Management Accounting Business Strategy

What is Strategy ?
Strategic Planning Model
Analyze the Organization s resources Identify Strengths and weaknesses

Identify the Organization s Current vision mission, Objectives, and Strategies

Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

Strategic Planning Model at Glance

Finance and Strategy at Glance
Internal analysis , Strengths, weakness Goal Top Objectives Identify vision, current mission, goals, objectives and strategies Middle Reassess and develop mission, goals, objectives Operational Corporate Strategy The Key Business Strategy Operational Strategy

Evaluate

External analysis , Opportunities, Threats

Formulate strategies Implement strategies Finance Policies, procedures, manuals Operational Strategies () Tactics Activities () Operational Budgets () Marketing budget Financial budget R & D budget Operations budget Purchasing budget Logistics budget HR budget I.T budget

Marketing strategy Financial strategy R & D strategy Operations strategy Purchasing strategy Logistics strategy HR strategy I.T strategy

Marketing actions plans Financial actions - plans R & D actions - plans Operations actions Purchasing actions - plans Logistics actions - plans HR actins - plans I.T actions - plans

Compare with actual Compare with benchmarks 3

Overall year wise business plan

Capital budgeting: NPV Budgeting: Variance analysis

Overall year wise consolidated budget

Financial analysis: ROI 0

Strategic Planning Model

Vision
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

What do we Want to Become ?

Intellectual thoughts about future

Vision

General Motors vision is to be the world leader in transportation products and related service
4

Strategic Planning Model

Mission
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

What is our Business ?

Reason for existence

Mission

FedEx is committed to our people Service Profit Philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global, air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery
5

Strategic Planning Model

Goals and Objectives
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

Goal/ Long term objectives

Annual Objective

General Statement Quantification of aim or purpose

of goals

Goal/Long term objective

To enhance customer satisfaction

Annual Objective
Number of complaints should decrease by 20% over a period of one year
6

Strategic Planning Model

Identify Strategies
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

Identify current strategies

Corporate Strategy Business Strategy Operational Strategy

7

Strategic Planning Model

Identify Strategies
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

Identify current strategies

Corporate Strategy Business Strategy Operational Strategy

Goal

Customer Satisfaction Reduce Complaints

Objectives

Reduce by20% in one year

8

Strategic Planning Model

Analyze the external environment
Analyze the Organization s resources Identify Strengths and weaknesses Identify the Organization s Current vision mission, Objectives, and Strategies Reassess and develop the Organization s mission and objectives Formulate strategies Implement strategies Evaluate results

Identify Opportunities And threats

Analyze the environment

Macro / Direct / General Environment

PESTEL analysis

Opportunities

Macro / Direct / Task Environment

Porter analysis

Threats

Strategic Planning Model

Analyzing the internal environment

Strength

Internal Capabilities
Analyze the Organization s resources
Identify Strengths and weaknesses

Weaknesses

Identify the Organization s Current vision mission, Objectives, and Strategies

Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

10

Strategic Planning Model

Analyzing the internal environment

Strengths Analyze the Organization s resources

Internal Capabilities
Weaknesses
11

Strategic Planning Model

Analyzing the environment

12

Strategic Planning Model

Analyzing the environment
Organization Profile External Environment

Gap = Basis for Long-Term Strategic Plan

13

Strategic Planning Model

Reassess the mission and objectives
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

Reassess the mission and objectives

Goal/ Long term objectives

Annual Objectives

14

Strategic Planning Model

Formulate strategies Corporate level strategies
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

Reassess the mission and objectives

Formulate strategies

Goal/ Long term objectives

Finance
Corporate Strategy Liquidation Strategy

Finance Business Strategy Annual Objectives Operational Strategy Finance

Which segment to sell Estimation of viable price

15

Strategic Planning Model

Formulate strategies Corporate level strategies
Reassess the mission and objectives Formulate Strategies

Finance

Goal

Corporate Strategy

Liquidation Strategy Finance

Product Development

Customer Satisfaction

Business Strategy Objectives Operational Strategy

Which Segment to sell

Which Product

Reduce Complaints

Finance

Estimation of viable price

Current Year plan

Reduce by 20% in one year 16

Strategic Planning Model

Formulate strategies Corporate level strategies
Reassess the mission and objectives Formulate Strategies

Vision
Corporate Strategy HR Business Strategy Operational Strategy

Goal
Mkt

Finance

Customer satisfaction
Reduce complaints Reduce by 20% in one year

Mission Strategies long term objectives/Goals Annual Objectives Initiatives /Activities

O1 AI2 AI1 AI3

O2

Operations

Objectives
Tactics-activities Operational / business plans Operational & overall budgets

Measures/ M1 M3 M2 standard Targets

T1 T1T1

17

Strategic Planning Model

Formulate strategies Corporate level strategies

Corporate Strategy

Business Strategy

Operational Strategy

An overall suite of the organization Integration strategies Diversification strategies Porter s generic strategies Corporate level Strategies: Guidelines from top Overall decisions Guiding decisions Intensive strategies Defensive strategies Other strategies
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Strategic Planning Model

Formulate strategies Corporate level strategies Which Strategy to select
TOWS Matrix
Strengths (S)
Opportunities (O)

Weaknesses (W)

SO strategies

WO strategies

Threats (T)

ST strategies

WT strategies

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Strategic Planning Model

Formulate strategies Corporate level strategies Which Strategy to select
Ansoff Matrix

Present

Markets / Areas

Market Penetration

Product Development

Market Development
New Present

Diversification

New

Products / Solutions
20

Strategic Planning Model

Formulate strategies Corporate level strategies

Finance ?

Benchmarks

21

Strategic Planning Model

Formulate strategies Corporate level strategies

Finance ?

Benchmarks

Diversification

Finance ?

Overall ROI should be 20% over five years

22

Strategic Planning Model

Formulate strategies Business level strategies
Corporate Strategy Business Strategy
Differentiation

Operational Strategy

At the level of SBU for achievement of corporate strategy

High
Hybrid

4
Focused differentiation

3
Low price

1
No frills

Strategies destined For ultimate failure

23

Low Low

High

Strategic Planning Model

Formulate strategies Business level strategies
Strategy Clock      Price Based Strategies: Hybrid Strategy: Differentiation Strategy: Focused differentiation: Failure Strategies:
Position 1 & 2 Position - 3 Position - 4 Position - 5 Position 6,7 & 8

OR/AND Selection from corporate level strategies as trickled down effect

24

Strategic Planning Model

Formulate strategies Business level strategies Which Strategy to select
TOWS Matrix
Strengths (S)
Opportunities (O)

Weaknesses (W)

SO strategies

WO strategies

Threats (T)

ST strategies

WT strategies

25

Strategic Planning Model

Formulate strategies Business level strategies

Business level strategies Guidelines at execution level Implementation guidelines

Finance ?

Benchmarks
26

Strategic Planning Model

Formulate strategies Business level strategies

Corporate Strategy

Diversification

Finance ?

Overall ROI should be 20% in five years

Business Strategy

Enter in two different business Business one Business two

Finance ?

Business 1 =15% Business 2 = 5%

Operational Strategy

27

Strategic Planning Model

Formulate strategies Operational level strategies
Tactics-activities Operational/business plans Operational & overall budgets Corporate Strategy Business Strategy

Operational Strategy

It is set of actions to implement business level strategy

Operational Strategies
Marketing strategy Financial strategy R & D strategy Operations strategy Purchasing strategy Logistics strategy HR strategy I.T strategy

Tactics - Activities
Marketing actions plans Financial actions - plans R & D actions - plans Operations actions Purchasing actions - plans Logistics actions - plans HR actins - plans I.T actions - plans

Operational Budgets
Marketing budget Financial budget R & D budget Operations budget Purchasing budget Logistics budget HR budget I.T budget

Finance ?

Overall year wise business plan Overall year wise consolidated budget
28

Strategic Planning Model

Formulate strategies Operational level strategies Marketing strategies
    Product Strategy Pricing strategy Placement strategy Promoting strategy

Financial strategies  Capital acquisition  Resource allocation

29

Strategic Planning Model

Formulate strategies Operational level strategies
Operational level strategies Tactics Activities Operational plans

Marketing strategy Financial strategy R & D strategy Operations strategy Purchasing strategy Logistics strategy HR strategy I.T strategy

Marketing actions plans Financial actions - plans R & D actions - plans Operations actions Purchasing actions - plans Logistics actions - plans HR actins - plans I.T actions - plans

Marketing budget Financial budget R & D budget Operations budget Purchasing budget Logistics budget HR budget I.T budget

Finance ?

Develop Forecasted Results business plans & Budgets

30

Strategic Planning Model

Formulate strategies
Reassess the mission and objectives Formulate Strategies

Vision
Corporate Strategy HR Business Strategy Operational Strategy

Goal
Mkt

Finance

Customer satisfaction
Reduce complaints Reduce by 20% in one year

Mission Strategies long term objectives/Goals Annual Objectives Initiatives /Activities

O1 AI2 AI1 AI3

O2

Operations

Objectives
Operational level strategies Tactics Activities Operational plans

Tactics-activities Operational / business plans Operational & overall budgets

Marketing budget Financial budget R & D budget Operations budget Purchasing budget Logistics budget HR budget I.T budget

Measures/ M1 M3 M2 standard Targets

Marketing strategy Financial strategy R & D strategy Operations strategy Purchasing strategy Logistics strategy HR strategy I.T strategy

Marketing actions plans Financial actions - plans R & D actions - plans Operations actions Purchasing actions - plans Logistics actions - plans HR actins - plans I.T actions - plans

T1 T1T1

31

Finance ?

Develop Forecasted Results business plans & Budgets

Strategic Planning Model

Formulate strategies Operational level strategies & Implementation Plan Overall ROI should be 20% five years
Diversification
Corporate Strategy

Finance ?

Enter in juices business Enter in textile business

Business Strategy

Finance ?

Business 1 =15% Business 2 = 5%

Business 1 = 8% + 8% Business 2 = 3% + 2%

Mange juice line Apple juice line Casual wear T-shirts line Formal wear line
Operational Strategy

Finance ?

Tactics activities of all departments to implement operational strategy

Year wise budget Year wise Business plan

32

Implementation

Strategic Planning Model

Implement strategies
Reassess the mission and objectives
Goal
Corporate Strategy
Business Strategy

Objectives

Operational Strategy

Formulate strategies

Implement strategies

Finance
Corporate Strategy The Key

Business Strategy Operational Strategy

Finance Finance

Tactics activities of all departments to implement operational strategy

Year wise budget Year wise Business plan

33

Strategic Planning Model

Formulate Implement strategies
Reassess the mission and objectives Formulate Implement Strategies

Vision
Corporate Strategy HR Business Strategy Operational Strategy

Goal
Mkt

Finance

Customer satisfaction
Reduce complaints Reduce by 20% in one year

Mission Strategies long term objectives/Goals Annual Objectives Initiatives /Activities

O1 AI2 AI1 AI3

O2

Operations

Objectives
Operational level strategies Tactics Activities Operational plans

Tactics-activities Operational / business plans Operational & overall budgets

Marketing budget Financial budget R & D budget Operations budget Purchasing budget Logistics budget HR budget I.T budget

Measures/ M1 M3 M2 standard Targets

Marketing strategy Financial strategy R & D strategy Operations strategy Purchasing strategy Logistics strategy HR strategy I.T strategy

Marketing actions plans Financial actions - plans R & D actions - plans Operations actions Purchasing actions - plans Logistics actions - plans HR actins - plans I.T actions - plans

T1 T1T1

34

Finance ?

Develop Forecasted Results business plans & Budgets

Strategic Planning Model

Implement strategies
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

Identify Opportunities And threats

Reassess the mission and objectives

Year-wise and overall business plan

Year wise implementation

Implement strategies Marketing Plan & budget

Tactics

Year wise activities

HR plan & budget

Formulate strategies

Activities Business Plan year plan & Year-wise financials including budgets

R& D plan and budget

other plans & budgets

35

Year wise and overall budget

Integrating Strategy and Finance

Process Strategic plan Vision, Mission, Long term objectives Corporate strategy Business strategy Operational strategy
Marketing strategy Financial strategy R & D strategy Operations strategy Purchasing strategy Logistics strategy HR strategy I.T strategy

Tactics - Activities
Marketing actions plans Financial actions - plans R & D actions - plans Operations actions Purchasing actions - plans Logistics actions - plans HR actins - plans I.T actions - plans

Operational Budgets
Marketing budget Financial budget R & D budget Operations budget Purchasing budget Logistics budget HR budget I.T budget

Budgeted Financial statements Budgeting: Variance analysis Capital budgeting :NPV Financial analysis: ROI

36

Strategic Planning Model

Integrating strategy and finance Strategy

Suitability
Expectation of stakeholders

Acceptability
Return / profitability Risk Cost effective

Feasibility
Funding sources

Finance ?

Develop Forecasted Results business plans / Budgets

37

Strategic Planning Model

Evaluate Strategies
Formulation Benchmarks Tools

Corporate strategy

Benchmark: ROI
Business strategy

Financial analysis

Finance
Operational strategy

Implementation

Benchmark: NPV of projects/ activities is positive

Capital budgeting techniques

Evaluate

Benchmarks: budgets are achieved

Variance analysis

38

Strategic Planning Model

Evaluate Strategies
Formulation Benchmarks
Corporate strategy Business strategy Communication

Tools

Benchmark: ROI

Financial analysis

Operational Strategy

Implementation

Benchmark: NPV of projects/ activities is positive

Capital budgeting techniques

Evaluate

Benchmarks: budgets are achieved

Variance analysis

Implementation

Strategic Planning Model

Evaluate Strategies
Formulation Benchmarks
Corporate strategy Business strategy Communication

Tools

Benchmark: ROI

Financial analysis

Operational Strategy

Implementation

Benchmark: NPV of projects/ activities is positive

Capital budgeting techniques

Evaluate

Benchmarks: budgets are achieved

Variance analysis

Implementation

Strategy and Finance

Evaluate Strategies - Benchmarks comparison in strategy implementation decision & use of finance
Planned benchmarks ROI NPV Budget 10% NPV should be positive Actual benchmarks 164% Positive NPV achieve Interpretation Positive Variance Benchmark achieve -

Financial forecast reflect/evaluates that benchmarks set at corporate strategy and business strategy level are achievable through operational strategy and implementation plan, therefore, strategy should be implemented
41

Strategic Planning Model

Evaluate Strategies

Strategic Planning Model at Glance

Finance and Strategy at Glance
Internal analysis , Strengths, weakness Goal Top Objectives Identify vision, current mission, goals, objectives and strategies Middle Reassess and develop mission, goals, objectives Low Corporate Strategy The Key Business Strategy Operational Strategy

Evaluate

External analysis , Opportunities, Threats

Formulate strategies Implement strategies Finance Policies, procedures, manuals Operational Strategies () Tactics Activities () Operational Budgets () Marketing budget Financial budget R & D budget Operations budget Purchasing budget Logistics budget HR budget I.T budget

Marketing strategy Financial strategy R & D strategy Operations strategy Purchasing strategy Logistics strategy HR strategy I.T strategy

Marketing actions plans Financial actions - plans R & D actions - plans Operations actions Purchasing actions - plans Logistics actions - plans HR actins - plans I.T actions - plans

Compare with actual Compare with benchmarks 43

Overall year wise business plan

Capital budgeting: NPV Budgeting: Variance analysis

Overall year wise consolidated budget

Financial analysis: ROI 0

Strategic Planning
Summary & Key terms
Strategic management vs Strategic planning
Strategic management
can be defined as formulating, implementing and evaluating cross-functional sections that enable an organization to achieve its objectives (Academic)

Strategic planning (Applied) Strategy Formulation

Strategy Formulation Vision Mission Opportunities & Threat Strengths & weaknesses Long term objectives Developing and selecting strategies Strategy Implementation Annual objectives Actionable polices and procedures Actionable items Resource allocation Budgets Executing activities Strategy Evaluation Reviewing the current basis (SWOT) Measuring performance Corrective action

Products Business Resources allocation Markets Guiding actions /activities

Corporate level strategy Business level strategy Operational level strategy

Operational level strategy

Culture Organizational structure Marketing MIS HR Change management BPR

Corporate level strategy Business level strategy Operational level strategy

44

Strategic Planning
Summary & Key terms
Strategic management Model

Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies

Identify Strengths and weaknesses Reassess/ develop the Organization s mission and long term objectives
Formulate, evaluate and select strategies

Implement strategies

Measure & Evaluate results

Analyze the environment

Identify Opportunities And threats

Strategy formulation

Strategy Implementation

Strategy Evaluation

An on going process, need retreat, communication is must. Formality relates with cost, accuracy and comprehensiveness etc

Strategic Planning
Summary & Key terms
Benefits of Strategic management
    General Enhanced communication Deeper understanding Greater commitment Better results Financial  Increased profitability  Improved dales  High productivity

       

Non financial Opportunity exploitation Object oriented approach to problems Effective allocation of resources Integration within the organization Clear responsibilities Forward thinking Positive attitude Discipline and formality in organization

Strategic Planning
Summary & Key terms
Guidelines for effective Strategic management

            

People process Learning process Words supported by numbers Simple Variation Challenge to current strategy Welcome bad news Openness and sprit in inquiry Not too formal Simple language Consider qualitative information also Not too many strategies Good ethics is good business

Strategic Planning
Summary & Key terms
Reasons for not doing Strategic planning

            

Lack of knowledge /experience Poor reward structures Waste of time Expensive Laziness Case of success Fear of failure Overconfidence Past bad experience Self interest Fear of unknown Honest difference of opinion suspicion

Strategic Planning
Summary & Key terms
Pitfall/mistakes in Strategic planning

          

Control over decisions Satisfy regulatory requirements only Hasty following of process Failure of communication of plan Intuitive decisions Non active support from top Non use of plans as performance measure Non involvement of all tiers Non support from different departments See planning as unimportant Immense formality

Strategic Planning
Summary & Key terms
Competitive advantage Something which gives the organisation advantage over its rivals. Dell s competitive advantage: Provide customized PC configurations, with short delivery times and affordable prices.
Responsiveness (Reliability; Quickness; Flexibility; e.g., Dell, Overnight Delivery Services) Competitive Advantage through which the company market share is attracted

Differentiation (Quality; Uniqueness; e.g., Luxury cars, Fashion Industry, Brand Name Drugs)

Strategic Planning
Summary & Key terms
Strategist Individuals who are most responsible for the success or failure of an organization Top managers Decision making positions Performs the steps of strategic planning Have different philosophies Vision what do we want to become? Mission what is our business?

Strategic Planning
Summary & Key terms
Opportunities and threats Come from external environment Changes that can harm or benefit organization Beyond control of organization Environmental scanning Industry analysis Strengths and weakness Come from internal environment Changes that can be controlled Relates to operational areas Relative to competitors

Strategic Planning
Summary & Key terms
Long term objectives - Goals Specific objectives Come from mission More than one year Challenging, measureable, consistent, reasonable, clear Annual objectives Short term milestones Year based Measurable, quantitative, challenging, realistic, consistent, prioritized Established at corporate, business/divisional and operation/functional level Should be all areas i.e. marketing, finance etc. Base for resource allocation

Strategic Planning
Summary & Key terms
Policies Means for achieving the objectives Guidelines, rules, procedures to support objective Usually separate for each function Intuition and analysis

change

Business and military strategy

Questions ?

55

Thank You

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