p3 acca - Chapter 1

7/30/2019 p3 acca - Chapter 1

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StrategyDefined as:

The direction and scope of an organisation over thelong-term, which achieves advantage in a changingenvironment through its configuration ofresourcesand competences with the aim of fulfilling stakeholder

expectations.


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Direction and scopeLong-term

Advantage

Environment

Resources and competences

Stakeholder expectations.


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Levels of Strategic PlanningCorporate Strategy

This looks at the industries in which the organisation operates. Thismay mean deciding to leave existing areas or enter new ones. This isparticularly true if the organisation has a number of divisions.

Business Strategy

This looks at how the organisation (or subsidiary / division)

competes. This tends to mean either: The division is trying to win customers by being better than

rivals in some way.

The subsidiary is trying to win customers by being cheaper thanrivals.

Operational Strategy

This looks at how resources are used to carry out the strategiesnoted above.

In addition it looks at how areas like processes can be improved to

help make the strategy more likely to succeed.


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A

DIVERSIFIED

COMPANY

SINGLE

BUSINESS

STRATEGY

Crafting a Strategy

Chemicals

pesticidesCosmetics

Polyester


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Corporate

Strategy

Business Strategy

Functional strategies

(R&D, manufacturing marketing, finance, humanresource, etc.

Operating strategies.

(Regions and districts, plants, departmentswithin functional areas.

Responsibility of corporatelevel managers.

Responsibility of businesslevel general managers.

Responsibility of heads ofmajor functional activitieswithin a business unit.

Responsibility ofplant managers,geographic unitmanagers andlower level

supervisors.

A

DIVERSIFIED

COMPANY


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BusinessStrategy

Functional strategies

(R&D, manufacturing , marketing, finance,human resource, etc.

Operating strategies.

(Regions and districts, plants, departmentswithin functional areas.

Responsibility ofexecutive level

managers.

Responsibility of

heads of majorfunctionalactivities within abusiness unit.

Responsibility ofplant managers,geographic unitmanagers andlower level

supervisors.

SINGLE

BUSINESS

STRATEGY


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Ambledon Ltd is a company selling widgets. The financedirectors says, We plan to issue more shares to raisemoney for new plant capacity- we dont want loan finance which will enable us to compete better in the vital andgrowing widget markets of Latin America, while delaying

the development of new products in new business sectors.After all, weve promised the shareholders 5% profitgrowth this year and trading is tough.

IDENTIFY THE CORPROATE, BUSINESS AND

FUNCTIONAL STRATEGIES IN THE ABOVE CASE.


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CORPORATE

Profit growth.

Entering new markets rather than producing new products

. Allocation of funds for additional plant capacity.

BUSINESS

Promotion in existing markets and existing products.

FUNCTIONAL Invest in new plant.

Equity financing rather than debt financing.


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There are two extremes when deciding onorganisations future strategy:

Strategic planning

Free wheeling opportunism


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Toyota

Toyota's top management has periodically talkedabout extending a helping hand to GM and Ford, inparticular by raising prices in the US market. But the

company's ambition is to make Toyota the world's largestautomotive company. The firm intends to continue gainingmarket share, to reach 15% of the global market over thenext decade, and it continues to be the largest investor inthe industry.

North America remains a key market, where Toyotaplans to open its sixth plant in the second half of 2006,

which will be located in Texas. Another plant will open inCanada.


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Toyota maintains its lead by watching its costs,designing attractive new vehicles which consumersactually want, providing high quality products andmaintaining production efficiency.

Its investment in fuel-saving technology has paidoff with the success of its Prius petrol/electric midsize.The company contends that the car gets as much as 80miles per gallon and is winning the title of best car

from last 4 years..


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Stage 1 Strategic Position Identify key stakeholders and their expectations.

Develop long-term objectives to satisfy these stakeholderexpectations.

Calculate financial and non-financial ratios to showposition of organisation.

Identify core resources and competences within the

organisation. The culture, beliefs and assumptions of the organisation

Identify keyfactors changing the environment outsidethe organisation. i.e. the environment (competitors,

markets, regulations, discoveries etc. Opportunities andthreats)

Use SWOT analysis (also known as a corporate appraisal) tosummarise the strategic position.


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Stage 2 Strategic Choices Generation of strategic options

Evaluation of the options to assess their relative meritsand feasibility.

Selection of the strategy

Consider possible exit from existing industries.

Consider diversification into new industries.

Consider developing new competitive advantages.

Consider entry into new markets.

Consider development of new products.


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Stage 3 Strategy intoaction/implementation

Implementing a strategy has three elements.

Organising/structuring. For example, should the

organisation be split into European, US and Asiandivisions? How autonomous should divisions be?

Enabling an organisations resources should support thechosen strategy. For example, appropriate human resources

and fixed assets need to be acquired. Managing change. Most strategic planning and

implementation will involve change, so managing change,in particular employees fears and resistance, is crucial.


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Why Strategic Planning(Rational Model) is necessary


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Strategic planningInvolves formal analysis of

each of the stages of strategic position before a finalstrategic choice is made.

Strategic planning is useful because:

It forces managers to consider each stage of thestrategic process

It forces managers to justify their actions

It forces managers to consider the effect of a strategyon all aspects of the business

It allows managers to be proactive rather than reactive.


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Freewheeling opportunism

Freewheeling opportunists do not like planning. Theyprefer to see and grab opportunities as they arise.

Intellectually, this is justified by saying that planningtakes too much time and is too constraining. Probably,the approach is adopted more for psychologicalreasons: some people simply do not like planning.

Often such people are entrepreneurs who enjoy taking

risks and the excitement of setting up new ventures.However, once the ventures are up and running, theowners lose interest in the day today Repetitiveadministration needed to run a business.


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AlternativeWays ofdeveloping organisational

strategyother than Rational and Free wheelersApproach.

IncrementalismEmergent strategies

The strategy lenses


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Emergent strategies The research of Mintzberg (1987) suggests that few of

the strategies followed by organisations in the realworld are as consciously planned as the approaches

above suggest. He believes this to be an unrealistic view of strategic

planning, believing instead that strategies evolve overtime (emerge) rather than result from an in depthanalysis of every aspect of the environment and animpartial evaluation of every possible alternative.


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Incrementalism Lindblom did not believe in the rational model to decisionmaking as he suggested that in the real world it was not used,

citing the following reasons. Lindblom believed that strategy making involving small scale

extensions of past practices would be more successful as it waslikely to be more acceptable as consultation, compromise andaccommodation were built into the process. He believed thatcomprehensive rational planning was impossible and likely toresult in disaster if actively pursued.

Strategic Managers do not evaluate all the possible options opento them but choose between relatively few alternatives.

It does not normally involve an autonomous strategic planningteam that impartially sifts alternative options before choosingthe best solution.

Strategy making tends to involve smallscale extensions of pastpolicyincrementals rather than radical shifts following acomprehensive search.


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The strategy lensesJohnson and Scholes talk about strategic lenses, which are three ways

of viewing what can be meant by the term strategy. These are asfollows.

Strategy As Design. This is the view that strategy formulation is arational, logical process where information is carefully considered andpredictions made. Strategic choices are made and implementation

takes place. Essentially this is the same as the rational planning modeldiscussed earlier.

Strategy As Experience. This is the view that future strategies arebased on experiences gained from past strategies. There is stronginfluence from the received wisdom and culture within an organisation

about how things should be done. This reflects the emergent approachdescribed above.

Strategy As Ideas. This is the view that innovation and new ideas arefrequently not thought up by senior managers at the corporateplanning level. Rather, new ideas will often be created throughout a

diverse organisation as people try to carry out their everyday jobs andto cope with changing circumstances.


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Illustration

The strategy lenses

Choosing a family holiday. A family is considering aholiday. The family has for many years gone to thesame resort, Golden Sands which has been perfectlysuitable. Applying the strategic lenses to this modest

planning exercise could result in the followingapproaches:


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Strategy as design. The family gets lots of holidaybrochures and makes extensive queries on theinternet. Checklists of familymembers requirements

are drawn up and the holidays are scored against these.Careful budgeting exercises are carried out. The resultof this rational, logical process is that another resort,Emerald Coast seems to be a better fit to what the

family needs.


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Strategy as experience. Despite the analysis carriedout, the head of the family would like to return to

Golden Sands. There is strong emotional attachmentto that resort, the facilities and activities available arewell known and holidays there have always beenenjoyed.


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Strategy as ideas. An old school friend of the head ofthe family now lives abroad and has just emailed withthe suggestion that the two families do a house swap

for a couple of weeks. Both families live in interestingand attractive areas of their countries and the houseswap would be cheap, comfortable and interesting.


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Of course, there is no right answer as to where thefamily should go on holiday, and assessment of thesuccess of the holiday can only be carried outretrospectively. But one thing is clear, all three of thelenses have a part to play in trying to make a gooddecision.

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p3 acca - Chapter 1