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Show, in a given scenario, how a business chooses from competing strategies in order to
maximise the achievement of its key objectives, including those relating to corporate
responsibility and sustainability
Choose, for a given scenario, a strategy or combination of strategies which will achieve the
business's objectives and takes account of known constraints, including stakeholder risk
preferences
Identify the implications for stakeholders, including shareholder value, of choice between
strategies
Assess a business's current position and performance from both a financial and a non-financial
perspective, using a variety of information sources and data analysis
Analyse financial and other data in order to provide information for strategic decision making
Explain and demonstrate how financial and non financial data can be analysed in order to
implement and manage a businesss strategy and monitor the performance of its projects,
divisions and other strategic units
Tick off
Specific syllabus references for this chapter are: 1g,2b,2c, 2e, 2g, 3g.
Examination context
This chapter looks at two key areas, evaluation of strategies and performance measurement.
An important skill when evaluating strategies in the exam is the ability to assess them in the light of the
organisation's current position, mission and stakeholder objectives and examples of this can be found in
questions 1 and 2 of the sample paper.
Questions are regularly set on performance measurement.
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Evaluation criteria
Johnson, Scholes and Whittington (Exploring Corporate Strategy) provide a checklist for assessing options:
1.2
Suitability
Suitability relates to the strategic logic and strategic fit of the strategy.
1.3
1.4
Feasibility criteria
Feasibility asks whether the strategy can in fact be implemented. Does the firm have the resources and
competences required to carry the strategy out? Are the assumptions of the strategy realistic?
Identifying CSFs
Critical success factors are a small number of key goals vital to the success of an organisation ie things that
must go right.
Five areas in which CSFs should be identified:
1
2
3
4
5
2.2
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The process of identifying CSFs will help alert management to the things that need controlling (and
show up the things that are less important).
The CSFs can be turned into Key Performance Indicators (KPIs) for periodic reporting.
They can be used for benchmarking organisational performance internally and against rivals.
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3 Strategic control
3.1
3.2
Comment
Measurable
Consistently measured
Meaningful
Re-evaluated regularly
Defined by the strategy and relevant to it
Acceptable
Profitability
A company should be profitable, and there are obvious checks on profitability.
(a) Whether the company has made a profit or a loss on its ordinary activities
(b) By how much this year's profit or loss is bigger or smaller than last year's profit or loss
It is probably better to consider separately the profits or losses on exceptional items if there are any. Such
gains or losses should not be expected to occur again, unlike profits or losses on normal trading.
4.2
Sales margin
Definition
Sales margin: Sales turnover less cost of sales. Sometimes expresses as a percentage of sales turnover to
indicate the proportion of sales proceeds retained as gross profit.
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Business Strategy
4.3
It is quick and cheap to calculate given that the financial reporting system will be calculating profits and
asset values already.
Problems of both ROCE/ROI and RI in the evaluation and control of business divisions are:
`
`
`
Encourage short-termism
Discourage investment in assets
Lack of strategic control
5.2
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Question
Explanation
Customer
Internal business
Perspective
Question
Explanation
Innovation and
learning
Can we continue to
improve and create
future value?
Financial
How do we create
value for our
shareholders?
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Performance targets are set once the key areas for improvement have been identified, and the balanced
scorecard is the main monthly report.
Kaplan and Norton claimed that the scorecard is balanced in the sense that managers are required to
think in terms of all four perspectives, to prevent improvements being made in one area at the
expense of another.
5.3
Financial
Return on Investment
Profitability
Revenue growth/revenue mix
Cost reduction
Cash flow
Customer
Market share
Customer acquisition retention
Customer profitability
Customer satisfaction
Employee satisfaction
Employee productivity
Revenue per employee
% of revenue from new services
Time taken to develop new products
Internal business
5.4
Problems
As with all techniques, problems can arise when it is applied.
`
The balanced scorecard only measures performance. It does not indicate that the strategy is the right
one.
Some measures in the scorecard may naturally conflict, it is difficult to determine the balance which
will achieve the best results.
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Business Strategy
5.5
The process of deciding what to measure forces a business to clarify its strategy.
The balanced scorecard can influence behaviour among managers, it can be used as a wide-ranging
driver of organisational change.
The scorecard can be used both by profit and not-for-profit organisations because it acknowledges the fact
that both financial and non-financial performance indicators are important in achieving strategic objectives.
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Chapter summary
Evaluation criteria
Acceptability
Financial
risk/return
Customers
Investors
Government
Suitability
Strategic logic
Strategic fit
Critical
success
factor
Feasibility
Finance
Competitor
response
Technology
Time
MIT approach
Industry structure
Competitive strategy
Environmental factors
Temporary factors
Functional managerial position
Monitored
and
controlled by
Key
performance
indicators
Strategic
control
Balanced scorecard
Customer
Financial
Internal business
Innovation and learning
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