Business Strategy & Analysis

MPM703 Business Strategy & Analysis
Week 5
Managerial Challenge:
How does an effective manager know that the performance of the firm
(i.e. strategies and operational activities) is aligned with the strategic
goals and objectives and
Generates superior rates of return to the firm’s shareholders
Delivers satisfaction to other stakeholders?
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Unit Learning Outcomes (ULOs)
Upon completion of this unit, successful students can:
ULO 1: Analyse systematically the internal an external business environments of a firm to inform
managerial and business decisions
ULO2: Apply appropriate theories, concepts, and analytical tools in strategy
development, implementation and evaluation across diverse business contexts
ULO3: Recommend relevant and sustainable strategic business decisions
in addressing various business issues
ULO4: Contribute to building a cohesive and productive team with effective business skills
GLO1: Discipline-specific
knowledge and capabilities (
in
Strategic Management
)
Deakin’s Graduate Learning
Outcomes GLOs
GLO2: Communication
GLO5: Problem solving
ULO5: Communicate effectively, in oral or written form, the results of
managerial analysis of various business issues and relevant recommendations
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GLO7: Teamwork
The Strategy Tripod: Three Leading Perspectives on Strategy
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INDUSTRY FORCES
INSTITUTIONAL
FORCES

ORGANISATIONAL
CAPABILITIES

STRATEGIES
OF FIRMS
PERFORMANCE
OUTCOMES
Source: Peng, M., Sun, S., and Chen, H. 2009, The institution-based view as a third leg for a strategy
tripod, Academy of Management Perspectives, August, pp. 63-81
Our focus
this week!

Key tasks:
Managers need to develop their capabilities to:
• Assess the performance measures that organisations use to gauge their overall
organisational effectiveness.
• Assess performance and the need for new strategies using
gap analysis.
• Employ three success criteria for evaluating strategic options (the SAFe criteria):
Suitability: whether a strategy addresses the key issues relating to the opportunities
and constraints
an organisation faces.
Acceptability: whether a strategy meets the expectations of stakeholders.
Feasibility: whether a strategy could work in practice.
• adopt or develop a balanced and integrated organisational performance
measurement framework
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WHY IS MEASURING ORGANISATIONAL PERFORMANCE IMPORTANT? (Robbins et al 2015)
Increased Ability
To Provide
Customer Value
Better Asset Management
(deployment and re-deployment
of resources)
Impact on
Organisational
Reputation
Strategy
(
development, evaluation
adjustments, re-alignment
recalibration
Why
Measure
Organisational
Performance?
© 2003 Pearson Education Canada Inc.
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Evaluating strategies
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Performance Measures
Why Use Performance Measures?

MEASURE

 

MANAGE

If we can’t measure our processes, we can’t manage our processes

CHANGE

If we can’t manage our processes, we can’t change our processes
for improvement
If we can’t improve our processes, we can’t meet or exceed our
customers’ expectations
EXCEED
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Performance measures (1)
Economic performance refers to direct measures of success in
terms of economic outcomes.
• There are three main dimensions:
• Performance in
product markets (e.g. sales growth or market
share)
• Accounting measures of
profitability (e.g. profit margin or return
on capital employed)
Financial market measures (e.g. share price).
• These measures may seem objective but need to be carefully
interpreted.
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Performance measures (2)
Effectiveness refers to a broader set of performance criteria
reflecting internal operational efficiency or measures relevant to
a wider range of stakeholders.
• A broad measure of effectiveness is provided by the balanced
scorecard
which considers four perspectives (i.e. the customer,
internal business, innovation and learning and financial perspectives).
• The
triple bottom line – has economic, social and environmental
measures.
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Performance comparisons
Performance is measured in relation to:
Organisational targets. Management will typically set targets for
sales growth or profitability.
Trends over time. Is performance improving or declining over a
significant period of time (but be aware of cycles)?
Comparative organisations. Typically firms can benchmark
themselves against key competitors (but beware of high risk rivals).
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Gap analysis
Gap analysis compares achieved or
projected performance with desired
performance.
• Helps to identify shortfalls in
performance
• The size of the ‘gap’ provides a guide to
the extent to which strategy needs to be
changed – a very large gap may
suggest transformational change is
needed.
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Gap analysis
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Complexities of performance analysis
• Performance measures can be contradictory,
e.g. sales growth can be achieved by cutting
profit margins.
• Organisations can
manipulate outcomes in
order to meet key performance criteria.
• Organisations can legitimately manage
performance
perceptions and expectations.
• The importance of particular measures can
change over time.
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The SAFe criteria and techniques of evaluation
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Remember the EFE
Matrix?

Suitability
Suitability is concerned with
assessing which proposed strategies
address the key
opportunities and
threats an organisation faces.
It is concerned with the overall rationale
of the strategy:
• Does it exploit the
opportunities in
the environment and avoid the
threats?
• Does it capitalise on the organisation’s
strengths and avoid or remedy the
weaknesses?
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Is the proposed strategy taking
advantage of the opportunities
AND/OR fending off the harmful
effects of the threats as shown in
your EFE Matrix above?

Acceptability
Acceptability is concerned with whether the
expected performance outcomes of a proposed
strategy meet the expectations of stakeholders.
There are three important aspects to
acceptability:
Risk – (remember the different types of
business risks ?
Return – ROI?
Stakeholder reactions – most
acceptable to most number of
stakeholders
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Major Types of Business Risks
Adapted from Cavusgil et al (2014): International Business: The
New Realities; 3
rd Edition 6–17
Business
Risks
CrossCultural
Risks
Country
(Political) Risks
Ecological &
Environmental
Risks
Currency
(Financial)
Risks
Commercial
Risks
Cybersecurity
Risks
Does the propose
strategy
address/mitigate
the relevant
risks?
Acceptability
Acceptability is concerned with whether the
expected performance outcomes of a proposed
strategy meet the expectations of stakeholders.
There are three important aspects to
acceptability:
Risk – (remember the different types of
business risks ?
Return – ROI?
Stakeholder reactions – most
acceptable to most number of
stakeholders
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Feasibility
Feasibility is concerned with whether a
strategy could work in practice, i.e.
whether an organisation has the
capabilities to deliver a strategy.
Two key questions:
• Do the resources and competences
currently exist to implement the strategy
effectively?
• If not, can they be obtained?
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The proposed strategy should take
advantage of the firm’s strengths
and/or enable the firm to
strengthen its weaknesses as
shown in the IFE Matrix?

Feasibility (2)
Need to consider:
Financial feasibility funding and cash flow,
financial ratio analysis
People and skills competences, knowledge and
experience
Integrating resources obtaining and integrating
new resources.
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People and skills
Three questions arise:
• Do people in the organisation currently have the
competences
to deliver a proposed strategy?
• Are the
systems to support those people fit for the strategy?
• If not, can the competences be
obtained or developed?
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People and skills
Critical issues that need to be considered:
Work organisation will this need to change?
Rewards are the incentives appropriate?
Relationships will people interact differently?
Training and development are current systems appropriate?
Recruitment and promotion are the levels and skills of the staff appropriate?
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Integrating resources
The success of a strategy depends on the management of many
resource areas, for example:
people
finance
physical resources
Information
technology
resources provided by suppliers and partners.
It is essential to integrate resources – inside the organisation and in
the wider value system.
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Evaluation criteria
Four qualifications:
• Be aware of conflicting conclusions and the need for
management judgement.
Consistency between the different elements of a strategy is
essential.
• The
implementation and development of strategies might reveal
unanticipated problems.
• Strategy development in
practice isn’t always a logical or even
rational process.
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The traditional balanced scorecard model translates an organization’s vision and strategy into a set of
measures built around four perspectives: financial, customer, internal business processes, and innovation &
learning.
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:
Financial Perspective –
Is the company creating value for
its shareholders?
Customer Perspective – How is the company
performing from the perspective of those who purchase
the company’s products or services?
Internal Business Process – How is the company
managing its internal business processes to meet its
client’s 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
What is a Balanced Scorecard?
The Kaplan& Norton Balanced Scorecard
Robert S. Kaplan and David P. Norton have developed what is considered to
be the standard Balanced Scorecard template

Customer
Perspective
How do
customers see
us?

 

Internal Business
Process
Perspective
What must we
excel at?

 

Financial
Perspective
How do we
look to
shareholders?

 

Innovation &
Learning Perspective
Can we continue to
improve our
employees’ skills and
create value for our
clients?

Vision
and
Strategy
Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management
System,” Harvard Business Review (January-February 1996)
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A Balanced Scorecard…
Measures the progress of an organization toward its
strategic goals by translating their vision and objectives
into tactics and measures across a balanced set of
perspectives
Captures the expectations of customers and measures the
company’s ability to meet them
Translates Strategy, Mission and Vision into tangible
measures for use by decision makers through to line
workers
Is the culmination of a sophisticated data gathering and
analysis process and system
Can and will drive the process of change, so it must be
right!
Components of the Balanced Scorecard
Perspectives: Four top-down perspectives on enterprise
performance (Financial, Internal Business Process,
Innovation & Learning, Customer)
Objectives: What the company needs to do to accomplish
its strategy; one guideline is to have up to sixteen
measurable objectives.
Metrics: Actionable and tangible measurements which
support achieving objectives; this is what makes it real.
Targets: Performance level expectations set against the
strategic plan. For each metric, set a goal or plan so
progress against the objective can be evaluated.
A balanced scorecard is a strategic measurement and management system that can motivate breakthrough
performance.
Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,”
Harvard Business Review (January-February 1996)
To satisfy our
shareholders
and customers,
what business
processes must
we excel at?

Objectives Measures Targets

Internal Business Process Perspective
To achieve our strategy, how
should we appear
to our customers?
Customer Perspective

Objectives Measures Targets

To achieve our
strategy, how will
we sustain our
ability to change
and improve?
Innovation & Learning Perspective

Objectives Measures Targets

To succeed
financially, how
should we appear
to our
shareholders?
Financial Perspective

Objectives Measures Targets

What is a Balanced Scorecard?
Overview of Building a Balanced Scorecard
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What is a Balanced Scorecard?
Overview of Building a Balanced Scorecard
Creating the Balanced Scorecard
Using the Balanced Scorecard
1. Business Strategy
Start with the Business Strategy,
which should be a bold, futureoriented statement
2. Business Objectives
Develop key business objectives
that will help you to attain your
strategy
3. Measures & Metrics
Develop specific measures
and metrics to track
progress
4. Implement
Gather measures, create the
balanced scorecard and use it
to make decisions. Incorporate
a continuous improvement
philosophy in the process
The process of creating a balanced scorecard starts with the business strategy, and progressively
breaks that strategy into tactical measures.
Use strategy to
identify the
objectives
Use objectives to
identify the
measures that
will be used
Use measures
to build the
balanced
scorecard
Use scorecard to
determine if targets
are met and the
right measures are
being measured
Use measures/
metrics to evaluate
progress against
objectives
Use progress
against objectives
to confirm strategy
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The Balanced Scorecard
An Example
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Balanced Scorecard Example
FINANCIAL
We deliver tremendous medical value in a responsible, predictable
manner
KEY STRATEGIES:
Increase revenue through innovative device technology
Metric:
Quarterly sales in devices
Deliver devices with minimal resources (headcount and dollars)
Metric:
Total headcount and dollars
Accurately predict financial expenses
Metric:
Adherence to Internal and External expense
Plan and Capital Spend Plan.
Provide devices that are profitable and consistent with corporate FMC
targets
Metric:
Adherence to Internal and External expense Plan and Capital Spend Plan
Provide device technology with the lowest total
manufacturing cost to our customers
Metric:
COPS by product – supplier/site, depreciation, overhead
PEOPLE
Creating device leadership using our most valuable
assets
KEY STRATEGIES:
Hire, develop, and maintain appropriate resources to
achieve mission, vision, strategic intent and
objectives.
Metrics:
1) % Training current
2) % Development plan completion
Maintain a work environment that is attractive to
members of the team.
Metrics:
1) Employee Satisfaction (quarterly survey)
2) % positions
3 yrs in role
3) Safety Record
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The Balanced Scorecard
CUSTOMER
Meet both external and internal customer needs
with the best products in their class
KEY STRATEGIES:
Provide the best device in its class to maximize
customer satisfaction and market share.
“Perception of poor quality will never be the
reason a customer does not use our device”.
METRICS:
Post launch survey results
(customer preference and
perception of quality)
Complaints per Million for
marketed products
Average days for complaint
response to customer.
% on time delivery
Customer satisfaction
BUSINESS PROCESS
Create and deliver superior devices by meeting
unmet customer needs .
KEY STRATEGIES:
Create and deliver superior devices by
integrating unmet customer needs
with innovative technology.
METRICS:
# of patents submitted and
approved
# of projects on schedule
# of New Product Introductions
Average Cycle times
# of manufacturing
improvements
Yield improvements
# of Non-conformances
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Summary
• Performance can be assessed in terms of both economic performance
and overall organisation
effectiveness.
Gap analysis indicates the extent to which achieved or projected
performance diverges from desired performance and the scale of the
strategic initiatives required to close the gap.
• Strategies can be evaluated according to the three SAFe criteria of
suitability in view of organisational opportunities and threats,
acceptability to key stakeholders and feasibility in terms of capacity for
implementation.
• BSC approach to performance evaluation
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