Instilling a corporate culture that promotes good strategy execution

219Chapter 10 Building an Organization Capable of Good Strategy Execution 219

Copyright © 2020 by Arthur A. Thompson. All rights reserved. Reproduction and distribution of the contents are expressly prohibited without the author’s written permission

Strategy: Core Concepts and Analytical Approaches

An e-book published by McGraw-Hill Education

Arthur A. Thompson, The University of Alabama 6th Edition, 2020-2021

219

chapter 10 Building an Organization Capable of Good Strategy Execution Strategies most often fail because they aren’t executed well. —Larry Bossidy, former CEO Honeywell International, and Ram Charan, author and consultant

A second-rate strategy perfectly executed will beat a first-rate strategy poorly executed every time. —Richard M. Kovacevich, former Chairman and CEO, Wells Fargo

Any strategy, however brilliant, needs to be implemented properly if it is to deliver the desired results. —Costas Markides, professor

People are not your most important asset. The right people are. —Jim Collins, professor and author

Organizing is what you do before you do something, so that when you do it, it is not all mixed up. —A. A. Milne, author of Winnie the Pooh

Once managers have decided on a strategy, the emphasis turns to converting it into actions and good results. Putting the strategy into place and getting the organization to execute it well require different sets of managerial skills compared to crafting strategy. Whereas crafting strategy is largely an analysis- driven activity focused on market conditions and the company’s resources and competitiveness, implementing and executing strategy are primarily operations-driven activities revolving around the management of people and day-to-day operations, business processes, and organizational structure. Whereas successful strategy making depends on business vision, solid industry and competitive analysis, and shrewd entrepreneurship, successful strategy execution depends on doing a good job of working with and through others, building and strengthening competitive capabilities, motivating and rewarding people in a strategy-supportive manner, and instilling a discipline of getting things done. Executing strategy is an action-oriented, make-things-happen task that tests a manager’s ability to direct organizational change, achieve improvements in day-to-day operations, create and nurture a culture that supports good strategy execution, and meet or beat performance targets.

Experienced managers are well aware that it is a whole lot easier to develop a sound strategic plan than it is to execute the plan and achieve targeted outcomes. A recent study of 400 CEOs in the United States, Europe, and Asia found that executional excellence was the number one challenge facing their companies.1 According to one executive, “It’s been rather easy for us to decide where we wanted to go. The hard part is to get the organization to act on the new priorities.”2 It takes adept managerial leadership to convincingly communicate

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Copyright © 2020 by Arthur A. Thompson. All rights reserved. Reproduction and distribution of the contents are expressly prohibited without the author’s written permission

a new strategy and the reasons for it, overcome pockets of doubt and disagreement, secure the commitment and enthusiasm of concerned parties, identify and build consensus on all the hows of implementation and execution, and move forward to get all the pieces into place and deliver results. Company personnel must understand— in their heads and hearts—why a new strategic direction is necessary and where the new strategy is taking them.3 Just because senior managers announce a new strategy doesn’t mean that organizational members will agree with it and move forward enthusiastically to implement it. Hence one of the big leadership challenges for senior managers in implementing strategy is to communicate the case for strategic and organizational change so clearly and persuasively to organizational members that a determined commitment takes hold throughout the ranks to institute the operating practices conducive to good daily strategy execution and to meeting performance targets. Instituting change is, of course, easier when problems with an underperforming strategy have become obvious and/or the company’s performance is eroding. But what really makes executing strategy a tougher, more time- consuming management challenge than crafting strategy is the wide array of managerial activities that must be attended to, the many ways to put new strategic initiatives in place and keep their implementation moving forward, and the number of bedeviling issues that always crop up and have to be resolved. It takes first-rate “managerial smarts” to zero in on what exactly needs to be done and how to get good results in a timely manner. Excellent people-management skills and perseverance are needed to get a variety of initiatives underway and integrate the efforts of many different work groups into a smoothly functioning whole. Depending on how much consensus building and organizational change is involved, the process of implementing strategy changes can take several months to several years. And executing the strategy with real proficiency takes even longer.

Like crafting strategy, executing strategy is a job for a company’s whole management team, not just a few senior managers. While the chief executive officer and the heads of major units (business divisions, functional departments, and key operating units) are ultimately responsible for seeing that strategy is executed successfully, the process typically affects every part of the firm—all value chain activities and all work groups. Top-level managers must rely on the active support and cooperation of middle and lower managers to institute whatever new and different operating practices are needed in the various functional areas and operating units to achieve proficient strategy execution. Middle and lower-level managers must ensure that frontline employees become proficient in performing strategy-critical value chain activities and produce operating results that allow company performance targets to be met. Consequently, all company personnel are actively involved in the strategy execution process in one way or another.

A Framework for Executing Strategy

The managerial approach to implementing and executing a strategy always has to be customized to fit the particulars of a company’s situation. Making minor changes in an existing strategy differs from implementing radical strategy changes. The hot buttons for successfully executing a low-cost provider strategy are different from those in executing a high-end differentiation strategy. Implementing and executing a new strategy for a struggling company in the midst of a financial crisis is a different job from improving strategy execution in a company where the execution is already good. Moreover, some managers are more adept than others at using this or that approach to achieving the desired kinds of organizational changes. Hence, there’s no definitive managerial recipe for successful strategy execution that cuts across all company situations and all strategies or that works for all managers. Rather, the “to-do list” that constitutes management’s agenda for implementing and executing a given strategy always represents management’s judgment about how best to proceed in light of the prevailing circumstances.

Ideally, senior managers need to create a companywide crusade to implement and execute the chosen strategy as fast and effectively as possible.

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

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The Principal Managerial Components of the Strategy Execution Process Despite the need to tailor a company’s strategy-executing approaches to the situation at hand, certain managerial bases must be covered no matter what the circumstances. Eight managerial tasks crop up repeatedly in company efforts to execute strategy (see Figure 10.1).

1 . Staffing the organization and developing the resources, capabilities, competencies, and organizational structure to execute strategy successfully.

2 . Allocating the needed financial and organizational resources to execution-critical value chain activities.

3 . Ensuring that policies and procedures facilitate rather than impede strategy execution.

4 . Adopting best practices and employing process management tools to drive continuous improvement in how value chain activities are performed.

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

6 . Tying rewards and incentives directly to the achievement of strategic and financial performance targets.

7 . Instilling a corporate culture that promotes good strategy execution.

8 . Exercising strong leadership to drive the execution process forward and attain companywide operating excellence as rapidly as feasible.

How well managers perform these eight tasks has a decisive impact on whether the outcome is a spectacular success, a colossal failure, or something in between.

Figure 10.1 The Eight Components of the Strategy Execution Process

Staffing the organization and

developing the resources, capabilities, competencies,

and organizational structure to execute

the strategy successfully

Steering the needed financial and

organizational resources to execution-critical value

chain activities

Ensuring that policies and procedures

facilitate rather than impede strategy

execution

Adopting best practices and employing process

management tools to drive how value chain activities

are performedInstalling information and operating systems that enable company

personnel to carry out their strategic roles proficiently

Tying rewards and incentives directly to the achievement of strategic and financial performance targets

Instilling a corporate culture

that promotes good strategy execution

Exercising strong leadership to drive the

execution process forward and attain companywide operating excellence as

rapidly as feasible

The Action Agenda For

Implementing and Executing

Strategy • What to change or improve? • How to get it done?

Chapter 10 • Building an OrganizationCapable of Good Strategy Execution 222

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In devising an action agenda for implementing and executing strategy, the place for managers to start is with a probing assessment of what the organization must do differently and better to execute the strategy proficiently. Each manager needs to ask the question, “What needs to be done in my area of responsibility to implement our part of the company’s chosen strategy, and what should I do to get these things accomplished in a timely fashion?” It is then incumbent on every manager to determine precisely how to make the necessary internal changes. Successful strategy implementers have a knack for diagnosing what their organizations need to do to execute the chosen strategy well and figuring out how to get these things done cost efficiently and with all deliberate speed. They are masters in promoting results-oriented behaviors in company personnel and following through on making the right things happen to achieve the target outcomes.4

The role of the CEO and other senior executives in implementing and executing a company’s strategy differs according to the size of the organization and the extent to which its operations are geographically scattered. In small organizations, top-level managers can deal directly with frontline managers and employees, personally orchestrating the action steps and implementation sequence, observing firsthand how implementation is progressing, and deciding how hard and how fast to push the process along. But as an organization’s size increases and/or its operating units become more geographically dispersed, senior executives increasingly come to depend on the cooperation and implementing skills of managers in all the various operating units to undertake needed changes and help move the whole organization along the road to successful strategy implementation and execution. When large organizational size and widespread operations make it impractical for a CEO and other members of the senior-executive team to personally direct all the different strategy-implementing activities, observe firsthand how well things are going, and initiate on-the-scene corrective actions, the role of senior executives in leading the process of implementing and executing a company’s strategy shifts more to one of communicating the case for organizational change, providing guidance and general prescriptions for how to proceed, establishing deadlines and measures of progress, making sure that capable managers are in place to move the process forward in key organizational units, directing resources to the right places, and rewarding those who achieve implementation milestones. In such instances, the speed with which the implementation/execution process moves along and the degree of success that is achieved hinges on whether company personnel down through the organization step up to the plate and produce the desired results.

Regardless of the organization’s size and whether implementation involves sweeping or minor changes, effective leadership of the implementation/execution process requires a keen grasp of what to do and how to do it in light of the organization’s circumstances. Management’s handling of the process of implementing and executing a company’s strategy can be considered successful if the company meets or beats its performance targets and learns to perform strategy-critical value chain activities with real proficiency. Ideally, a company’s approach to strategy execution aims at achieving operating excellence in all of its activities.5

What’s Covered in Chapters 10, 11, and 12 In the remainder of this chapter and the next two chapters, we will discuss what is involved in performing the eight key managerial tasks (shown in Figure 10.1) that shape the process of implementing and executing strategy. This chapter explores the tasks of staffing the organization and developing the resources, competencies, capabilities, and organizational structure needed to execute the strategy successfully. Chapter 11 concerns the tasks of allocating resources, instituting strategy-facilitating policies and procedures, adopting best practices and striving for continuous operating improvements, installing information and operating systems needed for good strategy execution, and tying rewards to the achievement of good results. Chapter 12 deals with instilling a corporate culture conducive to good strategy execution and exercising the leadership needed to drive the execution process forward and move toward operating excellence.