Lecture strategic management

- 1 - © Dr. Hartwig Maly, DHBW Mannheim, International Office Lecture 2013

Strategic Management

Baden-Wuerttemberg Cooperative State University Mannheim

International Office

Coblitzallee 1-9

68163 Mannheim

Shaping ALPHA Power

Dr. Hartwig Maly

E-Mail: [email protected]

Kußmaulstr. 4-6 68 167 Mannheim

Tel.: +49 (0)170 55 46 628

S t r a t e g i c M a n a g e m e n t D H B W I n t e r n a t i o n a l O f f i c e, V e r s i o n March 2013

L e c t u r e

http://www.shapingalphapower.wordpress.com/



A ge n d a

Topic Page Status

1. Basics 1-24

1.1 Strategy names and buzz words 11

1.2 From vision to technology 14

1.3 Meaning of targets 19

1.4 Methodologies 21

1.5 Lifecycle and feasibility study 24

2. Tools 25-70

2.1 Entrepreneurial intuition 25

2.2 Forward accounting 29

2.3 Co-opetition/ Sensitivity Analysis 50

2.3 Delphi method 53

2.4 BCG: Portfolio, experience curve effects and product lifecycle 61




A ge n d a

Topic Page Status

2. Tools 25-70

2.5 Porter‘s competition strategy: Five forces, generic strategies, value chain 68

2.6 Co-opetition 69

2.7 Technology-S-curve 70

3. Case-Studies 71-108

3.1 Sales Company for laboratory equipment: Identifying strategic scenarios with ´Sensitivity Analysis´

30-50

3.2 Sales Company: From SWOT-analysis to corporate strategy 71-83

3.3 Aviation company: Translation from vision to action with ´Balanced Scorecard 84-108




E xe rc i s e s / Q u e st i o n s

Page Exercise/ Question

11 Story of our lecture

11 Names of strategies

17 Ways of planning/ MBO

19 Two or more objectives

21 Meaning of methodologies

50 Sensitivity Analysis

66 Porter´s Value Chain

108 Balanced Scorecard




S t ra t e g i c A n a l y s i s , P l a n n i n g , C o n t ro l l i n g

What‘ s a strategy? Which variables might be important?

An

y V

aria

ble

Time

Overview




C o m m o n N a m e s fo r S t ra t e g i e s – p l e a s e ex p l a i n !

Variable/ Company

Low costs

High quality

Very innovative

Fastest acting

Second fastest

High quality and high depth of added value

Strategy

Cost Leadership

Quality Leadership

Intellectual Leadership

First Mover

Fast Follower

Hidden Champion Strategy

Overview




H i d d e n C h a m p i o n s

Source: Wikipedia, Hidden Champions




Imagine to be responsible for NOKIA as CEO. Which strategy would you prefer? The green one or the red strategy? How to define the right strategy?

C h o o s i n g a s t ra t e g y fo r N o k i a

Source: http://www37.wolframalpha.com/input/?i=nokia

http://en.wikipedia.org/wiki/Nokia

Source: Knowledge engine Wolfram ALPHA http://www.wolframalpha.com/input/?i=nokia


http://en.wikipedia.org/wiki/Nokia

http://www.wolframalpha.com/input/?i=nokia



H i s t o r y a n d p re s e n c e

Battle of Waterloo „Battle“ of selling Smart cars

Overview

Method: Sensitivity analysis, Pages 30 - 47




A l l o c a t e B u z z Wo rd s

• Strategy

• Tactics

• Operations

• Target

• Objective

• Goal

An

y V

aria

ble

Time

?

Overview

More interesting information: http://www.12manage.com/i_s.html


http://www.12manage.com/i_s.html

http://www.12manage.com/i_s.html



Q u e st i o n

Some definitions (8/ 100 pt)

If a friend would ask you about our lecture, what would you tell him? What is our lecture on?

You know . . . (15/ 100 pt)

. . . that strategies are describing the way between today‘s situation and an desired end state of an organisation (company, administration, etc).

i. Please list five different strategies and allocate only one characteristic attribute to each of them. If you like, its USP (unique selling proposition). (5)

ii. Imagine your company to be in a highly competetive and volatile (quickly changing) market. Your company‘s success and your strategy therefore are very much dependent on time. (5)

iii. Please list your five strategies in the order of diminishing utility for this purpose. (5)




M a n a ge r i a l Re s p o n s i b i l i t i e s

Management Levels Responsibilities

Function

Responsibility

Planning Horizon

Executive board

Vision Strategy

> 3 years

Manager Tactics 1 – 3 years

Group leader, Team leader

Operations < 1 year

Overview




F ro m V i s i o n t o Te c h n o l o g y

Harvard Terms and Definitions

Strategy: long-term planning

Structure: operational and organisational

operational–processes

organisational–f.e.line, staff

Technology: Infrastructure, f.e. IT,

manufacturing facilities,

high rack warehouse Structure follows strategy and technology follows structure. (Prof. Alfred Chandler, 1962, Harvard University)

Vision

Overview




M a n a ge m e n t C i rc l e a n d S t ra t e g y

Remember our first definition of strategy (page 2)

Command structure

S t r a t e g y

T a c t i c s

O p e r a t i o n s

Overview




W h a t ‘s a Ta rge t ?

Definition

Overview




M a n a ge m e n t b y Ta rge t s

Hierarchy of Targets Way of planning

Top - Down

Bottom - Up

Mixed Planning

Overview




Q u e st i o n

Strategic analysis (12/ 100 pt)

Imagine to be chief executive manager. You have decided to manage your company using Peter Drucker‘s MBO.

i. What does it mean? (4)

ii. What is the difference between an objective and a target/ goal? (4)

iii. What is your related preferred way of planning? Please describe in brief. (4)




C o m p a t i b i l i t i e s o f Ta rge t s

Compatible targets

Not compatible targets

Target 1

Targ

et 2

Target 1

Targ

et 2

Overview

Any idea? What could it mean to be compatible or not compatibel?

Which are the consequences of non-compatible target for your planning ?




Q u e st i o n

Two or more objectives. (10/ 100 pt)

Imagine that you have already defined more than one objective as a first draft for 2012.

i. Which problems may occur? Mention at least two of them. (5)

ii. How would you solve this problems? (5)




D i f fe re n t M e t h o d o l o g i e s t o F i n d S t ra t e g i e s

Three-Step and Draw-See-Think

There are many approaches to strategic planning but typically

a three-step process may be used:

Situation - evaluate the current situation and how it came

about.

Target - define goals and/or objectives (sometimes called

ideal state)

Path - map a possible route to the goals/objectives

One alternative approach is called Draw-See-Think

Draw - what is the ideal image or the desired end state?

See - what is today's situation? What is the gap from ideal and

why?

Think - what specific actions must be taken to close the gap

between today's situation and the ideal state?

Plan - what resources are required to execute the activities?

See-Think-Draw and From Vision to Action

An alternative to the Draw-See-Think approach is called See-

Think-Draw

See - what is today's situation?

Think - define goals/objectives

Draw - map a route to achieving the goals/objectives

In other terms strategic planning can be as follows:

Vision - Define the vision and set a mission statement with

hierarchy of goals and objectives

SWOT - Analysis conducted according to the desired goals

Formulate - Formulate actions and processes to be taken to

attain these goals

Implement - Implementation of the agreed upon processes

Control - Monitor and get feedback from implemented

processes to fully control the operation

http://en.wikipedia.org/wiki/Strategic_Planning

Overview




Q u e st i o n

Methodologies (10 pt)

Methodology is generally a guideline for solving a problem. In our case a guideline to reach a desired final state, applying a strategy. In literature there are two different methodologies mentioned for the strategy-business.

i. Please describe both in brief. (5)

ii. Please mention two strength and two weaknesses of both. (5)




B o o m , B u st a n d S t ra t e g y

Enough Information But Not Power of judgement

WHY?

Overview




P ro j e c t L i fe c yc l e M o d e l

Overview




Fe a s i b i l i t y - S t u d y

Importance of Starting Points

• Start of a project/ contract

• Description of the current situation (company f.e.)

Agenda Feasibility Study

Overview




„Strategie im Praxistest“, H. von Pierer, M. Mirow, HBM Okt. 2004, S. 18-25

Important Entre- preneur (Intuition)

Forward Accounting

Delphi Method

Compe- tition Analysis

Value- Added- Chain

Bench- marking

Portfolio Experience Curve

Share- holder Value

Co-opetition

1960 1970 1980 1990 2000

Tools

O ve r v i e w o f S t ra t e g y To o l s

Ansoff Matrix




Fo r w a rd A c c o u n t i n g

Description Operational business, 5- 10 years, based on markets analysis and trend extrapolations

Strength First strategic approach, is not meant to be universally applicable Quantitative, simple tools, works well under certain conditions

Weakness Works well in steady markets with constant growth and strong correlation between variables

Example Assured facts and correlations between e.g. growth of GDP, consumption of electricity Companies like Siemens or GE, producing power plants, could estimate capacities in the long run

Suitability for daily use

Improper for rapidly growing markets, innovative markets (groundbreaking technologies)

2006 2007 2008 2009 2010

2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tools




Fo r w a rd A c c o u n t i n g

Steady Markets Forecast

Capacity utilisation of 100 %

Market growth 10 %

e.g. Production and consumption of electricity

Nr. power plants

Consump-tion

+

+

Tools




E x p o n e n t i a l G ro w t h

2011 - 2020 2000 - 2010

Tools




C o n s u m p t i o n E l e c t r i c i t y

Tools






Forward Accounting

Delphi Method


Value- Added- Chain

Bench- marking


Share- holder Value

Co-opetition

1960 1970 1980 1990 2000

Co-opetition

Tools





C o - o p e t i t i o n

supplier

customer

Co-operator competitor company

money

money

products & services

raw materials & manpower

Zero - sum Win - win non - zero - sum

Porter‘s Force Field

Tools




S e n s i t i v i t y A n a l y s i s

Current Situation Company

• Sales Company for laboratory equipment

• Consultation intensive products

• Considerable know-how in sales is necessary to

be successful regarding products and possible

fields of application

• For a short time, sales commissions depend on

profit margins

Current Problems in Sales

Sales volume

Turn over

Fluctuation of employees

Case Study I




C u r re n t S i t u a t i o n C u st o m e rs

Current Situation for Customers

• More often we have visits of your new sales

representatives at our company

• Not familiar with our technical and

internal problems. How shall they give us advice?

• Although we have a cut of budget we have an

increasing demand for support

• Your competitors have already adjusted their

prices to beat the competition

• Difficult to justify the purchase of your products

Field Sales Manager

Customer

Case Study I




C u r re n t S i t u a t i o n S a l e s Re p re s e n t a t i ve s

Internal Problems Sales Representatives

Sales Representatives

Field Sales Manager

Our competitors are cutting prices. Sales returns are our only way to be succesful.

It spoils the party.

Although we encreased our efforts, we don‘ t earn more

than last year.

Our competitors are making quite attractice

offers.

Case Study I




C u r re n t S i t u a t i o n C o n t ro l l e r

You can only manage, what you can measure.

Controller

We are loosing money for month. We have to raise our prices to increase our revenue.

We have to cut down our staff costs.

Job hopping is a great problem for us. New sales represen-tatives

have to be recruited and trained.

Case Study I




S o l u t i o n

Systemic modelling – a possible approach for complex situations.

Find the root of all evil. I expect proposals for a sudden improvement.

Firm owner

1. Challenging conditions for the field manager.

2. No chance for a solution with unilateral measures.

3. Quite complex actual situation with difficult dependencies.

4. Common meeting with colleagues of relevant organisational units:

Sales Controlling HR Department

Case Study I




K i c k - O f f

Kick-Off Meeting

Sales volume

Turn over


Our problems seem to be . . .

Case Study I




Ta rge t s / O b j e c t i ve s

Our Objectives

1. Reduction of fluctuation/ employee turnover

2. Improvement of turn over.

3. Strengthening of customer loyalty. Let‘ s start our brainstorming

to find the most important variables. for a solution.

Case Study I




D r i v i n g G e a rs

Brainstorming – collecting important variables

16.Commission basis

15.Budget parameters

14.Competition

13.Price return and allowance

12.Price

11.Accepting offer 10.Sales

volume

9.Amount of coverage

8.Overall costs

7.Commis-sion sales

6. Motivation

5. Customer Care

4. Quality employees

3. Fluktua-tion

2. Customer loyalty

1. Net revenue

Case Study I




Ta rge t s

Targets [green]

16.Commission basis


14.Competition


12.Price


volume


8.Overall costs

7.Commis-sion sales

6. Motivation

5. Customer Care

4. Quality employees 3. Fluktuation

2. Customer loyalty

1. Net revenue

Case Study I




D i f fe re n t i a t i o n b y I m p a c t

Steerable [ red ], Influence Sales [ orange ], External Variables [ yellow ]

16.Commission basis


14.Competition



volume


8.Overall costs

7.Commis-sion sales

6. Motivation

5. Customer Care

4. Quality employees 3. Fluktuation

2. Customer loyalty

1. Net revenue

12.Price

Case Study I




F i rs t N e t w o r k

Approach

16.Commission basis


14.Competition



volume


8.Overall costs

7.Commis -sion sales

6. Motivation

5. Customer Care


3. Fluktuation

2. Customer loyalty

1. Net revenue

12.Price

Case Study I




W h e e l w o r k

Immediate Affection on Targets

16.Commission basis


14.Competition



volume


8.Overall costs

7.Commis-sion sales

6. Motivation

5. Customer Care


3. Fluktua-tion

2. Customer loyalty

1. Net revenue

12.Price

Case Study I




S t re n gt h o f I n f l u e n c e

Strength of Arrows

16.Commission basis


14.Competition



volume


8.Overall costs

7.Commis-sion sales

6. Motivation

5. Customer Care


3. Fluktuation

2. Customer loyalty

1. Net revenue

12.Price

Case Study I




D y n a m i c s

black [ short-term ], blue [ middle-term ], light-blue [ long-term ]

16.Commission basis


14.Competition



volume


8.Overall costs

7.Commis-sion sales

6. Motivation

5. Customer Care


3. Fluktua-tion

2. Customer loyalty

1. Net revenue

12.Price

Case Study I




Way o f I n f l u e n c e

Same direction [ + ], inverse direction [ - ]

16.Commission basis


14.Competition



volume


8.Overall costs

7.Commis-sion sales

6. Motivation

5. Customer Care


3. Fluktua-tion

2. Customer loyalty

1. Net revenue

12.Price

+

+ +

+ +

+ +

+

+

+

+

+ +

+

+ - -

-

+

- +

-

+

+ +

- -

-

- -

Case Study I




Pa r t i a l N e t w o r k

Network „Commission Sales“

16.Commission basis


14.Competition



volume


8.Overall costs

7.Commis- sion sales

6. Motivation

5. Customer Care


3. Fluktua-tion

2. Customer loyalty

1. Net revenue

12.Price

+

+ +

+ +

+ +

+

+

+

+

+ +

+

+ - -

-

+

- +

-

+

+ +

- -

-

- -

-

Case Study I

Small world





Network „Customer Loyalty“

16.Commission basis


14.Competition



volume


6. Motivation

5. Customer Care


3. Fluktua-tion

2. Customer loyalty

1. Net revenue

12.Price

+

+ +

+

+ - -

+ +

-

Case Study I

Small world

Targets compatible?





Network Quality

16.Commission basis


14.Competition



volume


8.Overall costs

7.Commis-sion sales

6. Motivation

5. Customer Care


3. Fluktua-tion

2. Customer loyalty

1. Net revenue

12.Price

+

+ +

+ +

+ +

+

+

+

+

+ +

+

+ - -

-

+

- +

-

+ +

- -

-

- -

Case Study I

Small world




Q u e st i o n

Strategic analysis (15/ 100 pt)

You have finished your ‚sensitivity analysis` to find the most important drivers (KPIs) to achieve your targets.

i. What is going on in the ‚small world` between your targets ‚fluctuation (of empolyees)‘ and`customer loyalty‘ ? Please tell the story in brief. (5)

ii. Please describe the compatibility of our targets. Possible to achieve both? (5)

iii. Which KPI seem to be useful? (5)

50

Sales volume

Turn over







Forward Accounting

Delphi Method


Value- Added- Chain

Bench- marking


Share- holder Value

Co-opetition

1960 1970 1980 1990 2000

Delphi Method

Tools





D e l p h i M e t h o d

Description Experts were asked to give their opinion on the probability, frequency and intensity of possible enemy attacks or development of groundbreaking technologies. Other experts could anonymously give feedback. This process was repeated several times until a consensus emerged.

Strength Brainstorming of trends Qualitative and quantitative forecasts possible Diverse experts important

Weakness Depends on choice of experts

Example Japan: Forecast of technological megatrends

Suitability for daily use

Very useful for forecasts

Tools




B ra i n s t o r m i n g

The name "Delphi" derives from the Oracle of Delphi.

The authors of the method were not happy with this

name, because it implies "something oracular,

something smacking a little of the occult". The Delphi

method is based on the assumption that group

judgments are more valid than individual judgments.

The Delphi method was developed at the beginning

of the Cold War to forecast the impact of technology

on warfare. In 1944, General Henry H. Arnold

ordered the creation of the report for the U.S. Army

Air Corps on the future technological capabilities that

might be used by the military.

Tools






Forward Accounting

Delphi Method


Value- Added- Chain

Bench- marking


Share- holder Value

Co-opetition

1960 1970 1980 1990 2000

Tools




Po r t fo l i o

Description The BCG matrix is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis

Strength •It encourages top management to evaluate each of the corporation’s businesses individually and to set objectives and allocate resources for each. •It stimulates the use of externally oriented data to supplement management’s judgment. •It raises the issue of cash flow availability for use in expansion and growth. •Its graphic depiction facilitates communication.

Weakness •It is not easy to define market segments. • It suggests the use of standard strategies that can miss opportunities or be impractical. • It provides an illusion of scientific rigor when in reality positions are based on subjective judgments. • Terms like “cash cow” and “dog” can lead to self-fulfilling prophecies. • It is not always clear what makes an industry attractive or what stage a product is at in its life cycle. • Naively following the prescriptions of a portfolio model may actually reduce corporate profits if they are used inappropriately.

Example Nr. 1 strategy Siemens,General Electric

Suitability for daily use Quite good for qualitative development of strategies

Tools




B a s i c s

low high

low

h

igh

Tools




B C G Po r t fo l i o

Question marks (also known as problem child) are

growing rapidly and thus consume large amounts of cash,

but because they have low market shares they do not

generate much cash. The result is a large net cash

consumption. A question mark has the potential to gain

market share and become a star, and eventually a cash

cow when the market growth slows. If the question mark

does not succeed in becoming the market leader, then

after perhaps years of cash consumption it will degenerate

into a dog when the market growth declines.

Stars are units with a high market share in a fast-growing

industry. The hope is that stars become the next cash

cows. Sustaining the business unit's market leadership may

require extra cash, but this is worthwhile if that's what it

takes for the unit to remain a leader. When growth slows,

stars become cash cows if they have been able to maintain

their category leadership, or they move from brief stardom

to dogdom.

Tools




B C G Po r t fo l i o

Cash cows are units with high market share in a slow-

growing industry. These units typically generate cash in

excess of the amount of cash needed to maintain the

business. They are regarded as staid and boring, in a

"mature" market, and every corporation would be thrilled

to own as many as possible. They are to be "milked"

continuously with as little investment as possible, since

such investment would be wasted in an industry with low

growth.

Dogs, or more charitably called pets, are units with low

market share in a mature, slow-growing industry. These

units typically "break even", generating barely enough

cash to maintain the business's market share. Though

owning a break-even unit provides the social benefit of

providing jobs and possible synergies that assist other

business units, from an accounting point of view such a

unit is worthless, not generating cash for the company.

Tools




M c Fa r l a n‘s I T Po r t fo l i o M a t r i x

Tools




E xa m p l e s Po r t fo l i o

Tools




Po r t fo l i o - Ve c t o r

Tools






Forward Accounting

Delphi Method


Value- Added- Chain

Bench- marking


Share- holder Value

Co-opetition

1960 1970 1980 1990 2000

Tools




Po r t e r ‘s F i ve Fo rc e s

the bargaining power of customers

the bargaining power of suppliers

the threat of new entrants

the threat of substitute products

the intensity of competitive rivalry

Tools




Po r t e r ‘s G e n e r i c S t ra t e g i e s

Tools




Va l u e - A d d e d C h a i n

Tools




Q u e st i o n

Porter‘s value chain (15/ 100 pt)

Your company is producing and selling laboratory equipment. You are in a precarious financial situation (rich portfolio of products, many of them with a negative profit margin, etc. page 5 ).

i. How would you utilize Michael Porter‘s ‚Competition Theory‘ to improve your situation? (5) Five-Forces-Approach

Value Added-Chain

ii. Which measures could be taken regarding the primary and secondary Porter-processes? (5) for the short term (operational measures)

in the medium term (tactical measures)

In the long term (strategic measures)

iii. Do you see any additional use of the co-opetion-approach? (5)




B re a kd o w n S t r u c t u re




F l o w C h a r t „O rd e r t o c a s h“

1 confirm standard

offer

prereservation of resources

customer approval

?

receive customer order

yes

cancel prereservation

no

recheck/match conditions

allocation of resources for

„make to order“

Conditions unchanged

?

no

yes Confirm customer order

material from stock

?

yes

no

Tools




C o - o p e t i t i o n

supplier

customer

Co-operator competitor company

money

money

products & services

raw materials & manpower

Zero - sum Win - win non - zero - sum

Porter‘s Force Field

Tools




Te c h n o l o g y - S - C u r ve

Tools




D e ve l o p i n g C o r p o ra t e S t ra t e g y

Internal/ external assessments

Case Study




S t e p 1 : F ro m S e n s i t i v i t y - A n a l y s i s t o S W OT - A n a l y s i s

Sensitivity Analysis

SWOT-Analysis

i. Remember the current situation of our case study (sales company for laboratory equipment, see page 19) and our proposals to succeed/ achieve our targets.

ii. Define all targets SMART. (see page 12)

iii. Collect internal and external assessments of our company for SWOT-analysis (see page 19 – 25) i. Distances between variables and targets (see page 26, 30)

ii. Strength of arrows (see page 31)

iii. Time axis/ dynamics (see page 32)

iv. Tendencies/ +,- (see page 33)

iv. Allocate internal assessments to Strength or Weaknesses (see pages 44, 45)

v. Allocate external assessments to Opportunities or Threats (see pages 44, 45)

vi. Weigth all items between [0, 10]

vii. Generate action items for important entries in SWOT- matrix (see page 47)

Case Study




S W OT - A n a l y s i s

Orienting SWOTS to an objective

used to evaluate the Strengths, Weaknesses,

Opportunities, and Threats involved in a project or in

a business venture. It involves specifying the

objective of the business venture or project and

identifying the internal and external factors that are

favourable and unfavourable to achieving that

objective. The technique is credited to Albert

Humphrey, who led a convention at Stanford

University in the 1960s and 1970s using data from

Fortune 500 companies.

Collecting items

S W

O T

Helpful To achieving the

objective

Harmful To achieving the

objective

Inte

rnal

o

rigi

n

Att

rib

ute

s to

th

e o

rgan

isat

ion

Exte

rnal

o

rigi

n

Att

rib

ute

s to

th

e en

viro

nm

ent

Strength Weaknesses

Opportunities Threats

Case Study




S W OT - A n a l y s i s

Generating action items

How can we use and capitalise on each strength?

How can we exploit and benefit from each opportunity?

How can we improve each weakness?

How can we mitigate each threat? Threat?

S W

O T

Case Study




S t e p 2 : Po t e n t i a l - A n a l y s i s

Strength/ Weaknesses

1. Find the most important variables out of SW-Matrix and

list of action items (6- 10 including relevant targets)

2. Paint an polygon with scaled axis from [0, 10]

3. Each axis represents one important variable respectively

target.

4. Paint the current status of our sales company according

the weights in your SWOT- matrix (see picture 1)

5. 0 means weakness, 10 strength

6. Connect this points for an polygon represen

ting the current status (see picture 2)

7. Paint the future status according each

variable to achieve the targets.

8. The difference between both pictures

represents the potential of changes

of our company

10 5 0 10 5 0

Picture 1 Picture 2

potential

strength

weakness

Case Study




S t e p 3 : Tra n s fe r o f A c t i o n I t e m s t o Va l u e A d d e d C h a i n

Definition

The value chain, also known as value chain analysis, is a

concept from business management that was first described

and popularized by Michael Porter in his 1985 best-seller,

Competitive Advantage: Creating and Sustaining Superior

Performance.

A value chain is a chain of activities. Products pass through all

activities of the chain in order and at each activity the product

gains some value. The chain of activities gives the products

more added value than the sum of added values of all

activities. It is important not to mix the concept of the value

chain with the costs occurring throughout the activities. A

diamond cutter can be used as an example of the difference.

The cutting activity may have a low cost, but the activity adds

much of the value to the end product, since a rough diamond

is significantly less valuable than a cut diamond.

Value-added-chain

Case Study




Va l u e A d d e d C h a i n S W OT

Primary Activities

Important Action Items Partial Strategy

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Va l u e A d d e d C h a i n S W OT

Support Activities


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S t e p 4 : M a t c h i n g a n d C o nve r t i n g

TOWS- Analysis

Matching is used to find competitive advantages by matching the strengths to opportunities, threats and so forth.

Converting is to apply conversion strategies to convert threats or weaknesses into strengths or opportunities.

1. SO- strategy: How can we use on each strength to benefit from each opportunity

2. ST- strategy: How can we use on each strength to mitigate each threat

3. WT- strategy: How can we improve each weakness to benefit from each opportunity

4. WO- strategy: How can we improve each weakness to mitigate each threat

5. Completion pages 54, 55

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TOW S - A n a l y s i s

W [1,10]

Opportunities 1. 2. 3. 4.

W [1,10]

Threats 1. 2. 3. 4.

W [1,10]

Strength 1. 2. 3. 4.

SO- Strategy • •

ST- Strategy • •

Weakness 1. 2. 3. 4.

WO- Strategy • •

WT- Strategy • •

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Va l u e A d d e d C h a i n TOW S

Support Activities


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Va l u e A d d e d C h a i n TOW S

Primary Activities


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S t e p 5 : S t ra t e g i e s ( Pa r t i a l / C o r p o ra t e )

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B a l a n c e d S c o re c a rd : F ro m v i s i o n t o a c t i o n

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Fa i r y Ta l e

birthday

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History of the Balanced Scorecard

The BSC was developed in the early 1990’s by Dr

Robert Kaplan (Harvard Business School) and Dr

David Norton (Balanced Scorecard Collaboration)

The balanced scorecard approach was designed to

provide a clear prescription as to what companies

should measure in order to 'balance' the financial

perspective.

The balanced scorecard is a management system (not

only a measurement system) that enables

organizations to clarify their vision and strategy and

translate them into action. It provides feedback

around both the internal business processes and

external outcomes in order to continuously improve

strategic performance and results

Kaplan and Norton describe the innovation of the

balanced scorecard as follows:

"The balanced scorecard retains traditional

financial measures. But financial measures tell the

story of past events, an adequate story for

industrial age companies for which investments in

long-term capabilities and customer relationships

were not critical for success.

These financial measures are inadequate,

however, for guiding and evaluating the journey

that information age companies must make to

create future value through investment in

customers, suppliers, employees, processes,

technology, and innovation."

The BSC was introduced in its current form in 1992

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Why the Balanced Scorecard?

Accounting Based Measures

Shareholder

value

perspective

Economic Value Added

Cash Flow Return on Investment

Corporate wide perspective

Balanced

Information based tool to enhance

management decision making and business

effectiveness

Scorecard

Finance

Process

Customer

Learning

Traditional accounting systems do not measure what is critical to be successful in today’s and tomorrow’s

competitive environment.

New broader management system based on the relevant company metrics is required. The Balanced Scorecard complements the financial measures of past performance with measures of the

drivers of future performance.

Total

shareholder return

Capital

Gain

Net

Cash Flows

=

Traditional financial accounting

measures tend not to take into

account the intangible assets of the

company

new product pipeline

process capabilities

employee skills

customer loyalty

information assets

technology

Traditional accounting measures at best report historical results

+

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Outcome measures, results of past performance

Measures that drive future performance

Internal measures of critical business processes, innovation, learning and growth

Objective quantifiable outcomes

Subjective, judgmental performance drivers of the outcome measures

Balanced Across Multiple Dimensions

External measures for shareholders and customers

All directed to achieving an

integrated business strategy

Communications, informing and learning system, not a

controlling system

Vs

Vs

Vs

Why Balanced? Why Scorecard?

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Strategic Management The Balanced Scorecard is management and

communications tool

How do we look to our shareholders?

How do we continue to improve and create value?

Financial perspective

Goals Measures

Customer perspective

Goals Measures

Learning and Growth perspective

Goals Measures

Internal Business perspective

Goals Measures

How do our customers see us?

What business processes must we excel at?

Vision & Strategy

Translating Strategy into Operational Terms

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Clarifying and translating the vision and strategy

clarify the vision

gaining consensus

Communicating and linking

Communications and education

Setting goals

Linking rewards to performance

Planning and target setting

setting targets

aligning strategic initiatives

allocating resources

establishing milestones

Strategic feedback and learning

articulating the shared vision

supplying strategic feedback

facilitating strategy reviews Balanced Scorecard

The emphasis is on fact based business management

BSC – A Management Tool

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The Dashboard consist of 20 – 25 measures and provides a high level over-view of how the organization is performing.

BSC – Dashboard

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clarifies and gains consensus on business direction

identifies and aligns strategic initiatives

communicates the strategy throughout the organization

aligns departmental and personal goals with the strategy

links strategic objectives to long-term targets and annual budgets

prioritizes resource allocation for key strategic initiatives

integrates the business cross-functionally

provides periodic and systematic strategic reviews

improves depth and breadth of performance metrics

obtains feedback to learn about and improve strategy

drives both process and organizational improvement

BSC is more than just a measurement system

Benefits of the Balanced Scorecard

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Strategic Management Have to be fullfilled

Knock-Out Criteria

BSC is an “Open Book Philosophy”- approach open communication policy

in the whole organisational structure is necessary

Commitment of the top management

Small number of significant “Key Performance Indicators”

Professional project team (architect, communicator)

Convincing benefit-analysis for the whole company – project makes life easier

Necessary to have lot of staying power ( > 3 years)

Convincing strategic analysis

Solution – easy to handle

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Process: Production- and Logistic Management Subject: Turnaround on ground

Strategic Objectives

• Cost effectiveness • Increasing gross profit • Less aeroplanes

• Attract more customers • Stronger commitment of

customers to our comp. • Service on time • Ranking of customers

• Faster turnaround on ground

• Develop important skills • Develop support systems • Focus staff concerning

strategy

Profits and RONA

Increase of Turnover

Less Aero- planes

Finance

Customer

Attract more Customers

Service on Time

Bottom Prices

Fast Ground Turnaround

Training Ground Staff

Strategic Job: „Flugabfertiger“

Strategic System: Manpower Planning

Internal Process

Learning & Growth

S t ra t e g y M a p

Case Study




Financial

Customer

Business Process

Learning and Growth

Satisfied and loyal customers lead

to increased revenues and

profitability

Improved processes lead to

improved products and services

for customers

Skilled, creative employees question

the status quo and improve the

business processes

Learning and growth of employees

is the foundation for innovation

and creativity

Balanced Scorecard Perspectives

T h e Fo u r Pe rs p e c t i ve s

There are four perspectives of the business strategy based on a defined hierarchy

Case Study III



Strategic Management The financial perspective provides focus for the objectives and

measures in the other scorecard perspectives

Risk management

Risk management usually included if it is core to the business I.e. a financial institution.

Alternatively risk is addressed as one of the business strategies if it applies to the overall business operations

Overall Goals

Overall objectives and measures focus on

return on capital employed

economic value added

sales revenue and growth

net cash flow

Specific areas of focus include:

Revenue and Growth Mix

expanding product and service offerings

reaching new customers and markets

changing the product and service mix to higher-value-added offerings

re-pricing products and services

Cost Reduction/Productivity Improvement

lower direct costs of products and services

reduce indirect costs

share common resources across business units

Asset Utilization/Investment Strategy

working capital reduction

greater utilization of asset base

using spare capacity profitably

using scarce resources more efficiently

disposing of assets with inadequate returns on their value

F i n a n c i a l Pe rs p e c t i ve

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Consideration of the customer perspective follows the steps below:

1. Identify and define the market segments and customers in which the organization intends to compete

2. Choose what to do, choose what not to do

3. Once the segment has been selected decide the objectives and measures for the target segments. Objectives typically involve:

gaining market share/account share

customer acquisition

customer retention

customer satisfaction

customer profitability

4. Consider performance measures for each component of the customer value equation:

Customer value

= Product/service attributes + Image + Relationship

Functionality Quality Price Time

Customer Acquisition

The customer perspective provides the external market view

C u s t o m e r Pe rs p e c t i ve

Customer Retention

Market Share

Customer Profitability

Customer Satisfaction

Core Customer Strategies

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Consideration of the internal business process perspective follows the steps below:

1.Define the business processes within the three

aspects of the business operations:

bringing new products and services to market

the efficient consistent and timely delivery of existing

products and services to customers

post sales services including warranty, maintenance

and repair services, treatment of defects and returns

2.Identify the critical business process that will make

the difference for achieving the strategy specifically enable the organization to:

deliver the value propositions that will attract and retain customers in targeted market segments

satisfy shareholder expectations of excellent financial returns

3. Identify those strategic initiatives that will significantly enhance business performance

4. Identify performance measurements for cross-functio- nal business processes that support the strategic

initiatives

Value Created

Business Process Value Equation

=

Time Cost X

Quality Service X

The business process perspective is a measure of internal efficiency and effectiveness

B u s i n e s s P ro c e s s Pe rs p e c t i ve

Case Study




The learning and growth strategies and measures relate to those activities that must be performed to enable the organization to continually renew its operations. Activi- ties would include:

enhancing the skills and capabilities of the employees

using IT as an enabling technology to support business initiatives in the other three perspectives

the creation on an environment that promotes a culture of continuous improvement

the maintenance of an infrastructure to support long term growth and improvement initiatives

The strategies and performance measures concentrate

on the following areas:

people

information systems

motivation, empowerment and alignment

For an organization just to maintain its existing relative performance it must continually improve. One way of achieving this is to foster knowledge management initiatives.

Employee Retention

Employee Productivity

Staff Competencies

Results

Employee Satisfaction

Technology Infrastructure

Climate for Action

Learning and Growth Measurement Framework

Learning a growth concentrates on an organizations’ ability to remain competitive

L e a r n i n g & g ro w t h p e rs p e c t i ve

Case Study




Process: Production- and Logistic Management Subject: Turnaround on ground

Strategic Objectives

• Cost effectiveness • Increasing gross profit • Less aeroplanes

• Attract more customers • Stronger commitment of customers to our comp. • Service on time • Ranking of customers

• Faster turnaround on ground • Develop important skills • Develop support systems • Focus staff concerning strategy

S t ra t e g y M a p B S C

Case Study

Profits and RONA


Less Aero- planes

Finance

Customer


Service on Time

Bottom Prices





Internal Process

Learning & Growth

Performance Indicator (p. 101)




Financial

Customer

Internal Process

Learning & Growth

Pro

du

ctio

n-

and

Lo

gist

ic

Inn

ova

tio

n

: Cu

sto

mer

R

elat

ion

s

Pre

crib

ed b

y La

w


Process 1 Process 4 Process 3 Process 2

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Performance Indicator

Process:

• Equity • Turnover/ seat • Leasing costs/ aeroplane

• Regular customers • Number of customers • FAA-rating for arrival on time • Ranking of customers

• Time on ground • Departure on time • Strategic „Stand-By“ • Availability support systems • % of staff as shareholders


Figure

• 30 % • 20 % • 5 %

• 70 % • 12 p.a. • Nr.1 • Nr.1

• 30 minutes • 90 % • 1-70% first year • 100 % • 100 %

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Profits and RONA


Less Aero- planes

Finance

Customer


Service on Time

Bottom Prices





Internal Process

Learning & Growth




Financial

Customer

Internal Process

Learning & Growth

S t ra t e g y M a p B S C P l a n : M e a s u re

• 30 minutes • 90 %

Performance Indicator

• Equity • Turnover/ seat • Leasing costs/ aeroplane

• Regular customers • Number of customers • FAA-rating for arrival on time • Ranking of customers

• Time on ground • Departure on time

• Strategic „Stand-By“ • Availability support systems • % of staff as shareholders

Planned Figure

• 30 % • 20 % • 5 %

• 70 % • 12 p.a. • Nr.1 • Nr.1

• 1-70% first year • 100 % • 100 %

• Implement CRM System • QM • Customer Loyalty Program

Initiative

Budget

M€

• Optimisation Time Process

• Training Personnal • System for Planning Employment/ Deploy- ment

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The Dashboard consist of 20 – 25 measures and provides a high level over-view of how the organization is performing.

B S C – D a s h b o a rd

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B S C D e t a i l s - Tre n d i n d i c a t o rs

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B S C – S c o re , S t a t u s a n d Tre n d ( e . g . )

Score/Status

A - B

B X 100 = Result

Formula Result/Score

Trend: Score change

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S t ra t e g y M a n a ge m e n t : O rg . I n t e g ra t i o n

Risk Management Supporting the Risk Management Process: • Identification • Analysis and Assessment • Risk Handling • Risk Controlling • Evaluation of impacts on a system of strategic objectives like the BSC

Balanced Scorecard

• Strategy visualization • Connection of Strategies to Objectives, KPIs, and Initiatives • Detailed Strategy Analysis • SEM Business Content

Value Driver Tree

• Visualization of Value Drivers • Value Driver Management • Analysis of Impact and Influence • Simuation

Value Based Management

• Identification of Value Drivers • Management of external expectations • Management of internal value creation

Strategy Management Balanced Scorecard Risk Management Strategy Templates Value Driver Trees Value Based Management

Performance Measurement

Management Cockpit Measure Builder Measure Catalogs Benchmarking

Business Consolidation

Legal Consolidation

Management

Consolidation

Business Planning Modelling Planning Framework Planning-Applications Simulation

Stakeholder Relationship Management Integration of Stakeholders into

the Strategic Management Process

Investor Portal

Balanced Scorecard

• Strategy visualization • Connection of Strategies to Objectives, KPIs, and Initiatives • Detailed Strategy Analysis • SEM Business Content

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Q u e st i o n

Strategic Controlling (15/ 100 pt)

Your company seems to be

back on track until your

‚Balanced Scorecard‘ looks

confusing.

i. Why? Tell your story. Remember the hierarchy of the scorecards (5)

ii. Explain BSC‘ s underlying philosophy. (5)

iii. Mention some strenth and weaknesses of BSC. (5)




D r. H a r t w i g M a l y

15 Jahre Manager in internationalen Konzernen

Seit 10 Jahren selbständig als Trainer mit Schwerpunkten Führungskräfte-Nachwuchs

Kommunikation/ Konfliktmanagement

Projektmanagement

Strategisches Management

Seminare im öffentlichen Dienst Stadt Mannheim (STIRN): Projektmanagement/ Change/ Coaching Führungskräfte, seit 2006

Stadt Offenburg: Projektmanagement ab 2009

Regierungspräsidium Neustadt: Coaching, 2010

Vorlesungen zu Management-/ Führungsthemen Duale Hochschule Baden-Württemberg seit 2004

Blog: www.shapingALPHApower.wordpress.com Artikel zu Führungsthemen

Website: www.maly-seminare.de Seminare, Vorlesungen

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Lecture strategic management

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