1-1 CHAPTER 6 Superior Strategy Execution—Another Path to Competitive Advantage McGraw-Hill/Irwin...

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CHAPTER 6CHAPTER 6

Superior Strategy Superior Strategy Execution—Another Execution—Another Path to Competitive Path to Competitive

AdvantageAdvantage

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Developing a Sustainable Developing a Sustainable Competitive AdvantageCompetitive Advantage

Building and sustaining competitive advantage requires: A solid fit between a company’s situation and its

strategic approach

Proficient strategy execution

Good strategy execution is ultimately determine by management’s ability to create and deploy essential human, information, and organizational capital

Financial

Revenues, Profits, Productivity Objectives

Customer

Strategies to create value for customers

Human Capital Information Capital Organizational Capital

Operations Management

Processes

Customer Management

Processes

Innovation Processes

Regulatory and Social Processes

Customer RelationshipsProduct/Service Attributes Brand Image

Revenues, Profits, Long-Term

Shareholder Value

Learning and Growth

Actions and initiatives to align, integrate and enhance intangible assets to support the organization’s strategy

Internal Processes

Strategies to improve value-creating processes

Balanced ScorecardPerspectives

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The Resources and Actions That The Resources and Actions That Drive Strategy ExecutionDrive Strategy Execution

Staffing the organization with people having the right skills and expertise.

Installing information and operating systems that enable company personnel to perform essential activities.

Exerting the internal leadership needed to propel implementation forward.

Adopting an organizational structure that supports strategies intended to create customer value.

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Actions That Drive Strategy Actions That Drive Strategy ExecutionExecution

Developing strategy-supportive policies and procedures.

Creating a company culture that support successful strategy execution

Pushing for continuous improvement in how activities are performed.

Allocating ample resources to strategy critical areas.

Tying rewards and incentives to performance objectives.

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Internal LeadershipInternal Leadership

Managers at all levels of the organization must:

Stay on top of what is happening

Push the organization for good results and operating excellence

Display ethical integrity and spearhead social responsibility initiatives

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Aligning Organizational Structure Aligning Organizational Structure with Strategywith Strategy

A company’s key value adding activities and processes should be the building blocks of its organizational structure

Attempting to carry out a strategy with an ill-fitting organizational structure is unwise

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Types of Organizational StructuresTypes of Organizational Structures

Departmental Structure—Organizes strategy critical activities into distinct functional, product, geographic, process, or customer groups

Divisional Structure—Organizes value chain activities involved in making a product or service available to consumers into a common division

Matrix Structure—Allow for dual reporting relationships between divisional heads and departmental heads

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Authority in Decision MakingAuthority in Decision Making

In a centralized structure Top managers retain authority

for most decisions

In a decentralized structureManagers and employees are

empowered to make decisions

Trend in most companiesShift from authoritarian

to decentralized structures stressing empowerment

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Characteristics of Centralized Characteristics of Centralized Decision MakingDecision Making

Top executives retain authority Keep a tight rein on lower-level managers

Minimal discretionary authority is granted to Frontline supervisors and rank-and-file

employees

Key advantage – Tight control by topmanagers fixes accountability

Disadvantages Lengthens response time to changing conditions Decision making must be granted to managers at

the scene in companies with widely scattered operations

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Advantages of Decentralized Advantages of Decentralized Decision MakingDecision Making

Makes individuals closest to and most familiar with the situation responsible for the decision

Exploits the intellectual capabilities of all employees

Empowered employees are best able to satisfy customer expectations

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Exercising Control Over the Actions Exercising Control Over the Actions of Empowered Employeesof Empowered Employees

Placing limits on the authority of empowered employees

Holding employees accountable for results of decisions

Linking incentives with activities contributing to good performance

Creating a culture where there’s strong peer pressure to act responsibly

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Allocating Resources to Strategy Allocating Resources to Strategy Critical ActivitiesCritical Activities

Allocating resources in ways to support effective strategy execution involves

Funding proposals that hold promise, while turning down those that don’t

Providing the proper amount of funding to support new strategic initiatives

New strategies call for the reallocation of resources

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Instituting Strategy Supportive Instituting Strategy Supportive Policies and ProceduresPolicies and Procedures

Policies and procedures facilitate good strategy execution by:Providing top-down guidance

regarding how things need to be doneEnforcing consistency in how

strategy-critical activities are to be performed

Promote a work climate that facilitates good strategy execution

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When Do Policies and Procedures When Do Policies and Procedures Become “Excessive?”Become “Excessive?”

Too much policy can be as stifling as Wrong policy or as

Chaotic as no policy

Often, the best policy is empowering employees, letting them operate between the “white lines” anyway they think best

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Corporate CultureCorporate Culture

A company’s corporate culture includes its Core values, beliefs, and business

principlesIts style of operatingIngrained behaviors and attitudes

Corporate culture is the company’s organizational DNA

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Corporate CultureCorporate Culture

A corporate culture or work climate is the product of work practices and behaviors that define Define “How we do things here”Its approach to people managementThe chemistry of its work environment

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Unhealthy Corporate CulturesUnhealthy Corporate Cultures

Highly politicized internal environmentIssues resolved on basis of political

clout

Hostility to changeAvoid risks Experimentation and efforts to

alter status quo discouraged

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Unhealthy Corporate CulturesUnhealthy Corporate Cultures

Insular, inwardly focused “Not-invented-here” mindsetCompany personnel discount need to

look outside for best practices

Disregard for high ethical standards and overzealous pursuit of wealth by key executives

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High-Performance CulturesHigh-Performance Cultures

Standout cultural traits includeA can-do spiritPride in doing things rightNo-excuses accountabilityA results-oriented work climate in which

people go the extra mile to achieve performance targets

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High-Performance CulturesHigh-Performance Cultures

Strong sense of involvement by all employees

Emphasis on individual initiative and creativity

Performance expectations are clearly stated

Issues are promptly addressed Constructive pressure to achieve

good results

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Adaptive CulturesAdaptive Cultures

Adaptive cultures are well-suited to fast-changing industries

Characteristics of adaptive cultures includeWillingness to accept change and

embrace challenge of introducing new strategies

Risk-taking, experimentation, and innovation to satisfy stakeholders

Internal entrepreneurship is encouraged and rewarded

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Dominant Traits of Adaptive Dominant Traits of Adaptive CulturesCultures

Any changes in operating practices and behaviors

Must not compromise core values and long-standing business principles

Must be “legitimate” in the sense of serving the best interests of key stakeholders (customers, employees, shareholders, suppliers, communities)

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Changing a Problem CultureChanging a Problem Culture

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Substantive Culture Changing Substantive Culture Changing ActionsActions

Replace key executives strongly associated with old culture

Promote individuals who have desired cultural traits and can serve as role models

Appoint outsiders who have desiredcultural attributes to high-profile positions

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Substantive Culture Changing Substantive Culture Changing ActionsActions

Screen all candidates for new positions carefully, hiring only those who fit in with the new culture

Mandate all company personnel attend culture-training programs

Designing compensation systems that boost the pay of those who display desired behaviors

Revising policies and procedures in ways that drive cultural change

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Symbolic Culture Changing Symbolic Culture Changing ActionsActions

Lead by example – Walk the talk

Ceremonial events to praise people and teams who “get with the program”

Visible awards to honor heroes

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Striving for Continuous Striving for Continuous Improvement in Internal ProcessesImprovement in Internal Processes

Searching out and adopting best practicesis integral to effective implementation

Benchmarking is the backbone of theprocess of identifying, studying, andimplementing best practices

Key tools to promote continuous improvement

Six Sigma quality control

Business process reengineering

TQM

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Using Rewards and IncentivesUsing Rewards and Incentives

Reward systems should include both monetary rewards and non-monetary rewards

Monetary Monetary

Base pay increases Bonuses Profit sharing plans Stock options Piecework

incentives

Non-MonetaryNon-Monetary

Praise and recognition

Stimulating assignments

Autonomy Rapid promotion

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Guidelines for Designing Monetary Guidelines for Designing Monetary Incentive PlansIncentive Plans

Make contingent compensation a major, not minor, piece of total compensation

Incentive plan should extend to all employees

Administer system with scrupulous fairness

Link incentives to achieving only the performance targets in the strategic plan

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Guidelines for Designing Monetary Guidelines for Designing Monetary Incentive PlansIncentive Plans

Targets a person are expected to achieve must involve outcomes that can be personally affected

Keep time between performance review and payment short

Make liberal use of non-monetary rewards

Avoid skirting the system to reward non-performers

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Common Non-Monetary Rewards Common Non-Monetary Rewards Used to Enhance MotivationUsed to Enhance Motivation

Provide attractive perks and fringe benefits Rely on promotion from within when

possible Act on suggestions from employees Create a work atmosphere where there is

genuine sincerity, caring, and mutual respect among all employees

Share financial and strategic information with employees

Have attractive office spaces and facilities

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Information Capital and Strategy Information Capital and Strategy ExecutionExecution

Good information and operating systems are essential for first-rate strategy execution

Information systems are needed to track and report:Customer data

Operations data

Employee data

Supplier data

Financial data

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Trends in Information SystemsTrends 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 allow management to quickly make changes if operations drift off course

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Building Human Capital Needed to Building Human Capital Needed to Execute the StrategyExecute the Strategy

Assembling a capable management team is a cornerstone of the organization-building task

Find people who can “make it happen” to fill each slot

Existing management team may be suitableCore executive group may need

strengthening

• Promote from within

• Bring in skilled outsiders

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Recruiting and Retaining a Capable Recruiting and Retaining a Capable WorkforceWorkforce

The quality of a company’s people is an essential ingredient of successful strategy execution

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Recruiting and Retaining a Capable Recruiting and Retaining a Capable WorkforceWorkforce

Tactics commonly used to staff an organization with the best people include Careful screening of applicants

Investing in employee training

Providing promising employees with skill-stretch assignments

Rotating people through jobs in different functional areas or geographic regions

Striving to retain high-performers via promotions and pay increases

Coaching average performers to improve their abilities