1. Development of the enterprise concept Lecture no 3 Vistula University Vistula University 1 25.10.2020 PHD JACEK OLEKSIEJUK

2. Setting up Objectives 2 25.10.2020 PHD JACEK OLEKSIEJUK

3. What is a Business Model? What is a Business Model? A company’s business model addresses “How do we make money in this business?” ◦ Is the strategy that management is pursuing capable of delivering good bottom-line results? Do the revenue-cost-profit economics of the company’s strategy make good business sense? ◦ Look at the revenue streams the strategy is expected to produce ◦ Look at the associated cost structure and potential profit margins ◦ Do the resulting earnings streams and ROI indicate the strategy makes sense and that the company has a viable business model? 3 25.10.2020 PHD JACEK OLEKSIEJUK

4. Strategy vs. Business Model : What is the Difference? Strategy -- Deals with a company’s competitive initiatives and business approaches Business Model -- Concerns whether the revenues and costs flowing from the strategy demonstrate that the business can be amply profitable and viable Strategy Business Model 4 25.10.2020 PHD JACEK OLEKSIEJUK

5. Setting up Objectives Objectives in Development concept of SME ØConverts strategic vision and mission into specific performance targets ØCreates yardsticks to track performance ØPushes firm to be inventive and focused on results ØHelps prevent complacency and coasting 5 25.10.2020 PHD JACEK OLEKSIEJUK

6. Types of Objectives Required Financial Objectives Strategic Objectives Outcomes focused on improving financial performance Outcomes focused on improving long-term competitive business position $ 6 25.10.2020 PHD JACEK OLEKSIEJUK

7. Examples: Financial Objectives X % increase in annual revenues X % increase annually in after-tax profits X % increase annually in earnings per share Annual dividend increases of X % Profit margins of X % X % return on capital employed (ROCE) Increased shareholder value Strong bond and credit ratings Sufficient internal cash flows to fund 100% of new capital investment Stable earnings during periods of recession 7 25.10.2020 PHD JACEK OLEKSIEJUK

8. Examples: Strategic Objectives Winning an X % market share Achieving lower overall costs than rivals Overtaking key competitors on product performance or quality or customer service Deriving X % of revenues from sale of new products introduced in past 5 years Achieving technological leadership Having better product selection than rivals Strengthening company’s brand name appeal Having stronger national or global sales and distribution capabilities than rivals Consistently getting new or improved products to market ahead of rivals 8 25.10.2020 PHD JACEK OLEKSIEJUK

9. Strategic Performance fosters better Financial Performance A company’s achievement of satisfactory financial performance, by itself, is not enough ◦ Financial performance measures are “lagging indicators” reflecting results of past decisions and actions Of equal or greater importance is a company’s performance on measures of its strategic well-being — its competitiveness and market position ◦ Strategic performance measures are “leading indicators” of a company’s future financial performance and business prospects ◦ Achievement of strategic performance targets ◦ Signals growing competitiveness ◦ Signals growing strength in the marketplace 9 25.10.2020 PHD JACEK OLEKSIEJUK

10. Which type of goal is more important Which type of goal is more important – – Strategic Strategic or Financial? or Financial? 10 25.10.2020 PHD JACEK OLEKSIEJUK

11. Balanced Scorecard Approach Balanced Scorecard Approach – – Strategic Strategic and and Financial Objectives Financial Objectives Balanced scorecard approach for measuring company performance requires both – ◦ Financial objectives ◦ Strategic objectives Emphasis on financial performance may assume priority over strategic performance when company’s ◦ Financial performance is dismal and ◦ Survival is threatened Otherwise, management is advised to put more emphasis on achieving strategic objectives The surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that strengthen a company’s business position and give it a growing competitive advantage over rivals! 11 25.10.2020 PHD JACEK OLEKSIEJUK

12. Objectives Are Needed Objectives Are Needed at All at All Levels in Enterprises Levels in Enterprises 1. First, establish organization-wide objectives and performance targets 2. Next, set business and product line objectives 3. Then, establish functional and departmental objectives 4. Individual objectives are established last 12 25.10.2020 PHD JACEK OLEKSIEJUK

13. Importance ofTop-Down Objectives Guide objective-setting and strategy-making at lower levels Ensures financial and strategic performance targets for all business units, divisions, and departments are directly connected to achieving company-wide objectives Integration of objectives has two advantages ◦ Helps produce cohesion among objectives and strategies of different parts of organization ◦ Helps unify internal efforts to move a company along the chosen strategic path 13 25.10.2020 PHD JACEK OLEKSIEJUK

14. Objectives Are Needed at All Levels Objectives Are Needed at All Levels Objective-setting process is top-down, not bottom-up! 1. First, establish organization-wide objectives and performance targets 2. Next, set business and product line objectives 3. Then, establish functional 4. Individual objectives are established last and departmental objectives 14 25.10.2020 PHD JACEK OLEKSIEJUK

15. Strategic Management Principle Objective-setting needs to be more of a top- down than a bottom-up process in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives. 15 25.10.2020 PHD JACEK OLEKSIEJUK

16. Homework 3 – 26.10.2020: 1. Please set up 5 objectives for Your idea of business according to division of Objectives from the Lecture no 2. Formal requirements: 1. Work must be done seperatly (only one person). 2. Max two pages in Word.doc 3. Deadline for submiting task: 26.10.2020. 4. Channel: TEAMS folder: Exerices 16 25.10.2020 PHD JACEK OLEKSIEJUK