Strategy, Governance, and Performance Measurement Frameworks
What the exam tests
This domain tests whether you can connect an entity's purpose to measurable outcomes and explain who governs the process. Expect strategic analysis tools, levels of strategy, board oversight, and framework design such as the Balanced Scorecard (BSC) and strategy maps.
Core rules and concepts
- Strategy hierarchy: corporate strategy sets portfolio and scope; business strategy sets competitive position; functional strategy supports operations.
- External analysis: PESTEL for macro forces; Porter's five forces for industry attractiveness (rivalry, new entrants, substitutes, buyer power, supplier power). Internal analysis: value chain and resource/capability review. SWOT synthesizes but is not itself a strategy.
- Governance: the board approves strategy and risk appetite, monitors performance and controls, and oversees management; management executes. Independence and competence matter.
- BSC: financial, customer, internal process, and learning and growth perspectives. Strategy maps show cause-and-effect links from learning and growth to processes, customers, and financial results. Measures should include lead and lag indicators, be controllable, and link to strategy.
- Performance frameworks should be balanced across financial/non-financial, internal/external, lead/lag, and short/long term.
Worked example
A manufacturer's on-time delivery is 82% and warranty claims are rising. Leadership wants a BSC. A defensible design links training in root-cause analysis (learning and growth) to reduced rework (internal process), which raises on-time delivery and lowers warranty claims (customer), protecting margins and cash (financial). The measure 'percentage of staff trained' is a lead indicator; 'warranty cost as a percentage of sales' is a lag indicator. Governance: the board approves the capital for training and tracks the risk of quality failure; management owns the actions. If the team selected only 'profit' as the measure, it would not explain how to improve or detect quality risk early.
Traps that cost marks
- Treating SWOT as an outcome rather than an input to choices.
- Confusing corporate and business strategy.
- Listing many KPIs without cause-effect logic or balance.
- Saying the board runs operations; it oversees.
- Using only lag measures, so problems surface after financial damage.