chapter 10

Building an
Organization
Capable of
Good Strategy
Execution:
People, Capabilities,
and Structure

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 Learning Objectives
After reading this chapter, you should be able to:
1. Understand what managers must do to execute strategy
successfully.
2. Understand why hiring, training, and retaining the right
people constitute a key component of the strategy
execution process.
3. Recognize that good strategy execution requires
continuously building and upgrading the organization’s
resources and capabilities.
4. Identify and establish a strategy-supportive organizational
structure and organize the work effort.
5. Comprehend 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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 FIGURE 10.1 The 10 Basic Tasks of the Strategy Execution Process

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 Building an Organization Capable of Good
Strategy Execution: Three Key Actions

1. Staffing the organization—putting together a

strong management team, and recruiting and
retaining employees with the needed experience,
technical skills, and intellectual capital.
2. Acquiring, developing, and strengthening the
resources and capabilities required for good
strategy execution.
3. Structuring the organization and work effort.

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

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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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 ILLUSTRATION CAPSULE 10.1 Management Development at
Deloitte Touche Tohmatsu Limited

Learning and development programs that

contribute to Deloitte’s successful execution
of its talent strategy:
• Clear path to partnership.
• Formal training programs.
• Special programs for high performers.
• Sponsorship, not mentorship.

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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.
Rotate 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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 Developing and Building Critical Resources
and Organizational Capabilities

Approaches to Building and

Strengthening Capabilities

Developing organizational
capabilities internally

Acquiring capabilities through

mergers and acquisitions

Access capabilities through

collaborative partnerships

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 Developing Capabilities Internally

Managerial Actions to Develop

Competencies and Capabilities.

Strengthen the firm’s base of skills,

knowledge, and intellect.
Coordinate and integrate the efforts of
work groups and departments.

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 Setting Stretch Goals: From Capability
to Competence

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 Acquiring Capabilities through
Mergers and Acquisitions

A question of… Description

A question of market When a market opportunity can slip by
opportunity: faster than a needed capability can be
created internally.

A question of When industry conditions, technology, or

competitive necessity: competitors are moving at such a rapid
clip that time is of the essence.

A question of Tacit knowledge and complex routines

successful integration: 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
Approaches or another provider.
to Acquiring Collaborate with a firm that has
Capabilities complementary resources and
from an capabilities.
External Engage in a collaborative
Source: partnership for the purpose of
learning how the partner does
things.

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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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 ILLUSTRATION CAPSULE 10.2 Zara’s Strategy-Execution Capabilities

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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 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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 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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 ILLUSTRATION CAPSULE 10.3 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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 Matching a Type of Organizational Structure to
Strategy Execution Requirements

Simple Structure
(Line-and-Staff) Strategy Execution
Requirements:
Functional Structure
• Chosen Strategy.
(Departmental or Unitary)
• Capabilities and
Multidivisional Structure Competencies.
(Divisional or M-form) • Centralized or
Decentralized Control.
Matrix Structure
(Composite or Combination)

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 Determining How Much Authority to Delegate

Organizational Approaches
to Decision Making:
Centralized Decentralized
Decision Making: Decision Making:

Authority is retained by Authority is delegated to

top management. lower-level managers
and employees.

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 Basic Tenets of Centralized Versus Decentralized
Decision Making

Centralized Organizational Decentralized 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 action.
Lower-level personnel have neither the
knowledge, time, nor inclination to
properly manage the tasks they are
performing.
Strong control from the top is a more
effective means for coordinating
company actions.
Structures
Basic tenets
Decision-making authority should be
put in the hands of the people closest
to, and most familiar with, the situation.
Those with decision-making authority
should be trained to exercise good
judgment.
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 Decentralized Organizational

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

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 Primary Disadvantages of Centralized Versus
Decentralized Decision Making

Centralized Organizational Decentralized Organizational

Structures
Primary disadvantages
Lengthens response times by those
closest to the market conditions
because they must seek approval for
their actions.
Structures
Primary disadvantages
May result in higher-level managers
being unaware of actions taken by
empowered personnel under their
supervision.

Does not encourage responsibility Can lead to inconsistent or conflicting

among lower-level managers and rank- approaches by different managers and
and-file employees. employees.

Discourages lower-level managers and Can impair cross-unit collaboration.

rank-and-file employees from exercising
any initiative.

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 Capturing Cross-Business Strategic Fit
in a Decentralized Structure

Capturing Cross-Business Strategic Fit

Through:

Enforcing close cross-business collaboration

to avoid duplication of effort.
Centralizing related functions requiring close
coordination at the corporate level.

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 Facilitating Collaboration with External Partners
and Strategic Allies

Strategic alliances. Creating a Network

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

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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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