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London School of Commerce

STRATEGIC MANAGEMENT
COURSE MANUAL

London School of Commerce

STRATEGIC MANAGEMENT
COURSE MANUAL

MANUAL CONTENTS
Page
Session 1

Strategy and Strategic Management

Session 2

The Drivers for Change & The Strategic Response

21

Session 3

External Environmental Analysis (1)

40

Session 4

External Environmental Analysis (2)

57

Session 5

Internal Environment Analysis (1)

80

Session 6

Internal Environment Analysis (2)

97

Session 7

Setting Strategic Direction (1)

120

Session 8

Setting Strategic Direction (2)

133
Page

Page
Session 9

Strategy Determination -- Strategy Options

150

Session 10

Strategies For Business Growth

171

Session 11

Blue Ocean Strategy & Building Business Models

190

Session 12

Strategy Determination Criteria for Evaluation for


Strategy Choice and Making the Strategy Proposal

213

Session 13

Strategy Implementation & Control

232

Session 14

Managing the Changes Needed

253

Page

ANNEX

Annex 1

Seminars

Annex 2

Recommended Reading

Annex 3

Sample Assignments & Sample Examination Papers

Page

SESSION 1

STRATEGY AND STRATEGIC MANAGEMENT

STRATEGY DEFINITIONS

TYPES AND LEVELS OF STRATEGY

STRATEGIC PLANNING

DISCUSSION QUESTIONS

S 1 / 01 . 17

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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 !

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 Tzu 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 the predictable changes that may occur in its most
important surroundings environments.
A Strategy is the pattern or plan that integrates an organisations major goals, policies and
action sequences into a cohesive whole. A well formulated strategy helps to marshall and
allocate an organisations 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.

S 1 / 03 . 17

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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 companys mission, scale of operations and
spread of activities.

S 1 / 04 . 17

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Sun Tzu : All men can see the tactics whereby I conquer, but what none can see is the
strategy out of which victory is evolved.
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
Now, consider these inputs and attempt to define the term STRATEGY !!
One thing is clear, if strategy is designed to deploy resources to achieve a favourable outcome
in the longer term, it is NOT EASILY REVERSED.

S 1 / 05 . 17

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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 : -

Sun Tzu

(Art of War)

Igor Ansoff

(of Corporate Strategy)

Marvin Bower

(of McKinsey)

Andrin Campbell

(Ashridge Strategic Management Centre & A Sense of Mission)

Alfred Chandler

(Strategy & Structure; advocate of decentralisation)

Edwards Deming

(Originator of the quality revolution)

Michael Goold

(Strategies & Styles. Corporate Level Strategy)

S 1 / 06 . 17

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STRATEGY THINKERS A SAMPLE


Charles Hampdenturner

(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)

S 1 / 07 . 17

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10

STRATEGY THINKERS A SAMPLE


Michael Porter

(Competitive Strategy & the 5 Forces)

Edgar Schein

(Process consulting, the psychological contract & corporate culture)

Alfred Sloan

(Decentralisation, Segmentation, Profit Centred Management Structures)

S 1 / 08 . 17

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11

TYPES AND LEVELS OF STRATEGY


CORPORATE
LEVEL

BUSINESS UNIT
LEVEL

OPERATIONAL
LEVEL

INDIVIDUAL
LEVEL

S 1 / 09 . 17

Corporate level strategies are broadly defined and therefore


relate to the business as a whole eg. strategic positioning,
sustainable competitive advantage, supply chain integration etc.
Strategies which relate to functional business units within an
organisation eg. Operations, Human Capital, Finance, Research
& Development.
Within the business units, strategies are devised for operational
performance.

Depending upon your managerial position in the organisation, a


range of individual strategies can be used to reinforce your
personal position.
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12

Henry Mintzberg used an approach defining strategy from a perspective of 5 Ps : STRATEGY AS A PLAN

ie. a course of action.

STRATEGY AS A PLOY

ie. a type of manouver to outwit another.

STRATEGY AS A PATTERN

ie. a specific formula.

STRATEGY AS A POSITION

ie .a place to be achieved.

STRATEGY AS A PESPECTIVE

ie. a stance to be taken

These ideas can be used at different organisational levels as outlined one Page 12.

S 1 / 10 . 17

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13

STRATEGIC PLANNING
The terms Strategy and Strategic Management are complementary to Strategic
Planning , the details of which will be explained throughout this manual. There is however a
simple but effective approach for producing a strategic plan which can be applied to anything
from business situations to personal life.
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 in any management situation where strategy
has to be crafted and decided. This simple sequence works well.
If a more scientific approach is needed, so that one can map the way through the strategic
planning process, the following roadmap of 14 steps will provide a robust framework from
which to proceed (page 15 and 16).

Strategic Planning, (see Figure 1.1) in simple terms, should answer the following 6
questions : S 1 / 11 . 17

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14

FIGURE 1.1

Where are we now?


And where have we come from?

Where do we want to be?


And by when?

How might we get there?

Which way is best?

How do we ensure arrival?

6
S 1 / 12 . 17

What are the expected outcomes?


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15

THE STRATEGIC PLANNING PROCESS


A ROAD MAP TO ESSENTIAL STAGES
1.

Assessing facts about the current environment, both internal and external

2.

Setting assumptions about existing and future internal and external environmental
conditions

3.

Assessing resources available

4.

Setting timescales for planning and implementation

5.

Deciding new objectives and change to existing objectives

6.

Reviewing resource needs to meet objectives against resources available

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16

7.

Determining alternative strategies to accomplish objectives

8.

Setting criteria to evaluate alternative strategies, including the critical factors for success

9.

Selecting a chosen strategic route

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


11. Preparing implementation teams, plans processes and procedures & levels of authority
12. Establishing controls to monitor performance progression
13. Preparing for contingencies if assumptions are unfulfilled or if strategies are over or under
achieved
14. Ensuring all works within an agreed budget and timescale.
Familiarity with the language of strategic management will help to produce a more strategic
managerial mindset, which is important for upward career development.
S 1 / 14 . 17

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17

STRATEGIC MANAGEMENT
In order to understand strategic management in simple but effective terms, the following model
has been designed for this manual.
From this Strategic Management Process Model (Figure 1.2), the following processes should be
appreciated : 1.

Knowing the drivers for change and setting strategic direction

2.

Analyzing internal and external environments

3.

Reviewing internal capabilities

4.

Identifying strategic options to achieve the strategic direction

5.

Evaluating strategic options and making the preferred choice

6.

Implementing strategy and reviewing progress

7.

Managing the needed changes, which may be both prescriptive and emergent
S 1 / 15 . 17

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18

STRATEGIC MANAGEMENT PROCESS MODEL


DRIVERS FOR CHANGE
EXTERNAL & INTERNAL

STRATEGIC DIRECTION

EXTERNAL
ENVIRONMENTAL
ANALYSIS

INTERNAL
ENVIRONMENTAL
ANALYSIS

STRATEGY DETERMINATION

STRATEGY OPTIONS
CRITERIA FOR EVALUATION
STRATEGY CHOICE

STRATEGY IMPLEMENTATION & CONTROL

MANAGING CHANGE

FIGURE 1.2
L C MASSINGHAM 2003

S 1 / 16 . 17

OUTCOMES FROM
CHANGE
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19

DISCUSSION QUESTIONS
1.

FROM
THE
INPUTS
IN
THE
MANUAL
AND
YOUR
OWN
PERCEPTIONS,EXTRACT THE KEY INGREDIENTS OF THE DEFINITIONS
FOR STRATEGY AND THEN CRAFT YOUR OWN DEFINITION.

2.

APPLY YOUR DEFINITION TO ONE OF THE FOLLOWING : -- A POLITICAL PARTY


-- AN NON-PROFIT MAKING ORGANISATION
-- A MULTINATIONAL ORGANISATION
-- YOURSELF

3.

USING THE STRATEGIC MANAGEMENT PROCESS MODEL, DISCUSS THE


MAIN CHALLENGES THAT MANAGERS MAY HAVE WHEN EMPLOYING IT.

S 1 / 17 . 17

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20

SESSION 2

THE DRIVERS FOR CHANGE AND


THE STRATEGIC RESPONSE

THE STRATEGIC MANAGEMENT PROCESS MODEL

INTERNAL DRIVERS

EXTERNAL DRIVERS

PRESCRIPTIVE APPROACH

EMERGENT APPROACH

RESPONDING TO DRIVERS FOR CHANGE

USING SWOT ANALYSIS AS A DRIVER FOR CHANGE

DISCUSSION QUESTIONS

S 2 / 01 . 19

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21

THE STRATEGIC MANAGEMENT PROCESS MODEL - DRIVERS FOR CHANGE


As can be seen from the model (Figure 1.2), the drivers for change are the main influence
behind the process of strategic management.
As businesses and organisations interact with their internal and external environments, there is
a need to be responsive, ready, resilient and resourceful.
Therefore it is appropriate that some 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.

S 2 / 02 . 19

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22

KANTNER et al (1992) argues that these strategy drivers are derived from 3 levels : THE MICRO INTERNAL ENVIRONMENT
THE MACRO EXTERNAL ENVIRONMENT
POLITICAL FORCES AT THE INDIVIDUAL LEVEL IN THE ORGANISATION
This provides a clear, simple and effective summary.

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.

S 2 / 03 . 19

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23

THE EXTERNAL ENVIRONMENT


The conditions which encourage drivers for change are derived from Political, Economic,
Social, Technological, Legal and Ecological environments (PESTLE, SLEPT, PEST).
This is well known and has become a managerial clich 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 and associated globalisation
Sustainability / Vulnerability of Current Competitive Positioning

All of which, collectively will drive a need for change from the external environment.
S 2 / 04 . 19

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24

RESPONDING TO THE DRIVERS


There is a fundamental requirement to achieve a realised strategy. However, we need to
understand that this may be derived from two main approaches : -

A PRESCRIPTIVE APPROACH
AN EMERGENT APPROACH
A COMBINATION OF BOTH

S 2 / 05 . 19

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25

THE PRESCRIPTIVE APPROACH

The Prescriptive Approach to strategy determination is : Pre Planned


Controlled
Rational
Analytical
Proactive

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26

THE EMERGENT APPROACH

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


Often Turbulent
Experiential
Maybe Considered Irrational
Unplanned
Impulsive
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27

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 : 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.
S 2 / 08 . 19

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28

In practice, discussions may often be held by those who are affected by strategy
decisions, more so than those taking strategy decisions, simply because the rationale
for strategy decisions has not been adequately communicated.
Moreover, some approaches to strategy decisions may have been taken as a result of an
impending crisis, where the risk attached to strategy decisions may be significant.
Strategy decisions will also be driven by the current market position ie. leader, challenger
or follower.
From the above explanation, it can be seen that the rationale for strategy decisions may be
complex !
S 2 / 09 . 19

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29

Prescriptive and emergent approaches both have a time and place utility. It is
important to realise the impact of these approaches upon
The organisation as a whole
Market place performance
The current working culture & ethics
The core values of the enterprise
The overall strategic intent.
Strategy decisions work within a dynamic environment, therefore the impact and outcome
of strategic level decisions must be considered with this clearly in mind. Furthermore all
strategy decisions must be both lead and be supported, because strategy formulation must
be followed through with strategy implementation.
S 2 / 10 . 19

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RESPONDING TO DRIVERS FOR CHANGE


Regardless of whether the response has been either Prescriptive or Emergent, the response
taken should embrace the following : -

The current organisational performance is a function of its environment


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
Quality and Governance Perspectives

S 2 / 11 . 19

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31

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

Does this strategy decision challenge our existing perceived managerial consistency
(if any) ?
Does it fit with stakeholder expectations ?
What advantage can be gained ?
Is it desirable, feasible and doable ?

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USING SWOT ANALYSIS AS A DRIVER FOR CHANGE

The Drivers for Change can be sourced from the internal and external operating
environments of the organisation. The analysis of these environments should be based upon
fact. The analysis of these facts can be achieved using a SWOT 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.
S 2 / 13 . 19

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33

This simplistic approach is only useful if the


analysis becomes actionable.
STRENGTHS

WEAKNESSES

This means that the SWOT Analysis leads to


drivers for change.
OPPORTUNITIES

THREATS

So often this is NOT the case and the SWOT


analysis becomes static. It is also important to
Figure 2.1

question the source of the analysis to ensure


that practicality and objectivity is achieved.

S 2 / 14 . 19

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34

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 :
How can SWOT Analysis help the organisation achieve its 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 : THE 5 CRITICAL ACTIONABLE SWOT FACTORS

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35

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.


S 2 / 16 . 19

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36

Once this is achieved, to make the SWOT Analysis valuable, the SWOT interactions should
be considered. It is from these interactions that drivers for change may emerge, priorities can
be established and new strategies formed.
The interactions to review are : STRENGTHS

OPPORTUNITIES

WEAKNESSES STRENGTHS

THREATS

THREATS

WEAKNESSES

OPPORTUNITIES

OPPORTUNITIES

STRENGTHS

THREATS

OPPORTUNITIES

The consequences of this analysis can then be summarised, reviewed and where appropriate
an agenda of drivers for action can be achieved.
S 2 / 17 . 19

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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.
2.
3.
4.
5.
6.

Take the 5 Most Attractive Opportunities


Screen these by Active Weaknesses
Review the Opportunities and reduce them as appropriate to determine initial internal
desirability
Review the remaining Opportunities by using External Threats as a further screen
Reduce the opportunities accordingly
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.
Session 3 will delve further into conducting external environmental analysis that is
normally used to discover opportunities and threats.
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DISCUSSION QUESTIONS
1.

CONSIDER ONE OF THE FOLLOWING :

ORGANIC FOOD
MOBILE TELECOMMUNICATIONS
LADIES FASHION APPAREL

ACCOUNT FOR WHAT IS REALLY DRIVING CHANGE.

2.

IS THERE A CASE FOR COMBINING BOTH PRESCRIPTIVE AND EMERGENT


STRATEGIES -- WHY AND HOW ?

3.

IS SWOT ANALYSIS AN EFFECTIVE MODEL TO DRIVE CHANGE ?

S 2 / 19 . 19

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SESSION 3

EXTERNAL ENVIRONMENTAL ANALYSIS (1)

INDUSTRY DEFINITION

CRITICAL SUCCESS FACTORS

PEST / SLEPT / PESTLE ANALYSIS

SCENARIO BUILDING AND CAUSAL ANALYSIS

DISCUSSION QUESTIONS

S 3 / 01 . 17

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40

The external environment must 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 Industry Definition.

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

The industry definition may simply help to answer what business are you in ?
The context of an Industry definition would also include the buyers, the suppliers and the
competition, to provide a broader explanation.
S 3 / 02 . 17

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41

To achieve an understanding of how the defined industry actually functions, it is essential to


consider the industry Critical Success Factors (CSFs). [Sometimes referred to as Industry
KSFs or Key Success Factors]
INDUSTRY CSFS
These are the attributes that are essential for delivering value to customers and which are
considered critical for industry viability.
These CSFs then can be used to assess the health of any individual business within an
industry as they may provide indicators for success or failure relative to other competitors.
By comparing any organisations CSFs 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
CSFs. The industry CSFs 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 CSFs would be : S 3 / 03 . 17

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42

Low Cost of Manufacturer

Known Brand Name

Secure Sources of Supply

Habitual Buying

Restaurant Location

Consistent Food Quality

Effective Staffing

Hygienic & Cleanliness

Each player would meet these CSFs, some maybe better than others, but the points of
competitive differentiation would probably be based on menu and food taste and service,
for example.
The concept of CSFs enables industry monitoring to be undertaken to test if the industry
is still relevant to its customers and if so, to what extent in accordance with the determined
CSFs.

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43

CSF analysis can in fact be conducted at different levels :

Industry Level
Corporate Level
Management Level
Business Function Level
Operational Level

whereby the essential conditions for success can be pre-determined and then monitored.
At industry level, the following examples maybe useful to support explanation.

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44

INDUSTRY
International Airlines

SUGGESTED CSFs

Reservation Systems
Ticket Pricing and Flexibility
Passenger Load factors
Routes
Airport Relations

Mineral Water

Bottling Capacity
Extensive Distribution Network
Low Cost Production
High Sales Volumes
Brand Identity for Market Segments

Video Game Software

Human Talent Acquisition & Retention


Innovation & Sustainable Product Development
Integrated Distribution
Brand Marketing

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Within any defined industry, it is also essential to know at least :

the markets within an industry


opportunities for segmentation strategy
Buying behaviour
the impact of technology
attitudes towards quality
the value chain linkages from supply to end-use demand (to be discussed later in this
manual)
Industry threats, overtime
Industry forecasts
Competitive Dynamics
Barriers to Industry Entry

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PEST / SLEPT / PESTLE ANALYSIS


This analysis 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

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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

Pollution control, planning policies, transport policies, disposal of


waste, alternative energy

Ecological

This form of analysis has become well known and accepted. It has also been outlined in
detail in the Marketing Management manual.
For the sake of completeness, it has been included in this Strategic Management manual.
However the essence of PESTLE Analysis is to assess how and where potential
opportunities and threats may arise.
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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 purpose of fossil fuels as oil supply diminishes
eg. Impact of the internet 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.
Scenario Analysis
This form of analysis again is focused upon future projections and actions that may be
needed.
The approach 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
and by when, then follow the sequence below : S 3 / 11 . 17

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50

STAGE 1

STATE THE SCENARIO ___________________________________

STAGE 2

WHAT HAS CAUSED THIS ?

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WEIGHT THE CAUSE


(1 10)

1. ______________________

____

2. ______________________

____

3. ______________________

____

4. ______________________

____

N. ______________________

____

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STAGE 3

WHAT IS THE LIKELY OUTCOME FROM THE STATED


SCENARIO ?

STAGE 4

WHAT WILL BE THE EFFECTS


ON THE BUSINESS ?

S 3 / 13 . 17

WEIGHT THE CAUSE


(1 10)

1. ______________________

____

2. ______________________

____

3. ______________________

____

4. ______________________

____

N. ______________________

____
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STAGE 5

LIST THE AREAS OF KEY IMPACT


1. _______________

3. _______________

5. _______________

2. _______________

4. _______________

6. _______________

STAGE 6

ASSESS THE NEED FOR CHANGE

STAGE 7

DETERMINE THE ACTIONS REQUIRED

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This is a basic process which can be modified with an increasing level of sophistication.
Scenario analysis is useful 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 alerts the managerial mindset to the need for change in order
to remain a relevant player within the industry.

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DISCUSSION QUESTIONS (1)


1. INDUSTRIES ARE OFTEN DEFINED BY PRODUCT, CONSIDER THE FOLLOWING
AND SUGGEST MORE CREATIVE INDUSTRY DEFINITIONS USING THE CUSTOMER
PERSPECTIVE TO ASSIST YOU.

COMMERCIAL TELEVISION
PRIVATE HOSPITALS
INSURANCE
RESIDENTIAL PROPERTY
PRIVATE JETS

NOW SELECT AN INDUSTRY OF YOUR CHOICE AND STATE HOW IT IS DEFINED


AND HOW IT COULD BE DEFINED.
WHAT IS THE POTENTIAL IMPACT OF YOUR NEW DEFINITIONS UPON THE
STRATEGIC MANAGEMENT OF A MARKET LEADER.
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DISCUSSION QUESTIONS (2)


2. TAKE ONE OF THE INDUSTRIES YOU HAVE SELECTED AND THEN SPECIFY THE
CRITICAL SUCCESS FACTORS WHICH ENABLE THE INDUSTRY TO FUNCTION.
PRIORITISE THESE FACTORS INTO THE TOP 5. WHAT HAVE YOU DISCOVERED ?

3. USING PESTLE ANALYSIS, CONSIDER HOW AN INDUSTRY IS IMPACTED USING


ANY INDUSTRY OF YOUR CHOICE.

S 3 / 17 . 17

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SESSION 4

EXTERNAL ENVIRONMENTAL ANALYSIS (2)

COMPETITOR ANALYSIS

COMPETITOR BENCHMARKING

PORTERS 5 FORCES

CROSS IMPACT ANALYSIS

CUSTOMER ANALYSIS

DISCUSSION QUESTIONS

S 4 / 01 . 23

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COMPETITOR ANALYSIS
As part of the external environmental review at Industry or Industry Sector level, specific
attention will be needed to assess competition across the broad market domain and then at
segment level.
The main factors to be used to conduct Industry Competitor Analysis are :

Your direct competitors, their history and market shares


New Competitors and their recent impact
The nature of indirect competition
The impact of macro environmental factors (SLEPT/PEST/PESTEL) on key
competitors
The relationships between key competitors and their suppliers
The relationships between key competitors and their customers
What all of the above means for your company in relation to your current
competitive positioning

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COMPETITOR BENCHMARKING
It has become common practice within many industries to be able to learn from ones
competitors. Hence, the term benchmarking has been coined whereby a main competitor is
used as a basis for comparison and evaluation.
For example, a local bank in Colombo, Sri Lanka may 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 benchmarking should be within the same market
domain, ie. is it realistic for a local bank to benchmark against an International Bank ?
The ultimate purpose is to identify the best practices valued by customers and suppliers and to
compare the position of your company in order to identify weaknesses for improvement.
[ Learning from benchmarking can also be applied to other industries and by making
relevant transfers of best practices, for example relating hospital customer care to the
service deliverables of a major airline. ]
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59

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

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PORTERS 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
measure 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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PORTERS 5 FORCES
MODEL OF INDUSTRY COMPETITIVENESS
New entrants

Threats
3

Suppliers

Bargaining
Power

Industry
Competitors
Intensity of
rivalry

Bargaining

Buyers

Power

Threats
Substitutes
Figure 4.1

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62

NOTE
1

INDUSTRY COMPETITORS AND RIVALRY DETERMINANTS

WHO IS COMPETING?

number and history of competitors

size

market shares

how competitors deliver KSFs

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

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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.

NOTE
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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NOTE
3

BARGAINING POWER OF SUPPLIERS

This is mainly exerted by the price demanded 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 balanced against
the availability of substitutes, essentially it is the classical supply / demand curve.

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NOTE
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.

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66

NOTE
5

THE THREAT OF NEW ENTRANTS


New entrants to an industry increases supply and may place pressure on price based
competition, if the product / service offering is directly comparable to the provision
made by existing competitors.
However, the threat of new players is related to the market entry costs and level of
investment.
Entry barriers such as brand identity, buyer switching costs, access to channels, real
product differentiation and expected competitor retaliation make the successful
entrance more difficult, especially in established markets.

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The analysis of Porters 5 Forces can be tabled from a number of perspectives as can be seen.
At a pragmatic level, two aspects should be assessed.
1. Is the force favourable or unfavourable in generating long term industry
profitability ?
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.
The analysis will also be conditioned by the industry lifecycle and the economic
environment at the time of the analysis.
It is important also to note that the 5 forces are somewhat detached from the Industry
Mindset.
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It is not just Industry Rivalry which is to be assessed but also to understand the contextual
depth of the Industry Mindset.
Therefore the Five Force Model would benefit from a contextual understanding about the
perceptions, expectations and assumptions about the industry from among key industry
players. This could be supplemented with the expected financial performance 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 Porters 5 Forces.

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, but impact analysis
would also be valuable to open up the potential 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
Supplier Power

Buyer Power

(Downstream Development Required)

(More Choice)
Figure 4.2

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70

POTENTIAL IMPACT
Competitor
Rivalry

(The Need for Innovation)

Substitutes

(Price Competition)

SUBSTITUTES
Supplier Power

(Business Sustainability)

Buyer Power

(Purchasing Behaviour)
Figure 4.3

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71

POTENTIAL IMPACT
Competitor
Rivalry

Entrants

(Brand Switching Behaviour


& Price Pressures)
(Upstream Development)

BUYER
POWER
Supplier Power

Substitutes

(Rebalancing of Demand & Supply)

(Adoption or Avoidance)
Figure 4.4

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72

POTENTIAL IMPACT
Entrants

(Industry Restructuring Potential)

Buyer Power

(Brand Switching Behaviour &


Price Pressures / Margin Pressures)

COMPETITOR
RIVALRY
Supplier Power

Substitutes

(Collaborative Alliances)

(The Need For Innovation)


Figure 4.5

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73

POTENTIAL IMPACT
Competitor
Rivalry

Entrants

(Collaborative Alliances)

(Downstream Development)

SUPPLIER
POWER
Buyer Power

Substitutes

(Rebalancing of Supply & Demand)

(Business Sustainability)
Figure 4.6

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74

CONCLUDING THE 5 FORCES ANALYSIS

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
KSFs (on CSFs).

Now have a look at the broader environment influences which Porters model ignores, ie.
PEST / SLEPT / PESTLE and conclude how these uncontrollable factors will impact
upon industry performance and 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.

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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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SUMMARY

The outcome of external environment analysis is to determine drivers for change that may
arise from the extraction and assessment of current and future OPPORTUNITIES AND
THREATS.

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77

DISCUSSION QUESTIONS

1. SELECT ONE INDUSTRY OF YOUR CHOICE AND IDENTIFY 3 MAIN


COMPETITORS. ASSUME YOU ARE A NEW ENTRANT INTO THE MARKET,
WHICH COMPETITOR WOULD YOU BENCHMARK YOUR PERFORMANCE
AGAINST AND WHY. WHAT COULD YOU LEARN FROM ANOTHER MAJOR
PLAYER IN A DISSIMILAR INDUSTRY.

2. ASSUME YOU ARE ONE OF THE LEADING 3 CAR HIRE COMPANIES WITH
GLOBAL MARKET PENETRATION, WHAT CAN YOU LEARN FROM APPLYING
PORTERS 5 FORCE MODEL ?

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3. THE INTERNATIONAL COURIER BUSINESS IS FIERCELY COMPETITIVE,


EXPLAIN WHAT THE INTENSITY OF RIVALRY IS REALLY ALL ABOUT.

WOULD THOSE FACTORS YOU HAVE DISCOVERED APPLY TO OTHER


INDUSTRIES. IF SO, WHAT THEREFORE ARE THE INSIGHTS YOU COULD
CONTRIBUTE.

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SESSION 5

INTERNAL ENVIRONMENTAL ANALYSIS (1)

RESOURCE AND CAPABILITY ANALYSIS

VALUE CHAIN ANALYSIS

PRIMARY & SUPPORT ACTIVITIES

DIFFERENTIATION ADVANTAGE

VALUE CHAIN LINKAGES

DISCUSSION QUESTIONS

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RESOURCE AND CAPABILITY ANALYSIS

THE RESOURCE AUDIT


There should be a regular review of the organisations ability to achieve its ambitions. The
resource audit is a fact finding mission upon which strategy decisions are made, because the
output of the audit will highlight weaknesses , strengths and constraints.

A sample checklist to conduct a resource audit is shown below : -

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Checklist for reviewing the businesss resources


1

MANAGEMENT AND PEOPLE


Staffing levels, staff turnover, staff profiles, competency assessments
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

OPERATIONS
Operational restrictions : Legal, regulatory framework
Operational processes
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

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

MARKETING
Pricing : Stability, margin vs cost, elasticity and constraints
Sales Performance : By Product, geographic spread, customer type, distribution channels
Customer data : Loyalty, turnover, attitude
Promotion : Effectiveness, expenditure/sales
Reputation : Complaints procedures, response times

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
ADDITIONAL ITEMS CONTEXTUALLY RELEVANT

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The resource audit is used as a route to strategy determination as shown in Figure 5.1 below :
THE ROUTE TO STRATEGY THROUGH RESOURCE & CORE COMPETENCE
1.

2.

Identify the firms resources.


Assess strengths and weaknesses
relative to competitors
What can the enterprise
deliver through core
competencies?

3.

Assess the potential of resources


and capabilities for creating,
sustaining, exploiting and
delivering a competitive edge.

4.

Select the strategy which best


exploit the firms capabilities
relative to external opportunities.

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RESOURCES

CAPABILITY

POTENTIAL FOR
SUSTAINABLE
COMPETITIVE
ADVANTAGE

STRATEGY
DETERMINATION

Identify the resource gaps


that need to be filled.
Then invest in developing
the resource base.

Figure 5.1
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84

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.
One important resource of any organisation is its core competence.
Leveraging a companys position from its core competence is one route to sustainable
competitive advantage, provided that this competency remains relevant to the market
and can be differentiated from the competition.
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. This all helps in part to answer an important question Where are we
now ? .
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85

VALUE CHAIN ANALYSIS


By converting inputs to outputs, value is created. The term value added in simple terms
is the wealth generated by the business by deducting the total costs of creating the output
from the total revenue received.
The value chain (see Figure 5.2) separates processes which convert inputs to outputs -shown as PRIMARY ACTIVITIES. These can only create value added, by using 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.
Key Result Areas for the business and even measurement tools such as Key Performance
Indicators (KPIs) can be applied within the structure of the value chain as a basis for
performance management.

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86

PORTERS VALUE CHAIN -- A GENERIC APPROACH


Figure 5.2

Infrastructure of the firm


4 support
activities

Human resource management

margin

Technology development
Procurement

5 primary
activities

In bound
logistics

Operations

Outbound
logistics

Marketing
and sales

Service

margin

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While the conventions of Porters value chain are probably 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 diagram follows the conventions of the combination of Primary and Support activities
specific to the business, which when combined produce an operating margin. Then within
these areas of activity, which will actually be the Key Result Areas (KRAs) for the
business, points of competitive differentiation can be located.
These of course will be attached to responsibilities for their delivery. To ensure that this is
achieved, KPIs can be established for performance management and review.
In this way the value chain can support business and organisational productivity. Moreover,
this is simple to understand and easy to communicate.
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88

DIFFERENTIATION ADVANTAGE THROUGH THE VALUE CHAIN


Market leading corporate reputation. MIS that supports
innovation and responsiveness to customer needs through close
internal coordination, customer centric culture

Unique product features. Fast new product


development. Design for reliability
/serviceability.

SUPPORT
ACTIVITIES

INFRASTRUCTURE ACTIVITIES :
RESEARCH, DEVELOPMENT, DESIGN

v
.

MATERIAL
HANDLING

Quality and reliability of


components and material
Just in time Inventory Systems
Preferred Supply Chain
Relationships

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v
.
v
.

SALES &
MARKETING

HOLDING,

WAREHOUSING
& DISTRIBUTION

INVENTORY

PRODUCTION

HUMAN RESOURCE DEVELOPMENT

PURCHASING,
PRIMARY
ACTIVITIES

Figure 5.3

Fast manufacturing,
Defect-free manufacturing.
Ability to produce to
customer specification
Partnership with key
customers.

DEALER
SUPPORT &
CUSTOMER
SERVICE

Fast delivery. Efficient


order processing.
Sufficient inventories to
meet unexpected orders.

Training that
supports the channel.
Total commitment to
customer service

Training for customers.


Fast, reliable repairs.
Availability of spare parts.
Training for dealers.
Customer credit terms
Iconic Advertising that enhances brand
reputation. Effective sales force. Superior
Quality sales literature & support
Database ICT linkages with Customers

Key account management.


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89

A VALUE CHAIN ANALYSIS TO DETERMINE DIFFERENTIATION ADVANTAGE


FOR A MANUFACTURER OF METAL CONTAINERS
The metal container industry is a highly competitive, mature industry. Cans lack much
potential for differentiation, and buyers (especially beverage and food canning companies) are
very powerful. Clearly, cost efficiency is essential, but there is a need to identify profitable
opportunities for differentiation.
A value chain approach is worthwhile. The following stages can be adopted : STAGE 1 . Construct value chain for firm and 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.
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90

STAGE 3. Select Key Result Areas (KRAs) 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.

STAGE 4. Identify linkages


To determine the real differentiation that is likely to create real value for the customer,
linkages are made between the firms 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.

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91

CAN MAKER

3
4

PRIMARY

ACTIVITIES

CANNER

PRIMARY

ACTIVITIES

High quality inputs


Speed and competence in maintaining
customer s canning

Reliability of supply even


during metal shortages

Fast, reliable order processing


Containers for specialized uses.
Special designs of containers.
Specially strong or light containers

Speed and flexibility of delivery

Ability to meet unexpected orders


from customers at short notice

Consistency of product. Quality of


product. Flexibility of manufacturing

Figure 5.4
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VALUE BASED LINKAGES BETWEEN THE CAN MAKER (THE SUPPLIERS)


AND THE CANNER (THE CUSTOMER)
1.

The design engineering of distinctive cans for customers end-use may in turn assist the
customers own marketing activities.

2.

Consistent quality of cans supplied lowers customers canning costs by avoiding


breakdowns and holdups on their canning lines.

3.

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).

4.

Efficient order processing can reduce customers ordering cost.

5.

Capable and fast technical support can reduce the costs of breakdowns on canning lines.

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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.

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DISCUSSION QUESTIONS
1.

DRAW UP A VALUE CHAIN FOR A COLLEGE OR UNIVERSITY WITH WHICH


YOU ARE FAMILIAR.
STATE THE POINTS OF COMPETITIVE DIFFERENTIATION AND EXPLAIN THE
VALUE CHAIN LINKAGES WITH YOUR VALUE CHAIN AS A STUDENT
PURSUING AN MBA DEGREE.
WHAT ASSUMPTIONS CAN YOU MAKE AND CONCLUSIONS CAN BE DRAWN.

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95

2.

DISCUSS HOW RESOURCE AND CAPABILITY ANALYSIS HAS A USEFUL


CONTRIBUTION TO UNDERSTANDING THE PRACTICAL APPLICATION OF
THE VALUE CHAIN.

3.

DISCUSS AND THEN CONCLUDE THE ADVANTAGES OF THE VALUE CHAIN


MODEL TO :
*

TOP MANAGEMENT OF A COMPANY

A NEW MANAGER JOINING THE COMPANY TO HEAD A TEAM FOR A


STRATEGICALLY CRITICAL DEPARTMENT RESPONSIBLE FOR
COMPANY SALES.

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SESSION 6

INTERNAL ENVIRONMENTAL ANALYSIS (2)

THE ONION MODEL

COMB ANALYSIS

LIFE CYCLE ANALYSIS IMPLICATIONS

PRODUCT PORTFOLIO ANALYSIS -- IMPLICATIONS

CLASSICAL MODELS

SERVO ANALYSIS

DISCUSSION QUESTIONS

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THE ONION MODEL


From within the value chain it is possible to highlight sources of competitive advantage.
These can then be simply displayed 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.

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).

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98

RRULE 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.

RRULE 4 :

Likewise the areas of competitive advantage which are particularly


difficult to remove are placed at the centre of the bad onion.

NN.B. : Multiple layers of competitive advantage offer a defensible position for


growth strategy. Also it gives an indication of the strategic health of the
enterprise, as determined by the lines of competitive defense.
The Onion Model can be used to define actionable strengths and weaknesses.

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THE ONION MODEL FOR A LEADING RETAIL BRAND


Figure 6.1
PURCHASING SYSTEMS

SITE
LOCATIONS

SUPPLIER LINKS
MARKET SHARE
CUSTOMER
VALUE FOR

PRODUCT
FOCUS

INVENTORY

THE BRAND

MANAGEMENT

MONEY
SERVICE

CULTURE

IN STORE MERCHANDISING
SITE
LOCATIONS

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INNOVATION
MKiS

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100

A BAD ONION OF COMPETITIVE DISADVANTAGE


Figure 6.2

PAROCHIAL TOP MANAGEMENT


MIND SET

CONSERVATIVE
CORPORATE
CULTURE
MANAGERIAL INFLEXIBILITY
EMPLOYEE ENGAGEMENT
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101

COMB ANALYSIS
Comb Analysis can be used as a basis for comparative analysis, for example in Figure 6.3 it can be
used to achieve a comparison of customers 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


score for each criteria. Plot these as a benchmark for comparison for each
supplier.

mean

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 4.6.


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102

COMB CHART

Figure 6.3

1
Brand Name

Terms of
Trade

Industry Scores

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After Sales
Service

On time
Price
Delivery
PURCHASE CRITERIA
Competitor A

Product

Promotional

Quality

Support
Competitor B
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103

Consider the following sequence.

Figure 6.4

Market : Catering Supplies For Frozen Meat


Segment : Schools
HIGH

RANKING CRITERIA

X
X

X
X

X
X

1
LOW

0
Price

X
X

X
X

Quality

Service

Packing

Delivery on Time

Complaints Handling

Credit

Segment Purchase Criteria


Overall Perception of Suppliers by schools

From the chart, the gaps between customer needs and perceived customer deliverables from suppliers in
general is significant.
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104

The chart is a useful device to help to visualise the gaps and this analysis will highlight
weaknesses which in turn became drivers for change.
The Comb Chart helps to clarify comparisons over a pre-determined set of criteria in order to
locate areas for future action.

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LIFE CYCLE ANALYSIS --- IMPLICATIONS


The discussion of the product life cycle will have been achieved 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.
2.
3.
4.
5.

Industry life cycle


Position within the industry life cycle for key competitors
Respective product life cycles within the industry for main competitors
Assessing the real need for innovation
Conducting a life cycle analysis for the companys 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 assist the Strategic Management Mindset and in so doing, drive
continuous change.
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106

Figure 6.5

LIFE CYCLES
THE PRODUCT LIFE CYCLE

SALES
SALES
AND
PROFIT

PROFIT

Introduction

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Growth

Maturity

Decline

Page

107

PRODUCT PORTFOLIO ANALYSIS --- IMPLICATIONS


The classical BCG matrix shown in Figure 6.6 is by now wellappreciated 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.
2.
3.
4.
5.
6.
7.

Where is our product portfolio now ?


Is our portfolio well-balanced ?
Is there provision for future growth ?
What is the pace of product innovation and invention ?
How long does it take to get positive cash flows from new problem children ?
What should our policies be for adding and deleting product lines ?
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.
9. 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


Figure 6.6

BCG PRODUCT PORTFOLIO MATRIX


RELATIVE
HIGH
HIGH

STARS
Product
D

GROWTH

LOW

PROBLEM CHILDREN
Product
B

MARKET

RATE

LOW

MARKET SHARE

CASH COWS

Product
A

Product
C

DOGS

* 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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109

THE DIFFUSION OF INNOVATION MODEL

Figure 6.7
Where are we in
relation to our
competitors in
providing for
market needs

SALES

Innovation

Early Adoption

Early Majority Late Majority

Laggards

(2.5%)

(13.5%)

(34%)

(16%)

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(34%)

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110

CLASSICAL MODELS
The classical models which the reader should be aware of include :

The GE Matrix of Market Attractiveness and Relative Business Strengths

The SHELL Directional Policy Matrix

The Barkspace & Harris Combined PLC and BCG Model

The Arthur D. Little Industry Maturity / Competitive Position Matrix

The Experience Curve

These models are familiar to the student as they have been covered in earlier modules. It is simply
worthy of note to mention that they area collective set of tools that can be used with benefit to
produce insight and analysis into an organisations internal operating environment.
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SERVO ANALYSIS
Another management tool to assess the companys strategic decisiveness is to use the SERVO
model. This acronym stands for :

Strategy

Environment

Resources

Values

Organisation

The approach taken is to assess each element 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 all the internal elements with the environment and
thereby assess the strategic fit between the elements of the SERVO model.
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To review each of the elements in turn.

STRATEGY
To assess strategy using SERVO analysis the approach taken is to review the firms vision, mission
and objectives, the product/market spaces in which they compete as well as the competitive strategy
and positioning. Attention should then be given to assess how the firm will build capabilities and
resources to achieve sustainable competitive advantage.
In addition the business model is used to discover how the firm can deliver value to its customers at
a satisfactory level of profitability and whether this remains viable for the future. The focus
therefore is to review the core strategy of the business.
This in itself is a comprehensive review, the challenge therefore is to assess the strategy consistency
with other elements in the SERVO model, namely the environment, resources, values and
organisation.
From this review apparent strengths and weaknesses will also be revealed.
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ENVIRONMENT
The expected division between internal and external environmental factors will be completed but at
different levels : The Task Environment
The Industry Environment
The Macro Environment

- for day to day operations


- for industry level performance and prevailing trends
- influencing the activity of the firm using the PESTEL criteria
within defined geographic boundaries

RESOURCES
Resources are fundamental assets and capabilities used to generate measureable outputs in the
marketplace. An assessment will therefore be completed for the : Financial resources
Human resources
Physical resources
Intangible resources
S 6 / 18 . 23

assessing the financial health


assessing skills base, competency base and human capital
assessing the information base and production capability
assessing brand strength, goodwill, intellectual assets and reputation.
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VALUES
Values can be both stated, or even mandated, but the real assessment 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 by the customer as well as the employee. A
qualitatitive assessment, albeit subjective, is a useful indicator of how the company culture is
working.

ORGANISATION
The most important elements in the SERVO acronym for organisation are : Culture

--

Leadership

--

Staffing
Structure
Systems

----

S 6 / 19 . 23

how the company does things day to day and the overall organisational
climate and work ethics
how the actions and behaviour of top management is visible to deliver
the mission of the enterprise
numbers, quality, retention, training in relation to business needs
the organisation chart and reporting relationships for decision-making
the flow of activities for the firm to function including core processes
and support activities
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The visual interpretation of the SERVO model is shown in Figure 6.8 below : RESOURCES

ENVIRONMENT

STRATEGY

ORGANISATION

VALUES

Figure 6.8

Figure 6.8 shows that the individual elements are interactive and therefore 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
This interactivity will assess the strengths 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
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SWOT ANALYSIS BY MARKET SEGMENT


The conclusion of the Internal Environmental Analysis using Models for Analysis, Resource,
Capability Analysis and Customer Analysis should enable a thorough evaluation to be made
of the companys 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 by Market Segment to be achieved which in turn will
feed the DRIVERS FOR CHANGE.

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DISCUSSION QUESTIONS
1.

AS A CUSTOMER WITHIN ANY COMPETITIVE RETAIL SECTOR OF YOUR CHOICE,


CONSTRUCT THE ONION MODELS FOR COMPETITIVE ADVANTAGE AND
COMPETITIVE DISADVANTAGE.
WHAT OBSERVATIONS HAVE YOU TO MAKE ABOUT COMPETITIVE DEFENSE
AND COMPETITIOVE VALUE EROSION.

2.

HOW CAN THE PRODUCT PORTFOLIO MATRIX BE USED TO UNDERSTAND CASH


FLOW FOR A MULTI-PRODUCT COMPANY OF YOUR CHOICE.

3.

DISCUSS THE BENEFITS TO BE DERIVED FROM THE SERVO MODEL.

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SESSION 7

SETTING STRATEGIC DIRECTION (1)

STRATEGIC DIRECTION

STRATEGIC INTENT
* VISION
* MISSION

S 7 / 01 . 13

DISCUSSION QUESTIONS

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120

STRATEGIC DIRECTION
The intention of Strategic Direction is to give focus, direction and purpose for an
organisation in order to achieve its corporate and operational objectives.
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 lead, motivated, tracked and guided through managerial
leadership and hence is one of the most important tenets of Strategic Management.

Strategic Direction is formed by vision and mission, the message from which cascades
from corporate, to SBU, to operational levels.

Vision and Mission is then achieved overtime through the implementation of predetermined strategies at each of these levels.

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THE STATEMENTS OF STRATEGIC INTENT


THE VISION STATEMENT
Vision is the aspirational goal of the enterprise
ie. what the company aspires to be . . . . .
the vision is a concise statement of the longer term future ambition and should be a
realistic expression of future direction to inspire employees and other stakeholders.
To be effective vision statements need to be communicated, understood, shared,
credible, be challenging . . . . and be remembered.
The essence of Vision is to be both aspirational and inspirational to stakeholders
with whom this statement of strategic intent relates.

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THE MISSION STATEMENT


A Corporate Mission is much more than good intentions and fine ideas. It represents the
framework for the entire business and the belief that the company has in itself and what it
can achieve.
Colin Marshall
at British Airways

Mission is the statement of what the organisation has to be , it 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.

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Mission gives direction and states what has to eventually 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 these statements meaningful and actionable, but all aligned to
one vision for the future.

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124

Many organisations today have Mission Statements, but a distinction needs to be made
between those who 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.
A sense of mission is essential to galvanise employees together to have a real committed
belief in the company and what it stands for.
There are many types of mission statements, and 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.


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125

THE ASHRIDGE MISSION MODEL


Figure 7.1

PURPOSE
Why the company exists

STRATEGY
The competitive position
and distinctive competence

VALUES
What the company
believes

BEHAVIOURAL STANDARDS
The behaviour patterns that
underpin the value system

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126

The challenge 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.
Alternative approaches would suggest that an effective Mission Statement should demonstrate
the following criteria.
1.
2.
3.
4.
5.
6.
7.
8.
9.
S 7 / 08 . 13

The business the Company is in


Purpose & Direction
The customer needs to be satisfied
The Broad Competitive Strategy for delivering customer value
A belief system for employees through defined values
Technologies utilised
Clarity & Simplicity and Ease of Understanding
It should capture the organisational culture
Be Credible, Sincere, Simple to understand
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127

Consider and then review the following : 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.

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 ?


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128

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.

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129

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

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130

THE MISSION GAP


As the use of mission statements has developed 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 different.
This difference can be explained by the term MISSION GAP.
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.

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DISCUSSION QUESTIONS

1. WHAT IS THE INTENDED DISTINCTION BETWEEN VISION AND MISSION ?

2. A MISSION STATEMENT IS INTENDED TO SET THE DIRECTION FOR THE


ENTERPRISE . WHY ARE THESE STATEMENTS OFTEN LEFT ON WEBSITES AND
COMPANY ENTRANCE HALLS, BUT ARE NOT KNOWN BY EMPLOYEES ?

3. SELECT A MISSION STATEMENT OF YOUR CHOICE AND THEN ASSESS ITS VALUE
USING SELECTED CRITERIA FOR EVALUATION.

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132

SESSION 8

S 8 / 01 . 17

SETTING STRATEGIC DIRECTION (2)

CORE VALUES

CAPABILITIES

CULTURE

COMPETITIVE POSITIONING

COMPETITIVE EDGE

STAKEHOLDERS

DISCUSSION QUESTIONS

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133

CORE VALUES
Core Values are the basis for a belief system for employees and therefore should influence
behaviour standards.
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.
Core Values can be mandated, they can become institutionalised and again 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 .
The embedding of core values will also contribute significantly to corporate Brand
Positioning, through the interaction of employees with customers.
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134

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 organisations core business to flourish.
It is useful to 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.
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135

CULTURE
Culture can 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 work of Johnson (1992) attempts to explain the complex
cultural web of the organisation, through which, vision, mission and different levels of strategy
to be achieved.
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, then the following dimensions are
helpful :

Rituals and routines

--

procedures for doing things

Stories

--

success, failure, grapevine, gossip

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136

Symbols

--

logos, status symbols, technical language,


language hierarchy

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.

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137

THE CULTURAL WEB (JOHNSON, 1992)

Stories

Rituals and
Routines

Control
System

Symbols

The
Paradigm
or Mindset

Power
Structures

Organisational
Structures
Figure 8.1

S 8 / 06 . 17

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138

An interesting application of the Johnson Model is : 1. To examine the existing position

2. Project the desired position

3. Identify & prioritise the gaps which exist

4. Decide how culture can be changed, albeit by also recognising that this is the
most difficult thing to achieve in business.

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139

COMPETITIVE POSITIONING
To set strategic direction requires that the company is clear about both the intended and the
secured position it has achieved in the competitive market place.

One challenge to be accepted is to discover how the customer positions the company and not
just how the company wants to position itself.

Competitive differentiation is of course at the heart of positioning, and therefore


understanding the dynamics of competitive advantage is essential, but these must be seen
from a customer perspective.

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140

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 Tze --

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. This identity is defined by the customer, not the
company because positioning is really decided in the mind of the buyer !

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141

Sun Tze, would therefore suggest research and tracking to know the enemy.
The essence of competitive positioning can be addressed in the diagram below.

POTENTIAL FOR
LOST BUSINESS

COMPETITOR
OFFERING

SUSTAINABLE
DIFFERENTIATION
FROM THE
COMPETITION

POSITIONING
COMPANY
CAPABILITY

CUSTOMER
NEEDS
RELEVANT, SUPERIOR
PERCEIVED VALUE

Figure 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.
S 8 / 10 . 17

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142

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

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143

ACHIEVING COMPETITIVE EDGE


1.
CORE CAPABILITY
(BUSINESS STRENGTHS &
EFFECTIVE STRUCTURE)

8.
MONITORING THE CONTINUED
RELEVANCE
(FEEDBACK & REVIEW)

2.
CORE VALUES
(THE BELIEF SYSTEM TO
GUIDE BEHAVIOUR)

7.

3.

RESOURCING THE VALUE CHAIN


LINKAGES
(RELATIONSHIP & DELIVERY BONDING)

CORE COMPETENCE
(TRAINING & ORGANISATIONAL
DEVELOPMENT)

6.

4.

LINKING THE COMPANY VALUE


CHAIN WITH THE CUSTOMERS
(SYNERGISE VALUE LINKAGES)

5.
SUSTAINING THE COMPETITIVE
ADVANTAGE
(TRACKING STUDIES + SUSTAINED
RESOURCING)

S 8 / 12 . 17

SOURCES OF COMPETITIVE
ADVANTAGE
(APPLY PORTERS VALUE CHAIN)

Figure 8.3
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144

STAKEHOLDERS
Strategic direction will be reviewed by a wider audience then is often acknowledged, and
hence the term given to these groups of people as STAKEHOLDERS.
They are the people and organisations who have an interest in your companys
performance !!!
Stakeholders may have power and influence, both directly and indirectly, therefore the
strategic management mindset must always consider stakeholder groups, these include : Customers

Creditors

Competitors

Equity shareholders

Local community

Industry Associations

Employees

Legal and voluntary bodies

Unions

Suppliers

Government

Charities

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145

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

Organisations are striving to live up to financial, social and environmental responsibilities


and therefore must take into account stakeholder interests in crafting a complexity of
strategies to deliver shareholder value.

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146

DISCUSSION QUESTIONS (1)


ONE WELL KNOWN INTERNATIONAL BANK HAS THE FOLLOWING CORE VALUES : TRUST
INTEGRITY
FAIRNESS

BOLDNESS
HONESTY
RESPONSIVENESS

WHAT DO YOU THINK THESE MEAN TO EMPLOYEES AT DIFFERENT LEVELS


OF THE MANAGERIAL HIERARCHY ?
HOW WOULD STRATEGIC MANAGEMENT OF THE BANK EXPECT THESE
VALUES TO BE ADOPTED ?
HOW WOULD EVERYONE KNOW THEY ARE REALLY WORKING ?

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147

DISCUSSION QUESTIONS (2)


TAKING ONE OF THE FOLLOWING INDUSTRIES, EXPLAIN HOW THE CITED
INDUSTRY PLAYER IS POSITIONED.

LONDON AS AN INTERNATIONAL TOURIST DESTINATION


THE ECONOMIST AS A WEEKLY BUSINESS MAGAZINE
THE BLACKBERRY AS A BUSINESS DEVICE

S 8 / 16 . 17

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148

DISCUSSION QUESTIONS (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 STAKEHOLDERS THAT THIS NEW DIRECTION
MUST APPEAL TO ?

S 8 / 17 . 17

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149

SESSION 9

STRATEGY DETERMINATION -- STRATEGY OPTIONS

CORPORATE OBJECTIVES

STRATEGY OPTIONS ACCORDING TO


* ANSOFF
* PORTER
* MINTZBERG

ORGANIC GROWTH

STRATEGIC ALLIANCES

DISCUSSION QUESTIONS

S 9 / 01 . 21

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150

CORPORATE OBJECTIVES
The Statements of Strategic Intent, supported with core values and competitive positioning
provide a sound foundation for strategy development.
The bridge between the two must be a set of corporate objectives which specify WHAT is
to be accomplished and BY WHEN.
These objectives will normally be : QUANTITATIVE and QUALITATIVE.
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.
Both types of objectives must be delivered within time and other resource constraints.

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151

These objectives must be SMART, ie.

Specific

Measurable

Attainable

Realistic

Time Bounded

so that they can be managed and of course provide a platform for crafting strategy and
making strategy adjustments.

There are various classical ways in which strategy can be determined as shown in the
following course content.
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152

STRATEGY OPTIONS
Any approach to business strategy designed to produce sustainable business futures, needs
to be assessed with care. This is fundamental to Strategic Management.
There are a number of classical approaches to assess strategy options. This manual will
consider 3 important but distinctly different approaches namely : -

S 9 / 04 . 21

THE ANSOFF MATRIX

THE PORTER APPROACH

THE MINTZBERG APPROACH

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153

The ANSOFF Approach (Figure 9.1) is a four box model which outlines four potential strategies :

MARKET PENETRATION
MARKET DEVELOPMENT
PRODUCT DEVELOPMENT
DIVERSIFICATION

Figure 9.1

Product / Market Growth Matrix


Existing

PRODUCTS / SERVICES

MARKET PENETRATION

MARKETS

Existing

New

S 9 / 05 . 21

Withdraw
Consolidate
Produce / Build
MARKET DEVELOPMENT
New Territories
New Segments
New Users

New

PRODUCT / SERVICE DEVELOPMENT


New to the world
New to the territory

DIVERSIFICATION
Related Markets
Horizontal or Vertical Integration
Unrelated Markets

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154

MARKET PENETRATION

is achieved by capturing more market share from an

existing product portfolio within existing markets.

MARKET DEVELOPMENT uses the existing product portfolio, but now aimed at new
markets. In fact this strategy is designed to create new market segments.

PRODUCT DEVELOPMENT is an innovation strategy to increase the existing product


portfolio but sell this to the existing customer base.

DIVERSIFICATION is achieved both within and also beyond the existing experience
and technology base to provide the 4th, but highest risk strategy.
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155

The Ansoff approach is classical, well-known and useful particularly to those in search of
market extension and growth strategies.

THE PORTER APPROACH


Some years later, Michael Porter produced a list of Generic Strategies for potential
application.
PORTERS APPROACH RECOMMENDED
SF

Cost Leadership (CL)


Segment Focus

(SF)

Differentiation

(D)

S 9 / 07 . 21

?
CL

D
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156

His approach argued that competitive advantage can either come from a cost advantage or from
being distinctly different, thereafter with either one or both of these strategies, strategic focus to
well-defined segments is needed, so that the scope of the strategy in terms of market reach can
be known and be planned for.
This approach has been used widely. Of course if any business can achieve all these strategies
combined, then this is the best case strategy scenario.
Consider McDonalds Fast Food Chain where cost leadership has been achieved and then in turn
allowing for a significant price advantage in the market. The business is well focused into defined
segments and the product as well as the brand are well differentiated. In fact McDonalds have
accomplished all 3 points on Porters triangle.
According to Porter, for companies not able to make a choice between his 3 generic strategies,
they will be stuck in the middle and going nowhere. Of course this will really depend upon the
nature of the competitive rivalry within the defined industry.
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157

COMBINING PORTER, ANSOFF AND SWOT


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

Aggressive

cost leadership + market penetration, leveraging on strengths to


pursue opportunities

Competitive

differentiation + market / product / service development with


fewer actionable strengths than major competitions

Conservative

segment focus + niche market penetration to consolidate


strengths into a superior position in the market where few
threats are present or anticipated

Exit

diversification into new markets because little potential exists


for current business and where weakness and threats for exceed
actionable strengths or current market opportunities

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158

THE MINTZBERG APPROACH


The Mintzberg approach 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.
His approach deals with
1.
2.
3.
4.
5.

LOCATING CORE BUSINESS


DISTINGUISHING CORE BUSINESS
ELABORATING THE CORE BUSINESS
EXTENDING THE CORE BUSINESS
RECONCEIVING THE CORE BUSINESS

Locating Core Business will depend upon the exposure, history and heritage related to the
lifecycle stage that the company is in the defined industry. Core business maybe located
upstream, mainstream or downstream as the company ie. where the main business volume is
based.
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159

Distinguishing the Core Business will include ensuring that the business can achieve competitive
advantage. This is where the value chain can be applied, using sources of competitive advantage that
are associated with business functions.
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.
1.

Price Differentiation

this is the most basic way to achieve product differentiation

2.

Image Differentiation

this is achieved through branding

3.

Support Differentiation

this is achieved by using value added support services which


usually is perceived as being substantial

4.

Quality Differentiation

this is achieved through, for example product features & raw


materials used

5.

Design Differentiation

6.

No Differentiation

this is simply a do nothing approach which can work if the


market is large enough

S 9 / 11 . 21

this is achieved through distinctive design and uniqueness

Page

160

Other ways of achieving distinction is to have strategies for scope often known as market
reach. The alternative approaches to scope would be :

UNIVERSAL ,

where one size fits all. This is difficult to achieve but Henry Fords
Model T did achieve it !

SEGMENTATION,

where the possibilities are diverse, but it is normal business practice


to have a segmentation strategy.

NICHE STRATEGIES, where the focus is upon one defined segment.

CUSTOMISATION ,

where each customer represents a unique segment and has a product


tailored to meet the needs or customised from scratch in which case
the strategy is for pure customisation.

Most companies will have a selected strategy for scope but large organisations may have a
combination of approaches working in different business locations.
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161

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, can be used in
Mintzbergs terms to elaborate the core business and thereby achieve growth.

Please note that a diversification strategy, normally contained within the Ansoff framework is
not included as core business.
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162

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 chain of the business.

HORIZONTAL INTEGRATION

Is achieved by extending the core business to parallel


operations, but not in the same chain of operations. It
is a form of diversification.

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163

DIVERSIFICATION

Refers to business extension, beyond the current


chain of 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.
S 9 / 15 . 21

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164

INTERNAL DEVELOPMENT
ACQUISITION & STRATEGIC
ALLIANCES

Horizontal, vertical integration and diversification


can be achieved either by internal development or by
acquisition. The strategy decision will depend upon
policies for ownership, control and level of
acceptable risks.
Forms of Partnership, Joint Ventures, Licensing,
Franchising as well as Purchase of Equity via
acquisition represent some of the viable options.

ORGANIC GROWTH

S 9 / 16 . 21

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.
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165

The following methods can be used to support


organic growth.

1. CRM systems and 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

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166

Re-concieving 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 essential by re-concieve it. There are 3 basic approaches : BUSINESS REDEFINITION
STRATEGY

A redefinition may be achieved by product, by service


or by customer need. Sometimes a creative redefinition
is used to inspire and re-motivate management, 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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167

CORE RELOCATION
STRATEGY

It may be necessary to relocate the centre of


gravity of the core business simply 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 seem a forthcoming sunset on the horizon and
there is a need to look for a new core business
location. Thereby there will be new rules of the
strategy game to learn.

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168

DISCUSSION QUESTIONS

1. TAKE ONE OF THE FOLLOWING COMPANIES AND APPLY THE ANSOFF MATRIX
TO DETERMINE THE STRATEGY OPTIONS EMPLOYED AND ALSO THAT COULD
BE AREAS FOR POTENTIAL DEVELOPMENT ?
* MCDONALDS
* BOBBI BROWN COSMETICS
* KODAK
* APPLE MACINTOSH
* NIKE
WHAT ARE YOUR OBSERVATIONS FROM THE ASSESSMENTS YOU HAVE MADE.

S 9 / 20 . 21

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169

2.

USING PORTERS 3 GENERIC COMPETITIVE STRATEGIES, ASSESS THE EXTENT


TO WHICH THESE APPLY IN ALL THE EXAMPLES CITED IN QUESTION 1.
WHAT THEREFORE ARE YOUR OBSERVATIONS.

3. DEFINE THE CORE BUSINESS FOR ONE OF THE FOLLOWING AND THEN EXPLAIN
HOW THEIR CORE BUSINESS CAN BE LEVERAGED, IF AT ALL.

S 9 / 21 . 21

THE CITY OF DAVOS IN SWITZERLAND

BARCLAYS BANK

PORSCHE OR MERCEDES

FORMULA ONE

BRITISH AIRWAYS

HILTON HOTELS

Page

170

SESSION 10

STRATEGIES FOR BUSINESS GROWTH

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

S 10 / 01 . 18

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171

SESSION 10

STRATEGIES FOR BUSINESS GROWTH

THE GROWTH PROCESS


* GROWTH DRIVERS
* GROWTH ENGINES
* THE 80 / 20 RULE
THE RATE AND PACE OF GROWTH
DISCUSSION QUESTIONS

S 10 / 02 . 18

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172

GROWTH AMBITION
Growth ambitions are part of most business organisations, simply because shareholder value
is expected to grow.
Growth therefore should be planned and it should be rewarded, it rarely happens naturally !!
Strategic planning is focused upon controlled growth, whereby growth is forecasted into a
future time horizon. This is the convention, 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.
S 10 / 03 . 18

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173

Once the route to growth has been formulated, the founding principle of growth is
Concentration, Concentration and Commitment to Concentration
so that there is a clear focus for growth, to achieve growth.
It is argued that growth has a lifecycle effect, this in fact is well understood, but lifecycles
are getting shorter and the time boundaries for growth and profits are reducing all as a
result of competition and incremental globalisation.
Within the shape of the lifecycle, a rate of growth can be envisaged, it is a fact of life that
growth comes eventual decay.
Therefore 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.
S 10 / 04 . 18

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174

The simple example is to check the rate of earnings under the product lifecycle in relation to
sales. In fact sales can continue to climb, but profits decline earlier as the market becomes
more sensitive to price and to competition invades the market territory.
What therefore are the ideal conditions for business growth ?
These conditions are a business utopia and may never be achieved, but nevertheless it may be
useful to simply explore the ideal conditions for growth.
1.
2.
3.
4.
5.
6.

Empowerment of Managerial Talent


A blue ocean where business is made in unchartered waters where nobody else has
ventured yet.
High volume of customer enquiries and repeat orders to deliver good customer
acquisition and effective customer retention.
Business growth is independent from the economics of market performance.
Net Profit is a high percentage of sales.
A monopoly position.

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175

This of course is an unachievable ideal, but it does help to create a future vision !
There must be a belief that growth can be achieved and therefore the culture of the business
must value growth, live, breathe and digest growth.
Growth has to be driven, engineered and have growth strategies aligned to maximising
asset utilisation, achieving new market opportunities consistently and committing to
emergent growth technologies.
SOME TRUISMS ABOUT GROWTH
The following statements are worthy of reflection, as there may be inherent wisdom from
which new perspectives can be appreciated.
1.
2.

To grow, find a customer to grow with.


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

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176

3.
4.
5.
6.

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


An over pre-occupation with return on investment diminishes the return from
growth.
Business As Usual is safer
As a business approaches commodity status, new business growth will be
surpressed.

Time spent on discussing these statements may provide new insights to the growth agenda.

S 10 / 07 . 18

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177

GROWTH AND ENTREPRENEURSHIP


Growth and Entrepreneurship go hand in hand together.
Entreprenuers 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 them is a quantum leap in revenue
and profit. To the Entrepreneur, growth must be accelerated. 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 !
S 10 / 08 . 18

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178

GROWTH MARKETS
Markets are made up of customers with money to spend and as inclination to buy. Therefore
to achieve business growth we must be attached to growth markets.
It is the market that will grow the business, the business cannot grow itself.
Therefore to grow, we must attract and hold customers who will grow with us. We have to
grow the customer base to grow the business.
In Business to Business Markets, if we help our 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.

S 10 / 09 . 18

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179

To succeed in this approach our customers must therefore see us as : solution provides
business growers
profit suppliers
growth experts

-----

not just supplying products


not just vendors
not just selling goods & services
not just manufacturing experts

This means we MUST KNOW OUR CUSTOMERS WELL, in fact better than they know
us !
To make this work, we need : Customers who really want to grow
Customers who want us to grow with them
Customers who will allows us to grow through them
Market Segmentation becomes vital in this process, so that we can participate in customer
sales growth and dominate selected segments.
S 10 / 10 . 18

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180

GROWTH VALUES
Our values, for our customers, as a business growth strategist must be to : -Enhance market profitability
-Support customer growth
-Bring incremental profits to customers
-Quantify results
-Drive partnerships
-Know the business growth of our customers
-Add tangible value to customer operations
Our own values for growth need 3 clear specifications : -How Much !
-How Soon !
-How Sure !
These are interpreted internally and from a customer perspective. Furthermore, these values
are deeply embedded.
S 10 / 11 . 18

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181

GROWTH MISSION
The dedication and purpose of business is a commitment to growth.
A growth mission combines the growth values into a growth culture to align with a growth
market with the power to deliver growth. The mission therefore is a mission for growth,
therefore it has to be :
Customer oriented
Customer centric
Customer driven
Customer derived
Simply because shareholder value is delivered from customer value.

S 10 / 12 . 18

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182

THE GROWTH PROCESS


Growth Drivers
Growth Engines
Adopting The 80 / 20 Rule
Growth Drivers
The real drivers are people and these people need 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.
S 10 / 13 . 18

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183

Grow Leadership Strategies


Corporate entrepreneurs should lead customers through sustainable, incremental growth and
thereby lead the business by leading the customers.
This needs to be done with a lean team adopting a policy of profit optimisation.
Management Leadership Strategies
Recognition for successful leadership will come from the profit the business generates.
Such profit is usually attached to an identity that is accepted in the market, so therefore brand
building is an essential management leadership strategy. Leveraging brand values is a certain
way to secure market recognition and in time, market dominance.

S 10 / 14 . 18

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184

Engines for Growth


Growth drivers must have Growth Engines to participate in the growth race or even the growth
marathon.
How can growth therefore be fired up ?

1.
2.
3.
4.
5.
6.
7.
8.

Move cost centres to profit centres


Leverage the companies asset base
Development Programmes for in-house entrepreneurial talent
Set up a holding company structure with right-sized subsidiaries
New joint-ventures and strategic alliances
Service Partnerships, shared risk and reward
Establish a business development company dedicated to new business only
Extend the business through adequate resourcing

S 10 / 15 . 18

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185

The 80 / 20 Rule
The work of Poreto is classical. His 80/20 rule has been proven time and time again. 80% of
customers deliver 20% of profit, but 20% of customers produce 80% of profit.
So 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.

S 10 / 16 . 18

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186

THE RATE AND PACE OF GROWTH


The growth strategist is simple-minded, focused and purposeful with the route to profit as the
mission that must be achieved.
But profit may mean more than margin !!
Corporate profitability is a measure of overall business performance, much more strategic in
fact than just the product unit margin from sales.
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.
To end this session on a cautionary note, one sure formula for long term success is
CONTROLLED GROWTH.

S 10 / 17 . 18

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187

DISCUSSION QUESTIONS
1.

IS THE ROUTE TO GROWTH THE ONLY WAY TO ACHIEVE INCREMENTAL


SHAREHOLDER VALUE ?

2. HOW IS THE GROWTH MINDSET CULTIVATED ?


3. DO ORGANISATIONS NEED ENTREPRENEURS. DO ENTREPRENEURS NEED
ORGANISATIONS ?
4. HOW CAN THE ENERGY NEEDED TO INSPIRE AND ACHEIVE PROGRESSION
GROWTH AT A RATE FAR BETTER THAN THE INDUSTRY AVERAGE BE
SUSTAINED. IS THERE A POINT OF BURN OUT ?
5. WHAT ARE THE RISKS OF EXPONENTIAL GROWTH ?
S 10 / 18 . 18

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188

SESSION 11

BLUE OCEAN STRATEGY &


BUILDING BUSINESS MODELS

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
S 11 / 01 . 18

Page

189

SESSION 11

BLUE OCEAN STRATEGY &


BUILDING BUSINESS MODELS

BUSINESS MODEL BUILDING


DEFINE THE BUSINESS MODEL
THE ARCHITECTURE OF A BUSINESS MODEL
A BUSINESS MODEL CANVAS
DISCUSSION QUESTIONS

S 11 / 01 . 23

Page

190

INTRODUCTION & DEFINITIONS


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 THEREBY MAKES
THE COMPETITION IRRELEVANT.
The Red Ocean is the competitive market place but the Blue Ocean is space yet not claimed
by competitors.
The approach therefore to competitive strategy is simply to avoid competition by finding
customers in new market spaces where untapped potential resides and hence locate the
opportunity for highly profitable growth.

S 11 / 02 . 23

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191

In blue oceans, the rules of the game have not been determined, even an approach to finding
these oceans has not been unravelled because the traditional approach to strategy in most of
the literature has been devoted to Red Ocean environments.

Blue oceans have always been with us, they just havent 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.

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

S 11 / 03 . 23

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192

So how is a blue ocean strategy different ?


The focus of the determined strategy must be upon
VALUE INNOVATION
Value Innovation is the foundation stone of blue ocean strategies.
The impact of value innovation causes a leap in value for customers and in so doing
separates the company from its competitors. In fact this then 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 be reconstructed.
S 11 / 04 . 23

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193

FOR EXAMPLE
TRADITIONAL
CIRCUS
PERFORMANCE
INTERNATIONAL
LONG HAUL
FLIGHTS
DEPARTMENT STORE
CLOTHING,
FOOT WEAR SALES
PRE-SCHOOL
KINDERGARTEN
CONVENTIONAL
DIETING
S 11 / 05 . 23

TO

TO

TO

CIRQUE DU SOLEIL which has redefined this


form of performing art to new territory.
Virgin Atlantic where new segmentation has been
achieved together with in-flight value innovation
experiences
Primart discount clothing stores dedicated to
value for money 365 days a year.

Montessori Pre-Schools
TO

TO

Philip Wain
Slimming & Wellness Centres
Page

194

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.
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 illiminated ?

Question 2

: Which factors should be reduced well below industry standards ?

As you can see, these two questions are really challenging and somewhat anarchic.
S 11 / 06 . 23

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195

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

S 11 / 07 . 23

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196

REDUCE COSTS

1.

ELIMINATE

ADD VALUE

3.

RAISE
Figure 11.1

2.

REDUCE

4. CREATE

THE FOUR ACTIONS FRAMEWORK FOR VALUE INNOVATION

ADD VALUE

REDUCE COSTS

Figure 11.2

VALUE INNOVATION
S 11 / 08 . 23

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197

The result of applying these questions successfully is that either :


a new industry is created
OR
new market boundaries are achieved within an existing industry.
This is a secure route to defining new blue oceans.

S 11 / 09 . 23

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198

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
1.

ELIMINATE

STAR PERFORMERS
ANIMAL SHOWS
MULTIPLE SHOW ARENAS
2.

REDUCE

FUN &HUMOUR
THRILL & DANGER

FROM THE TRADITIONAL CIRCUS

ADD VALUE
3.

RAISE

UNIQUE VENUES

4. CREATE
A THEME
REFINED ENVIRONMENT
MULTIPE PRODUCTIONS
ARTISTIC MUSIC & DANCE
TO CIRCUE DU SOLEIL

The Value Innovation reduced costs, added value and discovered a new market which has been
preserved as a blue ocean.
S 11 / 10 . 23

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199

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 define and 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..

S 11 / 11 . 23

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200

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 motivation


and core competencies to execute the strategy to overcome 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 be applied to smooth the path of implementation by
assessing and reducing the exposure to product development risks.

S 11 / 12 . 23

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201

The blue ocean strategy has provided an insight for management internationally, but the model
actually is descriptive , it doesnt 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.
Their text 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 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 ?

S 11 / 13 . 23

Page

202

GLOBAL EXAMPLES OF A BLUE OCEAN STRATEGY


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.
Air Asia created a Blue Ocean by targeting a new segment who previously were noncustomers ----- Today the airline is winning awards and continuing to expand.

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.
S 11 / 14 . 23

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203

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. The 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 building a business model.

S 11 / 15 . 23

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204

DEFINING 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, the business model is a formula for making money.

S 11 / 16 . 23

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205

THE ARCHITECTURE OF A BUSINESS MODEL


The following are the essential building blocks of a business model.
1. Customers

Classified into viable segments and those to avoid

2. Superior Value
Propositions

To meet needs, wants, values, expectations and solutions


for viable segments

3. Channels

To deliver the superior value propositions

4. Relationships

With suppliers and with customers

5. Revenue

Resulting from trusted relationships in delivering superior value

6. Value Chain Based


Resources

Required to enable and deliver business strategy, through the


companys value chain

S 11 / 17 . 23

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206

7.

The Key Activities

Allocated to Key Result Areas

8.

Key Partnerships

For alliances needed outside the enterprise

9.

The Cost Structure

For the business model with revenue and or profit distributions


agreed. Among more participating.

10. Competitive Strategy For positioning and sustainable differentiation

S 11 / 18 . 23

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207

These Nine elements can be modelled accordingly : Figure 11.4


KEY ACTIVITIES

CHANNELS

RELATIONSHIPS

COSTS
REVENUE

CUSTOMERS
VALUE CHAIN
BASED RESOURCES

SUPERIOR VALUE
PROPOSITIONS

PARTNERSHIPS

COMPETITION & COMPETITIVE


STRATEGY

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 11.4.
S 11 / 19 . 23

Page

208

PRIORITY
CUSTOMERS

SUPERIOR VALUE
PROPOSITIONS

CHANNELS

KEY ACTIVITIES

COMPETITION /
COMPETITIVE
STRATEGY

RELATIONSHIPS

KEY PARTNERSHIPS

COSTS & COST BUDGET

VALUE CHAIN
BASED
RESOURCES

REVENUE STREAMS & CASHFLOW

Figure 11.5

A BUSINESS MODEL CANVAS


[ADAPTED FROM OSTERWANDER & PIENEUR, BUSINESS MODEL GENERATOR 2010]
S 11 / 20 . 23

Page

209

The Business Model Canvas allows the whole design for the model to be seen on one page
with all the ingredient captured. It can be the focal point to visualise the business model
and thereby to obtain contributions from those who will take ownership for it.

The canvas as proposed, can be adjusted according to need, but it captures the essence of
the design from which plans can be developed for the required strategy implementation.

To illustrate the use of the business model canvas, the reader should refer to Figure 11.5.

S 11 / 21 . 23

Page

210

BUSINESS MODEL CANVAS FOR A LOW COST LONG HAUL AIRLINE


PRIORITY
CUSTOMERS

SUPERIOR VALUE
PROPOSITIONS

Cost Conscious
First Time
International
Budget
Travellers

Lowest Price
No Frills
Frequent Service

COMPETITION /
COMPETITIVE
STRATEGY
Only from International
Long Haul Carriers, no
budget, long haul airline
as yet

COSTS & COST BUDGET


*
*
*

Zero based budget for marginal costs only until


business is fully fledged
Fixed costs covered by parent company
Marginal costs covered by revenue streams

CHANNELS

KEY ACTIVITIES

On-line Booking
Telephone Ticket Sales

Long Haul
Europe - Asia

RELATIONSHIPS
Customer Loyalty
* Programmes
* IATA
* Intl Airport Authorities

VALUE CHAIN
BASED
RESOURCES
All provided
from parent
company, a full
cost International
Premium Airline

KEY PARTNERSHIPS
As a sub-brand of the parent
company, who have
diversified the business into
a budget provider

REVENUE STREAMS & CASHFLOW


* All revenue upfront before travel
* Positive cashflow

Figure 11.6
N.B. : THE BLUE OCEAN OF VALUE INNOVATION IS LONGHAUL BUDGET AIRTRAVEL
S 11 / 22 . 23

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211

DISCUSSION QUESTIONS

1.

DO YOU THINK THAT A BLUE OCEAN STRATEGY IS A STATE OF BUSINESS


UTOPIA OR A REALITY ?
FOR HOW LONG CAN THE OCEAN REMAIN BLUE ?

2.

IDENTIFY A BLUE OCEAN STRATEGY AND ASK WHY AND HOW IT HAS BECOME
SO.

3.

TAKE EITHER HARRODS, SELFRIDGES OR HARVEY NICHOLLS AND EXPLAIN


THEIR STRATEGY FROM A BLUE OCEAN LENS.

S 11 / 23 . 23

Page

212

SESSION 12

STRATEGY DETERMINATION -- CRITERIA FOR


EVALUATION FOR STRATEGY CHOICE AND MAKING
THE STRATEGY PROPOSAL

CRITERIA FOR EVALUATION

S 12 / 01 . 19

SWOT

GAP ANALYSIS

CONSISTENCY CRITERIA

PRAGMATIC CRITERIA

FINANCIAL CRITERIA

RISK ANALYSIS

STAKEHOLDER ANALYSIS
Page

213

CRITERIA FOR EVALUATION

DECISION MATRICES

MAKING THE CASE

MAKING THE STRATEGY PROPOSAL

DISCUSSION QUESTIONS

S 12 / 02 . 19

Page

214

CRITERIA FOR EVALUATION


In earlier sessions, Strategy Options were explained, as well as the route to determining
them.
The Strategic Management approach however, will need to explore and analyse options so
that a justified strategy can be selected 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 a variety of screening criteria so that a strategy decision
can be confirmed.
A selection of screening criteria for strategy option evaluation will now be outlined : S 12 / 03 . 19

Page

215

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 achieve
future strategy. However this is only one tool which ideally should be supplemented by
others.
S 12 / 04 . 19

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216

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.

S 12 / 05 . 19

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217

Figure 12.1 shows in diagram form the concept of Gap Analysis

PERFORMANCE

THE STRETCHED FUTURE POSITION

THE STRETCHED STRATEGIC GAP

THE DESIRED FUTURE POSITION

THE STRATEGIC GAP

THE CURRENT POSITION

Shows the current performance position, most often explained in qualitative or functional terms.

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
and
1
2 .

S 12 / 06 . 19

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218

The task therefore is to analyse : why the gap exists


the probabilities for closing it and by when
the strategies to be implemented
Therefore the concept of gap analysis becomes one criterion for evaluation, as to whether the
strategic options will achieve a desired future.
One strategy option to consider is status quo or what is also called the do nothing
strategy 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.

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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.
In rare cases, the planning gap becomes positive, whereby targets and even stretched
targets have been exceeded.
This situation with also require strategy adjustments probably in relation to resourcing and
capacity.

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CONSISTENCY CRITERIA
Evaluation criteria should also consider if the strategic options are consistent with the
strategic intent of the business and other critical performance factors namely :

Vision
Mission
Core business
Core values
Core competencies
Value chain based competitive advantage
Product portfolio positions with market segments
Existing company success factors

This provides both a solid and realistic platform against which to select future strategy .
The selected option will then have a sense of strategic logic.

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FINANCIAL FEASIBILITY CRITERIA


Where appropriate, the financial impact of the selected strategy option will need to be
assessed and justified for financial feasibility. Typical measures to apply will therefore be :

Investment level
Payback period
Return on capital
Employed
Internal cost of capital
Return on investment
Target internal rate of return
Discounted cash flows implications
Shareholder value
Cost benefit analysis

Opportunity costing between strategy


options
Liquidity ratios
Gearing ratios
Cash flow analysis
Break even analysis
Asset turnover ratios
Foreign currency exposure (forex)

A pre-determined set of financial criteria would be required for assessment of new


strategies before being progressed to the next appropriate level of management.
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PRAGMATIC CRITERIA
These criteria should not be applied at the execution of others, but rather as a simple way of
concluding the process of strategy option evaluation. This simple criteria, which all levels of
management will be able to understand are :

Suitability
Desirability
Feasibility
Acceptability

Do we want it
Do we need it
Can we do it
Can we accept it

Often top management will prefer a pragmatic approach providing that other screening tests
have been applied.
The normal tests will be : - financial feasibility
- organisational HR resource feasibility
- market feasibility (if relevant)
- gap analysis justification
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- stakeholder analysis
- risk analysis
whereby stakeholder analysis will consider the positive and negative response to be anticipated
by key stakeholder groups, arising from each strategy option. The objective here will be to
minimise risk and optimise stakeholder value added.
Risk Analysis has become part of strategy determination in many organisations in recent
years. There are now well established risk management protocols which can be followed or
adapted to assess future strategy options. The conclusion will be based upon the risk appetite
of the organisation.
Fundamental Analysis will be required to answer, among others, the following questions : 1.

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 be pre-determined and pre-classified and
will range from financial risk to relationship risk, reputational risk and so on.

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2.

What is the probability that such risks may occur ?

3.

What is the consequence for the organisation should the risk arise ?

4.

How can this risk be mitigated ?

5.

How can the risk be either avoided or be transferred ?

6.

What contingencies must we be prepared for ?

Risk is closely related to returns ; high risk = high return, low risk = low return.
So therefore the Vision, Mission and Corporate Objectives will align the risk appetite
against which the risk assessment process for strategy options will be conducted.

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STRATEGY CHOICE
A simple process is needed, by which future strategy can be selected. One simple but effective
measure is to use Decision Matrices (see below) whereby different strategy options can be
assessed using factor analysis.
CRITERIA FOR EVALUATION

WEIGHT

(For example)

(1 - 10)

1.

Leveragable Strengths

________

2.

Internal Weaknesses

________

3.

External Threats

________

4.

Gap Analysis

________

5.

Risk Analysis

________

6.

Feasibility Analysis

________

7.

Pragmatic Criteria

________

8.

Others (1 N)

________

STRATEGY OPTIONS (score 1 10)


A

Total Score

N.B. : For each option, multiply the weight by the score and then summarise to determine the factor totals.
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This simple rational approach will at least be able to assess strategy options to determine
viability between options. In so doing, it may become clear that certain options must be
discarded.

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STRATEGIC CHOICE -- MAKING THE CASE


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 : The 6 Golden Rules of Communication
Rule 1
Rule 2

Relevance
Reliability

Rule
Rule
Rule
Rule

Understandability :
Significance
:
Sufficiency
:
Practicality
:

3
4
5
6

:
:

is this relevant to expectations ?


is the proposal based on facts and stated
assumptions ?
is the message clear ?
is the proposal contextually significant ?
is there sufficient information to get a decision !!
have the limitations been communicated as well as
the real contribution of the outcomes !

These practical rules can apply to any important communication to help to get the buy-in
from the decision takers.
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MAKING A STRATEGY PROPOSAL -- A CHECKLIST


The following checklist will be an effective way to make a Strategy Proposal : 1.

Define the strategy


1.1 what is involved, what is it called, how is it to be defined
1.2 why is it needed and the main benefits to the business
1.3 implications for the business if it is adopted

2.

Suitability of the proposal


2.1 what will happen if not change is made
2.2 links to strategic intent
2.3 link to internal and external environment of the organisation
2.4 the tangible outcomes

3.

Acceptability
3.1 expected costs and financial returns
3.2 risks involved and how to reduce them
3.3 acceptability to stakeholders

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4.

Feasibility
4.1 resources and competencies needed
4.2 ability to implement at company and industry levels
4.3 implementation team who is involved
4.4 who is affected by the outcomes and how

5.

Timing
5.1 start date
5.2 GANTT Chart of phased implementation, with time scales and milestones for
achievement
5.3 completion date

NOTE :
This may need to be filtered informally before making the final proposal.
The simplest checklist should involve what, why, who, where, when, how and the
outcomes !!
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DISCUSSION QUESTIONS

1. STRATEGY DETERMINATION IS NORMALLY THE DOMAIN OF THE TOP


MANAGEMENT TEAM OF ANY ORGANISATION, TO WHAT EXTENT DO YOU
THINK STRATEGY DECISION ARE BASED UPON CRITERIA FOR EVALUATION.
FURTHERMORE DISCUSS AND PRIORITISE THE IMPORTANCE OF THE
CRITERIA OUTLINED IN THIS SESSION.

2. SHOULD THE CRITERIA BE DETERMINED BEFORE THE STRATEGY OPTION


PROPOSAL OR BE USED TO ASSESS AND/OR JUSTIFY IT ?

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SESSION 13

STRATEGY IMPLEMENTATION & CONTROL

THE IMPLEMENTATION PROCESS

PEOPLE ALIGNMENT

MOMENTUM

STRUCTURE

PROCESS AND PROCESS MONITORING

KRAS AND KPIS

BALANCED SCORE CARD

BUDGETARY CONTROL

SUMMARY

DISCUSSION QUESTIONS

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THE IMPLEMENTATION PROCESS


To move from a strategy option decision into the implementation phase involves :

STRATEGY PLANNING
STRATEGY IMPLEMENTATION
IMPLEMENTATION MONITORING
PERFORMANCE EVALUATION
REVIEW

where strategy planning for implementation will require the following :

SMART OBJECTIVES TO BE SET


ACTIONS TO BE PLANNED
TIME SCHEDULING FOR THOSE ACTIONS

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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

These two checklists provide the 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.
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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

The most challenging task is to get people aligned, supportive and productive.

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People Alignment
Non-Compliant people with non-supportive attitudes and non-committed behaviour will
produce resistance and frustrate successful implementation.
Such phenomena are a direct function of Power . . . over information, people, knowledge,
expertise etc. Power implications of change for the individuals affected, needs to be
considered with care.
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, the 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.
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IMPLEMENTATION MOMENTUM

To achieve effective implementation of strategic change, one important critical factor for
achieving success is managing momentum which means : -

1. Creating and maintaining momentum

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

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2. Maintaining momentum

Resourcing to ensure that the changes required do not fizzle out


Training those who need it
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

3. Decision making

Assign responsibility and authority


Establish systems for communication and information flow
Introduce new systems and structures to symbolise the change and to support it
Establish feedback and feedforward loop
Empower those involved

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4. Build coalitions

Select partners for support as key players as supporters


Build informal relationships
Promote uniform clear communications
Conform and attract supporters to the coalition based upon the real outcomes to be
achieved

Much of the above is about managerial soft skills, without which if is really difficult to harness
the energy required to secure the commitment needed.
Implementation Momentum is about moving people to get the job done, at a pace realistic and
relevant to stakeholder expectations.

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240

STRUCTURE
Strategy 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 through a decision making machinery for productive outcomes,
working within a framework of policies, procedures and processes.
The key question therefore is Does the existing structure provide 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.

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PROCESS AND PROCESS MONITORING


A simple framework is required to track the accomplishments overtime against tasks set, the
people engaged and the predetermined milestones. Figure 13.1 will provide a simple template.

TASK

KEY *
RESULT ALLOCATED
AREA
RESPONSIBILITY

MILESTONE TIMELINE
T1

T2

T3

T4

T5

T6

1. _______

_______

__________________

2. _______

_______

__________________

A
F
A
F

3. _______

_______

__________________
F

4. _______

_______

__________________

A
F

N. _______ _______
F - FORECAST
A - ACTUAL

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__________________

Figure 13.1
* KRA is located within the value chain of the strategy chain.
Page

242

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.

Within each KRA (Key Result Areas within the value chain of the strategy change),
processes may already exist, but may also be created for the implementation of action plans.
Processes essential for movement and so for control . Processes when appropriately explained
also stimulate transparency across the organisation.

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243

KRAs and KPIs


Within each KRA, processes can be established and key performance indicators (KPIs) be
established for reviewing the deliverable outcomes from each KRA.
Hence the structure and processes mentioned earlier must be clearly determined. KRAs
must be clearly understood. Performance can be measured for each process through a
tracking system using KPIs (Key performance indicators).
In simple, but bold terms, if a strategy change can be measured, it can be managed. If
management is responsible and accountable, implementation should be achieved,.
Process monitoring is achieved by reviewing the KPIs and checking performance
periodically.
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THE BALANCE SCORECARD


The Balanced Scorecard was originally developed by KAPLAN and NORTON in 1992, but
has since been adapted by many organisations as a system for performance and productivity
management.
The benefits to be derived are : translating strategy into performing measurements and assigning accountability for
achievement
achieving organisational synergy through alignment of measurements across the
organisation
Focusing on what is important to health organisational development
Raising questions for continuous improvement
The concept is useful to ensure that strategy implementation is monitored and controlled.
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Organisational health using the Balanced Scorecard can be measured from 4 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 this framework.
Figure 13.2 explains the concept of the Balanced Scorecard in outline.

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VISION &
STRATEGY

Financial Perspective

if we succeed,
how will we
look to
our shareholder?

Customer Perspective

To achieve my
vision, how must
I look to my
customer?

Figure 13.2
Internal Perspective

To satisfy my
Customer, at
Which processes
must I excel?

Learning and Growth Perspective


To achieve my
Vision, how must
My organisation

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learn and improve?

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247

Each perspective 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 KPIs. Often the key KPIs are known as Primary KPIs and
those of less importance, secondary KPIs. Targets are set as a metric for each movement in
a qualitative form, so that each area of measurement will have an actual performance
outcome targeted.
To achieve these outcomes, initiatives are designed and agreed.
Across the perspectives of the organisation, each employee is working towards the
achievement of KPIs. This is therefore a way of engineering the organisation for
productivity.

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248

Outcomes of performance can then be tracked, monitored and assessed. In turn this
performance can then be rewarded by way of bonus, increments and other financial
incentives, apart from the more qualitative approach which may be used to motivate
sustained performance improvement.
Therefore when making selected strategy option changes, further key question s will be :

Can this change be measured ?

What metrics (KPIs) can be used ?

Can targets be set ?

What are the actions to be taken and initiatives to be introduced to achieve the
SMART objectives dedicated to this change ?

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BUDGETARY CONTROL
Almost all strategic change will have cost implications, therefore a dedicated budgetary
allocation for the desired change will be required.
Within the budget headings for expenditure, allowances should be made for contingencies,
as unforeseen events occur and costs may arise during the life of the implementation.
Working within the budget is an essential skill for implementation.
The nature of the budget will be zero based for new strategy changes. Reference to the
subject of Financial Management will provide detail and clarity on this important area of
management.
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SUMMARY
Strategy Implementation is one of the more difficult management tasks. It is for this reason
that many planned strategies actually fail.
To guard against potential failure, the following points should be taken into account : 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 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
6. Reinforce the message of the purpose to be achieved, the outcomes & the benefits
7. Have periodic reviews.
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DISCUSSION QUESTIONS

1.

STRATEGY
DESIGN
IS
A
CREATIVE
PROCESS,
BUT
STRATEGY
IMPLEMENTATION IS A SIGNIFICANT MANAGERIAL CHALLENGE . . . WHY ?

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.

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SESSION 14

MANAGING THE CHANGES NEEDED

MODELS AND APPROACHES

LEWIN
McKINSEY 7S
KANTNER
GEMIMI 4 RS

CHANGE PROCESSES

PLANNED CHANGE
RESPONSE TO CHANGE
FORCE FIELD ANALYSIS

DISCUSSION QUESTIONS
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INTRODUCTION
The subject of Change Management has been introduced in an earlier session as part of
Strategy Implementation and Control.
This session is devoted to well known models and approaches to change as well as to the
change process.

MODELS AND APPROACHES


To add depth to the subject of change, the work of the following contributors, at least, is
suggested : -

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LEWIN
McKINSEY 7 S
KANTNER
GEMIMI 4 RS
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254

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 achieved and the changes achieved, the environment has to be refrozen to capture and
sustain the change.

Stage 1.

Unfreezing

De-stablilise the environment by exploiting stress


or dissatisfaction

Introduce additional pressure, tighter schedules,


increased targets / workloads

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Introduce new personnel


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255

Stage 2. Change

Move the unbalanced and less secure system now created


in the desired direction for achieving change by :
New reporting relationships
New incentive systems
Changing management styles

Stage 3. Refreeze

Establish a new balance at higher levels of performance


Positively reinforce new ways of working
Confirm with new symbols of change ; company
identity, office layout, performance appraisal, teams,
training

Such processes often incur a painful, confusing period of time with lowered effectiveness in
the short term. Lewins approach attempts to achieve the felt need for change by creating
insecurities. This approach needs effective leadership and support.
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McKINSEY 7 S FRAMEWORK
The McKinsey 7 S framework is outlined in Figure 14.1. Through this approach to change, it
is suggested that there are key elements.
1.
2.

Strategy
Shared Values

3.
4.

Structure
Style

5.

Systems

6.
7.

Skills
Staffing

S 14 / 05 . 17

to achieve a sense of direction and purpose with clarity


to mould a belief system which influences individual and
collective behaviour
to enable the change
to lead the change through relevant management styles with
leadership
to ensure information flows and that protocols and procedures
are in place to facilitate change
to accomplish the changes needed with relevant competencies
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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257

MC KINSEY 7 S
Shared
Values
Strategy

Figure 14.1

Style

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 for accountability the changes needed. It is also to be
recognise that some changes will be located within the 7 Ss identified.
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KANTNER
The approach taken by KANTNER argues that change may be 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 : S 14 / 07 . 17

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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
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GEMINIS 4 RS
By contrast to the work of Lewin, McKinsey and Kantner, the approach from Gemini,
posture 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

RENEW

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.


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The literature is rich with variation upon the theme of achieving change, some of which
have common ingredients and others offer new insights. As yet there isnt one formula
which has been adopted.
The student should appreciate the real complexities involved in achieving change from a
strategic management perspective.
Selling Strategy and Specifying the changes need is the subject of corporate ambition..
Achieving the changes required is a matter of corporate ability.
The matching of ambition to ability will require the effective implementation of change.
The essence of achieving change is to understand the processes required, the next section
attempts to highlight this subject.

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CHANGE PROCESSES
To manage Planned change, the following route is a starting point from which to appreciate
some of the essentials required to affect 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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4.

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

5.

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

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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 counseled.
Typical response to imposed change

INTEGRATION

PLANNING
DISCARDING
LOSS

MOOD

DENIAL
INITIAL
ADAPTATION

Figure 14.2

PRECHANGE

POST

CHANGE

PERIOD

OF

ADJUSTMENT

TIME

The time taken for readjustments will depend upon the nature of the change and the impact it
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
Adaptation

Anger and frustration as the change seems an inevitable reality

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

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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 state of
balance, then some political manouevering may be needed to swing the balance towards adoption.
THOSE AGAINST CHANGE
SOURCE
OF
RESISTANCE

POWER
BASE

[ LOCATION ]

HI

1. __________
2. __________
3. __________

4. __________

THOSE FOR CHANGE

WEIGHT
OF
RESISTANCE

WEIGHT
OF
RESISTANCE

LOW

1 10

1 - 10

HI

LOW

___
___
___

___
___
___

____
____
____

____
____
____

___
___
___

____
____
____

________
________
________

___

___

____

____

___

____

________

Total

====

====

DISEQUILIBRIUM ?

POWER
BASE

SOURCE OF
SUPPORT

[ LOCATION ]

Figure 14.3

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.
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DISCUSSION QUESTIONS

1.

FROM THE MODELS OUTLINED FROM LEWIN, MCKINSEY, KANTNER AND


GEMINI, WHAT AR THE COMMON INGREDIENTS THAT EACH MODEL SHARES
IN ITS ATTEMPT TO PROPOSE A SOLUTION TO ACHIEVING CHANGE ?

2. 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
IRRADICATED ?

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ANNEX 1

SEMINARS

Page

270

6 SEMINARS IN TOTAL ARE PLANNED FOR THIS MODULE TO COVER


POTENTIAL SYLLABUS DISCUSSION QUESTIONS PROPOSED AT THE
END OF EACH SESSION.
ASSESSMENT BASED SEMINARS SHOULD ALSO BE HELD FOR
ASSIGNMENT PREPARATION, REVISION AND EXAMINATION
BRIEFING.

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271

ASSESSMENT SEMINARS SEQUENCE


1.

ASSIGNMENT PREPARATION

2.

ASSIGNMENT OUTLINES -- PRESENTATION

3.

ASSIGNMENT OUTLINES -- PRESENTATION

4.

REVISION OF SYLLABUS TOPICS FROM FRONT SHEETS OF


EACH SESSION (TOPICS 1 TO 7)

5.

REVISION OF SYLLABUS TOPICS FROM FRONT SHEETS OF


EACH SESSION (TOPICS 8 TO 14)

6.

EXAMINATION BRIEFING

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272

SEMINAR 1 : ASSIGNMENT PREPARATION


EXPECTATIONS
University Protocols
Structure of a Good Assignment
Content Expected
Referencing to meet Academic Requirements
Examples from previous courses
Conclusion How to make this effective
Using Appendices
Student
Task

Students produce A Roadmap to address the assignment question of choice

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273

SEMINAR 2 & 3 : ASSIGNMENT OUTLINE PRESENTATION

1. Students Are Required To Present The Plan For Their Strategic Management
Assignment
2. Students Will Be Selected For Presentation Depending Upon Class Size
3. Group Feedback From Peers Will Be Obtained
4. Critique Given By Tutor
5. Tutor Explains How The Assignment Is Marked And The Criteria Used For
Assignment Evaluation

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274

SEMINAR 4 : REVISION OF SYLLABUS

TOPICS 1 TO 7

Page

275

SEMINAR 5 : REVISION OF SYLLABUS

TOPICS 8 TO 14

Page

276

SEMINAR 6 : EXAMINATION BRIEFINGS

Protocols

Examination Techniques

Tutor Expectations

The Content Of A Good Answer

Sample Questions & Answer Discussions

Criteria For Marking Examination Answers

Page

277

ANNEX 2

RECOMMENDED READING

Page

278

Ansoff, I. (1987), Corporate Strategy (revised version), McGraw-Hill

Burnes, B. (2008), Managing Change : A Strategic Approach to Organisational


Dynamics, (2nd edition), Pitman Publishing

Fleishcer, C. S. and B. E. Bensoussan (2003), Strategic and Competitive Analysis :


Methods and Techniques for Analysing Business Competition, Prentice Hall.

Johnson, G. and Scholes, K. (2008), Exploring Corporate Strategy text and cases,
Prentice Hall

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
Page

279

Porter, M. (1985), Competitive Advantage, The Free Press, Harvard, MA

Porter, M. (1998), On Competition, Harvard Business School Press

Thompson, A. A. , Gamble, J. E. and A, J. Strickland (2006), Strategy Winning in the


Marketplace , 2nd edition, New York McGraw-Hill

Page

280

ANNEX 3

ASSESSMENT
THE STRATEGIC MANAGEMENT ASSIGNMENT
AND PRESENTATION

Page

281

Your task in groups 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
sections : 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.

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282

6. Selected criteria to assess these options.


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 team presentation at a
date to be specified.

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283

INDIVIDUAL ASSIGNMENT (1)


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.

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284

INDIVIDUAL ASSIGNMENT (2)


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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285

INDIVIDUAL ASSIGNMENT (3)


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.

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286

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