a balanced strategy(1)
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BU M3319
Managing Emerging Issues
Chris Boulton Dr Kay Emblen-PerrySenior Teahing !ello" Senior #eturer
Lecture 9: Final considerations and
presenting a Balanced Strategy
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Chris BoultonManaging Emerging Issues
E$aluating Emerging Issues
Issue E$aluation
StrategiChoie%&es'onse
&eommen(ation
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#earning outomes
To(ay)s leture*
Strategy in 'ratie+
Using e,ternal onsultants+
&e"ar( systems strategy+
Pri$ate e.uity sharehol(ers+ E,its+
The nee( /or a balane( strategy assoiate( /rame"or0s
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Chie/ E,euti$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
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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$e management "ith a
s'ei/i res'onsibility /or managing the
'lanning 'roess4 #u,ury o/ large businesses4 Usually a''ointe( /rom "ithin : ie "ith
goo( un(erstan(ing o/ the organisation
4 2/ten use( to analyse%'rioritise%generate
o'tions4 Im'lementing hange4 Can be a 'olitial tool to e//et hange4 E,ellent in/ormation soure4 To' /irms inlu(e BC? Bain? MKinsey
et
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7nalysing? 'rioritising?
an( generating o'tions
Trans/erring%a''lying
0no"le(ge
Promoting strategi (eisions
Im'lementing strategi
hange
Using Consultants (1)
4 Use/ul in hallenging%on/irming 'ro'ose(
strategy an( assum'tions
4 7ble to hel' onsensus 'roess4 Can 'ro$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$oie
4 7 gro"ing area o/ 'o'ularity inome4 I(eally "or0ing "ith internal managers
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Using Consultants (2)
1 De/ining the S'ei/i Issue
4 For0 out e,atly "hat issue5s6 you nee( them to a((ress 7 broa( so'e
G lots o/ time an( high /ees
@ Can they (o the 8ob%&e$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
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• &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 $asis !or e!!etively managing long
term ultural hange%
Kerr Sloum ;Managing Cor'orate Culture Through &e"ar(
Systems< 519L6
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• To be effective, reward systems must be congruent with an organisation’sstrategy – and fit with its structure and processes (awler, !""#$%(&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
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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$iours su''ort (esire( strategy
&/:UST ;R0S0.T S4ST05
4 Be a"are o/ im'liations o/ hange4 Im'lement Communiate
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Private Equity Shareholders & Exits
1 !ormal Pri$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
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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#$
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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
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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$es
An unbalanced wheel
will roll neither fast nor far
(Vadim Kotelnio!"
Customers
STRATEGY
Sta!!
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Balane( strategy
N areas o/ e.ual im'ortane to be balane(
1% Customers - ustomer satis/ation ie 0ee'ing them ha''y? there is
a limite( number o/ ustomers an( om'etition is ne$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$ity? e//iieny an( .uality
>%
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;er!ormane ndiators , o!ten *nown as ey ;er!ormane ndiators (;s)
KPIs shoul(* be lin0e( to strategy+ ha$e 'ur'ose%meaning+ be "ell-
(e/ine( an( measurable
KPIs an be !inanial or on-!inanial? eg
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/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$e no ontrol5eely et al? 199L6
Shoul( not be base( on mislea(ing "eighting))
Tangen 5@AA6
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Balane( sorear(
• 7 balane( sorear( is a 'er/ormane management tool "hih is
gi$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
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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,; $' )>7
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Balane( sorear(
• N areas o/ the sorear(*
CustomersA Measures ustomersQ satis/ation an( their 'er/ormanere.uirements
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Thank You!
Chris Boulton
c.boulton@worc.ac.uk
Questions
?
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7 Balane( Strategy
• 7 'ratial gui(e to om'leting a balane( sorear(*
5llan &acay7 5 practitioner’s guide to the balanced scorecard
(344?$, 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
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