STRATEGIC MANAGEMENT

MODULE - 2 Joshi

MBA III SEMESTER

Faculty: Krupa

Strategy formulation Developing Strategic vision and Mission for a company Setting Objectives Strategic Objectives and Financial Objectives Balanced score card, Company Goals and Company Philosophy. The hierarchy of Strategic Intent Merging the Strategic Vision Objectives and Strategy into a Strategic Plan. INTRODUCTION: Strategic management is a combination of three main processes: (1) Strategy Formulation (2) Strategy Implementation (3) Strategy Evaluation (1) STRATEGY FORMULATION: Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental. Concurrent with this assessment, objectives are set. These objectives should be parallel to a timeline; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.

These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives. This three-step strategy formulation process is sometimes referred to as determining where you are now, determining where you want to go, and then determining how to get there. Some fundamental questions are Is management aware of the threats posed by new rivals? Do senior executives have a sense of urgency about the need to reinvent the current business model? Is my company pursuing growth and new business development? Does the senior management have a clear understanding of how the industry may be different in the next 10 years? Is it regularly defining new ways of doing business, building new capabilities and setting new standards of customer satisfaction? It is useful to consider strategy formulation as part of a strategic management process that comprises three phases: diagnosis, formulation, and implementation. Strategic management is an ongoing process to develop and revise future-oriented strategies that allow an organization to achieve its objectives, considering its capabilities, constraints, and the environment in which it operates. Diagnosis includes: (a) performing a
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situation analysis (analysis of the internal environment of the organization), including identification and evaluation of current mission, strategic objectives, strategies, and results, plus major strengths and weaknesses; (b) analyzing the organization's external environment, including major opportunities and threats; and (c) identifying the major critical issues, which are a small set, typically two to five, of major problems, threats, weaknesses, and/or opportunities that require particularly high priority attention by management.

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Formulation produces a clear set of recommendations, with supporting justification, that revise as necessary the mission and objectives of the organization, and supply the strategies for accomplishing them. In formulation, we are trying to modify the current objectives and strategies in ways to make the organization more successful. This includes trying to create "sustainable" competitive advantages -- although most competitive advantages are eroded steadily by the efforts of competitors. A good recommendation should be: effective in solving the stated problem(s), practical (can be implemented in this situation, with the resources available), feasible within a reasonable time frame, cost-effective, not overly disruptive, and acceptable to key "stakeholders" in the organization. It is important to consider "fits" between resources plus competencies with opportunities, and also fits between risks and expectations. There are four primary steps in this phase: * Reviewing the current key objectives and strategies of the organization, which usually would have been identified and evaluated as part of the diagnosis * Identifying a rich range of strategic alternatives to address the three levels of strategy formulation outlined below, including but not limited to dealing with the critical issues * Doing a balanced evaluation of advantages and disadvantages of the alternatives relative to their feasibility plus expected effects on the issues and contributions to the success of the organization * Deciding on the alternatives that should be implemented or recommended. In organizations, and in the practice of strategic management, strategies must be implemented to achieve the intended results. The most wonderful strategy in the history of the world is useless if not implemented successfully. This third and final stage in the strategic management process involves developing an implementation plan and then doing whatever it takes to make the new strategy operational and effective in achieving the organization's objectives. The remainder of this chapter focuses on strategy formulation, and is organized into six sections: Aspects of Strategy Formulation, Corporate-Level Strategy, Competitive Strategy, Functional Strategy,
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Choosing Strategies, Troublesome Strategies.

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ASPECTS OF STRATEGY FORMULATION: The following aspects or levels of strategy formulation, each with a different focus, need to be dealt with in the formulation phase of strategic management. The three sets of recommendations must be internally consistent and fit together in a mutually supportive manner that forms an integrated hierarchy of strategy, in the order given.

Corporate Level Strategy: In this aspect of strategy, we are concerned with broad decisions about the total organization's scope and direction. Basically, we consider what changes should be made in our growth objective and strategy for achieving it, the lines of business we are in, and how these lines of business fit together. It is useful to think of three components of corporate level strategy: (a) growth or directional strategy (what should be our growth objective, ranging from retrenchment through stability to varying degrees of growth - and how do we accomplish this), (b) portfolio strategy (what should be our portfolio of lines of business, which implicitly requires reconsidering how much concentration or diversification we should have), and (c) parenting strategy (how we allocate resources and manage capabilities and activities across the portfolio -- where do we put special emphasis, and how much do we integrate our various lines of business). Competitive Strategy (often called Business Level Strategy): This involves deciding how the company will compete within each line of business (LOB) or strategic business unit (SBU). Functional Strategy: These more localized and shorter-horizon strategies deal with how each functional area and unit will carry out its functional activities to be effective and maximize resource productivity.

CORPORATE LEVEL STRATEGY: This comprises the overall strategy elements for the corporation as a whole, the grand strategy, if you please. Corporate strategy involves four kinds of initiatives: * Making the necessary moves to establish positions in different businesses and achieve an appropriate amount and kind of diversification. A key part of corporate strategy is making decisions on how many, what types, and which specific lines of business the company should be in. This may involve deciding to increase or decrease the amount and breadth of diversification. It may involve closing out some LOB's (lines of business), adding others, and/or changing emphasis among LOB's. * Initiating actions to boost the combined performance of the businesses the company has diversified into: This may involve vigorously pursuing rapid-growth strategies in the most promising LOB's, keeping the other core businesses healthy, initiating turnaround efforts in weak-performing LOB's
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with promise, and dropping LOB's that are no longer attractive or don't fit into the corporation's overall plans. It also may involve supplying financial, managerial, and other resources, or acquiring and/or merging other companies with an existing LOB. * Pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantages -- especially transferring and sharing related technology, procurement leverage, operating facilities, distribution channels, and/or customers. * Establishing investment priorities and moving more corporate resources into the most attractive LOB's. It is useful to organize the corporate level strategy considerations and initiatives into a framework with the following three main strategy components: growth, portfolio, and parenting. These are discussed in the next three sections. What should be Our Growth Objective and Strategies? Growth objectives can range from drastic retrenchment through aggressive growth. Organizational leaders need to revisit and make decisions about the growth objectives and the fundamental strategies the organization will use to achieve them. There are forces that tend to push top decision-makers toward a growth stance even when a company is in trouble and should not be trying to grow, for example bonuses, stock options, fame, ego. Leaders need to resist such temptations and select a growth strategy stance that is appropriate for the organization and its situation. Stability and retrenchment strategies are underutilized. Some of the major strategic alternatives for each of the primary growth stances (retrenchment, stability, and growth) are summarized in the following three sub-sections. Growth Strategies: All growth strategies can be classified into one of two fundamental categories: concentration within existing industries or diversification into other lines of business or industries. When a company's current industries are attractive, have good growth potential, and do not face serious threats, concentrating resources in the existing industries makes good sense. Diversification tends to have greater risks, but is an appropriate option when a company's current industries have little growth potential or are unattractive in other ways. When an industry consolidates and becomes mature, unless there are other markets to seek (for example other international markets), a company may have no choice for growth but diversification. There are two basic concentration strategies, vertical integration and horizontal growth. Diversification strategies can be divided into related (or concentric) and unrelated (conglomerate) diversification. Each of the resulting four core categories of strategy alternatives can be achieved internally through investment and development, or externally through mergers, acquisitions, and/or strategic alliances -- thus producing eight major growth strategy categories. Comments about each of the four core categories are outlined below, followed by some key points about mergers, acquisitions, and strategic alliances.
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1. Vertical Integration: This type of strategy can be a good one if the company has a strong competitive position in a growing, attractive industry. A company can grow by taking over functions earlier in the value chain that were previously provided by suppliers or other organizations ("backward integration"). This strategy can have advantages, e.g., in cost, stability and quality of components, and making operations more difficult for competitors. However, it also reduces flexibility, raises exit barriers for the company to leave that industry, and prevents the company from seeking the best and latest components from suppliers competing for their business. A company also can grow by taking over functions forward in the value chain previously provided by final manufacturers, distributors, or retailers ("forward integration"). This strategy provides more control over such things as final products/services and distribution, but may involve new critical success factors that the parent company may not be able to master and deliver. For example, being a world-class manufacturer does not make a company an effective retailer. Some writers claim that backward integration is usually more profitable than forward integration, although this does not have general support. In any case, many companies have moved toward less vertical integration (especially backward, but also forward) during the last decade or so, replacing significant amounts of previous vertical integration with outsourcing and various forms of strategic alliances. 2. Horizontal Growth: This strategy alternative category involves expanding the company's existing products into other locations and/or market segments, or increasing the range of products/services offered to current markets, or a combination of both. It amounts to expanding sideways at the point(s) in the value chain that the company is currently engaged in. One of the primary advantages of this alternative is being able to choose from a fairly continuous range of choices, from modest extensions of present products/markets to major expansions -- each with corresponding amounts of cost and risk. 3. Related Diversification (Concentric Diversification): In this alternative, a company expands into a related industry, one having synergy with the company's existing lines of business, creating a situation in which the existing and new lines of business share and gain special advantages from commonalities such as technology, customers, distribution, location, product or manufacturing similarities, and government access. This is often an appropriate corporate strategy when a company has a strong competitive position and distinctive competencies, but its existing industry is not very attractive. 4. Unrelated Diversification (Conglomerate Diversification): This fourth major category of corporate strategy alternatives for growth involves diversifying into a line of business unrelated to the current ones. The reasons to consider this alternative are primarily seeking more attractive opportunities for growth in which to invest available funds (in contrast to rather unattractive opportunities in existing industries), risk reduction, and/or preparing to exit an existing line of business (for example, one in the decline stage of the product life cycle). Further, this may be an appropriate strategy when, not only the present industry is
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unattractive, but the company lacks outstanding competencies that it could transfer to related products or industries. However, because it is difficult to manage and excel in unrelated business units, it can be difficult to realize the hoped-for value added. Mergers, Acquisitions, and Strategic Alliances: Each of the four growth strategy categories just discussed can be carried out internally or externally, through mergers, acquisitions, and/or strategic alliances. Of course, there also can be a mixture of internal and external actions. Various forms of strategic alliances, mergers, and acquisitions have emerged and are used extensively in many industries today. They are used particularly to bridge resource and technology gaps, and to obtain expertise and market positions more quickly than could be done through internal development. They are particularly necessary and potentially useful when a company wishes to enter a new industry, new markets, and/or new parts of the world. Despite their extensive use, a large share of alliances, mergers, and acquisitions fall far short of expected benefits or are outright failures. For example, one study published in Business Week in 1999 found that 61 percent of alliances were either outright failures or "limping along." Research on mergers and acquisitions includes a Mercer Management Consulting study of all mergers from 1990 to 1996 which found that nearly half "destroyed" shareholder value; an A. T. Kearney study of 115 multibillion-dollar, global mergers between 1993 and 1996 where 58 percent failed to create "substantial returns for shareholders" in the form of dividends and stock price appreciation; and a Price-WaterhouseCoopers study of 97 acquisitions over $500 million from 1994 to 1997 in which two-thirds of the buyer's stocks dropped on announcement of the transaction and a third of these were still lagging a year later.

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Many reasons for the problematic record have been cited, including paying too much, unrealistic expectations, inadequate due diligence, and conflicting corporate cultures; however, the most powerful contributor to success or failure is inadequate attention to the merger integration process. Although the lawyers and investment bankers may consider a deal done when the papers are signed and they receive their fees, this should be merely an incident in a multi-year process of integration that began before the signing and continues far beyond. STABILITY STRATEGIES: There are a number of circumstances in which the most appropriate growth stance for a company is stability, rather than growth. Often, this may be used for a relatively short period, after which further growth is planned. Such circumstances usually involve a reasonable successful company, combined with circumstances that either permit a period of comfortable coasting or suggest a pause or caution. Three alternatives are outlined below, in which the actual strategy actions are similar, but differing primarily in the circumstances motivating the choice of a stability strategy and in the intentions for future strategic actions.
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1. Pause and Then Proceed: This stability strategy alternative (essentially a timeout) may be appropriate in either of two situations: (a) the need for an opportunity to rest, digest, and consolidate after growth or some turbulent events - before continuing a growth strategy, or (b) an uncertain or hostile environment in which it is prudent to stay in a "holding pattern" until there is change in or more clarity about the future in the environment. 2. No Change: This alternative could be a cop-out, representing indecision or timidity in making a choice for change. Alternatively, it may be a comfortable, even long-term strategy in a mature, rather stable environment, e.g., a small business in a small town with few competitors. 3. Grab Profits While You Can: This is a non-recommended strategy to try to mask a deteriorating situation by artificially supporting profits or their appearance, or otherwise trying to act as though the problems will go away. It is an unstable, temporary strategy in a worsening situation, usually chosen either to try to delay letting stakeholders know how bad things are or to extract personal gain before things collapse. Recent terrible examples in the USA are Enron and WorldCom. RETRENCHMENT STRATEGIES:
1. Turnaround: This strategy, dealing with a company in serious trouble, attempts to resuscitate or

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revive the company through a combination of contraction (general, major cutbacks in size and costs) and consolidation (creating and stabilizing a smaller, leaner company). Although difficult, when done very effectively it can succeed in both retaining enough key employees and revitalizing the company. 2. Captive Company Strategy: This strategy involves giving up independence in exchange for some security by becoming another company's sole supplier, distributor, or a dependent subsidiary. 3. Sell Out: If a company in a weak position is unable or unlikely to succeed with a turnaround or captive company strategy, it has few choices other than to try to find a buyer and sell itself (or divest, if part of a diversified corporation). 4. Liquidation: When a company has been unsuccessful in or has none of the previous three strategic alternatives available, the only remaining alternative is liquidation, often involving a bankruptcy. There is a modest advantage of a voluntary liquidation over bankruptcy in that the board and top management make the decisions rather than turning them over to a court, which often ignores stockholders' interests. What Should Be Our Portfolio Strategy? This second component of corporate level strategy is concerned with making decisions about the portfolio of lines of business (LOB's) or strategic business units (SBU's), not the company's portfolio of individual products. Portfolio matrix models can be useful in reexamining a company's present portfolio. The purpose
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of all portfolio matrix models is to help a company understand and consider changes in its portfolio of businesses, and also to think about allocation of resources among the different business elements. The two primary models are the BCG Growth-Share Matrix and the GE Business Screen (Porter, 1980, has a good summary of these). These models consider and display on a two-dimensional graph each major SBU in terms of some measure of its industry attractiveness and its relative competitive strength. The BCG Growth-Share Matrix model considers two relatively simple variables: growth rate of the industry as an indication of industry attractiveness, and relative market share as an indication of its relative competitive strength. The GE Business Screen, also associated with McKinsey, considers two composite variables, which can be customized by the user, for (a) industry attractiveness (e.g, one could include industry size and growth rate, profitability, pricing practices, favored treatment in government dealings, etc.) and (b) competitive strength (e.g., market share, technological position, profitability, size, etc.) The best test of the business portfolio's overall attractiveness is whether the combined growth and profitability of the businesses in the portfolio will allow the company to attain its performance objectives. Related to this overall criterion are such questions as: * Does the portfolio contain enough businesses in attractive industries? * Does it contain too many marginal businesses or question marks? * Is the proportion of mature/declining businesses so great that growth will be sluggish? * Are there some businesses that are not really needed or should be divested? * Does the company have its share of industry leaders, or is it burdened with too many businesses in modest competitive positions? * Is the portfolio of SBU's and its relative risk/growth potential consistent with the strategic goals? * Do the core businesses generate dependable profits and/or cash flow? * Are there enough cash-producing businesses to finance those needing cash * Is the portfolio overly vulnerable to seasonal or recessionary influences? * Does the portfolio put the corporation in good position for the future? It is important to consider diversification vs. concentration while working on portfolio strategy, i.e., how broad or narrow should be the scope of the company. It is not always desirable to have a broad scope. Single-business strategies can be very successful (e.g., early strategies of McDonald's, Coca-Cola, and BIC
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Pen). Some of the advantages of a narrow scope of business are: (a) less ambiguity about who we are and what we do; (b) concentrates the efforts of the total organization, rather than stretching them across many lines of business; (c) through extensive hands-on experience, the company is more likely to develop distinctive competence; and (d) focuses on long-term profits. However, having a single business puts "all the eggs in one basket," which is dangerous when the industry and/or technology may change. Diversification becomes more important when market growth rate slows. Building stable shareholder value is the ultimate justification for diversifying -- or any strategy. What Should Be Our Parenting Strategy? This third component of corporate level strategy, relevant for a multi-business company (it is moot for a single-business company), is concerned with how to allocate resources and manage capabilities and activities across the portfolio of businesses. It includes evaluating and making decisions on the following: * Priorities in allocating resources (which business units will be stressed) * What are critical success factors in each business unit, and how can the company do well on them * Coordination of activities (e.g., horizontal strategies) and transfer of capabilities among business units * How much integration of business units is desirable? COMPETITIVE (BUSINESS LEVEL) STRATEGY: In this second aspect of a company's strategy, the focus is on how to compete successfully in each of the lines of business the company has chosen to engage in. The central thrust is how to build and improve the company's competitive position for each of its lines of business. A company has competitive advantage whenever it can attract customers and defend against competitive forces better than its rivals. Companies want to develop competitive advantages that have some sustainability (although the typical term "sustainable competitive advantage" is usually only true dynamically, as a firm works to continue it). Successful competitive strategies usually involve building uniquely strong or distinctive competencies in one or several areas crucial to success and using them to maintain a competitive edge over rivals. Some examples of distinctive competencies are superior technology and/or product features, better manufacturing technology and skills, superior sales and distribution capabilities, and better customer service and convenience. Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value. (Michael E. Porter) The essence of strategy lies in creating tomorrow's competitive advantages faster than competitors mimic the ones you possess today. (Gary Hamel & C. K. Prahalad)

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We will consider competitive strategy by using Porter's four generic strategies (Porter 1980, 1985) as the fundamental choices, and then adding various competitive tactics. PORTER'S FOUR GENERIC COMPETITIVE STRATEGIES: He argues that a business needs to make two fundamental decisions in establishing its competitive advantage: (a) whether to compete primarily on price (he says "cost," which is necessary to sustain competitive prices, but price is what the customer responds to) or to compete through providing some distinctive points of differentiation that justify higher prices, and (b) how broad a market target it will aim at (its competitive scope). These two choices define the following four generic competitive strategies. A fifth strategy alternative (best-cost provider) is added by some sources, although not by Porter, and is included below: 1. Overall Price (Cost) Leadership: appealing to a broad cross-section of the market by providing products or services at the lowest price. This requires being the overall low-cost provider of the products or services (e.g., Costco, among retail stores, and Hyundai, among automobile manufacturers). Implementing this strategy successfully requires continual, exceptional efforts to reduce costs -- without excluding product features and services that buyers consider essential. It also requires achieving cost advantages in ways that are hard for competitors to copy or match. Some conditions that tend to make this strategy an attractive choice are: * The industry's product is much the same from seller to seller * The marketplace is dominated by price competition, with highly price-sensitive buyers * There are few ways to achieve product differentiation that have much value to buyers * Most buyers use product in some ways -- common user requirements * Switching costs for buyers are low * Buyers are large and have significant bargaining power 2. Differentiation: appealing to a broad cross-section of the market through offering differentiating features that make customers willing to pay premium prices, e.g., superior technology, quality, prestige, special features, service, convenience (examples are Nordstrom and Lexus). Success with this type of strategy requires differentiation features that are hard or expensive for competitors to duplicate. Sustainable differentiation usually comes from advantages in core competencies, unique company resources or capabilities, and superior management of value chain activities. Some conditions that tend to favor differentiation strategies are:
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* There are multiple ways to differentiate the product/service that buyers think have substantial value * Buyers have different needs or uses of the product/service * Product innovations and technological change are rapid and competition emphasizes the latest product features * Not many rivals are following a similar differentiation strategy 3. Price (Cost) Focus: a market niche strategy, concentrating on a narrow customer segment and competing with lowest prices, which, again, requires having lower cost structure than competitors (e.g., a single, small shop on a side-street in a town, in which they will order electronic equipment at low prices, or the cheapest automobile made in the former Bulgaria). Some conditions that tend to favor focus (either price or differentiation focus) are: * The business is new and/or has modest resources * The company lacks the capability to go after a wider part of the total market * Buyers' needs or uses of the item are diverse; there are many different niches and segments in the industry * Buyer segments differ widely in size, growth rate, profitability, and intensity in the five competitive forces, making some segments more attractive than others * Industry leaders don't see the niche as crucial to their own success * Few or no other rivals are attempting to specialize in the same target segment 4. Differentiation Focus: a second market niche strategy, concentrating on a narrow customer segment and competing through differentiating features (e.g., a high-fashion women's clothing boutique in Paris, or Ferrari). Best-Cost Provider Strategy: (although not one of Porter's basic four strategies, this strategy is mentioned by a number of other writers.) This is a strategy of trying to give customers the best cost/value combination, by incorporating key good-or-better product characteristics at a lower cost than competitors. This strategy is a mixture or hybrid of low-price and differentiation, and targets a segment of value-conscious buyers that is usually larger than a market niche, but smaller than a broad market. Successful implementation of this strategy requires the company to have the resources, skills, capabilities (and possibly luck) to incorporate upscale features at lower cost than competitors. This strategy could be attractive in markets that have both variety in buyer needs that make differentiation common and where large numbers of buyers are sensitive to both price and value. Porter might argue that this strategy is often temporary, and that a business should choose and achieve one of the four generic competitive strategies above. Otherwise, the business is stuck in the middle of the competitive marketplace and will be out-performed by competitors who choose and excel
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in one of the fundamental strategies. His argument is analogous to the threats to a tennis player who is standing at the service line, rather than near the baseline or getting to the net. However, others present examples of companies (e.g., Honda and Toyota) who seem to be able to pursue successfully a best-cost provider strategy, with stability. COMPETITIVE TACTICS: Although a choice of one of the generic competitive strategies discussed in the previous section provides the foundation for a business strategy, there are many variations and elaborations. Among these are various tactics that may be useful (in general, tactics are shorter in time horizon and narrower in scope than strategies). This section deals with competitive tactics, while the following section discusses cooperative tactics. Two categories of competitive tactics are those dealing with timing (when to enter a market) and market location (where and how to enter and/or defend). Timing Tactics: When to make a strategic move is often as important as what move to make. We often speak of first-movers (i.e., the first to provide a product or service), second-movers or rapid followers, and late movers (wait-and-see). Each tactic can have advantages and disadvantages. Being a first-mover can have major strategic advantages when: (a) doing so builds an important image and reputation with buyers; (b) early adoption of new technologies, different components, exclusive distribution channels, etc. can produce cost and/or other advantages over rivals; (c) first-time customers remain strongly loyal in making repeat purchases; and (d) moving first makes entry and imitation by competitors hard or unlikely. However, being a second- or late-mover isn't necessarily a disadvantage. There are cases in which the first-mover's skills, technology, and strategies are easily copied or even surpassed by later-movers, allowing them to catch or pass the first-mover in a relatively short period, while having the advantage of minimizing risks by waiting until a new market is established. Sometimes, there are advantages to being a skillful follower rather than a first-mover, e.g., when: (a) being a first-mover is more costly than imitating and only modest experience curve benefits accrue to the leader (followers can end up with lower costs than the first-mover under some conditions); (b) the products of an innovator are somewhat primitive and do not live up to buyer expectations, thus allowing a clever follower to win buyers away from the leader with better performing products; (c) technology is advancing rapidly, giving fast followers the opening to leapfrog a first-mover's products with more attractive and full-featured second- and third-generation products; and (d) the first-mover ignores market segments that can be picked up easily. Market Location Tactics: These fall conveniently into offensive and defensive tactics. Offensive tactics are designed to take market share from a competitor, while defensive tactics attempt to keep a competitor
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from taking away some of our present market share, under the onslaught of offensive tactics by the competitor. Some offensive tactics are: * Frontal Assault: going head-to-head with the competitor, matching each other in every way. To be successful, the attacker must have superior resources and be willing to continue longer than the company attacked. * Flanking Maneuver: attacking a part of the market where the competitor is weak. To be successful, the attacker must be patient and willing to carefully expand out of the relatively undefended market niche or else face retaliation by an established competitor. * Encirclement: usually evolving from the previous two, encirclement involves encircling and pushing over the competitor's position in terms of greater product variety and/or serving more markets. This requires a wide variety of abilities and resources necessary to attack multiple market segments. * Bypass Attack: attempting to cut the market out from under the established defender by offering a new, superior type of produce that makes the competitor's product unnecessary or undesirable. * Guerrilla Warfare: using a "hit and run" attack on a competitor, with small, intermittent assaults on different market segments. This offers the possibility for even a small firm to make some gains without seriously threatening a large, established competitor and evoking some form of retaliation. Some Defensive Tactics are: * Raise Structural Barriers: block avenues challengers can take in mounting an offensive * Increase Expected Retaliation: signal challengers that there is threat of strong retaliation if they attack * Reduce Inducement for Attacks: e.g., lower profits to make things less attractive (including use of accounting techniques to obscure true profitability). Keeping prices very low gives a new entrant little profit incentive to enter. The general experience is that any competitive advantage currently held will eventually be eroded by the actions of competent, resourceful competitors. Therefore, to sustain its initial advantage, a firm must use both defensive and offensive strategies, in elaborating on its basic competitive strategy. COOPERATIVE STRATEGIES: Another group of "competitive" tactics involve cooperation among companies. These could be grouped under the heading of various types of strategic alliances, which have been discussed to some extent under Corporate Level growth strategies. These involve an agreement or alliance between two or more businesses formed to achieve strategically significant objectives that are mutually beneficial. Some are very short-term; others are longer-term and may be the first stage of an eventual merger between the companies. Some of the reasons for strategic alliances are to: obtain/share technology, share manufacturing capabilities and facilities,
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share access to specific markets, reduce financial/political/market risks, and achieve other competitive advantages not otherwise available. There could be considered a continuum of types of strategic alliances, ranging from: (a) mutual service consortiums (e.g., similar companies in similar industries pool their resources to develop something that is too expensive alone), (b) licensing arrangements, (c) joint ventures (an independent business entity formed by two or more companies to accomplish certain things, with allocated ownership, operational responsibilities, and financial risks and rewards), (d) value-chain partnerships (e.g., just-in-time supplier relationships, and out-sourcing of major value-chain functions).

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FUNCTIONAL STRATEGIES: Functional strategies are relatively short-term activities that each functional area within a company will carry out to implement the broader, longer-term corporate level and business level strategies. Each functional area has a number of strategy choices that interact with and must be consistent with the overall company strategies. Three basic characteristics distinguish functional strategies from corporate level and business level strategies: shorter time horizon, greater specificity, and primary involvement of operating managers. A few examples follow of functional strategy topics for the major functional areas of marketing, finance, production/operations, research and development, and human resources management. Each area needs to deal with sourcing strategy, i.e., what should be done in-house and what should be outsourced? Marketing strategy deals with product/service choices and features, pricing strategy, markets to be targeted, distribution, and promotion considerations. Financial strategies include decisions about capital acquisition, capital allocation, dividend policy, and investment and working capital management. The production or operations functional strategies address choices about how and where the products or services will be manufactured or delivered, technology to be used, management of resources, plus purchasing and relationships with suppliers. For firms in high-tech industries, R&D strategy may be so central that many of the decisions will be made at the business or even corporate level, for example the role of technology in the company's competitive strategy, including choices between being a technology leader or follower. However, there will remain more specific decisions that are part of R&D functional strategy, such as the relative emphasis between product and process R&D, how new technology will be obtained (internal development vs. external through purchasing, acquisition, licensing, alliances, etc.), and degree of centralization for R&D activities. Human resources functional strategy includes many topics, typically recommended by the human resources department, but many requiring top management approval. Examples are job categories and descriptions; pay and benefits; recruiting, selection, and orientation; career development and training; evaluation and incentive systems; policies and discipline; and management/executive selection processes. CHOOSING THE BEST STRATEGY ALTERNATIVES:
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Decision making is a complex subject, worthy of a chapter or book of its own. This section can only offer a few suggestions. Among the many sources for additional information, I recommend Harrison (1999), McCall & Kaplan (1990), and Williams (2002). Here are some factors to consider when choosing among alternative strategies: * It is important to get as clear as possible about objectives and decision criteria (what makes a decision a "good" one?) * The primary answer to the previous question, and therefore a vital criterion, is that the chosen strategies must be effective in addressing the "critical issues" the company faces at this time * They must be consistent with the mission and other strategies of the organization * They need to be consistent with external environment factors, including realistic assessments of the competitive environment and trends * They fit the company's product life cycle position and market attractiveness/competitive strength situation * They must be capable of being implemented effectively and efficiently, including being realistic with respect to the company's resources * The risks must be acceptable and in line with the potential rewards * It is important to match strategy to the other aspects of the situation, including: (a) size, stage, and growth rate of industry; (b) industry characteristics, including fragmentation, importance of technology, commodity product orientation, international features; and (c) company position (dominant leader, leader, aggressive challenger, follower, weak, "stuck in the middle") * Consider stakeholder analysis and other people-related factors (e.g., internal and external pressures, risk propensity, and needs and desires of important decision-makers) * Sometimes it is helpful to do scenario construction, e.g., cases with optimistic, most likely, and pessimistic assumptions. SOME TROUBLESOME STRATEGIES TO AVOID OR USE WITH CAUTION: Follow the Leader: when the market has no more room for copycat products and look-alike competitors. Sometimes such a strategy can work fine, but not without careful consideration of the company's particular strengths and weaknesses. (e.g., Fujitsu Ltd. was driven since the 1960s to catch up to IBM in mainframes and continued this quest even into the 1990s after mainframes were in steep decline; or the decision by Standard Oil of Ohio to follow Exxon and Mobil Oil into conglomerate diversification) Count on Hitting another Home Run: e.g., Polaroid tried to follow its early success with instant photography by developing "Polavision" during the mid-1970s. Unfortunately, this very expensive, instant developing, 8mm, black and white, silent motion picture camera and film was displayed at a stockholders'

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meeting about the time that the first beta-format video recorder was released by Sony. Polaroid reportedly wrote off at least $500 million on this venture without selling a single camera. Try to do everything: establishing many weak market positions instead of a few strong ones Arms Race: Attacking the market leaders head-on without having either a good competitive advantage or adequate financial strength; making such aggressive attempts to take market share that rivals are provoked into strong retaliation and a costly "arms race." Such battles seldom produce a substantial change in market shares; usual outcome is higher costs and profitless sales growth Put More Money on a Losing Hand: one version of this is allocating R&D efforts to weak products instead of strong products (e.g., Polavision again, Pan Am's attempt to continue global routes in 1987) Over-optimistic Expansion: Using high debt to finance investments in new facilities and equipment, then getting trapped with high fixed costs when demand turns down, excess capacity appears, and cash flows are tight Unrealistic Status-Climbing: Going after the high end of the market without having the reputation to attract buyers looking for name-brand, prestige goods (e.g., Sears' attempts to introduce designer women's clothing) Selling the Sizzle Without the Steak: Spending more money on marketing and sales promotions to try to get around problems with product quality and performance. Depending on cosmetic product improvements to serve as a substitute for real innovation and extra customer value. (1) STRATEGY IMPLEMENTATION: (Module:7) (2) STRATEGY EVALUATION: (Module:8) THE HIERARCHY OF STRATEGIC INTENT: Strategic Intent is the leveraging of a firms internal resources, capabilities and core competencies to accomplish the firms vision, mission and objectives in a competitive environment. It is all about winning competitive battles and gaining leadership position by putting organizational resources to best use. When established effectively, a strategic intent can cause people to turn out excellent performance (Hammel and Prahalad, 1989). Strategic intent is said to exist when all employees and levels of a firm are committed to the pursuit of a specific but significant performance target (Hammel and Prahalad, 1994). The intent can take the form of a broad vision or mission statement or a more focused route covering specific objectives and goals (Richards). In a way, thus, strategic intent tries to establish the parameters that shape the values, motives and actions of people throughout their organization (R Howard). 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. In complex science terms, strategic intent is decomposition of exploration rules into the next level of detail, the linkages to the exploration rules and the transition rules that define how it
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will migrate from its current design and ecosystem to a future business design and ecosystem. Purpose of Strategic Intent. The logic, uniqueness and discovery that make your strategic intent come to life are vitally important for employees, they have to understand, believe and live according to it. Strategy should be a stretch exercise, not a fit exercise. Expression of strategic intent is to help individuals and organizations share the common intention to survive and continue or extend themselves through time and space. THE HIERARCHY OF STRATEGIC INTENT: Strategic intent refers to the purposes the organization strives for. These may be expressed in terms of a hierarchy of strategic intent. The framework within which firms operate, adopt a predetermined direction and attempt to achieve their goal is provided by a strategic intent. The hierarchy of strategic intent covers the vision, mission, business definition, business model and the goals and objectives.

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Decision Criteria

INFLUENCES ON STRATEGIC INTENT:

Strategic Intent in Practice: Acceptable to stakeholders Consistent with the history and culture of the enterprise Must stretch beyond its present aspirations and practices Will tend to be based on inspired guess of the future Includes both vision and goals

VISION AND MISSION:

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5 questions that the firm must ask itself before creating vision and mission statement What is our business? Who is our customer? What does our customer need? What will our business be? What should our business be? Organizations sometimes summarize goals and objectives into a MISSION STATEMENT and/or a vision statement: While the existence of a shared mission is extremely useful, many strategy specialists question the requirement for a written mission statement. However, there are many models of strategic planning that start with mission statements, so it is useful to examine them here. A Mission statement tells you the fundamental purpose of the organization. It concentrates on the present. It defines the customer and the critical processes. It informs you of the desired level of performance. A Vision statement outlines what the organization wants to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria. Many people mistake vision statement for mission statement. The Vision describes a future identity while the Mission serves as an ongoing and time-independent guide. The Mission describes why it is important to achieve the Vision. A Mission statement defines the purpose or broader goal for being in existence or in the business and can remain the same for decades if crafted well. A Vision statement is more specific in terms of both the future state and the time frame. Vision describes what will be achieved if the organization is successful. A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people. The vision statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided the vision is SMART (Specific, Measurable, Achievable, Relevant and Time bound). A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottom line and success of the organization. Which comes first? The mission statement or the vision statement? That depends. If you have a new start up business, new program or plan to reengineer your current services, then the vision will guide the mission statement and the rest of the strategic plan. If you have an established business where the mission is established, then many times, the mission guides the vision statement and the rest of the strategic plan. Either way, you need to know your fundamental purpose - the mission, your current situation in terms of internal resources and capabilities (strengths and/or weaknesses) and external conditions (opportunities and/or threats), and where you want to go - the vision for the future. It's important that you keep the end or desired result in sight from the start. VISION: A vision articulates the position that an organization would like to attain in the distant future. Vision therefore is future aspirations that lead to an inspiration to be the best in ones field of activity. Features of an effective vision statement include: Clarity and lack of ambiguity Vivid and clear picture Description of a bright future Memorable and engaging wording
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 Realistic aspirations Alignment with organizational values and culture To become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, and acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision. In addition, mission statements need to conduct an internal assessment and an external assessment. The internal assessment should focus on how members inside the organization interpret their mission statement. The external assessment -- which includes all of the businesses stakeholders -- is valuable since it offers a different perspective. These discrepancies between these two assessments can give insight on the organization's mission statement effectiveness. Why should organizations have a Vision: Good visions are inspiring and exhilarating. It creates a common identity and a shared sense of purpose. They are competitive, unique and simple. Good visions foster risk-taking and experimentation. Vision is what keeps the organization moving forward. Vision is the motivator in an organization. It needs to be meaningful with a long term perspective so that it can motivate people even when the organization is facing discouraging odds. Vision provides a big perspective of: Who are we? What are we trying to do? How do we want to go about it? Where are we headed? In strategic management process, visioning comes first. Martin Luther Kind Jr. said, I have a dream, and what followed was a vision that changed a nation. Vision is simply a combination of 3 basic elements: An organizations fundamental reason for existence beyond just making money. Its timeless, unchanging core values. The core values define the enduring character of an organization that remains unchanged as it experiences changes in technology, competition, management styles etc. High and audacious but achievable aspirations for its future. Building vision: The vision statement should be built around the core values of the organization and the people within it. The statement should be designed to orient the groups energies towards the core values and serve as a guide to action. Sonys vision rests on the values of encouraging individual creativity and its determination to be a pioneer. Such core values reflect how you want your future to look. Values, thus, are the essential glue of vision. Creating a Shared Vision:
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Most managers, now-a-days, talk about a shared vision, meaning that individuals from across the organization have a common mental image and a mutually supported set of aspirations that serve to unite their efforts. People at all levels must share a common inspirational image that compels them to give their best and realize their own dreams. The vision once finalized, must be injected into the veins of the organization, being shared, owned and lived by every single person in the company. Characteristics of Vision: (I) Clarity: Vision is a vividly descriptive image of what a company wants to be or wants to be known for in future. Of course the projected future is not something that can be reached in normal course; it requires a quantum leap. (II) Reachable, achievable: There is a certain amount of controversy on this issue. Some CEOs feel that vision should be abstract, inspirational and should not be reachable. A difficult target will stretch people to the extreme and compel them to scale new heights every year. Others feel that there is no use chasing a pie in the sky. Vision must be clear and within a reasonable distance so that people do not get frustrated after repeated attempts result in failures. (III) Brevity: Some CEOs feel that the vision statement should be pithy enough to be read, understood and preferably memorized quickly. It should be short enough to be written on the back of even a business card. Others, however, feel that brevity should not be at the cost of clarity. Example of corporate vision statements: i) BHEL: A world class innovative, competitive and profitable engineering enterprise providing total business solution. ii) Colgate-Palmolive: To be company of first choice in oral and personal hygiene by continuously caring for consumers and partners. iii) NTPC: To make available, reliable and quality power in increasingly large quantities. iv) HUL: Our vision is to meet the everyday needs of people everywhere. v) Ford Motors: The Ford Foundation is a resource for innovative people and institutions worldwide. Our goals are to - Strengthen democratic values - Reduce poverty and injustice - Promote international cooperation and - Advance human achievement MISSION: A strategic plan starts with a clearly defined business mission. Mintzberg defines a mission as follows: A mission describes the organizations basic function in society, in terms of the products and services it produces for its customers.
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Mission is what an organization is and why it exists. Mission is defined as Essential purpose of the organization, concerning philosophical question s like what is our business, the nature of business it is in, who is our customers it looks to satisfy. Mission is a statement which defines the role that an organization plays in a society.

Mission is the purpose or the reason for the organizations existence This seeks to embody the entire goals of the organization and the objective of its existence. It seeks to provide a sense of purpose, direction and opportunity

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Organizations are founded for a purpose. Although the purpose may change over time, it is essential that stakeholders understand the reason for the organizations existence, that is, the organizations mission. The mission describes the organizations values, aspirations and reason for being. Mission statement answers the questions: Why it is in existence? What it wants to be? Where exactly wants to go? Whom it wants to serve? Good mission statements have three characteristics: They focus on a limited number of goals It stresses the major values and policies the firm desires It defines the major competitive scope of operation Features of a Mission statement: They should be feasible: Though mission should aim high, it should be realistic and achievable. It should be precise: It should not be very narrow nor should it be too broad. It should have clarity: It should be clear enough to lead to action. It should be motivating: It should motivate employees to achieve its mission. It should be unique and distinctive: A unique because an organization should be seen by market and customers as different. It should the major strategy components: It should indicate the strategy direction for the organization.

Characteristics of Mission:

(i) Clarity: The mission should be clear enough to lead to action. The corporate dream must be presented in crystal-clear manner preferably in a positive tone. For example, SBI With you, all the way. (ii) Broad and enduring: the mission is a grand design of the firms future. It is a general statement of the firms intent, a kind of self image the firm intends to project for years to come. However, it should not be so narrow as to restrict the firms operations nor should it be too general to make itself meaningless. To make things clear, mission statements come in two forms: primary mission (a general category of business to be engaged in ) and secondary mission ( defining everything more

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specifically). TELCO, for example, is in the transportation business (primary business). It provides passenger car and truck products to a wide variety of customers and markets (secondary mission). (iii) Identity and Image: The mission sets a firm apart from other firms of its style. Through this statement the firm wants to maintain its distinct image and character in terms of excellent quality and service, latest technology and unique product offerings etc. For example, Asian Paints stresses, Leadership through excellence; MTNL present itself as the Lifeline of Delhi and Mumbai; (iv) Realistic: Missions should be realistic and achievable, of course, by running that extra mile. Air India would be deluding itself if it adopted the mission to become the worlds favourite airline. (v) Specific: Missions should be specific. They must define the competitive scopes within which the company will operate, that is the range of industries in which a company will operate (industrial goods, consumer goods, services); the range of products and applications the company will supply; the range of core competencies that a company will master and leverage; the type of customers a company will serve; and the range of regions, countries in which a company will operate (kotler). McDonalds could probably enter the solar energy business, but that would not take advantage of its core competence providing low cost food and fast service to large group of customers. (vi) Values and Beliefs and Philosophy: The mission lays emphasis on the values the firm stands for what it intends to do, so that it stands out in a crowd, what is unique about its offerings, how it strives to meet the needs of its customers, employees, suppliers and dealers. (vii) Dynamic: The concept of mission is dynamic and not a static one. It must strike a happy balance between the narrow and broad ways of doing things in the years ahead; between the present requirements and future expectation. It is worth remembering that the future of a business is usually determined by the way it defines its business today. For a painfully long time, people in the film industry thought that they were in the movie business and not in the entertainment business

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How does mission help the firm? (i) Reference Point: The mission guides the operations of a firm by providing proper directions and a sense of purpose. Objectives and strategies are generally designed, keeping the broad picture offered by mission in the background. (ii) Educative Value: The mission educates people about corporate vision and purpose why the company is there, what existence it seeks, where it wants to go in future etc. When everyone is able to understand the corporate mission properly, a kind of unity of purpose is achieved. (iii) Motivating Force: The mission offers a broad roadmap to all people. They draw meaning and direction from it. The targets are set, work is assigned, resources are committed to best use and people can now compare themselves against the benchmarks set by the along right paths. Mission helps people understand organizational priorities and commit resources accordingly. (iv) Productive use of Resources: The mission helps ensure that the organization will not pursue conflicting purposes. It does not allow the constituent elements of an organization to move in different directions.

Components of a Mission Statement:

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Examples of Mission Statements: BHEL: To achieve and maintain a leading position as suppliers of quality equipment, system and service to serve the national and international market in the field of energy. The areas of interest would be the conversion, transmission, utilization and conservation of energy for applications in the power, industrial and transportation fields, to strive for technological excellence and market leadership in these areas. ONGC: To stimulate, continue and accelerate efforts to develop and maximize the contribution of the energy sector to the economy of the country. Cadbury India: To attain leadership position in the confectionery market and achieve a strong national presence in the food drinks sector. Ranbaxy Laboratories: To become a research-based international pharmaceutical company.

A clear business mission should have each of the following elements:

Taking each element of the above diagram in turn, what should a good mission contain? (1) A Purpose: Why does the business exist? Is it to create wealth for shareholders? Does it exist to satisfy the needs of all stakeholders (including employees, and society at large?) (2) A Strategy and Strategic Scope: A mission statement provides the commercial logic for the business and so defines two things: - The products or services it offers (and therefore its competitive position)
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- The competences through which it tries to succeed and its method of competing A business strategic scope defines the boundaries of its operations. These are set by management. For example, these boundaries may be set in terms of geography, market, business method, product etc. The decisions management make about strategic scope define the nature of the business. (3)Policies and Standards of Behaviors: A mission needs to be translated into everyday actions. For example, if the business mission includes delivering outstanding customer service, then policies and standards should be created and monitored that test delivery. These might include monitoring the speed with which telephone calls are answered in the sales call centre, the number of complaints received from customers, or the extent of positive customer feedback via questionnaires. (1) Values and Culture: The values of a business are the basic, often un-stated, beliefs of the people who work in the business. These would include: Business principles (e.g. social policy, commitments to customers) Loyalty and commitment (e.g. are employees inspired to sacrifice their personal goals for the good of the business as a whole? And does the business demonstrate a high level of commitment and loyalty to its staff?) Guidance on expected behaviour a strong sense of mission helps create a work environment where there is a common purpose What role does the mission statement play in marketing planning? In practice, a strong mission statement can help in three main ways: It provides an outline of how the marketing plan should seek to fulfill the mission It provides a means of evaluating and screening the marketing plan; are marketing decisions consistent with the mission? It provides an incentive to implement the marketing plan OBJECTIVES: Objectives set out what the business is trying to achieve. Objectives can be set at two levels: (1) Corporate level: These are objectives that concern the business or organization as a whole Examples of corporate objectives might include: We aim for a return on investment of at least 15% We aim to achieve an operating profit of over 10 million on sales of at least 100 million We aim to increase earnings per share by at least 10% every year for the foreseeable future (2) Functional level: e.g. specific objectives for marketing activities Examples of functional marketing objectives might include: We aim to build customer database of at least 250,000 households within the next 12 months We aim to achieve a market share of 10% We aim to achieve 75% customer awareness of our brand in our target markets

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Both corporate and functional objectives need to confirm to the commonly used SMART criteria. The SMART criteria (an important concept which you should try to remember and apply in exams) are summarized below: Specific - the objective should state exactly what is to be achieved. Measurable - an objective should be capable of measurement so that it is possible to determine whether (or how far) it has been achieved Achievable - the objective should be realistic given the circumstances in which it is set and the resources available to the business. Relevant - objectives should be relevant to the people responsible for achieving them Time Bound - objectives should be set with a time-frame in mind. These deadlines also need to be realistic. Roles of objectives: Objectives are set and in a way they define what the organization has to achieve for its employees, share holders, customers etc. since objectives are set with the environment in mind they define its relationship with its environment. Objectives are framed in line with the vision/mission of the organization. This consistency helps the organization to pursue its vision and mission. Objectives become the basis for strategic decisionmaking, as the right strategies need to be formulated and implemented for achieving the objectives. Objectives are invariably quantitative. They provide clear measures and standards for performance. So they help in appraisal, to see if the organization is on the right track or not. STRATEGIC OBJECTIVES: Any objective that is market based is strategic objective. Any objective that can be derived from financial statements is financial objective. Strategic objectives are objectives that set out what the business are trying to achieve. They can set at two levels: Corporate level: These objectives are ones that include the business as a whole. For example, Our Companys top line goal is to increase our annual income by 15% for every year.' Functional level: These objectives are set out to improve on an area of assigned responsibilities of the chosen division of the business. Additionally the objectives are usually set after the corporate objectives have been set. Financial objectives are the business' financial future plans and needs. To set these goals the business will need to do corporate financial planning. This is when the business decides what the company needs to do with their finance under economic circumstances. The main financial objective of any company will be to make an income, but apart from this the objectives will set out how much the company will need to earn and how much to spend. For a new business the first financial objective will be to survive because most new businesses do not develop beyond their initial ideas enough or they can't and the investor does not believe that there is a future for the product as there isn't much to work on, so this will cause the collapse of the business, as there will be no money being made and then the business will run out of money.
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For a business to survive it will need to be able to pay off the debts that has required them to buy the building blocks for their business, such as raw materials, rent and wages. So a new business will need a adequate amount of money and a reasonable business model. Once survival has been accomplished, profit will be the next financial objective. For a new business to make an acceptable amount of profit, the business will need to add value to its company and it will need to be able go into other areas of the market. FINANCIAL OBJECTIVES: Financial objectives focus on achieving acceptable profitability in a companys pursuit of its mission/vision, long-term health, and ultimate survival. Financial objectives signal commitment to such outcomes as good cash flow, creditworthiness, earnings growth, an acceptable return on investment, dividend growth, and stock price appreciation. The following are examples of financial objectives: Growth in revenues Growth in earnings Wider profit margins Bigger cash flows Higher returns on invested capital Attractive economic value added (EVA) performance Attractive and sustainable increases in market value added (MVA) A more diversified revenue base Questions to Ask: Is my objective broad? Is my objective non-measurable? Is my objective continuous, ongoing, and non-dated? Does my objective convert my mission/vision into action? Does my objective help to sustain my competitive advantage? There were numerous articles on both short and long term objectives and planning. However, the most straightforward short reference guide was this piece from Purdue University. It is little more than a checklist for long-term and short-term goal setting. What made it useful as a future reference guide was a simple definition of long-term and short-term planning, and a brief statement connecting the two. One unusual aspect of the checklist was the suggestion that the planner consider long-term goals in relation to family values. This is probably more applicable to someone in the commercial sector (as suggested by the title), but the author submits that such comparisons are probably valid in most business situations. In what areas will we continue being actively involved in the future? In this step the firms mission and vision is converted into tangible actions (objectives) and later into results (goals) to be achieved. Objectives are broad categories. They are non-measurable, non-dated, continuous, and ongoing. With objectives the company moves from motive to action. Objectives are the general areas in which your effort is directed to drive your mission statement. To write an objective asks the questions:
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 In what 3-7 areas will our company continue being actively involved in the future? What areas do we need to be involved in to accomplish our mission statement? What is our company going to do about our competitive advantage categorically? One of the best ways to tell whether or not an area is a clearly defined objective area is to ask the question: Could I assign a person to be responsible for this area of activity? If you can assign a person, on a continuing basis, to be responsible for everything going on in their area, it is probably a clear objective area. Use the following criteria in evaluating your objective: Is my objective broad? Is my objective non-measurable? Is my objective continuous, ongoing, and non-dated? Does my objective help to sustain my competitive advantage? Does my objective convert my mission/vision into action? Could I assign a person to be responsible for this area of activity? If you can assign a person, on a continuing basis, to be responsible for everything going on in their area, it is probably a clear objective area. A few examples of objectives are: Expand sales to existing customers (build on a strength) Introduce existing products into a new market (build on a strength) Develop an incentive plan for research and development staff who are slow to innovate (correct a weakness) Objectives are needed for each key area the company deems important to success. From a company perspective, there are distinct types of objectives: Strategic Market Objectives: Strategic market objectives focus on the companys intent to sustain and improve the organizations competitive strength and long-term market position through creating customer value. Strategic objectives focuses on winning additional market share, overtaking key competitors on product quality or customer service or product innovation, achieving lower overall costs than rivals, boosting the companys reputation with customers, winning a stronger foothold in international markets, exercising technological leadership, gaining a sustainable competitive advantage, and capturing attractive growth opportunities. Strategic objectives need to be competitor-focused and strengthen the companys long-term competitive position. A company exhibits strategic intent when it pursues ambitious strategic objectives and concentrates its competitive actions and energies on achieving that objective. The strategic intent of a small company may be to dominate a market niche. The strategic intent of an up-and-coming company may be to overtake the market leaders. The strategic intent of a technologically innovative company may be to create a new product. Small companies determined to achieve ambitious strategic objectives exceeding their present reach and resources, often prove to be more formidable competitor than larger, cash-rich companies with modest strategic intents. The following are examples of strategic market objectives: A bigger market share
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Quicker design-to-market times than rivals Higher product quality than rivals Lower costs relative to key competitors Broader or more attractive product line than rivals A stronger reputation with customers than rivals Superior customer service Recognition as a leader in technology and/or product innovation Wider geographic coverage than rivals Higher levels of customer satisfaction than rivals

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Internal Operational Objectives: Internal operational objectives focus on business processes that have an impact on creating customer value and satisfaction. Internal objectives focus on maintaining the firms core competencies. Management objectives focus on running a major functional activity or process within a business, such as, research and development, production, marketing, customer service, distribution, finance, human resources, and other strategy critical activities. Operational objectives focus on how a company manages frontline organizational units with a business (plants, sales districts, distribution centers) and how to perform strategically significant operating tasks (materials purchasing, inventory control, maintenance, shipping, advertising campaigns) Small Business Unit (SBU) Objectives The Companys mission and vision needs to be turned into detailed supporting objectives for each level of management. Each manager should have objectives and be responsible for reaching them. Objective setting needs to be top-down in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives. A top-down process 1. helps produce cohesion among objectives and strategies of different parts of the organization 2. Helps unify internal efforts to move the company along the chosen strategic plan. Innovative and Learning Objectives: Innovative and learning objectives focus on activities that assist to improve and build the companys value creating activities. It involves increases the firms knowledge base and learning best practices so the company is continually on the cutting edge. COMPANY GOALS: Goals and targets are more precise and expressed in specific terms. They are stated in precise terms as quantatively as possible. The emphasis in goals is on measurement of progress toward the attainment of objectives. Goals have the following features, they: i) Are derived from objectives ii) Offer a standard for measuring performance iii) Are expressed in concrete terms iv) Are time-bound and work-oriented Any company needs solid goals in order to grow the business and reach full potential. If you are looking to set a few company goals to inspire your employees and make your business more successful, then you are going to need the full cooperation of all the employees involved. With the help of everyone at your company,
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you can set and subsequently reach goals that are made to make your business more successful and your employees more satisfied and productive. Here's how. Instructions: 1. Call a meeting together with some of your top employees, sales associates and anyone else who should be a part of your company goal-setting. Send out a memo detailing the time and place of a goal setting meeting. 2. Begin the meeting by explaining why you believe your company should be setting goals, and what those goals should ultimately achieve, such as better productivity, better customer satisfaction or better inter-office relationships. 3. Ask for ideas for goals that the company could try to meet. Write all the ideas on a large piece of poster board or white board. Discuss how each goal could potentially be met. 4. Choose three goals from the brainstorming session that you are going to commit to keeping as a company. Strategize on how the goals will be met, what you expect to get out of setting that goal, and a timeline for those changes to take place. Be specific and write down all the ways you can achieve the goals you've chosen. 5. Write about the goals in a memo to send out to everyone in the company, so everyone knows what was discussed in the meeting. Post the goals in prominent places around the office, so they are constantly fresh in all of the employees' minds. Management by Fact: The goal of measuring is to permit managers to see their company more clearly - from many perspectives and hence to make wiser long-term decisions. A 1997 booklet on the Baldrige Criteria summarizes this concept of fact-based management: "Modern businesses depend upon measurement and analysis of performance. Measurements must derive from the company's strategy and provide critical data and information about key processes, outputs and results. Data and information needed for performance measurement and improvement are of many types, including: customer, product and service performance, operations, market, competitive comparisons, supplier, employee-related, and cost and financial. Analysis entails using data to determine trends, projections, and cause and effect - that might not be evident without analysis. Data and analysis support a variety of company purposes, such as planning, reviewing company performance, improving operations, and comparing company performance with competitors' or with 'best practices' benchmarks." "A major consideration in performance improvement involves the creation and use of performance measures or indicators. Performance measures or indicators are measurable characteristics of products, services, processes, and operations the company uses to track and improve performance. The measures or indicators should be selected to best represent the factors that lead to improved customer, operational, and financial performance. A comprehensive set of measures or indicators tied to customer and/or company performance requirements represents a clear basis for aligning all activities with the company's goals. Through the analysis of data from the tracking processes, the measures or indicators themselves may be evaluated and changed to better support such goals."
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Having some clearly stated goals is really helpful in making decisions. In order to decide which workstations to buy for the department, youll need to evaluate them in terms of their intended use. But that could still leave you with half dozen or more options. Do you buy the fastest? The most reliable? The cheapest? What are your goals? If youve been told you need to curb the growth of capital expenses, youll make a different choice than if the pressure has been to give speedier customer service. (Yeah, I know. Youve been asked to do both and to reduce your computer repair expenses.) You need to be careful about setting departmental goals. In fact, some business gurus recommend against them altogether. Imagine the havoc that could be wrought by a credit and collections department whose goal was to drastically reduce bad debt write-offs. First, they would rigorously research every credit application with a fine-toothed comb. Then, they would deny credit to any potential customer who was ever late with a payment or who didnt have a five-star credit rating. Then theyd sit back and watch those write-offs drop. Then they would watch sales plummet. The companys goal is to sell its product at a profit. Make sure your goals are contributing to the companys goal. What are your organizations goals? Odds are, whether your company has written goals or not, the goal is pretty simple: make money. The more, the better. If your companys primary goal is truly "Make the world a better place," or "Provide a meaningful, rewarding livelihood for our employees," you dont work at a typical company. Im not saying companies dont try to contribute to their communities or try to make jobs rewarding. In some cases, these things are just designed to project an image or to retain valued employees. In most businesses, there is a real desire to do right by their employees and the community. But either way, if push comes to shove, making money is what its about. COMPANY PHILOSOPHY: The Company's essential character revolves round values based on transparency, integrity, professionalism and accountability. At the highest level, the Company continuously endeavours to improve upon these aspects and adopts innovative approaches for leveraging resources, converting opportunities into achievements through proper empowerment and motivation, fostering a healthy growth and development of human resources. Some executives -- particularly top-management executives in the most successful companies -- often refer to "our philosophy." They may speak of something that "our philosophy calls for" or of some action taken in the business that is "not in accordance with our philosophy." In mentioning "our philosophy," they assume that everyone knows what "our philosophy" is. As the term is most commonly used, it seems to stand for the basic beliefs that people in the business are expected to hold and be guided by -- informal, unwritten guidelines on how people should perform and conduct themselves. Once such a philosophy crystallizes, it becomes a powerful force indeed. When one person tells another "That's not the way we do things around here," the advice had better be heeded. The literature on company philosophy is neither very extensive nor very satisfactory. But one dictionary definition of philosophy does apply: "general laws that furnish the rational explanation of anything." In this sense, a company philosophy evolves as a set of laws or guidelines that gradually become established, through trial and error or through leadership, as expected patterns of behavior. Some typical examples of
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basic beliefs that serve as guidelines to action will clarify the concept. Although such basic beliefs inevitably vary from company to company, here are five that recurring frequently in the most successful corporations: 1. Maintenance of high ethical standards in external and internal relationships is essential to maximum success. 2. Decisions should be based on facts, objectively considered -- what I call the fact-founded, thoughtthrough approach to decision making. 3. The business should be kept in adjustment with the forces at work in its environment. 4. People should be judged on the basis of their performance, not on personality, education, or personal traits and skills. 5. The business should be administered with a sense of competitive urgency. High ethical standards: The business with high ethical standards has three primary advantages over competitors whose standards are lower: A business of high principle generates greater drive and effectiveness because people know that they can do the right thing decisively and with confidence. When there is any doubt about what action to take, they can rely on the guidance of ethical principles. Inner administrative drive emanates largely from the fact that everyone feels confident that he can safely do the right thing immediately. And they also know that any action that is even slightly unprincipled will be generally condemned. A business of high principle attracts high-caliber people more easily, thereby gaining a basic competitive and profit edge. A high-caliber person favors the business of principle and avoids the employer whose practices are questionable. For this reason, companies that do not adhere to high ethical standards must actually maintain a higher level of compensation to attract and hold people of ability. A business of high principle develops better and more profitable relations with customers, competitors, and the general public because it can be counted on to do the right thing at all times. By the consistently ethical character of its actions, it builds a favorable image. In choosing among suppliers, customers resolve their doubts in favor of such a company. Competitors are less likely to comment unfavorably on it. And the general public is more likely to be open-minded toward its actions. Too often, these values tend to be taken for granted. My point in mentioning them is to urge executives to actively seek ways of making high principle a more explicit element in their company philosophy. No one likes to declaim about his honesty and trustworthiness, but the leaders of a company can profitably articulate, within the organization, their determination that everyone shall adhere to high standards of ethics. That is the best foundation for a profit-making company philosophy and a profitable system of management. MERGING THE STRATEGIC VISION OBJECTIVES AND STRATEGY INTO A STRATEGIC PLAN:

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A companys strategic plan lays out its future direction, performance targets, and strategy. Developing a strategic vision, setting objectives and crafting a strategy are basic-direction setting tasks. They map out the companys direction, its short range and long range performance targets, and the competitive moves and internal action approaches to be used in achieving the targeted business results. Together, they constitute a strategic plan for coping with industry and competitive conditions, the expected action of the industrys key players, and the challenges and issues that stand as obstacles to the companys success. In companies committed to regular strategy reviews and the development of explicit strategic plans. The strategic plan may take the form of a written document that is circulated to managers (and perhaps to select employees). In small privately owned companies, strategic plan exist mostly in the form of oral understandings and commitments among managers and key employees about where to head, what to accomplish and how to proceed. Short-term performance targets are the part of the strategic plan most often spelled out explicitly and communicated to managers and employees. A number of companies summarize key elements of their strategic plans in the companys annual report to shareholders, in postings on their websites, in press releases, or in statements provide to the business media. Other companies, perhaps for reasons of competitive sensitivity, make only vague, general statements about their strategic plans that could apply to most any company. Strategic decisions differ from other functions of management as strategic decisions deal with growth of an organization (long range focus). Whereas, operational decisions are routine ones pertaining to day to day activities and administrative decisions are by and large patterned after existing practices in the corporation. In short, strategic planning provides the company with an easily discernible, clear cut, objective-strategy design which in turn takes the company in the required direction. Strategic planning is however not a single task, it is an integrated package of several tasks that are distinct, yet inter-related Clarifying vision / mission Defining the business Surveying the environment Internal appraisal of the firm Setting the corporate objectives Formulating the corporate / business strategy Monitoring the strategy BALANCE SCORE CARD RS Kaplan and DP Norton came out with a popular, balanced score card approach in early 90s linking corporate goals with strategic actions undertaken at the business unit, departmental and individual level. The score card allows managers to evaluate a firm from different complementary perspectives. The arguments run this (i) A firm can offer superior returns to stakeholders if it has a competitive advantage in its product or service offerings when compared to its rivals. (ii) In order to sustain a competitive advantage, a firm must offer superior value to customers (iii) this, in turn, requires development of operations with necessary capabilities. (iv) In order to develop the needed operational capabilities, a firm requires the service of employees having requisite skills, creativity, diversity and motivations. Thus the performance as assessed in one perspective supports performance in other areas as shown below:
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The Financial Perspective: Does the firm offer returns in excess of the total cost of capital, as suggested by the economic value added (EVA) model? EVA is the spread between a firms return on invested capital minus its weighted average cost of capital, multiplied by the amount of capital invested. In other words, EVA is what is left over after a firm has covered all its factors of production (operating expenses, overheads, interest, taxes, plus fair return to shareholders). To succeed financially, how should we appear to our shareholders? Is the question to be answered here? Four perspectives of the Balanced Scorecard: The Customers perspective: Does the firm provide the customer with superior value in terms of product differentiation, low cost and quick response. The operation perspective: How effectively and efficiently do the core processes that produce customer value perform? Which are the most important sources of customer value, which need improving to offer greater customer value? The Organizational perspective: Can this firm adapt to changes in its environment? Is its workforce committed to shared goals? Does the organization learn from past mistakes? When confronted with a problem, does it go to work on root causes or does it only scratch the surface! A properly constructed scorecard helps a firm strike a find balance between short and long term financial measures; financial and non-financial measures; internal and external performance perspectives. A firms long-term strategy should take all the above perspectives into account while trying to match a firms internal resources and capabilities with external opportunities. Corporate success, ultimately, depends on how well a firm is able to extend its competitive advantage to new areas over a long period of time. As mentioned previously, competitive advantage comes from a firms ability to perform activities (using its unique, durable, specialized, hard-to-imitate resources and skills etc. while serving the needs of customers) more effectively than rivals. History of the Balanced Scorecard: In 1992, an article by Robert Kaplan and David Norton entitled "The Balanced Scorecard - Measures that Drive Performance" in the Harvard Business Review caused a lot of attention for their method, and led to their business bestseller, "The Balanced Scorecard: Translating Strategy into Action", published in 1996. The financial performance of an organization is essential for its success. Even non-profit organizations must deal in a sensible way with funds they receive. However, a pure financial approach for managing organizations suffers from two drawbacks:

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It is historical. Whilst it tells us what has happened to the organization, it may not tell us what is currently happening. Nor it is a good indicator of future performance. It is too low. It is common for the current market value of an organization to exceed the market value of its assets. Tobin's-q measures the ratio of the value of a company's assets to its market value. The excess value is resulting from intangible assets. This kind of value is not measured by normal financial reporting.

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The 4 perspectives of the Balanced Scorecard: The Balanced Scorecard method of Kaplan and Norton is a strategic approach, and performance management system, that enables organizations to translate a company's vision and strategy into implementation, working from 4 perspectives: 1. Financial perspective. 2. Customer perspective. 3. Business process perspective. 4. Learning and growth perspective. This allows the monitoring of present performance, but the method also tries to capture information about how well the organization is positioned to perform in the future. Benefits of the Balanced Scorecard: Kaplan and Norton cite the following benefits of the usage of the Balanced Scorecard: Focusing the whole organization on the few key things needed to create breakthrough performance. Helps to integrate various corporate programs. Such as: quality, re-engineering, and customer service initiatives. Breaking down strategic measures towards lower levels, so that unit managers, operators, and employees can see what's required at their level to achieve excellent overall performance. 1. The Financial Perspective: Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will make sure to provide it. In fact, there is often more than sufficient handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financial issues leads to an unbalanced situation with regard to other perspectives. There is perhaps a need to include additional financial related data, such as risk assessment and cost-benefit data, in this category. 2. The customer perspective: Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any company. These are called leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline. Even though the current financial picture may seem (still) good. In developing metrics for satisfaction, customers should be analyzed. In terms of kinds of customers, and of the kinds of processes for which we are providing a product or service to those customer groups.

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3. The Business Process perspective: This perspective refers to internal business processes. Measurements based on this perspective will show the managers how well their business is running, and whether its products and services conform to customer requirements. These metrics have to be carefully designed by those that know these processes most intimately. In addition to the strategic management processes, two kinds of business processes may be identified: Mission-oriented processes. Many unique problems are encountered in these processes. Support processes. The support processes are more repetitive in nature, and hence easier to measure and to benchmark. Generic measurement methods can be used. 4. Learning and Growth perspective
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This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge worker organization, people are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to learn continuously. Government agencies often find themselves unable to hire new technical workers and at the same time is showing a decline in training of existing employees. Kaplan and Norton emphasize that 'learning' is something more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools such as an Intranet. The integration of these four perspectives into a one graphical appealing picture has made the Balanced Scorecard method very successful as a management methodology. Objectives, Measures, Targets, and Initiatives: For each perspective of the Balanced Scorecard four things are monitored (scored): Objectives: major objectives to be achieved, for example, profitable growth. Measures: the observable parameters that will be used to measure progress toward reaching the objective. For example, the objective of profitable growth might be measured by growth in net margin. Targets: the specific target values for the measures, for example, 7% annual decline in manufacturing disruptions. Initiatives: projects or programs to be initiated in order to meet the objective. Cautionary note on using the Balanced Scorecard: You tend to get what you measure. People will work to achieve the explicit targets which are set. For example, emphasizing traditional financial measures may encourage short-term thinking. The Core Group Theory by Kleiner provides further clues on the mechanisms behind this. Kaplan and Norton recognize this, and urge for a more balanced set of measurements. But still, people will work to achieve their scorecard goals, and may ignore important things which have no place on their scorecard.

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Evolution of the Balanced Scorecard: In 2002, Cobbold and Lawrie developed a classification of Balanced Scorecard designs based upon the intended method of use within an organization. They describe how the Balanced Scorecard can be used to support three distinct management activities, the first two being management control and strategic control. They assert that due to differences in the performance data requirements of these applications, planned use should influence the type of BSC design adopted. Later that year the same authors reviewed the evolution of
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the Balanced Scorecard as shown through the use of Strategy Maps as a strategic management tool, recognizing three distinct generations of Balanced Scorecard design. An approach to performance measurement that also focuses on what managers are doing today to create future shareholder value. A balanced scorecard is a set of performance measures constructed for four dimensions of performance. The dimensions are financial, customer, internal processes, and learning and growth. Having financial measures is critical even if they are backward looking. After all, they have a great effect on the evaluation of the company by shareholders and creditors. Customer measures examine the company's success in meeting customer expectations. Internal process measures examine the company's success in improving critical business processes. And learning and growth measures examine the company's success in improving its ability to adapt, innovate, and grow. The customer, internal processes, and learning and growth measures are generally thought to be predictive of future success (i.e., they are not backward looking). After reviewing these measures, note how "balance" is achieved: (1) performance is assessed across a balanced set of dimensions (financial, customer, internal processes, and innovation); (2) quantitative measures (e.g., number of defects) are balanced with qualitative measures (e.g., ratings of customer satisfaction); and (3) there is a balance of backward-looking measures (e.g., financial measures like growth in sales) and forward-looking measures (e.g., number of new patents as an innovation measure). The Balanced Scorecard (BSC) is a performance management tool which began as a concept for measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy. By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs to these, the Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests. Organizations were encouraged to measurein addition to financial outputswhat influenced such financial outputs. For example, process performance, market share / penetration, long term learning and skills development, and so on. The underlying rationale is that organizations cannot directly influence financial outcomes, as these are "lag" measures, and that the use of financial measures alone to inform the strategic control of the firm is unwise. Organizations should instead also measure those areas where direct management intervention is possible. In so doing, the early versions of the Balanced Scorecard helped organizations achieve a degree of "balance" in selection of performance measures. In practice, early Scorecards achieved this balance by encouraging managers to select measures from three additional categories or perspectives: "Customer," "Internal Business Processes" and "Learning and Growth."

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History of balance Scorecards: In 1992, Robert S. Kaplan and David P. Norton began publicizing the Balanced Scorecard through a series of journal articles. In 1996, they published the book The Balanced Scorecard. Since the original concept was introduced, Balanced Scorecards have become a fertile field of theory, research and consulting practice. The
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Balanced Scorecard has evolved considerably from its roots as a measure selection framework. While the underlying principles were sound, many aspects of Kaplan & Norton's original approach were unworkable in practice. Both in firms associated with Kaplan & Norton (Renaissance Solutions Inc. and BSCOL), and elsewhere (Cepro in Sweden, and 2GC Active Management in the UK), the Balanced Scorecard has changed so that there is now much greater emphasis on the design process than previously. There has also been a rapid growth in consulting offerings linked to Balanced Scorecards at the level of branding only. Kaplan & Norton themselves revisited Balanced Scorecards with the benefit of a decade's experience since the original article. The Balanced Scorecard is a performance planning and measurement framework, with similar principles as Management by Objectives, which was publicized by Robert S. Kaplan and David P. Norton in the early 1990s. Use: Implementing Balanced Scorecards typically includes four processes: 1. Translating the vision into operational goals; 2. Communicating the vision and link it to individual performance; 3. Business planning; 4. Feedback and learning, and adjusting the strategy accordingly. The Balanced Scorecard is a framework, or what can be best characterized as a strategic management system that claims to incorporate all quantitative and abstract measures of true importance to the enterprise. According to Kaplan and Norton, The Balanced Scorecard provides managers with the instrumentation they need to navigate to future competitive success. Many books and articles referring to Balanced Scorecards confuse the design process elements and the Balanced Scorecard itself. In particular, it is common for people to refer to a strategic linkage model or strategy map as being a Balanced Scorecard. Although it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that the Balanced Scorecard itself has no role in the formation of strategy. In fact, Balanced Scorecards can comfortably co-exist with strategic planning systems and other tools. Original methodology: The earliest Balanced Scorecards comprised simple tables broken into four sections - typically these "perspectives" were labeled "Financial", "Customer", "Internal Business Processes", and "Learning & Growth". Designing the Balanced Scorecard required selecting five or six good measures for each perspective. Many authors have since suggested alternative headings for these perspectives, and also suggested using either additional or fewer perspectives. These suggestions were notably triggered by recognition that different but equivalent headings would yield alternative sets of measures. The major design challenge faced with this type of Balanced Scorecard is justifying the choice of measures made. "Of all the measures you could have chosen, why did you choose these?" This common question is hard to ask using this type of design process. If users are not confident that the measures within the Balanced Scorecard are well chosen, they will have less confidence in the information it provides. Although less common, these early-style Balanced Scorecards are still designed and used today. In short, early-style Balanced Scorecards are hard to design in a way that builds confidence that they are well designed. Because of this, many are abandoned soon after completion.
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Improved methodology: In the mid 1990s, an improved design method emerged. In the new method, measures are selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or "strategy map". With this modified approach, the strategic objectives are typically distributed across a similar set of "perspectives", as is found in the earlier designs, but the design question becomes slightly less abstract. Managers have to identify five or six goals within each of the perspectives, and then demonstrate some inter-linking between these goals by plotting causal links on the diagram. Having reached some consensus about the objectives and how they inter-relate, the Balanced Scorecard is devised by choosing suitable measures for each objective. This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through. This style of Balanced Scorecard has been commonly used since 1996 or so. Several design issues still remain with this enhanced approach to Balanced Scorecard design, but it has been much more successful than the design approach it superseded. In the late 1990s, the design approach had evolved yet again. One problem with the "2nd generation" design approach described above was that the plotting of causal links amongst twenty or so medium-term strategic goals was still a relatively abstract activity. In practice it ignored the fact that opportunities to intervene, to influence strategic goals are, and need to be anchored in the "now;" in current and real management activity. Secondly, the need to "roll forward" and test the impact of these goals necessitated the creation of an additional design instrument; the Vision or Destination Statement. This device was a statement of what "strategic success," or the "strategic end-state" looked like. It was quickly realized, that if a Destination Statement was created at the beginning of the design process then it was much easier to select strategic Activity and Outcome objectives to respond to it. Measures and targets could then be selected to track the achievement of these objectives. Destination Statement driven or 3rd Generation Balanced Scorecards represent the current state of the art in Scorecard design. Popularity: Kaplan and Norton found that companies are using Balanced Scorecards to: Drive strategy execution; Clarify strategy and make strategy operational; Identify and align strategic initiatives; Link budget with strategy; Align the organization with strategy; Conduct periodic strategic performance reviews to learn about and improve strategy. In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the Balanced Scorecard. Balanced Scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organizations, and schools. Many examples of Balanced Scorecards can be found via Web searches. However, adapting one organization's Balanced Scorecard to another is generally not advised by theorists, who believe that much of the benefit of the Balanced Scorecard comes from the implementation method. Indeed, it could be argued that many failures in the early days of Balanced Scorecard could be attributed to this problem, in that early Balanced Scorecards were often designed remotely by consultants. Managers did
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not trust, and so failed to engage with and use these measure suites created by people lacking knowledge of the organization and management responsibility. Variants, Alternatives and Criticisms: Since the late 1990s, various alternatives to the Balanced Scorecard have emerged, such as The Performance Prism, Results Based Management and Third Generation Balanced Scorecard. These tools seek to solve some of the remaining design issues, in particular issues relating to the design of sets of Balanced Scorecards to use across an organization, and issues in setting targets for the measures selected. Applied Information Economics (AIE) has been researched as an alternative to Balanced Scorecards. In 2000, the Federal CIO Council commissioned a study to compare the two methods by funding studies in side-by-side projects in two different agencies. The Dept. of Veterans Affairs used AIE and the US Dept. of Agriculture applied Balanced Scorecards. The resulting report found that while AIE was much more sophisticated, AIE actually took slightly less time to utilize. AIE was also more likely to generate findings that were newsworthy to the organization, while the users of Balanced Scorecards felt it simply documented their inputs and offered no other particular insight. However, Balanced Scorecards are still much more widely used than AIE. A criticism of Balanced Scorecards is that the scores are not based on any proven economic or financial theory, and therefore have no basis in the decision sciences. The process is entirely subjective and makes no provision to assess quantities (e.g., risk and economic value) in a way that is actuarially or economically well-founded. Another criticism is that the Balanced Scorecard does not provide a bottom line score or a unified view with clear recommendations: it is simply a list of metrics. Some people also claim that positive feedback from users of Balanced Scorecards may be due to a placebo effect, as there are no empirical studies linking the use of Balanced Scorecards to better decision making or improved financial performance of companies. The Four Perspectives: The grouping of performance measures in general categories (perspectives) is seen to aid in the gathering and selection of the appropriate performance measures for the enterprise. Four general perspectives have been proposed by the Balanced Scorecard: Financial Perspective; Customer Perspective; Internal process Perspective; Innovation & Learning Perspective.
(1) The financial perspective examines if the companys implementation and execution of its strategy are

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contributing to the bottom-line improvement of the company. It represents the long-term strategic objectives of the organization and thus it incorporates the tangible outcomes of the strategy in traditional financial terms. The three possible stages as described by Kaplan and Norton (1996) are rapid growth, sustain, and harvest. Financial objectives and measures for the growth stage will stem from the
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development and growth of the organization which will lead to increased sales volumes, acquisition of new customers, growth in revenues etc. The sustain stage on the other hand will be characterized by measures that evaluate the effectiveness of the organization to manage its operations and costs, by calculating the return on investment, the return on capital employed, etc. Finally, the harvest stage will be based on cash flow analysis with measures such as payback periods and revenue volume. Some of the most common financial measures that are incorporated in the financial perspective are EVA, revenue growth, costs, profit margins, cash flow, net operating income etc.
(2) The customer perspective defines the value proposition that the organization will apply to satisfy

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customers and thus generate more sales to the most desired (i.e. the most profitable) customer groups. The measures that are selected for the customer perspective should measure both the value that is delivered to the customer (value proposition) which may involve time, quality, performance and service and cost and the outcomes that come as a result of this value proposition (e.g., customer satisfaction, market share). The value proposition can be centered on one of the three: operational excellence, customer intimacy or product leadership, while maintaining threshold levels at the other two.
(3) The internal process perspective is concerned with the processes that create and deliver the customer

value proposition. It focuses on all the activities and key processes required in order for the company to excel at providing the value expected by the customers both productively and efficiently. These can include both short-term and long-term objectives as well as incorporating innovative process development in order to stimulate improvement. In order to identify the measures that correspond to the internal process perspective, Kaplan and Norton propose using certain clusters that group similar value creating processes in an organization. The clusters for the internal process perspective are operations management (by improving asset utilization, supply chain management, etc), customer management (by expanding and deepening relations), innovation (by new products and services) and regulatory & social (by establishing good relations with the external stakeholders).
(4) The Innovation & Learning Perspective is the foundation of any strategy and focuses on the intangible

assets of an organization, mainly on the internal skills and capabilities that are required to support the value-creating internal processes. The Innovation & Learning Perspective is concerned with the jobs (human capital), the systems (information capital), and the climate (organization capital) of the enterprise. These three factors relate to what Kaplan and Norton claim is the infrastructure that is needed in order to enable ambitious objectives in the other three perspectives to be achieved. This of course will be in the long term, since an improvement in the learning and growth perspective will require certain expenditures that may decrease short-term financial results, whilst contributing to long-term success.

BEST OF LUCK FOR YOUR EXAMS

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