Chapter 8 – Strategic planning

1. Strategic planning
- Programming
- Long-term
- Competent manager  think about the future
- Result  formal statement  strategic plan
- If not formal  informal understanding
- Process of preparing  strategic planning

2. Benefit
- Framework  develop annual budget
- Management development tool
- Mechanism  manager focus -> long term
- Means of aligning manager  company long term strategies

3. Limitations - programming
- Formalistic work: the result is not used to implement because only formalistic work
- Delegate function to the staff: main job -> senior manager or low-middle lv manager
- Time consuming: takes time, more than 2 months discussion to translate strategic ->
action plan

4. Strategic planning gives max benefit if (requirements)

- Top management has strong commitment and perceive process  future organization
- Organization is big and complex
- Uncertainty future  organization still has flexibility to adjust circumstances

5. Analyze propose new program

- Program can be product line / product family
- Main resp: develop new product  RnD dept
- Program -> proactive and reactive
- The tools to analyze the propose new program -> capital investment analysis

6. Conditions
- Program is obv attractive
- Uncertain estimates
- Program is smth other than increased profitability
- Requires by the law

7. Analysis on going program

- Existing in the market program
- Improve the performance of on going product line -> increase profitability of product
that alr exist in market

8. Value Chain Analysis Focus  external and internal

Function to highlight profit improvement area:
- Linkages with supplier: win-win solution, increase co efficiency, co receive perfect raw
material with fair price
 - Linkages with customer: cust satisfaction, cust loyalty
- Linkages with business unit: customer value chain started from researching, developing,
producing, marketing and distributing product
- Linkages with across business unit: transfer pricing

9. Value chain analysis step

- Identify industry value chain
- Assign cost, revenue, asset to value activities
- Diagnose cost driver
- Develop sustainable competitive advantage

Chapter 9 – Budgeting

1. Budgeting
- Important management tool
- Quantitative plan of operation stated in monetary term
- Process of setting budget
- Time period: 1 year -> short term plan
2. The use of budget
- Planning: looking ahead  what action should be taken to realize particular objectives
- Control: looking backward  determine what actually happened and compare with
previously planned outcome
3. Budgeting approach
- Top-down
- Bottom-up  participative budgeting
Advantages:
Presence of intermediate and low lv manager valued as member of management team
 motivational aspect
More accurate
Strong commitment of management -> all ppl involved in planning
Unique controlling system
4. Steps budgetary control
- Compare actual performance with budget
- Analyze variances
- Corrective action or revise budget
- Done periodically (monthly, quarterly, semiannually)
5. Budget type
- Static: applied only for one step of activity
- Flexible: enable to calculate cost in various lv of activities, give flexibility to evaluate
performance by regarding uncertainty future
6. Behavioral Aspects
- Budget slack: easy to achieve target and there is protection cost
- Achieve incentive from management
- Spend budget cost -> prevent next budget not be cut  NVA activities  NVA cost to
organization, effect: low competitiveness
- Pseudo participation
7. How to measure performance with the budget
- Compare actual vs budget  see whether performance is satisfactory
- If yes  used as feedback of reward
 - If not  corrective action or revise plan
- Process is done at the end of every year

Chapter 11 – BSC

1. Needs for performance management

- High competition  competitive price (HQ service), hq product

2. How to compete in the market

- Clear objectives, strategy, target
- High customer satisfactory
- Highly employee motivated

3. Fortune 97 and Corporate Finance 2000

- < 10% company with the well formulated strategies was implemented
- Only 50% companies attached incentive on their strategy objectives
- < 15 % companies relating its strategies with financial planning
- There are not many companies that is referring their operating activity with their
strategies
4. Why they do not do?
- Vision problem  unclear strategy and target, target unrelated to strategy
- HR problem  performance measurement is not based on the target, Reward system is
more related to the short term financial objectives (not support Strategy
implementation), Reward system is not related to the target and the performance
measurement
- Operating and learning problem:
strategic planning does not relate to the budget and resource allocation, operational
system is more focusing on the operational control, Traditional measurement: only
based on the financial data (ROI), the usage of non-financial performance is only used as
a feedback of short term tactical control and not for the long term
5. Result
Top management only focus on its own operational area
Managers  dysfunctional : focus only short term objective and lack of coordination
Employees not motivated
No sense of belonging

6. Consequences
Short term: unclear direction, performance may seen good
Long term: unable to compete, continuation is questionable

7. Needs for performance measurement

- relate operational activities with strategic planning
- relate incentive system with the real performance
- help managers determine the business process priority
- identify the best practice in organization
- have the reference compare to another company in the same industry
- input for the next strategic planning process

8. Strategic objectives: 4P
 - Profit: shareholder value
- Product: firm equity
- Process: organizational capital
- People: human capital

9. 4P Balance

10. BSC definition

a set of measures that gives top managers a fast but comprehensive view of the business
includes financial measures that tell the results of action already take complements the
financial measures on customer satisfaction, internal processes, and the organization’s
innovation and improvement activities operational measures that are the drivers of future
financial performance.
- Set of measure
- Comprehensive view of the business: measurement system, management system,
management philosophy

Must balance between

Measures no 1:

- Leg measures: past measures, financial report

- Lead measures: future, employee and customer satisfaction

Measures no 2:

- objective measures: everyone may judge the same thing, (ROI)

- subjective measures: measures will be different between one person to another person,
such customer satisfaction, employee satisfaction

Measures No 3

- financial
- non financial
 Measures no 4

- internal
- external

11. BSC Generation

- 1st gen: combine financial and non-financial performance measures grouped into 4
perspectives
- 2nd gen: define strategic objectives, linked together using causal strategy map  help
identify activities and result that need to be measured
- 3rd gen: use creation of destination statement  starting point for choosing strategic
objectives, selecting measures and setting targets
12. Strategy focused organization
- Mission
- Vision
- Goal
- Strategy
- Measure
13. SMART
Specific, Measurable, Achievable/Attainable, Result oriented, Time restricted
14. Initiatives
- Once measures and targets are established, it is the responsibility of management to
determine HOW the organization will achieve its goals.
- Measures are used to determine the effectiveness of strategic initiatives.
15. Customer Perspective

16. Why business need BSC?

- Retain financial performance as critical summary of managerial and business
performance
- Highlight more integrated set of measures that link: Customer, Internal Process,
Employees, and System Performance to long term Financial Success