Strategic Planning: Key Takeaways

 Strategy (“where to play”, “how to win”)

versus strategic plan (“what to do”)
 The balanced scorecard, strategy map,
“balanced” stakeholder approach
 Planning versus Doing
Strategic Planning: Key Takeaways
 The Balanced Score Card
◦ Adds strategic non-financial performance measures
to traditional financial metrics
◦ Includes drivers and not just outcomes to the
performance measures of the company
 The Strategy Map
◦ Shows the relationship among key objectives in each
of the 4 perspectives of the BSC
◦ Documents the logic of the strategic plan and its
contribution to the achievement of organizational
goals; aims to identify “gaps” and potential conflicts
that can cause issues in successful plan execution
 Stakeholder Analysis
◦ Requires consideration of key stakeholders that may
not be addressed by the BSC
Performance Measurement
 “You can’t manage what you can’t measure” –
Peter Drucker
 Measurement clarifies expectations, facilitates
communication, and validates accomplishment.

… however, not everything that is important to

effective execution is perfectly measurable. There
are many things that cannot be measured but should
still be managed.

 Importance of conversations; value of constant

review, feedback, and open communication
Strategic Planning: Key Takeaways
 Role of KPIs
◦ Provide timely and relevant feedback/information
to enable appropriate actions by the program
implementers
◦ Value of leading indicators
◦ Difference between output and outcome
indicators
 Links
 Controllability
 Timing differences
 People factor
◦ Getting committed individuals to see the
program through
Compensation & Incentives:
Takeaways
 Following agency theory, compensation and
incentives aim to align the goals of the
principal and agent. Research confirms that
performance-based or incentive pay systems
are common features of organizational
reward systems.
 Incentive pay systems need to consider the
risk-reward principle. “Excessive” rewards
for performance may encourage excessive
risk-taking/value-destroying behavior in
management.
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 Compensation & Incentives:
Takeaways
 Incentives should link payments to outcomes
that provide information about actions that
have been taken by the agent.
 Incentives need not only be based on outcome
measures. Under certain conditions
(considering the additional factors of cost of
information, measurability of output, and task
programmability), the control design should
emphasize behavior or socialization, both of
which are less perfectly measurable.
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Management Control and
Strategy

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Management Control

Process by which managers influence other

members of the organization in the
implementation of strategy

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Strategy

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Strategy & MCS
Vision
what are we?

Mission
what do we do? Values
What are important to us
Goals as an organization?
what will we aim for?

Strategies
how do we get there?

Control Structure Control Process

- Responsibility centers
- Plans/Programs/Projects
- Budget
- Performance Measurement
- Compensation and Incentives
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Business Unit Strategy: The BCG
Matrix

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Business Unit Strategy:
The GE/McKinsey Matrix
Industry Attractiveness
-Market growth rate
-Market size
-Stability of demand
-Industry profitability
-Industry rivalry
-Global opportunities
-Macroecon variables

Business Unit Strength

-Market share
-Growth in market share
-Brand equity
-Distribution channel access
-Production capacity
-Profit margins relative to competitors

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MCS and the Firm Life Cycle
 Firms may go through four stages: start-
up, growth, maturity, and decline or
renewal
 Each stage is characterised by differences
in sales growth, income, cash generation,
and capital investment.
 The different stages have implications on
firm strategy; and consequently on MCS.

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The Firm Life Cycle: Case of Globe Telecom, Inc.

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Influence of Strategy on MCS
 Strategic planning
◦ Vertical? Horizontal? Both?
 Budgeting
◦ Role of the budget
◦ Degree of influence by business unit manager
◦ Frequency of reporting and feedback
◦ Importance attached to meeting the budget
 Compensation and incentives
◦ Basis (financial vs non-financial measures, use of
formula)
◦ Importance of bonus in total compensation
◦ Frequency

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Corporate vs Business Unit Strategy
Corporate Strategy Business Unit Strategy
-What businesses do we compete - How do we compete in our
in? chosen business?
Single business Build – increase market share; results
in lower short-term earnings and cash
flow
Related diversified Hold – protect market share and
competitive position
Unrelated diversified Harvest – maximize short-term
earnings and cash flow
Divest – liquidate or sell the business

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Controls for Differentiated Strategies (A&G)
Related Unrelated
Single Industry
Diversified Diversified
Vertical cum
Strategic Planning Vertical only
horizontal
Control of BU
Manager over Low High
Budget
Importance
attached to Low High
meeting budget
Importance of
High Low
transfer pricing
Arms’-length,
Sourcing flexibility Constrained
market pricing
Financial & non- Primarily financial
Bonus criteria
financial criteria criteria
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Controls for Differentiated Strategies (A&G)
Build Hold Harvest
More a short-
More a control
Role of the budget term planning
tool
tool
BU mgr’s influence in
Relatively high Relatively low
budget preparation
Revisions of budget Relatively
Relatively easy
during the year difficult
Importance of meeting
Relatively low Relatively high
the budget
Output versus behavior
Behavior control Output control
control
Percent compensation as
Relatively high Relatively low
bonus
More emphasis More emphasis
Bonus criteria
on non-financial on financial
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