Managing Internal Operationsin Ways That PromoteGood Strategy ExecutionChapter 9 Screen graphics created by:Jana F. Kuzmicki, PhDTroy University - Florida and Western Region

If you talk about changebut dont change thereward and recognitionsystem, nothing changes.

Quote . . . Paul Allaire

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Chapter OutlineMarshaling Resources Behind the Drive forStrategy ExecutionInstituting Policies and Procedures that Facilitate Strategy ExecutionAdopting Best Practices and Striving for Continuous ImprovementInstalling Information and Operating SystemsTying Rewards and Incentives to Strategy ExecutionLeading the Strategy Execution Process

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1. MARSHALING RESOURCES TO SUPPORTSTRATEGY EXECUTION

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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 strategyFunding efforts to strengthen competenciesand capabilities or to create new onesShifting resources downsizing some areas,upsizing others, killing activities no longer justified,and funding new activities with a critical strategy role

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Allocating Resources to Support the Execution of a New StrategyImplementing and executing an altogether new strategy often requires an overhaul of howCapital allocations are madeSize of each business units operating budgetImportant for the funding requirements of the new strategy to drive budget allocationsUnder-funding organizational units and activities pivotal to strategic success impedes execution and the drive for operating excellenceOver-funding raises costs and wastes resources

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2. ESTABLISH STRATEGY-SUPPORTIVE POLICIES

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

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Role of policies and proceduresPaint the white lines and channel behaviors and actions in ways that support good strategy executionCounteract tendencies of people to resist chosen strategy and needed operating practicesToo much policy (thick policy manuals) can be as stifling as Wrong policy or as Chaotic as no policyOften, the best policy is empowering employees to operate between the white lines anyway they think best

Creating Strategy-SupportivePolicies and Procedures

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3. ADOPTING BEST PRACTICES AND STRIVING FOR CONTINUOUS IMPROVEMENT

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Instituting Best Practicesand Continuous ImprovementSearching out and adopting best practices isA powerful tool for promoting operating excellence Integral to effective strategy executionBenchmarking is the backbone of the process of identifying, studying, and implementing best practicesKey tools to promote continuous improvementBusiness process reengineeringTQMSix-sigma quality programs

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What Is a Best Practice?A best practice is a means of performing any activity that at least one company has proved works particularly wellBecause the procedures employedhave proven to be very effectiveBecause the procedures have resulted in low costsAdoption of best practices is a companys best or most reliable path to operating excellence

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The best practice must have a proven record inSignificantly lowering costsImproving quality or performanceShortening time requirementsEnhancing safety orDelivering some other highly positive operating outcome

To be valuable and transferable, a best practice mustDemonstrate success over timeDeliver quantifiable and highly positive results andBe repeatable

Characteristics of Best Practices

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Helps determine how well a firm performs particular activities and processes when compared againstBest in industry or Best in world performersGoal Promote achievement of operating excellence in performing all value chain activities, especially strategy-critical activitiesCaution Imitating best practices of other firms is typically not feasible due to differencesin company and operating situationsBest practices of other firms typically need to be adapted to fit a firms own specific situation

The Role of Benchmarking in the Strategy Execution Process

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

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Often the performance of strategically relevantactivities is scattered across several functional departmentsCreates inefficiencies and often impedes performanceResults in lack of accountability since no one functional manager is responsible for optimum performance of an entire activitySolution Business process reengineeringInvolves pulling strategy-critical processes from functional silos to create process departments or cross-functional work groupsUnifies performance of the activity improves how well the activity is performed and often lowers costsPromotes operating excellence

Business Process Reengineering:A Contributor to Operating Excellence

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Examples of Fragmented Strategy-Critical Value Chain ActivitiesFilling customer ordersSpeeding new products to marketImproving product qualitySupply chain managementBuilding capability to conduct business via the InternetObtaining feedback from customers, making product modifications to meet their needs

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What Is Total Quality Management?TQM is a philosophy of managing a set ofbusiness practices that emphasizesContinuous improvement in all phases of operations100 percent accuracy in performing activitiesInvolvement and empowermentof employees at all levelsTeam-based work designBenchmarking andTotal customer satisfaction

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Popular TQM Approaches

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Implementing a Philosophyof Continuous ImprovementReform the corporate cultureInstill enthusiasm to do thingsright throughout companyStrive to achieve little steps forwardeach day (what the Japanese call kaizen)Ignite creativity in employees to improveperformance of value-chain activitiesPreach there is no such thing as good enough

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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 transactionsTwo approaches to Six SigmaDMAIC process (Design, Measure, Analyze, Improve, Control)An improvement system for existing processes fallingbelow specification and needing incremental improvementA great tool for improving performance when there are wide variations in how well an activity is performedDMADV process (Define, Measure, Analyze, Design, Verify)An improvement system used to develop new processes or products at Six Sigma quality levels

Six Sigma Quality ControlA Tool for Promoting Operating Excellence

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Characteristics ofSix-Sigma Quality ProgramsSix-Sigma is based on three principles

1. All work is a process2. All processes have variability3. All processes create data to explain variabilityA company systematically applying Six-Sigma to its value chain activities can significantly improve the proficiency of strategy implementationThree challenges in implementing Six-Sigma quality programs

1. Obtain managerial commitment2. Establish a quality culture3. Full involvement of employees

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Approach of the DMAIC ProcessDefineWhat constitutes a defect?MeasureCollect data to find out why, how,and how often the defect occursAnalyze InvolvesStatistical analysis of the metricsIdentification of a best practiceImproveImplementation of the documented best practiceControlEmployees are trained on the best practiceOver time, significant improvement in quality occurs

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Business process reengineeringAims at quantum gains of 30 to 50% or moreTotal quality programsStress incremental progressTechniques are not mutually exclusiveReengineering Used to produce a good basic design yielding dramatic improvementsTotal quality programs Used to perfect process, gradually improving efficiency and effectiveness

Business Process Reengineeringvs. Total Quality Programs

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Select indicators of successful strategy executionBenchmark against best practice companiesBuild a total quality cultureRequires top management commitmentInstall quality-supportive employee practicesEmpower employees to do the right thingsProvide employees with quick access torequired information using on-line systemsPreach that performance can/must be improved

How to Capture Benefits of Best Practiceand Continuous Improvement Programs

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Can greatly enhance a companysCompetitive capabilitiesAbility to achieve a competitive advantageHave hard-to-imitate aspectsRequire substantial investmentof management time and effortExpensive in terms of training and meetingsSeldom produce short-term resultsLong-term payoff instilling a culture that strives for operating excellence

The Benefits of EmployingContinuous Improvement Programs

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4. INSTALL INFORMATION AND OPERATING SYSTEMS

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Installing Strategy-SupportiveInformation and Operating SystemsGood information and operating systems areessential for first-rate strategy executionSupport systems can relate toOn-line data capabilitiesSpeedy delivery or repair Inventory managementE-commerce capabilities Mobilizing information and creating systems to use knowledge and capabilities effectively can yieldCompetitive advantage

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On-line reservation systemAccurate and expeditious baggage handling systemStrict aircraft maintenance programAirlinesExamples of Support Systems

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Internal communication systems allowing itto coordinate 70,000 vehicles handling anaverage of 5.5 million packages per dayLeading-edge flight operations systemsallow a single controller to direct as manyas 200 of 650-plus aircraft simultaneouslyE-business tools for customers

Federal ExpressExamples of Support Systems

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Sophisticated maintenance support systemOtis Elevator

Most sophisticated retailing systemsof any retailer in worldWal-MartExamples of Support Systems

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Examples of Support Systems

Computerized systems at each outletfacilitate ordering, inventory, payroll,cash flow, and work flow functionsDominos Pizza

Systems have been developed forreal-time monitoring of new listings, biddingactivity, Web site traffic, and page views eBay

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What Areas ShouldInformation Systems Address?Customer dataOperations dataEmployee dataSupplier/partner/collaborative ally dataFinancial performance data

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ChallengeHow to ensure actions of employeesstay within acceptable boundsControl approachesManagerial control Establish boundaries on what not todo, allowing freedom to act with limitsTrack and review daily operating performancePeer-based control

Exercising Adequate ControlOver Empowered Employees

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5. TYING REWARDS AND INCENTIVES TOSTRATEGY EXECUTION

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Monetary IncentivesBase pay increasesPerformance bonusesProfit sharing plans Stock optionsRetirement packagesPiecework incentives

Non-monetary IncentivesPraiseConstructive criticismSpecial recognitionMore, or less, job securityStimulating assignmentsMore, or less, autonomyRapid promotion

Gaining Commitment: Componentsof an Effective Reward System

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Provide attractive perks and fringe benefitsRely on promotion from within when possibleMake sure ideas and suggestions ofemployees are valued and respectedCreate a work atmosphere where there is genuine sincerity and mutual respect among all employeesState strategic vision in inspirational terms to make employees feel they are part of something worthwhileShare financial and strategic information with employeesHave knockout facilitiesBe flexible in how company approaches peoplemanagement in multicultural environments

Motivational Techniques That Help Promote Good Strategy Execution

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Lincoln ElectricRewards 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.GoogleEmployees 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

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NordstromPay salespeople higher than prevailing rates,plus commission. Rule #1: Use good judgment inall situations. There will be no additional rules.Amazon.comHands out Just Do It awards to employees whodo something they think will help Amazon withoutgetting their bosss permission; the action has to bewell thought through but doesnt have to succeed.Examples: Motivational Practices

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AmgenEmployees 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. W. L. GoreEmployees get to choose what project/team they work on; each team members compensation is based on other team members ranking of his/her contribution to the enterprise. Examples: Motivational Practices

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Elements of both are necessaryChallenge and competition arenecessary for self-satisfactionPrevailing viewPositive approaches work betterthan negative ones in terms of EnthusiasmEffortCreativityInitiative

Balancing Positive vs. Negative Rewards

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Tying rewards to the achievement of strategicand financial objectives is managements single most powerful tool to win commitment of employees to effective strategy executionObjectives in designing a reward systemGenerously reward those achieving objectivesDeny rewards to those who dontMake the desired strategic and financialoutcomes the dominant basis fordesigning incentives, evaluating efforts,and handing out rewards

Linking the Reward Systemto Performance Outcomes

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Create a results-oriented systemReward people for results, not for activityDefine jobs in terms of what to achieve Incorporate several performance measuresTie incentive compensation to relevant outcomesTop executives Incentives tied tooverall firm performanceDepartment heads, teams, andindividuals Incentives tied toachieving performance targetsin their areas of responsibility

Key Considerations inDesigning Reward Systems

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Guidelines for Designing anEffective Compensation System1. Payoff must be a major, not minor, piece of total compensation package2. Incentive plan should extend to all employees3. Administer system with scrupulous fairness4. Link incentives to achieving only the performance targets in strategic plan5. Targets a person is expected to achieve must involve outcomes that can be personally affected6. Keep time between performance reviewand payment short7. Make liberal use ofnon-monetary rewards8. Avoid ways of rewarding non-performers

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6. STRATEGIC LEADERSHIP

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Numerous Roles of Strategic Leaders

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1. Stay on top of whats happening 2. Put constructive pressure oncompany to achieve good resultsand operating excellence3. Lead development of stronger corecompetencies and competitive capabilities4. Display ethics leadership and lead social responsibility initiatives5. Take corrective actions to improve overallstrategic performance Leadership Tasks of the Strategy Implementer

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Develop a broad network of formal andinformal sources of informationTalk with many people at all levels Be an avid practitioner of MBWA Observe situation firsthandMonitor operating results regularlyGet feedback from customersWatch competitive reactions of rivals

Role #1: Stay on Topof Whats Happening

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Successful leaders spend time Mobilizing organizational energy behindGood strategy execution andOperating excellence Nurturing a results-oriented work climatePromoting enabling cultural driversStrong sense of involvement on part of company personnelEmphasis on individual initiative and creativityRespect for contributions of individuals and groupsPride in doing things right

Role #2: Put Constructive Pressure on Companyto Achieve Good Results and Operating Excellence

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Treat employees with dignity and respectMake champions out of people who excelEncourage employees to use initiative and creativitySet stretch objectives and expectations that employees are to give their bestFocus attention on continuous improvementUse full range of motivational techniquesand compensation incentives toInspire employeesNurture a results-oriented climateEnforce high-performance standardsCelebrate individual, group, company successes

Approaches to Instilling aSpirit of High Achievement

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Top management intervention isrequired to establish better or newResource strengths and competenciesCompetitive capabilitiesSenior managers must lead the effort becauseCompetencies reside in combinedefforts of different work groups and departments, thus requiring cross-functional collaborationStronger competencies and capabilitiescan lead to a competitive edge over rivals

Role #3: Promote Stronger Core Competencies and Capabilities

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Set an excellent example in Displaying ethical behaviorsDemonstrating character and personalintegrity in actions and decisionsDeclare support of companys ethics codeand expect all employees to conductthemselves in an ethical fashionEncourage compliance and establish toughconsequences for unethical behavior

Role #4: Display Ethics Leadership and Lead Social Responsibility Initiatives

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Set an excellent ethical exampleProvide training to employeesabout what is ethical and what isntDeclare unequivocal support of ethics codeAct as final arbiter on hard callsRemove people from key positionsif found guilty of a violationReprimand people lax in monitoring ethical compliance

Roles of a Manager inEnforcing Ethical Behavior

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Actions Demonstrating Commitmentto a Strategy of Social ResponsibilityCraft a strategy that positively improves well-beingof employees, environment, communities, and societyUse social and environmental metricsto evaluate company performanceTie social and environmental performanceto executive compensationTake special pains to protect environmentTake an active role in community affairsGenerously support charitable causesand projects benefiting society Support workforce diversity and committo overall well-being of employees

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Role #5: Lead the Process ofMaking Corrective Adjustments Requires decidingWhen adjustments are neededWhat adjustments to makeInvolves Adjusting long-term direction, objectives, and strategy on an as-needed basis in response to unfolding events and changing circumstancesPromoting fresh initiatives to bring internal activities and behavior into better alignment with strategyMaking changes to pick up the pace when results fallshort of performance targets

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