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Graduate School of Business and Law

Strategy

Topic 11 –Business Strategy, Competitive Advantage and

Performance Measurement

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August 2016

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Contents

Introduction 1
Learning objectives 1

Student activities 4

Summary 5

References 5

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Introduction
Donald Rumsfeld: ‘As we know, there are known knowns; there
are things we know we know. We also know there are known
unknowns; that is to say we know there are some things we do
not know. But there are also unknown unknowns – the ones we
don’t know we don’t know’ (Graham, 2014).
There is a crucial link for the firm between creating business strategies and
performance measurement (O’Shannassy, 2017). Effective performance
measurement provides a critical feedback opportunity to the board of
directors, executives and managers in the corporation allowing them to
assess performance, reflect, review business strategy and then implement
the next iteration of the strategy (Kaplan and Norton, 1992).
Company directors, executive and managers as we have seen in the course
so far are dealing with much uncertainty in the business environment
including competitor behaviour, shifts in technology, cycles in financial
markets, customer behaviour, social trends (e.g. the location of cheap labor,
the location of expensive labor), environmental trends and broader economic
uncertainties (e.g. uneven Gross Domestic Product per capita in the
European Union counties) (O’Shannassy, 2010). The shifts in technology are
having a substantial impact on business – the development of the internet,
the growth of digital media, improvements in computer chip processing
capacity, factory automation, the use of robotics in industry – all these
technologies are having an impact on their own and in some instances with a
compounding effect on industries (e.g. technologies associated with the Tesla
motor vehicle). These shifts in technology will also have implications for firm
ability to achieve and retain competitive advantage (O’Shannassy, 2008), as
well as industry productivity in the future. Performance measurement data
can help strategy workers better understand the success or failure of their
business strategy using tools like the balanced scorecard (Fitzroy, Hulbert
and O’Shannassy, 2016). In turn the analysis provided can inform the trouble-
shooting and problem-solving of business strategy if there is need for
adjustment, or the analysis can provide reinforcement of the vision
(O’Shannassy, 2016).
In Unit 11 we look at the how the organisation can develop of performance
measurement tools at the corporate level and at the business level for the
firm as part of the strategic management process. Then we take a close look
at the famous Kaplan and Norton (1992) article on balanced scorecard
design and use of leading and lagging indicators of performance. This is
followed by Schoemaker and Tetlock (2016) who provide insight into the great
challenges of forecasting performance how firms can improve the quality of
their forecasting.
In the Student Activities section of Unit 11 the case study is Making Balanced
Scorecard Work to Implement Business Strategies at Magic Technology. We
look at the web sites of General Motors Company and Huawei Technologies
Co. Ltd to encourage class discussion and reflection.

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Learning objectives
By the end of this topic you should be able to:
1. Recognize the iterative nature of performance measurement and strategy
development
2. Design a performance management system
3. Apply the balanced scorecard measurement system at the business unit
level
4. Use the balanced scorecard measurement system at the corporate level
5. Understand why many firms have adopted the principles of corporate social
responsibility

To assist in achieving these learning objectives the following readings are set:

Reading 1

Fitzroy, P., Hulbert, J. and O’Shannassy, T. 2016. Strategic

Management: The Challenge of Creating Value, 3rd Edition,
(Chapter 12) Routledge Publishing, London, UK.

Chapter 12 looks at the link between creating business strategies and

performance measurement. Performance measurement plays a major role in
strategy development as it provides insight into the leading (e.g. innovation and
learning, customer perspective) and lagging (i.e. financial performance) effects of
strategy execution. There is also a role for short term performance measures
(e.g. weekly sales) and long term performance measures (e.g. five years average
return on equity) to develop the best possible dashboard to let executives and
managers understand quickly and effectively how the firm is coping with the
business environment and progressing on its strategy. This performance
measurement feedback helps to inform the next iteration(s) of strategy
development as the firm learns more about its internal and external effectiveness.
An integrative model is presented giving clear criteria on what to include in the
performance measurement tool and how it helps to identify the drivers of firm
performance.
The chapter gives direction on development performance measurement tools for
the business level of the firm and the corporate level of the firm introducing
concepts including synergy.
Given the increasing importance of environmental sustainability, appropriate
performance measures in this area are discussed.

Reading 2
Kaplan, R. and Norton, D. 1992. ‘The balanced scorecard –
measures that drive performance’, Harvard Business Review,
January-February: 71-79.

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Kaplan and Norton (1992) explain that performance management should be an

integral part of every organisation’s strategic management process. Performance
management should also be an evolving, dynamic activity with mew measures
developed to better understand new strategies and/or innovations undertaken by
the organisation.
Kaplan and Norton (1992) pick up on that need for something more than financial
reports to understand the performance of a business. They conducted a year-
long research project with 12 companies at the leading edge of performance
measurement practice. The concern was that financial reporting when it is
complete is often too late to help manage firm resources – there are other
measures of firm performance that lead the lagging financial effect. The outcome
was the balanced scorecard that:
…includes financial measures that tell the results of actions
already taken. And it compliments the financial measures
with operational measures on customer satisfaction,
internal processes, and the organization’s innovation and
improvement activities - operational measures that are the
drivers of future financial performance (Kaplan and Norton,
1992: 71).
The selection of measures should be informed by the organisation’s strategic and
financial objectives. Well considered measures in each of the four perspectives
helps to keep company directors, executives and managers focused on the
organisation vision.

Reading 3
Schoemaker, P. and Tetlock, P. 2016. ‘Superforecasting: How to
upgrade your company’s judgement’ Harvard Business Review,
May: 72-78.

Organisations, executives and managers have a poor track record of predicting

uncertain events. This is because the forecasters work is influenced by cognitive
biases, a desire to influence within and outside the organisation, and reputational
concerns. Poor forecasting work can have serious consequences for the firm.
Executives and managers should distinguish between different forecasting
challenges. First there are the easy to predict outcomes that can be forecast
accurately using econometric or operations management tools. Second are the
challenging, vexing, complex problems that are difficult to quantify (e.g.
emergence of technology from Silicon Valley) – these challenges are simply too
difficult to forecast. Third are the problems where use of data, analysis and logic
with some careful judgement and questioning an accurate forecast can be
developed reliably and focus time and effort here.
Research looking at 25,000 forecasters and one million predictions in a large
scale multi-year prediction study revealed a series of practices that promote more
accurate forecasting:
1. Training in statistics and
2. Forecasts should be debated in teams
3. Performance should be tracked
4. Feedback needs to be provided promptly

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In practice companies should keep real-time descriptions of the basis on which

top management teams make their forecasting judgements – matters including
assumptions, data sources and external events should be documented.
Schoemaker and Tetlock (2016) note that the success of forecasting is indicated
by frequent precise forecasts, accurate forecasts as well as accuracy of
comparison measures.

Websites
General Motors Company

Please visit the following link to the General Motors Company web site at:
https://www.gm.com/
After viewing the web site what would you consider including in General motors
Company balanced scorecard under the perspectives:
1. Innovation and learning
2. Customer
3. Internal business
4. Financial.

Student activities

Reflection on Creating Business Strategies

Unit 11 Business Strategy and Performance Measurement

Brown (2009) explains that all companies struggle with challenge of what to include
and what to exclude from the balanced scorecard. Organisations fail to account for
matters including frequency of variation, reliable and best practice data sources, the
balance of leading and lagging measures and/or measures that promote the wrong
behaviours.
On reflection what measures could the business you work for use as a leading
indicator? And as a lagging indicator? Reflect.

Class Discussion and Assessment Activity

Creating Business Strategies Harvard Business School Case Studies
Magic Technology

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In this case study look at the influence implementing the balanced scorecard has on
the strategy of Magic Technology.
How can you improve shareholder and stakeholder value?
What role can balanced scorecard play in improving strategy at Magic
Technology?

Great Companies, Great Products and/or Services, and Great

Strategists
Huawei Co. Ltd.
Discussion Board Activity

Please view the web site at:

Huawei is a Chinese telecommunications and network equipment provider and
one of the most valuable brands in the world. Huawei is the world’s third biggest
manufacturer of smartphones.
Sixty five per cent of Huawei revenue is derived from outside China.
Can you think of appropriate performance measures for a business such as
Huawei’s smartphones? And at the corporate level including the remaining
businesses in the group?

Summary
In Unit 11 we have looked at the famous work of Kaplan and Norton (1992) on
the balanced scorecard and given consideration to performance measurement
design at the corporate level and at the business level. Schoemaker and Tetlock
(2016) have given insight into improving forecasting practices to yield more
effective performance measurement work. In the Student Activities we have
looked at the Making Balanced Scorecard Work to Implement Business
Strategies at Magic Technology case study and the web sites of General Motors
Company and Huawei Lo. Ltd.

References and Bibliography

Brown, M.G. 2009, ‘What’s missing from your scorecard? Eight vital – but often
overlooked – metrics’, Harvard Business Review, May:

Fitzroy, P., Hulbert, J. and O’Shannassy, T. 2016. Strategic Management: The

Challenge of Creating Value, 3rd Edition, Routledge Publishing, London, UK.

Schoemaker, P. and Tetlock, P. 2016 ‘Superforecasting: How to upgrade your

company’s judgement’, Harvard Business Review, May: 72-78.

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Kaplan, R. and Norton, D. 1992, ‘The balanced scorecard – measures that

drive performance’, Harvard Business Review, January-February: 71-79.
Graham, D. 2014, ‘Rumsfields knowns and unknowns: The intellectual history of
a quip’, The Atlantic, 27 March 2014, https://wwhttps://www.theatlantic.com/
politics/archive/2014/03/ w.theatlantic.com/politics/archive/2014/03/rumsfelds-
knowns-and-unknowns-the-intellectual-history-of-a-quip/359719/ viewed 4
September 2017.
O’Shannassy, T. 2008. ‘Sustainable competitive advantage or temporary
competitive disadvantage’, Journal of Strategy and Management, 1 (2): 168-180
O’Shannassy, T. 2010. ‘Investigating the role of middle managers in strategy-
process: An Australian mixed method study’, Journal of Management &
Organization, 20 (2): 187-205.
O’Shannassy, T. 2016. ‘Strategic intent: The literature, the construct and its role in
predicting organization performance’, Journal of Management & Organization, 22
(5): 583-598.
O’Shannassy, T. 2017. ‘Associate editor reflections on the Progress in and Future
of strategic management research in Journal of Management & Organization,
Journal of Management & Organization, 23 (4): 473-482.

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