Business-strategy

BUSINESSSTRATEGY - I

PIYOOSH BAJORIA

Scope of Discussions / Objectives

• Introduction to Strategic Management

• Strategic Purpose – Vision / Mission etc.

• Environmental Scanning – PESTEL / SWOT etc.

• Strategy Development - Multiple Approaches

• Corporate Strategy – Various Facets

• Business Strategy - Generic / Hybrid etc.

• Global Strategy – Products & Services Adaptation / Choice of Market Entry

• Strategy Implementation – Key implementation Tasks

Learning Outcomes

• Differentiate Strategic Management from Operational Mgt & identify the strategy development Process including different levels of Strategy

• Articulate the purpose of an organization’s existence & communicating the same to all stakeholders

• Analyze the key structural drivers in the business environment to identify opportunities / threats and strategic gaps

• Discuss contemporary approaches to strategy development processes / evaluation of strategic choices ; assess the role of a corporate parent in a multi-business organization and it’s value adding capabilities in managing a porfolio of businesses

• Contrast the different bases of achieving competitive advantage and outline the means to achieve sustainability in a competitive environment for an SBU

• Outline the ways to go global and achieve global competitiveness and identify risks involved

• Discuss the Key tasks for effective strategy implementation and assess how to align them

Introductionto

Strategic Management

5

Customer Retention - Key Issues

A Recent Survey says –

• “More than 90 % of unsatisfied customers do not complain”

• “It costs 5 times more to get a new customer than it does to keep a current customer”

6

Customer Expectations / Desire

What do Customers look for in

Any Product or Service?

• Right Price (affordability factor)

• Right Quality (reliability factor)

• Right Delivery (service factor)

Dawn of a New Era ……………..

Old Perceptions New Realities

• Price : Seller’s Cost plus Profit

• Quality : Standards determined

by the Seller

• Marketing : A distinct Functional

Activity

• Focus on What is good for the

company

• Customer’s freedom of choice

limited

• Customer doesn’t know a thing

• Price : What customer is willing to pay

• Quality : Standards determined by

the customer

• Marketing : Is Everything / The whole

Business is Marketing

• Focus on What is good for the

customer

• Customer’s freedom of choice

unlimited

• Customer is the King

What is Strategy?

• Large-scale, future-oriented plan

• Used to interact within competitive environment to achieve company goals

• Provides a framework for managerial decisions

• Reflects a company’s awareness of the main elements of competition

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Definition of Strategy

Strategy is the direction and scope of

an organisation over the long term,

which achieves advantage in a

changing environment through its

configuration of resources and

competences with the aim of fulfilling

stakeholder expectations.


Strategic decisions


Strategic Decisions are Likely to :

• Be complex in nature

• Be made in situations of uncertainty

• Affect operational decisions

• Require an integrated approach (both inside and outside an organisation)

• Involve considerable change

The Nature of Strategic Management

Strategic management:The set of decisions and actions that

result in formulation and implementation

of plans designed to achieve a

company’s objectives


Strategy and Operations

RoutinisedOrganisation-wide, holistic

Day to day issuesLong term

Operationally specificAmbiguous / uncertain

Operating within existing strategy

Developing new resources

Managing existing resources

Creating new directions

Techniques and actionsConceptualisation of issues

Operational ManagementStrategic Management

Managers’ Strategic Thinking(Current Status & Future Prospects)

“ Where are we now?”( market standing / competitive pressures / strengths & weaknesses)

“ Where do we want to go?”(direction in which management believes the company should be headed)

“ How will we get there?”(crafting & executing a strategy to get the company from where it is to where it wants to go)

Contribution of Leading Management Gurus

Igor Ansoff’s Strategic Success Paradigm

Based on extensive research study on Acquisitions by American Companies (1948-1968)

Acquisitions based on a rational strategy fared better than those based on opportunistic decisions

The Key Elements of the paradigm are –

• No universal success formula for all firms

• Environment turbulence determines the strategy required for the success of a company

• The strategy aggressiveness should be aligned with the environmental turbulence

Ansoff Matrix / Ansoff GridExisting Products New Products

Existing Market Market Penetration

Product Development

New Market Market Development

Diversification

Ansoff’s Matrix Provides four different growth strategies

Market Penetration – Companies seek to achieve growth with existing products in their current market segments .

Market Development – Companies seek growth by targeting it’s existing products to new market segments

Product Development – Companies develop new products targeted to it’s existing market segments.

Diversification – Companies grow by diversifying into new business by developing new products for new markets.

Ansoff’s Matrix and Risk

The greater the degree of newness, the greater is the degree of risk

• Market Penetration – little risk involved

• Market Development – moderate risk

• Product Development – moderate risk

• Diversification – high degree of risk as both product and market are new & unknown

Ansoff’s Matrix – Use & Application

• The Matrix is a framework to explore directions for strategic growth

• It is the most commonly used model for analysing the possible strategic direction that a business should take

• It not only identifies and analyses different growth opportunities, it also encourages planners to consider both expected returns and risks

• However, real world examples do not fit neatly into the four cells of the Ansoff’s Matrix

• The management capabilities should be aligned with the environment to optimize the company’s success

• Book “Corporate Strategy” (1965) – played a key role in the development of strategic planning

• Introduced concepts – “Gap Analysis” & “Synergy”

Mintzberg – Strategy as Craft

Added a new dimension to strategic management by bringing the personal side of the manager

Book “The Nature of Managerial Work (1973)” – advocated a more human approach to strategy formulation & implementation

Saw strategic formulation as a delibrate and delicate process

Peter Drucker’s Contribution

• “Management is not just passive & adaptive behaviour”

• Managing implies responsibility for attempting to shape the economic environment for planning and carrying through changes in that economic environment

• Major contribution to business strategy was the introduction of MBO concept (1954)

• MBO is more than a technique of management, it is a philosophy of Managing

Michael Porter : Strategy and Competitive Advantage

Introduced generic strategies like focus, cost leadership, cost differentiation etc.

Five Forces Theory – • the threat of new entrants

• the bargaining power of customers

• the bargaining power of suppliers

• the threat of substitute products

• the rivalry between existing players

Books – “Competitive Strategy” (1980) and “ The Competitive advantage of Nations” (1990)

1-23

Three Levels of Strategy

• Corporate level: board of directors, CEO & administration [Highest]

• Business level: business and corporate managers [Middle]

• Functional level: Product, geographic, and functional area managers [Lowest]


LEVELS OF STRATEGY

• Corporate level

– Determine overall scope of the organisation

– Add value to the different business units

– Meet expectations of stakeholders

• Business level (SBU)

– How to compete successfully in particular

markets

• Operational

– How different parts of organisation deliver

strategy

Levels of Strategic Management

1-26

Strategy Makers

• Ideal strategic team includes decision makers from all three levels

• Top managers must give final approval

• Strategic decisions coincide with managers’ responsibilities

1-27

Strategy Makers: The CEO

• A firm’s CEO plays a dominant role in strategic planning

• The CEO’s principal duty is giving long-term direction to the firm

• The CEO bears ultimate responsibility for the firm’s success and strategic success

• CEOs are typically strong-willed,

company-oriented individuals

1-28

Benefits of Strategic Management

• Managers at all levels interact in planning and implementing strategy

• Similar to participative decision making

• Assessing strategy formulation requires looking at nonfinancial evaluations as well as financial ones

• Promoting positive behavioral consequences enables achievement of financial goals

1-29

Strategic Management Process

• Businesses vary in formulation and other processes

• The basic components of the models used to analyze strategic management are similar

• Strategic management is a process—a flow of information through interrelated stages of analysis towards the achievement of organisational goals

1-30Components of Strategic

Management Model• Company Mission

• External Analysis

• Long-Term Objectives

• Short-Term Objectives

• Policies Empowering Action

• Strategic Control & Continuous Improvement

• Internal Analysis• Strategic Analysis &

Choice• Generic & Grand

Strategies• Functional Tactics• Restructuring,

Reengineering & Refocusing

Existing Business Model

Mission , Vision, Values & Goals

External Analysis: Opportunities &

Threats

Internal Analysis: Strengths & Weaknesses

SWOT Strategic Choice

Business - Level Strategies

Functional – Level Strategies

Global Strategies

Corporate – Level Strategies

Governance and Ethics

Designing Organization Culture

Designing Organization Structure

Designing Organization

Controls

Components of Strategic Management Process

STRATEGY FORMULATION

STRATEGY IMPLEMENTATION

FE

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BA

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StrategicPurpose

Organization – Core Philosophies

Vision Statement

• An inspiring statement of what the organization intends to become and to achieve in the future

• “What we want to be”

• The statement incorporates our Beliefs

• Should project a compelling story about the future (E.g. Steve Jobs : “ An Apple on Every Desk”)

• Is culture-specific :Simply put, the vision could state what the founder ultimately envisions the business to be – in terms of growth, values, employees, contribution to society, etc

1-34

What is a Company Mission?

• Company Mission:A broadly framed but enduring statement of a firm’s intent. It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.

Organization – Core Philosophies… Mission Statement

• Spells out how we see ourselves fulfilling our ideas of “What we want to be” in broad terms

• Describes the overall purpose of the organization

• Is an organization’s vision translated into written form- spelling in concrete terms the leader’s view of the direction and purpose of the organization

• What do we do?

• How do we do it?

• For whom do we do it?

1-36

The Need for an Explicit Mission

• Why is this firm in business?

• What are our economic goals?

• What is our operating philosophy in terms of quality, company image, and self-concept?

• What are our core competencies and competitive advantages?

• What customers do we and can we serve?

• How do we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors?

1-37

Formulating a Mission

• The typical business begins with the beliefs, desires, and aspirations of a single entrepreneur

• These beliefs are usually the basis for the company’s mission

• As the business grows or is forced to alter its product, market, or technology, redefining the company mission may be necessary

1-38

Mission Statement Components

Customer-market Product-service Geographic Domain Technology Concern for Survival Philosophy Self-concept Concern for Public Image

1-39Inputs to the Development of

Company Mission

Organization – Core Philosophies…

Values

• Both the mission and vision statements reside in a “sea of values”

• Organizational beliefs – respect for people, concern for individuals, approach to innovation, reward system, encouragement for Team work etc

• Describe what your Management Team really cares about – “what it holds dear”

(e.g. “How do your managers respond to a trade-off between product quality and profit? That’s really a question of values”.)

Organizational structure – Philosophical Hierarchy

Vision

Mission

Corporate Objectives

Corporate Goals

Strategic Plans

Policies

Procedures

Core-Values &

Conduct

1-42

Perceived Stakeholders

• Customers

• Government

• Stockholders

• Employees

• Society


Corporate Social Responsibility

Internal Aspects External Aspects

Employee welfare Environmental issues

Working conditions Products

Job design Markets and marketing

Intellectual property Suppliers

Employment

Community activity

Human rights

1-44

Types of Social Responsibility

• Economic – the duty of managers, as agents of the company owners, to maximize stockholder wealth

• Legal – the firm’s obligations to comply with the laws that regulate business activities

• Ethical – the company’s notion of right and proper business behavior


Corporate Governance

The governance framework• whom the organisation serves

• how the purposes and priorities should be decided

• how an organisation should function

• how power is distributed among stakeholders

EnvironmentalScanning

1-47

Firm’s External Environment

1-48

Layers of the business environment

1-49

Macroenvironment – PESTEL (1)


Macroenvironment – PESTEL

Political• Government stability• Taxation policy• Foreign trade

regulations• Social welfare

policies

Economic• Business cycles• GNP trends• Interest rates• Money supply• Inflation• Unemployment• Disposable income


Macroenvironment – PESTEL Sociocultural

• Population demographics

• Income distribution• Social mobility• Lifestyle changes• Attitudes to work and

leisure• Consumerism• Levels of education

Technological• Government spending on

research• Government and industry

focus on technological effort

• New discoveries /developments

• Speed of technology transfer

• Rates of obsolescence


Macroenvironment – PESTEL

Environmental• Environmental

protection laws• Waste disposal• Energy consumption

Legal• Competition law• Employment law• Health and safety• Product safety

Porter’s Five Forces Model• Risk of Entry by Potential Competitors

• Threat of Sustitutes

• Bargaining Power of Buyers

• Bargaining Power of Suppliers

• Industry / Competitive Rivalry


The Five Forces Framework


Five Forces Analysis

The threat of entry ...Dependent on barriers to entry such as:• economies of scale• capital requirements of entry• access to supply or distribution channels• customer or supplier loyalty• experience• expected retaliation• legislation or government action• differentiation


Threat of substitutesReduction in demand for products as customers

switch to alternatives:• Product for product substitution

– e.g. email for post

• substitution of need– e.g. reliable and cheap appliances reduce need for

maintenance services

• generic substitution– competition for household income, e.g. cars versus holidays– doing without



Buyer power is likely to be high where there is / are:

• a concentration of buyers• many small operators in the supplying industry• alternative sources of supply• low switching costs • components/materials that are a high percentage

of cost to the buyer leading to “shopping around”• a threat of backward integration



Supplier power is likely to be high where there is / are:

• a concentration of suppliers• customers that are fragmented and bargaining

power low• high switching costs • powerful supplier brand • possible integration forward by the supplier



Competitive Rivalry is likely to be high when:

• competitors are in balance• there is slow market growth (product life cycle)• there are high fixed costs in an industry• there are high exit barriers• markets are undifferentiated


Competitive rivals are organisations with similar products and services aimed at the same customer group = direct competitors

Competitive rivals are organisations with similar products and services aimed at the same customer group = direct competitors


The SWOT Matrix


Strategic Gaps

• Opportunities in business environment not being

fully exploited by the competition:

• substitute industries

• other strategic groups or strategic spaces

• the chain of buyers

• complementary products and services

• new market segments

• markets developing over time


Strategic Capability

• Resources – Tangible resources – physical assets of an organisation– Intangible resources – non-physical assets of an

organisation

• Competences– The activities and processes through which an

organisation deploys its resources effectively

Strategic capability is the adequacy and suitabilityof the resources and competences of anorganisation for it to survive and prosper

Strategic capability is the adequacy and suitabilityof the resources and competences of anorganisation for it to survive and prosper


Resources• Physical resources

– Machines, buildings, production capacity

• Financial resources– Capital, cash, debtors/creditors, suppliers of

money (shareholders, bankers etc)

• Human resources– Number and mix of people, skills and knowledge

• Intellectual capital– Patents, brands, business systems, customer

databases, “goodwill”


Competences

• How an organisation employs and deploys its resources

• Efficiency and effectiveness of physical, financial, human and intellectual resources• How they are managed• Cooperation between people• Adaptability• Innovation• Customer and supplier relationships• Learning


Resource-based View of Strategy

• Competitive advantage derives from the distinctiveness of an organisation’s capabilities

• Some businesses achieve extraordinary profits compared with others in the same industry

• Their resources or competences permit• production at lower cost

or• generation of superior product or service at

standard cost


The Experience Curve


Implications of the Experience Curve

• Growth not optional• Longer experience means lower costs• Threat of competitors gaining cost advantages

• Real unit costs should decline each year

• First mover advantage can be important• Accumulated experience


Implications of the Experience Curve (contd)

But• Sustained competitive advantage unlikely due to

unachievable market share

Therefore• Cost reduction becomes a threshold competence• Outsourcing may become appropriate

StrategyDevelopment


The Dynamics of Paradigm Change

Source: Adapted from p. Grinyeh and J.-C. Spender, Turnaround: Managerial recipes for strategic success, Associated Business Press, 1979, p. 203.

Exhibit 11.5

Different Processes of Strategy Development – in Multiple forms & in different contexts

• There is no one right way in which strategies are developed (Eg: Fast changing environment Vs slow changing environment)

• Processes of strategy development differ over time and in different contexts

Different Processes of Strategy Development – in Multiple forms & in different contexts (contd.)

• Perceptions of how strategies develop will be seen differently by different people (Senior Executives / Middle Management / Public Sector)

• It is likely that no one process describes strategy development in any organisation – normally there are multiple processes at work

Intended and Emergent Strategies

• Intended Strategy is an expression of desired strategic direction deliberately formulated or planned by Managers

• Implies that the Intended Strategy is also planned in terms of resource allocation, control systems, organisational structure etc

• Emergent Strategy comes about through day-to-day routines, activities and processes in an organisation

• The Routine activities, though not direct, have a significant role in the development of strategy

Intended Processes of Strategy Development

Strategic Planning Systems

• A form of systematised, step-by-step, chronological procedures involving different Functions / Departments of the Organisation

• Starting point is a set of guidelines / assumptions about the external environment (price levels / supply status etc)

• Plans drawn up by various businesses / divisions and passed on to the Corporate level

Strategic Planning Systems(contd.)

• Corporate Plan – resulting from the aggregation of business plans

• A number of financial / strategic targets are drawn up to provide a basis for performance monitoring

• There could be minor variations while drawing up the plans – in different organisations

Strategic Planning Systems – Advantages / Uses

• It provides a structured means of analysis and thinking about complex problems

• Encourages managers to question and challenge the current wisdom

• Encourages a long term view of organisational strategy (Eg: in the case of FMCG sector – 5 to 7 years)

• Provides a means of coordination (between various businesses)

• It communicates intended strategy from the TOP


A Strategic Planning Cycle


Strategic Planning

Emergent Processes of Strategy Development

Logical Incrementalism

• Is the development of strategy by experimentation and learning from partial commitments rather than through global formulations of total strategies

• Managers have a generalised rather than specific view of where they want the organisation to be in future

• Effective Managers try to be sensitive to environmental signals through constant scanning and test changes in strategy in small scale steps

Logical Incrementalism (contd.)

• Commitment to strategic options may be tentative in the early stages of strategy development

• Experiments through subsystems (people involved in product development / product positioning / diversification etc) – building on the experience gained in that business

• Top managers utilise a mix of formal / informal / social and political processes – to draw an emerging pattern of strategies from these subsystems

• Logical incrementalism is a conscious, purposeful, proactive, executive practice – to improve available information and build people’s identification with the strategy development

Logical Incrementalism

Source : Strategies for Change: Logical Incrementalism ( By James B. Quinn)

A Management philosophy for achieving broad organisational goals

Enables making strategic decisions in small steps

Small steps attempt to resolve conflicting views of participants

Reduces Risk by capitalizing on knowledge that is gained during the process

Logical incrementalism has the advantage of flexibility / but likely to be time-consuming and inefficient

Externally Imposed Strategy

• Imposition of strategy by powerful external stakeholders

• Mainly Government / Regulatory Bodies – exercising norms / stipulations (Eg: Privatisation)

• MNC’s being advised – for Joint Ventures / local alliances

• Imposed strategy is “designed” – outside the organisation

• Imposed strategy – to be implemented – might entail large capital expenditure. (Eg: In Paper Mills: Capex on Production Machinery Vs Recycling / Pollution Control Machinery)

Strategy Development – Additional Issues Managers Face

The challenge of Strategic Drift

• Strategies – over a period of time – progressively fail to address the strategic position of the company and performance deteriorates

• There are strong forces at work that are likely to push organisations towards this pattern

Strategy Development – Additional Issues Managers Face

The challenge of Strategic Drift (contd.)

• Incremental strategic change is a natural outcome of the influence of organisational culture, collective experience, political processes

and prior decisions

• Strategic drift results ultimately in a complacent organisation


Challenges for Strategy Development

• Strategic drift– Incremental strategic change influenced by

• organisational culture• individual and collective experience• political processes• prior decisions

– Risk of getting out of line with faster changes in environment

– Need to encourage challenge and change of core assumptions

• Learning organisation

The Learning Organisation

• Traditionally, organisations are seen hierarchies and bureaucracies – set up to achieve objectives and maintain control

• Structures convey stability rather than change

• A learning organisation – is the one that is capable of continual regeneration from the variety of knowledge, experience and skills of individuals within a culture – which encourages mutual questioning

• A learning organisation – is the one where the collective knowledge of all individuals in a company normally exceeds what the organisation itself “knows” and is capable of doing

The Learning Organisation (contd.)

• Formal organisational structures stifle organisational knowledge and creativity

• Organisations – need to look at themselves as “social networks”

• Managers need to play a less directive and more facilitative role

• A learning organisation – is the one inherently capable of change and with a capacity for organisational learning

Uncertain and Complex Conditions – Strategy Development

• A major problem of strategic management – coping with uncertainty

• Environments – differ in their form and complexity

• Simple / Static conditions – the environment is relatively straight forward to understand and does not undergo significant change

(Eg. Mass production companies / Raw Material Suppliers)

• All Companies end up following same strategy – results in high degree of competition / low margins

• Dynamic conditions – Managers need to consider environment of the

future / not of the past

Uncertain and Complex Conditions – Strategy Development (contd.)

• Companies resort to scenario planning – for making sense of the future

• Emphasis should be to encourage individuals and groups to be forward thinking and intuitive

• In complex situations – an environment is difficult to comprehend

• Coupled with dynamic conditions – the environment is a combination of complexity and uncertainty


Strategy Development in Environmental Contexts

Exhibit 11.8


Strategy Development Processes

Exhibit 11.1


Strategy Development Routes


Strategic Leadership

•Change Agent

• Individual or group that effects strategic change in an organisation

• The process of influencing an organisation in its efforts towards achieving an aim or goal

• Charismatic leaders

• Instrumental or transactional leaders

Strategic Leadership

• Vision, eloquence, and consistency

• Articulation of the business model

• Commitment

• Being well informed

• Willingness to delegate and empower

• The astute use of power

• Emotional intelligence: self-awareness, self- regulation, motivation, empathy, social skills

Good leaders of the strategy-making process have a number of key attributes:

CorporateStrategy

2-96

Levels of Strategy-Makingin a Diversified Company

Corporate Strategy

Business Strategies

Functional Strategies

Operating Strategies

Two-Way Influence

Two-Way Influence

Two-Way Influence

Corporate-Level Managers

Business-Level Managers

Functional Managers

OperatingManagers

2-97

Levels of Strategy-Making ina Single-Business Company

Business Strategy

Two-Way Influence




OperatingManagers

Functional Managers

Two-Way Influence

98

Corporate-Level Strategy: How do we sustain competitive advantages in our current business? What new businesses or industries do we wish to enter?

Corporate-Level Strategy

Corporate strategy is used to identify: • Businesses or industries that the company

should compete in• Value creation activities that the company

should perform in those businesses • Methods to enter or leave businesses or

industries in order to maximize its long-run profitability

Companies must adopt a long-term perspective in formulating a corporate-level strategy.


Strategic Choices


Corporate Level Issues


Corporate Rationales

•SBUs below potential (‘parenting opportunity’)•Relevant central resources•Suitable portfolio

•Share resources/skills•Identify bases for sharing•Identify benefits

•Acquire assets•Divest assets•Low strategic role in SBU

Strategic requirements

•Competences used to create value in SBUs

•Synergy•Agent for financial markets•Limited SBU value creation

Logic

Parental developers

Synergy managers

Portfolio managers

•Understand SBUs (‘feel’)•Effective linkages•SBUs autonomous•SBU performance-based incentives

•Collaborative SBUs•Corporate staff as integrators•Overcome resistance to sharing•Corporate-based incentives

•Autonomous SBUs•Small, low cost corporate staff•SBU performance-based incentives

Organisational requirements


Corporate Portfolio Management

• Portfolio balance– Markets– Organisation’s needs

• Attractiveness of business units– Profitability– Growth rates

• Portfolio ‘fit’– Synergies between business units– Synergies with corporate parent


The Growth Share (or BCG) Matrix

The BCG Matrix

• The BCG Matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit

• To ensure longterm value creation, a company should have a portfolio of products – both high – growth products in need of cash inputs and low-growth products that generate a lot of cash

• BCG Matrix has two dimensions : market share and market growth

• Placing Products in the BCG Matrix results in four categories in the portfolio of a company :

• STARS – High Growth / High Market Share

• CASH COWS – Low growth / High Market Share

• DOGS – Low Growth / Low Market Share

• QUESTION MARKS – High Growth / Low Market Share

• BCG Matrix Method can help understand a frequently made strategy mistake – having a one-size-fits-all approach to strategy : such as a generic growth target (say 10% p.a) or a generic return on capital (say 8% p.a) for the entire corporation

GE / McKinsey Matrix

• The GE / McKinsey Matrix is a model to perform a business portfolio analysis on the strategic Business Units of a corporation

• A Business Portfolio is the collection of Strategic Business Units that make up a corporation

• The Aim of a portfolio Analysis is:• Analyse it’s current business portfolio and decide which SBU’s should receive more or

less investments• Develop growth strategies for adding new products and businesses to the portfolio• Decide which businesses or products should no longer be retained

• BCG Matrix is the best-known portfolio planning framework - the GE / McKinsey Matrix is a later and more advanced form of the BCG Matrix

• The GE / McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects:

• Market / Industry attractiveness replaces market growth as the dimension of industry attractiveness

• Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed

• GE / McKinsey Matrix works with a 3x3 Grid while the BCG Matrix has only 2x2 Grid (allows for more sophistication)

Strategic Business Units are portrayed as a circle plotted in the GE / Mckinsey Matrix, whereby:

• The size of the circles represent the market size

• The size of the pies represent the market share of the SBU’s

• Arrows represent the direction and the movement of the SBU’s in the future

Generic Strategies

Differentiation

Low-cost leadership

Focus

Grand Strategies Grand strategies, often called master

or business strategies, provide basic direction for strategic actions

Indicate the time period over which long-range objectives are to be achieved

Any one of these strategies could serve as the basis for achieving the major long-term objectives of a single firm

Firms involved with multiple industries, businesses, product lines, or customer groups usually combine several grand strategies

Types of Grand Strategies

Consortia Consortia

Concentrated Growth Concentrated Growth

Market Development Market Development

Product DevelopmentProduct Development

InnovationInnovation

Horizontal Integration Horizontal Integration

Vertical Integration Vertical Integration

Concentric Diversification Concentric Diversification

Conglomerate Diversification Conglomerate Diversification

TurnaroundTurnaround

DivestitureDivestiture

LiquidationLiquidation

Bankruptcy Bankruptcy

Joint Ventures Joint Ventures

Strategic Alliances Strategic Alliances

Market Development Market development commonly ranks

second only to concentration as the least costly and least risky of the 15 grand strategies

It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion

Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach

Product Development Product development

involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels

Innovation Strategy

Involves creating a new product life

cycle, thereby making similar existing

products obsolete

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• Horizontal IntegrationThe process of acquiring or merging with industry competitors

• Vertical IntegrationExpanding operations backward into an industry that produces

inputs for the company or forward into an industry that distributes the company’s products

• Strategic OutsourcingLetting some value creation activities within a business be

performed by an independent entity

Repositioning &Redefining a Company’s Business Model

Corporate-level strategies are primarily directed towards improving a company’s competitive advantage and profitability in its present business or product line:

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Horizontal Integration:Single-Industry Strategy

Focus resources Resources devoted to competing successfully in one area

‘Stick to the knitting’ Company stays focused on what it does best

Horizontal Integration: the process of acquiring or merging with industry competitors in an effort to achieve the competitive advantages that come with large scale and scope.

Staying inside a single industry allows a company to:

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Benefits of Horizontal Integration

Profits and profitability increase when horizontal integration:

1. Lowers the cost structure• Creates increasing economies of scale• Reduces the duplication of resources between two companies

2. Increases product differentiation• Product bundling – broader range at single combined price• Total solution – saving customers time and money• Cross-selling – leveraging established customer relationships

3. Replicates the business model• In new market segments within same industry

4. Reduces industry rivalry• Eliminate excess capacity in an industry• Easier to implement tacit price coordination among rivals

5. Increases bargaining power • Increased market power over suppliers and buyers• Gain greater control

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Problems with Horizontal Integration

A wealth of data suggests that the majority of mergers and acquisitions DO NOT create value and that many may actually DESTROY value.

Implementing a horizontal integration is not an easy task• Problems associated with merging very different company cultures• High management turnover in the acquired company when the acquisition

is a hostile one• Tendency of managers to overestimate the benefits to be had in the

merger• Tendency of managers to underestimate the problems involved in

merging their operations The merger may be blocked if merger is perceived to:

• Create a dominant competitor• Create too much industry consolidation• Have the potential for future abuse of market power

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Vertical Integration: Entering New Industries

• Backward Vertical Integration• Company expands its operations into an industry that produces

inputs to the company’s products

• Forward Vertical Integration• Company expands into an industry that uses, distributes, or

sells the company’s products

• Full Integration• Company produces all of a particular input from its own

operations• Disposes of all of its completed products through its own outlets

• Taper Integration• In addition to company-owned suppliers, the company will also

use other suppliers for inputs or independent outlets in addition to company-owned outlets

Acquisitions or mergers of suppliers or customer businesses are vertical integrationsvertical integrations

Acquisitions or mergers of competing businesses are horizontal integrationshorizontal integrations

Textile producer

Shirt manufacturer

Clothing store

Textile producer

Shirt manufacturer

Clothing store

Vertical and Horizontal Integrations

123

Full and Taper Integration

124

A company pursues vertical integration to strengthen the business model of its core business or to improve its competitive position.

Increasing Profitability Through Vertical Integration

1. Facilitates investments in efficiency-enhancing specialized assets• Lowered cost structure or better differentiation.

2. Enhances or protects product quality• To strengthen its differentiation advantage through either forward or

backward integration

3. Results in improved scheduling• Makes it easier and more cost-effective to plan, coordinate, and

schedule the transfer of product within the value-added chain• Enables a company to respond better to changes in demand

125

Problems with Vertical Integration

Vertical integration can weaken a business model when: • Company-owned suppliers lack incentive to reduce costs• Changing demand or technology reduces ability to be competitive

Increased Cost Structure• Company-owned suppliers develop a higher cost structure than those of

the independent suppliers• Bureaucratic costs of solving transaction difficulties

Fast-changing Technology• Vertical integration may lock into old or inefficient technology• Prevent company from changing to a new technology that could strengthen

the business model Unpredictable Demand Creates risk in vertical integration investments

126

Strategic Outsourcing of Primary Value Creation

Functions

127

Benefits of Outsourcing

• Lower cost structure• The specialist company cost is less than what it would cost to

perform the activity internally

• Enhanced differentiation• The quality of the activity performed by the specialist is greater

than if the activity were performed by the company

• Focus on the core business• Distractions are removed

• The company can focus attention and resources on activities important for value creation and competitive advantage

Strategic outsourcing may be detrimental when there is: • Holdup – company becomes too dependent on specialist provider• Loss of information – company loses important customer contact or competitive information

128

Diversification Strategy is the company’s decision to enter one or more new industries (that are distinct from its established operations) to take advantage of its existing distinctive competencies and business model.

Corporate-Level Strategy of Diversification

Types of diversification: • Related diversification • Unrelated diversification

Methods to implement a diversification strategy:

• Internal new ventures• Acquisitions• Joint ventures

129

Increasing ProfitabilityThrough Diversification

• Transferring competencies among existing businesses

• Leveraging competencies to create new businesses

• Sharing resources to realize economies of scope

• Using product bundling• Managing rivalry by using diversification as a means in one or

more industries

• Exploiting general organizational competencies that enhance performance within all business units

A diversified company can create value by:

Managers often consider diversification when their company is generating free cash flow – with resources in excess of those needed to maintain competitive advantage.

130

Two Types of Diversification

Related diversificationEntry into a new business activity in a different industry that: • Is related to a company’s existing business activity or activities and• Has commonalities between one or more components of each activity’s

value chainBased on transferring and leveraging competencies, sharing resources, and bundling products

Unrelated diversificationEntry into industries that have no obvious connection to any of a company’s value chain activities in its present industry or industries

Based on using only general organizational competencies to increase profitability of each business unit

131

Disadvantages and Limits of Diversification

Changing Industry- and Firm-Specific Conditions

• Future success of this strategy is hard to predict.

• Over time, changing situations may require businesses to be divested.

Diversification for the Wrong Reasons

• Must have clear vision as to how value will be created.

• Extensive diversification tends to reduce rather than improve profitability.

Bureaucratic Costs of Diversification

• Costs are a function of the number of business units in a company’s portfolio, and the

• Extent to which coordination is required to gain the benefits.

Conditions that can make diversification disadvantageous:

132

Choosing a Strategy

Related diversification• When company’s competencies can be applied across a

greater number of industries and

• Company has superior capabilities to keep bureaucratic costs under control

Unrelated diversification• When functional competencies have few useful applications

across industries and

• Company has good organizational design skills to build distinctive competencies

The choice of strategy depends on a comparison of the benefits of each strategy versus the cost of pursuing it:

Firms may pursue both strategies simultaneously

133

Sony’s Web of Corporate-Level Strategy

134

Restructuring

Why restructure?• Diversification discount: investors see highly

diversified companies as less attractive • Complexity and lack of transparency in financial statements

• Too much diversification

• Diversification for the wrong reasons

• Response to failed acquisitions

• Innovations in strategic management have diminished the advantages of vertical integration or diversification

Restructuring is the process of divesting businesses and exiting industries to focus on core distinctive competencies in order to increase company profitability.

135

Divestiture and Liquidation Strategies

• Divestiture strategy

• Involves selling a firm or a major component of a firm

• Reasons for divestiture

• Partial mismatches between acquired firm and parent firm

• Corporate financial needs

• Government antitrust action

• Liquidation strategy

• Involves selling parts of a firm, usually for its tangible asset value and not as a going concern

BusinessStrategy

2-137

Levels of Strategy-Making ina Single-Business Company

Business Strategy

Two-Way Influence




OperatingManagers

Functional Managers

Two-Way Influence

138

Generic Strategies

Differentiation

Low-cost leadership

Focus

139

Evaluating and Choosing Business Strategies: Seeking Sustained

Competitive Advantage

• The two most prominent sources of competitive advantage can be found in the business’s cost structure and its ability to differentiate the business from competitors

• Businesses that have one or more resources /

capabilities that allow them to operate at a lower cost will consistently outperform their

competitosrs who do not have those capabilities

140

Evaluating Cost Leadership Opportunities

Business success built on cost leadership requires the business to be able to provide its product or service at a cost below what its competitors can achieve


Business Level Strategies


Bases of Competitive Advantage• Competitive strategy

• The bases for achieving competitive advantage • The bases for providing best value

• Porter’s generic strategies• Cost leadership• Differentiation • Focus

• Bowman and D’Aveni’s market facing strategies• Provide customer needs better or more effectively than

competitors• The strategy clock


The Strategy Clock

Note: The strategy clock is adapted from the work of Cliff Bowman (see D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995.) However, Bowman uses the dimenstion ‘Perceived Use Value’.


The Strategy Clock


“No Frills” Strategy

• Commodity-like products or services• Price-sensitive customers• High buyer power and / or low switching

costs• Small number of providers with similar

market shares• Avoiding the major competitors

Low priceLow perceived product/service benefitsFocus on price-sensitive market segment

Low priceLow perceived product/service benefitsFocus on price-sensitive market segment


Low Price Strategy

• Pitfalls of low price strategy

• Margin reduction (competitor reaction)• Inability to reinvest leading to loss of perceived

benefit of product

• Need a low cost base

• Low cost itself not a basis for advantage• Low cost achieved in ways that competitors

cannot match to give sustainable advantage

Lower price than competitorsMaintain similar product/service benefits

Lower price than competitorsMaintain similar product/service benefits


Differentiation Strategies

• Success depends on• Identification of strategic customers and

knowing what they value• Knowing the competitors

• Narrow competitor base – focused differentiation• Wide competitor base – address bases of

differentiation valued by customers

Offering benefits different from competitorsWidely valued by buyersBetter products/services at same or higher price

Offering benefits different from competitorsWidely valued by buyersBetter products/services at same or higher price


Hybrid Strategy

• Achieve greater volumes

• Clarity about activities on which differentiation can be built (core competences)• Reduce costs on other activities

• Entry strategy in market with established competitors

Simultaneously achieving differentiation and a price lower than competitors

Simultaneously achieving differentiation and a price lower than competitors


Focused Differentiation

• Choice to be made between focused differentiation and broad differentiation if growth required

• Difficult when the focus strategy is only part of an organisation’s overall strategy

• Possible conflict with stakeholder expectations• New ventures start off focused, but need to grow• Market situation may change, reducing differences

between segments

High perceived product/service benefits to selected market segment (niche)Premium products, heavily branded

High perceived product/service benefits to selected market segment (niche)Premium products, heavily branded


Sustaining Competitive Advantage


Competitive Strategies in Hypercompetitive Conditions


Competitive Strategies in Hypercompetitive Conditions

• Competitive advantage is temporary• Rapid imitation

• Not sustainable

• Competitive advantage relates to• Organisation’s ability to change

• Speed

• Flexibility

• Innovation

• Disruption of market


The Value Chain

4-154

The Concept of aThe Concept of aCompany Value ChainCompany Value Chain

The Concept of aThe Concept of aCompany Value ChainCompany Value Chain

A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service

A company’s value chain consists of a linked set of value-creating activities performed internally

The value chain contains two types of activities

Primary activities – where most ofthe value for customers is created

Support activities – facilitateperformance of the primary activities

4-155

RepresentativeRepresentativeCompany Value ChainCompany Value Chain

RepresentativeRepresentativeCompany Value ChainCompany Value Chain

4-156

Representative Value Chain Representative Value Chain for an Entire Organisationfor an Entire Organisation

Representative Value Chain Representative Value Chain for an Entire Organisationfor an Entire Organisation

4-157

Example: Value Chain Example: Value Chain ActivitiesActivities


Timber farming

Logging

Pulp mills

Papermaking

Distribution

Pulp & Paper Industry

4-158

Home Appliance Industry

Parts and components manufacture

Assembly

Wholesale distribution

Retail sales



A method of visually mapping a product's production path (materials and information) from "door to door".

Value stream is all the actions (both value added and non-value added) currently required to bring a product through the main flows essential to every product:

Value Stream Mapping

helps to visualize more than just the single-process level

helps see more than waste it helps see the sources of waste in your value stream

provides a common language for talking about manufacturing processes

ties together lean concepts and techniques

forms the basis of an implementation plan

shows the linkage between the information flow and the material flow

is much more useful than quantitative tools and layout diagrams that produce a tally of non-value added steps, lead time, distance traveled, the amount of inventory, and so on.

To diagnose strategic capability To understand how value is created or

lost in terms of the activities undertaken

The value chain describes the activities withinand around an organisation which togethercreate a product or service

The value chain describes the activities withinand around an organisation which togethercreate a product or service

Identifies clusters of activities providing particular benefit to customers

Highlights activities which are less efficient and which might be de-emphasised or outsourced

Requires managers to think about the role of such activities

Can be used to identify the cost and value of activities

4-164

Characteristics of Characteristics of Value Chain AnalysisValue Chain Analysis

Characteristics of Characteristics of Value Chain AnalysisValue Chain Analysis

Combined costs of all activities in a company’s value chain define the company’s internal cost structure

Compares a firm’s costs activityby activity against costs of key rivals

From raw materials purchase to

Price paid by ultimate customer

Pinpoints which internal activities are asource of cost advantage or disadvantage


An Activity Map

GlobalStrategy

167

Globalization Globalization refers to the strategy of

approaching worldwide markets with standardized products

Awareness of the strategic opportunities faced by global corporations and of the threats posed to them is important to planners in almost every domestic industry

Understanding the nuances

of competing in global markets is rapidly becoming a required competence of strategic managers

7-168

What Is the MotivationWhat Is the Motivationfor Competing for Competing Internationally?Internationally?

What Is the MotivationWhat Is the Motivationfor Competing for Competing Internationally?Internationally?

Gain access tonew customers

Capitalizeon core

competencies

Helpachieve

lower costsSpread

business risk across widermarket base

Obtain access to valuable natural

resources

169

Reasons for Going Global

PROACTIVE Additional resources Lowered costs Incentives New, expanded markets Exploitation of firm-

specific advantages Taxes Economies of scale Synergy Power and prestige Protect home market

REACTIVE Trade barriers International customers International

competition Regulations Chance

170

At the Start of Globalization

External and internal assessments are conducted before a firm enters global markets

External assessment involves careful examination of critical features of the global environment

Internal assessment involves identification of the basic strengths of a firm’s operations

7-171

How Markets Differ from How Markets Differ from Country to CountryCountry to Country

How Markets Differ from How Markets Differ from Country to CountryCountry to Country

Consumer tastes and preferences Consumer buying habits Market size and growth potential Distribution channels Driving forces Competitive pressures

One of the biggest concerns of companies competing in foreignmarkets is whether to customize their product offerings in each

different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide.

172

Factors That Drive Global Companies

Global Management Team Global Strategy Global Operations and Products Global Technology and R&D Global Financing Global Marketing

173

Basic Entry Decisions

Which overseas markets to enter (WHERE)• Assessment of long-run profit potential• Balancing the benefits, costs, and risks associated with

doing business in a country

Timing of entry (WHEN)• First-mover advantages: preempt and build share• First-mover disadvantages: pioneering costs

Scale of Entry (HOW)• Entering on a large scale is a major strategic

commitment • Benefits and drawbacks of small-scale entry

174

The Choice of Entry Mode

1. Exporting Most manufacturing companies begin their global expansion as

exporters and later switch to one of the other modes.

2. Licensing A foreign licensee buys the rights to produce a company’s product

for a negotiated fee; licensee puts up most of the overseas capital.

3. Franchising Franchising is a specialized form of licensing. The franchiser not

only sells intangible property, but also insists that franchisee agrees to follow strict rules as to how it does business.

4. Joint Ventures Typically a 50/50 venture – a favored mode for entering a new market

5. Wholly-Owned Subsidiaries Parent company owns 100% of subsidiary’s stock – setup or acquire

175

Escalating Commitments to International Markets

176

Competitive Strategies for Firms

in Foreign Markets1. Niche Market Exporting

2. Licensing and Contract Manufacturing

3. Franchising

4. Joint Ventures

5. Foreign Branching

6. Equity Investment

7. Wholly Owned Subsidiary

177

Advantages and Disadvantages of Different Entry Modes

178

Four Basic Strategies

Companies typically choose among the four main global strategic postures when competing internationally.

The appropriateness of each strategy varies with the extent of pressures for cost reduction versus local responsiveness.

179

Choosing a Global Strategy

Standard Globalization Strategy• Reaping the cost reductions that come from economies of scale

and location economies

• Business model based on pursuing a low-cost strategy on a global scale

Makes the most sense when there are strong pressures for cost reduction and the demand for local responsiveness is minimal

Localization Strategy• Customizing the company’s goods or services so that thy

provide a good match to tastes and preferences in different national markets

Most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences and where cost pressures are not too intense

180

Choosing a Global Strategy Transnational Strategy

• Difficult to pursue due to its conflicting demands

• Business model that simultaneously:Achieves low costs » Differentiates across markets Fosters a flow of skills between subsidiaries

Building an organization capable of supporting a transnational strategy is a complex and challenging task.

International Strategy• Multinational companies that sell products that serve universal

needs (minimal need to differentiate) and do not face significant competitors (low cost pressure).

In most international companies the head office retains tight control over marketing and product strategy.

StrategyImplementation

Existing Business Model

Mission , Vision, Values & Goals

External Analysis: Opportunities &

Threats

Internal Analysis: Strengths & Weaknesses

SWOT Strategic Choice

Business - Level Strategies

Functional – Level Strategies

Global Strategies

Corporate – Level Strategies

Governance and Ethics

Designing Organization Culture

Designing Organization Structure

Designing Organization

Controls

Components of Strategic Management Process

STRATEGY FORMULATION

STRATEGY IMPLEMENTATION

FE

ED

BA

CK

Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.

Strategy Formulation vs. Implementation

Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organization’s goals and of a specific strategic plan

Strategy Implementation = stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes

Strategy ImplementationStrategy Implementation

• Designing organizational StructureDesigning organizational Structure

• Designing Control systemsDesigning Control systems Market and output controlsMarket and output controls Bureaucratic controlsBureaucratic controls Control through organizational cultureControl through organizational culture Rewards and incentivesRewards and incentives

• Matching Strategy, Structure, Matching Strategy, Structure, Culture and Controls Culture and Controls

Congruence (fit) among strategy, Congruence (fit) among strategy, structure, culture and controlsstructure, culture and controls

StructureStructure

ControlsControls

CultureCulture


Implementing Strategy Tools

LeadershipStructural design Information and control systemsHuman resources


Tools for Putting Strategy into Action

Environment

Organization

Strategy Performance

Leadership Persuasion Motivation Culture/values

Structural Design Organization Chart Teams CentralizationDecentralization, Facilities, task design

Human Resources Recruitment/selection Transfers/promotions Training Layoffs/recallsInformation and Control Systems

Pay, reward system Budget allocations Information systems Rules/procedures

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.11-187

Why StructureWhy StructureFollows StrategyFollows StrategyWhy StructureWhy Structure

Follows StrategyFollows Strategy Changes in strategy typically require a new or modified

organization structure

A new strategy often involves different skills,different key activities, and different staffingand organizational requirements

Hence, a new strategy signals a need toreassess and often modify the organization structure

How work is structured is a means to an end –not an end in itself!

13-188

Tall and Flat StructuresTall and Flat StructuresTall and Flat StructuresTall and Flat Structures

13-189

Functional StructureFunctional StructureFunctional StructureFunctional Structure

13-190

Market StructureMarket StructureMarket StructureMarket Structure

13-191

Matrix StructureMatrix StructureMatrix StructureMatrix Structure

13-192

Product-Team StructureProduct-Team StructureProduct-Team StructureProduct-Team Structure

BUILD A STRATEGY-BUILD A STRATEGY-

SUPPORTIVE SUPPORTIVE

CORPORATE CULTURECORPORATE CULTURE

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.


Corporate Culture

13-195

Features of the Features of the CorporateCorporate

Culture at Wal-MartCulture at Wal-Mart


Culture at Wal-MartCulture at Wal-Mart Dedication to customer satisfaction

Zealous pursuit of low costs

Frugal operating practices

Strong work ethic

Ritualistic Saturday morning meetings

Executive commitment to Visit stores

Listen to customers

Solicit employees’ suggestions

13-196


Culture at MicrosoftCulture at Microsoft


Culture at MicrosoftCulture at Microsoft Long work hours of programmers

Emotional peaks and valleys inencountering and overcoming coding problems

Exhilaration of completing a complex program on schedule

Satisfaction of working on cutting-edge projects

Rewards of being part of a team responsiblefor a popular new software program

Tradition of competing aggressively

13-197

Steps in Designing Steps in Designing an Effective an Effective

Control SystemControl System

Steps in Designing Steps in Designing an Effective an Effective

Control SystemControl System

13-198

Levels of Organizational Levels of Organizational ControlControl

Levels of Organizational Levels of Organizational ControlControl

Controls at each level should provide the basis on which managers at lower levels design their controls systems.

13-199

Personal ControlManagers question and probe to better understand

subordinates.The result is more possibilities for learning to occur and

competencies to develop. Output Control

Set appropriate performance goals for each division, department, and employee, then measure actual performance relative to these goals.

Behavior ControlEstablish standardization, predictability, and accuracy by

creating a system of rules to direct actions and/or behaviors of divisions, functions, or individuals.

Types of Types of Strategic Control Strategic Control

Systems Systems

Types of Types of Strategic Control Strategic Control

Systems Systems

McKinsey 7-S framework McKinsey 7-S framework modelmodel

The 7-S framework of McKinsey is a The 7-S framework of McKinsey is a Value Based Management (VBM) Value Based Management (VBM) model that describes how one can model that describes how one can

holistically and effectively organize a holistically and effectively organize a company. Together these factors company. Together these factors

determine the way in which a determine the way in which a corporation operates.corporation operates.

McKinsey 7S Framework

Shared ValueShared Value

The interconnecting center of The interconnecting center of McKinsey's model is: Shared Values. McKinsey's model is: Shared Values. What does the organization stands for What does the organization stands for and what it believes in - Central and what it believes in - Central beliefs and attitudes.beliefs and attitudes.

StrategyStrategy

Plans for the allocation of a Plans for the allocation of a firm’s scarce resources, over firm’s scarce resources, over time, to reach identified time, to reach identified goals, Environment, goals, Environment, competition, customerscompetition, customers

StructureStructure

The way the organization's units The way the organization's units relate to each other: centralized, relate to each other: centralized, functional divisions (top-down); functional divisions (top-down); decentralized (the trend in larger decentralized (the trend in larger organizations); matrix, network, organizations); matrix, network, holding, etc.holding, etc.

SystemSystem

The procedures, processes and The procedures, processes and routines that characterize how routines that characterize how important work is to be done: important work is to be done: financial systems; hiring, promotion financial systems; hiring, promotion and performance appraisal systems; and performance appraisal systems; information systemsinformation systems

StaffStaff

Numbers and types of personnel Numbers and types of personnel within the organizationwithin the organization

StyleStyle

Cultural behaviour of the organization Cultural behaviour of the organization and how key managers behave in and how key managers behave in achieving the organization’s goals - achieving the organization’s goals - Management Styles.Management Styles.

SkillsSkills

Distinctive capabilities of personnel Distinctive capabilities of personnel or of the organization as a whole - or of the organization as a whole - Core Competences.Core Competences.

Managing Strategic ChangeManaging Strategic Change

The only constant is change.The only constant is change.

Success requires adapting strategy and Success requires adapting strategy and structure to a changing world.structure to a changing world.

The The feedback loopfeedback loop in in strategic planning.strategic planning. CorporateCorporate

FunctionalFunctional

BusinessBusinessOperationalOperational

Key Steps to Implement Key Steps to Implement Strategic ChangeStrategic Change• Sense the need for strategic changeSense the need for strategic change

• Build awareness of the need to change and Build awareness of the need to change and learnlearn

• Foster debateFoster debate

• Create consensusCreate consensus

• Assign responsibilityAssign responsibility

• Allocate resourcesAllocate resources

• Act quicklyAct quickly