CHAPTER 8

Gate 3- Execution: machinery, Methods,

and Management Skills
Machinery

 Machinery is an organization structure that can deliver the value planned.

Machinery or organization can only be articulated after the value proposition
in the offering model is defined.

 This means strategy is the key driver of structure and value is created only if
the structure is in harmony with strategy.

 This also means a change in strategy will necessitate a review of its

organization design to avoid any contradictions.
Methods

 Are about systems and processes that allow the entrepreneur in

formation and control. We shall Discuss Process as a part of the
operating model supporting the offering model. Remember,
entrepreneurs and his/her managers must make decisions. Essentially,
an allocation task, which is based on having information, which is a
monitoring task. Good monitoring leads to good allocating. Without in
formation, entrepreneurs and up doing a guessing game. However,
entrepreneurs must master back-of-the-develop type of estimates
without overly relying on their people to do the analysis for them.
This will allow decisions-making that is faster than competition,
exploiting opportunities available in market place.
Opportunity Seizing via Operating Model

 An operating model aligned to the offering model should

be formulated, so the entrepreneur can ensure that the
value proposition can be delivered seamlessly and
repeatedly. An internal alignment of the operating model
with offering choices is necessary to help the firm
executed their strategy well and hopefully, attain
competitive advantage and superior financial returns.
Value chain

 The value chain is the strategic linkage or a series of value-adding individual

activities required to create, produce and deliver products and services to the
customers, that fit the total business plan to create profit for the firm.

 The Value chain helps employees visualize and understanding the role each
department of an organization plays in meeting the needs of other
departments.
Example of the Value Chain of a
Manufacturing Company
Design
Sourcin Distribut Supply End
g R&D Mfg Mkfg Channel
ion Chain Users
 The Value chain above shows the flow from design to manufacturing as part of
the pre-transaction cluster, from marketing to channel as part of the
transaction cluster, before the end customers are reached. Another channel
can be created for after sales service as part of the post-transaction cluster.

 Entrepreneurs can reflect on the strengths and weaknesses of each of the

firm’s value chain elements, then create initiatives to narrow performance
gaps. A Strength in one value chain function can be pulled down by weaknesses
in other parts of value chain. Hence, simultaneous improvements would be
needed to keep the process or the machinery well-oiled.
 There in an organizational silo when the marketing group’s
strong pizza delivery campaign (free pizza if not delivered
within 30 mins) is not honored by operations people if
orders are placed during peak hours.

The value chain is important especially for start ups as it

defines the time and effort required in each stage of value
chain before products can be sold to a paying customers.
The time and effort needed also to estimate the cash flow
required to get things going in the start up.
 A successful Filipino entrepreneur expanded to an Asian country. Its foreign
investment license did not come out in six months as promised by license
broker. Instead, the all important license was released closer to the end of
two years. When the important arrived after having the business license,
customs the shipment for a month before shipment was released even if there
were no exceptions noted. Meantime, the start-up sales force assembled had
to be aborted three times because of the delayed release of license and
products. These destroyed the momentum and the morale. The value chain
timetable was underestimated.
 The value chain company’s strategy that is differentiated will differ from the
value chain if the strategy is low cost. Differentiated versus low cost activities
would be different in value cost, hence, can drive competitive advantage.
Marketing is the interface to the
company with its Chosen market
It defines the role each member plays in the flow of
materials, information and relationships with trust central
issue.
 Material – Suppliers delivering orders is the most
fundamental part in a value chain.
 Information – Online e-commerce sited like amazon a well
as logistics companies like Lalamove have live tracking
features for customers to know status of their shipment.
 Relationships – Unilever Foundry in Singapore has a Co-
working space that allows members to tap into their
network (such as procurement) as well as to receive
mentorship from within the company.
 Itshows the profit pool of an industry by segment
in the entire value chain.

In he fast moving consumer goods (FMCG) industry, major

retail chains like the SM Group in the Philippines, have been
able to increase total profitability by having the negotiation
power for higher margins as well as having different types of
supports funds. This is also one of the reasons why the
superior margins they enjoy is attractive to potential
acquisition partners. Additional margins of 1 to 2% can
practically case for win-win collaboration, among other
benefits.
 It identifies the potential complementors who can help the firm create
differentiation and barrier to competitive entry.
 Phillips is the manufacturer of Sara Lee’s Senseo coffee machine. Phillips agreed
to sell the machine at cost while earning royalty from the sale of Senseo’s
coffee pods, creating an innovative and collaborative business model.

 It identifies the complementors who can help the firm execute strategy that no
other company cam do as efficiently.
 Dell has a vendor management inventory (VMI) system where suppliers
automatically deliver parts to them based on a pre-agreed supply formula.

 It shows how value chain boundaries of tasks performed can be expanded or

collapsed in case of an innovation.
 Camex Mexico Expanded the value chain by adding a sequence of solutions like
unique financing scheme to a buyer’s group, do-it-yourself constructions classes,
and ,periodic site supervision, creating a different value chain versus
competition.
 It identifies the potential competitors, as members in the value chain may
want to stretch their activities beyond their normal territory as part of their
core to their adjacency.

 Mega Sardines used to be an operating fishing vessel supplying sardines to a

manufacturer. They decided to shift and can the sardines themselves after
discovering that the price of fish was controlled by the canneries. This made
erratic, and constantly moving downward even if there was scarcity in supply.
Mega Leveraged using fresh sardines compared to competitors who mostly
used 2nd and 3rd Class Sardines.
Value Network/Ecosystem

 The value chain is an expanded supply chain. Value network, on the other hand, is
an expanded value chain that shows the involvement of other stakeholders in each
value chain stage to co-create value. Value chain is also called an ecosystem.
 For marketing in exhibit 8-1, the value chain network may include creative
consultants to conceptualize the program, media company to place
advertisements, manpower agencies to promote the new campaign, events
company to stage the launch, ang the like. While these are not part of the main
value chain, they are part of the ecosystem.
 With an online business model, members of the value chain need not have
ownership of goods before they can be resold, unlike the old manufacturing model
where goods are passed on from one party to another, i,e raw materials sold to
manufacturers, then manufacturers sold to distributors, then distributors sold to
retaikers.
Resources
 Resources are about hard assets (not people-related) and soft assets (people-
related) that are difficult to imitate, and provide an advantage to firms,
especially evident in an economic downturn, when acquisition becomes
possible.
 Hard assets are physical (channel, Infrastructure, technology), financial and
intangible assets (brand, IP, Customer info).
 Double Dragon Properties sourced their funds publicly via stock market, bonds
and loans, in order to buy as many big properties in third-class provincial cities
they planned to enter and build City Malls. Since no major mall existed in third
class provincial cities and big properties were quite rare in this areas, buying
one preempted competition from entering, giving them competitive advantage
that they can control – land, capital and efficiency. Opportunity in these third
class cities was spotted by founder Edgar Sia II as early as the third year of
operations of Mang Inasal when he was traveling to four or five cities a week, to
different provincial cities to know and understand the provincial terrain.
 Soft assents are human assets like relationships, skills ang knowledge
 Mansmith and Fielders Inc. has over 70 courses in their marketing, sales,
innovation and strategy, moving bit by bit from their core to adjacencies.
This enabled their consultants to look at the problems of their clients using
different lenses, creating more options to choose from.
 Exhibit 8-3: Some of the Market Courses of Mansmith and Fielders. Inc.

Basic Intermediate Advance

Market • Fundamentals of • Strategic Marketing: 24 • 5 Skills of Master
Understanding marketing MBA Analytical Tools Strategists
• A to Z of • Consumer & Shopper • Marketing
Behavioral Insighting Anthropology
economics and
Marketing
Marketing • Brand DNA • Brand Managers • Market Driving
Strategy • Social Media BootCamp Strategy
Marketing • Innovating the • Viral Marketing
Marketing Mix • Omni-Channel
• Market Challenger Marketing
Strategy • Etc….
• Etc….
Marketing • Marketing And • Customer In-Store • Managing Brand
Execution Sales Experience Portfolio
Implementation
Business • Strategy Start-up • Growth Strategy • Business Model
Strategy & Evaluation 16 • Corporate Innovation
Critical Questions Intrapreneurship
to Answer • Business Plan
• Strategy Models
Processes
 Processes transforms in Inputs into outputs. Examples of processes are new
product development process in pre-transaction, order fulfillment during
transaction, collection during post transaction and customer service, also in
post-transaction – all part of the entire value chain. In the value chain is the
forest, processes are the trees in the forest.
 Entrepreneurs, especially start-ups are focused on having their products in
the market to be accepted by the channel and customers, hardly having time
to think about the details of different processes. Many of the early
“processes” are done intuitively and rightly so, for what would be the use of
all the processes if the products are not in the marketplace? Hence, Start-up
entrepreneurs must understand the importance of attaining effectiveness
through great marketing and almost simultaneously, pursuing efficiency
through great execution.
 As the company grows and more people are hired, entrepreneurs and their
partners can no longer do everything by themselves, and processes are now
critical so other people can easily follow a repeatable process to guide their
behaviors. Specialists can also be hired to focus just on processes. Just think
about a Sari-sari store where the owner is the process itself. But once the
owner wants to be a chain of convenience stores, he or she needs to define
and document processes for others to follow. After all, a growing wholesale
and retail operations can not simply rely on the past system of sari-sari store
where the owner is the system, that is the only one who know anything and
everything.
• Nesabel Corporation is a family-run wholesaler and retailer, which began as a
Humble sari-sari store. It operates in Bulacan and Metro Manila. It became a
recipient od the Philippines Quality Challenge Award (PQCA) after deciding to
adopt Total Quality Management (TQM) as part of their operational processes
and participated in rigorous PQCA assessment in order to serve its customers
better. The PQCA became their stepping-stone to their next challenge, the
Philippine Quality Award (PQA).
 Processes are critical repetitive tasks that are routinized to foster (though
sometimes it could inhibit) good strategy execution. It includes managerial
processes , operational processes and support processes. They support the
value chain for better efficiency and effectiveness.
• Managerial processes govern the operation of a system such as corporate
governance (norms, Metrics).
o Retail stores like 7-Eleven use metrics like foot count, to determine viability
of a location and inventory days, shrink rate, among others, for efficiency.
• Operational processes are the sequence of the value-adding activities that
function together (known as value stream) that adds value to core process,
which are manufacturing (planning), marketing (voice telecom) and other
fulfillment (E-POS). Each firm typically has a collection of over a dozen value
streams.
• Support processes are procedures that support the core process, and these
are purchasing (bids), accounting (budgets, reports), technical (training) and
Recruitment (rituals).
 To create processes, think of actions, done and document the phases involved
in each step identified, written in either bond paper (for teams with a large
number of members) or post-its (for teams with smaller number of members
like 2-3 people). Have clarity why each step is being done. Benchmarking and
best practices that is the best suitable for his or her operations.
• One basic technique is to remove each step to understand that will really be
missed and to determine whether or not each step is absolutely required.
• Another technique in innovation is by changing one sequence of the steps,
such as advancing a subsequent step to an earlier step and think of its
implications or possibilities.
o Fast Company Innovation Summit attracts thousands of people to its weeklong
conference. Instead of delegates queuing up to register, registration people
are on the ground asking the delegates names to register them removing the
queue. The delegates just need to pick up the print-outs IDs with their
names, which take just a few seconds
 Processes can be improved with productivity tools whenever available.
Entrepreneurs must involve their team for out puts, must listen and be open-
minded with the feedback because team members who are more intimate or
directly interacting with customers usually know the customers’ pain points
then their superiors, being the de facto “sensors” of the company. Ensuring
the employees have a voice is a great way to bond and identify talents within
the company as well. Team members with sensemaking skills will be useful as
your company grows.
• Waters Philippines rewards innovative employees with unit of Waters Bio
Mineral Pot (worth over US$450) as well as given recognition during town hall
meetings. Whether introducing a daily afternoon exercise routine, charging
the mix of training participants that resulted in greater impact, improving the
conversation in telesales, creating a detachable desk to accommodate a
laptop for ease of customers having a foot detox spa, or major cost- and fat-
cutting process initiatives, any relevant and purposeful actions are encourage
and rewareded.
 Begin with strategy-critical processes and ensure they are aligned with your value
creation strategy. e value, different key processes are needed to attain customer
satisfaction customer loyalty, competitive advantage and superior financial returns,
as sown in exhibit 8-4. The value Revisiting exhibit 6-1 of chapter 6 where we
shared 9 general ways to creatcreation strategy will determine effectiveness while
the process will help create efficiency.

Processes for 9 Ways to Create Value

9 Ways to What is the Offer? Some Critical Processes
Create Value
Better Superior products or services R&D, Distribution
Faster Speed or capability to move IT, Logistics, Services
quickly Empowerment
Cheaper Lower price with same or better Low-Cost Sourcing and
value Distribution,
Standardization
Closer Good Relationship with IT , Customer Service,
customers, including Service Empowerment,
localization.
Large(or Smaller) Wider choices, including Sourcing Distribution
bundle choices with alliance
partners
(if smaller, more convenient)
Easier Flexible service or total Flexibility, Service
solution provided Engagement
Rarer Exclusivity, or being the only Negotiation,
choice in the area Relationship
Prestige Reputation From Favorable Advantage Technology,
and aspirational perception Branding, Design
Different New category of innovation, Innovation, Creativity
including targeting
underserved or unserved
market (the innovation need
not be superior and can even
be inferior compared to what’s
available)
 Critical processes are the processes with the biggest effect on the attainment of
goals, impact key factors for success and business strategy, solve problems
encountered form a customer’s perspective or offer greater value for the firm.
 While two different items, resources and processes are treated together in the
business model because they repeatedly deliver the value proposition and the
value capture. The more focused the value proposition, the better for resources
and processes to execute. Key processes rely on resources to get things done.
 Redesigning value chain means redesigning processes.
 Processes are about Creating order and discipline. It can pose risks for the firms
if there is no clarity in their processes, it can become a challenge if processes
are not aligned with business strategy, or there is a misuse of processes
• Sam’s Club is part of Wal-Mart and uses a gamification process to help new
members find high value products within their store to increase excitement and
improve member’s retention
• In judicial court practice, request for postponement of court proceedings is a
legal way to delay granting of justice. This is an example of misuse of process.
Capabilities

 As mentioned, structure comes after strategy. While the offering model

answers where the firm will win, the operating model completes the picture
by answering the firm will win, identifying capabilities needed to create an
advantage.
 The operating model is very important not just to deliver the value
proposition repeatedly but in maximizing the capabilities that can be
distinguished from competitors. Capabilities can be identified by the
entrepreneur in both the offering model and operating model depending on
where a person is assigned. Understanding the different staged of the firm’s
life entails different capabilities to grow the firm.
Key Operating Variables Critical to
support Wealth Conversion
 Capability building can be initiated by recruiting experienced talent with
relevant skills needed by the firm. The new recruits must then convert
individual capability to organization capability by training partners and
subordinates, increasing capabilities through repetition, but mindful to
establish links with ither value chain activities for the entire firm to be well-
coordinated, committed and competent in getting things done.
• Rumarocket uses big data analytical approaches (artificial intelligence) to
create sales talent prediction to advance business objectives, converting
recruitment into a strategic function instead of an administrative one, helping
firms use knowledge-age technology to understand, measure and evaluate
their talent decisions and how these decisions and needs evolve over time
Complementors
 Companies cannot do everything alone. They need other people to help them deliver the value
proposition. Other times, companies may want to do something fast but lacks the capabilities to
do so. Other times, outsourcing some functions appears to make more financial sense.
• Post 10 Worldwide is the inernational marketing arm Philpost that offers cross border solutions.
Their customers in international e-commerce, wholesaler, direct marketing, publishing, postal
operators, among others, who are major cross border players. Post 10 founder Arlene Padua was
employed by sweden Post before joining TNT Handling the mail business unit tasked to sell the
postal services of the above three postal offices. When Sweden Post closed their Philippine
business in 2009 due to “ownership issues” Arlene decided to use her core Competencies in postal
knowledge and her vast network in the postal indusrty to use. She replicated TNT’s business
model but partnered with Philpost, a relationship she nurtured when she gave her company’s
incoming local mail for distribution to Philpost. The postal across border model allows major
mailers to take advantage of bilateral-agreement-backed lower postage cost between postal
authorities, adisruptive model started by newspaper brands delivering within Europe since 1997.
Arlene’s former employees are now her customers.
• A variation of outsourcing is insourcing. IPG Mediebrands in the Philippines convinced their global
management abroad to allow them to do some of the digital work in US, Canada And australia
Using the same advanced data analytics in real time. This lowers the cost of the foreign affiliates
while allows them to maximize the advantage ot winning new accounts because of their
international experience, innovative win-win solution by Philippine start-up then.
Configuration and Cost
 Entrepreneurs are always reconfiguring how to grow revenues, increase
differentation, improve cash position while reducing cost
• Instead of building an integrated steel mill, Steel Asia built mini steel plantsin
different regional centers of developement to bring down cost to consumers,
as well as reduce product time and delivery time. Steel Asia becamethe
market leader of rebar products in the Philippines, selling two millions tons a
year.
• The reconfiguration of the business model of low-cost carriers (LCC), better
known as budget airlines, to reduce cost and support their low price model is
interesting. This has resulted to many LCC’s attaining double-digit Profit
versus single-digit for traditional airlines.
How Budget Airlines Reconfigured Their Operating
Model to be Profitable
• The uses of friendly onlne page and revenue model.
 Customer-friendly page means less abandoned bookings
 Online booking means less agent commission
 Price to be offered based on demand prediction means maximizing revenue
 Higher passenger load factor mes lower fixed coat per passenger
• The use of standard feet
 Buying in volume means lower price
 New plane means less maintenance, better fuel efficiency and greater safety
 Less training cost and time for pilots and flight attendants
 Less parts and equipment
 Lower maintenance cost
• The use of direct point-to-point travel instead hub-and-spoke networks for
short-haul travel
 No airport capacity constraint means less compertition to fly, hence, less
delay and less burning offuel while waiting for take off
 No double handling of laggage
 Noneed for airport transfer
 Less fuel consumption because lesser climbing and descending which consume
more fuel then cruising
• The No-frills offer
 No free food or drinks means extra revenue from people buying
 No newspaper means less cleaning time
 No seat assignment means lesser equipment and printing cost
 Self-service check-in means less monpower cos
• The pursuit of operatinal efficiency
 Lower seat pitch means more seats
 Pocketless seats means no cleaning and less manpower needed
 Non-reclining seats mean cheaper seat prices and less maintenance
 Newer flight crew means lower salary, no labor union negotation and more
flexible to multi task (ground of plane cleaning)
 Garbage drop routinemeans faster cleaning and turn around time for another
flight
 Use of secondary airport means cheaper take off and landing fees, more slots
available versus busy airports and higher bargaining power
 Use eflean time or secondary airport means cheaper charges
 Disembarking fromthe means on gate charges
Management Skills
 As Mentioned, execution can be built viabuilding infrastructure to
increase capabilities, which are composed of coordination,
commitment and compectencies. But what are the infrastructure
needed? This involves five inter-related elements - structure, system,
people, rewards, and leadership. Together, these capabilities and
infrastructurecan help solve execution barriers, wether cognitive,
affective, motivational, resouces, or pilitical in tature, within the
organization.
 Struckture has been discussed under machinery while process has
been discussed under methods in the same chapter, we shall discuss
tha last three items(people rewards and leadeship) under
management skills.
 Management Skills is the ability to carry out a firm’s plans. This entails
knowlege of managing the following identified in Exhibit 8-7

 Exhibit 8-7: Management Skills

What is Required? Knowladge in
Management
Skills
People Sharing meaningfulness and pride • Motivating
in their work while accomplishing • Planning
required tasks. • Problem-solving
Rewards Attaining a sense of identity with • Decision making
financial blessings while • Inspiring
accomplishing required tasks. • Communicating
Leadership Having a sincere Sense of mission • Delegating
and purpose while practicing good
governance.
That Is All
Thanks!