Final Lecture: 4

Resource Strength & Organizational Capabilities

Components of building a capable organization

Staffing the organization Building core competencies and competitive capabilities Structuring the organization and work effort

Staffing The OrganizationPutting Together a Strong Management Team : Assembling a capable management team is one of the first cornerstone of the organization building tasks. Determination of core management team and finding the right people for different positions is extremely important.

Recruiting and Retaining Talented Employees A good management team is not enough. Staffing the organization with talented people must go much deeper than managerial jobs in order to assemble the human resources and knowledge base needed for effective strategy execution. Companies like General Electric, Procter & Gamble, PepsiCo, Hewlett-Packard, Nike, Microsoft make a concerted effort to recruit the best and brightest talent they can find and then retain them with excellent compensation packages, opportunities for rapid advancement and professional growth, and challenging and interesting assignments.

The best companies use a variety of practices to develop their knowledge base and build intellectual capital:

1. Spend considerable effort in screening and evaluating job applicants, selecting only, those with suitable skill sets, energy, initiative, judgment, and aptitudes for learning and adaptability to the company’s work environment and culture. Many companies take extraordinary pains to seek out the right people to fill job openings- in 1997, Southwest Airlines got 150,000 resumes but hired only 5,000 people.

2. Put employees through training programs that continue throughout their careers.

3. Give them challenging, interesting, and skills-stretching assignments.

4. Rotate them through jobs that have great content and wider span functional and geographic boundary.

5. Encourages employees to be creative and innovative and to submit ideas for new products or businesses. Progressive companies work hard at creating a work environment where work ideas and suggestions bubble up from below rather than proceed from the top down. Employees are made to feel their opinions count.

6. Foster a stimulating and engaging work environment, such that employees will consider the company “a great place to work”.

7. Exert efforts to retain high-potential, high performing employees with salary increases, performance bonuses, stock options and equity ownership, and other long-term incentives.

8. Average performers are coached to do better, while under performers and benchwarmers are weeded out.

Building Core Competencies and Competitive CapabilitiesHigh among the organization-building concerns in the strategy implementing/executing process is the need to build competitively valuable core competencies and organizational capabilities that give the firm a competitive edge over rival’s in performing one of more critical value chain activities.

Developing and Strengthening Core CompetenciesCore competencies can relate to any strategically relevant factor. Honda’s core competence is its depth of experience in gasoline engine technology and small engine design. Intel’s is in the design of complex chips for personal computers. Proctor & Gamble’s core competencies reside in its superb marketing distribution Skills and its R&D capabilities.

Four traits concerning core competencies and competitive capabilities are important to organization building:

Core competencies rarely consist of narrow skills or the work efforts of a single department. More often, they are bundles of skills and know-how growing out of the combined efforts of cross-functional departments.

Because core competencies typically reside in the combined efforts of different work groups and departments, individual supervisors and department heads can’t be expected to see building the overall corporation’s core competencies as their responsibility.

The company’s core competencies concentrates in efforts and talent than rivals on deepening and strengthening these competencies.

A company’s selected bases of competences need to be broad enough and flexible enough to respond to an unknown future as customers’ expectation gradually changes from time to time.

Developing and Strengthening Organizational Capabilities Good execution of strategy is needed for which we need to enhance company’s competencies and capabilities.

First, the organization must develop the ability to do something, however imperfectly or inefficiently. It includes selecting people with the requisite skills and experience, upgrading or expanding individual abilities as needed, and then molding the efforts and work products of individuals into a cooperative group effort to create organizational ability.

Then as experience builds, the organizational ability now begins to translate into a competence or a capability.

Now the organization get so good to accomplish the activity better than the rivals; the capability has the potential for competitive advantage.

Updating and Reshaping Competencies and Capabilities as External Conditions and Company Strategy Change Even after core competencies and competitive capabilities are in place and functioning, company managers can’t relax. Competencies and capabilities that grow stale cam impair competitiveness unless they are refreshed and modified, with some even being phased out and replaced with altogether new ones.

The Strategic Role of Employee Training Training and retraining are important when a company shifts to a strategy requiring different skills. competitive capabilities, managerial approaches, and operating methods. Training is also strategically important in organizational efforts to build skills-based competencies.

Matching Organization Structure to Strategy There are few hard-and-fast rules for organizing the work effort to support strategy. Every firm’s organization chart is idiosyncratic, reflecting prior organizational patterns, varying internal circumstances, executive judgments about reporting relationships, and the politics of who gets which assignments.

Identifying Strategy-Critical Activities In any business, some activities in the value chain are always more critical to strategic success and competitive advantage than others. For instance, hotel/motel enterprises have to be good at fast check-in/check-out room maintenance, food service, and creating a pleasant ambience.

Reasons to Consider Outsourcing, “Non critical” Value Chain Activities There are strong reasons to consider outsourcing besides lower costs and less internal hassle. Outsourcing certain activities can decrease internal bureaucracies, flatten the organization structure, speed decision making, heighten the company’s strategic focus, improve its innovative capacity (through interaction with “best in world” suppliers), and increase competitive responsiveness.

Reasons to Consider Partnering with Others to Gain Added Competitive Capabilities Partnerships can add capabilities and contribute to better strategy execution. Automobile manufacturers work closely with their suppliers to advance the design and functioning of components, to incorporate new technology, to better integrate individual parts and components to form engine cooling systems, transmission systems, electrical systems and so on.

Making Strategy-Critical Activities the Main Building Blocks Activities crucial to strategic success should be prioritized with necessary adjustments which can open the door to successful execution and better performance .

Determining the Degree of Authority and Independence to Give Each Unit and Each Employee Companies must decide how much authority to give managers of each organization unit and how much decision-making latitude to give individual employees in performing their jobs..

Providing for Cross-Unit Coordination The chief executive officer, chief operating officer, and business-level managers acts as a central points of coordination among different departments which contribute to enhanced performance and thus reduces the time and energy to accomplish different tasks.

Assigning Responsibility for Collaboration with Outsiders Authorized persons should communicate with major stake holders involved in strategy execution. Cooperative relationship presents immediate opportunities and opens the door to future possibilities.

Strategic Business UnitA strategic business unit (SBU) is a grouping of business subsidiaries based on important strategic elements common to all. Closely related value chain activities is common to different SBU, offering same kind of competitive advantage Ex: At General Electric, a pioneer in the concept of SBUs, 190 businesses were grouped into 43 SBUs and then aggregated further into six “sectors”.

Cash hog businesses.Different businesses have different cash flow and investment characteristics. Business units with rapid growth industries are often called cash hogs because the annual cash flows they generate from operations falls short of their annual capital requirements. Thus rapid-growth business frequently takes a huge capital investments for some years to acquire new facilities and equipment to support the business.