Strategy development Flashcards
STRATEGIC PATHWAYS - PLANNING THE ROUTE
What are the 3 core strategic pathways?
What are the 3 questions to ask to decide which strategic pathway should be chosen?
- organic growth
- acquisition
- strategic alliance
(1) Do we want to remain as a single entity business, working within defined business parameters and accepting that our ‘mission’ is to provide a focused and particular product/ service within a defined market place, and within the restrictions of our current business structure?
If YES = (2) Do we want to grow the business at all? = No: do nothing. Yes: Q3
If NO = (3) How do we want to grow the business? = organic development OR strategic alliance OR acquisition
STRATEGIC PATHWAYS - ORGANIC DEVELOPMENT
What is organic development built around? (built around a strategic plan to what?)
What is it sometimes referred to as?
Is this a risk averse approach?
An organisation following this approach will be what?
Name an example of an organisation that followed this approach.
= built around a strategic plan to grow a business through a strategic pathway of building upon and developing the existing capabilities of an organisation.
internal development or a ‘do-it-yourself’ approach
Yes = probably the most risk averse of the 3 core strategic pathways
in control of its own destiny (as far as it can feasibly be), working with the known strengths and weaknesses of its current infrastructure
Domino’s Pizza Group UK has grown organically through maintaining product and service differentiation
STRATEGIC PATHWAYS - ORGANIC DEVELOPMENT
What are the 9 advantages of organic development?
(1) Dealing with the known = the current capabilities of the organisation can be maximised, and people involved in the process can be developed (approach aligns closely with concept of learning organisation)
(2) Staggered investment = capital investment costs can be controlled across the period of development AND usually minimal initial cost = allows the organisation to test the marketplace with minimum risk to its financial viability (and to maintain or build its reputation)
(3) Minimised disruption = the operational supply chain of the organisation can continue, with minimal interruption to ensure continuity and continued revenue streams.
(4) Self-reliance = business that wishes to grow does not need to wait until a suitable partner becomes apparent in the marketplace.
(5) Strategy focus = the core strategic drivers of the organisation, vision, mission, objectives and goals can remain focused in line with the desires and expectations of the stakeholders (involvement of another organisation would likely require variation)
(6) Culture maintenance = organic development will allow growth and new activities within the existing cultural environment (culture change, or culture alignment between 2 different organisations can be time consuming and lead to a reduction in the core strategic focus)
(7) lower risk, (8) allows for ongoing learning, (9) more control
STRATEGIC PATHWAYS - ACQUISITIONS
Acquisitions activity tends to be what with commercial markets, driven by what?
What is the perceived view of who’s interest they are driven by?
What is a merger?
What is an acquisition?
What is a horizontal acquisition?
What is a vertical acquisition?
What is a conglomerate acquisition and its objective?
tends to be cyclical within commercial markets, usually being driven by the ups and downs of different economic cycles
often such strategic pathways are driven more in the interest of the people directly involved (directors, managers and advisers) than in the interests of the shareholders or wider stakeholders
Merger = a reorganisation of the assets and the liabilities of 2 or more organisations who agree to join together and work together from a particular point in time
Acquisition = the buying of the share capital of 1 organisation by another organisation, allowing the acquirer to take complete control of the organisation it is acquiring
Horizontal acquisition = an organisation acquires another organisation in the same industry and stage of production to create a new single entity
Vertical acquisition = an organisation acquires another organisation in the same sector or industry but working at a different level in the supply chain
Conglomerate acquisition = an organisation acquires another organisation in a different industry or sector to that of its core operations (objective to spread risk across a diversity of markets)
STRATEGIC PATHWAYS - ACQUISITIONS - STRATEGIC MOTIVES
What are the 5 strategic motives for making an acquisition?
Name an example.
(1) An extension of the customer potential in terms of geography, products or markets.
(2) The consolidation of competitors within an industrial sector = can reduce competition, enable the raising of prices to customers, increase efficiency through the sharing of common resources (such as head office facilities), and increase production efficiency.
(3) The combined capabilities of 2 organisations are likely to exceed and complement their individual potential.
(4) The development of new market opportunities may well arise from operating a larger organisation with greater financial strength and market coverage.
(5) The organisational synergy should lead to greater competitive advantage and strategic focus
Facebook acquired WhatsApp for the technology and customer base
Facebook had previously been pushing its own messenger service but with only limited success; this acquisition allowed it to immediately address a significant customer marketplace and build a direct alignment with its own existing product range
STRATEGIC PATHWAYS - ACQUISITIONS - FINANCIAL MOTIVES
What are the 7 financial motives for making an acquisition?
(1) greater combined financial strength through alignment of assets and liabilities
(2) Renewed balance sheet strength (useful to negotiate persuading the shareholders of the target to sell their shares)
(3) Greater financial efficiency
(4) Enlarged market value
(5) Tax advantages (off-set loss-making organisation)
(6) The opportunity for financial creativity = ‘black-hole opportunity’ for accountants to create ‘reorganisation accruals’
(7) Asset stripping = The potential to acquire an organisation for 1 or more core activities with the opportunity to sell other activities/assets that are not required
STRATEGIC PATHWAYS - ACQUISITIONS - MANAGERIAL MOTIVES
What are the 2 managerial motives for making an acquisition?
It will be clear from the range of differing motives (strategic, financial, managerial) that an acquisition as a strategic pathway is not necessarily a clear and obvious route to success.
Why do acquisitions frequently fail to deliver the initially perceived strategic benefits?
(1) The personal ambition of directors and managers can often drive an acquisition. The likely benefits are the increased power, remuneration, job security etc.
(2) Hubris – the unfounded and exaggerated belief of an individual in their own ability.
due to the combination of 2 different organisations, with their own mix of people and ideas, and their own previous strategic directions (cultural mismatch of the organisations will often have unforeseen financial cost, in terms of the time required for successful integration of the different operational substructures)
STRATEGIC PATHWAYS - ACQUISITIONS - ADVANTAGES & DISADVANTAGES
What are the 4 advantages?
Advantages = (1) rapid access to resources and an enlarged marketplace,
(2) building of strength against the competition,
(3) the effective restructure of an operating environment,
(4) fast and buys presence, market share, and expertise
STRATEGIC PATHWAYS - STRATEGIC ALLIANCES
When is a strategic alliance formed?
Why is this a popular method of strategic growth?
Johnson (2017) argues that the strategic drive for an alliance is likely to fall into one of 2 related but distinctive categories. What are they?
Name an example.
= when 2 or more organisations agree to share resources and activities in the pursuit of a common strategy
enables many of the benefits of the acquisition process, but without the negative aspects of trying artificially to completely align all operational and cultural aspects of the organisations
(requires trust and integrity between the various parties involved)
(1) collective strategy = requires a network of alliances to be built to compete against rival networks of alliances
E.g., Microsoft gaining competitive success for its Xbox games console through the collective strength of its network of independent games developers
(2) collaborative advantage = requires a more effective managing of alliances than the competition
E.g., Microsoft and its Xbox, it is not enough to have a stronger network than its rivals, but it needs to continue to be better at working within its network to ensure that the members continue to produce the best game
STRATEGIC PATHWAYS - STRATEGIC ALLIANCES - MAIN MOTIVES
What are the 3 main motives for the creation of a strategic alliance as the preferred strategic pathway? / When might a strategic alliance be a useful pathway for strategic growth?
Name an example.
When there is a need for:
(1) the rapid achievement of critical-mass scale within a marketplace, leading to cost reduction and an improved customer offering;
(2) the complementarity of differing capabilities within the members of an alliance, ensuring a more holistic business and enhanced market coverage; and
(3) the learning potential from working closely with partners within an alliance without the need to change the underlying organisational structure or culture
Foxconn and HP’s joint venture
STRATEGIC PATHWAYS - STRATEGIC ALLIANCES - TYPES OF STRATEGIC ALLIANCE
What is a customer-end network alliance?
How would its potential be analysed?
Name an example.
What is a supplier-end customer network?
Name an example.
What is a formal partnership?
What is a joint venture?
Customer-end network alliance = will focus on either increasing the potential offering to existing customers of the individual partners or attempt to widen the potential customer base.
= approach would use the Ansoff matrix to analyse its potential
E.g., the alliance between Dixons retail group and Carphone Warehouse
Supplier-end network alliance = will seek to gain competitive edge in a marketplace by creating a critical mass requirement from a common supply base
E.g., alliance between Tesco plc and Carrefour
Formal partnership = can be formed with the individual organisations agreeing to work together within a partnership structure for a specific range of activities.
Joint-venture = a legally recognised structure where 2 or more organisations remain independent and establish a newly created organisation that is jointly owned by the individual organisations to enable the development of a focused range of activities
STRATEGIC PATHWAYS - STRATEGIC ALLIANCES - ADVANTAGES & DISADVANTAGES
What are the 7 advantages of strategic alliances?
Advantages:
(1) access to complementary resources (e.g. market knowledge)
(2) the sharing of risk and resource
(3) the speed of access to market (= competitive advantage)
(4) reduced political and legal complications (no external authority approval required)
(5) cheaper than acquisition
(6) useful if an acquisition is impractical
(7) a joint venture alliance can provide closer alliance and lock out the competition
EVALUATING STRATEGIC OPTIONS - KEY EVALUATION CRITERIA
What are the 3 fundamental challenges that need to be applied to every strategic option being considered within an organisation? (SAFe!)
What do each of these require? (3,3,3)
- Suitability = does the strategic option address the realities of the internal, micro and macro environment within which the organisation is operating?
This requires:
(1) an understanding of the mission and objectives of the strategy, (2) use of a SWOT analysis to identify the skills, competencies and resources that are available, (3) an understanding of the culture of the organisation.
- Acceptability = does the strategic option meet the expectations of stakeholders, in particular with regard to potential risk and return?
This requires an understanding of:
(1) the levels of expected returns to differing stakeholder groups, (2) the risk appetite and tolerance of the organisation and its stakeholders, (3) the perceived synergy that will be driven by the achievement of the strategic objectives.
- Feasibility = will the proposed strategic option actually work in practice, in particular with regard to the availability of the resources required to deliver success?
This requires:
(1) the ability to drive sustainable change from both a process and a people perspective, (2) the availability of finance and other resources, (3) the likelihood of gaining sustainable competitive advantage
STRATEGIC PATHWAYS - ACQUISITIONS - ADVANTAGES & DISADVANTAGES
What are the 7 disadvantages?
Disadvantages = (1) cultural mismatch and lack of targets,
(2) managerial mismatch, in terms of both ambition and levels of salary,
(3) enhanced and unwarranted power of individual managers or directors,
(4) forced disposal of assets where market dominance is perceived by a government or regulator,
(5) high cost,
(6) high risk,
(7) problems with selling unwanted assets
STRATEGIC PATHWAYS - ORGANIC DEVELOPMENT
What are the 3 disadvantages?
Disadvantages = (1) slow, (2) lack of early knowledge, (3) misreading of market
