Blue Ocean Strategy

1. Blue Ocean Strategy Chapter 8: Build Execution into Strategy Team 6 Molly Murdock Will Kerlick John Fletcher Reece Macdonald Bryan Fetterman

2. People of the Company • A company is not only top management, nor is it only middle management. It is everyone from the top to the front lines. • Good to Great companies built deep and strong executive teams. As discussed in the book, the companies that failed to become great often acted as a platform for the talents of a few individuals. • Only when all the members of the organization are aligned around a strategy and support it does a company stand apart as a great and consistent executor. • You must create a culture of trust and commitment that motivates people to execute the agreed strategy. • In order to build this commitment, companies need to build execution into strategy from the start. • Fair process is a key variable that distinguishes blue ocean strategic moves from those that failed.

3. Fair Process • Poor Process • Poor process can ruin strategy execution. • If the frontlines or sales force fights the strategy, then it is doomed to failure. • Fair Process • People care as much about the process through which the outcome is produced as they do about the outcome itself. • Fair process builds execution into strategy by creating people’s buy-in up front. • Voluntary cooperation is inspired when people trust that a level playing field exists.

4. How Fair Process Affects People’s Attitudes and Behaviors Strategy Formulation Process Strategy Execution Attitudes Behavior Fair Process Trust and Commitment Voluntary Cooperation Exceeds Expectations Engagement Explanation Expectation Clarity “I feel my opinion counts.” “I’ll go beyond the call of duty.” Self-initiated

5. The Three E Principles of Fair Process • Engagement • Explanation • Clarity of Expectation • Taken together, these three criteria collectively lead to judgments of fair process. Any subset of the three does not create judgments of fair process.

6. 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. • In Good to Great, Jim Collins suggests creating a climate where truth is heard. This involves meetings with all employees engaging in dialogue and debate. • Communicates management’s respect for individuals and their ideas. • Encouraging refutation sharpens everyone’s thinking and builds better collective wisdom. • Results in better strategic decisions by management and greater commitment from all involved to execute those decisions.

7. Explanation Everyone involved and affected should understand why final strategic decisions are made as they are. An explanation of the thinking that underlies decisions makes people confident that managers have considered their opinions and have made decisions impartially in the overall interests of the company. Allows employees to trust managers’ intentions even if their own ideas have been rejected.

8. Clarity of Explanation Requires that after a strategy is set, managers state clearly the new rules of the game. Employees should know up front what standards they will be judged by and the penalties for failure. When people clearly understand what is expected of them, political jockeying and favoritism are minimized, an people can focus on executing the strategy rapidly.

9. Tale of Two Plants • Elco, a elevator systems manufacturer, set out to create and execute a blue ocean strategy. • The company realized that it needed to replace its batch-manufacturing system with a cellular approach that would allow self-directed teams to achieve superior performance. • The introduction of the new process quickly led to disorder and rebellion. • Cost and quality performance were in a free fall. • High Park plant had also accepted a strategic shift in the manufacturing process. • People felt as if they had been treated fairly, and so they willingly participated in the rapid execution of the new manufacturing process.

10. Tale of Two Plants- A closer look • Elco managers violated all three of the basic principles of fair process. • First, they failed to engage employees in the strategic decisions that directly affected them. • Instead they brought in consultants who dressed differently and didn’t speak to the employees. • Trust and commitment deteriorated quickly because employees was themselves as imminent victims of management’s hidden intention to down size and work people out of their jobs. • Managers didn’t explain why strategic decisions were being made the way they were and what those decisions meant to employees’ careers and work methods. • No one explained why the strategic shift was needed. • They also neglected to make it clear what would be expected of employees under the new manufacturing process.

11. Tale of Two Plants- A closer look • High Park’s management abided by all three principles. • Management engaged employees by holding a series of plant-wide meetings with open discussion of the company’s need for a strategic shift. • They explained how cellular manufacturing would be a pivotal determinant of the company’s ability to achieve its new strategy • Managers worked with employees to develop new performance measures and to establish each cell team’s new responsibilities. • Goals and expectations were made clear.

12. Results • Elco • Employees refused to help with the strategic shift. • By violating fair process, managers can turn their best employees into their worst, earning their distrust of and resistance to the very strategy they depend on them to execute • High Park • By practicing the three principles in tandem, management won the understanding and support of their employees. • By practicing fair process, the worst employees can turn into the best and can execute even difficult strategic shifts with willing commitment.

13. Intellectual and Emotional Recognition • Intellectually, individuals seek recognition that their ideas are sought after and given thoughtful reflection. • When people are intellectually recognized for their worth, they are willing to share their knowledge. • They are inspired to impress and confirm the expectation of their intellectual value, suggesting active ideas and knowledge sharing. • Emotionally, individuals seek recognition of their value as human beings who are treated with full respect and dignity and appreciated for their individual worth. • When people are emotionally recognized, they feel emotionally tied to the strategy and inspired to give it their all.

14. Violation of Recognition • Intellectual • If individuals are not treated as if their knowledge is valued, they will feel indignation and will not share their ideas and expertise. • They will hoard their best thinking and creative ideas. • They will also reject others’ intellectual worth. • Emotional • If emotional worth is not recognized, they will feel angry and will not invest their energy in their actions. • They will apply counter-efforts, including sabotage.

15. The Execution Consequences of the Presence and Absence of Fair Process in Strategy Making

16. Fair Process and Blue Ocean Strategy • When people have trust, they have a heightened confidence in one another’s intentions and actions. • When they have commitment, they are willing to override personal self-interest in the interests of the company. • Commitment, trust, and voluntary cooperation allow companies to stand apart in the speed, quality, and consistency of their execution and to implement strategic shifts fast at low cost. • Companies that have created and successfully executed a blue ocean strategy will be quick to tell you how important this intangible asset was to their success.

17. Fair Process and Blue Ocean Strategy • Fair Process allows companies to build execution into strategy from the start. • With fair process, people tend to be committed to support the resulting strategy even when it is viewed as not favorable. • People realize that compromises and sacrifices are necessary in building a strong company and they accept the need for short-term personal sacrifices in order to advance the long-term interests of the corporation. • This acceptance is conditional, however, on the presence of fair process.

18. WSJ Example • GM needs a political strategy • Politics has been integral to GM long before it turned to the government for a bailout. • The company never has been able to launch a model or close a factory without weighing the political consequences. • This is where its defensive, obscure "culture" comes from. • So, what the company needs most is a political strategy. • In order to reshape the policy environment in which GM must operate, fair process must be used for success.