Building An Organization Capable of Good Strategy Execution

CHAPTER 10
BUILDING AN ORGANIZATION CAPABLE

OF GOOD STRATEGY EXECUTION:
PEOPLE, CAPABILITIES, AND STRUCTURE
(c) 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
THIS CHAPTER WILL HELP YOU UNDERSTAND:
LO 1 What managers must do to execute strategy successfully.
LO 2 Why hiring, training, and retaining the right people
constitute a key component of the strategy execution
process.
LO 3 That good strategy execution requires continuously
building and upgrading the organization’s resources and
capabilities.
LO 4 What issues to consider in establishing a strategy-
supportive organizational structure and organizing the work
effort.
LO 5 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
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).
10–4
CORE CONCEPT
♦ 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.
10–5
FIGURE 10.1 The 10 Basic Tasks of the Strategy Execution Process
The Action Agenda

for Executing Strategy
Chapter 10
Chapter 11
Chapter 12
10–6
THE PRINCIPAL COMPONENTS OF
THE STRATEGY EXECUTION PROCESS
1. Staff the organization with 6. Adopt best practices and business
managers and employees processes that drive continuous
capable of executing the improvement in strategy execution
strategy well. activities.
2. Develop the resources and 7. Install information and operating
organizational capabilities systems that enable company
required for successful strategy personnel to carry out their
execution. strategic roles proficiently.
3. Create a strategy-supportive 8. Tie rewards and incentives
organizational structure. directly to the achievement of
4. Allocate sufficient (budgetary strategic and financial targets.
and otherwise) resources to 9. Instill a corporate culture that
the strategy execution effort. promotes good strategy
5. Institute policies and execution.
procedures that facilitate 10. Exercise the internal leadership
strategy execution. needed to propel strategy
implementation forward.
10–7
STRATEGIC MANAGEMENT PRINCIPLE
♦ 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.
10–8
BUILDING AN ORGANIZATION CAPABLE
OF GOOD STRATEGY EXECUTION:
THREE KEY ACTIONS
1. Staffing: Assemble a strong management

team and a cadre of competent employees.
2. Developing: Renew, upgrade, and revise
resources and capabilities to match chosen
strategy.
3. Structuring: Create strategy-supportive
organization capable of good strategy
execution.
10–9
FIGURE 10.2 Building an Organization Capable of Proficient Strategy
Execution: Three Types of Paramount Actions
10–10
♦ 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.
10–11
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
10–12
♦ 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.
10–13
RECRUITING, TRAINING, AND RETAINING
CAPABLE EMPLOYEES
1. Intensively screen and evaluate applicants to ensure selecting

those who are best-suited and best-fitted.
2. Provide training programs throughout employee careers.
3. Offer challenging, interesting, and skill-stretching assignments.
4. Rotating people through jobs that span functional and geographic
boundaries.
5. Make the work environment stimulating and engaging
so that the firm is considered a great place to work.
6. Encourage employees to propose creative ways of better
operating, and to push ideas for new products or businesses.
7. Use assorted financial incentives and perks to retain employees.
8. Coach average performers to improve their skills and capabilities,
while weeding out underperformers.
10–14
ILLUSTRATION Management Development at
CAPSULE 10.1 Deloitte Touche Tohmatsu Limited
10–15
ILLUSTRATION Management Development at
CAPSULE 10.1 Deloitte Touche Tohmatsu Limited
Clear path to partnership

Learning and
development
programs that
contribute Formal training programs
to Deloitte’s
successful
execution Special programs
of its talent for high performers
strategy
Sponsorship, not mentorship
10–16
♦ 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.
10–17
DEVELOPING AND BUILDING CRITICAL
RESOURCES AND CAPABILITIES
Approaches to Build Building

and Strengthening Capabilities
Acquire Access
Develop
capabilities capabilities via
capabilities
through mergers collaborative
internally
and acquisitions partnerships
10–18
♦ 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.
10–19
DEVELOPING CAPABILITIES INTERNALLY
Managerial Actions to Develop

Competencies and Capabilities
Strengthen the Coordinate and

firm’s base of skills, integrate the efforts
knowledge, and of work groups and
intellect departments
10–20
♦ A company’s capabilities must be continually

refreshed and renewed to remain aligned with
changing customer expectations, altered
competitive conditions, and new strategic
initiatives.
10–21
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 firm’s
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 firm’s capabilities as necessary
opportunities to gain and maintain
and challenges competitive advantage
10–22
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.
10–23
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
10–24
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.
10–25
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.
10–26
ILLUSTRATION Zara’s Strategy Execution
CAPSULE 10.2 Capabilities: Fast Fashion Retailer
♦ Strategy 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,
encourage impulse-buying and frequent of
shopping
● Placement of goods in proximity to high-fashion
stores as substitute for advertising
10–27
♦ Superior strategy execution capabilities are the

only source of sustainable competitive
advantage when strategies are easy for rivals
to copy.
10–28
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.
10–29
♦ A company’s organizational structure should be

matched to the particular requirements of
implementing the firm’s strategy.
10–30
FIGURE 10.3 Structuring the Work Effort to Promote
Successful Strategy Execution
10–31
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 respond time to
changing market conditions.
● Adds to a firm’s capabilities and contributes to better
strategy execution through partnerships with
suppliers and channel partners.
10–32
♦ 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.
10–33
ILLUSTRATION Which Value Chain Activities Does
CAPSULE 10.3 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?
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 10–34
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.
10–35
CORE CONCEPT
♦ 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.
10–36
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)
10–37
CORE CONCEPTS
♦ 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.
10–38
CORE CONCEPTS
♦ 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.
10–39
DETERMINING HOW MUCH AUTHORITY
TO DELEGATE
Organizational
Centralized Decentralized
Approaches
Decision Decision
Making to Decision- Making
Making
Authority is retained Authority delegated to

by top management lower-level managers
and employees
10–40
TABLE 10.1 Advantages and Disadvantages of Centralized
versus Decentralized Decision Making
Organizational Structures Organizational Structures
Basic Tenets 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 most familiar with, the
experience, expertise, and judgment situation
to decide what is the best course of • Those with decision-making authority
action should be trained to exercise good
• Lower-level personnel have neither judgment
the knowledge, the time, nor the • A firm that draws on the combined
inclination to properly manage the intellectual capital of all its employees
tasks they are performing can outperform a command-and-
• Strong control from the top is a control firm
more effective means for
coordinating the firm’s actions
10–41
versus Decentralized Decision Making (cont’d)
Chief Advantages Chief Advantages
• Fixes accountability through • Encourages employees to exercise
tight control from the top initiative and act responsibly
• Eliminates potential for conflicting • Promotes greater motivation and
goals and actions on the part of involvement in the business on the part
lower-level managers of more company personnel
• Facilitates quick decision making • Spurs new ideas and creative thinking
and strong leadership under crisis • Allows fast response to market change
situations
• Entails fewer layers of management
10–42
versus Decentralized Decision Making (cont’d)
Primary Disadvantages Primary Disadvantages
• Lengthens response times by • Higher-level managers may be
those closest to the market conditions unaware of actions taken by
because they must seek approval for empowered personnel under their
their actions supervision
• Does not encourage responsibility • Puts the organization at risk if
among lower-level managers and empowered employees happen
rank-and-file employees to make “bad” decisions
• Discourages lower-level managers • Can impair cross-unit collaboration
and rank-and-file employees from
exercising any initiative
10–43
♦ 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.
10–44
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
10–45
♦ 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.
10–46
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
10–47
CORE CONCEPT
♦ A network structure is the arrangement

linking a number of independent organizations
involved in some common undertaking.
10–48
FURTHER PERSPECTIVES ON
STRUCTURING THE WORK EFFORT
Matching Structure to Strategy
Pick a basic
Supplement Institute
organizational
design with collaborative
design that
appropriate networking and
matches
coordinating communication
structure to
mechanisms arrangements
strategy
10–49

Building An Organization Capable of Good Strategy Execution

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Building An Organization Capable of Good Strategy Execution

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CHAPTER 10

BUILDING AN ORGANIZATION CAPABLE

 Committing to Executing a Strategy:

♦ Good strategy execution requires a team

The Action Agenda

♦ When strategies fail, it is often because of poor

1. Staffing: Assemble a strong management

♦ Putting together a talented management team

 Putting Together a Strong Management Team:

♦ In many industries, adding to a company’s

1. Intensively screen and evaluate applicants to ensure selecting

Clear path to partnership

Sponsorship, not mentorship

♦ The best companies make a point of recruiting

Approaches to Build Building

♦ Building new competencies and capabilities is

Managerial Actions to Develop

Strengthen the Coordinate and

♦ A company’s capabilities must be continually

Setting a stretch Evolving the ability

Thinking Refreshing, updating, and

When a market opportunity can slip by

When industry conditions, technology,

Tacit knowledge and complex routines

 Training Is Important In:

 Superior Strategy Execution Capabilities:

♦ Strategy focused on rapid value chain

♦ Superior strategy execution capabilities are the

 Ensuring that Structure Follows Strategy By:

♦ A company’s organizational structure should be

 Outsourcing’s Execution-Related Benefits:

♦ Wisely choosing which activities to perform

♦ How important is outsourcing to Apple’s

♦ A firm’s organizational structure comprises

♦ A simple structure (line-and-staff

Authority is retained Authority delegated to

♦ The ultimate goal of decentralized decision

Enforcing close cross-

♦ Efforts to decentralize decision making and

Creating a Strategic alliances

♦ A network structure is the arrangement

Matching Structure to Strategy

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