Description
Operational risk is the broad discipline focusing on the risks arising from the people, systems and processes through which a company operates. It can also include other classes of risk, such as fraud, legal risks, physical or environmental risks.
Chapter
12
?
Marshaling Resources to Support the Strategy Execution Effort Instituting Policies and Procedures that Facilitate Strategy Execution
?
?
Adopting Best Practices and Striving for Continuous Improvement Installing Information and Operating Systems
Tying Rewards and Incentives Directly to Good Strategy Execution
2
? ?
?
Allocating resources in ways to support effective strategy execution involves
Funding strategic initiatives that can make a contribution to strategy implementation Funding efforts to strengthen competencies and capabilities or to create new ones Shifting resources — downsizing some areas, upsizing others, killing activities no longer justified, and funding new activities with a critical strategy role
3
?
?
?
ESTABLISH STRATEGYSUPPORTIVE POLICIES
4
7/3/2013
5
?
?
?
Role of new policies ? Channel behaviors and decisions 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 Often, the best policy is empowering employees, letting them operate between the “white lines” anyway they think best
7/3/2013
6
ADOPTING BEST PRACTICES AND STRIVING FOR CONTINUOUS IMPROVEMENT
7/3/2013
7
?
?
?
Searching out and adopting best practices is integral to effective implementation Benchmarking is the backbone of the process of identifying, studying, and implementing best practices Key tools to promote continuous improvement ?TQM ?Six sigma quality control ?Business process reengineering
7/3/2013
8
?
Any activity that at least one company has proved works particularly well A path to operating excellence
?
7/3/2013
9
?
The best practice must have a proven record in ? Significantly lowering costs ? Improving quality or performance ? Shortening time requirements ? Enhancing safety or ? Delivering some other highly positive operating outcome
7/3/2013
?
To be valuable and transferable, a best practice must ? Demonstrate success over time ? Deliver quantifiable and highly positive results and ? Be repeatable
10
?
? ?
?
Involves determining how well a firm performs particular activities and processes when compared against ? “Best in industry” or “Best in world” performers Goal – Promote achievement of operating excellence in performing strategy-critical activities Caution – Exact duplication of best practices of other firms is not feasible due to differences in implementation situations Best approach – Best practices of other firms need to be modified or adapted to fit a firm’s own specific situation
11
7/3/2013
7/3/2013
12
?
A philosophy of managing a set of business practices that emphasizes ?Continuous improvement in all phases of operations ?100 percent accuracy in performing activities ?Involvement and empowerment of employees at all levels ?Team-based work design ?Benchmarking and ?Total customer satisfaction
7/3/2013
13
Deming’s 14 Points
The Juran Trilogy
Crosby’s 14 Quality Steps
Baldridge Award Criteria
7/3/2013
14
?
?
?
?
?
Reform the corporate culture Instill enthusiasm to do things right throughout company Strive to achieve little steps forward each day (what the Japanese call kaizen) Ignite creativity in employees to improve performance of value-chain activities Preach there is no such thing as good enough
7/3/2013
15
?
?
?
A disciplined, statistics-based system aimed at ? Having not more than 3.4 defects per million iterations for any business practice -- from manufacturing to customer transactions DMAIC process (Design, Measure, Analyze, Improve, Control) ? An improvement system for existing processes falling below specification and needing incremental improvement ? A great tool for improving performance when there are wide variations in how well an activity is performed DMADV process (Define, Measure, Analyze, Design, Verify) ? An improvement system used to develop new processes or products at Six Sigma quality levels
7/3/2013
16
?
?
?
Reengineering ? Aims at quantum gains of 30 to 50% or more TQM ? Stresses incremental progress Techniques are not mutually exclusive ? Reengineering – Used to produce a good basic design yielding dramatic improvements ? TQM – Used to perfect process, gradually improving efficiency and effectiveness
7/3/2013
17
? ? ? ?
Select indicators of successful strategy execution Benchmark against best practice companies Reengineer business processes Build a TQ culture ? Requires top management commitment ? Install TQ-supportive employee practices ? Empower employees to do the right things ? Provide employees with quick access to required information using on-line systems ? Preach that performance can/must be improved
7/3/2013
18
?
? ?
?
? ?
Can greatly enhance a company’s ? Competitive capabilities ? Ability to achieve a competitive advantage Have hard-to-imitate aspects Require substantial investment of management time and effort Expensive in terms of training and meetings Seldom produce short-term results Long-term payoff — instilling a culture that strives for operating excellence
7/3/2013
19
INSTALL INFORMATION
AND OPERATING SYSTEMS
7/3/2013
20
?
?
?
Essential to promote successful strategy execution Types of support systems ? On-line data systems ? Internet and company intranets ? Electronic mail ? E-commerce systems Mobilizing information and creating systems to use knowledge effectively can yield ? Competitive advantage
7/3/2013
21
Airlines
? ?
On-line reservation system Accurate and expeditious baggage handling system Strict aircraft maintenance program
?
7/3/2013
22
Federal Express
? Internal communication systems allowing it to coordinate 60,000 vehicles handling an average of 5.2 million packages per day ? Leading-edge flight operations systems allow a single controller to direct as many as 200 of 650-plus aircraft simultaneously ? E-business tools for customers
7/3/2013 23
? ? ? ? ?
Customer data Operations data Employee data Supplier/partner/collaborative ally data Financial performance data
7/3/2013
24
?
?
Challenge ?How to ensure actions of employees stay within acceptable bounds Control approaches ?Managerial control ?Establish boundaries on what not to do, allowing freedom to act with limits ?Track and review daily operating performance ?Peer-based control
25
7/3/2013
DESIGN STRATEGY-SUPPORTIVE REWARD SYSTEMS
7/3/2013
26
Monetary Incentives
? ? ? ? ? ?
Base pay increases
Performance bonuses Profit sharing plans
? ? ? ? ? ? ?
Stock options
Retirement packages Piecework incentives
Non-monetary Incentives Praise Constructive criticism Special recognition More, or less, job security Stimulating assignments More, or less, autonomy Rapid promotion
7/3/2013
27
?
?
?
?
?
? ?
Provide attractive perks and fringe benefits Rely on promotion from within when possible Make sure ideas and suggestions of employees are valued and respected Create a work atmosphere where there is genuine sincerity and mutual respect among all employees State strategic vision in inspirational terms to make employees feel they are part of something worthwhile Share financial and strategic information with employees Be flexible in how company approaches people management in multicultural environments
7/3/2013
28
No Lay-Off Policies
Japanese automobile producers, along with several U.S. based companies (Southwest Airlines, FedEx, Lands’ End, and Harley Davidson) have no lay-off policies, using employment security both as a positive motivator and a means of reinforcing good strategy execution.
7/3/2013
29
Stock Options
Procter & Gamble, Merck, Charles Schwab, General Mills, Amgen, Tellabs, and Eli Lilly provide stock options to all employees. Having employee-owners sharing in a company’s success is widely viewed as a way to bolster employee commitment.
7/3/2013 30
?
?
Elements of both are necessary ?Challenge and competition are necessary for self-satisfaction Prevailing view ?Positive approaches work better than negative ones in terms of ?Enthusiasm ?Effort ?Creativity ?Initiative
7/3/2013
31
?
?
Tying rewards to the achievement of strategic and financial performance targets is management’s single most powerful tool to win the commitment of company personnel to effective strategy execution Objectives in designing the reward system ? Generously reward those achieving objectives ? Deny rewards to those who don’t ? Make the desired strategic and financial outcomes the dominant basis for designing incentives, evaluating efforts, and handing out rewards
7/3/2013
32
? ? ? ? ?
Create a results-oriented system Reward people for results, not for activity Define jobs in terms of what to achieve Incorporate several performance measures Tie incentive compensation to relevant outcomes ? Top executives – Incentives tied to overall firm performance ? Department heads, teams, and individuals – Incentives tied to achieving performance targets in their areas of responsibility
7/3/2013
33
1. Payoff must be a major, not minor, piece of total compensation package
2. Incentive plan should extend to all employees
3. Administer system with scrupulous fairness 4. Link incentives to achieving only the performance targets in strategic plan
5. Targets a person is expected to achieve must involve outcomes that can be personally affected 6. Keep time between performance review and payment short
7. Make liberal use of non-monetary rewards
8. Avoid ways of rewarding non-performers
34
7/3/2013
doc_124240200.pptx
Operational risk is the broad discipline focusing on the risks arising from the people, systems and processes through which a company operates. It can also include other classes of risk, such as fraud, legal risks, physical or environmental risks.
Chapter
12
?
Marshaling Resources to Support the Strategy Execution Effort Instituting Policies and Procedures that Facilitate Strategy Execution
?
?
Adopting Best Practices and Striving for Continuous Improvement Installing Information and Operating Systems
Tying Rewards and Incentives Directly to Good Strategy Execution
2
? ?
?
Allocating resources in ways to support effective strategy execution involves
Funding strategic initiatives that can make a contribution to strategy implementation Funding efforts to strengthen competencies and capabilities or to create new ones Shifting resources — downsizing some areas, upsizing others, killing activities no longer justified, and funding new activities with a critical strategy role
3
?
?
?
ESTABLISH STRATEGYSUPPORTIVE POLICIES
4
7/3/2013
5
?
?
?
Role of new policies ? Channel behaviors and decisions 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 Often, the best policy is empowering employees, letting them operate between the “white lines” anyway they think best
7/3/2013
6
ADOPTING BEST PRACTICES AND STRIVING FOR CONTINUOUS IMPROVEMENT
7/3/2013
7
?
?
?
Searching out and adopting best practices is integral to effective implementation Benchmarking is the backbone of the process of identifying, studying, and implementing best practices Key tools to promote continuous improvement ?TQM ?Six sigma quality control ?Business process reengineering
7/3/2013
8
?
Any activity that at least one company has proved works particularly well A path to operating excellence
?
7/3/2013
9
?
The best practice must have a proven record in ? Significantly lowering costs ? Improving quality or performance ? Shortening time requirements ? Enhancing safety or ? Delivering some other highly positive operating outcome
7/3/2013
?
To be valuable and transferable, a best practice must ? Demonstrate success over time ? Deliver quantifiable and highly positive results and ? Be repeatable
10
?
? ?
?
Involves determining how well a firm performs particular activities and processes when compared against ? “Best in industry” or “Best in world” performers Goal – Promote achievement of operating excellence in performing strategy-critical activities Caution – Exact duplication of best practices of other firms is not feasible due to differences in implementation situations Best approach – Best practices of other firms need to be modified or adapted to fit a firm’s own specific situation
11
7/3/2013
7/3/2013
12
?
A philosophy of managing a set of business practices that emphasizes ?Continuous improvement in all phases of operations ?100 percent accuracy in performing activities ?Involvement and empowerment of employees at all levels ?Team-based work design ?Benchmarking and ?Total customer satisfaction
7/3/2013
13
Deming’s 14 Points
The Juran Trilogy
Crosby’s 14 Quality Steps
Baldridge Award Criteria
7/3/2013
14
?
?
?
?
?
Reform the corporate culture Instill enthusiasm to do things right throughout company Strive to achieve little steps forward each day (what the Japanese call kaizen) Ignite creativity in employees to improve performance of value-chain activities Preach there is no such thing as good enough
7/3/2013
15
?
?
?
A disciplined, statistics-based system aimed at ? Having not more than 3.4 defects per million iterations for any business practice -- from manufacturing to customer transactions DMAIC process (Design, Measure, Analyze, Improve, Control) ? An improvement system for existing processes falling below specification and needing incremental improvement ? A great tool for improving performance when there are wide variations in how well an activity is performed DMADV process (Define, Measure, Analyze, Design, Verify) ? An improvement system used to develop new processes or products at Six Sigma quality levels
7/3/2013
16
?
?
?
Reengineering ? Aims at quantum gains of 30 to 50% or more TQM ? Stresses incremental progress Techniques are not mutually exclusive ? Reengineering – Used to produce a good basic design yielding dramatic improvements ? TQM – Used to perfect process, gradually improving efficiency and effectiveness
7/3/2013
17
? ? ? ?
Select indicators of successful strategy execution Benchmark against best practice companies Reengineer business processes Build a TQ culture ? Requires top management commitment ? Install TQ-supportive employee practices ? Empower employees to do the right things ? Provide employees with quick access to required information using on-line systems ? Preach that performance can/must be improved
7/3/2013
18
?
? ?
?
? ?
Can greatly enhance a company’s ? Competitive capabilities ? Ability to achieve a competitive advantage Have hard-to-imitate aspects Require substantial investment of management time and effort Expensive in terms of training and meetings Seldom produce short-term results Long-term payoff — instilling a culture that strives for operating excellence
7/3/2013
19
INSTALL INFORMATION
AND OPERATING SYSTEMS
7/3/2013
20
?
?
?
Essential to promote successful strategy execution Types of support systems ? On-line data systems ? Internet and company intranets ? Electronic mail ? E-commerce systems Mobilizing information and creating systems to use knowledge effectively can yield ? Competitive advantage
7/3/2013
21
Airlines
? ?
On-line reservation system Accurate and expeditious baggage handling system Strict aircraft maintenance program
?
7/3/2013
22
Federal Express
? Internal communication systems allowing it to coordinate 60,000 vehicles handling an average of 5.2 million packages per day ? Leading-edge flight operations systems allow a single controller to direct as many as 200 of 650-plus aircraft simultaneously ? E-business tools for customers
7/3/2013 23
? ? ? ? ?
Customer data Operations data Employee data Supplier/partner/collaborative ally data Financial performance data
7/3/2013
24
?
?
Challenge ?How to ensure actions of employees stay within acceptable bounds Control approaches ?Managerial control ?Establish boundaries on what not to do, allowing freedom to act with limits ?Track and review daily operating performance ?Peer-based control
25
7/3/2013
DESIGN STRATEGY-SUPPORTIVE REWARD SYSTEMS
7/3/2013
26
Monetary Incentives
? ? ? ? ? ?
Base pay increases
Performance bonuses Profit sharing plans
? ? ? ? ? ? ?
Stock options
Retirement packages Piecework incentives
Non-monetary Incentives Praise Constructive criticism Special recognition More, or less, job security Stimulating assignments More, or less, autonomy Rapid promotion
7/3/2013
27
?
?
?
?
?
? ?
Provide attractive perks and fringe benefits Rely on promotion from within when possible Make sure ideas and suggestions of employees are valued and respected Create a work atmosphere where there is genuine sincerity and mutual respect among all employees State strategic vision in inspirational terms to make employees feel they are part of something worthwhile Share financial and strategic information with employees Be flexible in how company approaches people management in multicultural environments
7/3/2013
28
No Lay-Off Policies
Japanese automobile producers, along with several U.S. based companies (Southwest Airlines, FedEx, Lands’ End, and Harley Davidson) have no lay-off policies, using employment security both as a positive motivator and a means of reinforcing good strategy execution.
7/3/2013
29
Stock Options
Procter & Gamble, Merck, Charles Schwab, General Mills, Amgen, Tellabs, and Eli Lilly provide stock options to all employees. Having employee-owners sharing in a company’s success is widely viewed as a way to bolster employee commitment.
7/3/2013 30
?
?
Elements of both are necessary ?Challenge and competition are necessary for self-satisfaction Prevailing view ?Positive approaches work better than negative ones in terms of ?Enthusiasm ?Effort ?Creativity ?Initiative
7/3/2013
31
?
?
Tying rewards to the achievement of strategic and financial performance targets is management’s single most powerful tool to win the commitment of company personnel to effective strategy execution Objectives in designing the reward system ? Generously reward those achieving objectives ? Deny rewards to those who don’t ? Make the desired strategic and financial outcomes the dominant basis for designing incentives, evaluating efforts, and handing out rewards
7/3/2013
32
? ? ? ? ?
Create a results-oriented system Reward people for results, not for activity Define jobs in terms of what to achieve Incorporate several performance measures Tie incentive compensation to relevant outcomes ? Top executives – Incentives tied to overall firm performance ? Department heads, teams, and individuals – Incentives tied to achieving performance targets in their areas of responsibility
7/3/2013
33
1. Payoff must be a major, not minor, piece of total compensation package
2. Incentive plan should extend to all employees
3. Administer system with scrupulous fairness 4. Link incentives to achieving only the performance targets in strategic plan
5. Targets a person is expected to achieve must involve outcomes that can be personally affected 6. Keep time between performance review and payment short
7. Make liberal use of non-monetary rewards
8. Avoid ways of rewarding non-performers
34
7/3/2013
doc_124240200.pptx