© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 MANAGEMENT POLICY AND STRATEGY SESSION -...

© 2000 The McGraw-Hill Companies, Inc.

Irwin/McGraw-Hill

1

MANAGEMENT POLICY AND STRATEGY

SESSION - XI

Strategic Control, Continuous Improvement and E-business

Prof. SushilDepartment of Management StudiesIndian Institute of Technology, Delhi

INDIAEmail: [email protected]


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What is Strategic Control?

Tracks a strategy as it is

implemented, detects problems

or changes in its underlying

premises, and makes necessary

adjustments.


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Questions Involved in Assessing a Strategy’s Success

1. Are we moving in the proper direction? Are our assumptions about major trends and changes correct? Should we adjust or abort the strategy?

2. How are we performing? Are objectives and schedules being met? Are costs, revenues, and cash flows matching projections? Do we need to make operational changes?


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Four Types of Strategic Control

Time 1 Time 2 Time 3Strategy formation

1. Strategic surveillance

2. Premise control

3. Special alert control

4. Implementation control

Strategy implementation


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Definitions of Strategic Controls

Premise Control - Designed to check systematically and continuously whether premises on which the strategy is based are still valid

Implementation Control - Designed to assess whether the overall strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy

Strategic Surveillance - Designed to monitor a broad range of events inside and outside the firm that are likely to affect the course its strategy

Special Alert Control - Thorough, and often rapid, reconsideration of the firm’s strategy because of a sudden, unexpected event


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Characteristics of Strategic Controls

LowHighMedium

Types of Strategic ControlStrategic Surveillance

Implementation Control

Premise Control

Basic Characteristics Potential

threats and opportunitiesLow

Key strategic thrusts and milestones

High

Planning premises and projectionsHigh

Objects of control

Degree of focusingData acquisition: Formalization

LowMediumLow Centralization

YesSeldomYes

Use with: Environmental factors

YesSeldomYes Industry factors

SeldomYesNo Strategy-specific factors

Seldom

High

Special Alert ControlOccurrence of recognizable but unlikely eventsHigh

High

Yes

Yes

Yes

SeldomYesNo Company-specific factors


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What are Operational Controls?

Systems that guide, monitor, &

evaluate progress in meeting

short-term objectives, providing

post-action evaluation and

control over short periods.


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Establishing Effective Operational Control Systems

1. Set standards of performance

1. Set standards of performance

2. Measure actual performance

2. Measure actual performance

3. Identify deviations from standards set

3. Identify deviations from standards set

4. Initiate corrective action

4. Initiate corrective action

Steps involved in post action control systems

Steps involved in post action control systems


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Types of Operational Control Systems

Schedules

Budgets

Key success factors


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Types of Budgets

1. Profit and loss budgets: Monitor sales and expense categories on a monthly or more frequent basis

1. Profit and loss budgets: Monitor sales and expense categories on a monthly or more frequent basis

2. Capital budgets: Show timing of specific expenditures for plant, equipment, machinery, inventories, and other capital items

2. Capital budgets: Show timing of specific expenditures for plant, equipment, machinery, inventories, and other capital items

3. Cash flow budgets: Forecast receipt and disbursement of cash during the budget period

3. Cash flow budgets: Forecast receipt and disbursement of cash during the budget period


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Key Success Factors at IBM’s Lotus Notes Division

Key Success Factor1. Product

quality

2. Customer service

Measurable Performance Indicator

a. Performance data versus specification

b. Percentage of product returnsc. Number of customer complaintsa. Delivery cycle in daysb. Percentage of orders shipped complete

c. Field service delays


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Key Success Factors at IBM’s Lotus Notes Division Contd….

Key Success Factor3. Employee

morale

4. Competition

Measurable Performance Indicator

a. Trends in employee attitude survey

b. Absenteeism versus planc. Employee turnover trendsa. Number of firms competing directly

b. Number of new products introduced

c. Percentage of bids awarded versus standard


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EXAMPLES OF STRATEGIC CONTROL

IMPLEMENTATION CONTROL AT DAYS INN When Days Inn pioneered the budget segment of the lodging industry, its

strategy placed primary emphasis on company-owned facilities and it insisted on maintaining a roughly 3-to-1 company owned/franchise ratio. This ratio ensured the parent company’s total control over standards, rates, and so forth.

As other firms moved into the budget segment. Days Inn saw the need to expand rapidly throughout the United States and, therefore, reversed its conservative franchise posture. This reversal would rapidly accelerate its ability to open new locations. Longtime executive, concerned about potential loss of control over local standards, instituted implementation controls requiring both franchise evaluation and annual milestone reviews. Two years into the program. Days Inn executives were convinced that a high franchise-to-company ratio was manageable, and so they accelerated the growth of franchising by doubling the franchise sales department.


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EXAMPLES OF STRATEGIC CONTROLContd...

STRATEGIC SURVELLIANCE AT CITICORP

Citicorp has been pursuing an aggressive product development strategy intended to achieve an annual earnings growth 15 per cent while it becomes an institution capable of supplying clients with any kind of financial service anywhere in the world. A major obstacle to the achievement of this earnings growth is Citicorp’s exposure to default because of its extensive earlier loans to troubled Third World countries. Citicorp is sensitive to the wide variety of predictions about impending Third World defaults.


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Citicorp’s long-range plan assumes an annual 10 per cent default on its Third World loans over any five-year period. Yet it maintains active strategic surveillance control by having each of its international branches monitor daily announcements from key governments and from inside contacts for signs of changes in a host country’s financial environment. When that surveillance detects a potential problem, management attempts to adjust Citicorp’s posture. For example, when Peru’s former president, Alan Garcia, stated that his country would not pay interest on its debt as scheduled. Citicorp raised its annual default charge to 20 per cent of its $ 100 million Peruvian exposure.


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SPECIAL ALTERT CONTROL AT UNITED AIRLINESThe sudden impact of an airline crash can be devastating to a major airline. United Airlines has made elaborate preparations to deal with this contingency. Its executive vice president, James M. Guyette, heads a crisis team that is permanently prepared do respond. Members of the team carry beepers and are always on call. If United’s Chicago headquarters receives word that a plane has crashed, for example, they can be in a “war room” within an hour to direct the response. Beds are set up nearby so team members can catch a few winks; while they sleep, alternates take their places.

Members of the team have been carefully screened through simulated crisis drills. “The point is to weed out those who don’t hold up well under stress,” says Guyette. Although the team was established to handle flight disasters, it has since assumed an expanded role. The crisis team was activated when American Airlines launched a fare war. And according to Guyette, “We’re brainstorming about how we would be affected by everything from a competitor who had a serious problem to a crisis involving a hijacking or taking a United employee hostage.”


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17KMART GETS SOME BAD NEWS BY BENCHMARKING INDUSTY SUCCESS FACTOS

AGAINST A KEY RIVAL - 1995Key Success Factor Kmart Wal-Martto BenchmarkCore customer Over 55; more than Under 44K, $ 40 income

$20 k income and no and kids at homekids at home

Sales/square foot $ 185 $ 379Shopper visits/year 15 times per year 32 times per yearLoyal to the chain 19 per cent of Kmart 46 per cent of Wal-

customers Mart customersLocation 36 per cent of 49 per cent of Wal

Americans find their Mart customers drivenewest Kmart past a Kmart to go toinconvenient compared Wal-Martto other stores


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Monitoring and Evaluating Performance Deviations

Current Performance

Current Deviation

Forecast Performance at This Time

Objective, Assumption, or Budget

12%

40%

+3 (ahead)

0%

15%

40%

10%

39%

2.7 days

+0.5 (ahead)

3.2 days

2.5 days

2.1

2.1%

-0.6 (behind

)

-0.1% (behind

)

2.7

2.0%

3.2

1.0%

Key Success FactorsCost control: Ratio of indirect overhead cost to direct field and labor costsGross profit

Customer service: Installation cycle in daysRatio of service to sales personnelProduct quality: Percentage of products returned

Analysis

Are we moving too fast, or is there more unnecessary overhead than was originally thought?

Can this progress be maintained?

Why are we behind here? How can we maintain the installation-cycle progress?Why are we behind here? What are the ramifications for other operations?


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Monitoring and Evaluating Performance Deviations (concluded)

Current Performance

Current Deviation

Forecast Performance at This Time

Objective, Assumption, or Budget

80%

$12,100

-12% (behin

d)

+$600 (ahea

d)

92%

$11,500

100%

$12,500

5

+2 produ

cts (ahea

d)

36

3.0%15%

6

(on target)

-8% (behind

)

-3 (behin

d)

3.0%10%

3

2.5%5%

6

Key Success Factors

Product performance versus specification

Marketing: Monthly sales per employee

Expansion of product line

Employee

morale:

Absenteeism

rate

Turnover rateCompetition: New product introductions (average number)

Analysis

Why are we behind here?

Good progress. Is it creating any problems to support?

Are the products ready? Are the perfect standards met?

Looks like a problem! Why are we so far behind?

Did we underestimate timing? What are the implications for our basic assumptions?


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The Quality Imperative: Concepts Related to TQM

Viewed as a new organizational culture and way of thinking

Foundations of TQM Intense focus on customer satisfaction Accurate measurement of every critical

variable in a business’s operation Continuous improvement of products,

services, and processes Work relationships based on trust and

teamwork


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Key Elements of Implementing TQM

1. Define quality and customer value

1. Define quality and customer value

2. Develop a customer orientation

2. Develop a customer orientation

3. Focus on company’s business processes

3. Focus on company’s business processes

4. Develop customer and supplier partnerships

4. Develop customer and supplier partnerships

5. Take a preventive approach

5. Take a preventive approach

6. Adopt an error-free attitude

6. Adopt an error-free attitude

7. Get the facts first7. Get the facts first

8. Encourage all levels of employees to participate

8. Encourage all levels of employees to participate

9. Create an atmosphere of total involvement

9. Create an atmosphere of total involvement

10. Strive for continuous improvement

10. Strive for continuous improvement


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External supplier

s

Internal supplier

s (function

s)

Seeking:QualityEfficiencyResponsiveness

External (ultimat

e) custome

r

Other internal custome

rs (activiti

es)

Outputs

Function(like production)

Outputs

Input

Input

The Value Chain Approach to Developing

a Customer Orientation


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Examples: Ways to Enhance Customer Value

EfficiencyQuality Responsiveness

Marketing

Operations

R&D

Targets advertising campaign at customers, using cost-effective mediumMinimizes scrap and rework through high-production yield

Uses computers to test feasibility of idea before going to more expensive full-scale prototype

Provides accurate assessment of customer’s product preferences to R&D

Consistently produces goods matching engineering designDesigns products that combine customer demand and production capabilities

Quickly uncovers and reacts to changing market trendsQuickly adapts to latest demands with production flexibility

Carries out parallel product/process designs to speed up overall innovation


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24Examples: Ways to Enhance Customer Value

Contd...EfficiencyQuality Responsivenes

s

Accounting

Simplifies and computerizes to decrease cost of gathering information

Provides information that managers in other functions need to make decisions

Provides information in “real time” (as events described are still happening)

Purchasing

Given required vendor quality, negotiates prices to provide good value

Selects vendors for their ability to join in an effective “partnership”

Schedules inbound deliveries efficiently, avoiding both extensive inventories and stock-outs

Personnel

Minimizes employee turnover reducing hiring and training expenses

Trains work force to perform required tasks

In response to strong growth in sales, finds large numbers of employees and quickly teaches needed skills


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QUALITY IMPROVEMENT PROCESS

Step1. Select Improvement Opportunity2. Analyze current situation3. Identify root causes4. Select and plan solution

DO 5. Implement pilot solution

Check 6. Monitor results and evaluate solution

ACT 7. Standardize8. Recycle

PhasePLAN


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SELECT IMPROVEMENT OPPORTUNITY

Generate list of opportunities/problems Select important opportunity based on

criteria Redefine team Write problem/opportunity statement Summarize project/define road map Management review


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ANALYZE CURRENT SITUATION

Define process to be improved Identify process output Identify customer/supplier relationships Identify customer needs and expectations Define performance indicators Define supplier specifications Flow chart the process Collect baseline data Identify performance gaps Validate problem/opportunity statement Management Review


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IDENTIFY ROOT CAUSES

Analyze cause and effect relationships Identify potential root causes Collect data Verify cause and effect and root causes Validate/problem/opportunity statement Management Review


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SELECT AND PLAN SOLUTION Generate list of potential solution Select best one based on criteria Define revised process

Revise process output Identify expected outcomes Revise supplier specifications Modify flow charts

Develop implementation plan Identify sequence/timing Define resources/controls Define responsibility Identify pilot activities Identify contigency actions

Management Review


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IMPLEMENT PILOT SOLUTION

Monitor Results and Evaluate Solution Monitor results relative to -

Targets and goals Process changes Controls

Evaluation solution Management review


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STANDARDIZE

Cascade beyond pilot activity Develop appropriate training materials Monitor results and evaluate solution Document entire quality improvement journey Management Review

Recycle

Identify new improvement opportunity


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QUALITY IMPROVEMENT TOOLS

Idea Generation Consensus Process Definition Collecting Data Analyzing Cause and Effect Analyzing and Displaying Data Planning Tools Meeting Management Tools Benchmarking Questionnaires


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E-BUSINESS TRANSFORMATION

E-vision: Broadening the view E-Volution: Climbing the Ladder E-Strategy: Playing with LEGOs E-Synchronization: Breaking the Boundaries E-Infrastructure: Opening the Hood E-Capitalization: Placing Winning Bets E-Organization: Rallying the People


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THE E-BUSINESS SCOPE COMPASS

Who

Wh

at

Where

Wh

yValu

e Customers

Tran

sfor

mat

io

n

Outc

ome

sC

olla

bora

tion

HostedRemotel

y

Tra

nsa

ctions

Rel

atio

nsh

i

p

Outc

ome

s

Hosted

Anywher

e

Network

Firm

Cos

t Outc

ome

sIn

fo

r

matio

n

In-houseHosted


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WHAT E-BUSINESS IS NOT

e-Business is Not a Bolt-On to Your Business

e-Business is Not About Technology

e-Business is Not the CIO’s Responsibility

e-Business is Not Tied to a Particular Department or Functional Area

e-Business is Not a Middle-Management Initiative

e-Business is Not a Fixed Target


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THE LADDER: THE EVOLUTIONARY STAGES OF E-BUSINESS

Who’ in Charge?

Who Pays?

Who’s Affected

What’s the Integration Level?


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THE LADDER: THE EVOLUTIONARY STAGES OF E-BUSINESS

Who’ in Charge?

Who Pays?

Who’s Affected

What’s the Integration Level?


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FINDING YOUR PLACE ON THE LADDER

Do you Use a Lot of Raw Materials and Components?

What fraction of Your Customers is Online, and How Intense are the Interactions?

Do you have Multiple Layers of Resellers and Many Different Types of Channels?

Do you Spend a Lot of Money on New Product Development?

Are you a “Knowledge Factory”?


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THE LADDER OF E-BUSINESS INITIATIVES

Inform

Automate

Integrate

Reinvent

•Short-term•Internal focus•Bottom-line

•Activity level•No integration•Grassroots efforts•Efficiency outcomes

•Process level•Some integration•E-business team leads•Effective outcomes

•Enterprise level•Tight integration•Line of business leads•Revenue outcomes

•Value network level•Real-time end-to-end integration•CEO or startup team leads•Transformation outcomes

Evolutionary Initiatives

Revolutionary Initiatives

•Long-term•External focus•Top-line


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THE DUALITY OF E-BUSINESS INITIATIVES

Characteristic Evolutionary Initiatives Revolutionary Initiatives

ObjectiveRisk-returnprofile

Stay in businessLow-risk, low-return, shorttime horizon for payback

Reinvent your businessHigh-risk, high return, long timehorizon for payback

Major riskfactorsOutcomemetrices

Execution risk, adoption risk

ROI, net present value

Market risk, technology risk

Option value, capitalappreciation, learning payoffs

FinancialimpactImpact on corebusiness

Cost impact, bottom-lineorientedEnhance and improve thecore

Growth impact, top-line oriented

Often threaten the core

CapabilitiesneededBusinessprocessesimpacted

Mostly, available internally

Impacts focussed processes,can be isolated to a businessunit or process level

Ned to be imported

Systemic impact, typically cutsacross business units andfunctional boundaries

End-state Integrate into the corebusiness

Spin-off from the core business


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DIMENSIONS OF THE BUSINESS ARCHITECTURE

Profit engine

Processes

Growth engine

Resources

Offerings

Partners (value network)

Customers(value proposition)

How we make money•Sources of profits•Quality of profits•Defensibility of profits•Bottom-line potential

Who we work with •Suppliers•Resellers• Complementors

What we do• Realization process• Sourcing process• Operating processes• Go-to-market process

What we make • Products• Services• InformationWho we serve

•Customer segments•Customer needs

How we make revenues•Customer leverage•Offering leverage•Market leverage•Top-line potential

What we know and own • Human capital• Structural capital• Relationship capital


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CORE PROCESSES

New offering realization process-how it defines, designs, and brings new offerings to market

Customer relationships management process-how it creates and builds relationships with its customers, and how it interacts with its customers

Fulfillment management process-how it sources its inputs and goes to market with its products and services

Human relations management process-how it attracts, grooms, and retains talent in the organization


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CORE PROCESSESContd….

Market sensing process-hot it gathers intelligence from the market, disseminates this intelligence within the organization, and acts upon this information.

Operations management process-how it transforms its inputs into outputs

Business development process-how it renews its business and finds opportunities for growth.

Strategy development process-how it defines its end-goals, and the means for achieving the goals.

Partner management process-how it identifies, selects, coordinates with, and manages relationships with key partners and complementors

Financial management process-how it deploys its financial resources and allocates capital within the business.


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THE SEAMLESS COMPANY

CustomerRelationshipRepository

(CRR)

Seam

less

mar

ketin

g

Seamless sales

Seamless service

Integrated MarComm• Television• Print• Outdoor• Personal selling• Telemarketing• Internet

Integrated channels• Retail stores• Catalog sales• Sales force• Internet

Unified contact management• In-person• Telephone• Fax

• E-mail• Live chat• Voice over IP


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THE NET EFFECT ON CHANNELS

Brand Augmentation•Most CPG categories•Fast food•Convenience products

Low High

High

Low

Intensity of information in the buying process

Ric

hn

ess o

f p

hysic

al

inte

racti

on

s in

th

e b

uyin

g

pro

cess

Channel Augmentation•Most B2B products•Real estate•Computer systems•Industrial chemicals

Channel Proliferation•Most shopping goods•Books•Music•Office supplies

Channel Deconstruction•Most low-end services•Domestic travel•Personal investing•Prescription drugs


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TOWARDS THE SEAMLESS COMPANY

• Establish need• Find sources• Establish trust• Determine value• Select product• Negotiate terms• Transact

• Get service

• Upgrade/repeat

Mail Fax E-mail Web Phone Person


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Em

plo

yee-f

aci

ng

Applic

at i

ons

(Intr

anet

and K

M)

Part

ner-

faci

ng

Applic

at i

ons

(PR

M)

Em

plo

yees

Rese

llers

and

Affi

liate

s

Supplier-facing Applications (“Buy-side”-SCM and ORM)

Suppliers (direct and indirect materials)

TOWARDS AN ENTITY-CENTRIC INFRASTRUCTURE

ERP(Transactions Backbone)

Customer-facing Applications

(“Sell-side”-CRM and SFA)

Customers and Salesforce


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CrossApplicationComponents

COMPONENT-BASED ARCHITECTURE

Common Business Objects

Distributed Object Infrastructure Legacy Application Objects

Industry Specific

Components

ApplicationsSpecific

Components

EnterprisePortal

PartnerManagement

CustomerManagement

SupplierManagement


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A VISUAL TOOL FOR EVALUATING E-BUSINESS INITIATIVES

Competitive differentiation

Adoption risk

Integrated risk

Anticipated payoff

Time to payoff

Trainability

Scope of impact

Capability

risk


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SEVEN ORGANIZATIONAL PROCESSES IN E-BUSINESS TRANSFORMATION

• Culture• Shared vision

• Partners• Suppliers

• Education• Mentoring

• Traits• Skills

• Incentives• Rewards

• Organization• Integration

Vision andStrategy

Catalyzing

Diffusing

Motivating

Training

External-izing

Staffing

Structuring


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THE ROLES OF A MATURE E-BUSINESS ORGANIZATION

SBU head leads Escalating role

Department of IT leads

Coordinating role

CEO, leadVenturing role

CIO leads Matchmaking role

Productivity-oriented

internally focused

Growth-oriented

externally focused

Enterprise

level

SBU

level

Sco

pe o

f in

itia

tive

Outcome of initiative

E-business organization

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Transcript of © 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 MANAGEMENT POLICY AND STRATEGY SESSION -...