Setting
the Goals of the Organization
According
to the rational model the first stage of strategy formulation is the setting of
mission and objectives. This chapter looks at this process, the analysis of
stakeholders, and the roles performed by mission and objectives, in detail.
The
identity of stakeholders
You will be familiar
with the concept of stakeholders from your study for integrated management and,
it is recommended that you revise that section of the manual in addition to
reading what follows.
Stakeholders
are defined by CIMA as ‘Those persons and organizations that have an interest
in the strategy of the organization. Stakeholders normally include
shareholders, customers, staff and the local community.
As such we
can consider them to be people and organizations who have a say in:
q What you
are to do,
q What
resources you have,
q What you
should achieve.
They
are affected by, and feel they have a right to benefit or be pleased by what
you do. For a commercial organization they include, amongst others:
Internal stakeholders Owners/founders
Management
Staff
Mixed
internal and external stakeholders Trade
unions
Communities
where organization is based
External
Stakeholders Bankers,
Other investors
Governments
& regulatory bodies
Critical success factors
1.
Defining critical success factors
This
approach first emerged as an approach for linking information systems strategy
to broader commercial goals by first identifying the crucial elements of the
firm’s business strategy. More recently it has been appropriated by strategies
in general as an alternative to the goal structure approach described above.
According
to its originators, critical success factors (CSFs) are: ‘the limited number of
areas in which results, if they are satisfactory, will enable successful
competitive performance’ (Rockart & Hoffman, 1992). More recently Johnson
and Scholes (1997) have defined CSFs as:
…..those
components of strategy where the organization must excel to outperform
competition. These are underpinned by competences which ensure this success. A
critical factor analysis can be used as a basis for preparing resource plans.
CIMA
defines critical success factors as ‘An element of the organizational activity
which is central to its future success. Critical success factors may change
over time, and may include items such as product quality, employee attitudes,
manufacturing flexibility and brand awareness.’
Critical Success factors
and Key performance indicators
The
attraction of the approach lies in the fact that it provides a methodology for
identifying strategic goals (or CSFs) by basing them on the strengths, or core
competences, of the firm. These are implemented through the development of key
performance indicators (KPIs) for milestones in the processes delivering the
CSFs.
2. Methodology of CSF analysis
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According
to Johnson and Scholes, this is a six-step process. We have illustrated them
here using the example of a chain of fashion clothing stores.
1. Identify
the critical success factors for the specific strategy. The recommend keeping
the list of CSF to six or less. The store chain might decide that these are:
o
Right
store locations;
o
Good
brand image;
o
Correct
and fashionable lines of stock;
o
Friendly
fashionable store atmosphere.
1.
Identify
the underpinning competences essential to gaining competitive advantage in each
of the CSFs. This will involve a thorough investigation of the activities,
skills and processes that deliver superior performance of each.
Taking
just one of the store’s CSFs the issue of correct stock, as an example:
§ Recruit and retain buyers with acute
fashion sense;
§ Just-in-time purchasing arrangements with
clothing manufacturers;
§ Proprietary designs of fabrics and clothes;
§ Close monitoring of shop sales by item to
detect trends in which items are successful and which are not;
§ Swift replenishment delivery service to
minimize amount of stock in the system.
2.
Ensure
that the list of competences is sufficient to give competitive advantage.
The store needs to consider whether
improvement to the systems and processes underlying its CSF will be sufficient
to secure its place in the high street or whether more needs to be done. For
example, have they considered whether they need to develop a direct ordering
facility to raise profile and gain loyalty?
4. Identify
performance standards which need to be achieved to outperform rivals. These are
sometimes termed key performance
indicators and will form the basis of a performance measurement and
control system to implement and revive the strategy.
KPIs that the clothing store chain might
consider to match its key processes (listed above) include:
q Staff turnover among buyers and designers;
q Lead times on orders from suppliers;
q Percentage of successful stock lines
designed in-house;
q Installation of a real-time store sales
information system by the end of the year;
q Establishment of 1-day order turnaround for
store replenishment.
5. Ensure
that competitors will not be able to imitate or better the firm’s performance
of each activity, otherwise it will not be the basis of a secure competitive
strategy.
Our store would compare its competences
against Gap, Miss self ridge, Next, River
Island
6. Monitor
competitors and predict the likely impact of their moves in terms of their
impact of these CSFs.
This process is carried out principally by
discussions between management, although there is a clear additional role for
the special expertise of the chartered management accountant in mapping the key
process, developing KPIs and monitoring them.
It is worth remembering that critical
success factors are specific to an organization at which you are looking. They
should not be confused with the survival factors and success factors which
relate to the industry in general
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