case study

LEARNING OBJECTIVES • Understand how short-term objectives are used in strategy

implementation

• Identify and apply the qualities of good short-term objectives to your own experiences

• Illustrate what is meant by functional tactics and how they are used in strategy implementation

• Understand how outsourcing becomes a choice in functional tactics decisions for strategy implementation

• Understand what policies are and how to use them to empower operating personnel

• Understand the use of financial reward in executive compensation

• Identify different types of executive compensation and when to use each in strategy implementation

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SHORT-TERM OBJECTIVES ‘Measurable outcomes intended to be achieved in a year or less.’

• “Operationalize” long-term objectives (should cascade/ link to them).

• Should be SMART o Specific o Measurable (activities, outcomes) o Achieveable o Relevant o Timebound (i.e. timeframe for completion)

• Who is responsible – accountability (avoid bystander effect)

• Give priority (ranking or weighting) 3

FUNCTIONAL TACTICS (thought -> action)

• Detailed statements of the “means” or activities that will be used to achieve short-term objectives, support strategic objectives, and establish competitive advantage.

• Differ from business or corporate strategies in three fundamental ways: o Specificity o Time horizon o Participants who develop them

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Ex. 10.2 Potential Conflicting Objectives and Priorities

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Ex. 10.3 Creating Measurable Objectives

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Ex. 10.4 Milliken Global Environmental Objectives

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Examples – cascading from Corporate strategy to functional tactics

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Ex. 10.5 Specificity in Functional Tactics vs. Business Strategy

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Empowering Operating Personnel: Policies

• Empowerment is the act of allowing an individual or team the right and flexibility to make decisions and initiate action (the opposite of micro-management!)

• Policies are broad, precedent-setting decisions that guide or substitute for repetitive or time-sensitive managerial decision making.

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Creating Policies That Empower Some pros of formal, written policies:

• Establish indirect control over independent action

• Make uniform, equitable and consistent treatment of problems more likely

• Ensure quicker decisions / reduce uncertainty by standardizing answers to recurring / routine questions

• Institutionalize basic aspects of organization behavior

• Afford managers a mechanism for avoiding hasty decisions by requiring them to think through the meaning, content and intended use

• Reduce misunderstanding through clearer communication

• Systematically enhance indirect control and organization wide coordination

• Policies that empower can counteract resistance

e.g. Innovation time out policy – time given during work week to come up with innovative / new ideas 12

Bonus Compensation Plans • Goal is to motivate executives and key employees to achieve

maximization of shareholder wealth.

• An executive compensation plan that contains a bonus component can be used to orient management decision-making toward the owners’ goals.

Types: o Cash bonuses o Stock options

• Right to purchase stock at fixed price in future o Restricted stock

• Given stock but may only sell after certain time, forfeit if leaving early o Golden handcuffs

• Deferred compensation in installments (stock, bonus, etc) o Golden parachute

• Guaranteed cash payment if, e.g., retires, quits, or is fired 13

Key Terms • Empowerment

• Functional tactics

• Golden handcuffs

• Golden parachute

• Stock options

• Restricted stock

• Innovation Time Out policy

• Outsourcing

• Policies

• Short-term objective

• Social computing guidelines

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Chapter 13: Strategic Control

LEARNING OBJECTIVES

1. Describe and illustrate four types of strategic control.

2. Summarize how the balanced scorecard approach integrates strategic and operational control.

3. Illustrate the use of controls to guide and monitor strategy implementation.

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What is Strategic Control? Management efforts to track a strategy as it is being

implemented, detect problems or changes in its underlying premises, and make adjustments.

Questions that drive strategic control:

1. Are we moving in the proper direction?

2. How are we performing?

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4 TYPES OF STRATEGIC CONTROL

• Premise control

• Strategic surveillance

• Special alert control

• Implementation control

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Premise Control • Systematically and continuously checks whether the premises on

which the strategy is based are still valid

• Primarily concerned with o Environmental factors o Industry factors

Strategic Surveillance • Monitor a broad range of events inside and outside the firm that

could affect its strategy

• Strategic surveillance must be kept as unfocused as possible

• Provides ongoing, broad-based vigilance in all daily operations

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Special Alert Control • Thorough, often rapid, reconsideration /

reassessment of the firm’s strategy because of a sudden, unexpected event

• Crisis teams

• Contingency plans

e.g. data breaches, weather events, war, trade disputes

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Implementation Control • Assesses whether the overall strategy should be changed in light

of the results associated with the incremental actions that implement the overall strategy (e.g. if certain key performance indicators not as expected, behind on goals)

Two basic types: • Monitoring strategic thrusts/ projects

o These are special efforts (often early stage of a new strategy) usually involving significant resource commitments; feedback will help management determine whether to continue to pursue the strategy or adjust (e.g. traditional retailer rolling out e-commerce offering).

• Milestone reviews o Points in time, or at the completion of major parts of a bigger

strategy, to review progress, and go-no go decision regarding the underlying strategy.

o Dashboards / progress reports are key management tools to collect and present KPIs, milestones, etc.

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Ex. 13.1 Characteristics of the Four Types of Strategic Control

Chapter 13 exhibit 2.CLP

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Operational Control Systems

Four common steps: o Set standards of performance o Measure performance o Identify deviations from

standards o Initiate corrective action

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The Balanced Scorecard Methodology

An approach linking operational and strategic control.

Enables companies to clarify strategies, translate into action, and provide quantitative feedback as to whether the strategy is creating value, leveraging core competencies, satisfying customers, and generating financial rewards.

Four perspectives: 1. Learning and growth: How well are we continuously

improving and creating value?

2. Business process: What are our core competencies and areas of operational excellence?

3. Customer perspective: How satisfied are they?

4. Financial: How are we doing for our shareholders?

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Kaplan and Norton on the Balanced Scorecard “The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events…. These 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.”

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Ex. 13.6 Exxon NAM&R Division’s Balanced Scorecard

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Summing Up Strategic Control

• Organizational leaders can adjust or radically change their firm’s strategy based on feedback from a balanced scorecard approach as well as other strategic controls.

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KEY TERMS • Balanced scorecard

• Dashboard

• Implementation control

• Key performance indicator

• Milestone reviews

• Premise control

• Special alert control

• Strategic control

• Strategic surveillance

• Strategic thrusts or projects

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