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WK12.1 Agenda

• Project presentation• Olympic Evaluation• Exam Part II next Friday August 27, 2010

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WK12.2 Agenda

• Evaluation & Suggestion• Exam Part II next Friday August 27, 2010• Lecture• Mind map

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Strategy Implementation

• Formulation vs. Implementation~ Idea vs. Work Result

• Success story, Failure story?• A strategic plan which is executed through

programs, budgets, and procedures.• Key Implementation Questions

1) Who will implement the plan?2) What must be done to align with the company’s

operations in the new direction?3) How is strategy to be implemented?

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1.) Who will implement the plan?• VP of functional areas• Directors of divisions• SBUs• Plant managers• Project managers• Unit heads• Supervisors• Employees• Communication is the key.• Involve all levels in the

formulation and implementation

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2.) What must be done?

ProgramsAction orientedMatrix of change-Feasibility-Sequence of execution-Location-Pace & nature of change-Stakeholder evaluations

Budget: approve?Procedures:

detailed activities that must be done to

complete the programs

Synergy-Shared know-how-Coordinated strategies-Shared tangible resources: share facility or R&D-Economies of scale or scope-Pooled negotiating power: bargaining power-New business creation

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3.) How is strategy to be implemented?• Structure follows strategy: Always?

1. New strategy is created.2. New administrative problems

emerge.3. Economic performance

declines.4. New appropriate structure is

invented.5. Profit returns to previous

level.• Example: KU structure vs. UBU

structure• Corporate, business, functional

strategy?• Video Clips

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Organizational Life Cycle

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Changing Structural Characteristics of Modern Organizations

Old Organization Design• One large corporation• Vertical communication• Centralized, top down

decision making• Work/quality teams• Functional work teams• Minimal training• Specialized job design

focused on individuals

New Organization Design• Mini business units and

cooperative relationships• Horizontal communication• Decentralized participative

decision making• Outsourcing and virtual

organizations• Autonomous work teams• Cross functional work teams• Extensive training• Value chain, team focused job

design

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Six Sigma: Quality & Efficiency• A business philosophy that uses

data and statistical tools to systematically improve quality and process to achieve the highest level of customer satisfaction.

• Motorola: reduce the defects to 3 parts/million

• DMAIC• 5S: workplace organization

methodology(sorting, setting in order, sweeping, standardizing, sustaining)

• Kaizen: eliminate waste in all systems of an organization through improving standardized activities and processes MIB, BBA 2010

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Designing Jobs: Satisfaction & Motivation

• Job enlargement: more work

• Job rotation: more variety

• Job enrichment: more autonomy and control

• Use job characteristics model in job redesigning to improve job performance through job enrichment

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International Issues in Strategy Implementation

MNCsInternational Strategic Alliances(add value, contribute key strength but protect core competencies)

Stages of International Development1. Domestic company2. Domestic company with export

division3. Domestic company with

international division4. MNC with multidomestic emphasis5. MNC with global emphasis

• Centralization vs. Decentralization• Product-group structure: Global product,

similar product around the world• Geographic-area structure: Customized

product for each region

GlobalStandardized

Strategy

Transnational Strategy

International Strategy

Localization Strategy

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Pressure for local responsiveness

Pres

sure

s fo

r cos

t red

uctio

ns

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Strategy Implementation: Staffing and Leading

• Staffing: focuses on the selection and use of employees (hiring, firing, and training).

• Leading: emphasizes the use of programs to better align employee interests and attitudes with a strategy.

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Staffing follows strategy, Hiring & Training

Hiring: New skills, specific attributes

Training: Growth(Higher Productivity)

Training: Retrenchment (Waste Reduction, Overall cost savings)

Training: Differentiation (Service business)

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Manager & StrategyBusiness Strength/Competitive Position

Industry Attractiveness

Strong Average Weak

High

1.Growth Dynamic Industry Expert

2.Growth Dynamic Industry Expert

3.Retrenchment Turnaround Specialist

Medium

4. Stability Cautious Profit Planner

5. Profit6.Retrenchment Turnaround Specialist

Cautious Profit Planner

Low

7. Growth Diversification Analytical Portfolio Manager

8. Growth Diversification Analytical Portfolio Manager

9.Retrenchment Bankruptcy Professional Liquidator

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Executive Selection

– Executive Succession• Insiders• Outsiders: No heir, Turnaround

– Identifying Abilities and Potential• Performance appraisal system• Assessment centers: IBM, GE, SEARS• Job rotation: mix experiences

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Strategy & Managing Corporate CultureAssessing Strategy &Culture Compatibility• Compatible with

current culture?• Cultural flexibility • Organizational

change possible• Commitment to

strategy implementation

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Managing Culture After an Acquisition

• Communicate the rationale for strategic changes.

• Integration: give and take, Renault&Nissan

• Assimilation: adopts the dominant acquiring culture

• Separation: no cultural exchange

• Deculturation: destructive method, confusion and stress

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Example of an Action Plan• Specific actions to be

taken• Dates to begin and end

each action• Person responsible for

carrying out each action• Person responsible for

monitoring • Expected financial and

physical consequences of each action

• Contingency plan

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Other Leading Topics• Management By

Objectives• Total Quality

Management (TQM):prevention

• Hofstede Dimension

• Put the right man at the right job at the right time

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WK12.3 Agenda

• Lecture on evaluation & control• Mind map• Mission Possible Exercise• Monday bring your note book for case study.• Exam part II next Friday August 27, 2010.

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Evaluation & Control• Performance data and activity reports • How should we start? What’s the evaluation process?

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1.)What to measure?• Performance is the end result of activity.• Appropriate measures depends on the objective

of the strategy.– Air Asia, CPF – UBU, RU, CU

• Measures: financial, customers, process, innovation and learning, human resource, IT, community

• Measure controls at all three levels(Corporate, Business, Functional)

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2.) Appropriate Measures

Appropriate Measures

Variables Selections

Leading (input)

Lagging (output)

Behavioral

Method & Standards

Traditional (Financial)

Others

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2.)Appropriate Measures• Leading indicator, Input Controls: lead to the desire result, can

predict the result and can fix the result– Control chart

• Lagging indicator, Output Controls: post mortem study, can not fix or change anything – Profit and loss, Market share, ROI, ROE

• Behavioral Controls: when performance results are hard to measure but the cause and effect between the activities and results is clear.(ISO 14000)

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Lagging Indicator

Cash Flow

Customer Satisfaction

Student Knowledge ~Exam Result

Leading Indicator

Accounts Receivable Turnover

Waiting Time/ Respond Time

Real study hours (Behavior control)

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2.) Appropriate Measures• Traditional Financial Measures• ROI: Net Income Before Tax/Total Asset• Comprehensive number to include all revenue, costs,

and expenses• Can be compared across companies• Sensitive to depreciation, focus on short term, reflect

business life cycle more than the management effectiveness

• EPS, ROE, Operating cash flow, Free cash flow• Not adequate measures for corporate performance• Dot.com measurement examples

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2.) Appropriate Measures• Other standard measures– Stakeholder Measures: impact of the corporate

activities on stakeholder interests• Ex: Air Asia New Advertisement Campaign

Stakeholder

Customer

Suppliers

Employee

Measurement

#of new customers, # of orders, # of complaints

Delivery Time, Delivery Amount

Turnover rate, Job Satisfaction Rate

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2.) Appropriate Measures• Other standard measures: Shareholder Value• Shareholder Value=PV of future CF+Value of

the company if liquidated, create wealth? Economic Value Added: invest in the project

only if the profit is above the cost of capitalEVA=after tax operating income- (investment in assets x

weighted average cost of capital%)Cost of capital: interest payback for debt, shareholders’ earningMarket Value Added: Market Value of a corporation -

the capital contributed by shareholders and lendersOhishi EVA, Thai Bev MVA?

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2.) Appropriate Measures• Other Standard Measures:

Balanced Scorecard for the four areas – Financial: ROI, ROE, Cash Flow,

sales growth– Customer: market share,

customer satisfaction, #of complaints, brand recognition, etc.

– Internal business process: inventory turnover, waste reduction, respond time, cycle time, down time, etc.

– Innovation & Learning: turnover rate, job satisfaction

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2.) Appropriate Measures• Other Standard Measures: Top management

and the board of directors– Short Term: Profitability such as ROI, ROE, EPS– Long Term: Corporate direction, Team building,

Leadership, – Measures should come from the vision and

mission and can include safety or quality as well.

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2.) Appropriate Measures– Other Standard Measures: Measures for

divisional and functional performance: • Responsibility centers(cost, revenue, expense, profit,

and investment): evaluate separate from the corporate

– Other Standard Measures: Benchmarking1. Locate the significant point, area or process.2. Select the measurement.3. Select the benchmark company.4. Calculate the gap and find the cause of the gap.5. Develop the program to close that gap.6. Implement.

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3-5)Measure and correction

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International Measurement IssuesInternational transfer pricing: -Not for performance evaluation-To minimize tax (high price in high tax country to report lower profit to pay lower tax)

Repatriation of profit: send money back to the parent company through dividends, royalties, and management fees

Piracy, counterfeit copies of brand name products

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Strategic Information System• Enterprise Resource Planning (ERP)– Wiki definition: an integrated computer-based

system used to manage internal and external resources, including tangible assets, financial resources, materials, and human resources

– Software provider: SAP, PeopleSoft, Oracle• Divisional and functional IS support– PRISM by Merrill Lynch, MRPERP

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Problems and Guidelines• Problems in Measuring

Performance • Negative Side Effects:

– Short-term orientation: no time for long term evaluation, just need good result for the present

– Goal displacement• Behavior substitution:

quantifiable measures drive out non quantifiable measures, SEARS repair bill, University research number, student number

• Suboptimization: unit optimization detriment the organization goal, Marketing vs. Manufacturing, Liberal art & other faculties

• Measurable Controllable

• Guidelines for Proper Control – Appropriate number of

controls 80:20 (monitor only 20% of the factors)

– Monitor meaningful activities and results regardless of the difficulty in measurement, cooperation measurement?

– Timely, leading variables– Long and short-term– Pinpointing exceptions:

correction action for results outside tolerance

– Reward meeting/ exceeding standards

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Strategic Incentive ManagementWeighted-factor method: Excellent, ME, NI

High growth measures: market share, sales growth

Low growth measures: ROI, cash generateLong-term evaluation method: Stock or

performance units reward to top management who stay with the company and perform well.

Strategic funds method: development expense is separate from operation expense, BBA

Separate strategic fundsdevelop weighted factor chart for each SBUMeasure performance

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Mind Map Summary

Strategy

Structure Staffing Culture Control

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Mission Possible Exercise

• State your mission.• Write your strategy, implementation, and your

control measurement.• Summarize to your friend and present to the

class.