities

Company managers can significantly advance the cause of superior strategy execu- tion by pushing organization units and company personnel to strive for continuous improvement in how value chain activities are performed. In aiming for operating excellence, many companies have come to rely on three potent management tools: business process reengineering, total quality management (TQM) programs, and Six Sigma quality control techniques. Business process reengineering involves pulling the pieces of strategy-critical activities out of different departments and unifying their performance in a single department or cross-functional work group.12 When done properly, business process reengineering can produce dramatic operating benefits. Hallmark reengineered its process for developing new greeting cards, creating teams of mixed-occupation personnel (artists, writers, lithographers, merchandisers, and administrators) to work on a single holiday or greeting card theme. The reengineered process speeded development times for new lines of greeting cards by up to 24 months, was more cost-efficient, and increased customer satisfaction.13

Total quality management (TQM) is a philosophy of managing a set of business prac- tices that emphasizes continuous improvement in all phases of operations, 100 percent accuracy in performing tasks, involvement and empowerment of employees at all levels, team-based work design, benchmarking, and total customer satisfaction.14 While TQM concentrates on the production of quality goods and fully satisfying customer expecta- tions, it achieves its biggest successes when it is extended to employee efforts in all departments—human resources, billing, R&D, engineering, accounting and records, and

Understand how process management programs that drive continuous improvement help an organization achieve operating excellence.

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information systems. It involves reforming the corporate culture and shifting to a total quality/continuous improvement business philosophy that permeates every facet of the organization.15 TQM doctrine preaches that there is no such thing as “good enough” and that everyone has a responsibility to participate in continuous improvement. TQM is thus a race without a finish. Success comes from making little steps forward each day, a process that the Japanese call kaizen.

Six Sigma quality control consists of a disciplined, statistics-based system aimed at producing not more than 3.4 defects per million iterations for any business process— from manufacturing to customer transactions.16 The Six Sigma process of define, mea- sure, analyze, improve, and control (DMAIC, pronounced dee-may-ic) is an improvement system for existing processes falling below specification. The Six Sigma DMADV (define, measure, analyze, design, and verify) methodology is used to develop new pro- cesses or products at Six Sigma quality levels.17 DMADV is sometimes referred to as Design for Six Sigma (DFSS). The statistical thinking underlying Six Sigma is based on the following three principles: all work is a process, all processes have variability, and all processes create data that explain variability.18

Since the programs were first introduced, thousands of companies and nonprofit organizations around the world have used Six Sigma to promote operating excellence. In the first five years of its adoption, Six Sigma at Bank of America helped the bank reap about $2 billion in revenue gains and cost savings. General Electric (GE), one of the most successful companies implementing Six Sigma training and pursuing Six Sigma perfection across the company’s entire operations, estimated benefits of some $10 billion during the first five years of implementation—its Lighting division, for example, cut invoice defects and disputes by 98 percent. Concepts & Connections 10.2 describes Charleston Area Medical Center’s use of Six Sigma as a health care provider coping with the challenges facing the industry. The hospital implemented a program requiring doctors to type the prescription into a computer, which slashed the number of errors dramatically.

While Six Sigma programs often improve the efficiency of many operating activi- ties and processes, evidence shows that Six Sigma programs can stifle innovation. The essence of Six Sigma is to reduce variability in processes, but creative processes, by nature, include quite a bit of variability. In many instances, breakthrough innovations occur only after thousands of ideas have been abandoned and promising ideas have gone through multiple iterations and extensive prototyping. Alphabet Executive Chair- man of the Board Eric Schmidt has commented that the innovation process is “anti–Six Sigma” and applying Six Sigma principles to those performing creative work at Google would choke off innovation at the company.19

A blended approach to Six Sigma implementation that is gaining in popularity pur- sues incremental improvements in operating efficiency, while R&D and other processes that allow the company to develop new ways of offering value to customers are given more free rein. Managers of these ambidextrous organizations are adept at employing continuous improvement in operating processes but allowing R&D to operate under a set of rules that allows for the development of breakthrough innovations. Ciba Vision, a global leader in contact lenses, dramatically reduced operating expenses through the use of continuous improvement programs, while simultaneously and harmoniously developing new series of contact lens products that grew its revenues by 300 percent over a 10-year period.20

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The Difference Between Business Process Reengineering and Continuous Improvement Programs Business process reengineering and continuous improvement efforts such as TQM and Six Sigma both aim at improved efficiency, better product quality, and greater cus- tomer satisfaction. The essential difference between business process reengineering and

CHARLESTON AREA MEDICAL CENTER’S SIX SIGMA PROGRAM

Concepts Connections 10.2

Established in 1972, Charleston Area Medical Center (CAMC) is West Virginia’s largest health care provider in terms of beds, admissions, and revenues. In 2000, CAMC implemented a Six Sigma program to examine quality problems and standardize care processes. Performance improvement was important to CAMC’s manage- ment for a variety of strategic reasons, including competitive positioning and cost control.

The United States has been evolving toward a pay-for-performance structure, which rewards hospitals for providing quality care. CAMC has utilized its Six Sigma program to take advantage of these changes in the health care environment. For example, to improve its performance in acute myocardial infarc- tion (AMI), CAMC applied a Six Sigma DMAIC (define-measure-analyze-improve-control) approach. Nursing staff members were educated on AMI care processes, performance targets were posted in nursing units, and adherence to the eight Hospital Quality Alliance (HQA) indi- cators of quality care for AMI patients was tracked. As a result of the program, CAMC improved its compliance with HQA- recommended treatment for AMI from 50 to 95 percent. Harvard researchers identified CAMC as one of the top-performing hospi- tals reporting comparable data.

Controlling cost has also been an important aspect of CAMC’s performance improvement initiatives due to local regu- lations. West Virginia is one of two states where medical ser- vices rates are set by state regulators. This forces CAMC to limit expenditures because the hospital cannot raise prices. CAMC first applied Six Sigma in an effort to control costs by managing the supply chain more effectively. The effort created a one-time $150,000 savings by working with vendors to remove outdated inventory. As a result of continuous improvement, a 2015 report stated that CAMC had achieved supply chain management sav- ings of $12 million in the past four years.

Since CAMC introduced Six Sigma, over 100 quality improve- ment projects have been initiated. A key to CAMC’s success has been instilling a continuous improvement mindset into the organization’s culture. Dale Wood, chief quality officer at CAMC, stated: “If you have people at the top who completely support and want these changes to occur, you can still fall flat on your face. . . . You need a group of networkers who can carry change across an organization.” Due to CAMC’s performance improve- ment culture, the hospital ranks high nationally in ratings for quality of care and patient safety, as reported on the Centers for Medicare and Medicaid Services (CMS) website.

Note: Developed with Robin A. Daley

Sources: CAMC website; Martha Hostetter, “Case Study: Improving Performance at Charleston Area Medical Center,” The Common- wealth Fund, November–December 2007, www.commonwealthfund .org/publications/newsletters/quality-matters/2007/november- december/case-study-improving-performance-at-charleston-area- medical-center (accessed January 2016); J. C. Simmons, “Using Six Sigma to Make a Difference in Health Care Quality,” The Quality Letter, April 2002.

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continuous improvement programs is that reengineering aims at quantum gains on the order of 30 to 50 percent or more, whereas total quality programs stress incremen- tal progress—striving for inch-by-inch gains again and again in a never-ending stream.

The two approaches to improved performance of value chain activities and operating excellence are not mutu- ally exclusive; it makes sense to use them in tandem. Reengineering can be used first to produce a good basic design that yields quick, dramatic improvements in performing a business process. Total quality pro- grams can then be used as a follow-up to deliver con- tinuing improvements.

Installing Information and Operating Systems

Company strategies and value-creating internal processes cannot be executed well without a number of internal operating systems. FedEx has internal communication systems that allow it to coordinate its more than 49,000 vehicles in handling a daily average of 11 million shipments to 220 countries. Its leading-edge flight operations systems allow a single controller to direct as many as 200 of FedEx’s 650 aircraft simul- taneously, overriding their flight plans should weather problems or other special cir- cumstances arise. In addition, FedEx has created e-business tools for customers that allow them to track packages online, create address books, review shipping history, generate custom reports, simplify customer billing, reduce internal warehousing and inventory management costs, purchase goods and services from suppliers, and respond to quickly changing customer demands. All of FedEx’s systems support the company’s strategy of providing businesses and individuals with a broad array of package delivery services and enhancing its competitiveness against United Parcel Service, DHL, and the U.S. Postal Service.

Siemens Healthcare, one of the largest suppliers to the health care industry, uses a cloud-based business activity monitoring (BAM) system to continuously monitor and improve the company’s processes across more than 190 countries. Customer satisfac- tion is one of Siemens’s most important business objectives, so the reliability of its order management and services is crucial. Caesars Entertainment uses a sophisticated customer relationship database that records detailed information about its custom- ers’ gambling habits. When a member of the Caesars’ Total Rewards program calls

to make a reservation, the representative can review previous spending, including average bet size, to offer an upgrade or complimentary stay at Caesars Palace or one of the company’s other properties. At Uber, there are systems for locating vehicles near a customer and real-time demand monitoring to price fares during high-demand periods.

Information systems need to cover five broad areas: (1) customer data, (2) operations data, (3) employee data, (4) supplier/partner/collaborative ally data, and (5) financial

The purpose of using benchmarking, best prac- tices, business process reengineering, TQM, Six Sigma, or other operational improvement programs is to improve the performance of strategy-critical activities and promote superior strategy execution.

Recognize the role of information and operating systems in enabling company personnel to carry out their strategic roles proficiently.

LO10-5

Having state-of-the-art operating systems, infor- mation systems, and real-time data is integral to competent strategy execution and operating excellence.

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performance data. All key strategic performance indicators must be tracked and reported in real time whenever possible. Real-time information systems permit company manag- ers to stay on top of implementation initiatives and daily operations and to intervene if things seem to be drifting off course. Tracking key performance indicators, gather- ing information from operating personnel, quickly identifying and diagnosing problems, and taking corrective actions are all integral pieces of the process of managing strategy execution and overseeing operations.

Using Rewards and Incentives to Promote Better Strategy Execution

To create a strategy-supportive system of rewards and incentives, a company must emphasize rewarding people for accomplishing results related to creating value for cus- tomers, not for just dutifully performing assigned tasks. Focusing jobholders’ attention and energy on what to achieve as opposed to what to do makes the work environment results-oriented. It is flawed management to tie incentives and rewards to satisfactory performance of duties and activities instead of desired business outcomes and company achievements.21 In any job, performing assigned tasks is not equivalent to achieving intended outcomes. Diligently showing up for work and attending to job assignment does not, by itself, guar- antee results. As any student knows, the fact that an instructor teaches and students go to class doesn’t nec- essarily mean that the students are learning.

Motivation and Reward Systems It is important for both organization units and individuals to be properly aligned with strategic priorities and enthusiastically committed to executing strategy. To get employ- ees’ sustained, energetic commitment, management has to be resourceful in designing and using motivational incentives—both monetary and nonmonetary. The more a manager understands what motivates subordinates and is able to use appropriate motivational incentives, the greater will be employees’ commitment to good day-in, day-out strategy execution and achievement of performance targets.

Guidelines for Designing Monetary Incentive Systems Guidelines for creating incentive compensation systems that link employee behavior to organizational objectives include:

1. Make the performance payoff a major, not a minor, piece of the total compensation package. The payoff for high-performing individuals and teams must be meaning- fully greater than the payoff for average performers, and the payoff for average performers meaningfully bigger than for below-average performers.

2. Have incentives that extend to all managers and all workers, not just top management. Lower-level managers and employees are just as likely as senior executives to be motivated by the possibility of lucrative rewards.

A properly designed reward structure is manage- ment’s most powerful tool for gaining employee commitment to superior strategy execution and excellent operating results.

Explain how and why the use of well-designed incentives and rewards can be management’s single most powerful tool for promoting operating excellence.

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3. Administer the reward system with scrupulous objectivity and fairness. If performance standards are set unrealistically high or if individual/group performance evalua- tions are not accurate and well documented, dissatisfaction with the system will overcome any positive benefits.

4. Tie incentives to performance outcomes directly linked to good strategy execution and financial performance. Incentives should never be paid just because people are thought to be “doing a good job” or because they “work hard.” An argument can be presented that exceptions should be made in giving rewards to people who have come up short because of circumstances beyond their control. The problem with making exceptions for unknowable, uncontrollable, or unforeseeable circum- stances is that once good excuses start to creep into justifying rewards for subpar results, the door is open for all kinds of reasons actual performance has failed to match targeted performance.

5. Make sure the performance targets that each individual or team is expected to achieve involve outcomes that the individual or team can personally affect. The role of incentives is to enhance individual commitment and channel behavior in ben- eficial directions.

6. Keep the time between achieving the target performance outcome and the payment of the reward as short as possible. Weekly or monthly payments for good performance work much better than annual payments for employees in most job categories. Annual bonus payouts work best for higher-level managers and for situations in which target outcome relates to overall company profitability or stock price performance.

Once the incentives are designed, they have to be communicated and explained. Every- body needs to understand how their incentive compensation is calculated and how indi- vidual/group performance targets contribute to organizational performance targets.

Nonmonetary Rewards Financial incentives generally head the list of motivating tools for trying to gain whole- hearted employee commitment to good strategy execution and operating excellence. But most successful companies also make extensive use of nonmonetary incentives. Some of the most important nonmonetary approaches used to enhance motivation are listed here:22

• Provide attractive perks and fringe benefits. The various options include full cover- age of health insurance premiums; college tuition reimbursement; paid vacation time; onsite child care; onsite fitness centers; telecommuting; and compressed workweeks (four 10-hour days instead of five 8-hour days).

• Adopt promotion-from-within policies. This practice helps bind workers to their employers and employers to their workers, plus it is an incentive for good performance.

• Act on suggestions from employees. Research indicates that the moves of many com- panies to push decision making down the line and empower employees increase employee motivation and satisfaction, as well as boost productivity.

• Create a work atmosphere in which there is genuine sincerity, caring, and mutual respect among workers and between management and employees. A “family” work

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environment in which people are on a first-name basis and there is strong camara- derie promotes teamwork and cross-unit collaboration.

• Share information with employees about financial performance, strategy, operational measures, market conditions, and competitors’ actions. Broad disclosure and prompt communication send the message that managers trust their workers.

• Have attractive office spaces and facilities. A workplace environment with appealing features and amenities usually has decidedly positive effects on employee morale and productivity.

Concepts & Connections 10.3 presents specific examples of the motivational tactics employed by several prominent companies that have appeared on Fortune’s list of the “100 Best Companies to Work For” in America.

Instilling a Corporate Culture That Promotes Good Strategy Execution

Every company has its own unique culture. The character of a company’s culture or work climate defines “how we do things around here,” its approach to people man- agement, and the “chemistry” that permeates its work environment. The meshing of shared core values, beliefs, ingrained behaviors and attitudes, and business principles constitutes a company’s corporate culture. A company’s culture is important because it influences the organization’s actions and approaches to conducting business—in a very real sense, the culture is the company’s organizational DNA.23

The psyche of corporate cultures varies widely. For instance, the bedrock of Walmart’s culture is dedica- tion to customer satisfaction, zealous pursuit of low costs and frugal operating practices, a strong work ethic, ritualistic Saturday-morning headquarters meet- ings to exchange ideas and review problems, and company executives’ commitment to visiting stores, listening to customers, and soliciting suggestions from employees. At Nordstrom, the corporate culture is centered on delivering exceptional service to customers, where the company’s motto is “Respond to unreasonable cus- tomer requests,” and each out-of-the-ordinary request is seen as an opportunity for a “heroic” act by an employee that can further the company’s reputation for unparalleled customer service. Nordstrom makes a point of promoting employees noted for their heroic acts and dedication to outstanding service. The company motivates its sales- people with a commission-based compensation system that enables Nordstrom’s best salespeople to earn more than double what other department stores pay. Concepts & Connections 10.4 describes the corporate culture at Epic Systems, a provider of soft- ware used in the health care industry.

Explain how and why a company’s culture can aid the drive for proficient strategy execution.LO10-7

CORE CONCEPT Corporate culture is a company’s internal work climate and is shaped by its core values, beliefs, and business principles. A company’s culture is important because it influences its traditions, work practices, and style of operating

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HOW THE BEST COMPANIES TO WORK FOR MOTIVATE AND REWARD EMPLOYEES

Concepts Connections 10.3

Companies design a variety of motivational and reward prac- tices to create a work environment that energizes employees and promotes better strategy execution. Other benefits of a successful recognition system include high job satisfaction, high retention rates, and increased output. Here’s a sampling of what some of the best companies to work for in America are doing to motivate their employees:

• Software developer SAS prioritizes work-life balance and mental health for its workforce of 7,200. The onsite Work- Life Center helps employees with such personal matters as planning for their kids’ college or evaluating eldercare options. The center also includes an on-site gym, indoor swimming pool, walking and biking trails, massage thera- pists, and a nail salon. With such an environment, it should come as no surprise that 95 percent of employees report looking forward to heading to the office every day.

• Salesforce.com Inc., a global cloud-computing company based in San Francisco, has been listed by Forbes maga- zine as the most innovative company in America. More than quadrupling its workforce from 5,000 to 22,000 between 2011 and 2017, Salesforce.com incentivizes new hires to work cooperatively with existing teams. The company’s recognition programs include rewards for achievement both in the office and in the larger community. In addition, the company provides employees with seven paid days off to volunteer and $5,000 in matching grants for philanthropic causes supported by employees.

• Publix is the largest employee-owned company in the United States and Florida-based grocer with 2016 annual sales of $32.4 billion. The company’s stock ownership pro- gram extends to part-time workers with the goal of giving

employees a “great opportunity to retire worry-free.” Publix also offers job sharing, health insurance for part-time employ- ees, onsite child care, and college tuition reimbursement.

• Hilcorp, an oil and gas exploration company, made head- lines in 2011 for its shocking generosity. After reaching its five-year goal to double in size, the company gave every employee a $50,000 dream car voucher (or $35,000 in cash). Employees are encouraged to “work like you own the company” and are eligible for annual bonuses averaging 36 percent in 2016. Also in 2016, Hilcorp awarded every employee a $100,000 bonus after the company achieved its ambitious Dream 2015 five-year financial objectives.

Source: “100 Best Companies to Work For, 2017,” Fortune, http://fortune.com/best-companies/ (accessed July 13, 2017).

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High-Performance Cultures Some companies have so-called “high-performance” cultures in which the standout cultural traits are a “can-do” spirit, pride in doing things right, no-excuses accountabil- ity, and a pervasive results-oriented work climate in which people go the extra mile to meet or beat stretch objectives. In high-performance cultures, there is a strong sense of involvement on the part of company personnel and emphasis on individual initiative and creativity. Performance expectations are clearly stated for the company as a whole, for each organizational unit, and for each individual. Issues and problems are promptly addressed—there’s a razor-sharp focus on what needs to be done. A high-performance culture in which there’s constructive pressure to achieve good results is a valuable con- tributor to good strategy execution and operating excellence. Results-oriented cultures are permeated with a spirit of achievement and have a good track record in meeting or beating performance targets.24

©Corey Lowenstein/Raleigh News & Observer/MCT/Tribune News Service/Getty Images

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STRONG GUIDING PRINCIPLES DRIVE THE HIGH-PERFORMANCE CULTURE AT EPIC

Concepts Connections 10.4

Epic Systems Corporation creates software to support record keeping for mid- to large-sized health care organizations, such as hospitals and managed care organizations. Founded in 1979 by CEO Judith Faulkner, the company claims that its software is “quick to implement, easy to use, and highly interoperable through industry standards.” Widely recognized for superior products and high levels of customer satisfaction, Epic won the Best Overall Soft- ware Suite award for the sixth consecutive year—a ranking determined by health care professionals and compiled by KLAS, a pro- vider of company performance reviews. Part of this success has been attributed to Epic’s strong corporate culture—one based on the slogan “Do good, have fun, make money.” By remaining true to its 10 commandments and principles, its homegrown version of core values, Epic has nurtured a work climate where employees are on the same page and all have an overarching standard to guide their actions.

Epic’s 10 Commandments:

1. Do not go public.

2. Do not be acquired.

3. Software must work.

4. Expectations = reality.

5. Keep commitments.

6. Focus on competency. Do not tolerate mediocrity.

7. Have standards. Be fair to all.

8. Have courage. What you put up with is what you stand for.

9. Teach philosophy and culture.

10. Be frugal. Do not take on debt for operations.

Epic’s Principles:

1. Make our products a joy to use.

2. Have fun with customers.

3. Design in collaboration with users.

4. Make it easy for users to do the right thing.

5. Improve the patient’s health and health care experience.

6. Generalize to benefit more.

7. Follow processes. Find root causes. Fix processes.

8. Dissent when you disagree; once decided, support.

9. Do what is difficult for us if it makes things easier for our users.

10. Escalate problems at the start, not when all hell breaks loose.

Epic fosters this high-performance culture from the get-go. It targets top-tier universities to hire entry-level talent, focus- ing on skills rather than personality. A rigorous training and orientation program indoctrinates each new employee. In 2002, Faulkner claimed that someone coming straight from col- lege could become an “Epic person” in three years, whereas it takes six years for someone coming from another company. This culture positively affects Epic’s strategy execution because employees are focused on the most important actions, there is peer pressure to contribute to Epic’s success, and employees are genuinely excited to be involved. Epic’s faith in its ability to acculturate new team members and stick true to its core values has allowed it to sustain its status as a premier provider of health care IT systems.

Note: Developed with Margo Cox. 

Sources: Company website; communications with an Epic insider; “Epic Takes Back ‘Best in KLAS’ title,” Healthcare IT News, January 29, 2015, www.healthcareitnews.com/news/epic-takes-back-best-klas; “Epic Systems’ Headquarters Reflect Its Creativity, Growth,” Boston Globe, July 28, 2015, www.bostonglobe.com/business/2015/07/28/ epic-systems-success-like-its-headquarters-blend-creativity-and- diligence/LpdQ5m0DDS4UVilCVooRUJ/story.html (accessed December 5, 2015).

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The challenge in creating a high-performance culture is to inspire high loyalty and dedication on the part of employees such that they are energized to put forth their very best efforts to do things right. Managers have to take pains to reinforce construc- tive behavior, reward top performers, and purge habits and behaviors that stand in the way of good results. They must work at knowing the strengths and weaknesses of their subordinates so as to better match talent with task. In sum, there has to be an overall disciplined, performance-focused approach to managing the organization.

Adaptive Cultures In direct contrast to change-resistant cultures, adaptive cultures are very supportive of managers and employees at all ranks who propose or help initiate useful change. The hallmark of adaptive cultures is a willingness on the part of organizational members to accept change and take on the challenge of introducing and executing new strategies. Company personnel share a feeling of confidence that the organization can deal with whatever threats and opportunities arise; they are receptive to risk taking, innovation, and changing strategies and practices. Internal entrepreneurship on the part of individ- uals and groups is encouraged and rewarded. Senior executives seek out, support, and promote individuals who exercise initiative, spot opportunities for improvement, and

display the skills to take advantage of them. As in high- performance cultures, the company exhibits a proactive approach to identifying issues, evaluating the implica- tions and options, and quickly moving ahead with work- able solutions.

Technology companies, software companies, and Internet-based companies are good illustrations of organizations with adaptive cultures. Such companies thrive on change—driving it, leading it, and capitalizing on it (but sometimes also succumbing to change when they make the wrong move or are swamped by better technologies or the superior business models of rivals). Companies such as Amazon, Groupon, Apple, Adobe, Google, and Intel cultivate the capability to act and react rapidly. They are avid practitioners of entrepreneurship and innovation, with a demonstrated willingness to take bold risks to create new products, new businesses, and new industries. To create and nurture a culture that can adapt rapidly to changing or shifting business conditions, they staff their organizations with people who are proactive, who rise to the challenge of change, and who have an aptitude for adapting.

In fast-changing business environments, a corporate culture that is receptive to alter- ing organizational practices and behaviors is a virtual necessity. However, adaptive cultures work to the advantage of all companies, not just those in rapid-change environ- ments. Every company operates in a market and business climate that is changing to one degree or another. As a company’s strategy evolves, an adaptive culture is a definite ally in the strategy implementation, strategy execution process as compared to cultures that have to be coaxed and cajoled to change.

Unhealthy Corporate Cultures The distinctive characteristic of an unhealthy corporate culture is the presence of coun- terproductive cultural traits that adversely impact the work climate and company per- formance.25 Five particularly unhealthy cultural traits are a heavily politicized internal environment, hostility to change, an insular “not invented here” mindset, a disregard for high ethical standards, and the presence of incompatible, clashing subcultures.

As a company’s strategy evolves, an adaptive culture is a definite ally in the strategy execu- tion process.

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Politicized Cultures A politicized internal environment is unhealthy because politi- cal infighting consumes a great deal of organizational energy and often results in the company’s strategic agenda taking a backseat to political maneuvering. In companies in which internal politics pervades the work climate, empire-building managers pursue their own agendas, and the positions they take on issues are usually aimed at protecting or expanding their turf. The support or opposition of politically influential executives and/ or coalitions among departments with vested interests in a particular outcome typically weighs heavily in deciding what actions the company takes. All this maneuvering detracts from efforts to execute strategy with real proficiency and frustrates company personnel who are less political and more inclined to do what is in the company’s best interests.

Change-Resistant Cultures Change-resistant cultures encourage a number of undesirable or unhealthy behaviors—avoiding risks, hesitation in pursuing emerging opportunities, and widespread aversion to continuous improvement in performing value chain activities. Change-resistant companies have little appetite for being first movers or fast followers, believing that being in the forefront of change is too risky and that acting too quickly increases vulnerability to costly mistakes. They are more inclined to adopt a wait-and-see posture, learn from the missteps of early movers, and then move forward cautiously with initiatives that are deemed safe. Hostility to change is most often found in companies with multilayered management bureaucracies that have enjoyed considerable market success in years past and that are wedded to the “We have done it this way for years” syndrome.

General Motors, IBM, Sears, and Eastman Kodak are classic examples of compa- nies whose change-resistant bureaucracies have damaged their market standings and financial performance; clinging to what made them successful, they were reluctant to alter operating practices and modify their business approaches when signals of market change first sounded. As strategies of gradual change won out over bold innovation, all four lost market share to rivals that quickly moved to institute changes more in tune with evolving market conditions and buyer preferences. While IBM and GM have made strides in building a culture needed for market success, Sears and Kodak are still strug- gling to recoup lost ground.

Insular, Inwardly Focused Cultures Sometimes a company reigns as an indus- try leader or enjoys great market success for so long that its personnel start to believe they have all the answers or can develop them on their own. Such confidence breeds arrogance—company personnel discount the merits of what outsiders are doing and what can be learned by studying best-in-class performers. Benchmarking and a search for the best practices of outsiders are seen as offering little payoff. The big risk of a must-be-invented-here mindset and insular cultural thinking is that the company can underestimate the competencies and accomplishments of rival companies and overesti- mate its own progress—with a resulting loss of competitive advantage over time.

Unethical and Greed-Driven Cultures Companies that have little regard for ethical standards or that are run by executives driven by greed and ego gratification are scandals waiting to happen. Executives exude the negatives of arrogance, ego, greed, and an “ends-justify-the-means” mentality in pursuing overambitious revenue and prof- itability targets.26 Senior managers wink at unethical behavior and may cross the line to unethical (and sometimes criminal) behavior themselves. They are prone to adopt

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accounting principles that make financial performance look better than it really is. Legions of companies have fallen prey to unethical behavior and greed, most notably Enron, Countrywide Financial, World Savings Bank, JPMorgan Chase, and BP with executives being indicted and/or convicted of criminal behavior.

Incompatible Subcultures It is not unusual for companies to have multiple sub- cultures with values, beliefs, and ingrained behaviors and attitudes varying to some extent by department, geographic location, division, or business unit. These subcul- tures within a company don’t pose a problem as long as the subcultures don’t conflict with the overarching corporate work climate and are supportive of the strategy execu- tion effort. Multiple subcultures become unhealthy when they are incompatible with each other or the overall corporate culture. The existence of conflicting business phi- losophies and values eventually leads to inconsistent strategy execution. Incompatible subcultures arise most commonly because of important cultural differences between a company’s culture and those of a recently acquired company or because of a merger between companies with cultural differences. Cultural due diligence is often as impor- tant as financial due diligence in deciding whether to go forward on an acquisition or merger. On a number of occasions, companies have decided to pass on acquiring par- ticular companies because of culture conflicts they believed would be hard to resolve.

Changing a Problem Culture Changing a company culture that impedes proficient strategy execution is among the toughest management tasks. It is natural for company personnel to cling to familiar practices and to be wary, if not hostile, to new approaches toward how things are to be done. Consequently, it takes concerted management action over a period of time to root out certain unwanted behaviors and replace an out-of-sync culture with more effective ways of doing things. The single most visible factor that distinguishes successful culture-change efforts from failed attempts is competent leadership at the top. Great power is needed to force major cultural change and overcome the unremitting resistance of entrenched cultures—and great power is possessed only by the most senior executives, especially the CEO. However, while top management must lead the culture-change effort, instilling new cultural behaviors is a job for the whole management team. Middle managers and frontline supervisors play a key role in implementing the new work prac- tices and operating approaches, helping win rank-and-file acceptance of and support for the changes, and instilling the desired behavioral norms.

As shown in Figure 10.2, the first step in fixing a problem culture is for top manage- ment to identify those facets of the present culture that pose obstacles to executing new strategic initiatives. Second, managers have to clearly define the desired new behaviors and features of the culture they want to create. Third, managers have to convince com- pany personnel why the present culture poses problems and why and how new behaviors and operating approaches will improve company performance. Finally, all the talk about remodeling the present culture has to be followed swiftly by visible, forceful actions on the part of management to promote the desired new behaviors and work practices.

Making a Compelling Case for a Culture Change The place for management to begin a major remodeling of the corporate culture is by selling company personnel on the need for new-style behaviors and work practices. This means making a compelling

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case for why the company’s new strategic direction and culture-remodeling efforts are in the organization’s best interests and why company personnel should wholeheartedly join the effort to do things somewhat differently. This can be done by:

• Citing reasons the current strategy has to be modified and why new strategic initia- tives are being undertaken. The case for altering the old strategy usually needs to be predicated on its shortcomings—why sales are growing slowly, why too many cus- tomers are opting to go with the products of rivals, why costs are too high, and so on. There may be merit in holding events where managers and other key personnel are forced to listen to dissatisfied customers or the complaints of strategic allies.

• Citing why and how certain behavioral norms and work practices in the current culture pose obstacles to good execution of new strategic initiatives.

• Explaining why new behaviors and work practices have important roles in the new culture and will produce better results.

Management’s efforts to make a persuasive case for changing what is deemed to be a problem culture must be quickly followed by forceful, high-profile actions across several fronts. The actions to implant the new culture must be both substantive and symbolic.

Substantive Culture-Changing Actions No culture-change effort can get very far when leaders merely talk about the need for different actions, behaviors, and work practices. Company executives have to give the culture-change effort some teeth by initi- ating a series of actions that company personnel will see as unmistakable support for the change program. The strongest signs that management is truly committed to instilling a new culture include:

1. Replacing key executives who stonewall needed organizational and cultural changes.

2. Promoting individuals who have stepped forward to advocate the shift to a differ- ent culture and who can serve as role models for the desired cultural behavior.

Identify facets of present culture that are conducive to good strategy execution and

operating excellence and those that are not

Specify what new actions, behaviors, and work practices should be prominent in the

“new” culture

Talk openly about problems of present culture and how new behaviors will improve

performance

Follow with visible, forceful actions—both substantive and symbolic—to ingrain a new

set of behaviors, practices, and cultural norms

Step 1

Step 2

Step 3

Step 4

Steps in Changing a Problem CultureFIGURE 10.2

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3. Appointing outsiders with the desired cultural attributes to high-profile positions— bringing in new-breed managers sends an unambiguous message that a new era is dawning.

4. Screening all candidates for new positions carefully, hiring only those who appear to fit in with the new culture.

5. Mandating that all company personnel attend culture-training programs to better understand the culture-related actions and behaviors that are expected.

6. Designing compensation incentives that boost the pay of teams and individuals who display the desired cultural behaviors, while hitting change-resisters in the pocketbook.

7. Revising policies and procedures in ways that will help drive cultural change.

Symbolic Culture-Changing Actions There is also an important place for sym- bolic managerial actions to alter a problem culture and tighten the strategy–culture fit. The most important symbolic actions are those that top executives take to lead by example. For instance, if the organization’s strategy involves a drive to become the industry’s low-cost producer, senior managers must display frugality in their own actions and deci- sions: inexpensive decorations in the executive suite, conservative expense accounts and entertainment allowances, a lean staff in the corporate office, few executive perks, and so on. At Walmart, all the executive offices are simply decorated; executives are habitually frugal in their own actions, and they are zealous in their own efforts to con- trol costs and promote greater efficiency. At Nucor, one of the world’s low-cost produc- ers of steel products, executives fly coach class and use taxis at airports rather than limousines. Top executives must be alert to the fact that company personnel will be watching their actions and decisions to see if they are walking the talk.27

Another category of symbolic actions includes holding ceremonial events to single out and honor people whose actions and performance exemplify what is called for in the new culture. A point is made of holding events to celebrate each culture-change suc- cess. Executives sensitive to their role in promoting the strategy–culture fit make a habit of appearing at ceremonial functions to praise individuals and groups that get with the program. They show up at employee training programs to stress strategic priorities, val- ues, ethical principles, and cultural norms. Every group gathering is seen as an opportu- nity to repeat and ingrain values, praise good deeds, and cite instances of how the new work practices and operating approaches have led to improved results.

Leading the Strategy Execution Process

For an enterprise to execute its strategy in truly proficient fashion and approach oper- ating excellence, top executives have to take the lead in the implementation/execution process and personally drive the pace of progress. They have to be out in the field, seeing for themselves how well operations are going, gathering information firsthand, and gauging the progress being made. Proficient strategy execution requires company

Recognize what constitutes effective managerial leadership in achieving superior strategy execution.

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managers to be diligent and adept in spotting problems, learning what obstacles lie in the path of good execution, and then clearing the way for progress: the goal must be to produce better results speedily and productively.28 In general, leading the drive for good strategy execution and operating excellence calls for three actions on the part of the manager:

• Staying on top of what is happening and closely monitoring progress

• Putting constructive pressure on the organization to execute the strategy well and achieve operating excellence

• Initiating corrective actions to improve strategy execution and achieve the targeted performance results

Staying on Top of How Well Things Are Going One of the best ways for executives to stay on top of strategy execution is by regularly visiting the field and talking with many different people at many different levels—a tech- nique often labeled managing by walking around (MBWA). Walmart executives have had a long-standing practice of spending two to three days every week visiting stores and talking with store managers and employees. Jeff Bezos, Amazon.com’s CEO, is noted for his frequent facilities visits and his insistence that other Amazon managers spend time in the trenches with their people to prevent overly abstract thinking and get- ting disconnected from the reality of what’s happening.29

Most managers practice MBWA, attaching great importance to gathering informa- tion from people at different organizational levels about how well various aspects of the strategy execution are going. They believe facilities visits and face-to-face contacts give them a good feel for what progress is being made, what problems are being encoun- tered, and whether additional resources or different approaches may be needed. Just as important, MBWA provides opportunities to give encouragement, lift spirits, shift attention from old to new priorities, and create excitement—all of which help mobilize organizational efforts behind strategy execution.

Putting Constructive Pressure on Organizational Units to Achieve Good Results and Operating Excellence Managers have to be out front in mobilizing the effort for good strategy execution and operating excellence. Part of the leadership requirement here entails fostering a results-oriented work climate in which performance standards are high and a spirit of achievement is pervasive. Successfully leading the effort to foster a results-oriented, high-performance culture generally entails such leadership actions and managerial practices as:

• Treating employees with dignity and respect.

• Encouraging employees to use initiative and creativity in performing their work.

• Setting stretch objectives and clearly communicating an expectation that company personnel are to give their best in achieving performance targets.

• Focusing attention on continuous improvement.

• Using the full range of motivational techniques and compensation incentives to reward high performance.

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• Celebrating individual, group, and company successes. Top management should miss no opportunity to express respect for individual employees and show appreciation of extraordinary individual and group effort.30

While leadership efforts to instill a spirit of high achievement into the culture usually accentuate the positive, there are negative reinforcers too. Low-performing workers and people who reject the results-oriented cultural emphasis have to be weeded out or at least moved to out-of-the-way positions. Average performers have to be candidly coun- seled that they have limited career potential unless they show more progress in the form of additional effort, better skills, and improved ability to deliver good results. In addi- tion, managers whose units consistently perform poorly have to be replaced.

Initiating Corrective Actions to Improve Both the Company’s Strategy and Its Execution The leadership challenge of making corrective adjustments is twofold: deciding when adjustments are needed and deciding what adjustments to make. Both decisions are a normal and necessary part of managing the strategic management process, since no scheme for implementing and executing strategy can foresee all the events and prob- lems that will arise.31 There comes a time at every company when managers have to fine-tune or overhaul the company’s strategy or its approaches to strategy execution and push for better results. Clearly, when a company’s strategy or its execution efforts are not delivering good results, it is the leader’s responsibility to step forward and push corrective actions.

KEY POINTS

Implementing and executing strategy is an operations-driven activity revolving around the man- agement of people and business processes. The managerial emphasis is on converting strategic plans into actions and good results. Management’s handling of the process of implementing and executing the chosen strategy can be considered successful if and when the company achieves the targeted strategic and financial performance and shows good progress in making its strategic vision a reality.

Like crafting strategy, executing strategy is a job for a company’s whole management team, not just a few senior managers. Top-level managers have to rely on the active support and coop- eration of middle and lower-level managers to push strategy changes into functional areas and operating units, and to see that the organization actually operates in accordance with the strat- egy on a daily basis.

Eight managerial tasks crop up repeatedly in company efforts to execute strategy:

1. Building an organization capable of executing the strategy successfully. Building an orga- nization capable of good strategy execution entails three types of organization-building actions: (a) staffing the organization—assembling a talented, can-do management team, and recruiting and retaining employees with the needed experience, technical skills, and intellectual capital, (b) acquiring, developing, and strengthening key resources and capabili- ties that will enable good strategy execution, and (c) structuring the organization and work

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effort—organizing value chain activities and business processes and deciding how much decision-making authority to push down to lower-level managers and frontline employees.

2. Allocating ample resources to strategy-critical activities. Managers implementing and execut- ing a new or different strategy must identify the resource requirements of each new strate- gic initiative and then consider whether the current pattern of resource allocation and the budgets of the various subunits are suitable.

3. Ensuring that policies and procedures facilitate rather than impede effective strategy execution. Anytime a company alters its strategy, managers should review existing policies and operat- ing procedures, proactively revise or discard those that are out of sync, and formulate new ones to facilitate execution of new strategic initiatives.

4. Adopting business processes that drive continuous improvement in how strategy execution activities are performed. Reengineering core business processes and continuous improve- ment initiatives such as total quality management (TQM) or Six Sigma programs all aim at improved efficiency, lower costs, better product quality, and greater customer satisfaction.

5. Installing information and operating systems that enable company personnel to perform essential activities. Well-conceived, state-of-the-art support systems not only facilitate better strategy execution but also strengthen organizational capabilities enough to provide a com- petitive edge over rivals.

6. Tying rewards directly to the achievement of performance objectives. For an incentive com- pensation system to work well, (a) the monetary payoff should be a major piece of the compensation package, (b) the use of incentives should extend to all managers and work- ers, (c) the system should be administered with care and fairness, (d) the incentives should be linked to performance targets spelled out in the strategic plan, (e) each individual’s performance targets should involve outcomes the person can personally affect, (f  ) rewards should promptly follow the determination of good performance, and (g) monetary rewards should be supplemented with liberal use of nonmonetary rewards.

7. Fostering a corporate culture that promotes good strategy execution. The psyche of corporate cultures varies widely. There are five types of unhealthy cultures: (a) those that are highly political and characterized by empire-building, (b) those that are change resistant, (c) those that are insular and inwardly focused, (d) those that are ethically unprincipled and are driven by greed, and (e) those that possess clashing subcultures that prevent a company from coordinating its strategy execution efforts. High-performance cultures and adaptive cultures both have positive features that are conducive to good strategy execution.

8. Exerting the internal leadership needed to propel implementation forward. Leading the drive for good strategy execution and operating excellence calls for three actions on the part of the manager: (a) staying on top of what is happening, closely monitoring progress, and learning what obstacles lie in the path of good execution; (b) putting constructive pressure on the organization to achieve good results and operating excellence; and (c) pushing cor- rective actions to improve strategy execution and achieve the targeted results.

ASSURANCE OF LEARNING EXERCISES

1. The heart of Zara’s strategy in the apparel industry is to outcompete rivals by putting fashionable clothes in stores quickly and maximizing the frequency of customer visits. Concepts & Connections 10.1 discusses the capabilities that the company has developed in the execution of its strategy. How do its capabilities lead to a quick production process and new apparel introductions? How do these capabilities encourage customers to visit its stores every few weeks? Does the execution of the company’s site selection capability also contribute to its competitive advantage? Explain.

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2. Implementing and executing a new or different strategy call for new resource allocations. Using your university’s library resources, search for recent articles that discuss how a com- pany has revised its pattern of resource allocation and divisional budgets to support new strategic initiatives.

3. Netflix avoids the use of formal policies and procedures to better empower its employees to maximize innovation and productivity. The company goes to great lengths to hire, reward, and tolerate only what it considers mature, “A” player employees. How does the company’s selection process affect its ability to operate without formal travel and expense policies, a fixed number of vacation days for employees, or a formal employee performance evaluation system?

4. Concepts & Connections 10.2 discusses Charleston Area Medical Center’s use of Six Sigma practices. List three tangible benefits provided by the program. Explain why a commitment to quality control is important in the hospital industry. How can the use of a Six Sigma pro- gram help medical providers survive and thrive in the challenging industry climate?

5. Company strategies can’t be implemented or executed well without a number of informa- tion systems to carry on business operations. Using your university’s library resources, search for recent articles that discuss how a company has used real-time information sys- tems and control systems to aid the cause of good strategy execution.

6. Concepts & Connections 10.3 provides a sampling of motivational tactics employed by several companies (many of which appear on Fortune’s list of the “100 Best Companies to Work For” in America). Discuss how rewards at SAS, Salesforce.com, Publix, and Hilcorp aid in the strategy execution of each company.

7. Concepts & Connections 10.4 discusses Epic’s strategy-supportive corporate culture. What are the standout features of Epic’s corporate culture? How does Epic’s culture contribute to its winning best-in-class awards year after year? Howe does the company’s culture make Epic a good place to work?

8. Leading the strategy execution process involves staying on top of the situation and moni- toring progress, putting constructive pressure on the organization to achieve operating excellence, and initiating corrective actions to improve the execution effort. Using your uni- versity’s library resources, discuss a recent example of how a company’s managers have dem- onstrated the kind of effective internal leadership needed for superior strategy execution.

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EXERCISES FOR SIMULATION PARTICIPANTS

1. How would you describe the organization of your company’s top management team? Is some decision making decentralized and delegated to individual managers? If so, explain how the decentralization works. Or are decisions made more by consensus, with all co- managers having input? What do you see as the advantages and disadvantages of the decision-making approach your company is employing?

2. Have you and your co-managers allocated ample resources to strategy-critical areas? If so, explain how these investments have contributed to good strategy execution and improved company performance.

3. Does your company have opportunities to use incentive compensation techniques? If so, explain your company’s approach to incentive compensation. Is there any hard evidence you can cite that indicates your company’s use of incentive compensation techniques has worked? For example, have your company’s compensation incentives actually boosted productivity? Can you cite evidence indicating the productivity gains have resulted in lower

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labor costs? If the productivity gains have not translated into lower labor costs, then is it fair to say that your company’s use of incentive compensation is a failure?

4. If you were making a speech to company personnel, what would you tell them about the kind of corporate culture you would like to have at your company? What specific cultural traits would you like your company to exhibit? Explain.

5. Following each decision round, do you and your co-managers make corrective adjustments in either your company’s strategy or how well the strategy is being executed? List at least three such adjustments you made in the most recent decision round. What hard evidence (in the form of results relating to your company’s performance in the most recent year) can you cite that indicates the various corrective adjustments you made either succeeded or failed to improve your company’s performance?

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1. Christopher A. Bartlett and Sumantra Ghoshal, “Building Competitive Advan- tage Through People,” MIT Sloan Management Review 43, no. 2 (Winter 2002).

2. Justin Menkes, “Hiring for Smarts,” Harvard Business Review 83, no. 11 (November 2005); and Justin Menkes, Executive Intelligence (New York: HarperCollins, 2005).

3. Larry Bossidy and Ram Charan, Execu- tion: The Discipline of Getting Things Done (New York: Crown Business, 2002).

4. Jim Collins, Good to Great (New York: HarperBusiness, 2001).

5. C. Helfat et al., Dynamic Capabilities: Understanding Strategic Change in Organizations (Malden, MA: Blackwell, 2007); and R. Grant, Contemporary Strategy Analysis, 6th ed. (Malden, MA: Blackwell, 2008).

6. G. Dosi, R. Nelson, and S. Winter, eds., The Nature and Dynamics of Organiza- tional Capabilities (Oxford, England: Oxford University Press, 2001).

7. B. Kogut and U. Zander, “Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology,” Organi- zation Science 3, no. 3 (August 1992), pp. 383–97.

8. S. Karim and W. Mitchell, “Path- Dependent and Path-Breaking Change: Reconfiguring Business Resources Following Business,” Strategic Manage- ment Journal 21, nos. 10–11 (October– November 2000), pp. 1061–82; L. Capron, P. Dussauge, and W. Mitchell, “Resource Redeployment Following Horizontal Acquisitions in

Europe and North America, 1988–1992,” Strategic Management Journal 19, no. 7 (July 1998), pp. 631–62.

9. Alfred Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1962).

10. Stanley E. Fawcett, Gary K. Rhoads, and Phillip Burnah, “People as the Bridge to Competitiveness: Benchmark- ing the ‘ABCs’ of an Empowered Work- force,” Benchmarking: An International Journal 11, no. 4 (2004).

11. Rosabeth Moss Kanter, “Collaborative Advantage: The Art of the Alliance,” Harvard Business Review 72, no. 4 (July–August 1994), pp. 96–108.

12. Michael Hammer and James Champy, Reengineering the Corporation (New York: HarperBusiness, 1993).

13. Charles A. O’Reilly and Michael L. Tushman, “The Ambidextrous Orga- nization,” Harvard Business Review 82, no. 4 (April 2004), pp. 74–81.

14. M. Walton, The Deming Management Method (New York: Pedigree, 1986); J. Juran, Juran on Quality by Design (New York: Free Press, 1992); Philip Crosby, Quality Is Free: The Act of Making Quality Certain (New York: McGraw-Hill, 1979); S. George, The Baldrige Quality System (New York: John Wiley & Sons, 1992); and Mark J. Zbaracki, “The Rhetoric and Reality of Total Quality Management,” Adminis- trative Science Quarterly 43, no. 3 (September 1998).

15. Robert T. Amsden, Thomas W. Ferratt, and Davida M. Amsden, “TQM: Core Paradigm Changes,” Business Horizons 39, no. 6 (November–December 1996).

16. Peter S. Pande and Larry Holpp, What Is Six Sigma? (New York: McGraw- Hill, 2002); Jiju Antony, “Some Pros and Cons of Six Sigma: An Academic Perspective,” The TQM Magazine 16, no. 4 (2004); Peter S. Pande, Robert P. Neuman, and Roland R. Cavanagh, The Six Sigma Way: How GE, Motorola and Other Top Companies Are Honing Their Performance (New York: McGraw- Hill, 2000); Joseph Gordon and M. Joseph Gordon, Jr., Six Sigma Quality for Business and Manufacture (New York: Elsevier, 2002); Godecke Wessel and Peter Burcher, “Six Sigma for Small and Medium-Sized Enterprises,” The TQM Magazine 16, no. 4 (2004).

17. Based on information posted at www.sixsigma.com, November 4, 2002.

18. Kennedy Smith, “Six Sigma for the Service Sector,” Quality Digest Magazine, May 2003, www.qualitydigest.com (accessed September 28, 2003).

19. As quoted in “A Dark Art No More,” The Economist 385, no. 8550 (October 13, 2007).

20. Charles A. O’Reilly and Michael L. Tushman, “The Ambidextrous Organiza- tion,” Harvard Business Review 82, no. 4 (April 2004).

21. See Steven Kerr, “On the Folly of Rewarding A while Hoping for B,” Acad- emy of Management Executive 9, no. 1 (February 1995); Steven Kerr, “Risky Business: The New Pay Game,” Fortune, July 22, 1996; Doran Twer, “Linking Pay to Business Objectives,” Journal of Business Strategy 15, no. 4 (  July– August 1994).

ENDNOTES

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22. Jeffrey Pfeffer and John F. Veiga, “Put- ting People First for Organizational Suc- cess,” Academy of Management Executive 13, no. 2 (May 1999); Linda K. Stroh and Paula M. Caliguiri, “Increasing Global Competitiveness Through Effec- tive People Management,” Journal of World Business 33, no. 1 (Spring 1998); and articles in Fortune on the 100 best companies to work for (various issues).

23. Joanne Reid and Victoria Hubbell, “Cre- ating a Performance Culture,” Ivey Busi- ness Journal 69, no. 4 (March–April 2005).

24. Jay B. Barney and Delwyn N. Clark, Resource-Based Theory: Creating and Sustaining Competitive Advantage (New York: Oxford University Press, 2007).

25. John P. Kotter and James L. Heskett, Corporate Culture and Performance (New York: Free Press, 1992).

26. Kurt Eichenwald, Conspiracy of Fools: A True Story (New York: Broadway Books, 2005).

27. Judy D. Olian and Sara L. Rynes, “Making Total Quality Work: Aligning Organizational Processes, Performance Measures, and Stakeholders,” Human Resource Management 30, no. 3 (Fall 1991).

28. Larry Bossidy and Ram Charan, Con- fronting Reality: Doing What Matters to Get Things Right (New York: Crown Business, 2004); Larry Bossidy and Ram Charan, Execution: The Discipline of Getting Things Done (New York: Crown Business, 2002); John P. Kotter, “Leading Change: Why Transforma- tion Efforts Fail,” Harvard Business Review 73, no. 2 (March–April 1995); Thomas M. Hout and John C. Carter, “Getting It Done: New Roles for Senior

Executives,” Harvard Business Review 73, no. 6 (November–December 1995); Sumantra Ghoshal and Christopher A. Bartlett, “Changing the Role of Top Management: Beyond Structure to Pro- cesses,” Harvard Business Review 73, no. 1 (January–February 1995).

29. Fred Vogelstein, “Winning the Amazon Way,” Fortune, May 26, 2003.

30. Jeffrey Pfeffer, “Producing Sustainable Competitive Advantage Through the Effective Management of People,” Acad- emy of Management Executive 9, no. 1 (February 1995).

31. Cynthia A. Montgomery, “Putting Lead- ership Back into Strategy,” Harvard Busi- ness Review 86, no. 1 (January 2008).

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