Strategic Management Chap012
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Transcript of Strategic Management Chap012
1212
Chapter TitleChapter Title
16/e PPT16/e PPT
Managing
Internal
Operations
Screen graphics created by:Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
12-2
“Winning companies
know how to do their
work better.”
Michael Hammer and James Champy
12-3
“If you want people
motivated to do a
good job, give them
a
good job to do.”Frederick Herzberg
12-4
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
12-5
MARSHALING RESOURCES MARSHALING RESOURCES
BEHIND THE DRIVE FOR BEHIND THE DRIVE FOR
GOOD STRATEGY GOOD STRATEGY
EXECUTION EXECUTION
12-6
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 — downsizing some areas,upsizing others, killing activities no longer justified,and funding new activities with a critical strategy role
12-7
ESTABLISH POLICIES AND ESTABLISH POLICIES AND
PROCEDURES TO PROCEDURES TO
FACILITATE STRATEGY FACILITATE STRATEGY
EXECUTIONEXECUTION
12-8
Fig. 12.1: How Prescribed Policies andProcedures Facilitate Strategy Execution
12-9
Role of new policies Channel behaviors and decisions
to promote strategy execution Counteract tendencies of
people 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
12-10
ADOPTING BEST PRACTICES ADOPTING BEST PRACTICES
AND STRIVING FOR AND STRIVING FOR
CONTINUOUS CONTINUOUS
IMPROVEMENTIMPROVEMENT
12-11
Instituting Best Practicesand Continuous Improvement
Searching out 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
12-12
What Is a Best Practice?
An activity that at leastone company has provedworks particularly well
A path to operating excellence
Best Practices
12-13
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
12-14
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 practicesof other firms is not feasible due to differencesin implementation situations
Best approach – Best practices of otherfirms need to be modified or adaptedto fit a firm’s own specific situation
Characteristics of Benchmarking
12-15
Fig. 12.2: From Benchmarking and Best-PracticeImplementation to Operating Excellence
12-16
Business Process Reengineering:A Contributor to Operating Excellence
Often the performance of strategicallyrelevant activities is scattered acrossseveral 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 howwell the activity is performed and often lowers costs
Promotes operating excellence
12-17
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
12-18
Popular TQM Approaches
Deming’s
14 Points
Baldridge AwardCriteria
The Juran
Trilogy
Crosby’s 14
Quality Steps
12-19
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
12-20
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
Six Sigma Quality Control — A Tool for Promoting Operating Excellence
12-21
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
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 programs1. Obtain managerial commitment2. Establish a quality culture3. Full involvement of employees
12-22
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
12-23
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
12-24
Select indicators of successful strategy 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
12-25
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 investment
of 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
12-26
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
12-27
INSTALL INFORMATIONINSTALL INFORMATION
AND OPERATING AND OPERATING
SYSTEMSSYSTEMS
12-28
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
12-29
On-line reservation system
Accurate and expeditious baggage handling system
Strict aircraft maintenance program
AirlinesAirlines
Examples of Support Systems
12-30
Federal ExpressFederal Express
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
12-31
Sophisticated maintenance support system
Otis ElevatorOtis Elevator
Examples of Support Systems
Systems have been developed forreal-time monitoring of new listings, bidding
activity, Web site traffic, and page views
eBayeBay
12-32
What Areas ShouldInformation Systems Address?
Customer data
Operations data
Employee data
Supplier/partner/collaborative ally data
Financial performance data
12-33
Trends for Information Systems
On-line technology
Daily statistical updates
Up-to-the minute performance monitoring
Retail companies 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
12-34
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
12-35
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?
12-36
TYING REWARDS AND TYING REWARDS AND
INCENTIVES TO STRATEGY INCENTIVES TO STRATEGY
EXECUTIONEXECUTION
12-37
Monetary IncentivesMonetary Incentives
Base pay increases
Performance bonuses
Profit sharing plans
Stock options
Retirement packages
Piecework incentives
Non-monetary IncentivesNon-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
12-38
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
Approaches: Motivating Peopleto Execute the Strategy Well
12-39
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
12-40
XilinxXilinx
New hires receive stock option grants. CEO responds promptly to employee e-mails.During hard times management takes a 20%
pay cut instead of laying off employees.
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
12-41
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.”
Amazon.comAmazon.com
Hands out Just Do It awards to employees whodo something they think will help Amazon without
getting their boss’s permission; the action has to bewell thought through but doesn’t have to succeed.
12-42
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.
12-43
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
12-44
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 dominant basis for designing incentives, evaluating efforts, and handing out rewards
Linking the Reward Systemto Performance Outcomes
12-45
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.
12-46
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
12-47
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?
12-48
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
12-49
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.