Analyzing Goals and Objectives and Assessing Intellectual Capital

Garette Clyde Maisling Charmilyn Ventic

Charting the organizations purpose

Focuses the organizations purpose of existence, where it is going, and where it wants to be Hierarchy of goals: Vision ,Mission and Strategic Objectives Coherence is very important

Vision
Broad and desirable goals firms aspirations of what it really wants to be should have strong emotional appeal Can position a company in a industry-wide leadership Example: CNN : To be the best and most reliable news source of any topic anywhere, anytime Disneyland to be the happiest place on earth In its 20-year battle with Xerox, Canons slogan or battle cry was Beat Xerox.

When vision fails

The Walk Doesnt Match the Talk Irrelevance Not the Holy Grail An Ideal Future unreconciled with the Present

Mission Statement
A companys mission differs from vision in that it is encompasses both the purpose of the company as well as the basis of competition and competitive advantage Vision that captures the organizations purpose and its ideals become more concrete and realistic McDonalds : Implement each of four policies QSCV (quality. Service, cleanliness and value) to satisfy customer

Effective mission statements:

incorporate the concept of stakeholder management, suggesting that organizations must respond to multiple constituencies if they are to survive and prosper Prot maximization not only fails to motivate people but also does not differentiate between organizations. A good mission statement, by addressing each principal theme, must communicate why an organization is special and different.

 most successful rms mentioned values other than prots. The less successful rms focused almost entirely on protability

Comparing Wellpoint Health Networks Vision and Mission

Comparing Wellpoint Health Networks Vision and Mission
Vision WELLPOINT will redene our industry: Through a new generation of consumer-friendly products that put individuals back in control of their future. Mission The WELLPOINT companies provide health security by offering a choice of quality branded health and related nancial services designed to meet the changing expectations of individuals, families and their sponsors throughout a lifelong relationship

Strategic Objectives
Mission Statement does not provide the tangible goals or objectives that must be met to achieve a firms broader purpose. Channels the efforts of each individual throughout the organization towards common end Provides a means of allocating resources effectively

 Gears to operationalizing the mission statement

Setting objectives demands a yardstick to measure the fulllment of the objectives

Criterias of effective objectives (SMART)

Specic -this provides a clear message as to what needs to be accomplished. Measurable -there must be at least one indicator (or yardstick) that measures progress against fullling the objective Appropriate - It must be consistent with the vision and mission of the organization Realistic - It must be an achievable target given the organizations capabilities and opportunities in the environment, doable. Timely There needs to be a time frame for accomplishment of the objective.

Strategic Objectives
Strategic Objectives (Financial) Increase sales growth 6% to 8% and accelerate core net earnings growth to 13% to 15% per share in each of the next ve years. (Procter & Gamble) Generate Internet-related revenue of $1.5 billion. (Automation) Increase the contribution of Banking Group earnings from investments, brokerage, and insurance from 16% to 25%. (Wells Fargo) Cut corporate overhead costs by $30 million per year. (Fortune Brands)

Benefits of following SMART objectives

they help to channel employees throughout the organization toward common goals. challenging objectives can help to motivate and inspire employees throughout the organization to higher levels of commitment and efforts Meaningful objectives help to resolve conicts of individual objectives when they arise Meaningful objectives thus help to resolve conicts when they arise

 Visions should evoke powerful and compelling mental images. Strategic objectives, on the other hand, are much more specic and are vital to ensuring that the organization is striving toward fullling its vision and mission.

Goal Grid
A new tool for Strategic Planning
The Goals Grid is a simple 2x2 matrix constructed by examining the Yes and No answers to two very basic questions: (1) Do you want something? (2) Do you have it? The interplay of the Yes and No answers to these questions defines four basic categories for goals and objectives (

 If you want something you dont have, (Y/N) your goal is to obtain it (ACHIEVE). Action step: Develop a list of outcomes, conditions or qualities the organization wants to achieve.

If you want something you already have (Y/Y), your goal or aim is to keep it (PRESERVE). Action step: Develop a list of outcomes, conditions or qualities the organization wants to preserve.

 Goals Grid does a first-rate job of helping strategic planners think about goals and objectives in terms of the categories making up the Grid it does not, by itself, guarantee that those goals and objectives are consistent with the organizations values or priorities

 once the initial set of goals and objectives has been subjected to careful consideration, settled on and even polished, the Goals Grid can also serve as a convenient organizing framework for presenting and explaining them to staff.

If theres something you dont want and dont have (N/N), your goal is to avoid it (AVOID). Action step: Develop a list of outcomes, conditions or qualities the organization wants to avoid.

If theres something you dont want but have (N/Y), your goal is to get rid of it (ELIMINATE). Action step: Develop a list of outcomes, condi-tions or qualities the organization wants to elimi-nate.

 Goals Grid does a first-rate job of helping strategic planners think about goals and objectives in terms of the categories making up the Grid it does not, by itself, guarantee that those goals and objectives are consistent with the organizations values or priorities

 once the initial set of goals and objectives has been subjected to careful consideration, settled on and even polished, the Goals Grid can also serve as a convenient organizing framework for presenting and explaining them to staff.

Purpose of Goal Grid

Jump-starting the strategic planning process and dialogue Generating a set of organizational reality check criteria against which strategic goals and objectives can be gauged Providing a way of checking for and managing conflicting goals and objectives Generating the goals and objectives themselves.

Purpose of Goal Grid

Jump-starting the strategic planning process and dialogue Generating a set of organizational reality check criteria against which strategic goals and objectives can be gauged Providing a way of checking for and managing conflicting goals and objectives Generating the goals and objectives themselves.

Advantages of Goal Grid

extremely effective overall organizational analysis tool visible format effective method for developing group consensus logical progression of thought for goal development analysis of current services, products, programs, and direction of the organization quick check of the alignment of valuesindividual and organizational simplicity and usefulness of the information generated consensual, agreed-to set of responses

 Allows comparison of the fit between a completed Goals Grid for an organization and one prepared for a single goal, project, program, or decision very effective, practical, engaging, and efficient activity for an organizations board, committee, task force or project team to use in the course of strategic planning

Steps
have participants write their responses on individual copies of the Goals Grid (a 15-minute activity). The full group next engages in an exercise in which individual responses are shared, recorded on a computer, projected on a large screen, and then discussed and analyzed. Another option is to have small family groups from functional or operational units develop a starter set of goals and then share those.

Blank Goal Grid

Do You Have it? Do you want it? No Yes

Yes

ACHIEVE

PRESERVE

NO

AVOID

ELIMINATE

live example that was produced by the board of a conservation organization

Do You Have it? Do you want Yes it? No ACHIEVE Work toward sustainable growth in the county Provide more incentives to property owners/managers for program involvement Implementation of on-farm energy production and bio-fuels facility AVOID Being seen as a regulator Stagnation Narrow focus for our programs Growing into a bureaucracy Safety hazards Conflict of duties and responsibilities Yes PRESERVE Creativity, expertise and enthusiasm of the current staff Opportunities to inform and involve residents Working relationships with agency partners Working relationships and influence with legislature ELIMINATE Barriers to progress

NO

Excess expenditures

Assessing Intellectual Capital

Intellectual Capital refers to the collective intangible assets that enable an organization to function, including market assets, intellectual property assets, human centered assets and infrastructure assets.
- Brooking (1999)

Intellectual Capital is a collective knowledge of the individuals in an organization or society. This knowledge can be used to produce wealth, multiply output of physical assets, gain competitive advantage, and/or to enhance value of other types of capital.
- businessdictionary.com

Intellectual capital are classified as follows:

Human Capital - refers to the value that the employees of a business provide through the application of skills, know how and expertise.

Structural Capital - is the supportive infrastructure, processes and databases of the organization that enable human capital to function.
Relational Capital is the external linkage of the company with suppliers and customers that enables it to procure and sell goods and services in an effortless manner.

Purposes of Measuring Intellectual Capital

To help organizations formulate their strategy To evaluate strategy execution

To assist in the firms diversification and expansion decisions

For use as a basis for management compensation

To communicate with external shareholders

Benefits of Measuring Intellectual Capital It more truly reflects the actual worth of the company The process of measurement gives insights into the drivers of sustainable performance Demands are growing for effective governance of intangibles, of which social and environmental reporting are already evident "What gets measured, gets managed" - it therefore focuses on protecting and growing those assets that reflect value It supports a corporate goal of enhancing shareholder value It provides more useful information to existing and potential investors.

Strategic framework for IC measurement:

Asset Benefits Baseline Action

IC Measurement Models: Economic Value Added (EVA) Market Value Added (MVA) Tobins Q Ratio The Balanced Score Card Skandias IC Navigator Intellectual Capital Services IC-Index The Technology Brokers IC Audit Sveibys The Intangible Asset Monitor (IAM) Real Option Theory Citation-weighted Patents

Economic Value Added (EVA)

EVA is the difference between a company's net operating income after taxes and its cost of capital of both equity and debt. An equation for calculating EVA: EVA = Residual Income (RI) + Accounting Adjustments (AcctAdj) where:
RI = Net Operating Profits After Taxes (NOPAT) Capital Charge (CapChg) NOPAT = Earnings Before Extraordinary Items (EBEI) + After Tax Interest (ATInt) EBEI = Cash Flow from Operations (CFO) + Accurals ATInt = Net Interest Expense x (1 Tax Rate) CapChg = the charge for use of capital. It includes interest on the debt plus a charge for the equity capital based on a cash equivalent equity multiplied by a cost of equity.

Market Value Added (MVA)

MVA is the difference between the market value of a company (both equity and debt) and the capital that lenders and shareholders have entrusted to it over the years in the form of loans, retained earnings and paid-in capital. As such, MVA is a measure of the difference between "cash in" and "cash out". If MVA is positive, it means that the company has increased the value of the capital entrusted to it and thus created shareholder wealth. If MVA is negative, thecompany has destroyed wealth.

MVA = Market Value of Debt + Market Value of Equity - Total Adjusted Capital

Tobins Q Ratio
Tobins Q is essentially the same as the market-to-book ratio except that Tobin used replacement cost of tangible assets rather than book value of tangible assets in calculation.

A positive Q Ratio value can be ascribed to the intangible value of intellectual capital which is not captured by traditional accounting systems. If the Q Ratio is less than 1, an asset is worth less than the cost of replacing it, and it is unlikely that a company will buy more assets of that kind. If on the other hand, Q Ratio is greater than 1, companies are likely to invest in similar assets that are worth more than their replacement cost. Tobins Q Ratio
Q = Market Value /Asset Value

The Balanced Score Card

Skandias IC Navigator
The total Market Value of a firm is equal to its Financial Capital plus its Intellectual Capital. The components of IC are Human Capital, Structural Capital. Structural Capital can be deconstructed into Organizational Capital and Customer Capital. Organizational Capital can in turn be deconstructed into Innovation Capital and Process Capital (Edvinsson & Malone, 1997).

The Skandia Navigator approach takes into account the same set of financial, operational, and customer concerns as the Balanced Scorecard. But, it makes more explicit the need to consider the organization, its structure and processes for nurturing its employees (Shand, 1999).

Skandia Navigator (Edvinsson & Malone, 1997)

Intellectual Capital Services IC-Index

The IC-Index is a historic document which gives an account of numerous indices and an ultimate single Index number which can be compared from period to period.

The Technology Brokers IC Audit

Brooking designed this model to place a definitive dollar value of a firms IC.

Sveibys Intangible Asset Monitor (IAM)

Total market value of a company consists of its visible equity and three kinds of intangible assets. The visible equity is the book value of the firm. The intangible assets are categorized as either external structure or knowledge capital. The external structure consists of brands, and customer and supplier relations. Knowledge capital is comprised of internal structure and individual competence. The internal structure is composed of the organizations management, legal structure, manual systems, attitudes, R&D, and software. Individual competence includes education and experience (Sveiby, 1997).

Real Option Theory

The use of real option theory provides one solution to our human inability to forecast complex or distant future events accurately (Phelan, 1997). The real options approach recognizes that the boundaries of firms are fluid with respect to adopting different kinds of projects, and attempts to value the consequences of their possible adoption (Johnson et al., 2001).

Citation-weighted Patents
Research using patent citations to measure IC is based on the following assumptions: 1. Stock market investors hold the rational expectation that the present value of a firms future profits varies with its stock of knowledge

2. Valuable technological knowledge within the firm tends to generate patents that future researchers build on and therefore cite when doing their own innovation.

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