Strategic Objectives (Not part of the exam?) Flashcards
What are business policy and what are they good for?
Business policy define the scope within which decisions can be taken by the subordinates in an organization.
It permits lower level management to deal with the problems and issues without consulting top level management every time for decisions.
They are guidelines developed by an organization to govern its actions.
Cite some business policy features.
It should be specific: if it is uncertain, then the implementation will become difficult.
Unambiguous, without jargons and connotations. There should be no misunderstandings in following the policy.
Appropriate to the present organizational goal.
Flexible in operation/application. this does not imply it should be altered always, but should be wide in scope in order to be reused/repetitive in different scenarios.
Stable, otherwise it will lead to indecisiveness and uncertainty in minds of those who look into it for guidance.
What is the difference between policy and strategy?
Policy is a blueprint of the organizational activities which are repetitive/routine in nature. Strategy is concerned with those organizational decisions which have not been dealt/Faced before in same form.
Policy formulation is responsibility of top management. Strategy formulations is basically done by middle level management.
Policy deal with routine/daily activities essential for effective and efficient running of an organization. While strategy deal with strategic decisions.
Which elements compose a business policy?
Three components:
- Business mission: what business are we in? Type of services/products, specific characteristics of the services, target customers, market definition.
- Code of conduct: behavior towards executives and employees, business partners, shareholders, government, public, and environment.
- Corporate objectives: what objectives we pursue? Market share, shareholder value, stakeholder value.
Seven steps of setting a strategic objective
1) Search for objectives
2) Operationalization of objectives (what/how much/when/who/where)
3) Analysis and arrangement of objectives (ranking, priorities, time horizon)
4) Test for realizability (measures and strategies realistic? Competencies? Conflicts?)
5) Selection
6) Implementation (identification of managers and employees, organizational requirements)
7) Evaluation (benchmarking, constant change)
Elements of strategic object setting
Success potentials: indicators of the subsequent operative success.
Success factors: try to measure and operationalize success potentials.
Control function: success potentials are limits for achievable success, and can develop in opposite directions (consequence: separate control and accounting system)
Objectives for strategic management: development, protection and exploitation of success potentials.
What is the difference between a shareholder and a stakeholder?
Shareholders are stakeholder in a corporations, but stakeholders are not always shareholders.
Shareholder owns part of a company through stock ownership.
Stakeholder is interested in the performance of a company for reasons other than just stock appreciation. Stakeholder can be employees, bondholders, customers, suppliers.
What is shareholder value?
The ultimate measure of a company’s success is the extent to which it enriches shareholders.
Traditionally, a company is profit oriented. Use of traditional success measures like periodic, part oriented, accounting based figures (eg., operating incomes, net profit, earnings per share, etc.). This provides a LIMITED validity regarding “strategic success” of a firm. Neglects investment needs ans risk factors are not considered.
Solution: user shareholder value as a central measure of strategic success. Market value of owner’s assets often represented through shares. Maximizing the value of assets represented by shares (market value). Decision criteria for investors:
- cash flows (not accounting based profits)
- time preferences (discounting of expected future cash flows)
- risk adjusted discount factor (WACC)
Shareholder value = corporate value(CV) - debt
What is Economic Value Added?
Estimate of a firm’s economic profit - being the value created in excess of the required return of the company’s investors (being shareholders and debt holders). EVA is the profit earned by the firm less the cost of financing the firm’s capital.
EVA = NOPAT - c.K
- NOPAT: net operating profit after taxes
- c is the weighted average cost of capital (WACC)
- K is the economic capital employes
What is Stakeholder value?
Stakeholder are those groups without whose support the organization would cease to exist. Individuals and groups who have a interest in the firm and, therefore, may wish to influence aspects of its mission, objectives and strategies.
Relating to strategic management, corporate governance, business purpose and corporate social responsability.
What is Corporate Social Responsability?
Form of corporte self regulation integrated into a business model. Built in, self regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms.
CSR has encouraged companies to take the interests of all stakeholder into consideration during their decision making processes (instead of making choices based solely upon the interests of shareholder).
CSR creates a climate for corporations to make choices that protect social welfare, often using methods that reach far beyond legal and regulatory requirements.
The company should be mange by stakeholders, shareholders or customers?
Valuecan best be created by trying to maximize joint outcomes. For example, according to this thinking, programs that satisfy both employees’needsand stockholders’wantsare doubly valuable because they address two legitimate sets of stakeholders at the same time.
The greatest value of a company is its image and brand. By attempting to fulfill the needs and wants of many different people ranging from the local population and customers to their own employees and owners, companies can prevent damage to their image and brand, prevent losing large amounts of sales and disgruntled customers, and prevent costly legal expenses.
Shareholder versus stakeholder value orientation:
Shareholder value: influenced by (external) political and legal contexts and ethical value systems (US vs Europe). Influenced by the political rationality within an organization. Leads to a selective awareness and information processing by management.
Stakeholder value: is difficult to measure. Empirical confirmation of equal consideration of all interest groups is weak. Measuring stakeholder value is difficult. Conflicts between internal and external interest groups my exist.
Summarizing, we need to change focus from time to time, since the values are complementary.
