CHAPTER 10

BUILDING AN ORGANIZATION CAPABLE OF GOOD STRATEGY EXECUTION
People, Capabilities, and Structure

Copyright ®2012 The McGraw-Hill Companies, Inc.

McGraw-Hill/Irwin

1. Gain an understanding of what managers must do to execute strategy successfully.

2. Learn why hiring, training, and retaining the right people constitute a key component of the strategy execution process.
3. Understand that good strategy execution requires continuously building and upgrading the organization’s resources and capabilities. 4. Gain command of what issues to consider in establishing a strategy-supportive organizational structure and organizing the work effort.

5. Become aware of the pros and cons of centralized and decentralized decision making in implementing the chosen strategy.

10–2

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 years longer to develop as a real proficiency than implementing strategy. Requires a determined commitment to change, action, and performance.
10–3

10–4 . actions.A FRAMEWORK FOR EXECUTING STRATEGY ♦ Committing to Executing a Strategy: ● Entails figuring out the specific techniques. and behaviors necessary for a smooth strategy-supportive operation. Making things happen (leadership) and making them happen right (management). ● ● Following through to get things done and deliver results.

10.1 The 10 Basic Tasks of the Strategy Execution Process The Action Agenda for Executing Strategy Chapter 10 Chapter 11 Chapter 12 10–5 .

8. 5. Staff the organization with managers and employees capable of executing the strategy well. 6. Build the organization’s capabilities required for successful strategy execution. 10–6 . Exercise the internal leadership needed to propel strategy implementation forward. Tie rewards and incentives directly to the achievement of strategic and financial targets. 10. 9. 7. Adopt best practices and business processes that drive continuous improvement in strategy execution activities. 4. Allocate sufficient budgetary (and other) resources to the strategy execution effort.The Principal Components of the Strategy Execution Process 1. 3. Create a strategy-supportive organizational structure. Institute policies and procedures that facilitate strategy execution. Instill a corporate culture that promotes good strategy execution. 2. Install information and operating systems that enable personnel to carry out their strategic roles proficiently.

BUILDING AN ORGANIZATION CAPABLE OF GOOD STRATEGY EXECUTION: WHERE TO BEGIN ♦ Assemble a strong management team and a cadre of capable employees. ♦ Renew. ♦ Create an organizational structure that is strategy-supportive. and revise resources and capabilities to match chosen strategy. upgrade. 10–7 .

2 Building an Organization Capable of Proficient Strategy Execution: Three Types of Paramount Actions 10–8 .10.

● Implementers who can select.STAFFING THE ORGANIZATION ♦ Assemble a Strong Management Team: ● Planners who ask tough questions and figure out what needs to be done. ♦ Key Takeaway: ● A critical mass of talented activist managers 10–9 . and lead the right people. manage. ● Executors who turn decisions into actions that drive the changes that produce sustainable competitive advantage.

how would you justify grading one of them as a “C” player? 10–10 .♦ Would you want to work as a manager for General Electric? ♦ Why would you not want to work as a manager for General Electric? ♦ If you are a GE manager in charge of a solid group of winners.

and skillstretching international assignments. Training. ♦ Make the work environment stimulating and engaging so that the firm is considered a great place to work. ♦ Rotate promising people through challenging. ♦ Coach average performers to improve their skills and capabilities.Recruiting. ♦ Use an assortment of financial incentives and other perks to retain employees. ♦ Provide training programs throughout employee careers. 10–11 . while weeding out underperformers. and Retaining Capable Employees ♦ Intensively screen and evaluate applicants to ensure selecting those who are best-suited and best-fitted.

BUILDING AND STRENGTHENING CORE COMPETENCIES AND COMPETITIVE CAPABILITIES Approaches to Build Building Competencies and Capabilities Develop capabilities internally Acquire capabilities through mergers and acquisitions Access capabilities via collaborative partnerships 10–12 .

knowledge. and intellect Coordinate and integrate the efforts of work groups and departments 10–13 .Developing Capabilities Internally Managerial Actions to Develop Competencies and Capabilities Strengthen the firm’s base of skills.

♦ What about the Toyota Production System (TPS) makes it so difficult for competitors to imitate successfully? ♦ What is the relationship between continuous improvement and efficiency in the TPS? ♦ Why would an Ishikawa (fish bone) diagram be helpful in solving problems in the TPS? 10–14 .

updating. and upgrading competencies and capabilities as necessary to gain and maintain competitive advantage 10–15 .Setting Stretch Goals: From Capability to Competence Thinking strategically about a firm’s knowledge and skills base Setting a stretch goal of developing an organizational ability to do something well Evolving the ability into a competence or capability by performing it well and at an acceptable cost Thinking strategically about a firm’s opportunities and challenges Refreshing.

technology. 10–16 .Acquiring Capabilities through Mergers and Acquisitions A Question of Market Opportunity When a market opportunity can slip by faster than a needed capability can be created internally. A Question of Successful Integration Tacit knowledge and complex routines may not transfer readily from one organizational unit to another. or competitors are moving at such a rapid clip that time is of the essence. A Question of Competitive Necessity When industry conditions.

Accessing Capabilities through Collaborative Partnerships Approaches to acquiring capabilities from an external source Outsource the function requiring the capabilities to a key supplier or another provider Collaborate with a firm that has complementary resources and capabilities Engage in a collaborative partnership for the purpose of learning how the partner does things 10–17 .

Supplying technical know-how to employees when rapidly changing technology puts a firm in danger of losing its ability to compete. and operating methods. competitive capabilities. Organizational efforts to build skills-based competencies. ● ● 10–18 .Upgrading Employee Skills and Knowledge Resources ♦ Training Is Important In: ● Executing a strategy that requires different skills.

Enable a firm to react more quickly to market changes. Maximize organizational resources and competitive capabilities in support of the business model. Lower costs and permit firms to deliver more value to customers. beat competitors to market with new products and services.Strategy Execution Capabilities and Competitive Advantage ♦ Superior Strategy Execution Capabilities: ● ● ● ● Are difficult to imitate and socially complex process that take a long time to develop. and gain uncontested market dominance. 10–19 .

ORGANIZING THE WORK EFFORT WITH A SUPPORTIVE ORGANIZATIONAL STRUCTURE ♦ Ensuring that Structure Follows Strategy By: ● ● ● ● Deciding which value chain activities to perform internally and which to outsource. Facilitating collaboration with external partners and strategic allies. 10–20 . Determining how much authority to delegate. Aligning the firm’s organizational structure with its strategy.

10.3 Structuring the Work Effort to Promote Successful Strategy Execution 10–21 .

Deciding Which Value Chain Activities to Perform Internally and Which to Outsource ♦ Outsourcing’s Execution-Related Benefits: ● Helps in outclassing rivals in strategy-critical activities and in turning a core competence into a distinctive competence. and shortens respond time to changing market conditions. ● ● 10–22 . Decreases bureaucracies. speeds decision making. flattens structure. Adds to a firm’s capabilities and contributes to better strategy execution through partnerships with suppliers and channel partners.

It lowers operating costs through lower bureaucratic costs and operational efficiencies. Its parts are aligned with one another and also matched to the requirements of the strategy. 10–23 ♦ Structure Is Aligned with Strategy When: ● ● ● . and reporting relationships for the firm. responsibilities.Aligning the Firm’s Organizational Structure with Its Strategy ♦ Organizational Structure ● Comprises the formal and informal arrangement of tasks. lines of authority. Its design contributes to the creation of value for customers.

Matching Type of Organizational Structure to Strategy Execution Requirements Simple Structure (Line-and-Staff) Strategy Execution Requirements: Chosen Strategy Capabilities and Competencies Functional Structure (Departmental or Unitary) Multidivisional Structure (Divisional or M-form) Matrix Structure (Composite or Combination) Centralized or Decentralized Control 10–24 .

Determining How Much Authority to Delegate Centralized Decision Making Organizational Approach to DecisionMaking Decentralized Decision Making Authority is retained by top management Authority delegated to lower-level managers and employees 10–25 .

10. can outperform a command-and• Strong control from the top is a more effective means for coordinating the firm’s actions. control firm. the experience. and most familiar with. to decide what is the best course of • Those with decision-making authority action.1 Centralized versus Decentralized Decision Making Centralized Organizational Structures Basic Tenets Decentralized Organizational Structures Basic Tenets • Decisions on most matters of • Decision-making authority should be importance should be in the hands put in the hands of the people closest of top-level managers who have the to. and judgment situation. should be trained to exercise good • Lower-level personnel have neither judgment. the time. expertise. nor the • A firm that draws on the combined inclination to properly manage the intellectual capital of all its employees tasks they are performing. 10–26 . the knowledge.

10–27 . • Allows for quick decision making and strong leadership under crisis situations. • Allows fast response to market change. • Eliminates goal conflict among those with differing perspectives or interests. Decentralized Organizational Structures Chief Advantages • Encourages employees to exercise initiative and act responsibly. • Spurs new ideas and creative thinking.10.1 (cont’d) Advantages and Disadvantages of Centralized versus Decentralized Decision Making Centralized Organizational Structures Chief Advantages • Fixes accountability through tight control from the top. • Promotes greater motivation and involvement in the business on the part of more company personnel. • May entail fewer layers of management.

• Discourages lower-level managers and rank-and-file employees from exercising any initiative.1 (cont’d) Advantages and Disadvantages of Centralized versus Decentralized Decision Making Centralized Organizational Structures Primary Disadvantages Decentralized Organizational Structures Primary Disadvantages • Lengthens response times by • Top management lacks “full those closest to the market conditions control”—higher-level managers because they must seek approval for may be unaware of actions taken their actions. • Can impair cross-unit collaboration.10. 10–28 . • Does not encourage responsibility among lower-level managers and rank-and-file employees. • Puts the organization at risk if empowered employees happen to make “bad” decisions. by empowered personnel under their supervision.

Capturing Cross-Business Strategic Fit in a Decentralized Structure Enforcing close crossbusiness collaboration to avoid duplication of effort Capturing Cross-Business Strategic Fit Centralizing related functions requiring close coordination at the corporate level 10–29 .

Facilitating Collaboration with External Partners and Strategic Allies Creating a Network Structure: Using “relationship managers” to build and maintain cooperative arrangements of value both parties Strategic alliances Outsourcing arrangements Joint ventures Cooperative partnerships 10–30 .

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 10–31 .

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