10.4b Why Strategies Fail Flashcards
Reasons why divorce of control can lead to strategic failure:
- Pressure from shareholders for profit
- Shareholders are in it for short-term
- Directors/managers may be focused on furthering own careers rather than success of business
Why would giving directors freedom not be suitable for a planned strategy?
The directors may deviate away from objectives and plans in order to follow their own path
What does a corporate governance system seek to do?
Protect the interest of the shareholders of the business
When can a business suffer from a strategic drift?
When the business does not respond to the environment around it
Examples of businesses that have suffered from strategic drift:
- HMV
- Blockbuster
- Nokia
Why does strategic drift occur?
- Business is reactive rather than proactive and is too late to respond to change
- Culture of business does not permit change to occur
- Leaders do not see need to change - strategic plan is too structured
What is the top line in the strategic drift diagram?
The level of change in the market the business operates in
What does the bottom line represent in the strategic drift diagram?
The change conducted by the business in response to the external environment
What does the gap between the two lines in the strategic drift diagram represent?
The strategic drift
What are the phases of the strategic drift diagram?
- Incremental change
- Strategic drift
- Flux
- Transformational change or demise
What happens in incremental change stage?
Business conducts incremental change to at least keep up with the external environmental change
What happens in strategic drift stage?
External environmental change speeds up but firms change is kept at same pace
What happens in flux stage?
- The environment continues to change and the drift is recognised by the business
- Strategies are developed but without any clear direction as there are disagreements on the best way to proceed
What happens in transformational change or demise stage?
Business is left with a choice:
- Undergo transformational change to make strategy close to market it is in
- Fail completely and close down
How a business knows if a strategy is or is not working:
- Performance measurements against benchmarks
- Monitoring of internal and external issues
- Incremental corrections to ensure strategy is suitable for current market conditions
Unexpected crises are dealt with through what?
Crisis management
How are predictable crises dealt with?
Contingency plans
Stages of contingency planning:
- Decide what could go wrong
- Distinguish which problems are critical and which are manageable
- Using ‘what if’ questions to work out what could occur
- Finding ways to prevent each crisis
- Formulate a business-continuity plan to deal with each crisis looking at the availability of resources and creation of a contingency fund
- Computer simulate or role-play each crisis and response to check effectiveness
Costs of contingency planning:
Time of staff and money is needed to:
- Complete assessment and formulate plan
- Run through test scenarios
What does crisis management involve?
Responding to a sudden event that means that business cannot operate as usual
Effects on a business of crisis management:
- Marketing - may need to improve PR to redeem public image
- Finance - clean-up expenditure
- HRM - strong leadership and quick decision-making needed
- Operations - ensure customer needs are met
What is divorce of ownership and control?
When the owner of the firm are no longer in day-to-day control and a lot of the control is passed down to managers
What is corporate governance?
The power structure of a business - how decisions should be made and influence that stakeholders have
What is strategic drift?
What happens when a strategy becomes less suited to the environment
