Crafting Vs. Executing Strategy - Professor Ahmed's Blog
Screen graphics created by:Jana F. Kuzmicki, Ph.D.Troy UniversityCrafting vs. Executing StrategyCrafting the StrategyExecuting the Strategy Primarily a market-driven Primarily an operations-activity Successful strategy makingdepends on Business vision Perceptive analysis ofdriven activity Successful strategyexecution depends on Doing a good job ofmarket conditions andcompany capabilities Attracting and pleasingcustomers Outcompeting rivals Using companycapabilities to forge acompetitive advantageworking through others Good organizationbuilding Building competitivecapabilities Creating a strategysupportive culture Getting things done anddelivering good resultsImplementing a New StrategyRequires Adept Leadership Implementing a new strategytakes adept leadership toExecuting the Strategy An action-oriented, make-things happentask involving management’s ability to Direct organizational change Achieve continuous improvement in operationsand business processesImplementation Move toward operatinginvolves . . .excellence Create and nurture astrategy-supportive culture Consistently meet or beat performance targets Tougher and more time-consuming thancrafting strategyWhy Executing Strategy Isa Tough Management Job Overcoming resistance to change Wide array of demanding managerialactivities to be performed Convincingly communicatereasons for the new strategy Numerous ways to tackle each activity Overcome pockets of doubt Number of bedeviling issues to be worked out Secure commitment of concerned parties Build consensus and enthusiasm Get all implementation pieces in place andcoordinated Demands good people management skills Requires launching and managinga variety of initiatives simultaneously Hard to integrate efforts of many differentwork groups into a smoothly-functioning whole1
Goals of the StrategyImplementing-Executing Process Unite total organization behind strategy See that activities are done ina manner that is conducive tofirst-rate strategy execution Generate commitment so an enthusiasticcrusade emerges to carry out strategyCharacteristics of the StrategyImplementation Process Every manager has an active role No proven “formula” for implementingparticular types of strategies There are guidelines, but noabsolute rules and “must do itthis way” rules Many ways to proceed that arecapable of working Fit how organization conducts itsoperations to strategy requirementsCharacteristics of the StrategyImplementation Process (continued) Cuts across many aspects of “how tomanage”Figure 10.1: The Eight Components of Strategy Execution Each implementation situation occurs in adifferent context, affected by differing Business practices and competitive situations Work environments and cultures Policies Compensation incentives Mix of personalities and firm histories Approach to implementation/executionhas be customized to fit the situation People implement strategies - Notcompanies!Figure 10.2: The Three Components of Building anOrganization Capable of Proficient Strategy ExecutionPutting Together aStrong Management Team Assembling a capable management team isa cornerstone of the organization-buildingtask Find the right people to fill each slot Existing management teammay be suitable Core executive groupmay need strengthening Promote from within Bring in skilled outsiders2
Building Core Competenciesand Competitive CapabilitiesExample: Intel’s Core Competence Crafting the strategy involves Identifying the desired competencies andcapabilities to build into the strategy to helpachieve a competitive advantage Good strategy execution requiresDesign and mass productionof complex chipsfor personal computers Putting desired competencies andcapabilities in place, Upgrading them as needed, and Modifying them as marketconditions evolveExample: Procter & Gamble’sCore CompetenciesExample: Ciba SpecialtyChemicals Core CompetenceSuperb marketing-distribution skills and R&Dcapabilities in five core technologies - fats,oils, skin chemistry, surfactants, emulsifiersTechnology-based competencies allowing it toquickly manufacture products for customerswanting customized products relating to coloration,brightening and whitening, water treatment andpaper processing, freshness, and cleaningExample: Disney’s Core CompetenciesExample: Toyota’s Core CompetenceLegendary “production system” giving itTheme park operationFamily entertainmentthe capability to produce high-qualityvehicles at relatively low costs3
Three-Stage Process of DevelopingCompetencies and Capabilities1. First develop ability to do something2. Build experience and graduallytransform the ability into acore competence andproven capability3. Continue to refine and polish thecompetence/capability, striving to performthe activity better than rivals, therebyturning the core competence into adistinctive competence and providing apath to competitive advantage!Approaches to Developing Competencies Internal development involves either Strengthening the company’s base of skills,knowledge, and intellect or Coordinating and networking the effortsof various work groups and departments Partnering with key suppliers,forming strategic alliances,or maybe even outsourcingcertain activities to specialists Buying a company that has the requiredcapabilities and integrating thesecompetencies into the firm’s value chainStrategic Role of Employee Training Training plays a critical role inimplementation when a firm shifts to astrategy requiring different Skills or core competencies Competitive capabilities Managerial approaches Operating methods Types of training approaches Internal “universities” Orientation sessions for new employees Tuition reimbursement programs Online training coursesManaging the Process of BuildingCompetences: Four Key Traits1. Competencies are bundles of skills andknow-how growing from combined efforts ofcross-functional departments2. Normally, competencies emergeincrementally from various company effortsto deal effectively with market conditions3. Leveraging competencies into competitiveadvantage requires concentrating more effortand talent than rivals on strengtheningcompetencies to create valuable capabilities4. Sustaining competitive advantage requiresadjusting competencies to new conditionsUpdating Competencies andCapabilities as Conditions Change Competencies and capabilities mustcontinuously be modified and perhapseven replaced with new ones due to New strategic requirements Evolving market conditions Changing customer expectations Ongoing efforts to keep core competenciesup-to-date can provide a basis forsustaining both Effective strategy execution and Competitive advantageCompetitive Advantage Potentialof Competencies and CapabilitiesWhen it is difficult to outstrategize rivalswith a superior strategy . . . . . Best avenue to industryleadership is to out-competerivals withsuperior strategy execution!Building competencies and capabilitiesrivals can’t match is one of thebest ways to out-compete them!4
Figure 10.3: Structuring the Work Effort toPromote Successful Strategy Execution Involves deciding which activities areessential to strategic success Most strategies entail certain crucial businessprocesses or activities that must be performedexceedingly well or in closely coordinatedfashion if the strategy is to be executed with realproficiency These processes/activities usuallyneed to be performed internally Other activities, such as routineadministrative housekeeping andsome support functions, may becandidates for outsourcing Assign managers of strategy-critical In a centralized structureactivities a visible, influential position Top managers retain authorityfor most decisions Avoid fragmenting responsibility forstrategy-critical activities across manydepartments Provide coordinating linkagesbetween related work groups Meld into a valuablecompetitive capabilityCriticalactivities In a decentralized structure Managers and employees areempowered to make decisionsAssignmanagerskey rolesPrimaryactivitiesStrategicrelationships Trend in most ility Shift from authoritarian to decentralizedstructures stressing empowermentTable 10.1: Advantages and Disadvantages ofCentralized versus Decentralized Decision Making Classic method of coordinating activities– Have related units report to singlemanager Upper-level managers have cloutto coordinate efforts of their units Support activities should bewoven into structure to Maximize performance of primary activities Contain costs of support activities Formal reporting relationships often needto be supplemented to facilitatecoordination5
Characteristics ofOrganizations of the Future Need multiple ties at multiple levels to ensure Communication Coordination and control Find ways to produce collaborativeefforts to enhance firm’s capabilitiesand resource strengths While collaborative relationshipspresent opportunities, nothingvaluable is realized until therelationship develops into an enginefor better organizational performance Extensive use of Internet technologyand e-commerce business practices Fewer barriers betweenChange & Different vertical ranksLearning Functions and disciplines Units in different geographic locations Company and its suppliers, distributors,strategic allies, and customers Capacity for change and rapid learning Collaborative efforts among people in differentfunctions and geographic locations Assembling work teams including more membersdispersed over a wider geographic areaScreen graphics created by:Jana F. Kuzmicki, Ph.D.Troy University6
Figure 11.1: How Prescribed Policies andProcedures Facilitate Strategy ExecutionCharacteristics of Best Practices The best practice mustFigure 11.2: From Benchmarking and Best-PracticeImplementation to Operating Excellence To be valuable andhave a proven record in Significantly loweringcosts Improving quality orperformance Shortening timerequirements Enhancing safety ortransferable, a bestpractice must Demonstrate successover time Deliver quantifiable andhighly positive resultsand Be repeatable Delivering some otherhighly positiveoperating outcomeWhat Is Total Quality Management?Popular TQM Approaches A philosophy of managing a set ofbusiness practices that emphasizesDeming’s14 Points Continuous improvement in all phases ofoperations 100 percent accuracy in performing activities Involvement and empowermentof employees at all levelsThe JuranCrosby’s 14TrilogyQuality Steps Team-based work design Benchmarking and Total customer satisfactionBaldridgeAwardCriteria7
Implementing a Philosophyof Continuous Improvement Reform the corporate culture Instill enthusiasm to do thingsright throughout company Strive to achieve little steps forwardeach day (what the Japanese call kaizen) Ignite creativity in employees to improveperformance of value-chain activities Preach there is no such thing as goodenough Understand it is a race without a finishCharacteristics ofSix Sigma Quality Programs Six Sigma is based on three principles1. All work is a process2. All processes have variability3. All processes create data to explain variability DMAIC process is a good approach to improveperformance when wide variations in how well anactivity is performed exist Evidence exists that innovation can be stifled bySix Sigma programs Blended approach to Six Sigma implementationinvolves Pursuing incremental improvementsin operating efficiency and Giving freer rein to R & D and other processesfocusing on new ways to offer value to customersGuidelines for ImplementingSix Sigma Quality Programs Systematic application of Six Sigmamethods to a company’s value chainactivities Can significantly improve the proficiency ofstrategy implementation Key challenges in implementing Six Sigmaquality programs1. Obtain managerial commitment2. Establish a quality culture3. Full involvement of employeesSix Sigma Quality Control — A Toolfor Promoting Operating Excellence Six Sigma is a disciplined, statistics-basedsystem aimed at having not more than 3.4 defectsper million iterations for any business practice Two approaches to Six Sigma DMAIC process (Design, Measure,Analyze, Improve, Control) An improvement system for existingprocesses falling below specificationand needing incremental improvement A great tool for improving performancewhen there are wide variations in howwell an activity is performed DMADV process (Define, Measure, Analyze,Design, Verify) or DFSS (Design for Six Sigma) An improvement system used to develop newprocesses or products at Six Sigma quality levelsApproach of the DMAIC Process Define What constitutes a defect? Measure Collect data to find out why, how,and how often the defect occurs Analyze – Involves Statistical analysis of the metrics Identification of a “best practice” Improve Implementation of the documented “bestpractice” Control Employees are trained on the “best practice” Over time, significant improvement in qualityoccursBusiness Process Reengineeringvs. Total Quality Programs Reengineering Aims at quantum gains of30 to 50% or more Total quality programs Stress incremental progress Techniques are not mutually exclusive Reengineering – Used to produce a good basicdesign yielding dramatic improvements Total quality programs – Used to perfectprocess, gradually improving efficiency andeffectiveness8
Examples of Support Systems On-line reservation system Accurate and expeditious baggagehandling system Strict aircraft maintenance programExamples of Support SystemsExamples of Support Systems Sophisticated maintenance support system Internal communication systems allowing itto coordinate 70,000 vehicles handling anaverage of 5.5 million packages per day Leading-edge flight operations systemsallow a single controller to direct as manyas 200 of 650-plus aircraft simultaneously E-business tools for customers Systems have been developed forreal-time monitoring of new listings, biddingactivity, Web site traffic, and page viewsGaining Commitment: Componentsof an Effective Reward System9
Approaches: Motivating Peopleto Execute the Strategy WellExamples: Motivational Practices Provide attractive perks and fringe benefits Rely on promotion from within when possible Make sure ideas and suggestions ofemployees are valued and respected Create a work atmosphere where there is genuinesincerity and mutual respect among all employees State strategic vision in inspirational terms to makeemployees feel they are part of somethingworthwhile Share financial and strategicinformation with employees Have knockout facilities Be flexible in how company approaches peoplemanagement in multicultural environmentsExamples: Motivational PracticesExamples: Motivational PracticesExamples: Motivational PracticesBalancing Positive vs. Negative Rewards Elements of both are necessary Challenge and competition arenecessary for self-satisfaction Prevailing view Positive approaches work betterthan negative ones in terms of Enthusiasm Dedication Creativity Initiative10
Linking the Reward Systemto Performance Outcomes Tying rewards to the achievement ofstrategic and financial performance targetsis management’s single most powerful toolto win the commitment of companypersonnel to effective strategy execution Objectives in designing the reward system Generously reward thoseachieving objectives Deny rewards to those who don’t Make the desired strategic andfinancial outcomes the dominantbasis for designing incentives,evaluating efforts, and handing out rewardsKey Considerations inDesigning Reward SystemsCreate a results-oriented systemReward people for results, not for activityDefine jobs in terms of what to achieveIncorporate several performancemeasures Tie incentive compensation to relevantoutcomes Top executives – Incentives tied tooverall firm performance Department heads, teams, andindividuals – Incentives tied toachieving performance targetsin their areas of responsibilityGuidelines for Designing anEffective Compensation System1. Payoff must be a major, notminor, piece of totalcompensation package2. Incentive plan shouldextend to all employees3. Administer system withscrupulous fairness4. Link incentives to achievingonly the performancetargets in strategic plan5. Targets a person isexpected to achieve mustinvolve outcomes that canbe personally affected6. Keep time betweenperformance reviewand payment short7. Make liberal use ofnon-monetary rewards8. Avoid ways of rewardingnon-performersScreen graphics created by:Jana F. Kuzmicki, Ph.D.Troy University11
Defining Characteristicsof Corporate CultureFeatures of the CorporateCulture at Wal-Mart Core values, beliefs, and business principles Dedication to customer satisfaction Ethical standards Zealous pursuit of low costs Operating practices and behaviors defining“how we do things around here” Approach to people management “Chemistry” and “personality” permeatingwork environment Oft-told stories illustrating Company’s values Business practices TraditionsFeatures of the CorporateCulture at General Electric Hard-driving, results-orientedatmosphere prevails All businesses are held to a standardof being #1 or #2 in their industries aswell as achieving good business results Frugal operating practices Strong work ethic Ritualistic Saturday morning meetings Executive commitment to Visit stores Listen to customers Solicit employees’ suggestionsFeatures of the CorporateCulture at Nordstrom’s Deliver exceptional customer service tocustomers Company motto Extensive cross-business sharing of ideas,best practices, and learning Reliance on “workout sessions” to identify,debate, and resolve “burning issues” Commitment to Six Sigma Quality Globalization of the companyWhere Does CorporateCulture Come From? Founder or early leader Influential individual or work group Policies, vision, or strategies Operating approaches Company’s approach to peoplemanagement Traditions, supervisory practices,employee attitudes Organizational politics Relationships with stakeholders “Respond to UnreasonableCustomer Requests” Out-of-the-ordinary customer requestsviewed as opportunities for “heroic” actsRole of Stories at MicrosoftOft-told stories focus on . . . Long work hours of programmers Emotional peaks and valleys in encounteringand overcoming coding problems Exhilaration of completing a complexprogram on schedule Satisfaction of working oncutting-edge projects Rewards of being part of a team responsiblefor a popular new software program Tradition of competing aggressively12
How Is a Company’s Culture Perpetuated? Selecting new employees who will “fit” in Systematic indoctrination of new employees Senior management effortsto reinforce core values, beliefs,principles, key operating practices Story-telling of company legends Ceremonies honoring employeeswho display cultural ideals Visibly rewarding thosewho follow cultural normsTypes of Corporate CulturesForces Causing Culture to Evolve New challenges in marketplace Revolutionary technologies Shifting internal conditions Internal crisis Turnover of top executives A new CEO who opts to change things Diversification into new businesses Expansion into foreign countries Rapid growth that involves adding many newemployees Merger with or acquisition of another companyCharacteristics ofStrong Culture Companies Conduct business according to aStrong vs. Weak Culturesclear, widely-understood philosophy Considerable time spent by managementUnhealthy Culturescommunicating and reinforcing values Values are widely shared and deeply rootedHigh-Performance CulturesAdaptive CulturesCharacteristics of Weak Culture Companies Lack of a widely-shared core set of values Few behavioral normsevident in operating practices Few strong traditions No strong sense of
Crafting vs. Executing Strategy Crafting the Strategy Primarily an Primarily a market-driven activity Successful strategy making depends on Business vision Perceptive analysis of market conditions and company capabilities Attracting and pleasing customers Outcompeting rivals Using company
Good Strategy Good Strategy Execution Good Management 17 Illustration Capsules 1.1. Starbucks' Strategy in the Specialty Coffee Industry 8 1.2. Microsoft and Red Hat: Two Contrasting Business Models 16 2. Leading the Process of Crafting and Executing Strategy 22 What Does the Strategy-Making, Strategy-Executing Process Entail? 24
Phase 3: Formulating &Crafting a Strategy Phase 4: Implementing and Executing the Strategy Phase 5: Evaluating Performance and Initiating Corrective Adjustments Leading the Strategic Management Process Corporate Governance: The Role of the Board of Directors in the Strategy-Making, Strategy-Executing Process 4
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Crafting and Executing Strategy, 22e (Thompson) Chapter 1 What Is Strategy and Why Is It Important? 1) Managerial considerations in determining how to compete successfully do not normally include A) How can a company attract, keep, and please customers? B) How can a company modify its entire product line to emphasize its internal service .
phases of crafting and executing any organization’s strategy: developing a strong strategic vision; setting clear goals and objectives; crafting a strategy for achieving the objective; implementing and executing the chosen strategy efficiently and effectively; and evaluating perfo
Crafting versus Executing Strategy Crafting the Strategy Is a marketmarket-ddrriivveenn aactctiivivittyy Successful strategy making Successful strategy making depends on: Business vision Perceptive analysis of market conditions and the firm’s capabilities Shrewd market positioning Outcompeting rivals Creating and deploying
Crafting and Executing Strategy Johan Hough, Arthur A. Thompson Jr., A.J. Strickland III, John E. Gamble ISBN-13 9780077127541 ISBN-10 0077127544
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