Documente Academic
Documente Profesional
Documente Cultură
College 2008-9
An introduction to strategy
1. What is strategy?
Strategy is... the determination of the basic long term goals and objectives of an
enterprise, and the adoption of courses of action and the allocation of resources
necessary for carrying out these goals. (Chandler, 1962)
Hence, three parts. (1) Conceptualising coherent and attainable strategic objectives.
(2) Achieving the objectives through appropriate actions. (3) Supporting the
activities with an appropriate level of resource deployment (e.g. finance, humans,
land, buildings, etc.)
Key distinction - plan and pattern. Plans are deliberately implemented, patterns ‘just
happen’ or ‘emerge’.
Hence, Mintzberg identified two essential ‘sources of strategy: deliberate strategy
(intended) - resulting from a plan; emergent strategy - resulting from a consistent
pattern of behavior.
3. Lynch: “Corporate strategy is the pattern of major objectives or goals and essential
policies for achieving those 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.”
4. Johnson & Scholes
Strategy is the direction and scope of an organization over the long term: which
achieves advantage for the organization through its configuration of resources within
a changing environment and to fulfill stakeholder expectations.
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5. The strategic process
C u rre n t S tr a te g ic S tr a te g ic
s ta te p ro c e s s o b je c tiv e s
Strategy is a process to move from the current state to a desired position. The changing
nature of objectives usually means that strategic processes are ongoing.
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Strategic objectives
Lecture plan
1. The nature of strategic objectives.
2. Two approaches to objective-setting.
Stockholder (equity) theory.
Stakeholder theories.
3. Some notes on mission statements
Important principle: all levels of strategy must be consistent with levels above and below
it. This is called goal congruence or hierarchical congruence.
Stockholder theory (or equity theory): Argues that only those with a financial investment
in an organisation have a legitimate right to influence objectives.
Stakeholder theory: Argues that anybody with an interest in the organisation has an
influence on objectives.
Stockholder theory
The agents (directors) of an organisation must set objectives in such a way that they
maximise their principal’s (shareholder’s) wealth. Because the principals own the
organisation, only they have a legitimate right to determine objectives.
Stakeholder theory
A stakeholder can be defined as: any person or party that can affect or be affected by the
activities and policies of an organisation. (Campbell, et. al. 1999). Stakeholder theory
states that an organisation’s objectives are set according to the relative strengths of the
various stakeholders.
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Stakeholder ‘mapping’
The ability of any stakeholder to influence objectives depends upon their position in
respect to two variables: stakeholder interest - how much the stakeholder actually cares or
is willing to influence; stakeholder power - how able the stakeholder is to influence
objectives.
S ta k e h o ld e r p o w e r
Low H ig h
L e a s t in f lu e n t ia l
Low
Incre
asing
influe
nce
Stakeholder interest
M o s t in f lu e n t ia l
High
Stakeholder coalitions
A coalition is formed when several stakeholders join together to exert a combined
influence on organisational objectives. Coalitions can coalesce to form opposing blocks
of power over organisational objective-setting.
Sellafield has always been controversial. As time passed, two conflicting stakeholder
coalitions emerged:
One in favour of the complex; One against.
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The ‘for’ coalition. Her Majesty’s Government (that sees nuclear as a vital part of its
energy ‘portfolio’); BNFL - that operates the plants; Trade unions representing workers at
the plants; Local authorities in the region that benefit from spending power and local tax;
Other businesses in the area that benefit from ‘knock-on’ trade; Customers at home and
abroad who benefit from Sellafield and ThORP’s services.
The ‘against’ coalition. Competitors (those who supply from alternative energy sources);
Some trade unions representing workers in competitor industries (e.g. the NUM); Some
health pressure lobbies.
Environmental pressure groups; Some fishermen and farmers; The Irish government
Which is the stronger coalition? - the 'for' coalition.
What does a mission statement contain? Usually the following: an indication of the
industry or activity in which the organisation is involved; a realistic indication of the
target position in the market; a summary of values and beliefs held; specific and highly
context-dependent objectives.
1. Political influences
Influence on an organisation directly or indirectly from any part of a state, either at home or abroad.
A state is a self-governing, autonomous geographic region comprising a people with (usually) a common
recent history.
Components of a state
There are four essential ‘organs’ of state. The executive, the legislature, the judiciary, the secretariat (or
administration) The executive of the state establishes policy for the other components of the state and is
responsible for the execution of policy. The legislature is responsible for debating and instituting statute
laws. The judiciary comprises the various levels of courts and is responsible for interpreting and applying
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statute and common laws. The secretariat comprises the public sector and is responsible for implementing
the policies of the executive and legislature.
2. Economic influences
Influences arising from the conditions in the national macroeconomy. These can be: directly as a result of
executive policy, or,; indirectly as a result of the outworking of executive policy on the national economy.
Fiscal policy
The regulation of the economy by varying the levels of government revenues and expenditure.
Two types of taxation. 1. Direct taxation is tax paid on income and profits. 2. Indirect taxation is tax levied
upon goods and services, for example: VAT; import duties; tobacco and alcohol tax; hydrocarbon tax (on
petrol, solvents, etc.).
Monetary policy
Regulation of the economy by varying the price and quantity of money. The price of money is commonly
termed the interest rate. The quantity of money concerns the amount of money in circulation, BUT cash is
only one form of money.
3. Sociodemographic influences
Influences arising from the distribution and changing preferences of people. Sources of influence:
Demographics; Consumer fashions and trends; Pressure and opinion leadership; Environmental opinion;
Ethical opinion.
Demography - briefly
The study and charting of changes in population, for example: size; migration; age distribution;
concentration (people per square km); sociodemographic distribution (income distribution), and loads of
other aspects.
4. Technological influences
Changing technology can significantly affect business performance and competitiveness. Technology can
influence speed, quality, productivity and many other important things.
The competitive environment
Five forces analysis
What is the competitive environment?
Sometimes called the external micro business environment or, the immediate or near environment.
Comprises the industry environment in which the organisation competes, buys and sells. Hence it concerns
suppliers, customers and competitors.
Determinants of profitability
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The profitability that an industry or a company can make is determined by, five forces of industry
profitability (Michael Porter, 1980)
T h re a ts fro m
n e w e n tra n ts
I n t e n s ity o f
B a r g a in in g
r iv a lr y a m o n g B a r g a in in g
pow er of
e x is tin g p o w e r o f b u y e rs
s u p p lie r s
c o m p e t it o r s
T h re a ts fro m
s u b s t it u te
p ro d u c ts
A company will tend to have power over its suppliers, if: it is a large organisation which can consequently
buy in quantity; it is a monopsonist (or near monopsonist) of a certain input; the organisation consumes a
large part of a supplier's output; it has a highly fragmented supplier base; it uses commodity and
undifferentiated material inputs; it has a low labour requirement relative to its sales turnover; it requires
relatively unskilled labour; it has an non-unionised labour force; it has a labour force with non-transferable
skills (who are thus 'locked in' to the employer); it is able to sustain debt at negligible risk of default; it has
low financial gearing
Entry barriers
Capital requirement. Compare the window-cleaning market to the petrochemicals refinement industry.
Legal permission or government licences.
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Unique access to supply or distribution channels.
Intellectual assets - unique competencies such as licences; patents; brand-names, logos, registered trade-
marks and registered designs; uniquely qualified personnel and 'know how'; formulations and recipes;
Two types of substitute - direct substitutes are of the same material nature. e.g. brand switching (coffee,
gloss paints, etc). Indirect substitutes are products which are different but which can, under certain
circumstances, perform the same role. e.g. concrete and steel for bridge construction.
USP
The key manoeuvre to make products or services less substitutable is to differentiate. Creating a unique
selling proposition (USP) is a key marketing step that means that consumers are unable to switch. A USP
can be material or perceived.
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transfer market (human resources); having access to sufficient capital for investment in
the above (financial resources); having the tactical know how, contacts, reputation, loyal
support, etc. (intellectual/intangible resources)
Core competences. Sometimes called distinctive capabilities. Capabilities owned by a
business that enable it to perform at a superior level compared to industry competitors.
They arise from successful development of general competences and superior resource
utilisation. Features of distinctive capability: they are only possessed by those companies
whose performance is superior to the industry average; they are unique to the company;
they are often complex and difficult to identify; they are difficult to emulate (copy); they
relate to successfully fulfilling customer needs; they add greater value than 'general'
competences; they are often based on distinctive relationships with customers,
distributors and suppliers; they are based upon superior organisational skills and
knowledge.
2. Value added
What is it? Answer: Value added refers to: how fast, and, how efficiently, an organisation
converts its resource inputs into outputs. AND The difference between the full cost of the
inputs in comparison to the price chargeable for the output.
Value added – comments. The rate at which value is added to an input varies. Anything
that does not add value is waste, for example: poor quality (at any stage), machine down-
time or low utilisation, stock queuing, underskilling of workforce, high stock levels, etc.
Increasing value added can be achieved by: reducing costs, or, increasing the price that
the customer is willing to pay for the output.
Primary activities
Inbound logistics - Stock procurement, Goods inward and inspection, RM stockholding,
RM stock issue and internal distribution
Operations - Transformation of RM inputs into FG outputs. For manufacturing
companies, this is usually the strategic stage - especially if stock queues at any point.
Outbound logistics - FG storage and distribution to next stage in the chain.
Sales and marketing - Making the FG stock abailable to the market. Persuading
customers to call it off (i.e. buy)
Service - Installation and after-sales service.
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Infrastructure - A term used to describe the general structural features of the internal
environment, for example: planning, systems, management structure, etc.
Human resources - The management of the organisation’s HRs at every point in the value
chain and in other support activities.
2. Notes on resources
Types of resources: Physical, Human, Financial, Intellectual (or intangible)
Ways to analyse resources: Analysis by type; Analysis by specificity; Analysis by
performance
Analysis by specificity
Resources can be specific or non-specific. Specific resources are committed to a task and
are less transferable (such as highly-skilled employees with no transfer value, specialised
plant). Non-specific resources are more flexible but less committed (such as PCs, general
machine tools).
Analysis by performance
How much each resource contributes to an external measure of performance. Such as
contribution: by financial performance; against historical trend; against other business
units and/or competitors.
3. Notes on products
Product analysis: by features; by category; by portfolio; by life cycle
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Analysis by features
Levels or strata of product features (e.g. Kotler’s five levels): Core and basic benefits
(providing minimal but essential product benefits); Expected, augmented and potential
benefits (basic plus various add-on features valued by customer)
Analysis by category
Various ways to categories products: goods and services (visibles and invisibles);
consumer and industrial. And for consumer goods: durables and FMCGs; convenience,
shopping and speciality.
Analysis by portfolio
Refers to the number of products and how many markets they are placed in.
Broad portfolio is more robust but offers less opportunity for development of individual
product expertise.
2. Components of UK accounts
Compulsory components in the UK
2.1 Auditor’s report
2.2 Chairman’s statement
2.3 Profit and loss statement
2.4 Balance sheet
2.5 Cash-flow statement
2.1 Auditor’s report
Auditors are independent ‘checkers’ of a limited company’s financial affairs on an annual basis. Their brief
is to confirm the veracity of the company’s mandatory financial statements. Statement must confirm that
the accounts are a ‘true and fair view’ of the company’s financial state at the year end.
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A ‘snapshot’ of the company’s finances at the final day of the financial year in question. Two sides: How
the company has used its capital - the ‘assets’ side; Where the company’s capital has come from - the
funded by’ side.
Types of ratios
3.1.1 Performance ratios
3.1.2 Efficiency ratios
3.1.3 Working capital ratios
3.1.4 Financial structure ratios
3.1.5 Investment ratios
Examples
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Trends in accounting numbers against time
- sales growth
- changes in short-term debt
- stock value, etc.
Trends in ratios against time
- trends in RoS
- trends in RoCE
- trends in liquidity, etc.
1. Definitions
The economic system: Any economic system of exchange has two sides: supply side (which we call
‘industry’) and, demand side (comprising buyers, which we call ‘markets’).
Example
The automotive industry produces and distributes motor vehicles.
The markets for automotive products are the geographical and demographic sectors that buy them.
2. Analysing industries
Tools of analysis: Size and location; Concentration and structure; Product types and pricing structures; Life
cycles
Concentration
Refers to the proportion of industry output held by individual producers. Concentration ratio varies very
widely between industries. See diagram in lecture.
Life cycle
Industries are subject to life cycles. Competitive behaviour is strongly influenced by the industry’s position
(e.g. in growth, maturity or decline). Competition is most intense in the mature phase.
3. Analysing markets
Tools of analysis: Size and location; Concentration and structure; Segmentation; Buyer behaviour
Market concentration
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Refers to the proportion of market demand consumed by individual or groups of consumers. Higher
demand concentration confers higher buying (bargaining) power.
Segmentation
Markets are segmented to group together consumers with similar characteristics (and hence similar buying
proclivities). Most-commonly by using demographic variables.
Buyer behaviour
Refers to the nature of purchasing behaviour, such as: brand loyalty (or not); frequency of purchase;
choice of purchase location; terms of purchase (e.g. credit and delivery terms).
Procedures to follow
1. Internal analysis; 2. External analysis; 3. SWOT analysis; 4. Key issues.
1. Internal analysis
Internal analysis: The systematic analysis of a case with a view to finding information that will enable you
to identify all relevant areas of importance. There are several tools to use in an internal analysis.
2. External analysis
External analysis: Analysis of the case to isolate those factors that can influence the organisation from
outside, from, the micro or industry environment, or, the environment beyond the industry (the macro or
PEST environment)
3. SWOT analysis
Once you have performed the internal and external analyses, then, you must apply your intellect to
identifying the most significant (or strategic) factors from each analysis in order to condense these down
into a SWOT analysis.
Strengths. Any feature arising from any part of the internal analysis which has been or can be used to
advance the cause of the strategy. Can be anything. Examples: skilled HR, good financial performance,
valuable intangible resources (e.g. brands), products in growth phase, and anything else arising from the
internal analysis.
Weaknesses. The opposite of strengths, RELEVANT points that have or could impede the implementation
of the strategy. Examples: deficits in HR requirements, financial shortcomings, products in decline, etc.
Opportunities. Features arising from the external analysis that may potentially be of benefit to the
company. Examples: new market development opportunities, favourable (to the company) demographic
changes, growth in key markets, favourable changes in government policy, and any other factors.
Threats. Anything arising from the external environment that may actually or potentially be detrimental to
the progress of the company. Examples: demographic or market decline, key products going out of fashion,
rising interest rates (if high gearing), adverse government regulation, and any other factors.
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4. Key issues
Key issues. Examine your SWOT analysis. Reduce the contents to TWO or THREE (maybe four) points
which: require immediate management attention, or, are SWOT issues of strategic importance, or, represent
the MOST PRESSING OR SIGNIFICANT strengths or weaknesses, or, represent PRESSING
opportunities or threats which should be addressed immediately.
Generic strategy
Lecture plan: Porter’s generic strategy framework; A discussion of the generic strategies;
Criticisms of the framework; Hybrid strategies.
Generic strategy and profits. Profit = Price - Total costs. Therefore, there are two ways of
increasing profit: Increase in price (differentiation strategy); Reduce total costs (cost
leadership strategy)
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How to achieve cost leadership
Reduce costs by copying rather than originating designs, using cheaper materials and
other cheaper resources, producing products with no "frills", reducing labour costs and
increasing labour productivity. Achieving economies of scale by high volume sales,
perhaps based on advertising and promotion, allowing high fixed costs of investment in
modern technology to be spread over a high volume of output. Using high volume
purchasing to obtain discounts for bulk buying of materials. Locating activities in areas
where costs are low or government help (e.g. grant support) is available.
4. Hybrid strategies
Important point. The selection of generic strategy rests in large part upon the price
elasticity of demand of the products. Hence, if a company sells more than one product
type, it may elect to adopt more than one generic approach to its markets. It is, however,
difficult to achieve a hybrid with only one product.
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Lecture plan
1. Mechanisms of business growth
2. Internal growth
3. Strategic alliances
(other subjects will follow next week)
2. Internal growth
What is it?
Growth by investment in the same business as that which generated the investment funds.
Results in:
increased capacity;
increased employment;
higher turnover;
stronger market presence.
Disadvantages
Slower than external growth.
Offers less opportunity for diversification (which is best done by external growth).
3. Alliances
What are alliances?
Two or more businesses acting together for mutual advantage.
They retain their independence (i.e. not a merger).
Can happen between private companies or between private and public bodies.
Timescales
Alliances can be formed:
for specific projects (joint ventures)
for long-term collaboration (strategic alliances - can last for decades)
Types of alliance.
Focussed alliances
Collaboration between partners in one or few areas of activity (e.g. design or manufacture).
Complex alliances
Collaboration between partners in many areas of activity.
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Consortia
Several (more than two) organisations working together in an alliance - often in a short-term (project)
arrangement.
Successful alliances
Alliances are successful when the parties involved have:
complementary skills;
compatible goals;
co-operative (compatible) cultures.
P ro d u c ts
E x is t in g N ew
P r o d u c t d e v e lo p m e n t
M a r k e r p e n e tr a t io n
( n e w o r im p r o v e d
( in c r e a s e m a r k e t s h a r e )
Existing
p ro d u c ts )
Markets
M a r k e t d e v e lo p m e n t
(n e w c u s to m e rs , n e w D iv e r s if ic a t io n
m a rk e t s e g m e n ts o r n e w ( n e w p r o d u c t s in t o n e w
New
c o u n t r ie s fo r e x is t in g m a rk e ts )
p ro d u c ts )
Ansoff's product/market expansion grid. Growth can be achieved by four generic methods:
Market penetration Existing products into existing markets. Investment in attempts to increase market
share and increase weight of purchase.
Market development Existing products into new markets.
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Product development New products into existing customers/markets.
Diversification Investing resources to develop new products for newly developed markets.
Market penetration Appropriate when: the existing market has growth potential and is currently
profitable; other competitors are leaving the market, thus reducing the competition in supplying the market;
the company can take advantage of its experience in the market; the company is unable to pursue a strategy
involving entering new markets, due to insufficient resources or inadequate knowledge.
Mechanisms of market penetration: Price reductions, depending on the price elasticity of demand;
Quality improvements; Product differentiation; Product distribution can be widened; Production can
be increased by means of operational investment, if the market exists for the increased output;
Advertising and other marketing promotions; Acquisition of a business in the same industry.
Market development - Growth by means of placing existing products into new market sectors. Involves
'transplanting' products into market sectors which are 'new' for the products (‘developing’ new
markets). New markets can be: completely new geographical markets (e.g. a different region or
country); or, a different segment of the same geographical market. Products remain essentially
unchanged. The key to successful market development is the transferability of the product. It is said
that the product is ‘repositioned’ as a player in a new market.
Product development. Examples: Completely new products such as when a manufacturer of crisps
launches a product based on toasted bread; The development of additional models of existing
products, such as when car manufacturers launch modified versions of cars; The creation of different
quality versions of the same product, thus offering a choice of ways of reaching the market with the
product.
Appropriate when: the company already holds a high share of the market and feels that it could strengthen
its position by the launch of new products; there is growth potential in the market thus providing the
opportunity of a good economic return on the costs of a new product launch; changing customer
preferences demand new products if they are not to desert the company for a competitor's products; as a
means of 'keeping up' with competitors who have already launched new products ('me too').
Diversification
In most cases, this strategy represents a higher risk of failure than any other.
Appropriate when: current products and markets no longer provide an acceptable financial return; the
organisation has 'spare resources;' the organisation wishes to broaden its portfolio of business interests
across more than one product/market segment; the organisation wishes to make greater use of any existing
distribution systems in place, thus diluting fixed costs and increasing returns; the organisation wishes to
take advantage of any 'downstream opportunities' such as the use of by-products from its core business
activities.
No change strategy
These strategies are appropriate when: the business is happy with its current position (e.g. it is already the
market leader); it has no resources or no room to pursue any other option. It might be stated as 'to maintain
our current level of quality...' 'to protect our market share...' 'to defend our competitive position...' A no
change strategy is not necessarily a do nothing strategy. No change can involve a lot of activity.
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Can be carried out using any of Ansoff's generic growth strategies. Sometimes called organic growth. It is
growth by internal re-investment of profits, thus increasing: employment in the business; asset values;
turnover; profits.
External growth
The growth of an organisation by acquisition of or merger with another organisation. Acquisitions can be
related, or unrelated. M & As are collectively called integrations.
M e r g e r s a n d a c q u is it io n s
( in t e g r a t io n s )
R e la t e d U n r e la t e d
in t e g r a t io n s in t e g r a t io n s
H o r iz o n t a l V e r t ic a l C o n g lo m e r a te C o n c e n tr ic
in t e g r a t io n in t e g r a t io n in t e g r a t io n in te g r a tio n
F o rw a rd B a c k w a rd
v e r tic a l v e r tic a l
in te g r a t io n in te g r a t io n
Related integration. The take-over of an organisation in the same industry as the acquiring business.
Related integration can be, horizontal, or vertical.
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S u p p lie r
C o m p e t it o r O r g a n iz a tio n C o m p e t it o r
C u s to m e r
Horizontal integration. Integration with a competitor: increases market share; increases pricing power in the
industry; increase in economies of scale (e.g. more buying power).
Vertical integration
Backwards - integration with a supplier. guarantee supply, broaden portfolio, cheaper supply inputs, and
hence cost advantage.
Forwards - integration with a customer: guarantee outlet for products, preclude supply from competitors,
broaden portfolio, gain downstream profits.
Conglomerate diversification
Acquisition of a business which has no material connection with the acquirer, or any of its processes.
Concentric diversification
Acquisition of a business which, whilst being in a different sector, shares some core competencies or
common features with the acquirer. The two businesses may share: technology; distribution channels, the
same customer base; production techniques, etc., etc. Because of the commonalities, concentric
diversification has the advantage of increasing portfolio whilst not presenting as much risk as
conglomerate.
Decline strategies
Making the most of product or industry decline: Retrenchment; Turnaround; Milking; Exiting
Retrenchment - Increase efficiency and minimise losses - usually only viable in the short to medium term.
Turnaround - Refocussing or repositioning the business away from declining areas - requires investment.
Milking - Discontinue all investment, minimise all costs, extract maximum profits and accept death when it
comes.
Exit the market - Divest the business or product, either to an external buyer or as a management buy-out.
This strategy relies on finding a suitable buyer.
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Evaluation and selection of strategies
Lecture plan
1. The nature of strategic options
2. Evaluation criteria
3. Tools for evaluating options
a. Product - market decisions. Key considerations: product life cycle (and phasing of); product and market
portfolio; product mix (e.g. between consumer and industrial goods or Copeland’s three product types -
convenience, shopping and speciality products)
2. Evaluation criteria
What are they? Suitability; Feasibility; Acceptability; Advantage
Suitability
Does the strategy promise to achieve strategic objectives? Does the proposed strategy capitalise on
strengths? Does it promise to address and overcome or avoid weaknesses? Is it responsive to environmental
threats and opportunities?
Feasibility
Is the strategy possible? Can the proposed strategy be resourced? (i.e. are human, financial, etc. resources
available) Can the organisation perform and compete at the required level? Will the technology, materials
and services be sufficiently available?
Acceptability
Will the strategy be accepted? Is the proposed strategy acceptable to the most influential stakeholders?
What will the effects of the strategy be on the stakeholders, financial structure, etc.?
Advantage
Will the strategy enable to company to achieve a competitive advantage? return higher than average
profitability? nullify or offset the strengths of competitors? position itself to advantage in its micro-
environment?
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Cash flow forecasting. involves prognosticating income and costs associated with each option over a period
of time. Purpose is to assess the medium to long term profit performance of each option.
Investment appraisals. Purpose is to assess the return on capital associated with each option.
Two types of IA tools: Those that ignore inflation (OK for short-term investments) - payback period
calculations; Those that take inflation into account (discounted cash flow calculations).
Limitations of financial tools: The problem of inflation. For paybacks forecast at one or two years - no
problem. Problem: few investments payback in this time scale. Forecasting inflation over an economic
cycle can be fraught with error.
Non financial tools. Cost-benefit calculation; Impact analysis; ‘What if?’ and sensitivity analysis
Impact analysis
For some organisations, the impact of the strategic options upon its various stakeholders is important.
Impacts can be either favourable or adverse.
The preferable option is usually that which contains minimum adverse and maximum favourable.
Strategic implementation
Lecture contents
1. Where does this fit into the strategic process?
2. The elements in implementation
(a) resourcing;
(b) restructuring;
(c) changing culture and systems;
(d) managing change.
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A n a l y s is
I m p le m e n t a t i o n C h o ic e
(b) Restructuring
Making the organisational structure able to carry out the chosen strategy. Considerations include:
extent of decentralisation (‘width’). necessary management expertise (‘height’).
Lecture plan: 1. What is culture? 2. The cultural web - a way of analysing culture. 3.
Analysing structure
1. What is culture?
What is culture?
'The culture of any group of people is that set of beliefs, customs, practices and ways of
thinking that they have come to share with each other through being and working
together. It is a set of assumptions people simply accept without question as they interact
with each other. At the visible level the culture of a group of people takes the form of
ritual behaviour, symbols, myths, stories, sounds and artefacts.' Ralph Stacey (1996)
Other definitions
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Culture is, 'the way we do things round here' (Handy), the personality of an organisation,
or, its character, And ... It is the sum of the values, beliefs and personalities of the
members of an organisation. It relates to the feel, the 'smell' of an organisation.
Symbols
Examples include: company logos, the physical appearance of the offices, the layout of
the plant (e.g. a pokey and ill-lit reception says something about how keen it is to receive
visitors).
Power structures
Refers to the ways in which power is concentrated in the organisation. For example, in
some, the key power resides in R&D. In others, in a small group of powerful executives.
Organisational structures
Refers to the way in which lines of reporting are structured. For example, the ‘height’ and
‘width’ - extent of decentralisation and the number of management layers.
Control systems
The way in which activities are controlled. For example: ‘tight’ or ‘loose’; span of
control (how many people report to each manager); the nature and rigour or each system
(e.g. budgetary, info, quality, etc. systems)
Stories
Stories which circulate as part of the culture of the organisation. Examples include:
stories of 'heroes and villains,' past battles and famous victories, and, of the recent
political manoeuvres within the company.
3. Analysing structure
Types of organisational structures. ‘Shapes’: ‘Height’ refers to the number of layers of
management.
‘Width’ refers to the extent of decentralisation.
1 Hierarchical structures
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Basis - the strict observance of the principle of the unity of command. A line of command
can consequently be traced from all members up (or down) through the ranks of the
organisation to or from the chief executive or chairman. Members are usually divided
into divisions or departments which are charged with a certain area of responsibility.
Hybrid structures
Combining more than one hierarchical distinction in the same macrostructure
2 Non-hierarchical structures
Do not observe the principle of the unity of command in such a strict way as
hierarchically structured organisations. Idea is to 'free' employees from the rigidity of
reporting to one boss to facilitate a more creative and flexible approach to work. The
most common form of non-hierarchical structure is the matrix structure.
1. Impetus to change
Reactive change - change forced upon an organisation arising from a need to react to a change in the
company's environment. Proactive change - change is planned in advance, usually with a particular
objective in mind.
Influence from the industry or the micro environment. The activities of: competitors; suppliers; and,
customers, will often mean that an organisation will have to implement internal changes.
Influence from political sources. For example: new legislation; changes in government policy; changes in
the constitution (in UK or EU); European laws, etc.; will all require internal changes.
Influence from the economy. Examples: changes in fiscal and monetary pressures, changes in commodity
prices (e.g. oil), changes in exchange values, etc. variations in inflation, etc.
Sociological influences. demographic changes, variations in tastes, changing fashions and trends, etc.
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Influence from changing technology. The continual need to adopt the latest technology, matching
competitors' technology levels, etc.
(Titchy lists 4 main causes of strategic change-environment,business relationships, technology and people).
(Kanter, Stein and Jick identify 3 dynamics for for strategic change- environment, lifecycle differences
and political power changes)
3. Types of internal change (see also change options matrix)
w structural changes
w technological changes
w systems changes
w cultural change
Structural changes
Modifying the structure of the organisation. Examples, changes in reporting systems, 'flattening' the
organisation - reducing the number of layers of management - can arise after M&A.
Technological change Can affect almost all parts of the organisation.
Examples: Automation of manufacturing; Computer and telecommunications systems replacing manual
systems; Designers and R&D people making use of technology.
Systems changes
Examples: reporting procedures and lines of authority; control systems, for example budgetary control
systems; financial reporting systems; quality systems, for example inspection procedures; information
systems; paperwork systems.
Cultural change
Changes in the internal culture of the organisation. Involves changing people and is thus the hardest thing
to change. May take years to fully implement. See cultural web and culture types handouts.
4. Attitudes to change
Attitudes to change - inertia
Lack of understanding about the nature and objectives of the change; Lack of trust of management's
motives and competence; Self-interest and fear of personal loss - a belief that the change process will
result in a deterioration of one's personal conditions, e.g. by redundancy; Uncertainty and fear of the
unknown - employees fear the unknowability of the outcome of the change; Fear of social loss - a fear that
the change will result in the break-up of informal groups in the work-place and that they may lose contact
with friends.
5. Managing change
Methods of managing change( prescriptive and emergent approaches)
(a). Force-field analysis
(b). A simple prescription
(c) Three-step model of Lewin. There is also 3 stage approach of kanter.
(d). Champion of change model
(e) emergent approaches-learning theory(Senge)
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How it works. There are patently two ways in which this can be accomplished:
1. by a build-up in the strength of the for-change forces up to the point that they exceed the restraining
forces;
2. by a reduction in the strength of the restraining forces such that the for-change forces gain supremacy
without increasing in strength.
Suggested correct course of action in most circumstances is to weaken restraining forces rather than trying
to overcome them by force.
U n fre e z e c u rre n t le v e l
C h a n g e to n e w le v e l
R e fre e z e a t n e w le v e l
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How it works
Unfreezing. Involves abandoning old practices and beliefs before new practices are introduced. Creating a
cultural climate of change to the point that individuals expect and will accept the imminent changes.
Moving to new level. Involves implementing the change once the old attitudes have been unfrozen.
Refreezing. Involves cementing the new culture and practices into the culture to prevent employees from
falling back into old practices.
Kanter Three-stage approach has two major elements:
Three forms taken by the change process:
Changing identity of the organisation
Co-ordination and transition issues as an organisation moves through its lifecycle
Controlling the political aspects of organisations
Three major categories of people involved in the change process
Change strategists responsible for leading strategic change
Change implementers with direct responsibility for change management itself
Change recipients who receive the change programme with varying degrees of anxiety.
(d) The ‘champion of change’ model (or change agent model) see Kanter 3 stage prescriptive approach
to managing strategic change above and also politics in organisations.
Contends that change can be effectively managed if the whole process is undertaken by a single change
agent, or a champion of change.
120
Champion of change
100
80 Mid-management
Involvement
60 Employees
40
20
Senior management
0
0 1 2 3 4 5 Time
6 7 8 9 10 11 12
How it works
The change process is initiated by senior management - high involvement for a short period of time. A
champion of change is appointed. He or she becomes highly involved, and remains highly involved until
the end. The champion invites mid-management to become involved in implementating the change with
their subordinates. The mid-managers remain involved in the change process in order to communicate the
change to the ‘ordinary’ employees. The subordinates begin to implement the change. Once the
subordinates have fully implemented the change, the champion’s role declines.
Learning theory-
Starts from the position that the organisation does not suddenly adopt strategic change but is perpetually
seeking it
Process of learning is continuous: as one area is learnt, so new avenues of experimentation and
communication open up
The learning approach emphasis:
Team learning
The sharing of views and visions for the future
The exploration of ingrained company habits
People skills as the most important asset of the organisation
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Systems thinking: the integrative area that supports the four above and provides the basis for viewing the
environment
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