Handout Session4

7/27/2019 Handout Session4

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Vision, Goal Setting and StrategyFormulation

4

Session


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Delineates managements aspirations for the business

Charts a strategic path for the futureWhere are we going?

Steers energies of employeesin a common direction

Molds organizational identity

Is distinctiveand specificto

a particular organization Avoids use of gener ic language

Triggers strong emotions

Is challenging, uncomfortable, nail biting

Key Elements of aStrategic Vision


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The mission statementof

most companies focuses on

currentbusiness activities -

who we are and what we

do Current product and

service offerings

Customer needs beingserved

Technologicaland businesscapabilities

Astrategic visionconcerns a

firmsfuturebusiness path -

where we are going

Markets to be pursued

Future technology-product-customer focus

Kind of company

management is

trying to create

Strategic Vision vs. Mission


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Examples of visionstatements

A telecommunication services supplier:

To become the most successful worldwide

telecommunications group

A life assurance company:

First Choice for Life

A car manufacturer:

To be the worlds most desired andsuccessful specialty car brand


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The First Choice Carrierwith Touches of Thai

VISION


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Defines currentbusiness activities, highlightingboundariesof current business

Present products and services

Types of customers served

Conveys

Whowe are,

Whatwe do, and

Whywe are here

A companys mission is notto make a profit! Its true mission

is its answer to What will we do to make a profit?

Making is profit is an objective or intended outcome!

Characteristics ofa Mission Statement


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Key Elements ofa Mission Statement

Three factors to consider

Customer needs

What is being satisf ied

Customer groups

Who is being satisf ied

Technologies/resources/business approaches used andactivities performed

How customer needs are satisf ied


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The mission will guide theorganisations business

conduct To manage hospital

To collect contributions andmanage social security fund

To produce perfectlyengineered cars

To provide securedelectricity supply with due

regard to the environment To fly airplanes

To provide healthcare

To provide social securitybenefits to insured persons

To satisfy customers needsfor medium-sized cars

To be the leader in theenergy market

To fly people


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Examples of missionstatements

Cadillac Motor Co.

To engineer, produce and market the worldsfinest automobiles, known for uncompromisedlevels of distinctiveness, comfort, convenience,and refined performance.

A pharmaceutical company:

To extend and enhance human life.

British Airways:

To be the undisputed leader in world travel.


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Examples of missionstatements

(cont.)

3M:

To solve unsolved problems innovatively

Wal-Mart:

To give ordinary folks the chance to buy the samethings as rich people

Walt Disney:

To make people happyMarriott:

To make people away from home feel that theyare among friends and are really wanted


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i ki th i i


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A statement of valuesis often provided to guide thecompanys pursuit of its vision

ValuesBeliefs, business principles, and ways of doing

things that are incorporated into

Companys operations

Behavior of workforce

Values statements

Contain between four and eight values

Are ideally tightly connected to and reinforce companys

vision, strategy, and operating practices

Linking the VisionWith Company Values

i i


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Overcoming Resistance toa New Strategic Vision

Mobilizing supportfor a new visionentails

Reiterating basis for the new direction

Addressing employee concerns head-on

Calming fears

Lifting spirits

Providing updates and progress

reports as events unfold


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Setting Objectives

Purposeofsetting objectives

Converts vision into specific performance targets

Creates yardsticks to track performance

Pushes firm to be inventive, intentional, andfocused in its actions

Setting chal lenging, achievable

objectives guards against

Complacency

Internal confusion

Status quo performance

Phase 2 of the Strategy-Making Process


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Characteristics of Objectives

Represent commitment to achieve specif ic performancetargets

Spell out how muchofwhat kindof performance by when

Well-stated objectives are

Quantifiable

Measurable

Contain a deadlinefor achievement

Establishing objectives convertsthe

visioninto concrete performance outcomes!


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Outcomes focused

on improving financial

performance

Outcomes focused onimproving long-termcompetitivebusiness

position

Financial Objectives Strategic Objectives

$

Types of Objectives Required

Examples of Financial


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Examples of FinancialObjectives

Grow earnings per share 15% annually

Boost annual return on investment (or EVA) from 15% to 20% within

three years

Increase annual dividends per share

to stockholders by 5% each year

Strive for stock price appreciation

equal to or above the S&P 500 average

Maintain a positive cash flow every year

Achieve and maintain a AA bond rating

Examples of Strategic


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Examples of StrategicObjectives

Increase firms market share

Overtake key rivals on quality or customer service or productperformance

Attain lower overall costs than rivals

Boost firms reputation with customers

Attain stronger foothold in international markets

Achieve technological superiority

Become leader in new product introductions

Capture attractive growth opportunities

Example: Financial and


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Example: Financial andStrategic Objectives

Annual growth in earnings per share of 10% or better, onaverage;

A return on stockholders equity of 20-25%;

A return on capital employed of 27% or better; and

Have at least 30% of sales come from products introduced in thepast four years.

3M Corporat ion


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Balanced Scorecard

InternalProcess

Learning andGrowth

FinancialSales GrowthReturn on EquityEVA, CFROI, etc.Customer

Customer SatisfactionNew Customers/MonthCustomer Profitability

DefectsAdministrative ExpenseRatio

New Product Launches

Employee RetentionTraining LevelsCustomer Database Accuracy

Develop key business objectives that will


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Develop key business objectives that willhelp you to attain your strategy

The diagram illustrates an example of a clients organizational objectives. In the balanced scorecard development process, the organizational objectives

should provide a balance across the four dimensions of performance.

Object ives

1. Drive rapid revenue growth2. Manage operating costs and profitability3. Achieve profitability4. Effectively utilize assets5. Manage risk6. Improved Shareholder Value

Visionand

Strategy

1. Rapidly penetrate market segments2 Sustain significant customer growth3. Retain customers4. Achieve high customer satisfaction5. Provide extremely positive customer on-line

experience6. Achieve customer satisfaction

1. Develop provocative offers2. Build brand awareness3. Expand distribution4. Drive incremental revenues5. Offer leading high-speed Internet service6. Provide compelling internet experience7. Maintain technological leadership

1. Sustain employee satisfaction

2. Maintain employee productivity3. Retain employees4. Innovate operationally5. Measure training quantities6. Measure training effectiveness7. Measure and evaluate innovations

Financia l Perspect ive

Customer Perspect ive Internal Busin ess Process Perspect ive

Innovat ion & Learning Perspect ive


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Metrics set for all areas

The balanced scorecard is one of several tools for

performance measurement and management.

The Kaplan and Norton model provides a more holistic

approach by supplementing the traditional financial measures

with three additional perspectives: customer, internal

business process, innovation and learning:

FinancialPerspective- Is the company creating valuefor its shareholders?

Customer Perspective- How is the company

performing from the perspective of those who purchase

the companys products or services?

Internal Busin ess Process- How is the company

managing its internal business processes to meet its

clients expectations? Is throughput improving? Other

processes include fulfillment, customer retention, and

financial planning.

Innovation & Learning Perspective- Is the company

improving its ability to innovate, improve, and learn?

It incorporates both leading and lagging indicators.

The emphasis is on balance across multiple dimensions of

performance; ensuring that good performance in one area is

not offset by poor performance elsewhere.

The strategy drives the choice of performance measures. A

failure to meet targets could be because the strategy is wrong

Robert S. Kaplan and David P. Norton have developed what is considered to

be the standard Balanced Scorecard template

CustomerPerspective

How do

customers see

us?

Internal BusinessProcess

Perspective

What must weexcel at?

FinancialPerspective

How do we

look to

shareholders?

Innovation &Learning

Perspective

Can we continue toimprove our

employees skills and

create value for our

clients?

VisionandStrategy

Source: Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic ManagementSystem, Harvard Business Review (January-February 1996)

Why Senior Managers Should


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Why Senior Managers ShouldBe Concerned About Metrics

Five ways in which metrics can have a positive effect on the growth andvitality of the organization:

Help define the Business Model.

Help communicate strategy.

Help track performance.

Help increase accountability.

Help align objectives.

Develop specific measures and


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The next step after identifying the organizational objectives is to identify measures & metrics for achievingthose objectives.

Develop specific measures andmetrics to track progress

Object ives Measures & Metrics

SatisfiedClients

Seamless Service

Improved Quality

Cost Reduction

BalancedGrowth

Reduce Cost

Reduce Backlog

Best clients

MotivatedPeople

Strong Leadership

Effective Training

Reward & Recognition

The above example shows Vendors objectives and some

corresponding measures & metrics.

Effective performance measures have a number of keycharacteristics:

Measures are part of a cause and effect relationship

Measures areprocess-focused

Measures are balanced

Measures are actionable

Measures are vertically & horizontally aligned

Measures are integrated

Measures encourage teamwork

Measures focus priorities

Balanced Scorecard


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Balanced Scorecard

Short-Term vs


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Short-Term vs.Long-Term Objectives

Short-term objectivesTargets to be achieved soon

Milestones or stair steps for reaching long-rangeperformance

Long-term objectives

Targets to be achieved within3 to 5 years

Prompt actions now that willpermit reaching targetedlong-range performance later

Objectives Are Needed


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1. First, establish organization-wideobjectives and

performance targets

2. Next, set businessandproduct l ineobjectives

3. Then, establish functional

and departmentalobjectives

4.Individualobjectives are established last

Objectives Are Neededat All Levels

What can we do today and in


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What can we do today and inresponse to the external

environment?

Opportunities

WeaknessesStrengthsInternal

External

Positive Negative

The Concept of Corporate Strategy, K.R. Andrews

Threats

Examples


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ExamplesStrengths and Weaknesses

A distinctive competence

Good competitive skills

Well thought of by others

Better advertising campaign

Product innovation skills

Proven management

Ahead on experience curve

Better production facilities

Superior technological skills

No clear strategic direction

Obsolete facilities

Lack of managerial talent

Falling behind in R&D

Too narrow a product line

Weak market image

Weaker distribution network

Higher overall unit costs

Poor marketing skills

Potential Strengths Potential Weaknesses

Examples


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ExamplesOpportunities and Threats

Additional customer groups

Entry into new market

Diversity into relatedproducts or services

Falling trade barriers

Faster market growth

Complacency among rivals Expansion of product line or

services to meet customer

needs

Entry of low-cost competitors

Rising sales of substitute

Slower market growth

Adverse shift in exchange rates

Policies of foreign government

Costly regulatory requirements

Vulnerability to recession cycle Growing bargaining powers of

customers or suppliers

Changing buyer needs and

tastes

Potential Opportunities Potential Threats

Strategy formulation - TOWS matrix


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Strategy formulation TOWS matrix

Assignment


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Assignment Read Thompson Textbook Develop Vision Statement for your Travel Magazine

business (if not already have) or comment one (if already

have)

Perform SWOT/TOWS analysis for Travel Magazinebusiness

Documents

Handout Session4