10 basic tasks of the strategy execution process

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:

What managers must do to execute strategy successfully

Why hiring, training, and retaining the right people constitute a key component of the strategy execution process

That good strategy execution requires continuously building and upgrading the organization’s resources and capabilities

What issues to consider in establishing a strategy-supportive organizational structure and organizing the work effort

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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Core Concept (1 of 5)

Good strategy execution requires a team effort. All managers have strategy-executing responsibility in their areas of authority, and all employees are active participants in the strategy execution process.

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FIGURE 10.1 The 10 Basic Tasks of the Strategy Execution Process

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Strategic Management Principle (1 of 11)

When strategies fail, it is often because of poor execution. Strategy execution is therefore a critical managerial endeavor.

The two best signs of good strategy execution are whether a company is meeting or beating its performance targets and whether they are performing value chain activities in a manner that is conducive to companywide operating excellence.

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BUILDING AN ORGANIZATION CAPABLE OF GOOD STRATEGY EXECUTION: THREE KEY ACTIONS

Staffing: Assemble a strong management team and a cadre of competent employees

Developing: Renew, upgrade, and revise resources and capabilities to match chosen strategy

Structuring: Create strategy-supportive organization capable of good strategy execution

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

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Strategic Management Principle (2 of 11)

Putting together a talented management team with the right mix of experiences, skills, and abilities to get things done is one of the first steps to take in launching the strategy-executing process.

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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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Strategic Management Principle (3 of 11)

In many industries, adding to a company’s talent base and building intellectual capital are more important to good strategy execution than additional investments in capital projects.

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Management Development at Deloitte Touche Tohmatsu Limited

Clear path to partnership

Formal training programs

Special programs for high performers

Sponsorship, not mentorship

Learning and development programs that contribute to Deloitte’s successful execution of its talent strategy

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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

Rotating 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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Strategic Management Principle (4 of 11)

The best companies make a point of recruiting and retaining talented employees; the objective is to make the firm’s entire workforce (managers and rank-and-file employees) a genuine competitive asset.

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DEVELOPING AND BUILDING CRITICAL RESOURCES AND CAPABILITIES

Develop capabilities internally

Acquire capabilities through mergers and acquisitions

Access capabilities via collaborative partnerships

Approaches to Building and Strengthening Capabilities

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Strategic Management Principle (5 of 11)

Building new competencies and capabilities is a multistage process that occurs over a period of months and years. It is not something that is accomplished overnight.

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DEVELOPING CAPABILITIES INTERNALLY

Coordinate and integrate the efforts of work groups and departments

Strengthen the firm’s base of skills, knowledge, and intellect

Managerial Actions to Develop Competencies and Capabilities

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Strategic Management Principle (6 of 11)

A company’s capabilities must be continually refreshed and renewed to remain aligned with changing customer expectations, altered competitive conditions, and new strategic initiatives.

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SETTING STRETCH GOALS: FROM CAPABILITY TO COMPETENCE

Thinking

strategically

about a firm’s

knowledge and skills base

Thinking strategically

about a firm’s

opportunities and challenges

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

Refreshing, updating, and upgrading competencies and capabilities as necessary to gain and maintain competitive advantage

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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 competitive necessity When industry conditions, technology, or competitors are moving at such a rapid clip that time is of the essence
A question of successful integration Tacit knowledge and complex routines may not transfer readily from one organizational unit to another
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ACCESSING CAPABILITIES THROUGH COLLABORATIVE PARTNERSHIPS

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

Approaches to Acquiring Capabilities from an External Source

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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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Strategic Management Principle (7 of 11)

Superior strategy execution capabilities are the only source of sustainable competitive advantage when strategies are easy for rivals to copy.

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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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Strategic Management Principle (8 of 11)

A company’s organizational structure should be matched to the particular requirements of implementing the firm’s strategy.

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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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Strategic Management Principle (9 of 11)

Wisely choosing which activities to perform internally and which to outsource can lead to several strategy-executing advantages: lower costs, heightened strategic focus, less internal bureaucracy, speedier decision making, and a better arsenal of organizational capabilities.

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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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Core Concept (2 of 5)

A firm’s organizational structure comprises the formal and informal arrangement of tasks, responsibilities, lines of authority, and reporting relationships by which the firm is administered.

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MATCHING TYPE OF ORGANIZATIONAL STRUCTURE TO STRATEGY EXECUTION REQUIREMENTS

Simple Structure (Line-and-Staff)

Functional Structure (Departmental or Unitary)

Multidivisional Structure (Divisional or M-form)

Matrix Structure (Composite or Combination)

Strategy Execution Requirements: Chosen Strategy

Capabilities and Competencies

Centralized or Decentralized Control

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Core Concepts (3 of 5)

A simple structure (line-and-staff structure) consists of a central executive (often the owner-manager) who handles all major decisions and oversees all operations with the help of a small staff.

A functional structure is organized into functional departments, with departmental managers who report to the CEO and small corporate staff.

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Core Concepts (4 of 5)

A multidivisional structure is a decentralized structure consisting of a set of operating divisions organized along business, product, customer group, or geographic lines, and a central corporate headquarters that allocates resources, provides support functions, and monitors divisional activities.

A matrix structure combines two or more organizational forms, with multiple reporting relationships. It is used to foster cross-unit collaboration.

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DETERMINING HOW MUCH AUTHORITY TO DELEGATE

Organizational Approaches to Decision-Making

Decentralized Decision Making

Centralized Decision Making

Authority is retained by top management

Authority delegated to lower-level managers and employees

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BASIC TENETS OF CENTRALIZED VERSUS DECENTRALIZED DECISION MAKING

Centralized Organizational Structures Decentralized Organizational Structures
Basic tenets 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 action. Decision-making authority should be put in the hands of the people closest to, and most familiar with, the situation.
Lower-level personnel have neither the knowledge, time, nor inclination to properly manage the tasks they are performing. Those with decision-making authority should be trained to exercise good judgment.
Strong control from the top is a more effective means for coordinating company actions. A company that draws on the combined intellectual capital of all its employees can outperform a command-and-control company.
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CHIEF ADVANTAGES OF CENTRALIZED VERSUS DECENTRALIZED DECISION MAKING

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

Centralized Organizational Structures Decentralized Organizational Structures
Primary disadvantages Primary disadvantages
Lengthens response times by those closest to the market conditions because they must seek approval for their actions May result in higher-level managers being unaware of actions taken by empowered personnel under their supervision
Does not encourage responsibility among lower-level managers and rank-and-file employees Can lead to inconsistent or conflicting approaches by different managers and employees
Discourages lower-level managers and rank-and-file employees from exercising any initiative Can impair cross-unit collaboration
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Strategic Management Principle (10 of 11)

The ultimate goal of decentralized decision making is to put authority in the hands of those persons closest to and most knowledgeable about the situation.

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CAPTURING CROSS-BUSINESS STRATEGIC FIT IN A DECENTRALIZED STRUCTURE

Centralizing related functions requiring close coordination at the corporate level

Enforcing close cross- business collaboration to avoid duplication of effort

Capturing Cross-Business Strategic Fit

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Strategic Management Principle (11 of 11)

Efforts to decentralize decision making and give company personnel some leeway in conducting operations must be tempered with the need to maintain adequate control and cross-unit coordination.

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FACILITATING COLLABORATION WITH EXTERNAL PARTNERS AND STRATEGIC ALLIES

Strategic alliances

Outsourcing arrangements

Joint ventures

Cooperative partnerships

Creating a Network Structure: Using “relationship managers” to build and maintain cooperative arrangements of value both parties

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Core Concept (5 of 5)

A network structure is a configuration composed of a number of independent organizations engaged in some common undertaking, with one firm typically taking on a more central role.

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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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Appendix 1 Figure 10.1 The 10 Basic Tasks of the Strategy Execution Process

Staff the organization with managers and employees capable of executing the strategy well

Develop the resources and organizational capabilities required for successful strategy execution

Create a strategy-supportive organizational structure

Allocate sufficient resources (budgetary and otherwise) to the strategy execution effort.

Institute policies and procedures that facilitate strategy execution.

Adopt best practices and business processes that drive continuous improvement in strategy execution activities.

Install information and operating systems that enable company personnel to carry out their strategic roles proficiently.

Tie rewards and incentives directly to the achievement of strategic and financial targets.

Instill a corporate culture that promotes good strategy execution.

Exercise the internal leadership needed to propel strategy implementation forward.

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Appendix 2 Figure 10.2 Building an Organization Capable of Proficient Strategy Execution: Three Types of Paramount Actions

Staffing the organization. This includes putting together a strong management team and recruiting and retaining talented employees.

Acquiring, developing and strengthening key resources and capabilities. This action includes developing a set of resources and capabilities suited to the current strategy; updating resources and capabilities as external conditions and the firm's strategy change; and finally, training and retaining company personnel to maintain knowledge-based and skills-based capabilities.

Structuring the organization and work effort. The steps for this action include instituting organizational arrangements that facilitate good strategy execution; establishing lines of authority and reporting relationships; and deciding how much decision-making authority to delegate.

These actions will lead to both strategy-supportive resources and capabilities, and a strategy-supportive organizational structure.

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Appendix 3 Management Development at Deloitte Touche Tohmatsu Limited

In the beginning, the employee gains broad exposure through building a broad consulting experience. Next, an employee will focus in a field of interest, driving delivery and building expertise within this field. Finally, eminence is developed in the chosen field, and it is here that the expertise is broadly applied.

A clear path to partnership, formal training programs, special programs for high performers, and sponsorship, not mentorship, are all learning and development programs that contribute to Deloitte's successful execution of its talent strategy.

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Appendix 4 Developing and Building Critical Resources and Capabilities

Three approaches to building and strengthening capabilities are:

Developing capabilities internally

Acquiring capabilities through mergers and acquisitions

Accessing capabilities via collaborative partnerships

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Appendix 5 Developing Capabilities Internally

In order to develop competencies and capabilities internally, managers should strengthen the firm's base of skills, knowledge, and intellect. They should also coordinate and integrate the efforts of work groups and departments.

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Appendix 6 Setting Stretch Goals: From Capability to Competence

Five steps take a stretch goal 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, updating, and upgrading competencies and capabilities as necessary to gain and maintain competitive advantage

Return to slide

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Appendix 7 Accessing Capabilities Through Collaborative Partnerships

Acquiring capabilities from an external source can be done by:

Outsourcing the function requiring the capabilities to a key supplier or another provider

Collaborating with a firm that has complementary resources and capabilities

Engaging in a collaborative partnership for the purpose of learning how the partner does things

Return to slide

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Appendix 8 Figure 10.3 Structuring the Work Effort to Promote Successful Strategy Execution

To create an organizational structure that is matched to the requirements of successful strategy execution, the following actions should be taken

Decide which value chain activities to perform internally and which ones to outsource

Align the organizational structure with the strategy

Decide how much authority to centralize at the top and how much to delegate to down-the-line managers and employees

Finally, facilitate collaboration with external partners and strategic allies

This will structure the work effort to promote successful strategy execution

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Appendix 9 Matching Type of Organizational Structure to Strategy Execution Requirements

The four types of organizational structures are: simple structure (line-and-staff), functional structure (departmental or unitary), multidivisional structure (divisional or M-form), and matrix structure (composite or combination).

The three strategy execution requirements are: chosen strategy, capabilities and competencies, and centralized or decentralized control.

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Appendix 10 Determining How Much Authority to Delegate

In centralized decision making, authority in retained by top management. In decentralized decision making, authority is delegated to lower-level managers and employees.

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Appendix 11 Capturing Cross-Business Strategic Fit in a Decentralized Structure

Capturing cross-business strategic fit includes enforcing close cross-business collaboration to avoid duplication of effort, as well as centralizing related functions requiring close coordination at the corporate level.

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Appendix 12 Facilitating Collaboration with External Partners and Strategic Allies

"Relationship managers" can be used to build and maintain cooperative arrangements of value to both parties. They facilitate strategic alliances, outsourcing arrangements, joint ventures, and cooperative partnerships.

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Appendix 13 Further Perspectives on Structuring the Work Effort

The progression of matching structure to strategy first begins by picking a basic organizational design that matches structure to strategy. Next, design is supplemented with appropriate coordinating mechanisms. Finally, collaborative networking and communication arrangements are instituted.