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Chapter 8
Formulating Strategic Objectives
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 2
Objectives
explain why explicit strategic objectives and key result areas (KRAs) are critical prerequisites to organisational success
establish objectives for all aspects of organisational performance – internal, social and environmental
appreciate the importance of a rigorous process of formulating objectives in motivating employees at all levels, and
describe the range of factors affecting the nature of strategic objectives, and be able to use them in creating objectives for an organisation.
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 3
Common mistakes in formulating objectives
establishing objectives by edict
delegation of the process to middle management
basing strategic objectives on financial hurdle rates
allowing divisional heads to drive the process
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 4
The source of strategic objectives
opportunities and threats
strengths and weaknesses
expectations of stakeholders
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 5
The Triple Bottom Line (TBL)
The triple bottom line means establishingstrategic objective in three areas:
financial/operational
social
environmental
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 6
Attributes of strategic objectives
an attribute
a yardstick
a goal
a time scale
acceptance
flexibility
motivation
consistency
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 7
Linking strategic objective to strategies and action plans
strategy analysis
strategic objectives
performance targets
strategy selection
implement action plans
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 8
Key performance indicators (KPIs)
what are KPIs?
selecting core processes in an organisation
why bother with KPIs?
basic ingredients of KPIs
misuse of KPIs
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 9
Outcomes and Drivers
Outcomes based KPIs
1. Customer satisfaction levels
2. Percentage of clients serviced
3. Cost per customer
Drivers-based KPIs
1. Knowledge of product / service
2. Staff skill level
3. Fixed/variable cost level
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 10
Evolution of Performance Measurement
Efficiency
Functionalfocus•Inputs•Financials
Customer focus•Customer satisfaction•Inputs•Financials
Process focus•Horizontal KPIs• Customer satisfaction•Financials
Strategic focus•Balanced scorecards•Outcome KPIs•Performance drivers
Products/services Synergy Effectiveness
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 11
Establishing and validating strategic objectives
theories of goal formulationattainable strategic objectivegoals down plans upcreating ownership of strategic objectives
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia 12
Key
= Goals
= Plans
CEO
Division n Head: Division 2 Head: Division 1
Head: Function AHead: Function B
Work Unit Y Work Unit X
Head: Function AHead: Function B
“Goals down, plans up” process of setting strategic objectives