strategic mgt 10,11,12

chapter 10

CHAPTER SUMMARY Chapter Ten examines the process of executing an organizational strategy. It has an emphasis on the conversion of a strategy into actions and good results for organizations. The chapter explores how executing strategy is an operations-driven activity that revolves around the management of people and business processes. It denotes that successfully executing a strategy 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. Chapter Ten defines executing strategy as an action-oriented, make-things-happen task that tests a manager's ability to direct organizational change, achieve continuous improvement in operations and business practices, create and nurture a strategy-supportive culture, and consistently meet or beat performance targets. LECTURE OUTLINE I. Introduction 1. Just because senior managers announce a new strategy does not mean that organizational members will agree with it or enthusiastically move forward in implementing it. It takes adept managerial leadership to convincingly communicate the new strategy and the reasons for it, overcome pockets of doubt and disagreements, secure the commitment and enthusiasm of concerned parties, build consensus on all the hows of implementation and execution, and move forward to get all the pieces into place. 2. Executing strategy is a job for the whole management team, not just a few senior managers. 3. Strategy execution requires every manager to think through the answer to "What does my area have to do to implement its part of the strategic plan and what should I do to get these things accomplished effectively and efficiently?" CORE CONCEPT Good strategy execution requires a team effort. All managers have strategy-executing responsibility in their areas of authority, and all employees are participants in the strategy execution process. II. A Framework for Executing Strategy 1. Executing strategy entails figuring out all the hows—the specific techniques, actions, and behaviors—that are needed for a smooth strategy-supportive operation—and then following through to get things done and deliver results. 2. The first step in implementing strategic changes is for management to communicate the case for organizational changes so clearly and persuasively to organizational members that a determined commitment takes hold throughout the ranks to find ways to put the strategy into place, make it work, and meet performance targets. 3. Management's handling of the strategy implementation process can be considered successful if and when the company achieves the targeted strategic and financial performance and shows good progress in making its strategic vision a reality. A. The Principal Management Components of the Strategy Executing Process 1. Despite the need to tailor a company's strategy-executing approaches to the particulars of its situation, certain managerial bases have to be covered no matter what the circumstances. 2. Figure 10.1, The Ten Basic Tasks of the Strategy Execution Process, depicts the eight managerial tasks that come up repeatedly in a company's efforts to execute strategy. 3. The eight managerial tasks that crop up repeatedly in company efforts to execute strategy include: a. Staff the organization with managers and employees capable of executing the strategy well. b. Build the organizational capabilities required for successful strategy execution. c. Create a strategy-supportive organizational structure. d. Allocate sufficient budgetary (and other) resources to the strategy execution effort. e. Institute policies and procedures that facilitate strategy execution. f. Adopt best practices and business processes that drive continuous improvement in strategy execution activities. g. Install information and operating systems that enable company personnel to carry out their strategic roles proficiently. h. Tie rewards and incentives directly to the achievement of strategic and financial targets. i. Instill a corporate culture that promotes good strategy execution. j. Exercise the internal leadership needed to propel strategy implementation forward. 4. 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 carry out the strategy successfully. They should then consider precisely how to make the necessary internal changes as rapidly as possible. 5. When strategies fail, it is often because of poor execution—things that were supposed to get done slip through the cracks. 6. The bigger the organization, the more that successful strategy execution depends on the cooperation and implementing skills of operating managers who can push needed changes at the lowest organizational levels and deliver results. 7. Regardless of the organization's size and the scope of the changes, the most important leadership trait is a strong, confident sense of what to do and how to do it. III. Managing the Strategy Execution Process: What's Covered in Chapters 10, 11, and 12: This chapter and the next two will explore what is involved in performing the ten key managerial tasks that shape the process of implementing and executing strategy. 1. This chapter explores the first three of these tasks (1) staffing the organization with people capable of executing the strategy well, (2) building the organizational capabilities needed for successful strategy execution, and (3) creating an organizational structure supportive of the strategy execution process. 2. Chapter 11 concerns the tasks of allocating resources, instituting strategy-facilitating policies and procedures, employing business process management tools and best practices, installing operating and information systems, and tying rewards to the achievement of good results. 3. Chapter 12 deals with the two remaining tasks: creating a strategy-supportive corporate culture and exercising the leadership needed to drive the execution process forward. IV. Building an Organization Capable of Good Strategy Execution: Where to Begin 1. Building a capable organization is always a top priority in strategy execution. Three types of organization-building actions that are paramount include: a. Staffing the organization b. Building and strengthening core competencies and competitive capabilities c. Structuring the organization and work effort 2. Figure 10.2, Building an Organization Capable of Proficient Strategy Execution: Three Types of Paramount Actions, looks at the three components necessary for building a capable organization. V. Staffing the Organization 1. No company can hope to perform the activities required for successful strategy execution without attracting and retaining talented managers and employees with suitable skills and intellectual capital. A. Putting Together a Strong Management Team 1. Assembling a capable management team is a cornerstone of the organization-building task. 2. Putting together a talented management team with the right mix of skills and experiences and abilities to get things done is one of the first strategy implementing steps. B. Recruiting and Retaining Capable Employees 1. Staffing the organization with the right kinds of people must go much deeper than managerial jobs in order to build an organization capable of effective strategy execution. 2. In high-tech companies, the challenge is to staff work groups with gifted, imaginative, and energetic people who can bring life to new ideas quickly. 3. Illustration Capsule 10.1, How General Electric Develops a Talented and Deep Management Team, describes General Electric's widely acclaimed approach to developing a high-caliber management team. Illustration Capsule 10.1, How General Electric Develops a Talented and Deep Management Team Discussion Question: 1. Identify the four key elements that support General Electric's efforts to build a talent-rich stable of managers. Has this approach proven to be successful? Explain. Answer: The four key elements employed by this organization include: transferring managers across divisional, business, or functional lines for sustained periods of time, exhibition of the four "E"s by potential executive candidates, proficiency in what is termed "workout", and attendance in the Leadership Development Center. This approach has proven to be highly successful for the organization. Today, General Electric is widely considered to be one of the best-managed companies in the world, partly because of its concerted effort to develop outstanding mangers. 4. In many industries adding to a company's talent base and building intellectual capital is more important to strategy execution than additional investments in plants, equipment, and capital projects. 5. The best companies make a point of recruiting and retaining talented employees—the objective is to make the company's entire workforce (managers and rank-and-file employees) a genuine resource strength. 6. In instances where intellectual capital greatly aids good strategy execution, companies have instituted a number of practices aimed at staffing jobs with the best people they can find: a. Spending considerable effort in screening and evaluating job applicants b. Putting employees through training programs that continue throughout their careers c. Provide promising employees with challenging, interesting, and skills-stretching assignments d. Rotating people through jobs that not only have great content but also span functional and geographic boundaries e. Making the work environment stimulating and engaging so employees will consider the company a great place to work. f. Striving to retain talented high-performing employees via promotions, salary increases, performance bonuses, stock options and equity ownership, fringe benefit packages, and other perks. g. Coaching average performers to improve their skills while weeding out underperformers and benchwarmers VI. Building and Strengthening Core Competencies and Competitive Capabilities 1. A top organization-building priority in the strategy implementing/executing process is the need to build and strengthen competitively valuable core competencies and organizational capabilities. A. Three Approaches to Building and Strengthening Capabilities 1. Building core competencies and competitive capabilities is a time consuming, managerially challenging exercise. 2. The capability building process has three common approaches: a. Internal Development - First, the organization must develop the ability to do something, however imperfectly or inefficiently. Second, as experience grows and company personnel learn how to perform the activity consistently well and at an acceptable cost, the ability evolves into a tried and true competence or capability. Third, should the organization continue to polish and refine its know-how and otherwise sharpen its performance such that it becomes better than rivals at performing the activity, the core competence rises to the rank of a distinctive competence, thus providing a path to competitive advantage Illustration Capsule 10.2, Toyota's Legendary Production System: A Capability That Translates into Competitive Advantage Discussion Question: 1. What two TPS techniques do you think are the most unusual? How do you think these help Toyota to pursue a more efficient manufacturing operation? Answer: Students should select two choices from among the eight listed in this example. Student responses will vary, but students should be exhibiting some personal viewpoints or perspectives that otherwise may not have been brought to light. This sharing should facilitate further classroom discussion about quality control. b. Acquiring capabilities through mergers and acquisitions - Sometimes a company can refresh and strengthen its competencies by acquiring another company with attractive resources and capabilities. The primary advantage of this method is speed and these types of acquisitions are essential in two situations. First, when a market opportunity can slip by faster than a needed capability can be created internally. Second, when industry conditions, technology, or competitors are moving at such a rapid clip that time is of the essence. c. Accessing capabilities via collaborative partnerships - Sometimes a company can access capabilities via collaborative partnerships with suppliers, competitors, or other companies having the cutting-edge expertise. First, Outsource the function requiring the capabilities to a key supplier or another provider. Second, Collaborate with a firm that has complementary resources and capabilities in a joint venture, strategic alliance, or other type of partnership established for the purpose of achieving a shared strategic objective. Third, Engage in a collaborative partnership for the purpose of learning how the partner does things, internalizing its methods and thereby acquiring its capabilities. B. Upgrading Employee Skills and Knowledge Resources 1. Training and retraining are important when a company shifts to a strategy requiring different skills, competitive capabilities, managerial approaches, and operating methods. 2. The strategic importance of training has not gone unnoticed. Over 600 companies have established internal "universities" to lead the training effort, facilitate continuous organizational learning, and help upgrade company competencies and capabilities. C. Strategy Execution Capabilities and Competitive Advantage 1. Superior strategy execution capabilities allow companies to get the most from their organizational resources and competitive capabilities. 2. Superior strategy execution capabilities are the only source of sustainable competitive advantage when strategies are easy for rivals to copy. VII. Organizing the Work Effort with a Supportive Organizational Structure A. Deciding Which Value Chain Activities to Perform Internally and Which to Outsource 1. Outsourcing assorted administrative support activities and perhaps even core or primary value chain activities can enable the company to concentrate its full energies and resources on even more competently performing those value chain activities that are at the core of its strategy and for which it can create unique value. 2. Figure 10.3, Structuring the Work Effort to Promote Successful Strategy Execution, looks at some of the considerations that are common to most all organizations. 3. When a company uses outsourcing to zero in on even better performance of those truly strategy-critical of those truly strategy-critical activities where its expertise is most need, then it may be able to realize three very positive benefits. a. The company improves its chances for outclassing rivals in the performance of those activities and turning a core competence into a distinctive competence. b. The streamlining of internal operations that flows from outsourcing often acts to decrease internal bureaucracies, flatten the organization structure, speed internal decision making and shorten the time it takes to respond to changing market conditions. c. Partnerships can add to a company's arsenal of capabilities and contribute to better strategy execution. 4. 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 competencies and capabilities. This can yield three important execution related benefits: a. The company improves its chances for outclassing rivals in the performance of strategy-critical activities and turning a core competence into a distinctive competence. b. The streamlining of internal operations that flows from outsourcing often serves to decrease internal bureaucracies, flatten the organizational structure, speed internal decision making, and shorten the time it makes to respond to changing market conditions. c. Partnerships can add to a company's arsenal of capabilities and contribute to better strategy execution 5. As a general rule, companies refrain from outsourcing those value chain activities over which they need direct strategic and operating control in order to build core competencies, achieve competitive advantage, and effectively manage key customer-supplier-distributor relationships. 6. A company that goes overboard on outsourcing can hollow out its knowledge base so as to leave itself at the mercy of outside suppliers and short of the resource strengths to be master of its own destiny. B. Aligning the Firm's Organizational Structure with Its Strategy 1. Some activities in the value chain are always more critical to strategic success and competitive advantage than others. 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. 2. Making Strategy Critical Activities the Main Building Blocks of Organizational Structure -The rationale for making strategy-critical activities the main building blocks in structuring a business is compelling: if activities crucial to strategic success are to have the resources, decision-making influence, and organizational impact they need, they have to be centerpieces in the organizational scheme. a. The primary organizational building blocks within a business are usually traditional functional departments such as R&D, engineering and design, production and operations, sales and marketing, information technology, finance and accounting, and human resources. 3. Matching Type of Organizational Structure to Strategy Execution Requirements -Organizational structures can be classified into a limited number of standard types. The type that is most suitable for a given firm will depend on the firm's size and complexity as well as its strategy. a. Simple Structure - A simple structure is one in which a central executive (often the owner-manager) handles all major decisions and oversees the operations of the organization with the help of a small staff. b. Functional Structure - A functional structure is one that is organized along functional lines, where a function represents a major step in the firm's value chain, such as R&D, engineering and design, manufacturing, sales and marketing, logistics, and customer service. c. Multidivisional Structure - A multidivisional structure is a decentralized structure consisting of a set of operating divisions organized along market, customer, product, or geographic lines, and a central corporate headquarters, which monitors divisional activities, allocates resources, performs assorted support functions, and exercises overall control. d. Matrix Structure - A matrix structure is a combination structure in which the organization is organized along two or more dimensions at once (e.g., business, geographic area, value chain function) for the purpose of enhancing cross-unit communication, collaboration, and coordination. CORE CONCEPT A simple structure consists of a central executive who handles all major decisions and oversees all operations with the help of a small staff. CORE CONCEPT A functional structure is organized into functional departments, with departmental managers who report to the CEO and small corporate staff. CORE CONCEPT 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. CORE CONCEPT A matrix structure is a structure that combines two or more organizational forms, with multiple reporting relationships. It is used to foster cross-unit collaboration. C. Determining the Degree of Authority and Independence to Give Each Unit and Each Employee 1. The two extremes are to centralize decision-making at the top (the CEO and a few close lieutenants) or to decentralize decision-making by giving managers and employees considerable decision-making latitude in their areas of responsibility. 2. Table 10.1, Advantages and Disadvantages of Centralized versus Decentralized Decision-Making, shows the two approaches to decision-making are based on sharply different underlying principles and beliefs, with each having pros and cons. 3. Centralized Decision-Making: Pros and Cons In a highly centralized organization structure, top executives retain authority for most strategic and operating decisions and keep a tight rein on business-unit heads, department heads, and the managers of key operating units; comparatively little discretionary authority is granted to front-line supervisors and rank and file employees. a. The command-and-control paradigm of centralized structures is based on the underlying assumption that frontline personnel have neither the time nor the inclination to direct and properly control the work they are performing and that they lack the knowledge and judgment to make wise decisions about how best to do it—hence the need for managerially prescribed policies and procedures, close supervision, and tight control. b. There are disadvantages to having a small number of top-level managers micromanage the business either by personally making decisions or by requiring lower-level subordinates to gain approval before taking action. 4. Decentralized Decision-Making: Pros and Cons In a highly decentralized organization, decision-making authority is pushed down to the lowest organizational level capable of making timely, informed, competent decisions. The objective is to put adequate decision-making authority in the hands of those closest to and most familiar with the situation and train them to weigh all the factors and exercise good judgment. a. The ultimate goal of decentralized decision-making is not to push decisions down to lower levels but to put decision-making authority in the hands of those persons or teams closest to and most knowledgeable about the situation. b. Decentralized organization structures have much to recommend them. Delegating greater authority to subordinate managers and employees creates a more horizontal organization structure with fewer management layers. c. The past 15 to 20 years has seen a growing shift from authoritarian, multilayered hierarchical structures to flatter, more decentralized structures that stress employee empowerment. d. Maintaining adequate organizational control over empowered employees is generally accomplished by placing limits on the authority that empowered personnel can exercise, holding people accountable for their decisions, instituting compensation incentives that reward people for doing their jobs in a manner that contributes to good company performance, and creating a corporate culture where there is strong peer pressure on individuals to act responsibly. 5. Capturing Cross-Business Strategic Fits in a Decentralized Structure: Diversified companies striving to capture cross-business strategic fits have to beware of giving business heads full rein to operate independently when cross-business collaboration is essential in order to gain strategic fit benefits. D. Providing for Collaboration with Outside Suppliers and Strategic Allies 1. Someone or some group must be authorized to collaborate with each major outside constituency involved in strategy execution. 2. Forming alliances and cooperative relationships presents immediate opportunities and opens the door to future possibilities, but nothing valuable is realized until the relationship grows, develops, and blossoms. 3. Building organizational bridges with external allies can be accomplished by appointing "relationship managers" with responsibility for making particular strategic partnerships or alliances generate the intended benefits. 4. Organizing and managing a network structure provides another mechanism for encouraging more effective collaboration and cooperation among external partners. CORE CONCEPT A network structure is the arrangement linking a number of independent organizations involved in some common undertaking. E. Further Perspectives on Structuring the Work Effort 1. All organization designs have their strategy-related strengths and weaknesses. To do a good job of matching structure to strategy, strategy implementers first have to pick a basic design and modify it as needed to fit the company's particular business lineup. They must then: a. Supplement the design with appropriate coordinating mechanisms (cross-functional task forces, special project teams, self-contained work teams, and so on) and b. Institute whatever networking and communications arrangements it takes to support effective execution of the firm's strategy. 2. The ways and means of developing stronger core competencies and organizational capabilities (or creating altogether new ones) have to fit a company's own circumstances. 3. Effectively managing both internal organization processes and external collaboration to create and develop competitively valuable organizational capabilities remains a top challenge for senior executives in today's companies

chapter 11

Chapter Eleven discusses five additional managerial actions that facilitate the success of a company's strategy execution efforts. These include (1) allocating to the drive for good strategy execution, (2) instituting policies and procedures that facilitate strategy execution, (3) using process management tools to drive continuous improvement in how value chain activities are performed, (4) installing information and operating systems that enable company personnel to carry out their strategic roles proficiently, and (5) using rewards and incentives to promote better strategy execution and the achievement of strategic and financial targets. LECTURE OUTLINE I. Allocating Resources to the Strategy Execution Effort 1. Early in the process of implementing and executing a new or different strategy, managers need to determine what resources will be needed and then consider whether the current budgets of organizational units are suitable. 2. A company's ability to marshal the resources needed to support new strategic initiatives and steer them to the appropriate organizational units has a major impact on the strategy execution process. 3. The funding requirements of a new strategy must drive how capital allocations are made and the size of each unit's operating budgets. Underfunding organizational units and activities pivotal to strategic success impedes execution and the drive for operating excellence. A change in strategy nearly always calls for budget reallocations. 4. Visible actions to relocate operating funds and move people into new organizational units signal a determined commitment to strategic change and frequently are needed to catalyze the implementation process and give it credibility. 5. Just fine-tuning the execution of a company's existing strategy seldom requires big movements of people and money from one area to another. II. Instituting Policies and Procedures that Facilitate Strategy Execution 1. Well-conceived policies and procedures aid strategy execution; out-of-sync ones are barriers. 2. Figure 11.1, How Policies and Procedures Facilitate Good Strategy Execution, looks at some of these effects. 3. Prescribing new policies and operating procedures acts to facilitate strategy execution in three ways: a. They provide top-down guidance regarding how things need to be done. b. They help ensure consistency in how execution-critical activities are performed. c. They promote the creation of a work climate that facilitates good strategy execution. 4. There is wisdom in a middle approach: Prescribe enough policies to give organization members clear direction in implementing strategy and to place desirable boundaries on employees' actions: then empower them to act within these boundaries however they think makes sense. III. Using Process Management Tools to Strive for Continuous Improvement 1. Company managers can significantly advance the cause of competent strategy execution by pushing organization units and company personnel to identify and adopt the best practices for performing value chain activities and insisting on continuous improvement in how internal operations are conducted. 2. One of the most widely used and effective tools for gauging how well a company is executing pieces of its strategy entails benchmarking the company's performance of particular activities and business processes against "best in industry" and "best in world" performers. 3. Managerial efforts to identify and adopt best practices are a powerful tool for promoting operating excellence and better strategy execution. A. How the Process of Identifying and Incorporating Best Practices to Improve Operating effectiveness and Efficiency 1. A best practice is a technique for performing an activity or business process that at least one company has demonstrated works particularly well. 2. To qualify as a legitimate best practice, the technique must have a proven record in significantly lowering costs, improving quality or performance, shortening time requirements, enhancing safety, or delivering some other highly positive operating outcome. CORE CONCEPT A best practice is a method of performing an activity that has been shown to consistently deliver superior results compared to other methods. 3. Benchmarking is the backbone of the process for identifying, studying, and implementing outstanding practices. 4. Informally, benchmarking involves being humble enough to admit that others have come up with world-class ways to perform particular activities yet wise enough to try to learn how to match and even surpass them. 5. Figure 11.2, From Benchmarking and Best Practices Implementation to Operating Excellence, explores the potential pay-off from benchmarking. 6. However, benchmarking is more complicated than simply identifying which companies are the best performers of an activity and then trying to exactly copy other companies' approaches. 7. Normally, the outstanding practices of other organizations have to be adapted to fit the specific circumstances of a company's own business and operating requirements. 8. A best practice remains little more than an interesting success story unless company personnel buy into the task or translating what can be learned from other companies into real action and results. 9. Legions of companies across the world now engage in benchmarking to improve their strategy execution and gain a strategic, operational, and financial advantage over rivals. 10. Scores of trade associations and special interest groups have collected best-practices data and have made databases available online to members—good examples include the Benchmarking Exchange (www.benchnet.com); Best Practices, LLC (www.best-in-class.com); and the American Productivity and Quality Center (www.apqc.org). B. Business Process Reengineering, Total Quality Management, and Six Sigma Quality Programs: Tools for Promoting Operating Excellence 1. Best practice implementation has stimulated greater management awareness of the importance of business process reengineering, total quality management (TQM) programs, Six Sigma quality control techniques, and other continuous improvement methods. 2. Business Process Reengineering is called for when the organization finds that execution of strategy critical activities is being hindered by an organizational arrangement where pieces of the activity are performed in several different functional departments, with no one manager or group being accountable for optimal performance of the entire activity. This can be addressed by reengineering the work effort. CORE CONCEPT Business process reengineering involves radically redesigning and streamlining how an activity is performed, with the intent of achieving dramatic improvements in performance. 3. Total Quality Management Programs: Total quality management (TQM) is a philosophy of managing a set of business practices that emphasizes continuous improvement in all phases of operations—100 percent accuracy in performing tasks, involvement and empowerment of employees at all levels, team-based work design, benchmarking, and total customer satisfaction. The managerial objective is to kindle a burning desire in people to use their ingenuity and initiative to progressively improve their performance of value chain activities. TQM doctrine preaches that there is no such thing as good enough and that everyone has a responsibility to participate in continuous improvement. The long-term payoff of TQM, if it comes, depends heavily on management's success in implanting a culture within which TQM philosophies and practices can thrive. CORE CONCEPT Total Quality Management (TQM) entails creating a total quality culture bent on continuously improving the performance of every task and value chain activity. 4. Six Sigma Quality Control: Six Sigma quality control consists of a disciplined, statistics-based system aimed at producing not more than 3.4 defects per million iterations for any business process—from manufacturing to customer transactions. a. The Six Sigma process of define, measure, analyze, improve, and control (DMAIC) is an improvement system for existing processes falling below specification and needing incremental improvement. The Six Sigma process of define, measure, analyze, design, and verify (DMADV) is an improvement system used to develop new processes or products at Six Sigma quality levels. b. Both Six Sigma processes are executed by personnel who have earned Six Sigma "green belts" and Six Sigma "black belts" and are overseen by personnel who have completed Six Sigma "master black belt" training. The statistical thinking underlying Six Sigma is based on the following three principles: all work is a process, all processes have variability, and all processes create data that explains variability. c. Six Sigma's DMAIC process is a particularly good vehicle for improving performance when there are wide variations in how well an activity is performed. A problem tailor-made for Six Sigma occurs in the insurance industry, where it is common for top agents to outsell poor agents by a factor of 10 to 1. CORE CONCEPT Six Sigma programs utilize advanced statistical methods to improve quality by reducing defects and variability in the performance of business processes. 5. Illustration Capsule 11.1, Whirlpool's Use of Six Sigma to Promote Operating Excellence, describes Whirlpool's use of Six Sigma in its appliance business. Illustration Capsule 11.1 Whirlpool's Use of Six Sigma to Promote Operating Excellence Discussion Question: 1. What did Whirlpool do to sustain the productivity gains and cost savings derived through its implementation of Six Sigma? Answer: To sustain these benefits, Whirlpool embedded Six Sigma practices within each of its manufacturing facilities worldwide and instilled a culture based on Six Sigma and lean manufacturing skills and capabilities. 6. The Difference Between Process Reengineering and Continuous Improvement Programs Like Six Sigma And TQM: The essential difference between business process reengineering and continuous improvement programs is that reengineering aims at quantum gains on the order of 30 to 50 percent or more whereas total quality programs stress incremental progress, striving for inch-by-inch gains again and again in a never ending stream. The two approaches to improved performance of value chain activities and operating excellence are not mutually exclusive; it makes good sense to use them in tandem. C. Capturing the Benefits of Initiatives to Improve Operations 1. The biggest beneficiaries are companies that view such programs not as ends in themselves but as tools for implementing and executing company strategy more effectively. 2. To get the most from programs for facilitating better strategy execution, managers must have a clear idea of what specific outcomes really matter. 3. The action steps managers can take to realize full value from TQM or Six Sigma initiatives include: a. Visible, unequivocal, and unyielding commitment to TQM and continuous improvement b. Nudging people toward TQM-supportive behaviors by: i. Screening job applicants rigorously ii. Providing quality training for most employees iii. Using teams and team-building exercises iv. Recognizing and rewarding individual and team efforts v. Stressing prevention not inspection c. Empowering employees d. Using online systems to provide all relevant parties with the latest best practices and actual experiences with them e. Emphasizing that performance can and must be improved  4. When used effectively, TQM, Six Sigma, and other similar continuous improvement techniques can greatly enhance a company's product design, cycle time, production costs, product quality, service, customer satisfaction, and other operating capabilities and can help to deliver competitive advantage. IV. Installing Information and Operating Systems 1. Company strategies cannot be executed well without a number of internal systems for business operations. 2. Well-conceived, state-of-the-art operating systems not only enable better strategy execution but also can strengthen organizational capabilities - perhaps enough to provide a competitive edge over rivals. 3. It is nearly always better to put infrastructure and support systems in place before they are actually needed than to have to scramble to catch up to customer demand. 4. Having State-of-the-art support systems can be a basis for competitive advantage if they give a firm capabilities that rivals cannot match. A. Instituting Adequate Information Systems, Performance Tracking, and Controls 1. Accurate and timely information about daily operations is essential if managers are to gauge how well the strategy execution process is proceeding. Information systems need to cover five broad areas: a. Customer data b. Operations data c. Employee data d. Supplier/partner/collaborative ally data e. Financial performance data 2. Real time information systems permit company mangers to stay on top of implementation initiatives and daily operations and to intervene if things seem to be drifting off course. 3. Statistical information gives managers a feel for the numbers, briefings and meetings provide a feel for the latest developments and emerging issues, and personal contacts add a feel for the people dimension. All are good barometers. 4. Having good information systems and operating data are integral to competent strategy execution and operating excellence. B. Monitoring Employee Performance - Leaving empowered employees to their own devices in meeting performance standards without appropriate checks and balances can expose an organization to excessive risk.  V. Tying Rewards and Incentives to Strategy Execution 1. It is important for both organization subunits and individuals to be enthusiastically committed to executing strategy and achieving performance targets. 2. To get employees' sustained, energetic commitment, management has to be resourceful in designing and using motivational incentives—both monetary and nonmonetary. 3. A properly designed reward structure is management's most powerful tool for mobilizing organizational commitment to successful strategy execution. CORE CONCEPT Financial rewards provide high powered incentives when rewards are tied to specific outcome objectives. A. Incentives and Motivational Practices that Facilitate Good Strategy Execution: 1. Financial incentives generally lead the list of motivating tools for trying to gain wholehearted employee commitment to good strategy execution and operating excellence. 2. In addition, companies use a host of other motivational approaches to spur stronger employee commitment to the strategy execution process. Some of the most important include: a. Providing attractive perks and fringe benefits b. Give awards and other forms of public recognition to high performers, and celebrate the achievement of organizational goals. c. Relying on promotion from within whenever possible d. Making sure that the ideas and suggestions of employees are valued and respected e. Invite and act on ideas and suggestions from employees. f. Create a work atmosphere where there is genuine caring, and mutual respect among workers and between management and employees g. State the strategic vision in inspirational terms that make employees feel they are a part of doing something worthwhile in a larger social sense h. Share information with employees about financial performance, strategy, operational measures, market conditions, and competitors' actions i. Maintain attractive office space and facilities B. Striking the Right Balance Between Rewards and Punishment 1. While most approaches to motivation, compensation, and people management accentuate the positive, companies also embellish positive rewards with the risk of punishment. 2. High performing organizations nearly always have a cadre of ambitious people who relish the opportunity to climb the ladder of success, love a challenge, thrive in a performance-oriented environment, and find some competition and pressure useful to satisfy their own drives for personal recognition, accomplishment, and self-satisfaction. 3. Illustration Capsule 11.2, What Companies do to Motivate and Reward Employees, examines some of the varieties of techniques utilized by organizations to motivate employees. Illustration Capsule 11.2 What Companies do to Motivate and Reward Employees Discussion Question: 1. Companies engage a vast variety of employee motivational techniques. What is the primary purpose of implementation of these techniques? Answer: Companies utilize a myriad of motivational and reward practices and techniques to help create a work environment that facilitates better strategy execution. 4. As a general rule, it is unwise to take off the pressure for good individual and group performance or play down the stress, anxiety, and adverse consequences of shortfalls in performance. 5. If an organization's motivational approaches and reward structure induce too much stress, internal competitiveness, job insecurity, and unpleasant consequences, the impact on work force morale and strategy execution can be counterproductive. 6. Evidence shows that managerial initiatives to improve strategy execution should incorporate more positive than negative motivational elements because when cooperation is positively enlisted and rewarded, rather than strong-armed by orders and threats, people tend to respond with more enthusiasm, dedication, creativity, and initiative. C. Linking Rewards to Strategically Relevant Performance Outcomes 1. The most dependable way to keep people focused on strategy execution and the achievement of performance targets is to generously reward and recognize individuals and groups who meet or beat performance targets and deny rewards and recognition to those who do not. 2. A properly designed reward system aligns the well being of organization members with their contributions to competent strategy execution and the achievement of performance targets. 3. Strategy driven performance targets need to be established for every organization unit, every manager, every team or work group, and perhaps, every employee. 4. Illustration Capsule 11.3, Nucor and Bank One: Two Companies that Tie Incentives Directly to Strategy Execution, provides two vivid examples of how companies have designed incentives linked directly to outcomes reflecting good strategy execution. Illustration Capsule 11.3 Nucor Corporation: Tying Incentives Directly to Strategy Execution Discussion Question: 1. Identify the prominent result that each organization sustained from implementing a strategy that tied incentives directly to strategy execution. Answer: Nucor's low-cost leadership strategy entails achieving lower labor costs per ton of steel than competitors' costs. This leads Nucor's management team to use an incentive system to promote high worker productivity and drive labor costs per ton below rivals. 5. Guidelines for Designing Incentive Compensation Systems: The concepts and company experiences discussed yield the following perspective guidelines for creating an incentive compensation system to help drive successful strategy execution: a. Make the financial incentives a major, not minor, piece of the total compensation package. b. Have incentives that extend to all managers and all workers, not just top management. c. Administer the reward system with scrupulous objectivity and fairness. d. Ensure that the performance targets each individual or team is expected to achieve involve outcomes that the individual or team can personally affect. e. Keep the time between achieving the targeted performance outcome and the payment of the reward as short as possible. f. Avoid rewarding effort rather than results. 6. The unwavering standard for judging whether individuals, teams, and organizational units have done a good job must be whether they meet or beat performance targets that reflect good strategy execution.

chapter 12

Chapter Twelve explores the two remaining managerial tasks that shape the outcome of efforts to execute a company's strategy: creating a strategy-supportive corporate culture and exerting the internal leadership needed to drive the implementation of strategic initiatives forward and achieve higher plateaus of operating excellence. LECTURE OUTLINE I. Instilling a Corporate Culture that Promotes Good Strategy Execution 1. Every company has its own unique culture. The character of a company's culture or work climate is a product of the core values and business principles that executives espouse, the standards of what is ethically acceptable and what is not, the work practices and behaviors that define "how we do thing around here," its approach to people management and the "chemistry" and the "personality" that permeates its work environment. 2. The meshing together of stated beliefs, business principles, style of operating, ingrained behaviors and attitudes, and work climate define a company's corporate culture. 3. Corporate cultures vary widely. CORE CONCEPT Corporate culture refers to the character of a company's internal work climate - as shaped by a system of shared values, beliefs, ethical standards, and traditions that define behavioral norms, ingrained attitudes, accepted work practices, and styles of operating. A. Identifying the Key Features of a Company's Corporate Culture 1. A company's corporate culture is mirrored in the character or "personality" of it work environment: The chief things to look for include the following: a. The values, business principles, and ethical standards that management preaches and practices—actions speak louder than words b. The company's approach to people management and the official policies, procedures and operating practices that paint the white lines for the behavior of company personnel c. The atmosphere and spirit that pervades the work climate. Is the workplace vibrant and fun? Methodical and all-business? Tense and harried? Highly competitive and politicized? Are people excited about their work and emotionally connected to the company's business, or are they just in it for the paycheck d. The way managers and employees interact and relate to each other—the reliance on teamwork and open communication, the extent to which there is good camaraderie, whether people are called by their first names, what the dress codes are e. The strength of peer pressure to do things in particular ways and conform to expended norms. f The actions and behaviors that are explicitly encouraged and rewarded by management in the form of compensation and promotion. g. The company's revered traditions and oft-repeated stories about "heroic act" and "how we do things around here: h. The manner in which the company deals with external stakeholders (particularly vendors and local communities where it has operations. Illustration Capsule 12.1 The Corporate Cultures at Google and Alberto-Culver Discussion Question: 1. What does the statement describing Alberto-Culver's work climate/culture indicate? Answer: The statement made by this organization represents its core values and beliefs. It defines how it will address problems and identifies the value and importance it puts on its employees. Alberto-Culver's guiding work philosophies for its employees are clearly presented within this statement. 2. Some of sociological forces are readily apparent and others operate quite subtly. 3. The values, beliefs, and practices that undergird a company's culture can come from anywhere in the organization hierarchy, most often representing the business philosophy and managerial style of influential executives. 4. The Role of Core Values and Ethics: The culture-shaping significance of core values and ethical behaviors accounts for one reason why so many companies have developed a formal values statement and a code of ethics. 5. Figure 12.1, The Two Culture-Building Roles of a Company's Core Values and Ethical Standards, provides an illustration of how these two forces shape culture. 6. Transforming Core Values and Ethical Standards into Cultural Norms: values and ethical standards must be institutionalized in the company's policies and practices and embedded in the conduct of company personnel. This can be accomplished by: a. Giving explicit attention to values and ethics in recruiting and hiring. b. Incorporating the statement of values and the code of ethics into orientation programs and training courses. c. Having senior executives frequently reiterate the importance and role of company values and ethical principles. d. Using values statements and codes of ethical conduct as benchmarks for judging the appropriateness of company policies and operating practices. e. Making the display of core values and ethical principles a big factor in evaluating each person's job performance. f. Making sure that managers at all levels are diligent in stressing the importance of ethical conduct and observance of core values. g. Encouraging everyone to use his or her influence in helping enforce observance of core values and ethical standards. h. Periodically having ceremonial occasions to recognize individuals and groups who display the company values and ethical principles. i. Instituting ethics enforcement procedures. 7. The Role of Stories: Frequently, a significant part of a company's culture is captured in the stories that get told over and over again to illustrate to newcomers the importance of certain values and the depth of commitment that various company personnel have displayed. 8. Perpetuating the Culture: Once established, company cultures are perpetuated in seven important ways: a. By screening and selecting new employees that will mesh well with the culture b. By systematic indoctrination of new members in the culture's fundamentals c. By the efforts of senior group members to reiterate core values in daily conversations and pronouncements d. A company's corporate culture is mirrored in the character or "personality" of its work environment e. By the telling and retelling of company legends f. By regular ceremonies honoring members who display desired cultural behaviors g. By visibly rewarding those who display cultural norms and penalizing those who do not 9. Forces that Cause a Company's Culture to Evolve: New challenges in the marketplace, revolutionary technologies, and shifting internal conditions tend to breed new ways of doing things and, in turn, cultural evolution. B. Company Cultures Can Be Strongly or Weakly Embedded 1. Corporate cultures vary widely in the degree to which they are embedded in company practices and behavioral norms. 2. Strong-Culture Companies: Strong-culture companies have a well-defined corporate character, typically underpinned by a creed or values statement. Two factors contribute to the development of strong cultures: a. A founder or strong leader who establishes values, principles, and practices that are consistent and sensible in light of customer needs, competitive conditions, and strategic requirements b. A sincere, long-standing company commitment to operating the business according to these established traditions, thereby creating an internal environment that supports decision making and strategies based on cultural norms CORE CONCEPT In a strong-culture company, deeply rooted values and norms of behavior are widely shared and regulate the conduct of the company's business. 3. Weak-Culture Companies: In direct contrast to strong-culture companies, weak-culture companies are fragmented in the sense that no one set of values is consistently preached or widely shared, few behavioral norms are evident in operating practices, and few traditions are widely revered or proudly nurtured by company personnel. Very often, cultural weaknesses stems from moderately entrenched subcultures that block the emergence of a well-defined companywide work climate. 4. Weak cultures provide little or no strategy-implementing assistance because there are no traditions, beliefs, values, common bonds, or behavioral norms that management can use as levers to mobilize commitment to executing the chosen strategy. C. Why Corporate Cultures Matter to the Strategy Execution Process 1. Strong cultures can have a powerful effect on the strategy execution process, and this effect may be positive or negative. 2. A culture that is grounded in actions, behaviors, and work practices that are conducive to good strategy implementation assists the strategy execution effort in three ways: a. A culture that is well matched to the requirements of the strategy execution effort focuses the attention of employees on what is most important to this effort. b. Culture-induced peer pressure further induces company personnel to do things in a manner that aids the cause of good strategy execution. c. A company culture that is consistent with the requirements for good strategy execution can energize employees, deepen their commitment to execute the strategy flawlessly, and enhance worker productivity in the process. 3. In sharp contrast, when a culture is in conflict with what is required to execute the company's strategy well, a strong culture becomes a hindrance to the success of the implementation effort. D. Healthy Cultures That Aid Good Strategy Execution: A strong culture, provided it embraces execution-supportive attitudes, behaviors, and work practices, is definitely a healthy culture. Two other types of cultures exist that tend to be healthy and largely supportive of good strategy execution: 1. High-Performance Cultures a. The standard cultural traits of high performance cultures are a can-do spirit, pride in doing things right, no-excuses accountability, and a pervasive result-oriented work climate. There is a strong sense of involvement on the part of company personnel and emphasis on individual initiative and creativity. b. The challenge in creating a high performance culture is to inspire high loyalty and dedication on the part of employees. c. Why does an adaptive culture not become unglued with ongoing changes in strategy, operating practices and behavioral norms. The answer lies in two distinctive and dominant traits of an adaptive culture. 2. Adaptive Cultures a. The hallmark of adaptive corporate cultures is willingness on the part of organizational members to accept change and take on the challenge of introducing and executing new strategies. b. In adaptive cultures, there is a spirit of doing what is necessary to ensure long-term organizational success provided the new behaviors and operating practices that management is calling for are seen as legitimate and consistent with the core values and business principles underpinning the culture. c. What sustains an adaptive culture is that organization members perceive the changes that management is trying to institute as legitimate and in keeping with the core values and business principles that form the heart and soul of the culture. d. For an adaptive culture to remain intact over time, top management must orchestrate the responses in a manner that demonstrates genuine care for the well-being of all key constituencies and tries to satisfy all their legitimate interests simultaneously. e. In fast-changing business environments, a corporate culture that is receptive to altering organizational practices and behaviors is a virtual necessity. f. As a company's strategy evolves, an adaptive culture is a definite ally in the strategy-implementing, strategy-executing process as compared to cultures that have to be coaxed and cajoled to change. E. Unhealthy Cultures That Impede Good Strategy Execution: The distinctive characteristic of an unhealthy corporate culture is the presence of counterproductive cultural traits that adversely impact the work climate and company performance. There are five particularly unhealthy cultural traits: 1. Change-Resistant Cultures a. In less adaptive cultures where skepticism about the importance of new developments and resistance to change are the norm, managers prefer waiting until the fog of uncertainty clears before steering a new course. b. Change-resistant cultures encourage a number of undesirable or unhealthy behaviors—risk avoidance, timidity regarding emerging opportunities, and laxity in product innovation and continuous improvement. 2 Politicized Cultures a. What makes a politicized internal environment so unhealthy is that political infighting consumes a great deal of organizational energy. b. Often with the result that political maneuvering takes precedence over what is best for the company. 3. Insular, Inwardly Focused Cultures a. The not-invented-here mind-set b. Tends to develop when a company reigns as an industry leader or enjoys great market success for so long that its personnel start to believe they have all the answers or can develop them on their own. 4. Unethical and Greed-Driven Cultures: Companies that have little regard for ethical standards or that are run by executives driven by greed and ego gratification are scandals waiting to happen. 5. Incompatible Subcultures a. Values, beliefs, and practices within a company sometimes vary significantly by department, geographic location, division, or business unit. b. Incompatible subcultures arise most commonly because of important cultural differences between a company's culture and that of a recently acquired company or because of a merger between companies with cultural differences. F. Changing a Problem Culture: The Role of Leadership 1. Changing a problem culture is one of the toughest tasks because of the heavy anchor of ingrained behaviors and ways of doing things. 2. The single most visible factor that distinguishes successful culture-change efforts from failed attempts is competent leadership at the top. Great power is needed to force major cultural change and overcome the springback resistance of entrenched cultures. a. The first step in fixing the problem culture, as shown in Figure 12.2, is for top management to identify those facets of the present culture that are dysfunctional and pose obstacles to executing new strategic initiatives and meeting or beating company performance targets. b. Second, managers have to clearly define the desire new behaviors and features of the culture they want to create. c. Third, managers have to convince company personnel why the present culture poses problems and why and how new behaviors and operating approaches will improve company performance—the case for cultural reform has to be persuasive. d. Finally, and most important, all the talk about remodeling the present culture has to be followed swiftly by visible, forceful actions to promote the desired new behaviors and work practices. 3. Making a Compelling Case for Culture Change: Management must sell company personnel on the need for new-style behaviors and work practices by making a compelling case for why the company's new strategic direction and culture-remodeling efforts are in the organization best interest. This can be done by: a. Explaining why and how certain behavioral norms and work practices in the current culture pose obstacles to good execution of new strategic initiatives. b. Explaining how new behavior and work practices that are to have important roles in the new culture will be more advantageous and produce better results. c. Citing reasons why the current strategy has to be modified and why new strategic initiatives that are being undertaken will bolster the company's competitiveness and performance. 4. Figure 12.2, Steps to Take in Changing a Problem Culture, illustrates this essential leadership process. 5. Arguments for new ways of doing things and new work practices tend to be embraced more readily if employees understand how they will benefit company stakeholders. 6. Substantive Culture-Changing Actions: Company executives have to give the culture-change effort some teeth by initiating a series of actions that company personnel will see as credible and unmistakably indicative of management's commitment. a. Replacing key executives who are strongly associated with the old culture and are stonewalling needed organizational and cultural changes. b. Promoting individuals who are known to possess the desired cultural traits and can serve as role models for the desired cultural behavior. c. Appointing outsider with the desired cultural attributes to high-profile positions. d. Screening all candidates for new positions carefully, hiring only those who appear to fit in with the new culture. e. Mandating that all company personnel attend culture training programs. f. Designing compensation incentives that boost the pay of teams and individuals who display the desired cultural behaviors and hit change-resisters in the pocketbook. g. Revising policies and procedures in ways that will help drive cultural change. 7. Symbolic Culture-Changing Actions to alter a problem culture and tighten the strategy—culture fit: a. Lead by example. b. Hold ceremonial events to single out and honor people whose actions and performance exemplify what is called for in the new culture. c. Use symbols in culture-building (such as employee of the month award). 8. How Long Does It Take to Change a Problem Culture? a. Planting and growing the seeds of a new culture require a determined effort by the chief executive and other senior managers. b. Overnight transformations simply don't occur, and it takes even longer for a new culture to become deeply embedded. c. It is usually tougher to reform an entrenched problematic culture than it is to instill strategy-supportive culture from scratch in a brand-new organization. 9. Illustration Capsule 12.2, Changing the "Old Detroit" Culture at Chrysler, discusses the approaches being used at Chrysler in 2009-2010 to change a culture that was grounded in a 1970's view of the automobile industry. Illustration Capsule 12.2 Changing the "Old Detroit" Culture at Chrysler Discussion Question: 1. What elements were put in place in this organization's concerted effort to implement cultural change? Answer: A strategic partnership ceding management control to Italian automaker Fiat SpA was part of the deal for Chrysler's bankruptcy reorganization, with Fiat's CEO, Sergio Marchionne, becoming Chrysler's CEO as well. Promotion and compensation were changed to reward performance, not seniority. A former Toyota executive Doug Bretts was brought in as vice chairman of the company to push the drive for improved product quality. One of Doug Bretts' first actions was to create new cross functional teams in order to break down the embedded functional silos. By May 2010, confidence was beginning to return with sales up by 33 percent over the previous year. II. Leading the Strategy-Execution Process 1. Top executives have to be out front personally leading the implementation/execution process and driving the pace of progress for an enterprise to execute its strategy in a truly proficient fashion. 2. The strategy execution process must be driven by mandates to get things on the right track and show good results. 3. In general, leading the drive for good strategy execution and operating excellence calls for three actions on the part of the manager in charge (1) Staying on top of what is happening and closely monitoring progress, (2) Putting constructive pressure on the organization to execute the strategy well and achieve operating excellence, and (3) Initiating corrective actions to improve strategy execution and achieve the targeted performance results. 4. Staying on top of what is happening and closely monitoring progress. To stay on top of how well the strategy execution process is going, senior executives have to tap into information from a wide range of sources. CORE CONCEPT Management by walking around (MBWA) is one of the techniques that effective leaders use to stay informed about how well the strategy execution process is progressing. 5. Putting constructive pressure on the organization to execute the strategy well and achieve operating excellence. Managers have to be out front in mobilizing organizational energy behind the drive for good strategy execution and operating excellence. This can include actions such as: a. Treating employees as valued partners in the drive for operating excellence and good business performance. b. Fostering an esprit de corps that energizes organization members. c. Using empowerment to help create a fully engaged workforce. d. Making champions out of the people who spearhead new ideas and/or turn in winning performances. e. Setting stretch objectives and clearly communicating an expectation that company personnel are to give their best in achieving performance targets. f. Using the tools of benchmarking best practices, business process reengineering, TQM, and Six Sigma to focus attention on continuous improvement. g. Using the full range of motivational techniques and compensation incentives to inspire company personnel, nurture a results-oriented work climate, and enforce high-performance standards. h. Celebrating individual, group, and company successes. 6. Initiating corrective actions to improve strategy execution and achieve the targeted performance results. a. The process that managers go through in deciding on corrective adjustments is essentially the same for both proactive and reactive changes 1) They sense needs, gather information, broaden and deepen their understanding of the situation, develop options and explore their pros and cons. 2) They need to put forth action proposals, strive for a consensus, and finally formally adopt an agreed-on course of action. b. Success in making corrective actions hinges on three things: 1) A thorough analysis of the situation 2) The exercise of good business judgment in deciding what actions to take 3) Good implementation of the corrective actions that are initiated. III. A Final Word on Managing the Process 1. In practice it is hard to separate the leadership requirements of executing strategy from the other pieces of the strategy process. The process is continuous and the conceptually separate acts of crafting and executing strategy blur together in real-world situations. 2. The best tests of good strategic leadership are whether the company has a good strategy and whether the strategy execution effort is delivering the hoped-for results.