11 - Strategy development Flashcards
3 core strategic pathways
Organic growth
Acquisition
Strategic alliance
Organic growth as strategic pathway - 5- advantages
- Lower risk
- Allows for ongoing learning
- More control over strategy, culture
- Minimises disruption (smoother)
- Leads to self-reliance
Organic growth as strategic pathway - 3 disadvantages
- Slow
- Lack of early knowledge
- Misreading of markets
Acquisition as strategic pathway - 4 advantages
- Rapid access to resources
- Rapid access to greater marketplace
- Buys presence, market share, expertise
- Opportunity for restructuring
Acquisition as strategic pathway - 5 disadvantages
- High cost
- High risk
- Cultural mismatch across business
- Managerial mismatch (in ambition and salary)
- Potential for forced disposal of assets if monopolistic
Strategic alliance as strategic pathway - 5 advantages
- Cheaper than acquisition
- Access to market knowledge and complementary resources
- Risk is spread
- Increased speed of access to market
- Reduced political and legal complications as no external approval required
Strategic alliance as strategic pathway - 3 disadvantages
- Risk of reputational damage caused by partner in alliance
- Differences in ideas on strategy, direction between partners in alliance
- Confusion as to who people work for and report to
When would a company not pursue either organic development, strategic alliance or acquisition for growth?
If they are comfortable with current business parameters and restrictions and do not want to grow the business at all
What is absolutely vital prior to proceeding with an acquisition?
Due diligence process
7 generic considerations as part of due diligence process for target
- Why the entity is for sale
- Target’s current strategic position
- Target’s market standing and reputation
- Understanding of target’s current and previous business plan
- Soundness and integrity of target’s financial results
- Culture and ethos of target
- Any issues facing the target, such as regulatory, litigation, etc.
3 broad areas of motivation for acquisition
Strategic
Financial
Managerial
3 strategic motives for acquisition
- Extension of customer potential (geog, products, markets)
- Reduction of competitors (through consolidation) can allow raising prices
- Increasing efficiency through sharing of resources
What is meant by strategic alliance?
2 or more orgs sharing resources in pursuit of common strategy
3 main motives behind strategic alliance as preferred strategic pathway
- Rapid achievement of critical-mass scale
- Complementarity of differing capabilities ensuring more holistic business
- Learning potential from working closely with partners within alliance
4 types of strategic alliance
- Customer-end network
- Supplier-end network
- Formal partnership
- Joint-venture
What is a ‘customer-end network’? - form of strategic alliance
Alliance focussed on increasing potential offering to existing customers of individual partners of alliance
What is a ‘supplier-end network’? - form of strategic alliance
Alliance seeking to gain competitive edge by creating critical mass requirement from common supply base
Define formal partnership
Individual organisations agree to work together within a partnership structure for a specific range of activities
What is a potential challenge when forming a partnership?
Deciding who owns the capability that the partnership develops. Agreement will have to be made beforehand on how resources are provided and revenue divided.
What is a joint venture
Legally recognised structure where independent orgs establish a newly created org that is jointly owned by the individual orgs, enabling development of specific range of activities
3 key underlying criteria for evaluation/assessment of strategic options
Suitability (does it address the strategic objectives?)
Acceptability (will it satisfy the stakeholder objectives?)
Feasibility (will it actually work?)
What is SAFe framework?
Evaluation of strategic options based on suitability, accessibility, feasibility
What does assessment of the suitability of a strategic option require (3)
- understanding of mission and objectives of strategy
- use of a SWOT analysis
- understanding of the culture of the organisation
What does assessment of the acceptability of a strategic option require (3)
- levels of expected returns of different stakeholder groups
- risk appetite and tolerance of org and its stakeholders
- perceived synergy that will be driven by achievement of strategic objectives
What does assessment of the feasibility of a strategic option require (3)
- ability to drive sustainable change from both a process and people perspective
- availability of finance and other resources
- likelihood of gaining sustainable advantage
Johnson - 3 areas of caution in the process of strategic evaluation
- need to avoid conflict between people
- need to ensure consistency between different elements of strategy
- need to ensure strategic options can be implemented in reality
