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Managing Internal Operations

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1 Managing Internal Operations
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

2 “Winning companies know how to do their work better.”
Michael Hammer and James Champy

3 “If you want people motivated to do a good job, give them a good job to do.”
Frederick Herzberg

4 Chapter Roadmap Marshaling Resources Behind the Drive for Good 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


6 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


8 Fig. 12.1: How Prescribed Policies and Procedures Facilitate Strategy Execution

9 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


11 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

12 What Is a Best Practice? An activity that at least one company has proved works particularly well A path to operating excellence Best Practices

13 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 To be valuable and transferable, a best practice must Demonstrate success over time Deliver quantifiable and highly positive results and Be repeatable

14 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

15 Fig. 12.2: From Benchmarking and Best-Practice Implementation to Operating Excellence

16 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

17 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

18 Popular TQM Approaches
Deming’s Points Baldridge Award Criteria The Juran Trilogy Crosby’s 14 Quality Steps

19 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

20 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

21 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

22 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

23 Business Process Reengineering vs. Total Quality Programs
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

24 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

25 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

26 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 Answer: C


28 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 effectively can yield Competitive advantage

29 Examples of Support Systems
On-line reservation system Accurate and expeditious baggage handling system Strict aircraft maintenance program Airlines

30 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

31 Examples of Support Systems
Sophisticated maintenance support system Otis Elevator Systems have been developed for real-time monitoring of new listings, bidding activity, Web site traffic, and page views eBay

32 What Areas Should Information Systems Address?
Customer data Operations data Employee data Supplier/partner/collaborative ally data Financial performance data

33 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

34 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

35 For Discussion: Your Opinion
What sort of information and operating systems would a company like likely need in order to facilitate good strategy execution? Providing prompt, quality customer service in an on-line environment is essential to its success; thus, the types of information systems needed must focus on this. needs computerized, real-time information systems for the following activities: tracking key performance indicators; gathering information from employees related to amount of orders received and processed, sales trends, inventory-related issues, and deliveries of merchandise; and identifying and diagnosing problems. One of the factors related to the company’s success is its fully computerized, 1,300-by-600 foot warehouses that contain about 3 million books, CDs, toys, and houseware items. Using complex picking algorithms, computers initiate the order-picking process by sending signals to employees’ wireless receivers, telling them which items to pick off the shelves in which order. Computers also generate data on misboxed items, chute backup times, line speed, employee productivity, and shipping weights. Amazon’s warehouse efficiency and cost per order filled is so low that one of the fastest-growing and most profitable parts of its business is using its warehouses to run the e-commerce operations of Toys “R” Us and Target.


37 Gaining Commitment: Components of an Effective Reward System
Monetary Incentives Base pay increases Performance bonuses Profit sharing plans Stock options Retirement packages Piecework incentives Non-monetary Incentives Praise Constructive criticism Special recognition More, or less, job security Stimulating assignments More, or less, autonomy Rapid promotion

38 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

39 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.

40 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 s. During hard times management takes a 20% pay cut instead of laying off employees.

41 Examples: Motivational Practices 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.”

42 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.

43 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

44 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

45 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. Answer: C

46 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

47 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? To create a strategy-supportive system of rewards and incentives, a company must emphasize rewarding employees for accomplishing results, not for just dutifully performing assigned tasks. Focusing employee attention and energy on what to achieve rather than on what to do makes the work environment results-oriented. In any job, performing assigned tasks is not equivalent to achieving intended outcomes. Diligently showing up for work and attending to job assignments does not guarantee results. Specific performance targets must be established for each organization unit, every manager, every team, and perhaps for every employee. Rewards must be based on the achievement of these targets by the specified time.

48 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 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 non-performers

49 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. Answer: A

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