GRC Journal - (Page 76) Finding the Right Controls for Success: SAP Solutions for GRC Using Operational Controls to Improve Product Quality Another common corporate strategy is to be the producer of the highest-quality goods in a marketplace. A company that follows this strategy wants to be known for its premium-quality products and strives to build and protect brand equity. All marketing and sales initiatives, such as advertisements and promotions, would need to support the high-quality, premium product message. In addition, the company might have sales controls in place to avoid the deep discounting of products that can send a message that the products aren’t worthy of a higher price. At an operational level, the company needs quality controls, such as raw good purity standards of 99 percent, integrated as early as possible in its supply chain. These controls would report on the quality of the incoming materials and whether or not the materials will meet the requirements for production planning three months in the future. With preventative quality controls in place, the company will be alerted of a supply weakness in time to find another source for these critical inputs. This not only ensures that the quality of the finished product meets standards, but also minimizes the impact of substandard products such as product returns, dissatisfied customers and the damage to the brand due to defective products. An example of a poorly designed operational control for the company – because it sends a message contrary to the corporate strategy of producing premium-quality products – is a policy to source as cheaply as possible regardless of consistency, reliability or quality of the raw material supplier. Under this policy, the company would source based on price alone. The resulting inferior quality of raw materials could lead to product defects and damage to the brand equity. This operational control, while keeping the cost of goods sold low, would also lead the company to source from different suppliers every time the price of raw materials fluctuates. The company would not be able to establish any long-term relationships with suppliers and would have little opportunity to work with suppliers on improving product quality or streamlining the supply process. Using Operational Controls to Promote Innovation Now consider the company that wants to focus on product innovation so that it will be known for the most innovative products in the marketplace. Because it values fresh ideas and creative thinking, the company could use corporate policies to encourage employees to attend external seminars, conferences or training sessions in order to expose employees to new ideas. The company could also use other policies and controls to foster an internally competitive atmosphere where innovative thinking is rewarded and turnover is encouraged – especially within research and development (R&D). Finally, a policy that requires a certain percentage of each departmental budget be dedicated to R&D could be instituted with a financial control that is easily monitored. On the other hand, poorly designed operational controls could actually keep this company from reaching its product innovation goals. If the company’s HR policy was to promote from within, this would limit the amount of external hiring – and resulting exposure to new ways of thinking. Tying compensation to length of service, rather than performance, would be detrimental to the morale of the most creative employees. A final example of policy that would undermine this company’s strategy would be a policy that restricts information sharing between departments. This would limit the flow of best practices and prevent innovative ideas from being leveraged across the organization. Optimizing Controls with SAP Solutions for GRC Maintaining alignment between a company’s controls and strategy is difficult. Problems occur when objectives are not clear to everyone – from the executive vice president down to the most recently hired customer service agent. This confusion arises when controls conflict with one another. For example, a company can use a fundamentally outcome-based control system but have opaque evaluation methods. Salespeople feel like the organization is focused only on results; yet how those results translate into individual performance evaluations, compensation and other rewards is a mystery. High performers become frustrated with what they perceive as arbitrary and political rewards, and the loss of any highperforming sales rep can be disastrous for meeting revenue targets. Another company could strive to improve process execution but fail to implement IT reviews early in the process design. The result is that while many processes are automated, others that could have been identified for improvement via automation are left unchanged and still require manual steps. SAP understands that well-designed controls and incentive systems not only align business processes with company policy and strategy, but actually help boost morale and, in turn, corporate performance. With appropriate controls in place, management then needs a robust set of scorecards and dashboards to monitor the effectiveness of controls and compliance with company policy, as well as the performance of the organization toward broader goals and objectives. It is only with this visibility that management 38 Business Trends Quarterly Technology Solutions. Business Strategy.
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