Allocating Resources
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Thom23e_ch11_Final.pptxchapter 11 Managing Internal Operations Actions That Promote Good Strategy Execution
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In Chapter 11 the actions that advance a good strategy are discussed: 1. allocating resources, 2. ensuring that policies and procedures facilitate strategy execution. 3. using process management tools and best practices. 4. employing installing information and operating systems. 5. utilizing rewards and incentives.
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Learning Objectives
After reading this chapter, you should be able to:
Explain why resource allocation should always be based on strategic priorities.
Comprehend how well-designed policies and procedures can facilitate good strategy execution.
Understand process management tools drive continuous improvement in the performance of value chain activities.
Recognize the role of information systems and operating systems in enabling company personnel to carry out their strategic roles proficiently.
Explain how and why the use of well-designed incentives can be management’s single most powerful tool for promoting adept strategy execution.
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Promoting Good Strategy Execution
Allocating ample resources to execution-critical value chain activities.
Instituting policies and procedures that facilitate good strategy execution.
Employing process management tools to drive continuous improvement in how value chain activities are performed.
Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.
Using rewards and incentives to promote better strategy execution and the achievement of strategic and financial targets.
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Allocating Resources to the Strategy Execution Effort
Possible adverse resource allocation outcomes:
Too little funding that slows progress and impedes the efforts of organizational units to execute their pieces of the strategic plan proficiently.
Too much funding that wastes organizational resources and reduces financial performance.
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The funding requirements of good strategy execution must drive how capital allocations are made and the size of each unit’s operating budget. Underfunding organizational units and activities pivotal to the strategy impedes successful strategy implementation.
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Strategy-Driven Budgeting: Allocating Resources
Screen resource requests carefully.
Approve only those that contribute to strategy execution.
Provide the level of resources necessary for the success of strategic initiatives.
Shift resources to higher-priority activities where new execution initiatives are needed.
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A company’s operating budget must be both strategy-driven (in order to amply fund the performance of key value chain activities) and lean (in order to operate as cost-effectively as possible).
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Instituting Policies and Procedures that Facilitate Strategy Execution
Policies and operating procedures facilitate strategy execution by:
Providing top-down guidance regarding how things need to be done.
Helping ensure consistency in how execution-critical activities are performed.
Promoting the creation of a work climate that facilitates good strategy execution.
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A company’s policies and procedures provide a set of well-honed routines for running the company and executing the strategy. Well-conceived policies and procedures aid strategy execution; out-of-sync ones hinder effective execution.
There is wisdom in a middle-ground approach: Prescribe enough policies to give organization members clear direction and to place reasonable boundaries on their actions; then empower them to act within these boundaries in pursuit of company goals.
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FIGURE 11.1 How Policies and Procedures Facilitate Good Strategy Execution
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Well-conceived policies and procedures:
Provide top-down guidance about how certain things need to be done (such as by channeling individual and group efforts along a strategy-supportive path, by aligning the actions and behavior of company personnel with the requirements for good strategy execution, and by placing limits on independent action and helping to overcome resistance to change.)
Help enforce consistency in how strategy-critical activities are performed (such as by improving the quality and reliability of strategy execution and by helping coordinate the strategy execution efforts of individuals and groups throughout the organization.)
Promote the creation of a work climate that facilitates good strategy execution.
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Employing Process Management Tools
Managing for Continuous Improvement
Total quality management (TQM)
Best practices
Benchmarking.
Process reengineering
Six Sigma quality programs
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Three Powerful Business Process Tools for Promoting Operating Excellence
Business process reengineering:
Involves radically redesigning and streamlining work effort, flows and processes to achieve dramatic improvements in performance.
Uses cross-functional teams, cutting-edge technology and information systems to reset and refocus the organization’s strategy.
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Business process reengineering involves radically redesigning and streamlining how an activity is performed, with the intent of achieving quantum improvements in performance.
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Achieving Continuous Improvement
Total Quality Management (TQM ):
Entails creating a total quality culture, involving managers and employees at all levels, bent on continuously improving the performance of every task and value chain activity.
Is a long-term race without a finish in which success comes slowly in small steps forward (kaizen).
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Total quality management (TQM) entails creating a total quality culture, involving managers and employees at all levels, bent on continuously improving the performance of every value chain activity.
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A Statistical Approach to Achieving Continuous Improvement
Six Sigma quality control programs:
Utilize statistical methods to improve quality by reducing defects and variability in business processes.
Six Sigma principles:
All work is a process.
All processes have variability.
All processes create data that explain variability.
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Six Sigma programs utilize advanced statistical methods to improve quality by reducing defects and variability in the performance of business processes.
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Six Sigma and New Projects: DMADV
| DMAIC | Question |
| Define | What are our project goals and customer requirements? |
| Measure | How do we measure and determine both our goals and the needs of our customers? |
| Analyze | What existing process options do we have for meeting customer needs? |
| Design | Should we use an old or new process to meet customer needs and specifications? |
| Verify | How will we verify design performance and our ability to meet customer needs? |
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Existing Processes and Six Sigma: DMAIC
| DMAIC | Existing Process |
| Define | Define what constitutes a defect or variation. |
| Measure | Collect data to find out why, how, and how often this defect occurs. |
| Analyze | Determine when, why, and where the defect is occurring. |
| Improve | Implement best practice to eliminate defect or variation. |
| Control | Implement training, monitoring and controls to sustain the improvement. |
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ILLUSTRATION CAPSULE 11.1 Charleston Area Medical Center’s Six Sigma Program
How does CAMC’s Six Sigma program support its attempt to control costs and improve its competitive position?
Why is Six Sigma a necessity for achieving continuous improvement and operating excellence?
How does the Six Sigma process change an organization’s culture?
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The Difference Between Business Process Reengineering and Continuous Improvement
Top-notch Strategy Execution and Operating Excellence
Business Process Reengineering:
Aims at one-time quantum improvement.
Continuous Improvement (TQM, Six Sigma):
Aims at ongoing incremental improvements.
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Capturing the Benefits of Initiatives to Improve Operations
Action Steps to Realize the Value of TQM and Six Sigma Initiatives
Foster quality-supportive behaviors.
Commit to total quality and continuous improvement.
Empower all employees to improve quality.
Emphasize the necessity for improved performance.
Using online systems to speed the adoption of best practices.
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Fostering Quality-Supportive Behaviors
Screening job applicants rigorously and hiring only those with attitudes and aptitudes that are right for quality-based performance.
Providing quality training for employees.
Using teams and team-building exercises to reinforce and nurture individual effort.
Recognizing and rewarding individual and team efforts to improve quality regularly and systematically.
Stressing prevention (doing it right the first time), not correction (instituting ways to undo or overcome mistakes).
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The purpose of using benchmarking, best practices, business process reengineering, TQM, and Six Sigma programs is to improve the performance of strategy-critical activities and thereby enhance strategy execution.
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Installing Information and Operating Systems
Benefits of information technologies:
Enable better strategy execution through data-based decisions.
Strengthen organizational capabilities.
Allow for real-time tracking of implementation initiatives and daily operations.
Provide monitoring of empowered employee performance (electronic scorecards).
Build closer relationships with customers.
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Having state-of-the-art operating systems, information systems, and real-time data is integral to superior strategy execution and operating excellence.
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Instituting Adequate Information Systems, Performance Tracking, and Controls
Key Strategic Performance Indicators Tracked by Information Systems
Customer data.
Operations data.
Employee data.
Supplier, partner, or collaborative ally data.
Financial performance data.
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Key strategic performance indicators tracked by information systems are: customer data, operations data, employee data, supplier/partner/collaborative ally data, and financial performance data.
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Using Rewards and Incentives to Promote Better Strategy Execution
Techniques for winning sustained, energetic commitment of employees to the strategy execution process:
Providing incentives and engaging in motivational practices that facilitate good strategy execution.
Striking the right balance between rewards and punishment for individual performance.
Linking employee rewards to strategically relevant organizational performance outcomes.
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Three techniques for winning sustained, energetic commitment of employees to the strategy execution process are:
Providing incentives and engaging in motivational practices that facilitate good strategy execution
Striking the right balance between rewards and punishment for individual performance
Linking employee rewards to strategically relevant organizational performance outcomes
A properly designed reward structure is management’s most powerful tool for mobilizing organizational commitment to successful strategy execution and aligning efforts throughout the organization with strategic priorities. Financial rewards provide high-powered incentives when rewards are tied to specific outcome objectives.
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Nonmonetary Approaches to Enhancing Motivation
Provide attractive perks and fringe benefits.
Give awards and other forms of public recognition.
Rely on promotion from within whenever possible.
Invite and act on ideas and suggestions.
Create a work atmosphere of caring and mutual respect.
State the strategic vision in inspirational terms.
Share the firm’s critical information with employees.
Provide a comfortable working environment.
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Striking the Right Balance between Rewards and Punishment
The firm’s motivational approaches and reward structure
Performance
Rewards
Commitment-generating incentives and rewards
Punishment
Adverse employment consequences
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Two motivational approaches a firm can take toward affecting employee performance are rewards (consisting of commitment-generating incentives and rewards) or punishment (which consists of adverse employment consequences).
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How the Best Companies to Work for Motivate and Reward Employees
The times are changing: Why are companies finding it increasingly necessary to motivate and reward workers to achieve higher levels of performance?
As businesses continue to globalize, how will companies have to adapt their reward and incentive systems?
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Incentives must be based on accomplishing the right results, not on dutifully performing assigned tasks.
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Linking Rewards to Achieving the Right Outcomes
Focus on and reward results, not effort.
Create a results-oriented work environment that focuses on what to achieve, not what to do.
Set strategically-relevant, specific, and measurable stretch performance goals that are difficult but achievable.
Link the performance goals of each individual in an organizational unit to the unit’s goals.
Reward and recognize as success superior performance in accomplishing the goals.
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The key to creating a reward system that promotes good strategy execution is to make measures of good business performance and good strategy execution the dominating basis for designing incentives, evaluating individual and group efforts, and handing out rewards.
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Guidelines for Designing Effective Incentive Compensation Systems
Make financial incentives a major, not minor, piece of the total compensation package.
Have incentives that extend to all managers and all workers, not just top management.
Administer the reward system with scrupulous objectivity and fairness.
Ensure that the performance targets set for each individual or team involve outcomes that the individual or team can personally affect.
Keep the time between achieving performance target and receiving the reward as short as possible.
Avoid rewarding effort rather than results.
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The first principle in designing an effective incentive compensation system is to tie rewards to performance outcomes that are directly linked to good strategy execution and to the achievement of financial and strategic objectives. The unwavering standard for judging whether individuals, teams, and organizational units have done a good job must be whether they meet or beat performance targets that reflect good strategy execution.
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ILLUSTRATION CAPSULE 11.3 Nucor Corporation: Tying Incentives Directly to Strategy Execution
Tying incentives directly to strategy execution works when management has chosen the right strategy; what happens when the choice of strategy turns out to be seriously wrong?
What happens to employee morale and loyalty when a low-cost leadership firm achieves higher productivity at both its lower and higher wage locations and then needs to expand its production output? (productivity ≠ profitability).
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Figure 11.1 How Policies and Procedures Facilitate Good Strategy Execution, Text Alternate
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Well-conceived policies and procedures:
Provide top-down guidance about how certain things need to be done (such as by channeling individual and group efforts along a strategy-supportive path, by aligning the actions and behavior of company personnel with the requirements for good strategy execution, and by placing limits on independent action and helping to overcome resistance to change)
Help enforce consistency in how strategy-critical activities are performed (such as by improving the quality and reliability of strategy execution and by helping coordinate the strategy execution efforts of individuals and groups throughout the organization)
Promote the creation of a work climate that facilitates good strategy execution
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