Enterprise Strategy

CIMA Paper E3

11SessionSession CIMA Verb Hierarchy

CIMA verb hierarchy – strategic level

• at strategic level, you will usually encounter verbs from levels 3, 4 and 5 of the CIMA hierarchy

• you must avoid giving a “level 2 response to a level 5 verb” (common examiner’s comment)

CIMA verb hierarchy – strategic level

CIMA verb hierarchy – levels 3, 4 and 5

Level 3 Level 4 Level 5To applyTo calculateTo demonstrateTo prepareTo reconcileTo solveTo tabulate

To analyseTo categoriseTo compare and contrastTo constructTo discussTo interpretTo prioritiseTo produce

To adviseTo evaluateTo recommend

Learn the meaning of each of these verbs, and follow the instructions in exam requirements specifically

CIMA verb hierarchy – strategic level

22SessionSessionIntroduction to Strategy

Strategy Question and Process

• A means to achieve the objectives…• A basis for competitive advantage…

Where to Compete

Where to Compete

Two BasicQuestions

Two BasicQuestions

How to Compete

How to Compete

Strategic Planning Process

InternalEnv

InternalEnv

Mission and

Objectives

Mission and

Objectives

ExternalEnv

ExternalEnv

PositionAudit

PositionAudit OptionsOptions

Evaluationand

Choice

Evaluationand

Choice

Implementationand Control

Implementationand Control

Strategic Planning Process

Strategic analysis

Strategic analysis

Strategic choice

Strategic choice

Strategy into action

Strategy into action

33SessionSessionMission, Objectives and Stakeholders

Mission

What is our

business?

What is our

business?

MissionMission

What is valued by the

customer?

What is valued by the

customer?

What will our business be?

What will our business be?

What should our business

be?

What should our business

be?

Objectives

Objectives become increasingly SMART•Specific•Measurable•Attainable•Relevant•Time-bound

MissionMission

Strategic plans and objectives

Strategic plans and objectives

Tactical plans and objectives

Tactical plans and objectives

Operational plans and objectives

Operational plans and objectives

Stakeholder Mapping

MinimalEffort

KeepInformed

KeepSatisfied

KeyPlayers

Level of Interest

Power

HighHigh

Low

Low

Ethics and CSR

EthicsEthics

moral duty and obligationmoral duty and obligation

Ethical stances (JSW)•Short-term SH interest•Longer-term SH interest•Multiple stakeholder interest•Shaper of society

Ethical stances (JSW)•Short-term SH interest•Longer-term SH interest•Multiple stakeholder interest•Shaper of society

CSRCSR

exceeding the minimum obligations to stakeholders

exceeding the minimum obligations to stakeholders

Dimensions (Carroll)•Legal •Ethical •Economic •Philanthropic

Dimensions (Carroll)•Legal •Ethical •Economic •Philanthropic

44SessionSessionEnvironmental Analysis

Stakeholder Mapping

Sources of Data

• Primary data collection:

- Observation - Surveys

• Secondary data collection

- Internal sources - accounting / marketing data

- External sources - Periodicals / internet

55SessionSessionExternal Environment

The Pestel Framework

• Political• Economic• Social• Technical• Environmental-social responsibility• Legal

Porter’s 5 Forces

Power of Buyers

Power of Buyers

Power of Suppliers

Power of Suppliers

Threat ofNew Entrants

Threat ofNew Entrants

RivalryRivalry

Threat of Substitutes

Threat of Substitutes

Porters Diamond The Competitive Advantage of Nations

DemandConditions

DemandConditions

Related and SupportingIndustries

Related and SupportingIndustries

FactorConditions

FactorConditions

Strategy, Structure and

Rivalry

Strategy, Structure and

Rivalry

The Life Cycle

Maturity DeclineGrowthIntro

Time

Sales

Competitor Analysis

• Strategy – where and how• Resources and competences• Objectives – are they being met?• Assumptions – culture?• Competitors – who are they?• Predictions – for the future?

– What are they likely to do in the future?– How will they respond to our initiatives?– How can we influence their reactions to our initiatives?

6 6 Session Session Internal Environment

Resource-based view of strategy

Strategic analysis•Internal analysis to identify strengths and weaknesses by looking at the firm’s resources and competences•External analysis to identify CSFs in markets

Strategic analysis•Internal analysis to identify strengths and weaknesses by looking at the firm’s resources and competences•External analysis to identify CSFs in markets

Strategic choice•Select strategies where the firm has or can acquire the core competences to meet the CSFs in the markets concerned

Strategic choice•Select strategies where the firm has or can acquire the core competences to meet the CSFs in the markets concerned

Strategic implementation•Formulation of detailed plans and budgets•Target setting for KPIs•Monitoring and control – especially of core competences

Strategic implementation•Formulation of detailed plans and budgets•Target setting for KPIs•Monitoring and control – especially of core competences

Resources and Competences

Resources

Competence

Basic Unique

Threshold Core

Same as Competitor Easy to Copy

Different and Difficult to Copy

Porter’s Value Chain

Inbound Logistics

Operations ServiceMarketingand Sales

OutboundLogistics

Procurement

Technology

Human Resource Management

Infrastructure

Margin

77SessionSessionPosition and gap analysis

The Position Audit

Where are we now?

External EnvironmentExternal EnvironmentInternal EnvironmentInternal Environment

What happens if we do nothing?

WeaknessWeakness

StrengthStrength

ThreatThreat

OpportunityOpportunity

Gap Analysis

Time

Objective

Future operations

Current operations

Ob

jectiv

e Me

asu

re

Gap

88SessionSessionStrategic Choice

Porter’s Generic Strategies

Broad Scope

Where

CostLeadership

Differentiation

FocusNarrow Scope

How

Ansoff Growth Strategies

MarketPenetration

ProductDevelopment

MarketDevelopment

Diversification

Existing NewProduct

Existing

Market

New

Boston Consulting Group (BCG) Matrix

Star Problem Child

Cash Cow Dog

Market ShareHigh Low

High

MarketGrowth

Low

Methods of expansion

Acquisition v organic growth

• Speed• Cost• Economies of scale• Risk• Synergy• Implementation issues

Joint methods• Sharing of costs • Sharing of benefits • Sharing of risks • Ownership of resources • Control / decision

making

Strategy Evaluation

Feasibility• Resources• Competencies• Implementation

Suitability• Objectives• Strengths• Opportunity

AcceptabilityTo Stakeholder

Groups

99SessionSessionThe Performance Measurement Mix

Determination of the Measurement Mix

Identify ObjectivesIdentify Objectives

Draft CSFDraft CSF

Position ReviewPosition Review

Update the CSFUpdate the CSF

Draft a MixDraft a Mix

Consider Change Implications and TestConsider Change Implications and Test

Deploy and MonitorDeploy and Monitor

The Balanced Scorecard

FinancialFinancial

OperationsOperationsCustomerCustomer

LearningLearning

Kaplan and Norton

HR Research

IT?

Benchmarking

InternalInternal ProcessProcess CompetitorCompetitor

DifferentCompanySimilar Process

SimilarProcessDirect

Competitor

SameCompanyDifferent

Department

Identification of best practice…….

1010SessionSessionBusiness UnitPerformance

Structure

Type Advantages DisadvantagesEntrepreneurial Fast decision making

More responsive to market Good control Close bond to workforce

Lack of career structure May be too centralised Cannot cope with

diversification / growth

Functional Economies of scale Standardisation Specialists more comfortable

Empire building Slow Conflicts between functions Cannot cope with

diversificationDivisional Enables growth

Clear responsibility Training of general managers

Loss of control Lack of goal congruence Duplication Specialists feel isolated

Matrix Advantages of both functional and divisional structures?

Flexibility

Dual command Dilution of functional

authority Time consuming meetings

Shareholder Value

Shareholder value = Present value of free cash flow from operations plus value of marketable securities - Value of debt

1111SessionSessionIT and e-business

Earls Three levels of Strategy

IS Strategy

IM Strategy

IT Strategy

• Division/SBU/function based• Demand orientated• Business focussed

• Activity based• Supply orientated• Technology focused

• Organisation based• Relationship orientated• Management focused

“What”

“How”

“Wherefore”Applications

Delivery

Management

McFarlan’s Strategic Grid

Support Turnaround

Factory Strategic

Strategic Impact of

CurrentSystems

High

Low

HighLow

Strategic Impact of Future Systems

1212SessionSessionInformation for Advantage and Knowledge Management

Information Issues

Internal Internal ExternalExternal

Reliability Known

Reliability Known

Reliability ?

Reliability ?

1. Who2. When 3. Why 4. What

1. Who2. When 3. Why 4. What

More Relevant

More Relevant

1. Broader Focus2. Less Cultural

Distortion

1. Broader Focus2. Less Cultural

Distortion

Relevance

?

Relevance

?

SourcesSources

Data Warehousing

This is a subject orientated, integrated, time variant, non-volatile collection of data in support

of management’s decision making process

A Data Extraction Tool

A Data Extraction Tool

A Decision Support Tool

A Decision Support Tool

Maintained by constant updatesfrom operational systems

A DatabaseA Database

Data Mining

The analysis of data to unearth unsuspected or unknown relationships, patterns and associations

Statistical technique and modelling that gives:

• Associations – correlation

• Sequences – sequences

• Classification – recognition of patterns

• Clustering – finding groups of facts

• Forecasting – predicting the future

The Warehouse

Turns Data into Information

Stores Data

The Mining

Knowledge Management

The management of the information, knowledge and experience available to an organisation.

CreateCaptureStoreMake AvailableUtilise

CreateCaptureStoreMake AvailableUtilise

To Build aCompetitiveAdvantage

To Build aCompetitiveAdvantage

Knowledge Management

To Build aCompetitiveAdvantage

To Build aCompetitiveAdvantage

Structural CapitalStructural Capital Human CapitalHuman Capital

• Innovation – intellectual property

• Customer – address lists / records

• Organisational – processing systems

• Development

• Maintenance

• Retention

1313SessionSessionCustomers, suppliers and SCM

Supplier strategy

Key factors• Sources• Number of suppliers• Cost, quality and speed of delivery• Make or outsource?• Antagonism or partnership?

E-procurement

Benefits of e-procurement Risks Reduced labour costs Reduced inventory holding

costs Fewer stock-outs due to

more accurate monitoring of demand

Higher production / sales Quicker ordering making it

easier to implement JiT Wider choice of suppliers

Technology risks Organisational risks Cost savings not realised

Customers – relationship marketing

Transaction marketing Relationship marketing

concentrates on products

concentrates on retention and loyalty

little knowledge of customer

considerable customer commitment

product quality a key issue

considerable customer contact

little effort on customer retention

emphasis on quality service

Six markets model (Payne)

• Customer markets • Referral markets • Supplier markets • Recruitment markets • Influence markets • Internal markets

Customer account profitability (CAP)

• ‘The total sales revenue generated from a customer or customer group, less all the costs that are incurred in servicing that customer or customer group’.

• CAP focuses on profits generated by customers and does not automatically equate increases in sales revenues with increases in profit.

Customer lifetime value (CLV)

• CLV is the PV of the future cash flows attributed to the customer relationship.

• Use as a marketing metric places greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.

• In theory CLV represents exactly how much each customer is worth in monetary terms, and therefore exactly how much a marketing department should be willing to spend to acquire each customer.

1414SessionSessionLean systems and innovation

Lean systems

• Minimise waste• Perfect first time quality• Flexible production• Continuous improvement

BPR

The fundamental rethinking and radical redesign of business processes to achieve dramatic and sustainable improvements in critical measures of performance such as cost, quality, service, and speed.

1515SessionSessionChange Management I

Triggers for change

• External– General (PEST)– Task (P5F)

• Internal• Problem identification as a precursor to change

Classifying change

Evolution Adaptation

Revolution Reconstruction

Speed of change

Discontinuous

Continuous

RealignmentTransformationExtent of change

Organisational culture

The concept of the cultural web is a useful device for mapping out change but its real worth is in the fact that we can identify which elements of culture need to change.

Culture

Resistance to change

Reasons for resisting change

Reasons for resisting change

Personal factorsPersonal factors

Social factorsSocial factors

Job factorsJob factors

1515SessionSessionChange Management II

Lewin’s ice cube model

• Unfreeze• Change behaviour / attitudes• Refreeze

Lewin’s Force Field Analysis

Objective of the Change Process

Driving Forces Restraining Forces

Gemini 4R

Strategic transformationStrategic transformation

RestructuringRestructuring

RevitalisationRevitalisation

ReframingReframing

RenewalRenewal

Leadership (Kotter and Schlesinger)

• Participation• Education and communication• Power / coercion• Facilitation and support• Manipulation and co-optation• Negotiation

Change Agents

• define the problem and its cause • diagnose solutions and select appropriate

courses of action • implement change • transmit the learning process to others and

the organisation overall.

Ethical aspects of change

• Is the change justified?• Consider impact on different stakeholders –

e.g. redundancies• Management motivation / approach used –

e.g. acting out of personal interests?• Release of information

Continuous change

Change adept organisations (Kanter)• The imagination to innovate• The professionalism to perform• The openness to collaborate