1 - 0
Taking the lead through translating strategy into action
19-Dec. 05 Print date
Executive: E. Koenraads
Senior User N. de Vries
1st Mentor Prof. Dr.D.M. Swagerman 2nd Mentor Ir. J. Slagter
Project Manager: P. Nieuwendijk
Project: Balanced Scorecard research
i. Preface
December 2005,
Fortunately I had the opportunity to spend the last months of my study at one of the most interesting companies in the Netherlands, Royal Theodorus Niemeyer in Groningen. During these months I could bring theory into practice, something that worked out to be one of the most interesting periods during my study Technology Management at the State University of Groningen.
1-0, Taking the lead through translating strategy into action…
Within my master thesis I’ve researched the possibilities of translating the strategy of Royal Theodorus Niemeyer into action. Translating the strategy into action is the first step in developing into a world class organisation and taking the lead in the tobacco industry.
However, translating the strategy into action is only the opening score in the race against the competition.
The results of the research as presented in this document would not have been possible without the great support of my colleagues at Royal Theodorus Niemeyer. Not only the line management but colleagues all over the entire organization were very enthusiastic in supporting me where needed. A very important role in this part is fulfilled by my colleagues at the finance department, the members of the KPI-team, the project executive, Erik Koenraads and the senior user, Niels de Vries.
The cooperation with both my mentors, Prof. Dr. D.M. Swagerman and Ir. J. Slagter, went very smoothly during the research. The constructing criticism was of significant value during the research and the development of this document.
Thank you all for your efforts.
Table of contents
i. Preface ______________________________________________________ 1 ii. Management Summary __________________________________________ 4 iii. Change control ________________________________________________ 5 iv. Distribution list ________________________________________________ 5 v. Approval _____________________________________________________ 6 vi. Related documents _____________________________________________ 7 vii. Abbreviations _________________________________________________ 9
Part 1 Assignment description ________________________ 10 1 Assignment __________________________________ 11
1.1 Background ... 11
1.2 Problem definition ... 11
1.3 Project management ... 14
1.4 Summary... 15
Part 2 Describing stage ______________________________ 16 2 Organisation _________________________________ 17 2.1 British American Tobacco... 17
2.2 Organisational structure KTN-BAT ... 18
3 Vision, mission and strategy _____________________ 24 3.1 Vision ... 24
3.2 Mission ... 24
3.3 Strategy ... 24
4 Operational Excellence program __________________ 27 4.1 Oliver Wight ... 27
4.2 The Operational Excellence Program (CHEOPS)... 28
5 KPI-Project___________________________________ 30 5.1 Key Performance Indicators... 30
5.2 KPI-project... 30
5.3 Balanced Scorecard Research ... 31
6 Current methods of measurement_________________ 32 6.1 Current performance measurement ... 32
6.2 BSC-initiatives ... 32
6.3 Summary... 34
7 Problem situation______________________________ 35 7.1 Conceptual model... 35
7.2 Framework ... 36
7.3 Summary... 38
Part 3: Designing stage ______________________________ 39
8 Designing methodology _________________________ 40
8.1 Applied theories and design models ... 40
8.2 Methods... 40
8.3 Information gathering ... 41
9 Functional design ______________________________ 43 9.1 Specification ... 43
9.2 Brake down strategy plan and Key success factors ... 44
9.3 Measurements and top level scorecard ... 50
9.4 Breakdown of the scorecard ... 61
9.5 Evaluation ... 64
10 Physical design _______________________________ 67 10.1 Specification ... 67
10.2 Design... 67
10.3 Performance physical design ... 69
11 Discussion ___________________________________ 70 11.1 Theoretical discussion ... 70
11.2 Conclusion ... 72
11.3 Future research... 73
Part 4: Epilogue _____________________________________ 74
Part 5 Appendices Error! Bookmark not defined.
A Appendix : Checklist Oliver Wight Chapter 5 + Core __ Error! Bookmark not defined.
B Appendix: Strategic initiatives, measures___ Error! Bookmark not defined.
C Appendix: Strategy Map ________________ Error! Bookmark not defined.
D Appendix: Overview KPI’s _______________ Error! Bookmark not defined.
E Flowchart Reporting process _____________ Error! Bookmark not defined.
E ___________________________________ Error! Bookmark not defined.
F Example KPI-list ______________________ Error! Bookmark not defined.
G Example dashboard____________________ Error! Bookmark not defined.
ii. Management Summary
Title Description
Introduction • Within KTN-BAT has been acknowledged that the translation of the strategy into the whole organisation should be improved. The balanced scorecard techniques are a familiar tool for such
improvements. This BSC-research is focussed at developing a proper BSC for the KTN-BAT organisation.
• This research is part of the OpEx-KPI project and therefore related to the CHEOPS program within KTN-BAT.
• This research is the also the master thesis for the project manager for the study Technology Management at the State University of Groningen
Objective • Developing a utilization of the BSC-techniques according to the academic standards within the current situation of KTN-BAT, aimed at providing a positive contribution to CHEOPS.
Deliverables • Project initiation document
• A signed off design for the BSC, existing of a division scorecard for KTN-BAT including the relations with the underlying scorecards on integrated business management- and functional department level.
• An according to the academic standards report of the research process.
Process • The research process exists of three parts; the assignment, the
describing part, and the design part. This all is executed and
reported according to the Prince2 project methodology.
iii. Change control
Author Status Version Date Change summary P. Nieuwendijk Draft 0.1 28-04-05 First version
P. Nieuwendijk Draft 2.0 23-09-05 Main part functional design and additional changes
P. Nieuwendijk Concept 2.1 21-11-05 Physical design and additional changes.
P. Nieuwendijk Concept 2.2 28-11-05 Epilogue
P. Nieuwendijk Final 3 10-12-05 Preface and fine tuning
iv. Distribution list
Group Name Medium
Executive E. Koenraads Access to database OX-KPI’s in
Lotus Notes
KPI team N. de Vries
L. van Valen D. van Westrienen M. Savenije F. Schootstra P. Nieuwendijk
Access to database OX-KPI’s in Lotus Notes
1
stMentor D. Swagerman E-mail/Hardcopy
2
ndMentor J. Slagter E-mail/Hardcopy
v. Approval
Name Signature Date
E. Koenraads
N. de Vries
D. Swagerman
J. Slagter
P. Nieuwendijk
vi. Related documents
# Literature
1 Atkinson A.A., Waterhouse J.H., Well R.B., “A stakeholder approach to strategic performance measurement”, Sloan Management Review (1997, Spring)
2 Arno Koch (Blom Consultancy b.v.), OEE Industry standard (august 2003, version 2.0) 3 Baarda D.B., De Goede M.P.M., Methoden en technieken, praktische handleiding voor
het opzetten en uitvoeren van onderzoek (Groningen: Stenfert Kroese, 2001, 3
rdedition)
4 Braam, G.J.M., Nijssen, E.J., “Performance effects of using the Balanced Scorecard: a note on the Dutch experience,” Long Range Planning (2004: volume 37, issue 4) pp.
335-349
5 Correll, J., “Sales and operation planning between prime and component plants: A case study,” International coference proceedings, the educational society for resource management, 2002 pp. 1-6
6 De Leeuw, A.C.J., Bedrijfskundig management, primair process, strategie en organisatie, (Van Gorcum: 2002, 2nd version)
7 De Leeuw, A.C.J., Bedrijfskundig methodologie, management van onderzoek, (Assen:
Van Gorcum, 1996, 3
rdedition)
8 Epstein M., Manzoni J., “Implementing corporate strategy: from Tableaux de Bord to Balanced Scorecards”, European management journal, (1998, 16)
9 Hills M., Intranet business strategies, (New York: John Wiley and sons, 1997) 10 Kaplan, R.S., Cooper, R., Cost and Effect-Using Integrated Cost Systems to Drive
Profitability and Performance, (Boston: Harvard Business School Press)
11 Kaplan, R.S., Norton, D.P., “Linking the Balanced Scorecard to strategy,” California management review, Vol. 39. No 1. fall 1996 pp. 53-79
12 Kaplan, R.S., Norton D.P., The balanced scorecard: translating strategy into action, (Boston: Harvard Business School Press, 1996)
13 Kaplan, R.S., Norton, D.P., The Strategy-Focussed Organisation, how balanced scorecard companies thrive in the new business environment (Boston: Harvard Business School Press 2001)
14 Kerr, D.B., “The Balanced Scorecard in the public sector,” Perform Magazine, Vol. I No. 8
15 Laudon K.C., Laudon J.P., Management information systems: Managing the digital firm, (New York: Prentice Hall, 2000)
16 Mooraj, S., Oyon D., Hostettler D., “The Balanced Scorecard: Necessary good or unnecessary evil?”, European Management Journal (1999, 17-5)pp. 481-491
17 Niven, P.R., Balanced Scorecard step by step for government and non-profit agencies, (New York: John Wiley & sons, 2003)
18 Nørreklit, H. “The balance on the balanced scorecard – a critical analysis of some of its assumptions,” Management Accounting Research, (2000), Vol. 11 pp 65-68
19 Oliver Wight International inc., The Oliver Wight ABCD Checklist for operational excellence (New York: John Wiley & Sons inc., 2000, fifth edition)
20 Olve, N., Magnus Wetter, J.R., Performance drivers, a practical guide to using the balanced scorecard, (Chichester: John Wiley & sons, 1999)
21 Papalexandris A., Ioannou G. and Prastacos G., “Implementing the balanced scorecard in Greece: a software firm's experience”, Long Range Planning (2004, vol. 37)
22 Porter, M., Competitive Advantage, creating and sustaining superior performance, (New York: The Free Press, 1985) pp 36-61.
23 Profeo Ltd., PRINCE 2 Practitioner Course (2005)
24 Rappaport, A., Creating shareholder value: a guide for managers and investors (London: The Free Press 1998)
25 Smith, M., Pretoruis, P., “Application of the TOC thinking processes to challenging assumptions of profit and cost centre performance measurement,” International Journal of Production Research (2003 vol. 41, No 4, pp 819-828)
26 Verschuren, F.J.M., Proefschrift: Het management kompassysteem, Intergratie van ondernemingsplanning en informatievoorziening in het MKB, (Groningen:
Rijksuniversiteit Groningen 2000)
27 Wagner C., “Enterprise strategy management systems: current and next generation, The journal of strategic information systems, (2004, vol. 13 issue 2)pp. 105-128
# Websites
1 http://www.bat.com (2005)
2 http://www.businessobjects.com (2005) 3 http://www.oeetoolkit.com (2005) 4 http://www.oliverwight.com (2005) 5 http://www.otte.vic.gov.au (2005) 6 http://www.qmisolutions.com.au (2005) 7 http://www.txstate.edu (2005)
# Internal BAT documents
1 De Vries, N., Project initiation document OX-KPI’s, (Groningen, 2005) 2 Eckstein, E., TN-Operations management roadmap, (Groningen: 2004)
3 Nieuwendijk, P., Project initiation document: BSC-research, (Groningen: 2005) 4 Veenhoven, G., Project initiation document: CHEOPS v 1.2, (Groningen: 2004) 5 BAT operation dept., Operations Metrics, a guideline for calculation, version 2.9,
(August 2004)
* Those internal BAT-documents are not freely accessible outside the BAT-organisation.
vii. Abbreviations
Abbreviation Meaning
AMGP Additives Materials Guiding Panel
BAT British American Tobacco Group
BAT-NL British American Tobacco the Netherlands
Bremen Brinkman Tabakfabrieken Bremen
BSC Balanced Scorecard
BSC-research Balanced Scorecard research project
Capex Capital Expenditures
CHEOPS Operational Excellence program
Cut-Rag Semi finished tobacco product (delivered to Bremen)
DMD Demand Desk (department)
EHS Environment, Health and Safety (score)
FPI Finished product inspection
GS General Services department
HRM Human Resource Management department
HW Health Warnings
IBM Integrated Business Management
KPI-team Project team concerned with KPI-project
KPI Key Performance Indicator
KSF Key Success Factor
KTN-BAT Koninklijke Theodorus Niemeyer Groningen
KPI-project Operational Excellence Key Performance Indicator-Project
LWC Lost Workday Case
MOEE Manufacturing Overall Equipment Efficiency
MT Management Team
MYO Make Your Own shag
NPD New product/activities review
OF Operations Finance department
OPS-EU Operations Europe BAT-division
OTIF On Time In Full
OTP Other Tobacco Products BAT-division
PID Project initiation document
PIF Program information file
POP Personal objective plan
PQI Product quality index
RQI Retail Quality Inspection
RYO Roll Your Own Tobacco (shag)
S&OP Sales and Operations Plan
SKU Stock Keeping Unit
TD Technical Services department
TVE Tobacco Vina van der Elst, Leuven
TPM Total Productive Maintenance
VMI Vendor Managing Inventory
YTD Year to date
Part 1 Assignment description
Within this first part of the research document is the assignment described and explained.
The subsequent parts 2 and 3 are concerned with respectively the describing and design
stage. Finally an epilogue is added in part 4.
1 Assignment
This first chapter is dedicated to describing the research assignment, starting with the research background, followed by a further description of the assignment. In this part there will be focussed on the objectives, deliverables, scope, constraints and dependencies. Finally, in the last paragraphs is thrown light upon the research structure, the relation of the
research with other projects and the project management methodology.
1.1 Background
Koninklijke Theodorus Niemeyer (KTN-BAT), a Dutch producer of tobacco and part of the British America Tobacco group (BAT), acknowledged in 2004 that they should start a comprehensive program to secure the future and develop into a “better” KTN-BAT.
Therefore the organisation started by December 2004 the ambitious Operational excellence program (CHEOPS), on behalf of trying to evolve KTN-BAT into a “world class organisation”
according to the international standards of Oliver Wight. Within CHEOPS several projects are started to achieve the intended development.
Since March 2005 a cross-functional project teams is aggravated with the KPI-project (Key Performance Indicator-project), meaning that the team develops a structural reporting line throughout the entire organisation of KTN-BAT.
1This reporting line will exist of several overviews of well constructed KPI’s for the entire organisation. Although finally all these different KPI overviews should be part of one integrated reporting line, the development of a balanced scorecard (BSC) has been partially separated from the project. The development of the BSC is being executed within this subproject, the BSC-research.
The BSC, developed by Kaplan and Norton
2, is a familiar tool for enhancing overall results through improving the translation of the strategy into the whole organisation. Although a proper designed BSC can be very useful, it will not suffice in this situation. Because this research is part of CHEOPS, the implementation of the BSC-techniques must deliver a positive contribution to the development of KTN-BAT into a world class organisation. It is for that reason that during the research the overhead objectives of CHEOPS must be taken into account. This culminates in the following problem definition.
1.2 Problem definition
This research can be mentioned a designing research due to the fact that this research is loaded with the development of a BSC applied on KTN-BAT. Therefore a research
methodology for designing researches is used. According to De Leeuw the problem definition for designing researches exist of three elements; the objective, the research specification and the constraints.
3Those three commonly accepted definitions are defined for this research beneath.
1.2.1 Objective
Defining the research objective has a double purpose, alignment with the principals and internal management. In this situation the principals exist of two parties, the KTN-BAT organisation and the state university of Groningen. The objective is briefly stated in the table underneath.
Objective
Developing a utilization of the BSC-techniques according to the academic standards within the current situation of KTN-BAT, aimed at providing a positive contribution to CHEOPS.
Table 1: Research objective
1
Niels de Vries, Project initiation document OX-KPI’s, (Groningen, 2005)
2
Robert S. Kaplan, David P. Norton, The balanced scorecard: translating strategy into action, (Boston: Havard Business School Press, 1996)
3
A.C.J. de Leeuw, Bedrijfskundig methodologie, management van onderzoek, (Assen: Van
Gorcum, 1996, 3
rdedition) pp. 86
The objective covers an alignment with the demands of the KTN-BAT organisation as well as the university through the intended positive contribution on the one hand and the academic research standards on the other.
1.2.2 Specification
Within this paragraph the research is in detail specified through describing successively the practical and theoretical relevance the deliverables and the scope.
Practical and theoretical relevance
The relevance of the research can be divided into the organisational related relevance and the academic and theoretical related relevance. Hence the definition of the relevance has been divided over the generally accepted practical and theoretical relevance.
4The practical relevance is of importance for KTN-BAT, the initiator of the research because the deliverables should deliver a positive contribution to CHEOPS within the current situation of the organisation.
The theoretical relevance is focussed at the surplus value of the research with respect to the professional literature. The development of a BSC in a regular organisation has been done and described many times before. But due to the renewed role of KTN-BAT in the entire BAT and OTP organisation as sourcing unit, this research has a surplus value with respect to the professional literature. In other words, the theoretical relevance of this research is the describing of the development of a BSC in a sourcing unit. This subject is stretched out in detail in the subsequent chapter.
Deliverables
The research based upon the previous defined objectives should result into the several deliverables. The KPI-project as a whole delivers a BSC on the top level of the organisation plus the related dashboard on integrated business management-level (IBM) and functional department level. Further the KPI-project defines all of the needed KPI’s for the dashboards and BSC.
The main deliverables of the BSC-research, a sub-project of the KPI project, are a tangible design and a report. The design comprises a physical design of a “balanced” division scorecard and the defined relationships with the underlying scorecards. The design process of constructing the BSC is reproduced in this report.
The two main deliverables of the BSC-research are:
Main deliverables BSC-research
A signed off design for the BSC, existing of a division scorecard for KTN-BAT including the relations with the underlying scorecards on integrated business management- and functional department level.
An according to the academic standards report of the research process.
Table 2: Main deliverables BSC-research
Scope
In this paragraph the scope of the research is outlined. Therefore the boundaries concerning the content of the research and the boundaries with regard to the relation with the KPI- project are described.
This research can be mentioned as a designing research, meaning that the main deliverable consists of a tangible design. Hence the entire research must be focussed on the design. This
4
Dirk B. Baarda, Matthëus P.M. de Goede, Methoden en technieken, praktische handleiding
voor het opzetten en uitvoeren van onderzoek (Groningen: Stenfert Kroese, 2001, 3
rdedition) pp. 37
design exists of, as mentioned before, a division scorecard for KTN-BAT including the relations with the underlying scorecards.
After designing the scorecard, implementation should follow. However implementation will not be part of the research because of the lack of time. Nevertheless implementation will be taken into account during the research trough which the deliverable will become an easy-to- implement design.
The scope of the BSC-research is limited to the sourcing unit KTN-BAT, part of the Other Tobacco Products group (OTP). In the bigger picture OTP is member of the British American Tobacco group. More information about the organisational structure of BAT and KTN-BAT can be found in chapter 2. Below is the framework for the BSC-research represented in figure 1.
There are three different management levels, i.e. Top level 1 management, IBM-level and functional department-level. The BSC-research will focus on the development of a scorecard on the top level and the relations of the scorecard with the two lower levels, IBM and functional departments.
Besides the products within the boundaries of the BSC-research are also the rest of the products within the boundaries of the KPI-project displayed. The KPI-project is aggravated with the investigating and developing a Key Performance Indicator-Matrix, KPI-dashboards on IBM and functional department level and KPI-inputs on the BSC-level. More detailed information about the KPI-project project can be found in the OX-KPI’s PID.
5The interaction between the BSC and KPI-research is also displayed in the figure. The blue zones belong within the boundaries of the BSC-research and the Yellow zones within the boundaries of the KPI-project. Chapter 4 will throw some light upon the KPI-project and the interaction between the BSC-research and the KPI-project.
Scope: BSC-research and KPI-project
Figure 1: Scope: BSC-research and KPI-project
5
Niels de Vries, Project initiation document OX-KPI’s, (Groningen, 2005) pp. 7-8
Integrated Business Management
Functional Departments Level 1
KTN
Balanced scorecard (level 1)
Dashboards Functional Departments
KSF KPI Targets Tolerance
Financial perspective ObjectivesMeasures TargetsInitiatives
Learing and growth ObjectivesMeasures TargetsInitiatives
Internal business approach ObjectivesMeasures Targets Initiatives
Strategy and vision Customer perspective
ObjectivesMeasures Targets Initiatives
Dashboards IBM
KSF KPI Targets Tolerance
Functional departments
Dashboards IBM
KSFDashboards IBM KPI Targets Tolerance
KSF KPI Targets Tolerance
Dashboards Functional Departments KSFDashboards Functional Departments KPI Targets Tolerance
KSF KPI Targets Tolerance
Integrated Business Management (IBM)
Graduate student Cross functional KTN-team
1.2.3 Constraints
To achieve the previous mentioned objectives the deliverables and actually the entire research must suffice to two major constraints. The first constraint considers the interests of KTN-BAT in the BSC-research; the KPI-team requires a proper constructed BSC for
implementing the whole KPI-design (the sum of the BSC, scorecards and relationships). The second constraint regards the interests of the author of this document and developer of the design. Both the report and the design should be of sufficient quality for passing the graduation project of Technology Management, at the State university of Groningen.
The two most important constraints concerning the deliverables briefly notated:
Main constraints concerning BSC-research deliverables
The deliverables must be of sufficient quality for satisfying the needs of the executive and the KPI-team for implementing the BSC in the KTN-BAT organisation.
The deliverables must be of sufficient quality for passing the graduating project of the study Technology management at the State university of Groningen.
Table 3: Main constraints concerning BSC-research deliverables
To guaranty the above mentioned constraints concerning the deliverables, the following constraints related to the research-process will be taken into account:
Main constraints concerning BSC-research process Execution of the research according to academic standards Solid synchronization with the KPI-project
Solid theoretical basis
Solid synchronization theories Oliver Wight
6Based upon theories Kaplan and Norton
7, 8Solid synchronization CHEOPS
Sufficient support within the involved parties Comprehensible and accurate reporting
Comprehensible and understandable and useful design English report
Maximum time span of 6 months
Table 4: Main constraints concerning BSC-research-process
1.3 Project management
A project management method is needed to guarantee proper co-ordination, communication, planning, and control. The Prince2 is methodology is utilized within this research for two reasons.
9First Prince2 is an international standard and best-practise methodology which can be tailored for different purposes, and also for this research. Secondly Prince2 is made standard within BAT and is used for every project in the entire organisation. Also the KPI- project is managed with this methodology. Using Prince2 will be familiar to and improve the communication and synchronization with all the interested parties within KTN-BAT, and foremost the KPI-team members.
Due to this utilization of Prince2 as project management methodology this report is not a typical graduation report but more like an advising report. The goal of this research is to deliver a tangible design and not a theoretical analysis. Of course the theoretical analysis is
6
Oliver Wight International inc., The Oliver Wight ABCD Checklist for operational excellence (New York: John Wiley & Sons inc., 2000, fifth edition)
7
Robert S. Kaplan, David P. Norton, “Linking the Balanced Scorecard to strategy,” California management review, Vol. 39. no 1. fall 1996 pp. 53-79
8
Robert S. Kaplan, David P. Norton, The balanced scorecard: translating strategy into action, (Boston: Havard Business School Press, 1996)
9
Profeo Ltd., PRINCE 2 Practitioner Course (2005)
part of the research and is the design is based on the academic theories, but the analysis itself is not a deliverable of the project.
Finally the structure of this document also differs from a typical graduation research
document because of the utilized prince2 methodology. Hence for example the list of related documents is placed in the beginning of the document in stead of in the first appendix. This small difference is just one example of the gap between an “ordinary” gradation research document and this document. Nevertheless this document covers the contents to suffice as an academic document of the research.
1.4 Summary
This paper contains the report of the gradation research of a student Technology Management at the state university of Groningen. The research is concerned with the development of the design for the application of the balanced scorecard techniques as defined by Kaplan and Norton. The research objective is: “Developing a utilization of the BSC-techniques according to the academic standards within the current situation of KTN- BAT, aimed at providing a positive contribution to CHEOPS.”
The twofold relevance is on the one hand, with respect to the practical aspect: “The development of a BSC design for a positive contribution to CHEOPS within the current situation of KTN-BAT.”, and on the other hand, with respect to the theoretical aspect:
“Delivering a surplus value to the professional literature of developing a BSC in a sourcing unit in the fast moving consumer goods branch.”
Besides a brief introduction and the definition of the problem and objectives, the constraints, deliverables and project scope are described. The research will be executed by virtue of these definitions. A detailed planning and a schematic set-up are described in the BSC- research PID.
10Finally, the method of project management is mentioned. There is made use of the international standard Prince2 within the research.
10
Peter Nieuwendijk, Project initiation document: BSC-research, (Groningen: 2005) pp. 9-10
Part 2 Describing stage
The research of developing the BSC is divided into several stages. The first stage is concerned with the describing of the all the relevant matters regarding the development of the BSC. Herewith in the organisational structure, the CHEOPS program, the KPI-project and the already produced initiatives with respect to the BSC are described. Finally the last chapter is concerned with a comprehensive conclusion and description of the problem situation.
2 Organisation
This first chapter of the describing stage concerns the KTN-BAT-organisation, which consists of a description of the organisational structure of both KTN-BAT and the bigger picture, KTN- BAT as a part of BAT. Further the organisational structure, the vision, mission and strategy are being discussed in this chapter. The describing of these subjects is not for just creating a general picture of KTN-BAT but because of the fact that this information is essential for the research. For the simple reason that the delivered BSC-design must be implemented within the organisation, the shape of the BSC has to fit within organisational structure.
2.1 British American Tobacco
In this paragraph BAT will be briefly reviewed because of the boundaries of the research; as mentioned before the research is aimed at only the KTN-BAT sourcing unit. Nevertheless a short discussion follows for creating a general image of the BAT-organisation.
The history of BAT reaches back to 1902, from where the organisation grew extremely into a worldwide operating organisation, nowadays employer of more than eighty thousand workers and owning a total market share in tobacco products of approximately fifteen percent. By 1999, preceded by many other tobacco producing organisations, KTN-BAT became member of BAT due to the merger of BAT and Rothmans International.
11Through the years the cooperation between KTN-BAT and the mother company intensified and the BAT-principles started to infiltrate in the organisation. Recently KTN-BAT became a part of the Other Tobacco Products (OTP) division and KTN-BAT became a sourcing unit as a result of the centralization of support activities in BAT-NL. The figure presented beneath displays a schematic overview of the participation of KTN-BAT within BAT.
OTP Division chart
BAT
British American Tobacco
OTP Operations
Other tobacco products
KTN-BAT
Niemeyer Groningen
Leuven
TobaccoFina van der Elst, Leuven
Bremen
Brinkman tabakfabrieken
Region Europe
European devision
Region...
Other BAT regions (Asia, Pacific, etc.)
Cigarettes
Cigarette devision
BAT-NL
Europe Marketing and Sales organization
Supply Chain
European supply chain organization
BAT Zevenaar, BAT Southampton, etc Cigarette producing organizations
Supporting organizations
Other Eu supporting organizations
Figure 2: OTP Division chart
11
http://www.bat.com (2005)
2.2 Organisational structure KTN-BAT
Due to the transition into a sourcing unit by April 2005, KTN-BAT became able to discard most of the supporting processes which are not directly connected with the production process. Examples of these supporting activities, nowadays incorporated by BAT-NL, are marketing, sales and finance (partially). Other supporting processes which are directly connected with the production process as technical services and supply chain activities are still located within KTN-BAT.
During the transition KTN-BAT’s organisational structure became one consisting out of three hierarchical layers, the top level, integrated business management and functional
departments. The structure has roughly been displayed in a pyramid-form in figure 1. This rough description will however not suffice in the scope of the research. For that reason the next section zooms in on the structure, starting top down. Besides these structures, also the processes executed in each of the organisational layers are described.
2.2.1 Level 1, management team
The top organisational level within KTN-BAT is the Management Team (MT) and can be denominated as the strategic organisational level. The MT exists of the managers of some of the functional departments (further on described level 3) and the managing director. This organisational level 1 is concerned with the strategic long term decision making and delivers the vision, mission, the strategic goals and the different strategic plans. The vision, mission, strategy and strategic plans are described in the paragraphs 2.3 and further. The process of strategic planning is stretched out below and is schematically represented in figure 3.
The strategic planning process exists of several integrated planning processes, beginning with the annual performance review where the annual established results are being reviewed. The established financial results, the YTD-performance (Year-to-date
performance), assumptions made and challenges of the past year are the mentioned aspects within this process. After going through the results of the past year, the strategic learning review is being reconsidered. Determining the new organisational insights and achieving organisational learning are the objectives within this process.
The second process is the strategic review process. This annual plan with a term of five year is based upon the previous described annual performance review and the long term strategy plan. The long term strategy plan is the translation of the vision, mission and strategy of KTN-BAT, integrated with the BAT-, OPS EU-, and OTP-strategies. The planning horizon of this long term strategy plan covers a decade. In this process the long term planning is combined with the company status at the current situation and formed to a middle term realization of the long term plan.
Finally the company plan is formulated based on the strategic review, with a time horizon of one year. This final plan is meant to form a distinct yearly strategy plan which is
communicated to the IBM-level 2 and functional departments (level 1) for realization. The progression in the realization of the company plan is monthly reviewed in MT-meetings.
Several performance measures are used in the diagnosing of the progression. These current
employed measures are described in paragraph 6.1. The following figure displays the
strategic planning process schematically.
Strategy planning process (Level 1)
Annual Performance Review Past + Current Year
Strategic review
5 Year Term
Company plan
1 Year term Long term Strategy
plan 10 Year term
- Financial performance - YTD - Assumptions - Challenges
5 year strategic plan based upon annual performance review and long term strategy
Yearly company plan based upon the strategic review.
Input for lower level managmenent Long term strategy
plan based upon KTN-BAT vision, mission and strategy and other BAT strategies
- BAT Strategy - OPS-EU Strategy - OTP Strategy
Performance of all departements on formulated performance measurers
- KTN-BAT strategy - KTN-BAT Vision
- KTN-BAT Mission
Figure 3: Strategic (level 1) planning process
2.2.2 Level 2, Integrated Business Management
The second organisational level, the IBM (integrated business management), is an initiative of the Oliver Wight Company and is recently implemented within KTN-BAT, replacing the older sales and operations planning.
This middle organisational level is aimed at integtating the management strategy, the planning and control and the new product development introduction. Futhermore it should drive continues improvement through the entire organisation with the help of team focus.
Within KTN-BAT the IBM structure is specifically implemented in strive for:
• Rolling connectivity to strategy and execution
• A holistic visibility of the financial and business impacts across
• Demand creation, new products and activities and supply chain
• Integrated assumptions, simulations and opportunity analysis
• Improved decision making at ‘correct’ levels
12For achieving these goals, the decisionmaking process has been devided over five different processes. The participants of the five different processes, who cannot be part of the MT at the same time, deliberate in monthly meetings. As described by Correll, chairman of Oliver
12
Gert Veenhoven, Project initiation document: CHEOPS v 1.2, (Groningen: 2004) pp. 10
Wight Americas, IBM exists of the following procedures.
13The IBM-process starts with the yearly company plan, the output of the strategy plan development process. Once the strategic plan is in place the following steps evaluate the revised, time phased, projections for supply, demand and the resulting financials. The objective in these steps is to reach consensus on a single, operating plan, which allocates the critical resources of people, capacity, materials, time, and money to most effectively meet the marketplace in a profitable way. The horizon for planning is typically a rolling 18-to-24-month horizon.
The process starts with the new products/activities review to ensure that new products/activities are meeting the strategies, future resources are available, and performance metrics are being achieved.
The IBM-process then moves to the demand review where the demand is created. Demand creation is the support activity commonly known as forecasting or, a request for product. The focus of demand creation is developing the best request for product possible. As a part of the demand creation, we ensure that the demand is supporting the strategy and the marketing and sales resources are available to be sure the demand materializes.
Once the request for product is established, the supply side is reviewed to see if the resources are available to support the demand. This is accomplished through rough-cut capacity planning of critical resources to ensure that the midterm demand is available and the long-term demand to support the strategy is progressing to plan.
The IBM meeting is the process of adjusting the previous mentioned new product/activities- demand- and supply processes. The process then moves to the financial review.
The financial review is done based on the input from each of the other reviews. The financial review is to ensure that all of the plans meet the financial commitments both in the strategy and the business plan. In addition, finance is charged with the responsibility to provide costs on the various methods of achieving the production plans. This provides management with the information to know the cost of a change prior to implementing and to select the most cost-effective method.
Finally senior management meets to discuss the various options proposed by middle management. The result of the IBM meeting is a business review that includes balancing tactical demand and supply and, most important, that a business review is done to ensure the financial numbers are hit. Once there is confidence that all the resources are available, that the strategic plan will be met, and that the financial numbers will be achieved, the new plans are approved and sent down through the integrated planning process for execution.
Due to the unique structure of the OTP division the new product activities- and demand processes are centralized executed. Through this centralization the integration of the different sourcing units within the OTP division, Leuven, Bremen and KTN-BAT should be stimulated. The centralized demand processes are located and executed by the demand desk department, part of KTN-BAT. The processes with respect to the new product activities are executed through intensive communication and synchronization of the three locations. In the following figure the IBM structure and processes are schematically represented.
13
James Correll, “Sales and operation planning between prime and component plants: A
case study,” International coference proceedings, the educational society for resource
management, 2002 pp. 1-6
The IBM-process level 2
Supply KTN-BAT
IBM Meeting KTN-BAT
New Product/
Activities KTN-BAT
Demand (demand desk
KTN-BAT)
Management functional departments (Level 3) KTN-
BAT Management team (level 1) KTN-BAT
Financial reconcilliation
KTN-BAT
Supply Leuven Supply Bremen
IBM Process Level 2
IBM Meeting Bremen
IBM Meeting Leuven
Figure 4: The IBM-process Level 2
2.2.3 Level 3, Functional departments
The last present organisational level within KTN-BAT is level 3, the functional departments.
There are several functional departments aggravated with the short term decision making process on the operational organisational level. The already defined strategies and policies by the upper levels are executed on the short term, or even daily, basis. In the table
underneath is an overview of the different functional departments and their responsibilities within KTN-BAT shown. The departments have been divided into two classes, the functional departments and the general supporting staff departments.
All the departments have to deliver monthly their achieved performance on the formulated
performance measures to present their progression towards the stated company plan.
Functional departments Responsibilities (sub-departments)
Production • Primary
o pipe tobacco preparation o shag tobacco preparation o various tobacco preparation
o Sauce-department (adding additional flavour) o Supply raw tobacco
• Secondary
o packaging department 2,4,5 o packaging department 3
• Quality
o Packaging development
o Assuring product and design quality
• TPM (total productive maintenance)
Supply Chain • Procurement
o Packaging material o Sauce and flavour
• Demand desk (Order processing)*
• Logistics
o Transport (internal and external o Billing
o Administration (Logistics administration) o Customs (managing export regulation) o Storage (Raw tobacco, packaging materials,
finished goods, cut-rag tobacco, additional flavour ingredients)
• Supply (planning)
• Development & Information
Engineering Technical support (TD) is responsible for delivering technical production support and process developments.
• TD packaging
• TD preparation and utilities
• Planning, project preparation and drawing office
• TD procurement
Leaf & product development • Leaf procurement and blending (department responsible for the procurement of raw tobacco and the tobacco compositions)
• Leaf product development (development of new tobacco blends and flavours)
Finance • Management accounting
• Cost accounting
• Business development
Human Resources • Human Recourses
• Training and development
• Compensation and benefits/salary/personnel administration
Information Services Responsible for supporting activities regarding information and communication technology
• Strategy and architecture
• Customer services
• Service delivery
* Within the legal structure DMD is another Ltd, although it is a functional part of KTN-BAT and lies therefore within the scope of the BSC-research.
Table 5: Functional departments and their responsibilities
Supporting staff departments Responsibilities (sub-departments) Secretariat General secretarial services
General Services • Safety service
• General matters
• Security and insurance
Operational excellence • Managing the CHEOPS program Corporate and Regulatory Affairs
(CORA)
Responsible for internal and external communication, the foremost activities cover governmental and other regulations and PR
Table 6: Supporting staff departments and their responsibilities
The above mentioned departments appear to give an incomplete image of the organisation and its processes. Nevertheless this list of functional departments is complete because KTN- BAT has a role in the BAT organisation as a sourcing unit. Therefore activities and in consequence departments such as marketing and sales are missing. These activities are nowadays centrally localized and executed in BAT-NL. Hence those activities and departments without the boundaries of the sourcing unit KTN-BAT will not be part of the BSC-research and design.
To avoid misunderstandings, the different organisational levels will be denoted from this
point with the terms level 1, 2 and 3 respectively for the top, IBM and functional
organisational levels.
3 Vision, mission and strategy
This chapter is aggravated to the describing of the vision, mission and strategy of KTN-BAT.
Similar to the strategic processes, this description is focussed at the sourcing unit KTN-BAT, due to the scope of the research. Therefore the central BAT- and OTP-strategy will not be mentioned in this chapter. The describing starts with the vision, followed by the mission, strategy and finally the strategic plan. The vision, mission and strategy are of vital
importance because these are the main input of the BSC, which has to translate these three into operational measurements and targets
3.1 Vision
BAT is entering a new era, one of an overall shrinking tobacco products market, toughening social pressure, more binding government regulation and strengthening competition. Within Europe BAT is going to decrease the number of tobacco producing factories. Although KTN- BAT is the only producer of its kind within Europe, and present production volumes are satisfying, the organisation will have to deal with the increasing internal competition and will have to work hard to enforce continuity. For these reasons the current satisfying results, will not suffice in the future. Hence KTN-BAT should continually improve with the focus on the future. This has also been formulated in the organisation’s vision: “Improve today, excel tomorrow is the reason of our existence”
14.
3.2 Mission
The following metaphor is used by KTN-BAT to visualize the mission: “To become a lean, mean fighting machine”.
15Hereby is meant that KTN-BAT should become a focussed, significant and adjusting value (lean) but also sharp, alert and continues improving (mean).
Besides “lean and mean”, the organisation should also be concurring and prepared for every battle (fighting), and finally well-oiled, aimed and structured (Machine).
More tangible than the metaphor, the mission is defined with a couple of statements. The first statement is the intention to become leading and most cost efficient producer of RYO and MYO (role your own shag and make your own shag) and distracted products where KTN- BAT’s know-how is useful. Also the organisation wants to develop strong partnerships with customers, suppliers and governments to improve and become able to advance in fore filling stakeholders’ wants and needs without harming the organisation itself. Another statement is the pro-active and result driven attitude in improving the customers’ position in comparison with their competitors. This attitude should like the attitude of the “lean mean fighting machine”. Then taking responsibility for their actions and keeping their word is the subsequent statement. Hereby KTN-BAT can be trusted as partner and will be consequent and persistent in realizing goals. A, both internal and external, superior image must be accomplished, as another statement of the mission. And finally, discipline and responsibility should be mentioned as important key values and adversity should be used as a possibility to grow.
3.3 Strategy
According to the previous description of the strategy planning process there are several different strategies or strategy plans. The strategy describing in this paragraph is divided into three parts; the strategic objectives, the general strategy and the strategic/company plan.
3.3.1 Strategic objectives
There is a quartet of general strategic objectives defined within KTN-BAT as consequence of the vision and mission. First KTN-BAT should become the leading producer of the OTP division. Another objective is the transformation from production organisation to “Centre of Excellence”, by the implementation of the Operational Excellence principles (CHEOPS). Also KTN-BAT is trying to emphasise innovation and quality by product development, cost efficient
14
E. Eckstein TN-Operations management roadmap, (Groningen: 2004) chapter 2
15
E. Eckstein TN-Operations management roadmap, (Groningen: 2004) chapter 3
production and improving employees’ skills. One but last, evolving into a “Preferred Employer” within BAT and the community is set as target. Finally, KTN-BAT’s delivered products should be acknowledged as superior.
3.3.2 General KTN-BAT strategy
With the vision and mission and the above mentioned strategic objectives as starting point, the strategy of KTN-BAT has been formulated in several different objectives. These
objectives are presented in the table underneath. These objectives are more tangible and specified than the previous described strategic objectives and are output of the long term strategy planning process as defined in the previous chapter.
Strategy KTN-BAT
Delivering a portfolio of economic reliable products Focussed on core business
Continues focussed on well considered cost reduction Guarantee of continues delivery reliability
Delivering of product quality according to the customers’ expectations Creation of pleasant working environment
Open and professional internal and external communication Development and use of reliable management information Development of an efficient capital investment policy
Delegation responsibilities as much as possible on the square meter Integration of BAT standards in KTN-BAT
A stimulating way of mobilizing of the organisation Development of a pro-active attitude
Product development of World Class level
Table 7: Strategy KTN-BAT16
3.3.3 Strategic plan
The previous described strategic planning process exists of several planning processes, each with their own outcomes. The two major inputs are the strategy, as described in the previous paragraph and the achieved results of the past year. Finally the company plan is the output of the planning process. This company plan would be one of the most important inputs for the BSC-design. But due to the fact that this strategic planning process is developed and implemented recently, the last strategic planning process has not been executed yet, and won’t be before the deadline of this research. Therefore is in this paragraph not the company plan, but the output of the strategic review, supplemented with the company plan initiatives described. This is not a very thorough description because during the design stage the strategic plan will be explored in depth. Within table 8 is the strategy plan point by point denoted.
16
E. Eckstein TN-Operations management roadmap, (Groningen: 2004) chapter 4
no Strategy plan KTN-BAT
1 Cost reduction (overall production cost reduction for increasing the BAT-profitability) 2 Creating a more flexible workforce (increasing multifunctional of personnel and the ratio
flexible/fixed workforce)
3 Change of maintenance concept (increasing the autonomous maintenance) 4 Waste reduction (reducing waste in all area’s)
5 Quality improvement (Improving the product quality)
6 Complexity reduction (reducing the number of SKU’s and part numbers) 7 Indirect savings (increasing the achieved saving through indirect procurement) 8 Overhead reduction (reducing all overhead costs for increasing the BAT-profitability) 9 EHS (increasing the environment, health and safety score)
10 AMGP/HW (increasing the score on the AMGP, a BAT quality of additives score and Increasing the health warnings score, tobacco related health warnings)
11 Innovation (improving the product and process innovation)
12 Alignment with BAT (improving the integration within BAT through the aligning with the BAT standards)
13 Image (Improving the organisation’s image)
14 Enable end-markets to communicate (with respect to product design and governmental regulations)
15 Enable end-markets to win quality and service
Table 8: Strategy plan KTN-BAT
Within the subsequent, with functional design aggravated part, stage 2, the strategy plan is
further described.
4 Operational Excellence program
The operational excellence program within KTN-BAT is described in this chapter, to begin with some general information about operational excellence, followed by a description of CHEOPS in KTN-BAT. This topic is of importance for the BSC-research because, as mentioned in the research objectives, the implementation of the design should make a positive
contribution to CHEOPS. In other words, the BSC design should be corresponding with the CHEOPS objectives.
4.1 Oliver Wight
Since 1977 Oliver Wight International Inc. developed experience-based management programs. By 2000 the organisation published it’s most recent theories in the book: The ABCD Checklist for Operational Excellence. The reasoning behind the Checklist is displayed beneath.
Approach Oliver Wight
People & Behaviours, Processes and Tools, which must come together to deliver real business benefit. This is a fundamental underpinning principle of Oliver Wight.
New tools and technologies are available but they must be directed to support an integrated business process model that recognises and addresses the crucial behavioural considerations.
Figure 5: Approach Oliver Wight17
The book’s title fits perfect with its contents; it actually exists of a checklist. This checklist globally covers five major issues in which, according to Oliver Wight’s vision, an organisation should excel. All of the major issues are divided into several minor issues. These minor issues are on their turn unfolded into multiple sub-questions. Each of the five major issues is shortly described.
The first concerned business area is the strategic planning process. These processes should be customer, shareholder and employee focussed. The deliverables of the processes, strategic plans, must provide direction to all elements of the whole organisation.
Commitment to the mission and vision, strategy creation, communication, leadership and performance measurement is considered to be important within this subject. The subsequent second major issue is focussed on the people and team processes. Establishing a solid and committed relationship between the employees and organisation is the overall goal. Progress towards this goal should be achieved by improving organisational aspects regarding culture, trust, teamwork, education, etc. Total quality and continues improvement processes are the
17
http://www.oliverwight.com (2005)
Tools Processes
People and behavior
third defined matter of importance. Achievements in this area as an extended customer focus, advanced elimination of waste and supplier partnerships should also culminate in a contribution to organisational results. The focus on processes of new product development should in to faster and cheaper processes and finally better products. To accomplish these results, organisations should optimize the product development strategies, agility of processes and the knowledge of customer requirements. Finally the planning and control processes are considered as required for business excellence. Within this area organisations should develop companywide used planning and control processes, causing significant improvements in customer, employee and stakeholder satisfaction as well as in customer service, productivity and costs.
Improving and finally outshine in the previous mentioned five major areas is the main objective of the Oliver Wight vision. To accomplish those objectives organisations should utilize the following performance improvement process. Determining the current status of the organisation is just the first step in the performance management process (table 11).
Step Meaning
Asses current status According to Oliver Wight’s theories an organisation can be classified in a range from A (best) to D (worst) at each of the five issues. Achieving the status of a “World Class Organisation”
means an overall average A-classification. To simplify the process of determining the current status of the organisation at the classification, the five broad categories have been divided in several questions and sub-questions.
Determine the gaps and prioritize based on competitive advantage
Define the intended targets for every major issue and measure the gap from the current status to the target. Every gap should be prioritized on the base of the competitive advantage.
Tailor the checklist to your companies immediate needs
Determine which questions or sub questions should be treated immediately.
Develop action plans Constructing concrete action plans for closing or reducing the gap
Measure progress through monthly management reviews
Develop a policy for periodic measuring status and progress
Conduct monthly
management reviews Reviews which clarify the measurements from the preceding step.
Table 9 Performance Measurement Process18
This first paragraph briefly described the Oliver Wight theories. The next paragraph describes the implementation of the Oliver Wight theories in the KTN-BAT organisation.
4.2 The Operational Excellence Program (CHEOPS)
By December 2004 KTN-BAT started CHEOPS, a comprehensive program to acquire the previous mentioned A-status by December 2006. CHEOPS is briefly described in this paragraph. More information about CHEOPS can be found in the initiation document of the program.
19The program however covers only partly the theories of Oliver Wight. Only the issues covered by the part “planning and control” and the fundamental issues of the remaining part are targeted within CHEOPS. This means that an average A-rating over the items covered by the planning and control and fundamental issues will suffice. The issues of interest treated in this part of the theory of Oliver Wight are listed in Appendix A. Involving the fundamental issues in CHEOPS assure that the essence of the remaining part will be
18
Oliver Wight International inc., The Oliver Wight ABCD Checklist for operational excellence (New York: John Wiley & Sons inc., 2000, fifth edition), pp 7
19
Gert Veenhoven, Project initiation document: CHEOPS v 1.2, (Groningen: 2004)
involved as well. From this point the part considering planning and control supplemented with the fundamental issues will be mentioned as “part 5 and the core questions”.
The quest for achieving the average A-status over the items of part five and the core questions results in the following objectives of CHEOPS:
Objectives CHEOPS
Achieve operational excellence Groningen Operations Improve working in teams and culture
Integrate people, processes and tools
Generating passion and drive by creating a winning culture Improving external perception
Table 10: Objectives CHEOPS20
By implementing the Oliver Wight principles through the CHEOPS program, demand chain development and improvement in service and quality will be triggered. Next to this execution, CHEOPS will also be a key driver to implement some of the previous described vision, mission and strategic objectives of the organisation:
Strategic objectives driven by CHEOPS
To deliver high quality and a proudly produced product (“Made in Groningen”) To become lead manufacturer of OTP
To become Centre of Excellence
To create an enterprising spirit of continuous improvement: improve today and excel tomorrow.
Table 11: Strategic objectives driven by CHEOPS10
There are several projects started within the CHEOPS program, and in the near future only more projects will follow. For creating an image a few examples of projects in the CHEOPS program are mentioned. The first example of a CHEOPS implementation is the construction of the IBM organisation structure. The current organisational structure, with the cross- functional IBM-teams as the middle and tactical organisational level, has been shaped within the CHEOPS program. Another example is the recently introduced “Battle of professionals”, an Olympic games-shaped continues improvement program that encourages workers through the entire organisation to focus on improvement and quality. A third example of these projects is the KPI-project. The project itself and the role of it within the all-embracing CHEOPS program are described in the next chapter. There will also be thrown some light upon the part of the BSC-research within the KPI-project.
20
