1-1 CHAPTER 6 Superior Strategy Execution—Another Path to Competitive Advantage McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

6-2 Developing a Sustainable Competitive Advantage  Building and sustaining competitive advantage requires: A solid fit between a company’s situation and its strategic approach Proficient strategy execution  Good strategy execution is ultimately determine by management’s ability to create and deploy essential human, information, and organizational capital

6-3 The Resources and Actions That Drive Strategy Execution  Staffing the organization with people having the right skills and expertise.  Installing information and operating systems that enable company personnel to perform essential activities.  Exerting the internal leadership needed to propel implementation forward.  Adopting an organizational structure that supports strategies intended to create customer value.

6-4 Actions That Drive Strategy Execution  Developing strategy-supportive policies and procedures.  Creating a company culture that support successful strategy execution  Pushing for continuous improvement in how activities are performed.  Allocating ample resources to strategy critical areas.  Tying rewards and incentives to performance objectives.

6-5 Internal Leadership  Managers at all levels of the organization must: Stay on top of what is happening Push the organization for good results and operating excellence Display ethical integrity and spearhead social responsibility initiatives

6-6 Aligning Organizational Structure with Strategy  A company’s key value adding activities and processes should be the building blocks of its organizational structure  Attempting to carry out a strategy with an ill-fitting organizational structure is unwise

6-7 Types of Organizational Structures  Departmental Structure—Organizes strategy critical activities into distinct functional, product, geographic, process, or customer groups  Divisional Structure—Organizes value chain activities involved in making a product or service available to consumers into a common division  Matrix Structure—Allow for dual reporting relationships between divisional heads and departmental heads

6-8 Authority in Decision Making  In a centralized structure Top managers retain authority for most decisions  In a decentralized structure Managers and employees are empowered to make decisions  Trend in most companies Shift from authoritarian to decentralized structures stressing empowerment

6-9 Characteristics of Centralized Decision Making  Top executives retain authority Keep a tight rein on lower-level managers  Minimal discretionary authority is granted to Frontline supervisors and rank-and-file employees  Key advantage – Tight control by top managers fixes accountability  Disadvantages Lengthens response time to changing conditions Decision making must be granted to managers at the scene in companies with widely scattered operations

6-10 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  Empowered employees are best able to satisfy customer expectations

6-11 Exercising Control Over the Actions of Empowered Employees  Placing limits on the authority of empowered employees  Holding employees accountable for results of decisions  Linking incentives with activities contributing to good performance  Creating a culture where there’s strong peer pressure to act responsibly

6-12 Allocating Resources to Strategy Critical Activities  Allocating resources in ways to support effective strategy execution involves Funding proposals that hold promise, while turning down those that don’t Providing the proper amount of funding to support new strategic initiatives New strategies call for the reallocation of resources

6-13 Instituting Strategy Supportive Policies and Procedures  Policies and procedures facilitate good strategy execution by: Providing top-down guidance regarding how things need to be done Enforcing consistency in how strategy-critical activities are to be performed Promote a work climate that facilitates good strategy execution

6-14 When Do Policies and Procedures Become “Excessive?”  Too much policy can be as stifling as Wrong policy or as Chaotic as no policy  Often, the best policy is empowering employees, letting them operate between the “white lines” anyway they think best

6-15 Corporate Culture  A company’s corporate culture includes its Core values, beliefs, and business principles Its style of operating Ingrained behaviors and attitudes  Corporate culture is the company’s organizational DNA

6-16 Corporate Culture  A corporate culture or work climate is the product of work practices and behaviors that define Define “How we do things here” Its approach to people management The chemistry of its work environment

6-17 Unhealthy Corporate Cultures  Highly politicized internal environment Issues resolved on basis of political clout  Hostility to change Avoid risks Experimentation and efforts to alter status quo discouraged

6-18 Unhealthy Corporate Cultures  Insular, inwardly focused “Not- invented-here” mindset Company personnel discount need to look outside for best practices  Disregard for high ethical standards and overzealous pursuit of wealth by key executives

6-19 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

6-20 High-Performance Cultures  Strong sense of involvement by all employees  Emphasis on individual initiative and creativity  Performance expectations are clearly stated  Issues are promptly addressed  Constructive pressure to achieve good results

6-21 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

6-22 Dominant Traits of Adaptive Cultures  Any changes in operating practices and behaviors Must not compromise core values and long-standing business principles Must be “legitimate” in the sense of serving the best interests of key stakeholders (customers, employees, shareholders, suppliers, communities)

6-23 Changing a Problem Culture

6-24 Substantive Culture Changing Actions  Replace key executives strongly associated with old culture  Promote individuals who have desired cultural traits and can serve as role models  Appoint outsiders who have desired cultural attributes to high-profile positions

6-25 Substantive Culture Changing Actions  Screen all candidates for new positions carefully, hiring only those who fit in with the new culture  Mandate all company personnel attend culture-training programs  Designing compensation systems that boost the pay of those who display desired behaviors  Revising policies and procedures in ways that drive cultural change

6-26 Symbolic Culture Changing Actions  Lead by example – Walk the talk  Ceremonial events to praise people and teams who “get with the program”  Visible awards to honor heroes

6-27 Striving for Continuous Improvement in Internal Processes  Searching out and adopting best practices is integral to effective implementation  Benchmarking is the backbone of the process of identifying, studying, and implementing best practices  Key tools to promote continuous improvement Six Sigma quality control Business process reengineering TQM

6-28 Using Rewards and Incentives  Reward systems should include both monetary rewards and non- monetary rewards Monetary   Base pay increases   Bonuses   Profit sharing plans   Stock options   Piecework incentivesNon-Monetary   Praise and recognition   Stimulating assignments   Autonomy   Rapid promotion

6-29 Guidelines for Designing Monetary Incentive Plans  Make contingent compensation a major, not minor, piece of total compensation  Incentive plan should extend to all employees  Administer system with scrupulous fairness  Link incentives to achieving only the performance targets in the strategic plan

6-30 Guidelines for Designing Monetary Incentive Plans  Targets a person are expected to achieve must involve outcomes that can be personally affected  Keep time between performance review and payment short  Make liberal use of non-monetary rewards  Avoid skirting the system to reward non-performers

6-31 Common Non-Monetary Rewards Used to Enhance Motivation  Provide attractive perks and fringe benefits  Rely on promotion from within when possible  Act on suggestions from employees  Create a work atmosphere where there is genuine sincerity, caring, and mutual respect among all employees  Share financial and strategic information with employees  Have attractive office spaces and facilities

6-32 Information Capital and Strategy Execution  Good information and operating systems are essential for first-rate strategy execution  Information systems are needed to track and report: Customer data Operations data Employee data Supplier data Financial data

6-33 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 allow management to quickly make changes if operations drift off course

6-34 Building Human Capital Needed to Execute the Strategy  Assembling a capable management team is a cornerstone of the organization-building task  Find people who can “make it happen” to fill each slot Existing management team may be suitable Core executive group may need strengthening Promote from within Bring in skilled outsiders

6-35 Recruiting and Retaining a Capable Workforce  The quality of a company’s people is an essential ingredient of successful strategy execution

6-36 Recruiting and Retaining a Capable Workforce  Tactics commonly used to staff an organization with the best people include Careful screening of applicants Investing in employee training Providing promising employees with skill-stretch assignments Rotating people through jobs in different functional areas or geographic regions Striving to retain high-performers via promotions and pay increases Coaching average performers to improve their abilities