Chapter 1 - The process of strategy formation Flashcards
What is strategy - According to Johnson, Scholes and Whitanger.
Involves setting future plans. but requires understanding of orgs a) resources b) environment c) stakholders
Allow orgs to decide how to achieve a competitive advantage.
Discuss The Levels of Strategy
A) Corporate
- Strategies for org as a whole e.g which bus / market to focus on
- M&A/ Disposals, Diversifying, new industries, leaving existing etc .
B) Business
- Then concerned with how org can compete in above
- Concerned with comp adv, needs of cust, avoiding disad
- Focus on SBU’s not org as a whole
C) Functional / Operational
- how components e.g resources, people and processes are pulled together to achieve overall strategic direction
- HR, Marketing, IS and IT, OPS could be unique to SBU or org as whole
What is the rational approach to strategy
Logical step by step approach Mission and Obj Position and Appraisal (Internal / External) Strategic Options Eval and Choice Implementation Review
J S and W grouped the rational approach to strategy into what, and discuss.
3 Stages
1) Strategic Analysis
- Ext (O +T) and Internal (S + W)
- Stakeholder Analysis (id objs, power and interest)
- Gap Analaysis
2) Choice
- Strategies required to close the gap
- Directions for growth - which markets and products
- Expansion - via ggrowth / acq or JA’s
3) Implementation
- Formulatation of plans and budgets
- Target setting for KPI’s
- Monitoring and Control
Ads and Disads of Rational Approach to Strategy
Ads
- Forces mgrs to look ahead
- Improved Control
- Id key risks and contingencies
- Encourages creativity (forced to generate ideas)
Disads
- difficult to set objs with conflicting stakeholders
- ST preassures
- Head to forecast accurately
- Bounded rationality - incomplete analysis = inneffective strateg
- Rigidity, Cost, Mgmt distrust ( accounting techs unknown)
Discuss the Emergent Approach to Strategy Dev (Mintzberg)
- Rational too slow, becomes outdated
- Strategy evolves, continous, incrememental,
- tried, if fail different approach taken,
- May have formal plan BUT can change
- Required culture of innovation where ideas are forthcoming
- distinction between 3 stages can become blurred (analysis/choice/implementation)
Discuss Locical Incrementalism approach to strategy development (Lindbolm)
- Strategy is small extensoin of past policy
- Rational not used in real world where no time for autonomous team to do dull analysis. bounded rationaliity means mgmt select from limited options tend to be ext of past policy.
Ads- Less culture shift, stakeholders consulted
Dis- No overall LT plan, strategic drift (maybe), may not make major changes when needed
Discuss Freewheeling Opportunism
- No formal planning, take opps as arise
- Why ? Planning takes too long and is contraining for fast pace industry
- When ? Skills mrgs with dislike for planning
Disads -No id of risk
- Mgmt skill, strategic drift, difficult raising finance.
Which approach should one take to strategic development
No correct way- its a spectrum
Formal when - stable industries, sufficient time to analyse, relatively inexperienced mgrs (enesure get to know org).
Informal - fast changing industries, experienced innovative managers who id and react, no need for external finance
Strategic planning for NFP’s is different. Discusss
1_ Profit is typically not the objective - (likely to have multiple
2) Difficult to measure objectives
3) Equal balance of power between stakeholders
NFP strategy - 3E’s objective setting
Economy - Looks at inputs
Efficiency - Internal processes approach’ how well inputs used to create outputs e.g spend p. bed in hospital
Effectiveness - looks at outputs (goal approach) - how many treated etc.
Approaches to strat planning - Traditional Approach Stakeholders
- Look at stakes and their objective then go about planning
- often flawed as miss market considerations / may be unrealistic
- good for NFP’s though (where mission / objective are key)
Approaches to strat planning - Market Led Approach
- Look and market and competitors before setting objectives
- Ensure org has a good fit with environment
- of market is to change then firm needs to too
- X problem is predicting the future
Approaches to strat planning - Competency / Resource Based approach
- When anticipating the future it was hard so many firms switched to Comp approach
- Focus on what good at - core competencies
- And ideally correlate to what org needs to be good at to succeed (the CSF’s)
Role and Responsibility of Directors / Snr Managers
- fiduciary duty to shareholders - put in a position of trust
- Duty to exercise skill and care
- Interest of Co and Shareholderes typicall similar so Directors should put shareholders interest first in strat decisioning
Key issues for Directors to consider
1) to to ensure shareholders interest are priortised
2) What about other stakeholders (analysis and CSR)
3) How should co/ staff be measure, to ensure congruence with obj of maxing shareholder wealth
What are the 7 Director duties in the UK
1) act within powers
2) promote success of the company
3) exercise independant judgement
4) exercise skills, care and diligence
5) avoid conflicts of interest and of duties
6) Non accept benefits from 3rd parties
7) declare interest in proposed transactions or arrangements
Directors duties company or shareholders ?
Under company law they are owed to the company
Breaches can be enforced by the company not a shareholder
Sometimes a conflict (e.g Director actiing in interest of him / shareholder) then other shareholder can step in
- General rule D/s should act fairly towards all shareholders
Directors wider stakeholder concerns (CSR)
Must regards, cons of decisions, interest of employeesm relationship building for supps and customers, impact on communities and desirability of maintaining a good reputation.
What is Corp Governance
Th system by which companies are directed and controlled in the interests of shareholders and other stakeholders
What is the purpose and objectives of governance
Purpose - to monitor parties in a co who control resources owned by investors
Objective - Contribute to improved performance and accountability in creating long term shareholder value
What are the principles of UK Goverannce Code
Leadership Effectiveneess Accountability Remuneration Relationship with shareholders
Principles of UK Goverannce Code - Leadership
- Headed by a board
- Clear div of responsibility
- NED’s
- Chair should ensure culture of openess and debate
Principles of UK Goverannce Code - Effectiveness
- Board should have diverse skills
- Companies are to explain policies for diversity
- formal process for appointment to Board
Principles of UK Goverannce Code - Accountability
- Board must present balanced and understandable assessment of Co’s position
- Directors must publish statement of their responsibiility for prep of accounts
- Must conduct review of risk mgmt and controls at least annually
Principles of UK Goverannce Code - Remuneration
- Formal and transparent procedure for exec remuneration
- Exec rewards subject to rec of remuneration committee
Principles of UK Goverannce Code - Relation with shareholders
- ensure good dialogue with shareholders takes place
- Use AGM to comm with investors and encourage participation
How does governance impact strategy
- Good for attractiving investors
- Internal audit and controls ensure accurate info about ops of compnay
- Diversity of Board
- No individual dominating board
Role Of Management Accountant in Strategy
More empahasis on strategy decisions, external focusing and forward looking to traditional accountants
