1. SUPERIOR STRATEGY EXECUTION—ANOTHER PATH TO COMPETITIVE ADVANTAGE
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LO1 Gain command of what managers must do to build an organization capable of good strategy execution.
LO2 Learn why resource allocation should always be based on strategic priorities.
LO3 Understand why policies and procedures should be designed to facilitate good strategy execution.
LO4 Understand how process management programs that drive continuous improvement help an organization achieve operating excellence.

3. LO5 Recognize the role of information and operating systems in enabling company personnel to carry out their strategic roles proficiently.
LO6 Learn how and why the use of well-designed incentives and rewards can be management’s single most powerful tool for promoting operating excellence.
LO7 Gain an understanding of how and why a company’s culture can aid the drive for proficient strategy execution.
LO8 Understand what constitutes effective managerial leadership in achieving superior strategy execution.

4. Crafting versus Executing Strategy
Crafting the Strategy
Primarily a market- driven activity
Successful strategy making depends on
Attracting and pleasing customers
Outcompeting rivals
A firm’s collection of resources and capabilities
Executing the Strategy
Primarily an operations- driven activity
Successful strategy execution depends on management’s ability to
Direct change
Improve operations
Build a strategy-supportive culture
Get things done and deliver good results 4

5. Good strategy execution requires a team effort
Good strategy execution requires a team effort. All managers have strategy executing responsibility in their areas of authority, and all employees are active participants in the strategy execution process.

6. Who Is Responsible for Implementation of the Chosen Strategy?
The organization’s chief executive officer and other senior managers are responsible for ensuring that the strategy is executed successfully.
It is middle and lower-level managers who must see that employees and work groups perform the strategy-critical activities that result in achievement of the firm’s performance targets.
All managers are involved and thinking:
“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?”

7. Principal Managerial Components of the Strategy Execution Process
Building an organization with the capabilities, people, and structure needed to execute the strategy successfully.
Allocating ample resources to strategy-critical activities.
Ensuring that policies and procedures facilitate rather than impede effective strategy execution.
Adopting process management programs that drive continuous improvement in how strategy execution activities are performed.

8. Principal Managerial Components of the Strategy Execution Process (cont’d)
Installing information and operating systems that enable company personnel to perform essential activities.
Tying rewards directly to the achievement of performance objectives.
Fostering a corporate culture that promotes good strategy execution.
Exerting the internal leadership needed to propel implementation forward.

9. FIGURE 10.1
The Eight Components of Strategy Execution

10. Building an Organization with the Capabilities, People, and Structure Needed for Good Strategy Execution
Staffing the organization’s managerial talent
Structuring the organization and work effort
Organization- building actions
Building and strengthening capabilities and core competencies

11. Staffing the Organization— Building Managerial Talent
Assembling a critical mass of talented managers is a cornerstone organization- building task:
Putting people with strong strategy implementation skills and a results orientation in key managerial posts
Replacing weak executives, strengthening the skills of those who remain, and bringing in fresh outsiders

12. Recruiting and Retaining a Capable Workforce
The quality of a firm’s people is an essential ingredient of successful strategy execution.
Staffing the right people at all levels is required to ensure competent performance of value chain activities.
Find, develop, and then retain engaged employees with excellent compensation packages, opportunities for rapid advancement and professional growth, and challenging and interesting assignments.

13. Tactics for Recruiting and Retaining a High-Performance Workforce
Put extra effort into screening and evaluating job applicants—selecting for skill sets, energy, initiative, judgment, aptitudes for learning, and adaptability to the firm’s culture.
Invest in training programs that continue throughout employees’ careers.
Provide promising employees with challenging, interesting, and skill-stretching assignments.
Rotate people through jobs that span functional and geographic boundaries.
Retain high-performing employees via promotions, salary increases, performance bonuses, stock options and equity ownership, fringe benefit packages, and other perks.
Coach average performers to improve their skills and capabilities, weeding out underperformers and benchwarmers.

14. Building and Strengthening Core Competencies and Competitive Capabilities
A firm’s core competencies and capabilities must continuously be deepened, broadened, upgraded, and replaced due to:
The need for better strategy execution
Changing or new strategic requirements
Evolving market conditions and customer expectations
Organization building requires deciding when and how to recalibrate competencies and capabilities. 14

15. Concepts and Connections 10
Concepts and Connections 10.1 Toyota’s Legendary Production System—A Capability That Translates into Competitive Advantage
The heart of Toyota’s strategy in motor vehicles is to outcompete 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. Toyota began conscious efforts to improve its manufacturing competence more than 50 years ago. Through tireless trial and error, the company gradually took what started as a loose collection of techniques and practices and integrated them into a full-fledged process that has come to be known as the Toyota Production System (TPS). The TPS drives all plant operations and the company’s supply chain management practices. TPS is grounded in the following principles, practices, and techniques:
Use just-in-time delivery of parts and components to the point of vehicle assembly.
Develop people who can come up with unique ideas for production improvements.
Emphasize continuous improvement.
Empower workers to stop the assembly line when there’s a problem or a defect is spotted.
Deal with defects only when they occur.
Ask yourself “Why?” five times.
Organize all jobs around human motion to create a production/assembly system with no wasted effort.
Find where a part is made cheaply and use that price as a benchmark.
The TPS utilizes a unique vocabulary of terms (such as kanban, takt-time, jikoda, kaizen, heijunka, monozukuri, poka yoke, and muda ) that facilitates precise discussion of specific TPS elements. In 2003, Toyota established a Global Production Center to efficiently train large numbers of shop-floor experts in the latest TPS methods and better operate an increasing number of production sites worldwide. Since then, additional upgrades and refinements have been introduced, some in response to the large number of defects in Toyota vehicles that surfaced in 2009–2010.
There is widespread agreement that Toyota’s ongoing effort to refine and improve on its renowned TPS gives it important manufacturing capabilities that are the envy of other motor vehicle manufacturers. Not only have such auto manu-facturers as Ford, Daimler, Volkswagen, and General Motors attempted to emulate key elements of TPS, but elements of Toyota’s production philosophy have been adopted by hospitals and postal services.
Sources: Information posted at Hirotaka Takeuchi, Emi Osono, and Norihiko Shimizu, “The
Contradictions that Drive Toyota’s Success,” Harvard Business Review 86, no. 6 (June 2008), pp. 96–104; and Taiichi Ohno, Toyota Production System: Beyond Large-Scale Production (New York:Sheridan Books, 1988).

16. Concepts and Connections 10
Concepts and Connections 10.2 What Companies Do to Motivate and Reward Employees
Companies have come up with an impressive variety of motivational and reward practices to help create a work environment that energizes employees and promotes better strategy execution. Here’s a sampling of what firms are doing:
Google has a sprawling 20-building headquarters complex known as the Googleplex where its several thousand employees have access to 19 cafes and 60 snack centers, unlimited ice cream, four gyms, heated swimming pools, ping- pong and pool tables, and community bicycles to go from building to building. Management built the Googleplex to be “a dream workplace” and a showcase for environmentally correct building design and construction.
Lincoln Electric, widely known for its piecework pay scheme and incentive bonus plan, rewards individual productivity by paying workers for each non-defective piece produced. Workers have to correct quality problems on their own time; defects in products used by customers can be traced back to the worker who caused them. Lincoln’s piecework plan motivates workers to pay attention to both quality and volume produced. In addition, the company sets aside a substantial portion of its profits above a specified base for worker bonuses. To determine bonus size, Lincoln Electric rates each worker on four equally important performance measures: (1) dependability, (2) quality, (3) output, and (4) ideas and cooperation. The higher a worker’s merit rating, the higher the incentive bonus earned; the highest rated workers in good profit years receive bonuses of as much as 110 percent of their piecework compensation.
Nordstrom, widely regarded for its superior in-house customer service experience, typically pays its retail salespeople an hourly wage higher than the prevailing rates paid by other department store chains plus a commission on each sale. Spurred by a culture that encourages salespeople to go all out to satisfy customers and to seek out and promote new fashion ideas, Nordstrom salespeople often earn twice the average incomes of sales employees at competing stores. The typical Nordstrom salesperson earns nearly $38,000 per year, and sales department managers earn, on average, $49,500 per year. Nordstrom’s rules for employees are simple: “Rule #1: Use your good judgment in all situations. There will be no additional rules.”
At W. L. Gore (the maker of Gore-Tex), employees get to choose what project/team they work on and each team member’s compensation is based on other team members’ rankings of his or her contribution to the enterprise.
At biotech leader Amgen, employees get 16 paid holidays, generous vacation time, tuition reimbursements up to $10,000, on-site massages, discounted car-wash services, and the convenience of shopping at on-site farmers’ markets.
Sources: Fortune’s lists of the 100 best companies to work for in America, 2002, 2004, 2005, 2008, 2009, and 2010; Jefferson Graham, “The Search Engine That Could,” USA Today, August 26, 2003, p. B3; and company websites, accessed June 2010.

17. Matching Organizational Structure to the Strategy
Key value chain activities within a firm’s organizational structure are critical to its proficient strategic performance.
A new or changed strategy will require a new or different structure and entail new or different key activities or capabilities.
Attempting to carry out a strategy with an ill- fitting organizational structure is unwise.

18. Types of Organizational Structures
Functional (or Departmental) Structure
Organizes strategy-critical activities into functional, product, geographic, process, or customer groups
Multidivisional (or Divisional) Structure
Organizes value chain activities involved in making a product or service available to consumers into a common (self-contained) division
Matrix Structure
Allows for dual reporting relationships between divisional heads and departmental heads

19. Organizational Structure and Authority in Decision Making
In a centralized structure:
Top managers retain authority for most decisions.
In a decentralized structure:
Decision-making authority is pushed down to the lowest organizational level capable of making timely, informed, competent decisions.
The trend in most companies
A shift from authoritarian to decentralized structures stressing empowerment

20. Characteristics of Centralized Decision Making
Retention of authority by top executives
Command and control paradigm reins in lower-level managers
Minimal discretionary authority
Frontline supervisors and rank-and-file employees must seek prior approval by their superiors for their actions
Key advantage
Tight control by top managers fixes accountability
Disadvantages
Bureaucracy slows response to changing conditions
Widely scattered operations require that decision-making authority be granted to on-site managers

21. Advantages of Decentralized Decision Making
Makes individuals closest to and most familiar with the situation responsible for the decision
Exploits the intellectual capabilities of all employees
Helps by empowering employees to meet and satisfy customer expectations

22. Exercising Control Over the Actions of Empowered Employees
Place limits on the authority that empowered personnel can exercise
Hold employees accountable for their decisions
Institute compensation incentives that reward people for doing their jobs in a manner that contributes to good company performance
Create a corporate culture where there is strong peer pressure for employees to act responsibly

23. Allocating Resources to Strategy-Critical Activities
Reasons for the allocation process include:
To determine what funding is needed to execute new strategic initiatives
To bolster value-creating processes
To strengthen firm’s capabilities and competencies
Allocating resources to support strategy execution involves:
Funding promising proposals; turning down those that are not
Providing the proper amount of funding to support new strategic initiatives
Reallocation of resources to support new strategies

24. Instituting Strategy-Supportive Policies and Procedures
Strategy execution is facilitated by policies and procedures that:
Help enforce the necessary consistency in how particular strategy-critical activities are performed.
Provide top-down guidance regarding how certain things need to be done.
Promote a work climate that facilitates good strategy execution.

25. When Do Policies and Procedures Become “Excessive”?
Too much policy:
Can be confusing and erect obstacles to good strategy implementation.
Is inappropriate when individual creativity and initiative are more essential to good strategy execution than standardization and strict conformity.
There is wisdom in a middle approach:
Prescribe enough policies to place boundaries on employees’ actions; then empower them to act within these boundaries in ways they think makes sense.

26. Striving for Continuous Improvement in Processes and Activities
Benchmarking
Is the backbone of the process of identifying, studying, and implementing best practices
Involves searching out and adopting best practices integral to effective strategy implementation
Key tools for continuous improvement:
Business process reengineering
TQM
Six Sigma quality control

27. Management Tools for Continuous Improvement
Business process reengineering
Involves pulling the pieces of strategy-critical activities out of different departments and unifying their performance in a single department or cross-functional work group.
Total quality management (TQM)
Emphasizes continuous improvement in all phases of operations, 100% accuracy in performing tasks, involvement and empowerment of employees at all levels and departments, team-based work design, benchmarking, and total customer satisfaction.

28. Management Tools for Continuous Improvement (cont’d)
Six Sigma
Is a statistics-based quality control system aimed at producing not more than 3.4 defects per million iterations for any business process—from manufacturing to customer transactions.
Seeks to define, measure, analyze, improve, and control variability in the organization’s processes.
Improves the efficiency of operating activities and processes, but its rigidity can also stifle innovation.

29. The Difference Between Business Process Reengineering and Continuous Improvement Programs
The essential difference between business process reengineering and continuous improvement programs is that reengineering aims at quantum gains of 30 to 50% or more whereas total quality programs stress incremental progress—a never-ending striving for inch-by-inch quality gains.
TQM
Business Process Reengineering

30. Installing Information and Operating Systems
Strategies and value-creating internal processes cannot be executed well without a number of internal operating systems.
Information systems are needed to track and report:
Customer data
Operations data
Employee data
Supplier data
Financial data

31. Trends in Information Systems
Up-to-the-minute reporting:
Manufacturers have daily production reports.
Retail companies have real-time inventory and sales records for each item.
Manufacturers and retailers are able to use online systems to monitor inventories and track shipments and deliveries.
Real-time information systems permit managers to quickly intervene if initiatives and operations drift off course.

32. Using Rewards and Incentives to Promote Better Strategy Execution
Reward systems include both monetary rewards and non-monetary rewards:
Monetary
Base pay increases
Bonuses
Profit sharing plans
Stock options
Piecework incentives
Nonmonetary
Praise and recognition
Stimulating assignments
Autonomy
Rapid promotion

33. Guidelines for Designing Monetary Incentive Plans
Tie incentives to strategy execution and financial performance
Set performance targets that individuals or teams can personally affect
Keep time between achievement and reward as short as possible
Compensation Incentives
Make performance payoff a major piece of the total compensation package
Have incentives that extend to all managers and all workers
Administer the reward system with scrupulous objectivity and fairness

34. Common Nonmonetary Rewards Used to Enhance Motivation
Provide attractive perks and fringe benefits
Adopt promotion from within policies
Act on suggestions from employees
Create a work atmosphere where there is genuine sincerity, caring, and mutual respect among all employees
Share information with employees about financial performance, strategy, operational measures, market conditions, and competitors’ actions
Have attractive office spaces and facilities

35. Instilling a Corporate Culture that Promotes Good Strategy Execution
A corporate culture or work climate is the long-term product of work practices and behaviors that define its:
Shared core values, beliefs, and business principles that are ingrained in employee behaviors and attitudes
Operating style—the human chemistry of the firm’s work environment (“how we do things around here”)
Organizational DNA—its approach to people management

36. Corporate culture is a firm’s internal work climate and is shaped by its core values, beliefs, and business principles. A firm’s culture is important because it influences its traditions, work practices, and style of operating.

37. Characteristics of Unhealthy Corporate Cultures
Highly politicized internal environment
Issues are resolved on the basis of political clout
Hostility to change
Avoid risks; experimentation and efforts to alter status quo are discouraged
Insular, inwardly focused “Not-invented-here” mind-set
Company personnel discount the need to look outside for best practices
Disregard for high ethical standards and overzealous pursuit of wealth by key executives

38. High-Performance Cultures
Standout cultural traits include:
A can-do spirit
Pride in doing things right
No-excuses accountability
A results-oriented work climate in which people go the extra mile to achieve performance targets

39. Characteristics of High-Performance Cultures
A strong sense of involvement by all employees
An emphasis on individual initiative and creativity
Clear statement of performance expectations
Prompt addressing of critical issues
Constructive pressure to achieve good results

40. Adaptive Cultures
Adaptive cultures are well-suited to fast-changing industries
Characteristics of adaptive cultures include:
Willingness to accept change and embrace challenge of introducing new strategies
Risk-taking, experimentation, and innovation to satisfy stakeholders
Internal entrepreneurship is encouraged and rewarded

41. Dominant Traits of Adaptive Cultures
Any changes in operating practices and behaviors
Do not compromise core values and long-standing business principles
Are “legitimate” in the sense of serving the best interests of key stakeholders (customers, employees, shareholders, suppliers, communities)

42. FIGURE 10.2
Steps in Changing a Problem Culture

43. Substantive Culture-Changing Actions
Replace key executives who stonewall needed organizational and cultural changes.
Promote individuals who advocate for the shift to a different culture and who can serve as role models for the desired cultural behavior.
Appoint outsiders with desired cultural attributes to high-profile positions—new-breed managers send an unambiguous message that a new era is dawning.
Screen candidates for new positions carefully, hiring only those who fit in with the new culture.

44. Substantive Culture-Changing Actions (cont’d)
Mandate that all personnel attend culture-training programs to better understand the culture-related actions and behaviors that are expected.
Design compensation incentives that boost the pay of teams and individuals who display the desired cultural behaviors, while hitting change-resisters in the pocketbook.
Revise policies and procedures in ways that will help drive cultural change.

45. Symbolic Culture-Changing Actions
Show up and show how: lead by executive example–executives must walk the talk if others are to follow.
Hold ceremonies, gatherings, and events to celebrate and praise individuals and groups that get with the culture-change program.
Present highly visible awards to honor heroes.

46. Leading the Strategy Execution Process
Managers at all levels of the firm must:
Stay on top of what is happening and closely monitor progress by engaging in managing by walking around (MBWA).
Put constructive pressure on the organization to achieve good results and operating excellence.
Not delay in initiating corrective actions to improve strategy execution and achieve the targeted performance results.

47. Putting Constructive Pressure on Organizational Units to Achieve Good Results and Operating Excellence
Focus attention on continuous improvement
Use motivation and compensation to reward high performance
Celebrate individual, group, and company successes
Fostering a results-oriented, high-performance culture
Treat employees with dignity and respect
Encourage employee initiative and creativity
Set stretch objectives and clearly communicate expectations