CHAPTER 10

BUILDING AN ORGANIZATION CAPABLE

OF GOOD STRATEGY EXECUTION:
PEOPLE, CAPABILITIES, AND STRUCTURE

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THIS CHAPTER WILL HELP YOU UNDERSTAND:

LO 1 What managers must do to execute strategy successfully.
LO 2 Why hiring, training, and retaining the right people
constitute a key component of the strategy execution
process.
LO 3 That good strategy execution requires continuously
building and upgrading the organizations resources and
capabilities.
LO 4 What issues to consider in establishing a strategysupportive organizational structure and organizing the work
effort.
LO 5 The pros and cons of centralized and decentralized
decision making in implementing the chosen strategy.
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102

EXECUTING STRATEGY

Strategy Execution

Is operations-driven, involving management of both

people and business processes.

Is a job for the whole management team, not just a

few senior managers.

Can take years longer to develop as a real

proficiency than implementing strategy.

Requires a determined commitment to change,

action, and performance.

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103

A FRAMEWORK FOR EXECUTING STRATEGY

Committing to Executing a Strategy:

Entails figuring out the specific techniques, actions,

and behaviors necessary for a smooth strategysupportive operation.

Following through to get things done and deliver

results.

Making things happen (leadership) and making them

happen right (management).

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104

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

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105

FIGURE 10.1 The 10 Basic Tasks of the Strategy Execution Process

The Action Agenda

for Executing Strategy
Chapter 10
Chapter 11
Chapter 12

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106

THE PRINCIPAL COMPONENTS OF

THE STRATEGY EXECUTION PROCESS
1. Staff the organization with
managers and employees
capable of executing the
strategy well.
2. Develop the resources and
organizational capabilities
required for successful strategy
execution.
3. Create a strategy-supportive
organizational structure.
4. Allocate sufficient (budgetary
and otherwise) resources to
the strategy execution effort.
5. Institute policies and
procedures that facilitate
strategy execution.

6. Adopt best practices and business

processes that drive continuous
improvement in strategy execution
activities.
7. Install information and operating
systems that enable company
personnel to carry out their
strategic roles proficiently.
8. Tie rewards and incentives directly
to the achievement of strategic
and financial targets.
9. Instill a corporate culture that
promotes good strategy execution.
10. Exercise the internal leadership
needed to propel strategy
implementation forward.

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107

STRATEGIC MANAGEMENT PRINCIPLE

When strategies fail, it is often because of poor
execution. Strategy execution is therefore a
critical managerial endeavor.
The two best signs of good strategy execution
are whether a company is meeting or beating
its performance targets and whether they are
performing value chain activities in a manner
that is conducive to companywide operating
excellence.

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108

BUILDING AN ORGANIZATION CAPABLE

OF GOOD STRATEGY EXECUTION:
THREE KEY ACTIONS
1. Staffing: Assemble a strong management
team and a cadre of competent employees.
2. Developing: Renew, upgrade, and revise
resources and capabilities to match chosen
strategy.
3. Structuring: Create strategy-supportive
organization capable of good strategy
execution.

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109

FIGURE 10.2 Building an Organization Capable of Proficient Strategy

Execution: Three Types of Paramount Actions

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1010

STRATEGIC MANAGEMENT PRINCIPLE

Putting together a talented management team
with the right mix of experiences, skills, and
abilities to get things done is one of the first
steps to take in launching the strategyexecuting process.

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1011

STAFFING THE ORGANIZATION

Putting Together a Strong Management Team:

Planners who ask tough questions and figure out

what needs to be done.

Implementers who can select, manage, and lead the

right people.

Executors who turn decisions into actions that drive

the changes that produce sustainable competitive
advantage.

Key Takeaway:

A critical mass of talented activist managers

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1012

STRATEGIC MANAGEMENT PRINCIPLE

In many industries, adding to a companys
talent base and building intellectual capital are
more important to good strategy execution than
additional investments in capital projects.

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1013

RECRUITING, TRAINING, AND RETAINING

CAPABLE EMPLOYEES
1. Intensively screen and evaluate applicants to ensure selecting
those who are best-suited and best-fitted.
2. Provide training programs throughout employee careers.
3. Offer challenging, interesting, and skill-stretching assignments.
4. Rotating people through jobs that span functional and geographic
boundaries.
5. Make the work environment stimulating and engaging
so that the firm is considered a great place to work.
6. Encourage employees to propose creative ways of better
operating, and to push ideas for new products or businesses.
7. Use assorted financial incentives and perks to retain employees.
8. Coach average performers to improve their skills and capabilities,
while weeding out underperformers.
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1014

ILLUSTRATION
CAPSULE 10.1

Management Development at
Deloitte Touche Tohmatsu Limited

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1015

ILLUSTRATION
CAPSULE 10.1

Management Development at
Deloitte Touche Tohmatsu Limited

Learning and
development
programs that
contribute
to Deloittes
successful
execution
of its talent
strategy

Clear path to partnership

Formal training programs

Special programs
for high performers

Sponsorship, not mentorship

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1016

STRATEGIC MANAGEMENT PRINCIPLE

The best companies make a point of recruiting
and retaining talented employeesthe
objective is to make the firms entire workforce
(managers and rank-and-file employees) a
genuine competitive asset.

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1017

DEVELOPING AND BUILDING CRITICAL

RESOURCES AND CAPABILITIES

Approaches to Build Building

and Strengthening Capabilities

Develop
capabilities
internally

Acquire
capabilities
through mergers
and acquisitions

Access
capabilities via
collaborative
partnerships

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1018

STRATEGIC MANAGEMENT PRINCIPLE

Building new competencies and capabilities is
a multistage process that occurs over a period
of months and years. It is not something that is
accomplished overnight.

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1019

DEVELOPING CAPABILITIES INTERNALLY

Managerial Actions to Develop

Competencies and Capabilities

Strengthen the
firms base of skills,
knowledge, and
intellect

Coordinate and
integrate the efforts
of work groups and
departments

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1020

STRATEGIC MANAGEMENT PRINCIPLE

A companys capabilities must be continually
refreshed and renewed to remain aligned with
changing customer expectations, altered
competitive conditions, and new strategic
initiatives.

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1021

SETTING STRETCH GOALS:

FROM CAPABILITY TO COMPETENCE
Thinking
strategically
about a firms
knowledge and
skills base

Setting a stretch
goal of
developing an
organizational
ability to do
something well

Thinking
strategically
about a firms
opportunities
and challenges

Evolving the ability

into a competence
or capability by
performing it well
and at an
acceptable cost

Refreshing, updating, and

upgrading competencies and
capabilities as necessary
to gain and maintain
competitive advantage

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1022

ACQUIRING CAPABILITIES THROUGH

MERGERS AND ACQUISITIONS
A Question of
Market Opportunity

When a market opportunity can slip by

faster than a needed capability can be
created internally.

A Question of
Competitive Necessity

When industry conditions, technology,

or competitors are moving at such a
rapid clip that time is of the essence.

A Question of
Successful Integration

Tacit knowledge and complex routines

may not transfer readily from one
organizational unit to another.

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1023

ACCESSING CAPABILITIES THROUGH

COLLABORATIVE PARTNERSHIPS

Approaches to acquiring
capabilities from an external source

Outsource the
function requiring
the capabilities to
a key supplier or
another provider

Collaborate with
a firm that has
complementary
resources and
capabilities

Engage in a
collaborative
partnership for the
purpose of learning
how the partner
does things

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1024

THE STRATEGIC ROLE OF EMPLOYEE TRAINING

Training Is Important In:

Executing a strategy that requires different skills,

competitive capabilities, and operating methods.

Organizational efforts to build skills-based

competencies.

Supplying technical know-how to employees when

rapidly changing technology puts a firm
in danger of losing its ability to compete.

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1025

STRATEGY EXECUTION CAPABILITIES

AND COMPETITIVE ADVANTAGE

Superior Strategy Execution Capabilities:

Are difficult to imitate and socially complex process

that take a long time to develop.

Maximize organizational resources and competitive

capabilities in support of the business model.

Lower costs and permit firms to deliver more value to

customers.

Enable a firm to react more quickly to market

changes, beat competitors to market with new
products and services, and gain uncontested
market dominance.

(c) 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
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1026

ILLUSTRATION
CAPSULE 10.2

Zaras Strategy Execution

Capabilities: Fast Fashion Retailer

Strategy focused on rapid value chain

execution:

Quick and flexible design-to-production process

Close proximity to manufacturing factories
Lower percentage of commitment to fashion lines
than competitors to keep in-store items fresh
Small lot-size orders reduce retail discounting,
encourage impulse-buying and frequent of
shopping
Placement of goods in proximity to high-fashion
stores as substitute for advertising

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1027

STRATEGIC MANAGEMENT PRINCIPLE

Superior strategy execution capabilities are the
only source of sustainable competitive
advantage when strategies are easy for rivals
to copy.

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1028

MATCHING ORGANIZATIONAL STRUCTURE

TO THE STRATEGY

Ensuring that Structure Follows Strategy By:

Deciding which value chain activities to perform

internally and which to outsource.

Aligning the firms organizational structure with its

strategy.

Determining how much authority to delegate.

Facilitating collaboration with external partners and

strategic allies.

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1029

STRATEGIC MANAGEMENT PRINCIPLE

A companys organizational structure should be
matched to the particular requirements of
implementing the firms strategy.

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1030

FIGURE 10.3

Structuring the Work Effort to Promote

Successful Strategy Execution

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1031

DECIDING WHICH VALUE CHAIN ACTIVITIES

TO PERFORM INTERNALLY AND WHICH TO
OUTSOURCE

Outsourcings Execution-Related Benefits:

Helps in outperforming rivals in strategy-critical

activities and in turning a competence into a
distinctive competence.

Decreases bureaucracies, flattens structure, speeds

decision making, and shortens respond time to
changing market conditions.

Adds to a firms capabilities and contributes to better

strategy execution through partnerships with
suppliers and channel partners.

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1032

STRATEGIC MANAGEMENT PRINCIPLE

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 organizational capabilities.

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1033

ILLUSTRATION
CAPSULE 10.3

Which Value Chain Activities Does

Apple Outsource and Why?

How important is outsourcing to Apples

marketplace success?
Is outsourcing to low-wage overseas
manufacturers to avoid paying higher
wages in markets where it sells the majority
of its products a failure of corporate social
responsibility by Apple?

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1034

ALIGNING THE FIRMS ORGANIZATIONAL

STRUCTURE WITH ITS STRATEGY

Organizational Structure

Comprises the formal and informal arrangement

of tasks, responsibilities, lines of authority, and
reporting relationships for the firm.

Structure Is Aligned with Strategy When:

Its design contributes to the creation of value for

customers.

Its parts are aligned with one another and also

matched to the requirements of the strategy.

It lowers operating costs through lower bureaucratic

costs and operational efficiencies.

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1035

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.

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1036

MATCHING TYPE OF ORGANIZATIONAL

STRUCTURE TO STRATEGY EXECUTION
REQUIREMENTS
Simple Structure
(Line-and-Staff)

Functional Structure
(Departmental or Unitary)

Multidivisional Structure
(Divisional or M-form)

Matrix Structure
(Composite or Combination)

Strategy
Execution
Requirements:
Chosen
Strategy
Capabilities
and
Competencies
Centralized
or
Decentralized
Control

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1037

CORE CONCEPTS
A simple structure (line-and-staff
structure) consists of a central
executive (often the owner-manager) who
handles all major decisions and oversees
all operations with the help of a small
staff.
A functional structure is organized into
functional departments, with
departmental managers who report to
the CEO and
small corporate staff.
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1038

CORE CONCEPTS
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.
A matrix structure combines two or
more organizational forms, with multiple
reporting relationships. It is used to foster
cross-unit collaboration.
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1039

DETERMINING HOW MUCH AUTHORITY

TO DELEGATE

Centralized
Decision
Making

Authority is retained
by top management

Organizational
Approaches
to DecisionMaking

Decentralized
Decision
Making

Authority delegated to
lower-level managers
and employees

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1040

TABLE 10.1

Advantages and Disadvantages of Centralized

versus Decentralized Decision Making

Centralized
Organizational Structures
Basic Tenets

Decentralized
Organizational Structures
Basic Tenets

Decisions on most matters of

Decision-making authority should be
importance should be in the hands
put in the hands of the people closest
of top-level managers who have the
to, and most familiar with, the situation
experience, expertise, and judgment Those with decision-making authority
to decide what is the best course of
should be trained to exercise good
action
judgment
Lower-level personnel have neither A firm that draws on the combined
the knowledge, the time, nor the
intellectual capital of all its employees
inclination to properly manage the
can outperform a command-andtasks they are performing
control firm
Strong control from the top is a
more effective means for
coordinating the firms actions

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1041

TABLE 10.1

Advantages and Disadvantages of Centralized

versus Decentralized Decision Making (contd)

Centralized
Organizational Structures

Decentralized
Organizational Structures

Chief Advantages

Chief Advantages

Fixes accountability through

tight control from the top
Eliminates potential for conflicting
goals and actions on the part of
lower-level managers
Facilitates quick decision making
and strong leadership under crisis
situations

Encourages employees to exercise

initiative and act responsibly
Promotes greater motivation and
involvement in the business on the part
of more company personnel
Spurs new ideas and creative thinking
Allows fast response to market change
Entails fewer layers of management

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1042

TABLE 10.1

Advantages and Disadvantages of Centralized

versus Decentralized Decision Making (contd)

Centralized
Organizational Structures
Primary Disadvantages

Decentralized
Organizational Structures
Primary Disadvantages

Lengthens response times by

Higher-level managers may be
those closest to the market conditions
unaware of actions taken by
because they must seek approval for
empowered personnel under their
their actions
supervision
Does not encourage responsibility
Puts the organization at risk if
among lower-level managers and
empowered employees happen
rank-and-file employees
to make bad decisions
Discourages lower-level managers
Can impair cross-unit collaboration
and rank-and-file employees from
exercising any initiative

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1043

STRATEGIC MANAGEMENT PRINCIPLE

The ultimate goal of decentralized decision
making is to put authority in the hands of those
persons closest to and most knowledgeable
about the situation.

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1044

CAPTURING CROSS-BUSINESS STRATEGIC FIT

IN A DECENTRALIZED STRUCTURE

Capturing
Cross-Business
Strategic Fit

Enforcing close crossbusiness collaboration to

avoid duplication of effort

Centralizing related functions

requiring close coordination
at the corporate level

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1045

STRATEGIC MANAGEMENT PRINCIPLE

Efforts to decentralize decision making and
give company personnel some leeway in
conducting operations must be tempered with
the need to maintain adequate control and
cross-unit coordination.

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1046

FACILITATING COLLABORATION WITH

EXTERNAL PARTNERS AND STRATEGIC ALLIES
Creating a
Network
Structure:
Using
relationship
managers
to build and
maintain
cooperative
arrangements
of value both
parties

Strategic alliances

Outsourcing arrangements

Joint ventures

Cooperative partnerships

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1047

CORE CONCEPT
A network structure is the
arrangement linking a number of
independent organizations involved in
some common undertaking.

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1048

FURTHER PERSPECTIVES ON
STRUCTURING THE WORK EFFORT

Matching Structure to Strategy

Pick a basic
organizational
design that
matches
structure to
strategy

Supplement
design with
appropriate
coordinating
mechanisms

Institute
collaborative
networking and
communication
arrangements

(c) 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
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1049