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  1. 1. Accounting Reform II This project is funded by the European Union METHODOLOGICAL GUIDELINES MANAGEMENT ACCOUNTING
  2. 2. Accounting Reform II TABLE OF CONTENTS 0. Introduction.................................................................................................................................3 1.Current Objectives and Strategies of the Company......................................................................6 2.Situation Audit............................................................................................................................10 3.Future Position............................................................................................................................27 4.Future Directions........................................................................................................................34 5.Segment & Functional Strategies...............................................................................................40 6.Strategy Implementation Plan.....................................................................................................51 7.Internal Strategy Development Capability.................................................................................54 Appendix A....................................................................................................................................57 Appendix B....................................................................................................................................58
  3. 3. Accounting Reform II Strategic Planning 0. INTRODUCTION The target audience of this report are managers responsible for development, implementation and monitoring of business strategies. Objectives of the Guideline: The guideline provides these managers with the following tools: • A template outline of a business strategy • Practical advice on how to develop individual elements of the strategy • Recommendations on how to implement, monitor and review strategy DEFINITION A “Business Strategy” is defined as a Company’s decisions in relation to • What products and services the Company plans to develop and provide • To Whom Which segments the products and services are offered to • Where Geographically where which segments are served • How Through which sales channels Introduction to Strategy Development An enterprise’s • financing arrangements, • products and services offered, and • underlying capabilities are intimately related and jointly affect its future. Financing fuels the capabilities used to create products and services; and the competitive offering of products and services generates the financial returns needed to induce investment in the enterprise. Separately, financing, capability, or competitive difficulties can retard the progress of an enterprise, and together such difficulties may prove calamitous. On the other hand, strengths in one or another of these areas may provide a platform for the future, with the joining of strengths across the three areas providing a platform for future success. FUTURE The future provides opportunities and hazards for enterprises, conditioning the directions they might take. But such directions are conditioned equally by an enterprise’s present situation and what it can bring to the future. Moreover, both the future and an enterprise’s present situation may be well or imperfectly understood. surprise chance Deficiencies in such understanding open up an enterprise’s future to chance, while enhanced understanding is likely to provide a firmer grounding for future directions. Better understanding of the future and an enterprise’s situation cannot guarantee success, but it is likely to limit misdirection and SETTING unforeseen or unnecessary failure. FINANCING STRATEGIC DIRECTIONS BUSINESS POSSIBILITIES Bringing together an enterprise’s financing arrangements, products and services offered, and underlying SERVICES capabilities is said to be ‘strategic’. An enterprise’s directions will depend on such strategic joining. The following diagram illustrates the idea. understanding intention 3 ENTERPRISE CAPABILITIES
  4. 4. Accounting Reform II Strategic Planning FUTUR This guideline explores: • the relationships between the financial and business objectives of the company, • the financial and business strategies through which such objectives are pursued, and • the organisational capabilities underlying the realisation of strategies. The explorations deal with both a company’s present situation and its possible future across the following three dimensions of its functioning: • within the organisation overall; • in different customer segments; and • for different functional areas within an organisation. The result should provide a carefully-examined foundation for the Company’s directions (set in terms of objectives and strategies) and their pursuit (in terms of internal capabilities and actions). Overview of this guideline This guideline has been organised around the format of a standard business strategy. Each section (from 1-6) describes one stage in the strategy development process. The order of the sections also reflects the typical logical chronological flow of stages of the strategy development process. Section 1 outlines the process to understand current objectives (both business and financial objectives) and strategies of the company, and also includes the recording of the company’s mission and core values. Section 2 describes how to perform a situation audit of the company, i.e. how to understand the present situation of the company both from an internal and external point of view. The internal analysis results in an assessment of the company’s organisational performance (regarding organisational structure, business processes, people and culture, and technologies) while the external analysis results in an assessment of the company’s competitive position in relation to its markets. This would include an understanding of the markets and segments, products of services, as well as competition and suppliers. Section 3 deals with the process of reviewing the company’s present situation in the light of future possibilities. There are 3 steps in the process: Firstly, to establish an agenda of strategic issues facing the organisation, after reviewing its present situation in the light of future possibilities; secondly, to develop alternative courses of action that would address issues on the strategic agenda; thirdly, to evaluate and select strategic alternatives to create future directions for the organisation. 4
  5. 5. Accounting Reform II Strategic Planning Section 4 is based on the above revised understanding of the organisation and the issues it faces, and the purpose is to confirm or redefine the organisation’s financial and business objectives (what the organisation seeks to achieve in the future). In addition, the purpose is to confirm or redefine the company’s financial and business strategies (how the organisation’s objectives are to be pursued in the future). Section 5 describes how to - having set business strategies for the company in Section 4 - reflect the strategies in specific segment strategies and the internal functional areas. These strategies have a dual focus. On one hand, they set out how customers are to be served in the face of competition, which provides a product/service market perspective (segment strategies). On the other hand, they define how the product/service offerings for the segment are to be produced, providing an organisational perspective on the processes and resources involved (functional strategies). Section 6 outlines the format of the Strategy implementation plan. It is of crucial importance that any business strategy is accompanied by a strategy implementation plan. It is a quite simple thing to do, but critically important for the success of the strategy. Based on an analysis of all segment and functional strategies, all action items are identified, and grouped together in projects. Each of these sections is structured the following way: I. Definition of the elements involved; II. Description of what the strategy should encompass; III. Practical advice on how to manage the process, mainly in the format of practical template forms outlining the data and information required, and how to structure it. An overview of the headlines of a standard business strategy can be found in Appendix A. Section 7 contains a number of recommendations in relation to the internal capabilities required in an organisation in order to develop, implement and update a business strategy. 5
  6. 6. Accounting Reform II Strategic Planning 1. CURRENT OBJECTIVES AND STRATEGIES OF THE COMPANY The first step in a strategy development process is to understand the current strategy of the company. This can be done • firstly, by examining the existing strategy document (very often it actually does not exist), and • secondly, through a number of interviews with senior or middle management. Workshop Instead of interviews, a fact-finding workshop may be organised. The advantage of the workshop is that it will also facilitate communications and discussions. The workshop may actually be considered the first step in the development process of the new strategy. The company could consider having an external consultant facilitate the workshop. You can explore and clarify the organisation’s present directions by answering two critical questions: • What has the organisation sought to achieve? • How have these achievements been pursued? In some cases, the answers will be readily available or documented. In other cases, they may need to be reconstructed by reviewing the organisation’s history. 1.1 Financial and Business Objectives The first question, “what,” relates to the organisation’s objectives, which may be explicit or implicit. An organisation has two types of objectives, business and financial, as defined below. Business Objectives What position does the organisation wish to attain in its product/service markets, in terms of the customer value it generates? This position may be expressed by market share attained, customer retention or acquisition, or customer preference for the organisation’s products/services relative to other products/services. HOW to… Questions to ask to understand Business objectives: • What types of product/service market (or industry) do we seek to be in? • What makes these markets or industries attractive to us? Consider size, degree of segmentation, growth rate, pricing structures, nature of competition, levels of business risk, profitability, etc. • How do we want customers to view our organisation and our products/services? • How do we seek to offer value to our customers, and become their preferred provider of products and services? • What are our growth aspirations in each product/service market segment (e.g., in terms of sales volumes)? • What growth rates have we achieved in each segment over the past three years? • What are our competitive goals in each product/service market segment (e.g., in terms of market share or competitive position)? • How have our market shares/competitive position in each market segment changed over the past 6
  7. 7. Accounting Reform II Strategic Planning Financial Objectives What return is the organisation seeking on capital used, in terms of owner value generated? This return may be expressed through profitability and asset growth relative to debt, liquidity, and dividends that the organisation wishes to sustain. HOW to… Questions to ask to understand financial objectives: • What rate of return are we seeking on capital employed? • What rates of return on capital employed have we achieved in each of the past three years? • What rate of return are we seeking on assets? • What levels of asset growth are we seeking? • What levels of asset growth have we achieved in each of the past three years? • What levels of dividend are we seeking? • What levels of dividend have we achieved in each of the past three years? 1.2 Financial and Business Strategies The second question, “how,” relates to an organisation’s strategies, which also may be explicit or implicit. An organisation has two types of strategies that match its objectives, as explained below. Business Strategies How has the organisation sought to attain its business objectives through the scope and scale of the products/services it offers or the use of distinctive capabilities that give it a competitive advantage? HOW to… Questions to ask to understand business strategies: • What range of products/services have we had in each market segment over the past three years? What is the scope of the organization’s product/service portfolio? • What volume of products/services have we offered in each market segment over the past three years (e.g., in terms of unit sales volumes, and perhaps sales dollars)? • Which sales channels have we utilised for different segments and geographies? • How has the range, and volume mix, of products and services varied over the past three years? • Were the planned, or targeted range, and volume mixes achieved? • Did these competitive advantages flow from targeting customer needs, from gaining advantages over competitors, or from both? Which needs? Which competitors? • Which distinctive competences did we use in trying to meet our targeted range and volumes of products/services? • What synergies in organisational functioning did we use in trying to meet our targeted range and volumes of products/ services? • To what extent were shifts in the range or volume of products/services, over the past three-to-five years, the result of the investment of new resources? To what extent were they the result of shifts in internal patterns of resource allocation? For example, compare investments in technology or product development, or operational budget allocations over this period. • Were these investments, or shifts in resource allocation, planned across the period? 7
  8. 8. Accounting Reform II Strategic Planning Financial Strategies How has the organisation generated and managed its finances, and resourced its business strategies, to attain its financial objectives? HOW to… Questions to ask to understand Financial Strategies: • What financing strategies have we used over the past three-to-five years? Consider this in terms of retained funds, equity funds raised from owners/shareholders, or debt funds raised through borrowing. • What patterns of financial leverage or gearing have we utilized or sought over the past three-to-five years? For example, consider debt/equity ratios over the period. • What was the average cost of funds or capital in each of the last three-to-five years? Consider, for example, the average of cost of debt (interest) and cost of equity (dividends or shareholder return expectations). • How does this cost of capital compare with the rates of return sought on capital employed? (See financial objectives, above.) • What targets have been set over the past three-to-five years for cost reduction that support strategies through changes to operations or divestment of assets, etc.? • Have these targets been achieved? • What criteria or targets have we used to manage working capital, for example to minimise surplus cash, reduce inventories, turn over accounts receivable faster, and use accounts payable as a source of short-term funding? • Have these criteria or targets been achieved? • What approaches have we taken to manage cash flow requirements and imbalances, for example through use of short-term or standby facilities, accelerating inflows/returns from operations, deferring nonessential outflows, etc? • Have these approaches been successful? Mission, Vision and Values The combination of objectives and strategies is expressed as the ‘mission’ of the organisation. The mission should clearly and concisely communicate the purpose of an organisation’s objectives and strategies, taken together. It will then be elaborated in a more detailed statement of objectives and strategies. Consider the following example of a mission statement: To secure superior returns for owners/shareholders1 and offer a range of products/services that win customer preference,2 by harnessing and investing resources3 in organisational technologies and competencies that enable a sustained competitive advantage.4 1 Financial objective, 2Business objective, 3Financial strategy, 4Business strategy The diagram illustrates the parameters of an organisation’s direction established by asking the two critical “what” and “how” questions; the directions taken by an organisation are indicated by its objectives and its strategies. Shifts in objectives indicate a change in an organisation’s directions, but so do shifts in its strategies. Thus, a shift in any of the variables in the diagram indicates a shift in an organisation’s direction. 8
  9. 9. Accounting Reform II Strategic Planning FINANCIAL BUSINESS OBJECTIVES OBJECTIVES · What? · Share Profitability/ Owner Customer of market growth value value · · Policy ORGANISATIONAL Customer parameters MISSION Segments Resource Competitive · · management How? advantage Scope/scale Financing · · FINANCIAL BUSINESS STRATEGIES STRATEGIES For any organisation the critical question is: What value does it seek to create for customers or owners, through effective resource management and sustained competitive advantage in relevant markets? An answer to this question should offer sharp insight into the directions pursued by an organisation. HOW to… Understand current mission? Summary of Section 1 An organisation’s mission can be in different forms. In many cases, the organisation’s mission is not documented in writing. If it is notof the Companyis recommended to write it down during this Current Objectives and Strategies documented, it Once this stage of the strategy development process has been a number of should have stage of the project. Usually, the information is collected throughcompleted, youinterviews witha clear understanding of the senior management. company’s current objectives (both business and financial objectives) as well as strategies, and have recorded the company’s mission and core values. In many cases, this information has not been formally documented earlier in the company, so the process A documenting current objectives is important. It constitutes the baseline and the foundation, on which to of real example… of a Mission Statement Ведущий (в отрасли) build the new strategy. Also, it is an important communication tool when highlighting aspects of the new Кем мы хотим стать process. strategies later in the Мы хотим стать ведущей компанией по (продукты и сегменты) Мы считаем, что основной стратегической целью компании по (напрвлению) завоевание в течение ближайших пяти лет ХХ%(?) доли на российском рынке (отрасль) и рост капитализации компании. Зачем мы существуем Мы создаем компанию, чтобы удовлетворять нужды и потребности нашего главного акционера и других корпоративных клиентов по (продукт), связанных с имущественными интересами и здоровьем сотрудников, предоставляя им страховую защиту на уровне мировых стандартов. За счет использования наших услуг наши корпоративные клиенты смогут улучшить свои программы по (продукт) Как мы этого достигнем Мы разработаем для наших клиентов эффективную программу (продукт), одним из основных элементов которой станут (продукты1,2,3) Мы будем предоставлять услуги по (продукт) не только в России, но и за рубежом. Мы будем активно работать с компаниями, (сегменты) Мы будем оказывать услуги сотрудникам корпоративных клиентов по (продукт), используя не только административный ресурс, но и новые информационные технологии по продаже услуг и послепродажному обслуживанию. Наша компания будет обладать оптимальной организационной структурой, эффективными бизнес процессами, информационной системой, создаст систему сбалансированных показателей по контролю за деятельностью подразделений компании, будет развивать сеть продаж и создавать конкурентоспособные продукты. Мы создадим эффективную внутреннюю организацию, ориентированную на потребителя и устанавливающую конкурентоспособные цены, способную быстро реагировать на изменения на рынке. Мы создадим единую корпоративную культуру, основными ценностями которой станут профессиональные знания и умения, ориентированность на клиента и командный стиль руководства. Чем мы отличаемся от наших конкурентов Мы – профессионалы, которые обладают уникальными знаниями о (отрасль) и имеют большой опыт работы по (продукты) Финансовые возможности и наличие административного ресурса позволят нам достичь поставленных целей. Имидж надежности и солидности, приобретенный в течение десяти лет успешной работы на российском (отрасль) рынке, позволит нам привлечь новых клиентов. 9
  10. 10. Accounting Reform II Strategic Planning 2. SITUATION AUDIT A strategic audit is a structured way of elaborating on the questions you’ve asked about an organisation’s present directions. A strategic audit typically has two dimensions – the internal and the external: Criteria Competitive Organisational Position Performance - External Markets ü - Customers External - Products & Services ü ü Focus - People & Culture ü - Business Processes ü Internal - Organisational structure ü - Information Technologies ü People and Culture Structure Processes and Systems Technology Markets and Products and Custom ers Services These external and internal dimensions will be described in detail below. Also please have a look at Appendix B, containing a large number of questions related to the strategic audit. 1.3 External Assessment The aim of the external analysis is to assess the competitive position of the organisation in external markets. 10
  11. 11. Accounting Reform II Strategic Planning 1.3.1 Products and Services, Markets and Segments Identify the market(s) in which the organisation sells products or services. Focus on descriptions of customers: • Who are they? • What do they purchase and when? • How do they purchase and where? • Why do they purchase, and what do they value most highly? Do not focus on the physical features of products or services, or on how they are produced. The important factor is how customers view what the organisation offers. This is what they pay for. In particular, you should try to understand the product/service mix that customers purchase and demand. The organisation may see itself as a supplier of products, but customers see the service provided as an integral component of the product. For that reason, existing services could be accentuated with advantage. If the organisation is a service firm, you may try to probe customers’ needs or perceptions to assess whether there is a hidden product component in their purchases. How to… Produce a Customer Analysis Identify the markets in which you sell products or services in terms of major classes of customers (segments). For each class of customer try to define the following: • Who are they? • What needs do they have? • Why do they purchase from us? • What do they value most highly? • How do they purchase from us? • What do they purchase from us? • When do they purchase? • Where do they purchase? • What product/service mix is attractive to them? • Why do they prefer us to our competitors? Your organisation may supply products to other organisations, which then add service to the products in supplying its customers. Under these circumstances, your organisation may be vulnerable to service deficiencies of your customer in supplying its customers. For this reason, you may need to probe and describe the full value-chain from your organisation to the end-customer, seeking to uncover needs or perceptions at each stage, as well as the “value-added” at each stage of the chain. These descriptions should give you insight into how the organisation’s product/service markets are segmented. Different categories of customers may be buying different products or services or different product/service mixes, in varying frequencies and amounts. Try to estimate the size of each product/service market, in terms of both volume (number of units sold) and finances (sales dollars and perhaps profit per segment). The resulting descriptions of product/service market segments could include: retail, wholesale, and export; large and small customers; frequent and infrequent customers; customers categorised in terms of product/service mix; and so on. 11
  12. 12. Accounting Reform II Strategic Planning How to… Create a Market Segmentation Describe distinctive segments in the product/service markets you supply. Try to identify the size of each segment, in sales dollars or volume terms, and your share of the market. Segment $ Size of Segment Sales Volume of Our Share of Description (estimated total Segment Market (%) sales in $) (no. of units) $ Volume Finally, try to understand what makes each product/service market or segment attractive to your organisation. Is it - the size of the market, - the level and type of financing available to customers, - degree of segmentation, - growth rate, opportunities for differential pricing, - low levels of competition, or - high profitability? How to.. Analyse Segment Appeal What makes each class of customer (product/market segment) attractive to your organization? Attractiveness Factors Segment Growth Pricing Profitabilit Level of Other Description Rate Opportunitie y Competitio (Describe) s n Also examine some less-attractive features of each market or segment, such as • technological vulnerability, • sensitivity to economic downturns, • environmental issues, • regulatory structures, • dependency on poorly-performing intermediaries, or • exposure to competition. How to… Analyse Trends in Product/Market Segments Describe trends that are occurring across the product/service markets you supply, indicating their applicability to particular segments. • Are there changes in the composition of your customers? • Are customer needs or expectations changing? • Are substitute products or services becoming available? • Are different product/service mixes likely to be demanded? • Are pricing/profit margins trends changing? • Is the method or location of purchase likely to change? • Are there any other trends of importance? 12
  13. 13. Accounting Reform II Strategic Planning Describe the industry the organisation is in. What other companies supply the product/service markets you have described above? Consider the number and size of suppliers, the number of market segments they supply, their product/service mixes, how different their mixes are from yours and others, their distribution systems, and their pricing structures. Are there high levels of seller concentration in the industry, and how are organisations related to one another? Do suppliers operate as networks or constellations, and how is your organisation involved or dependent on such arrangements? Are there barriers to entering the industry? Is there excess capacity within the industry? How to.. Perform an Industry Analysis Who supplies the product/service market segments identified above — apart from your organisation and those with whom you are allied—and what factors govern competition within the industry? Supplier’s Size Segments Market Market Distinct Basis for Names (Sales Supplied Share (by Share Characteristic Competition $) segment) Growth of Products or (price, service, Rate Services etc.) How to … Describe Industry Trends Describe current trends in the supply of the product/service market segments you have identified above, indicating their relevance to particular markets. • Is the industry contracting or growing? Are firms entering or leaving the industry? • Is the structural basis of competition changing, through the creation of inter-organization alliances or shifts in tariffs or regulatory arrangements, for example? • Are profitability patterns changing? • Is the intensity of rivalry within the industry changing? • Are there any other trends? 1.3.2 Competitors -What trends can you discern within the industry? -Are organisations entering or leaving the industry? -Are external factors affecting whether competition is changing, through shifts in tariffs, regulatory arrangements, economies of scale, barriers to entry, takeovers/mergers, the creation of networks or alliances, or other factors? -Is the industry contracting or growing? -Are profit patterns changing? -Are the bases of profitability changing, due to the lowering of costs or the differentiation of products/services, for example? -Within the industry, who are your organisation’s major competitors? -On what basis did you identify this group? -Does your organisation have allies within the industry? Now describe attributes of each competitor. -What is their product/service range? 13
  14. 14. Accounting Reform II Strategic Planning -What are their methods of operation, such as manufacturing, and importing? -What are their methods of competing? Consider price, quality, service, terms, backup, distribution, coverage, and other factors. -What is their market image, and why do customers use them? -What capacity do they have to react to market or competitive changes? -What is their turnover and profitability? -What is their size in terms of employees and asset base? -How flexible or focused are their structures? How to… Perform a Competitor Analysis Identify and analyse your major competitors within the industry. Competitor’s Segment(s) Method of Their Customers’ Their Their name in which operation capacity image of competitive competitive they to react to them advantages disadvantages compete market changes Finally, examine each competitor’s position relative to your organisation. -What are the relative market shares in each product/service market? -Where are you positioned relative to others on competitive factors such as cost, quality, dependability, innovation, flexibility or customer service? -How do competitors’ production and operation arrangements, organisational structures, and financing methods differ from yours? -What competitive moves might they make that will affect your position? -Overall, what are the critical differences between their modes of competing and yours? 14
  15. 15. Accounting Reform II Strategic Planning How to… Perform a Competitor Positioning Our Competitor 1 Competitor 2 Competitor 3 Potential Organization Competitor Relative market shares Segment 1 Segment 2 Segment 3 Segment 4 Cost structures (low/high) Customer image generally Quality Dependability Responsiveness Flexibility Innovativeness Financing structures Organizational structures Likely competitive moves Relative competitive advantage/disadvantag 1.3.3 Suppliers Identify the key resource markets used in generating your organisation’s products/services. Typically, resource inputs might be acquired in markets for raw materials, production supplies, labour, transportation, capital equipment, intellectual property, and information technology. Describe the characteristics of each market, including supply side industry structures. What trends can be identified in each market? Describe your own position as a customer in each market. How to… Perform a Resource Market Analysis Describe characteristics of the key resource markets needed to generate your organisation's product/service. Raw Capital Intellectual Information Labou Transport Other Materials Equipmen Property Technology r t Major resources purchased Major suppliers Trends in each market - - What is your bargaining position? - How is your supply situation, relative to your competitors? - What do you seek in the products/services that you purchase? 15
  16. 16. Accounting Reform II Strategic Planning - Are you satisfied with your present arrangements, in terms of quality, cost, or responsiveness? - Can you assess the degree to which you are satisfied with each supplier? - Do you have too many suppliers? - Do you have appropriate or sufficiently binding alliances or arrangements with key suppliers? Would you be better off with fewer or single supply sources? - What arrangements would you institute if you moved in this direction? Overall, try to specify the ideal situation you could reasonably expect to achieve in each resource market. How to Describe your Positioning in Relation to Suppliers Assess your organization’s position as a customer in each major resource market. Resource Major Satisfaction Features Desired Other Issues Market Suppliers with Present Sought in Position in for Our Firm Arrangements Products/ Each Market (score 1-10) Services Purchased Raw Materials Capital equipment Intellectual property Information technology Labour Distribution/ transport Other 1.3.4 Summary of External Assessment Now it is time to assess your organisation’s position overall, and in each of the markets you have analysed. This is your ‘competitive position’. First, assess the competitive position of each of your products and services within the segments you have identified. In doing so, you might consider some of the following factors: -your share of the market, -the breadth of your product/service line, -your pricing structures, -your distribution capacities, -your sales expertise, -your vulnerability to intermediaries, -your customer's loyalty. 16
  17. 17. Accounting Reform II Strategic Planning The final assessment for each segment might be expressed as strong, average, or weak. Alternatively you may construct your own scale. Second, assess your competitive position within the industry that supplies each of your product/service markets. Consider the following factors: -your growth rates in product/service supply, -the quality of your production facilities, -the quality and appropriateness of your alliances, -staff expertise, -industrial relations situations, -profitability. Again, your final assessment for each industry segment might be expressed as strong, average, weak. Third, assess your competitive position relative to your major competitors, or even potential competitors, in each product/service segment. Draw on your analyses of the factors affecting your competitive position in product/service markets and in the industry. Also use the competitor profiles you have developed. Focus on your advantages and their advantages, your weaknesses and their weaknesses. Express the outcome of your assessment as strong, average, or weak. Fourth, assess the competitive position of your organisation in each resource market. You may use relevant factors identified in the product/service market, industry, and competitor assessments of competitive position. Express the final assessment for each resource market as strong, average, or weak. 17
  18. 18. Accounting Reform II Strategic Planning How to… Summarise Competitive Position Assess your organization’s competitive position in each of the market segments you have analysed. Use a scale of strong, average, or weak in each of the categories below. Competitive Position (strong, average, weak) Product/service markets Segment 1 Segment 2 Segment 3 Industry Segment 1 Segment 2 Segment 3 Competitors Segment 1 Segment 2 Segment 3 Resource Markets Raw materials Capital equipment Intellectual property Information technology Labour Distribution/transport Other Finally, summarise your organisation’s overall competitive position in each of these categories: -product/service markets, -the industry, -comparison to competitors (actual and potential), and - How to Summarize overall assessment Now make an overall assessment of the competitive position of your organization for each of the categories below. Use a scale of strong, average, weak. Competitive Position for the Organization as a Whole (strong, average, weak) Product/service markets Industry Competitors Resource Markets resource markets. In each case express the outcome as strong, average, weak. Note: Competitive position established is dependent on the set of factors you consider to be important for success in external markets, and the relative importance you give to the factors identified. 18
  19. 19. Accounting Reform II Strategic Planning 1.4 Internal Assessment The situation assessment now turns to your organisation’s internal functioning and capabilities, and moves towards an assessment of its performance in key functional areas and overall. These determinations of performance are then probed for their effects in terms of product/service market impacts, and their causes in terms of the impacts of past resourcing patterns. The exploration begins with a brief review of key aspects of the organisation’s functioning • staffing, • direction setting, • change management, and • resource management. The outcome sets the scene for more probing analyses and assessments. Key functional areas are then identified, together with factors crucial for successful performance in each area. Using these factors as assessment criteria, you can now rate your organisation’s performance capability against each factor in each functional area as strong, average, or weak Some key performance areas relate to your organisation overall, rather than to discrete functional areas —such as organisational structures, technology, intellectual property, management, and financial position. Factors crucial for successful performance in each of these areas can be identified, and used as assessment criteria for rating your organisation’s performance capability against each factor in each area as strong, average, or weak. At this point, you should attempt to determine the effects of your performance assessments on customer satisfaction in each product/service market segment that you supply. This proceeds factor by factor, for both functional areas and overall organisational areas. The focus is on strengths first, and then on weaknesses—and the outcome is characterized as a positive or negative effect on customer satisfaction. It is now time to probe for cumulative or countervailing effects. • Do some strengths, with positive effects on customer satisfaction, cumulate as a distinctive competency that you can label, and are some of these strengths offset by weaknesses with negative effects on customer satisfaction? • Do some weaknesses, with negative effects on customer satisfaction, cumulate as distinctive in competences that you can label, and are some of these weaknesses offset by strengths, with positive effects on customer satisfaction? • List the distinctive competences and distinctive incompetences identified and labeled, together with the customer satisfaction criteria used in making this determination. The causes of identified strengths, weaknesses, distinctive competences, and distinctive incompetences can now be explored by looking to previous investments of resources. -What previous resource investments can be attributed to a functional or organisational area and to the factors involved in each case? -Is the factor in question sensitive to the possible withdrawal or injection of resources, and at what point is it likely to change character (e.g., shift from strong to average or weak)? -Is it possible to withdraw resources up to a certain point without affecting a factor categorized as strong or a set of factors characterized as a distinctive competence—what are the dollar ($) amounts involved? --Is it possible to alleviate or remove weaknesses or distinctive incompetences by injections of financial resources—and what are the dollar ($) amounts involved? 19
  20. 20. Accounting Reform II Strategic Planning 1.4.1 Organisational Description How to.. Prepare a Brief Organisation Description Staffing • Total number of employees • Numbers of employees in direct production • Numbers in customer interface roles • Numbers in indirect support roles • Numbers in managerial roles • Describe employee morale • Describe your level of employee absenteeism: • Are employee skill levels appropriate to their work roles? • How much training is required to maintain skill levels? • Is training conducted internally or externally? • Are skilled employees easily replaceable? If so, how? • What reward systems are in place? • What levels of participation are there in the business? Direction Setting • How are objectives/strategies set? • Is product/service market success the focus of direction setting? • What time frames are used in direction setting? • How are the directions—in terms of objectives, strategies, timing—established as a focus throughout the organisation? • Who makes what decisions in direction setting? • What lines of authority have been established in relation to direction setting? Change Management • Is change consciously managed in response to the organisation taking new directions? • Who is responsible for guiding change within the organisation? • What philosophies are drawn on in guiding organisational change? • Are the outcomes of change monitored? • How is change established as a necessity or norm for the organisation? Resource Management • Is resource acquisition and use consciously managed within the organisation? • Who is responsible for guiding these processes? • Are new resource needs considered as part of direction setting? • Are new patterns of internal resource allocation considered as part of direction setting? • Are change processes designed to release resources for alternative uses? • Are change processes supported by appropriate injections of resources, such as investment in new technology or training? 1.4.2 Functional Performance Identify your organisation’s key functional areas, such as specialized processes or departments. A typical list might include: -procurement (purchasing), -production (operations), -human resources (personnel), -transport (distribution), -marketing (sales), and -finance (accounting). 20
  21. 21. Accounting Reform II Strategic Planning How to.. Rate Functional Performance Rate the performance of each of your organisation’s functional areas as strong, average, or weak relative to each factor. If applicable, identify other factors in each area that you consider crucial for successful performance. Strong Average Weak Procurement Resource availability Lines of supply Just in time possibilities Logistics of supply .................................................. Human Resources Labour availability Industrial relations Competency profiles Training capacity .................................................. Production Plant capacity Plant flexibility Maintenance/reliability Plant modernity .................................................. Transport Capacity levels Flexibility Responsiveness/speed Cost .................................................. Marketing Product Range Pricing structures/strategies Promotional strategies Distribution logistics .................................................. Finance/Accounting Working capital management Decision support capabilities Information/control systems Cash flow management .................................................. Other .................................................. 1.4.3 Organisational Performance Some key performance areas relate to the organisation as a whole, rather than just to particular functional areas. The following are examples: -organisational structure, -information technology, -business processes, -intellectual property, -management, and -financial position. 21
  22. 22. Accounting Reform II Strategic Planning How to... Rate Organisational Performance Rate the performance of areas that relate to the organisation as a whole as strong, average or weak relative to each factor identified. If applicable, identify other factors in each area that you consider crucial for successful performance. Strong Average Weak Organisational structures Division of work Integrative planning/control systems Product/service market focus Flexibility/responsiveness .......................................................... Information Technology Production support Administrative support Capacity Flexibility .......................................................... Business Processes Efficiency of Key customer processes Organisation of reengineering .......................................................... Intellectual property Legal title Extent of protection Exploitability Durability .......................................................... Management Depth of experience Innovative capabilities Team focus Assigned performance Indicators/responsibilities .......................................................... Financial Position Asset structures Debt structures Profitability/cash flow Borrowing/financing capacity ................................................. Other areas/factors .......................................................... 1.4.4 Summary of Internal Assessment - Impact on Market Segments Based on the external analysis you conducted in section 2.1, identify the criteria that seem crucial to customer satisfaction in each product/service market segment. These criteria might include -cost, -quality, -variety/flexibility, 22
  23. 23. Accounting Reform II Strategic Planning -responsiveness, -dependability/reliability, -service, and -innovativeness. Assess whether the strengths you ascribed to functions within the organisation, or at the organisational level, have a positive or negative bearing on particular customer satisfaction criteria in each market segment. Similarly, assess whether the weaknesses you ascribed to functions within the organisation, or at the organisational level, have a positive or negative impact on particular customer satisfaction criteria in each market segment. Finally, look for patterns in how you have categorised the impact of your strengths and weaknesses on criteria that affect customer satisfaction. Consider the impact across segments. For example, in relation to criteria such as cost or quality, do weaknesses negate strengths, or are there insufficient strengths across the board to have a sustained impact on a particular criterion? If, however, you consider that strengths are cumulative and weaknesses do not negate them, categorize those factors as a distinctive competency. On the contrary, you may categorise other factors as distinctive incompetences. How to.. Analyse Product/Service Market Segment Impacts Assess whether the strengths you described within functions, or at the organisational level, have a positive or negative bearing on customer satisfaction in each market segment. Function/Organization Factors Segment 1 Segment 2 Segment 3 Segment 4 Strengths** ................................. ...................... ................... .................... .................... ................................. ...................... ................... .................... .................... ................................. ...................... ................... .................... .................... ................................. ...................... ................... .................... .................... ................................. ...................... ................... .................... .................... ................................. ...................... ................... .................... .................... ................................. ...................... ................... .................... .................... * Use criteria crucial to customer satisfaction such as cost, quality, variety/flexibility, responsiveness, dependability/reliability, service, innovativeness, etc. If the impact of a factor is positive or negative, mark it accordingly in the space provided under each segment. ** You may wish to assign some factors previously scored as “average” to this category. Assess whether the weaknesses you ascribed within functions or at the organisational level have a positive or negative bearing on customer satisfaction in each market segment. 23
  24. 24. Accounting Reform II Strategic Planning Function/Organisation Factors Segment 1 Segment 2 Segment 3 Segment 4 Weaknesses** ..................................... ................... ................. .................... .................... ..................................... ................... ................. .................... .................... ..................................... ................... ................. .................... .................... ..................................... ................... ................. .................... .................... ..................................... ................... ................. .................... .................... ..................................... ................... ................. .................... .................... ..................................... ................... ................. .................... .................... ..................................... ................... ................. .................... .................... ................... ................. .................... .................... ................... ................. .................... .................... ................... ................. .................... .................... * Use criteria crucial to customer satisfaction such as cost, quality, variety/flexibility, responsiveness, dependability/reliability, service, innovativeness, etc. If the impact of a factor is positive or negative, mark it accordingly in the space provided under each segment. ** You may wish to assign some factors previously scored as “average” to this category. 24
  25. 25. Accounting Reform II Strategic Planning Look for patterns in how you categorized the impact of your strengths and weaknesses on customer satisfaction criteria. Consider the impact across segments. If a strength has a cumulative, sustained effect, classify it as a distinctive competence. If a weakness has a cumulative, sustained effect, classify it as a distinctive incompetence. Mark the effect, either positive or negative, of each distinctive competence or incompetence in the space provided under relevant customer satisfaction criteria. Function/Organisation Customer Satisfaction Criteria* Factors Cost Quality Variety Service Depend- Respon- Othe ability siveness r .................................. .............. .............. .............. .............. .............. .............. .................................. .............. .............. .............. .............. .............. .............. ........ .................................. .............. .............. .............. .............. .............. .............. ........ .................................. .............. .............. .............. .............. .............. .............. ........ .................................. .............. .............. .............. .............. .............. .............. ........ .................................. .............. .............. .............. .............. .............. .............. ........ .................................. .............. .............. .............. .............. .............. .............. ........ .................................. .............. .............. .............. .............. .............. .............. ........ .................................. .............. .............. .............. .............. .............. .............. ........ .................................. .............. .............. .............. .............. .............. .............. ........ .............. .............. .............. .............. .............. .............. ........ .............. .............. .............. .............. .............. ........ Distinctive Competence s 1. .............................. .................................. 2. .............................. .................................. 3. .............................. .................................. .................................. 4. .............................. .................................. Distinctive Incompetences 1. .............................. .................................. 2. .............................. .................................. 3. .............................. .................................. 4. .............................. .................................. 25
  26. 26. Accounting Reform II Strategic Planning Summary of Section 2 Situation Audit Once this stage of the strategy development process has been completed, you should have obtained an in-depth understanding of the present situation of the company both from an internal and external point of view. The internal analysis assesses the company’s organisational performance (regarding organisational structure, business processes, people and culture, and technologies) while the external analysis assesses the company’s competitive position in relation to its markets. This includes an understanding of the markets and segments, products of services, as well as competition and suppliers. In other words, the situation audit must provide all the hard facts, data and market information, based on which the company will make its important strategic decisions. This stage is crucial, without quality data, the wrong strategic decisions could be made. 26
  27. 27. Accounting Reform II Strategic Planning 3. FUTURE POSITION Futures assessment is an approach to reviewing an organisation’s present situation in the light of future possibilities. It acts as a basis for redirecting efforts. The aim is three-fold: a) first, to establish an agenda of strategic issues facing the organisation, after reviewing its present situation in the light of future possibilities; b) second, to develop alternative courses of action that would address issues on the strategic agenda; and c) third, to evaluate and select strategic alternatives to create future directions for the organisation. 1.5 Guessing the Future It should now be possible to supplement the situation assessment you have made through a mode of thinking known as S.W.O.T. analysis (strengths, weaknesses, opportunities, threats analysis). Recall that you have assessed the organisation’s competitive position in four areas: -in the product/service markets the organisation supplies, -within the industry, -relative to major and potential competitors, and -in the organisation’s key resource markets. Now you should identify threats and opportunities relating to each of these categories. Scan the external environment and try to look into the future. -Will there be shifts in customer demand? -Will there be new entrants to the industry (e.g., as tariff barriers fall)? -Are competitors changing their stance in relation to your organisation, and will they be equally affected by external changes, such as regulation or deregulation? -Will you find resource substitutes? -What effect will changes in technology or in the community's position on the environment or business ethics have? In identifying threats and opportunities, focus first on the category, such as product/service markets, and then on your competitive position in this category. There may be a threat to a market segment, which may (or may not) have an effect on your competitive position in this segment. For example, a shift in customer preference, for environmentally sound packaging in a market segment, may not affect your competitive position if you already use such packaging. Remember also that you have assessed your organisation's internal strengths and weaknesses. Your assessment shows their impact on market segments in terms of customer satisfaction criteria. It also shows the impact of past resourcing patterns on the existence of a strength or weakness. Also, you have examined the cumulative effects of different strengths and weakness, to identify factors as distinctive competences or distinctive incompetences. Now you should assess whether these strengths and weaknesses, particularly those categorized as distinctive competences or distinctive incompetences, confer a competitive advantage or competitive disadvantage on the organisation. Not all will! In making this assessment, draw on your external analysis of your competitors, customers, and suppliers, considering potential changes by these players in your markets. Also, refer to assessments of your competitive position and the bases for such assessments. 27
  28. 28. Accounting Reform II Strategic Planning Focus first on the product/service-related factors that confer distinctive competences or incompetences. Then examine factors at the organisational level, relating to - structures, - technology, - intellectual property, - management, and - financial condition, including the potential for generating external financial resources. Finally, scrutinise the full set of items listed. Estimate the financial resources that could be generated internally by withdrawing resources from these items without affecting their potency, or from other areas of organisational functioning. At the same time, identify the items requiring resource injections to sustain competitive advantage, remedy weaknesses or nullify competitive disadvantages. Estimate the funds required. 28
  29. 29. Accounting Reform II Strategic Planning How to.. Identify External Threats and Opportunities How to.. Identify threats and opportunities relating to each of the four areas in which you have assessed your competitive position: product/service markets, industry, competitors, and resource markets. Insert your Identify Internal Strengths and Weaknesses Assess whether the strengths and weaknesses you have and then describe relevant threats and opportunities previously determined competitive position, identified, particularly those categorized affecting it. This begins the S.W.O.T. analysis referred to above (strengths, weaknesses, as distinctive competences or threats). opportunities, and incompetences, confer a competitive advantage or competitive disadvantage on the organization. Competitive Threats Opportunities Strengths Position Weaknesses List of Factors Distinctive (strong, Competitive Distinctive Competitive Competence average, weak) Advantages Incompetences Disadvantages Product/Service Markets s Product/service related 1 Segment ......................................... Segment 2 ......................................... Segment 3 ......................................... Segment 4 Organizational structures Industry ......................................... Segment 1 ......................................... Segment 2 ......................................... Segment 3 Intellectual property Segment 4 ......................................... Competitors ......................................... Segment 1 ......................................... Segment 2 Technology Segment 3 ......................................... Segment 4 ......................................... Resource Markets ......................................... Raw materials Management Capital equipment .............................................. Intellectual property .............................................. Information technology .............................................. Labour Financial condition Distribution/transport .............................................. Other .............................................. .............................................. External finance generation potential .............................................. .............................................. .............................................. Internal finance generation potential .............................................. .............................................. Required resource injections .............................................. .............................................. .............................................. 29
  30. 30. Accounting Reform II Strategic Planning SWOT Workshop. It is recommended to organise one or more workshops to create the SWOT analysis. Participants can be middle or senior management. The workshop should be organised around brainstorming and free interaction, as it is important that as many ideas as possible are generated. Later, these ideas will be validated. Consider using external resources to facilitate the workshop(s). 1.6 Establish strategic Alternatives As a result of the explorations you have now done—the situation assessment and S.W.O.T. analysis—you should be able to establish an agenda of the strategic issues facing the organisation. This agenda may be developed and structured as follows. Strategy or performance gaps. Consider present (or possible) failures to meet financial or business objectives and strategies. Examine the impacts on present objectives and strategies of the external threats and organisational weaknesses you have identified. List strategy or performance gaps. Feasible opportunities. Examine possible relationships between external opportunities and organisational strengths, particularly distinctive competences or competitive advantages. Identify and list the opportunities that should be feasible, given the organisation's strengths. Potential difficulties. Examine possible relationships between external threats and organisational weaknesses, particularly distinctive incompetences or competitive disadvantages. Identify and list potential difficulties facing the organisation. Capability gaps. Examine possible relationships between external opportunities and organisational weaknesses, particularly distinctive incompetences or competitive disadvantages. Identify the opportunities that cannot be pursued and the capabilities the organisation needs to develop to make them accessible. List the identified capability gaps. Manageable threats. Examine possible relationships between external threats and organisational strengths, particularly distinctive competences and competitive advantages. Identify and list threats that are manageable but have not been dealt with. Emerging issues. Identify emerging issues that do not fall into the categories above because they do not require immediate attention; however, they do warrant attention or monitoring. The strategic agenda provides a basis for redirecting organisational attention by identifying new directions for the organisation and areas for change. For example: • eliminate strategy or performance gaps by setting new objectives and strategies; • take advantage of feasible opportunities by capitalising on organisational strengths; • remedy potential difficulties by investing in removing weaknesses, particularly those conferring competitive disadvantages; • remedy capability gaps by investing in removing weaknesses to make more opportunities available; • manage threats by focusing organisational strengths on forestalling or counteracting identified or emerging threats; and • monitor identifiable issues whose organisational effects are not yet clear. The collective effect of such initiatives should be to point or move the organisation in beneficial directions. Failing to address these matters is likely to threaten the organisation's viability. 30
  31. 31. Accounting Reform II Strategic Planning How to.. Establish a Strategic Agenda Develop a strategic agenda based on the assessments you’ve done so far. List agenda items on the left of the following table under the relevant heading. Strategic Agenda Strategic (list) Alternatives Performance/ Strategy Gaps Feasible Opportunities Potential Difficulties Capability Gaps Manageable Threats Emerging Issues 1.7 Evaluate strategic alternatives While the strategic agenda suggests a number of directions for concerted action, it is not specific about which actions could, or should, be taken. Each item on the agenda could be addressed by more than one action. For example, to expand, you could promote existing products in new markets, or develop new products for existing markets. To acquire expertise, you could hire staff or engage outside contractors. Also, each possible action might serve more than one item on the agenda. Increasing the depth of marketing expertise, for instance, might permit a movement into new markets and focus new product development. Brainstorm… This is a time to brainstorm, gather advice, and let your team interact. Be imaginative! But deal with all items on the agenda. Stop only when you have exhausted all possible alternative actions for each item. Once a list of strategic alternatives is developed, the next problem is selecting from the list. -Which of the action alternatives should be implemented? -In what order of priority? -In what time frames? -Should there be a sequence of implementation? The answer to these questions depends on the criteria that bear on the alternatives. The following criteria might be used. 31
  32. 32. Accounting Reform II Strategic Planning Strategic coherence. -Is an alternative consistent with other alternatives being considered and with existing strategies? -Does it capitalise on distinctive competences/competitive advantages? -Will there be a synergy when the alternative combines with others? -Does the alternative, along with others, establish a coherent strategy for the organisation? Consider this in terms of the scope of product/service market offerings and the scale of particular offerings (e.g., in terms of growth, reduction in volumes, and so on). Outcome likelihood/risk. -What is the likelihood that the outcomes of each alternative will be achieved? -Is there a high or low risk of outcome failure, and what are the consequences to the organisation? Threat/capability exposure. -What external threats does an alternative face? -Is the exposure to threats high or low? -What additional capabilities does an alternative require? -Is the capability gap to be overcome high or low? Advantages/disadvantages. -What advantages or disadvantages are associated with an alternative? -Are there few or many? -Are they consequential or inconsequential? Assumption failure. -What are the key assumptions in an action alternative? -What alternative or counter-assumptions are possible? -What is the likelihood of the assumption failing? -What is the risk, in terms of possible consequences, of the assumption failing? Resource implications. -What resources does an action alternative entail? Alternatives might be ranked in terms of the resources they require. Their feasibility might be assessed against known, or assumed, availability of resources. How to.. Develop Strategic Alternatives Collaboratively develop as many alternatives as possible for addressing each item on the strategic agenda. List the alternatives developed on the right side of the above table. To analyse the merits of each alternative, you may apply each criterion equally to each alternative. The outcomes can be treated as data for a composite evaluation. Alternatively, you can assign relative weights to each criterion as part of a composite evaluation. Or you may give priorities to different criteria in a sequential screening process. In this case, some alternatives will be eliminated as they fail the first criterion, others will not work with the second, and so on. Play with the possibilities, not only as a way of evaluating or ranking alternatives, but to discover what is important to your organisation. -How entrepreneurial is it? -How much is it wedded to change? -How risk averse is it? -How confident are you in your analysis? After establishing the organisation’s present directions, and reviewing them in the light of future possibilities, you are in a position to establish the directions that will be pursued in the future and organisational actions or changes that will be necessary as a result. 32
  33. 33. Accounting Reform II Strategic Planning How to.. Evaluate Strategic Alternatives Evaluate the merits of each alternative action to determine which ones should have greater priority. Use each of the criteria listed for each alternative. Then come to a composite evaluation of each alternative, possibly giving it a score. Your scoring system should indicate your relative preference for an alternative, say on a scale of 1-10. Strategic Evaluative Criteria Composite Alternative Evaluation (indicate) (score) Strategic Likelihood/ Resource Threat/ Advantages Assumption Coherence Risk Implications Capability / Failure Exposure Dis- advantages Summary of Section 3 Future Position Once this stage of the strategy development process has been completed, you should have evaluated and selected strategic scenarios. This stage goes through an important, creative process. Firstly, you must identify the strategic issues facing the organisation, secondly, you must develop alternative courses of action to address the issues; thirdly, you must evaluate and select strategic alternatives to create the future directions. As mentioned above, this stage of the process is very much about creativity. The basic facts are available, and based on these facts strategic alternatives must be developed and evaluated. Without comparing alternative scenarios and instead just selecting the obvious ones, there is a high risk that not all important potential business opportunities are identified and evaluated, and that the selected scenarios are not the optimal ones. 33
  34. 34. Accounting Reform II Strategic Planning 4. FUTURE DIRECTIONS Based on your revised understanding of the organisation and the issues it faces, you should be able to confirm, or redefine, the organisation’s financial and business objectives—what the organisation seeks to achieve in the future. Also, you should be able to confirm, or redefine, the organisation’s financial and business strategies—how the organisation’s objectives are to be pursued in the future. 1.8 Objectives 1.8.1 Financial Objectives & Strategies Define the strategies to be used in generating finance and allocating it to support business strategies How to.. Record Future financial strategies How finance is generated Owners/shareholders: Year 1: Year 2: Year 3: Debt: Year 1: Year 2: Year 3: Retained earnings: Year 1: Year 2: Year 3: Average cost of funds sought: Year 1: Year 2: Year 3: Investment hurdle rates: Year 1: Year 2: Year 3: Investment levels: Year 1: Year 2: Year 3: Asset reduction ($): Year 1: Year 2: Year 3: Cost reduction ($): Year 1: Year 2: Year 3: Cash balances (min.) Year 1: Year 2: Year 3: Standby facilities (min.) Year 1: Year 2: Year 3: 1.8.2 Business Objectives and Strategies How to.. Record Future business objectives Product/service market 1. , segments 2. (identify/describe) 3. 4. Types of customer value/ experience: Sales volume growth by 1. , segment 2. 3. 4. Share of market by 1. , segment 2. 3. 4. 34
  35. 35. Accounting Reform II Strategic Planning How to.. Record Future business strategies Define your future business strategies in terms of: • the product/service range to be maintained by market segment, and the product volumes to be offered; • the competitive advantages and distinctive competences to be used in competing; • the synergies sought and productivity improvements to be made as a basis for competing; and • investments to be made to support business strategies, and to build a platform for future competing. Product/Service Range Segment Segment Product/service range Description 1 1. , 2. 3. 2 1. , 2. 3. 3 1. , 2. 3. 4 1. , 2. 3. Product Service Volumes Segment Segment Description Product/service Volumes 1 2 3 4 Competitive advantages, Synergies, Investments Competitive Advantages sought and used Customer Related Competitor Related Organization related Distinctive competences used Functional Organization level Synergies sought Product/service market related Resource market related Within the organization With other organization alliances Productivity/continuous improvement Types of gain sought Organizational areas Methods of pursuit Investments Product/service development Intellectual property Technology: 1.9 Mission & Vision At this point, it should be possible to reaffirm or adjust your organisation’s mission statement, along the lines indicated in Section 1. This statement should clearly and concisely communicate the purpose of the organisation’s objectives and strategies, taken together. 35
  36. 36. Accounting Reform II Strategic Planning The diagram below illustrates the parameters of organisational direction that can now be established. • Return FINANCIAL BUSINESS on equity OBJECTIVES OBJECTIVES • Asset growth Owner What? Customer • Product/ • Value Value service market Debt/equity ORGANISATIONAL segments • MISSION • Values offered Resource Competitive Management Advantage • Sales How? volume growth • Share of • market • FINANCIAL BUSINESS Scope/scale by Financing mix STRATEGIES STRATEGIES segment • Cost of • capital Competitive • advantages sought/ Investment of used funds • • Cost Distinctive competencies used • Synergies sought 1.10 Key Performance Measures and Targets for objectives Given this level of definition of business and financial objectives and strategies, you should be able to establish key performance indicators that you wish to monitor. Obviously they will relate to the organisation overall and, in addition, will provide the framework for a hierarchy of objectives and performance indicators within the organisation. Some of the performance indicators are measured more easily than others, but even qualitative indicators are important, as they focus attention on critical issues. How these key performance indicators relate to and assist the organisation to focus on its future directions is illustrated in the following diagram. • Product/ • Return FINANCIAL BUSINESS service market on equity OBJECTIVES OBJECTIVES segments • Asset • Values growth Owner What? Customer offered • Value Value • Sales Debt/equity ORGANISATIONAL volume growth • MISSION • Share of Resource Competitive market Management How? Advantage • • FINANCIAL BUSINESS Scope/scale by Financing mix STRATEGIES STRATEGIES segment • Cost of • capital KEY Competitive • PERFORMANCE advantages sought/ Investment of INDICATORS used funds • • Cost Distinctive competences used FINANCIAL ORGANISATION MARKET • Synergies sought • Sales by • New • Sales volumes segment product/service by segment • Segment development • Share of profitability • market by segments • Return on Product/service • equity enhancement Product/service expansion • Debt • Technology by segments reduction/retirement improvements • Customer • Asset • Process satisfaction levels improvements • Competitive • Competence position development 36

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