12

Chapter Title
Managing Internal
Operations

Screen graphics created by:

16/e PPT Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

 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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 Fig. 12.1: How Prescribed Policies and
Procedures 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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 Instituting Best Practices
and Continuous Improvement
 Searching out 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?

 Anactivity that at least

one company has proved
works particularly well

ac t i ce s
Best Pr

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
 Improving quality or over time
performance  Deliver quantifiable
 Shortening time and highly positive
requirements results
 Enhancing safety or and
 Delivering some other  Be repeatable
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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Fig. 12.2: 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 the 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

 Instillenthusiasm to do things
right throughout company

 Striveto achieve little steps forward

each day (what the Japanese call kaizen)

 Ignitecreativity in employees to improve

performance of value-chain activities

 Preach there is no such thing as good enough

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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 –
from manufacturing to customer transactions
 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)
 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
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
programs
1. Obtain managerial commitment
2. Establish a quality culture
3. Full involvement of employees
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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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 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
 Mobilizinginformation and creating systems
to use knowledge effectively can yield
 Competitive advantage
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 What Areas Should
Information Systems Address?

 Customer data

 Operations data

 Employee data

 Supplier/partner/collaborative ally data

 Financial performance data

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

 Performance bonuses  Constructive criticism

 Profit  Special recognition
sharing plans
 More, or less, job security
 Stock options
 Stimulating assignments
 Retirement packages
 More, or less, autonomy
 Piecework incentives
 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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