Building an Organization Capable of Good Strategy Execution

Building an Organization Capable of Good Strategy Execution Chapter 11

 A second

rate strategy perfectly executed will will beat a first-rate strategy poorly executed every time

Richard M. Kovacevich: chairman and CEO Wells Fargo

 A second

rate strategy perfectly executed will will beat a first-rate strategy poorly executed every time

Richard M. Kovacevich: chairman and CEO Wells Fargo

Crafting vs. Executing Executing Strategy Crafting the Strategy  Primarily

a market-  driven activity Successful strategy making depends on  ±  ±

 ±  ±  ±

Business vision Perceptive analysis of  market conditions and company capabilities Attracting Attracting and pleasing customers Outcompeting rivals Using company capabilities to forge a competitive advantage

ecuting Ex ecuting

the Strategy 

Primarily

an operati ons-  driven 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 n acti on- oriented, make-things ha ppen task  involving management¶s ability to

A

 ± Direct  ±

organizational change Achieve continuous improvement in operations and business processes

Implementation

involves . . .

Move toward operating excellence  ±  ±

Create and nurture a strategy-supportive strategy-supportive culture Consistently meet or beat performance targets

ougher and more time-consuming tim e-consuming than than crafting c rafting strategy

T

Barriers to Strategy Execution Subordinates to immediately abandon old ways he needed actions and needed changes to occur in rapid fire fashion

T

Skepticism of employees and managers regarding the merits of a new strategy hreatening to their departments and own careers

T

May have different ideas about what internal changes are required to execute the strategy

Implementing a New Strategy Requires  Adept Leadership I m pl ementing a

new strategy  takes ade pt l eadershi  p 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 ³ 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 U nite

total organizati on behind strategy 

See that activities are d one in a manner that is conducive to first-rate strategy e x ecuti on Generate c ommit ment so an enthusiastic crusade emerges to carry out strategy Fit how organization conducts its operati ons 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 T here is no definitive managerial recipe for  successful strategy execution that cuts across all company situations and all types of strategies T he 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 C ommunicate the case for change Build c onsensus on how to proceed A rouse enthusiasm for the strategy to turn implementation process into a companywide crusade Em power subordinates to keep process moving E stabl ish measures of progress and deadlines Reward those who achieve implementation milestones Direct resources to the right places Personally l ead 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 T he 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 ³making it happen´ - delivering good results Existing management team may be suitable Core executive group may need strengthening - promote from within / bring in skilled outsiders T he 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 T he 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  ± I dentifying the

desired c om petencies and ca pabi li  ties to build into the strategy to help achieve a competitive advantage

G

ood strategy e x ecuti on requires

 ±

Putting desired c om petencies and ca pabi li  ties in  pl ace,

 ± U  pgrading them  ±

as needed, and 

M odifying 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 abi l ity continues to be  pol ished 

and refined , it can become a distinctive c om petence, providing a path to c om petitive 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 T he 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 Work Efforts

 Aspects

of Organizing

Few hard and fast rules for organizing  ± O ne

Big Ru le   : R ol e and  pur   pose of organizati on structure is t o su  pport and faci li  tate g ood  strategy e x ecuti on! 

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 T

hese processes/activities usually need to be performed internally

 ±

Other activities, such as routine administrative housekeeping and some support functions, may be candidates for outsourcing

Critical activities

Step 2: Make Strategy-Critical  Activities the Main Building Blocks Assign

managers of strategy-critical activities a visible, influential position Av oid fragmenting

responsibility for strategycritical activities across many departments Assign managers key roles

Pr ovide coordinating linkages between related work groups

Primary

activities

 ±

Meld into a valuable competitive capability

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 A n 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 T he 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 Structure

Info-Tech President

R&D

Manufacturing

Divisional Structure

R&D

Accounting

Marketing

Info-Tech

President

Electronic

Office

Virtual

Publishing

Automation

Reality

Mfg

Acctg

Mktg

R&D

Mfg

Acctg

Mktg

R&D

Mfg

Acctg

Mktg

The Process-Based Structure Se or a a e e t Tea Chair and Key Support Process Owners

Ne Products Process Process Owner  Cross Functional Team Members

e eo

cqu r

Su

usto er rders Process Process Owner  Cross Functional Team Members a dF

usto er sa e Process Process Owner  Cross Functional Team Members ort

Geographical

Structure for  Apple Computer  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 American Division Division

Canadian Corporate

Division

Staff  Long-term Planning

Product Coordinators

Partial Global Product Structure Used by Eaton Corporation Chairman

President Law & Corporate Relations

Engine ering

Finance & Administration

Internati onal

Regional Coordinators Global Automotive Components Group

Global Global Industrial Instruments Product Group Group

Global Materials Handling Group

Global Truck Components Group

Global

Matrix Structure International Executive Committee

Business Germany Areas

Norway

Country

Managers

Argentina/ Spain/ Brazil Portugal

Power  Transformers Transportation Industry Local Companies

The

etwork Organization

Designer Organizations

Producer Organizations Broker Organization

Supplier Organizations

Distributor Organizations

Step 3: Determine How Much  Authority to Delegate to Whom In a central ized structure  ± Top

managers retain authority for most decisions

In a decentral ized 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 crossunit coordination D ecentralization doesn¶t mean delegating authority in ways that allow organization units and individuals their  own things

Step 4: Provide for  Internal Cross-Unit Coordination C la   ssic method of c oordinating activities ± Have rel ated units re port to sing le   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 re uire 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 D ual 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 mu lt  i  pl e ties at mu l ti  pl e l evel s to ensure  ±

Communication

 ±

Coordination and control

Find ways to  pr oduce c oll aborative eff orts to enhance firm¶s ca pabi li  ties and resource strengths While collaborative relationships present opportunities, nothing val uabl e is real ized  unti l  the rel ati onshi  p develops int o an engine f or better organizati onal  perf or mance

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 w ork is organized have been triggered by  ±

New strategic priorities

 ±

Rapidly shifting competitive conditions

T ool s of organizati onal  design include  ±

Empowered managers and workers

 ±

Reengineered work processes

 ±

Self-directed work teams

 ±

Rapid incorporation of Internet technology

 ±

Networking with outsiders

The

future structure will be . . .