10.4 Problems with strategy and why it fails Flashcards
Types of strategy implementation
- Planned strategy
- Emergent strategy
What are planned strategies
- Planned by managers and leaders
- Purposefully implemented
What are emergent strategies
- Develop overtime
- Not planned or implemented purposefully
When does strategic drift occur
When a business fails to respond to changes in the external environment (customer demands), no longer offers the products and services demanded by customers
How to overcome strategic drift
- Businesses will need to make a transformational change or their failure to respond to market changes may become fatal
Stages leading up to and after strategic drift
- Incremental change
- Strategic drift
- Flux
- Transformational change or death
Phase 1 of strategic drift
Incremental changes:
- part of planned strategy to change in line with the external or competitive environmental changes
- aim is to remain ahead of the market and develop or retain a competitive advantage
Phase 2 of strategic drift
Strategic drift:
- Rate of change speeds up
- the firms approach to incremental changes means that the strategic drift begins and the firm start to get left behind
Phase 3 of strategic drift
Flux:
- leaders recognise the decline in their performance and the gap between the market expects and what they provide
- try to extend the market by repeating what it already does and has always done
- strategic change has no clear direction
- disagreement about what the right strategies are and when performance deteriorates - the strategic drift widens
Phase 4 of strategic drift
Transformational change or death:
- the business either fails completely and the firm closes or, if it survives, this is because it undergoes transformational change to align its strategies with the market
= begins to operate successfully again
Why does strategic drift happen
- business fails to adapt to a changing external environment
- what worked before doesn’t work now
- complacency has set in - often built on previous success
- senior management deny there is a problem
- organisational culture restricts the business
- an organisation simply reacts to change rather than being proactive and innovating
- organisations are not keeping up with or adapting quickly to change
Effect on strategy of the divorce between ownership and control (shareholders are different from the managers)
- investment
- hand over day-to-day running of the business
- managers not involved in detailed decision making
- rely on senior managers about options and communication about issues (divorce between ownership and control - managers pursue own interests at the expense of the owners = common to make shares part of managers’ reward to pursue the interests of the owners)
What is Corporate Governance
The systems and processes that are in place to monitor and control how a business is run:
- much greater concern over how businesses are regulated and how their owners know what is happening within them
- people who are supposed to be protecting the shareholders interests may also be trying to protect their own jobs as managers
- companies advised to have non-executive directors so that they have some ‘outside eyes’ on what they are doing to ensure that managers acting in the best interest of the owners
What is the purpose of Corporate Governance
Facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company
Evaluating strategic performance
- Assessing if the strategy worked -
- clear what it was trying to achieve, the resources it had and the conditions it was operating under
- understand objectives, how managers expect to be measured and how they are expected to behave
-“success” means different things in different businesses - time frame : businesses might not be profitable in the short term e.g building reputation and reputation for longer term growth