Building an Organization

Capable of Good Strategy

Execution
Chapter 11
 A second rate strategy
perfectly executed will beat a
first-rate strategy poorly
executed every time

Richard M. Kovacevich: chairman and

CEO Wells Fargo
Crafting vs. Executing Strategy
Crafting the Strategy Executing the Strategy
• Primarily an operations-
• Primarily a market- driven activity
driven activity
• Successful strategy
• Successful strategy execution depends on
making depends on – Doing a good job of
– Business vision working through others
– Perceptive analysis of – Good organization-
market conditions and building
company capabilities – Building competitive
– Attracting and pleasing capabilities
customers – Creating a strategy-
– Outcompeting rivals supportive culture
– Using company – Getting things done and
capabilities to forge a delivering good results
competitive advantage
 Executing the Strategy
• An action-oriented, make-things happen task
involving management’s ability to
– Direct organizational change Implementation
involves . . .
– Achieve continuous improvement in
operations 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
 Barriers to Strategy Execution
• Subordinates to immediately abandon old ways
• The needed actions and needed changes to
occur in rapid fire fashion
• Skepticism of employees and managers
regarding the merits of a new strategy
• Threatening to their departments and own
careers
• May have different ideas about what internal
changes are required to execute the strategy
 Implementing a New Strategy
Requires Adept Leadership
• Implementing a new strategy
takes adept leadership 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
Strategy execution requires every
manager to think through the
answer to “ What does my area
have to do to implement its part of
the strategic plan, and what should
I do to get these things effectively
and efficiently”
 Goals of the Strategy
Implementing-Executing Process
• Unite total organization behind strategy

• See that activities are done in a manner that is

conducive to first-rate strategy execution

• Generate commitment so an enthusiastic

crusade emerges to carry out strategy

• Fit how organization conducts its

operations to strategy requirements
A Framework For Executing Strategy
• Management’s handling of the strategy
implementation process can be considered
successful if and when:
- the company achieves the targeted strategic
and financial performance
- shows good progress in making its vision a
reality
• There is no definitive managerial recipe for
successful strategy execution that cuts across all
company situations and all types of strategies
• The specific hows of implementing and
executing a strategy must always be tailored to
fit an individual company’s own circumstances
and represent management’s judgment about
how best to proceed
 What Top Executives Have to Do in
Leading the Implementation Process
• Communicate the case for change
• Build consensus on how to proceed
• Arouse enthusiasm for the strategy to turn
implementation process into a companywide crusade
• Empower subordinates to keep process moving
• Establish measures of progress and deadlines
• Reward those who achieve
implementation milestones
• Direct resources to the right places
• Personally lead strategic change process
and the drive for operating excellence
Fig. 11.1: The Eight Components of the
Strategy Execution Process
 Fig. 11.2: The Three Components of Building an
Organization Capable of Proficient Strategy Execution
Staffing the organization

1. Putting together a strong management team

• The most important consideration is to fill key managerial
slots with smart people who are
- clear thinkers
- good at figuring it out what needs to be done
- skilled in “making it happen”
- delivering good results
• Existing management team may be suitable
• Core executive group may need strengthening
- promote from within / bring in skilled outsiders
• The chief lesson here is that a company needs to get the
right executives on the bus – and the wrong executives
off the bus – before trying to drive the bus in the desired
direction
 Staffing the organization
2. Recruiting and Retaining Capable Employees
• The quality of an organization’s people is always an
essential ingredient of successful strategy execution
• Knowledgeable engaged employees are a company’s
best source of creative ideas for the nuts-and-bolts
operating improvements that lead to operating
excellence
• High performance companies make concentrated efforts
to recruit the best and brightest people they can find and
retain them with:
- excellent compensation packages,
- opportunities for rapid advancement and professional
growth
- challenging and interesting assignments
• In instances where intellectual capital greatly aids good
strategy execution companies have instituted a number
of practices aimed at staffing jobs with best people they
can find
 Recruiting and Retaining Capable Employees
1. Spending considerable effort in screening and evaluating job
applicants, selecting only those with suitable skill set, energy,
initiative, judgment, and aptitudes for learning and adaptability to the
company’s work environment and culture
2. Putting employees through training programs that continue
throughout their careers
3. Providing promising employees with challenging, interesting, and
skill-stretching assignments
4. Rotating people through jobs that not only have great content but
also span functional and geographic boundaries
5. Encouraging employees to challenge existing ways of doing things,
to be creative and innovative in proposing better ways of operating,
and to push their ideas for new products or businesses
6. Making the work environment stimulating and engaging such that
employees will consider the company a great place to work
7. Striving to retain talented, high performing employees via
promotions, salary increases, performance bonuses, stock options,
equity ownership, fringe benefit packages,
8. Coaching average performers to improve their skills and capabilities,
while weeding out underperformers and benchwarmers
 Building Core Competencies and
Competitive Capabilities
• Crafting the strategy involves
– Identifying the desired competencies and
capabilities to build into the strategy to help
achieve a competitive advantage

• Good strategy execution requires

– Putting desired competencies and capabilities in place,
– Upgrading them as needed, and
– Modifying them as market
conditions evolve
 Three Stage Process of Developing and
Strengthening Competencies
• Stage 1: Develop the ability to do something
however imperfectly or inefficiently
- selecting people with the requisite skills and
experience
- upgrading or expanding individual abilities as
needed
- molding the efforts and work products of
individuals into a collaborative effort to create
organizational ability
 Three Stage Process of Developing and
Strengthening Competencies
• Stage 2: As experience grows company
personnel learn how to:
- perform the activity consistently well at an
acceptable cost
- the ability evolves into tried and true
competence or capability
• Stage 3: If ability continues to be polished
and refined, it can become a distinctive
competence, providing a path to
competitive advantage
 Managing the Process
1. Core competence and competitive capabilities are bundle of skills
and know how that most often grow out of the combined efforts of
cross functional work groups and departments performing
complementary activities at different locations in the firm’s value
chain
2. Normally, a core competence or capability emerges incrementally
out of company efforts either to bolster skills that contributed to
earlier success or to respond to customer problems, new
technological and market opportunities, and the competitive
maneuvering of the rivals
3. The key to leveraging a core competence into a distinctive
competence is concentrating more efforts and more talents than
rivals on deepening and strengthening the competence, so as to
achieve dominance needed for competitive advantage
4. Evolving changes in customer needs and competitive conditions
often require tweaking and adjusting a company’s portfolio of
competencies and intellectual capital to keep its capabilities freshly
honed and on the cutting edge
 Managing the Process: Important considerations
1. Whether to develop core competencies and competencies by:
a) strengthening the company base of skills, knowledge, and intellect
b) coordinating and networking the efforts of various groups and
departments
- actions of first sort can be undertaken at all managerial levels
- actions of the second sort are best orchestrated by senior
managers
2. Whether to :
a) develop the desired the desired competencies internally
b) outsource them by partnering with key suppliers or forming strategic
alliances
• The answer depends on what can be safely delegated to outside
supplies versus what internal capabilities are key to the company’s
long-term success.
- outsourcing means launching initiatives to identify the most
effective providers and o establish collaborative relationship
- developing capabilities in-house means marshalling personnel with
relevant skills and experience, collaboratively networking the
individual skills and related cross-functional activities to form
organizational capability , and building the desired levels of
proficiency through repitition
Execution-Related Aspects of Organizing
Work Efforts
• Few hard and fast rules for organizing
– One Big Rule: Role and purpose of organization
structure is to support and facilitate good
strategy execution!
• Each firm’s 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 of
different work groups and departments

CEO

Vice President Vice President Vice President

 Fig. 11.3: Structuring the Work Effort
to Promote Successful Strategy Execution
 Step 1: Decide Which Value Chain
Activities to Perform Internally and Which
to Outsource
• Involves deciding which activities are
essential to strategic success
– Most strategies entail certain crucial business processes or
activities that must be performed exceedingly well or in closely
coordinated fashion if the strategy is to be executed with real
proficiency
• These processes/activities usually
need to be performed internally Critical
– Other activities, such as routine activities
administrative housekeeping and
some support functions, may be
candidates for outsourcing
 Step 2: Make Strategy-Critical
Activities the Main Building Blocks
• Assign managers of strategy-critical activities a
visible, influential position

• Avoid fragmenting responsibility for strategy-

critical activities across many departments

• Provide coordinating linkages Assign

managers

between related work groups key roles

Primary Support
activities functions
– Meld into a valuable
competitive capability Strategic
relation-
Coordi- Valuable
capability
nation
ships
 Which Type of Organization
structures Fit which Strategies
• Functional structure best suited for companies in one
particular business
• An organization spread over many countries the
company may be organized around geographic divisions
• In vertically integrated firms, the major building blocks
are divisional units performing one or more of the major
processing steps along the value chain
• The typical building blocks of the diversified company are
its individual businesses, with each business unit
operating as an independent profit center and with
corporate headquarters performing support functions for
all its business units
Reorganization from Functional Structure
to Divisional Structure at Info-Tech

Functional Info-Tech
Structure President

R&D Manufacturing Accounting Marketing

Divisional In fo -T e c h
Structure P r e s id e n t

E le c t ro n ic O ff ic e V ir t u a l
P u b lis h in g A u t o m a t io n R e a lit y

R&D M fg A c c tg M k tg R&D M fg A c c tg M k tg R&D M fg A c c tg M k tg

The Process-Based
Structure
S e n io r M a n a g e m e n t T e a m
C h a ir a n d K e y S u p p o r t P r o c e s s O w n e r s

D e v e lo p in g N e w P r o d u c ts P r o c e s s
P ro c e s s O w n e r
C r o s s F u n c t io n a l T e a m M e m b e r s

A c q u ir in g a n d F illin g C u s to m e r O r d e r s P r o c e s s
P ro c e s s O w n e r
C r o s s F u n c t io n a l T e a m M e m b e r s

S u p p o r tin g C u s to m e r U s a g e P r o c e s s
P ro c e s s O w n e r
C r o s s F u n c t io n a l T e a m M e m b e r s
 Geographical Structure
for Apple Computer
CEO
Steve Jobs

Apple Apple Apple Apple

Products Americas Europe Pacific

Canada France Australia

Latin
America/ Japan
Caribbean

Sales Asia
Service and
Marketing
to Regions

Source: www.apple.com
Global Geographic Division Structure

CEO

Latin
Pacific European Canadian Corporate
American
Division Division Division Staff
Division

Long-term
Planning

Product
Coordinators
Partial Global Product Structure Used by
Eaton Corporation
Chairman

President
Law & Enginee Finance & Internati
Corporate ring Administration onal
Relations
Regional
Coordinators

Global Global Global Global Global

Automotive Industrial Instruments Materials Truck
Components Group Product Handling Components
Group Group Group Group
 Global Matrix Structure
International
Executive
Committee
Country Managers

Business Germany Argentina/ Spain/

Norway
Areas Brazil Portugal
Power
Transformers

Transportation

Industry
Local
Companies
 The Network Organization

Designer Producer
Organizations Organizations

Broker
Organization

Supplier Distributor
Organizations Organizations
 Step 3: Determine How Much
Authority to Delegate to Whom
• In a centralized structure
– Top managers retain authority
for most decisions

• In a decentralized structure
– Managers and employees are
empowered to make decisions

• Trend in most companies

– Shift from authoritarian to decentralized
structures stressing empowerment
 Maintaining Control in Decentralized
Organization Structure
• Challenge of empowering employees:
• 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
- placing limits on that the authority
- holding people accountable for their decisions
- instituting compensation incentives that reward good
performance
- corporate culture where there’s strong peer pressure
on individuals to act responsibly
 Capturing Strategic Fit in a
Decentralized Structure
• Cross business strategic fits have to be captured either
by:
- enforcing close cross-business collaboration
- centralizing performance of functions having strategic
fits at the corporate level
• Efforts to decentralize decision making and giving
leeway in conducting operations have to be tempered
with the need to maintain adequate control and cross-
unit coordination
• Decentralization doesn’t mean delegating authority in
ways that allow organization units and individuals their
own things
 Step 4: Provide for Internal Cross-Unit
Coordination
• Classic method of coordinating activities – Have related units
report to single manager
- Upper-level managers have clout to coordinate efforts of their
units
• Firm pursuing related diversification, coordinating the related
activities of independent business units often require centralizing
of a single corporate level officer
• Diversified companies commonly centralize staff functions as
public relations, finance and accounting, employee benefits, and
information technology at corporate level to:
- contain the costs of support activities
- facilitate uniform and coordinated performance of such functions
within each business units
• Close cross-unit collaboration is needed to build core
competencies and competitive capabilities in strategically
important activities that involve employees scattered across
several internal organization units
• A big weakness of functional structure is that pieces of
strategically relevant activities end up scattered across many
departments with the result that no one group or manager is
accountable
 Examples of the strategically-critical
activities cut across functions
• Filling customer orders accurately and promptly
- personnel from sales which wins orders
- finance to check credit terms or approve special financing
- production produce the goods and replenish warehouse
inventories as needed
- warehousing to confirm whether items in stock, pick the order from
the ware house and package it for shipping
- shipping to choose the carrier to deliver he good
• Fast ongoing introduction of new products;
- cross functional processes involving personnel in R&D, design and
engineering, purchasing, manufacturing, sales and marketing
• Supply chain management
- purchasing, inventory management, manufacturing and assembly,
warehousing and shipping
• Obtaining feedback from customers and making product
modifications
- customer services, after sales support, R&D, design and
engineering, purchasing, manufacturing, marketing research
 Integrating Mechanisms
• Process departments
• Cross functional task forces
• Liaison roles
• Dual reporting relationship
• Informal organizational networking
• Voluntary cooperation
• Executive level insistence on team work,
and cross department collaboration
 Step 5: Provide for
Collaboration With Outsiders
• Need multiple ties at multiple levels to ensure
– Communication
– Coordination and control
• Find ways to produce collaborative
efforts to enhance firm’s capabilities
and resource strengths
• While collaborative relationships present
opportunities, nothing valuable is realized
until the relationship develops into an engine
for better organizational performance
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
 Organizational Structures of
the Future: Overall Themes
• Revolutionary changes in how work is organized have
been triggered by
– New strategic priorities
– Rapidly shifting competitive conditions
• Tools of organizational design include
– Empowered managers and workers
The future
– Reengineered work processes structure
– Self-directed work teams will be . . .
– Rapid incorporation of Internet
technology
– Networking with outsiders
 Characteristics of
Organizations of the Future
• Extensive use of Internet technology
and e-commerce business practices
• Fewer barriers between
– Different vertical ranks Change &
– Functions and disciplines Learning
– Units in different geographic locations
– Company and its suppliers, distributors,
strategic allies, and customers
• Capacity for change and rapid learning
• Collaborative efforts among people in different
functions and geographic locations