Strategic Management and Risk Flashcards
What is strategy?
It is a plan that a company actions to meet its goals and stakeholders expectations.
How do we create sustainable value for our stakeholders?
- Balance risk appetite with risk tolerance.
- Risk strategy is not separate from corporate strategy.
What is strategy planning?
- Long-term goals include plans, action, policies such as the King IV Governing Body which must approve short, medium and long-term strategies.
What is strategy development?
- Is about diagnosing strategic issues, understanding environments and organisations, formulating a broad line of intent and selecting appropriate strategic options.
- This is sometimes referred to as strategy formulation or strategic planning.
Define strategy execution?
It is also known as implementation, is concerned with taking the broad strategic intent and selected options and translating that into action. It involves instigating change and measuring outcomes on a continuous basis.
Define the 4 phases of strategic planning:
- Strategic Planning:
- Create a mission and vision
- Access internal and external environment
- SWOT analysis, PESTELE, Porters 5 forces - Select appropriate strategies
- Implementing Strategies
- Measures Performance
Define strategic analysis:
What (Vision)
Why (Mission)
Who (Action Plan)
Which (Key Performance Indicators)
SWOT Analysis
S - Strengths
W - Weaknesses
O - Opportunities
T- Threats
External factors which influence the business:
External environment:
- Political Environment:
- Instability, war, nationalism
- Infrastructure, policies - Economic Environment:
- Exchange rate, interest rate, inflation and economic growth - Social Environment:
- Age, geographic location, family structure - Technological Environment
- Advancement, communication, data and processes - Regulatory Environment
- Tax, exchange control, labour laws, consumer protection - Sustainability (ESG)
- Global challenges - Innovation
- Adapting business processes
Internal environment which affects business:
- Leadership Style:
- Capabilities senior
- Visionaries, inclusive style - Management Capabilities:
- Skill and suitable to business - Corporate Culture:
- Innovation, flexibility, creativity - Governance:
- Inclusive, qualitative - Life Cycle Product:
- Price elasticity products - Labour:
- Skills and resources - Financial Resources:
- Future investments - Information Systems:
- Technology, assets
Define PESTELE ANALYSIS:
It studies the key external factors that influence an organisation:
P: Political E: Economic S: Social T: Technological E: Environmental L: Legal E: Ethical
Define the 6 strategies for sustainable value creation;
- Product Market Strategy
- Competitive Strategy:
- Cost Leadership
- Differentiation
- Focus Strategy/Segment - Porter’s 5 Forces:
- Internal and external influence on the business - Price Strategies:
- Price skimming
- Predatory Prices
- Selective discriminating
- Market pricing - Growth Strategy
- Information Tech Strategy:
- Availability and Feasibility
- IT solutions support
- Data Storage
- Software Compatibility
What are the 5 factors which need to be taken into account when trying to implement a sustainable value creation model?
- Feasibility
- Viability
- Sustainability
- Acceptable ROIC
- Positive NPV
Describe the 5 Michael Porters Forces:
- Threats of new entrants
- Rivalry
- Bargaining Power of Buyers
- Threat from substitutes
- Bargaining power of suppliers
Define the 6 step process to implement strategy:
- Link performance to strategy
- Implement Strategy Reporting
- Establish your Strategy Rhythm
- Define KPI’s
- Build your Plan
- Define your strategy framework
You need to communicate performance measures to key personnel in the business.
King IV is the governing body which approves risk associated with strategy.
What do we use to measure KPI’s? (6)
- ROI
- Return on Capital Employed
- Cost Analysis
- Ratio Analysis
- Share Price
- Profit
Business Risk vs Financial Risk
Business Risk:
Deviating from goals of business resulting in losses
- Operational in nature whereas financial risk is related to debt payment.
- Business risks are not controllable and thus unavoidable
- Business risks are prevalent as long as business operates whereas a financial risk exists until the time equity financing is increasing.
- Managed by bringing in systematic measures of conducting day to day operations and minimizing the cost
- Measured by reviewing EBIT
Financial Risk
- Controllable and avoidable
not being able to pay off the debt or meeting the financial obligations of the firm.
- Managed by reducing the debt level and increasing the equity level.
- Measured by reviewing debt-asset ratio, solvency, liquidity ratios.
Enterprise Risk Management
Allows management to successfully deal with related risk and uncertainty, boosting the ability to build value.
ERM can provide practical assurance that management is informed of the degree to which the Business is moving toward accomplishment of the goals.
Enterprise risk management consists of eight interconnected elements:
Internal and External Environment Risk Identification Risk Analysis Risk Evaluation Risk Treatment Information Communication Monitoring
- ERM is a multidirectional process in which nearly any element can and does influence another.
Explain the risk management process:
A proper risk management process should include the following steps:
1. Identifying or recognizing the risks
2. Evaluating or ranking the risk
3. Taking action when it comes to risks that are significant
4. Resourcing controls
5. Reaction planning
6. Reporting and monitoring risk performance
7. Reviewing the framework for risk management
READ PAGE 11-14 OF STRATEGIC MANAGEMENT PART 4
