Basics from Contemporary Strategy Analysis Flashcards
Strategic Fit
One component of the Contingency Theory.
The consistency of a firm’s strategy:
- With the firm’s external environment
- With its internal environment
Michael Porter’s conceptualisation of the firm as an Activity System
Not just one part of the firm that creates the success, but rather several pieces fitting together and not crashing with each other. Instead, one part is making the other part stronger, than how they would be on their own.
Contingency Theory
Not just one way of organising or managing.
The three ways strategy assists the effective management of organization
- Strategy as decision support
- strategy as a coordinating device
- Strategy as target - Strategic intent
Corporate Strategy
Where to compete?
Defines the scope of the firm in terms of the industries and markets in which it competes. It includes choices over diversification, vertical integration, acquisitions, new ventures, and the allocation of resources between the different businesses of the firm.
Business Strategy
How to compete?
Is concerned with how the firm competes within a particular industry or market. This area of strategy is also referred to as competitive strategy.
Henry Mintzberg
Leading critic of rational, analytical approaches to strategy design. He separates intended, emergent, and realized strategies.
Intended Strategy
Defined by Henry Mintzberg.
The strategy as conceived of by the leader or top management team. Even here, it may be less a product of rational deliberation and more an outcome of inspiration, negotiation, bargaining, and compromise among those involved in the strategy-making process.
Realized Strategy
Defined by Henry Mintzberg.
The actual strategy that is implemented - is only partly related to that which was intended (Mintzberg suggests only 10-30% of intended strategy is realized).
Emergent Strategy
Defined by Henry Mintzberg.
The decisions that emerge from the complex processes in which individual managers interpret the intended strategy and adapt it to changing circumstances.
Strategic Principles
“Pithy, memorable distillations of strategy that guide and empower employees”
The four stages of developing the strategy for a business
- Setting the strategic agenda: (a) Identifying the current strategy; (b) Appraise performance
- Analyzing the situation: (a) Diagnose Performance; (b.1) Industry Analysis; (b.2) Analysis of resources and capabilities
- Formulating strategy
- Implement strategy
ROCE
Return on Capital Employed
Operating profit (or EBIT) / (Total Assets - Current liabilities)
COMMENT ROCE is also known as return on invested capital (ROIC). The denominator can also be measured as shareholders’ equity plus long-term debt.
ROE
Return on Equity
Net income / Shareholders’ equity
COMMENT ROE measures a firm’s ability to use equity capital to generate profits that can be returned to shareholders. Net income may be adjusted to exclude discontinued operations and special items.
ROA
Return on Assets
Operating profit (or EBIT or EBITDA) / Total Assets
COMMENT The numerator should correspond to the return on all the firm’s assets - eg. operating profit, EBIT or EBITDA
