Organization theory and design 14 2013

organization @TC 2013

14 Control system


หัวข้อบรรยาย/กรณีศึกษา 11 Organizing for Innovation C 8: Harvard Business Case / 3M Optical Systems : Managing Corporate Entrepreneurship 12 การสร้างและออกแบบ Cybernetics, Viable System C 9 : Harvard Business Case / Sun Hydraulics Corporation (A&B) 13 การสร้างและออกแบบ learning Organization/กระบวนการเรียนรู้ C 10 : Harvard Business Case / McKinsey & Company : Managing Knowledge and Learning 14 Control system C11: Harvard Business Case / Verizon 15 สรุปปิดการบรรยาย or guest speaker


Schools of Thoughts and Doctrinal Issues in Management

Strategic Management

Business Process Management

Performance Management

What is the role of managers?

What should be the design of a programmatic

organization?

How should operations be managed?

What management policies should be chosen?


Related Discourses?

PERFORMANCE MANAGEMENT BUSINESS PROCESS REDESIGN

Practices (ABC/ABM)

Accouting Information

Systems

Outsourcing and Supply Chain Management

Work Redesign & Adhocracy

Management Control Structure and Process

OVERLAPS UNDERLAPS?

TQM

Value-Added/ Results Orientation

Related Discourses?

Strategy Implementation

Accounting Information

Systems

OVERLAPS

PERFORMANCE MANAGEMENT STRATEGIC MANAGEMENT

Leadership Function

Political Management

UNDERLAPS?


Strategy Formulation

Results- Orientation

DETAILS?

Divisionalization

Related Discourses?


Systems PERFORMANCE MANAGEMENT

STRATEGIC MANAGEMENT

Leadership Function



Strategy Process


Related Discourses?

Strategy Implementation


Systems

OVERLAPS

PERFORMANCE MANAGEMENT STRATEGIC MANAGEMENT

Leadership Function


UNDERLAPS?


Strategy Formulation

Results- Orientation

DETAILS?

Divisionalization


Management Control

•  Origins (19th c.) – Operational Control and Cost Accounting on the Shop

Floor (Wedgewood) – Railroad Management – Military Supply and Logistics

•  Principal institutional locus – Accounting departments – Business schools – Management consulting industry

•  Scientific source disciplines – Managerial economics, organizational behavior,

cybernetics


MAC (1)

•  Some big names – Herbert Simon (1954) – Robert Anthony (HBS) – Anthony Hopwood (LSE, Oxford) – Robert Kaplan (HBS)

•  Some informative texts – Hongren (technical approach) – Macintosh (organizational approach) – Simons (strategic management approach)

Journals

Management Accounting

Accounting, Organization,

And Society


MAC (2)

•  A Classical View of Management – POSDCORB – Focus on CORB and implementing P – Some interest in O – Not primarily concerned with P,S,D

•  Some trends in attention and argument – Less attentive to the shop floor (until the rise of BPM) – Sought to be compatible with diverse ideas about

strategic management – Unwilling to play second-fiddle to financial accounting – Increasingly boisterous about relevance to all aspects of

management (everything except S?)


Functional Discipline: Production and Operations Management

•  Systems Approach – “Holistic perspective” – Bringing together the disparate components of a system

into an effective whole – Systems dynamics

•  Positive and negative feedback •  Stock/flow relationships

– Functionality thinking •  Design hierarchies •  Function-feature relationships

MAC


MAC (3) Basic Mental Models

Planning Budgeting Execution Evaluation

The Management Process Processes within a cycle are sequentially interdependent

Corrective Action

CO, B, O CO, P R ? Setting targets Authorizing costs Reviewing indicators


MAC (4) Basic Mental Models Hierarchy of Responsibility Centers

Type name hereResponsibility Center 1

(Profit Center)

Type name hereResponsibility Center 2-1

(Profit Center)

Individual contributor Individual contributor Individual contributor


(Profit Center)


(Cost Center)


(Profit Center)


(Cost Center)

Type name hereChief Executive


Decentralized Structure

• There is an affinity between the idea of a decentralized structure and responsibility centers

– The doctrine is that establishing responsibility centers with targets provides a structural basis for selective decentralization of ‘operational’ decisions from the strategic apex (top management) to the responsibility center manager

– Target setting ‘remains’ centralized – The strategic apex, assisted by the technostructure

(staff), can ‘control by outputs’ • Responsibility centers and divisions are

conceptually distinct



Inputs Process Outputs

Cost $/unit output



•  Here, control is defined in cybernetic terms

Inputs Process

Target

Need a target, a measure, and available corrective actions that affect the performance variable


Doctrinal Principles of Control

DP1. Control exists when actual events/outcomes equal planned events/outcomes

DP2. Responsibility should be clearly assigned (and matched to authority)

DP3. Any control process requires standard-setting, monitoring, corrective action, and evaluation

DP4. The cost to the organization of collecting information should not exceed the value to the organization of knowing the information


Standard Doctrines of Control (Managing Costs)

D1. Measure the unit costs of the product D2. Establish a standard for costs D3. Assign responsibility for costs D4. Require responsibility center to report regularly on actual

v. planned costs and planned corrective actions D5. Learn from experience in the interest of improvement D6. Evaluate managers, taking into account factors outside

their control


Broadening the Doctrines

D1. Measure the unit costs of the product

D2. Establish a standard for costs

D3. Assign responsibility for costs

D4. Require responsibility center to report regularly on actual v. planned costs and planned corrective actions

•  D1* Measure critical performance variables

•  D2* Establish standards for the critical performance variables

•  D4* Report on deviations of critical performance variables relative to standards, and discern whether corrective action is needed


Measure the Critical Performance Variables

• Equivalent to saying “develop an accounting information system”

–  Includes measurement of non-financial indicators – Note distinction between performance measurement and management

• What to measure? – ‘Product’ quality – ‘Product’ cost – Product can be mapped on to either output or outcome

• How to measure? How often?


MAC Some Doctrinal Issues

• How to ensure that information (especially accounting information) is relevant to “economic” decision-making

• How demanding should targets be? • Should managers always be held to account for

meeting their targets? • How should internal pricing work? • How to ensure that the management control system is

coherent with the strategy?


Design Options

• Generic types of targets or standards – Based on history -- performance in previous periods – Benchmarked -- based on similar data from similar

organizations or work groups – ‘engineered’ work standards


Managerial Accounting’s Default Recipe

•  Develop Accounting Information Systems – Define Outputs – Measure Unit Costs – Develop Non-Financial Indicators – Report Service Efforts and Accomplishments

•  Develop Management Control Structure and Process – Segment Org’n & Designate Responsibility Centers – Set Targets – Practice Diagnostic Control & Evaluate Performance


New Wave MAC


MAC and Public Management (1)

Planning Budgeting Execution Evaluation

The Management Process Processes within a cycle are sequentially interdependent

Corrective Action

CO, B, O CO, P R ? Setting targets Authorizing costs Reviewing indicators

Thompson Boyce

Notice: no discussion of innovation


MAC and Public Management (2) Hierarchy of Responsibility Centers


(Profit Center)


(Profit Center)

Individual contributor Individual contributor Individual contributor


(Profit Center)


(Cost Center)


(Profit Center)


(Cost Center)

Type name hereChief Executive

Utilities and marketplace activities (support Centers) = profit centers

Core activities (mission centers) = cost centers


Examples • Some Programmatic Embodiments

– Financial Management Initiative, Next Steps Initiative, and Citizen’s Charter (UK)

– Financial Management Improvement Program (Australia)

– Government Results and Performance Act (USA) – Centres de Responsibilité (France)


Value for Money Construct

Inputs Process Outputs Outcomes


Performance Management = NPM •  “What NPM is Against”

– Administrative Centralization (Aucoin) – Control by Procedure (Mintzberg) – Control by Skills (Mintzberg) – Control by Wishful Thinking


Explaining Performance Management’s Centrality in NPM

• Managerialism and New Institutional Economics •  “Business metaphor” (e.g., outputs) • Precursors (PPBS, Plowden) • Coalition of Professions (Economics, Accounting) • Ferment in management accounting practice • Outsourcing and privatization


31


1992 2009

Based on presentation of Balanced Scorecard Collaborative

Articles in Harvard Business Review:

§  “The Balanced Scorecard — Measures that Drive Performance” January - February 1992

§  “Putting the Balanced Scorecard to Work” September - October 1993

§  “Using the Balanced Scorecard as a Strategic Management System” January - February 1996

1996! 2000

Endorsement by Gartner Group 2009: The balanced scorecard methodology developed by Drs. Kaplan and Norton extends beyond financial measures to link vision to action. The Harvard Business Review has acclaimed the balanced scorecard as one of the most influential ideas of the past 75 years Source: Gartner Group; 2009 Feature Article: Business Value of IT — Non-financial Measurements “The Balanced Scorecard” is translated into 18 languages

The Balanced Scorecard (BSC) - "One of the most important management practices of the past 75 years" HBR

Measurement and Reporting

Alignment and Communication

Enterprise-wide Strategic Management

Informed Risk Decisions


1.1 Top leadership committed 1.2 Case for change clearly articulated 1.3 Leadership team engaged 1.4 Vision and strategy clarified 1.5 New way of managing understood

1.6 Program manager identified

5. GOVERN TO MAKE STRATEGY A CONTINUAL PROCESS

3. ALIGN THE ORGANIZATION TO THE STRATEGY

3.1 Corporate role defined 3.2 Corporate – SBUs aligned 3.3 SBU – Support units aligned 3.4 SBU – External Partners aligned

3.5 Board of directors aligned

5.1 BSC reporting system established 5.2 Strategy review meetings conducted 5.3 Planning, budgeting, and strategy integrated 5.4 HR and IT planning linked to strategy 5.5 Process management linked to strategy 5.6 Knowledge sharing linked to strategy 5.7 Strategy Management Office established

2.1 Strategy map developed 2.2 Balanced Scorecard created 2.3 Targets established 2.4 Initiatives rationalized 2.5 Accountability assigned

4.1 Strategy awareness created 4.2 Personal goals aligned 4.3 Personal incentives aligned 4.4 Competency development aligned

4. MOTIVATE TO MAKE STRATEGY EVERYONE’S JOB

STRATEGY-FOCUSED

ORGANIZATION

BEST PRACTICES

2. TRANSLATE STRATEGY TO OPERATIONAL TERMS

1. MOBILIZE CHANGE THROUGH EXECUTIVE LEADERSHIP

Source: Balanced Scorecard Collaborative/Palladium - www.bscol.com ; NOW - http://www.thepalladiumgroup.com ;

There is a consistent set of “best practices” applied by successful BSC users


Financial Perspective

•  Objectives •  Key Performance Indicators •  Targets •  Initiatives

Strategy

Learning & Growth Perspective


Customer Perspective


Internal Process Perspective


Kaplan and Norton, 1996

What is meant by “Balanced” The task of developing a comprehensive strategy demands systematic consideration and integration of various perspectives. We have to balance between financial and non-financial considerations and apply a measure combination. The basic framework as conceived by Kaplan and Norton, 1996 is presented below. The actual contents of each perspective are tailored to the specific organizational/unit realities, needs and challenges. For making the strategy explicit we use the Strategy Map/s


CUSTOMER - Customer Satisfaction - Effective Service/Partnership

MISSION VISION

STRATEGY

LEARNING AND GROWTH - Access to Strategic Information - Employee Satisfaction - Organization Structured for Continuous Improvement - Quality Workforce

FINANCIAL - Optimum Cost Efficiency of Purchasing Operations; Cost Reasonableness of Actions

INTERNAL BUSINESS PROCESSES - Acquisition Excellence - Most Effective Use of Contracting Approaches - Streamlined Processes - On-Time Delivery - Supplier Satisfaction - Socio-economics

Source: USA, Department of Energy Procurement System

Tailoring to the specific organizational/unit realities, needs and challenges - government procurement service example


Internal Process Perspective!

Financial Perspective!

Learning & Growth Perspective!

Customer Perspective!

Return on Investment"

Price" Quality" Time" Function" Image" Relatio-ship"

Value Proposition!

Sources of Growth" Sources of Productivity"

Technology Infrastructure"

Climate for Action"+" +"

“Build the Brand”"

“Make the Sale”"

“Deliver the Product”"

“Service Exceptionally”"

Revenue Strategy"

Productivity Strategy"

1. The economic model of key levers driving financial performance

2.!The value proposition of target customers!

3.!The value chain of core business processes!

4. The critical enablers of performance improvement, change and learning!

Staff Competencies"

Source: Presentation of Balanced Scorecard Collaborative

Example of the Basic Building Blocks of the Strategy and displaying the strategy’s cause-effect hypotheses


Kaplan and Norton's Generic Strategy Map template

The Generic Strategy Map template has to customized to the organization’s/department's/unit's particular strategy

Please keep in mind that the positioning of a perspective on the template does not in any way indicate the relative importance of the perspective.


Customer Value Proposition

Selection Availability Quality Price

Organization Capital

A Strategy Map Represents How the Organization Creates Value

• Supply • Production • Distribution • Risk Management

Operational Management Processes

• Selection • Acquisition • Retention • Growth

Customer Management Processes

• Opportunity ID • R&D Portfolio • Design/Develop • Launch

Innovation Processes

• Environment • Safety and Health • Employment • Community

Regulatory and Social Processes

Internal Perspective

Human Capital

Information Capital

Culture Leadership Alignment Teamwork

Learning and Growth Perspective



Functionality Service Partnership Brand

Product / Service Attributes Relationship Image

Improve Cost Structure

Increase Asset Utilization

Long-Term Shareholder Value

Expand Revenue Opportunities

Enhance Customer Value

Productivity Strategy Growth Strategy

Source: Kaplan R. S. & Norton D. P.,2004,Strategy Maps: Converting intangible assets into tangible outcomes, HBR


Objectives"

• Fast ground turnaround"

Statement of what strategy must achieve

and what’s critical to its

success"

Target"• 30 Minutes"• 90%"

The level of performance or

rate of improvement

needed"

• Cycle time optimization"

Key action programs

required to achieve

objectives"

Initiative"Measurement"• On Ground Time"• On-Time Departure"

How success in achieving the

strategy will be measured and

tracked"

Strategic Theme: Operating Efficiency!

Profitability"Financial!

Learning !

More"customers"

Ground crew "alignment"

Lowest "prices"

Fewer planes"

Customer!

Internal!Fast ground "turnaround"

Strategy Map example: Diagram of the !cause-and-effect relationships !between strategic objectives"

Flight "Is on time"

BSC Terminology

Extending the Map into Objectives, Measurements, Targets and Initiatives

Based on : Presentation of Balanced Scorecard Collaborative


Balanced Scorecard Overview

Components of a Balanced Scorecard

Strategy Map

Scorecard

THEME THEME

Strategic Objectives Measures Targets Initiatives



Internal Perspective

Learning Perspective

F1 - Improve Returns F2 - Broaden Revenue Mix F3 - Reduce Cost Structure C1 - Increase Customer Satisfaction

With Our Products & People C2 - Increase Satisfaction “After the

Sale” I1 - Understand Our Customers I2 - Create Innovative Products I3 - Cross-Sell Products I4 - Shift Customers to Cost-Effective

Channels I5 - Minimize Operational Problems I6 - Responsive Service

L1 - Develop Strategic Skills L2 - Provide Strategic Info L3 - Align Personal Goals

❏ Return on Investment ❏ Revenue Growth ❏ Deposit Service Cost Change ❏ Share of Segment ❏ Customer Retention ❏ New Product Revenue ❏ Cross-Sell Ratio ❏ Channel Mix Change ❏ Service Error Rate ❏ Request Fulfillment Time ❏ Skills Coverage ❏ Employee Satisfaction ❏ Revenue per Employee

❏ 15% ❏ +10% ❏ -5% ❏ 20% ❏ 95% ❏ 10% ❏ 9% ❏ TBD ❏ <1% ❏ <2 days ❏ 100% ❏ 80%

❏ Finance 2000

❏ Global Re-Engineers ❏ Sales & marketing

Reorganization & Training

❏ QFD Project ❏ Customer Database ❏ Global Service Training

Program ❏ HRMS ❏ Knowledge

Management System

BA

LAN

CE

Strategy


Strategy

Department

Team/ Individual

Measures Objectives

The Organizational Framework

Horizontal and Vertical Alignment !!!

Strategic Business Unit (SBU)

Ensure Alignment: Each sub-unit and individual link their objectives to the map.


The Measurement Pyramid

Goal

Outcome Performance

Measures Program

Program Performance Measures

Program Components

Program Component Performance Measures

Activities

Activity Performance Measures

Strategic/GPRA Goals End-Outcomes Longer-Term Intermediate Outcomes Shorter-Term Intermediate Outcomes & Outputs Outputs & Inputs


Some Tools for Determining What to Measure

Inputs Process/ System Output Intermediate

Outcomes End

Outcome

Program Logic Model

Desired Outcome

Causal Analysis Process Flow

Results Of

Testing

Not Acceptable Acceptable

Prototype Product

Back to Laboratory To Market


Typically 8-12 Weeks!

Step 1!!

Develop a!Project Plan!

Step 2!!

Build a!Strategic!

Architecture!!

Step 3!!

Draft a !Strategy Map!With Linkages!And Themes!

Step 4!!

Determine Measures and

Targets!

Step 5!!

Select Strategic Initiatives!

Step 6!!

Plan for implementation of

the SFO!

Balanced Scorecard Six Step Development Process


Consider the Timeframe for Value Creation Sh

areh

olde

r Val

ue

1 2 3 4 5 Time (Years)

Operations Management Processes

Customer Management Processes

Innovation Processes

Regulatory and Social

Processes

6-12 months 12-24 months 24-48months

Long-Term Growth in Shareholder Value

Good Citizen

Product Innovation

Customer Management

Operational Effectiveness

Source: Strategy Maps – Robert S. Kaplan and David P. Norton


The Key is to Build a Management Process Which is Driven by the Strategy

Strategy Development & Planning

Decision-Making & Communication

Reporting & Analysis

2

1

4

3

Objectives Measures Targets

Initiative Assessment Initiative Plan: B

Initiative Plan: A Owner: Financial Benefits:

Initiatives

The Balanced Scorecard articulates and communicates the strategy

Initiatives are aligned to support the strategy

Corporate & SBUs must manage the business in support of the strategy

Management interprets results, makes decisions and evolves the strategy


Putting the BSC to work Presentation of the metrics and their visualization


http://vaperforms.virginia.gov/Scorecard/ScorecardatGlance.pdf


Balanced Scorecard

Radar Chart" Dashboard"


Some of the Indicators of Good Balanced Scorecard

4. !Financial LinkageEvery objective can ultimately be related to financial results"

1. !Executive InvolvementStrategic decision makers must validate and own the strategy and related measures !

2. !Cause-and-Effect Relationships Every objective selected should be part of a chain of cause and effect linkages that represent the strategy"

3. Balance between outcome and leading measures There should be a balance of outcome measures and leading measures to facilitate anticipatory management"

5. !Linkage of Initiatives and Measures: Each initiative should be based on a gap between baseline and target. "

A good Balanced Scorecard will “tell the story” of your

strategy in!actionable terms.!

Source: Balanced Scorecard Collaborative/Palladium