Unit 2

Strategy Formulation- Understand strategic management

process, business definition & Organization values that
build mission statement.
Describe strategic vision, mission, goals, long term
objectives, short term objectives and discuss their value
to the strategic management process.
Balanced Score card.

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 Introduction - Strategy Formulation

• Strategy formulation is the development of long range

plans for the effective management of environmental
opportunities and threats in the height of corporate
strengths and weaknesses. It includes defining
corporate strategic intent covering vision mission
specifying objectives, developing strategies, and setting
policy guide-lines.
• The strategic process of strategy formulation begins
with the definition of a company mission and purpose
or the objectives or the goals followed by environment
analysis, corporate appraisal, identification of strategic
alternatives and ends with choice of strategy.

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 Strategic Intent
• Gary Hamel and C K Prahalad coined the term
“strategic intent” in the year 1989, defines strategic
intent, that refers to “expression of the leadership
position the organization wants to attain and
establishes a clear criterion on how progress towards
its achievement will be measured”.
• “Strategic Intent is an obsession (desire, wish,
aspiration) with an organization – an obsession with
having ambitions that may even be out of proportion
to their resources and capabilities. This Obsession is
to win at all levels of the organization while
sustaining that obsession in the quest (search) of
global leadership” - Gary Hamel and C K Prahalad
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 Strategic Intent
• Organizations must define “what they want to do”
and “why they want to do this”. This “why they want
to do” underlies the end result that is likely to be
achieved through “what they want to do”. This end
result is referred to as “strategic intent”.
• Strategic intent is considered to be very important
for any organization because it aligns the
organizational activities with the goals itself.
Strategic intent has three attributes
• sense of direction,
• sense of discovery,
• sense of destiny.
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• Sense of Direction:
To define the strategic intent with clarity, it is important to have a
long term sense of view about the future markets and
consumers so that the firm is able to design and identify the
competitive position it intends to build over the next decade.
It is important to have a unifying (combine) and personalizing
sense of direction so that there is no confusion in terms of
where the organization is heading to.

• Sense of Discovery:
Once the sense of direction is clear, it is important that the
company’s strategic intent should retain a sense of discovery
and excitement about the future. This acts as a great
motivational factor and provides an opportunity to the
employees of the organization to explore new competitive
territory and in the process create a competitively unique
outlook for the firm. 5
Customer Vs Consumer and Customer Needs and Wants

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Sense of Destiny:
• Further it is important to understand that strategic
intent also has an emotional edge to it. The employees
of the organization should own this so that they are
able to work hard to realize the desirable strategic
intent.

• All the stakeholders in the organization should perceive

the strategic intent as inherently worthwhile and
channelize their efforts towards realizing it.

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• From the angle of Strategy Formulation, each
organization is to define as ‘why’ it exists,
‘How’ it justifies its existence and when it is
going to satisfy the reasons for that existence.
• The matching answers to these questions rest
in organization’s
• VISION,
• “MISSION and PURPOSE,
• BUSINESS DEFINITION
• OBJECTIVES and GOALS
Is relates to hierarchy of Strategic Intent
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 Hierarchy of Strategic Intent
• It includes organizational vision, mission,
objectives, goals and plan.

• Vision: Vision is highest in hierarchy of strategic

intent and reflects the aspiration of organization.
It is defined as a long term goal of the
organization in which organization is intended to
achieve in future. Vision of the organization is
developed before starting the business.
• Therefore it aligns the every employee’s work
with the organizational long term goal.
• For example: What I want my business to be?

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• Mission: Mission is fundamental unique purpose
that sets a business apart from other firms. Mission
statement is written process that communicates why
organization exists and also defines the path to
achieve vision of an organization.
• For example: What my business is and does?

• Goals: Goals denote what an organization hopes to

accomplish in a future period of time. These are
tactical/strategical objectives that organization’s
management defines to outline predictable future
outcomes and guide employees' efforts.
• For example: What will get my business there?
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• Objectives: Objectives are the end state specifically
how the goals shall be achieved. Objectives of the
organization are short-term and medium-term goals
that an organization seeks to accomplish. It plays an
integral role in formulating policies for business and
allocation of organizational resources at right place.
• For example: Right Person at a Right Place.

• Plan: it includes deciding about future in advance. It

helps to achieve the long term objectives of the firm
and monitoring explicit (stated clearly and in detail)
strategy to achieve them.
• Human resource allocation is also considered as one
of the important aspect of the planning. 11
Strategic Intent

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 VISION
• The term “vision” is rather difficult to define as it is
dreamt than articulated.
• What is vision?
A vision articulates the position that an organization
intends to attain in the distant future. Vision is
something that encapsulates the basic strategic intent.
Why a company should have vision?
Good visions are inspiring and exhilarating (exciting)
Visions represent a discontinuity, a step function and a
jump a head so that the company knows what it is to be.
Vision foster risk-taking and experimentation and long
term thinking
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• A vision statement of the organization is in written
format. The normal life span of a vision statement is 10
to 20 years and it articulates the ultimate long-range
goal of an organization.

• Example 1: National Hydroelectric Power Corporation

(NHPC), is an Indian Hydropower generation company.
Govt. of India.
• Vision of NHPC, “A world class, diversified &
transnational organization for sustainable development
of hydro power and water resources with strong
environment conscience”.

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 Comments on Vision Statement

• General Motors’ vision is “To be the world leader in

transportation products and related services”. (Author
comment: Good statement)

• Procter & Gamble’s vision is “To be, and be recognized as, the
best consumer products company in the world”. (Author
comment: Statement is too vague and readability is not that
good)

• Dell’s vision is “To create a company culture where

environmental excellence is second nature”. (Author
comment: Statement is too vague; it should reveal computer
business in some manner; the word environmental is
generally used to refer to natural environment so is unclear
in its use here) 15
• Example 2:
• National Thermal Power Corporation Limited,
(NTPC), is an Indian Public Sector Undertaking.
It is a company incorporated under the
Companies Act 1956 and is promoted by the
Government of India.
• The vision is “To be the world’s largest and
best power producer, powering India’s
growth.”

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• Example 3:
• ITC Limited is an Indian multinational conglomerate
company headquartered in Kolkata, West Bengal.
Established in 1910 as the 'Imperial Tobacco
Company of India Limited', the company was
renamed as the 'India Tobacco Company Limited' in
1970 and later to 'I.T.C. Limited' in 1974.

• The vision of ITC is “Sustain ITC's position as one of

India's most valuable corporations through world
class performance, creating growing value for the
Indian economy and the company's stakeholders”.
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• Nike, Inc. is an American multinational corporation that is
engaged in the design, development, manufacturing, and
worldwide marketing and sales of footwear, apparel,
equipment, accessories, and services. The company is
headquartered near Beaverton, Oregon, U S. The company
was founded on January 25, 1964, as Blue Ribbon Sports,
by Bill Bowerman and Phil Knight, and officially became
Nike, Inc. on May 30, 1971.
• The vision of Nike is “To be the number one athletic
company in the world”.

• The vision of Google is “Organize World’s information and

make it universally accessible and useful”
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 Characteristics of Vision statement
• Future Focused – An effective vision statement should describe
the organizations desired future. It should answer the following
question – “How will our organization look like in 10 years from
now?” It should promote long term thinking within an
organization.
• Clarity – A good vision statement should be clearly articulated
and should be easy to understand for even the junior most
employees in an organization.
• Relevant – An effective vision statement should be relevant to an
organization in all times and should relate with the history and
values of an organization.
• Challenging – Vision statement should be challenging enough and
should set high standards enabling the members of the
organization to perform.

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• Inspirational – A good vision statement should inspire
the employees on an organization to move them
emotionally and guide them towards a meaningful
purpose.
• Directional: A well-stated vision says, something about
the company’s journey or destination and signals the
kinds of business and strategic changes that will be
forthcoming.
• Desirable: A well-stated vision appeals to the long-term
interests of stakeholders
• Easy to Communicate: A well-stated vision is explainable
in less than 10 minutes and ideally can be reduced to
simple,
Memorable slogan of Henry Ford’s famous vision “Car in
Every Garage” 20
 Mission and Purpose
• There is difference between “Mission” and
“Purpose” though they are used interchangeably.
• The mission statement is the heart of a company.
The mission statement guides the actions of
employees, partners, and management.
• It is an expression of the vision of the company. It is
the visualized future of the firm.
• What brings the firm to this business or why it is
there? What existence it seeks? What purpose it
seeks to achieve as a business firms?
• That way, “Purpose” is also externally focused but it
relates to that section or segment of society to which
it serves. 21
 Mission Statement Components
Mission statements can and do vary in length, content,
format, and specificity. Most practitioners and
academicians of strategic management feel that an
effective statement should include nine components.
1. Customers — Who are the firm’s customers?
2. Products or services — What are the firm’s major
products or services?
3. Markets — Geographically, where does the firm
compete?
4. Technology — Is the firm technologically current?
5. Concern for survival, growth, and profitability — Is the
firm committed to growth and financial soundness?
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6. Philosophy — What are the basic beliefs, values,
aspirations, and ethical priorities of the firm?
7. Self-concept — What is the firm’s distinctive
competence or major competitive advantage?
8. Concern for public image — Is the firm responsive
to social, community, and environmental concerns?
9. Concern for employees — Are employees a
valuable asset of the firm?

Evaluation of a mission statement regarding inclusion

of the nine components is just the beginning of the
process to assess a statement’s overall effectiveness.
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• Dell’s mission is to be the most successful computer
company (2) in the world (3) at delivering the best
customer experience in markets we serve (1).
• In doing so, Dell will meet customer expectations of
highest quality;
• Leading technology; (4)
• Competitive pricing
• Individual and company accountability; (6)
• Best-in-class service and support ; (7)
• Flexible customization capability ; (7)
• Superior corporate citizenship ; (8)
• Financial stability (5)
(Author comment: Statement lacks only one
component: Concern for Employees) 24
Procter & Gamble will provide branded
products and services of superior quality and
value (7) that improve the lives of the world’s
(3) consumers. As a result, consumers (1) will
reward us with industry leadership in sales,
profit (5), and value creation, allowing our
people (9), our shareholders, and the
communities (8) in which we live and work to
prosper.
(Author comment: Statement lacks three
components: Products/Services, Technology,
and Philosophy)
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• At L’Oreal, we believe that lasting business
success is built upon ethical (6) standards
which guide growth and on a genuine sense
• of responsibility to our employees (9), our
consumers, our environment and to the
communities in which we operate (8).
• (Author comment: Statement lacks six
components: Customers, Products/Services,
Markets, Technology, Concern for
Survival/Growth/Profits, Concern for Public
Image)
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Coca Cola puts its mission as
• To refresh the world...,
• To inspire moments of optimism and happiness
• To create value and make a difference.

• Tata Iron and Steel Company Limited (TISCO), mission

• The best company to buy from
• The sound company to invest in
• A good company to work for
• A reliable company to settle
• A leading company in the corporate field of the country

Customers
We believe our first responsibility is to the doctors, nurses, patients, mothers,
and all others who use our products and services. (Johnson & Johnson)
Philosophy
• Our world-class leadership is dedicated to a management philosophy that
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holds people above profits. (Kellogg)
 Characteristics of a Mission Statement
• Broad in scope: do not include monetary amounts, numbers,
percentages, ratios, or objectives
• Simple – Generally companies tend to develop mission
statements which are long and full of management words.
Research indicates that if the mission statements are small,
they are not only memorable but also effective. Many experts
believe that mission statements which are 8 words or less are
easy to remember and are effective.
For example, the mission of Domino is “Sell More Pizza, Have
More Fun”.
• Be Specific – A good mission statement should include some
description about the function of the business. For example,
“become the industry leader” does not specify anything and
mean nothing to the stakeholders.
• However, if the mission statement indicates “To provide world
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class travel services” is more specific.
• Be Realistic - Mission statements should be developed in a
way that it includes something that is possible.

• Strategic Positioning – An effective mission statement should

include a brief description of the strategic position of the
company within the market.

• Relevant to Stakeholders – A good mission statement should

focus on the interest of the relevant stakeholders especially
the customers. The mission statement should aim at satisfying
the customer needs.

• Long Term Orientation – An effective mission statement

should take a long term view and should be designed keeping
in view a long term perspective. However, the flexibility
should not be compromised.
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 Benefits of Mission
1. To ensure unanimity of purpose within the organization
2. To provide a basis, or standard, for allocating organizational
resources
3. To establish a general tone or organizational climate
4. To serve as a focal point for individuals to identify with the
organization’s purpose and direction, and to deter those who
cannot from participating further in the organization’s
activities
5. To facilitate the translation of objectives into a work structure
involving the assignment of tasks to responsible elements
within the organization
6. To specify organizational purposes and then to translate these
purposes into objectives in such a way that cost, time, and
performance parameters can be assessed and controlled.
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 Ten Benefits of Having a Clear Mission and Vision
1. Achieve clarity of purpose among all managers and employees.
2. Provide a basis for all other strategic planning activities,
including the internal and external assessment, establishing
objectives, developing strategies, choosing among alternative
strategies, devising policies, establishing organizational
structure, allocating resources, and evaluating performance.
3. Provide direction.
4. Provide a focal point for all stakeholders of the firm.
5. Resolve divergent views among managers.
6. Promote a sense of shared expectations among all managers and
employees.
7. Project a sense of worth and intent to all stakeholders.
8. Project an organized, motivated organization worthy of support.
9. Achieve higher organizational performance.
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10. Achieve synergy among all managers and employees.
Difference Between Vision and Mission

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 Business Definition
• A Business Definition is a pithy/brief or cogent/
logical and clear cut statement of the business or
businesses the firm is engaged in or is planning to
enter into. It is an elaboration of the businesses
scope or span it will play in. It binds itself with the
boundaries of the firm’s business or businesses.
• Business Definition of an organization pinpoints
as to how the organization is going to meet the
pillars of its mission. We know that mission is
externally focused and, therefore, the business
definition cannot be repulsive to its mission.
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• Business definition is something that
masterminds the search for products and
markets. It is the strategic search for products
or markets in such a way that the basket of
opportunities that could be tapped is engaged
to the maximum.” - Professors V.R Tacit and
A. K. Nuner

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 Essentials/ Characteristics of
Good Business Definition
• It must be related to human need which the product seeks to
satisfy and should not be limited to just the product
• It must be related to the functions performed by the product
and not limited to just the product.
• It must be related to the basic benefits the product offers
• It must encompass in its fold as many related functions or
benefits as possible
• It must go beyond the immediate product, beyond the
immediate competitors, beyond the immediate market
boundaries.
• It must be wide enough to embrace new opportunities
• It must be wide enough to give a vision to hidden sources of
competition say, substitute products.
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• Case: Bombay Dyeing Limited which has a name for
“Synthetic Sarees”
• The Bombay Dyeing Company has defined its business as
textiles, though its core concern is high-priced synthetic
sarees. It had focus on the segment of synthetic high-
priced and, therefore, high quality sarees.
The Most Standard Cases of Business Definition
• Nestle India Limited, Nestle India manufactures products
under brand names such as Nescafe, Maggi, Milkybar,
Milo, Kit Kat, Bar-One, Milkmaid and Nestea. Nestle
India is a subsidiary of Nestle S.A. (Société Anonyme
means publicly-traded company or incorporated) of
Switzerland.
• Its Business Definition: “Manufacturing and marketing of
nutritional foods to the public who prefer instant food.” 36
Apple Corporation of USA
• “We design develop, produce, market and service
micro-processor based personal computer in
United States and foreign countries”.
• Hindustan Unilever Limited “ To meet the
everyday needs of people everywhere with
branded products and services .”

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 Business Definition Dimensions
1] WHO IS THE CUSTOMER?
• Sub-questions
a) Where is the customer located?
b) How does customer buy?
c) How can the customer be reached?
2] WHAT DOES THE CUSTOMER BUY?
3] WHAT DOES THE CUSTOMER CONSIDER VALUE?
According to Derek F. Abell defines in business three dimensions
1. Customer Groups: indicates who is to be satisfied.
2. Customer functions: indicates as to what is to be satisfied
3. Alternative Technologies : speak of how the needs are to be
satisfied.

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Business can be defined at the corporate or SBU levels. At the corporate level, it will
concern itself with the wider meaning of customer groups, customer functions
and alternative technologies.
A clear business definition is helpful in identifying several strategic choices includes
customer groups, various customer functions and alternative technologies give
the strategists various strategic alternatives.
The diversification, mergers and turnaround depend upon the business definition.
Customer oriented approach of business makes the organization competitive.
Therefore, if strategic alternatives are linked through a business definition, it results in
considerable amount of synergic advantage.
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Whereas, the business house (Apex Bodies), is to define its
business in the contexts of three dimensions namely
• The product
• The customer Segment
• The value creation

• The product: The organization has to spell out clearly the

product it has to offer in terms of length, width and breadth.
Example: The company manufacturing and marketing say wrist
watches should make it very clear that whether it is
producing all possible watches for men and women for all
purposes. It should specify the product features, quality
range, price, distribution, after sale services.

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• Customer Segment: It is impossible for a wise
company to satisfy all customers it wants to serve
and the geographical area in which it wants to
operate. It plays to serve a particular age group or
class of people or income group located in a specific
area.
• Value creation: Value creation is the process of value
adding that make the consumers that the product
utility is commensurate (proportionate) with price a
customer pays. In a buyers market, consumer is
always in search of products that are capable of
giving higher value perception. The value differ from
place to place and time to time.
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 Organizational Values
o The Organization values guide decisions and tell
the world how they interact with their staff,
volunteers, clients, donors, partners,
stakeholders and other constituents.
Examples of Values:

Integrity Honesty Quality

Fairness Empowerment Professionalism
Fun Balance Trustworthy
Loyalty Partnership Accountability
Respect Creativity Communication
Teamwork Diversity Safety
Responsibility Growth Optimism
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 Core corporate values
• Core values are those things that hold us together in a
coordinated way, they support an organization’s mission and
purpose and provide an organization a directional true north.
Core values of an organization
“If an organization's mission statement defines what it does
and why, its core values answer the important question of
HOW the business plans to achieve its mission.
Red Banyan's five core values are: Results & Responsiveness;
Integrity; Commitment & Can-Do Attitude; Accountability; and
Speed

• Core values are intangible at the start and are critical

components to organizational effectiveness.

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 Goals and Objectives
• Both goals and objectives are the end results
towards the attainment of which each organisation
strives hard.
• To distinguish between goals and objectives are
prefixed with “Long-term” and “Short Term”.

• Goals: Goals are attempts to make mission

statement more concrete just as mission statement
tries to make a vision more specific. It has a indirect
effect towards mission and mission to vision.

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• Goals are an intermediate result which is expected to be
achieved by a certain span of time. It is a target which an
organization wishes to achieve in long term. It provides the
basis for judging the performance of the organization.
• Goals may be classified into two categories:
• Financial goals: They are related to the return on investment
or growth in revenues.
Strategic goals: They focus on the achievement of the
competitive advantage in the industry.
Goals should be well constructed and realistic in nature.

Example: Customer service: Provide quality service to the

customers at least at par with the highest standard in the
industry.
Community service: Provide job opportunities which promote a
higher standard of living for all the citizens. 45
 Features of Goals
1. They speak of both financial and non-financial goals:
The company is able to justify its efforts aimed at are
not concerned with mere profitability and also stands
out in the eyes of stakeholders that it contributes also
the non-financial interests of the stakeholders.
2. They facilitate reasoned trade-offs: Most of the
companies have a wide range of goals to accommodate
each stake holder. Low-cost relationship and good
employee relations are important goals. Cost benefit or
cost competitiveness is a goal. Wise management
resorts to the trade-offs required to take up right
decision to balance loss.

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3. They can be reached with a stretch: The idea behind
stretching is that the potential power of human resources can be
really made work so that goals are easily reached. It is camel
policy.
Suppose, on an average a camel carries a weigh of 6 tons, the owner
loads at least 9 tons and later on reduce it or unload 1.50 tons. He
is playing with the psychology of camel making to carry 7.50 tons
against 6 tons.
By constantly setting goals that demand more effort, an organization is
more likely to reach its fullest potential.

4. They cut-across functional areas: In order to get best out of

man-power at the command of the organization. The goals are set
are overall organisation. These goals cut across departments and
make it mandatory the coordination between departments.
Individual departments are made work support each other where
organization comes first and the department later.
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 Example
• BOEING – an American Airline
• Financial Goals: “Profitability as measured against our ability
to achieve and then maintains a 20 percent average annual
return on stock holder’s equity”
• “Growth over the plan period as measured against a goal to
achieve : greater than 5 percent average annual real sales
growth from 1980 base”
• Non-financial Goals: Integrity, in the broadest sense, must
pervade (encompass) our actions in all relationships, including
those with our customers, suppliers and each other. This is
commitment to uncompromising values and conduct. It
includes compliance with all laws and regulations.
• “We will operate only those businesses that are number one
or number two in their global markets.”
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 Objectives
• Goals describe in fairly general terms what the organization
hopes to accomplish. However, objectives do it in more
precise terms as to what will be accomplished in order to
reach the goals.
• Objectives are short-term and specific intentions of the
various operational units of the organization. Very often called
as ‘targets’. Objectives are key element in tactical plans
(operational plans). They are usually incorporated into an
annual plan or budget.
• Objectives are the end results of a planned activity. They are
stated in quantifiable terms. Objectives are stated differently
at various levels of management. The responsibility of
achieving them is usually shared between middle and senior
management. Objectives play a very important role in
enhancing the efficiency and effectiveness of an organization.
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 Characteristics
• They should be specific and unambiguous.
• They should have a particular time horizon within which it is expected
to be achieved.
• They should be flexible enough so that if changes are required, they
may be incorporated easily.
• They should be attainable.
• They should be measurable.
• They should be understandable
• They should help in the achievement of the organization’s mission
and vision.
• They should be challenging
• There are many factors which have an impact on the formulation of
objectives in an organization, so must kept in mind before making
objectives. These factors are mentioned as below: Size of the
organization, Level of management, Organization culture, Social
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responsiveness
Types of Objectives or kinds of objectives to set
• Profit Objective – It is the most important objective for
any business enterprise. In order to earn a profit, an
enterprise has to set multiple objectives in key result
areas such as market share, new product development,
quality of service etc. These may also be termed as
performance objectives.
• Marketing Objective may be expressed in terms of
percentage increase or decrease in market share. They
are related to a functional area.
• Productivity Objective may be expressed in terms of
ratio of input to output. This objective may also be stated
in terms of cost per unit of production.
• Product Objective may be expressed in terms of product
development, product diversification, branding etc. 51
• Social Objective may be described in terms of social
orientation. It may be tree plantation or provision of drinking
water or development of parks.

• Financial Objective relate to cash flow, debt equity ratio,

working capital, new issues, stock exchange operations,
collection periods, debt instruments etc.

• Human resources objective may be described in terms of

absenteeism, turnover, number of grievances, strikes and
lockouts etc. For example: the objective may be to decrease
the rate of absenteeism.
• Create SMART objectives: Specific, Measurable, Achievable,
Realistic, Time

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 Significance of Objectives
• Objectives serve the process of revival
• Objectives ensure growth
• Objectives Act as Base for Business Decisions
• Objectives Set Standards for Performance
• They Decide the status of company in external
environment
• They provide base for decentralization
• They bind the organization group and
individuals.

53
 Setting of Objectives
• Each organisation is a deliberate creation for achieving certain
preset goals and objectives. There are several factors or forces
that influences the setting of objectives.
1. Vision and Value System of Top management
2. Objectives of the Past.
3. External Environment and the power relations (forces the top
management strategists in developing objectives)
4. Internal Environment and the power relations.
Guidelines in setting Objectives
1. Objectives must be very clear and challengeable
2. Objectives set take into account the achievement factors
3. They are consistent with organisation mission
4. They are rational and realistic
5. They are result oriented
6. Objectives are consistent with time period
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7. Objectives are subject to review
 Areas of Objective Setting
• Growth
• Profitability
• Market share and competitive position
• Productivity
• Technology
• Research and development innovation
• Flexibility of business portfolio
• Human resource
• Corporate image
• Social responsibility 55
Difference Between Goals and Objectives

56
 Features of Change in Objectives
• Due to change in environment
• Due to change in life-cycle of organization
• Change in Managerial Aspiration level
• Coalition (alliance or partnership) Group
Dominance

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 What are Short-Term Objectives?

Provide specific guidance

for what is to be done,
translating vision into action

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 Role of Short-Term Objectives in Implementing Strategy

1. “Operationalize” long-term objectives

2. Raise issues and potential conflicts

requiring coordination to avoid
dysfunctional consequences (arise as
unwanted side effects of top management
ambitions)

3. Identify measurable outcomes of functional

activities to be used to make feedback,
correction, and evaluation more relevant

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 Qualities of Effective Short-term
Objectives

Measurable

Linked to long-
Priorities term objectives

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 Long-Term Objectives
• To achieve long-term prosperity, strategic planners
commonly establish long-term objectives in seven
areas:
– Profitability – Productivity
– Competitive Position – Employee Development
– Employee Relations - Tech Leadership
– Public Responsibility
Qualities of Long-Term Objectives
• There are five criteria that should be used in
preparing long-term objectives:
– Flexible
– Measurable
– Motivating
– Suitable
– Understandable
 What is Balanced Scorecard?
• A known British scientist Lord Kelvin once said “If you
cannot measure it, you cannot improve it”. In light of
this statement, it is important to measure various
aspects of business performance if the overall business
is to be improved.
• Balanced scorecard is an innovative approach to
performance management which was developed by
Robert Kaplan and David Norton with an objective to
provide a tool which can help managers to define and
track performance among multiple financial and non-
financial measures that are considered important for
company success. 63
• It is a conceptual framework for translating an
organization’s strategic vision into a set of performance
indicators distributed among four perspectives:
• Financial,
• Customer,
• Internal Business Processes, and
• Learning and Growth.
Through the balanced scorecard, an organization
monitors both its current performance (finance,
customer satisfaction, and business process results)
and its efforts to improve processes, motivate and
educate employees, and enhance information systems
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 Why use Balanced Score Card?
• The balanced scorecard approach provides a clear
prescription as to what companies should measure in order to
'balance' the financial perspective. There are various
advantages of using balanced scorecard as a performance
management system. These include
a) Performance Orientation – The philosophy of the initiatives
that follow "best practices" methodologies cascade through
the entire organization and create a culture of performance.
Also the balanced scorecard provides management with a
comprehensive picture of business operations.
b) Align Strategy and Tasks – Effective implementation of
Balanced Score Card helps to align the company’s strategy to
the activities and tasks at all the levels of an organization.

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c) Unique Competitive Advantage – Usage of Balanced
Scorecard helps in achieving unique competitive advantage by
improving decision making, reduced time frames and
improved processes.

d) Resource Utilization – Implementation of Balanced Scorecard

helps in utilizing the organizational resources optimally.
Allocation of the resources is based on the requirement.

e) Improved Creativity – The implementation of balanced

scorecard facilitates inter and intra organizational
communication and better understanding of business goals
and strategies at all levels of an organization. This also helps in
generation of unexpected and creative ideas across various
functions of an organization.
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f) Result Orientation – Balanced Scorecard transforms strategy
into action and the desired behaviors. The usable results are
produced which help in assessing performance against the
standards and benchmarks set in. Also because all aspects of
performance are measured, it becomes easier to do an
objective assessment of the performance of all the units and
sub units of an organization. The new initiatives taken by the
organization are continually measured and evaluated against
the industry standards.
g) Team Spirit – It has been observed that implementation of
balanced score card increases the cooperation among various
departments and teams of an organization. More open
channels of communication create cross organizational team
and therefore the entire organization is more enthusiastic
towards the realization of the vision of the organization.
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h) Organizational Learning - The Balanced Scorecard concept
provides strategic feedback and learning. It helps in the
identification of areas of improvement and thus strategic
initiatives can be taken towards training and development of
the employees.

i) Linking Strategy with Performance Measures - Organizations

don’t always get what they measure. Implementation of
balanced score card directly links the strategy with the
performance measures.

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 Components of Balanced Scorecard
• There are four components of a balanced score card. These include
mission, perspectives, objectives and measures.
• Mission as we know help companies to determine the direction of
future course of action. Mission brings in clarity at all levels of the
organization. Further a powerful mission statement facilitates
evaluation and improvement in the working of an organization.
• Perspectives represent an overall achievement of the mission and
also the various areas that influence performance of an
organization. Perspectives are developed based on the need of an
organization and typically there are four perspectives which cover
the whole of the organization’s activities. The generic Balanced
Scorecard proposed by Kaplan and Norton in 1996 consists of four
interrelated quadrants, each containing objectives and measures
from all the four perspectives.
• Financial perspective ; Customer perspective;
• Internal process perspective; Learning and Growth perspective 69
• Financial perspective – focuses on objectives and performance
measures associated with the shareholders perception. One of
the major goals of an organization is to achieve the financial
target. The levels at which the indicators and measures can be
identified are revenue growth, cost reduction, productivity
improvement, asset utilization and investment strategy. This
perspective can include the measurement of operating
income, return on capital, and economic value added.

• Customer perspective – focuses on objectives and

performance measures associated with the customers’
perception. As customer satisfaction and winning customer
loyalty are prerequisite for maintaining sustainable competitive
advantage, the customer perspective defines the value
proposition a firm maintains to win customer loyalty through
customer satisfaction. Several common measures are customer
satisfaction, retention, acquisition, profitability, market share.70
• Internal process perspective – focuses on objectives and
performance measures associated with the organizations
internal productive processes. This perspective is concerned
with the processes that create and deliver the customer value
proposition. All the activities and processes that help a firm to
deliver value to the customer should be focused for
improvement.

• Learning and Growth perspective – focuses on objectives and

performance measures associated with the development of
enabling culture and competencies within an organization.
This perspective focuses on identifying and executing
employee training programmes which results in individual and
corporate self improvement. In present times, when
technologies change very fast, it is important for employees to
constantly learn and upgrade their knowledge and skills.
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Framework of BSC

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Example: Balanced Score Card applied in Business

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 Benefits of using Balanced Scorecard

• Balanced Scorecard puts organizational mission at the centre

of the performance management and also translated the
mission into tangible measures.
• Balanced Scorecard helps the firm to channelize its resources
and energies towards achieving the organizational mission as
balanced score card helps in defining what must be done to
achieve the mission.
• Balanced scorecard promotes proactive and forward thinking
within an organization. This is in contrast to traditional
measures which promotes reactive thinking and only looks at
the past data.

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• Balanced scorecard promotes continuous tracking of
performance regarding what is important to achieve the
mission of an organization. Managers keep a track of the
progress and can bring in timely interventions to ensure the
accomplishment of the mission.
• Balanced scorecard promotes a comprehensive approach to
look at the performance of an organization. Managers can
look into non financial perspectives as well and explore the
trends and relationships between them.
• Balanced scorecard helps in communicating the mission to all
the employees in the organization and they can relate their
role towards the achievement of the mission

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 Limitations of using Balanced Scorecard
•Limited Understanding of Balanced Scorecard (concept, benefits
and structure of balanced scorecard)

•Lack of management support

•Lack of training

•Not integrating with Strategy

•Inadequate IT support

•Not involving the whole organization

•Poorly defined Metrics

•Lack of planning and communication 77