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Vision, Goal Setting and StrategyFormulation
4
Session
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Delineates managements aspirations for the business
Charts a strategic path for the futureWhere are we going?
Steers energies of employeesin a common direction
Molds organizational identity
Is distinctiveand specificto
a particular organization Avoids use of gener ic language
Triggers strong emotions
Is challenging, uncomfortable, nail biting
Key Elements of aStrategic Vision
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The mission statementof
most companies focuses on
currentbusiness activities -
who we are and what we
do Current product and
service offerings
Customer needs beingserved
Technologicaland businesscapabilities
Astrategic visionconcerns a
firmsfuturebusiness path -
where we are going
Markets to be pursued
Future technology-product-customer focus
Kind of company
management is
trying to create
Strategic Vision vs. Mission
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Examples of visionstatements
A telecommunication services supplier:
To become the most successful worldwide
telecommunications group
A life assurance company:
First Choice for Life
A car manufacturer:
To be the worlds most desired andsuccessful specialty car brand
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The First Choice Carrierwith Touches of Thai
VISION
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Defines currentbusiness activities, highlightingboundariesof current business
Present products and services
Types of customers served
Conveys
Whowe are,
Whatwe do, and
Whywe are here
A companys mission is notto make a profit! Its true mission
is its answer to What will we do to make a profit?
Making is profit is an objective or intended outcome!
Characteristics ofa Mission Statement
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Key Elements ofa Mission Statement
Three factors to consider
Customer needs
What is being satisf ied
Customer groups
Who is being satisf ied
Technologies/resources/business approaches used andactivities performed
How customer needs are satisf ied
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The mission will guide theorganisations business
conduct To manage hospital
To collect contributions andmanage social security fund
To produce perfectlyengineered cars
To provide securedelectricity supply with due
regard to the environment To fly airplanes
To provide healthcare
To provide social securitybenefits to insured persons
To satisfy customers needsfor medium-sized cars
To be the leader in theenergy market
To fly people
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Examples of missionstatements
Cadillac Motor Co.
To engineer, produce and market the worldsfinest automobiles, known for uncompromisedlevels of distinctiveness, comfort, convenience,and refined performance.
A pharmaceutical company:
To extend and enhance human life.
British Airways:
To be the undisputed leader in world travel.
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Examples of missionstatements
(cont.)
3M:
To solve unsolved problems innovatively
Wal-Mart:
To give ordinary folks the chance to buy the samethings as rich people
Walt Disney:
To make people happyMarriott:
To make people away from home feel that theyare among friends and are really wanted
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i ki th i i
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A statement of valuesis often provided to guide thecompanys pursuit of its vision
ValuesBeliefs, business principles, and ways of doing
things that are incorporated into
Companys operations
Behavior of workforce
Values statements
Contain between four and eight values
Are ideally tightly connected to and reinforce companys
vision, strategy, and operating practices
Linking the VisionWith Company Values
i i
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Overcoming Resistance toa New Strategic Vision
Mobilizing supportfor a new visionentails
Reiterating basis for the new direction
Addressing employee concerns head-on
Calming fears
Lifting spirits
Providing updates and progress
reports as events unfold
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Setting Objectives
Purposeofsetting objectives
Converts vision into specific performance targets
Creates yardsticks to track performance
Pushes firm to be inventive, intentional, andfocused in its actions
Setting chal lenging, achievable
objectives guards against
Complacency
Internal confusion
Status quo performance
Phase 2 of the Strategy-Making Process
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Characteristics of Objectives
Represent commitment to achieve specif ic performancetargets
Spell out how muchofwhat kindof performance by when
Well-stated objectives are
Quantifiable
Measurable
Contain a deadlinefor achievement
Establishing objectives convertsthe
visioninto concrete performance outcomes!
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Outcomes focused
on improving financial
performance
Outcomes focused onimproving long-termcompetitivebusiness
position
Financial Objectives Strategic Objectives
$
Types of Objectives Required
Examples of Financial
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Examples of FinancialObjectives
Grow earnings per share 15% annually
Boost annual return on investment (or EVA) from 15% to 20% within
three years
Increase annual dividends per share
to stockholders by 5% each year
Strive for stock price appreciation
equal to or above the S&P 500 average
Maintain a positive cash flow every year
Achieve and maintain a AA bond rating
Examples of Strategic
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Examples of StrategicObjectives
Increase firms market share
Overtake key rivals on quality or customer service or productperformance
Attain lower overall costs than rivals
Boost firms reputation with customers
Attain stronger foothold in international markets
Achieve technological superiority
Become leader in new product introductions
Capture attractive growth opportunities
Example: Financial and
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Example: Financial andStrategic Objectives
Annual growth in earnings per share of 10% or better, onaverage;
A return on stockholders equity of 20-25%;
A return on capital employed of 27% or better; and
Have at least 30% of sales come from products introduced in thepast four years.
3M Corporat ion
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Balanced Scorecard
InternalProcess
Learning andGrowth
FinancialSales GrowthReturn on EquityEVA, CFROI, etc.Customer
Customer SatisfactionNew Customers/MonthCustomer Profitability
DefectsAdministrative ExpenseRatio
New Product Launches
Employee RetentionTraining LevelsCustomer Database Accuracy
Develop key business objectives that will
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Develop key business objectives that willhelp you to attain your strategy
The diagram illustrates an example of a clients organizational objectives. In the balanced scorecard development process, the organizational objectives
should provide a balance across the four dimensions of performance.
Object ives
1. Drive rapid revenue growth2. Manage operating costs and profitability3. Achieve profitability4. Effectively utilize assets5. Manage risk6. Improved Shareholder Value
Visionand
Strategy
1. Rapidly penetrate market segments2 Sustain significant customer growth3. Retain customers4. Achieve high customer satisfaction5. Provide extremely positive customer on-line
experience6. Achieve customer satisfaction
1. Develop provocative offers2. Build brand awareness3. Expand distribution4. Drive incremental revenues5. Offer leading high-speed Internet service6. Provide compelling internet experience7. Maintain technological leadership
1. Sustain employee satisfaction
2. Maintain employee productivity3. Retain employees4. Innovate operationally5. Measure training quantities6. Measure training effectiveness7. Measure and evaluate innovations
Financia l Perspect ive
Customer Perspect ive Internal Busin ess Process Perspect ive
Innovat ion & Learning Perspect ive
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Metrics set for all areas
The balanced scorecard is one of several tools for
performance measurement and management.
The Kaplan and Norton model provides a more holistic
approach by supplementing the traditional financial measures
with three additional perspectives: customer, internal
business process, innovation and learning:
FinancialPerspective- Is the company creating valuefor its shareholders?
Customer Perspective- How is the company
performing from the perspective of those who purchase
the companys products or services?
Internal Busin ess Process- How is the company
managing its internal business processes to meet its
clients expectations? Is throughput improving? Other
processes include fulfillment, customer retention, and
financial planning.
Innovation & Learning Perspective- Is the company
improving its ability to innovate, improve, and learn?
It incorporates both leading and lagging indicators.
The emphasis is on balance across multiple dimensions of
performance; ensuring that good performance in one area is
not offset by poor performance elsewhere.
The strategy drives the choice of performance measures. A
failure to meet targets could be because the strategy is wrong
Robert S. Kaplan and David P. Norton have developed what is considered to
be the standard Balanced Scorecard template
CustomerPerspective
How do
customers see
us?
Internal BusinessProcess
Perspective
What must weexcel at?
FinancialPerspective
How do we
look to
shareholders?
Innovation &Learning
Perspective
Can we continue toimprove our
employees skills and
create value for our
clients?
VisionandStrategy
Source: Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic ManagementSystem, Harvard Business Review (January-February 1996)
Why Senior Managers Should
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Why Senior Managers ShouldBe Concerned About Metrics
Five ways in which metrics can have a positive effect on the growth andvitality of the organization:
Help define the Business Model.
Help communicate strategy.
Help track performance.
Help increase accountability.
Help align objectives.
Develop specific measures and
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The next step after identifying the organizational objectives is to identify measures & metrics for achievingthose objectives.
Develop specific measures andmetrics to track progress
Object ives Measures & Metrics
SatisfiedClients
Seamless Service
Improved Quality
Cost Reduction
BalancedGrowth
Reduce Cost
Reduce Backlog
Best clients
MotivatedPeople
Strong Leadership
Effective Training
Reward & Recognition
The above example shows Vendors objectives and some
corresponding measures & metrics.
Effective performance measures have a number of keycharacteristics:
Measures are part of a cause and effect relationship
Measures areprocess-focused
Measures are balanced
Measures are actionable
Measures are vertically & horizontally aligned
Measures are integrated
Measures encourage teamwork
Measures focus priorities
Balanced Scorecard
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Balanced Scorecard
Short-Term vs
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Short-Term vs.Long-Term Objectives
Short-term objectivesTargets to be achieved soon
Milestones or stair steps for reaching long-rangeperformance
Long-term objectives
Targets to be achieved within3 to 5 years
Prompt actions now that willpermit reaching targetedlong-range performance later
Objectives Are Needed
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1. First, establish organization-wideobjectives and
performance targets
2. Next, set businessandproduct l ineobjectives
3. Then, establish functional
and departmentalobjectives
4.Individualobjectives are established last
Objectives Are Neededat All Levels
What can we do today and in
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What can we do today and inresponse to the external
environment?
Opportunities
WeaknessesStrengthsInternal
External
Positive Negative
The Concept of Corporate Strategy, K.R. Andrews
Threats
Examples
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ExamplesStrengths and Weaknesses
A distinctive competence
Good competitive skills
Well thought of by others
Better advertising campaign
Product innovation skills
Proven management
Ahead on experience curve
Better production facilities
Superior technological skills
No clear strategic direction
Obsolete facilities
Lack of managerial talent
Falling behind in R&D
Too narrow a product line
Weak market image
Weaker distribution network
Higher overall unit costs
Poor marketing skills
Potential Strengths Potential Weaknesses
Examples
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ExamplesOpportunities and Threats
Additional customer groups
Entry into new market
Diversity into relatedproducts or services
Falling trade barriers
Faster market growth
Complacency among rivals Expansion of product line or
services to meet customer
needs
Entry of low-cost competitors
Rising sales of substitute
Slower market growth
Adverse shift in exchange rates
Policies of foreign government
Costly regulatory requirements
Vulnerability to recession cycle Growing bargaining powers of
customers or suppliers
Changing buyer needs and
tastes
Potential Opportunities Potential Threats
Strategy formulation - TOWS matrix
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Strategy formulation TOWS matrix
Assignment
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Assignment Read Thompson Textbook Develop Vision Statement for your Travel Magazine
business (if not already have) or comment one (if already
have)
Perform SWOT/TOWS analysis for Travel Magazinebusiness
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