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© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 MANAGEMENT POLICY AND STRATEGY SESSION - XI Strategic Control, Continuous Improvement and E-business Prof. Sushil Department of Management Studies Indian Institute of Technology, Delhi INDIA Email: email@example.com
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 2 What is Strategic Control? Tracks a strategy as it is implemented, detects problems or changes in its underlying premises, and makes necessary adjustments.
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 3 Questions Involved in Assessing a Strategy’s Success 1. Are we moving in the proper direction? Are our assumptions about major trends and changes correct? Should we adjust or abort the strategy? 2. How are we performing? Are objectives and schedules being met? Are costs, revenues, and cash flows matching projections? Do we need to make operational changes?
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 4 Four Types of Strategic Control Time 1Time 2Time 3 Strategy formation 1. Strategic surveillance 2. Premise control 3. Special alert control 4. Implementation control Strategy implementation
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 5 Definitions of Strategic Controls Premise Control - Designed to check systematically and continuously whether premises on which the strategy is based are still valid Implementation Control - Designed to assess whether the overall strategy should be changed in light of the results associated with the incremental actions that implement the overall strategy Strategic Surveillance - Designed to monitor a broad range of events inside and outside the firm that are likely to affect the course its strategy Special Alert Control - Thorough, and often rapid, reconsideration of the firm’s strategy because of a sudden, unexpected event
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 6 Characteristics of Strategic Controls LowHighMedium Types of Strategic Control Strategic Surveillance Implementatio n Control Premise Control Basic Characteristics Potential threats and opportunities Low Key strategic thrusts and milestones High Planning premises and projections High Objects of control Degree of focusing Data acquisition: Formalization LowMediumLow Centralization YesSeldomYes Use with: Environmental factors YesSeldomYes Industry factors SeldomYesNo Strategy-specific factors Seldom High Special Alert Control Occurrence of recognizable but unlikely events High Yes SeldomYesNo Company- specific factors
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 7 What are Operational Controls? Systems that guide, monitor, & evaluate progress in meeting short-term objectives, providing post-action evaluation and control over short periods.
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 8 Establishing Effective Operational Control Systems 1. Set standards of performance 2. Measure actual performance 3. Identify deviations from standards set 4. Initiate corrective action Steps involved in post action control systems
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 9 Types of Operational Control Systems Schedules Budgets Key success factors
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 10 Types of Budgets 1. Profit and loss budgets: Monitor sales and expense categories on a monthly or more frequent basis 2. Capital budgets: Show timing of specific expenditures for plant, equipment, machinery, inventories, and other capital items 3. Cash flow budgets: Forecast receipt and disbursement of cash during the budget period
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 11 Key Success Factors at IBM’s Lotus Notes Division Key Success Factor 1. Product quality 2. Customer service Measurable Performance Indicator a. Performance data versus specification b. Percentage of product returns c. Number of customer complaints a. Delivery cycle in days b. Percentage of orders shipped complete c. Field service delays
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 12 Key Success Factors at IBM’s Lotus Notes Division Contd…. Key Success Factor 3. Employee morale 4. Competition Measurable Performance Indicator a. Trends in employee attitude survey b. Absenteeism versus plan c. Employee turnover trends a. Number of firms competing directly b. Number of new products introduced c. Percentage of bids awarded versus standard
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 13 EXAMPLES OF STRATEGIC CONTROL IMPLEMENTATION CONTROL AT DAYS INN When Days Inn pioneered the budget segment of the lodging industry, its strategy placed primary emphasis on company-owned facilities and it insisted on maintaining a roughly 3-to-1 company owned/franchise ratio. This ratio ensured the parent company’s total control over standards, rates, and so forth. As other firms moved into the budget segment. Days Inn saw the need to expand rapidly throughout the United States and, therefore, reversed its conservative franchise posture. This reversal would rapidly accelerate its ability to open new locations. Longtime executive, concerned about potential loss of control over local standards, instituted implementation controls requiring both franchise evaluation and annual milestone reviews. Two years into the program. Days Inn executives were convinced that a high franchise-to-company ratio was manageable, and so they accelerated the growth of franchising by doubling the franchise sales department.
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 14 EXAMPLES OF STRATEGIC CONTROL Contd... STRATEGIC SURVELLIANCE AT CITICORP Citicorp has been pursuing an aggressive product development strategy intended to achieve an annual earnings growth 15 per cent while it becomes an institution capable of supplying clients with any kind of financial service anywhere in the world. A major obstacle to the achievement of this earnings growth is Citicorp’s exposure to default because of its extensive earlier loans to troubled Third World countries. Citicorp is sensitive to the wide variety of predictions about impending Third World defaults.
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 15 EXAMPLES OF STRATEGIC CONTROL Contd... Citicorp’s long-range plan assumes an annual 10 per cent default on its Third World loans over any five-year period. Yet it maintains active strategic surveillance control by having each of its international branches monitor daily announcements from key governments and from inside contacts for signs of changes in a host country’s financial environment. When that surveillance detects a potential problem, management attempts to adjust Citicorp’s posture. For example, when Peru’s former president, Alan Garcia, stated that his country would not pay interest on its debt as scheduled. Citicorp raised its annual default charge to 20 per cent of its $ 100 million Peruvian exposure.
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 16 EXAMPLES OF STRATEGIC CONTROL Contd... SPECIAL ALTERT CONTROL AT UNITED AIRLINES The sudden impact of an airline crash can be devastating to a major airline. United Airlines has made elaborate preparations to deal with this contingency. Its executive vice president, James M. Guyette, heads a crisis team that is permanently prepared do respond. Members of the team carry beepers and are always on call. If United’s Chicago headquarters receives word that a plane has crashed, for example, they can be in a “war room” within an hour to direct the response. Beds are set up nearby so team members can catch a few winks; while they sleep, alternates take their places. Members of the team have been carefully screened through simulated crisis drills. “The point is to weed out those who don’t hold up well under stress,” says Guyette. Although the team was established to handle flight disasters, it has since assumed an expanded role. The crisis team was activated when American Airlines launched a fare war. And according to Guyette, “We’re brainstorming about how we would be affected by everything from a competitor who had a serious problem to a crisis involving a hijacking or taking a United employee hostage.”
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 17 KMART GETS SOME BAD NEWS BY BENCHMARKING INDUSTY SUCCESS FACTOS AGAINST A KEY RIVAL - 1995 Key Success FactorKmartWal-Mart to Benchmark Core customerOver 55; more than Under 44K, $ 40 income $20 k income and no and kids at home kids at home Sales/square foot$ 185$ 379 Shopper visits/year15 times per year32 times per year Loyal to the chain19 per cent of Kmart 46 per cent of Wal- customersMart customers Location36 per cent of 49 per cent of Wal Americans find theirMart customers drive newest Kmart past a Kmart to go to inconvenient comparedWal-Mart to other stores
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 18 Monitoring and Evaluating Performance Deviations Current Performa nce Current Deviation Forecast Performa nce at This Time Objective, Assumpti on, or Budget 12% 40% +3 (ahead) 0% 15% 40% 10% 39% 2.7 days +0.5 (ahead) 3.2 days2.5 days 2.1 2.1% -0.6 (behind) -0.1% (behind) 2.7 2.0% 3.2 1.0% Key Success Factors Cost control: Ratio of indirect overhead cost to direct field and labor costs Gross profit Customer service: Installation cycle in days Ratio of service to sales personnel Product quality: Percentage of products returned Analysis Are we moving too fast, or is there more unnecessary overhead than was originally thought? Can this progress be maintained? Why are we behind here? How can we maintain the installation-cycle progress? Why are we behind here? What are the ramifications for other operations?
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 19 Monitoring and Evaluating Performance Deviations (concluded) Current Performance Current Deviation Forecast Performance at This Time Objective, Assumption, or Budget 80% $12,10 0 -12% (behind) +$600 (ahead) 92% $11,50 0 100% $12,50 0 5 +2 product s (ahead) 36 3.0% 15% 6 (on target) -8% (behind) -3 (behind) 3.0% 10% 3 2.5% 5% 6 Key Success Factors Product performance versus specification Marketing: Monthly sales per employee Expansion of product line Employee morale: Absenteeism rate Turnover rate Competition: New product introductions (average number) Analysis Why are we behind here? Good progress. Is it creating any problems to support? Are the products ready? Are the perfect standards met? Looks like a problem! Why are we so far behind? Did we underestimate timing? What are the implications for our basic assumptions?
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 20 The Quality Imperative: Concepts Related to TQM Viewed as a new organizational culture and way of thinking Foundations of TQM Intense focus on customer satisfaction Accurate measurement of every critical variable in a business’s operation Continuous improvement of products, services, and processes Work relationships based on trust and teamwork
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 21 Key Elements of Implementing TQM 1. Define quality and customer value 2. Develop a customer orientation 3. Focus on company’s business processes 4. Develop customer and supplier partnerships 5. Take a preventive approach 6. Adopt an error-free attitude 7. Get the facts first 8. Encourage all levels of employees to participate 9. Create an atmosphere of total involvement 10. Strive for continuous improvement
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 22 External suppliers Internal suppliers (functions) Seeking: Quality Efficiency Responsiveness External (ultimate) customer Other internal customer s (activities) Outputs Function (like production) Outputs Input The Value Chain Approach to Developing a Customer Orientation
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 23 Examples: Ways to Enhance Customer Value EfficiencyQualityResponsiveness Marketing Operations R&D Targets advertising campaign at customers, using cost-effective medium Minimizes scrap and rework through high- production yield Uses computers to test feasibility of idea before going to more expensive full- scale prototype Provides accurate assessment of customer’s product preferences to R&D Consistently produces goods matching engineering design Designs products that combine customer demand and production capabilities Quickly uncovers and reacts to changing market trends Quickly adapts to latest demands with production flexibility Carries out parallel product/process designs to speed up overall innovation
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 24 Examples: Ways to Enhance Customer Value Contd... EfficiencyQualityResponsiveness Accounti ng Simplifies and computerizes to decrease cost of gathering information Provides information that managers in other functions need to make decisions Provides information in “real time” (as events described are still happening) Purchasin g Given required vendor quality, negotiates prices to provide good value Selects vendors for their ability to join in an effective “partnership” Schedules inbound deliveries efficiently, avoiding both extensive inventories and stock-outs Personnel Minimizes employee turnover reducing hiring and training expenses Trains work force to perform required tasks In response to strong growth in sales, finds large numbers of employees and quickly teaches needed skills
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 25 QUALITY IMPROVEMENT PROCESS Step 1. Select Improvement Opportunity 2. Analyze current situation 3. Identify root causes 4. Select and plan solution DO 5. Implement pilot solution Check 6. Monitor results and evaluate solution ACT 7. Standardize 8. Recycle Phase PLAN
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 26 SELECT IMPROVEMENT OPPORTUNITY Generate list of opportunities/problems Select important opportunity based on criteria Redefine team Write problem/opportunity statement Summarize project/define road map Management review
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 27 ANALYZE CURRENT SITUATION Define process to be improved Identify process output Identify customer/supplier relationships Identify customer needs and expectations Define performance indicators Define supplier specifications Flow chart the process Collect baseline data Identify performance gaps Validate problem/opportunity statement Management Review
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 28 IDENTIFY ROOT CAUSES Analyze cause and effect relationships Identify potential root causes Collect data Verify cause and effect and root causes Validate/problem/opportunity statement Management Review
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 29 SELECT AND PLAN SOLUTION Generate list of potential solution Select best one based on criteria Define revised process Revise process output Identify expected outcomes Revise supplier specifications Modify flow charts Develop implementation plan Identify sequence/timing Define resources/controls Define responsibility Identify pilot activities Identify contigency actions Management Review
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 30 IMPLEMENT PILOT SOLUTION Monitor Results and Evaluate Solution Monitor results relative to - Targets and goals Process changes Controls Evaluation solution Management review
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 31 STANDARDIZE Cascade beyond pilot activity Develop appropriate training materials Monitor results and evaluate solution Document entire quality improvement journey Management Review Recycle Identify new improvement opportunity
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 32 QUALITY IMPROVEMENT TOOLS Idea Generation Consensus Process Definition Collecting Data Analyzing Cause and Effect Analyzing and Displaying Data Planning Tools Meeting Management Tools Benchmarking Questionnaires
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 33 E-BUSINESS TRANSFORMATION E-vision: Broadening the view E-Volution: Climbing the Ladder E-Strategy: Playing with LEGOs E-Synchronization: Breaking the Boundaries E-Infrastructure: Opening the Hood E-Capitalization: Placing Winning Bets E-Organization: Rallying the People
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 34 THE E-BUSINESS SCOPE COMPASS Who What Where Why Value Customers Transformation Outcomes Collaboration Hosted Remotely Transactions Relationship Outcomes Hosted Anywhere Network Firm Cost Outcomes Infor mation In-house Hosted
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 35 WHAT E-BUSINESS IS NOT e-Business is Not a Bolt-On to Your Business e-Business is Not About Technology e-Business is Not the CIO’s Responsibility e-Business is Not Tied to a Particular Department or Functional Area e-Business is Not a Middle-Management Initiative e-Business is Not a Fixed Target
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 36 THE LADDER: THE EVOLUTIONARY STAGES OF E-BUSINESS Who’ in Charge? Who Pays? Who’s Affected What’s the Integration Level?
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 37 THE LADDER: THE EVOLUTIONARY STAGES OF E-BUSINESS Who’ in Charge? Who Pays? Who’s Affected What’s the Integration Level?
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 38 FINDING YOUR PLACE ON THE LADDER Do you Use a Lot of Raw Materials and Components? What fraction of Your Customers is Online, and How Intense are the Interactions? Do you have Multiple Layers of Resellers and Many Different Types of Channels? Do you Spend a Lot of Money on New Product Development? Are you a “Knowledge Factory”?
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 39 THE LADDER OF E-BUSINESS INITIATIVES Inform Automate Integrate Reinvent Short-term Internal focus Bottom-line Activity level No integration Grassroots efforts Efficiency outcomes Process level Some integration E-business team leads Effective outcomes Enterprise level Tight integration Line of business leads Revenue outcomes Value network level Real-time end-to-end integration CEO or startup team leads Transformation outcomes Evolutionary Initiatives Revolutionary Initiatives Long-term External focus Top-line
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 40 THE DUALITY OF E-BUSINESS INITIATIVES
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 41 DIMENSIONS OF THE BUSINESS ARCHITECTURE Profit engine Processes Growth engine Resources Offerings Partners (value network) Customers (value proposition) How we make money Sources of profits Quality of profits Defensibility of profits Bottom-line potential Who we work with Suppliers Resellers Complementors What we do Realization process Sourcing process Operating processes Go-to-market process What we make Products Services Information Who we serve Customer segments Customer needs How we make revenues Customer leverage Offering leverage Market leverage Top-line potential What we know and own Human capital Structural capital Relationship capital
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 42 CORE PROCESSES New offering realization process-how it defines, designs, and brings new offerings to market Customer relationships management process-how it creates and builds relationships with its customers, and how it interacts with its customers Fulfillment management process-how it sources its inputs and goes to market with its products and services Human relations management process-how it attracts, grooms, and retains talent in the organization
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 43 CORE PROCESSES Contd…. Market sensing process-hot it gathers intelligence from the market, disseminates this intelligence within the organization, and acts upon this information. Operations management process-how it transforms its inputs into outputs Business development process-how it renews its business and finds opportunities for growth. Strategy development process-how it defines its end-goals, and the means for achieving the goals. Partner management process-how it identifies, selects, coordinates with, and manages relationships with key partners and complementors Financial management process-how it deploys its financial resources and allocates capital within the business.
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 44 THE SEAMLESS COMPANY Customer Relationship Repository (CRR) Seamless marketing Seamless sales Seamless service Integrated MarComm Television Print Outdoor Personal selling Telemarketing Internet Integrated channels Retail stores Catalog sales Sales force Internet Unified contact management In-person Telephone Fax E-mail Live chat Voice over IP
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 45 THE NET EFFECT ON CHANNELS Brand Augmentation Most CPG categories Fast food Convenience products Low High Low Intensity of information in the buying process Richness of physical interactions in the buying process Channel Augmentation Most B2B products Real estate Computer systems Industrial chemicals Channel Proliferation Most shopping goods Books Music Office supplies Channel Deconstruction Most low-end services Domestic travel Personal investing Prescription drugs
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 46 TOWARDS THE SEAMLESS COMPANY Establish need Find sources Establish trust Determine value Select product Negotiate terms Transact Get service Upgrade/repeat Mail Fax E-mail WebPhone Person
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 47 Employee-facing Applications (Intranet and KM) Partner-facing Applications (PRM) Employees Resellers and Affiliates Supplier-facing Applications (“Buy-side”-SCM and ORM) Suppliers (direct and indirect materials) TOWARDS AN ENTITY-CENTRIC INFRASTRUCTURE ERP (Transactions Backbone) Customer-facing Applications (“Sell-side”-CRM and SFA) Customers and Salesforce
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 48 Cross Application Components COMPONENT-BASED ARCHITECTURE Common Business Objects Distributed Object Infrastructure Legacy Application Objects Industry Specific Components Applications Specific Components Enterprise Portal Partner Management Customer Management Supplier Management
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 49 A VISUAL TOOL FOR EVALUATING E- BUSINESS INITIATIVES Competitive differentiation Adoption risk Integrated risk Anticipated payoff Time to payoff Trainability Scope of impact Capability risk
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 50 SEVEN ORGANIZATIONAL PROCESSES IN E- BUSINESS TRANSFORMATION Culture Shared vision Partners Suppliers Education Mentoring Traits Skills Incentives Rewards Organization Integration Vision and Strategy Catalyzing Diffusing Motivating Training External- izing Staffing Structuring
© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 51 THE ROLES OF A MATURE E-BUSINESS ORGANIZATION SBU head leads Escalating role Department of IT leads Coordinating role CEO, lead Venturing role CIO leads Matchmaking role Productivity-oriented internally focused Growth-oriented externally focused Enterprise level SBU level Scope of initiative Outcome of initiative E-business organization
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