Capstone Project
badrbanan
790Mod3_DiagnosisFormulationImplementationslidestovideo.pptx
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Issue Diagnosis and Change Formulation
Assessing the quality of strategic alignment
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CAUSE (problem)= misalignment
EFFECT (symptom/outcome)= the performance ‘condition’
You must clearly understand the root cause(s) of the condition to effectively formulate changes necessary to improve your desired outcome.
Performance is a function of….
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Strategic Alignment and Competitive Advantage
We will focus on assessing strategic alignment; competitive advantage requires more time to compare/contrast against competitors. Our competitive advantage evaluation is partly accounted for in our relative performance metrics.
Our model of Strategic Alignment – we now need to assess the quality of alignment and identify Misalignments that help explain the ‘condition’ we are trying to address.
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PERFORMANCE
Value Creation and Value Capture
STRATEGY
ENVIRONMENT
Key Success Factors
Drivers of Change
RESOURCES AND CAPABILITIES
Metrics (growth and profitability) and non-financial indicators
Strategic Orientation
Business Model Variables
Industry structure
PEST Analysis
5 Forces Analysis
Identify &
Prioritize Strengths/ Sources of CAdvtg
You’ve done all these components so far…
Now we need to assess the linkages between the components
Diagnosis Process steps - overview
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Clarity on the aspect of performance that needs addressing
Evaluate Strategy –> Environment alignment (S-E)
Evaluate Res/Cap –> Strategy alignment (R/C -S)
Evaluate misalignments – link cause-effect relationships
Identify the one most critical misalignment issue*
Diagnosis
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First - What is the condition we need to address? What is the ‘target’?
Our ‘dependent variable’ or outcome objective is PERFORMANCE
Dimensions: Creating and Capturing value
Ideally, upward trend and superior to industry
What is the main deficiency in performance? On what dimension is performance most below desired level…currently and into the future?
GROWTH - Value Creation? Or PROFITABILITY - Value Capture?
If Profitability, is the issue more about GROSS Margin or OPERATING efficiency?
Now we have a clearer objective of what we need to diagnose.
Strategy-External Environment alignment
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Do each of the components of strategy align with the future (key DOC) KSFs of the industry?
Think through the alignment of each component.
Explain any weak or misalignments – what specific component is not aligned with what specific DOC or KSF
Resources/Capabilities - Strategy alignment
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Do the firm’s resources and capabilities align with what is necessary to execute all of the components of strategy?
Think through the alignment of each component.
Explain any weak or misalignments – what specific resources and/or capabilities do not align well with the demands of which specific components of strategy?
Performance implications of the misalignments
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For each of the identified misalignments, think through its implications on performance – connect Cause and Effect
Which misalignment (cause) explains the performance issue (effect) you had focused on addressing?
But what if I can’t clearly identify any misalignments?
Prioritize
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So – Identify which misalignment issue appears to have the most severe implications on performance over the next five years. In other words, if you could only repair ONE misalignment, which would you chose to most positively impact long-term performance?
Now we know the one specific alignment issue we need to address to most improve performance.
Real world – you may address multiple issues at a time, but here we only focus on one.
Formulating your change proposal
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Now you know the ‘problem’ to address….now you need to determine HOW
CHANGE. STRATEGY or RES/CAP - !!
You need to identify and evaluate relevant, realistic alternative means of addressing the causal issue
Open your thinking and stick tightly to your earlier conclusion.
Evaluating alternatives
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Best argument can ‘knock down’ all other alternatives – demonstrate why your proposal is the best of all options, not just one possible option
Criteria ? – at least:
Does this build on an existing strength (comp advtg)?
How much time and how much $ will this take?
How complex (greater complexity=greater chances for error)
Risk (what if it doesn’t work)
Disruption to ongoing business
Consider…maybe use a rate-rank method
Make your conclusion for the ‘best’ solution
Formulation to Execution
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Formulation simply gives direction and rationale. Plans are just plans. A budget is just a budget.
Very complex SOCIAL process…as much art as science
Change how people think and behave
But we can derive some guiding principles to increase the odds of successful change efforts
10 steps – (Stouten et al., 2018; p 50)
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Get the facts – diagnosis; need ‘legitimacy/validity’
Assess and address readiness – how prepared to change
Implement proven interventions (train, incentives, practice)
Develop leaders throughout org
Communicate a compelling vision
Exploit existing social networks
Use enabling mechanisms e.g. goal setting, participation; your best employees may focus on fairness/procedural justice
Promote micro experimentation
Assess progress, report, adjust
Institutionalize changes
Two valuable perspectives
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System of variables
A quality system of strategic change planning fleshes out details of what has to change and how, who’s involved, how to measure and monitor progress toward desired results, how to adjust resource allocations, how to overcome barriers to change, etc.
Project Management
Some common elements:
Goals/objectives/expected outcomes
Specific sub tasks and intermediate outcomes and milestones
Resource allocation details
Timing / task synchronization and staging
Transparency and communication
Advance recognition of risks and barriers
Monitoring and control
The notion of a “Change Agenda”- 5 parts
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1. WHAT needs to change, specifically
Very specific definition of our recommendation of change…what elements need to change to what
2. CONTEXT of this change
State of performance – the Urgency for change
Don’t ‘overuse’ as a motivator! Can undermine credibility
State, and history, of the organization
Readiness – Are our people experienced with change? Open to it? Able to change ----- do we have a good capability for changing?
Capacity – Do we have adequate resources to make change (slack time/finances; debt capacity; personnel, etc.)
The notion of a “Change Agenda”
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3. BARRIERS that might impede change
It is valuable to anticipate barriers and either prevent/preempt them or be prepared in advance on how to overcome
Individual resistance to change
Fears/uncertainty
Organizational inertia
Success paradox – doing what we know works
Stakeholder dependencies/ties
Institutional rigidity – identity/culture/processes
Examples……………….
Resistance to change (Rosenberg & Mosca, 2011)
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1-8 = Personal issues
9-18 = Organizational issues
19-20 = Managerial issues
What are YOUR points of resistance?
What have you experienced or observed?
The notion of a “Change Agenda”
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4. LEVERS for implementing change
Mechanisms management can adjust to foster the new behaviors/actions needed for the change
Structure - reorganize
Budget – resource allocations; time, people, $
Culture – walk the talk; informal norms
Managerial Processes:
Incentives – reward/recognize the desired behaviors
Leadership style – Open, employee involvement, experimentation
Communications – transparency, consistency
The notion of a “Change Agenda”
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5. Goals and Expectations
What do we expect and when?
Forecast the implications (costs and benefits) of the change effort
You must have a basis of expectations against which you can assess progress as you go
How To ? – a Gantt chart
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A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
What the various activities are
When each activity begins and ends
How long each activity is scheduled to last
Where activities overlap with other activities, and by how much
The start and end date of the whole project
How To ? Forecasting expectations
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Why?
1. To provide a basis to monitor progress
2. Because the CFO will demand it!
Strategic choice is an ‘investment’ decision. Resources are allocated with an expectation of a positive return (greater than alternative investments).
So, you must provide a reasonably acceptable projection of what to expect if your recommendation is implemented
A suggested approach:
Base case…Changed case…..the net effect on Operating Profit
You want to show expected results if NOTHING is changed vs. the results if your recommendation is implemented
Forecasting fundamentals
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Before you forecast the future, you need to spend time thinking about what has caused the trend in the recent years’ results. What internal and external factors are behind the trends.
Start forecasting from REVENUE projections and relate everything in the income statement to that line (common size). {No need here to forecast a balance sheet or cash flow}
Keep it simple 1: details only for implications of what you are changing…all else ‘roll up’ as constants or variable expenses
Keep it simple 2: numerical precision is a waste of time.
Your forecast is WRONG! You can’t predict with any precision, really, so why use $4,567,884.32 instead of just $4.5 million?
Don’t forecast outcome variables (profits)…those are simply net differences from other forecast figures.
Use clear footnotes to explain all your change assumptions so that a reader can understand what you changed, where, when , and why. They should be able to figure out every number in your forecast.
You are forecasting to show an incremental CHANGE. Therefore you need a base case to compare to a changed case.
A suggested process
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1. Be sure you understand the nature of revenues; you might need to break down revenues into distinct streams if they have different trajectories
E.g. Remember how Amusement parts have admissions, concessions, sponsorships….
2. Examine the historical trend for revenues (for each stream, if relevant) and forecast the coming 5 years
Don’t simply straight line without a rationale for doing so. You must support this forecast with an argument
3. Examine the historical trend for major expense categories and forecast for the next five years
ditto
Getting to your Base Case forecast
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4. Now consider your Drivers of Change and any other factors in the relevant environment that may affect performance over the coming 5 years
Explain assumptions and implications of those issues. What will they affect and when and to what degree?
5. Layer these external factors’ influence onto your prior firm-trend forecast. That is, determine the extent of the factors’ influence and recalculate the income statement to include that influence.
This is your BASE FORECAST; what you expect results to be if the firm makes no changes and the environment changes in the way you have described.
The ‘changed’ forecast
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6. Explain where, why, and how your recommended changes will affect the income statement. Footnotes!!
Layer these assumptions onto the base case (recalculate)
This is now your Changed Case. What you project results to be if the firm makes the changes you recommend (and when) and the environment changes as you have predicted.
7. Calculate the net change (improvement) in Operating Profit.
This is your net change in performance
NOTE – we are not doing a full investment analysis here (NPV, ROI, etc.) but you would want to do so with more time
“Watch outs”
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Don’t average up multiple years….probably masking important trend information
Don’t straight line unless that is really what the trend is telling you
Don’t bother with forecasting irrelevant and insignificant line items
**Don’t forecast outcome lines of an income statement
Wrap -
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Objective – expected outcomes
Understanding the context
Anticipating/addressing barriers and challenges
Levers (things you can adjust)
Planning
The steps
The mechanisms to foster behavioral change
How to manage the dynamic system over time
