Module 2 Strategy Formulation

Definition of Strategy Formulation Developing Strategic Vision & Mission for a Company Business Policies, Objectives, Goals. Balance Score card. Strategic Intent- hierchy Merging Strategic Vision, Objectives ,strategy to Strategic Plan.

What is Strategy Formation?

The stage of strategic management that involves the planning and decision making that lead to the establishment of the organizations goals and of a specific strategic plan.

Realized Strategy
Strategy Formation Activities

Realized Strategy
Strategy Formation Roles

Top vs. middle vs. bottom roles

How much empowerment of middle and lower levels is beneficial for the organization?

Line vs. staff roles

Which of this two groups should be responsible for the strategy formation process?

Internal vs. external roles

Should the strategy formation activities be carried out by members of the organization or should they be outsourced?

How Are Vision & Mission Statements Used to Set the Strategic Direction?

Mission Statement
Definition of Mission A purpose or reason for being. The Mission answers the BIG questions: What is our business? Why do we exist?

The Mission statement defines the purpose or broader goal for being in existence.
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What is a mission statement?

A mission statement describes. Who we serve Why - Our reason for being What we Strive to Achieve

Examples: Mission and Vision Statements

Otis Elevator
Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher reliability than any similar enterprise in the world.

Avis Rent-a-Car
Our business is renting cars. Our mission is total customer satisfaction.

What is a mission statement?

A mission statement articulates

Our values Our Purpose Our Direction Now and in The future

Why do we need a mission statement?

Unless the mission is explicitly expressed, clearly understood, and supported by every member of the organization, the enterprise is at the mercy of events (p. 371).
Peter Drucker

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Why do we need a mission statement?

A mission statement guides the decisions we make about what we do and how we accomplish it.

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Characteristics of a Mission Statement

Defines current business activities Highlights boundaries of current business Conveys Who we are, What we do, and Where we are now Company specific, not generic so as to give a company its own identity A companys mission is not to make a profit ! The real mission is alwaysWhat will we do to make a profit?
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Example: Mission Statement

Apple Computer
Apple Computer, Inc., ignited the personal computer revolution in the 1970s with the Apple II, and reinvented the personal computer in the 1980s with the Macintosh.

Apple is now committed to its original mission--to bring the best personal computing products and support to students, educators, designers, scientists, engineers, business persons and consumers in over 140 countries around the world.

Importance of Mission
Benefits from a strong mission
Better Financial Result
Identifying the Purpose

Resource Allocation

Mission
Organizational Culture Focal point for work structure Better Assessment & Control
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Customers

Products Services

Markets

Technology Employees

Mission Elements
Survival Growth Profit Self-Concept Philosophy

Public Image

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WHAT IS A VISION ?
What an organization should look like once its has successfully implemented its strategies and achieved its full potential. Vision Statement What do we want to become? McDonalds Our vision is to be the worlds best quick service restaurant. Disney To be the happiest place on earth
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Vision Statement
A few important facts . . . You have to have one
Companies with vision statements are 8 times more effective Tells you where you want to go Tell EVERYONE

You have to share it

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Developing a Strategic Vision

Involves thinking strategically about Firms future business plans Where to go Tasks include Creating a roadmap of the future Deciding future business position to stake out Providing long-term direction Giving firm a strong identity
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Examples: Mission and Vision Statements

Microsoft Corporation

Empower people through great software anytime, anyplace, and on any device.

Characteristics of a Strategic Vision

Charts a companys future strategic course Defines the business makeup for 5 years (or more) Specifies future technologyproduct-customer focus Indicates capabilities to be developed Requires managers to exercise foresight
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Vision
The Kingfisher Airlines family will consistently deliver a safe, value-based and enjoyable travel experience to all our
guests

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Module 2

Lakshman K

Examples: Mission and Vision Statements

Intel
Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce. Intels core mission is being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being

connected is now at the center of peoples computing experience. We are helping to expand the capabilities of the PC platform and the Internet.

Entrepreneurial Challenges in Forming a Strategic Vision

How to creatively prepare a company for the future How to keep the company responsive to
Evolving customer needs Competitive pressures New technologies New market opportunities Growing or shrinking opportunities
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Missions vs. Strategic Visions

A mission statement focuses on current business activities -- who we are and what we do Current product and service offerings Customer needs being served Technological and business capabilities A strategic vision concerns a firms future business path -where we are going Markets to be pursued Future technologyproduct-customer focus Kind of company that management is trying to create

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Examples: Mission and Vision Statements

American Red Cross

The mission of the American Red Cross is to improve the quality of human life; to enhance self-reliance and concern for others; and to help people avoid, prepare for, and cope with emergencies.

Defining a Companys Business

A good business definition incorporates three factors Customer needs -- What is being satisfied Customer groups -- Who is being satisfied Technologies and competencies employed -- How value is delivered to customers to satisfy their needs

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Your MissionVision Statement

Should include the best of both

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Communicating the VisionMission

An exciting, inspirational vision Challenges and motivates workforce Arouses strong sense of organizational purpose

Induces employee buy-in

Galvanizes people to live the business

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Managerial Value of a Well-Conceived Strategic Vision and Mission

Crystallizes long-term direction Reduces risk of rudderless Conveys organizational purpose and identity Keeps direction-related actions of lower-level managers on common path Helps organization prepare for the future decision-making

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What is the difference between a policy and a strategy?

A strategy is devised at the relevant level of management and is a long-term plan of change and improvement for an organisation.

STRATEGY

POLICY

A policy is a document written to structure and outline the strategy to those that it affects and to those who must implement it.

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Definition of Business Policy

Business policy may be defined as specific guides to managerial action and decision in the implementation of strategy. A policy is a statement or a commonly accepted understanding of decision making criteria or formula prepared or evolved to achieve economy in operation by making relevant decisionEarnest.

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Features of Business Policy

An effective business policy must have following features Specific- Policy should be specific/definite. If it is uncertain, then the implementation will become difficult. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations. There should be no misunderstandings in following the policy. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed by the subordinates. Appropriate- Policy should be appropriate to the present organizational goal. Simple- A policy should be simple and easily understood by all in the organization. Flexible- Policy should be flexible in operation/application. This does not imply that a policy should be altered always, but it should be wide in scope so as to ensure that the line managers use them in repetitive/routine scenarios. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.
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Difference between Policy and Strategy

The term policy should not be considered as synonymous to the term strategy. The difference between policy and strategy can be summarized as follows Policy is a blueprint of the organizational activities which are repetitive/routine in nature. While strategy is concerned with those organizational decisions which have not been dealt/faced before in same form. Policy formulation is responsibility of top level management. While strategy formulation is basically done by middle level management. Policy deals with routine/daily activities essential for effective and efficient running of an organization. While strategy deals with strategic decisions. Policy is concerned with both thought and actions. While strategy is concerned mostly with action. A policy is what is, or what is not done. While a strategy is the methodology used to achieve a target as prescribed by a policy.
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Classification of Business Policies

Top management Policies. Middle management Policies Lower level management Policies Marketing and sales policies. Production Policies. Financial Policies. Personnel Policies.
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Objectives
Objectives are formulated to accomplish Organisation Mission. Objectives can be defined as The long term results that an organization seeks to achieve in pursuing its basic mission. Objectives of Tesco Company Offering customers the best value for money and the most competitive prices Meeting the needs of customers by constantly seeking, and acting on, their opinions regarding innovation, product quality, choice, store facilities and service

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Importance of Objectives
Objectives indicates the purpose and aims of organisation. Objectives provide directions for the functioning of an organisation. It helps to adjust itself to the existing environment. Helps in attaining employees coordination and therefore reduce conflicts. Helps in control and assessment of organisation performance.

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OBJECTIVES Employee Focus: Make the organization a Great

Place to work .

Community Focus: Be a responsible corporate

citizen .

Supplier Focus: Treat Suppliers as partners . Shareholders Focus: Demonstrate superior

results .

Customer Focus: Improve Customer

Satisfaction.
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Features of Good Objectives.

Objectives should be understandable. Objectives should be related to the time frame. Objectives should be specific Objective should be realistic. Measurability. Flexibility.
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Goals
Definition of Goals An objective or desired outcome; the end-point you want to reach.

Goals should be SMART Specific Measurable Achievable Realistic Timebound

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What is a Balanced Scorecard?

The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.

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What Is a Balanced Scorecard?

A Measurement System?

A Management System?

A Management Philosophy?

Balanced Scorecard Concept

Was first published in 1992 by Kaplan and Norton, a book followed in 1996. Traditional performance measurement that only focus on external accounting data are obsolete. The approach is to provide 'balance' to the financial perspective.

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The Balanced Scorecard What is it?

Balances financial and non-financial measures Balances short and long-term measures Balances performance drivers (leading indicators) with outcome measures (lagging indicators) Should contain just enough data to give a complete picture of organizational performance and no more. Leads to strategic focus and organizational alignment.
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Why Use a Balanced Scorecard?

Improve organizational performance by measuring what matters Increase focus on strategy and results Align organization strategy with workers on a day-today basis Focus on the drivers key to future performance Improve communication of the organizations Vision and Strategy Prioritize Projects / Initiatives
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4 Original Business Perspectives

The Balanced Scorecard model suggests that we view the organization from 4 perspectives. Then Develop metrics, collect data and analyze it relative to each of these perspectives
Adapted from The Balanced Scorecard by Kaplan & Norton
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Balanced Scorecard Measurements

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How do customer see us?

Feedback

What we must Excel at?

Internal Process

Can we continue to improve and create value?

Learning and Development

How well do we look at our stakeholders?

Financial

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4 Business Perspectives Questions

Financial
What must we do to create sustainable economic value?

Internal Business Process

To satisfy our stakeholders, what must be our levels of productivity, efficiency, and quality?

Learning and Growth

How does our employee performance management system, including feedback to employees, support high performance?

Customer
What do our customers require from us and how are we doing according to those requirements?

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Key Implementation Success Factors

Obtaining executive sponsorship and commitment Involving a broad base of leaders, managers and employees in scorecard development Choose the right Scorecard Champion Beginning interactive (two-way) communication first Viewing the scorecard as a long-term journey rather than a short-term project Getting outside help if needed

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Oracle Balance score card

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Benefits of Balanced Scorecard Benefit

Helps align key performance measures with strategy at all levels of an organization The methodology facilitates communication and understanding of business goals and strategies at all levels of an organization Strategic initiatives that follow "best practices" methodologies that cascade through the entire organization Transforms an organizations mission statement and strategic plan from a passive document into the "marching orders" for the organization on a daily basis. It enables executives to truly execute their strategies by identifying what should be done and measured. To date, some form of a Balanced Scorecard is used by nearly 60% of Fortune 500 companies
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Financial?
To succeed financially, how should we appear to our shareholders? Revenue growth rates Cost reduction Asset utilisation Project profitability
What should our balance sheet look like?

Growth

Maturity

Harvesting

Financial objectives tend to be influenced by the organization's position on the life-cycle curve.

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Customer?
To achieve our vision, how should we appear to our customers?
Market Share

Customer Acquisition

Customer Profitability

Customer Retention

Product / Service Attributes Customer Relationship Image and Reputation

Customer Satisfaction

Organisational sub-units may have internal clients.

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Internal Business Processes?

To satisfy our shareholders and customers, what business processes must we excel at?
Innovation Process

Improve quality Reduce cycle times Maximise production Maximise throughput Reduce cost per process Reduce cost per transaction
Operations Process CREATE THE PRODUCT/ SERVICE OFFERING Customer Service

core competencies

CUSTOMER

NEED
IDENTIFIED

IDENTIFY THE MARKET

DELIVER BUILD THE SERVICECUSTOMER THE PRODUCTS/ THE NEED PRODUCTS/ SERVICES CUSTOMER SATISFIED SERVICES

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Learning and Innovation?

To achieve our vision, how will we sustain our ability to change and

Employee capabilities Information system capabilities Motivation Empowerment Alignment

Highlight gaps in employee skills and information systems.

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The Four Perspectives Apply to Mission Driven As Well As Profit Driven Organizations
Profit Driven
What must we do to satisfy our shareholders? Financial Perspective What do our customers expect from us? Internal Perspective

Mission Driven
What must we do to satisfy our financial contributors? What are our fiscal obligations? Who is our customer? What do our customers expect from us? What internal processes must we excel at to satisfy our fiscal obligations, our customers and the requirements of our mission? How must our people learn and develop skills to respond to these and future challenges?

Customer Perspective

What internal processes must we excel at to satisfy our shareholder and customer?

How must our people learn and develop skills to respond to these and future challenges?

Learning & Growth Perspective

Answering these questions is the first step to develop a Balanced Scorecard

Why are Companies Adopting a Balanced Scorecard?

Change Formulate and communicate a new strategy for a more competitive environment Growth Increase revenues, not just cut costs and enhance productivity
The Revenue Growth Strategy Improve stability by broadeni ng the sources of rev enue fro m current custom ers The Productivity Strategy Improve operating efficiency by s hifting c ustomers to more costeffective channels of distribution Improve Returns Broaden Revenue Mix Improve Operating Efficiency Financial Perspective Increase Customer Confidenc e in Our Financi al Advice Increase Customer Satisfaction Through Superi or Execution Customer Perspective Internal Perspective Understand Customer Segments Develop New Products Cross-Sel l the Product Line Shift to Appropriate Channel Provide Rapid Response Mini mize Problems Increase Employee Productivity Learning Perspective Develop Strategic Skills Access to Strategic Information Align Personal Goals

Implement From the 10 to the 10,000. Every employee implements the new growth strategy in their day-to-day operations

Why Do We Need a Balanced Scorecard? To Implement Business Strategy!

Business Strategy is now the single most important issue and will remain so for the next five years
Business Week

Less than 10% of strategies effectively formulated are effectively executed

Fortune

Our Research Has Identified Four Barriers to Strategic Implementation

The Vision Barrier Only 5% of the work force understands the strategy The People Barrier Only 25% of managers have incentives linked to strategy The Management Barrier

9 of 10 companies fail to execute strategy

85% of executive teams spend less than one hour per month discussing strategy

60% of organizations dont link budgets to strategy The Resource Barrier

Todays Management Systems Were Designed to Meet The Needs of Stable Industrial Organizations That Were Changing Incrementally You Cant Manage Strategy With a System Designed for Tactics

Balanced Scorecard Early Adaptors Have Executed Their Strategies Reliably and Rapidly

Mobil
(USM&R)

2003

#6 in profitability

2005 2006 2007

#1 in profitability #1 in profitability #1 in profitability

Profit Stock

$275M loss
2003
Property & Casualty

Stock Price = $59

2004 2005 2006 2007

$15M $60M $80M $98M #1 in growth and profitability

$74 $114 $146 $205

2003 Brown & Root Engineering (Rockwater)

Losing money

2006

Retail Bank

2003

Profits = $x

2004 2005 2006

Profits = $8x Profits = $13x Profits = $19x

Scorecard Potential Pitfalls & Criticisms

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Scorecard Potential Pitfalls & Criticisms

Lack of a well Defined Strategy The balanced scorecard relies on a well defined strategy and understanding of linkages between strategic objections and metrics. Without this foundation the implementation could fail. Too much focus on the lagging measures Focusing on only the lagging measures may cause a lack of priority or opportunity for the leading measures. Use of Generic Metrics Dont just copy metrics from another firm. Identify the measures that apply to your strategy and competitive position . Self-serving managers Managers whose goal is to achieve a desired result in order to obtain a bonus or other self reward.

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Balanced Scorecard Links Vision & Strategy to Personal Objectives

VISION What we want to be STRATEGY Our game plan BALANCED SCORECARD Translate, Focus and Align TRANSFORMATION OBJECTIVES What we must improve PERSONAL OBJECTIVES What I need to do

STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE

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Strategic Intent
Strategic intent is a high-level statement of the means by which your organization will achieve its vision. It is a statement of design for creating a desirable future (stated in present terms). Putting it simple, a strategic intent is your company's vision of what it wants to achieve in the long term. Strategic Intent has a hierarchy- vision, Mission and goals and objectives.
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Strategic Intents
Vision

Winning competitive battles through deciding how to leverage resources, capabilities, and core competencies.
Mission

An application of strategic intent in terms of products to be offered and markets to be served.

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Attributes of Strategic Intent

Sense of Direction: Strategic Intent implies a particular view about long term market or competitive position that an organisation hope to build in future. Sense of Discovery: Strategic Intent is differential as each organisation differs from others. It Implies a competitively unique point view about the future. Sense of Destiny: strategic Intent has an emotional edge to it. It is an end result that employees perceive as inherently worthwhile
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SOME SAMPLE STRATEGIC INTENTS

FORD Motor Company Our Vision: to become the world's leading company for automotive products and services. Our Mission: we are a global, diverse family with a proud heritage, passionately committed to providing outstanding products and services. Our Values: We do the right thing for our people, our environment and our society, but above all for our customers.

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SOME SAMPLE STRATEGIC INTENTS

TOYOTA MOTOR Corporation

Slogan: Toyota will continue to innovate relentlessly to ensure further growth. Mission: Toyota seeks to create a more prosperous
society through automotive manufacturing. Vision: Toyota aims to achieve long-term, stable growth in harmony with the environment, the global economy, the local communities it serves, and its stakeholders.

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Merging the Strategic Vision, Objective and Strategy into a Strategic Plan
The Vision is the primary statement. Based on Vision statement, the Mission statement is formed. The Objectives of the Company helps to prepare Strategic plan in various areas like marketing, finance, production. Hence the genesis is Vision and Objectives of the Company helps to draw the Strategic Plan in different are as of the Organization & Business.

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Merging the Strategic Vision, Objective and Strategy into a Strategic Plan
The strategic plan projects a prescriptive model based on predictive environment which is a road map for execution. Strategic plan is translated into the operations planning. Any deviation required is to be directed by strategic plan which takes care of the corporate objective and factors commanding the change.
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