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Professional Paper P3Business Analysis

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First edition 2007, Eighth edition June 2014ISBN 9781 4727 1131 1

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Page iii

ContentsPreface

Welcome to BPP Learning Medias ACCA Passcards for Professional Paper 3 Business Analysis. They focus on your exam and save you time. They incorporate diagrams to kick start your memory. They follow the overall structure of BPP Learning Medias Study Texts, but BPP Learning Medias ACCA

Passcards are not just a condensed book. Each card has been separately designed for clear presentation.Topics are self contained and can be grasped visually.

ACCA Passcards are still just the right size for pockets, briefcases and bags.Run through the Passcards as often as you can during your final revision period. The day before the exam, tryto go through the Passcards again! You will then be well on your way to passing your exams.

Good luck!

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Preface Contents

Page1 Business strategy 12 Environmental issues 73 Competitors and customers 174 Strategic capability 275 Stakeholders, ethics and culture 416 Strategic choices 537 Organising for success 738 Managing strategic change 899 Business process change 9510 Improving processes 10511 E-business 111

Page12 E-marketing 12913 Project management 14514 Finance 16115 Human resource management 17316 Strategic development 179

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1: Business strategy

Topic List

What is strategy?Levels of strategy in an organisationElements of strategic managementThe importance of contextThe strategy lenses

This chapter gives you an overview of the fundamentalsof strategy and strategy formulation, and how they relateto business analysis.

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Elements ofstrategic management

What isstrategy?

The strategylenses

The importanceof context

Levels of strategyin an organisation

STRATEGY: a course of action over the long term, including identifying the competences and resourcesrequired, to achieve a specific objective and fulfil stakeholder expectations.

Four elements of mission Purpose and planning Values Strategy Policies and standards

GOALS: General aimOBJECTIVES: SMART and PRIME

Areas for decision makingLong term directionScope of activitiesCompetitive advantageAdapting activities to fit businessenvironmentExploiting resources/competencesExpectations of key stakeholders

Strategic decisionsComplexSubject to uncertaintyImpact operational decisionsAffect whole organisationLead to change



What isstrategy?

The strategylenses



1: Business strategyPage 3

Corporate Overall purpose and scope, and how value will be added. Prioritisation and managementof stakeholder expectations. Allocation of corporate resources.

Business How to compete successfully in particular markets. Combines with corporate strategy ina small organisation. In larger organisations, strategies for strategic business units mustbe co-ordinated with corporate strategy, and with each other.

Operational How the component parts of the organisation deliver the higher-level objectives. Largelycreated and delivered by business functions such as marketing, production, finance,human resources management, and information systems.

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Three main levels of strategy in an organisation


Position Choice Action is not simply a linear model.Need to recognise the interdependencies between position (analysis),choice and action (implementation).


What isstrategy?

The strategylenses



Johnson, Scholes and Whittingtons model of strategy

Environment opportunities threats complexityCapability resources and competences strengths weaknessesStakeholder expectations purpose of strategy power/interest governance ethics

Strategic position

Made at corporate andbusiness levels

How to achievecompetitive advantage

Scope Direction of development Method of development

Strategic choices

Structuring processes relationships

Enabling management of resources

Change change management

Strategy into action



What isstrategy?

The strategylenses



1: Business strategyPage 5

The organisational setting in which strategy is developed. Possible contexts include:Small business Limited product range, markets and resources (especially financial), but significant

pressure from competitorsMultinational Diverse products, processes and markets, with significant resources and multiple

operationsThe public sector Constraints on funding, commitment to service provision and the need to

demonstrate value Not for profit organisation Diverse sources of funds, strong underlying values and purposeIntangible products Product information, after-sales service, brand values, staff performance (for both

manufacturing and service companies)

The context of strategy

Exam focusContext is very important in the P3 exam. Question scenarios will provide context for the question requirements.You must always consider the context of the question and make your answer directly relevant to it.



What isstrategy?

The strategylenses



Johnson, Scholes & Whittington suggest that strategy, and the development of strategic thinking, can beexamined through three lenses.

Strategy as design a rational, top-down process rational managers, clear objectives.Strategy is exclusively managements responsibility, and the organisationsrole is to implement managements plans.

Strategy as experience an adaptation of what has worked in the past based on experience,assumptions, and decisions to satisfice rather than optimise. Strategiesdevelop in incremental and adaptive ways, and emerge from lower levels ofthe organisation.

Strategy as ideas strategy based on innovation, diversity of ideas, informal interaction andexperimentation. Managers create the context and conditions for new ideasto emerge, but must prevent strategic drift. Organisational culture mustsupport innovation.

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2: Environmental issues

Topic List

The organisation in its environmentThe macro environmentThe competitive advantage of nationsThe environment in the future Competitive forces

Understanding the changing environment is one of thekey elements in both defining and developing strategy.One possible definition of corporate strategy is seeking agood fit with the environment. To achieve that fit, anorganisation must have a thorough knowledge of itsenvironment.


Competitiveforces

The organisationin its environment

The environmentin the future

The competitiveadvantage of nations

The macroenvironment

All organisations are open systems they have a variety of interchanges with the environment (inputs andoutputs).The environment can be divided into three concentric layers:Environmental element Basis of analysisMacro-environment PESTEL

Key drivers of changeScenarios

Industry or sector Five forces (Porter)Cycles of competition

Competitors and markets Strategic groupsMarket segmentsCritical success factors

Macro-environment

Industry or sector

Competitors and markets

The organisation



Competitiveforces




2: Environmental issuesPage 9

The PESTEL framework is based upon six segments: political, economic, socio-cultural, technological, environmentalprotection and legal.

Political/legal factorsGovernments oversee framework in which businessoperates eg physical, social and market infrastructure.Many aspects of business activity are subject to legalregulation: Contracts Employment Health and safety TaxOther aspects are regulated by supervisory bodies. TheEU is a significant influence.

Economic factorsThese operate in both a national and internationalcontext. Relevant factors include:

Inflation rates Growth/fall of GDP Employment rates Savings levels Interest rates Exchange rates Tax levels International trade The business cycle Capital markets

Fiscal policy (taxes, borrowing, spending) Monetary policy (interest rates, exchange rates) Size and scope of the public sector

Government policy

Political change and politicalrisks affects the planningactivities of many businesses



Competitiveforces




Social factors Technological factors

Technological developments affect all aspects ofbusiness (especially IT developments)

Many strategies are based on exploiting technological change(eg Internet and e-commerce). Others are defences againstsuch change (eg emphasising service or quality when acompetitor introduces a major technical development).

Business must be particularly aware of cultural change.

New products and services become available New methods of production and service provision New ways of selling (e-commerce); Improved handling of information in sales and finance New organisation structures to exploit technology New media for communication with customers and within

the business (eg Internet and email); facilitates businessbecoming global.

Demography is the study of human population andpopulation trends. (eg birth rate, average age, ethnicity,death rate, family structure, social structure and wealth).Demographic changes have clear implications for patternsof demand. They also affect availability of labour. Can alsoaffect recruitment policies.

Culture in society provides a framework for understandingbeliefs and values, and creates patterns of human activity.It influences tastes and lifestyles.Affects: Marketing - may need to adapt products/services for a

particular market. HR - cultural differences in recruitment.



Environmental protectionPressure coming from many quarters: Green pressure groups Legislation Employees Environmental risk screening Corporate Social Responsibility

Possible green issues for businesses to consider: Consumer demand for environmentally friendly

products Greater regulation by governments and

international bodies Businesses may be charged for the external cost

of their activities

Scarcity of non-renewable resources Sustainability of operations. Opportunities to develop new environmentally

friendly products and technologies


Competitiveforces





Four aspects of globalisation are key drivers of change in the macro environment

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Market globalisation

Cost globalisation

Government policy

Global competition

Converging tastes; improving communications.

Economies of scale are a major source of cost advantage; purchaserssearch globally for lowest-cost suppliers.

Increasingly sympathetic to free trade.

High levels of international trade encourage global competition. Theexistence of global competitors and global customers in an industryencourages firms which currently only trade in one country to expand to beable to compete more effectively.


Competitiveforces






Porter identifies four determinants of national competitive advantage on an industry basis. He refers to themas the diamond.

Demand conditionsBuyers in the home market set fundamentalparameters such as market segments, degreeof sophistication, rate of growth and rate ofinnovation. Early saturation of the homemarket will encourage a firm to export.

Factor conditionsEndowments of inputs to productionBasic: natural resources, climate, labour -unsustainable for competitive advantageAdvanced: infrastructure, technical education, high-tech industries - promote competitive advantage

Related and supporting industriesSuccess in related industries gives mutual support. Strong home suppliers make the industry more robust.

Rivalry creates supplier specialisations. Clusters of related industries derive strength from their links.

Firm strategy, structure and rivalryCultural factors, management style, time horizons and capital markets all help determine orientation and

capability. Domestic rivalry leads to competitive strength.



Competitiveforces




ForecastingSound knowledge of the environment requiressome element of forecasting. The past is notnecessarily a good guide to the future, but insimple, static conditions time series analysis andregression analysis can be used.Economic forecasting uses leading indicators toassess future economic conditions.A scenario is a detailed and consistent view of howthe environment might develop in the future.Macro scenarios consider possible futures overall.Industry scenarios look in more detail at a singleindustry.

Scenario construction (Mercer)1

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Identify drivers of change

Arrange drivers in a viableframework

Produce 7-9 mini-scenarios

Group mini-scenarios into 2-3comprehensive scenarios

Write up the scenarios

Identify issues arising, and what theymean to the business

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Competitiveforces





Scale economies Product differentiation Switching costs Access to distribution Patent rights Access to resources

Porter says that five forces together determine the long-term profit potential of an industry

Bargaining power of suppliers

Threat of new entrants

Rivalry among current competitors

Bargaining power of customers

Depends on: Number of suppliers Threats to suppliers'

industry Number of customers in

the industry Scope for substitution Switching costs Selling skills

Depends on: Volume bought Scope for substitution Switching costs Purchasing skills Importance of quality

Suppliers seek higher prices

Market growth Buyers ease of switching Spare capacity Exit barriers Uncertainty about competitors strategy

Customers seek lower prices

This is limited by barriers to entry

Threat from substitute productsA substitute is produced by a different industry

but satisfies the same needs

Depends on:

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Notes


3: Competitors and customers

Topic List

Competition dynamicsThe marketing mixCustomers and segmentationUnderstanding the customer

A detailed knowledge of both competitors and customersis very important for strategy development. In particular,the cycle of competition and critical success factors arevery examinable.


Understandingthe customer

Customers andsegmentation

The marketingmix

Competitiondynamics

EncirclementSimultaneous flank

attacks

Incumbent

Head-onIdentical

marketingmix

FlankNeglected segmentarea of technology

GuerillaAggressive, short

term moves

FlankingDefends

secondarymarkets

ContractionConcentrate on most

desirable markets

Incumbent

PositionChange nothing

Pre-emtiveAttack first

MobileBroaden and

diversity markets

Challenger

BypassUnrelated products,new areas, technical

advancesChallengerAttacks Defences

Cycle of competition


3: Competitors and customersPage 19

Industry life cycle

Exam focus pointFor an organisations strategy to be successful, it needs to be appropriate to where its industry or productsare in their lifecycles.

Inception Growth Maturity/shakeout Decline

Product characteristics Basic, no standardsestablished

Improved design and quality,differentiated

Standardised product withlittle differentiation

Varied quality but fairlyundifferentiated

Competitors None to few Many entrants Competition increases,weaker players leave

Few remain. Competitionmay be on price

Buyers Early adopters, prosperous,curious must be induced

More customers attractedand aware

Mass market, brandswitching common

Enthusiasts, traditionalists,sophisticates

Profits Negative high first moveradvantage

Good, possibly starting todecline

Eroding under pressure ofcompetition Variable

Technology No standards established Technologies become morestandardised

Technology is understoodacross the industry

Technology is understoodacross the industry

Production processesSmall scale batchproduction.

Specialised distributors

Mass production.Distribution networksexpanded

Long production runs. Costefficiency critical

Overcapacity. Production isreduced




The marketingmix

Competitiondynamics

Product

Trade off between price and valueoffered to customer

Place Promotion

Price

Design Features Quality and reliability After sales service

Market channels Logistics Direct distribution or use of

intermediaries? Speed of delivery

Advertising (on line; off line) Sales promotion Direct selling Public relations

Luxury or necessity? Competitors prices Quality connotations Discounts Payment terms

People Service and service

provider are inseparablein service marketing

Front-line staff embodythe service

Customer satisfaction?

Processes Efficiency;

standardisation;automation

Queuing and waitingtimes

Capacity management Information gathering

and processing

Physical evidence Evidence of ownership

for services(intangibility)

Design and specificationof service environment

Marketing mix




The marketingmix

Competitiondynamics


Buyer behaviour models aim to show how purchase decisions are made.We can distinguish CONSUMER markets and INDUSTRIAL markets. Industrial buyers are more rationallymotivated than consumers in deciding what goods to buy.Government, reseller and export markets may also be considered.

The consumer market

Socio economic Psychological

Influences

Convenience (everyday) goods Shopping (higher value) goods Speciality (unique) goods

Products




The Marketing mix

Competitiondynamics

The industrial market

User Influencer Gatekeeper Buyer

Decision Making Unit

Quality and reliability Price Credit offered Problems solved Budgetary control

Influences

Raw materials Subcomponents Capital equipment Supplies

Products



Market segmentationis the subdividing of a market intoincreasingly homogeneous subgroups ofcustomers, where any subgroup can beconceivably selected as a target marketto be met with a distinct marketing mix.It is relevant to a focus strategy.

Target marketOne or more segments selected forspecial attention by a company.

Policy options UNDIFFERENTIATED

CONCENTRATED

DIFFERENTIATED

Same product to whole market

One segment only

Several versions for many segments

A firm should only develop a uniquemarketing mix for a valid segment.

Better satisfaction of customer needs Revenue/profit growth Targeted communication Customer retention Product positioning

Reasons for segmentation

Measurable Potentially profitable Accessible, and can Susceptible to a distinct marketing mix

be accessed profitably Stable

Segments should be




The marketingmix

Competitiondynamics

The customer lifecycle Promotional expense is front-loaded; sales grow with time Consumer incomes rise with time; early purchases are likely to be basic may be more differentiated later

Use it to identify your mostprofitable/expensive customers

Compare cost of acquiring newcustomers vs retaining existing ones

Details of costs could be obtained froma relational database

Tools for analysis

To establish: Size of customer base Order sizes Product profitability Market share Growth and prospects Demand Price sensitivity Competition/substitutes

11 Marketing audit

Who are the keycustomers?

Customer history How important are they? Attitudes and behaviour Financial performance Profitability of their orders

22 Key customeranalysis

This varies from customer to customerbecause of customer-specific costs such asdiscounts, distribution costs, complexity oforders and credit given.

33 Customer profitability analysis



Opportunities and threatsInformation about the environment may be summarised asopportunities and threats.OpportunitiesOpportunities often take the form of strategic gaps such as: Potential substitutes for existing products or

complements to them Different strategic customers via new distribution

methods such as the Internet Potential new market segmentsThreatsThe most immediate threats probably emerge from theimmediate industry: the five forces are a good guide. Thewider PESTEL environment must also be monitored, butthreats may be more difficult to recognise.

Strategic customer

Critical success factorsare those product features that are particularlyvalued by a group of customers and, therefore,where the organisation must outperformcompetitors.

is the purchaser of the product offered. Thismay not be the end user. The end usersrequirements are important, but those of anyintermediary purchaser are of primary strategicimportance.




MarketingCompetitiondynamics

Strategic groups CSFs Market segmentation Marketing mix

Understanding thecustomer

Inception Growth Maturity Decline

Customers and markets

External forces

New entrants Substitute products Bargaining power of customers Bargaining power of consumers Rivalry amongst current competition

Industry analysis

Political Economic Social Technological Environmental Legal

Macro-environment

National competitiveness

Demand conditionsFactor conditionsRelated industries

Firm strategy,structure, rivalry

Opportunitiesor

Threats


4: Strategic capability

Topic ListThe organisations resourcesCost efficiencyKnowledgeThe value chainThe product portfolioBenchmarkingManaging strategic capabilitySWOT and TOWS

A detailed knowledge of the frameworks and models inthis chapter is very important in beginning to understandhow strategic choices are made.


Cost efficiency

The valuechain

KnowledgeThe organisationsresources

BenchmarkingThe productportfolio

Strategic capability: the adequacy and suitability of an organisations resources and competences toachieve its strategy.

9 Ms Model (review of organisations resources) Machinery Makeup Management Markets Materials Methods Management information Money Men and womenPosition-based strategy aims to achieve competitive advantage by positioning a market offering to respond tothe opportunities and threats present in the environment.Resource-based strategy is based on the possession of distinctive resources, which may be physicalresources or competences. Competences are the activities and processes through which an organisationdeploys its resources effectively.Threshold competences and resources meet customers minimum requirements and are needed for survival.Unique resources and core competences underpin competitive advantage and are difficult for competitors toimitate or obtain.


Cost efficiency

The valuechain



4: Strategic capabilityPage 29

Cost Efficiency is fundamental to strategic capabilityfor both public and private sector organisations. It isregarded as a threshold competence (vital for meresurvival) and is achieved in four main ways:

If competitive advantage is to be based on corecompetences and strategic capabilities, thecapabilities must have four key qualities:

Exploitation of scale economies reducing costsper unitControl of the cost of incoming supplies transport costs; supplier relationshipsCareful design of products and processes minimising direct and indirect costsExploitation of experience effects learningcurve effects; outsourcing

Offer value to buyers contribute to customerneedsRare can create competitive advantage byitselfRobust (difficult to imitate) linking ofprocesses and activities in ways that cannotbe copiedNon substitutable substitute products andcompetences are a key threat

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Cost efficiency

The valuechain



The progression from data to knowledge

The aim of knowledge management is to capture, organise and make widely available all the knowledge thatthe organisation possesses (ie use knowledge as a resource to contribute to competitive advantage).

Data Information KnowledgeNature Facts Relationships between

processed factsPatterns discerned ininformation

Importance ofcontext

Total Some Context independent

Importance tobusiness

Mundane Probably useful formanagement

May be strategically useful

Relevant ITsystems

Office automationData warehouse

GroupwareExpert systemsReport writing softwareIntranet

Data miningIntranetExpert systems



Learning based strategy incorporates knowledge management and innovation.

Knowledge management InnovationRecords, organises, retrieves and

applies knowledge effectively. ITsystems will probably be used. Good

knowledge management avoidsconstant re-invention of the wheel.

Innovation is encouraged by topmanagement; organisationalpurposes are continually re-examined;it is accepted that innovative solutionscan emerge at any level.

A top-down, command and control approach will not promote learning based strategy. The company must beopen to the environment and welcome new ideas and fresh insights. However, management must guide the

learning process and take necessary decisions.


Cost efficiency

The valuechain



Porter grouped the various activities of anorganisation into a value chain.

FIRM INFRASTRUCTUREHUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENTPROCUREMENT

INBOUNDLOGISTICS OPERATIONS

OUTBOUNDLOGISTICS

SUPP

ORT

ACTIV

ITIES

PRIMARY ACTIVITIESMARGIN

MARGIN

MARKETING& SALES SERVICE

The margin is the excess the customer is prepared topay over the cost to the firm of obtaining resourceinputs and providing value activities. It represents thevalue created by the value activities themselves andby the management of the linkages between them.Linkages connect the activities in the value chain. Theactivities affect one another and therefore must be co-ordinated.Using the value chain. A firm can secure competitiveadvantage in several ways. Invent new or better ways to do activities Combine activities in new or better ways Manage the linkages in its own value chain Manage the linkages in the value network



Organisationsvalue chain

Suppliervalue chains

Distributor/retailervalue chains

Customervalue chains

A firms value chain is connected to the value network. The value created for a product's end user is oftenthe output of a complex system that includesseveral organisations value chains. The linksbetween these value chains representopportunities to create more value.The links also represent opportunities for individualorganisations to capture more of the value createdby the overall system by managing them to theiradvantage. This can be done in a direct way byvertical integration or the use of bargining powerover suppliers and customers. It can also beachieved more subtly by providing coordinationand by fostering relationships that promoteinnovation.


Cost efficiency

The valuechain



The companys offerings to the market are fundamentalto its success. They must be kept under review so thatthere is a suitable mix. The product life cycle is animportant concept but it must be applied with care. Wecan distinguish 3 aspects of product.

Product class (or generic product) a broad category

Brand The specific product

Product form type within the category

Product life cycle

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_

Inception Growth Maturity Decline Senility

Sales

Profits

Inception: development; marketing and production costs high;sales volume low; profits lowGrowth: sales volumes accelerate; unit costs fall; profits rise;competitors enter the marketMaturity: longest period; profits good; reminder promotionDecline: many causes; sales fall; over capacity in industry; someplayers leave marketSenility: profit negligible; product may be retained in niche

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The development of new products is an important aspect of a firms strategy. New products can overcomeentry barriers and help give a company a balanced portfolio. Product innovation can also be a major sourceof competitive advantage.

New to the world New product line Additions to product line Repositioning Improvements/revisions Cost reductions

How are they new?

Leader strategy: high cost ofR&D, potential high reward, highrisk

Follower strategy: lower cost, lessR&D expertise needed, lower risk,reduced reward

How is it approached?

The management accountantcan help by analysing thecost components of the newproduct. This may lead to theremoval of superfluousfeatures.

New product development should be controlled by subjecting projects to aseries of gates, or review meetings, to decide whether they have made therequired progress, and to determine what must be achieved to pass the next gate.


Cost efficiency

The valuechain



Roles of the R&D department

Intrapreneurship

Environmental analysis: technologicalopportunities and threats.

Technological position audit. Planning and controlling R&D. Developing new products. Developing new processes. Encouraging a culture of innovation

and learning.

New product research including developing, testing and prototyping.Screening product ideas against strategic objectives, technicalfeasibility and market requirements.Value engineering of existing products.Extending product life cycles.Ensuring (or preventing) backward compatibility with existingproducts.Processes themselves may be crucial, as in service industries.Productivity enhancements.Quality enhancements.

The R&D effort should support theorganisations strategy. Forexample, product development andmarket development are likely torequire different R&D emphases.

Entrepreneurial activity below the strategic apex. Innovation is encouraged by: Culture of risk-taking and tolerance of mistakes. Flexible organisation structure. Willingness to devote resources to new ideas. Reward policies that support new ideas.


Cost efficiency

The valuechain




Benchmarking involves establishing targets andcomparators against which to compare performance.Process

Ensure senior management commitment

Determine areas to benchmark and set objectivesEstablish performance measures

Select organisations to benchmark against

Measure own and others performance

Compare performance

Design and implement improvements

Monitor improvements

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Why are these products or services provided at all? Why are they provided in that particular way? What are the examples of best practice elsewhere? How should activities be reshaped in the light of

these comparisons?

The questions to ask (Johnson, Scholes and Whittington)

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3 levels of benchmarking Resources: quantity and quality Competences in separate activities Competences in linked activities


Cost efficiency

The valuechain



Benchmarking can produce improvements in the value system but this is not guaranteed. It tends to improve the efficiency with which systems work rather than the effectiveness of their outputs. Benchmarking will only be useful if the systems being compared are the ones which are critical for business

success. (It sometimes concentrates on doing things right rather than doing the right things.) Comparison with similar systems ignores the emergence of substitutes. It is a catchingup exercise rather than a development of anything new. It does not indicate how competitors may be overtaken. It has significant costs, not least in management time. It can be a threat to commercial security.

Problems with benchmarking


SWOT andTOWS

Managingstrategic capability


Informal processesExisting strategic capability can be difficult to understand and, therefore, to manage, especially when it derives fromcore competences based on informal processes. Managers must take care not to disrupt such competences byattempting to manage or formalise them.

Opportunities to stretch and improve strategic capability Use existing competences in new activities Eliminate or outsource activities that do not support

CSFs Extend best practice Improve and add activities to better support CSFs Remedy weaknesses Utilise external capacity by acquisition and co-

operation (alliances; joint ventures)

HRMMuch strategic capability depends on peoples abilities, skillsand knowledge. Such capability can be enchanced by HRMpractice. Recruit for specific aptitudes such as leadership and

innovation Train and develop for specific rather than generic skills Develop individual strategic awareness


SO strategy employ strengths to seize opportunitiesST strategy employ strengths to counter or avoid

threats.WO strategy address weakness in order to exploit

opportunityWT strategy defensive, avoid threats and impact of

weakness

SWOT andTOWS

Managingstrategic capability

The results can be combined in guiding strategy formation

StrengthsInternal

External

Weaknesses

Opportunities ThreatsMatch

SWOT analysis

INTERNALStrengthsWeaknesses

EXTERNALOpportunitiesThreats

and how they can be related.

(also known as corporate appraisal) is a review of:

Convert Remedy

Weihrich spoke of TOWS analysis to emphasisethreats and opportunities. SO strategies can beprofitable in the short term, generating the cashneeded to undertake WO strategies in the longerterm. ST and WT strategies are likely to be resourceneutral and are needed in the medium term to achieveoverall balance.


5: Stakeholders, ethics and culture

Topic List

Ethics and the organisationSocial responsibilityCorporate governanceThe role of cultureIntegrated reporting

Business ethics is an increasingly important area, andone that is highly examinable both for its topicality and itssuitability for inclusion in scenario questions. Ethicalideas have a strategic impact upon organisations, andwith them come notions of corporate social responsibilityand principles of good corporate governance. Theinfluence of culture upon an organisation and its peoplemust not be underestimated.Finally, the rise of integrated reporting is considered.


Ethics and theorganisation

Integratedreporting

The role ofculture

Corporategovernance

Socialresponsibility

Ethics are ideas about right and wrong that set standards for conduct. Ethics are important to business becausesociety considers such things important. There are also rules of professional conduct to consider. Ideas of right andwrong have become more fluid and less absolute. As a result there is a greater scrutiny of organisations behavioursince it is likely to be less subject to definitive internal rules.

Dealing with corrupt or unpleasant regimes Honesty in advertising Employees cost or asset? Corrupt payments to officials extortion, bribery or

gift? The local culture must be considered.

Scope of corporate ethics Ethical dilemmasConflicting views of the organisations responsibilitiescreate ethical dilemmas for managers at all levels.

Corporate ethics may be considered in three contexts:

The organisations interaction with nationaland international societyThe effects of the organisations routineoperations.The behaviour of individual members of staff

Organisations often publish corporate ethical codes todisseminate their policies on ethics.

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Integratedreporting

The role ofculture

Corporategovernance


5: Stakeholders, ethics and culturePage 43

?Should businesses actively practise social responsibility?

The business as fixer ofsocial problems

Big business has the resourcesto fight inequalities

ExamplesCharitable donations

Pollution controlCommunity activities

BUT

Long termv

Short term

Companies already discharge their responsibilitiesby contributing towards tax revenues.

The social audit recognisesthe expectations on a firm topromote social responsibility.In addition, there are greenpressures.

Pressure groups Employees Legislation

Environmental screening Sustainability of resources Ecological concerns



Integratedreporting

The role ofculture

Corporategovernance


Stakeholders have a legitimateinterest in how the organisationbehaves. The extent to whichstakeholders should be able toinfluence behaviour is subject todebate, as is the matter of just whoshould qualify as a stakeholder. Somegroups will be accepted asstakeholders and their views will helpto determine the acceptability of astrategy.

Stakeholders interests are liable to conflict. Mendelowsstakeholder mapping helps the organisation to establish itspriorities and manage different stakeholder expectations.

A: Minimal effort B: Keep informed; little

direct influence butmay influence morepowerful stakeholders

C: Treat with care; oftenpassive but capableof moving to segmentD; keep satisfied

D: Key players strategy must beacceptable to them,at least

Level of interestHighLow

Low

High

Power

A B

C DStakeholders can be: Internal Connected External



Integratedreporting

The role ofculture

Corporategovernance



The conduct of an organisations senior officers constitutes its corporate governance. The influence of thoseofficers over the behaviour of the organisation and the potential for both PR and financial disaster make this amatter of strategic importance.

External measures to improve corporate governance

1 Accounting standards attempt to prevent financial manipulation2 Codes of professional conduct regulate many senior managers3 Commissions on standards of behaviour (in the UK) have established best practiceFree flow of informationto stakeholders tends to inhibitwrong doing by senior managers.However, commercial confidentialitymust be respected.

Non-executive directorsmay remain objective and ensureproper governance in such areas asethics, audit and senior managerremuneration. However, there are nowaccusations of partiality within a close-knit body of non-executives in the UK.

Structural measures



Integratedreporting

The role ofculture

Corporategovernance


Good corporate governance Reduces risk Improves performance Improves external perceptions Ensures an organisations strategy is directed

towards the benefit of legitimate stakeholders

Good corporate governanceCodes of best practice identify the way largecompanies should be run. Among their provisions arethese:

Directors remuneration should be subject toformal and clear procedures and be largelycontrolled by non-executive directors.

Non-executive directors audit committee shouldoversee both internal and external audit.

The governance frameworkEstablishes who the organisation exists to serve andhow its purposes and priorities should be decided.Separation of ownership and control brings the riskof adverse selection and moral hazard. Directors should use independent judgement;

the roles of Chairman and CEO should beseparate; no individual or group shoulddominate; there should be a balance of executiveand non-executive directors.



Integratedreporting

The role ofculture

Corporategovernance



TheParadigm

Controlsystems

Organisa-tional

structures

Ritualsand

RoutinesPower

structures

SymbolsStories

Organisational culture consists of the beliefs, attitudes, practices and customs that affect people during theirinteraction with an organisation. It can have an important influence on strategy, both in the way that informationis interpreted and also by determining the acceptability of ideas and behaviour.

The cultural webJ, S and W suggest that theparadigm is reinforced by

physical aspects of culture.

The paradigmThe basic assumptions andbeliefs that an organisationsdecision-makers hold in commonand take for granted. It isessentially conservative since itis based on collective experience.It is closely linked to the strategyas experience lens.

The cultural web provides a way ofunderstanding behaviours within anorganisation and making sure all theorganisational elements are alignedwith one another, and with anorganisations strategy.If an organisation is not delivering theresults management wants, isorganisational culture contributing tothe under-performance?The cultural web can be very useful inchange management.



Integratedreporting

The role ofculture

Corporategovernance


Integrated reporting is concerned with conveying a wider message on organisational performance. It isfundamentally concerned with reporting the value created by the organisation's resources.

Rise of integrated reportingTraditional corporate reporting is said to only tell part of the story. Stakeholders are increasingly interested inunderstanding how management use the organisation's resources to create value.



Value creation The International Integrated Reporting Council introduced the Integrated Reporting Framework. The framework defines

resources as 'capitals'. Capitals are used to assess value creation. The framework classifies capitals as being:

ManufacturedCapitalIntellectual

Capital

HumanCapital

FinancialCapital

NaturalCapital

SocialCapital

IntegratedReporting Capitals



Integratedreporting

The role ofculture

Corporategovernance


Interaction of capitalsAn increase in one capital may result in a decrease in another.

ExamplePaying for a staff training programme may increase humancapital (eg improve staff skills), but reduce financial capital asthe costs of the training programme will lead to a reduction inthe company's financial reserves (eg money).



Integrated reporting does not involve attaching monetary values to every part of an organisation's operations. Value creation can be measured by the use of qualitative and quantitative performance measures.

ExampleCustomer satisfaction can be measured by comparingthe number of customers retained year on year.

Implications of introducingintegrated reporting

IT costs Consultancy costs Staff costs Disclosure


Notes


6: Strategic choices

Topic List

DiversificationThe corporate parent The corporate portfolioGeneric strategiesSustaining competitive advantageDirection and method of growthStrategy and market position Success criteria

Various strategic choices can present themselves to anorganisation. An organisation will select its preferredchoice as a result of environmental and internal analysisthat shows which choice provides the best strategic fitfor the organisation. There is no right or wrong answer:different frameworks and models will apply in differentbusiness settings.


Genericstrategies

The corporateportfolio

The corporateparent

Diversification Sustaining competitiveadvantage

Diversity of products and markets may be advantageous to the organisation for three reasons:Economies of scope in the form of synergy

Corporate management skills are extended

Cross-subsidy can enhance market power

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3

2

However, there are three questionable reasons that may be given to justify a policy of diversification:Response to environmental change may be a cover for protecting the interests of top managementand may lead to ill-considered acquisitions.

Risk spreading is valid for owner managed businesses, but shareholders in large public companies candiversify their own portfolios.

Powerful shareholder expectations, especially demands for growth, can lead to inappropriatediversification.

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6: Strategic choicesPage 55

Conglomerate (unrelated) diversificationHorizontal integration

Vertical integration

Other strategies Withdrawal Demerger

The organisation becomes its own supplier (backwardintegration) or distributor (forward integration). Secures supplies Stronger relationship with end-users Profits from all parts of value system Creates barriers to entryHowever: More eggs in same end-market basket (Ansoff)

more vulnerable to a single market Does not offer significant economies of scale

Spreads risk; escape from present business May obtain synergy (eg acquiring new skills,

utilising distribution channels, pooling R+D)organisational learning.

Use surplus cash/exploit under-used resourcesHowever: Unfamiliarity with new segments increases risk More opportunities to go wrong Lack of common culture and purpose

Development into activities that are competitive with,or complementary to, present activities; eg, electricitycompanies selling gas. Offers economies of scale.


Genericstrategies


The corporateparent

Diversification

International business orientations(Perlmutter)Ethnocentrism is a home country orientation inwhich the same products are marketed in the sameway both at home and in foreign countries.

Polycentrism adapts products and marketingmethods to each local environment. Each nationalsubsidiary runs its own operations.

Geocentrism recognises both similarities anddifferences between markets and incorporatesthem into regional or global strategies.

Regiocentrism is similar to geocentrism butconsiders that there are differences betweenregions.

Global strategic management (Ohmae)5 reasons why companies globalise (5 Cs)Customer: global market convergenceCompany: search for economies of scaleCompetition: demands global operationsCurrency: manage exchange rate risk by operating globallyCountry: explicit absolute and comparative advantage

5 stages in global expansionExporting via agents to extend scale of operationsOverseas branches to replace agents with stronger presenceOverseas production exploits cheap labour and saves shippingcostsInsiderisation via full capability: polycentric orientationGlobal company has geocentric management orientation

Sustaining competitiveadvantage

12345

123

45



1. Whether to market abroadat all?

2. Which markets to enter? 3. Mode of entry?

Before getting involved, the company must consider both strategic(Does it fit?) and tactical/operational (Can we do it?) issues.

Adv Higher sales and profits Life cycle extended Spread seasonality Spread riskDisadv Less control Costly Adaptations needed

Key decisions for international expansion

Overseasproduction

Market attractiveness Competitive advantage possessed Risks (political; business; currency) Legal/regulatory factors

Direct orindirect

exporting

Foreignsubsidiaries orjoint ventures


Genericstrategies


The corporateparent


Exporting Overseas productionAdvantages Concentrates production; small start possible;

mnimises overheadsLower distribution costs; overcomes trade barriers; possibly lowerproduction costs

Key issues Exchange rates, protectionism Political risk; partnership; managing overseas facilities; more riskyInvolvement Usually less involved, but an exporter might

depend on the overseas marketUsually more involved, but overseas subsidiaries might actindependently: varying levels of control and risk

Entry strategies

Exporting

Indirect Direct

Export managementfirmsBuying officesPiggy-backingExport houses

WholesalersDistributors

StockistsAgents

via companybranch offices

to final user

E-commence and Internet

Licensing,Franchising

Contractmanufacture

Jointventure,

Consortium,Strategicalliances

Wholly ownedoverseas production

AcquisitionOrganic growth

Overseasproduction


Genericstrategies


The corporateparent



The corporate parent imposes costs, so it must create at least enough value to pay these costs. It may destroyvalue:

Exercise of managers political ambitions Size and complexity can obscure corporate vision Process and hierarchy slow decisions, stunt enterprise.

Envisioning corporate intent, communicating thevision to stakeholders and SBU managers, andacting in accordance with it.

Intervention to improve performance. Provision of services, resources and expertise.

Three value-creating roles for the corporateparent

Portfolio managers create value by applyingfinancial discipline.They keep their own costs low.

Synergy managers pursue economies of scopethrough the shared use of competences andresources.

Parental developers add value by deploying theirown competences to improve their SBUs'performance.

Three kinds of parent


Genericstrategies


The corporateparent

Diversification

Portfolio analysis is applicable to products, market segments and SBUs. There are four basic strategies:

The BCG Matrix

BuildInvest for market share

growth

HoldMaintain current

position

HarvestManage for profit in the

short term

DivestRelease resources for

use elsewhere

HighLow

Marketgrowth

Relative market share

Stars build Cash cows hold or harvestQuestion marks build or harvestDogs divest or hold

StarCash cow

Question markDog

High Low



Ashridge portfolio displayBenefit (fit between SBU opportunities and parental skills etc)


Feel

CSFs(fit between SBU

andparental skills etc)

HighHigh

Low

LowBallastbusinesses

Heartlandbusinesses

Alienbusinesses

Value trap businesses

Heartland businesses can benefit from the attention of the parent without risk of harm from unsuitable developments.Ballast businesses are well-understood by the parent, but need little assistance. They should bear as little central cost as possible.Value trap businesses provide good opportunities for parenting, but these opportunities do not relate to the SBU's CSFs.Alien businesses have no place in the portfolio. They need the attention of a skilled parent, but the actual parent does not have theskills and resources required to help them. This approach is based on the idea of the corporate parent as a parental developer.


Genericstrategies


The corporateparent


The public sector portfolio matrixThe principal way of judging success in the private sector is by reference to customers. In the public sector, activities musthave political support. This does not depend exclusively on the opinions of the consumers of the services provided.

A public sector star is something that the system is doingwell and should not change. They are essential to theviability of the system.Political hot boxes are services that the public want, orwhich are mandated, but for which there are not adequateresources or competences.Golden fleeces are services that are done well but forwhich there is low demand. They are potential targets forcost cutting.Back drawer issues are unappreciated and have lowpriority for funding. They are obvious candidates for cuts,but if managers perceive them as essential, they shouldattempt to increase support for them and move them intothe political hot box category.

Public sector star

Ability to serve effectively

Political hot box

Golden fleece Back drawer issue

High

Public orpolitical need(and thereforesupport forexpense)

High Low

Low


Genericstrategies


The corporateparent



Cost leadership

Focus

DifferentiationAims to be the lowest cost producer in theindustry as a whole

Economies of scale Use the latest production technology or

cheap labour Productivity improvement Minimisation of overheads Favourable access to inputs

Aspects of cost leadership

Aims to exploit a product perceived as unique within theindustry as a whole

Breakthrough products radical performanceadvantage

Improved products superior performance at acompetitive price

Competitive products unique combinations of features Brand image Special features Unique combination of value activities

Aspects of differentiation

Activity is restricted to a particular segment of the market. Either a cost leadership or differentiation strategy is thenpursued. Such concentrated effort can be more effective, but the segment may be attacked by a larger firm.


Genericstrategies


The corporateparent

Diversification

Generic strategies and the five competitive forcesCompetitiveforceNewentrants

Substitutes

Cost leadershipAdvantages Disadvantages

Differentiation Cost leadership Differentiation

Customers

Suppliers

Industryrivalry

Economies of scale raise barriersto entry

Brand loyalty and perceiveduniqueness are entry barriers

Firm is not as vulnerable as itsless cost-effective competitors tothe threat of substitutes

Customer loyalty is a weaponagainst substitutes

Customers cannot drive downprices further than the next mostefficient competitor

Flexibility to deal with costincreases

Firm remains profitable whenrivals go under through excessiveprice competition

Unique features reduce directcompetition

Technological change will requirecapital investment, or makeproduction cheaper forcompetitorsCompetitors learn via imitationCost concerns ignore productdesign or marketing issues

Higher margins can offsetvulnerability to supplier pricerises

Increase in input costs canreduce price advantages

Customers have no comparablealternativeBrand loyalty should lower pricesensitivity

Customers may no longer need thedifferentiating factorSooner or later, customers becomeprice sensitive

Imitation narrows differentiation




High

LowLow Price High

Perc

eived

adde

d va

lue

3 Hybrid Low price plusdifferentiation. Cost basemust be low. Can buildmarket share or be used formarket entry.

4 Differentiation perceived addedvalue either increases market shareor supports price premium

5 Focused differentiation seeks a high price premium inreturn for a high degree ofdifferentiation.3, 4 and 5 are all variants ondifferentiation.

6, 7 and 8 are all destined forultimate failure.

2 Low price better valuethan competitors. Costleadership needed. Pricewar may ensue.

1 No frills needs a largeprice-conscious segment. Maybe used for market entry tobuild volume and gainexperience.

6

7

8

The strategy clock


Genericstrategies


The corporateparent


SUSTAINING A PRICE BASEDSTRATEGY

SUSTAINING DIFFERENTIATION LOCK-IN (Delta model)

Increase volumes or cross subsidisefrom another SBU

Secure preferred access to customersor suppliers, via licensing for example,to block potential imitators

Achieved when a product becomesthe industry standard (eg Microsoftoperating systems)

Constantly and aggressively drivedown all costs (meaning companycan sustain a price advantage)

Strong branding, proprietarytechnology or co-specialisation can allmake the cost of switching high for acustomer

First mover advantage: Standard ismore likely to be set early in productlifecycle than when it is mature.

Engage in a price war (ifcompany is cost leader or hasextensive financial resources)

Cost advantages might be used toinvest in innovation, brandmanagement or quality improvements

Standard-setter becomes perceivedas the one to follow, especially if thestandard is set early in the productlifecycle

Implement a no frills strategy, forthose who particularly appreciatelow prices

Fierce defence tactics will often beemployed



Strategy and hypercompetition

Be unpredictable Pre-empt imitation Small moves disguise intent Send misleading signals Attacks on weakness may provoke attempts

to improve

Principles for strategy

Reposition on the strategy clock Counter-attack undermine first mover

advantage by leapfrogging; initiate productmarket moves

Attack barriers to entry by rapid technologicaladvance, cross subsidy or use of economiesof scale from another market, anddevelopment of new distribution methods

Small players concentrate on niches, buildtrade alliances and merge with others

Options

HypercompetitionA condition of constant competitive change createdby frequent aggressive competitive moves. No firmcan create lasting competitive advantage. Successdepends on effective short-term moves.


Strategy andmarket position

Direction andmethod of growth

Successcriteria

Market penetration Maintain or increase market share Dominate growth markets Drive out competition from mature

markets Increase usage by existing customers

Product development Launch new products (using existing

knowledge of customers and theirneeds/wants)

May require new competences Forces competitors to follow suit Discourages newcomers May require investment in R&D or new

production facilitiesMarket development

New markets for current products New geographic areas - export New package sizes New distribution channels Differential pricing to suit new

segments

Diversification

Related Unrelated(conglomerate)Vertical Horizontal

Forward BackwardNew competences will be required

Ansoff described the four possible growth vectors in the four cells in the diagrambelow: the growth vector matrix.

Existing

Existing New

New

MARKET

PRODUCT



Include consortia, joint ventures, licensing,franchising and sub-contracting. These methods canenhance access to resources of all kinds, achieveeconomies of scale, achieve synergy, and enhancecompetences but stop short of a merger or takeover.

Cooperative methods

Organic growth Mergers and acquisitionsThe development of internal resources Supports learning and is supported by it Consistent culture and management style Provides economies of scale Ease of controlHowever: Can be slow Not good for dealing with barriers to entry

Can overcome barriers to entry Can spread risk Can defend against predators Provide access to a variety of resources: products;

managers; suppliers; production facilities;technology and skills; distribution facilities; cash; taxlosses

However, many acquisitions fail to enhance shareholdervalue. Cost: the acquisition price is often too high Customers may be disturbed by changes Cultural problems, especially in management Top management egos can warp judgement Professional advisers drive the market




Successcriteria

Joint ventures FranchisesTwo or more organisations join forces, and each hasa share in the equity and management of thebusiness.

Allow a business to expand with less capitalexpenditure than would otherwise be necessary.Franchisees pay lump sum to enter the franchise,and also bear some of the running costs.

Share costs - capital outlay is shared Synergies - combining expertise in different

areas Overseas JVs provide local knowledge, quickly Participating enterprises benefit from all sources

of profitBut: Profits are shared Conflicts over interest between different parties Disagreements over profit share splits,

management and strategy Risk of one partner withdrawing

Reduces capital requirements Quicker expansion than opening new company-

owned facilities Specialisation - franchisee and franchiser both

concentrate on their own areas Reduces head office and management costsBut: Profits are shared Issues re control over franchisees, and potential

for conflict Risk to brand/reputation if franchisee provides

inferior goods/services





Successcriteria

PIMS research showed a strong link between market share and profitability, probably dervived from scaleeconomies

Aims Expand total market Protect current market share Expand market share (eg increased

promotion, aggrerssive pricing)

Aim Build market share using attack strategiesoutlined in Chapter 3 and by attackingsmaller rivals

Accept status quo, compete in suitable segments, controlcosts and grow with market. Beware of predators.

Specialise in a niche with adequate size and growthpotential. Multiple niching spreads risk.

Strategies may be based upon market position

Market leaders

Market followers

Market challengers

Market nichers




Successcriteria

Strategies are evaluated according to:Their suitability to the firms strategic situationThis might be analysed using life cycle analysis;business profile analysis or strategy screening.TOWS strategies are inherently suitable.

Their feasibility in terms of resources and competencesResource deployment analysis, and financialapproaches such as funds flow analysis and breakeven analysis would be appropriate tools to access feasibility.

Their acceptability to key stakeholder groupsDepends upon the view of each stakeholder! Financial considerations (return on investment, cash flow,cost benefit analysis) are generally important, but dont forget issues such as government legislation orcorporate social responsibility. Also, risks must be carefully assessed.

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3

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Internalfactors

TOWS Matrix

SOUse strengths tomaximise opportunities

STUse strengths tominimise threats

WOMinimise weaknessesby taking advantage ofopportunities

WT

Minimise weaknessesand avoid threats

External factors


7: Organising for success

Topic List

Challenges and conceptsTypes of structureProcessesRelationshipsCollaborative organisational structuresStereotypical configurationsConfiguration and strategy

The modern business environment has seen theemergence of new structural ideas and designs, andtraditional assumptions about organisation structure arebeing replaced with more flexible formats. The need toexploit knowledge has made organisation structures,processes and relationships vital ingredients in strategicsuccess.


Challengesand concepts

Collaborativeorganisational structures

RelationshipsProcessesTypes ofstructure

An organisations configuration consists of the structures, process and relationships through which itoperates.

Rapid environmental change and uncertainty require organisations to be flexibleNew global communication and information systems must be accommodatedThe strategic importance of knowledge means that there must be effective processes and relationships for linking those who have knowledge and those whoneed it.

Formal structure shows:Who is responsible for whatWho communicates with whomAt the upper levels, the skills that are valued, and the roleof knowledge and skill

Processes and relationships will have varying degrees offormality and informality. The formal and informal aspectsmust work together.Also, processes and relationships are highlyinterdependent and must work intimately and consistentlytogether.

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3 major challenges





7: Organising for successPage 75

Johnson, Scholes and Whittington identify review seven basic structural types:

Functional According to the type of work logical but does not reflect value creating processes

Multidivisional Semi-autonomous divisions that are then differentiated eg by-product brings problems ofbalkanisation and potential value creation.

Holding company Divisions are separate legal entities

Matrix Co-ordination across functional lines allows flexibility, but may cause confusion (dual authority) Transnational National units operate independently, but share capabilities some have a specialisation that supports

the whole organisation Team-based Use of cross functional teams to operate a specific process area

Project Similar to team-based, but with a finite life, since projects by definition have a finite lifeNo single model of organisation is suitable for all purposes. Managers must choose a structure in the light of which challenges theyregard as most pressing.

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2

3

4

5

6

7

Self-contained organisational structures: historically most organisations have tended to be 'self contained' as they are distinctfrom external groups (customers, competitors and suppliers).





Control processes determine how organisations function. They may be analysed according to whether they deal with INPUTS orOUTPUTS, and whether they involve DIRECT MANAGEMENT ACTION or more INDIRECT effects. For example, balancedscorecards are direct output-based processes.

Types of control processInputs Outputs

Direct Supervision can be used for strategic control and ina crisisPlanning processes budgetary control andstandardisation schemes such as ISO 9000: 2000 workbest

Performance targets useful in large organisations whencombined with autonomy, and in heavily regulated activitiessuch as privatised utilities.Balanced scorecard emphasises need for broad range ofKPIs. See below.

Indirect Cultural processes can be very effective in complexand dynamic environments. Depend on good training.Self-control when combined with motivation, can bevery effective in exploiting knowledge. Depend onappropriate supportive leadership.

Internal markets useful in complex and dynamic markets.However, may encourage dysfunctional competition, time-consuming bargaining and increased bureaucracy to monitoreffects. May also destroy collaborative culture.



Traditional accounting measures are inadequate for assessing overall progress. Other matters must be considered, especially as financial reporting is heavily retrospective in focus. The balanced scorecard covers most

of the angles with its four perspectives. Note that individual measures are company specific.

How do we create value for shareholders?This is thetraditional reporting perspective, but must not beoverlooked. Market share and sales growth areincluded here. Modern measures like value-added andshareholder value analysis should be included.

Can we continue to improve and create value? Thisperspective is forward looking and concentrates onwhat the company must do to satisfy future needs.Performance measures include time-to-market for newproducts and percentage of revenue from them.

How do customers see us? This perspectiveconcentrates on customers concern with price,quality, performance and service. Example measureswould be percentage of on-time deliveries andcustomer rejection rates.

What business processes must we excel at toachieve financial and customer objectives? Controlmeasures will focus on core competences, skills,productivity and cost, for example.

Customer perspective

Innovation and learning perspective

Internal business perspective

Financial perspective





Organisational relationships are categorised as internal or external. Degree of centralisation is an important issue in internalrelationships.

Allows easy exercise of firm control and strong leadership Policy and procedure are easily standardised Internal disputes may be settled more easily, though

political activity may still thrive Concentration avoids the increased overheads that

duplication of facilities may produce

Advantages of centralisation

Reduces the workload at the strategic apex Utilises expertise and local knowledge Enhances job satisfaction for subordinates Promotes faster response to changing conditions and

enhances flexibility Grooms managers for promotion

Advantages of decentralisation

Goold and Campbell identify three types of strategic decision making and control.

Strategic planners have a small number of core businesses. Planning and control are centralised.Strategic controllers tend to be diversified. The strategic apex provides objectives and guidelines, but leaves planning initiativesto business unit managers.Financial controllers are more interested in profit targets than business unit strategy. Use financial performance for control.

1

2

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External relationships are increasingly co-operative rather than adversial.

Boundary-less organisation structures involve the organisation collaborating with outside parties to makeit more flexible during times of change.

Hollow organisations Modular organisations Network Virtual Shamrock organisation Alliances

Boundary-less structures include:





Hollow organisation structure

Similar to a Network organisation Outsourcing is central to the creation of a hollow organisation Non-core processes are outsourced (eg Payroll) to specialist providers Entity now focuses on core value adding activities Outsourcing makes the organisation a hollowed out enitity

Modular organisation structure

Production processes are outsourced to specialist providers The organisation will assemble the outsourced components in-house to

produce a final product. Allows for cost efficiencies



Outsourcing has made the concept of the boundary-less organisation possible. Outsourcing involves thecontracting out of certain internal functions to a third party.

Offshoring is a form of outsourcing which involves an external party in a different country providing anorganisation with a particular process.

Advantages of offshoring

Cost savings Focus on core activities Improve capability Skills Flexibility

Disadvantages of offshoring

Quality issues Public perceptions Loss of control





Shared servicing is an alternative to outsourcing. A shared service centre brings together certain functionswithin an organisation.IT support functions are commonly combined to provide services to the entire organisation, not just onedepartment.

Advantages of shared service centres

Reduced headcount Reduction in overhead costs Facilitates knowledge sharing Standardised approaches



Shamrock organisation (Handy)

The virtual organisationContingentworkforce

Often part time/temp no career track routine

work engaged asrequired

Consumerseg buyers ofDIY furniture

Geographically dispersed organisational components Information technology is central to the production process Flexible structure Collaborative culture

Other forms of boundary-less organisation structure

Alliances Network organisationsMinimum effective scale may require pooling ofresources. Complex organisations such asalliances, partnerships and consortia result.Co-operation may be based on any value activity.

Network structure may exist within an organisation in theform of a loose array of informal, fluid relationships; thisapproach can achieve innovative response to change.

Strategic outsourcing can lead to external networks andvirtual teams.This creates interdependence. Competitorsmay collaborate on non-core competence matters such asR&D and distribution.





Organisations have turned to user contribution systems as a means of extracting and collating customercontributions.

Buchanan and Huczynski highlight 6 motivations for individuals tointeract via user contribution systems:

By-product Practical solutions Social rewards

Reputation Self-expression Altruism

New technologies such as Web 2.0 have enabled the widespread use of user contribution systems.

User contribution systems



Crowdsourcing involves obtaining information from a large group of people. Organisations can use thisinformation to help solve commercial problems.

Drawbacks of crowdsourcing

Lack of credibility Collaborators do not have to collaborate


Configurationand strategy

Stereotypicalconfigurations

StrategicApex

MiddleLine

administer andimplement

Tech

nostr

uctu

re

SupportStaff

Operating CoreDirectly involved in operations:

seek autonomy

Seeks control, responsible forstrategy and boundary management

Ancillary services eglegal, PR

Standardise work,work processes,outputs, skills egquantity assurancestaff

Mintzbergs view



Mintzberg mentions one other co-ordinating factor: mission. A missionary organisation is one welded together byideology or culture. It features simple systems and network relationships in team structures. It works well in asimple and static environment.

Co-ordinationmechanism

Key part Environment Possible characteristics

Simple

MachinebureaucracyProfessionalbureaucracyDivisionalform

Adhocracy

Direct supervision

Standardisedwork processesStandardisedskillsStandardisedoutputs

Mutual adjustment

Strategic apex

Techno-structure

Operating core

Middle line

Support staff

Simple/dynamic (evenhostile)

Simple/stable

Complex/stable

Varies, each divisionis shielded to adegreeComplex/dynamic

Small, young, centralised,personality-driven.Crisis of leadershipOld, large, rule bound,specialisedDecentralised, emphasis ontrainingOld, large, divisions arequasi autonomous,decentralised, bureaucraticHigh automated, organic


Configurationand strategy

Stereotypicalconfigurations

Chandler believed that structure is determined bystrategy. Johnson, Scholes and Whittington suggestthat there are few practical combinations ofstructures, processes and relationships. The onesthat work produce reinforcing cycles of behaviourthat make them cohesive, robust and difficult tochange. They look for opportunities that suit theirstyle. Change is thus dangerous since it disrupts thereinforcing cycles, leading to worseningperformance until a new cycle is established.

Any structure will have problems of optimisation,since all features have advantages anddisadvantages. For example, empowerment canpromote innovation but may lead to loss of control.

Possible approaches to optimisation Divide the organisation and use a different

approach in each part Combine features in unusual ways Reorganise often


8: Managing strategic change

Topic List

Situation analysis for changeStyles of change managementChange management rolesChange management leversPitfalls of change management

Strategies can be expected to change and evolve overtime because of environmental changes anddevelopments. Certain factors will drive change, andexpecting and controlling such factors is an importantpart of strategic management.


Changemanagement levers

Situation analysis for change

Pitfalls of changemanagement

Changemanagement roles

Styles of changemanagement

The management of change starts with an understanding of three main considerations.

The wider context of the change, in large part cultural considerations

The type of change required its scope and nature1

3

2 Time available Capacity - Availability of resources, especially finance, IS/IT and

management effort Features to preserve Workforce readiness to change, or resistence to change Organisational diversity Power to effect change Capability to manage change Scope of change needed

largely depends on experience

Realignment TransformationIncremental Adaptation Evolution'Big bang' Reconstruction Revolution

Scope of change

Nature ofchange

Forces facilitating and blocking change use of force field analysis


Changemanagement levers

Situation analysis for change

Pitfalls of changemanagement

Changemanagement roles

Styles of changemanagement

8: Managing strategic changePage 91

StyleEducation and communicationCollaboration and participationInterventionDirection

Coercion/edict

Different approaches may be appropriate to different stakeholders. Normal management practice will also affectthe style used. It may be advantageous to use more than one style.

Characterised by Appropriate toPersuasion Incremental change, willing staffInvolving those affected Incremental change, supportive cultureChange agents

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