FransvHeerden Strategic Control Systems

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EnhancingEnhancing

OrganizationalOrganizational

PerformancePerformance

IMASA

Annual Conference

6 April 2006



STRATEGIC MANAGEMENTAgenda

The Link between Strategy and Organizational

Performance What is Strategic Control

The importance of Strategic Control as an OrganizationEnhancement Device

The Relationship between Strategic Control and

Competitive Advantage

Types of Strategic Controls

Characteristics of Control Systems

Designing Strategic Control Systems

An integrated Strategic Control System



MODEL FOR STRATEGY

FORMULATIONScenario¶s

Visions, Missions,Values

External Analysis Internal Analysis

Functional Level Strategies

Business Level Strategies

Structure Match Structure & Controls Controls

Manage Strategic Change

Strategy Implementation



STRATEGIC MANAGEMENTPurpose of Strategic Controls:

To provide managers with a means to

motivate employees towards organizational

performance;

Solicit data on how well the organization is

performing



STRATEGIC MANAGEMENT



STRATEGIC MANAGEMENTWhat is Strategic control?

³«it is the process by which managers

monitor the ongoing activities of an

organization and it¶s members to evaluate

whether activities are being performed

efficiently and effectively and to takecorrective action to improve performance

if they are not«´



STRATEGIC MANAGEMENTThe importance of Strategic Control

The success of a chosen strategy

The implementation compass

Organizational performance

Ensuring competitive advantage



STRATEGIC MANAGEMENTStrategic Control:

Requires more than re-acting on past

performance

K eeps the organization on track

Anticipating events that might occur in

future Allows the organization to respond to new

opportunities that may present itself




Control & efficiency:

Efficiency measures how many units of inputs

are being used to produce a single unit of output

Must also measure how many units are produced

The control system should contain thesemeasures




Control & quality: Organizational control is important because it determine

the quality of goods & services

Can make continuous improvements to quality over timeand this gives them a competitive advantage

Customer complaints is the basis for determining thequality of a product or service

Total Quality Management can be regarded as controlsystem




Control & Innovation:

Managers must create an environment in which

people feel free to experiment and take risks

Managers are challenged to build control systems

that encourage risk taking Measures cost reduction, process improvement

and improved quality measures.



STRATEGIC MANAGEMENTControl and Innovation

Problem: Time wasted due to unavailable parts

from central store. Electrical workshop not closeto central store (Witbank Municipality)

Electricians designed a innovative solutionthrough simple measures (trips to stores per

electrician per day Applied 80/20 principle Established

decentralized store

Major savings




Control & Innovation

Problem: Time delays at ³in house filling station´

of Jhb MunicipalitySolution:

Extend petrol hoses

More attendants

Limit filling to ³half a tank´

Ensure all pumps were kept in functional order atall times




The importance of Strategic Control

Control & Responsiveness to Customers:

Must establish controls to measure how well

employees with customer contact is doing their

jobs.

Monitors employee behaviors Identify skills gaps of employees

People who are monitored behaves differently




Strategic Control Systems

³« are the formal target setting ,

measurement and feedback systems that

allow strategic managers to evaluate

whether the company is achieving on the

four building blocks of a competitiveadvantage..´




Types of Control systems

Financial controls

Output controls

Behavior controls

Organization culture




Financial controls

Growth

Profitability

ROCE

Share prices( Private sector)Is a favorite control because it is objective





Output controls: It is a system of control in which

managers estimate or forecast appropriate performance goals for each division, department and employee and

measure achievement against these goals

Divisional Goals

Functional Goals

Individual Goals





Divisional Goal

Goal: ³T o be the number 1 or 2 in the

industry in terms of market share´





Behavior controls: ³ happens through the

establishment of a comprehensive systems of rules and procedures to direct the actions of

divisions, functions and individuals

Operating budgets

HR rules & regulations

Standardization




Strategic Control Systems

Characteristics

Be flexible to allow managers to respond as

necessary to unexpected events;

Should provide accurate information, giving a

true picture of organizational performance; Should provide information in a timely manner






The Balanced score card as a Control measure.

Financial figures are important, however, it is not

the only one;

Financial results are important long after the

event therefore not very effective;

An organization needs a mechanism tosupplement financial measures this can be

achieved through the Balanced Score Card




K inds of measures

Efficiency: Level of production costs, number of hours needed to

produce an item, cost of raw materials

Quality: Number of rejects, number of customer returns, level of product

reliability

Innovation: number of new products introduced, time taken to market;

cost of product development

Responsiveness to customers: number of repeat

customers; level of on-time delivery to customers, level of customer service



THE BALANCED SCORECARD IN

STRATEGY IMPLEMENTATION &

CONTROL

Sets objectives & measures targets &initiatives for 4 organisational areas

For the balanced scorecard to be effective: ± Objectives & measures in each perspective

should reinforce objectives & measures inother perspectives

± Incorporates cause-&-effect relationshipsamong critical variables

� Clarify actions to be taken to co-ordinate strategy.



THE BALANCED SCORECARD IN STRATEGY

IMPLEMENTATION & CONTROL

The standard four perspectives in the

Balanced Scorecard

Financial

Customer

Internal Business Processes

Learning and Growth







Financial

Customer Internal Business

Learning & Growth

Vision

&

Strategy





Developing a Balanced Scorecard

Consider the fundamental question(s)

Develop goals

Identify measures

Set the targets Identify actions





Fundamental

question

Goals Measures Targets Initiatives





Internal Business Process Perspective

Fundamental question: To satisfy our

customers, what/which business processes

must we excel at?





Financial Perspective

Fundamental question:To succeed

financially, how should we appear to our

rate payers?





Customer Perspective

Fundamental question: To achieve our

vision, how should we appear to our

customers?





Customer perspective for a cell phone company

Vision: To become Africa¶s leading cellular network with the bestcustomer service and to be the best company to work for in southern

Africa

Fundamental question: To achieve our vision, how should weappear to our customers?

Goal: To improve customer satisfaction by 15%

Measure: Customer satisfaction survey

Target: To decrease customer complaints by 10% before Jan 2006

Initiative: Have more customer care specialists available for customer queries over weekends





Video ³The Balanced Scorecard























THE BALANCED SCORECARD AS

A STRATEGY IMPLEMENTATION

& CONTROL SYSTEM

Enables organisations to monitor &

evaluate short-term progress in 4 areas

± Evaluate whether strategic objectives are being

achieved

± Assess whether assumptions on which strategy

is based are valid.

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FransvHeerden Strategic Control Systems

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