3.10.4 Problems with strategy and why strategies fail

Question 1

Explain how most strategies will have an element of risk involved

Answer 1

when you’re trying to plan for the future there will always be unknowns that you can’t account for. When managers are making decisions on strategy, they will need to consider how much risk is involved.
However, it can be difficult to figure out exactly which parts of a strategy are risky.

Question 2

How is it difficult to judge the feasibility of a strategy?

Answer 2

Managers need to have information about the resources, skills and time available. But even with this information, it can still be hard to choose between strategies.

Question 3

How can the external environment affect strategic decision making?

Answer 3

The external environment is continually changing, but strategic decisions can rely too much on the current environment. This can make implementing the strategy difficult if the business faces changes from external factors.

Question 4

How can the internal environment affect strategic decision making?

Answer 4

The internal environment also changes - e.g. a business’s resources might change unexpectedly, which can cause issues when trying to implement a strategy.
Contingency plans should be included in the strategic decision-making process.

Question 5

Explain the difficulties that a company needs to overcome to ensure the success of a strategy

Answer 5

Question 6

What is a planned strategy?

Answer 6

Strategy planned out before actions are taken to implement it.

Question 7

What is an emergent strategy?

Answer 7

Emergent strategy develops over time, as a business’s actions lead to patterns of behaviour. Emergent strategy can be adapted as the business learns what works currently.

Question 8

What are problems of planned strategies?

Answer 8

Question 9

What are problems with emergent strategies?

Answer 9

Question 10

What are the disadvantages of emergent strategies?

Answer 10

Question 11

What is strategic drift?

Answer 11

What happens when strategy becomes less and less suited to the business’s environment. This happens because a business strategy doesn’t adapt to keep up with changes in the environment.

Question 12

What are the factors that can cause strategic drift to happen?

Answer 12

Many different factors can cause strategic drift to happen. For example, new technology, changes in consumer tastes and expectations, and legal, political and economic factors.
A business should respond to these changes, especially if competitors are benefiting from them.

Question 13

How can managers react to poor results?

Answer 13

Managers might react to poor results simply by improving the way the strategy is being implemented.
If that doesn’t work, managers may make small alterations to strategy, sticking mainly to what the business knows and does already. They may think it’s too risky to introduce big changes, or there might be resistance to change, e.g. from employees, or managers worried about their own positions.

Question 14

When do small improvements to their strategy stop working?

Answer 14

Small changes might work in the short-term, but as external change increases, strategic drift will increase.
At this point, managers will be required to step out of their comfort zones to implement big strategic change - there will be lots of uncertainty as they try to decide what direction the business should go in.
This transformational change will be needed for the business to survive.

Question 15

Explain the concept of the divorce between ownership and control

Answer 15

1) In small firms, the owner often manages the firm on a day-to-day basis.
2) As a firm grows, the owner can raise finance by selling shares. The new shareholders become part owners, and the firm will be run by directors, who are appointed to control the business in the shareholders’ interests.
3) This is known as the divorce between ownership and control - the owners) of the firm are no longer in day-to-day control. In large firms, much of the control will pass down to managers.
4) So there will be different groups with ideas and influences - e.g. the original owners, new shareholders, directors and managers might all have different views on objectives and strategy

Question 16

What is corporate governance?

Answer 16

• Corporate governance describes the power structure of a business. It lays out how decisions should be made, the influence that different groups of stakeholders have on strategy, and the information that should be available to each group.
• When ownership and control are separate, a company could have internal and external stakeholders with many different interests competing for influence on strategy.
• For example, the board of directors might decide strategy, but shareholders appoint the board, so shareholders can also influence strategy by choosing board members who represent their own interests.

Question 17

How can external stakeholders influence internal stakeholders in order to influence strategy?

Answer 17

External stakeholders can influence strategy by influencing internal stakeholders.
For example, if a company has a lot of union members as employees, the union can call for strike action. Or if a bank funds a company, the bank can cut off funding and force the company to adopt a strategy that the bank prefers.
Different groups of stakeholders competing for their own interests to be represented in a strategy can make it difficult to make strategic decisions.

Question 18

Explain how and why strategies must be continually checked and reviewed.

Answer 18

A business must evaluate whether its strategy is working - and whether it’s on track to meet its overall objectives.

1) The managers who devise a strategy must monitor whether all parts of the firm are meeting their targets for implementing the strategic changes. They need to check that each department is sticking to its timescale and budgeted resources.
2) Plans include a series of deadlines by which certain objectives should be met. When each deadline is reached, actual performance should be measured against the objectives in the plan.
3) The competitive environment also needs to be monitored so that any external factors that could lead to strategic drift are spotted and acted on.
4) If targets or objectives are not being met, it’s crucial to find out why. For example, it could be because a department isn’t implementing the strategy effectively, or that a strategy is no longer suitable for the environment. Action must be taken to get back on track.

Question 19

Explain market analysis?

Answer 19

Market analysis shows if assumptions about the market are correct.
1) Firms use both primary and secondary market research to check how the strategy is proceeding.
2) They audit sales levels, concentrating particularly on the target markets. If there is a big difference between expected sales and actual sales, then the business will want to know why.

Question 20

Explain management information systems.

Answer 20