Total Quality Management Vol. 18, Nos. 1 –2, 181 –187, January –March 2007 Different Approaches to Strategy Formulations GRATIENNE SIONCKE & ANN PARMENTIER Vlerick Leuven Ghent Management School, Belgium Introduction A clear and well-defined strategy formulation and strategy implementation, which are important corporate governance issues, are needed to help a manager take the right decisions to obtain superior performance. However, defining and implementing the strategy are two difficulties in many organizations. There are many reasons why organizations are not able to meet their performance expectations (Verweire & Van den Berghe, 2004). One of the most obvious reasons is the inability of companies to define and create customer value (and hence shareholder value). Organizations such as hospitals and nursing homes find it extremely difficult to define a unique strategic position in an ever-changing competitive arena within the healthcare sector. Trying to excel in all fields (e.g. delivering service, best price, operational excellence, . . .) is an illusion. The real value proposition has to be mapped by considering the most important dimensions of customer value. However, having a clear vision and well-defined strategy is not enough. Kaplan & Norton (2001) see the ability to execute the strategy as an even bigger management challenge than determining the right vision and the quality of the strategy itself. They point to the importance of adequate performance management systems as a critical success factor for implementing strategies. More and more companies are acknowledging that performance measurement systems need a focus, by linking them to the strategy of the organization. Many academicians and performance management consultants see a solution in new performance measurement systems. These initiatives perhaps seem to be attractive but there is still a lack of integration. Therefore, rather than developing new performance measures or measurement systems, we need a more integrated approach towards performance management. Integrated performance management is not only about focus, but also about alignment. The advantage of the framework designed by Verweire & Van den Berghe (2004) is that it helps the organization to formulate, implement and change its strategy in order to satisfy its Correspondence Address: Gratienne Sioncke, Vlerick Leuven Ghent Management School, Foramen, Vlamingenstraat 83, 3000 Leuven, Belgium. Email: Gratienne.sioncke@vlerick.be 1478-3363 Print=1478-3371 Online=07=1–20181–7 # 2007 Taylor & Francis DOI: 10.1080=14783360601053350 182 G. Sioncke & A. Parmentier stakeholders’ needs. Moreover, it introduces a new dimension of maturity alignment which can help an organization in choosing the right performance measurement systems. The aim of this research study is to define the value propositions and to stipulate the maturity level of both a hospital and an elderly care home. A convenient sample of eight hospitals (members of Minoz) and 11 nursing homes (members of Foramen) was selected. In these organizations, general managers and other employees of the management department were asked to complete a questionnaire in which they could point to the most relevant value propositions for their organization. Secondly, the ‘maturity assessment tool’ (from Vlerick Leuven Gent Management School & Suez Group, Electrabel) has been spread among the same respondents to analyze the maturity level of the organization. From Good to Great: What does Strategy Formulation and Strategy Implementation Mean in Great Companies? Identification of a vision of company’s strategic direction, the ability to engage an employee team in committing to and working toward the goals supporting the vision, and the importance of confrontation with employees, are all issues related to strategic management (Clegg, 2005). There are many very bright people trying to run a business but they fail because they lack certain kinds of knowledge, not knowing what questions to ask (Lundin, 2005). Leading an organization means in fact learning what questions you will need to ask about financing, marketing, competition and trends. What makes the difference between organizations with ‘great strategies’ and organizations with a strategy just reaching the average? In order for a business to increase the likelihood of long-term sustainability, leaders really have three core responsibilities: (1) determining the organization’s vision, direction and purpose; (2) aligning the organization; and (3) empowering to execute the strategy (Walsh, 2005). According to the authors, organizations with ‘great strategies’ have thought seriously about the following key strategic questions. (1) Who do we serve?; (2) What do we provide?; (3) How do we provide this successfully?; (4) What is our value proposition to our customers? Peng et al. (2005) describe the question on the scope of the firm as being one of the most fundamental questions in strategic management. We argue that a focus on institutional relatedness helps to answer this question. In this paper, we will focus on the question ‘what are the value propositions to our customers’, what is so important in a hospital or elderly care home that a manager would sacrifice profits and suffer pain to adhere to it? The answers to these questions will help define the organization’s core values as described below. Strategy-formulation: The Value Proposition of Organizations such as Hospitals and Nursing Homes Through a self-administered questionnaire, the dimensions of customer value which an organization considers as most important were investigated. The instrument has been built on 29 statements grouped into the following en sub-dimensions: . price . transaction efficiency Different Approaches to Strategy Formulations . . . . . . . . 183 access transparency and clearness communication understanding and knowing the customer technical competence social skills and courtesy product/service range product/service characteristics On each of these items a score between 1 (totally irrelevant for the organization) and 7 (very important and relevant for the organization) could be given. Based on the answers in the questionnaire, the value propositions of each organization have been mapped, followed by the average scores of all elderly care homes (for Foramen) and all hospitals (for Minoz) on each item. In this paper we will present as an example a graph with the average scores on each dimension of a nursing home and the average scores of a hospital. Figure 1 shows the relevance of the most and less important value dimensions for one of the participating nursing homes. Values such as ‘social skills/courtesy’, ‘understanding/ knowing the customer’ and ‘transparency/clearness’ are, according to this organization, the most important value dimensions with an average score of respectively 6.2, 5.8 and 5.8. The less relevant value dimensions for this nursing home are ‘service/product range’ (average score 4.0) and ‘price’ (average score 4.3). These scores are below average scores of the competitors, which means that not paying attention to service range and price is a weakness in the performance of this organization. Comparing with the average scores on each dimension for the whole group of elderly care homes, we have found that values such as knowing/understanding the customer, and social skills/courtesy are, in general, the most important value dimensions within nursing homes, whereas access and service range are, in general, less important value dimensions. An interesting observation is that the scores are neither very low (the lowest average score for the whole group together is 5.0) or very high (no average score of .6.1 on Figure 1. Relevance of value dimensions for one of the participating elderly care homes of Foramen 184 G. Sioncke & A. Parmentier one of the items), which means that we cannot say that the elderly care homes as a group of organizations have only one very clear and specific focus. Even in a very strictly ruled environment, which is the same for all the nursing homes, they succeed in managing their organizations from different sets of focuses and in distinguishing themselves from the others (competitors). The value proposition, or the most and less important value dimensions for one of the participating hospitals, is shown in Figure 2. Values such as ‘product/service range’, ‘product characteristics’ and ‘technical competence’ are, according to this hospital, the most important value dimensions with an average score of respectively 6.2, 5.9 and 5.8. The less relevant value dimension for this organization is ‘access’ (average score 4.0). The score given on ‘access’ is below the average score of the competitors, which means that not paying attention on the accessibility of the hospital is a weakness in the performance of this organization. The analyses of the average scores for the whole group of hospitals teach us that values such as ‘product/service range’, ‘product characteristics’, and ‘technical competence’ are the most important value dimensions for hospitals. The value ‘knowing and understanding the customer’ comes in fourth place of importance. The less relevant value dimension is, in general, ‘access’. Again, it is an interesting observation that the scores are neither very low (the lowest average score is 4.0) or very high (no average score of .6.2 on one of the items), which means that each hospital is trying to find its own and quite different focuses compared with the competitor hospitals. Strategy-implementation: Maturity Alignment Having a ‘great’ strategy and well defined value propositions is one thing, but is not enough in obtaining performance excellence. The ability to execute strategy is more important than the quality of the strategy itself (Kaplan & Norton, 2001; Verweire & Van den Berghe, 2004). More and more companies believe that performance measurement systems need a focus by linking them to the strategy of the organization. Performance management will only Figure 2. Relevance of value dimensions for one of the participating hospitals of Minoz Different Approaches to Strategy Formulations 185 deliver sustained success if it is integrated. The current literature defines integrated as strategically aligned. This means that all (performance management) processes and activities should be linked to the organization’s strategy. Integrated performance management systems should focus attention on those critical activities that, if done well, will lead to competitive advantage and long-term growth. This is the essence of ‘integrated performance management’: it helps to focus the entire organization on the strategy by aligning the various elements of the integrated performance management framework to the organization’s strategy. Thus, strategy is a central element for every performance management system. This might seem obvious, but practice shows that this is not always the case. In many organizations, the formulation and implementation of strategy are two separate activities. However, achieving integration between long-term strategy and operational performance is crucial. Therefore, strategy has to be made operational. Many scholars and business people have pointed to the important roles of evaluating and controlling, but this study will show that integrated performance management is not only about focus, but also about alignment. The new framework developed by Verweire & Van den Berghe (2004) provides a different way of looking at how to manage an organization. This framework is a useful tool to define the scope of the strategic alignment process because it identifies the essential components of the management and operational system. The framework is based on five big parts: . . . . . Direction and goal setting/objectives Operational processes Support processes Evaluation and control Organizational behaviour One of the central messages is that integrated performance management is only integrated if it considers all five components of the integrated performance management framework simultaneously. We believe that this lack of integration is one of the major reasons why many performance management initiatives fail. On the other hand, there is another reason for failure. Overall, the performance management literature needs to look more closely at the performance management process. It is nice to develop challenging goals on how to become the most customer-oriented or innovative company in your field. Still, if your organization is not prepared and ready, these goals become hollow slogans without any sense at all for the organization. It is also nice to define operational challenges and to describe monitoring systems that offer management immediate insight into how well the organization is performing. However, unless you specify how you will reach these goals, these challenges are nothing more than a thinking exercise with no added value for the people who need to implement the strategic goals. So, a crucial question is: ‘What is the appropriate way of running the business?’ A new dimension added to integrated performance management ‘maturity-alignment’ helps to answer this question and offers us many new insights into the process side of the integrated performance management challenge. Thus, the main point of this new framework is that the five components of the integrated performance management framework 186 G. Sioncke & A. Parmentier Figure 3. Introducing maturity alignment: a new dimension to Integrated Performance Management (as shown above) must be aligned, not only from a strategic perspective, but also from a maturity perspective (Figure 3). Determining the Maturity Level of an Organization It is extremely important for the management team to identify the organization’s particular stage of growth in order to determine the appropriate way of leading the company and running the business. Each organization can be classified into one of the four ‘maturity levels’: start, low, medium or high. These four levels relate to different organization types. They vary from the ‘pioneer organization’ (low maturity) to the ‘competent do environment organization’ (high maturity). Looking at an organization in this way provides us with some good explanations of why many performance management initiatives fail. Many organizations try to apply the new management hypes that were developed, often with mediocre success. For example, balanced scorecard (or other balanced performance frameworks), empowered employees, lean and mean organizations, are some of the ‘holy grails’ for modern companies. However, these all require an organization to be either at the ‘medium’ or ‘high’ maturity stage (Verweire & Van den Berghe, 2004). Managers often overlook the fact that some elements of their management system (one of the five components of the integrated performance management framework) are still situated in the ‘start’ or ‘low’ maturity stage. It is clear that new management initiatives will succeed only if the whole performance management system is adapted and organized according to the appropriate maturity level. This means that you not only educate and empower your employees, but also that you create the appropriate organizational structure and have the appropriate leaders, rewards and human resources systems. This calls for a real integrated approach, where attention is paid to all components of the integrated performance management framework. Figure 4 shows an example of the maturity level of a participating elderly care home. The identification of the maturity level of each component gives management an idea what to focus on in the organization. It is obvious that the leaders should focus on those components that are in the ‘low’ maturity stage. Different Approaches to Strategy Formulations 187 Figure 4. The maturity level of a nursing home The real success of an organization is stipulated by the level of the ‘maturity-alignment’ of the organization. This means that an organization can only strive to excellence if all components of the integrated performance management framework are themselves on quite the same maturity level. This also means that organizations at even a low but aligned maturity level can be successful. Of course it is clear that organizations with a ‘high’ maturity level can withstand more challenging environments than those with a ‘low’ maturity level. The example in Figure 4 shows an organization with an aligned maturity level at the ‘medium’ level. Conclusions Leading an organization requires a range of management skills. Having a ‘great’ strategy and well defined value propositions is an important start, but is not enough to obtain performance excellence and competitive advantage. The ability to execute strategy is more important than the quality of the strategy itself. More and more companies believe that performance measurement systems need a focus by linking them to the strategy of the organization. Performance management will only deliver sustained success if it is integrated. Looking at organizations from an integrated approach and from the maturity perspective offers us a good insight in the reasons why many new management initiatives fail. References Clegg, D. (2005) Become a leader others will want to follow, Indianapolis Business Journal, 26(12), p. 36. Kaplan, R.S. & Norton, D.P. (2001) The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (Boston, MA: Harvard Business School Press). Lundin, M. (2005) Working smarter, not harder, Inside Tucson Business, 14(49), special section, pp. 4–5. Peng, M.W. et al. (2005) What determines the scope of the firm over time? A focus on institutional relatedness, Academy of Management Review, 30(3), pp. 622–633. Verweire, K. & Van den Berghe, L. (Eds) (2004) Integrated Performance Management: A Guide to Strategy Implementation, p. 334 (London: Sage). Walsh, T. (2005) P&C: What your business can learn from bananas, milk and fish, The Central New York Business Journal, 22 April, p. 17.
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