Organization theory and design 14 2013

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Organization theory and design 14 2013

  1. 1. 14 Control system organization @TC 2013
  2. 2. หัวข้อบรรยาย/กรณีศึกษา 11 Organizing for Innovation C 8: Harvard Business Case / 3M Optical Systems : Managing Corporate Entrepreneurship 12 การสร้างและออกแบบ Cybernetics, Viable System C 9 : Harvard Business Case / Sun Hydraulics Corporation (A&B) 13 การสร้างและออกแบบ learning Organization/กระบวนการเรียนรู้ C 10 : Harvard Business Case / McKinsey & Company : Managing Knowledge and Learning 14 Control system C11: Harvard Business Case / Verizon 15 สรุปปิดการบรรยาย or guest speaker organization @TC 2013
  3. 3. Schools of Thoughts and Doctrinal Issues in Management Strategic Management Business Process Management Performance Management What is the role of managers? What should be the design of a programmatic organization? How should operations be managed? What management policies should be chosen? organization @TC 2013
  4. 4. Related Discourses? UNDERLAPS? OVERLAPS Accouting Information Systems Value-Added/ Results Orientation Work Redesign & Adhocracy Practices (ABC/ABM) TQM PERFORMANCE MANAGEMENT Management BUSINESS PROCESS REDESIGN Control Structure Outsourcing and and Process Supply Chain Management organization @TC 2013
  5. 5. Related Discourses? OVERLAPS Accounting Information Systems ResultsOrientation Divisionalization Strategy Implementation PERFORMANCE MANAGEMENT DETAILS? Management Control Structure and Process Leadership Function Strategy Formulation STRATEGIC MANAGEMENT Political Management UNDERLAPS?
  6. 6. Related Discourses? Accounting Information Systems PERFORMANCE MANAGEMENT Management Control Structure and Process Strategy Process Leadership Function STRATEGIC MANAGEMENT Political Management
  7. 7. Related Discourses? OVERLAPS Accounting Information Systems ResultsOrientation Divisionalization Strategy Implementation PERFORMANCE MANAGEMENT DETAILS? Management Control Structure and Process Leadership Function Strategy Formulation STRATEGIC MANAGEMENT Political Management organization UNDERLAPS? @TC 2013
  8. 8. Management Control •  Origins (19th c.) – Operational Control and Cost Accounting on the Shop Floor (Wedgewood) – Railroad Management – Military Supply and Logistics •  Principal institutional locus – Accounting departments – Business schools – Management consulting industry •  Scientific source disciplines – Managerial economics, organizational behavior, cybernetics organization @TC 2013
  9. 9. MAC (1) •  Some big names – Herbert Simon (1954) – Robert Anthony (HBS) Journals – Anthony Hopwood (LSE, Oxford) – Robert Kaplan (HBS) Management Accounting •  Some informative texts – Hongren (technical approach) Accounting, Organization, And Society – Macintosh (organizational approach) – Simons (strategic management approach) organization @TC 2013
  10. 10. MAC (2) •  A Classical View of Management – POSDCORB – Focus on CORB and implementing P – Some interest in O – Not primarily concerned with P,S,D •  Some trends in attention and argument – Less attentive to the shop floor (until the rise of BPM) – Sought to be compatible with diverse ideas about strategic management – Unwilling to play second-fiddle to financial accounting – Increasingly boisterous about relevance to all aspects of management (everything except S?) organization @TC 2013
  11. 11. Functional Discipline: Production and Operations Management •  Systems Approach MAC – “Holistic perspective” – Bringing together the disparate components of a system into an effective whole – Systems dynamics •  Positive and negative feedback •  Stock/flow relationships – Functionality thinking •  Design hierarchies •  Function-feature relationships organization @TC 2013
  12. 12. MAC (3) Basic Mental Models Setting targets Authorizing costs CO, B, O CO, P Planning Budgeting Reviewing indicators R Execution ? Evaluation Corrective Action The Management Process Processes within a cycle are sequentially interdependent organization @TC 2013
  13. 13. MAC (4) Basic Mental Models Hierarchy of Responsibility Centers Type name here Chief Executive Type name here Responsibility Center 1 (Profit Center) Type name here Responsibility Center 2 (Profit Center) Type name here Responsibility Center 3 (Cost Center) Type name here Responsibility Center 2-1 (Profit Center) Type name here Responsibility Center 2-2 (Profit Center) Type name here Responsibility Center 2-3 (Cost Center) Individual contributor Individual contributor Individual contributor organization @TC 2013
  14. 14. Decentralized Structure •  There is an affinity between the idea of a decentralized structure and responsibility centers – The doctrine is that establishing responsibility centers with targets provides a structural basis for selective decentralization of ‘operational’ decisions from the strategic apex (top management) to the responsibility center manager – Target setting ‘remains’ centralized – The strategic apex, assisted by the technostructure (staff), can ‘control by outputs’ •  Responsibility centers and divisions are conceptually distinct organization @TC 2013
  15. 15. MAC (5) Basic Mental Models Inputs Process Outputs Cost $/unit output organization @TC 2013
  16. 16. MAC (6) Basic Mental Models •  Here, control is defined in cybernetic terms Target Inputs Process Need a target, a measure, and available corrective actions that affect the performance variable organization @TC 2013
  17. 17. Doctrinal Principles of Control DP1. Control exists when actual events/outcomes equal planned events/outcomes DP2. Responsibility should be clearly assigned (and matched to authority) DP3. Any control process requires standard-setting, monitoring, corrective action, and evaluation DP4. The cost to the organization of collecting information should not exceed the value to the organization of knowing the information organization @TC 2013
  18. 18. Standard Doctrines of Control (Managing Costs) D1. Measure the unit costs of the product D2. Establish a standard for costs D3. Assign responsibility for costs D4. Require responsibility center to report regularly on actual v. planned costs and planned corrective actions D5. Learn from experience in the interest of improvement D6. Evaluate managers, taking into account factors outside their control organization @TC 2013
  19. 19. Broadening the Doctrines D1. Measure the unit •  D1* Measure critical costs of the product performance variables D2. Establish a standard •  D2* Establish standards for costs for the critical performance variables D3. Assign responsibility for costs •  D4* Report on D4. Require responsibility deviations of critical performance variables center to report relative to standards, regularly on actual v. and discern whether planned costs and corrective action is planned corrective needed actions organization @TC 2013
  20. 20. Measure the Critical Performance Variables •  Equivalent to saying “develop an accounting information system” –  Includes measurement of non-financial indicators –  Note distinction between performance measurement and management •  What to measure? – ‘Product’ quality – ‘Product’ cost – Product can be mapped on to either output or outcome •  How to measure? How often? organization @TC 2013
  21. 21. MAC Some Doctrinal Issues •  How to ensure that information (especially accounting information) is relevant to “economic” decision-making •  How demanding should targets be? •  Should managers always be held to account for meeting their targets? •  How should internal pricing work? •  How to ensure that the management control system is coherent with the strategy? organization @TC 2013
  22. 22. Design Options •  Generic types of targets or standards – Based on history -- performance in previous periods – Benchmarked -- based on similar data from similar organizations or work groups – ‘engineered’ work standards organization @TC 2013
  23. 23. Managerial Accounting’s Default Recipe •  Develop Accounting Information Systems – Define Outputs – Measure Unit Costs – Develop Non-Financial Indicators – Report Service Efforts and Accomplishments •  Develop Management Control Structure and Process – Segment Org’n & Designate Responsibility Centers – Set Targets – Practice Diagnostic Control & Evaluate Performance organization @TC 2013
  24. 24. New Wave MAC organization @TC 2013
  25. 25. MAC and Public Management (1) Setting targets Authorizing costs CO, B, O CO, P Planning Budgeting Reviewing indicators R Execution ? Evaluation Corrective Action Thompson Boyce The Management Process Notice: no discussion of innovation Processes within a cycle are sequentially interdependent organization @TC 2013
  26. 26. MAC and Public Management (2) Hierarchy of Responsibility Centers Type name here Chief Executive Type name here Responsibility Center 1 (Profit Center) Type name here Responsibility Center 2 (Profit Center) Type name here Responsibility Center 3 (Cost Center) Type name here Responsibility Center 2-1 (Profit Center) Type name here Responsibility Center 2-2 (Profit Center) Type name here Responsibility Center 2-3 (Cost Center) Individual contributor Individual contributor Individual contributor Core activities (mission centers) = cost centers Utilities and marketplace activities (support Centers) profit centers organization @TC 2013 =
  27. 27. Examples •  Some Programmatic Embodiments – Financial Management Initiative, Next Steps Initiative, and Citizen’s Charter (UK) – Financial Management Improvement Program (Australia) – Government Results and Performance Act (USA) – Centres de Responsibilité (France) organization @TC 2013
  28. 28. Value for Money Construct Inputs Process Outputs Outcomes organization @TC 2013
  29. 29. Performance Management = NPM •  “What NPM is Against” –  Administrative Centralization (Aucoin) –  Control by Procedure (Mintzberg) –  Control by Skills (Mintzberg) –  Control by Wishful Thinking organization @TC 2013
  30. 30. Explaining Performance Management’s Centrality in NPM •  Managerialism and New Institutional Economics •  “Business metaphor” (e.g., outputs) •  Precursors (PPBS, Plowden) •  Coalition of Professions (Economics, Accounting) •  Ferment in management accounting practice •  Outsourcing and privatization organization @TC 2013
  31. 31. organization @TC 2013 31
  32. 32. The Balanced Scorecard (BSC) - "One of the most important management practices of the past 75 years" HBR Measurement and Reporting Alignment and Communication Enterprise-wide Strategic Management 1992 Articles in Harvard Business Review: §  “The Balanced Scorecard — Measures that Drive Performance” January February 1992 §  “Putting the Balanced Scorecard to Work” September - October 1993 §  “Using the Balanced Scorecard 2009 Endorsement by Gartner Group 2009: The balanced scorecard methodology developed by Drs. Kaplan and Norton extends beyond financial measures to link vision to action. The Harvard Business Review has acclaimed the balanced scorecard as one of the most influential ideas of the past 75 years Source: Gartner Group; 2009 Feature Article: Business Value of IT — Non-financial Measurements “The Balanced Scorecard” is translated into 18 languages as a Strategic Management System” January - February 1996 Informed Risk Decisions Based on presentation of Balanced Scorecard Collaborative 1996! organization @TC 2013 2000
  33. 33. There is a consistent set of “best practices” applied by successful BSC users 1. MOBILIZE CHANGE THROUGH EXECUTIVE LEADERSHIP 2. TRANSLATE STRATEGY TO OPERATIONAL TERMS 1.1 Top leadership committed 1.2 Case for change clearly articulated 1.3 Leadership team engaged 1.4 Vision and strategy clarified 1.5 New way of managing understood 1.6 Program manager identified 2.1 Strategy map developed 2.2 Balanced Scorecard created 2.3 Targets established 2.4 Initiatives rationalized 2.5 Accountability assigned 3. ALIGN THE ORGANIZATION TO THE STRATEGY 3.1 Corporate role defined 3.2 Corporate – SBUs aligned 3.3 SBU – Support units aligned 3.4 SBU – External Partners aligned 3.5 Board of directors aligned STRATEGYFOCUSED ORGANIZATION BEST PRACTICES 4. MOTIVATE TO MAKE STRATEGY EVERYONE’S JOB 4.1 4.2 4.3 4.4 5. GOVERN TO MAKE STRATEGY A CONTINUAL PROCESS 5.1 BSC reporting system established 5.2 Strategy review meetings conducted 5.3 Planning, budgeting, and strategy integrated 5.4 HR and IT planning linked to strategy 5.5 Process management linked to strategy 5.6 Knowledge sharing linked to strategy 5.7 Strategy Management Office established Strategy awareness created Personal goals aligned Personal incentives aligned Competency development aligned Source: Balanced Scorecard Collaborative/Palladium - www.bscol.com ; NOW - http://www.thepalladiumgroup.com organization @TC 2013
  34. 34. What is meant by “Balanced” The task of developing a comprehensive strategy demands systematic consideration and integration of various perspectives. We have to balance between financial and non-financial considerations and apply a measure combination. The basic framework as conceived by Kaplan and Norton, 1996 is presented below. The actual contents of each perspective are tailored to the specific organizational/unit realities, needs and challenges. For making the strategy explicit we use the Strategy Map/s Financial Perspective Customer Perspective •  Objectives •  Key Performance Indicators •  Targets •  Initiatives Kaplan and Norton, 1996 •  Objectives •  Key Performance Indicators •  Targets •  Initiatives Strategy Learning & Growth Perspective •  Objectives •  Key Performance Indicators •  Targets Internal Process Perspective •  Objectives •  Key Performance Indicators •  Targets •  Initiatives organization @TC 2013
  35. 35. Tailoring to the specific organizational/unit realities, needs and challenges - government procurement service example FINANCIAL - Optimum Cost Efficiency of Purchasing Operations; Cost Reasonableness of Actions CUSTOMER - Customer Satisfaction - Effective Service/Partnership MISSION VISION STRATEGY INTERNAL BUSINESS PROCESSES - Acquisition Excellence - Most Effective Use of Contracting Approaches - Streamlined Processes - On-Time Delivery - Supplier Satisfaction - Socio-economics LEARNING AND GROWTH - Access to Strategic Information - Employee Satisfaction - Organization Structured for Continuous Improvement - Quality Workforce organization @TC 2013 Source: USA, Department of Energy Procurement System
  36. 36. Example of the Basic Building Blocks of the Strategy and displaying the strategy’s cause-effect hypotheses Financial Perspective! Return on Investment " Revenue Strategy " Productivity Strategy " Sources of Growth " Sources of Productivity " Customer Perspective! 2.!The value proposition of target customers! Value Proposition! Price " Quality " Function " Time " 1. The economic model of key levers driving financial performance Relatioship " Image " Internal Process Perspective! “Build the Brand” " “Make the Sale” " “Deliver the Product” " “Service Exceptionally” " Learning & Growth Perspective! Staff Competencies " + " Technology Infrastructure " Source: Presentation of Balanced Scorecard Collaborative + " Climate for Action " 3.!The value chain of core business processes! 4. The critical enablers of performance improvement, change and learning! organization @TC 2013
  37. 37. Kaplan and Norton's Generic Strategy Map template Please keep in mind that the positioning of a perspective on the template does not in any way indicate the relative importance of the perspective. The Generic Strategy Map template organization @TC 2013 has to customized to the organization’s/department's/unit's particular strategy
  38. 38. A Strategy Map Represents How the Organization Creates Value Productivity Strategy Financial Perspective Improve Cost Structure Growth Strategy Long-Term Shareholder Value Increase Asset Utilization Expand Revenue Opportunities Enhance Customer Value Customer Value Proposition Customer Perspective Price Quality Availability Selection Product / Service Attributes Internal Perspective Operational Management Processes • Supply • Production • Distribution • Risk Management Functionality Service Partnership Relationship Customer Management Processes • Selection • Acquisition • Retention • Growth Innovation Processes • Opportunity ID • R&D Portfolio • Design/Develop • Launch Image Regulatory and Social Processes • Environment • Safety and Health • Employment • Community Human Capital Learning and Growth Perspective Information Capital Organization Capital Culture Leadership Alignment Teamwork organization @TC 2013 Source: Kaplan R. S. & Norton D. P.,2004,Strategy Maps: Converting intangible assets into tangible outcomes, HBR Brand
  39. 39. BSC Terminology Strategy Map example: Diagram of the! cause-and-effect relationships! between strategic objectives " Strategic Theme: 
 Operating Efficiency! Financial ! Profitability" Fewer planes" More" customers" Extending the Map into Objectives, Measurements, Targets and Initiatives Statement of what strategy must achieve and what’s critical to its success " How success in achieving the strategy will be measured and tracked " The level of performance or rate of improvement needed " Key action programs required to achieve objectives " Customer ! Flight " Is on time" Lowest " prices" Objectives" Internal ! Fast ground " turnaround" •  Fast ground turnaround" Measurement" •  On Ground Time" •  On-Time Departure" Target" •  30 Minutes" •  90%" Initiative" •  Cycle time optimization" Learning! Ground crew " alignment" Based on : Presentation of Balanced Scorecard Collaborative organization @TC 2013
  40. 40. Balanced Scorecard Overview Components of a Balanced Scorecard Strategy Scorecard Strategy Map THEME THEME Measures Targets Internal Perspective ❏ ❏ F3 - Reduce Cost Structure ❏ Deposit Service Cost Change ❏ -5% ❏ Global Re-Engineers C1 - Increase Customer Satisfaction With Our Products & People ❏ Share of Segment ❏ 20% ❏ C2 - Increase Satisfaction “After the Sale” ❏ Customer Retention ❏ 95% I1 I2 - Understand Our Customers Create Innovative Products ❏ ❏ Cross-Sell Products ❏ Cross-Sell Ratio ❏ 9% I4 - Customer Perspective F1 - Improve Returns F2 - Broaden Revenue Mix Shift Customers to Cost-Effective Channels Minimize Operational Problems Responsive Service ❏ Channel Mix Change ❏ TBD ❏ Service Error Rate ❏ <1% ❏ Request Fulfillment Time ❏ <2 days I5 I6 - Learning Perspective L1 - Develop Strategic Skills L2 - Provide Strategic Info L3 Align Personal Goals ❏ ❏ ❏ Return on Investment Revenue Growth New Product Revenue Skills Coverage Employee Satisfaction Revenue per Employee ❏ ❏ Initiatives I3 - Financial Perspective BALANCE Strategic Objectives 15% +10% ❏ ❏ 10% 100% 80% ❏ ❏ Finance 2000 Sales & marketing Reorganization & Training QFD Project ❏ Customer Database ❏ Global Service Training Program ❏ ❏ HRMS Knowledge Management System organization @TC 2013
  41. 41. Horizontal and Vertical Alignment !!! The Organizational Framework Strategy Objectives Measures Strategic Business Unit (SBU) Department Team/ Individual Ensure Alignment: organization @TC 2013 Each sub-unit and individual link their objectives to the map.
  42. 42. The Measurement Pyramid Goal Strategic/GPRA Goals End-Outcomes Outcome Performance Measures Program Longer-Term Intermediate Outcomes Program Performance Measures Program Components Shorter-Term Intermediate Outcomes & Outputs Program Component Performance Measures Activities Activity Performance Measures Outputs organization @TC 2013
  43. 43. Some Tools for Determining What to Measure Program Logic Model Inputs Process/ System Output Intermediate Outcomes End Outcome Process Flow Causal Analysis Desired Outcome Prototype Product Acceptable To Market Results Of Testing Not Acceptable Back to Laboratory organization @TC 2013
  44. 44. Balanced Scorecard Six Step Development Process Step 3 ! ! Draft a! Strategy Map ! With Linkages ! And Themes ! Step 1 ! ! Develop a ! Project Plan ! Step 2 ! ! Build a ! Strategic ! Architecture ! ! Step 5 ! ! Select Strategic Initiatives ! Step 4 ! ! Determine Measures and Targets ! Step 6 ! ! Plan for implementation of the SFO ! Typically 8-12 Weeks! organization @TC 2013
  45. 45. Consider the Timeframe for Value Creation Long-Term Growth in Shareholder Value 12-24 months Operations Management Processes Customer Management Processes 24-48months Innovation Processes Shareholder Value 6-12 months Regulatory and Social Processes Good Citizen Product Innovation Customer Management Operational Effectiveness 1 2 3 Time (Years) 4 5 Source: Strategy Maps – Robert S. organization @TC 2013 Kaplan and David P. Norton
  46. 46. The Key is to Build a Management Process Which is Driven by the Strategy 1Strategy Development & Planning Objectives Measures Targets Initiatives The Balanced Scorecard articulates and communicates the strategy Management interprets results, makes decisions and evolves the strategy 2 Initiative Assessment Initiative Plan: B Initiative Plan: A Owner: Financial Benefits: 3 Reporting & Analysis Initiatives are aligned to support the strategy Corporate & SBUs must manage the business in support of the strategy 4 Decision-Making & Communication organization @TC 2013
  47. 47. Putting the BSC to work Presentation of the metrics and their visualization organization @TC 2013
  48. 48. http://vaperforms.virginia.gov/Scorecard/ScorecardatGlance.pdf organization @TC 2013
  49. 49. Balanced Scorecard Radar Chart" Dashboard" organization @TC 2013
  50. 50. Some of the Indicators of Good Balanced Scorecard 1. 2. A good Balanced Scorecard will “tell the story” of your strategy in ! actionable terms. ! !Executive Involvement
 Strategic decision makers must validate and own the strategy and related measures ! !Cause-and-Effect Relationships
 Every objective selected should be part of a chain of cause and effect linkages that represent the strategy" 3. Balance between outcome and leading measures There should be a balance of outcome measures and leading measures to facilitate anticipatory management" 4. !Financial Linkage
 Every objective can ultimately be related to financial results" 5. Source: Balanced Scorecard Collaborative/Palladium Each initiative should be based on a gap between baseline and target. " !Linkage of Initiatives and Measures: organization @TC 2013

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