IMPLEMENTING STRATEGY: BUDGETS, POLICIES, BEST PRACTICES, SUPPORT SYSTEMS, AND REWARDS

“If you talk about change but don’t change the reward and recognition system, nothing changes.” Paul Allaire CEO, Xerox Corp.

Overview Link Budgets to Strategy Establish Strategy-Supportive Policies Institute Best Practices & Strive for Continuous Improvement Installing Support Systems Implement Motivational Practices Implement Incentive Compensation Systems

Linking Budgets to Strategy Allocating resources in ways that support effective strategy execution involves Funding capital projects that can make a contribution to strategy implementation Funding efforts to strengthen competencies and capabilities or to create new ones Shifting resources - downsizing some areas, upsizing others, Killing activities that are no longer justified, and funding new activities with a critical strategy role

Strategic Management Principle New strategies usually call for significant budget reallocations.

Strategic Management Principle Depriving strategy-critical groups of the funds needed to execute their pieces of the strategy can undermine the implementation process!

How Policies and Procedures Aid Strategy Implementation Provide top-down guidance regarding expected behaviours Help align internal actions with strategy, channeling efforts along the intended path Enforce consistency in performance of activities in geographically scattered units Serve as powerful lever for changing corporate culture to produce stronger fit with a new strategy

Creating Strategy-Supportive Policies and Procedures Role of new policies Channel behaviours and decisions to promote strategy execution Counteract tendencies of people to resist chosen strategy Too much policy can be as stifling as: Wrong policy or as Chaotic as no policy Often, the best policy is a willingness to empower employees

Instituting Best Practices and Continuous Improvement Searching out and adopting best practices is integral to effective implementation Benchmarking has spawned new approaches to improve strategy execution, reengineering, TQM and continuous improvement programs

Installing Support Systems Essential to promote successful strategy execution Types of support systems On-line data systems Internet and company intranets Electronic mail Web pages Mobilising information and creating systems to use knowledge effectively can yield competitive advantage

Examples: Support Systems Airlines Computerized reservation system Federal Express Computerised parcel-tracking system and leading-edge flight operations systems

Strategic Management Principle Innovative, state-of-the-art support systems can be a basis for competitive advantage if they give capability that rivals can’t match!

Formal Reporting of Strategy-Critical Information Accurate, timely information is essential to guide action Prompt feedback on implementation activities is needed before actions are fully completed Key strategic performance indicators must be tracked as often as practical Barometers of overall performance from: Statistical information Reports and meetings Personal contact

What Areas Should Information Systems Address? Customer data Operations data Employee data Supplier/partner/collaborative ally data Financial performance data

Exercising Adequate Control Over Empowered Employees Challenge To ensure actions of employees stay within acceptable bounds Purpose of diagnostic control systems Relieve managers of burden of constant monitoring Control methods Establish boundaries on what not to do, allowing freedom to act with limits Face-to-face meetings to assess performance

Gaining Commitment: Components of an Effective Reward System Monetary Incentives Salary raises Performance bonuses Stock options Retirement packages Promotions Perks Non-monetary Incentives Praise Constructive criticism Special recognition More, or less, job security Interesting assignments More, or less, job responsibility

Approaches: Motivating People to Execute the Strategy Well Inspire employees to do their best Get employees to buy into strategy Structure individual efforts in teams to facilitate a supportive climate Allow employees to participate in decisions about their jobs Make jobs interesting and satisfying Devise strategy-supportive motivational approaches

Linking the Reward System to Performance Outcomes Rewards are the single most powerful tool to win commitment to the strategy Objectives Generously reward those achieving objectives Deny rewards to those who don’t Make strategic performance measures the dominant basis for designing incentives

Strategic Management Principle A properly designed reward structure is management’s most powerful strategy-implementing tool!

Strategic Management Principle The strategy implementer’s standard for judging whether individuals, teams, and organisational units have done a good job must be whether the performance targets in the strategic plan are achieved!

Key Considerations in Designing Reward Systems Create a results-oriented system Reward people for results, not for activity Define jobs in terms of what to achieve Incorporate several performance measures Tie incentive compensation to relevant outcomes Top executives – Key measures to performance Department heads, teams, and individuals - Strategic areas of responsibility