E3 – Enterprise Strategy 1.
STRATEGIC FORMULATION 1. 1 What is Strategy Strategy – Long term plan of how to achieve an orgs objectives and resources needed. 3 ways to achieve these goals •Design (how) pre-determined detailed focused plan •Ideas (where ideas come from) seizing opportunities as and when, new ideas exploited •Experience (Flexibility) plan changes and adapts based on experience of market, what works and what doesn’t. 1. Positioning Approaches to achieving the goal – (focus on how org can achieve a fit with its environment) •Rational Planning (The ‘Lens’ of Design) – detailed advance planning analysis and strategy formulation Strategic Planning Gap is the gap between where we are today and where we want to be at time X •Freewheeling Opportunism (The ‘Lens’ of IDEAS) – determining goals but resisting urge to plan how to achieve them oNo planning at all, lack of long term planning, oGrab opportunities as and when they arise, oUseful in creative organisations, e. g fashion designer, film maker, advertiser – need to grab the moment.
Mintzberg’s Theory of “Crafting Emergent Strategies” (The ‘Lens’ of Experience) – Formulation of a plan but includes ability to flex the plan, crafting into existing operations newly emerging opportunities and crafting out redundant intentions •Logical Incrementalism – no clear plan, feels its way forward through small incremental decisions – small growing entrepreneurial businesses. 1. 3 Resource Based Approaches (focus on an organisations’ internal competencies) Johnson, Scholes & Whittington: •Strategic Capability – resources and competencies needed to survive •Tangible Resources – physical assets Intangible Resources – non-physical assets •Competencies – activities and process org deploys •Threshold Competencies – what org needs to compete in market •Threshold Resources and Competencies – needed to meet customer expectations •Unique Resources and Core Competencies – underpin competitiveness and hard to imitate 1. 4 The role of directors in strategy setting 5 elements of corporate governance5 types of decision oCEO & MD/Chair are separateoBranding decisions o? of board are NED’soDividend policy decisions oConstructive dialogue with shareholdersoInvestment the org makes oRemuneration CommitteeoMergers & Acquisitions Internal Audit CommitteeoProducts 2. CORPORATE OBJECTIVES & STAKEHOLDERS 2. 1 The concept of Corporate Mission –Mission Statements are formal documents which state org’s mission.
Lynch – criteria to judge effectiveness of a corporate mission statement: •Specific enough to impact upon individuals behaviour •Reflect distinctive advantage of org •Realistic and attainable •Flexible to demands of a changing environment AdvDis Adv •Goal Congruence•Vague e. g recognised as worlds best company •Strategic Focus•Measurement of achievement e. g how to measure if you are the worlds best company? Communication with external stakeholders•Ignored – by senior management and staff 2.
2 Objective Setting – org must consider needs of all stakeholders, broad range of measures required, financial & non-financial Specific, Measurable, Attainable, Relevant, Time bound. 2. 3 Critical Success Factor (CSF) approach Johnson & Scholes “those components of strategy where the org must excel to outperform competition. Underpinned by competencies which ensure this success. CSF can be used as a basis for preparing resource plans” 6 Steps: •Identify CSF’s for the process Identify underpinning competencies required to gain competitive advantage •Ensure list of competencies sufficient to give competitive advantage •Develop performance standards – KPI’s •Ensure these cannot be copied •Monitor competitors and impact from the CSF’s KPI = measurement (BPP pass rates)CSF = Process (BPP quality of teaching, materials, etc) 2.
4 Stakeholders – Org must consider stakeholders in setting objectives Primary (contractually tied to e. g staff, suppliers) Secondary (any others impacted by a decision e. g public) •May exercise great power over org Org may be highly dependent on certain stakeholders •Stakeholder conflict should be avoided where possible Stakeholder Mapping – Mendelow’s Stakeholder Map Level of Interest LowHigh PowerLowMINIMAL EFFORT e. g Casual LabourKEEP INFORMED e. g Small local suppliers Core employeesHighKEEP SATISFIED e. g Government CustomersKEY PLAYERS e. g Key managers/Employees Main suppliers Can be used to: •Track the changing influences between stakeholders groups over time.
Can act as a trigger to change strategy •Assess the likely impact that a strategy will have on different stakeholder groups Aims to assess Whether stakeholder resistance is likely to inhibit success of the strategy •What policies or actions may ease the acceptance of the strategy 2. 5 Corporate Political Activity – Government will be “Kept Satisfied” for most businesses. Larger org’s may employ specialists to manage political relationships.
Activities may include: •Lobbying – dialogue with decision makers to help shape views •Election Funding – financial donations •Petitions – raising political and public awareness •Coalition Building – joining forces with competitions to increase collective influence on decision makers 2. Ethics in Business – rules and principles of behaviour. Org’s approach stems back to its mission. 2. 7 Corporate Social Responsibility (CSR) – approach taken to provide benefit to society. Degree to which CSR is embraced is dictated by views of management. •Strong View – company exists for benefit of all its stakeholders •Weak View – company exists to maximise wealth of its shareholders (dated view – detriment to customers and staff in long term will lose them and therefore profit etc. 2.
8 CIMA code of Ethics •Promote good behaviour among staff • Visibly rewarding those who follow and punishing those who don’t • Form of control.Objectivity, Professional competence & due care, Professional behaviour, Integrity, Confidentiality 3. ENVIONMENTAL UNCERTAINTY 3. 1 The Environment – everything which is beyond the org’s boundary Ansoff – “the firm is a creature of its environment, its resources, its income, its problems, its opportunities and its very survival are generated and conditioned by the environment” 3. 2 The role and scope of environmental analysis – Thorough & regular environmental analysis helps BOD as follows: •Identify opps & threats and track them over time •Org is open i. e not inwardly focused What competitors are doing – who & their good & bad bits •Assumptions – Rational Model 3 Models •PEST – Political, Economic, Social, Technological •5 Forces – Competitive, Buyer Power, Supplier Power, Threat of New Entrants, Threat of Substitutes •Diamond – e. g why Germans are good at cars, Japanese good at technology etc 3.
3 Environmental Uncertainty – Complexity and dynamism of org’s enviro creates uncertainty, may undermine strategic plans by challenging underlying assumptions. Uncertainty may affect org’s approach to formulating strategy by: •Planning horizons will be shortened Strategy may be more conservative (if static more risk can be taken) •Emergent strategies become more important •Info needs will increase •Pursue wider range of strategies 3. 4 Dealing with Uncertainty – in order to reduce impact of uncertainty following techniques may be deployed •Real Options – can be applied to strategic decision making in the following ways: oFollow on investments – initial NPV may be negative but give rise to further positive opps. These should be factored into the initial investment decision. oAbandon – initial investment high, followed by uncertain revenue streams option to abandon later may be valuable.May occur where market acceptance of new prod/serv is uncertain. oWait – choosing to wait before investment may allow for better info to become available.
Benefit of better decision making needs to be weighted against early cashflows forgone. •Forecasting oTime series analysis – identifying long term trends and seasonal variations oRegression analysis – looking for relationships via correlation statistics oEconometrics – application of economic variables to computer modelling oJury forecasts – advice sought from panel of experts Delphi method – anon experts responding to detailed questionnaires •Game Theory – argue that in addition to org’s own resources and general enviro its competitor reactions should be factored into strategic decision making. Determine which of following outcome is likely oWin – Win – adopt oLose – Win – avoid oLose – Lose – avoid Major assumption – competitors do not collude with each other or have knowledge of competitors’ strategies. •Scenario Planning – allows org to model outcomes for its enviro, based upon changing assumptions around key drivers for change about which there is high level of uncertainty.
Benefits include: oIdentification of key uncertainties allowing better planning around these oManagement are forced to look externally oInsight is provided into future of the industry, helping to shape strategy oOrg as a whole becomes more future orientated oFewer surprises will be encountered as more outcomes anticipated Steps involved oDefine scope of activities oIdentify major stakeholders oIdentify basic trends oConsider cause of trends and identify key uncertainties oConstruct initial scenarios oCheck consistency of scenarios oDevelop learning scenarios oIdentify research needs oDevelop models Formulate competitive strategies •Foresight – differs from forecasting, rather than trying to actually predict future, a range of possible outcomes are created based on analysis of current trends. Techniques include: oScenario planning oDelphi method oVisioning – development of desired but achievable future state for which strategy is created oRole Playing – similar to Delphi method but does not use experts •Problems – associated with any techniques used to deal with enviro uncertainty oOnly useful as far as we have info available oIs info perfect or imperfect? oAlways be subject to statistical error Forecasting relies on historic data – no guarantee same will happen again oDelphi – relies on opinion not fact 4. RESOURCE AUDIT 4.
1The resource audit – part of Rational Planning process that identifies and analyses internal strengths and weaknesses of an org.. This will form the basis of the Resource Based Approach to strategy 4. 2 The 9 M’s Model – main tool in a resource audit – checklist of areas to assess as strengths & weaknesses •Manpower – analysis of HR •Money – analysis of financial resources •Machinery – analysis of operational resources such as P&M •Materials – purchasing and supplier relationships Markets – Issues of marketing and distribution to customers •Management – corporate, tactical and operational stewardship of company •Methods – processes used to create outputs from inputs •Make Up – Org structure and culture •Management Information Systems – strategic use of IT and IS 4. 3 The Value Chain – Porter’s chain is a graphical representation of what a firm does to add value. Direct & Indirect processes.
Turn RM, non-current assets, manpower and capital info FG and profits. •Primary Activities oInbound Logistics (Automated warehousing, EDI with suppliers) oOperations (Flexible manufacturing) Outbound Logistics (Automated order processing) oMarketing & Sales (Telemarketing, EDI with customers) oService (Remote servicing, Computer scheduling of repairs) •Secondary Activities oFirm Infrastructure (Planning models) oTechnology Development (Computer-aided design, Electronic market research) oHuman Resource Management (Automated personnel scheduling) oProcurement (Online procurement) •Uses oHelps org identify and implement generic strategies oProvides framework for implementation of IT in the business oIdentifies duplicated / unnecessary activities Focuses management on adding value and hence profit enhancement •Criticisms oComplex to implement oHarder to apply to service companies oIgnores value networks (people who feed in upwards & downwards & ignores collaboration) oCosts may outweigh benefits The Value System – value system is connected to the value system Linkages in value system via integration of systems or collaboration may enable an org to generate additional competitive adv IT and the value chain – Porter & Miller re-visited model and stressed importance of using technologies to increase linkages.ERP systems will help this. Other applications: shown above in brackets.
Service Org’s – The Value Shop, recognises service org’s primary activities are different: •Problem acquisition and diagnosis – requiring marketing expertise – what is the problem? •Finding solutions – professionals and experts are deployed •Choice between solutions – consultation with the client required – why my service is better than others •Solution implementation – project management skills employed with client •Control and feedback – ensure effective implementation and to build experience 4. Supply chain management (SCM) – heavy reliance on external suppliers to ensure smooth flow of materials into org. Following aims are at the core of SCM: •Reduction in number of suppliers (bigger discount, larger economies of scale, less admin, better relations) •Reduction in customers served (economies of scale, lower admin, better retention & relations, fewer needs to meet) •Price and inventory co-ordination (avoid bottlenecks, manage customer requirement, JIT) •Linked computer systems (EDI, reduce costs, more efficient) •Joint logistics design (Increase efficiency, improve products, form strategic alliance with suppliers)Lean supply chain – Objective is the total elimination of waste in order to achieve competitive advantage. AdvantagesCriticisms •Reduced cost•Focusing on cost rather than quality •Improved quality leading to lower reworking and scrap costs•Lose flexibility – low stock, peak in demand – no slack •Reduced Inventories•Supplier lock in either contractually or electronically •Shorter lead times 4. The product life cycle (PLC) – description of the changing demand conditions for a product as well as being a strategic marketing tool its useful for internally assessing org at 3 levels: •Industry life cycle – analyse progress of industry as a whole •Brand life cycle – analyse state of a particular brand •Product life cycle – analyse state of a particular product 5 main stages: •Introduction e. g new technology i.
e 3D TV •Growth e. g Led or Plasma screen TV •Shakeout (other comp’s enter) •Maturity e. g widescreen TV •Decline e. g CRT old TV or VHS recorders (still some enthusiasts – Niche) Senile phase when cashflow goes negativeUsesCriticisms •Identify appropriate strategies in relation to existing prods•Real prods show much more complex behaviour •Identify need for successor prods•Cannot forecast using this technique •Ensure profit and cash flow balance within firm’s product portfolio•Stages are of very different lengths in different industries 4. 6 Boston consulting group matrix (BCG) – assess the internal balance of an org’s product portfolio Relative Market Share (own ms ? ms of strongest competitor) High >1Low 10% STARS QUESTION MARK / PROBLEM CHILD Low