IMPLEMENTING STRATEGY: BUILDING RESOURCE CAPABILITIES AND STRUCTURING THE ORGANISATION

Chief Administrative Officer “Unless you have a trained, literate, motivated work force, and give them decision-making authority, you don’t get satisfied customers.” Anthony Rucci Chief Administrative Officer Sears Roebuck

The Task of Implementing Strategy An action-oriented, operations-driven activity revolving around managing people and business processes Tougher and more time-consuming than crafting strategy Success depends on doing a good job of: Leading Motivating Working with others to create fits between strategy and how organisation does things

Why Implementing Strategy Is a Tough Management Job The demanding variety of managerial activities that have to be performed Numerous ways to tackle each activity People management skills required Perseverance to launch a variety of initiatives Number of bedeviling issues to be worked out Battling resistance to change Difficulties of integrating efforts of work groups into a smoothly-functioning whole

Why Implementing Strategy Is a Tough Management Job Implementing a new strategy takes adept leadership to Overcome pockets of doubt Build consensus Secure commitment of concerned parties Get all implementation pieces in place and coordinated

Characteristics of the Strategy Implementation Process Every manager has an active role No 10-step checklists Few concrete guidelines Least charted, most open-ended part of strategy management Cuts across many aspects of “how to manage”

Characteristics of the Strategy Implementation Process (cont.) Each implementation situation occurs in a different context, affected by differing: Business practices and competitive situations Work environments and cultures Policies Compensation incentives Mix of personalities and organisational histories Approach to implementation has be customised to fit the situation People implement strategies - Not companies!

The Eight Components of Implementing Strategy Allocating Resources Building a Capable Organisation Establishing Strategy- Supportive Policies Strategy Implementer’s Action Agenda Instituting Best Practices for Continuous Improvement Exercising Strategic Leadership Shaping Corporate Culture to Fit Strategy Installing Support Systems to Carry out Strategic Roles Tying Rewards to Achievement of Key Strategic Targets

What Is the Goal of Strategy Implementation? Unite total organisation behind strategy See that activities are done in a manner tightly matching first-rate strategy execution Generate commitment so an enthusiastic crusade emerges to carry out strategy Create a series of strategy-supportive “fits”

Who Are the Strategy Implementers? Implementation involves the whole management team Every organisation unit and all employees have a role and need to be committed CEO, other senior executives and heads of major organisational units must lead the process and orchestrate major initiatives But they must rely on middle and lower-level managers to push things on the front line and see that strategy is well-executed on a daily basis

Ways to Lead Implementation Process Take active, visible role or low-key, behind the scenes role Make decisions authoritatively or based on consensus Delegate much or little Be personally involved in details or coach others to carry day-to-day burden Proceed swiftly to achieve results or move deliberately, content with gradual progress

Factors Influencing Managers in Leading Implementation Process Experience and knowledge of business New to job or seasoned Network of personal relationships Diagnostic, administrative, interpersonal, and problem-solving skills Authority given manager Leadership style most comfortable with View of role to get things done Context of organisation’s situation

Task # 1: Building a Capable Organisation Select able people for key positions Develop skills, core competencies, managerial talents, competitive capabilities Organise business processes, value chain activities, and decision-making to promote successful strategy execution

Selecting People for Key Positions: Implementation Issues Type of core management team needed to carry out strategy Find the right people to fill each slot: Existing management team may be suitable Core executive group may need strengthening: Promote from within Bring in skilled outsiders

Selecting People for Key Positions: Key Considerations Determine mix of : Backgrounds Experiences and know-how Beliefs and values Styles of managing and personalities Personal chemistry must be right Talent base needs to be appropriate Picking a solid management team needs to be acted on early in implementation process

Key Organisation-Building Objectives Staff organisational units with the specialised talents, skills, and technical expertise needed to develop and build core competencies Build competitively valuable organisational capabilities

Strategic Management Principle Building core competencies, resource strengths, and organisational capabilities that rivals can’t match is a sound foundation for sustainable competitive advantage !

Power of Unique Competencies and Capabilities When it is difficult to outstrategise rivals with a superior strategy . . . . . . Best avenue to industry leadership is to out-compete rivals with superior strategy execution! Building competencies and capabilities rivals can’t match is one of the best ways to out-compete them!

Strategically-Relevant Core or Distinctive Competencies Greater proficiency in product development Better manufacturing know-how Capability to provide better after-sale service Faster response to changing customer needs Superior cost-cutting skills Capacity to speed new products to market Superior inventory management systems Better marketing and merchandising skills Specialised depth in unique technologies Greater effectiveness in promoting union-management cooperation

Example: Intel’s Core Competence Design of complex chips for personal computers

Example: Sony’s Core Competence Expertise in electronic technology and ability to translate the expertise into innovative products - Miniaturised radios and video cameras; TVs and VCRs with unique features; attractively designed PCs

Building Core Competencies: The Necessary Understanding 1. Core competencies are rarely grounded in skills or know-how of a single department Typically emerge from: collaborative efforts of different work groups 2. Leveraging competencies into competitive advantage requires concentrating more effort and more talent than rivals on strengthening competencies and creating valuable organisational capabilities 3. Sustaining competitive advantage requires adapting competencies to new conditions

Building Competitively Valuable Competencies and Capabilities Involves Managing human skills, knowledge bases, and intellect Coordinating efforts of related work groups Collaborative networking among internal groups and with external partners Achieving dominating depth Senior managers have to guide the process The Ongoing Challenge: Broaden, deepen, or modify competencies and capabilities in response to customer/market changes

Strategic Management Principle Building core competencies, resource strengths, and organisational capabilities that rivals can’t match is a sound basis for sustainable competitive advantage.

Building Competencies and Capabilities: The Keys to Success: Superior selection Training Cultural influences Cooperative networking Motivation Empowerment Attractive incentives Organizational flexibility Short deadlines Good databases

The Most Valuable Organisational Capabilities Contribute heavily to better strategy execution Provide a differentiating factor that customers can see and that customers value Are hard for rivals to match Time consuming to build Hard to replicate or imitate Difficult to obtain from others

Strategy and Organisation Structure Few hard and fast rules for organising Main rule: Structure must support and facilitate good strategy execution Each firm’s organisation structure is idiosyncratic, reflecting Prior arrangements, internal politics Executive judgments and preferences about how to arrange reporting relationships

Strategic Management Principle Attempting to carry out a new strategy with an old organisational structure is usually unwise!

Matching Organisation Structure to Strategy: The Steps to Take 1. Pinpoint critical activities and capabilities 2. Decide which activities to outsource 3. Decide which activities require “partners” 4. Make primary, internally-performed activities the main building blocks 5. Determine degree of authority to delegate 6. Establish ways to achieve coordination 7. Assign responsibility for managing relationships with outsiders

Step 1: Pinpointing Strategy- Critical Activities Which activities are strategy-critical depends on Particulars of a firm’s strategy Value-chain make-up Competitive requirements Identify strategy-critical activities 1. What functions have to be performed extra well and on time to produce strategic success and gain competitive advantage? 2. In what value-chain activities would poor work performance endanger success?

Step 2: Looking for Outsourcing Opportunities Potential advantages of outsourcing Decrease internal bureaucracies Flatten organisation structure Provide firm with heightened strategic focus Increase competitive responsiveness Makes strategic sense when outsiders can perform certain activities At a lower cost and/or With higher value-added

Step 3: Deciding Which Activities Require Partners The advantages partnering may offer: Speed new technology/products to market Quicker delivery or lower inventories of parts Help provide better/faster technical assistance to customers via: Geographically wider distribution Economical custom manufacture More extensive after-sale support services Partnering makes strategic sense when result is to enhance organisational capabilities

Step 4: Making Strategy-Critical Activities the Main Building Blocks Assign managers of strategy-critical activities a visible, influential position Avoid fragmenting responsibility for strategy-critical activities across many departments Provide coordinating linkages between related work groups Meld into a valuable competitive capability Assign managers key roles Primary activities Strategic relation- ships Coordi- nation Valuable capability Support functions

Strategic Management Principle Matching structure to strategy requires making strategy-critical activities and organisational units the main building blocks in the organisation structure!

Guard Against Organisation Designs That Fragment Activities Parceling critical work across specialised departments contributes to many hand-offs which Lengthens completion time Increases overhead costs Obsession with activity rather than result Solution: Pull critical processes from functional silos and create process-complete departments However, some fragmentation is often advantageous for certain support activities

Examples of Strategy-Critical Activities That Are Often Fragmented Filling customer orders Customer service Obtaining feedback from customers New product development Improving product quality Managing relationships with key suppliers Building capability to conduct business via the Internet

Step 5: Determining How Much Authority to Delegate to Whom Centralised structure Top managers retain authority for most decisions Decentralided structure Managers and employees are empowered to make decisions Trend Shift from authoritarian to decentralised structures emphasising empowerment

Advantages of Decentralised Decision-Making and Empowerment Fewer management layers Less bureaucracy Shorter response times More creativity and new ideas Better motivation of employees Greater employee involvement Increased organisational capability

The Global Trend Toward Decentralisation & Empowerment Three beliefs are driving company preferences for flatter, more decentralised structures: 1. Traditional hierarchical structures based on functional specialisation don’t work well where there’s a big need for cross-functional competitive capabilities 2. Decisions are best made at the lowest organisational level capable of making competent, timely, informed decisions 3. Empowering employees to exercise judgment on job-related matters improves motivation and job performance

Step 6: Reporting Relationships and Cross-Unit Coordination Classic method of coordinating activities is to have related units report to single manager Managers higher up in the pecking order have the clout to coordinate and unify the efforts of the units under their supervision Support activities should be woven into the structure in whatever ways that: Maximize performance of primary activities Contain costs of support activities Formal reporting relationships often need to be supplemented

Step 7: Assign Responsibility for Collaboration With Outsiders Need multiple ties at multiple levels to ensure Communication Coordination and control Must find ways to produce collaborative efforts that enhance capabilities and resource strengths While forming alliances and collaborative partnerships presents opportunities, nothing valuable is realised until the relationship with outsiders grows and develops into an engine for better organisational performance

Why Structure Follows Strategy Changes in strategy typically require a new structure for implementation to be successful Research indicates Structure affects performance Structure merits reassessment whenever strategy changes New strategy involves different skills and key activities How work is structured is a means to an end - not an end in itself!

Strategy-Driven Approaches to Organisational Structure Functional and process specialisation Geographic organisation Decentralised business units Strategic business units Matrix structures

A Traditional Functional Organisational Structure General Manager Research & Development Manufacturing Human Resources Engineering Marketing Finance & Accounting

A Process-Oriented Functional Structure General Manager Foundry & Castings Screw Machining Inspection Customer Service Milling & Grinding Finishing & Heat Treating Loading & Shipping Billing & Accounting

Geographic Organisational Structure CEO Corporate Staff GM Europe Latin America North America Asia Pacific Central Asia & Africa Marketing & Distribution Production Engineering & Prod. Design District

A Decentralised Line-of-Business Organisation Structure CEO Corporate Services GM Business B Functional/Process Departments Business A Business C

An SBU Organisation Structure CEO Corporate Services Group VP SBU I Group VP SBU II Group VP SBU III Strategically Related Business Units Strategically Related Business Units Strategically Related Business Units

A Matrix Organisation Structure Head Manufacture R&D Venture Manager 1 Marketing Finance Manager 2 Manager 3 Manager 4 Specialists Production General Manager

Options for Supplementing the Basic Organisation Structure Cross-functional task forces Self-contained work teams Special project teams Venture team approach Process teams Contact managers Relationship managers

Perspectives on Organising All the basic organisation structures have strategic advantages and disadvantages There is no ideal organisation design To do a good job of matching structure to strategy Pick a basic design Modify as needed Supplement with coordinating mechanisms and communication arrangements

When Do Traditional Hierarchical Structures Make Strategic Sense? When activities can be divided into simple, repeatable tasks and efficiently performed in mass quantity There are important benefits to deep functional expertise Customer needs are standardised

Organisational Structures of the Future: Success Depends On . . . Quick response to shifting customer preferences Short design-to-market cycles First-time quality Custom order and multi-version production Expedited delivery and accurate order filling Personalised customer service Rapid assimilation of new technologies Creativity and innovativeness Speedy reaction to competitive developments

Organisational Structures of the Future: Meeting the New Requirements Decentralised structures with fewer managers Small-scale business units Reengineering to decrease fragmentation Development of stronger and newer capabilities Collaborative partnerships with outsiders Empowerment and self-directed work teams Lean staffing of corporate support functions Open communications via e-mail Electronic information systems Accountability for results