Session 1

1: Introducing Strategy

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Slide 1.*

1: Introducing Strategy


Session 1Session 2Session 3Where are we now?Where are we going?How will we get there?


LearningsSummarise the strategy of an organisation in a strategy statement.Identify key issues for an organisations strategy according to the Exploring Strategy model.Distinguish between corporate, business and operational strategies.Understand how different people contribute to strategy at work.Appreciate the contributions of different academic disciplines and theoretical lenses to practical strategy analysis.


Definitions of strategy..the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resource necessary for carrying out these goalsAlfred Chandler

Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of valueMichael Porter

..a pattern in a stream of decisionsHenry Mintzberg

..the long-term direction of an organisationExploring Strategy

Sources:

A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT Press, 1963, p. 13M.E. Porter, What is strategy?, Harvard Business Review, 1996, NovemberDecember, p. 60H. Mintzberg, Tracking Strategy: Toward a General Theory, Oxford University Press, 2007, p. 3


Strategic Decision Making


Three horizons for strategyFigure 1.2 Three horizons for strategySource: M. Baghai, S. Coley and D. While, The Alchemy of Growth, 2000, Texere Publishers: Figure 1.1, p. 5


StakeholdersStakeholders are those individuals or groups that depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends.


Levels of strategy (1)

Operational strategy

Business-level strategyCorporate-level strategyNews Corporation diversifying from print journalism into social networking.Website and marketing improvements at My Space to attract more users.MySpace engineers increasing processingCapacity.concerned with the overall purpose and scope of an organisation and how to add value to business units.concerned with the way a business seeks to compete successfully in its particular market.concerned with how different parts of the organisation deliver the strategy in terms of managing resources, processes and people.


Strategy statementsStrategy statements should have three main themes: the fundamental goals that the organisation seeks, which draw on the stated mission, vision and objectivesthe scope or domain of the organisations activitiesand the particular advantages or capabilities it has to deliver all these.


Working with strategyAll managers are concerned with strategy:Top managers frequently formulate and control strategy but may also involve others in the process.Middle and lower level managers have to meet strategic objectives and deal with constraints.All managers have to communicate strategy to their teams.All managers can contribute to the formation of strategy through ideas and feedback.Organisations may also use strategy specialists:Many large organisations have in-house strategic planning or analyst roles.Strategy consultants can be engaged from one of many general management consulting firms (e.g. Accenture, IBM Consulting, PwC).There are a growing number of specialist strategy consulting firms (e.g. McKinsey &Co, The Boston Consulting Group


The exploring strategy modelFigure 1.4 The Exploring Strategy Model


Strategic positionThe Strategic PositionEnvironmentCulturePurposeCapabilityThe strategic position is concerned with the impact on strategy of the external environment, the organisations strategic capability (resources and competences), the organisations goals and the organisations culture.

Fundamental questions for Strategic Position: What are the environmental opportunities and threats? What are the organisations strengths and weaknesses? What is the basic purpose of the organisation? How does culture shape strategy?


Strategic choices Strategic ChoicesBusiness-levelInnovationInternationalCorporate-levelAcquisitions & Alliances Strategic choices involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued.

Fundamental questions for Strategic Choice: How should business units compete? Which businesses to include in the portfolio? Where should the organisation compete internationally? Is the organisation innovating appropriately? Should the organisation buy other companies, form alliances or go it alone?


Strategy in action Strategy in Action ProcessesChangingEvaluatingOrganisingPracticeStrategy in action is about how strategies are formed and how they are implemented.The emphasis is on the practicalities of managing.Fundamental questions for Strategy in Action Which strategies are suitable, acceptable and feasible? What kind of strategy-making process is needed? What are the required organisation structures and systems? How should the organisation manage necessary changes? Who should do what in the strategy process?


The Strategy Checklist - The 14 fundamental questions in strategy

Strategic Position Strategic Choices Strategy in ActionWhat are the environmental opportunities and threats? What are the organisations strengths and weaknesses

What is the basic purpose of the organisation?

How does culture shape the strategy?How should business units compete?

Which businesses to include in the portfolio?

Where should the organisation compete internationally?

Is the organisation innovating appropriately?

Should the organisation buy other companies, ally or go it alone? Which strategies are suitable, acceptable and feasible?

What kind of strategy-making process is needed? What are the required organisational structures and systems?

How should the organisation manage necessary changes?

Who should do what in the strategy process?


Exploring strategy in different contextsThe Exploring Strategy Model can be applied in many contexts.In each context the balance of strategic issues differs:Small Businesses (e.g. Purpose and Growth issues)Multinational Corporations (e.g. Geographical Scope and Structure/Control issues)Public Sector Organisations (e.g. Service/Quality and Managing Change issues)Not For Profit Organisations (e.g. Purpose and Funding issues)


The strategy lensesThe strategy lenses are ways of looking at strategy issues differently in order to generate many insights. Looking at problems in different ways will raise new issues and new solutions.Strategy can be seen as:DesignExperienceVariety (Ideas)Discourse


A summary of strategy lensesTable C.ii A summary of the strategy lenses


SummaryStrategy is the long-term direction of an organisation. A strategy statement should cover the goals of an organisation, the scope of the organisations activities and the advantages or capabilities the organisation brings to these goals and activities.Corporate-level strategy is concerned with an organisations overall scope; business-level strategy is concerned with how to compete; and operational strategy is concerned with how resources, processes and people deliver corporate- and business-level strategy.Strategy work is done by managers throughout an organisation, as well as specialist strategic planners and strategy consultants.Research on strategy context, content and process shows how the analytical perspectives of economics, sociology and psychology can all provide practical insights for approaching strategy issuesThe Exploring Strategy Model has three major elements: understanding the strategic position, making strategic choices for the future and managing strategy-in-action.Strategic issues are best seen from a variety of perspectives, as exemplified by the four strategy lenses of design, experience, variety and discourse.


Session I:The Strategic Position


The Focus of Session 1: The strategic positionHow to analyse an organisations position in the external environment.How to analyse the determinants of strategic capability resources, competences and the linkages between them.How to understand an organisations purposes, taking into account corporate governance, stakeholder expectations and business ethics.How to address the role of history and culture in determining an organisations position.*


The Strategic Position2: The Environment


The Environment LearningsAnalyse the broad macro-environment of organisations in terms of political, economic, social, technological, environmental (green) and legal factors (PESTEL).

Identify key drivers in this macro-environment and use these key drivers to construct alternative scenarios with regard to environmental change.

Use Porters five forces analysis in order to define the attractiveness of industries and sectors and to identify their potential for change.

Identify successful strategic groups, valuable market segments and attractive Blue Oceans within industries.

Use these various concepts and techniques in order to recognise threats and opportunities in the marketplace.


Layers of the business environmentFigure 2.1 Layers of the business environment


The PESTEL framework (1)The PESTEL framework categorises environmental influences into six main types: political, economic, social, technological, environmental legalThus PESTEL provides a comprehensive list of influences on the possible success or failure of particular strategies.


The PESTEL framework (2)Political Factors:

For example, Government policies, taxation changes, foreign trade regulations, political risk in foreign markets, changes in trade blocks (EU).

Economic Factors: For example, business cycles, interest rates, personal disposable income, exchange rates, unemployment rates, GDP trends.

Socio-cultural Factors:

For example, population changes, income distribution, lifestyle changes, consumerism, changes in culture and fashion.

Technological Factors: For example, new discoveries and technology developments, ICT innovations, rates of obsolescence, increased spending on R&D.

Environmental (Green) Factors:

For example, environmental protection regulations, energy consumption, global warming, waste disposal and re-cycling.

Legal Factors: For example, competition laws, health and safety laws, employment laws, licensing laws, IPR laws.


Key drivers of changeKey drivers for change:

The environmental factors likely to have a high impact on the success or failure of strategy.

For example, the birth rate is a key driver for those planning nursery education provision in the public sector.

Typically key drivers vary by industry or sector.


Using the PESTEL frameworkApply selectively identify specific factors which impact on the industry, market and organisation in question.Identify factors which are important currently but also consider which will become more important in the next few years.Use data to support the points and analyse trends using up to date informationIdentify opportunities and threats the main point of the exercise!


ScenariosScenarios are detailed and plausible views of how the environment of an organisation might develop in the future based on key drivers of change about which there is a high level of uncertainty.

Build on PESTEL analysis .

Do not offer a single forecast of how the environment will change.

An organisation should develop a few alternative scenarios (24) to analyse future strategic options.


Carrying out scenario analysisIdentify the most relevant scope of the study the relevant product/market and time span.Identify key drivers of change PESTEL factors that have the most impact in the future but have uncertain outcomes.For each key driver select opposing outcomes where each leads to very different consequences.Develop scenario stories - That is, coherent and plausible descriptions of the environment that result from opposing outcomesIdentify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios.Scenario analysis is used in industries with long planning horizons for example, the oil industry or airlines.


Scenarios for the global financial system, 2020Illustration 2.2


Industries, markets and sectorsAn industry is a group of firms producing products and services that are essentially the same. For example, automobile industry and airline industry.A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany).A sector is a broad industry group (or a group of markets) especially in the public sector (e.g. the health sector)


Porters five forces frameworkPorters five forces framework helps identify the attractiveness of an industry in terms of five competitive forces: the threat of entry, the threat of substitutes, the bargaining power of buyers,the bargaining power of suppliers andthe extent of rivalry between competitors. The five forces constitute an industrys structure.


Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright 1980, 1998 by The Free Press. All rights reservedThe five forces framework (1)Figure 2.2 The five forces framework


The five forces frameworkThe Threat of Entry & Barriers to Entry

The threat of entry is low when the barriers to entry are high and vice versa.

The main barriers to entry are:

Economies of scale/high fixed costsExperience and learningAccess to supply and distribution channelsDifferentiation and market penetration costsGovernment restrictions (e.g. licensing)

Entrants must also consider the expected retaliation from organisations already in the market


The five forces framework - Threat of Substitutes

Substitutes are products or services that offer a similar benefit to an industrys products or services, but by a different process.

Customers will switch to alternatives (and thus the threat increases) if:

The price/performance ratio of the substitute is superior (e.g. aluminium maybe more expensive than steel but it is more cost efficient for some car parts)

The substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from city centre to city centre)


The five forces framework The bargaining power of buyers

Buyers are the organisations immediate customers, not necessarily the ultimate consumers. If buyers are powerful, then they can demand cheap prices or product / service improvements to reduce profits .Buyer power is likely to be high when:Buyers are concentratedBuyers have low switching costsBuyers can supply their own inputs (backward vertical integration)


The five forces framework The bargaining power of suppliers

Suppliers are those who supply what organisations need to produce the product or service. Powerful suppliers can eat into an organisations profits. Supplier power is likely to be high when:The suppliers are concentrated (few of them).Suppliers provide a specialist or rare input.Switching costs are high (it is disruptive or expensive to change suppliers).Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel agents).


The five forces frameworkRivalry between competitorsCompetitive rivals are organisations with similar products and services aimed at the same customer group and are direct competitors in the same industry/market (they are distinct from substitutes).The degree of rivalry is increased when :Competitors are of roughly equal sizeCompetitors are aggressive in seeking leadershipThe market is mature or decliningThere are high fixed costsThe exit barriers are highThere is a low level of differentiation


Implications of five forces analysisIdentifies the attractiveness of industries which industries/markets to enter or leave.Identifies strategies to influence the impact of the forces, for example, building barriers to entry by becoming more vertically integrated.The forces may have a different impact on different organisations e.g. large firms can deal with barriers to entry more easily than small firms.


Issues in five forces analysisApply at the most appropriate level not necessarily the whole industry. E.g. the European low cost airline industry rather than airlines globally.Note the convergence of industries particularly in the high tech sectors (e.g. digital industries - mobile phones/cameras/mp3 players).Note the importance of complementary products and services (e.g. Microsoft windows and McAfee computer security systems are complements). This can almost be considered as a sixth force.


The value netFigure 2.3 The value netReprinted by permission of Harvard Business Review. From The Right Game by A. Brandenburger and B. Nalebuff, JulyAugust 1996, pp. 5764. Copyright 1996 by the Harvard Business School Publishing Corporation. All rights reserved


Comparative industry structure analysisFigure 2.5 Comparative industry structure analysis


Types of industryMonopolistic industries - an industry with one firm and therefore no competitive rivalry. A firm has monopoly power if it has a dominant position in the market. For example, BT in the UK fixed line telephone market.Oligopolistic industries - an industry dominated by a few firms with limited rivalry and in which firms have power over buyers and suppliers.Perfectly competitive industries - where barriers to entry are low, there are many equal rivals each with very similar products, and information about competitors is freely available. Few (if any) markets are perfect but may have features of highly competitive markets, for example, mini-cabs in London.Hypercompetitive industries - where the frequency, boldness and aggression of competitor interactions accelerate to create a condition of constant disequilibrium and change.Hypercompetition often breaks out in otherwise oligopolistic industries (e.g. mobile phones).Organisations interact in a series of competitive moves in hypercompetition which often becomes extremely rapid and aggressive as firms vie for market leadership.


Cycles of competitionFigure 2.6 Cycles of competitionSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Hypercompetitive Rivalries: Competing in Highly Dynamic Environments by Richard A. DAveni with Robert Gunther. Copyright 1994, 1995 by Richard A. DAveni. All rights reserved


The industry life cycleFigure 2.4 The industry life cycle


Strategic GroupsStrategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases. These characteristics are different from those in other strategic groups in the same industry or sector. There are many different characteristics that distinguish between strategic groups. Strategic groups can be mapped on to two dimensional charts maps. These can be useful tools of analysis.


Characteristics for identifying strategic groupsFigure 2.7 Some characteristics for identifying strategic groups


Strategic groups in the Indian pharmaceutical industryFigure 2.8 Strategic groups in the Indian pharmaceutical industrySource: Developed from R. Chittoor and S. Ray, Internationalisation paths of Indian pharmaceutical firms: a strategic group analysis, Journal of International Management, vol. 13 (2009), pp. 33855Understanding competition - enables focus on direct competitors within a strategic group, rather than the whole industry. (E.g. Tesco will focus on Sainsburys and Asda) Analysis of strategic opportunities - helps identify attractive strategic spaces within an industry. Analysis of mobility barriers i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group.


Market segmentsA market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market.

Where these customer groups are relatively small, such market segments are called niches.

Customer needs vary. Focusing on customer needs that are highly distinctive is one means of building a secure segment strategy.

Customer needs vary for a variety of reasons these factors can be used to identify distinct market segments.

Not all segments are attractive or viable market opportunities evaluation is essential.


Bases of market segmentationTable 2.1 Some bases of market segmentation


Who are the strategic customers? A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased.Examples: For a food manufacturer it is the multiple retailers (e.g. Tesco) that are the strategic customers not the ultimate consumer. For a pharmaceutical manufacturer it is the health authorities and hospitals not the final patient.


Critical success factors (CSFs)Critical success factors are those factors that are either particularly valued by customers or which provide a significant advantage in terms of cost.

Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them).

Different industries and markets will have different critical success factors (e.g. in low cost airlines the CSFs will be punctuality and value for money whereas in full service airlines it is all about quality of service).


Blue ocean thinkingBlue oceans are new market spaces where competition is minimised.

Red Oceans are where industries are already well defined and rivalry is intense.

Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served.

A strategy canvas compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces.


Strategy canvasFigure 2.9 Strategy canvas for electrical components companiesSource: Developed from W.C. Kim and R. Mauborgne, Blue Ocean Strategy, 2005, Harvard Business School Press


SummaryEnvironmental influences can be thought of as layers around an organisation, with the outer layer making up the macro-environment, the middle layer making up the industry or sector and the inner layer strategic groups and market segments.The macro-environment can be analysed in terms of the PESTEL factors, from which key drivers of change can be identified. Alternative scenarios about the future can be constructed according to how the key drivers develop.Industries and sectors can be analysed in terms of Porters five forces barriers to entry, substitutes, buyer power, supplier power and rivalry. Together, these determine industry or sector attractiveness.Industries and sectors are dynamic, and their changes can be analysed in terms of the industry life cycle, comparative five forces radar plots and hypercompetitive cycles of competition.In the inner layer of the environment, strategic group analysis, market segment analysis and the strategy canvas can help identify strategic gaps or opportunities.Blue Ocean strategies characterised by low rivalry are likely to be better opportunities than Red Ocean strategies with many rivals.The most important reason for environmental analysis is to identify OPPORTUNITIES AND THREATS


The Strategic Position3: Strategic Capabilities


Strategic Capabilities LearningsIdentify what comprises strategic capabilities in terms oforganisational resources and competences and how theserelate to the strategies of organisations.

Analyse how strategic capabilities might provide sustainable competitive advantage on the basis of their value, rarity, inimitability and non-substitutability (VRIN).

Diagnose strategic capability by means of benchmarking, value chain analysis, activity mapping and SWOT analysis.

Consider how managers can develop strategic capabilities for their organisations.


Strategic capabilities: the key issuesFigure 3.1 Strategic capabilities: the key issues


Resource-based strategyThe resource-based view (RBV) of strategy asserts that the competitive advantage and superior performance of an organisation is explained by the distinctiveness of its capabilities.


Resources and competencesResources are the assets that organisations have or can call upon (e.g. from partners or suppliers),that is, what we have .

Competences are the ways those assets are used or deployed effectively, that is, what we do well.


Components of strategic capabilitiesTable 3.1 Components of strategic capabilities


Redundant capabilitiesCapabilities, however effective in the past, can become less relevant as industries evolve and change.Such capabilities can become rigidities that inhibit change and become a weakness.


Dynamic capabilitiesDynamic capability is the ability of an organisation to renew and recreate its strategic capabilities to meet the needs of changing environments.


Threshold and distinctive capabilitiesTable 3.2 Threshold and distinctive capabilitiesThreshold capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market qualifiers.Distinctive capabilities are those that critically underpin competitive advantage and that others cannot imitate or obtain winners.


Core competencesCore competences1 are the linked set of skills, activities and resources that, together:deliver customer valuedifferentiate a business from its competitorspotentially, can be extended and developed as markets change or new opportunities arise.

1G. Hamel and C.K. Prahalad, The core competence of the corporation, Harvard Business Review, vol. 68, no. 3 (1990),pp. 7991.


Strategic capabilities and competitive advantageThe four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are: value, rarity, inimitability and non-substitutability

1 Jay Barney: Firm resources and sustained competitive advantage, Journal of Management, vol. 17 (1991), no. 1, pp. 99120.VRIN1


VRIN - V Value of strategic capabilities

Strategic capabilities are of value when they:

take advantage of opportunities and neutralise threats

provide value to customers

provide potential competitive advantage

at a cost that allows an organisation to realise acceptable levels of return


VRIN - R Rarity

Rare capabilities are those possessed uniquely by one organisation or by a few others only. (E.g. a company may have patented products, have supremely talented people or a powerful brand.)

Rarity could be temporary.(Eg: Patents expire, key individuals can leave or brands can be de-valued by adverse publicity.)


VRIN I Inimitability

Inimitable capabilities are those that competitors find difficult to imitate or obtain.

Competitive advantage can be built on unique resources (a key individual or IT system) but these may not be sustainable (key people leave or others acquire the same systems).

Sustainable advantage is more often found in competences (the way resources are managed, developed and deployed) and the way competences are linked together and integrated.


Criteria for the inimitability of strategic capabilitiesFigure 3.2 Criteria for the inimitability of strategic capabilities


VRIN - N - Non-substitutability

Competitive advantage may not be sustainable if there is a threat of substitution.

Product or service substitution from a different industry/market. For example, postal services partly substituted by e-mail.

Competence substitution. For example, a skill substituted by expert systems or IT solutions


Criteria for the inimitability of strategic capabilitiesFigure 3.3 VRIN


Organisational knowledgeOrganisational knowledge is the collective intelligence, specific to an organisation, accumulated through both formal systems and the shared experience of people in that organisation.

Some of this knowledge is Tacit knowledge that is, more personal, context-specific and hard to formalise and communicate so it is difficult to imitate, for example, the knowledge and relationships in a top R&D team.


BenchmarkingBenchmarking is a means of understanding how an organisation compares with others typically competitors.Two approaches to benchmarking:

Industry/sector benchmarking - comparing performance against other organisations in the same industry/sector against a set of performance indicators.

Best-in-class benchmarking - comparing an organisations performance or capabilities against best-in-class performance wherever that is found even in a very different industry. (E.g. BA benchmarked its refuelling operations against Formula 1).


The value chainThe value chain describes the categories of activities within an organisation which, together, create a product or service.

The value chain invites the strategist to think of an organisation in terms of sets of activities sources of competitive advantage can be analysed in any or all of these activities.


VRIN summaryFigure 3.4 The value chain within an organisationSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performanceby Michael E. Porter. Copyright 1985, 1998 by Michael E. Porter. All rights reserved


The value networkThe value network comprises the set of inter-organisational links and relationships that are necessary to create a product or service.

Competitive advantage can be derived from linkages within the value network.


The value networkFigure 3.5 The value networkSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performanceby Michael E. Porter. Copyright 1985, 1998 by Michael E. Porter. All rights reserved


Uses of the value chainA generic description of activities understanding the discrete activities and how they both contribute to consumer benefit and how they add to cost.

Identifying activities where the organisation has particular strengths or weaknesses

Analysing the competitive position of the organisation using the VRIN criteria thus identifying sources of sustainable advantage.

Looking for ways to enhance value or decrease cost in value activities (e.g. outsourcing)


Uses of the value networkUnderstanding cost/price structures across the value network analysing the best area of focus and the best business model .Identifying profit pools within the value network and seek to exploit these.The make or buy decision: deciding which activities to do in-house and which to outsource.Partnering and relationships deciding who to work with and the nature of these relationships.


Mapping activity systemsIllustration 3.5 Activity systems at Geelmuyden.KieseIdentify higher order strategic themes that is, how the organisation meets the critical success factors in the market.Identify the clusters of activities that underpin these themes and how they fit together.Map this in terms of how activity systems are interrelated.


Using activity system mapsA means of identifying strategic capabilities in terms of linkages of activitiesInternal and external links are identified (e.g. in terms of the needs of customers).Therefore helps identify bases of competitive advantage.And sustainable advantage for example, in terms of bases of inimitability.


SWOT analysisSWOT summarises the strengths, weaknesses, opportunities and threats likely to impact on strategy development.

INTERNALSTRENGTHSWEAKNESSES ANAYSIS

EXTERNALOPPORTUNITIES THREATS ANALYSIS


Uses of SWOT analysisKey environmental impacts are identified using the analytical tools explained in Chapter 2.Major strengths and weaknesses are identified using the analytic tools explained in Chapter 3.Scoring (e.g. + 5 to - 5) can be used to assess the interrelationship between environmental impacts and the strengths and weaknesses.SWOT can be used to examine strengths, weaknesses, opportunities and threats in relation to competitors.SWOT can be used to generate strategic options using a TOWS matrix.


The TOWS matrixFigure 3.6 The TOWS matrix


Dangers in a SWOT analysisLong lists with no attempt at prioritisation.

Over generalisation sweeping statements often based on biased and unsupported opinions.

SWOT is used as a substitute for analysis it should result from detailed analysis using the frameworks in Chapters 2 and 3.

SWOT is not used to guide strategy it is seen as an end in itself.


Developing strategic capabilitiesInternal capability development:Leveraging capabilities identifying capabilities in one part of the organisation and transferring them to other parts (sharing best practice). Stretching capabilities - building new products or services out of existing capabilities.

External capability development adding capabilities through mergers, acquisitions or alliances.Ceasing activities non-core activities can be stopped, outsourced or reduced in cost.Monitor outputs and benefits to understand sources of consumer benefit and enhance anything that contributes to this.Managing the capabilities of people training, development and organisation learning.


SummaryStrategic capabilities comprise both resources and competences.The concept of dynamic capabilities highlights that strategic capabilities need to change as the market and environmental context of an organisation changes.Sustainability of competitive advantage is likely to depend on an organisations capabilities being of at least threshold value in a market but also being valuable, relatively rare, intimable and non-substitutable.

Ways of diagnosing organisational capabilities include:

Benchmarking as a means of understanding the relative performance of organisations.Analysing an organisations value chain and value network as a basis for understanding how value to a customer is created and can be developed.

Activity mapping as a means of identifying more detailed activities which underpin strategic capabilities.

SWOT analysis as a way of drawing together an understanding of strengths, weaknesses, opportunities and threats an organisation faces.


The Strategic Position4: Strategic Purpose


Strategic Purpose LearningsConsider appropriate ways to express the strategic purpose of an organisation in terms of statements of purpose, values,vision, mission or objectives.

Identify the components of the governance chain of an organisation.

Understand differences in governance structures and the advantages and disadvantages of these.

Identify differences in the corporate responsibility stances taken by organisations and how ethical issues relate to strategic purpose.

Undertake stakeholder analysis as a means of identifying the influence of different stakeholder groups in terms of their power and interest.


Influences on strategic purposeFigure 4.1 Influences on strategic purpose


Who are the stakeholders?Stakeholders are those individuals or groups who depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends.


Mission statementsA mission statement aims to provide employees and stakeholders with clarity about the overriding purpose of the organisationA mission statement should answer the questions: What business are we in?How do we make a difference?Why do we do this?


Vision statementsA vision statement is concerned with the desired future state of the organisation; an aspiration that will enthuse, gain commitment and stretch performance.

A vision statement should answer the question :What do we want to achieve?


Statement of corporate valuesA statement of corporate values should communicate the underlying and enduring core principles that guide an organisations strategy and define the way that the organisation should operate.

Such core values should remain intact whatever the circumstances and constraints faced by the organisation.


ObjectivesObjectives are statements of specific outcomes that are to be achieved.Objectives are frequently expressed in: financial terms e.g. desired profit levelsmarket terms e.g. desired market shareand increasinglysocial terms e.g. corporate social responsibility targets


Issues in setting objectivesDo objectives need to be specific and quantified targets?

The need to identify core objectives that are crucial for survival.

The need for a hierarchy of objectives that cascade down the organisation and define specific objectives at each level.


Corporate governanceCorporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation.


The growing importance of governanceThe separation of ownership and management control defining different roles in governance.

Corporate failures and scandals (e.g. Enron) focussing attention on governance issues.

Increased accountability to wider stakeholder interests and the need for corporate social responsibility (e.g. green issues).


The governance chainFigure 4.2 The chain of corporate governance: typical reporting structuresSource: Adapted from David Pitt-Watson, Hermes Fund Management


The principal-agent modelGovernance can be seen in terms of the principal agent modelPrincipals pay agents to act on their behalf (e.g. beneficiaries/trustees pay investment managers to manage funds, Boards of Directors pay executives to run a company).Agents may act in their own self interest.


Issues in governanceThe key challenge is to align the interests of agents with those of the principals.Misalignment of incentives and control e.g. beneficiaries may require long term growth but executives may be seeking short term profit. Responsibility to whom should executives pursue solely shareholder aims or serve a wider constituency of stakeholders?Who are the shareholders should boards respond to the demands of institutional investment managers or the needs of the ultimate beneficiaries?The role of institutional investors should they actively intervene in strategy?Establishing the specific role of the board in particular the role of non-executive directors.Scrutiny and control statutory requirements and voluntary codes to regulate boards.


Different governance systemsTable 4.1 Benefits and disadvantages of governance systems


The role of boardsOperate independently of themanagement the role of non-executives is crucial.

Be competent to scrutinise the activities of managers.

Have time to do their job properly.

Behave appropriately given expectations for trust, role fluidity, collective responsibility, and performance.


Corporate social responsibilityCorporate social responsibility (CSR) is the commitment by organisations to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large.1

1 World Business Council for Sustainable Development.


Corporate social responsibility stancesTable 4.2 Corporate social responsibility stances


Questions of corporate social responsibility internal aspects (1)Table 4.3 Some questions of corporate social responsibility


Questions of corporate social responsibility external aspects (2)*Table 4.3 Some questions of corporate social responsibility (Continued)


The ethics of individuals and managersEthical issues have to be faced at the individual level :

The responsibility of an individual who believes that the strategy of the organisation is unethical resign, ignore it or take action.

Whistle-blowing - divulging information to the authorities or media about an organisation if wrong doing is suspected.


Texas instruments guidelinesIs the action legal? . . . If no, stop immediately.

Does it comply with our values? . . . If it does not, stop.

If you do it would you feel bad? . . . Ask your own conscience if you can live with it.

How would this look in the newspaper? . . . Ask if this goes public tomorrow would you do it today?

If you know its wrong . . . dont do it.

If you are not sure . . . ask; and keep asking until you get an answer.


Stakeholders of a large organisationFigure 4.3 Stakeholders of a large organisationSource: Adapted from R.E. Freeman, Strategic Management: A Stakeholder Approach, Pitman, 1984. Copyright 1984 by R. Edward Freeman.


Stakeholder conflicts of expectationsTable 4.4 Some common conflicts of expectations


Stakeholder mapping: the power/interest matrixFigure 4.4 Stakeholder mapping: the power/interest matrixSource: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1986Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities.


Stakeholder mapping issuesDetermining purpose and strategy whose expectations need to be prioritised?Do the actual levels of interest and power reflect the corporate governance framework?Who are the key blockers and facilitators of strategy?Is it desirable to try to reposition certain stakeholders?Can the level of interest or power of key stakeholders be maintained?Will stakeholder positions shift according to the issue/strategy being considered.


Sources and Indicators of PowerTable 4.5 Sources and indicators of powerPower is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action.


SummaryAn important managerial task is to decide how the organisation should express its strategic purpose through statements of mission, vision, values or objectives.The purpose of an organisation will be influenced by the expectations of its stakeholders.The influence of some key stakeholders is represented formally within the governance structure of an organisation. This can be represented in terms of a governance chain, showing the links between ultimate beneficiaries and the managers of an organisation.There are two generic governance structures systems: the shareholder model and the stakeholder model though there are variations of these internationally.Organisations adopt different stances on corporate social responsibility depending on how they perceive their role in society. Individual managers may face ethical dilemmas relating to the purpose of their organisation or actions it takes.Different stakeholders exercise different influence on organisational purpose and strategy, dependent on the extent of their power and interest. Managers can assess the influence of different stakeholder groups through stakeholder analysis.


The Strategic Position5: Culture and Strategy


Culture and Strategy LearningsIdentify organisations that have experienced strategic drift and the symptoms of strategic drift.Analyse how history influences the strategic position of organisations.Analyse the influence of an organisations culture on its strategy using the cultural web.Recognise the importance of strategists questioning the takenforgranted aspects of a culture.


Culture and strategy key issuesFigure 5.1 The influence of history and culture


Strategic driftStrategic drift is the tendency for strategies to develop incrementally on the basis of historical and cultural influences but fail to keep pace with a changing environment.Figure 5.2 Strategic drift


Incremental change to avoid strategic driftGradual change in alignment with environmental change.

Building on successful strategies used in the past (built around core competences)

Making changes based on experimentation around a theme (incremental change built on a successful formula)

This approach is called Logical Incrementalism


The tendency towards strategic driftStrategies fail to keep pace with environmental change because :

Steady as you go reluctance to accept that change requires moving away from strategies that have been successful.

Building on the familiar uncertainty of change is met with a tendency to stick to the familiar.

Core rigidities capabilities that are taken for granted and deeply ingrained in routines are difficult to change even when they are no longer suitable.

Relationships become shackles organisations become reluctant to disturb relationships with customers, suppliers or the workforce even if they need to change.

Lagged performance effects the financial performance of the organisation may hold up initially (e.g. due to loyal customers or cost cutting) masking the need for change.


A period of fluxAs performance declines and the organisation loses track of the environment then a period of Flux occurs typified by:Strategies that change, but in no clear direction.Top management conflict and managerial changes.Internal disagreement on the right strategies.Declining performance and morale.Customers becoming alienated.


Transformational change or deathAs performance continues to deteriorate the outcome is likely to be :

The organisation dies (e.g. goes bankrupt or into receivership).

The organisation is taken over (and perhaps radically changed by new owners).

The organisation implements transformational change multiple, rapid and fundamental changes.


Why history is importantRecognising that organisational experience becomes deeply embedded in behaviour.Avoiding recency bias learning from the past.Asking what if questions based on past experience.History as legitimisation past success can be used as evidence to support specific strategies.Innovation based on historic capabilities which can be adapted and transferred.


Path dependency and lock-inFigure 5.3 Path dependency and lock-inPath dependency is where early events and decisions establish policy paths that have lasting effects on subsequent events and decisions.


The impact of path dependencyBuilding strategy around the path-dependent capabilities that have been successful in the past.Path creation changing strategies in a way that is built on the past and acceptable to key players.Management style may be rooted in and evolved from the early style adopted by the founder(s).


Methods of historical analysisChronological analysisCyclical influenceAnchor pointsHistorical narratives


Organisational cultureOrganisational culture is the taken-for-granted assumptions and behaviours that make sense of peoples organisational context


Cultural frames of referenceFigure 5.4 Cultural frames of reference


The organisational fieldAn organisational field is a community of organisations that interact more frequently with one another than with those outside the field and that have developed a shared meaning system.

A recipe is a set of assumptions, norms and routines held in common within an organisational field about the appropriate purposes and strategies of field members. In effect it is shared wisdom.

Legitimacy is concerned with meeting the expectations within an organisational field in terms of assumptions, behaviours and strategies.Strategies can be shaped by the need for legitimacy in several ways:RegulationNormative expectationsThe recipe


Culture in four layersFigure 5.5 Culture in four layers


The paradigmThe paradigm is the set of assumptions held in common and taken for granted in an organisation.The paradigm:is built on collective experienceinforms what people in the organisation do influences how organisations respond to change.


Cultures influence on strategy developmentFigure 5.6 Cultures influence on strategy developmentSource: Adapted from P. Gringer and J.-C. Spender, Turnaround: Managerial Recipes for Strategic Success, Associated Business Press, 1979, p. 203


The cultural webThe cultural web shows the behavioural, physical and symbolic manifestations of a culture that inform and are informed by the taken-for-granted assumptions, or paradigm, of an organisation.


The cultural web of an organisation


Summary Culture and StrategyThe history and culture of an organisation may contribute to its strategic capabilities, but may also give rise to strategic drift as its strategy develops incrementally on the basis of such influences and fails to keep pace with a changing environment.Historical, path-dependent processes play a significant part in the success or failure of an organisation and need to be understood by managers. There are historical analyses that can be conducted to help uncover these influences.Cultural and institutional influences both inform and constrain the strategic development of organisations.Organisational culture is the basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisations view of itself and its environment.An understanding of the culture of an organisation and its relationship to organisational strategy can be gained by using the cultural web.

*Need to change to 9th Edition and change title to Exploring Strategy the rest is OK.*****************Change to 9th Edition and change title to Exploring Strategy. Update design**Update: Change to 9th edition and title to Exploring Strategy***********************************Update slide change to 9th edition and title to Exploring Strategy*********************************Update ****************************Update slide 9th edition and change to Exploring Strategy***********Use Marks and Spencer, start at 5:16 through 6:07 on benchmarking and analysis of profitability.*********

Session 1

Education

harvard business

critical success

organisation

identify key

corporate

industry life

business units

strategic