19e section6 ln chapter11

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Chapter 11 Managing Internal Operations: Actions That Promote Good Strategy Execution 669

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CHAPTER 11MANAGING INTERNAL

OPERATIONS: ACTIONSTHAT PROMOTE GOODSTRATEGY EXECUTION

CHAPTER SUMMARY

Chapter Eleven discusses ve additional managerial actions that facilitate the success of a companys strategy

execution efforts. These include (1) allocating to the drive for good strategy execution, (2) ensuring that policiesand procedures that facilitate strategy execution, (3) using process management tools to drive continuousimprovement in how value chain activities are performed, (4) installing information and operating systems thatenable company personnel to carry out their strategic roles pro ciently, and (5) using rewards and incentives to

promote better strategy execution and the achievement of strategic and nancial targets.

LECTURE OUTLINE

I. Allocating Resources to the Strategy Execution Effort

1. Early in the process of implementing and executing a new or different strategy, managers needto determine what resources will be needed and then consider whether the current budgets oforganizational units are suitable.

2. A companys ability to marshal the resources needed to support new strategic initiatives and steerthem to the appropriate organizational units has a major impact on the strategy execution process.

3. The funding requirements of a new strategy must drive how capital allocations are made and thesize of each units operating budgets. Underfunding organizational units and activities pivotal tostrategic success impedes execution and the drive for operating excellence. A change in strategynearly always calls for budget reallocations.

4. Visible actions to relocate operating funds and move people into new organizational units signal adetermined commitment to strategic change and frequently are needed to catalyze the implementation

process and give it credibility.

5. Just ne-tuning the execution of a companys existing strategy seldom requires big movements of people and money from one area to another.

II. Instituting Policies and Procedures that Facilitate Strategy Execution

1. Well-conceived policies and procedures aid strategy execution; out-of-sync ones are barriers.

2. Figure 11.1, How Policies and Procedures Facilitate Good Strategy Execution, looks at some ofthese effects.

2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


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3. Prescribing new policies and operating procedures acts to facilitate strategy execution in threeways:

a. They provide top-down guidance regarding how things need to be done.

b. They help ensure consistency in how execution-critical activities are performed.

c. They promote the creation of a work climate that facilitates good strategy execution.

4. There is wisdom in a middle approach: Prescribe enough policies to give organization membersclear direction in implementing strategy and to place desirable boundaries on employees actions:then empower them to act within these boundaries however they think makes sense.

III. Instituting Best Practices and Employing Process Management Tools to Strive for Continuous Improvement

1. Company managers can signi cantly advance the cause of competent strategy execution by pushingorganization units and company personnel to identify and adopt the best practices for performingvalue chain activities and insisting on continuous improvement in how internal operations areconducted.

2. One of the most widely used and effective tools for gauging how well a company is executing pieces of its strategy entails benchmarking the companys performance of particular activities and business processes against best in industry and best in world performers.

3. Managerial efforts to identify and adopt best practices are a powerful tool for promoting operatingexcellence and better strategy execution.

A. How the Process of Identifying and Incorporating Best Practices Works

1. A best practice is a technique for performing an activity or business process that at least onecompany has demonstrated works particularly well.

2. To qualify as a legitimate best practice, the technique must have a proven record in signi cantlylowering costs, improving quality or performance, shortening time requirements, enhancing safety,or delivering some other highly positive operating outcome.

CORE CONCEPT

A best practice is a method of performing an activity that has been shown toconsistently deliver superior results compared to other methods.

3. Benchmarking is the backbone of the process for identifying, studying, and implementingoutstanding practices.

4. Informally, benchmarking involves being humble enough to admit that others have come up withworld-class ways to perform particular activities yet wise enough to try to learn how to match andeven surpass them.

5. Figure 11.2, From Benchmarking and Best Practices Implementation to Operating Excellence, explores the potential pay-off from benchmarking.

6. However, benchmarking is more complicated than simply identifying which companies are the best performers of an activity and then trying to exactly copy other companies approaches.

7. Normally, the outstanding practices of other organizations have to be adapted to t the speci ccircumstances of a companys own business and operating requirements.



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8. A best practice remains little more than an interesting success story unless company personnel buyinto the task or translating what can be learned from other companies into real action and results.

B. Business Process Reengineering, Total Quality Management, and Six Sigma Quality Programs: Tools for Promoting Operating Excellence

1. Three other potent management tools for promoting operating excellence and better strategyexecution business process reengineering, total quality management (TQM) programs, Six Sigmaquality control techniques, and other continuous improvement methods.

2. Business Process Reengineering

a. Reengineering is called for when the organization nds that execution of strategy criticalactivities is being hindered by an organizational arrangement where pieces of the activity are

performed in several different functional departments.

b. In this situation, no one manager or group is being held accountable for optimal performanceof the entire activity. This can be addressed by reengineering the work effort.

CORE CONCEPT

Business process reengineering involves radically redesigning and stream lininghow an activity is performed, with the intent of achieving dramatic improvements inperformance.

3. Total Quality Management Programs

a. Total quality management (TQM) is a philosophy of managing a set of business practices thatemphasizes continuous improvement in all phases of operations100 percent accuracy in

performing tasks, involvement and empowerment of employees at all levels, team-based workdesign, benchmarking, and total customer satisfaction.

b. The managerial objective is to kindle a burning desire in people to use their ingenuity andinitiative to progressively improve their performance of value chain activities. TQM doctrine

preaches that there is no such thing as good enough and that everyone has a responsibility to participate in continuous improvement.

c. The long-term payoff of TQM, if it comes, depends heavily on managements success inimplanting a culture within which TQM philosophies and practices can thrive.

CORE CONCEPT

Total Quality Management (TQM) entails creating a total quality culture bent onontinuously improving the performance of every task and value chain activity.

4. Six Sigma Quality Control

a. Six Sigma quality control consists of a disciplined, statistics-based system aimed at producingnot more than 3.4 defects per million iterations for any business processfrom manufacturingto customer transactions.



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b. The Six Sigma process of de ne, measure, analyze, improve, and control (DMAIC) is animprovement system for existing processes falling below speci cation and needing incrementalimprovement. The Six Sigma process of de ne, measure, analyze, design, and verify (DMADV)is an improvement system used to develop new processes or products at Six Sigma qualitylevels.

c. Both Six Sigma processes are executed by personnel who have earned Six Sigma green beltsand Six Sigma black belts and are overseen by personnel who have completed Six Sigmamaster black belt training.

d. The statistical thinking underlying Six Sigma is based on the following three principles: allwork is a process, all processes have variability, and all processes create data that explainsvariability.

CORE CONCEPT

Six Sigma programs utilize advanced statistical methods to improve quality byreducing defects and variability in the performance of business processes.

5. Illustration Capsule 11.1, Whirlpools Use of Six Sigma to Promote Operating Excel lence ,describes Whirlpools use of Six Sigma in its appliance business.

ILLUSTRATION CAPSULE 11.1

Whirlpools Use of Six Sigma to Promote Operating Excellence

Discussion Question: What did Whirlpool do to sustain the productivity gains and cost savingsderived through its implementation of Six Sigma?

Answer: To sustain these bene ts, Whirlpool embedded Six Sigma practices within each of itsmanufacturing facilities worldwide and instilled a culture based on Six Sigma and lean manufacturingskills and capabilities.

6. The Difference Between Process Reengineering and Continuous Improvement Pro grams LikeSix Sigma And TQM

a. The essential difference between business process reengineering and continuous improvement programs is that reengineering aims at quantum gains on the order of 30 to 50 percent or morewhereas total quality programs stress incremental progress, striving for inch-by-inch gainsagain and again in a never ending stream.

b. The two approaches to improved performance of value chain activities and operating excellenceare not mutually exclusive; it makes good sense to use them in tandem.

C. Capturing the Bene ts of Initiatives to Improve Operations

1. The biggest bene ciaries are companies that view such programs not as ends in themselves but astools for implementing and executing company strategy more effectively.

2. To get the most from programs for facilitating better strategy execution, managers must have a clearidea of what speci c outcomes really matter.



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3. The action steps managers can take to realize full value from TQM or Six Sigma initiatives include:

a. Demonstrating visible, unequivocal, and unyielding commitment to TQM and continuousimprovement

b. Nudging people toward TQM-supportive behaviors by:

i. Screening job applicants rigorously

ii. Providing quality training for most employees

iii. Using teams and team-building exercises

iv. Recognizing and rewarding individual and team efforts

v. Stressing prevention not inspection

c. Empowering employees

d. Using online systems to provide all relevant parties with the latest best practices and actualexperiences with them

e. Emphasizing that performance can and must be improved

4. When used effectively, TQM, Six Sigma, and other similar continuous improvement techniques arecapable of improving the pro ciency with which an organization performs its value chain activities.

Not only do improvements from such initiatives add up over time and strengthen organizationalcapabilities, but they also help build a culture of operating excellence. All this lays the groundworkfor gaining a competitive advantage.

IV. Installing Information and Operating Systems

1. Company strategies cannot be executed well without a number of internal systems for businessoperations.

2. Well-conceived, state-of-the-art operating systems not only enable better strategy execution butalso can strengthen organizational capabilities perhaps enough to provide a competitive edge overrivals.

3. Having State-of-the-art support systems can be a basis for competitive advantage if they give a rmcapabilities that rivals cannot match.

A. Instituting Adequate Information Systems, Performance Tracking, and Controls

1. Accurate and timely information about daily operations is essential if managers are to gauge howwell the strategy execution process is proceeding. Information systems need to cover ve broadareas:

a. Customer data

b. Operations data

c. Employee data

d. Supplier/partner/collaborative ally data

e. Financial performance data



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2. Real time information systems permit company mangers to stay on top of implementation initiativesand daily operations and to intervene if things seem to be drifting off course.

3. Statistical information gives managers a feel for the numbers, brie ngs and meetings provide a feelfor the latest developments and emerging issues, and personal contacts add a feel for the peopledimension. All are good barometers.

B. Monitoring Employee Performance - Leaving empowered employees to their own devices in meeting performance standards without appropriate checks and balances can expose an organization to excessiverisk.

V. Using Rewards and Incentives to Promote Better Strategy Execution

1. It is essential that company personnel be enthusiastically committed to executing strategy andachieving performance targets.

2. To win employees sustained, energetic commitment, management has to be resourceful in designingand using motivational incentivesboth monetary and nonmonetary.

3. A properly designed reward structure is managements most powerful tool for mobilizing

organizational commitment to successful strategy execution.

CORE CONCEPT

Financial rewards provide high powered incentives when rewards are tied to specifcoutcome objectives.

A. Incentives and Motivational Practices that Facilitate Good Strategy Execution

1. Financial incentives generally lead the list of motivating tools for trying to gain wholeheartedemployee commitment to good strategy execution and operating excellence.

2. In addition, companies use a host of other motivational approaches to spur stronger employeecommitment to the strategy execution process. Some of the most important include:

a. Providing attractive perks and fringe bene ts

b. Give awards and other forms of public recognition to high performers, and celebrate theachievement of organizational goals.

c. Relying on promotion from within whenever possible

d. Inviting and acting on ideas and suggestions from employees

e. Invite and act on ideas and suggestions from employees.

f. Create a work atmosphere where there is genuine caring, and mutual respect among workersand between management and employees

g. State the strategic vision in inspirational terms that make employees feel they are a part ofdoing something worthwhile in a larger social sense

h. Share information with employees about nancial performance, strategy, operational measures,market conditions, and competitors actions

i. Providing a comfortable and attractive working environment



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B. Striking the Right Balance Between Rewards and Punishment

1. While most approaches to motivation, compensation, and people management accentuate the positive, companies also embellish positive rewards with the risk of punishment.

2. High performing organizations nearly always have a cadre of ambitious people who relish theopportunity to climb the ladder of success, love a challenge, thrive in a performance-orientedenvironment, and nd some competition and pressure useful to satisfy their own drives for personalrecognition, accomplishment, and self-satisfaction.

3. Illustration Capsule 11.2, What Companies do to Motivate and Reward Employees, examinessome of the varieties of techniques utilized by organizations to motivate employees.


What Companies do to Motivate and Reward Employees

Discussion Question: Companies engage a vast variety of employee motivational techniques. Whatis the primary purpose of implementation of these techniques?

Answer: Companies utilize a myriad of motivational and reward practices and techniques to helpcreate a work environment that facilitates better strategy execution.

4. As a general rule, it is unwise to take off the pressure for good individual and group performance or play down the stress, anxiety, and adverse consequences of shortfalls in performance.

5. If an organizations motivational approaches and reward structure induce too much stress, internalcompetitiveness, job insecurity, and unpleasant consequences, the impact on work force morale andstrategy execution can be counterproductive.

6. Evidence shows that managerial initiatives to improve strategy execution should incorporate more positive than negative motivational elements because when cooperation is positively enlistedand rewarded, rather than strong-armed by orders and threats, people tend to respond with moreenthusiasm, dedication, creativity, and initiative.

C. Linking Rewards to Strategically Relevant Performance Outcomes

1. To create a strategy-supportive system of rewards and incentives, a company must reward peoplefor accomplishing results, not for just dutifully performing assigned tasks.

2. Ideally, every organization unit, every manager, every team or work group, and perhaps everyemployee should be held accountable for achieving outcomes that contribute to good strategyexecution and business performance.

3. Illustration Capsule 11.3, Nucor and Bank One: Two Companies that Tie Incentives Directly to Strategy Execution , provides a vivid example of how companies have designed incentiveslinked directly to outcomes re ecting good strategy execution .



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Nucor Corporation: Tying Incentives Directly to Strategy Execution

Discussion Question: Identify the prominent result that each organization sustained fromimplementing a strategy that tied incentives directly to strategy execution.

Answer: Nucors low-cost leadership strategy entails achieving lower labor costs per ton of steelthan competitors costs. This leads Nucors management team to use an incentive system to promotehigh worker productivity and drive labor costs per ton below rivals.

5. Guidelines for Designing Incentive Compensation Systems: The concepts and company experiencesdiscussed yield the following perspective guidelines for creating an incentive compensation systemto help drive successful strategy execution:

a. Make the nancial incentives a major, not minor, piece of the total compensation package.

b. Have incentives that extend to all managers and all workers, not just top management.

c. Administer the reward system with scrupulous objectivity and fairness.

d. Ensure that the performance targets each individual or team is expected to achieve involveoutcomes that the individual or team can personally affect.

e. Keep the time between achieving the targeted performance outcome and the payment of thereward as short as possible.

f. Avoid rewarding effort rather than results.

6. For an organizations incentive system to work well, the details of the reward structure must becommunicated and explained.



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ASSURANCE OF LEARNING EXERCISES1. Implementing and executing a new or different strategy call for new resource allocations. Using your

universitys access to Lexis-Nexis or EBSCO, search for recent articles that discuss how a company hasrevised its pattern of resource allocation and divisional budgets to support new strategic initiatives.

Answer: The responses provided by students will vary greatly. However, one example would be ExelonCorporation. www.exeloncorp.com . This company has completely aligned its organizational chart and valuechain to support its corporate strategy. In the companys website, the student will nd that the Exelonfamily of companies includes Exelon Generation, Exelon Transmission Company, ComEd, and PECOwhich share a corporate services and support unit, Exelon Business Services Company. With a nationwidereach and strong positions in the Midwest and Mid-Atlantic regions, it appears Exelon has designed itsorganizational structure based on key value chain activities that are the main building blocks in its structure

generation, transmission, and delivery. Regarding strategic success, Exelon was ranked #134 on the2009 FORTUNE 500 list, and #1 on the Utilities: Gas and Electric industry list. In addition, it was named#7 in Businessweek s list of 50 top performing companies in 2008. Exelons organizational structure is

best characterized as a divisional structure. The major building blocks of this structure are generation andmarketing, transmission, and delivery. The Web site link is http://www.exeloncorp.com/peopleandculture/

corporatestructure/overview.aspx .2. Policies and procedures facilitate strategy execution when they are designed to t the companys strategy

and objectives. Using your universitys access to Lexis-Nexis or EBSCO, search for recent articles thatdiscuss how a company has revised its policies and procedures to provide better top-down guidance tocompany personnel about how certain things should be done.

Answer: The responses provided by students will vary greatly. However, one example would be BritishPetroleum following the Gulf of Mexico oil spill. Partly spurred by government pressure, BP has undertakenan overhaul of their Risk Management processes and failure mode control processes. The key changesimplemented included improved management and oversight of the decision process within BP, improvedcommunication between BP and its contractors, and more effective training of key engineering and rig

personnel.

3. Illustration Capsule 11.1 discusses Whirlpool Corporations Operational Excellence initiative and its useof Six Sigma practices. How did the implementation of the program change the culture and mindset of thecompanys personnel? List three tangible bene ts provided by the program. Explain why a commitment toquality control is important in the appliance industry?

Answer: The student should identify that the company was able to imbed the Six Sigma practices intoeach of its worldwide manufacturing facilities, resulting in a worldwide culture of lean manufacturing and

production excellence.

The three tangible bene ts were:

Improve product quality

Lower production costs

Reduce the time required to get products to market

Finally, the company was able to develop a speci c competitive advantage in the appliance industry throughthis organizational commitment which resulted in better products at better prices for consumers.

4. Read some of the recent Six Sigma articles posted at isixsigma.com. Prepare a one-page report to yourinstructor detailing how Six Sigma is being used in various companies and what bene ts these companiesare reaping from Six Sigma implementation.

Answer: Responses provided by individual students will vary. iSixSigma named Starwood Hotels and

http://www.exeloncorp.com/http://www.exeloncorp.com/


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Resorts the No. 1 Best Place to Work for Six Sigma practitioners in 2009 ( http://www.isixsigma.com/index.php?option=com_k2&view=item&id=982:starwood-hotels-resorts-tops-best-places-to-work-list&Itemid=236 ). A review of this link provides a succinct summary of Starwoods approach which is basedon a three-pronged strategy to measure quality: improving the Guest Satisfaction Index (an independentlydetermined numerical value based on guest surveys), increasing revenue and controlling costs. The Top 10rankings of iSixSigmas 2009 Best Places to Work include: (1)Starwood Hotels and Resorts (North America

Division); (2) McKesson Corp; (3) Xerox Corp.; (4) Ecolab Inc.; (5) Vought Aircraft Industries Inc.; (6)P zer Inc.; (7) Merck & Co. Inc.; (8) Piramal Healthcare Ltd.; (9) Cardinal Health Inc.; (10) ComputacenterAG & Co. oHG. It is likely that student should include speci c bene ts that one of these companies hasrealized from using Six Sigma methods.

5. Read some of the recent Six Sigma articles posted at isixsigma.com. Prepare a one-page report to yourinstructor detailing how Six Sigma is being used in various companies and what bene ts these companiesare reaping from Six Sigma implementation.

Answer: Responses provided by individual students will vary. iSixSigma named Starwood Hotels andResorts the No. 1 Best Place to Work for Six Sigma practitioners in 2009 ( http://www.isixsigma.com/index.php?option=com_k2&view=item&id=982:starwood-hotels-resorts-tops-best-places-to-work-list&Itemid=236 ). A review of this link provides a succinct summary of Starwoods approach which is based

on a three-pronged strategy to measure quality: improving the Guest Satisfaction Index (an independentlydetermined numerical value based on guest surveys), increasing revenue and controlling costs. The Top 10rankings of iSixSigmas 2009 Best Places to Work include: (1)Starwood Hotels and Resorts (North AmericaDivision); (2) McKesson Corp; (3) Xerox Corp.; (4) Ecolab Inc.; (5) Vought Aircraft Industries Inc.; (6)P zer Inc.; (7) Merck & Co. Inc.; (8) Piramal Healthcare Ltd.; (9) Cardinal Health Inc.; (10) ComputacenterAG & Co. oHG. It is likely that student should include speci c bene ts that one of these companies hasrealized from using Six Sigma methods.

6. Illustration Capsule 11.2 provides a sampling of motivational tactics employed by several prominentcompanies (many of which appear on Fortune s list of the 100 best companies to work for in America).

Discuss how rewards at Google, Lincoln Electric, Nordstrom, W.L. Gore, and Amgen aid in the strategyexecution efforts of each company.

Answer: Responses will center primarily around the incentives programs that these rms use in order toimprove employee performance and retention. While Google has build the dream work place, LincolnElectric has focused on rewards based upon alignment with key corporate objectives. Nordstrom and W.L.Gore provide job enrichment incentives through decision making freedom and job selection.

Key examples:

Google Cafs, snack centers, ice cream, gyms, etc. Building the dream workplace.

Lincoln Electric Quality production incentives, volume production incentives, quanti able performancemeasures.

Nordstrom Higher wages, freedom to make decisions. W.L.Gore Choice of project/team to be part of

2014 by McGraw Hill Education This is proprietary material solely for authorized instructor use Not authorized for sale or distribution in any manner
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