McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
Chapter 11: Managing Internal Chapter 11: Managing Internal
Operations: Actions That Promote Operations: Actions That Promote
Good Strategy ExecutionGood Strategy Execution
Screen graphics created by:Jana F. Kuzmicki, Ph.D.
Troy University
““Winning companies know how Winning companies know how
to do their work better.” to do their work better.”
Michael Hammer and James ChampyMichael Hammer and James Champy
““If you want people motivated If you want people motivated
to do a good job, give them ato do a good job, give them a
good job to do.”good job to do.”
Frederick HerzbergFrederick Herzberg
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Chapter Learning Objectives
1. Learn why resource allocation should always be based on strategic priorities.
2. Understand why policies and procedures should be designed to facilitate good strategy execution.
3. Understand why and how benchmarking, best-practices adoption, and tools for continuously improving the performance of value chain activities help an organization achieve operating excellence and superior strategy execution.
4. Understand the role of information and operating systems in enabling company personnel to carry out their strategic roles proficiently.
5. Learn how and why the use of well-designed incentives and rewards can be management’s single most powerful tool for promoting proficient strategy execution and operating excellence.
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Chapter Roadmap
Marshaling Resources Behind the Drive for Good Strategy Execution
Instituting Policies and Procedures that Facilitate Strategy Execution
Adopting Best Practices and Striving for Continuous Improvement
Installing Information and Operating Systems
Tying Rewards and Incentives to Strategy Execution
MARSHALING RESOURCES MARSHALING RESOURCES
BEHIND THE DRIVE FOR GOOD BEHIND THE DRIVE FOR GOOD
STRATEGY EXECUTION STRATEGY EXECUTION
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Allocating Resources toSupport Strategy Execution
Allocating resources in ways to support effective strategy execution involves
Funding strategic initiatives that can makea contribution to strategy implementation
Funding efforts to strengthen competenciesand capabilities or to create new ones
Shifting resources — downsizingsome areas, upsizing others, killingactivities no longer justified, and fundingnew activities with a critical strategy role
ESTABLISH POLICIES AND ESTABLISH POLICIES AND
PROCEDURES TO FACILITATE PROCEDURES TO FACILITATE
STRATEGY EXECUTIONSTRATEGY EXECUTION
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Role of new policies Channel behaviors and decisions
to promote strategy execution
Counteract tendencies ofpeople to resist chosen strategy
Too much policy can be as stifling as Wrong policy or as
Chaotic as no policy
Often, the best policy is empowering employees, letting them operate between the “white lines” anyway they think best
Creating Strategy-SupportivePolicies and Procedures
Figure 11.1: How Prescribed Policies andProcedures Facilitate Strategy Execution
ADOPTING BEST PRACTICES ADOPTING BEST PRACTICES
AND STRIVING FOR AND STRIVING FOR
CONTINUOUS IMPROVEMENTCONTINUOUS IMPROVEMENT
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Instituting Best Practicesand Continuous Improvement
Identifying and adopting best practicesis integral to effective implementation
Benchmarking is the backbone of theprocess of identifying, studying, andimplementing best practices
Key tools to promote continuous improvement
Six Sigma quality control
Business process reengineering
TQM
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What Is a Best Practice?
An activity that at leastone company has provedworks particularly well
A path to operating excellence
Best Practices
Characteristics of Best Practices
The best practice must have a proven record in
Significantly lowering costs
Improving quality or performance
Shortening time requirements
Enhancing safety or
Delivering some other highly positive operating outcome
To be valuable and transferable, a best practice must
Demonstrate success over time
Deliver quantifiable and highly positive results
and
Be repeatable
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Involves determining how well a firm performs particular activities and processes when compared against “Best in industry” or “Best in world” performers
Goal Promote achievement of operating excellence in performing strategy-critical activities
Caution Exact duplication of best practices of other firms is not feasible dueto differences in implementation situations
Best approach – Best practices of otherfirms need to be modified or adaptedto fit a firm’s own specific situation
Characteristics of Benchmarking
Figure 11.2: From Benchmarking and Best-PracticeImplementation to Operating Excellence
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Business Process Reengineering:A Contributor to Operating Excellence
Often the performance of strategicallyrelevant activities is scatteredacross several functional departments
Creates inefficiencies and often impedes performance
Results in lack of accountability since no one functional manager is responsible for optimum performance of an entire activity
Solution Business process reengineering Involves pulling strategy-critical processes from
functional silos to create process departments or cross-functional work groups
Unifies performance of the activity improves how well activity is performed and often lowers costs
Promotes operating excellence
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What Is Total Quality Management?
A philosophy of managing a set of business practices that emphasizes
Continuous improvement in all phases of operations
100 percent accuracy in performing activities
Involvement and empowermentof employees at all levels
Team-based work design
Benchmarking and
Total customer satisfaction
Popular TQM Approaches
Deming’s
14 Points
Baldridge AwardCriteria
The Juran
Trilogy
Crosby’s 14
Quality Steps
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Implementing a Philosophyof Continuous Improvement
Reform the corporate culture
Instill enthusiasm to do thingsright throughout company
Strive to achieve little steps forwardeach day (what the Japanese call kaizen)
Ignite creativity in employees to improveperformance of value-chain activities
Preach there is no such thing as good enough
Understand it is a race without a finish
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Six Sigma is a disciplined, statistics-based system aimed at having not more than 3.4 defects per million iterations for any business practice
Two approaches to Six Sigma DMAIC process (Design, Measure,
Analyze, Improve, Control)An improvement system for existing
processes falling below specificationand needing incremental improvement
A great tool for improving performancewhen there are wide variations in howwell an activity is performed
DMADV process (Define, Measure, Analyze, Design, Verify) or DFSS (Design for Six Sigma)An improvement system used to develop new
processes or products at Six Sigma quality levels
Six Sigma Quality Control — A Toolfor Promoting Operating Excellence
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Characteristics ofSix Sigma Quality Programs
Six Sigma is based on three principles1. All work is a process2. All processes have variability3. All processes create data to explain variability
DMAIC process is a good approach to improve performance when wide variations in how well an activity is performed exist
Evidence exists that innovation can be stifled by Six Sigma programs
Blended approach to Six Sigma implementation involves
Pursuing incremental improvementsin operating efficiency and
Giving freer rein to R & D and other processesfocusing on new ways to offer value to customers
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Approach of the DMAIC Process
Define What constitutes a defect?
Measure Collect data to find out why, how,
and how often the defect occurs Analyze – Involves
Statistical analysis of the metrics Identification of a “best practice”
Improve Implementation of the documented “best practice”
Control Employees are trained on the “best practice” Over time, significant improvement in quality
occurs
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Guidelines for ImplementingSix Sigma Quality Programs
Systematic application of Six Sigma methods to a company’s value chain activities
Can significantly improve the proficiency of strategy implementation
Key challenges in implementing Six Sigma quality programs
1. Obtain managerial commitment
2. Establish a quality culture
3. Full involvement of employees
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Reengineering
Aims at quantum gains of 30 to 50% or more
Total quality programs
Stress incremental progress
Techniques are not mutually exclusive
Reengineering – Used to produce a good basic design yielding dramatic improvements
Total quality programs – Used to perfect process, gradually improving efficiency and effectiveness
Business Process Reengineeringvs. Total Quality Programs
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Select indicators of successfulstrategy execution
Benchmark against best practice companies
Build a TQ culture
Requires top management commitment
Install TQ-supportive employee practices
Empower employees to do the right things
Provide employees with quick access to required information using on-line systems
Preach that performance can/must be improved
How to Capture Benefits of Best-Practice and Continuous Improvement Programs
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The Benefits of EmployingContinuous Improvement Programs
Can greatly enhance a company’s Competitive capabilities
Ability to achieve a competitive advantage
Have hard-to-imitate aspects
Require substantial investmentof management time and effort
Expensive in terms of training and meetings
Seldom produce short-term results
Long-term payoff — instilling a culturethat strives for operating excellence
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Test Your Knowledge
Which of the following is not a tool that managers can use to promote operating excellence and further the cause of good strategy execution?
A. Benchmarking and adoption of best practices
B. Business process reengineering
C. A team-based work structure and operating excellence analysis
D. Six Sigma quality control techniques
E. TQM
INSTALL INFORMATIONINSTALL INFORMATION
AND OPERATING SYSTEMSAND OPERATING SYSTEMS
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Installing Strategy-SupportiveInformation and Operating Systems
Good information and operating systems areessential for first-rate strategy execution
Support systems can relate to
On-line data capabilities
Speedy delivery or repair
Inventory management
E-commerce capabilities
Mobilizing information and creating systemsto use knowledge effectively can yield
Competitive advantage
Examples of Support Systems
On-line reservation system
Accurate and expeditious baggage handling system
Strict aircraft maintenance program
AirlinesAirlines
Examples of Support Systems
Internal communication systems allowing itto coordinate 70,000 vehicles handling anaverage of 5.5 million packages per day
Leading-edge flight operations systemsallow a single controller to direct as manyas 200 of 650-plus aircraft simultaneously
E-business tools for customers
Federal ExpressFederal Express
Examples of Support Systems
Sophisticated maintenance support system
Otis ElevatorOtis Elevator
Systems have been developed forreal-time monitoring of new listings, bidding
activity, Web site traffic, and page views
eBayeBay
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What Areas ShouldInformation Systems Address?
Customer data
Operations data
Employee data
Supplier/partner/collaborative ally data
Financial performance data
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Trends in Design and Use of Information Systems
On-line technology
Daily statistical updates
Up-to-the minute performance monitoring
Retailers and manufacturers have up-to-the minute inventory and sales records for each item
Electronic scorecards for senior managers
Gather daily or weekly statistics from different databases about inventory, sales, costs, and sales trends
Enables managers to make betterdecisions on a real-time basis
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Challenge
How to ensure actions of employeesstay within acceptable bounds
Control approaches
Managerial control
Establish boundaries on what not todo, allowing freedom to act with limits
Track and review daily operating performance
Peer-based control
Exercising Adequate ControlOver Empowered Employees
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For Discussion: Your Opinion
What sort of information and operating
systems would a company like Amazon.com
likely need in order to facilitate good strategy
execution?
TYING REWARDS AND TYING REWARDS AND
INCENTIVES TO STRATEGY INCENTIVES TO STRATEGY
EXECUTIONEXECUTION
Gaining Commitment: Componentsof an Effective Reward System
Monetary IncentivesMonetary Incentives
Base pay increases
Performance bonuses
Profit sharingplans
Stock options
Retirement packages
Piecework incentives
Non-Monetary IncentivesNon-Monetary Incentives
Praise
Constructivecriticism
Special recognition
More, or less, job security
Stimulating assignments
More, or less,autonomy
Rapid promotion
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Provide attractive perks and fringe benefits Rely on promotion from within when possible Make sure ideas and suggestions of
employees are valued and respected Create a work atmosphere where there is genuine
sincerity and mutual respect among all employees State strategic vision in inspirational terms to make
employees feel they are part of something worthwhile
Share financial and strategicinformation with employees
Have knockout facilities Be flexible in how company approaches people
management in multicultural environments
Approaches: Motivating Peopleto Execute the Strategy Well
Examples: Motivational Practices
Lincoln ElectricLincoln Electric
Rewards productivity by paying for each pieceproduced (defects can be traced to worker causing them).
Highest rated workers receive bonuses of as much110% of their piecework compensation.
GoogleGoogle
Employees are provided with free food,unlimited ice cream, pool and Ping-Pong tables, and complimentary massages. Employees are allowed to spend 20% of their work time on any outside activity.
Examples: Motivational Practices
WegmansWegmans
Employees have flexible schedules and benefits include onsite fitness centers. Employees from cashiers to butchers to store managers are all treated equally and viewed as experts in their jobs. Employees receive 50 hours of formal training per year.
JM Family EnterprisesJM Family Enterprises
Benefits for employees include: a great lease on new Toyotas, cruises in the Bahamas on the 172-foot company yacht, office facility has a heated lap pool, a fitness center, and a free nail
salon, and professionally made take-home dinners.
Examples: Motivational Practices
NordstromNordstrom
Pay salespeople higher than prevailing rates,plus commission. “Rule #1: Use good judgment in
all situations. There will be no additional rules.”
Ukrop’s Super MarketsUkrop’s Super Markets
Stores stay closed on Sunday; company pays out 20% of pretax profits to employees in the form of quarterly bonuses; and the company pays the membership tab for employees if
they visit their health club 30 times a quarter.
Examples: Motivational Practices
W. L. GoreW. L. Gore
Employees get to choose what project/team they work on; each team member’s compensation is based on other team members’ ranking of his/her contribution to the enterprise.
AmgenAmgen
Employees get 16 paid holidays, generousvacation time, tuition reimbursements up to $10,000,on-site massages, a discounted car wash, and the
convenience of shopping at on-site farmers’ markets.
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Elements of both are necessary
Challenge and competition arenecessary for self-satisfaction
Prevailing view
Positive approaches work betterthan negative ones in terms of
Enthusiasm
Dedication
Creativity
Initiative
Balancing Positive vs. Negative Rewards
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Tying rewards to the achievement of strategic and financial performance targets is management’s single most powerful tool to win the commitment of company personnel to effective strategy execution
Objectives in designing the reward system Generously reward those
achieving objectives Deny rewards to those who don’t Make the desired strategic and
financial outcomes the dominantbasis for designing incentives,evaluating efforts, and handing out rewards
Linking the Reward Systemto Performance Outcomes
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Test Your Knowledge
Management’s most powerful tool for mobilizing employee commitment to competent strategy execution and operating excellence is
A. the use of either total quality management or Six Sigma quality control techniques.
B. business process reengineering.
C. a properly designed reward structure.
D. making the company a great place to work in terms of pay scales, fringe benefits, and employee perks.
E. effective screening of job applicants such that only the most motivated and energetic people are hired.
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Create a results-oriented system Reward people for results, not for activity Define jobs in terms of what to achieve Incorporate several performance
measures Tie incentive compensation to relevant
outcomes Top executives – Incentives tied to
overall firm performance Department heads, teams, and
individuals – Incentives tied toachieving performance targetsin their areas of responsibility
Key Considerations inDesigning Reward Systems
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For Discussion: Your Opinion
What is the logic for tying incentive
compensation awards to the achievement of
results as opposed to rewarding people for
diligent performance of their assigned duties?
Guidelines for Designing anEffective Compensation System
1. Payoff must be a major, not minor, piece of total compensation package
2. Incentive plan should extend to all employees
3. Administer system with scrupulous fairness
4. Link incentives to achieving only the performance targets in strategic plan
5. Targets a person is expected to achieve must involve outcomes that can be personally affected
6. Keep time between performance reviewand payment short
7. Make liberal use ofnon-monetary rewards
8. Avoid ways of rewarding non-performers
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Test Your Knowledge
A well-designed reward system A. makes strategically relevant measures of
performance the dominant basis for incentive compensation.
B. should strive for a 75%-25% mix between positive and negative rewards.
C. should strive for a 67%-33% mix between monetary and non-monetary rewards.
D. must emphasize weeding out employees who are consistently rank in the bottom 10% to 15% of the workforce in terms of overall performance and productivity.
E. guarantees job security to all employees, so as to reduce stress and anxiety and to allow employees to focus all their energies on performing their assigned duties.