Chapter 9

Managing Internal
Operations
in Ways That Promote
Good Strategy
Execution
Screen graphics created by:
Jana F. Kuzmicki, PhD
Troy University - Florida and Western Region

Chapter Outline
Marshaling Resources Behind the Drive for
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
Leading the Strategy Execution Process
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1. MARSHALING
RESOURCES TO
SUPPORT
STRATEGY
EXECUTION
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Allocating Resources to
Support Strategy Execution
Allocating resources in ways to support effective
strategy execution involves
Funding internal initiatives and operating
improvements that can make
a contribution to implementing and
executing the chosen strategy
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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Allocating Resources to
Support the Execution of a
New Strategy
Implementing and executing an altogether new
strategy often requires an overhaul of how
Capital allocations are made
Size of each business units operating budget

Important for the funding requirements of

the new strategy to drive budget allocations
Under-funding organizational units and
activities pivotal to strategic success
impedes execution and the drive for
operating excellence
Over-funding raises costs and wastes resources
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2. ESTABLISH
STRATEGYSUPPORTIVE
POLICIES

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Fig. 9.1: How Prescribed Policies and

Procedures Facilitate Strategy Execution

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Creating Strategy-Supportive
Policies and Procedures
Role of policies and procedures
Paint the white lines and channel behaviors and actions in
ways that support good strategy execution
Counteract tendencies of people to resist
chosen strategy and needed operating practices

Too much policy (thick policy manuals)

can be as stifling as
Wrong policy or as
Chaotic as no policy

Often, the best policy is empowering employees to

operate between the white lines anyway they
think best
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3. 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
A powerful tool for promoting operating excellence
Integral to effective strategy execution

Benchmarking is the backbone of the process of

identifying, studying, and implementing best practices
Key tools to promote continuous improvement
Business process reengineering
TQM
Six-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 well
Because the procedures employed
have proven to be very effective
Because the procedures have
resulted in low costs

es
c
i
t
c
a
r
P
Best

Adoption of best practices is a companys best or most

reliable path to operating excellence
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Characteristics of Best
Practices
The best practice must
have a proven record in
Significantly lowering
costs
Improving quality or
performance
Shortening time
requirements
Enhancing safety or
Delivering some other
highly positive
operating outcome
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To be valuable and
transferable, a best
practice must
Demonstrate success
over time
Deliver quantifiable
and highly positive
results and
Be repeatable

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The Role of Benchmarking

in the Strategy Execution
Process
Helps determine 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 all value chain activities,
especially strategy-critical activities
Caution Imitating best practices of other firms is
typically not feasible due to differences
in company and operating situations
Best practices of other firms typically
need to be adapted to fit a firms
own specific situation
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Fig. 9.2: From Benchmarking and BestPractice 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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Examples of Fragmented
Strategy-Critical Value Chain
Activities
Filling customer orders
Speeding new products to market
Improving product quality
Supply chain management
Building capability to conduct business via the Internet
Obtaining 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 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

Demings
14 Points

The Juran
Trilogy

Crosbys 14
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
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Six Sigma Quality ControlA

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
Business process 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 total quality culture
Requires top management commitment
Install quality-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 companys

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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4. 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 and capabilities 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
Internal communication 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

Wal-Mart
Most sophisticated retailing systems
of any retailer in world
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Examples of Support Systems

Dominos Pizza
Computerized systems at each outlet
facilitate ordering, inventory, payroll,
cash flow, and work flow functions

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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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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5. TYING REWARDS AND

INCENTIVES TO
STRATEGY EXECUTION

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Gaining Commitment:
Components
of an Effective Reward
System

Non-monetary Incentives

Monetary Incentives
Base pay increases

Praise

Performance bonuses

Constructive criticism
Special recognition

Profit sharing plans

More, or less, job security

Stock options

Stimulating assignments

Retirement packages

More, or less, autonomy

Piecework incentives

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Motivational Techniques That

Help Promote Good Strategy
Execution

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
Amazon.com
Hands out Just Do It awards to employees who
do something they think will help Amazon without
getting their bosss permission; the action has to be
well thought through but doesnt 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 members 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
Effort
Creativity
Initiative
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Linking the Reward System

to Performance Outcomes
Tying rewards to the achievement of strategic
and financial objectives is managements single
most powerful tool to win commitment of
employees to effective strategy execution
Objectives in designing a reward system
Generously reward those achieving objectives
Deny rewards to those who dont
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
1. Payoff must be a major, not
minor, piece of total
compensation package
2. Incentive plan should extend
to all employees
3. Administer system with
scrupulous fairness
4. Link incentives to achieving
only the performance targets
in strategic plan

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5. Targets a person is expected

to achieve must involve
outcomes that can be
personally affected
6. Keep time between
performance review
and payment short
7. Make liberal use of
non-monetary rewards
8. Avoid ways of rewarding nonperformers
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6. STRATEGIC
LEADERSHIP

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Numerous Roles of Strategic

Leaders
Culture
Builder

Visionary

Negotiator

Chief
Entrepreneur
& Strategist

Crisis
Solver

Motivator
Policy
Enforcer

McGraw-Hill/Irwin

Process
Integrator

Capabilities
Builder

Resource Acquirer &

Allocator

Spokesperson
Consensus
Builder
Policymaker

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Mentor

Taskmaster

Coach

Head
Cheerleader
Arbitrator
Chief
Administrator
& Strategy
Implementer

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Leadership Tasks of
the Strategy Implementer
1. Stay on top of whats happening
2. Put constructive pressure on
company to achieve good results
and operating excellence
3. Lead development of stronger core
competencies and competitive capabilities

Bill Gates
Microsoft

4. Display ethics leadership and lead social

responsibility initiatives
5. Take corrective actions to improve overall
strategic performance
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Role #1: Stay on Top

of Whats Happening
Develop a broad network of formal and
informal sources of information
Talk with many people at all levels
Be an avid practitioner of MBWA
Observe situation firsthand

Monitor operating results regularly

Get feedback from customers
Watch competitive reactions of rivals
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Role #2: Put Constructive Pressure on

Company
to Achieve Good Results and
Operating Excellence
Successful leaders spend time
Mobilizing organizational energy behind
Good strategy execution and
Operating excellence

Nurturing a results-oriented work climate

Promoting enabling cultural drivers
Strong sense of involvement on part of company personnel
Emphasis on individual initiative and creativity
Respect for contributions of individuals and groups
Pride in doing things right
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Approaches to Instilling a
Spirit of High Achievement
Treat employees with dignity and respect
Make champions out of people who excel
Encourage employees to use initiative and creativity
Set stretch objectives and expectations that employees are
to give their best
Focus attention on continuous improvement
Use full range of motivational techniques
and compensation incentives to
Inspire employees
Nurture a results-oriented climate
Enforce high-performance standards

Celebrate individual, group, company successes

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Role #3: Promote Stronger

Core Competencies and
Capabilities
Top management intervention is
required to establish better or new
Resource strengths and competencies
Competitive capabilities

Senior managers must lead the effort because

Competencies reside in combined
efforts of different work groups and
departments, thus requiring
cross-functional collaboration
Stronger competencies and capabilities
can lead to a competitive edge over rivals
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Role #4: Display Ethics

Leadership and Lead Social
Responsibility Initiatives
Set an excellent example in

Our ethics
code is . . .

Displaying ethical behaviors

Demonstrating character and personal
integrity in actions and decisions

Declare support of companys ethics code

and expect all employees to conduct
themselves in an ethical fashion
Encourage compliance and establish tough
consequences for unethical behavior
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Roles of a Manager in
Enforcing Ethical Behavior
Set an excellent ethical example
Provide training to employees
about what is ethical and what isnt
Declare unequivocal support of ethics code
Act as final arbiter on hard calls
Remove people from key positions
if found guilty of a violation
Reprimand people lax in monitoring ethical compliance
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Actions Demonstrating
Commitment
to a Strategy of Social
Responsibility
Craft a strategy that positively improves well-being
of employees, environment, communities, and society
Use social and environmental metrics
to evaluate company performance
Tie social and environmental performance
to executive compensation
Take special pains to protect environment
Take an active role in community affairs
Generously support charitable causes
and projects benefiting society
Support workforce diversity and commit
to overall well-being of employees
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Role #5: Lead the Process

of
Making Corrective
Adjustments
Requires deciding
When adjustments are needed
What adjustments to make

Involves
Adjusting long-term direction, objectives, and strategy on an
as-needed basis in response to unfolding events and
changing circumstances
Promoting fresh initiatives to bring internal activities and
behavior into better alignment with strategy
Making changes to pick up the pace when results fall
short of performance targets
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