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Five Forces - Critique

Porters model of Five Competitive Forces has been subject of much critique. Its main weakness results from the historical context in which it was developed. In the early eighties, cyclical growth characterized the global economy. Thus, primary corporate objectives consisted of profitability and survival. A major prerequisite for achieving these objectives has been optimization of strategy in relation to the external environment. At that time, development in most industries has been fairly stable and predictable, compared with todays dynamics. In general, the meaningfulness of this model is reduced by the following factors: 1. In the economic sense, the model assumes a classic perfect market. The more an industry is regulated, the less meaningful insights the model can deliver. 2. The model is best applicable for analysis of simple market structures. A comprehensive description and analysis of all five forces gets very difficult in complex industries with multiple interrelations, product groups, by-products and segments. A too narrow focus on particular segments of such industries, however, bears the risk of missing important elements. 3. The model assumes relatively static market structures. This is hardly the case in todays dynamic markets. Technological breakthroughs and dynamic market entrants from start-ups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times. The Five Forces model may have some use for later analysis of the new situation; but it will hardly provide much meaningful advice for preventive actions. 4. The model is based on the idea of competition. It assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. With this focus, it does not really take into consideration strategies like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks or others. Overall, Porters Five Forces Model has some major limitations in todays market environment. It is not able to take into account new business models and the dynamics of markets. The value of Porters model is more that it enables managers to think about the current situation of their industry in a structured, easy-tounderstand way as a starting point for further analysis. Source: TheManager.org

Porters five forces model


Introduction
There is continuing interest in the study of the forces that impact on an organisation, particularly those that can be harnessed to provide competitive advantage. The ideas and models which emerged during the period from 1979 to the mid-1980s (Porter, 1998) were based on the idea that competitive advantage came from the ability to earn a return on investment that was better than the average for the industry sector (Thurlby, 1998). As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of competition within it, the forces inside the industry (microenvironment) that influence the way in which firms compete, and so the industrys likely profitability is conducted in Porters five forces model. A business has to understand the dynamics of its

industries and markets in order to compete effectively in the marketplace. Porter (1980a) defined the forces which drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the buyers, and the threat of substitute products or services. Porter suggested that the intensity of competition is determined by the relative strengths of these forces.

Main Aspects of Porters Five Forces Analysis


The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organizations behaviour in a competitive market. These include the following:

The rivalry between existing sellers in the market. The power exerted by the customers in the market. The impact of the suppliers on the sellers. The potential threat of new sellers entering the market. The threat of substitute products becoming available in the market.

Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the appropriate strategies to be successful in their market (Thurlby, 1998).

Force 1: The Degree of Rivalry


The intensity of rivalry, which is the most obvious of the five forces in an industry, helps determine the extent to which the value created by an industry will be dissipated through head-to-head competition. The most valuable contribution of Porter's five forces framework in this issue may be its suggestion that rivalry, while important, is only one of several forces that determine industry attractiveness.

This force is located at the centre of the diagram; Is most likely to be high in those industries where there is a threat of substitute products; and existing power of suppliers and buyers in the market.

Force 2: The Threat of Entry


Both potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents position (Porter, 1980b; Sanderson, 1998) The most common forms of entry barriers, except intrinsic physical or legal obstacles, are as follows:

Economies of scale: for example, benefits associated with bulk purchasing; Cost of entry: for example, investment into technology; Distribution channels: for example, ease of access for competitors; Cost advantages not related to the size of the company: for example, contacts and expertise; Government legislations: for example, introduction of new laws might weaken companys competitive position; Differentiation: for example, a certain brand that cannot be copied (The Champagne)

Force 3: The Threat of Substitutes


The threat that substitute products pose to an industry's profitability depends on the relative price-to-performance ratios of the different types of products or services to which customers can turn to satisfy the same basic need. The threat of substitution is also affected by switching costs that is, the costs in areas such as retraining, retooling and redesigning that are incurred when a customer switches to a different type of product or service. It also involves:

Product-for-product substitution (email for mail, fax); is based on the substitution of need; Generic substitution (Video suppliers compete with travel companies); Substitution that relates to something that people can do without (cigarettes, alcohol).

Force 4: Buyer Power


Buyer power is one of the two horizontal forces that influence the appropriation of the value created by an industry (refer to the diagram). The most important determinants of buyer power are the size and the concentration of customers. Other factors are the extent to which the buyers are informed and the concentration or differentiation of the competitors. Kippenberger (1998) states that it is often useful to distinguish potential buyer power from the buyer's willingness or incentive to use that power, willingness that derives mainly from the risk of failure associated with a product's use.

This force is relatively high where there a few, large players in the market, as it is the case with retailers an grocery stores; Present where there is a large number of undifferentiated, small suppliers, such as small farming businesses supplying large grocery companies; Low cost of switching between suppliers, such as from one fleet supplier of trucks to another.

Force 5: Supplier Power


Supplier power is a mirror image of the buyer power. As a result, the analysis of supplier power typically focuses first on the relative size and concentration of suppliers relative to industry participants and second on the degree of differentiation in the inputs supplied. The ability to charge customers different prices in line with differences in the value created for each of those buyers usually indicates that the market is characterized by high supplier power and at the same time by low buyer power (Porter, 1998). Bargaining power of suppliers exists in the following situations:

Where the switching costs are high (switching from one Internet provider to another); High power of brands (McDonalds, British Airways, Tesco); Possibility of forward integration of suppliers (Brewers buying bars); Fragmentation of customers (not in clusters) with a limited bargaining power (Gas/Petrol stations in remote places).

The nature of competition in an industry is strongly affected by the suggested five forces. The stronger the power of buyers and suppliers, and the stronger the threats of entry and substitution, the more intense competition is likely to be within the industry. However, these five factors are not the only ones that determine how firms in an industry will compete the structure of the industry itself may play an important role. Indeed, the whole five-forces framework is based on an economic theory know as the Structure-Conduct-Performance (SCP) model: the structure of an industry determines organizations competitive behaviour (conduct), which in turn determines their profitability (performance). In concentrated industries, according to this model, organizations would be expected to compete less fiercely, and make higher profits, than in fragmented ones. However, as Haberberg and Rieple (2001) state, the histories and cultures of the firms in the industry also play a very important role in shaping competitive behaviour, and the predictions of the SCP model need to be modified accordingly.

How to write a Good Porter's 5 Forces analysis


The Porters Five Forces model is a simple tool that supports strategic understanding where power lies in a business situation. It also helps to understand both the strength of a firms current competitive position, and the strength of a position a company is looking to move into. Despite the fact that the Five Force framework focuses on business concerns rather than public policy, it also emphasizes extended competition for value rather than just competition among existing rivals, and the simplicity of its application inspired numerous companies as well as business schools to adopt its use (Wheelen and Hunger, 1998). With a clear understanding of where power lies, it will enable a company to take fair advantage of its strengths, improve weaknesses, and avoid taking wrong steps. Therefore, to apply this planning tool effectively, it is important to understand the situation and to look at each of the forces individually. In conducting an analysis of Porters Five Forces, it is required to brainstorm all relevant factors for the companys market situation, and then check against the factors presented for each force in the diagram above. The next step is to highlight the key factors on a diagram, and summarize the size and the scale of the force on the diagram. It is suggested to use relevant signs, for instance, + and -" to represent the forces moderately in companys favour, or for a force strongly against. After identifying favourable and unfavourable forces for the companys performance and industrys attractiveness, it is important to analyse the situation and examine the impacts of the forces. One of the critical comments made of the Five Forces framework is its static nature, whereas the competitive environment is changing turbulently. Are the five forces able to foresee industry expansion? Is it the corporate strategist's goal to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favour, or is the goal to become part of the ongoing commerce with the intention to produce innovative ideas that will expand the size of the industry? Is it true that the environment poses a threat to the organisation, leading to the consideration of suppliers and buyers as threats that need to be tackled, or does it offer the ground for a constitutive industry player co-operation? By thinking through how each force affects a company, and by identifying the strength and direction of each force, it provides an opportunity to identify the strength of the position and the ability to make a sustained profit in the industry (Mind Tools, 2006).

Limitations of Porters Five Force Model


Porters model is a strategic tool used to identify whether new products, services or businesses have the potential to be profitable. However it can also be very illuminating when used to understand the balance of power in other situations. Porter argues that five forces determine the profitability of an industry. At the heart of industry are rivals and their competitive strategies linked to, for example, pricing or advertising; but, he contends, it is important to look beyond ones immediate competitors as there are other determinates of profitability. Specifically, there might be competition from substitute products or services. These alternatives may be perceived as substitutes by buyers even though they are part of a different industry. An example would be plastic bottles, glass bottles, and cans for packaging soft drinks(substitute products). There may also be the potential threat of new entrants, although some competitors will see this as an opportunity to strengthen their position in the market by ensuring, as far as they can, customer loyalty. Finally, it is important to appreciate that companies purchase from suppliers and sell to buyers. If they are powerful they are in a position to bargain profits away through reduced margins, by forcing either cost increases or price decreases. This relates to the strategic option of vertical integration, when the company acquires, or merges with, a supplier or customer and thereby gains greater control over the chain of activities which leads from basic materials through to final consumption (Luffman and et al., 1996; Wheelen and Hunger, 1998). It is important to be aware that this model has further limitations in today's market environment; as it assumes relatively static market structures. Based originally on the economic situation in the eighties with its strong competition and relatively stable market structures, it is not able to take into account new business models and the dynamism of the industries, such as technological innovations and dynamic market entrants from start-ups that will completely change business models within short times. For instance, the computer and software industry is often considered as being highly competitive. The industry structure is constantly being revolutionized by innovation that

indicates Five Forces model being of limited value since it represents no more than snapshots of a moving picture. Therefore, it is not advisable to develop a strategy solely on the basis of Porters models (Kippenberger, 1998; Haberberg and Rieple, 2001), but to examine it in addition to other strategic frameworks of SWOT and PEST analysis. Nevertheless, that does not mean that Porters theories became invalid. What needs to be done is to adopt the model with the knowledge of its limitations and to use it as part of a larger framework of management tools, techniques and theories. This approach, however, is advisable for the application of every business model (Recklies, 2001).

Porter's

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Porters Five Forces model actually has an extension referred to as Porters Six Forces model. It is considerably less popular than the Five Forces model as its acceptance has been less positive than the Five Forces model. The Six Forces model though is very similar to the Five Forces model with the only difference being the addition of the sixth force in the framework. This sixth force in the model is termed as the relative power of other stakeholders, and can refer to a number of other groups or entities, depending on the factor which has the greatest influence including: Complementors One school of thought looks at the sixth force to be complementors, which are businesses offering complementary products to the sector in focus and being analysed (Grove 1996). The author states that these complementary businesses, as a sixth factor, affect the industry as changes in these businesses (such as new techniques, approaches or technologies) can impact on the dynamics between the industry and the complementors. The government The sixth force in the framework can also be considered to be the government, and is included in the framework if it has potential to impact on all the other five forces (Gordon, 1997). Thus, the government can have direct impact on the industry as the sixth force, but can also have indirect impact or influence by affecting the other five forces, whether favourably or unfavourably. The public Yet other viewpoints look at the public as the sixth force in the model, particularly if the public has a strong influence in the dynamics of the sector resulting in changes to the other forces or in the sector as a whole. Shareholders This group can also be considered potentially as the sixth force. This is more important in recent years where shareholder activity has increased significantly in the boardroom, and management of firms has been scrutinised much more and even given threats if certain actions favoured by the shareholders were not pursued. Employees Employees could also be considered as the sixth force if they wielded extraordinarily strong influence on the firm in a particular sector. The status of employees seems to follow similar rules in certain sectors, and thus could be considered a strong influence in these sectors. For example, in the automobile sector in the US, a large part of the work force are unionised, and thus could be considered the sixth force instead of the government or complementors. While a sixth force has been added to Porters original Five Forces model, the acceptance of this framework has been somewhat limited. This could be for two reasons. First, is that there is no definite and specific sixth force in all sectors, as it is different for each sector. Second, while a sixth force could be defined for all sectors, the influence of this factor can also be captured in the other five forces and thus the necessity of having it in the framework is less compelling.

Where to find information for Porter's 5 Forces analysis


In conducting the analysis it is crucial to examine the existing literature:

Periodicals, business articles on the industry performance, etc;

Analyst reports and trade organisations; Company annual reports and its publications on the main suppliers and distribution network; Anything that will give the exposure to the market situation, competitors present in the market, new emerging companies in the industry.

It is important to make sure that the sources are reliable and relevant to the current condition of the industry. It has to be viable, reliable and valid, in order to conduct a good analysis of the model. For this purpose, the gathered data and information has to be checked and be applied to the current business conditions. Further limitations could be present in the nature of market forces that reduce the applicability of the information sources to present situations; and the amount of detailed information required. This can be prohibitive to its practical use. For example, the level of competitor information required is very detailed and may not always be available.

Conclusion
Any company must seek to understand the nature of its competitive environment if it is to be successful in achieving its objectives and in establishing appropriate strategies. If a company fully understands the nature of the Porters five forces, and particularly appreciates which one is the most important, it will be in a stronger position to defend itself against any threats and to influence the forces with its strategy. The situation is fluid, and the nature and relative power of the forces will change. Consequently, the need to monitor and stay aware is continuous. Some issues during the implementation of these Five Forces are crucially important for organizations to build long-term business strategy and sustaining competitive advantages rather than simply list the forces. Successful use of the Porter Model Analysis includes identifying the sources of competition, the strength and likelihood of that competition existing, and strategic recommendations for the action a company should take in order to develop barriers to competition.

BCG Growth-Share Matrix; Reports on Different Companies


No strategic management or marketing text appears to be complete without the inclusion of the Boston Consulting Group (BCG) growth-share matrix. When used effectively, this model provides guidance for resource allocation. And despite its inherent weaknesses, is probably one of the most widely used management instrument as far as portfolio management is concern. For instant, each SBU (strategic business unit) of large companies such as General Electric, Siemens, and Centrica require different strategies to compete effectively and efficiently. It is not a question of one strategy fits all SBUs since the likelihood for each of them experiencing the same market growth rate, industry-threats and leverage is very slim. This is where the BCG model comes into play as a management analytical tool. The ensuing examines the underpinnings of the model, for what it is used, how to use it and why it is used.

INTRODUCTION WHAT IS THE BCG GROWTH-SHARE MATRIX?


To begin with, BCG is the acronym for Boston Consulting Groupa general management consulting firm highly respected in business strategy consulting. BCG GrowthShare Matrix (see figure 1) happens to be one of many of BCG's strategic concepts the organisationdeveloped in the late 1970s, and is being taught at leading business schools and executive education programmes around the world. It is a management tool that serves four distinct purposes (McDonald 2003; Kotler 2003; Cipher 2006): it can be used to classify product portfolio in four business types based on four graphic labels including Stars, Cash Cows, Question Marks and Dogs; it can be used to determine what priorities should be given in the product portfolio of a company; to classify an organisations product portfolio according to their cash usage and generation; and offers management available strategies to tackle various product lines. Consider companies like Apple Computer, General Electric, Unilever, Siemens, Centrica and many more, engaging in diversified product lines. The BCG model therefore becomes an invaluable analytical tool to evaluate an organisations diversified product lines as later seen in the ensuing sections.

WHAT ARE THE MAIN ASPECTS OF THE BCG GROWTH-SHARE MATRIX?


The BCG Growth-Share Matrix is based on two dimensional variables: relative market share and market growth. They often are pointers to healthiness of a business (Kotler 2003; McDonald 2003). In other words, products with greater market share or within a fast growing market are expected to wield relatively greater profit margins. The reverse is also true. Lets look at the following components of the model:

Figure 1

Relative Market Share


According to the proponents of the BCG (Herndemson 1972), It captures the relative market share of a business unit or product. But that is not all! It allows the analysed business unit be pitted against its competitors. As earlier emphasized above, this is due to the sometime correlation between relative market share and the products cash generation. This phenomenon is often likened to the experience curve paradigm that when an organisation enjoys lower costs, improved efficiency from conducting business operations overtime. The basic tenet of this postulation is that the more an organisation performs a task often; it tends to develop new ways in performing those tasks better which results in lower operating cost (Cipher 2006). What that suggests is that the experience curve effect requires that market share is increased to be able to drive down costs in the long run and at the same time a company with a dominant market share will inevitably have a cost advantage over competitor companies because they have the greater share of the market. Hence, market share is correlated with experience. A case in point is Apple Computers flagship product called the iPod, which occupies a dominant 73% share the portable music player market (Cantrell 2006). Analysts believe it is the impetus for Apple's financial rebirth 40% of Apple's sales is attributed to the iPod product line (Cantrell 2006). Similarly, Dells PC line shares the same market

dominance theory as the iPod. The PC manufacture giant occupies a worldwide market share of 18.1%, which is commensurate to its large market revenue above its competitors (see figure 2). Figure 2

Market Growth
Market growth axis, correlates with the product life cycle paradigm, and predicates the cash requirement a product needs relative to the growth of that market. A fast growing market is generally considered attractive, and pulls a lot of organisations resources in an effort to increase gains. A case in point is the technological market widely consider by experts as a fast growing market, and tends to attract a lot of competition. Therefore, a product life cycle and its associated market play a key role in decision-making.

Cash Cows
These products are said to have high profitability, and require low investment for the fact that they are market leaders in a low-growth market. This viewpoint is captured by the founders themselves thus:

The cash cows fund their own growth. They pay the corporate dividend. They pay the corporate overhead. They pay the corporate interest charges. They supply the funds for R&D. They supply the investment resource for other products. They justify the debt capacity for the whole company. Protect them (Henderson 1976). According to experts (Drummond & Ensor 2004; Kotler 2003; McDonald 2003), surplus cash from cash cow products should be channelled into Stars and Questions in order to create the future Cash Cows.

Stars
Stars are leaders in high growth markets. They tend to/should generate large amounts of cash but also use a lot of cash because of growth market conditions. For example, Apple Computer has a large share in the rapidly growing market for portable digital music players (Cantrell 2006).

Question Marks
Question Marks have not achieved a dominant market position, and hence do not generate much cash. They tend to use a lot of cash because of growth market conditions. ConsiderHewlett-Packards small share of the digital camera market, behind industry leader Canons 21% (Canon 2006). However, this is a rapidly growing market.

Dogs
Dogs often have little future and are big cash drainers on the company as they generate very little cash by virtue of their low market share in a highly low growth market. Consider Pfizers Inspra (Gibson 2006): Pfizer launched this drug in Q4 2003 and continues to pump money into this problem child, despite anaemic sales of roughly $40 million in the $2.7 billion heart-failure market dominated by Toprol-XL (metoprolol). It was thought to gain market share and become a star, and eventually a cash cow when the market growth slowed. But, according to industrys experts, Inspra is likely to remain a dog, despite any amount of promotion, given its perceived safety issues and a cheaper, more effective spironolactone in the samePfizer portfolio. Because Pfizer invested heavily in promotion early on with Inspra, the drug's earnings potential and positive cash flow is elusive at best. A portfolio analysis ofPfizer's cardiovascular franchise would suggest redeploying promotional spend on Inspra to up-and-coming stars like Caduet (amlodipine/atorvastatin) or torcetrapib to ensure those drugs reach their sales potential.

HOW TO DEVELOP GOOD BCG GROWTH-SHARE MATRIX OF A COMPANY?


SBUs or products are represented on the model by circles and fall into one of the four cells of the matrix already described above. Mathematically, the mid-point of the axis on the scale of Low-High is represented by 1.0 (Drummond & Ensor 2004; Kotler 2003). At this point, the SBUs or products market share equals that of its largest competitors market share (Drummond & Ensor 2004; Kotler 2003). Next, calculate the relative market share and market growth for each SBU and product. Figure 3 depicts the formulas to calculate the relative market share and market growth.

Figure 3

Oftentimes, if you are versed with a particular industry and companies operating in it, you could draw up a BCG matrix for any company without necessarily computing figures for the relative market share and market growth. Figure 4 depicts a fairly accurate BCG growth-share matrix for Apple Computer developed in the spring of 2005 without the author calculating the relative market share and market growth.

Figure 4

Once the products or SBUs have been plotted, the planner then has to decide on the objective, strategy and budget for the business lines. Basically, at this juncture the organisations should strive to maintain a balanced portfolio. Cash generated from Cash Cows should flow into Stars and Question Marks in an effort to create future Cash Cows. Moreover, there are 4 major strategies that can be pursued at this stage as described in the ensuing section.

AVAILABLE STRATEGIES TO PURSUE

Build
The product or SBUs market share needs to be increased to strengthen its position. Short-term earnings and profits are deliberately forfeited because it is hoped that the long-term gains will be higher than this. This strategy is suited to Question Marks if they are to become stars.

Hold
The objective is to maintain the current share position and this strategy is often used for Cash Cows so that they continue to generate large amounts of cash.

Harvest
Here management tries to increase short-term cash flows as far as possible (e.g. price increase, cutting costs) even at the expense of the products or SBUs longer-term future. It is a strategy suited to weak Cash Cows or Cash Cows that are in a market with a limited future. Harvesting is also used for Question Marks where there is no possibility of turning them into Stars, and for Dogs.

Divest
The objective of this strategy is to rid the organisation of the products or SBUs that are a drain on profits and to utilize these resources elsewhere in the business where they will be of greater benefit. This strategy is typically used for Question Marks that will not become Stars and for Dogs.

WHERE TO FIND INFORMATION FOR THE BCG GROWTH-SHARE MATRIX?


Information for the BCG Growth-Share matrix is generated from multiple sources including companys annual reports, sec fillings and a host of specialised research organisations such as IDC, Hoover, Edgar, Forrester and many more. Armed with this information, developing a BCG growth-share matrix should pose less of a problem.

Limitations
The BCG model is criticised for having a number of limitations (Kotler 2003; McDonald 2003):

There are other reasons other than relative market share and market growth that could influence the allocation of resources to a product or SBU: reasons such as the need for strong brand name and product positioning could compel resource allocation to an SBU or product (Drummond & Ensor 2004). What is more, the model rests on net cash consumption or generation as the fundamental portfolio balancing criterion. That is appropriate only in a capital constrained environment. In modern economies, with relatively frictionless capital flows, this is not the appropriate metric to apply rather, risk-adjusted discounted cash flows should be used (ManyWorlds 2005). Also, the matrix assumes products/business units are independent of each other, and independent of assets outside of the business. In other words, there is no provision for synergy among products/business units. This is rarely realistic. The relationship between cash flow and market share may be weak due to a number of factors including (Cipher 2006): competitors may have access to lower cost materials unrelated to their relative share position; low market share producers may be on steeper experience curves due to superior production technology; and strategic factors other than relative market share may affect profit margins. In addition, the growth-share matrix is based on the assumption that high rates of growth use large cash resources and that maturity of the life cycle brings about the expected profit returns. This may be incorrect due to various reasons (Cipher 2006): capital intensity may be low and the business/product could be grown without major cash outlay; high entry barriers may exist so margins may be sustainable and big enough to produce a positive cash flow and a growth at the same time; and industry overcapacity and price competition may depress prices in maturity.

Furthermore, market growth is not the only factor or necessarily the most important factor when assessing the attractiveness of a market. A fast growing market is not necessarily an attractive one. Growth markets attract new entrants and if capacity exceeds demand then the market may become a low margin one and therefore unattractive. A high growth market may lack size and stability.

Given the aforementioned weaknesses, the BCG Growth-Share matrix must be used with care; nonetheless, it is a best-known business portfolio evaluation model (Kotler 2003).

Value chain analysis; Reports on Different Companies


The article focuses on the main aspects of Value chain analysis. The activities entailed in the framework are discussed in detail, with respect to competitive strategies and value to the customer. The article includes tips for students and analysts on how to write a good Value chain analysis for a firm. Moreover, sources of findings information for value chain analysis have been discussed. The limitations of Value Chain analysis as a model have also been discussed.

Introduction
The value chain approach was developed by Michael Porter in the 1980s in his book Competitive Advantage: Creating and Sustaining Superior Performance (Porter, 1985). The concept of value added, in the form of the value chain, can be utilised to develop an organisations sustainable competitive advantage in the business arena of the 21st C. All organisations consist of activities that link together to develop the value of the business, and together these activities form the organisations value chain. Such activities may include purchasing activities, manufacturing the products, distribution and marketing of the companys products and activities (Lynch, 2003). The value chain framework has been used as a powerful analysis tool for the strategic planning of an organisation for nearly two decades. The aim of the value chain framework is to maximise value creation while minimising costs (www.wikipedia.org).

Main aspects of Value Chain Analysis


Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organisation, and have the potential of a sustainable competitive advantage for a company. Therein, competitive advantage of an organisation lies in its ability to perform crucial activities along the value chain better than its competitors. The value chain framework of Porter (1990) is an interdependent system or network of activities, connected by linkages (p. 41). When the system is managed carefully, the linkages can be a vital source of competitive advantage (Pathania-Jain, 2001). The value chain analysis essentially entails the linkage of two areas. Firstly, the value chain links the value of the organisations activities with its main functional parts. Then the assessment of the contribution of each part in the overall added value of the business is made (Lynch, 2003). In order to conduct the value chain analysis, the company is split into primary and support activities (Figure 1). Primary activities are those that are related with production, while support activities are those that provide the background necessary for the effectiveness and efficiency of the firm, such as human resource management. The primary and secondary activities of the firm are discussed in detail below.

Primary activities
The primary activities (Porter, 1985) of the company include the following:

Inbound logistics These are the activities concerned with receiving the materials from suppliers, storing these externally sourced materials, and handling them within the firm. Operations These are the activities related to the production of products and services. This area can be split into more departments in certain companies. For example, the operations in case of a hotel would include reception, room service etc. Outbound logistics These are all the activities concerned with distributing the final product and/or service to the customers. For example, in case of a hotel this activity would entail the ways of bringing customers to the hotel. Marketing and sales This functional area essentially analyses the needs and wants of customers and is responsible for creating awareness among the target audience of the company about the firms products and services. Companies make use of marketing communications tools like advertising, sales promotions etc. to attract customers to their products.

Service There is often a need to provide services like pre-installation or after-sales service before or after the sale of the product or service.

Support activities
The support activities of a company include the following:

Procurement This function is responsible for purchasing the materials that are necessary for the companys operations. An efficient procurement department should be able to obtain the highest quality goods at the lowest prices. Human Resource Management This is a function concerned with recruiting, training, motivating and rewarding the workforce of the company. Human resources are increasingly becoming an important way of attaining sustainable competitive advantage. Technology Development This is an area that is concerned with technological innovation, training and knowledge that is crucial for most companies today in order to survive. Firm Infrastructure This includes planning and control systems, such as finance, accounting, and corporate strategy etc. (Lynch, 2003).

Figure 1: The Value Chain: Source: Porter (1985)

Porter used the word margin for the difference between the total value and the cost of performing the value activities (Figure 1). Here, value is referred to as the price that the customer is willing to pay for a certain offering (Macmillan et al, 2000). Other scholars have used the word added value instead of margin in order to describe the same (Lynch, 2003). The analysis entails a thorough examination of how each part might contribute towards added value in the company and how this may differ from the competition. In a study of Saudi companies, Ghamdi (2005) found that 22% of the companies in the study used value chain frequently, while 17% reported that they somewhat used it, and 42% did not use the tool at all. An interesting finding of the study was that the manufacturing firms were frequent users of the tool compared to their service counterparts (Ghamdi, 2005).

How to write a Good Value Chain Analysis


The ability of a company to understand its own capabilities and the needs of the customers is crucial for a competitive strategy to be successful. The profitability of a firm depends to a large extent on how effectively it manages the various activities in the value chain, such that the price that the customer is willing to pay for the companys products and services exceeds the relative costs of the value chain activities. It is important to bear in mind that while the value chain analysis may appear as simple in theory, it is quite time-consuming in practice. The logic and validity of the proven technique of value chain analysis has been rigorously tested, therefore, it does not require the user to have the same in-depth knowledge as the originator of the model (Macmillan et al, 2000). The first step in conducting the value chain analysis is to break down the key activities of the company according to the activities entailed in the framework. The next step is to assess the potential for adding value through the means of cost advantage or differentiation. Finally, it is imperative for the analyst to determine strategies that focus on those activities that would enable the company to attain sustainable competitive advantage. It is important for analysts to remember to use the value chain as a simple checklist to analyse each activity in the business with some depth (Pearson, 1999). The value chain should be analysed with the core competence of the company at its very heart (Macmillan et al, 2003). The value chain framework is a handy tool for analysing the activities in which the firm can pursue its distinctive core competencies, in the form of a low cost strategy or a differentiation strategy. It is to be noted that the value chain analysis, when used appropriately, makes the implementation of competitive strategies more systematic overall. Analysts should use the value chain analysis to identify how each business activity contributes to a particular competitive strategy. A company may benefit from cost advantages if it either reduces the cost of individual activities in the value chain or the value chain is essentially reconfigured, through structural changes in the activities. One of the problematic areas of the value chain model, however, is that the costs of the different activities of the value chain need to be attributed to an activity. There are few costing systems that contain detailed activity level costing, unless an Activity Based Costing (ABC) system is in place in the company (Macmillan et al, 2003). Another relevant area of concern that analysts must pay particular attention to is the customers view point of value. The customers of the firm may view value in a generic way, thereby making the process of evaluating the activities in the value chain in relation with the total price increasingly difficult. It is imperative for analysts to note that the overall differentiation advantage may result from any activity in the value chain. A differentiation advantage may be achieved either by changing individual value chain activities to increase uniqueness in the final product or service of the company, or by reconfiguring the companys value chain. The difference between a low cost strategy and differentiation in practice is unlike the rigidity that is provided regarding the same in theory. Analysts must note that the difference between these two strategies is one of the shades of grey in real life compared to the black and white that is offered in theory. For example, Emerson Electric, which is a cost leader, has quality as a strategic concern in achieving its best costs strategy (Pearson, 1999). Ivory Soap, a leading product of P&G, is a broad differentiator that turned into a cost leader. Quality is a strategic concern for managers of Ivory Soap, along with delivering a high value product consistently. Note that in a company with more than one product area, it is appropriate to conduct the value chain analysis at the product group level, and not at the corporate strategy level. It is crucial for companies to have the ability to control and make most of their capabilities. In the advent of outsourcing, progressive companies are increasingly making their value chains more elastic and their organisations inherently more flexible (Gottfredson et al, 2005). The important question is to see how the companies are sourcing every activity in the value chain. A systematic analysis of the value chain can facilitate effective outsourcing decisions. Therefore, it is important to have an in-depth understanding of the companys strengths and weaknesses in each activity in terms of cost and differentiation factors.

The strategy of Wal-Mart worked when the company improved its business through innovative practices in activities such as purchasing, logistics, and information management, which resulted in the value offering of everyday low prices (Magretta, 2002). It is important to note that refining business models on a constant basis is as critical to the success of the company as its business strategy. Notably, both the strategy and business model of an organisation are crucial for the robustness of the overall value chain. For example, 7-Eleven had been vertically integrated, controlling most activities in the value chain by itself. The company has now outsourced many parts of its business including functions like HR, IT management, finance, logistics, distribution, product development, and packaging. According to Gottfredson et al (2005), the value chain decisions of companies will increasingly shape their overall organisational structure. Moreover, the value chain decisions will play a role in determining the type of management skills that companies may need to develop or acquire to survive in fiercely competitive business markets. The Apple podcasting value chain is comprised of nine steps that essentially move from raw content to the listener. All the steps of the value chain include content, advertising, production, publishing, hosting/bandwidth, promotion, searching, catching, and listening. It is important to note that each step in the value chain adds value to the podcast in distinctive ways, has its own sets of challenges and opportunities. It is important to note that the nature of value chain activities differs greatly in accordance with the types of companies and industries. For companies with complex systems likeIBM, Accenture and Cisco etc., it is not possible for one member of the value chain to provide all the products and services from start to finish. The marketing function in such companies focuses on aligning with key partners and allies that must collaborate with each other. For example, installing SAP's ERP system requires direct involvement from companies like HP, Oracle, and Accenture, along with indirect involvement of companies like EMC, Cisco, and Microsoft, and collaboration between many departments within the company. The market assets contrast starkly between the companies with complex systems and those that are driven by volume operations. For example, in case of Apples leading products like Macintosh and the iPod, the entire offer is inside a package, and the entire value chain is preassembled. The change of supplier for the Macintosh from IBM, toIntel, improved the system performance while retaining the value in terms of price to the consumer. The only variable to manage in Apples case is the consumers preferences. The role of creating differentiation through unique quality features, along with promotion in order to create brand awareness, image and eventually brand equity becomes imperative for volume operations driven companies like Apple (Moore, 2005). It is imperative to note that the value chains of companies have undergone many changes over the last two decades, due to the rapidly changing business environment. Information technology and the Internet have played a fundamental role in transforming certain parts and the interlinkages between parts of the value chains of companies today. Moreover HRM is increasingly becoming a vital asset in the value chain that contributes to competitive advantage. Strategic alliances are also becoming an integral part of the value chains. For example, IBM once enjoyed backward vertical integration into the disk drive industry and forward vertical integration into the consulting services and computer software industries (Hill et al, 2007). According to the changing business environment, IBMhad more than 400 strategic alliances as of 2003 (Thompson et al, 2003). Herein, the value chain analysis is useful in providing a framework to examine the advantages that partners can give to each other (Pathania-Jain, 2001). It is important to note the source of competitive advantage of a company for the value chain analysis. The competitive advantage for IBM, for example, lies in depth, breadth and the geographic spread of its global operations (Rai, 2006) and the loyalty that the big blue enjoys from its clientele. Lastly, analysts should look for the managerial implications that the new era of capability outsourcing may bring. The value chain decisions of companies will increasingly shape their organisational structure. Furthermore these decisions will determine the types of managerial skills that companies may need to develop to survive in an increasingly competitive business environment.

Where to find information for Value Chain Analysis


Analysts can explore various sources to find information necessary for conducting the value chain analysis. Up to three years of annual reports of the company can be analysed to see how the costing of the activities are changing over the period and whether they are in unison with the competitive strategy of the firm. These annual reports

of the company can be compared to the annual reports of the key competitors in order to see how competitive strategies differ between the companies, along with finding the difference in the contribution of activities to the companys profitability. In order to gain knowledge about the core competence of the company, analysts can look at the company and competitor websites. SWOT analysis of the companies done by companies like Datamonitor etc. can help the analyst to understand the key strengths and weaknesses of the company and how the firm differs from its competitors. Furthermore, journal articles, trade publications and magazines are useful sources of information to identify how value is created in the particular industry in which the company operates and which activities play a key role in the generation of that value.

Limitations of Value Chain Analysis


One of the limitations of the value chain model is that it describes an industrial organization which essentially buys raw materials and transforms these into physical products. Notably, at the time when the model was introduced (Porter, 1985), service industries in the western countries employed lesser workforce compared to todays statistics of the same (www.wikipedia.org). Academics and practitioners alike have critiqued the model and its applicability in the context of service organisations.Partnerships, alliances and collaboration along with differentiation and low costs are common drivers of value today. The limitations of the model include the fact that value for the final customer is the value only in its theoretical context (Svensson, 2003), and not practical terms. The real value of the product is assessed when the product reaches the final customer, and any assessment of that value before that moment is only something that is true in theory. Despite this limitation, analysts can effectively use the value chain model to determine the value to the final customers in a theoretical way. Use of other planning tools and techniques like Porters generic strategies, analysis of critical success factors etc. is recommended in conjunction with the value chain framework for a more comprehensive analysis of a companys strategy and planning.

Conclusion
The value chain framework has been used as a powerful analysis tool for organisational strategic planning for nearly two decades now. The value chain framework shows that the value chain of a company may be useful in identifying and understanding crucial aspects to achieve competitive strengths and core competencies in the marketplace. The model also reveals how the value chain activities are tied together to ultimately create value for the consumer. The five primary activities and four support activities form an interdependent system that is connected by linkages. Analysts conducting the value chain analysis should break down the key activities of the company according to the activities entailed in the framework, and assess the potential for adding value through the means of cost advantage or differentiation. Finally, it is important to determine strategies that focus on those activities that would enable the company to attain sustainable competitive advantage. It is important to analyse the value chain of a company with the core competence at its very heart. The nature of value chain activities differs greatly in accordance with the types of companies and industries. The value chains of companies have undergone many changes in the last two decades due to advancements in technology facilitating change at a very rapid pace in the business environment. Outsourcing will cause major changes in organisations and their value chains, with significant managerial implications. Sources for finding information on value chain analysis include three years annual reports of the particular company and its key competitors, company websites, journal articles, and other reputed trade magazines etc. Use of other planning tools and techniques like Porters generic strategies, analysis of critical success factors etc. is suggested in conjunction with the value chain framework for a more comprehensive analysis of a companys strategic planning.

"Sustainable Competitive Advantage" Concept: Past, Present, and Future


Nicole P. Hoffman Executive Summary Because of its importance to the long-term success of firms, a body of literature has emerged which addresses the content of sustainable competitive advantage (hereafter SCA) as well as its sources and different types of strategies that may be used to achieve it. The purpose of this paper is to trace the origins of SCA and discuss how it has been applied to marketing strategy. It is organized as follows: First, early contributors are cited and potential sources of SCA are presented. A formal conceptual definition of the construct is given, followed by a discussion of how SCA is linked to other concepts in the strategy field. A theoretical model of how an SCA is achieved in a network setting is offered, and future research opportunities are suggested. Early Contributions to the SCA Concept Early literature on competition serves as a precursor to the development of SCA. In 1937, Alderson hinted at a basic tenet of SCA, that a fundamental aspect of competitive adaptation is the specialization of suppliers to meet variations in buyer demand. Alderson (1965) was one of the first to recognize that firms should strive for unique characteristics in order to distinguish themselves from competitors in the eyes of the consumer. Later, Hamel and Prahalad (1989) and Dickson (1992) discussed the need for firms to learn how to create new advantages that will keep them one step ahead of competitors. Alderson was considered "ahead of his time" with respect to the suggestion that firms search for ways to differentiate themselves from competitors. Over a decade later, Hall (1980) and Henderson (1983) solidified the need for firms to possess unique advantages in relation to competitors if they are to survive. These arguments form the basis for achieving SCA. SCA Defined The idea of a sustainable CA surfaced in 1984, when Day suggested types of strategies that may help to "sustain the competitive advantage" (p. 32). The actual term "SCA" emerged in 1985, when Porter discussed the basic types of competitive strategies firms can possess (low-cost or differentiation) to achieve SCA. Interestingly, no formal conceptual definition was presented by Porter in his discussion. Barney (1991) has come the closest to a formal definition by offering the following: "A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy (italics in original)" (p. 102). Based on both Barneys work and the definitions of each term provided in the dictionary, the following formal conceptual definition is offered: An SCA is the prolonged benefit of implementing some unique value-creating strategy not simultaneously being implemented by any current or potential competitors along with the inability to duplicate the benefits of this strategy.

Sources of SCA
Day and Wensley (1988) focused on two categorical sources involved in creating a CA: superior skills and superior resources. Other authors have elaborated on the specific skills and resources that can contribute to an SCA. For example, Barney (1991) states that not all firm resources hold the potential of SCAs; instead, they must possess four attributes:

rareness, value, inability to be imitated, and inability to be substituted. Similarly, Hunt and Morgan (1995) propose that "potential resources can be most usefully categorized as financial, physical, legal, human, organizational, informational, and relational" (p. 6-7). Prahalad and Hamel (1990) suggest that firms combine their resources and skills into core competencies, loosely defined as that which a firm does distinctively well in relation to competitors. Therefore, firms may succeed in establishing an SCA by combining skills and resources in unique and enduring ways. By combining resources in this manner, firms can focus on collectively learning how to coordinate all employees efforts in order to facilitate growth of specific core competencies.

The Relationship of SCA to Other Strategy Concepts Many topics in strategy research have been linked to aiding in the process of creating and maintaining an SCA. Included in these topics are the concepts of market orientation and business networks. Day and Wensley (1988) suggest using perspectives of both customer and competitor to assess firm performance; this outward focus links the SCA construct to the concept of market orientation. Through a customer orientation, firms can gain knowledge and customer insights in order to generate superior innovations (Varadarajan and Jayachandran 1999). Because a market orientation employs intangible resources such as organizational and informational resources, it can serve as a source of SCA (Hunt and Morgan 1995). Business networks consist of multiple relationships, with each participating firm gaining the resources needed to build core competencies and obtain an SCA. Porter (1985) discusses the formation of "coalitions" that allow the sharing of activities in order to support a firms CA. However, Porters "value chain" approach focuses on activities within a single firm. A new model is needed which adapts his approach in order to understand the value-added processes comprised of dyadic and network interfirm activities which foster each firms SCA. Directions for Future Research on the SCA Construct Building on the proposed definition of SCA, this article proposes a general theoretical model of how dyadic relationships within a network environment affect SCA. Four propositions are presented in conjunction with this model. 1. P1: Network identity is an antecedent of trust. 2. P2: Communication is an antecedent of both trust and organizational learning. 3. P3: Commitment is the result of both trust and organizational learning. 4. P4: Both trust and commitment result in SCA. In addition, operational and measurement issues for the proposed definition of SCA are discussed. Conclusion Significant progress has been made with respect to definition, operationalization, and measurement of concepts in the marketing strategy field. However, we still lack research that maps how strategy can influence performance by providing firms with an SCA (Varadarajan and Jayachandran 1999). By developing a

multi-item measure of the construct, we could empirically examine theoretical models of SCA in a network environment. If researchers are able to examine networks in this manner, our knowledge of how CA is achieved and sustained can only be enhanced.

Mission Statements and Vision Statements


Unleashing purpose
Vision Statements and Mission Statements are the inspiring words chosen by successful leaders to clearly and concisely convey the direction of the organization. By crafting a clear mission statement and vision statement, you can powerfully communicate your intentions and motivate your team or organization to realize an attractive and inspiring common vision of the future. "Mission Statements" and "Vision Statements" do two distinctly different jobs. A Mission Statement defines the organization's purpose and primary objectives. Its prime function is internal to define the key measure or measures of the organization's success and its prime audience is the leadership team and stockholders. Vision Statements also define the organizations purpose, but this time they do so in terms of the organization's values rather than bottom line measures (values are guiding beliefs about how things should be done.) The vision statement communicates both the purpose and values of the organization. For employees, it gives direction about how they are expected to behave and inspires them to give their best. Shared with customers, it shapes customers' understanding of why they should work with the organization.

Tip: Mission Statements and Vision Statements usually refer to an organization or an organizational unit. Team Charters can have a similar role when briefing teams.

First we look at creating mission statements. Then we create vision statements.

Mission Statement Creation


1. 2. 3. 4. 5. To create your mission statement, first identify your organization's "winning idea". This is the idea or approach that will make your organization stand out from its competitors, and is the reason that customers will come to you and not your competitors (see tip below). Next identify the key measures of your success. Make sure you choose the most important measures (and not too many of them!) Combine your winning idea and success measures into a tangible and measurable goal. Refine the words until you have a concise and precise statement of your mission, which expresses your ideas, measures and desired result.

Tip: OK, so we're a bit glib here talking about the "winning idea" this is a prime subject of the discipline of business strategy, and it can take a lot of effort to find, shape and test. See our articles on USP Analysis, SWOT Analysis andCore Competence Analysis for starting points, and make sure you do the homework needed!

Example: Take the example of a produce store whose winning idea is "farm freshness". The owner identifies two keys measures of her success: freshness and customer satisfaction. She creates her mission statement which is the action goal that combines the winning idea and measures of success. The mission statement of Farm Fresh Produce is: "To become the number one produce store in Main Street by selling the highest quality, freshest farm produce, from farm to customer in under 24 hours on 75% of our range and with 98% customer satisfaction."

Vision Statement Creation


Once you've created your mission statement, move on to create your vision statement: 1. First identify your organization's mission. Then uncover the real, human value in that mission. 2. 3. Next, identify what you, your customers and other stakeholders will value most about how your organization will achieve this mission. Distil these into the values that your organization has or should have. Combine your mission and values, and polish the words until you have a vision statement inspiring enough to energize and motivate people inside and outside your organization.

Using the example mission statement developed for Farm Fresh Produce, the owner examines what she, her customers and her employees value about her mission. The four most important things she identifies are: freshness, healthiness, tastiness and "local-ness" of the produce. Here's the Vision Statement she creates and shares with employees, customers and farmers alike: "We help the families of Main Town live happier and healthier lives by providing the freshest, tastiest and most nutritious local produce: From local farms to your table in under 24 hours."

3 Statements That Can Change the World: Mission / Vision / Values


by Hildy Gottlieb
Copyright, Hildy Gottlieb / ReSolve, Inc. 2007

Does your organization have a Mission Statement? You probably do. How about a Vision Statement? A Values Statement? If you do not have these three statements, or if you have them but are not using them to guide your organization's work, you are missing out on some of the simplest and most effective governance tools you could find. These statements of your Vision, your Mission and your Values can define and guide your organization's ability to create the future of your community!

Vision vs. Mission


We can't really begin the discussion of the Vision Statement and the Mission Statement without first addressing the semantic difference between the two. Get 10 consultants in a room, and you may get 10 different answers to just what that difference is! To distinguish between Vision and Mission in our own work, we have defaulted back to the plain English usage of those words. And the simplest way we have found to show that difference in usage is to add the letters "ary" to the end of each word.

VisionARY MissionARY

We certainly know what those two words mean. A visionary is someone who sees what is possible, who sees the potential. A missionary is someone who carries out that work. Our favorite example of this everyday usage is Jesus of Nazareth. Jesus was a visionary. He saw the potential, the possibilities for making life better. His missionaries carry his work and his words to the world, putting his vision into practice. Your organization's vision is all about what is possible, all about that potential. The mission is what it takes to make that vision come true.

Vision Statement
If your Vision Statement is a statement of what is possible, the picture of the future you want to create, the critical question for a Community Benefit organization is then, "Vision for whom? For what?" From the perspective of your organization's ability to accomplish as much community impact as possible, now and into the future, the only answer can be that your organization's vision is for the future you want to create for the community you wish to impact. An effective Vision Statement will therefore tell the world what change you wish to create for the future of your community. Our vision is a community where _______________. Our vision is a community that _______________. Given that this sector is all about changing our communities and our world, I am amazed that the corporate version of a Vision Statement is still taught in this sector. But conference presenter after conference presenter continue to teach that "Your organization's Vision Statement is the picture of the future you want for the organization." In a for-profit company, that definition of a Vision Statement makes sense. Self-perpetuation is what such a company is meant to do - to keep creating profits, long into the future, for those who own that company. But when the purpose of an organization is Community Benefit, its vision must be for the community, not for itself. When an organization's Vision Statement focuses on the organization itself, we end up seeing Vision Statements like this one, which falls into the "We couldn't make this up" category. A crisis nursery for abused and neglected children showed us the Vision Statement they had posted in their lobby. It read, "Our vision is to be the most effective crisis nursery in the state." For those of you who have heard me speak about this from a podium, you know this is the point where my voice raises three octaves and I cry, "NO!" The ultimate vision, from the community's perspective, is not that the community has an incredible crisis nursery, but that they not need a crisis nursery! The vision for what is possible is a community where children and their families are safe! We can only create significant improvement in our communities if our vision is about exactly that - the difference we want to make, the dream of our communities' highest potential.

Your Vision Statement will therefore answer the big question - WHY are you doing what you are doing? You are doing it so you can create a community that is better than the way things are now. You are doing it so that individuals' lives will be better, so that everyone's lives will be better. Your Vision Statement will create that context. It will tell where you are heading. So, for your organization's Vision Statement, fill in this blank:

We Couldn't Make This Up


A human service organization proudly showed us that their Vision Statement took up an entire page. That page described, in minute detail, the future of that organization. A full paragraph described what the facility would look like. Another full paragraph described what the programs would be like, and yet another paragraph detailed (I swear I am not making this up) how the organization would be financially sound. In this entire single-spaced, jampacked page, the word "client" appeared once, and the word "community" appeared not at all.

Our vision is a community where ________________________________. or Our vision is a community that __________________________________.

Example:
At the Community-Driven Institute, our vision is a vibrant, healthy, compassionate world.

Mission Statement
Like the Missionary, your Mission Statement will turn your vision into practice. The Mission Statement is the one that will actually do the work. Again, it is easy to see what the Mission Statement needs to do if we go back to plain English usage. Consider the phrase "mission accomplished" - the work is done. Consider the phrase "mission impossible" - the job cannot be done. The mission is the doing part - it is what you will do to bring that vision to reality. And while it is powerful to talk about the work you do, it is more powerful to talk about it in the context of why you are doing that work - your vision for making your community an amazing place to live. As you craft your mission statement, then, consider starting with your Vision Statement as the lead-in to your Mission Statement:

Our vision is a community where ________________. To bring that vision into reality, we do ______________________.
To expand on the practical part of your Mission Statement, you might add where you do your work, and for whom, to further describe what you do.

Our vision is a community where ________________. To bring that vision into reality, we do

______________________________ for ________________ in the ___________ region / area / township / etc.


Mission Statements should not be flowery and overblown. If it is taking a committee 6 months to rewrite your Mission Statement, the resulting Mission Statement will likely be bad. Keep it simple simple simple! I am not a fan of the thinking that says "Your Mission Statement should fit on a Tshirt." That is a slogan, an ad campaign. Perhaps if you are Coca-Cola that might make sense. For the work we do in this sector, we don't need to be snazzy. Just tell folks what you do, and why you are doing it.

We Couldn't Make This Up


A new organization formed a committee to craft their Mission Statement. The committee spent months on the task - a dangerous sign of what's to come. Here is what they presented as their final product:

Examples:
One of our favorite mission statements is that of the Diaper Bank we founded.

The Diaper Bank's long term vision is a community where everyone's basic needs are met. To accomplish this in the short term we provide diapers to needy populations. To effect long term community improvement, we work to increase awareness of the issues facing vulnerable populations.
The mission statement of the Community-Driven Institute is:

Our vision is for a healthy, compassionate, vibrant world. Our mission is therefore to ensure the Community Benefit Sector has practical tools for accomplishing those visionary ends. We do this work by convening, engaging, mobilizing and supporting the sector, to ensure we all have the means to make our world an amazing place.

To nourish the seeds of knowledge already planted within the hearts of the youth, which will grow into a beautiful and thriving tree, shading all cultures of our community, and eventually bear the fruits of a unified people.
These days, when I speak about this issue, I offer the audience a prize for the first person to guess what the organization does. The correct answer: A multi-cultural, multidisciplinary, inner-city youth center. The best answer I ever heard: A sperm bank. I laughed so hard I gave the guy the prize anyway!

Values Statement
Whether written to be effective or ineffective, Mission Statements and Vision Statements are relatively common in this sector.

But that is where most organizations stop. Vision and Mission. Statements of where we are headed, and what we will do to get there. It is the rare organization that takes the time to then define HOW they will do that work - the talk they want to walk. The only way we can create an amazing future for our communities is if we do our work in a way that reflects universally shared values. This ensures we do not squander our time and resources rationalizing our actions, and it helps ensure we are not potentially squandering our community's goodwill.

Further, if your goal is to create the future of your community - the lofty goals of your vision statement - then you will want to ensure your work reflects the values you want to see in your community. A Values Statement provides the tools for the organization to accomplish that. First, the Values Statement will look outside the organization, to the visionary outcomes you want to create for your community.

What values will need to be present in the community for your vision to come to pass? What values would the community need to emphasize? What values would have to be the norm?
From there, your Values Statement will look inside, to see how your own work will model those values, to teach those values by example.

How will your work reflect those values? How will you ensure you are modeling those values to the community? When you have a tough decision to make, will you always err on the side of those values? Fill in the blank: We always want the community to be able to say __________ about the way we do our work.
Most boards we encounter have never talked about these issues. The rare few who do indeed have a code of values - a Values Statement - may point to the sign on the wall in the lobby, to prove they have such a thing. But in practice, they have no mechanisms for ensuring their stated values are used in their work. They have no way of translating the sign on the wall into the decisions they make and the actions they take every day. That is the power of what a Values Statement can do. It will not only tell the world outside and inside the organization what talk you want to walk, but it can give you the tools for measuring whether or not you are indeed walking that talk! When we begin talking with organizations about creating a Values Statement, we get mixed reactions. One of the most common reactions is, "We don't need this. We already know what our values are." When we ask a few key questions, though, it becomes clear that while everyone on the board believes they have a shared core of values, in fact, each board member simply believes, "Everyone here shares my values!" One of the other common reactions we get when the issue of "values" is raised is that a discussion of values is little more than "Touchy Feely mumbo jumbo," with no real practical application to the work the organization does.

And again, the truth is directly opposite of that. Boards face values-based dilemmas at the board table all the time - they just don't recognize them as such. Any time the board is faced with the question of "What is important here?" that is a values-based decision.

We Couldn't Make This Up


A substance abuse recovery organization had an annual fundraiser, a Kentucky Derby event that was very popular. Folks would dress up as if they were going to the race, and they would then watch the race together on big screen televisions. The flyer for this event came to our office, and we couldn't believe what we saw. As is common with event marketing, the flyer had a list of all the great things intended to entice someone to join the fun. A raffle, a silent auction. Watching the race among friends. But at the top of that list of fun things - number 1 on the list - was "Beer, Wine and Mint Juleps." At a fundraiser for a substance abuse recovery organization, the event's NUMBER 1 fun item was all about alcohol! Clearly, this is an organization that either has no Values Statement, or doesn't use the one they have when decisions are being made.

We Couldn't Make This Up Either!


Lest you think values-free decisions only happen in small local organizations, the International Red Cross has become the media's poster child of such actions. And while the public is relatively aware of the

Are there groups from whom it is not ok to accept donations? What kind of employee benefits package should we offer? When a board member betrays a confidential matter, what should we do? When we've outgrown our rental space, should we buy a building and potentially go into debt, or just lease more space?

These questions (and a thousand more lined up behind them) all pivot on values issues. Any discussion that focuses on the question, "What's more important - this, or that?" is a discussion of values. And without prior discussion of what values will guide decisions, each of these discussions has no context for the decision. And while all these issues are important reasons for addressing core values in the form of a formal statement, the most critical reason is this: Absent a values-based context for decision-making, groups are more likely to default to fear-based decision-making when things get tough. And those fear-based decisions are more likely to cross the very lines we would have agreed we would not cross, had we talked about those values in the first place. The only defense against making fear-based decisions you may live to regret is to have discussed core values ahead of time. Your Values Statement will start with your Vision and Mission, and will then talk about how you will ensure that work is done to model the behaviors you want to see in the community.

various debacles that occurred after 9/11 and Katrina, the most blatant example of what happens when there is no core of values guiding decisions is the situation for which the U.S. Food and Drug Administration has had to fine the American Red Cross $4 million dollars. Yes, you read that right a $4million dollar fine. According to the FDA, the Red Cross failed to ensure the safety of the nation's blood supply. In a 2001 article about the Red Cross, New York Times reporter Deborah Sontag noted, "Food and Drug Administration inspectors found that some Red Cross blood centers would keep testing blood until the tests delivered the desired results; for instance, blood that tested borderline-positive for a given virus would be retested five or six times until the numbers came out negative." Because blood = money for the Red Cross, if it looked like one more run-through the machine might make that blood usable, they would run it through till it passed. Values issues, especially when it comes to money, do not just happen in small organizations. They happen when we have no bigger picture of why we are doing what we are doing, and no guiding principles, based on universally shared values, that guide our work.

The 3 Statements in Practice


As has been stated throughout this article, the Vision Statement, Mission Statement and Values Statements are not simply for hanging in your lobby or putting on your letterhead. These are practical tools that will help your board govern towards creating more impact in your community. Here are just a few ways these statements can be used to further your work.

Begin Board Meetings with All 3 Statements Board meetings have a tendency to quickly dive into the million small items that need to be addressed. By starting the meeting with just a few moments to review and talk about these 3 Statements, you are setting the tone and the context for those practical discussions. What are we really here for? What is the context of the decisions we will make today? What future are we trying to create, and for whom? And when we do make decisions - which is what we are here to do - what will we base those decisions on? By starting each meeting with a re-commitment to those 3 Statements, you will be more likely to keep them in your mind as your board does its work.

Have the 3 Statements Available at the Board Table Because it is not always easy to remember to fall back on these 3 Statements when we are faced with tough decisions, have copies of the 3 Statements available on the board table at every meeting, to serve as physical reminders. We cannot count the times, during tough decisions, that we have seen a board member, deep in thought, reach across the table for a copy of their Values Statement, to put that decision into perspective. Ask the Question A great habit to cultivate is to have the question asked, for each and every decision of the board, "How will this fit into our Vision for the future of the Community?" And then, as your board directs a committee or the staff to do particular tasks, ask the question, "Are there specific parts of our Values Statement we want the staff to pay attention to, as they do that work?" The only way to remain conscious of these guideposts is to do just that - be conscious. Keep those 3 Statements consciously in the forefront of your decision-making. And the easiest way to do that is to create habits, such as these, that remind the board, all the time - this is what we are about. When we have tough decisions to make, this is what we have said is important. Use the 3 Statements as the Context for Your Organization's Planning The most influential decisions your organization will make happen during your annual planning sessions. (Don't forget that "budgeting" is planning as well. Your budget is the financial plan for the coming year - the place where your plans will either become reality, or die for lack of inclusion in the budget.) When it is time to determine goals for the coming year, how will those goals fit in with the future you want to create for the community? As you pursue those goals, what values do you want to be sure guide that work? And as you start planning for how you will use the next year's work to further your vision for the community, are there areas of "What you do" - your mission - that might need to expand? As you create your annual plans, thoughtfully consider how those plans align behind your dreams for the community. And make sure your 3 Statements are guiding those plans. Using the Values Statement to Evaluate Your ED / CEO Evaluating your CEO based on what they did is easy. We tally up everything the CEO was directed to do, and see if that was, in fact, done. But if your CEO knows he/she will also be evaluated based on whether or not he/she adhered to your Values Statement in doing that work, you will then be able to measure not only whether he/she did the work, but how that work was done. Using the 3 Statements to Evaluate the Board's Own Performance Throughout the Year It is the rare board that takes the time to evaluate itself. We have watched boards openly rebel against doing that at meetings, seeing it as a time-waster. But if boards are not monitoring their own progress, how can they move the organization forward?

A simple board self-evaluation can be done by using the 3 Statements

Vision
Have we done our work in a way that will move our vision forward? Have we focused entirely on our mission, at the exclusion of our vision? How might we change our work to aim at that vision?

Mission
Have we done our work in a way that monitors to ensure we really are accomplishing our mission? And if not, how might we change our work to ensure we are indeed accomplishing that work?

Values
Have we done our work in a way that adheres to the universally shared values at the core of our Values Statement? And if not, how might we change our work to ensure we are indeed walking our talk? The board is the leader of the organization. If the board is assessing its own work in light of these 3 Statements, it is taking a huge step in reaching for the organization's highest potential to create an amazing community.

Conclusion:
A Mission Statement that tells what the organization does, while necessary, is incomplete. By adding the Vision Statement that explains why the organization is doing that work - where it is aiming - and the Values Statement explaining how the organization will do that work, the board will have three solid tools to serve as a barometer, regardless of who is on the board at the time. By creating these 3 Statements, nd by committing to have those statements guide your organization's work, your board will have 3 simple yet powerful tools for ensuring continuity of your efforts to create a better future for the community you serve.

Impact Matrix
The impact matrix approach involves testing sub-components of a strategic action against a series of sustainability/environmental indicators. It was originally developed for use with land use plans, which typically consist of a series of statements (policies) on e.g. location of housing, recreation etc. The matrix has indictors in the columns and policies in the rows. One person or ideally a team of several people with complementary skills fills in the matrix cell by cell. For each cell, the team asks is the impact of the policy on that indicator basically positive, negative or neutral? and puts the relevant symbol/colour in the cell. However this is only the starting point for further discussion, possibly leading to re-writing of the policy, including:

is the policy clearly written? what it will look like on the ground? does it say what it should say? if the policy is likely to have a negative impact, can this be minimised/mitigated? if the policy is likely to have a negative impact that cannot be mitigated, are other aspects of the policy so important that they override this negative impact? If so, the policy needs to be justified accordingly. If not, the policy may need to be deleted or given a major overhaul. can positive impacts of the policy be enhanced? where the impacts of the policy depend on how the policy is implemented, the symbol D (for depends) may be added, along with a note about what would need to be done to ensure that the implementation is done right. Changes resulting from the appraisal are noted in the comments column. The point of the appraisal is NOT to fill in the matrix, but rather to ensure that the policies are as good as possible. Example: The matrix below uses two different approaches to filling in the cells

policy

to promote Park-andRide at edge of city

to increase parking

indicators (impacts of policy on) quality of air land use safety life, pollution comfort comments fewer vehicles on clarify what to promote city roads means P+R land should aim to build P+R on better in take; but fewer speed up previously developed city better than vehicle journeys land centre, providing movements for all: can provide high-speed bus worse more in built-up QoL for lanes from P+R to city outside parking in areas P+R users centre city centre be particularly improved? reduce charges for ? + ? disabled people

charges in city centre

use extra revenue for public transport improvements

Advantages:

Easy to use, does not require specialist knowledge Transparent Can be used as a technique to involve the public One of the few ways of appraising policies] Incoporates perceived impacts Disadvantages:

Subjective: the involvement of different people can lead to different results Involving several people (good practice) can make the process long-winded

Shell Directional Policy Matrix


A Nine Celled directional Policy Matrix
The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Along the horizontal axis are prospects for sector profitability, and along the vertical axis is a company's competitive capability. As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions. However decisions often span options and in practice the zones are an irregular shape and do not tend to be accommodated by box shapes. Instead they blend into each other.

Each of the zones is described as follows: Leader - major resources are focused upon the SBU. Try harder - could be vulnerable over a longer period of time, but fine for now. Double or quit - gamble on potential major SBU's for the future. Growth - grow the market by focusing just enough resources here. Custodial - just like a cash cow, milk it and do not commit any more resources.

Cash Generator - Even more like a cash cow, milk here for expansion elsewhere. Phased withdrawal - move cash to SBU's with greater potential. Divest - liquidate or move these assets on a fast as you can.

SPACE Matrix Strategic Management Method


SPACE Matrix Strategic Management Method
The SPACE matrix is a management tool used to analyze a company. It is used to determine what type of a strategy a company should undertake. The Strategic Position & ACtion Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization. The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG matrix model, industry analysis, or assessing strategic alternatives (IE matrix).

What is the SPACE matrix strategic management method?


To explain how the SPACE matrix works, it is best to reverse-engineer it. First, let's take a look at what the outcome of a SPACE matrix analysis can be, take a look at the picture below. The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy:

Aggressive Conservative Defensive Competitive

This is what a completed SPACE matrix looks like:

This particular SPACE matrix tells us that our company should pursue an aggressive strategy. Our company has a strong competitive position it the market with rapid growth. It needs to use its internal strengths to develop a market penetration and market development strategy. This can include product development, integration with other companies, acquisition of competitors, and so on. Now, how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix analysis functions upon two internal and two external strategic dimensions in order to determine the organization's strategic posture in the industry. The SPACE matrix is based on four areas of analysis. Internal strategic dimensions: Financial strength (FS) Competitive advantage (CA) External strategic dimensions: Environmental stability (ES) Industry strength (IS)

There are many SPACE matrix factors under the internal strategic dimension. These factors analyze a business internal strategic position. The financial strength factors often come from company accounting. These SPACE matrix factors can include for example return on investment, leverage, turnover, liquidity, working capital, cash flow, and others. Competitive advantage factors include for example the speed of innovation by the company, market niche position, customer loyalty, product quality, market share, product life cycle, and others. Every business is also affected by the environment in which it operates. SPACE matrix factors related to business external strategic dimension are for example overall economic condition, GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures, industry growth potential, and others. These factors can be well analyzed using the Michael Porter's Five Forces model. The SPACE matrix calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates. The following are a few model technical assumptions: - By definition, the CA and IS values in the SPACE matrix are plotted on the X axis. - CA values can range from -1 to -6. - IS values can take +1 to +6. - The FS and ES dimensions of the model are plotted on the Y axis. - ES values can be between -1 and -6. - FS values range from +1 to +6.

How do I construct a SPACE matrix?


The SPACE matrix is constructed by plotting calculated values for the competitive advantage (CA) and industry strength (IS) dimensions on the X axis. The Y axis is based on the environmental stability (ES) and financial strength (FS) dimensions. The SPACE matrix can be created using the following seven steps: Step 1: Choose a set of variables to be used to gauge the competitive advantage (CA), industry strength (IS), environmental stability (ES), and financial strength (FS).

Step 2: Rate individual factors using rating system specific to each dimension. Rate competitive advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best). Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6 (best). Step 3: Find the average scores for competitive advantage (CA), industry strength (IS), environmental stability (ES), and financial strength (FS). Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis. Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS) dimensions. This will be your final point on axis X on the SPACE matrix. Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial strength (FS) dimensions to find your final point on the axis Y. Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE matrix to your point. This line reveals the type of strategy the company should pursue.

SPACE matrix example


The following table shows what values were used to create the SPACE matrix displayed above.

Each factor within each strategic dimension is rated using appropriate rating scale. Then averages are calculated. Adding individual strategic dimension averages provides values that are plotted on the axis X and Y.

Where do I go next?
The SPACE matrix can help to find a strategy. But, what if we have 2-3 strategies and need to decide which one is the best one? The Quantitative Strategic Planning Matrix (QSPM) model can help to answer this question. Should you have any questions about the SPACE matrix, you might want to submit them at our management discussion forum.

National Diamond / Porters Diamond Model


From Wikipedia, the free encyclopedia

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2009)

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Strategic analysis typically focuses on two views of organization. The industry-view and The Resource-Based View (RBV). These views analyse the organisation without taking into consideration relationship between the organizations strategic choice (i.e. Porter generic strategies) and institutional frameworks. The National Diamond' is a tool for analyzing the organizations task environment. The National Diamond highlights that strategic choices should not only be a function of industry structure and a firms resources, it should also be a function of the constraints of the institutional framework. Institutional analysis (such as the National Diamond) becomes increasingly important as firms enter new operating environments and operate within new institutional frameworks. Michael Porter's National Diamond framework resulted from a study of patterns of comparative advantage among industrialized nations. It works to integrate much of Porter's previous work in his competitive five forces theory, his value chain framework as well as his theory of competitive advantage into a consolidated framework that looks at the sources of competitive advantage sourcable from the national context. It can be used both to analyze a firm's ability to function in a national market, as well as analyse a national markets ability to compete in an international market. It recognizes four pillars of research (factor conditions, demand conditions, related and supporting industries, firm structure, strategy and rivalry) that one must undertake in analysing the viability of a nation competing in a particular international market, but it also can be used as a comparative analysis tool in recognising which country a particular firm is suited to expanding into. Two of the aforementioned pillars focus on the (national) macroeconomics environment to determine if the demand is present along with the factors needed for production (i.e. both extreme ends of thevalue chain). Another pillar focuses on the specific relationships supporting industries have with the particular firm/nation/industry being studied. The last pillar it looks at the firm's strategic response (microeconomics) i.e. its strategy, taking into account the industry structure and rivalry (see five forces). In this way it tries to highlight areas of competitive advantage as well as competitive weakness, by looking at a companies/nations suitability to the particular conditions of a particular market.

A graphical representation of Porter's National Diamond

Contents
[hide]

1 Principles 2 Components o 2.1 Factor Endowment o 2.2 Related and Supporting Industries o 2.3 Demand Conditions o 2.4 Strategy, Structure and Rivalry o 2.5 The role of government 3 Criticism 4 See also 5 References

[edit]Principles
For analyzing national competitiveness, we need to focus upon firm performance. The role of the national environment is providing a context within which firms develop their identity, resources, capabilities, and managerial styles. For a country to sustain a competitive advantage in a particular industry sector requires dynamic advantage: firms must broaden and extend the basis of their competitive advantage by innovationand upgrading. The dynamic conditions that influence innovation and the upgrading are far more important than initial resource endowments in determining national patterns of competitiveness.

[edit]Components
The four different components of the framework are:

Factor Endowment Related And Supporting Industries Demand Conditions Strategy, Structure, And Rivalry

[edit]Factor

Endowment

Factor Endowment can be categorized into two forms:

"Home-Grown" resources Highly specialized resources For example, in analyzing Hollywood's preeminence in film production, Porter has pointed out the local concentration of skilled labor, including the different schools of film (UCLA & USC) in the area. Also, resource constraints may encourage development of substitute capabilities; Japan's relative lack of raw materials has spurred miniaturization and zero-defect manufacturing.

[edit]Related

and Supporting Industries

For many firms, the presence of related and supporting industries is of critical importance to the growth of that particular industry. A critical concept here is that national competitive strengths tend to be associated with "clusters" of industries. For example, Silicon Valley in the USA and Silicon Glen in the UK are techno clusters of high-technology industries which includes individual computer software & semi-conductor firms. In Germany, a similar cluster exists around chemicals, synthetic dyes, textiles and textile machinery.

[edit]Demand

Conditions

Demand conditions in the domestic market provide the primary driver of growth, innovation and quality improvement. The premise is that a strong domestic market stimulates the firm from being a startup to a slightly expanded and bigger organization. As an illustration, we can take the case of Germany which has some of the world's premier automobile companies like Mercedes, BMW,Porsche. German auto companies have dominated the world when it comes to the high-performance segment of the world automobile industry. However, their position in the market of cheaper, mass-produced autos is much weaker. This can be linked to a domestic market which has traditionally demanded a high level of engineering performance. Also, the transport infrastructure of Germany, with its Autobahns does tend to favor high-performance automobiles.

[edit]Strategy,

Structure and Rivalry

National performance in particular sectors is inevitably related to the strategies and the structure of the firms in that sector. Competition plays a big role in driving innovation and the subsequent upgradation of competitive advantage. Since domestic competition is more direct and impacts earlier than steps taken by foreign competitors, the stimulus provided by them is higher in terms of innovation and efficiency. As an example, the Japanese automobile industry with 8 major competitors (Honda, Toyota, Suzuki, Isuzu, Nissan, Mazda, Mitsubishi, and Subaru) provide intense competition in the domestic market, as well as the foreign markets in which they compete.

[edit]The

role of government

The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage - or even push - companies to raise their aspirations and move to higher levels of competitive performance " . They must encourage companies to raise their performance, stimulate early demand for advanced products, focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations.

[edit]Criticism
Criticism on Porter's national diamond model resolves around a number of assumptions that underlie it. As described by Davies and Ellis: "sustained prosperity may be achieved without a nation becoming 'innovation-driven', strong 'diamonds' are not in place in the home bases of many internationally successful industries and inward foreign direct investment does not indicate a lack of 'competitiveness' or low national productivity". Porter generalised from the American case; for developing countries the model may be wrong.

Strategic planning
From Wikipedia, the free encyclopedia

Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan." While strategic planning may be used to effectively plot a company's longer-term direction, one cannot use it to reliably forecast how the market will evolve and what issues will surface in the immediate future. Therefore, strategic innovation and tinkering with the "strategic plan" have to be a cornerstone strategy for an organization to survive the turbulent business climate. Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions: 1. "What do we do?" 2. "For whom do we do it?" 3. "How do we excel?" In business strategic planning, some authors phrase the third question as "How can we beat or avoid competition?" (Bradford and Duncan, page 1). But this approach is more about defeating competitors than about excelling. In many organizations, this is viewed as a process for determining where an organization is going over the next year ormore typically3 to 5 years (long term), although some extend their vision to 20 years.

Contents
[hide]

1 Etymology 2 Vision statements, Mission statements and values 3 Strategic planning outline 4 Strategic planning process 5 Strategic planning tools and approaches 6 Situational analysis 7 Goals, objectives and targets 8 Business analysis techniques 9 References 10 Further reading 11 See also

Etymology
Coined in English 1825, the word strategic is of military origin, from the Greek "" (strategikos), "of or for a general",[1] from "" (strategos), "leader or commander of an army, general",[2] a compound of "" (stratos), "army, host" + "" (agos), "leader, chief",[3] in turn from "" (ago), "to lead".[4]

Vision statements, Mission statements and values


Vision: Defines the way an organization or enterprise will look in the future. Vision is a long-term view, sometimes describing how the organization would like the world to be in which it operates. For example, a charity working with the poor might have a vision statement which reads "A World without Poverty." Mission: Defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its Vision. It is sometimes used to set out a "picture" of the organization in the future. A mission statement provides details of what is done and answers the question: "What do we do?" For example, the charity might provide "job training for the homeless and unemployed." Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization's culture and priorities and provide a framework in which decisions are made. For example, "Knowledge and skills are the keys to success" or "give a man bread and feed him for a day, but teach him to farm and feed him for life". These example values may set the priorities of self sufficiency over shelter. Strategy: Strategy, narrowly defined, means "the art of the general" (from Greek stratigos). A combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there. A strategy is sometimes called a roadmap which is the path chosen to plow towards the end vision. The most important part of implementing the strategy is ensuring the company is going in the right direction which is towards the end vision.

Organizations sometimes summarize goals and objectives into a mission statement and/or a vision statement. Others begin with a vision and mission and use them to formulate goals and objectives. While the existence of a shared mission is extremely useful, many strategy specialists question the requirement for a written mission statement. However, there are many models of strategic planning that start with mission statements, so it is useful to examine them here.

A Mission statement tells you the fundamental purpose of the organization. It defines the customer and the critical processes. It informs you of the desired level of performance. A Vision statement outlines what the organization wants to be, or how it wants the world in which it operates to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria. An advantage of having a statement is that it creates value for those who get exposed to the statement, and those prospects are managers, employees and sometimes even customers. Statements create a sense of direction and opportunity. They both are an essential part of the strategy-making process. Many people mistake the vision statement for the mission statement, and sometimes one is simply used as a longer term version of the other. The Vision should describe why it is important to achieve the Mission. A Vision statement defines the purpose or broader goal for being in existence or in the business and can remain the same for decades if crafted well. A Mission statement is more specific to what the enterprise can achieve itself. Vision should describe what will be achieved in the wider sphere if the organization and others are successful in achieving their individual missions. A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people. The mission statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided it can be elucidated in SMART (Specific, Measurable, Achievable, Relevant and Time-bound) terms. A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottom line and success of the organization. Which comes first? The mission statement or the vision statement? That depends. If you have a new start up business, new program or plan to reengineer your current services, then the vision will guide the mission statement and the rest of the strategic plan. If you have an established business where the mission is established, then many times, the mission guides the vision statement and the rest of the strategic plan. Either way, you need to know your fundamental purpose - the mission, your current situation in terms of internal resources and capabilities (strengths and/or weaknesses) and external conditions (opportunities and/or threats), and where you want to go - the vision for the future. It's important that you keep the end or desired result in sight from the start.[citation needed] . Features of an effective vision statement include:

Clarity and lack of ambiguity Vivid and clear picture Description of a bright future Memorable and engaging wording Realistic aspirations Alignment with organizational values and culture To become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision. In addition, mission statements need to be subjected to an internal assessment and an external assessment. The internal assessment should focus on how members inside the organization interpret their mission statement. The external assessment which includes all of the businesses stakeholders is valuable since it offers a different perspective. These discrepancies between these two assessments can give insight on the organization's mission statement effectiveness.

Another approach to defining Vision and Mission is to pose two questions. Firstly, "What aspirations does the organization have for the world in which it operates and has some influence over?", and following on from this, "What can (and/or does) the organization do or contribute to fulfill those aspirations?". The succinct answer to the first question provides the basis of the Vision Statement. The answer to the second question determines the Mission Statement.

Strategic planning outline


The preparatory phase of a business plan relies on planning. The first chapters of a business plan include Analysis of the Current Situation and Marketing Plan Strategy and Objectives. Analysis of the current situation - past year

Business trends analysis Market analysis Competitive analysis Market segmentation Marketing-mix SWOT analysis Positioning - analyzing perceptions Sources of information Marketing plan strategy & objectives - next year Marketing strategy Desired market segmentation Desired marketing-mix TOWS-based objectives as a result of the SWOT Position & perceptual gaps Yearly sales forecast According to Arieu, "there is strategic consistency when the actions of an organisation are consistent with the expectations of management, and these in turn are with the market and the context" (S.K. Sharman in Human Resource Management: A Strategic Approach to Employment)

Strategic planning process


There are many approaches to strategic planning but typically a three-step process may be used:

Situation - evaluate the current situation and how it came about. Target - define goals and/or objectives (sometimes called ideal state) Path / Proposal - map a possible route to the goals/objectives One alternative approach is called Draw-See-Think
Draw - what is the ideal image or the desired end state? See - what is today's situation? What is the gap from ideal and why?

Think - what specific actions must be taken to close the gap between today's situation and the ideal state? Plan - what resources are required to execute the activities? An alternative to the Draw-See-Think approach is called See-Think-Draw
See - what is today's situation? Think - define goals/objectives Draw - map a route to achieving the goals/objectives

Strategic planning tools and approaches


Among most useful tools for strategic planning is SWOT analysis. The main objective of this tool is to analyze internal strategic factors, strengths and weaknesses attributed to the organization, and external factors beyond control of the organization such as opportunities and threats. Besides SWOT analysis, portfolio analyses such as the GE/McKinsey matrix [5] or COPE analysis.[6] can be performed to determine the strategic focus. Other tools include Balanced Scorecards, which creates a systematic framework for strategic planning, and scenario planning, which was originally used in the military and recently used by large corporations to analyze future scenarios.

Situational analysis
When developing strategies, analysis of the organization and its environment as it is at the moment and how it may develop in the future, is important. The analysis has to be executed at an internal level as well as an external level to identify all opportunities and threats of the external environment as well as the strengths and weaknesses of the organizations. There are several factors to assess in the external situation analysis: 1. Markets (customers) 2. Competition 3. Technology 4. Supplier markets 5. Labor markets 6. The economy 7. The regulatory environment It is rare to find all seven of these factors having critical importance. It is also uncommon to find that the first two - markets and competition - are not of critical importance. (Bradford "External Situation - What to Consider") Analysis of the external environment normally focuses on the customer. Management should be visionary in formulating customer strategy, and should do so by thinking about market environment shifts, how these could impact customer sets, and whether those customer sets are the ones the company wishes to serve. Analysis of the competitive environment is also performed, many times based on the framework suggested by Michael Porter.

Goals, objectives and targets


Strategic planning is a very important business activity. It is also important in the public sector areas such as education. It is practiced widely informally and formally. Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve them. One of the core goals when drafting a strategic plan is to develop it in a way that is easily translatable into action plans. Most strategic plans address high level initiatives and over-arching goals, but don't get articulated (translated) into day-to-day projects and tasks that will be required to achieve the plan. Terminology or word choice, as well as the level a plan is written, are both examples of easy ways to fail at translating your strategic plan in a way that makes sense and is executable to others. Often, plans are filled with conceptual terms which don't tie into day-to-day realities for the staff expected to carry out the plan. The following terms have been used in strategic planning: desired end states, plans, policies, goals, objectives, strategies, tactics and actions. Definitions vary, overlap and fail to achieve clarity. The most common of these concepts are specific, time bound statements of intended future results and general and continuing statements of intended future results, which most models refer to as either goals or objectives (sometimes interchangeably). One model of organizing objectives uses hierarchies. The items listed above may be organized in a hierarchy of means and ends and numbered as follows: Top Rank Objective (TRO), Second Rank Objective, Third Rank Objective, etc. From any rank, the objective in a lower rank answers to the question "How?" and the objective in a higher rank answers to the question "Why?" The exception is the Top Rank Objective (TRO): there is no answer to the "Why?" question. That is how the TRO is defined. People typically have several goals at the same time. "Goal congruency" refers to how well the goals combine with each other. Does goal A appear compatible with goal B? Do they fit together to form a unified strategy? "Goal hierarchy" consists of the nesting of one or more goals within other goal(s). One approach recommends having short-term goals, medium-term goals, and long-term goals. In this model, one can expect to attain short-term goals fairly easily: they stand just slightly above one's reach. At the other extreme, long-term goals appear very difficult, almost impossible to attain. Strategic management jargon sometimes refers to "Big Hairy Audacious Goals" (BHAGs) in this context. Using one goal as a stepping-stone to the next involves goal sequencing. A person or group starts by attaining the easy short-term goals, then steps up to the medium-term, then to the long-term goals. Goal sequencing can create a "goal stairway". In an organizational setting, the organization may co-ordinate goals so that they do not conflict with each other. The goals of one part of the organization should mesh compatibly with those of other parts of the organization.

Business analysis techniques


Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ), GE/McKinsey portfolio analysis,[5] COPE analysis,[6] PEST analysis (Political, Economic, Social, and Technological), STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors), and EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal).

McKinsey 7S Framework
From Wikipedia, the free encyclopedia

Visual representation of the model

The McKinsey 7S Framework is a management model developed by well-known business consultants Robert H. Waterman, Jr. andTom Peters (who also developed the MBWA-- "Management By Walking Around" motif, and authored In Search of Excellence) in the 1980s. This was a strategic vision for groups, to include businesses, business units, and teams. The 7S are structure, strategy, systems, skills, style, staff and shared values. The model is most often used as a tool to assess and monitor changes in the internal situation of an organization. The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change. Whatever the type of change restructuring, new processes, organizational merger, new systems, change of leadership, and so on the model can be used to understand how the organizational elements are interrelated, and so ensure that the wider impact of changes made in one area is taken into consideration. When it comes to asking the right questions, we've developed a Mind Tools checklist and a matrix to keep track of how the seven elements align with each other. Supplement these with your own questions, based on your organization's specific circumstances and accumulated wisdom. OBJECTIVE OF THE MODEL To analyze how well an organization is positioned to achieve its intended objective Usage

Improve the performance of a company Examine the likely effects of future changes within a company Align departments and processes during a merger or acquisition Determine how best to implement a proposed strategy
The Seven Interdependent Elements The basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful Hard Elements Strategy Structure Systems Soft Elements Shared Values Skills Style Staff

The McKinsey 7S Framework


Ensuring that all parts of your organization work in harmony

iStockphoto/Silense

How do you go about analyzing how well your organization is positioned to achieve its intended objective? This is a question that has been asked for many years, and there are many different answers. Some approaches look at internal factors, others look at external ones, some combine these perspectives, and others look for congruence between various aspects of the organization being studied. Ultimately, the issue comes down to which factors to study. While some models of organizational effectiveness go in and out of fashion, one that has persisted is the McKinsey 7S framework. Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful. The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example to help you:

Improve the performance of a company. Examine the likely effects of future changes within a company. Align departments and processes during a merger or acquisition. Determine how best to implement a proposed strategy.

The McKinsey 7S model can be applied to elements of a team or a project as well. The alignment issues apply, regardless of how you decide to define the scope of the areas you study.

The Seven Elements


The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements:
Hard Elements Soft Elements

Strategy Structure Systems

Shared Values Skills Style Staff

"Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems. "Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful. The way the model is presented in Figure 1 below depicts the interdependency of the elements and indicates how a change in one affects all the others.

Let's look at each of the elements specifically:

Strategy: the plan devised to maintain and build competitive advantage over the competition.

Structure: the way the organization is structured and who reports to whom. Systems: the daily activities and procedures that staff members engage in to get the job done. Shared Values: called "superordinate goals" when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic. Style: the style of leadership adopted. Staff: the employees and their general capabilities. Skills: the actual skills and competencies of the employees working for the company.

Placing Shared Values in the middle of the model emphasizes that these values are central to the development of all the other critical elements. The company's structure, strategy, systems, style, staff and skills all stem from why the organization was originally created, and what it stands for. The original vision of the company was formed from the values of the creators. As the values change, so do all the other elements.

How to Use the Model


Now you know what the model covers, how can you use it? The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change. Whatever the type of change restructuring, new processes, organizational merger, new systems, change of leadership, and so on the model can be used to understand how the organizational elements are interrelated, and so ensure that the wider impact of changes made in one area is taken into consideration. You can use the 7S model to help analyze the current situation (Point A), a proposed future situation (Point B) and to identify gaps and inconsistencies between them. It's then a question of adjusting and tuning the elements of the 7S model to ensure that your organization works effectively and well once you reach the desired endpoint. Sounds simple? Well, of course not: Changing your organization probably will not be simple at all! Whole books and methodologies are dedicated to analyzing organizational strategy, improving performance and managing change. The 7S model is a good framework to help you ask the right questions but it won't give you all the answers. For that you'll need to bring together the right knowledge, skills and experience. When it comes to asking the right questions, we've developed a Mind Tools checklist and a matrix to keep track of how the seven elements align with each other. Supplement these with your own questions, based on your organization's specific circumstances and accumulated wisdom. 7S Checklist Questions Here are some of the questions that you'll need to explore to help you understand your situation in terms of the 7S framework. Use them to analyze your current (Point A) situation first, and then repeat the exercise for your proposed situation (Point B). Strategy:

What is our strategy?

How do we intend to achieve our objectives? How do we deal with competitive pressure? How are changes in customer demands dealt with? How is strategy adjusted for environmental issues? How is the company/team divided? What is the hierarchy? How do the various departments coordinate activities? How do the team members organize and align themselves? Is decision making and controlling centralized or decentralized? Is this as it should be, given what we're doing? Where are the lines of communication? Explicit and implicit? What are the main systems that run the organization? Consider financial and HR systems as well as communications and document storage. Where are the controls and how are they monitored and evaluated? What internal rules and processes does the team use to keep on track? What are the core values? What is the corporate/team culture? How strong are the values? What are the fundamental values that the company/team was built on? How participative is the management/leadership style? How effective is that leadership? Do employees/team members tend to be competitive or cooperative? Are there real teams functioning within the organization or are they just nominal groups? What positions or specializations are represented within the team? What positions need to be filled?

Structure:

Systems:

Shared Values:

Style:

Staff:

Are there gaps in required competencies? What are the strongest skills represented within the company/team? Are there any skills gaps? What is the company/team known for doing well? Do the current employees/team members have the ability to do the job? How are skills monitored and assessed?

Skills:

7S Matrix Questions Using the information you have gathered, now examine where there are gaps and inconsistencies between elements. Remember you can use this to look at either your current or your desired organization. Click here to download our McKinsey 7S Worksheet, which contains a matrix that you can use to check off alignment between each of the elements as you go through the following steps:

Start with your Shared Values: Are they consistent with your structure, strategy, and systems? If not, what needs to change? Then look at the hard elements. How well does each one support the others? Identify where changes need to be made. Next look at the other soft elements. Do they support the desired hard elements? Do they support one another? If not, what needs to change? As you adjust and align the elements, you'll need to use an iterative (and often time consuming) process of making adjustments, and then re-analyzing how that impacts other elements and their alignment. The end result of better performance will be worth it.

Key Points:
The McKinsey 7Ss model is one that can be applied to almost any organizational or team effectiveness issue. If something within your organization or team isn't working, chances are there is inconsistency between some of the elements identified by this classic model. Once these inconsistencies are revealed, you can work to align the internal elements to make sure they are all contributing to the shared goals and values. The process of analyzing where you are right now in terms of these elements is worthwhile in and of itself. But by taking this analysis to the next level and determining the ultimate state for each of the factors, you can really move your organization or team forward.

GEs Nine Cell Matrix


Description of the Model The General Electric Company, with the aid of the Boston Consulting Group and McKinsey and Company, pioneered the nine cell strategic business screen illustrated here. The circle on the matrix represents your enterprise. Both axes are divided into three segments, yielding nine cells. The nine cells are grouped into three zones: Characterize Your Enterprise The vertical axis represents the industry attractiveness. The expert system will position your enterprise on the chart based upon your description of: bargaining power of the buyers

The Green Zone consists of the three cells in the upper left corner. If your enterprise falls in this zone you are in a favorable position with relatively attractive growth opportunities. This indicates a "green light" to invest in this product/service. The Yellow Zone consists of the three diagonal cells from the lower left to the upper right. A position in the yellow zone is viewed as having medium attractiveness. Management must therefore exercise caution when making additional investments in this product/service. The suggested strategy is to seek to maintain share rather than growing or reducing share. The Red Zone consists of the three cells in the lower right corner. A position in the red zone is not attractive. The suggested strategy is that management should begin to make plans to exit the industry.

bargaining power of the suppliers internal rivalry the threat of new entrants the threat of substitutes

The horizontal axis represents the firm's competitive strength or ability to compete in the industry. It includes an analysis of: the value and quality of the offering market share staying power experience You can trace through the supporting analysis and its conclusions, adjusting your input until you are satisfied your description accurately characterizes your enterprise.

Analysis of Your Enterprise Position High Attractiveness Strong Competitive Position The strategy advice for this cell is to invest for growth. Consider the following strategies: provide maximum investment diversify consolidate your position to focus your resources accept moderate near-term profits to build share High Attractiveness Average Competitive Position The strategy advice for this cell is to invest for growth. Consider the following strategies: build selectively on strength define the implications of challenging for market leadership fill weaknesses to avoid vulnerability High Attractiveness Weak Competitive Position The strategy advice for this cell is to opportunistically invest for earnings. However, if you can't strengthen your enterprise you should exit the market. Consider the following strategies: ride with the market growth seek niches or specialization seek an opportunity to increase strength through acquisition

Medium Attractiveness Strong Competitive Position The strategy advice for this cell is to selectively invest for growth. Consider the following strategies: invest heavily in selected segments, establish a ceiling for the market share you wish to achieve seek attractive new segments to apply strengths

Medium Attractiveness Average Competitive Position The strategy advice for this cell is to selectively invest for earnings. Consider the following strategies: segment the market to find a more attractive position make contingency plans to protect your vulnerable position

Medium Attractiveness Weak Competitive Position The strategy advice for this cell is to preserve for harvest. Consider the following strategies: act to preserve or boost cash flow as you exit the business seek an opportunistic sale seek a way to increase your strengths

Low Attractiveness Strong Competitive Position The strategy advice for this cell is to selectively invest for earnings. Consider the following strategies: defend strengths shift resources to attractive segments examine ways to revitalize the industry time your exit by monitoring for harvest or divestment timing

Low Attractiveness Average Competitive Position The strategy advice for this cell is to restructure, harvest or divest. Consider the following strategies: make only essential commitments prepare to divest shift resources to a more attractive segment

Low Attractiveness Weak Competitive Position The advice for this cell is to harvest or divest. You should exit the market or prune the product line.

Balanced scorecard
From Wikipedia, the free encyclopedia

The Balanced Scorecard (BSC) is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.[1] It is perhaps the best known of several such frameworks (it is the most widely adopted performance management framework reported in the annual survey of management tools undertaken by Bain & Company, and has been widely adopted in English-speaking western countries and Scandinavia in the early 1990s). Since 2000, use of the Balanced Scorecard, its derivatives (e.g., Performance Prism), and other similar tools (e.g., Results Based Management) has also become common in the Middle East, Asia and Spanish-speaking countries.[citation needed]
Contents
[hide]

1 Characteristics 2 History 3 Design o 3.1 Original design method o 3.2 Improved design methods o 3.3 Popularity o 3.4 Variants, alternatives and criticisms 4 Criticism 5 The four perspectives 6 Measures 7 Software tools 8 See also 9 References 10 Sources

[edit]Characteristics
The characteristic of the Balanced Scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a 'target' value within a single concise report. The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. It is the method by which this 'most relevant' information is determined (i.e. the design processes used to select the content) that most differentiates the various versions of the tool in circulation.

As a model of performance, the BSC is effective in that "it articulates the links between leading inputs (human and physical), processes, and lagging outcomes and focuses on the importance of managing these components to achieve the organization's strategic priorities", [2] The first versions of Balanced Scorecard asserted that relevance should derive from the corporate strategy, and proposed design methods that focused on choosing measures and targets associated with the main activities required to implement the strategy. As the initial audience for this were the readers of the Harvard Business Review, the proposal was translated into a form that made sense to a typical reader of that journal - one relevant to a mid-sized US business. Accordingly, initial designs were encouraged to measure three categories of non-financial measure in addition to financial outputs - those of "Customer," "Internal Business Processes" and "Learning and Growth." Clearly these categories were not so relevant to non-profits or units within complex organisations (which might have high degrees of internal specialisation), and much of the early literature on Balanced Scorecard focused on suggestions of alternative 'perspectives' that might have more relevance to these groups. Modern Balanced Scorecard thinking has evolved considerably since the initial ideas proposed in the late 1980s and early 1990s, and the modern performance management tools including Balanced Scorecard are significantly improved - being more flexible (to suit a wider range of organisational types) and more effective (as design methods have evolved to make them easier to design, and use).

[edit]History
The first Balanced Scorecard was created by Art Schneiderman (an independent consultant on the management of processes) in 1987 at Analog Devices, a midsized semi-conductor company.[3] Art Schneiderman participated in an unrelated research study in 1990 led by Dr. Robert S. Kaplan in conjunction with US management consultancy Nolan-Norton, and during this study described his work on Balanced Scorecard. Subsequently, Kaplan and David P. Norton included anonymous details of this use of Balanced Scorecard in their 1992 article on Balanced Scorecard.[4] Kaplan and Norton's article wasn't the only paper on the topic published in early 1992[5] but the 1992 Kaplan and Norton paper was a popular success, and was quickly followed by a second in 1993. [6] In 1996, they published the book The Balanced Scorecard.[7] These articles and the first book spread knowledge of the concept of Balanced Scorecard widely, but perhaps wrongly have led to Kaplan and Norton being seen as the creators of the Balanced Scorecard concept. While the "Balanced Scorecard" concept and terminology was coined by Art Schneiderman, the roots of performance management as an activity run deep in management literature and practice. Management historians such as Alfred Chandler suggest the origins of performance management can be seen in the emergence of the complex organisation - most notably during the 19th Century in the USA.[8] More recent influences may include the pioneering work of General Electric on performance measurement reporting in the 1950s and the work of French process engineers (who created thetableau de bord literally, a "dashboard" of performance measures) in the early part of the 20th century. The tool also draws strongly on the ideas of the 'resource based view of the firm'[9] proposed byEdith Penrose. However it should be noted that none of these influences is explicitly linked to original descriptions of Balanced Scorecard by Schneiderman, Maisel, or Kaplan & Norton. Kaplan and Norton's first book, The Balanced Scorecard, remains their most popular. The book reflects the earliest incarnations of Balanced Scorecard - effectively restating the concept as described in the second Harvard Business Review article. Their second book, The Strategy Focused Organization, echoed work by others (particularly in Scandinavia[10]) on the value of visually documenting the links between measures by proposing the "Strategic Linkage Model" or strategy map. Since then Balanced Scorecard books have become more common - in early 2010 Amazon was listing several hundred titles in English which had Balanced Scorecard in the title.

[edit]Design
Design of a Balanced Scorecard ultimately is about the identification of a small number of financial and non-financial measures and attaching targets to them, so that when they are reviewed it is possible to determine whether current performance 'meets expectations'. The idea behind this is that by alerting managers to areas

where performance deviates from expectations, they can be encouraged to focus their attention on these areas, and hopefully as a result trigger improved performance within the part of the organisation they lead. The original thinking behind Balanced Scorecard was for it to be focused on information relating to the implementation of a strategy, and perhaps unsurprisingly over time there has been a blurring of the boundaries between conventional strategic planning and control activities and those required to design a Balanced Scorecard. This is illustrated well by the four steps required to design a Balanced Scorecard included in Kaplan & Norton's writing on the subject in the late 1990s, where they assert four steps as being part of the Balanced Scorecard design process: 1. Translating the vision into operational goals; 2. Communicating the vision and link it to individual performance; 3. Business planning; index setting 4. Feedback and learning, and adjusting the strategy accordingly. These steps go far beyond the simple task of identifying a small number of financial and non-financial measures, but illustrate the requirement for whatever design process is used to fit within broader thinking about how the resulting Balanced Scorecard will integrate with the wider business management process. This is also illustrated by books and articles referring to Balanced Scorecards confusing the design process elements and the Balanced Scorecard itself. In particular, it is common for people to refer to a strategic linkage model or strategy map as being a Balanced Scorecard. Although it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that the Balanced Scorecard itself has no role in the formation of strategy. In fact, Balanced Scorecards can comfortably co-exist with strategic planning systems and other tools.

[edit]Original

design method

The earliest Balanced Scorecards comprised simple tables broken into four sections - typically these "perspectives" were labeled "Financial", "Customer", "Internal Business Processes", and "Learning and Growth". Designing the Balanced Scorecard required selecting five or six good measures for each perspective. Many authors have since suggested alternative headings for these perspectives, and also suggested using either additional or fewer perspectives. These suggestions were notably triggered by a recognition that different but equivalent headings would yield alternative sets of measures. The major design challenge faced with this type of Balanced Scorecard is justifying the choice of measures made. "Of all the measures you could have chosen, why did you choose these?" This common question is hard to answer using this type of design process. If users are not confident that the measures within the Balanced Scorecard are well chosen, they will have less confidence in the information it provides. Although less common, these early-style Balanced Scorecards are still designed and used today. In short, early-style Balanced Scorecards are hard to design in a way that builds confidence that they are well designed. Because of this, many are abandoned soon after completion.

[edit]Improved

design methods

In the mid 1990s, an improved design method emerged. In the new method, measures are selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or "strategy map". With this modified approach, the strategic objectives are distributed across the four measurement perspectives, so as to "connect the dots" to form a visual presentation of strategy and measures. To develop a strategy map, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them. A Balanced Scorecard of strategic performance measures is then derived directly from the strategic objectives. This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through. This style of Balanced Scorecard has been commonly used since 1996 or so: it is significantly different in approach to the methods originally proposed, and so can be thought of as representing the "2nd Generation" of design approach adopted for Balanced Scorecard since its introduction.

Several design issues still remain with this enhanced approach to Balanced Scorecard design, but it has been much more successful than the design approach it superseded. In the late 1990s, the design approach had evolved yet again. One problem with the "2nd generation" design approach described above was that the plotting of causal links amongst twenty or so medium-term strategic goals was still a relatively abstract activity. In practice it ignored the fact that opportunities to intervene, to influence strategic goals are, and need to be anchored in the "now;" in current and real management activity. Secondly, the need to "roll forward" and test the impact of these goals necessitated the creation of an additional design instrument; the Vision or Destination Statement. This device was a statement of what "strategic success," or the "strategic end-state" looked like. It was quickly realized, that if a Destination Statement was created at the beginning of the design process then it was much easier to select strategic Activity and Outcome objectives to respond to it. Measures and targets could then be selected to track the achievement of these objectives. Design methods that incorporate a "Destination Statement" or equivalent (e.g. the Results Based Management method proposed by the UN in 2002) represent a tangibly different design approach to those that went before, and have been proposed as representing a "3rd Generation" design method for Balanced Scorecard. Design methods for Balanced Scorecard continue to evolve and adapt to reflect the deficiencies in the currently used methods, and the particular needs of communities of interest (e.g. NGO's and Government Departments have found the 3rd Generation methods embedded in Results Based Management more useful than 1st or 2nd Generation design methods).

[edit]Popularity
In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the Balanced Scorecard. Balanced Scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organisations, and schools. Many examples of Balanced Scorecards can be found via Web searches. However, adapting one organisation's Balanced Scorecard to another is generally not advised by theorists, who believe that much of the benefit of the Balanced Scorecard comes from the design process itself. Indeed, it could be argued that many failures in the early days of Balanced Scorecard could be attributed to this problem, in that early Balanced Scorecards were often designed remotely by consultants. Managers did not trust, and so failed to engage with and use these measure suites created by people lacking knowledge of the organisation and management responsibility.

[edit]Variants,

alternatives and criticisms

Since the Balanced Scorecard was popularized in the early 1990s, a large number of alternatives to the original 'four box' Balanced Scorecard promoted by Kaplan and Norton in their various articles and books have emerged. Most have very limited application, and are typically proposed either by academics as vehicles for promoting other agendas (such as green issues),[11] or consultants as an attempt at differentiation to promote sales of books and / or consultancy.[12] Many of the variations proposed are broadly similar, and a research paper published in 2002 [13] attempted to identify a pattern in these variations - noting three distinct types of variation. The variations appeared to be part of an evolution of the Balanced Scorecard concept, and so the paper refers to these distinct types as "Generations". Broadly, the original 'measures in boxes' type design (as proposed by Kaplan & Norton) constitutes the 1st Generation Balanced Scorecard design; Balanced Scorecard designs that include a 'strategy map' or 'strategic linkage model' (e.g. the Performance Prism, later Kaplan & Norton designs,[14] the Performance Driver model of Olve & Wetter[15]) constitute the 2nd Generation of Balanced Scorecard design; and designs that augment the strategy map / strategic linkage model with a separate document describing the long-term outcomes sought from the strategy (the "Destination Statement" idea) comprise the 3rd Generation Balanced Scorecard design. Examples of the 3rd Generation Balanced Scorecard design include the Third Generation Balanced Scorecard itself, and the performance management elements of the UN's Results Based Management model.

[edit]Criticism
The Balanced Scorecard has always attracted criticism from a variety of sources. Most has come from the academic community, who dislike the empirical nature of the framework: Kaplan and Norton notoriously failed to include any citation of prior art in their initial papers on the topic. Some of this criticism focuses on technical flaws in the methods and design of the original Balanced Scorecard proposed by Kaplan and Norton,[16] and has over time driven the evolution of the device through its various Generations. Other academics have simply focused on the lack of citation support.[17] But a general weakness of this type of criticism is that it typically uses the 1st Generation Balanced Scorecard as its object: many of the flaws identified are addressed in other works published since the original Kaplan & Norton works in the early 1990s. Another criticism, usually from pundits and consultants, is that the Balanced Scorecard does not provide a bottom line score or a unified view with clear recommendations: it is simply a list of metrics.[18] These critics usually include in their criticism suggestions about how the 'unanswered' question postulated could be answered. Typically however, the unanswered question relates to things outside the scope of Balanced Scorecard itself (such as developing strategies).[19] There are a few empirical studies linking the use of Balanced Scorecards to better decision making or improved financial performance of companies, but some work has been done in these areas. However broadcast surveys of usage have difficulties in this respect, due to the wide variations in definition of 'what a Balanced Scorecard is' noted above (making it hard to work out in a survey if you are comparing like with like). Single organization case studies suffer from the 'lack of a control' issue common to any study of organizational change - you don't know what the organization would have achieved if the change had not been made, so it is difficult to attribute changes observed over time to a single intervention (such as introducing a Balanced Scorecard). However, such studies as have been done have typically found Balanced Scorecard to be useful.[20] Balanced Scorecard used for incentive based pay A common use of Balanced Scorecard is to support the payments of incentives to individuals, even though it was not designed for this purpose nor is particularly suited to it[21]. Perhaps unsurprisingly, versions of generic concerns about performance appraisal are as a result a variety of complaints are levelled at the use of Balanced Scorecard for this purpose[by whom?]. Examples of the concerns raised are that use of Balanced Scorecard for appraisal / incentive use may:

result in the 'forced distribution' of people into performing groups [citation needed] lead to a 'one size fits all' strategy to performance management.[citation needed] encourage organisations to evaluate performance using a bell curve method. This in turn can mean that a set percentage of staff will be categorized as 'under performing'.[citation needed] encourage 'peer ranking' resulting in assessment of performance relative to the performance of other employees, rather than fixed standards.[citation needed]

[edit]The

four perspectives

The 1st Generation design method proposed by Kaplan and Norton was based on the use of three non-financial topic areas as prompts to aid the identification of nonfinancial measures in addition to one looking at Financial. Four "perspectives" were proposed: [22]

Financial: encourages the identification of a few relevant high-level financial measures. In particular, designers were encouraged to choose measures that helped inform the answer to the question "How do we look to shareholders?" Customer: encourages the identification of measures that answer the question "How do customers see us?" Internal Business Processes: encourages the identification of measures that answer the question "What must we excel at?" Learning and Growth: encourages the identification of measures that answer the question "Can we continue to improve and create value?".

These 'prompt questions' illustrate that Kaplan and Norton were thinking about the needs of small to medium sized commercial organizations in the USA[citation needed] (the target demographic for the Harvard Business Review) when choosing these topic areas. They are not very helpful to other kinds of organizations, and much of what has been written on Balanced Scorecard since has, in one way or another, focused on the identification of alternative headings more suited to a broader range of organizations.

[edit]Measures
The Balanced Scorecard is ultimately about choosing measures and targets. The various design methods proposed are intended to help in the identification of these measures and targets, usually by a process of abstraction that narrows the search space for a measure (e.g. find a measure to inform about a particular 'objective' within the Customer perspective, rather than simply finding a measure for 'Customer'). Although lists of general and industry-specific measure definitions can be found in the case studies and methodological articles and books presented in the references section. In general measure catalogues and suggestions from books are only helpful 'after the event' - in the same way that a Dictionary can help you confirm the spelling (and usage) of a word, but only once you have decided to use it proficiently.

[edit]Software

tools

It is important to recognise that the Balanced Scorecard by definition is not a complex thing - typically no more than about 20 measures spread across a mix of financial and non-financial topics, and easily reported manually (on paper, or using simple office software). The processes of collecting, reporting, and distributing Balanced Scorecard information can be labour intensive and prone to procedural problems (for example, getting all relevant people to return the information required by the required date). The simplest mechanism to use is to delegate these activities to an individual, and many Balanced Scorecards are reported via ad-hoc methods based around email, phone calls and office software. In more complex organisations, where there are multiple Balanced Scorecards to report and/or a need for co-ordination of results between Balanced Scorecards (for example, if one level of Balanced Scorecard reports relies on information collected and reported at a lower level) the use of individual Balanced Scorecard reporters is problematic. Where these conditions apply, organisations use Balanced Scorecard reporting software to automate the production and distribution of these reports. A 2009 survey[23] of software usage found roughly one third of organisations used office software to report their Balanced Scorecard, one third used bespoke software developed specifically for their own use, and one third used one of the many commercial packages available. In February 2011 over 100 Balanced Scorecard reporting applications (i.e. supporting the automation of data collection, reporting and analysis) were available.[24]

Imagine entering the cockpit of a Jet Plane and observing that there is only a single instrument. How would you feel about flying on that plane after the following discussion with the pilot:

Q: I am surprised to see you operating the plane with a single instrument. What does it measure? A: Airspeed, I am really working on airspeed this flight. Q: That's good. Airspeed certainly seems important but what about altitude. Wouldn't an altimeter be helpful? A: I have worked on altitude for the last few flights and I've got pretty good on altitude .Now I have to concentrate on air speed. Q: But I notice that you don't even have a fuel gauge. Wouldn't that be useful? A: Fuel is important, but I can't concentrate on doing too many things well at the same time. So this flight I want all my attention focused on air speed. Once I get to be excellent at airspeed, as well as altitude, I intend to concentrate on fuel consumption on the next set of flights. Probably no one would choose to be a passenger on this plane after such a conversation. Managers are like pilots. Navigating today's enterprises through complex competitive environments is at least as complicated as flying an airplane. The executives thus need a full battery of instrumentation to guide their journey. The Balanced Score Card provides an Enterprise view of an organizations overall performance by integrating Financial measures with other key performance indicators around Customer satisfaction, Internal business processes and Organizational growth, learning and innovation. Why is it so difficult to Implement strategy? Strategy guru Michael Porter describes the foundation of strategy as the "Activities" in which an organization elects to excel. If the foundation of strategy is as Porter maintains the "Selection and execution of hundreds of activities", then strategy cannot be limited to a few people at the top of an organization. Strategy must be understood and executed by every one. The organization must be aligned around its strategy. Performance management systems are designed to create organizational alignment. Herein lies one of the major causes of poor strategic management. Most performance management systems are designed around the annual budget and operating plan. They promote short-term, incremental tactical behavior. While this is a necessary part of management, it is not enough. You cannot manage strategy with a system designed for tactics. The BSC is an aid in creating a "balance" among various factors, which share a view of the organization's strategy for its future development. The BSC links short term operational control to long-term vision & strategy by focusing on a few critical Key Performance Indicators in target areas and forcing to control & monitor day -to-day operations as they

affect development tomorrow. In a survey conducted The Gartner Group estimates that at least 40% of the Fortune 1000 will have implemented a Balanced Score Card by the end of the year 2000. Top

Details of Balanced Score Card

Businesses competing in the information age can no longer be measured in the short run by the traditional financial accounting model. This model developed for the industrial age measures events of the past not the investments in the capabilities that provide value for the future. The Balanced Score Card is a framework for integrating measures derived from strategy. While retaining financial measures of past performance, the Balanced Score Card introduces the drivers of future financial performance. (Figure 1) The drivers (customer, internal business process, learning & growth perspectives) are derived from the organization's strategy translated into objectives and measures. The Balanced Score Card is more than a measurement system it can be used as an organizing framework for their management processes. The real power of the Balanced Score Card is when it is transformed from a measurement system to a management system. It fills the void that exists in most management systems - the lack of a systematic process to implement and obtain feedback about strategy

Figure 1 Measurement Matters: " If you can't measure it, you can't manage it". If companies are to survive/prosper in the information age they must use measurements and management systems derived from their strategies and capabilities. Unfortunately many organizations espouse strategies about customer relationships, core competencies, and organizational capabilities while motivating and measuring performance only with financial measures. Financial Perspective The BSC retains the financial perspective since financial measures are valuable in summarizing the readily measurable economic consequences of actions already taken. They indicate whether a company's strategy, implementation and execution are contributing to the bottom line.

The financial measures tend to be profit related (by operating income), return on capital employed (ROCE or EVA) and Sales growth or generation of cash flow. Customer Perspective Identifies the customer and market segment in which the business will compete and measures performance in these targeted segments. The perspective typically includes several core/generic measures like customer satisfaction, customer retention & acquisition and market share. The perspective should also include specific measures of value proposition in the specific market/customer i.e. lead-time, on time delivery if applicable. Internal Business Process Perspective The Internal perspective identifies the critical internal processes in which the organization must excel. These processes enable the business to: Deliver the value propositions that attract and retain customers Satisfy shareholder expectations on financial returns

The internal measures focus on the processes that have the greatest impact on customer satisfaction and financial objectives. The inclusion of innovation measures in this perspective also gives the organization drivers of long-term financial success as well as short-term operational measures. Learning & Growth Perspective Learning and Growth perspective identifies the infrastructure that the organization must build to create long-term growth and improvement. Businesses are unlikely to be able to meet their long-term targets for customers and internal processes using today's technologies and capabilities. Also intense global competition requires companies continually to deliver value to customers and shareholders. Learning and Growth comes from people, systems and organizational procedures. The financial, customer, and internal perspectives will reveal gaps in the capabilities of people, systems and procedures. To close these gaps businesses will have to invest in reskilling employees, enhancing IT systems and aligning organizational procedures. Measures include: Employee satisfaction, employee retention, system availability & "front line" customer information, Alignment of employee incentives with overall organization success factors etc.

The best Balanced Score Cards consist of a series of objectives and measures with linkages incorporating both cause-and-effect relationships and a mixture of outcome measures and performance drivers. Top

Cause-and-Effect Relationships A strategy is a set of hypotheses about cause and effect. The chain of cause-and- effect should pervade all four perspectives of the Balanced Score Card therefore a properly constructed Balanced Score Card should tell the story of the company's strategy.(figure 2)

Performance Drivers A good Balanced Score Card should also have a mix of outcome measures (lagging indicators) and performance drivers (leading indicators). Outcome measures without performance drivers do not communicate how the outcomes are to be achieved or give an early indication about whether the strategy is being implemented successfully. Conversely performance drivers without outcome measures (may achieve short term operational improvements) fail to reveal whether operational improvements have translated into expanded business with enhanced financial performance.

Figure 3 A completed organizational score card needs to have the following components: Strategic Themes Identified Strategic Objectives Identified Measures for the execution of the strategic objectives Competitive Bench Marks for the measures selected Short Term and Long term targets for identified measures Initiatives aligned to the Strategic objectives for execution and review.

Once the organizational score card is prepared and finalized the scorecard is to be used as an effective method of alignment see (figure 4). Departmental, Process, and Individual score cards aligned to corporate score card will translate your strategy to daily management.

Figure 4 Links to Six Sigma Six Sigma is a unique variability reduction management strategy for Business improvement. The most powerful aspect of Six Sigma is in the application of the rigorous DMAIC philosophy to projects to achieve higher customer satisfaction and Business results. While Six Sigma helps organizations in elimination of waste in their pursuit to excellence the Balanced Score Card lays the foundation for the implementation of an effective Six Sigma strategy. When one attempts to view the evolution of various measurement systems you could see that Balanced Score Card encompasses Financial, Strategic and Operational measurements. See (Figure 5).It is clear to visualize that implementation of Balanced Score Card

followed by the deployment of Six Sigma is a better approach towards Six Sigma deployment. While the proven statistical tool set of Six Sigma operates at the operational level the Balanced Score Card provides the rationale for identification of areas for improvement .

Figure 5 References: 1. Balanced Score Card By Kaplan and Nortan.