CHAPTER 3 – WHAT IS THE BEST WAY FORWARD FOR THE ORGANIZATION?

Objectives:

Asses the options generated for each business in the context of the
corporate whole.
Identify the features of the change option that is proposed and to
what extent can the change be Managed.
Determine the outlined criteria for the FIRM evaluation.

THE FIRM EVALUATION OF OPTIONS

The F in FIRM: The new initiatives must seek to:

➢ Remove, reduce or compensate for any weaknesses identified in the corporate

portfolio and in individual businesses. For an organization in a declining situation
this may be the key emphasis. If an organization has a lot of weaknesses a
turnaround strategy may be an urgent requirement before any other actions are
appropriate.
➢ Build on resource strengths. For example, does the new initiative allow for the
sharing of assets or the transferring of skills in such a way that competitive
advantage is gained.
➢ Lead the organization into developing or acquiring skills that not only allow for the
expected advantages but also lay down foundations for long-term strategic
development.
➢ Build on opportunities that allow the organization to exploit its resources vis-à-vis
its competitors.
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➢ Does the proposed strategy give an opportunity to steal a march on competitors, or

is the opportunity such that a disadvantage will occur if it is not taken? Is the
opportunity also a potential threat?
➢ Seek to minimize threats that already exist in the organization’s environment or
reduce the organization’s exposure co opportunity-taking by competitors

The I in FIRM:

Will the strategic option have an impact on the organization’s performance within
agreed time frames?
There is no point in pursuing strategies that make little difference to the
performance of the organization in a time scale that is not acceptable to stakeholders.
Because of this the returns from the proposed strategy must be estimated using
appropriate techniques. In ‘for-profit’ organizations the impact of a strategy is usually
measured in financial terms.

The R in FIRM:
Can the resources required to implement the option be obtained?
Since there is little point in developing strategies for which resources cannot be
obtained, it is important that realistic judgements be made on the ability of the organization
to acquire such resources. Resources can include capital to fund acquisition of buildings
and equipment, raw materials, labor, skills, management expertise and sales outlets etc.,
and frameworks for assessing resources.

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The M in FIRM:

What are the features of the change option that is proposed and to what extent can
change be managed?
Writers and researchers on strategy focused their attention on the cognitive
nature of management. Organizations were said to have perspectives, cultural webs
and paradigms, and dominant logics. Consequently, if an organization is in a situation
where the world-view of key managers and staff is at odds with its environment, the
likelihood is that the organization will become dysfunctional. Examples of situations
where there is the potential for a misalignment of world-view and environment are:

❖ When an organization diversifies into a new market and the common perspective
of the organization is unable to understand the ‘rules’ of this market.
❖ When an organization’s members lose touch with the needs of their customers
because of complacency.
❖ When an organization is faced with a significant environmental change because
of privatization or regulatory changes.

Managers who wish to make perspective-breaking changes should therefore expect

resistance. Similarly, the change process may be much less complex to manage where
world-views are consistent
with the environment, as the
implementation programmed
is likely to be a continuation of
a strategy that has a shared
and coherent corporate vision.
This means that the most
difficult kinds of changes to
execute are those that require
an organization to change its
world-view or perspective, as
they may require significant
and complex organizational
changes if they are to be
successfully introduced.

Any proposed strategic

change that requires new
competences and capabilities
may therefore require
dominant logics that differ
from those currently used in

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running the business. This means that corporate managers in multi-business and multi-
national environments may have to operate with multi-dominant logics if they are to
attend to the affairs of their different business.

Johnson’s (l987) concept of the organization paradigm supported by a cultural web is a

useful way to operationalize the concept of an organization’s dominant logic. Figure 3.l
expresses these ideas within a matrix.

Box 1 and Box 3 situations are those where organization members in key strategic
and/or operational positions have world-views/cultural webs that are not sympathetic to
the proposed change. Such situations may involve the development of new
competencies for expansion or may be situations where turnaround strategies are
necessary for survival. These circumstances are encountered by organizations entering
changed environments either through the incremental growth of competitive action.

RELATIONSHIP WITH ORGANIZATION PARADIGM

Inconsistent Consistent
Doing things differently Doing things better

Box 1 Box 2

Incremental
(Slow)

RATE OF CHANGE REQUIRED

Box 3 Box 4

Step
(Fast)

Figure 3.l Organization paradigm and rate of change required matrix Source: (after Balogun and
Hailey (l999) 1xploring Strategic Change, Prentice Hall, Europe, reprinted with
permission from Pearson Education Limited).

The sooner an organization is able to ‘sense’ the need for change the sooner it can
avoid situations of ‘strategic drift’ and the need for remedial actions, which are often
painful, if it is to remain competitive. Yet this may be difficult because the dominant

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paradigm of the organization is likely to resist this ‘sensing’ of the need for change
unless the situation becomes dramatically grave or a sense of urgency is deliberately
precipitated. Although difficult, there is evidence that dominant logics can be influenced
and changed through ‘selective’ recruitment, training and retirement programs for a
classic discussion of turn around and recovery strategies.

Boxes 2 and 4 illustrate positions where the change to be undertaken does not require a
change in dominant logic. Typically, initiatives like the implementation of total quality
management and business process re-engineering would fit into Box 4. In Box 3,
changes are more adaptive and are allowed and encouraged to take place over time,
and are exemplified by slowly improving the skills within the workforce, the
development of computer- based inventory control systems, and the development of
modified products to maintain markets. Changes in Boxes 3 and 4 are necessary to
improve the organization’s performance and are less likely to meet resistance com-
pared co the changes in Boxes 1 and 3. Estimations of power in organizations are an
important step for change managers, that power stems from:

Control over information.

Control over resources.
Formal authority
LEVEL OF INTEREST

Low High

Minimal effort Keep informed Low

POWER

Keep satisfied Key players

High

Figure 3.2 Power–interest matrix Source: (after Mendelow, l99l, p. 2l6, Reproduced
with permission from Pearson Education Limited).

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Examples include trade unions who have power over labor resources, experts who
have control over information and knowledge, and shareholders who have the power to
vote out managers.

The power–interest matrix shown in Figure 3.2 is a useful way of representing the
interplay between different levels of interests and power.

Assessing the manageability of change of different options is important because it may

be the basis upon which options are accepted or rejected. Also, changes that are
considered vital for organizational survival can be prepared for, as the tasks should be
easier to overcome if we have a better knowledge of the potential problems to be faced.

Business 1 Business 2 Business 3

Options Options Options

Options
Outside
Present Corporate options
portfolio

Implementation plan

Figure 3.3 Options Analysis Procedure.

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The FIRM framework for evaluating options has been outlined, and the options
generated for each business that you look at should be critically evaluated using this
framework. On the basis of this analysis, the optimal way forward for each business
should be weighed against the long-term welfare of the corporate whole. In some
circumstance this may mean that a business should be disposed of to create a more
beneficial corporate environment, or sold to fund the aspirations of others.

The short and long-term implications for shareholder value and funding should be considered
and this is likely to necessitate the production of short, medium and long-term financial
predictions under different possible scenarios. The analysis should include estimates of future
company worth and how the new strategies will impact on other stakeholders such as
employees and customers.

A schematic overview of the key analysis stages for a multi-business organization is

shown in Figure 3.3.

To know more information about What is a Firm?

Please click the link: https://www.youtube.com/watch?v=VjER5cOpHLs

To know more information about What is Power/Interest Stakeholder lysis?

Please click the link: https://www.youtube.com/watch?v=G3R4TO1l6LY

To know more information about Individual and Organizational Relationships

Please click the link: https://www.youtube.com/watch?v=4Y1waxkbQVY

Strategic Management and Business Analysis / David Williamson, Wyn Jenkins, Peter
Cooke and Keith Moreton