August 27, 2016

Building an Organization Capable of Good Strategy Execution - Summary

Crafting and Executing Strategy: Concepts and Readings
By Arthur Thompson and A. J. Strickland III and John Gamble
Copyright: 2016, Mcgraw Hill
Publication Date: January 19, 2015

Executing strategy is an operations-driven activity revolving around the management of people and business processes involving man-machine systems. The way for managers to start in implementing a new strategy is with a probing assessment of what the organization must do differently in the coming peridos to carry out the strategy successfully. This requires changes in the value chain that consists of number of activities. They should then determine how to make the necessary internal changes as rapidly as possible so that the strategy implementation process starts with focus on the new strategy.

All managers have strategy executing responsibility in their areas of authority, and all employees are active participants in the strategy execution process. Hence strategy needs to be communicated to all managers and their involvement in organization structure design has to be ensured.

The managerial tasks involved in the company's efforts to execute strategy: (1) Designing the new organization structure and staffing the organization well, (2) Acquiring the new resources required and  building the necessary organizational capabilities, (3) Finetuning a supportive organizational structure though feedback from all employees (4) allocating sufficient resources to each value chain activity, (5) instituting policies and procedures that support new strategy, (6) Implementing processes for continuous improvement of all value chain activities, (7) installing systems that enable effective and efficient company operations, (8) tying incentives to the achievement of desired targets, (9) Making efforts to bring into existence right corporate culture, and (10) exercising internal strategic leadership.

The two best signs of good strategy execution are whether a company is meeting or beating its performance targets and performing value chain activities in a manner that is conducive to companywide operating excellence. Shortfalls in performance signal weak strategy, weak execution, or both.

Building an organization capable of good strategy execution entails three types of organization-building actions:  (1) structuring the organization and work effort —instituting organizational arrangements that facilitate good strategy execution, deciding how much decision-making authority to delegate, and managing external relationships. (2) staffing the organization —assembling a talented management team, and recruiting and retaining employees with the needed experience, technical skills, and intellectual capital; and (3) building and strengthening core competencies and competitive capabilities —developing proficiencies in performing strategy-critical value chain activities and updating them to match changing market conditions and customer expectations;

Building new core competencies and competitive capabilities  can be approached in three ways: (1) developing capabilities internally, (2) acquiring capabilities through mergers and acquisitions, and (3) accessing capabilities via collaborative partnerships.

In building capabilities internally, the first step is to develop the ability to do something, through experimentation, active search for alternative solutions, and learning by trial and error. As experience grows and company personnel learn how to perform the activities consistently well and at an acceptable cost, the ability evolves into a tried-and-true capability. The process can be accelerated by making learning a more deliberate endeavor and providing the incentives that will motivate company personnel to achieve the desired ends. At the third level, the capability development concentrates of trying make it an above industry average capability in the industry so that it provides scope for above average profit earning.

As firms get better at executing their strategies, they develop capabilities in the domain of strategy execution. Superior strategy execution capabilities allow companies to get the most from their organizational resources and competitive capabilities. But excellence in strategy execution can also be a more direct source of competitive advantage, since more efficient and effective strategy execution can lower costs and permit firms to deliver more value to customers. Superior strategy execution capabilities are internal to a company and they are  hard to imitate and have no good substitutes. As such, they can be an important source of sustainable competitive advantage.

While strategy may be same, lasting competitive advantage can be gained through execution excellence.

Structuring the organization and organizing the work effort in a strategy supportive fashion has four aspects: (1) deciding which value chain activities to perform internally and which ones to outsource; (2) aligning the firm's organizational structure with its strategy; (3) deciding how much authority to centralize at the top and how much to delegate to down-the-line managers and employees; and (4) facilitating the necessary collaboration and coordination with external partners and strategic allies.

To align the firm's organizational structure with its strategy, it is important to make strategy-critical activities the main building blocks. There are four basic types of organizational structures: the simple structure, the functional structure, the multidivisional structure, and the matrix structure. Which is most appropriate depends on the firm's size, complexity, employee acceptance and strategy.

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