Strategic management
Strategic management / direccion estrategia at UADE, Buenos Aires
Strategic management / direccion estrategia at UADE, Buenos Aires
Success criteria for strategies - acceptability
2. Acceptability
Acceptability is concerned with the expected performance outcomes of a strategy.
These can be of three broad types:
- Returns are the benefits which stakeholders expect to receive from a strategy.
- Profitability analyses
- ROCE
- Payback period
- Discounted cash flow
- Limitations: Only tangible costs / benefits; no context taken into consideration; designed to assess single projects
- Cost-benefit
- Takes not only direct returns into consideration
- Used to make a decision based on a broader analysis.
- Limitation: difficult to quantify non-financial benefits
- Real options
- Decisions are made sequentially: if the volatility is high, the decision should be deferred as far as possible.
- Shareholder value analysis
- Different measurement tools focusing on shareholders value
- i.e. Total Shareholder Returns (TSR)
- = (increase in price of share + dividends per share) / price of share at the start of the ear
- also used for more value-based goals
- Profitability analyses
- Risk concerns the probability and consequences of the failure of a strategy.
- Financial ratios
- Break-even analysis
- Change in capital structure
- Remaining liquidity
- Sensitivity analysis
- “what if?” analysis
- Tests factors individually against assumptions
- -> what would be the effect on performance if market demand only grew by 1 percent
- Financial ratios
- Stakeholder reactions
- Stakeholder mapping
- Game theory
- Assesses political dimension
Succes criteria for strategies - feasibility
3. Feasibility
Feasibility is concerned with whether an organization has the resources and competences to deliver a strategy.
- Financial feasibility
- Funds flow forecasting
- Seeks to identify the funds which would be required for any strategy and the likely sources of this funds.
- (break even analysis)
- Funds flow forecasting
- Resource deployment
- To what extent would the current capabilities (resources and competences) need to change to reach the threshold requirements for the strategy
- How can unique resources / core competences be developed to sustain competitive advantage.
- Some important questions in resource deployment
- Staying in business
- Do we lack any necessary resources?
- Are we performing below threshold on any acitivity?
- Competing successfully
- Which unique resources already exist?
- Which core competences already exist?
- Could better performance create a core competence?
- What new resources or activities could be unique or core competences?
- Staying in business
Type of changes
.
Forcefield analysis
A forcefield analysis provides a view of change problems that need to be tackled, by identifying forces for and against change.
- What aspects of the current situation might aid change in the desired direction, and how might these be reinforced?
- What aspects of the current situation would block such change, and how can these be overcome?
- What needs to be introduced or developed to aid change?
Styles of managing change
Education and communication involve the explanation of the reasons for and means of strategic change.
Collaboration or participation in the change process is the involvement of those who will be affected by strategic change in the change agenda.
Intervention is the coordination of and authority over processes of change by a change agent who delegates elements of the change process.
Direction involves the use of personal managerial authority to establish a clear future strategy and how change will occur.
Coercion is the imposition of change or the issuing of edicts about change. (extreme directive style, change through use of power)
Roles in managing change - 2 roles and explanation
A change agent is the individual or group that effects strategic change in an organization.
- Expert for strategic changes (can be from the company or outsider)
From Outside: advantages: different type of view, objective, „new“; disadvantages: doesn’t know culture of company.
(Normally works with a team of people who are from within the company)
Leadership is the process of influencing an organization (or group within an organization) in its efforts towards achieving an aim or goal.
- Charismatic leaders focus on building a vision and energizing people to achieve it. (beneficial impact when organization faces uncertainty)
- Instrumental or transactional leaders focus more on designing a system and controlling the organization’s activities. (beneficial impact when it comes to improving the current situation)
Important aspects of managing change
The management of strategic change should include different roles in the change process, including those of strategic leaders, middle managers and outsiders.
Visible short-term wins encourage the change process.
Blockades to change - 2 types and expamples
Routines are the organizationally specific “ways we do things around here” which tend to persist over time and guide people’s behavior.
Symbols are objects, events, acts or people which express more than their intrinsic content.
Political mechanisms in organizations
The manipulation of organizational resources, the relationship with powerful stakeholder groups and elites, activity with regard to subsystems in the organization and, again, symbolic activity may all be used to: 1. Build a power base, 2. Encourage support or overcome resistance, and 3. Achieve commitment to a strategy or course of action.
Communicating change - important aspects
- To be effective it is important that change is communicated in such a way that complexity has a meaning.
- Clarify and simplify further priorities of the strategy.
- Choices of media by which to communicate the strategy and elements of change program.
- Involvement of members in the strategy development process or planning itself is also a means of communication and can be very effective.
- Two-way process: Feedback is important
- Communication also ́happens because members need to make sense of what is happening with themselves (rumors, gossip and storytelling)
Effective and ineffective communication of change
.
Change - timing of different aspects
- The greater the degree of change needed, the more it may be useful to build on actual or perceived crisis. If members of the organization perceive a higher risk in maintaining the status quo than in changing it, they are more likely to change.
- Windows of opportunity such as
- New owners
- New executive
- Arrival of a major competitive threat
- The timing of job losses is very important. Should be done before the change program, so the change itself doesn’t get associated with something negative. Can be a good chance to remove people who are against change.
- There should be a caring approach to those who lose their jobs to show the remaining employees that the organization cares.
Business Process Re-engineering (BPR) - definitions (2)
Re-engineering is a radical or break-through change in the business process. Re-engineering seeks dramatic orders of magnitude as distinguished from incremental improvement in business value.
Key value creation processes involving manufacturing operations include order fulfillment (the customer supply chain process), product development, order creation (selling and configuration) and customer service (post-product delivery processes). (Nixon et at)
Re-engineering is the fundamental re-thinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service. (Hammer and Champy)
Total Quality Management (TQM) - definition and 2 basic strands to quality
TQM is meant to be a long term process striving for continuous improvement in every part of the organization and not just manufacturing mistakes.
All parts of the organization should consider themselves both customers and suppliers of goods and services, creating customer chains within the organization, as product flow through that organization.
Two basic strands to quality:
- Meeting customer requirements
- Conformance specification
TQM vs. Re-engeneering
TQM has been traditionally associated with continual incremental improvement, whereas BPR envisages radical change or a root and branch reform:
“It means starting all over again, starting from scratch with a clean sheet of paper BPR is directed at a big bang improvement”
Functional stupidity - description
- inability and/or unwillingness to use cognitive and reflective capacities in anything other than narrow and circumspect ways.
- lack of reflexivity, a disinclination to require or provide justification, and avoidance of substantive reasoning.
- elements of cognition, motivation, and emotion.
Coping with change (De Vries and Miller)
Stage 1: Denial (‘We have always done things this way, Why change
we are making a profit, aren’t we?’)
Stage 2: Defence. Earlier discussion leads to concrete programmes and plans of change.
Stage 3: Discarding. Initially a process of perception. People come to see that the change is both inevitable and/or necessary.
Stage 4: Adaptation. Rarely do new systems, procedures, structures or machines work effectively first time. Trial and error.
Stage 5: Internalization. Now the people involved have created a new system, process and organization.
Cluster - Definition
A cluster is a concentration or group of businesses and institutions that interact in the same industry or value system, which are geographically close, generating formal and informal relations that can be spontaneous or deliberate, and therefore contributing to a collective efficiency
Communities of Practice - Definition
A community of practice (CP) is a structure through which knowledge is created, transferred and generalized among its members in a first step and then, once the management validates this knowledge, it can be transferred to the entire organization.
CP Life Cycle
the potential stage refers to the benefit of sharing basic practices when having common interests
• coalition stage: greater willingness to generate and sharing knowledge, since the community finds and recognizes the expertise and up to this point it defines common practices, beginning the generation of knowledge
• active stage: members develop commitment and obligations through the systematic action towards the generation of knowledge, and start to add value to the organization
• stage of scatter the CP is already a major center for sharing and generating knowledge, contacts and meetings
• memorable stage where the community has lost relevance for its members
Strategy (short definition)
Strategy is the long-term direction of an organization
strategy (complete definition)
Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.
strategy (complete definition)
Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.
Strategic decisions tend to
- Be complex in nature
- Be made in situations of uncertainty
- Affect operational decisions
- Require an integrated approach
- Involve considerable change
Corporate-level strategy (definition)
Corporate-level strategy is concerned with the overall purpose and scope of an organization and how value will be added to the different parts (business units) of the organization.
Business-level strategy (definition)
Business-level strategy is about how to compete successfully in particular markets.
strategic business unit (SBU) - defintion
A strategic business unit (SBU) is a part of an organization for which there is a distinct external market for goods or services that is different from another SBU.
Operational strategies (definition)
Operational strategies are concerned with how the component parts of an organization deliver effectively the corporate- and business-level strategies in terms of resources, processes and people.
Mission - defintion
Overriding purpose in line with the values or expectations of stakeholders. (What is our business)
Vision - definition
(Or strategic intent) Desired future state: the aspiration of the organization. (Who do we want to become)
strategic capability
(unique resources and core competences)
Resources, activities and processes. Some will be unique and provide “competitive advantage”.
Business model - defintion
How product, service and information “flow” between participating parties.
Strategic management - definition
Strategic management includes understanding the strategic position of an organization, strategic choices for the future and turning strategy into action.
- The strategic position is concerned with the impact on strategy of the external environment, an organization’s strategic capability (resources and competences) and the expectations and influence of stakeholders.
- Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development.
- Strategies into action is concerned with ensuring that strategies are working in practice
Strategic drift - definition
Strategic drift is where strategies progressively fail to address the strategic position of the organization and performance deteriorates.
The strategy lenses are three different ways of looking at issues of strategy development (which three?)
- The design lens views strategy development as the deliberate positioning of the organization through a rational, analytic, structured and directive process.
- The experience lens views strategy development as the outcome of individual and collective experience of individuals and their taken-for-granted assumptions (strategy results from adaption to experience of the past)
- The ideas lens sees strategy as the emergence of order and innovation from the variety and diversity which exists in and around organizations.
Key drivers of change - definition
Key drivers of change are forces likely to affect the structure of an industry, sector or market.
Scenario - definition
A scenario is a detailed and plausible view of how the business environment of an organization might develop in the future based on groupings of key environmental influences and drivers of change about which there is a high level of uncertainty.
Convergence - definition
Convergence is where previously separate industries begin to overlap in terms of activities, technologies, products and customers.
Porter's five forces
the porters five forces model
Porter's five forces model, including examples
as stated in graph
-
- 1 / 89
-
Cartes-fiches
the transnational strucutre
A transnational structure combines the local responsiveness of the international subsidiary with the coordination advantages found in global product companies.
holding company
A holding company is an investment company consisting of shareholdings in a variety of separate business options.
the virtual organization
A virtual organization is held together not through formal structure and physical proximity of people, but by partnership, collaboration and networking. (From the customer’s point of view, there should be no difference noticeable).
devolution - definition and the forms strategic planning, financial control and strategic control
Devolution concerns the extent to which the center of an organization delegates decision making to unit and managers lower down in the hierarchy.
- In strategic planning style, the relationship between the center and the business unit is one of a parent who is the master planner prescribing detailed roles for departments and business units.
- In financial control the role of the center is confined to setting financial targets, allocating resources, appraising performance and intervening to avert or correct poor performance.
- Strategic control is concerned with shaping the behavior in business units and with shaping the context within which managers are operating.
the levels of uncertainty
.
the three strategic postures
.
the portfolio of actions
.
Culture and organizational culture - defintions
Culture is about the way people understand their world and make sense of it.
Culture can provide tangible benefits and can be used competitively.
Organizational culture are the basic assumptions and beliefs that are shared by the members of an organization, that operate unconsciously and design in a basic taken-for-granted fashion an organization’s view of itself and its environment.
Paradigm - definition and elements
A paradigm is the set of assumptions held relatively in common and taken for granted in an organization.
An paradigm consist of
- Stories
- Symbols
- Power structure
- Organizational structures
- Control systems
- Rituals and routines
core values - defintion
Core values are the principles that guide an organization’s actions.
the governance framework - definition
The governance framework describes whom the organization is there to serve and how the purposes and priorities of the organization should be decided.
the chain of corporate governance - definiton and model
The chain of corporate governance represents all those groups that have influence on an organization’s purposes through their direct involvement in either ownership or management of an organization.
stakeholders - definition and two groups
Stakeholders are those individuals or groups who depend on the organization to fulfill their own goals and on whom, in turn, the organization depends.
The two groups of stakeholders:
- The inner circle of stakeholders who engage in direct exchange relationships with the company.
- The outer circle whose influence is more indirect and diffuse.
stakeholder mapping - definiton and model (power / interest matrix)
Stakeholder mapping identifies stakeholder expectations and power and helps understanding political priorities.
Power is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action.
the ethical stances - definition and model
The ethical stance is the extent to which an organization will exceed its minimum obligations to stakeholders and society at large.
Multiple stakeholder obligations: This ethical stance is that stakeholders interests and expectations (wider than just shareholders) should be more explicitly incorporated in the organization’s purposes and strategies beyond the minimum obligations of regulation and corporate governance.
Shaper of society: represents the ideological end of the spectrum. Financial purposes are regarded as secondary.
competitive strategy
Competitive strategy is concerned with the basis on which a business unit might achieve competitive advantage in its market.
the strategic clock
The strategic clock
1 A no frills strategy combines a low price, low perceived product/service benefits and focuses on a price-sensitive market segment. (The products/services are commodity-like: customers don’t value differences).
2 A low-price strategy seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product or service benefits to those offered by competitors.
3 A hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of competitors. (i.e. through much greater volumes)
4 A differentiation strategy seeks to provide products or services benefits that are different from those of competitors and that are widely valued by buyers.
5 A focused differentiation strategy seeks to provide high perceived product/ service benefits justifying a substantial price premium, usually to a selected market segment (niche).
6, 7, 8 Considered to be failing strategies. They do not provide higher value for money in terms of product features, price or both.
Corporate social responsibility - definition
Corporate social responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholders specified through regulation and governance.
Porter's generic strategies (model)
.
Ansoff Matrix - model and explanation of each option
.
Ansoff Matrix - eplanation of options 1 & 2
1. Consolidation is where organizations protect and strengthen their position in their current markets with current products.
- Consolidation may require reshaping by withdrawal or downsizing of some activities:
- Product lifecycle as a reminder for any product or service’s finite time.
- Intrinsec value of products or assets acquisition or disposal
- Withdrawal cannot achieve the competence levels of leaders
- Priorities of the –limited- organisation’s resources’ deployment
- Expectations of stakeholders not met
- Consolidation may be concerned with the maintainance of market share in existing markets.
2. Market Penetration is where an organization gains market share.
The ease with which an organization can pursue a policy of market penetration will be dependent on:
- The nature of the market (in particular, growing or declining).
- There may be resource issues driving or preventing market penetration.
- Sometimes the complacency of market leaders can allow lower share competitors to catch up because they are not regarded as serious competitors.
Ansoff Matrix explanation of options 3 & 4
3. Product development is where organizations deliver modified or new products to existing markets.
- Achieved with existing competences, e.g.,
- Retailers tend to follow the changing needs of their customers by introducing new product lines.
- When product life cycles are short (software) product development becomes an essential requirement or an organization’s strategy.
- Product development may require the development of new competences:
- There may be a need to respond to a change of emphasis amongst customers concerning the importance of product/service features.
- The Critical Success Factors (CSFs) may change.
- Despite attractiveness of product development, it may not be in line with expectations and may raise dilemmas:
- New products may be expensive, risky and potentially unprofitable.
- The need to develop products, even to survive in existing markets, is underlined by the consequences of not doing so.
4. Market development is where existing products are offered in new markets.
Both resource and market considerations might drive an organisation’s development into new markets. For example:
- Whether products can be exploited in other market segments where similar CSFs exist.
- Development of new uses for existing products
- Geographical spread, either nationally or internationally, into new markets.
Globalization will usually require some adjustment to product features or development methods.
Diversification - definition and options
Diversification is typically defined as a strategy which takes the organization away from its current markets or products or competences into both, new markets and new products or services.
- Related diversification is strategy development beyond current products and markets, but within the value system or ‘industry’ in which the company operates.
- Horizontal integration describes either backward or forward integration into adjacent activities in the value system
- Backward integration is development into activities concerned with the inputs into the company’s current business.
- Forward integration is development into activities which are concerned with a company’s outputs.
- Vertical integration is development into activities which are competitive with, or complementary to, a company’s present activities.
- Unrelated diversification is the development of products or services beyond the current capabilities or value network.
Strategy devlopment - option 1
1. Internal development
is where strategies are developed by building up an organisation’s own resource base and competence.
Strategy devlopment - option 2
2. Mergers & acquisitions
Acquisition is where an organisation develops its resources and competences by taking over another organisation.
Motives for mergers & acquisitions
- The need for acquisitions related to changing environment:
- The speed with which it allows the company to enter new product or market
- The competitive situation may influence a company to prefer acquisition.
- When an established supplier in an industry acquires a competitor
- Deregulation was a major driving force in activities such as telecomms
- Financial motives: related to share value or P/E ratio (price/earning ratio)
- Resource considerations:
- Lack of resources or competences to compete successfully
- Reasons of cost efficiency
- Acquisition driven by expectations of stakeholders:
- Shareholders may see acquisitions as a quicker way to grow
- Some stakeholders may have speculative rather than strategic motives
Strategy devlopment - option 3
3. Strategic alliances
Joint ventures: are typically thought of as arrangements where organisations remain independent but set up a newly created organisation jointly owned by the parents.
Consortia may well involve two or more organisations in a JV arrangement and will typically be more focused on a particular venture or project.
Consortia are difficult to manage as they involve a number of simultaneous relationships.
Networks are arrangements whereby two or more organisations work in collaboration without formal relationships, but through a mechanism of mutual advantage and trust.
Opportunistic alliances around particular ventures or projects (nearer market relationships)
Critical Success Factors in strategic alliances
1. Strategic fit
- Complementarity
- Synergies
- Flexibility
2. Cultural fit
- Partners’ attitude
- Motivation
- Commitment
- Trust
Pros & Cons of an Alliance
Pros
- much less expensive
- the partner is willing and helpful
- the partner has knowledge
- you have a stronger joint value chain
- the partner is already well networked
Cons
- you don’t have control
- the partner may cheat
- you only get a percentage of the profit
- your underlying agendas may conflict
Success criteria for strategies - definition and content
Success criteria are used to assess the likely success of a strategic option.
Suitability
Acceptability
Feasibility
Success criteria for strategies - suitability
1. Suitability
Suitability is concerned with whether a strategy addresses the circumstances in which an organization is operating – the strategic position.
A strategy should meet changes in the environment, exploit the strategic capability of the organization and meet the expectations of stakeholders.
There may be more different strategies available to an organization of which some are more suitable than others. It’s the relative suitability that matters:
- Ranking strategic options against a set of factors in the environment concerning the organization’s strategic position. (i.e. value-benefit analysis)
- Decision trees eliminate options by progressively introducing further requirements to be met.
- Scenarios for the future against which the options are matched.
The elements of the strategy must be internally consistent. The competitive strategy, the development direction (i.e. diversification) and the development method (i.e. acquisition) need to be consistent.
Success criteria for strategies - acceptability
2. Acceptability
Acceptability is concerned with the expected performance outcomes of a strategy.
These can be of three broad types:
- Returns are the benefits which stakeholders expect to receive from a strategy.
- Profitability analyses
- ROCE
- Payback period
- Discounted cash flow
- Limitations: Only tangible costs / benefits; no context taken into consideration; designed to assess single projects
- Cost-benefit
- Takes not only direct returns into consideration
- Used to make a decision based on a broader analysis.
- Limitation: difficult to quantify non-financial benefits
- Real options
- Decisions are made sequentially: if the volatility is high, the decision should be deferred as far as possible.
- Shareholder value analysis
- Different measurement tools focusing on shareholders value
- i.e. Total Shareholder Returns (TSR)
- = (increase in price of share + dividends per share) / price of share at the start of the ear
- also used for more value-based goals
- Profitability analyses
- Risk concerns the probability and consequences of the failure of a strategy.
- Financial ratios
- Break-even analysis
- Change in capital structure
- Remaining liquidity
- Sensitivity analysis
- “what if?” analysis
- Tests factors individually against assumptions
- -> what would be the effect on performance if market demand only grew by 1 percent
- Financial ratios
- Stakeholder reactions
- Stakeholder mapping
- Game theory
- Assesses political dimension
Succes criteria for strategies - feasibility
3. Feasibility
Feasibility is concerned with whether an organization has the resources and competences to deliver a strategy.
- Financial feasibility
- Funds flow forecasting
- Seeks to identify the funds which would be required for any strategy and the likely sources of this funds.
- (break even analysis)
- Funds flow forecasting
- Resource deployment
- To what extent would the current capabilities (resources and competences) need to change to reach the threshold requirements for the strategy
- How can unique resources / core competences be developed to sustain competitive advantage.
- Some important questions in resource deployment
- Staying in business
- Do we lack any necessary resources?
- Are we performing below threshold on any acitivity?
- Competing successfully
- Which unique resources already exist?
- Which core competences already exist?
- Could better performance create a core competence?
- What new resources or activities could be unique or core competences?
- Staying in business
Type of changes
.
Forcefield analysis
A forcefield analysis provides a view of change problems that need to be tackled, by identifying forces for and against change.
- What aspects of the current situation might aid change in the desired direction, and how might these be reinforced?
- What aspects of the current situation would block such change, and how can these be overcome?
- What needs to be introduced or developed to aid change?
Styles of managing change
Education and communication involve the explanation of the reasons for and means of strategic change.
Collaboration or participation in the change process is the involvement of those who will be affected by strategic change in the change agenda.
Intervention is the coordination of and authority over processes of change by a change agent who delegates elements of the change process.
Direction involves the use of personal managerial authority to establish a clear future strategy and how change will occur.
Coercion is the imposition of change or the issuing of edicts about change. (extreme directive style, change through use of power)
Roles in managing change - 2 roles and explanation
A change agent is the individual or group that effects strategic change in an organization.
- Expert for strategic changes (can be from the company or outsider)
From Outside: advantages: different type of view, objective, „new“; disadvantages: doesn’t know culture of company.
(Normally works with a team of people who are from within the company)
Leadership is the process of influencing an organization (or group within an organization) in its efforts towards achieving an aim or goal.
- Charismatic leaders focus on building a vision and energizing people to achieve it. (beneficial impact when organization faces uncertainty)
- Instrumental or transactional leaders focus more on designing a system and controlling the organization’s activities. (beneficial impact when it comes to improving the current situation)
Important aspects of managing change
The management of strategic change should include different roles in the change process, including those of strategic leaders, middle managers and outsiders.
Visible short-term wins encourage the change process.
Blockades to change - 2 types and expamples
Routines are the organizationally specific “ways we do things around here” which tend to persist over time and guide people’s behavior.
Symbols are objects, events, acts or people which express more than their intrinsic content.
Political mechanisms in organizations
The manipulation of organizational resources, the relationship with powerful stakeholder groups and elites, activity with regard to subsystems in the organization and, again, symbolic activity may all be used to: 1. Build a power base, 2. Encourage support or overcome resistance, and 3. Achieve commitment to a strategy or course of action.
Communicating change - important aspects
- To be effective it is important that change is communicated in such a way that complexity has a meaning.
- Clarify and simplify further priorities of the strategy.
- Choices of media by which to communicate the strategy and elements of change program.
- Involvement of members in the strategy development process or planning itself is also a means of communication and can be very effective.
- Two-way process: Feedback is important
- Communication also ́happens because members need to make sense of what is happening with themselves (rumors, gossip and storytelling)
Effective and ineffective communication of change
.
