Enhancing Organizational Performance

Enhancing Enhancing Organizational Organizational PerformancePerformance

IMASA

Annual Conference

6 April 2006

STRATEGIC MANAGEMENT

Agenda The Link between Strategy and Organizational Performance What is Strategic Control The importance of Strategic Control as an Organization

Enhancement Device The Relationship between Strategic Control and Competitive

Advantage Types of Strategic Controls Characteristics of Control Systems Designing Strategic Control Systems An integrated Strategic Control System

MODEL FOR STRATEGY FORMULATION

Scenario’s

Visions, Missions,Values

External Analysis Internal Analysis

Functional Level Strategies

Business Level Strategies

Structure Match Structure & Controls Controls

Manage Strategic Change

Strategy Implementation


Purpose of Strategic Controls: To provide managers with a means to

motivate employees towards organizational performance;

Solicit data on how well the organization is performing



What is Strategic control?

“…it is the process by which managers monitor the ongoing activities of an organization and it’s members to evaluate whether activities are being performed efficiently and effectively and to take corrective action to improve performance if they are not…”


The importance of Strategic Control The success of a chosen strategy The implementation compass Organizational performance Ensuring competitive advantage


Strategic Control: Requires more than re-acting on past

performance Keeps the organization on track Anticipating events that might occur in

future Allows the organization to respond to new

opportunities that may present itself


The importance of Strategic Control

Control & efficiency: Efficiency measures how many units of inputs

are being used to produce a single unit of output Must also measure how many units are produced The control system should contain these

measures


The importance of Strategic ControlControl & quality: Organizational control is important because it determine

the quality of goods & services Can make continuous improvements to quality over time

and this gives them a competitive advantage Customer complaints is the basis for determining the

quality of a product or service Total Quality Management can be regarded as control

system



Control & Innovation: Managers must create an environment in which

people feel free to experiment and take risks Managers are challenged to build control systems

that encourage risk taking Measures cost reduction, process improvement

and improved quality measures.


Control and Innovation Problem: Time wasted due to unavailable parts

from central store. Electrical workshop not close to central store (Witbank Municipality)

Electricians designed a innovative solution through simple measures (trips to stores per electrician per day

Applied 80/20 principle Established decentralized store

Major savings


Control & InnovationProblem: Time delays at “in house filling station” of

Jhb MunicipalitySolution: Extend petrol hoses More attendants Limit filling to “half a tank” Ensure all pumps were kept in functional order at all

times



Control & Responsiveness to Customers: Must establish controls to measure how well

employees with customer contact is doing their jobs.

Monitors employee behaviors Identify skills gaps of employees People who are monitored behaves differently


Strategic Control Systems

“… are the formal target setting , measurement and feedback systems that allow strategic managers to evaluate whether the company is achieving on the four building blocks of a competitive advantage..”


Types of Control systems Financial controls Output controls Behavior controls Organization culture


Financial controls Growth Profitability ROCE Share prices( Private sector)

Is a favorite control because it is objective


Types of Control systems Output controls: It is a system of control in which

managers estimate or forecast appropriate performance goals for each division, department and employee and measure achievement against these goals

Divisional Goals Functional Goals Individual Goals


Types of Control systems

Divisional Goal

Goal: “To be the number 1 or 2 in the industry in terms of market share”


Types of Control systems

Behavior controls: “ happens through the establishment of a comprehensive systems of rules and procedures to direct the actions of divisions, functions and individuals

Operating budgets HR rules & regulations Standardization


Strategic Control Systems

Characteristics Be flexible to allow managers to respond as

necessary to unexpected events; Should provide accurate information, giving a

true picture of organizational performance; Should provide information in a timely manner


Strategic Control SystemsFour steps to design an effective control system:1. Establish the standards & targets against which

performance is to be evaluated;2. Create the measuring & monitoring systems that

indicate whether the standards & targets are being reached;

3. Compare actual performance against established targets4. Initiate corrective action when it is decided that the

standards & targets are not being achieved


The Balanced score card as a Control measure. Financial figures are important, however, it is not

the only one; Financial results are important long after the

event therefore not very effective; An organization needs a mechanism to

supplement financial measures this can be achieved through the Balanced Score Card


Kinds of measuresEfficiency: Level of production costs, number of hours needed to

produce an item, cost of raw materials

Quality: Number of rejects, number of customer returns, level of product reliability

Innovation: number of new products introduced, time taken to market; cost of product development

Responsiveness to customers: number of repeat customers; level of on-time delivery to customers, level of customer service

THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION &

CONTROL Sets objectives & measures targets &

initiatives for 4 organisational areas For the balanced scorecard to be effective:

– Objectives & measures in each perspective should reinforce objectives & measures in other perspectives

– Incorporates cause-&-effect relationships among critical variables

• Clarify actions to be taken to co-ordinate strategy.

THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL

The standard four perspectives in the Balanced Scorecard

Financial Customer Internal Business Processes Learning and Growth


Balanced Scorecard as a link Vision & Strategy Long term goals and functional tactics Key to strategy implementation


Financial

Customer Internal Business

Learning & Growth

Vision&

Strategy


Developing a Balanced Scorecard Consider the fundamental question(s) Develop goals Identify measures Set the targets Identify actions


Fundamental question

Goals Measures Targets Initiatives


Internal Business Process Perspective

Fundamental question: To satisfy our customers, what/which business processes must we excel at?


Financial Perspective

Fundamental question:To succeed financially, how should we appear to our rate payers?


Customer Perspective

Fundamental question: To achieve our vision, how should we appear to our customers?


Customer perspective for a cell phone company

Vision: To become Africa’s leading cellular network with the best customer service and to be the best company to work for in southern Africa

Fundamental question: To achieve our vision, how should we appear to our customers?

Goal: To improve customer satisfaction by 15%

Measure: Customer satisfaction survey

Target: To decrease customer complaints by 10% before Jan 2006

Initiative: Have more customer care specialists available for customer queries over weekends


Video “The Balanced Scorecard






THE BALANCED SCORECARD AS A STRATEGY IMPLEMENTATION

& CONTROL SYSTEM Enables organisations to monitor &

evaluate short-term progress in 4 areas– Evaluate whether strategic objectives are

being achieved– Assess whether assumptions on which strategy

is based are valid.

Documents

Enhancing Organizational Performance