10 chapter

SUPERIOR STRATEGY
EXECUTIONANOTHER
PATH TO COMPETITIVE
ADVANTAGE
Copyright 2013 by The McGraw-Hill Companies, I nc. All rights reserved.
McGraw-Hill/I rwin
10-2
LO1 Gain command of what managers must do to
build an organization capable of good strategy
execution.
LO2 Learn why resource allocation should always
be based on strategic priorities.
LO3 Understand why policies and procedures
should be designed to facilitate good strategy
execution.
LO4 Understand how process management
programs that drive continuous improvement
help an organization achieve operating
excellence.
(contd)
10-3
LO5 Recognize the role of information and operating
systems in enabling company personnel to
carry out their strategic roles proficiently.
LO6 Learn how and why the use of well-designed
incentives and rewards can be managements
single most powerful tool for promoting
operating excellence.
LO7 Gain an understanding of how and why a
companys culture can aid the drive for
proficient strategy execution.
LO8 Understand what constitutes effective
managerial leadership in achieving superior
strategy execution.
10-4
Crafting versus Executing Strategy
Crafting the Strategy
Primarily a market-
driven activity
Successful strategy
making depends on
Attracting and pleasing
customers
Outcompeting rivals
A firms collection of
resources and capabilities

Executing the Strategy
Primarily an operations-
driven activity
Successful strategy
execution depends on
managements ability to
Direct change
Improve operations
Build a strategy-supportive
culture
Get things done and deliver
good results
Core Concept
10-5
Good strategy execution requires a
team effort. All managers have strategy
executing responsibility in their areas of
authority, and all employees are active
participants in the strategy execution
process.
10-6
Who Is Responsible for Implementation
of the Chosen Strategy?
The organizations chief executive officer and other
senior managers are responsible for ensuring that
the strategy is executed successfully.
It is middle and lower-level managers who must see
that employees and work groups perform the
strategy-critical activities that result in achievement
of the firms performance targets.
All managers are involved and thinking:
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?
10-7
Principal Managerial Components
of the Strategy Execution Process
1. Building an organization with the capabilities,
people, and structure needed to execute the
strategy successfully.
2. Allocating ample resources to strategy-critical
activities.
3. Ensuring that policies and procedures facilitate
rather than impede effective strategy execution.
4. Adopting process management programs that
drive continuous improvement in how strategy
execution activities are performed.
10-8
Principal Managerial Components of
the Strategy Execution Process (contd)
5. Installing information and operating systems that
enable company personnel to perform essential
activities.
6. Tying rewards directly to the achievement of
performance objectives.
7. Fostering a corporate culture that promotes good
strategy execution.
8. Exerting the internal leadership needed to propel
implementation forward.
10-9
FIGURE 10.1
The Eight Components
of Strategy Execution
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Building an Organization with the
Capabilities, People, and Structure
Needed for Good Strategy Execution
Staffing the
organizations
managerial talent
Structuring the
organization and
work effort
Organization-
building actions
Building and
strengthening
capabilities and
core competencies
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Staffing the Organization
Building Managerial Talent
Assembling a critical mass of talented
managers is a cornerstone organization-
building task:
Putting people with strong strategy implementation
skills and a results orientation in key managerial posts
Replacing weak executives, strengthening the skills
of those who remain, and bringing in fresh outsiders

10-12
Recruiting and Retaining
a Capable Workforce
The quality of a firms people is an essential
ingredient of successful strategy execution.
Staffing the right people at all levels is required to
ensure competent performance of value chain
activities.
Find, develop, and then retain engaged employees
with excellent compensation packages, opportunities
for rapid advancement and professional growth, and
challenging and interesting assignments.
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Tactics for Recruiting and Retaining
a High-Performance Workforce
Put extra effort into screening and evaluating job applicants
selecting for skill sets, energy, initiative, judgment, aptitudes
for learning, and adaptability to the firms culture.
Invest in training programs that continue throughout
employees careers.
Provide promising employees with challenging, interesting,
and skill-stretching assignments.
Rotate people through jobs that span functional and
geographic boundaries.
Retain high-performing employees via promotions, salary
increases, performance bonuses, stock options and equity
ownership, fringe benefit packages, and other perks.
Coach average performers to improve their skills and
capabilities, weeding out underperformers and benchwarmers.
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Building and Strengthening
Core Competencies and
Competitive Capabilities
A firms core competencies and capabilities
must continuously be deepened, broadened,
upgraded, and replaced due to:
The need for better strategy execution
Changing or new strategic requirements
Evolving market conditions and customer
expectations
Organization building requires deciding
when and how to recalibrate competencies
and capabilities.
10-15
Concepts and Connections 10.1
Toyotas Legendary Production SystemA Capability
That Translates into Competitive Advantage
The heart of Toyotas strategy in motor vehicles is to
outcompete rivals by manufacturing world-class, quality
vehicles at lower costs and selling them at competitive price
levels. Executing this strategy requires top-notch
manufacturing capability and super-efficient management of
people, equipment, and materials. Toyota began conscious
efforts to improve its manufacturing competence more than
50 years ago. Through tireless trial and error, the company
gradually took what started as a loose collection of
techniques and practices and integrated them into a full-
fledged process that has come to be known as the Toyota
Production System (TPS). The TPS drives all plant
operations and the companys supply chain management
practices. TPS is grounded in the following principles,
practices, and techniques:
Use just-in-time delivery of parts and components to the
point of vehicle assembly.
Develop people who can come up with unique ideas for
production improvements.
Emphasize continuous improvement.
Empower workers to stop the assembly line when theres a
problem or a defect is spotted.
Deal with defects only when they occur.
Ask yourself Why? five times.
Organize all jobs around human motion to create a
production/assembly system with no wasted effort.
Find where a part is made cheaply and use that price as a
benchmark.
The TPS utilizes a unique vocabulary of terms (such as
kanban, takt-time, jikoda, kaizen, heijunka, monozukuri, poka
yoke, and muda ) that facilitates precise discussion of
specific TPS elements. In 2003, Toyota established a Global
Production Center to efficiently train large numbers of shop-
floor experts in the latest TPS methods and better operate an
increasing number of production sites worldwide. Since then,
additional upgrades and refinements have been introduced,
some in response to the large number of defects in Toyota
vehicles that surfaced in 20092010.

There is widespread agreement that Toyotas ongoing effort
to refine and improve on its renowned TPS gives it important
manufacturing capabilities that are the envy of other motor
vehicle manufacturers. Not only have such auto manu-
facturers as Ford, Daimler, Volkswagen, and General Motors
attempted to emulate key elements of TPS, but elements of
Toyotas production philosophy have been adopted by
hospitals and postal services.

Sources: Information posted at www.toyotageorgetown.com;
Hirotaka Takeuchi, Emi Osono, and Norihiko Shimizu, The
Contradictions that Drive Toyotas Success, Harvard
Business Review 86, no. 6 (June 2008), pp. 96104; and
Taiichi Ohno, Toyota Production System: Beyond Large-
Scale Production (New York:Sheridan Books, 1988).
10-16
Concepts and Connections 10.2
What Companies Do to Motivate and Reward Employees
Companies have come up with an impressive variety of motivational
and reward practices to help create a work environment that
energizes employees and promotes better strategy execution.
Heres a sampling of what firms are doing:
Google has a sprawling 20-building headquarters complex known
as the Googleplex where its several thousand employees have
access to 19 cafes and 60 snack centers, unlimited ice cream, four
gyms, heated swimming pools, ping-pong and pool tables, and
community bicycles to go from building to building. Management
built the Googleplex to be a dream workplace and a showcase for
environmentally correct building design and construction.
Lincoln Electric, widely known for its piecework pay scheme and
incentive bonus plan, rewards individual productivity by paying
workers for each non-defective piece produced. Workers have to
correct quality problems on their own time; defects in products
used by customers can be traced back to the worker who caused
them. Lincolns piecework plan motivates workers to pay attention
to both quality and volume produced. In addition, the company sets
aside a substantial portion of its profits above a specified base for
worker bonuses. To determine bonus size, Lincoln Electric rates
each worker on four equally important performance measures: (1)
dependability, (2) quality, (3) output, and (4) ideas and cooperation.
The higher a workers merit rating, the higher the incentive bonus
earned; the highest rated workers in good profit years receive
bonuses of as much as 110 percent of their piecework
compensation.
Nordstrom, widely regarded for its superior in-house customer
service experience, typically pays its retail salespeople an
hourly wage higher than the prevailing rates paid by other
department store chains plus a commission on each sale.
Spurred by a culture that encourages salespeople to go all out
to satisfy customers and to seek out and promote new fashion
ideas, Nordstrom salespeople often earn twice the average
incomes of sales employees at competing stores. The typical
Nordstrom salesperson earns nearly $38,000 per year, and
sales department managers earn, on average, $49,500 per year.
Nordstroms rules for employees are simple: Rule #1: Use
your good judgment in all situations. There will be no additional
rules.

At W. L. Gore (the maker of Gore-Tex), employees get to choose
what project/team they work on and each team members
compensation is based on other team members rankings of
his or her contribution to the enterprise.

At biotech leader Amgen, employees get 16 paid holidays,
generous vacation time, tuition reimbursements up to $10,000,
on-site massages, discounted car-wash services, and the
convenience of shopping at on-site farmers markets.

Sources: Fortunes lists of the 100 best companies to work for in
America, 2002, 2004, 2005, 2008, 2009, and 2010; Jefferson
Graham, The Search Engine That Could, USA Today, August
26, 2003, p. B3; and company websites, accessed June 2010.
10-17
Matching Organizational Structure
to the Strategy
Key value chain activities within a firms
organizational structure are critical to its
proficient strategic performance.
A new or changed strategy will require a new
or different structure and entail new or
different key activities or capabilities.
Attempting to carry out a strategy with an ill-
fitting organizational structure is unwise.
10-18
Types of Organizational Structures
Functional (or Departmental) Structure
Organizes strategy-critical activities into functional,
product, geographic, process, or customer groups
Multidivisional (or Divisional) Structure
Organizes value chain activities involved in making a
product or service available to consumers into a
common (self-contained) division
Matrix Structure
Allows for dual reporting relationships between
divisional heads and departmental heads
10-19
Organizational Structure and
Authority in Decision Making
In a centralized structure:
Top managers retain authority for most decisions.
In a decentralized structure:
Decision-making authority is pushed down to the
lowest organizational level capable of making timely,
informed, competent decisions.
The trend in most companies
A shift from authoritarian to decentralized structures
stressing empowerment
10-20
Characteristics of
Centralized Decision Making
Retention of authority by top executives
Command and control paradigm reins in lower-level managers
Minimal discretionary authority
Frontline supervisors and rank-and-file employees must seek
prior approval by their superiors for their actions
Key advantage
Tight control by top managers fixes accountability
Disadvantages
Bureaucracy slows response to changing conditions
Widely scattered operations require that decision-making
authority be granted to on-site managers
10-21
Advantages of
Decentralized Decision Making
Makes individuals closest to and most
familiar with the situation responsible for the
decision
Exploits the intellectual capabilities of all
employees
Helps by empowering employees to meet
and satisfy customer expectations
10-22
Exercising Control Over the Actions
of Empowered Employees
Place limits on the authority that empowered
personnel can exercise
Hold employees accountable for their decisions
Institute compensation incentives that reward
people for doing their jobs in a manner that
contributes to good company performance
Create a corporate culture where there is strong
peer pressure for employees to act responsibly
10-23
Allocating Resources to
Strategy-Critical Activities
Reasons for the allocation process include:
To determine what funding is needed to execute new strategic
initiatives
To bolster value-creating processes
To strengthen firms capabilities and competencies
Allocating resources to support strategy execution
involves:
Funding promising proposals; turning down those that are not
Providing the proper amount of funding to support new strategic
initiatives
Reallocation of resources to support new strategies
10-24
Instituting Strategy-Supportive
Policies and Procedures
Strategy execution is facilitated by policies
and procedures that:
Help enforce the necessary consistency in how
particular strategy-critical activities are performed.
Provide top-down guidance regarding how certain
things need to be done.
Promote a work climate that facilitates good strategy
execution.
10-25
When Do Policies and Procedures
Become Excessive?
Too much policy:
Can be confusing and erect obstacles to good
strategy implementation.
Is inappropriate when individual creativity and
initiative are more essential to good strategy
execution than standardization and strict conformity.
There is wisdom in a middle approach:
Prescribe enough policies to place boundaries on
employees actions; then empower them to act within
these boundaries in ways they think makes sense.
10-26
Striving for Continuous Improvement
in Processes and Activities
Benchmarking
Is the backbone of the process of identifying, studying,
and implementing best practices
Involves searching out and adopting best practices
integral to effective strategy implementation
Key tools for continuous improvement:
Business process reengineering
TQM
Six Sigma quality control


10-27
Management Tools for
Continuous Improvement
Business process reengineering
Involves pulling the pieces of strategy-critical activities
out of different departments and unifying their
performance in a single department or cross-
functional work group.
Total quality management (TQM)
Emphasizes continuous improvement in all phases of
operations, 100% accuracy in performing tasks,
involvement and empowerment of employees at all
levels and departments, team-based work design,
benchmarking, and total customer satisfaction.
10-28
Management Tools for
Continuous Improvement (contd)
Six Sigma
Is a statistics-based quality control system aimed at
producing not more than 3.4 defects per million
iterations for any business processfrom
manufacturing to customer transactions.
Seeks to define, measure, analyze, improve, and
control variability in the organizations processes.
Improves the efficiency of operating activities and
processes, but its rigidity can also stifle innovation.
10-29
The Difference Between
Business Process Reengineering and
Continuous Improvement Programs
The essential difference between business
process reengineering and continuous
improvement programs is that reengineering
aims at quantum gains of 30 to 50% or more
whereas total quality programs stress
incremental progressa never-ending
striving for inch-by-inch quality gains.
TQM
Business Process Reengineering
10-30
Installing Information and
Operating Systems
Strategies and value-creating internal
processes cannot be executed well without
a number of internal operating systems.
Information systems are needed to track
and report:
Customer data
Operations data
Employee data
Supplier data
Financial data

10-31
Trends in Information Systems
Up-to-the-minute reporting:
Manufacturers have daily production reports.
Retail companies have real-time inventory and sales
records for each item.
Manufacturers and retailers are able to use online
systems to monitor inventories and track shipments
and deliveries.
Real-time information systems permit
managers to quickly intervene if initiatives
and operations drift off course.

10-32
Using Rewards and Incentives to
Promote Better Strategy Execution
Reward systems include both monetary
rewards and non-monetary rewards:

Monetary
Base pay increases
Bonuses
Profit sharing plans
Stock options
Piecework incentives
Nonmonetary
Praise and recognition
Stimulating
assignments
Autonomy
Rapid promotion
10-33
Guidelines for Designing
Monetary Incentive Plans
Tie incentives to strategy
execution and financial
performance
Set performance targets
that individuals or teams
can personally affect
Keep time between
achievement and reward
as short as possible
Compensation
Incentives
Make performance payoff
a major piece of the total
compensation package
Have incentives that
extend to all managers
and all workers
Administer the reward
system with scrupulous
objectivity and fairness
10-34
Common Nonmonetary Rewards
Used to Enhance Motivation
Provide attractive perks and fringe benefits
Adopt promotion from within policies
Act on suggestions from employees
Create a work atmosphere where there is genuine
sincerity, caring, and mutual respect among all
employees
Share information with employees about financial
performance, strategy, operational measures,
market conditions, and competitors actions
Have attractive office spaces and facilities
10-35
Instilling a Corporate Culture that
Promotes Good Strategy Execution
A corporate culture or work climate
is the long-term product of work practices
and behaviors that define its:
Shared core values, beliefs, and business principles
that are ingrained in employee behaviors and attitudes
Operating stylethe human chemistry of the firms
work environment (how we do things around here)
Organizational DNAits approach to people
management
Core Concept
10-36
Corporate culture is a firms internal work
climate and is shaped by its core values, beliefs,
and business principles. A firms culture is
important because it influences its traditions,
work practices, and style of operating.
10-37
Characteristics of
Unhealthy Corporate Cultures
Highly politicized internal environment
Issues are resolved on the basis of political clout
Hostility to change
Avoid risks; experimentation and efforts to alter
status quo are discouraged
Insular, inwardly focused Not-invented-here
mind-set
Company personnel discount the need
to look outside for best practices
Disregard for high ethical standards and
overzealous pursuit of wealth by key executives
10-38
High-Performance Cultures
Standout cultural traits include:
A can-do spirit
Pride in doing things right
No-excuses accountability
A results-oriented work climate in which people go
the extra mile to achieve performance targets
10-39
Characteristics of
High-Performance Cultures
A strong sense of involvement by all
employees
An emphasis on individual initiative and
creativity
Clear statement of performance
expectations
Prompt addressing of critical issues
Constructive pressure to achieve good
results
10-40
Adaptive Cultures
Adaptive cultures are well-suited to fast-
changing industries
Characteristics of adaptive cultures include:
Willingness to accept change and embrace challenge
of introducing new strategies
Risk-taking, experimentation, and innovation to satisfy
stakeholders
Internal entrepreneurship is encouraged and
rewarded
10-41
Dominant Traits of Adaptive Cultures
Any changes in operating practices and
behaviors
Do not compromise core values and long-standing
business principles
Are legitimate in the sense of serving the best
interests of key stakeholders (customers, employees,
shareholders, suppliers, communities)

10-42
FIGURE 10.2 Steps in Changing a Problem Culture
10-43
Substantive Culture-Changing Actions
Replace key executives who stonewall needed
organizational and cultural changes.
Promote individuals who advocate for the shift to a
different culture and who can serve as role models
for the desired cultural behavior.
Appoint outsiders with desired cultural attributes to
high-profile positionsnew-breed managers send
an unambiguous message that a new era is
dawning.
Screen candidates for new positions carefully,
hiring only those who fit in with the new culture.
10-44
Substantive Culture-Changing Actions
(contd)
Mandate that all personnel attend culture-training
programs to better understand the culture-related
actions and behaviors that are expected.
Design compensation incentives that boost the pay
of teams and individuals who display the desired
cultural behaviors, while hitting change-resisters in
the pocketbook.
Revise policies and procedures in ways that will
help drive cultural change.
10-45
Symbolic Culture-Changing Actions
Show up and show how: lead by executive
exampleexecutives must walk the talk if
others are to follow.
Hold ceremonies, gatherings, and events to
celebrate and praise individuals and groups
that get with the culture-change program.
Present highly visible awards to honor
heroes.
10-46
Leading the Strategy Execution Process
Managers at all levels of the firm must:
1. Stay on top of what is happening and closely
monitor progress by engaging in managing by
walking around (MBWA).
2. Put constructive pressure on the organization to
achieve good results and operating excellence.
3. Not delay in initiating corrective actions to improve
strategy execution and achieve the targeted
performance results.
10-47
Putting Constructive Pressure on
Organizational Units to Achieve
Good Results and Operating Excellence
Focus attention on
continuous improvement
Use motivation and
compensation to reward
high performance
Celebrate individual,
group, and company
successes
Fostering
a results-
oriented, high-
performance
culture
Treat employees with
dignity and respect
Encourage employee
initiative and creativity
Set stretch objectives
and clearly communicate
expectations