STRATEGY EVALUATIONSTRATEGY EVALUATION Session 7

Professor Hilda L. TeodoroAteneo Graduate School of Business

2 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

LEARNING OBJECTIVES

TO HELP THE STUDENTS:

1. Understand the strategic evaluation framework and

the characteristics of an effective evaluation system.

2. Learn about performance measurement as an

important component of strategy evaluation.

3. Know some of the performance measurement systems

such as the balanced scorecard.

3 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

AGENDA

The Nature of Strategy EvaluationCharacteristics of an Effective Evaluation SystemBalanced ScorecardStrategy Map

4 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

Strategy evaluation is vital to the organization’s well-being

Alert management to potential or actual problems in a timely fashion

Erroneous strategic decisions can have severe negative impact on organizations

Complex and sensitive undertaking

Overemphasis can be costly and counterproductive

THE NATURE OF STRATEGY EVALUATION

5 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

3 Basic Activities –

1. Examining the underlying bases of a firms’ strategy

2. Comparing expected to actual results

3. Corrective actions to ensure performance conforms to plans

THE NATURE OF STRATEGY EVALUATION

6 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

1

BALANCED SCORECARD

7 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

8 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

Typical Kinds of Objectives

•profit •revenues •expenses•net income •ROI•ROA•ROCE•cash flow

9 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

Typical Kinds of Objectives

•market share

•total sales

•number of loyal customers

•customer satisfaction / experience

•customer retention

•profitability

10 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

Typical Kinds of Objectives

•staff motivation, retention or attraction

•alignment to strategic goals

•innovation

•staff morale

•training

•knowledge sharing.

11 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

Typical Kinds of Objectives

•product development turnaround time

•manufacturing quality

•cycle or set-up time

•project management

•total quality management

•Six Sigma

12 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

13 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

14 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

1

STRATEGY MAPS

15 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

STRATEGY MAP

16 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

17 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

STRATEGY MAP

18 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

19 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

LO

W C

OS

T S

TR

AT

EG

Y M

AP

20 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

FINANCIAL PERSPECTIVE

Companies have two basic levers for their financial strategy:

Revenue growth• Build with revenue from new markets, new products, and new

customers• Increase value to existing customers by deepening relationships

with them through expanded sales

Productivity • Improve company’s cost structure by reducing direct and indirect

expenses• Use assets more efficiently by reducing the working and fixed

capital needed to support a given level of business

21 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

CUSTOMER VALUE PROPOSITION

The core of any business strategy is the customer value proposition, which describes the unique mix of products and service attributes, customer relations, and corporate image that a company offers.

It defines how the organization will differentiate itself from competitors to attract, retain, and deepen relationships with targeted customers.

22 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

CUSTOMER VALUE PROPOSITION

Single most important step in developing a strategy.

Typically the value proposition is chosen from among 3 differentiators:

1. Operational excellence

2. Customer intimacy

3. Product leadership

Companies strive to excel in one of the three areas while maintaining threshold standards in the other two.

23 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

Cu

stom

er Valu

e P

rop

ositio

n

24 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

INTERNAL PROCESS PERSPECTIVE

Once a company has a clear picture of its financial and customer perspectives, it can then determine the means by which it will achieve the differentiated value proposition for customers and the productivity improvements to reach its financial objectives.

25 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

LEARNING AND GROWTH

The foundation of any strategy map is the learning and growth perspective which defines the core competencies and skills, the technologies and corporate culture need to support the strategy.

26 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

MOBIL’S PAST STRATEGY

In the past attempted to sell full range of products and services to all consumers, while still matching the low prices of discount stations.

This unfocused strategy failed, led to poor financial performance.

Through market research, Mobil discovered that price-sensitive consumers represent only 20% of gasoline purchasers, while 60% were willing to pay significant price premiums for gasoline if they could buy at stations that were fast, friendly and outfitted with excellent convenience stores.

27 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

‘S STRATEGY MAP

Using this map Mobil increased its operating cash flow by more than $1 billion per year and became the industry’s profit leader.Mobil’s strategic vision was to be the best integrated refiner-marketer in the US by efficiently delivering unprecedented value to customers.Major part of the strategy was to target customers who were willing to pay premiums for gasoline if they could buy at fast, friendly stations that were outfitted with excellent convenience stores.

28 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

Strategy Map

29 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

FINANCIAL PERSPECTIVE

The revenue growth strategy called for Mobil to expand sales outside of gasoline by offering convenience store products and services, ancillary automotive services (car washes, oil changes, and minor repairs), automotive products (oil, antifreeze, and wiper fluid), and common replacement parts (tires and wiper blades). Also, the company would sell more premium brands to customers, and it would increase sales faster than the industry average.

30 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

FINANCIAL PERSPECTIVE

In terms of productivity, Mobil wanted to slash operating expenses per gallon sold to the lowest level in the industry and extract more from existing assets - for example, by reducing the downtime at its oil refineries and increasing their yields.

31 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

CUSTOMER PERSPECTIVE

Customer Intimacy Proposition

company targets premium customer segments by offering them speedy purchase; safe, well-lit stations, clean restrooms; convenience stores stocked with fresh, high-quality merchandise, and friendly employees

32 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

CUSTOMER PERSPECTIVE

differentiator

immediate access to gasoline pumps, each equipped with a self-payment mechanism;

33 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

INTERNAL PROCESSES PERSPECTIVE

Building the franchise by developing new products and services.

Training dealers to become better managers and help them generate profits from non gasoline products and services.

34 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

INTERNAL PROCESSES PERSPECTIVE

Excel at understanding its consumer segments.

Build best in class franchise teams.

35 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

INTERNAL PROCESSES PERSPECTIVE

Focus on achieving operational excellence throughout its value chain of operations.

36 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

INTERNAL PROCESSES PERSPECTIVE

Eliminate environmental and safety accidents.

37 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

LEARNING AND GROWTH

Mobil identified that its employees needed to gain a

broader understanding of

the marketing and refining business from end to end

38 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

LEARNING AND GROWTH

It had to nurture the leadership skills that were

necessary for its managers to articulate the

company’s vision and develop employees.

39 ATENEO GRADUATE SCHOOL OF BUSINESS

HILDA L. TEODORO

LEARNING AND GROWTH

Mobil identified key technologies that it had to

develop, including automated equipment for monitoring the

refining processes and extensive databases and tools to analyze consumer’s buying

experiences