10.4 Problems with strategy & why strategies fail. Flashcards
What do strategies require the ability to do?
- Identify what really matters and ask the key questions
- Make judgements on the relative importance of issues and the priority that should be given different elements of a plan
- Persuade others that the plan is right and then to make it happen
What are the difficulties of strategic decision making?
- Risky and a high level of uncertainty
- The decision hasn’t been made before - no point of reference
- Unknown for a period of time whether the decision was correct
- Stress and complexity of the decision
- Have their own perspective - so flawed
- Influenced by background and experiences
- Bias in data interpretation
What does the decision making process include?
Setting objectives.
Gathering data.
Analysing data.
Implementing.
Reviewing.
Why do strategic decisions go wrong?
- Risky & a high level of uncertainty
- The decision hasn’t been made before - no point of reference
- Unknown for a period of time whether the decision was correct
- Stress and complexity of the decision
- Have their own perspective - so flawed
- Influenced by background and experiences
- Bias in data interpretation
What is a planned strategy?
The strategy the managers intend to implement.
What is an emergent strategy?
The strategy that actually develops over time.
What is strategic drift?
Occurs when the strategy of the business no longer matches with the environment in which it operates.
What can cause strategic drift?
- Failed to adapt to differing environmental conditions
- Strategy hasn’t changed fast enough to keep up with what’s happening outside of the business
- Failure to identify changes & react quickly enough!
- Managers may have denied a need for change &assumed the environment would change back to normal- putting the business in a worse position where change = necessary!
When does the divorce between ownership & control occur?
When the owners of a business do not control the day-to day decisions being made.
What is corporate governance?
Refers to the systems & processes that are in place to monitor & control how a business is run.
The system by which companies are directed & controlled. Its needed to due the divorce between ownership & control.
It is the board of directors of each company that is legally responsible for the governance of the company. The shareholders role in corporate governance is to appoint directors & to satisfy themselves that an appropriate governance structure is put in place.
What is the purpose of corporate governance?
What are the directors responsible for?
To facilitate effective, entrepreneurial & prudent management that can deliver the long term success of the company.
Directors- setting the companys objectives & aims.
Determining the strategy to achieve those aims & objectives.
Providing the leadership to put them into effect.
What are the merits of this approach towards strategic planning?
- It bases its plans on data- should avoid irrational & badly thought through decisions being made.
- Provides a strategy that sets out for managers what the business is doing & how to do it - this can unify & motivate employees & provide everyone with a sense of direction
What must be remembered when doing strategic planning?
- The environment can change so fast that strategic plans may need reviewing regularly & may need to change completely.
- Strategy evolves over time - the result of a series of decisions
- Level of detail in strategic plan may need to be considered - in an ever changing environment is there much point of too much anticipation - may be better to focus on direction and work out the details when needed.
What is contingency planning?
When a business plans for possible but unlikely events
- May be waste of resources as what is being planned for may never happen however if they do they will be able to react quickly.
- Hope is that a contingency plan is never needed!!
- Business can’t plan for everything so managers must decide what the key issues to focus on - this may be influenced by the likelihood of these events occurring.
Why does strategic drift occur?
Occurs where a business responds too slowly to changes in its external environment & results in the strategic plan no longer being appropriate.
What does corporate governance involve?
Accountability: To ensure management are accontable to the board of directors& in turn- board of directors are accountable to the shareholders.
Fairness: To protect sharehoders rights & ensure all are treated equitably and to provide redress for violations.
Transparency: To ensure all matters related to finance, performance, ownership & corporate governance are communicated both accurately & in a timely manner.
Responsibility: Ensuring organisations comply with relevant laws & regulations of a society.
What are the four different phases in stragetic drift?
Phase 1: Incremental change.
Phase 2: Strategic drift.
Phase 3: Flux
Phase 4: Transformational change or demise.
What happens in phase 1: Incremental change?
The organisation remains competitive due to incramental changes in strategy that are made in line with the external environment.
What happens in phase 2 of strategic drift- Strategic drift?
Strategic drift begins to appear as the incramental changes fail to keep up with a faster rate of change in the external environment.
What happens in stage 3- Flux of strategic drift?
- A state of flux in strategy now develops, where the management recognises the existence of drift due to poorer performance & tries to make strategic changes.
- However- there is no clear direction & disagreements can occur, leading to poorer performance and increased drift.
What happens in Phase 4 (transformational change or demise)?
This is the final phase where the organisation either fails completely or undertakes a transformational change to realign itself with the external environment.
What are the possible causes of strategic drift?
Businesses fails to adapt to a changing external environment.
Complacency has set in-built on previous success.
What worked before doesn’t work now.
Senior management denies there is a problem.
Technological environment: Changes so quickly that difficult to keep up with.
Lagged performance: First symptoms of the drift may not be immediatey apparent as financial results normally reported at end of period.
Culture: It may be rigid and attempts to change may be limited to what is familiar rather than a more radical plan which is needed!
Lack of monitoring: Organisation may have insufficient monitoring of strategy- missing changes in the environment that are happening & require a response in terms of strategy change.
What are the ways in which you may evaluate strategic performance?
- A review of the underlying factors in an organisation’s strategy.
- Comparing expected results with actual results.
- The analysis of any variances in performance.
- Identifying corrective actions to ensure performance confroms with the strategy.
How can strategic plans create value?
- Give purposeful direction to the organisation & outline measurable goals.
- Identify & help build a competitive advantage.
- Assist in making choices where resources are limited.
- Save time as clear priorities are set.
Within a contingency plan, what are the possible types of events it includes?
Natural disasters.
Loss of data.
Loss of key personnel.
Product issues.
What are the advantages of having a contingency plan?
If it is in place- it means there will be a quicker response to the situation, saving the business both time & money & providing customer reassurace- which could limit the damage in terms of lost customers.
What is the value of strategic planning?
Gives purposeful direction to the organisation & outlines measurable goals.
Identify & help build a competitive advantage.
Assist in making choices where resources are limited.
Saves time as clear priorities are set.
