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Chapter TitleChapter Title
16/e PPT16/e PPT
Building anOrganization
Capable of Good
Strategy Execution
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region
McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
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The best game plan inthe world never blocked
or tackled anybody.
Vince Lombardi
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A second-rate strategy
perfectly executed will beat
a first-rate strategy poorly
executed every time.
Richard M. Kovacevich
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Chapter Roadmap
A Framework for Executing Strategy
The Principal Managerial Components of the Strategy
Execution Process
Building an Organization Capable of Good StrategyExecution
Staffing the Organization
Building Core Competencies and Competitive
Capabilities Execution-Related Aspects of Organizing the Work
Effort
Current Organizational Trends
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Crafting the Strategy
Primarily a market-drivenactivity
Successful strategy makingdepends on
Business vision
Perceptive analysis ofmarket conditions andcompany capabilities
Attracting and pleasing
customers
Outcompeting rivals
Using companycapabilities to forge acompetitive advantage
Executing the Strategy
Primarily an operations-driven activity
Successful strategyexecution depends on
Doing a good job ofworking through others
Good organization-building
Building competitive
capabilities
Creating a strategy-supportive culture
Getting things done anddelivering good results
Crafting vs. Executing Strategy
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An action-oriented, make-things happen task
involving managements ability to
Direct organizational change
Achieve continuous improvement inoperations and business processes
Move toward operating excellence
Create and nurture a
strategy-supportive culture Consistently meet or beat performance targets
Tougher and more time-consuming than crafting
strategy
Implementation
involves . . .
Executing the Strategy
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Implementing a New StrategyRequires Adept Leadership
Implementinga new strategy
takes adeptleadership to
Convincingly communicate
reasons for the new strategy
Overcome pockets of doubt
Secure commitment of concerned parties
Build consensus and enthusiasm
Get all implementation pieces in place and coordinated
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Why Executing Strategy Isa Tough Management Job
Overcoming resistance to change
Wide array of demanding managerial
activities to be performed
Numerous ways to tackle each activity
Number of bedeviling issues to be worked out
Demands good people management skills
Requires launching and managinga variety of initiatives simultaneously
Hard to integrate efforts of many different work
groups into a smoothly-functioning whole
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Who Are the Strategy Implementers?
Implementing and executing strategy involves acompanys whole management team and allemployees
Just as every part of a watch plays a role in making thewatch function properly, it takes all pieces of anorganization working cohesively for a strategyto be well-executed
Top-levelmanagers must leadthe
process and orchestrate major initiatives Butthey must rely on cooperation of
Middle and lower-level managers to see things go well invarious parts of an organization and
Employees to perform their roles competently
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Goals of the StrategyImplementing-Executing Process
Unite total organization behind strategy
See that activities are done in a manner that is
conducive to first-rate strategy execution
enerate commitmentso an enthusiastic
crusade emerges to carry out strategy
Fithow organization conducts its
operations to strategy requirements
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Every manager has an active role
No proven formula for implementing
particular types of strategies
There are guidelines, but no
absolute rules and must do it
this way rules
Many ways to proceed that arecapable of working
Cuts across many aspects of how to manage
Characteristics of the StrategyImplementation Process
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Each implementation situation occurs in a different
context, affected by differing
Business practices and competitive situations
Work environments and cultures
Policies
Compensation incentives
Mix of personalities and firm histories
Approach to implementation/execution
has be customized to fit the situation
People implement strategies - Not companies!
Characteristics of the StrategyImplementation Process (continued)
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Fig. 11.1: The Eight Components of the Strategy Execution Process
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Communicate the case for change
Build consensus on how to proceed
Arouse enthusiasm for the strategy to turn
implementation process into a companywide crusade Empowersubordinates to keep process moving
Establish measures of progress and deadlines
Rewardthose who achieve
implementation milestones
Direct resources to the right places
Personally leadstrategic change process
and the drive for operating excellence
What Top Executives Have to Do inLeading the Implementation Process
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Test Your Knowledge
Management's handling of the strategy implementation/execution
process can be considered successful
A. so long as a company is profitable.
B. if and when the company meets or beats its performance targets and
shows good progress in achieving its strategic vision for thecompany.
C. once the company's management team convinces a majority of
company personnel that the company is headed in the right direction.
D. if management is able to put the strategy in place within 6 months.
E. once a capable top management team has been hired, employees
have been appropriately empowered, and effective training programs
for company personnel have been put in place.
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BUILD
ING
ACA
PA
BLEBUILD
ING
ACA
PA
BLEORGANIZATIONORGANIZATION WHATWHAT
IS INVOLVED?IS INVOLVED?
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Fig. 11.2: The Three Components of Building anOrganization Capable of Proficient Strategy Execution
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Assembling a capable management team is a
cornerstone of the organization-building task
Find the right people to fill each slot
Existing management team
may be suitable
Core executive group
may need strengthening
Promote from within
Bring in skilled outsiders
Putting Together aStrong Management Team
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Selecting the Management Team:Key Considerations
Determine mix of
Backgrounds
Experiences and know-how
Beliefs and values
Styles of managing and personalities
Personal chemistry must be right
Talent base needs to be appropriate
Picking a solid management team needs to be
acted on early in implementation process
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The quality of a companys people is an essential
ingredient of successful strategy execution
Biggest challenge facing companies
How to recruit and retain the bestand brightest talent with strong
skill sets and management potential
Intellectual capital, not tangible assets, is
increasingly being viewed as the most importantinvestment
Talented people are a prime source of competitive
advantage
Recruiting and Retaining TalentedEmployees: Implementation Issues
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Key Human Resource Practices toAttract and Retain Talented Employees
Spend considerable effort in screening job
applicants, selecting only those with
Suitable skill sets
Energy and initiative Judgment and aptitudes for learning
Ability to adapt to firms work
environment and culture
Put employees through trainingprograms throughout their careers
Give promising employees challenging, interesting,
and skills-stretching assignments
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Rotate employees through jobs with great content,
spanning functional and geographic boundaries
Encourage employees to
Be creative and innovative Challenge existing ways of
doing things and offer better ways
Submit ideas for new products or businesses
Foster a stimulating work environmentExert efforts to retain high-potential employees with
excellent salary and benefits
Coach average employees to improve their skills
Key Human Resource Practices to
Attract and Retain Talented Employees (continued)
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Building Core Competenciesand Competitive Capabilities
Craftingthe strategyinvolves
Identifyingthe desired competencies and
capabilities to build into the strategy to help
achieve a competitive advantage
Good strategy execution requires
Puttingdesired competencies and capabilities in
place,
Upgradingthem as needed, and
Modifyingthem as market
conditions evolve
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Example: Intels Core Competence
Design and mass production
of complex chipsfor personal computers
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Example: Procter & GamblesCore Competencies
Superb marketing-distribution skills and R&D
capabilities in five core technologies - fats,
oils, skin chemistry, surfactants, emulsifiers
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Example: General ElectricsCore Competencies
Developing professional managers with
broad problem-solving skills and
proven ability to growglobal businesses
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Example: Disneys Core Competencies
Theme park operation and
family entertainment
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Example: Dells Core Competencies
Capabilities to deliver state-of-the-art
products to customers within days of next-
generation components coming available and
at attractively low costs
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Example: Toyotas Core Competence
Legendary production system giving it
the capability to produce high-quality
vehicles at relatively low costs
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1. Develop abilityto do something
2. As experience builds,
abilitycan translate into acompetence or capability
3. Ifabilitycontinues to be polished andrefined, it can become a distinctive
competence, providing a path to
competitive advantage!
Three-Stage Process of DevelopingCompetencies and Capabilities
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Develop abilityto do something
Select people with relevant skills/experience
Broaden or expand individual abilities as needed
Mold efforts and work products of
individuals into a cooperative effort
to create organizationalability
Step 1 in Developing Competencies
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As experience builds and company learns how to
perform the activity consistently well and at
acceptable cost, the ability evolves into a
competence orcapability
Typically, a capability or competence emerges from
establishing and nurturing collaborative
relationships between Individuals and groups in different departments and/or
A company and its external allies
Step 2 in Developing Competencies
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If company masters the activity, performingit
better than rivals, the capabilityor
competencebecomes a
Distinctive competence and
Holds potential for
competitive advantage
This is the optimaloutcome of the process
of building capabilities-competencies!
Step 3 in Developing Competencies
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1. Competencies are bundles of skills and know-how
growing from combined efforts of cross-functional
departments
2. Normally, competencies emerge incrementallyfrom
various company efforts to respond to market
conditions
3. Leveraging competencies into competitive advantage
requires concentratingmore effortand talentthan
rivals on strengthening competencies to createvaluable capabilities
4. Sustaining competitive advantage requires adjusting
competencies to new conditions
Managing the Process of BuildingCompetences: Four Key Traits
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Internaldevelopmentinvolves either
Strengthening the companys base of skills,knowledge, and intellect or
Coordinating and networking the effortsof various work groups and departments
Partnering with key suppliers,forming strategic alliances, or maybeeven outsourcing certain activities to
specialists
Buying a companythat has the requiredcapabilities and integrating these competences intothe firms value chain
Approaches to Developing Competencies
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Competencies and capabilities must
continuously be modifiedand perhaps
even replaced with newones due to
New strategic requirements Evolving market conditions
Changing customer expectations
Ongoing efforts to keep core competencies up-to-
date can provide a basis forsustainingboth
Effective strategy execution and
Competitive advantage
Updating Competencies andCapabilities as Conditions Change
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Training plays a critical role in implementation
when a firm shifts to a strategy requiring different
Skills or core competences
Competitive capabilities
Managerial approaches
Operating methods
Types of training approaches
Internal universities Orientation sessions for new employees
Tuition reimbursement programs
Online training courses
Strategic Role of Employee Training
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Competitive Advantage Potentialof Competencies and Capabilities
When it is difficultto outstrategize rivals
with a superior strategy . . .
. . . Best avenue to industry
leadership is to out-compete
rivals with
superior strategy execution!
Building competencies and capabilities
rivals cant match is one of the
best ways to out-compete them!
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Test Your Knowledge
When it is difficult or impossible to out-strategize rivals (beat
them with a superior strategy), the other main avenue to
competitive advantage is to
A
. institute a lower cost organization structure.
B. outcompete them with smarter managers.
C. do a better job of selecting and training employees.
D. outexecute them (beat them by performing certain value chainactivities in superior fashion).
E. do a better job of empowering and motivating employees.
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Execution-Related Aspectsof Organizing Work Efforts
Few hard and fast rules for organizing
One BigRule: Role andpurpose oforganization
structure is to support and facilitate good strategy
execution!
Each firms structure is idiosyncratic, reflecting
Prior arrangements and internal politics
Executive judgments and preferences about how to
arrange reporting relationships
How best to integrate and coordinate work effort ofdifferent work groups and departments
Vice President Vice President Vice President
CEO
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Fig. 11.3: Structuring the Work Effortto Promote Successful Strategy Execution
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Step 1: Decide Which Value Chain Activities toPerform Internally and Which to Outsource
Involves decidingwhich activities are
essential to strategic success
Most strategies entail certain crucial business processes
or activities that must be performed exceedingly well orin closely coordinated fashion if the strategy is
to be executed with real proficiency
These processes/activities usually
need to be performed internally
Other activities, such as routine
administrative housekeeping and
some support functions, may be
candidates for outsourcing
Criticalactivities
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Determining Strategy-Critical Activities:Issues to Consider
1. What functions or business processes
have to be performed extra well or in
timely fashion to achieve competitive advantage?
2.In what value
-chain activities wouldpoor execution seriously impair
strategic success?
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A company improves its chances for outclassing rivals
in
Performing strategy-critical activities and
Turning a core competence into a distinctive competence
Streamlining of internal operations that flows from
outsourcing acts to
Decrease internal bureaucracies
Flatten organization structure
Speed decision-making Increase competitive responsiveness
Partnerships can add to a companys arsenal of
capabilities and contribute to better strategy execution
Potential Advantages ofOutsourcing Non-Critical Activities
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Appeal of Outsourcing
Outsourcing non-critical activities allows a firm to
concentrate its energies and resources on those
value-chain activities where it
Can create unique value
Can be best in the industry
Needs direct control to
Build core competencies
Achieve competitive advantage
Manage key customer-supplier-distributor relationships
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Potential Advantages of Partnering
By building, improving, and then leveraging
partnerships, a firm enhances its overall capabilities
and builds resource strengths that
Deliver value to customers Rivals cant quite match
Consequently pave the way
for competitive success
Partnering makes strategic sense when theresult is to enhance a companys
competencies and competitive capabilities.
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Dangers of Outsourcing
A company must guard against hollowing out its
knowledge base and capabilities
Way to guard against pitfalls of outsourcing
Avoid sourcing key components from a single supplier
Use two or three suppliers to minimize
dependence on any one supplier
Regularly evaluate suppliers
Work closely with key suppliers
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For Discussion: Your Opinion
While many people have criticized companies that
have outsourced functions once performed in-house
to foreign suppliers (who can perform the functions
more cheaply) because outsourcing results in
involuntary layoffs or job cuts, it is really fairer and
more accurate to view outsourcing as a means
whereby a company can enhance its competitivenessand thereby better protect the jobs of the remaining
employees. True or false? Explain.
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Assign managers of strategy-critical activities a
visible, influential position
Avoidfragmenting responsibility for strategy-critical
activities across many departments
Provide coordinating linkages
between related work groups
Meld into a valuable
competitive capability
Assign
managers
key roles
Primaryactivities
Strategic
relation-
ships
Coordi-
nation
Valuable
capability
Supportfunctions
Step 2: Make Strategy-CriticalActivities the Main Building Blocks
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What Types of OrganizationalStructures Fit Which Strategies?
A company operating in one business
Functional department structure
A company with operations in various parts of
the world Geographic organizational units
A vertically integratedcompany
D
ivisional organizational structureA diversifiedcompany
Individual businesses, with each business unit operating
as independent profit center
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In a centralized structure
Top managers retain authority
for most decisions
In a decentralized structure
Managers and employees are
empowered to make decisions
Trendin most companies
Shift from authoritarian to decentralized
structures stressing empowerment
Step 3: Determine How MuchAuthority to Delegate to Whom
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Characteristics ofCentralized Decision Making
Top executives retain authority
For most strategic and operating decisions and
Keep a tight rein on lower-level managers
Minimal discretionary authority is granted to
Frontline supervisors Rank-and-file employees
Key advantage Tight control by top
managers fixes accountability
Disadvantages
Lengthens response time to changing conditions
Does not encourage responsibility among lower-level managers and
employees
Discourages lower-level managers and employees from exercising
initiative
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Advantages of a Decentralized Structure
Creates a more horizontal structure with fewer management layers
Managers and employees develop their own answers and action
plans
Make decisions in their areas of responsibility
Held accountable for results
Shortens organizational response times and spurs
New ideas
Creative thinking and innovation
Greater involvement of managers and employees
Jobs can be defined more broadly
Fewer managers are needed
Electronic communication systems provide quick, direct access to
data
Genuine gains in morale and productivity
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Place limits on authority empowered employees
can exercise
Hold people accountable for their decisions
Institute compensation incentives that reward
employees for doing their jobs in a manner
contributing to good company performance
Create a corporate culture where
theres strong peer pressure on
employees to act responsibly
Maintaining Control ina Decentralized Structure
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For Discussion: Your Opinion
A decentralized organization structure is more likely
to further the cause of good strategy execution than is
a centralized organization structure. True or false?Explain.
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Classicmethodofcoordinating activities Have
related units reportto single manager
Upper-level managers have clout to
coordinate efforts of their units
Support activities should be
woven into structure to
Maximize performance of primary activities
Contain costs of support activities
Formalreporting relationships often need to be
supplementedto facilitate coordination
Step 4: Provide for InternalCross-Unit Coordination
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Guard Against FunctionalDesigns That Fragment Activities
Scatteringpieces of critical business processes
across several specialized departments results in
Many hand-offs which
Lengthens completion time
Drives up administrative costs
Increases risk of details falling through the cracks
Obsession with activity rather than result
Solution Business process reengineering Involves pulling strategy-criticalprocesses from
functional departments to create process departments
orcross-functionalwork groups
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Examples of FragmentedStrategy-Critical Activities
Filling customer orders
Speeding new products to market
Improving product quality
Supply chain management
Building capability to conduct business via the
Internet
Obtaining feedback from customers, making
product modifications to meet their needs
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Cross-functional task forces
Dual reporting relationships
Informal networking
Voluntary cooperation
Incentive compensation tied
to group performance
Teamwork and cross-
departmental cooperation
Coordinating Mechanisms to Supplementthe Basic Organization Structure
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Step 5: Provide forCollaboration With Outsiders
Need multiple ties at multiple levels to ensure
Communication
Coordination and control
Find ways to produce collaborative
efforts to enhance firms capabilities
and resource strengths
While collaborative relationships presentopportunities, nothing valuable is realized until
the relationship develops into an engine for
betterorganizationalperformance
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Get right people together
Promote good rapport
See plans for specific activitiesare developed and implemented
Help adjust internal procedures
and communication systems to Iron out operating dissimilarities
Nurture interpersonal ties
Roles of Relationship ManagersWith Strategic Partners
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Test Your Knowledge
Which one of the following tends to be most important in building an
organization capable of good strategy execution?
A. Selecting a capable management team and selecting and training
employees
B. Building and strengthening competencies and competitivecapabilities
C. Empowering employees and utilizing the advantages of
decentralized decision-making
D. Making strategy-critical activities the main building blocks in the
organizational schemeE. None of the above is necessarily more or less importantwhat
factors prove to be particularly important in building an organization
that is capable of good strategy execution can vary from company to
company and situation to situation.
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Current Organizational Trends
Numerous companies have completed the task of
remodeling traditional, hierarchical structures built
on
Functional specialization and
Centralized authority
Corporate downsizing movement in the
late 1980s and early 1990s was aimed at
Recasting authoritarian, pyramidal
organizational structures
Into flatter, decentralized structures
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Centralizedor authoritarian structures have
often turned out to be a liabilitywhere
Customer preferences shift from
standardized to customized products
Product life-cycles grow shorter
Flexible manufacturing replaces
mass production
Customers want to be treated as individuals
Pace of technological change accelerates
Market conditions are fluid
Drawbacks of CentralizedAuthoritarian Structures
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Organizational Structures ofthe Future: Overall Themes
Revolutionary changes in how workis organized
have been triggered by
New strategic priorities
Rapidly shifting competitive conditions
Tools oforganizationaldesign include
Empowered managers and workers
Reengineered work processes
Self-directed work teams Rapid incorporation ofInternet
technology
Networking with outsiders
The future
structure
will be . . .
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Characteristics ofOrganizations of the Future
Extensive use ofInternet technology
and e-commerce business practices
Fewer barriers between
Different vertical ranks
Functions and disciplines
Units in different geographic locations
Company and its suppliers, distributors,
strategic allies, and customersCapacityforchange and rapidlearning
Collaborative efforts among people in different
functions and geographic locations
Change &Learning