19e Section6 LN Chapter10

Chapter 10 Building an Organization Capable of Good Strategic Execution
CHAPTER 10
BUILDING AN
ORGANIZATION CAPABLE OF
GOOD STRATEGIC EXECUTION
CHAPTER SUMMARY
Chapter Ten examines the process of executing an organizational strategy. It has an emphasis on the conversion
of a strategy into actions and good results for organizations. The chapter explores how executing strategy is an
operations-driven activity that revolves around the management of people and business processes. It denotes that
successfully executing a strategy depends on doing a good job of working with and through others, building and
strengthening competitive capabilities, motivating and rewarding people in a strategy-supportive manner, and
instilling a discipline of getting things done.
LECTURE OUTLINE
I. Introduction
1. Just because senior managers announce a new strategy does not mean that organizational members
will agree with it or enthusiastically move forward in implementing it. It takes adept managerial
leadership to convincingly communicate the new strategy and the reasons for it, overcome pockets
of doubt and disagreements, secure the commitment and enthusiasm of concerned parties, build
consensus on all the hows of implementation and execution, and move forward to get all the pieces
into place.
2. Executing strategy is a job for the whole management team, not just a few senior managers.
3. Strategy execution requires every manager to think through the answer to 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?
II. A Framework for Executing Strategy
1. Executing strategy entails figuring out all the howsthe specific techniques, actions, and behaviors
that are needed for a smooth strategy-supportive operationand then following through to get
things done and deliver results.
CORE CONCEPT
Good strategy execution requires a team effort. All managers have strategyexecuting responsibility in their areas of authority, and all employees are
participants in the strategy execution process.
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2. Managements handling of the strategy implementation process can be considered successful if

and when the company achieves the targeted strategic and financial performance and shows good
progress in making its strategic vision a reality.
A. The Principal Management Components of the Strategy Executing Process
1. Despite the need to tailor a companys strategy-executing approaches to the particulars of its
situation, certain managerial bases have to be covered no matter what the circumstances.
2. Figure 10.1, The Ten Basic Tasks of the Strategy Execution Process, depicts the eight managerial
tasks that come up repeatedly in a companys efforts to execute strategy.
3. The eight managerial tasks that crop up repeatedly in company efforts to execute strategy include:
a. Staff the organization with managers and employees capable of executing the strategy well.
b. Build the organizational capabilities required for successful strategy execution.
c. Create a strategy-supportive organizational structure.
d. Allocate sufficient budgetary (and other) resources to the strategy execution effort.
e. Institute policies and procedures that facilitate strategy execution.
f. Adopt best practices and business processes that drive continuous improvement in strategy
execution activities.
g. Install information and operating systems that enable company personnel to carry out their
strategic roles proficiently.
h. Tie rewards and incentives directly to the achievement of strategic and financial targets.
i. Instill a corporate culture that promotes good strategy execution.
j. Exercise the internal leadership needed to propel strategy implementation forward.
4. In devising an action agenda for implementing and executing strategy, the place for managers to
start is with a probing assessment of what the organization must do differently and better to carry out
the strategy successfully. They should then consider precisely how to make the necessary internal
changes as rapidly as possible.
5. When strategies fail, it is often because of poor executionthings that were supposed to get done
slip through the cracks.
6. The bigger the organization, the more that successful strategy execution depends on the cooperation
and implementing skills of operating managers who can push needed changes at the lowest
organizational levels and deliver results.
7. Regardless of the organizations size and the scope of the changes, the most important leadership
trait is a strong, confident sense of what to do and how to do it.
8. Whats Covered in Chapters 10, 11, and 12 - This chapter and the next two will explore what is
involved in performing the ten key managerial tasks that shape the process of implementing and
executing strategy.
a. This chapter explores the first three of these tasks (1) staffing the organization with people
capable of executing the strategy well, (2) building the organizational capabilities needed for
successful strategy execution, and (3) creating an organizational structure supportive of the
strategy execution process.
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b. Chapter 11 concerns the tasks of allocating resources, instituting strategy-facilitating policies

and procedures, employing business process management tools and best practices, installing
operating and information systems, and tying rewards to the achievement of good results.
c. Chapter 12 deals with the two remaining tasks: creating a strategy-supportive corporate culture
and exercising the leadership needed to drive the execution process forward.
III. Building an Organization Capable of Good Strategy Execution: Where to Begin
1. Building a capable organization is always a top priority in strategy execution. Three types of
organization-building actions that are paramount include:
a. Staffing the organization
b. Building and strengthening core competencies and competitive capabilities
c. Structuring the organization and work effort
2. Figure 10.2, Building an Organization Capable of Proficient Strategy Execution: Three Types
of Paramount Actions, looks at the three components necessary for building a capable organization.
IV. Staffing the Organization
1. No company can hope to perform the activities required for successful strategy execution without
attracting and retaining talented managers and employees with suitable skills and intellectual
capital.
A. Putting Together a Strong Management Team
1. Assembling a capable management team is a cornerstone of the organization-building task.
2. The task of implementing challenging strategic initiatives must be assigned to executives who have
the skills and talents to handle them and who can be counted on to get the job done well.
B. Recruiting and Retaining Capable Employees
1. Staffing the organization with the right kinds of people must go much deeper than managerial jobs
in order to build an organization capable of effective strategy execution.
2. In high-tech companies, the challenge is to staff work groups with gifted, imaginative, and energetic
people who can bring life to new ideas quickly.
3. Illustration Capsule 10.1, Build From Within: P&Gs Approach to Management Development,
describes Proctor and Gambles approach to developing a high-caliber management team.
ILLUSTRATION CAPSULE 10.1
Build From Within: P&Gs Approach to Management Development

Discussion Question: Identify the five key elements of P&Gs management development life cycle.
Answer: The management pipeline is created through five key stages including (1) a rigorous
training process, (2) extensive on the job and formal training opportunities, (3) detailed development
and career planning, (4) clear path to leadership, and (5) actively managed succession planning.
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4. In many industries adding to a companys talent base and building intellectual capital is more
important to strategy execution than additional investments in plants, equipment, and capital
projects.
5. The practices listed next are common among companies dedicated to staffing jobs with the most
capable people they can find:
a. Putting forth considerable effort on screening and evaluating job applicants
b. Providing employees with training programs that continue throughout their careers.
c. Offering promising employees challenging, interesting, and skill-stretching assignments.
d. Rotating people through jobs that span functional and geographic boundaries.
e. Making the work environment stimulating and engaging so employees will consider the com
pany a great place to work.
f. Striving to retain talented high-performing employees via promotions, salary increases,
performance bonuses, stock options and equity ownership, fringe benefit packages, and other
perks.
g. Coaching average performers to improve their skills while weeding out underperformers and
benchwarmers
V. Acquiring, Developing, and Strengthening Key Resources and Capabilities
1. A top organization-building priority in the strategy implementing/executing process is the need to
build and strengthen competitively valuable core competencies and organizational capabilities.
A. Three Approaches to Building and Strengthening Capabilities
1. Building core competencies and competitive capabilities is a time consuming, managerially chal
lenging exercise. The capability building process has three common approaches.
2. Developing Capabilities Internally First, the organization must develop the ability to do
something, however imperfectly or inefficiently. Second, as experience grows and company
personnel learn how to perform the activity consistently well and at an acceptable cost, the ability
evolves into a tried and true competence or capability. Third, should the organization continue
to polish and refine its know-how and otherwise sharpen its performance such that it becomes
better than rivals at performing the activity, the core competence rises to the rank of a distinctive
competence, thus providing a path to competitive advantage.
Toyotas Legendary Production System: A Capability That Translates into

Competitive Advantage
Discussion Question: What two TPS techniques do you think are the most unusual? How do you
think these help Toyota to pursue a more efficient manufacturing operation?
Answer: Students should select two choices from among the eight listed in this example. Student
responses will vary, but students should be exhibiting some personal viewpoints or perspectives
that otherwise may not have been brought to light. This sharing should facilitate further classroom
discussion about quality control.
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3. Acquiring capabilities through mergers and acquisitions Sometimes a company can refresh
and strengthen its competencies by acquiring another company with attractive resources and
capabilities. The primary advantage of this method is speed and these types of acquisitions are
essential in two situations. First, when a market opportunity can slip by faster than a needed
capability can be created internally. Second, when industry conditions, technology, or competitors
are moving at such a rapid clip that time is of the essence.
4. Accessing capabilities via collaborative partnerships Sometimes a company can access
capabilities via collaborative partnerships with suppliers, competitors, or other companies having
the cutting-edge expertise. First, Outsource the function requiring the capabilities to a key supplier
or another provider. Second, Collaborate with a firm that has complementary resources and
capabilities in a joint venture, strategic alliance, or other type of partnership established for the
purpose of achieving a shared strategic objective. Third, Engage in a collaborative partnership for
the purpose of learning how the partner does things, internalizing its methods and thereby acquiring
its capabilities.
B. The Strategic Role of Employee Training
1. Training and retraining are important when a company shifts to a strategy requiring different skills,
competitive capabilities, managerial approaches, and operating methods.
2. The strategic importance of training has not gone unnoticed. Over 600 companies have established
internal universities to lead the training effort, facilitate continuous organizational learning, and
help upgrade company competencies and capabilities.
C. Strategy Execution Capabilities and Competitive Advantage
1. Superior strategy execution capabilities allow companies to get the most from their organizational
resources and competitive capabilities.
2. Superior strategy execution capabilities are the only source of sustainable competitive advantage
when strategies are easy for rivals to copy.
VI. Organizing the Work Effort with a Supportive Organizational Structure
A. Deciding Which Value Chain Activities to Perform Internally and Which to Outsource
1. Outsourcing assorted administrative support activities and perhaps even core or primary value
chain activities can enable the company to concentrate its full energies and resources on even more
competently performing those value chain activities that are at the core of its strategy and for which
it can create unique value.
2. Figure 10.3, Structuring the Work Effort to Promote Successful Strategy Execution, looks at
some of the considerations that are common to most all organizations.
3. When a company uses outsourcing to zero in on even better performance of those truly strategycritical of those truly strategy-critical activities where its expertise is most need, then it may be able
to realize three very positive benefits.
a. The company improves its chances for outclassing rivals in the performance of those activities
and turning a core competence into a distinctive competence.
b. The streamlining of internal operations that flows from outsourcing often acts to decrease
internal bureaucracies, flatten the organization structure, speed internal decision making and
shorten the time it takes to respond to changing market conditions.
c. Partnerships can add to a companys arsenal of capabilities and contribute to better strategy
execution.
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4. As a general rule, companies refrain from outsourcing those value chain activities over which they
need direct strategic and operating control in order to build core competencies, achieve competitive
advantage, and effectively manage key customer-supplier-distributor relationships.
5. A company that goes overboard on outsourcing can hollow out its knowledge base so as to leave
itself at the mercy of outside suppliers and short of the resource strengths to be master of its own
destiny.
B. Aligning the Firms Organizational Structure with Its Strategy
1. Some activities in the value chain are always more critical to strategic success and competitive
advantage than others.
CORE CONCEPT
A firms organizational structure comprises the formal and informal arrangement of
tasks, responsibilities, lines of authority, and reporting relationships by which the firm
is administered.
Which Value Chain Activities Does Apple Outsource and Why?

Discussion Question: What key value chain activities does Apple outsource and not outsource, and
why did the firm select them?
Answer: Apple has chosen to focus their internal resources on their key success factors in new
product development and product design as these provide the company with a sustainable
competitive advantage. The company has outsourced manufacturing because it does not provide
a unique competitive advantage. Flexible manufacturing process are well developed and easily
copied.
2. Making Strategy Critical Activities the Main Building Blocks of Organizational Structure
The rationale for making strategy-critical activities the main building blocks in structuring a business
is compelling: if activities crucial to strategic success are to have the resources, decision-making
influence, and organizational impact they need, they have to be centerpieces in the organizational
scheme.
3. Matching Type of Organizational Structure to Strategy Execution Requirements Organ
izational structures can be classified into a limited number of standard types. The type that is most
suitable for a given firm will depend on the firms size and complexity as well as its strategy.
a. Simple Structure A simple structure is one in which a central executive (often the ownermanager) handles all major decisions and oversees the operations of the organization with the
help of a small staff.
b. Functional Structure A functional structure is one that is organized along functional lines,
where a function represents a major step in the firms value chain, such as R&D, engineering
and design, manufacturing, sales and marketing, logistics, and customer service.
c. Multidivisional Structure A multidivisional structure is a decentralized structure consisting
of a set of operating divisions organized along market, customer, product, or geographic lines,
and a central corporate headquarters, which monitors divisional activities, allocates resources,
performs assorted support functions, and exercises overall control.
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d. Matrix Structure A matrix structure is a combination structure in which the organization

is organized along two or more dimensions at once (e.g., business, geographic area, value
chain function) for the purpose of enhancing cross-unit communication, collaboration, and
coordination.
CORE CONCEPT
A simple structure consists of a central executive who handles all major decisions
and oversees all operations with the help of a small staff.
CORE CONCEPT
A functional structure is organized into functional departments, with departmental
managers who report to the CEO and small corporate staff.
CORE CONCEPT
A multidivisional structure is a decentralized structure consisting of a set
of operating divisions organized along business, product, customer group, or
geographic lines, and a central corporate headquarters that allocates resources,
provides support functions, and monitors divisional activities.
CORE CONCEPT
A matrix structure is a structure that combines two or more organizational forms,
with multiple reporting relationships. It is used to foster cross-unit collaboration.
C. Determining the Degree of Authority and Independence to Give Each Unit and Each Employee
1. The two extremes are to centralize decision-making at the top (the CEO and a few close lieutenants)
or to decentralize decision-making by giving managers and employees considerable decisionmaking latitude in their areas of responsibility.
2. Table 10.1, Advantages and Disadvantages of Centralized versus Decentralized DecisionMaking, shows the two approaches to decision-making are based on sharply different underlying
principles and beliefs, with each having pros and cons.
3. Centralized Decision-Making: Pros and Cons In a highly centralized organization structure,
top executives retain authority for most strategic and operating decisions and keep a tight rein on
business-unit heads, department heads, and the managers of key operating units; comparatively
little discretionary authority is granted to front-line supervisors and rank and file employees.
a. Key advantages include: (1) Fixes accountability through tight control from the top (2) Elim
inates potential for conflicting goals and actions on the part of lower-level managers (3)
Facilitates quick decision making and strong leadership under crisis situations
b. Key disadvantages include: (1) Lengthens response times by those closest to the market conditions
because they must seek approval for their actions (2) Does not encourage responsibility among
lower-level managers and rank-and-file employees (3) Discourages lower-level managers and
rank-and-file employees from exercising any initiative
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4. Decentralized Decision-Making: Pros and Cons In a highly decentralized organization, decisionmaking authority is pushed down to the lowest organizational level capable of making timely,
informed, competent decisions. The objective is to put adequate decision-making authority in the
hands of those closest to and most familiar with the situation and train them to weigh all the factors
and exercise good judgment.
a. Key advantages include: (1) Encourages company employees to exercise initiative and act
responsibly (2) Promotes greater motivation and involvement in the business on the part of
more company personnel (3) Spurs new ideas and creative thinking (4) Allows for fast response
to market change (5) Entails fewer layers of management
b. Key disadvantages include: (1) Higher-level managers may be unaware of actions taken by
empowered personnel under their supervision (2) Puts the organization at risk if empowered
employees happen to make bad decisions (3) Can impair cross-unit collaboration
5. Capturing Cross-Business Strategic Fits in a Decentralized Structure: Diversified companies
striving to capture cross-business strategic fits have to beware of giving business heads full rein to
operate independently when cross-business collaboration is essential in order to gain strategic fit
benefits.
D. Facilitating Collaboration with External Partners and Strategic Allies
1. Someone or some group must be authorized to collaborate with each major outside constituency
involved in strategy execution.
2. Building organizational bridges with external allies can be accomplished by appointing relationship
managers with responsibility for making particular strategic partnerships or alliances generate the
intended benefits.
3. Organizing and managing a network structure provides another mechanism for encouraging more
effective collaboration and cooperation among external partners.
CORE CONCEPT
A network structure is the arrangement linking a number of independent
organizations involved in some common undertaking.
E. Further Perspectives on Structuring the Work Effort
1. All organization designs have their strategy-related strengths and weaknesses. To do a good job of
matching structure to strategy, strategy implementers first have to pick a basic design and modify it
as needed to fit the companys particular business lineup. They must then:
a. Supplement the design with appropriate coordinating mechanisms (cross-functional task forces,
special project teams, self-contained work teams, and so on) and
b. Institute whatever networking and communications arrangements it takes to support effective
execution of the firms strategy.
2. Effectively managing both internal organization processes and external collaboration to create
and develop competitively valuable organizational capabilities remains a top challenge for senior
executives in todays companies.
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ASSURANCE OF LEARNING EXERCISES

1. The heart of Toyotas strategy in motor vehicles is to out compete 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.
Illustration Capsule 10.2, discusses the principles, practices, and techniques grounded in Toyotas famed
Toyota Production System. How does Toyotas philosophy of dealing with defects, empowering employees,
and developing capabilities impact strategy execution? Why are its slogans such as Never be satisfied and
Ask yourself Why? five times important?
Answer: The student should identify that the slogans discussed serve as constant reminders of the underlying
values of quality and continuous improvement. The use of slogans in highlighting important values is a key
component in developing and maintaining a positive culture.
2. Procter and Gambles systematic approach to management development is discussed in Illustration Capsule
10.1. Based upon the information provided in the capsule, explain how the companys approach to recruiting
and its promotion from within policy helps build managerial talent. Explain why its formal training
opportunities and career planning efforts help the company retain its most valuable employees. How does
Procter and Gamble make sure that its managers are good at knowing what needs to be done and are skilled
in making it happen.
Answer: The student should identify that Proctor and Gamble has formalized the entire process of developing
and training their management in order to ensure that the company can continue to grow as existing managers
retire and leave the firm and as the company develops new business opportunities. P&Gs management
pipeline is created through five key stages including (1) a rigorous training process, (2) extensive on
the job and formal training opportunities, (3) detailed development and career planning, (4) clear path to
leadership, and (5) actively managed succession planning. Through this detailed and formalized process, the
firm can be sure that it has a sustainable supply of managers that are skilled at making it happen.
3. Review the Careers link on LOrals worldwide corporate Web site (www.loreal.com and click on the
companys worldwide corporate Web site option). The section provides extensive information about personal
development, international learning opportunities, integration of new hires into existing teams, and other
areas of management development. How do the programs discussed help LOral to hire good people and
build core competencies and competitive capabilities? Please use the chapters discussions of recruiting,
training, and retaining capable employees and building core competencies and competitive capabilities as a
guide for preparing your answer.
Answer: The student should note that the textbook discussion on building core competencies and competitive
capabilities begins on page 336 and they should use this as a guide for preparing their answers. Specifically,
answers could include a discussion of company-specific competencies and capabilities that have been
instrumental in driving the companys success in its marketplace. Students should be able to define what
makes these features into competitive competencies and capabilities.

For example, one of the four traits related to building core competencies and competitive capabilities is
they can be viewed as bundles of skills and know-how that often grow out of the combined efforts of crossfunctional work groups and departments performing complementary activities at different locations in a
firms value chain. Students should point out that LOreal has several career programs which are likely to
facilitate this trait. They include the management trainee program (can include hands-on assignments in
field sales, category management, market research, finance, and marketing services); LOreal Fit (a twoyear personalized integration and support program adaptable to the needs of all new employees); and a
growth and personal development program (includes training programs, field visits, and distance learning
opportunities based on an individuals professional needs). Students should recognize these programs are
managerial activities to strengthen the companys base of skills, knowledge, and intellect that are related to
developing core competencies and competitive capabilities.
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4. Examine the overall corporate organizational structure chart for Exelon Corporation. The chart can be found
by going to www.exeloncorp.com and using the Web site search feature to locate organizational charts.
Does it appear that strategy-critical activities are the building blocks of Exelons organizational arrangement?
Is its organizational structure best characterized as a departmental structure tied to functional, process,
or geographic departments? Is the companys organizational structure better categorized as a divisional
structure? Would you categorize Exelons organizational structure as a matrix arrangement? Explain your
answer.
Answer: In examining the site, the student should find that the Exelon family of companies includes Exelon
Generation, Exelon Transmission Company, ComEd, and PECO which share a corporate services and support
unit, Exelon Business Services Company. With a nationwide reach and strong positions in the Midwest and
Mid-Atlantic regions, it appears Exelon has designed its organizational structure based on key value chain
activities that are the main building blocks in its structure generation, transmission, and delivery. Regarding
strategic success, Exelon was ranked #134 on the 2009 FORTUNE 500 list, and #1 on the Utilities: Gas and
Electric industry list. In addition, it was named #7 in Businessweeks list of 50 top performing companies
in 2008. Exelons organizational structure is best characterized as a divisional structure. The major building
blocks of this structure are generation and marketing, transmission, and delivery. The Web site link is http://
www.exeloncorp.com/peopleandculture/ corporatestructure/overview.aspx.
5. Using Google Scholar or your university librarys access to EBSCO, InfoTrac, or other online databases, do
a search for recent writings on decentralized decision making and employee empowerment. According to the
articles you find in the various management journals, what are the conditions under which decision making
should be pushed down to lower levels of management?
Answer: The student should note that possible databases include Academic Search Premier, EBSCO,
LexisNexis Academic, or Business Source Premier. Students should provide cited information from
the articles they choose and demonstrate the relevance to decentralized decision making and employee
empowerment. Criteria for the effective use of these management approaches should be demonstrated in
student discussions. Using the search terms of decision making and employee empowerment, several
articles were located. Two of the recent scholarly journal articles are provided below:
High-Involvement Work Practices: Are They Really Worth It? Maura J Mills, Satoris S Culbertson.
The Academy of Management Perspectives. Briarcliff Manor: Aug 2009. Vol. 23, Iss. 3; p. 93
Employee Empowerment: A Conceptual Analysis. Manoj K Sharma, Gurvinder Kaur. Journal of
Global Business Issues. Burbank: Summer 2008. Vol. 2, Iss. 2; p. 7 (6 pages)
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Chapter 10 Building an Organization Capable of Good Strategic Execution

Chapter 10 Building an Organization Capable of Good Strategic Execution

2. Managements handling of the strategy implementation process can be considered successful if

Chapter 10 Building an Organization Capable of Good Strategic Execution

b. Chapter 11 concerns the tasks of allocating resources, instituting strategy-facilitating policies

ILLUSTRATION CAPSULE 10.1

Build From Within: P&Gs Approach to Management Development

Chapter 10 Building an Organization Capable of Good Strategic Execution

ILLUSTRATION CAPSULE 10.2

Toyotas Legendary Production System: A Capability That Translates into

Chapter 10 Building an Organization Capable of Good Strategic Execution

Chapter 10 Building an Organization Capable of Good Strategic Execution

ILLUSTRATION CAPSULE 10.3

Which Value Chain Activities Does Apple Outsource and Why?

Chapter 10 Building an Organization Capable of Good Strategic Execution

d. Matrix Structure A matrix structure is a combination structure in which the organization

Chapter 10 Building an Organization Capable of Good Strategic Execution

Chapter 10 Building an Organization Capable of Good Strategic Execution

ASSURANCE OF LEARNING EXERCISES

Chapter 10 Building an Organization Capable of Good Strategic Execution

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