Please follow the
exercises stated below and
offer the best consulting to your clients
The
following set of templates elaborate the what and how questions relating
to an organization's present directions. They seek to clarify establish and record details about an
organization's present business objectives, financial objectives,
business strategies, financial strategies, and mission.
BUSINESS OBJECTIVES
What
types of product/service market (or industry) do we seek to be in?
What
makes these markets or industries attractive to us? Consider, size,
degree of segmentation, growth rate, pricing structures, nature of
competition, levels of business risk, profitability, etc.
How
do we want customers to view our organization and our products/services?
How
do we seek to offer value to our customers and become their preferred
provider of products/services?
What
are our growth aspirations in each product/service market segment (e.g.,
in terms of sales volumes)?
What
growth rates have we achieved in each segment over the past three years?
What
are our competitive goals in each product/service market segment (e.g.,
in terms of market share or competitive position)?
How
have our market shares/competitive position in each market segment
changed over the past three years?
Other considerations
FINANCIAL OBJECTIVES
What
rate of return are we seeking on capital employed?
What
rates of return on capital employed have we achieved in each of the past
three years?
What
rate of return are we seeking on assets?
What
levels of asset growth are we seeking?
What
levels of asset growth have we achieved in each of the past three years?
What
levels of dividend are we seeking?
What
levels of dividend have we achieved in each of the past three years?
Other considerations
BUSINESS STRATEGIES
What
range of products/services have we had in each market segment over the
past three years? What is the scope of the organization's
product/service portfolio?
What
volume of products/services have we offered in each market segment over
the past three years (e.g., in terms of unit sales volumes, and perhaps
sales dollars)?
How
has the range and volume mix of products and services varied over the
past three years?
Were
the planned or targeted range and volume mixes achieved?
What
competitive advantage was sought by the targeted range and volume mix?
What competitive advantage was gained? Consider this in terms of cost
advantages related to volume, as well as niche or coverage advantages
from a wide range of offerings.
Did
these competitive advantages flow from targeting customer needs, from
gaining advantages over competitors, or from both? Which needs? Which
competitors?
Which distinctive competences did we use in trying to meet our targeted
range and volumes of products/services?
What
synergies in organizational functioning did we use in trying to meet our
targeted range and volumes of products/ services?
To
what extent were shifts in the range or volume of products/services over
the past three to five years the result of the investment of new
resources? To what extent were they the result of shifts in internal
patterns of resource allocation? For example, compare investments in
technology or product development or operational budget allocations over
this period.
Were
these investments or shifts in resource allocation planned across the
period?
FINANCIAL STRATEGIES
What
financing strategies have we used over the past three to five years?
Consider this in terms of retained funds, equity funds raised from
owners/shareholders, or debt funds raised through borrowing.
What
patterns of financial leverage or gearing have we utilized or sought
over the past three to five years? For example, consider debt/equity
ratios over the period.
What
was the average cost of funds or capital in each of the last three to
five years? Consider, for example, the average of cost of debt
(interest) and cost of equity dividends or shareholder return
expectations).
How
does this cost of capital compare with the rates of return sought on
capital employed? (See financial objectives, above.)
What
financial criteria have governed the investment of resources in
technology or operations that support business strategies (e.g., the use
of "hurdle" return rates based on the cost of capital/discounted rates
of return)?
What
targets have been set over the past three to five years for cost
reduction that support strategies through changes to operations or
divestment of assets, etc.?
Have
these targets been achieved?
What
criteria or targets have we used to manage working capital, for example
to minimize surplus cash, reduce inventories, turn accounts
receivable/debtors over faster, and use accounts payable/creditors as a
source of short-term funding?
Have
these criteria or targets been achieved?
What
approaches have we taken to manage cash flow requirements and
imbalances, for example through use of short-term or standby facilities,
accelerating inflows/returns from operations, deferring nonessential
outflows, etc?
Have
these approaches been successful?
PRESENT MISSION
Do
you have a statement of your present business mission? If so, provide
this statement below.
STRATEGIC AUDIT
SITUATION ASSESSMENT
The
following templates are designed to guide the exploration of an
organization's present situation in some depth, together with its
consequences for maintaining the organization's present directions. They
are cross referenced to Part 1, Section 2.1.
External Focus
The
situation assessment focuses on the organization's competitive position
in the markets in which it sells its products/services and acquires its
resource inputs. The assessment begins with the organization's customers
and groups them into product/service market segments. The appeal of each
product/service market segment to your organization is then explored,
along with trends affecting each segment. Attention then turns to the
suppliers of products/services to these segments, including your
organization-in other words, what are key structural components of the
industry or industries supplying these markets, and what trends are
affecting the industry or industries overall (including your
organization and any alliances it may have within the industry or
industries). Within the industry (or industries) your organization will
have major competitors in each product/service market segment that you
supply. Who are they, and how do they compete? What image do customers
have of them, how flexible are they, and what are their competitive
advantages and disadvantages? This analysis forms the basis of a
relative exploration of the competitive position of your organization,
major competitors, and potential competitors. Where does your
organization have relative advantage, and where do competitors or
potential competitors have relative advantage? As a result, you should
come to a good understanding of your competitors and your own
organization and the bases of your relative competitiveness in
product/market segments. Your attention should now turn to the key
resources you use in creating the products/services you offer.
What
are these key resources, and in what markets are they acquired? Who are
your major suppliers and what trends are affecting each resource market
and the suppliers in them?
As a
result of this exploration, you should be able to assess the position of
your organization as a customer in each resource market. Is your
organization satisfied with present arrangements?
What
else would it like? And what is the desired position it would like to
achieve in each resource market?
Finally, as a result of the above explorations, analyses, and
assessments, you should be able to assess the overall competitive
position of your organization in each product/service market segment and
in each of your key resource markets. This assessment can be extended to
the industry (or industries) supplying the product/service markets and
to your organization's major competitors therein.
Is
your overall competitive position strong, average, or weak-in the
product/service markets you supply, in the industry (or industries) your
organization is part of, relative to your major competitors, and in the
key resource markets you utilize?
Customer Analysis
Identify the markets in which you sell products or services in terms of
major classes of customers.
For
each class of customer try to define the following:
Customer class:
.
Who are they?
.
What needs do they have?
.
Why do they purchase from us?
.
What do they value most highly?
.
How do they purchase from us?
.
What do they purchase from us?
.
When do they purchase?
.
Where do they purchase?
.
What product/service mix is attractive to them?
.
Why do they prefer us to our competitors?
Market Segmentation
Describe distinctive segments in the product/service markets you supply.
Try to identify the size of each segment, in sales dollars or volume
terms, and your share of the market.
Segment Appeal
What
makes each class of customer (product/market segment) attractive to your
organization?
Attractiveness Factors
Segment Description
Growth Rate
Pricing Opportunities
Profitability Level of Competition
Other (Describe)
Trends in Product/Market Segments
Describe trends that are occurring across the product/service markets
you supply, indicating their applicability to particular segments. Are
there changes in the composition of your customers?
Are
customer needs or expectations changing?
Are
substitute products or services becoming available?
Are
different product/service mixes likely to be demanded?
Are
pricing/profit margins trends changing?
Is
the method or location of purchase likely to change?
Are
there any other trends of importance?
Industry Analysis
Who
supplies the product/service market segments identified above - apart
from your organization and those with whom you are allied-and what
factors govern competition within the industry?
Supplier's Names
Size (Sales $)
Segments Supplied
Market Share (by segment)
Market Share Growth Rate
Distinct Characteristic of Products or Services
Basis for Competition (price, service, etc.)
Industry Trends
Describe current trends in the supply of the product/service market
segments you have identified above, indicating their relevance to
particular markets. Is the industry contracting or growing? Are firms
entering or leaving the industry?
Is
the structural basis of competition changing, through the creation of
inter-organization alliances or shifts in tariffs or regulatory
arrangements, for example?
Are
profitability patterns changing?
Is
the intensity of rivalry within the industry changing?
Are
there any other trends?
Competitor Analysis
Identify and analyze your major competitors within the industry.
Competitor's name
Segment(s) in which they compete
Method of operation
Their capacity to react to market changes
Customers' image of them
Their competitive advantages
Their competitive disadvantages
Competitor Positioning
Our Organization
Competitor 1
Competitor 2
Competitor 3
Potential Competitor
Relative market shares
Segment 1
Segment 2
Segment 3
Segment 4
Segment 5
Cost
structures (low/high, etc.)
Customer image generally
Quality
Dependability
Responsiveness
Flexibility
Innovativeness
Financing structures
Organizational structures
Likely competitive moves
Relative competitive advantage/disadvantage
Other
Resource Market Analysis
Describe characteristics of the key resource markets needed to generate
your organization's product/service.
Raw Materials
Capital Equipment
Intellectual Property
Information Technology
Labor Transportation
Other
Major resources purchased
Major suppliers Trends in each market
Positioning in Relation to Suppliers
Assess your organization's position as a customer in each major resource
market.
Resource Market
Major Suppliers
Satisfaction with Present Arrangements
(Score 1-10)
Features Sought in Products/ Services Purchased
Desired Position in Each Market
Other Issues for Our Firm
Raw
Materials
Capital equipment
Intellectual property
Information technology
Labor Distribution/ transport
Other
Competitive Position
Assess your organization's competitive position in each of the market
segments you have analyzed. Use a scale of strong, average, weak in each
of the categories below.
Competitive Position (strong, average,
weak)
Product/service markets
Segment 1
Segment 2
Segment 3
Segment 4
Segment 5
Industry
Segment 1
Segment 2
Segment 3
Segment 4
Segment 5
Competitors
Segment 1
Segment 2
Segment 3
Segment 4
Segment 5
Resource Markets
Raw
materials
Capital equipment
Intellectual property
Information technology
Labor Distribution/transport
Other
Now
make an overall assessment of the competitive position of your
organization for each of the categories below. Use a scale of strong,
average, weak.
Competitive Position for the (strong,
average, weak)
Organization as a Whole
Product/service markets
Industry Competitors
Resource Markets
Internal Focus
The
situation assessment now turns to your organization's internal
functioning and capabilities and moves towards an assessment of its
performance in key functional areas and overall. These determinations of
performance are then probed for their effects in terms of
product/service market impacts, and their causes in terms of the impacts
of past resourcing patterns. The exploration begins with a brief review
of key aspects of the organization's functioning-staffing, direction
setting, change management, and resource management. The outcome sets
the scene for more probing analyses and assessments. Key functional
areas are then identified, along with factors crucial for successful
performance in each area. Using these factors as assessment criteria,
you can now rate your organization's performance capability against each
factor in each functional area as strong, average, or weak Some key
performance areas relate to your organization overall rather than to
discrete functional areas-such as organizational structures, technology,
intellectual property, management, and financial position. Factors
crucial for successful performance in each of these areas can be
identified and used as assessment criteria for rating your
organization's performance capability against each factor in each area
as strong, average, or weak. At this point, you should attempt to
determine the effects of your performance assessments on customer
satisfaction in each product/service market segment that you supply.
This proceeds factor by factor, for both functional areas and overall
organizational areas. The focus is on strengths first and then on
weaknesses-and the outcome is characterized as a positive or negative
effect on customer satisfaction. It is now time to probe for cumulative
or countervailing effects.
Do
some strengths with positive effects on customer satisfaction cumulate
as a distinctive competency that you can label, and are some of these
strengths offset by weaknesses with negative effects on customer
satisfaction?
Do
some weaknesses with negative effects on customer satisfaction cumulate
as distinctive incompetences that you can label, and are some of these
weaknesses offset by strengths with positive effects on customer
satisfaction?
List
the distinctive competences and distinctive incompetences identified and
labeled, together with the customer satisfaction criteria used in making
this determination.
The
causes of identified strengths, weaknesses, distinctive competences, and
distinctive incompetences can now be explored by looking to previous
investments of resources.
What
previous resource investments can be attributed to a functional or
rganizational area and to the factors involved in each case?
Is
the factor in question sensitive to the possible withdrawal or injection
of resources, and at what point is it likely to change character (e.g.,
shift from strong to average or weak)?
Is
it possible to withdraw resources up to a certain point without
affecting a factor categorized as strong or a set of factors
characterized as a distinctive competence-what are the dollar ($)
amounts involved? Is it possible to alleviate or remove weaknesses or
distinctive incompetences by injections of financial resources-and what
are the dollar ($) amounts involved?
What
are the dollar ($) totals involved - in existing resource commitments,
possible resource withdrawals, and desirable resource injections?
Brief Organization Description
(Part 1, Section 2.1, Page 18) [T2_1N]
.
Staffing:
Total number of employees
Numbers of employees in direct production
Numbers in customer interface roles
Numbers in indirect support roles
Numbers in managerial roles
Describe employee morale:
Describe the degree of unionization of employees:
Describe your level of employee absenteeism:
Are
employee skill levels appropriate to their work roles?
How
much training is required to maintain skill levels?
Is
training conducted internally or externally?
Are
skilled employees easily replaceable? If so, how?
What
reward systems are in place?
What
levels of participation are there in the business?
.
Direction Setting
How
are objectives/strategies set?
Is
product/service market success the focus of direction setting?
What
time frames are used in direction setting?
How
are the directions-in terms of objectives, strategies,
timing-established as a focus throughout the organization?
Who
makes what decisions in direction setting?
What
lines of authority have been established in relation to direction
setting?
.
Change Management:
Is
change consciously managed in response to the organization taking new
directions?
Who
is responsible for guiding change within the organization?
What
philosophies are drawn on in guiding organizational change?
Are
the outcomes of change monitored?
How
is change established as a necessity or norm for the organization?
.
Resource Management:
Is
resource acquisition and use consciously managed within the
organization?
Who
is responsible for guiding these processes?
Are
new resource needs considered as part of direction setting?
Are
new patterns of internal resource allocation considered as part of
direction setting?
Are
change processes designed to release resources for alternative uses?
Are
change processes supported by appropriate injections of resources, such
as investment in new technology or training?
Functional Performance
Rate
the performance of each of your organization's functional areas as
strong, average, or weak relative to each factor. If applicable,
identify other factors in each area that you consider crucial for
successful performance.
Strong Average Weak
Procurement
Resource availability
Lines of supply
Just
in time possibilities
Logistics of supply
Human Resources
Labor availability
Industrial relations
Manpower development
Competency profiles
Training capacity
Production
Plant capacity
Plant flexibility
Maintenance/reliability
Plant modernity
Transportation
Capacity levels
Flexibility
Responsiveness/speed
Cost
Marketing
Product Range
Pricing structures/strategies
Promotional strategies
Distribution logistics
Finance/Accounting
Working capital management
Decision support capabilities
Information/control systems
Cash
flow management
Other functions/factors
Organizational Performance
Rate
the performance of areas that relate to the organization as a whole as
strong, average or weak relative to each factor identified. If
applicable, identify other factors in each area that you consider
crucial for successful performance.
Strong Average Weak
Organizational structures
Division of work
Integrative planning/control systems
Product/service market focus
Flexibility/responsiveness
Technology
Production support
Administrative support
Capacity
Flexibility
Intellectual property
Legal title
Extent of Protection
Exploitability
Durability
Management
Depth of experience
Innovative capabilities
Team
focus
Assigned performance
Indicators/responsibilities
Strong Average Weak
Financial Position
Asset structures
Debt
structures
Profitability/cash flow
Borrowing/financing capacity
Other areas/factors
Product/Service Market Segment Impacts
Assess whether the strengths you ascribed within functions or at the
organizational level have a positive or negative bearing on customer
satisfaction in each market segment.
Function/Organization Customer
Satisfaction *
Factors
Segment 1
Segment 2
Segment 3
Segment 4
Segment 5
Strengths**
*
Use criteria crucial to customer satisfaction such as cost, quality,
variety/flexibility, responsiveness, dependability/reliability, service,
innovativeness, etc. If the impact of a factor is positive or negative,
mark it accordingly in the space provided under each segment.
**You may wish to assign some factors previously scored as "average" to
this category.
Assess whether the weaknesses you ascribed within functions or at the
organizational level have a positive or negative bearing on customer
satisfaction in each market segment.
Function/Organization
Customer
Satisfaction *
Factors
Segment 1
Segment 2
Segment 3
Segment 4
Segment 5
Weaknesses**
*
Use criteria crucial to customer satisfaction such as cost, quality,
variety/flexibility, responsiveness, dependability/reliability, service,
innovativeness, etc. If the impact of a factor is positive or negative,
mark it accordingly in the space provided under each segment.
**You may wish to assign some factors previously scored as "average" to
this category.
Look
for patterns in how you categorized the impact of your strengths and
weaknesses on customer satisfaction criteria. Consider the impact across
segments. If a strength has a cumulative, sustained effect, classify it
as a distinctive competence. If a weakness has a cumulative, sustained
effect classify it as a distinctive incompetence. Mark the effect,
either positive or negative, of each distinctive competence or
incompetence in the space provided under relevant customer satisfaction
criteria.
Function/Organization Customer
Satisfaction Criteria*
Factors
Cost
Quality
Variety
Service
Dependability
Responsiveness
Other
Function/Organization Customer
Satisfaction Criteria*
Factors
Cost
Quality
Variety
Service
Dependability
Responsiveness
Other
Distinctive Competences
1.
...........................................
...............................................
...............................................
2.
...........................................
...............................................
...............................................
3.
...........................................
...............................................
...............................................
4.
...........................................
...............................................
...............................................
5.
...........................................
...............................................
...............................................
Distinctive Incompetences
1.
...........................................
...............................................
...............................................
2.
...........................................
...............................................
...............................................
3.
...........................................
...............................................
...............................................
4.
...........................................
...............................................
...............................................
5.
...........................................
...............................................
...............................................
Assessing the Impact of Resourcing Patterns
Assess the impact of resource allocations on factors listed as strengths
and weaknesses.
FINANCIAL RESOURCING PATTERNS
Function/ Organization Factors
Existing Resource Commitment (estimated $)
Sensitivity to Resource Variations (level $, plus or minus )
Possible Resource Withdrawal with no Impact on Strengths ($)
Desirable Resource Injection for Weaknesses ($)
Strengths
Weaknesses
Repeat the assessment above for distinctive competences and
incompetences.
FINANCIAL RESOURCING PATTERNS
Function/ Organization Factors
Existing Resource Commitment (estimated $)
Sensitivity to Resource Variations (level $, plus or minus )
Possible Resource Withdrawal with no Impact on Distinctive Competences
($)
Desirable Resource Injection for Distinctive Incompetences ($)
Distinctive Competences
1.
2.
3.
4.
Distinctive Incompetences
1.
2.
3.
4.
2.2 FUTURES ASSESSMENT
The
following templates assist in probing the effects of future happenings
on your organization and the effects of directional moves by your
organization on the future.
The
futures assessment focuses first on your present competitive position in
product/service market segments, the industry (or industries) your
organization is in, relative to your major competitors in
product/service market segments, and in key resource markets. It seeks
to determine what future threats and opportunities are likely to have an
effect in each area on your organization's competitive position as it
moves into the future.
Next, the assessment focuses on the factors you have identified as
conferring strengths or weaknesses on your organization, particularly
the sets of factors you have identified as distinctive competences or
distinctive incompetences. These factors or sets of factors may relate
to product/service offerings, organizational structures, technology,
intellectual property available, management, and the organization's
financial condition (including its potential to generate finances from
internal or external sources). Each strength and weakness, each
identified distinctive competence or distinctive incompetence can now be
probed to determine whether it confers a competitive advantage or a
competitive disadvantage on your organization (here you will draw on
your previous analyses of your organization's competitive position.
Finally, you can detail the resource injections you will need to sustain
your competitive advantages or alleviate competitive disadvantages (here
you will draw on your previous analyses of the resourcing patterns
underlying strengths and weaknesses and distinctive competences and
distinctive incompetences;
At
this point you should be able to establish a list of the strategic
issues facing your organization, as its strategic agenda. This list can
be developed within the following categories:
.
strategy/performance gaps;
.
feasible opportunities;
.
potential difficulties;
.
capability gaps;
.
manageable threats; and
.
emerging Issues.
For
each item listed on the strategic agenda, a range of possible actions
can be generated; these are called strategic alternatives. More than one
strategic alternative may be identified for each item on the strategic
agenda list, but each item on the list should be matched with at least
one strategic alternative.
Now
it is time to evaluate each action listed as a strategic alternative, as
a basis for determining which might be implemented, and for assigning
priorities, time frames, and sequencing to implementation. This
evaluation may be made against a range of criteria, which relate to the
following:
.
strategic coherence;
.
outcome likelihood/risk;
.
threat/capability exposure;
.
advantages/disadvantages;
.
assumption failure; and
.
resource implications.
Each
of the criteria should be applied to each alternative, and a composite
evaluation should be reached for each alternative. The composite
evaluations might be given a score (say from 1-10) to indicate your
relative preference for an alternative.
External Threats and Opportunities Analysis
Identify threats and opportunities relating to each of the four areas in
which you have assessed your competitive position: product/service
markets, industry, competitors, and resource markets. Insert your
previously determined competitive position, and then describe relevant
threats and opportunities affecting it. This begins the S.W.O.T.
analysis referred to in Part 1 of the Guide (strengths, weaknesses,
opportunities, and threats).
Competitive Position (strong, average,
weak)
Threats Opportunities
Product/Service Markets
___
Segment 1 ___
Segment 2 ___
Segment 3 ___
Segment 4 ___
Segment 5 ___
Industry
___
Segment 1 ___
Segment 2 ___
Segment 3 ___
Segment 4 ___
Segment 5 ___
Competitors
___
Segment 1 ___
Segment 2 ___
Segment 3 ___
Segment 4 ___
Segment 5 ___
Resource Markets
___
Raw
materials ___
Capital equipment ___
Intellectual property ___
Information technology ___
Labor ___
Distribution/transport ___
Other ___
Internal Strengths and Weaknesses
Assess whether the strengths and weaknesses you have identified,
particularly those categorized as distinctive competences or
incompetences, confer a competitive advantage or competitive
disadvantage on the organization.
Strengths Weaknesses
List of Factors Distinctive Competences
Competitive Advantages
Distinctive Incompetences
Competitive Disadvantages
Product/service related
Organizational structures
Intellectual property
Technology
Management
Financial condition
External finance generation potential
Internal finance generation potential
Required resource injections
Establishing a Strategic Agenda
Develop a strategic agenda based on the assessments you've done so far.
List agenda items on the left of the following table under the relevant
heading.
Strategic Agenda
(list)
Strategic Alternatives
Performance/ Strategy Gaps
Feasible Opportunities
Potential Difficulties
Capability Gaps
Manageable Threats
Emerging Issues
Developing Strategic Alternatives
Collaboratively develop as many alternatives as possible for addressing
each item on the strategic agenda. List the alternatives developed on
the right side of the above table.
Evaluating Strategic Alternatives
Evaluate the merits of each alternative action to determine which ones
should have greater priority. Use each of the criteria listed for each
alternative. Then come to a composite evaluation of each alternative,
possibly giving it a score. Your scoring system should indicate your
relative preference for an alternative, say on a scale of 1-10.
Strategic Alternative (indicate)
Evaluative Criteria
Composite Evaluation (score)
Strategic Coherence
Likelihood/ Risk Resource Implications Threat/ Capability Exposure
Advantages/ Disadvantages
Assumption
Failure
FUTURE DIRECTIONS
The
following templates readdress the what and how questions relating to an
organization's directions but from a future perspective.
What
business objectives and financial objectives will the organization
pursue in the future?
And
how will these objectives be pursued through business strategies and
financial strategies?
How
can these directional aspirations and intentions be expressed forcefully
and simply in a statement of business mission?
Answers to these questions can be represented in the templates provided,
informed by the preceding detailed explorations of present directions
the organization's present situation, likely future impacts on the
organization's present directions and situation, and possible strategic
alternatives. Finally, key performance indicators can be defined to both
guide and track the organization's directions-in financial and
product/service market terms and in terms of competitive position and
organization development and performance. The template provided enables
planned performance
in
each of these categories to be compared with that achieved. Thus, the
following assessments will enable you to confirm or redefine your
organization's financial and business objectives and how it intends to
pursue its objectives.
FUTURE BUSINESS OBJECTIVES
Define your future business objectives in terms of:
.
the product/service market segments the organization will operate in;
.
the value to be created for customers, and how they should perceive it;
.
sales volume growth by segment; and
.
the share of the market sought in each segment.
Product/service market segments (identify/describe)
1. ,
2.
3.
4.
5.
Types of customer value/ experience: Sales volume growth by segment
1. ,
2.
3.
4.
5.
Share of market by segment
1.
2.
3.
4.
5.
FUTURE FINANCIAL OBJECTIVES
Define your future financial objectives over a three year period, in
terms of:
.
returns sought;
.
growth;
.
retention of funds in the business; and
.
the levels of finances to be provided through debt.
Rate
of return on capital employed: Year 1: Year 2:
Year 3:
Rate
of return on assets: Year 1: Year 2:
Year 3:
Rate
of growth in capital employed: Year 1: Year 2:
Year 3:
Rate
of growth in assets: Year 1: Year 2:
Year 3:
Debt/equity ratio: Year 1: Year
2: Year 3:
Dividend rate: Year 1:
Year 2: Year 3:
Other Year 1:
Year 2: Year 3:
FUTURE BUSINESS STRATEGIES
Define your future business strategies in terms of:
.
the product/service range to be maintained in each market segment, and
the product/service volumes to be offered;
.
the competitive advantages and distinctive competences to be used in
competing;
.
the synergies sought and productivity improvements to be made as a basis
for competing; and
.
the investments to be made to support business strategies, and to build
a platform for competing in the future.
Product/service range (describe)
Segment
Product/service volumes (quantify)
Segment
Competitive advantages sought and used
Customer related:
Competitor related:
Organization related
Distinctive competences used
Functional:
Organization level
Synergies sought
Product/service market related
Resource market related:
Within the organization:
With
other organization alliances:
Productivity/continuous improvement
Types of gain sought
Organizational areas
Methods of pursuit
Investments
Product/service development
Intellectual property:
Technology:
Key
competences:
FUTURE FINANCIAL STRATEGIES
Define the strategies to be used in generating finance and allocating it
to support business strategies, over a three-year period.
How
finance is generated
Owners/shareholders: Year 1: Year 2:
Year 3:
Debt: Year 1:
Year 2: Year 3:
Retained earnings: Year 1: Year
2: Year 3:
Average cost of funds sought: Year 1: Year 2:
Year 3:
Investment hurdle rates: Year 1: Year 2:
Year 3:
Investment levels: Year 1: Year
2: Year 3:
Asset reduction ($): Year 1: Year
2: Year 3:
Cost
reduction ($): Year 1: Year 2:
Year 3:
Cash
balances (min.) Year 1: Year 2:
Year 3:
Standby facilities (min.) Year 1: Year
2: Year 3:
BUSINESS MISSION
Based on your revised understanding of your organization, reaffirm or
adjust your business mission in a succinct statement:
KEY ORGANIZATIONAL PERFORMANCE INDICATORS
Define the key performance indicators that you wish to monitor, as
guides to progress of the organization as a whole. These indicators
should deal with attainments sought over time in terms of both financial
condition and competitive position. They should deal also with the
organization's success with customers in product/service markets and
with improvements in organizational capability.
Financial Target
Achieved
Sales ($) by segments:
1.
2.
3.
4.
5.
Segment profitability: Target
Achieved
1.
2.
3.
4.
5.
Return on capital
Employed: Target
Achieved
Period
1.
2.
3.
4.
Debt
reduction/ Retirement: Planned
Achieved
Period
1.
2.
3.
4.
Asset reduction: Planned
Achieved
Period
1.
2.
3.
4.
Cost
reduction: Planned
Achieved
Period
1.
2.
3.
4.
Cash
balances: Planned
Achieved
Period
1.
2.
3.
4.
Other
Product/Service Markets and Customers
In
the following table, clearly indicate the period covered:
Planned Achieved
Sales volumes by Segments/period:
1.
2.
3.
4.
5.
Share/market by segments/period:
1.
2.
3.
4.
5.
Product/service expansion by segments/
period:
1.
2.
3.
4.
5.
Customer satisfaction indicators:
Our
image generally
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive Position
Planned Achieved
Product/service market
segments
1.
2.
3.
4.
5.
Competitors (name):
1.
2.
3.
4.
Planned Achieved
Resource markets
Raw
materials
Labor
Intellectual property
Equipment
Other
Organization
Product/service Planned
Achieved
development/ enhancement:
Technology improvements:
Process improvements:
Competence development (organizational)
Synergy gains
Product/service related: Synergy gains
Supplier related Synergy gains
Process related Synergy gains
Organization related
SEGMENT STRATEGIES
For
each of the product/service markets engaged by the organization, use the
template provided to outline the components of the segment strategy.
Describe both outcomes sought and the competitive bases on which the
strategy is to be pursued. Fill in as many templates as necessary to
reflect the organization's product/service portfolio completely.
Desirably, define each component of a segment strategy so that it
targets actions. These targets can then be used as performance
indicators, with results of actions being compared to targets.
Note:
Segment strategies have financial, product/service market, and
organizational capability dimensions.
SEGMENT STRATEGY
Product/service range:
Sales targets:
(Volume)
Year
1:
Year
2:
Year
3:
Share of market Targets
Year
1:
Year
2:
Year
3:
Sales targets ($):
Year
1:
Year
2:
Year
3:
Segment profitability
Year
1:
Year
2:
Year
3:
Customer satisfaction
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive advantage targets:
Customer related
Competitor related
Organization related
Distinctive competences to be capitalized on:
Synergy targets:
Within segment support processes:
Within cross-organizational functioning
Productivity/continuous improvement targets:
Process improvement targets:
Cost recovery targets:
Asset reduction targets:
Investment targets:
Technology related:
Product/service development:
Competency development:
FUNCTIONAL STRATEGIES
Just
as segment strategies elaborate and focus the organization's financial
strategies and business strategies, the organization's functional
strategies are designed to support its segment strategies. Each segment
strategy will be supported by processes that draw to varying degrees and
in varying combinations from the key functional areas of the
organization. If the organization has more than one segment strategy,
then functional strategies will need to: (a) support each segment
strategy and (b) determine how support is to be provided with
appropriate focus and balance to each segment strategy. For this reason,
each functional strategy begins with an affirmation of the customer
satisfaction and competitive advantage targets sought in each
product/market segment. The purpose of each functional strategy is to
focus the contributions of the functional area on attaining these
targets. The factors that may be drawn on from each functional area in
supporting customer satisfaction and competitive position. Each
functional strategy then establishes: (a) the distinctive competences to
be capitalized on by the function in providing support to segments, and
(b) the synergy gains that should be sought in providing support across
segments. These distinctive competences and synergy targets can be
related to those specified in segment and organization level strategies.
To put it another way, segment strategies presume these components of
functional strategies, as does the
organization's business strategy. Functional strategies also specify how
each function will contribute to: (a) the productivity/continuous
improvement targets, and (b) the investment targets established in
segment strategies and organization level financial and business
strategies. Functional strategies might be established in the following
areas or in any functional grouping that is sensible to an organization:
.
marketing;
.
production;
.
procurement;
.
transportation;
.
finance/accounting;
.
human resources;
.
organization structures; and
.
management.
Functional strategies should be defined so they target actions. These
targets can be used as performance indicators, when results are compared
to targets.
The
templates provided below should assist in the focusing and definition of
functional strategies.
MARKETING STRATEGIES
Customer satisfaction targets:
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive advantage targets:
Customer related
(e.g., positioning, innovation)
Competitor related
(e.g.; cost/pricing, product range)
Organization related
(e.g., flexibility, technology)
Distinctive competences to be capitalized on:
Within marketing function:
Within organization:
Synergy targets Across segments in marketing function:
Within the organization:
Productivity/continuous improvement targets
Within marketing function
Cost
recovery targets
Asset reduction targets
Investment targets
Technology related
Product/service development
Competency development
PRODUCTION STRATEGIES
Customer satisfaction targets:
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive advantage targets:
Customer related
(e.g.; product functionality, quality)
Competitor related
(e.g., cost/pricing, product range)
Organization related
(e.g., plant capacity, modernity, maintenance)
Distinctive competences to be capitalized on:
Within production function:
Within organization:
Synergy targets
Across segments within production function:
Across the organization:
(e.g., with procurement)
Productivity/continuous improvement targets
Within production function
Cost
recovery targets
Asset reduction targets
Investment targets
Technology related
Product/service development
Competency development
PROCUREMENT STRATEGIES
Customer satisfaction targets:
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive advantage targets:
Customer related
(e.g., resource availability, quality)
Competitor related
(e.g., secure lines of supply, resource pricing)
Organization related
(e.g., cost of supply, supplier management)
Distinctive competences to be capitalized on:
Within procurement function:
Within organization:
Synergy targets
Across segments within procurement function:
Within the organization:
(in
segment-related processes)
Productivity/continuous improvement targets
Within procurement function
Cost
recovery targets
Asset reduction targets
Investment targets
Technology related
Product/service development
Competency development
TRANSPORTATION STRATEGIES
Customer satisfaction targets:
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive advantage targets:
Customer related
(e.g., responsiveness, coverage)
Competitor related
(e.g., cost, coverage)
Organization related
(e.g., flexibility, capacity)
Distinctive competences to be capitalized on:
Within transportation function:
Within organization:
Synergy targets
Across segments within production function:
Within the organization:
Productivity/continuous improvement targets
Within transportation function
Cost
recovery targets
Asset reduction targets
Investment targets
Technology related
Product/service development
Competency development
FINANCE/ACCOUNTING STRATEGIES
Customer satisfaction targets:
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive advantage targets:
Customer related
(e.g., financing support, procedural simplicity)
Competitor related (e.g., asset/cost structures)
Organization related (e.g., decision support, cash flow management)
Distinctive competences to be capitalized on:
Within accounting/finance function:
Within organization:
Synergy targets
Across segments in Accounting/finance function:
Within the organization:
Productivity/continuous improvement targets Within the accounting/
finance function
Cost
recovery targets
Asset reduction targets
Investment targets
Technology related
Product/service development
Competency development
HUMAN RESOURCE STRATEGIES
Customer satisfaction targets:
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive advantage targets:
Customer related (e.g., service orientation, skill)
Competitor related (e.g., labor availability, industrial relations))
Organization related (e.g., training capacity, manpower development)
Consolidated functional demands:
Function Human Resources Requirements
Marketing
Production
Procurement
Transportation
Finance/accounting
Human resources
Organization structuring
Management processes
Other Distinctive competences to be capitalized on:
Within human resources function
Within organization
Synergy targets
Across segments in human resources function:
Across functions within the organization:
Within the organization generally:
Productivity/continuous improvement targets
Within the human resource function
Cost
recovery targets
Asset reduction targets
Investment targets
Technology related
Product/service development
Competency development
ORGANIZATION STRUCTURES
Customer satisfaction targets:
Quality
Service
Responsiveness
Dependability
Flexibility
Other
Competitive advantage targets:
Customer related (e.g., product/service market focus)
Competitor related (e.g., flexibility/ responsiveness)
Organization related (e.g., integrative planning and control systems))
Distinctive competences to be capitalized on through organizational
structures:
Synergy targets, through structures/restructuring:
Productivity/continuous improvement targets Through structural
arrangements:
Cost
recovery targets
Asset reduction targets
Investment targets
Technology related Product/service development
Competency development
MANAGEMENT PROCESSES
Customer satisfaction targets:
Quality
Service
Responsiveness
Dependability
Flexibility
Other Competitive advantage targets:
Customer related (e.g., service orientation, innovative capabilities)
Competitor related (e.g., team focus, competitive orientation)
Organization related (e.g., assigned performance indicators/
responsibilities)
Distinctive competences to be capitalized on in management Processes:
Synergy targets, in management processes::
Productivity/continuous improvement targets In management processes:
Cost
recovery targets
Asset reduction targets
Investment targets
Technology related
Product/service development
Competency development
FINANCIAL PLANNING
FINANCIAL PLANNING FRAMEWORK
The
organization's financial planning is guided by the financing and
resource management assumptions and decisions that support business
objectives and strategies. These assumptions and decisions are
integrated across the organization as a financial planning framework,
encompassing the financial inputs necessary to support business
processes and the financial outputs necessary to meet the organization's
objectives. The parameters of the financial planning framework have been
'captured' already in the templates dealing with future financial
objectives, financial strategies, and key performance indicators for the
organization. The financial planning framework can be represented at
organizational, segment, and functional levels through the following
templates.
ORGANIZATIONAL FINANCIAL PERFORMANCE
Last Year Next Year Year 2 Year 3
Objectives
.
Return on equity (%)
.
Asset growth ($)
.
Debt/equity (%)
.
Dividend policy (%)
.
Liquidity ($)
Strategies
.
Financing mix
-
Short-term debt (%)
-
Long-term debt (%)
-
Equity (%)
.
Cost of capital (%)
.
New investment ($)
.
Cost reduction ($)
.
Asset reduction ($)
.
Cash balances ($)
SEGMENT FINANCIAL PERFORMANCE
Last Year Next Year Year 2 Year 3
Objectives
.
Sales revenue ($)
.
Profitability on sales (%)
Strategies
.
Cost reduction ($)
.
Asset reduction ($)
.
New investment ($)
FUNCTION FINANCIAL PERFORMANCE
Function:
Last Year Next Year Year 2
Year 3
Strategies
.
Cost reduction ($)
.
Asset reduction ($)
.
New investment ($)
FINANCIAL REPORTING
The
financial planning framework should be used to develop:
. a
set of financial statements for the organization dealing with the four
time periods
represented, including:
. a
balance sheet;
. a
profit and loss statement; and
. a
cash flow statement.
.
budgets for the same time periods for:
.
the organization overall;
.
segments; and
.
functions.
Financial performance monitoring systems can be developed to suit the
SME, but they should be developed as part of a broader performance
monitoring system linked to the organization's performance management
framework overall. At no point should financial performance be assessed
in isolation from product/service market or
organizational performance; nor should it be isolated from the strategic
thinking underlying the organization's drive for financial and business
success.
As
professional accounting advisor, you should design an integrated
financial and non-financial performance monitoring and reporting system
that suits the organization's objectives, strategies, and circumstances.
PERFORMANCE MANAGEMENT
PERFORMANCE MANAGEMENT FRAMEWORK
Matching the financial Performance framework of the organization is a
performance management framework, which links together functional,
segment, and organizational performance indicators so as to support the
realization of organizational strategies and the attainment of
organizational objectives.
The
performance management framework has been captured already, in a series
of templates at functional, segment, and organizational levels. The
performance management framework traces a path between actions taken
within an organization and the attainment of organizational objectives:
it frames actions that are purposeful, coherent, and directional. It
sets strategic directions for the multitude of actions that will be
taken within the organization. These actions will take place within the
processes that support segment strategies and within the functional
processes that contribute to segment strategies. But such actions also
need to be planned, if they are to make expected contributions to
segment and functional strategies, and planned by the staff who will be
involved in taking the actions.
Action plans require the specification of:
.
the range of actions to be taken;
.
how such actions are strategy-related;
.
the performance targets established for each action;
.
the person or unit responsible for each action; and
.
time and timing issues or requirements associated with each action.
The
templates provided below can be used to structure such specifications,
in the form of segment action plans and functional action plans.
Obviously a separate plan needs to be developed for each segment and
each function.
SEGMENT ACTION PLANS
Develop action plans to help you implement the directions you wish to
take. Involve all staff with segment responsibilities in developing the
plans. A separate action plan should be developed for each segment.
Segment:
Action
Strategy-Related Issues
Performance Targets
Person/Unit Responsible
Time for Action
FUNCTIONAL ACTION PLANS
Develop action plans for functions, with the help of staff with
responsibilities in each functional area. A separate action plan should
be developed for each function.
Function:
Action
Strategy-Related Issues
Performance Targets
Person/Unit Responsible
Time for Action
STRATEGIC BUSINESS PLANNING
You
are now in a position to compose a strategic business plan, based on the
outcomes of the directional thinking you have undertaken with SME staff
and management. A strategic business plan links planned organizational
actions to organizational objectives, through strategically defined
financial and performance management frameworks. Your strategic business
plan should be composed in a concise, easily accessible and easily
revisable form (perhaps on a computer or in the form of a loose-leaf
ring binder). All staff within the organization should have it available
for ready guidance. Your strategic business plan should draw the
following together, in this order:
STRATEGIC BUSINESS PLAN
.
business mission
.
organizational objectives
.
business objectives
.
financial objectives
.
organizational performance
.
business strategies
.
financial strategies
.
key performance indicators
.
segment performance
.
segment strategies
.
segment performance indicators/targets
.
segment action plans
.
functional performance
.
function strategies
.
function performance indicators/targets
.
function action plans
.
performance monitoring and review
.
financial planning framework
.
performance management framework
.
performance monitoring systems
.
strategy review processes
All
of the components of the strategic business plan have been considered
above, with the exception of the last two-performance monitoring and
review, and strategy review processes.
PERFORMANCE MONITORING SYSTEMS
Performance monitoring and review needs to be conducted:
. at
organizational, segment, and functional levels; and
. in
relation to financial, market, and organizational performance
indicators.
Together, the financial planning framework and the performance
management framework developed for the organization provide a structure
for performance monitoring and review. Equally obvious, the design of
performance monitoring systems needs to be adapted to the needs and
capacities of a SME. As a professional accounting advisor, you should
undertake such adaptation. You may use the template provided below to
describe the systems you would implement. The completed template should
then be incorporated in the strategic business plan. Describe
performance monitoring systems you will implement, related to:
Financial performance:
Market performance:
Organization performance:
STRATEGY REVIEW PROCESSES
The
establishment of strategic directions in SMEs is not the end of the
matter, however. All may not go according to plan, new information may
become available, and circumstances may change. But it is here that the
strategic business plan is likely to be most valuable-not in structuring
directions taken regardless but in structuring responses to change that
are strategic and directional in orientation, at all levels of an
organization. The strategic business plan should inhibit change for
change's sake and ensure that change does not just occur, without
intention. Within a SME, the failure to realize action plans is likely
to trigger a review of functional and segment strategies and their
ongoing sensibility and integrity. In turn, issues relating to segment
strategies are likely to trigger a review of business and financial
strategies at the organizational level. Of course, other events in
financial, product/service, or resource markets may trigger a review of
organizational level and segment strategies. The template provided below
is designed to describe the strategy review processes that the SME will
initiate, at all levels. The occasions for review, triggering events or
indicators, and who will be involved might all be described. This
completed template should be incorporated in the strategic business
plan.
Describe the strategy review processes you will initiate, related to:
Action plans:
Functional strategies:
Segment strategies:
Business strategies:
Financial strategies:
FINAL WORD
As a
professional accounting advisor, your review of the organization's
situation and future is now complete. With the management and staff of
the organization, you should have established positive directions for
moving forward, with linked objectives, strategies, and actions. In
other words, together you will have established a sensible strategic
business plan to guide everyday activities. You may wish to write a
one-page executive summary and attach it to the front of the plan. Only
a few key decision makers in the organization may have been involved in
preparing the strategic business plan. If so, management of the SME now
has the crucial task of ensuring that all employees understand and
accept the contents and intent of the plan. It is strongly recommended
that at least the same amount of time be allowed for communication as
was devoted to the development of the plan. Wherever possible, members
of the workforce should be involved in finalizing details of the
implementation process and action plans that involve them. In this way
staff will be more likely to understand the plan and will have a greater
commitment to it. With your help, management of the SME you serve in
your role of professional accounting advisor should now feel better
prepared to confront the future and the uncertainties and changes it
will bring.
We
acknowledge
IFAC from where we obtained the above content
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