Question

Scenario

Your organization is beginning the process of creating an organization-wide strategic plan for the next five years. You are the only managerial accountant in your entire organization. The committee leading the strategic plan efforts does not include you in the planning process because you are "just" an accountant that records information and could not possibly have anything to add to the strategic planning process.

Initial response

As the managerial accountant, explain to the committee leading the strategic planning process how you can help the organization in the planning process--including strategic position analysis, as well as in the execution of the plan and achieving goals after it is approved.

Answer 1

Strategic planning is the process of determining organizational strategy. It gives direction to the organization and involves making decisions and allocating resources to pursue the strategy. It is the formal consideration of future course of action. The stages involved in the process of strategic planning, formulation and implementation are as follows;

1. Developing strategic vision

2. Setting objectives

3. Crafting strategies to achieve the objectives and vision

4. Implementing and executing the strategy

5. Monitoring developments, evaluating performance and making corrective adjustments.

As a managerial accountant following are the suggestion to the company in the various stages of their formulation and implementation of the strategy.

Stage 1: Developing a strategic vision

First a company must determine what directional path the company should take and what changes in the company's product - market - customer - technology - focus would help for its future prospect. Deciding to commit the company to one path versus another pushes managers to draw some carefully reasoned conclusions about how to try to modify the company's business makeup and the market position it should stake out. Top management's views and conclusions about the company's direction and the product-customer-market-technology focus constitute a strategic vision for the company. A strategic vision delineates management's aspirations for the business and points an organization in a particular direction, charts a strategic path for it to follow in preparing for the future, and molds organizational identity. A dearly articulated strategic vision communicates management's aspirations to stakeholders and helps steer the energies of company personnel in a common direction.

Mission and Strategic Intents: Managers need to be clear about what they see as the role of their organization, and this is often expressed in terms of a statement of mission or strategic intent. This is important because both external stakeholders and other managers in the organization need to be clear about what the organization is seeking to achieve and, in broad terms, how it expects to do so. At this level, strategy is not concerned with the details of SBU competitive strategy or the directions and methods the businesses might take to achieve competitive advantage Rather, the concern here is overall strategic direction .

The managers of a subsidiary charged with developing a strategy for that business, also need to be clear where they fit into the corporate whole. As Hamel and Prahalad have highlighted, the importance of clear strategic intent can go much further; it can help galvanize motivation and enthusiasm throughout the organization by providing what they call a sense of destiny and discovery. In the absence of this, there is a risk of the different parts of the organization different levels of management, indeed all members of the organization, pulling in different directions.

Decisions on overall mission in a major corporation will exercise constraints elsewhere. Does the corporation aspire to short-term profits or long-term growth; to a focused set of highly related businesses or a more diversified set of businesses, to global coverage or the focus on selected countries, to investment in internal innovation and new products, or the acquisition of other businesses? These are, of course, all matters of strategic choice, but they are unlikely to change regularly. The overall stance of the corporation with regard to such matters may develop over many years, but by being made explicit it can help direct strategic choice.

Stage 2: Setting objectives

Corporate objectives flow from the mission and growth ambition of the corporation. Basically they represent the quantum of growth the firm seeks who achieve in the given time frame. They also endow the firm with characteristics that ensures the projected the growth. Through the objective setting process, the firm is tackling the environment and deciding the locus it should have in the environment. The objective provides the basis for it major decisions of the firm and also said the organizational performance to be realized at each level. The managerial purpose of setting objectives is to convert the strategic vision into specific performance targets - results and outcomes the management wants the achieve - and then use these objectives as yardsticks for tracking the company's progress and performance.

Ideally, managers ought to use the objective-setting exercise as a tool for truly stretching an organization to reach its full potential. Challenging company personnel to go all out and deliver big gains in performance pushes an enterprise to be more inventive, to exhibit some urgency in improving both its financial performance and its business position, and to be more intentional and focused in its actions.

The balanced scorecard approach: A combination of strategic and financial objectives - The balanced scorecard approach for measuring company performance requires setting both financial and strategic objectives and tracking their achievement. Unless a company is in deep financial difficulty, such that its very survival is threatened, company managers are well advised to put more emphasis on achieving strategic objectives than on achieving financial objectives whenever a trade-off has to be made. The surest path to sustained future profitability quarter after quarter and year after year is to relentlessly pursue strategic outcomes that strengthen a company's business position and, ideally, give it a growing competitive advantage over rivals. What ultimately enables a company to deliver better financial results from operations is the achievement of strategic objectives that improve its competitiveness and market strength.

A need for both short-term and long-term objectives. As a rule, a company's set of financial and strategic objectives ought to include both short-term and long-term performance targets. Having quarterly or annual objectives focuses attention on delivering immediate performance improvements. Targets to be achieved within three to five years prompt considerations of what to do now to put the company in position to perform better down the road. A company that has an objective of doubling its sales within five years can't wait until the third or fourth year to begin growing its sales and customer base. By spelling out annual (or perhaps quarterly) performance targets, management indicates the speed at which longer-range targets are to be approached.

Long-term objectives: To achieve long-term long-term prosperity, strategic planners commonly establish long term objectives in seven areas.

• Profitability
• Productivity.
• Competitive Position
• Employee Development.
• Employee Relations
• Technological Leadership,
• Public Responsibility

Long-term objectives represent the results expected from pursuing certain strategies; Strategies represent the actions to be taken to accomplish long-term objectives. The time frame for objectives and strategies should be consistent, usually from two to five years,

Qualities of Long-Term Objectives

• Acceptable.
• Flexible.
• Measurable
• Motivating
• Suitable
• Understandable
• Achievable

Objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent among organizational units. Each objective should also be associated with a time line. Objectives are commonly stated in terms such as growth in assets, growth in sales, profitability, market share, degree and nature of diversification, degree and nature of vertical integration earnings per share, and social responsibility. Clearly established objectives offer many benefits. They provide direction, allow synergy, aid in evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, and aid in both the allocation of resources and the design of jobs.

Short-range objectives: can be identical to long-range objectives if an organization is already performing at the targeted long-term level. For instance, if a company has an ongoing objective of 15 percent profit growth every year and is currently achieving this objective, then the company's long-range and short-range objectives for increasing profits coincide. The most important situation in which short-range objectives differ from long-range objectives occurs when managers are trying to elevate organizational performance and cannot reach the long range target in just one year. Short-range objectives then serve as stair-steps or milestones.

Concept of Strategic Intent: A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its full resources and competitive actions on achieving that objective. A company's objectives sometimes play another role - that of signaling unmistakable strategic intent to make quantum gains in competing against key rivals and establish itself as a clear-cut winner in the marketplace, often against long odds. A company's strategic intent can entail becoming the dominant company in the industry, unseating the existing industry leader, delivering the best customer service of any company in the industry (or the world), or turning a new technology into products capable of changing the way people work and live. Ambitious companies almost invariably begin with strategic intents that are out of proportion to their immediate capabilities and market positions. But they are undeterred by a grandiose objective that may take a sustained effort of 10 years or more to achieve. So intent are they on reaching the target that they set aggressive stretch objectives and pursue them relentlessly, sometimes even obsessively.

The need for objectives at all organizational levels: objective setting should not stop with top management's establishing of companywide performance targets. Company objectives need to be broken down into performance targets for each separate business, product line, functional department, and individual work unit. Company performance can't reach full potential unless each area of the organization does its part and contributes directly to the desired companywide outcomes and results. This means setting performance targets for each organization unit that support-rather than conflict with or negate the achievement of companywide strategic and financial objectives.

The ideal situation is a team effort in which each organization unit strives to produce results in its area of responsibility that contribute to the achievement of the company's performance targets and strategic vision. Such consistency signals that organizational units know their strategic role and are on board in helping the company move down the chosen strategic path and produce the desired results.

v Stage 3: Crafting a strategy to achieve the objectives and vision

A company's strategy is at full power only when its many pieces are united. Ideally, the pieces A and layers of a company's strategy should fit together like a jigsaw puzzle. To achieve this unity, the strategizing process generally has proceeded from the corporate level to the business level and then from the business level to the functional and operating levels. Midlevel and frontline managers cannot do good strategy making without understanding the company's long-term direction and higher-level strategies. All the strategy makers in a company are on the same team and the many different pieces of the overall strategy crafted at various organizational levels need to be in sync and united. Anything less than a unified collection of strategies weakens company performance.

Achieving unity in strategy making is partly a function of communicating the company's basic strategy themes effectively across the whole organization and establishing clear strategic principles and guidelines for lower-level strategy making. Cohesive strategy making down through the hierarchy becomes easier to achieve when company strategy is distilled into pithy, easy-to-grasp terminology that can be used to drive consistent strategic action throughout the company. The greater the numbers of company personnel who know, understand, and buy in to the company's basic direction and strategy, the smaller the risk that people and organization units will go off in conflicting strategic directions when decision making is pushed down to frontline levels and many people are given a strategy-making role. Good communication of strategic themes and guiding principles thus serves a valuable strategy unifying purpose.

A company's strategic plan lays out its future direction, performance targets, and strategy. Developing a strategic vision, setting objectives, and crafting a strategy are basic direction setting tasks. They map out the company's direction, its short-range and long-range performance targets, and the competitive moves and internal action approaches to be used in achieving the targeted business results. Together, they constitute a strategic plan for coping with industry and competitive conditions, the expected actions of the industry's key players, and the challenges and issues that stand as obstacles to the company's success.

In making strategic decisions, inputs from a variety of assessments are relevant. However, the core of any strategic decision should be based on three types of assessments. The first concerns organizational strengths and weaknesses. The second evaluates competitor strengths, weaknesses, and strategies, because an organization's strength is of less value if it is neutralized by a competitor's strength or strategy. The third assesses the competitive context, the customers and their needs, the market, and the market environment. These assessments focus on determining how attractive the selected market will be given the strategy selected.

The goal is to develop a strategy that exploits business strengths and competitor weaknesses and neutralizes business weaknesses and competitor strength. The ideal is to compete in a healthy, growing industry with a strategy based on strengths that are unlikely to be acquired or neutralized by competitor.

Stage 4 : Implementing & executing the strategy

Managing strategy implementation and execution is an operations-oriented, activity aimed at shaping the performance of core business activities in a strategy-supportive manner. It is easily the most demanding and time-consuming part of the strategy-management process. To convert strategic plans into actions and results, a manager must be able to direct organizational change, motivate people, build and strengthen company competencies and competitive capabilities, create a strategy-supportive work climate, and meet or beat performance targets.

In most situations, managing the strategy-execution process includes the following principal aspects;

· Staffing the organization with the needed skills and expertise, consciously building and strengthening strategy-supportive competencies and competitive capabilities, and organizing the work effort.

· Developing budgets that steer ample resources into those activities critical to strategic success.

· Ensuring that policies and operating procedures facilitate rather than impede effective execution

· Using the best-known practices to perform core business activities and pushing for continuous improvement.

· Installing information and operating systems that enable company personnel to better carry out their strategic roles day in and day out.

· Motivating people to pursue the target objectives energetically

· Tying rewards and incentives directly to the achievement of performance objectives and good strategy execution

· Creating a company culture and work climate conducive to successful strategy implementation and execution.

· Exerting the internal leadership needed to drive implementation forward and keep improving strategy execution. When the organization encounters stumbling blocks or weakness management has to see that they are addressed and rectified quickly.

Good strategy execution involves creating strong "fits between strategy and organizational capabilities, between strategy and the reward structure, between strategy and internal operating systems, and between strategy and the organization's work climate and culture.

Stage 5: Monitoring developments, evaluating performance and making corrective adjustments

A company's vision, objectives, strategy and approach to strategy execution are never final; managing strategy is an ongoing process, not an every now and then task. The fifth stage of the strategy management process - evaluating the company's progress, assessing the impact of new external developments, and making corrective adjustments - is the trigger point for deciding whether to continue or change the company's vision, objectives, and strategy and/or strategy-execution methods. So long as the company's direction and strategy seem well matched to industry and competitive conditions and performance targets are being met company executives may decide to stay the course. Simply fine-tuning the strategic plan and continuing with ongoing efforts to improve strategy execution are sufficient.

But whenever a company encounters disruptive changes in its external environment questions need to be raised about the appropriateness of its direction and strategy. If a company experiences a downturn in its market position or shortfalls in performance, then company managers are obligated to ferret out whether the causes relate to poor strategy, poor execution, or both and then to take timely corrective action. A company's direction, objectives, and strategy have to be revisited anytime external or internal conditions warrant. It is to be expected that a company will modify its strategic vision, direction, objectives, and strategy over time.

Proficient strategy execution is always the product of much organizational learning. It is achieved unevenly - coming quickly in some areas and proving nettlesome and problematic in others. Periodically assessing what aspects of strategy execution are working well and what needs improving is normal and desirable. A successful strategy execution entails vigilantly searching for ways or continuously improves and then making corrective adjustments whenever and wherever it is useful to do so.