Basic lecture Notes Strategy Course York

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.)

2. Henry Mintzberg’s definitions of strategy - The five Ps

Strategy can be: a plan; a ploy; a pattern (of behaviour); a position; a perspective.
A plan is a consciously intended and preconceived. It may be ‘written down’ and is then
intentionally and proactively executed.
A ploy is a maneuver. It is typically short-term in nature and is intended for a
specific purpose.
A pattern is a consistently observable and predictable form of behaving or thinking.
A position is a place occupied by the organization (e.g place in market, market share,
etc.).
A perspective refers to internal culture and values. Concerns the paradigm,
worldview and ethics of an organization.

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.

6 Johnson & Scholes strategic process

J & S argued that the strategic process consists of three interconnecting stages.
Strategic analysis; Strategic choice; Strategic implementation. The process is iterative
and proceeds until objectives are achieved.

Strategic analysis involves

evaluating internal strengths and weaknesses (inside the organisation)
evaluating external opportunities and threats (from the industry and the wider
environment)
Strategic choice involves
generating options that will enable the organisation to meet objectives in the light of the
strategic analysis, then, rationally evaluating each option using a range of evaluative
tools and techniques, then,
selecting the best of the options based upon the analysis.
Strategic implementation involves taking the steps to ensure the strategy is actually
carried out. This involves addressing several key internal issues: structure, culture,
systems, resources, successfully managing any changes.

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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

1. Strategic and operational objectives

Strategic objectives are pre-eminent over operational objectives. Operational objectives
serve only to achieve overall strategic objectives.

Strategic level objectives Operational level objectives

Made by senior management
Longer term in time scale
General in detail
Concern the whole organisation
General - not detailed
Sets policy
Concerned with mission
Made by mid or lower level management
Short to medium term in time scale
Specific in detail
Concerned with how one part of the
organisation will act
Detailed
Follows policy
Act in accordance with mission

Important principle: all levels of strategy must be consistent with levels above and below
it. This is called goal congruence or hierarchical congruence.

2. Two conflicting views on objective-setting

The two opposing views

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

The stakeholder map

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.

Stakeholder coalitions - a story

Calder Hall nuclear power station opened in 1957 near Whitehaven, West Cumbria. An
area of high unemployment. Providing much needed employment. Other installations
were later built on the same site. In addition to Calder Hall, the Sellafield nuclear
reprocessing plant was built. This further increased the employment on the site. In 1993,
a Thermal Oxide Reprocessing Plant (ThORP) was built, increasing employment on the
site to over 7000. The region’s highest employer.

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.

3. Mission and mission statements

An organisation’s mission is its overall objective once the various stakeholder and
stockholder influences have been taken into account. This is sometimes articulated in a
formal statement.

Why have a mission statement?

To clearly communicate objectives to an organisation’s stakeholders. To ensure goal
congruence at all levels of the organisation. To influence the attitudes and actions of
members of the organisation towards the stated objectives.

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.

The external business macro environment

What is the macro environment?
Factors from outside an organisation’s industry (which is the micro environment) which can influence the
organisation. Organisations are usually unable to influence these factors. The strategic posture is to learn to
'cope' with them.

The nmemonic: PEST factors

1. Political influences
2. Economic influences
3. Sociodemographic influences
4. Technological influences

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.

Direct executive economic policy

The executive in charge of economic policy comprises (in the UK): The Chancellor of the Exchequer in
charge of fiscal policy, and, The Bank of England in charge of implementing monetary policy according to
the Chancellor’s preset parameters.

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.

Indirect economic influences

Called indirect because they result from the levels of monetary and fiscal pressure. rate of economic
growth; inflation; unemployment rate; exchange value of currency; balance of international payments. All
of these can have powerful effects of an organisation’s performance.

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.

Industry and profit

Some industries consistently make higher profits than others. Likewise, some companies consistently make
more in profit margin than other companies in the same industry. These differences are due to features
within the competitive environment.

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)

Porter’s five forces

The five forces are,
• The bargaining power of suppliers,
• The bargaining power of buyers,
• The threat of substitute products,
• The threat of new entrants to the industry,
• Intensity of rivalry between existing competitors.

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

Force 1: Bargaining power of suppliers

Suppliers are those individuals and enterprises that provide the organisation with its inputs. Examples of
inputs include: materials and operational inputs, including stocks, land, buildings, etc.; human resources
(e.g. employees); finances (e.g. from banks in the form of loans). If an organisation has to pay price
premiums on any inputs, this will exert downward pressure on potential profitability. Organisations who
have powerful suppliers (who are able to extract higher prices) will adversely affect profits.

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

Force 2: Bargaining power of buyers

If a company has pricing power over its customers then it can inflate prices and hence increase profits.
Strongly linked to market structure, nature of the product and price elasticity of demand (as indeed is power
of suppliers). e.g. increased concentration of DIY sector has put pricing pressure on paint companies.

Force 3: Threats from new entrants

The extent of the possibility that new competitors will enter the industry and thus increase competition. If
possibility is high - downward pressure on profitability. If possibility is low - upward pressure on
profitability. Depends upon the height of entry barriers.

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;

Force 4: Threats from substitutes

Products which are readily substitutable are subject to more price competition and hence: high threat of
substitutes - downward pressure on profitability. low threat of substitutes - upward pressure on profitability.

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.

Force 5: Competitive rivalry

Intensity of rivalry depends upon the inputs from the other four forces. The more intense the rivalry, the
lower the potential profitability of the industry or the company. Less intense - higher potential profitability.

Competitive pressures - a summary

Powerful suppliers - downward pressure on profitability
Weak suppliers - upward pressure
Powerful buyers - downward pressure
Weak buyers - upward pressure
Lots of substitutes - downward pressure
Few substitutes - upward pressure
High entry barriers - upward pressure
Low entry barriers - downward pressure.

The value chain

How to make sense of the internal activities of an organisation.

1. Competences, resources and distinctive capabilities.

Competences are the general abilities that a company must possess to compete in an
industry.
They are abilities that are essential for survival in an industry. Example: A company in
the football industry must possess the general competences of: at least eleven players; a
pitch to play footy on; registration with a football association (to play in a league against
other teams); some degree of revenue-raising support.
Resources are inputs into the business process. They fall into four categories: physical
resources (land, buildings, stocks, etc.), human resources; financial resources; intellectual
resources (‘know-how’, access to trademarks, logos, patents, designs, etc.). Organisations
can gain competitive advantage from resources: by attracting the best resources in its
competitive resource markets, and, by making the most efficient use of resources by
turning them into effective outputs. Example: Resources and football clubs. Success
arises from possessing ALL of the general competences AND: having a good stadium in
a good location (physical resources); successfully competing for the best players in the

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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.

3. Stages in the value adding process

Porter’s ‘value chain’. Introduction to value chain. Some internal activities directly add
value to the final product - primary activities. Other activities support the direct activities
but do not themselves add value - support activities.

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.

Support (indirect) activities

Procurement - Purchasing of resource inputs in the organisation’s competitive resource
markets. i.e. recruiting HRs, raising finance, purchasing new land, buildings and other
fixed assets.
Technology development - The purchase and deployment of technology (of all kinds) in
support of value-adding throughout the organisation.

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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.

4. How to understand the value chain

Useful tips. Break down the organisation’s activities into value chain stages. Identify the
efficiency of each stage. Identify the stages or linkages that are key to the organisation’s
competitive advantage. Identify any blockages or stages that do not add value very
efficiently.
External linkages. An organisation can establish external links with other organisations
or by vertical integration. Links with suppliers - upstream linkages; Links with
distributors or customers - downstream linkages. These can be used to increase overall
value added.
Outsourcing. It is not necessary for companies to always carry out all activities. Some
companies buy in stages from other organisations. e.g. outsourcing IT services or HR
administration.

Resources and products

Lecture plan: Schematic of the business process; Notes on resources; Notes on products
1. Schematic
Diagram here

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 type (That is analysis by category)

Can be analysed quantitatively (how much or how many), or, qualitatively (how skilled,
what condition, contribution to output, etc.).

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.

Analysis by life cycle

Refers to the position the product is on the life cycle curve.Linked to portfolio insofar as
several products are generally needed at various points on the life cycle.
Financial analysis
Lecture plan
1. What are accounts?
2. Components of accounts
3. Tools for analysing accounts

1. What are accounts?

An audited (independently checked) report on the financial affairs of a limited company or PLC at the year
end of a given financial year. There are five compulsory components of the annual audited accounts.

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.

2.2 Chairman’s statement

Chairman is legally-bound to represent the company to the shareholders. Statement contains a summary of
the year’s activities and, the prospects for the year ahead.

2.3 Profit and loss statement

Summarises: total revenues (sales or income) for the year; total costs; profit or loss for the year’s activities;
interest and tax paid during the year.

2.4 Balance sheet

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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.

2.5 Cash-flow statement

Summarises the net inflows and outflows of cash (not capital) to and from the company in the year in
question. Two sides: Inflows such as profits, dividends (from subsidiary interests), etc. Outflows such as
interest, tax, etc. Result is a net inflow or outflow for the year.

3. Tools for analysing accounts

What are the tools?
3.1 Financial ratios
3.2 Time-series analyses (longitudinal analyses)
3.3 Comparisons (cross sectional analyses)

3.1 Financial ratios

Fact - an entry in a financial statement is just a number.
You can make sense of financial numbers by dividing them into others.

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

3.1.1 Performance ratios

Return on sales (RoS) = profit (before interest and tax)/total sales times 100 to get a percentage.
Return on capital employed (RoCE) = PBIT/capital value (i.e. one side of balance sheet) times 100 to get
%. Some ROCE measures take Capital to be shareholders funds plus long term borrowings.

3.1.2 Efficiency ratios

Indicates how well the company employs its inputs, e.g. sales per employee, profit per employee, A good
ratio to compare companies with others in the same industry.

3.1.3 Working capital ratios

Indicate the skill with which working capital is employed. Working capital is money tied up in stocks,
receiveables, payables and cash in hand. Several key WC ratios. days receiveables (days debtors), days
payables (days creditors), liquidity ratios, stock turn

3.1.4 Financial structure ratios

Indicate the vulnerability of the company to fluctuations in monetary pressure. Main ratio is gearing, i.e.:
long-term borrowings
borrowings + shareholders funds
The larger the number (gearing) the more vulnerable to rising interest rates.

3.1.5 Investment ratios

Indicate the attractiveness of the company to investors. earnings per share, price/earnings ratio, dividend
yield.

3.2 Time series studies (longitudinal analysis)

Trends in company accounting data over time, which can show: increases against time, or, decreases, or,
stability, or, fluctuations.

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.

3.3 Comparisons between companies and sectors (cross-sectional analysis)

For example: In year to 1995, SmithKline Beecham plc (pharmaceuticals) made RoS of 25%. Is this good?
In same year, Glaxo Wellcome plc (competitor) made RoS of 34%. BUT, Paint industry average in same
year was 8%. Hence, if available: compare key numbers and ratios with competitors, and, compare with
other sectors and industries.
Industries and markets
Lecture plan
1. Definitions; 2. Analysing industries; 3. Analysing markets

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

Size and location

Size usually refers to aggregate sales. Examples: UK food production industry has annual sales of ca. £50
billion. UK pharmaceuticals industry has sales of ca. £10 billion. UK paint industry, ca. £2 billion.

Concentration
Refers to the proportion of industry output held by individual producers. Concentration ratio varies very
widely between industries. See diagram in lecture.

Products and pricing

In particular, the price and cross elasticities of demand. Competitive behaviour will depend in large part on
the product’s responsiveness to price.

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

Size and location

Markets vary in size and location. Has a strong influence on marketing strategy. Compare, for example, the
market sizes for potatoes and diving equipment.

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).

The strategic process, SWOT and ‘key issues’.

Or: an overview of the strategic analysis process.

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.

Stages in an internal analysis

Objectives and the stakeholder map; cultural analysis and the cultural web; analysis of structure and its
appropriateness; internal systems (e.g. quality, budgeting, reporting, information systems, etc.); resource
analysis (e.g. human, financial, physical, intangibles); product analysis; value chain analysis and value
added systems (inc. outsourcing and external linkages); generic strategies

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)

Stages in an external analysis

Five forces analysis
PEST analysis

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.

1. The generic strategy framework

Porter argued that competitive advantage can derive from three sources: cost leadership;
differentiation;
focus.

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)

2. A discussion of the framework

Differentiation strategy Relies upon the creation of an actual or perceived

distinctiveness. Products will thus command a premium price. Demand for its product
will be less price elastic than that for competitors products. Above average profits can be
earned.

How to create differentiation

by creating products which are superior to competitors by virtue of design, technology,
performance etc.
by offering superior after sales service.
by superior distribution channels, perhaps in prime locations (especially important in the
retail sector).
by creating a strong brand name through design, innovation, advertising, and so on.
by distinctive or superior product packaging.

Cost leadership strategy

The business can earn higher profits by charging a price equal to, or even below that of
competitors because its costs are lower. It allows the business the possibility to increase
both sales and market share by reducing price below that charged by competitors
(assuming that the product's demand is price elastic in nature). It allows the business the
possibility to enter a new market by charging a lower price than competitors. It can be
particularly valuable in a market where consumers are price sensitive.

15
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.

Focus and scope

Requires a lower investment in resources compared to a strategy aimed at an entire
market. Allows specialisation and greater knowledge of the segment being served. Makes
entry to a new market less costly and more simple.

How to achieve focus

Identification of a suitable target customer group which form a distinct market segment.
Identification of the specific needs of that group.
Making sure that the segment is sufficiently large to sustain the business.
Finding out the extent of competition within the segment.
Production of products to meet the specific needs of that group.
Deciding whether to operate a differentiation or cost leadership strategy within the
market segment.

Being ‘stuck in the middle’

Porter argued that in order to achieve superior profits, a company had to clearly adopt one
of the generic strategies. Combining partly cost and partly differentiation results in sub-
optimal performance because the company experiences competition from companies
pursuing all other generic strategies. This is called being ‘stuck in the middle’.

3. Criticisms of Porter’s framework

Potentially - lots of criticisms. Focus on the main one. Being stuck in the middle CAN
apparently serve a company well if it is properly managed.
Return on sales figures (%) for 1995.
Asda: 4.7
Sainsbury: 7.9
KwikSave: 5.1
Marks & Spencer: 12.2

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.

Internal growth and alliances

16
Lecture plan
1. Mechanisms of business growth
2. Internal growth
3. Strategic alliances
(other subjects will follow next week)

1. Mechanisms of business growth

Two types
Internal mechanisms
External mechanisms
mergers
acquisitions
alliances

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.

Sources of investment funds

Retained profits (which are invested in the same business that generated them).
Share/rights issue capital.
Loan capital.
Choice will depend on existing financial structure, share price and interest rate.

Advantages of internal growth

Lower risk.
Employ existing competences - no need to develop new ones.
Exploit existing knowledge and product/market expertise.

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.

17
Consortia
Several (more than two) organisations working together in an alliance - often in a short-term (project)
arrangement.

Reasons for forming alliances

Sharing risk on high capital cost projects.
Pooling of expertise.
Responding to competitive pressures.
Scale economies in purchasing and manufacture.

Successful alliances
Alliances are successful when the parties involved have:
complementary skills;
compatible goals;
co-operative (compatible) cultures.

Strategic growth and development

This lecture has two parts
Directions of growth
Mechanisms of growth

1. Generic growth strategies: Igor Ansoff

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.

18
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.

2. Mechanisms of growth and development

1. No change strategy
2. 'Internal' (organic) growth
3. 'External' growth
4. Decline and divestment

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.

Internal (organic) growth

19
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.

20
 S u p p lie r

Backward vertical direction

H o r iz o n t a l d ir e c t io n

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

Forward vertical direction

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.

Unrelated integrations. Sometimes called diversification.

The acquisition of an organisation not in the industry of the acquiring business. Two types: Conglomerate
diversification; Concentric diversification.

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.

21
 Evaluation and selection of strategies
Lecture plan
1. The nature of strategic options
2. Evaluation criteria
3. Tools for evaluating options

1. The nature of strategic options

Strategic decisions involve:
a. decisions on products and markets;
b. decisions on generic strategy;
c. decisions on growth and development 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)

b. Generic strategy decisions

Questions on the emphasis between cost and distinctiveness (i.e. differentiation) and questions of market
scope. This, in turn, will determine the way that value chain activities are configured.

c. Growth and development decisions

Decisions on the directions and mechanisms of growth, for example: increase or decrease in size; Ansoffian
directions; the use of internal or external growth mechanisms. If decrease in size is appropriate, methods
are a bit more complex (e.g. demerger, divestment, MBO, equity carve-outs, etc)

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?

3. Tools for evaluating of options

Two types: financial tools and non financial tools.

Financial tools: Cash-flow forecasting; Investment analysis techniques.

22
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

Cost benefit analysis

Every decision in business (and in life) involves costs and consequent benefits. If both can be quantified in
numerical or financial terms - no problem. However, few actually are. An option is viable if benefits
exceed costs. The most viable is that option which results in the highest differential.

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.

What if? analysis

Especially useful for longer time period projections.
Enables decision-makers to see what would happen to the outcome if assumptions do not hold.
Examples, what if...inflation is not as forecast; legislation changes during the term of the option; incomes or
costs are outside of assumed limits.

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.

1. Where implementation ‘fits in’.

The process is iterative. Information needed to make an informed choice is gained in the strategic analysis
stage (internal and external analyses). Options and generated and evaluated in the strategic choice stage.
The most appropriate option is selected. The selected option is then implemented.

23
 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

2. The elements in implementation

(a) Resourcing
[Remember - resources can be either physical, human, financial, intangible]. Auditing current and
projected resource requirements (for the chosen strategy). Identifying any negative or positive resource
gaps (i.e. current deficits or surpluses of the resource). Taking steps to close the gap (acquiring or disposing
of resources).

(b) Restructuring
Making the organisational structure able to carry out the chosen strategy. Considerations include:
extent of decentralisation (‘width’). necessary management expertise (‘height’).

(c) Changing culture and systems

Cultural change is problematic and can be take-consuming but may be necessary if current culture is
inappropriate given the selected strategy. Systems are changed to enable the business to perform in
sympathy with the strategy (such as budgetary, information, quality, reporting, operational, etc. systems).

(d) Managing change

Implementation often involves internal change (of resources, structure, systems and culture). Several
models seek to explain the change process.

Models for change

Lewin’s 3-step model
Force field analysis
Change agent (champion of change) model
(see separate lecture on change management)

Culture and structure

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

24
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.

2. The cultural web

How it works. The paradigm (worldview) of an organisation is manifest by six
externalities. These ‘give clues’ as to the organisation’s paradigm.

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)

Rituals and routines

Procedures by which ‘things are done’ within the organisation. Rituals and routines can
be either formal or informal.

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.

Two broad categories of structure

1 Those based on hierarchy and which observe the principle of the unity of command,
and,
2 Those which are not: non-hierarchical structures

1 Hierarchical structures

25
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.

Types of hierarchical structure

organisation by specialism (functional structure);
organisation by geographical focus (geographic structure);
organisation by customer focus (customer structure);
organisation by product type (product structure).
All have the same generalised 'shape.' Sometimes referred to as an 'M-form' structure.

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.

Features of matrix structures

Employees will usually have a line boss, but the bulk of their time at work will be spent
in cross-functional teams. Employees work closely with a team leader who is not their
line manager and in this respect, they can be said to have two people to whom they
'report.' Obfuscation of unity of command can create difficulties. Useful in organisations
that carry out a range of relatively diverse tasks and which require staff to be especially
flexible. Usually shown as a 'net' of interconnecting lines of reporting

The management of change

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.

2. External influences that can cause internal change

As with all external environmental analyses, we can identify the sources of environmental influence using
an analysis of an organisation's micro and macro (PEST) environments.

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.

26
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)

(a) Force-field analysis

Kurt Lewin (1951) suggested that change can be explained by visualising it as two opposing coalitions.
This is shown as a diagram.

27
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.

(b) A simple prescription

Takes the view that if one stage doesn’t work (i.e. bring about the requisite change), then move on to the
next stage.
1. Starts with communication- of objectives and process to all affected parties, then,
2. Education - regarding the need for change and how it is to be implemented, then,
3. continued
4. Consultation - to ensure the willing co-operation of all affected parties, then,
5. Negotiation - if necessary, making some concessions to facilitate ultimate compliance, then,
6. Manipulation - of affected parties by the use of manipulative techniques such as subversion,
propoganda or emotional appeal, and then finally,
7. Coercion - forcing the change through by the forceful wielding of executive power.

(c) Kurt Lewin’s three-step model

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

28
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

29
Systems thinking: the integrative area that supports the four above and provides the basis for viewing the
environment

30