Making strategy work

Defining a corporate strategy is a critical first step in shaping the structure of an organization. The execution of this strategy is contingent upon establishing an operational structure that strikes the right balance between centralization and decentralization. This balance allows individual units to respond effectively to market demands while centralizing certain functions to eliminate redundant costs. Achieving this equilibrium facilitates coordination through seamless integration and communication.

The structure plays a vital role in strategy implementation at both corporate and business levels. Decisions regarding structure are often intricate and influenced by internal politics rather than purely practical reasons. Three primary structural considerations impact an organization's strategic execution:

Firstly, the organization must evaluate the comparative costs and benefits of various structural options. Potential structures include organizing by internal processes, around specific technologies or skills, by division, product line, geography, or functional areas. Each configuration has its own set of advantages and trade-offs.

Creating a business strategy that focuses on products, services, and competitive market positioning is essential for each operating unit within an organization. This strategy must not only aim to establish and maintain a competitive edge but also align with the overarching corporate strategy to ensure organizational success. To effectively implement this strategy, it is crucial to translate strategic plans and objectives into achievable short-term goals for the business unit, accompanied by relevant short-term metrics.

However, developing an organizational structure is only part of the equation in making strategy operational. Equally important is the integration and coordination of efforts, especially in today's global business environment where operating units may be spread across different geographical locations. Ensuring cohesive action and alignment across these diverse units is critical for organizational coherence and effectiveness.

Organizations typically exhibit one of two generic structures, which influences the type of interdependence among its units. There are three main types of interdependence: pooled, where units operate independently with minimal direct interaction; sequential, where the output of one unit directly affects the next in line; and reciprocal, where units are in constant interaction and any change in one can impact all others. The coordination strategy varies with the type of interdependence. For pooled interdependence, standard operating procedures or rules are sufficient. In contrast, sequential interdependence requires more detailed coordination plans and agreements on transfer pricing, while reciprocal interdependence demands extensive information sharing and, ideally, face-to-face interactions among unit heads to address and resolve issues promptly.

The choice of business structure is significantly influenced by business-level strategy, short-term objectives, and the preferred corporate structure. Within the same company, different businesses may encounter distinct marketplaces, necessitating unique structures tailored to their specific needs rather than adhering to a uniform model. An effective business structure is one that is shaped by the business strategy it aims to support, rather than by management preferences.

For any commercial strategy to be successful, it is crucial that information is freely shared and knowledge is transferred throughout the organization. The absence of continuous communication can severely hinder the implementation of any strategic plan. Enhancing information sharing can be achieved through both formal and informal mechanisms.

Some effective methods include establishing and maintaining company-wide databases and IT systems for capturing and disseminating knowledge, forming formal teams or committees dedicated to improving information flow, and facilitating informal interactions among employees to share tacit knowledge that is difficult to document. Additionally, publishing a directory of key personnel, their locations, responsibilities, and expertise, allowing open communication across the organization without managerial approval, adopting a common language for ease of understanding, fostering a culture of trust, encouraging the assimilation of new information into daily activities, are all vital steps in promoting effective communication.

It is essential to clearly define who within the organization is responsible and accountable for information sharing. Without assigning specific responsibilities, there is a risk that information sharing will be overlooked, assuming that others are handling it. To address this, a chart outlining all major tasks, activities, or decisions related to achieving strategic goals should be developed, listing key decision-makers and their level of responsibility using a system of codes: R for full responsibility, C for consultation before decisions, A for accountability, I for those needing to be informed, and a question mark for unclear roles. This chart should be reviewed and refined by management to ensure clarity and consensus on responsibilities.

Execution is critically impacted when rewards are misaligned with organizational goals, leading to a scenario where individuals may be incentivized to pursue actions detrimental to the organization's success. To counteract this, it's vital to establish an incentive program that not only rewards both individual and group achievements in the short term but also aligns with the overarching business structure. This balance between individual and group rewards is crucial as it clearly communicates organizational priorities and areas of emphasis. Controls serve as a vital feedback mechanism, offering leaders insights into the effectiveness of strategy implementation and facilitating organizational learning.

Incentives play a pivotal role in motivating behaviors and actions that align with desired outcomes. They can be categorized into extrinsic incentives, such as salary increases, bonuses, and promotions, and intrinsic incentives, which include awards, increased autonomy, and opportunities for engaging in more interesting projects. The essence of a successful incentive program lies in its ability to reward actions that are in harmony with the organization's set objectives. A disconnect between stated goals and rewarded behaviors can lead to adverse outcomes, as individuals tend to gravitate towards actions that yield rewards, regardless of their impact on the organization. Therefore, it's imperative to carefully design incentives to avoid unintended consequences.

The success of any strategic plan in an organization hinges on the alignment of four critical contextual factors: change, culture, power, and leadership. For a strategy to be effective, an organization must be adept at managing change, foster a culture that prioritizes execution, have a power structure that supports the implementation of strategy, and possess leadership that is both committed to and actively involved in the strategic process.

Managing change is often the most significant barrier to strategy execution. It requires a clear assessment of the impending changes, an understanding of the time available for implementation, and a decision on whether to enact changes all at once or through a series of progressive steps. Assigning clear responsibility and accountability for each element of the change process is crucial, as is finding ways to counteract any resistance. Monitoring and adjusting the changes as necessary is also a key part of the process. Sequential change, although less exciting, is generally preferred as it allows for more manageable and less disruptive transitions.