STRAMA - Analyzing Goals, Objectives and Intellectual Capital

8/12/2019 STRAMA - Analyzing Goals, Objectives and Intellectual Capital

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Analyzing Goals and Objectives

and

Assessing Intellectual Capital

Garette Clyde Maisling

Charmilyn Ventic


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Charting the organizations purpose

Focuses the organizations purpose of existence,

where it is going, and where it wants to be

Hierarchy of goals: Vision ,Mission and Strategic

Objectives

Coherence is very important


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Vision Broad and desirable goals

firms aspirations of what it really wants to be

should have strong emotional appeal

Can position a company in a industry-wide

leadershipExample: CNN : To be the best and most

reliable news source of any topicanywhere, anytime -

Disneylandto be the happiest place onearth

In its 20-year battle with Xerox, Canonsslogan or battle cry was Beat Xerox.


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When vision fails

The Walk Doesnt Match the Talk

Irrelevance

Not the Holy Grail

An Ideal Future unreconciled with the Present


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Mission Statement

A companys mission differs from vision in that itis encompasses both the purpose of the companyas well as the basis of competition andcompetitive advantage

Vision that captures the organizations purposeand its ideals become more concrete andrealistic

McDonalds : Implement each of four policiesQSCV (quality. Service, cleanliness and value) tosatisfy customer


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Effective mission statements:

incorporate the concept of stakeholdermanagement, suggesting that organizations mustrespond to multiple constituencies if they are to

survive and prosper Profitmaximization not only fails to motivate

people but also does not differentiate betweenorganizations.

A good mission statement, by addressing eachprincipal theme, must communicate why anorganization is special and different.


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most successful firms mentioned values other

than profits. The less successful firms focused

almost entirely on profitability


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Comparing Wellpoint Health Networks

Vision and Mission Comparing Wellpoint Health Networks Vision and Mission

Vision

WELLPOINT will redefineour industry:

Through a new generation of consumer-friendly productsthat put individuals back in control of their future.

Mission

The WELLPOINT companies provide health security byoffering a choice of quality branded health and relatedfinancialservices designed to meet the changingexpectations of individuals, families and their sponsorsthroughout a lifelong relationship


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Strategic Objectives

Mission Statement does not provide the

tangible goals or objectives that must be met

to achieve a firms broader purpose.

Channels the efforts of each individual

throughout the organization towards common

end

Provides a means of allocating resources

effectively


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Gears to operationalizing the mission

statement

Setting objectives demands a yardstick to

measure the fulfillment of the objectives


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Criterias of effective objectives

(SMART)

Specific -this provides a clear message as to whatneeds to be accomplished.

Measurable -there must be at least one indicator(or yardstick) that measures progress againstfulfillingthe objective

Appropriate - It must be consistent with thevision and mission of the organization

Realistic - It must be an achievable target giventhe organizations capabilities and opportunitiesin the environment, doable.

Timely There needs to be a time frame foraccomplishment of the objective.


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Strategic Objectives

Strategic Objectives (Financial)

Increase sales growth 6% to 8% and accelerate corenet earnings growth to 13% to 15% per

share in each of the next fiveyears. (Procter & Gamble)

Generate Internet-related revenue of $1.5 billion.(Automation)

Increase the contribution of Banking Group earningsfrom investments, brokerage, and

insurance from 16% to 25%. (Wells Fargo) Cut corporate overhead costs by $30 million per year.

(Fortune Brands)


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Benefits of following SMART objectives

they help to channel employees throughout the

organization toward common goals.

challenging objectives can help to motivate and

inspire employees throughout the organization tohigher levels of commitment and efforts

Meaningful objectives help to resolve conflicts of

individual objectives when they arise Meaningful objectives thus help to resolve

conflicts when they arise


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Visions should evoke powerful and compelling

mental images.

Strategic objectives, on the other hand, are

much more specific and are vital to ensuring

that the organization is striving toward

fulfilling its vision and mission.


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Goal Grid

A new tool for Strategic Planning

The Goals Grid is a simple 2x2 matrix

constructed by examining the Yes and Noanswers to two very basic questions: (1) Doyou want something? (2) Do you have it? The

interplay of the Yes and No answers to thesequestions defines four basic categories forgoals and objectives (


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If you want something you dont have, (Y/N) your goal is toobtain it (ACHIEVE).

Action step: Develop a list of outcomes, conditions or

qualities the organization wants to achieve.

If you want something you already have (Y/Y), your goalor aim is to keep it (PRESERVE).

Action step: Develop a list of outcomes, conditions or

qualities the organization wants to preserve.


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Goals Grid does a first-rate job of helping

strategic planners think about goals and

objectives in terms of the categories making

up the Grid

it does not, by itself, guarantee that those

goals and objectives are consistent with the

organizations values or priorities


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once the initial set of goals and objectives has

been subjected to careful consideration,

settled on and even polished, the Goals Grid

can also serve as a convenient organizingframework for presenting and explaining them

to staff.


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If theres something you dont want and dont have (N/N), yourgoal is to avoid it (AVOID).

Action step: Develop a list of outcomes, conditions or qualities theorganization wants to avoid.

If theres something you dont want but have (N/Y), your

goal is to get rid of it (ELIMINATE).Action step: Develop a list of outcomes, condi-tions or

qualities the organization wants to elimi-nate.


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Goals Grid does a first-rate job of helping

strategic planners think about goals and

objectives in terms of the categories making

up the Grid

it does not, by itself, guarantee that those

goals and objectives are consistent with the

organizations values or priorities


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once the initial set of goals and objectives has

been subjected to careful consideration,

settled on and even polished, the Goals Grid

can also serve as a convenient organizingframework for presenting and explaining them

to staff.


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Purpose of Goal Grid

Jump-starting the strategic planning processand dialogue

Generating a set of organizational reality

check criteria against which strategic goalsand objectives can be gauged

Providing a way of checking for and managing

conflicting goals and objectives

Generating the goals and objectives

themselves.


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Purpose of Goal Grid

Jump-starting the strategic planning processand dialogue

Generating a set of organizational reality

check criteria against which strategic goalsand objectives can be gauged

Providing a way of checking for and managing

conflicting goals and objectives

Generating the goals and objectives

themselves.


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Advantages of Goal Grid

extremely effective overall organizational analysis tool

visible format

effective method for developing group consensus

logical progression of thought for goal development

analysis of current services, products, programs, and direc-tion of the organization

quick check of the alignment of valuesindividual and

organizational simplicity and usefulness of the information generated

consensual, agreed-to set of responses


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Allows comparison of the fit between a com-pleted Goals Grid for an organization and one

prepared for a single goal, project, program, ordecision

very effective, practical, engaging, and efficientactivity for an organizations board, committee,task force or project team to use in the course of

strategic planning


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Steps

have participants write their responses onindividual copies of the Goals Grid (a 15-minuteactivity).

The full group next engages in an exercise inwhich individual responses are shared, recordedon a computer, projected on a large screen, andthen discussed and analyzed.

Another option is to have small family groupsfrom functional or operational units develop astarter set of goals and then share those.


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Blank Goal GridDo You Have it?

Do you

want

it?

No Yes

Yes ACHIEVE PRESERVE

NO AVOID ELIMINATE


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live example that was produced by the board

of a conservation organization


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Do You Have it?

Do

youwant

it?

No Yes

Yes ACHIEVEWork toward sustainable growth

in the county

Provide more incentives to

property owners/managers for

program involvement

Implementation of on-farm

energy production and bio-fuels

facility

PRESERVECreativity, expertise and enthusiasm

of the current staff

Opportunities to inform and involve

residents

Working relationships with agency

partners

Working relationships and influence

with legislature

NO AVOID

Being seen as a regulator

Stagnation

Growing into a bureaucracy

Conflict of duties and

responsibilities

ELIMINATE

Barriers to progress

Narrow focus for our programs

Safety hazards

Excess expenditures


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Assessing Intellectual Capital


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Intellectual Capital refers to the collective intangible

assets that enable an organization to function,

including market assets, intellectual property assets,

human centered assets and infrastructure assets.- Brooking (1999)

Intellectual Capital is a collective knowledge of the

individuals in an organization or society. This

knowledge can be used to produce wealth, multiplyoutput of physical assets, gain competitive advantage,

and/or to enhance value of other types of capital.- businessdictionary.com


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Intellectual capital are classified as follows:

Human Capital - refers to the value that the

employees of a business provide through theapplication of skills, know how and expertise.

Structural Capital - is the supportive infrastructure,

processes and databases of the organization that

enable human capital to function.

Relational Capital is the external linkage of the

company with suppliers and customers that enables it

to procure and sell goods and services in an effortless

manner.


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Purposes of Measuring Intellectual Capital

To help organizations formulate their strategy

To evaluate strategy execution

To assist in the firms diversification and expansion decisions

For use as a basis for management compensation

To communicate with external shareholders


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Benefits of Measuring Intellectual Capital

It more truly reflects the actual worth of the company

The process of measurement gives insights into the drivers of

sustainable performance

Demands are growing for effective governance of intangibles,

of which social and environmental reporting are alreadyevident

"What gets measured, gets managed"- it therefore focuses

on protecting and growing those assets that reflect value

It supports a corporate goal of enhancing shareholder value

It provides more useful information to existing and potential

investors.


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Strategic framework for IC measurement:

Asset

Benefits

BaselineAction


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IC Measurement Models:

Economic Value Added (EVA) Market Value Added (MVA)

Tobins Q Ratio

The Balanced Score Card

Skandias IC Navigator

Intellectual Capital Services IC-Index

The Technology Brokers IC Audit

SveibysThe Intangible Asset Monitor (IAM)

Real Option Theory

Citation-weighted Patents


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Economic Value Added (EVA)

EVA is the difference between a company's net operatingincome after taxes and its cost of capital of both equity and

debt.

An equation for calculating EVA:

EVA = Residual Income (RI) + Accounting Adjustments (AcctAdj)

where:RI = Net Operating Profits After Taxes (NOPAT)Capital Charge (CapChg)

NOPAT = Earnings Before Extraordinary Items (EBEI) + After Tax Interest (ATInt)

EBEI = Cash Flow from Operations (CFO) + AccuralsATInt = Net Interest Expense x (1Tax Rate)

CapChg = the charge for use of capital. It includes interest on the debt plus a

charge for the equity capital based on a cash equivalent equity

multiplied by a cost of equity.


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MVA is the difference between the market value of a company (both equity anddebt) and the capital that lenders and shareholders have entrusted to it over the

years in the form of loans, retained earnings and paid-in capital.

As such, MVA is a measure of the difference between "cash in" and "cash out".

If MVA is positive, it means that the company has increased the value of the

capital entrusted to it and thus created shareholder wealth. If MVA is negative,thecompany has destroyed wealth.

MVA =

Market Value of Debt + Market Value of Equity - Total Adjusted Capital

Market Value Added (MVA)


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Tobins Q is essentially the same as the market-to-book ratio exceptthat Tobin used replacement cost of tangible assets rather than book

value of tangible assets in calculation.

A positive Q Ratio value can be ascribed to the intangible value of

intellectual capital which is not captured by traditional accountingsystems. If the Q Ratio is less than 1, an asset is worth less than the

cost of replacing it, and it is unlikely that a company will buy more

assets of that kind. If on the other hand, Q Ratio is greater than 1,

companies are likely to invest in similar assets that are worth more

than their replacement cost.

Tobins Q Ratio

Q = Market Value /Asset Value

Tobins Q Ratio


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The Balanced Score Card


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The total Market Value of a firm is equal to its Financial Capital

plus its Intellectual Capital. The components of IC are Human

Capital, Structural Capital. Structural Capital can be

deconstructed into Organizational Capital and Customer Capital.

Organizational Capital can in turn be deconstructed into

Innovation Capital and Process Capital (Edvinsson & Malone,1997).

The Skandia Navigator approach takes into account the same set

of financial, operational, and customer concerns as the BalancedScorecard. But, it makes more explicit the need to consider the

organization, its structure and processes for nurturing its

employees (Shand, 1999).

Skandias IC Navigator


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Skandia Navigator (Edvinsson & Malone, 1997)


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Intellectual Capital Services IC-Index

The IC-Index is a historic document which gives an account of numerous

indices and an ultimate single Index number which can be compared from

period to period.


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The Technology Brokers IC Audit

Brooking designed this model to place a definitive dollar

value of a firms IC.


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Total market value of a company consists of its visible equity and

three kinds of intangible assets. The visible equity is the book

value of the firm. The intangible assets are categorized as either

external structure or knowledge capital. The external structure

consists of brands, and customer and supplier relations.

Knowledge capital is comprised of internal structure and

individual competence. The internal structure is composed of theorganizations management, legal structure, manual systems,

attitudes, R&D, and software. Individual competence includes

education and experience (Sveiby, 1997).

SveibysIntangible Asset Monitor (IAM)


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The use of real option theory provides one solution to our

human inability to forecast complex or distant future events

accurately (Phelan, 1997). The real options approach recognizes

that the boundaries of firms are fluid with respect to adoptingdifferent kinds of projects, and attempts to value the

consequences of their possible adoption (Johnson et al., 2001).

Real Option Theory


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Citation-weighted Patents

Research using patent citations to measure IC is based on thefollowing assumptions:

1. Stock market investors hold the rational expectation that the

present value of a firms future profits varies with its stock ofknowledge

2. Valuable technological knowledge within the firm tends to

generate patents that future researchers build on and therefore

cite when doing their own innovation.


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STRAMA - Analyzing Goals, Objectives and Intellectual Capital