Module Summary

7/14/2019 Module Summary

http://slidepdf.com/reader/full/module-summary 1/47

Text book support: Johnson G, Whittington R & Scholes K (2010) Exploring Strategy 9th Ed. FT

Prentice Hall. ISBN-13: 978-0273737025

Strategic Management

Unit 1 : Nature and Scope of Strategic Management

1.1: Nature:

SM is knowing your starting point (where you are), your destination (where you want

to be) and how to get there.

SM in the company attempt to plan its future, using a variety of techniques to arrive

at a desired state. It’s a long term plan of action or execution designed to achieve

particular objectives, it reflects the values, expectations and goals of those who are

in power within the organization. It gives business direction.

Tactical measures are usually short term whereas strategy long term. i.e. of tactical

measures: price cutting to grab market share and remove competitor. A series of

tactical measures can help achieve long term strategy

Strategy then s a set of guidelines that directs the managers in an organization to

reach their desired long-term positions.

Objectives: where do we want the business to be?

Strategy: How can we ensure the business gets there?

Andrews (1989) – ‘Strategy is the pattern of objectives, purposes or goals, and the

major policies and plans for achieving these goals, stated in such a way as to define

what business the company is in, or is to be in, and the kind of company it is, or is to

be’

Strategic decisions will have implications for change throughout the organization.

Changes can be complex and far reaching and sometimes require significant

organizational transformation.

Strategic decisions are concerned with:

Values and expectations of key stakeholders

The long term organizations’ direction

Scope of organization’s activities

Matching organization’s activities to its environment or its resource capability

Building on or stretching organization’s resources and competences

Major allocation or reallocation of resources



Strategic Drift (float): it describes the variation in circumstances of the business

environment over a period of time compared with the intent of the original strategy.

(culture is traditionally sees as a preventative to change which stifles innovation and

results in a momentum of strategy that can lead to strategic drift. Organizations

response to the business environment is internally constructed rather thanobjectively understood, which supports the assumption that Strategic change must

always be accompanied by an appropriate culture change.

SD is the tendency for strategies to develop incrementally on the basis of historical

and cultural influences but fail to keep pace with a changing environment. i.e.: a

market trend may develop which will provide a shift in the market direction. If the

strategy is not adopted to conform with these changes, a significant gap will develop

between the intended strategic aim and the perceived position in the market (SD)

Strategic wear-out: (Strategic lifespan), is a common failing of many business

strategies as any strategy is at risk of being outdated. Market forces and

performance may change in unpredictable ways, strategy formulated must be

flexible, With suitable monitoring and evaluation.

Synergy: evaluating the combined effects of actions resulting. (Firms usually seeks a

product-market posture with a combined performance that is greater than the sum

of its parts, described as 2+2=5)

1.2: Scope:

5Ps of strategies:

1. Plan: a path to get from here to there

2. Pattern: consistency in behavior over time

3. Position: particular products in particular markets

4. Perspective: an organization’s ways of doing things

5.

Ploy (trick): a particular type of plan intended to send specific signals

Intended strategy: is an expression of a desired strategy as deliberately formulated r

planned by managers

Realized strategy: the strategy actually being followed by an organization in practice

rather than planned up front

Strategic Vision: is the ideas for the direction and activities of business development

Strategy Framework



Following from the overall strategic vision the strategy is then developed via the

associated levels within the company.

A. Strategic Decisions:

SD are about: long term direction of an organization, scope of its activities, gaining

advantage over competitors, addressing changes in the business environment,

building on resources and competences (capability), values and expectations of

stakeholders.

They are likely to be complex in nature, made in situations of uncertainty, affect

operational decisions, require an integrated approach (in and out an organization),

involve considerable change.

B. Administrative Decisions: are about organization structure if information,

authority and responsibility flows, structure of resource conversion, work flows,

distribution system and facilities location, resource acquisition and development,

financing

C. Operating Decisions: operating objectives and goals, pricing and output levels,

operating levels, production scheduling, inventory levels, warehousing,,

marketing policies and strategy, R&D policies and strategy, Control

Those decisions need to be linked to the relevant level of strategic change

Fundamental approaches to change:

1. Alpha change: looks only at symptoms, A reactive change applied over a wide

range of issues. i.e. IT driven change; web/online access to all desktops which

might increase efficiency



2. Beta change: goes a level deeper, much more systematic and planned,

organized wide in its implications. Essentially the origination and its members

do not undergo fundamental change i.e. process improvement.

3. Gamma change: a fundamental change, the organization undergo a paradigm

shift, there is significant culture change and the members of the organizationlearn to relate to each other in different ways. i.e. process innovation

Levels of planning:

A. Top-Level Planning (Strategic): done by top management, it encompasses the

long-range objectives and policies of the organization, concerned with

corporate results rather than achievements of individual departments. It’s a

long range planning and linked to long term goals. Co0ncerned with “What”

B. Second-Level Planning (Tactical): carried out by senior executives. Concerned

with “How”, it involved with planning the deployment of resources to the

best advantage. Is concerned with long range planning but usually shorter

timespan than strategic planning because its concentrating on the gradual

attainment of the organization’s main objectives

C. Third-Level Planning (Operational): concern of departmental managers and

supervisors. Confined to very short term activities, involving departmental

operations and individual assignments as well establishing performance

controls.

Corporate Strategy: is used to build advantage over other organization. Its benefits:

Highlight possible short and long term remedies for firms in financial

difficulties

Determining when an organization is at a decision point and in which

direction it should go for future success

Selecting appropriate acquisitions which will enhance shareholder wealth

Providing a system for successfully integrating acquisitions and improving

performance

Demonstrate which business has greater value, which should be developedand which to be disposed

Business Strategy: involve more direct monitoring and evaluation by managers

closer to the operations. Any evidence of strategic drift or wear out is detected

quickly than in corporate strategy

Operational strategy: CS is a plan set out for the whole organization, it is concerned

with the mean an organization will be able to achieve its total objectives, in order to

achieve its overall aims, a company must ensure that objectives and subsequent

strategies are adopted at each level of the business (OS)



1.3: Purpose and Strategic Objectives:

The strategic purpose of an organization is associated with||:

1. Strategic Direction: a course of action that leads to the achievement of the

goals of an organization strategy which should incorporate timeframe of

no less than 2-4 years and might be extended to 10 and beyond

2. Strategic Focus

3. Strategic Realignment / Diversification: organizations need to develop

strategies that will allow for product realignment or diversification. There

are lots of organizations undertaking diversification into unusual markets

(original core businesses are realigned in accordance with changes); i.e.

Gillette expanding its interests in shaving products to all toiletries including

deodorant…etc., Sony mobbing from transistor radios to all domestic

electronics and advanced computer components, McDonald’s realigning

from simple hamburgers to range of fast foods including innovations such

as salads, breakfasts etc.

It is the responsibility of leadership of the business to communicate the strategic vision

and then provide the guidelines needed for implementation

Control processes make it possible to ensure that objectives are being met and to

make any necessary changes to strategy as and when appropriate.

Synergy:

Refers to the benefits that are gained where activities or assets complement each

other so that their combined effect is greater than the sum of the parts

Structural Synergy: is combining resources to lower costs or increase revenues.

Management Synergy: where any improvement is the direct result of better

management, usually without structural change. Rarely directly produce revenue

increase.

Synergy is any unrealized potential open to group from better collaboration and

more efficient mixing of resources.

There are many organizations working together as examples of synergy:

Trust House and Forte

Kentucky Fried Chicken and Mitsubishi

McDonalds and Fujita



Fuji and Xerox

Smith Kline and Fujisawa Pharmaceuticals

Strategic objectives:

A strategic objective is what you want to achieve in the long term, it addressed the

question “where do I want to be”. The strategy is how you plan it address the

question “how do I get there”

Before objectives and strategy the important question “where am I now”

Objectives must be SMART.

Seeking outstanding performance on one single measure such as profits or growth

produces major problems in other areas, an alternative approach is needed in whichsatisfactory performance across a balanced set of objectives is achieved. It is

dangerous to base success against one or two criteria.

Strategic Management Process:

5 key strategic management tasks that must be carried out in setting strategic

objectives:

1. Define he business, state a mission and form a strategic vision

2. Set measurable objectives

3. Define a strategy to achieve these objectives

4. Implement and execute strategy

Figure 1: Setting organization objectives



5. Evaluate performance, review any new developments and initiate corrective

adjustments where necessary

Unit 2 : Strategic Decision Making

2.1: Deliberate and Emergent Strategies:

These 2 types represent different approaches to SM, organizations need to

determine where between those 2 extremes they wish to position their strategic

development,

Strategy formulation can be classified into:

A. Emergent (developing): it’s an approach to strategy formulation that

emphasizes the role of experience and learning. Its process of thinking and

doing. It is not unusual for implementation to precede choice and analysis, it

gives rise to experience. (Try before you commit)

B. Deliberate (Purposeful): emphasizes planning. The plan stipulates the path to

achieving objective; it emphasizes the benefits of acting internationally. In

deliberate strategies a classical planning approach is adopted, strategic

analysis leads to strategic choice then implementation follows. (plan & think

before you act)

All organizations need an element of planning and planning is at the heat of

deliberate strategies.

Managers need to weight the conflicting demands of deliberateness and emergence

and strike a balance that is appropriate for the organization, its industry sector and

environment.

Schools of Thought in Strategic Decision Making:

1. Design school: deliberate ad classical strategy process which involves:

A. Internal environment analysis e.g. SWOT, identify distinctive competences

B.

External environment analysis: SWOT, BPESTC. Establish fit between internal and external

D. Identify key success factors

E. Strategic choice on the basis of key success factors and management

preferences

F. Implementation chosen strategy

2. Planning School: strategy formation is a formal process of planning. Strategy is

generally designed by the leader of the organization and cascaded down to planners

for decomposition and then down to implementers

3. Positioning School: strategy formation is an analytical approach combining the

approaches of the design and planning school. It carefully considers its existing



position in the marketplace when developing a realistic strategy to improve

competitive positioning

4. Entrepreneurial School: strategy formation is a visionary approach. Flexible and

responsive to environments, but strongly directed by an entrepreneurial leader.

Risky as its success depends on the wisdom and judgment of this person (Leader)

5. Cognitive (reasoning) school: referred to as Thinking school, strategy formation is a

mental process that draws from cognitive psychology to recognize patterns and

make sense of the world. “Strategies are largely self -taught; they develop their

knowledge structures and thinking processes mainly through direct experience. That

experience shapes what they know, which in turn shapes what they do, there by

shaping their subsequent experience…” Mintzberg, Ahlstrand and Lampel

6. Learning School: strategy formation is an emergent process; a series of incremental

adjustments made by individuals throughout the organization in response to

collective learning. Often described as ‘muddling through’.

7. Power School: strategy formation is process negotiation by the use of power andpolitics (emphasizing the use of power and politics to negotiate strategies

favourable to particular interests.

8. Cultural School: strategy formation is a collective and co-operative, reflecting

organizational culture, the shared values, beliefs, norms of the organization.

9. Environmental school: strategy formation is a reactive process responding solely to

the external environment. It is strategy imposed from the outside.

10. Configuration School: strategy formation is a process of translation: defined by

time, place and context. It emphasis on transforming the organization from its

existing state into a new and different entity more suited to the current time, place

and context.

http://www.12manage.com/methods_mintzberg_ten_schools_of_thought.html

(important)

Those 10 schools added by Mintzberg, more recent authors have added two further

schools:

11. Strategy as strength intent, core competences and stretch:

12. Strategy as Parenting:

2.2: The Systematic stages of strategy development:

In developing and implementing strategy, organizations generally adopt a systematic

process of planning, implementation and control.

The Strategy Perspectives:

- ‘Top-down’ reflection of what the whole group or business wants to do

- ‘Bottom-up’ activity where operational improvements cumulatively build strategy

- Translating market requirements into operational decisions (part 2.3)





Corporatestrategydecsions

Businessstrategydecisions

Functionalstrategydecisions

- exploiting the capabilities of an operation’s resources in chosen markets (part 2.3)

A. Top-Down

The large nature of the operation necessitates that corporate decisions are made at the

top and then passed down to each individual business unit, which will in turn pass on itsown business strategy to separate functions.. an effective hierarchy of strategies

therefore exists.

Usually this process (fig 2) is used at business unit level, for large corporations, strategy

at the corporate level is more concerned with managing a portfolio i.e. corporate level

strategy involves decisions about which business unit to grow, resource allocation

among business units, taking advantage of synergies among the business units, merges

and acquisitions.

Strategic planning process

Mission a company mission is its reason for being. is often expressed in the form of a mission

statement which conveys a sense of purpose to employees and projects a company image

to customers. it sets the moos of where the company should go

Objectives objectives are concrete goals that the origination seeks to reach i.e. an earnings growth

target. they should be challenging but achievable. they also should be measurable so that

the company can monitor its progress and make corrections as needed

Situation

Analysis

once the company has specific objectives it begins with its current situation to devise a

strategic plan to reach those objectives. changes in the external environment usually

present new opportunities and new ways to reach the objectives, an environmental scan is

performed to identify the available opportunities (PESTLE). it also involves internalenvironment: company culture, image, organizational structure, key staff, access to natural

resources, operational efficiency, market share, financial resources...etc. the situation

analysis can generate large amount of information some might not be relevant to strategy

formulation. it is sometimes useful to categorize the internal factors as strength and

weakness (SWOT)

Strategy

Formulation

Once we have clear picture about the firm and its environment, specific strategic

alternatives can be developed. While different firms have different strategies depending

on their situation, there are also generic strategies that can be applied

Implementation The strategy likely will be expressed in high level conceptual terms and priorities. For

effective implementation, it needs to be translated into more detailed policies that can be

understood at the functional level of the organization. The strategy should be translatedinto specific policies for functional areas i.e. marketing, procurement, HR…etc. . in addition

to developing functional policies, the implementation phase involves identifying the

required and putting into place the necessary organizational changes.

Control Once implemented, the results of the strategy need to be measured and evaluated with

changes made as required to keep the plan on track. Control systems should be developed

and implemented to facilitate this monitoring. Standards of performance are set, actual

performance measured and appropriate action taken to ensure success.

In reality such hierarchies are far more complex. The SM process is dynamic and continuous,

a change on one component can necessitate a change in the entire strategy, as such theprocess must be repeated frequently in order to adapt the strategy to environmental



changes. Throughout the process the firm may need to cycle back to a previous stage and

make adjustments.

The above process is only one approach to SM, it is best suited for stable environment. A

drawn back of this top-down approach is that it may not be responsive enough for rapidly

changing competitive environments. In time of changes some of the more successful

strategies emerge informally from lower levels of the organizations. Another drawback, this

model assumes fairly accurate forecasting and does not take into account unexpected

events. In an uncertain world, long term forecasts cannot be relied upon with a high level of

confidence

B. ‘Bottom-up’ perspective

Experience from functional levels is basis for strategic

development. The higher level, corporate decision making

takes advantage of a consensus of opinion approach from allsections of the organization. it encourage a philosophy of

continual and incremental improvement.

Mission and Vision:

The first step in strategy formulation is to develop a hierachy

of objectives that ddefine he direction of the business: Vision

– Mission statement – Coprorate objectuves for each area – Indivdual market objectives.

The organziation mission and vision link the values and objectives of the business with its

stakhlders

Vision:

The primary role of a company vision is to establish a dream to which all employees and

other stakeholders will subscribe and to which they will enthusiastically direct their efforts.

Creating a vision can be through answers to a series of probing questions on the future: i.e.

what will the organziation be linke in 5 to 15 years time?, who will be employed?, what will

be their key attitudes or behaviour?, what will be the major products and services?

The key features of effective vision:

Effective visions are inspiring

Clear and chanllenging

Make sense in the market place and stand the test of time in turbulent world

Beacons and controls when all else is up for grabs

Aimed at empowering our own people first, customers second

Prepare for the future but honour the past

Lived in details not broad strokes



A stratgic vision is widely shared among the workforce; when all employees are aligned and

committed to the firm’s long-term direction, optimum choices on buinsess decisions are

more likely to:

indivduals and team know the intent of the firm’s strategic vision.

Daily excution of the strategy is improved

Mission:

The board visiom of an organziation is communicated through its mission statement. It’s the

potential end-result of strategy. It spells out the central purpose and shared values of the

organziation. It should have clear function, objectives and intent.

Functions: define key stakholders whom the orgnzation will seek to satisfy, describe

in board terms what strategy it will pursue to meet their objectives

Objectives: contribute to motivating the loyalty of those on whom the success of the

business deends, encourage management to evalute their policies in the light of

their stakeholders’ expectations

Intent: a statement of beliefs and values, customer needs that the business will

fulfil, markets within which the organization will trade, attitudes to growth and

financing

Mission planning is where strategy, organziation and HR issues come together.

2.3: Analysing the Business Environment:

An aim of business analysis is to understand the organizational environment so thatany influences can be identified, these include political, economic, social and

technological factors. As well it is necessary to appreciate that there is an

indeterminable impact on strategy formation caused by environment uncertainty.

In order to take effective decisions, managers need to able to identify environmental

forces and interpret their present and potential influences.

Our ability to spot changes in wider environment is far more difficult when a major

shock or change occurs than when such changes are gradual. Also we need to have a

very good idea of which elements of the environment will have a major impact upon

our day to day activities and which elements may have only an indirect influence

upon the way our business operates. In order to do such analysis we need to

consider 3 aspects:

1. Core competencies

2. External Environment (via PEST/PESTEL analysis)

3. Competitive Advantage (Via Porter’s Five Forces Model)



1. Core Competencies:

Companies often develop strategies to fully exploit the capabilities of its resources,

and indeed to develop these capabilities further as a market differentiator. The

organization’s internal capabilities and resources describe its core competencies.

Core competencies relate to those resources and capabilities of the firm that when

combined enable the firm to attain a competitive edge in the market in which it

serves.

In deciding whether a combination of skills/knowledge/experience forms a core

competencies or not, a number of tests can be applied:

CC provide potential access to a wide variety of markets

CC make significant contribution to the perceived customer benefits of the

end-product/service

CC should be difficult for competitors to imitate

Organizations adopting a core competence perspective seek to exploit its intellectual

capital to the full.

CC create and sustain the ability to meet the CSF (Critical Success Factors) of

particular customer groups better than other provides in ways that are difficult to

imitate.

CSF: are characteristics of your market offering or organization that are particularly

valued by customers and will be used by these customers to distinguish between

different providers of goods and services. They also can represent standards or

minimum expectations from your market offering.

I.e. of CSF: if you decide to open a company in competitive courier market, CSF

would be: ability to deliver to expected times, customer tracking capability, ability to

constantly attain/exceed customers expected service level.

CC enables a firm to gain long term competitive advantage in the marketplace CC lead to levels of performance that are better than competitors

CC are difficult to imitate by competitors

CC should be long lasting and relate to hum intellectual capital

2. External Environment (PEST/PESTLE):

Johnson and Scholes outlined 3 key steps in analyzing the environment in which an

organization operates:



Step one: auditing environmental influences involves identifying the

environmental influences which have affected the organization’s development

and performance in the past and trying to identify those that will be significant in

the future

Step two: assess how uncertain the environment is in which the organization isoperating. If the environment is fairly static then a historical and present analysis

will be useful. However if the environment is dynamic then a more future

oriented analysis is required

Carry out an explicit analysis of particular environmental influences. A structural

analysis should identify the key forces at work

PEST analysis is concerned with auditing the external environment in which the

organization operates to identify the key changes that are taking place. key changes

that will influence the organization in the future.

3. Competitive Environment (Porter’s Five Forces Model):

Value Chain:

The value chain for an organization is the structured set of activities that achieve the

objectives of that organization, ultimately satisfying customer needs.

In order to better understand the activities through which a firm develops a

competitive advantage and create shareholder value, it is useful to separate the

business system into a series of value generating activities (VC). Porter introduced a

generic value chain model that comprises a sequence of activities found to be

common to a wide range of firms. More details about VC:

http://www.netmba.com/strategy/value-

chain/ )

5 forces are:

Threat from potential new entrants

Threat from substitutes using different

technology

Bargaining power of customers

Bargaining power of suppliers

Competition among existing suppliers

http://www.netmba.com/strategy/value-chain/







An Environmental Evaluation:

Mangers have to identify particular forces and their likely trends through some form of

analysis. Miles has developed a continum framework fr evaluating environmental types, this

analysis consists of the following questions:

How complex is the enviornment? How

many different environmental forces impact

on the environment?

How routine are the organziational

interactiosn with environmental parties?

How interconnected and how remote,

initially are significant environmental

variables?

How dynamic and how unprecitavle are the

changes taking place around the organzation

How high is input and output recptivty? How do environmental forces affect inputs

(suppliers) and outputs (customers)

How high is flexibility of domain choice? Can your organziation develop new areas of

operation or is itt restricted in some way?

Setting objectives:

In producing the vision and mision statement of an organzaition, the who , what and where

questions are answered. To successfully chart the organziation’s future, managers must

know where the firm is now, have a clear view of where it ought to be headed and recognizewhen the time is right to shift to a new business direction.

Purpose of setting objectives:

Convert the mission statement into performance targets

Create a yardsyick to track perfromance

Establish perfromance goals that require some degree f stretch

Push the organzation to be invetive, international and focused

Types of objectives:

1. Finacial objectives: relate to improving an organziations’ finacial perfromance, i.e.:

increase earnings growth to a higher percentage, boost return on equity to a higher

figure, attain lower overall costs than rivals, better organziations’ market share

2. Strategic objectives: stregic objectives relate to greater competitiveness and achieving a

stronger long term market position i.e. protect and strengthen products position as

market leader, achieve technological superiority, direct and manager the organziation’s

international business as it continues to develop

Crafting a strategy

This stratgey must show organziation how to:



Achieve desired strategic and financial objectives

Out compete rivals and win competitive advantage

Respond to changing industry and competitive conditions

Defend against threats to the organization’s well being

Achieve business growth

Crafting a successful strategy is an exercise in enterpreurship. There is a need for a degree of

risk taking, innovation and business creativity and keen eye for spotting martket

opportunities. It is essential to keep strategy fresh, timely, opportunistic and resposive to

changing conditions. Strategy must be strong enough to overpower rivals, yet flexible

enough to overcome obstacles. A well manged organziation must have an attractive stratgy

and demonstrate proficiency in its execution.

Implementation:

After identifying the startegy, organzation need to implement it. There might be a need toadapt the existing systems or design new ones. Business need to maintain control while

strategies are being implemented, ensuring that managers keep within their budgets.

Implementing strategies involve:

Creating smooth links between the way things are done and what it takes for

effective strategy execution

Excution strategy proficiently and efficiently

Producing exceelent results in a timly manner

Ensure strong unions between strategy amd organziational capabilities, rewardstructure, internal support systems and organziational culture. (more in unit 5)

None of the tasks of strategic management can even be considered as completely finished.

The process is one of the contiual development. Times and conditions change, events

unfold, more efficient methods are developed. Therefore to maintain the effective

mangement of strategies, mangers must constantly evaluate perfromance, monitor

situations and decide how well things are going and subsequently make necessary

adjustments i.e. redfine the business, rasie or lower perfromance objectives, improve stratgy

excution.

Unit 3 : Analysing the internal and external environment

3.1: External Environmental Factors:

Macro environmental analysis enhances strategic planning, it does so by raising

management awareness of the impact of external influences through industry and

market analysis. It acts as an early warning system. The larger the organization the

more it is necessary to conduct the analysis.

There are seven criteria for deciding the extent of macro environmental analysisrequired in any organization:



1. Does the external business environment influence capital allocation and the

decision making process

2. Have previous long range plans been scrapped because of unexpected

changes in the environment

3. Have there been unpleasant surprises in the environment4. Is competition growing in the industry

5. Is the business more market oriented and more concerned about the

ultimate customer

6. Do more and different kinds of external forces seem to be influencing

decisions and does there appear to be more interplay between them

7. Is management unhappy with past forecasting and planning efforts

External environmental influences fall into a number of categories including:

A. Industry situation: threats from other organizations i.e. new entrants. While in

other markets it may be difficult for new comers to enter the market because of

existing entry barriers (unit 4)

B. Economic and Cultural: changes in economic climate affect businesses i.e.

inflation, unemployment levels, economic growth rate, stage in business cycle.

As well influence of high technology on the organization culture, using

computers has led to major delayering and staff reduction.

C. Technological: technology is the fast changing environmental impact. Despite

the key impact of technology on most business it is unwise to assume that

technology is the answer to all problems nor that is always the way forward

D. International environment: we live in a large global market place, which is

rapidly being made smaller by competition and advances in technology, it is

essential for management to appreciate the global drivers as well as the

importance of local and regional differences, when formulating strategies.

An organization’s relationship with its stakeholders is influenced by two fundamental

issues:

The power of stakeholders; i.e. possession of resources such as suppliers,labour and the possible monopoly over such resources, authority such as

government or regulatory agencies, influence such as lobbying

The level of interest which is shown by stakeholders i.e. do they prefer to

adopt a distant approach in terms of organization’s development or are they

actively involved in the organization’s affairs

Greater knowledge of the position of key stakeholders leads to more focused

predictions and scenarios, it enables clearer strategies for managing the key

stakeholders to be formulated and implemented.



3.2: Internal Environmental Factors:

Internal factors are the one influence the strategy i.e. organizational culture.

The role of systems analysis in organizational context:

A system is a ‘thing’ with interrelated parts. Each part is conceived as

affecting the others and each depends upon the whole.

Systems have many layers so systems analysis can be done at any level, but

we need to be aware of the particular level and the system should be

understood (the system might be understood differently by different levels of

the organization)

One of the great advantages of undertaking a systems analysis as a group

activity is the development of the organizational system and its subsystems

System analysis help identify organizational perspectives on the internal

factors that impact strategy.

Organizational policy:

Any organization must have a primary purpose “a reason for being existing”

The mission statement of an organization should set out the purpose of a business.

And this mission statement should be refined to reflect any developed or enhanced

capabilities of the business.

The scope of an organization’s activities is defined through its strategy. The scope

relates to the extent of the market in which the company will sell or service, the

market segment. An important aspect of strategy is for a company to identify the

‘position’ held by their products and services in the marketplace; which can involve

an analysis of what customers feel about the products as compared to others. Such

positions come from the marketing practice of ‘positioning’ – put your brand into the

minds of customers (what does it mean to them).

The more efficient the organization becomes the more able it is to compete in the

marketplace.

Two key considerations when examining organizational efficiency:

Synergy: relates to a company ability to coordinate resources, capabilities and

competencies through different products, business units and services of the firm.

Value chain: an organization’s coordinated set f activities to satisfy the customer,

beginning with relationships with suppliers and procurement and going through

production, selling and marketing. Each link in the value chain must seek competitive

advantage either by creating lower cost or through differentiation.



Successful firm is the one that manages to build a strong value chain with effective

linkages between suppliers and the customers and end-users of the products.

Today in many mature industries merges and acquisitions are rife in the quest to

exploit synergies, improve business performance and gain competitive edge. But still

there are high risks associated with managers and acquisitions. (M&A:

http://www.thinkingmanagers.com/management/takeovers.php)

Structure:

The way in which an organization is organized will have a significant influence on

strategic thinking; some structures adopted today:

Function based: structure based on function, often found in large organization,

all a considerable degree of specialization in the respective departments.

Production, marketing and finance are all working toward achieving the strategic

aim but still communications and departmental inertia can combine with

excessive bureaucracy to slow down the implementation stage

Product or activity based: occurs in the retail industry where large diversified

companies often organize their business by grouping together different

functional staff who are involved in the production of the same product lines or

activities.

Geography based: organization by geographical area takes into account local

needs. While the structure enables good communication and the provision of

local needs, there is an inevitable duplication of resources potential difficulties

when maintain uniformity throughout the organization.

Customer based: it pay particular attention to market segmentation and

customer needs, whereas process based organizations rely on a much wider

ranging sequence of activities or processes, usually at other organizations.

Although this structure is similar in its operation to function based, there is

usually a lack of flexibility as the process receives and passes on work from to

other departments or businesses

The main issue for all these organizational structures is the need for effective

communication in the field of strategic management, the more complex the

structure, the more likely that the channels of communication will be potential

problem.

Communication:

The effectiveness of the communication of change can be determined by 3

questions:

Do informal communications tend to be more significant than formal?

http://www.thinkingmanagers.com/management/takeovers.php





Are there divisions in the organization between those who are in the know

and those who are not – and what are the effects of these divisions or lack of

them on effectiveness

Do the communication help people to understand the way ahead for the

organization

Culture:

Culture can be defined as: the deeper level of basic assumptions and beliefs that are

shared by members of an organization that operate unconsciously and that define in

a basic taken for granted fashion an organization’s view of itself and its environment.

It is evident that for a strategy to be successful there must be a blend of rational

logic together with considerations of culture; fit. If a strategy is dominated by either

of these extremes it is likely that what may be produced is either a cleaver strategythat will not tick or a cozy strategy that ignores the hard headed realities of the

business.

Culture is a key factor in the strategy formulation process and should not be

underestimated. It defines the way that people are chosen, developed, nurtured,

interrelated and rewarded. The culture may become so strong that it is best referred

to as an ideology that dominates all else.

Stakeholders:

External stakeholders include customers, suppliers, government, etc. and internal

ones are owners, managers, employees. The input and degree of influence of

stakeholders in the strategy process

should be taken into account. A

business needs entrepreneurial

activity for innovation and risk taking,

without these the organization would

not exist in the first place.

How the external environment

impacts the internal:

The response of an organization to external environment factors, is influenced by

four key dimensions:

a. Sensitivity to context: mangers are deeply aware of their own organization; its

market possibilities, internal resources, capabilities, how the organization behave

in relation to change. Each organizations has different history or tradition, this is

a matter of sensitivity to culture and capability.



b. The decision to be proactive or reactive to change is based on considering

possibilities and use of available resources to find workable solutions (emergent

approach). This implies a willingness to take actions without a clear sense of how

things are going to unfold in the future

c. Focus on outcomes: Managers are pragmatists, they are very concerned toensure results but are not too concerned about the means of achieving them.

This means that the decision of be proactive or not based on an assessment of

the outcomes from each stances.

d. Openness to uncertainty: mangers are thrown into situations in which they must

act quickly and without the confidence of certainty. As well the fashionable

emphasis of being proactive can give a false sense that all circumstances can be

anticipated.

Both internal and external environment mold an organization’s strategy. Inunderstanding these influences it is necessary to draw upon a variety of perspectives

from the chief executive to employees, customers and others who rely upon the

business.

Unit 4 : Strategy Choice Frameworks

4.1: Strategic Choice:

Many of the factors (internal and external) that strongly influence the strategy can

be out of the control of the organization but still the organization must study it andanalyze it in order to come to the right decisions on strategy. After identifying

mission and strategic objectives, and developed an understanding to the

environment, then there are probably several strategic directions that an

organization can pursue.

Three evaluation criteria help organization to choose the direction they want to

pursue to develop their competitive advantage (strategic decision choice): suitability,

feasibility and acceptability (Johnson & Scholes). There are several techniques that

can be used to test the strategic options.

Suitability: how well the strategy fits the situation identified? How well it

match the culture? Does it exploit the organization strength in pursuing

opportunities? Does it address the threats in marketplace?

Feasibility: is the strategy realistic and achievable in resource term? Does the

origination have the right skills, knowledge, experience, core competencies to

make this strategy workable? Does the organization have the financial

resources to see through this strategy.

Acceptability: can the organization get the ‘buy in’ and commitment of its

workforce in pursuing the strategy. Will the results of pursuing this strategy



will be acceptable to stakeholders. Management needs to be satisfied that

the risks associated with the strategy are acceptable.

When management invest time and effort in analyzing these area, the future

becomes more predictable and the organization is more likely to make the right

strategic choices.

The process of building strategy:

Increasingly line managers in organizations are being asked to think, plan, and

behave strategically, in business terms means a long term view of the role and

purpose of the department or function for which manager is responsible and

develop a strategic plan to get there. The central concern of building a strategy is to

create long term vision of where we want to be or what we would like to become

while testing whether this is feasible and practicable and finding out ways of gettingthere. Process:

1. Developing strategic purpose (the reason we are here)

2. Developing strategic intent (where we will fit in a future environment)

3. Analyzing (where we are now)

4. Planning what we have to do to get there (our strategic plan)

5. Planning how we are going to do it (our tactical plan)

Techniques and Options:

PEST/PESTLE analysis:

Can be also PESTLIED: it is a mean of exploring the future in a directed fashion by

simplifying the environment into a few important dimensions. It provide a measure

of intellectual discipline in forcing an organization to consider the environment along

these dimensions. It somehow considered simple compered to today’s highly

complex and interconnected world. One way to enhance PEST analysis is to include a

specific business dimension BPEST which ensures that suppliers, competitors and

shareholders are included. The business dimension encompasses market share,

failures, alternate products, new entrants, supplier influence and new suppliers.

Political: the political climate of the organization itself, the sphere of national

or local government that fall in

Economic: the expectations of the economy and the economic climate in

which it operates. The organization’s ability to respond to differing strategic

needs in any cycle becomes important.

Social factors: this covers the social trends affecting the organization I.e.

habits values…etc. and their effect on the organization, its products and

services



Technology: what will the impact of technology be on the organization, in the

products or services it will provide, in the internal processes and IT it will use

or in the way in which it approaches its markets

Legislation: the legislation affecting the organization

International: as the business is increasingly becoming global, competitorsare no longer just up the street, they could be half a world away. This global

effect need to be thought through

Environment: green issues are becoming important, they need to be

reviewed and their impact on the organization assessed

Demography: the trends affect the organization and must be assessed

Any strategy must focus on the future. Nowadays changes in the operating and

competitive environment are likely to be more radical, less predictable, happen

faster. Any strategic development exercise which does not take this a axiomatic islikely to flawed.

The formulation of strategy is concerned with matching the capabilities of an

organization to its environment. This is not a simple task and it gas lots of issues,

managers need to use their wisdom about their industry, its environment and what

are sensible responses to different situations.

Two key issues emerge from matching capabilities to environment:

1. Environment involves different influences, deciding which influence have or mayhave the most effect on the organization is not simple. An analysis of these

influences, their potential impact and their interactions is required, only then we

will get overall picture

2. Uncertainty: understanding the history of external influences on an organization

is problematic, it is also extremely difficulty to understand the likely future

influences

Dealing with uncertainty:

Coping with uncertainty is one of the key problems of SM, so an analysis must be

begin by asking:

How uncertain is the environment?

What are the reasons for that uncertainty?

How should the uncertainty be dealt with?

The environmental uncertainty increases with:

a. Environmental dynamism: the rate and frequency of changes being experienced.

It is the degree to which the environments of a company change and is measured



by the speed of customer demands and responses. The greater the speed of

change, the more dynamic the environment is

b. Environmental complexity: refers to the range of environmental activities that

are relevant to what an organization does i.e. different customer groups,

different suppliers. The greater the number of these, the greater is theenvironmental complexity being experienced.

Complexity may exist for a number of different reasons:

Diversity of the environmental influences faced by the organization

The amount of knowledge required to handle the environmental influences

faced

Level of interconnectedness of the environmental influences faced.

SWOT:

Strengths, weaknesses, opportunities and threats. The primary purpose of this tool is

to locate the organization in its operating environment and try to assess its internal

capabilities and vulnerabilities. Using SWOT after PEST session is a good way of

organizing all the data in an easier format to assimilate.

There is always confusion between strength and opportunity; strength are internal,

opportunities are environmental similarly; weaknesses are internal, threats are

environmental. S&W are within the organization control while O&T are not.

Advantage of SWOT analysis:

Enables organization to put shorter term plans together to consolidate

strengths and address weaknesses

Identifies areas for more research, analysis and idea generation about the

environmental factors of threats and opportunities

Helps in the development of a strategic plan that is consistent with your

resources and organizational capability

The competitive forces framework (Porter):

This model is used to channel thinking into five major areas from which competition

might potentially arise in the future. By focusing on those 5 areas we will be able to

estimate the probability of competitive threat, speculate on its nature as a result

formulate a strategic response.

Porter’s generic stratgies:

The assumption is that organization will seek to dominate a segment or segments of the

market through:



Differentiation: the organization pursues a strategy where it offers a product

or service which is unique compared with those of its competitors. It can be

achieved through a totally different product or the way which the product is

offered

Cost leadership: the organization enables itself to provide the product orservice at a cost less than any other competitive organization. The essence of

cost of leadership is not price but the ability the organization has to price

below competitors if and when it needs to.

Focus: the organization targets its products at a given sector of the market

with great accuracy and with a death capability and knowledge to support its

position in the sector. Focus can be cost focus or differentiation focus

Supporting the chosen strategy should also require developing the organization

internal capabilities and competencies. The problem many organization try to pursueall these 3 strategies together, which is a recipe of disaster and usually leads to poor

business performance and eventually failure. (Stuck in the Middle)

Strategy is particular to each organization, those with clearly defined unique

strategies are more likely to succeed long term.

Examples of Strategies in modern organizations:

Reducing cost base: many organization are aiming for a reduced cost base – a

leaner organization, less expensive to run and more productive or effective. Thethinking behind this is that in the event of a price war with competitors, the

organization has more flexibility to respond if its cost base is lower. As well it

could use the lower cost to initiate a price war and take out a competitor. As well

it can survive more in case of an unanticipated market downturn or margin

squeeze.

Improving quality: customers insist on improving quality, competitor pressures

pace quality improvement and the market is very unforgiving of quality failure or

disadvantageous comparison with competitors

Getting closer to the customer: customers are whimsical, fickle and not loyal, theability to anticipate this fickleness is a strategic strength. The ability to respond

fast to changing customer fashion and the ability to create customer fashion are

the powerful strategic attributes. Knowing the customer will enable the

organization to lead demand, create fashion and pre-empt competitors in

developing market niches and to fill them fast.

Short Cycle Times: keeping the cycle time short (i.e. time from conceiving the

product to hitting the market with it) is a way of keeping development cost

lower. Also the ability to enter the market with a new product before or very

shortly after competitors is also a key cost recover and profitability strategy.



Strategic partnerships: being able to add value (reduce cost) to product by

entering a mutually advantageous partnership provides an excellent increase in

capability.

Ability to change fast: some originations are better able to embrace change than

others. Being fast or able to learn fast are organizational competences of greatstrategic value. The learning organization, athletic organization, responsive

organization, creative organization; are all names for this strategic strength.

The value chain:

The value chain shows the broad categories of activity which go on in an

organization as it take in raw materials at one end, adds value through internal

processes, and delivers its products and services at the other end.

Inbound logistics covers everything the organization does to receive goods

and materials, to store them and to ready them for use

Operations covers all the internal activities and processes of the organization

as it produces its product or service.

Outbound logistics: has to do with the collection and storage of goods, and

their entry into the supply chain, the system which get the goods to

customers

Marketing and sales: addresses how the organization promotes and takes its

goods to the markets

Service: usually implies after sales support and maintenance



Organization infrastructure: covers the way the organization is structured,

managed, how it plans…etc.

Human resources management: covers the organization’s employment and

recruitment policies and practices

Technology research and development: deals with the plant and equipmentbut it also deals with the underlying technology research, it develops for its

particular needs

Procurement: deals with how and where it buys

The key value chain thinking are:

Each part of the internal processes of the organization can improve the

overall competitive advantage

The interrelationships or links between the activities of the organization can

be enhanced to improve competitive advantage

The interrelationships between the internal processes and the upstream

(suppliers) and the downstream (customer) can be examined to provide

competitive advantage

More about value chain (http://www.netmba.com/strategy/value-chain/)

Companies usually organized by functional units, increasingly cross functional

activities are replacing the traditional organizational silos. Part of what organizations

are trying to achieve by cross functionality is efficiencies in the value chain and abetter focus in strategic imperatives i.e. customer satisfaction.

Value chain is used to look for links to be established between various elements and

activities, links that can:

Enhance value i.e. improve the product at less cost

Reduce cost i.e. reduce waste, improve processes

Examples of the links within the value chain:

Building link between after sales servicing and research and design has

improved product reliability and repair cost

Tools that can help within the value chain analysis:

Enterprise resource planning: deals with radical revision of the information

systems within an organization and within its extended value system.

Process re-engineering: involves examination of internal processes within the

organization and seeks to eliminate redundancy, waste and duplication.

The nine specimen strategies (Kenichi Ohmae):







Ohmae’s strategy building processes place a higher priority on ‘what we are’ than on

‘what we might be’ (making aspiration more realistic). The model compares market

attractiveness against corporate strengths in defining strategic behavior.

Serious entry into market: high market attractiveness, low corporate strength –

would imply that the organization would have to invest in developing skills and

capabilities to serve the market well. It is likely be competing against competition

stronger than it is, to perform well it has to be ‘serious’

Grow effectively: high market attractiveness, medium corporate strength –

organizational behavior should be looking to expand selectively. Probably as

opportunity presented itself not necessarily in pursuit of market dominance

High market attractiveness, high corporate strength – competing will require

continuous product or service enhancement, continuous adding value, possibly

price wars etc. position in the market and profit from it must be protected.

Limited expansion or withdrawal: Medium market attractiveness, low corporate

strength – if not more promising opportunities exist elsewhere the organization

might stay in the market and grow opportunistically, if better opportunities exist

it might withdraw from this segment and deploy its resources more effectively

Expand selectively: medium market attractiveness, medium corporate strength –

like expansion into relatively low risk areas of the market

Maintain superiority: medium market attractiveness, high corporate strength –

the organization will maintain its presence, it will look to limit investment in the

market but try to improve profitability

Minimize loss: low market attractiveness, low corporate strength – corporate

behavior would involve minimum development or investment in the market or

the products/services supplied to it. The organization would have to be wary of incurring loss in continuing to service the market



Harvest: Low market attractiveness, medium corporate strength – getting as

much profit as possible out of the market with minimum investment.

Harvest in a limited manner: low market attractiveness, high corporate strengths

– the corporation would protects its profitability even at the cost of market

share. It would not seek to lose ground in the market but it would not defend itsposition if cost were involved

The major use of this model is to plot your own organization’s positions and then

reflect on the appropriateness of the strategic behavior you are evincing in the light

of your plot.

The Ansoff Matrix:

The primary purpose of this model is to analyze the organization’s approaches to its

products and to its markets to ensurethat an appropriate marketing strategy is

being pursued and possibly to reveal

opportunities. It also assesses the risks

involved in pursuing given strategies and

consideration of synergy which might

exist on both the product and the

market axes.

Market penetration: this strategy looks in increasing its product’s share of themarket currently served by the organization. i.e. more purchasing and usage

from existing customers, new products are added to the existing product line

also gain customers from competitors

Product development: either product modification via new features, different

quality levels, or offering new products

Market development: offering existing company products to new markets, either

through new market segments, new distribution channels, r new geographical

areas

Diversification: looking at entering new areas of the business

While the benefit of this model lies in examining strategic product/market strategy,

it also value in causing long term evaluation of markets, revealing the potential

opportunities for product synergy and for market synergy and focusing on

competitor activity

Market Leadership:



If a company pursues a strategy of market leadership, it is trying to get a position

where competing companies are always playing catch up. Market leaders should not

only enjoy higher sales but also higher profit.

Survival:

Survival can be described in terms of the avoidance of loss, it may be short or long

term. In short term it can be a strategy pursued due to difficult market conditions.

Merges and Acquisitions

Merging or acquiring another company can often be an attractive proposition for a

company strategy wise. Either to build on core competencies or to buy in required

core competencies to meet the demands of a changed external environment, a

company pursuing this kind of strategy will be looking to gain advantage in the

market place.

Business redefinition

4.2: Evaluation Models:

Using Ansoff Matrix in conjunction with BCG matrix, the organization can conduct a

useful strategic review of production/market strategy and what that implies for

achieving the organization’s vision.

The BCG Matrix:

Its primary purpose is to analyze the

organization’s product portfolio, the purpose of

doing so is to be certain that the organization’s

strategic behavior is consistent with the

positioning and expectations of its products

within its markets. This model illuminate the

need for product or market development and

so an organization can use switch between BCGand Ansoff to help build its strategy

1. Stars: products that are perfroming well which means they are generating

positive cash and their cost of manufacture is falling bevuase of scale. These

products will usually require continous update to maintain their market share.

The organziational task is to manage theree variables; share, margin and overall

revenue.

2. Problems: products whih are not perfroming, they are achieving a low share of

growing markets, they are probably not generaying suffiecient cash to maintain



them in their markets. Decision have to be taken to whether to intesify

investment or withdraw.

3. Cahs Cows: products which are perforoming well in markets which are growing

slowely or static, probably generating more money than cen be prfitability

invested in them. Unit costs are at least static, margins are steady.4. Dogs: low market share in markets which are grwoing slowely or static. They may

be consuimng more resources to maintin their avilablity than they can generate

to sustain. Decsions will be needed as to what to do about them.

If Nine Specimen startgies and Ansoffs matrix provide a check against the

organziation’s stratgic behaviour then the BCG has great value in determining the

startgic allocation of resources.

The critisim fro BCG arise from the difficulties associated with taking accurate

measnurment of market share and market gwoth rates

Directional policy matrix:

This strategy was developed to overcome this critisism of the BCG.

The two axes used for the chart are

buisness stregth and market

attractiveness. Business strength has to

be considered in relative terms, when

compared to your main competitors.

Market attractiveness can be measured

in terms of criteria that determine the

future profitablity and/or heakth of the practical buisness. How market

attractiveness and business stremgth are measured must be related to the

circumstances of each individual company being considered and the industry in

which it is operating.

Market attractivess is measued along the following paratmeters:

Market factors: size, growth rate, seasonality, bargaining power of buyers

Competiton: type, number, ease of entry to the market

Financial and economic: margins, possible econmic of scale

Technological: required technology, complexity

Socio-political: human factors, social attitudes and trends

Business stengths are measured using other criteria:

They will be determined by weighthing critical success fators: product, price, service,

image.



Market Dynamica model:

A further way to analyse the competitive environment is by using the market

dynamics model

GAP Analysis:

GAP analysis is used to identify the

startgic direction for an organziation,

it take into account the capabilities

of the business together with the

opportunities in the marketplace.

It is very simple technique to

compare customers’ purchase

criteria with other suppliers

Product life cycle:

All products whether successful or

not, have a fairly typical pattern of

performance, although the order of

the performance and the time scale

over which the pattern emerges can

differ radically. Looking at the

product life cycle helps us to assess

the stage where the product’s life is

at and to predict its future

performance which helps in taking

strategic decision as to what need to be done with the product/market/resources

etc. these stages are:



1. Below zero, is stage prior to the launch (introduction) at this stagy companies are

spending more on product development, marketing , publicity…etc.

2. Introduction: where revenues start to build, as the revenues start rolling the

development cost will start to recover.

3. Growth: product enters this stage when it starts selling more units; generatemore revenue and winning market share.

4. Maturity: the product attains the maximum market share, revenue and margin it

will achieve in its life

5. Decline: usually maturity is followed by a decline where product is either

supplanted by competitors or market saturation.

Plainly the pattern of the product left cycle changes from product to another but

phases are fairly predictable. The strategic use of the life cycle concept revolves

around the decisions the organization takes to influence the cycle.

Product Breakeven Analysis:

This model seeks to determine when the

organization starts to get a payback on a

new product.

The difference between the cost at

which the product is sold and what it

costs to make and sell is called margin.

Breakeven occurs when the margin

generated by the sale of the product is

equal to cost.

Breakeven analysis is primary financial

model used for number of reasons:

1. To determine cash flow requirements – how long to recover development costs

2. To determine resource allocation – products which reach breakeven sooner may

more attractive to the company than products which generate higher profit butbreakeven later

3. To balance the product portfolio in relation to cash needed to operate

4. To help choose between competing product opportunities

This model reveals hard facts about the financial performance of products and can

reveal new insights into existing strategy

The Seven S model:



This model describe an

organization as an

interconnected series of

elements: Strategy,

Structure, System (those 3are hard Ss), Superordinate

goals, Style, Skills, Staff

(those are soft Ss). The

seven Ss need to be in

harmony when adopting

strategic change.

1. Superordinate goals (Shared values): represent the aspiration of the

organization, the beliefs, principles and am which should pull it toward success.2. Strategy: is the plan the organization has developed to achieve its long term

intention, how it will cope with its environment, how it will deal with

competitors, the markets in which it will compete.

3. Structure: the way the organization is built, its operating divisions, its decision

making mechanisms, its planning processes, etc.

4. Systems: the internal processes the organization uses to do what it has to do.

5. Style: (Culture), the belief system the employees have of what is rewarded n this

organization, what gets punished, what the organization is tough about and what

is lenient about. It is the reflection of the behavior of people within theorganization, especially senior people

6. Staff: the human resources of the organization; its ability, competencies, how it

is can or be developed, also deals with HR policies

7. Skills: this really describes what the organization is especially good at. It should

not be confused with the skills of the staff

Some elements are of course more effective in changing the organization than

others, change the strategy and it will not be noticed, change the system to better

support the strategy and it will

Core Competencies:

CC is not a model it’s a concept. The strengthening them is a major driver in

corporate strategies, they are driver for acquisitions sometimes.

CC are those capabilities that are critical to the business. They provide potential

access to a wide variety of markets, they make significant contribution to the

perceived customer benefits of the end product/service. They are difficult for

competitors to imitate.



CC are a blend of skills, knowledge, experience, technological, systems, expertise

…etc. which are the core of organization’s success.

Access to competencies is being able to procure, buying, rent or hire the

competence one might need to carry out one’s business activities. While core

competencies are ones that provide competitive edge, it give the organization its

unique capability, they should be developed and nurtured and not be put at risk,

they form strategic assets of the company.

PIMS Model:

Profit Impact of Market Strategy; is a collective database originating from research

carried out by GE in US, it gathered data from member firms about market share,

profitability and a variety of other variables that might be expected to influence the

profit.

The two main issues with this model is that it accepts firm own segment definitions,

which may mot correctly describe business segmentation and it does not pay enough

attention to relative market share.

Opportunity/Vulnerability Matrix:

Developed from BCG matrix. It set out to prove

that it should be possible to produce a normative

curve to investigate average segment profitability.

It shows the relationship between return on

capital employed and relative market share,

leading to a normative band in a convenient

banana shaped curve.

Unit 5 : Strategy Implementation

5.1: Implementation:

Today many companies fail not because of poor strategy formulation but because of

poor strategy execution. We must monitor and control strategic activities to ensure

strategy implementation is proceeding to plan.

Implementation is truing the ideas into operational reality. If strategy cannot be

implemented then strategy development is a pointless exercise.



Without effective measures to ensure that the chosen strategy is implemented

properly, the entire management of strategic development is wasted “A strategy is

only as good as its implementation”.

Strategy should be seen as dual process: the formulation process (usually carried out

by senior person/team) and implementation where all levels are involved ensuring

that the strategy is implemented correctly and in the right order.

Many companies fail to truly motivate their people to work with enthusiasm all

together towards the corporate aims. Sometimes organizations struggle to translate

the theory into action plans that will enable the strategy to be successfully

implemented and sustained. Most companies have strategies but far fewer achieve

them.

Strategy realization essential elements:

1. Motivational leadership: concentrates on achieving sustained performance

through personal growth, values-based leadership and planning that recognizes

human dynamics. Real leadership is required to compete effectively and deliver

growth. Leadership is the common thread which turns through the entire process

of translating strategy into results and is the key to engaging the hearts and

minds of the people. Effective leadership will make a difference in engaging

people to drive the strategy into action process or performance managing the

resulting actions.

2. Turning strategy into action: linking identified performance factors with strategic

initiatives and projects designed to develop and optimize departmental and

individual activities. The ultimate goal is to enable organizations to effectively

translate strategic intent all the way through to results in a clear and powerful

process. Brining the strategy to life by creating integrated action plans across an

organization that ensure all functions and divisions are aligned behind it.

3. Performance Management: involving the construction of organizational

processes and capabilities necessary to achieve performance through people

delivering results. To make the strategy live, everyone in the organization needsto be engaged to take action. PM is a key factor in getting the whole organization

aligned and mobilized.

More: http://www.businessballs.com/businessstrategyimplementation.htm

http://www.businessballs.com/businessstrategyimplementation.htm






Strategic plans to operational reality:

The corporate strategy for a business is

constructed as the guiding document for the

whole organization from highest level strategic

plan to plans need to be constructed for each

BU and for individual product markets, where

the strategy is broken down to lower level tasks

and plans.

Whether in departments, functions, BUs, the

idea is that staff will be working together to

meet objectives, targets, plans policies,

procedures and programs that will direct their

roles and actions. The process and activities

associated with the translation of corporate

strategy into action plans is a complex and

dynamic process. It should be seen as adaptive

process, reacting to changes seen within the internal organization and the broader

external environment.

Effective implementation of strategy:

It is evident that an organization will only effectively implement strategy if the

strategies are appropriate: appropriate to actual organization, their stakeholders,

environment, resources, capabilities and competences. As well the organization

should establish whether the proposed strategy is:

Suitable: whether the strategy fits the situation the business finds itself in.

PEST and SWOT assist in this situation. Also whether the strategy represents

effective use of the organization’s resources. Is the strategy suitable in terms

of offering a way to meet the objectives.

Acceptable: how the strategy fits with the organization in terms of the risk

involved and whether the plan is likely to be acceptable to all stakeholders in

the business.

Feasible: is the strategy working in practice. Whether the resources and

capabilities of the company are adequate.

Resources and capabilities are vital to the feasibility of any strategy, those questions

should be asked:

Is adequate finance available?

Are the core competencies that make up the organizational capability available?



If the core competencies are not available, can they be developed quickly

enough? Can the organization gain access to them?

Are the product output levels intimated by the strategy achievable and

sustainable for the lifetime of the strategy?

Does the company have adequate management/sales/marketing resources tocope with competitor reactions to the strategy proposed?

Will the organization be able to achieve the levels of profit, sales, share of

market that indicated in the plan? Does it have resources?

Conditions for perfect strategy implementation:

Adequate time and sufficient resources are made available

The required combination of resources is actually available

The policy implemented is based on a valid theory of cause and effect

The relationship between cause and effect is direct and there are only few

intervening links

Dependency relationships are minimal

There is understanding of an agreement on objectives

Tasks are fully specified in correct sequence

Perfect communication and coordination

Those in authority can demand ad obtain perfect compliance

The strategy Document:

Deciding on the deliverables of the strategic management process is dependent on

organizational circumstances, it may include presentations, workshops, education,

training, methodology, steering committee, a strategy document. The content of a

strategy document will vary from sector to another

Resource allocation:

In allocating resources, the organization needs to determine its approach in a

number of areas:

Level of resources required and how the performance of these resources will be

measured

Availability of resources at any one time

Scheduling of resources over a period of time

Resource allocation to strategic actions need to be sees as a balance of efficiencies

and effectiveness. An organization needs to make strategic choices based on the

relative costs and benefits attached to the various resources available for a project at

any one time. The returns to be made on the financial investments afforded to each

task should also be worked out.



Johnson and Scholes outline the two most important factors that should be used in

determining the approach to be taken for resource allocation:

1. The degree of change required in the resource base for strategy to be

implemented successfully – this may involve an overall change in the quantity of

total resources required by the organization, or it may involve a reallocation

between different resource uses with organization

2. The extent of central direction of the allocation process i.e. what extent the

allocation process is determined by the center of the organization or by

individual units within the organization

3. What resource will a strategy require for it its implementation – resource

identification

4. To what extent do these required resources build on or a change from existing

resources – Fit with existing resources5. Can the required resources be integrated with each other – Fit between the

required resources

It is at the operational level where mush of the implementation of a company’s

chosen strategic direction will take place.

Resource planning needs to include certain key actions:

The definition of the key tasks that need to be performed

Prioritizing the tasks – in what order do the actions need to be carried out?

The allocation of responsibilities as outlined in the defining and prioritizing

stages

The setting out of the action plan – based on a sequence of actions, as well as

the timelines and specific individual and team responsibilities for

implementing the actions

Types of resources:

1. Finance:

Finance is a key resource requirement of any strategy. In most organizations

financial objectives serve as the acid test of business performance. Generally the

company will use budgeting as a method of resource allocation, budgets will be

expresses and allocated in a variety of ways: units of production, employment costs,

administration expenses, sales values, sales volumes, overhead expenses.

When an organization introduces a new strategy, this may entail the allocation of

new budgets to the different levels of the firm. Whatever the changes being made,

financial resourcing is all about ensuring the finance of the business is allocated

effectively to ensure the safety is effectively implemented.



Most private sectors will allocate financial resources on the basis of the key

profitability objective. Different teams and functions involved in the strategic

implementation will need to fight it out to ensure they get an adequate financial

allocation.

2. Human Resources:

HR function should play key part in resource planning at every stage of strategy

implementation. The role of HR planning is to ensure that the organization has the

right number of staff going forward, in addition to ensure the necessary skills and

experience are in place to enable the strategic objectives to be met. The purpose of

HR planning is to the manage the process whereby people enter, move through and

leave business organizations in accordance with the overall objectives of the

business.

There are number of key elements involved in creating the HR resource plan:

- Generating a forecast of the future staff requirements

- Estimating any shortfall in supply, and developing a plan to bring in the

additional identified resources

Identifying staff that could be more effectively used in the future and identifying

ways to develop these staff to meet the future needs of the business. The HR remit

should include taking a strategic view of the organization of work in the company

and the organization of staff and management to deliver work effectively. A key

emphasis in this should be to ensure the most applicable management controls are

built in so that staff effectiveness can be measured.

3. Materials:

Many organizations rely on the use of materials in order to operate, it is crucial for

an organization to have an effective material resources management strategy. This is

known as supply chain management.

Effective material resources should include:

- Effective logistics

- Effective and efficient physical handling approaches

- Effective stock holding policies with JIT offering advantages to many

organizations

- Management of the value chain for the organization

Strategy is as dependent on the operations function for effective implementation as

operations is dependent on top management for making correct strategic choices.

4. Time:



Druker refers to time as being one of the primary features of strategy

implementation: “Management has to always consider both the present and the

long range future. A management problem is not solved if immediate profits are

purchased by endangering the long range profitability, perhaps even the survival of

the company.”

Time needs to be well organized and successful managers have been shown to be

expert time as well as people and task managers. These managers are able to

concentrate their focus on the task in hand and to organize their time in such a way

that all activities get done in prioritized order.

Time wasters:

- Failure to focus on key tasks – the things that really matter

- Failure to plan ahead- Failure to delegate

- Failure to make decisions or making snap decisions without enough information

- Failure to set realistic standards

- Trying to do too much

- Failure to control meetings

- Failure to control paperwork – reading too much of it or being inefficient

- Failure to control interruptions

- Crises: reactive management

Time wasters due to personal circumstances:

- Failure to communicate clearly

- Failure to listen

- Putting off things you don’t like

- Being sloppy or making carless mistakes

- Being too much of a perfectionist

- Talking before thinking and talking too much

- Saying yes when you ought to say no

- Lack of concentration

- Fatigue and poor health

- Overlong breaks or no breaks at all

Deciding priorities:

One method of determining high

priority activities and medium low

priority activities is to use a set of



indicators to single out the high priority ones.

High priority activities: help achieve objectives, maintain or improve staff

performance, provide information to aid the management of the business. They

should be tackled first. Once started we must stay on high priority tasks until

completed

Medium and high priority activities: these are the one that should be delegated, if

we must be involved we need to set sometime limits for each of these activities.

5. Project Management:

A project team is made up of individuals who have certain skills and experience that

can be utilized to deliver specific objectives within the overall strategy. They can be

positioned at any level of the business. Project teams are generally temporary in

nature; assembled to achieve a particular objectives, over a given time and against

an agreed budget.

Project teams represent a way to achieve the buy in of people within the

organization to the vision, mission and corporate objectives. It allows staff within the

organization to see the contribution they are making to the overall success of the

business. With any project team it is critical to ensure that the integration and

contribution are developed and delivered. Internal politics and individual agendas

need to be avoided if a team is to deliver the required results.

(http://www.businessballs.com/project.htm)

A clear definition of role, responsibilities and objectives of the role are essential. This

is essential to assess the performance of the teams and individuals as well. It is

important for individuals to be empowered to make a difference, this difference

comes from being given the opportunity to generate new ideas and suggest changes

that will benefit the business and develop the strategy proposed. It is suggested that

allowing individuals and teams to develop new working practices and processes not

only enable a strategy to be implemented but also enable the lower levels in an

organization to develop ideas that can adapt or change the future strategies

developed by the business.

Accountability is key when it comes to assessing the performance of people within

an organization. Objectives are necessary to ensure team don’t follow their own

agenda and hat everyone pulls in the same direction, ways to do this include:

- Clear definition of the project’s scope and objectives

- Setting budgets – with targets levied on individuals and teams

- Timelines for achievements of specific objectives – to guide a project to a naturalconclusion through a series of actions

http://www.businessballs.com/project.htm






Implementation of strategy relies on people, people at every level of the

organization, whether through individual or team effort. Project management plays

a key role in mobilising people in the same direction and focusing them on strategic

goals.

6. Management of change:

The management of change requires an appreciation of the characteristics of

change:

a. Change will occur, is it planned or random

b. Many people find change threatening therefore they cling (stick) to the old

known ways to avoid uncertainty and change

c. Change need to be managed

Managing change require clear understanding of the context in which we are to

manage, we need to know the organization’s culture, underlying values,

behaviours and basic assumption which are taken as natural by its members. And

also to avoid barriers to change which arise when:

- People see changes as a threat to their objectives and preferences

- When people affected are not fully aware of the reasons and implications

- When particular policies, behaviour patterns and ways of doing things have been

established and accepted for a long time and have become part of the culture- Where people feel comfortable with the status quo and fear the unknown

- Where flaws are perceived in the change proposals

7. Internal communication:

Clear communication of ideas helps people to see the need and logic for change.

Understanding about the future also allows people to worry less about specific

changes and helps them to think how they can contribute to the plan not fight it

To be successfully implemented, a strategy needs to be

effectively and efficiently communicated to all who will play

an active role in it will be affected by it. It’s also essential for

communication to flow freely from workforce back to senior

management (two way communication)



Communication serves to translate the objectives of a business into the details

needed to carry out the actual implementation of the strategy.

It’s not the strategy that brings success to a business but the implementation. Any

strategy need to be delivered effectively and in very large parts this will rely on the

stakeholders if the business as they are the ones who will deliver the strategy. Its

crucial to obtain their buy-in in every quarter. This buy-in can be achieved if the

stakeholders are able to completely understand the reasons and purpose behind the

strategy direction, timely and accurate communication is mandatory. The

stakeholders include:

- Management and other employees – people who will be implementing the

strategy

- Shareholders or other owners of the company

- Company’s customers

- Other publics

The significant communication in strategy implementation is employee involvement,

ranging from mangers putting in place a mechanism whereby employees are able to

put forward their ideas, through to the creation of a more formal role being set up

for employees to take part in the strategic decision making process of the firm.

Empowerment is often used to describe employee involvement.

Three key ways in which management can gain the support and commitment of the

workforce in strategic initiatives:

- Setting out the implications of the proposed strategy

- Creation of both awareness and understanding

- Ensuring reward systems and employees incentives are able to back up the new

strategy

To support employee involvement in the strategic direction of the firm, companies

should use innovation and creativity.

It’s not strategy that brings success to a business but the implementation of the

strategy. Communication with stakeholders is key to successful implementation

5.2: Strategic Control and Justification:

Strategic Control:

Reporting and feedback systems:

Control is always an important function of the architecture of an organization as wellas in the case of strategy in order to determine whether objectives have been met



and to what degree and also to allow for appropriate

alterations to the strategy to be made in a timely way.

An adequate feedback system will allow an effective review of

the performance of the organization as controlled by different

levels. There are 3 levels of control within the organization:

strategic level management level – operational level.

Example by Johnson and Scholes; to move into a new overseas

market, strategic control will be by an overall budget,

management control by monitoring expenditures and

motivating employees, operational level by ensuring that routine tasks are properly

performed.

Performance review:

Evaluation and review needs to take place at each level of the organization and

should center around three keys areas:

- An assessment of the appropriateness of objectives set

- An assessment of the appropriateness of the plans put in place to achieve the

objectives.

- An assessment of the results obtained up to the time of the evaluation

In order to avoid conflict between those setting the strategy and those implementing

it while taking into account he business context during the evaluation; Runmlet

(1980) suggests that evaluation of strategy effectiveness should include examination

of the following:



- Consistency: all goals and policies of the strategy must be consistent

- Consonance: the strategy must represent and adaptive response to the external

environment and to the critical changes occurring within it

- Advantage: the strategy must provide for the creation and/or maintenance of a

competitive advantage in the selected area of activity- Feasibility: the strategy must neither overtax available resources nor create

unsolvable sub problems

MIS (management information system) can play a crucial role in accurate and timely

evaluation. GAP analysis can be used as an additional tool to measure the level of

desired performance for a business against the forecasted performance, it will

enable the company to see how the present and desired performance benchmarks

against the industry norm. GAP analysis allows a company to see where it is going if

it doesn’t bring in new strategies for the future.

Benchmarking:

A further way to deliver effective individual and team performance in the

organization is through the use of benchmarking. In this way organization can set

performance targets that match with the best in an industry. It involves an audit

being taken of a company’s performance and this being compared to other

competition in the industry. For any organization adopting benchmarking as a

performance diagnosis tool, there is a need to examine the best practices of other

businesses, this needs cooperation between what can often be seen to becompeting businesses.

Benchmarking and best practices are synergistic, benchmarking reveals the gaps and

best practices provides a means of closing the gap.

Total Quality Management:

Means the implementation of strategies, tactics and operational methods for

integrating practical quality control techniques with organizational cultures

conductive to the continuous improvement of quality. It focus on the totality of thesystem rather than individual parts, seeking to identify the causes of failure rather

the simple facts that failures have occurred.

http://www.thinkingmanagers.com/management/total-quality-management.php

Justification:

The purpose of a strategy is to identify where the organizaition is at the moment and

to help direct it towards the intended objective. Before proceeding to

implementation, management must check that its strategy has a realistic chance of success and fulfils a number of justification criteria.






Justification criteria:

- The business strategy must concur with the overall corporate objectives and

strategy so that the organization is truly pointing in the same direction.

- It must be designed to integrate all functions of the organization. Each function

will need to have a clear understanding of the future goals and how they will

affect each function

- The needs of the customer and the market must be fulfilled and satisfied

- The strategy must achieve its objectives in a simple and clear manner.

Unnecessary complexity will only increase the likelihood of strategic failure

- The cost of implementation must be adequately measured to ensure that there is

a financial benefit of the new strategy

- The strategic plan must address timing, legal implications, social responsibility

and feasibility

If the strategy can be justified, its implementation can move to the next stage. With

adequate control mechanisms, its stands every chance of achieving its objectives.

Module Summary

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