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Unit 4 Strategy Implementation

Strategy Implementation, TQM, Six Sigma, MBO, Balanced Score Car Strategy

1 of 170
Unit-4
Strategy
Implementation
Dr. Prashant B. Kalaskar
Syllabus
• 4.1: Strategy Implementation: Components of Strategic Plan, Barriers to
Implementation of Strategy, Mintzberg’s 5 P’s, Deliberate & Emergent
Strategies, McKinsey 7S Framework
• 4.2: Organization Structure for Strategy Implementation:
Entrepreneurial, Functional, Divisional, SBU, Matrix Network Structures,
Cellular, Modular Organization, Matching Structure to Strategy,
Organization Design for Stable Vs. Turbulent Environment
• 4.3: Changing Structures & Processes: Reengineering & Strategy
Implementation, Principles of Reengineering, Six Sigma, Process
consisting of Defining, Analyzing, Improving & Establishing Steps, Lean
Six Sigma (Concepts Only)
• 4.4: Corporate Culture: Building Learning Organization, Promoting
Participation thro’ technique of Management by Objectives (MBO), Total
Quality Management (TQM)
• 4.5: Strategy Evaluation: Operations Control & Strategic Control,
Symptoms of Malfunctioning of Strategy, Use of Balanced Score Card for
Strategy Evaluation
Dr. Prashant B. Kalaskar
Strategy Implementation
Dr. Prashant B. Kalaskar
• “Strategies most often fail because they
aren’t executed well.”
Larry Bossidy and Ram Charan
“Successful strategy formulation does not
guarantee successful strategy
implementation.”
Strategic Management Process
Dr. Prashant B. Kalaskar
4
Implement
Strategy
SWOT
Formulate
Strategy –
Corporate,
Business,
Functional
Define new
Mission Goals,
Grand Strategy
Identify Strategic
Factors –
Strengths,
Weaknesses
Identify Strategic
Factors –
Opportunities,
Threats
Scan Internal
Environment – Core
Competence,
Synergy, Value
Creation
Evaluate Current
Mission, Goals,
Strategies
Scan External
Environment –
National, Global
Strategy Implementation
• Strategy implementation is actually putting strategies
in to action.
• The Strategies formulated at various levels of the
organizations are implemented so as to achieve the
objectives taken up at the corporate level.
• Strategy implementation happens in two stages
1) Project Implementation
2) Procedural Implementation
• A poor control on strategy implementation may result
in unexpected situation of Malfunctioning of Strategy
Dr. Prashant B. Kalaskar
Strategy Formulation & Strategic Choice
Dr. Prashant B. Kalaskar
Strategy
Formulation
Strategy
Analysis
Strategy
Choice

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Unit 4 Strategy Implementation

  • 2. Syllabus • 4.1: Strategy Implementation: Components of Strategic Plan, Barriers to Implementation of Strategy, Mintzberg’s 5 P’s, Deliberate & Emergent Strategies, McKinsey 7S Framework • 4.2: Organization Structure for Strategy Implementation: Entrepreneurial, Functional, Divisional, SBU, Matrix Network Structures, Cellular, Modular Organization, Matching Structure to Strategy, Organization Design for Stable Vs. Turbulent Environment • 4.3: Changing Structures & Processes: Reengineering & Strategy Implementation, Principles of Reengineering, Six Sigma, Process consisting of Defining, Analyzing, Improving & Establishing Steps, Lean Six Sigma (Concepts Only) • 4.4: Corporate Culture: Building Learning Organization, Promoting Participation thro’ technique of Management by Objectives (MBO), Total Quality Management (TQM) • 4.5: Strategy Evaluation: Operations Control & Strategic Control, Symptoms of Malfunctioning of Strategy, Use of Balanced Score Card for Strategy Evaluation Dr. Prashant B. Kalaskar
  • 3. Strategy Implementation Dr. Prashant B. Kalaskar • “Strategies most often fail because they aren’t executed well.” Larry Bossidy and Ram Charan “Successful strategy formulation does not guarantee successful strategy implementation.”
  • 4. Strategic Management Process Dr. Prashant B. Kalaskar 4 Implement Strategy SWOT Formulate Strategy – Corporate, Business, Functional Define new Mission Goals, Grand Strategy Identify Strategic Factors – Strengths, Weaknesses Identify Strategic Factors – Opportunities, Threats Scan Internal Environment – Core Competence, Synergy, Value Creation Evaluate Current Mission, Goals, Strategies Scan External Environment – National, Global
  • 5. Strategy Implementation • Strategy implementation is actually putting strategies in to action. • The Strategies formulated at various levels of the organizations are implemented so as to achieve the objectives taken up at the corporate level. • Strategy implementation happens in two stages 1) Project Implementation 2) Procedural Implementation • A poor control on strategy implementation may result in unexpected situation of Malfunctioning of Strategy Dr. Prashant B. Kalaskar
  • 6. Strategy Formulation & Strategic Choice Dr. Prashant B. Kalaskar Strategy Formulation Strategy Analysis Strategy Choice
  • 7. Interrelationship of Strategy & Implementation Dr. Prashant B. Kalaskar Forward Linkage • Strategy implementation needs some restructure in Organization or in Resources to match with the strategy. • Strategy Provides overall direction for implementation Backward Linkage • Strategies are selected based on current structure and resources that are available for effective implementation. • Circumstances may affect selection of Strategy
  • 8. Mintzberg’s Types of Strategies Dr. Prashant B. Kalaskar Emergent Strategies (Alternate Strategies) Intended Strategy (Strategy Formulated) Unrealised Strategy (Unfruitful) Realised Strategy (Implemented) Intended, emergent and realised strategies Deliberate Strategy (Choice of Strategy)
  • 9. Model of Strategy Implementation Dr. Prashant B. Kalaskar Strategic Plan Project Implementation Procedural Implementation Resource Allocation Structural Implementn. Leadership Implementn. Behavioral Implementn. Functional Operational E V A L U A T I O N Activating Strategy Managing Change Achieving Effectiveness
  • 10. What is Strategic Planning? • Process to establish priorities on what you will accomplish in the future/objectives • Allows you to make choices on what you will do and what you will not do (Action Plans) • Pulls the entire organization together around a single game plan for execution (Direction) • Broad outline on where resources will get allocated Dr. Prashant B. Kalaskar
  • 11. Important aspects of Str. Implementation • Where are we now? (Assessment) • Where do we need to be? (Gap / Future End State) • How will we close the gap (Strategic Plan) • How will we monitor our progress (Evaluation Balanced Scorecard) Dr. Prashant B. Kalaskar
  • 12. Strategic Planning Model A B C D E Dr. Prashant B. Kalaskar •Environmental Scan Assessment •Background Information •Situational Analysis •SWOT – Strength’s, Weaknesses, Opportunities, Threats •Situation – Past, Present and Future •Significant Issues •Align / Fit with Capabilities •Mission & Vision •Values / Guiding Principles •Major Goals •Specific Objectives •Performance Measurement •Targets / Standards of Performance •Initiatives and Projects Baseline Components •Performance Management •Review Progress – Balanced Scorecard •Take Corrective Actions Down to Specifics Evaluate Where we are Where we want to be How we will do it How are we doing •Gaps •Action Plans •Feedback upstream – revise plans
  • 13. Assessment Model: S W O T Dr. Prashant B. Kalaskar External Assessment: Marketplace, competitor’s, social trends, technology, regulatory environment, economic cycles . Internal Assessment: Organizational assets, resources, people, culture, systems, partnerships, suppliers, . . . Where is your organization in its development RIGHT now? Assess the Internal and External Environments
  • 14. Components of a Strategic Plan • Vision – Developing a clear understanding of what is your preferred future • Mission – Developing a sound statement about why you exist • Core Values and Beliefs – Describes behaviors and ideas that are important to your organization • Strategic Issues – The issues that create a gap between the ideal and reality • Operational Plans – How are you going to achieve your vision? Dr. Prashant B. Kalaskar
  • 15. Components of Strategic Planning Dr. Prashant B. Kalaskar Mission Vision Goals Objectives Measures Why we exist What we want to be Indicators and Monitors of success Desired level of performance and timelines Planned Actions to Achieve Objectives O1 O2 AI1 AI2 AI3 M1 M2 M3 T1 T1 T1 Specific outcomes expressed in measurable terms (NOT activities) Strategic Plan Action Plans Evaluate Progress Targets Initiatives What we must achieve to be successful
  • 16. Barriers to Implementation of Strategy • Strategy Formulation Dr. Prashant B. Kalaskar Corporate Level Business Level Functional Level • Strategy Implementation
  • 17. Barriers to Implementation of Strategy • Implementing strategy has always been a challenge for organizations across the industry • Ability to implement strategy is the deciding factor between success and failure of a company’s strategy. • Strategy formulation and strategy implementation are not two discrete processes but are intertwined together. • Planning is no doubt important, but making the plan work is a bigger challenge which deals with organizational politics, culture and sometimes managing change. Dr. Prashant B. Kalaskar
  • 18. Barriers to Implementation of Strategy Dr. Prashant B. Kalaskar Barriers to Strategy Implementation Only 5% of the workforce understand the Vision Vision Barrier Only 25% of the Managers have Incentives linked to Strategy People Barrier 85% of the executive teams spends less than one hr/month discussing Strategy Management Barrier 60% of organizatio ns don’t link budget to strategy Resource Barrier
  • 19. Mintzberg’s 5P’s to Define Strategy  Plan  Ploy  Pattern  Position  Perspective Dr. Prashant B. Kalaskar Henry Mintzberg
  • 20. Plan Dr. Prashant B. Kalaskar  A plan is an intended course of action  For example, a business makes a plan to increase their market share  Plan is not enough on its own. This is where the other four Ps come into play
  • 21. Ploy Strategy Dr. Prashant B. Kalaskar  A strategy can be a ploy  A ploy is a specific maneuver intended to gain an advantage on an opponent or competitor  For example, a business may threaten to introduce a new product or reduce price of product to scare competitors
  • 22. Ploy Strategy Dr. Prashant B. Kalaskar  Mintzberg says that getting the better of competitors, by plotting to disrupt, dissuade, discourage, or otherwise influence them, can be part of a strategy.  This is where strategy can be a ploy, as well as a plan.  For example, a grocery chain might threaten to expand a store, so that a competitor doesn't move into the same area; or a telecommunications company might buy up patents that a competitor could potentially use to launch a rival product
  • 23. Pattern Strategy Dr. Prashant B. Kalaskar  Strategy can be a pattern  Pattern means a series of actions  For example, a business makes a plan to increase market share  Then the business does a pattern of behavior to follow the plan for example, a company that regularly markets very expensive products is using a "high end" strategy.
  • 24. Pattern Strategy Dr. Prashant B. Kalaskar  Strategic plans and ploys are both deliberate exercises.  Strategy emerges from past organizational behavior.  Rather than being an intentional choice, a consistent and successful way of doing business can develop into a strategy.  Example: A manager who makes decisions that further enhance an already highly responsive customer support process than doing anything intentionally as a part of behavioral pattern
  • 25. Position Strategy Dr. Prashant B. Kalaskar  Strategy can be a position  Position means place in relation to competition  For example, a business may position itself in the market as a high quality service provider it reflects decisions to offer particular products or services in particular markets.
  • 26. Position Strategy Dr. Prashant B. Kalaskar  This is how the Organization decides to position their self in the marketplace.  This helps to explore the fit between the organization & the environment, and it helps to develop a sustainable competitive advantage  Example: Developing a niche product to avoid competition or products with differentiation to avoid competition
  • 27. Perspective Strategy Dr. Prashant B. Kalaskar  Strategy can be a Perspective  Perspective is a way of looking at the world  For example, different businesses view themselves and their customers differently that is, vision and direction.
  • 28. Perspective Strategy Dr. Prashant B. Kalaskar  The choices an organization makes about its strategy rely heavily on its culture & pattern of behavior  Example: an organization that encourages risk-taking & innovation from employees might focus on coming up with innovative products as the main thrust behind its strategy.  By contrast, an organization that emphasizes the reliable processing of data may follow a strategy of offering these services to other organizations under outsourcing arrangements.
  • 29. Example of Mintzberg’s 5 • McDonald’s strategy plan “the Plan to Win” – growth strategies for McDonald’s by opening new and improving current McDonald’s restaurants. • Using growth strategies such as Market penetration, Product development and also CSR activities – in order to obtain legitimacy from their stakeholders Dr. Prashant B. Kalaskar Plan Strategy
  • 30. Ploy Strategy • McDonald’s “Healthy Living” Campaign – Teaching consumers to eat healthy – thereby McDonalds gain some “goodwill” by showing that they care about consumers’ health – thereby they meet consumers’ need Dr. Prashant B. Kalaskar
  • 31. Pattern Strategy • Expansion, expansion, expansion & Quality, Quality & Quality : McDonald’s expands in every matter and world corner. • The chance of growth is grasp at every time and any time. Dr. Prashant B. Kalaskar
  • 32. Position Strategy • McDonalds’ “Healthy Living” Campaign • Quality of Service & Food • Customers will love the quality, service, ambience, variety of products • “I am Loving It” Dr. Prashant B. Kalaskar
  • 33. Perspective Strategy Dr. Prashant B. Kalaskar  Perspective Strategy McDonalds has focus on sheer productive efficiency
  • 34. McKinsey 7 S Model • The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony Athos in 1981. • They had been investigating how Japanese had been so successful. • At around the same time, Tom Peters and Robert Waterman were exploring what makes a company excellent. • The 7 S model was born at a meeting of these four authors in 1978. • It was taken up as a basic tool by the global management consultancy company McKinsey. Dr. Prashant B. Kalaskar
  • 35. McKinsey 7 S Model • The McKinsey 7S model is a useful framework for reviewing an organization's capabilities from different viewpoints. • The power of the McKinsey 7S model is that, managers should take into account all seven of these factors, to be sure of successful implementation of a strategy. Dr. Prashant B. Kalaskar
  • 36. McKensey 7 S Framework Dr. Prashant B. Kalaskar
  • 37. THE HARD S-1- Strategy • Strategy: the direction and scope of the company over the long term. • Ways to achieve competitive advantage. Examples. • Low-cost strategy through economic production or delivery • Product differentiation through distinct features or innovative sales. Dr. Prashant B. Kalaskar
  • 38. THE HARD S-2- Structure • Ways in which task and people are specialized and divided, and authority is distributed. Four main structures • Functional Structure • Divisional Structure • Matrix Structure • Network Structure Dr. Prashant B. Kalaskar
  • 39. THE HARD S-2- Structure Dr. Prashant B. Kalaskar Functional Structure Divisional Structure
  • 40. THE HARD S-3- Systems • Formal processes and procedures to manage the organization. Examples: • Performance Measurements • Reward Systems • Planning • Budgeting • Resource Allocation • Information System • Distribution System Dr. Prashant B. Kalaskar
  • 41. THE Soft S-1: Staffing Dr. Prashant B. Kalaskar  People, their background & competencies.  Organization’s approach to recruitment, selection, socialization, training and employee development is important for effective staffing.
  • 42. THE Soft S-2 Skills • Distinctive competencies in the organization. • Can be of People, Management Practices, Systems and/or Technologies. Dr. Prashant B. Kalaskar
  • 43. THE Soft S-3 Style • Leadership style of top management and overall operating style of organization. • Impacts norms followed by people, how they work and interact with each other and customers. Dr. Prashant B. Kalaskar
  • 44. THE Soft S-4 Shared Values • Core values shared in the organization and serve as guiding principles of what is important. • Helps focus attention and provides a broader sense of purpose. Dr. Prashant B. Kalaskar
  • 45. Using the 7-S Model • Each “S” is consistent with and reinforces the other S’s. • Recognize the full range of elements that need to be changed and focus on the one’s that will have the greatest effects on performance. • All seven variables are interconnected- to make progress in one, adjustments need to be made in others also. Dr. Prashant B. Kalaskar
  • 46. Using the 7-S Model • Hard S’s (Easier to change) – Strategy – Structure & – Systems • Softer S’s (Harder to change directly and take longer time) – Staffing – Skills – Style & – Shared Values Dr. Prashant B. Kalaskar
  • 47. Objectives of McKensey 7 S Model To analyze how well an organization is positioned to achieve its intended objective 1. Improve the performance of a company 2. Examine the likely effects of future changes within a company 3. Align departments and processes during a merger or acquisition 4. Determine how best to implement a proposed strategy Dr. Prashant B. Kalaskar
  • 48. Organizing & Organization Organizing “Arranging the activities & resources of the enterprise in such a way that they systematically contribute to the enterprise’s goals.” Organizational structure: “ It refers to formalized patterns of interactions that link a firm’s tasks, technologies, and people” Organization Chart: “A chart that shows the structure of the organization including the title of each manager’s position and, by means of connecting lines, who is accountable to whom and who has authority for each area” Dr. Prashant B. Kalaskar
  • 49. Organization Design & Structure Organization design “A process in which managers develop or change their organization’s structure” Work specialization “A component of organization structure that involves having each discrete step of a job done by a different individual rather than having one individual do the whole job” Dr. Prashant B. Kalaskar
  • 50. Different Types of Org. Structures • Functional Structure (U Form) • Divisional Structure (M Form or H Form) • Matrix Organization (Matrix Form) • Network Organization Structure • Cellular Organization Structure • Modular Organization Structure Dr. Prashant B. Kalaskar
  • 51. Functional Structure • This kind of organisational structure classifies people according to the function they perform in the organization. • The organisation chart for a functional based organisation consists of: Vice President, Sales department, Customer Service Department, Engineering or production department, Accounting department and Administrative department. Dr. Prashant B. Kalaskar
  • 52. Functional Structure Dr. Prashant B. Kalaskar Production Marketing Accounts Personnel IT Board of Directors Chief Executive
  • 53. Functional Structure Dr. Prashant B. Kalaskar Advantages • Specialisation – each department focuses on its own work • Accountability – someone is responsible for the section • Clarity – know your and others’ roles Disadvantages • Closed communication could lead to lack of focus • Departments can become resistant to change • Coordination may take too long time • Gap between top and bottom
  • 54. Divisional Structures • Divisional Structure Managers create a series of business units to produce a specific kind of product for a specific kind of customer Dr. Prashant B. Kalaskar
  • 55. Other Types of Divisional Structures • Geographic Structure • Market Structure Dr. Prashant B. Kalaskar
  • 56. Other Types of Divisional Structures Market Structure • Managers place each distinct product line or business in its own self-contained division • Divisional managers have the responsibility for devising an appropriate business-level strategy for goals Advantages: - Specialize in one product area - Managers become experts in their area - No direct supervision of division by Top managers - Improves the use of resources Dr. Prashant B. Kalaskar
  • 57. Matrix Design Structure • An organizational structure that simultaneously groups people and resources by function and product - Complex network - Flexible & can respond rapidly to the change - Each employee has two bosses (functional manager and product manager) Dr. Prashant B. Kalaskar
  • 59. Modular Structure Modular organization • An organization in which non-vital functions are outsourced, which uses the knowledge and expertise of outside suppliers while retaining strategic control. Dr. Prashant B. Kalaskar
  • 60. Matching Structure to Strategy (Organization Design & Change) • There is no perfect organizational structure • There is only structures that match or do not match with requirements of strategy. • If they match, it’s a right structure or else is a bad structure. • Organization designing is the process to create a right structure. • Organization Design means modifying existing structure to fit the strategic requirement Dr. Prashant B. Kalaskar
  • 61. Organization Design • Organization Design has two dimensions; 1) Structural Dimension Dr. Prashant B. Kalaskar 2) Contextual Dimension Formalization Specialization Hierarchy of Authority Centralization & Decentralization Professionalism Personnel Ratios Environment Goals & Strategy Culture Technology Size
  • 62. Structural Dimension • Formalization: Written documentation, procedures, regulations & policies • Specialization: Division of tasks on expertise • Hierarchy of Authority: Who reports to whom & span of control • Centralization & Decentralization: Decision making by one/top management & decentralization is decision is delegated to lower levels of management • Professionalism: formal education & Training • Personnel Ratios: Deployment of people to various functions & departments Dr. Prashant B. Kalaskar
  • 63. Organizational Structure & Design • Organizations moves from one stage of growth to next • Internal & external environment affects organization design. • Organization facing a stable environment may use a functional structure as there will be less interdepartmental coordination required. • A turbulent environment requires a rapid response capability, flexibility & quick decision making. • In such Turbulent environment Matrix or Divisional form of Structure is suitable Dr. Prashant B. Kalaskar
  • 64. Organizational Structure & Design • In case of Internal Environment type; 1) A slow or bureaucratic organization may work well with a functional Structure while, 2) Dynamic & Innovative nature of organization may require Divisional structure for effective implementation of strategies. Dr. Prashant B. Kalaskar
  • 65. Organizational Change • Organizational change takes place in two broad dimensions 1) Structural Changes & 2) Behavioral Changes to absorb impact of changes. The restructuring can be done either as… ReOrganization ReEngineering DeLayering Flatter Structures Dr. Prashant B. Kalaskar
  • 66. Organizational Change  Reorganization/Restructuring: is changing org. structure matching to the change in external environment  Reengineering: Fundamental Rethinking & Radical Redesigning of business process in areas like product quality, service, speed etc.  DeLayering: Reducing the number of layers in hierarchy for better & improved control  Flatter Structures: It is the result due to delayering Dr. Prashant B. Kalaskar
  • 67. Matching Structures to Strategies • Change in structure is dependent on change in external environment. • Structural changes also requires to compensate the impact of how people will react to the changed situations & how to manage the new relationships. Dr. Prashant B. Kalaskar
  • 68. Structure for Strategy • For Example @ Corporate Level Strategy: 1) A company has implemented a STABILITY strategy & has a simple functional structure working. 2) Now the company has planned to implement Concentric Diversification . 3) In such case the company should move from a Functional Structure to a Divisional Structure 4) As products will increase need to have a better coordination, company can create few departments & for the related product line 5) Personnel & Finance departments can be retained as centralized department. Dr. Prashant B. Kalaskar
  • 69. Structure for Strategy • For Example @ Business Level Strategy: 1) A company is pursuing a low cost leadership strategy in mature industry, can work well with Functional Structure. 2) Now the company has planned to implement Differentiation Strategy in a Turbulent environment, a divisional structure could serve better . 3) In such case the company can cater to changing customer needs more effectively. Dr. Prashant B. Kalaskar
  • 70. Business Process Reengineering (BPR) • Business Process Re-engineering or BPR is “The analysis and redesign of workflow and processes within and between Organizations” • BPR is the • Fundamental rethinking and Radical redesign of Business Processes to achieve Dramatic improvements in critical measures of performance .. such as Cost, Quality, Service and Speed. Dr. Prashant B. Kalaskar
  • 71. BPR Principles - Derived • Redesign process steps such that they can be performed in a correct order. • Combine several process steps into one. • Design for parallel sub-processes whenever possible to reduce waiting time between tasks. Dr. Prashant B. Kalaskar
  • 72. BPR Principles - Derived • Processes may have multiple versions. Remove complex, exceptions, and special cases. • Empower human potentials. Give front-line workers the responsibility to make decisions. • Provide mechanism (Machines) in the process to encourage individual, team, and organizational learning • An individual without information cannot take responsibility; Dr. Prashant B. Kalaskar
  • 73. A BPR Framework Dr. Prashant B. Kalaskar Organization – Job skills – Structures – Reward – Values Technology – Enabling technologies – Methods and tools Process – Core business processes - Value-added – Customer-focus -Innovation
  • 74. Approaches to BPR • Focus on core business processes. • Use information technology to enable new business processes, not just to automate existing ones. • Start with a clean sheet of paper and think out-of-the- box. (Do not rework old process) • Consider all aspects of the process. • Adopt a BPR methodology. • Use proven methods and tools in analyzing and redesigning the process. • Manage the implementation and change process from the beginning. Dr. Prashant B. Kalaskar
  • 75. Reengineering Example: Taco Bell Co. • We were going backwards fast ... If something was simple, we made it complex. If it was hard, we figured out a way to make it impossible.” - Taco Bell CEO • Customer buy product for $1 are worth about 25 cents. & 75 cents goes into marketing, advertising, and overhead. • Reengineering from the customer’s point of view. “Are customer willing to pay for these ‘value-added’ activities?” Dr. Prashant B. Kalaskar
  • 76. Taco Bell Co. • Corporate Vision: “We want to become number one in share of stomach.” Kitchens : Seating capacity 70% : 30% ð 30% : 70% • Eliminate district managers. Restaurant managers are given profit-and-loss responsibility. (Rewards based) • Moving cooking of meat and bean outside. • Boost peak serving capacity at average restaurant from $400 an hour to $1,500 a hour. • $500 millions regional company in 1982 to $3 billion national company in 1992. Dr. Prashant B. Kalaskar
  • 77. What is Six Sigma…? • Six sigma is a business statistical Strategy. • Is to identifying defects and removing them from the process of products to improve quality. • A defect is defined as any process output that does not meet customer specifications. • The term " Sigma " is used to designate the distribution or spread about the mean (average) of any process or procedure. “Process Improvement” Dr. Prashant B. Kalaskar
  • 78. What is Six Sigma…? Dr. Prashant B. Kalaskar  Six Sigma, is the common measurement index of "defects-per-unit," where a unit can be virtually anything--- a component, piece of material, administrative form, time frame, distance, etc. The Sigma value indicates how often defects are likely to occur. The higher the sigma value, the less likely a process will produce defects. As sigma increases, costs go down, cycle time goes down, and customer satisfaction goes up.
  • 79. History of Six Sigma • The Six sigma was founded by Motorola in the 1970s. • Out of senior executive Art Sundry's criticism of Motorola’s bad quality. • They found a connection between increase in quality and decreases in costs of production. • Bill Smith, “Father of six sigma” introduce this quality improvement Methodology to Motorola. Dr. Prashant B. Kalaskar
  • 80. Definition of Six Sigma • Quality management program developed by Motorola in the 1980s. • Management philosophy focused on business process improvements to: Eliminate waste, rework, and mistakes Increase customer satisfaction Increase profitability and competitiveness Dr. Prashant B. Kalaskar
  • 81. Six Sigma Dr. Prashant B. Kalaskar μ σ • Sigma is the Greek letter representing the standard deviation of a population of data. • Sigma is a measure of variation (the data spread)
  • 82. What does variation mean? Dr. Prashant B. Kalaskar Variation means that a process does not produce the same result (the “Y”) every time. Some variation will exist in all processes. Variation directly affects customer experiences. Customers do not feel averages! -10 -5 0 5 10 15 20
  • 83. Managing Up the Sigma Scale Dr. Prashant B. Kalaskar Sigma % Good % Bad DPMO 1 30.9% 69.1% 691,462 2 69.1% 30.9% 308,538 3 93.3% 6.7% 66,807 4 99.38% 0.62% 6,210 5 99.977% 0.023% 233 6 99.9997% 0.00034% 3.4
  • 84. Examples of the Sigma Scale Dr. Prashant B. Kalaskar In a world at 3 sigma. . . There are 964 U.S. flight cancellations per day. The police make 7 false arrests every 4 minutes. In MA, 5,390 newborns are dropped each year. In one hour, 47,283 international long distance calls are accidentally disconnected. In a world at 6 sigma. . . 1 U.S. flight is cancelled every 3 weeks. There are fewer than 4 false arrests per month. 1 newborn is dropped every 4 years in MA. It would take more than 2 years to see the same number of dropped international calls.
  • 85. Six Sigma Companies Dr. Prashant B. Kalaskar
  • 86. Lean Six Sigma • What is Lean..? Lean is a methodology that evaluates processes with a focus on.. Speed Efficiency Dr. Prashant B. Kalaskar
  • 87. Process Improvement Dr. Prashant B. Kalaskar 1. Initial Perception of problem 2. Clarify Problem 3. Locate Point of Cause 4. Root Cause Analysis 5. Design Solutions 6. Measure Effectiveness 7. Standardize
  • 88. Lean Six Sigma Process Improvement • Lean Six Sigma Seeks to improve the quality of manufacturing and business process by: Identifying and removing the causes of defects (errors) and variation. Identifying and removing sources of waste within the process Focusing on outputs that are critical to customers Dr. Prashant B. Kalaskar Define Measure AnalyzeImprove Control
  • 89. Lean Six Sigma Process Improvement • LSS is a management philosophy that seeks to drive a quality culture change through a multi-level based program Dr. Prashant B. Kalaskar Level Training Green Belt LSS Methodology and basic tool set Black Belt Green Belt content plus advanced data analysis Master Black Belt Black belt content plus program management, leadership skills, some advanced tools
  • 90. Background on Lean • Lean comes out of the industrial engineering world • Taiichi Ohno – Toyota Production System. – 1940s-1950s company was on verge of bankruptcy – Dynamics of industry were changing – moving from mass production to more flexible, shorter, varied batch runs (people wanted more colors, different features, more models, etc). • Ohno was inspired by 3 observations on a trip to America – Henry Ford’s assembly line inspired the principle of flow (keep products moving because no value is added while it is sitting still) – The Indy 500 – Rapid Changeover – The American Grocery Store – led to the Pull system – material use signals when and how stock needs to be replenished Dr. Prashant B. Kalaskar
  • 91. Path To Lean Dr. Prashant B. Kalaskar Theory Waste is Deadly Application 1. Define Value – act on what is important to the customer 2. Identify Value Stream – understand what steps in the process add value and which don’t 3. Make it flow – keep the work moving at all times and eliminate waste that creates delay 4. Let customer pull -- Avoid making more or ordering more inputs for customer demand you don’t have 5. Pursue perfection -- there is no optimum level of performance Focus Flow Focused Assumptions Non-Value added steps exit Results Reduced cycle time
  • 92. The Eight Wastes 1) Overproduction—making or doing more than is required or earlier than needed. 2) Waiting—for information, materials, people, maintenance, etc. 3) Transport—moving people or goods around or between sites. 4) Poor process design—too many/too few steps, non- standardization, inspection rather than prevention, etc. 5) Inventory—raw materials, work-in-progress, finished goods, papers, electronic files, etc. 6) Motion—inefficient layouts or poor ergonomics at work-stations or in offices. 7) Defects—errors, scrap, rework, non-conformance. 8) Underutilized personnel resources and creativity—ideas that are not listened to, skills that are not utilized. Dr. Prashant B. Kalaskar
  • 93. Lean Methods • Kaizen Events (or SCORE events) – Planned and structured process that enables a small group of people to improve some aspect of their business in a quick, focused manner. • Select • Clarify • Organize • Run • Evaluate • 5S – this methodology reduces waste through improved workplace organization and visual management – Sort, Store, Shine, Standardize and Sustain • Kanban – a Japanese term that can be translated as “signal,” “card,” or “sign.” – Most often a physical signal (paper card of plastic bin), that indicates when it is time to order more, from whom, and in what quantity. Dr. Prashant B. Kalaskar
  • 94. DMAIC: Lean Methodology • Define – describe the problem quantifiably and the underlying process to determine how performance will be measured. • Measure – use measures or metrics to understand performance and the improvement opportunity. • Analyze – identify the true root cause(s) of the underlying problem. • Improve – identify and test the best improvements that address the root causes. • Control – identify sustainment strategies that ensure process performance maintains the improved state. Dr. Prashant B. Kalaskar
  • 95. Why Define a Process as a Value Stream? • A Value Stream –Focuses attention on what is important for the customer. –Identifies all the necessary components to bring a product or service from conception to commercialization. –Identifies waste inherent in processes and works to remove it. –Reduces defects in products and deficiencies in processes. –Focuses on improving specs and cost. Dr. Prashant B. Kalaskar
  • 96. What Is Typically Found Dr. Prashant B. Kalaskar Lean Value Stream Management starts with defining value in terms of products and process capabilities to provide the customer with what they need at the right time and at an appropriate price. Value added Non-value added/waste
  • 97. The Methods Dr. Prashant B. Kalaskar Lean & Six Sigma Improve Speed Achieve Breakthrough Dashboard Results Lower Costs Culture Change Sustain Performance Higher Quality Methods Results
  • 98. Lean and Six Sigma Dr. Prashant B. Kalaskar LEAN = Improvement principles focused on dramatically improving process speed and eliminating the eight deadly wastes. Improve Process- Pull Control Process Analyze Process- Flow Measure Value Define Value SIX SIGMA = Breakthrough Process, Design, or Improvement Teams focused on eliminating chronic problems and reducing variation in processes. Improve ControlAnalyzeMeasureDefine
  • 99. Lean and Six Sigma Dr. Prashant B. Kalaskar Six Sigma = Breakthrough Process Improvement Teams focused on eliminating chronic problems and reducing variation in processes. Lean = Rapid Improvement Teams focused on dramatically improving process speed, and the elimination of the eight deadly wastes. IMPROVED EFFICIENCY Improve Process- Pull Control Process Analyze Process- Flow Measure Value Define Value IMPROVED EFFECTIVENESS Improve ControlAnalyzeMeasureDefine
  • 100. Learning Organization “A learning organization is an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights” “New ideas are essential, if learning is to take place” “Without accompanying changes in the way that work gets done, only the potential for improvements exist” Dr. Prashant B. Kalaskar
  • 101. 3 M’s in Learning organizations • Meaning Plausible, well grounded definition, actionable and easy to apply. • Management Clear guidelines for practice, filled with operational advice rather than high aspirations. • Measurement Tools for assessing organizations rate and level of learning to ensure gains have been made. Dr. Prashant B. Kalaskar
  • 102. Organization & Qualities Three distinct stages. 1. Cognitive • Exposed to new ideas, expand their knowledge and begin to think differently. 2. Behavioral • Employees internalize new insights and alter behavior. 3. Performance Improvement • Changes in behavior leading to measurable improvements in results. Dr. Prashant B. Kalaskar
  • 103. Levels in the LEARNING ORGANIZATION • Individual Learning (IL) • Organizational Learning (OL) IL: Sincé the individuals form the bulk of the organization, they must establish the necessary forms and processes to enable organizational learning in order to facilitate change. OL: is more than the sum of the parts of individual learning. An organization does not lose out on its learning abilities when members leave the organization. Dr. Prashant B. Kalaskar
  • 104. Building Blocks of Learning Organisation • Systematic Problem Solving • Experimentation • Learning from Past Experience • Learning from others. • Transferring knowledge • Measuring learning Each is accompanied by a distinctive mindset, tool kit and pattern of behavior. Dr. Prashant B. Kalaskar
  • 105. Systematic Problem Solving • Rely on scientific method for diagnosing problems “plan, do, check, act” • Statistical analysis – Generating ideas and collecting information – Reaching consensus – Analyzing and displaying data – Planning actions Dr. Prashant B. Kalaskar
  • 106. Experimentation • On-going programs – Series of small experiments – Steady flow of new ideas – Incentive system – Need managers and employees trained in evaluating and performing experiments Dr. Prashant B. Kalaskar
  • 107. Learning from Past Experience • Companies revive successes and failures. • Assessment done systematically and in an open and accessible forum “Those who cannot remember the past are condemned to repeat it” Dr. Prashant B. Kalaskar
  • 108. Learning from Others • “Most powerful insights come from looking outside ones immediate environment to gain a new perspective” • SIS-Steal Ideas Shamelessly • Benchmarking – Ongoing investigation and learning experience that ensures the best industry practices are uncovered, analyzed, adapted and implemented. Dr. Prashant B. Kalaskar
  • 109. Transferring Knowledge • Knowledge must be spread quickly and efficiently throughout the organization • Maximum impact when shared broadly – Written reports – Oral reports – Site visits and tours – Personnel rotation programs – Standardization programs – Education and training programs Dr. Prashant B. Kalaskar
  • 110. Measuring Learning • “If you can’t measure it, you can’t manage it” • Actual data comparison • Learning or experience curves. – Incomplete measures, ignore other competitive variables, like quality, delivery or new product introductions Dr. Prashant B. Kalaskar
  • 111. 3 types of Organizational Learning • SINGLE-LOOP LEARNING • DOUBLE-LOOP LEARNING • DEUTERO-LEARNING Dr. Prashant B. Kalaskar
  • 112. Single-loop Learning • This occurs when errors are detected and corrected. • Firms continue with their present policies and goals. • This is the “Lower-level Learning”, “Not- Strategic Learning”, “ • This is an “Adaptive Learning”. Dr. Prashant B. Kalaskar
  • 113. Double-loop Learning • This occurs when, in addition to detection and correction of errors, the organization questions and modifies its existing norms, procedures, policies and objectives. • It involves changing the organization’s knowledge- base or firm-specific competences or routines. • It is called as “Higher-Level Learning”, • “Strategic Learning” :Learning to expand organization’s capabilities Dr. Prashant B. Kalaskar
  • 114. Deutero-learning • This occurs when organizations learn HOW to CARRY OUT Single-loop learning and Double-loop Learning. • Being aware of ignorace motivates learning. • Identification of LEARNING STYLES and FACILITATING FACTORS required to promote learning. Dr. Prashant B. Kalaskar
  • 115. Management by Objective (MBO) Dr. Prashant B. Kalaskar MANAGEMENT By OBJECTIVE
  • 116. Management by Objectives (MBO) • The term “Management by Objectives" was first popularized by Peter Drucker in his book 'The Practice of Management in 1954. • Management by Objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are supposed to do in the organization. • Objectives can be set in all domains of activities (production, services, sales, R&D, human resources, finance, information systems etc.). Dr. Prashant B. Kalaskar
  • 117. Definition of MBO • Management By Objectives (MBO) can be defined as a process whereby the employees and the superiors come together to identify common goals, the employees set their goals to be achieved, the standards to be taken as the criteria for measurement of their performance and contribution and deciding the course of action to be followed. Dr. Prashant B. Kalaskar
  • 118. Main Concept • The principle behind Management by Objectives (MBO) is to make sure that everybody within the organization has a clear understanding of the aims, or objectives of that of organization, as well as awareness of their own roles and responsibilities in achieving those aims. • The complete MBO system is to get managers and empowered employees acting to implement and achieve their plans, which automatically achieve those of the organization. Dr. Prashant B. Kalaskar
  • 119. Principles of MBO • Cascading of organizational vision, goals and objectives • Specific objectives for each member • Participative decision making • Explicit time period • Performance evaluation and feedback Dr. Prashant B. Kalaskar
  • 120. Process of MBO Dr. Prashant B. Kalaskar Appraise Performance •Corporate Strategic goals •Departmental goals •Individual goals STEP 1: SET GOALS STEP 4: APPRAISE OVERALL PERFORMANCE Action Plans Review Progress & Take Corrective Action STEP 2: DEVELOP PLANS STEP 3: REVIEW PROGRESS
  • 121. The Smart Method Clarity of goals – With MBO, came the concept of SMART goals i.e. goals that are: • Specific • Measurable • Achievable • Relevant, and • Time bound. Dr. Prashant B. Kalaskar
  • 122. MBO: 3 Basic Parts • All individuals within an organization are assigned a special set of objectives that they try to reach during a normal operating period. These objectives are mutually set and agreed upon by individuals and their managers. • Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives. • Rewards are given to individuals on the basis of how close they come to reaching their goals. Dr. Prashant B. Kalaskar
  • 123. Advantages of MBO • Improves employee motivation • Improves communication in the organisation • Flags up and highlights training needs required to achieve objectives • Improves overall performance and efficiency • Attainment of goals can lead to the satisfaction of Maslow’s higher order needs Dr. Prashant B. Kalaskar
  • 124. Disadvantages of MBO • May demotivate staff if targets are too high and unrealistic, also if imposed rather than agreed • Requires the cooperation of all employees to succeed • Can be bureaucratic and time consuming (meetings, feedback) • Can encourage short-term rather a more focused long- term growth • Setting targets for certain specialized employees may be difficult Dr. Prashant B. Kalaskar
  • 125. MBO at Intel A Manager's Guide at Intel provides the following directions. Start with a few well-chosen overriding objectives. Set your subordinates objectives that fit in with your overriding objectives. Allow your subordinates to set their own key results areas (KRA’s) to enable them to meet their objectives. Dr. Prashant B. Kalaskar
  • 126. MBO at Intel • In Management by Objectives systems at Intel, objectives are written down for each level of the organization, and individuals are given specific aims and targets. • The principle behind this is to ensure that people know what the organization is trying to achieve, what their part of the organization must do to meet those aims, and how, as individuals, they are expected to help Dr. Prashant B. Kalaskar
  • 127. MBO at Microsoft By Bill Gates • Eliminate politics, by giving everybody the same message. • Keep a flat organization in which all issues are discussed openly. • Insist on clear and direct communication. • Eliminate rivalry between different parts of the organization • Empower teams to do their own things Dr. Prashant B. Kalaskar
  • 128. Total Quality Management (TQM) “Quality is everyone’s responsibility” -Edward Deming • The integration of all processes and functions of the firm in the task of ensuring a product’s quality throughout its life cycle (mfg. & usage) . • Measurement of Success: – 100% Customer Satisfaction • Method of Achievement: – Continuous Improvement Dr. Prashant B. Kalaskar
  • 129. Total Quality Management (TQM)  TQM is an operating philosophy (experience) and management tool (SOP) that focuses on continuous process improvement.  Everything is a scientific method.  Do it right the first time through universal participation.  Teams as well as individuals that results in customer satisfaction.  Internal and External customers ultimately contributes to co.’s performance. Dr. Prashant B. Kalaskar
  • 130. Total Quality Management (TQM) • 1. The customer makes the ultimate determination of quality. • 2. Top management must provide leadership and support for all quality initiatives. • 3. Preventing variability is the key to producing high quality. • 4. Quality goals are a moving target, thereby requiring a commitment toward continuous improvement. • 5. Improving quality requires the establishment of effective metrics. We must speak with data and facts not just opinions. Dr. Prashant B. Kalaskar
  • 131. Continuous Process Improvement Cycle Dr. Prashant B. Kalaskar 1. Identify the opportunity 2. Analyze the process 3. Develop the optimal Solution 4. Implement 5. Study the results 6. Standardize the solution 7. Plan for the future Plan Do Act Check
  • 132. TQM Six Basic Concepts 1. A committed and involved management to provide long-term-top-to-bottom organizational support. 2. An unwavering (constant) focus on the customer, both internally and externally. 3. Effective evaluation of the business and production process. 4. Continuous improvement of the business and production process. 5. Treating suppliers as partners. 6. Establish performance measures for the process. Dr. Prashant B. Kalaskar
  • 133. 7 Important Principles of TQM • 1. Quality can and must be managed. • 2. Processes, not people, are the problem. • 3. Don’t treat symptoms, look for the cure. • 4. Every employee is responsible for quality. • 5. Quality must be measurable. • 6. Quality improvements must be continuous. • 7. Quality is a long-term investment. Dr. Prashant B. Kalaskar
  • 134. 5 Main Advantages of TQM 1. Encourages a strategic approach to management at the operational level through involving multiple departments in cross-functional improvements and systemic innovation processes; 2. Provides high ROI through improving efficiency; 3. Works equally well for service and manufacturing sectors; 4. Allows organizations to take advantage of developments that enable managing operations as cross-functional processes; and 5. Fits an orientation toward inter – organizational collaboration and strategic alliances through establishing a culture of collaboration among different departments within organization. Dr. Prashant B. Kalaskar
  • 135. Benefits of TQM • Improve quality • Employee participation and satisfaction • Teamwork and Working relationships • Customer satisfaction • Productivity • Communication • Profitability and Market Share Dr. Prashant B. Kalaskar
  • 136. TQM techniques that Ford used • Six Sigma • Quality Operating System or (QOS) • Developed their own quality process or 5S. • The DMAIC process (Define, Measure, Analyze, Improve, and Control) has built an overall strategy for consistency in their teams Dr. Prashant B. Kalaskar
  • 137. Toyota Corporation uses • 5S • Lean manufacturing • JIT • Kaizen • Six Sigma (5 S: Sort, Store, Shine, Standardize and Sustain) Dr. Prashant B. Kalaskar
  • 138. Strategy Evaluation Strategy Evaluation—the 3 Basics • Examining the underlying basis (objectives) of the firm’s strategy • Comparing actual to expected results • Taking corrective action to address performance gaps Dr. Prashant B. Kalaskar
  • 139. Need of Strategic Evaluation  Strategies are formulated on certain assumptions  Strategies are formulated after analysis of Internal & External Environmental factors which are dynamic  Gap in Strategy formulation & implementation  Assumptions may get changed over Gap period  Hence Strategies must be evaluated continuously to adjust the strategies with new requirements of the present time  2 ways for Strategic Evaluation: Strategic & Operational Control Dr. Prashant B. Kalaskar
  • 140. Strategic Control • Strategic control – It is the process of monitoring and correcting a firm’s strategy & performance, 2 ways…. – Informational Control: is the ability to respond effectively to environmental change – Behavioral Control: is the appropriate balance and alignment among a firm’s culture, rewards, and boundaries/limitations Dr. Prashant B. Kalaskar
  • 141. Informational Control • Traditional control system 1. strategies are formulated and top management sets goals 2. strategies are implemented 3. performance is measured against the predetermined goal set Dr. Prashant B. Kalaskar
  • 142. Contemporary Approach to Strategic Control • Informational control – a method of organizational control in which a firm gathers and analyzes information from the internal and external environment in order to obtain the best fit between the organization’s goals and strategies and the strategic environment. Dr. Prashant B. Kalaskar Formulate Strategies Strategic Control Implement Strategies Informational Control Behavioral Control
  • 143. Question…? Top managers at HUL meet every Friday to review daily operational reports and year-to-date (YTD) data. This is an example of…… A. Behavioral control B. Informational control C. Strategy formulation D. Strategy implementation Dr. Prashant B. Kalaskar
  • 144. Informational Control • Primarily concerned with whether or not the organization is “doing the right things” • Two key issues/factors – Scan and monitor external environment (general and industry) – Continuously monitor the internal environment Dr. Prashant B. Kalaskar
  • 145. Informational Control • Two key issues – Scan and monitor external environment (general and industry) – Continuously monitor the internal environment Dr. Prashant B. Kalaskar
  • 146. Contemporary Approach to Strategic Control • Behavioral control – It is the method of organizational control in which a firm influences the actions of employees through culture, rewards, and boundaries. Behavioral control is focused on implementation “doing things right” Dr. Prashant B. Kalaskar Culture Bounda -ries Rewards
  • 147. Reasons for an increased emphasis on culture and rewards Dr. Prashant B. Kalaskar 1. The competitive environment is increasingly complex and unpredictable, demanding both flexibility and quick response to its challenges. 2. The implicit long- term contract between the organization and its key employees has been eroded.
  • 148. Motivating with Rewards and Incentives • Rewards and incentive systems – Powerful means of influencing an organization’s culture – Focuses efforts on high-priority tasks – Motivates individual and collective task performance – Can be an effective motivator and control mechanism Dr. Prashant B. Kalaskar
  • 149. Types of Strategic Control 1. Premise control 2. Strategic surveillance 3. Special alert control 4. Implementation control Dr. Prashant B. Kalaskar
  • 150. 1. Premise Control • Premise control is designed to check systematically and continuously whether the premises on which the strategy is based are still valid (goals) • Environmental factors • Industry factors Dr. Prashant B. Kalaskar
  • 151. 2. Strategic Surveillance • Strategic surveillance is designed to monitor a broad range of events inside and outside the firm that are likely to affect the course of its strategy (close watch) • Strategic surveillance must be kept as unfocused as possible • Despite its looseness, strategic surveillance provides an ongoing, broad-based vigilance in all daily operations Dr. Prashant B. Kalaskar
  • 152. 3. Special Alert Control • A special alert control is the thorough, and often rapid reconsideration of the firm’s strategy because of a sudden, unexpected event (emergency plans) • A drastic event should trigger an immediate and intense reassessment of the firm’s strategy and its current strategic situation • Crisis teams • Contingency plans Dr. Prashant B. Kalaskar
  • 153. 4. Implementation Control • Strategy implementation takes place as series of steps, programs, investments, and moves that occur over an extended time • Implementation control is 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 – Monitoring strategic thrusts – Milestone reviews Dr. Prashant B. Kalaskar
  • 154. Operational Control Operational control is aimed at; - Allocation & - Use of Organizational resources through evaluation of the performance of individual units viz. SBU, Functional Divisions, Managers… - It helps to asses contribution of each unit towards accomplishment of Organizational Objectives. - Operational control is mainly concerned with “Actions” Dr. Prashant B. Kalaskar
  • 155. Difference in Strategic & Operational Control Dr. Prashant B. Kalaskar Attribute Strategic Control Operational Control Basic Question Are we moving in Right Direction? How are we Performing? Aim Proactive; Continuous questioning Allocation & Use of Resources Main Concern Steering Organization's Future Direction Action Control Focus External Environment Internal Organization Time Horizon Long Term Short Term Exercise of Control By Top Management By Executive or Middle Level Main Techniques Environmental Scanning, Info Gathering, Review Budgets, Schedules & MBO
  • 156. Operational Control Evaluation Process Dr. Prashant B. Kalaskar Strategy/Plan/ Objectives Setting Standards of Performance Actual Performance Management of Performance Analyzing Variances Feedback CheckStandards CheckPerformances Reformulate
  • 157. 4 Elements of Operational Control Operational control Cycle contains 4 Elements….. 1) Setting Standards of Performance 2) Measurement of Performance 3) Analyzing Variances 4) Taking Corrective Actions Dr. Prashant B. Kalaskar
  • 158. 1. Setting of Standards 3 Pronged approach to standard settings; 1) As per strategic requirement, the defined managerial tasks be connected with KRA’s, Standards can be set for each KRA’s 2) Special requirements for the for the performance of the key tasks, can help to determine the type of standards to be set. 3) KPI’s that can be decided to evaluate these standards Dr. Prashant B. Kalaskar
  • 159. 1. Setting of Standards Example: • Say, one company is using Cost Leadership Strategy. • Key Managerial task: overall cost reduction. • Special requirement: to monitor & reduce costs. • KPI: reduction in cost of inventory, reduction cost of production Dr. Prashant B. Kalaskar
  • 160. 1. Setting Standards Operational Control can be well exercised using 1) Quantitative Criteria of performance evaluation: - Performance/Growth of company over last 10 years - Growth rate, Industry norms, past performances - Net profit, stock price, dividends rates, Ret. On Capital 2) Qualitative Criteria of performance evaluation: - Capabilities, Core competencies, - Risk bearing Capacity, - Flexibility, Workability Dr. Prashant B. Kalaskar
  • 161. 2. Measurement of Performance - Evaluation process operates at Performance level, as action takes place here - Performance can be compared against standard benchmark - Measuring of performance can be done through; “Accounting, Reporting & Communication System” Dr. Prashant B. Kalaskar
  • 162. 3. Analysing Variances The measurement of actual performance & comparing it with the set standards provides variances. There could be 3 situation that may arise; 1) The actual performance matches with set standard 2) The actual performance exceeds the set standard, i.e. deviates positively from the set standards 3) The actual performance is below the set standard, i.e. performance deviates negatively from the set standards Dr. Prashant B. Kalaskar
  • 163. Variance Chart for Performance Evaluations Dr. Prashant B. Kalaskar Performance Indicators Standard Actual Deviation Financial Area: Profit Over Sales (%) 12 10 (-) 2 Dividend (%) 10 10 0 Marketing Area: Sales Revenue (`) 25 23 (-) 2 No. of Customer Complaints 1.5 1.3 (+) 0.2 Operations Area; Capacity Utilization (%) 85 90 (+) 5 Man Hours Per Unit 4 3.5 (+) 0.5
  • 164. Symptoms of Malfunctioning of Strategy 1) Company is not performing as well as against its all close rivals pr industry as a whole. 2) Company is not performing in terms of stated objectives, ROI, Market Share, Profitability etc. 3) Corporate culture is not aligned with strategy 4) Implementation of Strategy is Slow 5) Organizational conflicts & interdepartmental bickering are often symptoms of Strategy Malfunction 6) Managerial problem continue despite changes in personnel & if they tend to be issue-based rather than people-based, their strategies may be inconsistent Dr. Prashant B. Kalaskar
  • 165. Symptoms of Malfunctioning of Strategy 7) If success for one organizational department means failure for another department then it is a symptom of malfunctioning. 8) If policy problems & issues continue to be brought to the top for resolution, then strategy may be Malfunctioning 9) Overtaxing of available resources is a symptom of malfunctioning 10) Degree of risk is high as compared to rewards 11) Strategy is inconsistent with changing environment 12) If strategy implementation does not give due cognizance to time horizon, then it is symptom of strategy is malfunctioning Dr. Prashant B. Kalaskar
  • 166. Balanced Scorecard Methodology • An alternative approach linking operational and strategic control, developed by Harvard Business School professors Robert Kaplan and David Norton, is a system they names the balanced scorecard • The balanced scorecard is a management system (not only a measurement system) that enables companies to clarify their strategies, translate them into action, and provide meaningful feedback Dr. Prashant B. Kalaskar
  • 167. Integrating Shareholder Value and Organizational Activities across Organizational Levels Dr. Prashant B. Kalaskar
  • 168. Balanced Scorecard Four perspectives: 1. The learning and growth perspective: How well are we continuously improving and creating value? 2. The business process perspective: What are our core competencies and areas of operational excellence? 3. The customer perspective: How satisfied are our customers? 4. The financial perspective: How are we doing for our shareholders Dr. Prashant B. Kalaskar
  • 170. For Any Query….. Dr. Prashant B. Kalaskar M: 9975770407, 7350520025 pbkalaskar@sinhgad.edu prashantkalaskar007@gmail.com