Page 1 Session 1 Strategy and Strategic Management 4 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 MANUAL CONTENTSPage 2 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 213 Strategy Choice and Making the Strategy Proposal Session 13 Strategy Implementation & Control 232 Session 14 Managing the Changes Needed 253 PagePage 3 Annex 1 : Seminars Annex 2 : Recommended Reading ANNEX Annex 3 : Sample Assignments & Sample Examination PapersPage 4 SESSION 1 STRATEGY AND STRATEGIC MANAGEMENT S 1 / 01 . 17  STRATEGY DEFINITIONS  TYPES AND LEVELS OF STRATEGY  STRATEGIC PLANNING  DISCUSSION QUESTIONS Page 5 S 1 / 02 . 17 • 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 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 !Page 6 S 1 / 03 . 17 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.” 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 organisation’s major goals, policies and action sequences into a cohesive whole. A well formulated strategy helps to marshall and allocate an organisation’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment and contingent moves by intelligent opponents. ”Page 7 S 1 / 04 . 17 Bowman & Asch : “ Strategic management is the process of making and implementing strategic decisions . . . (it) is about the process of strategic change. ” McNamee : “ Strategic management … is concerned with those long run, fundamental and often irreversible decisions about the company’s mission, scale of operations and spread of activities. ”Page 8 S 1 / 05 . 17 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.Page 9 STRATEGY THINKERS – A SAMPLE 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) In pursuing your reading around this subject, the following list is a small sample of people who have been thought leaders in the subject : - S 1 / 06 . 17Page 10 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) STRATEGY THINKERS – A SAMPLE S 1 / 07 . 17Page 11 Michael Porter (Competitive Strategy & the 5 Forces) Edgar Schein (Process consulting, the psychological contract & corporate culture) Alfred Sloan (Decentralisation, Segmentation, Profit Centred Management Structures) STRATEGY THINKERS – A SAMPLE S 1 / 08 . 17Page 12 TYPES AND LEVELS OF STRATEGY 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. ; ; ; CORPORATE LEVEL OPERATIONAL LEVEL BUSINESS UNIT LEVEL ; INDIVIDUAL LEVEL Depending upon your managerial position in the organisation, a range of individual strategies can be used to reinforce your personal position. 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. S 1 / 09 . 17Page 13 Henry Mintzberg used an approach defining strategy from a perspective of 5 P’s : - 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 . 17Page 14 Strategic Planning, (see Figure 1.1) in simple terms, should answer the following 6 questions : - 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). S 1 / 11 . 17Page 15 FIGURE 1.1 Where are we now? And where have we come from? Where do we want to be? And by when? 2 3 How might we get there? 1 Which way is best? How do we ensure arrival? What are the expected outcomes? 4 5 6 S 1 / 12 . 17Page 16 S 1 / 13 . 17 THE STRATEGIC PLANNING PROCESS 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 A ROAD MAP TO ESSENTIAL STAGESPage 17 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 . 17Page 18 S 1 / 15 . 17 STRATEGIC MANAGEMENT 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 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 : -Page 19 STRATEGIC MANAGEMENT PROCESS MODEL DRIVERS FOR CHANGE EXTERNAL & INTERNAL INTERNAL ENVIRONMENTAL ANALYSIS OUTCOMES FROM CHANGE EXTERNAL ENVIRONMENTAL ANALYSIS STRATEGIC DIRECTION STRATEGY DETERMINATION • STRATEGY OPTIONS • CRITERIA FOR EVALUATION • STRATEGY CHOICE • • • STRATEGY IMPLEMENTATION & CONTROL MANAGING CHANGE L C MASSINGHAM 2003 S 1 / 16 . 17 FIGURE 1.2Page 20 DISCUSSION QUESTIONS S 1 / 17 . 17 1. FROM THE INPUTS IN THE MANUAL AND YOUR OWN PERCEPTIONS,EXTRACT THE KEY INGREDIENTS OF THE DEFINITIONS FOR STRATEGYAND THEN CRAFT YOUR OWN DEFINITION. 2. APPLYYOUR DEFINITION TO ONE OF THE FOLLOWING : - -- A POLITICAL PARTY -- AN NON-PROFITMAKING ORGANISATION -- AMULTINATIONALORGANISATION -- YOURSELF 3. USING THE STRATEGIC MANAGEMENT PROCESS MODEL, DISCUSS THE MAIN CHALLENGES THATMANAGERS MAY HAVEWHEN EMPLOYING IT.Page 21  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 SESSION 2 THE DRIVERS FOR CHANGE AND THE STRATEGIC RESPONSE S 2 / 01 . 19Page 22 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 . 19Page 23 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 . 19Page 24 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 cliché mostly in academic circles. However, apart from these prevailing conditions which are mostly uncontrollable, there are other forces to consider : - • The Industry Life Cycle • The Intensity of Competition • General Market Trends • Impact of ICT 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 . 19Page 25 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 . 19Page 26 THE PRESCRIPTIVE APPROACH The Prescriptive Approach to strategy determination is : - • Pre Planned • Controlled • Rational • Analytical • Proactive S 2 / 06 . 19Page 27 THE EMERGENT APPROACH The Emergent Approach to strategy determination, by contrast, therefore is : - • Reactive • Often Turbulent • Experiential • Maybe Considered Irrational • Unplanned • Impulsive S 2 / 07 . 19Page 28 • 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. 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 : - S 2 / 08 . 19Page 29 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 . 19Page 30 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. 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. S 2 / 10 . 19Page 31 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 . 19Page 32 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 ? S 2 / 12 . 19Page 33 USING SWOTANALYSIS 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 SWOTANALYSIS. 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 . 19Page 34 This simplistic approach is only useful if the analysis becomes actionable. This means that the SWOT Analysis leads to drivers for change. So often this is NOT the case and the SWOT analysis becomes static. It is also important to question the source of the analysis to ensure that practicality and objectivity is achieved. OPPORTUNITIES STRENGTHS THREATS WEAKNESSES Figure 2.1 S 2 / 14 . 19Page 35 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 SWOTAnalysis ineffective. An important question to raise is : “How can SWOTAnalysis 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 SWOTAnalysis is : - “ THE 5 CRITICALACTIONABLE SWOT FACTORS ” S 2 / 15 . 19Page 36 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 . 19Page 37 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 : - The consequences of this analysis can then be summarised, reviewed and where appropriate an agenda of drivers for action can be achieved. OPPORTUNITIES STRENGTHS THREATS WEAKNESSES OPPORTUNITIES STRENGTHS THREATS WEAKNESSES THREATS OPPORTUNITIES STRENGTHS OPPORTUNITIES S 2 / 17 . 19Page 38 THE OPPORTUNITYANALYSIS APPROACH Another approach that maybe used to make SWOT Analysis more useful is to take an Opportunity Analysis approach. The sequence is shown below : - 1. Take the 5 Most Attractive Opportunities 2. Screen these by ActiveWeaknesses 3. Review the Opportunities and reduce them as appropriate to determine initial internal desirability 4. Review the remaining Opportunities by using External Threats as a further screen 5. Reduce the opportunities accordingly 6. Finally link the screened opportunities to actionable strengths to determine feasibility. The outcome will be new drivers for change, potential strategy proposals and if successful, future developments. Session 3 will delve further into conducting external environmental analysis that is normally used to discover opportunities and threats. S 2 / 18 . 19Page 39 DISCUSSION QUESTIONS S 2 / 19 . 19 1. CONSIDER ONE OF THE FOLLOWING : - • ORGANIC FOOD • MOBILE TELECOMMUNICATIONS • LADIES FASHION APPAREL ACCOUNT FORWHAT IS REALLY DRIVING CHANGE. 2. IS THERE A CASE FOR COMBINING BOTH PRESCRIPTIVE AND EMERGENT STRATEGIES -- WHYAND HOW? 3. IS SWOTANALYSIS AN EFFECTIVE MODEL TO DRIVE CHANGE ?Page 40  INDUSTRY DEFINITION  CRITICAL SUCCESS FACTORS  PEST / SLEPT / PESTLE ANALYSIS  SCENARIO BUILDING AND CAUSAL ANALYSIS  DISCUSSION QUESTIONS SESSION 3 EXTERNAL ENVIRONMENTAL ANALYSIS (1) S 3 / 01 . 17Page 41 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 : - 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 • AEROSPACE INDUSTRY • INFORMATION TECHNOLOGY INDUSTRY • CAR MANUFACTURING INDUSTRY • HOSPITALITY INDUSTRYPage 42 To achieve an understanding of how the defined industry actually functions, it is essential to consider the industry Critical Success Factors (CSF’s). [Sometimes referred to as Industry KSF’s or Key Success Factors] INDUSTRY CSF’S These are the attributes that are essential for delivering value to customers and which are considered critical for industry viability. These CSF’s then can be used to assess the health of any individual business within an industry as they may provide indicators for success or failure relative to other competitors. By comparing any organisation’s CSF’s with their main competitors, competitive resilience can be assessed, in relative terms. At the most basic level, any player within a defined industry should be able to meet the CSF’s. The industry CSF’s represent the required conditions for success at a fundamental level. Beyond this, points of differentiation are required in order to remain competitive. For example, take the UK Fast Food Restaurant Industry. The CSF’s would be : - S 3 / 03 . 17Page 43 • Low Cost of Manufacturer S 3 / 04 . 17 • Known Brand Name • Secure Sources of Supply • Habitual Buying • Restaurant Location • Consistent Food Quality • Effective Staffing • Hygienic & Cleanliness Each player would meet these CSF’s, 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 CSF’s 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 CSF’s.Page 44 S 3 / 05 . 17 whereby the essential conditions for success can be pre-determined and then monitored. At industry level, the following examples maybe useful to support explanation. • Industry Level • Corporate Level • Management Level • Business Function Level • Operational Level CSF analysis can in fact be conducted at different levels : -Page 45 INDUSTRY S 3 / 06 . 17 SUGGESTED CSF’s International Airlines • 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 MarketingPage 46 Within any defined industry, it is also essential to know at least : - S 3 / 07 . 17 • 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 EntryPage 47 PEST / SLEPT / PESTLE ANALYSIS S 3 / 08 . 17 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 distributionPage 48 S 3 / 09 . 17 • Technology - Government spending on research, adoption of new technology, new products and developments, obsolescence of existing technology • Legislation - Employment law, taxation law, company law, health and safety law, patent law, industry regulations • Ecological - Pollution control, planning policies, transport policies, disposal of waste, alternative energy 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.Page 49 SCENARIO BUILDING & CAUSALANALYSIS 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. 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 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. S 3 / 10 . 17Page 50 The purpose is to establish causality, impact and consequence. 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 : - Scenario Analysis S 3 / 11 . 17 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 managementPage 51 STAGE 1 STATE THE SCENARIO ___________________________________ STAGE 2 WHAT HAS CAUSED THIS ? WEIGHT THE CAUSE (1 – 10) S 3 / 12 . 17 1. ______________________ ____ 2. ______________________ ____ 3. ______________________ ____ 4. ______________________ ____ N. ______________________ ____Page 52 STAGE 3 WHAT IS THE LIKELY OUTCOME FROMTHE STATED SCENARIO ? STAGE 4 WHATWILL BE THE EFFECTS WEIGHT THE CAUSE ON THE BUSINESS ? (1 – 10) S 3 / 13 . 17 1. ______________________ ____ 2. ______________________ ____ 3. ______________________ ____ 4. ______________________ ____ N. ______________________ ____Page 53 STAGE 5 LIST THE AREAS OF KEY IMPACT STAGE 6 ASSESS THE NEED FOR CHANGE STAGE 7 DETERMINE THE ACTIONS REQUIRED S 3 / 14 . 17 1. _______________ 2. _______________ 3. _______________ 4. _______________ 5. _______________ 6. _______________Page 54 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. S 3 / 15 . 17Page 55 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. S 3 / 16 . 17 • COMMERCIAL TELEVISION • PRIVATE HOSPITALS • INSURANCE • RESIDENTIAL PROPERTY • PRIVATE JETS NOW SELECT AN INDUSTRY OF YOUR CHOICE AND STATE HOW IT IS DEFINED AND HOWIT COULD BE DEFINED. WHAT IS THE POTENTIAL IMPACT OF YOUR NEW DEFINITIONS UPON THE STRATEGIC MANAGEMENT OFA MARKET LEADER.Page 56 DISCUSSION QUESTIONS (2) 2. TAKE ONE OF THE INDUSTRIES YOU HAVE SELECTED AND THEN SPECIFY THE CRITICAL SUCCESS FACTORSWHICH ENABLE THE INDUSTRY TO FUNCTION. PRIORITISE THESE FACTORS INTO THE TOP 5.WHAT HAVE YOU DISCOVERED ? S 3 / 17 . 17 3. USING PESTLE ANALYSIS, CONSIDER HOW AN INDUSTRY IS IMPACTED USING ANY INDUSTRY OF YOUR CHOICE.Page 57  COMPETITOR ANALYSIS  COMPETITOR BENCHMARKING  PORTERS 5 FORCES  CROSS IMPACT ANALYSIS  CUSTOMER ANALYSIS  DISCUSSION QUESTIONS SESSION 4 EXTERNAL ENVIRONMENTAL ANALYSIS (2) S 4 / 01 . 23Page 58 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 : - COMPETITOR ANALYSIS • 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 S 4 / 02 . 23Page 59 COMPETITOR BENCHMARKING It has become common practice within many industries to be able to learn from one’s 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. ] S 4 / 03 . 23Page 60 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. S 4 / 04 . 23Page 61 PORTER’S 5 FORCES One of the most useful frameworks for analysing competitive structure is that developed by Michael E. Porter. Porter suggests that competition in an industry is rooted in its underlying economic structure and therefore goes way beyond the behaviour of current competitors. Porter claims the state of competition depends upon five basic competitive forces. Together, these factors determine the ultimate profit potential in an industry where profit potential is 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. S 4 / 05 . 23Page 62 PORTER’S 5 FORCES MODEL OF INDUSTRY COMPETITIVENESS New entrants Substitutes Buyers Suppliers Industry Competitors Intensity of rivalry Threats Bargaining Power Bargaining Power Threats 5 4 2 1 3 Figure 4.1 S 4 / 06 . 23Page 63 INDUSTRY COMPETITORS AND RIVALRY DETERMINANTS • WHO IS COMPETING?  number and history of competitors  size  market shares  how competitors deliver KSF’s • 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 1 NOTE S 4 / 07 . 23Page 64 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. 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 2 NOTE S 4 / 08 . 23Page 65 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. 3 NOTE S 4 / 09 . 23Page 66 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. 4 NOTE S 4 / 10 . 23Page 67 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. 5 NOTE S 4 / 11 . 23Page 68 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. S 4 / 12 . 23Page 69 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 Porter’s 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. S 4 / 13 . 23Page 70 Consider Figure 4.2 to Figure 4.6 below. S 4 / 14 . 23 ENTRANTS Competitor Rivalry Substitutes Supplier Power Buyer Power POTENTIAL IMPACT (Potential for Industry Restructuring) (Price Competition) (Downstream Development Required) (More Choice) Figure 4.2 Page 71 S 4 / 15 . 23 SUBSTITUTES Competitor Rivalry Substitutes Supplier Power Buyer Power POTENTIAL IMPACT (The Need for Innovation) (Price Competition) (Business Sustainability) (Purchasing Behaviour) Figure 4.3 Page 72 S 4 / 16 . 23 BUYER POWER Competitor Rivalry Entrants Supplier Power Substitutes POTENTIAL IMPACT (Brand Switching Behaviour & Price Pressures) (Upstream Development) (Rebalancing of Demand & Supply) (Adoption orAvoidance) Figure 4.4 Page 73 S 4 / 17 . 23 COMPETITOR RIVALRY Entrants Buyer Power Supplier Power Substitutes POTENTIAL IMPACT (Industry Restructuring Potential) (Brand Switching Behaviour & Price Pressures / Margin Pressures) (Collaborative Alliances) (The Need For Innovation) Figure 4.5 Page 74 S 4 / 18 . 23 SUPPLIER POWER Competitor Rivalry Entrants Buyer Power Substitutes POTENTIAL IMPACT (Collaborative Alliances) (Downstream Development) (Rebalancing of Supply & Demand) (Business Sustainability) Figure 4.6 Page 75 CONCLUDING THE 5 FORCES ANALYSIS • Refer back to the Rivalry determinants. S 4 / 19 . 23 • 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 KSF’s (on CSF’s). • 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.Page 76 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. S 4 / 20 . 23Page 77 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. S 4 / 21 . 23Page 78 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 GLOBALMARKET PENETRATION, WHAT CAN YOU LEARN FROM APPLYING PORTERS 5 FORCE MODEL ? S 4 / 22 . 23Page 79 3. THE INTERNATIONAL COURIER BUSINESS IS FIERCELY COMPETITIVE, EXPLAINWHAT THE INTENSITY OF RIVALRY IS REALLYALLABOUT. WOULD THOSE FACTORS YOU HAVE DISCOVERED APPLY TO OTHER INDUSTRIES. IF SO, WHAT THEREFORE ARE THE INSIGHTS YOU COULD CONTRIBUTE. S 4 / 23 . 23Page 80  RESOURCE AND CAPABILITY ANALYSIS  VALUE CHAIN ANALYSIS  PRIMARY & SUPPORT ACTIVITIES  DIFFERENTIATION ADVANTAGE  VALUE CHAIN LINKAGES  DISCUSSION QUESTIONS SESSION 5 INTERNAL ENVIRONMENTAL ANALYSIS (1) S 5 / 01 . 17Page 81 RESOURCE AND CAPABILITYANALYSIS 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 : - S 5 / 02 . 17Page 82 Checklist for reviewing the business’s 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 2 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 S 5 / 03 . 17Page 83 3 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 4 MARKETING Pricing : Stability, margin vs cost, elasticity and constraints Sales Performance : By Product, geographic spread, customer type, distribution channels Customer data : Loyalty, turnover, attitude Promotion : Effectiveness, expenditure/sales Reputation : Complaints procedures, response times 5 FINANCE Track record : Profit, dividends, interest, cash flow, balance sheet, reserves Asset management record Major changes in accounting policies Profit and cash flow forecasts Control of debtors and creditors ADDITIONAL ITEMS CONTEXTUALLY RELEVANT S 5 / 04 . 17Page 84 THE ROUTE TO STRATEGY THROUGH RESOURCE & CORE COMPETENCE The resource audit is used as a route to strategy determination as shown in Figure 5.1 below : 1. Identify the firms resources. Assess strengths and weaknesses relative to competitors 2. 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. 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 S 5 / 05 . 17Page 85 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 company’s 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 ? ”. S 5 / 06 . 17Page 86 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 (KPI’s) can be applied within the structure of the value chain as a basis for performance management. S 5 / 07 . 17Page 87 PORTER’S VALUE CHAIN -- A GENERIC APPROACH 4 support activities 5 primary activities Infrastructure of the firm Human resource management Technology development Procurement In bound logistics Operations Outbound logistics Marketing and sales Service margin margin Figure 5.2 S 5 / 08 . 17Page 88 While the conventions of Porter’s 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 (KRA’s) 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, KPI’s 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. S 5 / 09 . 17Page 89 DIFFERENTIATION ADVANTAGE THROUGH THE VALUE CHAIN INFRASTRUCTURE ACTIVITIES : RESEARCH, DEVELOPMENT, DESIGN HUMAN RESOURCE DEVELOPMENT SUPPORT ACTIVITIES PRIMARY ACTIVITIES PURCHASING, INVENTORY HOLDING, MATERIAL HANDLING PRODUCTION WAREHOUSING & DISTRIBUTION SALES & MARKETING DEALER SUPPORT & CUSTOMER SERVICE Market leading corporate reputation. MIS that supports innovation and responsiveness to customer needs through close internal coordination, customer centric culture Quality and reliability of components and material Just in time Inventory Systems Preferred Supply Chain Relationships Fast manufacturing, Defect-free manufacturing. Ability to produce to customer specification Partnership with key customers. Fast delivery. Efficient order processing. Sufficient inventories to meet unexpected orders. Key account management. Iconic Advertising that enhances brand reputation. Effective sales force. Superior Quality sales literature & support Database ICT linkages with Customers Unique product features. Fast new product development. Design for reliability /serviceability. 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 v . v . v . Figure 5.3 S 5 / 10 . 17Page 90 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. S 5 / 11 . 17Page 91 STAGE 3. Select Key Result Areas (KRA’s) and the strengths within them Identify the internal strengths of the firm. For example, if the canning company has strong technical capabilities, it may therefore differentiate by meeting demanding design specifications and offering a high level of technical support to canning customers. STAGE 4. Identify linkages To determine the real differentiation that is likely to create real value for the customer, linkages are made between the firm’s potential for differentiation and the potential for reducing cost or adding value in any of the customers activities. Five examples are shown in Figure 5.4. S 5 / 12 . 17Page 92 CAN MAKER High quality inputs Reliability of supply even during metal shortages Containers for specialized uses. Special designs of containers. Specially strong or light containers Consistency of product. Quality of product. Flexibility of manufacturing Speed and competence in maintaining customer ‘s canning Fast, reliable order processing Speed and flexibility of delivery Ability to meet unexpected orders from customers at short notice CANNER 1 2 3 4 5 P R I M A R Y A C T I V I T I E S P R I M A R Y A C T I V I T I E S Figure 5.4 S 5 / 13 . 17Page 93 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. VALUE BASED LINKAGES BETWEEN THE CAN MAKER (THE SUPPLIERS) AND THE CANNER (THE CUSTOMER) S 5 / 14 . 17Page 94 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. S 5 / 15 . 17Page 95 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. S 5 / 16 . 17Page 96 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 : * TOPMANAGEMENT OFA COMPANY * A NEW MANAGER JOINING THE COMPANY TO HEAD A TEAM FOR A STRATEGICALLY CRITICAL DEPARTMENT RESPONSIBLE FOR COMPANY SALES. S 5 / 17 . 17Page 97  THE ONION MODEL  COMB ANALYSIS  LIFE CYCLE ANALYSIS IMPLICATIONS  PRODUCT PORTFOLIO ANALYSIS -- IMPLICATIONS  CLASSICAL MODELS  SERVO ANALYSIS  DISCUSSION QUESTIONS S 6 / 01 . 23 SESSION 6 INTERNAL ENVIRONMENTAL ANALYSIS (2)Page 98 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). 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). The following rules can be applied to develop the Onion Model : - S 6 / 02 . 23Page 99 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. S 6 / 03 . 23Page 100 THE ONION MODEL FOR A LEADING RETAIL BRAND PURCHASING SYSTEMS SUPPLIER LINKS MARKET SHARE CUSTOMER VALUE FOR THE BRAND PRODUCT FOCUS MONEY SERVICE CULTURE IN STORE MERCHANDISING INNOVATION MKiS SITE LOCATIONS INVEN- TORY MANA- GEMENT SITE LOCATIONS Figure 6.1 S 6 / 04 . 23Page 101 A BAD ONION OF COMPETITIVE DISADVANTAGE PAROCHIAL TOP MANAGEMENT MIND SET CONSERVATIVE CORPORATE CULTURE MANAGERIAL INFLEXIBILITY EMPLOYEE ENGAGEMENT Figure 6.2 S 6 / 05 . 23Page 102 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 customer’s purchase criteria with comparative ratings of alternative suppliers. This simple visual analysis enables the analyst to understand differential competitive advantage from a market place perspective. The steps to take are as follows : - STEP 1 Identify, through research, purchase criteria and calculate the mean score for each criteria. Plot these as a benchmark for comparison for each supplier. STEP 2 Then determine from the same sample how each competitor is rated on the same criteria and calculate mean scores for the sample, (or industry) as a whole. STEP 3 Overlay the results to produce a Comb chart and interpret the data. The Comb Chart produced can be appreciated in Figure 4.6. S 6 / 06 . 23Page 103 COMB CHART 1 2 3 4 5 Brand Name Terms of Trade After Sales Service On time Delivery Price Product Quality Promotional Support Industry Scores Competitor ‘A’ Competitor ‘B’ PURCHASE CRITERIA Figure 6.3 S 6 / 07 . 23Page 104 Consider the following sequence. Market : Catering Supplies For Frozen Meat Segment : Schools 1 2 3 4 5 Price Quality Service Packing Delivery on Time Complaints Handling Credit RANKING CRITERIA 0 HIGH LOW X X X X X X X X X X X X X X Segment Purchase Criteria X X Overall Perception of Suppliers by schools From the chart, the ‘gaps’ between customer needs and perceived customer deliverables from suppliers in general is significant. Figure 6.4 S 6 / 08 . 23Page 105 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. S 6 / 09 . 23Page 106 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. Industry life cycle 2. Position within the industry life cycle for key competitors 3. Respective product life cycles within the industry for main competitors 4. Assessing the real need for innovation 5. Conducting a life cycle analysis for the company’s total product portfolio and draw conclusions about the current position, the desired position and how to manage the gap in life cycle terms. Life cycle analysis can therefore assist the Strategic Management Mindset and in so doing, drive continuous change. S 6 / 10 . 23Page 107 LIFE CYCLES THE PRODUCT LIFE CYCLE Introduction Growth Maturity Decline SALES AND PROFIT SALES PROFIT Figure 6.5 S 6 / 11 . 23Page 108 PRODUCT PORTFOLIO ANALYSIS --- IMPLICATIONS The classical BCG matrix shown in Figure 6.6 is by now well–appreciated from the studies on Marketing Management. It is not intended to discuss these basics again, in this module on Strategic Management, but rather to consider the implications of this analysis for driving change. Key questions need to be answered : - 1. Where is our product portfolio now ? 2. Is our portfolio well-balanced ? 3. Is there provision for future growth ? 4. What is the pace of product innovation and invention ? 5. How long does it take to get positive cash flows from new problem children ? 6. What should our policies be for adding and deleting product lines ? 7. How does our portfolio compare with the leading competitors in the industry and by market segment ? 8. Where should future product based investment be located. 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 ? S 6 / 12 . 23Page 109 PRODUCT PORTFOLIO ANALYSIS BCG PRODUCT PORTFOLIO MATRIX HIGH LOW HIGH LOW MARKET GROWTH RATE “STARS” “PROBLEM CHILDREN” “CASH COWS” “DOGS” RELATIVE MARKET SHARE Product D Product B Product A Product C * The breakpoint depends on the industry eg : Steel 3%, Food Retailing 8% and based on Country Market Segments. ** Market Share is your share relative to the four largest Players in the market. Figure 6.6 S 6 / 13 . 23Page 110 THE DIFFUSION OF INNOVATION MODEL Innovation (2.5%) Early Adoption (13.5%) Early Majority (34%) Late Majority (34%) Laggards (16%) SALES Figure 6.7 Where are we in relation to our competitors in providing for market needs ? S 6 / 14 . 23Page 111 CLASSICALMODELS 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 organisation’s internal operating environment. S 6 / 15 . 23Page 112 SERVO ANALYSIS Another management tool to assess the company’s strategic decisiveness is to use the SERVO model. This acronym stands for : 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. • Strategy • Environment • Resources • Values • Organisation S 6 / 16 . 23Page 113 STRATEGY To review each of the elements in turn. To assess strategy using SERVO analysis the approach taken is to review the firm’s vision, mission and objectives, the product/market spaces in which they compete as well as the competitive strategy and positioning. Attention 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. S 6 / 17 . 23Page 114 ENVIRONMENT The expected division between internal and external environmental factors will be completed but at different levels : - The Task Environment - for day to day operations The Industry Environment - for industry level performance and prevailing trends The Macro Environment - 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 - assessing the financial health Human resources - assessing skills base, competency base and human capital Physical resources - assessing the information base and production capability Intangible resources - assessing brand strength, goodwill, intellectual assets and reputation. S 6 / 18 . 23Page 115 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 -- how the company ‘does things’ day to day and the overall organisational climate and work ethics Leadership -- how the actions and behaviour of top management is visible to deliver the mission of the enterprise Staffing -- numbers, quality, retention, training in relation to business needs Structure -- the organisation chart and reporting relationships for decision-making Systems -- the flow of activities for the firm to function including core processes and support activities S 6 / 19 . 23Page 116 The visual interpretation of the SERVO model is shown in Figure 6.8 below : - ENVIRONMENT Figure 6.8 shows that the individual elements are interactive and therefore should be assessed STRATEGY VALUES RESOURCES ORGANISATION • independently and then • interactively Figure 6.8 S 6 / 20 . 23Page 117 To assess interactivity, a cross-impact matrix can be used as shown in the matrix below : - 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. S E R V O S E R V O The conclusion derived from SERVO analysis will be : - • A set of apparent strengths & weaknesses • An assessment of strategic fit • A review of strategic balance S 6 / 21 . 23Page 118 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 company’s STRENGTHS ANDWEAKNESSES. 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. S 6 / 22 . 23Page 119 DISCUSSION QUESTIONS 1. AS A CUSTOMERWITHIN 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 FLOWFOR AMULTI-PRODUCT COMPANY OF YOUR CHOICE. 3. DISCUSS THE BENEFITS TO BE DERIVED FROMTHE SERVO MODEL. S 6 / 23 . 23Page 120  STRATEGIC DIRECTION  STRATEGIC INTENT * VISION * MISSION  DISCUSSION QUESTIONS SESSION 7 SETTING STRATEGIC DIRECTION (1) S 7 / 01 . 13Page 121 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. S 7 / 02 . 13 • 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 pre- determined strategies at each of these levels.Page 122 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. S 7 / 03 . 13Page 123 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 S 7 / 04 . 13 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.Page 124 S 7 / 05 . 13 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.Page 125 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 : - S 7 / 06 . 13 • PURPOSE • VALUES • STRATEGY • BEHAVIOURAL STANDARDS This is shown more clearly in Figure 7.1.Page 126 THE ASHRIDGE MISSION MODEL S 7 / 07 . 13 PURPOSE Why the company exists STRATEGY The competitive position and distinctive competence BEHAVIOURAL STANDARDS The behaviour patterns that underpin the value system VALUES What the company believes Figure 7.1 Page 127 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. The business the Company is in 2. Purpose & Direction 3. The customer needs to be satisfied 4. The Broad Competitive Strategy for delivering customer value 5. A belief system for employees through defined values 6. Technologies utilised 7. Clarity & Simplicity and Ease of Understanding 8. It should capture the organisational culture 9. Be Credible, Sincere, Simple to understand S 7 / 08 . 13Page 128 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. 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. Worldwide Mission Statement (2) The companies are well-known, but do they really have a mission ? S 7 / 09 . 13Page 129 Consider the following mission from an Asian based Fast Moving Consumer Goods (FMCG) company : - 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. AMission 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.’ S 7 / 10 . 13Page 130 TYPICAL PITFALLS By researching a wide range of mission statements, it is clear that there are typical pitfalls : - S 7 / 11 . 13 • 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 actionablePage 131 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. S 7 / 12 . 13Page 132 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 AMISSION STATEMENT OF YOUR CHOICE AND THEN ASSESS ITS VALUE USING SELECTED CRITERIA FOR EVALUATION. S 7 / 13 . 13Page 133  CORE VALUES  CAPABILITIES  CULTURE  COMPETITIVE POSITIONING  COMPETITIVE EDGE  STAKEHOLDERS  DISCUSSION QUESTIONS S 8 / 01 . 17 SESSION 8 SETTING STRATEGIC DIRECTION (2)Page 134 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. S 8 / 02 . 17Page 135 CAPABILITIES Capabilities (or competencies) are a core component for business sustainability, providing that they remain relevant for organisational effectiveness and market place needs. Competitive differentiation and competitive advantage are secured from core capabilities. Such capabilities need to be leveraged to drive business values and support shareholder value. Core Capabilities (or core competencies) enable the organisation’s core business to flourish. It is useful to 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. S 8 / 03 . 17Page 136 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 : - S 8 / 04 . 17 • Rituals and routines -- procedures for doing things • Stories -- success, failure, grapevine, gossipPage 137 S 8 / 05 . 17 • 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.Page 138 THE CULTURAL WEB (JOHNSON, 1992) Stories Rituals and Routines Power Structures Symbols The Paradigm or Mindset Control System Organisational Structures Figure 8.1 S 8 / 06 . 17Page 139 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. S 8 / 07 . 17 An interesting application of the Johnson Model is : -Page 140 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. S 8 / 08 . 17Page 141 “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’ ! S 8 / 09 . 17Page 142 Sun Tze, would therefore suggest research and tracking to “know the enemy”. The essence of competitive positioning can be addressed in the diagram below. POSITIONING POTENTIAL FOR LOST BUSINESS SUSTAINABLE DIFFERENTIATION FROM THE COMPETITION CUSTOMER NEEDS COMPANY CAPABILITY RELEVANT, SUPERIOR PERCEIVED VALUE COMPETITOR OFFERING 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. Figure 8.2 S 8 / 10 . 17Page 143 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. S 8 / 11 . 17Page 144 ACHIEVING COMPETITIVE EDGE 1. CORE CAPABILITY (BUSINESS STRENGTHS & EFFECTIVE STRUCTURE) S 8 / 12 . 17 2. CORE VALUES (THE BELIEF SYSTEM TO GUIDE BEHAVIOUR) 3. CORE COMPETENCE (TRAINING & ORGANISATIONAL DEVELOPMENT) 4. SOURCES OF COMPETITIVE ADVANTAGE (APPLY PORTERS VALUE CHAIN) 5. SUSTAINING THE COMPETITIVE ADVANTAGE (TRACKING STUDIES + SUSTAINED RESOURCING) 6. LINKING THE COMPANY VALUE CHAIN WITH THE CUSTOMERS (SYNERGISE VALUE LINKAGES) 7. RESOURCING THE VALUE CHAIN LINKAGES (RELATIONSHIP & DELIVERY BONDING) 8. MONITORING THE CONTINUED RELEVANCE (FEEDBACK & REVIEW) Figure 8.3 Page 145 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 company’s performance !!! Stakeholders may have power and influence, both directly and indirectly, therefore the strategic management mindset must always consider stakeholder groups, these include : - • Customers • Equity shareholders • Employees • Suppliers S 8 / 13 . 17 • Creditors • Local community • Legal and voluntary bodies • Government • Competitors • Industry Associations • Unions • CharitiesPage 146 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. S 8 / 14 . 17Page 147 DISCUSSION QUESTIONS (1) ONEWELL KNOWN INTERNATIONAL BANK HAS THE FOLLOWING CORE VALUES : - S 8 / 15 . 17 • 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 ? • HOWWOULD EVERYONE KNOWTHEYARE REALLYWORKING ?Page 148 DISCUSSION QUESTIONS (2) TAKING ONE OF THE FOLLOWING INDUSTRIES, EXPLAIN HOW THE CITED INDUSTRY PLAYER IS POSITIONED. S 8 / 16 . 17 • LONDON AS AN INTERNATIONAL TOURIST DESTINATION • THE ECONOMIST AS AWEEKLY BUSINESS MAGAZINE • THE BLACKBERRYAS A BUSINESS DEVICEPage 149 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 . 17Page 150  CORPORATE OBJECTIVES  STRATEGY OPTIONS ACCORDING TO * ANSOFF * PORTER * MINTZBERG  ORGANIC GROWTH  STRATEGIC ALLIANCES  DISCUSSION QUESTIONS S 9 / 01 . 21 SESSION 9 STRATEGY DETERMINATION -- STRATEGY OPTIONSPage 151 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. S 9 / 02 . 21 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.Page 152 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. S 9 / 03 . 21Page 153 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 : - • THE ANSOFF MATRIX • THE PORTER APPROACH • THE MINTZBERG APPROACH S 9 / 04 . 21Page 154 The ANSOFF Approach (Figure 9.1) is a four box model which outlines four potential strategies : - S 9 / 05 . 21 • MARKET PENETRATION • MARKET DEVELOPMENT • PRODUCT DEVELOPMENT • DIVERSIFICATION Product / Market Growth Matrix • Withdraw • Consolidate • Produce / Build PRODUCT / SERVICE DEVELOPMENT Existing New PRODUCTS / SERVICES New MARKETS Existing DIVERSIFICATION MARKET PENETRATION MARKET DEVELOPMENT • New Territories • New Segments • New Users • New to the world • New to the territory • Related Markets • Horizontal or Vertical Integration • Unrelated Markets Figure 9.1 Page 155 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. S 9 / 06 . 21Page 156 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 Cost Leadership (CL) Segment Focus (SF) Differentiation (D) S 9 / 07 . 21 SF D CL ?Page 157 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. S 9 / 08 . 21 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.Page 158 COMBINING PORTER, ANSOFFAND 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 S 9 / 09 . 21Page 159 THE MINTZBERGAPPROACH 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. LOCATING CORE BUSINESS 2. DISTINGUISHING CORE BUSINESS 3. ELABORATING THE CORE BUSINESS 4. EXTENDING THE CORE BUSINESS 5. 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. S 9 / 10 . 21Page 160 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 – this is achieved through distinctive design and uniqueness 6. No Differentiation – this is simply a ‘do nothing’ approach which can work if the market is large enough S 9 / 11 . 21Page 161 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 Ford’s 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. S 9 / 12 . 21Page 162 Elaborating the core business can be achieved in a number of ways. • 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 Mintzberg’s 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. The most useful framework here is to apply some of the ideas which are in the Ansoff Matrix, namely : - S 9 / 13 . 21Page 163 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. S 9 / 14 . 21Page 164 Unrelated diversification also extends the core business beyond existing experiences and technologies and thereby the organisation may become conglomerate in design. • 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. S 9 / 15 . 21Page 165 • 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 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’. S 9 / 16 . 21Page 166 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 The following methods can be used to support organic growth. S 9 / 17 . 21Page 167 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. S 9 / 18 . 21Page 168 • 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’. S 9 / 19 . 21Page 169 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 FROMTHE ASSESSMENTS YOU HAVE MADE. S 9 / 20 . 21Page 170 2. USING PORTERS 3 GENERIC COMPETITIVE STRATEGIES, ASSESS THE EXTENT TOWHICH THESE APPLY IN ALL THE EXAMPLES CITED IN QUESTION 1. WHAT THEREFORE ARE YOUR OBSERVATIONS. S 9 / 21 . 21 3. DEFINE THE CORE BUSINESS FOR ONE OF THE FOLLOWING AND THEN EXPLAIN HOWTHEIR CORE BUSINESS CAN BE LEVERAGED, IFAT ALL. • THE CITY OF DAVOS IN SWITZERLAND • BARCLAYS BANK • PORSCHE OR MERCEDES • FORMULA ONE • BRITISH AIRWAYS • HILTON HOTELSPage 171  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 SESSION 10 STRATEGIES FOR BUSINESS GROWTHPage 172  THE GROWTH PROCESS * GROWTH DRIVERS * GROWTH ENGINES * THE 80 / 20 RULE  THE RATE AND PACE OF GROWTH  DISCUSSION QUESTIONS S 10 / 02 . 18 SESSION 10 STRATEGIES FOR BUSINESS GROWTHPage 173 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 Then by logical deduction, a growth plan will emerge, in fact more easily than following the conventional approach. “ What must we have done to get here ? ” S 10 / 03 . 18Page 174 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 . 18Page 175 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. S 10 / 05 . 18 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. Empowerment of Managerial Talent 2. A blue ocean where business is made in unchartered waters where nobody else has ventured yet. 3. High volume of customer enquiries and repeat orders to deliver good customer acquisition and effective customer retention. 4. Business growth is independent from the economics of market performance. 5. Net Profit is a high percentage of sales. 6. Amonopoly position.Page 176 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. S 10 / 06 . 18 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. To grow, find a customer to grow with. 2. Existing market share may give too much confidence about future competitive positioning.Page 177 S 10 / 07 . 18 3. As a business matures, progressive competitive advantage may face erosion. 4. An over pre-occupation with return on investment diminishes the return from growth. 5. Business ‘ As Usual’ is safer 6. 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.Page 178 GROWTHAND 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 S 10 / 08 . 18 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 ! ”Page 179 GROWTHMARKETS 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. S 10 / 09 . 18 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.Page 180 To succeed in this approach our customers must therefore see us as : - solution provides -- not just supplying products business growers -- not just vendors profit suppliers -- not just selling goods & services growth experts -- not just manufacturing experts S 10 / 10 . 18 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.Page 181 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 . 18Page 182 GROWTHMISSION 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 . 18Page 183 THE GROWTH PROCESS S 10 / 13 . 18 • 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.Page 184 S 10 / 14 . 18 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.Page 185 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. Move cost centres to profit centres 2. Leverage the companies asset base 3. Development Programmes for in-house entrepreneurial talent 4. Set up a holding company structure with right-sized subsidiaries 5. New joint-ventures and strategic alliances 6. Service Partnerships, shared risk and reward 7. Establish a business development company dedicated to new business only 8. Extend the business through adequate resourcing S 10 / 15 . 18Page 186 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 . 18Page 187 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 . 18Page 188 DISCUSSION QUESTIONS 1. IS THE ROUTE TO GROWTH THE ONLY WAY TO ACHIEVE INCREMENTAL SHAREHOLDER VALUE ? 2. HOWIS 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 . 18Page 189 BLUE OCEAN STRATEGY SESSION 11 BLUE OCEAN STRATEGY & BUILDING BUSINESS MODELS S 11 / 01 . 18  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 REDUCTIONPage 190 BUSINESS MODEL BUILDING SESSION 11 BLUE OCEAN STRATEGY & BUILDING BUSINESS MODELS S 11 / 01 . 23  DEFINE THE BUSINESS MODEL  THE ARCHITECTURE OF A BUSINESS MODEL  A BUSINESS MODEL CANVAS  DISCUSSION QUESTIONSPage 191 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 . 23Page 192 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 haven’t been defined as such. Industries and markets created in the last 15 years, of which there are many were in fact blue oceans at one point in time. S 11 / 03 . 23 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.Page 193 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 . 23Page 194 TRADITIONAL CIRCUS TO PERFORMANCE CIRQUE DU SOLEIL which has redefined this form of performing art to new territory. S 11 / 05 . 23 FOR EXAMPLE INTERNATIONAL LONG HAUL TO FLIGHTS Virgin Atlantic where new segmentation has been achieved together with in-flight value innovation experiences DEPARTMENT STORE CLOTHING, TO FOOTWEAR SALES Primart discount clothing stores dedicated to value for money 365 days a year. PRE-SCHOOL KINDERGARTEN TO Montessori Pre-Schools CONVENTIONAL DIETING TO PhilipWain Slimming &Wellness CentresPage 195 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. S 11 / 06 . 23 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.Page 196 S 11 / 07 . 23 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.Page 197 S 11 / 08 . 23 REDUCE COSTS ADD VALUE 1. ELIMINATE 3. RAISE 2. REDUCE 4. CREATE THE FOUR ACTIONS FRAMEWORK FOR VALUE INNOVATION Figure 11.1 Figure 11.2 REDUCE COSTS ADD VALUE VALUE INNOVATIONPage 198 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 . 23Page 199 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. S 11 / 10 . 23 REDUCE COSTS ADD VALUE 1. ELIMINATE 3. RAISE STAR PERFORMERS UNIQUE VENUES ANIMAL SHOWS MULTIPLE SHOWARENAS 2. REDUCE 4. CREATE FUN &HUMOUR ATHEME THRILL & DANGER REFINED ENVIRONMENT MULTIPE PRODUCTIONS ARTISTIC MUSIC & DANCE FROM THE TRADITIONAL CIRCUS TO CIRCUE DU SOLEIL Figure 11.3 The Value Innovation reduced costs, added value and discovered a new market which has been preserved as a blue ocean.Page 200 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 . 23Page 201 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 . 23Page 202 The blue ocean strategy has provided an insight for management internationally, but the model actually is descriptive , it doesn’t demonstrate clearly in a well structured plan how to apply it. In this sense, it is not prescriptive, but with experiment and usage there is merit to its adoption. 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 . 23Page 203 GLOBAL EXAMPLES OF A BLUE OCEAN STRATEGY S 11 / 14 . 23 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 non- customers ----- 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.Page 204 S 11 / 15 . 23 NINTENDOWII 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.Page 205 S 11 / 16 . 23 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.Page 206 S 11 / 17 . 23 THE ARCHITECTURE OFA 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 To meet needs, wants, values, expectations and solutions Propositions 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 Required to enable and deliver business strategy, through the Resources company’s value chainPage 207 S 11 / 18 . 23 7. The Key Activities Allocated to Key ResultAreas 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 differentiationPage 208 These Nine elements can be modelled accordingly : - S 11 / 19 . 23 KEY ACTIVITIES REVENUE SUPERIOR VALUE PROPOSITIONS CHANNELS CUSTOMERS PARTNERSHIPS RELATIONSHIPS COSTS VALUE CHAIN BASED RESOURCES 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. Figure 11.4Page 209 PRIORITY CUSTOMERS “ A BUSINESS MODEL CANVAS ” [ADAPTED FROM OSTERWANDER & PIENEUR, BUSINESS MODEL GENERATOR 2010] Figure 11.5 SUPERIOR VALUE PROPOSITIONS CHANNELS KEY ACTIVITIES COMPETITION / COMPETITIVE STRATEGY RELATIONSHIPS KEY PARTNERSHIPS VALUE CHAIN BASED RESOURCES COSTS & COST BUDGET REVENUE STREAMS & CASHFLOW S 11 / 20 . 23Page 210 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 . 23Page 211 PRIORITY CUSTOMERS N.B. : THE BLUE OCEAN OF VALUE INNOVATION IS ‘LONGHAUL’ BUDGET AIRTRAVEL Figure 11.6 SUPERIOR VALUE PROPOSITIONS CHANNELS KEY ACTIVITIES COMPETITION / COMPETITIVE STRATEGY RELATIONSHIPS KEY PARTNERSHIPS VALUE CHAIN BASED RESOURCES COSTS & COST BUDGET REVENUE STREAMS & CASHFLOW BUSINESS MODEL CANVAS FOR A LOW COST LONG HAUL AIRLINE Cost Conscious First Time International Budget Travellers Only from International Long Haul Carriers, no budget, long haul airline as yet Lowest Price No Frills Frequent Service On-line Booking Telephone Ticket Sales Customer Loyalty Long Haul Europe - Asia As a sub-brand of the parent company, who have diversified the business into a budget provider All provided from parent company, a full cost International Premium Airline * All revenue upfront before travel * Positive cashflow * Programmes * IATA * Intl Airport Authorities * Zero based budget for marginal costs only until business is fully fledged * Fixed costs covered by parent company * Marginal costs covered by revenue streams S 11 / 22 . 23Page 212 DISCUSSION QUESTIONS 1. DO YOU THINK THAT A BLUE OCEAN STRATEGY IS A STATE OF BUSINESS UTOPIA OR A REALITY ? FOR HOWLONG CAN THE OCEAN REMAIN BLUE ? 2. IDENTIFY A BLUE OCEAN STRATEGY AND ASK WHY AND HOW IT HAS BECOME SO. S 11 / 23 . 23 3. TAKE EITHER HARRODS, SELFRIDGES OR HARVEY NICHOLLS AND EXPLAIN THEIR STRATEGY FROMA BLUE OCEAN LENS.Page 213 CRITERIA FOR EVALUATION SESSION 12 STRATEGY DETERMINATION -- CRITERIA FOR EVALUATION FOR STRATEGY CHOICE AND MAKING THE STRATEGY PROPOSAL S 12 / 01 . 19  SWOT  GAP ANALYSIS  CONSISTENCY CRITERIA  PRAGMATIC CRITERIA  FINANCIAL CRITERIA  RISK ANALYSIS  STAKEHOLDER ANALYSISPage 214 CRITERIA FOR EVALUATION S 12 / 02 . 19  DECISION MATRICES  MAKING THE CASE  MAKING THE STRATEGY PROPOSAL DISCUSSION QUESTIONSPage 215 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 . 19Page 216 SWOTANALYSIS 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 . 19Page 217 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 . 19Page 218 Figure 12.1 shows in diagram form the concept of Gap Analysis PERFORMANCE 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 . S 12 / 06 . 19 THE STRATEGIC GAP THE DESIRED FUTURE POSITION THE STRETCHED FUTURE POSITION THE STRETCHED STRATEGIC GAP 3 2 THE CURRENT POSITION 1 1 2 1 2Page 219 The task therefore is to analyse : - S 12 / 07 . 19 • 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.Page 220 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. S 12 / 08 . 19Page 221 Evaluation criteria should also consider if the strategic options are consistent with the strategic intent of the business and other critical performance factors namely : - CONSISTENCY CRITERIA • Vision • Mission • Core business • Core values • Core competencies • Value chain based competitive advantage • Product portfolio positions with market segments • Existing company success factors S 12 / 09 . 19 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.Page 222 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 : - FINANCIAL FEASIBILITY CRITERIA • Investment level • Payback period • Return on capital • Employed • Internal cost of capital • Return on investment • Target internal rate of return • Discounted cash flow’s implications • Shareholder value • Cost benefit analysis S 12 / 10 . 19 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. • Opportunity costing between strategy options • Liquidity ratios • Gearing ratios • Cash flow analysis • Break even analysis • Asset turnover ratios • Foreign currency exposure (forex)Page 223 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 : - S 12 / 11 . 19 • Suitability - Do we want it • Desirability - Do we need it • Feasibility - Can we do it • Acceptability - 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 justificationPage 224 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 : - S 12 / 12 . 19 - 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. 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.Page 225 S 12 / 13 . 19 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.Page 226 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. S 12 / 14 . 19 CRITERIA FOR EVALUATION (For example) WEIGHT (1 - 10) STRATEGY OPTIONS (score 1 – 10) A B N 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) ________ Total Score N.B. : For each option, multiply the weight by the score and then summarise to determine the factor totals.Page 227 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. S 12 / 15 . 19Page 228 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 Relevance : is this relevant to expectations ? Rule 2 Reliability : is the proposal based on facts and stated assumptions ? Rule 3 Understandability : is the message clear ? Rule 4 Significance : is the proposal contextually significant ? Rule 5 Sufficiency : is there sufficient information to get a decision !! Rule 6 Practicality : 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. S 12 / 16 . 19Page 229 MAKINGA 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 S 12 / 17 . 19Page 230 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 !! S 12 / 18 . 19Page 231 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 ? S 12 / 19 . 19Page 232  THE IMPLEMENTATION PROCESS  PEOPLE ALIGNMENT  MOMENTUM  STRUCTURE  PROCESS AND PROCESS MONITORING  KRA’S AND KPI’S  BALANCED SCORE CARD  BUDGETARY CONTROL  SUMMARY  DISCUSSION QUESTIONS SESSION 13 STRATEGY IMPLEMENTATION & CONTROL S 13 / 01 . 21Page 233 THE IMPLEMENTATION PROCESS To move from a strategy option decision into the implementation phase involves : - where strategy planning for implementation will require the following : - S 13 / 02 . 21 • STRATEGY PLANNING • STRATEGY IMPLEMENTATION • IMPLEMENTATIONMONITORING • PERFORMANCE EVALUATION • REVIEW • SMART OBJECTIVES TO BE SET • ACTIONS TO BE PLANNED • TIME SCHEDULING FOR THOSE ACTIONSPage 234 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. S 13 / 03 . 21 • TIME DISCIPLINE • TIME DEADLINES • TOTAL RESOURCING • RESPONSIBILITIES AND ACCOUNTABILITYALLOCATED • COMMUNICATIONS PLANNING TO ALL STAKEHOLDERS • A CONTROL SYSTEM FOR TRACKING PERFORMANCE OUTCOMES • PERIODIC MONITORING AND MANAGEMENT REVIEWSPage 235 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. S 13 / 04 . 21Page 236 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 S 13 / 05 . 21Page 237 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. S 13 / 06 . 21Page 238 IMPLEMENTATION MOMENTUM To achieve effective implementation of strategic change, one important critical factor for achieving success is managing momentum which means : - • 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 1. Creating and maintaining momentum S 13 / 07 . 21Page 239 • 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 2. Maintaining momentum S 13 / 08 . 21 • 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 3. Decision makingPage 240 • 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 4. Build coalitions S 13 / 09 . 21 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.Page 241 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. S 13 / 10 . 21Page 242 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. KEY * MILESTONE TIMELINE RESULT ALLOCATED TASK AREA RESPONSIBILITY 1. _______ _______ __________________ 2. _______ _______ __________________ 3. _______ _______ __________________ 4. _______ _______ __________________ N. _______ _______ __________________ F - FORECAST A - ACTUAL * KRA is located within the value chain of the strategy chain. T1 T2 T3 T4 T5 T6 F A F A F A F A F A Figure 13.1 S 13 / 11 . 21Page 243 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. S 13 / 12 . 21Page 244 KRA’s and KPI’s Within each KRA, processes can be established and key performance indicators (KPI’s) be established for reviewing the deliverable outcomes from each KRA. Hence the structure and processes mentioned earlier must be clearly determined. KRA’s must be clearly understood. Performance can be measured for each process through a tracking system using KPI’s (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 KPI’s and checking performance periodically. S 13 / 13 . 21Page 245 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. S 13 / 14 . 21Page 246 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. S 13 / 15 . 21 Figure 13.2 explains the concept of the Balanced Scorecard in outline.Page 247 VISION & STRATEGY “if we succeed, how will we look to our shareholder?” Financial Perspective “To achieve my vision, how must I look to my customer?” Customer Perspective “To satisfy my Customer, at Which processes must I excel?” Internal Perspective Learning and Growth Perspective “To achieve my Vision, how must My organisation learn and improve?” Figure 13.2 S 13 / 16 . 21Page 248 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 KPI’s. Often the key KPI’s are known as Primary KPI’s and those of less importance, secondary KPI’s. Targets are set as a ‘metric’ for each movement in a 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 KPI’s. This is therefore a way of engineering the organisation for productivity. S 13 / 17 . 21Page 249 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 (KPI’s) 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 ? S 13 / 18 . 21Page 250 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. S 13 / 19 . 21Page 251 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. S 13 / 20 . 21Page 252 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. S 13 / 21 . 21Page 253 SESSION 14 MANAGING THE CHANGES NEEDED S 14 / 01 . 17 MODELS AND APPROACHES  LEWIN  McKINSEY 7’S  KANTNER  GEMIMI 4 R’S CHANGE PROCESSES  PLANNED CHANGE  RESPONSE TO CHANGE  FORCE FIELD ANALYSIS DISCUSSION QUESTIONSPage 254 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. S 14 / 02 . 17 MODELS AND APPROACHES To add depth to the subject of change, the work of the following contributors, at least, is suggested : -  LEWIN  McKINSEY 7 S  KANTNER  GEMIMI 4 RSPage 255 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. S 14 / 03 . 17 Stage 1. Unfreezing - De-stablilise the environment by exploiting stress or dissatisfaction - Introduce additional pressure, tighter schedules, increased targets / workloads - Introduce new personnelPage 256 Stage 2. Change - Move the unbalanced and less secure system now created in the desired direction for achieving change by : S 14 / 04 . 17 • 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. Lewin’s approach attempts to achieve the ‘felt need’ for change by creating insecurities. This approach needs effective leadership and support.Page 257 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. Strategy to achieve a sense of direction and purpose with clarity 2. Shared Values to mould a belief system which influences individual and collective behaviour 3. Structure to enable the change 4. Style to lead the change through relevant management styles with leadership 5. Systems to ensure information flows and that protocols and procedures are in place to facilitate change 6. Skills to accomplish the changes needed with relevant competencies 7. Staffing to ensure the human capital is in place and to specify the training that may be needed to reduce any competency gaps. S 14 / 05 . 17Page 258 Figure 14.1 Shared Values Structure Systems Strategy Style 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 S’s identified. MC KINSEY 7 S S 14 / 06 . 17Page 259 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 . 17Page 260 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 S 14 / 08 . 17Page 261 GEMINI’S 4 R’S 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. S 14 / 09 . 17Page 262 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 isn’t 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. S 14 / 10 . 17Page 263 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 S 14 / 11 . 17Page 264 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 S 14 / 12 . 17Page 265 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 MOOD PRECHANGE POST CHANGE PERIOD OF ADJUSTMENT TIME LOSS DENIAL DISCARDING PLANNING INTEGRATION INITIAL ADAPTATION The time taken for readjustments will depend upon the nature of the change and the impact it created. Figure 14.2 S 14 / 13 . 17Page 266 From the curve, the following characteristic behaviour can be explained:- Loss : Confusion, shock, panic, fear of the unknown, helplessness Denial : Ignoring the change; denying its significance, defensive behaviour, anger Initial : Anger and frustration as the change seems an inevitable reality Adaptation Discarding : Looking ahead, discarding the past as nothing can be done, receptive to new messages Planning : Experimentation and optimism Implementation : Anxiety and excitement on realigning for the new challenges and Integration S 14 / 14 . 17Page 267 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. S 14 / 15 . 17Page 268 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 THOSE FOR CHANGE SOURCE POWER WEIGHT WEIGHT POWER SOURCE OF OF BASE OF OF BASE SUPPORT RESISTANCE RESISTANCE RESISTANCE [ LOCATION ] HI LOW 1 – 10 1 - 10 HI LOW [ LOCATION ] 1. __________ ___ ___ ____ ____ ___ ____ ________ 2. __________ ___ ___ ____ ____ ___ ____ ________ 3. __________ ___ ___ ____ ____ ___ ____ ________ 4. __________ ___ ___ ____ ____ ___ ____ ________ Total ==== ==== DISEQUILIBRIUM ? This simple model attempts to quantify the assessment of political support and opposition. It can also be used as a ‘mindset’when planning transformational change. Figure 14.3 S 14 / 16 . 17Page 269 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 ? S 14 / 17 . 17Page 270 ANNEX 1 SEMINARSPage 271  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.Page 272 ASSESSMENT SEMINARS SEQUENCE 1. ASSIGNMENT PREPARATION 2. ASSIGNMENT OUTLINES -- PRESENTATION 4. REVISION OF SYLLABUS TOPICS FROM FRONT SHEETS OF EACH SESSION (TOPICS 1 TO 7) 6. EXAMINATION BRIEFING 3. ASSIGNMENT OUTLINES -- PRESENTATION 5. REVISION OF SYLLABUS TOPICS FROM FRONT SHEETS OF EACH SESSION (TOPICS 8 TO 14)Page 273 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 • Students produceA Roadmap to address the assignment question of choice Student TaskPage 274 SEMINAR 2 & 3 : ASSIGNMENT OUTLINE PRESENTATION 1. Students Are Required To Present The Plan For Their Strategic Management Assignment 2. StudentsWill Be Selected For Presentation Depending Upon Class Size 3. Group Feedback From PeersWill Be Obtained 4. Critique Given By Tutor 5. Tutor Explains How The Assignment Is Marked And The Criteria Used For Assignment EvaluationPage 275 SEMINAR 4 : REVISION OF SYLLABUS TOPICS 1 TO 7Page 276 SEMINAR 5 : REVISION OF SYLLABUS TOPICS 8 TO 14Page 277 SEMINAR 6 : EXAMINATION BRIEFINGS • Protocols • Examination Techniques • Tutor Expectations • The Content Of A Good Answer • Sample Questions &Answer Discussions • Criteria For Marking Examination AnswersPage 278 ANNEX 2 RECOMMENDED READINGPage 279 • 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 PressPage 280 • 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-HillPage 281 ANNEX 3 ASSESSMENT THE STRATEGIC MANAGEMENT ASSIGNMENT AND PRESENTATIONPage 282 1. Background to the organisation, its history and business domain. 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. 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.Page 283 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.Page 284 INDIVIDUALASSIGNMENT (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.Page 285 INDIVIDUALASSIGNMENT (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.Page 286 INDIVIDUALASSIGNMENT (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.