STRATEGIC

CONTROL

439

15.3

Strategic objectives
15.3.1 The characteristics of a good strategic objective

A vital component of a control system, particularly a cybernetic one, is appropriate objectives. An objective is a goal that can be measured, and it is expected that there would be at least one objective associate with each goal. Exhibit 15.6 takes part of Exhibit 6.16 and extends it to illustrate objectives. The evidence is that three to four objectives per goal are appropriate.!' DISCUSSION POINT 15.3
How might an organisation derive the appropriate objectives? appropriate for

Provide objectives for shareholders' social responsibility

goals and goals and objectives Exhibit 15.6.

in order to complete

Objectives have two main elements; a dimension, such as the number of disputes; and one or more values, such as 5% for the next three years. Objectives need to be relevant to the organisational mission and to be measurable. However, an objective needs to be more than relevant and measurable to be a good objective; it needs to provide a suitable REMIT for leader-managers to support what they are trying to achieve for their organisations. The characteristics of a good objective are set out in Exhibit 15.7. While one of the main uses of reactive control systems is for diagnosis - identifying non-planned behaviour - another is that they should energise people because they provide a challenge that is achievable. Exhibit 15.8 shows the well-established link between the difficulty of an objective and its energising properties.Pi':' Neither very easy nor very difficult objectives motivate people; the trick is to set objectives somewhere in the middle. Left to their own devices, managers will choose highly achievable 'official' goals for themselves to improve the predictability of their forecasts, ensure that there are only a few negative variances for their superiors to focus on and allow for organis-

440

I IMPLEMENTATION ANO CONTROL

EXHIBIT

15.6

Goals and objectives

Perspective Employees

Examples of goals To maintain good employee relations

Examples of objectives Reduce disputes by 5% each year for the next three years Reduce absenteeism to below 3% by next year All agreed enhancements to be completed within agreed timescale starting at year end 30% of revenues to be obtained from services introduced in the preceding three years, to be achieved three years hence Reduce customer complaints by 10% per year starting this year Complaints to be answered within three working days of receipt, starting immediately 95% of customers to be retained from one year to the next, with the current year as the base year

Business processes

The speedy implementation of new and enhanced information systems Increase the % of revenues from new services

Innovation

Customer

Enhance customer satisfaction

Shareholder

Increase shareholder value in line with other businesses in the same sector

Social responsibility

ational slack to allow for experimentation. It's vital for motivation, of course, that the people being motivated c;m influence the value of the measure that is achieved. If this isn't so, or isn't perceived to be so, then the objective won't motivate. Care needs to be taken to ensure that a measure captures the relevant features; it needs to have the appropriate level of completeness. If a sales manager trying to increase market share chose only to measure the number of sales visits made by their salesforce, then this could lead to dysfunctional behaviour on the part of the salesforce, with easy-to-visit outlets visited rather than the more difficult but perhaps more rewarding outlets in terms of sales. If the measure was too inclusive, measuring total sales or overall profitability for example, then it would be unlikely to be motivational. An objective should be chosen so that any deviation between the value achieved

STRATEGIC CONTROL

I 441

EXHIBIT

15.7

The characteristics of a good objective

Relevant Energising Measurable Insightful Timed directly related to the overall task/mission of the organisation presents an achievable and stretching target and thus is motivating allows achievement to be recognised improves learning defines when performance should have been achieved

EXHIBIT

15.8

Objective difficulty and the ability to energise

High
Q) Cl>

'0,

0;
Q)

El

~ :.0

Low
Easy Objective difficulty Difficult

and the objective will initiate thinking that leads to insights into how the unit operates and its relationships with its environment. The objective should also have a duration attached: it's no good setting an objective of doubling turnover, for example, if there is no limit to the time that can be taken in its achievement. Obviously, the timescale should be both relevant and realistic.

KEY CONCEPT

A goal is a general statement of intent, while an objective is a well-defined commitment to achieve. A good objective provides a manager with a REMIT: it has the characteristics of being Relevant, Energising, Measurable, Insightful and Timed.

DISCUSSION POINT 15.4

Can a goal have more than one quantifiable

measure associated with it?

Can you think of a goal for which there's no feasible objective?

15.3.2 Differences between financial and non-financial objectives The main differences between financial and non-financial objectives are listed in Exhibit 15.9.14 Financial measures have the attraction that they are relatively few in number, standardised through accounting convention, (almost) universally understood and together provide a coherent set of measures: profits are directly linked to total revenues and total costs; total revenues are linked to sales price and sales

442

I IMPLEMENTATION

AND CONTROL

EXHIBIT 15.9

Differences between financial and non-financial objectives (adapted from Meyer. 1996)
Financial measures
Few Standardised Closely related to each other (e.g. financial ratios) Endlessly inventable Driven by internal. non-financial, functional interests (e.g. marketing) and external

Non-financial

measures
rapidly unconnected

Many - and multiply Unrelated, frequently

Anarchic - non-standardised

Few innovations Limited pressure to increase the number of measures

manufacturing, initiatives Not closely linked to the processes that people carry out Direct linkage to (usually past) financial performance

(e.g. ISO 9000)

Closely linked to the processes that people carry out Linkage to financial require statistical over years performance may

evidence acquired

Generally discriminate and bad performance

between good

Tend to 'run down' with use over time

volume; total costs are linked to variable and fixed costs; and so on. Non-financial measures are deficient in all these areas. On the other hand, financial measures aren't often closely related to the processes that people are engaged in, so they lack motivational power. Non-financial measures tend to 'run down' over time, in that they eventually become obsolete as the processes with which they are associated change.

15.4

Pro-active control 15.4.1 The fundamental of pro-active control

So far the discussion has been about reactive control, which is what people often mean when they use the term control. Reactive controls have the inherent weakness that an objective will have been missed before action is taken to remedy the situation. A more subtle form of control is pro-active control, whereby the environment is monitored and the organisation changes its processes before the environment significantly affects it. Some sophisticated central heating systems have such a facility: a thermometer placed outside the house measures the rate of change of the outside temperature, and if the temperature is falling a signal is fed forward to activate the boiler before the extra cold seeps into the house and before the (internal) thermostat has registered any fall in temperature. This is shown in the top portion of Exhibit 15.10. The monitoring of the environment (the change in the outside temperature) allows compensation to be made for the otherwise inevitable lag between an internal temperature fall and the resultant injection of heat to restore the required temperature. The modulations shown in Exhibit 15.2 will be reduced and smoothed out.

STRATEGIC

CONTROL

443

EXHIBIT

15.10

Pro-active control

r':
.."..............
Gas ~ Cold

Pro-active control

.................
,

Output Comparator Objective

Reactive control

.....,

Pro-active control provides the possibility of protecting processes from a severe buffeting caused by environmental change: to use a nautical analogy, the hatches are battened down and the sails trimmed before the main force of the storm reaches the ship.

KEY CONCEPT

Reactive control is invoked only after an undesirable state of affairs has been reached. It involves feeding information back from the output of the process to alter the inputs. Pro-active control is a way of preparing the organisation for environmental change, involving feeding forward information from the environment to the process and its inputs. For most organisations a combination of both types of method of control will be used. Both cybernetic and adaptive systems can utilise reactive and/or pro-active control.

15.4.2

Combining reactive and pro-active control

The preceding discussion indicates that effective strategic control has to combine controls that apply after the event and those that try to anticipate events. These considerations lead to a fuller definition of control than the working definition: strategic control is now defined as 'the continuous critical evaluation of plans, inputs, processes and outputs to provide information for future action' .15 Thus control isn't seen as episodic, although for practical reasons there is likely to be some strong periodicity in the reporting period; rather, it's performed simultaneously with strategic thinking. 15.4.3 Forms of strategic control Effective strategic control is concerned both with controlling the present processes and with preparing for the future. It combines the reactive with the pro-active. To do this appropriately, leader-managers need to employ the six types of strategic control listed

444

I IMPLEMENTATION AND CONTROL

EXHIBIT

15.11

Types of strategic control system

Type of control
Pro-active Assumption focused environmental monitoring of the assumptions under

Description

which strategy ha-s been selected Surveillance unfocused environmental early warning Climate Implementation Operational monitoring in order to provide

of changes in the business environment and maintaining a favourable business

aimed at establishing environment

focused on the implemention

of strategic change

internally focused on making the present processes more effective and efficient

Crisis Reactive

managing

potentially

damaging,

rapidly arising issues

in Exhibit 15.11. The types are ordered broadly according to their degree of pro-activity, with assumption control considered the most pro-active and crisis control the least.

15.5

Assumption control
Assumption control focuses on the values of the variables used in building scenarios. Scenarios are composed of two types of variable: predetermined variables, whose values are deemed to be the same for all scenarios; and scenario variables, whose values diHerbetween scenarios. Scenarios are used to test the robustness of possible strategies, and in: this testing the organisation is taking a (single) view of the value of the predetermined variables and a view of the range of values taken by the scenario variables, i.e. within which the strategy remains suitable. The monitoring of the continuing suitability of a strategy requires the monitoring of the value of sensitive variables. Assumption control is thus concentrating on strategic uncertainties." For example, suppose that a European firm is experiencing increasing demand for its products in the USA, and that two possibilities are proposed to cater for this: either to open a new factory in the USA or to continue to export from its home base- in Europe. Two important factors in the scenarios are the level of protectionism that the US government might impose against foreign manufactures and the -$ exchange rate. When developing scenarios, three levels of protectionism were considered and two values for the exchange' rate,' as illustrated. in.Exhibit15 .12. Suppose that the strategy to open the factory in the USA would appear to be the better option as long as the -$ exchange rate stayed above 1:0.8 and if the threatened level of protectionism stayed high. Then the company would monitor to see if the predictions of the level of protectionism and the -$ rate continued to remain within the bounds shown in Exhibit 15.12. If it looked as though these bounds would be broken, then the decision to open the factory in the USA might be rescinded.

STRATEGIC CONTROL I 445

EXHIBIT 15.12

Example of assumption control ~ e

c: ctJ .c:
Cl> Cl

2: 1.2

'-' x Cl>

Monitor region
1: 0.8
Low

'1
QV

~
Medium Level of protectionism High

15.6 Surveillance control

Assumption control will be fairly blinkered even though the scenario planning will have helped to consider events of low probability but of potentially high impact. Surveillance control is 'early warning control', akin to picking up a blob on a radar screen. Surveillance control is a broad search and its diffuseness means that it's not a job that can be left to a single individual or group. Many people in the organisation should be involved in scanning both the remote and operating environments. This will often occur quite naturally: for example, salespersons meeting their customers and finding out about competitors, specialists reading their specialist journals, and many of the workforce watching news and current affairs programmes on TV. The problem is with channelling this knowledge to the places where it can be acted on. Establishing a business intelligence unit is one way of doing this, although this formal approach is only really open to large organisations.

15.7

Climate control
In Chapter 6, a sharp distinction was made between the operating and remote environments, with the remote environment that part of the environment where individual businesses have no influence. In fact, the distinction isn't quite as watertight as that, and firms use public relations to influence elements in the remote environment.

15.7.1 A definition of public relations

The Institute of Public Relations'? states: 'Public relations practice is the discipline which looks after reputation with the aim of earning understanding and support, and influencing opinion and behaviour.' Note that the term public relations is used in at least two senses. First, it's about the quality of the relationships with those who constitute an organisation's publics. Second, it's about the ways and means used to achieve favourable relationships.

o I se U ss ION
POINT 15.5

The term publics hasn't occurred yet in this book. What term has been used instead?

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IMPLEMENTATION

AND CONTROL

Two types of public relations activity can be identified. First, there is reactive public relations, concerned with rapidly rising issues, such as crisis management and rumour control. These will be considered in Section 15.10. Second, there is pro-active public relations, which aims to generate an appropriate climate within which on-going business strategies can be developed and enacted. Before moving on, it is worth contrasting public relations with the two associated areas of advertising and publicity. Advertising is specifically directed at businesses and individuals downstream in the value chain, whereas public relations encompasses much wider interests. However, since both are concerned with reputation, advertising and public relations have a common interest. It is important that the functions responsible for advertising and for public relations co-ordinate their actions and responses. Publicity is an act or public device designed to attract public attention or support.l" So there is no clear distinction between public relations and publicity, but publicity tends to be short term and is not necessarily positive for the organisation. The most important distinction, however, is that publicity isn't controlled by the organisation; rather, it originates from other sources.

15.7.2 Pro-active public relations

achieve underSometimes public r issue, as suggested years by tra~sociations such as the 'onnection with a specific

EXHIBIT

15.13
by an international consultan cu mer: a potential n promptnes tlyacross
0 different

publics or

audiences (such as a complaining charities, a personal investor) vari both across companies and signifi This would suggest that, while fir promotions,

vee,

a fund raiser for

, accuracy and completeness ments within the same organisation.

mg to the direct effects of advertising and

IS

their total effectiveness

undermined

by the indirect effects of word of

mouth, resulting in an unsatisfactory Most organisations

corporate image that could harm their reputation.

need to respond more positively to these people.

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