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Strategies and Performance Metrics
Introduction
Strategies are key to the achievement of sustainable development as these are the driving force of practically every organization. These organizations are motivated to grow fast ahead of the competitors, grow in line with the industry or to simply catch-up and defend an existing status. Organizations are also driven by efforts to maximize profit and minimize risks and threats while also addressing challenges through strategizing. Such initiatives were undertaken to enhance and further competitive advantage of the company. In making this advantage sustainable, above average performance should be strived for. There are various strategies – generic and specific – and their related performance metrics than an organization could choose from, depending on the needs, goals and resources. These strategies and metrics as well as the issues surrounding such will be addressed in this paper.
Strategies within organizations
Strategies are generally divided into business-level, corporate-level and international. Strategies could be also on the basis of product-market or core competence or the combination of two. Strategic decisions could be also considered on business ethics and corporate social responsibility. Moreover, strategies could also be specifically related to cost advantage, market dominance, new product development, contraction/diversification, price leadership, global, reengineering, downsizing, delivering and restructuring. Despite the fact that various strategies at every function, process and plan could be present, the underpinning of these strategies is basically to create and acquire the competitive advantage.
Business-level strategies hone an environment of better competition. The development of these strategies necessitates distinguishing different strategic business units. This can be carried-out through different strategies as ‘no frills’ differentiation, hybrid and focused differentiation. To sustain the basis of competitive advantage, it is essential for every organization to safeguard their position in the market and emerge as the market leader. The strategic thinking must always focus on countering or pre-empting competitors. One issue that could make it difficult is the hypercompetitive conditions wherein markets conform to speed, flexibility, innovation and the willingness to accept and implement change from the business-level, which in turn disrupts the continuity of performance (Cole, 2003).
To further enhance the company’s position in the international market, some companies are employing different strategies at corporate and international levels. These are the business units that could be the drivers of the decisions of the corporate parent. The basis for decision-making is the product itself and the international scope and the process on how the company attempts at improving or adding values that are created by the business units. Organizations that are particular with these strategies must deliberately consider the connectedness of strategic capabilities especially if the strategy is intended to add or create value. These capabilities from corporate and international perspectives purport related and unrelated diversification. However, performance could be jeopardized if the organization focuses too much on diversification (Cole, 2003; Stahl and Grisby, 2003).
From a product-market perspective, strategies are a matter of positioning the firm in its environment which can be done either by selecting the optimal mix of product/market combinations or in by positioning according to stakeholder. Hence it deals with competition on the product-market level, encompassing concerns about customer needs and expectations and on low cost or differentiation or diversification as specific strategies (Drejer, 2002). The most pressing issue, however, is how an organization could possibly sustain financial viability on the specific strategy chosen without sacrificing the competitiveness of the organization. Selecting and marketing the right products at the right markets to give customers what they want is the central premise of this strategy.
Customer needs, in particular, means that the organization should seek on how they can improve their organizational performance in consistent manner. This premise requires that the organization shall engage into persistent changes for the benefit of the customers. They should not be too complacent on their current success. Instead, the organizations ought to be future-oriented and future-driven. Organizations should acknowledge that real time customer needs and wants with real time products and services (Johnson and Scholes, 2002). For these organizations, customer relationship success is not an outgrowth of single stance but of repeated yet uniquely implemented processes. Exceptionally, unremitting ways to delight the customers always is fundamental for honing a customer experience that could possibly lead to incomparable loyalty, stronger brand/image, intensive relationships and unbending differentiation.
Competence-bases strategy, on the other hand, deals with the competition at the competence level and is concerned with identifying, selecting and developing the right competencies to support the current and future product-market strategy of the firm. This strategy views the firm as a collection of resources and/or competencies, assuming that a firm cannot be defined by the changing nature of products/markets but rather by its core competencies which may be less likely to be changed in the long run (Drejer, 2002). Nevertheless, this strategy also connive with product-related decisions to determine which competencies are required to fulfill the needs of customers, to produce and sell the current products and which among these competencies a firm should based its competitive strength. Other issues that could shape the development of this strategy are the changing requirements of the business environment which could impose risks to the development of new competencies apart from risks inherent in maintaining core competencies (Johnson and Scholes, 2002).
An aspect to be explored regarding international strategies is the implications of globalization. The scale and scope of international business activities have significant effects on the international scene. Usually, corporate governance is practiced within individual companies and its focus is normally internal (Detomasi, 2002). The readiness of such companies to engage in international economy might alter the prevalent cultures and practices of the company. Detomasi points out that the critical aspect is the increasing potential damage once the company involved itself in the international economy (2002).
The decision to integrate stems from a view which is to strategize for the purpose of addressing product-market and competencies requirements in dealing with the customers/consumers, shareholders and stakeholders. A holistic view, according to Drejer (2002), such integration could be either planned or emergent but the decision should be based on one or the combination of invariant elements of the firm’s strategy like product, market, customers or competencies. As such, this strategy depends heavily on the how an organization would want to accomplish as its mission and how the organization visualizes its future; simply, what is to be kept invariant in the business’ strategic management.
Corporate social responsibility (CSR), as an outgrowth of business ethics, is also shaping the way business operates hence its strategizing efforts. CSR strategies are embedded on four identifiable trends which seem likely to continue to grow in importance: increasing affluence, changing societal expectations, globalization and free flow of information and ecological sustainability (Sims, 2003; Carroll, 1991). Stakeholders expect more from the companies where they would afford products and services, implicating public trust and public confidence in the ability of companies to restrict and control own corporate excess particularly in a period where media has the power to bring to society’s awareness on the lapses in CSR. Realizing this matter, CSR therefore could be both critical and controversial. Critical because a for-profit organization is the largest and most innovative part of any free society’s economy: It drives social progress and affluence. Important to note is that companies are intertwined with the societies in which they operate in mutually beneficial ways. On the other hand, controversy about CSR prevails with the perennial question: What is the purpose of business within a society? Having thought deeply of such a question, striking a balance between corporate and social responsibilities should be a strategic focus.
Ethical behavior deals with the morally-acceptable and commonly-held values which are consistent to personal perception of values. In an organization, many would question the rightfulness of different acts such as: Is it ethical to do personal business on company time? Is it unethical to ask someone to do a certain job that might not be good for their career progress? (Sims, 2003).The corporate social responsibility concerns the social environment and a changed social contract. Many argued that organizations must consider the societal impact of their decisions and actions. Furthermore, the organizations must act to protect and improve the welfare of the general public. The organizations must aim not only on organizational effectiveness but on existence to address the needs of society (Sims, 2003, p. 43).
The success or failure of different strategies must conform to the following criteria: suitability, acceptability and feasibility. Suitability is the rationale of the strategy, acceptability deals with expected return, risks and reactions of stakeholders and feasibility is the probability of delivering strategies. Because strategies are a multi-faceted endeavor within companies, decisions must be made relevant on the basis of development direction and methods. Development direction will definitely impact internal, business level strategies as this include protect and build, product development, market development and diversification while methods are generally intended for corporate and international strategic decisions which may include internal-to-external development and adherence to alliances and mergers and acquisitions (Johnson and Scholes, 2002).
Related performance metrics
As companies grow and move into the schema of complicated business environment, the focus is on developing strategies that will address various threats, challenges and problems both internal and external while at the same time exploring new opportunities that the business environment provides. These organizations also realized that they have to invest in the most important element of the business – the performers. One of the leading strategies that companies engage into is the management of performance of the internal customers or simply known as the employees (Armstrong and Baron, 1998). Gilley and Maycunich (2000) states that performance helps organizations sustain or improve performance, promote greater consistency in performance evaluation, and provide high-quality feedback. As well, it helps organizations link evaluations to employee development and to a merit-based compensation plan. Moreover, performance management form a basis for coaching and counseling, permits individual input during the evaluation process, and allows for a blend of qualitative and quantitative expectations of job demands and factors that reveal how well the job is done (Pande, Neuman and Cavanagh, 2000).
As such, performance accrues competitive advantage or the position that any firm occupies against its competitors. According to Porter (1985), the basis of above-average performance within any given industry is sustainable competitive advantage. He also argued that a firm can only achieve sustainable competitive advantage when its value-creating processes and position have not been able to be duplicated or imitated by other firms (Armstrong and Baron, 1998). On the organization level, competitive advantage could be achieved if the company has the ability to meet customer needs, compete in the marketplace, carry out strategies and achieve goals. Performance at this level is higher and more strategic. If there are internal systems and processes that are well-established to achieve goals, competitive edge is attainable in the performance level. Performance is further honed by means of continuous improvement strategies, Six Sigma efforts and other similar initiatives. Competitive advantage at individual levels centers the collective performance resulting to organisational process that contributes to the attainment of organisational goals (Rothwell et al, 2007, p. 49).
Two among the basic definition of performance that organizations adhere into are the act of carrying out or accomplishing something and the way by which an individual perform a job or task as judged by its effectiveness. Three levels of performance in organization that should be measured are organization, process and individual. Nevertheless, it is in the first level that strategies, goals and measures are apparent (Johnson and Scholes, 2002). Metrics designed to measure organisational performance Brown (1996) noted that having reasonable performance metrics is a key to success aside from selecting measures that are linked with the firm’s key success factors. Performance metrics covers areas such as customers, work processes, suppliers, financial and employees.
One of the most prominent organisational performance metrics is balanced scorecard (BSC). Kaplan and Norton (1996) describe BSC as an instrument that provide the managers the capability to forecast future competitive success and translate organizations’ mission and strategies into a comprehensive framework of performance measures based on strategic measurement and management systems. Since BSC is an innovative technique, it has gained strength in integrating financial and non-financial performance measures toward an overall control system. As such, BSC is a form of organisational communication that ensures employees understand the long-term strategy, relations among various strategic objectives and associations between employees’ actions and chosen strategic goals, as according to Maiga and Jacobs (2003).
The BSC has direct relationships to other organisational initiatives such as: share holder value management, activity-based costing, operational linkage, customer profitability linkage, budgeting linkage and total quality management, all of which could be also regarded as independent metrics. Shareholder value metrics are residual income, economic value-added and shareholder value-added. This metric address the defects of traditional financial performance management. BSC and shareholder value metrics take a low risk and short-term path-reduce costs while disposing underutilized assets. Activity-based costing was developed to correct another financial defect – the inability of traditional costing systems to identify the drivers of indirect and support costs. Cost, quality and time usually define the operating performance. BSC also measures profitability of individual customers and activity-based budgeting. BSC and total quality management (TQM) are quality initiatives. Enhancing quality programs and strategic outcomes are improved through linking TQM and BSC in the internal perspective, external perspective and customer perspective. The BSC also guides organization in redeploying their scarce resources of people and funds away from non-strategic processes (Kaplan and Norton, 2001; Cole, 2003).
Generally, transparency is critical in corporate accounting and statements. The companies must practice publicizing in order to gain and regain the confidence of shareholders and consumers in all aspects of business (Stahl and Grisby, 1997). The benefit of the people around and within the company is the avoidance of misleading informations and false announcements. The continuum of economic growth includes a transparent corporate governance structure. The interaction, without this, can lead to financial deficiency. In this regard, the financial transparency and the corporate governance system are the key factors to encourage investors and to create a sustainable business.
Furthermore, the separation of the shareholder value and the management creates problems, according to Blair, such as: 1) the management efficiency means having enough courage to take risks, make strategic decisions and take advantage of investment opportunities and the management cannot submit every decision to shareholders affirmation; 2) the control-rights of shareholders with large total of shares has a power that must be restrained; 3) the commitment of time and resources of investors in monitoring the affairs of the organization; and 4) the reliability and accuracy of information-needs by the investors/shareholders (as cited in Chen, 2004, pp. 13-14).
Other performance metrics are key performance metrics and continuous improvement metrics. Key performance metrics measure goals that are linked with strategic imperatives. Strategic objectives are scrutinized thoroughly to derive key performance indicators and reviewing existing and developing key competencies. This metric also measure whether the objectives such as sustainable growth, customer focus and social responsibility are being achieved (Armstrong and Baron, 1998). Many companies are starting to monitor and manage key indicators. Substantial evidences prove that addressing such issues can directly cut cost and save money. As such, these can evaluate the application of management theory and how company are putting those in practices specifically those that can have impact on the company’s reputation. Continuous improvement metrics how effective the organization in terms of strategic goals like improving production quality, reducing process waste, increasing organization-wide involvement and satisfying customers (Armstrong and Baron, 1998). Continuous improvement teaches the organizations as a whole to get involved in contingency approaches whether to anticipate, prevent or respond to quality problems that necessitates quality solutions.
Another important performance metric is the Australian Business Excellence Framework which is regarded as a systematic means to address the quality requirements in the entirety of the organization. This framework is said to drive improvement as it enables practices to be measured comprehensively where quality is enhanced in all activities undertaken. Essential elements of organisational systems in seven categories are leadership and innovation – strategic direction, organisational culture, leadership throughout the organization and environmental and community contribution; strategy and planning processes – understanding the business environment, the planning process, and development and application of resources; data, information and knowledge – collection and interpretation of data and information, integration and use of information for decision-making and creation and management of knowledge; people – involvement and commitment, effectiveness and development and health, safety and well-being; customer and market focus – knowledge of customer markets, customer relationship management and customer perception of value; processes, products and services – innovation process, supplier and partner relationships and management and improvement services; and business results – indicators of success and indicators of sustainability.
References
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http://www.ecu.edu.au/equ/resources/committee/ABEF_QSN.pps
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