Chapter 10 Superior Strategy ... Advantage

Superior Strategy Execution -An otherPath to Competitive Advantage

Chapter Learnin g ObjectivesLOI- Gain command of what managers must do to buitd an organization

capable of good strategy execution.

LO2. Learn why resource altocation should always be based on strategicpriorities.

LO3. Understand why policies and procedures shoutd be designed to facili-tate good strategy execution.

LO4. Understand why and how the tools for continuousty improving theperformance of value chain activities help an organization achieveoperating excellence.

LO5. Recognize the role of information and operating systems in enablingcompany personnel to carry out their strategic roles proficiently.

LO6. Learn how and why the use of wett-designed incentives and rewardscan be management's single most powerful toot for promotingoperating excellence.

LO7. Gain an understanding of how and why a company's culture can aidthe drive for proficient strategy execution and operating excellence.

LO8. Understand what constitutes effective manageriaI teadership inachieving superior strategy execution.

Chapter 1o Superior Strategy Execution -Another Path to Competitive Advantage

Once managers have decided on a strategy, the emphasis turns to convertingit into actions and good results. Putting the strategy into place and gettingthe organization to execute it well call for different sets of managerial skills.Whereas crafting strategy is largely a market-driven activity, implementingand executing strategy is primarily an action-oriented, make-things-happentask that tests a manager's abilitl'to direct organizational change, achieve con-tinuous improvement in operations and business Processes, create and nur-ture a strategy-supportive culture, and consistently meet or beat performancetargets. \Ahile an organization's chief executive office and the heads of majorr-rnits (business divisions, functional departments, and key operating units)are ultimately responsible for seeing that strategy is executed successfully, theproccss typically affects every part of the firm, from the biggest operating unitto the smallest frontline work group. It is the middle and lower-level manag-ers who ultimately must ensure that work grouPs and frontline employees doa good job of performing strategy-critical activities and produce the operatingresults that allow companywide performancc targets to be met. Hence, strateggexecution requires eaery manager to think through the answer to the question: "Whntdoes my area haue to do to implement its part of the strategic plan, and uthat should Ido to get these things nccomplished effectiaely and efficiently?"

The Principal Managerial Componentsof the Strategy Execution ProcessExecuting strategy entails figuring out the specific techniques, actions, andbehaviors that are needed for a smooth straiegy-suPPortive operation andthen following through to get things done and deliver results. The exact itemsthat need to be placed on management's action agenda always have to be cus-tomized to fit the particulars of a company's situation. The hot buttons forsuccessfully executing a low-cost pro-"'ider strategy are different from those inexecuting a high-end differentiation strategy. Implementing and executing anew strate;y for a struggling company in the midst of a financial crisis is a dif-ferent job than improving strategy execution in a company where the executionis already pretty good. Whiie there's no definitive managerial recipe for suc-cessful strategy execution that cuts across all company situations and a1l typesof strategies, certain managerial bases have to be covered no matter what thecircumstances. Eight managerial tasks crop up repeatedly in company effortsto exccute strategy (see Figure 10.1).l. Building an organization capable of executing the strategy successfully.2. Allocating ample resources to strategy-critical activities.3. Ensuring that policies and procedures facilitate rather than impede effec-

hive stra tegy execution.4. Pushing for continuous improvement in how value chain activities are

performed.5. Installing information and operating systems ihat enable company Per-

sonnel to perform essential activities.6. Tyng rewards directly to the achievement of performance objectives.

gL,I Part One: Section D: Executing the Strategy

FIGIIRE I o. I The Eight components of strategy Erecuon

7. Fostering a corporatc culture that promotes good strategy execution.8. Exerting the irternal leadership needed to propel implementation

forr,vard.

Holv rvell managers perform these erght tasks has a decisive impact onwhether the outcomc is a spectacular success, a colossal failure, or some-thing in betr,veen. Tn ihe remainder of this cha-rtsr, we will discuss what isinvoh'ed in performing the eight kcy managerial tasks that shape the processof implernenting and executin; strategy.

Buitding an Organization Capableof Good Strategy ExecutionProficient strategy execution depends heavily on competent personnel, better-than-adequate competitive capabilitics, and effective irternal organization.Buildrng a capable organization is thus alwavs a top priority in strategy execu-tion. Three types of organization building actions are paramount.l. Stffing tlrc orgnnizntion

-putting together a strong management team andrecruiting and rctaining employees with the needed experience, technicalskills, and intellectual capi ta l.

Chapter to Superior Strategy Execution -Another Path to Competitive Advantage

Building dynamic capabilities and core competencies-developing proficienciesin performing strategy-critical value chain activities and updating them tomatch changng market conditions and customer expectations.Structuring the organization and work ffirt----organizing value chain activi-ties and business processes, establishing lines of authority and reportingrelationships, and deciding how much decision-making authority to pushdown to lowerlevel managers and frontline employees.

Staffi ng the OrganizationNo company can hope to perform the activities required for successful strategyexecution without attracting and retaining talented managers and employeeswith suitable skills and intellectual car:ital.

BUtLDING MANAGERIAL TALENT Assembling a capable manage-ment team is a cornerstone of the organization-building task.t While companycircumstances sometimes call for different mixes of backgrounds, experiences,management styles, and know-how, the most important consideration is to fill ke.ymanagerinl slots zuith people who are good at figuring out what needs to be done nndskilled in "making it happen" and delioering good results.2 The task of implement-ing and executing challenging strategic initiatives must be assigned to execu-tives who have the skills and talents to turn their decisions into results thatmeet or beat the established performance targets. Without a smart, capable.results-oriented management team, the implementation-execution processends up being hampered by missed deadlines, misdirected or wastefui efforts,and/ or managerial ineptness.3 Weak executives are serious impediments togetting optimal results because they are unable to differentiate betu'een ideasthat have merit and those that are misguided.a In contrast, managers withstrong strategy implementing capabilities have a talent for asking tough, inci-sive questions. They know enough about the details of the business to be ableto challenge and ensure the soundness of the approaches of the people aroundthem, and they can discern whether the resources people are asking for makesense sfrategically. They are good at getting things done through others, typi-cally by making sure they have the right people under them and that thesepeople are put in the right jobs.s They consistently follow through on issuesand do not let important details slip through the cracks.

Sometimes a company's existing management team is suitable; at othertimes it may need to be strengthened or expanded by promoting qualified' For an insightful discussion of how important it is to staff an organization with the right people,see Christopher A. Bartlett and Sumantra Ghoshal, "Building Compettive Advantage lhroughPeople," MIT Sloon Monagement Revew 43, no. z (Winter zooz), pp. 34-4t.'The mportance of assembling an executive team with exceptional ability to see what needsto be done and an instinctive talent for fgurng out how to get t done is dscussed in iustinMenkes, "Hiring for Smarts," Horvard Busness Review 83, no. 11 (November zoo5), pp. roo-ro9;and justn Menkes, Executve lntelligence (New York: HarperCoLlins, zoo5), especially Chapters r-4.r See Larry Bossidy and Ram Charan, Execution: The Discipline of 5ettng Things Done (New York:Crown Busness, 2oo2) Chapter 1.4 Menkes, Executve lnte igence, pp.68,76.'

Bossdy and Charan, Execution: The Discipline of Gexing Thngs Done, Chapter 5.

Part One: Section D: Executing the Strategy

people from within or by bringing in outsiders. The overriding aim in buildinga management team should be to assemble a critical mass of talented manag-ers who can function as agents of change and further the cause of first-ratestrategy execution.6 When a first-rate manager enjoys the help and supportof other first-rate managers, it's possible to create a managerial whole thatis greater than the sum of ildividual efforts-talented managers who lt'orkwell together as a team can produce organizational results that are dramat-ically better than what one or two star managers acting individually canachieve.T

RECRUITING AND RETAINING A CAPABLE WORKFORCEAssembling a capable management team is not enough. Staffing the orga-nization with the right kinds of people must go rnuch deeper than manage-rial jobs in order for value chain activities to be performed competently. Thequality of an orgnnization's people is alzoays nn essential ingredient of successfulstratery execution-knozoledgeable, engaged employees are n company's best sourceof creatiae idens for the nuts-and-bolts operating improaements thnt lead to operat-ing excellence. Companies like Microsoft and Southwest Airlines make a con-certed effort to recruit the best and brightest people they can find and thenretain them with excellent compensation packages, opportunities for rapidadvancement and professional growth, and challenging and interestingassignments. Having a pool of "A players" with strong skill sets and lots ofbrainpower is essential to their business. Microsoft makes a point of hiringthe very brightest and most taiented programmers it can find and motivatingthem with both good monetary incentives and the challenge of working oncutting-edge software design projects. The leading global accounting firmsscreen candidates not only on the basis of their accounting expertise butalso on whether they possess the people skills needed to relate well with cli-ents and colleagues. Southwest Airlines goes to considerable lengths to hirepeople who can have fun and be fun on the job; it uses special interviewingand screening methods to gauge whether applicants for customer-contactjobs have outgoing personality traits that match its strategy of creating ahigh-spirited, funJoving, in-flight atmosphere for passengers. SouthwestAirlines is so selective that only about 3 percent of the people who apply areoffered iobs.

The tactics listed below are common among companies dedicated to staffingjobs with the best people they can find:1. Putting forth considerable effort in screening and evaluating job

applicants-selecting only those with suitable skill sets, energy, initia-tive, judgment, aptitudes for learning, and adaptability to the company'sculture.

2. Investing in training programs that continue throughout employees'careeIS.

3. Providing promising employees with challenging, interesting, and skill-stretching assignments.

6 Menkes, Executive lntellgence, pp.65-71./ Jim Collins, Good to Greot (New York: HarperBusness, zoor), p. 44.

4.

Chapter l0 Superor Strategy Execution -

An other Path to Competitive Advantage

Rotating people through jobs that span functional and geographicboundaries.Striving to retain talented, high-performing employees via promotions,salary increases, performance bonuses, stock options and equity owner-ship, fringe benefit packages, and other perks.Coaching average performers to improve thei skills and capabilities,while r,r,'ccding out underperformers and benchwarmers.

Building Dynamic Capabilities and Core CompetenciesHigh among the organization-building priorities in the strategy implementing/executing process is the need to build and strengthen competitively valuablecapabilities and core competencies. Whereas managets identify the desiredcapabilities and competencies in the course of crafting strategy, good shategyexecution requires putting the desired capabilities and competencies in place,upgrading them as needed, and then modifying them as market conditionset'olve.8 Sometimes a company already has some semblance of the neededcompetencies and capabilities, rn which case managers can concentrate onstrengthening and nurturing them to promote better strategy execution. Moreoften, however, company managers have to significantly broaden or deepencertain capabilitics or even add entirely new competencies in order to put stra-tegic initiatives in place and execute them proficicntly.

Competencies and capabilities that grow stale can impair competitivenessunless they are refreshed, modified, or even phased out and replaced inresponse to ongoing market changes and shifts in com-pany strategy. Indeed, the buildup of knowledge andexpcrience over time, coupled with the imperatives ofkeeping capabilities in step with ongoing strategy andmarket changes, makes it appropriatc to view a com-pany as a bundle of evolving capabilities and compe-tencies. Management's organization-building challenge is onc of dccidingwhen and how to recalibrate existing competencies and capabilities, and whenand holt' to develop netv ones.

Tovota, en route to overtaking General Motors as the global leader in motorvehiclcs, has aggressivelv upgraded its capabilities rn fuel-efficient hybridengine technology and constantly fine-tuned its famed Toyota ProductionSystem to enhance its already proficient capabilities in manufacturing topcluality vehicles at relatively low costs. Liken ise, Honda, which has long hada core competence in gasoline engine technology and small engine design,has recently accelerated its efforts to broaden its expertise and capabilities inhybrid engines so as to stay close behind Toyota. Microsoft totally retooledthe manner in which its programmers attacked the task of writing code for itsVista operating systems for PCs and scrvcrs.3 The mportance of devetoping dynamic capabilities to cope with external changes is discussedin David J. Teece, Gary Pisano, and Amy Shuen, "Dynamic Capabilities and Strategic Management," Strategc Monogement Journal r8, no. 7 99 , pp. 5og 533i and Constance E. Hetfatand Margaret A. Peteral "The Dynamic Resource'Based View: Capability Lifecycles," StrategcManogement Journal 24, no. ro (zoo3), pp.9g/-1oro.

Building dynamic capablities and core compe-tences s a multistage process that occurs overmonths and years, not something that isaccomplished overnght.

Executing the Strategy

Matching Organizational Structure to the StrategyBuilding an organization capable of good strategy execution also relies on anorganizational structure that lavs out lines of authority and reporting relation-ships in a manner that supports the company's key strategic initiatives. Thebest approach to settling on an or;anizational structure is to frst consider thekey value chain activities that deliver value to the customer. In any business,some activities in the value chain are always more critical than others. Forinstance, hotel/motel enterprises have to be good at fast check-in/check-out,housekeepir-rg, food sen,ice, and crcating a pleasant ambience. In specialtychemicals, the satcgy-critical activities include R&D, product innovation,getting new products onto the market quickly, effective marketing, and exer-tise in assisting customers. lt is important for management to build its orga-nization structue around proficient performance of these activities, makingthem the centerpieces or main building blocks on the organization chart.

The rationale for making stra tegy-critical activitics the main buildingblocks in structuring a business is compelling: If activities crucial to strategicsuccess are to have the resources, decision-making influence, and organiza-tional impact they need, they have to be centerpieces in the organizationalschcme. In addition, a new or changed strategy is likely to el-rtarl new or dif-ferent key activities or capabilities and therefore to require a new or differentorganizational structure.e Attempting to carrv out a new strategy r,t'ith an oldorganizational structure is usually unwlse.

l )'l'LS OF ORGANIZATIONAL STRUCTURES Itiscommon forcom-panies engaged in a single line of business to utilize a departmental orga-nizational structure that organizes stratcgy-cri tical activities into distinctfunctonnl, product, geogrnphic, process, or $tonw groups. For instance, a tech-nical instruments manufacturer may be organized around research and devel-opment, engineering, supply chain management, assembly, quality control,marketin1 technical services, and corporate adminisiration. A company withoperations scattered across a large geographic area or many countries mayorganize activities ar-rd reporting relationships by gcography. Many diversifiedcompanies utilize a divisional organizational structure. A divisional struc-ture is appropriate for a divcrsified building materials company that designs,produces, and markets cabinets, plumbing fixtures, windows, and paintsand stains. The divisional structure organizes ail of the value chain activitiesinvoLved with making each type of home construction product available to, The mpoftance of matchlng organzation design and structure to the partcular needs of strategywas first brought to the torefront in a Landmark study of 70 large corporations conducted byProfessor Alfred Chandler of Harvard University. Chandteis research revealed that changes n anorganization's strategy bring about new administrative problems that, in turn, requre a new orrefashioned structure for the new strategy to be successfully implemented. He found that struc-ture tends to fotlow the growth strategy of the flrm-but often not until inefficiency and inrernaloperating problems provoke a structural adjustment. The experiences of these firms followed aconsistent sequential pattern: new strategy creation, emergence of new administrative problems,a decline in profitability and performance, a shft to a more appropriate organlzatonal structure,and then recovery to more profltable levels and improved strategy execution. See Alfred ChandlefStrotegv and Sttucture (Cambrdge, MA: Mlr Press, 1962).

Chapter 1o Superior Strategy Executio n -

Another Path to Competitive Advantage

home builders and do-it-yourselfers into a common division and makes eachdivision an independent profit center. Matrix organizational structures allowcompanies to specify dual reporting relationships for various value-creatingbuilding blocks. Fo example, in the diversified building materials companyjust mentioned, a matrix structure could require the marketing departmentfor the plumbing fixtures division to report to both the corporate marketingdepartment and the chief manager of the plumbing equipmcnt division.

ORCA\IZATIONAL 5I I{UC T UI{I AND AUTHORITY IN D[( ISIO\\'I A K I N (; Responsibility for results of decisions made throughout theorganization ultimately les with managers at the top of the organizationalstructure, but in practice, lower-level managers might possess a great dealof authority in decision making. Companies vary in the degree of authoritydelegated to managers of each organization unit and how much decision-making latitude given to individual employees in performing their jobs. Thetwo extremes are to centralize decision making at the top (the CEO and a fewclose lieutenants) or to decentrnlize decision nnking by giving managers andemployees considerable decision-making latitude in their areas of responsibil-ity. The two approaches are based on sharply different underlying principlesand beliefs, with each having its pros and cons. ln n highlq decentralized organi-zation, decision making auth.ority is pushed down to the lozuest organizational leuelcapable of making timely, informed, competent decisions. The objective is to putadequate decision-making authority in the hands of the people closest to andmost familiar with the situation and train them to weigh all the factors andexercise good judgment. Decentralized decision making means that the man-agers of each organizational uit are delegated lead responsibility for decidinghow best to execute strategy.

The case for empowering down-the-iine managers and employees to makedecisions related to daiiy operations and executing the strategy is based on thebelief that a company that draws on the combined intellectual capital of all itsemployees can outperform a command-and-controlcompany.ro Decentralized decision making means, for The ulmate soal of decentralzed decsonexample, employees with customer contact may be making is to ut decision-making authority in theempowered to do what it takes to pleasc customers. At hands of those persons or teams closest andStarbucks, for example, employees are encouraged to most knowledgeable about the stuaton.exercise initiative ur promoting customer satisfaction-there's the story of a store employee who, when the computerized cash registersystcm went offline, enthusiastically offered free coffee to waiting customers.

Pushing decision-making authority deep down into the organizationstructure and empowering employees presents its own organizing challenge:how to exercise adequate control ozter tlrc actions of empowered employees so thntthe business is not put at risk at the same time that the benefits of empoarcrmentare realized. Maintaining adequate organizational control over empoweredemployees is generally accomplished by placing limits on the authority that'" The importance of empowering workers in executing strategy and the vatue of creatng a greatworking envronment are discussed in Stanley E. Fawcett, Gary K. Rhoads, and Phillip Burnah,"People as the Brdge to Competitiveness: Benchmarking the ABCS' of an Empowered Workforce,"Benchmorking: An lnternltonol Journal r,, no. 4 (zoo4), pp- 34Gj6o.


empowered personnel can exercise, holding people accountable for theirdecisions, instituting compensation incentives that reward people for doingtheir jobs in a manner that contributes to good comPany performance, andcreating a corporate culture where there's strong peer pressure on individualsto act responsibly.

ln a highly centralized organization structure, top executiztes retain authority formost strategic and operating decisions and keep a tight rein olt husiness-unit hends,department heads, and tlrc managers of key operating units; comparatittely little dis-cretonary authority s grnnted to frontline ntperuisors and rank-and-Jile employees.The command-and-control paradigm of centralized structures is based on theunderlying assumpon that frontline personnel have neither the time nor theinclination to direct and properly control the rn'ork they are performing, andthat they lack the knowledge and judgment io make wise decisions about howbest to do it.

The big advantage of an authoritarian structure is that it is easy to knowwho is accountable n'hen things do not go wel1. But there are some seriousdisadvantages. Hierarchical command-and-control structures make an orga-nization sluggish in responding to changing conditions bccause of the time ittakes for the review/approval process to run uP all the layers of the manage-ment bureaucracy. Also, centralized decision making is often impractical-the larger the company and the mote scattered its operations, the more thatdecision-making authority has to be delegated to managers closer to the sceneof the action.

Allocating Resources toStrategy- Criti ca I ActivitiesEarly in the process of implementing and executing a new or different strat-egy, top management must determine what funding is needed to execute newstrategic initiatives, to bolster value-creating Processes, and to strengthen thccompany's capabilities and competencies. This includes carefuL screcning ofrequests for more people and new facilities and equipment, appro"'ing thosethat hold promise for making a contribution to strategy execution, and turningdown those that don't. Should intemal cash flows prove insufficient to fundthe planned strategic initiatives, then management must raise additional fundsthrough borrowing or selling additional shares of stock to willing investors.

A company's ability to marshal the resources needed to support new strategicinitiatives has a major impact on the strategy execution process. Too little fund-ing slows progress and impedes the efforts of organizational units to executetheir pieces of the strategic plan proficiently. Too much funding wastes organi-zational resources and reduces financial performance. Both outcomes argue formanagers to be deeply involved in revicwing budget proposals and directingthe proper amounts of resources to strategy critical organization units.

A change in strategy nearly always calls for budget reallocations and resourceshifting. Previously important units having a lesser ole in the new sategymay need downsizing. Units that now have a bigger strategic role may needmore people, new equipment, additional facilties, and above-average increases

Chapter to Superior Strategy Executio n -Another Path to Compettive Advantage

in their operating budgets. Strategy implementers have to exercise their powerto put enough resources behind nen' strategic initiatives to make things hap-pen, and they have to make the krugh decisions to kill projccts and activitiesthat are no longer justified. Honda's strong support ofR&D activities allowed it to develop the first low- A company's strategic priorities must drive howpolluting four-stroke outboard marine engine, a wide capital allocations are made and the size ofrange of ultralow emission cars, the first hybrid car each unifs operating budgets.(Honda Insight) in the U.S. market, ar-rd the flrst hydro-gen fuel cell car (Honda Clarity). However, Honda managers had no troublestopping production of the Insight in 2006 when its sales failed to take off andthcn shifting rcsources to the development and manufactue of other promis-ing hybrid models, including a totally redesigned Insight that was laur-rchedin the United States in 2009.

I nstituting Strategy-Su p portivePolicies and ProceduresA company's policies and procedures can either assist or become a barrier togood stratcgy cxccution. Anytime a company makes changes to its businessstrategy, managers are wcll advised to carefuilv reviewexisting policies and procedures and revise or discard Welkonceived policies and procedures aidthose that are out of sync. Well-conceived poLicies and strategy execution; out{f-sync ones are barriersoperating procedures act to facilitate organizational to effective implementaton.change and good strategy execution in three ways:"1. lttstituting policies and procedures pro-oides top-down guidnnce regnrding hozu

certain thitrgs notu need to be done. Asking people to alter established habitsand procedures, of course, always upsets the internal order of things. Itis normal for pockets of resistance to develop and for people to exhibitsome degree of stress and anxiety about how the changes will affect them.Policies are a particularly useful &'ay to counteract tendcncics for somepeople to resist change-most people refrain from violating companypolicy or going against recommended practices and procedures withoutfirst gaining clearance or having strong jr-rstification.

2. Policies and procedtres help enJorce needed consistenn in lnw pnrticular strnt-egy critical lcti-lities nre performetl. Standardization and strict conformityare sometimes desirable components of good strategy execution. Elimi-nating significant differences in the operating practices of different plants,sales regions, or customcr scrvicc ccnters helps a company deliver consis-tent product quality and service to customers.

3. Well-conceiaed policies and procedures pronnte n anrk climate that facilitatesgood strategy exeuion. Managers can use the policy-changing process as apowerful iever for changing the corporate culture in ways that producc astronger fit with the nerv strategv

McDonald's policy manual spells out detailed procedures that personnelin each McDonald's unit are expected to obsen'e to ensure consistent qualityacross its 31,000 units. For example, "Cooks must turn, never fllp. hamburgers.

Executing the Strategy

If they haven't been purchased, Big Macs must be discarded in 10 minutes afterbeing cooked and French fries in 7 minutes." To get store personnel to dedi-cate themselves to outstanding customer service, Nordstrom has a policy ofpromoting only those people whose personnel records contain evidence of"hcroic acts" to please customers--especially customers who may have made"unreasonable requests" that require special efforts.

One of the big policy-making issues concerns what activities need to be rig-idly prescribed and what activities allow room for independent action on thepart of empowered personnel. Few companies need thick policy manuals toprescribe exactly how daily orerations are to be conductcd. Too much policycan be confusing and erect obstacles to good strategy implementation. Thereis wisdom in a middlc approach: Prescribe enough policies to place bottndaries onemployees' actions; then empozuer them to act within these boundaries in whoteaer zuaythey think makes sense. Allowing company personnel to act anywhere betweenthe "white lines" is especially appropriate when individual creativity and ini-tiative are more essential to good strategy execution than standardization andstrict conformitv

Striving for Continuous lmprovementin lnternal ProcessesCompany managers can significantly advance the cause of superior strategyexecution by pushing organization units and company personnel to stive forcontinuous improvcment in how value chain activities are performed. Oneof the most widely used and effective tools for improving the performance ofinternai processes entails benchmarking the company's performance of valuechain activities against "best-in-indus try" and "best-in-world" performers.LIt can also be useful to look at "best-in-company" performers of an activity ifa company has a number of different organizational units performing muchthe same function at different locations. Identifying, analyzing, and under-standing how top companies or individuals perform particular best practicesprovides useful yardsticks for judging the effectiveness and efficiency ofinternal operations and setting performance standards for organization unitsto meet or beat.

In striving for operating excellence, many companies havc also come to relyon three other potent management tools: business process reengineering, totalquality management (TQM) programs, and Six Sigma quality control tech-niques. Business process reengineerlng involves pulling the pieces of strategy-critical activities out of d.ifferent departments and unifying their performance

" For a discusson of the value of benchmarking in implementing strategy, see Christopher E.Bogan and Michael J. English, Benchmorkng for Best Proctces: Wnning through lnnovatveAdaptotion (New York: McGraw-Hill, 1994), Chapters 2 and 6;

^ustafa Ungan, "Factors Affecting

the Adopton of Manufacturing Best Practices," Eenchmarking: An lntematonal lournal n, no. 5(zoo4), pp. 5o4-52ot Paul Hyland and Ron Beckett, "Learning to Compete: The Value of InternalBenchmarking," Benchmorking: An lnternotonal Journal 9, no. 3 (zooz), pp. zg3-3o4i and Yoshi-nobu Ohinata, "Benchmarking: The Japanese Experience," Long-Ronge Plannng 27, no. 4 (Augustrysd, pp. 48-fi.

Chapter lo Superior Strategy Execution -


in a single department or coss-functional work group.'2 When done properly,business process reengineering can produce dramatic operating benefits. Inthc order-processing section of General Electric's circuit breaker division.elapsed time from order receipt to delivery was cut from three 'eeks to threedays by consolidating six production units into one, reclucing a variety of for-mer inventory and handling steps, automating the design system to replace ahuman custom-design process, and cutting the organizational layers betweenmanagers and workers from three to one. Productivity rose 20 percent in oneyear, and unit manufacturing costs dropped 30 percent.l3

Tbtnl qunlity managenlent (TQM) is a philosophy of managing a set of businesspractices that emphasizes contiriuous improvement in all phases of operations,100 percent accuracy in performi:rg tasks, involvement and empowerment ofemployees at all levels, team-based work design, benchmarking, and totaicustomer satisfaction.la \A4rile TQM concentrates on the production of qual-ity goods and fully satisfying customer expectations, it achieves its biggestsuccesses when it is extended to employee efforts in all departments-humanresources, billing, R&D, engineering, accounting and records, and informa-tion systems. It involves reforming the corporate culture and shifting to a totalquality/continuous improvement busincss philosophy that permeates everyfacet of the organization.ls TQM doctrine preaches that there's no such thingas "good. enough" and that everyone has a responsibility to participate in con-tinuous improvement. TQM is thus a race without a finish. Success comes frommaking little steps forward each day, a process that the Japanese call kaizen.

Six Sigma quality control consists of a disciplined, statistics-based systemaimed at producing not morc than 3.4 defects per million iterations for anybusiness process-from manufacturing to customer transactions.r6 The SixSigma process of define, measure, analyze, improve, and control (DMAIC,prononnced Dee-may-ic) is an improvement systcm for existing processes" Mchael Hammer and James Champy, Reengineering the Corporation (New york: HarperBusiness,ry9) pp. z6-27.'r 6ene Hatl, lim Rosenthal, and Judy Wade, "How to Make Reengineering Really \Nork," HarvardBusness Revew 21, no. 6 (November-December ry93), pp. rtg-t3t-'4 For some of the seminal discussions regarding what TQM is and how it works, see M. Walton,The Demng M1nagement Method (New York: Pedigree, 1986); j. luran, Juran on eualty by Desgn(New York: Free Press, r99z); Philip Crosby, Quality ls Free: The Act of Making euality Ceftan(New York: McGraw-Hitl, t979); and 5. George, fhe Ealdrge Quality System (New York: Wiley,7992). For a critique of TQM, see Mark J. Zbarack, "The Rhetoric and Reality of Total euality Man.agement," Admnstratve Scence Quofterly 43, no.3 (September 1998), pp. 602-636."

For a discussion of the shift n work environment and cutture that TQM entails, see Robert T.Amsden, Thomas W Ferratt, and Davida M. Amsden, "TQM: Core Pafadgm Changes," B.islressHorzons 39, no. 6 (November-December 996), pp- 6-14.'6 For easy to understand overviews of what Six Sigma is all about, see Peter S. Pande and LarryHolpp, What ls Sx Sigma? (New York: McGraw-Hill, zooz); liju Antony, "Some Pros and Cons ofSx Sigma: An Academic Perspective," The TQM Magozine 16, no. 4 (zoo4), pp. 303-306; peter S.Pande, Robert P. Neuman, and Roland R. Cavanagh, The Six Sigma Way: How 6E, Motorola ondOther Top Componies Are Honing Their Performance (New York: McGraw-Hll, 2ooo); and JosephGordon and M. Joseph Gordon, ir., Six Sgma Qualty for Business and Manufacture (New York:Elsevier, zooz). For how Six Sigma can be used in smalLer companies, see Godecke Wessel andPeter Burcher, "Sx Sigma for Small and Medium-sized Enterprses," The TQM Magozine 76, no. 4(2oo4), pp. 264 272.

Part One: Sectlon D: Executing the Strategy

falling below spccification. The Six Sigma DMADV (define, measure, analyze,design, and verify) methodology is used to det'elop 71zu Processes or productsat Six Sigma quality levels.17 DMADV is sometimes referred to as Desi;n forSix Sigma (DFSS). The statistical thinking underlring Six Sigma is based onthe following three principles: All n'ork is a process, all processes have vari-ability, and all processes create data that explain variability.ls To illustrate hor'these three principles work, conside the case of a Milwaukee hosPital thatused Six Sigma to map the prescription-filling process. Prescriptions writtenin the hospital originated with a doctor's write-up, were filled by the hospitalpharmacy, and then administered by nurses. DMAIC analysis revealed thatmost mistakes came from misreading the doctor's handwriting.re The hospi-ta1 implemented a program requiring doctors to type the prescription into acomputer, which slashed ihe number of errors dramatically.

While Six Sigma programs often improve the efficiency of many oPeratingactivities and processes, there is evidence that innovation can be stifled by SixSigma programs. The essence of Six Sigma is to reduce variability in processes,but creative processes, by nature, include quite a bit of variability. In manyinstances, breakthrough innovations occur only after thousalds of ideas havebeen abandoned and promising ideas have gone through multiple iteationsand extensive prototyping. Google CEO Eric Schmidt has commentecl that theinnovation process is "anti-Six Sigma" and applying Six Sigma principles tothose performing creative work at Google would choke off innovation at thecompany.20

James McNerney, a GE executive and proponent of Six Sigma, became CEOat 3M Corporation and was unable to establish a long-term track record forinnovation following his institution of Six Sigma-based principles at 3M. 3M'sresearchers complained that the innovation Process did not lend itself lt'elLto the extensive data collection and analysis required under Six Sigma andthat too much time was spent completing reports that outlined the marketpoteniial and possible manufacturint concerns for projects n all stages ofthe R&D pipeline. Six Sigma rigidity and a freeze on 3M's R&D budget fromMcNerney's first year as CEO through 2005 was blamed for the company'sdrop from number one to number seven on the Boston Consulting Group'slist of Most Innovative Companies.2r

A blended approach to Sx Sigma implementation that is gaining in popu-larity pursues incremental improvements in operating efficiency, while R&Dand other processes that allow the company to develop new ways of offeringvalue to customers are given more free rein. Managers of these ambidextrottsorganizations are adept at employing continuous improvemcnt in operatingprocesses but allowing R&D to oPerate under a set of rules that allows for thedevelopment of breakthrough innovations. Ciba Vision, a global leader in con-tact lenses, has dramatically reduced operating exPenses through the use of'/ Based on information posted at www.sxsigma.com, November 4, 2oo2.'3 Kennedy Smith, "Six Sigma for the Service Sector," Quollfy Digest Mogozine, May zoo3, www.qualitydigest.com, accessed Septembet 28, 2oo3'e Def Jones, "Taking the Six Sigma Approach," USA Today, October 3r, zooz, p. 58''" As quoted in 'A Dark Art No More," The Economist 185, no. 8550 (0ctober 13, zooT), p. ro." Brian Hindo, '?t 3M, a Struggle between Effcency and Creativity," BusnessWeek, ,une 11, 2oo7,pp.8-16.

Chapter to Superior Strategy Executio n -Another Path to Competitive Advantage

continuous improvement programs, while simultaneously and harmoniouslvdeveloping nerv series of contact Iens products that have grown its revenuesby 300 percent over a 1O-ycar period.2'z

The Difference between Business ProcessReengineering and Continuous lmprovementPrograms like Six Sigma and TQMBusiness process reengineering and continuous improvement efforts like TQMand Six Sigma both aim at improved efficiency, better product qualitl', andgreater customer satisfaction. The essential difference between business pro-cess reengineering and continuous improvement pro-grams is that reengineering aims at qttlnt nt gairrs oniire or.1e. or 30 to s0 percent or morc *r,"'."u, toioi JtXi:'JJiil#iii,lil#lllf,;liilqnality programs stress incrementnl progress striving iQnl, Sr'SC.u, or other operational mprove_for rnch-by-inch gains again and again in a nevcr- ment programs is to improve the performanceending sbeam. The tn-o approaches to improved per- of strateglr-critical activities and promoteformance of value chain activities and operating superior strategy execution.excellencc are not mutually exclusive; it makes senseto use them in tandcm. Reengineering can be used f.irst to produce a goodbasic design that yields quick, dramatic improvements in performing a busi-ness process. Total qualiil, programs can then be used as a follow-up to delivercontinuing imprtn ements.

Installing Information and Operating SystemsCompany strategics and value-creating intemal processes can't be executedu-ell without a number of intenal operating systems. FedEx has internalcommunication systems that allor,r, it to coodinate its 80,000-plus vehiclesin handling an average of 7.5 million packages a day. Its leading-edge flightoperations systems allow a single controller to direct as many as 200 of FedEx's650 aircraft simultaneously, overriding their flight plans should wcather orother special emergencies arise. In addition, FedEx has created a scries ofe-busincss tools for customers that allorv them to ship and track packagesnline, revicw shipping history, generate custom reports, simplify customcrbilling, reduce internal warehousing and inventory management costs, andpurchase goods and services from supplicrs- All of FedEx's systems supportthe company's strategy of providing businesscs and individuals wrth a broadarrav of package delivery services (from premium next-day to economicalfive-day deliveries) and boosting its competitiveness against United ParcclService, DHL, and thc U.S. Postal Service.

Telephone companies have elaborate ilformation systems to measuresignal quality, connection times, interrupts, wrong connections, billing errors,and other measures of reliability that affect customer service and satisfaction.British Petroleum (BP) has outfitted rail cars carrying hazardous materials" For a discussion of approaches to pursuing radical or disruptive innovations whiLe also seekingncremental gains in efficiency, see Charles A. 0'Reilly and Mchael L. Tushman, "The Ambidextrous0rganization," Harvard Busness Revew 82, no. 4 (April zooQ, pp. 74-Bt.

with sensors and global-positioning systems (GPS) so that it can track thestatus, location, and other informatlon about thesc shipments via satellite andrelav the data to its corporate intranet. At eBay, there are svstems for real-timemonitoring of new listings, bidding activit" Web site traffic, and page views.

Informatlon systems necd to cover five broad areas: (1) customer data, (2)operations data, (3) cmployee data, (4) supplier/partner/collaborative allydata, and (5) financial performance data. Al1 key strategic performancc indica-tors have to be tracked and reported as often as practical. Long the norm,monthlv profit-and-loss statements and morrthly statistical summaries are fast

being replaced n'ith daiiy statistical updates ancl evenHaving good information systems and operating up-to-the-minute performance monitoring' Many retarldata is integral to competent strategy execution cornPanies have automated online systems that gen-and operating excellence. erate daily sales rcports for each store and maintain

up-to-the-minute in\entory and sales records on eachitem, Manufacturing plants typically generate daily production reports andtrack labor productivitv on every shift. Many retailers and manufacturcrs haveonline data systems connecting them with their suppliers that monitor the sta-tus of inventgries, track shipments and deliveries, and mcasure defect rates.Regardless of the industry, real-time information systems permit companymanagers to stay on top of implementation initiativcs and daily operations,and to intervene if things seem to be drifting off course.

Using Rewards and Incentives to PromoteBetter Strategy ExecutionTo create a strategy supportive system of rewards and incentives, a comPanymust emphasize rewarding people for accomplishing results relatcd to creat-ing value for customers, not for just dutifully performing assigned tasks. Focus-

ing jobholders' attention and energy on rvhat to LtcltietteA properly designed reward structure i, ut opposed to lvhat t ironmentmanagement's most powerful tool for gaining results-oricnted ' It is tie incen-employee commitment to superor strategy tives and rervards to of dutiesexecution and excellent operating results. and activities instead of desirecl business outcomes

and company achievements.r3 In any job, pcrformingassigncd tasks is not equivalent to achieving ir-rtended outcomcs. Diligentlyshowing up for work and attending to job assignment docs not, by itself, guar-antee results. As any student knorvs, the fact that an instructor teaches andstudents go to class doesn't necessarily mean that the students are learning.

Motivation and Reward SystemsIt is important for both organization units and indir'.iduals to be 'rroperly alignedwith strategic priorities and enthusiastically committed to executing strategy.To get enttlorees' sustained, energctic comnitnrcttt, flttnngcffi(nt hos to be resourcafi'r See Steven Kerr, "On the Fotly of Rewardng A while Hoping for 8," Academy of MonogementExecutive 9, no. r (February 1995), pp. / 14; Steven Kerr, "Risky Business: The New Pay Game,"Foftune, )uly

"2, 1996, pp. 9j-96; and Doran Twer, "Linking Pay to Busness Objectves," /ourtdi

of Business Strategy 15, no. 4 0uly-August 1994, pp. 15 78-

Chapter lo Superor Strategy Executon -

Another Path to Competitve Advantage

in designing and using ffiotiaatonal tncentiues-both monetary and nonmonetary.The more a manager understands what motivates subordiates and is ableto use appropriate motivational incentives, the greater will be employees'commitment to good day-in, day-out stuategy execution and achievement ofperformance targets.2a

Guidelines for Designing Monetary Incentive SystemsGuidelines for crcating incentive compensation systems that Iink employeebehavior to organizational objectives include:1,. Make the performance payoff a mnjor, not minor, piece of the totnl contpensn-

tion package. The payoff for high-performing individuals and teams mustbe meaningfully greater than the payoff for average performers, and thepayoff for average performers meaningfully bigger than for below-averageperformers.

2. Hatte incentiues that ettend to all managers nnd all tuorkers, not just top man-agenrcnt. Lower-level managers and employees are just as likely as seniorexecutivcs to be motivated by the possibility of lucrative rewards.

3. Administer the reuard systenr with scrupulotrs objectiaity and fnirness.Ifperformance stanclards are set unrealistically high or if individual,/groupperformance evaluations are not accuratc and well documented, dissatis-faction with the system will ovcrcome any positive benefits.

4. Tie incentiues to performance outcomes directly lit*ed to good strategy execlt-tion and financial performance. Incentives should never be paid just becausepeople are thought to be "doing a good job" or becausc thcy "work hard."An argument can be made that exceptions should be made in givingrewards to people who'vc come up short because of circumstances beyondtheir control. The problem with making exceptions for unknowable,uncontrollable, or unforeseeable circumstances is that once good excusesstart to creep into justifying rewards for subpar results, the door is openfor all kinds of reasons whv actual rrerformance has failed to matchtargeted performance.

5. Make sure tlzat the pert'ormance targets ench indiaidual or team is expected toachieae involpe outcomes that the indiuidual or team can personally affect. Therole of incentives is to enhance individual commitment and channelbehavior in beneficial directions.

6. Keep tlrc time between achiersing the target performance outcome and the pay-ment of the retuard as short ns possible. Cornpanies like Nucor and Conti-nental Airlines have discovered that weekly or monthly payments forgood performance u'ork much bcttcr than annual payments. Nucor paysweekly bonuses based on prior-week production levels; Continentalawards employees a monthly bonus for each month that on-time flightperformance meets or beats a specified percentage companywide. Annual

'a The mportance of motivating and empowering workers to create a working environment that shighly conducive to good strategy executon is discussed n Fawcett, Rhoads, and Burnah, "Peopteas the Brldge to Com petitiveness; Benchmarking the ABC5' of an Empowered Workforce."


bonus payouts work best for higher-level managers and for situationswhere target outcome relates to overall company profitability or stockprice perforrnance.

Once the incentives are designed, they have to be communicated andexplained. Everybody needs to understand how their incentive compensationis calculated and how individual/group performance targets contribute toorganiza tional performance targets.

Nonmonetary RewardsFinancial incentives generally head the list of motivating tools for trying togain whole-hearted employee commitment to good strategy execution andoperating excellence. But most successful companies also make extensiveuse of nonmonetary incentives. Some of the most important nonmonetaryapproaches used to enhance motivation are listed below:25. Proaide attractite perks and fringe benefits-The various options includc full

coverage of health insurance premiums; college tuition reimbursement;paid vacation time; on-site child care; on-site fitness centers; casual dressevery day; telecommuting; and compressed workweeks (four 1O-hourdays instead of five 8-hour days).

. Adopt promotion from within policies-This practice helps bind workers totheir employers and employers to their workers, plus, it is an incentivefor good performance.

. Act on suggestions from employees-Research idicates that the moves ofmany companies to push decision making down the line and empoweremployees increases employee motivation and satisfaction, as rvell asboosting productivity.

. Create a work atmosphere in whiclt there is genuine sincerity, caring, and mutunlrespect among zuorkers and between management and employees-A " famlly"work environment u'here people are on a first-name basis and there isstrong camaraderie promotes teamr'ork and cross-unit collaboration.

o Share information zuith employees about financial performance, strategy, opera-tional measu res, market conditions, and competitors' actions-Broad disclosureand prompt communication send the message that managers trust theirworkcrs.

. Haue attractiae office spaces and facilities-A workplace environment withappealing features and amenities usually has decidedly positive effects onemployee morale and productivity.

Concepts & Connections 10.1 presents specific examples of the motiva-tional tactics employed by several prominent companies that have appearedon Fortune's list of "The 100 Best Companies to Work for in America."

",effrey Pfeffer and John F. Veiga, "Putting People First for Organizational Success," Acodemy ofManogement Executve r3, no. z (May 1999), pp. 37-45; Linda K. Stroh and Paula M. Caliguiri,"lncreasng GlobaI Competitiveness through Effectve People Management," lournal of World Busi-,ess 33, no. r (Spring 1998), pp. r-r; and articles in Fortune on the 1oo best companes to workfor lvarious issuesl.

ter lO Superior Strategy Execution-Another Path to Compctitive Advantage

WHAT COMPANIES DO TO MOTIVATE AND REWARD EMPLOYEESCornpanies have come up with an mpressive variety ofnotvational and reward practices to help create a workenvironment that energizes employees and promotesbetter strategy execution. Here's a sampling of what com-pa n ies are d oing:

. Lincoln Electric, widety known for its piecework payscheme and ncentive bonus plan, rewards individualproductivity by paying workers for each nondefec-tive piece produced. Workers have to correct qualityproblems on their own tme defects in productsused by customers can be traced back to the workerwho caused them. Lincoln's oiecework Dlan motivatesworkers to pay attention to both quality and volumeproduced. In addition, the company sets asde a sub-stantaL porton of its proflts above a specifled basefor worker bonuses. To determine bonus size. LincolnElectric rates each worker on four equally impor-tant perFormance rnasures: dependability, quality,output, and ideas and cooperation. The higher aworker's merit rating, the higher the incentive bonusearned; the hghest-rated workers in good proftyears receive bonuses of as much as 11o percent oftheir oiecework co moensatio n.

. Wegmans, a family-owned grocer with /1 stores onthe East Coast ofthe United States provides emptoy-ees with flexible schedules and beneflts that includeon ste fitness centers. The company's approach tomanaging people atlows it to provde a very highlevel of customer service not found in other grocerychains. Employees ranging from cashlers, to butch'ers, to store managers are all treated equalty andviewed as experts n ther jobs. Employees'sklls areenhanced through 5o hours of formal training pervear and emplovees are allowed to make decisions

that they believe are appropriate for their jobs. Thecompanyb annuaL turnover rate is only 6 percent,whch s less than one-hatf the 14 percent averageturnover rate in the U.S. supermarket industry.Nordstrom, highly regarded for its superor n-housecustomer servce experience, typcalLy pays its retailsalespeople an hourty wage higher than the prevail-ing rates paid by other department store chans plusa commission on each sale. Spuned by a culturethat encourages salespeople to go aLt-out to satisfucustomers and to seek out and promote new fash-ion ideas, Nordstrom salespeople often earn twicethe average incomes of sales employees at com-petlng stores. The typcat Nordstrom sates personearns nearly $38,ooo per year and sales departmentmanagers earn, on average, $48,oo per year. Nord-strom's rules for employees are smple: "Rule #r: Useyour good judgment in all stuatons. There wilL beno additional ru les."At W. L. Gore (the maker of Gore'Tex), employeesget to choose what project/team they work on andeach team member's compensation is based on otherteam members'rankings of his or her contribution tothe enterDrise.At biotech leader Amgen, employees get 16 paidholidays, generous vacation time, tuition reimburse-ments up to $ro,ooo, on-site massages, a discountedcar-wash, and the convenience of shopping at on-sitefarmers'markets.

Sources: Forture's lists of the 1oo best cornpaies to workfor in America, 2oo2,2oo4,2oo5, and 2oo8; and JeffersonGraham, "The Search Engine That Could," USA Todoy,August 26,2oo3, p- Bj.

Corporate Cultures andSuperior Strategy ExecutionEvery company has its ort n uniquc culturc. The charactcr of a companv'sculture or wotk climate is a product of the'"vork practices and behaviors thatclefine "horn'w,c clo things rround here," its approach to people management,ancl the "chemistry" that perneates its work environrnent. The meshingtogether of stated core vahres, teliefs, business rrinciples, style of operating,ingraincd bchaviors ancl attitudes, and rvork climate define a cornparly's

Corporate culture is a company's internalwork climate and is shaped by its core values,beliefs, business principles, traditrons, workpractices, and style of operating.

Part One: Secton D: Executing the Strategv

corporate culture. A company's culture is important because it influcnccsthe organization's actions and approaches to conducting business in a veryreal sense, the culture is the company's organizational DNA.26

Thc psyche of corporate cultures varies widely. Forinstance, the bedrock of Walmart's culture is dedica-tion to customer satisfaction, zealous pursuit of lowcosts and frugal operating practices, a strong workethic, ritualistic Saturday-morning headquarters meet-ings to exchange ideas ancl review problems, and com-

pany executives' commitment to visiting stores, listcning to customers, andsoliciting suggestions from employees. General Electric's culture is foundedon a hard-driving, results-oriented atmosphere (where all of the company'sbusiness divisions arc hcld to a standard of being number one or two in theirindustries as well as achieving good business results); extensive cross-busi-ncss sharing of ideas, best practices, and learning; the reliance on "workoutsessions" to identify, debate, and resolve buming issues; a commitment to SixSigma quality; and globalization of the company.

Unhealthy Corporate CutturesThe distinctive characteristic of an unhealthy corporate culture is the presenceof counterproductive cultural traits that adversely impact the work climate andcompanv performance.2T The followin; four traits are particularly unhealt\:1. A highly politicized internal environment in which many issues get

resolved ancl decisions are made on the basis of which individuals orgroups have the most political clout.

2. Hostility to change and a general wainess of people who champion newways of doing things.

3. An insular "not-invented-here" mindset that makes company personnelaverse to looking outside the company for best practices, new managerialapproaches, and imovative ideas.

{. A disregard for high ethical standards and an overzealous pursuit ofwealth and status on the oart of kev executives.

POI-ITICIZID CULTURES What makes a politicized internal environ-ment so unhealthy is that political infighting consumes a ;reat deal of orga-nizational energy and often results in the company's strategic agenda takinga backseat to political maneuvering. In companies where internal politicspen'ades the work climate, empire-building managers pursue their own agen-das and the positions they take on issues are usually aimed at Protecting orexpanding their turf. The support or opposition of politically influential exec-utives and/or coalitions among dcpartments with vested interests in a partic-ular outcomc typically weighs heavily in deciding n'hat actions the company

'6loanne Reid and Victora Hubbell, "Creating a Performance Culture," /vey Busness lournal 69,no. 4 (March/April zoo5), p. r.'/ John P. Kotter and James L. Heskett, Corporate Culture and Performance (New York: Free Press,r99z), Chapter 6.

Chapter lo Superior Strategy Execution -


takes. All this maneuvering takes away from efforts to execute strategy withreal proficiency and frustrates company personnel who are less political andmore inclined to do what is in the company's best interests.

CHANGE-I{ESISTANT CULTURES Change-resistant cultures encour-age a number of undesirable or unhealthy behaviors-avoiding risks, hesitationin pursuing emerging opportunities, and widespread aversion to continuousimprovement in performing value chain activities. Change-resistant companieshave little appetite for being first-movers or fast-followers, believing that beingin the forefront of change is too risky and that acting too quickly increases vul-nerability to costly mistakes. They are more inclined to adopt a wait-and-seeposture, learn from the missteps of early-movers, and then move forward cau-tiously with initiatives that are deemed safe. Hostility to change is most oftenfound in companies with multilayered management bureaucracies that haveenjoyed considerable market success in years past and that are wedded to the"We have done it this way for years" syndrome.

General Motors, IBM, Sears, and Eastman Kodak are classic examples ofcompanies whose change-resistant bureaucracies have damaged their marketstandings and financial performance; clinging to what made them success-ful, they were reluctant to alter operating practices and modify their busi-ness approaches when signals of market change first sounded. As strategiesof gradual change won out over bold innovation, all four lost market share torivals that quickly moved to institute chan;es more in tune with evolving mar-ket conditions and buyer preferences. While IBM has made strides in buildinga culture needed for market success, Sears, GM, and Kodak are still strugglingto recoup lost ground.

INSULAR, INMRDLY FOCUSED CULTURES Sometimesa companyreigns as an industry leader or enjoys great market success for so long that itspersonnel start to believe they have all the answers or can develop them ontheir own. Such confidence breeds arrogance-company personnel discount themerits of what outsiders are doing and what can be learned by studying best-in-class performes. Benchmarking and a search for the best practices of outsid-ers are seen as offering little payoff. The big risk of a must-be-invented-heremindset and insular cultural thinking is that the company can underestimatethe competencies and accomplishments of rival companies and overestimateits own progress-with a resulting loss of competitive advantage over time.

LNETHICAL AND CREED-DRIVEN CULTURES Companies thathave little regard for ethical standards or that are run by executives drivenby greed and ego gratification are scandals waiting to happen. Enron's col-lapsc in 2001 was largely the product of an ethically dysfunctional corporateculture-while Enron's culturc cmbraced the positives of product innova-tion, aggressive risk taking, and a driving ambition to lead global change inthe energy business, its executives exuded the negatives of arrogance, ego,greed, and an "ends-justify-the-means" mentality in pursuing stretch revenueand profitability targets.26 A number of Erron's senior managers were all too'3 See Kurt Eichenwald, Conspirocy of Fools: A True Story (New York: Broadway Books, zoo5).


willing to wink at unethical behavior, to cross over the line to unethical (andsometimes criminal) behavior themselves, and to deliberately stretch gener-ally accepted accounting principles to make Enron's financial performancelook far better than it really was. In the end, Enron came unglued becausea few top executives chose unethical and illegal paths to pursue corporaterevenue and profitability targets. Unethical cultures and executive greedhave produced scandals at WorldCom, Quest, HealthSouth, Adelphia, Tyco,Cendant, Parmalat. KPMG, AIG, Marsh & MclerLnan, Countrywide Financial,and Stanford Financial Group with executives indicted and/or convicted ofcriminal behavior.

H igh -Performance Cu lturesSome companies have so-called "high-performance" cultures where the stand-out cultural traits are a " can-do" spirit, pride in doing things right, no-excusesaccountability, and a pervasive results-oriented work climate where people gothe extra mile to meet or beat stretch objectives. In high-performance cultures,there's a strong sense of ivolvement on the part of company personnel andemphasis on individual initiative and creativity. Performance expectations areclearly stated for the company as a whole, for each organizational unit, andfor each individual. Issues and ptoblems are promptly addressed-there'sa razor-sharp focus on what needs to be done. A high-performance culturewhere there's constructive pressure to achieve good results is a valuable con-tributor to good strategy execution and operating excellence. Results-orientedcultures are permeated with a spirit of achievement and have a good trackrecord in meeting or beating performance targets.2e

The challenge in creating a high-performance culture is to inspire high loy-alty and dedication on the part of employees, such that they are energized toput forth their very best efforts to do things right. Managers have to take painsto reinforce constructive behavior, rer'ard top performers, and purge habitsand behaviors that stand in the way of good results. They must work at know-ing the strengths and weaknesses of their subordinates, so as to better matchtalent with task. In sum, there has to be an overall disciplined, performance-focused approach to managing the organization.30

Adaptive CulturesThe hallmark of adaptive corporate cultures is willingness on the patt of otga-nizational members to accept change and take on the challenge of introducingand executing new strategies.3l In direct contrast to change-resistant cultures,adaptive cultures are very supportive of managers and employees at allranks who propose or help initiate useful change. Internal entrepreneurshipon the part of individuals and groups is encouraged and rewarded. Seniorexecutives seek out, support, and promote individuals who exercise initiative,'e For a good discussion of how a strategy-supportive, high-performance culture can contribute tocompettive advantage, see Jay B. Barney and Delwyn N. Clark, Resource-Bosed Theory: Creotingand Sustaning Competitive Advontdge (New York: Oxford University Press, zooT), chapter 4.r" Reid and Hubbell, "Creating a Performance Culture,' pp. z and 5.?'This section draws heavily on the dscussion of Kotter and Heskel, Corporate Culture ondPerformonce, Chapter 4.

Chapter ro Superior Strategy Execution-Another Path to Competitive Advantage

spot opportunities for improvement, and display the skills to take advantageof them. As in high-performance cultlrres, the company exhibits a proactiveapproach to identifying issues, evaluating the implications and options, andquickly moving ahead with workable solutions.

Technology companies, software companies, andIntemet-based companies are good illustrations oforganizations with adaptive cultures. Such companiesthrive on change-driving it, leading it, and capital-izing on it (but sometimes also succumbing to changc r'r'hen they make thewrong move or are swamped by better techlologies or the superior businessmodels of rivals). Companies like Google, Intel, Cisco Systems, eBay, Apple,Amazon.com, and Dell cultivate the capability to act and react rapidly. Thevare avid practitioners of entreprener-rrship and innovation, with a demon-strated willingness to take bold risks to create altogether new products, newbusincsses, and new industries. To create and nurture a culture that can adaptrapidly to changing or shifting business conditions. they make a point of staff-ing their organizations r,r'ith people who are proactive, r,'ho rise to the chal-lenge of change, and rt,ho havc an aptitude for adapting.

In fast-chan;ing business environments, a corporate culture that is recep-tive to altering organizational practices and behaviors is a virtual necessity.Horvever, adaptive cultures work to the advantage of all companies, not iustthose in raprd-change environments. Every company operates in a marketand business climate that is changing to one degree or another. As a cornpany'sstratery euoloes, an ndaptiue culture is a de.finite nlly in the stra tegy-implenrenting,stregy-executirtg process as contpared to cttltures tltat hnae to be conxed nnd cajoledto chnnge.

Changing a Problem CultureChanging a company culture that impcdcs proficient strategy execution isamong the toughest management tasks. It is natural for company personnclto cling to familiar practices and to be wary, if not hostile, to new approachestoward how things are to be done. Consequently, it takes concerted manage-ment action over a period of time to root out certair unwanted behaviors andreplace an out-of-sync culture with more effective ways of doing things. Tftesingle ntost uisible factor that distinguislrcs ntccessfttl cttlture-change efforts fromfniled attenryts is competent lendership nt the top. Great powct is needed to forcemajor cultural change and overcome the unremitting resistance of entrenchedcultures-ar-rd great power .is possessed only by the most senior executives,especially the CEO. However, while top management must be out front lead-ing the culture change effort, instilling new cultural behaviors is a job for therr,'hole management team. Middle managers and frontline supervisors play akey role in implementing the new work practices and operating approaches,helping win rank-and-file acceptance of and support for the changes, andinstilling the desired behavioral norms.

As shown in Figure 10.2, the first step in fixing a problem culture is for topmanagement to identify those facets of the present culture that pose obstaclesto executing new strategic initiatives. Second, managers have to clearly definethc desired new behaviors and features of the culture they want to create.

Adaptive cultures are exceptonally well-suitedto companies competing in faschangingmarket environments.


FIGURE 1o.2 Steps in changng a Problem cultur

Third, managers have to convince company Persomel u'hy the Present cultureposes problems and why and how new behaviors and operating approacheswill improve company performance. Finally, all the talk about remodeling theprcsent culture has to be followed swiftly by visible, forceful actions on the partof management to promote the desired new behaviors and work practices.

MAKING A COMPELLING CASE FOR A CLITURE CIIANCI ThCplace for management to begin a major remodeling of the corporate culture isby selling company personnel on the need for new-style behaviors and workpractices. This means making a compelling case for why the company's newstrategic direction and culture-remodeling efforts are in the organization's besiinterests and why company personnel should whole-heartedly jon the effortto do things somewhat differently, This can be done by:o Citing reasons wl-ry the current strategy has to be modified and why new

strategic initiatives are being undertaken. The case for altering the oldstrategy usually needs to be predicated on its shortcomings-why salesare growing slowly, why too many customers are opting to go with theproducts of rivals, why costs are too high, and so on. There may be meritin holding events where managers and other key personnel are forced tolisten to dissatisfied customers or the complaints of strategic allies.

. Citing why and how certain behavioral norms and work practices inthe current culturc pose obstacles to guld. execution of new strategicinitiatives.

. Explaining why new behaviors and work practices have important rolesin the new culture and will produce better results.

Management's efforts to make a persuasive case for changing what isdeemed to be a problem culture must be quickly followed by forceful,, high-profile actions across several fronts. The actions to implant the new culturemust be both substantive and svmbolic.

Chapter lo Superior Strategy Execution -Another Path to Competitve Advantage

SUBSTANTIVE CULTURE-CHANGING ACTIONS Noculturechangeeffort can get very far when leaders merely talk about the need for differentactions, behaviors, and work practices. Company executives have to give theculture-change effort some teeth by initiating a series of actiotts that comPanypersoru'rel will see as unmistakable support for the change program. The strongestsigns that management is truly committed to instilling a new culture include:1. Replacing key executives who stonewall needed organizational and

culfural changes.2. Promoting individuals who have stepped forward to advocate the shift

to a different culture and who can serve as role models for the desiredcultural behavior.

3. Appointing outsiders with the desired cultural attributes to high-profilepositions-bringing in new-breed managers sends an unambiguousmessage that a new era is dawning.

4. Screening all candidates for new positions carefully, hiring only thosewho appear to fit in with the new culture.

.5. Mandating that all company personnel attend culture-training programsto better understand the culture-related actions and behaviors that areexpected.

6. Designing compensation incentives that boost the pay of teams andindividuals who display the desired cultural behaviors, while hittingchange-resisters in the pocketbook.

7. Revising policies and procedures in ways that will help drive culturalchange.

SYMBOLIC CULTURE-CHANGINC ACTIONS There'salsoan impor-tant place for symbolic managerial actions to alter a problem culture and tightenthe strategy{ulture fit. The most important symbolic actions are those that topexecutives take to lead by example. For instance, if the organization's strategyinvolves a drive to become the industry's low-cost producer, senior managersmust display frugality in their own actions and decisions: inexpensive decora-tions in the executive suite, consen'ative expense accounts and entertainmentallowances, a lean staff in the corporate office, few executive perks, and soon. At Walmart, all the executive offices are simply decorated; executives arehabitually frugal in their own actions, and they are zealous in their own effortsto control costs and promote greater efficiency. At Nucor, one of the world'slow-cost producers of steel products, executives fly coach class and use taxisat airports rather than limousines. Top executives must be alert to the fact thatcompany personnel will be watching ther actions and decisions to see if thcyare walking the talk.32

Another category of symbolic actions includes holding ceremonial events tosingle out and honor people whose actions and performance exemplify whatis called for in the new culture. A point is made of holding events to celebratet Judy D. Olian and Sara L. Rynes, "Making Total Quality Work; Aligning Organizatonal Processes,Performance Measures, and Stakeholders," Humon Resource Management 30, no. 3 (FalL t99r),p. 324.

,!t6 Part One: Section D: Executng the Strategy

each culture-change success. Executives sensitive to their role in promotingthc stratcgy-culture fit make a habit of appearing at ceremonial fr.rnctions topraise individuals and groups that get with the program. They show up atemployee training programs to strcss stratcgic priorities, values, ethical prin-ciples, and cultural norms. Every group gathering is seen as an opportunityto repeat and ingrain values, praise good deeds, and cite instances of how thenen' work practices and operating approaches have led to improved results.

Leading the Strategy-Execution ProcessLeading the strategy-execution process requires senior managers to be out inthe field, seeing for themselves how well operations are going and gau;ingthe progress being made. Company managers need to be diligent and adeptin ferreting out problems and issues, learning n,hat obstacles lie in the pathof operating excellence, and then clearing the n'ay for progress-the goalmust bc to get to better results speedily and productively. And there has to beconstructive, but unrelenting, pressure on organizational units to (1) demon-strate growing consistency in strategy execution and (2) achieve performancetargets-ultimately, it's all about producing excellent strategy execution andfinancial results.

There comes a time at every company when managers have to fine-tuneor overhaul the approaches to strategy execution and push for better results.Clearly, when a company/s strategy execution effort is not deliverng goodresults and making measurable progress toward opcrating excellence, it is theleader's responsibility to step forward and push corrective actions. Success ininitiating corrective actions usually hinges on thorough analvsis of the situa-ton, the exercise of good business judgment in deciding what actions to take,and good implementation of the corrective actions that are initiated. Successfulmanagers are skilled in getiing an organization back on track rather quickly.Managers that struggle to show measurable progrcss in gcncrating good resultsand improving the performance of strategy-critical value chain activities arecandidates for being replaced.

The challenges of leading a successful strategy execution effort are, r,'ithoutquestion, substantial.33 But the job.is definitely doable. Because each instanceof executing strategv occurs under different organizational circumstances,thc managerial agenda for executing strategy always needs to be situation-specific there's no ncat generic procedure to follow. And as r,r'e said at thebeginning of the chapter, executing strategy is an action-oriented, makc-the-right-things-happen task that challenges a manager's ability to lead anddirect organizational change, create or reinvent business processes, manageand motivate people, and achieve performance targets.

r3 For a good discussion of the challenges, see DanieL Goleman, "What Makes a Leader," HorvardBusiness Review 76, no. 6 (Novem ber-December 1998), pp. 9z-1o2, Ronald A. Heifetz and DonaldL. Laurie. "The Work of Leadershp," Harvord Business Review 75, no. r (January February 1997),pp. 124-134; and Charles M. Farkas and Suzy WetLaufer, "The Ways Chief Executive officers Lead,"Hlvord Busness Revew 74, no. 3 (May June 1996), pp. rro-rzz. See atso, Michael E. Porter,Jay W. Lorsch, and Nitin Nohria, "Seven Surprises for New CEOS," Horvarrl Business Revew 82,no. ro (0(fobel no4), pp. 6z-2.

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Chapter 10 Superior Strategy ... Advantage