Managing Internal Operations in Ways That Promote Good Strategy Execution

2. Chapter 9 Managing Internal Operationsin Ways That PromoteGood Strategy Execution Screen graphics created by: Jana F. Kuzmicki, PhD Troy University - Florida and Western Region

3. Quote . . . “If you talk about changebut don’t change thereward and recognitionsystem, nothing changes.” Paul Allaire

4. Chapter Outline • Marshaling Resources Behind the Drive forStrategy 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 • Leading the Strategy Execution Process

5. MARSHALING RESOURCES TO SUPPORTSTRATEGY EXECUTION

6. Allocating Resources toSupport Strategy Execution • Allocating resources in ways to support effective strategy execution involves • Funding internal initiatives and operating improvements that can makea contribution to implementing and executing the chosen strategy • Funding efforts to strengthen competenciesand capabilities or to create new ones • Shifting resources — downsizing some areas,upsizing others, killing activities no longer justified,and funding new activities with a critical strategy role

7. Allocating Resources to Support the Execution of a New Strategy • Implementing and executing an altogether new strategy often requires an overhaul of how • Capital allocations are made • Size of each business unit’s operating budget • Important for the funding requirements of the new strategy to drive budget allocations • Under-funding organizational units and activities pivotal to strategic success impedes execution and the drive for operating excellence • Over-funding raises costs and wastes resources

8. ESTABLISH STRATEGY-SUPPORTIVE POLICIES

9. Fig. 9.1: How Prescribed Policies and Procedures Facilitate Strategy Execution

10. Creating Strategy-SupportivePolicies and Procedures • Role of policies and procedures • Paint the “white lines” and channel behaviors and actions in ways that support good strategy execution • Counteract tendencies of people to resist chosen strategy and needed operating practices • Too much policy (thick policy manuals) can be as stifling as • Wrong policy or as • Chaotic as no policy • Often, the best policy is empowering employees to operate between the “white lines” anyway they think best

11. ADOPTING BEST PRACTICES AND STRIVING FOR CONTINUOUS IMPROVEMENT

12. Instituting Best Practicesand Continuous Improvement • Searching out and adopting best practices is • A powerful tool for promoting operating excellence • Integral to effective strategy execution • Benchmarking is the backbone of the process of identifying, studying, and implementing best practices • Key tools to promote continuous improvement • Business process reengineering • TQM • Six-sigma quality programs

13. Best Practices What Is a Best Practice? • A best practice is a means of performing any activity that at least one company has proved works particularly well • Because the procedures employedhave proven to be very effective • Because the procedures have resulted in low costs • Adoption of best practices is a company’s best or most reliable path to operating excellence

14. 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 Characteristics of Best Practices

15. The Role of Benchmarking in the Strategy Execution Process • Helps determine how well a firmperforms particular activities and processes when compared against • “Best in industry” or “Best in world” performers • Goal– Promote achievement of operating excellence in performing all value chain activities, especially strategy-critical activities • Caution – Imitating best practicesof other firms is typicallynot feasible due to differencesin company and operating situations • Best practices of other firms typically need to be adapted to fit a firm’s own specific situation

16. Fig. 9.2: From Benchmarking and Best-Practice Implementation to Operating Excellence

17. Business Process Reengineering:A Contributor to Operating Excellence • Often the performance of strategically relevantactivities is scattered across 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 the activity is performed and often lowers costs • Promotes operating excellence

18. Examples of Fragmented Strategy-Critical Value Chain Activities • Filling customer orders • Speeding new products to market • Improving product quality • Supply chain management • Building capability to conduct business via the Internet • Obtaining feedback from customers, making product modifications to meet their needs

19. What Is Total Quality Management? • TQM is a philosophy of managing a set ofbusiness 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

20. Deming’s 14 Points The Juran Trilogy Crosby’s 14 Quality Steps Baldridge AwardCriteria Popular TQM Approaches

21. 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

22. Six Sigma Quality Control—A Tool for Promoting Operating Excellence • Six-Sigma is a disciplined, statistics-basedsystem aimed at having not more than 3.4 defects per million iterations for any business practice – from manufacturing to customer transactions • Two approaches to Six Sigma • DMAIC process (Design, Measure, Analyze, Improve, Control) • An improvement system for existing processes fallingbelow specification and needing incremental improvement • A great tool for improving performance when there are wide variations in how well an activity is performed • DMADV process (Define, Measure, Analyze, Design, Verify) • An improvement system used to develop new processes or products at Six Sigma quality levels

23. Characteristics ofSix-Sigma Quality Programs • Six-Sigma is based on three principles 1. All work is a process 2. All processes have variability 3. All processes create data to explain variability • A company systematically applying Six-Sigma to its value chain activities can significantly improve the proficiency of strategy implementation • Three challenges in implementing Six-Sigma quality programs 1. Obtain managerial commitment 2. Establish a quality culture 3. Full involvement of employees

24. 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

25. Business Process Reengineeringvs. Total Quality Programs • Business process 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

26. How to Capture Benefits of Best Practiceand Continuous Improvement Programs • Select indicators of successful strategy execution • Benchmark against best practice companies • Build a total quality culture • Requires top management commitment • Install quality-supportive employee practices • Empower employees to do the right things • Provide employees with quick access torequired information using on-line systems • Preach that performance can/must be improved

27. 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 culture that strives for operating excellence

28. INSTALL INFORMATION AND OPERATING SYSTEMS

29. 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 systems to use knowledge and capabilities effectively can yield • Competitive advantage

30. Examples of Support Systems On-line reservation system Accurate and expeditious baggage handling system Strict aircraft maintenance program Airlines

31. 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 Express

32. Examples of Support Systems Sophisticated maintenance support system Otis Elevator Most sophisticated retailing systemsof any retailer in world Wal-Mart

33. Examples of Support Systems Computerized systems at each outletfacilitate ordering, inventory, payroll,cash flow, and work flow functions Domino’s Pizza Systems have been developed forreal-time monitoring of new listings, biddingactivity, Web site traffic, and page views eBay

34. What Areas ShouldInformation Systems Address? • Customer data • Operations data • Employee data • Supplier/partner/collaborative ally data • Financial performance data

35. Exercising Adequate ControlOver Empowered Employees • 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

36. TYING REWARDS AND INCENTIVES TOSTRATEGY EXECUTION

37. Monetary Incentives Base pay increases Performance bonuses Profit sharing plans Stock options Retirement packages Piecework incentives Non-monetary Incentives Praise Constructive criticism Special recognition More, or less, job security Stimulating assignments More, or less, autonomy Rapid promotion Gaining Commitment: Componentsof an Effective Reward System

38. Motivational Techniques That Help Promote Good Strategy Execution • Provide attractive perks and fringe benefits • Rely on promotion from within when possible • Make sure ideas and suggestions ofemployees 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 strategic information with employees • Have knockout facilities • Be flexible in how company approaches peoplemanagement in multicultural environments

39. Examples: Motivational Practices Google 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. Lincoln 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.

40. Examples: Motivational Practices Amazon.com Hands out Just Do It awards to employees whodo something they think will help Amazon withoutgetting their boss’s permission; the action has to bewell thought through but doesn’t have to succeed. Nordstrom Pay salespeople higher than prevailing rates,plus commission. “Rule #1: Use good judgment inall situations. There will be no additional rules.”

41. Examples: Motivational Practices W. 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. Amgen 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.

42. Balancing Positive vs. Negative Rewards • Elements of both are necessary • Challenge and competition arenecessary for self-satisfaction • Prevailing view • Positive approaches work betterthan negative ones in terms of • Enthusiasm • Effort • Creativity • Initiative

43. Linking the Reward Systemto Performance Outcomes • Tying rewards to the achievement of strategicand financial objectives is management’s single most powerful tool to win commitment of employees to effective strategy execution • Objectivesindesigning a reward system • Generously reward those achieving objectives • Deny rewards to those who don’t • Make the desired strategic and financialoutcomes the dominant basis fordesigning incentives, evaluating efforts,and handing out rewards

44. Key Considerations inDesigning Reward Systems • Create a results-orientedsystem • 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 tooverall firm performance • Department heads, teams, andindividuals – Incentives tied toachieving performance targetsin their areas of responsibility

45. 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 Guidelines for Designing anEffective Compensation System

46. STRATEGIC LEADERSHIP

47. Culture Builder Mentor Taskmaster Visionary Process Integrator Negotiator Coach Chief Entrepreneur & Strategist Capabilities Builder Head Cheerleader Resource Acquirer & Allocator Spokesperson Arbitrator Consensus Builder Crisis Solver Chief Administrator & Strategy Implementer Motivator Policy Enforcer Policymaker Numerous Roles of Strategic Leaders

48. Bill Gates Microsoft Leadership Tasks of the Strategy Implementer 1. Stay on top of what’s happening 2. Put constructive pressure oncompany to achieve good resultsand operating excellence 3. Lead development of stronger corecompetencies and competitive capabilities 4. Display ethics leadership and lead social responsibility initiatives 5. Take corrective actions to improve overallstrategic performance

49. Role #1: Stay on Topof What’s Happening • Develop a broad network of formal andinformal sources of information • Talk with many people at all levels • Be an avid practitioner of MBWA • Observe situation firsthand • Monitor operating results regularly • Get feedback from customers • Watch competitive reactions of rivals

50. Role #2: Put Constructive Pressure on Companyto Achieve Good Results and Operating Excellence • Successful leaders spend time • Mobilizing organizational energy behind • Good strategy execution and • Operating excellence • Nurturing a results-oriented work climate • Promoting “enabling” cultural drivers • Strong sense of involvement on part of company personnel • Emphasis on individual initiative and creativity • Respect for contributions of individuals and groups • Pride in doing things right