01 CIMA E3 Notes - Enterprise Strategy - Chapters 1 & 2(1).pdf

7/27/2019 01 CIMA E3 Notes - Enterprise Strategy - Chapters 1 & 2(1).pdf

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CIMA E3Course Notes www.astranti.com

Strategic Business Coaching Ltd 2013

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CIMA E3

Enterprise Strategy

Course Notes

By Nick Best


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4. Strategic direction ...........................................................................805. Methods Of Strategic Development .......................................................836. Corporate political activity and non-market strategies ...............................877. Strategy Evaluation ..........................................................................878. Ethics and strategic choice.................................................................88

Chapter 8............................................................................. 93Strategic Implementation Change management ............................ 93

1. Strategy Implementation ...................................................................942. Change management ........................................................................943. Types of change ..............................................................................954. Effective management of change .........................................................975. The process of change ......................................................................996. Culture and Change........................................................................ 100

Chapter 9........................................................................... 106Strategic Implementation Information systems ........................... 106

1. Information.................................................................................. 1072. IS strategy ................................................................................... 1073. Steering committee........................................................................ 1124. Levels of management, information and control..................................... 1135. Information systems at different levels................................................ 1156. E-commerce................................................................................. 1197. Using business strategy models to identify IT needs................................. 120

Chapter 10 ......................................................................... 125Strategic Implementation - Marketing ........................................ 125

1. Marketing .................................................................................... 1262. Defining a marketing strategy ........................................................... 1273. The Marketing Mix ......................................................................... 128

4. Marketing Research........................................................................ 1315. Segment - Target Position .............................................................. 1326. The Management accountants role in marketing.................................... 1367. Branding ..................................................................................... 1408. Relationship marketing ................................................................... 142

Chapter 11 ......................................................................... 144Strategic Implementation Organisational Structure...................... 144

1. Structure..................................................................................... 1452. Types of organisational structure ....................................................... 1453. Centralisation Versus Decentralisation................................................. 1514. Structure and strategy .................................................................... 152

5. Business process reengineering and lean systems.................................... 152

Chapter 12 ......................................................................... 156Strategic Review And Control .................................................. 156

1. Strategic Review And Control............................................................ 1572. Performance Measurement............................................................... 1573. Balanced Scorecard........................................................................ 1614. Performance pyramid ..................................................................... 1635. Benchmarking............................................................................... 1646. Critical Success Factors ................................................................... 1657. Internal Control ............................................................................ 166


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CIMA E3 Course Notes

Chapter 1Formulating a business strategy


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1. Business strategyStrategy

A strategy is a plan of action designed to achieve a goal or objective. Theaim of a strategy is to gain some kind of competitive advantage or to help toexploit future opportunities.

A strategic plan tends to be an overall guide to the way forward rather thana detailed step by step approach due to the tendency of the real world tobe uncertain. In the example of a chess game, a strategy provides theover-riding approach that the player will take to win the game, but theexact set of moves they undertake will vary depending on the opponentsmoves.

Strategy in business

Applying this to a business scenario, according to the CIMA officialterminology a business strategy can be defined as:

"A course of action, including the specification of resources required, toachieve a specific objective"

Or, more complete definition is given by Johnson, Scholes and Whittingtonas:

The direction and scope of an organisation over the long term, whichachieves advantage for the organisation through its configuration ofresources within a changing environment, to meet the needs of the marketsand to fulfil stakeholder expectations

Business strategy therefore is concerned with the overall management of anorganisation and includes the management of and taking decisions about:

a) Productsb) Marketsc) Locations (production and sales)d) Structuree) Personnelf) Buildings and machineryg) How to compete


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Key features of strategic management

The key features of strategic management are:

Long term approach decisions are made over the long term, often forperiods exceeding one year

Focused on organisational objectives the aim being to ensure that theplan of action achieves the most important objectives for a wide group ofkey stakeholders

Aligned with internal strengths and weaknesses the aim should be tocapitalise on the business strengths and overcome any key weaknesses.Devising a strategy will often follow a position audit of the business to

ascertain the businesses current position.

Adapted to the changing business environment so that changes inpolitical, economic, social and technology factors are taken account of,while adapting to industry changes, such as competitive threats, supplyissues or changing customer needs.

The importance of strategy

Strategic management of businesses is important for the following reasons:

Provides a clear direction, focusing management decision making Adapts the organisation to the changing environment ensuring its

continuing survival and success

Ensures competitiveness through understanding and adapting tocompetition

Focuses in building key competences to meet customer needs Co-ordinates all elements of the business in a structured planned

approach.

Directors role in strategy

Ultimately it is the directors responsibility to decide on and take decisionson strategy in the organisation. Typically strategy will be discussed andagreed in board meetings. Larger organisations often have a smalldepartment whose role is to analyse the business, markets and competitorsand devise strategy for the board to discuss and agree upon.


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The directors have a fiduciary duty to make strategic decisions which are inthe best interests of the company and its shareholders, and as such it isimportant that due diligence undertaken before key contracts resultingfrom strategic decisions are signed. This might include an analysis of keysuppliers prior to long term supply agreements or review of an acquisition

target by an independent accountancy firm prior to purchase.

2. Levels of StrategyThere are three different levels on which strategy can be set:

Corporate Strategy

The corporate strategy provides the direction for the business as whole,

including all parts of the business. It includes consideration of:

The overriding purpose and scope of the business Which businesses and markets should the organisation operate in? What should the core competencies be? Resources and financing How to compete How to integrate and structure the business

For a company such as Diagio, one of the worlds leading premium drinks

businesses with brands such as Guiness, Smirnov and Johnie Walker amougstits group. It needs to decide which products to include in its brands, whichmarkets to operate in and so on. In 2002 Diagio sold Burger King as theymoved out of the food industry into a focus on Premium Branded Drinks.This was a corporate level decision.

Business Strategy

Each business unit or subsidiary of the business is likely to have differentgoals, competitors, suppliers, manufacturing approaches, IT, financialrequirements and so on, and so each strategic business unit (SBU) needs its

own strategy. This covers:

Which competencies? Which products? Which markets? Tactics to beat competition in this market Business resources (people, buildings, machinery, processes) How to compete in this business area?

In Diagio, different strategies will be required for each drinks brand and

each regional market due to the different nature of the products andmarkets. These are business level strategies.


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Operational/Functional Strategy

Each functional area within each business unit will then have its ownstrategy, so there will be strategies in each department e.g. HR, IT,production, finance and marketing.

These should be designed to be consistent with the business strategy of theSBU.

3. Approaches of Strategy FormulationThere are a number of different approaches to the development ofstrategies within organisations.

Planned strategies Emergent strategies Incrementalism Opportunism

These will be examined one by one in the following sections.

4.

Planned StrategiesStrategies can be consciously and formally planned in advance, either by thedirectors or by a specialist department. This provides a clear, justifiablestrategy based on the information available about the companys currentposition, environment and competencies. As such the strategy developedshould be well thought through and effective.

Planned strategies are often used in large organisations, and are particularlysuitable where the industry is subject to relatively little change.

Planned strategies tend to consist offour of distinct stages:

Strategic Analysis

Defining the direction (e.g. Mission and objectives) External analysis of the business environment (e.g. PESTEL analysis,

Porters 5 forces)


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Internal analysis of the firm (e.g. Value chain, Resource audit,Product analysis)

Corporate appraisal (e.g. SWOT analysis)Strategic Choice

Selecting strategic options Choosing options the firm is going to take (including financial

evaluation using techniques such as NPV, IRR and Payback period).

Strategic Implementation

Putting the strategies into practice including polices and strategies for:

marketing finance R & D IT Human Resources Project management Change management Structure

Strategy Evaluation and control

Evaluating the success of the strategy by measuring actualperformance against objectives

Taking control action by amending future strategies and objectives.


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Rational planning model

The stages of strategic planning can also be shown using the rationalplanning model, which is an alternative way of showing the same process.

Mission andObjectives

Corporate Appraisal

Environmental

Analysis

Strategic Options

Position Audit

StrategicEvaluation

Strategic

Implementation

Review and Control

Criticisms of planned strategies

While planned strategies provide logical focused, well organised strategiesthey have also been criticised:

Time commitment they can be very time consuming to create, for largebusinesses often taking many months, and may be out of date by the timethey are published

Cost costs include staff time, collecting information, using strategyconsultants


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Lack of flexibility - The organisation can become constrained by a fixedplan and as a result not take new opportunities that arise or adapt tochanges in the business environment (e.g. a new competitive threat).

5. Emergent Strategies (Mintzberg)Emergent strategies are strategies which emerge out of the course of thebusiness rather than having been formally planned. They could perhaps bedue to opportunities which present themselves (e.g. a competitor comes upfor sale) or threats which need to be addressed (e.g. a competitor developsa new product and the company must follow suit to remain competitive).

NOWGeneral idea of goalsAnd future directionPlanned strategy

Failedstrategiesdiscarded

Emergentstrategiesincluded

Realised strategy

Craftin

g

Emergent strategies can be combined with the successful elements of theplanned strategy to define the way forward for the business. The process ofbringing these together is called crafting a strategy.

In the example of a development of a new product, that needs of the newproduct would need to be crafted alongside those of the existing business,


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including production timings and approaches of both existing and newproducts, combined marketing strategies, allocation of funds to differentproduct lines and the use of human resources for each area.

This is more appropriate for businesses in a changing environment, such as

high technology, where restriction to one planned strategy may be acompetitive weakness.

It is also most commonly used in smaller organisations where theorganisation relies less of formal plans and processes and more on theknowledge of key managers and staff who can be very flexible to change.

6. Incrementalism

In fast changing environments it may be unrealistic to effectively undertakethe full strategic planning process. Instead it is more practical to develop ashort term strategy based on the consensus of opinion of majorstakeholders.

An incrementalist approach was adopted by many businesses during theecomonic downturn of the late 2000s as uncertainty made it hard to makeaccurate long term predictions.

The strategy is then developed regularly using a series of small scalechanges as dictated by the changing environment.

Another situation where incrementalism is common in the public sectorwhich while not a rapidly changing environment, is one where there are awide variety of stakeholder needs to satisfy. It can thus be hard to agreeclear long term objectives to keep every stakeholder content, and thus ashorter term middle ground view is taken that satisfies all groups.


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7. Freewheeling Opportunism

NOW

Take advantage of opportunities as they arise

Little plan or direction, but very flexible and dynamic

In this model there is no formal approach to strategy development.

Directors dictate the business direction through taking whateveropportunities are available at a particular point in time. This allows the

business to be very flexible and take opportunities that companies using amore formal approach to strategy development would be slow to take.

Freewheeling opportunism is most common in small companies with anentrepreneurial leader who can direct and focus their organisation downeach new track based on the opportunities they identify and wish to pursue.The lack of formal processes makes change quick and easy.

8. The three strategic lensesAccording to Johnston, Scholes and Whittington, business strategy canconsidered from three different perspectives.

Strategy as design

A strategy is planned based on internal and external analysis and logical andrational thought. e.g. Rational model


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Strategy as experience

Strategy comes from learning from and adapting to real-world experiencee.g. Emergent strategies (and to a lesser extent incrementalism)

Strategy as ideas

Strategy comes from the continuous application of new innovations andbusiness and process change. This depends on staff and structuralflexibility, entrepreneurship and idea generation.


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Strategic Mock Exams E3, F3 and P3

Based around the latest Preseen2 full mocks are available for each strategic subject

Full marking and detailed feedback

Full mock markingDetailed and personalised feedback to focus on helping to pass the exams

Personal coaching on your mock exam

1hr personal coaching session with your markerPersonalised feedback and guidance

Exam technique and technical review

Strategic and Financial analysis of the Pre-seen

Strategic analysis - all key business strategy models in E3

Financial analysis based around the F3 syllabusRisk analysis based around the P3 syllabus

30 page strategic reportFull video analysis of how all key models apply to the unseen

Video introduction to all the key models

Personal Coaching Courses

Personal coaching to get you through the exam

Tuition Course Personalised tuition to give you the required syllabusknowledge tailored to your needs

Revision Course - Practise past exam questions with personal feedback onyour technical weaknesses and exam approach and technique

Resit Course Identifying weaknesses from past attempts and providingpersonalised guidance and study guides to get you through the exam


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CIMA E3 Course Notes

Chapter 2Mission and objectives


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1. MissionWhat is the organisation all about? Why does it exist? Who does it exist for?What is it trying to achieve? An organisations mission answers thesequestions.

A mission helps to provide:

Common purpose so everyone is clear what the purpose and values of thecompany are to help guide the companys culture

Focus for the strategy strategic decisions can be based upon and reviewed

against their consistency with the mission to ensure the organisation doesnot get off track or lose focus on its true values and purpose.

Direction for objectives to ensure alignment of activities towardsachieving objectives which are consistent with the companys purpose.

2. Mission StatementsA mission statement is a written statement of the companys purpose,strategy, values and policies.

Campbell set out the following key elements of good mission statements:

Purpose

Why does the organisation exist? For whom does it exist? What does the organisation hope to achieve long term?

Strategy

How will the organisation compete? The range of businesses it is operating within.

Values

What the organisation stands for (quality, value for money,innovation etc.)


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Policies

Policies people are expected to follow which will ensure people actaccording to the defined values, strategy and purpose.

Qualities of good mission statements include:

Clear/unambiguous Concise Covers the whole organisation Open ended (not quantifiable)

Example real life mission statements

Amazon

To be earths most customer centric company; to build a place wherepeople can come to find and discover anything they might want to buyonline.

Apple

Apple is committed to bringing the best personal computing experience tostudents, educators, creative professionals and consumers around the worldthrough its innovative hardware, software and Internet offerings.

Dell

To be the most successful computer company in the world at delivering thebest customer experience in markets we serve.

Facebook

To give people the power to share and make the world more open andconnected.

Google

To organise the worlds information and make it universally accessible anduseful.

Microsoft

To enable people and businesses throughout the world to realize their fullpotential.


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YouTube

To provide fast and easy video access and the ability to share videosfrequently

You will notice that many real life mission statements are often short andfocused, and lack some of Campbells elements of good mission statements.While theoretically incomplete this adds focus and improves the mission as acommunication tool.

Many of these organisations go on to produce other statements which whentaken in combination with the mission statement complete Campbellselements. For example Microsoft has the following values statement:

As a company, and as individuals, we value integrity, honesty, openness,personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. We are committed to our customers andpartners and have a passion for technology. We take on big challenges, andpride ourselves on seeing them through. We hold ourselves accountable toour customers, shareholders, partners, and employees by honouring ourcommitments, providing results, and striving for the highest quality.

3. ObjectivesThe purpose of objectives

A mission is non-quantifiable i.e. it provides an overall direction andpurpose rather than being directly measurable. This means it is very hard tomeasure its success and it is not a good tool for motivating staff sincetargets are unclear.

For a mission to be effective, it needs to be supported by clear, measurable

objectives which provide targets for directors and staff, and hencemotivates and provides focus for them.

They also perform an important role in performance measurement asorganisational and individual performance can be assessed by howeffectively they have achieved their objectives.

Hierarchy of objectives

Objectives are set at different levels within the organisation to motivate

and focus performance in each major part of the business. This goes rightdown to the individuals who are set objectives as part of their appraisal.


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Horizontal consistencyHorizontal consistency

VerticalVertical

consistencyconsistency

Corporate

Business Unit

Functional/operational

Individual

TimeTime--basedbased

consistencyconsistency

Vertical consistency of objectives

Lower level objectives should be consistent with higher level objectives(e.g. individuals should be set objectives which. when achieved, willcontribute to the achievement of their functions objectives.). This ensureseach part of the organisation is acting in a way which is appropriate to theneeds of the next level up.

Horizontal consistency of objectives

The objectives of different departments, individuals, or businesses areconsistent with each other (e.g. the production department objectives andsales department objectives are co-ordinated to ensure the right productsand product quantities are produced to meet sales planned). This facilitatesco-ordination within the organisation.


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trying to achieve, and so they lack focus in their actions and aredemotivated.

3. To reduce our current level of defects from 69 per 1000 to 0 per 1000

by the end of the month.

Probably not achievable, but SMART in other respects. Demotivating as toodifficult. The manager does not strive to achieve it.

4. To increase sales of products by 10% over the course of the nextmonth.

Not relevant enough to what they do, but SMART in other respects. Theycant control the target directly so it does not motivate them to improvewhat they do.

5. To reduce the number of defective products from 2 per 1000 to 1 per1000 by the end of the year.

A SMART objective

5. StakeholdersWhat are stakeholders?

Stakeholders of an organisation are people who are affected in some way bywhat the organisation does.

Organisational objectives should always be considered in relation to theobjectives of different stakeholders. This ensures that a wide range of needsare considered in the objective setting process and balanced objectives are

produced.


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Who are the key stakeholders

Stakeholders and their needs include:

Category Stakeholder Needs of the stakeholder

Internal - Directors - Pay, bonus, overall performance, job security- Employees - Pay, bonus, personal performance, job security

Connected - Shareholders - Share price growth, dividend payments(usually have - Customers - Prices, quality, delivery times, assured supplya contract) - Suppliers - Assured custom, high prices

- Financiers - Interest payments, ability to pay back loans

External - Government - Tax, law, wealth of nation(Other) - Pressure groups - E.g. environment

- Local community - Employment, nice place to live- Wider community - Environment

Stakeholder power

The degree to which stakeholder needs are considered as part of theobjective setting process depends on the level of power they have to impactthe organisation and its results. The needs of powerful groups will tend to

be prioritised

For example large customers have significant power and products, prices,location of production facilities and so on may be impacted by their needs.Small customers have far less power and less consideration will be paid totheir individual needs.


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Stakeholder Mapping (Mendelows Matrix)

Minimal

Effort

Keep

Informed

Keep

Satisfied

Key

Players

Level of Interest

High

High

Low

Low

Power

Mendelow's matrix helps to identify the relationships that should be builtwith different stakeholders. A stakeholder's position in the matrix dependson two factors:

Power- The power to influence the organisation, and affect its decision-making.

Interest - The interest which the stakeholder has in the organisation. Thegreater the interest in the organisation the greater the level ofcommunication that will be required with them. Many employees have littlepower, but good communication of plans is important to retain their loyaltyand motivation.

Each stakeholder is placed in one box depending on each factor and thentreated differently depending on where they are:

Minimal effort e.g. Temporary employee. Give them basic information tomeet their needs, but pay little attention to them in decision making andstrategy.

Keep informed e.g. Full time employee. Regularly communicate withthem, particularly things they are interested in. This helps retain goodrelationships and avoids them seeking to increase power (e.g. through staffgrouping together in a union).


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Keep satisfied e.g. Government. They have high power so to avoid themexercising the power they should be kept satisfied e.g. by paying them ontime or meeting whatever needs they have. As they have little interest onlyinformation is given to them as is necessary (e.g. profit information togovernment to help assess tax payable).

Key players (Keep Close) e.g. Major shareholder Regular communication ismaintained and their goals and objectives included as part of the strategysetting process and business approach.

6. Corporate Social Responsibility (CSR)Corporate Social Responsibility is, as the name suggests, a companiesresponsibility to the society in which it operates. This means considering all

stakeholders as part of the decision making process not just the keyplayers.

CSR policies cover issues such as environmental policy and sustainability,health and safety, treatment of staff, charitable work and contribution andsupporting local communities.

Benefits to business of good CSR

Brand differentiation

In crowded marketplaces, companies strive for a unique selling propositionthat can separate them from the competition in the minds of consumers.CSR can play a role in building customer loyalty based on distinctive ethicalvalues. Several major brands, such as The Co-operative Group, The BodyShop and American Apparel are built on ethical values.

Avoiding regulation

Corporations are keen to avoid interference in their business throughtaxation or regulations. By taking substantive voluntary steps, they canpersuade governments and the wider public that they are taking issues suchas health and safety, diversity, or the environment seriously as goodcorporate citizens with respect to labour standards and impacts on theenvironment.

Reputation

A good CSR policy and approach can support a good long term reputation for

the firm, which supports the development of a strong, well recognised andwell respected brand. This can help to gain customers, attract and retain


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high quality staff, build trust with investors, and gain the loyalty ofsuppliers.

Building CSR into the organisation

There are a variety of ways of

Mission and objectives

Inclusion of CSR values within the mission statement has become commonpractise, and creates focus for directors when setting strategy to ensure CSRis built into strategies being are followed.

Creating focused CSR objectives with clear plans for achievement also help

focus CSR activity, particularly when these are linked to managerialperformance and reviewed regularly.

CSR Policies

A CSR policy is an internal statement of rules and expectations on CSR issuesto be applied within the organisation. It sets out the organisations valuesand clear rules to be following in relation to many ethical and social issues.

Philanthropy

A common element of CSR is philanthropy. This includes monetary donationsand aid given to local organizations and impoverished communities indeveloping countries.

Benchmarking

Benchmarking enables comparison of CSR performance against other

organisations. It involves reviewing competitor CSR initiatives, as well asmeasuring and evaluating the impact that those policies have on society andthe environment, and how customers perceive competitor CSR strategy.After a comprehensive study of competitor strategy and an internal policyreview performed, a comparison can be drawn and a strategy developed forcompetition with CSR initiatives.

Social accounting, auditing, and reporting

Social accounting involves accounting for and reporting social andenvironmental effects of a company's economic actions.


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A number of reporting guidelines or standards have been developed to serveas frameworks for social accounting, auditing and reporting including:

Global Reporting Initiative's Sustainability Reporting Guidelines The ISO 14000 environmental management standard

In some nations, legal requirements for social accounting, auditing andreporting exist although there is little international agreement on whatconstitutes meaningful measurement of social and environmentalperformance.

Many companies now produce externally audited annual reports that coverSustainable Development and CSR issues ("Triple Bottom Line Reports"), butthe reports vary widely in format, style, and evaluation methodology (evenwithin the same industry).

Within organisations internal auditors may perform internal reviews (oraudit) against the companies CSR policies as a way to review internalcompliance.


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Strategic Mock Exams E3, F3 and P3

Based around the latest Preseen2 full mocks are available for each strategic subject

Full marking and detailed feedback

Full mock markingDetailed and personalised feedback to focus on helping to pass the exams

Personal coaching on your mock exam

1hr personal coaching session with your markerPersonalised feedback and guidance

Exam technique and technical review

Strategic and Financial analysis of the Pre-seen

Strategic analysis - all key business strategy models in E3Financial analysis based around the F3 syllabus

Risk analysis based around the P3 syllabus

30 page strategic reportFull video analysis of how all key models apply to the unseen

Video introduction to all the key models

Personal Coaching Courses

Personal coaching to get you through the exam

Tuition Course Personalised tuition to give you the required syllabus

knowledge tailored to your needs

Revision Course - Practise past exam questions with personal feedback onyour technical weaknesses and exam approach and technique

Resit Course Identifying weaknesses from past attempts and providingpersonalised guidance and study guides to get you through the exam

Documents

01 CIMA E3 Notes - Enterprise Strategy - Chapters 1 & 2(1).pdf