Lecture strategic management control
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Transcript of Lecture strategic management control
Today's agenda:
From Strategy to Action
Strategic Planning and Implementation
Theory & PracticeMats Westerberg
Luleå University, SE-971 87 Luleå
Mats Westerberg
My time with you… • Who am I?
• What will we do together?• AM: Theoretical outline where I invite you to help me
keep it understandable (ask me if anything is unclear) Full group session
• Lunch Assignment: How can you use this in your context? How can these tools support your organizations?
• PM: Small group discussions about the above followed by a concluding discussion and “wrap up” before the full group
Mats Westerberg
Who am I?• Background: Raised in a small business environment• Basic education: MSc Engineering (& Management)• Post grad education: PhD Business Administration (98)• Thesis title: Managing in Turbulence• Empirical focus: Small firms in the forestry sector (saw
mills, joinery firms, prefab wood housing, etc)• Theoretical focus: Entrepreneurship, management
control, networking, personal traits (of CEO)• My tasks today: Teaching, research, supervision of PhD
students, strategic development
Mats Westerberg
Who am I?• I love to travel and discover new places. I have traveled
both as a backpacker and as a normal traveler to around 70 countries (mostly Europe and Asia)
• In your part of the world (Asia) I have been to…• China, Hong Kong, India, Indonesia, Japan, Korea
(south), Malaysia, Nepal, Philippines, Singapore, Taiwan, Thailand
• Some unusual places I have been to are…• Kingdom of Tonga and Western Samoa
Mats Westerberg
The Theoretical Outline• Some notes about strategy
• The concept of fit (Contingency)
• Strategy implementation
• Simons Levers of Control
• Balanced Scorecard
• Problems with implementation and how to avoid them
• Mintzbergs aspects:• Plan, Pattern, Position and Perspective
• Strategic mission (Anthony):• Build, hold, harvest and divest
• Miles & Snows types:• Prospector, defender, analyzer and reactor
• Porters generic options:• Differentiation, cost effectiveness and niche
Mats Westerberg
Strategy
Pattern in actions
Plan
Position
Mats Westerberg
How Strategy is developed(according to Henry Mintzberg)
Intended Strategy
Not Realized Emergent
Planned Realized Strategy
Strategy
StrategyStrategyStrategyNot Realized
Mats Westerberg
How to Choose Strategy(according to Contingency Theory)
Context, Environment
Structure, Culture, Practices, etc
Strategy
Management Control
”Fit”
”Fit”
”Fit”
Good P
erformance
Mats Westerberg
But how do we make sure that the strategy that we
find fitting is put into action in the organization?
Mats Westerberg
Implementation (using management control devices) has been riddled with problems
– Budgets tend to be two-sided and people at different levels see it with different eyes
• Budget people (upper management): The eyes and ears in the organization; finds problems; gives direction
• Middle management: Power tool to uphold authority
• Group manager: Something you do not mention
• Employees: Something you look upon with suspicion
Mats Westerberg
Different styles to use the budget and the consequences
– Strictly• Produced a short term orientation where meeting budget
goals were critical. Poor work environment. Worst performance (except for meeting costs)
– Loosely• Produced a long-term orientation where results were in
focus. Challenging environment where employees thrived. Best performance.
– Not at all• Produced a climate where economical aspects were
secondary. Good work environment. Medium performance
Mats Westerberg
The two conflicting aspects of management control
• Helps to clarify goals, create motivation, provide insight for more effective control, foresee future change, create dependence between departments to foster cooperation and give management a tool for fair and just evaluation of departments
• A power tool used to force employees to perform constantly better, yet without rewarding contributions, create walls between departments by stimulating internal competition, etc.
Mats Westerberg
So, is there a way to implement that works
better?
Well, lets see
Mats Westerberg
Organizational Balance
What are organizations?
Instrument created to reach common goals
Social systems
A collection of individuals with self-interest
Dynamic tension
Mats Westerberg
Balancing dynamic tensions
Value adding dynamics
Human behavior dynamics
Strategy making dynamics
Opportunities
Focus
Organization
Intended strategies
Emergent strategies
Self-interestDesire to
contribute
Mats Westerberg
Organizational ”blocks” and human behavior
The desire to do right
The desire to achieve and contribute
The desire to create
Behavior Organizational ”blocks”
Opportunities for individuals to make decisions that conflict with codes of personal conductUncertain expectations, too many tasks and lack of resources
Limited resources or room to act, fear of failure and lack of guidance
Mats Westerberg
A system for balancing the aforementioned dynamics should have the following
characteristics
Reduce the risk of temptation or pressure by specifying and enforcing the organization’s ”rules of the game”
Bring focus and resources to individuals seeking the opportunity to achieve by building and supporting clear targets
Stimulate innovation by inspiring and motivating organizational participants to create and search for new opportunities
Reduce the fear of challenging the status quo by opening an organizational debate and dialogue and thereby trigger organizational learning
Mats Westerberg
Robert Simons’ ”Levers of Control” that are designed to
balance the tensions
Businessstrategy
Beliefsystems
Boundary
systems
Diagnostic controlsystems
Interactive control systems
Corevalues
Risks to beavoided
Critical performance
variables
Strategicuncertainties
Mats Westerberg
Belief and Boundary Systems
These are systems to frame the strategic domain
Belief Systems… is the explicit set of organizational definitions that senior managers communicate formally and reinforce systematically to provide basic values, purpose, and direction for the organization
Boundary Systems… establish limits, based on defined (business)
risks, to opportunity-seeking
•Limits for behavior
•Limits for the strategy
Mats Westerberg
Interactive and Diagnostic Control Systems
These are systems to formulate and implement business strategy
Interactive Control Systems…stimulate search and learning, allowing new strategies
to emerge as participants throughout the organization respond to perceived opportunities and threats
Diagnostic Control Systems… are the formal information systems that
managers use to monitor organizational outcomes and correct deviations from preset
standards of performance
Mats Westerberg
At the same time…
are systems to expand opportunity-seeking and learning
Belief Systems &
Interactive Control Systems
Boundary Systems &
Diagnostic Control Systemsare systems to focus search and attention
while
Mats Westerberg
Simons’ Levers of Control
Strategy
Opportunity and Attention
Systems to frame the strategic domain
Systems to expand opportunity-seeking and
learning
Systems to focus search and attention
Systems to formulate and
implement business strategy
Corevalues
Risks to beavoided
Critical performance
variables
Strategicuncertainties
Businessstrategy
Beliefsystems
Boundarysystems
Diagnostic Control systems
Interactive control systems
Mats WesterbergWhat should be measured?
We measure important aspects in the organization
What gets measured gets done
What gets done right gets rewarded
What gets rewarded is what really counts
Individual level
Mats Westerberg
Traditionally measurements have
been focusing on financial aspects
Financial performance measures can at the best give a picture of the mean activity of a company and the
results of that activity from a historical perspective (Wallander, 1999).
Financial ratios can indicate how the organization did in the past – non-financial
measures can indicate the present (and even future) state of the organization
Mats Westerberg
Balanced Scorecard
1990
Nolan Norton Institute
1992
The Balanced Scorecard – Measures That Drive Performance. HBR
1993
Putting the Balanced Scorecard to Work. HBR
1996
Using the balanced scorecard as a strategic management system. HBR
The Balanced Scorecard: Translating Strategy into Actions
Robert S. Kaplan & David P. Norton
Mats Westerberg
Balanced ScorecardAccording to Kaplan and Norton innovative
companies can use BSC to:
Make the strategy more clear and understandable
Communicate the strategy throughout the organization
Link departmental and individual goals to strategy
Link strategic goals to vision
Identify and coordinate strategic initiatives
Perform periodic “overhauls” of the strategy
Get feed-back for strategic learning and improvements
The strategy is implemented (”Strategy by Measurement”)
Mats Westerberg
Balanced Scorecard
The financial (owner/principal) perspective
Th
e p
rocess p
ers
pectiv
e
The learning and growth perspective
Th
e c
usto
mer
pers
pecti
ve
Vision & Strategy
Yesterday
Today
Tomorrow
StrategiskFramgångs-Mått Handlings-mål faktor plan
Strategy Success Mea-sures
Plan ofGoals factors action
StrategiskFramgångs-Mått Handlings-mål faktor plan
StrategiskFramgångs-Mått Handlings-mål faktor plan
Mats Westerberg
Balanced ScorecardExample on how a BSC is created
1. Decide strategic goal (long term): e.g. Low cost , growth…
2. Identify success factors: e.g. Large volumes, new products…
3. Identify the perspectives and the internal and external cause-effect relationships: e.g. Low turnover of personnel more effective processes better on-time delivery more customers greater volumes better profitability
4. Measure the success factors: e.g. Effective processes, Customer stock, Profit margin…
5. Organize initiatives to boost driving factors: Marketing campaigns, cross-functional teams, weekly meetings...
Mats Westerberg
Balanced ScorecardQuestions to answer for finding success
factors in the different perspectives:
Financial (owner) perspective:
Customer (client) perspective:
Learning and growth perspective:
Internal process perspective:
Employee perspective: (used in Sweden)
To reach (financial) success, how do we want to be perceived by our owners
To reach our vision, how do we want to be perceived by our customers/clients
To reach our vision, how should we work to maintain our ability to improve and change
To satisfy our customers/clients and our owners, which processes are key for success
To satisfy our customers/clients and our owners, how should we treat our employees
Mats Westerberg
Balanced ScorecardAn example of a cause/effect relationship
Learning and Growth
Internal
Customer
Financial
Innovativ OrganisationInnovative organization
Dissemination of knowledge internally
Competence development Investments in R&D
Recruitment ofright employees
Newness in products
Quality
Reliability
Make good business
Full order booksHigh profit margin
Stabil VinsttillväxtStable growth in profits
Nöjda kunderSatisfied Customers
Effektiva Processer
Effective processes Motivated employees
Effective production
Technological competence
Success factor
PERSPECTIVEPERSPECTIVE
Mats Westerberg
Balanced Scorecard
Example of measures linked to success factors
Financial (owner):
Customer/client:
Learning and growth:
Internal process:
Employee:
Effective resource utilization
Satisfied customers/clients
Reduce non value-adding activities
Product/process development
Productive personnel
Profit margin, ROI, etc.
Customer retention, Customer satisfaction, new customers, etc.
Quality level, on-time delivery, etc.
No of new products, new developments, etc.
Turnover of employees, employee satisfaction, etc.
Perspective: Success factor: Measure:
Mats Westerberg
Now you have been introduced to Simons
Levers of Control and Kaplan & Nortons Balanced
Scorecard
Do they work?
It’s up to you to find out!
Mats Westerberg
ABBs Model for
Implementing Change
GoalVisionGoal
Vision
CompetenceResources
CompetenceResources
EngagementCommitmentEngagementCommitment
LeadershipLeadership CoordinationCoordination
Mats Westerberg
Questions to ask•WHERE are we today?WHERE are we today?
– The organizations present state (and its history)The organizations present state (and its history)
•To WHERE do we want to get?To WHERE do we want to get?– Goal/Vision and sub-goalsGoal/Vision and sub-goals
•WHEN should the goals have been reached ?WHEN should the goals have been reached ?
•HOW shall the goals be reached? WHAT should HOW shall the goals be reached? WHAT should be done?be done?
WHERE gives input to strategic planningWHERE gives input to strategic planning
WHEN & HOW & WHAT depends on resources, WHEN & HOW & WHAT depends on resources, commitment, leadership and coordinationcommitment, leadership and coordination
Mats Westerberg
History matters
”[T]he past shapes the present and constrains the future”
Kimberly & Bouchikhi (1995, p. 9)
“Transformation cannot simply be mandated. To be effective, it must be undertaken in a way which builds on rather than runs over the past“.
Kimberly & Bouchikhi (1995, p. 9)
Mats Westerberg
The Parts
• Goal/Vision– A clear direction for where the organization is
headed– The vision must be accepted, attainable but also
challenging for most employees– Without a vision you cannot lead – then you
will be controlled by daily events
Mats Westerberg
The Parts
• Competence/Resources– Do we have the competence needed? Is there
enough resources? If not, can we obtain it by our network? Should we limit the scope?
– The basic question to ask:– Do we have room for action?
• Engagement/Commitment– Is the vision attractive for most of the employees?– Does it make sense?
Mats Westerberg
The Parts• Leadership
– Make those who can to want– Make those who can and want to dare– Instill self-efficacy by giving guidance and
feed-back
• Coordination– Create a structure that supports the work– Make sure individuals and groups know their
task and that the tasks are coordinated
Mats Westerberg
GoalVisionGoal
Vision
CompetenceResources
CompetenceResources
LeadershipLeadership CoordinationCoordination
GoalVisionGoal
Vision
EngagementCommitmentEngagementCommitment
LeadershipLeadership CoordinationCoordination
GoalVisionGoal
Vision
CompetenceResources
CompetenceResources
EngagementCommitmentEngagementCommitment
CoordinationCoordination
CompetenceResources
CompetenceResources
EngagementCommitmentEngagementCommitment
LeadershipLeadership CoordinationCoordination
GoalVisionGoal
Vision
CompetenceResources
CompetenceResources
EngagementCommitmentEngagementCommitment
LeadershipLeadership
What happens when a part is missing?Confusion
AgonyNo intrinsic
driveFrustration
False starts
A COOK BOOK FOR STRATEGIC PLANNING IN ACTION
A. WHAT ARE WE DOING?
1. Define the Purpose and Mission of the organisation.
Who are we? What needs do we intend to meet? Whose need? What do we intend to do to meet the needs, ie what services do we intend to provide?
What are our central values? (e.g. What do we believe in? What are we committed to? What is our philosophy/ideology?) Belief and boundry systems
2. Identify current aims, objectives and strategy of the organisation. Diagnostic control systems
A COOK BOOK FOR STRATEGIC PLANNING IN ACTION
B. STRUCTURED BRAINSTORMING3. Environmental Analysis. OT Interactive4. Resource Analysis. SW Interactive5. Stakeholder Analysis. Who are the stakeholders? What are their needs? Wants? Expectations?6. Identification of strategic opportunities and threats. These are the opportunities and threats that arise outside the organisation. I
A COOK BOOK FOR STRATEGIC PLANNING IN ACTION
C. CREATIVE LEAP
7. Identifying Strategic Choices.
8. Strategic Decision-making
D. ACTION
9. Implementation Diagnostic control systems/BSC
10. Evaluation Diagnostic control systems/BSC
Taken from http://www.mapl.com.au/
Mats Westerberg
From now and forward
• Reflect first individually on the frameworks I have presented. Then discuss in small groups:
(in the context of strategic
planning and implementation)• How can this be used in your context? What ideas
did you get at once? After some reflection? • What are the special challenges that you have in
your organization? Are these challenges addressed by these frameworks?
• Additional questions and queries…