Chapter 1 - The strategy process

Question 1

What is an ecosystem?

Answer 1

Made up of a network of organisations - including customers, suppliers, distributors, competitors etc. - involved in the delivery of a product or service

Question 2

What is strategy defined as?

Answer 2

A course of action, including the specification of resources required, to achieve a specific objective

Question 3

What does strategy require?

Answer 3

Comprehensive understanding of the organisations:
Resources
Ecosystems
Stakeholders and what they expect of the organisation

Question 4

In their book ‘Exploring Corporate Strategy’, Johnson, Scholes and Whittington outline the characteristics of strategic decisions. What areas do they discuss?

Answer 4

Decisions likely to be affected by the scope of the organisations activities
Strategy involves the matching of the activities of an organisation to its ecosystem
Strategy must also match the activities of an organisation to its resource capability.
Strategies need to be considered in terms of the extent to which reosurces can be obtained
Operational decisions will be affected by decisions

Question 5

What are the advantages of long-term planning?

Answer 5

Forces managers to looks ahead
Improved control
Indentifies key risks
Encourages creativity

Question 6

What are the disadvantages of long term planning?

Answer 6

Setting corporate objectives
Short term pressures
Difficulties in forecasting accurately
Bounded rationality
Rigidity - once plan set managers believe it should be followed at all costs
Cost
Management Distrust

Question 7

What are the three levels of strategy?

Answer 7

Corporate Strategy
Business Strategy
Functional Strategy

Question 8

What is corporate strategy?

Answer 8

Highest levels
Examines strategies for the organisation as a whole
Focuses on which businesses and markets the organisation should operate within

Concerned with issues such as:
Acquisitions, disposals and diversification
Entering new industries
Leaving existing industries

Question 9

What is business strategy?

Answer 9

Looks at how the organisation can compete successfully in the individual markets

Concerned with issues such as:
Achieve advantage over competitors
Meet the needs of key customers
Avoid competitive disadvantage

Focus on strategic business units

Question 10

What is functional strategy?

Answer 10

Day to day management strategies of the organisation. Concerned with how the components pull together in terms of resources, people and processes.

Concerned with:
Human resource strategy
Marketing strategy
Information systems and technology strategy
Operations strategy

Question 11

What are some models that can be adopted to create a strategy?

Answer 11

Rational model
Emergent approach
Logical Incrementalism
Freewheeling opportunism

Question 12

What is the rational model?

Answer 12

Logical, step by step approach.
Analyse existing circumstances, generate possible strategies, select best one and then implement them

Question 13

What are the six steps in the rational model?

Answer 13

Mission and objectives
position and appraisal
Strategic options
Evaluation & choice
Implementation
Review and control

Question 14

What three stages did Johnson, Scholes and Whittington group the stages into?

Answer 14

Strategic analysis
Strategic Choice
Strategic Implementation

Question 15

What happens in the strategic analysis stage?

Answer 15

External analysis to indentify risk and ops
Internal analysis to indentify strengths and weaknesses
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

Question 16

What happens in the strategic choice stage?

Answer 16

Strategies are required to ‘close the gap’
Competitive strategy - for each BU
Directions for growth - which markets/products should be invested in
Whether expansion should by acheived by organic growth, acquisition or some form of joint arrangement

Question 17

What happens in the strategic implementation stage?

Answer 17

Formulation of detailed plans and busgets
Target setting for KPIs
Monitoring and control

Question 18

What is the emergent approach?

Answer 18

Strategies are not always formally planned. In reality, strategies may evolve in response to unexpected events that impact on the organisation.
Rational model is often slow and quickly becomes outdated.
Strategy tends to evolve rather than result from a logical, formal process.
This approach is evolving, continuous and incremental
Timing, order and distictions between analysis, choice and implementation becomes blurred

Question 19

What is logical incrementalism?

Answer 19

Strategy tends to be small-scale extension of past policy, rather than radical change.

Suggests that rational model is not sensible because:
Strategy not usually decided by autonomous strategic planning teams that have time to impartially sift all the information
Managers have to sift through options themselves
Leads to strategy being small scale extensions of past policy

Most acceptable to stakeholders as consultation, compromise and accomodation are built into the process

Question 20

What does freewheeling opportunism suggest?

Answer 20

Organisations should avoid formal planning and instead simply take advantage of opportunities as they arise

Question 21

What is the risks involved with freewheeling opportunism?

Answer 21

Failure to identify risks - not being forced to looks ahead
Strategic drift - may be difficult to effectively compete in its market in the long term
Difficulty in raising finance
Management skills - requires managers that are highly skilled at understanding and reacting to changing market

Question 22

What organisations does the formal planning approaches suit?

Answer 22

Exist in relatively stable industries
Relatively inexperienced managers

Question 23

What organisations does the freewheeling opportunism tend to suit?

Answer 23

In dynamic, fast changing industries
Have experienced, innovative managaers
No need to raise significant external finance

Question 24

What are the different perspectives to strategic planning?

Answer 24

Traditional approach
Market led approach
Resource based approach

Question 25

What is the traditional approach in strategic planning?

Answer 25

Starts by looking at stakeholders and their objectives

Question 26

What is the market led approach?

Answer 26

Starts with an analysis of markets and competitors actions before objectives are set and strategies developed
Ensures that the firm has a good ‘fit’ with its environment

Question 27

What is the resource based approach?

Answer 27

Look at what the firm is good at
Ideally correlate to the areas that the firm has to be good at in order to succeed in its chosen markets

Question 28

What is strategic management accouting?

Answer 28

Emphasis is placed on information which relates to factors external to the entity, as well as non financial information and internally generated information

Question 29

What must strategic management accountants provide?

Answer 29

Focus on external information - especially regarding the behaviour of competitors, customers and suppliers
Forward looking

Question 30

What information is information provided by strategic management accountants?

Answer 30

Competitors analysis
Customer profitability
Pricing decision
Portfolio analysis
Corporate decision support
Customer profitability analysis
Evaluation of brand value
Strategic information for acquisitions
Environmental and sustainability reporting
Investment in strategic management systems

Question 31

How will the information produced by strategic management accountants help?

Answer 31

More effective strategic planning
Increased awareness of the business and its environment
Increased control over business performance
Better decision making