Strategy P. 19

Audit failures rarely result from the deliberate collusion. Instead, auditors may find it psychologically impossible to remain impartial and objective.

Are strategic takeovers more profitable than financial deals, which are usually hostile transactions?

Traditional accounting-based performance measurement systems are unsuited to current organizations in which the relationships with employees, customers, suppliers, and other stakeholders have changed, say these authors. Established measures lack the focus to evaluate intangibles such as service, innovation, employee relations, and flexibility. A stakeholder approach to performance measurement captures strategic planning issues, while the choices a company makes in strategic planning direct the design of the performance measurement system. Atkinson et al. define two groups of stakeholders: environmental (customers, owners, and the community) and process (employees and suppliers). The company exists to serve the objectives of the stakeholders, which become its primary objectives. What the company expects from and gives to each stakeholder group to achieve its primary objectives are its secondary objectives. The company must plan for and negotiate explicit and implicit contracts with stakeholders and evaluate whether the plan meets the expectations of all stakeholders. Employees design, implement, and manage processes to achieve the secondary objectives, expecting the primary objectives to result. Therefore, according to the authors, the company's performance measurement system must evaluate all processes based on their contribution to achieving secondary objectives. In their view, the system, which is the heart of a company's control system, must: 1. Help evaluate whether the company is getting expected contributions from employees and suppliers and returns from customers. 2. Help evaluate whether the company is giving each stakeholder group what it needs to continue to contribute. 3. Guide the design and implementation of processes that contribute to the secondary objectives. 4. Help evaluate the company's planning and implicit and explicit contracts with its stakeholders. Performance measurement has a coordinating role, in which it directs attention to the company's primary and secondary objectives. It has a monitoring role, in which it measures and reports performance in meeting stakeholder requirements. And it has a diagnostic role, in which it promotes understanding of how process performance affects organizational learning and performance. The authors examine the performance measurement system at the Bank of Montreal, whose objective was to maximize long-term return on investment for shareowners. The bank wanted its system to: 1. Focus decision makers on what drives success. 2. Help management understand and communicate to people outside and inside the bank what contributes to primary financial objectives. 3. Diagnose what drives current profitability. 4. Form a basis for performance management. The authors' model is a vital system that includes both financial and nonfinancial measures of performance to help an organization's members understand and evaluate the factors for success.

After nearly ten years of IT outsourcing, managers are beginning to look for other ways to manage IT investments. Three factors make rethinking the logic of managing IT resources important: (1) there is increasing use of a hybrid multimedia platform to link business processes with suppliers and buyers; (2) managers expect more business value from IT investments; (3) there are fundamental changes in the external market for IT products and services. Venkatraman introduces a framework, the value center, for managing IT resources. The center consists of four building blocks of value from IT resources to allow companies to balance the role of IT in today's operation with tomorrow's requirements. The cost center is the traditional way that companies have managed most IS activities. They allocate resources based on quantitative payback criteria, operate the infrastructure independent of business strategy, design the IS organization as a support unit reporting to finance, and assess it with cost-based indices. The second building block, the service center, is distinguished from a cost center in several ways. There is no presumed classification of activities into cost or service centers. A help desk may be a cost center activity or a service center activity, depending on whether the expected benefit relates to business strategy. A company can assess a help desk in terms of the degree of perceived contribution to specific business processes, rather than in terms of operating costs. The degree of service orientation further distinguishes the service center. The investment center, the third building block, has a strategic focus and tries to maximize business opportunity from IT resources. It focuses on scanning, selecting, evaluating, and transferring emerging technologies to the business. IT also licenses technology and does beta testing to create new future-oriented business capabilities. The final building block, the profit center, focuses on delivering IT products and services to the external marketplace. When a company intends to leverage its best-of-industry IT proficiency, it can go beyond licensing to create a new unit to market the expertise commercially and create new products and services. Not only a source of incremental revenue, the profit center provides valuable experience and market knowledge to IT managers. Venkatraman provides questions that business and IT managers can ask in reorienting their IT operations and managing from a value center perspective. Is the IT organization's purpose to repair current weaknesses or create new business capabilities? How much should we spend on IT to support the value center and how should we measure that allocation of resources? What should we outsource? How can we assess the value from IT resource deployment? Who has overall responsibility for the value center? The author proposes designing the IT organization as a solutions integrator to join the various components in delivering business solutions. Overall, companies need to find ways to approach managing IT resources that go well beyond outsourcing.

Will the Japanese business system survive the current recession?

Does the strategy of linking market share to profits really work? This investigation argues that there is simply no causal relationship between market share and profits. In highly volatile industries, market-share-based strategies can be misleading. The authors provide evidence from two studies, one using the FTC Line of Business data and the other employing data on the performance of sixty-three companies in three countries. In the first case, companies that maintained stable operations were more profitable than those that maintained stable market shares. In the latter, Japanese companies in a wide variety of industries had more stable operations than comparable U.S. firms.

Although few would deny that vision serves a critical role in today's organizations, in practice, most managers are intimidated and frustrated by the challenge of developing one. The author explores the notion of vision by first explaining how and why visions work. He presents a template, tested in organizations representing the corporate, nonprofit, and public sectors, that outlines the principal themes necessary for an effective vision. Because not all great visions succeed, the author analyzes why they sometimes fail.

What lessons do IBM's failure in the 1980s and early 1990s and its apparent successful comeback have for other large corporations? In an extensive study of the company's history (only part of which is covered here), the author finds two factors that contributed to IBM's difficulties: it ignored its commitments to customers to provide effective, high-quality technology and service support, and it broke its implied promise to employees to provide job security. Large corporations will survive only if they can avoid some of the hazards that IBM has faced.

Positioning products in a complex market can be one of a company's most difficult decisions. In determining whether to combine or maintain separate product lines, Hewlett-Packard used an approach it calls strategic market modeling (SMM) to design "what if" scenarios and run simulations to predict market behavior. SMM combines demographic, user needs, and competitive perception data into a database for testing alternative positioning strategies. The author describes HP's development of SMM and the lessons learned.

Many firms commonly place expatriate women in positions abroad, yet know little about the women's job adjustment and performance. The authors have studied in depth the factors that help and hinder foreign women in one particularly difficult environment -- Japan -- and found that, while women can be successful and bring some advantages to the assignment, they face special challenges. Based on the findings from their study, the authors suggest how firms can increase the effectiveness of foreign women in assignments abroad.