12. Evaluating and analysing performance and strategies Flashcards
In what ways can strategies be evaluated?
- Considering benefits and risks that the strategy brings
- Considering the strategic and financial considerations associated with the strategy
- Discussing the quantitative and non-quantitative issues associated with the strategy
- Considering the viewpoints held by different stakeholder groups in relation to a proposed strategy
- Using a framework such as Johnson, Scholes and Whittington’s SFA criteria
Describe the SFA approach.
Suitability: Is this option appropriate considering the organisation’s strategic position and outlook?
Feasibility: does the organisation have the resources and competences required to carry the strategy out? Are the assumptions of the strategy realistic?
Acceptability: ll this option gain the support of the stakeholders essential for the success of the strategy and the organisation as a whole? Will the option antagonise significant powerful stakeholders that could thwart its success or that of management as a whole?
Describe suitability in the SFA approach.
Suitability relates to the strategic logic and strategic fit of the strategy. The strategy must fit the organisation’s operational circumstances and strategic position.
Does the strategy:
- Exploit company strengths and distinctive competences?
- Rectify company weaknesses?
- Neutralise or deflect environmental threats?
- Help the firm to seize opportunities?
- Satisfy the goals of the organisation?
- Fill the gap identified by gap analysis?
- Generate/maintain competitive advantage?
Describe feasibility in the SFA approach.
Feasibility asks whether the strategy can in fact be implemented:
- Is there enough money?
- Is there the ability to deliver the goods/services specified in the strategy?
- Can we deal with the likely responses that competitors will make?
- Do we have access to technology, materials and resources?
- Do we have enough time to implement the strategy?
- Will the strategy deliver results within an appropriate timeframe?
Strategies which do not make use of the existing competences, and which therefore call for new competences to be acquired, might not be feasible.
- Gaining competences via organic growth takes time.
- Acquiring new competences can be costly.
Describe acceptability in the SFA approach.
The acceptability of a strategy relates to people’s expectations of it and its expected performance outcomes. This includes consideration of:
- returns – the likely benefits that stakeholders will receive; and
- risk – the likelihood of failure and its associated consequences.
• Financial considerations: strategies will be evaluated by considering how far they contribute to meeting the dominant objective of increasing shareholder wealth, using measures such as:
– Return on investment – Profits – Growth – EPS – Cash flow – Price/Earnings – Market capitalisation
- Customers may object to a strategy if it means reducing service, but on the other hand they may have no choice.
- Banks are interested in the implications for cash resources, debt levels etc.
- Government: a strategy involving a takeover may be prohibited under monopolies and mergers legislation. Similarly, the environmental impact may cause key stakeholders to withhold consent. Considerations of ethics and corporate responsibility are included here.
Define the business partner model.
Has resulted in finance professionals adopting a more commercially-focused, action-orientated approach. Increasingly, finance professionals are being embedded within operational departments and business units so that they can provide financial insights in a more integrated manner than if they were based in the finance department alone.
What are the steps in setting up formal systems of strategic control?
Step 1 Strategy review: review the progress of strategy.
Step 2 Identify milestones of performance (strategic objectives), both quantitative (eg, market share) and qualitative (eg, quality, innovation, customer satisfaction):
Step 3 Set target achievement levels. These need not be exclusively quantitative
Step 4 Formal monitoring of the strategic process.
Step 5: Reward
What is a budget?
A budget is a plan expressed in financial terms.
A budget is a plan not a forecast.
How does a budget fit in the strategic planning process?
- The mission sets the overall direction.
- The strategic objectives illustrate how the mission will be achieved.
- The strategic plans show how the objectives will be pursued.
- The budgets represent the short-term plans and targets necessary to fulfil the strategic objectives.
What are the five main benefits of budgets?
(a) Promotes forward thinking
(b) Helps to co-ordinate the various aspects of the organisation.
(c) Motivates performance.
(d) Provides a basis for a system of control.
(e) Provides a system of authorisation.
What are the possible limitations of budgets?
(a) Employees may be demotivated if they believe the budget to be unattainable.
(b) Slack may be built in by managers to make the budget more achievable.
(c) Focuses on the short-term results rather than the underlying causes.
(d) Unrealistic budgets may cause managers to make decisions that are detrimental to the company.
What are the main features of successful budgetary control systems?
- Senior management take the system seriously.
- Accountability.
- Targets are challenging but achievable.
- Established data collection, analysis and reporting routines
- Targeted reporting.
- Short reporting periods
- Timely reporting.
- Provokes action.
What are the behavioural aspects of budgets?
- Improve performance.
- Be most effective when they are demanding, yet achievable.
- Are most effective when the managers have participated in the setting of their own targets.
What are the guidelines for a strategic control system?
- Linkages - If there are linkages between businesses in a group, the formality of the process should be low, to avoid co-operation being undermined.
- Diversity - If there is a great deal of diversity, it is doubtful whether any overall strategic control system is appropriate
- Criticality
- Change - Fashion-goods manufacturers must respond to relatively high levels of environmental turbulence, and have to react quickly.
- Competitive advantage
What are the advantages of building a control system based around Critical Success Factors (CSFs)?
- The process of identifying CSFs will help alert management to the things that need controlling
- The CSFs can be turned into Key Performance Indicators (KPIs) for periodic reporting
- The CSFs can guide the development of information systems by ensuring that managers receive regular information about the factors that are critical to their business.
- They can be used for benchmarking organisational performance internally and against rivals
