Module 9

Implementing Strategy:

Core Competencies, Reengineering, and Structure

Module Outline

• Strategy Implementation Framework

– Key Tasks

– Leading the Implementation Process

• Building a Capable organization

– Selecting People for Key Positions

– Building Core Competencies

– Matching Organization Structure to Strategy

• Why Organization Follows Strategy

• Strategic Advantages and Disadvantages of Different

Organization Structures

• Perspectives on Organizing the Work Effort

Nature of the Strategy Implementation

Task

• Action-oriented, operations-driven people and systems management activity involving

– Leading

– Motivating

– Organization change

– Engineering business processes

– Creating strong fits between strategy and how organization does things

• Implementing strategy is tougher and more time-consuming challenge than crafting strategy

The Strategy Implementer’s Task

To convert the strategic plan into action and

get on with what needs to be done to achieve

the targeted strategic and financial

objectives!

Why Implementing Strategy is a Tough

Management Job?

• Tougher and more time-consuming than

strategy-making due to

– Variety of managerial activities

– Many different ways to tackle each activity

– People management skills required

– Perseverance and wave-making it takes to

launch a variety of initiatives

– Number of bedeviling issues to be worked

through

– Resistance to change to overcome

Why Implementing Strategy is a Tough

Management Job?

• Implementing a new strategy takes adept

managerial leadership to

– Overcome pockets of doubt and disagreement

– Build consensus of ho to proceed

– Secure commitment and cooperation of

concerned parties

– Get all implementation pieces in place

Characteristics of Strategy

Implementation Process

• Every manager has an active role

• No 10-step checklist and few concrete

guidelines

– It’s the least charted, most open-ended part of

strategy management

• Best evidence of do’s and don’ts comes from

personal experiences, anecdotal reports, and

case studies

– But wisdom yielded is inconsistent

Characteristics of Strategy

Implementation Process

• Each implementation situation occurs in a different context, affected by differing

– Business practices and competitive situations

– Work environments and cultures

– Policies

– Compensations incentives

– Mixes of personalities and firm histories

• Approach to implementation should be customized

• People implement strategies – No companies!

What is the Goal of Strategy

Implementation?

• Unite total organization behind strategy

• See that activities are done in a manner that

tightly matches requirements for first-rate

strategy execution

• Generate such a determined commitment at

all organizational levels that an enthusiastic

crusade emerges to carry out strategy

• Create a series of strategy-supportive “fits”

Who are the Strategy Implementers?

• Implementing strategy is a job for whole

management team

• Persons most responsible for implementation effort

– Chief Executive Officer (CEO)

– Heads of Major Organizational Units

• Implementation involves every organization unit

• Top management has to orchestrate major

implementation initiatives

– But they must rely on middle and lower-level managers

to get thins done

Strategic Management Principle

Every manager has an active role to play in

implementing and executing the firm’s

strategic plan!

8 Managerial Components of

Implementing Strategy

Corporate

Strategy

Allocating Resources

Establishing Strategy-

Supportive Policies

Instituting Best

Practices for

Continuous

Improvement

Installing Support

Systems for Carrying

Out Strategic Roles

Tying Rewards to the

Achievement of Key

Strategic

Shaping Corporate

Culture to Strategy

Exercising Strategic

Leadership

Building a Capable

Organization

Principal Tasks of a Strategy

Implementation

• Building a capable organization

• Allocating ample resources to strategy-

critical activities

• Establishing strategy supportive policies and

procedures

• Instituting best practices and mechanisms for

continuous improvement

Principal Tasks of Strategy

Implementation

• Installing support systems enabling

personnel to carry out their strategic role

successfully

• Tying rewards and incentives tightly to

achievement of key objectives

• Creating a strategy-supportive corporate

culture

• Exerting strategic leadership

Ways to Lead Implementation Process

• Take active, visible role or low-key, behind the scenes role

• Make decisions on basis of consensus orauthoritatively

• Delegate much or little

• Be personally involved in implementation details or coach others carrying day-to-day burden

• Proceed swiftly to achieve results or move deliberately, content with gradual progress over a long time frame

Factors Influencing Manager in Leading

Implementation Process

• His / her experience and accumulated knowledge

about business

• Whether manager is new to job or seasoned

• Manager’s network of personal relationships

• Manager’s own diagnostic, administrative,

interpersonal, and problem-solving skills

• Authority which manager has been given

• Leadership style manager is most comfortable with

• Manager’s conclusions about role he / she should

play in light of what has to be done

• Context of organization’s situation

Building a Capable Organization

Three key tasks:

1. Selecting able people for key positions

2. Developing skills, core competencies,

and competitive capabilities

3. Creating strategy-supportive organization

structure

Selecting People for Key Positions

Implementation Issues

• What kind of core management is needed to

carry out strategy

• Finding the right people to fill each slot

– Existing management team may be suitable

– Core executive group may need strengthening

• Promoting from within

• Bringing in skilled management talent from

outside

Selecting People for Key Positions

Key Considerations

• Determining mix of backgrounds,

experiences, know-how, values, styles of

managing, and personalities to

– Contribute to successful strategy execution

• Putting together strong management team

with right personal “chemistry” and mix of

skills

– Needs to be acted on early in implementation

process

Building a Core Competence

• When it is difficult to out-strategize rivals with

a superior strategy –

– Next best avenue to industry leadership is to out-

execute them –

• Beat them with superior strategy

implementation!

• Building core competencies that rivals can’t

match is one of the best way to out-execute

them

Building a Core Competence

• Strategically-relevant core competencies

– Greater proficiency in product development

– Better manufacturing know-how

– Superior cost-cutting skills

– Better marketing and merchandising skills

– Capability to provide better after-sale service

– Ability to respond quickly to changes in customer

needs

Examples of Core Competencies

Honda

– Expertise in gasoline engine technology and

small engine design

Procter & Gamble

– Superb marketing-distribution skills and R&D

capabilities in five core technologies – Fats, oils,

skin chemistry, surfactants, emulsifiers

Examples of Core Competencies

Intel

– Design of complex chips for personal computers

Sony

– Expertise in electronic technology and ability to

translate this expertise into developing and

manufacturing innovative products – Miniaturized

radios and video camera and TVs and VCRs

with unique features

Creating a Core Competencies

4 Traits Related to Building Core Competencies

1. Rarely consist of narrow skill or work effort of a

single department

2. Typically emerge from combined efforts of

different work groups and departments

3. Gaining competitive advantage entails

concentrating more effort than rivals on creating

or strengthening core competencies

4. Bases of competency need to be broad and

flexible to react to changes in customer needs

Creating a Core Competence

Creating core competence is an exercise

best orchestrated by senior managers who

understand how firm’s core competence is

created and have the clout to enforce

necessary networking and cooperation

among functional departments!

Value and Power of a Core

Competence

• Helps achieve competitive advantage

• Helps pave way for above-average performance over the long run

• Improves chances for long-term success

Conscious management attention to the task of building strategically relevant internal skills and strengths into the overall organizational scheme is one of the central tasks of organization-building and effective strategy implementation!

Strategic Role of Training and

Retraining

• Training takes on strategic importance in

efforts to build a skills-based competence

• Training is a strategy-critical activity in

businesses where technical know-how is

changing or advancing rapidly

• Strategy implementers ensure training

function is

– Adequately funded, and

– Effective training programs are in place

Matching Organization Structure to

Strategy

Principle

• Design internal organization structure around

tasks and activities most critical to success of

firm’s strategy

Matching structure to strategy requires

making strategy-critical activities and

organization units the main building blocks in

the organizational structure!

Matching Organization Structure to

Strategy

Guidelines

1. Pinpoint primary activities and key tasks critical to

successful strategy execution

2. Establish ways to achieve necessary coordination

when it doesn’t make sense to group all facets of

an activity under a single manager

3. Determine degree of authority each unit needs to

carry out its assignment affectively

4. Determine whether non-critical activities can be

outsourced more efficiently than performed

internally

Pinpointing Strategy-Critical Activities

• Vary according to

– Particular of a firm’s strategy

– Value chain make-up

– Competitive requirements

• Identifying a firm’s strategy-critical activities

1. What functions have to be performed extra well

and on time to achieve sustainable competitive

advantage?

2. In what value-chain activities would mal-

performance endanger success?

Grouping Strategy-Critical Activities into

Department Units

Guidelines

• Make strategy-critical activities main building

blocks in organizational structure

• Assign managers of these activities a visible,

influential position in organizational pecking

order

• Group related value-chain activities under

coordinating authority of single executive

Watch Out for Work Process

Fragmentation!

In traditional functionally-organized

structures, the pieces of strategically-

relevant activities often end up scattered

across many departments

Example:

Filling customer orders accurately and

promptly

Guard Against Organization Designs

That Fragment Activities

• May hand-off lengthen completion time

• Coordination fragmented pieces to avoid

increasing overhead costs

• But come fragmentation may be necessary

• Keys to good organization design

– Maximize how support activities contribute to

performance of primary value-chain activities

– Contain costs of support activities

Understanding Strategic Relationships

Among Activities

• Strategic relationships among the value-chain

activities signal

– How to structure reporting relationships

– Where close cross-functional coordination is needed

• Strategic relationships to look for are those that

– Link caliber of performance of one work unit to another,

and / or

– Can be melded into a core competence

• Organization designs that fragment strategic

activities must be avoided

Ways to Coordinate Fragmented

Activities

• Classical method of coordination activities

– Related activities report to same manager

• Supplemental option of coordinating activities

– Coordinating teams

– Cross functional task forces

– Dual reporting relationships

– Informal organizational networking

– Incentive compensation tied to group performance

– Execution-level insistence on teamwork and interdepartmental cooperation

Determining Authority and

Independence to Give Each Unit

• Centralized organization

– Top executives retain authority for most decisions

• Decentralized organization

– Employees empowered to exercise best judgment

Centralizing strategy-implementing authority at the corporate level has merit when related activities of related businesses need to be tightly coordinated

Determining Authority and

Independence to Give Each Unit

• Decentralized structure have

– Fewer management layers

– Short response times

– Greater employee involvement

• Trend toward leaner structure stressing employee empowerment based on 2 principles

1. Decision-making authority pushed down to lowest possible level

2. Employees empowered to exercise judgment on job-related matters

Outsourcing of Non-Critical Activities

• Outsourcing non-critical strategic activities

allows firm to concentrate resources on

value-chain activities where it

– Can create unique value

– Can be best in industry or in the world

– Needs strategic control

• Outsourcing value-chain activities makes

strategic sense whenever

– They can be performed at lower cost and / or

with higher value-added by outsiders

Outsourcing of Non-Critical Activities

• Outsourcing non-crucial support activities

helps

– Decrease internal bureaucracies

– Flatten organization structure

– Provide heightened strategic focus

– Decrease competitive response times

Why Structure Follows Strategy?

• Changes in strategy may require

– New structure for successful implementation

• Research results indicate

– Organizational structure affects performance

– Structure merits reassessment whenever

strategy changes

– New strategy likely entails different skills and

activities

• How work is structured is a means to an

end – Not an end in itself!

Why Structure Follows Strategy?

• Structure is a tool for

– Facilitating execution of strategy

– Helping to achieve performance targets

– “Harnessing” individual efforts

– Coordinating performance of diverse tasks

Strategic Management Principle

Attempting to carry out a new strategy with

an old organization structure is usually

unwise!

Strategy-Driven Approaches to

Organization Structure

• Functional specialization

• Geographic specialization

• Decentralized business divisions

• Strategic business units

• Matrix structures

Functional Organizational Structures

(Traditional)

General Manager

Engineering Marketing

Research &

DevelopmentManufacturing

Human

Resource

Finance &

Accounting

Functional Organizational Structure

(Process-Oriented)

General Manager

Foundry &

Casting

Screw

Machining

InspectionCustomer

Service

Milling &

Grinding

Finishing &

Heat Treating

Loading &

Shipping

Geographic Organizational Structure

CEO

GM

West

GM

South

GM

Central

GM

North

GM

East

Engineering Production Marketing

Corporate

Staff

District

Staff

A Decentralized Line-of-Business

Organizational Structure

GM

Business A

GM

Business B

GM

Business C

CEO

Functional

Departments

Functional

Departments

Functional

Departments

Corporate

Services

An SBU Organizational Structure

Group VP

SBU I

Group VP

SBU II

Group VP

SBU III

CEO

Strategically

Related

Business Unit

Strategically

Related

Business Unit

Strategically

Related

Business Unit

Corporate

Services

A Matrix Organizational Structure

Head

Manufacturer

Head

Finance

Head

Marketing

Head

R&D

Production

Specialist

Production

Specialist

Production

Specialist

Production

Specialist

R&D

Specialist

R&D

Specialist

R&D

Specialist

R&D

Specialist

Marketing

Specialist

Marketing

Specialist

Marketing

Specialist

Marketing

Specialist

Finance

Specialist

Finance

Specialist

Finance

Specialist

Finance

Specialist

Venture

Manager I

Venture

Manager II

Venture

Manager III

Venture

Manager IV

General

Manager

Supplementing Formal Approaches to

Organizing

Special project teams

Cross-functional task forces

Venture team approach

Self-contained work teams

Process teams

Contact managers

Perspectives on Organizing Work

• No such thing as an ideal organization

design

• Each design has strategic advantages and

disadvantages

• Matching structure to strategy involves

– Picking a basic design

– Modifying it as needed

– Supplementing it with coordinating mechanisms

and communication arrangements

Perspectives on Organizing Work

• While practical realities often dictate

considering

– Existing reporting relationships

– Personalities

– Internal politics

– Other situational idiosyncrasies

• Strategy-structure factors must prevail!

“Pros” of Traditional Approaches to

Organizing

• Hierarchical structures make good strategic

sense when

– Activities can be divided into simple, repeatable

tasks and efficiently performed in mass quantity

– Important benefits to deeper functional expertise

exist

– Customer needs are standardized

“Cons” of Traditional Approaches to

Organizing

• Hierarchical structures can be a liability where

– Customer preferences shifting from standardize to

customized products

– Product life-cycle growing shorter

– Flexible manufacturing replacing mass production

– Customers want to be treated as individuals

– Pace of technological change accelerating

• Major drawbacks

– Lack of responsive customer service

– Slow to adapt to changing conditions

Current Trends in Organizing

• Success in fast-changing markets depends on

– Quick response to shifting customer preferences

– Short design-to-market cycles

– First-time quality

– Customer order and multi-version production

– Personalized customer service

– Accurate order filling and expedited delivery

– Rapid assimilation of new technologies

– Creativity and innovativeness

– Speedy reaction to competitive developments

Current Trends in Organizing

• New Components of strategy are driving a revolution in organization-building

– Leaner, flatter, decentralized structures

– Reengineering work processes to decrease fragmentation across functional lines

– Process teams and cross functional work groups

– Lean staffing of support functions

– Partnerships with key suppliers and outsourcing

– Empowerment

– Electronic information systems

– Accountability for results

Reengineering Can Promote Better

Implementation

• Reengineering strategy-critical processes can

– Reduce fragmentation, and

– Cut bureaucratic overheads

• Involves

– Compressing formerly separate tasks into jobs performed by a single person

– Integrating jobs into team activities

– Reorganizing to link team results

• Provides

– Important new organization design options

Reengineering Can Promote Better

Implementation

• Potential outcomes

– Dramatic gains in productivity and organizational

creativity

– Flattened organization structure

– Responsibility and decision-making authority

pushed to customer contact areas

– Strategy-critical processes being

• Unified

• Performed quicker and at lower cost and

• More responsive to customer expectations

How to Reengineering and

Restructure?

• Develop flow chart of total business process,

including interfaces with other value-chain

activities

• Simplify process first

• Determine parts of process to be automated

• Evaluate each activity in process to

determine if it is strategy-critical or not

• Weigh pros and cons of outsourcing

• Design structure for performing remaining

activities

End of Module 9