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Strategic management
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7/14/2019 Module Summary
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Text book support: Johnson G, Whittington R & Scholes K (2010) Exploring Strategy 9th Ed. FT
Prentice Hall. ISBN-13: 978-0273737025
Strategic Management
Unit 1 : Nature and Scope of Strategic Management
1.1: Nature:
SM is knowing your starting point (where you are), your destination (where you want
to be) and how to get there.
SM in the company attempt to plan its future, using a variety of techniques to arrive
at a desired state. It’s a long term plan of action or execution designed to achieve
particular objectives, it reflects the values, expectations and goals of those who are
in power within the organization. It gives business direction.
Tactical measures are usually short term whereas strategy long term. i.e. of tactical
measures: price cutting to grab market share and remove competitor. A series of
tactical measures can help achieve long term strategy
Strategy then s a set of guidelines that directs the managers in an organization to
reach their desired long-term positions.
Objectives: where do we want the business to be?
Strategy: How can we ensure the business gets there?
Andrews (1989) – ‘Strategy is the pattern of objectives, purposes or goals, and the
major policies and plans for achieving these goals, stated in such a way as to define
what business the company is in, or is to be in, and the kind of company it is, or is to
be’
Strategic decisions will have implications for change throughout the organization.
Changes can be complex and far reaching and sometimes require significant
organizational transformation.
Strategic decisions are concerned with:
Values and expectations of key stakeholders
The long term organizations’ direction
Scope of organization’s activities
Matching organization’s activities to its environment or its resource capability
Building on or stretching organization’s resources and competences
Major allocation or reallocation of resources
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Strategic Drift (float): it describes the variation in circumstances of the business
environment over a period of time compared with the intent of the original strategy.
(culture is traditionally sees as a preventative to change which stifles innovation and
results in a momentum of strategy that can lead to strategic drift. Organizations
response to the business environment is internally constructed rather thanobjectively understood, which supports the assumption that Strategic change must
always be accompanied by an appropriate culture change.
SD is the tendency for strategies to develop incrementally on the basis of historical
and cultural influences but fail to keep pace with a changing environment. i.e.: a
market trend may develop which will provide a shift in the market direction. If the
strategy is not adopted to conform with these changes, a significant gap will develop
between the intended strategic aim and the perceived position in the market (SD)
Strategic wear-out: (Strategic lifespan), is a common failing of many business
strategies as any strategy is at risk of being outdated. Market forces and
performance may change in unpredictable ways, strategy formulated must be
flexible, With suitable monitoring and evaluation.
Synergy: evaluating the combined effects of actions resulting. (Firms usually seeks a
product-market posture with a combined performance that is greater than the sum
of its parts, described as 2+2=5)
1.2: Scope:
5Ps of strategies:
1. Plan: a path to get from here to there
2. Pattern: consistency in behavior over time
3. Position: particular products in particular markets
4. Perspective: an organization’s ways of doing things
5.
Ploy (trick): a particular type of plan intended to send specific signals
Intended strategy: is an expression of a desired strategy as deliberately formulated r
planned by managers
Realized strategy: the strategy actually being followed by an organization in practice
rather than planned up front
Strategic Vision: is the ideas for the direction and activities of business development
Strategy Framework
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Following from the overall strategic vision the strategy is then developed via the
associated levels within the company.
A. Strategic Decisions:
SD are about: long term direction of an organization, scope of its activities, gaining
advantage over competitors, addressing changes in the business environment,
building on resources and competences (capability), values and expectations of
stakeholders.
They are likely to be complex in nature, made in situations of uncertainty, affect
operational decisions, require an integrated approach (in and out an organization),
involve considerable change.
B. Administrative Decisions: are about organization structure if information,
authority and responsibility flows, structure of resource conversion, work flows,
distribution system and facilities location, resource acquisition and development,
financing
C. Operating Decisions: operating objectives and goals, pricing and output levels,
operating levels, production scheduling, inventory levels, warehousing,,
marketing policies and strategy, R&D policies and strategy, Control
Those decisions need to be linked to the relevant level of strategic change
Fundamental approaches to change:
1. Alpha change: looks only at symptoms, A reactive change applied over a wide
range of issues. i.e. IT driven change; web/online access to all desktops which
might increase efficiency
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2. Beta change: goes a level deeper, much more systematic and planned,
organized wide in its implications. Essentially the origination and its members
do not undergo fundamental change i.e. process improvement.
3. Gamma change: a fundamental change, the organization undergo a paradigm
shift, there is significant culture change and the members of the organizationlearn to relate to each other in different ways. i.e. process innovation
Levels of planning:
A. Top-Level Planning (Strategic): done by top management, it encompasses the
long-range objectives and policies of the organization, concerned with
corporate results rather than achievements of individual departments. It’s a
long range planning and linked to long term goals. Co0ncerned with “What”
B. Second-Level Planning (Tactical): carried out by senior executives. Concerned
with “How”, it involved with planning the deployment of resources to the
best advantage. Is concerned with long range planning but usually shorter
timespan than strategic planning because its concentrating on the gradual
attainment of the organization’s main objectives
C. Third-Level Planning (Operational): concern of departmental managers and
supervisors. Confined to very short term activities, involving departmental
operations and individual assignments as well establishing performance
controls.
Corporate Strategy: is used to build advantage over other organization. Its benefits:
Highlight possible short and long term remedies for firms in financial
difficulties
Determining when an organization is at a decision point and in which
direction it should go for future success
Selecting appropriate acquisitions which will enhance shareholder wealth
Providing a system for successfully integrating acquisitions and improving
performance
Demonstrate which business has greater value, which should be developedand which to be disposed
Business Strategy: involve more direct monitoring and evaluation by managers
closer to the operations. Any evidence of strategic drift or wear out is detected
quickly than in corporate strategy
Operational strategy: CS is a plan set out for the whole organization, it is concerned
with the mean an organization will be able to achieve its total objectives, in order to
achieve its overall aims, a company must ensure that objectives and subsequent
strategies are adopted at each level of the business (OS)
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1.3: Purpose and Strategic Objectives:
The strategic purpose of an organization is associated with||:
1. Strategic Direction: a course of action that leads to the achievement of the
goals of an organization strategy which should incorporate timeframe of
no less than 2-4 years and might be extended to 10 and beyond
2. Strategic Focus
3. Strategic Realignment / Diversification: organizations need to develop
strategies that will allow for product realignment or diversification. There
are lots of organizations undertaking diversification into unusual markets
(original core businesses are realigned in accordance with changes); i.e.
Gillette expanding its interests in shaving products to all toiletries including
deodorant…etc., Sony mobbing from transistor radios to all domestic
electronics and advanced computer components, McDonald’s realigning
from simple hamburgers to range of fast foods including innovations such
as salads, breakfasts etc.
It is the responsibility of leadership of the business to communicate the strategic vision
and then provide the guidelines needed for implementation
Control processes make it possible to ensure that objectives are being met and to
make any necessary changes to strategy as and when appropriate.
Synergy:
Refers to the benefits that are gained where activities or assets complement each
other so that their combined effect is greater than the sum of the parts
Structural Synergy: is combining resources to lower costs or increase revenues.
Management Synergy: where any improvement is the direct result of better
management, usually without structural change. Rarely directly produce revenue
increase.
Synergy is any unrealized potential open to group from better collaboration and
more efficient mixing of resources.
There are many organizations working together as examples of synergy:
Trust House and Forte
Kentucky Fried Chicken and Mitsubishi
McDonalds and Fujita
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Fuji and Xerox
Smith Kline and Fujisawa Pharmaceuticals
Strategic objectives:
A strategic objective is what you want to achieve in the long term, it addressed the
question “where do I want to be”. The strategy is how you plan it address the
question “how do I get there”
Before objectives and strategy the important question “where am I now”
Objectives must be SMART.
Seeking outstanding performance on one single measure such as profits or growth
produces major problems in other areas, an alternative approach is needed in whichsatisfactory performance across a balanced set of objectives is achieved. It is
dangerous to base success against one or two criteria.
Strategic Management Process:
5 key strategic management tasks that must be carried out in setting strategic
objectives:
1. Define he business, state a mission and form a strategic vision
2. Set measurable objectives
3. Define a strategy to achieve these objectives
4. Implement and execute strategy
Figure 1: Setting organization objectives
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5. Evaluate performance, review any new developments and initiate corrective
adjustments where necessary
Unit 2 : Strategic Decision Making
2.1: Deliberate and Emergent Strategies:
These 2 types represent different approaches to SM, organizations need to
determine where between those 2 extremes they wish to position their strategic
development,
Strategy formulation can be classified into:
A. Emergent (developing): it’s an approach to strategy formulation that
emphasizes the role of experience and learning. Its process of thinking and
doing. It is not unusual for implementation to precede choice and analysis, it
gives rise to experience. (Try before you commit)
B. Deliberate (Purposeful): emphasizes planning. The plan stipulates the path to
achieving objective; it emphasizes the benefits of acting internationally. In
deliberate strategies a classical planning approach is adopted, strategic
analysis leads to strategic choice then implementation follows. (plan & think
before you act)
All organizations need an element of planning and planning is at the heat of
deliberate strategies.
Managers need to weight the conflicting demands of deliberateness and emergence
and strike a balance that is appropriate for the organization, its industry sector and
environment.
Schools of Thought in Strategic Decision Making:
1. Design school: deliberate ad classical strategy process which involves:
A. Internal environment analysis e.g. SWOT, identify distinctive competences
B.
External environment analysis: SWOT, BPESTC. Establish fit between internal and external
D. Identify key success factors
E. Strategic choice on the basis of key success factors and management
preferences
F. Implementation chosen strategy
2. Planning School: strategy formation is a formal process of planning. Strategy is
generally designed by the leader of the organization and cascaded down to planners
for decomposition and then down to implementers
3. Positioning School: strategy formation is an analytical approach combining the
approaches of the design and planning school. It carefully considers its existing
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position in the marketplace when developing a realistic strategy to improve
competitive positioning
4. Entrepreneurial School: strategy formation is a visionary approach. Flexible and
responsive to environments, but strongly directed by an entrepreneurial leader.
Risky as its success depends on the wisdom and judgment of this person (Leader)
5. Cognitive (reasoning) school: referred to as Thinking school, strategy formation is a
mental process that draws from cognitive psychology to recognize patterns and
make sense of the world. “Strategies are largely self -taught; they develop their
knowledge structures and thinking processes mainly through direct experience. That
experience shapes what they know, which in turn shapes what they do, there by
shaping their subsequent experience…” Mintzberg, Ahlstrand and Lampel
6. Learning School: strategy formation is an emergent process; a series of incremental
adjustments made by individuals throughout the organization in response to
collective learning. Often described as ‘muddling through’.
7. Power School: strategy formation is process negotiation by the use of power andpolitics (emphasizing the use of power and politics to negotiate strategies
favourable to particular interests.
8. Cultural School: strategy formation is a collective and co-operative, reflecting
organizational culture, the shared values, beliefs, norms of the organization.
9. Environmental school: strategy formation is a reactive process responding solely to
the external environment. It is strategy imposed from the outside.
10. Configuration School: strategy formation is a process of translation: defined by
time, place and context. It emphasis on transforming the organization from its
existing state into a new and different entity more suited to the current time, place
and context.
http://www.12manage.com/methods_mintzberg_ten_schools_of_thought.html
(important)
Those 10 schools added by Mintzberg, more recent authors have added two further
schools:
11. Strategy as strength intent, core competences and stretch:
12. Strategy as Parenting:
2.2: The Systematic stages of strategy development:
In developing and implementing strategy, organizations generally adopt a systematic
process of planning, implementation and control.
The Strategy Perspectives:
- ‘Top-down’ reflection of what the whole group or business wants to do
- ‘Bottom-up’ activity where operational improvements cumulatively build strategy
- Translating market requirements into operational decisions (part 2.3)
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Corporatestrategydecsions
Businessstrategydecisions
Functionalstrategydecisions
- exploiting the capabilities of an operation’s resources in chosen markets (part 2.3)
A. Top-Down
The large nature of the operation necessitates that corporate decisions are made at the
top and then passed down to each individual business unit, which will in turn pass on itsown business strategy to separate functions.. an effective hierarchy of strategies
therefore exists.
Usually this process (fig 2) is used at business unit level, for large corporations, strategy
at the corporate level is more concerned with managing a portfolio i.e. corporate level
strategy involves decisions about which business unit to grow, resource allocation
among business units, taking advantage of synergies among the business units, merges
and acquisitions.
Strategic planning process
Mission a company mission is its reason for being. is often expressed in the form of a mission
statement which conveys a sense of purpose to employees and projects a company image
to customers. it sets the moos of where the company should go
Objectives objectives are concrete goals that the origination seeks to reach i.e. an earnings growth
target. they should be challenging but achievable. they also should be measurable so that
the company can monitor its progress and make corrections as needed
Situation
Analysis
once the company has specific objectives it begins with its current situation to devise a
strategic plan to reach those objectives. changes in the external environment usually
present new opportunities and new ways to reach the objectives, an environmental scan is
performed to identify the available opportunities (PESTLE). it also involves internalenvironment: company culture, image, organizational structure, key staff, access to natural
resources, operational efficiency, market share, financial resources...etc. the situation
analysis can generate large amount of information some might not be relevant to strategy
formulation. it is sometimes useful to categorize the internal factors as strength and
weakness (SWOT)
Strategy
Formulation
Once we have clear picture about the firm and its environment, specific strategic
alternatives can be developed. While different firms have different strategies depending
on their situation, there are also generic strategies that can be applied
Implementation The strategy likely will be expressed in high level conceptual terms and priorities. For
effective implementation, it needs to be translated into more detailed policies that can be
understood at the functional level of the organization. The strategy should be translatedinto specific policies for functional areas i.e. marketing, procurement, HR…etc. . in addition
to developing functional policies, the implementation phase involves identifying the
required and putting into place the necessary organizational changes.
Control Once implemented, the results of the strategy need to be measured and evaluated with
changes made as required to keep the plan on track. Control systems should be developed
and implemented to facilitate this monitoring. Standards of performance are set, actual
performance measured and appropriate action taken to ensure success.
In reality such hierarchies are far more complex. The SM process is dynamic and continuous,
a change on one component can necessitate a change in the entire strategy, as such theprocess must be repeated frequently in order to adapt the strategy to environmental
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changes. Throughout the process the firm may need to cycle back to a previous stage and
make adjustments.
The above process is only one approach to SM, it is best suited for stable environment. A
drawn back of this top-down approach is that it may not be responsive enough for rapidly
changing competitive environments. In time of changes some of the more successful
strategies emerge informally from lower levels of the organizations. Another drawback, this
model assumes fairly accurate forecasting and does not take into account unexpected
events. In an uncertain world, long term forecasts cannot be relied upon with a high level of
confidence
B. ‘Bottom-up’ perspective
Experience from functional levels is basis for strategic
development. The higher level, corporate decision making
takes advantage of a consensus of opinion approach from allsections of the organization. it encourage a philosophy of
continual and incremental improvement.
Mission and Vision:
The first step in strategy formulation is to develop a hierachy
of objectives that ddefine he direction of the business: Vision
– Mission statement – Coprorate objectuves for each area – Indivdual market objectives.
The organziation mission and vision link the values and objectives of the business with its
stakhlders
Vision:
The primary role of a company vision is to establish a dream to which all employees and
other stakeholders will subscribe and to which they will enthusiastically direct their efforts.
Creating a vision can be through answers to a series of probing questions on the future: i.e.
what will the organziation be linke in 5 to 15 years time?, who will be employed?, what will
be their key attitudes or behaviour?, what will be the major products and services?
The key features of effective vision:
Effective visions are inspiring
Clear and chanllenging
Make sense in the market place and stand the test of time in turbulent world
Beacons and controls when all else is up for grabs
Aimed at empowering our own people first, customers second
Prepare for the future but honour the past
Lived in details not broad strokes
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A stratgic vision is widely shared among the workforce; when all employees are aligned and
committed to the firm’s long-term direction, optimum choices on buinsess decisions are
more likely to:
indivduals and team know the intent of the firm’s strategic vision.
Daily excution of the strategy is improved
Mission:
The board visiom of an organziation is communicated through its mission statement. It’s the
potential end-result of strategy. It spells out the central purpose and shared values of the
organziation. It should have clear function, objectives and intent.
Functions: define key stakholders whom the orgnzation will seek to satisfy, describe
in board terms what strategy it will pursue to meet their objectives
Objectives: contribute to motivating the loyalty of those on whom the success of the
business deends, encourage management to evalute their policies in the light of
their stakeholders’ expectations
Intent: a statement of beliefs and values, customer needs that the business will
fulfil, markets within which the organization will trade, attitudes to growth and
financing
Mission planning is where strategy, organziation and HR issues come together.
2.3: Analysing the Business Environment:
An aim of business analysis is to understand the organizational environment so thatany influences can be identified, these include political, economic, social and
technological factors. As well it is necessary to appreciate that there is an
indeterminable impact on strategy formation caused by environment uncertainty.
In order to take effective decisions, managers need to able to identify environmental
forces and interpret their present and potential influences.
Our ability to spot changes in wider environment is far more difficult when a major
shock or change occurs than when such changes are gradual. Also we need to have a
very good idea of which elements of the environment will have a major impact upon
our day to day activities and which elements may have only an indirect influence
upon the way our business operates. In order to do such analysis we need to
consider 3 aspects:
1. Core competencies
2. External Environment (via PEST/PESTEL analysis)
3. Competitive Advantage (Via Porter’s Five Forces Model)
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1. Core Competencies:
Companies often develop strategies to fully exploit the capabilities of its resources,
and indeed to develop these capabilities further as a market differentiator. The
organization’s internal capabilities and resources describe its core competencies.
Core competencies relate to those resources and capabilities of the firm that when
combined enable the firm to attain a competitive edge in the market in which it
serves.
In deciding whether a combination of skills/knowledge/experience forms a core
competencies or not, a number of tests can be applied:
CC provide potential access to a wide variety of markets
CC make significant contribution to the perceived customer benefits of the
end-product/service
CC should be difficult for competitors to imitate
Organizations adopting a core competence perspective seek to exploit its intellectual
capital to the full.
CC create and sustain the ability to meet the CSF (Critical Success Factors) of
particular customer groups better than other provides in ways that are difficult to
imitate.
CSF: are characteristics of your market offering or organization that are particularly
valued by customers and will be used by these customers to distinguish between
different providers of goods and services. They also can represent standards or
minimum expectations from your market offering.
I.e. of CSF: if you decide to open a company in competitive courier market, CSF
would be: ability to deliver to expected times, customer tracking capability, ability to
constantly attain/exceed customers expected service level.
CC enables a firm to gain long term competitive advantage in the marketplace CC lead to levels of performance that are better than competitors
CC are difficult to imitate by competitors
CC should be long lasting and relate to hum intellectual capital
2. External Environment (PEST/PESTLE):
Johnson and Scholes outlined 3 key steps in analyzing the environment in which an
organization operates:
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Step one: auditing environmental influences involves identifying the
environmental influences which have affected the organization’s development
and performance in the past and trying to identify those that will be significant in
the future
Step two: assess how uncertain the environment is in which the organization isoperating. If the environment is fairly static then a historical and present analysis
will be useful. However if the environment is dynamic then a more future
oriented analysis is required
Carry out an explicit analysis of particular environmental influences. A structural
analysis should identify the key forces at work
PEST analysis is concerned with auditing the external environment in which the
organization operates to identify the key changes that are taking place. key changes
that will influence the organization in the future.
3. Competitive Environment (Porter’s Five Forces Model):
Value Chain:
The value chain for an organization is the structured set of activities that achieve the
objectives of that organization, ultimately satisfying customer needs.
In order to better understand the activities through which a firm develops a
competitive advantage and create shareholder value, it is useful to separate the
business system into a series of value generating activities (VC). Porter introduced a
generic value chain model that comprises a sequence of activities found to be
common to a wide range of firms. More details about VC:
http://www.netmba.com/strategy/value-
chain/ )
5 forces are:
Threat from potential new entrants
Threat from substitutes using different
technology
Bargaining power of customers
Bargaining power of suppliers
Competition among existing suppliers
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An Environmental Evaluation:
Mangers have to identify particular forces and their likely trends through some form of
analysis. Miles has developed a continum framework fr evaluating environmental types, this
analysis consists of the following questions:
How complex is the enviornment? How
many different environmental forces impact
on the environment?
How routine are the organziational
interactiosn with environmental parties?
How interconnected and how remote,
initially are significant environmental
variables?
How dynamic and how unprecitavle are the
changes taking place around the organzation
How high is input and output recptivty? How do environmental forces affect inputs
(suppliers) and outputs (customers)
How high is flexibility of domain choice? Can your organziation develop new areas of
operation or is itt restricted in some way?
Setting objectives:
In producing the vision and mision statement of an organzaition, the who , what and where
questions are answered. To successfully chart the organziation’s future, managers must
know where the firm is now, have a clear view of where it ought to be headed and recognizewhen the time is right to shift to a new business direction.
Purpose of setting objectives:
Convert the mission statement into performance targets
Create a yardsyick to track perfromance
Establish perfromance goals that require some degree f stretch
Push the organzation to be invetive, international and focused
Types of objectives:
1. Finacial objectives: relate to improving an organziations’ finacial perfromance, i.e.:
increase earnings growth to a higher percentage, boost return on equity to a higher
figure, attain lower overall costs than rivals, better organziations’ market share
2. Strategic objectives: stregic objectives relate to greater competitiveness and achieving a
stronger long term market position i.e. protect and strengthen products position as
market leader, achieve technological superiority, direct and manager the organziation’s
international business as it continues to develop
Crafting a strategy
This stratgey must show organziation how to:
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Achieve desired strategic and financial objectives
Out compete rivals and win competitive advantage
Respond to changing industry and competitive conditions
Defend against threats to the organization’s well being
Achieve business growth
Crafting a successful strategy is an exercise in enterpreurship. There is a need for a degree of
risk taking, innovation and business creativity and keen eye for spotting martket
opportunities. It is essential to keep strategy fresh, timely, opportunistic and resposive to
changing conditions. Strategy must be strong enough to overpower rivals, yet flexible
enough to overcome obstacles. A well manged organziation must have an attractive stratgy
and demonstrate proficiency in its execution.
Implementation:
After identifying the startegy, organzation need to implement it. There might be a need toadapt the existing systems or design new ones. Business need to maintain control while
strategies are being implemented, ensuring that managers keep within their budgets.
Implementing strategies involve:
Creating smooth links between the way things are done and what it takes for
effective strategy execution
Excution strategy proficiently and efficiently
Producing exceelent results in a timly manner
Ensure strong unions between strategy amd organziational capabilities, rewardstructure, internal support systems and organziational culture. (more in unit 5)
None of the tasks of strategic management can even be considered as completely finished.
The process is one of the contiual development. Times and conditions change, events
unfold, more efficient methods are developed. Therefore to maintain the effective
mangement of strategies, mangers must constantly evaluate perfromance, monitor
situations and decide how well things are going and subsequently make necessary
adjustments i.e. redfine the business, rasie or lower perfromance objectives, improve stratgy
excution.
Unit 3 : Analysing the internal and external environment
3.1: External Environmental Factors:
Macro environmental analysis enhances strategic planning, it does so by raising
management awareness of the impact of external influences through industry and
market analysis. It acts as an early warning system. The larger the organization the
more it is necessary to conduct the analysis.
There are seven criteria for deciding the extent of macro environmental analysisrequired in any organization:
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1. Does the external business environment influence capital allocation and the
decision making process
2. Have previous long range plans been scrapped because of unexpected
changes in the environment
3. Have there been unpleasant surprises in the environment4. Is competition growing in the industry
5. Is the business more market oriented and more concerned about the
ultimate customer
6. Do more and different kinds of external forces seem to be influencing
decisions and does there appear to be more interplay between them
7. Is management unhappy with past forecasting and planning efforts
External environmental influences fall into a number of categories including:
A. Industry situation: threats from other organizations i.e. new entrants. While in
other markets it may be difficult for new comers to enter the market because of
existing entry barriers (unit 4)
B. Economic and Cultural: changes in economic climate affect businesses i.e.
inflation, unemployment levels, economic growth rate, stage in business cycle.
As well influence of high technology on the organization culture, using
computers has led to major delayering and staff reduction.
C. Technological: technology is the fast changing environmental impact. Despite
the key impact of technology on most business it is unwise to assume that
technology is the answer to all problems nor that is always the way forward
D. International environment: we live in a large global market place, which is
rapidly being made smaller by competition and advances in technology, it is
essential for management to appreciate the global drivers as well as the
importance of local and regional differences, when formulating strategies.
An organization’s relationship with its stakeholders is influenced by two fundamental
issues:
The power of stakeholders; i.e. possession of resources such as suppliers,labour and the possible monopoly over such resources, authority such as
government or regulatory agencies, influence such as lobbying
The level of interest which is shown by stakeholders i.e. do they prefer to
adopt a distant approach in terms of organization’s development or are they
actively involved in the organization’s affairs
Greater knowledge of the position of key stakeholders leads to more focused
predictions and scenarios, it enables clearer strategies for managing the key
stakeholders to be formulated and implemented.
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3.2: Internal Environmental Factors:
Internal factors are the one influence the strategy i.e. organizational culture.
The role of systems analysis in organizational context:
A system is a ‘thing’ with interrelated parts. Each part is conceived as
affecting the others and each depends upon the whole.
Systems have many layers so systems analysis can be done at any level, but
we need to be aware of the particular level and the system should be
understood (the system might be understood differently by different levels of
the organization)
One of the great advantages of undertaking a systems analysis as a group
activity is the development of the organizational system and its subsystems
System analysis help identify organizational perspectives on the internal
factors that impact strategy.
Organizational policy:
Any organization must have a primary purpose “a reason for being existing”
The mission statement of an organization should set out the purpose of a business.
And this mission statement should be refined to reflect any developed or enhanced
capabilities of the business.
The scope of an organization’s activities is defined through its strategy. The scope
relates to the extent of the market in which the company will sell or service, the
market segment. An important aspect of strategy is for a company to identify the
‘position’ held by their products and services in the marketplace; which can involve
an analysis of what customers feel about the products as compared to others. Such
positions come from the marketing practice of ‘positioning’ – put your brand into the
minds of customers (what does it mean to them).
The more efficient the organization becomes the more able it is to compete in the
marketplace.
Two key considerations when examining organizational efficiency:
Synergy: relates to a company ability to coordinate resources, capabilities and
competencies through different products, business units and services of the firm.
Value chain: an organization’s coordinated set f activities to satisfy the customer,
beginning with relationships with suppliers and procurement and going through
production, selling and marketing. Each link in the value chain must seek competitive
advantage either by creating lower cost or through differentiation.
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Successful firm is the one that manages to build a strong value chain with effective
linkages between suppliers and the customers and end-users of the products.
Today in many mature industries merges and acquisitions are rife in the quest to
exploit synergies, improve business performance and gain competitive edge. But still
there are high risks associated with managers and acquisitions. (M&A:
http://www.thinkingmanagers.com/management/takeovers.php)
Structure:
The way in which an organization is organized will have a significant influence on
strategic thinking; some structures adopted today:
Function based: structure based on function, often found in large organization,
all a considerable degree of specialization in the respective departments.
Production, marketing and finance are all working toward achieving the strategic
aim but still communications and departmental inertia can combine with
excessive bureaucracy to slow down the implementation stage
Product or activity based: occurs in the retail industry where large diversified
companies often organize their business by grouping together different
functional staff who are involved in the production of the same product lines or
activities.
Geography based: organization by geographical area takes into account local
needs. While the structure enables good communication and the provision of
local needs, there is an inevitable duplication of resources potential difficulties
when maintain uniformity throughout the organization.
Customer based: it pay particular attention to market segmentation and
customer needs, whereas process based organizations rely on a much wider
ranging sequence of activities or processes, usually at other organizations.
Although this structure is similar in its operation to function based, there is
usually a lack of flexibility as the process receives and passes on work from to
other departments or businesses
The main issue for all these organizational structures is the need for effective
communication in the field of strategic management, the more complex the
structure, the more likely that the channels of communication will be potential
problem.
Communication:
The effectiveness of the communication of change can be determined by 3
questions:
Do informal communications tend to be more significant than formal?
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Are there divisions in the organization between those who are in the know
and those who are not – and what are the effects of these divisions or lack of
them on effectiveness
Do the communication help people to understand the way ahead for the
organization
Culture:
Culture can be defined as: the deeper level of basic assumptions and beliefs that are
shared by members of an organization that operate unconsciously and that define in
a basic taken for granted fashion an organization’s view of itself and its environment.
It is evident that for a strategy to be successful there must be a blend of rational
logic together with considerations of culture; fit. If a strategy is dominated by either
of these extremes it is likely that what may be produced is either a cleaver strategythat will not tick or a cozy strategy that ignores the hard headed realities of the
business.
Culture is a key factor in the strategy formulation process and should not be
underestimated. It defines the way that people are chosen, developed, nurtured,
interrelated and rewarded. The culture may become so strong that it is best referred
to as an ideology that dominates all else.
Stakeholders:
External stakeholders include customers, suppliers, government, etc. and internal
ones are owners, managers, employees. The input and degree of influence of
stakeholders in the strategy process
should be taken into account. A
business needs entrepreneurial
activity for innovation and risk taking,
without these the organization would
not exist in the first place.
How the external environment
impacts the internal:
The response of an organization to external environment factors, is influenced by
four key dimensions:
a. Sensitivity to context: mangers are deeply aware of their own organization; its
market possibilities, internal resources, capabilities, how the organization behave
in relation to change. Each organizations has different history or tradition, this is
a matter of sensitivity to culture and capability.
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b. The decision to be proactive or reactive to change is based on considering
possibilities and use of available resources to find workable solutions (emergent
approach). This implies a willingness to take actions without a clear sense of how
things are going to unfold in the future
c. Focus on outcomes: Managers are pragmatists, they are very concerned toensure results but are not too concerned about the means of achieving them.
This means that the decision of be proactive or not based on an assessment of
the outcomes from each stances.
d. Openness to uncertainty: mangers are thrown into situations in which they must
act quickly and without the confidence of certainty. As well the fashionable
emphasis of being proactive can give a false sense that all circumstances can be
anticipated.
Both internal and external environment mold an organization’s strategy. Inunderstanding these influences it is necessary to draw upon a variety of perspectives
from the chief executive to employees, customers and others who rely upon the
business.
Unit 4 : Strategy Choice Frameworks
4.1: Strategic Choice:
Many of the factors (internal and external) that strongly influence the strategy can
be out of the control of the organization but still the organization must study it andanalyze it in order to come to the right decisions on strategy. After identifying
mission and strategic objectives, and developed an understanding to the
environment, then there are probably several strategic directions that an
organization can pursue.
Three evaluation criteria help organization to choose the direction they want to
pursue to develop their competitive advantage (strategic decision choice): suitability,
feasibility and acceptability (Johnson & Scholes). There are several techniques that
can be used to test the strategic options.
Suitability: how well the strategy fits the situation identified? How well it
match the culture? Does it exploit the organization strength in pursuing
opportunities? Does it address the threats in marketplace?
Feasibility: is the strategy realistic and achievable in resource term? Does the
origination have the right skills, knowledge, experience, core competencies to
make this strategy workable? Does the organization have the financial
resources to see through this strategy.
Acceptability: can the organization get the ‘buy in’ and commitment of its
workforce in pursuing the strategy. Will the results of pursuing this strategy
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will be acceptable to stakeholders. Management needs to be satisfied that
the risks associated with the strategy are acceptable.
When management invest time and effort in analyzing these area, the future
becomes more predictable and the organization is more likely to make the right
strategic choices.
The process of building strategy:
Increasingly line managers in organizations are being asked to think, plan, and
behave strategically, in business terms means a long term view of the role and
purpose of the department or function for which manager is responsible and
develop a strategic plan to get there. The central concern of building a strategy is to
create long term vision of where we want to be or what we would like to become
while testing whether this is feasible and practicable and finding out ways of gettingthere. Process:
1. Developing strategic purpose (the reason we are here)
2. Developing strategic intent (where we will fit in a future environment)
3. Analyzing (where we are now)
4. Planning what we have to do to get there (our strategic plan)
5. Planning how we are going to do it (our tactical plan)
Techniques and Options:
PEST/PESTLE analysis:
Can be also PESTLIED: it is a mean of exploring the future in a directed fashion by
simplifying the environment into a few important dimensions. It provide a measure
of intellectual discipline in forcing an organization to consider the environment along
these dimensions. It somehow considered simple compered to today’s highly
complex and interconnected world. One way to enhance PEST analysis is to include a
specific business dimension BPEST which ensures that suppliers, competitors and
shareholders are included. The business dimension encompasses market share,
failures, alternate products, new entrants, supplier influence and new suppliers.
Political: the political climate of the organization itself, the sphere of national
or local government that fall in
Economic: the expectations of the economy and the economic climate in
which it operates. The organization’s ability to respond to differing strategic
needs in any cycle becomes important.
Social factors: this covers the social trends affecting the organization I.e.
habits values…etc. and their effect on the organization, its products and
services
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Technology: what will the impact of technology be on the organization, in the
products or services it will provide, in the internal processes and IT it will use
or in the way in which it approaches its markets
Legislation: the legislation affecting the organization
International: as the business is increasingly becoming global, competitorsare no longer just up the street, they could be half a world away. This global
effect need to be thought through
Environment: green issues are becoming important, they need to be
reviewed and their impact on the organization assessed
Demography: the trends affect the organization and must be assessed
Any strategy must focus on the future. Nowadays changes in the operating and
competitive environment are likely to be more radical, less predictable, happen
faster. Any strategic development exercise which does not take this a axiomatic islikely to flawed.
The formulation of strategy is concerned with matching the capabilities of an
organization to its environment. This is not a simple task and it gas lots of issues,
managers need to use their wisdom about their industry, its environment and what
are sensible responses to different situations.
Two key issues emerge from matching capabilities to environment:
1. Environment involves different influences, deciding which influence have or mayhave the most effect on the organization is not simple. An analysis of these
influences, their potential impact and their interactions is required, only then we
will get overall picture
2. Uncertainty: understanding the history of external influences on an organization
is problematic, it is also extremely difficulty to understand the likely future
influences
Dealing with uncertainty:
Coping with uncertainty is one of the key problems of SM, so an analysis must be
begin by asking:
How uncertain is the environment?
What are the reasons for that uncertainty?
How should the uncertainty be dealt with?
The environmental uncertainty increases with:
a. Environmental dynamism: the rate and frequency of changes being experienced.
It is the degree to which the environments of a company change and is measured
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by the speed of customer demands and responses. The greater the speed of
change, the more dynamic the environment is
b. Environmental complexity: refers to the range of environmental activities that
are relevant to what an organization does i.e. different customer groups,
different suppliers. The greater the number of these, the greater is theenvironmental complexity being experienced.
Complexity may exist for a number of different reasons:
Diversity of the environmental influences faced by the organization
The amount of knowledge required to handle the environmental influences
faced
Level of interconnectedness of the environmental influences faced.
SWOT:
Strengths, weaknesses, opportunities and threats. The primary purpose of this tool is
to locate the organization in its operating environment and try to assess its internal
capabilities and vulnerabilities. Using SWOT after PEST session is a good way of
organizing all the data in an easier format to assimilate.
There is always confusion between strength and opportunity; strength are internal,
opportunities are environmental similarly; weaknesses are internal, threats are
environmental. S&W are within the organization control while O&T are not.
Advantage of SWOT analysis:
Enables organization to put shorter term plans together to consolidate
strengths and address weaknesses
Identifies areas for more research, analysis and idea generation about the
environmental factors of threats and opportunities
Helps in the development of a strategic plan that is consistent with your
resources and organizational capability
The competitive forces framework (Porter):
This model is used to channel thinking into five major areas from which competition
might potentially arise in the future. By focusing on those 5 areas we will be able to
estimate the probability of competitive threat, speculate on its nature as a result
formulate a strategic response.
Porter’s generic stratgies:
The assumption is that organization will seek to dominate a segment or segments of the
market through:
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Differentiation: the organization pursues a strategy where it offers a product
or service which is unique compared with those of its competitors. It can be
achieved through a totally different product or the way which the product is
offered
Cost leadership: the organization enables itself to provide the product orservice at a cost less than any other competitive organization. The essence of
cost of leadership is not price but the ability the organization has to price
below competitors if and when it needs to.
Focus: the organization targets its products at a given sector of the market
with great accuracy and with a death capability and knowledge to support its
position in the sector. Focus can be cost focus or differentiation focus
Supporting the chosen strategy should also require developing the organization
internal capabilities and competencies. The problem many organization try to pursueall these 3 strategies together, which is a recipe of disaster and usually leads to poor
business performance and eventually failure. (Stuck in the Middle)
Strategy is particular to each organization, those with clearly defined unique
strategies are more likely to succeed long term.
Examples of Strategies in modern organizations:
Reducing cost base: many organization are aiming for a reduced cost base – a
leaner organization, less expensive to run and more productive or effective. Thethinking behind this is that in the event of a price war with competitors, the
organization has more flexibility to respond if its cost base is lower. As well it
could use the lower cost to initiate a price war and take out a competitor. As well
it can survive more in case of an unanticipated market downturn or margin
squeeze.
Improving quality: customers insist on improving quality, competitor pressures
pace quality improvement and the market is very unforgiving of quality failure or
disadvantageous comparison with competitors
Getting closer to the customer: customers are whimsical, fickle and not loyal, theability to anticipate this fickleness is a strategic strength. The ability to respond
fast to changing customer fashion and the ability to create customer fashion are
the powerful strategic attributes. Knowing the customer will enable the
organization to lead demand, create fashion and pre-empt competitors in
developing market niches and to fill them fast.
Short Cycle Times: keeping the cycle time short (i.e. time from conceiving the
product to hitting the market with it) is a way of keeping development cost
lower. Also the ability to enter the market with a new product before or very
shortly after competitors is also a key cost recover and profitability strategy.
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Strategic partnerships: being able to add value (reduce cost) to product by
entering a mutually advantageous partnership provides an excellent increase in
capability.
Ability to change fast: some originations are better able to embrace change than
others. Being fast or able to learn fast are organizational competences of greatstrategic value. The learning organization, athletic organization, responsive
organization, creative organization; are all names for this strategic strength.
The value chain:
The value chain shows the broad categories of activity which go on in an
organization as it take in raw materials at one end, adds value through internal
processes, and delivers its products and services at the other end.
Inbound logistics covers everything the organization does to receive goods
and materials, to store them and to ready them for use
Operations covers all the internal activities and processes of the organization
as it produces its product or service.
Outbound logistics: has to do with the collection and storage of goods, and
their entry into the supply chain, the system which get the goods to
customers
Marketing and sales: addresses how the organization promotes and takes its
goods to the markets
Service: usually implies after sales support and maintenance
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Organization infrastructure: covers the way the organization is structured,
managed, how it plans…etc.
Human resources management: covers the organization’s employment and
recruitment policies and practices
Technology research and development: deals with the plant and equipmentbut it also deals with the underlying technology research, it develops for its
particular needs
Procurement: deals with how and where it buys
The key value chain thinking are:
Each part of the internal processes of the organization can improve the
overall competitive advantage
The interrelationships or links between the activities of the organization can
be enhanced to improve competitive advantage
The interrelationships between the internal processes and the upstream
(suppliers) and the downstream (customer) can be examined to provide
competitive advantage
More about value chain (http://www.netmba.com/strategy/value-chain/)
Companies usually organized by functional units, increasingly cross functional
activities are replacing the traditional organizational silos. Part of what organizations
are trying to achieve by cross functionality is efficiencies in the value chain and abetter focus in strategic imperatives i.e. customer satisfaction.
Value chain is used to look for links to be established between various elements and
activities, links that can:
Enhance value i.e. improve the product at less cost
Reduce cost i.e. reduce waste, improve processes
Examples of the links within the value chain:
Building link between after sales servicing and research and design has
improved product reliability and repair cost
Tools that can help within the value chain analysis:
Enterprise resource planning: deals with radical revision of the information
systems within an organization and within its extended value system.
Process re-engineering: involves examination of internal processes within the
organization and seeks to eliminate redundancy, waste and duplication.
The nine specimen strategies (Kenichi Ohmae):
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Ohmae’s strategy building processes place a higher priority on ‘what we are’ than on
‘what we might be’ (making aspiration more realistic). The model compares market
attractiveness against corporate strengths in defining strategic behavior.
Serious entry into market: high market attractiveness, low corporate strength –
would imply that the organization would have to invest in developing skills and
capabilities to serve the market well. It is likely be competing against competition
stronger than it is, to perform well it has to be ‘serious’
Grow effectively: high market attractiveness, medium corporate strength –
organizational behavior should be looking to expand selectively. Probably as
opportunity presented itself not necessarily in pursuit of market dominance
High market attractiveness, high corporate strength – competing will require
continuous product or service enhancement, continuous adding value, possibly
price wars etc. position in the market and profit from it must be protected.
Limited expansion or withdrawal: Medium market attractiveness, low corporate
strength – if not more promising opportunities exist elsewhere the organization
might stay in the market and grow opportunistically, if better opportunities exist
it might withdraw from this segment and deploy its resources more effectively
Expand selectively: medium market attractiveness, medium corporate strength –
like expansion into relatively low risk areas of the market
Maintain superiority: medium market attractiveness, high corporate strength –
the organization will maintain its presence, it will look to limit investment in the
market but try to improve profitability
Minimize loss: low market attractiveness, low corporate strength – corporate
behavior would involve minimum development or investment in the market or
the products/services supplied to it. The organization would have to be wary of incurring loss in continuing to service the market
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Harvest: Low market attractiveness, medium corporate strength – getting as
much profit as possible out of the market with minimum investment.
Harvest in a limited manner: low market attractiveness, high corporate strengths
– the corporation would protects its profitability even at the cost of market
share. It would not seek to lose ground in the market but it would not defend itsposition if cost were involved
The major use of this model is to plot your own organization’s positions and then
reflect on the appropriateness of the strategic behavior you are evincing in the light
of your plot.
The Ansoff Matrix:
The primary purpose of this model is to analyze the organization’s approaches to its
products and to its markets to ensurethat an appropriate marketing strategy is
being pursued and possibly to reveal
opportunities. It also assesses the risks
involved in pursuing given strategies and
consideration of synergy which might
exist on both the product and the
market axes.
Market penetration: this strategy looks in increasing its product’s share of themarket currently served by the organization. i.e. more purchasing and usage
from existing customers, new products are added to the existing product line
also gain customers from competitors
Product development: either product modification via new features, different
quality levels, or offering new products
Market development: offering existing company products to new markets, either
through new market segments, new distribution channels, r new geographical
areas
Diversification: looking at entering new areas of the business
While the benefit of this model lies in examining strategic product/market strategy,
it also value in causing long term evaluation of markets, revealing the potential
opportunities for product synergy and for market synergy and focusing on
competitor activity
Market Leadership:
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If a company pursues a strategy of market leadership, it is trying to get a position
where competing companies are always playing catch up. Market leaders should not
only enjoy higher sales but also higher profit.
Survival:
Survival can be described in terms of the avoidance of loss, it may be short or long
term. In short term it can be a strategy pursued due to difficult market conditions.
Merges and Acquisitions
Merging or acquiring another company can often be an attractive proposition for a
company strategy wise. Either to build on core competencies or to buy in required
core competencies to meet the demands of a changed external environment, a
company pursuing this kind of strategy will be looking to gain advantage in the
market place.
Business redefinition
4.2: Evaluation Models:
Using Ansoff Matrix in conjunction with BCG matrix, the organization can conduct a
useful strategic review of production/market strategy and what that implies for
achieving the organization’s vision.
The BCG Matrix:
Its primary purpose is to analyze the
organization’s product portfolio, the purpose of
doing so is to be certain that the organization’s
strategic behavior is consistent with the
positioning and expectations of its products
within its markets. This model illuminate the
need for product or market development and
so an organization can use switch between BCGand Ansoff to help build its strategy
1. Stars: products that are perfroming well which means they are generating
positive cash and their cost of manufacture is falling bevuase of scale. These
products will usually require continous update to maintain their market share.
The organziational task is to manage theree variables; share, margin and overall
revenue.
2. Problems: products whih are not perfroming, they are achieving a low share of
growing markets, they are probably not generaying suffiecient cash to maintain
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them in their markets. Decision have to be taken to whether to intesify
investment or withdraw.
3. Cahs Cows: products which are perforoming well in markets which are growing
slowely or static, probably generating more money than cen be prfitability
invested in them. Unit costs are at least static, margins are steady.4. Dogs: low market share in markets which are grwoing slowely or static. They may
be consuimng more resources to maintin their avilablity than they can generate
to sustain. Decsions will be needed as to what to do about them.
If Nine Specimen startgies and Ansoffs matrix provide a check against the
organziation’s stratgic behaviour then the BCG has great value in determining the
startgic allocation of resources.
The critisim fro BCG arise from the difficulties associated with taking accurate
measnurment of market share and market gwoth rates
Directional policy matrix:
This strategy was developed to overcome this critisism of the BCG.
The two axes used for the chart are
buisness stregth and market
attractiveness. Business strength has to
be considered in relative terms, when
compared to your main competitors.
Market attractiveness can be measured
in terms of criteria that determine the
future profitablity and/or heakth of the practical buisness. How market
attractiveness and business stremgth are measured must be related to the
circumstances of each individual company being considered and the industry in
which it is operating.
Market attractivess is measued along the following paratmeters:
Market factors: size, growth rate, seasonality, bargaining power of buyers
Competiton: type, number, ease of entry to the market
Financial and economic: margins, possible econmic of scale
Technological: required technology, complexity
Socio-political: human factors, social attitudes and trends
Business stengths are measured using other criteria:
They will be determined by weighthing critical success fators: product, price, service,
image.
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Market Dynamica model:
A further way to analyse the competitive environment is by using the market
dynamics model
GAP Analysis:
GAP analysis is used to identify the
startgic direction for an organziation,
it take into account the capabilities
of the business together with the
opportunities in the marketplace.
It is very simple technique to
compare customers’ purchase
criteria with other suppliers
Product life cycle:
All products whether successful or
not, have a fairly typical pattern of
performance, although the order of
the performance and the time scale
over which the pattern emerges can
differ radically. Looking at the
product life cycle helps us to assess
the stage where the product’s life is
at and to predict its future
performance which helps in taking
strategic decision as to what need to be done with the product/market/resources
etc. these stages are:
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1. Below zero, is stage prior to the launch (introduction) at this stagy companies are
spending more on product development, marketing , publicity…etc.
2. Introduction: where revenues start to build, as the revenues start rolling the
development cost will start to recover.
3. Growth: product enters this stage when it starts selling more units; generatemore revenue and winning market share.
4. Maturity: the product attains the maximum market share, revenue and margin it
will achieve in its life
5. Decline: usually maturity is followed by a decline where product is either
supplanted by competitors or market saturation.
Plainly the pattern of the product left cycle changes from product to another but
phases are fairly predictable. The strategic use of the life cycle concept revolves
around the decisions the organization takes to influence the cycle.
Product Breakeven Analysis:
This model seeks to determine when the
organization starts to get a payback on a
new product.
The difference between the cost at
which the product is sold and what it
costs to make and sell is called margin.
Breakeven occurs when the margin
generated by the sale of the product is
equal to cost.
Breakeven analysis is primary financial
model used for number of reasons:
1. To determine cash flow requirements – how long to recover development costs
2. To determine resource allocation – products which reach breakeven sooner may
more attractive to the company than products which generate higher profit butbreakeven later
3. To balance the product portfolio in relation to cash needed to operate
4. To help choose between competing product opportunities
This model reveals hard facts about the financial performance of products and can
reveal new insights into existing strategy
The Seven S model:
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This model describe an
organization as an
interconnected series of
elements: Strategy,
Structure, System (those 3are hard Ss), Superordinate
goals, Style, Skills, Staff
(those are soft Ss). The
seven Ss need to be in
harmony when adopting
strategic change.
1. Superordinate goals (Shared values): represent the aspiration of the
organization, the beliefs, principles and am which should pull it toward success.2. Strategy: is the plan the organization has developed to achieve its long term
intention, how it will cope with its environment, how it will deal with
competitors, the markets in which it will compete.
3. Structure: the way the organization is built, its operating divisions, its decision
making mechanisms, its planning processes, etc.
4. Systems: the internal processes the organization uses to do what it has to do.
5. Style: (Culture), the belief system the employees have of what is rewarded n this
organization, what gets punished, what the organization is tough about and what
is lenient about. It is the reflection of the behavior of people within theorganization, especially senior people
6. Staff: the human resources of the organization; its ability, competencies, how it
is can or be developed, also deals with HR policies
7. Skills: this really describes what the organization is especially good at. It should
not be confused with the skills of the staff
Some elements are of course more effective in changing the organization than
others, change the strategy and it will not be noticed, change the system to better
support the strategy and it will
Core Competencies:
CC is not a model it’s a concept. The strengthening them is a major driver in
corporate strategies, they are driver for acquisitions sometimes.
CC are those capabilities that are critical to the business. They provide potential
access to a wide variety of markets, they make significant contribution to the
perceived customer benefits of the end product/service. They are difficult for
competitors to imitate.
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CC are a blend of skills, knowledge, experience, technological, systems, expertise
…etc. which are the core of organization’s success.
Access to competencies is being able to procure, buying, rent or hire the
competence one might need to carry out one’s business activities. While core
competencies are ones that provide competitive edge, it give the organization its
unique capability, they should be developed and nurtured and not be put at risk,
they form strategic assets of the company.
PIMS Model:
Profit Impact of Market Strategy; is a collective database originating from research
carried out by GE in US, it gathered data from member firms about market share,
profitability and a variety of other variables that might be expected to influence the
profit.
The two main issues with this model is that it accepts firm own segment definitions,
which may mot correctly describe business segmentation and it does not pay enough
attention to relative market share.
Opportunity/Vulnerability Matrix:
Developed from BCG matrix. It set out to prove
that it should be possible to produce a normative
curve to investigate average segment profitability.
It shows the relationship between return on
capital employed and relative market share,
leading to a normative band in a convenient
banana shaped curve.
Unit 5 : Strategy Implementation
5.1: Implementation:
Today many companies fail not because of poor strategy formulation but because of
poor strategy execution. We must monitor and control strategic activities to ensure
strategy implementation is proceeding to plan.
Implementation is truing the ideas into operational reality. If strategy cannot be
implemented then strategy development is a pointless exercise.
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Without effective measures to ensure that the chosen strategy is implemented
properly, the entire management of strategic development is wasted “A strategy is
only as good as its implementation”.
Strategy should be seen as dual process: the formulation process (usually carried out
by senior person/team) and implementation where all levels are involved ensuring
that the strategy is implemented correctly and in the right order.
Many companies fail to truly motivate their people to work with enthusiasm all
together towards the corporate aims. Sometimes organizations struggle to translate
the theory into action plans that will enable the strategy to be successfully
implemented and sustained. Most companies have strategies but far fewer achieve
them.
Strategy realization essential elements:
1. Motivational leadership: concentrates on achieving sustained performance
through personal growth, values-based leadership and planning that recognizes
human dynamics. Real leadership is required to compete effectively and deliver
growth. Leadership is the common thread which turns through the entire process
of translating strategy into results and is the key to engaging the hearts and
minds of the people. Effective leadership will make a difference in engaging
people to drive the strategy into action process or performance managing the
resulting actions.
2. Turning strategy into action: linking identified performance factors with strategic
initiatives and projects designed to develop and optimize departmental and
individual activities. The ultimate goal is to enable organizations to effectively
translate strategic intent all the way through to results in a clear and powerful
process. Brining the strategy to life by creating integrated action plans across an
organization that ensure all functions and divisions are aligned behind it.
3. Performance Management: involving the construction of organizational
processes and capabilities necessary to achieve performance through people
delivering results. To make the strategy live, everyone in the organization needsto be engaged to take action. PM is a key factor in getting the whole organization
aligned and mobilized.
More: http://www.businessballs.com/businessstrategyimplementation.htm
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Strategic plans to operational reality:
The corporate strategy for a business is
constructed as the guiding document for the
whole organization from highest level strategic
plan to plans need to be constructed for each
BU and for individual product markets, where
the strategy is broken down to lower level tasks
and plans.
Whether in departments, functions, BUs, the
idea is that staff will be working together to
meet objectives, targets, plans policies,
procedures and programs that will direct their
roles and actions. The process and activities
associated with the translation of corporate
strategy into action plans is a complex and
dynamic process. It should be seen as adaptive
process, reacting to changes seen within the internal organization and the broader
external environment.
Effective implementation of strategy:
It is evident that an organization will only effectively implement strategy if the
strategies are appropriate: appropriate to actual organization, their stakeholders,
environment, resources, capabilities and competences. As well the organization
should establish whether the proposed strategy is:
Suitable: whether the strategy fits the situation the business finds itself in.
PEST and SWOT assist in this situation. Also whether the strategy represents
effective use of the organization’s resources. Is the strategy suitable in terms
of offering a way to meet the objectives.
Acceptable: how the strategy fits with the organization in terms of the risk
involved and whether the plan is likely to be acceptable to all stakeholders in
the business.
Feasible: is the strategy working in practice. Whether the resources and
capabilities of the company are adequate.
Resources and capabilities are vital to the feasibility of any strategy, those questions
should be asked:
Is adequate finance available?
Are the core competencies that make up the organizational capability available?
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If the core competencies are not available, can they be developed quickly
enough? Can the organization gain access to them?
Are the product output levels intimated by the strategy achievable and
sustainable for the lifetime of the strategy?
Does the company have adequate management/sales/marketing resources tocope with competitor reactions to the strategy proposed?
Will the organization be able to achieve the levels of profit, sales, share of
market that indicated in the plan? Does it have resources?
Conditions for perfect strategy implementation:
Adequate time and sufficient resources are made available
The required combination of resources is actually available
The policy implemented is based on a valid theory of cause and effect
The relationship between cause and effect is direct and there are only few
intervening links
Dependency relationships are minimal
There is understanding of an agreement on objectives
Tasks are fully specified in correct sequence
Perfect communication and coordination
Those in authority can demand ad obtain perfect compliance
The strategy Document:
Deciding on the deliverables of the strategic management process is dependent on
organizational circumstances, it may include presentations, workshops, education,
training, methodology, steering committee, a strategy document. The content of a
strategy document will vary from sector to another
Resource allocation:
In allocating resources, the organization needs to determine its approach in a
number of areas:
Level of resources required and how the performance of these resources will be
measured
Availability of resources at any one time
Scheduling of resources over a period of time
Resource allocation to strategic actions need to be sees as a balance of efficiencies
and effectiveness. An organization needs to make strategic choices based on the
relative costs and benefits attached to the various resources available for a project at
any one time. The returns to be made on the financial investments afforded to each
task should also be worked out.
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Johnson and Scholes outline the two most important factors that should be used in
determining the approach to be taken for resource allocation:
1. The degree of change required in the resource base for strategy to be
implemented successfully – this may involve an overall change in the quantity of
total resources required by the organization, or it may involve a reallocation
between different resource uses with organization
2. The extent of central direction of the allocation process i.e. what extent the
allocation process is determined by the center of the organization or by
individual units within the organization
3. What resource will a strategy require for it its implementation – resource
identification
4. To what extent do these required resources build on or a change from existing
resources – Fit with existing resources5. Can the required resources be integrated with each other – Fit between the
required resources
It is at the operational level where mush of the implementation of a company’s
chosen strategic direction will take place.
Resource planning needs to include certain key actions:
The definition of the key tasks that need to be performed
Prioritizing the tasks – in what order do the actions need to be carried out?
The allocation of responsibilities as outlined in the defining and prioritizing
stages
The setting out of the action plan – based on a sequence of actions, as well as
the timelines and specific individual and team responsibilities for
implementing the actions
Types of resources:
1. Finance:
Finance is a key resource requirement of any strategy. In most organizations
financial objectives serve as the acid test of business performance. Generally the
company will use budgeting as a method of resource allocation, budgets will be
expresses and allocated in a variety of ways: units of production, employment costs,
administration expenses, sales values, sales volumes, overhead expenses.
When an organization introduces a new strategy, this may entail the allocation of
new budgets to the different levels of the firm. Whatever the changes being made,
financial resourcing is all about ensuring the finance of the business is allocated
effectively to ensure the safety is effectively implemented.
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Most private sectors will allocate financial resources on the basis of the key
profitability objective. Different teams and functions involved in the strategic
implementation will need to fight it out to ensure they get an adequate financial
allocation.
2. Human Resources:
HR function should play key part in resource planning at every stage of strategy
implementation. The role of HR planning is to ensure that the organization has the
right number of staff going forward, in addition to ensure the necessary skills and
experience are in place to enable the strategic objectives to be met. The purpose of
HR planning is to the manage the process whereby people enter, move through and
leave business organizations in accordance with the overall objectives of the
business.
There are number of key elements involved in creating the HR resource plan:
- Generating a forecast of the future staff requirements
- Estimating any shortfall in supply, and developing a plan to bring in the
additional identified resources
Identifying staff that could be more effectively used in the future and identifying
ways to develop these staff to meet the future needs of the business. The HR remit
should include taking a strategic view of the organization of work in the company
and the organization of staff and management to deliver work effectively. A key
emphasis in this should be to ensure the most applicable management controls are
built in so that staff effectiveness can be measured.
3. Materials:
Many organizations rely on the use of materials in order to operate, it is crucial for
an organization to have an effective material resources management strategy. This is
known as supply chain management.
Effective material resources should include:
- Effective logistics
- Effective and efficient physical handling approaches
- Effective stock holding policies with JIT offering advantages to many
organizations
- Management of the value chain for the organization
Strategy is as dependent on the operations function for effective implementation as
operations is dependent on top management for making correct strategic choices.
4. Time:
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Druker refers to time as being one of the primary features of strategy
implementation: “Management has to always consider both the present and the
long range future. A management problem is not solved if immediate profits are
purchased by endangering the long range profitability, perhaps even the survival of
the company.”
Time needs to be well organized and successful managers have been shown to be
expert time as well as people and task managers. These managers are able to
concentrate their focus on the task in hand and to organize their time in such a way
that all activities get done in prioritized order.
Time wasters:
- Failure to focus on key tasks – the things that really matter
- Failure to plan ahead- Failure to delegate
- Failure to make decisions or making snap decisions without enough information
- Failure to set realistic standards
- Trying to do too much
- Failure to control meetings
- Failure to control paperwork – reading too much of it or being inefficient
- Failure to control interruptions
- Crises: reactive management
Time wasters due to personal circumstances:
- Failure to communicate clearly
- Failure to listen
- Putting off things you don’t like
- Being sloppy or making carless mistakes
- Being too much of a perfectionist
- Talking before thinking and talking too much
- Saying yes when you ought to say no
- Lack of concentration
- Fatigue and poor health
- Overlong breaks or no breaks at all
Deciding priorities:
One method of determining high
priority activities and medium low
priority activities is to use a set of
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indicators to single out the high priority ones.
High priority activities: help achieve objectives, maintain or improve staff
performance, provide information to aid the management of the business. They
should be tackled first. Once started we must stay on high priority tasks until
completed
Medium and high priority activities: these are the one that should be delegated, if
we must be involved we need to set sometime limits for each of these activities.
5. Project Management:
A project team is made up of individuals who have certain skills and experience that
can be utilized to deliver specific objectives within the overall strategy. They can be
positioned at any level of the business. Project teams are generally temporary in
nature; assembled to achieve a particular objectives, over a given time and against
an agreed budget.
Project teams represent a way to achieve the buy in of people within the
organization to the vision, mission and corporate objectives. It allows staff within the
organization to see the contribution they are making to the overall success of the
business. With any project team it is critical to ensure that the integration and
contribution are developed and delivered. Internal politics and individual agendas
need to be avoided if a team is to deliver the required results.
(http://www.businessballs.com/project.htm)
A clear definition of role, responsibilities and objectives of the role are essential. This
is essential to assess the performance of the teams and individuals as well. It is
important for individuals to be empowered to make a difference, this difference
comes from being given the opportunity to generate new ideas and suggest changes
that will benefit the business and develop the strategy proposed. It is suggested that
allowing individuals and teams to develop new working practices and processes not
only enable a strategy to be implemented but also enable the lower levels in an
organization to develop ideas that can adapt or change the future strategies
developed by the business.
Accountability is key when it comes to assessing the performance of people within
an organization. Objectives are necessary to ensure team don’t follow their own
agenda and hat everyone pulls in the same direction, ways to do this include:
- Clear definition of the project’s scope and objectives
- Setting budgets – with targets levied on individuals and teams
- Timelines for achievements of specific objectives – to guide a project to a naturalconclusion through a series of actions
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Implementation of strategy relies on people, people at every level of the
organization, whether through individual or team effort. Project management plays
a key role in mobilising people in the same direction and focusing them on strategic
goals.
6. Management of change:
The management of change requires an appreciation of the characteristics of
change:
a. Change will occur, is it planned or random
b. Many people find change threatening therefore they cling (stick) to the old
known ways to avoid uncertainty and change
c. Change need to be managed
Managing change require clear understanding of the context in which we are to
manage, we need to know the organization’s culture, underlying values,
behaviours and basic assumption which are taken as natural by its members. And
also to avoid barriers to change which arise when:
- People see changes as a threat to their objectives and preferences
- When people affected are not fully aware of the reasons and implications
- When particular policies, behaviour patterns and ways of doing things have been
established and accepted for a long time and have become part of the culture- Where people feel comfortable with the status quo and fear the unknown
- Where flaws are perceived in the change proposals
7. Internal communication:
Clear communication of ideas helps people to see the need and logic for change.
Understanding about the future also allows people to worry less about specific
changes and helps them to think how they can contribute to the plan not fight it
To be successfully implemented, a strategy needs to be
effectively and efficiently communicated to all who will play
an active role in it will be affected by it. It’s also essential for
communication to flow freely from workforce back to senior
management (two way communication)
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Communication serves to translate the objectives of a business into the details
needed to carry out the actual implementation of the strategy.
It’s not the strategy that brings success to a business but the implementation. Any
strategy need to be delivered effectively and in very large parts this will rely on the
stakeholders if the business as they are the ones who will deliver the strategy. Its
crucial to obtain their buy-in in every quarter. This buy-in can be achieved if the
stakeholders are able to completely understand the reasons and purpose behind the
strategy direction, timely and accurate communication is mandatory. The
stakeholders include:
- Management and other employees – people who will be implementing the
strategy
- Shareholders or other owners of the company
- Company’s customers
- Other publics
The significant communication in strategy implementation is employee involvement,
ranging from mangers putting in place a mechanism whereby employees are able to
put forward their ideas, through to the creation of a more formal role being set up
for employees to take part in the strategic decision making process of the firm.
Empowerment is often used to describe employee involvement.
Three key ways in which management can gain the support and commitment of the
workforce in strategic initiatives:
- Setting out the implications of the proposed strategy
- Creation of both awareness and understanding
- Ensuring reward systems and employees incentives are able to back up the new
strategy
To support employee involvement in the strategic direction of the firm, companies
should use innovation and creativity.
It’s not strategy that brings success to a business but the implementation of the
strategy. Communication with stakeholders is key to successful implementation
5.2: Strategic Control and Justification:
Strategic Control:
Reporting and feedback systems:
Control is always an important function of the architecture of an organization as wellas in the case of strategy in order to determine whether objectives have been met
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and to what degree and also to allow for appropriate
alterations to the strategy to be made in a timely way.
An adequate feedback system will allow an effective review of
the performance of the organization as controlled by different
levels. There are 3 levels of control within the organization:
strategic level management level – operational level.
Example by Johnson and Scholes; to move into a new overseas
market, strategic control will be by an overall budget,
management control by monitoring expenditures and
motivating employees, operational level by ensuring that routine tasks are properly
performed.
Performance review:
Evaluation and review needs to take place at each level of the organization and
should center around three keys areas:
- An assessment of the appropriateness of objectives set
- An assessment of the appropriateness of the plans put in place to achieve the
objectives.
- An assessment of the results obtained up to the time of the evaluation
In order to avoid conflict between those setting the strategy and those implementing
it while taking into account he business context during the evaluation; Runmlet
(1980) suggests that evaluation of strategy effectiveness should include examination
of the following:
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- Consistency: all goals and policies of the strategy must be consistent
- Consonance: the strategy must represent and adaptive response to the external
environment and to the critical changes occurring within it
- Advantage: the strategy must provide for the creation and/or maintenance of a
competitive advantage in the selected area of activity- Feasibility: the strategy must neither overtax available resources nor create
unsolvable sub problems
MIS (management information system) can play a crucial role in accurate and timely
evaluation. GAP analysis can be used as an additional tool to measure the level of
desired performance for a business against the forecasted performance, it will
enable the company to see how the present and desired performance benchmarks
against the industry norm. GAP analysis allows a company to see where it is going if
it doesn’t bring in new strategies for the future.
Benchmarking:
A further way to deliver effective individual and team performance in the
organization is through the use of benchmarking. In this way organization can set
performance targets that match with the best in an industry. It involves an audit
being taken of a company’s performance and this being compared to other
competition in the industry. For any organization adopting benchmarking as a
performance diagnosis tool, there is a need to examine the best practices of other
businesses, this needs cooperation between what can often be seen to becompeting businesses.
Benchmarking and best practices are synergistic, benchmarking reveals the gaps and
best practices provides a means of closing the gap.
Total Quality Management:
Means the implementation of strategies, tactics and operational methods for
integrating practical quality control techniques with organizational cultures
conductive to the continuous improvement of quality. It focus on the totality of thesystem rather than individual parts, seeking to identify the causes of failure rather
the simple facts that failures have occurred.
http://www.thinkingmanagers.com/management/total-quality-management.php
Justification:
The purpose of a strategy is to identify where the organizaition is at the moment and
to help direct it towards the intended objective. Before proceeding to
implementation, management must check that its strategy has a realistic chance of success and fulfils a number of justification criteria.
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Justification criteria:
- The business strategy must concur with the overall corporate objectives and
strategy so that the organization is truly pointing in the same direction.
- It must be designed to integrate all functions of the organization. Each function
will need to have a clear understanding of the future goals and how they will
affect each function
- The needs of the customer and the market must be fulfilled and satisfied
- The strategy must achieve its objectives in a simple and clear manner.
Unnecessary complexity will only increase the likelihood of strategic failure
- The cost of implementation must be adequately measured to ensure that there is
a financial benefit of the new strategy
- The strategic plan must address timing, legal implications, social responsibility
and feasibility
If the strategy can be justified, its implementation can move to the next stage. With
adequate control mechanisms, its stands every chance of achieving its objectives.
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