Building an Organization

Capable of Good Strategy

Execution
Strategic Management

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
Primarily a marketdriven activity
Successful strategy
making depends on
Business vision
Perceptive analysis of
market conditions and
company capabilities
Attracting and pleasing
customers
Outcompeting rivals
Using company
capabilities to forge a
competitive advantage

Executing the Strategy

Primarily an operationsdriven activity

Successful strategy
execution depends on
Doing a good job of
working through others
Good organizationbuilding
Building competitive
capabilities
Creating a strategysupportive culture
Getting things done and
delivering good results

Executing the Strategy

An action-oriented, make-things-happen task
involving managements ability to
Direct organizational change
Achieve continuous improvement in
operations and business processes

Implementation
involves . . .

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

Managements 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 companys own circumstances and
represent managements 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 organizations people is always an
essential ingredient of successful strategy execution
Knowledgeable employees are a companys 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 the 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 skills, energy, initiative,
judgment, and aptitude for learning and adaptability to the
companys 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 at
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
competency or capability
Stage 3: If ability continues to be polished

and refined, it can become a distinctive

competency, 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 firms 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 competency into a distinctive
competency is concentrating more efforts and more talents than
rivals on deepening and strengthening the competency, so as to
achieve dominance needed for competitive advantage
4. Evolving changes in customer needs and competitive conditions
often require tweaking and adjusting a companys 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 by:
a) strengthening the companys 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 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 companys
long-term success.
- outsourcing means launching initiatives to identify the most effective
providers and to establish collaborative relationships
- 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 repetition

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 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 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

Other activities, such as routine

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 to
visible, influential positions
Avoid fragmenting responsibility for strategycritical activities across many departments
Provide coordinating linkages
between related work groups
Mold into a valuable
competitive capability

Assign
managers
key roles
Primary
activities

Strategic
relationships

Support
functions

Coordination

Valuable
capability

Which Type of Organization

Structures Fit which Strategies
Functional structure best suited for companies in one
particular business
For 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
Info-Tech
President

Functional
Structure
R&D

Manufacturing

Divisional
Structure

R&D

Accounting

Marketing

In fo -T e c h
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

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 Computers
CEO
Steve Jobs

Apple
Products

Apple
Americas

Apple
Europe

Apple
Pacific

Canada

France

Australia

Latin
America/
Caribbean
Sales
Service and
Marketing
to Regions
Source: www.apple.com

Japan

Asia

Global Geographic Division Structure

CEO

Pacific
Division

Latin
European
Canadian Corporate
American
Division
Division
Staff
Division
Long-term
Planning
Product
Coordinators

Partial Global Product Structure Used by

Eaton Corporation
Chairman

President
Law &
Corporate
Relations

Global
Automotive
Components
Group

Enginee
ring

Finance &
Administration

Internati
onal

Regional
Coordinators
Global
Global
Industrial Instruments
Product
Group
Group

Global
Materials
Handling
Group

Global
Truck
Components
Group

Global Matrix Structure

International
Executive
Committee

Business Germany
Areas
Power
Transformers

Norway

Country Managers

Argentina/
Spain/
Brazil
Portugal

Transportation
Industry
Local
Companies

The Network Organization

Designer
Organizations

Producer
Organizations
Broker
Organization

Supplier
Organizations

Distributor
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 while at the same time the benefits of empowerment
are realized?
- placing limits on authority
- holding people accountable for their decisions
- instituting compensation incentives that reward good
performance
- corporate culture where theres 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 crossunit coordination
Decentralization doesnt mean delegating authority in
ways that allow organization units and individuals to do
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
Firms 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 unit
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 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 produces the goods and replenish warehouse
inventories as needed
- warehousing to confirm whether items are in stock, pick the order
from the ware house and package it for shipping
- shipping to choose the carrier to deliver the goods
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 relationships
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 firms 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
Re-engineered work processes
Self-directed work teams
Rapid incorporation of Internet
technology
Networking with outsiders

The future
structure
will be . . .

Characteristics of
Organizations of the Future
Extensive use of Internet 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 customers

Change &
Learning

Capacity for change and rapid learning

Collaborative efforts among people in different
functions and geographic locations