MANAGEMENT POLICY AND STRATEGY SESSION - XI

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MANAGEMENT POLICY AND STRATEGYSESSION - XI

• Strategic Control, Continuous Improvement and
  E-business
• Prof. Sushil
• Department of Management Studies
• Indian Institute of Technology, Delhi
• INDIA
• Email sushil_at_dms.iitd.ernet.in

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What is Strategic Control?
Tracks a strategy as it is implemented, detects
problems or changes in its underlying premises,
and makes necessary adjustments.
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Questions Involved in Assessing a Strategys
Success
1. Are we moving in the proper direction? Are our
assumptions about major trends and changes
correct? Should we adjust or abort the strategy?
2. How are we performing? Are objectives and
schedules being met? Are costs, revenues, and
cash flows matching projections? Do we need to
make operational changes?
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Four Types of Strategic Control
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Definitions of Strategic Controls

• Premise Control - Designed to check
  systematically and continuously whether premises
  on which the strategy is based are still valid
• Implementation Control - Designed to assess
  whether the overall strategy should be changed in
  light of the results associated with the
  incremental actions that implement the overall
  strategy
• Strategic Surveillance - Designed to monitor a
  broad range of events inside and outside the firm
  that are likely to affect the course its strategy
• Special Alert Control - Thorough, and often
  rapid, reconsideration of the firms strategy
  because of a sudden, unexpected event

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Characteristics of Strategic Controls
Types of Strategic Control
Strategic Surveillance
Implementation Control
Premise Control
Basic Characteristics
Special Alert Control
Occurrence of recognizable but unlikely events
Potential threats and opportunities
Key strategic thrusts and milestones
Planning premises and projections
Objects of control
Low
High
High
Degree of focusing
High
Low
High
Medium
Data acquisition Formalization
High
Low
Medium
Low
Centralization
High
Yes
Seldom
Yes
Use with Environmental factors
Yes
Yes
Seldom
Yes
Industry factors
Yes
Seldom
Yes
No
Strategy-specific factors
Yes
Seldom
Seldom
Yes
No
Company-specific factors
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What are Operational Controls?
Systems that guide, monitor, evaluate progress
in meeting short-term objectives, providing
post-action evaluation and control over short
periods.
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Establishing Effective Operational Control Systems
1. Set standards of performance
2. Measure actual performance
3. Identify deviations from standards set
4. Initiate corrective action
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Types of Operational Control Systems
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Types of Budgets
1. Profit and loss budgets Monitor sales and
expense categories on a monthly or more frequent
basis
2. Capital budgets Show timing of specific
expenditures for plant, equipment, machinery,
inventories, and other capital items
3. Cash flow budgets Forecast receipt and
disbursement of cash during the budget period
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Key Success Factors at IBMs Lotus Notes Division
Key Success Factor
Measurable Performance Indicator
1. Product quality
a. Performance data versus specification b.
Percentage of product returns c. Number of
customer complaints
2. Customer service
a. Delivery cycle in days b. Percentage of orders
shipped complete c. Field service delays
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Key Success Factors at IBMs Lotus Notes
Division Contd.
Key Success Factor
Measurable Performance Indicator
3. Employee morale
a. Trends in employee attitude survey b.
Absenteeism versus plan c. Employee turnover
trends
4. Competition
a. Number of firms competing directly b. Number
of new products introduced c. Percentage of bids
awarded versus standard
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EXAMPLES OF STRATEGIC CONTROL

• IMPLEMENTATION CONTROL AT DAYS INN
• When Days Inn pioneered the budget segment of the
  lodging industry, its strategy placed primary
  emphasis on company-owned facilities and it
  insisted on maintaining a roughly 3-to-1 company
  owned/franchise ratio. This ratio ensured the
  parent companys total control over standards,
  rates, and so forth.
• As other firms moved into the budget segment.
  Days Inn saw the need to expand rapidly
  throughout the United States and, therefore,
  reversed its conservative franchise posture. This
  reversal would rapidly accelerate its ability to
  open new locations. Longtime executive, concerned
  about potential loss of control over local
  standards, instituted implementation controls
  requiring both franchise evaluation and annual
  milestone reviews. Two years into the program.
  Days Inn executives were convinced that a high
  franchise-to-company ratio was manageable, and so
  they accelerated the growth of franchising by
  doubling the franchise sales department.

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EXAMPLES OF STRATEGIC CONTROL Contd...

• STRATEGIC SURVELLIANCE AT CITICORP
• Citicorp has been pursuing an aggressive product
  development strategy intended to achieve an
  annual earnings growth 15 per cent while it
  becomes an institution capable of supplying
  clients with any kind of financial service
  anywhere in the world. A major obstacle to the
  achievement of this earnings growth is Citicorps
  exposure to default because of its extensive
  earlier loans to troubled Third World countries.
  Citicorp is sensitive to the wide variety of
  predictions about impending Third World defaults.

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EXAMPLES OF STRATEGIC CONTROL Contd...
Citicorps long-range plan assumes an annual 10
per cent default on its Third World loans over
any five-year period. Yet it maintains active
strategic surveillance control by having each of
its international branches monitor daily
announcements from key governments and from
inside contacts for signs of changes in a host
countrys financial environment. When that
surveillance detects a potential problem,
management attempts to adjust Citicorps posture.
For example, when Perus former president, Alan
Garcia, stated that his country would not pay
interest on its debt as scheduled. Citicorp
raised its annual default charge to 20 per cent
of its 100 million Peruvian exposure.
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EXAMPLES OF STRATEGIC CONTROL Contd...

• SPECIAL ALTERT CONTROL AT UNITED AIRLINES
• The sudden impact of an airline crash can be
  devastating to a major airline. United Airlines
  has made elaborate preparations to deal with this
  contingency. Its executive vice president, James
  M. Guyette, heads a crisis team that is
  permanently prepared do respond. Members of the
  team carry beepers and are always on call. If
  Uniteds Chicago headquarters receives word that
  a plane has crashed, for example, they can be in
  a war room within an hour to direct the
  response. Beds are set up nearby so team members
  can catch a few winks while they sleep,
  alternates take their places.
• Members of the team have been carefully
  screened through simulated crisis drills. The
  point is to weed out those who dont hold up well
  under stress, says Guyette. Although the team
  was established to handle flight disasters, it
  has since assumed an expanded role. The crisis
  team was activated when American Airlines
  launched a fare war. And according to Guyette,
  Were brainstorming about how we would be
  affected by everything from a competitor who had
  a serious problem to a crisis involving a
  hijacking or taking a United employee hostage.

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KMART GETS SOME BAD NEWS BY BENCHMARKING INDUSTY
SUCCESS FACTOS AGAINST A KEY RIVAL - 1995
Key Success Factor Kmart Wal-Mart to
Benchmark Core customer Over 55 more than
Under 44K, 40 income 20 k income and no
and kids at home kids at home Sales/square
foot 185 379 Shopper visits/year 15 times
per year 32 times per year Loyal to the chain 19
per cent of Kmart 46 per cent of
Wal- customers Mart customers Location 36
per cent of 49 per cent of Wal Americans
find their Mart customers drive newest Kmart
past a Kmart to go to inconvenient
compared Wal-Mart to other stores
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Monitoring and Evaluating Performance Deviations
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Monitoring and Evaluating Performance Deviations
(concluded)
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The Quality Imperative Concepts Related to TQM

• Viewed as a new organizational culture and way of
  thinking
• Foundations of TQM
• Intense focus on customer satisfaction
• Accurate measurement of every critical variable
  in a businesss operation
• Continuous improvement of products, services, and
  processes
• Work relationships based on trust and teamwork

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Key Elements of Implementing TQM
1. Define quality and customer value
6. Adopt an error-free attitude
2. Develop a customer orientation
7. Get the facts first
3. Focus on companys business processes
8. Encourage all levels of employees to
participate
4. Develop customer and supplier partnerships
9. Create an atmosphere of total involvement
5. Take a preventive approach
10. Strive for continuous improvement
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The Value Chain Approach to Developinga Customer
Orientation
External suppliers
Input
Seeking Quality Efficiency Responsivenes
s
External (ultimate) customer
Function (like production)
Outputs
Other internal customers (activities)
Outputs
Internal suppliers (functions)
Input
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Examples Ways to Enhance Customer Value
Efficiency
Quality
Responsiveness
Marketing
Targets advertising campaign at customers, using
cost-effective medium
Provides accurate assessment of customers
product preferences to RD
Quickly uncovers and reacts to changing market
trends
Operations
Minimizes scrap and rework through
high-production yield
Consistently produces goods matching engineering
design
Quickly adapts to latest demands with production
flexibility
Designs products that combine customer demand and
production capabilities
Carries out parallel product/process designs to
speed up overall innovation
RD
Uses computers to test feasibility of idea before
going to more expensive full-scale prototype
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Examples Ways to Enhance Customer Value
Contd...
Efficiency
Quality
Responsiveness
Accounting
Simplifies and computerizes to decrease cost of
gathering information
Provides information that managers in other
functions need to make decisions
Provides information in real time (as events
described are still happening)
Purchasing
Given required vendor quality, negotiates prices
to provide good value
Selects vendors for their ability to join in an
effective partnership
Schedules inbound deliveries efficiently,
avoiding both extensive inventories and stock-outs
Personnel
Minimizes employee turnover reducing hiring and
training expenses
Trains work force to perform required tasks
In response to strong growth in sales, finds
large numbers of employees and quickly teaches
needed skills
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QUALITY IMPROVEMENT PROCESS
Step 1. Select Improvement Opportunity 2. Analyze
current situation 3. Identify root causes 4.
Select and plan solution
Phase
PLAN
DO
5. Implement pilot solution
Check
6. Monitor results and evaluate solution
ACT
7. Standardize 8. Recycle
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SELECT IMPROVEMENT OPPORTUNITY

• Generate list of opportunities/problems
• Select important opportunity based on criteria
• Redefine team
• Write problem/opportunity statement
• Summarize project/define road map
• Management review

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ANALYZE CURRENT SITUATION

• Define process to be improved
• Identify process output
• Identify customer/supplier relationships
• Identify customer needs and expectations
• Define performance indicators
• Define supplier specifications
• Flow chart the process
• Collect baseline data
• Identify performance gaps
• Validate problem/opportunity statement
• Management Review

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IDENTIFY ROOT CAUSES

• Analyze cause and effect relationships
• Identify potential root causes
• Collect data
• Verify cause and effect and root causes
• Validate/problem/opportunity statement
• Management Review

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SELECT AND PLAN SOLUTION

• Generate list of potential solution
• Select best one based on criteria
• Define revised process
• Revise process output
• Identify expected outcomes
• Revise supplier specifications
• Modify flow charts
• Develop implementation plan
• Identify sequence/timing
• Define resources/controls
• Define responsibility
• Identify pilot activities
• Identify contigency actions
• Management Review

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IMPLEMENT PILOT SOLUTION

• Monitor Results and Evaluate Solution
• Monitor results relative to -
• Targets and goals
• Process changes
• Controls
• Evaluation solution
• Management review

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STANDARDIZE

• Cascade beyond pilot activity
• Develop appropriate training materials
• Monitor results and evaluate solution
• Document entire quality improvement journey
• Management Review
• Recycle
• Identify new improvement opportunity

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QUALITY IMPROVEMENT TOOLS

• Idea Generation
• Consensus
• Process Definition
• Collecting Data
• Analyzing Cause and Effect
• Analyzing and Displaying Data
• Planning Tools
• Meeting Management Tools
• Benchmarking
• Questionnaires

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E-BUSINESS TRANSFORMATION

• E-vision Broadening the view
• E-Volution Climbing the Ladder
• E-Strategy Playing with LEGOs
• E-Synchronization Breaking the Boundaries
• E-Infrastructure Opening the Hood
• E-Capitalization Placing Winning Bets
• E-Organization Rallying the People

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THE E-BUSINESS SCOPE COMPASS
Who
Value
Network
Customers
Firm
Outcomes
Outcomes
Outcomes
Infor
Why
What
Collaboration
Transactions
mation
Cost
Relationship
Transformation
In-house
Hosted
Hosted
Remotely
Anywhere
Hosted
Where
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WHAT E-BUSINESS IS NOT

• e-Business is Not a Bolt-On to Your Business
• e-Business is Not About Technology
• e-Business is Not the CIOs Responsibility
• e-Business is Not Tied to a Particular Department
  or Functional Area
• e-Business is Not a Middle-Management Initiative
• e-Business is Not a Fixed Target

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THE LADDER THE EVOLUTIONARY STAGES OF E-BUSINESS

• Who in Charge?
• Who Pays?
• Whos Affected
• Whats the Integration Level?

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THE LADDER THE EVOLUTIONARY STAGES OF E-BUSINESS

• Who in Charge?
• Who Pays?
• Whos Affected
• Whats the Integration Level?

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FINDING YOUR PLACE ON THE LADDER

• Do you Use a Lot of Raw Materials and Components?
• What fraction of Your Customers is Online, and
  How Intense are the Interactions?
• Do you have Multiple Layers of Resellers and Many
  Different Types of Channels?
• Do you Spend a Lot of Money on New Product
  Development?
• Are you a Knowledge Factory?

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THE LADDER OF E-BUSINESS INITIATIVES
Revolutionary Initiatives
Reinvent
Integrate

• Long-term
• External focus
• Top-line

• Value network level
• Real-time end-to-end
• integration
• CEO or startup
• team leads
• Transformation
• outcomes

Automate
Evolutionary Initiatives
Inform

• Enterprise level
• Tight integration
• Line of business leads
• Revenue outcomes

• Short-term
• Internal focus
• Bottom-line

• Process level
• Some integration
• E-business team leads
• Effective outcomes

• Activity level
• No integration
• Grassroots efforts
• Efficiency outcomes

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THE DUALITY OF E-BUSINESS INITIATIVES
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DIMENSIONS OF THE BUSINESS ARCHITECTURE

• What we make
• Products
• Services
• Information

Customers (value proposition)

• What we know and own
• Human capital
• Structural capital
• Relationship capital

• Who we serve
• Customer segments
• Customer needs

Offerings
Resources

• What we do
• Realization process
• Sourcing process
• Operating processes
• Go-to-market process

Growth engine
Processes

• How we make revenues
• Customer leverage
• Offering leverage
• Market leverage
• Top-line potential

Partners (value network)
Profit engine

• Who we work with
• Suppliers
• Resellers
• Complementors

• How we make money
• Sources of profits
• Quality of profits
• Defensibility of profits
• Bottom-line potential

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CORE PROCESSES

• New offering realization process-how it defines,
  designs, and brings new offerings to market
• Customer relationships management process-how it
  creates and builds relationships with its
  customers, and how it interacts with its
  customers
• Fulfillment management process-how it sources its
  inputs and goes to market with its products and
  services
• Human relations management process-how it
  attracts, grooms, and retains talent in the
  organization

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CORE PROCESSES Contd.

• Market sensing process-hot it gathers
  intelligence from the market, disseminates this
  intelligence within the organization, and acts
  upon this information.
• Operations management process-how it transforms
  its inputs into outputs
• Business development process-how it renews its
  business and finds opportunities for growth.
• Strategy development process-how it defines its
  end-goals, and the means for achieving the goals.
• Partner management process-how it identifies,
  selects, coordinates with, and manages
  relationships with key partners and complementors
• Financial management process-how it deploys its
  financial resources and allocates capital within
  the business.

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THE SEAMLESS COMPANY

• Integrated MarComm
• Television
• Print
• Outdoor
• Personal selling
• Telemarketing
• Internet

• Integrated channels
• Retail stores
• Catalog sales
• Sales force
• Internet

Seamless marketing
Seamless sales
Customer Relationship Repository (CRR)
Seamless service

• Unified contact management
• In-person
• Telephone
• Fax

• E-mail
• Live chat
• Voice over IP

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THE NET EFFECT ON CHANNELS

• Channel Augmentation
• Most B2B products
• Real estate
• Computer systems
• Industrial chemicals

• Brand Augmentation
• Most CPG categories
• Fast food
• Convenience products

High

• Channel Proliferation
• Most shopping goods
• Books
• Music
• Office supplies

• Channel Deconstruction
• Most low-end services
• Domestic travel
• Personal investing
• Prescription drugs

Richness of physical interactions in the buying
process
Low
High
Low
Intensity of information in the buying process
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TOWARDS THE SEAMLESS COMPANY
Fax
Web
Phone
Mail
E-mail
Person

• Establish need

• Find sources

• Establish trust

• Determine value

• Select product

• Negotiate terms

• Transact

• Get service

• Upgrade/repeat

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TOWARDS AN ENTITY-CENTRIC INFRASTRUCTURE
Suppliers (direct and indirect materials)
Supplier-facing Applications (Buy-side-SCM and
ORM)
Employee-facing Applications (Intranet and KM)
ERP (Transactions Backbone)
Partner-facing Applications (PRM)
Resellers and Affiliates
Employees
Customer-facing Applications (Sell-side-CRM and
SFA)
Customers and Salesforce
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COMPONENT-BASED ARCHITECTURE
Partner Management
Customer Management
Supplier Management
Enterprise Portal
Industry Specific Components
Applications Specific Components
Cross Application Components
Common Business Objects
Distributed Object Infrastructure Legacy
Application Objects
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A VISUAL TOOL FOR EVALUATING E-BUSINESS
INITIATIVES
Anticipated payoff
Scope of impact
Competitive differentiation
Time to payoff
Trainability
Adoption risk
Capability risk
Integrated risk
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SEVEN ORGANIZATIONAL PROCESSES IN E-BUSINESS
TRANSFORMATION
Diffusing

• Incentives
• Rewards

Catalyzing

• Culture
• Shared vision

Motivating
Vision and Strategy
Staffing
Training

• Education
• Mentoring

Structuring
External- izing

• Traits
• Skills

• Partners
• Suppliers

• Organization
• Integration

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THE ROLES OF A MATURE E-BUSINESS ORGANIZATION
CEO, lead Venturing role
CIO leads Matchmaking role
Enterprise level
E-business organization
Scope of initiative
Department of IT leads Coordinating role
SBU head leads Escalating role
SBU level
Productivity-oriented internally focused
Growth-oriented externally focused
Outcome of initiative