10.4 Problems with strategy and why it fails

Question 1

Types of strategy implementation

Answer 1

• Planned strategy
• Emergent strategy

Question 2

What are planned strategies

Answer 2

• Planned by managers and leaders
• Purposefully implemented

Question 3

What are emergent strategies

Answer 3

• Develop overtime
• Not planned or implemented purposefully

Question 4

When does strategic drift occur

Answer 4

When a business fails to respond to changes in the external environment (customer demands), no longer offers the products and services demanded by customers

Question 5

How to overcome strategic drift

Answer 5

• Businesses will need to make a transformational change or their failure to respond to market changes may become fatal

Question 6

Stages leading up to and after strategic drift

Answer 6

• Incremental change
• Strategic drift
• Flux
• Transformational change or death

Question 7

Phase 1 of strategic drift

Answer 7

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

Question 8

Phase 2 of strategic drift

Answer 8

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

Question 9

Phase 3 of strategic drift

Answer 9

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

Question 10

Phase 4 of strategic drift

Answer 10

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

Question 11

Why does strategic drift happen

Answer 11

• 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

Question 12

Effect on strategy of the divorce between ownership and control (shareholders are different from the managers)

Answer 12

• 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)

Question 13

What is Corporate Governance

Answer 13

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

Question 14

What is the purpose of Corporate Governance

Answer 14

Facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company

Question 15

Evaluating strategic performance

Answer 15

• 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

Question 16

The benefits of strategic planning

Answer 16

• It bases plans on data: should avoid irrational and badly thought through decisions being made
• provides strategy that sets out for managers what the business is doing and how to do it ; can unify and motivate employees and provide a sense of direction

Question 17

The disadvantages of strategic planning

Answer 17

• environment changes so fast that strategic plans may new renewing regularly and ay need a complete overhaul
• strategy evolves over time and is the result of a series of decisions that gradually moved the business forward in a series of small steps
• level of detail needed : things change so fast there is little point trying to anticipate detail too far in advance : is is maybe better to focus on overall direction and work out the detail as it is needed

Question 18

What is contingency planning

Answer 18

Part of the way businesses manage risk - planning for unforeseen events
- Risk management
- Contingency planning
- Crisis management

Question 19

Risk management

Answer 19

identifying and dealing with the risks threatening a business

Question 20

Crisis management

Answer 20

Handling potentially dangerous events for a business

Question 21

What is risk in business

Answer 21

• the possibility of loss or business change
• a threat that may prevent or hinder the ability to achieve objectives
• the chance that a hoped-for outcome will not occur (e.g customers do not respond well to a product launch)

Question 22

Different ways businesses deal with risk

Answer 22

• ignore it (wait and see)
• reduce probability of risk
• share or deflect the risk (e.g insurance)
• make contingency plans - prepare for it
• treat risk as an opportunity (particularly if it also affects other competitors)

Question 23

Examples of the common approaches in marketing to day-to-day risk management

Answer 23

• avoid over-reliance on customers or products
• develop multiple distribution channels
• test marketing for new products

Question 24

Examples of the common approaches in operations to day-to-day risk management

Answer 24

• hold spare capacity
• quality assurance & control

Question 25

Examples of the common approaches in finance to day-to-day risk management

Answer 25

• insurance against bad debts
• investment appraisal techniques

Question 26

Examples of the common approaches in the HR to day-to-day risk management

Answer 26

• key man insurance : protect against loss of key staff
• rigorous recruitment & selection procedures

Question 27

How is contingency planning part of risk management

Answer 27

• identifying what and how things can and might go wrong
• understanding the potential effects if things go wrong
• devising plans to cope with the threats
• putting in place strategies to deal with the risks before they happen

Question 28

What is involved in contingency planning

Answer 28

• preparing for predictable and quanitfiable problems
• preparing for unexpected and unwelcome events

Question 29

Example of when contingency planning was essential

Answer 29

Thomas Cook - resilient in face of terrorist attacks

Question 30

Evaluating the need for contingency planning

Answer 30

• Risks vary in terms of their significance to the business and likelihood
• not required for every eventuality
• cannot be ignored