10.4b Why Strategies Fail

Question 1

Reasons why divorce of control can lead to strategic failure:

Answer 1

• 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

Question 2

Why would giving directors freedom not be suitable for a planned strategy?

Answer 2

The directors may deviate away from objectives and plans in order to follow their own path

Question 3

What does a corporate governance system seek to do?

Answer 3

Protect the interest of the shareholders of the business

Question 4

When can a business suffer from a strategic drift?

Answer 4

When the business does not respond to the environment around it

Question 5

Examples of businesses that have suffered from strategic drift:

Answer 5

• HMV
• Blockbuster
• Nokia

Question 6

Why does strategic drift occur?

Answer 6

• 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

Question 7

What is the top line in the strategic drift diagram?

Answer 7

The level of change in the market the business operates in

Question 8

What does the bottom line represent in the strategic drift diagram?

Answer 8

The change conducted by the business in response to the external environment

Question 9

What does the gap between the two lines in the strategic drift diagram represent?

Answer 9

The strategic drift

Question 10

What are the phases of the strategic drift diagram?

Answer 10

1. Incremental change
2. Strategic drift
3. Flux
4. Transformational change or demise

Question 11

What happens in incremental change stage?

Answer 11

Business conducts incremental change to at least keep up with the external environmental change

Question 12

What happens in strategic drift stage?

Answer 12

External environmental change speeds up but firms change is kept at same pace

Question 13

What happens in flux stage?

Answer 13

• 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

Question 14

What happens in transformational change or demise stage?

Answer 14

Business is left with a choice:

• Undergo transformational change to make strategy close to market it is in
• Fail completely and close down

Question 15

How a business knows if a strategy is or is not working:

Answer 15

• Performance measurements against benchmarks
• Monitoring of internal and external issues
• Incremental corrections to ensure strategy is suitable for current market conditions

Question 16

Unexpected crises are dealt with through what?

Answer 16

Crisis management

Question 17

How are predictable crises dealt with?

Answer 17

Contingency plans

Question 18

Stages of contingency planning:

Answer 18

1. Decide what could go wrong
2. Distinguish which problems are critical and which are manageable
3. Using ‘what if’ questions to work out what could occur
4. Finding ways to prevent each crisis
5. Formulate a business-continuity plan to deal with each crisis looking at the availability of resources and creation of a contingency fund
6. Computer simulate or role-play each crisis and response to check effectiveness

Question 19

Costs of contingency planning:

Answer 19

Time of staff and money is needed to:

• Complete assessment and formulate plan
• Run through test scenarios

Question 20

What does crisis management involve?

Answer 20

Responding to a sudden event that means that business cannot operate as usual

Question 21

Effects on a business of crisis management:

Answer 21

• 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

Question 22

What is divorce of ownership and control?

Answer 22

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

Question 23

What is corporate governance?

Answer 23

The power structure of a business - how decisions should be made and influence that stakeholders have

Question 24

What is strategic drift?

Answer 24

What happens when a strategy becomes less suited to the environment