McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 1 CHAPTER 11 Strategic Control and Continuous Improvement

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 2 Chapter Topics Establishing Strategic Controls Premise Control Strategic Surveillance Special Alert Control Implementation Control The Quality Imperative: Continuous Improvement to Build Customer Value

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3 What is Strategic Control? Tracks a strategy as it is implemented, detects problems or changes in its underlying premises, and makes necessary adjustments

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 4 Questions Involved in Assessing a Strategy’s Success 1.Are we moving in the proper direction? Are our assumptions about major trends and changes correct? Should we adjust or abort the strategy? 2.How are we performing? Are objectives and schedules being met? Are costs, revenues, and cash flows matching projections? Do we need to make operational changes?

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 5 Ex. 11-1: Four Types of Strategic Control Strategic Surveillance Premise Control Time 1 Strategy Formulation Time 2 Time 3 Strategy Implementation Implementation Control Special Alert Control

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 6 Ex. 11-1: Characteristics of the Four Types of Strategic Control Basic Characteristics Premise Control Implementation Control Strategic Surveillance Special Alert Control Objects of control Degree of focusing Data Acquisition: Formalization Centralization Planning premises and projections High Medium Low Key strategic thrusts and milestones High Medium Potential threats and opportunities related to the strategy Low Occurrence of recognizable but unlikely events High

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7 Ex (contd.) Basic Characteristics Premise Control Implementation Control Strategic Surveillance Special Alert Control Use with: Environmental factors Industry factors Strategy-specific factors Company- specific factors Yes No Seldom Yes Seldom Yes Seldom

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 8 Definitions of Types of Strategic Controls Premise Control – Designed to check systematically and continuously whether premises on which the strategy is based are still valid Strategic Surveillance – Designed to monitor a broad range of events inside and outside the firm that are likely to affect the course of its strategy Special Alert Control – Thorough, and often rapid, reconsideration of the firm’s strategy because of a sudden, unexpected event Implementation Control – 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

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 9 Types of Implementation Control Milestone reviews Monitoring strategic thrusts

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 10 Establishing Effective Operational Control Systems Set standards of performance Measure actual performance Initiate corrective action Identify deviations from standards set Steps involved in postaction control systems

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 11 Concepts Related to TQM Viewed as a new organizational culture and way of thinking Foundations of TQM –Intense focus on customer satisfaction –Accurate measurement of every critical variable in a business’s operation –Continuous improvement of products, services, and processes –Work relationships based on trust and teamwork

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 12 Key Elements of Implementing TQM Define quality and customer value Develop a customer orientation Focus on company’s business processes Develop customer and supplier partnerships Take a preventive approach Adopt an error-free attitude Get the facts first Encourage all levels of employees to participate Create an atmosphere of total involvement Strive for continuous improvement

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 13 The Value Chain Approach to Developing a Customer Orientation External suppliers Internal suppliers (functions) Input Function (like production) Seeking: Quality Efficiency Responsiveness Outputs External (ultimate) customer Other internal customers (activities)

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 14 What is Six-Sigma? A highly rigorous and analytical approach to quality and continuous improvement with an objective to improve profits through deficit reduction, yield improvement, improved customer satisfaction and best-in-class performance

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 15 Differences Between TQM and Six- Sigma Acute understanding of customers and the product or service provided Emphasis on the science of statistics and measurement Meticulous and structured training development Strict and project-focused methodologies Reinforcement of the doctrine advocated by Juran such as top management support and continuous education

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 16 ISO 9001 The ISO 9001 standard focuses on achieving customer satisfaction through Continuous measurement Documentation Assessment Adjustment It specifies requirements where an organization Needs to demonstrate its ability to consistently provide product and services that meet customer requirements Aims to enhance customer satisfaction through the effective application of the system, including processes for continual improvement of the system and the assurance of conformation to customer requirements

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 17 The Balanced Scorecard Methodology Intends to provide a clear prescription as to what companies should measure in order to “balance” the financial perspective in implementation and control of strategic plans It adapts the TQM ideas of customer-defined quality, continuous improvement, employee empowerment, and measurement-based management/feedback into an expanded methodology that includes traditional financial data and results Uses four perspectives: the learning and growth perspective, the business process perspective, the customer perspective, and the financial perspective

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 18 Ex. 11-7: Integrating Shareholder Value and Organizational Activities Across Organizational Levels CEOCorporate/DivisionalFunctionalDepts. And Teams Shareholder value creation ROCE Economic Profit Margin Capital Turnover Sales Targets COGS/ Sales Dev. Cost/ Sales Inv. Turnover Cap. Utilization Cash Turnover Order Size Customer Mix Sales/Account Customer Churn Rate Deficit Rates Cost Per Delivery Maintenance Cost New Product Dev. Time Indirect/Direct Labor Customer Complaints Downtime Accounts Payable Time Accounts Receivable Time