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Managing Internal Operations:
Actions That Promote Good
Strategy Execution
Chapter Summary
ChapterElevendiscussesfiveadditionalmanagerialactionsthatfacilitatethesuccessofacompany’sstrategy
executionefforts.Theseinclude(1)allocatingampleresourcestoexecution-criticalvaluechainactivities,(2)
instituting policies and procedures that facilitate good strategy execution, (3) employing process management
tools to drive continuous improvement in how value chain activities are performed, (4) installing information
and operating systems that enable company personnel to carry out their strategic roles proficiently, and (5)
usingrewardsandincentivestopromotebetterstrategyexecutionandtheachievementofstrategicandfinancial
targets.
Lecture Outline
I. Allocating Resources to the Strategy Execution Effort
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Early in the process of implementing and executing a new or different strategy, managers need to
2. A company’s 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
4. Visible actions to relocate operating funds and move people into new organizational units signal a
5. Just fine-tuning the execution of a company’s existing strategy seldom requires big movements of
people and money from one area to another.
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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
theseeffects.
3. Prescribing new policies and operating procedures acts to facilitate strategy execution in three ways:
4. There is wisdom in a middle approach: Prescribe enough policies to give organization members clear
direction in implementing strategy and to place desirable boundaries on employees’ actions: then
empower them to act within these boundaries however they think makes sense.
III. Adopting Best Practices and Employing Process Management Tools
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Companymanagerscansignificantly advancethecauseof competentstrategyexecutionby pushing
2. Oneofthemostwidelyusedandeffectivetoolsforgauginghowwellacompanyisexecutingpieces
3. Managerial efforts to identify and adopt best practices are a powerful tool for promoting operating
excellence and better strategy execution.
A. How the Process of Identifying and Incorporating Best Practices Works
1. A best practice is a technique for performing an activity or business process that at least one company
has demonstrated works particularly well.
2. Toqualifyasalegitimatebestpractice,thetechniquemusthaveaprovenrecordinsignificantlylowering
3. Benchmarking is the backbone of the process for identifying, studying, and implementing outstanding
practices.
4. Figure 11.2, From Benchmarking and Best Practices Implementation to Operating Excellence,
exploresthepotentialpay-offfrombenchmarking.
Chapter 11 Managing Internal Operations: Actions That Promote Good Strategy Execution
248
5. However,benchmarkingis more complicatedthan simply identifyingwhichcompanies are thebest
performers of an activity and then trying to exactly copy other companies’ approaches.
6. 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.
B. Business Process Reengineering, Total Quality Management, and Six Sigma Quality Programs: Tools
for Promoting Operating Excellence
1. Three other potent management tools for promoting operating excellence and better strategy execution
2. Business Process Reengineering
a. Reengineeringiscalledforwhentheorganizationfindsthatexecutionofstrategycriticalactivities
is being hindered by an organizational arrangement where pieces of the activity are performed in
severaldifferentfunctionaldepartments.
3. Total Quality Management Programs
a. Total quality management (TQM) is a management approach that emphasizes continuous
improvement in all phases of operations, 100 percent accuracy in performing tasks, involvement
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4. Six Sigma Quality Control
a. 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 process—from manufacturing to
customer transactions.
b. 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.TheSixSigmaprocessofdefine,measure,analyze,design,andverify(DMADV)is
an improvement system used to develop new processes or products at Six Sigma quality levels.
c. 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.
d. 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.
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 describes Charleston Area Medical Center’s use of Six Sigma as a health care
provider coping with the current challenges facing this industry.
ILLUSTRATION CAPSULE 11.1
Charleston Area Medical Center’s Six Sigma Program
Discussion Question: What did CAMC do to sustain the quality gains and process
standardization benefits derived through its implementation of Six Sigma?
Answer: To sustain these benefits, CAMC has instilled a continuous improvement mindset into the
ACTIVITY
Consider adding a File Attachment assignment requiring the student to fully explore and explain
how the CAMC has used Six Sigma to improve operational effectiveness and develop sustainable
competitive advantage.
Ask the student to describe specific areas of operation where Six Sigma has been implemented and
how that has impacted operations. Ask the student to explain how CAMC has been able to lock in the
gains made through this program. You can send the student to the following links to supplement the
information in the Illustration Capsule:
http://www.cerner.com/page.aspx?pageid=17179878547&libID=17179878765
http://www.creative-healthcare.com/The-Promise-Of-Six-Sigma-2
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6. The Difference Between Process Reengineering and Continuous Improvement Pro grams Like Six
Sigma And TQM
a. The essential difference between business process reengineering and continuous improvement
b. The two approaches to improved performance of value chain activities and operating excellence are
not mutually exclusive; it makes good sense to use them in tandem.
C. Capturing the Benefits of Initiatives to Improve Operations
1. Thebiggestbeneficiariesarecompaniesthatviewsuchprogramsnotasendsinthemselvesbutastools
forimplementingandexecutingcompanystrategymoreeffectively.
2. To get the most from programs for facilitating better strategy execution, managers must have a clear idea
ofwhatspecificoutcomesreallymatter.
3. The action steps managers can take to realize full value from TQM or Six Sigma initiatives include:
a. Demonstrating visible, unequivocal, and unyielding commitment to TQM and continuous
improvement
b. Nudging people toward TQM-supportive behaviors by:
4. When used effectively, TQM, Six Sigma, and other similar continuous improvement techniques are
capableofimprovingtheproficiencywithwhichanorganizationperformsitsvaluechainactivities.Not
only do improvements from such initiatives add up over time and strengthen organizational capabilities,
but they also help build a culture of operating excellence. All this lays the groundwork for gaining a
competitive advantage.
IV. Installing Information and Operating Systems
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
Chapter 11 Managing Internal Operations: Actions That Promote Good Strategy Execution
251
1. Company strategies cannot be executed well without a number of internal systems for business
operations.
2. Well-conceived, state-of-the-art operating systems not only enable better strategy execution but also can
strengthen organizational capabilities—perhaps enough to provide a competitive edge over rivals.
3. HavingState-of-the-artsupportsystemscanbeabasisforcompetitiveadvantageiftheygivethefirm
capabilities that rivals cannot match.
A. Instituting Adequate Information Systems, Performance Tracking, and Controls
1. Accurate and timely information about daily operations is essential if managers are to gauge how well
thestrategyexecutionprocessisproceeding.Informationsystemsneedtocoverfivebroadareas:
2. Real time information systems permit company mangers to stay on top of implementation initiatives and
dailyoperationsandtointerveneifthingsseemtobedriftingoffcourse.
3. Statisticalinformationgivesmanagersafeelforthenumbers,briefingsandmeetingsprovideafeelfor
the latest developments and emerging issues, and personal contacts add a feel for the people dimension.
All are good barometers.
B. Monitoring Employee Performance—Information systems also provide managers with a means for
monitoringtheperformanceofempoweredworkerstoseethattheyareactingwithinthespecifiedlimits.
V. Using Rewards and Incentives to Promote Better Strategy Execution
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. It is essential that company personnel be enthusiastically committed to executing strategy and achieving
performance targets.
2. Aneffectivelydesignedrewardstructureisthesinglemostpowerfultoolmanagementhasformobilizing
employee commitment to successful strategy execution.
3. To win employees’ sustained, energetic commitment, management has to be resourceful in designing
and using motivational incentives—both monetary and nonmonetary.
CORE CONCEPT
Financial rewards provide high powered incentives when rewards are tied to specific
outcome objectives.
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A. Incentives and Motivational Practices that Facilitate Good Strategy Execution
1. Financial incentives generally lead the list of motivating tools for trying to gain wholehearted employee
commitment to good strategy execution and operating excellence.
2. In addition, companies use a host of other motivational approaches to spur stronger employee
commitment to the strategy execution process. Some of the most important include:
a. Providingattractiveperksandfringebenefits
b. Giving awards and other forms of public recognition to high performers, and celebrate the
achievement of organizational goals.
something worthwhile in a larger social sense
g. Sharinginformationwithemployeesaboutfinancialperformance,strategy,operationalmeasures,
market conditions, and competitors’ actions
h. Providing a comfortable and attractive working environment
3. Illustration Capsule 11.2, How the Best Companies Motivate and Reward Employees, examines
some of the varieties of techniques utilized by organizations to motivate employees.
ILLUSTRATION CAPSULE 11.2
How the Best Companies Motivate and Reward Employees
Discussion Question: Companies engage a vast variety of employee motivational techniques.
What is the primary purpose of implementation of these techniques?
Answer: Companies utilize a myriad of motivational and reward practices and techniques to help
create a work environment that facilitates better strategy execution which include a mix of financial
and non-financial rewards.
B. Striking the Right Balance Between Rewards and Punishment
1. While most approaches to motivation, compensation, and people management accentuate the positive,
2. Asageneralrule,itisunwisetotakeoffthepressureforgoodperformanceorplaydowntheadverse
consequences of shortfalls in performance.
3. if an organization’s motivational approaches and reward structure induce too much stress, internal
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4. Evidence shows that managerial initiatives to improve strategy execution should incorporate more
positive than negative motivational elements.
C. Linking Rewards to Achieving the Right Outcomes
1. To create a strategy-supportive system of rewards and incentives, a company must reward people for
accomplishing results, not for just dutifully performing assigned tasks.
2. Ideally, every organization unit, every manager, every team or work group, and perhaps every employee
3. Illustration Capsule 11.3 provides a vivid example of how one company has designed incentives linked
directlytooutcomesreectinggoodexecution.
ILLUSTRATION CAPSULE 11.3
Nucor Corporation: Tying Incentives Directly to Strategy Execution
Discussion Question: Identify the prominent result that each organization sustained from
implementing a strategy that tied incentives directly to strategy execution.
Answer: Nucor’s low-cost leadership strategy entails achieving lower labor costs per ton of steel
5. Additional Guidelines for Designing Incentive Compensation Systems: The concepts and company
experiences discussed yield the following perspective guidelines for creating an incentive compensation
system to help drive successful strategy execution:
a. Makethefinancialincentivesamajor,notminor,pieceofthetotalcompensationpackage.
b. Have incentives that extend to all managers and all workers, not just top management.
f. Avoidrewardingeffortratherthanresults.
6. For an organization’s incentive system to work well, the details of the reward structure must be
communicated and explained.
