CONTENTS PAGE

•
STRATEGIC MANAGEMENT, THE AMBITION FOR THIS MBA MODULE

•
THE STRUCTURE OF THIS COURSE UNIT

•
COURSE UNIT DESIGN FEATURES

PART 1 STRATEGIC ANALYSIS & PLANNING Page

Section 1 Strategy and Strategic Management 11

Section 2 The Drivers for Change & The Strategic Response 26

Section 3 External Environmental Analysis (1) 43

Section 4 External Environmental Analysis (2) 58

Session 5 Internal Environment Analysis (1) 74

Section 6 Internal Environment Analysis (2) 90

PART 2 STRATEGIC PURPOSE

Section 7 Setting Strategic Direction (1) 115

Section 8 Setting Strategic Direction (2) 128

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Page

PART 3 STRATEGIC OPTIONS

Section 9 Strategy Determination -- Strategy Options 142

Section 10 Strategies for Business Growth 159

Section 11 Blue Ocean Strategy & Building Business Models 176

PART 4 STRATEGIC CHOICE AND IMPLMENTATION

Section 12 Strategy Determination -- Criteria for Evaluation for Strategy Choice and 196

Making the Strategy Proposal

Section 13 Strategy Implementation & Control 213

Section 14 Managing Change 230

• References for Recommended Reading 248

•

Assignment Samples 250

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THE AMBITION FOR THIS MBA COURSE UNIT

This module, dedicated to the subject of Strategic Management aims to provide MBA students with : -

• A framework for understanding the role and functions of Strategic Management

• An understanding of how strategy is defined, formed, evaluated, decided and implemented

• A comprehensive grasp of Strategic Management concepts, techniques, models and frameworks for analysis

• A management toolkit which may be used to formulate strategy for business growth and sustainability

• Critical analysis of the organisations environment needed to drive change

• Frameworks and processes for developing a strategic plan to drive competitive advantage

• Insights on how to manage change arising from new strategy decisions

THE STRUCTURE OF THIS COURSE UNIT

This course unit for the subject of Strategic Management has been produced according to the following framework. The

student is advised to follow this simple map through the subject to understand content and flow as well as the Strategic

Management thinking processes.

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PART 1 STRATEGIC ANALYSIS & PLANNING

STRATEGY AND STRATEGIC Section 1

MANAGEMENT

DRIVERS FOR CHANGE & STRATEGIC Section 2

RESPONSE

Section 3 to 6
ENVIRONMENTAL ANALYSIS

INTERNAL EXTERNAL

Part 1 is designed to set the scene for the subject of Strategic Management by helping you to understand the meaning of

Strategy, Strategic Management and Strategic Planning. From the early sessions in this study guide, it is realised that strategy

decisions are driven by the need to adapt and change with the environment in which organisations work to perform desired

outcomes. It is essential to know the drivers for this change and how to respond. One essential requirement for understanding

Strategic Analysis is the need to know how to analyse and track the external and internal operating environments and from

there to achieve focus for development using SWOT Analysis.

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PART 2 STRATEGIC PURPOSE

SETTING STRATEGIC DIRECTION

VISION Section 7 to 8
MISSION

VALUES

CULTURE

CAPABILITIES

POSITIONING

STAKEHOLDERS

Part 2 is devoted to the subject of Strategic Intent from which future strategic direction and purpose is decided. Important

concepts and topics are covered which are the bedrock for strategic planning and organisational performance. The student

will be introduced to the essential knowledge required to set a future pathway for any organisation and to be aware of the key

ingredients which bind the organisation together to achieve and maintain a desired market position in accordance with the

needs & expectations of various stakeholder groups.

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PART 3 STRATEGY OPTIONS

STRATEGY DETERMINATION Sections 9 to 11

BLUE CLASSICAL BUSINESS

OCEAN STRATEGY GROWTH

STRATEGY OPTIONS STRATEGY

Part 3 introduces the student to the idea that there are a number of options to choose from in order to achieve the strategic

purpose of an organisation. There is no one simple route. Part 3 shows some of the classical strategy options as well as the

essentials for achieving future growth. One innovative strategy, Blue Ocean Strategy, has been highlighted to provide

awareness and insight into a newer wave of thinking in this area of crafting strategy options. The simple purpose is to answer

the question “ How can we get to where we must be ? ” . Part 4 is designed to be able to confirm the chosen route.

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PART 4 STRATEGY CHOICE & IMPLEMENTATION

STRATEGY CHOICE CRITERIA FOR Section 12

EVALUATION

STRATEGY IMPLEMENTATION & CONTROL Section 13

MANAGING THE CHANGE Section 14

Part 4 is designed to answer the question “ Which way is best ? ”. From the strategic alternatives identified in Part 3, it is

now essential to make a committed decision on the route to be taken. Part 4 is devoted to the criteria by which to enable

strategy options and then once these are agreed, how the processes of implementation should be managed, monitored &

controlled.

This final part of this course unit on Strategic Management is then devoted to the subject of managing the change that will be

needed to introduce new strategies.

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DESIGN FEATURES

This course unit for Strategic Management has been prepared in 4 main parts over 14 separate sections in accordance with the

structure which has been outlined previously.

Each section is designed with special features to support your learning, these are now explained, as follows : -

ICON DESCRIPTION

TOPICS A list of the main contents of each section

Introduction To introduce the contents of each section

Summary To reinforce the learning outcomes from each section

Key Terms To highlight the essential language and concepts contained within each
section

Cases To illustrate application of selected concepts and subject topics

? SAQS Self-Assessment Questions to test the understanding of the subject topics

contained in each section

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ICON DESCRIPTION

Questions for reflection intended for the MBA student to make connection

between the content of the subject with the workplace environment

Tasks to reinforce the required learning

Notes as key points of relevance for management decision making

Advice to assist the manager with workplace application

Recommended Reading to support the study of the subject of Strategic Management is prescribed at the end of this study

guide.

At the end of this study guide, there is advice on assessment including assignment questions.

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PART 1 STRATEGIC ANALYSIS & PLANNING

STRATEGY AND STRATEGIC Section 1

MANAGEMENT

DRIVERS FOR CHANGE & STRATEGIC Section 2

RESPONSE

ENVIRONMENTAL ANALYSIS Section 3 to 6

INTERNAL EXTERNAL

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SECTION 1 STRATEGY, STRATEGIC PLANNING AND STRATEGIC

MANAGEMENT

TOPICS ● STRATEGY DEFINITIONS

● STRATEGY THINKERS

● TYPES AND LEVELS OF STRATEGY

● STRATEGIC PLANNING

● A STRATEGIC MANAGEMENT PROCESS MODEL

● SELF-ASSESSMENT QUESTIONS

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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INTRODUCTION

Section 1 aims to start the journey into the subject of Strategic Management to open the question “ So what is Strategy ? ”.

There are a multitude of definitions from which you will be able to extract core ideas from which the definition of Strategy
will become clearer. Moreover you will realise that strategy works at a number of levels, not just at top management level.

For students seeking to read wider and deeper, a brief introduction is made to those who have contributed to the literature on

Strategy and Strategic Management.

Many who study Strategic Management are in search of a structure or template for the Strategic Planning process. Because

this is considered important, it has been included in the first sessions of the course so that you will have a sound grasp of what

is needed to draw up a strategic plan.

SO, WHAT IS STRATEGY ?

Strategy is a term used in common day managerial communication. It is often assumed that managers have a common
understanding of what strategy is all about, but when we consider the definitions below, there are in fact differences in

interpretation !

• SOME STRATEGY DEFINITIONS

“ Strategy is the great work of the organisation. In situations of life and death, it is the Tao of survival or extinction. Its

study cannot be neglected. ”

Sun Tsu “ The Art of War ”

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Quinn : “Strategic decisions are those that determine the overall direction of an enterprise and its ultimate viability in light

of predictable changes that may occur in its most important surrounding environments.”

“A Strategy is the pattern or plan that integrates an organisation’s major goals, policies and action sequences into a cohesive

whole. A well formulated strategy helps to marshall and allocate an organisation’s resources into a unique and viable

posture based on its relative internal competencies and shortcomings, anticipated changes in the environment and contingent

moves by intelligent opponents. ”

Johnson & Scholes : “ Strategy is the direction and scope of an organisation over the long term ideally which matches its

resources to its changing environment, and in particular its markets, customers or clients so as to meet stakeholder

expectations.”

Bowman & Asch : “ Strategic management is the process of making and implementing strategic decisions . . . (it) is about

the process of strategic change. ”

McNamee : “ Strategic management … is concerned with those long run, fundamental and often irreversible decisions

about the company’s mission, scale of operations and spread of activities. ”

Sun Tsu : “All men can see the tactics whereby I conquer, but what none can see is the strategy out of which victory is

evolved.”

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“The rules of strategy are few and simple. They may be learned in a week. But such knowledge will no more teach a man to

lead an army than a knowledge of grammar will teach him to write.”

Kenichi Ohmae : “Strategy is a state of mind”

Tas Now, consider these inputs from acknowledged contributors and attempt to define the term STRATEGY

k !!

One thing is clear, if strategy is designed to deploy resources to achieve a favourable outcome in the longer term, it is NOT

Note EASILY REVERSED.

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STRATEGY THINKERS – A SAMPLE

In pursuing your reading around this subject, the following list is a small sample of people who have been thought leaders in the

subject of Strategy : -

Sun Tsu (Art of War)

Igor Ansoff (on Corporate Strategy)

Marvin Bower (of McKinsey)

Andrin Campbell (Ashridge Management Centre & A Sense of Mission)

Alfred Chandler (Strategy & Structure; an advocate of decentralisation)

Edwards Deming (Originator of the quality revolution)

Michael Goold (Strategies & Styles. Corporate Level Strategy)

Charles Hampden Turner (Corporate Culture)

Bruce Henderson (Founder of the Boston Consulting Group-Growth share matrix and business

segmentation)

Theodore Levitt (Marketing Myopia)

Kenichi Ohmae (Mind of the Strategist)

Henry Mintzberg (Rise & Fall of Strategic Planning)

Tom Peters (In Search of Excellence)

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Michael Porter (Competitive Strategy & the 5 Forces)

Edgar Schein (Process consulting, the psychological contract & corporate culture)

Alfred Sloan (Decentralisation, Segmentation, Profit Centred Management Structures)

This is a small sample to provide an indication of how important and diverse the subject of Strategy can be.

Be familiar with at least 5 strategic thinkers and try to use their contributions in the way you think about life and work to aim to
develop a strategic mindset. The ability for strategic thinking is an important management skill.

Advice

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TYPES AND LEVELS OF STRATEGY

The term Strategy and the application of strategic thinking does not need to prevail just at a top management level in

employing organisations, it can be cascaded down to different levels as indicated below.

CORPORATE Corporate level strategies are usually defined broadly and therefore relate to the
LEVEL business as a whole eg. strategic positioning, sustainable competitive advantage, supply

chain integration etc. to determine a cohesive route for the business future.

BUSINESS UNIT Management Strategies which relate the performance achievement of functional business

LEVEL units within an organisation eg. Operations, Human Capital, Finance, Research &

Development.

OPERATIONAL Within each business units, strategies are devised for attaining operational performance,

LEVEL often to achieve pre-determined targets or key performance indicators.

INDIVIDUAL Depending upon your own managerial position in an organisation, a range of individual

LEVEL strategies can be used to reinforce your personal position for development and career

progression.

Strategies are always at work throughout the fabric of any organisation, the challenge is to know them, recognise them and be involved

Note in this achievement.

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THE CONTRIBUTION OF MINTZBERG

Henry Mintzberg used a unique approach to define strategy. He considered this subject from a perspective of 5 P’s : -

1. STRATEGY AS A PLAN ie. a course of action.

2. STRATEGY AS A PLOY ie. a type of manouver to outwit another.

3. STRATEGY AS A PATTERN ie. a specific formula.

4. STRATEGY AS A POSITION ie .a place to be achieved.

5. STRATEGY AS A PESPECTIVE ie. a stance to be taken

Mintzberg’s ideas can in fact be applied at different organisationa levels as outlined on Page 17.

His contribution adds both depth and complexity to the definition of Strategy.

This first section of the course will now move from Strategy to Strategic Planning.

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STRATEGIC PLANNING

The terms ‘ Strategy ’ and ‘ Strategic Management ’ are complementary to ‘ Strategic Planning. There is a simple but

effective approach for producing a strategic plan. Answers to a few powerful questions can offer a sense of purpose, clarity,

focus and the intention to achieve an intended outcome from results-oriented thinking.

These questions in Figure 1.1 are very effective for any management situation where strategy has to be crafted and decided.

Strategic Planning, at the most basic level must answer the following 6 questions : -

THE BASIC QUESTIONS OF STRATEGIC PLANNING

FIGURE 1.1

1 Where are we now? And where have we come

from?

2 Where do we want to be? And by when?

3 How might we get there?

4 Which way is best?

5 How do we ensure arrival?

6 What are the expected outcomes?

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THE STRATEGIC PLANNING PROCESS

If a more detailed approach is needed, one can map the way through the strategic planning process, using the following

roadmap of 14 steps, this will provide a robust framework from which to proceed .

A ROAD MAP OF ESSENTIAL STEPS

1.
Assess facts about the current environment, both internal and external

2.
Set assumptions about existing and future internal and external environmental conditions

3.
Assess resources currently available

4.
Set timescales for planning and implementation

5.
Decide new objectives and change to existing objectives

6. Review future resource needs to meet objectives against current resources available
1.
Determine alternative strategies to accomplish the new objectives

2.
Set essential criteria to evaluate alternative strategies, including the critical factors for success

3.
Select a chosen strategic route(s)

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10. Lay down policies as rules to guide the selected strategy

11. Prepare implementation teams, plans , structures, processes , procedures & levels of authority

12. Establish controls to monitor performance progression

13. Prepare for contingency action if assumptions are unfulfilled or if strategies are over or under achieved

14. Ensure this will all work within an agreed budget, timescale and operational constraints

Once this set of steps has been applied and has been proven to work well, then this method could be adopted within the planning

Note cycle of the organisation.

Timescales will need to be set, for example a 3-year or 5-year strategic plan, which is hen reviewed monthly or quarterly with a

major annual review to update the plan, as required.

The use of these 14 steps in fact prevents short-term thinking an also avoids tactical decisions being taken without reference to

Advice
the broader strategy which has been determined.

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STRATEGIC MANAGEMENT

Strategy and Strategic Planning has now been explained, it now remains to define Strategic Management, again in, simple terms.

The following model has been designed for this course.

A STRATEGIC MANAGEMENT PROCESS MODEL

DRIVERS FOR CHANGE

FIGURE 1.2
EXTERNAL & INTERNAL

STRATEGIC DIRECTION
EXTERNAL INTERNAL

ENVIRONMENTAL ENVIRONMENTAL

ANALYSIS ANALYSIS

STRATEGY DETERMINATION
• STRATEGY OPTIONS •

• CRITERIA FOR EVALUATION •

• CRITICAL SUCCESS FACTORS •

• STRATEGY CHOICE •

STRATEGY IMPLEMENTATION & CONTROL

MANAGING CHANGE

L C MASSINGHAM 2011

OUTCOMES FROM

CHANGE Page 0

From this Strategic Management Process Model (Figure 1.2), the following processes can be appreciated : -

1.
Knowing that drivers for change will set the impetus for setting strategic direction to chart the way ahead

2.
Analyzing internal and external environments as the sources of strategy drivers

3. Reviewing internal capabilities, core competencies and constraints

4. Identifying potential strategic options to achieve the strategic direction set

5.

Evaluating strategic options and making the best choice based upon criteria of feasibility, desirability and

contextual relevance

6.
Taking decisions to implement strategy and then to review progress periodically using key performance indicators as

a basis of measurement

7.
Managing the needed changes throughout the organisation

8.
Anticipate the desired outcomes for future resilience and sustainability

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Strategy may defined in a multitude of ways and indeed there has been substantial contributions to the literature on the subject of

Summar Strategy. The core processes is to determine a route to the achievement of a future intended purpose often defined by a Vision and

y Mission statements together with corporate level objectives.

Strategic planning reinforces a management mindset for strategic thinking so that the bigger picture is always in mind. In this way
business units can contribute meaningfully to a sense of corporate purpose. The protocols of strategic planning and the aligned steps

to be taken offer a sense of management discipline with which to plan ahead and monitor progress periodically.

Strategy and Strategic Planning merge into a subject known as Strategic Management, which is the essence of this subject module.

? 1. What is Strategy ?

SAQ

s 2. What are the key elements of a Strategic Plan ?

3. Can you explain the process of Strategic Management ?

Task

Know the generic sources of drivers for change ?

Look further into the works of acknowledged contributors to the literature of this subject ?

Check the vocabulary for this section to ensure you know what it means.

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Strategy
Strategic Decisions

Resources
Key The Environment

Terms Competencies

Strategic Management
Levels of Strategy

Strategic Planning

The Basic Questions of Strategic Planning

Facts

Assumptions
Timescales

Objectives

Alternative Strategies
Critical Factors for Success

Policies

Contingency Action
Drivers for Change

• To what extent is strategy communicated in your organisation ?

QFR • Are strategy decisions mostly ‘ top-down ’ or ‘ bottom-up ’ and why is this so ?

’s

• Is there a strategic plan for your business ?

• Do you know the planning procedures used in your organisation ?

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SECTION 2 THE DRIVERS FOR CHANGE AND THE STRATEGIC

RESPONSE

TOPICS ● THE DRIVERS FOR CHANGE

● THE INTERNAL ENVIRONMENT

● THE EXTERNAL ENVIRONMENT

● THE PRESCRIPTIVE APPROACH

● THE EMERGENT APPROACH

● THE RESPONSE TO DRIVERS FOR CHANGE

● USING SWOT ANALYSIS AS A DRIVER FOR CHANGE

● THE OPPORTUNITY ANALYSIS APPROACH

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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Introductio

n
From the Strategic Management Process Model introduced in Section 1, it is clear that the essence of strategy and therefore

Strategic Management is to drive change in an organisation so that the company is alert to their environment and remain

relevant to it.

This is especially true in competitive industries, where each major player must carve out a defensible position in order to

sustain business for the future. Section 2 will now explore the internal and external drivers for change from within the
organisation’s environment and then explain the different types of response that organisations adopt to accommodate the need

for change.

Section 2 will conclude with an explanation of how SWOT Analysis can be used as a simple but effective tool to initiate and

motivate the need for change to existing strategies at appropriate levels throughout the organisation.

DRIVERS FOR CHANGE

As can be seen from the Strategic Management Process model (Figure 1.2), the drivers for change are the main influence

behind the process of strategic management. As business organisations interact with their internal and external environments,

there is a fundamental need to be responsive, ready, resilient and resourceful to accommodate change.

Therefore it is appropriate that management time is allocated to understanding the sources of and importance of these drivers,

which will in turn lead to either prescriptive or emergent strategies being realised, the explanation of which will be outlined

later.

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It has been agreed widely that strategy drivers are derived from 3 sources : -

1. THE ‘ MICRO ’ INTERNAL ENVIRONMENT

2. THE ‘ MACRO ’ EXTERNAL ENVIRONMENT

3. POLITICAL FORCES AT THE INDIVIDUAL LEVEL IN THE ORGANISATION

THE INTERNAL ENVIRONMENT

The organisation life cycle, managerial styles / systems, the operating culture of the business and the behaviour of individuals in
the organisation will all present conditions to drive strategic change. This environment is dynamic, often turbulent, but to some

extent it is controllable.

It has been said that there is nothing so constant as change !!

Note

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THE EXTERNAL ENVIRONMENT

The conditions which stimulate drivers for change are derived from Political, Economic, Social, Technological, Legal and

Ecological environments, also known by the following acronym (PESTLE, SLEPT, PEST).

These are well known and have become a managerial cliché, mostly in academic circles. However, apart from these prevailing

conditions which are mostly uncontrollable, there are other forces to consider : -

• The Industry Life Cycle

• The Intensity of Competition

• General Market Trends

• Impact of ICT

• Sustainability / Vulnerability of Current Competitive Positioning

• Globalisation

All of which, collectively or independently will drive a need for change from the external environment dynamics.

There is no escape, change, innovation or invention becomes needed in order to ‘stay in the game’. Organisations therefore

must constantly scan this external environment in order to be alert to the need for change.

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RESPONDING TO THE DRIVERS FOR CHANGE

There is a fundamental requirement for organisations to achieve a realised strategy. It is essential to understand that this may

be derived from three main approaches : -

1. A PRESCRIPTIVE APPROACH

2. AN EMERGENT APPROACH

3. A COMBINATION OF BOTH AS A HYBRID APPROACH

THE PRESCRIPTIVE APPROACH

The Prescriptive Approach to strategy determination may be explained as being : -

1. Pre Planned
2. Controlled

3. Rational

4. Analytical

5. Proactive

This means that the approach to be taken is to activate the need for change and then take firm decisions to change in order to be

ahead of the game and even enjoy the benefits of ‘ first mover advantage ‘.
Note

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A proactive approach to strategy determination and/or change can be adopted at an individual and organisational level. The

Advice current approach to strategic management decisions should be known, because the organisational culture will determine if a

proactive approach is relevant and valued.

Some companies may adopt a ‘wait and see’ approach before responding to drive change and hence will take an emergent

approach to strategy change.

THE EMERGENT APPROACH

The Emergent Approach to strategy determination, by contrast, therefore is : -

• Reactive

• Often Turbulent

• Experiential

• Maybe Considered Irrational

• Unplanned

• Impulsive

This approach is a bipolar extreme from a prescriptive approach and may be characteristic of market followers who are risk averse
at top management level.

Note

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Observe and listen to the processes of management decision making and decision taking to understand if the response to change drivers

Advice is in fact emergent or prescriptive.

As it can now be appreciated, either approach will depend upon the current managerial style, size of organisation, stability of

the organisation together with the policies and protocols for strategic decision taking.

It will be necessary to reflect upon whether strategies determined are : -

The prevailing organisation culture will show ‘the way of doing things’ and will be a clear indicator of how the approach to change is

Note taken.

It may be necessary to reflect further upon whether determined strategies are : -

• Imposed

• Consensus based

• Process Driven

• Performance based

• Ideological

• Entrepreneurial or

•Long term based and hence have evolved with the environmental conditions being monitored, tracked and well-considered.

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Obtaining an insight into the strategic decision making processes will be truly beneficial to understand better

Advice managerial conduct. Blending with the existing culture is vital for career progression and peer-based acceptance.

As an insight to share with the reader, in practice, discussions may often be held by those who are adversely affected

Advice by strategy decisions, more so than those actually taking strategy decisions. This occurs, simply because the

rationale for strategy decisions has not been adequately communicated. In turn this can lead to the escalation of

organisational politics and even resistance to change. A simple rule to avoid such turbulence is communication,

communication, communication.

Moreover, some approaches to strategy decision making may have been taken as a result of an impending crisis, where the risk

attached to strategy decisions may be significant. Strategic decision making and risk management today are closely related.

Strategy decisions may also be driven by the current market position ie. Market leader, market challenger or market follower.

This will also predict a prescriptive or emergent approach to strategic decision taking.

From the above collective explanation, it can be seen that the rationale for strategy decisions may be complex !

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Prescriptive and emergent approaches both have contextual relevance but It is important to realise the impact of these

approaches to strategic decision taking upon : -

The organisation as a whole

Market place performance

The current working culture & ethics

The core values of the enterprise

The overall strategic intent

The identity of the organisation in its market & competitive context.

Strategy decisions work within a dynamic environment, therefore the impact and outcome of strategic level decisions must

be considered with this all clearly in mind. Furthermore all strategy decisions must be both lead and be supported.

Strategy formulation must be followed through with strategy implementation, the former is much easier than the latter.

Note Implementation requires people being galvanised into action.

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THE RESPONSE TO DRIVERS FOR CHANGE

Regardless of whether the response has been either Prescriptive or Emergent, the response actually taken should embrace

the following : -

• Strategy decisions must leverage core competencies and be adequately resourced

• A relevant structure is needed to enable the strategy implementation

• Risks Assessment is essential

• Stakeholders viewpoints must be accommodated

• Quality and Corporate Governance Perspectives

The key questions to be raised therefore in taking either a prescriptive or an emergent approach are : -

• Is this strategy actionable and by when ?

• Does this strategy decision challenge our existing perceived managerial culture ?

• Does it fit with key stakeholder expectations, especially customers, suppliers, partners and employees ?

• What real advantage can be gained and for how long ?

• Is it desirable, feasible and doable ?

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• What are the critical factors for failure ?

• What contingency plans will be needed ?

• What is the level of urgency ?

It can be seen that the process of strategy decision taking may have to factor in a good number of variables.

Advice

The required speed of decision making may not permit this luxury, so therefore a few simple criteria may be needed

to allow the pace of the organisation to prevail, as well as realistic response to environmental conditions be

achieved.

USING SWOT ANALYSIS AS A DRIVER FOR CHANGE

As we have seen, the Drivers for Change can be sourced from the internal and external operating environments of the

organisation. The analysis of these environments must be based upon fact, not assumption ! The analysis of these facts from

the environmental audit can be achieved using a SWOT ANALYSIS ie. the SWOT Analysis is the outcome of the

environmental analysis.

This comprises internal STRENGTHS AND WEAKNESSES and external OPPORTUNITIES AND THREATS.

The process of completing a SWOT analysis from a conventional perspective uses a simple 4-box model as shown in Figure

2.1.

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This simplistic approach is only useful if the analysis really becomes

actionable.
STRENGT WEAKNES

SES
HS

This means that the SWOT Analysis leads to drivers for change.

So often this is NOT the case and the SWOT analysis becomes static. It is also
OPPORTUNIT THREA

IES TS Note important to question the source of the analysis to ensure that practicality and

objectivity is achieved.

Figure

2.1

Often the company using SWOT Analysis may end up with overstating strengths or weaknesses arising from the current
operating climate and organisational culture.

This may render the SWOT Analysis ineffective.

An important question to raise is :

Advice “ How can the outcome from SWOT Analysis help the organisation achieve its future vision, mission and objectives ? ”

It is only by taking relevant action from the analysis undertaken that will render SWOT Analysis useful. One useful approach to SWOT
Analysis is to use : -

“ THE 5 CRITICAL ACTIONABLE SWOT FACTORS ”

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This approach will take the following posture : -

“ Given our future ambitions, how do we assess our ability to achieve these future ambitions ? ”

Therefore : -

• What are the 5 Critical Strengths which can be used to drive future Strategy ?

• What are the 5 Most Penetrating Weaknesses which hold the business back and therefore need to be attended to ? If

they cannot be corrected, then these weaknesses are really operating constraints.

• What are the 5 Most Attractive Opportunities the organisation can take advantage of in the future ?

• What are the 5 Most Significant Threats of which the organisation must be mindful ?

This approach should be achieved by CONSENSUS.

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Once this is achieved, to make the SWOT Analysis valuable, SWOT interactions should be considered. It is from these

interactions that drivers for change may emerge, priorities can then be established and new strategies be formed. The

interactions to review are : -

STRENGT WEAKNES STRENGT WEAKNES OPPORTUNIT STRENGT

HS SES HS SES IES HS

OPPORTUNIT THREA THREA OPPORTUNIT THREA OPPORTUNIT
IES TS TS IES TS IES

The consequences of this analysis can then be summarised, reviewed and where appropriate an agenda of drivers for change

can be achieved, from which an action agenda can be produced.

THE OPPORTUNITY ANALYSIS APPROACH

Another approach that maybe used to make SWOT Analysis more useful is to take an Opportunity Analysis approach.

The sequence is shown below : -

1.
Take the 5 Most Attractive Opportunities
2.
Screen these by Active Weaknesses
3. Review the Opportunities and reduce them as appropriate to determine initial internal desirability

4. Review the remaining Opportunities by using External Threats as a further screen

5. Reduce the opportunities accordingly

6. Finally link the screened opportunities to actionable strengths to determine feasibility.

The outcome will be new drivers for change, potential strategy proposals and if successful, future developments.

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The Figure ‘ 5 ’ has been used in this SWOT Analysis for reasons of manageability, 3 is insufficient and 7 may be too many. Doing

SWOT Analysis in this way achieves focus and realisation and will achieve a good outcome, depending upon the team involved.

Note

SWOT Analysis is often introspective because company managers are more inward looking. To achieve another interesting
perspective, try to achieve a SWOT Analysis using customer focus groups. The customer view is valuable and often different !!

Advice

The course will now delve further into conducting external environmental analysis which is often used to discover

opportunities and threats.

The drivers for change originate from both the internal and external environments of the organisation. These stimulate the need

Summar for strategic decision making and decision taking which may be either provocative or realistic which is classified as a prescriptive

y or emergent approach respectively. The response taken to environmental turbulence has to be balanced with a number of factors
directly related to organisational performance as well as the view of key stakeholder groups.

One classical technique used by many managers is to undertake a SWOT Analysis and use this to drive change, although there are

different ways of achieving this. The essence of good SWOT Analysis is to make it relevant, focused and actionable, moreover this

should be undertaken periodically in order to make a significant contribution to strategy determination.

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?1. Select ONE of the following, or an industry with which you are familiar : -

SAQ
1. Organic food

s
2. Mobile telecommunications

3. Ladies fashion apparel

What is really driving change and how ?

2. In responding to drivers for change, is there a case for combining both prescriptive and emergent

strategies -- why and how ?

3. Is SWOT analysis an effective model to drive change ? Test this by completing a SWOT Analysis for

an organisation familiar to you by using the 5 critical actionable SWOT factor approach.

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Core competencies

Drivers for change

First mover advantage

Key
Terms Hybrid approach

Market leader, market challenger or market follower

Prescriptive or emergent strategies

Proactive

Realised strategy
Stakeholders

SWOT Analysis

• What and who drives changes in your organisation ?

QFR • What influence do you have ?

’s

• Is SWOT Analysis used as a strategic planning tool at all ?

• What is your current position in any selected market, leader, follower or challenger. What does

this mean for deciding future strategy ?

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SECTION 3 EXTERNAL ENVIRONMENTAL ANALYSIS (1)

TOPICS

● INDUSTRY DEFINITION

● CRITICAL SUCCESS FACTORS

TOPICS

● ESSENTIAL FACTS IN AN INDUSTRY CONTEXT

● PEST / SLEPT / PESTLE ANALYSIS

● SCENARIO BUILDING AND CAUSAL ANALYSIS

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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 Introductio
n
Section 3 begins a detailed process to discover more about the drivers for change by venturing into how to complete an
external environmental analysis. The content is important to the understanding of Strategic Management therefore its
spreads across two sections. Section 3 is devoted to explaining how industries are defined, but more importantly the Critical
Success Factors (CSF’s) which keep an industry alive. These essential conditions will apply to all industry players of which
they should be fully aware. However as the market environment changes, so may the CSF’s and hence the need for change.
This section also outlines essential information needs to know-how to better understand any industry.

From a classical perspective, the external drivers for change have been often referred to the PEST / SLEPT or PESTEL
factors and various modifications of this acronym, this is also outlined. However it is the contribution of this analysis to
assisting organisations to plan ahead using scenario analysis to help to participate the need for future change, it is in this that
this section closes, as the first part of external environmental analysis.

The environments which stimulate the drivers for change will now be examined in more detail, starting with the external
market environment and considering the source of key topics considered as essential knowledge.

The external environment must really be analysed in relation to a context. From a business perspective, this would therefore
be an INDUSTRY CONTEXT.

It would be beneficial therefore to start with understanding Industry Definition.

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INDUSTRY DEFINITION

Industries can be classified broadly into Manufacturing, Process, Service and Information Industries. It is more common
however to define an industry in Product terms : -

• Aerospace industry
• Information technology industry
• Car manufacturing industry
• Hospitality industry
• Food processing industry

The industry definition may simply help to answer “ what business are you in ? ”

The context of an Industry definition could also include the buyers, the suppliers and the competition, to provide a broader
explanation.

To achieve an understanding of how the defined industry actually functions, it is essential to consider the industry Critical
Success Factors (CSF’s). [ Sometimes referred to as Industry KSF’s or Key Success Factors ].

INDUSTRY CSF’S

These are the attributes that are essential for delivering value to customers and which are considered critical for industry
viability.
These CSF’s then can be used to assess the relative health of any individual business within an industry as these may provide
indicators for success or failure relative to other competitors.

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By comparing any organisation’s CSF’s with their main competitors, competitive resilience can be assessed, in relative terms.

At the most basic level, any player within a defined industry should be able to meet the CSF’s. The industry CSF’s in fact
represent the required conditions for success at a fundamental level. Beyond this, points of differentiation are required in
order to remain competitive.

For example, take the UK Fast Food Restaurant Industry. The CSF’s would be : -

The UK Fast Food Restaurant Industry

Case
s The UK Fast Food Restaurant Industry comprises a number of key players, some of which are international
franchise operations, while the others by UK-owned. Some players represent diversification strategies from
conglomerate business. Regardless of history, ownership or market position, the following CSF’s should be met.

• Low Cost of Manufacturer • Known Brand Name

• Secure Sources of Supply • Habitual Buying

• Strategic Restaurant Locations • Consistent Food Quality

• Effective Staffing • Hygienic & Cleanliness

• Good Customer Experience • Competitive Pricing

• High Market Visibility • Cost Efficiencies

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More detailed CSF analysis for the UK Fast Food Restaurant Industry can in fact be conducted at different levels, namely : -

• Corporate Level
• Management Level
• Business Function Level
• Operational Level
• Shareholder Return on Investment

This allows the essential conditions for success can be pre-determined and then be monitored by management, hence this
is an important aspect of environmental analysis.
The following examples maybe useful to support explanation of Industry Level CSF’s.

SAMPLE INDUSTRIES POTENTIAL CSF’s

Case International Airlines • Reservation Systems • On-Ground Check-in Systems

s • Ticket Pricing and Flexibility • On-line Check-in
• Passenger Load factors • Loyalty Schemes
• Routes • Punctuality
• Airport Relations • On-time Arrival / Departure
• In-flight Services

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 SAMPLE INDUSTRIES POTENTIAL CSF’s

Mineral Water • Bottling Capacity • Supply Chain Management

• Extensive Distribution Network • Logistics Management
• Low Cost Production • Consistent Quality
• High Sales Volumes
• Brand Identity for Market Segments
• Right Pricing

Video Game Software • Human Talent Acquisition & Retention

• Innovation & Sustainable Product Development
• Integrated Distribution
• Brand Marketing
• Customer Loyalty

ESSENTIAL FACTS IN AN INDUSTRY CONTEXT

Apart from the CSF’s, there are essential facts to establish to understand an Industry from a strategic perspective. It is
desirable to know, at least : -

• the markets within an industry

• opportunities for segmentation strategy
• Buying behaviour

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 • the impact of technology upon industry performance
• attitudes towards quality by market players and customers
• the value chain linkages from supply to end-use demand (to be discussed later in this course)
• Industry threats, overtime
• Industry forecasts
• Competitive Dynamics
• Barriers to Industry Entry

Within an industry context as a manager for one company, an important question to answer is “ What is not known, but needed ! ”
Note

It would be wise to draw up a checklist for personal use of the essential information required to obtain a well documented industry
Advice profile.

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PEST / SLEPT / PESTLE ANALYSIS

This analysis, as mentioned earlier, is one means to assess and even anticipate how broad based environmental influences
affect an industry, and thereby present future challenges in the form of threats and opportunities, for example : -

• Political - Government policies, monopolies, government stability, taxation policies, foreign trade regulations,
political alignments at local, national, regional and global level

• Economic - GNP and GDP, PPP, inflation, interest rates, exchange rates, investment by public and private
enterprise, consumer expenditure, disposable income, infrastructure costs and availability, eg. energy, transport and
communications

• Socio-cultural - Demography, consumerism, education and health, social attitudes, work, health, the environment,
social mobility, income distribution

• Technology - Government spending on research, adoption of new technology, new products and developments,
obsolescence of existing technology

• Legislation - Employment law, taxation law, company law, health and safety law, patent law, industry regulations

• Ecological - Pollution control, planning policies, transport policies, disposal of waste, alternative energy

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This form of analysis has become well known and accepted. It has also been outlined in detail in the Marketing Management
course module.

For the sake of completeness, it has been included in this Strategic Management programme. However the essence of PESTLE
Analysis is to assess how and where potential opportunities and threats may arise.

SCENARIO BUILDING & CAUSAL ANALYSIS

When Industry Level Analysis is required to forecast the future, PEST / SLEPT / PESTEL is a good start but other
techniques can be used to attain more creative interpretations of Industry futures.

The Delphi Technique is a form of long range technological forecasting, it is an iterative process aimed at achieving
consensus among experts, whereby future forecasts can be achieved from expert opinion.

eg. The Long Term alternative purpose of fossil fuels as oil supply diminishes
eg. Impact of the internet and its developments on Supermarket Trading by 2030
eg. The Future of Retailing
eg. The Shape of Higher Education within 20 years

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Cross-Impact Analysis examines the probabilities of certain identified events happening together with the consequences for
the organisation.

eg. The Sustainability of On-line Food Shopping and the need for change to marketing and logistics management

The purpose is to establish causality, impact and consequence, that is the sequence of events, the effect these may have
internally and externally and the outcomes to be expected both positive and negative.

SCENARIO ANALYSIS

This form of analysis is again focused upon future projections and the essential actions that may be needed.

The approach to scenario analysis is to select a focal issue about the company and the external environment and then review
the drivers for change to determine the extent to which action will be required, by when and then follow the 7 stage
sequence below : -

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THE 7 STAGE SEQUENCE FOR SCENARIO ANALYSIS

STAGE 1 STATE THE SCENARIO ___________________________________

STAGE 2 KNOW WHAT HAS CAUSED THIS ? WEIGHT THE CAUSE

(1 – 10)

1. ______________________ ____
2. ______________________ ____
3. ______________________ ____
4. ______________________ ____

N. ______________________ ____

STAGE 3 WHAT IS THE LIKELY OUTCOME ARISING FROM THE STATED SCENARIO ?

STAGE 4 WHAT WILL BE THE EFFECTS ON THE WEIGHT THE EFFECT

BUSINESS BOTH POSITIVE AND NEGATIVE ? (1 – 10)

1. ______________________ ____
2. ______________________ ____
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 3. ______________________ ____
4. ______________________ ____

N. ______________________ ____

STAGE 5 LIST THE AREAS OF KEY IMPACT IN ORDER OF IMPORTANCE

1. _______________ 3. _______________ 5. _______________

2. _______________ 4. _______________ 6. _______________

STAGE 6 ASSESS THE NEED FOR CHANGE WITHIN THE ORGANISATION TO STRATEGY,
STRUCTURE, PROCESSES, TECHNICALLY & PPEOPLE FOR FUTURE SUSTAINABILITY

STAGE 7 DETERMINE AND PRIORITISE THE ACTIONS REQUIRED.

Tas
k Complete the 7 Stage Sequence based upon your current work environment and review the insights
gained.

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 Scenario Analysis is a basic process which in fact can be modified with an increasing level of sophistication, once the organisation
Note has had the experience.

Another application of scenario analysis is to use it to challenge the basic assumptions about the industry and the
enterprise. It will prevent complacency setting in, especially in mature stable industry environments.

The process of scenario analysis can alert managerial mindsets to the need for change in order to remain a relevant player within
the industry.
Note

Under stable industry and market conditions, there is often a need to ‘jolt’ management to reflect upon the current market position and
the conditions which have led to this achievement, so that the company can challenge itself. Scenario Analysis can be particularly
Advic
useful in this respect.
e

This first part of external environmental analysis has focused upon the need to define an industry and to know the Critical Success
Summar Factors for industry level performance. It has been realised that to achieve a more detailed profile of an industry that other key factors
must be known.
y
The conventions of PESTEL analysis and similar acronyms have a part to play even though these have become widely known.

The essence of external environmental analysis for management is to know how to respond to likely future changes and it is here that
scenario analysis is a particularly useful technique to awaken management into realising that prevailing assumptions about industry
conditions and performance should be challenged from time to time in order to be alert to the need for change.

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 The essence of external environmental analysis for management is to know how to respond to likely future changes and it is here that
Summar scenario analysis is a particularly useful technique to awaken management into realising that prevailing assumption about industry
conditions and performance should be challenged from time to time in order to be alert to the need for change.
y

? 1. Take one industry with which you are familiar and then specify the critical success factors which enable
SAQ the industry to function.
s
2. Prioritise these factors into the Top 5. What have you discovered ?

3. Use Scenario Analysis to positive meaningful change arising from external market environmental
factors. Now consider the likely impact upon the industry and the potential need for adaptation.

Cross Impact Analysis

Delivering Value
Key Vocab Industry definition
Industry Critical Success Factors (CSF’s)
Industry Key Success Factors (KSF’s)
PEST / SLEPT / PESTLE Analysis
Points of differentiation
Scenario Building & Causal Analysis

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 • In your company, is PESTLE Analysis used ? … to what extent is it useful ?
QFR
’s
• Do opportunities and threats emerge or are they part of a proactive strategic planning processes,
designed for change to retain current competitive positioning ?

• Do you use CSF’s proactively, and if not, why not ?

• What could you gain from Scenario Planning ?

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SECTION 4 EXTERNAL ENVIRONMENTAL ANALYSIS (2)

TOPICS ● COMPETITOR ANALYSIS

● COMPETITOR BENCHMARKING

● PORTERS 5 FORCES
* INDUSTRY COMPETITORS AND RIVALRY
DETERMINANTS
* BARGAINING POWER OF BUYERS & SUPPLIERS
* THREAT OF SUBSTITUTES AND NEW ENTRANTS

● CROSS IMPACT ANALYSIS FOR THE 5 FORCES

● CUSTOMER ANALYSIS

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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 Introductio
Section 4n is the second part of External Environmental Analysis which is focused upon competition. The perspective of
competition is valuable because most business organisations operate within a competitive environment.

The aim of this section is to introduce the subject of Competitive Analysis, as well as the idea of Competitive Benchmarking
which is common day managerial practice used primarily to be ahead of the competition as well as to defend the current
market position,

The subject of competition would not be complete without significant attention being devoted to the work of Michael Porter
and in particular his classical 5 Forces Model which has been examined from a number of perspectives.

This section, although devoted to a core theme of competition, closes with a note on the need for analysing customers as well
as the competition.

COMPETITOR ANALYSIS

As part of the external environmental review which should be completed at Industry or Industry Sector level, specific
attention will be needed to assess the nature and intensity of competition selected market domains.

The main factors to be used to conduct Industry Level Competitor Analysis are : -
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• To identify your direct competitors, their history , market shares and market share trends
• New Competitors and their recent impact upon the market domain
• The nature of indirect competition upon market performance
• The impact of the macro environmental factors (SLEPT/PEST/PESTEL) on key competitors and market
leaders
• The relationships between key competitors and their suppliers
• The relationships between key competitors and their customers

The purpose is to know what all of the above means for your company in relation to your current competitive positioning and your
Note future competitive strategy.

Competitor Analysis is not an annual ritual but an on-going process of tracking the competitive environment in order to plan your next
move.
Advice

COMPETITOR BENCHMARKING

Competitor benchmarking has become common practice within and between industries in order for management to be able to
learn from the competition.

The term benchmarking was been coined to explain the process whereby a main competitor is used as a basis for comparison
and evaluation, in the belief that the sources of improvement may come from the competition. This simple process may be
valuable if your company is in a position to make changes for the benefit of customers.

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 A local bank in Colombo, Sri Lanka may seek to benchmark itself against HSBC as an International Bank in the
ambition for improvement and improved market penetration. The reality is that the selected competitor for
Cas benchmarking should be within the same market domain. Is it realistic for a local bank to benchmark against an
e International Bank because they have two very different identities, different market positions and different market
shares. The message is simple : The choice of the competitor for benchmarking must be undertaken with care !

The ultimate purpose of benchmarking is to identify the best practices valued by customers and suppliers and to
evaluate your current position in order to identify potential opportunities for improvement.

Learning from benchmarking may also be applied to unrelated industries and then by making relevant transfers of best practices.
For example, relating private hospital customer care to the service deliverables of a major airline and then making adjustments to
Note
customer service.

The ability to benefit from benchmarking will depend upon the Strategic Position of your company, ie. Leader, Follower or Challenger
and also the Industry Life Cycle Stage ; Growth, Maturity or Decline as well as prevailing managerial mindsets and current operating
culture.

Benchmarking can be extended to examine key financial performance indicators such as Profitability, Liquidity, Return in Assets,
Gearing, P/E Ratios and so on --- a subject to be covered in detail on the Financial Module.

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 The fundamental benefit from benchmarking is to make improvements, not to imitate – otherwise all companies
Advice will begin to look the same !!! Remember, differentiation is essential to establish and secure a sustainable
favourable long term position within any Industry.

PORTER’S 5 FORCES

One of the most useful frameworks for analysing competitive structure is that developed by Michael E. Porter. Porter suggests
that competition in an industry is rooted in its underlying economic structure and therefore goes way beyond the behaviour of
current competitors. Porter claims the state of competition depends upon five basic competitive forces. Together, these factors
determine the ultimate profit potential in an industry where profit potential is measured in terms of long run return on invested
capital.

The goal of competitive strategy is to find a position in the industry where the company can best defend itself against these
forces, or can influence them in its favour. Knowledge of these underlying pressures highlights the critical strengths and
weaknesses of the company, shows the position in the industry, clarifies areas where strategy changes yield the greatest pay-
off, and highlights areas where industry trends hold greatest significance as opportunities or threats.

Consider Figure 4.1 below and the notes that are connected to it.

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PORTER’S 5 FORCES
MODEL OF INDUSTRY COMPETITIVENESS Figure 4.1

5
New
Entrants
Threats
3
Industry 2
Bargainin 1 Bargaining
g Competitors
Supplier Buyer
s Power Power
s
Intensity of rivalry

Threats
4

Substitute
s

1 INDUSTRY COMPETITORS AND RIVALRY DETERMINANTS

* WHO IS COMPETING?
number and history of competitors
size
market shares
how competitors deliver KSF’s or CSF’s

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 * RIVALRY DETERMINANTS
growth rates in the industry
brand loyalty
switching costs
product differentiation
investment requirements
over / under capacity to meet market needs
exit barriers, rational - emotional

These factors will help to understand industry structure and the intensity of rivalry, but this is further pressured by threats
from new entrants and substitutes. In addition, the bargaining strength and power of suppliers and buyers will add further
pressure.

2 BARGAINING POWER OF BUYERS

There are two main sources:

•bargaining leverage from buyer concentration, buyer volumes, switching costs and their ability to backward integrate

•price sensitivity in relation to total purchases, quality perception, brand identity and the incentives offered to confirm a
purchase decision

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 3 BARGAINING POWER OF SUPPLIERS

This is mainly exerted by the price demanded by suppliers which has a direct impact on the profitability of the industry,
as profitability is reduced, competition intensifies.

Suppliers can also forward integrate. The bargaining power is also a function of the number of suppliers and the
supplier concentration, this is to be balanced against the availability of substitutes, essentially it is the classical
supply/demand curve.

4 THE THREAT OF SUBSTITUTES

The Determinants of substitution threat is a function of

The availability of valued close substitutes

The price performance of substitutes
The willingness for buyers to change
The switching costs involved

If the threat of substitutes is great, this could eventually result in the redefining of the industry.

Switching costs are both functional and emotional and should be taken into account carefully, so as to assess the nature of future
competitive threats arising from actual or potential substitutions.
Note

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 5 THE THREAT OF NEW ENTRANTS

New entrants to an industry increases supply and may place pressure on price based competition, but only if the
product / service offering is directly comparable to the provision made by existing competitors.

However, the threat of new players must be related to the market entry costs and level of investment required to gain
market entry and then to penetrate the market.

Entry barriers such as brand identity of existing market players, buyer switching costs, access to channels, real product
differentiation and expected competitor retaliation make successful entrance more difficult, especially in established
markets.

The analysis of Porters 5 Forces can be undertaken from a number of perspectives : -

At a pragmatic level, two aspects should be assessed.

1. Is any one force or the collective impact of the 5 Forces favourable or unfavourable in generating long term
industry profitability ? This is an important strategic level question.

2. What is the relative importance of each of these forces upon long term industry profitability ?

These questions may be approached at industry level and then at the level of one competitor (for example your own company)
because different interpretations will be made.

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 The analysis will also be conditioned by the industry lifecycle and the external economic environment at the time of the analysis.
Note It is not just Industry Rivalry which is to be assessed but also to understand the contextual depth of the Industry Mindset.

The Five Force Model would benefit from a deeper contextual supplementary understanding about the perceptions, expectations and
assumptions about the industry from among key industry players. This could be supplemented with the expected financial performance
Advic
of the industry in terms of expected margins as well as the critical factors for industry success. This would add depth to the analysis of
e
Porter’s 5 Forces to provide an understanding about the conclusions and managerial beliefs which currently prevail.

THE 5 FORCES AND CROSS-IMPACT ANALYSIS

An examination of each of the 5 forces has been completed and some suggestion about supplementing these forces with an
understanding of Industry Mindset and commonly held management assumptions but cross-impact analysis would also be
valuable to open up the potential usage for the 5 Forces Model.

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Consider Figure 4.2 to Figure 4.6 below.
POTENTIAL IMPACT

Competitor Rivalry (Potential for Industry Restructuring)

Substitutes (Price Competition)

ENTRANTS
Figure 4.2
Supplier Power (Downstream Development Required)

Buyer Power (More Choice)

POTENTIAL IMPACT

Competitor Rivalry (The Need for Innovation)

Substitutes (Price Competition)

SUBSTITUTES
Figure 4.3
Supplier Power (Business Sustainability)

Buyer Power (Purchasing Behaviour)

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 POTENTIAL IMPACT

Competitor Rivalry (Brand Switching Behaviour & Price

Pressures)

Entrants (Upstream Development)

BUYER POWER Figure 4.4

Supplier Power (Rebalancing of Demand & Supply)

Substitutes (Adoption or Avoidance)

POTENTIAL IMPACT

Entrants (Industry Restructuring Potential)

(Brand Switching Behaviour & Price Pressures

Buyer Power
/ Margin Pressures)
COMPETITOR RIVALRY
Supplier Power (Collaborative Alliances) Figure 4.5

Substitutes (The Need for Innovation)

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 POTENTIAL IMPACT

Competitor Rivalry (Collaborative Alliances)

Entrants (Downstream Development)

Figure 4.6
SUPPLIER POWER
Buyer Power (Rebalancing of Supply & Demand)

Substitutes (Business Sustainability)

Figure 4.2 to 4.6 seeks to view Porters 5 Forces interactively so that the potential impact can be assessed for modifying
existing competitive strategy.

CONCLUDING THE 5 FORCES ANALYSIS

Porter 5 Forces has made a significant contribution to the understanding of competition. It is an analysis tool, but some
students find it challenging to conclude. The following pointers may be helpful : -

• Refer back to the Rivalry determinants.

• Modify the conclusions drawn by considering the impact of bargaining power and also of the threats upon the
intensity of competitive rivalry and how this may adjust the industry Key Success Factors (or Critical Success
Factors).

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 • Now have a look at the broader environment influences which Porters model largely ignores, ie. PEST / SLEPT /
PESTLE factors and conclude how these uncontrollable factors will impact upon industry performance and drive
the need for change. Then review how competitive conditions may emerge overtime. This presents a good case for
scenario planning !!
• Consider the implications of Cross-Impact Analyses.

• Now consider what value this analysis has for the determination of future strategy possibly by using the
findings from Cross-Impact Analysis.

CUSTOMER ANALYSIS

Within the external environment are customers who are the source of survival, growth and sustainability for any industry.

Therefore, it is essential to know who are the existing and potential buyers, their location and purchasing power, plus the
motives that will induce and sustain purchase so that their needs are being met now and in the future.

At external level, broad classifications into market segments are needed. At internal level, customer profiling and tracking is
vital for planning, resourcing customer strategy and business success.

Cross-reference to the modules on Marketing Management will provide an important input to this element of external
environmental analysis.
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 The second part of External Environmental Analysis has focused upon competition, which today many managers is a preoccupation.
Summar Apart from the monopoly organisations, every business is conceived with ‘beating the competition’ in order to deliver shareholder value.
y Even charities and non-profit organisations all complete with an industry context.
This part of the course has laid down some essential guidelines upon how to assess ‘the competition’. It also has introduced a classical
model for analysing industry level competition the Porters 5 Forces Model.

The purpose is to provide application tools which in turn will adjust managerial mindsets into being more alert to the dynamics of
competition and their impact upon the need for a purposeful contextually relevant competitive strategy to avoid or minimise threats and
to take advantage of well-assessed opportunities.

? 1. Select one industry of your choice and identify 3 main competitors. Assume you are a new entrant into
SAQ the market, which competitor would you benchmark your performance against and why.
s
2. What could you learn from another major player, in a dissimilar industry, which could improve your
competitiveness ?

3. Assume you are one of the leading 3 car hire companies with global market penetration, what can you
learn from applying Porters 5 Forces Model about the pressures on the industry ?

4. The international courier business is fiercely competitive, explain what the intensity of rivalry is really
all about ?

5. What do you need to know most about ‘ the competition ’ ?

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 Bargaining Power
Best practices
Buyers
Key Competitor Analysis
Terms Competitor Benchmarking
Competitive Positioning
Competitive Strategy
Cross-Impact Analysis
Differentiation
Direct Competitors
Indirect Competition
Industry Life Cycle
Intensity of Rivalry
Leader, Follower or Challenger
New entrants
Porters 5 Forces
Substitutes
Suppliers
Switching costs
Threats

• How do you ensure that you can beat the competition in the future ?
• What has been the most practical insight gained from Porters Forces for your current position ?
QFR
’s • Is benchmarking a current fad or can you benefit from its application ?

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SECTION 5 INTERNAL ENVIRONMENTAL ANALYSIS (1)

TOPICS ● RESOURCE AND CAPABILITY ANALYSIS

● THE RESOURCE AUDIT

● THE VALUE CHAIN

● VALUE CHAIN ANALYSIS

● PRIMARY & SUPPORT ACTIVITIES

● DIFFERENTIATION ADVANTAGE

● VALUE CHAIN LINKAGES

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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 Introduction

Section 5, is one of two sections devoted to Internal Environmental Analysis. As we have seen previously, drivers for
change are delivered from both the external and internal environments of the organisation. So far we have reviewed the
external environment which provides the source o many future opportunities and threats. Now it is necessary o look
internally at the internal operating environment to discover leverageable strength to support future strategy on the other hand,
but on the other to understand prevailing or emerging weaknesses.

To complete this environmental analysis, there are a series of essential pieces of analysis which should be undertaken. This
section will examine resource and capability analysis and focus on value chain analysis which is essential content for the
study of Strategic Management.

The collective summary of this internal environmental review will potentially drive change towards improved performance,
competitive position and business results.

RESOURCE AND CAPABILITY ANALYSIS

Resources are the bedrock upon which strategy is determined and implementation achieved. The resource base of the
organisation is diverse and moreover is influenced by he experience gained overtime. For this reason, a periodic resource
audit is needed to assess physical resources as well as managerial competency to ensure that future intentions are achievable.

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THE RESOURCE AUDIT

There should therefore be a regular review of the organisations ability to achieve its ambitions. The resource audit is a fact
finding mission upon which future strategy decisions are made. The output of the resource audit will highlight existing
weaknesses, current strengths and operational constraints , all within the working environment of the business
organisation.

To expand the understanding of resources and their diversity, a sample checklist to conduct a resource audit is shown below
comprising : -
• Management & People • Marketing
• Operations • Finance
• Products / Services

Sample Checklist for reviewing the resource base of the organisation : -

1 MANAGEMENT AND PEOPLE AUDIT

Staffing levels, staff turnover, staff profiles, competency assessments, competency needs
Management : Culture and style, responsiveness, adaptability, attitude to risk, power, general competence and skills, use of
management information systems, performance management
Operational employees : morale, training and development, work conditions, engagement, human capital development,
external networks & relationships
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2 OPERATIONS
Operational restrictions : Legal, regulatory framework, governance
Operational processes, turnaround time
Operational profitability, flexibility, efficiency, capacity
Facilities and plant : Age, location, ownership, condition, usage
R&D record, expenditure and capability
Control and quality
Relationships and coordination with support functions
Suppliers : Contracts, relationships, networks

3 PRODUCTS/SERVICES
Product /service range : Core, niche, specialised, gaps, potential, dropped products
Brand names, patents, copyrights
Comparative ratings : Market share, profitability, rating by trade, rating by customer, price level, value for money, fitness
for purpose, packaging

4 MARKETING
Pricing : Stability, margin vs cost, elasticity and constraints
Sales Performance : By Product, geographic spread, customer type, distribution channels
Customer data : Loyalty, turnover, attitude, feedback Page 0
 5 FINANCE
Track record : Profit, dividends, interest, cash flow, balance sheet, reserves
Asset management record
Major changes in accounting policies
Profit and cash flow forecasts
Control of debtors and creditors
• This is just a sample, therefore additional items that are contextually relevant should be added to examine the
health of the organisations resource base.

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 The resource audit should be used as a lever for strategy determination, as shown in Figure 5.1 below :
Note

THE ROUTE TO STRATEGY THROUGH RESOURCE & CORE COMPETENCE

Figure 5.1
1. Identify the firms resources.
Assess strengths and weaknesses RESOURCES
relative to competitors

1. What does the enterprise currently

CAPABILITY Identify the resource gaps that need
deliver through existing core
to be filled. Then invest in developing
competencies?
the resource base for future strategy.
1. Assess the potential of resources POTENTIAL FOR
and competitiveness for creating, SUSTAINABLE
sustaining, exploiting and COMPETITIVE
delivering a competitive edge. ADVANTAGE

1. Select the strategy which best STRATEGY

exploits the company’s capabilities DETERMINATION
relative to external opportunities.

Note
The output of this analysis is to determine existing and future weaknesses and strengths. However it will also highlight resource constraints
within which the business has to operate to achieve objectives.

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One important resource of any organisation is its core competency (sometimes referred to as its capability).
 Leveraging a company’s position from its core competence is one route to sustainable competitive advantage, provided that this
Advic competency remains relevant to the market and can be differentiated from the competition.
e
Resources should be assessed not only in terms of a functional resource audit, but also in terms of knowledge, experience, systems,
relationships, partnerships, brand equity, time, space and so on.

The resource audit needs to consider any platform that can create value for the enterprise.
Note
The resource audit will make a meaningful contribution to providing an answer to the question raised in Figure 1.1, Page 19 “ Where
Are We Now ? ”.

VALUE CHAIN ANALYSIS

The value chain, originally introduced by Michael Porter has been one of the most significant contributions from contributors
to Strategic Analysis.

It is not only the value chain structure and associated process which are important, but the fact that the concept of value has
external management vocabulary and influenced managerial mindset.

Thinking today is upon how value can be added to the customer experience as well as to the organisation.

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 The financial concept of value added furthermore is a calculation of wealth which an enterprise can achieve.

Using the Value Chain, as shown in Figure 5.2, by converting inputs to outputs, value is created. The term value added in
the simple terms is the wealth generated by the business by deducting the total costs of creating the output from the total
revenue received. From there certain costs of financing can then be deducted and accounts previous made depreciation so that
measures of profitability can be determined.

The value chain separates activities which convert inputs to outputs, known as PRIMARY ACTIVITIES. These can only
create value added, by using SUPPORT ACTIVITIES. The value chain therefore comprises both Primary Activities and
Support Activities.

The value chain, in one diagram, displays the business as a whole, and can be used for more detailed analysis of core
competencies, business processes and financial control.

Key Result Areas for the business and even measurement tools such as Key Performance Indicators (KPI’s) can be applied within the
Note structure of the value chain as a basis for performance management.

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PORTER’S VALUE CHAIN -- A GENERIC APPROACH Figure 5.2

Infrastructure of the firm

SUPPORT Human resource management

ACTIVITIES margin
Technology development

Procurement

PRIMARY In bound Operations Outbound Marketing Service

ACTIVITIES logistics logistics and sales

margin

Figure 5.2 displays the Generic Value Chain, originally proposed by Porter. It can be used in this format, but many
companies may adapt this to fit their specific set of primary and support activities.

While the conventions of Porter’s value chain may be already understood, one useful application is to use the value chain to
locate and analyse the sources of competitive advantage. Figure 5.3 shows how this can be achieved. The value Chain
diagram follows the conventions for the combination of Primary and Support activities specific to the business, which when
combined produce an operating margin. Then within these areas of activity, points of competitive differentiation can be
located.
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From a management perspective, these activities may become the Key Result Areas (KRA’s) if the business, which of course
will be attached to managerial responsibilities for their delivery.

To ensure that this is achieved, Key Performance Indicators (KPI’s) can be established for performance management and
review throughout the value chain.

In this way the value chain can support business and organisational productivity. Moreover, this is simple to understand and
easy to communicate. This is a very substantial contribution to management thinking and strategic planning.

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DIFFERENTIATION ADVANTAGE THROUGH THE VALUE CHAIN Figure 5.3
Market leading corporate reputation. MIS that supports Unique product features. Fast new product
innovation and responsiveness to customer needs through close development. Design for reliability
internal coordination, customer centric culture /serviceability.

SU INFRASTRUCTURE
PP Training that supports
RESEARCH, DEVELOPMENT, DESIGN the channel. Total
OR
T v. commitment to
HUMAN RESOURCE DEVELOPMENT customer service
AC
TI
VI P WA SA DEALER
PRI PURCHASIN RE LE SUPPORT &
TIE R Training for customers.
MA G, HO S& CUSTOMER M
S O Fast, reliable repairs.
RY INVENTORY D USI MA SERVICE A Availability of spare parts.
AC U NG RK R Training for dealers.
TI HOLDING, C & ETI G Customer credit terms
VI T DIS NG I
MATERIAL
TIE I TR N
S HANDLING O
v.v.
IB
N UT
Quality and reliability of Fast manufacturing,
IO Fast delivery. Efficient Iconic Advertising that enhances brand
components and material Defect-free Nmanufacturing. order processing. reputation. Effective sales force.
Ability to produce to Sufficient inventories to Superior Quality sales literature &
Just in time Inventory customer specification support
meet unexpected orders.
Systems
Partnership with key Key account Database ICT linkages with Customers
Preferred Supply Chain customers. management.
Relationships Page 0
 A VALUE CHAIN ANALYSIS FOR A MANUFACTURER OF METAL CONTAINERS
Cas
e The metal container industry is a highly competitive, mature, global industry. In fact, ‘Cans’ lack much potential for
real differentiation, and buyers (especially beverage and food canning companies) are very powerful. The market is
almost a commodity market by definition.

Clearly, cost efficiency is essential, but there is also a need to identify profitable opportunities for differentiation so
that business is preserved and competitively sustainable.

A value chain approach is therefore worthwhile to analyse the sources of value.

The following stages can be adopted to apply value chain analysis : -

STAGE 1 . Construct a value chain for firm and key account customers
The primary activities only of the can manufacturer and its customers are shown in Figure 5.4 [note : the support
activities are absent].

STAGE 2. Identify drivers of uniqueness.

For each can-making primary activity, identify differentiation variables. Examples are shown in Figure 5.4.
STAGE 3. Select Key Result Areas (KRA’s) and the strengths within them
Identify the internal strengths of the firm. For example, if the canning company has strong technical capabilities, it
may therefore differentiate by meeting demanding design specifications and offering a high level of technical support
to canning customers.
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 STAGE 4. Identify linkages
To determine the real differentiation that is likely to create real value for the customer, linkages are made between
the firm’s potential for differentiation and the potential for reducing cost or adding value in any of the customers
activities. Five examples are shown in Figure 5.4.

Figure 2
CAN 1 3 CANNER
5.4 4 5
MAKER

SUPPLIES
OF STEEL SERVICE & INVENTORY
PURCHASING DESIGN INVENTORY SALES
DISTRIBUTION PURCHASING PROCESSING
CANNING
MARKETING
DISTRIBUTION
MANUFACTURING TECHNICAL HOLDING
INVENTORY
ENGINEERING HOLDING
&
HOLDING SUPPORT
ALUMINUM

PRIMARY ACTIVITIES PRIMARY ACTIVITIES

High quality inputs

Speed and competence in maintaining
Reliability of supply even customer ‘s canning
during metal shortages
Fast, reliable order processing
Containers for specialized uses.
Special designs of containers. Specially Speed and flexibility of delivery
strong or light containers

Consistency of product. Quality of Ability to meet unexpected orders

product. Flexibility of manufacturing from customers at short notice

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VALUE BASED LINKAGES BETWEEN THE CAN MAKER (THE SUPPLIERS) AND THE CANNER (THE
CUSTOMER)
The design engineering of distinctive cans for customers end-use may in turn assist the customers own marketing
activities.

Consistent quality of cans supplied lowers customers’ canning costs by avoiding breakdowns and holdups on
their canning lines.

By maintaining high stocks and offering speedy delivery, customers can economize on their stockholding (they
may even be able to move to a just-in-time system of can supply).

Efficient order processing can reduce customers’ ordering cost.

5. Capable and fast technical support can reduce the costs of breakdowns on canning lines.
The message is clear -- in order to achieve competitive differentiation, it is vital to form value based bonds with customers.

This bonding is a form of value based partnering from which the supplier and the customer derive value.

From this position, new company strengths can be built and then be leveraged in the future, so that valued connections and
valued relationships can be achieved to enable value based management for ‘win-win’ business outcomes.

Value cannot be an assumption, it must be a confirmed fact, therefore a customer based definition of value will provide insight learning
for the organisation. It will also reinforce policies and practices for customer centricity.
Advice

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 ? 1. Draw up a value chain for a college or university with which you are familiar.
SAQ
s State the points of competitive differentiation and explain the value chain linkages with your value
chain as a student pursuing an MBA Degree.

What conclusions can be drawn ?

2. How can resource and capability analysis make a useful contribution to understand the practical
application of the value chain.

3. List the advantages of the Value Chain Model to : -

• Top management of a company unaware of its existence

• A new manager joining the company to head a team for a strategically critical department
responsible for company sales

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 Core Competence
Differentiation Advantage
Key Performance Indicators (KPI’s)
Key Terms Porters Value Chain
Primary activities
Resource constraints
Support activities
Sustainable Competitive Advantage
The Resource Audit
Value added
Value based bonds
Value based linkages
Value based partnering
Value chain analysis

• Is the concept of ‘ value ’ really understood and acted upon at your level of management ?
QFR
’s • How could you use value chain linkages between your business and your customers to deliver a
competitive edge?

• Does adding value to the customer experience put pressure on the companies value chain and if so,
how ?

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SECTION 6 INTERNAL ENVIRONMENTAL ANALYSIS (2)

TOPICS ● THE ONION MODEL

● COMB ANALYSIS

● LIFE CYCLE ANALYSIS IMPLICATIONS

● PRODUCT PORTFOLIO ANALYSIS -- IMPLICATIONS

● CLASSICAL MODELS

● SERVO ANALYSIS

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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 Introduction
Our journey into internal environmental analysis will continue into Section 6 with a second part which is designed to focus
upon other well-established models and analysis tools for application.

The use of these tools, as with all things will depend on the position and ability of the user. Nevertheless, these methods will
help to produce new dimensions to Strategic Analysis from which to derive a better understanding of strengths and
weaknesses. Section 6 will feature simple models such as the Onion Model and Comb Analysis, then move into Lifecycle
Analysis and Product Portfolio Analysis. These latter models are more focused towards the product, however from a more
holistic perspective, a powerful tool known as Servo Analysis will be explained. This tool will enable you to analyse the
business from a top down approach and thereby assist in the conclusion of strategic level strengths and weaknesses.

THE ONION MODEL

From within the body of the value chain, we have seen that it is possible to highlight sources of competitive differentiation.
This analysis can be used further to understand the depth of the prevailing competitive advantage. This can be displayed
simply in the form of concentric circles to produce what is known as the ONION MODEL (see Figure 6.1).

The following rules can be applied to develop the Onion Model : -

RULE 1 : Only those sources of competitive advantage which are demonstrably superior to at least one key competitor
can be included in the onion.

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 RULE 2 : Where there is a competitive weakness which is demonstrably weaker than a key competitor then this treated
as a competitive disadvantage and forms part of the ‘bad’ onion of competitive disadvantage (see Figure 6.2).

ULE 3 : The sources of competitive advantage and disadvantage are listed and prioritised in terms of the difficulty competitors
would have in terms of imitating them.

ULE 4 : Likewise the areas of competitive advantage which are particularly difficult to remove are placed at the centre of the bad
onion.

Multiple layers of competitive advantage offer a defensible position for growth strategy. They also gives an indication of the strategic health of the
enterprise, as determined by the lines of competitive defense.
Note

A ‘ fleshy ’ onion with many layers would imply that the company has a defensible competitive position, difficult to attack. This is especially true if the
‘ real ’ differentiations are confirmed by key customer groups. Of course what would be of grave concern if the layers of the bad onion were
more in number. This would display the company’s vulnerability to competition.

THE ONION MODEL

Cas
e The Onion Model, as depicted in Figure 6.1 and 6.2 show respective Onions for Competitive Advantage and
Competitive Disadvantage.

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Where the core of the onion represents the strongest line of defense from the competition or where in the case of the
bad onion what the company is most vulnerable to.

In Figure 6.1, there are multiple layers of competitive advantage anchored by a well-established brand, but this has to
be assessed against the layers of competitive disadvantage shown in Figure 6.2 which shows that a deep seated
conservative managerial mindset may mean that the company may not be sufficiently customer centric to be alert to
the need for change. They could be exposed to competition from more innovative companies and market share could
be challenged. This reinforces the fact that the culture of the business is critical to deliver superior value and in turn
have a sustainable future.

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THE ONION MODEL FOR LEADING UK RETAIL BRAND OF MENS & WOMEN APPAREL

Figure
SITE 6.1
PURCHASING SYSTEMS LOCATIONS
SUPPLIER LINKS

MARKET SHARE

CUSTOMER

VALUE FOR
PRODUCT INVENTORY

FOCUS MANAGEMENT

THE BRAND

MONEY
SERVICE CULTURE

IN STORE MERCHANDISING

SITE INNOVATION
LOCATIONS
MKiS

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A BAD ONION OF COMPETITIVE DISADVANTAGE

PAROCHIAL TOP MANAGEMENT Figure 6.2

MIND SET

CONSERVATIVE
CORPORATE
CULTURE

MANAGERIAL INFLEXIBILITY

EMPLOYEE ENGAGEMENT

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COMB ANALYSIS

Comb Analysis can also be used as a basis for comparative analysis, for example in Figure 6.3 it can be used to achieve a
comparison of customer’s purchase criteria with comparative ratings of alternative suppliers.

This simple visual analysis enables the analyst to understand differential competitive advantage from a market place perspective.

The steps to take are as follows : -

STEP 1 Identify, through research, purchase criteria and calculate the mean score for each criteria. Plot these as a benchmark
for comparison for each supplier.

STEP 2 Then determine from the same sample how each competitor is rated on the same criteria and calculate mean scores
for the sample, (or industry) as a whole.

STEP 3 Overlay the results to produce a Comb chart and interpret the data.

The Comb Chart produced can be appreciated in Figure 6.4.

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COMB CHART
Figure 6.3

1
Brand Name Terms of After Sales On time Price Product Promotional
Service Delivery
Trade PURCHASE Quality Support
CRITERIA
Industry Scores Competitor ‘A’ Competitor ‘B’

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 Figure 6.4
Cas
e

Market : Catering Supplies For Frozen Meat to Comprehensive Schools

Market Segment
HIGH
5 X

4 X
X
X X

RANKING
3 X X X X
CRITERIA X
X X
2

LOW 0
Price Quality Servic Packing Delivery on Time Complaints Handling Credit
e
X X Segment Purchase Criteria
X X Overall Perception of Catering Suppliers by all schools
From the chart, the ‘gaps’ between customer needs and perceived customer deliverables from suppliers in general is significant.
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The chart is a useful device to help to visualise the ‘gaps’ and this analysis will highlight weaknesses which in turn may become
drivers for change. It is a simple visual device which works well to communicate simple messages.

The Comb Chart helps to clarify comparisons over a pre-determined set of criteria in order to locate areas for future action.
Note

LIFE CYCLE ANALYSIS

Life cycles are a characteristic behaviour in many environments, as life follows a pattern from birth to decline.

In business, predicting where the company is on the lifecycle is difficult and therefore the ‘ concept ’ of lifecycle may be more
useful than to use the lifecycle as a form of predictive tool.

The discussion of the product life cycle will have been featured in the module on Marketing Management, therefore it is
not intended to repeat such content of the conventions shown in Figure 6.5.

At this level of Strategic Management, the PLC analysis is more concerned with : -

1. Industry life cycle

2. Position within the industry life cycle for key competitors
3. Respective product life cycles within the industry for main competitors

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1. Assessing the real need for innovation
5. Conducting a life cycle analysis for the company’s total product portfolio and draw conclusions about the current
position, the desired position and how to manage the gap in life cycle terms.

Life cycle analysis can therefore help to modify the Strategic Management Mindsets and in so doing, drive continuous change
arising from the need for business continuity.

THE PRODUCT LIFE CYCLE

Figure
6.5

SALES SALES

AND
PROFIT

PROFIT

Introduction Growth Maturity Decline

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PRODUCT PORTFOLIO ANALYSIS

The classical BCG (Boston Consulting Group) matrix shown in Figure 6.6 is by now well–appreciated from the studies on
Marketing Management. It is not intended to discuss these basics again in this module on Strategic Management, but rather to
consider the implications of this analysis for driving change.

Key questions need to be answered : -

1. Where is our product portfolio now ?

2. Is our portfolio well-balanced ?
3. Is there provision for future growth ?
4. What is the pace of product innovation and invention ?
5. How long does it take to get positive cash flows from new problem children ?
6. What should our policies be for adding and deleting product lines ?
7. How does our portfolio compare with the leading competitors in the industry and by market segment ?
8. Where should future product based investment be located.
8. Where are we placed on the diffusion of innovation curve (Figure 6.7) in comparison to our competitors ?

And then, what are the comparative strengths & weaknesses in our current portfolio ?

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 PRODUCT PORTFOLIO ANALYSIS

BCG PRODUCT PORTFOLIO MATRIX

Figure
RELATIVE 6.6
HIGH LOW
MARKET
SHARE
“STARS”
HIGH “PROBLEM
CHILDREN”
Product
D Product
RELATIVE B
MARKET
GROWTH
Product
RATE A
“CASH COWS”

Product “DOGS”
LOW
C

* The breakpoint depends on the industry eg : Steel 3%, Food Retailing 8% and based on Country Market Segments.
** Market Share is your share relative to the four largest Players in the market.
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 Figure
THE DIFFUSION OF INNOVATION MODEL 6.7

Where are we in
relation to our?
competitors in providing
SALES market needs

Innovation Early Adoption Early Majority Late Majority Laggards

(2.5%) (13.5%) (34%) (34%) (16%)

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 CLASSICAL MODELS

The classical models which the student should also be aware of include : -

• The GE Matrix of Market Attractiveness and Relative Business Strengths

• The SHELL Directional Policy Matrix

• The Barksdale & Harris Combined PLC and BCG Model

• The Arthur D. Little Industry Maturity / Competitive Position Matrix

• The Experience Curve

These models will probably be familiar to the student if they have been covered in earlier modules. It is simply worthy of note
to mention that they area collective set of tools which can be used with benefit to produce insight and analysis into an
organisation’s internal operating environment.

SERVO ANALYSIS

Sound Analysis is the basis for crafting contextually relevant strategy. The tools introduced so far are well-known and available
for further reading in many of the authorative texts in Strategic Management.

Yet another management tool to assess the company’s strategic decisiveness is to use the SERVO model. This acronyms stands
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for :
 • Strategy
• Environment
• Resources
• Values
• Organisation

The approach taken is to assess each element in turn and then the interactions between the elements, to determine the levels of
consistency overtime and to use this as a yardstick for the future. The aim of the model is to determine the balance between the
elements with the environment and thereby assess the ‘strategic fit’ between the elements of the SERVO model.

This is an innovative approach which seeks to conduct a search for alignment and relevance.

To review each of the elements in the SERVO Model in turn.

STRATEGY

To assess company strategy using SERVO analysis, the approach taken is to review the firm’s vision, mission and objectives, the
product/market spaces in which they compete as well as the competitive strategy and positioning. Attention is then given to
assess how the firm will build competency and resources to achieve sustainable competitive advantage. In itself this is a
powerful approach to examine the current position.
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In addition the existing business model is reviewed to discover how the firm can continue to deliver value to its customers at a
satisfactory level of profitability and whether this remains viable for the future. The focus then is to review the core strategy of
the business.

This approach in itself provides a comprehensive review. The main challenge therefore is to assess the consistency of the
strategy with other elements in the SERVO model, namely the environment, resources, values and organisation. In this way an
assessment of the cohesiveness of the strategy can be determined.

From this review apparent strengths and weaknesses will also be revealed, as would be expected.

ENVIRONMENT

The expected division between internal and external environmental factors will be classified at different levels : -

1. The Task Environment - for day to day operations

2. The Industry Environment - for industry level performance and prevailing trends
3. The Macro Environment - influencing the activity of the firm using the PESTEL criteria within defined
geographic boundaries

In this way the environmental analysis is more rigorous to enable a more thorough analysis if these environments as a basis for
devising SWOT Analysis inputs.

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RESOURCES

Resources are the fundamental company assets and capabilities deployed to generate measureable outputs in the marketplace.
An assessment will therefore be completed for the : -

Financial resources - assessing the financial health

Human resources - assessing skills base, competency base and human capital
Physical resources - assessing the information base and production capability
Intangible resources - assessing brand strength, goodwill, intellectual assets and reputation.
Time resources - assessing how priorities are determined and actioned.

As we have discovered earlier, resources are diverse, complex and often interrelated. To complete a resource audit under this
heading in the SERVO model would of course be the ambition to really be able to assess the resource adequacy to meet
current and future strategy needs.

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VALUES
Values provide the essence of a system of corporate function which conditions and influences employee behaviour.

Values can be both stated, or even mandated, but the real assessment using SERVO is to determine if they are embedded
within the managerial and operating cultures of the organisation. Shared values are often observable, moreover in some
organisations the corporate belief system is visible on a consistent basis. The values, as manifest are experienced both by the
customer as well as the employee. A qualitatitive assessment, albeit subjective, is a useful indicator of how the company
culture is working.

This is essential because culture binds the organisation. Together into a force to produce desired strategy outcomes. This part
of the SERVO analysis is pivotal, because all strategy is only as good as the cohesiveness of the human resource to drive it.

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ORGANISATION
The key elements in the SERVO acronym for ‘ organisation ’ are : -

Culture -- how the company ‘does things’ day to day and the overall organisational climate and work ethics
Leadership -- how the actions and behaviour of top management is visible to deliver the mission of the enterprise
Staffing -- numbers, quality, retention, training in relation to business needs
Structure -- the organisation chart and reporting relationships for decision-making
Systems -- the flow of activities for the firm to function including core processes and support activities

Again this will provide a powerful insight into how the organisation functions.

The visual interpretation of the SERVO model is shown in Figure 6.8 below : -

Figure 6.8
SERV RESOURCES
O

ENVIRONMENT STRATEGY ORGANISATION

VALUES

Figure 6.8 shows that the individual elements are interactive. Therefore as previously mentioned, they should be assessed : -
• independently and then
• interactively
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To assess interactivity, a cross-impact matrix can be used as shown in the matrix below : -

S E R V O
S

This interactivity will assess the extent of the strategic fit between the respective elements currently and then for a future
planning horizon. Cells within the matrix can then be isolated for attention, as appropriate.

The conclusion derived from SERVO analysis will be : -

• A set of apparent strengths & weaknesses

• An assessment of strategic fit
• A review of strategic balance

all of which are vital to help to answer the strategic management question “ Where Are We Now ? ”.

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 In simple terms, Strategic Analysis should discover fact and therefore reduce the need for assumption setting.
Note

Essential Analysis is vital, but an over indulgence in analysing made be less productive and can lead to ‘ analysis paralysis ‘, meaning
that one becomes frozen in the domain of analysing data only and cannot move forward.
Advice

SWOT ANALYSIS

The conclusion of the Internal Environmental Analysis using the range Models for Analysis, Resource, Capability Analysis
and Customer Analysis should enable a thorough evaluation to be made of the company’s INTERNAL STRENGTHS AND
WEAKNESSES.

This conclusion then needs to be combined within the OPPORTUNITIES AND THREATS discovered in the EXTERNAL
ENVIRONMENTAL REVIEW.

This will enable a SWOT Analysis to be achieved, which in turn will feed the DRIVERS FOR CHANGE.

The first 6 sections have been devoted to Strategic Analysis and for reflection as a basis for Strategic Planning. It has been
claimed that a plan is only as good as the analysis to support it because the findings of the analysis provide a rationale upon
which to move forward.

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 Section 6 has been designed to focus upon a number of tools for the strategists toolkit. Each tool offers a set of perspectives which
Summar collectively should provide meaningful inputs into an actionable SWOT analysis from which future steps can be taken in the form o a
strategic plan, the next step being to determine or review the strategic direction of the organisation. This will depend heavily upon the
y quality of the environmental analysis which has been undertaken.

?1. As a customer for any competitive customer experience of your choice, construct the Onion Models
SAQ for competitive advantage and competitive disadvantage for one industry player.
s

What observations have you to make about the layer s of competitive defense ?

Now reflect upon your experience and state how the same company may be competitively
disadvantaged.

2. From the models you have studied, which do you find most useful and why ?

3. In your role as an MBA student addressing your current class, state the key benefits to be derived rom
the SERVO Model.

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 Classical Models
COMB Analysis
COMB Chart
Key
Drivers for change
Terms Industry life cycle
Life Cycle Analysis
Product Life Cycles
Product Portfolio Analysis
SERVO Analysis
The Diffusion of Innovation Model
The Onion Model

• Of the models you have learned about in this section, which would you use in the workplace,, why,
when and how ?
QFR
’s
• Could there be risk from any unintended consequences arising from these steps you propose, and
why ?

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PART 2 STRATEGIC PURPOSE

SETTING STRATEGIC DIRECTION

VISION Section 7 to 8
MISSION
VALUES
CULTURE
CAPABILITIES
POSITION
STAKEHOLDERS

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SECTION 7 SETTING STRATEGIC DIRECTION (1)

TOPICS ● STRATEGIC DIRECTION

● STATEMENTS OF STRATEGIC INTENT

• VISION
• MISSION
• THE MISSION GAP

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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 Introduction

The first part o the study guide has focused upon strategic analysis to provide a sound basis from which to move ahead to
determine strategic purpose. Part Two is devoted to explain how to achieve a clear sense of strategic direction through vision,
mission and core values. This is the essential foundation from which to communicate and achieve an intended future purpose.

Thereafter it is vital to have competencies (or capabilities) to achieve the strategic intentions of the organisation, which will
essentially be achieved by securing a competitive position valued by customers as well as stakeholders.

To achieve strategic purpose, a realisable competitive edge is required delivered with clear leadership an organisational
resilience. Part Two is delivered in this study guide across Section 7 and Section 8, and now we will focus upon setting the
strategic direction so that a clear sense of purpose and focus can be achieved then be communicated and adopted.

STRATEGIC DIRECTION

Strategic Direction is needed to provide focus, direction and purpose for any organisation in order to achieve its corporate and
operational objectives. Employees need this to attach to, internalise and believe in.

Without strategic direction, the company does not have an anchor from which to assemble, align and deploy resources. It is
like a ship adrift !

Strategic Direction has to be inspired, motivated, tracked and guided through sound managerial leadership and hence is one of
the most important tenets of Strategic Management. Page 0
• Strategic Direction is formed by vision and mission, the message from which should cascade from corporate, to
SBU*, to operational levels.

• Vision and Mission is designed to be achieved overtime through the implementation of pre-determined strategies
at each of these levels in the organisation. It is the collective effort of the entire business synergies which is
harnessed to achieve the mission and in turn work towards the future vision.

* Strategic Business Unit

THE STATEMENTS OF STRATEGIC INTENT

Strategic Direction can be achieved by crafting statements of strategic intent which are usually referred to as Vision
Statements and Mission Statements, both of which convey the strategic purpose o the organisation from different
perspectives.

THE VISION STATEMENT

The question often raised is “ What is the Vision Statement and what is it intended to achieve ? ”.

Vision is the aspirational goal of the enterprise !!

ie. The Vision Statement should express what the company “ aspires to be . . . . . ”.
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The Vision is a concise statement of longer term future ambitions and should be a realistic expression of future direction to
inspire employees and other stakeholders.

The essence of a Vision Statement is to be both aspirational AND inspirational to stakeholders to whom this statement of
strategic intent relates.

To be effective vision statements need to be communicated, understood, shared, be credible, be challenging . . . . and be
remembered…. and believed in.
A good Vision Statement needs to be simple in its ideals and yet bind the organisation together to adopt it as an
organisational horizon to be accomplished.

It does not have a precise timeline. The purpose is to galvanise employees and other stakeholders together into a common
longer term ambition.

Consider the following examples.

AMAZON VISION STATEMENT
“ Our Vision is to be the earth’s most customer-centric company ; to build a place where people can come to find
Cas
and discover anything they might want to buy on-line. ”
e

MCDONALDS VISION STATEMENT

“ McDonalds Vision is to be the world’s best quick service restaurant experience. Being the best means providing
outstanding quality, service, cleanliness and value, so that we can make every customer in every restaurant smile. ”
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 TOYS ‘ R ‘ US VISION STATEMENT
“ Our Vision is put joy in kids hearts and a smile on parents’ faces. ”

THE ACID TEST of a Vision Statement is

Note “ Is this statement both aspirational and inspirational ? ”

As a third party, not engaged in the organisation and its working culture, this maybe difficult to assess, especially If the vision is
communicated by a charismatic organisational CEO whom you do not know. However if the vision communicates a future position to be
achieved on a longer term horizon, then it would be deemed to be appropriate.

Tas As an independent third party, source 3 Vision Statements for companies of your choice and apply The
k Acid Test to assess their impact as statements of strategic intent. Now repeat the thought processes as a
middle manager for a key functional business area and consider your assessment again.

A well-conceived Vision Statement will improve the sense of business focus and in this way, all employees are aligned in
strategic intent which builds a team spirit, improves organisational energy and helps to attract and retain employees, if used
properly.

Remember a vision is not a dream, it is an image of the future reality which an organisation seeks to create.

So companies adopt a hybrid approach whereby the Vision and Mission are combined into one statement of purpose with a brand
Note strategy outlined to communicate the business the company is in together with its future intentions.

In this study guide, we will separate Vision from Mission to retain the distinction between each type of statement.
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THE MISSION STATEMENT

The Vision Statement is a statement of aspiration however a Mission Statement is more imperative than the Vision
statement. It is “ the mission to be achieved ” by being in business.

The mission statement answers the question “ What is the business for and what business are we in ? ”. It gives purpose to
the organisation and a belief system for employees ; it also indicates values and culture.

Mission gives direction and states what has to be accomplished to achieve the vision. The mission is the journey to the
vision.

The mission provides a basis for corporate level strategy. Large organisations may have a hierarchy of missions to make
mission statements meaningful and actionable, but all aligned to one vision for the future.

Once you have researched mission statements, you may come to the conclusion that many simply describe what the company
does, but not what their mission is to be achieved. A good mission should state in clear terms what needs to be done to
succeed.

For example, Toyota Mission Statement :

Cas
e “ To sustain profitable growth by providing the best customer response and dealer support. ”

A distinction needs therefore to be made between those companies who merely have mission statements and those who have
a ‘ real mission to accomplish ’. The former may be part of corporate Public Relations to ‘dress’ the business whereas the
latter demands a real ‘sense of mission’.
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 A sense of mission is essential to align employees together to have a real committed belief in the company and what it stands for.
Note

From your own searches, you will realise that there are many types of mission statements. As yet there is no confirmed
formula for writing an effective statement. However the Ashridge Mission Model offers one approach which requires a
mission to have 4 parameters : -
• PURPOSE
• VALUES
• STRATEGY
• BEHAVIOURAL STANDARDS

This is shown more clearly in Figure 7.1.

THE ASHRIDGE MISSION MODEL

PURPOSE Figure 7.1

Why the company exists

STRATEGY VALUES
The competitive position What the company
and distinctive competence believes

BEHAVIOURAL STANDARDS
The behaviour patterns that
underpin the value system
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The challenge of course is then to write a Mission Statement which embodies all these parameters. The result may be something
which is cumbersome and unmanageable, so therefore skill is required to enable any organisation to craft a Mission Statement.

Although there are alternative approaches to building a mission statement, it is suggested that an effective Mission Statement
should demonstrate the following criteria. This will produce a comprehensive statement.

1. The business the Company is in

2. Purpose & Direction
3. The customer needs to be satisfied
4. The Broad Competitive Strategy for delivering customer value
5. A belief system for employees through defined values
6. Technologies utilised
7. Clarity & Simplicity and Ease of Understanding
8. It should capture the organisational culture
9. Be Credible, Sincere, Simple to understand

Tas
k Using the above criteria, assess one of the following Mission Statements : -

Worldwide Mission Statement (1)

ABC will become the acknowledged global leader in the express delivery of documents and packages. Leadership will be
achieved by establishing the industry standards of excellence for quality of service and by maintaining the lowest cost
position relative to our service commitment in all markets of the world.
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Worldwide Mission Statement (2)

The XYZ Motor Company is the worldwide leader in automotive and financial products and services. Our mission is to
improve continually our products and services to meet our customers’ needs, allowing us to prosper as business and to
provide a reasonable return for our stockholders, the owners of our business.

The companies are well-known, but do they really have a mission, can it be understood by key stakeholder groups ?

Consider the following mission from an Asian based Fast Moving Consumer Goods (FMCG) company : -

A Mission for South East Asia

‘Consumer trust is our most valued asset. We believe that we are unique in that our primary emphasis is neither profit nor
competitive positioning. Instead, our goal is to increase consumer satisfaction through useful, innovative products that meet
real market needs. Our commitment to consumers will continue to guide all our corporate decisions.’
By just reviewing these 3 examples, it provides evidence of the ‘state of the art’ of writing mission statements . . . and yet
these are so vital to convey a sense of purpose to stakeholders.

Some further examples which may provide a clearer grasp of the ‘look and feel’ of a Mission Statement are as follows for
DHL, The Red Cross, IBM and Estee Lauder.

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Cas
DHL MISSION STATEMENT
e
‘ DHL enhances the business of our customers by offering highest quality express and logistics solutions based on strong local
expertise combined with the most extensive global network presence. Customers trust DHL as the preferred global express and
logistics partner, leading the industry in terms of quality, profitability and market share. ’

RED CROSS MISSION

‘ The International Committee of the Red Cross (ICRC) is an impartial, neutral and independent organisation whose
exclusively humanitarian mission is to protect the lives and dignity of victims of armed conflict and other situations of
violence and to provide them with assistance.

The ICRC also endeavours to prevent suffering by promoting and strengthening humanitarian law and universal humanitarian
principles. ’

IBM MISSION STATEMENT

‘ At IBM, we strive to lead in the invention, development and manufacturer of the industry’s most advanced information
technologies, including computer systems, software, storage systems and micro-electronics.

We translate these advanced technologies into value for our customers through our professional solutions, services and
consulting business worldwide. ’
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 ESTEE LAUDER MISSION STATEMENT

The guiding vision of The Estee Lauder Companies is “ Bringing the best to everyone we touch. ” By ‘the best’ we mean best
products, the best people and the best ideas. These three pillars have been the hallmarks of our company since it was founded
by Mrs Estee Lauder in 1986. They remain the foundation upon which we continue to build our success today.

TYPICAL PITFALLS

By researching a wide range of mission statements, it is clear that there are typical pitfalls : -
• Confusing Mission with Objectives
• Using Meaningless Cliches
• Differences in Interpretation
• Ambiguity
• Inappropriate and emotive use of language
• Lack of focus
• Good intentions which are not actionable
• Writing Statements which appear like those of their competitors
• A sense of detachment between the company and its stated mission

THE MISSION GAP

As the use of mission statements has developed overtime and with the need to ‘feel’ the mission to be accomplished, it may be
the case that the original mission as crafted and what really has to be achieved is actually different.

This difference can be explained by the term MISSION GAP..

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 This gap, when identified, analysed, and reviewed can then provide a basis for change.

New Drivers for Change can be determined from the mission gap and thereby realignment strategies be determined.

The fact that missions as published, even though inadequate may provide a useful basis for considering the existence of a
mission gap and then provide a basis for deciding how to implement appropriate strategies to reduce the mission gap.

For one of your customers companies, try to find one where the Vision and Mission are being lived as part of the corporate culture to
experience the binding power of these statements.
Advice

Strategic Direction is an essential requirement for the determination of future strategy. A clear sense of purpose is essential and yet,
Summar even though this is understood. Vision and Mission Statements have yet to achieve a level of excellence, adequate to represent the
organisation’s purpose. This seems to be the case for many organisations. Maybe these statements of purpose are under valued, or
y maybe the process of crafting the statements and getting them cleared internally through layers of management so that they can be
released into the public domain results in very safe statements being made.

It is to be noted that organisational leadership and hence business success must be based upon a clear sense of purpose and direction.

?1. Distinguish clearly between a Vision Statement and a Mission Statement. Why are both needed, if at
SAQ
all ?
s 2. Why do company Vision and Mission Statements appear on websites and in company entrance halls,
but may not be known by employees ?

3. In your own terms, defend the value of a Mission Statement as a tool to drive business forward.
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 Strategic Direction
The Ashridge Mission Model
The Mission Gap
Key
Vision and Mission
Terms

• For your current employing organisation or one which you are really familiar with as a customer,
review their Mission Statement and ask the question “ Do I understand this ? ”
QFR
’s

• From your experience, do you have first-hand evidence of the key statements of Strategic Intent
being used to determine or review strategy decisions.

• If you were to have the responsibility to coordinate the writing or re-writing the company vision and
mission statements, who should be involved and why ?

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SECTION 8 SETTING STRATEGIC DIRECTION (2)

TOPICS
● CORE VALUES

● CAPABILITIES

● CULTURE

● COMPETITIVE POSITIONING

● STAKEHOLDERS

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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 Introduction

Section 7 has outlined the importance of Vision and Mission statements and the role these perform in communicating the
strategic intent of the organisation.

This foundation needs to be extended into other key elements which are required to achieve an understanding of strategic
purpose, namely values, capabilities and culture, all essential to build a defensible competitive edge and a secured competitive
position and market standing among stakeholder groups.

Section 8 is intended to complete Section 2 of this study guide to cover the subject of strategic purpose.

Vision and Mission are intended as statements of intent, but to achieve them there must be a system of belief within and across
the organisation which builds cohesion. This is where core values have a vital role to play.

CORE VALUES

Core Values are therefore the basis for a corporate belief system for employees which should influence behaviour standards,
and provide an ‘unwritten’ code of conduct.

Attachment to Core Values is an important element of the operating culture of any organisation. Core Values account for the
way in which business will be conducted to achieve the business mission eg. being customer centric, quality certified, cost
conscious, time responsive, service driven, these values should influence corporate priorities, management styles and decision
making and serve to bind the organisation together.
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Core Values can be mandated, ‘top-down’ when in which case they may become institutionalised. Once again as with some
Vision & Mission statements, they can also ‘look nice’ at the entrance to a company headquarters or on their website !!

The real question to ask is “ Are these core values really felt ? – and are they acted upon, do they really influence and guide
behaviour ”. This is an important test to detect the extent to which core values are linked in the work environment.

Embedding core values will also contribute significantly to corporate Brand Positioning, through the interaction of employees
with customers. This should not be underestimated.

A useful insight into the subject of core values is to know if they emerge from the operating culture or if they are prescribed by top
Note management as expected behavioural norms for interaction with other employees and customers and key stakeholders.

One important question to be raised is : -

“ How are the core values tracked in employee behaviour ? “
Advice
“ How do we know that these core values are working ? ”
“ How do we really know how core values link to organisational performance ? ”
“ How can we ensure that core values guide frontline staff and managerial behaviour ? ”

The reasons for these points of advice is that one needs to search for the sincerity of mandated core values through words, deeds
and actions of staff. It is not uncommon for year-end appraisal interviews with staff to ask for a clear demonstration of how the
core values of the organisation have been practised. The purpose is to simply get a message through that the core values are part
of an actual or implied promise made on behalf of the organisation to its stakeholder groups.
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CAPABILITIES

Capabilities (or competencies) are a core component for business sustainability, providing that they remain relevant for
organisational effectiveness and market place needs.

Competitive differentiation and competitive advantage are secured from core capabilities. Such capabilities need to be leveraged
to drive business values and support shareholder value.

Core Capabilities (or core competencies) enable the organisation’s core business to flourish.

It is useful to periodically track the core capabilities of the organisation to ensure that what they are good at and what they are
known for is still valued.

With the rapid progress of technology and the progressive development of business, the actual competencies required may be
changing. It is for this reason that more enlightened organisations conduct competency audits to determine competency gaps so
that Human Capital Development plans can be re-designed and implemented. It is not uncommon for companies to experience
strategic drift whereby customers move away (or defect) because the core competencies applied to deliver meaningful outcomes
for customers may no longer be relevant.

CULTURE

Culture may be defined as the ‘glue that holds an organisation together’, or in more simple terms “ the way we do things here
!! ”

To examine this more closely, the classical work of Johnson (1992) attempts to explain the complex cultural web of the
organisation, through which, vision, mission and different levels of strategy is achieved.
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The model accounts for the existing paradigm or mindset of assumptions commonly held about the business.

To show how these values and beliefs are reinforced, the following dimensions proposed by Johnson are helpful : -

• Rituals and routines -- procedures for doing things

• Stories -- success, failure, grapevines, gossip
• Symbols -- logos, status symbols, technical language, language hierarchy, managerial layers
• Power structure -- decision-making, power distribution
• Organisational -- formal / informal reporting structural relationships
• Control systems -- measurement and rewards systems

As shown below in Figure 8.1.

THE CULTURAL WEB (JOHNSON, 1992)

Stories Symbols Figure 8.1

The
Paradigm Power
Rituals and
Structures
Routines or
Mindset
Control
Organisational
System
Structures

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 An interesting application of the Johnson Model is : -
Note 1. To examine the existing position
1. Project the desired position
2. Identify & prioritise the gaps which then emerge
3. Decide how (if at all) culture can be changed to achieve the future desired position

Culture is experienced as part of everyday organisational life, but it is hard to explain, to define and to share with others. In this
way, Johnson has made a useful contribution to the literature.

As an employee joining a new organisation as part of a career move, the choice of organisation is important, also in a tight employment
market where a career move may not be easy, the tendency maybe to take the position as a challenge.
Advice

Research shows that people making career moves may not be entirely happy and look for yet another move in a relatively short period of
time. Why is this so ? . . Simply because of the clash of cultures between the former employer and the new organisation. It is important
to know the cultural norms of the organisation you may be joining. For example, consider the difference between working for, say a
Swiss-based multinational and an American-base multinational where corporate culture difference could be vast !!

Corporate Culture translates into the Customer Experience ; Customer Experience drives business futures !
Note

COMPETITIVE POSITIONING
Positioning is commonplace management vocabulary which often assumes that a company can decide where it wants to be. This
may be a virtuous intention, but the reality is that the marketplace is competitive and that the customer will eventually decide
how the company is really positioned.

However, to set strategic direction requires that the company management is clear about both the intended and the secured
position it has achieved in the competitive market place.
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One challenge to be accepted is to discover how ‘the customer’ really positions the company and not just how the company
‘wants to position itself’. Periodic research is really required to determine fact about current positioning to avoid basing future
strategy on assumptions.

Competitive differentiation is of course at the heart of positioning, and therefore understanding the dynamics of competitive
advantage is essential. Again these must be seen from a valued customer perspective, from outside-in, not inside-out.

Strategy for positioning is targeted at ‘the customer’ and therefore a customer-centric approach is needed when considering any
Note dimension of competitive positioning.

You must also know your competitors very well !!!

Note

“Know the enemy and yourself and you will win 100 victories in 100 battles. Know yourself and not the enemy and you may
win or lose a battle. Do not know either the enemy or yourself and you will surely lose the battle.”
-- Sun Tsu --

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Whether the company (and its brands) are in a leadership, follower, or challenger position, in the market place, competitive
positioning is derived from perceived value. These values, both tangible and intangible, are associated with an identity.
This identity is the anchor for competitive positioning. To reinforce a critical message on positioning, this identity is defined
by the customer, not the company because positioning is really decided in the ‘mind of the buyer’ !

To use a simple model (Figure 8.2), the essence of competitive positioning can be explained as follows : -

RELATIVE
POTENTIAL FOR COMPETITOR SUSTAINABLE
LOST BUSINESS OFFERINGS DIFFERENTIATION
FROM THE
COMPETITION

SECURED
POSITIONING
CUSTOMER NEEDS, WANTS, COMPANY CAPABILITIES
VALUES & EXPECTATIONS & IDENTITY

RELEVANT, SUPERIOR Figure

PERCEIVED VALUE 8.2

Competitive positioning when successful, will achieve the strategic intent of the enterprise and in turn progressively deliver mission and
vision. In this way the strategic direction can become secured.
Note

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Competitive positioning is secured in the mind of actual and potential buyers, but to achieve a ‘competitive edge’ may need to
be thought through in a more scientific manner as shown in Figure 8.3. This shows that the route to achieving a competitive
edge is based upon the organisations core capabilities, values and competencies to source and sustain competitive
advantage from within the organisations value chain.

This foundation then must align with the customer value chain of expectations..
Note

This alignment then needs to be adequately resourced and periodically monitored for continued relevance.

Advice ACHIEVING COMPETITIVE EDGE

1.
CORE CAPABILITY
8. Figure 8.3
(BUSINESS STRENGTHS & 2.
MONITORING THE CONTINUEDEFFECTIVE STRUCTURE) CORE VALUES
RELEVANCE (THE BELIEF SYSTEM TO GUIDE
(FEEDBACK & REVIEW) BEHAVIOUR)

7. 3.
RESOURCING THE VALUE CHAIN OPERATIONAL COMPETENCE
LINKAGES (eg. TRAINING & ORGANISATIONAL
(RELATIONSHIP & DELIVERY DEVELOPMENT)
BONDING)
6. 4.
LINKING THE COMPANY SOURCES OF COMPETITIVE
VALUE CHAIN WITH THE ADVANTAGE
CUSTOMERS (SYNERGISE 5.
(APPLY PORTERS VALUE CHAIN)
VALUE LINKAGES) SUSTAINING THE COMPETITIVE
ADVANTAGE
(TRACKING STUDIES + SUSTAINED
A competitive edge will only be ‘an edge’ if it is defined and confirmed by prescribed groups of customers, known as market segments.
RESOURCING)
Note Evidence of market share gains are a reinforcement that the competitive edge is valued, relevant and sustainable.
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STAKEHOLDERS

Strategic direction will be reviewed by a wider audience then is often acknowledged, and hence the term given to these groups
of people is STAKEHOLDERS.

They are the people and organisations who have an interest in your company’s performance !!!

Stakeholders may have power and influence, both directly and indirectly, therefore a strategic management mindset will
always consider stakeholder groups which will include : -

• Customers • Creditors • Competitors

• Equity shareholders • Local community • Industry Associations
• Employees • Legal and voluntary bodies • Unions
• Suppliers • Government • Charities

One significant challenge for strategic management is to balance the organisations deliverables in order to meet different
stakeholder expectations.

Organisations today are striving to live up to financial, regulatory, quality, social and environmental responsibilities and
therefore must now take into account stakeholder interests in crafting a range of complexity of strategies to deliver shareholder
value.

It is essential that key stakeholder groups are known and that appropriate relationships are mentioned with them, so that a climate of
Note informed option about the organisation is retained by stakeholders. The power to influence strategy exerted by stakeholder groups cannot
be ignored or underestimated.

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 Section 8 has been the concluding part of the subject for Setting Strategic Direction, all required to deliver Vision and Mission to key
Summar stakeholder groups.
y The importance of core values cannot be underestimated, core capabilities and competencies at all levels cascading down the
organisation from strategic to operation levels are required to be synchronised to achieve meaningful and measurable outcomes. This
can only be achieved within an operating culture which is purposeful and productive so that a sustainable competitive edge can be
enjoyed in the market place that will produce targeted shareholder returns.

Part 2 of this study guide has now dealt with the building blocks of Strategic Purpose, it is now time to move ahead to focus upon the
strategic options available to achieve the Vision, Mission and Corporate Objectives.

? 1. One well known international bank has the following core values : -
SAQ ● Trust ● Boldness
s
● integrity ● Honesty
● Fairness ● Responsiveness

• Why and how would the strategic management of the bank at board level expect these values to be
adopted ?

• How would employees and customers know they are really adopted ?

• What do you think these values mean to employees at different levels of the managerial hierarchy
?

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 2. To reinforce your understanding, select one of the following and account for how the ‘product’ is
currently positioned :
• London as an international tourist destination
• The Economist as a weekly business magazine
• The Blackberry as a business device

What has to be done to (1) maintain market position ?

(2) improve market share ?

3. Assume that you have to set the strategic direction for an emerging country in either Asia, Africa or
South Africa in your capacity as a strategy advisor to the Prime Minister of your chosen country, who
would be the key stakeholders that this new direction must appeal to ?

Business sustainability
Capabilities (or competencies)
Competency audits
Key Terms
Competency gaps
Competitive advantage
Competitive differentiation
Competitive edge
Competitive positioning
Core values
Corporate Brand Positioning
Culture
Customer perspective
Customer value chain of expectations
Operating culture

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 Organisational effectiveness
Shareholder value
Stakeholders
Key Terms

1. In your role as a manager, can you recall when and how core values have been used or : -
QFR • Managing up to superiors
’s • Managing down to subordinates
• Managing relationships with customers
• Reinforcing relationships with business partners

2. Can you recall evidence of where your own style of managing does not achieve an effective cultural fit
with the prevailing operating culture of the organisation, why was this so ?

3. How can organisations ensure that competencies are relevant to customer needs ? Is it inevitable that
there will always be a competency gap, and if so, why ?

4. From your experience and knowledge, why do market leaders sometimes lose their leadership position
?
5. How do stakeholders claim their stake ?

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PART 3 STRATEGIC OPTIONS

STRATEGY DETERMINATION Sections 9 to 11

BLUE CLASSICAL BUSINESS

OCEAN STRATEGY GROWTH
STRATEGY OPTIONS STRATEGY

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SECTION 9 STRATEGY DETERMINATION -- STRATEGY OPTIONS

TOPICS ● CORPORATE OBJECTIVES

● STRATEGY OPTIONS ACCORDING TO

* ANSOFF
* PORTER
* MINTZBERG

● ORGANIC GROWTH

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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 Introduction

Parts 1 and 2 have been devoted to answering two important questions ; “ Where Are We Now ” and “ Where Do We Want
To Be ? “. Hence time has been devoted to Strategic Analysis and Setting Strategic Direction.

The next significant step is to consider alternative ways to achieve the intended purpose. Part 3 is focused upon Strategic
Direction. It will consider firstly the setting of Corporate Objectives as time-based ambitions to be achieved in order to deliver
Vision and Mission. Thereafter the various alternative means to achieve these objectives must be reviewed. It is at this stage
that the reader will be introduced to the classical work of Ansoff, Porter and Mintzberg to lay down some essential
foundations. The routes to growth, including organic growth and strategic alliance will also be explored.

The intention in Part 3 is to open up options as routes for future strategy determination and justification.

CORPORATE OBJECTIVES

The Statements of Strategic Intent, supported with embedded core values and acknowledged competitive positioning provide
an essential and sound foundation for strategy development. This cannot be ignored.

The critical linkage is a set of corporate objectives , which specify WHAT is to be accomplished and BY WHEN, in well-
defined, simple terms to be easily communicated and understood by all concerned.
Corporate objectives will normally be specified as QUANTITATIVE and QUALITATIVE OBJECTIVES, whereby the
former will relate to financial performance, the ‘hard’ aspects of business and the Qualitative objectives, the latter relating to
the ‘soft’ part of the business.
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Both types of objectives are interdependent and must be capable of being delivered within time and other resource constraints.

These objectives are the basis for assessing performance, provide a sense of focus upon what is to be achieved and in turn pull
the organisation together into a cohesive force.

Corporate objectives therefore must be SMART Objectives, ie.

• Specific, not ambiguous
• Measurable, not woolly
• Attainable , not vague
• Realistic, not wishful thinking
• Time Bounded, infinite terms by month, quarter or years

In this way SMART objectives are set so that they can be managed. Of course, they then provide a platform for crafting
strategy and for making strategy adjustments as required. Objectives are the basis for achievement and therefore provide an
essential mechanism against which actual attainment can be assessed progressively.

To achieve these objectives, various alternative routes must be determined, these are known as strategy options, some of
which will now be outlined.

STRATEGY OPTIONS

The conventional approach to Strategic Management is to consider options and then from these options a choice is made
upon the best way forward. Any approach to business options to therefore be assessed with care.
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There are a number of classical approaches to offer strategy options. This module will consider 3 important but distinctly
different approaches namely : -
• THE ANSOFF MATRIX
• THE PORTER APPROACH
• THE MINTZBERG APPROACH

The ANSOFF Approach (Figure 9.1) is a conventional four box model, which outlines four potential strategies for business
development and growth to secure a sustainable future.

1. MARKET PENETRATION
2. MARKET DEVELOPMENT
3. PRODUCT DEVELOPMENT
4. DIVERSIFICATION Figure 9.1
PRODUCT / MARKET GROWTH
MATRIX
Existing PRODUCTS / SERVICES New
Existing
1 MARKET PENETRATION 2 PRODUCT / SERVICE DEVELOPMENT

• Withdraw • New to the world

• Consolidate • New to the territory
• Produce / Build

3 MARKET DEVELOPMENT 4 DIVERSIFICATION

MARKETS
New • New Territories • Related Markets
• New Segments • Horizontal or Vertical Integration
• New Users • Unrelated Markets

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 1 MARKET PENETRATION strategy is used to capture more market share from an existing product portfolio within
existing markets served. In simple terms, this is designed to get more buyers to purchase more and/or more frequently.

2 MARKET DEVELOPMENT strategy uses the existing product portfolio, but now the business is focused at new
markets. In fact this strategy is designed to create new market segments and in so doing, broaden out the market base.
This will reduce risk and gain more market coverage.
3
PRODUCT DEVELOPMENT strategy is an innovation strategy to widen or deepen the existing product portfolio and
sell this increase product provision to the existing customer base.
4
DIVERSIFICATION is achieved both within and also beyond the existing experience and technology base to provide
the 4th, but highest risk strategy.

The Ansoff matrix has been used in this classical format for many years, in fact since the 1950’s, but the reality today is that
companies may combine Ansoff strategies to produce a hybrid strategy.

For example, product development and market penetration could be working at the same time. Market penetration and market
development could also be the same case.

If the Ansoff matrix is viewed as a combination of strategies for business growth, rather than independent options, then a more
sophisticated approach can be actioned. Moreover it presents a powerful, easily understood formula for business development
strategy.

The Ansoff approach is classical, well-known, commonly accepted and useful particularly to those in search of market
extension and growth strategies.
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THE PORTER APPROACH
Some years after the work of Ansoff became known, Michael Porter produced a simple framework of his ‘Generic Strategies’.

PORTERS APPROACH OFFERED THE FOLLOWING STRATEGIES :

SF
1
Cost Leadership (CL)

?
2
Segment Focus (SF)
3
Differentiation (D)
CL D

His approach known as Porter’s Triangle argued that competitive advantage can either come from a cost advantage or by
being distinctly different, thereafter with either one or both of these strategies, strategic focus to well-defined segments is
needed. In this way, the ‘scope’ of the strategy in terms of market reach can be known and be planned for.

Porter’s approach has been used widely. Of course if any business can achieve all these strategies combined, then this is the
‘best case’ strategy scenario.

McDonalds Fast Food Chain adopts cost leadership which allows price to be controlled to produce and then in turn a
significant price advantage in the fast food restaurant market.
Cas
e
The business is also may well focused into defined segments. The product as well as the brand are well differentiated.
In fact McDonalds have accomplished all 3 points on Porters triangle. In this way McDonalds is a living example of
how competitiveness can be preserved.
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According to Porter, for companies not able to make a choice between his 3 generic strategies, they will be ‘stuck in the
middle’ and be going nowhere possible because they are not aware of how to make the next move.

Of course this will really depend upon the nature of the competitive rivalry within the defined industry. It is the intensity of
competition which drives the need for using the Porter Triangle. In commodity based markets, such an approach may be more
challenging to use.

However, the ideas behind Porters Generic Strategies are helpful, clear, easy to understand and workable in many market
contexts.

Tas Take 3 of the following industries and then select the market leader in your country of origin, then see to
k what extent Porters Triangle of Generic Strategies is working :

• Supermarkets • 4-star Hotels • Local banks

• Laundry services • Car hire • The National Airline
What are your observations, and where do you feel these generic strategies could be better deployed and
why ?

MBA studies can often achieve more insight and application potential by combining concepts, rather than treating this independently,
Note consider the following example : -

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COMBINING PORTER, ANSOFF AND SWOT

By combining Porter, Ansoff and SWOT, the following derived strategies can be identified :

• An Aggressive Strategy – cost leadership + market penetration, leveraging on strengths to pursue opportunities

• A Competitive Strategy – differentiation + market / product / service development with more leveragable
strengths than major competitions

• A Conservative Strategy – segment focus + niche market penetration to consolidate strengths into a superior
position in the market where few threats are present or anticipated

• An Exit Strategy – diversification into new markets because little potential exists for current business and
where weakness and threats far exceed actionable strengths or current market opportunities

You will now realise that not only is there an explanation of these types of strategies but an underlying rationale for them.

THE MINTZBERG APPROACH

The Mintzberg approach is distinctly different and is more focused upon CORE BUSINESS by prescribing how core business
strategies can be represented in the belief that core competencies should support core business and provide core income.

Mintzberg deals with :

1 LOCATING CORE BUSINESS
2
DISTINGUISHING CORE BUSINESS
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 3 ELABORATING CORE BUSINESS
4
EXTENDING CORE BUSINESS
5 RECONCEIVING CORE BUSINESS

1 Locating Core Business will depend upon the exposure, history and heritage related to the lifecycle stage that the company is
in within its defined industry.

Core business maybe located upstream, mainstream or downstream depending upon where the main business volume is
based, (and probably has been originated from).

2 Distinguishing the Core Business will include ensuring that the business can define, acknowledge and retain superior
competitive advantage by using viable sources of competitive advantage that are associated with business functions which
deliver value to the customer. One way to achieve this is to search for competitive differentiation within the structure of the
company’s value chain. It is also appropriate to look for other ways of distinguishing the core business by using strategies for
differentiation. This can be achieved in at least six basic ways : -

Price Differentiation - this is the most basic way to achieve product differentiation but price alone may not
provide depth in the longer term

Image Differentiation - this is achieved through branding where brand values attract customer affinity

Support Differentiation - this is achieved by using value added support services which usually are perceived as
being substantial in comparison to other competitors
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 Support Differentiation - this is achieved by using value added support services which usually are perceived as
being substantial in comparison to other competitors

Quality Differentiation - this is achieved through, for example product features or raw materials used,
packaging and functionality

Design Differentiation - this is achieved through distinctive design and uniqueness

No Differentiation - this is simply a ‘do nothing’ approach which can work if the market is large enough

Mintzberg has made a substantial contribution to Strategic Management thinking in the use of core business as a source of
diferentiation.

You may recall, time and time again that under conditions of recession, market decline, intense competition and market
uncertainty that one of the first thoughts of top management is to

“ return to our core business ”.

The question to ask is “ Why ? ” What is in the core business which may provide the recipe for survival. The answer must be
attributed to differentiation, but today this cannot be treated as assumption. It must be known, substantiated fact that the core
business will still remain relevant to core customer groups !!

Yet further ways of achieving competitive distinction is to have strategies for scope which is also often known as market
reach. Approaches to scope would be for example : -
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 • UNIVERSAL, where ‘one size fits all’. This is difficult to achieve but Henry Ford’s Model T did achieve it !

• SEGMENTATION, where the possibilities are diverse, but it is normal business practice to use segmentation strategies.
• NICHE STRATEGIES, where the focus is upon one defined segment and have the intention to dominate it.

• CUSTOMISATION, where each customer represents a unique segment and has a product tailored to meet special needs
or be customised from scratch, in which case the strategy is for pure customisation.

Most companies will have a selected strategy for scope but many large organisations may have a combination of approaches working in
Note different business locations, usual based upon the stage of business development and the associated business / industry life cycle.

3 Elaborating the core business can be achieved in a number of ways.

The most useful framework here is to apply some of the ideas which are in the Ansoff Matrix, namely : -

• Penetration Strategies
• Market Development Strategies
• Product / Service Development Strategies

Each of these strategies or a combination of them, known as a hybrid strategy (which we have discussed previously), can
be used in Mintzberg’s terms to elaborate the core business and thereby achieve growth.

Please note that any diversification strategy, normally contained within the Ansoff framework is not included as core business, unless
Note independent businesses is subsequently formal from which business can and does flourish..

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4 Extending the core business is intended to take organisations beyond their core business in order to achieve development
and growth. This can be achieved in a number of ways.

• VERTICAL INTEGRATION By moving the business upstream, known as backward integration or

downstream known as forward integration. These forms of core business
extension are designed to be applied within the current operating value chain of
the business.

• HORIZONTAL INTEGRATION Is achieved by extending the core business to parallel operations, but not in the
same value chain of operations. It is a form of diversification.

• DIVERSIFICATION Refers to business extension, beyond the current operations, but may be related
to some distinctive competence or asset of the organisation. Where
diversification is related in some way to the core business, it is termed
CONCENTRIC DIVERSIFICATION.

Unrelated diversification also extends the core business beyond existing

experiences and technologies and thereby the organisation may become
conglomerate in design.
• INTERNAL Horizontal, vertical integration and diversification can be achieved either by
DEVELOPMENT internal development or by acquisition. The strategy decision will depend upon
ACQUISITION & policies for ownership, control and level of acceptable risks.
STRATEGIC ALLIANCES
Forms of Partnership, Joint Ventures, Licensing, Franchising as well as Purchase
of Equity via acquisition represent some of the viable options. Page 0
 • ORGANIC GROWTH Organic growth is one form of Internal Development which uses the core
competencies as an existing resource base. Thereby, this also creates a culture
to pursue the ‘strategic intent of the business’.

The following methods can be used to support organic growth.

1. Customer Relationship Management (CRM) systems and Supply
Chain Management (SCM) systems
2. Investment is sustained in core competencies
3. Following or influencing quality standards to drive quality
excellence
4. Creating a learning organisation culture
5. Building strategic alliances
6. Human Capital Development and Talent Management for
internal company deployment
5 Re-conceiving the core business will arise when the combination of the above strategies has produced a lack of focus for
the business as a whole. Then, there may be a need to reconfigure the business, redefine it and essentially re-conceive it.
There basic approaches are : -

1. BUSINESS A redefinition may be achieved by product, by service or by customer need.

REDEFINITION Sometimes a creative redefinition is used to inspire and re-motivate management,
STRATEGY for example when a government corporation becomes privatised and the need for a
change management programme may in fact require business redefinition, so that
the CONCEPT OF THE BUSINESS can be realigned to achieve marketplace
relevance.
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 • CORE RELOCATION It may be necessary to relocate the ‘centre of gravity’ of the core business simply
STRATEGY because there has been a ‘strategic drift’ in the market, in which case the core
business may have to move upstream or downstream or even look for geographic
relocation. It is also possible that the core business has seen a forthcoming sunset
on the horizon and there is a need to look for a new core business location.
Thereby ultimately there will be ‘new rules of the strategy game to learn’.

? 1. Take one of the following companies and apply the Ansoff matrix to determine the strategy options
SAQ employed and also to show areas for potential development ?
s
* Audi Automobiles
* A Budget Airline of your choice, eg. Ryan Air, Air Asia
* A range of cosmetics for ladies, eg. Estee Lauder, Clarins, Bobby Brown
* Kodak
* Samsung
* Nike
* Evian

What are your observations from the assessments you have made.

2. Using porters 3 generic competitive strategies, assess the extent to which these apply in any of the
examples cited in question 1.

What therefore are your observations.

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 3. Define the core business for one of the following and then explain how this core business can be leveraged, if at
all.
• The City of Davos in Switzerland
• HSBC
• Mercedes Benz
• Formula One as an event
• Any national utility company
• Dubai

Aggressive
Ansoff
Business Redefinition Strategy
Key
Competitive
Terms Concentric Diversification
Conservative
Core Relocation Strategy
Corporate Objectives
Cost Leadership
Customisation
Design Differentiation
Distinguishing Core Business
Diversification
Differentiation
Elaborating The Core Business
Exit
Extending The Core Business
Generic Strategies
Horizontal integration
Hybrid strategy
Internal development
Image Differentiation

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 Organic Growth
Locating Core Business
Niche Strategies
Key Terms
No Differentiation
Price Differentiation
Porter
Product Development
Quality Differentiation
Reconceiving The Core Business
Segment Focus
Price Differentiation
Product Development
Quality Differentiation
Reconceiving The Core Business
Segment Focus
SMART Objectives
Strategic Alliance
Strategies for scope
Strategy Determination
Strategy Options
Support Differentiation
The Ansoff Matrix
The Mintzberg Approach
Vertical integration

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 1. Using this section, reflect personally upon your current career position to determine the next
strategic moves to be made, why and how.
QFR
’s
2. Could the Ansoff Matrix be used to determine quotas for sales ? If so, how and over what realistic
timescales.

3. If the core business is diminishing, what are the strategic options open to put business back on track.

4. How can Porter and Mintzberg add value to your managerial judgment in assessing future strategy
options.

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SECTION 10 STRATEGIES FOR BUSINESS GROWTH

TOPICS ● GROWTH AMBITION

● THE IDEAL CONDITIONS FOR BUSINESS GROWTH
● SOME TRUISMS ABOUT GROWTH
● GROWTH AND ENTREPRENEURSHIP
● GROWTH MARKETS
● GROWTH VALUES
● GROWTH MISSION

● THE GROWTH PROCESS

* GROWTH DRIVERS
* GROWTH ENGINES
* THE 80 / 20 RULE

● THE RATE AND PACE OF GROWTH

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SECTION 10 STRATEGIES FOR BUSINESS GROWTH

TOPICS ● SUMMARY
● SELF-ASSESSMENT QUESTIONS
● KEY TERMS
● QUESTIONS FOR REFLECTION

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 Introduction

Growth is a perennial objective, it is an obsession with most organisations, the ambition is always to grow bigger in the belief
that growth will deliver improved returns. It is for this reason that the subject of growth is devoted to one section of this course
unit so that growth can be defined, determined, discussed and detailed for the student to realise source of the key decisions
attributed to this important subject.

GROWTH AMBITION
At the most basic level, the growth ambition is part of most business organisations, simply because shareholder value is
expected to grow, year on year and also in the belief that growth is achievable. This notion assumes there are no limits to
growth, but from a rationale perspective, can this be so ??

Sound principles behind strategic planning is that is should focus upon controlled growth, whereby planned growth is
forecasted into a future time horizon.

This is the normal convention as would be expected, but a more creative way to approach growth is to accept that it has
already happened and then ask the question

“ What must we have done to get here ? ”

Then by logical deduction, a growth plan will emerge, in fact more easily than following the conventional approach.
When seeking the path to growth, there are two approaches which therefore can be applied, the route to the future OR working back from
Note the future as it has been foreseen.
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 A FOUNDING PRINCIPLE FOR GROWTH

Once the route to growth has been formulated, by whichever approach works best, the founding principle to achieve growth
is

Concentration, Concentration AND Commitment to Concentration

There must be a clear focus for growth to achieve growth and it is essential to remain focused.

Advice

From the literature, it is claimed that growth has a lifecycle effect. This notion in fact is already well understood, but lifecycles
today are really getting shorter and therefore the time boundaries for growth and for profits to be realised are reducing --- all
as a result of the intensity competition, incremental globalisation and the need for innovation.

Within the traditional shape of ‘the lifecycle’, a rate of growth can be visualised, but it is difficult to forecast. It is however a
fact of life that growth comes to eventual decay. Every growth curve has a genetic code for decline, its just a matter of time. In
planning for growth, one therefore must factor into the growth equation a rate of decline so that the returns from a growth
strategy can be optimised, as far as this is possible.

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 Tas For a product or service familiar to you, check the rate of earnings under the product lifecycle in
k relation to sales. You will realise that in fact sales can continue to climb, but profits decline earlier as the
market becomes more sensitive to price as well as to competition which invades the market territory.

What therefore are the ideal conditions for business growth ?

This will be of course a common question, and of all the answers were known, then all business would flourish. Such
conditions would be are a business utopia and may rarely be achieved. Nevertheless it may be useful to simply explore the ideal
conditions for growth in order to realise the challenges attached to them namely : -

• Effective Empowerment of Managerial Talent as a reality

• A ‘blue ocean’* where business is located in ‘unchartered waters’ ie. where nobody else has ventured yet. Moreover,
the search for Blue Oceans will be continuous.

• A high volume of customer enquiries and repeat orders to ensure targeted customer acquisition and effective customer
retention. The need to win business and then retain it is of paramount importance.

• Where business growth is independent from the economics of market performance, this can be achieved by trendsetting,
invention and innovation.

• Where net profit is a high percentage of sales.

A monopoly position in the mind of the market, so that this unique place will claim dominant ‘mind share’.
* Blue Ocean Strategy is discussed in Section 11.
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 This list of conditions of course is an unachievable ideal, but for most businesses thinking about such requirements does help to create a
Note future vision ! Such mechanisms can be useful for brainstorming future growth strategy.

Of critical importance is that there must be a belief that growth can be achieved. Therefore the culture of the business must
value growth, live, breathe and digest growth and celebrate it.

Growth has to be driven, engineered and then have growth strategies aligned to maximising asset utilisation, achieving new market
opportunities consistently and with a commitment to emergent growth technologies. This is a substantial undertaking where growth energy
Advice is the pre-requisite to success.

SOME TRUISMS ABOUT GROWTH

The following statements are worthy of reflection. There may be inherent wisdom embedded in these statements from which
new managerial perspectives can be inspired.

To grow, find a customer to grow with.

Existing market share may give too much confidence about future competitive positioning.

As a business matures, progressive competitive advantage may face erosion.

A pre-occupation with return on investment diminishes the return from growth.

Business ‘ As Usual’ is safer

As an industry approaches commodity status, new business growth will be supressed.

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 Tas
k
Devote some time on reviewing these statements. They may provide new insights to the growth agenda.

GROWTH AND ENTREPRENEURSHIP

As will by now be appreciated, Growth and Entrepreneurship go hand in hand together. It is useful therefore to reflect on the
qualities of the entrepreneur which make them different !! Entrepreneuers are : -
• More open
• More adaptable
• More inspired
• More energised
• More committed
• Faster
• Ready to do new things
This is the psyche of the entrepreneur, because growth to entrepreneurs is a quantum leap in revenue and profit.

To the Entrepreneur, growth must be accelerated. Those with an entrepreneurial drive will know that growth comes from
customers, therefore the dedication to customer growth is the number 1 priority.

The logic is simple “ IF we grow our customers, our customers will grow our business ! ”
Note

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 GROWTH MARKETS

Before customers are found, a market has to be identified, defined, profiled and estimates are needed for its value, volumes
and lifecycle. The challenge facing business today as well as entrepreneurs is “ How can we locate a Growth Market ? ”

Markets are made up of customers with money to spend and as inclination to buy. Therefore to achieve growth, businesses
must be attached to growth markets.

It is the market that will grow the business, the business cannot grow itself.
Note

To grow, we must attract and hold customers who will grow with us. The message is clear, have to grow the customer base to grow the
business..
Advice

For example, in Business to Business Markets, if we help customers to reduce cost, improve margin and generate increased
revenue, they achieve growth and so we grow with them. Thus a ‘partnership model’ with customers can be one route to
sustainable growth, using a simple ‘ win-win ’ approach.

To succeed in this partnership approach, our customers must therefore see us as one, if not several of the following : -
Note
• solution provides -- not just supplying products
• business growers -- not just vendors
• profit suppliers -- not just selling goods & services
• growth experts -- not just manufacturing experts

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This in turn means that we MUST KNOW OUR CUSTOMERS WELL, in fact better than they know us ! This is in itself an
interesting notion !!

To make this approach to growth work, it is important that we have : -

Customers who really want to grow

Customers who want us to grow with them
Customers who will allows us to grow through them
Customers who will value this type of partnership in growth

Market Segmentation becomes vital in this process, but if that we can really participate in customer sales growth, the potential
to dominate selected segments can become a reality.

GROWTH VALUES

As a business growth strategist, our values must be to : -

1. Support customer growth
2. Bring incremental profits to customers
3. Quantify results
4. Drive partnerships
5. Know the business growth of our customers
6. Add tangible value to customer operations
7. Enhance market profitability

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Our own ambition for growth as a business needs 3 clear imperatives : -

These are interpreted internally and from a customer perspective. Furthermore, these values are deeply embedded.

How Much ?

How Soon ? How Sure ?

These questions must be interpreted internally and from a customer segments perspective.

GROWTH MISSION

The dedication and purpose of most business is a commitment to growth, in the belief that growth will deliver sustainability.

A well-conceived growth mission combines growth values into an organisatonal growth culture which is designed to align with
growth markets through the resources to deliver growth. A mission for growth, therefore it has to be :
• Customer oriented
• Customer centric
• Customer driven
• Customer derived
From these customer based organisational imperatives, the outcome is incremental shareholder value. In the same way,
shareholder value can be a significant driver for the achievement of a growth mission.
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THE GROWTH PROCESS
Growth has so far been defined in terms of a functional ambition but a further perspective of growth is to treat growth as ‘a
process’.

This means that we must know what is driving growth, the engines which support the momentum for growth and to realise that
there are simple rules from which to discover more about the process of achieving growth.

Growth Drivers

The real growth drivers are people ; people with an entrepreneurial mindset.

To drive growth, you will need to grow entrepreneurs to build new business futures. This means that talent management
programmes will be needed for entrepreneurial managers who in turn will need to build teams of business builders to build
markets with a strong profit motive as the prevailing mindset. In fact the growth drivers will be corporate entrepreneurs.

Corporate Entrepreneurship can be learned by following a series of strategies for leadership and for managing.

Within your employing organisation, can you identify the corporate entrepreneurs ? Where are they
Tas located in the organisation structure and what are the implications o your findings.
k

Corporate Entrepreneurship is in fact a relatively new term as it implies that this talent already exists within the company. It
may also mean it has not yet been fully realised, unless the company has existing talent management programmes in place
for identified corporate entrepreneurs.
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Corporate Entrepreneurs, require knowledge and application for :
• Growth leadership strategies

• Management leadership strategies

Growth Leadership Strategies

Good corporate entrepreneurs will lead from a customer platform. They should lead customers through sustainable, incremental
growth pathways and thereby leading their business by leading customer-based growth strategies.

From a business perspective, such approaches to growth leadership, needs to be undertaken with a lean team adopting a policy
of profit optimisation through win-win outcomes. The essence of this is to build trust and strong bonds with customers again
working in partnership.

Management Leadership Strategies

Recognition of successful leadership will usually come from the profit the business generates.

This is the reality of business. Achieving such profit is usually through an attachment to ‘an identity’ which is acknowledged
and accepted in the marketplace. Brand building is therefore an essential management leadership strategy. Leveraging brand
values is a certain way to secure market recognition and then in time, market dominance together with the profit which is
associated with market share gains.

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Engines for Growth

Growth drivers must have Growth Engines to be able to participate in the growth race or even the competitive growth marathon.

How can the growth engine therefore be fired up ?

The following are examples of strategic moves which can be employed : -

Change cost centres to profit centres to modify mindset towards profit generation
Leverage the companies asset base to increase efficiency
Start Development Programmes for in-house entrepreneurial talent to groom people into a team to grow the business
Set up a holding company structure with right-sized subsidiaries to improve decision taking and market timing
New joint-ventures and strategic alliances to create new partnerships for growth
Invest in partnerships for shared risk and reward
• Establish a business development division or company dedicated to new business only with main board/top
management access
Extend the business through adequate, relevant resourcing

Even with these simple, but effective changes, the momentum of the growth engine will accelerate.
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 The 80 / 20 Rule

The work of Pareto is classical, even clichéd . His 80/20 rule has been proven time and time and time again. 80% of customers
deliver 20% of profit, but 20% of customers produce 80% of profit. So if we are driving future growth ambitions, where does
growth opportunity reside ?

It may be worth segmenting the 80% customer base to search for business growth through the customers customer !

However profit will come from high unit margins and premium prices, whereas business volume is the multiplier for growth,
so entrepreneurial business will need both.

Almost certainly the search will be for the 20% of customers who will deliver 80% of future profits.

It may be worth segmenting the 80% customer base to search for business growth. Even reviewing your customers’ customer may open new
Advice avenues for growth.

It is necessary to realise that surer profits will come from high unit margins and premium prices. BUT, business sales is the
multiplier for growth.

Almost certainly the search initially will be for the 20% of customers who will deliver 80% of future profits, which is the
normal use of the 80/20 rule. As can be seen above, inversing this role may also yield profitable growth opportunities. If the
80/20 rule is applied well, this can also add momentum to growth.

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 THE RATE AND PACE OF GROWTH

The rate and pace of growth must be factored into any growth strategy to avoid the unintended consequences of financial risk,
especially in relation to liquidity. From a financial perspective, it is possible to be exposed to the risks of overtrading or even to
high operational gearing. Any growth plan MUST be supported with a financial plan for venture capital, working capital and the
risks arising from the pace of growth.

The growth strategist is single-minded, focused and purposeful with the route to profit as the mission that must be achieved.
This simple minded purpose must be coordinated with financial risk analysis, mitigation and management.

But profit may mean more than margin !!Corporate profitability is a measure of overall business performance, much more strategic in fact
Note than just the product unit margin from sales.

To end this session on a cautionary note, one sure formula for long term success is

CONTROLLED GROWTH !!!

Section 10 has been devoted to the subject o growth, so often set as forecasts, quotas and targets without wider consideration for what
Summar is really behind the reason for growth and the achievement of stretched targets.
y
Key questions, such as “ What is driving growth’, ‘What will fuel the growth’, ‘ What are the limits to growth’ and ‘ How can the rate
and pace of growth be sustained’ are all top management level, but are rarely cascaded to middle management and associated
operational level.

Today, to build a growth culture requires high levels of organisational energy, well-focused, well-led and appropriately inspired. All of
this will depend upon the need to transparency and communication to steer the generation engine in the best direction.

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 ?1. What motivates growth ?
SAQ
s
2. How is a growth mindset cultivated across management teams ?

3. Do organisations really need entrepreneurs. Do entrepreneurs need organisations ? …. Why ?

4. How can the energy needed to inspire and achieve progressive growth at a rate far faster than the
industry average be sustained. Is there a point of burn out ? How can this be avoided ?

5. What are the managerial risks of exponential growth ?

Conditions for Business Growth

Controlled Growth
Key Growth Ambition
Terms Growth Culture
Growth Curve
Growth Drivers
Growth Engines
Growth Markets
Growth Mission
Growth Plan
Growth Process
Growth Technologies
Growth Values
Quantum leap
The 80/20 Rule
Time Horizon
Win-Win Approach

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 1. From your experience, can you recall the real basis for needing business growth. Was this
adequately explained and given full support by all concerned ?
QFR
’s
2. From the answer to question and from your experience, produce an agenda of item which would
be needed to be discussed with all staff involved to support an ambitious growth strategy.

3. Can you posture a situation where the pace of growth is beyond that which was projected and then
reflect upon the level and nature of stress this could place on the organisation.

4. Does this 80/20 Rule apply in your business ? How could it apply in your managerial life ?

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SECTION 11 BLUE OCEAN STRATEGY & BUILDING BUSINESS MODELS

TOPICS BLUE OCEAN STRATEGY

● INTRODUCTION AND DEFINITIONS

● THE BLUE OCEAN

● THE RED OCEAN

● VALUE INNOVATION

● QUESTIONS TO DEFINE THE BLUE OCEAN

● THE FOUR ACTIONS FRAMEWORK

● REDUCE COSTS AND ADD VALUE

● 6 CORE PRINCIPLES FOR IMPLEMENTATION RISK

REDUCTION

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SECTION 11 BLUE OCEAN STRATEGY & BUILDING BUSINESS MODELS

TOPICS BUSINESS MODEL BUILDING

● DEFINE THE BUSINESS MODEL

● THE ARCHITECTURE OF A BUSINESS MODEL

● A BUSINESS MODEL CANVAS

● SUMMARY

● SELF-ASSESSMENT QUESTIONS

● KEY TERMS

● QUESTIONS FOR REFLECTION

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 Introduction

Section 11 has been inspired by relatively new thinking in the field of Strategic Management which has taken root through
new publications aimed to instil a fresh way of thinking about competition. The ideas put forward are simple yet effective
because the metaphor used is easily understood, but probably more difficult to apply. The idea behind Blue Ocean Strategy has
entered management vocabulary as a new term to address the idea of creating new market territory or what is known as market
space.

The basic principle behind Blue Ocean Strategy as portrayed by W. Chan Kim and Renee Mauborgne (2005) is to find a route
to strategy which creates
“ UNCONTESTED MARKET SPACE AND IN SO DOING MAKES THE COMPETITION IRRELEVANT. ”

This is a huge claim, yet an interesting and challenging concept.

So how is ‘the ocean’ defined ?

The Red Ocean is the competitive market place and the Blue Ocean is market space yet not claimed by competitors.

So how can Blue Ocean Strategy be approached ?

The proposed approach to competitive strategy is simply to avoid the competition by finding customers in new market spaces
where untapped potential resides. This is the location of new opportunities for highly profitable growth, provided the ocean
remains ‘blue’. Page 0
In blue oceans, because these are new, the ‘rules of the game’ have not been determined. Blue oceans have always been with us,
they just haven’t been defined as such. Industries and markets created in the last 15 years, of which there are many were in fact
blue oceans at one point in time.

An approach to finding blue oceans has not really been unravelled because the traditional approach to strategy in most of the
literature has been devoted to Red Ocean environments where the emphasis is upon beating the competition.

The first mover advantage in an blue ocean gives higher (short-term) profits than pursuing strategic moves in red oceans, where
traditionally price and cost-related constraints inevitably erode profit potential.

So how is a blue ocean strategy different ?

The focus of the determined strategy must be upon :

VALUE INNOVATION

Value Innovation is at the epicentre, it is the foundation stone for blue ocean strategy.

The impact of value innovation causes a ‘leap’ in value for customers and in so doing separates the company from its
competitors. In fact value innovation creates new market space.

To be clear, this is not value creation, it IS value innovation ie. the former can be achieved without innovation. Blue ocean
strategy depends upon value innovation, whereby the market boundaries can be extended to a new horizon where they can in
fact be reconstructed and even be redefined.
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 Consider how the market boundaries can be redefined through the following examples. This serves to illustrate how a blue ocean can
be created.
Cas
e

RED OCEAN BLUE OCEAN

Traditional Circus To CIRQUE DU SOLEIL which has redefined this form of

Performance performing art to new market territory. It has re-crafted circus
performances completely.

International Long Haul To Virgin Atlantic where new segmentation has been achieved
Flights together with in-flight value innovation experiences, thereby
re-defining the customer experience.

Department Store Clothing To Primary discount clothing stores dedicated to value for money
365 days a year.

Pre-school Kindergarten To Montessori Pre-Schools, completely re-defining the market

space ad re-creating the customer experience.

Ladies Fitness Gyms and To Philip Wain as pioneers into Slimming & Wellness Centres
Conventional Dieting which now continue to provide value innovation. A one step
shop for female fitness.

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 As can be seen, the market boundaries have been moved. The marketplace is in the mind of the customer, so blue ocean strategy
is designed to create and stimulate new demand among receptive customers.
The value innovation so created actually defines the new blue ocean, because real differentiation has been achieved, which in
effect makes the competition irrelevant. The competitors are no longer the focus of business strategy. The focus is upon
delivering value to customers in the newly created market space.

The challenge to be considered is “ How long will the blue ocean remain blue ? ” In fact value innovation creates “ First Mover Advantage
Note ”, the reality is “ for how long ”.

If the company depends upon value innovation for market recognition, market positioning, market share and related income streams, the
process of creating blue ocean is continuous, simply to be ahead of the competition.
Advice

Consider MOTOROLA and how the blue ocean it created became and remains a red ocean where the pace of competitor innovation has
removed the Brand from market leadership. First Mover Advantage in the consumer mobile device market has been lost, it may be never to
Cas be regained.
e

Some Key Questions to help define a blue ocean

According to Kim and Manborgne, there are some simple but penetrating questions to be asked of a managerial team to help the
mindset orientate towards blue ocean thinking.
Question 1 : What are the factors that our industry takes for granted which could be eliminated ?
Question 2 : Which factors should be reduced well below industry standards ?
As you can see, these two questions are really challenging and somewhat anarchic and furthermore would be unexpected..
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Question 3 : Which factors should be raised well above industry standards ?

Question 4 : Which factors could be created that the industry has never offered ?

The real purpose here is to use customer focus to determine where value can be innovated, and where new value propositions
can be determined. Reference to Figure 11.1 and Figure 11.2 will serve to give clarification.

The essence of this thinking is

“ Where can we reduce cost and also add value because if an answer can be found, then this is the source of value innovation.

REDUCE COSTS ADD VALUE

1. ELIMINATE 3. RAISE
Figure 11.1

2. REDUCE 4. CREATE

THE FOUR ACTIONS FRAMEWORK FOR VALUE

INNOVATION

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 REDUCE COSTS ADD VALUE Figure 11.2

VALUE INNOVATION

The result of applying these questions successfully is that either :

• a new industry could be created

OR

• new market boundaries are achieved within an existing industry.

This is a secure route to defining new blue oceans, but as mentioned before, it cannot be a ‘one-time fix’, there will
be a need for a continuous search for value innovation.

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Referring back to the Cirque De Soleil example, which is cited in the work of Kim and Manborgne and applying the four action
framework created from their text, we can see how the blue ocean was created by using this methodology for analysis.
Figure 11.3

REDUCE COSTS ADD VALUE

1. ELIMINATE 3. RAISE

UNIQUE VENUES
ANIMAL SHOWS STAR TALENT
MULTIPLE SHOWS SPECIALIST TEAM
CHOREOGRAPHY

2. REDUCE 4. CREATE

NOISE A THEME
HUMILIATION REFINED ENVIRONMENT
ROUGH ENVIRONMENT MULTIPE PRODUCTIONS
ARTISTIC MUSIC & DANCE

FROM THE TRADITIONAL CIRCUS TO CIRQUE DU SOLEIL

The Value Innovation reduced costs, added value and discovered a new market which has now been preserved as a blue
ocean.

The learning point is therefore “ how can a blue ocean be created and then presented ? ”
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At the heart of blue ocean strategy are 6 core principles that should be used as a guideline to tackle common risks that are
associated with new product innovation and development.

These principles can be used to progress the determination of blue oceans for implementation.

PRINCIPLE ONE Reconstruct market boundaries, as we have seen above, and this minimise the search risk for new
commercial ideas.

PRINCIPLE TWO Focus on the BIG PICTURE, take a holistic view and reduce any planning risks by establishing existing
facts in order to minimise assumptions.

PRINCIPLE THREE Reach beyond existing demand to re-define and then aggregate the estimated demand for the new
offering. In so doing the scope risk can be assessed.

PRINCIPLE FOUR Get the strategic sequence right to determine a robust business model for long term profit. This will
reduce the business model risk..

PRINCIPLE FIVE Overcome key organisational hurdles to reduce the organisational risk in executing a blue ocean
strategy.

PRINCIPLE SIX Build execution into the strategy by focusing upon organisational motivation and core
competencies to execute the strategy to overcome or avoid the management risk.

Once a zone of value innovation has been determined and then a new blue ocean has been visualised, the above 6 principles
can then be applied to smooth the path of implementation by assessing and reducing the exposure to product development
risks.
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Blue ocean strategy has provided an insight for management internationally, but the model is only descriptive , it doesn’t
demonstrate clearly in a well structured plan how to apply it. In this sense, it is not prescriptive, but with experiment and usage
there is merit to its adoption.

The text by Kim an Mauborgne looks at blue ocean innovations through interpretation rather than direct application but the corporate
evidence is building. What is now transpiring as a result of this best selling text is that the ‘blue ocean’ has become a term used in
Note management discussions which in turn influences mindset and maybe decision taking.

The main message is how can we discover, enter and defend uncontested market space ?

Advic
e

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 GLOBAL EXAMPLES OF A BLUE OCEAN STRATEGY
Cas
e
AIR ASIA
Air Asia cut costs by reducing the number of crew and reduced personalised service. They then flew into smaller airports and
also offered on-line bookings and in so doing passed the savings onto the customer. This resulted in much cheaper ticket prices
and opened the market to people who had not flown before, so that everyone could now fly. A new blue ocean was therefore
created.

Air Asia created this Blue Ocean by targeting a new segment who previously were non-customers ----- Today the airline is
winning awards and continuing to expand and also to diversify.
STARBUCKS
Starbucks created a lifestyle experience out of coffee drinking by creating cool environments where customers could relax in
comfort to chill out with their friends.

NINTENDO WII

Previously in a market leadership position but much ground was lost to Sony and Microsoft. They found their blue ocean by
targeting non-customers (or non-gamers) by developing easy to use interactive consoles that ‘moved as you moved’. They
reinvented the gaming scene and created uncontested space in the market.

The Blue Ocean Strategy is a path of discovery, but to bring this strategy to fulfilment it will require a business model as with
all new product development and new business ventures. The next sub-section therefore will focus upon defining building a
business model.
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DEFINING A BUSINESS MODEL
What is a business model ?

A business model is a blueprint for a business strategy to be implemented through organisation structures, processes,
systems and cultures.

Another way to define a business model would be

“ It describes the rationale and core logic of how an organisation creates, delivers and captures value. ”
In simple language, a business model is a formula for making money.
Note

THE ARCHITECTURE OF A BUSINESS MODEL

The term “ business model” is in common use among entrepreneurs and company managers, especially when looking for new
opportunities to capture and commercialise. The following are the TEN essential building blocks of a business model.

Customers Customers must be classified into viable customer segments and be prioritised. It is wise to know which
customer groups to avoid.

Superior Value To meet needs, wants, values, expectations and solutions for viable customer segments. This is the
Propositions essences for growing customer support.
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 Channels To deliver the superior value propositions to channel members as ‘the route’ to the market

Relationships With suppliers and with customers to ensure supply chain management and customer relationship
management from ‘end to end’

Revenue Streams Resulting from trusted relationships in delivering superior value which is both sustainable and
incremental

Value Chain Based Required to enable and deliver business strategy through the company’s value chain and in
particular to know where the points of differentiation are
The Key Allocated to Key Result Areas, specifying what has to be done and who is accountable for it
Activities

Key Partnerships For alliances needed outside the internal boundaries of the enterprise. These interactions must be
clearly expressed

The Cost Structure For the business model with revenue and/or profit distributions agreed, among those participating.

Competitive For positioning and sustainable differentiation which is relevant to the customer segments prescribed
Strategy

As can now be seen, defining a business model may not be as simple as the student may have previously appreciated.
Note

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These key factors needed to define a business model are reviewed again in Figure 11.4.
Figure 11.4
KEY ACTIVITIES CHANNELS RELATIONSHIPS

COSTS
REVENUE CUSTOMERS
VALUE CHAIN BASED
SUPERIOR VALUE RESOURCES
PARTNERSHIPS COMPETITION & COMPETITIVE STRATEGY
PROPOSITIONS

But to use this as a planning tool to build the business model a “A Business Model Canvas” can be used as shown in
Figure 11.5.
Figure 11.5

PRIORITY SUPERIOR CHANNELS KEY ACTIVITIES VALUE CHAIN

CUSTOMER VALUE BASED
S PROPOSITIONS RESOURCES
COMPETITION / RELATIONSHIPS KEY
COMPETITIVE PARTNERSH
STRATEGY IPS

COSTS & COST BUDGET REVENUE STREAMS &

CASHFLOW
“ A BUSINESS MODEL CANVAS ”
[ADAPTED FROM OSTERWANDER & PIENEUR, BUSINESS MODEL GENERATOR 2010]
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The Business Model Canvas allows the whole design for the model to be seen on one page with all the significant ingredients
captured.

This canvas can be the focal point to visualise the business model and thereby to obtain contributions from those who will take
ownership for it. In preparing this canvas, a team-based workshop can be a very useful approach.

The canvas as proposed can be adjusted according to need. It captures the essence of the design for a business model from which
plans can be developed for required strategy implementation.

To illustrate the use of the business model canvas, the reader should refer to the case in Figure 11.6.

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 BUSINESS MODEL CANVAS FOR A LOW COST LONG HAUL AIRLINE

Cas
e PRIORITY SUPERIOR VALUE CHANNELS KEY ACTIVITIES VALUE CHAIN
CUSTOMERS PROPOSITIONS BASED
On-line Booking Long Haul RESOURCES
Cost Conscious Lowest Price Telephone Ticket Sales Europe - Asia
No Frills All provided from parent
First Time
Frequent Service company, a full
International
Budget cost International
COMPETITION /
Travellers Premium Airline
COMPETITIVE RELATIONSHIPS KEY PARTNERSHIPS
STRATEGY Customer Loyalty
As a sub-brand of the parent
* Programmes company, who have
Only from International Long
Haul Carriers, no budget,* IATA diversified the business into
long haul airline as yet a budget provider
* Intl Airport Authorities

COSTS & COST BUDGET REVENUE STREAMS & CASHFLOW

* Zero based budget for marginal costs only until
* All revenue upfront before travel
business is fully fledged
* Positive cashflow
* Fixed costs covered by parent company
* Marginal costs covered by revenue streams

Figure 11.6

N.B. : THE BLUE OCEAN OF VALUE INNOVATION IS ‘LONGHAUL’ BUDGET AIR TRAVEL

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 Section 11 has two themes, firstly to explore Blue Ocean Strategy and secondly to explain the elements of a business model.
Summar
y Both are useful in determining strategy options as a means to achieve the strategic intent of the organisation.

This closes Part 3 of this course unit which has considered the strategy options which may be open to an organisation to achieve its
corporate objectives. It is in fact a creative process, but rationally must be reintroduced to ensure that the way ahead will be the best
choice. This is why Part 4 will now feature Strategy Choice and Implementation, starting with Section 12.

? 1. For how long can the ocean remain blue ?

SAQ
s 2. Identify a blue ocean strategy and then ask why and how it has become unique.

3. Take either Harrods, Selfridges or Harvey Nicholls and explain their strategy through a blue ocean
lens.
4. Could you prepare a business model canvas for one of the retailers in Question 3.

Business Model Canvas

Business Model Risk
Key Management risk
Terms New Market Space
Planning risks
Scope risk
Search risk
The Architecture of A Business Model
The Business Model
Uncontested Market Space
Value Innovation
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 1. Is the concept of a blue ocean really just another way of explaining first mover advantage, or is
there more depth to this idea ?
QFR
’s

2. What drives the need for uniqueness, and hence the uncontested market space as defined by a blue
ocean.

3. Did you know how to put a business model together, what further insights have now been gained ?

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 PART 4 STRATEGY CHOICE & IMPLEMENTATION

PART 4 STRATEGY CHOICE & IMPLEMENTATION

STRATEGY CHOICE CRITERIA FOR Section 12

EVALUATION

STRATEGY IMPLEMENTATION & CONTROL Section 13

MANAGING THE CHANGE Section 14

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SECTION 12 STRATEGY CHOICE -- CRITERIA FOR EVALUATION FOR
STRATEGY AND MAKING THE STRATEGY
PROPOSAL/OPTIONS

TOPICS CRITERIA FOR EVALUATION

● SWOT ANALYSIS
● GAP ANALYSIS
● CONSISTENCY CRITERIA
● PRAGMATIC CRITERIA
● FINANCIAL CRITERIA
● RISK ANALYSIS
● STAKEHOLDER ANALYSIS

● DECISION MATRICES
● STRATEGY CHOICE -- MAKING THE CASE TO TOP
MANAGEMENT
● MAKING THE STRATEGY PROPOSAL

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SECTION 12 STRATEGY CHOICE -- CRITERIA FOR EVALUATION FOR
STRATEGY AND MAKING THE STRATEGY PROPOSAL /
OPTIONS

TOPICS ● SUMMARY
● SELF-ASSESSMENT QUESTIONS
● KEY TERMS
● QUESTIONS FOR REFLECTION

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 Introduction

Part 4 will be addressed over 3 sections. Section 12 to cover Strategy Choice using criteria for evaluation, Section 13 to cover
Strategy Implementation & Control and the final section, that will be Section 14 to outline the essentials for managing the
needed changes to achieve the determined strategy.

We will now move to consider the criteria by which Strategy Options can be assessed in order to determine the best way ahead
to advise Vision, Mission and Corporate Objectives.

CRITERIA FOR THE EVALUATION OF STRATEGY OPTIONS

In earlier sections, Strategy Options were explained, as well various routes and methodologies to determining them from both
classical as well as contemporary sources.

Using a Strategic Management approach, as we have seen from the early sections, need to explore and analyse options so that a
justified strategy can be determined for adoption and subsequent implementation.

The means by which this can be achieved is by using criteria for evaluation as the basis for strategy option assessment.

This process can be achieved by using a range of screening criteria so that a strategy option decision can be confirmed.

A selection of screening analysis techniques for strategy option evaluation will now be outlined : -

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Two useful analysis techniques are : -

SWOT Analysis
GAP Analysis

SWOT ANALYSIS

From the earlier work in this subject, SWOT Analysis has been outlined as the conclusion to environmental analysis, from
which drivers for change may be achieved.

By referring back to the SWOT Analysis, it is useful to recognise that future strategy must be based on existing, confirmed,
business strengths. In the absence of such strengths, the strategy may fail unless these strengths can otherwise be acquired.

The leveraging of business strengths should therefore become a meaningful criteria for strategy option evaluation. Assessment
of the risk potential arising from external market threats is also important as these are uncontrollable and maybe potentially
damaging in the future. Consideration of capacity weakness may be essential where resource limitations impose a potential
constraint.

Therefore, at a simplistic level, the SWOT Analysis will be useful again to help to decide future strategy. However this is only
one tool which ideally should be supplemented by others.

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GAP ANALYSIS

The difference between a future desired ambition and the probability of achieving it creates a strategic gap. Future strategy
options should be evaluated in terms of their potential to close the strategic gap. This gap may be a growth gap, a shareholder
value gap, a mission gap and so on. The rationale for strategy option choice is the ability to reduce the gap between current
and projected performance ambitions. The idea of ‘a gap’ is useful management vocabulary. Almost certainly most businesses
will be able to identify a series of strategic gaps to be narrowed. The rationale that a selected strategy option will do this more
effectively than others is sound rationale.
Figure 12.1 shows in diagram form the concept of Gap Analysis
3 THE STRETCHED FUTURE POSITION

P THE STRETCHED STRATEGIC

E GAP
R 2 THE DESIRED FUTURE
F POSITION
O
R
M THE STRATEGIC GAP
A 1 THE CURRENT
N POSITION
1 C Shows the current performance position, most often explained in quantitative or functional terms.
E
2
Shows the desired future position defined in the same terms as the current position. This is the projected
(or forecasted future position).
‘ The Gap’ is between positions 1 and 2 .
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The task therefore is to analyse : -

• where the gap lies

• why the gap exists
• the probabilities for closing it and by when
• the strategic options to be assessed
• the selected strategy option and the rationale for it

Therefore the concept of gap analysis becomes one useful criterion for evaluation, as to which strategy option(s) will achieve a
desired future position.

One strategy option of coursee is to consider is ‘status quo’ or what is also called the ‘do nothing’ option in the hope that
through ‘organic growth’ this gap will be filled.

However with the pace and pressures of commercial life, there will always be ‘a planning gap’. A desired future position
will always be there as plans roll from year to year.

It is common practice today to set stretched targets and hence position 3 shows the desired stretched position for which
strategies and tactics are needed as well as incentives for achieving this position.

It is probably the case that most organisations have a negative gap. This means that the desired future position has not been
reached as yet.

Only in rare cases, the planning gap becomes positive, whereby targets and even stretched targets have been exceeded. Even
this situation with also require strategy adjustments probably in relation to resourcing and capacity adjustments.

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 Using Gap Analysis can be seen to be a way of management life and an accepted way to get strategy option proposals accepted.
Note

CONSISTENCY CRITERIA
Apart from SWOT Analysis and Gap Analysis, evaluation criteria should also be used to consider if the strategic options are
consistent with the strategic intent of the business and other critical performance factors, such consistency criteria would be
for example : -
1. Vision
2. Mission
3. Core business alignment
4. Core values being reinforced
5. Core competencies being leveraged
6. Value chain based competitive differentiation
7. Product portfolio positions with market segments to complement the existing provision
8. Existing company success factors, heritage and experience

These consistency criteria provides a solid and realistic platform against which to select future strategy .

The selected option will then have a sense of strategic logic.

Note

Consistency criteria are just one category of criteria which are considered essential, we will now consider Financial Criteria to
assess the Financial Feasibility of Strategy of Options.
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FINANCIAL FEASIBILITY CRITERIA
It is certain that the financial impact of the selected strategy options will need to be assessed for financial feasibility so that the
‘best option’ can be selected. Typical financial measures to apply will therefore be : -

• Opportunity costing between strategy options • Cash flow implications

• Level of Investment • Liquidity impact
• Return on investment • Gearing impact
• Return on capital employed • Break even analysis
• Internal cost of capital • Asset deployment
• Target internal rate of return • Foreign currency exposure (Forex)
• Payback period • Shareholder value gains
• Cost benefit analysis

A pre-determined set of financial criteria is recommended for assessment of new strategy / proposals before being elevated to the next
appropriate level of management for review.
Advice

In addition to consistency criteria and financial feasibility criteria, at a fundamental level there are pragmatic criteria which will
almost certainly be used.

PRAGMATIC CRITERIA

These criteria should not be applied at the exclusion of others, but rather as a simple way of concluding the process of strategy
option evaluation. These simple criteria are understood at all levels of management : -

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 1. Do we want it
2. Do we need it
3. Can we do it
4. Can we accept it
Often top management will prefer a pragmatic approach providing that other screening tests have been applied. Typically, as
mentioned in part before this would include : -

1. financial feasibility
2. organisational feasibility
3. market feasibility (if relevant)
4. gap analysis justification
5. stakeholder analysis
6. risk analysis

whereby stakeholder analysis will consider both the positive and negative response to be anticipated by key stakeholder groups,
arising from each strategy option. Risk exposure and the need to optimise stakeholder value added is a managerial pre-
occupation when considering significant strategy change.

Risk Analysis has in fact become part of strategy determination in many organisations in recent years. There are now well
established risk management protocols which are adopted to assess future strategy options. The conclusion from such
assessment will be based upon the risk appetite of the organisation, so that contextually relevant risk can be assessed as part o
the strategy option assessment process.
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 Fundamental Analysis will be required to answer, among others, the following 6 key questions : -

What is the nature of the risk(s) that the company could be exposed to for each strategy option if it were to be adopted.
These risks will usually be pre-determined and pre-classified and will range from financial risk to relationship risk,
reputational risk and so on. This common procedure helps to start the process of risk assessment.

What is the probability that such risks may occur ?

What is the consequence for the organisation should the risk arise ?

How can this risk be mitigated ?

How can the risk be either avoided or even be transferred to third parties ?

What contingencies must we therefore be prepared for ?

Risk is closely related to return ; high risk = high return, low risk = low return.
Note So therefore the Vision, Mission and Corporate Objectives should align to the risk appetite
against which the risk assessment process for strategy options will be conducted.

The list of criteria for evaluation could be extensive, simply because there may be diverse requirements to be factored into the
decision. Once this process has been understood and applied, these criteria can become more standardised and therefore be used as
Advice
part of a strategy option scenery process, undertaken at appropriate levels of the organisation.

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 STRATEGY CHOICE

So how should future strategy choice be made ?

A simple process is needed, by which future strategy can be selected with a sound rationale for it.

One simple but effective measure is to use Decision Matrices (see below) whereby different strategy options can be assessed
using factor analysis and a pre-determined list of criteria for evaluation.
SAMPLE DECISION MATRIX
CRITERIA FOR EVALUATION WEIGHT STRATEGY OPTIONS (Score 1 – 10)
(a small sample) (1 - 10) Option A Option B Option N

1. Leveragable Strengths ________

2. Internal Weaknesses ________
3. External Threats ________
4. Gap Analysis ________
5. Risk Analysis ________
6. Feasibility Analysis ________
7. Pragmatic Criteria ________
8. Operational Constraints
9. Others (1 – N) ________
Total Score

N.B. : For each option, multiply the weight by the score and then summarise to determine the factor totals. This process will

usually illiminate some option easily.

The final decision may be made by top management – who may have their own criteria as well !!!
Advice Page 0
This simple rational approach will at least be help to assess strategy options in order to determine viability between options.

One critical issue with using factor analysis is ‘ Who decides the weighting and the scores to be awarded ? ” Moreover, “ how can we
reduce subjectivity in the process ? ”. Clearly this must be a team-based exercise with appropriate functional and resource expertise
Advice
appropriately presented, otherwise the process could be seriously flawed.

Once it has become clear “ which way is best ” to move ahead, then making the case for the strategy choice must now be undertaken
and presented to appropriate levels of authority, responsibility and decision taking.

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STRATEGY CHOICE -- MAKING THE CASE TO TOP MANAGEMENT

The case must be communicated simply and convincingly as the strategy option selected will be competing for scarce
resources within the business.

The selected strategy option must now be presented to top management.

There are clear rules to follow or the appropriate level of management to get a decision : -

The 6 Golden Rules of Communication

Rule 1 Relevance : is this relevant to management expectations ?

Rule 2 Reliability : is the proposal based on facts and stated assumptions ?
Rule 3 Understandability : is the message clear ?
Rule 4 Significance : is the proposal contextually significant ?
Rule 5 Sufficiency : is there sufficient information presented to get a decision !!
Rule 6 Practicality : have the limitations been communicated as well as the costs and benefits
of the expected outcomes !

Note These practical rules will help to get the ‘buy-in’ from decision takers.
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MAKING A STRATEGY PROPOSAL -- A CHECKLIST

So how should this strategy proposal be communicated ?

The following checklist can be used to make a Strategy Proposal : -

1. Define the strategy

1.1 what is it called, what is involved, how is it to be defined
1.2 why is it needed and the main benefits to the business and by when
1.3 implications for the business if it is adopted

2. Suitability of the proposal

2.1 what will happen if no strategy change is made
2.2 links to strategic intent (Vision, Mission, Core Values and Corporate Objectives)
2.3 links to internal and external environment of the organisation
2.4 the tangible outcomes in quantitative and qualitative terms

3. Acceptability
3.1 expected costs and financial returns
3.2 risks involved and how to reduce them
4.3.3Feasibility
acceptability to stakeholder groups
4.1 resources and competencies needed
4.2 ability to implement at company and industry levels, as appropriate
4.3 implementation team – who is involved
4.4 who is affected by the outcomes, how and when
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 5. Timing
5.1 start date
5.2 chart of phased implementation, with time scales and clear milestones for achievement
5.3 completion date

This content may need to be filtered informally with key people before presenting the final proposal. The simplest checklist should
involve what, why, who, where, when, how and the outcomes !!
Advice

Section 12 has reviewed a number of categories of criteria which can be applied to support the strategy choice decision, most of
Summar which have been rational, functional and even measurable in nature.
y
Sometimes strategic management decisions may appear to some stakeholder groups as being emotionally driven or even irrational.

All well conceived strategies need a rationale. Criteria for evaluation provide justification upon which to defend strategy choice
decisions. In this sense the use of criteria for evaluation becomes an important element in the strategists toolkit.

? 1. New Strategy determination is normally the domain of the top management team of any organisation,
SAQ to what extent do you think strategy decision are based upon criteria for evaluation. Are you aware
s of the criteria currently used ?

2. How should the strategy assessment criteria be determined ?

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 3. From a managerial perspective, could assessment criteria be used to both select ad justify the selection
or a strategy option ?

4. What managerial insights have you gained related to the rationality of strategy option assessment ?

A planning gap
Consistency criteria
Key Criteria for evaluation
Terms Decision matrices
Factor analysis
Financial feasibility criteria
Fundamental analysis
GAP Analysis
Growth gap
Justified strategy
Mission gap
Pragmatic criteria
Risk analysis
Shareholder value gap
Stakeholder Analysis
Status quo
Strategy choice
Screening criteria
Strategy Options
Strategy Option Assessment
SWOT Analysis

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 1. Strategy can be determined at a number of organisational levels and even within and between the
functional areas of business. How would you assess the need for criteria for evaluation at different
QFR organisational levels ?
’s

2. Would there always be strategy options to assess or can you envisage a scenario when there is only one
route that can be taken ?

3. Criteria for evaluation are part of strategic thinking, do you feel that your thinking will be modified in
the future when being involved in future strategic decisions, and if so, how ?

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SECTION 13 STRATEGY IMPLEMENTATION & CONTROL

TOPICS ● THE STRATEGY IMPLEMENTATION PROCESS

● PEOPLE ALIGNMENT
● MOMENTUM
● STRUCTURE
● PROCESS AND PROCESS MONITORING
● KRA’S AND KPI’S
● BALANCED SCORE CARD
● BUDGETARY CONTROL
● SUMMARY
● SELF-ASSESSMENT QUESTIONS
● KEY TERMS
● QUESTIONS FOR REFLECTION

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 Introduction

The course has explored strategy from the perspective of analysis to strategy determination, but one vital ingredient which is
needed to complete the process is to address strategy implementation.

This section of the course is intended to explain the essentials of the implementation process so that the student has a clear
grasp of what is involved to achieve strategy implementation.

THE STRATEGY IMPLEMENTATION PROCESS

To move from a strategy option decision into the strategy implementation phase involves : -

1 STRATEGY PLANNING

2 STRATEGY IMPLEMENTATION

3 IMPLEMENTATION MONITORING

4 PERFORMANCE EVALUATION

5 REVIEW

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Where strategy planning for implementation will require the following : -

• Smart Objectives To Be Set

• Actions To Be Planned
• Time Scheduling For Those Actions
• Time Discipline
• Time Deadlines
• Total Resourcing
• Responsibilities And Accountability Allocated
• Communications Planning To All Stakeholders
• A Control System For Tracking Performance Outcomes
• Periodic Monitoring And Management Reviews

This checklist provides the essential content of what needs to be done, but achieving this involves processes. The
Implementation Process deals with the softer issues, whereas the above checklists deal with the functionality required.

Implementation therefore involves :

• Managing change
• Obtaining support for the change needed
• Ensuring that an appropriate structure is in place to enable the change
• Leadership for the implementation and a supportive organisation culture
• Ensuring that all the relevant people are aligned
• Setting milestones for achievement
• Celebrating success Page 0
 The most challenging task is to get people aligned, supportive and productive !!
Advice

People Alignment
It has to be mentioned that non-compliant people with non-supportive attitudes and non-committed behaviour will produce
resistance and frustrate successful implementation. This happens.. !!
These organisational phenomena are a direct function of Power . . . over information, people, knowledge, expertise etc. Power
implications, needs to be considered with care, so that implementation planning takes into account resistance to change, its
sources and power base. ”
To achieve effective change, position power must be used to galvanise the required action. It is also to be taken into account
that motivation through recognition and reward may help to smoothen the path of new strategy implementation.

At the Individual level, response to any form of significant change will be affected by : -
• Personality Type
• Life position
• The period of uncertainty
• The support for change leadership
• Trust
• Transparency
• Past experiences

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Equally the level of individual involvement and the need for consultative process to assist the strategy change have to be taken
into account.

In short, you will need the RIGHT PEOPLE to implement strategic change.

It is to be recognised that there will be beneficiaries who will support the change directly or indirectly as well as those who
impartial.

In aligning people behind the strategy change, it is wise to cross-reference their powerbase by their perceived individual
benefits to determine real supporters, change agents and those who will merely be spectators.

You will need the RIGHT PEOPLE to implement strategic change effectively.
Note

It is to be recognised that there will be beneficiaries who will support the strategy change directly or indirectly as well as those who
Advice impartial and ‘sit on the fence’. In aligning people towards the strategy change, it is wise to cross-reference their powerbase by their
perceived individual benefits to determine real supporters, change agents and those who will merely be spectators. !!

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 IMPLEMENTATION MOMENTUM

Therefore to achieve effective implementation of strategic change, one key factor for achieving success is managing
momentum which means : -

1. Creating and maintaining momentum

The following therefore are imperative : -
• Inform clearly and with authority about the pressures for change and remind this to embed the purpose for the change
• Give feedback on performance gaps to provide tangible evidence
• Set and celebrate success / milestones
• Act upon fear / concern / resentment before it escalates

2. Maintaining momentum

This in turn requires : -

• Resourcing to ensure that the strategy changes required do not fizzle out
• Training those who need it to respond
• Reinforcing and recognising desired behaviour within the respective peer groups
• Ensuring that all involved are kept informed of progress and pitfalls
• Build a team spirit and team based approach to engender collective responsibility
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 3. Decision making
Which means : -

• Assigning responsibility and authority

• Establishing systems for communication and information flow
• Introducing new systems and structures to symbolise the change and to support it
• Establishing feedback and feed-forward loop
• Empowering those involved

4. Build coalitions
• Select partners for support as key players
• Build informal relationships among those worked
• Promote clear communications with simple uniform messages
• Conform and attract supporters to the coalition based upon the real outcomes to be achieved

Yes this is all about Management !!!

Much in the above, 4 points is about managerial soft skills, without which if is really difficult to harness the energy
required to secure the commitment needed.

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 Implementation Momentum is about moving people to get the job done, at a pace realistic and relevant to stakeholder expectations.
Note

None of the above can happen without a structure to support the Strategy.

Advice

STRUCTURE
People need a sense of structure to hold onto, especially in times of organisational turbulence which is often characteristic of
Strategy Change.

Strategy as we have established should be based upon leveregable strengths and then the achievement of that strategy will be
in turn be based upon structure. Why ? . . . because access to skills and competencies is required as well as a decision making
machinery. This is needed for productive outcomes, together with the requirements to work within a framework of policies,
procedures and processes.

A key question therefore is “ Does the existing structure offer relevance to the strategy changes envisaged ? ”

If this cannot be answered with clarity, then work must be undertaken until this question can be addressed with conviction.

When thinking about Strategy, also think about structure and process.
Advice

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PROCESS AND PROCESS MONITORING
One further key to successful implementation is to ensure that the processes to be followed to achieve the strategy and the
assigned tasks are set up and tested.

A simple framework is also required to track and monitor the accomplishments overtime against tasks set, the people engaged
and the predetermined milestones. Figure 13.1 provides a simple outline.

Figure
KEY * MILESTONE TIMELINE 13.1
RESULT ALLOCATED
TASK AREA RESPONSIBILITY T T T T T T
1 2 3 4 5 6
F
A
1. _______ _______ __________________ F
A
2. _______ _______ __________________ F
3. _______ _______ __________________ A
F
4. _______ _______ __________________ A
F
A
N. _______ _______ __________________

F - FORECAST * Also Known as KRA’s

A - ACTUAL
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Within each KRA stated in the above template, processes may already exist, but they may also need to be created for the
implementation.

Processes are essential for movement and also for control . Processes when appropriately explained and managed will also stimulate
Note transparency across the organisation to keep all involved well-informed.

KRA’s and KPI’s

Within each Key Result Area (KRA) determined for the planned strategy, processes must be established and the key
performance indicators (KPI’s) be established for reviewing the deliverable outcomes from each KRA. KPI’s become the
‘metric’ for measuring each KRA.

In simple, but bold terms, if a strategy change can be measured, it can be managed. If management is responsible and accountable,
Note implementation should be achievable,.

This Strategic Management vocabulary is in common use, especially as organisations are moving towards a performance
based culture. One significant innovation is managerial thinking in this respect has been the Balanced Score Card, now
widely used.

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The Balanced Scorecard was originally developed by KAPLAN and NORTON in 1992, but has since been adopted by many
organisations as a system for performance and productivity management.

The benefits to be derived are : -

1. translating strategy into performing measurements and assigning accountability for achievement

2. achieving organisational synergy through alignment of measurements across the organisation

3. focusing on what is important to the health of organisational development

4. raising questions for continuous improvement

The concept is useful to ensure that strategy implementation is monitored and controlled.
Organisational health using the Balanced Scorecard can be measured from 4 different and yet inter-related perspectives : -

1. Financial Perspective
2. The Customer Perspective
3. Internal Process Perspective
4. Innovation and Learning Perspective

Whereby the aim of the scoring process is to assess the organisation as a whole, so that weaknesses can be identified and
be connected. In the same way, new strategic change can be introduced into the framework of the balanced score card.
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Figure 13.2 below shows the concept of the Balanced Scorecard, in outline.
VISION & STRATEGY Financial Perspective Figure
Measures Initiatives 13.2
Objectives Targets
“if we succeed,
how will we
look to
our shareholder?”

Customer Perspective
Measures Initiatives
Objectives Targets

“To achieve my
vision, how
must I look to
M
my customer?” T I
O e
Internal Perspectiveb a a n
j s r i
“To satisfy my e u g t
c r e i
Customer, at
t e t a
i s s t
Which processes
v i
must I excel?” e v
Learning
s and Growth
e Perspective
sMeasures
“To achieve my Initiatives
Objectives Targets

Vision, how must

My organisation

learn and
improve?”

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 Each of the 4 perspectives has set of objectives to be achieved. To achieve these objectives, there are a set of measures used
to enable performance tracking, these measures are known as KPI’s, as previously mentioned. Often the key KPI’s are known
as Primary KPI’s and those of less importance, secondary KPI’s.

Targets are set as a ‘metric’ for each movement in a quantitative form, so that each area of measurement will have an actual
performance outcome targeted. To achieve these outcomes, initiatives are designed and agreed for productively gains.

Across the 4 perspectives of the organisation, by using the balance score card, each employee is working towards the
achievement of KPI’s. So much so that most managers in organisations of substance refer to their KPI’s as the benchmarks
for achievement an also reward.

This is a way of engineering the organisation for optimum productivity because outcomes of performance can then be tracked,
Note monitored and then be assessed.

In turn this enables the performance review. Performance can then be rewarded by way of bonus, increments and other financial
incentives, apart from the more subtle qualitative approaches which may be used to sustain performance improvement.
.

It is fair to say that the balanced score card and its popularity has created culture change, so much so that KPI’s have become a way
of commercial life.
Advice

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 So now new perspectives emerge for new strategy implementation. The following questions offer yet further challenges,
which may have to be addressed.

1. Can this change be measured ?

2. What metrics (KPI’s) can be used and must be used ?
3. Can targets be set ?
4. What are the actions to be taken and initiatives to be introduced to achieve SMART objectives dedicated to this
change ?

Today, there is an obsession with measurement. This in turn can an often does create managerial / functional silos where the prevailing
mentality is to build more organisational walls, when in fact such walls should be demolished to create organisational integration and
Advice
the benefits from related synergies.

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 BUDGETARY CONTROL

As a final note in Section 13, a brief mention of the need for budgetary control in the context of strategy implementation is
justified. Almost all strategic change will have cost implications, therefore a dedicated budgetary allocation for the desired
change will be required, either before the change to drive strategy or as a supportive process.

Within budget headings for expenditure, allowances must be made for contingencies, as unforeseen events and unintended
consequences occur and costs may also rise during the life of the implementation.

Working within the budget is an essential skill for implementation.

Note

It is almost certain that the budget for new strategy will be ‘zero based ’ requiring all relevant assumptions to be justified. Reference to
the subject of Financial Management will provide detail and clarity on this important area of management.
Advic
e

Strategy Implementation is one of the more difficult management tasks. It is for this reason that many planned strategies actually fail,
Summar simply because the creativity attached to crafting new strategy has dominated to the extent that implementation becomes an
y assumption rather than a carefully planned activity.

To guard against such potential failure, the following advice should be heeded : -

1. Ensure that there is a well-defined business case for the Strategy

2. Ensure that this is well communicated , well lead and understood by all involved
3. Set up a system to measure progress and the results achieved
4. Drive a winning performance culture with the right people to drive the momentum
5. Ensure that all the required enabling structures and processes are in place
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 1. Reinforce the message again and again f the purpose to be achieved, the outcomes & the benefits
Summar 2. Have periodic reviews and celebrate milestones achieved.
y
Moreover, it is essential to recognise Strategy Implementation means change !!

? 1. Strategy design is a creative process, but which is strategy implementation is a significant

SAQ managerial challenge ?
s

2. The literature on strategic management is rich but the literature in strategy implementation is
far less so - - - why is this the case ?

3. In your opinion, what are the top 10 factors which must be taken into account to achieve
successful implementation of a new strategy.

Balanced Score Card

Budgetary Control
Key KRA’s and KPI’s
Terms Momentum
People Management
Performance Evaluation
Process and Process Monitoring
Structure
The Strategy Implementation Process

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 1. Could the Pareto Principle apply to strategy implementation, whereby 80% of time and effort is
devoted to planning and only 20% to execution. Is there an argument to inverse this whereby 80%
QFR
effort is devoted to ensuring that the proposed and confirmed strategy actually works.
’s

2. Can you reflect upon a business or non-business organisational strategy which has failed and then
account for why this occurred. Now relate the answers back to the content of Section 13 and try to put
these reasons into a strategic management context.

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SECTION 14 MANAGING CHANGE

TOPICS MODELS AND APPROACHES

● LEWIN
● McKINSEY 7’S
● KANTNER
● GEMINI 4 R’S

CHANGE PROCESSES
● PLANNED CHANGE
● RESPONSE TO CHANGE
● FORCE FIELD ANALYSIS
● SUMMARY
● SELF-ASSESSMENT
QUESTIONS
● KEY TERMS
● QUESTIONS FOR REFLECTION Page 0
 Introduction

The final section in this course of Strategic Management is focused upon Managing Change. It is a consequence of Strategy
Implementation that changes will be required, sometimes transformational changed (or large scale change) or incremental
change where smaller steps have to be taken to achieve strategy implementation.

Section 14 will review some of the models and approaches to change which have been considered as making significant
contributions to the literature. In addition we will also consider change processes useful for managing strategy change.

MODELS AND APPROACHES

To add depth to the subject of change, the work of the following contributors, at least, is suggested to be known : -

● LEWIN
● McKINSEY 7 S
● KANTNER
● GEMINI 4 R’s

THE LEWIN MODEL (KURT LEWIN 1958)

The work of Lewin suggests there are 3 distinct phases in the change process which are named as unfreezing, change and
refreezing. He claims that before any change can be introduced that the current conditions which prevail must be ‘unfrozen’
before any new ideas can be introduced. Once this is undertaken and the changes achieved, the environment has to be refrozen
to capture and sustain the change. These stages are now outlined : -
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STAGES ACTIONS

Stage 1. Unfreezing - De-stablilize the environment by exploiting stress or dissatisfaction

- Introduce additional pressure, tighter schedules, increased targets / workloads
- Introduce new personnel

The essence here is to manage those involved by remaining their current ‘comfort zone’ and in so doing, raise the level of
mentality and in so doing create new dependencies.

Those involved will then ‘feel the need’ for a solution because the environment has changed. This is now time to introduce
Stage 2.

Stage 2. Change - Move the unbalanced and less secure system now created into the desired direction for
achieving change by :

• New reporting relationships

• New incentive systems

• Changing management styles

This then comes as a relief because the turbulence created. New Solutions during the unfreezing process is being resolved !!
But the environment has to be refrozen !!

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Stage 3. Refreeze - Establish a new balance and introduce at higher levels of performance
- Positively reinforce new ways of working
- Confirm this with new symbols of change ; company identity, office layout, performance
appraisal, teams, training, visual artifacts

In this way the organisation has been ‘socially re-engineered’ towards the ‘new ways’ required to achieve strategy change. Such
processes often incur a painful, confusing period of time with lowered effectiveness in the short term. Lewin’s approach
attempts to achieve the ‘felt need’ for change by creating insecurities. This approach needs effective leadership and support,, it
is interesting and is one of the long established models, conceived now to be a classical approach.

McKINSEY 7 S FRAMEWORK

This framework is well-known and widely recognised as a simple yet effective way of introducing change. The McKinsey 7 S
framework is outlined in Figure 14.1. Through this approach to change, it is suggested that there are key elements which must
be reviewed and adjusted to achieve the ‘buy-in’ needed for strategy change at appropriate organisational levels..

1. Strategy to achieve a sense of direction and purpose with clarity

2. Shared Values to mould a belief system which influences individual and
collective behaviour
3. Structure to enable the change

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 4. Style to lead the change through relevant management styles with leadership
1. Systems to ensure information flows and that protocols and procedures
are in place to facilitate change
2. Skills to accomplish the changes needed with relevant competencies
3. Staffing to ensure the human capital is in place and to specify the
training that may be needed to reduce any competency gaps.

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 MC KINSEY 7 S Figure 14.1

Shared
Values

Strategy Style

THE CHANGES
NEEDED FOR
NEW STRATEGY
Systems Structure

Skills /
Staffing

These 7 elements are of course inter-related, and the challenge is to untangle the inherent complexities to produce a roadmap of
accountability for the changes needed. It is also to be recognised that some changes will be located within each of the 7 S’s
identified.

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KANTNER

The approach taken by KANTNER argues that change may be more complex and hence more multi-directional than Lewin
suggests.

He argues change can be accomplished in

• Bold strokes - top down directed strategic change

• Long marches - operational level changes, which changes culture

and needs widespread support from employees

This may be fine for transformational change, but incremental change may have to take smaller steps and also step-by-step.
However, according to KANTNER both Bold Strokes and Long Marches use his same 10 steps, these being : -

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 1. Analyse the organisation; confirm the need for change

2. Inspire a shared vision and set a common direction

3. Separate from the past

4. Create a sense of urgency

5. Provide a strong leader role

6. Secure ‘political’ sponsorship

7. Craft the implementation plan

8. Create enabling structures

9. Communicate, involve people, be honest

10. Reinforce the change; institutionalise the change

The management challenge here will be the ‘know-how’ required to achieve the 10 steps. This in itself would be other subject of
Note separate unit but also context we have just introduced the bare essentials of Kantner’s approach.

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GEMINI’S 4 R’S

By contrast to the work of Lewin, McKinsey and Kantner, the approach from Gemini, postures that strategic transformation
requires : -

• REFRAMING organisational mindset and build a measurement system to monitor for change

• RESTRUCTURE the organisation and work flows

• REVITALISE with closer reference to the market environment and invent new business to introduce change

• RENEWAL culture with a reward structure and individual learning programmes to develop a learning
organisation

So this is a fresh, albeit simplistic formula for achieving change and really requires a manual / guide for applications. Change is
Note complex and cannot be assumed effective by this somewhat basic set of instructions.

The literature is rich with variations upon the theme of achieving change, some of which have common ingredients and
others offer new insights. As yet there isn’t one formula which has been adopted. light this subject.

The student should appreciate the real and wide complexities involved in achieving change from a strategic management perspective.
Note It is an interesting subject, often now located with the domain of Human Capita Management departments.

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 Strategy and Specifying the changes need and is the core subject of corporate ambition..BUT Achieving the changes required is
a matter of corporate ability. It is a matter for matching AMBITION WITH ABILITY which is a constant managerial challenge !!
Advic
e
The matching of ambition to ability will require the effective implementation of change. The essence of achieving change is to
understand the processes required..

CHANGE PROCESSES --- A MANAGERIAL GUIDE

To manage Planned change, the following 5-step Road Map is a starting point from which to appreciate some of the
essentials required to effect change.

1. Establish the purpose

1.1 Clarify the real need
1.2 Analyse the impact of doing nothing
1.3 Create a vision
1.4 Communicate and secure support for the vision
1.5 Confirm what needs to change

2. Develop momentum
2.1 Communicate, communicate, communicate
2.2 Align people behind the change
2.3 Involve people
2.4 Provide leadership and teams
2.5 Create urgency

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 3. Plan the change
3.1 Set milestones for achievement
3.2 Establish measures for success
3.3 Identity and secure resources
3.4 Allocate and delegate responsibilities for planning and implementation
3.5 Prepare for contingencies
3.6 Provide support

4. Lead the implementation

4.1 Inspire others
4.2 Communicate throughout
4.3 Seek early success and celebrate it
4.4 Monitor, control, review
4.5 Deal with the unexpected
4.6 Plan for continuous improvement
This road map is intended to outline the essential processes needed and present them in a form of progressive checklist which the
Note student may find useful in the workplace environment. We cannot however overlook the ‘human element’ organisations are ‘human
activity systems’ and therefore we must also consider the response to change.

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RESPONSE TO CHANGE
Change is hard to accept at times, nobody really likes change owing to the turbulence it creates. Change can cause stress and
anxiety, even though it may be beneficial, especially when change is imposed. The KUBLER-ROSS curve below in Figure
14.2 attempts to explain the psychological response to impactful change. If this is understood, then approaches to significant
change programmes may need to be counselled wilth all those affected and involved.

Typical response to imposed change Figure 14.2

INTEGRATIO
N
PLANNING
DISCARDIN
MOOD LOS G
S DENIAL
INITIAL
ADAPTATION

PRECHANGE POST CHANGE PERIOD OF ADJUSTMENT

TIME

The time taken for readjustments will depend upon the nature of the change and the impact it has created.

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 From the curve, the following characteristic behaviour can be explained:-

Loss : Confusion, shock, panic, fear of the unknown, helplessness

Denial : Ignoring the change; denying its significance, defensive behaviour, anger

Initial : Anger and frustration as the change seems an inevitable reality

Adaptation

Discarding : Looking ahead, discarding the past as nothing can be done, receptive to new messages

Planning : Experimentation and optimism

Implementation : Anxiety and excitement on realigning for the new challenges and Integration

Awareness of this curve and thereby the impact change has upon individuals and groups will now help the students to learn how to
Note introduce and manage change without eroding the core values of the organisation.

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POLITICAL DIMENSIONS OF CHANGE -- FORCE FIELD ANALYSIS

As change in most organisations is rarely appreciated, the motivation for it as well as the power base behind it has an important
role to play.

The dynamics of organisational politics have to be factored into the change equation so that resistance can be anticipated and
managed.

It is for this reason that Force Field Analysis was designed to assess the nature of resistance and the force of resistance to
transformational change. Reference to Figure 14.3 will show how resistance to change can be assessed.

The purpose is to assess the collective weight of resistance and set this against the weight of support for the change. In this way,
any disequilibrium can be assessed.

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RESPONSE TO CHANGE, RESISTANCE AND FORCE FIELD ANALYSIS

To assess the amount of real support there is for the proposed change, where there is a potential state of imbalance, then
some political manouevering may be needed to swing the balance towards adoption.
Figure 14.3

THOSE AGAINST CHANGE THOSE FOR CHANGE

SOURCE POWER WEIGHT WEIGHT POWER SOURCE OF
OF BASE OF OF BASE SUPPORT
RESISTANCE RESISTANCE RESISTANCE

[ LOCATION ] HI LOW 1 – 10 1 - 10 HI LOW [ LOCATION ]

1. __________ ___ ___ ____ ____ ___ ____ ________

2. __________ ___ ___ ____ ____ ___ ____ ________
3. __________ ___ ___ ____ ____ ___ ____ ________

4. __________ ___ ___ ____ ____ ___ ____ ________

Total ==== ====

DISEQUILIBRIUM ?

This simple model attempts to quantify the assessment of political support and opposition. It can also be used as a ‘mindset’
when planning transformational change, ie.. To know who resides in the ‘opposition camp’ and who are the core supporters.
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 Force Field Analysis will help the change agents embedded in the process of strategy change to be able to target fields of
opposition so that attention is devote to appropriate forms of communication aimed at ‘bringing opponents ‘on board’.

Yes, this is a process of organisational politics but political support for change is essential to ensure smooth, valued
implementation.

Managing Change will involve such subtleties and is often a way of life for those worked in managing strategic change.

This final section of the course unit on Strategic Management has introduced some of the classical approaches to managing change
Summar within which there are sound points for the student to observe. However from a managerial perspective, change processes cannot be
y overlooked or even avoided. Therefore attention has been given to these as well.

It is clear that Strategic Management requires change, it is needed and is often imperative to remain a relevant player in any
industry. Managing change is therefore an essential skill that will be required to ensure that new strategies can be implemented
effectively.

In short, ambition is matched with ability !

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 ? 1. Why is Strategy Change needed ? …. Can it be avoided an if so, what might be the consequences ?
SAQ
s 2. From your observations of the models outlined from Lewin, McKinsey, Kantner and Gemini, what
are the common ingredients that each model shares in its attempt to propose a solution to achieving
change ?
3. Using examples from your respective countries, or in general, what are the core reasons for resistance to
transformational change and how can this resistance be reduced or even be eradicated ?

Bold Stroke
Change
Key Vocab Corporate ability
Corporate ambition
Develop momentum
Establish the purpose
Force Field Analysis
Gemini 4 R’s
Kantner
Lewin
Long marches
McKinsey 7 S Framework
Planned Change
Political sponsorship
Refreeze
Shared Values
Skills
Staffing
Strategy
Structure
Style
Systems
Unfreezing

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 1. From your experience of being involved in any significant change, can you identify key reasons
why this change was NOT effectively achieved. Now reflect upon the content of Section 14, and
QFR
’s
try to account for these reasons for failure.

2. To achieve any form of change requires a ‘felt need’ among all those involved. What do you
understand about the term ‘ Felt Need ‘. Can you reflect upon individual experiences when this
has been achieved within yourself --- and also when I was not. What are the essential reasons
for the difference in your own personal buy-in and not given it such buy at all.

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ANNEX 1 RECOMMENDED READING

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CORE TEXT

•Johnson, G. and Scholes, K. (2008), Explaining Corporate Strategy, (8th edition), Prentice-Hall UK.

RECOMMENDED READING

•Burnes, B. (2008), Managing Change : A Strategic Approach to Organisational Dynamics, (2nd edition), Pitman
Publishing

•Greasley, A. (2009), Operations Management, (2nd edition), Chichester, UK, John Wiley.

•Kim, W. C., Mauborgne, R. (2005), Blue Ocean Strategy, Harvard Business Press

•Lynch, R. (2006), Corporate Strategy , (4th edition), Pitman Publishing

•Mintzberg, H. and Quinn, J. (2003), The Strategy Process, (4th edition), Prentice Hall

•Mintzberg, H. (2009), Strategy Safari : The Complete Guide Through The Wilds of Strategic Management, Free
Press

•Thompson, A. A. , Gamble, J. E. and A, J. Strickland (2006), Strategy Winning in the Marketplace , 2nd edition,
New York McGraw-Hill

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 ASSESSMENT
ANNEX 2 THE STRATEGIC MANAGEMENT ASSIGNMENT AND
PRESENTATION ---- A SAMPLE

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 SAMPLE GROUP ASSIGNMENT (1)
REPORT & PRESENTATION

Your task is to adopt the theme ‘ Success Through Strategic Management ’. You are to select an organisation of
your choice and to draft a report with the following section, using the context, models and frameworks contained
within the Strategic Management module.

1. Background to the organisation, its history and business domain.

2. The Strategic Direction to be achieved through Vision, Mission and Core Values.

3. The nature of Competition and Competitive Positioning of your selected company.

4. The drivers for change from the internal and external environments.

5. Strategic options for Growth.

6. Selected criteria to assess these options.

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 7. An evaluation of the options and the selected strategy for a defined timescale.

8. The Resource Implications for the modified strategy.

9. How the change needed will be achieved to accomplish the desired outcomes for the company ?

The report submitted should not exceed 4000 words. You should be prepared to give a Powerpoint presentation of
no more than 15 slides for a 10-minute presentation.

NOTE : This assignment would normally be attempted on a team-basis, subject to the subject tutors brief and
Course Director’s approval.

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 SAMPLE OPTIONAL INDIVIDUAL ASSIGNMENT QUESTION

SAMPLE INDIVIDUAL ASSIGNMENT (2)

Discuss the term ‘Strategy’ and explain the purpose of Strategic Management.

Using an example of your choice, outline the industry context and then for one selected organisation, complete a
SWOT analysis to reveal the potential for leveraging business strengths to capture future opportunities.

You are then required to set these opportunities into a framework for growth using the Ansoff Matrix as a model.

SAMPLE INDIVIDUAL ASSIGNMENT (3)

To craft new strategy is a creative process but to implement such strategy is a significant management challenge.

Discuss this statement and explain how the task of strategy implementation could be approached in a systematic
way.

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 SAMPLE INDIVIDUAL ASSIGNMENT (4)

Using classical models of your choice, show how the competitive environment of an organisation can be assessed,
for a company of your choice, within this industry context, explain how competitive strategy can be crafted and
justified.

ASSIGNMENT FORMAT FOR SUBMISSION

An Individual Assignment would be 4000 words and be expected to conform with existing protocols, relevant
content, presentation according to the assignment brief and meet the academic requirements for literature
referencing and citation. Information will be provided in a supplementary document to the course unit on Strategic
Management, for submissions of all assignments, both on-line and off-line.

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