Strategy and Management of Change

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Strategy and Management of Change

• Strategic Performance and the Purposes of
  Strategy
• Professor Julian Lowe
• School of Business

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Aims

• To develop outcome measures for strategy
• Link outcomes to choice of specific strategies
• Examine Market value, Economic Value and
  Stakeholder approaches
• Link purpose to performance

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Managing Value Creation
Strategic Value Drivers
Unique Business Model
Financial Value Drivers
Operational Value Drivers
Companys Value
Capital Structure Cost of Capital
Control of MarginsEfficiency of Asset Use
Organizational Value Drivers
Reward SystemCorporate Culture
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Application of value framework

• Apply the value framework to one company or
  organization of your choice

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Looking at Strategic Performance in your
Organisation

• Bottom line is insufficient
• Cost of capital is important
• But what captures the strategic health of the
  organisation.
• - Capacity
• - Satisfying stakeholders
• - Competitive position
• - Innovation
• - Sustainability

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Market Value Added General Motors General
Electric compared
General Motors General Electric
Market value - Capital Employed Market Value
Added Revenues Employees Profits
62 billion (83 billion) - 21
billion 169 billion 709 000 5.0 billion
176 billion (54 billion) 122 billion 70
billion 222 000 7.3 billion
Balance sheet of GM and GE
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Interpreting MVA (1)
Size doesnt matter Profit doesnt matter Value
stems from capital markets - but note the case
of Lopez
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Interpreting MVA (2)
December 31, 1996 (in billion )
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The Balanced Scorecard provides a framework to
translate a strategy into operational terms
To succeed financially, how should we appear to
our shareholders? Financial
To satisfy our shareholders and customers, what
business processes must we excel at? Business
Processes
To achieve our vision, how should we appear to
our customers? Customer
Vision and Strategy
To achieve our vision, how will we sustain our
ability to change and improve? Innovation and
Learning
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Classic Scorecard
Financial Customer Process Innovation and
Learning
Financial Outcomes are primarily influenced by
Customer Outcomes
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Commercial Outlook Scorecard
Customer Financial Process Innovation
Learning
Cost Savings and Customer Outcomes are largely
independent
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Govt. Business Enterprise Scorecard
Revenue Growth Cost Savings impact Customer
Outcomes
Customer Financial Process Innovation
Learning
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Not for Profit Scorecard
Organisation exists to serve the Community
Community
Finances are treated solely as Resources
Process
Resource Management
Innovation Learning
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Making the Scorecard Work

• Clarifying and Translating the Vision and
  Strategy
• Clarifying the vision
• Gaining consensus

• Strategic Feedback and Learning
• Articulating the shared vision
• Supplying strategic feedback
• Facilitating strategy review and learning

• Communicating and Linking
• Communicating and educating
• Setting goals
• Linking rewards to performance measures

Balanced Scorecard

• Planning and Target Setting
• Setting targets
• Aligning strategic initiatives
• Allocating resources
• Establishing milestones

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Shareholder value versus stakeholder values
perspective
de Witt and Meyer (2001) op cit
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Corporate Citizenship and Strategy

• The role of an ethical framework in business
• The role of reputation in corporate performance
• Different legal and political contexts around the
  world
• Do good//Do no harm
• Acting in a socially responsible manner

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Sethis Model
Level 1 Compliant avoiding harm in three
dimensions of sustainability, for example
ensuring safety of products and workers, avoiding
economic losses, corruption and (illegal)
environmental damage. Level 2 Responsive
meeting reasonable individual stakeholder
expectations in three dimensions, for example,
achieving good levels of customer satisfaction,
employee morale, returns to investors and
reducing environmental impacts of operations,
products and services. Level 3 Engaged
maximizing economic, social and environmental
value for example, achieving simultaneous sales
and stock value growth, customer and employment
growth and eliminating or offsetting
environmental impacts. Sethi, S.P. (1995)
Dimensions of Corporate Social Performance An
Analytic Framework. California Management
Review 17, 38-64.
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Conceptual Model
Julian Lowe (2004)
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How do Stakeholder Relationships create
competitive advantage

• The failure to establish and nurture stakeholder
  relationships creates shareholder risk.
• Strong relationships with and between employees,
  and with supply chain and business alliance
  partners are a prerequisite for innovation.
• A dense network of relationships provides
  resources and information necessary for the
  development of new markets and opportunities.
• Relationships are the source of a good reputation
  and enhanced brand value, both of which create a
  myriad of business benefits.
• Svendsen, A. et al (2002). Measuring the Business
  Value of Stakeholder Relationships. Centre for
  Innovative Management. www.cica.ca/index

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Exercise

• What are the organisational divers of value in
  
• A bank
• Fast food chain
• A University
• How would a broader stakeholder approach be
  implemented? Would it be good business?