CHAPTER 11

Managing Internal
Operations: Actions
That Promote Good
Strategy Execution

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 Learning Objectives
This chapter will help you understand:
1. Why resource allocation should always be based on strategic
priorities.
2. How well-designed policies and procedures can facilitate good
strategy execution.
3. How best practices and process management tools drive
continuous improvement in the performance of value chain
activities and promote superior strategy execution.
4. The role of information systems and operating systems in enabling
company personnel to carry out their strategic roles proficiently.
5. 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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 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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 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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 FIGURE 11.1 How Policies and Procedures
Facilitate 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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 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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 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 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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 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 Continuous

Reengineering Improvement
(TQM, Six Sigma)

Aims at one-time
Aims at ongoing
quantum improvement
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
Fostering quality-supportive behaviors

Committing to total quality and continuous improvement

Empowering all employees to improve quality

Emphasizing 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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 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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 Instituting Adequate Information Systems,
Performance Tracking, and Controls

• Customer data
Key Strategic • Operations data
Performance Indicators • Employee data
Tracked by Information • Supplier/partner/colla
Systems borative ally data
• 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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 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

Rewards Punishment

Commitment- Adverse
generating employment
incentives and consequences
rewards

Performance
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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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 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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 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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 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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