Copyright ©2011 Taylor & Francis Group, an informa business

Chapter 8

IMPLEMENTATION, ADAPTATION, AND LEARNING

Objectives…Lessons from McDonalds Implementation Short Term Fit, Long Term Flexibility Adaptation & Learning Summary Final Thoughts & Caveats 

Dynamic CapabilitiesReal OptionsProblems with Present ValueA Means to an End

Lessons from McDonald’s

Strategy is ultimately about what you do to create value for your customers.

Firms that stay connected to their customers, that continue to offer products, and services that customers value and for which customers are willing to pay a profitable price will maintain their competitive advantage and, as a result, continue to perform well.

Implementation

Implementation is an integral part of strategic management and is defined as the deployment and operation of organizational structures, facilities, human resources, and support systems as necessary to bring a strategy to fruition.

Implementation

Two key points:Implementation requires some action or some change of

assets from one purpose or state to another.Strategy is simply a means to an end; it is not an end unto

itself.

No one should be surprised when the strategy changes, most especially the strategist. Rather, good strategists expect it.

If strategic management is all about performance, then good strategists should be obsessed with implementation.

Another Level of Fit

The concept of strategic fit applies at two levels:Between the environment and the strategyBetween the strategy and the firm’s

operations

Incongruence anywhere along the chain threatens the ability of a firm to deliver the value that customers want.

McKinsey 7-S Model

SharedValues

Strategy

Structure Systems

Staff

Style

Skills

McKinsey 7-S Model

Fit can always be tightened and improved.

Just as competitive advantage can always be strengthened, so too can the various connections across the firm be strengthened.

How can we apply this model to RyanAir or to any other organization?

Short Term Fit, Long Term Flexibility

How is it that firms that once held dominant positions in their industries and that once performed well above the average somehow manage to slip and lose their advantages to unforeseen or upstart competitors?

Short Term Fit, Long Term Flexibility

Performance is ultimately paradoxical.

Often, what is necessary for good performance in the short term means sacrificing some flexibility in the long term. Yet, investing for the longer term may involve forgoing some benefits in the short term.

The Paradox of Success

The dilemma maps onto two specific challenges in strategy implementation. The first is to make sure the organization fits

the strategy as it exists in the current competitive environment.This involves aligning the elements of the 7-S

model, both to the strategy and to one another. It also involves continuously fine-tuning and

refining the alignment, looking for opportunities to improve, to tighten the fit, and to strengthen the competitive advantage of the firm.

The Paradox of Success

The second challenge is to look beyond the current strategy and the current environment in an effort to build new capabilities and new strategies for the future.

Environment change is inevitable. Thus, all firms must change too by developing new assets, new resources, and new capabilities if they hope to sustain a competitive advantage over time.

The Paradox of Success

However, these two processes, strengthening fit in the present and developing new capabilities for the future, are largely inconsistent and non-complementary.

Tightening fit among the current strategy and parts of

the organization requires eliminating unnecessary effort, reinforcing successful routines and practices, and the relentless pursuit of efficiency and consistency.

Strengthening fit means identifying and reinforcing the practices that contribute to competitive advantage, while eliminating virtually everything else.

The Paradox of Success

Building new capabilities requires a different type of effort altogether.

Building new capabilities requires experimenting with new, unfamiliar, and often unproven practices.

It requires speculative investment in the development of new ideas and novel resources that may one day prove valuable but that are likely to provide little immediate benefit.

The Paradox of Success

Exacerbating the problem is a subtle dynamic known as path dependence.

The basic idea of path dependence is simple;Current decisions reflect decisions made in the

past.

“We shape our buildings; thereafter, they shape us.” - Churchill

The Paradox of Success

Problematically then:Managers seek to maximize fit and efficiency,

doing what seems right at each step and making decisions based on the best examples and data available in the current strategy and environment.

In so doing, they create and reinforce processes that, over time, produce suboptimal decisions, leaving them unable to effectively compete in the future.

Exploitation versus Experimentation

As the current strategy grows increasingly successful:

There is a tendency to continue exploiting it, rather than spend resources and effort on something else.

Over time, new alternatives such as new

products, markets, technologies, and business models begin to look like threats to the status quo, rather than opportunities for learning, innovation, and change.

Exploitation versus Experimentation

This phenomenon relates to prospect theory and its S-shaped value function

Exploitation versus Experimentation

Taking together the effects of incumbency with the tendencies illustrated by prospect theory:

We can see why success can be so difficult to sustain.

It may well be that as firms become established, large, and successful they are, without knowing it, also sowing the seeds of their own demise.

When Less is More

There are some suggestions on how this pattern can disrupted:

Do only what is necessary in the short term to gain competitive advantage and to maintain success.

Any additional effort, beyond what is minimally necessary for ongoing survival, should be directed towards the future and towards the cultivation of new alternatives, options, and ideas.

When Less is More

Minimal consensus:

Contrary to common and conventional wisdom, firms can suffer from too much consensus.

Managers can become too insular and distant. They can restrict the flow of information and limit the sources from which they receive information.

In so doing, they may sharpen their focus, reduce their disagreements, and maximize their own efficiency.

However, without knowing it, they may also be cutting off the very sources of creativity and insight that will stimulate innovation and new ideas.

When Less is More

Minimal contentment:

This may seem counter-intuitive and unnatural.

Managers spend their careers trying to provide stability for their firm and its constituents.

Most stakeholders, including employees, suppliers, and owners desire some level of satisfaction and contentment.

When Less is More

Minimal affluence:

Firms are typically judged on their financial success. So, as affluence rises, discontent will typically decline.

With affluence comes the ability to build slack resources, which enable a firm to better absorb mistakes and to better insulate itself against shocks from the environment.

Firms with slack resources have a buffer that can be used to absorb mistakes and mitigate oversights. Those deep pockets protect a firm from immediate threat and provide the luxury of time when responding to change.

When Less is More

Minimal faith:

Planning is useful but too much planning or planning in too much detail can be counter-productive.

So managers plan but do so minimally. Set direction, articulate goals, provide the guiding principles as well as the ongoing support and attention, but otherwise allow the details to evolve over time (logical incrementalism).

When Less is More

Minimal consistency:

While unorthodox, it is nevertheless quite logical in the context of strategic management, because the environment is by its nature inconsistent.

Reassess the market, competitors, resources, and business model regularly.

Search out new technologies and products and listen to its customers, anticipating their motivations and adapting in response.

When Less is More

Minimal rationality:

Rationality is defined as “not just intelligent behavior, but behavior motivated by a conscious calculation of advantages, a calculation that is based on an explicit and internally consistent value system.”

Sometimes, the best ideas can seem less than fully rational in context of the current day and the status quo.

Adaptation and Learning

The ultimate goal of these prescriptions is: An organization that learns and adapts and

that can redesign itself in an ongoing and continuous way and by so doing stay focused on the bulls-eye of a moving target.

Summary

Implementation contributes to competitive advantage in two crucial ways.First, it is the process of converting strategic

intent into tangible action. It involves organizing and managing the nuts and

bolts of the firm in such a way that the strategy functions as it was intended.

Organizational structures and systems, along with processes, practices, style, and culture all must work together for strategy to create value and produce competitive advantage.

SummaryThe second way that strategy implementation

contributes to competitive advantage is by providing the sensory inputs to the firm.

As it implements strategy, learning to create value and refining the processes for delivering it, the firm also gathers information about the environment.

This information is immediate and practical, and enables the firm to learn about the future and adapt its strategy and processes accordingly.

Dynamic CapabilitiesCompetitive advantages that will last indefinitely, along

with the resources and positions that enable them, are like perpetual motion machines, little more than fool’s gold.

Every resource can be substituted or imitated with time and effort, and every advantage will eventually erode, given the continuous drag of competition and market evolution. As a result, sustainability should be seen in continuous, rather than categorical, terms.

Rather than asking if an advantage can be sustained, managers should be asking for how long the advantage can be sustained.

Dynamic CapabilitiesThe ongoing process of redesign, as necessary to move

the firm from strength to strength and from advantage to advantage, reflects the dynamic capabilities of the firm.

Dynamic capabilities are defined as the “ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments.”

In essence, they are the firm’s ability to learn, adapt, and change as necessary to stay fit to the environment, even as the environment changes.

These sorts of capabilities are not bound to specific tangible assets nor are they applicable in only particular settings. Rather, they transcend resources and strategies and deal instead with how resources and strategies are used.

Dynamic CapabilitiesThe dynamic capabilities perspective:

The challenge for managers then is not to find that elusive resource that can never be imitated, or to develop that strategy that is so unique and powerful that it will never be defeated.

Rather, the challenge is to cultivate the sorts of mindsets, processes, and paths that will enable the firm to learn and adapt before change is forced from the outside.

Those sorts of capabilities will enable the firm to move from strength to strength, sustaining competitive advantage by changing and creating value by continuously learning, adapting, and moving forward.

Real Options

The value of a firm is a combination of the value of its current operations and resources, as well as the value of its options in the future.

Future option value can be cultivated and managed, just like current operations and resources.

This option value of the firm should be an integral part of the firm’s strategy.

Real Options

A real options approach:

Suggests keeping the options open until there is better information on which to base a go or no go decision.

Learning along the way, as new products, markets, services, and business models are developed.

Problems with Present Value

Given that an existing and successful strategy is likely to be well practiced and well understood, the risks associated with any alternative strategy will be higher almost by definition.

NPV analysis has a built in bias favoring the status quo in those instances where the status quo is successful.

A Means to an EndThe challenge is to:

Balance the short term demands of fit, efficiency, and performance with the longer term need for innovation, adaptation, and learning.

It can not be easily solved with a simple policy or a single action. Nor is it the sort of issue that can be addressed once and thereafter forgotten.

Rather, it requires a different way of thinking, a complete reprogramming of the strategic process and the firm’s strategists.