Ch3: Strategic management and the entrepreneur

Chapter 2 Strategic ManagementChapter 2 Strategic Management CopyrightCopyright ©2012 Pearson Education, Inc. publishing as Prentice Hall©2012 Pearson Education, Inc. publishing as Prentice Hall
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Strategic Management
and the Entrepreneur

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Strategic ManagementStrategic Management
 Small companies that are preparedSmall companies that are prepared
cancan createcreate the disruptions thatthe disruptions that
revolutionize their industries, and, inrevolutionize their industries, and, in
the process, create a competitive edgethe process, create a competitive edge
 Apple Computer and the iPodApple Computer and the iPod
 Knowledge has becomeKnowledge has become thethe criticalcritical
factor of productionfactor of production
 Intellectual capital counts!Intellectual capital counts!

2-3
A Major Shift...A Major Shift...
... from financial capital to... from financial capital to
intellectual capitalintellectual capital
 HumanHuman
 StructuralStructural
 CustomerCustomer

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 Is crucial to building a successful businessIs crucial to building a successful business
 Involves developing a game plan to guide aInvolves developing a game plan to guide a
company as it strives to accomplish itscompany as it strives to accomplish its
mission, goals, and objectives, and to keepmission, goals, and objectives, and to keep
it on its desired courseit on its desired course

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and Competitive Edgeand Competitive Edge
 Developing a strategic plan isDeveloping a strategic plan is
crucial to gaining acrucial to gaining a
competitive advantagecompetitive advantage, the, the
aggregation of factors thataggregation of factors that
sets a company apart from itssets a company apart from its
competitors and gives it acompetitors and gives it a
unique position in the marketunique position in the market

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Key: Core CompetenciesKey: Core Competencies
 Unique set of skills, knowledge, or abilitiesUnique set of skills, knowledge, or abilities
that a company develops in key areas suchthat a company develops in key areas such
as superior quality, customer service,as superior quality, customer service,
innovation, team-building, flexibility,innovation, team-building, flexibility,
responsiveness, and others that allow it toresponsiveness, and others that allow it to
vault past competitors.vault past competitors.
 The special attributes or abilities that give anThe special attributes or abilities that give an
organization a competitive edgeorganization a competitive edge

Chapter 2 Strategic ManagementChapter 2 Strategic Management
Definition of Strategy
Strategy: A firm’s theory about how to gain
competitive advantages

Herb Kelleher, a founder and CEO of Southwest Airlines,
seems to have had a different theory about how to gain
competitive advantage.
His theory was that people would be willing to fly instead of
driving, taking a bus, or taking a train if the price could be made
affordable. He also theorized that a certain part of the market
would prefer to pay a lower price and fly without some of the
usual benefits of air travel, like meals and reserved seats.
Both of these theories, and many others, can lead to
competitive advantage depending on circumstances, strategic
insight, and strategic implementation.

Theories are based on a set of
assumptions and hypotheses about
the way competition in an industry is
likely to evolve (develop) and how that
evolution can be exploited to earn a
profit.

Theories are based on a set of
assumptions and hypotheses
about the way competition in an
industry is likely to evolve
(develop) and how that evolution
can be exploited to earn a profit.

The greater the extent to which these assumptions
and hypotheses accurately reflect how competition
in this industry actually evolves, the more likely it
is that a firm will gain a competitive advantage
from implementing its strategies.
If these assumptions and hypotheses turn out not
to be accurate, then a firm’s strategies are not
likely to be a source of competitive advantage.

Another Definition
Strategy: is a set of managerial decisions and actions
that determines the long run performance of a
corporation.
Source: Strategic Management and Business Policy, Wheelen and David, 13E
Strategy: the art and science of formulating,
implementing, and evaluating cross-functional decisions
that enable an organization to achieve its objectives.
Source: Strategic Management (Concepts and Cases), Fred R. David, 13E

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ProcessProcess
Step 1Step 1: Develop a vision and translate: Develop a vision and translate
it into a mission statementit into a mission statement
Step 2Step 2: Assess strengths and: Assess strengths and
weaknessesweaknesses
Step 3Step 3: Scan environment for: Scan environment for
opportunities and threatsopportunities and threats

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Process...Process...
Step 4Step 4: Create goals and: Create goals and
objectivesobjectives
Step 5Step 5: Formulate strategies: Formulate strategies
Step 6Step 6: Translate plans into: Translate plans into
actionsactions
Step 7Step 7: Establish accurate: Establish accurate
controlscontrols
(continued)(continued)

Mission Objectives
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
The Strategic Management Process
Vision

Chapter 2 Strategic ManagementChapter 2 Strategic Management Copyright © 2011 Pearson Education, Inc.Copyright © 2011 Pearson Education, Inc.
Ch 2 -16

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Step 1:Step 1: Develop a VisionDevelop a Vision
and Create a Missionand Create a Mission
StatementStatement

Ch 2 -18
Vision Statement
AA vision statementvision statement should answer theshould answer the
basic question:basic question:
““What do we want to become?”What do we want to become?”

Ch 2 -19
Vision Statement
(What do we want to become?)
TheThe vision statementvision statement should be short,should be short,
preferably one sentence, and as manypreferably one sentence, and as many
managers as possible should have inputmanagers as possible should have input
into developing the statement.into developing the statement.
Agreement on the basic vision for which the
firm strives to achieve in the long term is
especially important.

Ch 2 -20
Comprehensive
Mission Statement
Vision
Clear Business
Vision

Ch 2 -21
General Motors’General Motors’ vision is to bevision is to be
the world leader in transportationthe world leader in transportation
products and related services.products and related services.
Vision Statement Examples
 (Author comment: Good statement)

Ch 2 -22
PepsiCo’sPepsiCo’s responsibility is toresponsibility is to
continually improve all aspects of thecontinually improve all aspects of the
world in which we operate –world in which we operate –
environment, social, economic –environment, social, economic –
creating a better tomorrow than today.creating a better tomorrow than today.
 (Author comment: Statement is too vague; it should reveal how the firm’s
food and beverage business benefits people)

Ch 2 -23
Samsonite’sSamsonite’s vision is to providevision is to provide
innovative solutions for the traveling world.innovative solutions for the traveling world.
 What is your comment ?

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 Answers the question:Answers the question:
““What is our business?”What is our business?”
Mission Statement

Ch 2 -25
 An enduring statement of purposeAn enduring statement of purpose
that distinguishes one organizationthat distinguishes one organization
from other similar enterprises.from other similar enterprises.
 A declaration of an organization’sA declaration of an organization’s
“reason for being” or “reason of“reason for being” or “reason of
existence”existence”
Mission Statement

Ch 2 -26
 It is essential for effectively establishingIt is essential for effectively establishing
objectives and formulating strategies.objectives and formulating strategies.
Mission Statement
 In multidivisional organizations, each
division should develop a mission
statement consistent with and
supportive of the corporate mission.

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Ch 2 -28

Ch 2 -29

Ch 2 -30

Ch 2 -31

Ch 2 -32

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Ch 2 -34

Ch 2 -35

Ch 2 -36

Ch 2 -37

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Developing Vision & Mission
Participation by as many managers as
possible is important in developing the
mission because through involvement
people become committed to an
organization

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Steps to Developing Vision &Steps to Developing Vision &
Mission StatementsMission Statements
1.1. Have managers read relatedHave managers read related
articlesarticles
2.2. Have managers prepare a visionHave managers prepare a vision
and mission statement for theand mission statement for the
organizationorganization
3.3. Merge the documents into one andMerge the documents into one and
distributedistribute
4.4. Gather feedback from managersGather feedback from managers

Ch 2 -40

Ch 2 -41
Resolution of DivergentResolution of Divergent
ViewsViews
 A genuine decision must be basedA genuine decision must be based
on divergent views to have a chanceon divergent views to have a chance
to be a right and effective decisionto be a right and effective decision
 Considerable disagreement overConsiderable disagreement over
vision and mission statements canvision and mission statements can
cause trouble if not resolvedcause trouble if not resolved

Ch 2 -42

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Step 2: Assess CompanyStep 2: Assess Company
Strengths andStrengths and
WeaknessesWeaknesses
 StrengthsStrengths
 Positive internal factors thatPositive internal factors that
contribute to accomplishing thecontribute to accomplishing the
mission, goals, and objectivesmission, goals, and objectives
 WeaknessesWeaknesses
 Negative internal factors thatNegative internal factors that
inhibit the company’s ability toinhibit the company’s ability to
accomplish its mission, goals,accomplish its mission, goals,
and objectivesand objectives

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Step 3: Scan forStep 3: Scan for
Opportunities andOpportunities and
ThreatsThreats
 OpportunitiesOpportunities
 Positive external options thePositive external options the
company can exploit tocompany can exploit to
 ThreatsThreats
 Negative external forces thatNegative external forces that
inhibit the company’s ability toinhibit the company’s ability to

A good analysis of the external environment may allow a
firm to face threats and opportunities.
For example, a firm thinking entry into a new business
may discover a significant threat through its external
analysis before actually entering the new business.
Such a discovery would allow the firm to either abandon
the idea or adopt a strategy that would neutralize that
particular threat

A condition may present opportunity to one type of firm and a
threat to another type of firm.
For example, a falling unemployment rate (economic climate)
presents opportunity to a manufacturer of home appliances and
a threat to fast food restaurants. Falling unemployment means
disposable incomes are likely to rise, allowing people to spend
on larger ticket items like washing machines.
Falling unemployment also means that workers have more and
better options for employment, meaning that low paying fast
food restaurant jobs will be more difficult to fill.

TWO LEVELS OF EXTERNAL ENVIRONMENT

External analysis consists of looking at two ‘levels’ of environment:
•the general environment and
•the industry environment.
The general environment is the environment in which all firms in an
economy operate, regardless of a firm’s specific industry.
Elements of the general environment have a potential effect on every firm
in an economy.

Buyers
Suppliers
Entry
Rivalry
Substitutes
Complementors
Demographic
Trends
Technological
Change
Cultural
Trends
Economic
Climate
Legal/Political
Conditions
Specific
International
Events
Industry
General External Environment

Chapter 2 Strategic ManagementChapter 2 Strategic Management CopyrightCopyright ©2012 Pearson Education, Inc. Publishing as Prentice Hall©2012 Pearson Education, Inc. Publishing as Prentice Hall
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Technological change creates both opportunity,
as firms begin to explore to use technology to
create new products and services, and threats,
technological change forces firms to rethink
their technological strategies.

The DemographicThe Demographic
EnvironmentEnvironment
Population Growth TrendsPopulation Growth Trends
Population Age and Gender MixPopulation Age and Gender Mix
 General global trends towards an ageing population.General global trends towards an ageing population.
 The Arab world has an unusual age structure compared to the worldThe Arab world has an unusual age structure compared to the world
trend – higher economically active population growth.trend – higher economically active population growth.
 Female labour force participation in the Arab world has beenFemale labour force participation in the Arab world has been
consistently on the rise. Expected to reach 43 percent in 2020.consistently on the rise. Expected to reach 43 percent in 2020.

Case studyCase study
CopyrightCopyright ©2012 Pearson Education, Inc. Publishing as Prentice Hall©2012 Pearson Education, Inc. Publishing as Prentice Hall
2-53

 been the growth of the Hispanic population. In 1990, the percentage of thebeen the growth of the Hispanic population. In 1990, the percentage of the
U.S. population that was African American was greater than the percentageU.S. population that was African American was greater than the percentage
that was Hispanic. However, by 2000, people of Latin descent outnumberedthat was Hispanic. However, by 2000, people of Latin descent outnumbered
African Americans. Currently, Hispanics constitute almost 15 percent of theAfrican Americans. Currently, Hispanics constitute almost 15 percent of the
U.S. population, whereas the percentage of African Americans remainsU.S. population, whereas the percentage of African Americans remains
constant at less than 8 percent. These trends are particularly notable in theconstant at less than 8 percent. These trends are particularly notable in the
South and Southwest. For example, more than 36 percent of children underSouth and Southwest. For example, more than 36 percent of children under
18 in Houston are Hispanic, 39 percent in Miami and San Diego, 53 percent18 in Houston are Hispanic, 39 percent in Miami and San Diego, 53 percent
in Los Angeles, and more thanin Los Angeles, and more than 61 percent in San Antonio.61 percent in San Antonio.
 Of course, firms are aware of this growing population and its buying power.Of course, firms are aware of this growing population and its buying power.
Indeed, Hispanic disposable income in the United States jumped 29 percent,Indeed, Hispanic disposable income in the United States jumped 29 percent,
to $652 billion, from 2001 to 2003. In response, firms have begun marketingto $652 billion, from 2001 to 2003. In response, firms have begun marketing
directly to the U.S. Hispanic population. In one year, Procter & Gamble spentdirectly to the U.S. Hispanic population. In one year, Procter & Gamble spent
$90 million marketing directly to Spanish-speaking customers. Procter &$90 million marketing directly to Spanish-speaking customers. Procter &
Gamble has also formed a 65-person bilingual team to manage the marketingGamble has also formed a 65-person bilingual team to manage the marketing
of products to Hispanics. Indeed, Procter & Gamble expects that the Hispanicof products to Hispanics. Indeed, Procter & Gamble expects that the Hispanic
population will be the cornerstone of its sales growth in North America.population will be the cornerstone of its sales growth in North America.

Firms can try to exploit their understanding of a particularFirms can try to exploit their understanding of a particular
demographic segment of the population to create ademographic segment of the population to create a
competitive advantage—as Procter & Gamble is doing withcompetitive advantage—as Procter & Gamble is doing with
the U.S. Hispanic population—but focusing on too narrow athe U.S. Hispanic population—but focusing on too narrow a
demographic segment can limit demand for a firm’sdemographic segment can limit demand for a firm’s
productsproducts ..

Case studyCase study

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Porter 5
forces

Economic EnvironmentEconomic Environment
 The economic environment depends onThe economic environment depends on
current income, prices, savings, debt andcurrent income, prices, savings, debt and
credit availability.credit availability.
 Strategists should consider patternsStrategists should consider patterns
including:including:
– Income distributionIncome distribution
– Savings, debt and creditSavings, debt and credit
– Family businesses (the prevalence and success ofFamily businesses (the prevalence and success of
these)these)

Political-LegalPolitical-Legal
EnvironmentEnvironment
 The legal and political dimensions of anThe legal and political dimensions of an
organization’s general environment are theorganization’s general environment are the
laws and the legal system’s impact onlaws and the legal system’s impact on
business, together with the general naturebusiness, together with the general nature
of the relationship between government andof the relationship between government and
business. These laws and the relationshipbusiness. These laws and the relationship
between business and government can varybetween business and government can vary
significantly around the world.significantly around the world.

specific internationalspecific international
eventsevents
 These include events such as civilThese include events such as civil
wars, political coups, terrorism, warswars, political coups, terrorism, wars
between countries, famines, andbetween countries, famines, and
country or regional economiccountry or regional economic
recessions. All of these specific eventsrecessions. All of these specific events
can have an enormous impact on thecan have an enormous impact on the
ability of a firm’s strategies to generateability of a firm’s strategies to generate
competitive advantage.competitive advantage.

Of course, one of the most important of theseOf course, one of the most important of these
specific events to have occurred over the pastspecific events to have occurred over the past
several decades was the terrorist attacks on Newseveral decades was the terrorist attacks on New
York City and Washington, D.C., on September 11,York City and Washington, D.C., on September 11,
2001.2001.
Beyond the tragic loss of life, these attacks hadBeyond the tragic loss of life, these attacks had
important business implications as well. Forimportant business implications as well. For
example, it took more than five years for airlineexample, it took more than five years for airline
demand to return to pre–September 11 levels.demand to return to pre–September 11 levels.

Insurance companies had to pay out billions ofInsurance companies had to pay out billions of
dollars in unanticipated claims as a result of thedollars in unanticipated claims as a result of the
attacks. Defense contractors saw demand for theirattacks. Defense contractors saw demand for their
products soar as the United States and some of itsproducts soar as the United States and some of its
allies began fighting war in Afghanistan and thenallies began fighting war in Afghanistan and then
Iraq.Iraq.

Industry Analysis
The Model of Environmental Threats
Buyers
Suppliers
Entry
Rivalry
Substitutes
Industry
Threat
Higher Threat Lower Average Profits

Model of Environmental Threats
Threat from New Competition
• If firms can easily enter the industry, any above normal
profits will be bit away quickly.
• Barriers to entry …….lower the threat of entry.
• Barriers to entry make an industry more attractive.
• This is true whether the focal firm is already in the industry
or thinking about entering.

Model of Environmental Threats contd.
Threat of New Competition
Barriers to Entry:
• Economies of scale—firm that can’t produce the minimum
efficient scale will be at a disadvantage.
• Product differentiation—entrants are forced to overcome
customer loyalties to existing products.
• Cost advantages
• Government policies—governments may impose
trade restrictions and/or grant monopolies.

Model of Industry Competition
Threat from Existing Competitors
• Attributes of an Industry That Increase the Threat of
Direct Competition:
• large numbers of competitors
• slow or declining growth
• high fixed costs and/or high storage costs
• low product differentiation
• industry capacity added in large increments

Threat of Substitute Products
• Substitutes fill the same need but in a different way.
- Coke and Pepsi are rivals, milk is a
substitute for both.
• Substitutes create a price maximum because consumers
switch to the substitute if prices rise.
• Substitutes will likely come from outside the
industry—be sure to look.

Threat of Supplier Leverage
• Powerful suppliers can “squeeze” (lower profits)
the focal firm.
Industry conditions that facilitate supplier power:
• small number of firms in supplier’s industry
• highly differentiated product
• lack of close substitutes for suppliers’ products
• supplier could integrate forward
• focal firm is an insignificant customer of supplier

Threat from Buyers Influence
• Powerful buyers can “squeeze” (lower profits)
the focal firm by demanding lower prices and/or
higher levels of quality and service.
Industry conditions that facilitate buyer power:
• small number of buyers for focal firm’s output
• lack of a differentiated product
• the product is significant to the buyer

Threat from Buyers Influence
Indicators of the threat of buyers influence:
• Buyers operate in a competitive market—they are
not earning above normal profits.
• Buyers can vertically integrate backward.
• Many small buyers can be united around an issue
to act as a block.

Buyers
Suppliers
Entry
Rivalry
Substitutes
Industry
Threat
If all threats are high expect normal profits
If all threats are low expect above normal profits
Most industries are somewhere between the extremes.

Complementors As Another Force
Complementors Increase the Value of
the Focal Firms Product
• Customers perceive more value in the focal firm’s
product when it is combined with the complementor’s product.
if your customers value your product more when they have this
other firm’s product than when they have your product alone.

Ex:
the value of cable television companies depends
partly on the existence of television production
firms.
Because the value of program-producing
companies is greater when cable television firms
exist and because the value of cable
television companies (channels) is greater
when program-producing companies exist,
these types of firms are complements.

Responding to Environmental Threats
Neutralizing Threats
• Most firms cannot individually change the threats in an industry.
• By altering relationships in an industry, firms may reduce threats
and/or create opportunities, thereby increasing profits.

firms can respond by 1) avoiding the industry (choosing
not to enter or choosing to exit),
or, 2) making strategic choices that may neutralize the
threats.
In a sense, many of the possible strategic choices consist
of basically turning a threat into an opportunity. These
choices are treated in more detail in later chapters.

A regional bakery (Bakery X) faces intense
rivalry from two other bakeries that
constantly compete for business with fast
food restaurants and small, independent
grocery stores. These bakeries do most of
their business through brokers who ask for
bids on behalf of restaurants and grocers.
After a period of particularly intense price
competition, Bakery X decides it is time to try
to manage the rivalry.

When the largest broker approaches Bakery X with a
request for bid from a restaurant chain to supply
hamburger buns in a neighboring city in which one of the
rival bakeries is located, Bakery X provides the broker
with a bid. However, the bid is higher than recent history
suggests and includes a written statement. The
statement explains that Bakery X plans to focus on
servicing restaurants and stores in certain selected cities
and that it will be forced to charge higher prices in other
cities. Bakery X does this knowing that the broker will
communicate this odd behavior to the other bakeries.
The other bakeries recognize the signal and begin to
respond. Price wars are avoided and average profits rise
for all three bakeries.

Industry Structure and Environmental Opportunities
• Identifying environmental threats is only half the
task in accomplishing an external analysis.
• Such an analysis must also identify opportunities.
• .

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Step 4: Create CompanyStep 4: Create Company
Goals and ObjectivesGoals and Objectives
 Goals – broad, long-range attributes to beGoals – broad, long-range attributes to be
accomplished; general and abstractaccomplished; general and abstract
 Objectives – more detailed, specific targetsObjectives – more detailed, specific targets
of performance that are S.M.A.R.T.of performance that are S.M.A.R.T.
 SSpecificpecific
 MMeasurableeasurable
 AAssignablessignable
 RRealistic (yet challenging)ealistic (yet challenging)
 TTimelyimely

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Step 5: FormulateStep 5: Formulate
StrategiesStrategies
 StrategyStrategy
 A “road map” that guides a companyA “road map” that guides a company
through a turbulent environment as it seeksthrough a turbulent environment as it seeks
to fulfill its mission, goals, and objectivesto fulfill its mission, goals, and objectives
 Focused on the key success factorsFocused on the key success factors
identified in Step 4identified in Step 4
 Mission, goals, and objectives = EndsMission, goals, and objectives = Ends
 Strategy = MeansStrategy = Means

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Three StrategicThree Strategic
OptionsOptions
Three basic strategies:Three basic strategies:
Strategy?
Cost leadershipCost leadership
DifferentiationDifferentiation
FocusFocus

Three StrategicThree Strategic
OptionsOptions
Source of Competitive AdvantageSource of Competitive Advantage
TargetTarget
MarketMarket
IndustryIndustry
NicheNiche
Uniqueness PerceivedUniqueness Perceived
by the Customerby the Customer
Low-CostLow-Cost
PositionPosition
DifferentiationDifferentiation Low CostLow Cost
Differentiation
Focus
Differentiation
Focus
Cost
Focus
Cost
Focus
Copyright ©2012 Pearson Education, Inc. publishing as Prentice HallChapter 2 Strategic Management 2-29

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Cost LeadershipCost Leadership
 Goal: to beGoal: to be thethe low-cost producer in thelow-cost producer in the
industry or market segmentindustry or market segment
 Advantages:Advantages:
 Reaching buyers who buy on the basis of priceReaching buyers who buy on the basis of price
 Power to set the industry’s price floorPower to set the industry’s price floor
 Works well when:Works well when:
 Buyers are sensitive to price changesBuyers are sensitive to price changes
 Competing firms sell the same commodityCompeting firms sell the same commodity
productsproducts
 A company can benefit from economies of scaleA company can benefit from economies of scale

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DifferentiationDifferentiation
 Company seeks to build customer loyaltyCompany seeks to build customer loyalty
by positioning its goods or services in aby positioning its goods or services in a
unique or different fashionunique or different fashion
 Idea is to be better than the competitionIdea is to be better than the competition
at something customers valueat something customers value
 Key: Build basis for differentiation on aKey: Build basis for differentiation on a
distinctive competence, something that adistinctive competence, something that a
small company is uniquely good at doingsmall company is uniquely good at doing
in comparison to its competitorsin comparison to its competitors
 Example: Classic AfricaExample: Classic Africa

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FocusFocus
 Company selects one or more customerCompany selects one or more customer
segments in a market, identifiessegments in a market, identifies
customers’ special needs, wants, orcustomers’ special needs, wants, or
interests, and then targets them with ainterests, and then targets them with a
product or service designed specificallyproduct or service designed specifically
for themfor them
 Strategy builds onStrategy builds on differencesdifferences amongamong
market segmentsmarket segments

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FocusFocus
 Rather than try to serve the total market,Rather than try to serve the total market,
the company focuses on serving a nichethe company focuses on serving a niche
(or several niches) within that market(or several niches) within that market
 Examples:Examples:
 Lena Blackburne Baseball Rubbing MudLena Blackburne Baseball Rubbing Mud
 Oh My Dog SuppliesOh My Dog Supplies
 CretorsCretors

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Step 6: Strategies intoStep 6: Strategies into
Action PlansAction Plans
 To make the plan workable, businessTo make the plan workable, business
owners should divide the plan into projects,owners should divide the plan into projects,
carefully defining each one by the following:carefully defining each one by the following:

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 Create projects by defining:Create projects by defining:
 PurposePurpose
What is the project designed toWhat is the project designed to accomplishaccomplish??
 ScopeScope
WhichWhich areasareas of the company will be involved in theof the company will be involved in the
project?project?
 ContributionContribution
How does the project relate toHow does the project relate to other projectsother projects and to theand to the
overall strategic planoverall strategic plan??

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 Resource requirementsResource requirements
What human and financial resources are neededWhat human and financial resources are needed
to complete the project successfully?to complete the project successfully?
 TimingTiming
Which schedules and deadlines will ensure projectWhich schedules and deadlines will ensure project
completion?completion?

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Step 7: EstablishStep 7: Establish
Accurate ControlsAccurate Controls
 Planning without control has little operational value,Planning without control has little operational value,
and a sound planning program requires a practicaland a sound planning program requires a practical
control process.control process.
 The plan establishes the standards against whichThe plan establishes the standards against which
actual performance is measuredactual performance is measured
 Entrepreneur must:Entrepreneur must:
 Identify and track key performance indicatorsIdentify and track key performance indicators
 Take corrective actionTake corrective action

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 To evaluate the effectiveness of theirTo evaluate the effectiveness of their
strategies and to link them to everydaystrategies and to link them to everyday
performance,performance, manymany companies arecompanies are
developingdeveloping balanced scorecardsbalanced scorecards

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Balanced ScorecardBalanced Scorecard
 A set of measurements unique to a company thatA set of measurements unique to a company that
includes both financialincludes both financial andand operational measures.operational measures.
 Rather than sticking solely to the traditional financialRather than sticking solely to the traditional financial
measures of a company’s performance, the balancedmeasures of a company’s performance, the balanced
scorecard gives managers a comprehensive view fromscorecard gives managers a comprehensive view from
both a financial and an operational perspective.both a financial and an operational perspective.
 This means that it gives managers a quick yetThis means that it gives managers a quick yet
comprehensive picture of a company’s overallcomprehensive picture of a company’s overall
performance.performance.

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 Five Perspectives:Five Perspectives:
1.1. Customer: How do customers see us?Customer: How do customers see us?
2.2. Internal Business: At what must we excel?Internal Business: At what must we excel?
3.3. Innovation and Learning: Can we continue to improveInnovation and Learning: Can we continue to improve
and create value?and create value?
4.4. Financial: How do we look to shareholders?Financial: How do we look to shareholders?
5.5. Corporate Citizenship: What must we do to meet ourCorporate Citizenship: What must we do to meet our
social responsibility to society as a whole, thesocial responsibility to society as a whole, the
environment, the community, and other stakeholders?environment, the community, and other stakeholders?

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Customer
Internal
Business
Innovation and
Learning
Financial
Corporate
Citizenship

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How do customers see us?

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On what factors must
we excel?

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How do we look to investors

Innovation and LearningInnovation and Learning
PerspectivePerspective
 Can we continue to improve and create value?Can we continue to improve and create value?
This view of a company recognizes that the targetsThis view of a company recognizes that the targets
required for success are never static; they arerequired for success are never static; they are
constantly changing.constantly changing.
If a company wants to continue its pattern of success, itIf a company wants to continue its pattern of success, it
cannot stand still; it must continuously improve.cannot stand still; it must continuously improve.
A company’s ability to innovate, learn, and improveA company’s ability to innovate, learn, and improve
determines itsdetermines its future.future.
2-99

Innovation and LearningInnovation and Learning
PerspectivePerspective
 These goals and measures emphasize theThese goals and measures emphasize the
importance of continuous improvement inimportance of continuous improvement in
customer satisfaction and internal businesscustomer satisfaction and internal business
operationsoperations
2-100

Corporate citizenshipCorporate citizenship
 How well are we meeting our socialHow well are we meeting our social
responsibility to society as a whole, theresponsibility to society as a whole, the
environment, the community, and otherenvironment, the community, and other
external stakeholders?external stakeholders?
2-101

2-102

2-103
All rights reserved. No part of this publication may beAll rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted,reproduced, stored in a retrieval system, or transmitted,
in any form or by any means, electronic, mechanical,in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the priorphotocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the Unitedwritten permission of the publisher. Printed in the United
States of America.States of America.
Copyright ©2012 Pearson Education, Inc.Copyright ©2012 Pearson Education, Inc.
Publishing as Prentice Hall Publishing as Prentice Hall

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