Business Strategy & Analytics IS-July2014 PDF

Business Strategy & Analytics
Presenter Name
Presenter Job Title, IBM Organization Name
© 2013 IBM Corporation
Date
Introduction to Strategy Management
 Strategy is fundamental to an organization’s survival and growth.

 It makes the difference between an organization’s success and failure.
 A strategy is an organization’s game plan to deal with competition.
 The essence of strategic management is to achieve and maintain competitive advantage.
© 2013 IBM Corporation Innovation Centre for Education

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Definition of Strategic Management
 Several definitions exist in strategic management literature.

 Some are given below along:
– A company’s strategy consists of the combination of competitive moves and business
approaches that managers employ to please customers, compete successfully, and
achieve organizational objectives (Thompson & Strickland, 2001).
– Michael Porter defines strategy as developing and communicating the company’s unique
position, making trade-offs, and forging fit among activities.
– Strategic management is that set of decisions and actions which leads to the
development of an effective strategy or strategies to help achieve corporate objectives
(W.F.Glueck)
– Strategic management is primarily concerned with relating the organization to its
environment, formulating strategies to adapt to that environment, and, assuming that
implementation of strategies takes place (G.A. Steiner, J. B. Miner, E.R.Gray, 1982).
– Strategic management can be defined as the art and science of formulating,
implementing, and evaluating cross-functional decisions that enable an organization to
achieve its objectives (F.R. David).
 The above definitions together should give a comprehensive view of the concept of strategic
management.

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Strategic management and strategic planning
 Strategic management and Strategic planning is used synonymously.

 However, strategic management tends to get used more often in academia while strategic
planning tends to get used in the business world.
 Sometimes, strategic management connotes formulation, implementation and evaluation of
strategy, while strategic planning refers to planning only.

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Strategic Management – Roots and Intent
 Strategic management has strong roots in military. The word ‘strategy’ comes from the
Greek word ‘Strategos’ which means stratos (the army) and ago (to lead). Both military
strategy and business strategy aims to achieve competitive advantage. Both aim to leverage
existing strengths to exploit weaknesses of the competitors. Both must adapt to change and
continually improve and innovate to be successful. Terms such as objectives, mission,
strengths and weaknesses have origins in the military domain.

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Levels of strategic management
1. Corporate level
Strategies concerned with the overall purpose or objectives of the organization
- For example, joint ventures, mergers & acquisitions etc.
2. Strategic Business Unit (SBU) level
Strategic business unit or division level strategies are concerned with the issues of the unit
or division
3. Functional level
Functional strategies or operational strategies focus on functions like marketing,
manufacturing, finance, production, etc.
In single businesses, distinctions between corporate level and strategic business level
strategies do not exist. The most important aspect is that the strategies at these levels do not
exist in isolation but co-exist to support each other for the organization’s success.

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Benefits of Strategic Management
The financial benefits are
 Prevent bankruptcies,
 Foreclosures,
 Liquidations
The non-financial benefits

 It allows an organization to be proactive instead of reactive
 Systematic, informed, objective approach which results in a strategy that has less
potential to fail.
 It allows an organization to identify, prioritize, and exploit opportunities.
 It allows an organization to effectively allocate resources.
 It allows for improved communication between functional departments, within departments
and across various levels of the organization, through the process of strategy
development
 It allows for an organization to generate higher level of involvement in the organizations
planning.
 It allows an organization to empower its employees by increasing their participation levels
in decision making and allows for employee creativity.

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Limitations of Strategic Management
 Not a prescription for success

 Involved process where multiple stakeholders within the company have to work together
 Dynamic process at every level
 No set mechanistic approach to ensure success

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Limitations of Strategic Management (Contd.)
There are several pitfalls in strategic planning that one must be aware of and seek to avoid
them. These pitfalls can occur at any of the three levels.
 Analyzing Environment
 Planning and Process Development
 Limitation in implementation

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Stages of strategic management
Define Organization Vision and

Mission
Environmental Internal Audit

Scan
Strategy Formulation
Generate Strategy
Alternatives
Evaluate Strategy
Alternatives
Select Strategy
Strategy Implementation
Strategy Review, Evaluation, &

Control

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Definition of Organizational Vision and Mission
 Any business must be defined. A vision and mission statement defines the business reasons
for existence. A mission statement is concerned with the present and vision statement is
concerned with the future. The mission statement answers the question: “what is our
business?” and the vision statement answers the question: “Where should be business go?”
Or “What should be business become?”
 The mission statement should possess three features, viz., the organization’s purpose
should be clear; the organization should have a clear customer orientation, and should state
the social objective.

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Strategy formulation
Strategy formulation includes identifying an organization’s external opportunities and threats,

determining internal strengths and weaknesses, establishing long-term objectives, generating
alternative strategies, and choosing particular strategies to pursue.
Strategy formulation would include decisions such as:
 What new businesses or markets to enter?
 What businesses to abandon?
 Whether to expand operations?
 Whether to diversify? And if so, into what domains?
 How to allocate resources?
 Whether to merge with other organizations or go for joint venture? Whether to acquire
organizations that will support business activities?

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Strategy Implementation
 This requires an organization to

– establish annual objectives
– develop policies
– allocate resources
– communicate to employees
– motivate employees
– prepare budgets
– develop and utilize information systems
– linking employee compensation to organizational performance
 Strategy implementation requires commitment from the employees at all levels
 At every hierarchical level – corporate, divisional or function, decisions must be made to
implement the strategy at their respective levels.
 Top management must be able to communicate clearly and motivate employees to
implement strategy.

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Strategy Evaluation & Control
it is important to make decisions on:

1) whether the strategies should be continued ?
2) whether the way the strategies being implemented requires a different approach ?
3) organization’s competitive position and on resources.
Strategy evaluation includes three steps
1) reviewing external and internal factors that formed the basis of strategy selection
2) measuring performance against stated objectives and
3) taking corrective measures.
And all strategies are subject to modifications due to changing circumstances in both the
external and internal factors.

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Environmental Scan & Internal Audit
 The strategy formulation process begins with data. This process has to be carried out
systematically and in a rational manner. This requires collecting information which has to be
organized into qualitative and quantitative information such that effective decisions are made
under conditions of uncertainty.
 This, by no means, implies that intuition, imagination, and creative thinking have no place in
strategy formulation. On the contrary, all of these aspects have increasing role to play when
decisions have to be made when it is becoming increasingly harder to predict the future in a
complex and dynamic environment. And strategy formulating is forward thinking process and
is predicated on the organization’s best assessments of what future might bring.

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Environmental Scan
The environmental scan is one of the key activities in the strategy formulation. This involves
 Studying the external opportunities and external threats
 Examples of external factors that may have impact on an organization’s operations
 Economic factors such as inflation rates, GDP, GNP, income distribution etc.
 Demographic factors such as population size, profiles, value system, and lifestyles.
 Consumer choice is becoming increasingly complex. For example, consumers may be
increasingly concerned about the environment and hence seek environment-friendly
products
 Marketing promotion is shifting to the internet.
 In recession times, consumer spending reduced dramatically – discretionary incomes
reduce, consumers seek value from products.
 The availability of skilled labor in international markets.
 Government policies have a direct impact on business operations in a market.
 Increasing globalization is leading to generation of global markets for the organization’s
products.

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Internal Audit
 These may come from any functional areas – finance, marketing, operations, research and
development, or information systems. These typically include internal factors that are subject
to control.

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Types of Strategies

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Integration Strategies
 Integration strategies
– forward integration
– backward integration
 Forward Integration involves gaining ownership or
– horizontal integration
increased control over distributors or retailers. For
example, a manufacturer may pursue this strategy by
establishing websites to sell products to consumers
directly.
 Backward Integration involves seeking ownership or

increased control of the organization’s supplies.
 Horizontal Integration refers to a strategy of seeking

ownership of or increased control over the firm’s
competitors.

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Intensive Strategies
Intensive strategies are further classified into
Market Penetration Market Development Product Development
Market Penetration seeks Market Development Product Development seeks

to increase market share introduces current to increase sales by
for current products and products and services in improving or modifying
services by increasing new markets. current products or services.
marketing efforts. This is effective to develop
This is effective when
This is effective when the new untapped markets markets with modified
market is not yet exist, when organization products. Shampoo sachets
saturated, when usage has excess production were introduced to cater to a
rate can be increased capacity, or when a need segment which rarely
amongst the product’s for the products and bought shampoo due to
consumers, or when services exist in other perceived high costs. The
shares of competition is geographies. affordable sachet packs
declining while total increased the company’s
market is expanding. volumes purchased and
improved its performance
tremendously.

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Diversification Strategies
 Diversification can occur in two different ways

– Related
Related diversification involves when there is a fit of the diversified business with the
current business processes where synergy exists
– Unrelated
Unrelated diversification involves very dissimilar business processes.

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Diversification Strategies (Contd.)
Related
Related diversification involves

when there is a fit of the diversified
business with the current business
processes where synergy exists
Unrelated
Unrelated diversification involves

very dissimilar business processes.

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Defensive Strategies
 Retrenchment
 Divestment
 Liquidation

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Pre-emptive Strategies
 When organizations identify possible threats, they take action ahead of competitors.
 This follows the adage “Attack is the best form of defense”.
 The extent to which pre-emptive actions may affect competitors’ strategies.
 In addition to the above classification, Porter identified four strategic options.
– According to Porter, competitive advantage can be gained through four strategic options
• Cost leadership
• Focused cost leadership
• Differentiation
• Focused differentiation

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Pre-emptive Strategies Types of
Strategies
Integration Strategy
Forward Integration Backward Integration Horizontal Integration
Intensive Strategy
Market Product
Market Penetration
Development Development
Diversification
Strategy
Related Unrelated
Defensive Strategy
Retrenchment Divestment Liquidation
Pre-emptive
Strategy

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Generating Strategic Alternatives
 A manageable set of strategic alternatives that are attractive and feasible must be
generated.
 The advantages, disadvantages, trade-offs, costs, and benefits must be determined.
 Generating strategies is an exercise that is conducted after carrying out the external and
internal audit.
 Formulating these alternatives and selecting the appropriate strategy may be based on a 3-
stage integrated decision making framework – input stage, comparison stage, and decision
stage.
– Stage 1 is the input stage where basic information required for formulating
strategies was put together through environmental scan and internal audit.
– Stage 2 compares the attractiveness of multiple strategies using techniques such
as Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix, the Boston
Consulting Group (BCG) Matrix, Strategic Position and Action Evaluation
(SPACE) Matrix, and the Grand Strategy Matrix.

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Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix
Strengths Weaknesses
• Abundant financial resources • Weak spending on R&D

SWOT MATRIX • Well-known brand name • Poor marketing skills
• Superior product quality • Limited distribution
Opportunities SO Strategy WO Strategy
• Rapid market growth • Enter new market segments • Invest in improving

distribution network
• New technology • Leverage new technology
to speed up delivery to market • Invest in acquiring marketing
• New uses of products
talent and in training
Threats ST Strategy WT Strategy
• Changing consumer choice • Understand consumer needs • Understand consumer needs

and seek to provide value for
• Economic downturn • Invest in R&D to identify other
money
substitutes or evaluate
• Introduction of substitutes
• Increase rate of usage of introduced substitutes for
current product disadvantages

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Strategic Position and Action Evaluation (SPACE) Matrix
FP
Conservative Aggressive
Market Penetration, Market Backward, Forward or Horizontal
Development, Product Integration, Market Penetration,
Development, Related Market Development, Product
Diversification Development, Related
Diversification
C IP
Defensive Competitive
Retrenchment, Divestment, Backward, Forward, or Horizontal
Liquidation Integration, Market Penetration,
Market Development, Product
Development
SP

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The Boston Consulting Group (BCG) Matrix
High Relative Market Low

Stars Question Mark
• Industry Sales Growth Rate • Have low relative market share
but operate in high-growth
• Represents organization’s best
industry
long-run opportunities for
growth and profitability Should • Should decide whether
Industry receive substantial investment investments are necessary to
Sales to maintain and/or strengthen improve relative market share
Growth market position through intensive strategies
Rate
Cash Cows Dogs
• Have relative market share but • Have low relative market share
in a low-growth industry but operate in low-growth
industry
• Maintain market position for as
long as possible • Typically set for liquidation,
divestment or trimmed
Low

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The Grand Strategy Matrix
Rapid Market Growth

Quadrant II Quadrant I
Weak CP Strong CP
Need to evaluate current Strong Strategic Position
approach in the market
Weak Strong
CP Quadrant II Quadrant IV CP
Requires actions like Divestment, Have strong cash flows and

Liquidation must consider diversification or
joint ventures
Slow Market Growth

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Selecting Strategy
Strategy 1 Strategy 2
Total Total
Attractiveness Attractiveness
Weight Score Score Score Score
Opportunities
Rapid market growth 0.30 4 1.20 3 0.90
New technology 0.25 1 0.25 2 0.50
New uses of products 0.05 2 0.10 1 0.05
Threats
Changing consumer choice 0.25 4 1.00 3 0.75
Economic downturn 0.10 1 0.10 2 0.20
Introduction of substitutes 0.05 2 0.10 1 0.05
1.00
Strengths
Abundant financial resources 0.35 4 1.40 3 1.05
Well-known brand name 0.15 2 0.30 1 0.15
Superior product quality 0.05 2 0.10 2 0.10
Weaknesses
Weak spending on R&D 0.25 4 1.00 3 0.75
Poor marketing skills 0.10 1 0.10 2 0.20
Limited distribution 0.10 2 0.20 1 0.10
1.00
Total Attractiveness Score 5.85 4.8

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The steps in the process involve:
1. Identifying factors: This could be the organizations SWOT analysis or internal and
external factors.
2. Assign weights: Each factor is assigned a weight depending on its importance and/or
attractiveness
3. Assign scores to strategies: Each strategy is rated on a scale. This could be a 4 point
scale where ‘1’=least attractive, ‘2’ =somewhat attractive, ‘3’ =reasonably attractive and
‘4’ =highly attractive. It is important that the same score is not assigned to different
strategies on the same factor.
4. Calculate Total Attractiveness Score (TAS) by Factor: The factor attractiveness score is
calculated by multiplying the strategy score by the weight assigned.
5. Calculate Total Attractiveness Score by Strategy: The total attractiveness score is added
across all factors for each strategy.
 The strategy with the highest total attractiveness score is the one that is selected. In the
above example, strategy 1 with a TAS of 5.85) is selected over Strategy 2 (TAS of 4.8).
Note that some factors may have no effect on the choice. The most important exercise is
assigning scores to each factor. These scores must have sound rationale in their
assignment.

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Implementation of Strategy
 Strategic implementation involves managing resources – the efficient and effective use of
resources, operations and processes. It requires employee motivation and top management
support.
 Strategy implementation may specifically involve – establishing annual objectives, devising
policies, allocating resources, modify existing organizational structure, match managers with
strategy, restructure, revise incentive plans, link performance and pay to strategies.

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Strategy Review and Evaluation & Control
 If an organization’s external and internal environments change, the best formulated

strategies can become obsolete.
 Strategy evaluation includes three basic activities
– 1) reviewing
– 2) comparing
– 3) performance
 Strategy evaluation is effective only if it is carried out in a timely manner and measures the
right parameters for taking appropriate action. It must be inexpensive and should not be
counterproductive.
 Strategy evaluation process is complex and is increasingly getting more difficult today due to
increasing complexity in the environment making it harder and harder to predict future
trends. In addition, these factors are interlinked affecting an organization’s activities, even if
one factor changes. Due to rapid changes, an organization has reduced time available for
planning and implementing to effect changes in business performance.

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The Process of Strategy Evaluation
 Strategy evaluation activities should be carried out continually instead of being carried out at
specific periodic intervals or just before problems occur. This allows effective monitoring and
is especially critical when strategy implementation takes many years.
 The evaluation framework activities include asking questions both overall and specific.
– Have major changes occurred in the firm’s internal and external strategic positions?
– Has the organization progressed satisfactorily toward achieving its stated objectives?

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The Process of Strategy Evaluation (Contd.)
Specific questions that can be addressed are:

 How have competitors reacted to the organization’s strategies?
 How have they changed their strategies? And why?
 Have the competitors’ strengths and weaknesses changed?
 Why are some competitors’ strategies more successful than others?
 How can the organization effectively cooperate with its competitors?
 The strategy can be evaluated using multiple approaches.

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Reviewing Initial Rationale of Strategy Formulation
 Are the internal strengths still strengths?

 Have additional strengths been added? What are they?
 Are the internal weaknesses still weaknesses?
 Have the internal weaknesses reduced?
 Have additional weaknesses been generated? What are they?
 Are the external opportunities still opportunities?
 Are there new opportunities that need to be considered? If so, what are they?
 Are the external threats still threats?
 Have additional external threats emerged? If so, what are they?

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Measuring Organization Performance:
 Comparing expected results to actual results

 Assessing the progress made
 Strategy evaluation is based on both quantitative and qualitative criteria
– The qualitative assessment can include evaluating
• the organization’s balance of investments between high-risk and low-risk projects,
• between long-term and short-term projects
• between slow-growth and high-growth markets
• competitor response to chosen strategies or examining the interrelationship between
the organization’s internal and external strategic factors.
 Comparing performance over different time periods,
 Compared with that of the competition and industry averages.

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Taking corrective action
 The final strategy evaluation activity is taking corrective actions which require making
changes to reposition the organization competitively. This would involve possible changes in
elements that are considered at the beginning of the strategy implementation stage and
carry the same challenges in taking corrective action. The evaluation can lead to changes in
strategy formulation itself or in strategy implementation or both. The evaluation may also
lead to no changes at all.
 The organization’s employees need to be involved in the strategy evaluation stage so, any
resistance to change can be address through participation.
 Any corrective action must be for the better. It should be feasible, involve manageable
amount of risk, and must continue to leverage the organization’s strengths.

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The Balanced Scorecard
 The Balanced Scorecard is an important strategy evaluation tool, which was developed by
Kaplan and Norton (1992).
 It is a process that allows organizations to evaluate strategies from four perspectives
– financial performance
– customer knowledge
– internal business processes
– learning and growth
 Each of these perspectives is expressed through its own objectives, targets, initiatives, and
measures.
 A properly developed scorecard balances between financial and non-financial evaluation,
internal and external perspectives, and between short-term and long-term success.
 Specifically, the organization seeks to evaluate whether it is improving and creating value
along measures such as innovation, technological leadership, product quality, operational
process efficiencies etc.; whether it is improving its core competencies and competitive
advantages; and whether the organization is meeting the customers’ needs satisfactorily.

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Conclusion
 The role of strategic management in today’s competitive business world cannot be

underestimated.
 The organization’s success is determined by a well-formulated strategy and successful
implementation. This is vital for any type of organization - private organizations, public
service organization, for profit and non-profit organizations, for small businesses and for
multinational organizations. And each of these types of organizations requires appropriate
strategy that meets the organizations missions.
 The process of strategic management is involved and complex.
 For effective strategic management process, the organization should ensure that it is a
people process and include all employees of the organization.
 It should ensure that the process is one of learning for the organization.
 It should encourage open communication between and across levels for its strategy to be
successful.

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STRATEGIC PLANNING
Presenter Name
Date
Introduction
 Strategy is about understanding what you do, determining what you want to become in the
long run and most importantly focusing on how you plan to get there
 In general, strategy is achieved through two basic processes: planning and execution.
 Strategic planning precedes strategic management
 Many companies involve both senior management and business units in the strategic
planning processes
 Business units are involved because they have a vast knowledge about the organizations
and can make informed recommendations
 Further, when they are included, they are involved most likely to support and execute the
plans that are created.

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A. Strategic Planning
General or specific in nature
• a strategy to gain competitive advantage in the market through differentiation is a
general strategy
• But a strategy to offer lower price and higher value for the customer in a particular
market may be considered a specific one.
• Framework (or tool) for all major decisions
• enterprise
• decisions on products
• marketing,
• investments and
• organizational structure
• acts as the brain centre of business opportunities and growth for successful
organisation
• acts as a restraining mechanism
• to foresee and avoid major mistakes in products, market or investment decisions
• This includes vision/mission statements, goals, organizational appraisal, environmental
analysis, resource allocation and the manner in which an organization proposes to put
the strategies into action.

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Strategy Plan Process
1 Analysing external and internal factors
2 Performing SWOT analysis

3 Drafting priority issues
4
Developing high level action plans
5 Finalizing the plan

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Strategy Plan Process (Contd.)
 Step 1: Analyze external and internal factors

– Planning process with research and analysis - both external and internal to the organizations
– Trends - typically describe a pattern of behavior and occur over long periods
– Forces - describe abrupt or disruptive changes that tend to occur more quickly
– Analyzing externals factors brings out potential opportunities and threats
– Analyzing internal factors surfaces strengths and weaknesses.

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External trends and forces Internal trends and forces
Market Core competencies
Technology Core processes
Legislation Financial measures
Partnerships Key result areas
Culture Management
Organizational culture

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 Step 2: Perform SWOT Analysis

A unit may conduct two SWOT analyses – one focused on the company and another on
business unit

Steps for conducting a SWOT Analysis

• Select an individual to facilitate the SWOT analysis
• Brainstorm a company or business unit’s strengths
− Go around and solicit ideas from participants
− Record all suggestions on a flip chart. Avoid duplicate entries
− Consolidate ideas
− Clarify ideas
− Identify the top three strengths
− Summarize strengths
− Repeat steps 2-6 for weaknesses
− Repeat steps 2 -6 for opportunities
− Repeat steps 2-6 for threats

 Step 3: Draft Priority Issues

broad areas in which business unit leaders think that the company and units should focus
their efforts for the long term
– A strength to be leveraged
– A critical weakness to be fixed
– An opportunity to be capitalized on
– A threat to be mitigated

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Steps for determining priority issues

 Review the results of the SWOT analysis
 Identify priority issues from the SWOT analysis
 Compile priority issues
 Elicit discussions
 Address any overlooked priority issues
 Vote on priority issues and identify three to five priority issues

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 Step 4: Develop high-level action plans

– objectives, tasks and other requirements for carrying out a strategic initiative
– Each priority issue typically generates two to three actions plans
• For example, if customer retention is a priority, it may lead to two action plans – one
for improving customer service and another for developing a customer loyalty
program.
• At a resource-allocation meeting, the refined action plans are approved, any cross-
functional teams that are required, are designated and the senior management
allocates the resources required to carry out the plans

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 Step 5: Finalize the plan

– Senior management typically writes a corporate direction statement and clarifies the
high-level objectives that summarize the organization’s initiatives.
– managers will review, assess and adjust the plan on an on-going basis as circumstances change
– If the external and internal factors remain constant, the plan is likely to need only minor adjustments.
But if the factors change dramatically, then the plan will need to be re-evaluated and changed.

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 Strategic Planning Process for the Senior Managers

– The fit between the environment, the internal competencies, and business of the
company.
– The portfolio of businesses, the company should have.
– Changes in the company’s product-market positions.
– Long-term dynamics of the organization rather than its day-to-day operations
– Growth of the company – direction, pattern, and timing of growth
– Strategy to be adopted – Growth priorities and choice of corporate strategy
– Measures or capabilities required to face uncertainties.

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 essential actions necessary for successful strategic planning process

– Top managers actively involving themselves in the planning process
– Involving concerned managers and employees in all phases of planning
– Creating a collaborative climate supportive of change
– Flexibility and creativity
– Good communication with people concerned

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 Guidelines for the Strategic Planning to be Effective, it should be

– people-oriented process more than a paper process
– a learning process for all managers and employees
– words supported by numbers rather than numbers supported by words
– simple and non-routine
– vary assignments, team memberships, meeting formats, and even the planning calendar
– challenge the assumptions underlying the current corporate strategy
– welcome bad news
– welcome open-mindedness and a spirit of inquiry and learning

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 Guidelines for the Strategic Planning to be Effective, it should not be

– a bureaucratic mechanism
– become ritualistic, stilted or orchestrated
– too formal, predictable or rigid.
– contain jargon or arcane planning language
– a formal system for control
– disregard qualitative information
– controlled by “technicians”
– pursue too many strategies at once
– It should continually strengthen the “good ethics is good business” policy

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(B) Key Elements
Action Plans
Priority issues
Strategic Objectives
Direction statements

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(B) Key Elements (Contd.)
 Direction Statements
a. Mission
b. Vision
c. Business Definition
d. Competitive advantages
e. Core competencies
f. Values

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a. Mission
should exhibit three distinct features or characteristics
• declaration of organizational purpose, attitude or outlook
• a clear customer orientation
• social objectives or policy

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A clear distinction exists between ‘mission’ and ‘vision’ of a company

– Mission is concerned more with the ‘present’ the vision more with the ‘future’.
– The mission statement answers the question ‘What is our business?’. The vision
statement answers the question ‘What do we want to become or which way should we
be going?’.
– The mission statement focuses us the present strategic thrust; the vision statement
charters the strategic path.

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Strategic Objectives
 Company directives can be broadly classified into three types and categories; strategic,
tactical or operational. Strategic objectives are generally long term. They allow a company to
measure how it is performing in key result areas (KRAs) – those areas where the company
must achieve superior results to execute its long term strategy
 For example, if a company’s vision is global expansion, then it will want to measure success
in that area. Areas for which a company might set strategic objectives are market position,
customer loyalty, quality services, innovation and human capital.
 Examples of the strategic type objectives are given below:
– Achieving a predetermined overall rate of return in capital employed
– Becoming a market leader in a particular product/market group
– Increasing shareholders’ earnings per share as far as possible
– Reducing company’s dependence on borrowed capital

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Strategic Objectives (Contd.)
Good Objective Setting Bad Objective Setting
We want to become the market We shall try to improve our position

leader within the next 5 years in the market during the next few
years
Our objective is to increase We shall always endeavor to

production by 10% every year during increase productivity
the next three years
Objective is specific, measurable and Objective is not specific, measurable

time-bound and time-bound

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Priority Issues
 Priority issues are a company’s primary instruments of action. These are the key issues that
come out during the strategic planning process – for example, a weakness to be addressed
or an opportunity to be seized.
 Priority issues typically relate to competitive concerns – the products and services a
company need to create to add value for its customers, the internal process changes
needed to support the company’s strategy, and the skills and resources needed to create
new value and enhance business processes.
 Common priority issues are costs, service, new markets and products, geographic
expansions, acquisitions, divestitures, organizational structure, core competencies, and
processes, new technologies, training and development, and information systems.
 The successful implementation of a company’s strategy hinges on turning priority issues into
high-level action plans and delegating those plans to business units or cross-functional
teams.

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Action Plans
 Priority issues are translated into high-level action plans for strategic initiatives. Action plans
briefly describe the specific steps the company needs to take to accomplish its priority
issues – and thereby achieve its objectives. A single priority issue might involve two or three
action plans. For example, if cost is a priority issue, it may yield three action plans: a plan for
overhead costs, one for operating costs, and another for selling and marketing costs.

65
Action Plans (Contd.)
 A high-level action plan for a strategic initiative typically includes description of these
elements:
– The priority issue and why it is important
– Objectives expressed in specific metrics and time frames
– Key steps involved in achieving the priority issues
– Resources required
– Inter-locking requirements involving other units
– Anticipated cost and gains

66
(C) Environmental Scanning
or Importing Selected Data from Relevant Sources
 Political
 Economic
 Social
 Technological
 Competitive Position
 Customer Profile

67
(C) Environmental Scanning (Contd.)
 Understanding the environment is the starting point of strategic planning. There are three
ways of doing this.
– Adhoc
– Regular
– Continuous

68
Environmental Government Rate of Controls Technology Customer Competition

Factor Policy Interest Preference
Liberal credit for

important customers ** *** * * ** ***
Price cut/Discount
** * ** ** ** ***
Increasing dealer
Strategy Factor
network * * * * *** **
Focus on customer
satisfaction * ** ** ** *** ***
Intensifying
advertising * * * ** *** ***
New product launch

** * ** ** *** **
*** Impact Linkage – High; ** Impact Linkage – Normal; * Impact Linkage – Weak or Minimal

69
Secondary or published Sources Primary Sources
Internal Internal
- Annual Reports - MIS
- Corporate strategic plans - Databases
- Company files and documents - Managers & Employees
External
External
- Stake holders
- Books, Journals, magazines
- Media
- Government publications
- Special studies
- Competitors
- Industrial Intelligence Agencies

70
Techniques for Environmental Scanning
 The commonly used analytical technique is “QUEST” – Quick Environmental Scanning

Technique. It involves the following steps.
– Observing major events and trends in the industry
– Discussion relevant issues
– Preparing a report of analysis
– The strategic management groups discussing the report and identifying feasible strategic
options in terms of significance, and priority for further action

71
Need for cross functional collaboration
Input to Other Units Data from Other Units
 Typically several groups will need to collaborate to carry out a strategic initiative,
and the cross functional collaboration or interlocks can be substantial.

72
Need for cross functional collaboration (Contd.)
If the business unit is … Sales Marketing Product development
Human Information
It might need … Finance
resources technology
Planning & Building a Clarifying new

For help in … designing customer business models
Courses database

73
(E) Collaborative Environment for Planners
 Include those ‘interlocking’ requirements within the associated action plans

 Get clear approval for any interlocks from senior management. This is part of strategic
planning
 When the interlocks for carrying out a strategic initiative are substantial, create a cross-
functional team and entrust it with carrying out the initiative
 Notify another group if help is needed
 Document all interlocking needs, expectations, agreements, and any agreed-upon changes
to those interlocks to ensure accountability

74
(F) Developing workflow and interface for all participants
Program Manager
For
Business Assemble Key Persons
Units
Discuss ways and means for

evolving strategy to adhere to Input from senior
the mission statement management
Shortlist the key Issues
Assign the various works to

key persons
Key person 1 Key person 2 Key person 3

75
(F) Developing workflow and interface for all participants (Contd.)
Key person 1 Key person 2 Key person 3
Environmental Opportunities & Strengths & Weaknesses

scanning Threats Analysis Analysis
Conduct SWOT Analysis
Decide Priority Issues
Decide Objectives and Metrics
Decide Required Resources
Forward the plan to Senior

Management

76
(F) Developing workflow and interface for all participants (Contd.)
For Senior Management
Assemble
Discuss the plans
Program Manager Cross-function
received from units
Team Manager
Conduct SWOT
Prepare Action Plan Decide Priority Issues
Analysis
Decide Objectives
Allocate Resources Review Periodically
and Metrics

77
Format for Review
Action Steps Interlocks
• Tasks to be done • Tasks to be done
• Person • Group /Division /

Responsible Business Unit
Responsible
• Due Date
• Due Date

78
Format for Conducting a SWOT Analysis
 Date of Analysis :
 What is being analyzed ?
Strengths Ideas for Building on the Strengths

Internal Analysis
Weaknesses Ideas for Reducing the Weaknesses
Opportunities Ideas for Investigating or Taking

Advantage of the Opportunities
External Analysis
Threats Ideas for Overcoming the Threats

79
References
 Executing Strategy – Harvard Business Press

 Strategic Management – Analysis, Implementation, & Control – A. Nag
 Strategic Management – Concepts and Cases – Fred R. David

80
Developing and using KPIs
Presenter Name
Date
Unit III – Developing and using KPIs
KPI : Key Performance Indicators

82
What is Key Performance Indicators
 KPI helps an organization to define and measure progress toward organizational goals.
 KPI is also known as or Key Success Indicators (KSI) which is a crucial factor for
organisational success.
 Key Performance Indicators are assessable measurements of an organization. It differs from
organisation to organisation.
For example
– a retailer may have its Key Performance Indicators as Percentage of its income that
generates from return customers
– educational institute have its Key Performance Indicators on successfully graduating rates
of its students every year or the quality of the outgoing students every year.
 The KPI for Service industries may differ from that of any other industries
for example
– In case of a Customer Service Department its Key Performance Indicators may be
improved number of customer phone calls answered and query solved
– Key Performance Indicator for a social service organization may be number of peoples got
help every year.

83
KPI Life cycle
1. Why ?
8. The long
2. Strategy
view
7. The small The KPI 3. What’s it

cycle Life CycleTM worthy ?
6. Use the 4. Plan the

method journey
5. Behaviours

84
Brainstorming performance measures
 Problems of not having a proper measure

 Reason for measuring performance
 Measurable elements

85
Problems of not having a proper measure
Bernard Marr, identifies few issues of not

having proper performance metrics and terms
this practice as ‘ICE’ approach I
Identify what
is easy to
measure
• Identify
• Collect
• End C
Collect, measure and
report everything that
is easy to measure
The above identifies the bad approach of

defining a Key Performance Indicator (KPI), E
End up
not having a clear from the scratch analysis
confused
and clear vision will mislead choosing
about what to
performance indicator.
do with all the
data stuff

86
Reason for measuring performance
The Organisations cannot manage unless it measures what’s getting done on its plan for its
success. Bernard Marr, classifies three main reasons identified for measuring
performances are as below.
Leaning and performance

improvement
Performance
Measuring
External reporting and

compliance
Controlling and Monitoring

people

87
Reason for measuring performance (Contd.)
 Measuring to learn and improve performance

 Measuring to report externally and demonstrate compliance
 Measuring to control and monitor people

88
Performance measures
– FulvioBarbuio, claims performance measurement should be as a part of any

organisational strategy, planning and reporting process. Further Fulvio Barbuio puts
below are the most important characteristics of a good performance measurement
system.
• Strategic
• Holistic
• Relevant
• Timely
• Accurate
• Consistent

89
Impact of KPIs
 In general most companies try to set goals in the forms of numerical target. But only few
companies are good at setting and tracking their goal. The Key Performance Indicators
(KPI’s) a small predictive measure can help to keep in track. The below is the pictorial
representation of how KPI impacts the organisation.
Strategize
Propagate KPIs Measure
Innovate

90
Impact of KPIs (Contd.)
 Directs people’s behaviour

 Makes performance visible
 Focuses attention
 Clarifies expectations
 Improves execution
 Promotes consistency
 Clear feedback
 Improves decision-making
 Promotes understanding

91
Types of KPIs
 Organizations across all industries use key performance indicators for evaluation and
strategic planning.
 Generally Key Performance Indicators are typically reported on a monthly or quarterly basis,
providing consistent monitoring.
 Key performance indicators can be industry- or organisation-specific, but there are some
indicators that are common to all or most organisations.

92
Types of KPIs (Contd.)
Vision &
strategy
objectives measures
Financial Business unit

Market aspects
Business
Customer Operating systems
Satisfaction Flexibility Productivity
Quality Delivery Cycle time Waste Departments and

work centres
Operations
External effectiveness Internal effectiveness

93
Types of KPIs (Contd.)
 Profit
– profitability is considered as important key performance metric. Making profit is the very
first objective of an organisation
 Customer Satisfaction
– An individual customer satisfaction is directly linked with loyalty, recommendation and
repeat business
 Customer Retention
– Customer retention involves all factors employed by an organisation to maintain its
customer base
 Employee Productivity
– Employee productivity can be measured in a number of ways, such as number of hours
worked, absence rates, production and sales volume for group or individual employee.

94
Customer retention rate indicator
Company
Perspective Objectives Measures Target
Increase customer Customer

Customers 75%
loyalty retention rate
Function of after-sale service
Perspective Objectives Measures Target
Increase the speed

Internal Response time
of response time in 2 days
processes (# days)
case of failures

95
5) Steps in KPIs identification
Company
+ value
Financial
Profitability
balance
Financial perspective +
+ +
Customer
+ + satisfaction and
+
growth
Delivery speed + Innovation and

and timeliness - + Quality
Customisation
Customer perspective
+ + +
Production and + + Efficacia Sviluppo

supply chain
efficiency - product
development
Initial process Organisational
flexibility
perspective
+ + +
Employee
+ Satisfaction
+ Competence
Learning and Growth Productivity excellence
perspective

96
Setting the Stage for Using KPI’s
 The KPI can be identified depending on where the company is positioned in the market. The
KPIs may be different from one departments or service territories to other. In order to make
sure that you are using the most appropriate KPIs, we recommend that you begin by
focusing on the most basic standard KPIs and then develop more sophisticated metrics that
will allow you to focus in on the most critical areas requiring monitoring and management.
 It is always advised to create a KPI data collection process in parallel while implementing
any proposed CRM or ERP systems within the organization.

97
Setting the Stage for Using KPI’s (Contd.)
 It is better to start on any KPI development initiative, it will be important to first set the stage
properly
 Agreeing on the appropriate metrics to measure as Key Performance Indicators i.e., which is
"needs to know" vs which is "nice to know".
 Setting up all the measuring, monitoring, and tracking systems in advance to support the
initiative.
 Integrating KPIs with CRM or ERP systems across the organisation wherever is possible.
 Establishing a formal process for the ongoing collection of key performance data and
information on an automated basis.

98
Mat Greenfield, suggests following steps to identify the KPI’s
 Step 1: Consider Business Goals

 Step 2: Identify Key Performance Indicators
 Step 3: Match Analytics Reporting
 Step 4: Plan and Implement Improvements

99
6) Setting KPI owners & Milestones Monitoring
 It is always a good practice to assign a ‘Measure Owner’ to all the performance measure.
The “owner” is the one whose duty is to understand the causes behind a certain
performance and to activate the necessary resources for the management of any
improvement plan.
 Mostly all the KPI ownership did not need to reflect the organisation structure. As a matter of
fact, measures often have an inter-functional impact and their owners should have a
responsibility to intervene in the phenomena being monitored, even if the areas of
intervention may not fall under their own direct authority. Hence, identifying owners
introduces a “horizontal” managerial dimension promoting the inter-functional integration
potential of organisation typical functional structures. This potential integration to happen
though there has to be a well-defined willingness to remove the culture of authority-focused
debates like “Whose problem is it? Who has got the right to make certain decisions?” and
shift to responsibility-focused conversations, What is the right thing to do.

100
KPI Ownership sample chart

101
6) Setting KPI owners & Milestones Monitoring
 Authorize the KPI owner

 Set-up standards
 Assign KPI to senior owners for cross-functional analysis
 Make the KPI twisted towards the KPI owner
 Shifting the responsibility in an sequential fashion

102
Authorize the KPI owner
 It is essential to authorize the owner so that he can in liaise with his linked functions, which
will put him in holding the responsibility.
Authorized KPI OWNER (Operational Head)
Analysis function Sales function

103
7) Measuring and reporting KPIs
 Presentation
 Importance
 Dashboard
 Content
 Frequency

104
Presentation
 The reports should be more details in content and at the same time more visible and
understandable; the colours are the most common indicator. It is important that a KPI should
be understood easily, it should be graphed to show the trends and scores in a glance.
Green Yellow Red

Good, exceeds the OK. Minimum Bad, Unacceptabl
target level of acceptable e performance.
performance. threshold. Get an Urgent attention
Praise and explanation and required
recognize the keep a close
Responsible monitoring
person.

105
Presentation (Contd.)
 Below is a typical KPI report which comprises all sectors of an Organisation

106
Importance
 The most crucial thing is to choose the most crucial parts of business.
 Taking reports in all available area will not provide such a close scrutiny.
 KPI report should provide information on the make or break areas of a business.
 The business owners have to measure and report on the areas of the business
 The report should reflect the performance of the measured indicator.
 The modern organisation tries to measure and report on indicators

107
Dashboard
 The most common form of KPI reporting is dashboard; most software based reports are of
dashboards. It is like a car dashboard provides the driver in finger tip. A report dashboard
assures everything in finger tip.
 Typically, a KPI dashboard provides a summary of all the relevant key performance
indicators (KPI’s) on one or two printed pages or software screens.
 It allows management to quickly view various key performance indicators, what these
indicators measure, how they currently perform and whether these indicators have improved
or worsen over time.
 The typical dashboard consists of various graphs and charts that indicate a certain
measurement's performance.

108
Content
 Content is the subject matter area on which reports revolve around. Depends on the nature
of business, KPI reports show many different performance indicators.
 Apart from that common contents include cost variances, out of stock percentages, energy
efficiency ratio, gross yield, overdue accounts, complaint resolution speed, complaint
resolution cost, average sales value and cost per converted lead.

109
Frequency
 The frequency of report depends on KPI measured.

 Frequency may be of any thing while deciding the KPI.
 In general, for a product which has a monthly forecast of sales may have a KPI report that
monitors monthly forecast error, logistic KPI reports might focus on weekly or even daily
shipping and receiving errors.
 Some of financial related KPI reports are produced common periodical such as monthly,
quarterly, annual sales performance.
 Reports related to customers get produced on hourly basis,
– example number of customer service calls on hold every hour. The reporting frequency
depends upon largely on factor of the measurement required with in the organisations.

110
References
 Parmenter, David. (2010) KEY PERFORMANCE INDICATORS: Developing, Implementing,

and Using Winning KPIs. Second Edition. John Wiley & Sons, Inc.
 Fulvio Barbuio, Performance Measurement: A Practical Guide to KPIs and Benchmarking in
Public Broadcasters
 Stefano Biazzo and Patrizia Garengo, Performance Measurement with the Balanced
Scorecard, Springer 2012

111
References
 (http://management.about.com/cs/generalmanagement/a/keyperfindic.htm)
 (http://act201213.wordpress.com/2012/10/22/functions-and-objectives-of-the-agency-on-the-
internet/#more-153)
 (http://www.ap-institute.com/Key%20Performance%20Indicators.html)
 (http://www.cba.org.uk/wp-
content/uploads/2012/04/PerformanceMeasurementAPracticalGuide.pdf)
 (http://results.com/announcements/the-benefits-of-key-performance-indicators)
 (http://www.dreamstime.com/royalty-free-stock-photography-key-performance-indicator-
diagram-image12514537)
 (http://www.ehow.co.uk/list_6618743_common-key-performance-indicators.html)
 (http://www.s4growth.com/publications/Articles/28.cfm)
 (http://www.practicalecommerce.com/articles/381-Identify-your-KPIs)
 (http://www.executionmih.com/tips/kpi-single-point-ownership.php)
 (http://smallbusiness.chron.com/kpi-reports-2058.html)

112
Thank You
© 2013 IBM Corporation 113 Innovation Centre for Education

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Business Strategy & Analytics

 Strategy is fundamental to an organization’s survival and growth.

© 2013 IBM Corporation Innovation Centre for Education

 Several definitions exist in strategic management literature.

© 2013 IBM Corporation Innovation Centre for Education

 Strategic management and Strategic planning is used synonymously.

© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

The non-financial benefits

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 Not a prescription for success

© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

Define Organization Vision and

Environmental Internal Audit

Strategy Review, Evaluation, &

© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

Strategy formulation includes identifying an organization’s external opportunities and threats,

© 2013 IBM Corporation Innovation Centre for Education

 This requires an organization to

© 2013 IBM Corporation Innovation Centre for Education

it is important to make decisions on:

© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

 Backward Integration involves seeking ownership or

 Horizontal Integration refers to a strategy of seeking

© 2013 IBM Corporation Innovation Centre for Education

Intensive strategies are further classified into

Market Penetration Market Development Product Development

Market Penetration seeks Market Development Product Development seeks

© 2013 IBM Corporation Innovation Centre for Education

 Diversification can occur in two different ways

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Related diversification involves

Unrelated diversification involves

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© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education

Forward Integration Backward Integration Horizontal Integration

Retrenchment Divestment Liquidation

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© 2013 IBM Corporation Innovation Centre for Education

• Abundant financial resources • Weak spending on R&D

• Superior product quality • Limited distribution

Opportunities SO Strategy WO Strategy

• Rapid market growth • Enter new market segments • Invest in improving

• Changing consumer choice • Understand consumer needs • Understand consumer needs

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© 2013 IBM Corporation Innovation Centre for Education

High Relative Market Low

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Rapid Market Growth

Requires actions like Divestment, Have strong cash flows and

Slow Market Growth

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© 2013 IBM Corporation Innovation Centre for Education

© 2013 IBM Corporation Innovation Centre for Education