STRATEGIC MANAGEMENT COURSE: BBA 410

LECTURE 1

1. COURSE OBJECTIVES

This course should prepare students on how to:

1. Evaluate the environment in which they are operating.

2. Develop and analyze strategic alternatives

3. Prepare strategic plans.

4. Implement the strategic plans and decisions

2. COURSE MODULE: Available in soft and hard copies. Students to ensure they get a copy.

3. COURSE SYLLABUS

1. Introduction to the Discipline of Strategic Management.

- Evolution of strategic management

- Major elements of strategic management

- Strategic leadership and decision-making.

- The characteristics of successful organisations

2. The Process and Practice of Strategic Management

- Levels of strategic management

- The strategic management process.

- Elements of the strategic management.

- Organisational planning process

3. Analysing the General Environment.

- The importance of environmental influences

- An analysis of the total business environment, the nature and consequences of industrial

and the technological changes.

- The economy

- Technology

- Social factors.

1
- Political and legal considerations

- The effect of market and industry structure.

- The product and market life circle.

4. Developing Strategic Options.

- Strategic decision making.

- Creating sustainable advantages.

- Evaluating the strategic situations.

- Developing and evaluating strategic alternatives

5. Developing the Strategic Plan

- Strategic decision support system.

- Strategic planning systems.

- Planning under risk and uncertainty

- Putting it all together

6. Strategic Implementation and Control

- Implementing strategic planning process

- Implementing strategic decisions

- Implementing strategic plans

- Strategy and structure relationships

- Social and political influence

- Strategic control

4. COURSE ASSESSMENT

The course grading shall have the following two components:

1. Continuous Assessment (CA = 40 %)

1.1. Assignment (1) – 10 %

1.2. Class Test (1) - 10 %

1.3. Mid Semester Examination (1) – 20%

2. Final Examination (1) - 60 %

REFERENCES

2
1. Arthur Thompson, “ Strategic Management” , McGraw-Hill Education, 2002

2. Ralph D. Stacey, “Strategic Management and Organisational Dynamics: The Challenge of Complexity”,
FT Prentice Hall, 2002

3. Thompson, Strickland, “ Readings in Strategic Management”, McGraw-Hill Education (ISE Editions),

2000

4. David Hussey, “Strategic Management: From Today to Implementation”, Butterworth-Heinemann, 1998

5. Robert Burgelman, Modesto A. Maidique, “Strategic Management of Technology and Innovation”,

McGraw- Hill Education (ISE Editions), 2003

6. Peter L. Wright, “Strategic Management: Concepts and Cases (International Edition)”, US Imports &
PHIPEs, 2002

7. Paul Finlay, “Art and Science of Strategic Management”, FT Prentice Hall, 2000

8. Michael A. Hitt, et al, “The Blackwell Handbook of Strategic Management (Blackwell Handbooks in
Management)”, Blackwell Publishers, 2001

9. Hugh Macmillan, Mahen Tampoe, “Strategic Management: Process, Content and Implementation”,
Oxford University Press, 2000

10. Michael J. Stahl, “Cases in Strategic Management: Instructor's Manual”, Blackwell Publishers, 1999

11. Jon Sutherland, Diane Canwell, “Key Concepts in Strategic Management (Palgrave Key Concepts),
Palgrave Macmillan, 2004

12. Lynch Richard, ‘‘Corporate Strategy’’, 2nd Edition, Financial Times – Prentice Hall, 2000

-------------------------------------------------------------------------------------------------------------------------------

Available in the UNILUS Library

1. De wit, Bob and Meyer, Ron. (2004). Strategy – Process, Content, Context. 3rd Edition, Thomson
Learning, London, UK.
2. Hill W.L. Jones G.R. (2001). Strategic Management Theory – An Integrated Approach. Houghton Mifflin
Company, Boston, MA, U.S.A.
3. Johnson G., Scholes, K.. Whittington, R., (2008). Exploring Corporate Strategy – Text and Cases. 8th
Edition, Dorling Kindersley (India) Pvt. Ltd., New Dheli, India.
4. Mintzberg H., Lampel J., Quinn J.B., Ghoshal S., (2003). The Strategy Process – Concepts, Contexts &
Cases. 4th Edition. Pearson Prentice Hall.

Further References
1. Porter, M.E., (2004). Competitive Strategy: Techniques for Analyzing Industries and Competitors.
1st Free Press Export Edition, Free Press, New York, USA.

CHAPTER 1

3
 STRATEGIC MANAGEMENT

1 Introduction to the Discipline of Strategic Management.

Class Exercise: - Definition of:

 Strategy : Plan of action for achieving organizational objectives (long term; advantage;
environment)

 Strategic Management!!....

‘‘Strategic Management is that set of managerial decisions and actions that determines the long-run
performance of a corporation.’’

Also involves the monitoring an evaluation of external opportunities and threats in light of a
corporation’s internal strengths and weaknesses.

1.1 The Evolution of Strategic Management

Originally called business policy.

Business policy, in contrast, has a general management orientation and tends primarily to look inward
with its concern for properly integrating the corporation’s many functional activities.

Strategic management, as a field of study, incorporates the integrative concerns of business policy with
a heavier environmental and strategic emphasis. Therefore, strategic management has tended to replace
business policy as the preferred name of the field.

1.1.1 The Historical Context of Strategy

Until the late 19th century, formal strategic management did not exist.

 Organizations that were not owned by the nation state were too small to be considered as
corporations.

 However, small artisan factories needed strategies to survive and prosper against competitors.

North America, Europe and Japan had begun to industrialize by the end of the 20th century. Other
countries mainly supplied commodities and raw materials to world markets.

4
Strategic management, which is principally associated with increased industrialization, first developed
in the industrialized countries.

Strategic Management in the early 20th Century

 USA and Europe, industry managers (rather than academics) began to explore and define the
management task.
 F.W. Taylor (USA) and Henry Fayol (France) were both industrialists who researched and wrote
on the issue.
 Henry Ford experimented with producing more cheaply and satisfy the growing market demand.
Between 1908 – 1915, he developed strategies some of which are still recognize today

Early Strategies Still Recognized Today

1. Henry Ford: 1908-1915

 Innovative technology

 Replacement of men by machines

 Search for new quality standards

 Constant cost-cutting through factory re-design

 Passing on the cost reductions in the form of reduced prices for the model T car

2. Alfred Sloan & Co: 1920 – 1935:

 Car models tailored for specific market niches

 Rapid model changes

 Structured management teams and reporting structures

 Separation of day-to-day management from the task of devising longer-term strategy

Henry Ford did not believe in major model variations and market segmentation, unlike his great rival
from the 1920s, General Motors headed by Alfred Sloan. Nor did Ford believe in the importance of
middle and senior management. He actually sacked many of his senior managers and ultimately left his
company in real difficulties when he died. Hence, his rival in the 1920s and beyond, General Motors, was
ultimately more successful with other strategies that still exist today.

5
First World War (1914 – 1918)

After the First World War came the great economic depression of the 1930s. This brought the need for a
new order in international currency and, just as importantly, the desire for larger companies to gain
economies of scale. However, much of this was confined to North America and competitive strategy itself
was still in its infancy.

Strategic Management in the mid-20th Century

 World War II: Demand for specialist military equipment,

 Strategic Game Theory grew from British naval tactics when hunting for German U-boats.

 North American Industrial power grew rapidly.

 Strategic Management Development began in earnest accompanied by reconstruction of industry across

Europe and the beginnings of the Asian development period (Japan).

 Writers such as Ansoff developed strategic management concepts that would continue into the 1970s.

 The Prescriptive Strategic Management Concept was developed (1960s)

 The Emergent Strategic Management Concept was also developed (1980s)

The same period witnessed two strategically important developments:

1. The accelerated rate of change: - Strategic management provided a way of taking advantage of new
opportunities.

2. The greater spread of wealth: - Strategic management needed to find ways of identifying the
opportunities provided by the spread of increasing wealth, especially in Europe.

Strategic Management into the 21st Century

 Major oil price rises due to increased world demand for energy

 Middle Eastern countries formed an oil price cartel.

 Past 20 years have seen further developments described briefly in Table 2.1.

6
OTHER TRENDS

 Free market competition.

 Increasing importance of Asia/Pacific markets.

 Globalization.

 Need to Empower and Involve employees in strategic decisions.

 Greater speed of technical change and the rise of new forms of communication.

 Increased emphasis on business ethics led to the collapse of some companies for ethical reasons.

e.g. Enron - USA

Developmental Phases of Strategic Management

 Initially strategic management was of most use to large corporations operating in multiple
industries.

 Today’s professional managers (in all organizations) have adopted strategic management to keep
their companies competitive in an increasingly volatile environment.

Phase 1: Basic Functional Planning:

Purpose: Annual Budgets & Projects
Planning horizon: 1 years

Phase 2: Forecast-Based Planning

Purpose/Nature: To augment annual plans and forecast future performance.
Adhoc & very political.
Planning Horizon: 3-5 Years

Phase 3. Externally-Oriented Planning (Strategic Planning)

Purpose/Nature: Responsiveness to changing markets & competition.
Planning Department established.
External Consultants engaged.
Minimum input
from lower levels.
Planning Horizon: 5 Years

Phase 4. Strategic Management (proper)

Purpose/Nature: Seeks input & participation from many org. levels & work groups.
Integrated plans incorporating evaluation and
control. Planning no longer a top down process.

7
 Planning Horizon: 5 years

Benefits of Strategic Management

 Clearer sense of strategic vision for the firm

 Sharper focus on what is strategically important

 Improved understanding of a rapidly changing environment

A Few Critical (Strategic) Questions:

1. Where is the organization now? (Not where do we hope it is!)

2. If no changes are made, where will the organization be in 1 year? 2 years? 5 years? 10 years? Are
the answers acceptable?

3. If the answers are not acceptable, what specific actions should management undertake? What are
the risks and benefits involved?

LECTURE 2:

8
1.2 MAJOR ELEMENTS OF STRATEGIC MANAGEMENT

Strategic management includes the following elements:

a. Environmental scanning (Internal & External)

b. Strategy formulation (Strategic or long-range planning)

c. Strategy implementation

d. Evaluation and control

Fig. 1.1: Basic Elements of the Strategic Management Process

1.2.1 ENVIRONMENTAL SCANNING

 Monitoring,
 Evaluation and
 Dissemination of information from the internal & External Environment to Key people in the
Corp.

Purpose: Identify strategic factors – Those elements that will determine the future of the
corporation. Tool: SWOT Analysis.

(SWOT = Strengths, Weaknesses, Opportunities and Threats)

SWOT ANALYSIS

1. External Environment – Threats & Opportunities

2. Internal Environment – Strengths & Weaknesses

THE EXTERNAL ENVIRONMENT – (Threats and Opportunities)

Consists of variables (opportunities and threats) that are outside the organization and NOT within the
short-run control of management. These variables form the Context within which the organization
exists.

9
Key Environmental Variables:

 General Forces and Trends within society (economic, technological, political-legal, socio-cultural
forces)

 Specific Factors to the Organization’s/ Industry (shareholders, suppliers, employees/labour

unions, competitors, trade associations, communities, creditors, customers, special interest
groups, governments).

THE INTERNAL ENVIRONMENT – (Strengths and Weaknesses)

Consists of variables (Strengths and Weaknesses) that are within the organization but not within the
short-run control of management. These variables form the context in which work is done.

Key Internal variables:

 Structure
 Culture and
 Resources.

Key strengths form a set of Core Competencies that the corporation can use to gain competitive
advantage.

Core Competency = Organization’s Central Value- Creating Capability.

1.2.2 STRATEGY FORMULATION

 Development of long-range plans for the effective management of opportunities and threats viz
corporate strengths and weaknesses.

 Includes defining the Corporate Mission, Vision & Objectives; developing strategies, and setting
policy guidelines.

Mission:

Mission is the purpose or reason for the organization’s existence. Spells out what the Organization is
providing to society in terms of Services or Products.

10
  Fundamental, Unique Purpose for existence
 Scope of Operations viz Products/Services & Markets Served.
 Philosophy about how it does business.
Vision

A vision or strategic intent is the desired future state of the Organization. It’s an aspiration that focuses
the energies of the CEO and other strategists.

Composite (Mission/Vision) Statement

 Tells who we are and what we do as well as what we’d like to become.

A mission may be defined narrowly or broadly in scope.

Objectives

 Results of planned activity

 State what is to be accomplished and when

 Quantified or Measurable.

The achievement of corporate objectives should result in the fulfillment of a corporation’s mission.

Example: Increase profits 10% over last year.

Objectives Areas:

 Profitability (e.g. net profits)

 Efficiency (e.g. low costs, etc.)

 Growth (e.g. increase in total assets, sales, etc.)

 Shareholder wealth (dividends plus stock price appreciation)

 Utilization of resources ( e.g. return on investment or equity)

 Reputation (being considered a “top” firm)

 Contributions to employees (employment security, wages, diversity)

 Contributions to society (taxes paid, participation in charities, providing a needed product or

service)

 Market leadership (market share)

 Technological leadership (innovations, creativity)

11
  Survival (avoiding bankruptcy)

 Personal needs of top management (using the firm for personal purposes, such as providing jobs
for relatives)

Goals

In contrast to an objective, a goal is an open-ended statement of what one wants to accomplish with no
quantification of what is to be achieved and no time criteria for completion.

Example: “Increased profitability” Does not state how much or when .

Fig. 1.2: Strategic Management Model

Strategies:

A strategy is a comprehensive master plan stating how the organization will achieve its mission and
objectives. It maximizes competitive advantages and minimizes dis-advantages

THE HIERARCHY OF STRATEGIES

A hierarchy of strategy is the grouping of strategy types by level in the organization.

Fig: Nesting of Strategies: 1. Operational; 2.Functional; 3. Business; 4. Corporate

4
3
2
1

This hierarchy of strategy is a nesting of one strategy within another so that they complement and
support one another.

12
  Operational strategies support functional strategies

 Functional strategies support business strategies

 Business strategies Support Corporate Strategies

The Four (4) Levels of Strategy:

1. Corporate Strategy

 Describes a company’s overall direction in terms of its general attitude toward growth and the
management of its various businesses and products.

(Corporate strategies typically fit within the 3 main categories of stability, growth and retrenchment.)

2. Business Level Strategy

 Occurs at the business unit or product level.

 Concerned with the firm’s competitive position in the specific industry or market segment
served by that business unit.

(Business strategies may fit within the 2 overall categories of Competitive or Cooperative strategies. E.g.
Differentiation, Cost Leadership and Focus; Alliances)

3. Functional Strategy

 Approach taken by a functional area (e.g. HR) to achieve corporate and business unit objectives
by maximizing resource productivity.

 Concerned with developing and nurturing a distinctive competence to provide a competitive

advantage.

Examples: R&D functional strategies are

 Technological followership (imitate the products of other companies) and

 Technological leadership (pioneer an innovation).

4. Operational Strategy

13
  Refers to how departmental and supervisory level managers intend to carry out the day to day,
fine details of functional area support strategies. The Logic of the operating-level strategy flows
directly from a higher order strategic requirement!!

(e.g Stores Unit within the Supply Department or Training within the Human Resources Dept.)

Notes

Business firms may use all 4 types of strategy simultaneously.

Some Firms use Implicit and not Stated Strategies

You can discern a firm’s strategy by observing management behavior not from mere statements!!!

Policies

 Broad guidelines for decision making

 Link the formulation of strategy with its implementation.

Companies use policies to make sure that employees throughout the firm make decisions and take
actions that support the firm’s mission, objectives and strategies.

Examples:

 Maytag Corporation: Maytag will not approve any cost reduction proposal if it reduces product
quality in any way. (This policy supports Maytag’s strategy for Maytag brands to compete on
quality rather than price).

 3M: Researchers should spend 15% of their time working on something other than their primary
project. (This supports 3M’s strong product development strategy)

 Intel: Cannibalize your product line (undercut the sales of your current products) with better
products before a competitor does it to you. (This supports Intel’s objective of market leadership).

 General Electric: GE must be number 1 or 2 wherever it competes. (This supports GE’s objective
to be number 1 in market capitalization).

 Nordstrom: A “no questions asked” merchandise return policy, because the customer is always
right. (This supports Nordstrom’s competitive strategy of differentiation through excellent
service)

Policies like these provide clear guidance to managers throughout the organization.

1.2.3 STRATEGY IMPLEMENTATION

14
  Process by which strategies and policies are put into action

 Tools - programs, budgets and procedures.

 Might involve changes within the overall culture, structure and/or management system of the
entire organization.

 Typically conducted by middle and lower level managers with review by top management.

 Often involves day-to-day decisions in resource allocation (Sometimes referred to as operational

planning)

Programs

A program is a statement of the activities or steps needed to accomplish a single-use plan. It makes the
strategy action oriented. It may involve restructuring the organization, changing the company’s internal
culture, or beginning a new research effort.

Standing Plans: (eg Policies) Used frequently & focus on organizational situations that occur repeatedly.

Single User Plans: (eg Budgets) Used only once, or couple of times & focus on unique or rare situations
within the organization.

Budgets

 A statement of a firm’s programs in monetary terms.

 Used in planning and control,

 Lists the detailed cost of each program.

Many organizations demand a certain percentage return on investment (ROI), often called a “hurdle rate”,
before management will approve a new program. This ensures that the new program will significantly add to
the corporation’s profit performance and thus build shareholder value. The budget thus not only serves as a
detailed plan of the new strategy in action, but also specifies through pro forma financial statements the
expected impact on the firm’s financial future.

Procedures (Standard Operating Procedures)

 System of sequential steps or techniques that describe in detail how a particular task or job is to
be done. (eg recruitment procedures)

 Details the various activities that must be carried out in order to complete the firm’s programs.

1.2.4 EVALUATION AND CONTROL

15
  Process by which corporate activities and performance results are monitored

 Actual performance is compared with desired performance.

 Managers at all levels use the information to take corrective action and resolve problems.

Although evaluation and control is the final major element of strategic management, it also can pinpoint
weaknesses in previously implemented strategic plans and thus stimulate the entire process to begin
again.

Performance

 End result of activities.

 Includes the actual outcomes of the strategic management process.

 Strategic Management process is justified because of its ability to improve an organization’s

performance ( e.g profits and ROI)

 For effectiveness, managers must obtain clear, timely and unbiased information

Using this information, managers compare what is actually happening with what was originally planned
in the formulation stage. The evaluation and control of performance completes the strategic
management model.

FEEDBACK/LEARNING PROCESS

 The SM model includes a feedback/learning process. Arrows are drawn coming out of each part
of the model and taking information to each of the previous parts of the model.

 As a firm develops strategies, it must go back to revise decisions made earlier.

 Poor performance may indicate wrong strategies (formulation or implementation)

 May also mean that a key variable, (new competitor), was overlooked (environmental scanning).

LECTURE 3

1.3 STRATEGIC LEADERSHIP.

16
1.3.1 What is Strategic Leadership??

 Ability to articulate a strategic vision for the organization and to motivate others to buy into
that vision… (Charismatic Leadership)

 Ability to shape decisions and deliver high value over time by inspiring others in the
organization…. (Instrumental/Transactional Leadership)

 Can exist at various levels of the Organization – depends on the ability to exert influence.

 May involve a fundamental re-appraisal of the company wrt:

 Product range,

 Cost cutting & employee numbers (Redundancy etc)

 Management Performance

 Fundamental Responsibilities:

 Coping with strategic changes in the external environment.

 Managing the human resources inside the organization – Key strategic skill.

 Inspiring and enthusing people with a clear direction for the future.

 Developing and delivering the purpose of the organization.

Fundamental Capabilities :

 Ability to Communicate with and listen to people inside the organization with the aim of:
Spreading knowledge,

Creating and innovating new ideas and;

Providing Solutions to problems.

 Make people within the organization:

Feel that they have made a contribution;

Willingly work for and follow the organizational strategic direction

 Think and act to develop the future leaders of the organization!!.(Not easy.. May require Board
involvement?!)

Fundamental Challenges

1. How to lead so that others willingly follow:

17
 People work better if decisions are not imposed from the top.

2. How to shape the organization’s culture and style:

Workplace Atmosphere is critical in delivering results.

3. How to structure and influence decision making in the organization:

Various groups will seek power and need to be managed successfully.

1.3.2 THE VALUE OF LEADERSHIP

 Leadership impacts organizational performance.

 Influence: - Towards the attainment of mission/objectives

 Directing/Guiding: - active involvement in driving Organizational purpose/vision/values etc

 Vision: - Ability to inspire the impossible; turning fiction into reality (Obama – Yes We Can)

 Personality

There is substantial anecdotal evidence to support the observation that the potential that leaders have for
influencing the overall direction of the company is considerable.

SOME AREAS OF CAUTION: (Researched)

 Run-away Leadership: - Leaders should reflect their followers and, may need to be good team
players if they are to effect change. Otherwise, they will not be followed.

 Eccentricity: - Vision can be eccentric, obsessed and not always logical.

 Over-rated: - It is possible to exaggerate the importance of individuals when they are leading
large and diverse groups that have strong company-political instincts.

These later features are important in the modern, complex consideration of strategic management.
Companies such as Phillip Morris, Royal Dutch/Shell and Toyota may all be more comfortable with a
corporate leader who is inclined to be evolutionary rather than revolutionary.

18
 1.3.3 LEADERSHIP THEORIES

Despite extensive research reaching back to the 1950s, there is no general agreement on leadership
analysis. There are many theories in leadership!!!

THREE MAIN THEORIES:

1. TRAIT THEORIES:-

People inherit certain qualities and traits that make them better suited to leadership. Thus,
Individuals with certain Traits can be identified who will provide leadership in virtually any
situation…

These Traits include: Intelligence; Self-Assurance; Visionary; Coming from a High Socio-
Economic Group; etc. (Class Discussion..)

HOWEVER….In recent times, such theories have been discredited because the evidence to
support them is inconsistent and clearly incomplete in its explanation of leadership.

2. STYLE (SITUATIONAL) THEORIES:

Individuals who possess a particular style of leadership can be identified as appropriate for a
given organization. Thus the choice of leadership is based upon situational variables.
Three Styles have been identified:

Authoritarian Leader:- Imposes his/her will from the centre

Democratic Leader: - Allows free debate before developing a solution.
Laissez Faire Leader : - Abdicates his leadership role and adopts a hands off attitude and
leaving all decision making to the various functional groups…

Example:
In a situation where the leader is the most knowledgeable and experienced member of a group, an
authoritarian style might be most appropriate. In other instances where group members are skilled
experts, a democratic style would be more effective..

Class Discussion: Authoritarian Vs Democratic Vs Laissez Faire Leadership Styles….

However, leadership is much more complex than the simplicities of style. For example, it needs to take
into account the varied relationships between leaders and subordinates, the politics of decision making in
the organization and the culture of the organization. Such theories have therefore been downplayed in
recent years.

3. CONTINGENCY THEORIES:

19
 According to this theory, no leadership style is best in all situations. Leaders should be appointed
according to the strategic issues facing the organization at that time and leaders need to be
changed as the situation itself changes.

Success depends upon a number of variables;

 Leadership style,

 Qualities of the followers and

 Aspects of the situation.

Thus the leader needs to be seen in relation to the group she will lead and the nature of the task to be
undertaken.

Class Discussion:

Q1: As individuals, what leadership category do u fall in??

Q2: From A Strategic Perspective, Which Of The Three Theories Is The Best??

-------------------------------------------------------------------------------------------------------------------------------

Strategically Relevant Leadership Theory

From a strategic perspective, the Contingency theory approach holds the most promise for two reasons.

 First, it best captures both the leader and the relationship with others in the organization.

 Second, it identifies clearly the importance of the strategic situation as being relevant to the
analysis of successful leadership.

Examples:

1.0 BEST FIT ANALYTICAL APPROACH:

Within contingency theory, the best-fit analytical approach is particularly useful:

Charles.B. Handy's "Best Fit" Approach

20
Handy (1993) suggests that effective performance depends on how good a fit exists between the
preferences of both leaders and subordinates and the demands of the task to be undertaken. The way the
fit is achieved, i.e. which factors will adapt or be adapted, will depend on the environment (or
organization setting).

Influencing Factors

In any situation that confronts a leader there are four sets of influencing factors that he or she must take
into consideration:

i. The Leader - their preferred style of operating and their personal characteristics.
ii. The Subordinate - their preferred style of leadership in the light of the circumstances.

iii. The Task - the job, its objectives and its technology.

iv. The Environment - the organizational setting of the leader, the group and the importance of the
task.

Handy maintains that there is no such thing as the "right" style of leadership, but that leadership will be
most effective when the requirements of the leader, the subordinates and the task fit together. This fit
can be measured on a scale that runs from "tight" to "flexible".

Tight ___________________________________ Flexible

Handy goes on to explain that there is no fixed measuring device for this scale - it is a low-definition
subjective tool of analysis. The suggestion is that the three factors in any situation can be roughly placed
along this scale.

See example in Module pg 25:

OTHER SUCCESSFUL LEADERSHIP STYLES

1. THE SHARED VISION APPROACH: (Peter Michael Senge)

According to Senge (1990:9), One idea about leadership that has inspired organizations for thousands
of years, is the capacity to hold a shared picture of the future we seek to create’ (1990: 9). Such a
vision has the power to be uplifting – and to encourage experimentation and innovation.

Crucially, he argued, it can also foster a sense of the long-term, something that is fundamental to the
‘fifth discipline’”.

“When there is a genuine vision (as opposed to the all-to-familiar ‘vision statement’), people excel and
learn, because they want to.

Many leaders have personal visions that never get translated into shared visions that galvanize an
organization!!!

21
The leadership challenge is to translate a Vision into a Shared Vision based on a set of principles and
guiding practices”

2. THE DOMINANCE APPROACH:

The shared vision approach may not be appropriate in some strategic situations.

 Company in Crisis: - Strong and firm central Leadership to enable it survive.

 Company in early stages of development: - Entrepreneurial leader.

In this situation, purpose is developed mainly by the choice of the leader and, possibly, the immediate
subordinates. Such purpose will be largely imposed on others in the organization and will not engender
the same degree of commitment.

CHOICE OF LEADERSHIP STYLE

Some of the factors that will influence leadership style of an organization are as follows:

 Personality and skills of leader.

 Size of company.

 Degree of geographical dispersion.

 Stability of organization’s environment.

 Current management style

 The Organization’s Culture.

 Organization’s current profitability and its desire and need for change.

3. THE IMPORTANCE OF TRUST, ENTHUSIASM AND COMMITMENT IN

LEADERSHIP (BENNIS & NANUS)

Leaders need to generate trust, enthusiasm and commitment amongst key members of the organization
for the chosen purpose.

According to Bennis (Warren) and Nanus (Burt) ( Two US authors that researched leadership amongst
US organizations in the 1980s.)

22
  Leaders need to generate and sustain trust in the strategy process and the general integrity of
the organization while developing its vision and mission.

 Leaders will deliver a more robust statement of purpose if they have generated and used the
intellectual capital of the many people involved in the organization.

This means that leaders must tap the knowledge, interest and experience of those below them in the
organization.

 Successful Leaders need to demonstrate a passion and determination to seek out and then
achieve the purpose that has been identified by the process.

LECTURE 4

ORGANIZATIONAL CULTURE

Organizational Culture: - That set of beliefs, values and learned ways of managing of an organization
as reflected in its structures, systems and approach to the development of strategic management.

These decisions reflect the culture and values of the company, just as much as the immediate strategic
issues that arise.

23
Analyzing the Current Organizational Culture

An organization’s culture is unique and is derived from its;

 Past,
 Present,
 Current people,
 Technology
 Physical resources
 Aims,
 Objectives
 Values of people who work in the organization.

Because each organization has a different combination of the above, each will have a culture that is
unique.

Understanding Organizational Culture

 Culture informs and drives strategy – underpinning success or failure

 Culture influences every aspect of the organization and leaders need to understand the
starting point if they are to make changes.

 Culture is the Filter and Shaper of strategies.

ELEMENTS OF ORGANIZATIONAL CULTURE

Inside the Organization Outside The Organization

1. History and Ownership 1. Changing values of people in society &

politics
2. Size
2. Corporate cultures of other companies
3. Technology
3. Employment policies of Governments
4. Leadership & Mission
4. International issues – esp. for multi-

24
 5. The Cultural Web nationals

History and Ownership (public, private, family owned etc)

A founding individual/group may continue to influence developments for some years. Centralized ownership will
concentrate power, influence and style.

Size

As firms expand, they lose the tight ownership and control and therefore allow others to influence their style and
culture.

Technology

Effects are not always predictable.

Technologies that require economies of scale or involve high costs and expensive machinery usually require a
formal and well-structured culture for success: e.g Mining

Conversely, Fast-changing technologies, such as those in telecoms, require a more flexible culture. (Discuss)

Leadership and Mission

Individual Leaders and their values will reflect and change Org. culture over time, esp. CEO and Senior
colleagues.

The Cultural Web

“A representation of the taken for granted assumptions or paradigm of an organization and the physical
manifestations of organizational culture”- pg 201 johnson, scholes, whittingtin

The cultural web can be used to characterize some aspects of the culture of an org.

25
 Elements of the Cultural Web:

o Stories: What do people talk about in the organization? What core beliefs do the stories
reflect? What constitutes success or failure? Who are the Heroes and Villains

o Routines: Which routines are emphasized and what behaviours do they encourage? What
is the normal ways of doing things? What are the procedures (not always written down)

o Rituals: Beyond the normal routines, what are the key Rituals and what core beliefs do
they reflect? For example, long service? Sales achievement? Innovation? Quality
standards? How does it highlight and possibly reward such rituals?

o Symbols: What are the symbols of Power? Office size? Company car size? Separate
restaurants for different levels of managers and workers? Or the absence of these? How
do employees travel: first, business or tourist class? What language and jargon are used?

o Control systems: What is closely monitored/controlled? Emphasis on Reward or

Punishment? Bureaucratic? Well-documented? Oriented towards performance? Formal
or informal? Haphazard?

o Organizational structure: Who reports to whom in the organization on a formal basis

and who has an informal relationship? Flat or Hierarchical?, Do structures encourage
collaboration or Competition?

o Power structures: How is power distributed in the organization?, Who makes the
decisions? Who influences the decisions? How? When? Is leadership Pragmatic or
Idealistic ?

Answers to the above questions give us an idea about the available options for change and the
chances of success or failure of a given strategy.

26
The Cultural web can usefully distinguish also between what is done officially in an organization, such as
press releases and post-project evaluation, and what is done unofficially, such as grapevine stories, office
parties, email messages, etc.

The paradigm not only links the elements but may also tend to preserve them as ‘the way we do things
here’. It summarizes the culture of the organization.

ORGANIZATIONAL CULTURAL TYPES

Although each organization has its own unique culture, Handy suggested that there are 4 main cultural
types within the general analysis undertaken above

1. The Power Culture

The organization revolves around and is dominated by one individual or a small group. Power radiates
from the centre. Strategy making is the preserve of the inner circle, outsiders cannot influence events .

27
Examples:
 Family owned businesses, Small building companies; Some newspapers with dominant
proprietors.
 Strategic change: fast or slow depending on the management style of the leader.

2. The Role Culture

This organization relies on committees, structures, logic and analysis. There is a small group of senior
managers who make the final decisions, but they rely on procedures, systems and clearly defined rules of
communication. Cultural Strength is derived from the functional specialization of its pillars.
Performance beyond role prescription not required nor encouraged!!.. ( Weber’s theory of a pure bureaucracy)

Works well in a steady state environment.

Examples:
 Public Sector, Civil Service, Retail Banks,
 Strategic change: likely to be slow and methodical.

3. The Task Culture

The organization is geared to tackling identified projects or tasks. Work is undertaken in temporary task
teams that are flexible and tackle identified issues. The teams may be multidisciplinary and adaptable to
each situation. Information & expertise are the most valuable resources. Resource restrictions can
transform the culture into a Power or role type.!!

Examples:
 Advertising agencies, Consultancies.
 Strategic change: will depend on the circumstances but may be fast where this is needed.
4. The Person (al) Culture

Characterized by consensus model of management where the individuals within the structure determine
collectively the path which the organisation pursues. The organization is tolerated as the way to structure
and order the environment, but it tends to service the needs of the individuals within the structure.

Organisations which portray this culture reject formal hierarchies for ‘getting things done’ and exist solely
to meet the needs of their members. The rejection of formal ‘management control’ and ‘reporting

28
relationships’ suggests that this may be a suitable culture for a self-help group or a commune, etc., but it is
not appropriate for business organisations.

Examples:
1. Self Help groups, Co-operatives, Communes
2. Also individual professionals like architects or engineers working as lone people in larger
organizations such as health institutions.
3. Strategic change: can be instant, where the individual decides that it is in her interests to make
such a move.

QUALIFICATIONS
In considering the 4 main types of organizational culture, there are 4 important qualifications:

1. Organizations change over time.

The Entrepreneur (power culture), may mature into a larger and more traditional business.

The Bureaucracy (Role culture), may move towards the more flexible structure of the task
culture.

2. Several types of culture usually exist in the same organization.

Small task-teams concentrating on developing new business or solving a specific problem may
exist in large bureaucratic organizations.

Strategic managers may even need to consider whether different parts of the organization should
develop different cultures. (e.g. a team culture for a radical new venture; a personal culture for
the specialist expertise required for a new computer network etc.)

3. Different cultures may predominate, depending on the headquarters and ownership of the
company.
Research indicates that national culture will also have an influence and will interact with the
above basic types.

4. Organizational culture changes only slowly.

It is important that leaders do not expect instant shifts in basic attitudes, beliefs and ways of
acting in an organization.
For these reasons, strategic cultural change needs to be approached with caution.

Nevertheless, there are many organizations, both large and small, where the mood, style and tone are clear
enough as soon as you walk through the door. There is one prevailing culture that permeates the way in
which business is done in that organization.

29
SHAPING THE FUTURE CULTURAL STYLE OF THE ORGANIZATION

 Leaders can use the 4 cultural styles as a starting point in deciding how they want to shape the
culture of their organizations, especially with regard to strategic change issues.

 Each of the 4 styles is linked with an ability for slow or fast strategic change –

 Leaders will want to reflect on this connection as they shape their organizational culture.

Steps in Shaping Organizational Culture:

1. Understanding current organizational culture and the available options for change

2. Influencing and directing the beliefs, style and values of people inside & outside the
organization

3. Encouraging and rewarding employees & managers who deliver results

Guidelines for Analysing Cultural Issues within an Organizational

Ten Guidelines for Analysing Organization Culture and its Strategy Implications

1. How old is the organization? Does it exist in a stable or fast-changing environment?

2. Who owns it? Shareholding structure? Small company owner-proprietor? Government shareholding?
Large public company? What are the core beliefs of the leadership?

3. How is it organized? Central board? Divisions? Clear decision-making structure from the top? Are
structures formal or informal? Is competition encouraged between people in the company or does the
organization regard collaboration as being more important? e.g. Sales Teams…..

4. How are results judged? Sympathetically? Rigorously? What elements are monitored? Is the
emphasis on looking back to past events or forwards to future strategy?

5. How are decisions made? Individually? Collectively and by consensus? How is power distributed
throughout the organization? Who can stop change? And who can encourage it?

6. What qualities make a good boss? And a good subordinate?

7. How are people rewarded? Remuneration? Fear? Loyalty? Satisfaction in a job well done?

30
8. How are groups and individuals controlled? Personal or impersonal controls? Enthusiasm and
interest? Or abstract rules and regulations?

9. How does the organization cope with change? Easily or with difficulty?

10. Do people typically work in teams or as individuals? What does the company prefer?

Tests for strategic relevance might include:

4. Risk: Does the organization wish to change its level of risk?

5. Rewards: What reward and job satisfaction?
6. Change: High or low degree of change needed?
7. Cost reduction: Is the organization seeking major cost reductions?
8. Competitive advantage: Are significant new advantages likely or will they be needed?

LEVERS FOR MANAGING STRATEGIC CHANGE

1. Challenging the Paradigm (taken for granted things about the company)

2. Changing organizational routines

3.Changing Symbolic Processes

4. Changing power and political processes

LECTURE 5

Political Diagram page of module

LEADERSHIP AND ORGANIZATIONAL POWER

Power is concerned with the exercise of authority, leadership and management in organizations.

As strategic change occurs, leaders of organizations will have to cope with individuals and groups who
are likely to have an active interest in the process. There may be pressure groups, rivalries, power
barons and brokers, influencers, arguments, winners and losers.

31
  Some disputes may be disinterested and rational and some may be governed by strong vested
interests.

 New strategies are resisted

 Leadership power needs to take a pragmatic view of what is possible rather than what is ideal.

 An analysis of the organization’s power situation is important as strategies are developed.

For example

I may be highly desirable to alter radically a company’s structure, but the cost in terms of management
time may be too high in some circumstances, even with an imposed solution from the leadership.(Example
Managers – Directors).
Case 12.2 on Royal Dutch Shell shows the difficulties that faced the new chairman of Royal Dutch/ Shell in 2004
as he attempted to achieve radical change and impose his preferred solutions on the organization.

The Main Element of Power in Organizations

 Leadership power may be better directed towards encouraging a positive attitude to change,
coupled with learning and persuasion.

 Healthy competition between groups and individuals in an organization can stretch

performance and promote group cohesive.

 It also helps to sort out the best.

 However, it can also give rise to conflict and political maneuvering.

Sources of Organizational Conflict

1. Differing Goals and Ideologies.

 Groups or individuals within an organization may have different goals, make different value
judgments, be given different and conflicting objectives.

 There may also be a lack of clarity in the goals and objectives leading to conflict and confusion .

2. Threats to territory.

 Some groups or individuals may feel threatened by others doing the same jobs

 Become jealous of other roles,

 Be given instructions that cut across other responsibilities, etc.

Mintzberg suggests that there are benefits from competition in organizations. It can be a force for
achieving change. In this sense, power is an inevitable consequence of strategic change and needs to be
accepted and channeled by the organization’s leadership for the best results.

THE POLITICAL NETWORK OF AN ORGANIZATION

32
Five areas need to be addressed by the organization’s leadership in the strategy implementation process:

1. The extent to which a culture of adaption or experiment has been developed will critical when it
comes to implementing agreed strategies.

2. The identification of major power groups or individuals whose influence and support are essential for
any major strategic change is essential.

3. The necessity of adopting a consultative vs confrontational approach in the strategic implementation

process.

4. The role and traditions of leadership in the organization and the extent to which this may enhance the
success and overcome problems associated with strategic change.

5. The nature and scope of the external pressures on the organization.

These 5 areas are interconnected as a network of relationships, as follows (Module Page 35)

SUCCESSFUL STRATEGIC LEADERSHIP

There are five key subject areas that leaders need to address for successful and effective leadership. These
are shown in the following diagram: (Module Page 36)

The 5 Elements of Successful and Effective Strategic Leadership

1. Developing and communicating the organization’s purpose

In the first instance, strategic leader are primarily tasked with determining the organization’s purpose and
then communicating this to every part of the organization.

2. Managing human resource and organization decisions

Strategic leaders need to motivate and reward managers and employees to deliver the agreed purpose.
This forms an important part of the human resource decisions of the company. Human resources are the
skills, talents and knowledge of every member of the organization. Strategic leaders have a special
responsibility to direct, develop and nurture employees in the organization. Strategic leadership will
involve the reporting relationships and organizational structure that bind people together in the company.

4. Setting ethical standards and defining corporate social responsibility in the organization

Although all employees have a responsibility to deliver on the ethnical and corporate social responsibility
issues in the organization, it is the leadership that sets the standards and monitors the achievement.

5. Defining and Delivering to Stakeholders

33
Although the organization’s leaders have extensive decision making power, they also have outside
pressures, particularly from stakeholders some of whom are inside but some of whom have great
bargaining power from outside the organization.

There is a power balance amongst the various possible stakeholders: shareholders, managers, employees,
customers, government institutions, etc. One of the prime responsibilities of strategic leaders is to
maintain good relationships with such interested groups – A Complex task

6. Sustaining Competitive Advantage Over Time

There is a relationship between the value added by an organization and its competitive advantage.

Strategic leadership must seek to grow the organization’s value over time and increasing the same its
competitive advantages.

Examples: Product quality, reputation, new investments/divestments – Thoughtful decisions are reqd.

Key Factors For Success in an Industry (KFS)

Definition: Key factors for success in an industry are those resources , skills and attributes of the
organisation in an industry that are essential to deliver success in the market place.

Japanese strategist Kenichi Ohmae has identified 3 KFS’s as follows:

1. Customers. What do customers really want? What are the segments in the marketplace? Can we direct our strategy
towards a group? Price, service, product or service reliability, quality, technical specifications, branding.

2. Competition. How can the organization beat or at least survive against competition?

3. Corporation. What special resources does the company itself possess and how do they compare with
those of competitors?

No single area is more important than another. The corporate factors relate to the resource issues.

LECTURE 6

1.5 THE CASE STUDY METHOD

How to Analyze and Prepare Strategy Cases

What is a Case Study?

34
A case is a written description of a strategy situation. It often studies a real organization at a point in
time and describes the strategy issues that are present or that appear to be present – meaning that the
organization may not have fully understood its own strategic situation.

The analysis and discussion of case problems has been the most popular method of teaching
strategy and policy for many years because

 Cases present actual business situations and enable the examination of successful and
unsuccessful corporations.

 This approach gives you a feel of what it is like to be faced with making and implementing
strategic decisions in a real company situation.

The case method provides the opportunity to move from a narrow, specialized view that emphasizes
functional techniques to a broader, less precise analysis of the overall corporation.

The objectives of analyzing cases are:

9. To apply the theoretical concepts that has been covered in this text. Importantly, you don’t need
to describe the theory in detail in your case answer: you may assume that the reader (or listener to
an oral presentation) will know this.
10. To consider the real-life complexity of a number of factors affecting the business problem,
rather than the single subject approach that may occur when a case is explored inside a specific
chapter. Most strategy problems have several aspects that go beyond the subject matter of one
chapter.(Finance, operations, leadership)
11. To identify strategy issues and make recommendations.

Nature of Case Studies:

 Cases are not necessarily complete, though for most purposes you can usually work with the
material in the case.

 Some of the data in a case may not be relevant: This mirrors real life where managers need to
select the data they use to resolve strategy issues.

35
  For academic work, it is vital that all the questions at the end of a case are answered, including
recommendations where reqd.

Although questions are given at the ends of Cases, such questions may not reflect the true issues underpinning the
case. For example, a question might be asked about the competitive resources and capabilities of an organization.
However, you may wish to explore the competitive environment of the organization looking at competitive
resources because this may influence the resources: for example, the competitive resource of a brand name may
need to be seen in the context of the many brands already in that market place.

Steps in Case preparation:

1. Read the case fairly quickly

2. Read again, this time making some notes in relation to the questions or problems
3. Do a SWOT analysis of an organization in the case – even if you are not asked for one - the
process of doing this will help you understand the structure of the case and the data that are
available.
4. Prepare a list of major strategic issues based, for example, on either the prescriptive or emergent
process models in this book.
 If turbulence is high, then an emergent approach may be more appropriate;
 If turbulence is low, then a prescriptive approach may be more useful.

5. Remember there is no formula for developing strategy.

6. Do not write lengthy case introductions, nor pad out your analysis with a lengthy repetition of the
material already in the case.
7. Be practical: remember the organization’s resources, budgets and time constraints.
8. State assumptions, which are acceptable as long as they are sensible.
9. Be specific on your recommendations.
10. Many universities and colleges require adequate and detailed references to the case material in
your report – check with your lecturer.
11. Answer the question(s) asked.

o The overall objective of a case is to provide you with an opportunity to apply in practice what has
been learnt in theory.

o Marks therefore come from the application of the theory rather than a repetition of material in the
case or a description of the theory.

o The evidence in the case and the application of logic and theoretical principles to that evidence
are the foundation of a good case analysis and presentation.

36
Researching the Case

 Do not restrict yourself only to the information written in the case.

 You should undertake outside research into the environmental setting.

 Check the decision date of each case (typically the latest date mentioned in the case) to find out
when the situation occurred and then screen the business periodicals for that time period.

 Use computerized company and industry information services where possible.

 Use company annual/financial reports and other official documents where available.

 Use a strategic Audit where possible

This background will give you an appreciation for the situation as it was experienced by the participants
in the case.

The Headings in the Audit:

1. Evaluate Current Performance Results

2. Review Corporate Governance
3. Scan and Assess the External Environment
4. Scan and Assess the Internal Environment
5. Analyze Strategic factors Using SWOT
6. Generate and Evaluate Strategic Alternatives
7. Implement Strategies
8. Evaluate and Control

INTRODUCTORY CASE STUDY: NEWBURY COMICS, Inc.

Newbury Comics was founded in 1978 by Massachusetts Institute of Technology (MIT) roommates, Mike
Dreese and John Brusger. With $2000 and a comic book collection they converted a Newbury Street studio
apartment in Boston’s trendy Back Bay into the second organized comic book shop in the area. In 1979,
Newbury Comics began selling punk and new wave music and quickly became the region’s leading specialist
in alternative music. By 1982, with a second store open in Harvard Square, the company’s revenues were being
generated mostly from cutting-edge music and rock-related merchandise.

Newbury Comics consists of 22 stores spanning the New England region and is known to be the place to shop
for everything from the best of the underground/independent scene to major label superstars. The chain also
stocks a wide variety of non-music related items such as T-shirts, Dr. (doc) Martens shoes, posters, jewelry,
cosmetics, books, magazines, and other trendy items.

37
The cofounders and Jan Johannet, Manager of one of the New Hampshire stores, talk about the entrepreneurial
beginning of Newbury Comics. They point out that the company wants its customers and its employees to
“have a good time” in the store. Newbury Comics hires good people who like working in the store. The
company attracts creative people because it is different from other retailers. Mike Dreese thinks of the
company as expanding out of a comic book retailer into a lifestyle store emphasizing popular culture. He wants
Newbury Comics to dominate its product categories and to be the retailer customers seek out in order to obtain
what they want. He refers to an expression used throughout the company: “If you can’t dominate it, don’t do
it”. He wants the company to grow by looking for “incredible opportunities” (elephant hunting). This approach
seems to work at Newbury Comics. The company sustained an annual growth rate of about 80% over the past
7 years resulting in 100% overall growth.

With some input from others at corporate headquarters, Mike Dreese develops the overall plan for the
company by looking at where he would like the company to be in 3, 5 or 10 years. He analyzes the external
environment in terms of competition, trends, and customer preferences. John Brusger then puts Mike’s plan
into action. The company identifies product growth areas by conducting dozens of experiments each month to
learn what the customer wants.

Case Review Questions

1. How is Newbury Comics an example of a learning organization?

2. What is the process of strategic management at Newbury Comics? Who is involved in each part?

3. What do you think might be the company’s (a) current mission, (b) vision, (c) objectives, (d) strategies, and (e)
policies? Give an example of each.

4. What theory of organizational adaptation is being followed by Mike Dreeese?

5. Newbury Comics illustrates what mode of strategic decision making? Is it appropriate?

38
Lecture 7

ANALYSING THE GENERAL BUSINESS ENVIRONMENT

Environment: Everything and everyone outside/inside the organization:

Scope of Analysis:
a. The Industry
 Industry Structure (State of Consolidation/fragmentation)
 Industry Life Cycle
 Value Network Concept
 Porter’s Five Forces
 Driving Forces Concept
 Strategic Groups
b. Competitor Analysis

39
 c. Self-Analysis
 Students to read - Environmental Basics (pg 127 – 146 Module)

Profiling Data:

 Number of Sellers and their relative sizes;

 Market leaders;
 Structure of Buyers
 Distribution Channels
 Prevalence of Backward and Forward Integration
 Ease of Entry and Exit;
 Size of the industry and its geographical boundaries;
 Other Peculiar Characteristics of the Industry.

I: Industry Structure

 Is it Fragmented or Consolidated?
 Is it Emerging, Mature or Declining?
 Is it globalized and to what extent?

Industry concentration:- Refers to the number of participating firms in any given industry

Consolidated Industries:

 Dominated by few large firms (Oligopoly) or in the extreme – by a monopoly

 One industry leader emerges while others play catch up

 To avoid price wars etc, firms may either follow the example set by the dominant firm or enter
into tacit price fixing arrangements.

II: Strategic Group Mapping

A Strategic Group is a group of firms in an industry following the same or similar strategy along
some identified Strategic Dimensions.

Strategic Dimensions

i. Specialization/breadth of product lines

ii. Brand Identification
iii. Distribution Channel Selection
iv. Product Quality

40
 v. Technological Leadership
vi. Degree of Vertical Integration
vii. Cost Position
viii. Price Policy
Etc

Constructing Strategic Group Maps

i. Identify the broad characteristic that differentiates firms in the industry from one another.
ii. Plot the firms on a two-variable map using pairs of these differentiating characteristics.
iii. Assign firms that fall in about the same strategy space to the same strategic group.
iv. Draw circles around each strategic group, making the circles proportional to the size of the
group’s respective share of total industry sales revenues.

Important Guidelines

1. The two variables selected as axes for the map should not be highly correlated; if they are, the
circles on the map will fall along a diagonal, rendering one of the variables useless.

For example, if companies with broad product lines use multiple distribution channels while companies with narrow
lines use a single distribution channel, then a map based on the number of distribution channels and product line
breadth will fail to identify anything more about the relative competitive positioning of rivals than would just one of
the variables by itself.

2. The best strategic variables to choose as axes for the map are those which expose big differences
in how rivals have positioned themselves to compete against one another in the marketplace.

This of course requires identifying the characteristics that differentiate rivals items from one another and then using
these differences (a) as variables for the axes on the map and (b) as the basis for deciding which firm belongs in
which strategic group.

41
3. The variables used as axes need not be either quantitative or continuous; rather, they can be
discrete variables or defined in terms of distinct classes and combinations

42
 4. Drawing the sizes of the circles on the map proportional to the combined sales of the firms in
each strategic group allows the map to reflect the relative sizes of each strategic group.

5. If there are more than two good strategic variables that can be used as axes for the map, then
several maps can be drawn to give difference exposures to the competitive positioning
relationships present in the industry structure.

Because there need not be one best map for portraying industry structure and strategic positioning, it is
advisable to experiment with different pairs of strategic variables.

Examples of Strategic Group Maps

 Strategic Group Map for Construction Firms (USA)

43
44
  Strategic Map for Retail Chains (USA)

Some Issues with Strategic Groups

1. Mobility Barriers:
 Deter the movement of firms from one group to another
 Hence some firms within the same industry are more profitable than others (they are protected
by mobility barriers)
 Common Mobility Barriers: Economies of Scale; Product Differentiation; Distribution Channels;
Capital; Govt Policy etc

2. Strategic Groups & Bargaining Power

 Different Strategic Groups within the same Industry enjoy different degrees of bargaining
power with suppliers and buyers

3. Strategic groups & the Threat of Substitutes

 Groups face different levels of exposure to substitute products

4. Strategic Groups & Rivalry Among Firms

 Groups face different degrees of rivalry within the industry

45
  Inter- Group and Intra-Group Rivalry will be of different intensity for different groups.
Depends on the population of firms in each group.

II: Competitor Analysis

Uses: Helps answer questions about competitors and position the company to maximize on opportunities and
minimize the effects of threats.

Who Should be Analyzed

 Existing and Future Competitors
 Competitors within the same strategic Groups

 Porter’s Competitor Analysis Framework

1. Competitor’s Capabilities and Strategy

46
 The competitor’s capabilities and strategy is what the competitor is currently accomplishing or
capable of doing in the future.

2. Competitor’s Objectives, Future Plans and Assumptions

The competitor’s objectives and assumptions are the factors that drive the competitor.

3. The Competitor
 Is he satisfied with their current position?
 Are there likely strategic shifts?
 Does he have some vulnerable Areas?
 What would elicit the strongest retaliation from them?

Developing a Competitor Intelligence System

1. Collecting Field Data

 Sales Force
 Engineering Staff
 Distributors
 Suppliers
 Personnel hired from competitors
 Trade Associations
 Market Research Firms
 Reverse Engineering
 Etc

2. Collecting Published Data: - Sources

 Articles
 Newspapers
 Government/Regulatory Documents
 Analyst Reports
 Court Records
 Speeches by Management
 Annual Returns

3. Compiling the data

4. Cataloging the data
5. Digestive Analysis
6. Communication to mgt and Strategists
7. Strategy Formation
Sample Competitor Analysis:

47
III: Self Analysis

The techniques employed for competitor analysis can also be turned round and used for Self- Analysis.
Benefits of Self –Analysis
 Helps a firm probe its own position in the industry.
 Helps the firm understand what its competitors are thinking/assuming about it.

The Concept of Driving Forces

48
Except in the rarest of cases, every industry is in a state of constant flux- forces of change are constantly
at work and new ones are usually gathering steam.

Driving Forces and How They Work

There are numerous types of driving forces with power to produce strategically relevant changes in an
industry:

1. Changes in the long-term industry growth rate.

Increases or decreases in industry growth are powerful variables in the investment decisions of existing
firms to expand capacity. A strong upsurge in growth frequently attracts new firms to enter the market,
and a shrinking market often causes some firms to exit the industry. Upward or downward shifts in
industry growth are a force for industry change because they affect the balance between industry supply
and buyer demand and the intensity of competition.

2. Changes in who buys the product and how they use it.
Increases or decreases in the kinds of customers who purchase the product have potential for:
 changing customer service requirements (credit, technical services, maintenance, and repair);
 creating a need to alter distribution channels; and
 precipitating broader/ narrower product lines, increased/decreased capital requirements, and
different marketing practices.

The hand held calculator industry became a different market requiring different strategies when students
and households began to use them as well as engineers and scientists. The computer industry was
transformed by the surge of buyers for personal and home computers. Consumer interest in cordless
telephones and mobile telephones for use in car and trucks created a major new buyer segment for
telephone for use in the cars and trucks created a major new buyer segment for telephone equipment
manufacturers.

Predictions of industry change should, therefore, include an assessment of potential new buyer
segments and their characteristics.

3. Product innovation.
Product innovation can:
 broaden demand,
 promote entry into the industry,

49
  enhance product differentiation among rival sellers, and
 impact manufacturing methods, economies of scale, marketing costs and practices, and
distribution.

Industries in which product innovation has been a key driving force include copying equipment, cameras
and photographic equipment, computers, electronic videogames, toys prescription drugs, soft drinks
(sugar-free and caffeine-free), beer (low-calorie) and cigarettes (low-nicotine).

4. Process innovation
Frequent and important technological advances in manufacturing methods can dramatically alter unit
costs, capital requirements, minimum efficient plant sizes, the desirability of vertical integration, and
learning curve effects process innovation can alter the relative cost positions of rival firms and change
the number of firms of cost-efficient size the market can support.

5. Marketing innovation.
From time to time firms opt to market their products in new ways that spark a burst of buyer interest,
widen demand, increase product differentiation, and /or lower unit costs, thus setting in motion new
forces which alter the industry and the competitive positions of participant firms.

6. Entry or exit of major firms.

When an established firm from another industry enters a new market, it usually brings with it new ideas
and perceptions about how its skills and resources can be innovatively applied; the outcome can be a
“new ball game” with new rules for competing and new key players.
Similarly, the exit of a major firm changes industry structure by reducing the number of market leaders
(perhaps increasing the dominance of the leaders who remain) and causing a rush to capture the former
customers of the exiting firm.

7. Diffusion of proprietary knowledge.

As a technology becomes more established and knowledge about it spreads through the conduits of rival
firms, suppliers, distributors, and customers, the advantage held by firms with proprietary technology
erodes.

This makes it easier for new competitors to spring up and, also, for suppliers or customers to integrate
vertically into the industry. Except where strong patent protection effectively blockades the diffusion of
an important technology, it is likely that rapid diffusion of proprietary knowledge will be an important
driver of industry change.

8. Changes in cost and efficiency

In industries where new economies of scale are emerging or where strong learning curve effects cause
unit costs to decline, large firm size and production experience become distinct advantages, causing all
firms to adopt volume-building strategies a “race for growth” emerges as the driving force.

Likewise, sharply rising costs for a key ingredient input (either raw materials or necessary labour skills)
can cause a scramble to either (a) line up reliable supplies of the input at affordable prices or else (b)
search out lower-cost substitutes.

50
 9. Moving from a differentiated to a commodity product emphasis (or Vice Versa).
Sometimes growing numbers of buyers decide that a standard “one-size fits-all” product with a bargain
price meets their requirements just as effectively as do premium priced brands offering a broad choice of
styles and options.

Such a swing in buyer demand can be a driver of industry change, shifting patronage away from sellers of
more expensive, differentiated products to sellers of cheaper commodity products and creating a
strongly price-oriented market focus- a feature and literally can dominated the industry landscape and
limit the strategic freedom of industry participants.
On the other hand, a shift away from standardized products occurs when sellers are able to win a bigger
and more loyal buyer following by bringing out new performance features, making style changes

51
LECTURE 8: STRATEGY FORMATION & STRATEGY MAKING MODES

1.0 PRESCRIPTIVE & EMERGENT STRATEGIES

1.1 Prescriptive View:Strategic Management can be described as the identification of the

purpose of the organization and the plans and actions to achieve that purpose (pg 51)

 Strategy can be planned in advance (Thinking b4 doing) and implemented over a

period of time
 Results from detailed analysis & forecasting
 Explicit & documented

Advantages

a) Direction: - Giving an organization a sense of direction to avoid drift.

b) Commitment: - Commitment to a course of action allows for the mobilization of
resources, training of personnel, building production capacity and taking of a clear
position within the firm’s environment.
c) Coordination: - Coordination of all strategic initiatives into one cohesive pattern free of
conflict, overlap, and contradictory behavior.
d) Optimization: - Allows for the choice of the optimal course of action before committing
resources.
e) Programming: - Programming of all organizational activities in advance to avoid fire
fighting and chaos.

1.2 Emergent View: Strategic management can be described as finding market opportunities,
experimenting and developing competitive advantage over time. (pg 53)

 Strategy evolves (Thinking & doing) as the events inside & outside the Org. change
over time.
 Results from gradual, iterative processes.
 Formal , documented plan not a pre-requisite for strategic behaviour

Advantages

a) Opportunism: - The mental freedom to grab unforeseen, emerging opportunities.

b) Flexibility:- The lack of commitment to irreversible actions and investments
c) Learning: - The feedback obtained through hands on doing, experimentation, pilot
projects, trial runs and gradual steps.
52
 d) Entrepreneurship: - Unleashing the creative and entrepreneurship spirit in individuals
and organizations through ‘giving it try’.
e) Support: - Confronting opposing ideas and building coalitions to move forward.

PARADOX
 As can be seen, the above views present a Paradox:- How to figure things out in
advance but at the same time finding things out along the way.
 On the one hand, firms would like to forecast the future and put plans in place to prepare
for it.
 Yet on the other hand, the future is fundamentally unpredictable, requiring experimenting,
learning and flexibility.
 Strategic behaviour is therefore realized through a blend of deliberate strategizing and an
allowance for emergent strategy
 Required: A Consensus View

Consensus View: Strategic management deals with the major intended and emergent
initiatives designed to enhance the performance of firms in their external environments.

Diagram: Realized Strategy

Figure 2.2: Deliberate and Emergent Strategies

Intended Strategy Deliberate Strategy Realized Strategy

Strategy

Unrealized Strategies

Emergent Strategy

Source: De Wit and Meyer (2004).

Note: Deliberate Strategy = Prescriptive Strategy = Intended Strategy

2.0 STRATEGY MAKING MODES

Mintzberg and Quinn identify 4 modes of strategic decision making as follows:

a) Entrepreneurial,
b) Adaptive
c) Planning.

53
 d) Logical Incrementalism

I. The Entrepreneurial DM Mode (Power Culture)

 Strategy is made by one powerful individual/owner.
 Focus is on opportunities/growth; problems are secondary.
 Exemplified by large, bold decisions.

II. The Adaptive DM Mode (Role Culture)

 Characterized by reactive solutions to existing problems, rather than a proactive search for
new opportunities.
 Sometimes referred to as ‘’muddling through’’
 Much bargaining goes on concerning priorities of objectives.
 Strategy is fragmented and is developed to move the corporation forward incrementally.
 Typical of universities, large hospitals, governmental agencies, large corporations.

III. The Planning DM Mode

 Involves the systematic gathering of appropriate information for situation analysis,
 Generation of feasible alternative strategies,
 Rational selection of the most appropriate strategy.
 Includes both the proactive search for new opportunities and the reactive solution of
existing problems.

IV. Logical Incrementalism (James Quinn)

 Strategy Developed by experimentation and learning from partial commitments rather

than through global formulations of total strategies.
 Can be viewed as a synthesis of the planning, adaptive and entrepreneurial modes.
 Managers have a reasonably clear idea of the corporation’s mission and objectives
 In development of strategies, they opt for “an interactive process in which the org.
probes the future, experiments and learns from a series of partial (incremental)
commitments (Newbery Comics!!).
 Thus, the strategy is allowed to emerge out of debate, discussion, and experimentation.

This approach appears to be useful when:

 The environment is changing rapidly and
 When it is important to build consensus and develop needed resources before committing the
entire corporation to a specific strategy.

LECTURE 9: CREATING SUSTAINABLE COMPETITIVE ADVANTAGE.

We say that a company has a Competitive Advantage (CA) when its profit rate is higher than the
average for its industry. And a company has a sustained competitive advantage when it is able to
maintain this high profit rate over a number of years.

54
Profit rate is normally defined as some ratio, such as return on capital employed (ROCE). The profit
rates of a number of companies are shown relative to the mean ROCE earned by all companies
active in the industry.

Determinants of Competitive Advantage (CA)

Two basic conditions determine a company’s profit rate and it’s CA

1. The amount of Value customers place on the company’s goods or services.

2. The company’s costs of production.

 The more value customers place on a company’s products, the higher the price the company
can charge for those products.
 However, that the price is typically less than the value placed on the goods by the customer.

This is so because the customer captures some of that value in the form of what economists call a
Consumer Surplus. The customer is able to do this because the company is competing with other
companies for the customer’s business, so the company must charge a lower price than it could
were it a monopoly supplier.

Moreover, it is normally impossible to segment the market to such a degree that the company can
charge each customer a price that reflects that individual’s assessment of the value of a product,
which economists refer to as a customer’s reservation price. For these reasons, the price that gets
charged tends to be less than the value placed on the product by many customers.

This suggests that a company has high profits, and thus a competitive advantage, when it creates
more value for its customers than do rivals.

Thus, the concept of value creation lies at the heart of competitive advantage.

We can depict this scenario diagrammatically as follows:

Value Creation Diagram

55
 V – P = Consumer surplus

P – C = Profit margin

V
P
C C

V = Value to Consumer P = Price

C = Cost of Production V–P = Consumer surplus
P–C = Profit Margin C = Cost of Production
V–C = Value Created

 The company makes a profit so long as P > C, and its profit rate will be greater the lower C is
relative to P.
 The difference between V and P is in part determined by the intensity of competitive pressures
in the marketplace.
 Low competitive pressure leads to higher prices – hence lower consumer surplus.
 The value created by a company = V – C.
 A company creates value by converting inputs that cost C into a product on which consumers
place a value of V.

According to Michael Porter, Low cost and Differentiation are two basic strategies for creating superior
value and attaining a competitive advantage in an industry.

Creating Superior Value:

 Drive down the cost structure of the business and/or

 Differentiate the product in some way so that consumers value it more and are prepared to pay
a premium price.
Thus, Competitive Advantage = Value Creation + Low Cost + Differentiation

THE GENERIC BUILDING BLOCKS OF COMPETITIVE ADVANTAGE

Four factors build Competitive Advantage (CA):

 Efficiency,
 Quality,

56
  Innovation and
 Customer responsiveness.

They are the generic building blocks of competitive advantage that any company can adopt,
regardless of its industry or the products or services it produces.

All these blocks are highly interrelated:

 superior quality can lead to superior efficiency,
 while innovation can enhance efficiency, quality and customer responsiveness.

Figure 2.3: Generic Building Blocks of Competitive Advantage

Superior Quality

Superior Competitive Advantage

Superior
Efficiency  Low Cost
Customer
 Differentiation Responsiveness

Superior
Innovation
Source: Hill and Jones (2001).

1 Efficiency
The simplest measure of efficiency is the quantity of inputs that it takes to produce a given
output:

Efficiency = Outputs / Inputs

 The more efficient a company, the fewer the inputs required to produce a given output.
 Thus, efficiency helps a company attain a low-cost competitive advantage.
 The most important component of efficiency for many companies is employee (labour)
productivity, which is usually measured by output per employee.

Labour Productivity = Output / Number of employees

Thus, the company with the highest employee productivity in an industry will have the lowest costs of
production and will have a cost-based CA. To achieve high productivity, a company must adopt the
appropriate strategy, structure and control systems.

2 Quality

57
 Quality products are goods and services that are reliable in the sense that they do the job
they were designed for and do it well. The impact of high product quality on competitive
advantage is twofold.

 First, providing high-quality products increases the value of those products in the eyes of
consumers.
In turn, this enhanced perception of value allows the company to charge a higher price for
its products.

 Second, high quality brings about greater efficiency and lower unit costs.
Less employee time is wasted making defective products or providing sub-standard services,
and less time has to be spent fixing mistakes, which translates into higher employee
productivity and lower unit costs.

 Thus, high product quality lets a company not only charge higher prices for its product but also
lower its costs.

The Impact of Quality on Profits

Increased Higher prices

reliability

Increased Higher
quality profits

Increased Lower costs

productivity

3 Innovation
Innovation includes advances in the kinds of products, production processes, management
systems, organizational structures, and strategies developed by a company.

Innovation is perhaps the single most important building block of competitive advantage.

The Impact of Innovation, Efficiency, Quality, Customer Responsiveness on Unit Costs and
Prices

58
 Efficiency

Lower unit
costs

Innovation
Quality
Higher unit
prices

Customer
responsivene
ss

 In the Long run, Competition can be viewed as a process driven by successful innovations..
Even though not all innovations succeed, those that do can be can be a major source of
competitive advantage because they give a company something unique
 Uniqueness allows for differentiation from rivals and premium pricing for products
 Innovation can lead to reduced unit costs far below those of competitors, hence enhanced CA.

 By the time Imitators catch up, the innovator has built a strong brand loyalty.

4 Customer Responsiveness

Superior customer responsiveness relates to the ability of a company to identify and satisfy the
needs of customers better than its rivals and in a timely manner.

 A company that improves the quality of its products or develops new products with new
features in line with customer needs is achieving customer responsiveness.

59
  In this regard, timeliness, superior quality and innovation are an integral part of
achieving superior customer responsiveness.

 This results in customers placing more value on the company’s products and creating a
differentiation-based competitive advantage (Hill and Jones, 2001).

LECTURE 10

DEVELOPING BUSINESS-LEVEL STRATEGY OPTIONS:

60
 SWOT Analysis

Key Elements of
Organization’s Purpose

Environment-based Resource-based
Options: Options:

Generic Strategies Value Chain

Market Options Resource-based
Expansion Methods view
Cost reduction

Identify Major Options

Choose between Perhaps keep

options: options open:
Prescriptive Emergent

Prescriptive

1. Environment – Based Options

 Generic Strategies
 Market Options
 Expansion Methods

2. Resource Based Options

 Value chain
 Distinctive Resources

ENVIRONMENT BASED OPTIONS

1.0 Generic Strategies- (Michael Eugene Porter)

1. Cost Leadership

61
 2. Differentiation
3. Focus

According to Porter, every business needs to choose one of these in order to compete in the
market place and gain sustainable competitive advantage.

The three options can be explained by considering two aspects of the competitive environment.

1. The source of competitive advantage. There are fundamentally only two sources
of competitive advantage. These are differentiation of products from competitors
and low costs.

2. The competitive scope of the target customers. It is possible to target the

organization’s products as a broad target covering most of the market place or to pick a
narrow target and focus on a niche within the market.

Porter then brought these two elements together in the famous diagram below.

Figure 2.4: Porter’s Generic Competitive Strategies

STRATEGIC ADVANTAGE

Uniqueness perceived
Low cost position
by the customer

OVERALL
Industry
DIFFERENTIATION COST
TARGET

wide
LEADERSHIP

Particular
FOCUS
segment only

Source: Porter, M., (2004).

Porter later modified the concept to split the niche sector into:
 Niche differentiation.
 Niche low-cost leadership.
The figure above is sometimes shown in this modified form.
a) Low-Cost Leadership
 Low Cost structure – attention to detail (value chain)
 Emphasis on cost reduction
 Standard products
 Market prices – or lower
 Usually – Economies of scale

62
The low-cost leader in an industry builds and maintains plant, equipment, labor costs
and working practices that deliver the lowest costs in that industry. The essential point is
that the firm with the lowest costs has a clear and possibly sustainable competitive advantage.

b) Differentiation
 Unique and valuable products
 Premium /above market prices
 R&D capability
 Market segmentation – some customers pay more for unique products targeted towards
them.

Differentiation occurs when the products of an organization meet the needs of some
customers in the market place better than others.

Examples
Better levels of service,
More luxurious materials and;
Better performance.
Brand name

c) Focus Strategy (‘Niche’ strategy)

 Focused on a specific and narrow market niche/segment

 Products specially developed (branded) for the niche.
 Remainder of market excluded

A focus strategy occurs when the organization focuses on a specific niche in the market
place and develops its competitive advantage by offering products especially developed
for that niche.

d) Cost Leadership & Differentiation Focus

Porter later on argued that the company may undertake this process either by using a
cost leadership approach or by differentiation:

 In a cost focus approach a firm seeks a cost advantage in its target segment only.
 In a differentiation focus approach a firm seeks differentiation in its target
segment only.

Examples

Rolls-Royce and Ferrari: - Their niche is premium product and premium price.

e) The Danger of being ‘Stuck in the Middle’

63
When a firm is unable to pursue any of the generic strategies successfully, it is said to be stuck
in the middle.

According to Porter, a firm in this position will compete at a disadvantage because the cost
leader, differentiators, or focuser will be better positioned to compete in any segment….
such a firm will be much less profitable than rivals achieving one of the generic
strategies.

2.0 THE MARKET OPTIONS MATRIX

The market options matrix identifies the product and market options available to the organization,in a
broader strategic perspective, including the possibility of withdrawal and movement into unrelated
markets.

64
Markets = Customers ; Products = items sold to customer.

Different from the Market/Product matrix (called in some texts as the Ansoff Matrix – which looks at
various products in the portfolios viz their market share viz market growth).

Market Options Matrix

Product or Service: Increasing

Withdrawal Technical Innovation
Demerger
Privatization

Present Market Product

penetration development
Present
Market: Present New
Market Diversification
Increasing New development
new customers

Unrelated
Related markets
markets

a. Withdrawal
New
There are number of circumstances where the withdrawal of a product from the market may have merit

 Product life cycle in decline phase with little possibility of retrenchment. .

 Overextension of product range which can only be resolved by withdrawing some products.

 Holding company sales of subsidiaries.

 Raise funds for investment elsewhere.

b. Demerger

65
  Similar to withdrawal from the market, but has a rather specialist meaning with some attractive
implications.

 The strategy is used to realize the underlying asset values especially in publicly traded
companies.

 Also useful for merged companies with unrelated markets – they can be freed to focus on their
own activities without hindrance.

It has the disadvantage that it may destroy the benefits of size, cross-trading and uniqueness of a large
company.

c. Privatization

 In many countries around the world, there has been a trend to sell government-owned
companies into private ownership. (ZCCM, ZAMTEL, ZANACO, Zambia Railways!!)

The results in terms of product range, levels of service, accountability, efficiency etc can be significant.

d. Market Penetration in the Existing Market

 Attracting new customers within the existing market – while retaining existing customers.

 May involve launching an attack against the competition with a possibility of retaliation
especially if market growth is low.

The strategy may require improvements to product quality coupled with promotional activity.

e. Market Development using Existing Products

 Moving beyond the existing market to attract new customers in new market segments – with the
same basic product/service.

 May involve repackaging / developing new uses for the existing products.

f. Product Development for the Existing Market

 Developing new products for the existing market –

 Not just making minor variation on an existing products.

 May also lead to market development if new product attracts new markets

There are a number of reasons that might justify such a strategy:

66
 - to utilize excess production capacity;
- to counter competitive entry;
- to exploit new technology;
- to maintain the company’s stance as a product innovator;
- to protect overall market share.

g. Diversification: Related Markets

 Related diversification involves expanding business activities into new products and markets
linked by some commonality to the company’s existing value chain.

Three types of related diversification:

1. Forward integration. A manufacturer becomes involved in the activities of the organization’s

output such as distribution, transport, logistics
2. Backward integration. The organization extends its activities to those of its inputs such as its
suppliers of law materials, plant and machinery
3. Horizontal integration. The organization moves into areas Complementary or Competing with
its products. (eg taking over a rival firm)

Value creation:

- Economies of scope – Sharing of resources such as manufacturing facilities, R&D, Distribution

channels, advertising by two or more business units. Each participating unit thus pays less.

- Transfer of Competencies – Distinctive Skills and competencies in one unit can improve
performance in other units in the portfolio.

- Superior Corporate Parenting (Internal Governance) – Superior parenting/ management of the

various business units can improve their performance.

Value destroying:

- High bureaucratic costs – can exceed the value created

- Bureaucratic fog – delayed decisions; unresponsiveness to markets

- Managerial ambition among SBU’s to climb the corporate ladder can shift their focus from value
creating work in the SBU.

h. Diversification: Unrelated Markets

 Unrelated diversification involves moving into totally new markets outside the organization’s
value chain.

 When an organization moves into unrelated markets, it runs the risk of operating in areas where
its detailed knowledge of the key factors for success is limited.

67
Value Creation

- Superior Corporate Parenting – eg tight financial controls.

Comment: The Market Options matrix structures the options available but not how to choose between
them.

3.0 THE EXPANSION METHODS MATRIX

Definition: The method seeks market expansion options by examining the organizations internal
and external opportunities and its geographical spread.

68
 For example, launching a new product could be done using an existing company or an acquisition,
merger or joint venture with another firm.

Expansion Method Matrix

Company

Inside Outside

Inside Outside
Internal development Merger
Acquisition
Home Joint venture
Country Alliance
Franchise

Exporting Merger
Geographical Overseas office Acquisition
location Overseas manufacturing Joint venture
Multinational operation Alliance
International
Global operation Franchise
Turnkey
Licensing

International
Acquisitions

 Purchasing another company on account of its assets such as brands, market share, core
competencies and special technologies.

 May be used as a method of entry into new markets and less risky than new ventures

 May also be used to circumvent /by pass entry barriers to an industry.

 May fail to realize full potential due to integration problems with parent company or poor
analysis prior to acquisition (good from far but far from good!!).

Mergers

 Similar to acquisitions but in this case neither company is big enough to buy out the other

 Two companies combine for strategic purposes.

Joint ventures

 A joint venture is the formation of a company whose shares are owned jointly by two parent
companies.

69
  Benefits from the skills and assets of both parents.

Alliances

 An Alliance takes the form of a weaker contractual agreement between two parent companies.

 May even involve some minority shareholding between companies but falls short of formation of
a separate subsidiary.

Franchise

 A form of licensing agreement in which the contractor provides the licensee with a pre-formed
package of activity in return for a % of turnover.

 May include a brand name, technical service expertise and some advertising assistance.

INTERNATIONAL OPTIONS

1 Turnkey: - A contractor has total responsibility for building and commissioning a large-scale
plant.

2 Licensing: - Technology or other assets are provided under licence from the home country in
return for royalty or percentage of turnover.

More generally, overseas expansion for many companies may take the form of the following sequence:

 Exporting as a possible first expansion step.

 An overseas office may then be set up to provide a permanent presence.
 Overseas manufacture can take place, but this dearly increases the risk and exposure to international
risks such as currency.
 Multinational operations may be set up to provide major international activity.
 Global operations may be introduced. The distinction from multinational operations lies in the degree of
international commitment and, importantly, in the ability to source production and raw materials from
the most favourable location anywhere in the world.
There are various risks and opportunities associated with all the above operations.

LECTURE 11: RESOURCE-BASED STRATEGIC OPTIONS:

RBV Strategy Options

“Competitive advantage and superior performance of an organization is explained by the
distinctiveness of its resources/ capabilities….” RBV

70
  Resource based options arise from the analysis of the organization.
 Particularly useful when market opportunities are limited.
 Also useful when the organization has only limited resources.

1.0 The Value Chain

Value Chain: - Those activities within and around an organization which together create a
product or service.
 The added value at each part of the Org contributes to the whole or the ‘Margin’
 Margin = Total ‘market’ added value – Collective cost of performing the value activities
 The analysis is conducted at the level of product groups – not at corporate str.level.

Value Network: The set of inter-organizational links and relationships that are necessary to
create a product or service.
1.1 Identifying Sources of Value Added: Upstream and Downstream

Value can be added early in the value chain (upstream), and later in the value chain
(downstream). Examining where and how value can be added by the resources of the
organization will generate strategic options.

 Upstream value is added by low-cost, efficient production and process innovations.

71
 Downstream value is added by retail development, patenting, advertising and market
positioning.

2.0 Resource Based View – Distinctive Resources

 Each organization is unique in terms of its resources.
 This means that there can be no formula that will identify the strategic options.
 It is necessary to survey each of the functional areas of the organization for their
resources.

2.1 Distinctive Capabilities: - Architecture, Reputation & Innovation

Essentially the resource-based view argues that organizations need some form of
distinctiveness over competitors. In seeking out options, one method would be to test our
resources against the criteria of architecture, reputation and innovation."

This would focus the process in terms of both current resources and those needed for the
future. For example using these three concepts, we can specify the ways in which News
Corporation has been developing in this area:

Architecture:
 The network of relationships and contracts both within and around the organization:
 Creates knowledge & Routines, exchange of information and external relationships that
are difficult to replicate.

Examples
 Major construction companies and the government.
 Milling companies and grain suppliers and distribution channels
 Film producers and Cinemas

Reputation:
 The favorable impression about a company with its customers and other stakeholders
 Takes a long time to build and is a distinctiveness that is difficult to break.

72
 Examples
 A construction company with a reputation for timely delivery of good quality
work and to budget would reap great rewards over time.
 On the other hand, an airline company with a reputation for delayed flights and
frequent plane crushes builds a poor record difficult to erase.

Innovation:
 The organization's capacity to develop new products or services.
 Usually anchored on structure, culture, procedures and reward systems.

2.2 Core Competencies (Hamel and Prahalad)

 An integrated group of production skills and technologies that enable an

organization to provide a particular benefit to customers.
 They represent a fundamental resource of the organization & can lead to CA

Three areas distinguish the major core competencies (CC’s);

 Customer value: - CC’s must make a real impact on customer perception of the
org. and its products

 Competitor differentiation: - They must set the company apart from the
competition. If the competencies are not unique in the industry, they cannot set
the organization apart.

 Extendable: - they must be applied to new product areas and across the range of
the company’s products.

3.0 Cost Reduction Strategies

“Competitive advantage is gained through cost reduction strategies….”

In some markets, companies are unable to survive unless they can cut costs drastically. Cost
reduction strategy options therefore need to be considered.

The main routes to cost reduction are:

73
  Designing in cost reduction :- In some industries, large cost reductions come not from
activity in the production plant, but before the product ever reaches the factory. By
carefully designing the product - for instance, so that it has fewer parts or is simpler to
manufacture - real reductions in costs can be achieved.

 Supplier relationships: - If a supplier is willing and able to maintain quality and reduce
costs, then the organization will achieve a cost reduction.

 Economies of scale and scope: For a large plant, unit costs may fall as the size of
the plant increases. It may also be possible for different products to share some facilities
and functional costs.

 The experience curve: As a company becomes more experienced at production,

it may be able to reduce its costs.

 Capacity utilization. Where plant has a high fixed cost, there may be cost
reductions to be obtained by running production as close to capacity as possible.

Designing in Cost Reduction

 In some cases, up to 70 per cent of the cost of manufacturing a product is determined at the
design stage - that is, before the product ever reaches the factory.

The reason is that it is at the design stage that major savings can be made on components, plant and
procedures.

It is more difficult to make them once products have reached the factory floor because of the inflexibility
of installed machinery and the high cost of changing over time.

 In addition, efficiency in the design procedures themselves has become an important ele ment in
the process. It can take years to design some products, with all the consequent costs involved. If
time can be saved, this reduces the cost of the process.

74
Example

Renault Cars (France) announced a new design and development facility in 1995 costing US$1.22 billion.

The aim was to reduce design time from 58 months to 38 months for a new car launch in the year 2000.

The facility's current cost per car was between US$1 billion and US$5 billion, depending on the model:
this would be reduced by US$200 million per model simply by producing each design more quickly.

Supplier Relationships

 One of the ways of reducing costs is by negotiating cost reductions with suppliers to the
organisation.

1. Closer relationships with suppliers:- This will involve sharing technical and development information in
order to lower the cost of the finished product. It implies closer co-operation over many years, often
with a small number of key suppliers. Inevitably, some of the value added is passed from the
manufacturer to the supplier. However, it can help to drive down costs overall and raise quality.

2. More distant relationships with suppliers:- This will involve aggressive negotiating to obtain the lowest
possible price for an agreed specification (cut throat)

Economies of Scale and Scope

Economies of scale are the extra cost savings that occur when higher volume production allows unit
costs to be reduced.

 When it is possible to perform an operation more efficiently or differently at large volumes, then
the increased efficiency may result in lower costs.

 Different from capacity utilisation of plant ; In the latter case, costs fall as the plant reaches
capacity but would not fall any further if an even larger plant were to be built. With economies
of scale, the larger plant would lead to a further cost reduction.

Economies of scope are the extra cost savings that are available as a result of separate products
sharing some facilities.

 Products can share the same retail outlets and can be delivered by the same transport.

75
  Research and development. On some occasions, only a large-scale operation can justify special
services or items of testing equipment.

 Marketing: - Large companies can aggregate separate advertising budgets into one massive fund
and negotiate extra media discounts not available to smaller companies.
 Distribution. Loads can be grouped and selected to maximise the use of Carrying capacity on
transport vehicles travelling between fixed destinations.

Using the Experience Curve Effect

The experience curve is the relationship between the unit costs of a product and the total units ever
produced of that product, plotted in graphical form, with the units being cumulative from the first day
of production.

 It was shown that an empirical relationship could be drawn between a cost reduction and
cumulative output.
 It appeared to show dramatic reductions in costs: typically, costs fall by 15 per cent every time
overall output doubles.

 Technical progress;
 Greater learning about the processes;
 Greater skills from having undertaken the process over time.

Capacity Utilisation

Capacity utilisation is the level of plant in operation at any time, usually expressed as a percentage of
total production capacity of that plant.

LECTURE 12

OTHER BUSINESS LEVEL STRATEGIES

1 INVESTMENT STRATEGIES

Industry Life Strong Competitive Position Weak Competitive Position

Cycle

76
 1 Embryonic Share Building Share Building
2 Growth Growth Market Concentration
3 Shake out Share Increasing Market
concentration/Harvest/Liquidation
4 Maturity Hold – and – Maintain /Profit Harvest or Liquidation/Divestiture
5 Decline Market Concentration or Turn around, Liquidation, or Divestiture
harvest (asset reduction)

Share Building Strategies: Building market share through the development of a stable and
unique competitive advantage in order to attract customers with no knowledge of the company’s
products. At this stage capital requirements are huge and success depends on attracting outside
investors or venture capitalists.

Growth Strategy: Growing the company with the expanding market by infusing successful
waves of capital to maintain the momentum generated by the success of the embryonic stage.
May include entry into new market research, increased R&D,

Market Concentration Strategy: the firm seeks to consolidate its position by specialization or
focusing on a market niche. The weak firms do this to reduce the pressure for additional
investment

Share Increasing Strategy: Firms seek to invest in product development and increase their
market share as weaker firms exit the industry. The particular strategies employed depend on the
generic strategy; Cost leaders invest in cost control; Broad differentiators deepen their
differentiation & widen product range; Weak differentiators withdraw to a focused strategy
(market concentration)

Hold and Maintain Strategy: Firms make further investments in their distinctive competences
in order to maintain their positions and ward off threats from other companies wishing to usurp
their positions. Cost leaders may invest in the latest technology while differentiators may increase
their after sales service.

Harvest Strategy: The firm reduces to a minimum the assets it employs in order to reduce its
cost structure, extract or milk maximum profits, and finally exit the industry.

Turnaround Strategy: Company redeploys its resources and changes its strategy. Focus is on
speed of change and rapid cost reduction and revenue generation. Used when the strategy-
structure fit is poor or when a firm faces a crisis.

2 STRATEGIES IN FRAGMENTED INDUSTRIES ( Many small and medium sized

industries)
 Focus strategy
 Franchising – Parent company grants franchisee the rights to use its name, reputation,
Business skills at a particular location.
 Horizontal Merger

77
  Use of Internet

Horizontal Merger

 A business consolidation that occurs between firms in the same industry and who operate
in the same strategic space. Focus is to gain economies of scale, synergize and reap
potential gains in market share.

3 INNOVATION STRATEGIES (Profiting from innovation)

STRATEGY HAVE ALL LIKELY NO. OF

COMPLEMENTARY HEIGHT OF CAPABLE
ASSETS? BARRIER TO COMPETITORS
IMITATION
1 Going it Alone Yes High Few
2 Enter into Alliance No High Limited
3 License the Innovation No Low Many

4 STRATEGIES TO DETER ENTRY IN MATURE INDUSTRIES

 Product Proliferation(Pursue a broad product line to deter entry)
 Price Cutting (High initial price to recover investment followed by drastic price cuts
to deter entry)
 Maintaining Excess Capacity (Producing or ability to produce - more of the product
than currently reqd.)

6 STRATEGIES TO MANAGE RIVALRY IN MATURE INDUSTRIES

 Price Signaling (Tit for tat pricing; indirect coordination/collusion)

 Price Leadership (One company sets a bench price and others follow; e.g. Buseko
timber prices set Lusaka/Copperbelt timber retail prices)
 Non Price Competition (Market Penetration; Market Development; Product
Development; Product Proliferation)
 Capacity Control Strategies
 Pre-emptive: - Firm foresees large scale increase in demand and makes first
move to invest in increased capacity to satisfy forecast demand. Firm then gains
first mover advantage with the experience curve.. Early Bird……
 Coordination: - Tacit coordination through announcements, newsletters, etc.
also trade associations can be used to disseminate planned investment
information.

78
LECTURE 13

CORPORATE-LEVEL STRATEGY OPTIONS

 The business level strategy options focus on individual markets and firms that operate in a single
industry.
 As firms choose to diversify beyond a single area and operate in several markets, they require a
corporate strategy to co-ordinate, manage and communicate with each business area and with
outside organizations such as banks and shareholders.
 Corporate level strategy also means the role of the corporate headquarters in directing and
influencing strategy across a multi-product group of companies.

 Corporate level strategy is important because multi-business corporations are major con-
tributors to all the economies of the leading nations of the world.

79
Three Grand Strategies: Stability, Growth and Retrenchment

 Stability Strategy: If the company wishes to continue in the existing business and if the company
is doing reasonably well in that business but has no scope for significant growth, the strategy to
be adopted is stability.

Reasons for a stability strategy

1. The company is doing fairly well and it is hopeful of the same in future.

2. Family dominated or private company may not like to expand its business if its amounts to
diluting the control or if effective supervision is not possible.

3. The feeling that sticking to the known business is always better and safe.

4. The company may lack the resources and capabilities for expansion.

5. The company may not want to take the risks of growth and expansion. The company which has
core competence in the existing business does not want to take the risk of losing sufficient
attention to the current business by going for diversification.

6. The management does not have the mind-set of a strategist to analyze environmental
opportunities and seize the opportunities.

 Growth Strategy: The growth strategy amounts to redefining the business by adding new
products/services or new markets or by substantially increasing the current business.

Reasons for Growth Strategy

1. The current business is perceived as having no future.

2. The current business is unstable or volatile in nature.

3. The current business does not fully utilise the available resources and capabilities.

4. There is a feeling of the need for spreading business risks.

5. In some cases, expansion is a retaliatory move. When a company in another business

enters the firm’s business the firm retaliates by entering the other company’s business.
Some firms have the tendency to imitate the growth strategies of competitors. In many
cases, growth strategy is the result of the urge to grow.

6. To increase market share or gain dominance.

80
 7. To exploit the environmental opportunities.

 Retrenchment or Defensive strategy: It involves contraction of the scope or level of business or

function. In some cases it amounts a redefinition of the business. A firm pursues a retrenchment
strategy when: It drops product line (s), market (s), market segment (s) or function (s). Focuses
on functional improvements or reversing certain deteriorating trends.

Reasons For Retrenchment Strategy

1. Certain division/product lines/products/market segments/functions are not profitable.

2. The profit from a business is less than the target rate.

3. The company wishes to focus on its core business.

4. The company is too diversified/scattered such that effective management is not possible.

5. The company has serious financial problems and the funds obtained by divestiture can be
used for strengthening other businesses.

6. Certain current businesses don’t conform to the company philosophy/ethics.

7. The company is confronted with deteriorating performance indicators.

Some Retrenchment / Defensive strategies:

Divestiture: Happens when a company sells or divests itself of a business or a part of a business. It
may be because of a loss, less than target rate of return, urgency to mobilise funds, managerial
problems, or redefinition of the business of the company.

Liquidation: Occurs when an entire company is sold or dissolved. When there are no buyers for a
company as a whole, its assets may be sold and company may be wound up.

Becoming a Captive: A firm becomes a captive of another firm when it subjects itself to the decision
of the other firm in return for a guarantee that a certain amount of the captive’s product will be
purchased by the other firm.

Turnaround Strategy: A turnaround strategy involves management measures designed to reverse

certain negative trends and to bring the firm back to normal health and profitability.

Combination Strategy A company pursues a combination strategy when it adopts more than one grand
strategy (i.e., stability, growth and retrenchment) simultaneously or sequentially.

Examples

81
 Stability and Growth; Stability and Retrenchment; Growth and Retrenchment; Growth, Retrenchment
and Stability.

A combination strategy results from environmental changes and redefinition of the business.

OTHER CORPORATE LEVEL STRATEGIES

1 VERTICAL INTEGRATION

1.1 DEFINITION: The company produces its own inputs (backward/upstream) or disposes
of its own products (Forward/downstream).

Can take the form of or Tapered Integration

1.2 CREATING VALUE THROUGH VERTICAL INTEGRATION:

82
  Builds Barriers to Entry: By gaining control of critical inputs or distribution
channels.

 Facilitates Investments in Specialized (one use) Assets: Owning the adjacent

stages allows the firm to invest in the specialized asset which other firms may
shun.

 Protects Product Quality:

 Improves Scheduling

1.3 LIMITATIONS OF VERTICAL IINTEGRATION:

 Cost Disadvantages: Commitment to purchase inputs from company owned

suppliers when cheaper alternatives are available.

 Technological Changes: Ties the company to obsolete technology - owned by its

suppliers and distributors - in the face of fast changing technology.

 Demand Uncertainty: Balancing capacity in the Supplier-Firm-Distributor line

up can be difficulty if the firm is vertically integrated.

2 DIVERSIFICATION
2.1 DEFINITION: Diversification is investing into a new business activity which may be
within its value chain (Related) or not (Unrelated)

2.2 CREATING VALUE THROUGH RELATED DIVERSIFICATION

 Superior Internal Governance: When the diversified portfolio is managed so

well that they deliver better results than they would independently.
 Transferring Competences: Value is created by drawing on one or more
distinctive skills from existing firms and use it in the new business.
 Economies of Scope: the sharing of such resources as manufacturing facilities,
distribution channels, R&D, Advertising etc… Surrogate advertising at Sweet
Drinks Ltd!!!

2.3 LIMITS TO DIVERSIFICATION

 Information overload: Too many firms means top executives cannot make
quality analysis and decisions.

 Poor Coordination: Poor coordination may erode the would be advantages of

diversification. Higher Coordination raises bureaucratic costs.

3 STRATEGIC ALLIANCES

83
 Agreements between two or more firms to share the cost, risks, and benefits associated with
developing new business opportunities.

Depending on the level of involvement, strategic alliances can take the form of

 Outsourcing,

 joint ventures,

 licensing,

 franchising,

 Networking or

 Long Term Contracts:

THE PRINCIPLE OF CORPORATE PARENTING

Corporate Parenting refers to the role and relationships of corporate HQ with the various subsidiaries:

 The purpose parenting is to add value to the subsidiaries that are served; otherwise the parental
cost cannot be justified.
 Subsidiaries need to perform better with the parent than they would independently.

The corporate HQ’s role might include the following possible areas:

a) Corporate functions and services such as international treasury management and human resource
management;
b) Corporate development initiatives, such as centralised R&D and new acquisitions;
c) Additional finance for growth or problem areas, on the principle of the product portfolio (BCG
Matrix)
d) Development of formal linkages between businesses such as the transfer of technology or core
competencies between subsidiaries;
e) Detailed comments on and evaluation of the strategies developed by the subsidiary companies.

 Clearly, such parenting resources are formidable if carefully developed.

 However, corporate headquarters have a cost.

Corporate HQ characteristics

The parent needs three attributes:

84
1. An understanding of the key factors for success relevant for all of the diverse industries in which
each of its subsidiaries is engaged;

2. An ability to contribute something extra beyond the subsidiaries that it manages - these might be
from any of the areas identified earlier (e.g. R&D, finance);

3. An ability to define its HQ role accordingly.

 If the diversified group is highly related, then HQ has a strong strategy linking role;
 If the group is highly diversified, then HQ has a role closer to a banker who leaves the strategy to
the subsidiaries, raises the finance for the group and assesses the performance of subsidiaries.

Main Activities Undertaken by HQ

The five main areas of corporate headquarters activity are:

1 Ethics and corporate social responsibility issues.

2 Stakeholder management and communication, including shareholders.

3 Control and guidance of subsidiaries: the degree of control will depend on the

diversification.

4 Remuneration incentives and people evaluation: for many multi-product groups and
corporations, this is a vital role of the headquarters.

5 Legal and treasury: all companies have legal requirements with regard to tax and company reporting
that must be co-ordinated from the centre. In addition, many companies will have a treasury function
at HQ: the role here is to manage the cash across the group and to raise new funds for the group, as
required.

Decisions about the Company’s Diversified Portfolio Of Products

Diversified companies have a range of products serving many customers in different markets: such
companies have a diversified portfolio of products.

When an organisation has a number of products in its portfolio, it is quite likely that they will be in
different stages of market development: some will be relatively new and some much older.

 It’s risky to have all your products in the same markets and at the same stages of development

85
  It is useful to have some products with limited growth but producing profits steadily, while others
have real potential but may still be in the early stages of their growth.
 Products that are earning steadily may be used to fund the development of those that will provide
the growth and profits of the future.

 The key strategy is to have a balanced portfolio of products - some low-risk but dull growth,
some higher-risk with future potential and rewards.

 The results can be measured in both profit and cash terms.

To arrive at this balance, the starting point is product portfolio analysis originally suggested by the Boston
Consulting Group (BCG), Sometimes called the growth share matrix.

The matrix analyses the range of products against the twin criteria of relative market share and
market growth.

The BCG Growth-Share Matrix

Purpose: To produce the best balance of growth versus stable products within a diversified
company.

1 Relative market share; - The ratio of the share of the organisation's product divided by the share
of the market leaders;… Surveys of major companies found that businesses with over 50 per cent
share of their markets enjoy rates of return three times greater than businesses with small market
shares

2 Market growth rate; - For each product, the market growth rate of the product category.
Important because markets that are growing rapidly offer more opportunities for sales than lower
growth markets.

The Growth-Share Matrix – Individual Products or Product Groups Categorised by Market

Growth and Share

86
 Star Problem
High Market Child
Growth Rate
Cash user
Cash neutral
Cash Cow Dog

Cash
generator
Cash neutral
Low Market
Growth Rate High Relative Low Relative

Market Share Market Share

Stars: Products with high relative shares operating in high-growth markets.

The growth rate will mean that they heavy investment and will therefore be cash users.

However, because they have market shares, it is assumed that they will have economies of scale and be
able to large amounts of cash.

Overall, it is therefore asserted that they will be cash neutral - an assumption not necessarily supported in
practice and not yet fully tested.

Cash cows: Product areas that have high relative market shares but exist in low-growth markets.

The business is mature assumed that lower levels of investment will be required.

On this basis, it is therefore likely that they will be able to generate both cash and profits.

Such profits could then be transferred to support the stars.

However, there is a real strategic danger here that cash cows become under-supported and begin to lose
their market share.

Problem children: Products with low relative market shares in high-growth markets.

Such products have not yet obtained dominant positions in rapidly growing markets or, possibly, their
market share become less dominant as competition has become more aggressive.

87
The market growth means that it is likely that considerable investment will still be required and their
market share will mean that such products will have difficulty generating substantial cash.

Hence, on this basis; these products are likely to be cash users.

Dogs: Products that have low relative market shares in low-growth businesses.

It is assumed that the products will need low investment but that they are unlikely to be major profit
earners. Hence, these two elements should balance each other and they should be cash neutral overall.

In practice, they may actually absorb cash because of the investment required to hold their position.

They are often regarded as unattractive for the long term and recommended for disposal.

LECTURE 14: STRATEGIC PLANNING SYSTEMS

Selecting Strategic Options

88
  The best strategic decisions are not always arrived at through consensus - when everyone agrees
on one alternative.
 Process may involve heated disagreements and even conflict.
 Strategic managers use “programmed conflict” to raise different opinions regardless of the
personal feelings of the people involved.

Three techniques are used to avoid the consensus trap:

1. Devil’s Advocate Method: The devil’s advocate, is assigned to identify potential pitfalls
and problems with a proposed alternative strategy in a formal presentation.

2. Dialectical Inquiry: This philosophy involves combining two conflicting views – the thesis
and the antithesis – into a synthesis.

The dialectical method is discourse between two or more people holding different points of view about
a subject, who wish to establish the truth of the matter guided by reasoned arguments.[1]

 When applied to strategic decision making, it requires that 2 proposals using different
assumptions be generated for each alternative strategy under consideration.
 After advocates of each position present and debate the merits of their arguments before key
decision makers, either one of the alternatives or a new compromise alternative is selected as
the strategy to be implemented.
 The debate improves the quality of decisions by allowing for constructive conflict and by
encouraging critical thinking / evaluation

3. Strategy Shadow Committee

 Another approach used to generating a series of diverse and creative strategic alternatives.
 Top management sets up committee of employees at least 2 to 3 levels below the executive-level
strategy committee.
 Members serve for 2 years during which they see all materials and attend all meetings of the
executive strategy committee.
 Then the group is taken off site and asked to evaluate management and propose what the
company should be doing differently.
 The group’s report is then given to the Board of Directors.

Evaluation Criteria

Regardless of the process used, each resulting alternative must evaluated against 4 criteria:

89
 1. Mutual Exclusivity: Doing any one would preclude doing any other.
2. Success: It must be doable and have a good probability of success.
3. Completeness: It must take into account all the key strategic issues.
4. Internal Consistency: It must make sense on its own as a strategic decision for the entire firm
and not contradict key goals, policies, and strategies currently being pursued by the firm or its
units.

2.0 The Process of Strategic Choice: Selection of the Best Strategy

 Once the available strategic options have been identified and evaluated, it is time to choose one
or more of them for implementation.

Determining the best strategy:

Relevance to SWOT analysis factors. It must deal with the specific strategic factors identified earlier in
the SWOT analysis.

 If the strategy doesn’t take advantage of environmental opportunities and corporate

strengths/competencies, and lead away from environmental threats and corporate weaknesses,
it will most probably fail.

Satisfaction of Objectives. It must satisfy agreed-upon objectives with the least resources and the fewest
negative side effects.

 It is important to develop a tentative implementation plan so that the difficulties that

management is likely to face are addressed.

 This should take into account societal trends, the industry, and the company’s situation based on
the construction of scenarios.

Corporate scenarios are pro forma balance sheets and income statements that forecast the effect each
alternative strategy and its various programs will likely have on division and corporate return on
investment.

2.2 Development of Policies

Once the strategic alternative has been selected, the Organization must now develop policies.

90
Policies define the broad guidelines for strategic implementation throughout the organization

 They tend to be long lived and can even outlast the particular strategy that created them.
 They can even become, in time, part of the corporation’s culture.
 They can make the implementation of strategies easier.
 They can also restrict management’s future strategic options.

Thus a change in strategy should be followed quickly by a change in policies.

PRESCRIPTIVE STRATEGIC PLANNING

What is prescriptive strategic planning?

 A formal planning system for the development and Implementation of the strategies related to
the mission and objectives of the organisation.

 Strategic planning is no substitute for strategic thinking; it merely formalises the strategy process

 The plan will integrate the activities of the organisation and specify the timetable for the
completion of each stage – Action Plans

 Strategic planning should be an on-going activity that responds simultaneously to the pressure
of events and the dictates of the calendar.

Medium-term plan: - Developed for two or three years, where the environment is sufficiently stable.

Short-term plans: - Annual plans and budgets consistent with the medium term are then developed.

The Basic Strategic Planning Process

91
 Background Assumptions
& Projections

Long-term Vision &

Strategic Directions
Revised possibly
Input new dieas & data several times
collected on new growth Medium-term Plan, e.g.
areas, trends, etc.
2 – 3 years

Reconsidered after
discussion & debate
Short-term Plans, e.g. 1
year (to include budgets,
capital allocations, cash
flow, etc.)

LECTURE 15: STRATEGY IMPLEMENTATION

92
 This is the sum total of the activities and choices required for the execution of a strategic plan.
 It is the process by which strategies and policies are put into action through the development of
Programmes, Budgets, and Procedures.
 The main aim is to deliver the mission and objectives of the organization.

 Strategy formulation and strategy implementation should be considered as two sides of the
same coin.

Poor implementation has been blamed for a number of strategic failures.

 Studies show that 50% of all acquisitions fail and 25% of international ventures do not
succeed.

Strategy makers must consider these questions:

 Who are the people who will carry out the strategic plan?
 What must be done to align the company’s operations in the new intended direction?
 How is everyone going to work together to do what is needed?

These questions must be addressed again before appropriate implementation plans can be made.

Failure to answer these questions can lead to failure or mediocre results

A survey of 93 Fortune 500 U.S. firms revealed that more than 50% of them experienced the
following 10 problems when they attempted to implement a strategic change.

These problems are listed in order of frequency.

1. Implementation took more time than planned.

2. Unanticipated major problems arose.
3. Activities were not effectively coordinated.
4. Competing activities and crises took attention away from implementation.
5. The involved employees had insufficient capabilities to perform their jobs.
6. Lower-level employees were inadequately trained.
7. Uncontrollable external environmental factors created problems.
8. Departmental managers provided inadequate leadership and direction.
9. Key tasks and activities were poorly defined.
10. There was inadequate monitoring of activities.

93
 BASIC ELEMENTS OF THE STRATEGY IMPLEMENTATION PROCESS

Fig: Main Elements of the Strategy Implementation Process

The Nature & Limitations of

the Implementation
Process

Objectives, Task Setting & Resource Allocation Monitoring &

Communicating Controlling the Plan

Putting It All Together: The

Balanced Scorecard

Prescriptive Strategic Planning:

Concepts & Problems

1.1 Basic Elements of the Implementation Process

Essentially, these implementation issues need to address the following questions:

 What activities need to be undertaken in order to achieve the agreed objectives?

 What is the timescale for the implementation of these plans?
 How will progress be monitored and controlled?

To turn general strategies into specific implementation plans involves four basic elements:

94
 1. Identification of general strategic objectives - specifying the general results expected from the
strategy initiatives.
2. Formulation of specific plans – taking the general objectives and turning them into specific tasks
and deadlines (often cross-functional).
3. Resource allocation and budgeting – indicating how the plans are to be paid for (this quantifies
the plans and permits integration across functions).
4. Monitoring and control procedures – ensuring that the objectives are being met, that only the
agreed resources are spent and that budgets are adhered to.

Monitoring takes place against the projections on which the strategies are based: Economic change and
competitive activity.

The relationship between these activities is shown below:

The Basic Strategy Implementation Process

Strategy Statement of the Main Formulation of Resource

Choice Strategy Objectives Strategic Plans Allocation and
Budgeting
Quantifiable Tasks
Non-quantifiable Deadlines
Responsibilities

Monitoring & Control

Procedures

Objectives
Resources
Validity of the planned
environmental projections

1.2 Types of Basic Implementation Programs

Implementation programs will vary according to the nature of strategic problems facing the
organization.

1. Comprehensive Implementation Programme: - Deals with fundamental changes in strategic

direction.

 The organization has made a clear-cut, major change in strategic direction.

 Emergence of new competitive or technological opportunities

95
  Implementation will be done regardless of environmental changes or negative effects on
those affected.
 Close coordination is essential for success.

2. Incremental Implementation Programme: Characterized by small changes and short time spans
within the general direction implied by the strategy.

 Used where conditions of great uncertainty such as turbulent markets exists

 Timetables, tasks, objectives are all subject to change depending on developments
 Essentially a flexible strategic approach is used to counter the uncertainty.

Both these approaches have their difficulties, so a compromise may be chosen in practice; giving rise to
the selective implementation programme.

3. Selective implementation programmes: Used where neither of the above represents the
optimal way forward.
 Major programmes developed in selective areas only.
The above two extremes are related to the prescriptive and emergent strategic approaches.

Determining the Type of Implementation Program

Three choice criteria:

1. Are clear and substantial advantages to be delivered in a specific area??

 e.g. investment in a new drug that will provide competitive advantage
2. Are there large increments that cannot be subdivided??
 e.g. a new factory with long lead times for construction?
3. Is it important to protect some future step that may be required but cannot be fully justified on
the basis of current evidence??
 e.g. an investment in a new distribution facility that will be needed if development
programmes proceed according to plan?

For many organizations, it is useful to draw a basic distinction between:

 Ongoing, existing activities with higher certainty and more predictable strategic change, barring
a major cataclysm;
 New activities with higher uncertainty and possibly major strategic change.

1.3 Implementation in Small and Medium-sized Businesses

96
The basic elements of the implementation process are applicable to small businesses viz;

 The identification of general strategic objectives

 The formulation of specific plans
 Resource allocation and budgeting
 Monitoring and control procedures

Moreover, choosing the correct type of implementation programme is also important to SME’s

 Comprehensive,
 Incremental or
 Selective

Indeed SME’s will be required to submit essential information for any loans from financial markets.

Banks and other lending institutions no longer rely on vague promises and good intentions.

1.0 LIMITATIONS OF IMPLEMENTATION: BOUNDED RATIONALITY AND MINIMUM INTERVENTION

 Hrebiniak and Joyce suggest that the implementation process is not always optimal but is
limited by two principles:

 Bounded Rationality and;

 Minimum intervention.

1. Bounded Rationality.
 Managers in practice have difficulty in considering every conceivable option.
 Logical choices are therefore reduced to a more limited, ‘bounded’ choice – with managers
Satisficing rather than optimizing.
 Managers do the best they can within the limits of their circumstances, knowledge and
experience.
 Implementation is also likely to be limited with managers acting in a rational way and
reducing the overall task to a series of small steps in order to make it more manageable.
 Thus strategic goals and implementation are split into a series of smaller tasks that can be
more easily handled - But may not be optimal.
 In addition, individuals may make rational decisions and but will infuse their personal goals
which are not necessarily the same as those of the organization itself. Implementation
needs to ensure that there is consistency between personal and organizational goals.

97
 2. Minimum intervention.
 In implementing strategy, managers should change only what is necessary and sufficient
to produce an enduring solution to the strategic problem being addressed.
 If it ain’t broke, don’t fix it’.

 Implementation may be constrained by the need to consider the impact on the strategy
itself.

2.0 RESOURCE ALLOCATION

Most strategies need resources to be allocated to them if they are to be implemented successfully.

This section explores the basic processes and examines some special circumstances that may affect the
allocations of resources.

The Resource Allocation Process

There are three criteria which can be used when allocating resources.

1. The contribution towards the fulfilment of the organization’s mission and objectives.
 At the centre of the organization, the resource allocation task is to steer resources away
from areas that are poor at delivering the organization’s objectives and towards those
that are good.

2. Its support of key strategies.

 Requests for funds usually exceed the funds that are normally available.

 Further selection mechanism is required beyond the delivery of the organisation’s

mission and objectives.

This criteria relates to two aspects of resource analysis:

i. Support of core competencies, where possible, in order to develop and enhance CA;
ii. Enhancement of the value chain, where possible, in order to assist activities that also support
competitive advantage.

Both of the above can be usefully be treated as additional criteria when resources are allocated.

3. The level of risk associated with a specific proposal.

 The higher the risk, the lower the likelihood that the strategy will succeed .


The criterion needs to be considered in relation to the risk acceptance level of the
organization.
Special Circumstances Surrounding the Allocation of Resources

98
Special circumstances may cause an organization to amend the criteria for the allocation of resources.

Still on the basis of the common principle of bargaining for the centre’s funds some organizations will
consider the following:

 When major strategic changes are unlikely.

In this situation, resources may be allocated on the basis of a formula, for example, marketing
funds might be allocated as a percentage of sales based on past history and experience.
The major difficulty with such an approach is its arbitrary nature but it may, however, be a useful
shortcut.

 When major strategic changes are predicted.

In this situation, additional resources may be required either to drive the strategic process or to
respond to an expected competitive initiative.
In both cases, special negotiation with the centre is required rather than the adherence to
dogmatic criteria.

 When resources are shared between divisions.

In this situation, the centre may seek to enhance its role beyond that of resource allocation.
It may need to establish the degree of collaboration and, where the areas disagree, impose a
solution.
The logical and motivational problems associated with such an approach are evident.

OBJECTIVES, TASK SETTING AND COMMUNICATING THE STRATEGY

 The process of task setting and communications will cover the following:
 What is to be done,
 By what time and
 With what resources.

This is a significant implementation issue and involves five basic questions.

In reality, the answers to these questions will depend primarily on the way that the strategies have been
developed. In this sense, the strategy development phase and the strategy implementation phase are
interconnected.

1. Who Developed the Strategies that are Now Being Implemented?

 Most of the people in the corporate centre who are crucial to successful strategy implementation
probably had little, if anything, to do with the development of the corporate strategy?
 Ignorance will be higher and commitment to the new strategy will be lower among those
managers who have had no involvement in developing the strategy.
 It is important therefore to address the question of who developed the strategy, rather than
simply the question of who will implement it.

99
  The response to this question will shape the implementation process.

2. Who Will Implement the Strategies?

 Defines who is responsible for implementing a specific strategy.

 It is difficult to review progress at a later stage if no one is accountable for the way the strategy is
being carried out.

3. What Objectives and Tasks will they need to Undertake?

 We have already examined the concept of the hierarchy of objectives – corporate, divisional and
functional – cascading down from the top of the organization.

The main objectives and activities for implementation can also be considered as following a similar
process.

 The overall corporate objectives need to be translated into business level objectives
 Business level objectives need to be reinterpreted into the tasks and action programs that need
to be undertaken in order to achieve them.

 Deadlines are usually set to indicate the date for completion of a particular task, as are
milestones – interim indicators of progress so that those monitoring events can review
implementation while there is still time to take remedial action.

 In practice, the definition of objectives, tasks and plans may be simpler in smaller companies and
more complicated in larger companies.

4. How can Objectives and Tasks be Handled in Fast-Changing Environments?

 When environments are changing fast, it may be exceptionally difficult to specify satisfactory
objectives and tasks;
 By the time they have been agreed and communicated, the environment may have changed.

In this situation, Three guidelines can be applied;

1. Flexibility in objectives and tasks within an agreed general vision;

2. Empowerment of those closest to the environment changes, so that they can respond quickly;
3. Careful and close monitoring by the centre of those reacting to events.

5. How will the Implementation Process be Communicated and Coordinated?

100
  In small organizations, it may be unnecessary, over-complex or inappropriate to engage in the
elaborate communication of agreed strategies.

 People who have explored the strategic tasks together during the formulation of the strategy
and meet each other on a regular basis may not need lengthy communication during
implementation.
 However, in larger enterprises, it is likely to be essential for four reasons:

a. to ensure that everyone has understood;

b. to allow any confusion or ambiguity to be resolved
c. to communicate clearly the judgments, assumptions, contingencies and possibly the choices
make during the strategy decision phase
d. to ensure that the organization is properly co-ordinated.

This last point deserves particularly careful thought an action because co-ordination involves two major
strategic two major strategic areas; value chain linkages and synergy.

The value chain was introduced and its ability to deliver unique linkages across the organization was
discussed above.

The purpose of such linkages is to develop competitive advantage because they are unlikely to be
capable of exact replication by other companies whose history, competencies and resources will be
marginally different.

Such linkages will be meaningless at the implementation stage if careful coordination is lacking.

LECTURE 16: STRATEGY IMPLEMENTATION & ORGANIZATIONAL DESIGN

Matching Strategy to Organizational Structure

SUMMARY

1. Implementing a strategy successfully depends on selecting the right organizational structure and
control systems to match a company’s strategy.

2. Organizational Structure examples

i. Simple Structure (
ii. Functional Structure
iii. Multi-Divisional Structure
iv. Matrix Structure -
v. Product Team Structure
vi. Geographic Structure

101
3. Organizational Design is the basic tool for strategy implementation.

4. Good Organizational Design

 Economizing on bureaucratic costs;
 Lowers the cost of value creating activities;
 Enhances competitive advantage through superior efficiency, quality, innovation and
customer responsiveness

Building Blocks of Organizational Structure:

Two Building Blocks of Organizational Structure determine how a structure will work and how
successful strategic managers will be at creating value through their chosen structures; the two
building blocks are:
1. Differentiation (Vertical & Horizontal)
2. Integration

 Higher levels of differentiation and Integration lead to higher bureaucratic costs

1.1 Vertical Differentiation:

This refers to how a company chooses to allocate decision making authority. Options include flat
or tall structures and each option has associated advantages and disadvantages.

1.2 Horizontal Differentiation:

Refers to how a company groups organizational activities into Divisions, Functions, Departments
or Sections.
For example, the marketing and sales functions can be combined into one or separated into two,
leading to lesser or greater horizontal differentiation.

2.1 Integration:
This is the means by which different functions coordinate and cooperate to achieve
organizational objectives.

2.2 Integrating Mechanisms:

 Direct Contact – e.g. Sales and Production managers meet and discuss ways and means
of coordination.
 Interdepartmental Liaison Roles – one manager in each division coordinates with
counterpart in a sister dept.
 Task Forces – Coordination among multiple functions; usually temporal
 Permanent Teams – various org standing committees: e.g. New-Product Dev
Committees; mgt comm.; tender committee; etc cross functional in nature
 Integrating Roles – Sometimes called strategic planning dept; staffed by senior
experienced managers to coordinate among depts. or divisions to ensure synergic gains.
 Matrix Structure – adopted for highly differentiated organizations; Built on the basis of
temporary task forces; Helps org respond quickly to environmental changes.

102
Examples of Organizational Structures

Product Team Structure 1

103
Divisional Structure 1

Muti-Divisional Structure

104
105
Matrix Structure 1

LECTURE 17

STRATEGIC INFORMATION, MONITORING AND CONTROL

1.0 What it Is:

This is the process by which managers monitor on-going activities of an organization and its people to
evaluate performance and, if need be take corrective action.

106
2.0 Why It is Important

Once strategy implementation has begun, then monitoring and controls become operational and serve
to;

1. Assess resource allocation choices; - Have we allocated sufficient resources in the right places?
2. Monitor progress in implementation; - How well are we doing
3. Evaluate the performance of individual Managers as they go about the achievement their
implementation tasks;
4. Monitor the environment for significant changes from the planning assumptions and
projections;
5. Provide overall feedback mechanism and the fine-tuning essential for emergent
implementation, especially in fast-changing markets.

3.0 Focus

 To avoid information overload, focus should be on the key factors for success

 Some big organizations have whole departments whose sole task is to monitor competitors.

 Small businesses are acutely aware of their immediate competitors and customers, the market
prices and other forms of strategic activity.

4.0 The Main Elements of a Strategic Control System

Strategic control systems will include the following;

i. Financial performance
ii. Customer satisfaction;
iii. Quality measures;
iv. Market share.
v. Competitors’ performance
5.0 Designing an Effective Strategic Control System:

i. Establish targets and standards.

ii. Create Measuring and Monitoring Systems
iii. Compare targeted and actual performance
iv. Evaluate Results and take corrective action

6.0 Types of Control Systems

107
 FINANCIAL OUTPUT BEHAVIORAL ORGANIZATIONAL
CONTROLS CONTROLS (e.g. CONTROLS CULTURE
MBO)

Stock Price Divisional Targets Budgets Values

Return on Functional Standardization Norms

Investment (ROI) Targets

Profitability Individual Targets Rules and Socialization

Procedures

7.0 Strategic Reward Systems

Employees’ behaviour can be controlled by linking control systems to reward systems

 Decide on which behaviours to reward
 Create control system to measure the behaviours
 Link reward structure to the measured behaviours
 Motivates and reinforces desired behaviours

8.0 Strategy Control, Budgets and Cost Accounting

 Some scholars argue that it is 'vital' to link the strategy monitoring process into the budget
process.

 They argue that control of the two by different departments, may lead to short-term budget
considerations overshadowing longer-term important strategic decisions.

 However, other scholars argue that strategy is more concerned with exploration, debate and
assessment; and far removed from rigid budget formulae and variances.

 This is a realistic but short-term Anglo-American view of the way that business operates.

9.0 THE BALANCED SCORECARD APPROACH TO STRATEGIC CONTROL

The Balanced Scorecard uses strategic and financial measures to assess the outcome of a chosen
strategy.

108
 Seeks to address different expectations from various stakeholders.
 Uses a ‘scorecard’ based on four prime areas of business activity to measure the results of the
selected strategy.
 Seeks to balance between historical and future performance as well as financial and nonfinancial
indicators.

Four areas of Focus/Perspectives are:

1. Financial

2. Customer

3. Internal Business Processes

4. Learning and Growth

The Figure below illustrates the linkages between the four perspectives.

109
 1. Financial perspective.
 Translates the purpose of the organisation into action through clarifying precisely what is
required and gaining commitment to it.
 For example, if the survival of the business is important, then cash flow features
prominently on the scorecard.
2 Customer perspective.

 Purpose needs to be seen in the context of customer-oriented strategy.

 Should include not only market share data but also areas, such as customer retention and
customer satisfaction exemplified by repeat business.

3 Internal perspective.

110
  Concerned with internal performance measures such as productivity, capital investment
against cost savings achieved, labour productivity improvements etc

 Might involve setting internal strategy targets and establishing milestones for the
implementation of the strategy.
 For example, development of a new website will involve not only the customer satisfaction
mentioned above but also registration of the web page, design of the site, maintenance of
the site all of these elements might be specified and targeted with dates and costs.

4 Innovation and learning perspective.

 Provides feedback and learning through strategy reviews and sharing comments on the
outcome of events.
 Has the effect of highlighting the importance of communicating and linking people with the
purpose through education, goal setting and rewards for achieving the required
performance.

 For example, the achievement of a market share objective might be accompanied by a

review of what was done well and what could be improved next time.

Benefits of BSC Framework

 Increase focus on strategy and results

 Improve organizational performance by measuring what matters

 Align organization strategy with the work people do on a day-to-day basis

 Focus on the drivers of future performance

 Improve communication of the organization’s Vision and Strategy

 Prioritize Projects / Initiatives

10. Improving Strategic Control Systems.

Strategic control systems themselves cannot remain static, they need to be changed in order
to respond to changes and remain relevant.

111
 Some useful guidelines on strategic controls

i. Concentrate on the key performance indicators and factors for success.

There is a real danger that too many elements will be monitored, with resulting information
overload.

ii. Distinguish between corporate, business and operating levels of information and only monitor
where relevant.
 Not everyone at HQ needs to know that a minor product has just achieved its sales
target.
 A division may have limited interest in market share data from another division.

iii. Avoid over-reliance on quantitative data.

 Numbers are usually easier to measure but may be misleading and simplistic.
 Qualitative data and information though difficult to quantify may be far more relevant
to strategy monitoring.

iv. As controls become established, consider relaxing them.

 They may interfere with the more important task of clear and insightful strategic
exploration.
 Every organisation may need to go through this stage of learning before controls are
relaxed.

v. Create realistic expectations of what the control system can do as it is being introduced or
upgraded.
 Some managers may regard strategic controls as a waste of time since results take long
to manifest.
 It is better to acknowledge that results will not be immediately obvious.

MATCHING STRUCTURE & CONTROL TO STRATEGY

OVERVIEW

112
  There is need to match Strategy to Structure to Control in order to effectively implement
strategy
 Matching Strategy and Structure and Control builds CA
 The choice of Business Level Strategy influences the choice of structure and control; and vice
versa
 Global Strategies must also match global structures and global controls

1.0 Structure and Control at the Functional Level

 Functional Level decisions include choice of vertical differentiation and monitoring and
evaluation systems. (Horizontal differentiation is at business level)
 Functional strategy is concerned with developing distinctive competence; improving
efficiency; quality and Customer responsiveness.
 TQM methods are effective: (Manufacturing example)
o Employees input to decision making improve efficiency and quality
o Decentralized authority
o Work-Teams are created
o Quality Control circles
o Bonus systems effected
o Managers assume the role of coaches
o Tight control over work activities

2.0 Structure and Control at the Business Level

 Focus is on managing cross functional relationships
 Choice of horizontal differentiation and Integration I important
 Control systems for cross functional relationships must be developed.

Generic Strategy, Structure, and Control

Gen Strategy Cost Leadership Differentiation Focus

Structure Functional Product Team Functional

Integrating Centered on manufacturing Centered on R&D or Mktg Centered on product or

Mechanism consumer

Output controls Very Useful (e.g. Cost control) Useful (e.g. quality goals) Useful (Cost & quality)

113
Behavior controls Useful (budgets, standardization) Very useful (rules, budgets) Useful (budgets)

Organizational Little use (quality control circles) Very useful (norms & values) Very Useful (norms and
Culture values)

3.0 Structure and Control at the Corporate Level

 Focus is to operate the different business units efficiently
 Most useful structure is the multi-division structure

TYPE OF CONTROL

Corporate Appropriate Integration Needs Financial Behavior Org Culture

Strategy Structure Control Control

Unrelated Multi-division Low (no exchanges Very Useful Useful (Budgets) Little use
Diversification between divisions) (ROI)

Vertical Multi-division Medium Very Useful Very useful Useful (shared

Integration (scheduling resource (ROI, Transfer (standardization, norms and
transfer) pricing) budgets) values)

Related Multi-division High (synergies btn Little use Very Useful Very useful
Diversification divisions) (rules, budgets) (norms, values,
common
language)

114