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Tag Archives: Operational Excellence

How Do Porter, Mintzberg, And More Define Strategy?

23 Feb

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Strategy is about the methods used to attain goals.  It’s the “how” of achieving goals—desired future conditions and circumstances towards which effort and resources are spent until their achievement.

If Strategy has any meaning at all, it is in relation to some aim or end in view.

Strategy is 1 of the 4 dimensions of an enterprise structure:

  1. Goals of the organization.
  2. Resources at our disposal.
  3. Strategies for achieving above-mentioned goals –i.e., the methods used to deploy the resources.
  4. Tactics—i.e., the ways in which the deployed resources are used.

Strategy and tactics – integral part of Strategy Development – bridge the gap between goals and the methods used to achieve those goals.  These 4 dimensions of enterprise structure relate to one or both of the 2 domains; Policy and Management.  Policies determine the goals of an enterprise, whereas attaining goals is typically a matter of Management.  Tactics belong to the managers; strategy is the combined realm of the governors and managers; whereas resources are controlled jointly.

The employed resources through use of Strategies and Tactics give us “certain” conditions.  Inspecting them in light of the “desired” conditions enables us to determine future employment of the resources and thus emerges a pattern of actions and decisions which makes Strategy an adaptive and evolving view of what is required, to achieve goals.

We take a look at various perspectives on and definitions of Strategy, as explained by 8 of the most impactful and renowned Strategists in modern times.  Familiarity with the perspectives of these strategists enables us to develop a more holistic and thorough understanding of the topic, helping us improve our strategic thinking, decision making, and analytical skills.All of these experts agree on the fact that Strategy is a means to implement a policy or a view envisioned by those who matter.  Let’s see how the following strategists define Strategy:

  1. Michael Porter
  2. Henry Mintzberg
  3. Treacy and Wiersema
  4. H. Liddell Hart
  5. George Steiner
  6. Kenneth Andrews
  7. Kepner-Tregoe
  8. Michel Robert

Let’s break down how a few of these renown strategists define “Strategy.”

Michael Porter

Michael Porter, the father of modern Business Strategy, views Competitive Strategy as “intentionally opting a collection of activities that are dissimilar to the competitors in order to provide a unique mix of value”– i.e. Competitive Advantage.  Porter states that Strategy is about:

  • A competitive position.
  • Differentiating yourself in the eyes of the customer.
  • Adding value through a collection of activities different from competitors.

Henry Mintzberg

Mintzberg is credited with co-creating the Organigraph.  He has written extensively on management and business Strategy.  His contribution to Organizational Theory in the form of “The Organizational Configurations Framework” is a model that describes 6 valid organizational configurations or Organizational Design.

Mintzberg argues that the contrast of changing realities with intentions necessitates accommodation, generating Strategy.  According to him Strategy is a combination of:

  • The Perspective – Vision and Direction.
  • The Position – Decisions to offer particular products or services in particular markets.
  • The Plan – a means of getting from here to there.
  • A Pattern in actions over time – for example, a company that regularly markets very expensive products is using a “high end” Strategy.

Treacy and Wiersema

Treacy and Wiersema’s Value Discipline Model talks about 3 different value disciplines: Customer IntimacyProduct Leadership, and Operational Excellence.  Their research on market leading organizations reveals that they outdid their competitors through mastering 1 of these 3 disciplines.

Treacy and Wiersema assert that companies achieve leadership positions by narrowing, not broadening, their business focus on any one of the following:

  • Operational Excellence – lead the industry in terms of price and convenience and is based on the Strategy of production and delivery of products or services. It implies world-class marketing, manufacturing, and distribution processes.
  • Customer Intimacy – Long-term customer loyalty and customer profitability is based on the Strategy of tailoring and shaping products to the increasingly fine definitions of Customer-centric Design.
  • Product Leadership – concentrates on quick commercialization of new ideas. It hinges on market-focused R&D as well as organizational nimbleness and agility.

Interested in learning more about the 8 definitions of Strategy?  You can download an editable PowerPoint on 8 Perspectives on Strategy here on the Flevy documents marketplace.

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“Strategy without Tactics is the slowest route to victory.  Tactics without Strategy is the noise before defeat.” – Sun Tzu 

For effective Strategy Development and Strategic Planning, we must master both Strategy and Tactics.  Our frameworks cover all phases of Strategy, from Strategy Design and Formulation to Strategy Deployment and Execution; as well as all levels of Strategy, from Corporate Strategy to Business Strategy to “Tactical” Strategy.  Many of these methodologies are authored by global strategy consulting firms and have been successfully implemented at their Fortune 100 client organizations. 

These frameworks include Porter’s Five Forces, BCG Growth-Share Matrix, Greiner’s Growth Model, Capabilities-driven Strategy (CDS), Business Model Innovation (BMI), Value Chain Analysis (VCA), Endgame Niche Strategies, Value Patterns, Integrated Strategy Model for Value Creation, Scenario Planning, to name a few.

Learn about our Strategy Development Best Practice Frameworks here.

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– Roderick Cameron, Founding Partner at SGFE Ltd

8 Key Steps of Data Integration: Restructuring Redeployment Assessment Management

12 Feb

Restructuring becomes essential at some stage in the lifecycle of any organization.  In order to emerge triumphant through this tumultuous challenge, it is necessary that the focus remains on the challenges impeding the organization, Strategy Development to tackle the challenges, and prioritizing Strategic Initiatives to deliver radical results that lead the organization to Operational Excellence.

Redeployment is the most significant phase in the Restructuring process.  Within Redeployment, the Assessment phase is critical as the revitalization of the whole organization is dependent on correct Assessments and right placement of employees based on those Assessments.

Proper Redeployment Assessment Management is of utmost importance in Restructuring, and it should follow a structured approach, which means managing 5 core areas:

  1. Manage Assessment Team
  2. Manage Anxiety Level of Candidates
  3. Manage Amount of “Deviant Behavior” in the Assessments
  4. Manage Level of Duplicity, Wild Guessing, and Other Forms of Distortion
  5. Manage Amount of Feedback and Its Timing after the Event

Managing 5 core areas ensures smooth implementation of the Redeployment Assessment process, which is a major milestone of the Restructuring project.

The Redeployment Assessment process has to be detailed, accurate, and prompt.  Due Diligence in documenting the process, verifying particulars, and balance between Rapidity and Accurateness is essential because:

  • Organizational requirement to concentrate on post-restructuring environment is intense.
  • Employees’ urge to swiftly find out about their future is deep-seated.
  • Objections by employee stakeholders, as a consequence of large-scale retrenchment is high.
  • Probability of legal recourse by employees is also distinct.
  • Future Employee Engagement is dependent on fair Assessment and correct placements.

Assessments are based on Data Integration which involves a complex set of Data Points.  Therefore, Data Integration has to follow a strict process for it to be productive.  Following guiding principles will help in comprehensive and unbiased Data Integration:

  • Behavioral evidence, gathered throughout the assessment, should form the basis of discussion.
  • Weightage given to certain competencies should be based on the evidence gathered in assessments.
  • Decisions should be derived solely on the basis of evidence.
  • Facilitator, who is experienced in integrating assessment data and challenging assessors to support their assessment ratings with behavioral evidence, should be engaged.
  • Standards of performance should be very clearly defined against which individuals are assessed and assessment information is integrated.
  • To increase consistency, the chair of integration should present at each assessment session.

Grounded on these guiding principles, strict adherence to the following 8 Key Steps can steer the Data Integration phase in the right direction and make it productive:

  1. List all measures
  2. Weight all measures
  3. Identify minimum qualifications
  4. Create an overall score
  5. Quality and reality check
  6. Enter real data
  7. Review results
  8. Pool the candidates

Let us look at the first 3 steps in further depth.

1. List all measures

This list includes both qualitative and quantitative aspects, i.e., job performance data as well as the performance measures.

2. Weight all measures

Relevant weightage should be assigned to each measure.  Job performance measures normally have more weightage than the potential measures.

3. Identify minimum qualifications

It is important to build checks into the system for anomalies, such as someone scoring overall high while failing to meet the essential criteria.  For such eventualities a minimum qualification criterion has to be set.

Interested in learning more about the 8 key steps for Data Integration during Redeployment Assessment Management?  You can download an editable PowerPoint on Restructuring: Redeployment Assessment Management here on the Flevy documents marketplace.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro LibraryFlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”

– Roderick Cameron, Founding Partner at SGFE Ltd

The Employee Reaction Matrix

13 Jan

Stock image 2 - Reengagement after Restructuring

Restructuring is a turbulent process that shakes the foundations of the organization.  The goal of Operational Excellence cannot be realized merely by the surgical removal of human resource during Redeployment after Restructuring.

Keeping focus on moving the organization forward with vitality means boosting the sagging morale of the employees who survive this storm.  It is the attention to the surviving employees that is going to kick-start the Revitalization process and usher in a new Organizational Culture.

Employee Engagement is an absolutely vital aspect of the revitalized organization.  Re-engagement of the remaining employees after Redeployment is important because:

  • It is a given that engagement levels will be abysmally low.
  • Motivation to work is not the top priority for most after Restructuring chaos.
  • Insecurity is high and employees may be thinking about leaving the organizations on the first opportunity they get.
  • The Revitalization of the organization depends on how the survivors are handled.

To handle such state of affairs, management must do the following:

  • Develop a concrete plan for Re-engagement during the Organizational Design.
  • Allocate appropriate time, effort, and budget for boosting motivation levels.
  • Implement Re-engagement plans that address the diverse Motivational Drivers.
  • Communicate consistently on an organizational level as well as individual level to reassure employees regarding their future.
  • Train line managers on how to handle surviving team members.
  • Push line managers to spend time with individual employees to learn:
    • How team members have handled the Redeployment process.
    • How employees sense the challenges moving forward.
    • What primarily motivates them as individuals.
  • Use motivational assessment methods and integrate the survivors into existing development discussions to align them with organizational processes.

Poor management of the Employee Re-engagement process is bound to have repercussions, such as:

  • Absenteeism
  • Low productivity levels.
  • Substandard customer service quality levels resulting in tarnished image of the organization.
  • Dwindling employees’ commitment to the organizations.
  • Increased risk of switch overs.

Active Employee Re-engagement ensures that the employees are:

  • Clear on the next steps.
  • Clear about their new roles.
  • Can effectively deliver against the new roles.
  • Keen to work in the evolving scenario.

Redeployment in the Restructuring process affects all employees regardless of whether they stay or leave.

Employees typically showcase 4 types of reactions during this transition:

  1. Departure Grief
  2. Survivor Relief
  3. Survivor Irritation
  4. Departure Happiness

Typically, the organizational focus is more on the employees who are leaving, assuming that those who get to stay are happy employees.  This may not be the case.  Care must be taken to address the motivational drivers of all employees in this transitory process.

Let us examine the Employee State, their Motivational Drivers, and appropriate Actions to take during Restructuring, a little more deeply.

Departure Grief

The motivational drivers that induce the state of “departure grief” in employees include:

  • Loss of earnings and benefits such as pension plan and health insurance can be stressful.
  • Loss of daily routine can be upsetting and takes some time to cope with.
  • Forced shift in lifestyle upsets not only the person but the family too which may take a psychological toll.
  • Feeling of rejection crops up as a result of being let go, lowering self-esteem.
  • Loss of financial empowerment puts the person, especially the head of the household, in a vulnerable position.

To help employees cope with Departure Grief, the organizational leadership should take some key actions, such as:

  • Help the ex-employees through counselling sessions.
  • Guide the employees in preparing job applications and CVs.
  • Assist the ex-employees get placed in alternative jobs.
  • Guide the ex-employees in putting the compensated amount to good use.

Interested in learning more about Re-engagement after Restructuring?  You can download an editable PowerPoint on Re-engagement after Restructuring here on the Flevy documents marketplace.

Want to Achieve Excellence in Business Transformation?

Gain the knowledge and develop the expertise to become an expert in Business Transformation. Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.

“If you don’t transform your company, you’re stuck.” – Ursula Burns, Chairperson and CEO of VEON; former Chairperson and CEO of Xerox

Business Transformation is the process of fundamentally changing the systems, processes, people, and technology across an entire organization, business unit, or corporate function with the intention of achieving significant improvements in Revenue Growth, Cost Reduction, and/or Customer Satisfaction.

Transformation is pervasive across industries, particularly during times of disruption, as we are witnessing now as a result of COVID-19. However, despite how common these large scale efforts are, research shows that about 75% of these initiatives fail.

Leverage our frameworks to increase your chances of a successful Transformation by following best practices and avoiding failure-causing “Transformation Traps.”

Learn about our Business Transformation Best Practice Frameworks here.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro LibraryFlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”

– Roderick Cameron, Founding Partner at SGFE Ltd

Transforming Employee Engagement into a Competitive Advantage? Here’s How

22 Oct

Organizations typically focus on Customer-centric Design in their Strategic Planning and overlook the critical driver of PerformanceGrowth, and Operational Excellence—their employees.  With cut-throat competition now the norm the realization has become clearer that employees are:

  • The face of the business and create lasting—or perishing—brand impression.
  • Sources of innovation and organizational knowledge.
  • Representation of the company’s service philosophy.
  • Expected to live by its Organizational Culture and values.

Employee Engagement has emerged as one of the significant pillars on which the Competitive Advantage, Productivity, and Growth of an organization rests.  What, exactly, does it mean when an employee is engaged?  Employee Engagement, over the years, has been thought of in terms of:

  • Personal engagement with the organization.
  • Focus on performance of assigned work.
  • Worker burnout.
  • Basic needs (meaningful work, safe workplace, abundant resources).
  • Attention on Cognitive, Emotional and Behavioral components related to an individual’s performance.

Although Employee Engagement is widely seen as an important concept, there has been little consensus on its definition or its components either in business or in the academic literature.

Kumar and Pansari’s 2015 study define Employee Engagement as:

“a multidimensional construct that comprises all of the different facets of the attitudes and behaviors of employees towards the organization”.

The multidimensional construct of Employee Engagement has been synthesized into the following 5 components (or dimensions).

  1. Employee Satisfaction
  2. Employee Identification
  3. Employee Commitment
  4. Employee Loyalty
  5. Employee Performance

The 5 dimensions of Employee Engagement have been found to have a direct correlation with high profitability, as substantiated by a number of research studies:

For instance, a study of 30 companies in the airline, telecom and hotel industries shows a close relationship between Employee Engagement and growth in profits.  After controlling other relevant factors—i.e., GDP level, marketing costs, nature of business, and type of goods, the study found:

  • Highest profitability growth—10% to 15%—in companies with highly engaged employees.
  • Lowest level of profitability growth—0% to 1%—in companies with disengaged employees.

Research reveals that Employee Engagement affects 9 performance outcomes; including Customer Ratings, Profitability, Productivity, Safety Incidents, Shrinkage (theft), Absenteeism, Patient Safety Incidents, Quality (Defects), and Turnover.

The differences in performance between engaged and actively disengaged work units revealed:

  • Top half Employee Engagement scores nearly doubled the odds of success compared with those in the bottom half.
  • Companies with engaged workforces have higher earnings per share (EPS).

These 5 dimensions become the base for measuring Employee Engagement in a meaningful manner that permits managers to identify areas of improvement.  To assess an organization’s current status of Employee Engagement, a measurement system is needed that includes:

  • Metrics for each component of Employee Engagement.
  • A scale for scoring metrics in each component.
  • A comprehensive scorecard that pulls everything together.

Let us delve a little deeper into the first 2 dimensions of Employee Engagement.

Employee Satisfaction

Definition

Employee Satisfaction is the positive reaction employees have to their overall job circumstances, including their supervisors, pay and coworkers.

Details

When employees are satisfied, they tend to be:

  • Committed to their work.
  • Less absent and more productive in terms of quality of goods and services.
  • Connected with the organization’s values and goals.
  • Perceptive about being a part of the organization.

Metrics

The 5 metrics that gauge Employee Engagement in terms of Employee Satisfaction include:

  1. Receiving recognition for a job.
  2. Feeling close to people at work.
  3. Feeling good about working at the organization.
  4. Feeling secure about the job.
  5. Believing that the management is concerned about employees.

We take a look at another dimension central in significance.

Employee Commitment

Definition

Signifies what motivates the employees to do more than what’s in their job descriptions.

Details

Employee Commitment is much higher for the employees who identify with the organization.  This element:

  • Develops over time and is an outcome of shared experiences.
  • Is often an antecedent of loyalty.
  • Induces employees to guard the organization’s secrets.
  • Pushes employees to work for organization’s best interests.

Research has found that employees with the highest levels of commitment:

  • Perform 20% better.
  • Are 87% less likely to leave the organization.

Metrics

The 3 metrics that gauge the Employee Commitment dimension of Employee Engagement include:

  1. Commitment to deliver the brand promise along with knowledge of the brand.
  2. Very committed to delivering the brand promise.
  3. Feels like the organization has a great deal of personal meaning.

Interested in learning more about these foundational pillars to Employee Engagement? You can download an editable PowerPoint on 5 Dimensions of Employee Engagement here on the Flevy documents marketplace.

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Having Problems Maintaining a Stable Talent Pipeline? Apply the 6 Pillars of Talent Management to Master the Art

13 Oct

Enterprises worldwide face problems selecting, staffing, developing, compensating, motivating, and sustaining their key talent.  Building a sustainable Talent pipeline is quite strenuous even for large multinationals.

Replicating best practices from somewhere and applying them alone isn’t sufficient for organizations to build a Talent pipeline and achieve Competitive Advantage.  This warrants overcoming arduous challenges associated with this digital age, including:

  • Adjusting to varying dynamics in global markets
  • Handling the expectations of varied customer segments in different geographies
  • Managing the preferences of key Talent
  • Acquiring new technologies
  • Building novel capabilities
  • Achieving Operational Excellence by streamlining operations and improving processes
  • Exploring new markets
  • Devising strategies to attract, select, develop, assess, and reward top Talent.

Developing Talent Management practices helps the organizations build and retain talented people available in the job market.  The term was first used by McKinsey & Company in 1997, and it pertains to planning and managing strategic Human Capital through activities, i.e. attracting, selecting, developing, evaluating, rewarding, and retaining key people.

Executives use diverse Talent Management strategies and career pathways based on various departments, levels, and roles in their Talent pool.  Multi-year research on Talent Management practices conducted by an international team of researchers from INSEAD, Cornell, Cambridge, and Tillburg universities studied 33 multi-national corporations, headquartered in 11 countries.  The study revealed that successful Human Capital practitioners and workforce planners adopted 6 core principles.  These principles act as the 6 pillars to effective Talent Management implementation:

  1. Alignment with Corporate Strategy
  2. Consistency of Talent Management Practices
  3. Integration with Corporate Culture
  4. Involvement of Leadership
  5. Global Strategy with Localization
  6. Branding and Differentiation

Let’s discuss the first 3 pillars in detail, for now.

Alignment with Corporate Strategy

Integrating Talent Management with Corporate Strategy is imperative as the need for future Talent depends on the company’s long-term strategy.  Corporate Strategy should guide the identification of Talent required to accomplish organizational goals, since it’s the right Talent that drives the key strategic initiatives rather than strategic planning.

For example, GE’s Talent Management practices have been a great assistance in implementing their strategic initiatives.  The organization regards its Talent Management system as their most potent execution tool and has integrated TM processes into their strategic planning process.  To sustain its image as an innovation leader, GE targets technical skills as a priority in its annual Strategic Planning sessions.  Individual business units lay out their business as well as the Human Capital objectives in GE’s annual strategic planning sessions.  Significant time is spent on reviewing its Innovation pipeline, its engineering function’s structure, and Talent requirements.  To achieve its vision, GE promotes more engineers in its senior management than its rivals.

Consistency of Talent Management Practices

Talent Management practices must be consistent and synchronous with each other.  It is critical not only to invest in advancing the careers of key Talent but also to invest in processes to empower, compensate, and retain them.  Human Capital practitioners utilize various tools to ensure consistency of Talent Management practices, including Human Resources satisfaction surveys and qualitative and quantitative data on TM practices implementation.

For example, the success of Siemens is based on consistent monitoring of its systems, processes, and key performance metrics across its subsidiaries.  Every element of Human Capital Management is connected, continuously assessed, and linked to rewards.  This goes from recruitment of graduates each year, to their orientation, to mentoring and development, to performance evaluation and management, and compensation and benefits.

Integration with Corporate Culture

Corporate culture is regarded as important as vision and mission by renowned global organizations. These companies hold their core values and behavioral standards very high and promote them among their employees through coaching and mentoring.  They strive to embed this into their hiring, leadership development, performance management, remuneration, and reward processes / programs.  So much so that they consider cultural adaptability a crucial element of their recruitment process—as personality traits and mindsets are hard to develop than technical skills—and evaluate applicants’ behaviors and values rigorously.

For example, among other leading companies, IBM has a special emphasis on values while selecting and promoting people.  To ensure consistent values across the board, it organizes regular values jam sessions and employee health index surveys.  These sessions encourage open communication and debate on values and organizational culture and their importance among employees.

Interested in learning more about the other pillars of Talent Management, the various approaches to TM? You can download an editable PowerPoint on 6 Pillars of Talent Management here on the Flevy documents marketplace.

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The COSO Framework: An Organization’s Guide to an Effective Internal Control System

12 Aug

As the business and operating environment changes, there has been a greater demand for transparency and accountability as to the integrity of internal control. This has become very critical today as businesses drive to enhance the likelihood of them achieving their objectives and be able to adapt to changes in the global business environment.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) released in 1992 the Integrated Internal Control Framework that will enable organizations to effectively and efficiently develop and maintain systems of internal control. It also includes enhancements and clarifications that will provide organizations the ease of using and applying the Framework.

An Overview of the COSO Framework

The COSO Framework is the globally recognized framework for designing, implementing, conducting, and assessing internal control. It is recognized as the definitive standard against which organizations measure the effectiveness of internal control systems.

If we look at the internal control, this is not a serial process but a dynamic and integrated process. It is a process effected by an organization’s Board of Directors, Management, and other personnel designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. It can be considered an enabler when it comes to achieving Operational Excellence.

The COSO Framework provides for 3 categories of objectives. These categories allow organizations to focus on different aspects of internal control. It ensures that the internal control system is operationally efficient and effective, reporting reliable data, and remain compliant to laws and regulations.

The 5 Components of the COSO Framework

In an effective internal control system, 5 Components of the COSO Framework must be present to support the achievement of an organization’s mission, strategies, and related business objectives.

Component 1: Control Environment. This is a set of standards, processes, and structures that provide the basis for carrying out internal control across the organization.

Component 2: Risk Assessment. This forms the basis for determining how risks will be managed. It involves a dynamic and iterative process for identifying and assessing risks to the achievement of objectives. It determines the possibility that an event will occur and adversely affect the achievement of objectives.

Component 3: Control Activities. The 3rd component ensures that Management’s directives to mitigate risks to the achievement of objectives are carried out. These are actions that are established through policies and procedures. It may be preventive or detective in nature.

Component 4: Information and Communication. This component focuses on the generation of relevant and quality information to support the functioning of other components. It is a continuous iterative process of providing, sharing, ad obtaining the necessary information. This is necessary to enable businesses to carry out internal control responsibilities to support the achievement of its objectives.

Component 5: Monitoring Activities. Monitoring activities, as a component, ascertains whether each of the 5 components of internal control is present and functioning. It includes the conduct of ongoing evaluations, separate evaluations, or a combination of both.

The 5 Components of the COSO Framework are essentially important as they represent what is required to achieve the objectives and the organizational structure of the organization. Each component has its underlying principles and key elements to better guide organizations in putting the components in place.

Additional Key Considerations

The COSO Framework sets the requirements for an effective system of internal control. An effective system reduces, to an acceptable level, the risk of not achieving the organization’s objectives.

There are additional key considerations that organizations must take note of. One consideration is that each of the 5 components and relevant principles is present and functioning. Present refers to the determination that the components and relevant principles exist in the design and implementation of the system of internal control to achieve specified objectives. Functions refer to the determination that the components and relevant principles continue to exist in the operations and conduct of the system of internal control to achieve specified objectives.

Interested in gaining more understanding of the COSO Framework? You can learn more and download an editable PowerPoint about COSO Framework here on the Flevy documents marketplace.

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Organizational DNA: The 4 Building Blocks to Effective Execution

10 Aug

The most resilient and consistently successful companies have discovered that the devil is in the details of the organization. No company may ever totally master the enigma of execution. But for them organizing to execute has truly become a competitive edge.

Execution only becomes effective when the company’s DNA is holistically integrated. This means weaving intelligence, decision-making capabilities, and a collective focus on common goals widely and deeply into the fabric of the organization so that each person and unit is working smartly and together.

The best Organizational Designs are adaptive, self-correcting, and robust. But creating such an organization does not happen quickly. It can take several years to get the basic right.

In understanding Organizational DNA, one needs to have a full grasp of the 4 bases of Organizational DNA, as well as the 8 core elements of the Organizational DNA. While the 4 Bases are the building blocks, the 8 core elements are the blueprint for Organizational Design.

The 4 Building Blocks of Organizational DNA

Organizations must have a good operational understanding of the 4 Building Blocks of Organizational DNA to better perform effectively and efficiently. The 4 Building Blocks are Structure, Decision Rights, Motivator, and Information.

Structure is the organization of business units around customers, products, or geography. In principle, structural choices are made to support a strategy. However, in practice, often a company’s organizational structure and strategic intent do not match.

Decision Rights specify who has the authority to make which decisions. Often, these put the flex o the organization chart and define where responsibility lies.

Motivators are incentives, rewards, and systems that enable employees to perform their functions well. It shows how people respond rationally to what they see, understand, and rewarded.

Information is one critical base in the company’s DNA that underly the company’s ability to ensure clear decision rights and motivate people. Information is among the most underappreciated contributors to Operational Excellence and competitive advantage. Often, better information flows did more than keep costs down. It helps allocate scarce resources far more efficiently than before.

Discovering the 8 Elements of Organizational Design

It is best to understand the 8 Elements of Organizational Design as it is the blueprint for Organizational Design.

Let us take a look at the first 2 rungs. The first 2 rungs focus on Authority, governance of behavior, and how a company governs behavior.

Rung 1: Authority and governance of behavior

In terms of formality, in the formal part, how decisions are made are elements that a company can precisely articulate. This can be expressed through governance forums, decision rights, decision processes, and decision analytics.

In the informal part, how people instinctively act or take action is the informal part. This can refer to values and standards, expectations, and unwritten rules, and behaviors.

Rung 2: The way a company governs behavior.

The formal part is the Motivators on how people are compelled to perform. These can be represented by monetary rewards, career models, and talent processes.

The informal part is commitment. It is how people are inspired to contribute. It is represented by shared visions and objectives, individual goals and aspirations, and sources of pride.

The first 2 rungs are essential in ensuring that the Organizational Design has a balance of both authority and behavior.

The 3rd and 4th rungs focus on flows of knowledge and insight, as well as structure and networking. These 2 rungs are essentially important in ensuring that appropriate structure and network is in place to support flows of information and insights.

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The Power of the 5 Cost Management Strategies in Reducing Costs

27 Jul

A commonly quoted statistic is that 80% to 95% of the cost of a product is determined by its design and is therefore set before the item enters manufacturing. This assumption suggests that the dominant focus of Cost Management should be during Product Development and not during Manufacturing.

However, contrary to a widely held assumption, companies can integrate a variety of Cost Management techniques not only in the design phase but throughout the product life cycle.  This is to ensure that there is a substantial reduction in costs.  In fact, companies achieving Operational Excellence and competing aggressively on cost might consider the adoption of some form of an Integrated Cost Management Program that spans the entire product life cycle.

An organization must have a good understanding of Integrated Cost Management and the 5 Cost Management Strategies that they can use to reduce costs but still attain the desired level of functionality and quality at the target costs.

The 5 Cost Management Strategies

The 5 Cost Management Strategies play a crucial role in the company’s integrated approach to Cost Management.

The 5 Cost Management Strategies can be applied throughout the product life cycle with one technique used during the product design and the rest during manufacturing.

  1. Target Costing. This is a technique applied during the design stage. Target Costing is best used when the manufacturing phase of the life cycle of a product is short.
  2. Product-specific Kaizen Costing. This is a technique applied during the early stages of the manufacturing phase. It enables the rapid redesign of a new product to correct for any cost overruns. The primary rule in Product-specific Kaizen Costing is that the product’s functionality and quality have to remain constant.
  3. General Kaizen Costing. The third Cost Management Strategy, this technique is applied during the manufacturing phase. It focuses on the way a product is manufactured with the assumption that the product’s design is already set.  This technique is effective when addressing manufacturing processes that are used across several product generations.
  4. Functional Group Management. This is the technique that is applied in the production process. Functional Group Management consists of breaking the production process into autonomous groups and treating each group as a profit instead of a cost center. The switch to profit as opposed to cost allows groups to increase the throughput of production processes even if changes result in higher costs. It enables the change in mindset that functional group management induces.
  5. Product Costing. The 5th Cost Management Strategy, this is the technique that coordinates the efforts of the other four techniques. It does coordination work by providing the other four techniques with important, up-to-date information.

Target Costing vis-a-vis Kaizen Costing

Kaizen Costing as known as continuous improvement costing.  It is a method of reducing managing costs. Kaizen Costing has a similarity with Target Costing but it also has its differences.  (Note: Kaizen is the Japanese term for Continuous Improvement and often tied to the philosophy of Lean Management.)

Both Kaizen Costing and Target Costing can achieve results with lower resources. This is basically their similarity. On the other hand, the differences lie in their usage and involvement.

Target Costing is used on the design stage and requires the involvement only of designers. On the other hand, Kaizen Costing is used during the manufacturing stage and requires high involvement of employees.  The general idea of Kaizen Costing is to determine target costs, design products, and process to not exceed those costs.

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The 12 Areas of Post-merger Integration (PMI): Your Guide to Starting PMI the Right Way

17 Jul

Post-merger Integration is a highly complex process. It requires swift action as well as running the core business activities simultaneously. There is no one-size-fits-all approach to a successful PMI Process. However, careful planning focusing on the strategic objectives of the deal and the identification and capturing of synergies will help maximize deal value.

Because of the complexity of the PMI process, it is of utmost importance that organizations—both the Buyer and Target, the integration team, and integration manager—have a guide that will provide them the detailed requirements of the process. The Post-merger integration framework has a structured approach that can direct attention to important integration areas to maximize deal value and achieve Operational Excellence. The inability to focus on priority areas can be a waste of resources, time, and investments.

The 12 Integration Areas

The Post-merger Integration framework drives a structured approach to identify important Integration Areas to focus on during the transition. There are 12 Integration Areas that need to be prioritized.

The first 2 integration areas within the full checklist:

  1. Finance & Accounting (F&A). This is an integration area that is focused on establishing the financial sustainability of the new organization. Financial & Accounting needs clear instructions and templates for financial reporting at Closing. The better the information, the few surprises there are due to poor reporting or absence of data. Financial & Accounting has 9 sub-areas that are essentially important for organizations to have a good appreciation and understanding of.
  2. Legal. The role of the legal function does not end at the Closing. Many legal items need to be listed and considered immediately after the Closing. Special events, such as acquisitions of minority shares or the formation of joint venture companies must be considered. Legal is one vital area in building the sustainability of the new organization.

The next 2 integration areas within the full checklist:

  1. HR & Personnel. Integral in the Integration Process, HR & Personnel is a key area in integration. Management of the HR Integration Team is a primary responsibility of the Buyer’s HR manager. There are 5 sub-areas under HR & Personnel that must be given important consideration.
  2. Corporate Communications. Successfully using the Buyer’s and Target’s corporate communication functions for announcing and explaining PMI progress is a net sum of many factors. Essentially, communicating PMI progress requires the effective use of the corporate communication functions of both Buyer and Target.

The third 3 integration areas within the full checklist:

  1. Information Technology (IT). The goal of the ICT Integration Process is to link the ICT networks of the acquired entity with the Buyer’s corporate ICT network. It is necessary to facilitate access to systems and services provided by the Buyer and collaborate with business/market areas. Often, the integration process is let by an ICT individual from the Buyer’s corporate/company ICT or business/market area ICT.
  2. Corporate Culture. Corporate culture has increasingly become a critical factor in integration success, particularly in cross-border M&A. An M&A deal often impacts on corporate culture, both on the Buyer’s and the Target’s side.
  3. Sales & Marketing. This is a difficult sensitive area to be changed in the integration process. Sales & Marketing contribute largely to organizational financial stability, hence primary consideration must be undertaken.

The last 5 PMI integration areas within the full checklist:

  1. After Sales & Service. This is increasingly becoming important in value creation. It is an added-value that strengthens Sales & Marketing capability to sustain the market.
  2. Supply Chain Management (SCM). This is undertaken at a later phase of integration as the fundamental change requires detailed planning and calculation.
  3. Production. This is one critical area where more experience and planning are required in decision making.
  4. Technology. The extent to which the integration focuses on Technology and R&D depends on the M&A strategy. If the purpose of the acquisition is to gain technology or strengthen existing capabilities, then this is when the integration will focus on technology.
  5.  Synergies. This an integration area that can mean new strengths and opportunities from combined knowledge and experiences.

Organizations must take adept steps in undertaking the Integration Checklist as this will enable both the Buyer and the Target to reach the most strategic state necessary for the 12 Integration Areas.

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The Devil is in the Details: Your Primer to a Lean Culture

3 Jul

Culture is essential today in helping employees and management survive in today’s environment. Survival has become a strong word today. Without culture, everyone in the organization would act or behave differently. No one would be able to anticipate someone else’s behavior, and no one would understand why people behave the way they do. When this happens, the organization’s performance would be very chaotic.

What is culture? Organizational Culture is a learned process and is developed by the organization as a response to the working environment established by the organization’s leadership and management team. It is established in all organizations, regardless of whether its development is guided or unguided. Either way, culture can have a positive or negative impact on the organization’s performance.

A Take Away at Corporate Culture and a Lean Culture

Corporate culture is a set of standards shared by members of an organization. It produces behavior that falls within a range that the organization considers proper and acceptable. Having the right culture will increase the organization’s chance to survive.

What is a Lean Culture? Lean Culture is a total system and represents a complete and comprehensive culture change in the organization. A Lean Culture enables lean implementation and represents a completely new way of managing the organization through Lean Management.

The development of a Lean Culture starts with a Lean Culture Framework.

The Lean Culture Framework

The development of a Lean Culture starts with a definition of a Continuous Improvement Lean Culture. As a starting point, the Lean Culture Framework consists of 5 essential elements.

  1. Definition. This element ensures that the organization gets to properly define what Continuous Improvement Lean Culture really means for the entire organization. When this is undertaken, improvement becomes a part of the organization’s culture.
  2. Translation and Integration. The second element ensures that culture is well translated and integrated into values and related behaviors. It is important for organizations to understand that strong values can guide the behaviors of people.
  3.  Strategic Applications. This basically refers to the strategic application of cultural elements. If problem-solving is one of the cultural elements, the strategic plan of the organization can take a problem-solving approach to achieve key targets.
  4. Diligent Development. This element focuses on the diligent development of a comprehensive culture. This ensures the alignment of programs with a long-term problem-solving culture of improvement of the organization and eliminates conflicting messages.
  5. Reinforcement. The fifth element ensures that reinforcement is undertaken with regular recognition. When this is done, the organization can expect to gain more improvements.

The five (5) elements of the Lean Culture Framework must be properly structured to ensure its effective implementation. In today’s business environment where Competitive Advantage and Operational Excellence is gaining ground towards sustainability, organizations just need to learn how to operate smartly and effectively. This can be done when a Lean Culture Framework is established and implemented.

The Devil is in The Details: The Implementation

Culture change typically is not greeted with open arms. To be successful, a Lean Culture change initiative must have a few DO-NOT-PASS-GO items. A few of these are leadership involvement and engagement, cultural dynamics, and education. Implementation of a Lean Culture Framework may seem easy but it is not. It requires care, patience, a bottomless energy source, and an iron will to succeed. It can be of advantage if organizations are well guided in undertaking a culture change. A well developed and thought-of plan can highly help organizations go through culture change with just a few bumps along the way.

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