18e Section5 Chapter11 PDF
18e Section5 Chapter11 PDF
18e Section5 Chapter11 PDF
CHAPTER 11
LECTURE OUTLINE
I. Allocating Resources to the Strategy Execution Effort
1. Early in the process of implementing and executing a new or different strategy, managers need
to determine what resources will be needed and then consider whether the current budgets of
organizational units are suitable.
2. A companys ability to marshal the resources needed to support new strategic initiatives and steer
them to the appropriate organizational units has a major impact on the strategy execution process.
3. The funding requirements of a new strategy must drive how capital allocations are made and the
size of each units operating budgets. Underfunding organizational units and activities pivotal to
strategic success impedes execution and the drive for operating excellence. A change in strategy
nearly always calls for budget reallocations.
4. Visible actions to relocate operating funds and move people into new organizational units signal a
determined commitment to strategic change and frequently are needed to catalyze the implementation
process and give it credibility.
5. Just fine-tuning the execution of a companys existing strategy seldom requires big movements of
people and money from one area to another.
II. Instituting Policies and Procedures that Facilitate Strategy Execution
1. Well-conceived policies and procedures aid strategy execution; out-of-sync ones are barriers.
2. Figure 11.1, How Policies and Procedures Facilitate Good Strategy Execution, looks at some of
these effects.
3. Prescribing new policies and operating procedures acts to facilitate strategy execution in three
ways:
a. They provide top-down guidance regarding how things need to be done.
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CORE CONCEPT
A best practice is a method of performing an activity that has been shown to
consistently deliver superior results compared to other methods.
3. Benchmarking is the backbone of the process for identifying, studying, and implementing
outstanding practices.
4. Informally, benchmarking involves being humble enough to admit that others have come up with
world-class ways to perform particular activities yet wise enough to try to learn how to match and
even surpass them.
5. Figure 11.2, From Benchmarking and Best Practices Implementation to Operating Excellence,
explores the potential pay-off from benchmarking.
6. However, benchmarking is more complicated than simply identifying which companies are the best
performers of an activity and then trying to exactly copy other companies approaches.
7. Normally, the outstanding practices of other organizations have to be adapted to fit the specific
circumstances of a companys own business and operating requirements.
8. A best practice remains little more than an interesting success story unless company personnel buy
into the task or translating what can be learned from other companies into real action and results.
9. Legions of companies across the world now engage in benchmarking to improve their strategy
execution and gain a strategic, operational, and financial advantage over rivals.
10. Scores of trade associations and special interest groups have collected best-practices data and
have made databases available online to membersgood examples include the Benchmarking
Exchange (www.bench.net.com); Best Practices, LLC (www.best-in-class.com); and the American
Productivity and Quality Center (www.apqc.org).
B. Business Process Reengineering, Total Quality Management, and Six Sigma Quality Programs:
Tools for Promoting Operating Excellence
1. Best practice implementation has stimulated greater management awareness of the importance of
business process reengineering, total quality management (TQM) programs, Six Sigma quality
control techniques, and other continuous improvement methods.
2. Business Process Reengineering is called for when the organization finds that execution of strategy
critical activities is being hindered by an organizational arrangement where pieces of the activity
are performed in several different functional departments, with no one manager or group being
accountable for optimal performance of the entire activity. This can be addressed by reengineering
the work effort.
CORE CONCEPT
Business process reengineering involves radically redesigning and stream
lining how an activity is performed, with the intent of achieving dramatic
improvements in performance.
CORE CONCEPT
Total Quality Management (TQM) entails creating a total quality culture bent
on continuously improving the performance of every task and value chain
activity.
4. Six Sigma Quality Control: Six Sigma quality control consists of a disciplined, statistics-based
system aimed at producing not more than 3.4 defects per million iterations for any business
processfrom manufacturing to customer transactions.
a. The Six Sigma process of define, measure, analyze, improve, and control (DMAIC) is an
improvement system for existing processes falling below specification and needing incremental
improvement. The Six Sigma process of define, measure, analyze, design, and verify (DMADV)
is an improvement system used to develop new processes or products at Six Sigma quality levels.
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b. Both Six Sigma processes are executed by personnel who have earned Six Sigma green belts
and Six Sigma black belts and are overseen by personnel who have completed Six Sigma
master black belt training. The statistical thinking underlying Six Sigma is based on the
following three principles: all work is a process, all processes have variability, and all processes
create data that explains variability.
c. Six Sigmas DMAIC process is a particularly good vehicle for improving performance when
there are wide variations in how well an activity is performed. A problem tailor-made for Six
Sigma occurs in the insurance industry, where it is common for top agents to outsell poor agents
by a factor of 10 to 1.
CORE CONCEPT
Six Sigma programs utilize advanced statistical methods to improve quality by
reducing defects and variability in the performance of business processes.
5. Illustration Capsule 11.1, Whirlpools Use of Six Sigma to Promote Operating Excellence,
describes Whirlpools use of Six Sigma in its appliance business.
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3. Statistical information gives managers a feel for the numbers, briefings and meetings provide a feel
for the latest developments and emerging issues, and personal contacts add a feel for the people
dimension. All are good barometers.
4. Having good information systems and operating data are integral to competent strategy execution
and operating excellence.
B. Monitoring Employee Performance - Leaving empowered employees to their own devices in meeting
performance standards without appropriate checks and balances can expose an organization to excessive
risk.
V. Tying Rewards and Incentives to Strategy Execution
1. It is important for both organization subunits and individuals to be enthusiastically committed to
executing strategy and achieving performance targets.
2. To get employees sustained, energetic commitment, management has to be resourceful in designing
and using motivational incentivesboth monetary and nonmonetary.
3. A properly designed reward structure is managements most powerful tool for mobilizing
organizational commitment to successful strategy execution.
CORE CONCEPT
Financial rewards provide high powered incentives when rewards are tied to
specific outcome objectives.
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Individual student responses provided will vary. Possible responses to be expected may include:
Fast Company, Johnson & Johnson, Lucent, Xerox, Prosci, and Volt Consulting MSP. Some
expected responses for the kind of best practice information available may include: companies that
participate with best practices, how they approach benchmarking and best practices, and benefits to
the organization that can be achieved through utilization of best practices.
2. Read some of the recent Six Sigma articles posted at isixsigma.com. Prepare a one-page report to
your instructor detailing how Six Sigma is being used in various companies and what benefits these
companies are reaping from Six Sigma implementation.
Responses provided by individual students will vary. iSixSigma named Starwood Hotels and
Resorts the No. 1 Best Place to Work for Six Sigma practitioners in 2009 (http://www.isixsigma.
com/index.php?option=com_k2&view=item&id=982:starwood-hotels-resorts-tops-best-places-towork-list&Itemid=236). A review of this link provides a succinct summary of Starwoods approach
which is based on a three-pronged strategy to measure quality: improving the Guest Satisfaction
Index (an independently determined numerical value based on guest surveys), increasing revenue
and controlling costs. The Top 10 rankings of iSixSigmas 2009 Best Places to Work include: (1)
Starwood Hotels and Resorts (North America Division); (2) McKesson Corp; (3) Xerox Corp.; (4)
Ecolab Inc.; (5) Vought Aircraft Industries Inc.; (6) Pfizer Inc.; (7) Merck & Co. Inc.; (8) Piramal
Healthcare Ltd.; (9) Cardinal Health Inc.; (10) Computacenter AG & Co. oHG. It is likely that
student should include specific benefits that one of these companies has realized from using Six
Sigma methods.
3. Review the profiles and applications of the latest Malcolm Baldrige National Quality Award
recipients at www.baldrige.nist.gov. What are the standout features of the companies approaches to
managing operations? What do you find impressive about the companies policies and procedures,
use of best practices, emphasis on continuous improvement, and use of rewards and incentives?
The criteria set for the awards are a set of questions focusing on critical aspects of management that
contribute to performance excellence:
Leadership
Strategic planning
Customer focus
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Workforce focus
Operations focus
Results
Identify Baldrige Award recipients to serve as role models for other organizations
Help organizations assess their improvement efforts, diagnose their overall performance management system, and identify their strengths and opportunities for improvement
4. Consult the issue of Fortune containing the latest annual 100 Best Companies to Work For
(usually a late-January or early-February issue), or else go to www.fortune.com to access the list,
and identify at least five compensation incentives and work practices that these companies use to
enhance employee motivation and reward them for good strategic and financial performance. You
should identify compensation methods and work practices that are different from those cited in
Illustration Capsule 11.2.
(http://money.cnn.com/magazines/fortune/bestcompanies/2010/snapshots/1.html)
They should be able to identify the elements that make the company an attractive workplace, for
company number 1, SAS, it is a combination of benefits and culture as illustrated below:
One of the Best Companies for all 13 years, SAS boasts a laundry list of benefits highquality child care at $410 a month, 90% coverage of the health insurance premium, unlimited
sick days, a medical center staffed by four physicians and 10 nurse practitioners (at no cost to
employees), a free 66,000-square-foot fitness center and natatorium, a lending library, and a
summer camp for children.
The architect of this culture based on trust between our employees and the company is
Jim Goodnight, its co-founder, and the only CEO that SAS has had in its 34-year history.
Some might think that with all those perks, Goodnight was giving away the store. Not so.
SAS is highly profitable and ranks as the worlds largest privately owned software company.
Turnover is the industrys lowest at 2%.
5. Using Google Scholar or your university librarys access to online business periodicals, search for
the term incentive compensation and prepare a 1- to 2-page report for your instructor discussing
the successful (or unsuccessful) use of incentive compensation plans by various companies. Based
on the research you found, what factors seem to determine whether incentive compensation plans
succeed or fail?
Many sites discuss the validity and importance of incentive compensation plans. For example, www.
shrm.org offers numerous articles regarding their appropriate use and ways to make them more
effective. Student responses should include specific factors they think contribute to the success or
failure of these plans.