CHAPTER 11: MANAGING INTERNAL OPERATIONS

Learning Objectives :

1. Learn why resource allocation should always be based on strategic priorities .

2. Understand how well-designed policies and procedures can facilitate good strategy execution .

3. Learn how best practices and process management tools drive continuous improvement in the performance of value chain activities and promote superior-strategy execution .

4. Recognize the role of information and operating systems in enabling company personnel to carry out their strategic roles proficiency.

5. Comprehend how and why the use of well-designed incentives and rewards can be management's single most powerful tool for promoting adept strategy execution.

ALLOCATING RESOURCES TO THE STRATEGY EXECUTION EFFORT

• The funding requirements of good strategy execution must drive how capital allocations are made and the size of each unit's operating budget.Underfunding organizational units and activities pivotal to the strategy impedes successful strategy implementation .
• A company's operating budget must be both strategy-driven and lean.

INSTITUTING POLICIES AND PROCEDURES THAT FACILITATE STRATEGY EXECUTION

1)They provide top-down guidance regarding how things need to be done .

2)They help ensure consistency in how execution-critical activities are performed.

3)They promote the creation of a work climate that facilitates good strategy execution.

INSTITUTING BEST PRACTICES AND EMPLOYING PROCESS MANAGEMENT TOOLS

Best practice : 

 a method of performing an activity that consistently delivers superior results compared to other approaches . 

Business process reengineering :

 involves radically redesigning and streamlining how an activity is performed with the intent of achieving quantum improvements in performance.

Total quality management (TQM) :

 entails creating a total quality culture,involving  managers and employees at all levels,bent on continuously improving the performance of every value chain activity . 

Six Sigma Program :

 utilize advanced statistical methods to improve quality by reducing defects and variability in the performance of business processes .

• Demonstrating visible ,unequivocal,and unyielding commitment to total quality and continuous improvement,including specifying measurable objectives for increasing quality and making continual progress 
• Nudging people toward quality-supportive behaviors by
• Empowering employees so that the authority for delivering great service or improving products is in the hands of the doers rather than the overseers.
• Using online systems to provide all relevant parties with the latest best practices .
• Emphasizing that performance can and must be improved,because competitors are not resting on their laurels and customers are always looking for something better.

INSTALLING INFORMATION AND OPERATING SYSTEMS

Need to cover five broad areas :

 1)customer data , 2) operations data , 3)employee data , 4)supplier/strategic partner data , 5)financial performance data

USING REWARDS AND INCENTIVES TO PROMOTE BETTER STRATEGY EXECUTION

Some of the most important nonmonetary approaches companies can use to enhance motivation are:

• Providing attractive perks and fringe benefits
• Giving awards and other forms of public recognition to high performers,and celebrating the achievement of organizational goals.
• Relying on promotion from within whenever possible.
• Inviting and acting on ideas and suggestions from employees.
• Creating a work atmosphere in which there is genuine caring and mutual respect among workers and between management and employees.
• Stating the strategic vision in inspirational terms that make employees feel they are a part of something very worthwhile in a larger social sense .
• Sharing information with employees about financial performance,strategy,operational measures,market conditions,and competitors' actions.
• Providing a comfortable and attractive working environment.

GUIDELINES FOR DESIGNING INCENTIVE COMPENSATION SYSTEMS

• Make the performance payoff a major,not minor,piece of the total compensation package.
• Have incentives that extend to all managers and all workers,not just top management.
• Administer the reward system with scrupulous objectivity and fairness.
• Ensure that the performance targets set for each individual or team involve outcomes that the individual or team can personally affect.
• keep the time between achieving the performance target and receiving the reward as short as possible.
• Avoid rewarding effort rather than results.

CHAPTER 10 : BUILDING ORGANIZATION CAPABLE OF GOOD STRATEGY EXECUTION

Learning Objectives :

1) Gain command of what managers must do to execute strategy successfully .

2) Learn why hiring , training and retaining the right people constitute a key component of the strategy execution process .

3) Understand that good strategy execution requires continuously building and upgrading the organization's resources and capabilities .

4) Recognize what issues to consider in establishing a strategy-supportive organizational structure and organizing the work effort .

5) Become aware of the pros and cons of centralized and decentralized decision making in implementing the chosen strategy .

the principal components of the strategy execution process : 

1) Staff the organization with managers and employees capable of executing the strategy well.

2) Build the organizational capabilities required for successful strategy execution.

3) Create a strategy-supportive organizational structure .

4) Allocate sufficient resources (budgetary and otherwise) to the strategy execution effort .

5) Institute policies and procedures that facilitate strategy execution.

6) Adopt best practices and business processes that drive continuous improvement in strategy execution activities .

7) Install information and operating systems that enable company personnel to carry out their strategic roles proficiently.

8) Tie rewards and incentives directly to the achievement of strategic and financial targets.

9) Instill a corporate culture that promotes good strategy execution.

10) Exercise the internal leadership needed to propel strategy implementation forward .

the 10 basic tasks of the strategy execution process : 

• Build the organizational capabilities required for successful strategy execution
• Establish a strategy-supportive organizational structure.
• Allocate sufficient resources to the strategy execution effort .
• Institute policies and procedures that facilitate strategy execution .
• Adopt best practices and business processes that drive continuous improvement in strategy execution activities .
• Install information and operating systems that enable company personnel to carry out their strategic roles proficiently.
• Tie rewards and incentives directly to the achievement of strategic and financial targets.
• Instill a corporate culture that promotes good strategy execution.
• Exercise the internal leadership needed to propel strategy implementation forward .

THREE key actions : 

² Staffing the organization - putting together a strong management team,and recruitment and retaining employees with the needed experience , technical skills and intellectual capital.

² Acquiring , developing and strengthening strategy-supportive resources and capabilities - accumulating the required resources ,developing proficiencies in performing strategy-critical value chain activities , and updating the company’s capabilities to match changing market conditions and customer expectations.

² Structuring the organization and work effort - Organizing value chain activities and business processes,establishing lines of authority and reporting relationships, and deciding how much decision-making authority to delegate to lower-level managers and frontline employees.

CENTRALIZED ORGANIZATIONAL STRUCTURES 

BASIC TENETS : decisions on most matters of importance should be in the hands of top-level managers who have the experience,expertise,and judgement to decide what is the best course of action , lower-level personnel have neither the knowledge,the time,nor the inclination to properly manage the tasks they are performing , strong control from the top is a more effective means for coordinating company actions

CHIEF ADVANTAGES ; fixes accountability through tight control from the top , eliminates potential for conflicting goals and actions on the part of lower-level managers , facilitates quick decision making and strong leadership under crisis situations.

PRIMARY DISADVANTAGES ; lengthens response times by those closest to the market conditions because they must seek approval for their actions , does not encourage responsibility among lower-level managers and rank-and-file employees , discourages lower-level managers and rank-and-file employees from exercising any initiative .

DECENTRALIZED ORGANIZATIONAL STRUCTURES 

BASIC TENETS : decision-making authority should be put in thee hands of the people closest to,and most familiar with,the situation , those with decision-making authority should be trained to exercise good judgment , a company that draws on the combined intellectual capital of all its employees can outperform a command-and-control company.

CHIEF ADVANTAGES ; encourages company employees to exercise initiative and act responsibly , promotes greater motivation and involvement in the business on the part of more company personnel , spurs new ideas and creative thinking , allows for fast response to market change , entails fewer layers of management . 

PRIMARY DISADVANTAGES ; higher-level managers may be unaware of actions taken by empowered personnel under their supervision , plus the organization at risk of empowered employees happen to make 'bad' decisions  can impair cross-unit collaboration . 

CHAPTER 9 : ETHICS,CORPORATE SOCIAL RESPONSIBILITY,ENVIRONMENTAL SUSTAINABILITY,AND STRATEGY

Learning Objectives :

1 . Understand how the standards of ethical behavior in business are no different from the ethical standards and norms of the larger society and culture in which a company operates . 

2 . Recognize conditions that can give rise to unethical business strategies and behavior.

3 . Gain an understanding of the costs of business ethics failures .

4 . Learn the concepts of corporate social responsibilities and environmental sustainability and how companies balance these duties with economic responsibilities to shareholders.

BUSINESS ETHICS 

CONCERNS STANDARDS OF RIGHT AND WRONG AND THE APPLICATION OF ETHICAL PRINCIPLES TO THE ACTIONS AND DECISIONS OF BUSINESS ORGANIZATIONS AND THE CONDUCT OF THEIR PERSONNEL,BUSINESS ETHICS ARE NOT MATERIALLY DIFFERENT FROM ETHICAL PRINCIPLES IN GENERAL . 

THREE SCHOOLS OF THOUGHT

SCHOOL OF ETHICAL UNIVERSALISM :

common understandings across multiple cultures and countries about what constitutes right and wrong behaviors give rise to universal ethical standards that apply to members of all societies,all companies,and all businesspeople.

SCHOOL OF ETHICAL RELATIVISM : 

different societal cultures and customs have divergent values and standards if right and wrong.thus,what is ethical or unethical must be judged in the light of local customs and social mores and can vary from one culture or nation to another.

INTEGRATED SOCIAL CONTRACTS THEORY:

universal ethical principles based on the collective views of multiple cultures and societies combine to form a "social contract" that all individuals in all situations have a duty to observe.

THREE OTHER FACTORS CONTRIBUTE TO UNETHICAL BUSINESS BEHAVIOR :

1) Faulty oversight that enables the unscrupulous pursuit of personal gain

2) Heavy pressures on company managers to meet or beat short-term earnings targets

3) A company culture that puts profitability and good business performance ahead of ethical behavior.

the effect of the failures in business ethics :

1) Visible costs,such as fines,penalties,and lower stock prices

2)Internal administrative costs such as legal costs and costs of taking corrective action

3)Intangible costs, such as customer defections and damage to the company's reputation

SELF-DEALING : 

occurs when managers take advantage of their position to further their own private interests rather than those of the firm .

SHORT-TERMISM : 

the tendency for managers to focus excessively on short-term performance objectives at the expense of longer-term strategic objectives.it as negative implications for the likelihood of ethical lapses as well as company performance in the longer run .

CORPORATE SOCIAL RESPONSIBILITY (CSR) :

 refers to a company’s duty to operate in an honorable manner,provide good working conditions for employees,encourage workforce diversity,be a good steward of the environment , and actively work to better the quality of life in the local communities where it operates and in society at large.

SUSTAINABLE BUSINESS PRACTICES : 

are those that meet the needs of the present without compromising the ability to meet the needs of the future.

CHAPTER 8 : DIVERSIFICATION AND THE MULTIBUSINESS COMPANY

Learning Objectives :

1 . Understand when and how business diversification can enhance shareholder value .

2 . Gain an understanding of how related diversification strategies can produce cross-business strategic fit capable of delivering competitive advantage .

3 . Become aware of the merits and risks of the corporate strategies keyed to unrelated diversification . 

4 . Gain command of the analytical tools for evaluating a company’s diversification strategy.

5 . Understand a diversified company’s four main corporate strategy options for solidifying its diversification strategy and improving company performance. 

WHAT DOES CRAFTING A DIVERSIFICATION STRATEGY ENTAIL?

² Picking new industries to enter and deciding on the means of entry .

² Pursuing opportunities to leverage cross-business value-chain relationships and strategic fit into competitive advantage. 

² Establishing investment priorities and steering corporate resources into the most attractive business units.

² Initiating actions the boost the combined performance of the corporation’s collection of business.

WHEN BUSINESS DIVERSIFICATION BECOMES A CONSIDERATION

Ø When it spots opportunities for expanding into industries whose technologies and products complement its present business.

Ø When it can leverage its collection of resources and capabilities by expanding into businesses where these resources and capabilities are valuable competitive assets.

Ø When diversifying into additional businesses opens new avenues for reducing costs.

Ø When it has a powerful and well-known brand name that can be transferred to the products of the businesses . 

APPROACHES TO DIVERSIFYING THE BUSINESS LINEUP

l Diversification by Acquisition of an Existing Business

l Entering a New Line of Business through Internal Development

l Joint Ventures

l Choosing a Mode of Entry

CHOOSING THE DIVERSIFICATION PATH : RELATED VERSUS UNRELATED BUSINESS

RELATED BUSINESS : possess competitively valuable cross-business value chain and resource matchups

UNRELATED BUSINESS : have dissimilar value chains and resource requirements,with no competitively important cross-business relationships at the value chain level . 

EVALUATING THE STRATEGY OF A DIVERSIFIED COMPANY

STEP 1 :

 Evaluating Industry Attractiveness

STEP 2 :

 Evaluating Business-Unit Competitive Strength

STEP 3 :

 Determining the Competitive Value of Strategic Fit in Diversified Companies

STEP 4 : 

Checking for Resource Fit

STEP 5 : 

Ranking Business Units and Assigning a Priority for Resource Allocation

STEP 6 :

 Crafting New Strategic Moves to Improve Overall Corporate Performance . 

CHAPTER 7 : STRATEGIES FOR COMPLETING IN INTERNATIONAL MARKETS

Learning Objectives :

1 . Develop an understanding of the primary reasons companies choose to compete in international markets.
2 . Learn how and why differing market conditions across countries influence a company's strategy choices in international markets.
3 . Learn about the five major strategic options for entering foreign markets.
4 . Gain familiarity with the three main strategic approaches for competing internationally.
5 . Understand how multinational companies are able to use international operations to improve overall competitiveness . 
6 . Gain an understanding of the unique characteristics of competing in developing-country markets.

Why companies decide to enter foreign markets ?

• To gain access to new customers
• To achieve lower costs through economies of scale,experience,and increased purchasing power
• To further exploit core competencies
• To gain access to resources and capabilities located in foreign markets
• To spread business risk across a wider market base 

Why competing across national Borders Makes Strategy-Making More Complex

• Different countries have different home-country advantages in different industries 

• Location-based value-chain advantages for certain countries

• Differences in government policies,tax rates, and economic conditions

• Currency exchange rate risks

• Differences in buyer tastes and preferences for products and services

POLITICAL RISKS : stem from instability or weaknesses in national governments and hostility to foreign business. ECONOMIC RISKS : stem from the stability of a country's monetary system,economic and regulatory policies,the lack of property rights protections.

EXPORT STRATEGIES Advantages : Low capital requirements, economies of scale in utilizing existing production capacity , no distribution risk , no direct investment risk Disadvantages : Maintaining relative cost advantage of home-based production , transportation and shipping costs , exchange rates risks , tariffs/import duties , loss of channel control

licensing and franchising strategies Advantages : Low resources requirements , income from royalties and franchising fees , rapid expansion into many markets Disadvantages : Maintaining control of proprietary know-how , loss of operational and quality control , adapting to local market tastes and expectations .  foreign subsidiary strategies  Advantages : high level of control , quick large-scale market entry , access to acquired firm's skills , avoids entry barriers  Disadvantages : Costs of acquisition , complexity of acquisition process , integration of the firms' structures,cultures,operations and personnel greenfield strategies  Advantages : High level of control over venture , "learning by doing" in the local market , direct transfer of the firm's technology,skills,business practices,and culture Disadvantages : Capital costs of initial development , risks f loss due to political instability or lack of legal protection of ownership , slowest form of entry due to extended time required to construct facility benefit of alliance and joint venture strategies :   Gaining partner's knowledge of local market conditions , achieving economies of scale through joint operations , gaining technical expertise and local market knowledge , sharing distribution facilities and dealer networks and mutually strengthening each partner's access to buyers , directing competitive energies more toward mutual rivals and less toward one another , establishing working relationships with key officials in the host-country government. the risks of strategic alliances with foreign partners : Outdated knowledge and expertise of local partners , cultural and language barriers , costs of establishing the working arrangement , conflicting objectives and strategies and/or deep differences of opinion about joint control , differences in corporate values and ethical standards , loss of legal protection of proprietary technology or competitive advantage , over dependence on foreign partners for essential expertise and competitive capabilities .  INTERNATIONAL STRATEGY : A strategy for competing in two or more countries simultaneously .  MULTIDOMESTIC STRATEGY  : is one in which a firm varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions . It is a think-local, act-local type of international strategy,facilitated by decision making decentralized to the local level .  GLOBAL STRATEGY : is one in which a company employs the same basic basic competitive approach in all countries where it operates,sells much the same products everywhere,strives to build global brands,and coordinates its actions worldwide with strong headquarters control.It represents a think-global,act-global approach. TRANSNATIONAL STRATEGY : a think-global,act-global approach that incorporates elements of both multidomestic and global strategies .

THREE APPROACHES FOR COMPETING INTERNATIONALLY

MULTIDOMESTIC APPROACH  (Think local,act local) 

Advantages : can meet the specific needs of each market more precisely,can respond more swiftly to localized changes in demand,can target reactions to the moves of local rivals,can respond more quickly to local opportunities and threats

Disadvantages : hinders resource and capability sharing or cross-market transfers,higher production and distribution costs,not conductive to a worldwide competitive advantage

TRANSNATIONAL APPROACH  (Think global,act local)

Advantages : offers the benefits of both local responsiveness and global integration,enables the transfer and sharing of resources and capabilities across borders,provides the benefits of flexible coordination

Disadvantages : more complex and harder to implement , conflicting goals may be difficult to reconcile and require trade-offs,implementation more costly and time-consuming

GLOBAL APPROACH  (Think global,act global)

Advantages : lower costs due to scale and scope economies,greater efficiencies due to the ability to transfer best practices across markets,more innovation from knowledge sharing and capability transfer,the benefit of a global brand and reputation

Disadvantages : Unable to address local needs precisely,less responsive to changes in local market conditions,higher transportation costs and tariffs,higher coordination and integration costs.