CHAPTER 10

Building an
Organization Capable
of Good Strategy
Execution: People,
Capabilities, and
Structure

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 Learning Objectives
This Chapter Will Help You Understand:
1. What managers must do to execute strategy successfully
2. Why hiring, training, and retaining the right people
constitute a key component of the strategy execution
process
3. That good strategy execution requires continuously
building and upgrading the organization’s resources and
capabilities
4. How to establish a strategy-supportive organizational
structure and organize the work effort
5. The pros and cons of centralized and decentralized
decision-making in implementing the chosen strategy

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 Executing Strategy
Strategy execution:
• Is operations-driven, involving management of both
people and business processes
• Is a job for the whole management team, not just a few
senior managers
• Can take many more years to develop as a real
proficiency than implementing strategy
• Requires a determined commitment to change, action,
and performance

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 A Framework for Executing Strategy

Committing to executing a strategy:

• Entails figuring out the specific techniques, actions, and
behaviors necessary for a smooth strategy-supportive
operation
• Following through to get things done and deliver results
• Making things happen (leadership) and making them
happen right (management)

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 FIGURE 10.1 The 10 Basic Tasks of the Strategy
Execution Process

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

• Staffing the organization—putting together a

strong management team, and recruiting and
retaining employees with the needed
experience, technical skills, and intellectual
capital
• Acquiring, developing, and strengthening the
resources and capabilities required for good
strategy execution
• Structuring the organization and work effort

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 FIGURE 10.2 Building an Organization Capable of
Proficient Strategy Execution: Three Types of Paramount
Actions

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 Staffing the Organization

Putting together a strong management team

• Planners who ask tough questions and figure out
what needs to be done
• Implementers who can select, manage, and lead the
right people
• Executors who turn decisions into actions that drive
the changes that produce sustainable competitive
advantage
Key takeaway
• A critical mass of talented activist managers

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 Management Development at Deloitte
Touche Tohmatsu Limited

• Clear path to
Learning and partnership
development programs • Formal training
that contribute to programs
Deloitte’s successful • Special programs for
execution of its talent high performers
strategy • Sponsorship, not
mentorship

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 Recruiting, Training, and
Retaining Capable Employees
• Intensively screen and evaluate applicants to ensure selecting those
who are best-suited and best-fitted.
• Provide training programs throughout employee careers.
• Offer challenging, interesting, and skill-stretching assignments.
• Rotate people through jobs that span functional or geographic
boundaries.
• Make the work environment stimulating and engaging so that the
firm is considered a great place to work.
• Encourage employees to propose creative ways of operating better
and to push ideas for new products or businesses.
• Use assorted financial incentives and perks to retain employees.
• Coach average performers to improve their skills and capabilities,
while weeding out underperformers.

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 Developing and Building Critical
Resources and Capabilities
Approaches to Building and Strengthening
Capabilities

Develop capabilities internally

Acquire capabilities through mergers and

acquisitions

Access capabilities via collaborative partnerships

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 Developing Capabilities Internally

• Strengthen the
firm’s base of
skills,
Managerial Actions
knowledge,
to Develop
and intellect
Competencies and
Capabilities • Coordinate and
integrate the efforts of
work groups and
departments

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 Setting Stretch Goals:
From Capability to Competence

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 Acquiring Capabilities through
Mergers and Acquisitions
A question of… Description
A question of When a market opportunity can slip by
market faster than a needed capability can be
opportunity created internally

A question of When industry conditions, technology,

competitive or competitors are moving at such a
necessity rapid clip that time is of the essence

A question of Tacit knowledge and complex routines

successful may not transfer readily from one
integration organizational unit to another

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 Accessing Capabilities through
Collaborative Partnerships

• Outsource the function requiring

the capabilities to a key supplier
Approaches to or another provider
Acquiring • Collaborate with a firm that has
Capabilities from complementary resources and
an External capabilities
Source • Engage in a collaborative
partnership for the purpose of
learning how the partner does
things

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 The Strategic Role of Employee Training
Training is important in:
• Executing a strategy that requires different skills,
competitive capabilities, and operating methods
• Organizational efforts to build skills-based competencies
• Supplying technical know-how to employees when
rapidly changing technology puts a firm in danger of
losing its ability to compete

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 Strategy Execution Capabilities and
Competitive Advantage
Superior strategy execution capabilities:
• Are difficult to imitate and socially complex processes
that take a long time to develop.
• Maximize organizational resources and competitive
capabilities in support of the business model
• Lower costs and permit firms to deliver more value to
customers
• Enable a firm to react more quickly to market changes,
beat competitors to market with new products and
services, and gain uncontested market dominance

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 Zara’s Strategy-Execution Capabilities:
Fast Fashion Retailer
Strategy is focused on rapid value chain execution
• Quick and flexible design-to-production process
• Close proximity to manufacturing factories
• Lower percentage of commitment to fashion lines than
competitors to keep in-store items fresh
• Small lot-size orders reduce retail discounting, and
encourage impulse-buying and frequent shopping
• Placement of goods in proximity to high-fashion stores
as a substitute for advertising

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 Matching Organizational Structure to the
Strategy
Ensuring that structure follows strategy by:
• Deciding which value chain activities to perform
internally and which to outsource
• Aligning the firm’s organizational structure with its
strategy
• Determining how much authority to delegate
• Facilitating collaboration with external partners and
strategic allies

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 FIGURE 10.3 Structuring the Work Effort to
Promote Successful Strategy Execution

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 Deciding Which Value Chain Activities to
Perform Internally and Which to Outsource
Outsourcing’s execution-related benefits
• Helps in outperforming rivals in strategy-critical activities
and in turning a competence into a distinctive
competence
• Decreases bureaucracies, flattens structure, speeds
decision making, and shortens response time to
changing market conditions
• Adds to a firm’s capabilities and contributes to better
strategy execution through partnerships with suppliers
and channel partners

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 Which Value Chain Activities Does Apple
Outsource and Why?
How important is outsourcing to Apple’s
marketplace success?
Is outsourcing to low-wage overseas
manufacturers to avoid paying higher wages in
markets where it sells the majority of its products a
failure of corporate social responsibility by Apple?

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 Aligning the Firm’s Organizational Structure
with Its Strategy
Organizational structure
• Comprises the formal and informal arrangement
of tasks, responsibilities, lines of authority, and reporting
relationships for the firm
Structure is aligned with strategy when:
• Its design contributes to the creation of value for
customers
• Its parts are aligned with one another and also matched
to the requirements of the strategy
• It lowers operating costs through lower bureaucratic
costs and operational efficiencies

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 Matching Type of Organizational Structure to
Strategy Execution Requirements

Simple Structure Strategy Execution

(Line-and-Staff) Requirements:
Chosen Strategy
Functional Structure
(Departmental or Unitary) Capabilities and
Competencies
Multidivisional Structure
(Divisional or M-form) Centralized or
Decentralized Control
Matrix Structure
(Composite or
Combination)
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 Determining How Much
Authority to Delegate
Organizational Approaches to
Decision-Making
Centralized Decentralized
Decision Making Decision Making

Authority is retained by Authority is delegated to

top management. lower-level managers
and employees.

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 Advantages and Disadvantages of Centralized
Versus Decentralized Decision Making (1 of 3)
Centralized Organizational Decentralized Organizational
Structures Structures
Basic tenets Basic tenets
Decisions on most matters of importance Decision-making authority should be put
should be in the hands of top-level in the hands of the people closest to, and
managers who have the experience, most familiar with, the situation.
expertise, and judgment to decide what
is the best course of action.

Lower-level personnel have neither the Those with decision-making authority

knowledge, time, nor inclination to should be trained to exercise good
properly manage the tasks they are judgment.
performing.
Strong control from the top is a more A company that draws on the combined
effective means for coordinating intellectual capital of all its employees can
company actions. outperform a command-and-control
company.

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 Advantages and Disadvantages of Centralized Versus
Decentralized Decision Making (2 of 3)
Centralized Organizational Decentralized Organizational
Structures Structures
Chief advantages Chief Advantages
Fixes accountability through tight control Encourages company employees to
from the top exercise initiative and act responsibly
Eliminates potential for conflicting goals Promotes greater motivation and
and actions on the part of lower-level involvement in the business on the part of
managers more company personnel
Facilitates quick decision making and Spurs new ideas and creative thinking
strong leadership in crisis situations
Allows for fast response to market
change
Entails fewer layers of management

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 Advantages and Disadvantages of Centralized Versus
Decentralized Decision Making (3 of 3)
Centralized Organizational Decentralized Organizational
Structures Structures
Primary disadvantages Primary disadvantages
Lengthens response times by those May result in higher-level managers
closest to the market conditions being unaware of actions taken by
because they must seek approval for empowered personnel under their
their actions supervision
Does not encourage responsibility Can lead to inconsistent or
among lower-level managers and conflicting approaches by different
rank-and-file employees managers and employees
Discourages lower-level managers Can impair cross-unit collaboration
and rank-and-file employees from
exercising any initiative

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 Capturing Cross-Business Strategic Fit in a
Decentralized Structure

• Enforcing close
cross-business
Capturing
collaboration to avoid
Cross-Business
duplication of effort
Strategic Fit
• Centralizing related
functions requiring
close coordination at
the corporate level

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 Facilitating Collaboration with External
Partners and Strategic Allies

Creating a Network
• Strategic alliances
Structure:
Using “relationship • Outsourcing
managers” to build and arrangements
maintain cooperative • Joint ventures
arrangements of value • Cooperative
for both parties partnerships

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 Further Perspectives on Structuring the
Work Effort

Matching Structure to Strategy

Pick a basic organizational design that
matches structure to strategy.
Supplement design with appropriate
coordinating mechanisms.
Institute collaborative networking and
communication arrangements.

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