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4/17/20131THE POWER OF ACCOUNTINGTHE POWER OF ACCOUNTINGIN SUCCESSFUL STRATEGYIN SUCCESSFUL STRATEGYJames Joseph WasilSenior IT StrategistOhio Bureau Workers’ CompensationApril 17, 2013Columbus Public Library96 S Grant Ave.Some Opening Discussion PointsSome Opening Discussion Points1. What agencies and organizations are representedhere today?Some Opening Discussion PointsSome Opening Discussion Points2. Does your organization possess a strategic plan?Some Opening Discussion PointsSome Opening Discussion Points3. Can anybody describe the basics of the strategicplan?Some Opening Discussion PointsSome Opening Discussion Points4. How is the strategic plan linked to your budget?Some Opening Discussion PointsSome Opening Discussion Points5. How is the strategic plan linked to your investmentportfolio?
4/17/20132Some Opening Discussion PointsSome Opening Discussion Points6. What is the mission of your organization?Some Opening Discussion PointsSome Opening Discussion Points7. Who is responsible for the organization’s strategicplan and strategies?Some Opening Discussion PointsSome Opening Discussion Points8. What role, if any, do you play in the organization’sstrategic plan and strategies?Some Opening Discussion PointsSome Opening Discussion Points9. What role, does Accounting have to do withStrategic planning?Some Opening Discussion PointsSome Opening Discussion Points10. What did you hope to take away from thispresentation today?What is Strategy, Anyways?What is Strategy, Anyways?How many ways are there to envisage strategy?How many ways are there to envisage strategy?
4/17/20133“The 10 Schools of Strategy”“The 10 Schools of Strategy”. School of Strategy:Design Process ofConceptionLearning EmergentProcessPlanning Formal Process Power NegotiationProcessPositioning AnalyticalProcessCultural CollectiveProcessEntrepreneurial VisionaryProcessEnvironmental Reactive ProcessCognitive Mental Process Configuration TransformationProcessFrom Henry Mintzberg et al. Strategy SafariWhat is Strategy?What is Strategy?Traditionally,“A strategy is a plan designed toachieve a particular long term aim ”achieve a particular long-term aim.”Oxford Dictionary (2002 ed.) p 829Strategy as a PlanStrategy as a Plan(Formulation)(Formulation)Decision Plan ActionGoalDecision Plan ActionStrategy as a PlanStrategy as a Plan(Formulation)(Formulation)GoalSituation less thandesired - requiringa diagnosisCreation of GuidingPolicies: StrategyA coherent set ofactions based onGuiding PoliciesStrategy can be formulated in advance…Or it can be defined by behaviors – a series of decisions which determinebehavior over timeStrategy as a PatternStrategy as a Pattern(Formation)(Formation)Decisions Behavior Patterns StrategyStrategy can be formulated in advance…Or it can be defined by behaviors – a series of decisions which determinebehavior over timeStrategy as a PatternStrategy as a Pattern(Formation)(Formation)Decisions Behavior Patterns StrategyDecisionsbased onplans frommanagementDecisionsbased onlearning byemployeesDeliberate Emergent
4/17/20134Strategy can be formulated in advance…Or it can be defined by behaviors – a series of decisions which determinebehavior over timeStrategy as a PatternStrategy as a Pattern(Formation)(Formation)Decisions Behavior Patterns StrategyStrategicPlanning,EntrepreneurialDecisionsLeadershipteam, ProcessChangesDeliberate EmergentStrategy Can Be Many ThingsStrategy Can Be Many ThingsStrategy as a:PlanPositionPerspectivePatternHypothesis (Guess)Stratagem (Ploy)Strategic Management AccountingStrategic Management AccountingWhat is Strategic Management Accounting(SMA)?Kenneth SimmondsKenneth Simmonds –– Father of SMAFather of SMA Emeritus Professor of Marketing andInternational Business Research interests: Global strategy,international business management,strategic marketing, and strategicmanagement accounting. Fellow of Academy of InternationalBusiness; Fellow of Academy ofMarketing. Formerly: Geigy Professor of Marketing,University of Manchester; Ford FoundationProfessor, University of Chicago; ProfessorialFellow, Said Business School, Oxford.Reading: Simmonds K., (1981) The Fundamentals of Strategic Management Accounting, London.Strategic Management AccountingStrategic Management Accounting“SMA is the provision and analysis ofmanagement accounting data about a businessand its competitors for use in developing andmaintaining the business strategy, particularlyrelative levels and trends in real costs and prices,volume, market share, cash flow, and theproportion demanded of a firm’s total resources.”Ken Simmonds1981Strategic Management AccountingStrategic Management AccountingCPorter’s FiveBSCStrategy Execution FrameworksBStrategy1990DifferentiationHarvestStrategiesFocus StrategiesSustainableCostAdvantageValue chainCompetitor’sCostStructureCOrganizationBSCSBUsTime DimensionyDimension
4/17/20135Strategic Management AccountingStrategic Management AccountingCPorter’s FiveBSCStrategy Execution FrameworksBStrategy2013DifferentiationHarvestStrategiesFocus StrategiesSustainableCostAdvantageValue chain & streamCompetitor’sCostStructureCOrganizationBSCSBUsTime DimensionyDimensionWasil 2013Strategic Management AccountingStrategic Management AccountingPeOutcome Management (OM)BSCStrategy Execution FrameworksBStrategy2013 Non-profit andGovernment OrganizationsDifferentiationHarvestStrategiesFocus StrategiesMissionYieldValue chain & streameerOrganizationalCostStructureCOrganizationBSCSBUsTime DimensionyDimensionWasil 2013Strategic Management AccountingStrategic Management AccountingWe will now examine all three axes for a maturing SMA function.Wasil 2013Strategic Management AccountingStrategic Management AccountingStrategyTime DimensionyDimensionWasil 2013Strategic Management AccountingStrategic Management AccountingData DimensionThe Accountant has the ability to supply data and information toothers in the organization to increase their knowledge and ability todrive successful strategyWasil 2013drive successful strategy.Technology is taking accountants into new realms:Cloud ServicesBIManagement Accounting SystemManagement Accounting System(MAS)(MAS)If individual decision makers must compiletheir own data, then the MAS is failing inits function as a decision support systemits function as a decision support systemand not focusing adequately on keystrategy biz issues.Keith Ward
4/17/20136Strategic Management AccountingStrategic Management AccountingStrategyDifferentiationHarvestStrategiesFocus StrategiesTime DimensionyDimensionWasil 2013Strategic Management AccountingStrategic Management AccountingStrategySMA starts with Strategy.StrategyTime DimensionyDimensionWasil 2013Strategic Management AccountingStrategic Management AccountingStrategya) Operational Effectiveness and Efficiency (Harvest Strategies)b) Differentiating Strategiesc) Focus StrategiesThree types of strategies:StrategyTime DimensionyDimensionWasil 2013Strategic Management AccountingStrategic Management AccountingThree types of strategies:Type Strategy What it meansOperational Effectiveness andEfficiencyWe do the same thing as othersbut cheaperDifferentiating Strategies We do different things andWasil 2013Differentiating Strategies We do different things andbetterFocus Strategies We are everything to thesecustomers and nothing to thosecustomersStrategic Management AccountingStrategic Management AccountingThe most common strategies proposed by SeniorManagement involve Operational Efficiency and Effectiveness.HOWEVER…Wasil 2013Operational Efficiency and Effectiveness is not really astrategyStrategic Management AccountingStrategic Management AccountingOperations, Tactics, and Strategy are different!Operations Tactics StrategyTo-do items for Now Details for short run Important things forWasil 2013To-do items for Now(very short timeframe)Details for short run(short to mediumrun)Important things forthe long runNot strategic –activities makestrategy operationalMay be strategicdepending on yourrole, and may turninto strategies later!Strategic but maybe discarded laterand turn intotactics!Very manyoperationsDozens of tactics Few strategies
4/17/20137Strategic Management AccountingStrategic Management AccountingMost strategic value comes from being different – and better,and being able to sustain a competitive advantage over thelong runWasil 2013Strategic Management AccountingStrategic Management AccountingStrategyDifferentiationHarvestStrategiesFocus StrategiesMissionYieldValue chain & streamTime DimensionyDimensionWasil 2013Strategic Management AccountingStrategic Management AccountingValue ChainWasil 2013Michael PorterStrategic Management AccountingStrategic Management AccountingValue StreamRummler and BracheStrategic Management AccountingStrategic Management AccountingMission Yield –Units of Mission (whichare carefully chosen)accomplished per dollarspent.Jorge Lopez of GartnerStrategic Management AccountingStrategic Management AccountingPeOutcome Management (OM)StrategyDifferentiationHarvestStrategiesFocus StrategiesMissionYieldValue chain & streameerOrganizationalCostStructureTime DimensionyDimensionWasil 2013
4/17/20138Strategic Management AccountingStrategic Management AccountingPeOutcome Management (OM)BSCStrategy Execution FrameworksStrategyDifferentiationHarvestStrategiesFocus StrategiesMissionYieldValue chain & streameerOrganizationalCostStructureCOrganizationTime DimensionyDimensionWasil 2013Strategic Management AccountingStrategic Management AccountingPeOutcome Management (OM)BSCStrategy Execution FrameworksBStrategyDifferentiationHarvestStrategiesFocus StrategiesMissionYieldValue chain & streameerOrganizationalCostStructureCOrganizationBSCSBUsTime DimensionyDimensionWasil 2013The Story of Bruce HendersonThe Story of Bruce Henderson –– andandthe Beginning of Strategy Consulting.the Beginning of Strategy Consulting.•Worked for family business•Spent 18 years with Westinghouse inAccounting•Joined Arthur D. Little Sr Vice President,Management Services•Founded the Boston Consulting Group (BCG)in 1963 specializing in Business StrategyVideos of Bruce Henderson have been posted on YouTube. Seethe links below.http://www.youtube.com/watch?v=YmZjJxS-Mw4http://www.youtube.com/watch?v=c-STNDRnQ6Mhttp://www.youtube.com/watch?v=fYczwrR9lKYIs this true?Is this true?All businesses using the same rawmaterials, and making the same product,will essentially make the same profitswill essentially make the same profitsbecause their costs will be similar.Is this true? NOIs this true? NOHenderson found that any company thatmakes products will continue to reduce itscostscosts…..The Experience CurveThe Experience CurveThe EC is a function of:•Learning•Specialization•Investment•ScaleThe more often a task is performed, the lower will bethe cost of doing it. The task can pertain to anyproduct or service whatsoever.•The so-called secret sauceCalled “core competencies”By Gary Hamel andCK Prahalad
4/17/20139The Story of Bruce HendersonThe Story of Bruce Henderson –– andandthe Beginning of Strategy Consulting.the Beginning of Strategy Consulting.the Financial Times has stated thatHenderson.."did more to change the way business isdone in the United States than any otherman in American business history.”Financial times"Costs characteristically decline by 20-30% in real termseach time accumulated experience doubles. This meansthat when inflation is factored out costs should alwaysThe Experience CurveThe Experience CurveThe Experience Curve is a managerial tool primarily used topredict cost behaviorthat when inflation is factored out, costs should alwaysdecline.Bruce Henderson 1968Firms That Focus on Extreme CostFirms That Focus on Extreme CostReduction (only) Risk Loss of Value !Reduction (only) Risk Loss of Value !“If high ROI thresholds areused to limit capitalinvestment then theinvestment, then the[experience curve] costs donot decline as expected.”Bruce HendersonGrowth Share MatrixGrowth Share MatrixRelative Market ShareHigh Low(Cash Generation)hareon)HighRelativeMarketS(CashGeneratioLowGrowth Share MatrixGrowth Share MatrixAccording to Henderson, there are four rules for cash flows:1. Margins and cash generated are a function of market share. Highmargins and high market share go together.2. Growth requires cash input to finance added assets. The addedcash required to hold share is a function of growth rates.3. High market share must be earned or bought. Buying marketshare requires an additional increment of investment.4. No product market can grow indefinitely. The payoff from growthmust come when the growth slows, or it never will. The payoff iscash that cannot be reinvested in that product.Bruce Henderson 1970Growth Share MatrixGrowth Share MatrixRelative Market ShareHigh Low(Cash Generation)hareon)HighRelativeMarketS(CashGeneratioLow
4/17/201310Growth Share MatrixGrowth Share MatrixHigh market share and slow growth = cash cowsLow market share and slow growth = dogsAll products/services become one or the other!Bruce Henderson 1970Growth Share MatrixGrowth Share MatrixRelative Market ShareHigh Low(Cash Generation)hareon)HighRelativeMarketS(CashGeneratioLowGrowth Share MatrixGrowth Share MatrixLow market share and high growth = question marksHigh market share and high growth = starsThe star eventually becomes the cash cow!Bruce Henderson 1970You are Important to OurYou are Important to OurStrategy!Strategy!“Ignorance of an Organization’s past canundermine the development of strategies forits future.”- Henry MintzbergThe Need for StrategyThe Need for Strategy“Strategy without tactics is the slowest routeto victory. Tactics without strategy is thenoise before defeat.” Sun Tsu“Where there is no vision, the people cast offrestraint” Proverbs 29:18Strategy Must be Linked toStrategy Must be Linked toOperational ExecutionOperational Execution“Operational effectiveness and strategy areboth essential to superior performance…but they work in very different ways.”y y yMichael Porter“A visionary strategy that is not linked toexcellent operational and governanceprocesses cannot be implemented.”Norton and Kaplan
4/17/201311Prophetic Statement on StrategyProphetic Statement on StrategyExecutionExecution“Our problem is not about the strategyitself, but about our execution of it.”Tony Hayward CEOBP Oil (Gulf Oil spill)The Need for Strategy ExecutionThe Need for Strategy ExecutionNorton and Kaplan Study Findings:Only 5% of the workforce understands their Only 5% of the workforce understands theirorganization’s strategy Only 25% of managers have incentives linked tostrategy execution 85% of executive teams spend less than one hour amonth discussing strategy (50% never discuss it) 65% of organizations don’t link budgets to strategyKaplan and Norton foundKaplan and Norton foundthat:that:Organizations with aOrganizations with aFormal Strategy ExecutionFormal Strategy ExecutionProcess OutperformProcess OutperformOrganizations without oneOrganizations without oneWhat Happens When You Tell YourWhat Happens When You Tell YourEmployees What Your Strategies Are?Employees What Your Strategies Are?BSCol Research survey of 143 Companies, March 2006What Happens When IT Aligns itsWhat Happens When IT Aligns itsStrategy to the Business?Strategy to the Business?BSCol Research survey of 143 Companies, March 2006What Happens When You Tighten YourWhat Happens When You Tighten YourStrategy to the Budget?Strategy to the Budget?BSCol Research survey of 143 Companies, March 2006
4/17/201312The Financial Productivity ParadoxThe Financial Productivity Paradox“IT doesn’t matter!”Nicholas Carr, Harvard UniversityThe Financial Productivity ParadoxThe Financial Productivity Paradox"Companies around the worldhave spent billions of dollars oninformation technology, yet inmost cases this investment hasfailed to produce any genuinefailed to produce any genuinecompetitive advantage”.Gary Hamel World EconomicForum and the StrategicManagement SocietyFinancial Measures are LessFinancial Measures are LessImportant for ITImportant for ITTraditional Industrial age competitionis being supplanted by a new form ofInformation age competition ”Information age competition.Maris MartinsonsUniversity of Hong KongImaging would not have passedImaging would not have passedthe ROI testthe ROI test Imaging at BWC projected costsExpense CostStorage $952,965Infrastructure $3,059,748$333 2Payback calculated at 7-9 YearsMaintenance $333,172Services $2,778,417Labor $3,241,486GRAND TOTAL $10,365,788BWC’S Medical Repository wouldBWC’S Medical Repository wouldnot have passed the ROI testnot have passed the ROI testBWCIndexersDolphinProvider MCO◦ No payback – Cost over $1 Million / yearto pay claims faster – Customer valueMedical RepositoryMR Auto-IndexV3SecurityBy SSNIt’s all about Business ValueIt’s all about Business Value IT’s value may not be capturedaccurately by conventional input-output accounting methods. Effectiveness and Innovation cannotbe readily quantified in terms oftraditional outputs and theseimprovements are not reflected ineconomics efficiency statistics.
4/17/201313Tangible vs. Intangible AssetsTangible vs. Intangible AssetsTANGIBLES:ComputersEquipmentDesksCINTANGIBLES:InformationDatabasesServiceBrookings Institute study results.Cars CustomerRelationsIf Tangible Assets Now on the Books represent less than 10%of our Value – Why do we still rely on ROI over Tangible Assetsas a test?Firms That Focus on Extreme CostFirms That Focus on Extreme CostReduction Risk Loss of Value !Reduction Risk Loss of Value !“If high ROI thresholdsare used to limit capitalinvestment, then the[experience curve] costsdo not decline asexpected.”Bruce HendersonIntroducing the BalancedIntroducing the BalancedScorecardScorecardThe Balanced Scorecard was created inorder to avoid the reliance on solelyFinancial measuresFinancial measuresWhat is the Balanced Scorecard?What is the Balanced Scorecard?The Balanced Scorecard is A Communication ToolA M t T l A Measurement Tool A Strategy Management SystemWhat is Meant by “Balanced?”What is Meant by “Balanced?”Balance between long and short-term objectivesFi i l d fi i l Financial and nonfinancial measures Leading and lagging indicators External and internal performanceWhat Other Ways Can We DecideWhat Other Ways Can We DecideWhich Investments to Make?Which Investments to Make?There are four Perspectives in the TraditionalBalanced Scorecard : Financial Financial Learning and Growth Internal Processes Customer
4/17/201314What Other Ways Can We DecideWhat Other Ways Can We DecideWhich Investments to Make?Which Investments to Make?The most common IT Balanced Scorecarduses slightly different perspectives: Financial --> Business Value Financial > Business Value Learning and Growth--> Future readiness Internal Processes Customer --> User OrientationFor simplicity sake the presentation will continue to use thetraditional perspectivesSingle Question Throughout…Single Question Throughout…“What do we need to do well inorder to execute our strategy?”Single Question Throughout…Single Question Throughout…“What do we need to do well inorder to execute our strategy?”For starters, we need to have awell thought out strategy!The Purpose of a BalancedThe Purpose of a BalancedScorecardScorecard The Balanced Scorecard is a tool thatexecutes on strategy by means ofdeveloped performance objectivesdeveloped performance objectives.Who Uses the BalancedWho Uses the BalancedScorecard?Scorecard? 2008 Survey of 1,430 globalexecutives indicated that 53% ofcompanies use some form of thecompanies use some form of theBalanced Scorecard.**Rigby, Darrell and Barbara Bilodeau, Management Tools and Trends2009. Bain and Company. 2009.Who Uses the BalancedWho Uses the BalancedScorecard?Scorecard? 2004: 82% of Hackett Group’s 2,700database of US companies uses theBalanced Scorecard *Balanced Scorecard.**Lester, Tom. Measure for Measure. Financial Times. Oct. 5, 2004..
4/17/201315Value PropositionValue Proposition “Clarity of the value proposition isthe single most important dimensionof strategy ”*of strategy. **Kaplan, Robert S.and David P. Norton. Strategy Maps. (Boston: Harvard Business School Press, 2004.)A Focus on StrategyA Focus on Strategy The Balanced Scorecard allows you tofocus on what really matters, the fewcritical drivers of success that powercritical drivers of success that poweryour strategy and lead to theachievement of your mission.**Niven, Paul. R. Balanced Scorecard Step-by-Step for Governement and Nonprofit Agencies. 2nd ed. J.Wiley:Hoboken 2008.A Focus on StrategyA Focus on Strategy How do we fit into the strategy,goals, and objectives of the agency?*Niven, Paul. R. Balanced Scorecard Step-by-Step for Governement and Nonprofit Agencies. 2nd ed. J.Wiley:Hoboken 2008.Introducing the Vision and MissionIntroducing the Vision and MissionStatementsStatements How do we fit into the strategy,goals, and objectives of the agency?Warren Buffet Buys $10.7 BillionWarren Buffet Buys $10.7 Billionin IBM Stockin IBM Stock (now worth $12 B)(now worth $12 B)WSJ: “Mr. Buffet said heinvested in IBM afterreading its most recentannual reportannual report..and was struck by IBM’s entrenched positionon providing technology services tobusinesses..A ‘moat’ against competition… IBM fits all myprinciplesWarren Buffet Buys $10.7 BillionWarren Buffet Buys $10.7 Billionin IBM Stockin IBM Stock (now worth $12 B)(now worth $12 B)Bloomberg: “I don’t think that there’s anycompany that I can think of, big company,that’s done a better job of laying out wherethey’re going to go and then having gonethey’re going to go and then having gonethere.”
4/17/201316Mission StatementsMission Statements“Mission statement work is the single mostimportant work because the decisionsmade there affect all other decisions.”Origin of Mission StatementsOrigin of Mission StatementsIn the 1590s, the Jesuits sent membersabroad in missions(from the Latin mittere - to send)The modern Mission Statementgained traction from Philip Selznick.(his book Leadership inAdministration 1957)What is a Mission Statement?What is a Mission Statement?Why we existA mission statement is a brief statement - usuallya few sentences to a paragraph, that describes Why we exist What we currently do (not what we aspireto doing - that is the vision) What differentiates us from others Serves as the basis for goals and strategies,so must be carefully craftedWhy are Mission, Vision, andWhy are Mission, Vision, andValues Important?Values Important?Values Important?Values Important?The OSIThe OSI“Stack”“Stack”
4/17/201317TheTheStrategyStrategy“Stack”“Stack”BRANDVISIONMISSIONVALUES - PRINCIPLES – “STRATEGICINTENT” – MAXIMSSTRATEGIC THEMESSTRATEGIC OBJECTIVES (GOALS)DIVISION GOALSDIVISION OJECTIVESDIVISION STRATEGIESACTION PLANS AND TACTICSHow vision, mission, and values fitsHow vision, mission, and values fits Serves as the basis for◦ Goals◦ Strategies◦ Portfolios◦ Alignment with the Business State of Ohio◦ Alignment with the Business, State of Ohio◦ In preparation of a Strategy Map and BalancedScorecard◦ Our IT Strategic Planso must be carefully crafted First step of the Strategy DevelopmentProcessStrategy Development ProcessStrategy Development ProcessStrategyDevelopment ProcessObjective Barriers RepresentativeTools1. Clarify Mission,Values, and VisionWhy are we inbusiness?Affirm high-levelguidelines aboutorganizationalpurpose andconduct.The vision isfrequently describedin terms notconducive toexecution.•Clear mission•Core values•Quantified vision(BHAG)•Strategic changeagenda•Enhanced vision2. Conduct Identify, through Analysis is •Environmental scanStrategic AnalysisWhat key issuesaffect our strategy?structured analysis,the events, forces,and experiencesthat impact andmodify the strategy.frequently focusedon outcomes andnot on the drivers ofstrategy.(PESTEL)•Competitive scan(SWOT)•“Strategy of record”analysis•Strategic issues3. Formulate theStrategyHow can we bestcompete?Define where anhow theorganization willcompete.There is a myriad ofpossiblemethodologies.There is noconsensus on whichapproaches to use inwhichcircumstances.•Key issue analysis•Stra methodologies•Strategy directionstatements•Do-wellsExamples of Others’ MissionExamples of Others’ MissionStatementsStatementsStatementsStatementsMission Statement for the United StatesMission Statement for the United States“We the People of theUnited States, in order toform a more perfect Union,establish Justice, insuredomestic Tranquility,provide for the commondefense, promote the, pgeneral welfare, andsecure the Blessings ofLiberty to ourselves andour Posterity, do ordainand establish thisConstitution for the UnitedStates of America.”Microsoft Mission StatementMicrosoft Mission Statement“At Microsoft, we work to help people andbusinesses throughout the world realizetheir full potential. This is our mission.Everything we do reflects this mission andthe values that make it possible.”
4/17/201318IBM’s Mission StatementIBM’s Mission Statement“The company’s business model is built toi i l lsupport two principal goals: helping clients succeed in deliveringbusiness value by becoming more efficientand competitive through the use of businessinsight and IT solutions; and providing long-term value to shareholders.Starbucks MissionStarbucks MissionOur mission is to inspire and nurturethe human spirit – one person, onecup and one neighborhood at a time.Coke vs. Pepsi Mission StatementsCoke vs. Pepsi Mission StatementsCokeOur Roadmap starts with ourmission, which is enduring. Itdeclares our purpose as acompany and serves as thestandard against which wePepsiOur mission is to be the world’spremier consumer productscompany focused on convenientfoods and beverages. We seek toproduce financial rewards togweigh our actions and decisions.•To refresh the world…•To inspire moments of optimismand happiness..•To create value and make adifference.pinvestors as we provideopportunities for growth andenrichment to our employees,our business partners and thecommunities in which weoperate. And in everything wedo, we strive for honesty,fairness and integrity.GM / Ford / Toyota MissionGM / Ford / Toyota Mission StatementsStatementsGMGM is a multinationalcorporation engaged insocially responsibleoperations worldwide.It is dedicated toprovide products andservices of such qualityFordWe are a global familywith a proud heritagepassionately committedto providing personalmobility for peoplearound the world.Toyota..to provide safe andsound journey. Toyotais developing variousnew technologies fromthe perspective ofenergy saving anddiversifying energyservices of such qualitythat our customers willreceive superior valuewhile our employeesand business partnerswill share I our successand our stockholderswill receive a sustainedsuperior return on theirinvestment.sources. Environmenthas been first and mostimportant issue inpriorities of Toyota andworking towardcreating a prosperoussociety and clean world.Proposed new BWC MissionProposed new BWC Mission(2011)(2011)“BWC will achievesuccessful return to workoutcomes for injuredoutcomes for injuredworkers, savings forbusinesses, and safeworkplaces for allOhioans.”Vision StatementsVision Statements
4/17/201319What is a Vision Statement?What is a Vision Statement? Division Vision should align with that of theOrganization. Must be realistic, with a touch of optimism.Must be realistic, with a touch of optimism. Short! People should be able to recite!What is a Vision Statement?What is a Vision Statement?“Where do we want to be at the end of ourA vision statement answers the question:Where do we want to be at the end of ourplanning horizon?”??How Far Out Do We Go?How Far Out Do We Go?A planning horizon is a termfrom Igor Ansoff (1965).“..the period for which thefi i bl t t tfirm is able to constructforecasts with [what theybelieve to be] an accuracyof plus or minus 20%..”This is the so-called Paretto 80/20 level!What is a Vision Statement?What is a Vision Statement?A vision statement is typically a brand statement that tells everybody how we want to be that tells everybody how we want to beperceived by the outside world at the end ofthe planning horizon.Frequently starts with “We want to be…”Examples of Others’ VisionExamples of Others’ VisionStatementsStatementsStatementsStatementsMicrosoft Vision StatementMicrosoft Vision Statement“[We want] to empower people throughgreat software, any time, any place ,or anydevice.”
4/17/201320Coke vs. Pepsi Vision StatementsCoke vs. Pepsi Vision StatementsCokeOur vision serves as theframework for our Roadmap andguides every aspect of ourbusiness by describing what weneed to accomplish in order toPepsiPepsico’s responsibility is tocontinually improve all aspectsof the world in which we operate- environment, social, economic- creating a better tomorrowpcontinue achieving sustainable,quality growth.gthan today.GM / Ford / Toyota VisionGM / Ford / Toyota Vision StatementsStatementsGM..to be the worldleader intransportationproducts and relatedservices. We willearn our customers’Ford..to become theworld’s leadingconsumer companyfor automotiveproducts andservices.Toyota..to be the mostrespected andsuccessfulenterprise,delighting customerswith a wide range ofenthusiasm throughcontinuousimprovement drivenby the integrity,teamwork, andinnovation of GMpeople.products andsolutions in theautomobile industrywith the best peopleand the besttechnology.Context for UsContext for UsFactors Affecting StrategyFactors Affecting StrategyOur Business ModelOur Business Model(also known as Strategy as a Position)(also known as Strategy as a Position) Steady Progress Through OperationalEfficiency and Effectiveness? Differentiation: Us versus StandardIndustry? Niche Role Competition allowed? Focus on Small Businesses? Reform - Rule Changes? PrivatizationFactors AnalysisFactors AnalysisWhat is going on in Ohio and the world thatis, or could impact us?Externally: PESTEL and OT of SWOTInternally: SW of SWOT
4/17/201321 PESTEL analysis: P – Political E – Economic S SociologicalFactors AnalysisFactors Analysis121 S – Sociological T – Technological E – Environmental L – Legal Government Term and Change Current legislation / Mandates (State and Federal) Future legislation / Mandates (State and Federal) ElectoratePolitical FactorsPolitical Factors122 Electorate Funding Policy Stakeholder needs/demands State Budget Business Climate Deficit Job Growth / UnemploymentEconomic FactorsEconomic Factors123 Job Growth / Unemployment Inflation / Recession Monetary Growth Interest Rates Stock Market Taxes Medical Inflation Wage rates Demographics (age, distribution, growth..) Ethical Issues Healthcare Major Events and InfluencesSociological FactorsSociological Factors124 Major Events and Influences Safety and Health Social Networking Media Views Social Networking Lifestyle Trends Replacement technology solutions Data / Information Technology Development Technology collaboration opportunitiesTechnological FactorsTechnological Factors125 Technology collaboration opportunities Information Technology Healthcare technology Safety and Health Trends Energy – Going Green Occupational ExposuresEnvironmental FactorsEnvironmental Factors126 Occupational Exposures Weather
4/17/201322 Regulatory environment Legal actions Attorneys Industrial CommissionLegal FactorsLegal Factors127 Industrial Commission HIPAASWOTSWOTStrengths and Weaknesses focus internallyOpportunities and Threats are externalCapability MaturityCapability MaturityBarriersBarriersStrategy Development ProcessStrategy Development ProcessStrategyDevelopment ProcessObjective Barriers RepresentativeTools1. Clarify Mission,Values, and VisionWhy are we inbusiness?Affirm high-levelguidelines aboutorganizationalpurpose andconduct.The vision isfrequently describedin terms notconducive toexecution.•Clear mission•Core values•Quantified vision(BHAG)•Strategic changeagenda•Enhanced vision2. Conduct Identify, through Analysis is •Environmental scanStrategic AnalysisWhat key issuesaffect our strategy?structured analysis,the events, forces,and experiencesthat impact andmodify the strategy.frequently focusedon outcomes andnot on the drivers ofstrategy.(PESTEL)•Competitive scan(SWOT)•“Strategy of record”analysis•Strategic issues3. Formulate theStrategyHow can we bestcompete?Define where anhow theorganization willcompete.There is a myriad ofpossiblemethodologies.There is noconsensus on whichapproaches to use inwhichcircumstances.•Key issue analysis•Stra methodologies•Strategy directionstatements•Do-wells•OutcomeManagement forSocial Non-ProfitsHere is What You are Up Against!!Here is What You are Up Against!!“Organizational members, on average, rarelyengage in behaviors associated withmanagement of mission statement meaningand thus pay little attention to theirand thus pay little attention to theirorganization’s formal mission statement.”Journal Healthcare Management2010, Jan-Feb. Vol. 55(1)Desmidt, Sebastian et al
4/17/201323This Study also Found that …This Study also Found that …“Members who engage in behaviorsassociated with management of missionstatement meaning evaluate thestatement meaning evaluate theorganizational strategic direction morefavorably and perceive a higher level of fitbetween their personal values and theorganizational values.”Recommendations of the Study..Recommendations of the Study..• Create an information-rich environmentthat complements an elucidates the formalmission statement.• Provide high levels of information on criticalcontext specific topics to increaseorganizational understanding.• Incorporate structural mechanisms thatenable debate, clarification, and enactment.THE BALANCED SCORECARDTHE BALANCED SCORECARDCustomerLearning & growthInternal ProcessesSTRATEGYGOODIDEAS FinancialSTRATEGY GOALThe Four PerspectivesThe Four Perspectives The Learning and Growth Perspective◦ Human Capital: Aligning People with Strategy◦ Closing Skills Gaps in Strategic PositionsT i i f S◦ Training for Success◦ Recruiting the Right People◦ Retaining the Right People and Succession PlanningTo achieve our vision, how must ourorganization learn, innovate, andimprove?The Four PerspectivesThe Four Perspectives The Learning and Growth Perspective◦ Aligning information with the Strategy◦ Creating the Climate for Growth and ChangeC lt d M t it f th O i ti◦ Culture and Maturity of the Organization◦ Innovation◦ Recognition and Rewards◦ AlignmentThe Four PerspectivesThe Four Perspectives The Internal Process Perspective◦ What key processes must we excel at toaccomplish our goal and add value for customers?To satisfy our customers andstakeholders, which processes mustwe excel at?
4/17/201324The Four PerspectivesThe Four Perspectives The Customer Perspective◦ What do our customers expect or demand from us?◦ What is our value proposition for serving them?g Operational Excellence Product / Service Leadership Customer LoyaltyTo achieve our vision, what must wedo well for our customers?Who is the Customer?Who is the Customer? A customer is a person or group thatdirectly benefits from our products and/orour services.The Four PerspectivesThe Four Perspectives The Financial (Fiduciary) Perspective◦ How effectively do we deliver on our mission anda make adistinctive impact?◦ What opportunities exist for broadening our sources of◦ What opportunities exist for broadening our sources ofrevenue?◦ How robust and reliable are our financial systems to produceaccurate data?If we succeed, how will we look to ourstakeholders?Example Themes for EachExample Themes for EachPerspectivePerspective Financial◦ Aggressive Growth◦ Maintain overall margins Customer◦ Customer Loyalty◦ Complete product-line offeringExample Themes for EachExample Themes for EachPerspectivePerspective Internal Business Process◦ Build the brand◦ Fashion leader◦ Quality product◦ Quality product◦ Superior shopping experience Learning and Growth◦ Strategic skills◦ Personal growthEvolution of the Balanced ScorecardEvolution of the Balanced Scorecard3rd GenStrategicGovernanceFramework4th Gen2nd Gen1st GenImprovedMeasurementSystemManagementSystem1990 1995 20052000
4/17/201325Generations of ScorecardsGenerations of ScorecardsFirst Generation: Was an operational tool to measureperformance ONLYFocused on defining and measuring core Focused on defining and measuring corecompetencies Looked at creating measures for eachperspective DID NOT include strategy Good prescriptive approach DNEFirst Generation Balanced ScorecardFirst Generation Balanced Scorecard“To succeedfinancially,how should weappear to ourstakeholders?”FINANCIAL“To achieve “To satisfy our&CUSTOMERINTERNAL BUSINESSPROCESSKaplan, Robert S. and David P. Norton. Translating Strategy into Action: The BalancedScorecard. Harvard Business School Press: Boston. 1996.our vision, howshould weappear to ourusers?”“To acheiveour vision, howwill we sustainour ability tochange &improve?”stakeholders &users, whatprocesses mustwe excel at?”LEARNING &GROWTHVISION ANDSTRATEGYMeasures…Measures…When you can measure what you are speakingabout, and express it in numbers, you knowsomething about it; but when you cannotmeasure it, when you cannot express it innumbers, your knowledge is of a meager andunsatisfactory kind.—Lord KelvinTypes of MeasuresTypes of Measures Diagnostic measures - monitor whether thebusiness remains in control and can signalwhen unusual events are occurring thatrequire immediate attention Strategic measures - define a strategydesigned for competitive excellenceTypes of Performance MeasuresTypes of Performance MeasuresMeasure ExampleInput TimesheetsOutput Timesheet resultsOutcome Benefit received fromOutcome Benefit received fromtimesheet informationKey Performance IndicatorsKey Performance IndicatorsDimension ExampleTrajectory Increase, DecreaseObject to be measured WidgetsBaseline value 10 widgets per hourT t l 15 id t hKPI’s have five dimensions:Target value 15 widgets per hourTarget date First Quarter 2013The KPI should reflect SMART:SpecificMeasureableAchievableRelevantTimeframe
4/17/201326Lag and Lead Performance IndicatorsLag and Lead Performance IndicatorsValueLagging IndicatorsThe Past The FutureNowLeading IndicatorsEarly Warning SignsHistoricalThe Metrics Continuum (Gartner)The Metrics Continuum (Gartner)Lagging LeadingRegulatedFinancialKeyPerformanceIndicatorsKey RiskIndicatorsWeakSignalsExampleMetricsRevenue Time toMarketBusinessDisruptionsStakeholderDecisionsAuditability Very High High Medium LowBusinessPatternsActivitiesDefined Creative Exception CollectivePatternsSmith, Michael, and Betsy Burton. Leading Indicators Guide Pattern Seeking in a Performance-Driven Culture. Gartner Research Note 00205679. August 2, 2010Caveats to Creating MeasuresCaveats to Creating Measures Care should be taken not to sub-optimizemeasures. (measures that, if theorganization were not careful, could pulldown other measures, or end up asartifacts.) For example, “increase call volumes.” whichcan be achieved by poor responses orhanging up on your customer.Types of MeasuresTypes of Measures Balanced Scorecard measures are not areplacement for the organization’s day today measurement system.Generations of ScorecardsGenerations of ScorecardsSecond Generation: Attached strategic objectives toperspectives and one or more KPI’s Created a cause and effect (CAE)relationship between perspectives Introduced Strategy Linkage Models nowknown as Strategy MapsBalanced ScorecardBalanced Scorecard ShowingLinkageShowingLinkage ofofObjectives to PerspectivesObjectives to PerspectivesObjectives Measures Targets InitiativesFY12 FY13 FY14FinancialCustomerCustomerInternalProcessesL&G
4/17/201327The Cause and effect principle…The Cause and effect principle…For want of a nail the shoe was lost.For want of a shoe the horse was lost.For want of a horse the rider was lostFor want of a horse the rider was lost.For want of a rider the battle was lost.For want of a battle the kingdom was lost.And all for the want of a horseshoe nail.The cause and effect principleThe cause and effect principle ––An ExampleAn Example GOAL: A Reduction of current BWC/ITbudget by $10 million annually (for thepurpose of reinvesting in agency top prioritypurpose of reinvesting in agency top priorityprojects) If we focus our employee training onelements of the simplified MUSE architecturethen they will be ready for change (LearningThe cause and effect principleThe cause and effect principle –– AnAnExampleExamplethen they will be ready for change. (Learningand Growth) If employees are ready for change then wecan move ahead faster with [new process]needed by business units as a result of theThe cause and effect principleThe cause and effect principle –– AnAnExampleExampleneeded by business units as a result of thecore study with less risk. (Internal ProcessesPerspective) If can move ahead faster with less risk, thenwe can change over to new systems andapplications that better satisfy our end usersThe cause and effect principleThe cause and effect principle –– AnAnExampleExampleapplications that better satisfy our end-users(Customer Perspective) and reduce costs. If we can begin reducing our costs soonerthen we will be able to self-fund moreimportant investments for the agencyThe cause and effect principleThe cause and effect principle ––An ExampleAn Exampleimportant investments for the agency.(Financial Perspective)
4/17/201328Motivated ReasoningMotivated Reasoning Managers who are involved in selectingstrategic initiatives are likely to perceivethose initiatives as more successful.Taylor, William B. The Balanced Scorecard as a Strategy-Evaluation Tool: The Effectsof Responsibility and Causal-Chain Focus. Cornell University. Dissertation. 2007.Balanced Scorecard Can ReduceBalanced Scorecard Can ReduceMotivated ReasoningMotivated Reasoning If the scorecard is framed as a causalchain, managers will be less susceptible tomotivated reasoning because successbecomes more clearly defined: an initiativemust not only improve the measure onwhich it should have a direct effect, butalso must improve the measures on whichit should have an indirect effect.Taylor, William B. The Balanced Scorecard as a Strategy-Evaluation Tool: The Effectsof Responsibility and Causal-Chain Focus. Cornell University. Dissertation. 2007.What is a Strategy Map?What is a Strategy Map? A strategy map is a one pagegraphical representation of what youmust do well in each of the fourmust do well in each of the fourperspectives in order to successfullyexecute your strategy.**Niven, Paul. R. Balanced Scorecard Step-by-Step for Governement and Nonprofit Agencies. 2nd ed. J.Wiley:Hoboken 2008.What is a Strategy Map?What is a Strategy Map?Also, a strategy map: Documents the primary strategy goals (oforganization, division, etc.) Shows each objective as text in a block oro aloval Has 20 or fewer objectives Shows objectives layered acrossperspective “lanes”Structure of a Strategy MapStructure of a Strategy Map..that supports the vision, BHAG, overall goal, mission, or value statement..that must meet our stakeholder expectations (Financial Perspective FP)..that provide a satisfying customer experience (Customer Perspective CP)..to deliver the strategic processes (Process Perspective IBP)We will enable our people in IT..(Learning, Growth, Innovation Perspective LG)
4/17/201329Imaging ExampleImaging Example Examine all of the ways that information comes intoand goes out of a company, where it could bedigitized. This would allow us to “translate” free form andanalog information into digital format where wecould operate on it with our computer systems andp p ytransport it on our data network. We could offer information back in the form of ourcustomers’ choosing. This would allow us to provide new services, handleinformation faster, with fewer mistakes, have highercustomer service, and save money.Example: ImagingExample: Imaging Learning and Growth (innovation) L&G: Examine all ways that information comesinto and goes out of a company where it could beinto and goes out of a company where it could be“digitized.” L&G: Understand potential technologies related todigitized information. Begin vendor discussions and learn abouttechnology alternative approachesSo that we can…Example: ImagingExample: Imaging Internal Processes IP: Develop business processes that exploitcapturing free form / analog information and digitalDevelop business processes that exploit capturing free form / analog information and digital conversion.Integrate new technologies into our business applicationscapturing free form / analog information and digitalconversion. IP: Build integrated processes that deliver dataand digital content IP: Develop business processes that embracedigital technologies. So that we can….Example: ImagingExample: Imaging Customer Focus CF: Reduce time of customer interactions CF: Reduce time to deliver information tocompany staff and customers CF: Reduce lost information impacting customersSo for fiduciary stakeholders expectations, we can…Example: ImagingExample: Imaging Financial Perspective FP: Reduce the cost of each transaction withcustomers FP: Reduce staff size FP: Reduce cost by being able to reallocate workbetween service officesTo enable….Example: ImagingExample: Imaging A digital doorstep surrounding BWCthat digitizes all information enteringBWCBWC.
4/17/201330Structure of a Strategy MapStructure of a Strategy MapVMG: Build a digital doorstep surrounding Company that digitizes allinformation entering and allows for digitized outputMinimize customerinteraction timeCFReduce infolagOffer more channelsto customersReduce TransCostFPReduce staffsizeReduceService officesExamine Info I/0into CompanyLGLearn about newdigital technologiesBegin VendordiscussionsIPDevelop businessprocesses to deliverdata / digital contentDevelop businessprocesses exploitingfree form / analog infoBuild integratedprocesses withdigital contentinteraction timeF lag to customers
4/17/201331Generations of ScorecardsGenerations of ScorecardsThird Generation: Includes a Destination Statement May include other perspectives including asimplification of using only twosimplification of using only twoperspectives: Activities and Outcomes Many practitioners have adopteddestination statements but fewer havetinkered with the perspectivesWhat is a Destination Statement ?What is a Destination Statement ? A description ideally including quantitativedetail, of what the organization is likely tolook like at an agreed future date. Sub-divided into descriptive categoriesLawrie, Gavin and Ian Cobbold. Development of the 3rd Generation of BalancedScorecard. 2GC: Berkshire UK. May 2002. Sub divided into descriptive categories,typically the four perspectives.The Basic ProcessThe Basic Process Assemble with Sponsoring executivea strategically minded group tocreate a balanced scorecard and astrategy mapstrategy map. Create a SharePoint site for balancedscorecard Review the Vision, Mission, Values,and Strategy Themes
4/17/201332The Basic ProcessThe Basic Process Perform external and internal factoranalysis (SWOT and PESTEL) Review other goals and objectives Use all-hands events, traditional andsocial media channelsThe Basic ProcessThe Basic Process Create a series of scenarios thatpaint different stories about thefuture to the end of the planninghorizonhorizon Determine commonalities betweenthe scenarios Decide on Balanced Scorecardperspectives (do we use the standardperspectives or newer ones?)The Basic ProcessThe Basic Process Determine how the BalancedScorecard will be used here Decide on how to communicate theB l d S dBalanced Scorecard Interview key players outside of thegroup as necessaryThe Basic ProcessThe Basic Process Develop strategy map objectives ineach perspective Develop a shared understanding withbj iobjectives Conduct a strategy mappingworkshopThe Basic ProcessThe Basic Process Review the cause and effect logic ofthe map, balance, significance ofobjectives to limit them to only themost important itemsmost important items Create key performance indicators Review current and future strategicinitiativesThe Basic ProcessThe Basic Process Tie initiatives to measures Create alignment by cascading thebalanced scorecard Link Resource allocation to theBalanced Scorecard.
4/17/201333StrategyStrategy--Focused OrganizationFocused OrganizationPrinciples (SFO)Principles (SFO)Benefits of the Balanced Scorecard and whatKaplan and Norton call the “Strategy-FocusedOrganization”OrganizationStrategyStrategy--Focused OrganizationFocused OrganizationPrinciples (SFO)Principles (SFO) Leaders drive strategy execution Executives make a case for changeA ll ti l t d t t i t A well-articulated strategy exists Leaders reinforce strategic priorities An office or place for Strategy Managementis establishedStrategyStrategy--Focused OrganizationFocused OrganizationPrinciples (SFO)Principles (SFO) Strategy is translated into a strategy map Strategy is described by a BalancedScorecardScorecard Targets are identified for all measures Strategic initiatives are rationalized Executives are accountable for initiativesStrategyStrategy--Focused OrganizationFocused OrganizationPrinciples (SFO)Principles (SFO) Enterprise contribution to IT strategy isdefinedEnterprise scorecard g ides b siness nits Enterprise scorecard guides business units Scorecards align end-users Scorecard reports occur to the board and orstakeholdersStrategyStrategy--Focused OrganizationFocused OrganizationPrinciples (SFO)Principles (SFO) A strategic awareness is created Personal goals are alignedP l i ti li d Personal incentives are aligned Competency development is alignedStrategyStrategy--Focused OrganizationFocused OrganizationPrinciples (SFO)Principles (SFO) Budget is driven by strategy Planning for HR/IT is linked to strategyP tf li f t t i i iti ti i li d t Portfolio of strategic initiatives is aligned tothemes Process improvement is aligned to strategy
4/17/201334StrategyStrategy--Focused OrganizationFocused OrganizationPrinciples (SFO)Principles (SFO) Process improvement is aligned to strategy Best practice sharing is in placeSt t i f i f ti id Strategic performance information guidesdecision making Strategy is reviewed on a regular basis How do different organizations viewstrategy? What makes for a winning approach (isthere such a thing?) What is the best “strategy of strategies”for an organization to follow, fromplanning to execution?Key Strategy IssuesKey Strategy Issues Is there a difference between privateindustry, non-profits, and governmentalagencies in the approach they must take? There are now tools based on organizationalstrategy that refine risk and investmentjustification beyond simple ROI. Professional organizations are now more thanever defining strategy. Schools of thought have arisen aroundstrategy approaches. Innovation is both good and bad forKey Strategy PointsKey Strategy Points Innovation is both good and bad forcompanies led by entrepreneurs andintrepreneurs.A: It depends! (In other words, howdetailed and complicated does it need tobe?)Q: What is Strategy Anyways?Q: What is Strategy Anyways?Strategy as Plan“A plan of action resulting from thepractice of strategy” (Webster) or “Strategy refers to a plan of actiondesigned to achieve a particular goal.”(Oxford)“St t i t f t t’Types of StrategyTypes of Strategy “Strategy consists of top management’splans to attain outcomes consistent withthe organization’s missions and goals.”(Wright)Strategy as Pattern-BasedTypes of Strategy• Strategies as Patterns: Consistencyof behavior over time (Mintzberg,Gartner)
4/17/201335Strategy as Position Strategies as Position: “Strategy is aTypes of StrategyTypes of Strategycombination of the ends (goals) for whichthe firm is striving and the means(policies) by which it is seeking to getthere.” [in terms of adjusting tocompetition] (Porter)Strategy as PerspectiveTypes of StrategyTypes of Strategy Strategy as a collective enterprise effort ofvalues and beliefs to shape strategy of theorganization.(Drucker)Strategy as StratagemManeuvers to fool or lead competitors to eitherengage or discourage engagement. (Schelling)Types of StrategyTypes of StrategyStrategy is very much related toStructureBut also…But also…Structure has evolved to“Governance” Originally applied to organizationalhierarchical structure (Sloan, Chandler) Became more functional and addresseddecision rights (Richard Eells) Has become much more complicated butadvancement occurred post SarbanesOxleyStructure (Governance)Structure (Governance)Oxley.What is Governance?Governance consists of the Leadership andOrganizational structures and processes thatensure that the Organization sustains andextends its Strategy & Objectives.- Adopted from ITGIGovernance consists of the traditions and institutions byGovernance consists of the traditions and institutions bywhich authority in a country is exercised. This includesthe process by which governments are selected,monitored and replaced; the capacity of the governmentto effectively formulate and implement sound policies;and the respect of citizens and the state for theinstitutions that govern economic and social interactionsamong them.From World Bank Group
4/17/201336World Governance IndexWorld Governance IndexGovernancStakeholdersOperational Management versus GovernanceBusiness FocusManagementeEmployeesNow TimeframePlanningHorizonExecutingEnsuringTacticsStrategyGovernance FocusGovernance FocusAreasAreasLooking outward: Demand governance -what should we work on? Where should resourcesbe invested for greatest return? How do we know?Looking Inward: Supply governance - howshould we do what we do? What are theconstraints, policies, rules and standards we mustcomply with?Value DeliveryStrategicAlignmentGovernance FocusGovernance FocusAreasAreasAlignmentResource ManagementRisk ManagementPerformance ManagementGovernanceGovernanceFrameworksFrameworksITIL v2CMMiISO 13335,15408,17799.20000HiPowers Performance: Structure, Process, & ControlsMOFSpecificityBAL SCORE CARDCOBIT V 4.1ITIL v3SophisticationSix PRINCE2COSO,SOXNIST 800PMBOKHiLowLowEarns credibility & improves and aligns strategiesControlsHIPAA Strategy first was associated with the Military:◦ The Art of War 6th century BCE Sun TzuRoots of StrategyRoots of Strategy◦ The Art of War, 6th century BCE , Sun Tzu◦ “Strategy without tactics is the slowest route to victory.Tactics without strategy is the noise before the defeat.”◦ On War, 1832, Carl von Clausewitz
4/17/201337 Required that printed items, especiallylegal documents and newspapers beprinted on stamped paper. Had to be paid in British money, notColonial money. Ostensibly the tax was to reimburse theBritish for expenses of the French IndianExample: The Stamp Act of 1765Example: The Stamp Act of 1765British for expenses of the French-Indianwar (1756-1763) Henry Mintzberg has categorized strategy intoten schools (slides follow Mintzberg’s points):School Strategy isformulated asNatureDesign Conception PrescriptivePlanning Formal “Strategy “Schools”Strategy “Schools”Planning FormalPositioning Analytical “Entrepreneurial Visionary DescriptiveCognitive Mental process “Learning Emergent “Power Negotiation “Cultural Collective “Environmental Reactive “Configuration Transformation Integrative This is the school most of us identify withExternalAppraisalThreats &OpportunitiesEnvironmeKeySuccessFactors EvaluationThe Design SchoolThe Design SchoolInternalAppraisalEnvironmentStrengths&Weaknesses of OrgFactorsDistinctiveCompetenciesEvaluation/ ChoiceofStrategyImplementation ofStrategy“SWOT”PESTEL AnalysisExternalAppraisalThreats &OpportunitiesEnvironmeThe Design SchoolThe Design SchoolEnvironmentPESTEL is an acronym for the following factors:P = PoliticalE = EconomicS = SociologicalT = TechnologicalE = EnvironmentalL = Legal(There may also be other factors such as Educational,Competitive, Supplier, Market factorsThe “STACK”THE BRANDVISION STATEMENTThe Design SchoolThe Design SchoolMISSION STATEMENTSTRATEGIC THEMESGOALS AND OBECTIVESSTRATEGIESKEY PERFORMANCE AND RISKINDICATORSHow design school works: Top down driven, ultimate strategist isCEO Simple prescriptive model Strategies are perspective (a way of doingthings), explicit, simpleS l d fThe Design SchoolThe Design School Strategies are implemented afterformulation Historically significant
4/17/201338Issues with the Design School: Top down driven means little upwardparticipation in either creation orexecution Rather simplistic May be inflexible or not allow for agility Too convenientThe Design SchoolThe Design School SWOT usually not applied or misapplied Mixed reviews on its effectiveness! Highly formal, tight processes, requiresformal training procedures, techniques Typically executed by strategy department Key figures: Igor Ansoff, 1965, Russ Ackoff Builds on School of Design More Quantitative May involve scenario planningThe Planning SchoolThe Planning School May involve scenario planning Offers bottom up opportunities throughcapital budgeting Issues with the Planning School:◦ Can strategic planning really be formalized andprocessed and still hit the mark?◦ Does the term “planning horizon” really makesense?◦ Strategic planning creates a certain level ofinflexibility as opposed to agility now beingThe Planning SchoolThe Planning Schooltouted.◦ Can strategy or the weather be forecastedwell? Killed off many proponents of theplanning school Origin was from military maxims (Sun Tzuand von Clausewitz): Maxims are similarto Ben Franklin almanac sayings “A stitchin time saves nine” or in modern parlance,“The company who starts the price warThe Positioning SchoolThe Positioning SchoolThe company who starts the price wartakes the profit out of the product.” Offers a quantum states version of possibletypes of strategy. Enter Michael Porter. Porter cites the three generic strategies:◦ Overall cost leadership (Efficiency andEffectiveness) “Our product is like the others onlyless expensive.”◦ Differentiation. “Our product is different than theThe Positioning SchoolThe Positioning Schoolothers.” When it is very different, it becomes a“Blue Ocean Strategy” (Mau and Bourgne)◦ Focus or “Boutique”. “Our product is veryspecialized and focuses on this or that group.” Porter’s Five (Competitive) Forces:◦ Entry and Exit barriers◦ Threat of SubstitutionThe Positioning SchoolThe Positioning SchoolThreat of Substitution◦ Bargaining power of buyers◦ Bargaining power of suppliers◦ Rivalry among current competitors
4/17/201339 Positioning school kicked off modernstrategy efforts (e.g., Bruce Henderson ofBCG, Porter, McKinsey & Co.) Positioning school emphasized experienceand market share◦ Experience Curve◦ Growth Share MatrixThe Positioning SchoolThe Positioning School◦ Growth Share MatrixGrowth Share MatrixGrowth Share Matrix Issues with the Positioning School◦ Analysis does not produce synthesis.◦ Analysis does not in itself fosterThe Positioning SchoolThe Positioning School◦ Analysis does not in itself fosterstrategy creation◦ Generic positions not uniqueperspective Entrepreneurs are the leaders who areeither founders or brought into anorganization for their vision, intuition, andexperience (versus the plan). May alsoinclude intrapreneurs Strategy is in the mind of the leaderStructure is usually simpler as defined byEntrepreneurial SchoolEntrepreneurial School Structure is usually simpler as defined byentrepreneur. Issues: Hit or miss Entrepreneurs pass away. The credit or blame may be overratedtoward the entrepreneur.Entrepreneurial SchoolEntrepreneurial School Smart people anywhere in the organizationare capable of formulating strategy. Theprivate is closest to the front. Strategy making is a process of learning overtime. Logical incrementalism (James Brian Quinn) The emergence of “the collective”The Learning SchoolThe Learning SchoolThe emergence of the collective Role of leadership is to manage the processof strategic learning
4/17/201340 Hamel and Prahalad:◦ core competencies◦ Strategic intent Core competencies are hard to duplicate,hard to even understand by theorganization, but vital to its strategies. Strategic Intent to focus on winningThe Learning SchoolThe Learning School Strategic Intent to focus on winning,motivating, to guide resource allocation Learning school approach is great forprofessional organizations Issues◦ May be seen as a series of tactical maneuvres◦ May even be seen as no strategy◦ Long term planning is difficultThe Learning SchoolThe Learning School◦ Long term planning is difficult Strategy as a social networking andinteracting process Culture influences all strategy either inplanning or execution Bjorkman – the strategy change process:◦ Strategic driftUnfreezing of current belief systemCultural SchoolCultural School◦ Unfreezing of current belief system◦ Experimentation and regarding-formulation◦ Stabilization Jay Barney (Ohio State) – Resource-based Theory: Strategic Resources have:◦ Valuability◦ Rarity◦ Inimitability◦ Non-subsitutabilityCultural SchoolCultural SchoolThat is: “VIRN” Kaplan and Norton Most organizations do not measure theresults of their strategic efforts 90% of all organizations do not implementstrategies they have designed There is an almost total reliance onfi i l f tThe Balanced ScorecardThe Balanced Scorecardfinancial performance measurements Only looking to financial measures◦ Is inconsistent with intangible asset value◦ Is a lagging indicator of past performance◦ Reinforces work functional silos◦ Substitutes cost reduction activities in lieu ofvalue creationThe Balanced ScorecardThe Balanced Scorecard
4/17/201341 Balanced Scorecard translates anorganization’s strategy into fourperspectives:◦ Financial◦ Customer◦ Internal Processes◦ Employee Learning and GrowthBalanced Scorecard is a measurementThe Balanced ScorecardThe Balanced Scorecard Balanced Scorecard is a measurementsystem, a strategic management system,and a communication tool How do different organizations viewstrategy? What makes for a winning approach (isthere such a thing?) What is the best “strategy of strategies”for an organization to follow, fromplanning to execution?DiscussionDiscussion -- Key Strategy IssuesKey Strategy Issues Is there a difference between privateindustry, non-profits, and governmentalagencies in the approach they must take?Questions?Questions?James WasilWork: 614-466-1578Cell: 614-271-5970Q & AQ & AQ & AQ & A