Strategic management refers to the art of planning your business at the highest possible level.

It is
the duty of the company’s leader (or leaders). Strategic management focuses on building a solid
underlying structure to your business that

will subsequently be fleshed out through the combined efforts of every individual you employ.
Strategic management hinges upon answering three key questions:

1. What are my business’s objectives?

2. What are the best ways to achieve those objectives?

3. What resources are required to make that happen?

Answering the first question requires serious thought about what your ultimate goals are for the
business. What are you trying to make happen? What are you attempting to facilitate or enable?
What is the best possible outcome your company can aspire to?

Drilling down to uncover a company’s core objectives can have several phases:

 Assessing the landscape within which the company will operate, and formulating how the
company sees its role within that landscape. This is commonly known as a mission statement.

 Establishing objectives to answer some of the unmet needs, taking both a long- and short-term
view of what the company can offer. This is commonly known as a vision statement.

 Stipulating the goals the company has for itself, both in terms of financial and strategic
objectives.

Once these steps have been taken, a strategic plan should begin to emerge — effectively setting

Once these steps have been taken, a strategic plan should begin to emerge — effectively setting the
stage for answering the second question above, or “How best can we reach our goals?” Phase two
of successful strategic management is formulating a plan by which the company can accomplish
what it sets out to do.

Within this phase, a chain of command should be put in place, pairing individuals with the right skills,
knowledge, and experience with the business’s needs and objectives. From there, responsibilities for
processes and tasks should be distributed across the full chain of command, delegating work to
teams and individuals so that they company’s goals can be attained through the combined efforts of
all employees. This includes communicating responsibilities and deliverables (what needs to be
done, and how the results of those tasks will be measured).
Finally, strategic management entails allocating the right amount of resources to the different parts
of your business so that those assigned to particular goals have what they need to meet their
objectives. This ranges from providing your workers with the right supplies to enacting systems by
which employees receive the necessary training, all work processes are tested, and all information
and data generated is documented. To effectively manage your business strategically, every inch of
your company must have its needs met in these ways, so all parts can work together as a seamless,
highly functioning whole.

A critical but often overlooked aspect of strategic management is the need for it to be both planned
and unplanned. Company leaders must take the initiative in setting out how the company should
function and operate, but they must also be dynamic in responding to needs and requirements as
they arise. Strategic management is not a static process that can be limited to a linear process.
Often, unforeseen results ensue (which can be both positive and negative) and strategic managers
must be able to respond to occurrences that cannot be predicted.

Effective strategic management is lithe and nimble, enabling companies to move quickly in response
to new challenges, and replace outmoded ideas and practices with processes that can help meet
new needs as they present themselves.
Strategic management is the process by which a firm manages the formulation and
implementation of its strategy.

Time scales

Strategic management operates on several time scales. Short term strategies involve planning and
managing for the present. Long term strategies involve preparing for and preempting the future.
Marketing strategist Derek Abell (1993), has suggested that understanding this dual nature of
strategic management is the least understood part of the process. He claims that balancing
aspects of strategic planning requires the use of dual strategies simultaneously.

Strategic Management is actually a solid foundation or a framework within which all the
functioning managerial operations are bundled together. This is the highest level corporate
activity that sets the terms and goals for a company that it should follow for prosperity.

[edit] General approaches

Strategic management techniques can be viewed as bottom-up, top-down, or collaborative

processes. In the bottom-up approach, employees submit proposals to their managers who, in
turn, funnel the best ideas further up the organization. This is often accomplished by a capital
budgeting process. Proposals are assessed using financial criteria such as return on investment or
cost-benefit analysis. The proposals that are approved form the substance of a new strategy, all
of which is done without a grand strategic design or a strategic architect. The top-down approach
is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning
team, decides on the overall direction the company should take. Some organizations are starting
to experiment with collaborative strategic planning techniques that recognize the emergent
nature of strategic decisions.

[edit] The strategy hierarchy

Functional strategies include marketing strategies, new product development strategies, human
resource strategies, financial strategies, legal strategies, and information technology management
strategies. The emphasis is on short and medium term plans and is limited to the domain of each
department's functional responsibility. Each functional department attempts to do its part in
meeting overall corporate objectives, and hence to some extent their strategies are derived from
broader corporate strategies.

Many companies feel that a functional organizational structure is not an efficient way to organize
activities so they have reengineered according to processes or Strategic business units (SBUs). A
strategic business unit is a semi-autonomous unit within an organization. It is usually responsible
for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is
treated as an internal profit centre by corporate headquarters. Each SBU is responsible for
developing its business strategies, strategies that must be in tune with broader corporate
strategies.

The "lowest" level of strategy is Operational strategy. It is very narrow in focus and deals with
day-to-day operational activities such as scheduling criteria. It must operate within a budget but
is not at liberty to adjust or create that budget. Operational strategy was encouraged by Peter
Drucker in his theory of Management by objectives (MBO). Operational level strategies are
informed by business level strategies which, in turn, are informed by corporate level strategies.
Business strategy, which refers to the aggregated operational strategies of single business firm or
that of an SBU in a diversified corporation refers to the way in which a firm competes in its
chosen arenas.

Corporate strategy, then, refers to the overarching strategy of the diversified firm. Such corporate
strategy answers the questions of "in which businesses should we compete?" and "how does
being in one business add to the competitive advantage of another portfolio firm, as well as the
competitive advantage of the corporation as a whole?"

Since the turn of the millennium, there has been a tendency in some firms to revert to a simpler
strategic structure. This is being driven by information technology. It is felt that knowledge
management systems should be used to share information and create common goals. Strategic
divisions are thought to hamper this process. Most recently, this notion of strategy has been
captured under the rubric of dynamic strategy, popularized by the strategic management textbook
authored by Carpenter and Sanders [1]. This work builds on that of Brown and Eisenhart as well
as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing
ongoing strategic change, and the seamless integration of strategy formulation and
implementation. Such change and implementation are usually built into the strategy through the
staging and pacing facets.
Strategic management is the process of developing and executing a series of competitive moves
to enhance the success of the organization both in the present and in the future. These
competitive moves are derived from the demands of the external environment in which the firm
operates as well as the internal capabilities which it has developed or can reasonably hope to
build or acquire. While managers may follow somewhat different strategic management routines,
a sound process should include an analysis of the current business situation, the formulation of
objectives and strategies based on that analysis, and an implementation and evaluation procedure
that ensures progress toward each strategy and objective. This article focuses on the formulation
of appropriate strategic objectives based on a sound understanding of the internal and external
environments faced by the firm. A brief discussion of implementation is included though this
topic is covered in greater detail in other entries.

SITUATIONAL ANALYSIS

In order to create appropriate strategic objectives, organizations work to understand their internal
capabilities as well as the environment in which they operate. Further, they also seek to clarify
their purpose or mission. The situation analysis firmly focuses management's attention on these
issues, allowing it to create a fit between its resources and the demands of the competitive
situation.

The steps to be taken in a situational analysis are largely agreed upon, though there does exist
some debate as to whether one starts with a mission statement or with an analysis of the state of
the organization. Those who believe that a mission statement is the logical starting point argue
that management must first think carefully and creatively about the future direction of the
company if they are to create and implement effective objectives (Thompson and Strickland,
1998). In this way, managers can choose their own vision of what the company ought to be
rather than be unduly affected by company history or industry exigencies. On the other hand,
managers may want to have a keen understanding of the history and current performance of a
company as well as important industry factors so as to craft a strategic vision that is attainable in
terms of organizational competencies and industry dynamics. While both sides have merit, this
article discusses the state of the organization first.

STATE OF THE ORGANIZATION

In analyzing the state of the organization, managers take a candid measure of its recent
performance. Typically, they consider such issues as profitability, stock price performance,
market share, revenue growth, customer satisfaction, product innovation, and so forth. These
measures can vary from industry to industry. Product innovation, for example, is important to the
pharmaceutical industry, while the number of new distributors signed may be a more important
measure in the multilevel marketing industry.

In addition to this performance review, managers typically examine a company's (s)trengths,

(w)eaknesses, (o)pportunities, and (t)hreats by conducting a (SWOT) analysis. Strengths consist
of those things that a company does particularly well relative to its competition and that provide
it with some competitive advantage. Strengths can be found in many different areas, including
people, such as a particularly competent sales force; systems, such as Federal Express's
information systems; locations, like that occupied by a restaurant with sweeping ocean views;
and intangible assets, such as a strong brand name. These strengths provide the competitive
advantage needed to succeed in the marketplace.

Weaknesses, on the other hand, diminish the competitiveness of a company. They, too, can be
found in many different areas, including outdated equipment, a poor understanding of customers,
or a high cost structure.

Strengths and weaknesses are typically internal to a company and, therefore, largely under a
company's control. Opportunities and threats, on the other hand, are usually derived from the
external market situation and require some response from a company if it is to perform well.
Opportunities can arise in many areas, including geographical expansion, new technologies, and
changing customer preferences and tastes. Only when a firm has (or can hope to acquire) the
specific skills needed to seize upon some option does it become an opportunity for the company.

While opportunities are chances to be seized, threats can be thought of as concerns that are
largely outside of the organization's control but have the potential to disrupt its operations.
Probably the biggest threat to many companies is their competition. Other sources of threats
include foreign economic crises such as the "Asian flu" that began in the latter part of the 1990s,
government regulations, natural disasters, and so forth. In creating strategic objectives,
management prepares contingency plans to minimize the impact of its most serious threats.

In addition to conducting a SWOT analysis and candid performance review, the executive team
may use several other tools to acquire a better understanding of its current situation. They may,
for example, identify those forces in the industry that are causing the nature of competition to
change for all competitors. One example would be the publicizing of the link between
cholesterol and heart disease that made many consumers more aware of the amount of fat in
foods. This change made it important for many food manufacturers to either lower the amount of
fat in their products or to introduce fat-free or low-fat versions of those products. These forces
that change the nature the way companies compete in an industry are known as driving forces.

Another tool used by managers in conducting a state-of-the-organization review is an analysis of

key success factors. In this analysis managers examine those things that all companies within a
given industry must do well if they are to survive. These might include rapid service for the fast-
food industry, producing large numbers of vehicles so as to offset the high cost of specialized
equipment in the automotive industry, or having skilled designers in the fashion industry. By
understanding such factors, managers are in a position to better allocate resources so as to
perform well in the future.

In addition to these tools, managers may also conduct other types of analyses, including ones
focused on customers, economic characteristics of the industry, supplier relationships, and so
forth. These analyses constitute a first step in the strategic management process as organizational
leaders attempt to understand the organization's current situation so as to later be able to identify
those strategic objectives most likely to improve performance.

MISSION STATEMENTS
Having thoroughly understood an organization's internal and external environment, managers
establish a mission statement to create a five-to ten-year vision of the company. A mission
statement documents the service or product the company provides to the marketplace and the
unique way in which it distinguishes itself from other companies. It also indicates the target
group of customers that the company serves.

An example of this type of mission statement is provided by Courtyard by Marriott. It indicates

that Courtyard by Marriott is serving economy-and quality-minded frequent business travelers
with a premier, moderate-priced lodging facility that is consistently perceived as clean,
comfortable, well maintained, attractive, and staffed by friendly, attentive, and efficient people.
This mission statement indicates the product and service provided to the target customers and the
way in which it will be done.

Mission statements serve several purposes in strategic management. First, they provide direction
for the organization. As a firm engages in its strategic planning process it compares its objectives
with the path it has set for itself. If any of the goals suggest a deviation from the purpose of the
organization, managers must decide if the goal is sufficiently important to warrant a change in
the mission statement. Otherwise, the objective might be dropped. With this in mind managers
are typically careful to write mission statements that are broad enough to encourage growth but
specific enough to give direction.

A second purpose of mission statements is to create a shared sense of purpose and inspiration
among employees. In some organizations, employees are required to memorize the mission
statement so that they will understand what is appropriate behavior and what is not. For this
reason, most mission statements are relatively short so that the purpose of the company remains
clearly in the minds of its employees. Further, many companies seek the input of their employees
in creating a mission statement so as to create a document that is owned by all.

Finally, mission statements are also external documents. They communicate to the outside world
the values and goals of the organization. Unfortunately, some companies create mission
statements as a marketing document and then fail to live up to that vision of themselves. For a
mission statement to be effective, it must be a living document that motivates behavior.

EXTERNAL ENVIRONMENT REVIEW

Once a company has carefully and frankly understood its situation and has spent time
considering the appropriateness of its mission statement, it may choose to do a more thorough
review of the external environment. This environment consists of industry, government,
competitive, economic, political, and other factors that the organization cannot control but which
may have an important impact on the company. For example, the dietary supplements industry in
the United States spends large amounts of money to keep abreast of the latest regulations issued
by the Food and Drug Administration.

Much of this analysis may be done within the State of the Organization report, but some
companies choose to address it as a third step in the strategic planning process so as to assure
that they are not caught off guard by these important factors. While the organization cannot
control these forces, it can formulate responses that will minimize the potential damage or even
put the firm in a better competitive position should the eventuality actually occur.

KEY OBJECTIVES AND STRATEGIES

Having conducted the previous three steps, managers have sufficient information to choose
objectives that are most likely to match the internal capabilities of the firm with the exigencies of
the external environment. Thompson and Strickland (1998) state that "objectives represent a
managerial commitment to achieving specific performance targets within a specific time frame"
(p. 36). While drawing heavily on the previous three steps in the process, objectives rely even
more particularly on the SWOT analysis in enhancing certain strengths, overcoming specific
weak nesses, capitalizing on opportunities, and ad dressing the threats. By creating such a fit
between the demands of the industry and the skills and competencies of the organization, a firm
in creases its ability to compete successfully in the marketplace.

Firms may set specific objectives including such things as increasing market share, decreasing
customer complaints, cutting costs by 10 per cent, or creating a more effective food preparation
facility. These broad objectives are then broken down into specific strategies that may, in turn, be
broken down into even more specific action steps. It is important that objectives be written in a
way that clearly indicates the nature of what is to be achieved, the single individual responsible
for the objective, a committee to work on the project, funding assigned, and date to be
completed. Based on these requirements, an objective for a rural hospital might take the
following form:

Objective 2: Increase revenues from visiting physicians by $500,000.

Person Responsible: Virginia Moody (CEO)

Committee Members: Virginia Moody, Dr. Etta, Erika Boerk (PR director), Sean Ortiz (Facilities
Coordinator), and Tristan Roberts (Marketing)

Funding: $125,000

Date Due: June 1, 20XX

Strategies

1. Develop relationship with Dr. Yang (podiatrist).

2. Refurbish existing office space to accommodate visiting physicians.
3. Contract with local newspaper to advertise visits.
4. Find a dermatologist
5. Etc.

In addition, each of the strategies could also be broken down in similar fashion to include the
person(s) responsible, funds required, and due dates.
IMPLEMENTATION

Having created detailed objectives and strategies, an organization may find that some internal
adjustments in the way a firm is organized or in the competencies of its workers are required to
achieve those objectives. These adjustments may be as simple as sending an employee to a
seminar to better understand a new information process software or as complex as creating a new
international division to take advantage of overseas opportunities. This process requires the
identification of those individual and organization competencies needed to facilitate the
accomplishment of the stated objectives.

In addition to serving as a guide to the form of the organization, the objectives also serve as the
basis of the year's budgets and performance standards. Having set the funding requirements for
each objective, these monies are added to the normal operating budget for each division so that
they can fulfill these goals. Further, these objectives and strategies are added to the existing
performance standards for each division or department and become an integral part of the
performance evaluation of the individuals assigned to each task. In this way the progress of each
objective is tracked throughout the year and a specific and agreed-upon measuring stick exists
for each employee's performance.

Finally, it should be mentioned that in any strategic management process, but particularly in
those taking place in dynamic environments, situations change and strategic plans require
modification. While five-year plans may remain relatively unchanged in some industries, other
industries may make major modifications monthly. For this reason, most firms consider strategic
management to be an ongoing process characterized by periodic progress evaluations and major
plan analysis on a yearly basis. Such updates allow a firm to continually reconfigure its internal
process and capabilities to create a better fit with the demands of the competitive situation.

STRATEGY FORMULATION

Strategic formulation is a combination of three main processes which are as follows:

 Performing a situation analysis, self-evaluation and competitor analysis: both internal and
external; both micro-environmental and macro-environmental.
 Concurrent with this assessment, objectives are set. These objectives should be parallel to
a time-line; some are in the short-term and others on the long-term. This involves crafting
vision statements (long term view of a possible future), mission statements (the role that
the organization gives itself in society), overall corporate objectives (both financial and
strategic), strategic business unit objectives (both financial and strategic), and tactical
objectives.
 These objectives should, in the light of the situation analysis, suggest a strategic plan.
The plan provides the details of how to achieve these objectives.

Marketing action plan

  Placement and execution of required resources are financial, manpower, operational
support, time, technology support
 Operating with a change in methods or with alteration in structure
 Distributing the specific tasks with responsibility or moulding specific jobs to individuals
or teams.
 The process should be managed by a responsible team. This is to keep direct watch on
result,comparison for betterment and best practices, cultivating the effectiveness of
processes, calibrating and reducing the variations and setting the process as required.
 Introducing certain programs involves acquiring the requisition of resources: a necessity
for developing the process, training documentation,process testing, and imalgation with
(and/or conversion from) difficult processes.

As and when the strategy implementation processes, there have been so many problems arising
such as human relations, the employee-communication. Such a time , marketing strategy is the
biggest implementation problem usually involves , with emphasis on the appropriate timing of
new products. An organization, with an effective management, should try to implement its plans
without signaling this fact to its competitors.[3]

In order for a policy to work, there must be a level of consistency from every person in an
organization, specially management. This is what needs to occur on both the tactical and
strategic levels of management.

Strategy evaluation
 Measuring the effectiveness of the organizational strategy, it's extremely important to
conduct a SWOT analysis to figure out the strengths, weaknesses, opportunities and
threats (both internal and external) of the entity in question. This may require to take
certain precautionary measures or even to change the entire strategy.

In corporate strategy, Johnson and Scholes present a model in which strategic options are
evaluated against three key success criteria:

 Suitability (would it work?)

 Feasibility (can it be made to work?)
 Acceptability (will they work it?)

Suitability

Suitability deals with the overall rationale of the strategy. The key point to consider is whether
the strategy would address the key strategic issues underlined by the organisation's strategic
position.

 Does it make economic sense?

 Would the organization obtain economies of scale, economies of scope or experience
economy?
 Would it be suitable in terms of environment and capabilities?
Tools that can be used to evaluate suitability include:

 Ranking strategic options

 Decision trees
 What-if analysis

Feasibility

Feasibility is concerned with whether the resources required to implement the strategy are
available, can be developed or obtained. Resources include funding, people, time and
information.

Tools that can be used to evaluate feasibility include:

 cash flow analysis and forecasting

 break-even analysis
 resource deployment analysis

Acceptability

Acceptability is concerned with the expectations of the identified stakeholders (mainly

shareholders, employees and customers) with the expected performance outcomes, which can be
return, risk and stakeholder reactions.

 Return deals with the benefits expected by the stakeholders (financial and non-financial).
For example, shareholders would expect the increase of their wealth, employees would
expect improvement in their careers and customers would expect better value for money.
 Risk deals with the probability and consequences of failure of a strategy (financial and
non-financial).
 Stakeholder reactions deals with anticipating the likely reaction of stakeholders.
Shareholders could oppose the issuing of new shares, employees and unions could
oppose outsourcing for fear of losing their jobs, customers could have concerns over a
merger with regards to quality and support.

Tools that can be used to evaluate acceptability include:

 what-if analysis

General approaches
In general terms, there are two main approaches, which are opposite but complement each other
in some ways, to strategic management:

 The Industrial Organizational Approach

 o based on economic theory — deals with issues like competitive rivalry, resource
allocation, economies of scale
o assumptions — rationality, self discipline behaviour, profit maximization
 The Sociological Approach
o deals primarily with human interactions
o assumptions — bounded rationality, satisfying behaviour, profit sub-optimality.
An example of a company that currently operates this way is Google

Strategic management techniques can be viewed as bottom-up, top-down, or collaborative

processes. In the bottom-up approach, employees submit proposals to their managers who, in
turn, funnel the best ideas further up the organization. This is often accomplished by a capital
budgeting process. Proposals are assessed using financial criteria such as return on investment or
cost-benefit analysis. Cost underestimation and benefit overestimation are major sources of error.
The proposals that are approved form the substance of a new strategy, all of which is done
without a grand strategic design or a strategic architect. The top-down approach is the most
common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides
on the overall direction the company should take. Some organizations are starting to experiment
with collaborative strategic planning techniques that recognize the emergent nature of strategic
decisions.

The strategy hierarchy

In most (large) corporations there are several levels of management. Strategic management is the
highest of these levels in the sense that it is the broadest - applying to all parts of the firm - while
also incorporating the longest time horizon. It gives direction to corporate values, corporate
culture, corporate goals, and corporate missions. Under this broad corporate strategy there are
typically business-level competitive strategies and functional unit strategies.

Corporate strategy refers to the overarching strategy of the diversified firm. Such a corporate
strategy answers the questions of "which businesses should we be in?" and "how does being in
these businesses create synergy and/or add to the competitive advantage of the corporation as a
whole?"

Business strategy refers to the aggregated strategies of single business firm or a strategic
business unit (SBU) in a diversified corporation. According to Michael Porter, a firm must
formulate a business strategy that incorporates either cost leadership, differentiation or focus in
order to achieve a sustainable competitive advantage and long-term success in its chosen areas or
industries.

Functional strategies include marketing strategies, new product development strategies, human
resource strategies, financial strategies, legal strategies, supply-chain strategies, and information
technology management strategies. The emphasis is on short and medium term plans and is
limited to the domain of each department’s functional responsibility. Each functional department
attempts to do its part in meeting overall corporate objectives, and hence to some extent their
strategies are derived from broader corporate strategies.
Many companies feel that a functional organizational structure is not an efficient way to organize
activities so they have reengineered according to processes or SBUs. A strategic business unit
is a semi-autonomous unit that is usually responsible for its own budgeting, new product
decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by
corporate headquarters. A technology strategy, for example, although it is focused on technology
as a means of achieving an organization's overall objective(s), may include dimensions that are
beyond the scope of a single business unit, engineering organization or IT department.

An additional level of strategy called operational strategy was encouraged by Peter Drucker in
his theory of management by objectives (MBO). It is very narrow in focus and deals with day-to-
day operational activities such as scheduling criteria. It must operate within a budget but is not at
liberty to adjust or create that budget. Operational level strategies are informed by business level
strategies which, in turn, are informed by corporate level strategies.

Since the turn of the millennium, some firms have reverted to a simpler strategic structure driven
by advances in information technology. It is felt that knowledge management systems should be
used to share information and create common goals. Strategic divisions are thought to hamper
this process. This notion of strategy has been captured under the rubric of dynamic strategy,
popularized by Carpenter and Sanders's textbook [1]. This work builds on that of Brown and
Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as
necessarily embracing ongoing strategic change, and the seamless integration of strategy
formulation and implementation. Such change and implementation are usually built into the
strategy through the staging and pacing facets.

Reasons why strategic plans fail

There are many reasons why strategic plans fail, especially:

 Failure to understand the customer

o Why do they buy
o Is there a real need for the product
o inadequate or incorrect marketing research
 Inability to predict environmental reaction
o What will competitors do
 Fighting brands
 Price wars
o Will government intervene
 Over-estimation of resource competence
o Can the staff, equipment, and processes handle the new strategy
o Failure to develop new employee and management skills
 Failure to coordinate
o Reporting and control relationships not adequate
o Organizational structure not flexible enough
 Failure to obtain senior management commitment
o Failure to get management involved right from the start
o Failure to obtain sufficient company resources to accomplish task
  Failure to obtain employee commitment
o New strategy not well explained to employees
o No incentives given to workers to embrace the new strategy
 Under-estimation of time requirements
o No critical path analysis done
 Failure to follow the plan
o No follow through after initial planning
o No tracking of progress against plan
o No consequences for above
 Failure to manage change
o Inadequate understanding of the internal resistance to change
o Lack of vision on the relationships between processes, technology and
organization
 Poor communications
o Insufficient information sharing among stakeholders
o Exclusion of stakeholders and delegates

[edit] Limitations of strategic management

Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly
enforced. In an uncertain and ambiguous world, fluidity can be more important than a finely
tuned strategic compass. When a strategy becomes internalized into a corporate culture, it can
lead to group think. It can also cause an organization to define itself too narrowly. An example of
this is marketing myopia.

Many theories of strategic management tend to undergo only brief periods of popularity. A
summary of these theories thus inevitably exhibits survivorship bias (itself an area of research in
strategic management). Many theories tend either to be too narrow in focus to build a complete
corporate strategy on, or too general and abstract to be applicable to specific situations. Populism
or faddishness can have an impact on a particular theory's life cycle and may see application in
inappropriate circumstances. See business philosophies and popular management theories for a
more critical view of management theories.

In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the
strategies being used by rivals in greatly differing circumstances. He lamented that strategies
converge more than they should, because the more successful ones are imitated by firms that do
not understand that the strategic process involves designing a custom strategy for the specifics of
each situation.[51]

Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not
dominate action. "Just do it!", while not quite what he meant, is a phrase that nevertheless comes
to mind when combatting analysis paralysis.

[edit] The linearity trap

It is tempting to think that the elements of strategic management – (i) reaching consensus on
corporate objectives; (ii) developing a plan for achieving the objectives; and (iii) marshalling and
allocating the resources required to implement the plan – can be approached sequentially. It
would be convenient, in other words, if one could deal first with the noble question of ends, and
then address the mundane question of means.

But in the world in which strategies have to be implemented, the three elements are
interdependent. Means are as likely to determine ends as ends are to determine means. [96] The
objectives that an organization might wish to pursue are limited by the range of feasible
approaches to implementation. (There will usually be only a small number of approaches that
will not only be technically and administratively possible, but also satisfactory to the full range
of organizational stakeholders.) In turn, the range of feasible implementation approaches is
determined by the availability of resources.

And so, although participants in a typical “strategy session” may be asked to do “blue sky”
thinking where they pretend that the usual constraints – resources, acceptability to stakeholders ,
administrative feasibility – have been lifted, the fact is that it rarely makes sense to divorce
oneself from the environment in which a strategy will have to be implemented. It’s probably
impossible to think in any meaningful way about strategy in an unconstrained environment. Our
brains can’t process “boundless possibilities”, and the very idea of strategy only has meaning in
the context of challenges or obstacles to be overcome. It’s at least as plausible to argue that acute
awareness of constraints is the very thing that stimulates creativity by forcing us to constantly
reassess both means and ends in light of circumstances.

The key question, then, is, "How can individuals, organizations and societies cope as well as
possible with ... issues too complex to be fully understood, given the fact that actions initiated on
the basis of inadequate understanding may lead to significant regret?"[97]

The answer is that the process of developing organizational strategy must be iterative. It involves
toggling back and forth between questions about objectives, implementation planning and
resources. An initial idea about corporate objectives may have to be altered if there is no feasible
implementation plan that will meet with a sufficient level of acceptance among the full range of
stakeholders, or because the necessary resources are not available, or both.

Even the most talented manager would no doubt agree that "comprehensive analysis is
impossible" for complex problems[98]. Formulation and implementation of strategy must thus
occur side-by-side rather than sequentially, because strategies are built on assumptions which, in
the absence of perfect knowledge, will never be perfectly correct. Strategic management is
necessarily a "repetitive learning cycle [rather than] a linear progression towards a clearly
defined final destination."[99] While assumptions can and should be tested in advance, the
ultimate test is implementation. You will inevitably need to adjust corporate objectives and/or
your approach to pursuing outcomes and/or assumptions about required resources. Thus a
strategy will get remade during implementation because "humans rarely can proceed
satisfactorily except by learning from experience; and modest probes, serially modified on the
basis of feedback, usually are the best method for such learning."[100]
It serves little purpose (other than to provide a false aura of certainty sometimes demanded by
corporate strategists and planners) to pretend to anticipate every possible consequence of a
corporate decision, every possible constraining or enabling factor, and every possible point of
view. At the end of the day, what matters for the purposes of strategic management is having a
clear view – based on the best available evidence and on defensible assumptions – of what it
seems possible to accomplish within the constraints of a given set of circumstances. As the
situation changes, some opportunities for pursuing objectives will disappear and others arise.
Some implementation approaches will become impossible, while others, previously impossible
or unimagined, will become viable.

The essence of being “strategic” thus lies in a capacity for "intelligent trial-and error" [101] rather
than linear adherence to finally honed and detailed strategic plans. Strategic management will
add little value -- indeed, it may well do harm -- if organizational strategies are designed to be
used as a detailed blueprints for managers. Strategy should be seen, rather, as laying out the
general path - but not the precise steps - by which an organization intends to create value.
[102]
Strategic management is a question of interpreting, and continuously reinterpreting, the
possibilities presented by shifting circumstances for advancing an organization's objectives.
Doing so requires strategists to think simultaneously about desired objectives, the best approach
for achieving them, and the resources implied by the chosen approach. It requires a frame of
mind that admits of no boundary between means and ends.

Editorial objectives

Strategic Direction is an essential management information resource for today's strategic

thinkers. As a unique service, we scan through the best 400 management journals in the world
and distill the most topical management issues and relevant implications for senior managers out
of the cutting-edge research. We regularly present case study reviews of the Fortune 500
companies. Each briefing (no more than 2 to 3 pages long) is prepared by an independent writer
who adds their own impartial comments and places the arguments in context.

Unique attributes

Strategic Direction offers CEOs powerful advantages by briefing them on the key ideas and
major issues affecting business today.

Topicality

As the business environment becomes more competitive, the quality of strategic thinking
demonstrated by an organization can become a measure of its success. This journal is the first of
its kind, built solely around the needs of the CEOs and their strategy teams, and is an essential
tool in the conception and implementation of powerful strategies.

Key benefits
The journal's quality content will help CEOs define strategies, and also ensure their support
within the organization, by suggesting ways of communicating your objectives and motivating
others to achieve them.

 Save valuable management time by accessing the best management research through our
easy-to-digest reviews
 Keep up-to-date with management developments worldwide
 Track the success or failures of strategies undertaken by the Fortune 500 companies
 Read the current ideas from some of the best strategic thinkers today

Key journal audiences

 Managing Directors
 Market Analysts
 Business Strategists
 Management Consultants
 Company Directors
 Financial Directors
 Chief Executive Officers, their advisors and strategy teams

Coverage

 Defining the strategic intent of your organization

 Initiating change - and ensuring it happens
 Learning from global competitors
 Managing information technology
 Protecting your technological lead
 Procuring, organizing and utilizing competitive information
 Recruiting, motivating and keeping people you need
 Using manufacturing as a strategic weapon

STRATEGIC CONTROL

Strategic control is concerned with tracking the strategy as it is being implemented, detecting any problems
areas or potential problem areas, and making any necessary adjustments.

Newman and Logan use the term "steering control" to highlight some important characteristics of strategic
control Ordinarily, a significant time span occurs between initial implementation of a strategy and
achievement of its intended results. During that time, numerous projects are undertaken, investments are
made, and actions are undertaken to implement the new strategy.

Also the environmental situation and the firm's internal situation are developing and evolving. Strategic
controls are necessary to steer the firm through these events. They must provide some means of correcting
the directions on the basis of intermediate performance and new information.

The Importance Of Strategic Control

Henry Mintzberg,one of the foremost theorists in the area of strategic management, tells us that no matter
how well the organization plans its strategy, a different strategy may emerge.

Starting with the intended or planned strategies, he related the five types of strategies in the following
manner:

1. Intended strategies that get realized; these may be called deliberate strategies.
2. Intended strategies that do get realized; these may be called unrealized strategies.
3. Realized strategies that were never intended; these may be called emergent strategies.

Recognizing the number of different ways that intended and realized strategies may differ underscores the
importance of evaluation and control systems so that the firm can monitor its performance and take
corrective action if the actual performance differs from the intended strategies and planned results.

Most commentators would agree with the definition of strategic control offered by Schendel and Hofer:
"Strategic control focuses on the dual questions of whether: (1) the strategy is being implemented as
planned; and (2) the results produced by the strategy are those intended."
This definition refers to the traditional review and feedback stages which constitutes the last step in the
strategic management process. Normative models of the strategic management process have depicted it as
including there primary stages: strategy formulation, strategy implementation, and strategy evaluation
(control).
Strategy evaluations concerned primarily with traditional controls processes which involves the review and
feedback of performance to determine if plans, strategies, and objectives are being achieved, with the
resulting information being used to solve problems or take corrective actions.
Recent conceptual contributors to the strategic control literature have argued for anticipatory feedforward
controls, that recognize a rapidly changing and uncertain external environment.
Schreyogg and Steinmann (1987) have made a preliminary effort, in developing new system to operate on a
continuous basis, checking and critically evaluating assumptions, strategies and results. They refer to
strategic control as "the critical evaluation of plans, activities, and results, thereby providing information
for the future action".
Schreyogg and Steinmann based on the shortcomings of feedback-control. Two central characteristics if this
feedback control is highly questionable for control purposes in strategic management: (a) feedback control is
post-action control and (b) standards are taken for granted.
Schreyogg and Steinmann proposed an alternative to the classical feedback model of control: a 3-step model
of strategic control which includes premise control, implementation control, and strategic surveillance.
Pearce and Robinson extended this model and added a component "special alert control" to deal specifically
with low probability, high impact threatening events.
The nature of these four strategic controls is summarized in Figure 6-4. Time (t ) marks the point where
strategy formulation starts. Premise control is established at the point in time of initial premising (t ). From
here on promise control accompanies all further selective steps of premising in planning and implementing
the strategy. The strategic surveillance of emerging events parallels the strategic management process and
runs continuously from time (t ) through (t ). When strategy implementation begins (t ), the third control
device, implementation control is put into action and run through the end of the planning cycle (t ). Special
alert controls are conducted over the entire planning cycle.

PROMISE CONTROL

Planning premises/assumptions are established early on in the strategic planning process and act as a basis
for formulating strategies.
"Premise control has been designed to check systematically and continuously whether or not the
premises set during the planning and implementation process are still valid.
It involves the checking of environmental conditions. Premises are primarily concerned with two types of
factors:

 Environmental factors (for example, inflation, technology, interest rates, regulation, and
demographic/social changes).
 Industry factors (for example, competitors, suppliers, substitutes, and barriers to entry).

All premises may not require the same amount of control. Therefore, managers must select those premises
and variables that (a)are likely to change and (b) would a major impact on the company and its strategy if
the did.

IMPLEMENTATION CONTROL

Strategic implantation control provides an additional source of feedforward information.

"Implementation control is designed to assess whether the overall strategy should be changed in light of
unfolding events and results associated with incremental steps and actions that implement the overall
strategy."
Strategic implementation control does not replace operational control. Unlike operations control, strategic
implementation control continuously questions the basic direction of the strategy. The two basis types of
implementation control are:

1. Monitoring strategic thrusts (new or key strategic programs). Two approaches are useful in
enacting implementation controls focused on monitoring strategic thrusts: (1) one way is to agree
early in the planning process on which thrusts are critical factors in the success of the strategy or of
that thrust; (2) the second approach is to use stop/go assessments linked to a series of meaningful
thresholds (time, costs, research and development, success, etc.) associated with particular thrusts.
2. Milestone Reviews. Milestones are significant points in the development of a programme, such as
points where large commitments of resources must be made. A milestone review usually involves a
full-scale reassessment of the strategy and the advisability of continuing or refocusing the direction
of the company. In order to control the current strategy, must be provided in strategic plans.

STRATEGIC SURVEILANCE

Compared to premise control and implementation control, strategic surveillance is designed to be a

relatively unfocused, open, and broad search activity.
"... strategic surveillance is designed to monitor a broad range of events inside and outside the company
that are likely to threaten the course of the firm's strategy."
The basic idea behind strategic surveillance is that some form of general monitoring of multiple information
sources should be encouraged, with the specific intent being the opportunity to uncover important yet
unanticipated information.
Strategic surveillance appears to be similar in some way to "environmental scanning." The rationale,
however, is different. Environmental, scanning usually is seen as part of the chronological planning cycle
devoted to generating information for the new plan.
By way of contrast, strategic surveillance is designed to safeguard the established strategy on a continuous
basis.
SPECIAL ALERT CONTROL

Another type of strategic control is a special alert control.

"A special alert control is the need to thoroughly, and often rapidly, reconsider the firm's basis strategy
based on a sudden, unexpected event."
The analysts of recent corporate history are full of such potentially high impact surprises (i.e., natural
disasters, chemical spills, plane crashes, product defects, hostile takeovers etc.).
While Pearce and Robinson suggest that special alert control be performed only during strategy
implementation, Preble recommends that because special alert controls are really a subset of strategic
surveillance that they be conducted throughout the entire strategic management process.
The characteristics of each control component are detailed in Table 6-4, including the component's purpose,
mechanism used to implement it, the procedure to be followed, degree of focusing, information sources,
and organizational/personnel to be utilized.

STRATEGIC CONTROL PROCESS

Although control systems must be tailored to specific situations, such systems generally follow the same
basic process.
Regardless of the type or levels of control systems an organization needs, control may be depicted as a six-
step feedback model):

1. Determine what to control. What are the objectives the organization hopes to accomplish?
2. Set control standards. What are the targets and tolerances?
3. Measure performance. What are the actual standards?
4. Compare the performance the performance to the standards. How well does the actual match the
plan?
5. Determine the reasons for the deviations. Are the deviations due to internal shortcomings or due
to external changes beyond the control of the organization?
6. Take corrective action. Are corrections needed in internal activities to correct organizational
shortcomings, or are changes needed in objectives due to external events?

Feedback from evaluating the effectiveness of the strategy may influence many of other phases on the
strategic management process.
A well-designed control system will usually include feedback of control information to the individual or group
performing the controlled activity.
Simple feedback systems measure outputs of a process and feed into the system or the inputs of a system
corrective actions to obtain desired outputs. The consequence of utilizing the feedback control systems is
that the unsatisfactory performance continues until the malfunction is discovered. One technique for
reducing the problems associated with feedback control systems is feedforward control. Feedforward
systems monitor inputs into a process to ascertain whether the inputs are as planned; if they are not, the
inputs, or perhaps the process, are changed in order to obtain desired results.

DETERMINE WHAT TO CONTROL

The first step in the control process is determining the major areas to control. Managers usually base their
major controls on the organizational mission, goals and objectives developed during the planning process.
Managers must make choices because it is expensive and virtually impossible to control every aspect of the
organization's activities. In deciding what to control, the organization must communicate through the actions
of its executives that strategic control is a needed activity. Without top management's commitment to
controlling activities, the control system could be useless

Set Control Standards

The second step in the control process is establishing standards. A control standards is a target against
which subsequent performance will be compared.

Standards are the criteria that enable managers to evaluate future, current, or past actions. They are
measured in a variety of ways, including physical, quantitative, and qualitative terms. Five aspects of the
performance can be managed and controlled: quantity, quality, time cost, and behavior. Each aspect of
control may need additional categorizing.

An organization must identify the targets, determine the tolerances those targets, and specify the timing of
consistent with the organization's goals defined in the first step of determining what to control. For
example, standards might indicate how well a product is made or how effectively a service is to be
delivered.

Standards may also reflect specific activities or behaviors that are necessary to achieve organizational goals.
Goals are translated into performance standards by making them measurable. An organizational goal to
increase market share, for example, may be translated into a top-management performance standard to
increase market share by 10 percent within a twelve-month period. Helpful measures of strategic
performance include: sales (total, and by division, product category, and region), sales growth, net profits,
return on sales, assets, equity, and investment cost of sales, cash flow, market share, product quality,
valued added, and employees productivity.

Quantification of the objective standard is sometimes difficult. For example, consider the goal of product
leadership. An organization compares its product with those of competitors and determines the extent to
which it pioneers in the introduction of basis product and product improvements. Such standards may exist
even though they are not formally and explicitly stated.

Setting the timing associated with the standards is also a problem for many organizations. It is not unusual
for short-term objectives to be met at the expense of long-term objectives.

Management must develop standards in all performance areas touched on by established organizational
goals. The various forms standards are depend on what is being measured and on the managerial level
responsible for taking corrective action.

Commonly uses as an example, the following eight types of standards have been set by General Electric :

 Profitability standards : These standards indicate how much profit General Electric would like to
make in a given time period.
 Market position standards : These standards indicate the percentage of total product market that
company would like to win from competitors.
 Productivity standards : These production-oriented standards indicate various acceptable rates
which final products should be generated within the organization.
 Product leadership standards : Product leadership standards indicate what levels of product
innovation would make people view General Electric products as leaders in the market.
 Personnel development standards : Personnel development standards list acceptable of progress in
this area.
 Employee attitude standards : These standards indicate attitudes that General Electric employees
should adopt.
  Public responsibility standards : All organizations have certain obligations to society. General
Electric's standards in this area indicate acceptable levels of activity within the organization
directed toward living up to social responsibilities.
 Standards reflecting balance between short-range and long-range goals . Standards in this area
indicate what the acceptable long- and short - range goals are and the relationship among them.

Critical Control Points and Standards. The principle of critical point control, one of the more important
control principles, states: "Effective control requires attention against plans". There are, however, no
specific catalog of controls available to all managers because of the peculiarities of various enterprises and
departments, the variety of products and services to be measured, and the innumerable planning programs
to be followed.

MEASURE PERFORMANCE

Once standards are determined, the next step is measuring performance. The actual performance must be
compared to the standards. In some work places, this phase may require only visual observation. In other
situations, more precise determinations are needed. Many types of measurements taken for control purposes
are based on some form of historical standard. These standards can be based on data derived from the PIMS
(profit impact of market strategy) program, published information that is publicly available, ratings of
product / service quality, innovation rates, and relative market shares standings. PIMS was developed by
Professor Sidney Shoeffler of Harvard University in the 1960s.
Strategic control standards are based on the practice of competitive benchmarking - the process of
measuring a firm's performance against that of the top performance in its industry. (see last part of this
Chapter)
The proliferation of computers tied into networks has made it possible for managers to obtain up-to-minute
status reports on a variety of quantitative performance measures. Managers should be careful to observe and
measure in accurately before taking corrective action.

COMPARE PERFORMANCE TO STANDARDS

The comparing step determines the degree of variation between actual performance and standard. If the
first two phases have been done well, the third phase of the controlling process - comparing performance
with standards - should be straightforward. However, sometimes it is difficult to make the required
comparisons (e.g., behavioral standards).
Some deviations from the standard may be justified because of changes in environmental conditions, or
other reasons.

Determine The Reasons For The Deviations

The fight step of the control process involves finding out: "why performance has deviated from the
standards?" Causes of deviation can range from selected achieve organizational objectives. Particularly, the
organization needs to ask if the deviations are due to internal shortcomings or external changes beyond the
control of the organization.

A general checklist such as following can be helpful:

 Are the standards appropriate for the stated objective and strategies?
 Are the objectives and corresponding still appropriate in light of the current environmental
situation?
 Are the strategies for achieving the objectives still appropriate in light of the current environmental
situation?
  Are the firm's organizational structure, systems (e.g., information), and resource support adequate
for successfully implementing the strategies and therefore achieving the objectives?
 Are the activities being executed appropriate for achieving standard?

The locus of the cause, either internal or external, has different implications for the kinds of corrective
action.

DETERMINE REASONS FOR DEVIATIONS

The fight step of the control process involves finding out: "why performance has deviated from the
standards?" Causes of deviation can range from selected achieve organizational objectives. Particularly, the
organization needs to ask if the deviations are due to internal shortcomings or external changes beyond the
control of the organization.
A general checklist such as following can be helpful:

 Are the standards appropriate for the stated objective and strategies?
 Are the objectives and corresponding still appropriate in light of the current environmental
situation?
 Are the strategies for achieving the objectives still appropriate in light of the current environmental
situation?
 Are the firm's organizational structure, systems (e.g., information), and resource support adequate
for successfully implementing the strategies and therefore achieving the objectives?
 Are the activities being executed appropriate for achieving standard?

The locus of the cause, either internal or external, has different implications for the kinds of corrective
action.

TAKE CORRECTIVE ACTION

The final step in the control process is determining the need for corrective action. Managers can choose
among three courses of action:

1. they can do nothing

2. they can correct the actual performance; or
3. they can revise the standard.

Maintaining the status quo if preferable when performance essentially matches the standards. When
standards are not met, managers must carefully assess the reasons why and take corrective action.
Moreover, the need to check standards periodically to ensure that the standards and the associated
performance measures are still relevant for the future.
The final phase of controlling process occurs when managers must decide action to take to correct
performance when deviations occur. Corrective action depends on the discovery of deviations and the ability
to take necessary action. Often the real cause of deviation must be found before corrective action can be
taken. Causes of deviations can range from unrealistic objectives to the wrong strategy being selected
achieve organizational objectives. Each cause requires a different corrective action. Not all deviations from
external environmental threats or opportunities have progressed to the point a particular outcome is likely,
corrective action may be necessary.
There are three choices of corrective action:

1. Normal mode - follow a routine, no crisis approach; this take more time
2. As hoc crash mode - saves time by speeding up the response process, geared to the problem ad
hand.
 3. Preplanned crisis mode - specifies a planned response in advance; this approach lowers the
response time and increases the capacity for handling strategic surprises.

The below checklist suggest the following five general areas for corrective actions:

 Revise the Standards. It is entirely possible that the standards are not in line with objectives and
strategies selected. Changing an established standard usually is necessary if the standards were set
too high or to low are the outset. In such cases it's the standard that needs corrective attention not
the performance.
 Revise the Objective. Some deviations from the standard may by justified because of changes in
environmental conditions, or other reasons. In these circumstances, adjusting the objectives can y
much more logical and sensible then adjusting performance.
 Revise the Strategies. Deciding on internal changes and taking corrective action may involve
changes in strategy. A strategy that was originally appropriate can become inappropriate during a
period because of environmental shifts.
 Revise the Structure, System or Support. The performance deviation may by caused by an
inadequate organizational structure, systems, or resource support. Each of these factors is discussed
elsewhere in this chapter, or other part of this thesis.
 Revise Activity. The most common adjustment involves additional coaching by management,
additional training, more positive incentives, more negative incentives, improved scheduling,
compensation practices, training programs, the redesign of jobs or the replacement of personnel.

Managers can also attempt to influence events or trends external to itself through advertising or other public
awareness programs. In such case, the changes should be made only after the most intense scrutiny.
Management must remember that adjustments in any of the above areas may require adjustments in one or
more of the other factors. For example, adjusting the objectives is likely to require different strategies,
standards, resources, activities, and perhaps organizational structure and systems.

Balanced Scorecard Basics

The balanced scorecard is a strategic planning and management system that is used
extensively in business and industry, government, and nonprofit organizations worldwide to
align business activities to the vision and strategy of the organization, improve internal and
external communications, and monitor organization performance against strategic goals. It
was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a
performance measurement framework that added strategic non-financial performance
measures to traditional financial metrics to give managers and executives a more 'balanced'
view of organizational performance. While the phrase balanced scorecard was coined in the
early 1990s, the roots of the this type of approach are deep, and include the pioneering
work of General Electric on performance measurement reporting in the 1950’s and the work
of French process engineers (who created the Tableau de Bord – literally, a "dashboard" of
performance measures) in the early part of the 20th century.

The balanced scorecard has evolved from its early use as a simple performance
measurement framework to a full strategic planning and management system. The “new”
balanced scorecard transforms an organization’s strategic plan from an attractive but
passive document into the "marching orders" for the organization on a daily basis. It
provides a framework that not only provides performance measurements, but helps
planners identify what should be done and measured. It enables executives to truly execute
their strategies.
This new approach to strategic management was first detailed in a series of articles and
books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of
previous management approaches, the balanced scorecard approach provides a clear
prescription as to what companies should measure in order to 'balance' the financial
perspective. The balanced scorecard is a management system (not only a measurement
system) that enables organizations to clarify their vision and strategy and translate them
into action. It provides feedback around both the internal business processes and external
outcomes in order to continuously improve strategic performance and results. When fully
deployed, the balanced scorecard transforms strategic planning from an academic exercise
into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial measures tell
the story of past events, an adequate story for industrial age companies for which
investments in long-term capabilities and customer relationships were not critical for
success. These financial measures are inadequate, however, for guiding and evaluating the
journey that information age companies must make to create future value through
investment in customers, suppliers, employees, processes, technology, and innovation."

Perspectives

The balanced scorecard suggests that we view the organization from four perspectives, and
to develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning & Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both
individual and corporate self-improvement. In a knowledge-worker organization, people --
the only repository of knowledge -- are the main resource. In the current climate of rapid
technological change, it is becoming necessary for knowledge workers to be in a continuous
learning mode. Metrics can be put into place to guide managers in focusing training funds
where they can help the most. In any case, learning and growth constitute the essential
foundation for success of any knowledge-worker organization.

Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things
like mentors and tutors within the organization, as well as that ease of communication
among workers that allows them to readily get help on a problem when it is needed. It also
includes technological tools; what the Baldrige criteria call "high performance work
systems."
The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this perspective
allow the managers to know how well their business is running, and whether its products
and services conform to customer requirements (the mission). These metrics have to be
carefully designed by those who know these processes most intimately; with our unique
missions these are not something that can be developed by outside consultants.

The Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of
customer focus and customer satisfaction in any business. These are leading indicators: if
customers are not satisfied, they will eventually find other suppliers that will meet their
needs. Poor performance from this perspective is thus a leading indicator of future decline,
even though the current financial picture may look good.

In developing metrics for satisfaction, customers should be analyzed in terms of kinds of

customers and the kinds of processes for which we are providing a product or service to
those customer groups.

The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and
accurate funding data will always be a priority, and managers will do whatever necessary to
provide it. In fact, often there is more than enough handling and processing of financial
data. With the implementation of a corporate database, it is hoped that more of the
processing can be centralized and automated. But the point is that the current emphasis on
financials leads to the "unbalanced" situation with regard to other perspectives. There is
perhaps a need to include additional financial-related data, such as risk assessment and
cost-benefit data, in this category.

Strategy Mapping

Strategy maps are communication tools used to tell a story of how value is created for the
organization. They show a logical, step-by-step connection between strategic objectives
(shown as ovals on the map) in the form of a cause-and-effect chain. Generally speaking,
improving performance in the objectives found in the Learning & Growth perspective (the
bottom row) enables the organization to improve its Internal Process perspective Objectives
(the next row up), which in turn enables the organization to create desirable results in the
Customer and Financial perspectives (the top two rows).

The Balanced Scorecard is a tool that allows a business to translate its vision and strategy into
action. It was developed by Robert S Kaplan and David P Norton who wrote about it in 1996:
Balanced Scorecard: Translating Strategy into Action and then followed up its success with
further books: in 2001 The Strategy Focused Organisation, in 2004 Strategy Maps and finally in
2006 Alignment. In short, a testament to the value of the framework as a tool and its popularity.

Strategic Analysis

The key input for the Balanced Scorecard is the strategic analysis such as a completed SWOT
Analysis, which represents the fruits of the strategic analysis of internal and external factors. The
selected business strategies that have now emerged based on business strengths and market
opportunity become the input to the Balanced Scorecard framework.

Balanced Scorecard for Strategic Management

The Balanced Scorecard framework is a tool that structures and links the strategies to operational
implementation in four areas.

1. Financial – financial measures such as profitability, sales growth, productivity or return

on investment
2. Customer - customer measures such as improved customer service, better customer
satisfaction or higher loyalty
3. Internal – internal measures such as develop value added services, improve order
processing, improve delivery cycle
4. Learning and Development – learning measures such as re-skill workforce, link rewards
and performance, develop information assets

That linkage is shown through the strategy, performance measure, measure target to be achieved
and initiative or plan linked to that strategy.

Financial Example

 Financial: Increase sales growth

 Measure: Increased Year-on-Year sales growth of product X
 Target: Gross volume increase of 25% over previous year
 Initiative: Market product X to local businesses by local sales staff

Customer Example

 Customer: Improve customer service

 Measure: Customer satisfaction survey
 Target: Customer satisfaction for service is over 99%
 Initiative: Train customer service staff in next 3 months in how to deal with customers

Internal Example

 Internal: Improve order processing

 Measure: Time to process order
 Target: Reduce time to process order by 20%
 Initiative: Use new system that simplifies order handling

Learning and Development Example

 Learning: link reward to performance

 Measure: employee satisfaction survey
 Target: All staff on reward for performance by end of year
  Initiative: Define reward structure and pilot in first half of year

Benefits

The balanced scorecard that results has many benefits to the business through both the process to
develop it and as a communication tool to publicise the vision and strategy in action:

 Clarify and gain consensus about strategy

 Align consequent strategic initiatives and plans
 Communicate strategy throughout business
 Align business and personal goals to strategy
 Link strategic objectives to vision and budgets
 Perform periodic review and gain feedback

Business Strategy

The Balanced Scorecard is not the only tool that can be used for strategic management, however,
it is both effective and popular. By linking the business strategies so clearly to the strategic plans
it is much easier to see whether those initiatives align with strategy and to unite staff. Strategy
maps can be used to help develop the balanced scorecard