a balanced strategy(1)

8/17/2019 A Balanced Strategy(1)

1/24

BU M3319

Managing Emerging Issues

Chris Boulton Dr Kay Emblen-PerrySenior Teahing !ello" Senior #eturer

Lecture 9: Final considerations and

presenting a Balanced Strategy


2/24

Chris BoultonManaging Emerging Issues

E$aluating Emerging Issues

Issue E$aluation

StrategiChoie%&es'onse

&eommen(ation


3/24

#earning outomes

To(ay)s leture*

Strategy in 'ratie+

Using e,ternal onsultants+

&e"ar( systems strategy+

Pri$ate e.uity sharehol(ers+ E,its+

The nee( /or a balane( strategy assoiate( /rame"or0s


4/24

Chie/ E,euti$e 2//ier

To' management team

on-e,euti$e (iretors

Who gets involved in Strategy?

4 Chie/ Strategist4 2"ns the strategy is aountable4 2/ten re'lae( "hen setba0s 5larger

businesses64 In smaller businesses has more

in/luene

4 7ble to o//er an e,ternal ob8eti$e

$ie"

4 In$ol$ement (e'en(s on o$ernanestyle : ountry an( om'any sharehol(er

struture 5eg 'ubli $s 'ri$ate%/amily64 Delegates res'onsibility4 I(eally "ith Boar( is able to remo$e

CE2

4 Can share strategi res'onsibilities4 2b8eti$e ability re(ue( by loser

in$ol$ement in (ay to (ay o'erations4 Can ten( to /ollo" CE2 : eg

;rou'thin0<4 #ess e,'eriene( 5(e'en(ing on si=e o/

organisation

>ohnson Sholes? Exploring Corporate Strategy 5@A116? Cha'ter 1


5/24

Mi((le Management

Strategy Consultants

Strategi Planners

Who gets involved in Strategy? (2)

4 2'erational "or0-horses an( li0ely to

be hea$ily in/luene( in terms o/

o'erational matters "ith little time orshare o/ min( /or ob8eti$e strategi

thin0ing4 Use/ul in/ormation soure : su''ort /or

strategi 'ro'osals4 I(eal ham'ions o/ strategi 'ro8ets

4 Part o/ e,euti$e management "ith a

s'ei/i res'onsibility /or managing the

'lanning 'roess4 #u,ury o/ large businesses4 Usually a''ointe( /rom "ithin : ie "ith

goo( un(erstan(ing o/ the organisation

4 2/ten use( to analyse%'rioritise%generate

o'tions4 Im'lementing hange4 Can be a 'olitial tool to e//et hange4 E,ellent in/ormation soure4 To' /irms inlu(e BC? Bain? MKinsey

et


6/24

7nalysing? 'rioritising?

an( generating o'tions

Trans/erring%a''lying

0no"le(ge

Promoting strategi (eisions

Im'lementing strategi

hange

Using Consultants (1)

4 Use/ul in hallenging%on/irming 'ro'ose(

strategy an( assum'tions

4 7ble to hel' onsensus 'roess4 Can 'ro$i(e ne" o'tions%i(eas

4 Can bring signi/iant setor 0no"le(ge to bear 4 Use/ul on/i(ential) om'etitor%benhmar0ing

in/ormation

4 Some ha$e (ee' s'eialist 0no"le(ge eg 2il as? !inanial? Ta,? #egal? &? Country%Politial &is0

et

4 7 tool o/ the CE2%Boar( to 'romote a 'artiular

strategy4 2b8eti$ity Fho 'ays the in$oie

4 7 gro"ing area o/ 'o'ularity inome4 I(eally "or0ing "ith internal managers


7/24

Using Consultants (2)

1 De/ining the S'ei/i Issue

4 For0 out e,atly "hat issue5s6 you nee( them to a((ress 7 broa( so'e

G lots o/ time an( high /ees

@ Can they (o the 8ob%&e$ie" Pro'osal

4 7s0 /or e$i(ene o/ e,'eriene : setor? issue? geogra'hy et

4 Fho "ill be on the team Key 'oint o/ ontat

4 o" "oul( they a''roah the tas0

4 o" long "ill it ta0e

4 Fhat are (eli$erables Eg "ee0ly u'(ates

4 o" muh "ill it ost Dri$ers o/ ost

4 &e.uire( in'ut /rom the business%internal managers

3 Continual re$ie" o/ 'rogress

4 Kee' 'ressure on : senior atten(ane at u'(ates

4 Ensure stay on message : monitor senior onsultant in$ol$ement in the

'ro8et

4 U'(ate on osts%ini(entals 5I/ they ta0e H2U& 'eo'le out to lunhit "ill

en( u' on H2U& billJ6


8/24

• &e"ar( the right things

• Monetary re"ar(s

• on monetary re"ar(s

• &e"ar( em'loyee /or results not ati$ities

Reward Systems

The reward system…is an unequivoal statement o! the

or"oration#s values and $elie!s% &s suh' it is the *ey tounderstanding ulture% &n analysis o! reward systems an

"rovide e+eutives with a $asis !or e!!etively managing long

term ultural hange%

Kerr Sloum ;Managing Cor'orate Culture Through &e"ar(

Systems< 519L6


9/24

• To be effective, reward systems must be congruent with an organisation’sstrategy – and fit with its structure and processes (awler, !""#$%(&odels

include' &cinsey )*S +ramewor, -alanced Scorecard$

• .b/ectives in designing the reward system – 0enerously reward those ahie$ing ob8eti$es – 1eny rewards to those "ho (on)t – Tie inenti$e om'ensation to rele$ant outomes - both strategi an(

/inanial

• Ty'es o/ &e"ar(s* – Basi Pay 5/or (oing the 8ob6 – Per0s 5'art o/ basi 'a0age6 – Bonuses 5/or ahie$ing something : in(i$i(ual%olleti$e : sometimes

'art o/ basi 'a0age6 – Share 2'tions 5'ubli $s 'ri$ate6

Reward Systems , -in*ing to Strategy


10/24

Reward Systems – Reviewing

U./0RST&./ 0ST.3 S4ST05

4 Fhat beha$iours is it re"ar(ing4 Do these beha$iours /it "ith (esire(

strategy

/0T0R5.0 /0SR0/

607&89URS

4 Fhat is the strategy going /or"ar(4 Fhat beha$iours su''ort (esire( strategy

&/:UST ;R0S0.T S4ST05

4 Be a"are o/ im'liations o/ hange4 Im'lement Communiate


11/24

Private Equity Shareholders & Exits

1 !ormal Pri$ate E.uity !un(s ty'ially loo0 to e,it "ithin 3- years*

4 !un( li/e normally 1A years4 I&& base target @-3A 5Double money in 3 years64 #onger hol(ing 'erio( "ithout gro"th in $alue lea(s to (elining I&&4 &ationale /or longer hol(ing 'erio( inlu(es* 'ros'et o/ /urther signi/iant

$alue gro"th+ reo$ery /rom (i' in 'er/ormane

@ Im'at o/ (i' in 'er/ormane or /all behin( business 'lan

4 PE sharehol(ers "ill o/ten beome more han(s on) an( im'at strategy+4 Management hange is /re.uently an( o'tion Stu(ies re$eal that some 1%3 o/

CE2s are re'lae( in /irst 1AA (ays o/ in$estment an( @%3 re'lae( o$er N year

'erio( 57harya an( Kehoe @AA64 7eleration o/ E,it Strategy 5sale o/ business6

3 E,it /or PE !un( an mean either selling shares or selling the om'any :best $alue is usually gaine( /rom selling 1AA o/ the business


12/24

Exit as a Strategic Option

1 To ma,imise $alue timing is e$erything*

4 7 rea(y buyer 5/un(s strategi rationale64 Strong /inanial tra0 reor( 5tren(sJ6

4 Potential /or gro"th in /uture

4 Strategi $alue 5eg geogra'hy? tehnology?

ustomers? e,'ertise6

@ Ty'es o/ E,its*

4 Tra(e Buyers4 Pri$ate E.uity

4 Management%Pri$ate E.uity

4 Publi #isting

4 #i.ui(ation

3 &ationale /or 7.uisition 5Tra(e Buyers6 inlu(es*

4 Eonomies o/ Sale

4 Eonomies o/ Oertial Integration

4 Com'lementary &esoures

4 Sur'lus !un(s 5both in a.uire( an( a.uiring om'anyJ6

4 In(ustry Consoli(ation

4 Eliminating Ine//iienes : buyer sees o''ortunities to im'ro$e

Brealey et al? 2rinciples of Corporate +inance "th ed (344#$


13/24

Exit (Divestment !aluations

1 Ty'es o/ Oaluation on E,it*

1 et 7ssets eg $alue o/ assets-liabilities on balane sheet

4 Multi'le o/ Earnings eg L , EBITD7? or 1@ , et Pro/it

@ Distress Sale : Usually by $alue o/ et 7ssets

4 Usually in ban0ru'ty situations? but also rele$ant in un(er'er/orming

situations "here sharehol(ers /ore an e,it

4 7ssets suh as buil(ings an attrat mar0et 'rie

4 2ther assets may be (isounte(*

4 Mahinery : seon(han( $alue

4 In$entory is in(i$i(ually assesse( but an be (isounte( /rom A-1AA

4 Debtors are seen as (i//iult to ollet an( also (isounte( hea$ily

4 Cre(itors : 'artiularly ban0s "ill "ant /ull 'ayment /rom 'roee(s4 I/ om'any is un(er'er/orming but a sale is re.uire( then PE !un(s an be

o'en to other o'tions eg sale to management rather than asset sales


14/24


15/24

Bene/its o/ a balane( strategy

4 Sees businesses as systems o/ interrelate( strategies? o"ners?

in$estors? management? "or0ers? /inane? 'roesses? 'ro(uts?

su''liers? ustomers? an( om'etitors all o/ "hih 'ro$i(e ris0s

an( bene/its

4 Pro$i(es early "arning signals /or both o''ortunities an( ris0s/rom as many areas as 'ossible

4 I/ 'er/ormane 'roblems an be i(enti/ie(

early hanges an be im'lemente( to

ahie$e inten(e( strategi ob8eti$es

An unbalanced wheel

will roll neither fast nor far

(Vadim Kotelnio!"

Customers

STRATEGY

Sta!!


16/24

Balane( strategy

N areas o/ e.ual im'ortane to be balane(

1% Customers - ustomer satis/ation ie 0ee'ing them ha''y? there is

a limite( number o/ ustomers an( om'etition is ne$er /ar a"ay

2% Sta!! : 'eo'le are most im'ortant resoure o/ a business+ 0ey to

suess is through reruitment? training? mentoring an( re"ar(ing

a''ro'riately=% 9"erations : ost e//eti$e o'erations re.uire( /or all ser$ie an(

manu/aturing businesses+ 'ro(uti$ity? e//iieny an( .uality

>%


17/24

;er!ormane ndiators , o!ten *nown as ey ;er!ormane ndiators (;s)

KPIs shoul(* be lin0e( to strategy+ ha$e 'ur'ose%meaning+ be "ell-

(e/ine( an( measurable

KPIs an be !inanial or on-!inanial? eg


18/24

/esigning ;sB;er!ormane 5easures

Easily measure( an( easily un(erstoo( 5Cra"/or( an( Co,? 199A+Kennerley

an( eely? @AA36+

2b8eti$e rather than sub8eti$e riteria shoul( be use( 5eely et al? 199L6+ &atios shoul( be use( instea( o/ absolute numbers 5loberson? 196+ Shoul( stimulate im'ro$ement 5Ka'lan an( orton? 199@6+ Designe( in onsultation "ith 'eo'le "hose 'er/ormane is measure( 5Fisner

an( !a"ett? 19916+ Shoul( be as aurate as 'ossible 5eely et al? 199L6+

rou' measures shoul( be use( rather than measures base( on in(i$i(ual'er/ormane+

Shoul( ha$e an a''ro'riate 'reision

There are also several ommon !ailures or "it!alls to avoidA Shoul( not in(iretly su''ort negati$e beha$iours 5S0inner? 196+

Shoul( not measure someone on something o$er "hih they ha$e no ontrol5eely et al? 199L6

Shoul( not be base( on mislea(ing "eighting))

Tangen 5@AA6


19/24

Balane( sorear(

• 7 balane( sorear( is a 'er/ormane management tool "hih is

gi$es an holisti $ie" o/ an organisation by integrating both /inanial

an( non-/inanial 'arameters

>oine( u' thin0ing

• It an be use( to signi/iantly im'ro$e the im'lementation o/

ob8eti$es an( strategies Establishes targets "ith o"ners an( timing against all 0ey ations ie

SM7&T targets

• It 'ro$i(es a mehanism /or ontrolling an( monitoring the

organisational 'rogress

• It is a ommuniations (e$ie to 0ee' team members u'-to-(ate• It hel's in translating strategy into o'erational an( measurable ations

an( ahie$e strategi im'lementation


20/24

Balane( strategy /rame"or0* Balane( sorear(

#$hat is important for our

shareholders%&

#'ow do customers

percei!e us%&

#$hat internal processes

can add !alue%&

#Are we inno!ati!e

and ready for the

future%&

5dapted from 6obert S7 aplan and 1avid 27

8orton, 9:sing the -alanced Scorecard as a

Strategic &anagement System,; $' )>7


21/24

Balane( sorear(

• N areas o/ the sorear(*

CustomersA Measures ustomersQ satis/ation an( their 'er/ormanere.uirements


22/24


23/24

Thank You!

Chris Boulton

[email protected]

Questions

?


24/24

7 Balane( Strategy

• 7 'ratial gui(e to om'leting a balane( sorear(*

5llan &acay7 5 practitioner’s guide to the balanced scorecard

(344?$, Chartered @nstitute of &anagement 5ccountants7

htt'*%%"""imaglobalom%Douments%ThoughtRlea(ershi'R(os%tehRresre'RaR'ratitionersRgui

(eRtoRtheRbalane(Rsorear(R@AA'(/
http://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep_a_practitioners_guide_to_the_balanced_scorecard_2005.pdfhttp://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep_a_practitioners_guide_to_the_balanced_scorecard_2005.pdfhttp://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep_a_practitioners_guide_to_the_balanced_scorecard_2005.pdfhttp://www.cimaglobal.com/Documents/Thought_leadership_docs/tech_resrep_a_practitioners_guide_to_the_balanced_scorecard_2005.pdf