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
STRATEGIC MANAGEMENT
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
STRATEGIC MANAGEMENT
STRATEGIC MANAGEMENT
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…”
STRATEGIC MANAGEMENT
The importance of Strategic Control The success of a chosen strategy The implementation compass Organizational performance Ensuring competitive advantage
STRATEGIC MANAGEMENT
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
STRATEGIC MANAGEMENT
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
STRATEGIC MANAGEMENT
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
STRATEGIC MANAGEMENT
The importance of Strategic Control
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.
STRATEGIC MANAGEMENT
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
STRATEGIC MANAGEMENT
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
STRATEGIC MANAGEMENT
The importance of Strategic Control
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 MANAGEMENT
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..”
STRATEGIC MANAGEMENT
Types of Control systems Financial controls Output controls Behavior controls Organization culture
STRATEGIC MANAGEMENT
Financial controls Growth Profitability ROCE Share prices( Private sector)
Is a favorite control because it is objective
STRATEGIC MANAGEMENT
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
STRATEGIC MANAGEMENT
Types of Control systems
Divisional Goal
Goal: “To be the number 1 or 2 in the industry in terms of market share”
STRATEGIC MANAGEMENT
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 MANAGEMENT
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 MANAGEMENT
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
STRATEGIC MANAGEMENT
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
STRATEGIC MANAGEMENT
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
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
Balanced Scorecard as a link Vision & Strategy Long term goals and functional tactics Key to strategy implementation
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
Financial
Customer Internal Business
Learning & Growth
Vision&
Strategy
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
Developing a Balanced Scorecard Consider the fundamental question(s) Develop goals Identify measures Set the targets Identify actions
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
Fundamental question
Goals Measures Targets Initiatives
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
Internal Business Process Perspective
Fundamental question: To satisfy our customers, what/which business processes must we excel at?
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
Financial Perspective
Fundamental question:To succeed financially, how should we appear to our rate payers?
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
Customer Perspective
Fundamental question: To achieve our vision, how should we appear to our customers?
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
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
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
Video “The Balanced Scorecard
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
THE BALANCED SCORECARD IN STRATEGY IMPLEMENTATION & CONTROL
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.