A. The strategy process Flashcards
what is an ecosystem?
made up of a network of organisations-including customers, suppliers, distributors, competitors, government agencies- involved in the delivery of a product or service
can be via either co operation or competition
constantly evolving and within which each organisation must be flexible and adaptable to survive
what is CIMA’s definition of strategy?
a course of action, including the specification of resources required, to achieve a specific objective
what is the J,S and W definition of strategy?
strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation through its configuration of resrouces within a changing environment, to meet the needs of markets and to fulfil staeholder expectations
what are the characteristics of strategic decisions?
- likely to be affected by the scope of an organisation’s activities as they conceive the organisation’s boundaries
- involves the matching of the activities of an organisation to its ecosystem
- must also match the activities of an organisation to its resource capability
- needs to be considered in terms of the extent to which resources can be obtained, allocated and controlled to develop a strategy to the future
- operational decisions will be affected by strategic decisions because they will set off waves of lesser decisions
- will be affected by the expectations and values of those who have power within and around the organisation
- affect the long-term direction of the organisation
- strategic decisions are
what are the advantages of deliberate long-term planning?
- forces managers to look ahead:identify changes and how to deal with them
- improved control:identify mission and objectives, communicate these with management and targets
- identify key risks:undertaking detailed analysis, management can identify key external and internal risks and create contingency plans to deal with these
- encourages creativity: management will have to generate ideas for the organisation, meaning that it can benefit from their experience and ability to innovate
what are the disadvantages of formal, long-term planning?
- setting corporate objectives:difficult to create overall mission and objectives. could be contradictory to key stakeholders.
- short-term pressure:pressures on management are often for short-term results. can be difficult to motivate managers by setting long-term strategies when short-term problems can consume their entire working day
- difficulties in forecasting accurately
- bounded rationality:incomplete analysis, strategy based on this
- rigidity
- cost
- management distrust
what are the levels sf strategy?
CORPORATE (strategic) for whole organisation: -acquisitions, disposals and diversification -entering new industries -leaving existing industries
BUSINESS (or management) how the org can compete successfully in the individual markets: -achieve advantage over competitors -meet the needs of key customers -avoid competitive disadvantage
FUNCTIONAL( or operational) day to day management strategies of the organisation -HR strategy -marketing strategy -IT and IS strategy -operations strategy
what are the different types of strategic planning models?
rational model emergent model (Mintzberg) Logical incrementalism (Lindbolm) Freewheeling oppurtunism
what is the rational model?
logical, step-by-step approach
-requires analysis of existing circumstances, generate possible strategies and select the best ones and then implement them
what 3 stages did JSW group the rational model stages into?
STRATEGIC ANALYSIS
- internal analysis to identify strengths and weaknesses
- external analysis to identify opportunities and threats
- stakeholder analysis to identify key objectives and to assess power and interest of different groups
- gap analysis to identify the difference between desired and expected performance
STRATEGIC CHOICE
- strategies are required to ‘close the gap’
- competitive strategy - for each business unit
- directions for growth-which markets/products should be invested in
- whether expansion should be achieved by organic growth, acquisition or some form of joint arrangement
STRATEGIC IMPLEMENTATION
- formulation of detailed plans and budgets
- target setting for KPIs
- monitoring and control
how can the JSW approach be applied to an airline?
strategic analysis:competitor action, oil price forecasts, passenger volume forecasts, availability of cheap landing rights
strategic choices: which routes to launch?set up a subsidiart from scratch or buy an existing low-cost airline?
strategic implementation: setup of new subsidiary. Staff recruitment and training. Acquisition of aircraft and obtaining of landing slots.
what is an emergent strategy?
strategies that evolve in response to unexpected events that impact on the organisation
what is an example of the emergent model working with Pfizer
Viagara was originally a medicine for high blood pressure but after seeing side effects, used for other reasons
what is Logical Incrementalism?
small scale extension of past policy rather than radical change
Why doesn’t Lindbolm believe that the rational model of decision-making is sensible and suggests that in the real world it is rarely used?
Strategy is not usually decided by autonomous strategic planning terms that have time to impartially sift all the information and possible options before deciding on the optimal solution
managers have to sift through options themselves, bounded rationalist means they usually choose between relatively few options
leads to strategy being small scale extensions of past policy
what are the advantages of the incrementalism model over the rational model?
more acceptable to stakeholders as consultation, compromise and accomodation are built into the process
less of a cultural shift for the organisation to adopt an incremental approach to strategy as the organisation will not be trying to implement major shifts in its activities
what are the disadvantages of the incrementalism model?
no overall long-term plan causing it to suffer from strategic drift, eventually leading to it being unable to meet the needs of its customers
can mean that the organisation fails to make major changes if needed
what is freewheeling opportunism?
suggest that organisations should avoid formal planning and instead simply take advantage of oppurtunities as they arise
what is the main justification against formal planning?
takes too long and is too constraining especially in fast paced industries such as pharma and tech development
may also suit any experienced managers who happen to dislike planning
what are the problems of lack of formal planning?
failure to identify risks: don’t look ahead
strategic drift:does not have an overall plan for the future, meaning that it may be difficult for it to effectively compete in its market in the long term
difficulty in raising finance:investors like to know future plans
management skill:highly skilled at understanding and reacting to the changing market
what are the drawbacks of formal strategic planning?
too rigid: stifles innovation
bounded rationality: key issues are missed
time consuming, expensive and slow: issue in fast paced industries
what type of organisations do more formal planning approaches suit?
- exist relatively stable industries meaning there is sufficient time to undertake detailed strategic analysis
- have relatively inexperienced managers, as the formal planning approach helps to ensure they are familiar with the organisation as well as providing a series of guidelines they can follow to help them develop a strategy
what type of organisations are more informal approaches suited to?
- dynamic, fast changing industries where there is little time to undertake formal stategic analysis
- have experienced, innovative managers who are able to quickly identify and reat to changes in the organisation and its environment
- do not need to raise significant external finance (external investors typically prefer a formal planning approach)
why is strategic planning complex for NFPs?
multiple objectives are hard to prioritise
objectives are more difficult to measure - usually non-financial
influence/objectives of funding bodies
recipients of the service are not the ones who pay for it
what is the three Es approach that NFPs usually focus on?
Economy = inputs
Efficiency= inputs to output process
Effectiveness=solely outputs and achieving goals
what is the traditional approach to strategic planning?
look at stakeholders and their objectives
formulate plans to achieve these objectives
not useful for NFPs
what is a ‘market-led’ or ‘positioning’ approach?
starts with analysis of markets and competitors’ actions before objectives are set and strategies developed
ensure firm has a good ‘fit’ with its environment, needs to adapt too so predict changes
main issue:hard to predict future, especially for volatile markets
what is a ‘resource-based’ or ‘competence-led’ approach?
many firms who have found anticipating the environment to be difficult have switched to a competence or resource-based approach, where the emphasis of strategy is to look at what the firm is food at - its core competencies
ideally these correlate to the areas that the firm has to be good at in order to success in its chosen markets and also difficult for competitors to copy
what is strategic management accounting?
form of management accounting in which emphasis is placed on information which related to factors external to the entity, as well as non-financial information and internally generated information
indicated key difference between strategic and traditional management accountants
what is the role of traditional management accountants?
tend to focus on internal company issues
their role is to:
- aid in the creation of operational strategies for the business
- safeguard company assets- both tangible and intangible
- measure and report both financial and non-financial performance to managers
- ensure efficient use of assets and resources
what is the role of stratefic management accountants?
provide information to help managers make key strategic decisions
requires external focus
forward-looking approach
what is the information that is provided by strategic management accountants?
competitor analysis
customer profitability
pricing decision
portfolio analysis
corporate decision support
customer profitability analysis
evaluation of brand value
strategic information for acquisitions
investment in strategic management systems
what are some examples of comparative information produced by traditional vs strategic management accountants?
cost structure vs competitor cost structure
product costs vs competitor product costs
market share vs relative market share
profitability vs relative profitability
price margins vs competitor price margins
how will information by strategic management accountants help the business?
- more effective strategic planning
- increased awareness of the business and its environment
- increased control over business performance
- better decision-making
what is a mission according to CIMA?
a fundamental objective of an entity expressed in general terms
i.e. basic purpose of the organisation
what is the definition of a mission according to Peter Drucker?
the mission says why you do what you do, not the means by which you do it
what is a mission statement?
published statement, apparently of the entity’s fundamental objectives. This may or may not summarise the true mission of the entity (CIMA)
statement in writing that outlines the organisation’s mission and summarises the reasoning and values that underpin the operations
what are the characteristics of a mission statement?
- a brief statement of no more than a page in length
- very general statement of entity culture
- states the aims (or purposes) of the organisation
- states the business areas in which the organisation intends to operate
- open-ended
- does not include commercial terms such as profit
- not time-assigned
- forms a basis of communication to the people inside the organisation and to people outside the organisation
- used to formulate goal statements, objectives and short-term targets
- guides the direction of the entity’s strategy and as such is part of the management information
what purposes do mission statements fulfil?
to communicate with all the stakeholder groups
to help develop a desired corporate culture
to assist in strategic planning
what are the drawbacks of missions statements?
they may not represent the actual values of the organisation
they are often vague
they are often ignored
they may become quickly outdated
who normally drafts mission statements?
directors or managers in the organisation who are uniquely positioned to understand the needs and aims of the business at a high level
-should identify the needs and aims of these stakeholders
whats is the lifespan of a mission statement?
no set rules on how long a mission statement will be appropriate for an organisation
reviewed periodically to ensure it still reflects the company’s environment
How did Yahoo develop its mission statement?
early 2000s: vague statement
2007: competition from Google, made mission statement more specific to show difference between 2 companies
2021: developed further to target markets and the need to connect them
what is a vision statement?
outlines the ideal position that the organisation wishes to reach within the medium to long-term
LONG-TERM ASPIRATIONS
similar drawbacks to mission statement
what are values?
core ethics or principles which the org will abide by
help drive the behaviour of the business, and guide the actions of management, employees and other stakeholders such as suppliers
what purpose do clearly stated and adhered to values serve to the organisation?
to guide staff behaviour
to demonstrate integrity and accountability to external stakeholders
set the organisation apart from its competitors
reduce the risk of inappropriate behaviour from staff
set the culture of the organisation
what are objectives?
more specific than a mission and seek to translate the mission into a series of mileposts for the organisation to follow
what is the SMART criteria for objectives?
Specific- clear statement, easy to understand
Measurable-to enable control and communication down the organisation
Attainable- it is pointless setting unachievable objectives
Relevant-appropriate to the missions and stakeholders
Timed-have a time period for achievement
what are the key issues with objectives?
- objectives drive action, so it is important that goal congruence is achieved and the agreed objectives do drive the desired strategy
- it can be difficult (although necessary) to prioritise multiple, often conflicting objectives
- this is made more complex when some objectives are hard to quantify
- will be a mixture of financial and non-financial objectives
- always the danger of short-termism
- objectives will vary across stakeholder groups and a strategy may satisfy some groups but not others
what is a primary pbjective?
also known as corporate objectives
major, overriding objectives of the organisation
can be financial or non-financial but relate to the organisation as a whole and typically the needs of its stakeholders
what are the secondary objectives?
directly relate to the various strategies that the organisation needs to adopt in order to meet its primary objective
when could short term and long term objectives conflict?
when resources are scarce or badly planned by management
- cut back on R&D so less innovation
- reducing investment in brand leading to loss of customers in long term
- delaying or cancelling capital investment which reduced ability to grow
- reducing expenditure on staff motivation and training leading to poorer quality service
what are the objectives of NFPs?
satisfy needs of their members or sections of society they are servicing
what is the prupose of environmental analysis?
- identification of threats and opportunities
- assessment of competition
- identification of strengths and weaknesses
- meeting stakeholder needs
what are the drivers of change when it comes to an environmental analysis?
changing technology -e.g. AI, cloud computing
unpredictable demand - due to weakness in the global economy
globalisation - global companies are affected by different issues in different markets e.g. UK and Brexit
development of high-growth, emerging economies - e.g. BRIC
geopolitical impact - e.g. the US relationship with China
changing demographics - e.g. increasing urbanisation
customer empowerment - customers want more choice
digital tech-business models, opportunities
automation- in all sectors, not just manufacturing
sustainability - increased awareness and demands from customers
