Strategy and Control

MCS
 Syllabus: Understanding Strategies
• Concept of Strategy
• Corporate Level and Business Unit Strategies
• Strategic Planning – Nature, analyzing proposed new
programmes; analyzing ongoing programmes
• Strategic Planning Process
• Budget Preparation – Nature, Other Budgets, Budget
Preparation process; Behavioural aspects, quantitative
techniques
• Position of management accounting controls for
differentiated strategies – corporate strategy; Business
unit strategy
• Modern Control Methods – JIT, DSS and CIM (ERP)
 Strategy

• A comprehensive master plan stating how the

corporation will achieve its mission and objectives.
• It maximises competitive advantage and minimize
competitive disadvantage.
• Three Types of Strategy – Corporate, Business, and
Functional
• A hierarchy of strategy is the grouping of strategy
types by level in the organization.
• Hierarchy of strategy is a nesting of one strategy
within another so that they complement and support
one another.
 Corporate Strategy

• Describes a company’s overall direction in terms

of its general attitude towards growth and the
management of its various businesses and product
lines.
• Corporate Strategies typically fit within the three
main categories of
(a) Stability
(b) Growth
(c) Retrenchment

Source: Thomas L. Wheelen and J. David Hunger, Concepts in Strategic Management and Business Policy, Pearson Edu., 2004 (p.13)
 Corporate Strategy

• Deals with three key issues facing the corporation

as a whole:
1. The firm’s overall orientation toward growth,
stability, or retrenchment (directional strategy)
2. The industries or markets in which the firm
competes through its products and business units
(portfolio strategy)
3. The manner in which management coordinates
activities, transfers resources, and cultivates
capabilities among product lines and business units
(parenting strategy)
Source: Thomas L. Wheelen and J. David Hunger, Concepts in Strategic Management and Business Policy, Pearson Edu., 2004 (p.13)
 Corporate Strategy

• All corporations, from the smallest company

offering 1 product in only 1 industry to the largest
conglomerate operating in many industries with
many products must, at 1 time or another, consider
1 or more of these issues.
• Directional Strategy (Orientation toward growth)
• Portfolio Analysis (Coordination of cash flow
among units)
• Corporate Parenting (Building corporate
synergies through resource sharing and
development.
 Corporate Strategy: Directional Strategy

• Three Questions
• Should we expand, cut back, or continue our operations
unchanged?
• Should we concentrate our activities within our current
industry or should we diversify into other industries?
• If we want to grow and expand nationally and/or globally –
Organically or inorganically.

• Comprises THREE general orientations (sometimes called

“grand strategies”)
(a) Stability (Make no change to the company’s current
activities)
(b) Growth (Expand the company’s activities)
(c) Retrenchment (Reduces the company’s level of activities)
 Corporate Strategy: Directional Strategy

GROWTH
STABILITY RETRENCHMENT
Concentration
Pause/ Turnaround
Vertical Growth
Proceed with Caution Captive Company
Horizontal Growth
No Change Sell-Out/Divestment
Diversification
Profit Bankruptcy/
Concentric
Liquidation
Conglomerate
 Growth Strategy

• Concentration
• If a company’s current product lines have real growth
potential, concentration of resources on those product lines
makes sense as a strategy for growth.
• Two basic Concentration Strategies: Vertical Growth and
Horizontal Growth.
• Vertical Growth can be achieved by taking over a function
previously provided by a supplier or by a distributor.
(Internally by expanding current operations and
externally through acquisitions)
• Vertical growth results in vertical integration – Backward
integration (Going backward on an industry’s value chain) or
forward integration (Going forward on an industry’s value
chain)
 Growth Strategy

Vertical Integration Continuum:

A company’s degree of vertical integration can range from total
ownership of the value chain needed to make and sell a product
to no ownership at all.

Full Taper Quasi- Long-Term

Integration Integration Integration Contract

• Full Integration: A firm internally makes 100% of its key

supplies and completely controls its distributors.
• Taper Integration: A firm internally produces less than
half of its own requirements and buys the rest from outside
suppliers.
 Growth Strategy

• Vertical Integration Continuum

• Quasi-Integration: A company does not make any of its
key supplies but purchases most of its requirements from
outside suppliers that are under its partial control. (e.g.,
Partial Stock Ownership)
• Long-term Contracts: Agreements between two separate
firms to provide agreed-upon goods and services to each
other for a specified period of time. (Can’t be considered
vertical integration, unless contract specifies that the
supplier or distributor can’t have a similar relationship with
a competitive firm)
 Stability Strategy

• A corporation may choose stability over growth by

continuing its current activities without any significant
change in direction.
• Sometimes viewed as a lack of strategy.
• The stability family of corporate strategies can be
appropriate for a successful corporation operating in a
reasonable predictable environment.
• Very popular with small business owners who have found a
niche and are happy with their success and the manageable
size of their firms.
• Some of the more popular of these strategies are the
pause/proceed with caution, no change, and profit
strategies.
 Business Strategy

• Occurs at the business level or product level, and it

emphasizes improvement of the competitive position of a
corporation’s products or services in the specific industry or
market segment served by the business unit.
• Business strategies may fit within the two overall categories
of
(a) Competitive or
(b) Cooperative
 Functional Strategy

• The approach taken by a functional area to achieve corporate

and business unit objectives and strategies by maximizing
resource productivity.
• It is concerned with developing and nurturing a distinctive
competence to provide a company or business unit with a
competitive advantage.
• R&D Functional Strategies
• Technological Followership (imitate the products of other
companies) and
• Technological Leadership (Pioneer an innovation)

Source: Thomas L. Wheelen and J. David Hunger, Concepts in Strategic Management and Business Policy, Pearson Edu., 2004 (p.13)
 Unstated, incremental, or Intuitive Strategies

• Just as many firms often have no formally stated objectives,

the same may be case for strategies that have never been
“articulated or analyzed”.
• Often the only way to spot a corporation’s “implicit
strategies” is to look not at what management says, but at
what it does.
• Implicit strategies can be derived from corporate policies,
programs approved (and disapproved), and authorized
budgets.
• Programs and divisions favoured by budget increases and
staffed by managers who are considered to be on the fast
promotion track reveal where the corporation is putting its
money and its energy.
 Strategic Planning

• Nature
• Analyzing proposed new programmes
• Analyzing ongoing programmes