Crafting & Executing Strategy 18th Edition

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. Chapter Ten defines executing strategy as an action-oriented, makethings-happen task that tests a managers ability to direct organizational change, achieve continuous improvement
in operations and business practices, create and nurture a strategy-supportive culture, and consistently meet or
beat performance targets.

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?

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.

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.
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Chapter 10 Building an Organization Capable of Good Strategic Execution

2. The first step in implementing strategic changes is for management to communicate the case for
organizational changes so clearly and persuasively to organizational members that a determined
commitment takes hold throughout the ranks to find ways to put the strategy into place, make it
work, and meet performance targets.
3. 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.

Crafting & Executing Strategy 18th Edition

III. Managing the Strategy Execution Process: 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.
1. 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.
2. 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.
3. 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.
IV. 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.
V. 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. Putting together a talented management team with the right mix of skills and experiences and
abilities to get things done is one of the first strategy implementing steps.
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, How General Electric Develops a Talented and Deep Management
Team, describes General Electrics widely acclaimed approach to developing a high-caliber
management team.

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Illustration Capsule 10.1, How General Electric Develops a Talented

and Deep Management Team
Discussion Question: 1. Identify the four key elements that support General
Electrics efforts to build a talent-rich stable of managers. Has this approach
proven to be successful? Explain.
Answer: The four key elements employed by this organization include: transferring managers
across divisional, business, or functional lines for sustained periods of time, exhibition of
the four Es by potential executive candidates, proficiency in what is termed workout, and
attendance in the Leadership Development Center. This approach has proven to be highly
successful for the organization. Today, General Electric is widely considered to be one of
the best-managed companies in the world, partly because of its concerted effort to develop
outstanding mangers.
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 best companies make a point of recruiting and retaining talented employeesthe objective is to
make the companys entire workforce (managers and rank-and-file employees) a genuine resource
strength.
6. In instances where intellectual capital greatly aids good strategy execution, companies have
instituted a number of practices aimed at staffing jobs with the best people they can find:
a. Spending considerable effort in screening and evaluating job applicants
b. Putting employees through training programs that continue throughout their careers
c. Provide promising employees with challenging, interesting, and skills-stretching assignments
d. Rotating people through jobs that not only have great content but also 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
VI. Building and Strengthening Core Competencies and Competitive 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.

Crafting & Executing Strategy 18th Edition

2. The capability building process has three common approaches:

a. Internal Development 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

Illustration Capsule 10.2, Toyotas Legendary Production System:

A Capability That Translates into Competitive Advantage
Discussion Question: 1. 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.
b. 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.
c. 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. Upgrading Employee Skills and Knowledge Resources
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.

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VII. 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.
4. Wisely choosing which activities to perform internally and which to outsource can lead to several
strategy-executing advantageslower costs, heightened strategic focus, less internal bureaucracy,
speedier decision making, and a better arsenal of competencies and capabilities. This can yield three
important execution related benefits:
a. The company improves its chances for outclassing rivals in the performance of strategy-critical
activities and turning a core competence into a distinctive competence.
b. The streamlining of internal operations that flows from outsourcing often serves to decrease
internal bureaucracies, flatten the organizational structure, speed internal decision making, and
shorten the time it makes to respond to changing market conditions.
c. Partnerships can add to a companys arsenal of capabilities and contribute to better strategy
execution
5. 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.
6. 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.

Crafting & Executing Strategy 18th Edition

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.
a. The primary organizational building blocks within a business are usually traditional functional
departments such as R&D, engineering and design, production and operations, sales and mar
keting, information technology, finance and accounting, and human resources.
3. Matching Type of Organizational Structure to Strategy Execution Requirements
Organizational 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.
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.

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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. The command-and-control paradigm of centralized structures is based on the underlying
assumption that frontline personnel have neither the time nor the inclination to direct and
properly control the work they are performing and that they lack the knowledge and judgment
to make wise decisions about how best to do ithence the need for managerially prescribed
policies and procedures, close supervision, and tight control.
b. There are disadvantages to having a small number of top-level managers micromanage the
business either by personally making decisions or by requiring lower-level subordinates to gain
approval before taking action.
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. The ultimate goal of decentralized decision-making is not to push decisions down to lower
levels but to put decision-making authority in the hands of those persons or teams closest to and
most knowledgeable about the situation.
b. Decentralized organization structures have much to recommend them. Delegating greater
authority to subordinate managers and employees creates a more horizontal organization
structure with fewer management layers.
c. The past 15 to 20 years has seen a growing shift from authoritarian, multilayered hierarchical
structures to flatter, more decentralized structures that stress employee empowerment.
d. Maintaining adequate organizational control over empowered employees is generally
accomplished by placing limits on the authority that empowered personnel can exercise, holding
people accountable for their decisions, instituting compensation incentives that reward people
for doing their jobs in a manner that contributes to good company performance, and creating a
corporate culture where there is strong peer pressure on individuals to act responsibly.

Crafting & Executing Strategy 18th Edition

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. Providing for Collaboration with Outside Suppliers and Strategic Allies
1. Someone or some group must be authorized to collaborate with each major outside constituency
involved in strategy execution.
2. Forming alliances and cooperative relationships presents immediate opportunities and opens the
door to future possibilities, but nothing valuable is realized until the relationship grows, develops,
and blossoms.
3. 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.
4. 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. The ways and means of developing stronger core competencies and organizational capabilities (or
creating altogether new ones) have to fit a companys own circumstances.
3. 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.

ASSURANCE OF LEARNING EXERCISES

1. 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.

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The textbook discussion on building core competencies and competitive capabilities begins on page
336. Students 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 cross-functional 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 two-year 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.

2. 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.

The Web site states 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.

3.

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?

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 most 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)