• Wednesday, May 22, 2024
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The strategic organization ( 2)

IOSCO moves to increase cooperation, information-sharing among securities regulators

Effective Execution Is Not Enough

Superior performance is the result of effectively designing, implementing and executing strategy. Organizations like Kodak, Nokia, IBM, Burberry, Blockbuster, Google etc rose to dominate their industry as a result of the competitive advantages created by their strategy. Take Kodak for example, at the height of their success in 1996, it held two-thirds of global market share with a revenue of nearly $16 billion. Yet between 2003 to 2011, Kodak shed 47,000 jobs, 13 manufacturing plants and 130 processing labs. It could no longer make an annual profit by 2004 and its cash reserves were soon depleted.

What happened to Kodak? Well, the same thing that happened to other organisations that failed. Growth happens as a result of competitive advantage resulting from strategy. Remaining a growing and profitable business also depends on remaining great at design, implementation and execution of the strategy.

The implication is that strategy execution is not something to put on and off. On the contrary, it is meant to be a lifestyle, a culture and an attitude of the organization. Great Organizations are not just great at executing strategy, they build a strategic organization. A strategic organization is structured to support the choices and decisions consistent with the strategic direction of the organization. It is the organization designed to execute.

Read Also: The strategic organization (1)

Capital One is listed among the 100 largest banks in the United States. It’s a bank holding company which runs more than 50,000 new product or market segment tests each year in its quest to drive the net present value of the firm higher. In the process, it has built a valuable proprietary database (an average of one hundred pages single spaced on every adult in the USA) that also makes it smarter in seeking out new profit opportunities. This ability to move faster than competitors gives Capital One a clear competitive advantage.

Capital One generates 50,000 new credit card product ideas every year – each requires trade-offs between marketing, risk management and operations. These decisions are made not in the executive suites but by commercial teams on the front line. The rules are clear on what decision rights these teams have and their actions are tracked carefully, but they are empowered to make choices on which customer and product groups to serve. That is a classic example of a Strategic Organization. Execution works in the natural course of work in strategic organizations because the mechanism for execution is an inbuilt system. So people don’t try to be strategic, the system is!

There are three fundamental ideas that define a strategic organization:

● Structural design

● Communication system

● Reward system

To successfully generate and test over 50,000 new credit card product ideas each year, Capital One’s structure has a self-adjusting mechanism. When the frontline employees come up with ideas, they have the support of the management to organize themselves and begin the process of implementing them. They can form a team, determine what skills are needed and even suggest a reward system with management only approving.

Like Google, the role of management at Capital One is not to come up with new credit card ideas but to ensure their people have the liberty, the strength and motivation to do that. Capital One’s competitive advantage comes from its ability to out innovate its competition. To achieve that requires a system that enables people to play around with ideas and get together with their friends to turn ideas into products. Capital One is structured to make innovation easy. This is how Capital One built a strategic organization.

Consider Google, a very innovative company yet it has no innovation department. The idea is to create a culture of innovation rather than a department charged with innovation while everyone else can do what they like. This is important because like Capital One, Google’s strength lies in moving ahead of the competition.

There are two basic ways successful organizations sustain their advantage: developing something the competition cannot replicate or to continuously improve faster than the competitors. Continuous improvement is behind most successful companies’ ability to sustain their advantage because it is almost impossible to create something that no competitor can match.

Google, Capital One and other successful organizations understand that and have designed organisational structures that make innovation a way of life. Among Google’s nine principles of innovation are “ship and iterate”, produce products very quickly, get them to market as a prototype if necessary and use feedback from users to improve them; and “failing well”, eliminating products that do not meet expectations but rather than being a stigma, instead generate pride. These ideologies make innovation a way of life at Google.

Notice how CEO of Google, Sunda Pichai summarized this approach to execution in his thought provoking speech at the Indian Institute of Technology-Kharagpur: When you are trying to run something at the scale of Google, we have now over 60,000 people and…you rely on other strong leaders. A lot of what I do is… I have an outstanding leadership team. It is learning to let go and really empowering people at all levels of the organisation, and trusting them to do the right thing.

As a leader, a lot of your job is to make those people successful. It is less about trying to be successful (yourself), and more about making sure you have good people and your work is to remove that barrier, remove roadblocks for them so that they can be successful in what they do.

That is how organizational structure drives innovation in strategic organizations.

Dr Reuben works with governments and organisations around the world to strengthen institutions for superior performance.