Chapter 12 Flashcards by Grace Kunzler

Model for evaluating strategies

SUITABILITY
ACCEPTABILITY
FEASABILITY

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What is suitability

must fit operational circumstances and strategic position

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When is a strategy suitable - how to determine

SWOT
Satisfy goals
fill gap
maintain competitive advantage

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What is feasibility

Can the strategy actually be implemented

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Elements of feasibility

Sufficient money
sufficient ability
competitor responses,
technology, materials and resource
time to implement
timeframe of results

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Strategies that do not make use of existing competences and call for new competences may not be

feasible

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What is acceptability

relates to people’s expectations and expected performance outcomes

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Acceptability elements

Risk and Return
Financial
Customers
Bsnks
Government
Ethics and corporate responsibility

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What are steps in formal system of strategic control

Strategy review
identify milestones of performance
set target achievement levels
formal monitoring
reward

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What is a budget

plan expressed in financial terms

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What does the mission set

overall direction

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What do strategic objectives illustrate

how mission will be achieved

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What do strategic plans show

how objectives will be pursued

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What do budgets represent

short term plans and targets to fulfil strategic objectives

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five benefits of budgeting

promotes forward thinking
helps coordinate various aspects of org
motivates performance
basis for system of control
system of authorisation

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Issues with budgeting (4)

demotivate if unattainable
slack may be built in to be achievable
focus on short term results rather than causes
unrealistic budgets may cause bad decisions

Common features of effective budgetary control

Tone from the top
accountability
targets achievable
established data collection analysis and reporting
targeted reporting
short reporting periods
timely reporting
provoke actions

Characterisitcs of strategic control systems can be measured on two axes

how formal is the process
how many milestones are identified for review

Guidelines for degree for a strategic control system

linkages
diversity
criticality
change
competitive advantage

Three different ways of measuring performance

financial performance
resource use
competitive advantage

Measuring resource use

effectiveness
economy
efficiency

How to measure competitive advantage

identify CSF and measuring achievement via KPI

Economy definition

measure of actual inputs used

Efficiency definition

considers relationship between outputs and inputs

Effectiveness definition

Measure of impact achieved, considers outputs in relation to objectives and the extent to which the processes used by the business deliver the right results

Desirable features of strategic performance measures

focus attention on LOT identify and communicate drivers of success support organisational learning provide basis for reward

good strategic performance measures

measurable meaningful defined by the strategy and relevant to it consistently measured re evaluated regularly acceptable

Ways for measuring divisional performance

ROCE and RI

ROCE should be

greater than cost of capital to provide suitable return to investors

Benefits of ROCE

Lead to desired group ROCE Enables comparisons readily understood easy to calculate (inputs already calculated)

RI calcultaion

divisional profit - net assets * required rate

Issues with RI

conceptually more complex than ROCE not easy to compare between different size requires a required rate (risk) lacks clear link to ROCE of gROUP

Issues using ROCE and RI

Short terms Discourage investment assets lack strategic control

Limitations for financial measures of performance

encourage short terms ignores strategic goals cannot control persons without budget responsibility historic measures (lag) distorted

four perspectives on BSC

Customer Internal Business Innovation and learning Financial

Process for setting BSC

Senior exec decide strategy Budgets and information systems are linked to the measures personal scorecards are developed Collaborative working occurs as many targets require team work strategy is operationalised

Diversity of BOD, Board member expertise risk identification and mitigation bribery and corruption are performance indicators of what

governance

What is relevant to measure performance of NFP

three es