You are on page 1of 68

Chapter

8
Strategic Control and
Continuous Improvement

Chapter Topics
• Establishing Strategic Controls



Premise Control
Strategic Surveillance
Special Alert Control
Implementation Control

• The Quality Imperative: Continuous
Improvement to Build Customer Value

What is Strategic Control?

Tracks a strategy as it is
implemented, detects
problems or changes in its
underlying premises, and
makes necessary
adjustments

How are we performing? Are objectives and schedules being met? Are costs. revenues. Are we moving in the proper direction? Are our assumptions about major trends and changes correct? Should we adjust or abort the strategy? 2. and cash flows matching projections? Do we need to make operational changes? .Questions Involved in Assessing a Strategy’s Success 1.

Four Types of Strategic Control Strategic Surveillance Premise Control Special Alert Control Implementation Control Strategy Formulation Time 1 Strategy Implementation Time 2 Time 3 .

STRATEGIC MANAGEMENT MODEL MISSION EXTERNAL ENVIRONMENT COMPANY RESOURCE STRATEGIC ANAYSIS AND CHOICES LONG TERM OBJECTIVES S/T PLANS STRATEGIES F. TACTICS POLICIES/SOP CHANGE MANAGEMENT STRATEGIC CONTROL .

STRATEGIC CONTROL ESSENTIAL DIRECTIO N Dynamic change of environment • Premises • Assumptions TIME .

and makes necessary adjustments. . detects problems or changes in its underlying premises.What is Strategic Control? Tracks a strategy as it is implemented.

Questions Involved in Assessing a Strategy’s Success 1. revenues. How are we performing? Are objectives and schedules being met? Are costs. and cash flows matching projections? Do we need to make operational changes? . Are we moving in the proper direction? Are our assumptions about major trends and changes correct? Should we adjust or abort the strategy? 2.

Strategic surveillance 2. Special alert control 4. Implementation control Strategy formationStrategy implementation Time 1 Time 2 Time 3 . Premise control 3.Four Types of Strategic Control 1.

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 . reconsideration of the firm’s strategy because of a sudden.Thorough. unexpected event .Designed to check systematically and continuously whether premises on which the strategy is based are still valid • Implementation Control .Definitions of Strategic Controls • Premise Control .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 . and often rapid.

Characteristics of Strategic Controls Types of Strategic Control Basic Characteristics Objects of control Premise Control Planning premises and projections High Implement ation Key strategic Control thrusts and milestones High Strategic Surveillanc Potential e threats and opportunitie s Low Special Alert Occurrence of Control recognizable but unlikely events High Data acquisition: Medium High Low High Formalization Centralization Low Medium Low High Yes Seldom Yes Yes Yes Seldom Yes Yes No Yes Seldom Yes No Yes Seldom Seldom Degree of focusing Use with: Environmental Industry factors factors Strategyspecific factors Companyspecific factors .

What are Operational Controls? Systems that guide. . providing post-action evaluation and control over short periods. monitor. & evaluate progress in meeting short-term objectives.

Measure Measure actual actual performance performance 3. 2.Establishing Effective Operational Control Systems 1. Identify Identify deviations deviations from from standards standards set set 4. Set Set standards standards of of performance performance Steps Steps involved involved in in post post action action control control systems systems 2. Initiate Initiate corrective corrective action action . 1. 3. 4.

Types of Operational Control Systems Budgets Schedules Key success factors .

plant. equipment.Capital Capitalbudgets: budgets: Show Showtiming timingof of specific specificexpenditures expendituresfor forplant.Profit Profitand andloss lossbudgets: budgets: Monitor Monitorsales sales and andexpense expensecategories categorieson onaamonthly monthlyor or more morefrequent frequentbasis basis 2. inventories.and and other othercapital capitalitems items 3. equipment. 3. 2. machinery.inventories.machinery.Cash Cashflow flowbudgets: budgets: Forecast Forecastreceipt receipt and anddisbursement disbursementof ofcash cashduring duringthe the budget budgetperiod period .Types of Budgets 1. 1.

Performance data versus specification quality b. Field service delays . Number of customer complaints 2. Percentage of orders shipped service complete c. Percentage of product returns c. Customer a. Delivery cycle in days b.Key Success Factors at IBM’s Lotus Notes Division Key Success Measurable Performance Indicator Factor 1. Product a.

Number of new products introduced c. Percentage of bids awarded versus standard . Trends in employee attitude survey morale b. Employee turnover trends 4. Key Success Measurable Performance Indicator Factor 3. Number of firms competing Competition directly b.Key Success Factors at IBM’s Lotus Notes Division Contd…. a. Absenteeism versus plan c. Employee a.

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

. .. A major obstacle to the achievement of this earnings growth is Citicorp’s 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. • 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.EXAMPLES OF STRATEGIC CONTROL STRATEGIC SURVELLIANCE AT CITICORP Contd.

Alan Garcia. When that surveillance detects a potential problem. management attempts to adjust Citicorp’s posture.. when Peru’s former president.EXAMPLES OF STRATEGIC CONTROL Citicorp’s long-range plan assumes an annual 10 per cent Contd. . 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 country’s financial environment. stated that his country would not pay interest on its debt as scheduled. default on its Third World loans over any five-year period. Citicorp raised its annual default charge to 20 per cent of its $ 100 million Peruvian exposure. For example..

while they sleep. SPECIAL ALTERT CONTROL AT UNITED AIRLINES The sudden impact of an airline crash can be devastating to a major airline.” . And according to Guyette. The crisis team was activated when American Airlines launched a fare war. Guyette.” says Guyette. Members of the team carry beepers and are always on call. Although the team was established to handle flight disasters. it has since assumed an expanded role. If United’s Chicago headquarters receives word that a plane has crashed. United Airlines has made elaborate preparations to deal with this contingency. for example.EXAMPLES OF STRATEGIC CONTROL • Contd.. alternates take their places. James M. 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. heads a crisis team that is permanently prepared do respond. Members of the team have been carefully screened through simulated crisis drills. “The point is to weed out those who don’t hold up well under stress. Its executive vice president. “We’re 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.

KMART GETS SOME BAD NEWS BY BENCHMARKING INDUSTY SUCCESS FACTOS AGAINST A Key Success Factor Kmart Wal-Mart KEY RIVAL .1995 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 WalMart 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 comparedWal-Mart to other stores customers .

Monitoring and Evaluating Performance Deviations Key Success Factors Cost control: Ratio of indirect overhead cost to direct field and labor Gross profit costs Customer service: Installation cycle in days Ratio of service to sales personnel Product quality: Percentage of products returned Objecti ve. Assum ption. or10% Budget Forecas Current t Perfor Perfor mance mance at15% This 12% Time 39% 40% 40% 2.1% Current Deviati on Analysis Are we moving too fast.2 2.5 (ahead) maintained? Why are we behind -0.0% 2.1 1.2 days 2.5 days 3.6 (behind here? How can we maintain the ) installation-cycle progress? Why are we behind -0.7 2. +3 or is there more (ahead) unnecessary overhead than was originally thought? 0% Can this progress be +0.0% 2.1% (behind here? What are the ramifications for other ) operations? .7 days 3.

Monitoring and Evaluating Performance Deviations (concluded) Key Success Factors Objective.0% 15% target) -8% (behind ) Looks like a problem! Why are we so far behind? 6 -3 (behin d) Did we underestimate timing? What are the implications for our basic assumptions? .0% 10% 3 5 Current Deviation Analysis -12% Why are we behind (behin here? d) +$600 (ahea d) +2 produ cts (ahea (on d) Good progress.50 $12.10 0 0 3 3. Is it creating any problems to support? Are the products ready? Are the perfect standards met? 3. or Budget Product performance versus specification 100% Marketing: Monthly sales per employee $12. Assumptio n.5 00 Expansion of product line Employee morale: Absenteeism rate Competition: Turnover rate New product introductions (average number) 6 2.5% 5% 6 Forecast Performan ce at This Time 92% Current Performan ce 80% $11.

– Work relationships based on trust and teamwork and . services.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 business’s operation – Continuous processes improvement of products.

10. 8.Get Getthe thefacts factsfirst first 3.Strive Strivefor for continuous continuous improvement improvement . 2. 3.Develop Developcustomer customer and andsupplier supplier partnerships partnerships 5. 4.Focus Focuson oncompany’s company’s business businessprocesses processes 4.Encourage Encourageall alllevels levels of ofemployees employeesto to participate participate 9.Adopt Adoptan anerror-free error-free attitude attitude 2. 6.Develop Developaacustomer customer orientation orientation 7.Take Takeaapreventive preventive approach approach 8.Define Definequality qualityand and customer customervalue value 6.Key Elements of Implementing TQM 1. 5.Create Createan an atmosphere atmosphereof oftotal total involvement involvement 10. 7. 9. 1.

The Value Chain Approach to Developing a Customer Orientation Inp External supplier s Internal supplier s (function s) ut ut p In External Function (ultimat (like production) e) Outputs custome r Seeking: Other Quality internal Efficiency Outputs custome Responsiveness rs (activiti es) .

using cost-effective Minimizes scrap medium and rework Quickly uncovers and reacts to changing market trends Quickly adapts to latest demands with production flexibility through highproduction yield Uses computers to test feasibility of idea before going to more expensive fullscale prototype Carries out parallel product/process designs to speed up overall innovation .Examples: Ways to Enhance Customer Value Quality Provides Marketin accurate g assessment of customer’s product Consistently preferences to goods Operation produces R&D s matching engineering design Designs R&D products that combine customer demand and production capabilities Efficiency Responsiveness Targets advertising campaign at customers.

. prices to avoiding both provide good extensive value Minimizes In response and to inventories strong growth in employee stock-outs sales.Examples: Ways to Enhance Customer Value Quality Provides information Accoun that ting managers in other functions Selects need to make vendors for Purchas decisions their ability to ing join in an effective “partnership” Trains work force to Person perform nel required tasks Responsivenes s Provides information in “real time” (as events described are still happening) Schedules vendor quality. inbound deliveries negotiates efficiently. finds turnover reducing hiring large numbers of employees and training and quickly expenses teaches needed Efficiency Simplifies and computerizes to decrease cost of gathering information Given required Contd...

Select Improvement Opportunity 2.QUALITY IMPROVEMENT PROCESS Phase PLAN Step 1. Identify root causes 4. Select and plan solution DO 5. Monitor results and evaluate solution 7. Recycle . Implement pilot solution Check ACT 6. Standardize 8. Analyze current situation 3.

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 .

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 .

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 .

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 .

IMPLEMENT PILOT SOLUTION Monitor Results and Evaluate Solution • Monitor results relative to – Targets and goals – Process changes – Controls • Evaluation solution • Management review .

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 .

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 .

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 .

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”? .FINDING YOUR PLACE ON THE LADDER • Do you Use a Lot of Raw Materials and Components? • What fraction of Your Customers is Online.

THE LADDER OF E-BUSINESS INITIATIVES Reinvent Revolutionary Initiatives •Long-term •External focus •Top-line Evolutionary Initiatives •Short-term •Internal focus •Bottom-line Integrate Automate Inform •Value network level •Real-time end-to-end integration •CEO or startup team leads •Transformation outcomes •Enterprise level •Tight integration •Line of business leads •Revenue outcomes •Process level •Some integration •E-business team leads •Effective outcomes •Activity level •No integration •Grassroots efforts •Efficiency outcomes .

adoption risk Reinvent your business High-risk. top-line oriented Cost impact. can be isolated to a business unit or process level Integrate into the core business Often threaten the core Ned to be imported Systemic impact. learning payoffs Growth impact. short time horizon for payback Execution risk.THE DUALITY OF E-BUSINESS INITIATIVES Characteristic Evolutionary Initiatives Revolutionary Initiatives Objective Risk-return profile Major risk factors Outcome metrices Financial impact Impact on core business Capabilities needed Business processes impacted End-state Stay in business Low-risk. typically cuts across business units and functional boundaries Spin-off from the core business . long time horizon for payback Market risk. high return. technology risk ROI. capital appreciation. bottom-line oriented Enhance and improve the core Mostly. available internally Impacts focussed processes. net present value Option value. low-return.

DIMENSIONS OF THE BUSINESS ARCHITECTURE Customers (value proposition) Who we serve •Customer segments •Customer needs What we make • Products What we know and • Services own • Information • Human capital Offerings • Structural capital • Relationship capital Resources Growth engine How we make revenues •Customer leverage Profit •Offering leverage engine •Market leverage •Top-lineHow potential we make money •Sources of profits •Quality of profits •Defensibility of profits What we do • Realization process • Sourcing process • Operating processes Go-to-market Processes • process Partners (value network) Who we work with •Suppliers •Resellers • Complementors .

CORE PROCESSES • New offering realization process-how it defines. designs. and retains talent in the organization . grooms. 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. and brings new offerings to market • Customer relationships management process-how it creates and builds relationships with its customers.

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

SEVEN ORGANIZATIONAL PROCESSES IN E-BUSINESS TRANSFORMATION Diffusing • Culture • Shared vision Catalyzing Staffing • Traits • Skills Vision and Strategy Structuring • Organizatio n • Integration • Incentives Motivating • Rewards Training Externalizing • Education • Mentorin g • Partners • Suppliers .

STRATEGIC CONTROL ESSENTIAL Traditional Approach …………… To control compares actual results against standard Strategic Control …………… • Tracking strategy as it is be implemented • Detecting problems or changes in its underlying premises/assumption and making adjustment • Guiding actions as its taking place .

STRATEGIC CONTROL ESSENTIAL 2 sets of questions concerning successful of strategy • Are we moving in the proper direction ? Are key things failing into place ? Are our assumptions about major trends and change correct ? Are we doing the critical things that need to be done ? Should we adjust or abort the strategy ? • 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 ? … .

ESTABLISH STRATEGIC CONTROL Strategic Surveillance Premise Control Special Alert Control Implementation Control Strategy Formulation TIME 1 TIME 2 Strategy Implementation TIME 3 .

THE FOUR BASIC TYPES OF STRATEGIC CONTROL Premise Control …………… To check systematically and continuously whether the premises on which the strategy is based are still valid Which premises should be controlled ? • Environmental Factors • Industry Factors How are premises controls enacted ? .

PREMISE CONTROL AT IBM Applying Premise Control to build its future in “network-centric” direction • Old premise • Enter the internet .

THE FOUR BASIC TYPES OF STRATEGIC CONTROL Implementation Control …………… To assess whether the overall strategy should be changed in the light of the results of associated with the incremental actions that implement the overall strategy Monitoring strategic thrusts • Agree early in the planning process • Stop/go assessment Milestones review .

THE FOUR BASIC TYPES OF STRATEGIC CONTROL Strategic Surveillance …………… To monitor a broad range of events inside and outside the firm/organization that are likely to affect the course of its strategy .

THE FOUR BASIC TYPES OF STRATEGIC CONTROL
Special Alert Control

……………

The
thorough
and
often
the
rapid,
reconsideration of the firm’s strategy because
of a sudden, unexpected events

CHARACTERISTICS OF THE FOUR TYPES OF CONTROL
BASIC

PREMISES

IMPLEMENTATION SURVEILLANCE STRATEGIC ALERT

Object of
Control

Planning
Key strategic thrusts Potential threats Occurrence of
premises and And milestones
And opportunity Recognizable but
Projections
Related to strategyUnlikely events

Degree of
Focusing

High

High

High

Low

Data acquisition :
• Formalization Medium

High

Low

High

• Centralization Low

Medium

Low

High

Use with :
• Env Factors

Yes

Seldom

Yes

Yes

•Industry FactorsYes

Seldom

Yes

Yes

•Strategic Spe

No

Yes

Seldom

Yes

•Company Spe No

Yes

Seldom

Seldom

OPERATIONAL CONTROL SYSTEMS
Guide, monitor and evaluate
meeting short term objectives.

progress

in

While Strategic Control attempt to steer the
company over an extended period (3 years
more), Operational Control provide post action
evaluation and control over short periods ( 1 mo
to 1 yr)
4 steps common to all post action control :
1. Set standards of performance (KPI)
2. Measure actual performance
3. Identify deviations from standards set
4. Initiate corrective action

THE THREE TYPES OF OPERATIONAL CONTROL Budget Control …………… A resource allocation plan that help managers and leaders coordinate operations and facilitates managerial control of performance • Profit and Loss (P/L) • Capital Expenditure (CAPEX) • Cash flow Budgets .

THE THREE TYPES OF OPERATIONAL CONTROL Scheduling Control …………… Timing is often a key factor in the success of a strategy .

must receive continuous management attention. Concept of Balance Scorecard: KSF Financial Perspective Measurable KPI .THE THREE TYPES OF OPERATIONAL CONTROL Key Success Factors (KSF) Control …………… The performance are that are greatest importance in implementing the firm’s strategies and therefore. Each KSF must have a measurable performance indicators (KPI).

THE THREE TYPES OF OPERATIONAL CONTROL Process and Tool …………… Establish Next KPI Evaluation Previous KPI Establish KPI Mo/Three Mo Monitoring Current Year Next Year .

Ex. 11-1: Characteristics of the Four Types of Strategic Control Basic Characteristi cs Premise Control Implementatio n Control Objects of control Planning premises and projections Key strategic thrusts and milestones Degree of focusing Data Acquisition: Formalization Centralization High High Strategic Surveillanc e Special Alert Control Potential threats and opportunities related to the strategy Low Occurrence of recognizable but unlikely events High Medium Low High Medium Low Low High High .

Ex. 11-1 (contd.) Basic Characteristics Use with: Environmental factors Industry factors Strategy-specific factors Companyspecific factors Premise Control Implementation Control Strategic Surveillance Special Alert Control Yes Seldom Yes Yes Yes No Seldom Yes Yes Seldom Yes Yes No Yes Seldom Seldom .

and often rapid. unexpected event • 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 .Definitions of Types of Strategic Controls • Premise Control – Designed to check systematically and continuously whether premises on which the strategy is based are still valid • Strategic Surveillance – Designed to monitor a broad range of events inside and outside the firm that are likely to affect the course of its strategy • Special Alert Control – Thorough. reconsideration of the firm’s strategy because of a sudden.

Types of Implementation Control Monitoring strategic thrusts Milestone reviews .

Establishing Effective Operational Control Systems Set standards of performance Measure actual performance Steps involved in postaction control systems Identify deviations from standards set Initiate corrective action .

improved customer satisfaction and best-in-class performance .What is Six-Sigma? A highly rigorous and analytical approach to quality and continuous improvement with an objective to improve profits through deficit reduction. yield improvement.

Differences Between TQM and SixSigma • Acute understanding of customers and the product or service provided • Emphasis on the science of statistics and measurement • Meticulous and structured training development • Strict and project-focused methodologies • Reinforcement of the doctrine advocated by Juran such as top management support and continuous education .

ISO 9001 • The ISO 9001 standard focuses on achieving customer satisfaction through • • • • Continuous measurement Documentation Assessment Adjustment • It specifies requirements where an organization • Needs to demonstrate its ability to consistently provide product and services that meet customer requirements • Aims to enhance customer satisfaction through the effective application of the system. including processes for continual improvement of the system and the assurance of conformation to customer requirements .