fransvheerden strategic control systems
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EnhancingEnhancing
OrganizationalOrganizational
PerformancePerformance
IMASA
Annual Conference
6 April 2006
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STRATEGIC MANAGEMENTAgenda
The Link between Strategy and Organizational
Performance What is Strategic Control
The importance of Strategic Control as an OrganizationEnhancement Device
The Relationship between Strategic Control and
Competitive Advantage
Types of Strategic Controls
Characteristics of Control Systems
Designing Strategic Control Systems
An integrated Strategic Control System
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MODEL FOR STRATEGY
FORMULATIONScenario¶s
Visions, Missions,Values
External Analysis Internal Analysis
Functional Level Strategies
Business Level Strategies
Structure Match Structure & Controls Controls
Manage Strategic Change
Strategy Implementation
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STRATEGIC MANAGEMENTPurpose of Strategic Controls:
To provide managers with a means to
motivate employees towards organizational
performance;
Solicit data on how well the organization is
performing
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STRATEGIC MANAGEMENT
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STRATEGIC MANAGEMENTWhat is Strategic control?
³«it is the process by which managers
monitor the ongoing activities of an
organization and it¶s members to evaluate
whether activities are being performed
efficiently and effectively and to takecorrective action to improve performance
if they are not«´
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STRATEGIC MANAGEMENTThe importance of Strategic Control
The success of a chosen strategy
The implementation compass
Organizational performance
Ensuring competitive advantage
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STRATEGIC MANAGEMENTStrategic Control:
Requires more than re-acting on past
performance
K eeps the organization on track
Anticipating events that might occur in
future Allows the organization to respond to new
opportunities that may present itself
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STRATEGIC MANAGEMENTThe importance of Strategic Control
Control & efficiency:
Efficiency measures how many units of inputs
are being used to produce a single unit of output
Must also measure how many units are produced
The control system should contain thesemeasures
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STRATEGIC MANAGEMENTThe importance of Strategic Control
Control & quality: Organizational control is important because it determine
the quality of goods & services
Can make continuous improvements to quality over timeand this gives them a competitive advantage
Customer complaints is the basis for determining thequality of a product or service
Total Quality Management can be regarded as controlsystem
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STRATEGIC MANAGEMENTThe importance of Strategic Control
Control & Innovation:
Managers must create an environment in which
people feel free to experiment and take risks
Managers are challenged to build control systems
that encourage risk taking Measures cost reduction, process improvement
and improved quality measures.
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STRATEGIC MANAGEMENTControl and Innovation
Problem: Time wasted due to unavailable parts
from central store. Electrical workshop not closeto central store (Witbank Municipality)
Electricians designed a innovative solutionthrough simple measures (trips to stores per
electrician per day Applied 80/20 principle Established
decentralized store
Major savings
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STRATEGIC MANAGEMENT
Control & Innovation
Problem: Time delays at ³in house filling station´
of Jhb MunicipalitySolution:
Extend petrol hoses
More attendants
Limit filling to ³half a tank´
Ensure all pumps were kept in functional order atall times
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STRATEGIC MANAGEMENT
The importance of Strategic Control
Control & Responsiveness to Customers:
Must establish controls to measure how well
employees with customer contact is doing their
jobs.
Monitors employee behaviors Identify skills gaps of employees
People who are monitored behaves differently
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STRATEGIC MANAGEMENT
Strategic Control Systems
³« are the formal target setting ,
measurement and feedback systems that
allow strategic managers to evaluate
whether the company is achieving on the
four building blocks of a competitiveadvantage..´
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STRATEGIC MANAGEMENT
Types of Control systems
Financial controls
Output controls
Behavior controls
Organization culture
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STRATEGIC MANAGEMENT
Financial controls
Growth
Profitability
ROCE
Share prices( Private sector)Is a favorite control because it is objective
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STRATEGIC MANAGEMENT
Types of Control systems
Output controls: It is a system of control in which
managers estimate or forecast appropriate performance goals for each division, department and employee and
measure achievement against these goals
Divisional Goals
Functional Goals
Individual Goals
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STRATEGIC MANAGEMENT
Types of Control systems
Divisional Goal
Goal: ³T o be the number 1 or 2 in the
industry in terms of market share´
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STRATEGIC MANAGEMENT
Types of Control systems
Behavior controls: ³ happens through the
establishment of a comprehensive systems of rules and procedures to direct the actions of
divisions, functions and individuals
Operating budgets
HR rules & regulations
Standardization
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STRATEGIC MANAGEMENT
Strategic Control Systems
Characteristics
Be flexible to allow managers to respond as
necessary to unexpected events;
Should provide accurate information, giving a
true picture of organizational performance; Should provide information in a timely manner
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STRATEGIC MANAGEMENT
The Balanced score card as a Control measure.
Financial figures are important, however, it is not
the only one;
Financial results are important long after the
event therefore not very effective;
An organization needs a mechanism tosupplement financial measures this can be
achieved through the Balanced Score Card
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STRATEGIC MANAGEMENT
K inds of measures
Efficiency: Level of production costs, number of hours needed to
produce an item, cost of raw materials
Quality: Number of rejects, number of customer returns, level of product
reliability
Innovation: number of new products introduced, time taken to market;
cost of product development
Responsiveness to customers: number of repeat
customers; level of on-time delivery to customers, level of customer service
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THE BALANCED SCORECARD IN
STRATEGY IMPLEMENTATION &
CONTROL
Sets objectives & measures targets &initiatives for 4 organisational areas
For the balanced scorecard to be effective: ± Objectives & measures in each perspective
should reinforce objectives & measures inother perspectives
± Incorporates cause-&-effect relationshipsamong critical variables
� Clarify actions to be taken to co-ordinate strategy.
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
The standard four perspectives in the
Balanced Scorecard
Financial
Customer
Internal Business Processes
Learning and Growth
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
Financial
Customer Internal Business
Learning & Growth
Vision
&
Strategy
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
Developing a Balanced Scorecard
Consider the fundamental question(s)
Develop goals
Identify measures
Set the targets Identify actions
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
Fundamental
question
Goals Measures Targets Initiatives
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
Internal Business Process Perspective
Fundamental question: To satisfy our
customers, what/which business processes
must we excel at?
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
Financial Perspective
Fundamental question:To succeed
financially, how should we appear to our
rate payers?
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
Customer Perspective
Fundamental question: To achieve our
vision, how should we appear to our
customers?
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
Customer perspective for a cell phone company
Vision: To become Africa¶s leading cellular network with the bestcustomer service and to be the best company to work for in southern
Africa
Fundamental question: To achieve our vision, how should weappear to our customers?
Goal: To improve customer satisfaction by 15%
Measure: Customer satisfaction survey
Target: To decrease customer complaints by 10% before Jan 2006
Initiative: Have more customer care specialists available for customer queries over weekends
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
Video ³The Balanced Scorecard
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
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THE BALANCED SCORECARD IN STRATEGY
IMPLEMENTATION & CONTROL
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THE BALANCED SCORECARD AS
A STRATEGY IMPLEMENTATION
& CONTROL SYSTEM
Enables organisations to monitor &
evaluate short-term progress in 4 areas
± Evaluate whether strategic objectives are being
achieved
± Assess whether assumptions on which strategy
is based are valid.