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Lecture strategic management control


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This is a lecture I have for female managers from third world countries. It is part of a larger course financed by SIDA - the Swedish foreign aid development agency

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Lecture strategic management control

  1. 1. Today's agenda: From Strategy to Action Strategic Planning and Implementation Theory & Practice Mats Westerberg Luleå University, SE-971 87 Luleå [email_address]
  2. 2. Mats Westerberg My time with you… <ul><li>Who am I? </li></ul><ul><li>What will we do together? </li></ul><ul><ul><li>AM : Theoretical outline where I invite you to help me keep it understandable (ask me if anything is unclear) Full group session </li></ul></ul><ul><ul><li>Lunch Assignment : How can you use this in your context? How can these tools support your organizations? </li></ul></ul><ul><ul><li>PM : Small group discussions about the above followed by a concluding discussion and “wrap up” before the full group </li></ul></ul>
  3. 3. Mats Westerberg Who am I? <ul><li>Background: Raised in a small business environment </li></ul><ul><li>Basic education: MSc Engineering (& Management) </li></ul><ul><li>Post grad education: PhD Business Administration (98) </li></ul><ul><li>Thesis title: Managing in Turbulence </li></ul><ul><li>Empirical focus: Small firms in the forestry sector (saw mills, joinery firms, prefab wood housing, etc) </li></ul><ul><li>Theoretical focus: Entrepreneurship, management control, networking, personal traits (of CEO) </li></ul><ul><li>My tasks today : Teaching, research, supervision of PhD students, strategic development </li></ul>
  4. 4. Mats Westerberg Who am I? <ul><li>I love to travel and discover new places. I have traveled both as a backpacker and as a normal traveler to around 70 countries (mostly Europe and Asia) </li></ul><ul><li>In your part of the world (Asia) I have been to… </li></ul><ul><ul><li>China, Hong Kong, India, Indonesia, Japan, Korea (south), Malaysia, Nepal, Philippines, Singapore, Taiwan, Thailand </li></ul></ul><ul><li>Some unusual places I have been to are… </li></ul><ul><ul><li>Kingdom of Tonga and Western Samoa </li></ul></ul>
  5. 5. Mats Westerberg The Theoretical Outline <ul><li>Some notes about strategy </li></ul><ul><li>The concept of fit (Contingency) </li></ul><ul><li>Strategy implementation </li></ul><ul><ul><li>Simons Levers of Control </li></ul></ul><ul><ul><li>Balanced Scorecard </li></ul></ul><ul><li>Problems with implementation and how to avoid them </li></ul>
  6. 6. <ul><li>Mintzbergs aspects: </li></ul><ul><ul><li>Plan, Pattern, Position and Perspective </li></ul></ul><ul><li>Strategic mission (Anthony): </li></ul><ul><ul><li>Build, hold, harvest and divest </li></ul></ul><ul><li>Miles & Snows types: </li></ul><ul><ul><li>Prospector, defender, analyzer and reactor </li></ul></ul><ul><li>Porters generic options: </li></ul><ul><ul><li>Differentiation, cost effectiveness and niche </li></ul></ul>Mats Westerberg Strategy Pattern in actions Plan Position
  7. 7. Mats Westerberg How Strategy is developed (according to Henry Mintzberg) Intended Strategy Not Realized Emergent Planned Realized Strategy Strategy Strategy Strategy Strategy Not Realized
  8. 8. Mats Westerberg How to Choose Strategy (according to Contingency Theory) Context, Environment Structure, Culture, Practices, etc Strategy Management Control ” Fit” ” Fit” ” Fit” Good Performance
  9. 9. Mats Westerberg But how do we make sure that the strategy that we find fitting is put into action in the organization?
  10. 10. Mats Westerberg <ul><li>Implementation (using management control devices) has been riddled with problems </li></ul><ul><ul><li>Budgets tend to be two-sided and people at different levels see it with different eyes </li></ul></ul><ul><ul><ul><li>Budget people (upper management): The eyes and ears in the organization; finds problems; gives direction </li></ul></ul></ul><ul><ul><ul><li>Middle management: Power tool to uphold authority </li></ul></ul></ul><ul><ul><ul><li>Group manager: Something you do not mention </li></ul></ul></ul><ul><ul><ul><li>Employees: Something you look upon with suspicion </li></ul></ul></ul>
  11. 11. Mats Westerberg <ul><li>Different styles to use the budget and the consequences </li></ul><ul><ul><li>Strictly </li></ul></ul><ul><ul><ul><li>Produced a short term orientation where meeting budget goals were critical. Poor work environment. Worst performance (except for meeting costs) </li></ul></ul></ul><ul><ul><li>Loosely </li></ul></ul><ul><ul><ul><li>Produced a long-term orientation where results were in focus. Challenging environment where employees thrived. Best performance. </li></ul></ul></ul><ul><ul><li>Not at all </li></ul></ul><ul><ul><ul><li>Produced a climate where economical aspects were secondary. Good work environment. Medium performance </li></ul></ul></ul>
  12. 12. Mats Westerberg <ul><ul><li>The two conflicting aspects of management control </li></ul></ul><ul><ul><ul><li>Helps to clarify goals, create motivation, provide insight for more effective control, foresee future change, create dependence between departments to foster cooperation and give management a tool for fair and just evaluation of departments </li></ul></ul></ul><ul><ul><ul><li>A power tool used to force employees to perform constantly better, yet without rewarding contributions, create walls between departments by stimulating internal competition, etc. </li></ul></ul></ul>
  13. 13. Mats Westerberg So, is there a way to implement that works better? Well, lets see
  14. 14. Mats Westerberg Organizational Balance What are organizations? <ul><li>Instrument created to reach common goals </li></ul><ul><li>Social systems </li></ul><ul><li>A collection of individuals with self-interest </li></ul>Dynamic tension
  15. 15. Mats Westerberg Balancing dynamic tensions Value adding dynamics Human behavior dynamics Strategy making dynamics Opportunities Focus Organization Intended strategies Emergent strategies Self-interest Desire to contribute
  16. 16. Mats Westerberg Organizational ”blocks” and human behavior The desire to do right The desire to achieve and contribute The desire to create Behavior Organizational ”blocks” Opportunities for individuals to make decisions that conflict with codes of personal conduct Uncertain expectations, too many tasks and lack of resources Limited resources or room to act, fear of failure and lack of guidance
  17. 17. Mats Westerberg A system for balancing the aforementioned dynamics should have the following characteristics <ul><li>Reduce the risk of temptation or pressure by specifying and enforcing the organization’s ”rules of the game” </li></ul><ul><li>Bring focus and resources to individuals seeking the opportunity to achieve by building and supporting clear targets </li></ul><ul><li>Stimulate innovation by inspiring and motivating organizational participants to create and search for new opportunities </li></ul><ul><li>Reduce the fear of challenging the status quo by opening an organizational debate and dialogue and thereby trigger organizational learning </li></ul>
  18. 18. Mats Westerberg Robert Simons’ ”Levers of Control” that are designed to balance the tensions Business strategy Belief systems Boundary systems Diagnostic control systems Interactive control systems Core values Risks to be avoided Critical performance variables Strategic uncertainties
  19. 19. Mats Westerberg Belief and Boundary Systems These are systems to frame the strategic domain Belief Systems … is the explicit set of organizational definitions that senior managers communicate formally and reinforce systematically to provide basic values, purpose, and direction for the organization Boundary Systems … establish limits, based on defined (business) risks, to opportunity-seeking <ul><li>Limits for behavior </li></ul><ul><li>Limits for the strategy </li></ul>
  20. 20. Mats Westerberg Interactive and Diagnostic Control Systems These are systems to formulate and implement business strategy Interactive Control Systems … stimulate search and learning, allowing new strategies to emerge as participants throughout the organization respond to perceived opportunities and threats Diagnostic Control Systems … are the formal information systems that managers use to monitor organizational outcomes and correct deviations from preset standards of performance
  21. 21. Mats Westerberg At the same time… are systems to expand opportunity-seeking and learning Belief Systems & Interactive Control Systems Boundary Systems & Diagnostic Control Systems are systems to focus search and attention while
  22. 22. Mats Westerberg Simons’ Levers of Control Strategy Opportunity and Attention Systems to frame the strategic domain Systems to expand opportunity-seeking and learning Systems to focus search and attention Systems to formulate and implement business strategy Core values Risks to be avoided Critical performance variables Strategic uncertainties Business strategy Belief systems Boundary systems Diagnostic Control systems Interactive control systems
  23. 23. Mats Westerberg What should be measured? We measure important aspects in the organization What gets measured gets done What gets done right gets rewarded What gets rewarded is what really counts Individual level
  24. 24. Mats Westerberg Traditionally measurements have been focusing on financial aspects Financial performance measures can at the best give a picture of the mean activity of a company and the results of that activity from a historical perspective (Wallander, 1999). Financial ratios can indicate how the organization did in the past – non-financial measures can indicate the present (and even future) state of the organization
  25. 25. Mats Westerberg Balanced Scorecard 1990 Nolan Norton Institute 1992 The Balanced Scorecard – Measures That Drive Performance. H BR 1993 Putting the Balanced Scorecard to Work . HBR 1996 Using the balanced scorecard as a strategic management system . HBR The Balanced Scorecard : Translating Strategy into Actions Robert S. Kaplan & David P. Norton
  26. 26. Mats Westerberg Balanced Scorecard According to Kaplan and Norton innovative companies can use BSC to: <ul><li>Make the strategy more clear and understandable </li></ul><ul><li>Communicate the strategy throughout the organization </li></ul><ul><li>Link departmental and individual goals to strategy </li></ul><ul><li>Link strategic goals to vision </li></ul><ul><li>Identify and coordinate strategic initiatives </li></ul><ul><li>Perform periodic “overhauls” of the strategy </li></ul><ul><li>Get feed-back for strategic learning and improvements </li></ul>The strategy is implemented (”Strategy by Measurement”)
  27. 27. Mats Westerberg Balanced Scorecard The financial (owner/principal) perspective The process perspective The learning and growth perspective The customer perspective Vision & Strategy Yesterday Today Tomorrow Strategisk Framgångs- Mått Handlings- mål faktor plan Strategy Success Mea- sures Plan of Goals factors action Strategisk Framgångs- Mått Handlings- mål faktor plan Strategisk Framgångs- Mått Handlings- mål faktor plan
  28. 28. Mats Westerberg Balanced Scorecard Example on how a BSC is created <ul><li>Decide strategic goal (long term): e.g. Low cost , growth… </li></ul><ul><li>Identify success factors: e.g. Large volumes, new products… </li></ul><ul><li>Identify the perspectives and the internal and external cause-effect relationships: e.g. Low turnover of personnel more effective processes better on-time delivery more customers greater volumes better profitability </li></ul><ul><li>Measure the success factors: e.g. Effective processes, Customer stock, Profit margin… </li></ul><ul><li>Organize initiatives to boost driving factors: Marketing campaigns, cross-functional teams, weekly meetings... </li></ul>
  29. 29. Mats Westerberg Balanced Scorecard Questions to answer for finding success factors in the different perspectives: Financial (owner) perspective: Customer (client) perspective: Learning and growth perspective: Internal process perspective: Employee perspective: (used in Sweden) To reach (financial) success, how do we want to be perceived by our owners To reach our vision, how do we want to be perceived by our customers/clients To reach our vision, how should we work to maintain our ability to improve and change To satisfy our customers/clients and our owners, which processes are key for success To satisfy our customers/clients and our owners, how should we treat our employees
  30. 30. Mats Westerberg Balanced Scorecard An example of a cause/effect relationship Learning and Growth Internal Customer Financial Innovativ Organisation Innovative organization Dissemination of knowledge internally Competence development Investments in R&D Recruitment of right employees Newness in products Quality Reliability Make good business Full order books High profit margin Stabil Vinsttillväxt Stable growth in profits Nöjda kunder Satisfied Customers Effektiva Processer Effective processes Motivated employees Effective production Technological competence Success factor PERSPECTIVE
  31. 31. Mats Westerberg Balanced Scorecard Example of measures linked to success factors Financial (owner) : Customer/client: Learning and growth: Internal process: Employee: Effective resource utilization Satisfied customers/clients Reduce non value-adding activities Product/process development Productive personnel Profit margin, ROI, etc. Customer retention, Customer satisfaction, new customers, etc. Quality level, on-time delivery, etc. No of new products, new developments, etc. Turnover of employees, employee satisfaction, etc. Perspective : Success factor: Measure:
  32. 32. Mats Westerberg Now you have been introduced to Simons Levers of Control and Kaplan & Nortons Balanced Scorecard Do they work? It’s up to you to find out!
  33. 33. Mats Westerberg ABBs Model for Implementing Change Goal Vision Competence Resources Engagement Commitment Leadership Coordination
  34. 34. Mats Westerberg Questions to ask <ul><li>WHERE are we today? </li></ul><ul><ul><li>The organizations present state (and its history) </li></ul></ul><ul><li>To WHERE do we want to get? </li></ul><ul><ul><li>Goal/Vision and sub-goals </li></ul></ul><ul><li>WHEN should the goals have been reached ? </li></ul><ul><li>HOW shall the goals be reached? WHAT should be done? </li></ul><ul><li>WHERE gives input to strategic planning </li></ul><ul><li>WHEN & HOW & WHAT depends on resources, commitment, leadership and coordination </li></ul>
  35. 35. Mats Westerberg History matters ” [T]he past shapes the present and constrains the future” Kimberly & Bouchikhi (1995, p. 9) “ Transformation cannot simply be mandated. To be effective, it must be undertaken in a way which builds on rather than runs over the past“. Kimberly & Bouchikhi (1995, p. 9)
  36. 36. Mats Westerberg The Parts <ul><li>Goal/Vision </li></ul><ul><ul><li>A clear direction for where the organization is headed </li></ul></ul><ul><ul><li>The vision must be accepted, attainable but also challenging for most employees </li></ul></ul><ul><ul><li>Without a vision you cannot lead – then you will be controlled by daily events </li></ul></ul>
  37. 37. Mats Westerberg The Parts <ul><li>Competence/Resources </li></ul><ul><ul><li>Do we have the competence needed? Is there enough resources? If not, can we obtain it by our network? Should we limit the scope? </li></ul></ul><ul><ul><li>The basic question to ask: </li></ul></ul><ul><ul><ul><li>Do we have room for action? </li></ul></ul></ul><ul><li>Engagement/Commitment </li></ul><ul><ul><li>Is the vision attractive for most of the employees? </li></ul></ul><ul><ul><li>Does it make sense? </li></ul></ul>
  38. 38. Mats Westerberg The Parts <ul><li>Leadership </li></ul><ul><ul><li>Make those who can to want </li></ul></ul><ul><ul><li>Make those who can and want to dare </li></ul></ul><ul><ul><li>Instill self-efficacy by giving guidance and feed-back </li></ul></ul><ul><li>Coordination </li></ul><ul><ul><li>Create a structure that supports the work </li></ul></ul><ul><ul><li>Make sure individuals and groups know their task and that the tasks are coordinated </li></ul></ul>
  39. 39. Mats Westerberg Goal Vision Competence Resources Leadership Coordination Goal Vision Engagement Commitment Leadership Coordination Goal Vision Competence Resources Engagement Commitment Coordination Competence Resources Engagement Commitment Leadership Coordination Goal Vision Competence Resources Engagement Commitment Leadership What happens when a part is missing? Confusion Agony No intrinsic drive Frustration False starts
  40. 40. A COOK BOOK FOR STRATEGIC PLANNING IN ACTION <ul><li>A. WHAT ARE WE DOING? </li></ul><ul><li>Define the Purpose and Mission of the organisation. </li></ul><ul><li>Who are we? What needs do we intend to meet? Whose need? What do we intend to do to meet the needs, ie what services do we intend to provide? </li></ul><ul><li>What are our central values? (e.g. What do we believe in? What are we committed to? What is our philosophy/ideology?) Belief and boundry systems </li></ul><ul><li>2. Identify current aims, objectives and strategy of the organisation. Diagnostic control systems </li></ul>
  41. 41. A COOK BOOK FOR STRATEGIC PLANNING IN ACTION <ul><li>B. STRUCTURED BRAINSTORMING </li></ul><ul><li>3. Environmental Analysis. OT Interactive </li></ul><ul><li>4. Resource Analysis. SW Interactive </li></ul><ul><li>5. Stakeholder Analysis. Who are the stakeholders? What are their needs? Wants? Expectations? </li></ul><ul><li>6. Identification of strategic opportunities and threats. These are the opportunities and threats that arise outside the organisation. I </li></ul>
  42. 42. A COOK BOOK FOR STRATEGIC PLANNING IN ACTION <ul><li>C. CREATIVE LEAP </li></ul><ul><li>7. Identifying Strategic Choices. </li></ul><ul><li>8. Strategic Decision-making </li></ul><ul><li>D. ACTION </li></ul><ul><li>9. Implementation Diagnostic control systems/BSC </li></ul><ul><li>10. Evaluation Diagnostic control systems/BSC </li></ul><ul><li>Taken from </li></ul>
  43. 43. Mats Westerberg From now and forward <ul><li>Reflect first individually on the frameworks I have presented. Then discuss in small groups: </li></ul><ul><li>(in the context of strategic </li></ul><ul><li>planning and implementation) </li></ul><ul><ul><li>How can this be used in your context? What ideas did you get at once? After some reflection? </li></ul></ul><ul><ul><li>What are the special challenges that you have in your organization? Are these challenges addressed by these frameworks? </li></ul></ul><ul><ul><li>Additional questions and queries… </li></ul></ul>