chapter
10
SUPERIOR STRATEGY
EXECUTION—ANOTHER
PATH TO COMPETITIVE
ADVANTAGE
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
LO1 Gain command of what managers must do to
build an organization capable of good strategy
execution.
LO2 Learn why resource allocation should always
be based on strategic priorities.
LO3 Understand why policies and procedures
should be designed to facilitate good strategy
execution.
LO4 Understand how process management
programs that drive continuous improvement
help an organization achieve operating
excellence.
10-2
(cont’d)
LO5 Recognize the role of information and operating
systems in enabling company personnel to
carry out their strategic roles proficiently.
LO6 Learn how and why the use of well-designed
incentives and rewards can be management’s
single most powerful tool for promoting
operating excellence.
LO7 Gain an understanding of how and why a
company’s culture can aid the drive for
proficient strategy execution.
LO8 Understand what constitutes effective
managerial leadership in achieving superior
strategy execution.
10-3
Crafting versus Executing Strategy
Crafting the Strategy
Executing the Strategy
 Primarily a market-
 Primarily an operations-
driven activity
 Successful strategy
making depends on
driven activity
 Successful strategy
execution depends on
management’s ability to
 Attracting
and pleasing
customers
 Outcompeting rivals
 A firm’s collection of
resources and capabilities
 Direct
change
 Improve operations
 Build a strategy-supportive
culture
 Get things done and deliver
good results
10-4
 Core Concept 
Good strategy execution requires a
team effort. All managers have strategy
executing responsibility in their areas of
authority, and all employees are active
participants in the strategy execution
process.
10-5
Who Is Responsible for Implementation
of the Chosen Strategy?

The organization’s chief executive officer and other
senior managers are responsible for ensuring that
the strategy is executed successfully.

It is middle and lower-level managers who must see
that employees and work groups perform the
strategy-critical activities that result in achievement
of the firm’s performance targets.

All managers are involved and thinking:
 “What does my area have to do to implement its part of the
strategic plan, and what should I do to get these things
accomplished effectively and efficiently?”
10-6
Principal Managerial Components
of the Strategy Execution Process
1. Building an organization with the capabilities,
people, and structure needed to execute the
strategy successfully.
2. Allocating ample resources to strategy-critical
activities.
3. Ensuring that policies and procedures facilitate
rather than impede effective strategy execution.
4. Adopting process management programs that
drive continuous improvement in how strategy
execution activities are performed.
10-7
Principal Managerial Components of
the Strategy Execution Process (cont’d)
5. Installing information and operating systems that
enable company personnel to perform essential
activities.
6. Tying rewards directly to the achievement of
performance objectives.
7. Fostering a corporate culture that promotes good
strategy execution.
8. Exerting the internal leadership needed to propel
implementation forward.
10-8
FIGURE 10.1
The Eight Components
of Strategy Execution
10-9
Building an Organization with the
Capabilities, People, and Structure
Needed for Good Strategy Execution
Organizationbuilding actions
Staffing the
organization’s
managerial talent
Building and
strengthening
capabilities and
core competencies
Structuring the
organization and
work effort
10-10
Staffing the Organization—
Building Managerial Talent
 Assembling
a critical mass of talented
managers is a cornerstone organizationbuilding task:
 Putting people with strong strategy implementation
skills and a results orientation in key managerial posts
 Replacing weak executives, strengthening the skills
of those who remain, and bringing in fresh outsiders
10-11
Recruiting and Retaining
a Capable Workforce
 The
quality of a firm’s people is an essential
ingredient of successful strategy execution.
 Staffing the right people at all levels is required to
ensure competent performance of value chain
activities.
 Find, develop, and then retain engaged employees
with excellent compensation packages, opportunities
for rapid advancement and professional growth, and
challenging and interesting assignments.
10-12
Tactics for Recruiting and Retaining
a High-Performance Workforce






Put extra effort into screening and evaluating job applicants—
selecting for skill sets, energy, initiative, judgment, aptitudes
for learning, and adaptability to the firm’s culture.
Invest in training programs that continue throughout
employees’ careers.
Provide promising employees with challenging, interesting,
and skill-stretching assignments.
Rotate people through jobs that span functional and
geographic boundaries.
Retain high-performing employees via promotions, salary
increases, performance bonuses, stock options and equity
ownership, fringe benefit packages, and other perks.
Coach average performers to improve their skills and
capabilities, weeding out underperformers and benchwarmers.
10-13
Building and Strengthening
Core Competencies and
Competitive Capabilities
A
firm’s core competencies and capabilities
must continuously be deepened, broadened,
upgraded, and replaced due to:
 The need for better strategy execution
 Changing or new strategic requirements
 Evolving market conditions and customer
expectations
 Organization
building requires deciding
when and how to recalibrate competencies
and capabilities.
10-14
Concepts and Connections 10.1
Toyota’s Legendary Production System—A Capability
That Translates into Competitive Advantage
The heart of Toyota’s strategy in motor vehicles is to
outcompete rivals by manufacturing world-class, quality
vehicles at lower costs and selling them at competitive price
levels. Executing this strategy requires top-notch
manufacturing capability and super-efficient management of
people, equipment, and materials. Toyota began conscious
efforts to improve its manufacturing competence more than
50 years ago. Through tireless trial and error, the company
gradually took what started as a loose collection of
techniques and practices and integrated them into a fullfledged process that has come to be known as the Toyota
Production System (TPS). The TPS drives all plant
operations and the company’s supply chain management
practices. TPS is grounded in the following principles,
practices, and techniques:
• Use just-in-time delivery of parts and components to the
point of vehicle assembly.
• Develop people who can come up with unique ideas for
production improvements.
• Emphasize continuous improvement.
• Empower workers to stop the assembly line when there’s
a problem or a defect is spotted.
• Deal with defects only when they occur.
• Ask yourself “Why?” five times.
• Organize all jobs around human motion to create a
production/assembly system with no wasted effort.
• Find where a part is made cheaply and use that price as a
benchmark.
The TPS utilizes a unique vocabulary of terms (such as
kanban, takt-time, jikoda, kaizen, heijunka, monozukuri, poka
yoke, and muda ) that facilitates precise discussion of
specific TPS elements. In 2003, Toyota established a Global
Production Center to efficiently train large numbers of shopfloor experts in the latest TPS methods and better operate an
increasing number of production sites worldwide. Since then,
additional upgrades and refinements have been introduced,
some in response to the large number of defects in Toyota
vehicles that surfaced in 2009–2010.
There is widespread agreement that Toyota’s ongoing effort
to refine and improve on its renowned TPS gives it important
manufacturing capabilities that are the envy of other motor
vehicle manufacturers. Not only have such auto manufacturers as Ford, Daimler, Volkswagen, and General Motors
attempted to emulate key elements of TPS, but elements of
Toyota’s production philosophy have been adopted by
hospitals and postal services.
Sources: Information posted at www.toyotageorgetown.com;
Hirotaka Takeuchi, Emi Osono, and Norihiko Shimizu, “The
Contradictions that Drive Toyota’s Success,” Harvard
Business Review 86, no. 6 (June 2008), pp. 96–104; and
Taiichi Ohno, Toyota Production System: Beyond LargeScale Production (New York:Sheridan Books, 1988).
10-15
Concepts and Connections 10.2
What Companies Do to Motivate and Reward Employees
Companies have come up with an impressive variety of
motivational and reward practices to help create a work
environment that energizes employees and promotes better
strategy execution. Here’s a sampling of what firms are doing:
• Google has a sprawling 20-building headquarters complex
known as the Googleplex where its several thousand
employees have access to 19 cafes and 60 snack centers,
unlimited ice cream, four gyms, heated swimming pools, pingpong and pool tables, and community bicycles to go from
building to building. Management built the Googleplex to be
“a dream workplace” and a showcase for environmentally
correct building design and construction.
•
Lincoln Electric, widely known for its piecework pay scheme
and incentive bonus plan, rewards individual productivity by
paying workers for each non-defective piece produced.
Workers have to correct quality problems on their own time;
defects in products used by customers can be traced back to
the worker who caused them. Lincoln’s piecework plan
motivates workers to pay attention to both quality and volume
produced. In addition, the company sets aside a substantial
portion of its profits above a specified base for worker
bonuses. To determine bonus size, Lincoln Electric rates
each worker on four equally important performance
measures: (1) dependability, (2) quality, (3) output, and (4)
ideas and cooperation. The higher a worker’s merit rating, the
higher the incentive bonus earned; the highest rated workers
in good profit years receive bonuses of as much as 110
percent of their piecework compensation.
• Nordstrom, widely regarded for its superior in-house
customer service experience, typically pays its retail
salespeople an hourly wage higher than the prevailing rates
paid by other department store chains plus a commission
on each sale. Spurred by a culture that encourages
salespeople to go all out to satisfy customers and to seek
out and promote new fashion ideas, Nordstrom salespeople
often earn twice the average incomes of sales employees at
competing stores. The typical Nordstrom salesperson earns
nearly $38,000 per year, and sales department managers
earn, on average, $49,500 per year. Nordstrom’s rules for
employees are simple: “Rule #1: Use your good judgment in
all situations. There will be no additional rules.”
• At W. L. Gore (the maker of Gore-Tex), employees get to
choose what project/team they work on and each team
member’s compensation is based on other team members’
rankings of his or her contribution to the enterprise.
• At biotech leader Amgen, employees get 16 paid holidays,
generous vacation time, tuition reimbursements up to
$10,000, on-site massages, discounted car-wash services,
and the convenience of shopping at on-site farmers’
markets.
Sources: Fortune’s lists of the 100 best companies to work for
in America, 2002, 2004, 2005, 2008, 2009, and 2010; Jefferson
Graham, “The Search Engine That Could,” USA Today, August
26, 2003, p. B3; and company websites, accessed June 2010.
10-16
Matching Organizational Structure
to the Strategy
 Key
value chain activities within a firm’s
organizational structure are critical to its
proficient strategic performance.
A
new or changed strategy will require a new
or different structure and entail new or
different key activities or capabilities.
 Attempting
to carry out a strategy with an illfitting organizational structure is unwise.
10-17
Types of Organizational Structures
 Functional
(or Departmental) Structure
 Organizes strategy-critical activities into functional,
product, geographic, process, or customer groups
 Multidivisional
(or Divisional) Structure
 Organizes value chain activities involved in making a
product or service available to consumers into a
common (self-contained) division
 Matrix
Structure
 Allows for dual reporting relationships between
divisional heads and departmental heads
10-18
Organizational Structure and
Authority in Decision Making
 In
a centralized structure:
 Top managers retain authority for most decisions.
 In
a decentralized structure:
 Decision-making authority is pushed down to the
lowest organizational level capable of making timely,
informed, competent decisions.
 The
trend in most companies
 A shift from authoritarian to decentralized structures
stressing empowerment
10-19
Characteristics of
Centralized Decision Making

Retention of authority by top executives
 Command and control paradigm reins in lower-level managers

Minimal discretionary authority
 Frontline supervisors and rank-and-file employees must seek
prior approval by their superiors for their actions

Key advantage
 Tight control by top managers fixes accountability

Disadvantages
 Bureaucracy slows response to changing conditions
 Widely scattered operations require that decision-making
authority be granted to on-site managers
10-20
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
 Helps by empowering employees to meet
and satisfy customer expectations
10-21
Exercising Control Over the Actions
of Empowered Employees

Place limits on the authority that empowered
personnel can exercise

Hold employees accountable for their decisions

Institute compensation incentives that reward
people for doing their jobs in a manner that
contributes to good company performance

Create a corporate culture where there is strong
peer pressure for employees to act responsibly
10-22
Allocating Resources to
Strategy-Critical Activities

Reasons for the allocation process include:
 To determine what funding is needed to execute new strategic
initiatives
 To bolster value-creating processes
 To strengthen firm’s capabilities and competencies

Allocating resources to support strategy execution
involves:
 Funding promising proposals; turning down those that are not
 Providing the proper amount of funding to support new strategic
initiatives
 Reallocation of resources to support new strategies
10-23
Instituting Strategy-Supportive
Policies and Procedures
 Strategy
execution is facilitated by policies
and procedures that:
 Help enforce the necessary consistency in how
particular strategy-critical activities are performed.
 Provide top-down guidance regarding how certain
things need to be done.
 Promote a work climate that facilitates good strategy
execution.
10-24
When Do Policies and Procedures
Become “Excessive”?
 Too
much policy:
 Can be confusing and erect obstacles to good
strategy implementation.
 Is inappropriate when individual creativity and
initiative are more essential to good strategy
execution than standardization and strict conformity.
 There
is wisdom in a middle approach:
 Prescribe enough policies to place boundaries on
employees’ actions; then empower them to act within
these boundaries in ways they think makes sense.
10-25
Striving for Continuous Improvement
in Processes and Activities
 Benchmarking
 Is the backbone of the process of identifying, studying,
and implementing best practices
 Involves searching out and adopting best practices
integral to effective strategy implementation
 Key
tools for continuous improvement:
 Business process reengineering
 TQM
 Six Sigma quality control
10-26
Management Tools for
Continuous Improvement
 Business
process reengineering
 Involves pulling the pieces of strategy-critical activities
out of different departments and unifying their
performance in a single department or crossfunctional work group.
 Total
quality management (TQM)
 Emphasizes continuous improvement in all phases of
operations, 100% accuracy in performing tasks,
involvement and empowerment of employees at all
levels and departments, team-based work design,
benchmarking, and total customer satisfaction.
10-27
Management Tools for
Continuous Improvement (cont’d)
 Six
Sigma
 Is a statistics-based quality control system aimed at
producing not more than 3.4 defects per million
iterations for any business process—from
manufacturing to customer transactions.
 Seeks to define, measure, analyze, improve, and
control variability in the organization’s processes.
 Improves the efficiency of operating activities and
processes, but its rigidity can also stifle innovation.
10-28
The Difference Between
Business Process Reengineering and
Continuous Improvement Programs
 The
essential difference between business
process reengineering and continuous
improvement programs is that reengineering
aims at quantum gains of 30 to 50% or more
whereas total quality programs stress
incremental progress—a never-ending
striving for inch-by-inch quality gains.
Business Process Reengineering
TQM
10-29
Installing Information and
Operating Systems
 Strategies
and value-creating internal
processes cannot be executed well without
a number of internal operating systems.
 Information systems are needed to track
and report:
 Customer data
 Operations data
 Employee data
 Supplier data
 Financial data
10-30
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 permit
managers to quickly intervene if initiatives
and operations drift off course.
10-31
Using Rewards and Incentives to
Promote Better Strategy Execution
 Reward
systems include both monetary
rewards and non-monetary rewards:
Monetary





Base pay increases
Bonuses
Profit sharing plans
Stock options
Piecework incentives
Nonmonetary
 Praise and recognition
 Stimulating
assignments
 Autonomy
 Rapid promotion
10-32
Guidelines for Designing
Monetary Incentive Plans
Tie incentives to strategy
execution and financial
performance
Make performance payoff
a major piece of the total
compensation package
Have incentives that
extend to all managers
and all workers
Administer the reward
system with scrupulous
objectivity and fairness
Compensation
Incentives
Set performance targets
that individuals or teams
can personally affect
Keep time between
achievement and reward
as short as possible
10-33
Common Nonmonetary Rewards
Used to Enhance Motivation

Provide attractive perks and fringe benefits

Adopt promotion from within policies

Act on suggestions from employees

Create a work atmosphere where there is genuine
sincerity, caring, and mutual respect among all
employees

Share information with employees about financial
performance, strategy, operational measures,
market conditions, and competitors’ actions

Have attractive office spaces and facilities
10-34
Instilling a Corporate Culture that
Promotes Good Strategy Execution
A
corporate culture or work climate
is the long-term product of work practices
and behaviors that define its:
 Shared core values, beliefs, and business principles
that are ingrained in employee behaviors and attitudes
 Operating style—the human chemistry of the firm’s
work environment (“how we do things around here”)
 Organizational DNA—its approach to people
management
10-35
 Core Concept 
Corporate culture is a firm’s internal work
climate and is shaped by its core values, beliefs,
and business principles. A firm’s culture is
important because it influences its traditions,
work practices, and style of operating.
10-36
Characteristics of
Unhealthy Corporate Cultures

Highly politicized internal environment
 Issues are resolved on the basis of political clout

Hostility to change
 Avoid risks; experimentation and efforts to alter
status quo are discouraged

Insular, inwardly focused “Not-invented-here”
mind-set
 Company personnel discount the need
to look outside for best practices

Disregard for high ethical standards and
overzealous pursuit of wealth by key executives
10-37
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
10-38
Characteristics of
High-Performance Cultures
A
strong sense of involvement by all
employees
 An emphasis on individual initiative and
creativity
 Clear statement of performance
expectations
 Prompt addressing of critical issues
 Constructive pressure to achieve good
results
10-39
Adaptive Cultures
 Adaptive
cultures are well-suited to fastchanging 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
10-40
Dominant Traits of Adaptive Cultures
 Any
changes in operating practices and
behaviors
 Do not compromise core values and long-standing
business principles
 Are “legitimate” in the sense of serving the best
interests of key stakeholders (customers, employees,
shareholders, suppliers, communities)
10-41
FIGURE 10.2 Steps in Changing a Problem Culture
10-42
Substantive Culture-Changing Actions

Replace key executives who stonewall needed
organizational and cultural changes.

Promote individuals who advocate for the shift to a
different culture and who can serve as role models
for the desired cultural behavior.

Appoint outsiders with desired cultural attributes to
high-profile positions—new-breed managers send
an unambiguous message that a new era is
dawning.

Screen candidates for new positions carefully,
hiring only those who fit in with the new culture.
10-43
Substantive Culture-Changing Actions
(cont’d)

Mandate that all personnel attend culture-training
programs to better understand the culture-related
actions and behaviors that are expected.

Design compensation incentives that boost the pay
of teams and individuals who display the desired
cultural behaviors, while hitting change-resisters in
the pocketbook.

Revise policies and procedures in ways that will
help drive cultural change.
10-44
Symbolic Culture-Changing Actions
 Show
up and show how: lead by executive
example–executives must walk the talk if
others are to follow.
 Hold ceremonies, gatherings, and events to
celebrate and praise individuals and groups
that get with the culture-change program.
 Present highly visible awards to honor
heroes.
10-45
Leading the Strategy Execution Process
 Managers
at all levels of the firm must:
1. Stay on top of what is happening and closely
monitor progress by engaging in managing by
walking around (MBWA).
2. Put constructive pressure on the organization to
achieve good results and operating excellence.
3. Not delay in initiating corrective actions to improve
strategy execution and achieve the targeted
performance results.
10-46
Putting Constructive Pressure on
Organizational Units to Achieve
Good Results and Operating Excellence
Focus attention on
continuous improvement
Treat employees with
dignity and respect
Encourage employee
initiative and creativity
Set stretch objectives
and clearly communicate
expectations
Fostering
a resultsoriented, highperformance
culture
Use motivation and
compensation to reward
high performance
Celebrate individual,
group, and company
successes
10-47