Chapter 10: Building an Organization Capable of Good Strategy Execution: People, Capabilities, and Structure
ADVANTAGES of Centralized vs. Decentralized Organizational Structure - CENTRALIZED
ADVANTAGES- CENTRALIZED: - Fixes accountability through tight control from the top - Eliminates potential for conflicting goals and actions on the part of lower-level managers - Facilitates quick decision making and strong leadership in crisis situations
ADVANTAGES of Centralized vs. Decentralized Organizational Structure - DECENTRALIZED
ADVANTAGES- DECENTRALIZED: - Encourages company employees to exercise initiative and act responsibly - Promotes greater motivation and involvement in the business on the part of more company personnel - Spurs new ideas and creative thinking - Allows for FAST response to market change - Entails fewer layers of management Strategic Mgt Principle: 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.
Structuring the Work Effort to Promote Successful Strategy Execution - Ensuring that Structure Follows Strategy By...
An organizational structure matched to the requirement of successful strategy execution: - 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
BASIC TENETS of Centralized vs. Decentralized Organizational Structure - DECENTRALIZED
- 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 firm that draws on the combined intellectual capital of ALL its employees can outperform a command-and-control firm
BASIC TENETS of Centralized vs. Decentralized Organizational Structure - CENTRALIZED
- decisions on most matters of importance should be in the hands of top-level managers who have the experience, expertise, and judgment to decided what is the best course of action - lower-level personnel have neither the knowledge, the time, nor the inclination to properly manage the tasks they are performing - strong control from the top is a more effective means for coordinating the firm's actions
Acquiring, Developing, and Strengthening Key Resources and Capabilities
- developing a set of resources and capabilities suited to the current strategy - updating resources and capabilities as external conditions and the firm's strategy change - training and retraining company personnel to maintain knowledge-based and skills-based capabilities
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) 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.
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 - ROTATE promising people through challenging, and skill-stretching international assignments - make the work environment STIMULATING and engaging so that the firm is considered a great place to work - use an assortment of financial INCENTIVES and other perks to retain employees - COACH average performers to improve their skills and capabilities, while weeding out underperformers Strategic Mgt PrincipleS: 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. 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.
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
Putting together a strong management team (staffing)
- planners who as 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 a sustainable competitive advantage *Key Takeaway - a critical mass of talented activist managers
A Company's capabilities must be....
...continually refreshed and renewed to remain aligned with changing customer expectations, altered competitive conditions, and new strategic initiatives
1) Staffing the Organization
1) Putting together a strong management team - planners who as 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 a sustainable competitive advantage *Key Takeaway - a critical mass of talented activist managers 2) Recruiting and retaining talented employees
Types of Organizational Structures
1. Simple Structure (line-and-staff) - 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. 2. Functional Structure (departmental or unitary) - is organized into functional departments, with departmental managers who report to the CEO and small corporate staff. 3. Multidivisional Structure (divisional or M-form) - 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. 4. Matrix Structure (composite or combination) - combines two or more organizational forms, with multiple reporting relationships. It is used to foster cross-unit collaboration. ALL should lead to Strategy Execution Requirements: - - Chosen Strategy - Capabilities and Competencies - Centralized or Decentralized Control
Building an Organization Capable of Good Strategy Execution: 3 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
Setting Stretch Goals: From Capability to Competence
1. review abilities/competencies -THINKING strategically about a firm's KNOWLEDGE and SKILLS base 2. SETTING a stretch goal of developing an organizational ability to do something well 3. EVOLVING the ability into a competence 4. THINKING strategically about a firm's OPPORTUNITIES and CHALLENGES 5. REFRESHING, UPDATING, and UPGRADING competencies and capabilities as necessary to gain and maintain competitive advantage.
Accessing capabilities through collaborative partnerships - Approaches to Acquiring Capabilities from an External Source
Approaches to Acquiring Capabilities from an External Source: 1. OUTSOURCE THE FUNCTION requiring the capabilities to a key supplier or another provider 2. COLLABORATE with a firm that has complementary resources and capabilities 3. ENGAGE in a collaborative partnership for the purpose of learning how the partner does things
DEVELOPING AND BUILDING CRITICAL RESOURCES AND CAPABILITIES - Approaches to Building and Strengthening Capabilities
Approaches to Build Building and Strengthening Capabilities - develop capabilities internally - acquire capabilities through mergers and acquisitions - access capabilities via collaborative partnerships Strategic Mgt Principle: 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.
Capturing Cross-Business Strategic Fit (in a decentralized structure)
Capturing Cross-Business Strategic Fit - enforcing close cross-business collaboration to avoid duplicating efforts - centralizing related functions requiring close coordination at corporate level Strategic Mgt Principle: 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.
Determining how much authority to delegate - Organizational Aprroaches to Decision-making - Decision Making - Centralized / Decentralized
Centralized Decision Making (top management) - authority is retained by top management Decentralized Decision Making (empowers lower-level) - authority delegated to lower-level managers and employees
Facilitating Collaboration with External Partners and Strategic Allies - Creating NETWORK STRUCTURE
Creating a Network Structure: using "relationship managers" to build and maintain cooperative arrangements of value both parties - strategic alliances - outsourcing arrangements - joint ventures - cooperative partnerships Core Concept: A NETWORK STRUCTURE is a configuration composed of a number of independent organizations engaged in some common undertaking, with one firm typically taking on a more central role.
DISADVANTAGES of Centralized vs. Decentralized Organizational Structure - CENTRALIZED
DISADVANTAGES- CENTRALIZED: - Lengthens response times by those closest to the market conditions because they must seek approval for their actions - Does not encourage responsibility among lower-level managers and rank-and-file employees - Discourages lower-level managers and rank-and-file employees from exercising any initiative
DISADVANTAGES of Centralized vs. Decentralized Organizational Structure - DECENTRALIZED
DISADVANTAGES- DECENTRALIZED: - May result in higher-level managers being unaware of actions taken by empowered personnel under their supervision - Can lead to inconsistent or conflicting approaches by different managers and employees - Can impair cross-unit collaboration
Matching Organizational Structure to the Strategy - Ensuring that structure follows strategy by:
Ensuring that structure follows strategy by: - instituting organizational arrangements that facilitate good strategy execution - establishing lines of authority and reporting relationships - deciding how much decision-making authority to delegate Strategic Mgt Principle: A company's organizational structure should be matched to the particular requirements of implementing the firm's strategy.
Developing Capabilities Internally - Managerial Actions to Develop Competencies and Capabilities
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 Strategic Mgt Principle: A company's capabilities must be continually refreshed and renewed to remain aligned with changing customer expectations, altered competitive conditions, and new strategic initiatives.
Further Perspectives on Structuring the Work Effort - Matching Structure to Strategy
Matching Structure to Strategy 1. pick a basic organizational design that MATCHES structure to strategy 2. SUPPLEMENT design with appropriate coordinating mechanisms 3. institute COLLABORATIVE networking and communication arrangements
Aligning the firm's organizational structure with its strategy - Organizational Structure
Organizational Structure (Core Concept) - comprises the formal and informal arrangement of tasks, responsibilities, lines of authority, and reporting relationships for the firm Structure is aligned with strategy when: - it 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
Deciding which value chain activities to perform internally and which to OUTSOURCE
Outsourcing execution-related benefits: - helps in OUTPERFORMING rivals in strategy-critical activities and in turning a core 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 Strategic Mgt Principle: 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.
Acquiring capabilities through mergers and acquisitions
Question of... 1. Market Opportunity - when a market opportunity can slip by faster than a needed capability can be created internally 2. Competitive Necessity - when industry conditions, technology, or competitors are moving at such a rapid clip that time is of the essence 3. Successful Integration - tacit knowledge and complex routines may not transfer readily from organizational unit to another
STRATEGY EXECUTION CAPABILITIES AND COMPETITIVE ADVANTAGE - Superior Strategy Execution Capabilities
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 Strategic Mgt Principle: Superior strategy execution capabilities are the only source of sustainable competitive advantage when strategies are easy for rivals to copy.
10 Basic Tasks of the Strategy Execution Process (The Action Agenda for Executing Strategy)
The Action Agenda for Executing Strategy 1. Staff the organization with the right people for executing strategy 2. Develop the resources and organizational capabilities required for successful strategy execution 3. Establish a strategy-supportive organizational structure. 4. Allocate sufficient resources to the strategy execution effort 5. Institute policies and procedures that facilitate strategy execution 6. Adopt best practices and business processes that drive continuous improvement 7. Install information and operating systems that support strategy execution activities 8. Tie rewards and incentives directly to the achievement of strategic and financial targets 9. Instill a corporate culture that promotes good strategy execution. 10. Exercise strong leadership to propel strategy execution forward
Strategic Role of Employee Training - Training is important
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
Strategy - when they fail and 2 best signs good execution
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: 1. whether a company is meeting or beating its performance targets and 2. whether they are performing value chain activities in a manner that is conducive to companywide operating excellence.