2. Literature survey
2.5. Business value
2.5.1. Strategy evaluation
Chapter 2: Literature survey
that project management offices (PMOs) play a critical role in that they are used to govern the execution of projects to realise the strategic objectives. However, there were contrasting views on the contribution of projects in the implementation of a corporate strategy. It emerged in the review of the literature that the way projects are selected and managed may limit the capability to realise strategic goals. This points out to why it is important to manage project portfolios to realise the expected benefits, which is the aim of the first research questions on enablers of effective strategy execution through project portfolios. In addition it was reported that traditional project selection methods often fail to consider both the uncertainties in projects and the interaction among projects thus limiting their use in realising the corporate strategy.
Furthermore it was noted that although business strategy usually requires the development of projects, however organisations fail in implementing strategies even though they employ project, programme and portfolio management techniques.
Chapter 2: Literature survey
since it creates organisational alignment and facilitates the process of translating strategy into action. Another importance and contribution of PMS is its use in communicating the performance achieved in the execution of the strategy (Micheli &
Mura, 2017). They contributed that management needs to be aware of the use of diverse types of performance indicators which need to be a balance of financial and non-financial measures. They also pointed out that “the use of non-financial indicators is tightly intertwined with organisational effectiveness”. In addition to enabling communication, Micheli & Mura (2017) highlighted that relating strategy and performance measurement could align attitudes and behaviours of employees facilitating the attainment of organisational goals. Furthermore they report that the effective implementation of a PMS may lead to improved organisational and innovative performance.
The importance of measurement and the ability to quantify the efforts of the organisation is emphasised by a number of authors. Sheehan (2006) highlights that measurement is a powerful tool because what gets measured is managed and what is managed, is done. Srivastava (2013) proposes a model of strategic performance factors (SPFs) which could be useful in measuring the right thing in the right way to ensure effective strategy execution. He also adds that management of SPFs such as situation and actor is a further value addition to the debate on balancing lead and lag measure or financial and non-financial measures.
The introduction of the Balanced Scorecard (BSC) saw its adoption by industry and different organisations apply the tool to meet their unique requirements. Kaplan (2005) presented a balanced scorecard measurement approach that organises performance objectives and measures in four perspectives:
“The financial perspective describes the tangible outcomes of the strategy in traditional financial terms, such as return on investment (ROI), shareholder value, profitability, revenue growth, and lower unit costs”.
“The customer perspective defines the drivers of revenue growth. It includes generic customer outcomes, such as satisfaction, acquisition, retention, and growth, as well as the differentiating value proposition the organisation intends to offer to generate sales and loyalty from targeted customers”.
“The internal process perspective identifies the operating, customer management, innovation, and regulatory and social process objectives for creating and delivering the customer value proposition and improving the quality and productivity of operating processes”.
“The learning and growth perspective identifies the intangible assets that are most important to the strategy. The objectives in this perspective identify which jobs (the human capital), which systems (the information capital), and what kind of climate (the organisation capital) are required to support the value creating internal processes. Managers use the scorecard to describe and communicate their strategy, to align business units and shared services to create synergies,
Chapter 2: Literature survey
to set priorities for strategic initiatives, and to report on and guide the implementation of the strategy”.
The BSC alignment model, depicted in Figure 2.7, illustrates how an organisation creates value. Kaplan (2005) explains that the 7-S model and the BSC alignment model both articulate that effective strategy implementation requires a multi- dimensional approach and that they both stress interconnectedness. He concludes by highlighting that although the two strategy implementation frameworks were developed completely independently from each other, the 7-S model and the BSC align remarkably well. He highlights the strength of the model in that the application of the BSC to diverse organisational units aligns companies’ structure to business unit and corporate strategy.
Figure 2:5: Balanced Scorecard strategy map (Kaplan, 2005)
Business managers value tools that are practical and enable them to gain insights in order to make informed decisions. It could be inferred that the Balanced Scorecard was adopted by industry due to the value it brought to organisations. Other models on performance management were noted and the vastly available literature on these models demonstrate that researchers are presenting alternative models to enable management to report on the value created by the organisation. Its wide use and vast application has led to insight to be gained over time, which enabled Kaplan (2005) to demonstrate its value through the development of strategy maps (Figure 2.7) that show how performance measures are linked to strategy.
Another model that was reviewed is the one by Flitman (1996) which is depicted in Figure 2.8. It is aimed at the development of balanced measures for a strategic
Chapter 2: Literature survey
initiative. It is important to note that the design of strategic performance factors (SPFs) will be unique for an organisation as business models adopted by organisations differ.
The plans developed to execute and realise the company strategy would depend on the capability and capacity of the organisation.
It is the uniqueness of the company that will lead to the development of SPFs, depicted in Figure 2.8, that are relevant to manage the effective execution of their company strategy. Srivastava (2013) explains that each strategy is unique and requires different types of performance measures and although the company may give different weightage to performances measures considering the strategic direction, the company cannot ignore the performance measures of strategic importance for long-term sustainability. They state that there are also limited attempts to develop the structural relationships among the SPFs for effective performance management.
Figure 2:6: Framework for measurement development (Flitman, 1996)
Enterprises exist to create value through the realisation of their strategy. It is important to measure performance against the different strategic objectives but it is more important to articulate the achievements in terms of the corporate strategy. It is with this in mind that Lukac & Frazier (2012) stated that “senior executives, therefore, should be adept both at developing strategic plans that provide competitive advantage and at communicating how they will provide shareholder value. They should be able to link strategy to value”. It was found by Meskendahl (2010) that “there are a few studies exploring single aspects of the linkage between strategy, project portfolio management, and business success”. Serra & Kunc (2015) clarified that successful projects deliver the expected benefits thus creating strategic value to the business.
They explained that “careful management of each project ensures the delivery of
Chapter 2: Literature survey
outputs, enables outcomes, and then supports the realisation of the right benefits.
Although benefits are not the only criteria to evaluate project success, they are a measurement of how valuable a project is”.
Lukac & Frazier (2012) cite a Deloitte’s method of articulating value and ways of affecting value drivers. The method is depicted in Figure 2.9 and demonstrates how particular actions contribute to the shareholder value. They also caution that in addition to being relative, value has another important characteristic: value is purposeful. This is another contribution from literature that is adopted in the quest to compile a conceptual model for effective strategy execution to achieve strategic objectives.
Figure 2:7: The Deloitte’s method of articulating value (Lukac & Frazier, 2012)
Further to the Deloitte’s method of articulating value, Lukac & Frazier (2012) attempt to illustrate how purposeful value is created by depicting how strategic maps can be linked to shareholder value as demonstrated in Figure 2.10. It is emphasised by Cocks (2010) that effective execution of the company strategy is a key attribute of successful organisations. Serra & Kunc (2015) concur that “good business strategies are those that deliver stakeholder value, which is the organisation's long-term cash generating capability or the ability to provide value”. They point out that benefits are derived and achieved from projects through the use of programme and project management techniques. They confirm that the creation of value for business, through the successful execution of the business strategy, strongly depends on programmes and projects delivering the expected benefits. They presented a way in which organisation could demonstrate the shareholder value derived from the execution of strategic initiatives, which is illustrated in Figure 2.10 below. The figure is not meant to share the details but to illustrate the concept on how the strategic intent of the organisation is linked to shareholder value. This also illustrates the link between the strategic intent which is unique with the shareholder value which is common.
Chapter 2: Literature survey
Figure 2:8: The model linking strategic maps to shareholder value (adapted from Lukac
& Frazier, 2012)
The model depicted in Figure 2.10 thus demonstrates how strategic initiatives could be linked to shareholder value. Furthermore, it enables business leaders to visualise and evaluate how well they have realised the business strategy by relooking at the strategic objects that aim to achieve the vision and mission of the organisation. This is the notion of effective strategy execution as conceptualised in this research.
It is at this stage that the measures of success need to be clearly defined to reduce subjectivity. Each strategic objective and its targets need to be defined in measurable terms to make them tangible and define how success will be measured. The question at the back of the head of business leaders should be how the organisation will know when is has achieved its objectives and which indicators will alert it that it is deviating from the intended benefit.
It is apparent that the key to assessing the effectiveness of strategy execution does not lie only in determining performance measures, but how these performance measures are defined is critical. Executives need to be clear on what they aim to achieve from the reporting process and define appropriate performance measures to enable them to assess how well the company is doing against its strategy.
Once the strategic initiatives are defined in terms of objectives and measurable targets, key performance measures are determined, then there is a need for a framework which would enable management to not only implement the set strategy but to also provide reports on progress made. Srivastava (2013) advises that the identification of the right combination of SPF coverts the abstract vision into actionable targets. They add that the identification of the right set of SPFs helps management focus on the right issue, acquire appropriate data and resources, develop required measures and monitor the execution of the strategy.
Chapter 2: Literature survey