Chapter 11: Managing Internal

Operations: Actions That Promote

Good Strategy Execution

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.
Troy University

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Learning Objectives
1. Learn why resource allocation should always be based on
strategic priorities.
2. Understand why policies and procedures should be
designed to facilitate good strategy execution.
3. Understand why and how benchmarking, best-practices
adoption, and tools for continuously improving the
performance of value chain activities help an organization
achieve operating excellence and superior strategy
execution.
4. Understand the role of information and operating systems
in enabling company personnel to carry out their strategic
roles proficiently.
5. Learn how and why the use of well-designed incentives
and rewards can be management’s single most powerful
tool for promoting proficient strategy execution and
operating excellence.
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 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

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 MARSHALING RESOURCES
BEHIND THE DRIVE FOR GOOD
STRATEGY EXECUTION

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 Allocating Resources to
Support Strategy Execution
 Allocating resources in ways to support
effective strategy execution involves

 Funding strategic initiatives that can make

a contribution to strategy implementation

 Funding efforts to strengthen competencies

and 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
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 INSTITUTING POLICIES AND
PROCEDURES TO FACILITATE
STRATEGY EXECUTION

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Creating Strategy-Supportive
Policies and Procedures
 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
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Figure 11.1: How Prescribed Policies and
Procedures Facilitate Strategy Execution

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ADOPTING BEST PRACTICES
AND STRIVING FOR
CONTINUOUS IMPROVEMENT

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 Instituting Best Practices
and Continuous Improvement
 Identifying and adopting best practices
is integral to effective implementation
 Benchmarking is the backbone of the
process of identifying, studying, and
implementing best practices
 Key tools to promote continuous
improvement
 Six Sigma quality control
 Business process reengineering
 TQM
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 What Is a Best Practice?

 An activity that at least

one company has proved
works particularly well

P ra c t ic es
B es t

 A path to operating excellence

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 Characteristics of Best Practices

 The best practice must  To be valuable and

have a proven record in transferable, a best
 Significantly lowering practice must
costs  Demonstrate success
over time
 Improving quality or
performance  Deliver quantifiable and
highly positive results
 Shortening time
requirements and

 Enhancing safety or  Be repeatable

 Delivering some other

highly positive
operating outcome

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Characteristics of Benchmarking
 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 practices
of other firms is not feasible due
to differences in implementation situations
 Best approach – Best practices of other
firms need to be modified or adapted
to fit a firm’s own specific situation
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Figure 11.2: From Benchmarking and Best-Practice
Implementation to Operating Excellence

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 Business Process Reengineering:
A Contributor to Operating Excellence
 Often the performance of strategically
relevant activities 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 activity is performed and often lowers costs
 Promotes operating excellence
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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 empowerment
of employees at all levels
 Team-based work design
 Benchmarking and
 Total customer satisfaction
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 Popular TQM Approaches

Deming’s
14 Points

The Juran Crosby’s 14

Trilogy Quality Steps

Baldridge
Award
Criteria

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 Implementing a Philosophy
of Continuous Improvement
 Reform the corporate culture

 Instill enthusiasm to do things

right throughout company
 Strive to achieve little steps forward
each day (what the Japanese call kaizen)
 Ignite creativity in employees to improve
performance of value-chain activities
 Preach there is no such thing as good enough

 Understand it is a race without a finish

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Six Sigma Quality Control — A Tool
for Promoting Operating Excellence
 Six Sigma is a disciplined, statistics-based system
aimed at having not more than 3.4 defects per million
iterations for any business practice
 Two approaches to Six Sigma
 DMAIC process (Design, Measure,
Analyze, Improve, Control)
An improvement system for existing
processes falling below 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) or DFSS (Design for Six Sigma)
An improvement system used to develop new
processes or products at Six Sigma quality levels
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 Characteristics of
Six 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
 DMAIC process is a good approach to improve
performance when wide variations in how well an
activity is performed exist
 Evidence exists that innovation can be stifled by Six
Sigma programs
 Blended approach to Six Sigma implementation
involves
 Pursuing incremental improvements
in operating efficiency and
 Giving freer rein to R & D and other processes
focusing on new ways to offer value to customers
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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

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Guidelines for Implementing
Six Sigma Quality Programs
 Systematic application of Six Sigma methods
to a company’s value chain activities
 Can significantly improve the proficiency of
strategy implementation

 Key challenges in implementing Six Sigma

quality programs
1. Obtain managerial commitment
2. Establish a quality culture
3. Full involvement of employees

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Business Process Reengineering
vs. Total Quality Programs
 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
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How to Capture Benefits of Best-Practice
and Continuous Improvement Programs
 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
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 The Benefits of Employing
Continuous 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
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 INSTALL INFORMATION
AND OPERATING SYSTEMS

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 Installing Strategy-Supportive
Information and Operating Systems
 Good information and operating systems are
essential 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 effectively can yield
 Competitive advantage
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Trends in Design and Use of
Information Systems
 On-line technology
 Daily statistical updates
 Up-to-the minute performance monitoring
 Retailers and manufacturers 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 better
decisions on a real-time basis
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Exercising Adequate Control
Over Empowered Employees
 Challenge

 How to ensure actions of employees

stay within acceptable bounds

 Control approaches

 Managerial control

Establish boundaries on what not to

do, allowing freedom to act with limits

Track and review daily operating performance

 Peer-based control
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 TYING REWARDS AND
INCENTIVES TO STRATEGY
EXECUTION

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 Gaining Commitment: Components
of an Effective Reward System
Monetary Incentives Non-Monetary Incentives
 Base pay increases  Praise

 Performance bonuses  Constructive

criticism
 Profit sharing
plans  Special recognition

 Stock options  More, or less, job security

 Stimulating assignments
 Retirement packages
 More, or less,
 Piecework incentives
autonomy
 Rapid promotion

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Approaches: Motivating People
to Execute the Strategy Well
 Provide attractive perks and fringe benefits
 Rely on promotion from within when possible
 Make sure ideas and suggestions of
employees 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 people
management in multicultural environments

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Balancing Positive vs. Negative Rewards

 Elements of both are necessary

 Challenge and competition are

necessary for self-satisfaction

 Prevailing view

 Positive approaches work better

than negative ones in terms of
Enthusiasm
Dedication
Creativity
Initiative
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 Linking the Reward System
to Performance Outcomes
 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
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 Key Considerations in
Designing Reward Systems
 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 to
achieving performance targets
in their areas of responsibility

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 Guidelines for Designing an
Effective Compensation System

5. Targets a person is
1. Payoff must be a major, not
expected to achieve must
minor, piece of total
involve outcomes that can
compensation package
be personally affected
2. Incentive plan should
6. Keep time between
extend to all employees
performance review
3. Administer system with and payment short
scrupulous fairness
7. Make liberal use of
4. Link incentives to achieving non-monetary rewards
only the performance
8. Avoid ways of rewarding
targets in strategic plan
non-performers
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