chapter 11 Managing Internal OperationsActions That Promote Go

chapter 11 Managing Internal Operations
Actions That Promote Good Strategy Execution
© 2022 McGraw Hill. All rights reserved. Authorized only for
instructor use in the classroom.
No reproduction or further distribution permitted without the
prior written consent of McGraw Hill.
Copyright Image Source/Getty Images
In Chapter 11 the actions that advance a good strategy are
discussed: 1. allocating resources, 2. ensuring that policies and
procedures facilitate strategy execution. 3. using process
management tools and best practices. 4. employing installing
information and operating systems. 5. utilizing rewards and
incentives.
© McGraw-Hill Education
3–1
Learning Objectives
After reading this chapter, you should be able to:
Explain why resource allocation should always be based on
strategic priorities.
Comprehend how well-designed policies and procedures can
facilitate good strategy execution.
Understand process management tools drive continuous
improvement in the performance of value chain activities.
Recognize the role of information systems and operating
systems in enabling company personnel to carry out their
strategic roles proficiently.
Explain how and why the use of well-designed incentives can be
management’s single most powerful tool for promoting adept
strategy execution.

© McGraw Hill
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.
© McGraw Hill
© McGraw-Hill Education.
11-3
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.
© McGraw Hill
The funding requirements of good strategy execution must drive
how capital allocations are made and the size of each unit’s
operating budget. Underfunding organizational units and
activities pivotal to the strategy impedes successful strategy

implementation.
11-4
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.
© McGraw Hill
A company’s operating budget must be both strategy-driven (in
order to amply fund the performance of key value chain
activities) and lean (in order to operate as cost-effectively as
possible).
11-5
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.

© McGraw Hill
A company’s policies and procedures provide a set of well -
honed routines for running the company and executing the
strategy. Well-conceived policies and procedures aid strategy
execution; out-of-sync ones hinder effective execution.
There is wisdom in a middle-ground approach: Prescribe enough
policies to give organization members clear direction and to
place reasonable boundaries on their actions; then empower
them to act within these boundaries in pursuit of company
goals.
11-6
FIGURE 11.1 How Policies and Procedures Facilitate Good
Strategy Execution
Access the text alternative for slide images.
© McGraw Hill
Well-conceived policies and procedures:
Provide top-down guidance about how certain things need to be
done (such as by channeling individual and group efforts along
a strategy-supportive path, by aligning the actions and behavior
of company personnel with the requirements for good strategy
execution, and by placing limits on independent action and
helping to overcome resistance to change.)
Help enforce consistency in how strategy-critical activities are
performed (such as by improving the quality and reliability of
strategy execution and by helping coordinate the strategy
execution efforts of individuals and groups throughout the
organization.)
Promote the creation of a work climate that facilitates good
strategy execution.

11-7
Employing Process Management Tools
Managing for Continuous Improvement
Total quality management (TQM)
Best practices
Benchmarking.
Process reengineering
Six Sigma quality programs
© McGraw Hill
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.
© McGraw Hill
Business process reengineering involves radically redesigning
and streamlining how an activity is performed, with the intent
of achieving quantum improvements in performance.
11-9
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).
© McGraw Hill
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 value chain
activity.
11-10
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.
© McGraw Hill
Six Sigma programs utilize advanced statistical methods to
improve quality by reducing defects and variability in the
performance of business processes.
11-11
Six Sigma and New Projects:
DMADVDMAICQuestionDefineWhat are our project goals and
customer requirements?MeasureHow do we measure and
determine both our goals and the needs of our

customers?AnalyzeWhat existing process options do we have
for meeting customer needs?DesignShould we use an old or new
process to meet customer needs and specifications?VerifyHow
will we verify design performance and our ability to meet
customer needs?
© McGraw Hill
11-12
Existing Processes and Six Sigma: DMAICDMAICExisting
ProcessDefineDefine what constitutes a defect or
variation.MeasureCollect data to find out why, how, and how
often this defect occurs.AnalyzeDetermine when, why, and
where the defect is occurring.ImproveImplement best practice to
eliminate defect or variation.ControlImplement training,
monitoring and controls to sustain the improvement.
© McGraw Hill
11-13
ILLUSTRATION CAPSULE 11.1 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?
© McGraw Hill

11-14
The Difference Between Business Process Reengineering and
Continuous Improvement
Top-notch Strategy Execution and Operating Excellence
Business Process Reengineering:
Aims at one-time quantum improvement.
Continuous Improvement
(TQM, Six Sigma):
Aims at ongoing incremental improvements.
© McGraw Hill
Capturing the Benefits of Initiatives to Improve Operations
Action Steps to Realize the Value of TQM and Six Sigma
Initiatives
Foster quality-supportive behaviors.
Commit to total quality and continuous improvement.
Empower all employees to improve quality.
Emphasize the necessity for improved performance.
Using online systems to speed the adoption of best practices.
© McGraw Hill
11-16
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).
© McGraw Hill
The purpose of using benchmarking, best practices, business
process reengineering, TQM, and Six Sigma programs is to
improve the performance of strategy-critical activities and
thereby enhance strategy execution.
17
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.
© McGraw Hill
Having state-of-the-art operating systems, information systems,
and real-time data is integral to superior strategy execution and
operating excellence.
11-18
Instituting Adequate Information Systems, Performance

Tracking, and Controls
Key Strategic Performance Indicators Tracked by Information
Systems
Customer data.
Operations data.
Employee data.
Supplier, partner, or collaborative ally data.
Financial performance data.
© McGraw Hill
Key strategic performance indicators tracked by information
systems are: customer data, operations data, employee data,
supplier/partner/collaborative ally data, and financial
performance data.
11-19
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.
© McGraw Hill
Three techniques for winning sustained, energetic commitment
of employees to the strategy execution process are:
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
A properly designed reward structure is management’s most
powerful tool for mobilizing organizational commitment to
successful strategy execution and aligning efforts throughout
the organization with strategic priorities. Financial rewards
provide high-powered incentives when rewards are tied to
specific outcome objectives.
11-20
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.
© McGraw Hill
11-21
Striking the Right Balance between Rewards and Punishment
The firm’s motivational approaches and reward structure
Performance
Rewards
Commitment-generating incentives and rewards

Punishment
Adverse employment consequences
© McGraw Hill
Two motivational approaches a firm can take toward affecting
employee performance are rewards (consisting of commitment-
generating incentives and rewards) or punishment (which
consists of adverse employment consequences).
11-22
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?
© McGraw Hill
Incentives must be based on accomplishing the right results, not
on dutifully performing assigned tasks.
11-23
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.
© McGraw Hill
The key to creating a reward system that promotes good strategy
execution is to make measures of good business performance
and good strategy execution the dominating basis for designing
incentives, evaluating individual and group efforts, and handing
out rewards.
11-24
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.
© McGraw Hill
The first principle in designing an effective incentive
compensation system is to tie rewards to performance outcomes
that are directly linked to good strategy execution and to the
achievement of financial and strategic objectives. The
unwavering standard for judging whether individuals, teams,

and organizational units have done a good job must be whether
they meet or beat performance targets that reflect good strategy
execution.
11-25
ILLUSTRATION CAPSULE 11.3 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).
© McGraw Hill
11-26
End of Main Content
© 2022 McGraw Hill. All rights reserved. Authorized only for
instructor use in the classroom.
No reproduction or further distribution permitted without the
prior written consent of McGraw Hill.
Because learning changes everything.®
www.mheducation.com
© McGraw Hill
Text Alternates for Slide Images

© McGraw Hill
Figure 11.1 How Policies and Procedures Facilitate Good
Strategy Execution, Text Alternate
Return to slide containing original image.
Well-conceived policies and procedures:
Provide top-down guidance about how certain things need to be
done (such as by channeling individual and group efforts along
a strategy-supportive path, by aligning the actions and behavior
of company personnel with the requirements for good strategy
execution, and by placing limits on independent action and
helping to overcome resistance to change)
Help enforce consistency in how strategy-critical activities are
performed (such as by improving the quality and reliability of
strategy execution and by helping coordinate the strategy
execution efforts of individuals and groups throughout the
organization)
Promote the creation of a work climate that facilitates good
strategy execution
Return to slide containing original image.
© McGraw Hill
11-29
COMPANY A Three Year DataA_CO_FINLearner Copy Rev
3/14/21COMPANY A Illlustrative Data for Educational
Purposes All values shown are in
thousands.201720182019Income
StatementRevenue27,98128,78429,610Cost of Goods Sold
(COGS)15,38918,99716,285Gross

Profit12,5919,78613,324ExpensesSalaries and
Benefits4,5104,5104,510Rent and
Overhead1,8041,8041,804Depreciation and
Amortization2,8142,8062,806Interest900900900Total
Expenses10,02810,02010,020Earnings Before
Tax2,563(234)3,305Taxes718(65)925Net
Earnings1,845(168)2,379201720182019Balance
SheetAssetsCash62,26561,70844,319Acco unts
Receivable1,3801,4191,460Inventory3,0783,7993,257Property
and Equipment37,41337,40737,402Total
Assets104,136104,33486,438LiabilitiesAccounts
Payable1,5601,9261,651Debt30,00030,00010,000Total
Liabilities31,56031,92611,651Shareholders' EquityEquity
Capital33,68533,68533,685Retained
Earnings38,89238,72341,103Shareholders'
Equity72,57772,40874,788Total Liabilities and Shareholders'
Equity104,137104,33486,439201720182019Cash Flow
StatementOperating Cash FlowNet
Earnings1,845(168)2,379Plus: Depreciation and
Amortization2,8142,8062,806Less: Changes in Working
Capital(10,312)395(227)Cash from
Operations14,9712,2425,412Investing Cash FlowInvestments in
Property and Equipment2,7062,8002,800Cash from
Investing2,7062,8002,800Financing Cash FlowIssuance
(repayment) of Debt--(20,000)Issuance (repayment) of Equity---
Cash from Financing--(20,000)Net Increase (decrease) in
Cash12,265(558)(17,388)Opening Cash
Balance50,00062,26561,708Closing Cash
Balance62,26561,70844,319Supporting SchedulesWorking
Capital ScheduleAccounts
Receivable1,3801,4191,460Inventory3,0783,7993,257Accounts
Payable1,5601,9261,651Net Working Capital
(NWC)2,8983,2933,066Change in
NWC(10,312)395(227)Depreciation SchedulePPE
Opening37,52137,41337,407Plus Capex2,7062,8002,800Less
Depreciation2,8142,8062,806PPE

Closing37,41337,40737,402Debt and Interest ScheduleDebt
Opening30,00030,00030,000Issuance (repayment)--
(20,000)Debt Closing30,00030,00010,000Interest
Expense900900900
COMPANY A Three Year DataA_CO_FINLearner Copy Rev
3/14/21COMPANY A Illlustrative Data for Educational
(COGS)15,38918,99716,285Gross
Amortization2,8142,8062,806Interest900900900Total
Tax2,563(234)3,305Taxes718(65)925Net
Earnings1,845(168)2,379201720182019Balance
SheetAssetsCash62,26561,70844,319Accounts
Payable1,5601,9261,651Debt30,00030,00010,000Total
Earnings38,89238,72341,103Shareholders'
Equity104,137104,33486,439201720182019Cash Flow
StatementOperating Cash FlowNet
Earnings1,845(168)2,379Plus: Depreciation and
Amortization2,8142,8062,806Less: Changes in Working
Capital(10,312)395(227)Cash from

Cash12,265(558)(17,388)Opening Cash
Payable1,5601,9261,651Net Working Capital
(NWC)2,8983,2933,066Change in
NWC(10,312)395(227)Depreciation SchedulePPE
Expense900900900
COMPANY B Three Year DataB_CO_FINANCELearner Copy
Rev 3/14/21COMPANY B Illlustrative Data for Educational
(COGS)15,38918,41118,151Gross
Overhead1,3541,3541,354Depreciatio n and
Amortization2,8142,8062,776Interest2,7001,8001,800Total
Tax2,813(669)100Taxes788(141)21Net
Earnings2,025(529)79201720182019Balance
Receivable1,3801,2971,336Inventory3,07 82,0181,989Property
Payable1,5601,009995Debt90,00090,00080,000Total

Earnings(928)(1,457)(1,378)Shareholders'
Equity124,317123,236113,301201720182019Cash Flow
StatementOperating Cash FlowNet Earnings2,025(529)79Plus:
Depreciation and Amortization2,8142,8062,776Less: Changes in
Working Capital(10,312)(592)25Cash from
Cash12,445469(9,970)Opening Cash
Receivable1,3801,2971,336Inventory3,0782,0181,9 89Accounts
Payable1,5601,009995Net Working Capital
(NWC)2,8982,3062,331Change in
NWC(10,312)(592)25Depreciation SchedulePPE
Expense2,7001,8001,800
COMPANY B Three Year DataB_CO_FINANCELearner Copy
Rev 3/14/21COMPANY B Illlustrative Data for Educational
(COGS)15,38918,41118,151Gross
Amortization2,8142,8062,776Interest2,7001,8001,800Total

Tax2,813(669)100Taxes788(141)21Net
Earnings2,025(529)79201720182019Balance
Payable1,5601,009995Debt90,00090,00080,000Total
Earnings(928)(1,457)(1,378)Shareholders'
Equity124,317123,236113,301201720182019Cash Flow
StatementOperating Cash FlowNet Earnings2,025(529)79Plus:
Depreciation and Amortization2,8142,8062,776Less: Changes in
Working Capital(10,312)(592)25Cash from
Cash12,445469(9,970)Opening Cash
Payable1,5601,009995Net Working Capital
(NWC)2,8982,3062,331Change in
NWC(10,312)(592)25Depreciation SchedulePPE
Expense2,7001,8001,800

A company’s strategic priorities must drive how capital
allocations are made and the size of each unit’s operating
budget.
Using the NEC Danforth’s library resources search for recent
(most recent five years) articles that discusses how a company
has revised its pattern of resource allocation and divisional
budgets to support new strategic initiatives. How do the
revisions fit within the context of the material we have covered
in our coursework (Thompson text and other material) from this
week?
Submission Details:
· Your analysis must be driven by facts, research, and data.
· Your analysis should be between 1000 and 1500 words.
· Incorporate a minimum of at least our course text and one
non-course scholarly/peer reviewed source in your paper. All
written assignments must include a coverage page, introductory
and concluding paragraphs, reference page, and proper in-text
citations using APA guidelines.

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