Managing Internal Operations: Actions That Promote Good Strategy Execution

A company’s ability to marshal the resources needed to support new strategic initiatives and steer them to the appropriate organizational units has a major impact on the strategy execution process. The funding requirements of a new strategy must drive how capital allocations are made and the size of each unit’s operating budgets.
Underfunding organizational units and activities pivotal to strategic success impedes execution and the drive for operating excellence. A change in strategy of a push for better strategy execution generally requires some changes in work practices and the behavior of company personnel. Well-conceived policies and procedures aid strategy execution: out-of-sync ones are barriers.

Prescribing new policies and operating procedures acts to facilitate strategy execution in three ways:
1. Instituting new policies and procedures provides top-down guidance regarding how certain things now need to be done.
2. Policies and procedures help enforce needed consistency in how particular strategy-critical activities are performed in geographically scattered operating units.
3. Well-conceived policies and procedures promote the creation of a work climate that facilitates good strategy execution.

Managerial efforts to identify and adopt best practices are a powerful tool for promoting operating excellence and better strategy execution. A best practice is any practice that at least one company has proved works particularly well. Benchmarking is the backbone of the process of identifying, studying, and implementing outstanding practices.

In striving for operating excellence, many companies have also come to rely on three other potent management tools: business process reengineering, Six Sigma quality control technique, and total quality management (TQM) programs.
The difference amont those three is that business process reengineering aims at one-time quantum improvement; continous improvement programs like TQM and Six Sigma aim at ongoing incremental improvement. Indeed, these three tools have become globally pervasive techniques for implementing strategies keyed to cost reduction, defect-free
manufacture, superior product quality, superior customer service, and total customer satisfaction.

The purpose of using benchmarking, best practices, business process reengineering,TQM, Six Sigma, or other operational improvement programs is to improve the performance of strategy-critical. Well-conceived state-of-the-art operating systems not only enable better strategy execution but also strengthen organizational capabilities – perhaps enough to provide a competitive edge over rivals. Information system need to cover five broad areas: (1) customer data, (2) operation data, (3) employee data, (4) supplier/partner/collaborative ally data, and (5) financial performance data. Realtime information systems permit company managers to stay on top of implementation initiatives and daily operations, and to intervene if things seem to be drifting off course. Having good information systems and operating data is integral to competent stategy execution and operating excellence.

Tying rewards and incentives to strategy execution should also be planned well. A properly designed reward structure is management’s most powerful tool for mobilizing organizational commitment to successful strategy execution. One of
management’s biggest strategy-executing challenges is to employ motivational techniques that build wholehearted commitment to operating excellence and winning attitudes among employees. A properly designed reward system allign the well-being of organization members with their contributions to competent strategy execution and the achievement of performance targets. The role of the reward system is to allign the well-being of organization members with realizing the company’s vision, so that organization members benefit by helping the company execute its strategy competently and fully satisfy customers.

The related case to this theory is what happen in Jones Lang LaSalle: Reorganizing around the Customer. Jones LaSalle is a real estate advice and transaction services provider company which focused on providing premier service to its targeted customer base. Due to the increasing competition among the real estate because of globalization and information penetration, the company was forced to changed their strategic to more focus on giving value for customer (more responsive to customers); what they really want and how the company can really give what the customer need. So they create an integrated services business.

By the change of the business strategy Jones LaSalle had to do business process reengineering, which in the previous application they focused on the product but now they start selling solution, changed the bonus and incentive/reward system to be more challenging. Instead of based on business unit performance, they tied the reward system to the customer satisfaction and market profitability. The company also start to put information system in place to help the business units getting the needed information to make decision.

Source: Thompson, Crafting and Executing Strategy, Chapter 11

Building an Organization Capable of Good Strategy Execution

Once managers have decided on a strategy, the emphasis turns to converting it into actions and good results. Executing strategy is an action-oriented, make-thing happen task that tests a manager’s ability to direct organization change, achieve continous improvement in operations and business processes, create and nurture a strategy-supportive culture, and consistently meet or beat performance target.
The challenge of sucessfully implementing new strategic initiatives goes well beyond managerial adeptness in overcoming resistance to change. Executing strategy is a job for the whole management team. Good strategy execution requires a team effort. All managers have strategy-executing responsibility in their areas of authority, and all employees are participants in the strategy execution process.

A Framework for Executing Strategy
Executing strategy entails figuring out all of the hows – the specific techniques, actions and behaviours that are needed for a smooth strategy-supportive operation – and then following through to get things done and deliver result. The eight principal managerial components of the strategy execution process are:
1. Building an organization with the competencies, capabilities, and resource strengths to execute strategy successfully.
2. Marshaling sufficient money and people behind the drive for strategy execution.
3. Instituting policies and procedures that facilitate rather than impede strategy execution.
4. Adopting best practices and pushing for continuous improvement in how value chain activities are performed.
5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.
6. Tying rewards directly to the achievement of strategic and financial targets and to good strategy execution.
7. Instilling a corporate culture that promotes good strategy execution.
8. Exercising strong leadership to drive execution forward, keep improving on the details of execution, and achieve operating exellence as rapidly as feasible.

There are three types of organization-building capable of good strategy execution:
1. Staffing the organization :
Putting together a strong management team
Recruiting and retaining capable employees
2. Building core competencies and competitive capabilities :
Developing a set of competencies and capabilities suited to the current strategy
Updating and revising this set as external conditions and strategy change
Training and retraining company personnel as needed to maintain skills-based competencies
3. Structuring the organization and work effort :
Instituting organizational arrangements that facilitate good strategy execution.
Deciding how much decision-making authority to push down to lower level managers and frontline employees.

The application of the theory above can be viewed further in the “Whole Food Market.” Today it operates 194 stores and generates nearly $6 billion a year in sales, whish is also Americs’ most profitable food retailer when measured b profit per square foot. The key success of Whole Food Market is the result of the concept
creating community of purpose where the cofounder, chairman, and CEO John Mackery intend to create an organization based on love instead of fear : create value for others.

Its unique management system is based on a nexus of distinctive management principles: Love, Community, Autonomy, Egalitarianism, Transparency, Mission. The organization type is small empowered work groups who are granted a degree of autonomy decision making, such as the selection of the peer/applicant, also for all key operating decisions including pricing, ordering, staffing, and in-store promotion.

The transparancy exists due to the trust (“no-secrets” management philosophy) inside the organization, enable every staff can have access to the detail financial data which helps them to make decisions on issues liek ordering and pricing, also to encourage them to perform better by comparing their salary/incentive among the
other teams.

To futher reinvorce the notions of community and interdependence, every Whole Foods meeting ends with a round of “appreciation,” as a chance to exercise higher order capabilities – initiative, imagination, and passion. Communities is built around the shared sense of purpose (mission), as they have mantra: “Whole Foods, Whole
People, Whole Planet.”

The unconventional management model is effective to bring Whole Food Market has been ranked as one of Fortune magazine’s “100 Best Companies to Work For” every year since 1998. In 2007, it was voted as the 5th most rewarding place to work in America. Turns out that management innovation really can help a company overcome the disengagement and malaise that is endemic in traditionally managed workplaces. It is harder for competitors to imitate.

Source: Thompson, Crafting and Executing Strategy, Chapter 9

Diversification : Strategies for Managing a Group of Businesses

In a diversified company, the strategy-making challenge involves assessing multiple industry environment and developing a set of business strategies, one for each industry arena in which the diversified company operates.
The task of crafting a diversified company’s overall of corporate strategy falls squarely in the lap of top-level executives and involves four distinct facets:
1. Picking new industries to enter and deciding on the means of entry.
2. Initiating actions to boost the combined performance of the businesses the firm has entered.
3. Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage.
4. Establishing investment priorities and steering corporate resources into the most attractive business units.
So long as a company has its hands full trying to capitalize on profitable growth opportunities in its present industry, there is no urgency to pursue diversification.

There are four other instances in which a company becomes a prime candidate for diversifying:
1. When it spots opportunities for expanding into industries whose technologies and products complement its present business.
2. When it can leverage existing competencies and capabilities by expanding into business where these same resources strengths are key success factors and valuable competitive assets.
3. When diversifying into closely related business opens new avenues for reducing costs.
4. When it has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such business.

A move to diversify into a new business must pass there tests: (1) the industry attractiveness test, (2) the cost-of-entry test, (3) the better-off test. Diversification moves that satisfy all three tests have the greatest potential to grow shareholder value over the long term.
The means of entering new businesses can take any of three forms: acquisition, internal start-up, or joint ventures with other companies. The biggest drawbacks to entering an industry by forming an internal start-up are the costs of over-coming entry barriers and the extra time it takes to build a strong and profitable competitive position.

There are three diversification strategy options:
1. Diversified into related businesses
Enhance shareholder value by capturing cross-business strategic fits:
- Transfer skills and capabilities from one business to another.
- Share facilities or resources to reduce costs.
- Leverage use of a common brand name.
- Combine resources to create new strengths and capabilities.
2. Diversified into unrelated businesses
- Spread risks across completely different business
- Build shareholder value by doing superior job of choosing businesses to diversify into and of managing the whole collection of businesses in the company’s portfolio.
3. Diversified into both related and unrelated business.
Strategic fit exists when the value chains of different businesses present opportunities for cross-business resource transfer, lower costs through combining the performance of related value chain activities, cross-business use of a potent brand name, and cross-business collaboration to build new or stronger competitive capabilities. Cross-business strategic fits can exist anywhere along the value chain: in R&D and technology activities, in supply chain activities and relationships with suppliers, in manufacturing, in sales and marketing, in distribution activities, or in administrative support activities.

The procedure for evaluating the pluses and minuses of a diversified company’s strategy and deciding what actions to take to improve the company’s performance involves six steps:
1. Assessing the attractiveness of the industries the company has diversified into, both individually and as a group.
2. Assessing the competitive strength of the company’s business units and determining how many are strong contenders in their respective industries.
3. Checking the competitive advantage potential of cross-business strategic fits among the company’s various business units.
4. Checking whether the firm’s resources fit the requirements of its present business lineup.
5. Ranking the performance prospects of the businesses from best to worst and determine what the corporate parent’s priority should be in allocating resources to its various businesses.
6. Crafting new strategic moves to improve overall corporate performance.

A company’s five main strategic alternatives after it diversifies:
1. Stick closely with the existing business lineup.
2. Broaden the diversification base.
3. Divest some businesses and retrench to a narrower diversification base.
4. Restructure the company’s business lineup through a mix of divestitures and new acquisitions.
5. Pursue multinational diversification.

Source: Crafting and Executing Strategy, Chapter 8.

Strategies for Competiting in Foreign Markets

WHY COMPANIES EXPAND INTO FOREIGN MARKETS

Four major reason why company may opt to expand outside its domestic market:
1. To gain access to new customers
2. To achieve lower costs and enhance the firm’s competitiveness
3. To capitalize on its core competencies
4. To spread its business risk across a wider market base

FACTORS THAT SHAPE STRATEGY CHOICES IN FOREIGN MARKETS

1. Four important factors that shape a company’s strategic approach to competing in foreign
markets: The degree to which there are important cross-country differences in cultural, demographic, and market conditions;
2. Whether opportunities exist to gain competitive advantage based on whether a company’s activities are located in some countries rather than in others;
3. The risk of adverse shifts in currency exchange rates;
4. The extend to which the policies of foreign government lead to more favorable business environment in some countries than in other countries.

THE CONCEPTS OF MULTICOUNTRY COMPETITON AND GLOBAL COMPETITION

Multicountry competition exists when competition in one national market is localized and not closely connected to competition in another national market. When competition in each country differs in important respects, there is no gloval maret but rather a collection of self-contained country markets. Global competition exists when competition conditions across national markets are linked strong enough to form a true international market and when leading competitors compete head to head in many different countries. An industry can be in transition from multicountry competition to global competition.

STRATEGY OPTIONS FOR ENTERING AND COMPETING IN FOREIGN MARKETS

There are host of generic strategic options for a company that decides to expand outside its domestic market and compete internationally or globally:
1. Maintain a national (one-country) production base ande export goods to foreign markets,
2. License foreign firms to use the company’s technology or to produce and distribute the company’s products,
3. Employ a franchising strategy,
4. Use strategic alliances or joint ventures with foreign companies as the primary vehicle for entering markets,
5. Follow a multicountry strategy,
6. Follow a global strategy.

THE QUEST FOR COMPETITIVE ADVANTAGE IN FOREIGN MARKETS

Three important ways in which a firm can gain competitive advantage by expanding outside its domestic market:
1. Use location to lower costs or achieve greater product differentiation,
2. Transfer competitively valuable competencies and capabilities from its domestic markets to foreign markets,
3. Use cross-border coordination in ways that a domestic-only competitor cannot.

STRATEGIES TO COMPETE IN THE MARKETS OF EMERGING COUNTRIES

Strategy options for emerging-country markets:
1. Prepare to compete on the basis of low price.
2. Be prepared to modify aspects of the company’s business model or strategy to accomodate local circumstances.
3. Try to change the local market to better match the way the company does business elsewhere.
4. Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accomodate local circumstances.

Strategies for local companies in emerging markets (defending against global giants):
1. Develop business models that exploit shortcomings in local distribution networks or infrastructure.
2. Utilize keen understanding of local customer needs and preferences to create customized products or services.
3. Take advantage of low-cost labor and other competitively important local workforce qualities.
4. Use acquisition and rapid growth strategies to better defend against expansion-minded multinationals.
5. Transfer company expertise to cross-border markets and initiate actions to contend on a global level.

Source: Crafting and Executing Strategy, Chapter 7

Supplementing the Chosen Competitive Strategy

STRATEGIC ALLIANCES AND PARTNERSHIPS

Strategic Alliances are collaborative arrangements where two or more companies join forces to
achieve mutual beneficial strategic outcomes. The competitive attraction of alliances is in allowing
companies to bundle competencies an resources that are more valuable in a joint effort than when
kept separate.

By joining forces in components production and/or final assembly, companies may be able to realize
cost savings not achievable with their own small volumes. The best alliances are highly selective,
focusing on particular value chain activites and on obtaining a particular competitive benefit. They
tend to enable a firm to build on its strengths and to learn.

Six factors of the extent to which companies benefit from entering alliances and partnerships:
1. Picking a good partner
2. Being sensitive to cultural differences
3. Recognizing that the alliance must benefit both sides
4. Ensuring that both parties live up to their commitments
5. Structuring the decision-making process so that actions can be taken swiftly when needed
6. Managing the learning process and then adjusting the alliance agreement overtime to fit
new circumstances.

MERGER AND ACQUISITION STRATEGIES

Combining the operations of two companies, via merger or acquisition, is an attractive strategic
option for achieving operating economies, strengthening the resulting company’s competencies and
competitiveness, and opening up avenues of new market opportunity. The five strategic objectives:
1. To create a more cost-efficient operation out of the combined companies
2. To expand a company’s geographic coverage
3. To extend the company’s business into new product category
4. To gain quick access to new technologies or other resources and competitive capabilities
5. To try to invent a new industry and lead the convergence of industries whose boundaries are
being blurred by changing technologies and new market opportunities.

VERTICAL INTEGRATION STRATEGIES: OPERATING ACROSS MORE STAGES OF THE INDUSTRY VALUE
CHAIN

Vertical integration extends a firm’s competitive and operating scope within the same industry. Its
strategies can aim at full integration (participating in all stages of the industry value chain) or partial
integration (building positions in selected stages of the industry’s total value chain). It has appeal
only if it significantly strengthens a firm’s competitive position.
OUTSOURCING STRATEGIES: NARROWING THE BOUNDARIES OF THE BUSINESS
Outsourcing involves farming out certain value chain activities to outside vendors. Two major
reasons for outsourcing: (1) outsiders can often perform certain activities better or cheaper and (2)
outsourcing allows a firm to focus its entire energies on those activities at the center of its expertise
(its core competencies) and that are the most critical to its competitive and financial success.

BUSINESS STRATEGY CHOICES FOR SPECIFIC MARKET SITUATION

Different strategies should be applied to these six commonly encountered types of market
conditions:
1. Freshly emerging markets
2. Rapidly growing markets
3. Mature, slow-growth markets
4. Stagnant or declining markets
5. Turbulent market characterized by rapid-free change
6. Fragmented market comprised of a large number of relatively small sellers

TIMING STRATEGIC MOVES – TO BE AN EARLY MOVER OR A LATE MOVER

Being first to initiate a strategic move can have a high payoff when (1) pioneering helps build a firm’s
image and reputation with buyers; (2) early commitments to new technologies, new-style
components, new or emerging distribution channels, and so on can produce an absolute cost
advantage over rivals; (3) first-time customers remain strongly loyal to pioneering firms in making
repeat purchases; and (4) moving first constitutes a preemptive strike, making imitation extra hard
or unlikely. Because of first-mover advantages and disadvantages, competitive advantage can spring
from when a move is made as well as from what move is made.
A blue ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning
efforts to beat out competitors in existing markets and, instead, inventing a new industry or
distinctive market segment that renders existing competitors largely irrelevant and allows a
company to create and capture altogether new demand.

There are advantages to being an adept follower rather than a first-mover:
1. When pioneering leadership is more costly than imitating followership and only negligible
learning/experience curve benefits accrue to the leader,
2. When the products of an innovator are somewhat primitive and do not live up to buyer
expectations,
3. When demand side of the marketplace is skeptical about the benefits of a new technology or
product being pioneered by a first-mover,
4. When rapid market evolution gives fast-followers and maybe even cautious late movers the
opening to leapfrog a first-mover’s products with more attractive next version products.

Source: Thompson, Crafting and Executing Strategy, Chapter 6.