1 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill IMPLEMENTING STRATEGY: BUDGETS, POLICIES, BEST PRACTICES, SUPPORT SYSTEMS, AND REWARDS CHAPTER 10 Screen graphics created by: Jana F. Kuzmicki, PhD, Indiana University Southeast

2 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Chapter Outline l Linking Budgets to Strategy l Establishing Strategy-Supportive Policies l Instituting Best Practices and Striving for Continuous Improvement l Installing Support Systems l Motivational Practices and Incentive Compensation Systems

3 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Linking Budgets to Strategy l Allocating resources in ways that support effective strategy execution involves 4 Funding capital projects that can make a contribution to strategy implementation 4 Funding efforts to strengthen competencies and capabilities or to create new ones 4 Shifting resources--downsizing some areas, upsizing others, Killing activities that are no longer justified, and funding new activities with a critical strategy role

4 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill How Policies and Procedures Aid Strategy Implementation l Provide top-down guidance regarding expected behaviors l Help align internal actions with strategy, channeling efforts along the intended path l Enforce consistency in performance of activities in geographically scattered units l Serve as powerful lever for changing corporate culture to produce stronger fit with a new strategy

5 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Creating Strategy-Supportive Policies and Procedures l Role of new policies 4 Channel behaviors and decisions to promote strategy execution 4 Counteract tendencies of people to resist chosen strategy l Too much policy can be as stifling as 4 Wrong policy or as 4 Chaotic as no policy l Often, the best policy is a willingness to empower employees

6 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Instituting Best Practices and Continuous Improvement l Searching out and adopting best practices is integral to effective implementation l Benchmarking has spawned new approaches to improve strategy execution 4 Reengineering 4 TQM 4 Continuous improvement programs

7 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill The Objectives of Quality Improvement Programs l Defect-free manufacture l Superior product quality l Superior customer service l Total customer satisfaction

8 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Implementing a Philosophy of Continuous Improvement l Instill enthusiasm to do things right throughout company l Strive to achieve little steps forward each day, i.e. Kaizen l Ignite creativity in employees to improve performance of value-chain activities l Preach there is no such thing as good enough l Reform the corporate culture

9 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill What Is Total Quality Management? TQM is an approach to managing the business that involves creating a total quality culture bent on continuously improving the performance of every value-chain activity and task!

10 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Popular TQM Approaches Deming’s 14 Points 1992 Baldridge Award Criteria The Juran Trilogy Crosby’s 14 Quality Steps

11 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Table 10-1: Components of Popular TQM Approaches 1. Constancy of purpose 2. Adopt the philosophy 3. Don’t rely on mass inspection 4. Don’t award business on price 5. Constant improvement 6. Training 7. Leadership 8. Drive out fear 9. Break down barriers 10. Eliminate slogan and exhortations 11. Eliminate quotas 12. Pride of workmanship 13. Education & retraining 14. Plan of action Deming’s 14 Points

12 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Table 10-1: Components of Popular TQM Approaches The Juran Trilogy Quality PlanningQuality Control Quality Improvement Set goals Identify customers & their needs Develop products & processes Evaluate performance Compare to goals & adapt Establish infrastructure Identify projects & teams Provide resources & training Establish controls

13 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Table 10-1: Components of Popular TQM Approaches 1. Management commitment 2. Quality improvement teams 3. Quality measurement 4. Cost of quality evaluation 5. Quality awareness 6. Corrective action 7. Zero-defects committee 8. Supervisor training 9. Zero-defects day 10. Goal-setting 11. Error cause removal 12. Recognition 13. Quality councils 14. Do it over again Crosby’s 14 Quality Steps

14 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Table 10-1: Components of Popular TQM Approaches 1992 Baldridge Award Criteria (1000 points) Quality 1. Leadership (90 points) 2. Information & analysis (80 points) 3. Strategic quality planning (60 points) 4. Human resource development (150 points) 5. Management of process quality (140 points) 6. Quality & operation results (180 points) 7. Customer focus & satisfaction (300 points)

15 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Twelve Aspects Common to TQM and Continuous Improvement Programs 1. Committed leadership 2. Adoption & communication of TQM 3. Closer customer relationships 4. Closer supplier relationships 5. Benchmarking 6. Increased training 7. Open organization 8. Employee empowerment 9. Zero-defects mentality 10. Flexible manufacturing 11. Process improvement 12. Measurement

16 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Characteristics of TQM/Continuous Improvement Programs l Valuable competitive asset in a company’s resource portfolio l Have hard-to-imitate aspects l Require substantial investment of management time and effort l Expensive in terms of training and meetings l Seldom produce short-term results l Long-term payoff - Instilling a TQM culture

17 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill TQM vs. Process Reengineering l Reengineering 4 Aims at quantum gains of 30 to 50% or more l TQM 4 Stresses incremental progress l Techniques are not mutually exclusive 4 Reengineering - Used to produce a good basic design yielding dramatic improvements 4 TQM - Used to perfect process, gradually improving efficiency and effectiveness

18 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Using Best Practice Programs as an Implementation Tool l Select indicators of successful strategy execution l Benchmark against best practice companies l Reengineer business processes l Build a TQ culture 4 Starts with management commitment 4 Install TQ-supportive employee practices 4 Empower employees to do the right things 4 Provide employees with quick access to required information 4 Preach that performance can be improved

19 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Installing Support Systems l Essential to promote successful strategy execution l Types of support systems 4 On-line data systems 4 Internet and company intranets 4 Electronic mail 4 Web pages l Mobilizing information and creating systems to use knowledge effectively can yield 4 Competitive advantage

20 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Formal Reporting of Strategy-Critical Information l Accurate, timely information is essential to guide action l Prompt feedback on implementation activities is needed before actions are fully completed l Key strategic performance indicators must be tracked as often as practical l Barometers of overall performance 4 Statistical information 4 Reports and meetings 4 Personal contact

21 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill What Areas Should Information Systems Address? l Customer data l Operations data l Employee data l Supplier/partner/collaborative ally data l Financial performance data

22 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Exercising Adequate Control Over Empowered Employees l Challenge 4 How to ensure actions of employees stay within acceptable bounds l Purpose of diagnostic control systems 4 Relieve managers of burden of constant monitoring l Control methods 4 Establish boundaries on what not to do, allowing freedom to act with limits 4 Face-to-face meetings to assess performance

23 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Gaining Commitment : Components of an Effective Reward System l Monetary Incentives 4 Salary raises 4 Performance bonuses 4 Stock options 4 Retirement packages 4 Promotions 4 Perks l Non-monetary Incentives 4 Praise 4 Constructive criticism 4 Special recognition 4 More, or less, job security 4 Interesting assignments 4 More, or less, job responsibility

24 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Approaches: Motivating People to Execute the Strategy Well l Inspire employees to do their best l Get employees to buy into strategy l Structure individual efforts in teams to facilitate a supportive climate l Allow employees to participate in decisions about their jobs l Make jobs interesting and satisfying l Devise strategy-supportive motivational approaches

25 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Balancing Positive vs. Negative Rewards l Elements of both are necessary 4 Challenge and competition is necessary for self-satisfaction l Prevailing view 4 Positive approaches work better than negative ones D Enthusiasm D Effort D Initiative

26 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Linking the Reward System to Performance Outcomes l Rewards are the single most powerful tool to win commitment to the strategy l Objectives 4 Generously reward those achieving objectives 4 Deny rewards to those who don’t 4 Make strategic performance measures the dominate basis for designing incentives

27 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Key Considerations in Designing Reward Systems l Create a results-oriented system l Reward people for results, not for activity l Define jobs in terms of what to achieve l Incorporate several performance measures l Tie incentive compensation to relevant outcomes 4 Top executives - Key measures of overall firm performance 4 Department heads, teams, and individuals - Strategic areas of responsibility

28 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill 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 each 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