Strategic Management

• The strategy process

• Analysing the organisational ecosystem
Strategy
Strategy is a pattern of activities that seeks to achieve the objectives of the
organisation and adapt its scope, resources and operations to
environmental changes in the long term.
The strategy process
Strategic planning
❖ Also known as 'long-term planning' or 'corporate planning'
❖ Characteristics of strategic planning:
• considers the longer term (think of a time-horizon of about five years or beyond)
• considers the whole organisation
• gives direction to the whole organisation, and integrates its activities
• considers all stakeholders
• looks at how to gain a sustainable competitive advantage
• relates the organisation, its resources and competences to its environment
The rational 'top down' approach to strategic planning
Johnson, Scholes and Whittington (JSW) model of
strategic planning *The strategic position, strategic choices and strategy
into action need to implemented at the same time.*

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 Strategic analysis
• External analysis to identify opportunities and threats
• Internal analysis to identify strengths and weaknesses
• Stakeholder analysis to identify key objectives and to assess power and interest of
different groups
• Gap analysis to identify the difference between desired and expected performance

Strategic choice
• Strategies are required to ‘close the gap’
• Competitive strategy – for each business unit
• Directions for growth – which markets/products should be invested in
• Whether expansion should be achieved by organic growth, acquisition or some
form of joint management

Strategic implementation
• Formulation of detailed plans and budgets
• Target setting for KPIs
• Monitoring and control
Emergent strategies
❖ Strategies are not always formally planned. In reality, strategies may evolve in
response to unexpected events that impact on the organisation. Mintzberg
referred to these as emergent strategies.
❖ Strategies evolve over time (emerge) rather than result from an in-depth
analysis of every aspect of the environment and an impartial evaluation of
every possible alternative.
❖ Emergent strategies do not arise out of conscious strategic planning, but result
from a number of ad hoc choices, perhaps made lower down the hierarchy. In
this view, the final objective of the strategy is unclear and elements still develop
as the strategy proceeds, continuously adapting to human needs – the
emergent strategy is evolving, incremental and continuous.
Incrementalism
❖ Initially developed by Lindblom, this approach suggests that strategy tends to
be a small-scale extension of past policy, rather than radical change.
❖ Does not believe in the rational model to decision-making as Lindblom
suggested that in the real world it was not used, citing the following reasons:
• Strategic Managers do not evaluate all the possible options open to them but
choose between relatively few alternatives.
• It does not normally involve an autonomous strategic planning team that impartially
shifts alternative options before choosing the best solution.
• Strategy-making tends to involve small-scale extensions of past policy –
'incrementals’ – rather than radical shifts following a comprehensive search.
Incrementalism (cont.)
❖ Advantages:
• often more acceptable to stakeholders as consultation, compromise and
accommodation are built into the process.
• less of a cultural shift for the organisation to adopt an incremental approach to
strategy as it will not be trying to implement major shifts in its activities.
❖ Disadvantages:
• no overall long-term plan – suffer strategic drift, unable to meet customers’ needs
• organisation fails to make necessary major changes
 *NO PLAN*
Freewheeling opportunism
❖ Suggests that organisations should avoid formal planning and instead simply
take advantage of opportunities as they arise.
❖ Main justification for this approach – formal planning takes too long and is too
constraining, especially for organisations in fast-changing industries.
❖ May suit managers who happen to dislike planning.
- More suitable for fast-changing Company.
The four approaches to strategy development can be viewed as a spectrum:
More formal planning approaches, such as the More informal approaches, such as freewheeling
rational model (and to a lesser degree the opportunism (and to a degree incrementalism)
emergent model) tend to suit organisations with tend to suit organisations with the following
these conditions: conditions:
• in relatively stable industries – sufficient time to • in a dynamic, fast-changing industry where
undertake detailed strategic analysis there is little time to undertake formal strategic
• have relatively inexperienced managers – formal analysis
planning approach helps them become familiar • have experienced, innovative managers who are
with the organisation as well as provide a series able to quickly identify and react to changes in
of guidelines they can follow to help them the organisation and its environment
develop a strategy • do not need to raise significant external finance
(external investors typically prefer a formal
planning approach)

Note: incrementalism is unlikely to be suitable for

new organisations as they have no past strategies
upon which they can base their future policy.
The 3Es
❖ Public sector organisations and charities often have difficulty in using traditional
private-sector-based approaches to strategic planning.
• They don’t make a profit by which their success or failure can be measured.
❖ One way to address this problem is to use the ‘3Es approach’.

✓ Economy — Getting the right inputs at the

lowest cost (or getting a good deal).
✓ Efficiency — Getting the most from the
inputs (or getting a lot for the efforts).
✓ Effectiveness — Getting the expected results
from the outputs (or doing the right things).
Analysing the organisational ecosystem
The organisational ecosystem
❖ The design and deployment of an organisation’s business
model takes place within an ecosystem. Organisations evolve
within and adapt to this ecosystem which comprises markets
and society.
❖ Markets bring together the organisation, its customers,
suppliers, partners and competitors. It is characterised by
exchange, competition and often profit. The different types of
market are the markets for goods, services, capital and labour.
❖ Society regulates the conduct, activities and operations of
organisations through laws, customs, moral norms and social
action. It comprises government (at all levels), regulators, local
communities and civil society entities and can transcend
national boundaries Importantly in a digital world, it is both
global and local. And society provides the wider social
infrastructure that enables business activities to take place. In
that way, it both enables and constrains the activities of
organisations.
❖ Markets and society interact with each other to produce
outcomes for the organisation. Technology impacts both of
them. The impact of technology on society is shown in new
ways of interacting (e.g. social media), new experiences and
new expectations. Technology affects the productivity and
efficiency of organisations. It is often a source of their
competitive advantage and in the last 20 years has been the
single most important source of competitive disruption.
❖ The interaction within and between markets and society
creates risk and opportunity for organisations. Both must be
understood and managed in the context of the business model
for the organisation to create and deliver value over the long © 2017 AICPA
term.
Stakeholder analysis
❖ key part of formulating an organisation's strategy
❖ A stakeholder is a group or individual, who has an interest in what the organisation does, or an
expectation of the organisation. It is important that an organisation understands the needs of
the different stakeholders.
❖ An important part of the strategic manager's job is to understand the contribution that
relationships with stakeholders can make to the well-being of the organisation. Assessing the
expectations of stakeholders enables an organisation to gauge whether its objectives will
provide the means of satisfying the demands of the various stakeholders.
Classification of stakeholders
❖ Stakeholders can be broadly categorised into three groups:
• internal, e.g., employees;
• connected, e.g., shareholders;
• external, e.g.,government.
Internal stakeholders
❖ Internal stakeholders are intimately connected to the organisation, and their
objectives are likely to have a strong influence on how it is run.
Connected
stakeholders
Outside of the organization, but have contract
(connected) with the organization.
❖ Connected stakeholders can be
viewed as having a contractual
relationship with the organisation.
❖ The objective of satisfying
shareholders is taken as the prime
objective which the management
of the organisation will need to
fulfil, however, customer and
financiers objectives must be met
if the company is to succeed.
External
stakeholders
❖ External stakeholders include the
government, local authority etc.
This group will have quite diverse
objectives and have varying
ability to ensure that the
organisation meets their
objectives.
 Stakeholder conflicts
❖ The needs / expectations of the different
stakeholders may conflict.
❖ One problem with analysing
stakeholders is that they tend to belong
to more than one group and will change
their groupings depending on the issue
in hand. E.g., marketing and production
departments could be united against
dropping a certain product but be in
opposition regarding plans to buy a new
product for the range.

Cyert and March suggest 4 ways to resolve conflicting stakeholder objectives.

• Satisficing involves negotiations between key stakeholders to arrive at an acceptable compromise.
• Sequential attention is when management focus on stakeholder needs in turn. For example, staff
may receive a pay rise with the clear implication that it will not be their ‘turn’ again for a few years
and so they should not expect any further increases.
• Side payments are where a stakeholder’s primary objectives cannot be met so they are
compensated in some other way. E.g., a local community may object to a new factory being built
on a site that will cause pollution, noise and extra traffic. The firm concerned may continue to
build the factory but try to appease the community by also building local sports facilities.
• Exercise of power is when a deadlock is resolved by a senior figure forcing through a decision
simply based on the power they possess.
Mendelow's matrix
❖ Stakeholder mapping can help deal
with stakeholders' conflicting
demands. It identifies stakeholder
expectations and power and helps in
establishing political priorities. The
process involves making decisions on
the following two issues.
• How interested the stakeholder is to
The following strategies might be applicable to each quadrant:
impress their expectations on the Box A - Minimum effort
organisation's choice of strategies, i.e. Their lack of interest and power makes them open to influence. They are more likely
how likely is the stakeholder to than others to accept what they are told and follow instructions.
exercise power? Box B - Keep informed
These stakeholders are interested in the strategy but lack the power to do anything.
• To what extent the stakeholder has
Management needs to convince opponents to the strategy that the plans are justified;
power to impose its wants? otherwise they will try to gain power by joining with parties in boxes C and D.
Box C - Keep satisfied
❖ The purpose is to assess:
The key here is to keep these stakeholders satisfied to avoid them gaining interest and
• whether stakeholder resistance is moving to box D. This could involve reassuring them of the outcomes of the strategy
likely to inhibit the success of the well in advance.
strategy Box D - Key players / participation
These stakeholders are the major drivers of change and could stop management plans
• what policies may ease the if not satisfied. Management, therefore, needs to communicate plans to them and
acceptance of the strategy then discuss implementation issues.
Key strategic models
❖ SWOT analysis

❖ External environmental analysis

• PEST/PESTEL analysis
• Porter's five forces model
• Porter's diamond model

❖ Internal analysis
• Porter's value chain
• Critical success factors and core competencies
• Product lifecycle analysis
• The Ms model
SWOT Analysis
❖ Strengths and weaknesses relate
to resources and capabilities:
what is the organisation good at?
What is it poor at? Where are
resources in short supply? Where
are resources excellent?
❖ Opportunities and strengths
relate to external factors: what
will the effect on the
organisation be of economic
changes? Can the organisation
make use of new technologies?
Are new entrants likely to enter
the market place? Can a
powerful customer dictate
terms?
PEST/PESTEL analysis
Porter's five forces model
❖ Porter identified five forces that,
collectively, determine the profit
potential in an industry:
• competitive rivalry
• threat of new entrants
• threat from substitutes
• power of customers
• power of suppliers
Porter's diamond model
❖ The determinants of national competitive
advantage.
• Why does a nation become the home base
for successful international competitors in
an industry?
• Why are firms based in a particular nation
able to create and sustain competitive
advantage against the world's best
competitors in a particular field?
• Why is one country often the home of so
many of an industry's world leaders?
❖ Porter suggested four main factors which
determine national competitive advantage
and expressed them in the form of a
diamond.
Porter's value chain
❖ Porter developed the value chain to help identify which activities within the firm were
contributing to a competitive advantage and which were not.
❖ The approach involves breaking down the firm into five 'primary' and four 'support' activities,
and then looking at each to see if they give a cost advantage or quality advantage.
Critical success factors and core competencies
❖ When considering strengths and weaknesses it is important to match these to
the critical success factors (CSFs) in the industry.
• Are our strengths the same as the ones necessary for success?
• In particular, if a business can obtain unique resources and core competencies that
meet the CSFs in a market, then this should lead to its success.
Product lifecycle analysis
❖ Managers need to consider the
whole product portfolio. For
example, if all products are in the
decline phase then the company
may not have much of a future
unless it develops new products
quickly.
The Ms model
❖ As a memory jogger, managers could assess strengths and weaknesses under
the following headings:
• Money – e.g., Cash flow
• Management – e.g., Does the board of a small family company have the necessary
skills?
• Manpower – e.g., Is there a problem retaining good staff?
• Manufacturing – e.g., How does our quality compare to rivals?
• Markets – e.g., Do we have new product development in key markets?
• Materials – e.g., Are we sourcing quality components at a competitive price?
• Make-up – e.g., Do we have excessive costs due to bureaucracy?