Strategic Management Module

MODULE
[BCM 461-STRATEGIC MANAGEMENT]
[MLUNGUSHI UNIVERSITY] [SCHOOL OF BUSINESS]
Copyright
[COPYRIGHT 2012 MULUNGUSHI]
[MULUNGUSHI UNIVERSITY] [SCHOOL OF BUSINESS]
[GREAT NORTH ROAD CAMPUS] [Box 8041 ] [!AB"E] "#$%&'#( )))*+,*-.*/+
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The Mulungushi University, school of business and the Institute of Distance Education wishes to thank Mr. C. Mwaanga and all those who contributed to this strategic management module.
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trategic Management Module has been !roduced by Mulungushi University. "ll the modules !roduced by the University are structured in the same way, as outlined below.
Ho) '0&% +o1,2# &% %'3,.',3#1 T0# .o,3%# o4#34&#) The course overview gives you a general introduction to the course. Information contained in the course overview will hel! you determine# If the course is suitable for you. $hat you will already need to know. $hat you can e%!ect from the course. &ow much time you will need to invest to com!lete the course. The overview also !rovides guidance on# tudy skills.
$here to get hel!. Course assignments and assessments. "ctivity icons. Units. $e strongly recommend that you read the overview carefully before starting your study. T0# .o,3%# .o5'#5' The course is broken down into units. Each unit com!rises# "n introduction to the unit content. Unit outcomes. Core content of the unit with a variety of learning activities. " unit summary.
U!it - STRATEGY FORMULATION
"ssessments, as a!!licable.
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'or those interested in learning more on this sub(ect, we !rovide you with a list of additional resources at the end of this module) these may be books, articles or web sites.
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"fter com!leting trategic Management module we would a!!reciate it if you would take a few moments to give us your feedback on any as!ect of this course. *our feedback might include comments on# Course content and structure. Course reading materials and resources. Course assignments. Course assessments. Course duration. Course su!!ort +assigned tutors, technical hel!, etc., *our constructive feedback will hel! us to im!rove and enhance this course.
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6$#co&$ to Str.t$gic M.!.g$&$!t
trategic Management as a ca!stone draws together various strands of business courses to !rovide a holistic view of the organisation and to develo! a strategic !ers!ective of business management. tudents will be introduced to a number of key strategic -uestions regarding the future direction of the firm such as) &ow to survive environment in a com!etitive global
&ow to leverage an organisation.s com!etences to gain com!etitive advantage $hat strategy needs to be !ursued in order to survive and / or !ros!er $hether there is a need for the firm to grow, ac-uire , merge, divest or downsi0e &ow a firm should react to the eve 1 changing environment) and &ow to im!lement strategy and manage strategic change The course will also introduce students the conce!t of international strategy and globali0ation as well as the cor!orate governance issues.
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U!on com!letion of this module you will be able to#
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+a, "c-uire a better guidance to the entire organisation on the crucial !oint of 2what is it we are trying to do3. +b, Describe a strategic management !rocess. +c, Evaluate the relationshi! between the general and the com!etitive environment. +d, E%!lain the differential firm !erformance. +e, E%!lain the !ossible growth strategies for organisations +f, Discus the role of business strategy in achieving com!etitive advantage. +g, The motives for organi0ations to e%!and abroad. +h, "ssess the different a!!roaches to strategic change. +i, E%!lain what is meant by cor!orate governance
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The e%!ected duration of this course is si% month and you will be re-uired to come for residential school for two weeks. The rest of the time you will be re-uired to study on your own.
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"s an adult learner your a!!roach to learning will be different to that from your school days# you will choose what you want to study, you will have !rofessional and/or !ersonal motivation for doing so and you will most likely be fitting your study activities around other !rofessional or domestic res!onsibilities. Essentially you will be taking control of your learning environment. "s a conse-uence, you will need to consider !erformance issues related to time management, goal setting, stress management, etc. 4erha!s you will also need to reac-uaint yourself in areas such as essay !lanning, co!ing with e%ams and using the web as a learning resource. *our most significant considerations will be time and space i.e. the time you dedicate to your learning and the environment in which you engage in that learning.
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'or hel!, !lease contact the course lecturer, through the !rogramme coordinator or the school of business administrative officer.
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This course has two assignments which shall be distributed to students se!arately from this module together with other assignments for other courses. Those assignments must be com!leted in the order in which they are set and submitted through the IDE registry.
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There are self5assessments at the end of each unit which should be done by students after com!leting each unit.
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$hile working through this module you will notice the fre-uent use of margin icons. These icons serve to 2sign!ost3 a !articular !iece of te%t, a new task or change in activity) they have been included to hel! you to find your way around this module. " com!lete icon set is shown below. $e suggest that you familiari0e yourself with the icons and their meaning before starting your study.
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INTRODUCTION TO STRATEGIC MANAGEMENT
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This unit describes what a strategy is how it.s formulated and how it is im!lemented. It also looks at the im!ortant in determining which markets organi0ations seek to com!ete in. 'inally, the unit will also look at strategic management !rocess which includes a strategy analysis, formulation and im!lementation. The unit will end with the discussion of a strategic management framework which will be useful for navigating subse-uent units. U!on com!letion of this unit you will be able to# E%!lain what is meant by strategy Describe a strategic management !rocess O*tco&$' Understand the characteristics of strategic decisions *ou will understand that strategic management activities are undertaken at three levels# cor!orate, business and functional. Discuss the role of values, vision and mission statements .
INTRODUCTION
The word strategy has entered the field of management more recently dating back 67 years. "t first, the word was used in terms of Military cience to mean what a manager does to offset actual or !otential actions of com!etitors. The word is still being used in the same sense, though by few only. 8riginally, the word strategy has been derived from 9reek : trategos., which means general shi!. The word strategy, therefore, means the art of the general. The word was born out of military conflict and the use of a su!erior strategy enabled one warring !arty to defeat another. There is an agreement that the role of strategy is to achieve com!etitive advantage for an organi0ation. Com!etitive advantage may usefully thought of as that which allows an organi0ation to meet customer.s needs better than its rivals. The use of strategy in decision making is the !rimary way in which managers take account of a constantly changing e%ternal environment. "n effective strategy allows them to use their organisation.s resources and ca!abilities to e%!loit o!!ortunities and limits threats in the e%ternal environment. "0-' &% %'3-'#678 There are so many definitions of strategy. 8riginary the term was used to describe the !atterns of decisions that determined a com!any.s goals !roduced the !rinci!le !olicies for achieving these goals and defined the range of businesses the com!any was to !ursue. 4orter +;<<=, asserts that :com!etitive strategy is about being different. This means that deliberately choosing a different set of activities to deliver a uni-ue mi% of value.. >ay +;<<?, described strategy of an organi0ation as the match between its internal ca!abilities and its e%ternal relationshi!s. The match between what an organi0ation is !articularly ca!able of doing and its relationshi! with its stakeholders. &ere is an e%am!le of a hy!othetical business strategy statement. O,3 %'3-'#67 &% 'o 2#4#3-6# o,3 95o)-0o) &5 '0# :o3+,2-'&o5 -51 +-5,:-.',3# o: ;o27+#3-$-%#1 .o+;o%&'#%< .o5.#5'3-'&56 o5 6#o63-;0&. -3#-% &5 So,'0#35 A:3&.)0#3# 1#+-51 &% 63o)&56 -51 )# .-5 ;3o4&1# %,;#3&o3 '#.05&.-2 %,;;o3'* "# %##9 5&.0# -;;2&.-'&o5% &5 +-39#' %#6+#5'% )0#3# )# .-5 1#%&65 1&::#3#5'&-'#1 ;3o1,.'%* trategy is sim!ly an outline of how the business intends to achieve its goals. The goals are the ob(ectives. Therefore the strategy sets out the route to achieve the com!any.s ob(ectives. trategy as a decision5making !rocess is defined as# Those decisions which have high medium5term to long5term im!act on the activities of the organisation, including the im!lementation of those decisions, to create value for customers and key stakeholders and to out!erform com!etitors 'rom the above definitions yyou should note that strategy is# "07 0-4# %'3-'#6&#%8 " genuine strategy is always needed when the !otential actions or res!onses of intelligent o!!onents can seriously affect the endeavour.s outcome 1 regardless of that endeavour.s organisational level in the total enter!rise.
trategies may be looked at as either a priori statements to guide action or a posteriori results of actual decision making.
"0-' &% S'3-'#6&. +-5-6#+#5'8 If a strategy allows an organi0ation to match its resources and ca!abilities to the needs of the e%ternal environment in order to achieve com!etitive advantage, the !rocess of bringing about the strategy is what is called strategic management. trategic management is concerned with making decisions about an organi0ations. future direction and im!lementing those decisions. It is about analy0ing the situation facing the firm, and on that basis of this analysis formulating a strategy, im!lementing that strategy and finally evaluation of strategies. There are four essential !hases of strategic management !rocess. In different com!anies these !hases may have different, nomenclatures and the !hases may have different se-uences, however, the basic content remains same. The four !hases can be listed as below. These !hases are linked to each other in a se-uence as shown in figure ;.; below. It may not be !ossible to draw a clear line of difference between each !hase, and the change over from one !hase to another is gradual. The ne%t !hase in the se-uence may gradually evolve and merge into the following !hase. "n im!ortant linkage between the !hases is established through a feedback mechanism or corrective action. The feedback mechanism results in a course of action for revising, reformulating, and redefining the !ast !hase. The !rocess is highly dynamic and com!artmentali0ation of the !rocess is difficult. The change over is not clear and boundaries of !hases overla!. =&6,3# 1*1 S'3-'#6&. +-5-6#+#5' ;3o.#%%
The elements of strategic management are co5de!endent, i.e., in formulating a strategy an organi0ation must also consider how the strategy will be im!lemented. "nalysis, formulation and im!lementation all needs to considered if the organisation.s strategy is to meet the needs of its environment. The diagram below shows strategic management model in detail.
"0-' -3# '0# B#5#:&'% o: S'3-'#6&. M-5-6#+#5'8 tudies have revealed that organi0ations following strategic management have out!erformed those that do not. trategic !lanning ensures a rational allocation of resources and im!roves co5ordination between divisions of the organi0ation. It hel!s managers to think ahead and antici!ate !roblems before they occur. The main benefit of the !lanning !rocess is a continuous dialogue about the organi0ation.s future between the hierarchical levels in the organi0ation. In short, the most highly rated benefits of strategic management are# Clarity of strategic vision for the organi0ation 'ocus on what is strategically im!ortant to the organi0ation @etter understanding of the ra!idly changing business environment. >-2,#%< >&%&o5% -51 M&%%&o5 %'-'#+#5'% >&%&o5 "s!irations, e%!ressed as strategic intent, should lead to an end) otherwise they would (ust be castles in the air. That end is the vision of an organi0ation or an individual. It is what the firm
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or a !erson would ultimately like to become. 'or instance, some of you, say in ;7 years, or may be even earlier, would like to become general managers managing an @U in a large, diversified multinational cor!oration. 8r some others among you would like to believe that you will be an entre!reneur in A7A7, owning your own com!any dealing with IT services and em!loying cutting edge technology to serve global clientele. " firm thinks like that too. " vision, therefore, articulates the !osition that a firm would like to attain in the distant future. een from this !ers!ective, the vision enca!sulates the basic strategic intent. " 4&%&o5 is often associated with the founder of the organi0ation and re!resents a desired state that the organi0ation as!ires to achieve in the future. In contrast with the goals and ob(ectives, a vision does not change over time. " vision must ta! into the !ersonal goals and values of the organisation.s em!loyees if it is to be internali0ed by them. $hen it bears little resemblance to reality, disregards the ca!abilities of the organi0ation, and the !roblems of the organi0ation, it will be re(ected by em!loyees. "0-' -3# '0# $#5#:&'% o: 0-4&56 - 4&%&o58 4arikh and Beubauer +;<<?, !oint out the several benefits accruing to an, organi0ation having a vision. &ere is what they say# 9ood visions are ins!iring and e%hilarating Cisions re!resent a discontinuity, a ste! function and a (um! ahead so that the com!any knows what it is to be 9ood visions hel! in the creation of a common identity and a shared sense of !ur!ose 9ood visions are com!etitive, original and uni-ue. They make sense in the market !lace, as they are !ractical 9ood visions foster risk taking and e%!erimentation 9ood visions foster long term thinking. 9ood visions re!resent integrity) they are truly genuine and can be used for the benefit of !eo!le. M&%%&o5 S'-'#+#5' $hile the essence of vision is a forward looking view of what an organi0ation wishes to become, mission is what an organi0ation is and why it e%ists. Drucker +;<<D, argues that a mission statement is the same as asking the -uestions# $hat business are we inE $hat will it beE "nd what should it beE These three -uestions, though sim!ly worded, are in reality the most fundamental -uestions that any organi0ation can !ut to itself. The answers are based on the analysis of the underlying needs of the society that any organi0ation serves to fulfil. The satisfaction of that need is, then, the business of the organi0ation.
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8rgani0ations relate their e%istence to satisfying a !articular need of the society. They do this in terms of their mission. Mission is a statement, which defines the role that an organi0ation !lays in a society. It refers to the !articular needs of that society, for instance, its information needs. " book !ublisher and a maga0ine editor are both engaged in satisfying the information needs of society but they do it through different means. " book !ublisher may aim at !roducing e%cellent reading material while a maga0ine editor may strive to !resent news analysis in a balanced and unbiased manner. @oth have different ob(ectives but an identical mission. C0-3-.'#3&%'&.% o: - M&%%&o5 S'-'#+#5' 8rgani0ations legitimi0e themselves by !erforming some function that is valued by society. " mission statement defines the basic reason for the e%istence of that organi0ation. uch a statement reflects the cor!orate !hiloso!hy, identity, character, and image of an organi0ation. It may be defined e%!licitly or could be deduced from the management.s actions, decisions, or the chief e%ecutive.s !ress statements. $hen e%!licitly defined it !rovides enlightenment to the insiders and outsiders on what the organi0ation stand for. In order to be effective, a mission statement should !ossess the following seven characteristics. It should be feasible. " mission should always aim high but it should not be an im!ossible statement. It should be realistic and achievable its followers must find it to be credible. @ut feasibility de!ends on the resources available to work towards a mission. In the si%ties, the U Bational "eronautics and !ace "dministration +B" ", had a mission to land on the moon. It was a feasible mission that was ultimately reali0ed. It should be !recise. " mission statement should not be so narrow as to restrict the organi0ation.s activities nor should it be too broad to make itself meaningless. 'or instance, :Manufacturing bicycles. is a narrow mission statement since it severely limits the organi0ation.s activities, while mobility business. is too broad a term, as it does not define the reasonable contour within which the organi0ation could o!erate. It should be clear. " mission should be clear enough to lead to action. It should not be a high sounding set of !latitudes meant for !ublicity !ur!oses. Many organi0ations do ado!t such statements but !robably they do so for em!hasi0ing their identity and character. It should be motivating. " mission statement should be motivating for members of the organi0ation and of society, and they should
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feel it worthwhile working for such an organi0ation or being its customers. " bank, which lays great em!hasis on customer service, is likely to motivate its em!loyees to serve its customers well and to attract clients. Customer service therefore is an im!ortant !ur!ose for a banking institution. It should be distinctive. " mission statement, which is indiscriminate, is likely to have little im!act* It should indicate ma(or com!onents of strategy. " mission statement along with the organi0ational !ur!ose should indicate the ma(or com!onents of the strategy to be ado!ted* It should indicate how ob(ectives are to be accom!lished. @esides indicating the broad strategies to be ado!ted a mission statement should also !rovide clues regarding the manner in which the ob(ectives are to be accom!lished. Go-2% -51 O$?#.'&4#% The ne%t ste! for the com!any, after formulating the mission statement, is the establishment of ma(or goals. The goals designate s!ecific results the businesses want to achieve. In this conte%t, the !ur!ose of goals is to s!ecify, as accurately as !ossible, as to what is to be done, if the com!any is to attain its mission. They refer to -ualitative intentions in the same time frame. 9oals are more s!ecific than the mission but less s!ecific than ob(ectives. O$?#.'&4#% define and refine the goals further. The ob(ectives refer to short and medium -uantitative targets. trategic goals hel! managers to establish end results of activities in general without getting bogged down in issues of measurement and timing. >-2,#% Collins and 4orras +;<<6, described a core ideology which made u! of core values and !ur!ose. The core values are organi0ation.s essential and enduring tenets which will not be com!romised for financial e%!ediency and short5term gains. They do not shift as com!etitive conditions change but remain largely inviolate. It is what members e%!ect to endorse and internali0e as !art of working for such organi0ations. More than that, it will attract individuals to these ty!es of organi0ations in the first !lace. trategic management is also concerned with understanding the strategic !osition of an organisation, strategic choices for the future and managing strategy in action +Fohnson et al, A77G,. T0# S'3-'#6&. Po%&'&o5 @)0#3# -3# )# 5o)8A This is concerned with identifying the im!act on strategy of the e%ternal environment, an organisation.s strategic ca!ability +resources and com!etences, and the e%!ectations and influence of stakeholders. S'3-'#6&. C0o&.#%BO;'&o5% @Ho) 1o )# 6#' '0#3#8A
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"ccording to Fohnson et al +A77G,, strategic choices involve the o!tions for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be !ursued. 'or e%am!le an organisation might have to choose between alternative diversification moves +entering into new !roducts and markets,. "s it diversifies, it can also choose the method of either develo!ing the !roduct itself or ac-uiring the organisation active in that area. $ithin the generic strategic o!tion identified for the organisation, there are !robably several directions, identified in the list at the beginning of this section, that are !ossible for the organisation to take in order to develo! its com!etitive !osition. @y what criteria can an organisation (udge the relative merits of strategic directionsE Fohnson and choles +;<<<, !ro!ose the following categories of evaluation criteria# S,&'-$&2&'7# how well does the strategy fit the situation identified by the :where are we nowE. analysesE &ow well does it match the findings of the $8T analysisE &ow well does it match the culture of the organisationE =#-%&$&2&'7# is this strategy achievable in resource termsE Do we have the necessary e%!ertise, technology, access to materials and so onE A..#;'-$&2&'7# will this give the results that the stakeholders wantE Is the level of risk acce!tableE $ithin each of these categories of criteria are many techni-ues that can be used to test the strategic o!tions under consideration. In the classical !ers!ective it is understood that carrying out these analyses will make the future more !redictable and the choice of strategy more likely to be the :right. one. S'3-'#67 &5 A.'&o5 This is about ensuring that strategies are working in !ractice by considering the strategy develo!ment !rocess, structuring, resourcing, strategic change and actual !ractice of strategy. TYPES O= STRATEGY There are three basic levels of strategy that interest organi0ations. These are cor!orate strategy, business strategy and functional strategy. These are described below. Co3;o3-'# L#4#2 S'3-'#67 Cor!orate level strategy occu!ies the highest level of strategic decision5making and covers actions dealing with the ob(ective of the firm, ac-uisition and allocation of resources and coordination of strategies of various @Us for o!timal !erformance. To! management of the organi0ation makes such decisions. The nature of strategic decisions tends to be value oriented, conce!tual and less concrete than decisions at the business or functional level. Cor!orate strategy can be defined as the way a com!any creates value through the configuration and coordination of its multimarket activities. B,%&5#%%-L#4#2 S'3-'#67 @usiness5level strategy is 5 a!!licable in those organi0ations, which have different businesses5and each business is treated as strategic business unit + @U,. The fundamental conce!t in @U is to identify the discrete inde!endent !roduct/market segments served by an organi0ation. ince each !roduct/market segment
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has a distinct environment, a @U is created for each such segment. 'or e%am!le, Madson grou! of com!anies o!erates in insurance, general services, investment, financial services etc. 'or each !roduct grou!, the nature of market in terms of customers, com!etition, and marketing channel differs. There5fore, it re-uires different strategies for its different !roduct grou!s. Thus, where @U conce!t is a!!lied, each @U sets its own strategies to make the best use of its resources +its strategic advantages, given the environment it faces. "t such a level, strategy is a com!rehensive !lan !roviding ob(ectives for @Us, allocation of re5 sources among functional areas and coordination between them for making o!timal contribution to the achievement of cor!orate5level ob(ectives. uch strategies o!erate within the overall strategies of the organi0ation. The cor!orate strategy sets the long5term ob(ectives of the firm and the broad constraints and !olicies within which a @U o!erates. The cor!orate level will hel! the @U define its sco!e of o!erations and also limit or enhance the @Us o!erations by the resources the cor!orate level assigns to it. There is a difference between cor!orate5level and business level strategies. In other words, business strategy relates to the :how. and cor!orate strategy to the :what.. Cor!orate strategy defines the business in which a com!any will com!ete !referably in a way that focuses resources to convert distinctive com!etence into com!etitive advantage.. Cor!orate strategy is not the sum total of business strategies of the cor!oration but it deals with different sub(ect matter. $hile the cor!oration is concerned with and has im!act on business strategy, the former is concerned with the sha!e and balancing of growth and renewal rather than in market e%ecution. =,5.'&o5-2-L#4#2 S'3-'#67 'unctional strategy, as is suggested by the title, relates to a single functional o!eration and the activities involved therein. This deals with decisions according to functional lines such as HID, marketing, !roduction, finance etc. Decisions at this level within the organi0ation are often described as tactical. uch decisions are guided and constrained by some overall strategic considerations. 'unctional strategy deals with relatively restricted !lan !roviding ob(ectives for s!ecific function, allocation of resources among different o!erations within that functional area and coordination between them for o!timal contribution to the achievement of the @U and cor!orate5level ob(ectives. @elow the functional level strategy, there may be o!erations5level strategies as each function may be dividend into several sub functions. 'or e%am!le, marketing strategy, a functional strategy, can be subdivided into !romotion, sales, distribution, !ricing strategies with each sub function strategy contributing to functional strategy. trategies at all the three levels are interlinked in which a higher level strategy generates a lower5level strategy and a lower5level strategy contributes to the achievement of the ob(ectives of higher5level strategy.
The diagram below shows the three ty!es or levels of strategy.
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STRATEGIC MANAGEMENT =RAME"OR! This framework hel!s to structure our thoughts and navigates around the different as!ects of strategic management. 'or e%am!le, if the !ur!ose of strategy is to enable an organi0ation to achieve a sustainable com!etitive advantage, than any framework needs to address the !rocess necessary for this. The framework will include the analysis of the organi0ations e%ternal environment and its internal resources and ca!abilities as shown in the figure below. Calues are im!ortant in strategy making !rocess because they determine the goals the organi0ation sets, the resources and ca!abilities it re-uires and the structures and !rocesses necessary to achieve those goals. 'rom the framework it can be seen that organi0ation.s goals will reflect its internal strength and weaknesses and the o!!ortunities and threats within its internal environment. takeholders are those individuals and grou!s +in the internal and e%ternal environment, who are im!acted by the behavior of the organi0ation and whose own behaviour can, in turn, have an im!act on the organisation.s strategy. The framework link the strategy and the internal since each new strategy ado!ted should meet the organisation.s goals and values. There is also a link between an organi0ation and its e%ternal environment since its values will determine the ty!es of markets it will and will not o!erate within +&enry, A77G,.
=&6,3# 1*4 $#2o) %0o)% '0# &+;o3'-5.# o: 4-2,#% &5 '0# %'3-'#67-+-9&56 ;3o.#%%*
+/
%nternal *n6ironment
*7ternal *n6ironment
3alues +oals &esources 8 Ca a9ilities Structure 8 2rocesses
takeholders
+eneral *n6ironment Com etiti6e *n6ironment
ST&#T*+/
Strengths 8 weaknesses
' ortunities and Threats
+0
U!it '*&&.ry
In this unit you learned that# The word strategy was used in terms of Military cience to mean what a manager does to offset actual or !otential actions of com!etitors. trategy is sim!ly an outline of how the business intends to achieve its goals and that the strategy sets out the route to achieve the com!any.s ob(ectives. trategic management is concerned with making decisions about an organi0ations. future direction and im!lementing those decisions
S*&&.ry
There are three basic levels of strategy that interest organi0ations. These are cor!orate strategy, business strategy and functional strategy. Calues are im!ortant in strategy making !rocess because they determine the goals the organi0ation sets, the resources and ca!abilities it re-uires and the structures and !rocesses necessary to achieve those goals
The framework of strategic management hel!s to structure our thoughts and navigates around the different as!ects of strategic management
A''$''&$!t
elf5assessment +;, Cision and mission statements are a !assing fad with no real links with an organi0ation.s strategy. Discuss. +A, E%!lain the difference between the following# " strategy and a !olicy trategy and tactics
A''$''&$!t
+5
U!it 1
STRATEGIC ANALYSIS
I!tro%*ctio!
The foundation for successful strategy is the clear understanding of where the firm is now, its current !osition in its environment +most !articularly the com!etitive environment, enca!sulating its strengths and weaknesses, fully recognising the o!!ortunities and threats that face it. This unit will look at how managers can analyse the uncertain and increasingly com!le% world around them by considering various layers of influence from macro5 environmental issues to s!ecific forces affecting the com!etitive !osition. U!on com!letion of this unit you will be able to# Define what constitutes the general environment Evaluate 4orters five forces framework as a tool of com!etitor analysis Undertake and discuss a Chain analysis $8T and Calue
O,'.o+#%
E%!lain the role of resources, com!etencies and ca!abilities in hel!ing an organisation achieve a sustainable com!etitive advantage. Evaluate shareholder and stakeholder !ers!ectives for an organisation. Evaluate the balanced scorecard a!!roach to an organisation.s !erformance.
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STRATEGIC ANALYSIS
Managers res!onsible for the success of the organi0ation are concerned about the effect the factors in the e%ternal environment have u!on it. They can not control the e%ternal environment but they need to identify, evaluate and react to these forces outside the organi0ation which may affect them. T0# G#5#3-2 E54&3o5+#5' @M-.3o-#54&3o5+#5'A 9eneral environment, also known as societal, remote, macro or indirect5action environment consists of those factors, which affect the business of a country, and, therefore, they have homogeni0ing effect. This environment consists of both a general and com!etitive environment. The com!etitive environment consists of the markets and the industry in which an organi0ation com!etes. The changes that occur here have an effect that transcends firms and s!ecific industries. The figure ?.; below shows the relationshi! between the general environment, the com!etitive environment, and the organi0ation. &enry +A77G, suggests that, other things being e-ual the com!etitive environment has the most direct and immediate im!act on the organi0ation.
Source: Hubbard (2008)
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In the general environment, we can include natural and ecological factors at the first level. Batural factors are im!ortant to the economic activities of a country because. either they !rovide o!!ortunities or threats to the economic system. 'or e%am!le, agriculture de!ends on nature +rainfall, climatic conditions, etc.,) manufacturing de!ends on !hysical in!uts) mining and drilling de!end on natural de!osits) trans!ortation and communication de!end on geogra!hical factors) and so on. In the same way, ecological factors like environmental !ollution, wildlife, greenery, and other factors are matters of concern for all organi0ations. "t the second level, com!aratively, more influential factors come in the form of economic, !olitical5legal, technological, and social5cultural factors. Taken together, they set forth the framework for organi0ations. o!erations and determine the in!uts which organi0ations can take from the environment, !rocess these in!uts in the form of out!uts, and e%!ort these out!uts back to the environment. Carious characteristics of such factors may be favourable or unfavourable to the growth of organi0ations. @esides these factors, which e%ist within a country, international factors also become im!ortant because of globali0ation of economy of a country. S.#5-3&o P2-55&56 "ccording to choemaker +;<<D,, scenario !lanning is a disci!lined method for imaging !ossible futures. It is an internally consistent view of what the future might turn out be +4orter ;<GD,. cenarios are a tool of analysis to hel! im!rove the decision5making !rocess set against the background of a number of !ossible future environments. cenario !lanning is relevant to almost any situation in which a decision maker needs to understand how the future of his or her industry or strategic business unit might develo!. To do this our knowledge is divided into two areas# Things we think we know something about, and Things we consider uncertain or unknowable. The first one is based on the !ast and continuity like making assum!tions about the direction of the country.s demogra!hic !rofile. The uncertainty elements include such things like future demand for the !roduct, interest rates, foreign e%change rates, ta% rate, outcomes of !olitical elections etc. 4rocess for develo!ing scenarios Define the sco!e. This involves setting the time frame and the sco!e +!roducts, markets and geogra!hical change, of analysis. The time frame can be determined by factors such as !roduct life cycles and rate of technology. Identify the ma(or stakeholders. These are !eo!le who can affect and are affected by the organisation.s decisions. The com!any needs to know their current levels of interests and !ower and how these have changed overtime.
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Identify basic trends which environmental factor+s, will have the most im!act on issues in ste! ;. This will look at the im!act on the current strategy. Identify key uncertainties. $hich events that have an uncertain outcome will most affect the issues the organi0ation is concerned withE Construct initial scenario themes. 8nce trends and uncertainties are develo!ed) the organi0ation has the basic building blocks for scenario !lanning. It can then identify e%treme world views by !utting all !ositive elements in one scenario and the negative elements in another broad scenario. Check for consistency and !lausibility. Check to see if the trends identified are com!atible with the chosen time frame. If they are not, then remove all the trends that do not fit the time frame. Develo! learning scenarios the role is to develo! relevant themes for the organi0ation around which !ossible outcomes and trends can be organi0ed. The scenarios can be given a name or title to reflect that they tell a story. Identify research needs. "t this stage, further research +i.e. changes in technology, may be re-uired to understand uncertainties and trends more fully. Develo! -uantitative models. 8nce further research has been gained, the organi0ation may wish to revisit the internal consistency of the scenario and decide whether it might benefit from formali0ing some interactions in a -uantitative model. Evolve ultimate towards strategy ideas. towards decision scenarios. The aim is to this !rocess is to move scenarios that can be used to test its formulation and hel! it generate new
T0# 1&-63-+ $#2o) %0o)% '0# %,++-37 o: %.#5-3&o ;2-55&56 ;3o.#%%*
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"ccording to &enry +A77G,, if the scenarios are useful to the organi0ation, they have the following characteristics# They address the concerns of individuals in the organi0ation) The scenarios are internally consistent) They describe fundamentally different futures as o!!osed to being variations on a !articular theme) Each scenario describes an e-uilibrium state that can e%ist for a considerable !eriod of time as o!!osed to being merely short5lived. 'inally, choemaker +;<<D, described scenario !lanning as an attem!t to ca!ture the richness and range of !ossibilities, stimulating decision makers to consider changes they would otherwise ignore or organi0e into narratives that are easy to gras! and use than great volumes. cenarios are aimed at challenging the !revailing mind5set. PEST A5-27%&% This is a useful tool when scanning the general environment. It refers to !olitical, economical, social and technological factors. ome commentators include legal and environmental factors
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se!arately, !referring to e%tend the acronym to 4E TJE. It is not im!ort whether we use 4E T +or TE4, or 4E TJE, but to understand how this framework can be used and to be aware of its limitations. 4E T analysis hel!s an organi0ation to detect and monitor those weak signals in the ho!e of recogni0ing the discontinuities or fractures sha!ing the environment. It can also be used to detect the trend in the e%ternal environment that will ultimately find their way into the com!etitive environment. Therefore, the managers should identify their relevant environment so that they can analy0e the various elements in order to relate their organi0ations with the environment. "n analytical classification of various environmental factors may be# Economic environment, 4olitical5legal environment, Technological environment, ocio5cultural environment, and
International environment. Po2&'&.-2- L#6-2 :-.'o3% 4olitical5legal environment is an im!ortant factor !articularly in a mi%ed economy like Kambia, and affects the working of business organi0ations significantly. 4olitical5legal environment of a country includes the following elements# 9overnment stability Ta%ation !olicy 9overnment regulation Defence and foreign !olicies etc. tability of government in $estern countries is not a ma(or issue. &owever, where Multinational cor!orations +MTC, o!erate across international borders, the stability of governments and !olitical systems in these countries needs to taken into consideration. These MTC needs to be assured that their investment will be safe including their !ersonnel o!erating in these countries. "lso the government !olicy of deregulation or !rivati0ation has the effect of o!ening u! the markets to com!letion. @ecause of com!etition local organi0ations are forced to innovate and cut costs to remain com!etitive. This is because new entrants will enter the market with lower cost curves and more innovative !roducts and services due to better technology and clear understanding of customer needs. To avoid being sur!rised managers need to be scanning their environment for signs of change in government !olicy. 9overnment regulation needs to be something for com!any to fear. Der Jinde +;<<D, !oint out that environmental regulations, such as reducing !ollution, may act to s!ur com!etitive com!anies on to innovate and reduce costs to counter the increased costs of regulation. Defence and foreign !olicies like defence e%!enditure, maintenance of e%ternal relationshi!s with other countries, defining most favoured countries from business !oint of view, etc.) and
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Jegal rules of the game of business5their formulation, im!lementation, efficiency, and effectiveness. E.o5o+&. =-.'o3% Economic factors of a country determine the e%tent to which various organi0ations find the economic forces favourable or unfavourable. They include indicators like interest rates, dis!osable income, unem!loyment rate, retail !rice inde% or inflation, 9D4 and e%change rates. Economic indicators can not !rovide a true !icture of the changes in the macro environment but !rovides a sna!shot and sim!lification of what is ha!!ening. This makes scanning and monitoring the general environment for signs of economic changes which may im!act on the organi0ation difficult. 8rganisations involved in e%!orting !roducts to other countries will be scanning the environment for the !ossible signs of the e%change rates fluctuation. If the e%change rates a!!reciates, the effect of which will be to make it harder for these organi0ations to sell goods abroad but relatively easier for im!orters to sell their goods in the domestic market. The way forward is to make efficiency gains and innovate so that they can offset the unfavourable e%change rate with a reduction in !rice or increase in -uality. So.&-2 =-.'o3% ocial and cultural environment is -uite com!rehensive because it may include the total social factors within which an organisation o!erates and that is why it is referred to as social5 cultural factors. In fact, the !olitical and legal environment is closely intertwined with social and cultural environment because laws are !assed as a result of social !ressures and !roblems. The socio5cultural environment of business can be defined as follows# ocial and cultural environment consists of attitudes, beliefs, desires, e%!ectations) education and customs of the society at a given !oint of time. Thus, social and cultural environment, in its broad sense, includes many 5 as!ects of society and its various 5constituents. 'rom business organi0ation.s !oint of view, it may include# e%!ectations of the society from the business) attitudes of society towards business and its management)
Ciews towards achievement of work) views towards authority structure, res!onsibility and organi0ational !ositions, views towards conventions) customs, traditions, and
class structure and labour mobility) and Jevel of education. The various elements of social and cultural environment affect the working of the organi0ations mainly in three ways# organi0ational ob(ective setting, organi0ational !rocesses
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and the !roducts to be offered by the organisation. Through these, they affect the total functioning of the organisation. The social and cultural factors affect the basic ob(ectives of the organi0ation by !rescribing the norms within which the organi0ational ob(ectives are formulated. 'or e%am!le, to what e%tent, social res!onsibility will be an organi0ational ob(ective is determined by the various social factors in which organisation functions. imilarly organi0ational !rocesses are also designed kee!ing in view the various social and cultural factors otherwise they will not work. 'or e%am!le, the various control and decision !rocesses in our social organi0ations are based on the basic values of (oint family system and caste system. imilar is the case with other organi0ational !rocesses. ocial and cultural factors also affect the goods and services that can be offered by the organisation. ince the organisation works as mediator for converting in!uts into out!uts, and these out!uts are given to the society, it can !roduce only those things, which are acce!ted by the society. 8ften the managers in formulating or im!lementing their strategies do not consider the social and cultural factors ade-uately. The result is that their sound strategies in all other as!ects may fail. T#.05o2o6&.-2 =-.'o3% Technological factors include the rate of obsolescence, i.e. the s!eed with which new technological discoveries su!ersede established technology. The rate of change in technology and innovation has the effect causing new industries to emerge and changes the way organi0ation com!ete. Techno local advances include the following# the use of so!histicated software genetic engineering and Bano technology. The ra!id change of technology has changed the dynamics of industries such as banking, financial services and insurance. This has allowed new entrants to enter the market at a lower cost base than incumbents, there by offering more com!etitively !riced !roducts and services and gaining market share in the !rocess +&enry, A77G,. I5'#35-'&o5-2 =-.'o3% Today.s economies have globali0ed the ways in which geogra!hical boundaries of a country have only !olitical relevance) the economic relevance has e%tended beyond these Today, market classification does not take into account only national !arameters but global !arameters. In this globali0ation, many multinationals like E%%on, Mobil 8il, Coca5Cola, etc. derive more than half of their revenues from their overseas o!erations. Therefore, there is a need for scanning international environment. 'rom strategic management !oint of view, the analysis is re-uired from two angles# to o!en o!erations abroad and to understand the im!lications of entry of multinational cor!orations in the country and the freedom of im!orting !roducts and services from abroad. 'or o!eration abroad, the analysis of the following factors is im!ortant# T0# Co+;#'&'&4# A5-27%&% @Po3'#3% :&4# :o3.#% =3-+# )o39A 9iven the real difficulties of undertaking a com!rehensive analysis of the organisation.s strengths and weaknesses in relation to an enormously com!le% environment, the focus of
1/
the classical !ers!ective has settled on the position of the organisation in its competitive environment. 8ne of the most e%tensive writers of this a!!roach, Michael 4orter, has modelled the key features of the com!etitive environment +4orter, ;<G7,. This is a tool of analysis to assess the attractiveness of an industry based on the strength of five com!etitive forces. It is under taken from the !ers!ective of an incumbent organi0ation, i.e. an organi0ation already o!erating in the industry. The analysis is best used at the level of an organisation.s strategic business unit + @U,. "lthough each organi0ation in the industry is uni-ue, the forces within the industry which affect !erformance, and hence its !rofitability, will be common to all organisations in the industry. "n organi0ation thinking of entering an industry will need to that it can com!ete successfully with incumbents in the industry. This will re-uire it to ado!t a distinctive !ositioning. 'or e%am!le i5conect effectively entered the internet !roviders market by uniti0ing the internet to create I5s!ots which !roviding a sustainable com!etitive advantage. The five forces framework enables an organi0ation to determine the attractiveness or !rofit !otential of a !articular industry by e%amining the interaction of five com!etitive forces shown in the diagram below.
T03#-' o: N#) E5'3-5'%
B-36-&5&56 Po)#3 o: S,;;2&#3%
R&4-237 A+o56 Ex&%'&56 Co+;#'&'o3%
B-36-&5&56 Po)#3 o: C,%'o+#3%
T03#-' o: S,$%'&','#%
So,3.#( H,$$-31 @2008A T03#-'% o: N#) E5'3-5'% Bew entrants to an industry are im!ortant because, with new com!etitors, the intensity of com!etitive rivalry in an industry generally increases. This is because new com!etitors may bring substantial resources into the industry and may be interested in ca!turing a significant market share. If a new com!etitor brings additional ca!acity to the industry when !roduct demand is not increasing, !rices that can be charged to consumers generally will fall. 8ne result may be a decline in sales revenues and lower returns for many com!anies in the industry. The seriousness or e%tent of the threat of new entrants is affected by two factors# @arriers to entry and
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E%!ected reactions from or the !otential for retaliation by, incumbent com!anies in the industry. @arriers to Entry @arriers to entering an industry are !resent when entry is difficult or when it is too costly and !laces !otential entrants at a com!etitive disadvantage +relative to com!anies already com!eting in the industry,. There are seven factors that re!resent !otentially significant entry barriers that can emerge as an industry evolves or might be e%!licitly 2erected3 by current !artici!ants in the industry to !rotect !rofitability by deterring new com!etitors from entry. Economies of cale "ccording to &enry +A77G, economies of scale refer to the relationshi! between -uantity !roduced and unit cost. "s the -uantity of a !roduct !roduced during a given time !eriod increases, the cost of manufacturing each unit declines. Economies of scale can serve as an entry barrier when e%isting com!anies in the industry have achieved these scale economies and a !otential new entrant is only able to enter the industry on a small scale +and !roduce at a higher cost !er unit,. 'or e%am!le, entry for a new com!any in the banking or mining sector in Kambia at a big scale is difficult because of !resence of the multi!le !layers who have already achieved the economies of scale. Com!anies that !roduce multi!le customi0ed !roducts or that enter an industry on a large enough scale can sometimes overcome economies of scale as a !otential entry barrier. &owever, because large scale entry may greatly increase industry ca!acity it may risk a strong reaction from established com!anies. Ca!ital He-uirements if organi0ations need to invest substantial financial resources to com!ete in an industry, this creates a barrier to entry. 'or e%am!le, organi0ations wishing to enter the oil industry would face huge ca!ital costs involved in e%!loration and in s!ecialist !lant and machinery. This barrier in further strengthened because oil com!anies are vertically integrated. They com!ete in different stages of !roduction and distribution 4roduct differentiation where an organi0ations !roduct are already established in an industry, !roviding it with high brand awareness and generating customer loyalty, new entrants must offer a !roduct that is greatly im!roved or comes at a lower cost if the buyer is to witch.
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witching Costs "re the onetime costs customers will incur when buying from a different su!!lier. These can include such e%!licit costs as retraining of em!loyees or retooling of e-ui!ment as well as the !sychological cost of changing relationshi!s. Incumbent com!anies in the industry generally try to establish switching costs to offset new entrants that try to win customers with substantially lower !rices or an im!roved +or, to some e%tent, different, !roduct. 'or e%am!le, switching costs have to be borne by com!anies for switching from Microsoft.s $indows to other o!erating systems creating entry barriers in the market for o!erating systems.
"ccess to Distribution Channels. " new entrant will need to have access to distribution for its !roduct in order to com!ete successfully in the industry. ome big com!anies may !revent new entrants from accessing distribution channels by having sole agreements with them. 'or e%am!le retailers + ho!rite, !ar and 9ame, are reticent to !rovide shelf s!ace to new !roducts from small !roducers who may lack the resources to advertise their !roducts effectively. Cost "dvantages Inde!endent of i0e E%isting com!anies in an industry often are able to achieve cost advantages that cannot be costless du!licated by new entrants +other than those related to economies of scale and access to distribution channels,. These can include !ro!rietary !rocess +or !roduct, technology, more favourable access to or control of raw materials, the best locations, or favourable government subsidies. 'or e%am!le !harmaceuticals where new !roducts discovered are under !atent !rotection for a !eriod of time. 4otential entrants must find ways to overcome these disadvantages to be able to effectively com!ete in the industry. This may mean successfully ada!ting technologies from other industries and/or noncom!eting !roducts for use in the target industry, develo!ing new sources of raw materials, making !roduct +or service, enhancements to overcome location related disadvantages, or selling at a lower !rice to attract customers. T0# B-36-&5&56 Po)#3 o: B,7#3%
12
$hile com!anies com!eting in an industry seek to ma%imi0e their return on invested ca!ital and earn above average returns,, buyers are interested in !urchasing !roducts at the lowest !ossible !rice +the !rice at which sellers will earn the lowest acce!table return,. To reduce cost or ma%imi0e value, customers bargain for higher -uality or greater levels of service at the lowest !ossible !rice by encouraging com!etition among com!anies in the industry. @uyer grou!s are !owerful relative to com!anies com!eting in the industry when# There is a concentration of buyers and buying volumes are high. The !roducts its !urchases are standard or undifferentiated because they can find an alternative u!!lier @uyers are able to switch to another su!!lier.s !roduct at little, if any, cost @uyers re!resent a credible threat to integrate backwards into the su!!liers. industry because of resources or e%!ertise. The buyer earns low !rofit which will motivate him or her to lower !urchasing costs charged by the su!!lier in an effort to secure his or her margin. The buyer has full information on demand and cost they will be in a stronger !osition. T0# B-36-&5&56 ;o)#3 o: S,;;2&#3% u!!liers can !ut !ressure on organi0ations in an industry by raising the !rice or lowering the -uality or -uantity of !urchased goods and services. u!!liers are !owerful when com!any !rofitability is reduced by su!!liers. actions. u!!liers are !owerful under the following circumstances. The su!!liers. industry is dominated by few com!anies and is more concentrated than the industry it sells to. The larger the su!!lier and the more dominant it is, the more !ressure it can !lace on firms in the industry it sell to. atisfactory substitute available to buyers) !roducts are not
@uyers are not a significant customer grou! for the su!!lier grou!) u!!liers. goods are market!lace success) critical to buyers. has
Effectiveness of su!!liers. !roducts created high switching costs for buyers)
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u!!liers re!resent a credible threat to integrate forward into the buyers. industry, es!ecially when su!!liers have substantial resources and !rovide highly differentiated !roducts.
T03#-'% o: S,$%'&','# P3o1,.'% -51 S#34&.#% "ll com!anies must recogni0e that they com!ete against com!anies !roducing substitute !roducts and services, those !roducts and services that are ca!able of satisfying similar customer needs but come from outside the industry and thus have different characteristics. 'or e%am!le bottled water +Man0i, has develo!ed as a substitute for carbonated drinks. "nother e%am!le is that of the fa% machines and emails for document delivery. In effect, !rices charged for substitute !roducts re!resent the u!!er limit on the !rices that su!!liers can charge for their !roducts. The Threat of ubstitute 4roducts is 9reatest when @uyers or customers face few, if any switching costs) 4rices of the substitute !roducts are lower) Luality and !erformance ca!abilities of substitutes are e-ual to or greater than those of the industry.s !roducts. Com!anies can offset the attractiveness of substitute !roducts by differentiating their !roducts in ways that are !erceived by customers as relevant. Ciable strategies might include !rice, !roduct -uality, !roduct features, location, or service level. R&4-237 -+o56 Ex&%'&56 Co+;#'&'o3% The intensity of rivalry in an industry de!ends u!on the e%tent to which com!anies in an industry com!ete with one another to achieve strategic com!etitiveness and earn above average returns because success is measured relative to other com!anies in the industry Com!etition can be based on !rice, -uality, or innovation. @ecause of the interrelated nature of com!any.s actions, action taken by one com!any generally will result in retaliation by com!etitors +also known as com!etitive actions and reactions,. The following factors affect com!etitive rivalry# Bumerous or E-ually @alanced Com!etitors Industries with a high number of com!anies can be characteri0ed by intense rivalry when com!anies feel that they can make com!etitive moves that will go unnoticed by other com!anies in the industry. &owever, other com!anies will generally notice these moves and offer countermoves of their own in res!onse. 4atterns of fre-uent actions and reactions often result in intense rivalry, such as in local restaurant, retailing, or dry cleaning industries. Hivalry also will be intense in an
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industry that has only a few com!anies of e-uivalent resources and !ower. @attles for market share in beverages between Coca Cola and 4e!si is (ust one of the e%am!les of intense rivalry between relatively e-uivalent com!etitors. low Industry 9rowth $hen a market is growing at a level where there seem to be 2enough customers for everyone,3 com!etition generally centres around effective use of resources so that a com!any can effectively serve a larger, growing customer base
&igh 'i%ed Costs or &igh torage Costs $hen an industry is characteri0ed by high fi%ed costs relative to total costs, com!anies !roduce in -uantities that are sufficient to use a large !ercentage) if not all of their !roduction ca!acity so that fi%ed costs can be s!read over the ma%imum volume of out!ut. $hile this may lower !er unit costs, it also can result in e%cess su!!ly if market growth is not sufficient to absorb the e%cess inventory. The intensity of com!etitive rivalry increases as com!anies utili0e !rice reductions, rebates, and other discounts or s!ecial terms to reduce inventory. &igh storage costs, es!ecially those related to !erishable or time sensitive !roducts +such as fruits and vegetables, also can result in high levels of com!etitive intensity as such !roducts ra!idly lose their value if not sold within a given time !eriod. 4ricing strategies often are used to sell such !roducts. Jack of Differentiation or Jow witching Costs $here !roducts are undifferentiated com!etition will be more intense, driven by customer choice based on !rice and service. witching costs im!lies that com!etitors are unable to !revent customers from going to their rivals. &igh e%it barriers. The e%istence of high e%ist barriers may hinder firms needing to e%it the industry. 'or e%am!le, some !lants are so s!ecialists that they cannot easily be used to !roduce alternative goods and services. "s demand conditions deteriorate, this creates e%cess ca!acity in the industry and act to reduce !rofitability within the industry. THE INTERNAL EN>IRONMENT @S"OT C >ALUE CHAINA
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S"OT A5-27%&% $8T analysis means analy0ing strengths, weaknesses, o!!ortunities and it is a useful strategic !lanning tool and is based on the assum!tion that if managers carefully review internal strengths and weaknesses and e%ternal threat and o!!ortunities, a useful strategy for ensuring organi0ational success can be formulated +"ndrew ;<M;,. It is a sim!le techni-ue for getting a -uick overview of a strategic situation so that such strategies can be formulated as to !roduce a good between the com!any.s internal com!etencies +strength and weaknesses, and environment +o!!ortunities and threats,. It allows an organi0ation to determine the e%tent of the strategic fit between its ca!abilities and the needs of its e%ternal environment. S'3#56'0% trengths are areas where the organi0ation e%cels in com!arison with its com!etitor or strength3 is a !ositive characteristic that gives a com!any an im!ortant ca!ability. It is an im!ortant organisational resource which enhances a com!any, com!etitive !osition. ome of the internal strengths of an organisation are# Distinctive com!etence in key areas Manufacturing efficiency killed workforce, ade-uate financial resources u!erior image and re!utation
Economies of scale u!erior technological skills
Insulation from strong com!etitive !ressures 4roduct or service differentiation 4ro!rietary technology. "#-95#%%#% " 2weakness3 is a condition or a characteristic, which !uts the com!any at disadvantage. $eaknesses make the organi0ation vulnerable to com!etitive !ressures. &enry +A77G, described the weaknesses as areas where the organi0ation may be at a com!arative disadvantage. The weaknesses are com!etitive liabilities and strategic managers must evaluate their im!act on the organi0ation.s strategic !osition when formulating strategic !olicies and !lans. $eaknesses re-uire a close scrutiny because some of them can !rove to be fatal. ome of the weaknesses to be reviewed are# Bo clear strategic direction 8utdated facilities Jack of innovation is Com!lacency
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4oor research and develo!mental !rograms Jack of management vision, de!th and skills Inability to raise ca!ital $eaker distribution network 8bsolete technology
Jow em!loyee morale 4oor track record in im!lementing strategy Too narrow a !roduct line 4oor market image &igher overall unit costs relative to com!etition.
O;;o3',5&'&#% -51 T03#-'% 8!!ortunities and threats refer to the organisation.s e%ternal environment, over which the organi0ation has much less control. "n 2o!!ortunity3 is considered as a favourable circumstance, which can be utili0ed for beneficial !ur!oses. It is offered by outside environment and the management can decide as to how to make the best use of it. uch an o!!ortunity may be the result of a favourable change in any one or more of the elements that constitute the e%ternal environment. It may also be created by a !roactive a!!roach by the management in moulding the environment to its own benefit. ome of the o!!ortunities are# trong economy
4ossible new markets Emerging new technologies Com!lacency among com!eting organi0ations Certical or hori0ontal integration E%!ansion of !roduct line to meet broader range of customer needs 'alling trade barriers in attractive foreign markets " 2threat3 is a characteristic of the e%ternal environment, which is hostile to the organisation. Management should antici!ate such !ossible threats and !re!are its strategies in such a manner that any such threat is neutrali0ed. ome of the elements that can !ose a threat are#
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Entry of lower cost foreign com!etitors chea!er technology ado!ted by rivals Hising sales of substitute !roducts hortages of resources
Changing buyer needs and !references Hecession in economy "dverse shifts in trade !olicies of foreign governments "dverse demogra!hic changes $8T analysis involves evaluating a com!any.s internal environment in terms 8f strengths and weaknesses and the e%ternal environment in terms of o!!ortunities and threats and formulating strategies that take advantage of all these factors. uch analysis is an essential com!onent of thinking strategically about a com!any.s situation. >ALUE CHAIN A5-27%&% The second framework that com!anies can use to identify and evaluate the ways in which their resources and ca!abilities can add value is value chain analysis. Ca!abilities are !rocesses, systems or organisational routines which the organisation uses to coordinate its resources for !roductive use. " value chain describes the activities within an organisation that go to make a !roduct or service. Therefore the value chain analysis allows an organisation to ascertain the costs and value that emanate from each of its value activities. Calue or margin is the difference between the total value received by the firm from the customer for its !roduct or service and the total cost of creating the !roduct or service. The value chain system refers to the relationshi! between the value chain activities of the organisation and its su!!liers, distributors and customers. 'igure A.A below show the value chain.
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So,3.#( H#537 @2008A The figure above illustrates how the value creating activities !erformed by the com!any can be se!arated into !rimary and secondary activities. 4rimary activities, shown vertically, re!resent traditional line activities such as inbound logistics, o!erations, outbound logistics, marketing and sales, and service. These are activities which are directly involved in the creation of a !roduct or a service +&enry, A77G,. $hile the su!!ort activities, shown hori0ontally, are re!resented by a com!any.s staff activities and include its financial infrastructure, human resource management !ractices, technological develo!ment, and !rocurement activities. They are activities which ensure that the !rimary activities are carried out efficiently and effectively. The first ste! in value chain analysis is to carefully e%amine each of the com!any.s !rimary activities to determine the !otential for creating or adding value. P3&+-37 A.'&4&'&#% I5$o,51 Lo6&%'&.% These are value chain activities that cover receiving, storing, and distributing in!uts to the !roduct. It includes material handling, warehousing, inventory control, vehicle scheduling and returns to su!!liers. O;#3-'&o5% These activities deals with transforming an organi0ation.s in!uts into final !roducts such as machining, !ackaging, assembly, testing, !rinting and facility o!erations. O,'$o,51 Lo6&%'&.% These activities are associated with collecting, storing and distributing the !roduct or service to buyers.
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8utbound logistics include warehousing, material handling, delivery, order !rocessing and scheduling. M-39#'&56 -51 S-2#% This includes activities that make a !roduct available for buyers to !urchase and induces them to buy. It includes advertising, !romotion, sales force, -uoting, channel selection, channel relations and !ricing. S#34&.# These activities enhance or maintain the value of !roducts, such as installation, re!air, training, !arts su!!ly, and !roduct ad(ustment* De!ending on the industry within which the organi0ations com!ete, each of these !rimary activities can have an im!act on its com!etitive advantage. 'or e%am!le a manufacturing com!any like Kambian @reweries will clearly be more concerned about its o!erations5 how the in!uts are being transformed into beers and soft drinks and !ackaging of these !roducts. S,;;o3' A.'&4&'&#% P3o.,3#+#5' This value chain activity deals with the !rocess of !urchasing resource in!uts to su!!ort any of the !rimary activities. In!uts to the organisation.s !roductive !rocess include such thing as raw materials, office su!!lies, and buildings. T#.05o2o67 1#4#2o;+#5' This activity covers an organisation.s know5how, its !rocedures and any use of its technology that has an im!act u!on !roduct, !rocess and resource develo!ment. H,+-5 R#%o,3.# M-5-6#+#5' These activities include selection, recruitment, training, develo!ment and remuneration of em!loyees. They may su!!ort individual !rimary and su!!ort activities, as occurs when an organi0ation hires !articular individuals such as economics. They also su!!ort the entire value chain, as occurs when an organisation.s infrastructure is usually used to su!!ort the entire value chain. Co+;-57 &5:3-%'3,.',3# These activities su!!ort the activities !erformed in the com!any.s value chain, including general management !ractices, !lanning, finance, accounting, legal, and government relations. @y !erforming its infrastructure related activities, a
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com!any identifies e%ternal o!!ortunities and threats, and internal strengths and weaknesses related to com!any resources and ca!abilities, and su!!orts or nurture its core com!etencies Each category of !rimary and su!!ort activities includes a further three activities which im!act on com!etitive advantage. These are direct and indirect activities and -uality assurance. Direct activities involve creating value for the buyer, for e%am!le through !roduct design. Indirect activities allow direct activities to take !lace, such as regular maintenance. Luality assurance ensures that the a!!ro!riate -uality of the other activities is maintained, for e%am!le through monitoring and testing. Using the value chain framework enables managers to study the com!any.s resources and ca!abilities in relationshi! to the !rimary and su!!ort activities !erformed to design, manufacture, and distribute !roducts, and to assess them relative to com!etitors. ca!abilities. 'or these activities to be sources of com!etitive advantage, a com!any must be able to !erform !rimary or su!!ort activities in a manner that is su!erior to the ways that com!etitors !erform them. "lso !erform a !rimary or su!!ort activity that no com!etitor is able to !erform to create su!erior value for customers and achieve a com!etitive advantage. This im!lies that, given that individual com!anies are com!rised of uni-ue or heterogeneous bundles of activities, reconfiguring the value chain, or rebundling resources and ca!abilities, may enable a com!any to develo! uni-ue value creating activities. The managerial challenge is that the value creation !rocess is difficult and there is no one best way to assess a com!any.s !rimary and su!!ort activities or to evaluate the value creating !otential of those activities either within the com!any or relative to com!etitors, because of incom!lete or ambiguous data. &owever, by being ob(ective, managers may be able to use the value chain framework to identify new, uni-ue ways to combine resources and ca!abilities to create value that are difficult for com!etitors to recogni0e, understand, or imitate. The longer a com!any is able to kee! com!etitors 2in the dark,3 as to how resources and ca!abilities have been combined to create value, the longer a com!any will be able to sustain a com!etitive advantage. Com!anies can use outsourcing as an alternative to identify !rimary or su!!ort activities for which its resources and ca!abilities are not core com!etencies and do not enable the com!any to add su!erior value and achieve com!etitive advantage. O,'%o,3.&56 8utsourcing describes a com!any.s decision to !urchase a value creating activity from an e%ternal su!!lier. 8utsourcing has become im!ortant, and may become more im!ortant in the future, for two reasons# 'irst, there are limits to the abilities of com!anies to !ossess all of the bundles of resources and ca!abilities that are re-uired to achieve su!erior !erformance +relative to com!etitors, in its entire !rimary and su!!ort activities. econd, with limits to their resources and ca!abilities, com!anies can increase their ability to develo! resources and ca!abilities to develo! core com!etencies and achieve
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com!etitive advantage by nurturing only a few core com!etencies.
THE RESOURCE BASED VIE6 OF STRATEGY

The resource based view of strategy can be associated with the work 4enrose +;<<<,, 4rahalad and &amel +;<<7,, Humelt +;<<;,, @erney +;<<;,, 9rant +;<<;, and 4eteraf +;<<?,. It deals with the com!etitive environment facing the organi0ation but takes and inside5out a!!roach. It starts with an organi0ation.s internal environment. Hesource based view of strategy em!hasi0es the internal ca!abilities of the organi0ation in formulating strategy to achieve a sustainable com!etitive advantage in its market and industries. The internal ca!abilities determines the strategic choices the organi0ation makes in com!eting in its internal environment and in some cases can allow an organi0ation to create new markets and add value for the customer such as "!!le.s I54od and Toyota hybrid cars. $here an organi0ation.s ca!abilities are seen as !aramount in the creation of com!etitive advantage it will !ay attention to the configuration of its value chain activities. This is so because it will need to identify the ca!abilities within its value chain activities +e.g. inbound, outbound o!erations etc, which !rovide it with com!etitive advantage. Hesource based view of com!letion or strategy draws u!on the resources and ca!abilities that reside within an organi0ation, or that an organi0ation might want to develo! in order to achieve a sustainable com!etitive advantage
R#%o,3.#% Hesources can be thought of as in!uts that enable an organi0ation to carry out its activities. They include tangible and intangible resources. Tangible resources refer to the !hysical assets that an organi0ation !ossesses and include !lant and machinery, finance and human ca!ital. To add value these !hysical resources must be ca!able of res!onding fle%ibly to changes in the market !lace. 'or e%am!le an organi0ation of u! to date technology and !rocesses which !osses the knowledge to e%!loit their !otential will be at an advantage. Intangible resources may be embedded in routines and !ractices that have develo!ed overtime within the organi0ation) they com!rise intellectual/ technical resources, organi0ation.s re!utation, its culture, its knowledge and its brand. Technological resources include an organisation.s ability to innovate and the s!eed with which innovation occurs, while intellectual resources include !atents and co!y rights which themselves may drive from the
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organisation.s technological resources. 'or e%am!le, an intangible resource of a manufacturer maybe its creative innovation of its founder. Co+;#'#5.&#% "vailability of resources in an organi0ation does not offer any benefits but the efficient configuration of resources !rovides an organi0ation with the com!etencies. These are attributes that a firm re-uires in order to be able to com!ete in the market !lace. It maybe useful to think of com!etencies as deriving from the bundle of resources that a firm has. 'or e%am!le, in order to com!ete in the automobile industry organi0ations must !ossess knowledge about design and engine and body manufacture. $ithout this knowledge the organi0ation can not com!ete effectively irres!ectively of its resources. Co3# Co+;#'#5.&#% Hesources and ca!abilities serve as the foundation u!on which com!anies formulate and im!lement value creating strategies so that the com!any can achieve strategic com!etitiveness and earn above average returns. &owever, not all of a com!any.s resources and ca!abilities re!resent strategic assets, assets that have com!etitive value and the !otential to serve as a source of com!etitive advantage. If the com!any has a deficiency in some of its resources, it may not be able to achieve strategic com!etitiveness. 'or e%am!le, insufficient financial resources may !revent the com!any from im!lementing the !rocesses or integrating the activities re-uired to add su!erior value by limiting the com!any.s ability to hire workers with the necessary skills or to invest in the ca!ital assets +facilities and e-ui!ment, that are needed. Thus, com!anies not only are challenged to scan the e%ternal environment to identify o!!ortunities that can be e%!loited, but also to have an in de!th understanding of com!any resources and ca!abilities. This will enable the com!any not only to develo! strategies that enable it to e%!loit e%ternal o!!ortunities but also to avoid com!eting in areas where the com!any.s resources and ca!abilities are inade-uate. $hen the com!any.s resources and ca!abilities result in a core com!etence, the com!any will be able to !roduce goods or services with features and characteristics that are valued by customers. This im!lies that com!anies can im!lement value creating strategies only when its ca!abilities and resources can be combined to form core com!etencies. Therefore core com!etence can be thought of as a cluster of attributes that an organi0ation !ossesses which in turn allows it to achieve com!etitive advantage. It may sim!ly be that an organi0ation has configured its collection of resources in such a way that allows it to com!ete more successfully. " core com!etence is enhanced as it is a!!lied and shared across the organi0ation. D&%'&5.'&4# C-;-$&2&'&#% Distinctive ca!abilities of an organi0ation.s resources are im!ortant in !roviding it with com!etitive advantage. 8rgani0ations ca!abilities are only distinctive when they emanate from a characteristic which other firms do not have. Distinctive ca!abilities need to !ersist over time +sustainable, and must benefit !rimarily the organi0ation which holds it rather than its em!loyees, its customers, or its com!etitors +a!!ro!riable,. These in turn are linked to relationshi!s between an organi0ation and its stakeholders. These distinctive ca!abilities must derive from the three areas#
4:
"rchitecture ystems of relational contracts which e%ist inside and outside the organi0ation. He!utation "s a source of e%!erience is im!ortant in those markets where consumers can only ascertain the -uality of a !roduct from their log5term e%!erience. "nd innovation. "n organi0ation.s ability to innovate successfully is also a source of distinctive ca!ability which is sustainable and a!!ro!riate. 'or e%am!le, innovative !roducts like "!!le with I5Tunes and I54od. R#%o,3.#< C-;-$&2&'&#% -51 >-2,# C3#-'&o5
So,3.#( H,$$-31 @2006A
C3&'&.-2 S,..#%% =-.'o3% A;;3o-.0 In order to understand how critical success factors +C 's, a!!roach is a!!lied to generating com!etitive advantage and the conce!t of C 's, let us take few e%am!les. " good academician can be successful in teaching and research and not necessarily, he succeeds as a business man. " !layer having high com!etence in a !articular game, say lawn tennis, and is successful is unlikely to succeed in cricket. Even in the same game, a !layer cannot succeed in all !ositions, for e%am!le, a good) wicket kee!er cannot be a good bowler too. The -uestion is# why does this ha!!enE The answer is# each activity has uni-ue re-uirement, and a single !erson cannot meet the re-uirement of all activities. &e can be successful only in that for which he has com!etence to meet its re-uirement. + uccess is defined in terms of ob(ective achievement., This social !henomenon can be re!licated in business situation where the -uestion may be asked# why does a successful business organisation in one industry fails in another industryE The answer of this -uestion lies in the o!ening !art of this
4+
cha!ter# an organisation.s core com!etence does not necessarily lead to com!etitive advantage because it may not have any relevance to the industry in which the organisation fails. It a!!ears, then, that re-uirement of an industry differs from those of other industries. This re-uirement is e%!ressed in terms of critical success factors. Co5.#;' o: C3&'&.-2 S,..#%% =-.'o3% Critical success factors, also referred to as strategic factors or key factors for success, are those characteristics, conditions, or variables which when maintained and sustained can have significant im!act on the success of an organisation com!eting in a !articular industry. " C ' may be a characteristic such as !roduct features, a condition such as high ca!ital investment, or any other variable. " basic nature of C 's is that they differ from Industry to industry# consumer goods versus industrial goods, differentiated versus undifferentiated industries, local versus global industries so on. E%hibit of Critical uccess 'actors in Different Industries Too'0;-%'# &51,%'37 Luality in terms of form, flavour, foam and freshness, wide area distribution network, high level of !romotion, and brand loyalty. =oo1 P3o.#%%&56 I51,%'37 &igh -uality !roduct, !ackaging, efficient distribution network, and sales !romotion. S0o# I51,%'37 &igh -uality !roduct, cost efficiency so!histicated retailing, fle%ible !roduct mi%, and creation of !roduct image. A,'o+o$&2# I51,%'37 tyling, strong dealer network, manufacturing cost control, and ability to meet environmental standards. Co,3&#3 S#34&.# !eedy dis!atch, reliability, and !rice. Managing these C 's effectively generates com!etitive advantage. 'or e%am!le, 8hame states that# 2>ey success factors +C 's, in an industry and business need to be identified to in(ect a concentration of resources into a !articular area where the com!any sees an o!!ortunity to gain significant strategic advantage +com!etitive advantage, over its com!etitors. I1#5'&:7&56 I51,%'37 CS=% In order to generate com!etitive advantage along C 's, it is necessary to identify these. @ased on a study related to identifying strategic factors, which are im!ortant to different businesses, teiner views that 2there are indeed strategic factors needed for a business and they can be identified. &owever, the -uestion is# if C 's differ from industry to industry, how can these be identifiedE In order to find out the answer of this -uestion, managers can !ut
41
another -uestion# what do we need to do in order to be successful in a !articular businessE It is (ust like an individual !utting a -uestion# what does he/she need to do to be successful in studies, in career, etc. &owever, the answer of the -uestion :what needs to be done for success in a business. is not as sim!le as it !rima facie a!!ears. Therefore, managers need to generate as much information as !ossible by going through following ways# C 's can be identified based on logic, heuristics, or even a rule of thumb rather than through any theoretical model. These are based on long years of managerial e%!erience which leads to the develo!ment of intuition, (udgment, and hunch. C 's can also be identified internally in the organisation by using creative techni-ues like brainstorming. C 's can be deduced from other com!anies. statements, e%!ert o!inions, organisational success stories, etc. U%&56 CS= A;;3o-.0 C ' a!!roach can be used in a number of ways to generate com!etitive advantage. Hockart has identified three ste!s in using C ' a!!roach# generate the critical success factors, refine C 's into ob(ectives,
"nd identify measures of !erformance. $hile the first ste! is related to identification of C 's, other two are related to using these C 's. " com!any can generate com!etitive advantage based on C 's in the following ways: The com!any can identify key result areas based on C 's. " key result area is an as!ect of an organisation or its unit that must function effectively for the entire organisation to succeed. If a key result area has been defined in terms of C 's, its focus is more relevant. " key result area may be any ty!e, for e%am!le, after sales service in automobile or e-ui!ment industry. The com!any can allocate its resources, both !hysical and human, on the basis of C 's. 'or e%am!le, in fast moving consumer goods, there are two critical success factors# !roduct innovation and efficient distribution system. &industan, Jever has focused on both by
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de!loying its critical resources in both these areas. " com!any can generate new C 's, as these are not static but dynamic. Thus, the new C ' may be more im!ortant than the e%isting ones. This is based on the ma%im of doing things differently. 'or e%am!le, when Heliance entered te%tile fabrics, it introduced the conce!t of branding which was not a critical conce!t in te%tile at that time. In order to !romoteits brand, it went for huge advertising. $ith the result, Heliance became number one in te%tile business very soon. 8n the basis of C 's, a com!any can differentiate itself from others by doing the same thing differently or by doing different thing. &owever, C ' a!!roach is not free from their limitations, which are in two forms. 'irst, e%isting or !otential com!etitors can emulate the strategy through benchmarking and other tools and a com!any cannot remain as com!etitive as it used to be. econd, if one com!any can generate a new C ', others can also do. In this case also, the com!any may not remain highly com!etitive. Thus allocating huge resources based on C 's runs a risk. &owever, the risk is a !rime element of any strategy. It does not mean that C ' a!!roach is not meaningful because of its limitations. In fact what an organisation needs to do is that it takes continuous realigning of C 's into its o!erations O36-5&%-'&o5-2 C3&'&.-2 S,..#%% =-.'o3% The above discussion of C 's is e%ternally focused in the sense that it concentrates on what an organisation should do to be successful in a !articular industry. Hesearchers, both academicians and consultants, have made attem!t to find out the answer of the -uestion# what are the characteristics of an organisation, which make it successful in different industries or meeting the re-uirements of C 's of these industriesE Though the answer of this -uestion is not, !recise because of inter!lay of different variables in determining success of an organisation, some clues can be derived from various !rescri!tions and research studies. Mc>insey I Com!any, a U based consultant, has !rescribed seven factors which lead to success as shown in 'igure A.6 below S'3-'#67. " means to achieve ob(ectives. S'3,.',3#. @asic framework res!onsibilities and functions. to designate
S7%'#+%* Management tools for !lanning, decision making, communication, and control. S'-::%* &uman resources of the organisation. S9&22%* 8rganisational ca!abilities. and individual
S'72#. &ow managers lead and motivate.
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S0-3#1 4-2,#%* 8rganisational values which govern behaviour of its members.
=&6,3# 2*4 M.!&5%#7 DS :3-+#)o39
@ased the Mc>insey M framework, 4eter and $aterman +;<GA, have identified eight characteristics of successful com!anies +called as e%cellent com!anies,# C ':s diagram. ;. @ias for action, A. Close to customers ?. "utonomy and entre!reneurshi!
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6. 4roductivity through !eo!le D. &ands on, value driven =. tick to knitting M. im!le form, lean staff, and G. imultaneous loose tight control. &owever, these characteristics should not be taken on static basis for generating com!etitive advantage. ASSESSING ORGANISATIONAL PER=ORMANCE There is an assum!tion that the main ob(ective of an organi0ation is !rofit ma%imi0ation to benefit shareholders. &ow ever, many !eo!le cast doubt on !rofit ma%imi0ation theories because of the !rinci!le5agent !roblem. $hether the overriding ob(ective of shareholders. interest can be subordinated to a multi!licity of other interest is an on going debate. There are different models of assessing or measuring strategic !erformance or organi0ational !erformance but for the !ur!ose of this class we are going to focus on four models# shareholder value, financial analysis, balanced scorecard and benchmarking. M-x&+&/&56 S0-3#0o21#3 >-2,# There is an assum!tion that !rivate and !ublic com!anies are in business to create value and that the !rofit they !roduce is distributed among shareholders. If the role of organi0ations is to create value and distribute !rofit to their shareholders, this brings us to how organi0ations !erformance will be measured. Heturns to shareholders are the only !erformance measure of strategy. This model uses the Bet 4resent Calue +B4C, or the Economic Calue "dded +EC", to measure the Heturn on Investment +H8I,. The EC" is an attem!t for organisation to include a more realistic !rofit figure. It is worked out by talking the difference between a com!any.s o!erating !rofit after ta% and its annual cost of ca!ital, and discounting this to find out its !resent value. This model !rovides a single, unambiguous measure of !erformance based on accounting measures that are !roblematic in measuring strategic !erformance. S&+;2# E.o5o+&. >-2,# A11#1 +o1#2
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So,3.#( H,$$-31 @2006A
L&+&'-'&o5% not an effective measure for unlisted com!anies Cannot be used for organisations without shareholders Does !ast !erformance !redict future !erformance =&5-5.&-2 A5-27%&% Measuring an organi0ational !erformance is necessary to understand whether the strategies being im!lemented actually add value to the organi0ation. If not, the -uestion is whether an alternative strategy would be more a!!ro!riate +@u00ell and 9ale ;<GM,. There for the use of !erformance measurement act as a control on management to ensure that they fulfill their fiduciary duty to shareholders. ome of the traditional financial measures used by cor!orations are# Jisted com!anies shareholder return dividend and ca!ital gain !er share economic value added Unlisted com!anies accounting measures of return
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return on e-uity sales growth !rofit margin debt to e-uity ratio T0# B-2-5.#1 S.o3#.-31 The balance scorecard wad develo!ed by >a!lan and Borton +;<<A, as a means for organi0ation to measure their !erformance from a wider !ers!ective than the traditional financial measure. It !rovides managers with amore com!rehensive assessment of the state of their organi0ation and enables managers to !rovide consistency between the aims of the organi0ation and the strategies undertaken to achieve those aims. 'eatures of the balanced scorecard Involves the measurement of four critical !ers!ectives of !erformance# 'inancial Customer internal, and innovation and learning It takes into account the interests of more of the organisation.s stakeholders and is not inconsistent with shareholder value. It recognises that there must be customers for an organisation to survive and grow
There may be conflict between the demands of customers and those of shareholders is strategic in nature as it takes into account the need for learning and growth Measures are focused on interests of the organi0ation the long5term
Hecognises the role of im!lementation of strategy. >a!lan and Borton +;<<=, cited in &enry +A77G, suggests that the balanced scorecard a!!roach looks at an organi0ation from four !ers!ectives. &ow de we look at shareholdersE &ow do customers view usE
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$hat must we e%cel atE Can we continue to im!rove and create valueE Ex-+;2# o: - $-2-5.#1 %.o3#.-31
So,3.#( H,$$-31 @2006A This a!!roach also takes account of the different e%!ectations of stakeholders, recogni0ing !erha!s that ma%imi0ing shareholder value is not a !rime motivator for em!loyees or customers. The model !rovides a bridge between the needs of shareholders and the needs of stakeholders. B#5.0+-39&56 @enchmarking is another tool, which can be used to generate com!etitive advantage. It is a !rocess of identifying in systematic way su!erior !roducts, services, and !rocesses I !ractices that can be ado!ted in an organi0ation to reduce costs) decrease o!erations cycle time, and !rovide greater customer satisfaction. This is done by com!aring with those com!anies recogni0ed as industry leaders. &enry +A77G, defined benchmarking as a !rocess of measuring !roducts, services and business !ractices against those com!anies recogni0ed as industry leaders. 'eatures of @enchmarking
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@enchmarking is based on the theme 2see what others do and try to im!rove u!on that.3 Therefore, this im!lies some kind of measurement, which can be accom!lished in two forms# internal and e%ternal. @oth internal and e%ternal !ractices are com!ared and a statement of significant differences is !re!ared to identify the ga! which should be filled. @enchmarking can be a!!lied to all facets of a business) it includes !roducts, services, !rocesses, and methods. It goes beyond the traditional com!etitor analysis in the form of identifying strengths and weaknesses and includes clear understanding of how the best !ractices are used. @enchmarking is not aimed solely at direct !roduct com!etitors but those organi0ations and businesses that are recogni0ed as best or industry leaders. @enchmarking is a continuous !rocess and not (ust one shot action. It is continuous because industry !ractices constantly change and a continuous monitoring of these !ractices is re-uired to bring suitable change in the organi0ation com!ared with either close com!etitor or industry leader
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elf5"ssessment ;. $hat 4E T factors are currently driving the beer industry in KambiaE A. 4orter.s five forces framework is often criticised for being too static and inca!able of dealing with the dynamic of industry. &ow (ustified are these criticismE ?. &ow cans an understanding of an organisation.s value chain activities hel!s it achieve com!etitive advantageE 6. Evaluate the key differences between 4orter.s five forces framework and the resource5based view of com!etition.
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U!it STRATEGY FORMULATION I!tro%*ctio!

This unit will look at the difference between business strategy and cor!orate) the role of business strategy in achieving com!etitive advantage) 4orter.s generic com!etitive strategies and alternative a!!roach to strategy formulation. It will also look at the industry life5cycle and the @oston Consulting 9rou! !ortfolio matri% analysis. U!on com!letion of this unit you will be able to# Understand the various levels of business strategy Understand the nature of environment in which an organisation o!erates and the role of its analysis in strategy formulation. Understand that the com!etitive strategy of an organi0ation and the need to secure !articular com!etitive advantage over com!etitors are im!ortant. Evaluate the industry life cycle "ssess the im!act of !ortfolio analysis "ssess the effectiveness of different growth strategies
O,'.o+#%
BUSINESS LEVEL STRATEGY

"0-' &% $,%&5#%% 2#4#2 %'3-'#678 "ny given organi0ation may com!rise of a number of businesses, each o!erating in distinct market and serving different customers. @usiness level strategy is a means of se!arating out and formulating a com!etitive strategy at the level of the individual business unit. Com!etitive strategy is concerned with the basis on which an organi0ation will com!ete in its chosen market. The role of business strategy is to devise a strategy which allows it to com!ete successfully in the market !lace and to contribute to the cor!orate strategy. The business unit managers must ultimately show that their business strategy contributes to the cor!orate strategy. In contrast, cor!orate strategy focuses u!on the fundamental -uestion# what business +businesses, do we want to be inE It is the task of the most senior e%ecutives to formulate a coherent cor!orate strategy. G#5#3&. Co3;o3-'# S'3-'#6&#% Michael 4orter strategies# identified three generic
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Differentiation 'ocus Jow cost 9eneric strategies can be a!!lied to broad or narrow markets 9eneric strategies can be seen as the value systems or !hiloso!hies of the business hould be a!!lied to all activities of the organisation
DI==ERENTIATION Differentiation involves the organi0ation com!eting on the basis of a uni-ue or different !roduct which is sufficiently valued by consumers for them to !ay a !remium !riceThe
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!roduct is different to that of com!etitors and makes it difficult to imitate. Many ways to differentiate a !roduct or service !roduct -uality !roduct reliability !roduct features !roduct innovation service levels brand name distribution channels !atent !rotection Hisks of a differentiation strategy Difficult to maintain degree of differentiation Differentiation may not be worth enough to customer to !ay !remium !rice Can be :out5differentiated. by :focusers. =OCUS 'ocus strategy occurs when an organi0ation undertake either a cost or differentiation strategy but within only a narrow segment of the market. E.g. Toyota for hybrid cars +Camry,. @ased on narrow markets mall organisations or niche marketing
Can be cost5based or differentiation5based 'ocus can be achieved by# narrow !roduct line customer segmentation geogra!hic segmentation focused functional ca!ability More easily a!!lied in growth industries or fragmented markets Hisks of a focus strategy Com!etition from broad market com!etitors
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Calue offered is less than the cost differential LO" COST " lower delivered com!etitors cost structure than
8nly one firm can be the lowest cost !rovider in an industry Jow5cost strategy does not necessarily mean low !rices Can be achieved in many ways# no frills !roduct sim!le !roduct design cost control location advantage !roduction innovation !urchasing chea! assets government subsidies e%!erience curve Hisks of a low5cost strategy Barrow focus on cost control may limit o!!ortunities Cost leadershi! may not be sustainable Com!etitors !ursuing a focus strategy may be able to offer a lower !rice LEADERSHIP STRATEGY " combined strategy of differentiation and low cost TLM enables com!anies to !roduce differentiated goods/services at low cost 4rinci!les of TLM not easily a!!lied to an organisation
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Easier to add a differentiation focus to a cost focus Jeader strategies increase com!etitive nature of an industry Disadvantage of a leader strategy Difficult to achieve both differentiation and low cost Can get :stuck in the middle. "lternative view to 4orter.s generic strategies. Three ways of com!eting that lead to e%cellent !erformance# 8!erational e%cellence Customer intimacy 4roduct leadershi! Beed to e%cel on one of these and be at industry standard on other two
STUC! IN THE MIDDLE To avoid being :stuck in the middle. businesses should do at least one of these# clearly define their business strategy in !roduct5market terms have a business strategy that delivers uni-ue value to customers communicate their business strategy to o!erating staff im!lement systems consistent with the defined business strategy THE INDUSTRY LI=E-CYCLE The industry life5cycle shown in figure ?.; below suggests that industries go through four stages of develo!ment as shown below. $ithin an industry, different strategic grou!s may be e%!eriencing different stages of the life5cycle. The life5cycle is fre-uently a!!lied to !roduct markets where a !roduct life5cycle can be discerned which follow the same stages as the industry life cycle. The !roduct life5 cycle shown below +figure ?.A, allows organi0ations to vary its marketing mi% to !roduce an a!!ro!riate res!onse according to each stage in a !roduct.s develo!ment.
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=&6,3# E*1 I51,%'37 2&:# .7.2#
The industry life cycle hel!s an organi0ation to see how it is !ositioned in terms of the develo!ment of its market. The different stages of the industry life cycle will have an im!act u!on com!etitive conditions facing the organi0ation. 'or e%am!le one e%!ects the level of com!etitive rivalry during the introduction stage, when the market is being o!ened u!, to be different from that in the maturity stage, when the market is saturated and the market share comes at the e%!ense of your com!etitors. There an organi0ation can benefit from this by understanding the industry life5cycle and formulate the strategy to match the needs of its stage. I5'3o1,.'&o5 %'-6# This characteri0ed# @y slow growth in sales and high cost as a result of limited !roduction. 4rofit will be negative as sales are insufficient to cover the ca!ital outlay on research and develo!ment. " lot of investment is made by an organi0ation in HID to make a new !roduct. The advantage of being a first mover is that an organi0ation may set the industry standards even in the face of a su!erior technology. &ow ever the tendency is for the !roduct life5cycle to be com!ressed, as each stage is cut by ra!id change, which means that any first5mover advantage is -uickly eroded. This means that the time scale to recou! ca!ital e%!enditure for the first mover is shortened, which brings a grater. G3o)'0 S'-6# The stage is characteri0ed by the following# ales increase ra!idly as the market grows, allowing com!anies to rea! the benefits of economies of scale.
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Increase in sales brings greater !rofits which attracts new entrants. 'ocus on creating a brand and increase in s!ending on marketing activities. The goal of the firm is not merely to attract new customers but to ensure that customers re!eat their !urchase. M-',3&'7 S'-6# lowing in sales growth and !rofits as they become saturated.
8rgani0ations began leaving the industry. Jow cost com!letion based on efficient !roduction $ith e%ist barriers rivalry become more intense within the industry as marginal firms find it difficult to e%ist the industry. 4roduct may be re(uvenated by finding new customers e.g. Fohnson and Fohnson baby oil and Drags deemed unacce!table on health grounds. D#.2&5# S-6# 'irms e%!eriences a fall in sales and !rofitability Consumer loyalty shifts to new !roducts based on technology Com!etition based on !rice as customers shun old !roducts 'irms continue e%isting the industry and consolidation may occur to achieve acce!table !rofits The knowledge of the industry life5cycle is useful to hel! an organi0ation understand how each stage can affect its com!etitive environment. In line with its rivals, it must ensure that its strategy formulation is sufficiently robust to meet the needs of each sage of the cycle. =&6,3# E*2 S'3-'#67 -51 I%%,#% &5 '0# P3o1,.'F% L&:#
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COR;ORATE LEVEL STRATEGY

Cor!orate level strategy answer the -uestion of how an organi0ation adds value across the business units that make u! the organi0ation which a role of cor!orate !arenting. This is done by effectively managing the related ca!abilities in each business units, as well as leveraging its own management skills across these business units resulting into synergy. ynergy occurs when the total out!ut from combining businesses is greater than the out!ut of the businesses o!erating individually. Its is often described mathematically as ANA OD G3o)'0 S'3-'#67 There are four strategies that an organi0ation might follow as shown below
T-$2# E*1 A5%o:: M-'3&x @S'3-'#6&. 1&3#.'&o5A
/:
P3o1,.'B%#34&.# P3#%#5' P3#%#5' M-39#' Market 4enetration Consolidation Ji-uidation Market Develo!ment N#) M-39#' Diversification N#) 4roduct Develo!ment
M-39#' P#5#'3-'&o5 The strategy of market !enetration seeks to increase the market share in its e%isting markets by utili0ing its e%isting !roducts. It aims at attracting new customers and getting e%isting consumers to increase their usage of the !roduct by im!roving the -uality of the !roduct, level of service and carrying out !romotional activities. P3o1,.' D#4#2o;+#5' This strategy involves develo!ing a new !roduct for the e%isting market. The ability to innovate is im!ortant for an organi0ation to develo! new !roducts. This strategy is most commonly a!!lied in electronic industry. M-39#' D#4#2o;+#5' This strategy is concerned with entering new markets with your e%isting !roduct. This may be done by targeting new market segments and new geogra!hical areas or by devising new users for its !roducts. The e%isting !roduct may undergo slight modification to ensure that it fits these new markets better. D&4#3%&:&.-'&o5 This occurs when an organi0ation seeks to broaden its sco!e of activities by moving into new !roducts and new markets. There are two ty!es of diversification# R#2-'#1 diversification is the movement into an industry in which there are some links with the organi0ation.s value chain. Helated diversification can be se!arated into vertical and hori0ontal integration. Certical integration occurs when an organi0ation goes u!stream i.e. it moves towards its in!uts or down stream, i.e. it moves towards its consumer. &ori0ontal integration takes !lace when an organi0ation takes over a com!etitor or offers com!lementary !roducts at the same sage within the value chain.
/+
U53#2-'#1 diversification refers to a situation where an organi0ation moves into a totally unrelated industry. It is sometimes called conglomerate diversification to reflect that it involves managing a !ortfolio of com!anies.
IMPLEMENTING GRO"TH STRATEGIES The diagram below show the im!lementation of cor!orate growth strategies
Business Growth Strategy
Related ( same industry)
Unrelated (different industry)
Horizontal (same stage in supply chain)
Vertical (different stage in supply chain)
#onglomerate (few or no shared competences))
orward (control o!er customer)
Bac"ward (control o!er a supplier)
THE BCG MATRIG D#%.3&;'&o5 o: '0# BCG M-'3&x The now well5known @C9 tool for !ortfolio analysis is based on the research by the @oston Consultancy 9rou!, which investigated the relationshi!s between low costs +gained from s!ecialisation, scale and e%!erience,, market share and market growth. The :!roduct !ortfolio. diagram in 'igure ?. ? illustrate the relationshi!s. To ensure long5term value creation, a com!any should have a !ortfolio of !roducts that contains both high5growth !roducts in need of cash in!uts and low5growth !roducts that generate a lot of cash. The @C9 matri% is a tool that can be used to determine what !riorities
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should be given in the !roduct !ortfolio of a business unit. It has A dimensions# market share and market growth. The basic idea behind it is that the bigger the market share a !roduct has or the faster the !roduct.s market grows the better it is for the com!any. 4roduct !ortfolio method !lacing !roducts in the @C9 matri% results in 6 categories in a !ortfolio of a com!any#
S'-3% @0&60 63o)'0< 0&60 +-39#' %0-3#A &igh growth or high5market5share means that the organisation is gaining e%!erience ra!idly, and this e%!erience, or learning curve, translates into lower costs of one sort or another. &owever, high growth and the achievement of a large market share also im!ly fairly heavy e%!enditure by the firm. The strategic manager will have to (udge whether each !roduct should be further su!!orted, or whether it should be withdrawn. tars use large amounts of cash and are leaders in the business so they should also generate large amounts of cash)
're-uently roughly in balance on net cash flow. &owever, if needed any attem!t should be made to hold share, because the rewards will be a cash cow if market share is ke!t.
C-%0 Co)% +low growth, high market share,. The :cash cow., on the other hand, can bask in
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the security of a high market share already gained in a market where other com!etitors cannot learn very -uickly it will !rovide cash for other !ro(ects. 4rofits and cash generation should be high and because of the low growth, investments needed should be low. >ee! !rofits high 'oundation of a com!any Do6% +low growth, low market share, " low market5share in a low5growth market means that not much e%!erience is being gained, so :dogs. can be a drain on com!any resources. "void and minimi0e the number of dogs in a com!any. @eware of e%!ensive :turn around !lans.. Deliver cash, otherwise li-uidate H,#%'&o5 M-39% +high growth, low market share,. The :!roblem child. is (ust such !ro(ect, a gamble that may or may not !ay off, de!ending on whether the cost reductions gained from e%!erience in a high growth market can offset the e%!enditure of trying to gain a greater market share. Luestion marks have the following characteristics# &ave the worst cash characteristics of all, because high demands and low returns due to low market share If nothing is done to change the market share, -uestion marks will sim!ly absorb great amounts of cash and later, as the growth sto!s, a dog. Either invest heavily or sell off or invest nothing and generate whatever cash it can. Increase market share or deliver cash Using the @C9 Matri% can hel! understand a fre-uently made strategy mistake# having a one5si0e5fits5all5a!!roach to strategy, such as a generic growth target +< !ercent !er year, or a generic return on ca!ital of say <.DP for an entire cor!oration. In such a scenario# Cash Cows @usiness Units will beat their !rofit target easily) their management has an easy (ob and is often !raised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their businesses, which are mature and not growing anymore. Dogs @usiness Units fight an im!ossible battle and, even worse, investments are made now
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and then in ho!eless attem!ts to :turn the business around. "s a result +all, Luestion Marks and tars @usiness Units get mediocre si0e investment funds. In this way they are unable to ever become cash cows. These inade-uate invested sums of money are a waste of money. Either these @Us should receive enough investment funds to enable them to achieve a real market dominance and become a cash cow +or star,, or otherwise com!anies are advised to disinvest and try to get whatever !ossible cash out of the -uestion marks that were not selected.
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S#2:--%%#%%+#5' ;. Using the "nsoff matri% identify and e%!lain !ossible strategic direction for Trade >ings Kambia Jimited. A. *ou have been a!!ointed as a management trainee of a big manufacturing firm in Jusaka, and you have been asked to e%!lain what is meant by differentiation and why it is im!ortant. $rite a short !resentation addressing the two issues. ?. To what e%tent do universities in Kambia com!ete by being different or the sameE
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U!it /
INTERNATIONAL STRATGEY AND GLOBALISATION
U!it 4
STRATEGY IM;LEMENTATION I!tro%*ctio!
This unit looks at an overview of strategic im!lementation model, 8rganisational systems and strategy im!lementation. The unit will also look at the im!act of organisational structures, strategic control systems and strategies change. 'inally it focus on the traditional and new organisational structures and the informal structure and its role in strategy im!lementation U!on com!letion of this unit you will be able to# ;a< ;9< O,'.o+#% ;c< ;d< Understand the aim of im!lementing strategy E%!lain the role of different organisational structures . Evaluate strategic control systems "ssess different a!!roaches to strategic change
THE CONCE;T OF STRATEGY IM;LEMENTATION

In a sim!le way, strategy im!lementation can be defined as a !rocess through which a chosen strategy is !ut into action. Though this definition is very sim!le but does not s!ecify what action are re-uired in strategy im!lementation. To elaborate the issues and activities involved in strategy formulation, let us consider other definitions. teiner et al have defined strategy im!lementation as follows# 2The im!lementation of !olicies and strategies is concerned with the design and management of systems to achieve the best integration of !eo!le, structures, !rocesses, and resources, in reaching organi0ational !ur!oses.3 " number of scholars have defined strategy im!lementation as follows# 2 trategy im!lementation may be said to consist of securing resources, organi0ing these resources and directing the use of these resources within and outside the organi0ations.3 =-.'o3% C-,%&56 U5%,..#%%:,2 I+;2#+#5'-'&o5 o: S'3-'#67 @efore going into the details of how a chosen strategy is im!lemented, it is desirable to identify the factors, which cause unsuccessful im!lementation of strategy so that managers can take ade-uate safeguard against these, factors. These factors are of following ty!es#5 Unsatisfactory cou!ling of strategy and o!erational actions. Insufficient attention to the negotiation of outcomes in decision situations, and
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Defective strategy. The aim of im!lementation is to achieve the strategy. trategy needs to be consistent with the e%ternal environment and ca!abilities. 8ther elements of the im!lementation model are# Jeadershi! Hight !eo!le Culture Effective systems tructure S'3-'#67 I+;2#+#5'&56 Mo1#2
So,3.#( H,$$-31 @2008) C-;-$&2&'&#% Ca!abilities are the fundamental link between strategic analysis and im!lementation. Jack of ca!ability is a ga! that must be overcome. "!art from strategic ca!abilities, successful im!lementation re-uires effective ca!abilities at all functional levels. O36-5&%-'&5-2 S7%'#+% Most !roblems occur as a result of system deficiencies. 8rganisational systems need to be both good, and effectively used. Effective e%ecution of systems re-uires# Clear !rocesses which are acce!ted
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8!erational and technical efficiency 4eo!le must take res!onsibility 9ood control systems Higorous !erformance measurement " culture of continuous im!rovement "bility to ada!t ra!idly Bo cross5subsidising of business units The other ty!es of organi0ational systems include) o!erating systems, information systems, reward systems, control systems, financial and budget systems decision making systems. "ll these systems are su!!ose to be effective in both strategy develo!ment and im!lementation. O36-5&%-'&o5-2 %'3,.',3# tructural im!lementation of strategy involves designing of organisation structure and interlinking various units and subunits of the organisation created as a result of the organisation structure. The structure of an organisation is the way in which activities are arranged. tructure may not be an im!ortant determinant of !erformance 8rganisations change structures continually 'ew organisations maintain a :!ure. structure 'ormal structure usually ignores many formal grou!ings Informal structure has a strong influence on culture 9ood !eo!le structures can work around formal
o, why bother with a formal structureE IJa good structure can 1 and should 1 be hel!ful in assisting the organisation to function well. ome scholars have !ro!osed that it is the im!lementation of new strategy which brings forth the need for a new structure. This is not to say that the structure has no im!act on strategy) for e%am!le changes in the environment may necessitate the changes in the organisation.s structure. "mburgey and Ducin +;<<6, cited in +&enry A77G, found that a reci!rocal relationshi! does e%ist. trategy affects structure but structure also affects strategy. &owever, they found that strategy was a more im!ortant determinant of structure than structure was of strategy. There is a hierarchical relationshi! between strategy and structure., but note that a change in strategy is more likely to !roduce a change in structure than a change in structure is to !roduce a change in strategy.
/5
T3-1&'&o5-2 o36-5&%-'&o5-2 %'3,.',3#% =,5.'&o5-2 %'3,.',3#
!"O
Purchasing
Operations
Information Technology
Sales and Marketing
Human esources
Planning
Distribution
Accounting and finance
Legal
This structure is based on functional de!artments) sales, &HM, !roduction, etc G#o63-;0&. %'3,.',3#
!"O
L*'. . (i6ision
C$!tr.# (i6ision
Northern (i6ision
Southern (i6ision
Western *astern (i6ision (i6ision
This structure is based on regional units
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P3o1,.'B%#34&.#
CEO
R$% "i!$'
6hit$ "i!$'
Ch.&p.g!$< 'p.r #i!g "i!$'
Forti7i$% "i!$'
C$##.r %oor
This is based on logical !roduct families B,%&5#%% ,5&'
CEO
GM 6i!$
GM B$$r
GM Hot$#'
GM L$i'*r$ r$'ort'
This is based on self5contained business units M-'3&x %'3,.',3#
This is a combination of functional and !ro(ect design
0:
N#')o39 S'3,.',3# This involves a configuration of outsourced activities that are controlled by a central hub. This is !articularly useful in res!onding to fast5moving and un!redictable environments such as the fashion industry. The network allows the core com!etencies of the organisation to be retained at the centre while non5core activities are outsourced to s!ecific firms which allows for greater efficiency. Heasons for outsourcing Cannot s!ecialise in everything Jess motivation for efficiency low res!onse to changes
Ha!idly changing markets and customer e%!ectations Betwork organisations coordinate rather than !erform activities
Manufacturers
Su
liers
Head office=4roker
(istri9utors
(esigners !5o)2#16# $-%#1 o36-5&/-'&o5% >nowledge is a key organisational resource >nowledgeable em!loyees have !ower Managing knowledge re-uires a new structure 'actors affecting design# Intellect +where does knowledge lieE, Jocus of customisation +where is it converted to uni-ue solutionsE, Direction of flow +which way does value5added knowledge flowE, Method of leverage +how is advantage gained from knowledgeE,
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T0# &5:o3+-2 %'3,.',3# The :informal structure. of organisations is rarely considered -51 they are very influential in what actually ha!!ens. 8rganisational !olitics revolves around the informal structure. 'ormal ma!!ing of the informal network can hel! harness the real !ower of the organisation. Machado I @urns +;<<G, suggest that informal structures e%ist to resolve !roblems of incongruence in organisations tabilise social order 'ormal and informal !rocesses are com!lementary &eterogeneous organisations encourage creativity, reflectivity and innovation &eterogeneous organisations need informal structures to reduce transactional costs Betworks +informal structures, reduce tensions and conflicts in com!le%, formal organisations
L#-1#3%0&; P#o;2# -51 C,2',3#

The aim of im!lementation is to achieve the strategy. Is strategy achieved through, structure and systemsE 8r through 4ur!ose, !rocess and !eo!leE L#-1#3%0&; -51 +-5-6#+#5' Jeadershi!# :the ability to develo! and articulate a vision of the future for the organisation to motivate others to buy into that vision and to get it im!lemented. Management# :the ability to efficiently and effectively im!lement e%isting !olicies and !rocedures through other !eo!le. L#-1#3%0&; o3 +-5-6#+#5'
L#-1#3%0&; T-%9%
4rovide a vision of the future
M-5-6#+#5' T-%9%
Carry out e%isting !olicies and !rocedures
Jead by !ersonal credibility
Use authority of !osition to get activities done
Ins!ire others to follow
Instruct others what to do
9uide and coach
Monitor and control
eek to !rovide o!!ortunities for !eo!le to >#dd to ic te7t develo!
here? e%isting !ositions
eek to get the best out of !eo!le in their
"ccording to Mint0berg 1 leadershi! is an integrated (ob 1 action, !eo!le and information management Main leadershi! activities are# Direct action, managing !eo!le and managing information. There is no one right way. The conte%t of the task guides leadershi! style Jeadershi! style will vary based on#
01
Jevel of turbulence in the environment $hether change is forced from outside i0e of the change re-uired
$hether the culture needs to be changed There are four levels of leadershi! in organi0ations @oard of directors CE8 To! management team +TMT, Bo-31 o: D&3#.'o3% The role of the board, :To ensure that cor!orate management is continuously and effectively striving for above5 average !erformance, taking account of risk. This is not to deny the board.s additional role with res!ect to shareholder !rotection.. The relationshi! between the shareholders, board of directors and to! management is shown below. ignificant managers
Shareholders *lections 4oard of directors Selection a ro6al *7ecuti6e management Holes of the board To achieve above5average !erformance, boards of directors should# "ct for all stakeholders, not (ust shareholders "chieve !erformance, not merely conformance "ssess organisational !erformance over the long term &e orting &e orting
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"ssess their own !erformance The main roles of the board are to# "!!oint and review the !erformance of the CE8 Monitor strategy develo!ment Heview !erformance of senior leaders "!!rove com!ensation !olicies "!!rove a succession !lan for senior leaders Ensure there is ade-uate o!erating information financial and
"!!rove ma(or investment decisions "!!rove and foster cor!orate culture "!!rove financial !lans and !erformance goals "!!oint auditors and oversee the audit !rocess He!ort to shareholders He-uire and monitor statutory and regulatory com!liance The board com!osition and structure5 main issues hould the CE8 be chairE
$hat !ro!ortion of non5e%ecutive directorsE &ow inde!endent should the board beE To; +-5-6#+#5' '#-+ @TMTA These are e%ecutives who re!ort to the CE8 and they are involved in influencing strategy and im!lementation. TMT should have organisational focus and team view because strategy im!lementation correlates with ability to work as a team. To be effective the TMT should# Consist of the right !eo!le with a common direction Meet often and be able to work together as a team @e known to e%ist in the organisation Encourage creative conflict and be able to renew itself
04
U5&' 2#4#2 2#-1#3%0&; 'or most em!loyees, the unit head is the leader and !!eo!le watch the leader.s behaviour. Incongruence between local leader behaviour and organisational strategy im!edes im!lementation. Therefore units must increasingly com!ete with e%ternal service !roviders and unit managers need to think strategically to maintain effectiveness of the unit. Middle managers contribute to leadershi! in four ways# Calue5creating entre!reneurial ideas Jeverage of informal networks Understand the !eo!le better than the TMT Manage the tension between continuity and the need for change Co++o5 3#K,&3#+#5'% o: 2#-1#3% how !assion and commitment
4eo!le want to believe that the leader really does care Deeds and actions, not words, are im!ortant Jeader.s actions should match the rhetoric @e in touch with what is ha!!ening Management by walking around Develo! rewards and cham!ions. Hole models and cham!ions reinforce values and desired behaviour 9enerate stories. torytelling is a most effective means of communication. They are remembered about unusual deeds or high achievement reinforces values. There is evidence to suggest that leadershi! styles mirror cultural differences. 9reater diversity within organisations and within management ranks will re-uire different leadershi! styles. Jeaders achieve strategy through !eo!le) they must be able to lead a diverse workforce. P#o;2# &5 O36-5&%-'&o5% 4eo!le can create value with their knowledge, skills, abilities and orientations +> "8s,. > "8s and !eo!les. attitudes significantly affect organisational !erformance. >nowledge5 based organisations es!ecially need to develo! systems that encourage individual in!ut. 4eo!le, who fit the s!ecific needs of the organisation, including its culture, should be em!loyed
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S,..#%%:,2 ;#o;2# ;3-.'&.# '0# :o22o)&56( elective hiring of new !eo!le* 'inding the :right. !eo!le for the organisation ecurity of em!loyment* Encourage the right !eo!le to stay
E%tensive training* Training is an investment 1 making !eo!le more effective, now and in the future Com!aratively high com!ensation linked to !erformance* Incentives, share ownershi! elf5managed teams decision5making. Fob !erformance increases and decentralised satisfaction and
Heduced status distinctions across levels of the organisation Janguage, dress, !hysical s!ace and labels Heduced wage ine-uality E%tensive sharing of financial and !erformance information P#o;2# L%'3-'#67 :&' Effective strategy im!lementation de!ends on a good fit between the com!etencies and attitudes of em!loyees, and the !ro!osed strategy. In order to im!rove !eo!le5strategy fit, the following should be done# " com!etency audit can identify ga!s Com!are current human com!etencies and attitudes with what is re-uired "ddress negative ga!s e%!osed Hecruitment and selection !rocess should assess attitudes to change as well as task com!etencies O36-5&%-'&o5-2 C,2',3# trategy is im!lemented by !eo!le) they must be willing and able to do it. haring information shares the !ower
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The underlying values, beliefs and !atterns of behaviour, that affect how the o!erations of the organisation should be conducted 1 :how we do things around here.. 8rganisational culture is usually an im!licit way of thinking and acting. Elements of organisational culture Houtines. The taken for granted, assumed ways of doing things Hituals. !ecial, infre-uent routines that mark a s!ecial value of the organisation, e.g. award !resentations Hules. May range from e%!licit rigid and com!le% systems to fle%ible, oral and im!licit. ymbols.The visual re!resentations of the organisation and Jogos, -uality of surroundings, uniforms. tories and myths. tories about founders, heroes and unusual deeds. Can be used to su!!ort the desired values and culture ystems and structures. Heflect the im!act of the underlying culture. Customer or !roduction focused, fle%ible or rigidE
Calues and beliefs. Dee!ly embedded and taken for granted. Es!oused values may differ from values actually held by organisational members C,2',3#-%'3-'#67 :&' $hat is the current cultureE Is it aligned to the strategyE "re all elements of the culture su!!ortive of each otherE $hat needs to be changed to increase fitE 8rganisations usually consist of several cultures Cultures based on function or !rofession Cultures based on location ub5cultures in workgrou!s, teams, sections and !roduct lines
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8rganisations should have a!!ro!riate cultures in each unit, and coordinate these cultures. Culture is not static, the stronger the culture, the more resistant to change. Established culture is self5reinforcing) Jeaders chosen election, induction and training !rocesses
4rocedures and systems Communications of senior leaders Culture does change over time in res!onse to its environment. "n individual.s values are sha!ed by# family, cultural background, and !ersonal e%!erience. Conflicts between individual and organisational values will occur. Individual values and cultural backgrounds add greater diversity to the organisation. Cultural values vary from society to society. &igh5!erformance com!anies usually have a strong culture. trong cultures hel! strategy im!lementation +unless resistant to change,. trong cultures can restrict creativity and there is no one right culture. Culture, like strategy is usually emergent, and not always under control and effective strategy im!lementation re-uires an alignment between strategy and culture. STRATEGIC CHANGE The aim of im!lementation is to achieve the strategy. Is strategic change achieved through content +what to change,E 8r !rocess +how to change,E trategic change is about the way in which an organisation interacts with its environment. It.s about creating new and innovative ways of doing business. It involves changing an organisation.s systems in order to ada!t to e%ternal changes. 8rganisational systems may be divided into three !arts) structure, !rocesses and culture. trategic change is necessary to ensure a fit between its internal resources and ca!abilities and the re-uirements of a changing environment. &owever, organisations should not be seen as !assive, sim!ly res!onding to changes in its environment but should instead seek to actively influence its com!etitive environment. T0#3# -3# '03## ;#3%;#.'&4#% o5 .0-56# Hational change !ers!ective which is se-uential and !lanned search for o!timal solutions Jearning a!!roach to change which occurs through a series of small ste!s of e%!erimentation and action Cognitive a!!roach to change. " change in managerial and em!loyee cognition must occur before behaviour will change
05
The three !ers!ectives of change suggest -uite different a!!roaches to change. Each !ers!ective adds a useful dimension. "ll !ers!ectives should be included in the change !rocess. Therefore, it is im!ortant to be aware of both the content of change and the process of change. G#5#3-2 Mo1#2% o: C0-56# " change model should consider# &ow much change is needed &ow wides!read across the organisation $hat style of change !rocess Time and resources available Ho) M,.0 C0-56#8 The amount and ty!e of change re-uired comes from the ga! analysis !erformed during the analysis !hase. If the ga!s are large 1 '3-5%:o3+-'&o5-2 .0-56# will be re-uired and if the ga!s are small 1 &5.3#+#5'-2 .0-56# will be a!!ro!riate. B3#-1'0 o: C0-56# =&5#-',5&56. Minor changes that have no ma(or im!act I5.3#+#5'-2 -1?,%'+#5'. Minor change that im!acts across the whole organisation Mo1,2-3 '3-5%:o3+-'&o5. Ma(or change in a !art of the organisation Co3;o3-'# '3-5%:o3+-'&o5. Bew strategic orientation or realignment, new structure and/or significant change to the culture, workforce or skills mi% S'72# o: C0-56# Co22-$o3-'&4#. Helevant knowledge s!read through organisation and most a!!ro!riate in knowledge5based organisations Co5%,2'-'&4#. Management has a draft !lan but re-uires in!ut and different !ers!ectives. This hel!s to focus on areas of contention D&3#.'&4#* Most of the knowledge resides in the centre of the organisation. The !lan is develo!ed that is not o!en for discussion. This
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is a useful style where deliberate cultural change is re-uired. Co#3.&4#* "!!ro!riate when the organisation is in crisis. Its re-uires limited time and resources and assumes that behaviour will change C0-56# S'3-'#6&#%
So,3.#( H,$$-31 @2008A
T&+# -51 R#%o,3.#% A4-&2-$2# trategy im!lementation involves change which can be# incremental +evolutionary, or transformational +revolutionary, Changes may be# reactions to une%!ected conditions or !roactive results of good !lanning The diagram below shows the effect of time and resources on change style.
5:
T&+# -51 3#%o,3.#%
;o''i)#$ Typ$ 1 Typ$ + ;o''i)#$ ;o''i)#$ Typ$ + Typ$ 1 M.y )$;o''i)#$ I!7$.'i)#$ %i77ic*#t Typ$ Typ$ 4 ;o''i)#$ ;o''i)#$ Typ$ -Plenty time# Typ$ 4Plenty time# resources resources ;o''i)#$ N$c$''.ry
Little time# resources Little time# resources
Co##.)or.ti,$< co!'*#t.ti,$
Dir$cti,$< co$rci,$
Fi!$=t*!i!g< i!cr$&$!t.# .%>*'t&$!t

So,3.#( H,$$-31 @2008A
Mo%*#.r< corpor.t$ tr.!'7or&.tio!
Change !rocess should match !ro!osed changes. The choice of !rocess is limited by ability of managers to use the a!!ro!riate style. Many im!lementation !lans use a directive/coercive style and managers usually use the same style for every situation when modular transformations are occurring. Jack of time is often used as an e%cuse for !oor !lanning and e%ecution. Incremental change !rocess Incremental change re-uires small movements from the current set of o!erational !ractices. Transformational change re-uires ma(or changes in those !ractices, often scra!!ing !ractices altogether. 4eriodically organisations can get out of alignment with their environment. Misalignment can be due to# trategic drift
" change in the :rules of the game.
5+
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If incremental changes resulting from good strategic analysis of !rocesses were done well, there would be little or no need for transformational change. Transformational change often triggered by a crisis in the organisation. uch a crisis can arise from# "n event in the e%ternal environment Change in internal management "n internally created :crisis. to shake u! organisation U5:3##/#B C0-56#B .o5%o2&1-'# @unfree0e/change/refree0e theory of change, The crisis triggers the unfree0ing of the established mindset, routines and systems. Changes are im!lemented The new !osition is reinforced by new ca!abilities, systems, culture and structures U5:3##/# Crisis triggers shift out of established mindset @reaks down routines and systems C0-56# Changes to the content of the organisation are enacted May often be short term, organisational survival may be !aramount Change !rocesses vary organisation and conte%t Co5%o2&1-'&o5 Beed for consolidation with new systems, culture and structures Bew ideas institutionalised and individual actions de!ending on
$ithout the rigidity im!lied by :free0ing. 8rganisation is not moving from " to @, but from " to @ on the way to CQ K. U5:3##/#BC0-56#BCo5%o2&1-'#
51
Information Old frame of reference Structures Systems $alues People People

R#-%o5% :o3 =-&2,3# "llowing too much com!lacency 'ailing to create a sufficiently !owerful guiding coalition Underestimating the !ower of vision 'ailing to communicate the vision sufficiently 4ermitting obstacles to block the vision 'ailing to create short5term wins Declaring victory too soon Beglecting to anchor changes firmly in the cor!orate culture 8ver time, organisations can be involved in both incremental and transformational change !rocesses. Incremental changes may need to be augmented with a transformational change !eriodically. uccessful negotiation of the transformational change may lead back into !eriods of incremental change as e-uilibrium is restored R#%&%'-5.# 'o C0-56# Many !eo!le do not like change because of the following reasons# Jack of understanding/uncertainty !ro!osed change elf5interest/loss of !ower/loss of face about
%e& frame's( of reference
Different !erce!tions/frames of reference Change means e%tra work The im!ortance of work to individuals Change is a sur!rise
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Jack of trust in management O4#3.o+&56 R#%&%'-5.# 'or em!loyees to :think differently., em!loyees need# " !ur!ose to believe in ystems that reinforce the desired goals kills for the change
Consistent role models
A''$''&$!t
S#2: -%%#%%+#5' $hat factors need to be taken into account in develo!ing an effective strategic control systemE $hy would an organi0ation change more than (ust its organi0ational structure if it needs to co!e with com!le%ity/ $ithout a vision an organi0ation will fail. Discuss.
A''$''&$!t
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U!it 3
STRATEGIC E>ALUATION AND CONTROL I!tro%*ctio!
This unit introduces students to the conce!t of strategic evaluation visa vie o!erations control. It will focus on barriers in strategic evaluation and the role of organi0ational systems in strategic evaluation. 'inally the unit will look at the control !rocess and the techni-ues of strategic evaluation and control. U!on com!letion of this unit you will be able to# To understand the conce!t of strategic evaluation and control. To distinguish strategic control from o!erational control O,'.o+#% To understand the barriers in strategic evaluation and control To understand the role of strategic evaluation and control. .
THE CONCE;T OF STRATEGIC EVALUATION AND CONTROL

trategic evaluation and control is related to that as!ect of strategic management through which an organisation ensures whether it is achieving its ob(ectives Contem!lated in the strategic action. If not, what corrective actions are re-uired for strategic effectivenessE ome scholars have defined strategic evaluation as follows# 2Evaluation of strategy is that !hase of the strategic management !rocess in which the to! managers determine whether their
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strategic choice as im!lemented is meeting the ob(ectives of the enter!rise. There are two as!ects in this !hase of strategic management# evaluation which em!hasi0es measurement of results of a strategic action "nd control which em!hasi0es on taking necessary actions in the light of ga! that e%ists between intended results and actual results in the strategic action. &owever, because of on5going nature of strategic evaluation and control !rocess both these are intertwined. In !ractice, the term control is used in a broad sense which includes evaluative as!ect too because unless the results of an action are known, control actions cannot be taken. S'3-'#6&. -51 O;#3-'&o5-2 Co5'3o2( A Co+;-3&%o5 trategic control is the !rocesses of taking into account the changing assum!tions both e%ternal and internal to the organisation on which a strategy is based, continually evaluating the strategy as it is being im!lemented and taking corrective actions to ad(ust strategy according to changing conditions or taking necessary actions to realign strategy im!lementation. 'or strategic evaluation and control following -uestions are relevant# "re the !remises made during the strategy formulation !rocess !roving to be correctE Is the strategy being im!lemented !ro!erlyE Is there any need for change in the strategyE If yes, what is the ty!e of change re-uired to ensure strategic effectivenessE 8!erational control focuses on the results of strategic action and is aimed at evaluating the !erformance of the organi0ation as a while, different @Us and other units. The relevant -uestions for o!erational control are# &ow is the organisation !erformingE "re the organisational resources being utili0ed !ro!erlyE $hat are the actions re-uired to ensure the !ro!er utili0ation of resources in order to meet organisational ob(ectivesE 8!erational control is used by almost every organisation in some form or the other. There are two ty!es of o!erational control ;o%'--.'&o5 -51 S'##3&56 to evaluate the outcome of a strategy. In ;o%'--.'&o5 control, which measures, results after an action is com!leted for e%am!le, measurement of organisational !erformance in terms of return on investment. S#.o51 &% '0# %'##3&56 .o5'3o2, which is designed to detect deviations from standards and to !ermit corrective actions before an o!eration is fully, com!leted, for e%am!le, -uality control. @oth these are used in the organisation tem different !ur!oses and at different levels. 'or e%am!le, !ost5action control is mostly used by the to! management so as to identify the total results of a strategy, while second ty!e of control is e%ercised by functional and tower level managers to affect !eriodic control so that the results are achieved. D&::#3#5.# $#')##5 S'3-'#6&. -51 O;#3-'&o5-2 Co5'3o2 trategic control and o!erational control both differ from each other in terms of their aim main concern focus time hori0on, and techni-ues used. Differences between the two are !resented below. T-$2#( D&::#3#5.# $#')##5 %'3-'#6&. -51 o;#3-'&o5-2 .o5'3o2
5/
A''3&$,'#% ;.@asic -uestion A. "im ?. Main Concern 6. 'ocus D. Time hori0on =. E%ercise of control M. Main techni-ues
S'3-'#6&. Co5'3o2 "re we moving in right directionE 4roactive, continuous -uestioning of the basic direction of strategy teering the future direction of the organi0ation E%ternal environment Jong Term E%clusively by to! management, may be through lower5level su!!ort Environmental scanning, information gathering, -uestioning and review
O;#3-'&o5-2 Co5'3o2 &ow are we !erformingE "llocation and use of resources 8rgani0ational resources "ction control Internal organi0ation hort Term Mainly by e%ecutive or middle management or the direction of to! management @udgets, schedules and M@8
B-33&#3% &5 S'3-'#6&. E4-2,-'&o5 -51 Co5'3o2 trategic evaluation and control being an a!!raisal !rocess for the organisation as a whole and !eo!le who are involved in strategic management !rocess either at the stage of strategy formulation or strategy im!lementation or both, is not free from certain barriers and !roblems. These barriers and !roblems center around two factors# motivational and o!erational. Jet us see what these !roblems are and how these !roblems may be overcome. Mo'&4-'&o5-2 P3o$2#+% The first !roblem in strategic evaluation is the motivation of managers +strategists, to valuate whether they have chosen correct strategy after its results are available. 8ften two !roblems are involved in motivation to evaluate the strategy# !sychological !roblem and lack of direct relationshi! between !erformance and rewards. P%7.0o2o6&.-2 B-33&#3%* Managers are seldom motivated to evaluate their strategies because of the !sychological barriers of acce!ting their mistakes. To! management formulates the strategy, which is very conscious about its sense of achievement. L-.9 o: D&3#.' R#2-'&o5%0&; $#')##5 P#3:o3+-5.# -51 R#)-31%* "nother !roblem in motivation to review strategy is. the lack of direct relationshi! between !erformance achievement and incentives. It is true that !erformance achievement itself is a source of motivation but this cannot always ha!!en. uch a situation hardly motivates the managers to review their strategy correctly. This ha!!ens more in the case of family5managed businesses where !rofessional managers are treated as outsiders and to! !ositions, !articularly at the board level, are reserved for insiders. O;#3-'&o5-2 P3o$2#+% Even if managers agree to evaluate the strategy, the !roblem of strategic evaluation is not over, though a beginning has been made. This is so because strategic evaluation is a
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nebulous !rocess) many factors are not as clear as the managers would like these to be. These factors are in the areas of determination of evaluative criteria, !erformance measurement, and taking suitable corrective actions. "ll these are involved in strategic evaluation and control. Ro2# o: S'3-'#6&. E4-2,-'&o5 -51 Co5'3o2 trategic evaluation and control, though very im!ortant !hase of strategic management, is often overlooked by strategists on the !remise that once they have formulated a strategy and im!lemented, their role in strategic management is over. They remain mired with daily control re!orts, which can be taken even at lower levels. This a!!roach may be all right when there is not high stake involved in a strategy but fatal when the stake is high. $ithout strategic evaluation and control, strategists have no means to measure whether the chosen strategy is working !ro!erly or not. $hen strategic evaluation and control is undertaken !ro!erly, it contributes in three s!ecific areas# Measurement of organisational !rogress, 'eedback for future actions, and Jinking !erformance and rewards. P-3'&.&;-5'% &5 S'3-'#6&. E4-2,-'&o5 -51 Co5'3o2 ince strategic evaluation and control is a !art of strategic management !rocess, all those !ersons who !artici!ate in strategy formulation and im!lementation should also !artici!ate in strategic evaluation e%ce!t those who act in advisory ca!acity @oard of directors, chief e%ecutive, other managers, cor!orate, !lanning staff, consultants !artici!ate in strategic management !rocess. 8ut of these cor!orate !lanning staff and consultants act either advisors or facilitators Thus, three grou!s of !ersonnel are actively involved in strategic evaluation and control though their areas of evaluation and control differ. In some cases, outside agencies like financial institutions or government, mostly to the case of !ublic sector enter!rises also !artici!ate in strategic evaluation and control either through their !artici!ation in board of directors or having !ower to interfere with management !ractices. &owever, the role of financial institutions in strategic evaluation and control is -uite limited e%cel through their nominee.s on board of directors. In the case of !ublic sector enter!rises, the role of government in strategic evaluation is !erform.3 through nomination of board members and through controlling ministries of !articular enter!rises. In some s!ecific situations, authorities may be constituted at above the board level to evaluate the !erformance of grou! com!anies. . Ro2# o: Bo-31 o: D&3#.'o3% @oard of directors of a com!any, being the trustee of shareholders. !ro!erty, is directly answerable to5them. Thus, board should be directly involved in strategic evaluation and control. &owever, since board does not !artici!ate in day5to5day management !rocess, it evaluates the !erformance of the com!any concerned after certain intervals in its meetings. Therefore, the role of board of directors is limited to evaluating and controlling those as!ects of the organisational functioning, which have long5term im!lications. Ro2# o: C0&#: Ex#.,'&4# The chief e%ecutive of an organisation is res!onsible for overall !erformance. Therefore, his role is -uite crucial in strategic evaluation and control. Though he is not involved in evaluation of routine !erformance, which is left to other managers, he focali0es his attention on critical variations between !lanned and actual. 9enerally, he a!!lies the !rinci!le of management by e%ce!tion, which is a system of identification and communication of that signal which is critical and needs the attention of a high5level manager. De!ending on the si0e of the organisation, the chief e%ecutive.s role varies in the conte%t of evaluation and control on day5 to5day basis. Ro2# o: O'0#3 M-5-6#3%
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@esides board of directors and chief e%ecutive, other managers are also involved in strategic evaluation and control. These are finance managers, @U managers, and middle5level managers. Their role in strategic evaluation and control is as follows# 'inance managers are !rimarily concerned with finding out deviations between !lanned and actual !erformance e%!ressed in monetary terms. These are done through financial analysis, budgeting, etc. @U managers are res!onsible for overall evaluation and control of their res!ective strategic business units. In fact, they are the chief e%ecutives of their own @Us e%ce!t that they re!ort to the chief e%ecutive of the organisation from whom they seek directions. Middle5level managers, mostly functional managers and subunit managers are res!onsible for evaluation and control of their res!ective functions and sub5units. These managers are more concerned with day5to5day o!erational control and !re!are re!orts to be used by higher5level managers. 'or e%am!leR a !roduction manager is more interested in controlling !roduction volume, !roduction cost, !roduct -uality, etc. Ro2# o: O36-5&/-'&o5-2 S7%'#+% &5 E4-2,-'&o5 trategic evaluation o!erates in the conte%t of various organisational systems. "n organisation develo!s various systems which hel! in integrating various !arts of the 5 organisation. The ma(or organisational systems are# information system, !lanning system, motivation system, a!!raisal system, and develo!ment system. "ll these systems !lay their role in strategic evaluation and control some of these systems are closely and directly related and some are indirectly related to evaluation and control. D#4#2o;+#5' S7%'#+ Develo!ment system is concerned with develo!ing !ersonnel to !erform better in their !resent !ositions and likely future !ositions that they are e%!ected to occu!y. Thus, develo!ment system aims at increasing organisational ca!ability through !eo!le to achieve better results. These results, then, become the basic for evaluation and control. S'-6#% o: Co5'3o2 De!ending on the stages at which control is e%ercised, it may be of three ty!es# =##1 =o3)-31 Co5'3o2 'eed forward control involves evolution of in!uts and taking corrective action before a !articular se-uence of o!eration com!leted. Thus, it attem!ts to remove the limitations of time lag in taking corrective action. 'eed forward control monitors in!uts into a !rocess determine whether the in!uts are as !lanned. If in!uts are not as !lanned corrective action is taken to ad(ust the in!uts according to the !lan so that the desired results are achieved within the !lanned in!uts. It is (ust like hunting a duck. " hunter will
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always aim ahead of a duck.s flight com!ensate for the time lag between a shot and a ho!ed for hit. To be effective, feed forward control should meet the following re-uirements# Thorough and careful analysis of the !lanning and control system must be made, and the more im!ortant in!ut variables identified. " model of the system should be develo!ed. The model should be reviewed regularly to see whether the in!ut variables identified and their relationshi! still re!resent realities. Data on in!ut variables must be regularly collected and !ut into the system. The variations of actual in!ut data from !lanned in!uts must be regularly assessed, and their im!act on e%!ected results is evaluated "ction must be taken to show !eo!le !roblems and the measure re-uired to solve them. Co5.,33#5' Co5'3o2 Concurrent control is e%ercised during the o!eration of a !rogram. It !rovides measures for taking corrective action or making ad(ustments while the !rogram is still in o!eration and before any ma damage is done. In the organisational conte%t, many control activities are based on this ty!e of control, for e%am!le, -uality control during the o!eration, or safety check in a factory, here, the focus is on the !rocess itself. Data !rovided by this control system is used to ad(ust the !rocess. Many strategic controls fall in this category. =##1$-.9 Co5'3o2 'eedback control is based on the measurement of the results of an action. @ased on this measurement, if any deviation is found between !erformance standards and actual !erformance, the corrective action is undertaken. The control aims at future action of the similar nature so that there is conformity between standards and actual. This is re-uired because, sometimes, feed forward or concurrent control is not !ossible to a!!ly, for e%am!le, many !ersonal characteristics of an individual which go into behavioral !rocesses are not measurable, and hence feed forward control is difficult to a!!ly. In the business organi0ations, to! management control is mostly based on feedback. To Intake feedback control effective, it is essential that corrective action is taken as soon5as !ossible.
Co5'3o2 P3o.#%% Control, !articularly, a !rocess consisting of four ma(or ste!s. In order to e%ercise control, managers have to take four ste!s outlined below#
2:
etting !erformance standards Measuring actual !erformance "naly0ing variance Taking corrective actions.
T#.05&K,#% :o3 %'3-'#6&. #4-2,-'&o5 -51 .o5'3o2 'inancial 4erformance Control 'inancial !erformance control, or sim!ly referred to as financial control, is relevant for those as!ects of business o!erations whose outcomes are e%!ressed in monetary terms. 'inancial control is e%ercised at o!erative level as well as at overall organisation level though techni-ues involved are different. 'inancial control techni-ues are grou!ed into three categories from strategic management !oint of view# ;. @udgetary control, A. 'inancial ratio analysis, and ?. Heturn on investment.
B,16#'-37 Co5'3o2 @udgetary control is derived from the conce!t and use of budgets. " budget is the financial e%!ression of various organisational o!erations and the way in which budgets are !re!ared as tools for !lanning. Thus, budgetary control is a system which uses budgets as a means for !lanning and controlling entire as!ects of organi0ational activities or !arts thereof. ome scholars have defined budgetary control as follows# 2@udgetary control is a !rocess of com!aring the actual results with the corres!onding budget data in order to a!!rove accom!lishments or to remedy differences by either ad(usting the budget estimates or correcting the cause of the difference.3 ome !eo!le treat budgetary control only as a techni-ue of cost control. &owever, the sco!e of budgetary control e%tends beyond cost control with the introduction of several ty!es of budgeting. =&5-5.&-2 R-'&o A5-27%&% 'inancial ratio analysis identifies the relationshi! between two financial variables in order to derive meaningful conclusion about their behaviour. Most of the scholars have defined financial ratio analysis as 2a !rocess of evaluating relationshi! between com!onent !arts of financial statements to obtain a better understanding of a firm.s !osition and !erformance. The ty!e of relationshi! to be investigated de!ends on the ob(ective and !ur!ose of evaluation. In the case of measurement of overall !erformance, generally, four grou!s of ratios are considered# li-uidity ratios, activity ratios, leverage ratios, and !rofitability ratios. " brief descri!tion of these ratios is !resented here. L&K,&1&'7 R-'&o% Ji-uidity ratios indicate the organi0ation.s ability to !ay its short term debts. These ratios are generally e%!ressed in two forms# current ratio and -uick ratio. Current ratio shows the relationshi! between current assets and current liabilities. This indicates the e%tent to which current assets are ade-uate to !ay current liabilities. Luick ratio indicates the relationshi! between li-uid assets +cash in hand and with bank and short5term debtors, and current liabilities. It hel!s in identifying the
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organi0ation.s ability to !ay its current liabilities without considering inventory in hand. A.'&4&'7 R-'&o% "ctivity ratios show how funds of the organisation are being used. These ratios are in the form of inventory turnover ratio, receivable turnover ratio, and assets turnover ratio. Inventory turnover ratio indicates the number of times inventory is re!laced during the year and shows how effectively inventory has been managed. Heceivable turnover ratio shows how !rom!tly the organisation is able to collect dues from its debtors. "ssets turnover ratio indicates how effectively assets have been used to generate sales. L#4#3-6# R-'&o% Jeverage ratios indicate the relative amount of funds in the business su!!lied by credits/financiers and shareholders/ owners. These ratios are in the form of debt5e-uity ratio, debt total ca!ital ratio, and interest coverage ratio. Debt5e-uity ratio indicates the !ro!ortion of debt in relation to e-uity and indicates the financial strength of the organi0ation. Debt5total ca!ital ratio shows the !ro!ortion of debt to total ca!ital em!loyed. This also indicates the financial strength. Interest coverage ratio shows the interest burden being borne by the organisation in relation to its !rofit. P3o:&'-$&2&'7 R-'&o% 4rofitability ratios show the ability of an organisation to earn !rofit in relation to its sales and/ or investment. 4rofitability ratios are e%!ressed in terms of !rofit margin as well as return on investment. 4rofit margin, net !rofit or gross !rofit, is e%!ressed in the form of relationshi! between !rofit and sales and indicates the degree of !rofitability of the business. Heturn on investment is measured by relating !rofit to investment. Heturn on investment is the most com!rehensive techni-ue for controlling overall !erformance. Therefore, somewhat more elaborate discussion is !resented. So.&-2 P#3:o3+-5.# Co5'3o2 ocial res!onsibility is a !art of overall business ob(ectives of an organisation. Most of the organi0ations set their social ob(ectives either e%!licitly or im!licitly de!ending on organisational !ractices. ocial !erformance control deals with assessing the e%tent to which an organisation is achieving its social ob(ectives. This re-uires defining the basis on which social !erformance should be evaluated and identifying the degree to which social !erformance is effective. Thus, social !erformance control involves two as!ects# "!!roaches for measuring social !erformance and
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ocial audit. "!!roaches for Measuring ocial 4erformance Measurement of social !erformance is -uite fluid because of its -ualitative nature. In order to overcome the !roblem of fluidity, a se!arate branch of accounting, known as social accounting, has been develo!ed. Hobert Elliot has defined social accounting as 2systematic assessment and re!orting on those !arts of a com!any.s activities that have a social im!act5 the im!act of cor!orate decisions on environmental !ollution, consum!tion of non5renewable resources, and ecological factors) the rights of individuals and grou!s) maintenance of !ublic services) health, safety, education and many other social concerns. So.&-2 A,1&' $hen an organisation undertakes social activities, it must also evaluate the e%tent to which these activities are !erformed effectively. ocial audit is !rimarily aimed to measure the effectiveness of these activities. cholars have defined social audit as follows# 2 ocial audit is a commitment to a systematic assessment of and re!orting on some meaningful, definable domain of the com!any.s activities that have social im!act.3
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I!tro%*ctio!
This unit will discuss globali0ation and its evidence and consider alternative views. It will also look at international strategy, the motives for international e%!ansion and how organi0ations
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can achieve com!etitive advantage in the global economy. 'inally the unit will evaluate the four different ty!es of international strategy that the organi0ation can !ursue and consider different entry mode strategies based u!on an organisation.s desire to control its overseas o!erations and its needs to manage risk. U!on com!letion of this unit you will be able to# ;a< ;9< O,'.o+#% ;c< ;d< Understand forces leading to internationalisation. "!!reciate different !ers!ectives on globalisation. E%!lain international strategic o!tions. Describe a framework for globalisation .
G2o$-2&%-'&o5
9lobalisation refers to the linkage between markets that e%ists across national borders. This im!lies that what ha!!ens in one country has an im!act on occurrences in other countries. "ccording to &enry +A77G,, the linkage may be economic, financial, and social5in effect anything that leads to increased interde!endence among nations. Lo.-2&%-'&o5 im!lies that national differences between countries are im!ortant and that organisations must take account of these differences in their !roduct offering, distribution and !roduct !romotion if they are to be successful. Jevitt +;<G?, cited in &enry +A77G, a !ro!onent of globalisation, argued that a ma(or driving force for convergence between nations is technology. It has created a world in which consumer.s world wide desire standardised !roducts. uccess in this globalised market !lace re-uires that organisations com!ete on !rice and -uality, offering the same !roducts sold at all times to international markets. &owever, Douglas and $ind +;<GM, argued that success re-uires standardised !roducts and global brands) organisations can make greater !rofits by ada!ting !roducts and marketing strategies to suit individual markets.
I5'#35-'&o5-2 %'3-'#67
There are two sets of factors that com!ile organisations to e%!and internationally O36-5&%-'&o5-2 =-.'o3% The role of the senior management team
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The !erce!tion of management team about the im!ortance of international activities will !lay a role in the decision of the organisation to internationalise. This may rise from saturation of the domestic market. E.g. Bokia from 'inland Beed to achieve the economies of scale due to large fived costs in a domestic industry. E.g. HID in !harmaceuticals. The e%tent to which managers !ossess knowledge and e%!erience of overseas markets. Jocation advantage5 the activities that an organisation.s value chain may different countries to take account of costs and other location advantages may !ossess. go to make u! be located in the differential that a country
=&3+-S;#.&:&. =-.'o3%* These include the si0e of the firm and the international a!!eal of the organisation.s !roducts. Jager firms will internationalise more than smaller ones but some firms maybe relatively small but the nature of the !roducts offering may have an international a!!eal such as software !roducts. E54&3o5+#5'-2 =-.'o3% Unsolicited !ro!osals. This !ro!osal may come about from an organisation being a!!roached by foreign government, distributors or customers. @andwagon effect. Hefers to organisations which follow com!etitors who have gone international. "ttractiveness of the host country. The market si0e of the country and favourable regime towards foreign direct investment will be alternative to internationalisation. G2o$-2&%-'&o5 =3-+#)o39 This framework shows that multinational com!anies can benefit from three different sources of com!etitive advantage when seeking to go global. There are three goals inherent to all multinationals The organisation must achieve efficiency in its current activities. It must manage the risk inherent in carrying out these activities
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It must develo! learning ca!abilities that allow it to innovate and ada!t to the future. "n organi0ation can build its com!etitive advantage through the following# E%!loiting the differences in in!ut and out!ut markets that e%ist in different countries Economies of scale in its different activities Take advantage of synergies or the economies of scale that derive from its diversity of activities. So,3.#% o: Co+;#'&'&4# -14-5'-6# S'3-'#6&. O$?#.'&4#% Achieving efficiency in current operations Managing Risk N-'&o5-2 D&::#3#5.# @enefiting from differences in factor like costs5wages and cost of ca!ital Managing different kinds of risks arising from market or !olicy induced changes in com!arative advantages of different countries Jearning from societal difference in organi0ational and managerial !rocesses and system S.-2# E.o5o+&#% E%!anding and e%!loiting !otential scale economies in each activity @alancing scale with strategic and o!erational fle%ibility S.o;# E.o5o+&#% haring of investments and costs across !roducts, markets and business 4ortfolio diversification of risk and creation of side5 bets
Innovation, learning and adaptation
@enefiting from e%!erience5cost reduction and innovation
hared learning across organi0ational com!onents in different !roducts markets or business
So,3.#( H#537 @2008A T7;#% I5'#35-'&o5-2 S'3-'#67 The issue of globali0ation and res!onsiveness to local needs highlights four basic strategies o!en to the organi0ation seeking to diversify its activities overseas as shown below.
2/
;r$''*r$ 7or Co't R$%*ctio!
High G#o).# Str.t$gy Tr.!'!.tio!.# Str.t$gy
E?port Str.t$gy Lo"
M*#ti=%o&$'tic Str.t$gy
Lo" High ;r$''*r$ 7or Loc.# R$'po!'i,$!$''

G2o$-2 S'3-'#67 The organi0ation seeks to !rovide standardi0ed !roducts for its international markets which are !roduced in a few centrali0ed locations. This allows the firm to achieve low cost through economies of scale and a co5ordinated strategy but at the e%!ense of being res!onsive to the needs of local market M,2'&5-'&o5-2 S'3-'#67 The organisation res!onds effectively to local market conditions and customers !references in different countries. The level of differentiation means it is unable to achieve greater through low costs. I5'#35-'&o5-2 S'3-'#67B Ex;o3' %'3-'#67 International strategy allows a !arent com!any to transfer its knowledge, ca!abilities to other countries and the devolution of some autonomy to overseas managers but less than we find in a multi5domestic strategy. T3-5%5-'&o5-2 S'3-'#67 eeks to achieve the efficiency and local res!onsiveness inherent in the !revious three strategies but also to leverage innovation and learning across countries. The idea is that resources and ca!abilities can be leveraged world wide. This re-uires different kind of com!arative structure which allows the organisation to manage these com!le% interactions.
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I+;2#+#5'&56 I5'#35-'&o5-2 S'3-'#67

There are three main concerns relating to im!lementing international strategy Choice of entry mode +Hules, culture and infrastructure, tructural issues +9overnance, communication, control, 4eo!le issues +Diversity and &HM, 'or the !ur!ose of this course or module we will focus on the choice of entry only. ENTRY MODE STRATEGIES There are different ty!es of strategies that organisations can use to enter international markets. $hen selecting an a!!ro!riate entry mode organisations need to answer two -uestions# $hat level of resource commitment are they !re!ared to makeE $hat level of control over their international o!eration do they re-uireE These -uestions are asked in order to try and address the !erceived international risk which consists of the three integrated !arts. 9eneral environment risks refer to uncertainties which affect all industries within a given country in a similar way such as !olitical risk. Industry risks refer to the im!act market uncertainties such as labour or material su!!ly. 'irm s!ecific risks include such things as uncertainties that arise as a result of em!loyee dis!utes. Entry mode strategies H&60 Wholly owned su9sidiary
@oint 3enture
Jevel of Investment and risk 1ranchising
Strategic #lliance
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.icensing
*7 orting Lo) "mount of ownershi! and control H&60
Ex;o3'&56 E%!orting is where organi0ations makes goods and services in the home country and sell them in other countries. This is done when an organi0ation wants to limit its resource commitments abroad until it gains more local knowledge and develo! ca!abilities. "dvantages It is attractive in as much as it !rovides an o!!ortunity for an organi0ation to ac-uire international e%!erience. Minimi0e risk commitment. e%!osure and resource
It allows organi0ation to gain economies of scale through increased sales. Disadvantages &igh cost of trans!ort Difficult to gauge agent.s ability and motivation Market knowledge may not be !assed on Jack of knowledge of local business community and culture L&.#5%&56 Jicensing is another way of entering overseas market without committing a lot of resources. The organi0ation grants the rights to use its !atent, trade mark or intellectual !ro!erty to a local com!any in return for a fee. "dvantages It re-uires little ca!ital
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8ffers relatively -uick access to overseas markets Disadvantages There may be -uality and/or delivery !roblems Marketing deficiencies 4ossible to lose control of technology
=3-5.0&%&56 This is a mode or form of licensing em!loyed by many international com!anies such as Mc Donald.s, 4i00a &ut, and ubway etc. The franchiser agrees to transfer a !ackage of !roducts, systems and services that it has develo!ed to a franchisee for a fee. The franchisee !rovides local market knowledge and entre!reneurshi!. "dvantage It involves local ownershi! and em!loyment for locals or !roviders. Disadvantage Luality of !roduct may not be consistent with brand.s home re!utation. Mo&5' >#5',3#% -51 %'3-'#6&. -22&-5.#% Foint ventures e%ist when two organi0ations form a se!arate inde!endent com!any in which they own shares e-ually. trategic alliances take !lace when two or more se!arate organi0ations share some of their resources and ca!abilities but sto! short of forming a se!arate organi0ation. "dvantages @oth work well when each !artner.s ob(ectives are clear and agreed. $hen working relationshi! is one based on trust. Disadvantages Managerial differences sharing !ower e%ist because of
Hisk or !otential for state interference.
+: :
"0o227 O)5#1 S,$%&1&-3&#% @=DIA $hen an organi0ation chooses to have local control over its o!erations abroad, it will choose a wholly owned subsidiary as its market entry mode. There are two ty!es of 'oreign Direct Investment +'DI,# 9reenfield site where the firm sets u! a new o!erations in a foreign country 'irm may ac-uire an e%isting organi0ation abroad The two involves commitment of resources and therefore the most risk. "dvantages 9enerates the greatest returns "ttracts su!!ort from the host country Disadvantages &igh ca!ital costs Jack of local knowledge etu! times may be e%cessive
A''$''&$!t
S#2: A%%#%%+#5' In seeking to go global what are the key factors that organi0ations need to considerE $hat im!act does an organi0ation.s administrative heritage have on its ability to com!ete within a changing global environmentE There is no such a thing as a global com!any. Discuss
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RE=ERENCES Fohnson. 9., chools. >, +A77G,, E%!loring Cor!orate trategy. Gth Edition. 4earson Education Jimited. United >ingdom. "nthony &enry, +A77G,, Understanding trategic Management. 8%ford University 4ress. Bew *ork. Montgomery Collis, +A77D,. Cor!orate trategy, " resource based a!!roach. And Edition. Mc9raw5&ill. Bew *ork.
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MODULE

[BCM 461-STRATEGIC MANAGEMENT]

[MLUNGUSHI UNIVERSITY] [SCHOOL OF BUSINESS]

[MULUNGUSHI UNIVERSITY] [SCHOOL OF BUSINESS]

[GREAT NORTH ROAD CAMPUS] [Box 8041 ] [!AB"E] "#$%&'#( )))*+,*-.*/+

A)o*t thi' &o%*#$

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G$tti!g .ro*!% thi' &o%*#$

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The diagram below shows the three ty!es or levels of strategy.

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3alues +oals &esources 8 Ca a9ilities Structure 8 2rocesses

+eneral *n6ironment Com etiti6e *n6ironment

' ortunities and Threats

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Source: Hubbard (2008)

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T0# 1&-63-+ $#2o) %0o)% '0# %,++-37 o: %.#5-3&o ;2-55&56 ;3o.#%%*

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B-36-&5&56 Po)#3 o: C,%'o+#3%

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Effectiveness of su!!liers. !roducts created high switching costs for buyers)

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Economies of scale u!erior technological skills

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com!etitive advantage by nurturing only a few core com!etencies.

THE RESOURCE BASED VIE6 OF STRATEGY

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So,3.#( H,$$-31 @2006A

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S'72#. &ow managers lead and motivate.

S0-3#1 4-2,#%* 8rganisational values which govern behaviour of its members.

=&6,3# 2*4 M.!&5%#7 DS :3-+#)o39

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So,3.#( H,$$-31 @2006A

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U!it STRATEGY FORMULATION I!tro%*ctio!

BUSINESS LEVEL STRATEGY

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=&6,3# E*1 I51,%'37 2&:# .7.2#

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COR;ORATE LEVEL STRATEGY

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