Chapter 3 - Strategy, Reputation + Risk Flashcards
Stages for formulating a strategy:
- Strategic analysis – analysing current position
- Strategic choice – identifying & evaluating your options
- Implementation
- Review & control – monitoring performance & identifying lessons for future decisions
Additional risks created by strategy:
- Adopting the wrong strategy
* Implications from adopting a particular strategy
Corporate Mission Statement and values
Corporate Mission Statement:
* Describe org’s overall purpose/ identity
* Covers what org does, who it does it for, why it does it and how it does it
Values:
* What org believes are important and what it stands for
* Mission and values helps determine amount of risk the org will accept and ensure the correct strategy is chosen
Usefulness of mission statement:
- Promote goal congruence
- Provide focal point for new strategies
- Allow org to communicate core values to stakeholders
Data to be used when assessing environmental uncertainty:
- Competitive data
- Economic data
- Political data
- Legal data
- Social data
- Technological data
- Geographical data
- Energy supplier’s data
- Market research data
Resources to use when analysing current position of org:
- Value chain
- Choice of operating model
- Org structure
What is strategic information?
Provide org with info it needs about:
- Business environment to anticipate change,
- Design appropriate strategies and
- Create future growth and profits within a new market
Key areas of risk arising from strategic information:
- Is info shared when it should be?
- What timescales are used when considering info needs?
- Does org have any memory of past triumphs and disasters to learn from?
Benchmarking:
- Establishing best practice in business-critical processes
* It is hoped that performance will improve in both financial and non-financial aspects of org
Analysing Stakeholders - Mendelow’s Matrix:
- Low power, low interest stakeholders:
* Minimal effort
* E.g. casual labor - Low power, high interest stakeholders:
* Keep informed
* E.g. Small local suppliers, core employees - High power, low interest stakeholders:
* Kept satisfied
* E.g. Government, customers - High power, high interest stakeholders:
* Key players
* E.g. Key management/ employees, main suppliers
Mendelow’s matrix can be used to:
- Track changing influences of stakeholder groups
* Assess the likely impact that strategy will have on stakeholder groups
Analysing products - Product life cycle:
- Introduction: New product brought to market
- Growth: Product gains customer support + demand increases
- Shakeout: Growth slows down – does it need anything else?
- Maturity: Consistent performer – not growing though
- Decline: Demand falls – need to decide whether to withdraw
Analysing Markets - BCG Matrix
High market share, High market growth: * Star Low market share, High market growth: * Question mark (problem child) High market share, Low market growth: * Cash cow Low market share, Low market growth: * Dog
Porters Generic strategies:
- Cost leader:
* Potentially higher profit + low costs
* Compete on basis of lowest cost - Stuck in the middle:
* Low profit + high costs - Differentiator:
* Potentially higher profit + high costs
* Compete on basis of unique characteristics
Analysing competitive scope:
Cost driven, Broad focus:
* Cost leadership = Lowest cost producer in the industry as a whole
Differentiation driven, Broad focus:
* Differentiation = Exploitation of product which industry as a whole believes to be unique
Cost driven, Narrow Focus:
* Cost focus = Restricting activities to only part of the market – providing goods at lower cost
Differentiation driven, Narrow focus:
* Differentiation focus:
Restricting activities to only part of the market – providing a differentiated product
- Narrow target = aimed at a defined market group only
- Broad target = available to the market as a whole
Analysing products, markets and growth - Ansoff Growth Vector Matrix:
Existing products, Existing Market:
* Market Penetration:
* Increasing market share of existing products via promotions, price reductions, increasing usage
* Low risk strategy – no capital investment
* Attractive to unadventurous org or org who wants to simply maintain position in market
New products, Existing Market:
* Product development:
* Selling new products to existing customers (cross selling)
* Riskier than market penetration + development because require investment in new product development
Existing product, New Market:
* Market development:
* Seeking new customers for existing products via exporting or new distribution channels
New product, New Market:
* Diversification:
* Selling new products to new customers
* Offer significant growth potential
*Riskiest strategy – require significant investment and new competences with no guarantees of success
Market development - Internal development:
- Organic growth
- Ideal for market penetration, product/ market development
- Might be problem with extensive diversification projects due to need for new investment and new resources or capabilities
- Growth is slow so not suitable for org’s requiring rapid expansion
Potential problems with acquisitions + mergers:
- Cost
- Customers – may resent sudden takeover
- Incompatibility – of info systems or cultures
- Asymmetric info – existing management knows more about org than purchaser
- Driven by personal goals
- Firms rarely take into account non-financial factors – e.g. human resource issues
- Poor success record of acquisitions
- Corporate financiers and banks – charge fees for advice
Types of partnering strategies:
- Joint venture
- Franchising
- Strategic Alliance
- Internal partnering
Joint ventures:
- Two or more entities joins forces to create a separate entity with purpose distinct from owners
- Allows for capital + experience to be shared
- Prone to conflicts of interest
Franchising:
- Expanding business with less capital than would otherwise be possible – franchisees pay capital lump sum to enter franchise + bear some running costs
- Commonly used by entities who want to achieve rapid growth
- Alternative business strategy to raising extra capital
- Franchise removes some risk from franchiser, but could be run poorly by franchisee and cause reputational damage
Strategic alliance:
- Form of co-operation between two or more org’s without creating a separate entity
- Involve sharing of resources and activities to pursue given strategy
Internal partnering:
- Active collaboration between different departments with aim of successfully completing business tasks
- Should help org’s realise strategies and support prospects of future growth
- Limitation of not encouraging fresh ideas or new paradigms as existing systems/ cultural norms may continue
Evaluating strategic options:
- Suitability - strategic logic of strategy
- Acceptability - depends on expected performance outcomes and extent to which it is acceptable to stakeholders
- Feasibility - does org have adequate strategic capability
Requirements for a suitable strategy:
- Exploit strengths that is unique and core competences
- Rectify org’s weaknesses
- Neutralise/ deflect environmental threats
- Help seize opportunities
- Satisfy goals
- Generate/ maintain competitive advantage
- Involve an acceptable level of risk
- Suit politics and corporate culture
Acceptability of stakeholders interests:
- Shareholders = good financial return while keeping risk at acceptable level
- Management + staff = may object to changes if it does not suit their skillset or if they will be worse off
- Customers = higher prices / poorer service
- Banks = good future cash flows to repay debt
- Government/ regulators = may block certain strategies if it reduces competition
- Media + public = may protest if they believe strategy would be detrimental
Feasibility criteria:
- Financial resources
- Management skills
- Required competencies
- Skilled staff
What is disruption?
Interruption in the usual way that a system, process or event works
Why does technology disrupt strategy?
- Business communications are quicker and involves both professional and social networks
- Which results in sharing data instantly and globally
- Thus, connecting communities and creating more meaningful interactions
How do people respond to digital age?
- Digital natives = grown up surrounded by digital activity
- Digital immigrants = did not grow up as digital natives, but have come to embrace opportunities of digital age
* Org’s may still be run by older digital immigrants who to some extent may still operate as if they were in the pre-digital world
* Org’s may also now be run by younger digital natives who may be competing with digital immigrants - Digital visitors = people who are comfortable using digital technology as a tool to get a particular job done, but who otherwise have no digital presence
- Digital residents = consider digital technology as a space or place to meet, interact and belong where links between physical and digital are less distinct
How does technology disrupt strategy?
- Impact on various industries – retail, transport entertainment
- Impact in the workplace – cloud computing, big data + blockchain
- Non-technological disruption – climate change and politics
What is scenario planning?
A view of what might happen, using various assumptions
What is macro-scenarios?
Scenarios that model macro-economic/ political factors, creating alternative views of the future environment
What is statistical forecasting?
- Forecast = prediction of future events and their quantification (includes judgements)
- Projection = expected future trend pattern obtained by extrapolation (based on quantitative factors)
- Extrapolation = determining projection by statistical means
Problems with statistical forecasting:
- Past relationships do not necessarily hold for the future
- Data can be misinterpreted and relationships assumed
- Forecasts do not account for special events
- Variation and depth of business cycles fluctuate
- Underestimate uncertainty
- Reflects bias – manipulating results so that they support a belief that was already held before forecast was created
What is judgemental forecasts?
- Used for the long term
- Based on hunched or educated guesses by one or two individuals
- Cheaper than recruiting services of expert, but may lead to flawed judgement
What is consensus forecasting?
- Jury forecasts = panel of experts prepare own forecasts and a consensus forecast emerges from the panel
- Think tank = group of experts are encouraged to speculate about future development in particular areas and to identify possible courses of action
What is the Delphi method to forecasting?
- Participants remain anonymous and respond to a questionnaire of tightly defined questions
- The results are collated and statistically analysed and then returned to each expert
- The experts then respond again having seen the opinions of other experts
- Can be time consuming and experts may be universally optimistic
What does brainstorming involve?
- Group of people generate ideas without initial evaluation or criticisms of those ideas
- Suggestions are only evaluated after list of ideas is complete
- Invites ideas from across all levels of org
- Can provoke other follow-up ideas
What is derived demand?
- Demand for good which results from it being used in production of another good
- Very complex and costly to apply
What is foresight?
Rather than predicting the future, range of possible outcomes are created based upon analysis of current trends
What is game theory?
Study of how strategic interactions among rational players produce strategic outcomes which were not intended by any of the players
What is load testing?
Test to determine if a system can cope with anticipated levels of demand
What is stress testing?
Test to determine the breaking point of a system, process or org, normally greater than amount used in load test
Bank stress testing:
- Basel III Pillars:
* Minimum capital required
* Better visibility
* Responsible disclosure - Dodd-Frank (US):
* Capital sufficiency under financially stressful situations - Bank of England (UK):
* Considers global economic and other market variables
Stress testing strategy itself:
- Global Bazaar:
* Improved technology makes consumers less loyal – org’s have to work harder to maintain their position - Cautious Capitalisms:
* Consumer trust in orgs have eroded due to cyber-risks and data theft – reduces opportunities afforded by technology and digital innovation - Territorial dominance:
* Consumers crave products from local communities opposed to global marketplaces – lead to greater protectionism and regulation and lower levels of growth and technological innovation - Regional marketplaces:
* Governments and comp’s form bonds and shun international collaboration – expansion is stifled and supply chains affected
What is model risk?
Risk that comes from using models to make decisions when there may be weaknesses in development, implementation or use of such models
What is probity and probity risk?
- Probity = Acting in a way that is truthful and not misleading – avoiding disingenuous behaviour
* Considered as part of procurement in both public and private sector businesses - Probity Risk = Risk of untruthful or misleading behaviour by participants in a particular process
Bribery and corruption acts:
- Foreign Corrupt Practices Act (FCPA):
* Illegal to bribe foreign government officials in order to gain/ retain business - UK Bribery Act:
* Illegal to offer or receive bribes
* Bribing foreign public officials
* Failure to prevent bribery
What is reputation risk?
Loss of reputation caused as a result of the adverse consequences of another risk
What is some causes of reputation risks?
- Poor customer service
- Failure to innovate
- Breaking the law
- Poor corporate governance
- Poor environmental and social performance
- Poor ethics
What are some suitable responses to reputation risk?
- Change strategy in short term or allow it to evolve over the longer term
- Discontinue the strategy entirely
- Org may need to divest, grow or acquire in order to respond appropriately
- Maintain status quo and wait for things to get better on their own
Reasons for change of strategy relating to brand and reputation:
- Need to improve results
- Improvements to org’s reputation
- Need for clean slate
- Desire to adopt a new name
- New ownership or board membership
- Need to restore a brand that has become impaired
