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 organizations
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.

102
 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.

103
 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).

104
10.1 The 10 Basic Tasks of the Strategy Execution Process

The Action Agenda

for Executing Strategy

Chapter 10

Chapter 11

Chapter 12

105
 The Principal Components of
the Strategy Execution Process
1. Staff the organization with
managers and employees
capable of executing the
strategy well.
2. Build the organizations
capabilities required for
successful strategy execution.
3. Create a strategy-supportive
organizational structure.
4. Allocate sufficient budgetary (and
other) resources to the strategy
execution effort.
5. Institute policies and procedures
that facilitate strategy execution.
6. Adopt best practices and business
processes that drive continuous
improvement in strategy execution
activities.
7. Install information and operating
systems that enable personnel to
carry out their strategic roles
proficiently.
8. Tie rewards and incentives directly
to the achievement of strategic and
financial targets.
9. Instill a corporate culture that
promotes good strategy execution.
10. Exercise the internal leadership
needed to propel strategy
implementation forward.
106
 BUILDING AN ORGANIZATION
CAPABLE OF GOOD STRATEGY
EXECUTION: WHERE TO BEGIN

Assemble a strong management team

and a cadre of capable employees.
Renew, upgrade, and revise resources
and capabilities to match chosen strategy.
Create an organizational structure that is
strategy-supportive.

107
10.2 Building an Organization Capable of Proficient Strategy
Execution: Three Types of Paramount Actions

108
 STAFFING THE ORGANIZATION

Assemble 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
109
 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, how would you justify
grading one of them as a C player?

1010
 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.
Rotate promising people through challenging, and skill-
stretching international assignments.
Make the work environment stimulating and engaging
so that the firm is considered a great place to work.
Use an assortment of financial incentives and other
perks to retain employees.
Coach average performers to improve their skills and
capabilities, while weeding out underperformers.

1011
BUILDING AND STRENGTHENING
CORE COMPETENCIES AND
COMPETITIVE CAPABILITIES

Approaches to Build Building

Competencies and Capabilities

Develop Acquire capabilities Access capabilities

capabilities through mergers via collaborative
internally and acquisitions partnerships

1012
Developing Capabilities Internally

Managerial Actions to Develop

Competencies and Capabilities

Strengthen the Coordinate and

firms base of skills, integrate the efforts
knowledge, and of work groups and
intellect departments

1013
 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?

1014
 Setting Stretch Goals:
From Capability to Competence

Setting a stretch Evolving the ability

Thinking
goal of into a competence
strategically
developing an or capability by
about a firms
organizational performing it well
knowledge and
ability to do and at an
skills base
something well acceptable cost

Thinking Refreshing, updating, and

strategically upgrading competencies and
about a firms capabilities as necessary
opportunities to gain and maintain
and challenges competitive advantage

1015
Acquiring Capabilities through Mergers
and Acquisitions

When a market opportunity can slip by

A Question of
faster than a needed capability can be
Market Opportunity created internally.

When industry conditions, technology,

A Question of
or competitors are moving at such a
Competitive Necessity rapid clip that time is of the essence.

Tacit knowledge and complex routines

A Question of
may not transfer readily from one
Successful Integration organizational unit to another.

1016
 Accessing Capabilities through
Collaborative Partnerships

Approaches to acquiring
capabilities from an external source

Engage in a
Outsource the Collaborate with
collaborative
function requiring a firm that has
partnership for the
the capabilities to complementary
purpose of learning
a key supplier or resources and
how the partner
another provider capabilities
does things

1017
 Upgrading Employee Skills and
Knowledge Resources

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.

1018
 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.
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.

1019
 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.
Aligning the firms organizational structure with
its strategy.
Determining how much authority to delegate.
Facilitating collaboration with external partners
and strategic allies.

1020
10.3 Structuring the Work Effort to Promote
Successful Strategy Execution

1021
 Deciding Which Value Chain Activities to
Perform Internally and Which to Outsource
Outsourcings Execution-Related Benefits:
Helps in outclassing rivals in strategy-critical
activities and in turning a core competence into
a distinctive competence.
Decreases bureaucracies, flattens structure,
speeds decision making, and shortens respond
time to changing market conditions.
Adds to a firms capabilities and contributes to
better strategy execution through partnerships
with suppliers and channel partners.

1022
 Aligning the Firms 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.

1023
Matching Type of Organizational Structure
to Strategy Execution Requirements

Simple Structure
Strategy
(Line-and-Staff)
Execution
Requirements:

Chosen
Functional Structure
Strategy
(Departmental or Unitary)

Capabilities
and
Multidivisional Structure Competencies
(Divisional or M-form)
Centralized
or
Decentralized
Matrix Structure
Control
(Composite or Combination)

1024
Determining How Much Authority to Delegate

Organizational
Centralized Decentralized
Approach to
Decision Decision
Making Decision- Making
Making

Authority is retained Authority delegated to

by top management lower-level managers
and employees

1025
 10.1 Centralized versus Decentralized Decision Making

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

1026
 10.1 (contd) Advantages and Disadvantages of Centralized
versus Decentralized Decision Making

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

1027
 10.1 (contd) Advantages and Disadvantages of Centralized
versus Decentralized Decision Making

Centralized
Organizational Structures
Primary Disadvantages
Lengthens response times by
those closest to the market conditions
because they must seek approval for
their actions.
Does not encourage responsibility
among lower-level managers and
rank-and-file employees.
Discourages lower-level managers
and rank-and-file employees from
exercising any initiative.
Decentralized
Organizational Structures
Primary Disadvantages
Top management lacks full
controlhigher-level managers
may be unaware of actions taken
by empowered personnel under
their supervision.
Puts the organization at risk if
empowered employees happen
to make bad decisions.
Can impair cross-unit collaboration.

1028
Capturing Cross-Business Strategic Fit
in a Decentralized Structure

Enforcing close cross-

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

1029
Facilitating Collaboration with External
Partners and Strategic Allies

Creating a Strategic alliances

Network
Structure:
Using
relationship
Outsourcing arrangements
managers
to build and
maintain
cooperative
Joint ventures
arrangements
of value both
parties
Cooperative partnerships

1030
 Further Perspectives on Structuring
the Work Effort

Matching Structure to Strategy

Pick a basic Institute

Supplement
organizational collaborative
design with
design that networking and
appropriate
matches communication
coordinating
structure to arrangements
mechanisms
strategy

1031