Topic 8- CONTEMPORARY THINKING ON STRATEGY

A strategy refers to an all-encompassing scheme to achieve a fixed set of goals while tactics are the specific practices or courses of actions that must be employed by
the company in line with strategy implementation.

 Goal - To bring 25% more customer traffic to a company’s website in 202A

 Strategy - Use online display advertising and optimize social media presence to attract new users.
 Tactics
• Publish regular blog posts filled with valuable information.
• Purchase banner advertisements on relevant sites.
• Run Facebook campaigns at peak times of target audiences.
• Increase presence on Twitter by retweeting 10 tweets and publishing at least five (5) original tweets every day.
• Monitor competitors’ activity and assess what is working well for them.
• Evaluate which of the above is most effective for the business and strengthen efforts behind them.

The Strategic Plan is Dead: Long Live Strategy - Companies often position their strategies under a 3-year, 5-year, and 10-year plans. However, this kind of strategic
planning is now considered by many as obsolete and ineffective for some reasons.

 First, technology has obliterated planning the structure of a business for more than one (1) to two (2) years. This means that things move quickly in the
current business arena, as proven by failed marketing efforts of some companies who once dominated the market but already declared bankruptcy
 Second, the fact that millennials now make up the largest percentage of the workforce is not conducive to the 5-year plan way of thinking. Millennials
are the generation of the slash-career, meaning they don’t stick with one (1) job and company the way older generations used to. This means that
organizations must consider other ways to ensure business continuity, because gone are the days when a company is built by keeping the same employees
over a long period of time.
 Companies are now shifting their focus in developing teams and shaping organizational culture. Some smart leaders create strategic plans which are
bound for a shorter period of time like three (3) to six (6) months. In connection, they build great teams and sustainable culture.

Strategic Management in a VUCA World

1. Volatility - It refers to the speed of change in an industry, market, or the world in general. It is associated with fluctuations in demand, turbulence, and short
time to markets. The more volatile the world is, the more and faster things in the business landscape changes.
2. Uncertainty - It refers to the extent to which organizations can confidently predict the future. Truly uncertain environments are those that don’t allow any
prediction even on a statistical basis. The more uncertain the world is, the harder it is to predict the future actions of the market.
3. Complexity - It refers to the number of factors that organizations need to consider, their variety, and the relationships between them. Diverse factors with
greater variety and interconnection lead to a more complex business environment
4. Ambiguity - It refers to the lack of clarity in interpreting the business environment. A situation is ambiguous, for example, when information is incomplete,
contradicting, or too inaccurate to draw clear conclusions.

Steps On How Organizations Should Position Their Actions In The VUCA World

1. Data collection and analytics - Organizations must utilize the concept of foresight in evaluating information relevant to strategic planning. Foresight is
different from the traditional predictive models called forecasting, which is based on the forward projection of past experiences.
2. Crafting a strategy - Organizations must lay down their initiatives based on a chain of goals. Managers must avoid positioning the company strategy based
on false assumptions, inaccurate time frame of implementation, and solution to symptoms and not on the actual problem itself.
3. Bridging the gap - Organizations must identify any discrepancies between strategy and its proposed execution.

Make revisions – make sense – make choices - make things happen

Evaluation and Control Process

Measuring Performance

 Performance - end result of activity

 Steering controls - measure variables that influence future profitability
 Cost per available seat mile (airlines)
  Inventory turnover ratio (retail)
 Customer satisfaction

Types of Controls

1. Output controls - specify what is to be accomplished by focusing on the end result through the use of objectives
2. Behavior controls - specify how something is done through policies, rules, standard operating procedures and orders from supervisors
3. Input controls - emphasize resources

Traditional Financial Measures

1. Return on investment (ROI) - result of dividing net income before taxes by the total amount invested in the company (typically measured by total assets)
2. Earnings per share (EPS) - dividing net earnings by the amount of common stock
3. Return on equity (ROE) - involves dividing net income by total equity
4. Operating cash flow - the amount of money generated by a company before the cost of financing and taxes, is a broad measure of a company's funds
5. Free cash flow - the amount of money a new owner can take out of the firm without harming the business.

Nonfinancial Performance Measures Used by Internet Business Ventures

1. Stickiness - length of Web site visit

2. Eyeballs - number of people who visit a Web site
3. Mindshare - brand awareness

Shareholder Value

 Shareholder value - the present value of the anticipated future streams of cash flows from the business plus the value of the company if liquidated
 Economic value added (EVA)
-measures the difference between the pre- strategy and post-strategy values for the business
-after-tax operating income minus the total annual cost of capital
 Market value added (MVA) - measures the difference between the market value of a corporation and the capital contributed by shareholders and lenders
 Measures the stock market's estimate of the net present value of a firm's past and expected capital investment projects

Balanced Score Card - combines financial measures that tell the results of actions already taken with operational measures on customer satisfaction, internal processes
and the corporation's innovation and improvement activities-the drivers of future financial performance

In the balanced scorecard, management develops goals or objectives in each of four areas:

 Financial: How do we appear to shareholders?

 Customer: How do customers view us?
 Internal business perspective: What must we excel at?
 Innovation and learning: Can we continue to improve and create value?
 Key performance measures - measures that are essential for achieving a desired strategic option

Chairman-CEO Feedback Instrument

Questionnaire focuses on four key areas:

1. Company performance,
2. Leadership of the organization
3. Team-building and management succession
4. Leadership of external constituencies

Management audits

 Developed to evaluate activities such as corporate social responsibility, functional areas such as the marketing department, and divisions such as the
international division
 useful to boards of directors in evaluating management's handling of various corporate activities

Strategic Audit

 provides a checklist of questions, by area or issue, that enables a systematic analysis of various corporate functions and activities to be made
 useful as a diagnostic tool to pinpoint corporate- wide problem areas and to highlight organizational strengths and weaknesses

Responsibility Centers

 used to isolate a unit so it can be evaluated separately from the rest of the corporation
 has its own budget and is evaluated on its use of budgeted resources
 headed by the manager responsible for the center's performance
1. Standard cost centers
2. Revenue centers
3. Expense centers
4. Profit centers
 5. Investment centers

Benchmarking - the continual process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders

1. Identify the area or process to be examined

2. Find behavioral and output measures
3. Select an accessible set of competitors of best practices
4. Calculate the differences among the company's performance measurements and those of the competitors and determine why the differences exist
5. Develop tactical programs for closing performance gaps
6. Implement the programs and compare the results

Problems in Measuring Performance

 Lack of quantifiable objectives or performance standards

 Inability to use information systems to provide timely and valid information

Short-Term Orientation

 Long-term evaluations may not be conducted because executives:

1. Don't realize their importance
2. Believe that short-term considerations are more important than long-term considerations
3. Aren't personally evaluated on a long-term basis
4. Don't have the time to make a long-term analysis

Goal Displacement

 confusion of means with ends and occurs when activities originally intended to help managers attain corporate objectives become ends in themselves-or are
adapted to meet ends other than those for which they were intended
 behavior substitution and suboptimization
1. Behavior substitution - refers to the phenomenon of when people substitute activities that do not lead to goal accomplishment for activities that do lead to
goal accomplishment because the wrong activities are being rewarded
2. Suboptimization - refers to the phenomenon of a unit optimizing its goal accomplishment to the detriment of the organization as a whole

Guidelines for Proper Control

1. Controls should involve only the minimum amount of information needed to give a reliable picture of events.
2. Controls should monitor only meaningful activities and results, regardless of measurement difficulty.
3. Controls should be timely so that corrective action can be taken before it is too late.
4. Long-term and short-term goals should be used.
5. Controls should aim at pinpointing exceptions.
6. Emphasize the reward of meeting or exceeding standards rather than punishment for failing to meet standards.