Blue Ocean Strategy Ch. 8: Build Execution into Strategy

1. Blue Ocean StrategyCh. 8: Build Execution into Strategy By: Elias, Jason, Ryan, Scott, and Stephanie

2. Chapter Introduction • A company is not only top management, nor middle management • It is everything from top to bottom to the front of the line • When all members of a firm are aligned around a strategy and support it, the firm can say it stands apart as a great and consistent executor • In the end the firm needs to invoke the most fundamental base of action: the attitudes and behavior of its people deep in the organization

3. Introduction Cont. • Leads us to the sixth principle of blue ocean strategy: to build people’s trust and commitment deep in the ranks and inspires their voluntary cooperation • Firms need to build execution into strategy from the start • This allows companies to minimize the management risk is relevant to strategy execution in both red and blue oceans, but is greater in blue

4. Poor Process Can Ruin Strategy Execution • Example: Lubber • Company that manufactures water-based liquid coolants for metalworking industry • Lubbers products had to be tested on production machines before purchasing, and the decision often rests on fuzzy logic. The result is machine downtime and sampling costs and these are expensive for customers and company alike. • To fix this, Lubber devised a strategy to eliminate the complexity and costs of the trial phase. • Used A.I. to make a new machine that reduced machine downtime, eased coolant management, and raised overall quality of work • As a result, sales process was dramatically simplified, giving sales reps more time to gain new sales

5. Poor Process Can Ruin Strategy Execution Cont. • However, this strategy ended up failing because the sales force was not engaged in the strategy-making process. • By not being engaged, they viewed this new technology as a direct threat to them, and made them feel that their jobs were less valuable • Lubber then began to lose money and management was then forced to pull the system

6. The Power of Fair Process

7. The Three E Principles of Fair Process • Engagement – involving individuals in the strategic decisions that affect them by asking for their input and allowing them to refute the merits of one another’s ideas and assumptions • Communicates management’s respect for individuals and their ideas • Results in better strategic decisions by management and greater commitment from all involved to execute those decisions

8. The Three E Principles of Fair Process Cont. 2. Explanation – that everyone involved and affected should understand why final strategic decisions are made as they are • Makes people confident that managers have considered their opinions and have made decisions impartially in the overall interest of the company • Allows employees to trust managers intentions even if their own ideas have been rejected, also serves as a powerful feedback tool

9. The Three E Principles of Fair Process Cont. 3. Expectation Clarity – requires that after a strategy is set, managers state clearly the new rules of the game • When people clearly understand what’s expected of them, political jockeying and favoritism are minimized, and people can focus on executing the strategy rapidly

10. A Tale of Two Plants • Elco – elevator manufacturer, needed to replace it’s batch-manufacturing system with a cellular approach that would allow self directed teams to achieve superior performance • Wanted to implement first into Chester plant then install in its second plant, High Park plant • Chester plant quickly rejected the need strategy, within months both cost and quality performance were in free fall • High Park plant accepted the strategy shift, people there felt like they had be treated fairly so the willing to participate in the rapid execution of the company’s new process

11. Why did the Chester Plant Fail? • They violated the three principals of Fair Process! • Failed to engage employees • Didn’t explain why strategic decisions were being made the way they were and what those decisions meant to employees careers and work methods • Overall, employee’s felt that they were not valued

12. Why did High Park Plant Succeed? • High Park abided by the three principles of fair process by: • Plant management introduced the new strategy to employees • They held a series of plant wide meetings to discuss current business conditions • Goals and expectations were made clear to all employees

13. Why does Fair Process Matter? • It all comes down to intellectual and emotional recognition • Emotionally, individuals seek recognition of their, not as “labor”, “personnel”, or “human resources” but as human beings who are treated with full respect and dignity and appreciated for their individual hard work • Intellectually, individuals seek recognition that their ideas are sought after and given thoughtful reflections, and that others think enough of their intelligence to explain their to them

14. Intellectual and Emotional Recognition Theory As stated before, Fair process is strongly linked to both intellectual and emotional recognition When individuals feel recognized for their intellectual worth they are willing to share their knowledge with the rest of the firm When individuals are treated with emotional recognition, they feel emotionally tied to the strategy and inspired to give their all If individuals are not treated this way they feel less valuable and less likely to contribute to the firm

16. Fair Process and Blue Ocean Strategy • Commitment, trust, and voluntary cooperation are not merely attitudes or behaviors, they are intangible capital • Companies that have executed a blue ocean strategy will tell you how important it is to have this intangible capital • The excess of fair process gives individuals the ability to trust management which leads to better overall performance for the individual and the firm as a whole • With fair process, individuals feel committed to support the strategy of the firm • They accept the need for short-term personal sacrifices (rinsing your cottage cheese) in order to advance the long-term interest of the corporation

17. Take- A -Ways • Successful companies do not consist of top, middle, and bottom hierarchies; it is a collective process that includes all who make up the organization. • Fair process (engagement, explanation, expectancy) is a vital characteristic for the successful execution of BOS; people don’t like to be taking for granted. • Intangible capital ( commitment, trust, voluntary cooperation) is a must have in order to be successful. Companies that have gone bust testified that a lack of intangible capital is the reason they went under.