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Chapter Summary

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Superior Strategy Execution


Once managers have decided on a strategy, the emphasis turns to converting it into actions and good results. Putting the strategy into place and getting the organization to execute it well call for different sets of managerial skills. Strategy execution requires every manager to think through the answer to the question: 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 efciently?

Lecture Outline
I. The Principal Managerial Components of the Strategy Execution Process 1. Executing strategy entails guring out the specic 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. Eight managerial tasks crop up repeatedly in company efforts to execute strategy: (see Figure 10.1) 1. Despite the need to tailor a companys strategy-executing approaches to the particulars of its situation, certain managerial bases have to be covered no matter what the circumstances 3. Figure 10.1, The Eight Components of the Strategy Execution Process, depicts the eight managerial tasks that come up repeatedly in a companys efforts to execute strategy: a. Building an organization capable of executing the strategy successfully. b. Allocating ample resources to strategy-critical activities. c. Ensuring that policies and procedures that facilitate rather than impede effective strategy execution. d. Pushing for continuous improvement in how value chain activities are performed. e. Installing information and operating systems that enable company personnel to perform essential activities. f. Tying rewards and incentives directly to the achievement of performance objectives.

g. Fostering a corporate culture that promotes good strategy execution. h. Exerting the internal leadership needed to propel implementation forward.

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II. Building an Organization Capable of Good Strategy Execution 1. Building a capable organization is always a top priority in strategy execution. Three types of organization building actions that are paramount include: a. Stafng the organization b. Building dynamic capabilities and core competencies c. Structuring the organization and work effort A. Stafng 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. 2. Building managerial talent. 3. Recruiting and Retaining Capable Employees is a cornerstone of the organization building task 4. Stafng 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. 5. In many companies, the challenge is to staff work groups with gifted, imaginative, and energetic people who can bring life to new ideas quickly. 6. The tactics listed below are common among companies dedicated to stafng jobs with the best people they can nd: In instances where intellectual capital greatly aids good strategy execution, companies have instituted a number of practices aimed at stafng jobs with the best people they can nd: a. Putting forth considerable effort in screening and evaluating job applicants. b. Investing in training programs that continue throughout their careers. c. Providing promising employees with challenging, interesting, and skills-stretching assignments. d. Rotating people through jobs that span functional and geographic boundaries e. Striving to retain talented, high performing employees via promotions, salary increases, performance bonuses, stock options and equity ownership, fringe benet packages, and other perks. f. Coaching average performers to improve their skills and capabilities while weeding out underperformers and benchwarmers

B. Building Dynamic Capabilities and Core Competencies 1. Sometimes a company already has some semblance of the needed competencies and capabilities needed; more often, however, company managers have to signicantly broaden or deepen certain capabilities or even add entirely new competencies in order to put strategic initiatives in place and even execute them prociently 2. Competencies and capabilities that grow stale can impair competitiveness unless they are refreshed, modied, or even phased out and replaced in response to ongoing market changes and shifts in company strategy. 3. Managements organization-building challenge is one of decided when and how to recalibrate existing competencies and capabilities, and when and how to develop new one.

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Core Concept
Building dynamic capabilities and core competencies is a multistage process that occurs over months and years, not something that is accomplished overnight.

C. Matching Organizational Structure to the Strategy 1. The best approach to settling on an organizational structure is to rst consider the key value chain activities that deliver value to the customer. 2. 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 inuence, and organizational impact they need, they have to be centerpieces in the organizational scheme. 3. Types of Organizational Structures. Companies engaged in a single line of business tend to utilize a departmental organization structure that organizes strategy critical activities into distinct functional, product, geographic, process, or customer groups. In enterprises with operations in various countries around the world, the basic building blocks may also include geographical organizational units, each of which has prot/loss responsibility for its assigned geographic areas. Many diversied companies utilize a divisional organizational structure. Matrix organizational structures allow companies to specify dual reporting relationships for various value-creating building blocks. D. Organizational Structure and Authority in Decision 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. 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. 3. 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 le employees. 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. III. Allocating Resources to Strategy-Critical Activities 1. Early in the process of implementing and executing a new or different strategy, top management must determine what funding is needed to execute new strategic initiatives, to bolster valuecreating processes, and to strengthen the companys capabilities and competencies. 2. A companys ability to marshal the resources needed to support new strategic initiatives has a major impact on the strategy execution process. 3. A change in strategy nearly always calls for budget reallocations and resource shifting.

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Core Concept
The funding requirements of a new strategy must drive how capital allocations are made and the size of each units operating budgets. Underfunding organizational units and activities pivotal to strategic success impedes execution and the drive for operating excellence.

IV. Instituting Strategy-Supportive Policies and Procedures 1. Well conceived policies and operating procedures act to facilitate organizational change and strategy execution in three ways: a. Instituting policies and procedures provides top-down guidance regarding how certain things now need to be done b. Policies and procedures help enforce needed consistency in how particular strategy-critical activities are performed. c. Well conceived policies and procedures promote the creation of a work climate that facilitates good strategy execution Core Concept
Well-conceived policies and procedures aid strategy execution; out-of-sync ones are barriers to effective implementation.

2. 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. V. Striving for Continuous Improvement in Internal Processes 1. Company managers can signicantly advance the cause of superior strategy execution by pushing organization units and company personnel to strive for continuous improvement in how value chain activities 2. 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. 3. 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. 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. The Six Sigma process of dene, measure, analyze, improve, and control (DMAIC) is an improvement system for existing processes falling below specication and needing incremental improvement. The Six Sigma process of dene, measure, analyze, design, and verify (DMADV) is an improvement system used to develop new processes or products at Six Sigma quality levels. 5. While Six Sigma programs often improve the efciency of any operating activities and processes, there is evidence that innovation can be stied by Six Sigma program. 6. The Difference Between Process Reengineering and Continuous Improvement Programs Like Six Sigma And TQM: The essential difference between business process reengineering and

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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. Core Concept
The purpose of using benchmarking, best practices, business process reengineering, TQM, SIX Sigma, or other operational improvement programs is to improve the performance of strategy-critical activities and promote superior strategy execution.

VI. Installing Information and Operating Systems 1. Company strategies and value creating internal processes cant be executed well without a number of internal systems for business operations. 2. Information systems need to cover ve broad areas: Customer data Operations data Employee data Supplier/partner/collaborative ally data Financial performance data Core Concept
Having good information systems and operating data is integral to competent strategy execution and operating excellence.

3. 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. 4. Statistical information gives managers a feel for the numbers, briengs 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.

VII. Using Rewards and Incentives to Promote Better Strategy Execution. 1. To create a supportive of rewards and incentives, a company must emphasize rewarding people or accomplishing results related to creating value for customer, not just for dutifully performing assigned tasks. 2. Focusing job holders attention and energy on what to achieve as opposed to what to do makes the work environment results-oriented. It is awed management to tie incentives and rewards to satisfactory performance of duties and activities instead of desired business outcomes and company achievements.

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Core Concept
A properly designed reward structure is managements most powerful tool for mobilizing organizational commitment to successful strategy execution.

A. Motivation and Reward Systems 1. To get employees sustained, energetic commitment, management has to be resourceful in designing and using motivational incentivesboth monetary and nonmonetary. 2. The more a manager understands what motivates subordinates and is able to use appropriate motivational incentives, the greater will be employees commitment to good day-in, day-out strategy execution and achievement of performance targets. B. Guidelines for Designing Monetary Incentive Systems that link employee behavior to organizational objectives include: Providing attractive perks and fringe benets Relying on promotion from within whenever possible Making sure that the ideas and suggestions of employees are valued and respected Creating a work atmosphere where there is genuine sincerity, caring, and mutual respect among workers and between management and employees Stating the strategic vision in inspirational terms that make employees feel they are a part of doing something worthwhile in a larger social sense Sharing information with employees about nancial performance, strategy, operational measures, market conditions, and competitors actions Having knockout facilitiesan appealing work environment with appealing features and amenities Being exible in how the company approaches people management motivation, compensation, recognition, recruitment in multinational, multicultural environments

Concepts & Connections 10.1, What Companies do to Motivate and Reward Employees
Discussion Question: Companies engage a vast variety of employee motivational techniques. What is the primary purpose of implementation of these techniques? Answer: Coompanies utilize a myriad of motivational and reward practices and techniques to help create a work environment that facilitates better strategy execution.

C. Nonmonetary Rewards used to enhance motivation: Provide attractive perks and fringe benets Adopt promotion from within policies Act on suggestions from employees

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Create a work atmosphere in which there is a genuine sincerity, caring, and mutual respect among workers and between management and employees Share information with employees about nancial performance, strategy, operational measures, market conditions, and competitors actions. Have attractive ofce space and facilities

1. Concepts & Connections 10.1, What Companies do to Motivate and Reward Employees, presents specic examples of the motivational tactics employed by several prominent companies that have appeared on Fortunes list of The 100 Best Companies to Work for in America. VIII. Corporate Culture and Superior Strategy Execution 1. Every company has its own unique culture. The character of a companys culture or work climate is a product of the work practices and behaviors that dene how we do things around here, its approaches to people management, and the chemistry that permeates its work environment. 2. The meshing together of stated core beliefs, business principles, style of operating, ingrained behaviors and attitudes, and work climate dene a companys corporate culture. 3. The psyche of corporate cultures vary widely. Core Concept
Corporate culture is a companys internal work climate and is shaped by its core values, beliefs, business principles, traditions, and style of operating.

A. Unhealthy Culture. 1. The distinctive characteristic of an unhealthy corporate culture is the presence of counterproductive cultural traits that adversely impact the work climate and company performance. 2. The following four traits are particularly unhealthy: a. A highly politicized internal environment in which many issues get resolved and decisions made on the basis of which individuals or groups have the most political clout to carry the day. b. Hostility to change and a general wariness of people who champion new ways of doing things. c. An insular not invented here mindset that makes company personnel averse to looking outside the company for best practices, new managerial approaches, and innovative ideas. d. A disregard for high ethical standards and overzealous pursuit of wealth and status on the part of key executives 3. Politicized Cultures: What makes a politicized internal environment so unhealthy is that political inghting consumes a great deal of organizational energy. Often with the result that political maneuvering takes precedence over what is best for the company. 4. Change-Resistant Cultures: Hostility to change is most often found in companies with multilayered management bureaucracies that have enjoyed considerable market success in years past and that are wedded to the We have done it this way for years syndrome (Sears, Kodak, General Motors, IBM).

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5. Change-resistant cultures encourage a number of undesirable or unhealthy behaviors risk avoidance, hesitation in pursuing emerging opportunities, and widespread aversion to continuous improvement in performing value chain activities. 6. Insular, Inwardly Focused Cultures: Sometimes 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. Such condence breeds arrogancecompany personnel discount the merits of what outsiders are doing and what can be learned by studying best-in-class performers. 7. Unethical and Greed-Driven Cultures: Companies that have little regard for ethical standards or that are run by executives driven by greed and ego gratication are scandals waiting to happen. B. High-Performance Cultures 1. 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 individual initiative and creativity. 2. The challenge in creating a high performance culture is to inspire high loyalty and dedication on the part of employees. C. Adaptive Cultures 1. 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. Core Concept
Adaptive cultures are exceptionally well suited to companies competing in fast-changing market environments.

2. In direct contrast to change-resistant cultures, adaptive cultures are very supportive of managers and employees at all ranks who propose or help initiate useful change. 3. 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. 4. 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. 5. In fast-changing business environments, a corporate culture that is receptive to altering organizational practices and behaviors is a virtual necessity. 6. As a companys strategy evolves, an adaptive culture is a denite ally in the strategy-implementing, strategy-executing process as compared to cultures that have to be coaxed and cajoled to change. D. Changing a Problem Culture 1. Changing a problem culture is among the toughest management tasks. It is natural for company personnel to cling to familiar practices and to be wary, if not hostile, to new approaches toward how things are to be done.

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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 unremitting resistance of entrenched cultures. a. The rst step in xing the problem culture, as shown in Figure 10.2, is for top management to identify those facets of the present culture that pose obstacles to executing new strategic initiatives and meeting or beating company performance targets. Second, managers have to clearly dene the desire new behaviors and features of the culture they want to create. 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 performancethe case for cultural reform has to be persuasive. Finally, 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 companys new strategic direction and culture-remodeling efforts are in the organization best interest. This can be done by: Citing reasons why the current strategy has to be modied and why new strategic initiatives that are being undertaken will bolster the companys competitiveness and performance. Citing why and how certain behavioral norms and work practices in the current culture pose obstacles to good execution of new strategic initiatives. Explaining why new behavior and work practices that are to have important roles in the new culture will be more advantageous and produce better results.

4. Figure 10.2, Steps in Changing a Problem Culture 5. Arguments for new ways of doing things and new work practices tend to be embraced more readily if employees understand how they will benet 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 unmistakable support for the change program. The strongest signs that management is truly committed to instilling a new culture include: a. Replacing key executives who stonewall needed organizational and cultural changes. b. Promoting individuals who have stepped forward to advocate the shift to a different culture and can serve as role models for the desired cultural behavior. c. Appointing outsider with the desired cultural attributes to high-prole positions. d. Screening all candidates for new positions carefully, hiring only those who appear to t 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: There is also an important place to alter a problem culture and tighten the strategyculture t.

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Assurance of Learning Exercises


1. Read some of the recent Six Sigma articles posted at www.sixsigma.com. Prepare a one-page report to your instructor detailing how Six Sigma is being used in various companies and what benets these companies are reaping from Six Sigma implementation. Responses provided by individual students will vary. Suggested responses for companies that offer Six-Sigma training may include: BMX and ASQ. Responses for companies participating in Six Sigma may include: Honeywell, Visteon, and General Electric. Student responses should include specic benets that one company has realized from using Six Sigma methods. These results will vary per student. 2. Consult the latest issue of Fortune containing the annual 100 Best Companies to Work For (usually a late January or early February issue, or else go to www.fortune.com to access the list) and identify at least ve compensation incentives and work practices that these companies use to enhance employee motivation and reward them for good strategic and nancial performance. You should identify compensation methods and work practices that are different from those cited in Concepts & Connections 10.1. The top ve companies on Fortunes 2009 list of the 100 Best Companies to Work For are: NetApp, Edward Jones, Boston Consulting Group, Google, and Wegmans Food Markets. Suggested responses to be provided for compensation incentives used to enhance employee motivation may include: rewards for performance, rewards for advancement of skills, rewards for attendance, involving employees in strategic decision-making, and providing exible benets for employees (payment of 100% of employees health care premiums at Boston Consulting Group). 3. Go to the Jobs section at www.intel.com and see what Intel has to say about its culture under the links for Careers, Diversity, and The Workplace. Does whats on this Web site appear to be just recruiting propaganda, or does it convey the type of work climate that management is actually trying to create? Explain your answer. Student perceptions will vary. One perspective is that Intels Web site conveys a realistic portrait of expectations regarding career opportunities. The Web site identies careers in several broad areas - engineering, manufacturing, operations, or marketing that could play an important part in bringing our next-generation computing platforms to the world. Applicants can select specic geographic locations and job categories. Compensation and benets, along with awards and recognitions, are also provided. From another perspective, students may suggest the Web site focuses on recruiting propaganda. Students may propose the following statements indicate this approach: If youre looking to make an impact, Intel is the perfect place; Intel believes employees are the most important investment for success; From individuals taking part in a diverse workforce to innovations changing the technology industry, Intel is making news.