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chapter

10

SUPERIOR STRATEGY
EXECUTIONANOTHER
PATH TO COMPETITIVE
ADVANTAGE

McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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.
10-2

(contd)
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.
10-3

Crafting versus Executing Strategy


Crafting the Strategy

Executing the Strategy

Primarily a market-

Primarily an operations-

driven activity
Successful strategy
making depends on

driven activity
Successful strategy
execution depends on
managements ability to

Attracting

and pleasing
customers
Outcompeting rivals
A firms collection of
resources and capabilities

Direct

change
Improve operations
Build a strategy-supportive
culture
Get things done and deliver
good results

10-4

Core Concept
Good
Good strategy
strategy execution
execution requires
requires aa
team
team effort.
effort. All
All managers
managers have
have strategy
strategy
executing
executing responsibility
responsibility in
in their
their areas
areas of
of
authority,
authority, and
and all
all employees
employees are
are active
active
participants
participants in
in the
the strategy
strategy execution
execution
process.
process.

10-5

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?

10-6

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.

10-7

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.

10-8

FIGURE 10.1
The Eight Components
of Strategy Execution

10-9

Building an Organization with the


Capabilities, People, and Structure
Needed for Good Strategy Execution
Organizationbuilding actions

Staffing the
organizations
managerial talent

Building and
strengthening
capabilities and
core competencies

Structuring the
organization and
work effort

10-10

Staffing the Organization


Building Managerial Talent
Assembling

a critical mass of talented


managers is a cornerstone organizationbuilding 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

10-11

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.

10-12

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.
10-13

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.
10-14

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 fullfledged 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 shopfloor 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 manufacturers 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 LargeScale Production (New York:Sheridan Books, 1988).

10-15

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, pingpong 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.

10-16

Matching Organizational Structure


to the Strategy
Key

value chain activities within a firms


organizational structure are critical to its
proficient strategic performance.

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 illfitting organizational structure is unwise.

10-17

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

10-18

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

10-19

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


10-20

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

10-21

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

10-22

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

10-23

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.

10-24

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.

10-25

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

10-26

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 crossfunctional 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.
10-27

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.

10-28

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.
Business Process Reengineering
TQM
10-29

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

10-30

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.

10-31

Using Rewards and Incentives to


Promote Better Strategy Execution
Reward

systems include both monetary


rewards and non-monetary rewards:

Monetary
Monetary

Base
Basepay
payincreases
increases
Bonuses
Bonuses
Profit
Profitsharing
sharingplans
plans
Stock
Stockoptions
options
Piecework
Pieceworkincentives
incentives

Nonmonetary
Nonmonetary

Praise
Praiseand
andrecognition
recognition
Stimulating
Stimulating
assignments
assignments
Autonomy
Autonomy
Rapid
Rapidpromotion
promotion

10-32

Guidelines for Designing


Monetary Incentive Plans
Tie incentives to strategy
execution and financial
performance

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

Compensation
Incentives

Set performance targets


that individuals or teams
can personally affect

Keep time between


achievement and reward
as short as possible

10-33

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

10-34

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

10-35

Core Concept
Corporate
Corporate culture
culture is
is aa firms
firms internal
internal work
work
climate
climate and
and is
is shaped
shaped by
by its
its core
core values,
values, beliefs,
beliefs,
and
and business
business principles.
principles. A
A firms
firms culture
culture is
is
important
important because
because itit influences
influences its
its traditions,
traditions,
work
work practices,
practices, and
and style
style of
of operating.
operating.

10-36

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

10-37

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

10-38

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

10-39

Adaptive Cultures
Adaptive

cultures are well-suited to fastchanging 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

10-40

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)

10-41

FIGURE 10.2 Steps in Changing a Problem Culture

10-42

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.

10-43

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.

10-44

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.

10-45

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.

10-46

Putting Constructive Pressure on


Organizational Units to Achieve
Good Results and Operating Excellence
Focus attention on
continuous improvement

Treat employees with


dignity and respect

Encourage employee
initiative and creativity

Set stretch objectives


and clearly communicate
expectations

Fostering
a resultsoriented, highperformance
culture

Use motivation and


compensation to reward
high performance

Celebrate individual,
group, and company
successes

10-47