Strategy to Tactics Setting Quantifiable Objectives And Performance

Strategy to Tactics: Setting Quantifiable Objectives And Performance Assessment May 11, 2007 Harland E. Hodges, Ph. D 1

Strategic Management • Why do we exist? (Mission/Vision) • Where are we? (Situational Analysis) • Where do we want to be? (Goals/Objectives) • How are we going to get there? (Who, Resources, When, Success/Failure) 2

Mission/Vision Top Management Establishes the Mission/Vision • Involves thinking strategically about – Future of company – Where are we going? • Tasks include – Creating a roadmap of the future – Deciding future business position to stake out – Providing long-term direction – Giving company a strong identity 3

Strategy: Two-Way Process Entity - Level Managers Top Down Bottom Up Entity Strategy Two-Way Influence Business - Level Managers Business Strategies Two-Way Influence Functional Managers Functional Strategies Two-Way Influence Operating Managers Operating Strategies 4

Situational Analysis Current and future analysis of factors that can affect the future • Three considerations – External environment – Internal environment – How well are we doing now? 5

External Environment. Economic conditions. Legislative and regulatory conditions. Political conditions. Legal environment. Technology. Competition. Markets. Suppliers. Other 1. Identify those forces likely to exert greatest influence over next 1 - 3 years - Usually no more than 3 - 4 factors quality as real drivers of change 2. Assess impact 6

Internal Environment. Skills, expertise, human capital S W . Facilities and equipment O . Financial resources. Customers • S W O T represents the first letter in – S trengths – W eaknesses – O pportunities – T hreats • A core competence is a well-performed internal activity that is central to a company’s competitiveness and viability • A distinctive competence is a competitively valuable activity that a company performs better than its rivals . Products/services. Technology. Quality. Alliances T . Internal politics 7

How well are we doing now? Two Key Steps • Qualitative assessment -What is the strategy? – Company – Scope – Recent accomplishments – Alignment with functional strategies, goals and objectives • Quantitative assessment -What are the results? – Measurement against financial and strategic objectives? 8

Strategy to Tactics c gi te ra St Vision Ta ct ica l. L ev el s Business Goals ls ve Le Entity Goals Strategic Initiatives Programs Projects Deliverables 9

Multiple Initiatives Multiple Projects Organizational Vision Strategic Initiative 1 Program Project 1 Project 2 Project 3 Strategic Initiative N Program Project 1 Project 2 Program Project 3 Project 1 Project 2 Prioritize Program Project 1 Project 3 Project 2 Don’t over commit resources 10

Goals/Objectives … without the last minute nothing would ever get done Setting Goals/Objectives • Converts strategic mission/vision, and situational assessment into specific performance targets • Creates yardsticks to track and measure performance • Pushes company to focus on results • Helps prevent complacency and coasting 11

Goals/Objectives Objective-setting process is mostly top-down, not bottom-up! 1. First, establish organization-wide objectives and performance targets 2. Next, set business objectives 3. Then, establish functional and departmental objectives Top Down Entity Objectives Business Objectives Functional Objectives Operating Objectives 4. Individual objectives are established last 12

Goals/Objectives Characteristics of Goals/Objectives – Represent commitment to achieve specific performance targets – Well-stated objectives are • Quantifiable • Measurable • Contain a deadline for achievement – Communicated in writing and spell-out how much of what kind of performance by when and by who – Measure performance 13

Short or Long Range Short range objectives lay the foundation for long range objectives • • Short-Range objectives – Targets to be achieved soon – Serve as stair steps for reaching long-range performance Long-Range objectives – Targets to be achieved within 3 to 5 years – Prompt actions now that will permit reaching targeted long-range performance later 14

Planning vs. Executing Crafting the Strategy • • Primarily a market-driven activity Successful strategy development depends on – Business vision – Perceptive analysis of the external and internal situation – Attracting and pleasing customers and stakeholders – Outcompeting rivals – Forging a competitive advantage – Prioritizing Executing the Strategy • Primarily an operations-driven activity • Successful strategy execution depends on managements ability – Direct organizational change – Manage multiple initiatives – Good organization-building and people management – Creating and nurturing a strategy-supportive culture – Continuous improvement – Getting things done and consistently deliver good results Is tougher than crafting strategy 15

Executing strategic initiatives takes adept leadership to – Convincingly communicate reasons for the new strategy – Overcome pockets of doubt and resistance to change – Build consensus and enthusiasm – Resolve priority conflicts – Launch and manage a variety of strategic initiatives at the same time – Secure commitment of concerned parties – Get all implementation pieces in place and coordinated – Integrate many different departments to smoothly function as a whole 16

A Team Effort • • Implementing and executing strategy involves a company’s whole management team and all of its employees – Just as every part of a watch plays a role in making the watch function properly, it takes all pieces of an organization working cohesively for a strategy to be well-executed Top-level managers must lead the process and orchestrate major initiatives – But they must rely on the cooperation of middle and lower-level managers to see that things go well in the various parts of the organization and on employees to perform their roles competently on a daily basis 17

How are we going to get there? “Don’t confuse a plan with execution. A plan is good intentions. You don’t win with good intentions!” 18

Management Cycle Set Goals Report • Resources • Constraints • Viability Model Shared Info Analyze • Variances • Effectiveness • Modifications Plan Monitor • Performance • Efficiency • Benchmarking • Budgeting • Resource Allocation • Time Frame 19

Who? Ultimately, someone has to be responsible 20

Who? Objectives (projects) may be departmental or company wide. In either case, selection of the project participants is extremely important. . Team members. . Departmental. . From many departments within the company. Matrix organization … management support project member may be assigned to the project effort on a part time basis he/she may wind up with multiple supervisors … conflicts will have to be resolved. . Project manager/leader 21

Project Manager The project manager is key to the objective/project success. Many hard decisions will have to be made and it will test their leadership abilities. Work Human Resources Communications Quality Time Financial Resources 22

Project Manager Traits • • • • Create vision Execute vision Motivator Communicator Empathetic, yet results oriented Ethical Focused Tenacious Creates infrastructure for success Manages expectations Understands business risk Knows when to cut losses Asks the hard questions Answers the hard questions 23

Project Plan Work Breakdown Project • • • Sub-components are identified Resources and responsibilities are allocated and assigned Timelines are established for completion Monitoring schedule is established Reporting requirements are defined Project and sub-component success are established 24

Communications/Monitoring Effective communications and monitoring of plans is critical to the successful implementation of strategic initiatives. Gantt Chart MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Work Breakdown Tasks Plan Actual 25

Unsuccessful Projects Enthusiasm Disillusionment Punishment of the Innocent Search for the Guilty Panic Praise and Honors for the Non-participants 26

Successful Projects 27

“A management system should provide a framework for picturing the major factors in the situation as an integrated whole. It should be realistic. It should simplify the complex rather than complicate the simple. ” … George Odiorne 28

MBO Management by Objectives • Peter Drucker, 1954, “The Practice of Management” – Is a systematic and organized approach that allows management to focus on achievable goals and attain the best possible results from available resources – Aims to increase individual and organizational effectiveness by aligning organizational goals and subordinate objectives – Clarifies and quantifies objectives to allow for monitoring, evaluation, and feedback throughout the hierarchy of objectives Hierarchy of Objectives 1. Socio-economic purpose 2. Mission 3. Overall organization objectives 4. More specific overall objectives 5. Division objectives 6. Department and unit objectives 7. Individual objectives a. Performance b. Personal development 29

Setting Objectives • • • are set jointly throughout the organization by the superior and subordinate written and clearly stated with emphasis on verifiable results rather than activities and personality should outline results in quantifiable terms for both performance and personal development (e. g. Quantity, Quality, Time. Cost, Skills, etc. ) should be challenging yet reasonable should not neglect other important aspects of a job that can not be quantified 30

Control & Appraisal Control • • refers to the measurement of organizational performance involves the measurement and, if necessary the correction of performance Appraisal • refers to the evaluation of individual performance 31

Appraisal is not a fault finding session that both the superior and subordinate dislike is a positive, constructive, and oriented toward the future. • focuses on performance, not personality • supervisor self control rather than control • responsibility for evaluation and development rests primarily with subordinate not supervisor • an opportunity to learn from the past, but to focus on the future … a great amount of time should be spent on new objectives • shared, rational analysis of performance by the supervisor and subordinate 32

Benefits of Strategic Management Good strategic thinking and good management of the strategy-crafting, strategy -executing process • guides entire firm regarding “what it is trying to do and to achieve” • helps unify numerous strategy-related decisions across the company • creates a proactive atmosphere • promotes development of an evolving business model focused on bottom-line (financial viability) success • provides basis for determining how best to allocate company resources 33

Strategic Planning Measurement & Control Goals & Objectives General and verbally communicated Written & measurable with target dates 36% Written & measurable with target dates & used to evaluate personnel performance 33% 28% Not clearly established 3% 34

Key Findings (Goals) Companies who perceive they have more sophistication in their planning process tend to have more clearly defined measurable, performance objectives. Companies with more strategic planning knowledge tend to have more clearly defined measurable, performance objectives. 35

Key Findings (Performance) Companies with more clearly defined measurable, performance objectives tend to meet or exceed their expectations 36

Key Findings (Improved Knowledge) Regardless of current performance all companies felt that better performance results would be obtained with “increased knowledge” of the strategic planning discipline 37

Knowledge Impact 59% Needs Improvement 30% 11% 0% N Im eed pr s ov em en t 0% Improve Significantly Improve Moderately Improve Slightly No Impact Make it worse 38

Knowledge Impact Met Expectations 40% 29% 26% 6% Improve Significantly Improve Moderately Improve Slightly No Impact Make it worse M Ex et pe ct a tio ns 0% 39

Knowledge Impact 41% 38% Exceeded Expectations 19% Improve Significantly Improve Moderately Improve Slightly No Impact Make it worse 3% E Ex xce pe ed ct ed at io ns 0% 40

Knowledge Impact 57% Superior 43% 0% Improve Significantly Improve Moderately Improve Slightly No Impact Make it worse 0% Su pe rio r 0% 41

Knowledge Impact Did Not Do 45% 27% 0% Improve Significantly Improve Moderately Improve Slightly No Impact Make it worse D id N ot D o 0% 42

D id N pe ot D rio o r Improve Significantly Improve Moderately Improve Slightly No Impact Make it worse Su N Im eed pr s ov em en M t Ex et pe ct at i Ex ons Ex ce pe ed ct ed at io ns Overall Knowledge Impact 43