Strategic Change Management

Candidate support pack
PDA Diploma in Management
Management: Strategic Change

(DV7W 36)
MANAGEMENT DEVELOPMENT
PUBLISHING INFORMATION
First edition
Published date: November 2008, amended August 2009

Publication code: CB 4559
First Published 2008

Published by the Scottish Qualifications Authority
The Optima Building, 58 Robertson Street, Glasgow G2 8DQ
Ironmills Road, Dalkeith, Midlothian EH22 1LE
www.sqa.org.uk
The information in this publication may be reproduced in support of SQA qualifications. If it is

reproduced, SQA should be clearly acknowledged as the source. If it is to be used for any other
purpose, then written permission must be obtained from the Publishing Team at SQA. It must not be
reproduced for trade or commercial purposes.
Scottish Qualifications Authority
Strategic Change
TABLE OF CONTENTS
PAGE
ACKNOWLEDGEMENTS
ABOUT THE PROGRAMME
INTRODUCTION
MANAGEMENT: STRATEGIC CHANGE
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SECTION ONE
1. ANALYSE STRATEGIC CHANGE
13
1.1 The characteristics of strategic decisions

1.2 Levels of strategy
1.3 Characteristics of strategic management and operational
management
1.4 The three strategy paradigms (lenses of strategy)
1.5 Types of change
1.6 Proponents of the design lens
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17
21
22
29
32
2. ESTABLISHING STRATEGIC POSITION
47
2.1 Positioning in the external environment

2.2 Internal environment analysis
2.3 Strategic drift
2.4 Barriers to market entry
2.5 Benchmarking and best practice
2.6 Drivers and resistors to organisational change
2.7 Contextual factors
2.8 Impact of internal resources on an organisations ability to
bring about change
2.9 Impact of organisational competence on an organisations
ability to bring about change
2.10 Organisational culture and change
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51
56
57
58
60
65
3. DETERMINING DIRECTION FOR CHANGE
77
3.1 Strategic development directions

3.2 Methods of strategy development
3.3 Success criteria for judging strategic options
3.4 Choosing suitable strategic options
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93
100
109
SECTION TWO
SECTION THREE
REFERENCES
68
70
72
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ACKNOWLEDGEMENTS
SQA would like to acknowledge the input of Resource Initiatives and its writers to the development of
this Management Diploma support material.
SQA would also like to acknowledge the valuable contribution that Scotlands colleges have made to
the development of Higher National qualifications.
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About the programme
INTRODUCTION
Welcome to the Diploma in Management Development Programme. This pack forms part of the
learning programme which has been designed to assist you in meeting the requirements of the HN
Unit Management: Strategic Change (DV7W 36), one of the mandatory Units of the Diploma in
Management. We hope that you enjoy your studies.
Other learning packs available to support the Diploma in Management are as follows:
Management Research (DV81 36)
Management: Develop Strategic Plans (DV87 36)
Management: Organisational Leadership and Development (DV8A 36)
Management: Developing Self Management Skills (DV86 34)
Management: Leadership at Work (DV88 34)
Management: Plan, Lead and Implement Change (DV8C 35)
Managing and Working with People (DV82 34)
Manage Operational Resources (DV7X 34)
Creating a Culture of Customer Care (DJ42 34)
The material is a comprehensive learning package which will provide assistance particularly if you are
undertaking this Unit as an open or distance learning student. While this pack will assist you in
developing your knowledge, understanding and skills, you will also benefit from tutor support and
interaction with your peers.
In order that you are able to get the most out of the pack you need a full understanding of how it is
designed and structured. Please read the next few pages of this introduction very carefully.
Good luck with your development as a manager!
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THE LEARNING PROGRAMME

This learning programme has been developed to help you develop your knowledge and skills, to help
you achieve your Diploma in Management. It has been designed as a flexible blended learning
solution which comprises two parts.
1.
A workbook containing most of the resources that make up the programme.
2.
Tutor support provided through the assessment centre you are registered with.
Please read the remainder of this introduction to find out more about the programme and how the
different components have been designed to support your development as a manager or aspirant
manager.
THE WORKBOOK
This workbook is broken down into sections which link directly to the HN Unit Management: Strategic
Change. The workbook is designed to provide a framework for your learning, leading you through the
development in a logical way and introducing the essential requirements of strategic change.
Each section contains the following features.
An introduction at the beginning of each section you will be given the overall aims of the section,
telling you what you will achieve following your period of study.
Technical data and discussion the bulk of the section will be made up of relevant information and
discussion. It is broken down into chunks and will be structured to assist your learning. Within this text
there will be features which again are aimed to help you.
Megabyte boxes boxes are used within the text to illustrate important information. Each box has
Megabyte printed at the top to remind you of key learning points associated with the text.
Activities as part of your study it is important that you are able to relate your learning to your
current or future role as a manager. The boxes indicated by activity describe things you need to do
to connect your study to your place of work.* It is important that you complete these activities, as they
will help you apply your learning.
*Please note that if you are not currently employed or in a position where you are able to gain access
to the required information via your workplace, you should develop your activities based on an
organisation you are familiar with. This could perhaps be an organisation you have been employed by
in the past.
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Research this box indicates that at this point in your study you will need to further develop yourself
by carrying out additional research using reference materials, via books or websites, or using
situations/opportunities at your place of work. Your tutor will also give you guidance. This research is
seen as an essential part of your personal development within the programme. Time spent on
research will be invaluable to you in the long term.
Highlighted text bold and Italic text is also used to highlight important points in the text.
TUTOR SUPPORT
When you enrol on this programme, you will be linked to a tutor, who will support you within your
development. Your tutor will be available to help you with difficulties and support you as you complete
the different parts of the development process. Tutors will provide you with support as you complete
the activities associated with the programme.
HINTS ON STUDYING
As mentioned earlier, this blended learning programme is a very flexible method of study. It is
important, however, that you structure your learning to get the most out of it and, as such, you should
think carefully about the following:
WHEN TO STUDY
Try to get into a regular study routine. Set time aside for study, but be ready to give and take a bit.
Miss one of your planned sessions if you must, but try to make up for it later.
As well as planned time, grab the odd moment. It is surprising how much you can achieve in 15
minutes.
SET TARGETS
Set yourself targets. Set realistic targets that you can achieve and stick to them. A realistic target is
one you know you can achieve. Your tutor will help you set targets which are realistic.
WHERE TO STUDY
A word of advice do not think that you can study anywhere. You need to be able to concentrate.
So if you have a few spare minutes to do some learning, find somewhere suitable which will allow you
to concentrate. For all your periods of study, find somewhere where you will not be distracted. It is
surprising how you can find places which are quiet and away from distractions. But remember, be
flexible if the place where you normally go is being used then find an alternative.
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HOW TO APPROACH YOUR LEARNING

Once you have organised your time and you are familiar with the requirements of the workbook, it is
time to start your learning. Prepare yourself: get a pad, a pen or pencil, and an area to work. Once
prepared, read the introduction and think about what you are going to learn about. Think about how
your learning will influence what you do in the workplace, and how it connects to your work role or
prospective work role.
GETTING STARTED
It is now time to start working through the workbook. Learning using this workbook does not simply
mean reading its content. You must be active in your study, get involved, ask questions and make
notes.
Much of your success will depend on your own efforts, so stick with it and dont give up!
ACHIEVING YOUR DIPLOMA IN MANAGEMENT

We have mentioned already that the programme has been specifically designed to help you achieve
your Diploma in Management. Each of the sections of the workbook relates directly to one of the
Outcomes found in the Unit Management: Strategic Change. The activities that you will complete as
part of this programme link specifically to the Evidence Requirements of the Unit.
To achieve the full Diploma in Management award you will need to successfully complete the Higher
National Units listed below:
Management: Developing Self Management Skills (DV86 34)
Management: Leadership at Work (DV88 34)
Management: Plan, Lead and Implement Change (DV8C 35)
Managing and Working with People (DV82 34)
Manage Operational Resources (DV7X 34)
Creating a Culture of Customer Care (DJ42 34)
Management: Graded Unit 1 (DW2X 34)
Management: Organisational Leadership and Development (DV8A 36)
Management: Develop Strategic Plans (DV87 36)
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Management: Strategic Change (DV7W 36)
Management Research (DV81 36)
and five optional credits from a range of Units.
The pack has been produced to help you achieve your Diploma in Management and also for you to
develop as a manager. We hope you find it enjoyable and informative.
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Introduction
Management: Strategic Change
This workbook will give you an understanding of strategic change. It aims to further develop your
understanding of change management linked to the development of strategy. It looks at the
development of strategy through to the implementation of change methodology at a strategic level.
As you progress through the workbook you will develop an understanding of strategy and link this to
the concept of change at a strategic level.
By the end of the programme you will be able to:
analyse different strategy concepts and their implications to strategic change
establish an organisations strategic position
determine directions and methods to implement strategic change
Within the section there will be activities which allow you to put the theory into practice and thereby
generate evidence of competence towards the HN Unit Management: Strategic Change.
There will also be further reading suggestions and links to additional information you may wish to
pursue throughout your study.
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Section One
Analyse Strategic Change
INTRODUCING THIS SECTION

In this section we will be analysing the concept of strategic change and its implications. As you work
through this section you will further develop your understanding of change management to look at
strategic change and its implementation.
Specifically the section will look at:
the characteristics of strategic decisions
levels of strategy
the characteristics of strategic management and operational management
strategy paradigms
types of change
different strategy paradigms for different types of changes
By the end of the section you will be able to:
analyse strategy and understand its different levels
understand how strategy influences change and change management
understand different types of change and their strategy paradigms
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1.1 THE CHARACTERISTICS OF STRATEGIC DECISIONS

Before we can look at strategic change, it is important that you develop an understanding of what
strategy is and how it impacts on the decision-making process. As part of this you have considered the
requirements of strategy in the Unit on strategic business planning where we introduced a definition of
what strategy is, taken from Johnson, Scholes and Whittington (2005).
Strategy is:
the direction and scope of an organisation over the long term, which achieves advantage for the
organisation through its configuration of resources within a changing environment and to fulfil
stakeholder expectations
So, in other words, implicit within any development of strategy is the concept of change. A changing
environment will demand of an organisation a change in strategy, if the organisation is to maintain its
advantage. Similarly if stakeholders demand a change in direction, strategy may need to be modified if
the position of the organisation in the external environment is to be maintained. It is therefore possible
to see the interdependence between strategy and change.
Working through this section you will therefore look further at organisation strategy and its
development in respect to change. It will explore how strategy should be developed to support and/or
drive the process of change.
1.1.1 STRATEGY DEVELOPMENT

We will start looking at strategy by considering the different ways it is developed. One approach that is
commonly used to create strategy is the concept of strategic fit and strategic stretch.
Strategic fit
Strategic fit is where mangers develop strategy by identifying opportunities in the environment of the
business and organising its resources to take advantage of these, ie trying to match the resources and
capabilities of the organisation to the opportunities open to it.
Strategic stretch
Strategic stretch (or leverage) is the process of innovation and development involved in finding new
opportunities and creating a competitive advantage from an organisations resources and
competences.
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In summary, fit means:
matching the organisations resources and the market opportunities
finding a correct market position based on the current market environment
And stretch/leverage means:
building resources within the organisation
increasing strengths through the development of organisational competences
creating new value(s) for stakeholders
changing the rules of the game, ie changing the market to suit your competences
When developing strategy, however, it is rarely as cut and dry as this. Strategy is more likely to be a
balance of fit and stretch, for example making sure that the company is producing goods or services
that meet market needs and also has the resources of people and materials to maintain production at
the correct level.
The core competences of an organisation are those competences that are necessary to underpin the
organisations competitive advantage. However, other competences may also be developed to support
strategy. This is not only a question of making sure that the correct resources are available, but also of
identifying existing resources and competences which can be used as a basis for creating new
opportunities in the future.
Take some time to find out more about core competences. Refer to:
Prahalad, C. K. and Hamel, G. (1990) The Core Competence of the Corporation.
Harvard Business Review, May/June, 33, 7991
Prahalad, C. K. and Hamel, G. (1996) Competing for the Future. Boston: Harvard
Business Press
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Issues with the concept of fit
1. The implied static orientation. Fit seems to imply a match between resources and
opportunities at a single point in time. However, this does not take into account the
dynamic nature of the business environment. Zajac et al. (2000) suggest that
understanding dynamic fit requires that anyone wishing to look at strategic fit must also
address the question of strategic change.
2. The multidimensionality of strategic fit. Fit is not just a simple matching of one
competence to one opportunity. Often it may be that combinations of competences are
required, or that the opportunity will only be partially realised. As a result it is very difficult
to measure accurately how successful an organisation is at achieving strategic fit, given
that organisations face multiple environmental and organisational situations that can affect
strategic fit. There is therefore a possible issue with a firms seeking to balance a fit
between its strategy and its environmental situation versus a fit between its strategy and
its unique competences. It is worth noting that this issue becomes more important if
strategic fit is viewed in more dynamic terms. This is because the desirability of changing
strategy in response to changing environments becomes much more uncertain when it
moves an organisation away from its traditional or distinctive competences (Prahalad and
Hamel, 1990).
Issues with the concept of stretch
1. Stretch is dependent on identifying competences and core competences. Failure to
successfully determine what these are, relevant to the external organisation, may result in
a mismatch in their application and leave the organisation vulnerable with respect to
meeting the need for change.
2. With stretch the focus is on the internal development of the organisation. There is
therefore a danger that changes within the external environment will be ignored or simply
not recognised as important. This may result in the organisation developing to suit its own
needs and not to suit the needs of the external environment.
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Find out more about the paradox of fit versus stretch by referring to:
Price, A. D. and Newson, E. (2003) Strategic Management: Consideration of
Paradoxes, Processes and Associated Concepts as Applied to Construction. Journal of
Management in Engineering, 19(4), 183192
Zajac, E. J., Kraatz, M. S. and Bresser, R. K. F. (2000) Modeling the Dynamics of
Strategic Fit: A Normative Approach to Strategic Change. Strategic Management
Journal, 21, 429453
1.2 LEVELS OF STRATEGY

As well as acknowledging the different options for strategy development, it is important to
acknowledge that strategy can occur at different levels relevant to the type of organisation being
talked about.
There are typically three levels of strategy:
1. Corporate strategy
2. Strategic business unit (SBU) strategy
3. Operational strategy
1.2.1 CORPORATE STRATEGY

Corporate strategy is the overall strategy that integrates the strategies of all the businesses within an
organisation. It usually describes the overall mission, the financial and human resource strategies and
policies that affect all businesses within the corporation, the organisation structure, the management
of the interdependencies among SBUs, and any major initiatives to change the scope of the firm such
as acquisitions and divestments.
This strategy is usually developed from a strategic centre. This is often called a corporate parent
as the strategic centre is in charge of the individual SBUs. For example, Whitbread
(www.whitbread.co.uk) is the corporate parent of Premier Inns, Costa Coffee, etc.
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1.2.2 STRATEGIC BUSINESS UNIT (SBU) STRATEGY

A strategic business unit is a part of an organisation where there is a distinct external market for goods
or services that is different from another SBU. The identification of an organisation's strategic business
units is essential to the development of strategies at this level since these will vary from one SBU to
another. There are two issues that need to be addressed when defining an SBU.
1. If each product and each geographical branch of a business, etc is considered to be an
independent SBU, there are an immense variety of competitive strategies that could be
applied to the single organisation. This would create a lack of focus and inefficiency, making
the development of corporate-level strategy almost impossible.
2. On the other hand, the concept of the SBU is important in properly reflecting the diversity of
products and markets that actually exist.
There are two broad criteria which can help in avoiding these issues and hence in identifying SBUs
that are useful when developing business-level strategies.
External criteria for identifying SBUs are about the nature of the market for different parts of the
organisation. Two parts of an organisation should only be regarded as the same SBU if they are
targeting the same customer types, through the same sorts of channels, and facing similar
competitors.
Internal criteria for identifying SBUs are about the nature of an organisation's strategic capability its
resources and competences. Two parts of an organisation should only be regarded as the same SBU
if they have similar products/services built on similar technologies and sharing a similar set of
resources and competences. This usually means that the cost structure of the units' will be similar.
Developing a SBU strategy
Sometimes called competitive strategy, SBU strategy is all about how a SBU can achieve competitive
advantage in its market. Specific strategies for gaining competitive advantage will be explained later in
the Unit but the main issues which a SBU strategy addresses are as described below.
Competitive advantage is described as:
the ability of an organisation to outperform rivals on its primary goal
something which distinguishes the organisation from others (eg unique resources)
something which is significant that is it offers advantages that are sustainable and not
due to temporary circumstances or chance
advantages are strengths of the firm, vulnerabilities are weaknesses
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Advantages are strengths of the firm, vulnerabilities are

weaknesses.
It is important that any advantage is sustainable, as this means it is likely to continue in the longer
term. Sustainability depends on such things as:
product life cycles
rate of technological change
time to develop new skills and competences
time to develop other sources of advantage (eg brands)
how aggressive your competitors are
1.2.3 OPERATIONAL STRATEGY

Operational strategy is very narrow in focus and deals with day-to-day operational activities. Some
examples of operational activities (depending on the organisation/SBU) include:
human resource management: hiring/firing, allocation of staff, etc
stock control: ordering supplies, managing stock rotation/levels, etc
marketing: advertising, market research, etc
manufacturing: product design, development and creation
service provision: after care, complaints, etc
sales
Usually an SBU will have its own operational strategy. Operational-level strategies are informed by
strategic-level strategies, which in turn are informed by corporate-level strategies. Although in
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small/medium enterprises (SMEs) there is not usually a physical difference between levels, there
should still be a conceptual difference between levels.
Remember:
Corporate Strategy: Overall purpose and scope of an organisation
Strategic Business Unit Strategy: How an individual business will
compete to succeed
Operational Strategy: How the component parts of an organisation
deliver the corporate and business strategies
Organisational Strategy
Review a named case study or an organisation you are familiar with and
identify examples of corporate, SBU and operational strategy. Your report
should also explain the relationships between the strategies.
Refer to the Interactive Activities on SQAs website

(http://www.sqa.org.uk/sqa/30913.html) for a further insight
into strategic development. Go to Strategic Change/Analyse
Strategic Change/Strategic Development.
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1.3 CHARACTERISTICS OF STRATEGIC MANAGEMENT AND OPERATIONAL

MANAGEMENT
Operational management provides control and supervision for organisations, while strategic
management provides a sense of purpose. Companies, schools, universities, hospitals, football teams
and so on are all organisations which have a purpose, whether this is to make profits, maintain a
market share, promote educational achievements, provide good healthcare or win football matches.
Operational management is essential because it provides basic management functions. If these are
not carried out, the organisation will be unproductive, inefficient and generally fail in its purpose.
It is important that you are able to understand the difference between strategic management and
operational management. In simple terms strategic management is:
made in ambiguous/uncertain situations to help determine the direction of the organisation
usually complex in nature as it needs to take into account various internal and external
factors
usually organisation-wide, with long-term implications
Operational management on the other hand is usually:
routine: issues are generally predictable; each day is roughly the same as the next
localised: functionally specific; decisions made do not often have organisation-wide

consequences
restricted to short-term implications
Strategies and Operations
Using an organisation you are familiar with, identify aspects of management which are
strategic and aspects which are operational. Explain each of your classifications.
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1.4 THE THREE STRATEGY PARADIGMS (LENSES OF STRATEGY)

So far we have considered strategy, explained its meaning and how it is used to support the need for
change. For strategy to be effective as a driver of change managers need to be able to develop it
effectively. There are three ways of looking at strategy development, also known as strategy lenses.
1. Strategy as design fit
2. Strategy as experience stretch
3. Strategy as ideas emergent/chaos
Let us now look more closely at these three lenses.
1.4.1 STRATEGY AS DESIGN

Strategy as design is the view that strategy development can be a logical process in which the forces
and constraints on the organisation are weighed carefully through analytical and evaluative techniques
to establish clear strategic direction. This creates conditions in which carefully planned implementation
of strategy should occur. This is perhaps the most commonly held view about how strategy is
developed and what managing strategy is about. It is usually associated with the idea that it is the top
management's responsibility to do all this and that therefore they should lead the development of
strategy in organisations.
There are a number of assumptions that should be taken into account with this design viewpoint.
These are that:
strategy development is a logical and structured process of analysis and decision making
decision makers have access to all the information they need and can act rationally
strategy making is separated from strategy implementation
strategic planning is a means of managing complexity and controlling organisations.
Below is a diagram showing how a typical design lens strategy is developed:
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As the diagram shows, in the strategy development phase stakeholder needs are identified and used
to form the mission, vision, strategy and objectives of the organisation. Strategy develops when both
the internal environment (organisational competences, strengths and weaknesses) and external
environments (economic, industrial and market) are examined to help form the desired future mission,
vision, strategy and objectives of the organisation.
Strategy is implemented through strategic plans and action programmes (which must be adjusted
depending on the behaviour of the external environments). These plans will determine how the
organisational structure and internal systems, the related employees and other resources are used to
achieve the desired future state.
Tools and techniques of the design viewpoint
As mentioned before strategy is about the overall purpose of the organisation. In order to identify an
organisations purpose a MOST analysis may be conducted.
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MOST stands for:
Mission: where the organisation intends to go
Objectives: the key goals the organisation wishes to achieve
Strategies: the options available for achieving the objectives
Tactics: how the strategies will actually be put into action
Generally speaking, it is very difficult to conduct a MOST analysis from outside an organisation, as it
will be difficult to get access to the valuable strategies and tactics
Situation analysis tools include:
SWOT analysis (there will be more on this later in the Unit)
PEST(EL) analysis (see workbook for Management: Plan, Lead and Implement Change)
industry analysis five forces and strategic groups (see workbook for Management:
Plan, Lead and Implement Change)
There are a few potential drawbacks with the strategy as design process. These are that:
it may not lead to creative new strategies and organisational innovation
in practice many strategic plans quickly become out-of-date and are ignored
strategic planning may be reduced to a bureaucratic numbers exercise or ritual
there is often considerable subjectivity and potential bias, despite claims of rationality
decision makers rarely have all the information they need, at the time they need it
1.4.2 STRATEGY AS EXPERIENCE

Strategy as experience is the view that future strategies for organisations are based on the adaptation
of past strategies, influenced by the experience of managers and others in the organisation. The
culture of the organisation is central to this view, as strategy is seen as a result of the assumptions
and ways of doing things embedded in the culture. In so far as different views and expectations exist,
they will be resolved not just through rational analytic processes (as in strategy as design), but also
through processes of bargaining and negotiation. Here the view is that there is a tendency for the
strategy of the organisation to build on and be a continuation of what has gone before.
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There are a number of assumptions that should be taken account of with this experience viewpoint.
These are that:
strategy development builds on existing strategies in an adaptive fashion change is

gradual
strategy is not planned as in the design approach it develops as a series of strategic

moves that build on previous moves
strategy development is the outcome of individual and collective experiences of

individuals and taken-for-granted assumptions
One of the key characteristics of the experience view is the use of mental models as part of an
organisations culture. Individuals build mental models over time to make sense of the way in which
the world works. These allow people to make decisions quickly but can be a source of potential bias in
decisions. Mental models are shaped by experiences and the nature and culture of the organisation.
Collectively mental models become the organisational paradigm. This is the set of assumptions held
relatively in common and taken for granted in the organisation.
Examples of paradigms:
What do customers really want?
Who are the important competitors?
The following diagram illustrates how strategy results from experience.
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There are a few potential drawbacks with the strategy as experience process. These are that:
it is backward looking and rarely leads to creative strategy or innovation
it may not make enough use of analytical techniques and rational approaches to strategic
decision making
in periods of rapid industry change the paradigm can become a serious barrier and source
of resistance to organisational change
biases held by managers can be hidden, which can result in poor decision making
1.4.3 STRATEGY AS IDEAS

Neither of the above lenses is especially helpful in explaining innovation. If strategy is as design then
the only strategies which would be used would be entirely rational and hence have a minimum of risk
associated with them. This is clearly not always the case. Similarly, if strategy is as experience then
only strategies that have been tried before will be attempted. So how do new ideas come about?
This lens emphasises the importance of variety and diversity in and around organisations, which can
potentially generate genuinely new ideas. Here strategy is seen not so much as planned from the top
but as emergent from within and around the organisation as people cope with an uncertain and
changing environment in their day-to-day activities. (See the Strategic Planning Unit for information on
prescribed and emergent strategy creation.) Top managers are the creators of the context and
conditions in which this can happen and need to be able to recognise patterns in the emergence of
such ideas that form the future strategy of their organisations. New ideas will emerge, but they are
likely to have to battle for survival against the forces for conformity to past strategies (as the
experience lens explains). Drawing on evolutionary and complexity theories, the ideas lens provides
insights into how innovation might take place.
There are a number of assumptions that should be taken account of with this ideas viewpoint. These
are that:
strategy is the emergence of order and innovation from the variety and diversity that exists
in and around organisations
innovation rarely comes just from the top of organisations but comes from anywhere in the
organisation or the outside world
industries in complex and fast changing environments provide insights into how innovative
strategies get created
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insights can also be gained from complexity theory and evolutionary theory
change can be both incremental and transformational
Leaders are important to the ideas viewpoint because they:
create an environment (culture) in which many new ideas can emerge
bring interesting people into the organisation
encourage experimentation, even if there are many failures
open up organisational boundaries
manage tensions between order and chaos, informality and strict controls
Strategy as ideas is the least formal viewpoint, which is why it is necessary to ensure there are rules
for strategic development in place. This can include:
how-to rules: describe how processes are to be executed to make the organisation
unique
boundary rules: focus managers on which opportunities can/cannot be pursued
priority rules: help managers rank the accepted opportunities
timing rules: synchronise managers with the pace of emerging opportunities
exit rules: help managers decide when to pull out of yesterdays opportunities
There are a few potential drawbacks with the strategy as ideas process. These are that:
it can expose the organisation to greater degrees of risk and uncertainty that need to be
managed
many traditional leaders find this hard to implement in practice
strategic planning may still be required for control and to satisfy stakeholder needs
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An organisation which has successfully applied the strategy as ideas lens is

GlaxoSmithKline (GSK). GSK created centres of excellence for drug discovery
(CEDDs) with the aim of encouraging an entrepreneurial mindset and overcoming
research and development productivity problems. Take some time to research how
GSK implemented this process. A good place to start is a Merrill Lynch presentation
to investors from 2003 found at www.gsk.com.

(http://www.sqa.org.uk/sqa/30913.html) for a further insight into
the three lenses. Go to Strategic Change/Analyse Strategic
Change/The Three Lenses.
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1.5 TYPES OF CHANGE

We have talked so far about the development of strategy. It is now important to link this to change and
the different types of change. There are four types of change:
1. Routine (or Continuity): little or no change over time. Not often viewed as change as such
but it can be argued that in a dynamic environment even maintaining the status quo will
require changes to be made.
2. Incremental: change occurs over a series of small steps. Examples of incremental
change might include continuous improvement as a quality management process or
implementation of new computer system to increase efficiencies. As a result of the small
impact incremental change tends to have on an organisation, its leaders do not always
recognise the change as such.
3. Transformational: change is drastic and usually occurs quickly. An example of
transformational (sometimes called radical or fundamental) change might be changing an
organisations structure and culture from the traditional top down, hierarchical structure to
a large amount of self-directing teams. Another example might be business process reengineering, which tries to take apart the major parts and processes of the organisation
and then put them back together in a more effective fashion.
4. States of flux: change is uncontrolled, and often occurs as a result of a change in the
external environment, usually unexpected. This means a period of adjustment is
necessary to bring the business back to where it was. A period of flux may therefore finish
with very little actually changing.
These types of change can be visualised in the diagram below:
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Strategic Change
It is possible to match the different types of change shown to the different strategy paradigms as
follows:
1. During periods of continuity the design strategic lens is likely to be most appropriate for
developing effective strategy.
2. In times of incremental change either the design or the experience strategic lens could
support the development of effective strategy.
3. Clearly the uncertainty created during a state of flux makes the ideas lens the most
appropriate for developing an effective strategy.
4. As transformational change may or may not be planned. The experience strategic lens is
generally the best for effective strategic development, however if it is planned, the design
lens may also apply to a certain extent. If it is unplanned then the ideas lens would apply.
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Strategic Change
Find out more about other ways of viewing change including:
Lewins transitional change, ie unfreezing the existing organisational equilibrium > moving to a new position -> refreezing in a new equilibrium position
Balogun and Haileys change paths, ie evolution, adaptation, revolution or

reconstruction based on nature of change (incremental or big bang) and desired
result (transformation or realignment)
Lewin, K. (1951) Field Theory in Social Science. New York: Harper and Row
Balogun, J. and Hailey, V. H. (2004) Exploring Strategic Change. Harlow: Prentice Hall
Types of Change
It is important for you to be able to explain the different types of
change. Review an organisation you are familiar with and explain the
types of change that apply or have applied to it. You should illustrate
your answers with supporting evidence.
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Strategic Change

into types of change. Go to Strategic Change/Analyse
Strategic Change/Types of Change.
1.6 PROPONENTS OF THE DESIGN LENS

Having considered the different design lenses and the different types of change, it is now important to
consider the different strategy paradigms for the different types of change. We will do this by
considering the work of Chandler, Ansoff, Porter, Mintzburg and Stacey. The preference of these
leading intellectuals for the different lenses is as follows:
Chandler, Ansoff and to some extent Porter are proponents of the design school
Mintzburg supports strategy development through experience
Stacey supports strategy development through ideas
1.6.1 ALFRED CHANDLER (19182007)

The historian Alfred Chandler (1962/1998; 1977; 1990) substantiated his structure follows strategy
thesis based on four case studies of American conglomerates that dominated their industry from the
1920s onward (1962; 1998). Chandler described how the chemical company Du Pont, the automobile
manufacturer General Motors, the energy company Standard Oil of New Jersey, and the retailer Sears
Roebuck developed over time by identifying four sequential stages:
1. acquisition of resources such as employees and raw materials and the build-up of
marketing and distribution channels
2. establishment of functional structures to increase efficiency
3. adoption of growth and diversification strategy: diversification into new markets/products
to overcome limits of home market
4. the creation of the then revolutionary diversionalised form to manage large conglomerates
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Strategic Change
He described strategy as the determination of long-term goals and objectives, the adoption of courses
of action and associated allocation of resources required to achieve goals; he defined structure as the
design of the organisation through which strategy is administered. Changes in an organisation's
strategy led to new administrative problems which, in turn, required a new or refashioned structure for
the successful implementation of the new strategy. Chandler's thesis argued that new organisational
forms are no more than a derivative of strategy as he defined it. His three-step approach designs an
organisational structure to match a defined strategy:
1. Select a basic organisation design
2. Modify the design as needed
3. Supplement it with coordinating mechanisms and communication arrangements
Chandler's key addition to management literature was to connect strategy and structure since a
restructuring effort is a result of a change in strategy, a company must first review its strategy, then
pursue a different structure.
The adoption of new technology or the penetration of a new market warrants a review in strategy,
which in turn merits an organisational restructuring. The emergence or evolution of new organisational
structure occurs neither in isolation nor by accident.
Professional management is essential to increase the chance of successful strategy implementation
efforts. Management must devote constant attention to develop a corresponding administrative form.
With his work (Chandler, A. D. (1962/1998) Strategy and Structure: Chapters in the History of the
American Industrial Enterprise. Cambridge, MA: MIT Press) on the theory that structure follows
strategy, Chandler demonstrated the relevance of business history and ensured that it would become
part of educational programmes in many universities.
His work helped him establish strategy as an important topic for organisations and aided the
transformation of McKinsey & Company as a specialist in organisational (re)structuring into a strategy
consultancy firm.
Criticisms of Chandlers work
The thesis is oversimplified. The relation between structure and strategy is not necessarily one
dimensional. Mintzberg argued that the current organisational form can also be regarded as
constraining strategic change. Current views such as that of Pettigrew hold that structure and strategy
are to be regarded as equal to one another. Rumelt concludes that structure also followed fashion.
Changes in the market structure have implications for a firm's strategy and structure. Chandler stated
that a fit-to-market between an organisation's form and its market structure reduces its internal coordination costs and provides a better match between the firm's product portfolio and its tactical
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Strategic Change
customer needs. The fit-to-market relationship should be secondary to the fit-to-strategy connection
so as not to inhibit necessary strategic changes. Commercial management and its related bonus
schemes represent the fit-to-market' component in a firm and tend to defend the current status quo. In
his case studies, Chandler described the need for leadership to make changes, but did not regard
strong leadership as a prerequisite for an efficient corporate reorganisation.
The thesis was not based on broad empirical study. The relationship between strategy and structure
was described only for a large organisation's growth and diversification strategy. In turbulent
environments, the unorchestrated emergence of new forms and strategies occurs.
Take some time to review Chandlers work using the following references.
Chandler, A. D. (1962/1998) Strategy and Structure: Chapters in the History
of the American Industrial Enterprise. Cambridge, MA: MIT Press
Chandler, A. D. (1977) The Visible Hand. London: The Belknap Press
Chandler, A. D. (1990) Scale and Scope: The Dynamics of Industrial
Capitalism. Cambridge, MA: Harvard University Press
1.6.2 IGOR ANSOFF (19182002)

Igor Ansoff is credited with being the originator of the strategic management concept, and was
responsible for establishing strategic planning as a management activity in its own right. His landmark
book, Corporate Strategy (1965), was the first text to concentrate entirely on strategy, and although
the ideas outlined are complex, it remains one of the classics of management literature.
Until the publication of Corporate Strategy, companies had little guidance on how to plan for, or make
decisions about, the future. Traditional methods of planning were based on an extended budgeting
system which used the annual budget, projecting it a few years into the future. By its nature, this
system paid little or no attention to strategic issues. With the advent of greater competition, higher
interest in acquisitions, mergers and diversification, and greater turbulence in the business
environment, however, strategic issues could no longer be ignored. Ansoff felt that in developing
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strategy it was essential to systematically anticipate future environmental challenges to an
organisation, and to draw up appropriate strategic plans for responding to these challenges. In
Corporate Strategy, Ansoff explored these issues and built up a systematic approach to strategy
formulation and strategic decision making through a framework of theories, techniques and models.
Ansoff developed a new classification of decision making, partially based on Alfred Chandler's work.
This distinguished decisions as either: strategic (focused on the areas of products and markets);
administrative (organisational and resource allocating); or operating (budgeting and directly
managing). Ansoff's decision classification became known as strategystructuresystems, or the 3S
model. Sumantra Ghoshal has since proposed a 3Ps model purpose, process and people to
replace it.
Ansoff argued that within a company's activities there should be an element of core capability, an idea
later adopted and expanded by Prahalad and Hamel (1990) (more on this later). To establish a link
between past and future corporate activities (the first time such an approach was undertaken), Ansoff
identified four key strategy components:
1. productmarket scope a clear idea of what business or products a company was
responsible for
2. growth vector this offers a way of exploring how growth may be attempted
3. competitive advantage those advantages an organisation possesses that will enable it
to compete effectively a concept later championed by Michael Porter (more on this
later)
4. synergy Ansoff explained synergy as 2 + 2 = 5, or how the whole is greater than the
mere sum of the parts, and it requires an examination of how opportunities fit the core
capabilities of the organisation
Also responsible for the creation of the Ansoff matrix, variously known as the productmission matrix
or the 2 x 2 growth vector component matrix, the Ansoff matrix remains a popular tool for
organisations that wish to understand the risk component of various growth strategies, including
product versus market development, and diversification. The matrix was first published in an article
called Strategies for Diversification (Ansoff, 1957) (more on this later).
Interestingly the issue of turbulence underlies all of Ansoff's work on strategy (which would make you
think he would be a proponent of the ideas lens). Ansoff recognised, however, that if some
organisations were faced with conditions of great turbulence, others still operated in relatively stable
conditions. Consequently, although strategy formulation had to take environmental turbulence into
account, one strategy could certainly not be made to fit every industry.
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These ideas are discussed in Implanting Strategic Management (1984), where five levels of
environmental turbulence are outlined as:
1. repetitive change is at a slow pace, and is predictable
2. expanding a stable marketplace, growing gradually
3. changing incremental growth, with customer requirements altering fairly quickly
4. discontinuous characterised by some predictable change and some more complex
change
5. surprising change which cannot be predicted and which both develops, and develops
from, new products or services
Criticisms of Ansoff's work
Although frequently referred to by other strategists, Ansoffs work has not become more generally
recognised in comparison with that of other theorists. This is possibly due to the complexity of his work
and its reliance on the disciplines of analysis and planning.
Also, other theorists were working on similar themes to Ansoff at similar times. In the 1960s Ansoff's
notion of competence was not unique, although Ansoff seems to have been the originator of his 2 x 2
growth vector component matrix. During the 1980s and 1990s, it is likely that much work by other
theorists about strategy formation under conditions of uncertainty or chaos (for example Ralph Stacey
more on this later) owed something to Ansoff's theory of turbulence, though it is difficult to evaluate
the extent of the debt.
A debate between Ansoff and Henry Mintzberg over their differing views of strategy has been reflected
in print over many years, particularly in the Harvard Business Review. Ansoff has often been criticised
by Mintzberg, who dislikes the idea of strategy being built from planning which is supported by
analytical techniques. This criticism is based on the belief that Ansoff's reliance on planning suffers
from three fallacies: that events can be predicted, that strategic thinking can be separated from
operational management, and that hard data, analysis and techniques can produce novel strategies.
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Take some time to review Ansoffs work using the following references.
Ansoff, I. (1965) Corporate Strategy. New York: McGrawHill
Ansoff, I., DeClerk, R. P. and Hayes R. L. (1975) From Strategic Planning to Strategic
Management. New York: Wiley Interscience
Ansoff, I. (1979) Strategic Management. London: MacMillan
Ansoff, I. (1984) Implanting Strategic Management. Englewood Cliffs: Prentice Hall
Ansoff, I. (1988a) The New Corporate Strategy. New York: Wiley
Journal articles
Ansoff, I. (1957) Strategies for Diversification. Harvard Business Review,
September/October, 35(5), 113124
Ansoff, I. (1988b) The Firm of the Future. Harvard Business Review,
September/October, 43(5), 162174
Hussey, D. (1999) Igor Ansoff's Continuing Contribution to Strategic Management.
Strategic Change, November, 8(7), 375392
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1.6.3 MICHAEL PORTER (1947)

Porter has generally been viewed as at the leading edge of strategic thinking since his first major
publication, Competitive Strategy (1980), which became a corporate bible for many in the early 1980s.
Before Competitive Strategy, most strategic thinking focused either on the organisation of a company's
internal resources and their adaptation to meet particular circumstances in the marketplace, or on
increasing an organisation's competitiveness by lowering prices to increase market share. These
approaches, derived from the work of Igor Ansoff, were bundled into systems or processes which
provided strategy with its place in the organisation.
In Competitive Strategy, Porter managed to reconcile these approaches, providing management with
a fresh way of looking at strategy from the point of view of industry itself rather than just from the
point of view of markets, or of organisational capabilities. It was in this book that he developed the
value chain for which he is well known. Porter proposed that to be able to survive competition and
supply what customers want to buy, the firm has to ensure that all value-chain activities link together
and fit, as a weakness in any one of them will impact on the chain as a whole and affect
competitiveness.
Porter is also well known for his five industrial forces (2001). In recent years, for example, Porter has
revisited his earlier work and emphasises the acceleration of market change which means companies
now have to compete not just on a choice of strategic front, but on all fronts at once. Porter has also
said that a company that tries to position itself in relation to the five competitive forces misunderstands
his approach, since positioning is not enough. What companies have to do is ask how the five forces
can help to rewrite industry rules in the organisation's favour. Porter argues that many internet
companies are competing through unsustainable, artificial means, usually propped up by short-term
capital investment. He also argues that while the excitement of the internet appeared to throw up new
rules of competition, the first wave of excitement is now clearly over, and the old rules and strategic
principles appear to be re-establishing themselves. He gives examples such as:
1. the right goal healthy long-term return on investment
2. value a company must offer a set of benefits which set it apart from the competition
3. a company's value chain has to do things differently or do different things from rivals to
reflect, produce and deliver that value
4. trade-offs make conscious deliberate sacrifices in some areas in order to excel, or even
be unique, in others
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5. all the different components in the value chain must fit together, reinforcing each other to
create uniqueness and value: it is this which makes a core competence something that
is difficult to imitate
6. continuity not only from a customer perspective but also in order to build and develop
skills that bring competitive edge
Porter foresees that as most businesses embrace the internet it will become nullified as a source of
advantage, while traditional strengths such as uniqueness, design and service relationships will reemerge. For Porter the next phase of internet evolution will be more holistic, with a shift from ebusiness to business, from e-learning to learning, within which the internet will be a communications
medium and not necessarily a source of advantage.
Porters ability to abstract his thinking into digestible chunks for the business world has given him wide
appeal to both the academic and business worlds. It is now common practice for organisations to use
value chains, and the five forces have entered the curriculum of pretty much every management
programme.
Porter's later thinking on strategy links consistently with his earlier work. This lends support to the idea
that his ideas stand the test of time and may form the basis of even more innovative thinking.
Criticisms of Porters work
Porter has been criticised by some academics for inconsistent logical argument in his assertions.
Critics have also labelled Porter's conclusions as lacking in empirical support and as justified with
selective case studies.
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Take some time to review Porters work using the following references.
Porter, M. (1980) Competitive Strategy: Techniques for Analysing Industries and
Competitors. New York: Free Press
Porter, M. (1983) Cases in Competitive Strategy. London: Collier Macmillan
Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance.
London: Collier Macmillan
Porter, M. (1986) Competition in Global Industries. Boston: Harvard Business School Press
Porter, M. (1990a) Competitive Advantage of Nations. London: Macmillan
Journal articles
Porter, M. (1987) From Competitive Advantage to Corporate Strategy. Harvard Business
Review, May/June, 65(3), 4359
Porter, M. (1990b) The Competitive Advantage of Nations. Harvard Business Review,
March/April, 68(2), 7393
Porter, M. (1996) What is Strategy? Harvard Business Review, November/December, 74(6),
6178
Porter, M. (1998) Corporate Strategy: The State of Strategic Thinking. Economist, 23 May,
2122; 2728
Porter, M. (2001) Strategy and the Internet. Harvard Business Review, March, 6278
Porter, M. (2008) The Five Competitive Forces that Shape Strategy. Harvard Business
Review, January, 7893
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1.6.4 HENRY MINTZBERG (1939)

Mintzberg's impact on the management world began with his book The Nature of Managerial Work,
published in 1973, and a seminal article in the Harvard Business Review, The Manager's Job:
Folklore and Fact (1975), written two years later. Based on detailed research and thoughtful
observation, these two works established Mintzberg's reputation by showing that what managers did,
when successfully carrying out their responsibilities, was substantially different from much business
theory. Mintzberg's approach is broad, involving the study of virtually everything managers do and how
they do it. Central to his work is a fundamental belief that management is about applying human skills
to systems, not applying systems to people. This forms the basis of the experience lens.
The relationship between strategy and planning is a constant theme in Mintzberg's writing and his
views on the subject are perhaps his most important contribution to current management thinking. In
his 1994 book The Rise and Fall of Strategic Planning, Mintzbergs main concern is with what he sees
as basic failings in the traditional approach to planning. These failings are:
processes the elaborate processes used to create bureaucracy and suppress

innovation and originality
data `hard' data (the raw material of all strategists) provides information, but `soft' data,
Mintzberg argues, provides wisdom. Hard information can be no better and is often at
times far worse than soft information
detachment Mintzberg dismisses the process of producing strategies in ivory towers'.

Effective strategists are not people who distance themselves from the detail of a business
... but quite the opposite: they are the ones who immerse themselves in it, while being
able to abstract the strategic messages from it
He sees strategy not as the consequence of planning but the opposite: its starting point. He has
coined the phrase `crafting strategies' to illustrate his concept of the delicate, painstaking process of
developing strategy. He argues that while an organisation needs a strategy, strategic plans are
generally useless as one cannot predict two to three years ahead. Mintzberg further explores strategy
in his co-authored book Strategy Safari (Mintzberg, Ahlstrand and Lampel, 1998). In an attempt to
define what strategy is, 10 schools of strategic thought are outlined with a discussion and critique of
each.
Henry Mintzberg remains one of the few truly generalist management writers of today, and he has
applied his ideas on management to the management education field, believing that this area is in
great need of reform. He was instrumental in setting up an International Masters in Practising
Management in 1996, which seeks to change the traditional way in which managers are educated.
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Mintzberg's work covers such a wide perspective that different readers see him as an expert in
different areas. For some people he is an authority on time management, and he has written some of
the most thoughtful and practical advice on this subject; for others he is the champion of the hardpressed manager surrounded by management theorists telling him or her how to do their job; and for
yet another group, he is a leading authority on strategic planning. For most people, however,
Mintzberg is the man who dared to challenge orthodox beliefs and, through the scholarly presentation
of research findings, and some truly original thinking, changed our ideas about many key business
activities.
Criticisms of Mintzbergs work
Some of Mintzberg's critics say he exaggerates the ill influence of the MBA, especially in his book
Managers Not MBAs (2004). In this book he argues MBAs train the wrong people in the wrong way
for the wrong reasons, that is young people with little managerial experience should not be wielding
such clout in the corporate world, just because they nailed a case study or two in a setting far removed
from real life. According to Mintzberg, MBA programmes tend to attract people whose self-esteem
often outstrips their competence; they then dangerously bolster their confidence so that they believe
they are capable of managing and making executive decisions even though they have not done it
before. Applicants apply because they believe that an MBA leads to fortune. His critics argue that
greed, both individual and corporate, existed long before anyone had heard of MBA programmes, as
did inflated egos and managerial incompetence.
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Take some time to review Mintzbergs work using the following references.
Mintzberg, H. (1973) The Nature of Managerial Work. New York: Harper and Row
Mintzberg, H. (1979) The Structuring of Organisations: A Synthesis of the
Research. New York: Prentice Hall
Mintzberg, H. (1983a) Structures in Fives: Designing Effective Organisations. New
York: Prentice Hall
Mintzberg, H. (1983b) Power In and Around Organisations. New York: Prentice Hall
Mintzberg, H. (1989) Mintzberg on Management: Inside our Strange World of
Organisations. New York: Free Press
Mintzberg, H. (1994a) The Rise and Fall of Strategic Planning. Hemel Hempstead:
Prentice Hall International
Website: www.henrymintzberg.com
Journal articles
Mintzberg, H. (1987) Crafting Strategy. Harvard Business Review, July 65(4), 6675
Mintzberg, H. (1990) The Manager's Job: Folklore and Fact. Harvard Business
Review, March 68(2), 163-176 (Originally published in 1975, the article includes a
retrospective commentary by the author.)
Mintzberg, H. (1994b) The Fall and Rise of Strategic Planning. Harvard Business
Review, January/February, 72(1), 107114
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1.6.5 RALPH STACEY

A relatively new name in management theory, Stacey is definitely making waves. Central to Staceys
thinking is that the notion that public and private sector organisations can function like machines is a
myth. According to Stacy it is a myth that has led to managerialism, marketisation of the public
sector. Ways of managing public sector organisations by setting targets, monitoring performance and
publicly naming and shaming non-performers are increasing the organisational complexity they are
meant to diminish. This approach, according to Stacey, does not take into account the fact that the
unexpected can happen and people in organisations can react in messy ways that rely on personal
miscommunication and unconscious processes.
He has done pioneering work applying complexity theory to management. His approach challenges
the myth of the manager who is in control of organisations and emphasises instead the importance of
relationships at work with all of their complexity. He has devoted many years to addressing the
theoretical foundations of how the complexity sciences are used to understand sources of stability and
change in organisations. Staceys work on complex responsive processes elucidates a view that shifts
our understanding of complexity from adaptive systems to responsive processes of relating.
One aspect of his work is the inherent limitations of models. Stacey believes constructing a model of a
whole system involves shearing away detail and focusing on what is judged to be important. The
model can, therefore, never encompass the whole. In other words, the whole is always absent, not
least because the whole is evolving.
There do not appear to be many official criticisms of Staceys work, but this may be because it is still
too early for the full impact of his work to have been realised.
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Take some time to review Staceys work using the following references.
Stacey, R. (1991) The Chaos Frontier: Creative Strategic Control for Business.
Oxford: Butterworth Heinemann
Stacey, R. (1992) Managing the Unknowable: Strategic Boundaries Between Order
and Chaos in Organisation. San Francisco: JosseyBass
Stacey, R. (1996) Complexity and Creativity in Organisation. San Francisco:
BerrettKoehler Publishers
Stacey, R. (1999) Strategic Management and Organisational Dynamics: The
Challenge of Complexity. New York: Financial Times
Analysing Strategy
Now you are familiar with the three strategic lenses, consider how each lens can be
applied to an organisation you are familiar with. Which of the three do you think offers
the best explanation of what has happened and is happening? Write a report to
explain your choice.
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Section Two
Establishing Strategic Position

In this section we will be looking at how to establish the strategic position of an organisation. As you
work through this section you will develop an understanding of the models used to establish strategic
position and the influences that can impact on the change process.
models describing the organisations position in relation to its external environment
internal environment of the organisation
strategic drift
barriers to market entry and how they can be overcome
best practice benchmarking
drivers and resistors in organisational change situations
importance of contextual factors
impact of internal resources on an organisations ability to bring about change
impact of organisational competence on an organisations ability to bring about change
impact of organisational culture on an organisations ability to bring about change
understand and apply models for establishing an organisations position
understand the internal environment of organisations
understand the factors that are likely to influence and impact on the process of change
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2.1 POSTIONING IN THE EXTERNAL ENVIRONMENT

As shown in the first part of the Unit, regardless of which lens is being used, having an understanding
of the external environment is very important to any organisation undertaking change. There are a
number of models that have been developed to help organisations examine the external environment
they operate within. You have already been introduced to some models as part of the Unit
Management: Plan, Lead and Implement Change, and Management: Strategic Planning. In this
section we aim to build on this knowledge to look at some of the practical aspects associated with their
implementation as a method for positioning an organisation.
Remember you can use PESTEL to examine the external

environment
Political, Economic, Socio-cultural, Technological, Environmental
Legal
2.1.1 SCENARIO BUILDING

Scenario building is where a number of visions of the future or scenarios are created. This requires
looking at the external environment and seeing how it might be different in the future, then seeing how
this new future may affect the organisation. Usually used in helping to create strategic plans,
scenarios can be used to gain support for proposed changes to an organisations strategy, or to allow
managers to look at the potential impact of the changes being made.
Potential drawbacks of scenario building:
Scenarios are formed from opinion about what the future might be like. Try to make sure
the information used to base the scenarios is not biased towards a particular viewpoint
If you base your scenario not far enough in the future, by the time the scenario is
completed, the timeframe may have already passed
The further into the future your scenario is based, the less likely it is that it will be
accurate, hence when creating scenarios for the distant future do not look at too detailed
factors: stick to big events/situations. For example, population numbers are growing as
people live longer. In X number of years this will precipitate a national/global housing
shortage
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Revisit the Unit Management: Plan, Lead and Implement Change and review the
scenario-building model and its applications. See link HNC Management
Development, Management: Plan, Lead and Implement Change (DV8C 35).
2.1.2 PORTER'S FIVE FORCES FRAMEWORK

Porters five forces framework examines the market forces that impact on the organisation. This is
particularly useful in helping to establish the current state of the organisation and may highlight why
there is a need for change in the first place. The five forces are:
supplier power
buyer power
barriers to entry
industry rivalry
threat of substitutes
When using the framework, be aware that the business environment is dynamic. The framework can
serve as a snapshot of the current market/industry situation, but is unlikely to stay like that for very
long, especially once any changes are made to the organisation, ie competitors will often change as
well, either in response to your organisations changes, or for their own benefit.
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Revisit the Support Material Management: Plan, Lead and Implement Change and review
Porters five forces and their application in change management. See link HNC
Management Development, Management: Plan, Lead and Implement Change (DV8C 35).
2.1.3 BOSTON MATRIX

Another modelling tool is one you have been introduced to as part of the Unit Management: Develop
Strategic Plans: the Boston Consulting Group (BCG) matrix, or growth-share matrix. It has a number
of applications.
In larger organisations it can be used to establish the relative positions of the SBUs in the
organisations portfolio (or the SBUs in your competitors portfolios) and identify which
SBUs require investment, or should be sold
It can be used to identify the positions of specific products (both yours and your
competitors) and determine which products need to be improved/discontinued
Analysis of competitors SBUs/products can help to identify any specific threats in the
marketplace, and also identify what may be worth using as a benchmark for any future
SBUs/products to aim for
Revisit the Support Material Management: Develop Strategic Plans and review the
Boston matrix model. See link HNC Management Development, Management: Develop
Strategic Plans.
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2.2 INTERNAL ENVIRONMENT ANALYSIS

We have considered so far the environment external to an organisation, but now we must consider the
environment on the inside of an organisation and look at the ways in which we can analyse its
potential influence on any change process linked to the external environment. There are models that
can be used to support the analysis of the internal environment which you again will be familiar with as
a result of studying the Unit Management: Plan, Lead and Implement Change.
2.2.1 ORGANISATIONAL LIFE CYCLE MODELS

When most people think of organisational life cycle models, they tend to think of the classic s-curve
like so:
It is worth noting that most growth models focus on small/medium enterprises (SMEs) because even
multinational organisations start small. Hence most start with the conception of the organisation.
The concept of life stages was proposed by Edith Penrose (1959) in her book The Theory of the
Growth of the Firm. Penrose compared organisations to caterpillars; at each stage the organisation
undergoes changes in management practices and style, organisational structure, degree of internal
formality of systems and strategy in such a way that the Stage 5 organisation is completely distinct
from the Stage 1 firm.
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Strategic Change
The five stages can be explained as follows:
1. Existence: the young organisation soon after conception; unsurprisingly, it is not very big
or complex in nature.
2. Survival: at this point an organisation will begin to attract attention from competitors.
Larger organisations may attempt to squeeze out smaller firms through price wars or a
massive advertising campaign. Most small organisations do not make it past this stage
and may be forced to close.
3. Growth: once the organisation has established itself, investment can be made into growth
(both in terms of size and market share). Some organisations stay in this stage until either
acquired by another organisation or the owner decides to retire and close the organisation
down with them. (This is rare as it usually only occurs in organisations where there is no
management team which could feasibly buy-out the owner.)
4. Consolidation: after a period of growth the organisation will need time to reflect on the
changes that have occurred and either plan for another period of growth or (if the
maximum amount of growth has been achieved) maturity.
5. Resource maturity: when growth is no longer an option, many organisations will begin to
stagnate if left unchanged (hence the drop on the curve). This can be avoided by
restructuring the organisation, entering into a merger, or acquiring another SBU to invest
in (more on this in Section 3).
While this serves as a good basis for exploring growth, it does not really focus on what causes this
growth or how organisations change with each stage. There have therefore been a number of stage
models proposed, for example Steinmetzs Three Critical Phase Model (diagram below from
Steinmetz, 1969, pp. 2936).
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Strategic Change
This model assumes that when an organisation reaches a certain size (either naturally or by design) it
is forced to move to the next critical phase. This model was expanded by Greiner in 1972.

organisational life cycles. Go to Strategic Change/Establish
Strategic Position/Organisational Life Cycles.
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Strategic Change
2.2.2 GREINERS FIVE PHASES OF GROWTH

This model is based on the principle that growth stages are the result of management practices that
work well in one phase [of the firms life cycle] bringing on a crisis in another (Greiner, 1998).
Central to the model is the idea of growth propagated by crises. These crises occur as a result of
change being needed. For example:
Stage 1 (growth through creativity) leads to a crisis of Leadership more sophisticated
knowledge required, forced to hire additional executives
Stage 2 (growth through direction) leads to a crisis of Autonomy hierarchy too centralised,
requirement to relax control mechanisms for middle managers to allow greater flexibility
Stage 3 (growth through delegation) leads to a crisis of Control control lost as a result of too
much control being given further down the hierarchy
Stage 4 (growth through coordination) leads to a crisis of Red Tape tightening of controls
results in increased bureaucracy resulting in conflict throughout organisation over red tape
Stage 5 (growth through collaboration) leads to a crisis of ? remains undefined, due to lack of
empirical evidence, but the result of interpersonal collaboration
Take some time to review Greiners work, etc using the following references.
Greiner, L. E. (1998) Evolution and Revolution as Organisations Grow. Harvard
Business Review, May/June, 5567
Deakins, D. and Freel, M. (2006) Entrepreneurship and Small Firms. 4th edition.
Berkshire, McGrawHill Education
Scott, M. and Bruce, R. (1987) Five Stages of Growth in Small Business. Long
Range Planning, 20(3), 4552
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Strategic Change
Common critiques of organisational life cycle models can be summed up as follows:
1. Very few firms reach Stages 35. Greiner, Scott and Bruce allow conscious decision to
remain (Greiner, 1998) in a stage, as do Churchill and Lewis (1983), who also give
break-off paths for disengagement/failure, but following and completing the path is
implied throughout.
2. Cannot go back or skip stages, yet, in reality, some firms may move incredibly fast
through stages, or even start further along.
3. No option for hybrids stages, yet firms may be attempting to survive at various stages
depending on the environment.
4. Within the model crises occur in a non-random manner despite the inherent uncertainty of
the business environment. Also, growth does not necessarily result in, nor lead to, crisis.
One other critique is that there may be different models of growth, such as growth by acquisition
(Storey, 1994), as mentioned before. However, in Greiners experience most acquisitions involve a
larger company in a later stage of the model acquiring a smaller company in an earlier stage. Hence
the model would remain unchanged.

phases of growth. Go to Strategic Change/Establish Strategic
Position/Phases of Growth.
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Strategic Change
2.3 STRATEGIC DRIFT

One of the main causes of change in an organisation is strategic drift. This can occur where an
organisations strategy does not fit (as mentioned earlier in the Unit) or moves away from changes to
its operating environment. One famous example is Marks and Spencer, which was recognised as
losing its way until new management took over.
Generally speaking strategic drift can be recognised by:
highly homogenous paradigm/culture, ie everyone thinks the same
strong power blockages to change, usually from upper management, but may also be
the result of strong unions
lack of market information, in particular managers being unaware of the external

environment and the behaviour of their competitors
little toleration of questioning/challenge; related to the culture: if questions are not

encouraged then no one inside the organisation will notice the strategic drift
weve tried this before and it didnt work mentality; this shows a failure to recognise
that environments change, and that it is possible that the original implementation was
flawed
deteriorating performance; usually a sure sign, unless this can be attributed directly to
specific economic forces
reliance on price/cost/competition; this is a very reactive approach meaning that

management is failing to think strategically
Organisational strategy must be aligned with or slightly

ahead of changes in the environment otherwise
strategic drift will occur.
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Strategic Change
2.4 BARRIERS TO MARKET ENTRY

The positional models above can all be used to identify the organisations current situation. The most
common form of change for an organisation is the introduction of a new product/service to the market.
As a result, managers will need to be aware of any barriers to entry which may exist. The models we
have looked at as part of this section provide an appropriate mechanism for identifying barriers:
Porters five forces framework: Rather obvious really as one of the forces is Barriers to Market
Entry. This means managers must look at any potential barriers from the industry itself.
Scenario building: When creating scenarios, make sure you recognise that your competitors will also
be reacting to the changes in the environment and hence the barriers to entry are likely to have
changed as well.
Boston matrix: Before entering a market, use the growth-share matrix to analyse the current
competitors/products. This will let you identify any of the major players (high share of the market) and
hence identify any particular competitors who may wish to create barriers to entry.
Life cycle models: While the models themselves do not necessarily imply particular barriers to entry,
they can be used to work out the stage your competitors are operating at. This should give you an
idea of how they may react to your attempts to enter the market. For example using Greiners (1998)
phases, a Phase 4 organisation would be likely to use its resources to create barriers (through
dropping their prices for example), where a Phase 1 organisation would attempt to create barriers
though innovation, making any new entries obsolete.
Some examples of barriers to entry include:
Patents: Giving the organisation the legal protection to produce a patented product for a
number of years. Means competitors cannot enter with a similar product.
Limit pricing: Firms may adopt predatory pricing policies by lowering prices to a level that
would force any new entrants to operate at a loss.
Cost advantages: Lower costs, perhaps through experience of being in the market for
some time, allows the existing monopolist to cut prices and win price wars.
Advertising and marketing: Developing consumer loyalty by establishing branded

products can make successful entry into the market by new firms much more expensive.
This is particularly important in markets such as cosmetics, confectionery and the motor
car industry, where brand loyalty is key and image is everything.
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Strategic Change
Research and development expenditure: Heavy spending on research and

development can act as a strong deterrent to potential entrants to an industry. Clearly
much R&D spending goes on developing new products, but there are also important spillover effects which allow firms to improve their production processes and reduce unit
costs. This makes the existing firms more competitive in the market and gives them a
structural advantage over potential rival firms.
Presence of sunk costs: Some industries have very high start-up costs or a high ratio of
fixed to variable costs. Some of these costs might be unrecoverable if an entrant opts to
leave the market. High sunk costs (including exit costs) act as a barrier to entry of new
firms (they risk making huge losses if they decide to leave a market). This acts as a
disincentive to enter the industry.
International trade restrictions: Trade restrictions such as tariffs and quotas should also
be considered as a barrier to the entry of international competition in protected domestic
markets.
2.5 BENCHMARKING AND BEST PRACTICE

As mentioned in the Unit on Strategic Planning, benchmarking is the process of identifying best
practice in other organisations and applying this to your own organisation. Best practice is the
recognised best way of doing something. This does not mean that the absolute best way has been
established yet, but that it is the best way so far.
Benchmarking can be used to gain support for possible changes to an organisation. It can be argued
that if another organisation has implemented certain changes successfully then perhaps your
organisation should do the same (Johnson et al., 2005).
Some examples of benchmarking are described below.
Industry/sector benchmarking
This type of benchmarking involves looking at the comparative performance of other (usually
competitive) organisations in a similar sector, then identifying the qualities that make them better.
Strategic benchmarking
Used if there is a need to improve overall performance by examining the long-term strategies and
general approaches that have enabled high-performers to succeed. It involves considering high-level
aspects such as core competences, developing new products and services, and improving capabilities
for dealing with changes in the external environment. Note: Information on exactly how strategies are
developed may be difficult to find. Changes resulting from this type of benchmarking may be difficult to
implement and take a long time to materialise.
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Strategic Change
Performance or competitive benchmarking
Considers the performance characteristics of key products and services. This is particularly useful if
trying to justify changes to product lines or investment in research and design.
Process benchmarking
Focuses on improving specific critical processes and operations. Process benchmarking involves
producing process maps to facilitate comparison and analysis. This is best used when attempting to
change internal systems.
Functional benchmarking
Usually involves looking at different business sectors or areas of activity to find ways of improving
similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic
improvements.
Johnson et al.s (2005) best-in-class benchmarking may also be applied here. This is where,
regardless of the industry, there may be a recognised leader in a particular aspect of business. Bestin-class benchmarking involves comparing an organisations performance against this best-in-class
organisation.
Aside from the general issues regarding benchmarking highlighted in the strategic planning Unit, ie
you only get what you measure, benchmarking only highlights the differences in performance, not
necessarily the reasons for the differences. However, there are three issues with basing changes on
the results of benchmarking:
1. Every organisation is different, so it might be that these changes were just better suited to
their organisation/industry/product, etc. Simply put, just because it worked for them does
not mean it will work for you. This is especially true when using best-in-class
benchmarking.
2. It is a reactive process. Since benchmarking looks at what has already been done, any
advantage gained by being the first to implement these changes will be lost.
3. There is a fine line between benchmarking and copying/reverse engineering. This is
particularly true when dealing with specific products/logos, etc. Benchmarking is not a
justification to copy your competitors as this may lead to legal action.
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Strategic Change
Benchmarking is not copying; it is about continuous

improvement through comparison.
2.6 DRIVERS AND RESISTORS TO ORGANISATIONAL CHANGE

For an organisation to bring about change it must have the required strategic capability. There are a
number of drivers and resistors to organisational change which, combined, make up this capability.
We will now look at some of the possible drivers/resistors in more detail.
Critical success factors
Critical success factors are the factors which must be implemented successfully for anything to be
successful. For example in the case of a new product this may include factors such as price and
functionality. In the case of strategic change an example might be to implement a new customer
database; the critical success factors would include ensuring the organisation has the proper
equipment (computers, servers, network capabilities, etc), ensuring staff are properly trained, and so
on. Critical success factors are useful when planning change as it ensures that everyone involved is
clear as to what must be done to be successful.
Threshold and unique resources
Related to critical success factors, threshold resources are the resources that an organisation MUST
have in order to implement change. This often includes tangible resources (eg cash) and intangible
resources (eg time). Usually these are the same as your competitors or at least easily copied. We will
look further at the role of resources later in this section.
Threshold, core and redundant competences
Competences are things that the organisation does well. As a result they are often less tangible and
harder to describe than resources. This includes internal systems of work, areas of expertise and so
on. As with resources, there are threshold competences (the minimum competences needed to
compete in a market) and competences which lead to competitive advantage (core competences).
Competences that are not relevant or not sufficiently high to help implement change are known as
redundant competences. We will look further at competences later in this section.
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Strategic Change
Take some time to refresh your understanding of core competences by referring to:
1. The SQA support material on Management: Organisational Leadership and
Development
2. Prahalad, C. K. and Hamel, G. (1990) The Core Competence of the
Corporation. Harvard Business Review, May/June, 33, 7991
Knowledge management (KM)

Knowledge management comprises a range of practices used by organisations to identify, create,
represent, and distribute knowledge. Knowledge is often difficult to define, but can be illustrated as
part of the continuum between data and wisdom as follows:
data: unprocessed raw facts, numbers or observations
information: relevant/timely/meaningful data
knowledge: result of analysis and processing of information
wisdom: insight and judgement concerning the use of knowledge
Knowledge can be individually or group owned. The effective management of knowledge is often
important for development of core competences. Practical knowledge management technologies are
often based on IT (intranets and tools for collaborative working). A lot of KM systems require
knowledge to be stored in some way. This is why knowledge management tends to focus on explicit
(formalised, spelt out, documented) knowledge rather than implicit (undocumented, personal, knowhow) knowledge.
Knowledge is often viewed as a resource and as such it can be a source of competitive advantage as
a core competence. Knowledge is also a source of competitive/business intelligence and hence
enables a faster response to environmental changes.
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Strategic Change
Successful KM requires the following factors:
a culture which values and fosters knowledge
breaking down hierarchies and boundaries
the right people
incentives for creating and sharing knowledge
use of appropriate technologies
Benchmarking
As mentioned above benchmarking can be used to aid in justifying changes based on the success of
the benchmark organisation/product. However benchmarking can also highlight the need for changes
when internal benchmarks start to become less successful, For example, an internal benchmark might
be a particularly good month for customer satisfaction. If over the course of the next few months
customer satisfaction levels drop then clearly there is a need for change.
Organisational Capability
Examine an organisation you are familiar with and identify its capability for change, in
terms of its critical success factors; threshold and unique resources; threshold, core
and redundant competences; knowledge management; and benchmarking.
2.6.1 FORCE FIELD ANALYSIS

The purpose of force field analysis is to create a force field diagram. This simply represents the driving
forces and restraining forces that relate to a central question or issue. From a change management
viewpoint, driving forces are therefore those forces that push and support change, and restraining
forces are those that will fight against it or stand in the way of change.
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Strategic Change
Forces may be internal or external, for example an internal driving force may be a particularly strong
leader; an external driving force may be the introduction of a new competing product; an internal
restraining force may be a lack of funds; an external restraining force may be that the economic
environment is too turbulent to predict, with any confidence, the outcome of a change. Remember,
change will not occur if the restraining forces are greater than or equal to the driving forces.
Driving forces for change would include such things as:
new personnel
changing markets
changing attitudes towards work
internationalisation
social transformation
increased competition
new technology
Restraining forces would include such things as:

From people:
fear of failure
loss of status
inertia
fear of the unknown
From the organisation:
strength of culture
sunk costs
lack of resources
contractual agreements
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Strategic Change
Remember that the influence that forces have is not

necessarily equal. An assessment of a forces
influence needs to be made as part of the analysis.
There are a few issues with using the force field analysis:
It presents a unidirectional model for change, ie you can never go back
It fails to appreciate that change is often a dynamic and complex process
It can create cultures and organisations which cannot adapt to continuous change
Ultimately it is inappropriate to organisations operating within rapidly changing

environments
Force Field Analysis

Revisit the support material for Management: Plan, Lead and Implement Change
and review the force field analysis. See link HNC Management Development,
Management: Plan, Lead and Implement Change (DV8C 35). Once you are
familiar with the model complete a force field analysis for a business or
organisation you are familiar with.
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2.7 CONTEXTUAL FACTORS

Organisations are not only affected by their environment, but also the context in which they operate.
An organisation may choose to foster a specific image in order to appeal to customers. However this
image may also limit the options available to the organisation. It is therefore important to examine the
contextual features of the organisation before attempting to make any changes, that is it is important
to understand the context within which an organisation operates.
The context is defined by features similar to those given below.
Organisational culture: The internal processes and attitudes. We will look at this in more detail later
in this section.
Stakeholders: Often seen as whom does the organisation serve? An organisation does not exist as
an entity independent of its stakeholders. The internal stakeholders (employees, management, etc)
expect the organisation to provide certain things, for example payment for work done, good working
conditions. External stakeholders (suppliers, customers, etc) expect the organisation to conduct
themselves in a certain way, for example during negotiations or in response to customer complaints.
Mission and objectives: One way for organisations to make their context clear for stakeholders (from
the organisations point of view anyway) is through a mission statement. This is a brief statement
which includes the purpose and values of the organisation. This is not intended to be a desired state,
but more of a promise of achievable objectives and the recognition that the organisation has a
responsibility to its stakeholders. Example mission statements: To enable people and businesses
throughout the world to realize their full potential Microsoft; Organize the world's information and
make it universally accessible and useful Google.
Prioritising purposes: While the mission and objectives are a statement of intent, it does not really
explain what the organisations reason for existing is. Microsofts example above could just as easily
apply to a management consultancy or recruitment firm as much as a software company. Hence
organisations must also include their purpose when examining their context. Most larger organisations
will have a number of purposes (as will some smaller organisations). For example, it is possible that
one of Microsofts purposes is to create and develop effective, secure operating environments for PCs
(ie Windows), but also to create fun, secure information transfer capability for PC users (MSN
messenger). When you take into account all the other applications, services, etc that Microsoft
provides, it is clear that not all of these purposes can be given the same level of importance so
purposes must be prioritised.
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Strategic Change
Business ethics: Business ethics is a code of conduct that the organisation abides by in all its
dealings. This may be imposed upon an organisation by law (for example the Data Protection Act) or
by a governing body (for example the Association of Chartered Certified Accountants). Often the
ethics of an organisation may be based on the personal ethics of the founder, for example the Body
Shop is well known for its opposition to animal testing of cosmetics. Business ethics can often be
restricting in terms of what an organisation is allowed to change. However, often clearly defined and
followed ethics will have a positive impact on stakeholder relationships. This means that stakeholders
are less likely to oppose change if they believe the ethics will be adhered to as part of the process.
There are three levels of business ethics as described below.
1. At the macro level, there are issues about the role of businesses and other organisations
in the national and international organisation of society. Expectations range from laissezfaire free enterprise at one extreme to organisations as shapers of society at the other.
There are also important issues of international relationships and the role of business on
an international scale. This is the first issue, the broad ethical stance of an organisation,
which is concerned with the extent to which an organisation will exceed its minimum
obligations to stakeholders and society at large. Managers need to understand the factors
that influence these societal expectations of organisations, particularly in relation to how
inclusive or exclusive they are expected to be to the interests of the various stakeholders
discussed above.
2. Within this macro framework, corporate social responsibility is concerned with the specific
ways in which an organisation will move beyond the minimum obligations provided
through regulation and corporate governance, and how the conflicting demands of
different stakeholders will be reconciled.
3. At the individual level, it concerns the behaviour and actions of individuals within
organisations. This is clearly an important issue for the management of organisations, and
in particular the role of managers in the strategic management process.
Corporate Governance: In the paper A Board Culture of Corporate Governance (2003) Gabrielle
O'Donovan defines corporate governance as an internal system encompassing policies, processes
and people, which serves the needs of shareholders and other stakeholders, by directing and
controlling management activities with good business savvy, objectivity and integrity. Sound corporate
governance is reliant on external marketplace commitment and legislation, plus a healthy board
culture which safeguards policies and processes'. While similar to business ethics as it highlights the
way an organisation deals with its stakeholders, corporate governance tends to be more process
orientated, encompassing systems for monitoring and control. Organisations should be aware when
developing corporate governance that if it is too strict it is likely to stifle creativity.
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Strategic Change
Ultimately this would mean that the organisation would lack the capability for innovation and change
from within (too much red tape).
Understanding and applying these contextual features should allow you to start to define context and
understand how and why organisations function.
2.7.1 DETERMINING CONTEXT WITH SWOT

As an analytical process SWOT can be useful in helping to determine the contextual factors that are
impacting on organisations. SWOT analysis looks at the strengths and weaknesses of the
organisation and relates them to the opportunities and threats from the business environment,
specifically, looking at how the strengths can help to minimise threats and take advantage of
opportunities, and how opportunities can help to deal with weaknesses. Factors both internal and
external to the organisation are considered. It can be useful in establishing context, an understanding
of how an organisation fits in its chosen environment.
You should by now be familiar with the process of completing a SWOT, but here are some additional
tips that may help you apply the process effectively.
Tips for looking at Strengths and Weaknesses
Strengths and weaknesses are always relative to something, eg industry average or best
practices
Do not forget to assess the firm relative to competitors, potential entrants and providers of
substitute products
Most SWOT analyses are static snapshots in time; they rarely project forward to show the
future situation
Keep the list of critical strengths and weaknesses short and perform thorough analysis of
the key ones
Prioritise and weight the importance of each strength and weakness
Consider how weaknesses might be turned into strengths and how strengths can become
weaknesses
Tips for Opportunities and Threats
Keep the number of opportunities and threats down, say to five to seven of each
Prioritise and weight each threat or opportunity to uncover the most important
Think how threats can be turned into opportunities
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Strategic Change
How can opportunities be linked to firm strengths?
Opportunities are often (but not always) external
Threats are also often (but not always) external. Note: generally the same things that
create opportunities may also create opportunities for competitors, hence they may also
become threats

into SWOT analysis. Go to Strategic Change/Establish
Strategic Position/SWOT.
2.8 IMPACT OF INTERNAL RESOURCES ON AN ORGANISATIONS ABILITY TO

BRING ABOUT CHANGE
Internal resources are essential to the provision of change within organisations. Different types of
resources were covered in the Unit on Strategic Planning. In the case of strategic change, remember
that resources need to be available throughout the change. Unique resources are the resources that
your organisation has which give it a competitive advantage over its competitors. These are difficult to
copy and, ideally, are better than your competitors, for example a patent is a unique resource. In terms
of strategic change, a unique resource might be specialist knowledge regarding regulations that need
to be complied with, which will affect the speed of the change. An emphasis on an organisations
internal resources is a key element of the strategy as experience lens which was explained in Section
1.4.2.
The link between resources and the process of change was introduced as part of the Unit
Management: Plan, Lead and Implement change. It identified that a resource audit is an important
next step in a change project, to be addressed once the requirements of a change project have been
defined and its implementation planned. Resource audits were introduced, together with the different
types of resources that need to be considered such as financial resources, human resources, physical
resources, operational resources and intangible resources.
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Strategic Change
Revisit the support material for Management: Plan, Lead and Implement Change and review
the section on the resources necessary within the process of change. See link HNC
Management Development, Management: Plan, Lead and Implement Change (DV8C 35).
The availability of internal resources is fundamental to the process of change and the ability of an
organisation to bring about change. It should be considered at the planning stage so that the proposed
development is developed according to the resource availability and capability. It is important to
remember that change happens with all organisations, despite the approach/es followed by the
organisation.
Resource utilisation and performance should be considered during the change process so that
variations from the planned resource usage can be determined and acted upon to avoid wastage and/
or under utilisation.
Internal Resources and Change

Take some time to analyse a change process that has been implemented in an
organisation you are familiar with. Write a report summarising how the resource
requirements were identified and then monitored and controlled throughout the
change process. Identify the impact that resource availability had at all stages of the
process.
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Strategic Change
2.9 IMPACT OF ORGANISATIONAL COMPETENCE ON AN ORGANISATIONS

ABILITY TO BRING ABOUT CHANGE
In the Unit Management: Organisational Leadership and Development you have considered the role of
competence in supporting the vision of an organisation. More specifically core competences were
looked at in relation to how they impacted on the development of organisation vision. Core
competences within an organisation were identified as an important part of vision. An organisational or
core competence can take various forms, for example technical/subject matter knowledge, a reliable
process, and/or close relationships with customers and suppliers.
If a core competence yields a long term advantage to the company, it is said to be a sustainable
competitive advantage. A core competence can also be a combination of complementary skills and
knowledge based within a group or team that results in the ability to execute one or more critical
processes to a world class standard. The idea of core comeptences is also associated with the
strategy as experience lens in Section 1.4.2. The building of core competences depends on the
internal resources an organsiation has and the way it makes use of them.
Refer to the support material for the Unit Management: Organisational Leadership and
Development and revisit the section on core competences and vision. See link HNC
Management Development, Management: Organisational Leadership and Development
Organisational competences can therefore be seen to influence change. They can stimulate and act
as triggers for change where organisations are able to develop their core competences to expand their
range of products and services. A good example is Canon, who have used their core competence in
one particular area to expand their range of products.
Core competences can also be seen as limiting factors capable of restricting change. For example, if
the planned strategy requires competences that the organisation does not have, then either the
strategy will fail, or contigencies need to be built into the process. By assessing any planned change
against the core competences of an organisation it is possible to identify how effective the change
may be.
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Find out more about strategy and how it can impact on an organisation and its
ability to change by referring to: Kay, J. (2006) The Hare and the Tortoise. London,
The Erasmus Press (ISBN 0-9458093-1-9). In particular, take a look at pp. 2527,
which discuss the difference between resources and core competences.
Organisational Competence and Change

Take some time to analyse a change process that has been implemented in an
organisation you are familiar with, with specific reference to the organisational
competences. Write a report which introduces the change process, and identifies
how the organisational competences have influenced the outcomes.
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Strategic Change

into bringing about change. Go to Strategic Change/Establish
Strategic Position/Bringing about Change.
2.10 ORGANISATIONAL CULTURE AND CHANGE

Culture is often defined as the way we do things around here. Culture involves both the explicit way
of working (the formal systems and processes in place and how they operate) and the tacit level of
operation (the informal and semi-formal networks and other activities that people employ to get things
done and by-pass, subvert or seek to influence the more formal processes).
When dealing with change, it is important to recognise that different organisations have different
cultures and that within organisations different functional areas and teams also have their own way of
doing things, ie their own cultures. The culture of an organisation has a considerable impact on its
ability to change, which affects both the type of change undertaken and its speed. There are two
aspects of the issue of culture and change. Firstly, the importance of working with the existing culture
when seeking to effect any change; and secondly, how to go about changing the culture itself.
Culture can be transmitted to an organisations stakeholders by:
the philosophy of the institution themes like equity and diversity, widening participation,
striving for excellence in teaching, research reputation, etc
the mission statement
the criteria for evaluating and rewarding performance, job progression, etc
the approach to change which is adopted
the way in which leaders act
the informal history of the organisation that is shared in stories and legends about key
people and events that have affected the organisation
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2.10.1 THE CULTURAL WEB

One way of illustrating the culture is through drawing a cultural web. You should already be aware of
the cultural web from the Unit on Management: Plan, Lead and Implement Change.
The cultural web consists of a number of elements:
The paradigm, which is the set of assumptions about an organisation which is held in
common and taken for granted in the organisation
The routine ways the members of the organisation behave towards each other, and which
link different parts of the organisation. It is particularly these routines which are the way
we do things around here. At their best they can help to drive change as they could speed
up the change process; however, they can also represent a taken-for-grantedness about
how things should happen which is extremely difficult to change
The rituals of organisational life, such as training programmes, promotion and

assessment, point to what is important in the organisation, reinforce the routines and
signal what is especially valued
The stories told by members of the organisation to each other, to outsiders, to new
recruits and so on, embed the present in its organisational history and highlight important
events and personalities, as well as mavericks who deviate from the norm
Other symbolic aspects of organisations, such as logos, offices, cars and titles, or the type
of language/terminology commonly used can become a representation of the nature of the
organisation
The formalised control systems, measurements and reward systems that monitor and
hence emphasise what is important in the organisation, and focus attention and activity
Power structures are also likely to be associated with the key constructs of the paradigm.
The most powerful managerial groupings in the organisation are likely to be the ones most
associated with core assumptions and beliefs about what is important
In turn the formal organisational structure, or the more informal ways in which
organisations work, are likely to reflect power structures and again emphasise what is
important in the organisation
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Take some time to find out more about the cultural web. Refer to Johnson, G. (1998)
Mapping and Re-mapping Organisational Structure, in Ambosini V, G. Johnson and K.
Scholes (eds) Exploring Techniques of Analysis and Evaluation in Strategic
Management. Hemel Hempstead: Prentice Hall
Cultural differences need to be taken into account when introducing change: going against the
predominant culture will make achieving change more difficult; working with it and recognising the key
levers can help facilitate change.
A paper put together by the University of Luton, looking at change in Higher Education institutions,
suggests that one way of considering how change and culture are related is to use the change
quadrants model. This considers the organisational culture and the nature of the change and
characterises each as either warm or cold.
Cold Culture: uses rules, regulations, systems, structures and procedures to drive
direction
Warm Culture: uses shared norms and values together with a common understanding of
direction
Cold Change: the result of an emergency situation
Warm Change: driven by personal and professional desires
Some key points when using this model:
Be wary of forcing a cold change through a warm culture
A cold change is easier to communicate than a warm one
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Take some time to find out more about the change quadrants model. Refer to:
www.effectingchange.luton.ac.uk
2.10.2 CHANGING CULTURE

A change of culture, values or beliefs is the most difficult sort of change to effect. There are two broad
strategies that can be adopted: crisis change or co-ordinated incremental change.
A major crisis can provide a useful basis for effecting a change in culture since it can force
stakeholders to recognise the need for change and that the culture needs to be different. The
upheaval that such crises generate can then be used to identify the new culture and embed it in
practice. It has been known for crises to be created specifically with the intention of creating the right
climate to assist with a change in culture.
As seen earlier in the Unit, incremental change is slower; however, it requires concerted movement on
a number of different fronts, all designed to support the implementation of the new culture. This is
because changing the culture in an unco-ordinated way is unlikely to have any long-term effect.
Listed below are some questions for you to consider when attempting to change culture:
1. Are you clear about the characteristics of the new culture that you wish to create and how
these differ from where you are now?
2. What change to internal processes would help embed the new culture?
3. How will the changes be communicated to stakeholders?
4. How will existing stakeholders be developed into the new culture? (Training individuals
and letting them go back to their original workplace is likely to lead to reversion to old
ways. Training may best be done on a team or departmental basis. New ways of doing
things then need to be immediately practised.)
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5. Do you promote the new culture in job advertisements and associated literature? Do you
actively look for the required attributes when recruiting new employees? Are new
employees inducted into the required culture? (New employees will rapidly adopt the
standard local culture. If they are trained and supported to the new culture then they can
act as examples for new practices. Untrained and unsupported they will adopt the old
ways.)
6. How will managers visibly demonstrate the new way of doing things? (Leading by
example is often a good way to gain commitment from stakeholders.)
7. How will old practices be challenged? Will there be the opportunity for a public
discussion? Will an authority figure be brought in to support/recommend the changes (If
someone with their experience says itll work then it must be true.)
8. What procedures can be put in place to acknowledge and reward the new ways of
working? Will there be a punishment for the old ways of working?
9. How can good practice be identified and supported?
10. Do you need a change policy or plan to help create the new order?
Organisational Culture
Examine an organisation you are familiar with and complete the following.
1.
Use the cultural web to draw the overall culture of your organisation.
2.
Based on your own experience, use the change quadrant to identify how previous
changes have generally been perceived.
3.
Finally describe any sub-cultures where different strategies or tactics need to be

applied or that require different forms of negotiation and communication.
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Section Three
Determining Direction for Change

In this section we will be looking at how to determine the direction for change and the methods that
are to be used to support the development of strategic change. As you work through this section you
will develop an understanding of strategic position and the influences that can impact on the change
process.
strategic development directions
methods of strategy development
success criteria for judging strategic options
choosing suitable strategic options
understand development directions
understand the development methods available to support strategic change
judge and select appropriate development methods
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Strategic Change
3.1 STRATEGIC DEVELOPMENT DIRECTIONS

Once the need for strategic change has been recognised there are a number of directions the
organisation may choose to take to implement the required change. To start, let us consider the
development of direction for change and in particular the design lens as introduced in Section 1. As a
manager you may choose this approach as the one which will best fit the development requirements
of your organisation. It is worth considering the following strategies.
3.1.1 PORTERS 1985 GENERIC COMPETITIVE STRATEGIES

Michael Porter (1985) considered how organisations can be competitive. He recognised that
organisations wishing to compete must have a potential advantage over their competitors. He
proposed three primary strategies for competition which can provide direction for change.
1. Cost leadership
This strategy is fairly straightforward and is achieved by becoming the lowest cost producer in the
industry. The idea is that if costs are low then prices can be dropped below those of your competitors,
leading to greater sales/profit margins. This can be achieved through economies of scale (ie it costs
less to manufacture/buy large volumes of products), or the creation of efficiencies through processes
(for example between the stages of Porters value chain).
2. Differentiation
Diversifying to provide a unique product, feature or service which must be valued by the customer.
The idea is to achieve competitive advantage by offering better products or services at the same price
or enhancing margins by pricing slightly higher. In public services, the equivalent is the achievement of
a centre of excellence' status, which could attract higher funding from government (for example
universities try to show that they are better at research or teaching than other universities).
The extent to which differentiation approaches will be successful is likely to be dependent on a
number of factors:
Has the organisation clearly identified who the strategic customer is, ie the end user of the
product/service? The extent to which the organisation understands what is valued by the
strategic customer can be dangerously taken for granted by managers. This is a reminder
of the importance of identifying critical success
It is important to be clear who are the competitors. For example, is the business
competing with a wide competitor base or with a much narrower base, perhaps within a
particular market segment?
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3. Focus
A strategy for targeting niches, possibly attacking well-defined market segments; can be either cost or
differentiation based. The main idea is that focusing on the customers in a specific market segment
should allow the organisation to provide either better value for money (cost based) or a unique
product/service (differentiation).
Take some time to assess Porters three strategies, identifying for each a practical
example of where the strategy has been successfully applied. Refer to: Porter, M.
(1985) Competitive Advantage: Creating and Sustaining Superior Performance.
London: Collier Macmillan
3.1.2 ANSOFF MATRIX

The Ansoff productmarket growth matrix was originally developed as a marketing tool by Igor Ansoff,
in 1957. The matrix allows marketers to consider ways to grow the business via existing and/or new
products, in existing and/or new markets. There are four possible product/market combinations. This
matrix helps companies decide what course of action should be taken given current performance,
hence the matrix became increasingly used in strategic decision making.
The four strategies are as follows:
Products
Present
New
Market
Product
Penetration
Development
Market development
Diversification
Markets
Present
New
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Strategic Change
Market penetration (existing markets, existing products)
Market penetration occurs when a company enters/penetrates a market with current products. The
best way to achieve this is by gaining competitors' customers (part of their market share). Other ways
include attracting non-users of your product or convincing current clients to use more of your
product/service, with advertising or other promotions. Market penetration is generally seen as the least
risky way for a company to grow.
The ease with which an organisation can pursue a strategy of market penetration may be dependent
on:
market growth rate: when the overall market is growing, or can be induced to grow, it is
easier for organisations with a small market share, or even new entrants, to gain a share
resource issues, which may be driving or preventing market penetration. Building market
share can be a costly process for weakly positioned businesses. Short-term profits are
likely to be sacrificed, particularly when trying to build share from a low base
the complacency of market leaders, which can sometimes allow lower share competitors
to catch up because they are not regarded as serious competitors (ie they are not like the
current competitors)
Product development (existing markets, new products)

An organisation with a market for its current products might embark on a strategy of developing other
products catering to the same market, for example McDonalds is always within the fast-food industry,
but recently introduced a range of rolls and salads. Frequently, when a firm creates new products, it
can gain new customers for these products, hence new product development can be a crucial
business development strategy for firms to stay competitive.
Sometimes this may be achieved with existing capabilities. However, product development may
require the development of new capabilities. Despite the attractiveness of product development, it may
not always be in line with stakeholder expectations and may raise uncomfortable dilemmas for
organisations. For example, powerful stakeholders may oppose product development.
Market development (new markets, existing products)
An established product in the marketplace can be tweaked or targeted to a different customer
segment as a strategy to earn more revenue for the firm. For example, Lucozade was first marketed
for sick children and then rebranded to target athletes.
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There are three main ways that market development can occur:
1. Exploitation of current products in other market segments where similar critical success
factors exist
2. Development of new uses for existing products
3. Geographical spread, either nationally or internationally, into new markets
Option three requires an organisation to select attractive and profitable national markets and to identify
the appropriate entry mode. Some factors that require particular attention in comparing the
attractiveness of national markets are:
macro-economic conditions reflected in indicators such as the GDP and levels of

disposable income which help in the estimation of the potential size of the market.
Companies must also be aware of the stability of a countrys currency, which may affect
its income stream
the political environment may create significant opportunities for organisations. It is

common for regional development agencies in many counties to provide investment
incentives to foreign investors
The infrastructure of national markets will also be an important factor in assessing the attractiveness
of national markets for entry, in particular:
existing transport and communication infrastructure
availability of necessary local resources such as appropriately skilled labour
tariff and non-tariff barriers to trade, a key factor in deciding between exporting and local
production; the higher these barriers are, the more attractive local production will be
the similarity of cultural norms and social structures with the organisation's home country
can provide an indicator of any changes to established products, processes and
procedures which may be required
the extent of political and legal risks which an organisation might face when doing
business in the country; in broad terms political risk relates to the effect that political and
social events or conditions may have on the profitability of an organisation's activities and
the security of its investments
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4. Diversification (new markets, new products)
Diversification is defined as a strategy that takes the organisation into new markets and products or
services, and therefore increases the diversity that a corporate parent must oversee. Virgin Cola,
Virgin Megastores, Virgin Airlines, Virgin Telecommunications are examples of new products created
by the Virgin Group to leverage the Virgin brand. This resulted in the company entering new markets
where it had no presence before.
Three potentially value-creating reasons for diversification are as follows:
1. There are efficiency gains from applying the organisation's existing resources or
capabilities to new markets and products or services. These are often described as
economies of scope, by contrast to economies of scale. If an organisation has underutilised resources or capabilities that it cannot effectively close or dispose of to other
potential users, it can make sense to use these resources or capabilities by diversifying
into a new activity. Sometimes these scope benefits are referred to as the benefits of
synergy, by which is meant the benefits that might be gained where activities or processes
complement each other such that their combined effect is greater than the sum of the
parts.
2. There may also be gains from applying the organisation's corporate managerial
capabilities to new markets, products and services. In a sense, this extends the point
above, but highlights skills that can easily be neglected. At the corporate parent level,
managers may develop a capability to manage a range of different products and services
which, although they do not share resources at the operational unit level, do draw on
similar kinds of overall corporate managerial skills.
3. Having a diverse range of products or services can increase market power. With a diverse
range of products or services, an organisation can afford to cross-subsidise one product
from the surpluses earned by another, in a way that competitors may not be able to.
The matrix illustrates that the element of risk increases the further the strategy moves away from the
existing product and the existing market. Hence, product development (requiring, in effect, a new
product) and market extension (a new market) typically involve a greater risk than penetration (existing
product and existing market); and diversification (new product and new market) generally carries the
greatest risk of all. In his original work, Ansoff (1957) stressed that the diversification strategy stood
apart from the other three.
Diversification usually requires new skills, new techniques, and new facilities. As a result it almost
invariably leads to physical and organisational changes in the structure of the business which
represent a distinct break with past business experience.
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Ansoffs theory. Go to Strategic Change/Determining Direction
for Change/Ansoffs Theory.
3.1.3 BOWMANS STRATEGY CLOCK

Related to Porters generic strategies, Bowmans strategy clock was proposed in 1996. The clock
provides suggested strategies for competition based on an analysis of the products of the
organisation. This analysis is based on product/service price and perceived added value (the value
the customer believes is gained from the product). Both of these are subjective and generally require a
comparison with other products currently available.
Assuming that there are a number of providers, customers will choose which offer to accept
depending on their perception of value for money. This consists of the combination of price and
customer-perceived product/service benefits of each offering (shown graphically as the strategy clock
below). Since the positions on the strategy clock' represent different positions in the market where
customers (or potential customers) have different requirements' in terms of value for money they also
represent a set of generic strategies for achieving competitive advantage. Since these strategies are
market-facing' it is important to understand the critical success factors for each position on the clock.
The consideration of each of these strategies will also acknowledge the importance of an
organisation's costs, particularly relative to competitors.
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Strategic Change
(Bowman and Faulkner, 1996)

Option 1 Low price/low added value (no frills strategy): This strategy is commonly considered to be
appropriate only on a segment-by-segment basis.
Option 2 Low price: This strategy calls for the company to position itself as the 'low cost leader'.
The company risks low margins and a price war.
Option 3 Hybrid: The company establishes a low cost base and reinvests to keep prices low, while
still seeking differentiation.
Option 4 Differentiation: There are two versions of this strategy:
1. without price premium: perceived added value by user, ie the company adds value to the
product in hopes of gaining market share despite lower margins
2. with price premium: perceived added value sufficient to bear price premium, ie the
company adds enough value to the product to justify its relatively high price and so
increase margins
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Strategic Change
Option 5 Focused differentiation: Perceived added value to a particular segment, warranting price
premium, ie the company adds enough value to the product for a specific customer segment to justify
a price premium
Option 6 Increased price/standard value: With this strategy, the company raises prices without
adding value to the product in hopes of higher margins. Unless the product is the industry standard,
however, the company risks losing market share, unless competitors follow suit.
Option 7 High price/low value: This strategy applies only to monopoly situations, which means
unless the business has a monopoly (and generally speaking this is illegal) then this strategy is likely
to fail.
Option 8 Low value/standard price: This strategy invariably leads to loss of market share as lower
priced/better value options will be preferred.
Price-based strategies (Options 1 and 2)
Price-based strategies seek to gain competitive advantage through prices that are more attractive to
customers than competitors prices. There are two broad approaches. First is the no frills strategy
(Option 1 on the strategy clock), which combines a low price, low perceived added value and a focus
on a price-sensitive market segment. It can be viable because there may well exist a segment of the
market which, while recognising that the quality of the product or service might be low, cannot or
chooses not to afford to buy better-quality goods. In summary:
the products or services are commodity-like
there may be price-sensitive customers, who cannot afford, or choose not to buy, betterquality goods
the buyers have high power and/or low switching costs, so building customer loyalty is
difficult for example with petrol retailing
where there are a small number of providers with similar market shares
where the major providers are competing on a non-price basis, the low price segment may
be an opportunity for smaller players to avoid the major competitors; examples are:
retailing Matalan, discount warehouses Cost Co
Second is the low price strategy (Option 2 on the strategy clock), which seeks to achieve a lower price
than competitors whilst trying to maintain similar value of product or service. If a business unit aims to
achieve competitive advantage through a low price strategy,
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Strategic Change
it has two basic choices in trying to achieve sustainability.
1. Try to identify and focus on a market segment which is unattractive to competitors. This
way avoids competitive pressures to erode price below levels that would achieve
acceptable returns.
2. A more challenging situation is where there is competition on the basis of price. Here
tactical advantage may be gained by reducing price, but it is likely to be followed by
competitors with the danger of a slide into margin reduction across an industry as a whole,
and an inability to reinvest to develop the product or service for the long term.
Clearly a low price strategy cannot be pursued without a low cost base. Low cost in itself,
however, is not a basis for advantage if competitors can also achieve the same low costs. The
need is for a low cost base that competitors cannot match. In summary:
requires a source of advantage which enables the firm to produce at a lower average cost
than its competitors
this cost advantage must be difficult to imitate
pricing must be comparable with other standard products
the cost leader must achieve parity on the basis of differentiation relative to its competitors
(product must offer accepted industry standards)
must be the cost leader, not one of many vying for the position
Sources of cost leadership include: economies of scale, experience, product/process design, input
costs, capacity utilisation, efficiency.
Risks associated with a cost leadership strategy include:
an inability to sustain when technology changes or competition imitates
if, in reducing costs, the product/service offered falls below an acceptable standard of
quality
strategy is beaten by cost focusers
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Strategic Change
Low price strategies can be successful if:
the company is the cost leader (has cost advantages over competitors in the same market
segment/s); this must be sustainable
all sources of cost advantages are exploited, and competences are developed in low cost
management; the danger is a low (perceived) value product or service
the market segment(s) must be price sensitive, but this may mean focusing on certain
market segments
Differentiation (Option 4)
A differentiation strategy is based on the uniqueness of the product/service being offered. As
mentioned above this may result in a price premium, which customers must be willing to pay due to
this uniqueness.
Uniqueness may arise from:
product features, eg Windows Vista
service, eg delivery, credit
after-sales service, eg warranties, Customer Service Agreements
speed, eg pizza delivery
location, eg fast food or coffee bar outlets on every corner
durability, eg Duracell
technology, eg iPod
the product/service must be unique or different from that offered by competitors
extra value must be created for the customer
customers must be willing to reward the company for differentiation by payment of a
Hence
premium price, or increased market share, or both
the cost of achieving differentiation should be lower than benefits achieved
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Strategic Change
Success of a differentiation strategy depends on:
clear identification of who the customer is and an understanding of what is valued by the
customer
clear identification of who the competitors are and the value they offer, so that you can
establish which sources of differentiation would be difficult to imitate
the recognition that bases (sources) of differentiation may need to change
the organisation may be unable to sustain this strategy as competitors imitate the product
or service
the bases of differentiation might become less important to the customers
costs get out of control, become too high
competitors following a differentiation focus strategy achieve greater success in major

segments
Focused differentiation (Option 5)

A focused differentiation strategy seeks to provide high perceived product/service benefits, justifying a
substantial price premium, usually to a selected market segment (niche). In many markets these are
described as premium products and are usually heavily branded. For example, in the alcoholic drinks
market premium beers, single malt whiskies, wines from particular chateaux, all compete to convince
customers that their product is sufficiently differentiated from their competitors' to justify' significantly
higher prices. In the public services, national or international centres of excellence (such as a
specialist museum) achieve unit levels of funding significantly higher than the more generalist
providers.
Key points include:
A choice may have to be made between a focus strategy (Option 5) and broad
differentiation (Option 4) if sales are to grow
Pursuing a focus strategy may be difficult when it is only part of an organisation's overall
strategy. This is a very common situation
Focus strategies may conflict with stakeholder expectations
New ventures often start in very focused ways, for example new leading-edge' medical
services in hospitals. It may, however, be difficult to find ways to grow such new ventures.
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Strategic Change
Moving from Option 5 to Option 4 will mean a lowering of price and therefore cost, whilst
maintaining differentiation features
The market situation may change such that differences between segments may be
eroded, leaving the organisation open to much wider competition. Customers may
become unwilling to pay a price premium as the features of the regular' offerings improve,
or the market may be further segmented by even more differentiated offerings from
competitors
Generally speaking focused differentiation is best:
when products may be tailored to specific or local customer needs
when markets can be easily segmented or certain needs are overlooked by existing
product offerings
where the firm may lack resources to operate across the whole market
Risks with a focused differentiation strategy are that:
new competitors may enter and further segment the market
attack may come from mass market competitors who identify the segment as attractive;
this may become more common as the differences between segments may be eroded
over time, making bases of focus redundant
Hybrid (Option 3)
Hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of
competitors. Here the success of the strategy depends on the ability to deliver enhanced benefits to
customers together with low prices, whilst achieving sufficient margins for reinvestment to maintain
and develop the bases of differentiation. It might be argued that, if differentiation can be achieved,
there should be no need to have a lower price, since it should be possible to obtain prices at least
equal to competition, if not higher.
However, the hybrid strategy could be advantageous in the following circumstances:
If much greater volumes can be achieved than competitors then margins may still be
better because of a low cost base
If an organisation is clear about the activities on which differentiation can be built (ie
potential core competences), it may then be able to reduce costs on other activities
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Strategic Change
As an entry strategy in a market with established competitors. This is often used when
developing a global strategy. Organisations search for the loose brick' or weak link in a
competitor's portfolio of businesses (perhaps, for example, a poorly run operation in a
specific geographical area), then enter that market with a superior product and, if
necessary, a lower price. The aim is to take market share, divert the attention of the
competitor, and establish a foothold from which they could move further
Failure strategies (Option 6, Option 7 and Option 8)

As mentioned above, the basis of these strategies is that customers seek value for money, hence any
strategy that involves high(er) costs for standard or low-value products is bound to fail, except if all
your competitors are doing the same thing (ie price fixing) or you have the monopoly, both of which
are not likely/legal in many places.
One other possibility is stuck in the middle strategies. These are neither low cost nor well
differentiated, hence it could be argued that they have no basis for competitive advantage. Frequently,
this type of strategy is a manifestation of the firms inability to make choices on how to compete. This
means they are easily attacked from all sides (in terms of cost or quality). The only way these
strategies can be successful is if the industry structure is favourable or other competitors are also
stuck in middle.
Take some time to find out more about Bowmans strategy clock and its application
in establishing strategic direction. Refer to: Bowman, C. and Faulkner, D. (1996)
Competitive and Corporate Strategy, London: Irwin Professional
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Strategic Change

Bowmans strategy clock. Go to Strategic Change/Determining
Direction for Change/Bowmans Strategy Clock.
3.1.4 THE CHANGE KALEIDOSCOPE

The change kaleidoscope was proposed in 2002 by Balogun and Hailey. Central to the model is the
design choices facing change agents (instigators of change). In Balogun and Hailey (2004) the
model was developed, and defined six design choices as follows:
Change path: the type of change to be undertaken in terms of the nature of the change and the
desired end result. The reason why this is distinct from change type is that in some circumstances it is
necessary to undertake an enabling phase of change before it is possible to undertake the actual
changes required.
Change start point: where the change is initiated and developed, which could be summarised
simplistically as top down or bottom up (but, as seen in the Unit on Strategic Planning, there are other
choices).
Change style: the management style of the implementation, such as highly collaborative or more
directive.
Change target: the target of the change interventions, in terms of peoples attitudes and values,
behaviours or outputs.
Change levers: the range of levers and interventions to be deployed across sub-systems: technical,
political, cultural and interpersonal.
Change roles: who is taking responsibility for leading and implementing the changes?
As seen in the diagram below, these choices are central to the model.
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Strategic Change
The model also attempts to put the culture of an organisation on a par with the other contextual
factors, mentioned earlier in this section, required for change, hence they are in a circle. In particular:
Time: How quickly is change needed? Is the organisation in crisis or is it concerned with longer-term
strategic development?
Scope: What degree of change is needed? Realignment or transformation? Does the change affect
the whole organisation or only part of it?
Preservation: What organisational assets, characteristics and practices need to be maintained and
protected during change?
Diversity: Are the different staff/professional groups and divisions within the organisation relatively
homogeneous or more diverse in terms of values, norms and attitudes?
Capability: What is the level of organisational, managerial and personal capability to implement
change?
Capacity: How much resource can the organisation invest in the proposed change in terms of cash,
people and time?
Readiness for change: How ready for change are the employees within the organisation? Are they
aware of both the need for change and motivated to deliver the changes?
Power: Where is power vested within the organisation?
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Strategic Change
The kaleidoscope model is a relatively new concept. Take some time to find out
more about how it is used to support the change process. Type kaleidoscope
model into a search engine, such as Google.
Strategic Direction
Examine a named case study or an organisation you are familiar with and identify and
explain the direction of strategic change in terms of the models introduced to you in this
section.
3.2 METHODS OF STRATEGY DEVELOPMENT

Once a strategic direction has been chosen there are three main ways in which strategy can develop:
internal development, mergers and acquisitions, and strategic alliances.
3.2.1 INTERNAL DEVELOPMENT

Internal development is where strategies are developed by building on, and developing, an
organisation's own capabilities. It is a strategy that can be described as relevant to the experience
school as described in Section 1. For many organisations, internal development (sometimes known as
organic development') has been the primary method of strategy development for several reasons.
For products that are highly technical in design or method of manufacture, businesses
may choose to develop new products themselves, since the process of development is
seen as the best way of acquiring the necessary capabilities to compete successfully in
the marketplace
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Strategic Change
A similar argument may apply to the development of new markets by direct involvement.
Market knowledge may be a core competence creating competitive advantage over other
organisations that are more distant from their customers
Although the final cost of developing new activities internally may be greater than that of
acquiring other companies, the spread of cost over time may be more favourable and
realistic. Also the slower rate of change which internal development brings may also
minimise the disruption to other activities
An organisation may have no choice about how new ventures are developed. In many
instances those breaking new ground may not be in a position to develop by acquisition or
joint development, since they are the only ones in the field
The problem is not confined to such extreme situations. Organisations wishing to develop
by acquisition may not be able to find a suitable target for acquisition, for example this is
particularly difficult for foreign companies attempting to enter Japan
Internal development also may avoid the often traumatic political and cultural problems
arising from post-acquisition integration and coping with the different traditions and
incompatible expectations of two organisations
One type of internal development is consolidation. This is where organisations protect and strengthen
their position in their current markets with their current products (similar to market penetration in the
Ansoff matrix). Often this will require reshaping and innovation of the products and services of the
organisation. This in turn will require attention to how an organisations resources and competences
should be shaped and developed to maintain the competitive position of the organisation.
Consolidation may require reshaping by downsizing or withdrawing from some activities. There are a
number of reasons for this. For example:
The product has reached the end of its life cycle. Products, like organisations, have a
specific life cycle, which follows the s-curve (as seen in Section 2). Even when demand is
strong, the ability to compete profitably will vary through the stages of the life cycle.
Knowing when to withdraw from markets can be crucial
In some markets, the value of a companys products or assets is subject to changes over
time, and a key issue may be the astute acquisition and disposal of these products, assets
or businesses. This is particularly important for companies operating in markets that are
subject to speculation, such as energy, metals, commodities, land or property
The company has serious competitive disadvantages, eg it is unable to secure the

resources to achieve the competence levels of the leaders in the marketplace
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Prioritisation of activities is always necessary, so downsizing or withdrawal from some

activities releases resources for others, for example the shift in the range of services
offered by local government over time
The expectations of dominant stakeholders, eg the objective of a small entrepreneur may

be to make a million and then retire. This would lead to a preference for strategies that
make the company an attractive proposition to sell, rather than be guided by longer-term
considerations of viability or growth
3.2.2 MERGERS AND ACQUISITIONS

Acquisition is where strategies are developed by taking over ownership of another organisation; this
can be hostile or consensual. As a strategy it is generally associated with the design school as
described in Section 1. Mergers are where two organisations combine to form a larger organisation. A
merger can resemble an acquisition, but result in a new company name (often combining the names
of the original companies) and in new branding. In some cases, terming the combination a merger
rather than an acquisition is done purely for political or marketing reasons.
There are many different motives for developing through acquisition or merger. These include:
The speed with which it allows the company to enter new product or market areas. In
some cases the product or market is changing so rapidly that acquisition becomes the
only way of successfully entering the market, since the process of internal development is
too slow
The competitive situation may influence a company to prefer acquisition. In markets that
are static and where market shares of companies are reasonably steady, it can be a
difficult proposition for a new company to enter the market, since its presence may create
excess capacity. If, however, the new company enters by acquisition, the risk of
competitive reaction is reduced
Deregulation is a major driving force behind merger and acquisition activities where
regulation has created a level of fragmentation that is regarded as sub-optimal, for
example telecommunications, electricity and other public utilities. This gives an
opportunity for acquisition organisations to rationalise provision and/or seek to gain other
benefits, for example the creation of multi-utility companies offering electricity, gas,
telecommunications and other services to customers
There may be financial motives for acquisitions. If the share value or price/earnings (P/E)
ratio of a company is high, the motive may be to spot and acquire a firm with a low share
value or P/E ratio. An extreme example is asset stripping, where the main motive for the
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acquisition is the short-term gain by buying undervalued assets and selling them on in
pieces
An acquisition may provide the opportunity to exploit an organisation's core competences

in a new arena, for example global expansion, or it may be to gain competences of an
organisation that may have been lacking in the acquirer, for example an organisation may
be acquired for its Research and Design expertise, or its knowledge of a particular type of
production system/business process
Cost efficiency is a commonly stated reason for acquisitions, particularly in public services
(by cutting out duplication or by gaining scale advantages)
Learning can be an important motive, for example an established company close to

reaching maturity in the life cycle model may have achieved efficiencies or expertise that
would be difficult to match quickly by internal development. The necessary innovation and
learning would be too slow
Institutional shareholders may expect to see continuing growth and acquisitions may be a
quick way to deliver this growth. Be aware that this sort of acquisition may result in value
destroying behaviour as explained in Section 1. This is particularly likely if the parent
does not have sufficient knowledge of the industry within which the acquired business
operates
Growth through acquisitions can also be very attractive to ambitious senior managers as it
speeds the growth of the company. In turn, this might enhance their self-importance,
provide better career paths and greater monetary rewards
There are some stakeholders whose motives are speculative rather than strategic. They
favour acquisitions that might bring a short-term boost to share value. Other stakeholders
are usually wary of the speculators since their short-term gain can destroy longer-term
prospects
Remember, stakeholders will not necessarily share the

same motives.
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Take some time to find out more about mergers and acquisitions using the following
references.
1. Glaxo Wellcome purchased SmithKline Beecham in 2000 to become
GlaxoSmithKline (www.gsk.com)
2. America Online Inc. and Time Warner merged in 2000 to become AOLTime
Warner (www.timewarner.com)
3. Royal Dutch Petroleum Co. and Shell Transport and Trading Co. were merged
(although technically already part of the same organisation) in 2004 to become
Royal Dutch Shell (www.shell.com)
4. More on mergers and acquisitions can be found in Gaughan, P. (2000) Mergers,
Acquisitions and Corporate Restructurings. 2nd edition. New York: Wiley
3.2.3 STRATEGIC ALLIANCES

A strategic alliance is where two or more organisations share resources and activities to pursue a
strategy. As a strategy it is generally associated with the experience school as described in Section 1.
This kind of joint development of new strategies has become increasingly popular. This is because
organisations cannot always cope with increasingly complex environments (such as globalisation)
from internal resources and competences alone. They may see the need to obtain materials, skills,
innovation, finance or access to markets, and recognise that these may be as readily available
through co-operation as through ownership. Alliances vary considerably in their complexity, from
simple two-partner alliances co-producing a product to one with multiple partners providing complex
products and solutions.
Motives for creating an alliance include:
the need for critical mass, which alliances can achieve by forming partnerships with either
competition or providers of complementary products. This can lead to cost reduction and
an improved customer offering
co-specialisation, allowing each partner to concentrate on activities that best match their
capabilities. For example, alliances are used to enter new geographical markets where an
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organisation needs local knowledge and expertise in distribution, marketing and customer
support. Similarly alliances with organisations in other parts of the value chain (see Unit
Management: Develop Strategic Plans), eg suppliers or distributors, are very common
learning from partners and developing competences that may be more widely exploited
elsewhere, for example the first steps into e-commerce may be achieved with a partner
that has expertise in website development. However, the longer-term action may be to
bring those activities in house
Types of alliance include:
joint ventures: organisations remain independent but set up a newly created organisation
jointly owned by the parents. Examples include large civil engineering projects, or major
aerospace undertakings (like the European Airbus). May take a long time to implement, so
not appropriate for rapidly changing markets
networks: informal collaboration between two or more organisations where there is mutual
advantage in doing so. Most appropriate in situations where the intended strategy does
not require separate, dedicated resources (like in a joint venture)
franchising: franchise holder undertakes specific activities such as manufacturing,

distribution or selling, whilst the franchiser is responsible for the brand name, marketing
and probably training
licensing: common in science-based industries. This involves the licence owner giving the
licence holder the right to use the product/logo/digital media, etc in a particular way for a
fee, for example licensing the right to manufacture a patented product
subcontracting: an organisation gives specific parts of a process to another organisation.

Also known as outsourcing, this is particularly popular in the IT industry
co-production: where the customer (or employer) works with the organisation to create the
product, etc. For example, the governments PAYE system for tax collection has
organisations working out the tax for their employees.
Examples of strategic alliances:
Alliances are common in the public sector, for example health, police, social services and
education agencies work together to tackle social problems such as drug/alcohol abuse.
Similarly alliances between the private and public sector occur, for example the Public
Finance Initiative (PFI) in the UK was established to allow public sector organisations to
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gain competitive advantage through partnerships for the development and maintenance of
capital items, particularly property.
Well-known commercial alliances include: Amazon.com and the Royal Mail, where the
Royal Mail delivered all the products purchased via Amazon.com; and Microsoft and IBM,
where Windows was installed on all IBM computers.
Find out more about the different types of change by referring to: Doz, Y. and Hamel, G.
(1998) Alliance Advantage. Boston: Harvard Business School Press
3.2.4 SELECTING A METHOD

In this section we have considered some of the commonly used methods for implementing a process
of change. For you as a manager it is important to be clear about the opportunities that each of these
methods offers you. You should consider these opportunities in the light of the different lenses
described in Section 1 and try to assess how things are done by an organisation. Understanding the
organisation will go a long way towards selecting the most suitable method of achieving the change
required.
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Strategic Development
Examine a named case study or an organisation you are familiar with and describe
the methods used to implement a change process. Reference should be made to
the lens that best applies to the approach taken by the organisation.
3.3 SUCCESS CRITERIA FOR JUDGING STRATEGIC OPTIONS

Success criteria are used to judge the likely success or failure of a strategic development option.
There are three main success criteria:
1. Suitability is concerned with whether a strategy addresses the circumstances in which an
organisation is operating the strategic position, based on its business environment.
2. Acceptability is concerned with the expected performance outcomes (such as the return
on investment or risk) of a strategy and the extent to which these would be in line with the
expectations of stakeholders.
3. Feasibility is concerned with whether a strategy could be made to work in practice.
Assessing the feasibility of a strategy requires an emphasis on more detailed practicalities
of strategic capability.
3.3.1 SUITABILITY
Suitability requires a broad assessment of the extent to which new strategies would fit with the future
trends and changes in the environment, exploit the strategic capability of an organisation, and meet
the expectations of the stakeholders. Each of these factors is looked at in more detail in the other two
success criteria. Suitability can be thought of as the rationale of a strategy and whether it makes
sense in relation to the strategic position of an organisation.
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Establishing suitability of directions
In this Unit we have looked at what makes a number of strategic directions suitable. Looking at these
directions in terms of their business environment, strategic capability and stakeholder expectations,
their suitability can be summarised in the following table.
Strategic direction
Why this option might be suitable in terms of:

Environment
Capability
Expectations
Ansoff Matrix
Market penetration
Gain market share for

advantage
Product development
Exploit knowledge of
customer needs
Current market
saturated
New opportunities for:
geographical spread,
entering new segments
or new uses
Current market
saturated or declining
Market development
Diversification
Other Methods
Internal development
Consolidation
Merger/acquisition
Joint development
First in field
Partners or acquisitions
not available
Withdraw from
declining markets
Sell valuable assets
(speculation)
Maintain market share
Speed
Supply/demand
Profit/earnings ratios
Exploit superior
resources and
competences
Exploit R&D
Exploit current products
Exploit core
competences in new
arenas
Learning and
competence
development
Spread of cost
Build on strengths
through continued
investment and
innovation
Acquire competences
Scale economies
Speed
Industry norm
Complementary
competences
Learning from partners
Better returns at low

risk by exploiting
current strategies
Better returns at
medium risk by
exploiting current
strengths or market
knowledge
Better returns at higher

risk by sweating the
assets
Cultural/political ease
Better returns at low

risk by exploiting
current strategies
Returns: growth or
share value
Problems of culture
clash
Required for entry
Dilutes risk
Fashionable
It is also important to understand why strategies might be unsuitable, particularly if managers have a
bias towards a particular strategy. The choice would be biased in the sense that it would not properly
address all three of the above factors about an organisations strategic position, for example the desire
to chase market opportunities without the necessary competences or funding, or the pursuit of a
strategy against the wishes of a powerful stakeholder.
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It is the relative suitability of options that matters. There may be options available to organisations that
are more suitable. Some useful frameworks for assisting in understanding the relative suitability of
different strategic options include:
ranking strategic options against a set of factors concerning an organisations strategic

position
using decision trees: these also assess strategic options against a list of key factors,
however preferred options emerge by progressively introducing requirements which must
be met (such as growth, investment or diversity)
scenarios which attempt to match specific options with a range of possible future
situations and are particularly useful where a high degree of uncertainty exists. Suitable
options are ones that fit the various scenarios, so several need to be considered, possibly
in the form of contingency plans
The elements of the strategy may not be internally consistent. The competitive strategy (such as low
price and differentiation), the development direction (such as product development or diversification)
and the development method (internal acquisition or alliances) need to be consistent. Strategies are
unlikely to succeed if these three elements do not work together. Since organisations are likely to be
developing and changing elements of a strategy incrementally over time, it is quite probable that
strategies will become internally inconsistent resulting in declining performance.
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3.3.2 ACCEPTABILITY
Acceptability is more subjective than suitability, as it is much harder to establish what the
stakeholders expectations are. The following table summarises some frameworks that can be useful
in understanding the acceptability of strategies together with some limitations of each of these.
Criteria
Return
Profitability
Used to understand
Examples
Limitations
Financial return of
investments
Apply to discrete
projects
Only tangible
costs/benefits
Costbenefit
Wider costs/benefits
(including intangibles)
Sequence of decisions
Impact of new
strategies on
shareholder value
Return on capital
Payback period
Discounted cash flow
(DCF)
Major infrastructure
projects
Real options analysis
Mergers/acquisitions
Real options
Shareholder value
analysis (SVA)
Risk
Financial ratio
projections
Sensitivity analysis
Stakeholder reactions
Robustness of strategy
Test
assumptions/robustness
Political dimension of
strategy
Break-even analysis
Impact on gearing and
liquidity
What is analysis?
Stakeholder mapping
Game theory
Difficulties of
quantification
Quantification
Technical detail often
difficult
Possibly too much

focus on finances
Tests factors
separately
Largely qualitative
Return
Returns are the benefits which the stakeholders are expected to receive from a strategy. It is important
to remember that there are no absolute standards as to what constitutes a good or poor return. It will
differ between industries, countries, and also between different stakeholders. There are a number of
different approaches to understanding return. The four examples above are:
Profitability analyses: Traditional financial analyses have been used extensively in assessing the
acceptability of strategies. Three of the most commonly used approaches are forecasting the return on
capital employed (ROCE), payback period, discounted cash flow (DCF) (see support material for the
Unit Management: Develop Strategic Plans for how to use these).
Costbenefit: The costbenefit concept suggests that a money value can be put on all the costs and
benefits of a strategy. This includes tangible and intangible returns to people and organisations other
than the ones responsible for the project or strategy. In practice monetary valuation is often difficult as
opinion plays a significant role. The major benefit is in forcing people to be explicit about the various
factors that should influence strategic choice.
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Real options: The previous approaches assume some degree of clarity about the outcomes of a
strategic option. This is not the case for strategies where the precise costs and benefits only become
clear as implementation proceeds. It is possible to suggest that strategy should be seen as a series of
real options (ie choices of direction at particular points in time as the strategy takes shape as a result
of the previous choices that were made). The benefit of this approach is that it can provide a clearer
understanding of both strategic and financial return and risk of a strategy by examining each stop
(option) separately as it occurs. This approach can be seen in the stage-gate approach to research
and design projects (proposed by Robert Cooper in 1988 and still used today. Explanation can be
found at www.prod-dev.com). Real options bridge the somewhat rigid DCF approach and the intuitive
approaches (such as scenarios).
Shareholder value analysis: SVA is an attempt to address many of the limitations and criticisms of
traditional financial analyses. In particular, how value is created from the point of view of
shareholders. The shareholder value measure used most commonly is total shareholder returns
(TSRs), which in any year is equal to the increase in the price of a share over the year plus the
dividends per share earned in the year, all divided by the share price at the start of the year. More
widely value-based businesses use this measure to set themselves overall performance goals. SVA
has been criticised for emphasising short-term returns. However, the idea of valuing a strategy may
serve to give greater realism and clarity to otherwise vague strategies.
Risk
Risk concerns the probability and consequences of the failure of a strategy. This risk can be
particularly high for organisations with major long-term programmes of innovation or where high levels
of uncertainty exist about key issues in the environment. Risk can be more than just financial, eg risk
to brand image or risk of missing an opportunity. At the core of developing a good risk assessment is a
good understanding of an organisations strategic position. The concepts that can be used to establish
the detail within a risk assessment mentioned above are as follows.
Financial ratios: The projection of how key financial ratios might change if a specific strategy were
adopted can provide useful insights into risk, for example the change in capital structure. Strategies
that would require an increase in long-term debt will increase the gearing of the company and hence
its financial risk. Other considerations include liquidity, ie the less liquid an organisation becomes as a
result of the strategy, the more financial risk will increase. See the support material for the Unit
Management: Develop Strategic Plans for more on ratios.
Sensitivity (What if) analysis: This allows each of the important assumptions underlying a particular
strategy to be questioned and challenged. In particular, it seeks to test how sensitive the predicted
performance or outcome (eg profit) is to each of these assumptions. Often these assumptions will be
tested using extremes and then determining if this has an impact on managers confidence in the
strategic decision.
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Stakeholder reactions: You should be aware of the importance of stakeholders from the
Management: Plan, Lead and Implement Change Unit of the HNC. One way to establish possible
stakeholder reactions is through stakeholder analysis. Once the stakeholders are identified and their
possible reactions have been established, then it increases your ability to manage these, and hence
increase the acceptability of a strategy. For example:
a new strategy might require a substantial issue of new shares, which could be
unacceptable to powerful groups of shareholders, since it dilutes their voting power
plans to merge with other companies or to trade with new countries could be
unacceptable to unions, government or some customers
Remember competitors are stakeholders too, hence their reaction must be considered. When
examining competitor behaviour, it may be useful to look at game theory.
Remember competitors are stakeholders too, hence their

reaction must be considered.
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Strategic Change
Take some time to find out more about stakeholder analysis and game theory using
the following references.
1. Freemans Equity, Economic and Market stakes originally proposed in .
Freeman, R. E. (1984) Strategic Management: A Stakeholder Approach.
Boston: Pitman
2. Mitchell, R., Agle, B. and Wood, D. (1997) Towards a Theory of
Stakeholder Identification: Defining the Principle of Who and What Really
Counts. Academy of Management Review, 22(4), 853886
3. Entry to game theory (http://en.wikipedia.org/wiki/Game_theory). It is a
huge subject, so focus on the impact the Prisoners Dilemma has on
business.
3.3.3 FEASIBILITY
When considering feasibility we consider if a strategy can actually work in practice. It is important to
consider feasibility in respect to both finance and resources.
1. Financial feasibility
Obviously if the organisation does not have the funds to support the change then it cannot happen.
The two main ways to assess financial feasibility are:
cash flow forecasting which seeks to identify the funds which would be required for any
strategy and the likely sources of those funds. This should highlight whether a proposed
strategy is likely to be feasible in financial terms and the timing of new funding
requirements
break-even analysis: this is a simple and widely used approach to assess the feasibility of
meeting targets of return (eg profit) and combines a parallel assessment of acceptability. It
also provides an assessment of the risk of various strategies, particularly where different
strategic options require markedly different cost structures. See the Unit on strategic
planning for different methods of break-even analysis
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Resource feasibility
A wider understanding of the feasibility of specific strategies can be achieved by identifying the
resources and competences needed for that strategy, eg geographical expansion in the home market
might be critically dependent on marketing and distribution expertise, together with the availability of
cash to fund increased stocks. In contrast, a different strategy of developing new products to sell to
current customers is dependent on engineering skills, the capability of machinery, and the companys
reputation for quality in new products. A resource deployment assessment can be used to judge the
extent to which an organisations current capabilities would need to change to reach or maintain the
threshold requirements for a strategy, ie
Do we lack any necessary resources?
Are we performing below threshold on any activity?
How can unique resources be developed to sustain competitive advantage?
Which unique resources already exist?
Which core competences already exist?
Could better performance create a core competence?
What new resources or activities could be unique or core competences?
The key issue is whether these changes are feasible in terms of scales, quality of resources, or
timescale of change. In practice, the implementation of strategies may throw up issues that might
make organisations reconsider whether particular strategic options are in fact feasible. This may lead
to a reshaping, or even abandonment of strategic options.

into judging strategy options. Go to Strategic Change
/Determining Direction for Change/Judging Strategy Options.
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Strategic Change
3.3.4 SPECIFIC SUCCESS CRITERIA

We have looked at a number of methods for implementing strategy. The following are some of the
specific criteria required for making these methods successful.
Internal development
This is unlikely to succeed when the organisation does not have the required competences/resources;
this includes financial, human and physical resources.
As with any changes, this requires the support of the stakeholders, in particular those responsible for
implementing the internal development.
Mergers and acquisitions
Parenting issues will need to be addressed (see Section 1) to ensure value is added and not
destroyed. There will be a need to be decisive about key roles (post-merger). Middle managers also
need to be brought on board quickly to remove the internal uncertainties and ensure that there is no
loss of external focus (eg on service to customers).
An inability to integrate the new company into the activities of the old means that the expected
synergistic benefits of the acquisition are not realised. There will inevitably be a need for decisions
regarding whether to remove or retain executives of the acquired company.
Where the motive was about organisational learning through the transfer of knowledge, it can be
difficult to know exactly which knowledge to transfer. Managers themselves in the acquired
organisation may be unclear about the reasons for their success (or failure).
Under-achievement often results from problems with cultural fit. This is particularly a problem when
the acquired company is from another country. This may cause a culture clash as different business
models and/or organisational routines are aligned with one another.
Strategic alliances
The success of alliances is dependant on how they are managed and the way in which the partners
foster the evolution of the partnership. Of particular importance are:
A clear strategic purpose for the alliance together with senior management support, as
alliances require a wider range of relationships to be built and sustained. This can create
cultural and political hurdles which senior mangers must help to overcome
Compatibility at the operational level requiring effort by partners to achieve strong

interpersonal relationships at these lower levels too and not just between senior
managers. In cross-country partnerships this will include the need to transcend national
cultural differences
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Strategic Change
Defining and meeting performance expectations. This requires the willingness to

exchange performance information. This would include clear goals, governance and
organisational arrangements concerning activities that cross or connect the partners.
However, it can also be important to keep the alliance simple and flexible and allow the
alliance to evolve and change rather than prescribing it too rigidly at the outset
Trust probably the most important part of a successful alliance. Trust can be
competence based, ie each partner is confident the other has the resources and
competences to fulfil their part in the alliance. Trust is also character based, ie whether
partners trust each others motives and are compatible in terms of attitudes to integrity,
openness, discretion and consistency of behaviour.
3.4 CHOOSING SUITABLE STRATEGIC OPTIONS

To conclude this section it is worth considering how best to decide on the strategic option. It is a
decision that all those involved in strategic change have to make whilst giving consideration to the
factors specified in this workbook. For you to be effective in this role you need to be able to assess the
organisation you work for, determine its overall approach to strategy development, and identify if it
favours:
1. Strategy as design fit
2. Strategy as experience stretch
3. Strategy as ideas emergent/chaos
In identifying the option it is important to be clear on which approach best fits your organisation and
will best meet the needs of the required change.
You also need to understand the organisations strategic position in respect to both internal and
external environmental factors. Using analytical tools will help provide an illustration of where the
organisation is and how it may need to develop to achieve a strategic change.
Finally, it is about selecting the best option for change based on the assessments made of the
organisation. If you are the instigator of change then you will need to match the methods to the
organisation, so that the strategy can be implemented effectively.
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Strategic Change
Strategic Review
Examine a named case study or an organisation you are familiar with. Identify and
explain its strategy (or strategies) for change and determine the degree of success
achieved. Describe what influenced the selection of the strategic option(s) and
recommend alternative strategic options that could have been used.
If you would like to test your learning on the theory of strategic

change, please refer to the Interactive Activities on SQAs
website (http://www.sqa.org.uk/sqa/30913.html). Go to Strategic
Change/Determining Direction for Change/Test your Learning.
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Candidate support pack

PDA Diploma in Management

Management: Strategic Change

Published date: November 2008, amended August 2009

First Published 2008

The information in this publication may be reproduced in support of SQA qualifications. If it is

ABOUT THE PROGRAMME

MANAGEMENT: STRATEGIC CHANGE

1. ANALYSE STRATEGIC CHANGE

1.1 The characteristics of strategic decisions

2. ESTABLISHING STRATEGIC POSITION

2.1 Positioning in the external environment

3. DETERMINING DIRECTION FOR CHANGE

3.1 Strategic development directions

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Scottish Qualifications Authority

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About the programme

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THE LEARNING PROGRAMME

A workbook containing most of the resources that make up the programme.

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HOW TO APPROACH YOUR LEARNING

ACHIEVING YOUR DIPLOMA IN MANAGEMENT

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analyse different strategy concepts and their implications to strategic change

establish an organisations strategic position

determine directions and methods to implement strategic change

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INTRODUCING THIS SECTION

the characteristics of strategic decisions

the characteristics of strategic management and operational management

different strategy paradigms for different types of changes

By the end of the section you will be able to:

analyse strategy and understand its different levels

understand how strategy influences change and change management

understand different types of change and their strategy paradigms

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1.1 THE CHARACTERISTICS OF STRATEGIC DECISIONS

1.1.1 STRATEGY DEVELOPMENT

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matching the organisations resources and the market opportunities

finding a correct market position based on the current market environment

And stretch/leverage means:

building resources within the organisation

increasing strengths through the development of organisational competences

creating new value(s) for stakeholders

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1.2 LEVELS OF STRATEGY

1.2.1 CORPORATE STRATEGY

1.2.2 STRATEGIC BUSINESS UNIT (SBU) STRATEGY

the ability of an organisation to outperform rivals on its primary goal

advantages are strengths of the firm, vulnerabilities are weaknesses

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Advantages are strengths of the firm, vulnerabilities are

product life cycles

rate of technological change

time to develop new skills and competences

time to develop other sources of advantage (eg brands)

how aggressive your competitors are