Monday, May 30, 2011

Week II: The Strategic Planning Process and Evaluating Current Performance

In relation to strategy development – whether short-term or long-term -, i) planning, ii) execution of the plans, and iii) evaluation of performance are undoubtedly the key steps known to most of us. Over the course of time, scholars, academia, and professionals have developed, implemented, and suggested various methods that emphasized on improving strategy development techniques. Among many of the exemplary suggestions the following three were our suggested reading on which I would like to reflect my opinion.

(A1) “How to Improve Strategic Planning”,
(A2) “Using the Balanced Scorecard as a Strategic Management System” &
(A3) “Reinventing Your Business Model”

In A1, the writers stress that the corporate planning process fails to impact on either the senior managers’ actions or the strategic direction of the company and attribute it to the process wherein “financial and operational data is collected, forecasts are made, and lengthy presentations are made”. For a better strategy planning process, the article suggests the following process: start with issues, bring together the right person, adapt planning cycles to the needs of each business, implement a strategic-performance management system, integrate human-resources systems into strategic plan, evaluate and tie compensation to performance.
Similarly in A2, the authors emphasize that “budgets often bear little direct relation to a company’s long-term strategic objectives because they don’t take enough consideration.” To overcome these issues, the authors propose a balanced scorecard system and argue the system provides assistance in translating the vision into practicality, communicating and linking, business planning, receiving feedback and learning from them.
Similarly in A3, the authors provide insight on business models and their importance. Stressing on value proposition, profit formulation, and resources allocation, they argue that some companies fail to survive, whereas others survive even in the most hostile business environment merely due to a lack of proper business plan.

In A2 (page 8), the authors have advocated for “Linking rewards to performance measures”. However, I opine that tying compensation to current performance has its draw backs and following example signals otherwise.
Charles Price, CEO and chairman of Citigroup, made US$53.1 million over a period of four years during his tenure (2003-2007). The figure is comprised of base salary and bonus he received for successfully increasing shareholder’s equity. Among others his primary investment instruments were on Mortgage Backed Security and Collateralized Debt Obligation. Investment banks, including Citigroup, heavily relied on these instruments for profit and the corporate America bestowed them with billions of dollars in bonuses until the occurrence of the Global Financial Crisis (GFC) that proved otherwise. The point is however once-in-a-blue-moon-incident the GFC was, it revealed that tying compensation to current performance needs a second thought to it. I hope that future scholars incorporate this loophole in compensation.

Important take-home message
Strategy development is no longer an exclusive domain of senior executive and a linear annual event instead it is a long term process that has both non-linear and re-entrant elements.
Please make comments if you disagree or add something on the thought.


  1. I agree with what you said in your reflection. One of the things that I took away from Organizational Management is that performance incentives definitely don't work. I was amazed at the vast number of studies that have been conducted over the the past 60 years across nearly every industry that support this, since it seems on its surface counterintuitive.

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