Module 10

Implementing Strategy: Budgets, Policies, Best Practices, Support Systems, and Rewards

Module Outline
Linking Budgets to Strategy Crafting Strategy-Supportive Policies and Procedures Instituting Best Practices and a Commitment to Continuous Improvement Installing Support Systems Designing Strategy-Supportive Reward Systems

Linking The Budgets to Strategy

Strategy implementers need to
See that strategy-critical units have enough resources Screen requests for new capital projects and bigger operating budgets Be willing to shift resources to support new strategic priorities Make persuasive case to superiors on what resources are really needed

Linking The Budgets to Strategy

New strategies often call for significant budget reallocations
Downsizing some areas and upsizing others Killing activities no longer justified Funding activities that make or break success

How well budget allocations are linked to the needs of strategy can either promote or impede the implementation process!

How Policies and Procedures Aid Strategy Implementation

Provide top-down guidance regarding expected behaviors and performance Help align actions and behavior with strategy Help enforce consistency in performance of strategy-critical activities in geographically scattered operating units Serve as powerful lever for changing corporate culture to produce stronger fit with new strategy

Creating Strategy-Supportive Policies and Procedures

Role of new policies in implementing strategy
Channels actions, behaviors, and decisions in directions 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 Sometimes, best policy is willingness to empower employees Empowerment is important when employee initiative is essential to good strategy execution

Instituting Best Practices and Continuous Improvement

Searching out and adopting best practices is integral to effective implementation Benchmarking has spawned new approaches to improve strategy execution
Reengineering Continuous improvement programs Total Quality Management TQM

Instituting Best Practices and Continuous Improvement

Quality improvement programs are tools for implementing strategies keyed to
Detect-free manufacture Superior product quality Superior customer service Total customer satisfaction

Identifying and implementing best practices is a journey, not a destination; its an exercise in doing things in a world-class manner!

What is Total Quality Management TQM?

Creating a Total Quality Culture bent on continuously improving the performance of every task and value-chain activity!

Implementing a Continuous Improvement Philosophy

Instill enthusiasm and commitment to do things right from the top to bottom of firm Strive to achieve little steps forward each day: Kaizen Ignite employee efforts to be creative in improving performance of value-chain activities Preach there is no such thing as good enough and everyone must be involved Reform the corporate culture

Best Practices Programs

Aim at
Improved efficiency Reduced costs Better product quality Greater customer satisfaction

Involves benchmarking against companies regarded as

Best in industry, or Best in world

Reengineering and TQM

Reengineering vs. TQM
Reengineering seeks one-time quantum gains on order of 30 to 50% or more TQM seeks ongoing incremental improvement

Reengineering and TQM are not mutually exclusive

First, reengineering is used to produce a good basic design yielding dramatic improvements Then, TQM is used to perfect process, gradually improving efficiency

Using Best Practice Programs as an Implementation Tool

Select indicators of successful strategy execution Next, benchmark against best practice companies Reengineering business process Then, build a TQ culture
Starts with management commitment Install TQ-supportive employee practices Empower employees to do the right things Provide employees with quick access to required information Preach that performance can be improved

Installing Support Systems

Strategy implementers must invest in creating support systems that promote successful strategy execution!

Examples: Support Systems

Airlines
Computerized reservation system

Federal Express
Computerized parcel-tracking system and leading-edge flight operations systems

Otis Elevator
Sophisticated maintenance support system

Examples: Support Systems

Procter & Gamble
System to obtain early warning signs of product problems and changing tastes

Mrs. Fields Cookies

System monitor sales, at 15-minute intervals, to suggest product mix changes and to improve customer response

Strategic Management Principle

Innovative, state-of-the-art support system can be a basis for competitive advantages if they give a firm capabilities that rivals cant match!

Formal Reporting of Strategy-Critical Information

Accurate and timely information is essential to guide action Prompt feedback on implementation initiatives needed before actions are fully completed Monitoring early implementation actions serves two purpose
Quick detection of need to adjust either strategy or its implementation Assuring things move ahead as planned

Key strategic performance indicators must be tracked as often as practical

Formal Reporting of Strategy-Critical Information

Information systems should cover 4 areas
Customer data Operations data Employee data Financial performance data

Accurate, timely information allows strategists to monitor progress and take corrective actions promptly!

Gaining Commitment to Chosen Strategy

Motivational practices Rewards and incentives inducing employee to make the strategy work Promoting a results orientation The strategy implementers challenge is to design a reward structure that motivates people to do the very things it takes to make the strategy work successfully!

Developing an Effective Reward Structure Involves

Creatively using full range of rewardpunishment mechanisms
Salary raises Bonuses, stock options, and perks Promotions Praise and recognition Constructive criticism Peer pressure More (or less) responsibility Opportunity for personal satisfaction

Motivating People to Execute the Strategy Well

Support for good strategy execution involves
Inspiring and challenging employees to do their best Getting them to but into strategy Involving employees in decisions about how to perform their jobs Making jobs interesting and satisfying

Examples: Motivational Practices

Mars, Inc.
Every employee, including the president, gets a weekly 10% bonus by coming to work on time each day that week

Japanese Companies
Employees meet regularly to hear inspirational speeches, sing company songs, and chant the corporate litany

Examples: Motivational Practices

Tupperware & Mary Kay Cosmetics
Hold inspirational get-togethers for sales force organizations

Procter & Gamble

Encourages competition among brand managers; system breeds people who love to compete and excel

Positive or Negative Rewards?

Elements of both are necessary But, positive reinforcement should outweigh negative reinforcement to promote healthy work environment

Linking Work assignments to Performance Targets

Create result-oriented reward system
Define jobs in terms of results to be accomplished Stress achievements not activities Track actual achievement vs. targeted performance Use performance targets in strategic plan as basis for incentive compensation Have several performance measures

Rewarding Performance
Objective Provide ample rewards to people who achieve objectives, and, Deny rewards to those not achieving objectives!

Rewarding Performance
Standards Doing a good job means achieving agreedupon performance targets No excuses standard must prevail Cannot reward trying hard

Strategic Management Principle

The strategy implementers standard for judging whether individuals and organizational units have done a good job must be whether the performance targets in the strategic plan were achieved!

Guidelines: Designing an Effective Reward System

Performance payoff must be a major, not minor, piece of total compensation package Incentives plan should extend to all managers and employees System must be administered with scrupulous care and fairness Incentives must be linked tightly to achieving only performance targets in strategic plan Performance targets each person is expected to achieve must involve outcomes person can personally affect

Why Performance-Reward Link is Important?

Reward structure is managements most powerful implementation tool Kinds of incentives offered signal desired behavior and performance Reward induce people to go all out to
Execute strategy effectively Achieve objectives in strategic plan

Making Performance-Driven Compensation Work

Keys to implementing pay-for-performance
Make performance targets basis for designing incentive system Ensure performance targets are clearly defined and every person / group is accountable for achieving them Be fair and impartial in comparing actual performance against targets Avoid skirting system to reward non-performers

Making Performance-Driven Compensation Work

Keys to implementing pay-for-performance
Explore causes of deviations to assess if they are due to
Poor individual performance, or Circumstances beyond individuals control

Hold people accountable for carrying out their assigned part of strategic plan Base rewards on caliber of each individuals accomplishments

End of Module 10