12

Managing
Chapter Title
Internal
Operations

Screen graphics created by:

16/e PPT Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
“Winning companies
know how to do their
work better.”
Michael Hammer and James
Champy
12-2
“If you want people
motivated to do a
good job, give them
a
good job to do.”
Frederick Herzberg
12-3
 Chapter Roadmap
 Marshaling Resources Behind the Drive for Good
Strategy Execution
 Instituting
Policies and Procedures that Facilitate
Strategy Execution
 AdoptingBest Practices and Striving for Continuous
Improvement
 Installing Information and Operating Systems
 TyingRewards 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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ESTABLISH POLICIES AND
PROCEDURES TO
FACILITATE STRATEGY
EXECUTION

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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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ADOPTING BEST PRACTICES
AND STRIVING FOR
CONTINUOUS
IMPROVEMENT

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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

r ac t i c es
Best P

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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 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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 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

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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
 Mobilizinginformation and creating systems
to use knowledge effectively can yield
 Competitive advantage
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 Examples of Support Systems

Airlines

 On-line reservation system

 Accurate and expeditious baggage handling system

 Strict aircraft maintenance program

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 Examples of Support Systems

Federal Express

 Internalcommunication systems allowing it

to coordinate 70,000 vehicles handling an
average of 5.5 million packages per day
 Leading-edge flight operations systems
allow a single controller to direct as many
as 200 of 650-plus aircraft simultaneously
 E-business tools for customers

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 Examples of Support Systems

Otis Elevator
 Sophisticated maintenance support system

eBay
 Systems have been developed for
real-time monitoring of new listings, bidding
activity, Web site traffic, and page views
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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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 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?

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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  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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 Examples: Motivational Practices

Google
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.

Lincoln Electric
Rewards productivity by paying for each piece
produced (defects can be traced to worker causing them).
Highest rated workers receive bonuses of as much
110% of their piecework compensation.
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 Examples: Motivational Practices

JM 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.

Xilinx
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.
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 Examples: Motivational Practices

Amazon.com

Hands out Just Do It awards to employees who

do something they think will help Amazon without
getting their boss’s permission; the action has to be
well thought through but doesn’t have to succeed.

Nordstrom

Pay salespeople higher than prevailing rates,

plus commission. “Rule #1: Use good judgment in
all situations. There will be no additional rules.”
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 Examples: Motivational Practices

W. 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.

Amgen

Employees get 16 paid holidays, generous

vacation time, tuition reimbursements up to $10,000,
on-site massages, a discounted car wash, and the
convenience of shopping at on-site farmers’ markets.
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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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 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.

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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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 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?

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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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 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.
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