Steps to Creating an Effective Strategic Framework7/8/2018
According to Kaplan and Norton, who have published an article in an issue of the Harvard Business Review, an organisation may use frameworks, systems and processes to devise strategies that would enable them to remain competitive in the marketplace. [1]
A comprehensive framework of systems and processes improves a company’s ability to create, sell, deliver, service and account for the company’s products and services. In addition, companies should share their corporate framework across multiple departments. This would enable them to align strategic decisions at every stage of its production process with its overall value proposition.
Articulate the Strategy
According to Kaplan and Norton, managers should identify the activities that will allow an organisation to achieve its strategic objectives. Managers may devise separate plans for each division within their organisation; they may create sales and marketing strategies, resource capacity plans, etc.
An organisation’s management team may make incremental improvements to their existing plans, or they may choose to create new strategies to address disruptive trends. In addition, their strategic plan should include the following details:
Translate the Strategy
Kaplan and Norton recommend categorising the company’s strategic objectives into linked measures and targets. They recommend plotting approximately 15-25 company objectives on a strategy map, along with their relevant metrics. These objectives may be segmented into distinct categories (e.g. accounting, public relations, etc.). These strategies may relate to short-term priorities, such as cost reduction and performance management, or long-term priorities, such as R&D or relationship management.
In order to monitor the performance of these strategic objectives, Kaplan and Norton recommend the formation of a balanced scorecard, which charts the performance of each strategic objective’s metrics and targets. In addition, a senior executive should be present to monitor key activities, such as the allocation of resources, for each strategic theme. In order to align their short-term performance with their long-term priorities, an organisation should concentrate on improving existing activities that are related to the objectives on their strategy maps and scorecards. Managers may establish benchmarks for their corporate procedures, which may measure improvements in responsiveness, speed, quality and cost. In addition, managers should also highlight key performance indicators for their subordinates to consider. Identify Resources Needed for Strategic Plans
Kaplan and Norton’s article suggests that organisations should align their strategic plan with their sales objectives. Managers may use equations to predict changes in sales and order patterns. For instance, they may determine changes in minimum order sizes, or sales from new lines products or services.
At the same time, managers may use existing frameworks to determine the amount of resources that are required to address these trends. For instance, the Time-driven activity-based costing framework (TDABC) allows managers to use a series of equations to determine how much of a resource (e.g. people, equipment, facilities) is used per transaction. An organisation may use their data about their expected performance and sales figures to determine the amount of resources required for future activities, and the financial costs of these resources. In order to ensure that their resources are effectively allocated, managers may use their predictions to produce their balance sheets, income statements, statements of cash flows and P&L statements. Monitor and Learn
Managers should assess the results of their strategic plans, and respond accordingly to their findings. Kaplan and Norton recommend two types of meetings that would facilitate this process:
1. Operational Review meetings During Operational Review meetings, managers would assess corporate performance across multiple departments. In addition, they should resolve short-term issues of their production process, such as customer complaints, delays, faulty products, etc. 2. Strategy Review Meetings Strategy Review meetings would enable managers to review their organisation’s key performance indicators, and identify factors that may hinder their strategy’s implementation. Managers should ensure that their strategies remain relevant by reassessing their existing objectives, and redesigning them to address disruptive trends in their industry. As a result, the organisation may devise new methods of executing their operations. They may also establish new key performance indicators and metrics to gauge their progress. Test and Adapt the Strategy
Kaplan and Norton’s article states that the following reports would allow organisations to decide whether their current strategies would require minor improvements, or whether new strategies should be created:
1. Cost and Profitability Reports Managers should analyse official documents, such as their profit and loss statements and market segmentation reports, to identify and monitor their strategy’s performance metrics. In addition, they may also use their findings to devise additional strategies, or refine existing objectives. 2. Statistical Analyses Organisations with interrelated divisions may identify relationships amongst their strategy performance metrics with statistical analyses. According to Kaplan and Norton, these reports would allow organisations to connect investments across multiple divisions.
references
[1] Kaplan, Robert S., and David P. Norton. (2008). "Mastering the Management System." Special Issue on HBS Centennial. Harvard Business Review 86, no. 1. pp.62–77.
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