Lecture strategic management control

Today's agenda:

From Strategy to Action

Strategic Planning and Implementation

Theory & PracticeMats Westerberg

Luleå University, SE-971 87 Luleå

[email protected]

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

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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

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Strategy

Pattern in actions

Plan

Position

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How Strategy is developed(according to Henry Mintzberg)

Intended Strategy

Not Realized Emergent

Planned Realized Strategy

Strategy

StrategyStrategyStrategyNot Realized

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How to Choose Strategy(according to Contingency Theory)

Context, Environment

Structure, Culture, Practices, etc

Strategy

Management Control

”Fit”

”Fit”

”Fit”

Good P

erformance

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But how do we make sure that the strategy that we

find fitting is put into action in the organization?

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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

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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

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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.

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So, is there a way to implement that works

better?

Well, lets see

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Organizational Balance

What are organizations?

Instrument created to reach common goals

Social systems

A collection of individuals with self-interest

Dynamic tension

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Balancing dynamic tensions

Value adding dynamics

Human behavior dynamics

Strategy making dynamics

Opportunities

Focus

Organization

Intended strategies

Emergent strategies

Self-interestDesire to

contribute

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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”)

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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



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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...

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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

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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

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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:

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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!

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ABBs Model for

Implementing Change

GoalVisionGoal

Vision

CompetenceResources

CompetenceResources

EngagementCommitmentEngagementCommitment

LeadershipLeadership CoordinationCoordination

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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

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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

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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


GoalVisionGoal

Vision



GoalVisionGoal

Vision

CompetenceResources

CompetenceResources


CoordinationCoordination

CompetenceResources

CompetenceResources



GoalVisionGoal

Vision

CompetenceResources

CompetenceResources


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


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


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…