chapter 10 Building an Organization Capable of Good Strategy Execution: People, Capabilities, and Structure © 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill. Copyright Image Source/Getty Images Learning Objectives After reading this chapter, you should be able to: 1. Understand what managers must do to execute strategy successfully. 2. Understand why hiring, training, and retaining the right people constitute a key component of the strategy execution process. 3. Recognize that good strategy execution requires continuously building and upgrading the organization’s resources and capabilities. 4. Identify and establish a strategy-supportive organizational structure and organize the work effort. 5. Comprehend the pros and cons of centralized and decentralized decision-making in implementing the chosen strategy. © McGraw Hill Executing Strategy Strategy execution: • Is operations-driven, involving management of both people and business processes. • Is a job for the whole management team, not just a few senior managers. • Can take many more years to develop as a real proficiency than implementing strategy. • Requires a determined commitment to change, action, and performance. © McGraw Hill A Framework for Executing Strategy Committing to executing a strategy: • Entails figuring out the specific techniques, actions, and behaviors necessary for a smooth strategy-supportive operation. • Following through to get things done and deliver results. • Making things happen (leadership) and making them happen right (management). © McGraw Hill FIGURE 10.1 The 10 Basic Tasks of the Strategy Execution Process Access the text alternative for slide images. © McGraw Hill Building an Organization Capable of Good Strategy Execution: Three Key Actions 1. Staffing the organization—putting together a strong management team, and recruiting and retaining employees with the needed experience, technical skills, and intellectual capital. 2. Acquiring, developing, and strengthening the resources and capabilities required for good strategy execution. 3. Structuring the organization and work effort. © McGraw Hill FIGURE 10.2 Building an Organization Capable of Proficient Strategy Execution: Three Key Actions Access the text alternative for slide images. © McGraw Hill Staffing the Organization Putting together a strong management team: • Planners who ask tough questions and figure out what needs to be done. • Implementers who can select, manage, and lead the right people. • Executors who turn decisions into actions that drive the changes that produce sustainable competitive advantage. Key takeaway: • A critical mass of talented activist managers. © McGraw Hill ILLUSTRATION CAPSULE 10.1 Management Development at Deloitte Touche Tohmatsu Limited Learning and development programs that contribute to Deloitte’s successful execution of its talent strategy: • Clear path to partnership. • Formal training programs. • Special programs for high performers. • Sponsorship, not mentorship. © McGraw Hill Recruiting, Training, and Retaining Capable Employees Intensively screen and evaluate applicants to ensure selecting those who are best-suited and best-fitted. Provide training programs throughout employee careers. Offer challenging, interesting, and skill-stretching assignments. Rotate people through jobs that span functional or geographic boundaries. Make the work environment stimulating and engaging so that the firm is considered a great place to work. Encourage employees to propose creative ways of operating better and to push ideas for new products or businesses. Use assorted financial incentives and perks to retain employees. Coach average performers to improve their skills and capabilities, while weeding out underperformers. © McGraw Hill Developing and Building Critical Resources and Organizational Capabilities Approaches to Building and Strengthening Capabilities Developing organizational capabilities internally Acquiring capabilities through mergers and acquisitions Access capabilities through collaborative partnerships © McGraw Hill Developing Capabilities Internally Managerial Actions to Develop Competencies and Capabilities. Strengthen the firm’s base of skills, knowledge, and intellect. Coordinate and integrate the efforts of work groups and departments. © McGraw Hill Setting Stretch Goals: From Capability to Competence Access the text alternative for slide images. © McGraw Hill Acquiring Capabilities through Mergers and Acquisitions A question of… Description A question of market opportunity: When a market opportunity can slip by faster than a needed capability can be created internally. A question of competitive necessity: When industry conditions, technology, or competitors are moving at such a rapid clip that time is of the essence. A question of Tacit knowledge and complex routines successful integration: may not transfer readily from one organizational unit to another. © McGraw Hill Accessing Capabilities through Collaborative Partnerships Approaches to Acquiring Capabilities from an External Source: © McGraw Hill Outsource the function requiring the capabilities to a key supplier or another provider. Collaborate with a firm that has complementary resources and capabilities. Engage in a collaborative partnership for the purpose of learning how the partner does things. The Strategic Role of Employee Training Training is important in: • Executing a strategy that requires different skills, competitive capabilities, and operating methods. • Organizational efforts to build skills-based competencies. • Supplying technical know-how to employees when rapidly changing technology puts a firm in danger of losing its ability to compete. © McGraw Hill Strategy Execution Capabilities and Competitive Advantage Superior strategy execution capabilities: • Are difficult to imitate and socially complex processes that take a long time to develop. • Maximize organizational resources and competitive capabilities in support of the business model. • Lower costs and permit firms to deliver more value to customers. • Enable a firm to react more quickly to market changes, beat competitors to market with new products and services, and gain uncontested market dominance. © McGraw Hill ILLUSTRATION CAPSULE 10.2 Zara’s Strategy-Execution Capabilities Strategy is focused on rapid value chain execution: • Quick and flexible design-to-production process. • Close proximity to manufacturing factories. • Lower percentage of commitment to fashion lines than competitors to keep in-store items fresh. • Small lot-size orders reduce retail discounting, and encourage impulse-buying and frequent shopping. • Placement of goods in proximity to high-fashion stores as a substitute for advertising. © McGraw Hill Matching Organizational Structure to the Strategy Ensuring that structure follows strategy by: • Deciding which value chain activities to perform internally and which to outsource. • Aligning the firm’s organizational structure with its strategy. • Determining how much authority to delegate. • Facilitating collaboration with external partners and strategic allies. © McGraw Hill FIGURE 10.3 Structuring the Work Effort to Promote Successful Strategy Execution Access the text alternative for slide images. © McGraw Hill Deciding Which Value Chain Activities to Perform Internally and Which to Outsource Outsourcing’s execution-related benefits: • Helps in outperforming rivals in strategy-critical activities and in turning a competence into a distinctive competence. • Decreases bureaucracies, flattens structure, speeds decision making, and shortens response time to changing market conditions. • Adds to a firm’s capabilities and contributes to better strategy execution through partnerships with suppliers and channel partners. © McGraw Hill ILLUSTRATION CAPSULE 10.3 Which Value Chain Activities Does Apple Outsource and Why? How important is outsourcing to Apple’s marketplace success? Is outsourcing to low-wage overseas manufacturers to avoid paying higher wages in markets where it sells the majority of its products a failure of corporate social responsibility by Apple? © McGraw Hill Aligning the Firm’s Organizational Structure with Its Strategy Organizational structure: • Comprises the formal and informal arrangement of tasks, responsibilities, lines of authority, and reporting relationships for the firm. Structure is aligned with strategy when: • Its design contributes to the creation of value for customers. • Its parts are aligned with one another and also matched to the requirements of the strategy. • It lowers operating costs through lower bureaucratic costs and operational efficiencies. © McGraw Hill Matching a Type of Organizational Structure to Strategy Execution Requirements Simple Structure (Line-and-Staff) Functional Structure (Departmental or Unitary) Multidivisional Structure (Divisional or M-form) Matrix Structure (Composite or Combination) © McGraw Hill Strategy Execution Requirements: • Chosen Strategy. • Capabilities and Competencies. • Centralized or Decentralized Control. Determining How Much Authority to Delegate Organizational Approaches to Decision Making: Centralized Decision Making: Decentralized Decision Making: Authority is retained by top management. Authority is delegated to lower-level managers and employees. © McGraw Hill Basic Tenets of Centralized Versus Decentralized Decision Making Centralized Organizational Structures Decentralized Organizational Structures Basic tenets Basic tenets Decisions on most matters of importance should be in the hands of top-level managers who have the experience, expertise, and judgment to decide what is the best course of action. Decision-making authority should be put in the hands of the people closest to, and most familiar with, the situation. Lower-level personnel have neither the knowledge, time, nor inclination to properly manage the tasks they are performing. Those with decision-making authority should be trained to exercise good judgment. Strong control from the top is a more effective means for coordinating company actions. A company that draws on the combined intellectual capital of all its employees can outperform a command-and-control company. © McGraw Hill Chief Advantages of Centralized Versus Decentralized Decision Making Centralized Organizational Structures Decentralized Organizational Structures Chief advantages Chief advantages Fixes accountability through tight control from the top. Encourages company employees to exercise initiative and act responsibly. Eliminates potential for conflicting goals and actions on the part of lower-level managers. Promotes greater motivation and involvement in the business on the part of more company personnel. Facilitates quick decision making and strong leadership in crisis situations. Spurs new ideas and creative thinking. NA Allows for fast response to market change. NA Entails fewer layers of management. © McGraw Hill Primary Disadvantages of Centralized Versus Decentralized Decision Making Centralized Organizational Structures Decentralized Organizational Structures Primary disadvantages Primary disadvantages Lengthens response times by those closest to the market conditions because they must seek approval for their actions. May result in higher-level managers being unaware of actions taken by empowered personnel under their supervision. Does not encourage responsibility among lower-level managers and rankand-file employees. Can lead to inconsistent or conflicting approaches by different managers and employees. Discourages lower-level managers and rank-and-file employees from exercising any initiative. Can impair cross-unit collaboration. © McGraw Hill Capturing Cross-Business Strategic Fit in a Decentralized Structure Capturing Cross-Business Strategic Fit Through: Enforcing close cross-business collaboration to avoid duplication of effort. Centralizing related functions requiring close coordination at the corporate level. © McGraw Hill Facilitating Collaboration with External Partners and Strategic Allies Strategic alliances. Outsourcing arrangements. Joint ventures. Cooperative partnerships. © McGraw Hill Creating a Network Structure: Using “relationship managers” to build and maintain cooperative arrangements of value for both parties. Further Perspectives on Structuring the Work Effort Matching Structure to Strategy: • Pick a basic organizational design that matches structure to strategy. • Supplement design with appropriate coordinating mechanisms. • Institute collaborative networking and communication arrangements. © McGraw Hill End of Main Content Because learning changes everything. www.mheducation.com © 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill. ® 
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