Business of Managing

1. Business of Managing

2. People Leadership Development Succession Planning Talent Management Strategies Roles & Responsibilities Knowledge, Skills & Experience Internal Redeployment Change Management Feedback Structure Organization Design Optimization Organization Diagnostics Organization Assessment New Organization Start-up “White Space” Effectiveness Written, Unwritten, Virtual Process Benchmarking Program Management Business Process Development Strategic Partnerships Inter-organizational alignment Process improvement / Re-engineering Interdependencies Reinforcement Communication Systems Cultural Change Reward Processes Annual Priority Alignment Balanced Scorecard Virtual Team / Global Team Management Example Organizational Development Perspective Strategy Vision/Mission Strategic Planning New Business/Markets Strategic Change Management Knowledge Management Building Sponsorship Acquisitions Adapted from “Designing Organizations” by Jay Galbraith

3. Topic Agenda • Managing an Enterprise Within Its Environment • Management & Strategy • Creating & Executing Business Processes Around Strategy • Organizing the Enterprise • Categorizing Jobs Within the Organization • Determining Who & What Authority • Determining Form of the Organization • What Is Strategy & Why Is It Important

4. Types or Levels of Strategy • Enterprise • Revenue & Market Share Growth Objectives • Product Lines to Maintain/Grow or Enter • Markets (Foreign/New Region) to Enter/Develop • Growth by Acquisition; Growth by Partnerships, etc. • Business or Competitive • Supply & Value Chain Definitions • Marketing & Promotion Campaigns • Cost Cutting Initiatives • Functional • Planning & Execution KPI Tracking & Management

5. Why Strategy? Every organization operates on a Theory of the Business, that is, a set of assumptions as to: • What its business is • What its objectives are • How it defines results • Who its customers are • What the customers value and pay for Strategy converts this into performance! Peter Drucker, Management Challenges for the 21st Century

6. Does Strategy Need to Evolve? “The things I tend to be paranoid about vary. I worry about products getting screwed up, and about products getting introduced prematurely. I worry about factories not performing well and about having too many factories. I worry about hiring the right people and about morale slacking off. And of course, I worry about competitors. I worry about other people figuring out how to do what we do better or cheaper, and displacing us with our customers. But these worries pale in comparison to how I feel about strategic inflection points.” Andy Grove, CEO Intel, “Only the Paranoid Survive”

7. So What is a Strategic Inflection Point? • Time in a business when its fundamentals are about to change • Full-scale changes in the way business is conducted.. More than technology or competition • “Companies that begin a decline as a result of its changes rarely recover their previous greatness” • Growth opportunity vs. beginning of the end

8. Topic Agenda • Managing an Enterprise Within Its Environment • What is Strategy & Why Is It Important • Creating & Executing Business Processes Around Strategy • Organizing the Enterprise • Categorizing Jobs Within the Organization • Determining Who & What Authority • Determining Form of the Organization • Creating & Executing Business Processes Around Strategy

9. Strategy Converts Business Theory Into Performance Clarity About What the Key Goals of the Organization Are Commitment to Initiatives That Promote Key Goals Accountability For Actions That Affect The Key Goals

10. Example: General Electric • $125 Billion in Sales (Intel $27B, MS $32B) • 310,000 Employees • Spans Manufacturing, Services & Even Media (NBC Television Network) Sectors

11. General Electric Produces • Aircraft engines • Locomotives & other transportation equipment • Appliances (kitchen and laundry equipment) • Lighting, electric distribution & control equipment • Generators and turbines • Nuclear reactors • Medical imaging equipment • Plastics

12. GE Capital Provides • Commercial finance • Consumer finance • Equipment management • Insurance • Accounts for nearly half of GE's sales

13. GE Strategy for Performance: Six Sigma • Basic Definition of Six Sigma: Application of statistical methods to business processes to improve operating efficiencies • Six Sigma Provides: Companies with a series of interventions & statistical tools to improve both profits & quality • Key Metric of Six Sigma: A Six Sigma Quality Level is 3.4 Defects Per Million Operations in a Manufacturing or Service Process

14. GE Strategy for Performance: Six Sigma • 1995 Jack Welch initiates & within a year: • 200 Projects on Six Sigma • 30,000 employees trained • $200 million training expense • 1996 • 3000 Projects • Bonuses for entire company • 60% based on financials • 40% Six Sigma results • Stock option grants especially for black belts • 1997 6000 Projects

15. GE’s Six Sigma Results • 1997 • Strategic Target of $150 Million Productivity Gains & Profits • Actual Productivity Gains & Profits: $320 Million • 1998 • Actual Productivity Gains & Profit: $750 Million • Still between 3 to 4 defects per million or $8-12 BILLION a year in inefficiencies and lost productivity

16. Extending Six Sigma to Customers • Aircraft Engines • 1500 Projects • Over 50 Airlines • $230 Million Operating Margin Earned by Customers • Medical Systems • 1000 Projects • $100+ Million Operating Margin Earned by Hospitals Both of these are for 2000..

17. Topic Agenda • Managing an Enterprise Within Its Environment • Defining Enterprise Strategy • Creating & Executing Business Processes Around Strategy • Organizing the Enterprise • Categorizing Jobs Within the Organization • Determining Who & What Authority • Determining Form of the Organization • Categorizing Jobs Within the Organization

18. Simple Form, Lean Staff “Along with bigness comes complexity, unfortunately. And most big companies respond to complexity in kind, by designing complex systems and structures. They then hire more staff to keep track of all this complexity, and that’s where the mistake begins. The paradox is clear. On the one hand, size generates legitimate complexity, and a complex systems or structural response. On the other hand, making an organization work has everything to do with keeping things understandable for the tens or hundreds of thousands who make things happen. And that means keeping things simple.” Tom Peters, “In Search of Excellence”

19. Core Considerations of Organizing • Categorizing Jobs Within the Organization • Categorizing Jobs Within the Organization • Specializations • Departments • Determining Who & What Authority • Levels of Authority • Type of Authority • Determining Form of Organization • Functional, Divisional, Matrix, International

20. Categorizing Jobs: Specialization • Determining Who Will Do What Specific Tasks • Matching Employees with Skills to Specific Tasks • Some Different Examples: • Laughter Therapists • Vermiculturist – Worm Farmer (www.happydranch.com) • Heritage Management Officer (Archeology Degree Required) • Golf Ball Marshal • Frito-Lay QA Expert

21. Categorization of Jobs: Departments • Grouping Jobs into Logical Units • Ways of Departmentalizing • Functional • Geographic • Product • Customer

22. Basic Functional Departments • Sales & Marketing • High Level: 5 Year Sales Forecast • Detailed Level: Order Tracking, Customer Mgmt • Research & Development • High Level: Product Trends, Technology Directions • Detailed Level: Design Collaboration & Prototype • Manufacturing/Operations/Planning • High-Level: 5-Year Operating Plan or Supply Chain • Detailed Level: Machine Control, Plant Scheduling • Finance • High-Level: 5-Year Budget Forecasting, Cost Analysis • Detailed Level: Securities Trading, Cash Mgmt • Accounting • High-Level: Profit Planning • Detailed Level: Payroll, Accounts Payable, Accounts Receivable • Human Resources • High Level: Personnel & Recruitment Planning • Detailed Level: Relocation, Compensation, Training & Development

23. Don’t Forget the Leadership Team! Thomas Bus Chairman, President and Chief Executive Officer Dave Berry Bill Helmsmen Jane Hedrick Roger Hurst Senior Vice President & Secretary Senior Vice President,Treasurer, Chief Financial Officer Senior Vice President & General Counsel Senior Vice President • Finance Leadership Team • Human Resources • Legal • Corporate Security Jose Garcia Rich Temple Badri Krishna Terri West Senior Vice President Executive Vice President Senior Vice President Senior Vice President • Controller • Semiconductor • Materials & Controls • Educational & Productivity • Digital Imaging • Public Affairs • Communications • Investor Relations

24. Other Departmentalization Options • Organize Around Geographic Sales Areas • Examples: • Global: EMEA (Europe, Middle East, Africa) vs. NA • National: Northeast vs. Southwest • Organize Around Customer Base • Example: P&G Customer Support • VMI Customers • Web-Customers • EDI (Electronic Data Interchange) Customers • Organize Around Products or Services • Example: • Semiconductor Purchasing: Silicon, Gases, Hazardous • Semiconductor Selling: DSP, ASIC, Memory, Microprocessors

25. Core Considerations of Organizing • Categorizing Jobs Within the Organization • Specializations • Departments • Determining Who & What Authority • Levels of Authority • Type of Authority • Determining Form of Organization • Functional, Divisional, Matrix, International • Determining Who & What Authority

26. Some Hierarchy-Related Buzz Words • Responsibility – Assigned to Perform a Task • Authority – Ability to Make Decisions on Task • Delegation – Assign Task to Subordinate • Accountability – Consequences for Results

27. Hierarchy Attributes • Centralized vs. Decentralized • Flat vs. Tall • Span of Control at each Level

28. Tall Organizations • Advantages • Allow for categorized work • Provide predictable career & compensation ladder • Establish clear accountability • Value Experience • Disadvantages • Expensive, time-consuming & resistant to change • Promote self-importance, status, buck passing, bureaucratic

29. Flat Organizations • Advantages • Promote ownership of tasks • Eliminate redundancy • More responsive to change • Facilitate creativity & innovation • Put people closer & more responsive to customers • Empower employees • Disadvantages • Fewer opportunities for advancement • Put more responsibility & stress on individuals • Require skilled, experienced employees • Reduce independent checks, balances & controls

30. Flat Organization Example: Nokia R&D • #1 Manufacturer of Cell Phones • Founded 1865 as Forest Product Company • 1992: Shed All Divisions Except Mobile Communications • Two Divisions Now: Cell Phones & Mobile Networks • 2001 $27 Billion Sales • 2001 Roughly 54,000 Employees

31. Nokia’s R&D Team • 1992: Yrjo Neuvo joins from Finland University (EE) • 18,000 Engineers, Designers & Socialogists • 69 Sites from Boston to Bangalore • Flat Hierarchy & Free-Range Engineering Culture • Promotes “Hacker Spirit” Example: 2000 Addition of Text Messaging in 3310 Model Last Minute w/out Manager Approval…

32. Nuevo’s Five Rules • Don’t Locate All R&D in One Place (Make it Global & Spread from HQ) • Keep Teams Small (Less than 50 People) • Flatten Hierarchy & Stay Close to Engineers • Celebrate Secret Tinkering & Side Projects • Welcome Mistakes

33. Forms of Authority • Line Authority – flows up & down chain of command Example: TI Fab Managers, Mfg Plant Manager • Staff Authority – based on job expertise/specialization Example: HR Manager Assigned to a Business Unit • Committee/Team Authority – groups play central role Example: Corporate Logistics Group Oversees & Evaluates Performance of Regional DCs

34. Core Considerations of Organizing • Categorizing Jobs Within the Organization • Specializations • Departments • Determining Who & What Authority • Levels of Authority • Type of Authority • Determining Form of Organization • Functional, Divisional, Matrix, International • Determining Form of Organization

35. Basic Forms of Organization Structure • Functional • Typically small to medium size enterprises • Organize around basic functions (I.e., sales, R&D, ops) • Divisional/Business Unit • Overall enterprise made up of independent businesses • Typically segmented across • Product Departmentalization Campbell’s: Soup, Franco-American, Godiva, Pace, Pepperidge Farm • Acquisitions Safeway: Randalls/Tom Thumb, Vons (So. Cal), Dominicks (Chicago).. • Matrix • Cross-functional teams with individuals reporting to two or more managers

36. Example Business Unit Organization ASIC = Application Specific Integrated Circuits

37. Change to Matrix: Royal Dutch/Shell • #3 Oil & Gas Group (Behind Exxon & BP) • $135 Billion in Sales; 91,000 Employees • 9.5 Billion Barrels of Oil Reserves • 55.8 Trillion Cu. Ft. Gas Reserves • 46,000 Gas Stations World-Wide • Operations in 130+ Countries • Headquarters in both London & The Hague

38. Royal Dutch/Shell Before 1994-1995 • 1993 Cornelius Herkstroter Promoted to CEO • Attributes: • Insular company, introverted control freaks • Managers who rarely talked to rank and file • Risk adverse, headquarters based six man committee of managing directors (CMD) • 100+ country CEOs act as local chieftains • Public relations bombs (associations w/Nigerian dictatorship that executed environmentalist)

39. Royal Dutch/Shell After 1994-1995 • 30% cut of 3000 HQ jobs • Deep cuts in many regional & functional areas • Committees to oversee global operations: • Exploration & Production • Oil products • Gas & coal • Chemicals • Central staff functions

40. Matrix Organization Results? • Lower prices for raw materials as single giant buyer • Better alignment of supply chain to customer locations (I.e., Louisiana vs. Britain in chemicals) • Net Income & Return on Average Capital Employed**: ** ROACE is the main measure of financial success in the oil business