Salman Naqi

CIMA – E3 Notes
Table of Contents
Chapter 1: The Process of Strategy Formulation ..................................................................................6
Levels of Strategy ...................................................................................................................................... 6
Approaches to Strategic Planning ............................................................................................................. 6
Rational approach ................................................................................................................................. 6
Emergent approach - Mintzberg ........................................................................................................... 8
Strategic Planning for Not-for-Profit Organizations ............................................................................. 8
Approaches to Strategic Planning ............................................................................................................. 8
Corporate Governance.............................................................................................................................. 9
Chapter 2: Mission, Vision & Stakeholders ........................................................................................ 10
Mission Statement .................................................................................................................................. 10
Vision Statement ..................................................................................................................................... 10
Objectives ............................................................................................................................................... 10
Stakeholders ........................................................................................................................................... 10
Stakeholder Mapping (Mendelow’s Power/Interest Matrix) ............................................................. 11
Resolving Stakeholder Conflicts (Cyert and March)............................................................................ 11
Non-Market Strategy .......................................................................................................................... 11
Chapter 3: Ethics and Corporate Social responsibility ........................................................................ 13
Corporate Social Responsibility (CSR) ..................................................................................................... 13
Carroll’s CSR Model ............................................................................................................................. 13
Ethical Stances (JSW) .......................................................................................................................... 13
Sustainability ....................................................................................................................................... 13
CIMA Code of Ethics ................................................................................................................................ 14
Chapter 4: External Environmental Analysis ...................................................................................... 16
PEST analysis (macro-economic environment) ....................................................................................... 16
Porter’s Five Forces analysis (Industry Attractiveness) .......................................................................... 17
Industry life cycle .................................................................................................................................... 18
Competitor Analysis (competitor intelligence) ....................................................................................... 19
Porter’s Diamond (competitive advantage of nations) .......................................................................... 19
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Chapter 5: Internal Environmental Analysis ...................................................................................... 20

Resource Audit ........................................................................................................................................ 20
Competences .......................................................................................................................................... 21
Critical Success Factors (CSFs)................................................................................................................. 21
Porter’s Value Chain................................................................................................................................ 22
Chapter 6: Position and Gap Analysis ................................................................................................ 24
Position Auditing ..................................................................................................................................... 24
Gap Analysis ............................................................................................................................................ 24
Forecasting .............................................................................................................................................. 24
Scenario Planning.................................................................................................................................... 25
Chapter 7: Strategic Options and Choice ........................................................................................... 26
Porters Generic Strategy Matrix (competitive strategy) ........................................................................ 26
Cost-Leadership Strategy .................................................................................................................... 26
Differentiation Strategy ...................................................................................................................... 27
Focus Strategy ..................................................................................................................................... 27
Ansoff Matrix .......................................................................................................................................... 28
Market Penetration............................................................................................................................. 28
Market Development .......................................................................................................................... 28
Product Development ......................................................................................................................... 28
Diversification ..................................................................................................................................... 29
Diversification ......................................................................................................................................... 29
Related Diversification (concentric diversification) ............................................................................ 29
Unrelated Diversification .................................................................................................................... 30
BCG Growth/ Share Matrix – Product Portfolio Theory ......................................................................... 30
Acquisition .............................................................................................................................................. 31
Joint Method of Expansion ..................................................................................................................... 31
Divestment .............................................................................................................................................. 31
International Growth .............................................................................................................................. 32
Evaluating Strategies............................................................................................................................... 32
Chapter 8: The Performance Measurement Mix ................................................................................ 34
Financial & Non-Financial Measures....................................................................................................... 34
Financial Performance Measures........................................................................................................ 34
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Non-Financial Performance Measures................................................................................................ 34

Balance Scorecard ................................................................................................................................... 35
Performance Pyramid ............................................................................................................................. 36
Flitzgerald & Moon ................................................................................................................................. 37
Benchmarking ......................................................................................................................................... 37
Types of Benchmarking (Seber) .......................................................................................................... 37
Divisional Performance ........................................................................................................................... 38
Transfer pricing ....................................................................................................................................... 39
Communication ....................................................................................................................................... 39
Sub-optimization ..................................................................................................................................... 39
Chapter 9: Information Technology & e-business .............................................................................. 40
IS Strategy ............................................................................................................................................... 40
IM Strategy.............................................................................................................................................. 40
Four tasks of Information Management ............................................................................................. 40
IT Strategy ............................................................................................................................................... 40
Reasons for having an IT/IS Strategy ...................................................................................................... 41
Criticality of IT - McFarlan’s Grid............................................................................................................. 41
E-business ............................................................................................................................................... 42
Latest Development in Commercial Use of the Internet ........................................................................ 43
Web 2.0 ............................................................................................................................................... 43
Virtual Organizations .......................................................................................................................... 43
Social and Digital Marketing ............................................................................................................... 43
Chapter 10: Information for Advantage & Knowledge Management .................................................. 45
Data Warehousing .................................................................................................................................. 45
Data Mining............................................................................................................................................. 45
Big Data ................................................................................................................................................... 46
Knowledge Management ........................................................................................................................ 46
Appropriate Systems ........................................................................................................................... 47
Learning Organizations ....................................................................................................................... 48
Chapter 11: Customer, Suppliers & Supply Chain Management ......................................................... 49
Relationship with Suppliers .................................................................................................................... 49
Supplier Strategy ................................................................................................................................. 49
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Antagonism or Partnership ................................................................................................................. 49

E-Procurement .................................................................................................................................... 49
Relationship with Customers .................................................................................................................. 50
Relationship Marketing ....................................................................................................................... 50
Customer Account Profitability (CAP) ................................................................................................. 50
Customer Lifetime Value (CLV) ........................................................................................................... 51
Marketing audits ................................................................................................................................. 51
Downstream SCM ................................................................................................................................... 51
Customer Analysis, Acquisition, Retention and Extension ..................................................................... 52
Customer Behavior ............................................................................................................................. 52
Customer Analysis – Segmentation .................................................................................................... 52
Customer Behavior – Industrial markets ............................................................................................ 52
Customer Analysis – Industrial Segmentation .................................................................................... 52
Customer Acquisition .......................................................................................................................... 53
Customer Satisfaction & Retention .................................................................................................... 53
Customer Extension ............................................................................................................................ 54
Brand Strategies (Kotler) ......................................................................................................................... 54
Chapter 12: Change Management – Understanding the Context of Change ........................................ 55
Triggers for Change ................................................................................................................................. 55
Types of Organizational Change ............................................................................................................. 55
Organizational Culture ............................................................................................................................ 56
The Cultural Web ................................................................................................................................ 56
McKinsey 7S Model ............................................................................................................................. 56
Resistance to Change .............................................................................................................................. 57
Chapter 13: Change Management – Managing the Change Process ................................................... 58
Lewin’s Three Stage Model ..................................................................................................................... 58
Force Field Analysis ................................................................................................................................. 58
Theory E & O – Beer & Nohria ................................................................................................................ 59
Change Leadership .................................................................................................................................. 59
8-step process of change leadership – Kotter .................................................................................... 59
Team formation .................................................................................................................................. 59
Leadership Styles – Kotter .................................................................................................................. 60
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Change Agents ........................................................................................................................................ 61

Executive Mentoring & Coaching............................................................................................................ 61
Managing Decline ................................................................................................................................... 62
Continuous Change ................................................................................................................................. 62
Change Adept Organizations (Kanter) ................................................................................................ 62
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Chapter 1: The Process of Strategy Formulation

Strategy: Long term direction and scope of an organization which achieves advantages for the
organization through configuration of resources, in a changing environment to fulfil stakeholder
expectations – Johnson, Scholes & Whittington.

To develop a strategy, and gain competitive advantage, a careful understanding is required of:
1. Resources (RBV view – resources and competencies)
2. Environment (external)
3. Stakeholders expectations (stakeholder matrix)

Levels of Strategy
Corporate Strategy: Which businesses and markets should we be in?
Involves acquisition & diversification
 Entering new industries
 Leaving existing industries

Business Strategy: How (develop a plan to be successful in the selected markets)

Focuses on the SBUs rather than the entire organization
 Achieve advantage over competitors
 Avoid competitive disadvantage

Functional Strategy: Day to day

Concerned with how resources, people & processes are pulled together to form strategic architecture
which will effectively deliver the overall strategic direction.
 Human resource strategy
SBU specific or
 Marketing strategy
centralized for
 Information systems and IT strategy synergic benefits
 Operations strategy

Approaches to Strategic Planning

Rational approach
 logical, step by step approach
 Require careful & deliberate formulation, evaluation and selection of strategies for the purpose
of preparing cohesive long-term course for achieving the objectives.
o analyze existing circumstances
o generate possible strategies, s
o select the best one
o implement them
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JSW Approach
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Advantage and Disadvantages of Long-term planning

Advantages Disadvantages
 Forces managers to look ahead  Setting corporate objectives
 Improved control  Short-term pressures
 Identifies key risks  Difficulties in forecasting accurately
 Encourages creativity  Bounded rationality
 Rigidity
 Cost
 Management distrust

Emergent approach - Mintzberg

 In a changing environment, rational approach is too slow to react
 No logical formulation process, tends to emerge
 Its evolving, continuous and incremental
 Culture of innovation is necessary where new ideas are readily forthcoming
 Timing, order and distinction between analysis, choice and implementation is blur.

Incrementalism (Lindblom)
 Manager do not evaluate all options available and option the process is informal
 Strategy making tends to involve small-scale extension to the past policy as it would be more
acceptable
 Incremental rather than a radical shifts following a comprehensive search

Freewheeling Opportunism
 Freewheeling opportunists do not like planning, they take opportunities as they arise

Problems with lack of formal planning by freewheeling opportunists:

 Failure to identify risks – less control, no contingency planning

 Strategic drift – lack of focus thus difficult to compete
 Difficulty in raising finance – investors like to know formal plans
 Management skill – requires highly skilled managers

Strategic Planning for Not-for-Profit Organizations

The 3Es:

1. Effectiveness
2. Efficiency
3. Economy

Approaches to Strategic Planning

1. Traditional approach - Stakeholders: Looks at stakeholder objectives then formulates plan to
achieve them. Often flawed as objectives are set in isolation from market considerations. Useful
for NGOs.
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2. Market-led or positioning approach: Analysis of the market & competitors before objective and
strategy formulation. Ensures that the firm has a good fit with the environment. If markets are
expected to change, the firm needs to change too. Difficult to anticipate he environment.
3. Resource-based or competence approach: Emphasis is given to the firms core competences as
anticipating the environment is difficult.

Corporate Governance
It is the system by which companies are directed and controlled

Purpose is to monitor those parties that control the resources owned by the investors

Objective is to improve performance & accountability in creating long-term shareholder value

Relevant Aims:
 Increase disclosure to shareholders
 Ensure ethical & legal operations
 Increase confidence for existing & potential investors thus promote investment and growth
 Increase transparency at the board level

Key Ideas:
 Leadership:
o Headed by an effective board
o Clear division of responsibility between the board (chairman) and the business (CEO)
o Board should include non-executive directors
o Chairman of the board must practice a culture of openness and debate
 Effectiveness
o Board members must have appropriate skills, experience, independence & knowledge
o Formal, rigorous & transparent process of appointing new members
 Accountability
o Present balanced understanding and clear assessment of the company’s position
o Publish statement of their responsibility for preparing accounts
o Review effectiveness of risk management and internal controls
 Remuneration
o Formal, transparent process for developing policy on executive remunerations
 Relations with shareholders
o Board must ensure satisfactory dialogue with shareholders
o Call AGM to communicate with shareholders and to encourage participation
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Chapter 2: Mission, Vision & Stakeholders

Mission Statement
A statement that describes the basic purpose of the organization. The strategies of the organization
must be designed to support its mission.

The mission statement fulfils a number of purposes:

1. Communicates to all stakeholders
2. Help develop a desired corporate culture
3. Assist in strategic planning

Characteristics of a mission statement:

 Culture
 Aim
 Areas of business in which the organization intends to operate
 Used to formulate objectives
 Guides strategy formulation

Vision Statement
Longer term aspirations of the organization. The ideal position that the company wants to reach within
the medium to long-term.

Objectives
More specific and seeks to translates the mission into a series of mileposts

Objectives should be SMART

 Specific
 Measurable
 Attainable
 Relevant – appropriate to the mission and stakeholders
 Timed – have a time period for achievement

Stakeholders
Individuals and group that can influence (managers & staff) or are influenced (shareholders, customers
suppliers etc.) by the organization’s actions.

Sources of stakeholder power:

 Positional power – designation, formal authority designed by the organizations hierarchy

 Resource power – control of key resources including assets, unionized work force
 System power – high visibility, political access & relevance to a particular situation
 Expert power – knowledge based, skilled employees
 Personal power – popular, good communication skills, reputation
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Civil Societies (other stakeholders)

NGOs; people’s organizations; civic clubs; trade unions; gender, culture, and religious groups; charities;
social and sports clubs; co-operatives; environmental groups; consumers/consumer organizations and
the media.

Actors (Braithwaite & Drahos)

1. Organizations of states – WTO, EU etc.

2. States
3. Organizations formed by firms – chamber of commerce
4. Corporations
5. NGOs – Consumers International, British Standards Institute
6. Mass publics Civil Society
7. Knowledge based communities - CIMA

Stakeholder Mapping (Mendelow’s Power/Interest Matrix)

Resolving Stakeholder Conflicts (Cyert and March)

 Satisficing – negotiating between key stakeholders to arrive at an acceptable compromise
 Sequential attention – focusing on stakeholder needs in turns.
 Side payments – compensate stakeholders when their primary objectives cannot be met
 Exercise of power – using coercive power to break a deadlock situation.

Non-Market Strategy
 A strategy to deal manage relationships with governments, regulators, NGOs, media and the
society at large influences an organization.
 There are huge opportunities for companies here, as well as dangers for those who purely focus
on the market side i.e. its customers, suppliers & competitors.
 Importance of a non-market strategy is increasing due to difficulty of achieving sustainable
competitive advantage.
 A detailed environmental analysis is required to develop a non-market strategy.
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Corporate political activity

Government can be influenced in a number of ways:
 Employing lobbyists
 Giving MPs & retired civil servants non-executive directorships
 Influencing legislative agenda by changing public opinions through advertising

Influence of government on an industry (Porter)

 Capacity expansion
 Demand
 Divestment & exit
 Infant industry protection
 Entry barriers
 Competition policy
 New product adoption
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Chapter 3: Ethics and Corporate Social responsibility

Corporate Social Responsibility (CSR)

CSR refers to a firm’s obligation to maximize its positive impacts upon stakeholders while minimizing the
negative effects. It is a firm’s responsibility to do good for the society while earning financial returns for
its investors

Arguments for CSR

 Having good CSR can attract customers (enhance reputation/ brand equity)
 Attract & retain higher caliber of staff
 Access to a wider HR base (gender, ethnic diversity, skill set)
 For of advertising (sponsorship & donations)
 Reduces risk of adverse environmental reactions/ litigations, fines bad publicity etc.

Carroll’s CSR Model

The pyramid of CSR
1. Economic responsibility – be profitable
2. Legal responsibility – obey the law
3. Ethical responsibility – do what is right and fair
4. Philanthropic responsibility – be a good corporate citizen

Strategies for CSR

 Reaction – corporation denies responsibility of CSR

 Defense – admits responsibility but fights it, doing the least that seems to be required
 Accommodation – accepts responsibility and does what is demanded
 Proaction – seeks to go beyond industry norms.

Ethical Stances (JSW)

The extent to which an organization will exceed its minimum obligations to stakeholders

1. Short-term shareholder interest – maximize profit in the financial year, government should set
minimal ethical standard
2. Longer-term shareholder interest – do good for one’s own long-term interest
3. Multiple stakeholder obligation – have a role to play in the society, all stakeholders interest
4. Shaper of society – views financial interest as secondary

Sustainability
Use of resources in such a way that they do not compromise the needs of future generations.
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Incorporating ethics & CSR into strategy

 Adds value to the brand
 Often find bottom line benefits
 Ethical tone comes from the top
 High quality management information is essential for communication of impacts of ethical
practices
 Management accounts have responsibility to act ethically

Why have sustainability plans

 Compliance
 Reputational risk – how stakeholders will view them
 Cost-cutting and efficiency -

Ten elements of organizational sustainability

Strategy and oversight
1. Board & senior management commitment
2. Understanding & analyzing key sustainability drivers
3. Integrating these divers into the strategy

Execution and alignment

4. Everyone’s responsibility within the organization
5. Breaking down sustainability targets at the subsidiaries, divisions & department level
6. Controls that ensure suitability is considered in the decision making
7. Tainting on sustainability

Performance and reporting

8. Including sustainability targets * objectives in performance appraisals
9. Acknowledge & celebrate success
10. Monitoring & reporting sustainability performance

CIMA Code of Ethics

 Integrity – fair dealing & truthfulness, no false or misleading information
 Objectivity – no bias or conflict of interest
 Professional competence & due care – must have knowledge & skill, follow technical &
professional standard
 Confidentiality – information should not be disclosed outside or used for personal advantage
 Professional behavior – must comply with all relevant laws & regulations
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Steps to deal with ethical conflicts

1. Gather all relevant facts

2. Establish ethical issues involved
3. Refer to principles
4. Follow internal procedures
5. Investigate alternated course of action
6. Consult with appropriate persons
7. Obtain advice from professional institutes
8. Consider withdrawing if the matter is still unresolved
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Chapter 4: External Environmental Analysis

 Internal environment : Strengths and Weaknesses
 External environment: Opportunities and Threats

Purpose of Environmental Analysis:

1. Identification of threats and opportunities
2. Assessment of competition
3. Identification of strengths and weaknesses
4. Meeting stakeholder needs

PEST analysis (macro-economic environment)

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Porter’s Five Forces analysis (Industry Attractiveness)

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Industry life cycle

Summary of industry life cycle

Intro Growth Maturity Decline

Sales Low Rapidly rising Peak Declining

Costs per High cost Average Low Low

customer

Profits Negative Rising High Falling

Customers Innovators Early adopters Middle majority Laggards

Demand unsophisticated More sophisticated Fully sophisticated Fully sophisticated

demand demand

Competitors Few Growing number Stable number Declining number

beginning to decline

Objectives Create product Maximize market Maximize profit whilst Reduce expenditure
awareness & trial share defending market share & 'milk the brand'

Strategies
Product Offer basic product Offer product Diversify brands & Phase out weak items
extensions, service models
& warranty

Price Cost plus Price penetration Price matching Price cutting

Promotion Build product Build awareness & Stress brand Reduce to a level to
awareness amongst interest in mass differences & benefits maintain hardcore
early adopters & market loyals
dealers

Place Limited Growing Maximum Limited

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Competitor Analysis (competitor intelligence)

Purpose (Grant)
 Provide an understanding of the company's competitive advantage/disadvantage relative to its
competitor's positions
 Help generate insights into competitors strategies - past, present and potential
 To give an informed basis for developing future strategies to sustain/establish advantages over
competitors.
 To predict competitors' likely reactions to a firm's strategic initiatives

Framework

Step 1: Identify competitors

 Brand competitors: sell similar products to the same customer, Pepsi Vs. Coke
 Industry competitors: Singapore Airline Vs. British Airways
 Form competitors: sell products that satisfy same need, speed boat vs sports car
 Generic competitors: compete for the same income

Step 2: Analyze competitors (from competitor’s perspective)

 Objectives
 Strategy
 Predictions (game theory)
 Assumptions
 Resources & Competencies (RBV)

Step 3: Develop competitor response profiles

 Laid back: does not respond
 Selective: only in selective markets
 Tiger: always responds aggressively
 Unpredictable: no pattern exists

Porter’s Diamond (competitive advantage of nations)

 Factor conditions (source of initial completive advantage) land, labor, infrastructure, universities
and training institutes for continuity of high skilled labor.
 Demand conditions (sophisticated home demand) – Japan. Also established industry and
economic growth will provide good cash flow to compete better
 Related and supporting industry (superior supplier industries) – leather in Italy
 Strategy, structure and rivalry – domestic rivalry keeps organization lean & mean, they are able
to compete more effectively with less capable foreign competition. Govt. can promote this by
promoting competition, certain industries, and skilled staff
 Other factors:
Role of the government - subsidies, legislation, education etc.
o Role of chance events – war, civil unrest, chance discoveries etc.
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Chapter 5: Internal Environmental Analysis

Internal analysis helps the organization to identify what it is capable of & what skills/ assets it possesses.

Resource Audit
 Identifies the resources that are available to an organization and seeks to start the process of
identifying competencies.
 It attempts to assess the relative strength, the quantity, the nature of those resources and the
extent to which those resources are unique and difficult to imitate.

M’s model for resource audit

 Manpower- staff, skill set & morale
 Money – cash position, gearing
 Management – quality & expertise of the top team
 Machinery – physical assets, flexibility
 Markets – products and markets, quality and position of the products
 Materials – relationship with suppliers, also cost quality & availability of materials
 Methods – processes, JIT
 Management information – Quality & timeliness of information provided to its managers
 Make-up – culture, structure of the organization, branding & other intangibles
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Resources
1. Physical or operational resources
2. Human resources
3. Financial resources
4. Intangibles
 The key is to know what you have and what you lack, in order to make a strategy.

Competences
Resources are combined together to achieve a competence.
 Core competencies – order winners; difficult to emulate; basis of competitive advantage
 Threshold competencies – order qualifiers; things that we must be good at in order to be
considered a supplier
Basis of competitive advantage

(Order qualifiers) (Order winners)

Over time, the core competencies will become threshold as:

 Cultures adjust and expectations develop
 Consumers become sophisticated
 Competitors imitate core competences

Competence audit

 What competences the organization has & how resources are deployed to create them
 Categorization of competence as threshold or core

Critical Success Factors (CSFs)

 Critical success factors (CSFs) are the limited number of areas in which results, if they are
satisfactory, will ensure successful competitive performance for the business.
 They are the vital areas where ‘things must go right’ and where the business must outperform
its competitors.
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 CSFs are often vague, therefore organizations must set up specific and measurable KPIs to
measure each CSF.

Sources of CSFs (Rockart)

1. The industry that the business is in
2. The company itself and its situation within the industry (competitive strategy & its geo location)
3. The wider environment (PEST)
4. Temporal organizational factors (short-term liquidity problems)

Link between CSFs and competences

 CSFs are what the organization needs to be good at in order to compete
 Competences are what the organization is good at

The organization’s strategy must look at ways of maximizing the correlation between the two

Porter’s Value Chain

This is a means by which the activities within and around the organization are identified and then
related to the assessment of competitive strength.

An understanding of strategic capability must start with an identification of the separate value-adding
activities

Value drivers or are activities or features that enhance the perceived value of a product or service by
customers and which therefore create value for the producer. They can be tangible or intangible.

Use of the Value Chain

 Give managers understanding of what the organization does
 Identifies areas of business that add value to the end customer
 Identify the processes that do not add value, these could be eliminated to save time & money
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Primary Activities
1. Inbound logistics – receiving, storing & distributing the inputs to the product
2. Operations – transforming inputs into final products (machining, packaging, testing etc.)
3. Outbound logistics – collecting, storing & distributing products to buyers
4. Marketing & sales – customer made aware of the product & transfer is facilitated
5. Service – installation, repair, training & after-sales service

Support Services
1. Procurement – process of acquiring various resource inputs to the primary activities
2. Technology development – IT affects product design or process and material/ labor handling
3. HR management – recruiting, managing, training, developing and rewarding employees
4. Infrastructure – systems of planning, finance, quality control, information management etc.

The Value System

Looks at linking the value chains of suppliers and customers to that of the organization

Can add value by:

 Enhancing the supply
 Controlling of the retail process
 Linking it all together to give advantage

The Value Shop – Stabell & Fjelstad

Alternate representation of value chain for professional services firm.

The model has same support activities as Porter’s value chain, but primary activities are as follows:

 Problem finding and acquisition

 Problem solving
 Choosing among solutions
 Execution and control/ evaluation
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Chapter 6: Position and Gap Analysis

Position Auditing
 Where we are now?
 Starting point for the process of strategic choice.
 Use SWOT analysis

Position Audit seeks to identify:

 Threats focusing on weaknesses
 Threats focusing on strength
 Opportunity focusing on strength
 Opportunity focusing on weakness

Gap Analysis
The comparison between an entity’s ultimate objective and expected performance from projects, both
planned and underway.

Closing the Gap

1. Efficiency drive: increasing efficiency
2. Effectiveness drive: Ansoff Matrix

A plan is what you want to happen whilst a forecast is what you predict will happen given the current
context and assumptions. The whole approach of gap analysis is based upon the feed forward control
concept, i.e. the comparison of plan with forecast.

Feedforward control is about identifying deviance before the problems of missed targets arise so that
corrective action can take place in advance. Proactive approach rather than reactive control are needed
for strategy development.

Problem with gap analysis

1. Business environment is becoming increasingly uncertain
2. Gap analysis does not cater to conflicting stakeholder interests

Benefits
 Easily understood
 Long-term focus
 Provides basic options for closing the gap (efficiency & expansion)
 Questions realism of objectives

Forecasting
1. Statistical models – exponential smoothing, regression analysis, risk analysis
2. System modeling – sophisticated software packages (ERM software)
3. Intuitive forecasting methods: judgment based on systematic expert knowledge
a. Think tanks: informal; no leader; experts; independence;
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b. The Delphi technique: individually, systematically & sequentially interrogating experts;

members do not meet; formal questionnaires w/ subjective probabilities for predictions
c. Brainstorming: 6 to 16 people; all levels of management; rationality not important,
encourages free thought
d. Derived demand

Scenario Planning
Managers need a picture (scenario) of where the world may be in a few years’ time.

Steps for scenario Planning

1. Identify high impact, high uncertainty factors in the environment

2. For each factor, identify different possible futures (develop a view for the future)
3. Cluster together different factors to identify various consistent future scenarios
4. ‘Writing the scenario’ – for the most important scenarios, build a detailed analysis to identify
and assess future implications.
a. Financial implication
b. Strategic implication
c. Probability of occurrence
5. For each scenario, identify and assess possible courses of action for the firm
6. Monitor reality to see which scenario is unfolding.
7. Revise ("redeploy") scenarios and strategic options as appropriate
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Chapter 7: Strategic Options and Choice

Key decisions to make:
1. Where to compete?
 Which markets, products, SBUs should be part of the portfolio?
2. How to compete?
 For each SBU, what will be the basis of our competitive advantage?
3. Which investment vehicle to use?
 Organic growth, acquisition or joint expansion like franchise

Strategic Models
Benefits
 Useful starting point, initiate discussion
 Well-known, easily applicable, less resistance
 Generate options, allow comparisons
 Can be linked with each other
 Can be developed in complicated applications
Limitations
 Simplistic, two-by-two
 Too much reliance on model for solution
 Dated, environments have changed
 Do not apply in every situation

Porters Generic Strategy Matrix (competitive strategy)

Competitive advantage arises from the selection of a generic strategy which best fits the
organization’s environment and then organizing value-adding activities to support the chosen
strategy.

Cost-Leadership Strategy
Benefits:
 Business can earn higher profits by charging same as competitors
 Let’s the company built a defense strategy against price wars
 Allow price penetration entry into new markets
 Enhances barrier to entry
 Develop new market segments
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How: (use Value chain analysis to identify areas of reducing cost)

 Reduce cost by: copying others rather than innovating; using cheaper resources; no frills etc.
 Achieve economies of scale: fixed costs spread over wider production base
 Higher volume purchasing to obtain discounts
 Locating in area where cost advantage or government subsidy exists
 Obtaining learning and experience curve benefits

Differentiation Strategy
It is based on the idea of persuading customers that a product is superior to that offered by the
competition (product features, perception, product or process).
Benefits:
 Products command a premium price so higher margins
 Demand becomes less price elastic and so avoids costly price wars
 Life cycle extends as branding becomes possible- strengthens barrier to entry

How
 Creating products that are superior to competitors in term of design, performance etc.
 Offer after-sales service
 Create brand strength
 Product augmentation
 Packaging
 Promoting innovative culture necessary

Focus Strategy
Benefits:
 Smaller investment
 Allows specialization
 Less competition
 Entry is cheap and easier

How:
 Detailed research on customer needs
 Reliable segment identification
 Competition needs to be fully understood
 Direct focus on consumer needs
 Niche must be:
o Large enough; growth potential; of negligible interest to competitors; strategically
possible
o Based on: location, type of end user, quality, price, size of customer, product feature
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Ansoff Matrix
Directions for growth, i.e. possible strategic options

Market Penetration
Approach:
 Existing customers – adverts, promos, sponsorships, quantity discounts
 New customers – pricing, adverts, promos, process redesign (e-commerce)

Considered when:
 Growing market, not saturated
 Competitors leaving or weak
 Strong brands and marketing capability

Market Development
Approach:
 Add geographical areas
 Add demographic areas
 New distribution channels

Key notes:
 Slightly product modifications
 Adverts in different media
 Research
 Organization structured to produce one product & there are high switching costs
 Strong marketing ability

Product Development
Approach:
 Develop products & features of a significant nature
 Create different quality versions

Key notes:
Company needs to be innovative, strong R&D and an established, reliable marketing database
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Diversification
Approach:
 New products to new markets

Key noted:
 When existing market is saturated or product lifecycle is ending
 Can create synergic benefits
 High risk high return
 Brand stretching ability is a CSF
 Teething problem with new business, might damage brand reputation

Reasons:
 Objectives can’t be met due to change in external environment
 Excess cash & powerful stakeholders
 Possible brand stretch, benefit from past adverts and promotion in other SBUs
 Can spread risk and also provide greater returns
 Greater use of existing distribution systems & corporate resources, synergies

Diversification
Related Diversification (concentric diversification)
1. Vertical Integration
a. Vertical backward – Operate in markets in which it currently obtains its resources from
b. Vertical forward – seeks to move into its customer base

Key issues:
a. Cost – cheaper to produce or to buy
b. Quality – better control, customization, propriety expertise
c. Risk/flexibility – outsourcing gives buyer power i.e. prices bargain & flexibility to switch
2. Horizontal – entering into complementary or competing markets, bi-products

Advantages & Disadvantages of Vertical Integration

Advantages Disadvantages
 Economies of combined operations  Increase fixed cost
 Internal control and coordination  Reduced flexibility to change partners
 Avoiding the market (negotiation, packing,  Capital investment needs
advertising avoided)  Cut off from the flow of technology
 Tap into technology (pc manufactures)  Dulled incentives could lead to inefficiencies
 Safeguarding propriety knowledge  Different managerial requirements
 Assured supply and demand
 Reduction in bargaining power of buyer and
supplier
 Defend against lockout
 Enhanced ability to differentiate
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Unrelated Diversification
Likely reasons:
 Existing market saturated
 Reduced variability in returns, greater spread of overall portfolio risk
 Possibility of brand stretch
 Opportunity for returns and nothing else to do with existing resources

BCG Growth/ Share Matrix – Product Portfolio Theory

Stars – hold, divest or build Quest Marks – build, harvest or divest

 Usually market leader
 Long-term prospects
 High capex required
 Attack likely, adverts in both
defensive & offensive style
 Opportunities exists
 Capex to increase share
 Potential to become star
 Absorb lots of time & money
and may not be successful

10%

Cash Cows – hold, build or harvest Dogs – build, harvest or divest

 Cost leaders  To build, requires high risk &
 Low capex required cost
 Profit can be used to support  Often divested
new products  Could be niched, otherwise
 Defensive strategy adopted low prospects
 Strategic reasons
1

Appropriate strategies:

1. Hold – keep product in its existing quadrant i.e. invest heavily on adverts for stars
2. Build – increase investment in the product to boast its market share
3. Harvest – reduce investment in the product to maximize net cash return
4. Divest – disposal of the product to release any cash tied up
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Acquisition
Acquisition versus organic growth, tradeoff between risk and cost.

Advantages Disadvantage
 High-speed access to resources/ brand  More costly
 Maybe the only way to enter the market  Cultural mismatch
 Less reaction from competitors (as the  Difference in salaries
capacity of the competitive arena is same  Risk of the unknown
 Can reduce overcapacity  Reduction in return on capital employed
 If P/E ratio is high in the existing company,
EPS can boasted by issuing its own equity
 Asset stripping for undervalued assets

Joint Method of Expansion

 Joint venture – separate entity with jointly opened shares
o Useful approach for sharing cost, risk & expertise
 Strategic alliances – risk, ownership & responsibilities are divided but identity maintained
o Characteristics of well-structured alliance
1. Strategic synergy – more strength when combined
2. Positioning opportunity – at least one company should be able to gain leadership
3. Limited resource availability – a partner complement the weaknesses of the other
4. Less risk
5. Co-operative spirit – both parties want to do it & be willing to corporate
6. Clarity of purpose – results, milestones, methods & resource commitment be
understood
7. Win-win – structure, risks, operation & rewards must be fairly apportioned
 Franchising – purchase of right to exploit a brand in return of capital sum & share of profit/ sales
 Licenses – similar to franchise but little central support
 Outsourcing – contracting works previously done in-house to specialist providers

Divestment
May occur because:
 SBU does not fit the existing group, company wished to focus on core competences
 SBU may be too small for management attention
 Selling SBU as a going may be much cheaper
 Parent company may need to improve liquidation
 Individual parts are worth more than the whole
 MBO is one way for divestment
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International Growth
Possible strategies for international growth:
 Export
 Oversees manufacture
 Multinational
 Transnational

Factors influencing international growth strategic choice:

 Risk exposure – forex and political risk
 Capital investment needs – lower for export strategy
 Customer relationships – difficult to maintain for an exporter
 Transportation costs – manufacturing at a distance from the target will increase costs
 Ethical issues – labor laws, ethical practices etc.
 Cultural Issues

Evaluating Strategies
Strategies need to have ‘strategic fit’ with the environment in order to be effective:

Strategic choice is a function of:

1. Relative stakeholder power & personality
2. Information available and perceived reliability
3. Historical experience
4. Manner & presentation of options
5. Other corporate experience
6. Expectations
7. Objective ordering & perceived ordering

Viability of strategic option – Johnson, Scholes & Whittington:

Viability of new strategies need to be evaluated against the following criteria:

1. Suitability: Circumstances in which the organization is performing

 Is the proposed strategy a suitable response to the environment?
 Strategic fit - will it fit with the existing position? Will it cause problems elsewhere?
 Will it take advantage of the opportunities and strengths
 Is the portfolio balanced?
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Use Ansoff’s Matrix to check strategic fit

2. Feasibility: could it made to work in practice, strategic capability

 Can the resources & competencies be obtained & the required changes be implemented
 In-house or outsourced?
 Strategic capability needs to be questioned in term of:
a. Resources: basic and unique
b. Competencies: threshold and core
c. Dealing with strategic change
 Considerations should cover:
o Cultural change required
o Timescales
o Potential resistance
o Raw materials availability
o Human resource availability
o Distribution channel access
o Marketing requirements & skill
o IT requirements and skills
o Finance – how much, where from, impact on financial position & performance
3. Acceptability: would it be accepted by the stakeholders (employees, customers, shareholders)
risk vs return
 Is the strategy acceptable to all stakeholders? Stakeholders will be assessed in term of their
power.
 Consideration should cover:
o Staff resistance
o Financiers – rate of return & liquidity position
o Owners – may prefer less risk and except lower return, cultural expectations
o Customer, consumers & suppliers may have required standards
o Government – legality & political implications
o Public – may form pressure group, ethical considerations need to be taken care off.
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Chapter 8: The Performance Measurement Mix

A strategy needs to be converted into a range of performance measures that can be monitored

Reasons for measuring performance:

 Check position – to detect problem and take remedial action
 Communicate position – helps build stakeholder support
 Confirm priorities – ensures managers focus on key areas
 Compel progress – rewards can be linked to KPI measures

Financial & Non-Financial Measures

Financial Performance Measures
𝑆𝑎𝑙𝑒𝑠−𝐶𝑂𝐺𝑆
 Sales margin (gross profit margin) = 𝑥 100
𝑆𝑎𝑙𝑒𝑠
𝑁𝑃
 Net profit margin = 𝑥 100
𝑆𝑎𝑙𝑒𝑠
𝐸𝐵𝐼𝑇
 ROCE = 𝑥 100
𝑇.𝑎𝑠𝑠𝑒𝑡𝑠−𝐶𝐿

Advantages Disadvantages
 Culturally accepted  Inflation distortion
 Focus on financial objectives  Lack of comparability
 Comparable across companies  Understood by a select few
 Cheap  Leads to suboptimal & short-termist
 Established framework behavior
 Focus on resource generation  Subjectivity – depreciation

Non-Financial Performance Measures

Businesses need to focus on factors that actually cause profits to be earned

Advantages Disadvantages
 Wider view  Sometimes difficult to calculate
 Easier to calculate  Subjectivity in design, interpretation &
 Easier to understand calculation
 Not distorted by inflation  Can lead to indicator overload
 Cover broad system of management  Costly
 Positive motivational implications  Cultural clash

Balance Scorecard
Benefits
 Avoids reliance on short-termist or
incomplete financial measures.
 Helps identify problems earlier
 It can ensure that divisions develop success
measures that relate to the overall corporate
goals of the organization
 It can assist stakeholders in evaluating the
firm if measures are communicated externally
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Drawbacks
 Does not provide a single overall view of
performance
 No clear relation between the balanced
scorecard and shareholder analysis
 Measures may give conflicting signals and
confuse management
 Often involves a substantial shift in corporate
culture in order to implement it
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Performance Pyramid

 The performance pyramid is designed to understand and define the links between objectives &
performance measures at different levels in the organization
 It is designed to ensure that the activities of every department, system and business unit
support the overall vision of the organization
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Flitzgerald & Moon

Framework for design and analysis of performance management systems.

Three building blocks:

 Dimensions – goals of business
o Profit – successful financial performance & growth
o Competitiveness – threat of loss of market share
o Quality issues – minimizing defects
o Resource utilization – efficiency
o Flexibility – ability to respond to customer needs
o Innovation – product development
 Standards – measures used (achievable, fair so employee takes ownership)
 Rewards – to achieve standards, targets need to be clear & linked to controllable factors which
would motivate employees

Benchmarking
The purpose of benchmarking is to help management understand how well the firm is carrying out its
key activities and how its performance compares with best in class.

Types of Benchmarking (Seber)

 Internal
o Branch or department is used as the benchmark
o Used when conformity is important
o Easily arranged, cheaper & culturally relevant
o Culturally distorted, unlikely to provide innovative solutions
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 Competitor
o Uses a direct competitor
o Aims to render competitions core competence as threshold
 Process or activity
o Focus on similar processes of an indirect competitor
o Look for innovative ways to create advantage
o Takes time and is expensive
o Less resistance, can provide the new basis for advantage

Divisional Performance
Some measure for divisional performance are:

 Economic value added (EVA)

 Shareholder value added (SVA)
 Triple bottom line

EVA
It is an estimate of true economic profit

SVA
The main aim of an organization is to add value to shareholder wealth. This usually results in the form of
a balance scorecard, as value can be financial as well as non-financial (social responsibility etc.)

Rapport’s model to increase SVA (increasing cash flows and decreasing cost of capital)
 Sales growth rate ↑
 Life of the project ↑
 Operating profit margin ↑
 Working capital ↓
 Cost of capital ↓
 Asset investment ↓
 Taxation ↓

Managers should set targets in these areas in order to ensure they are maximizing shareholder wealth

Advantages and disadvantages of EVA/ SVA approach

Advantages
 Adjustment made to profit effectively mean
we are looking at cash flow measures
 Consistent with NPV so should ensure better
goal congruence between divisional
performance & maximizing shareholder value
 Cost of financing emphasized
Disadvantages
 Involves subjective provisions & estimates
 Ignores intangible assets like brand, staff etc.
 Confuses management, rarely trained
 Costly to maintain, resistance initially high
 Equates value with money
 Judgment involved in selection of K%
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Triple Bottom Line

Triple Bottom Line expands traditional accountancy reporting systems, looking at social and
environmental performance, rather than simply financial performance. Helps each division to act in a
socially responsible way

Three areas:
 Profit (economic prosperity) – economic benefit to the surrounding community & society
 People (social justice) – fair & favorable business practices regarding labor & wider community
 Planet (environmental quality) – use of sustainable environmental practices

Transfer pricing
 Dysfunctional behavior is possible because transfer prices are imposed form outside the group
 Managers would have little control over reported profit & thus would be demotivated if their
bonuses/ rewards are links to divisional profit. This might lead to dysfunctional behavior in the
form of risky unnecessary cost cuts
 If prices are set at marginal costs, the SBU’s manager won’t an incentive to supply as they may
choose to sell resources to outside parties. This can lead to quality implications for the group
 Likewise, if prices are set too high, the purchasing subsidiary will find it cheap to buy from
elsewhere
 Buying as marginal cost gives a misrepresented position as performance appears to be better
 Transfer pricing arrangement take up a great deal of management’s time in the form of
arguments and speculation for favorable changes that can be immediately implemented
 Difficult to identify arm’s length market prices as there are often no direct comparisons
 In order to prevent dysfunctional behavior & provide true reflection of performance,
subsidiaries could report on the basis of value added rather than profit

Communication
Effective communication of performance mix is important as:
 More likely to buy-in
 Better understand how to meet targets
 Explaining the positive impact of hitting the target will improve motivation
 Getting feedback can ensure that the target set are achievable. Important for motivation

Sub-optimization
Refers to improving divisional situation at the expense of the company as a whole

This can arise due to:

 Short-termism – improve short-term performance (cut adverts to meet profit target)
 Problems intrinsic to the targets used – profit does not have a high correlation with shareholder
value
 Wrong signals – excessive pressure to hit a target may result in a culture which promotes
‘creative accountancy.’
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Chapter 9: Information Technology & e-business

Earl’s three levels of information strategy which includes, information systems (IS); information
management (IM) and information technology (IT).

IS Strategy
 Concerned with aligning IS development with organizational needs & with seeking strategic
advantage from IT.
 Long term orientation
 Refers to the interconnected organizational activities that gather and process data and provide
information
 Business led and demand oriented and is either supporting existing business or developing new
strategic choices
 Concerned with identifying the information that is needed at all levels of business, to ensure
that the business achieves its objectives. Includes considering information needs at all levels
 May be formed with the key objective of using information resource to generate new business
 Must be business driven and capable of delivering tangible benefits: increased productivity;
increase profit and reduction in labor force

IM Strategy
 Concerned with the role and structure of IT activities
 Focuses on relationship between users and specialists
 Management controls for IT, management responsibilities, performance measurement and
management processes
 Described as organization-based, relationships-oriented and management focused
 Identifying sources of info; collecting; storing; facilitating existing methods or using info;
identifying new ways of using info; ensuring controlled access

Four tasks of Information Management

1. Planning – involves integration of IS & IT strategies with decision-making processes
2. Organization – Centralization or decentralization of IT, steering committee, training,
responsibilities and reporting of IT managers
3. Control – Relationship between IT & finance. Performance & investment appraisal of IT
4. Technology – relates to the priorities of IT strategy. Security, data management techniques

IT Strategy
 Activity-based, supply-orientated and technology-focused.
 It focuses on the selection, use and management of the technology itself.
 Resources include:
o Hardware & software for data processing
o Communication
o Office automation
o Production automation
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Reasons for having an IT/IS Strategy

 Cost is high. Without high level management, there is risk of costly mistakes
 Will help create and maintain competitive advantage
 IT is fast moving, by managing it strategically, new opportunities & technology become available
 IT/IS systems are often expected by key stakeholders – for instance, customers expect business
to have a website
 Can lead to structural changes requiring strategic changes to human resources
 Likely to affect all levels of business

Criticality of IT - McFarlan’s Grid

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E-business
E-business is the transformation of key business processes through the use of internet technologies

Stages of e-business:

1. Web presence – static or dynamic pages but no transaction

2. E-commerce – buying & selling transactions. Might cut out the middle men
3. Integrated e-commerce – information gathering of customer’s buying habits, help predict
demand
4. E-business – e-business being fundamental and may determine business strategy

Benefits
 Cost reduction
 Increase revenue (sales & use of CRM)
 Better information control – web sales
 Increased visibility
 Enhanced customer service e.g. extranet
 Improved marketing
 Market penetration e.g. global presence
 Meeting customer need to shop online
 More responsive to customer needs (after
office hours through web i.e. 24/7)
 Search with multiple criteria
 Less inventory required
 Employees can work from anywhere
 E-procurement would also reduce cost
Barriers
 Technophobia – senior management
distrustful of the alleged benefits
 Security concerns about hackers & e-fraud
 High initial cost
 Running costs
 Eliminates personal touch
 Warehousing & distribution
 Reluctance of customer to shop online
 Staff reluctant in adopting the system

Intranets:
Internal internet commonly containing:
 Information about customers, products & competitors
 News/ updates
 Procedure manuals

Making websites interactive:

1. Search
2. Online forms
3. Members only section
4. Interactive questionnaires/survey/polls
5. Animations
6. Email subscriptions
7. Links to other sites
8. Downloadable files
9. Contact us
10. Site map
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11. Text-only version

12. Multilingual requirements
13. Provision for printing & bookmarking

Latest Development in Commercial Use of the Internet

Web 2.0
Web 2.0 is seen as a participatory web and includes the emergence of web-based communities, hosted
services, & applications such as social-networking sites, video-sharing sites, wikis & blogs.

Can offer opportunities in the form of:

 Advertising – viral adverts through Facebook & YouTube
 Software as a service (SaaS) – use software over a browser, only pay when they need it
 Mashups – developers can mix, match, reuse & transform web content, data & services
 Competence syndication – different parties benefit from each other’s competencies
 Using global network effects – effect that one user of a good has, on the value of that product to
the other user. E.g. eBay as more use it, the membership becomes more attractive

Strategic benefits for utilizing Web 2.0

 Encourages collaboration & knowledge sharing
 Significant impact on marketing (FB, Twitter, Instagram etc.)
 Enable collecting & understanding consumer demographics & preferences

Virtual Organizations
This occurs where an organization outsources many of its functions to other organizations and simply
exists as a network of contracts with few, if any functions being kept in-house. They have a small central
core of staff who coordinate all of these different third parties.

Benefits
 Ability to exploit opportunities
 Can be made to look much larger, this will
enable them to compete with large rivals
 Teams of experts can be formed to meet the
needs of a project
 Lower costs
Drawback
 Difficulty in negotiating revenue sharing
 Loss of control over the product or service
provided to the customer
 Partner organizations may also work for
competitors, reducing any competitive
advantage

Social and Digital Marketing

Digital marketing
Refers to marketing that makes use of computers, smartphones & tablets

Advantages:
 Lower cost
 Easy customization to individual customer
 Wider audience reached
 Allows customer interaction
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Social media marketing

 Improved communication between companies and their customers, responding to queries
 Allows sharing of content with use social media users (eWoM), more reach
 Social media site contains vast information on users which help better target customers
increasing the effectiveness of advertisements
 Influential people with lots of followers can also promote products or service, for a fee
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Chapter 10: Information for Advantage & Knowledge Management

In order to meet the CSFs and develop sustainable competitive advantage, relevant & reliable
information is needed.

Internal sources of Information External sources of information

 Reliable  Relevant
 Narrow focused  Broad focused
 Cultural distortion  Less culturally distorted

Data Warehousing
A data warehouse is a subject based, integrated collection of data that helps management in its decision
making process. It collects information from various sources, both internal and external to the
organization and makes it available to the end-users in an understandable and usable format to assist
them in decision making.

Description:
 Database
 Data extraction tool
 Decision support system
 Allows users to dynamically extract summary information

Purpose of Data Warehousing

1. Presentation of standard reports and graphs consolidated from a variety of source
2. Allows comparisons between different factors
3. Allows data mining

Data Mining
Data mining is the analysis of data to unearth unsuspected or unknown relationships, patterns and
associations.
 It involves advanced analytical techniques to discover useful relationships in large databases.
 It uses statistical techniques and technologies to discover relationships and builds models based
on them.
 It turns data/ information into insights for decision making.

Data mining results include:

1. Associations – correlations of two variables/events
2. Sequences – one event leading to another
3. Classification – recognition of patterns resulting in new organization of data (customer profiling)
4. Clustering – finding and visualizing groups of facts not previously known
5. Forecasting

Predictive and Descriptive data mining.

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Disadvantage of date warehousing and data mining

 Systems used in different department will often be incompatible
 Duplicated items and inconsistencies in database
 Data should be cleaned before it can be integrated into a warehouse, this is difficult, costly &
time consuming
 Costly and time-consuming hardware, software, maintenance, bandwidth, security backup
 Training is required
 Report compatibility and writing, difficult to deliver a common interface to satisfy everybody
 Effective back-up arrangements are required as the risk is much higher

Big Data
Big Data is a term for a collection of data which is so large that it becomes difficult to store and process
using traditional databases and data processing applications. It is often unstructured.

Features of Big Data (Gartner)

 Volume – Large amounts of data
 Variety – from significant sources
 Velocity – data is likely to change on a regular basis
 Veracity – data collected must be accurate

Benefits of Big Data

 Driving innovation – reducing the time taken to answer key business questions
 Gaining completive advantage – identifying trends of information not identified by rivals
 Improving productivity – identifying waste and inefficiency, or identifying improvement to
procedures

Big Data problems

 Difficult to convert data into useful information
 Shortage of personnel & skills to deal with Big Data analysis due to its rapidly changing nature
 Risk of wasting time and money on interpreting data that might not have any value
 Legal and privacy issue of customer data

Knowledge Management
It an approach to business in which an organization consciously and comprehensively gathers, organizes,
shares and analyses its knowledge to further its aims.

Types of Knowledge
 Explicit – knowledge that has been identified and codified. Relatively easy for the organization
to manage and share
 Tacit – knowledge that people are often not aware that they possess or that it has value to
others. It is therefore very difficult for the organization to manage.
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Where Knowledge Resides – Intellectual Capital

1. Human Capital – knowledge, skills & experience of staff
2. Structural Capital
a. Innovation capital – intellectual property
b. Customer capital – address lists & client records
c. Organizational capital – systems for processing policies and claims

Steps for implementing a Knowledge Management Strategy

1. Gaining top management support
2. Creating technological infrastructure (hardware and software installation)
3. Creating the database structures
4. Creating a sharing culture – convincing staff of the benefits of sharing knowledge
5. Populating the database and using knowledge

Benefits of a knowledge management system

 Higher motivation and reduction in inefficiencies
 Increased ability to compete & add value
 A culture of innovation and use knowledge to improve efficiency

Problems in implementing a knowledge-sharing system

 Inappropriate organization structure
 Technological barriers – need to roll out a suitable modern network
 Incompatible systems
 Transferred into a new common format – this could lead to errors, omissions & inconsistencies
 Order information will not be held in digital form at all – architectural drawing, hand notes
 How to archive this material
 Social barriers to information sharing
 Demotivation amongst staff – giving up old system, inadequate training of the new system
 Political issues and inter office rivalries

Appropriate Systems
1. Networks – LANs enables the sharing of data and peripherals
2. Groupware – software that helps ‘work groups’ to collaborate on projects
3. Intranet – private network for sharing information & computing resources among employees
4. Extranet – private secure extension of the enterprise via corporate intranet. Business
information or operations are shared with suppliers, customers & other business partners using
the internet
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Learning Organizations
 A learning organization is one which facilitates the learning of all its members and continuously
transforms itself.
 A learning organization is skilled at creating, acquiring and transferring knowledge and at
modifying its behavior to reflect new knowledge and insights from both within its external &
internal environment
 Learning organizations encourage questions and explicitly recognize mistakes as part of the
learning process. There is a need to share information on all new products & services
 They encourage testing and experimentation.
 Important for a changing & highly competitive environment.

Characteristics of a learning organization

1. Systems thinking – is the ability to see particular problems as part of a wider whole and to
devise appropriate solutions to them.
2. Personal learning & growth – individuals should be encouraged to acquire skills and knowledge.
3. Mental models – are deeply ingrained assumptions that determine what people think. Learning
organizations can use a number of group techniques to make these models explicit and to
challenge them.
4. A shared vision that does not filter knowledge which undermines learning.
5. Team learning – teams must be trained to learn because there are factors in group dynamics
that impede learning.
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Chapter 11: Customer, Suppliers & Supply Chain Management

Supply Chain encompasses all activates and information flows necessary for the transformation of goods
from the origin of the raw material to when the product is finally consumed.

Transformation of products from node to node includes activities such as:

1. Production planning
2. Purchasing
3. Material management
4. Distribution
5. Customer service
6. Forecasting

Relationship with Suppliers

Supplier Strategy
Supply strategy includes matters like:
 Sources – sources available; location; bargaining power; different suppliers based on location
 Number of suppliers – single supplier means bulk discounts; more supplier means less risk
 Cost, quality & speed of delivery – these factors are closely interrelated, compromises need to
be made to achieve the right balance
 Make or buy and outsourcing

Antagonism or Partnership
Partnership
Successful management of supplier is based on collaboration and offers benefits to both parties. By
working together, customer needs can be served better & thus both can increase their market share.
 Partnerships with key customers & suppliers help better understand how to provide value and
customer service
 Organization’s product design process involves input from customer & suppliers. By opening up
the design departments & supply problems, synergy results (new innovation ideas & products)
 Long term sole sourcing agreements in return of greater level of support, commitments to
ongoing improvements of material, and deliveries and relationships

E-Procurement
Benefits Risks
 Labor costs reduced  Technology risk – system might not function
 Inventory costs reduced properly due to incompatibility
 Fewer stock-outs due to ordering accuracy  Staff resistance to use new system
 Wider range of suppliers  No cost savings realized, difficult to measure
 Greater financial transparency & intangible benefits like customer service
accountability
 Greater control over inventories
 Quick ordering makes JIT systems possible
 Strengthens relationship with supplier
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E-sourcing – electronic methods for finding new suppliers and establishing contracts

E-purchasing – covers product selection & ordering

E-payment – electronic invoicing & electronic funds transfer

Relationship with Customers

Relationship Marketing
Transaction marketing
• concentrates on products
• little knowledge of customer
• product quality a key issue
• little effort on customer retention
• focus on single sale
• focus on product features
Relationship marketing
• concentrates on retention and loyalty
• considerable customer commitment
• considerable customer contact
• emphasis on quality service
• focus on building long-term relationships
• importance of customer benefits

The six markets model (Payne)

Marketing activity should be extended to build and manage relationships in all these areas:
1. Customers markets
2. Referral markets – the institution or person that refers the customer to the supplier
3. Supplier markets – partnership with supplier for JIT
4. Recruitment markets – Build relationship with career advisors, universities etc.
5. Influence markets – public relations, tie up with reputable influencer/ organization
6. Internal markets – department to department relationship

Customer Account Profitability (CAP)

Helpful for making marketing decisions such as:
 Discounts
 Special credit terms
 Special after-sales servicing
 Whether any effort is required on a low profitability sector

Advantages
 Takes account of non-production costs
 Identifies customer groups that are of value
which helps in deciding which of are worth
additional expenditure to retain
 Provides technique for assessing marketing &
product development expenditure
Disadvantages
 Can encourage ill-judged product changes
 Difficult to get customer revenue & cost
figures
 May overlook combination of products
bought
 Can overlook life cycle value of the customer
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Customer Lifetime Value (CLV)

Present value of future cash flows attributed to the customer relationship.

Inputs to CLV
 Chun rate - % of customers who end their relationship with the company in a given period
 Discount rate – cos of capital
 Retention cost – amount of money needed to spend in a given period to retain a customer
 Period – unit of time into which customer relationship is divided for analysis
 Periodic revenue – amount of revenue collected from a customer in the period
 Profit Margin -

Marketing audits
1. Define the market
2. Determine performance differentials
3. Profile the strategies of competitors
4. Determine the strategic planning structure

Downstream SCM
How e-business affects relationships with customers

 Tie-in/ switching costs

 E-commerce can lead to disintermediation
 Re-intermediation – new intermediaries can also be introduced
 Countermediation – established firms create their own new intermediaries
 Continual updates – products, price, news
 Easy, fast, cheap, two-way communication
 User communities – member help each other, can put pressure on supplier, e.g. Android Central
 Tracking customer internet activity and buyer habits
 Customer preference can be acted on
 Customer can specify precisely the feature the want

Benefits of extranet
 Information sharing in a secure environment
 Cost reduction
 Order processing and distribution
 Improved customer service
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Customer Analysis, Acquisition, Retention and Extension

Customer Behavior
Why consumers buy what they buy. This helps in determine the critical success factors.

Maslow’s hierarchy of needs

 Physiological needs
 Safety needs – insurance and banking
 Social needs – adverts of cigarette and alcohol
 Status/ ego needs – fast cars
 Self-actualization needs

Cognitive dissonance – when consumer’s attitudes and behaviors are inconsistent

Personality and product choice – Marlboro man

Influence of other people – family and reference groups

Customer Analysis – Segmentation

 Psychological – security oriented, ego-centered etc.
 Purchasing characteristics – purchase volume (heavy, medium or light user), outlet they use etc.
 Demographics – age, sex, socio-economic class, country of origin, family status etc.
 Geographic -
 Benefit – customers have different expectations of a product

Customer Behavior – Industrial markets

Industrial markets
 Motivation – to satisfy organization’s needs
 The influence of the individual or group
 General organizational influences – defined procedures: centralized purchasing, departs etc.
 Reciprocal buying – buys on from a supplier on the condition that he will buy from us
 Derived demand – demand derived from consumer demand
 Size of purchases – large
 Purchasing procedure – formal and includes quotations, tenders and legal contracts with
specifications. Payment terms are also complex

Customer Analysis – Industrial Segmentation

 Geographic – sales-force organization
 Purchasing characteristics – classification by average order size, buying frequency etc.
 Benefits – reliability, durability, ease of operation etc. Always concerned with value for money
 Company type – type of business they are in
 Company size – e.g. a company supplying canteen food would analyze the number of employees
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Customer Acquisition
Search Engine Marketing
 SEO
 Pay per click (PPC)
 Trusted feed

Online PR
 Media alerting services (yahoo
 Portal representation (search engines and directories, yahoo, yellow pages etc.)
 Business blogs
 Community C2C portals

Online Partnerships
 Link-building
 Affiliate marketing
 Sponsorship
 Co-branding
 Aggregators

Interactive Adverts
 Banners
 Rich-media
 Change with user mouse movement

Opt-in e-mail
1. Cold, rented list
2. Co-branded emails
3. 3rd party newsletters
4. House list e-mails

Viral Marketing (via email & social media, must be a clever idea, a game or a shocking)

Customer Satisfaction & Retention

‘Servqual’ approach to service quality by Parasuraman et al focusses on:

 Tangibles – appearance of physical facility, equipment, personnel, websites etc.

 Reliability – provide service dependably & accurately; website inaccessibility etc.
 Responsiveness – help customers by prompt service
 Assurance – inspire trust and confidence, quality of responses, privacy of customer info
 Empathy – caring, individualized attention, customer should feel understood
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Online Retention Techniques

 Personalization – cookies, login, recommendations

 Mass customization – Amazon recommending a particular purchase etc.
 Link to Extranet
 Opt-in-emails
 Online communities - crack berry etc. respond to complains, improve service

Customer Extension
Relates to increasing the lifetime value of a customer. It involves:
 Re-sell – similar products to previous sales
 Cross sell – sell closely related products
 Up sell – more expensive products
 Reactivate – sell to customers who have not bought for some time

Propensity modeling
Involves evaluating customer behavior and then making recommendations to them for further products

Brand Strategies (Kotler)

1. Line extensions – Honda City & Honda Civic
2. Brand extension – Honda cars and Honda motorcycles
3. Multi-brands – different brands in the same product category e.g. Kellogg’s
4. New brands – new brand for new product/ market as existing brand is not suitable
5. Cobrands – Dell Computer with Intel Processors
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Chapter 12: Change Management – Understanding the Context of Change

Triggers for Change

 External Triggers
o General environmental factors - Indirect triggers (PEST) -
o Task factors - Direct Triggers (Porter’s five forces)
 Internal Triggers
o Philosophy
 New CEO
 New management style
o Reorganization
 Takeover/ merger
 Divisional restricting
 Rationalization/ cost reduction
o Personnel
 Promotions/ transfers
 Rules/ procedures
 Training. development
o Conditions
 Location change
 Outsourcing
 Rosters/ Flexible working
o Technology
 New procedures
 Changing information demands

Types of Organizational Change

Transformation
Realignment
 Entails changing the
 Does not involve a
organization’s culture.
fundamental reappraisal
 Top down process,
of assumptions & beliefs
 Driven by external events

Revolutionary change when:

 Competitive pressure
 Regulatory pressure
 First mover advantage
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Organizational Culture
Culture is the set of values, guiding beliefs, understandings and ways of thinking that are shared by the
members of an organization & is taught to new members as correct.

It represent the unwritten, feeling part of the organization.

Existing culture can become embedded and hence resistant to change. It can limit the types of strategy
development and change that are considered by the managers, in order to avoid ambiguity uncertainty

The Cultural Web

McKinsey 7S Model
Corporate culture has seven interconnected elements. All these elements need to aligned with each in
order for the organization to operate efficiently

Hard factors (tangible & easy to quantify):

1. Structure – who reports to whom
2. Strategy – ways in which the organization plain to gain to gain competition advantage
3. Systems – daily activities and procedures followed by the staff

Soft factors (less easy to quantify & more objective):

4. Skills – skills & abilities of the employees
5. Style – style of leadership adopted
6. Staff – people that make up the organization
7. Shared values – core value of the organization (i.e. the paradigm)
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Use to:
 Identify factors that could be affected by the change process
 Helps the organization in understanding the wider effects of change
 If one S factors changes then, it will have a knock-on effect on the other S factors

Resistance to Change

Reasons for resisting to change – Kotter & Schlesinger

1. Parochial self-interest – only looking at implications of change on oneself
2. Misunderstanding – communication problem, inadequate information
3. Low tolerance to change – staff may be very keen on security & stability
4. Different assessments – staff may disagree on the reasons and proposed impact of change
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Chapter 13: Change Management – Managing the Change Process

Due to the conflicting views of different stakeholders, achieving change within an organization is often
difficult and prone to failure.

Lewin’s Three Stage Model

Unfreezing – creating a sense of urgency for change (people should easily understand & accept it)
 Initial motivation to change by convincing them about the undesirability of the present situation
 Identifying & exploiting areas of stress or dissatisfaction
 Tighter budgets, targets, or personnel in favor of change
 Increase employee knowledge about markets, competitors & need for change

Change – Change itself

 Establishing new patterns of behavior
 Setting up new reporting relationships
 Creating new reward schemes
 Introducing new style of management
 Vital new information is communicated concerning to attitudes, culture & concepts that are to
be adopted
 Participation is necessary so that individual feel ownership of change

Refreezing – Ensure that people do not slip to the old ways (reinforcement of the new work pattern)
 Larger rewards for people who have embraced the new culture
 Publicity of success stories & new heroes

Force Field Analysis

In order to bring about change, the equilibrium must be changed
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Theory E & O – Beer & Nohria

Identified that large proportion of change initiatives fail as managers becoming overwhelmed by the
detail of change management process and fail to focus on the overall goals of the change itself.

Theory E strategies – measures where shareholder value is the main concern (layoffs, downsizing,
restricting)

 Loss of staff motivation and commitment

Theory O strategies – softer approaches to change involving cultural adjustment or enhancing employee
capabilities. It requires involving employees in the change process

 Fails to take tough decisions

Both approaches have downsides and organization need to implement them simultaneously

Change Leadership
In order to successfully implement change, a change leader is required who takes overall control of the
change process

 He is responsible for articulating what change is needed and why, acting as a figurehead for the
change process, as well as helping to deal with the problems and conflicts

8-step process of change leadership – Kotter

1. Establish a sense of urgency
2. Creating the guiding coalition
3. Developing a change vision
4. Communicating the vision
5. Empowering broad-based action
6. Generating short-term wins
7. Never letting up
8. Incorporating changes into the culture

Team formation
Change leader needs to make a team who can help control & implement any proposed changes. He
must be able to manage them effectively.

 A team is a set of individuals who must work together in order to accomplish shared objectives
 The team members come from various parts of the organization
 Teams usually:
o Share a common goal
o Enjoy working together
o Are to achieving certain goals
o Has its own culture and leader
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Team building
Team building exercises are necessary to increase the ability of team members to work together.

They develop the teams in several areas including:

 Improved communication
 Building trust
 Social interaction

Benefits
 A mixture of skills and abilities within the
team.
 Better control, with opportunities for
individual performance to be reviewed and
controlled by other team members
 Improved communication – this can also lead
to increased buy-in by the rest of the
organization
Drawbacks
 Slower decision-making, increased conflict
 Decisions may be compromises
 Groupthink
 Teams may have a lack of individual
responsibility, may therefore be more willing
to take riskier courses of action

Leadership Styles – Kotter

Approached to deal with change resistance:

Key considerations:
 Speed of change
 Strength of the pressure of change
 Level of resistance expected
 Amount of power you hold
 How much information is needed & how long will it take to get it
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Change Agents
A change agents must be a familiar and non-threatening to other people. Also the quality of
relationship between the change agent and key decision makers is very important.

They help the organization to:

1. Define the problem and its cause – restraining forces
2. Diagnose solutions and select appropriate course of action
3. Implement change – as they are well informed about the proposed changes
4. Document and the learning process and spread it throughout the organization

Attributes and Skills Required

 Clarity in defining the achievable
 Sensitive to the impact of change on all stakeholders
 Tolerance of ambiguity and uncertainty
 Creating vision and selling plans
 Resolving conflict
 Political awareness and influencing skills
 Ability to work independently
 Ability to collaborate effectively
 Ability to develop relationships based on trust
 Self-confidence tempered with humility
 Ability to work across different business functions and units

Advantages of using external consultants as change agents:

1. They bring fresh perspective
2. May have state-of-the-art knowledge of the required change e.g. TQM
3. May be able to give more time & energy because of being a dedicated resource
4. More experience hence better able to adapt traps & pitfalls
5. Greater objectivity as they have no personal stake

Executive Mentoring & Coaching

Mentoring
A mentor is typically a skilled, senior member of staff who:
 Offers practical advice and support
 Can give technical and general guidance
 Can help with the development of key work skills
 Can act as a role model.

Coaching
Coaching refers to developing a person’s skills and knowledge so that their job performance improves,
hopefully leading to the achievement of organizational objectives. It targets high performance and
improvement at work. It usually lasts for a short period and focuses on specific skills and goals.’
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Coaching and mentoring is a key part of the change management process – it can help keep the change
management process moving forward and help reduce the amount of resistance that the organization
faces.

Managing Decline
When attempting to help a business recover from a period of decline, a manager’s strategic priorities
are likely to be:
 Reducing costs to improve efficiency
 Improving competitiveness to increase revenue

Many of the changes that a business may wish to make during a period of decline, such as compulsory
redundancies or improving factory layout, may require some initial expenditure. If this money isn’t
there, a fundamental change to the business strategy may be made:
 Retrenchment – doing the same as before but drastically cutting costs
 Turnaround – repositioning to gain competitive advantage
 Divestment – sale of part of the organization or closure of a unit as part of rationalization
 Liquidation – entire organization is sold off, last resort

Continuous Change
Change is an ongoing process, rather than an event.

Change Adept Organizations (Kanter)

Attributes:
 Imagination to innovate
 Professionalism to perform – competence in leadership & organization as a whole
 Openness to collaborate –partner with outside organizations

Skills of leaders:
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Thriving on Chaos (Peters)

 Incremental change is the enemy to innovation
 A climate of change is necessary as:
o Innovation of new products & methods are actively sought
o People are used to it and thus easily accept it
o Employees are less insular to defensive outlook
 Disadvantages of climatic change are:
o Morale might be damaged
o Staff might get involved in politics because of concern about possible changes