August 22, 2016

Building Resource Strengths and Organizational Capabilities - Review Notes

Based on Thompson and Strickland's Book

Implementing and executing strategy involves technology organization, resource acquisition, people organization, staffing, management of people and business processes. The managerial emphasis is on converting strategic plans into actions and good results.

The starting point for managers to start in implementing and executing a new or different strategy is a list of activities which the organization has to do differently from now onwards to achieve the strategic goals in the time frame envisaged. Then, the necessary steps to make the internal changes have to be instituted as early as possible.

Top-level managers have to rely on the middle and lower managers to understand and develop their unit levels plans to support strategy and explain strategy changes and related business process changes to department members and see that the organization actually operates in accordance with the strategy at department levels. Every step in the organization has certain people questioning it and the middle and lower managers must have the understanding to explain and persuade people to follow strategy .

Thompson and Strickland described eight managerial tasks as cropping up repeatedly in company efforts to execute strategy:

1. Building an organization with the competencies, capabilities, and resource strengths to execute strategy successfully.
2. Marshaling people behind the drive for strategy execution.
3. Instituting policies and procedures that facilitate rather than impede strategy execution.
4. Adopting best practices and pushing for continuous improvement in both marketing and operations activities.
5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.
6. Tying rewards directly to the achievement of strategic and financial targets.
7. Shaping the work environment and corporate culture to fit the strategy.
8. Exercising management control to drive execution forward, keep improving on the details of execution, and achieve operating and marketing excellence as rapidly as feasible.

In the book three chapters are devoted strategy execution. One chapter (that is this chapter) deals with developing the organization. Developing the organization involves plan of organizations and acquiring the resources indicated in the plan. The second chapter is concerned with topics 2 to 6. The third chapter deals with topic 7 and 8 related to culture change and leadership.

Building a Capable Organization

Successful strategy execution depends on competent personnel, better than adequate customer satisfying and competitive capabilities, and effective internal organization that facilitates communication and control.

Building an organization capable of good strategy execution involves three dimensions:

 (1) Acquiring adequate Resources and Staff: Appropriate infrastructure, adequate equipment and a talented, can-do team with the needed experience, technical skills, and intellectual capital;
(2) Building core competencies and competitive capabilities
 (3)Structuring the organization and work effort - Organizing value chain activities  and business processes and developing communication and authority delegation lines that complete the tasks assigned to them after required operational planning with effectiveness and efficiency.

Staffing the Organization

Assembling a capable senior management team is a cornerstone of the organisation - building task. The personal chemistry among the members of the team needs to be right, and the competencies of the need to be appropriate for the chosen strategy. People of the senior management team have to be persons who can be counted on to get things done. Sometimes the existing management team is suitable; at other times it may requires changes.

Even at other levels, the organization must have a recruitment and selection procedure that gives best of the available persons to the organization. The organization must have training and development processes that convert the average performers into competent persons.

Building Core Competencies and Competitive Capabilities

Building core competencies and competitive capabilities is a time-consuming development activity that involves three stages:

(1) Developing the ability to do something as novice act as a team.

 (2) Learning from the initial performances, and developing methods to perform the activity consistently well at marketable and profitable costs, setting the stage to transform the ability into a tried-and-true business getting competence or capability; and

(3) Continuing to polish and refine the organization's know-how and otherwise sharpen performance such that it becomes better than competitors at performing the activity, and make efforts to raise it to the core competence level  (or capability) or to the rank of a distinctive competence (or competitively superior capability) thus opening an avenue to competitive advantage. Many companies manage to get through stages 1 and 2 but comparatively few achieve sufficient proficiency to qualify for the third stage. The idea of top three in any industry illustrates this idea of many not being able to develop that superiority in competitive scenario.

Four ideas regarding the process of developing core competencies or capabilities

1. Core competencies grow out of combined efforts of many in the department. Core capabilities grow out of the combined efforts of cross-functional work groups.
2. A core competence and capability emerges incrementally out of company efforts to strengthen skills that contributed to successful customer related outcomes.
3. Only by concentrating more effort and talent than rivals in deepening the knowledge and skills that a company develops core competence and capability.
4. Evolving changes in customer needs and competitor successes demand changes in competencies and the organization has to recognize the change in the environment and determine the new competencies required and start taking steps to put into motion  the three steps - Do as novice - Make it market acceptable - Develop it into competency and then into core competency.

Competitive Advantage

While competitors can readily duplicate some strategy features, core competencies and capabilities are very difficult or costly for imitations and they give durable competitive edge.  They become difficult to imitate when they are based on research and development inside an organization.

Developing Organization Structure Matched  to Strategy

Outsourcing of Value Chain Activities

Partnering for Value Chain Activities

Pure functional departments are impeding strategy execution.

Determining the Degree of Authority and Independence to Give Each Unit and Each Employee

Contingency theory of management is applicable here.

Providing for Internal Cross-Unit Coordination

Supply Chain Development based Partnership Model

Organizational Structures of the Future

Five new ideas are being emphasized in organization:

1. Empowered managers and workers.
2. Reengineering of work processes.
3.Self directed work teams
4. Rapid incorporation of internet.
5. Networking with outsiders to improve existing organization capabilities.

Presentation slides

Resources, Competencies and Capabilities

Competence is the quality or state of being functionally adequate or having sufficient knowledge, strength and skill. Competence is another word for an individual’s knowhow or skill. When we are asking whether we have the right competencies aren’t we really asking, “Who knows how?” and
“How well do they know?” Booz, Allen and Hamilton (one of the first management consulting
firms) used competence as an essential principle when they recognized that management and leadership are all about getting the right people in the right place at the right time.

Capability is a collaborative process that can be deployed and through which individual competences can be applied and exploited. The relevant question for capability is not “who knows how?” but “How can we get done what we need to get done?” and “How easily is it to access, deploy or
apply the competencies we need?”

 Capacity is really about “amount” or “volume.” of competencies or capabilities. The relevant question related to capacity is “Do we have enough?” and the related question, “How much is needed?”

Differentiating Competence, Capability and Capacity
by Lanny Vincent

Edith Penrose

The firm, she said, is “both an administrative organization and a collection of productive
resources, both human and material” (p. 320). The services rendered by these resources
are the primary inputs into a firm’s production processes and are firm specific in the sense that they are a function of the knowledge and experience that the firm has acquired over time. When services that are currently going unused are applied to new lines of business, these services also function
as a growth engine for the firm. Learning enables the organization to use its resources more efficiently. As a result, even firms that maintain a constant level of capital may nevertheless be able to grow as services are freed up for new uses as a result of organizational learning.

The dynamic capability perspective follows Hayek (1945) (and the behavioral and evolutionary
theorists) in emphasizing that coordination as an economic problem only occurs because of change. In a static environment a short period of “set up” would be required to organize economic activity; but absent change in consumer tastes or technology, economic agents (both traders and managers) would sort out the optimal flows of goods and services (together with methods of production). Thereafter, there would be no need for their services.

In an economic system, principals and/or their agents must design and implement processes to manage change, must direct the reinvestment of cash flow, and must configure asset portfolios, including allocating resources between exploitation and exploration (March, 1991, 1994). They
must also stand ready to reconfigure them as circumstances change. In a strict evolutionary
views of the world, there is no specific agent and no hierarchy responsible for regulating the evolutionary process (Cohendet, Llerena and Marengo 2000).

Strategic Management and Entrepreneur (and leader-)ship However, in a less evolutionary view of the world, there is room for a managerial and entrepreneurial function.

The manager/entrepreneur need not be an individual; in the modern corporation it is a function. As
Schumpeter (1949) noted: “The entrepreneurial function may be and often is filled cooperatively – in many cases, therefore, it is difficult or even impossible to name an individual that acts as “the entrepreneur.” (pp. 71-72).

The manager/entrepreneur must articulate goals, set culture, build trust, and play a critical role in the key strategic decisions. Clearly the role of the entrepreneur and the manager overlap to a considerable extent and in some contexts they refer to the same person.

The manager/entrepreneur plays a key role in achieving asset-resource selection and the “coordination” of economic activity, particularly when complementary assets/resources must be assembled. The manager/entrepreneur has to search for people willing to sell the required asset and has to bargain and negotiate and buy or sell or swap investments/assets, orchestrate internal
assets (intrapreneurship) and transact with the owners of external assets (entrepreneurship).
He needs to have strong skills in working out new “business models”, which define the architecture of new businesses.  The astute performance of this function will help achieve what Porter (1996)
calls “strategic fit”, not just with internally controlled assets, but with the assets of alliance
partners. The manager/entrepreneur also has to shape learning processes with the firm. These are not functions which can be achieved by markets divorced from managers/entrepreneurs.

Thus the entrepreneur/manager function in the dynamic capabilities framework is in part Schumpeterian (the entrepreneur introduces novelty and seeks new combinations) and in part evolutionary (the entrepreneur endeavors to promote and shape learning). Whether intrapreneur or entrepreneur, the function senses new opportunities and leads the organization forward to seize them.
The entrepreneur/ manager must therefore lead. These are roles not recognized by economic theory; Management theory develops them.  These roles are the essence of dynamic capabilities. They are also  part of the theory of strategic management.

Conceptual Framework for Modeling Business Capabilities

Updated 26 August 2016, 24 Mar 2014, 19 Dec 2011

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