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ACCA Passcards
Paper P3
Business Analysis
Passcards for exams
up to June 2015

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Professional Paper P3
Business Analysis

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First edition 2007, Eighth edition June 2014


ISBN 9781 4727 1131 1
e ISBN 9781 4727 1187 8
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the
British Library
Published by
BPP Learning Media Ltd,
BPP House, Aldine Place,
142-144 Uxbridge Road,
London W12 8AA

Printed in the UK by RICOH


UK Limited
Unit 2
Wells Place
Merstham
RH1 3LG

www.bpp.com/learningmedia
Your learning materials, published by BPP Learning
Media Ltd, are printed on paper obtained from traceable
sustainable sources.

Page ii

All rights reserved. No part of this publication may be


reproduced, stored in a retrieval system or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior
written permission of BPP Learning Media.

BPP Learning Media Ltd


2014

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Preface

Contents

Welcome to BPP Learning Medias ACCA Passcards for Professional Paper 3 Business Analysis.
 They focus on your exam and save you time.
 They incorporate diagrams to kick start your memory.
 They follow the overall structure of BPP Learning Medias Study Texts, but BPP Learning Medias ACCA
Passcards are not just a condensed book. Each card has been separately designed for clear presentation.
Topics are self contained and can be grasped visually.
 ACCA Passcards are still just the right size for pockets, briefcases and bags.
Run through the Passcards as often as you can during your final revision period. The day before the exam, try
to go through the Passcards again! You will then be well on your way to passing your exams.
Good luck!

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Preface

Page

Contents

Page

Business strategy

12

E-marketing

129

Environmental issues

13

Project management

145

Competitors and customers

17

14

Finance

161

Strategic capability

27

15

Human resource management

173

Stakeholders, ethics and culture

41

16

Strategic development

179

Strategic choices

53

Organising for success

73

Managing strategic change

89

Business process change

95

10

Improving processes

105

11

E-business

111

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Page 1

1: Business strategy

Topic List
What is strategy?
Levels of strategy in an organisation
Elements of strategic management
The importance of context
The strategy lenses

This chapter gives you an overview of the fundamentals


of strategy and strategy formulation, and how they relate
to business analysis.

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What is
strategy?

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Levels of strategy
in an organisation

Page 2

Elements of
strategic management

The importance
of context

The strategy
lenses

STRATEGY: a course of action over the long term, including identifying the competences and resources
required, to achieve a specific objective and fulfil stakeholder expectations.

Areas for decision making

Strategic decisions

Long term direction

Complex

Scope of activities

Subject to uncertainty

Competitive advantage

Impact operational decisions

Adapting activities to fit business


environment

Affect whole organisation

Exploiting resources/competences
Expectations of key stakeholders

Four elements of mission







Purpose and planning


Values
Strategy
Policies and standards

Lead to change
GOALS:

General aim

OBJECTIVES: SMART and PRIME

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What is
strategy?

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Levels of strategy
in an organisation

Page 3

Elements of
strategic management

The importance
of context

The strategy
lenses

Three main levels of strategy in an organisation


1

Corporate

Overall purpose and scope, and how value will be added. Prioritisation and management
of stakeholder expectations. Allocation of corporate resources.

Business

How to compete successfully in particular markets. Combines with corporate strategy in


a small organisation. In larger organisations, strategies for strategic business units must
be co-ordinated with corporate strategy, and with each other.

Operational

How the component parts of the organisation deliver the higher-level objectives. Largely
created and delivered by business functions such as marketing, production, finance,
human resources management, and information systems.

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1: Business strategy

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What is
strategy?

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Levels of strategy
in an organisation

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Elements of
strategic management

The importance
of context

The strategy
lenses

Johnson, Scholes and Whittingtons model of strategy


Strategic position
Environment
 opportunities
 threats
 complexity
Capability
 resources and competences
 strengths
 weaknesses
Stakeholder expectations
 purpose of strategy
 power/interest
 governance
 ethics

Strategic choices

Strategy into action

Made at corporate and


business levels

How to achieve
competitive advantage





Scope
Direction of development
Method of development

Structuring



Enabling


Choice

management of resources

Change


Position

processes
relationships

change management

Action is not simply a linear model.

Need to recognise the interdependencies between position (analysis),


choice and action (implementation).

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What is
strategy?

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Levels of strategy
in an organisation

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Elements of
strategic management

The importance
of context

The strategy
lenses

The context of strategy


The organisational setting in which strategy is developed. Possible contexts include:
Small business

Limited product range, markets and resources (especially financial), but significant
pressure from competitors

Multinational

Diverse products, processes and markets, with significant resources and multiple
operations

The public sector

Constraints on funding, commitment to service provision and the need to


demonstrate value

Not for profit organisation

Diverse sources of funds, strong underlying values and purpose

Intangible products

Product information, after-sales service, brand values, staff performance (for both
manufacturing and service companies)

Exam focus
Context is very important in the P3 exam. Question scenarios will provide context for the question requirements.
You must always consider the context of the question and make your answer directly relevant to it.
Page 5

1: Business strategy

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What is
strategy?

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Levels of strategy
in an organisation

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Elements of
strategic management

The importance
of context

The strategy
lenses

Johnson, Scholes & Whittington suggest that strategy, and the development of strategic thinking, can be
examined through three lenses.

Strategy as design

a rational, top-down process rational managers, clear objectives.


Strategy is exclusively managements responsibility, and the organisations
role is to implement managements plans.

Strategy as experience

an adaptation of what has worked in the past based on experience,


assumptions, and decisions to satisfice rather than optimise. Strategies
develop in incremental and adaptive ways, and emerge from lower levels of
the organisation.

Strategy as ideas

strategy based on innovation, diversity of ideas, informal interaction and


experimentation. Managers create the context and conditions for new ideas
to emerge, but must prevent strategic drift. Organisational culture must
support innovation.

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2: Environmental issues

Topic List
The organisation in its environment
The macro environment
The competitive advantage of nations
The environment in the future
Competitive forces

Understanding the changing environment is one of the


key elements in both defining and developing strategy.
One possible definition of corporate strategy is seeking a
good fit with the environment. To achieve that fit, an
organisation must have a thorough knowledge of its
environment.

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The organisation
in its environment

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The macro
environment

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The competitive
advantage of nations

The environment
in the future

Competitive
forces

All organisations are open systems they have a variety of interchanges with the environment (inputs and
outputs).
The environment can be divided into three
concentric layers:
Environmental element

Basis of analysis

Macro-environment

PESTEL
Key drivers of change
Scenarios

Industry or sector

Five forces (Porter)


Cycles of competition

Competitors and markets Strategic groups


Market segments
Critical success factors

Macro-environment
Industry or sector

Competitors and markets

The organisation

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in its environment

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The macro
environment

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The competitive
advantage of nations

The environment
in the future

Competitive
forces

The PESTEL framework is based upon six segments: political, economic, socio-cultural, technological, environmental
protection and legal.

Political/legal factors

Economic factors

Governments oversee framework in which business


operates eg physical, social and market infrastructure.

These operate in both a national and international


context. Relevant factors include:

Many aspects of business activity are subject to legal


regulation:







 Contracts
 Employment
 Health and safety  Tax
Other aspects are regulated by supervisory bodies. The
EU is a significant influence.

Inflation rates
Employment rates
Interest rates
Tax levels
The business cycle







Growth/fall of GDP
Savings levels
Exchange rates
International trade
Capital markets

Government policy
Political change and political
risks affects the planning
activities of many businesses
Page 9





Fiscal policy (taxes, borrowing, spending)


Monetary policy (interest rates, exchange rates)
Size and scope of the public sector
2: Environmental issues

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in its environment

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The macro
environment

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The competitive
advantage of nations

The environment
in the future

Competitive
forces

Social factors

Technological factors

Demography is the study of human population and


population trends. (eg birth rate, average age, ethnicity,
death rate, family structure, social structure and wealth).
Demographic changes have clear implications for patterns
of demand. They also affect availability of labour. Can also
affect recruitment policies.

Many strategies are based on exploiting technological change


(eg Internet and e-commerce). Others are defences against
such change (eg emphasising service or quality when a
competitor introduces a major technical development).

Culture in society provides a framework for understanding


beliefs and values, and creates patterns of human activity.
It influences tastes and lifestyles.
Affects:
 Marketing - may need to adapt products/services for a
particular market.
 HR - cultural differences in recruitment.
Business must be particularly aware of cultural change.

Technological developments affect all aspects of


business (especially IT developments)







New products and services become available


New methods of production and service provision
New ways of selling (e-commerce);
Improved handling of information in sales and finance
New organisation structures to exploit technology
New media for communication with customers and within
the business (eg Internet and email); facilitates business
becoming global.

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Environmental protection
Pressure coming from many quarters:
 Green pressure groups
 Employees
 Corporate Social Responsibility




Legislation
Environmental risk screening

Possible green issues for businesses to consider:


 Consumer demand for environmentally friendly
products

 Scarcity of non-renewable resources

 Greater regulation by governments and


international bodies

 Opportunities to develop new environmentally


friendly products and technologies

 Sustainability of operations.

 Businesses may be charged for the external cost


of their activities
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2: Environmental issues

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The organisation
in its environment

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The macro
environment

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The competitive
advantage of nations

The environment
in the future

Competitive
forces

Four aspects of globalisation are key drivers of change in the macro environment

Market globalisation

Converging tastes; improving communications.

Cost globalisation

Economies of scale are a major source of cost advantage; purchasers


search globally for lowest-cost suppliers.

Government policy

Increasingly sympathetic to free trade.

Global competition

High levels of international trade encourage global competition. The


existence of global competitors and global customers in an industry
encourages firms which currently only trade in one country to expand to be
able to compete more effectively.

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The macro
environment

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The competitive
advantage of nations

The environment
in the future

Competitive
forces

Porter identifies four determinants of national competitive advantage on an industry basis. He refers to them
as the diamond.

Firm strategy, structure and rivalry


Cultural factors, management style, time horizons and capital markets all help determine orientation and
capability. Domestic rivalry leads to competitive strength.

Factor conditions

Demand conditions

Endowments of inputs to production


Basic: natural resources, climate, labour unsustainable for competitive advantage
Advanced: infrastructure, technical education, hightech industries - promote competitive advantage

Buyers in the home market set fundamental


parameters such as market segments, degree
of sophistication, rate of growth and rate of
innovation. Early saturation of the home
market will encourage a firm to export.

Related and supporting industries


Success in related industries gives mutual support. Strong home suppliers make the industry more robust.
Rivalry creates supplier specialisations. Clusters of related industries derive strength from their links.
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2: Environmental issues

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The macro
environment

Forecasting
Sound knowledge of the environment requires
some element of forecasting. The past is not
necessarily a good guide to the future, but in
simple, static conditions time series analysis and
regression analysis can be used.
Economic forecasting uses leading indicators to
assess future economic conditions.
A scenario is a detailed and consistent view of how
the environment might develop in the future.
Macro scenarios consider possible futures overall.
Industry scenarios look in more detail at a single
industry.

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The competitive
advantage of nations

The environment
in the future

Competitive
forces

Scenario construction (Mercer)


1

Identify drivers of change

Arrange drivers in a viable


framework

Produce 7-9 mini-scenarios

Group mini-scenarios into 2-3


comprehensive scenarios

Write up the scenarios

Identify issues arising, and what they


mean to the business

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in its environment

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The macro
environment

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The competitive
advantage of nations

The environment
in the future

Competitive
forces

Porter says that five forces together determine the long-term profit potential of an industry

1 Bargaining power of
suppliers
Depends on:


Number of suppliers

Threats to suppliers'
industry

Number of customers in
the industry

Scope for substitution

Switching costs

Selling skills

 Scale economies
 Switching costs
 Patent rights

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 Product differentiation
 Access to distribution
 Access to resources

Rivalry among current competitors


Depends on:

 Market growth  Buyers ease of switching


 Spare capacity  Exit barriers
 Uncertainty about competitors strategy

5
Suppliers seek higher prices

Threat of new entrants


This is limited by barriers to entry

3 Bargaining power of
customers
Depends on:


Volume bought

Scope for substitution

Switching costs

Purchasing skills

Importance of quality

Threat from substitute products

A substitute is produced by a different industry


but satisfies the same needs

Customers seek lower prices


2: Environmental issues

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Notes

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3: Competitors and customers

Topic List
Competition dynamics
The marketing mix
Customers and segmentation
Understanding the customer

A detailed knowledge of both competitors and customers


is very important for strategy development. In particular,
the cycle of competition and critical success factors are
very examinable.

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Competition
dynamics

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The marketing
mix

Customers and
segmentation

Understanding
the customer

Cycle of competition
Encirclement
Simultaneous flank
attacks
Incumbent

Flank
Neglected segment
area of technology

Head-on
Identical
marketing
mix

Challenger
Attacks

Contraction
Concentrate on most
desirable markets
Incumbent

Flanking
Position
Defends
Guerilla
secondary Change nothing
Aggressive, short
markets
term moves
Pre-emtive
Attack first
Bypass
Unrelated products,
new areas, technical
Challenger
advances
Defences

Mobile
Broaden and
diversity markets

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Industry life cycle


Inception

Growth

Basic, no standards
Product characteristics
established

Maturity/shakeout

Decline

Improved design and quality, Standardised product with


differentiated
little differentiation
Competition increases,
Competitors
None to few
Many entrants
weaker players leave
Early adopters, prosperous, More customers attracted Mass market, brand
Buyers
curious must be induced
and aware
switching common
Negative high first mover Good, possibly starting to Eroding under pressure of
Profits
advantage
decline
competition
Technologies become more Technology is understood
Technology
No standards established
standardised
across the industry
Small scale batch
Mass production.
Long production runs. Cost
Production processes production.
Distribution networks
efficiency critical
expanded
Specialised distributors

Varied quality but fairly


undifferentiated
Few remain. Competition
may be on price
Enthusiasts, traditionalists,
sophisticates
Variable
Technology is understood
across the industry
Overcapacity. Production is
reduced

Exam focus point


For an organisations strategy to be successful, it needs to be appropriate to where its industry or products
are in their lifecycles.
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3: Competitors and customers

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Competition
dynamics

 Design

Product

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The marketing
mix

Customers and
segmentation

Place

 Features
 Quality and reliability
 After sales service
Trade off between price and value
offered to customer

Promotion

 Market channels




Understanding
the customer

Logistics
Direct distribution or use of
intermediaries?
Speed of delivery

 Advertising (on line; off line)






Sales promotion
Direct selling
Public relations

Marketing mix







Price
Luxury or necessity?
Competitors prices
Quality connotations
Discounts
Payment terms

People




Service and service


provider are inseparable
in service marketing
Front-line staff embody
the service
Customer satisfaction?






Processes

Efficiency;
standardisation;
automation
Queuing and waiting
times
Capacity management
Information gathering
and processing

Physical evidence



Evidence of ownership
for services
(intangibility)
Design and specification
of service environment

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Competition
dynamics

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The marketing
mix

Customers and
segmentation

Understanding
the customer

Buyer behaviour models aim to show how purchase decisions are made.
We can distinguish CONSUMER markets and INDUSTRIAL markets. Industrial buyers are more rationally
motivated than consumers in deciding what goods to buy.
Government, reseller and export markets may also be considered.

The consumer market


Influences
 Socio economic
 Psychological

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Products
 Convenience (everyday) goods
 Shopping (higher value) goods
 Speciality (unique) goods

3: Competitors and customers

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Competition
dynamics

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The Marketing
mix

Customers and
segmentation

Understanding
the customer

The industrial market


Influences

Products

 Quality and reliability


 Price
 Credit offered
 Problems solved  Budgetary control

 Raw materials
 Subcomponents
 Capital equipment  Supplies

Decision Making Unit


 User
 Gatekeeper

 Influencer
 Buyer

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Reasons for segmentation

Market segmentation
is the subdividing of a market into
increasingly homogeneous subgroups of
customers, where any subgroup can be
conceivably selected as a target market
to be met with a distinct marketing mix.
It is relevant to a focus strategy.

Target market

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Better satisfaction of customer needs


Revenue/profit growth
 Targeted communication
Customer retention
 Product positioning

Segments should be



Measurable
 Potentially profitable
Accessible, and can  Susceptible to a distinct marketing mix
be accessed profitably  Stable

One or more segments selected for


special attention by a company.

A firm should only develop a unique


marketing mix for a valid segment.
Same product to whole market

Policy options 

One segment only

UNDIFFERENTIATED
CONCENTRATED
DIFFERENTIATED

Several versions for many segments


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3: Competitors and customers

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Competition
dynamics

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The marketing
mix

Customers and
segmentation

Understanding
the customer

Tools for analysis


1 Marketing audit

2 Key customer

3 Customer profitability analysis

analysis
To establish:
 Size of customer base
 Order sizes
 Product profitability
 Market share
 Growth and prospects
 Demand
 Price sensitivity
 Competition/substitutes

The customer lifecycle












Who are the key


customers?
Customer history
How important are they?
Attitudes and behaviour
Financial performance
Profitability of their orders

This varies from customer to customer


because of customer-specific costs such as
discounts, distribution costs, complexity of
orders and credit given.
 Use it to identify your most
profitable/expensive customers
 Compare cost of acquiring new
customers vs retaining existing ones
 Details of costs could be obtained from
a relational database

Promotional expense is front-loaded; sales grow with time


Consumer incomes rise with time; early purchases are likely to be basic may be more differentiated later

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Strategic customer

Opportunities and threats

is the purchaser of the product offered. This


may not be the end user. The end users
requirements are important, but those of any
intermediary purchaser are of primary strategic
importance.

Information about the environment may be summarised as


opportunities and threats.

Critical success factors


are those product features that are particularly
valued by a group of customers and, therefore,
where the organisation must outperform
competitors.

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Opportunities
Opportunities often take the form of strategic gaps such as:
 Potential substitutes for existing products or
complements to them
 Different strategic customers via new distribution
methods such as the Internet
 Potential new market segments
Threats
The most immediate threats probably emerge from the
immediate industry: the five forces are a good guide. The
wider PESTEL environment must also be monitored, but
threats may be more difficult to recognise.
3: Competitors and customers

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Competition
dynamics

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Marketing

Customers and
segmentation

Understanding
the customer

External forces








Customers and
markets

Industry analysis

Macro-environment
Political
Economic
Social
Technological
Environmental
Legal







New entrants
Substitute products
Bargaining power of customers
Bargaining power of consumers
Rivalry amongst current competition






National competitiveness

Understanding the
customer

Demand conditions
Related industries

Factor conditions

Firm strategy,
structure, rivalry

Inception
Growth
Maturity
Decline

Opportunities
or
Threats






Strategic groups
CSFs
Market segmentation
Marketing mix

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4: Strategic capability
Topic List
The organisations resources
Cost efficiency
Knowledge
The value chain
The product portfolio
Benchmarking
Managing strategic capability
SWOT and TOWS

A detailed knowledge of the frameworks and models in


this chapter is very important in beginning to understand
how strategic choices are made.

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The organisations
resources

Cost
efficiency

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Knowledge

The value
chain

The product
portfolio

Benchmarking

Strategic capability: the adequacy and suitability of an organisations resources and competences to
achieve its strategy.

9 Ms Model (review of organisations resources)


 Machinery
 Markets
 Management information

 Makeup
 Materials
 Money

 Management
 Methods
 Men and women

Position-based strategy aims to achieve competitive advantage by positioning a market offering to respond to
the opportunities and threats present in the environment.
Resource-based strategy is based on the possession of distinctive resources, which may be physical
resources or competences. Competences are the activities and processes through which an organisation
deploys its resources effectively.
Threshold competences and resources meet customers minimum requirements and are needed for survival.
Unique resources and core competences underpin competitive advantage and are difficult for competitors to
imitate or obtain.

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The organisations
resources

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Cost
efficiency

Knowledge

If competitive advantage is to be based on core


competences and strategic capabilities, the
capabilities must have four key qualities:

1
2
3
4

Offer value to buyers contribute to customer


needs
Rare can create competitive advantage by
itself
Robust (difficult to imitate) linking of
processes and activities in ways that cannot
be copied
Non substitutable substitute products and
competences are a key threat

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The value
chain

The product
portfolio

Benchmarking

Cost Efficiency is fundamental to strategic capability


for both public and private sector organisations. It is
regarded as a threshold competence (vital for mere
survival) and is achieved in four main ways:

Exploitation of scale economies reducing costs


per unit

Control of the cost of incoming supplies


transport costs; supplier relationships

Careful design of products and processes


minimising direct and indirect costs

Exploitation of experience effects learning


curve effects; outsourcing

4: Strategic capability

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The organisations
resources

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Cost
efficiency

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Knowledge

The value
chain

The product
portfolio

Benchmarking

The progression from data to knowledge


Data

Information

Knowledge

Nature

Facts

Relationships between
processed facts

Patterns discerned in
information

Importance of

Total

Some

Context independent

Mundane

Probably useful for


management

May be strategically useful

Office automation
Data warehouse

Groupware
Expert systems
Report writing software
Intranet

Data mining
Intranet
Expert systems

context
Importance to

business
Relevant IT
systems

The aim of knowledge management is to capture, organise and make widely available all the knowledge that
the organisation possesses (ie use knowledge as a resource to contribute to competitive advantage).

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Learning based strategy incorporates knowledge management and innovation.

Knowledge management
Records, organises, retrieves and
applies knowledge effectively. IT
systems will probably be used. Good
knowledge management avoids
constant re-invention of the wheel.

Innovation
Innovation is encouraged by top
management; organisational
purposes are continually re-examined;
it is accepted that innovative solutions
can emerge at any level.

A top-down, command and control approach will not promote learning based strategy. The company must be
open to the environment and welcome new ideas and fresh insights. However, management must guide the
learning process and take necessary decisions.

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4: Strategic capability

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The organisations
resources

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Cost
efficiency

Knowledge

FIRM INFRASTRUCTURE
TECHNOLOGY DEVELOPMENT

IN
RG
MA

SUPPORT ACTIVITIES

Porter grouped the various activities of an


organisation into a value chain.

HUMAN RESOURCE MANAGEMENT

MA
RG
IN

PRIMARY ACTIVITIES

The value
chain

The product
portfolio

Benchmarking

The margin is the excess the customer is prepared to


pay over the cost to the firm of obtaining resource
inputs and providing value activities. It represents the
value created by the value activities themselves and
by the management of the linkages between them.
Linkages connect the activities in the value chain. The
activities affect one another and therefore must be coordinated.
Using the value chain. A firm can secure competitive
advantage in several ways.

PROCUREMENT

INBOUND
OUTBOUND MARKETING
OPERATIONS
SERVICE
LOGISTICS
LOGISTICS & SALES

Page 32






Invent new or better ways to do activities


Combine activities in new or better ways
Manage the linkages in its own value chain
Manage the linkages in the value network

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A firms value chain is connected to the value network.

Distributor/retailer
value chains
Organisations
value
chain
Supplier
value
chains

Page 33

Customer
value
chains

Page 33

The value created for a product's end user is often


the output of a complex system that includes
several organisations value chains. The links
between these value chains represent
opportunities to create more value.
The links also represent opportunities for individual
organisations to capture more of the value created
by the overall system by managing them to their
advantage. This can be done in a direct way by
vertical integration or the use of bargining power
over suppliers and customers. It can also be
achieved more subtly by providing coordination
and by fostering relationships that promote
innovation.

4: Strategic capability

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The organisations
resources

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Cost
efficiency

The companys offerings to the market are fundamental


to its success. They must be kept under review so that
there is a suitable mix. The product life cycle is an
important concept but it must be applied with care. We
can distinguish 3 aspects of product.

Product class (or generic product)


a broad category

Page 34

Knowledge

Product form
type within the category

Brand
The specific product

The product
portfolio

Benchmarking

Product life cycle

Sales

+
_

Profits

Inception

The value
chain

Growth

Maturity

Decline

Senility

Inception: development; marketing and production costs high;


sales volume low; profits low
Growth: sales volumes accelerate; unit costs fall; profits rise;
competitors enter the market
Maturity: longest period; profits good; reminder promotion
Decline: many causes; sales fall; over capacity in industry; some
players leave market
Senility: profit negligible; product may be retained in niche

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The development of new products is an important aspect of a firms strategy. New products can overcome
entry barriers and help give a company a balanced portfolio. Product innovation can also be a major source
of competitive advantage.
How are they new?







New to the world


New product line
Additions to product line
Repositioning
Improvements/revisions
Cost reductions

How is it approached?
 Leader strategy: high cost of
R&D, potential high reward, high
risk
 Follower strategy: lower cost, less
R&D expertise needed, lower risk,
reduced reward

The management accountant


can help by analysing the
cost components of the new
product. This may lead to the
removal of superfluous
features.

New product development should be controlled by subjecting projects to a


series of gates, or review meetings, to decide whether they have made the
required progress, and to determine what must be achieved to pass the next gate.
Page 35

4: Strategic capability

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resources

Cost
efficiency

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Page 36

Knowledge

The value
chain

The product
portfolio

Benchmarking

Roles of the R&D department




Environmental analysis: technological


opportunities and threats.

Technological position audit.

Planning and controlling R&D.

Developing new products.

Developing new processes.

Encouraging a culture of innovation


and learning.

New product research including developing, testing and prototyping.


Screening product ideas against strategic objectives, technical
feasibility and market requirements.
Value engineering of existing products.
Extending product life cycles.
Ensuring (or preventing) backward compatibility with existing
products.
Processes themselves may be crucial, as in service industries.
Productivity enhancements.
Quality enhancements.

Intrapreneurship
The R&D effort should support the
organisations strategy. For
example, product development and
market development are likely to
require different R&D emphases.

Entrepreneurial activity below the strategic apex. Innovation is encouraged by:


 Culture of risk-taking and tolerance of mistakes.
 Flexible organisation structure.
 Willingness to devote resources to new ideas.
 Reward policies that support new ideas.

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The organisations
resources

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Cost
efficiency

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Knowledge

Benchmarking involves establishing targets and


comparators against which to compare performance.

Process
1 Ensure senior management commitment
2 Determine areas to benchmark and set objectives

The value
chain

The product
portfolio

Benchmarking

The questions to ask


(Johnson, Scholes and Whittington)

 Why are these products or services provided at all?


 Why are they provided in that particular way?

3 Establish performance measures

 What are the examples of best practice elsewhere?

4 Select organisations to benchmark against

 How should activities be reshaped in the light of


these comparisons?

5 Measure own and others performance


6 Compare performance

3 levels of benchmarking
 Resources: quantity and quality

7 Design and implement improvements

 Competences in separate activities

8 Monitor improvements

 Competences in linked activities

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4: Strategic capability

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resources

Cost
efficiency

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Knowledge

The value
chain

The product
portfolio

Benchmarking

Problems with benchmarking


Benchmarking can produce improvements in the value system but this is not guaranteed.
 It tends to improve the efficiency with which systems work rather than the effectiveness of their outputs.
 Benchmarking will only be useful if the systems being compared are the ones which are critical for business
success. (It sometimes concentrates on doing things right rather than doing the right things.)
 Comparison with similar systems ignores the emergence of substitutes.
 It is a catchingup exercise rather than a development of anything new.
 It does not indicate how competitors may be overtaken.
 It has significant costs, not least in management time.
 It can be a threat to commercial security.

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Managing
strategic capability

SWOT and
TOWS

Informal processes
Existing strategic capability can be difficult to understand and, therefore, to manage, especially when it derives from
core competences based on informal processes. Managers must take care not to disrupt such competences by
attempting to manage or formalise them.

Opportunities to stretch and improve


strategic capability







HRM
Much strategic capability depends on peoples abilities, skills
and knowledge. Such capability can be enchanced by HRM
practice.

Use existing competences in new activities


Eliminate or outsource activities that do not support

CSFs
Extend best practice
Improve and add activities to better support CSFs 

Remedy weaknesses
Utilise external capacity by acquisition and cooperation (alliances; joint ventures)

Page 39

Recruit for specific aptitudes such as leadership and


innovation
Train and develop for specific rather than generic skills
Develop individual strategic awareness

4: Strategic capability

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Managing
strategic capability

SWOT analysis
(also known as corporate appraisal) is a review of:
INTERNAL

EXTERNAL

Strengths
Weaknesses

Opportunities
Threats

SWOT and
TOWS

Weihrich spoke of TOWS analysis to emphasise


threats and opportunities. SO strategies can be
profitable in the short term, generating the cash
needed to undertake WO strategies in the longer
term. ST and WT strategies are likely to be resource
neutral and are needed in the medium term to achieve
overall balance.

and how they can be related.


The results can be combined in guiding strategy formation

Internal

Strengths
Match

External

Opportunities

Weaknesses
Convert

Threats

Remedy

SO strategy employ strengths to seize opportunities


ST strategy employ strengths to counter or avoid
threats.
WO strategy address weakness in order to exploit
opportunity
WT strategy defensive, avoid threats and impact of
weakness

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5: Stakeholders, ethics and culture

Topic List
Ethics and the organisation
Social responsibility
Corporate governance
The role of culture
Integrated reporting

Business ethics is an increasingly important area, and


one that is highly examinable both for its topicality and its
suitability for inclusion in scenario questions. Ethical
ideas have a strategic impact upon organisations, and
with them come notions of corporate social responsibility
and principles of good corporate governance. The
influence of culture upon an organisation and its people
must not be underestimated.
Finally, the rise of integrated reporting is considered.

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organisation

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Social
responsibility

Page 42

Corporate
governance

The role of
culture

Integrated
reporting

Ethics are ideas about right and wrong that set standards for conduct. Ethics are important to business because
society considers such things important. There are also rules of professional conduct to consider. Ideas of right and
wrong have become more fluid and less absolute. As a result there is a greater scrutiny of organisations behaviour
since it is likely to be less subject to definitive internal rules.

Scope of corporate ethics


Corporate ethics may be considered in three contexts:

The organisations interaction with national


and international society

The effects of the organisations routine


operations.

The behaviour of individual members of staff

Organisations often publish corporate ethical codes to


disseminate their policies on ethics.

Ethical dilemmas
Conflicting views of the organisations responsibilities
create ethical dilemmas for managers at all levels.


Dealing with corrupt or unpleasant regimes

Honesty in advertising

Employees cost or asset?

Corrupt payments to officials extortion, bribery or


gift? The local culture must be considered.

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organisation

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Social
responsibility

Page 43

Corporate
governance

The role of
culture

Integrated
reporting

Should businesses actively practise social responsibility?


The business as fixer of
social problems

Examples
Charitable donations
Pollution control
Community activities

Big business has the resources


to fight inequalities

BUT
Companies already discharge their responsibilities
by contributing towards tax revenues.
The social audit recognises
the expectations on a firm to
promote social responsibility.
In addition, there are green
pressures.
Page 43

 Pressure groups
 Employees
 Legislation

 Environmental screening
 Sustainability of resources
 Ecological concerns

?
Long term
v
Short term

5: Stakeholders, ethics and culture

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Ethics and the


organisation

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Social
responsibility

Stakeholders have a legitimate


interest in how the organisation
behaves. The extent to which
stakeholders should be able to
influence behaviour is subject to
debate, as is the matter of just who
should qualify as a stakeholder. Some
groups will be accepted as
stakeholders and their views will help
to determine the acceptability of a
strategy.

Page 44

The role of
culture

Corporate
governance

Stakeholders interests are liable to conflict. Mendelows


stakeholder mapping helps the organisation to establish its
priorities and manage different stakeholder expectations.

Level of interest
Low

High

Low
A

Power
Stakeholders can be:
 Internal
 Connected
 External

Integrated
reporting

High

 A: Minimal effort
 B: Keep informed; little
direct influence but
may influence more
powerful stakeholders
 C: Treat with care; often
passive but capable
of moving to segment
D; keep satisfied
 D: Key players
strategy must be
acceptable to them,
at least

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Social
responsibility

Page 45

Corporate
governance

The role of
culture

Integrated
reporting

The conduct of an organisations senior officers constitutes its corporate governance. The influence of those
officers over the behaviour of the organisation and the potential for both PR and financial disaster make this a
matter of strategic importance.
External measures to improve corporate governance
1 Accounting standards attempt to prevent financial manipulation
2 Codes of professional conduct regulate many senior managers
3 Commissions on standards of behaviour (in the UK) have established best practice
Free flow of information
to stakeholders tends to inhibit
wrong doing by senior managers.
However, commercial confidentiality
must be respected.

Page 45

Structural
measures

Non-executive directors
may remain objective and ensure
proper governance in such areas as
ethics, audit and senior manager
remuneration. However, there are now
accusations of partiality within a closeknit body of non-executives in the UK.
5: Stakeholders, ethics and culture

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organisation

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Social
responsibility

Page 46

Corporate
governance

The role of
culture

Integrated
reporting

The governance framework

Good corporate governance

Establishes who the organisation exists to serve and


how its purposes and priorities should be decided.
Separation of ownership and control brings the risk
of adverse selection and moral hazard.

Codes of best practice identify the way large


companies should be run. Among their provisions are
these:

Good corporate governance







Reduces risk
Improves performance
Improves external perceptions
Ensures an organisations strategy is directed
towards the benefit of legitimate stakeholders

 Directors should use independent judgement;


the roles of Chairman and CEO should be
separate; no individual or group should
dominate; there should be a balance of executive
and non-executive directors.
 Directors remuneration should be subject to
formal and clear procedures and be largely
controlled by non-executive directors.
 Non-executive directors audit committee should
oversee both internal and external audit.

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Corporate
governance

The role of
culture

Integrated
reporting

Organisational culture consists of the beliefs, attitudes, practices and customs that affect people during their
interaction with an organisation. It can have an important influence on strategy, both in the way that information
is interpreted and also by determining the acceptability of ideas and behaviour.

The paradigm
The basic assumptions and
beliefs that an organisations
decision-makers hold in common
and take for granted. It is
essentially conservative since it
is based on collective experience.
It is closely linked to the strategy
as experience lens.

The cultural web


J, S and W suggest that the
paradigm is reinforced by
physical aspects of culture.

Stories
Rituals
and
Routines

The
Paradigm

Control
systems

Page 47

Symbols
Power
structures

Organisational
structures

The cultural web provides a way of


understanding behaviours within an
organisation and making sure all the
organisational elements are aligned
with one another, and with an
organisations strategy.
If an organisation is not delivering the
results management wants, is
organisational culture contributing to
the under-performance?
The cultural web can be very useful in
change management.
5: Stakeholders, ethics and culture

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Social
responsibility

Page 48

Corporate
governance

The role of
culture

Integrated
reporting

Integrated reporting is concerned with conveying a wider message on organisational performance. It is


fundamentally concerned with reporting the value created by the organisation's resources.

Rise of integrated reporting


Traditional corporate reporting is said to only tell part of the story. Stakeholders are increasingly interested in
understanding how management use the organisation's resources to create value.

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Value creation


The International Integrated Reporting Council introduced the Integrated Reporting Framework. The framework defines
resources as 'capitals'.

Capitals are used to assess value creation. The framework classifies capitals as being:

Intellectual
Capital

Manufactured
Capital

Financial
Capital

Integrated
Reporting Capitals
Human
Capital

Natural
Capital
Social
Capital

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5: Stakeholders, ethics and culture

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Social
responsibility

Page 50

Corporate
governance

The role of
culture

Interaction of capitals
An increase in one capital may result in a decrease in another.

Example
Paying for a staff training programme may increase human
capital (eg improve staff skills), but reduce financial capital as
the costs of the training programme will lead to a reduction in
the company's financial reserves (eg money).

Integrated
reporting

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 Integrated reporting does not involve attaching monetary values to every part of an organisation's operations.
 Value creation can be measured by the use of qualitative and quantitative performance measures.

Example
Customer satisfaction can be measured by comparing
the number of customers retained year on year.

Implications of introducing
integrated reporting

Page 51

 IT costs

Consultancy costs

 Staff costs

Disclosure

5: Stakeholders, ethics and culture

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Notes

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6: Strategic choices
Topic List
Diversification
The corporate parent
The corporate portfolio
Generic strategies
Sustaining competitive advantage
Direction and method of growth
Strategy and market position
Success criteria

Various strategic choices can present themselves to an


organisation. An organisation will select its preferred
choice as a result of environmental and internal analysis
that shows which choice provides the best strategic fit
for the organisation. There is no right or wrong answer:
different frameworks and models will apply in different
business settings.

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The corporate
parent

Page 54

The corporate
portfolio

Generic
strategies

Sustaining competitive
advantage

Diversity of products and markets may be advantageous to the organisation for three reasons:

Economies of scope in the form of synergy

Corporate management skills are extended

Cross-subsidy can enhance market power

However, there are three questionable reasons that may be given to justify a policy of diversification:

Response to environmental change may be a cover for protecting the interests of top management
and may lead to ill-considered acquisitions.

Risk spreading is valid for owner managed businesses, but shareholders in large public companies can
diversify their own portfolios.

Powerful shareholder expectations, especially demands for growth, can lead to inappropriate
diversification.

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Conglomerate (unrelated) diversification

Horizontal integration
Development into activities that are competitive with,
or complementary to, present activities; eg, electricity
companies selling gas. Offers economies of scale.

Vertical integration
The organisation becomes its own supplier (backward
integration) or distributor (forward integration).
 Secures supplies
 Stronger relationship with end-users
 Profits from all parts of value system
 Creates barriers to entry
However:


More eggs in same end-market basket (Ansoff)


more vulnerable to a single market

 Spreads risk; escape from present business




May obtain synergy (eg acquiring new skills,


utilising distribution channels, pooling R+D)
organisational learning.

Use surplus cash/exploit under-used resources

However:
 Unfamiliarity with new segments increases risk
 More opportunities to go wrong
 Lack of common culture and purpose

 Withdrawal
 Demerger

Other strategies

 Does not offer significant economies of scale


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6: Strategic choices

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The corporate
parent

The corporate
portfolio

International business orientations


(Perlmutter)
Ethnocentrism is a home country orientation in
which the same products are marketed in the same
way both at home and in foreign countries.
Polycentrism adapts products and marketing
methods to each local environment. Each national
subsidiary runs its own operations.
Geocentrism recognises both similarities and
differences between markets and incorporates
them into regional or global strategies.
Regiocentrism is similar to geocentrism but
considers that there are differences between
regions.

Page 56

Generic
strategies

Sustaining competitive
advantage

Global strategic management (Ohmae)


5 reasons why companies globalise (5 Cs)
1
2
3
4

Customer:
Company:
Competition:
Currency:
5 Country:

global market convergence


search for economies of scale
demands global operations
manage exchange rate risk by operating globally
explicit absolute and comparative advantage

5 stages in global expansion


1 Exporting via agents to extend scale of operations
2 Overseas branches to replace agents with stronger presence
3 Overseas production exploits cheap labour and saves shipping
costs
4 Insiderisation via full capability: polycentric orientation
5 Global company has geocentric management orientation

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Key decisions for international expansion

1.

2.

Whether to market abroad


at all?

Adv
 Higher sales and profits
 Life cycle extended
 Spread seasonality
 Spread risk
Disadv
 Less control
 Costly
 Adaptations needed
Page 57






Which markets to enter?

3.

Mode of entry?

Direct or
Foreign
Market attractiveness
indirect
subsidiaries or
Competitive advantage possessed exporting
joint ventures
Risks (political; business; currency)
Overseas
Legal/regulatory factors
production
Before getting involved, the company must consider both strategic
(Does it fit?) and tactical/operational (Can we do it?) issues.
6: Strategic choices

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The corporate
parent

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The corporate
portfolio

Generic
strategies

Sustaining competitive
advantage

Entry strategies

Overseas
production

Exporting

Indirect
Export management
firms
Buying offices
Wholesalers
Piggy-backing
Distributors
Export houses
Stockists

Direct

Agents

Licensing,
Franchising

Contract
manufacture

to final user
via company
branch offices

Wholly owned
Joint
overseas production
venture,
Consortium,
Acquisition
Strategic
Organic growth
alliances

E-commence and Internet

Exporting

Overseas production

Advantages

Concentrates production; small start possible; Lower distribution costs; overcomes trade barriers; possibly lower
mnimises overheads
production costs

Key issues

Exchange rates, protectionism

Political risk; partnership; managing overseas facilities; more risky

Involvement

Usually less involved, but an exporter might


depend on the overseas market

Usually more involved, but overseas subsidiaries might act


independently: varying levels of control and risk

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The corporate
parent

Page 59

The corporate
portfolio

Three value-creating roles for the corporate


parent

 Envisioning corporate intent, communicating the


vision to stakeholders and SBU managers, and
acting in accordance with it.
 Intervention to improve performance.
 Provision of services, resources and expertise.

Generic
strategies

Sustaining competitive
advantage

Three kinds of parent




Portfolio managers create value by applying


financial discipline.They keep their own costs low.

Synergy managers pursue economies of scope


through the shared use of competences and
resources.

Parental developers add value by deploying their


own competences to improve their SBUs'
performance.

The corporate parent imposes costs, so it must create at least enough value to pay these costs. It may destroy
value:
 Exercise of managers political ambitions
 Size and complexity can obscure corporate vision
 Process and hierarchy slow decisions, stunt enterprise.
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6: Strategic choices

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The corporate
parent

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The corporate
portfolio

Generic
strategies

Sustaining competitive
advantage

Portfolio analysis is applicable to products, market segments and SBUs. There are four basic strategies:
Build
Invest for market share
growth

Hold
Maintain current
position

Harvest
Manage for profit in the
short term

The BCG Matrix


Market
growth

High
Low

Question mark
Star
Dog
Cash cow
High
Low

Relative market share

Stars build
Cash cows hold or harvest
Question marks build or harvest
Dogs divest or hold

Divest
Release resources for
use elsewhere

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Ashridge portfolio display


Benefit (fit between SBU opportunities and parental skills etc)
Low
High Ballast
businesses

High
Heartland
businesses

Feel
(fit between SBU
CSFs and
parental skills etc)

Alien
businesses

Low

Value trap businesses

Heartland businesses can benefit from the attention of the parent without risk of harm from unsuitable developments.
Ballast businesses are well-understood by the parent, but need little assistance. They should bear as little central cost as possible.
Value trap businesses provide good opportunities for parenting, but these opportunities do not relate to the SBU's CSFs.
Alien businesses have no place in the portfolio. They need the attention of a skilled parent, but the actual parent does not have the
skills and resources required to help them. This approach is based on the idea of the corporate parent as a parental developer.
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6: Strategic choices

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The corporate
portfolio

Generic
strategies

Sustaining competitive
advantage

The public sector portfolio matrix


The principal way of judging success in the private sector is by reference to customers. In the public sector, activities must
have political support. This does not depend exclusively on the opinions of the consumers of the services provided.
Ability to serve effectively
High

Low

High
Public sector star

Political hot box

Golden fleece

Back drawer issue

Public or
political need
(and therefore
support for
expense)

Low

A public sector star is something that the system is doing


well and should not change. They are essential to the
viability of the system.
Political hot boxes are services that the public want, or
which are mandated, but for which there are not adequate
resources or competences.
Golden fleeces are services that are done well but for
which there is low demand. They are potential targets for
cost cutting.
Back drawer issues are unappreciated and have low
priority for funding. They are obvious candidates for cuts,
but if managers perceive them as essential, they should
attempt to increase support for them and move them into
the political hot box category.

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parent

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The corporate
portfolio

Cost leadership
Aims to be the lowest cost producer in the
industry as a whole





Economies of scale
Use the latest production technology or
cheap labour
Productivity improvement
Minimisation of overheads
Favourable access to inputs

Focus

Generic
strategies

Sustaining competitive
advantage

Differentiation
Aims to exploit a product perceived as unique within the
industry as a whole

Aspects of cost leadership





Page 63

Aspects of differentiation




Breakthrough products radical performance


advantage
Improved products superior performance at a
competitive price
Competitive products unique combinations of features
Brand image
Special features
Unique combination of value activities

Activity is restricted to a particular segment of the market. Either a cost leadership or differentiation strategy is then
pursued. Such concentrated effort can be more effective, but the segment may be attacked by a larger firm.
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6: Strategic choices

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The corporate
portfolio

Generic
strategies

Sustaining competitive
advantage

Generic strategies and the five competitive forces


Competitive
force
New
entrants

Advantages
Cost leadership

Disadvantages
Differentiation

Cost leadership

Economies of scale raise barriers


to entry

Brand loyalty and perceived


uniqueness are entry barriers

Substitutes

Firm is not as vulnerable as its


less cost-effective competitors to
the threat of substitutes

Customer loyalty is a weapon


against substitutes

Customers

Customers cannot drive down


prices further than the next most
efficient competitor

Customers have no comparable


alternative
Brand loyalty should lower price
sensitivity

Suppliers

Flexibility to deal with cost


increases

Higher margins can offset


vulnerability to supplier price
rises

Increase in input costs can


reduce price advantages

Industry
rivalry

Firm remains profitable when


rivals go under through excessive
price competition

Unique features reduce direct


competition

Technological change will require


capital investment, or make
production cheaper for
competitors
Competitors learn via imitation
Cost concerns ignore product
design or marketing issues

Differentiation

Customers may no longer need the


differentiating factor
Sooner or later, customers become
price sensitive

Imitation narrows differentiation

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The strategy clock

Perceived added value

High

Low

3 Hybrid Low price plus


differentiation. Cost base
must be low. Can build
market share or be used for
market entry.

1 No frills needs a large


price-conscious segment. May
be used for market entry to
build volume and gain
experience.

5 Focused differentiation
seeks a high price premium in
return for a high degree of
differentiation.
3, 4 and 5 are all variants on
differentiation.

2 Low price better value


than competitors. Cost
leadership needed. Price
war may ensue.

Low
Page 65

4 Differentiation perceived added


value either increases market share
or supports price premium

6, 7 and 8 are all destined for


ultimate failure.

8
Price

High
6: Strategic choices

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Diversification

The corporate
parent

SUSTAINING A PRICE BASED


STRATEGY

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The corporate
portfolio

SUSTAINING DIFFERENTIATION

Generic
strategies

Sustaining competitive
advantage

LOCK-IN (Delta model)

Increase volumes or cross subsidise Secure preferred access to customers Achieved when a product becomes
from another SBU
or suppliers, via licensing for example, the industry standard (eg Microsoft
to block potential imitators
operating systems)
Constantly and aggressively drive
down all costs (meaning company
can sustain a price advantage)

Strong branding, proprietary


First mover advantage: Standard is
technology or co-specialisation can all more likely to be set early in product
make the cost of switching high for a lifecycle than when it is mature.
customer

Engage in a price war (if


company is cost leader or has
extensive financial resources)

Cost advantages might be used to


Standard-setter becomes perceived
invest in innovation, brand
as the one to follow, especially if the
management or quality improvements standard is set early in the product
lifecycle

Implement a no frills strategy, for


those who particularly appreciate
low prices

Fierce defence tactics will often be


employed

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Strategy and hypercompetition


Hypercompetition
A condition of constant competitive change created
by frequent aggressive competitive moves. No firm
can create lasting competitive advantage. Success
depends on effective short-term moves.

Options


Reposition on the strategy clock

Counter-attack undermine first mover


advantage by leapfrogging; initiate product
market moves

Attack barriers to entry by rapid technological


advance, cross subsidy or use of economies
of scale from another market, and
development of new distribution methods

Small players concentrate on niches, build


trade alliances and merge with others

Principles for strategy








Be unpredictable
Pre-empt imitation
Small moves disguise intent
Send misleading signals
Attacks on weakness may provoke attempts
to improve

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Direction and
method of growth

Strategy and
market position

Success
criteria

Ansoff described the four possible growth vectors in the four cells in the diagram
below: the growth vector matrix.
PRODUCT
New
Existing
Existing






Market penetration
Maintain or increase market share
Dominate growth markets
Drive out competition from mature
markets
Increase usage by existing customers

MARKET

New







Market development
New markets for current products
New geographic areas - export
New package sizes
New distribution channels
Differential pricing to suit new
segments

Product development
 Launch new products (using existing
knowledge of customers and their
needs/wants)
 May require new competences
 Forces competitors to follow suit
 Discourages newcomers
 May require investment in R&D or new
production facilities
Diversification
Related
Vertical
Forward

Horizontal

Unrelated
(conglomerate)

Backward

New competences will be required

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Mergers and acquisitions

Organic growth
The development of internal resources
 Supports learning and is supported by it
 Consistent culture and management style
 Provides economies of scale
 Ease of control
However:
 Can be slow
 Not good for dealing with barriers to entry

Cooperative methods
Include consortia, joint ventures, licensing,
franchising and sub-contracting. These methods can
enhance access to resources of all kinds, achieve
economies of scale, achieve synergy, and enhance
competences but stop short of a merger or takeover.
Page 69






Can overcome barriers to entry


Can spread risk
Can defend against predators
Provide access to a variety of resources: products;
managers; suppliers; production facilities;
technology and skills; distribution facilities; cash; tax
losses

However, many acquisitions fail to enhance shareholder


value.






Cost: the acquisition price is often too high


Customers may be disturbed by changes
Cultural problems, especially in management
Top management egos can warp judgement
Professional advisers drive the market
6: Strategic choices

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Direction and
method of growth

Strategy and
market position

Success
criteria

Joint ventures

Franchises

Two or more organisations join forces, and each has


a share in the equity and management of the
business.

Allow a business to expand with less capital


expenditure than would otherwise be necessary.
Franchisees pay lump sum to enter the franchise,
and also bear some of the running costs.

 Share costs - capital outlay is shared


 Synergies - combining expertise in different
areas
 Overseas JVs provide local knowledge, quickly
 Participating enterprises benefit from all sources
of profit
But:

 Reduces capital requirements


 Quicker expansion than opening new companyowned facilities
 Specialisation - franchisee and franchiser both
concentrate on their own areas
 Reduces head office and management costs
But:

 Profits are shared


 Conflicts over interest between different parties
 Disagreements over profit share splits,
management and strategy
 Risk of one partner withdrawing

 Profits are shared


 Issues re control over franchisees, and potential
for conflict
 Risk to brand/reputation if franchisee provides
inferior goods/services

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Direction and
method of growth

Strategy and
market position

Success
criteria

Strategies may be based upon market position


PIMS research showed a strong link between market share and profitability, probably dervived from scale
economies

Market challengers

Market leaders
Aims





Expand total market


Protect current market share
Expand market share (eg increased
promotion, aggrerssive pricing)

Market followers
Accept status quo, compete in suitable segments, control
costs and grow with market. Beware of predators.

Page 71

Aim

Build market share using attack strategies


outlined in Chapter 3 and by attacking
smaller rivals

Market nichers
Specialise in a niche with adequate size and growth
potential. Multiple niching spreads risk.

6: Strategic choices

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Direction and
method of growth

Strategies are evaluated according to:

1 Their suitability to the firms strategic situation

This might be analysed using life cycle analysis;


business profile analysis or strategy screening.
Internal
TOWS strategies are inherently suitable.
factors
Their feasibility in terms of resources
and competences
Resource deployment analysis, and financial
approaches such as funds flow analysis and
breakeven analysis would be appropriate tools
to access feasibility.

Strategy and
market position

Success
criteria

External factors
SO

ST

Use strengths to
Use strengths to
maximise opportunities minimise threats
WO

WT

Minimise weaknesses Minimise weaknesses


by taking advantage of and avoid threats
opportunities

TOWS Matrix

Their acceptability to key stakeholder groups


Depends upon the view of each stakeholder! Financial considerations (return on investment, cash flow,
cost benefit analysis) are generally important, but dont forget issues such as government legislation or
corporate social responsibility. Also, risks must be carefully assessed.

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7: Organising for success

Topic List
Challenges and concepts
Types of structure
Processes
Relationships
Collaborative organisational structures
Stereotypical configurations
Configuration and strategy

The modern business environment has seen the


emergence of new structural ideas and designs, and
traditional assumptions about organisation structure are
being replaced with more flexible formats. The need to
exploit knowledge has made organisation structures,
processes and relationships vital ingredients in strategic
success.

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Challenges
and concepts

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Types of
structure

Page 74

Processes

Relationships

Collaborative
organisational structures

An organisations configuration consists of the structures, process and relationships through which it
operates.

3 major challenges
1
2
3

Rapid environmental change and


uncertainty require organisations to be
flexible
New global communication and
information systems must be
accommodated
The strategic importance of knowledge
means that there must be effective
processes and relationships for linking
those who have knowledge and those who
need it.

Processes and relationships will have varying degrees of


formality and informality. The formal and informal aspects
must work together.
Also, processes and relationships are highly
interdependent and must work intimately and consistently
together.

Formal structure shows:


Who is responsible for what
Who communicates with whom
At the upper levels, the skills that are valued, and the role
of knowledge and skill

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and concepts

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Types of
structure

Page 75

Processes

Relationships

Collaborative
organisational structures

Self-contained organisational structures: historically most organisations have tended to be 'self contained' as they are distinct
from external groups (customers, competitors and suppliers).
Johnson, Scholes and Whittington identify review seven basic structural types:
1

Functional

According to the type of work logical but does not reflect value creating processes

Multidivisional

Semi-autonomous divisions that are then differentiated eg by-product brings problems of


balkanisation and potential value creation.

Holding company

Divisions are separate legal entities

Matrix

Co-ordination across functional lines allows flexibility, but may cause confusion (dual authority)

Transnational

National units operate independently, but share capabilities some have a specialisation that supports
the whole organisation

Team-based

Use of cross functional teams to operate a specific process area

Project

Similar to team-based, but with a finite life, since projects by definition have a finite life

No single model of organisation is suitable for all purposes. Managers must choose a structure in the light of which challenges they
regard as most pressing.
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Challenges
and concepts

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Types of
structure

Page 76

Processes

Relationships

Collaborative
organisational structures

Control processes determine how organisations function. They may be analysed according to whether they deal with INPUTS or
OUTPUTS, and whether they involve DIRECT MANAGEMENT ACTION or more INDIRECT effects. For example, balanced
scorecards are direct output-based processes.

Types of control process


Inputs
Direct

Supervision can be used for strategic control and in


a crisis
Planning processes budgetary control and
standardisation schemes such as ISO 9000: 2000 work
best

Indirect

Cultural processes can be very effective in complex


and dynamic environments. Depend on good training.
Self-control when combined with motivation, can be
very effective in exploiting knowledge. Depend on
appropriate supportive leadership.

Outputs
Performance targets useful in large organisations when
combined with autonomy, and in heavily regulated activities
such as privatised utilities.
Balanced scorecard emphasises need for broad range of
KPIs. See below.
Internal markets useful in complex and dynamic markets.
However, may encourage dysfunctional competition, timeconsuming bargaining and increased bureaucracy to monitor
effects. May also destroy collaborative culture.

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Page 77

Traditional accounting measures are inadequate for assessing overall progress. Other matters must be
considered, especially as financial reporting is heavily retrospective in focus. The balanced scorecard covers most
of the angles with its four perspectives. Note that individual measures are company specific.

Customer perspective

Internal business perspective

How do customers see us? This perspective


concentrates on customers concern with price,
quality, performance and service. Example measures
would be percentage of on-time deliveries and
customer rejection rates.

What business processes must we excel at to


achieve financial and customer objectives? Control
measures will focus on core competences, skills,
productivity and cost, for example.

Innovation and learning perspective

Financial perspective

Can we continue to improve and create value? This


perspective is forward looking and concentrates on
what the company must do to satisfy future needs.
Performance measures include time-to-market for new
products and percentage of revenue from them.
Page 77

How do we create value for shareholders? This is the


traditional reporting perspective, but must not be
overlooked. Market share and sales growth are
included here. Modern measures like value-added and
shareholder value analysis should be included.
7: Organising for success

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Challenges
and concepts

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Types of
structure

Page 78

Processes

Relationships

Collaborative
organisational structures

Organisational relationships are categorised as internal or external. Degree of centralisation is an important issue in internal
relationships.

Advantages of centralisation

Advantages of decentralisation

Allows easy exercise of firm control and strong leadership

Policy and procedure are easily standardised

Internal disputes may be settled more easily, though


political activity may still thrive






Concentration avoids the increased overheads that


duplication of facilities may produce

Reduces the workload at the strategic apex


Utilises expertise and local knowledge
Enhances job satisfaction for subordinates
Promotes faster response to changing conditions and
enhances flexibility
Grooms managers for promotion

Goold and Campbell identify three types of strategic decision making and control.
1 Strategic planners have a small number of core businesses. Planning and control are centralised.
2 Strategic controllers tend to be diversified. The strategic apex provides objectives and guidelines, but leaves planning initiatives
to business unit managers.
3 Financial controllers are more interested in profit targets than business unit strategy. Use financial performance for control.

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External relationships are increasingly co-operative rather than adversial.

Boundary-less organisation structures involve the organisation collaborating with outside parties to make
it more flexible during times of change.
Boundary-less structures include:
 Hollow organisations
 Modular organisations
 Network
 Virtual
 Shamrock organisation
 Alliances
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Challenges
and concepts

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Types of
structure

Page 80

Processes

Relationships

Collaborative
organisational structures

Hollow organisation structure


 Similar to a Network organisation
 Outsourcing is central to the creation of a hollow organisation
 Non-core processes are outsourced (eg Payroll) to specialist providers
 Entity now focuses on core value adding activities
 Outsourcing makes the organisation a hollowed out enitity
Modular organisation structure
 Production processes are outsourced to specialist providers
 The organisation will assemble the outsourced components in-house to
produce a final product. Allows for cost efficiencies

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Outsourcing has made the concept of the boundary-less organisation possible. Outsourcing involves the
contracting out of certain internal functions to a third party.

Offshoring is a form of outsourcing which involves an external party in a different country providing an
organisation with a particular process.

Advantages of offshoring






Cost savings
Focus on core activities
Improve capability
Skills
Flexibility

Page 81

Disadvantages of offshoring
 Quality issues
 Public perceptions
 Loss of control

7: Organising for success

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Challenges
and concepts

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Types of
structure

Page 82

Processes

Relationships

Collaborative
organisational structures

Shared servicing is an alternative to outsourcing. A shared service centre brings together certain functions
within an organisation.
IT support functions are commonly combined to provide services to the entire organisation, not just one
department.
Advantages of shared
service centres
 Reduced headcount
 Reduction in overhead costs
 Facilitates knowledge sharing
 Standardised approaches

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Page 83

Other forms of boundary-less organisation structure

Alliances

Network organisations

Minimum effective scale may require pooling of


resources. Complex organisations such as
alliances, partnerships and consortia result.
Co-operation may be based on any value activity.

Network structure may exist within an organisation in the


form of a loose array of informal, fluid relationships; this
approach can achieve innovative response to change.

Strategic outsourcing can lead to external networks and


virtual teams.This creates interdependence. Competitors
may collaborate on non-core competence matters such as
R&D and distribution.

Shamrock organisation (Handy)


Contingent
workforce
Often part time/temp
no career track routine
work engaged as
required

Consumers
eg buyers of
DIY furniture

Page 83

The virtual organisation







Geographically dispersed organisational components


Information technology is central to the production process
Flexible structure
Collaborative culture
7: Organising for success

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Challenges
and concepts

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Types of
structure

Page 84

Processes

Relationships

Collaborative
organisational structures

User contribution systems


Organisations have turned to user contribution systems as a means of extracting and collating customer
contributions.
New technologies such as Web 2.0 have enabled the widespread use of user contribution systems.
Buchanan and Huczynski highlight 6 motivations for individuals to
interact via user contribution systems:
 By-product

 Reputation

 Practical solutions

 Self-expression

 Social rewards

 Altruism

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Crowdsourcing involves obtaining information from a large group of people. Organisations can use this
information to help solve commercial problems.

Drawbacks of crowdsourcing
 Lack of credibility
 Collaborators do not have to collaborate

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7: Organising for success

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Page 86

Stereotypical
configurations

Configuration
and strategy

Mintzbergs view

Ancillary services eg
legal, PR

t ur
tru
c
os
hn
Te
c

Standardise work,
work processes,
outputs, skills eg
quantity assurance
staff

Strategic Seeks control, responsible for


strategy and boundary management
Apex

Support
Staff

Middle
Line
administer and
implement

Operating Core
Directly involved in operations:
seek autonomy

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Co-ordination
mechanism

8:59 PM

Key part

Page 87

Environment

Possible characteristics

Simple

Direct supervision Strategic apex

Simple/dynamic (even Small, young, centralised,


hostile)
personality-driven.
Crisis of leadership

Machine
bureaucracy

Standardised
work processes

Techno-structure

Simple/stable

Old, large, rule bound,


specialised

Professional
bureaucracy

Standardised
skills

Operating core

Complex/stable

Decentralised, emphasis on
training

Divisional
form

Standardised
outputs

Middle line

Varies, each division


is shielded to a
degree

Old, large, divisions are


quasi autonomous,
decentralised, bureaucratic

Adhocracy

Mutual adjustment Support staff

Complex/
dynamic

High automated, organic

Mintzberg mentions one other co-ordinating factor: mission. A missionary organisation is one welded together by
ideology or culture. It features simple systems and network relationships in team structures. It works well in a
simple and static environment.
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Stereotypical
configurations

Chandler believed that structure is determined by


strategy. Johnson, Scholes and Whittington suggest
that there are few practical combinations of
structures, processes and relationships. The ones
that work produce reinforcing cycles of behaviour
that make them cohesive, robust and difficult to
change. They look for opportunities that suit their
style. Change is thus dangerous since it disrupts the
reinforcing cycles, leading to worsening
performance until a new cycle is established.

Configuration
and strategy

Any structure will have problems of optimisation,


since all features have advantages and
disadvantages. For example, empowerment can
promote innovation but may lead to loss of control.

Possible approaches to optimisation




Divide the organisation and use a different


approach in each part
 Combine features in unusual ways
 Reorganise often

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8: Managing strategic change

Topic List
Situation analysis for change
Styles of change management
Change management roles
Change management levers
Pitfalls of change management

Strategies can be expected to change and evolve over


time because of environmental changes and
developments. Certain factors will drive change, and
expecting and controlling such factors is an important
part of strategic management.

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Situation
analysis for change

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Styles of change
management

Page 90

Change
management roles

Change
management levers

Pitfalls of change
management

The management of change starts with an understanding of three main considerations.

The type of change required its scope and nature


Scope of change
Nature of Incremental
change 'Big bang'

Realignment

Transformation

Adaptation

Evolution

Reconstruction

Revolution

The wider context of the change, in large part cultural considerations


 Time available
 Capacity - Availability of resources, especially finance, IS/IT and
management effort

Features to preserve

Workforce readiness to change, or resistence to change

Organisational diversity

Power to effect change

Capability to manage change


largely depends on experience

Scope of change needed

Forces facilitating and blocking change use of force field analysis

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Situation
analysis for change

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Styles of change
management

Page 91

Change
management roles

Change
management levers

Pitfalls of change
management

There are five main styles of change management:


Style

Characterised by

Appropriate to

Education and communication

Persuasion

Incremental change, willing staff

Collaboration and participation Involving those affected

Incremental change, supportive culture

Intervention

Change agents

Incremental change

Direction

Coercion/edict

Managerial authority, probability Transformation


of resistance
Use of power to impose change Times of crisis

Different approaches may be appropriate to different stakeholders. Normal management practice will also affect
the style used. It may be advantageous to use more than one style.
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8: Managing strategic change

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Situation
analysis for change

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Styles of change
management

Page 92

Change
management roles

Change
management levers

Pitfalls of change
management

A change agent is an individual or group that helps to bring about strategic change in an organisation.

Johnson, Scholes and Whittington examine change agency by considering three distinct groups:

Strategic leaders

Five approaches to strategic leadership:








Strategic analysis and design focus


Human assets development focus
Expertise as source of competitive advantage focus
Control by procedures and performance monitoring
Change as continuous process emphasis on communication and monitoring

Middle management
Providers of advice; translation of strategy at local level; implementation and control

Outsiders
Bringing a fresh point of view, such as a new chief executive or the use of consultants

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Situation
analysis for change

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Styles of change
management

Page 93

Change
management roles

Change
management levers

Pitfalls of change
management

A turnaround strategy is required when a business is in terminal decline. It has its own change management
techniques:
Crisis stabilisation management changes communication with stakeholders attention to target markets
concentration of effort financial restructuring prioritisation
In other circumstances, change management levers relate to the cultural web.

Change management levers


Challenging the paradigm

move away from entrenched habits

Changing routines

discard old ways of doing things

Use of symbolic processes

introduce new rituals and systems

Power and politics

build a power base, overcome resistance and achieve compliance

Communication and monitoring

explain the need for change, what change intends to achieve

Tactics

careful timing, use of quick wins, handling job losses - with care.

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8: Managing strategic change

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Situation
analysis for change

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Styles of change
management

Page 94

Change
management roles

Change
management levers

Pitfalls of change
management

Change programmes may be subverted and lead to unintended consequences. This has four implications for
change management.
 Monitoring and control are vital.
 The existing culture must be understood.
 The organisation's people should be involved in the change process.
 The extent of the challenge must be recognised.

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9: Business process change

Topic List
The background to process change
The business change lifecycle/POPIT
The process-strategy matrix
A process redesign methodology
Process commoditisation

This chapter examines how processes can contribute


towards the delivery of strategy, and how they might be
made more effective at doing this.

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The background to
process change

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The business change


lifecycle/POPIT

Page 96

The processstrategy matrix

A process redesign
methodology

Process
commoditisation

Business processes and business process re-engineering play vital roles in enabling an organisation to
implement its strategies successfully.
Change management

Value chains

Supply chain
management

Project management
Business Process
Re-engineering

Information technology
(Software packages, eg ERP)

Information technology
(e-business opportunities)

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The organisation
Inputs
People
Materials
Money
Information

Outputs
Goods
Services
Profits
Taxes

The organisation is an open system. It interacts with its


environment and is itself made up of processes that interact both
within its boundary and across it.The efficiency of these
processes (or subsystems) is always a major target for
improvement.
Business Process Reengineering
Fundamental rethink and radical redesign of business
processes to achieve dramatic improvements.
Workflow systems and Enterprise Resource Planning
Automate existing processes no specific redesign
Software engineering approach
Emphasises system, efficiency and consistency. Attempts to
substitute for human intervention.
Page 97

Page 97

The Rummler-Brache methodology


Processes must be seen as cross-functional wholes. 9 areas
of concern, defined by 3 structual levels and three
perspectives.
Goals and measures
of achievement
Design and
implementation

Organisation
as a whole
Process

Management

Job
Harmons approach
 Improvement projects should be tied to specific corporate
goals, or else focus will be lost.
 There must by buy-in by managers and staffs. This requires
change management and alignment of incentives.
 IT is vital: IT specialists must take a strategic view; line
managers must understand IT.

Terminology
Process improvement is a tactical, incremental technique.
Process re-engineering is for strategic, fundamental change.
Process redesign is for intermediate scale significant change.
9: Business process change

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The background to
process change

5/28/2014

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The business change


lifecycle/POPIT

Page 98

The processstrategy matrix

A process redesign
methodology

Process
commoditisation

The business change lifecycle provides a framework for assessing the key stages involved in undertaking a
business change project.
Alignment

Realisation

Implementation

Definition

Benefits
Management

Design

The lifecycle provides a broad umbrella framework from which different process change methodologies can
operate.

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Page 99

The POPIT model (four view model) focuses on four interrelated areas that require consideration if a
business change project is to be a success.

Organisation

Information
Technology
People

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Processes

9: Business process change

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Page 100

The processstrategy matrix

A process redesign
methodology

Process
commoditisation

This analyses processes in terms of their complexity on one axis and their strategic importance on the other.
High

Complex and dynamic


processes but not part of
companys core
competences: hard to
automate, so outsource

Complex decision,
design or negotiation
processes

Many complex rules;


expertise required

Process
complexity
and dynamics

Some rules present

Simple procedure or
algorithm

Complex, dynamic, high value


processes which generate
competitive advantages;
careful process improvement,
focusing on people, their
skills and their interactions

Examples: advertising,
staff counselling

Examples: product development

Simple, commodity-like
processed: automate with
off-the-shelf systems or
outsource

Simple but important


automate to improve
efficiency. Use six sigmabased improvements.

Examples: payroll accounting,


credit card approval

Examples:
sales order processing

Low
Strategic Importance
Low

Essential, but add


little value

High

Vital for success,


high added value

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lifecycle/POPIT

Harman describes a five phase methodology


for process redesign and the organisational
setting required for it to work.
The Setting






The organisation should be structured


around its systems and processes
rather than functionally
The process architecture committee
reports to the strategic apex and is
responsible for the effectiveness of
processes overall
The process redesign committee is set
up to oversee a redesign project and to
achieve buy in. It has representatives
from all the departments involved
The project sponsor is the manager of
the process being redesigned
The project facilitator is the project
manager and is neutral between groups.

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9:00 PM

1
2

3
4

Page 101

The processstrategy matrix

A process redesign
methodology

Process
commoditisation

The Methodology
Planning
Project charter defines goals, scope and roles. Project redesign team
nominated. Detailed project plan produced including time and cost budgets.
Analysing the existing process
May not be needed if:
 Full system documentation already exists  There is no existing process
 Radical change makes it unnecessary
Requires full process documentation, including goals, inputs, activities, outputs,
performance, incentives and how the process is managed. Project goals and
assumptions are then re-examined.
Designing the new process
Possible solutions are considered and the best chosen. May require simulation
of proposals. Must be fully documented. Must obtain management approval.
Development
Functional and resource implications followed through: training, IT, job
specifications designed. Overall change to a process structure may be made
at this stage: this is a project in itself.
Transition
Depends on change management. Merges into routine monitoring.
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The processstrategy matrix

A process redesign
methodology

Process
commoditisation

Outsourcing
 Reduces the workload on managers, enabling concentration on core competences
 Exploits suppliers economies of scale, knowledge and experience
 May be a core competence itself
Getting the best from outsourcing depends on relationship management
 Specification of services and standards
 Performance measurement
 Ability to adjust elsewhere if standards not achieved
Davenport says adoption of process standards (eg quality standards) will enable more processes to be
outsourced. This implies:





Process costs fall


Offshoring of jobs accelerates
Competition basis changes
Process quality improves

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Advantages and disadvantages of outsourcing


Advantages

Disadvantages

 Cost saving; exploit contractors economies of


scale

 Finding a single supplier who can manage


complex processes in full

 Increase effectiveness if supplier has higher


levels of expertise

 Confidentiality issues may prevent firms


outsourcing whole processes

 Focus on core activities/competencies


 Can deliver change more quickly than reorganising in-house

 Potential loss of control especially re quality


 Tied to inflexible, long term contracts
 Dependent on suppliers (supplier bargaining
power)

 Creation of customer/contractor relationship


formalises cost control

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Notes

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10: Improving processes

Topic List
Process redesign patterns
Standard software packages
Establishing software requirements
Assessing software packages
Selecting software packages

This chapter considers the practical detail behind


process change, for example, identifying the basic
redesign patterns which can lead to process
improvement.
IT is important in process improvement, and this chapter
also examines software selection (a known interest of the
P3 examiner).

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Standard
software packages

Page 106

Establishing
software requirements

Assessing
software packages

Selecting
software packages

A process redesign pattern is a general approach to redesigning processes for their improvement. Harmon describes four
basic redesign patterns:

Re-engineering

Starts with a clean sheet of paper


Fundamental rethinking
Radical and large scale improvements possible
Highly disruptive
High risk of failure

Value added analysis

Eliminates activities that do not add value from point of


view of customer
Activities may be value adding, value enabling (essential
preliminaries such as preparation and set-up) or non-value
adding (eg inspection or reworking errors).
Similar results as simplification.

Simplification

Eliminates redundancy/duplication
Identify, model and challenge all systems
Requires judgement and flexibility to deal with subtlety and
complexity.
Improvements vary in scale

Gaps and disconnects

Targets failures of communication between


departments/functions using 3 levels defined by Rummler
and Brache for process redesign (organisation as a whole;
process; job). This extends study to management activities
of control and monitoring at the level of the organisation as
a whole.

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Standard
software packages

Page 107

Establishing
software requirements







Cheaper development costs spread by


vendor
Time savings
Quality guaranteed by vendor
Documentation and training available
Maintenance and support available
Comprehensive package evaluation possible
before purchase

Selecting
software packages

Disadvantages

Advantages


Assessing
software packages







Property rights reside with supplier, who


controls development and support
Supplier may go out of business
Competitive advantage cannot be achieved if
package available to competitors
Inadequate performance or restricted
functionality a problem as not bespoke
Changing requirements will not be catered for

ERP systems are based on limited, standardised modules. This means that the organisation must adapt to the
standard system rather than designing its own most appropriate and efficient processes. However, the
alternative (adapting a standard package to local requirements) destroys the advantages of purchasing the
standard package and introduces further complications. Tailoring ERP software to fit an existing system is
generally a mistake.
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Standard
software packages

Page 108

Assessing
software packages

Establishing
software requirements

Selecting
software packages

There are seven techniques for collecting information at the start of an IS project.
Research techniques can be analysed as good (G), very good (VG) or not good (NG) in how they deal with
problems associated with change aversion, vagueness in responses, how much existing systems are taken for
granted, tacit knowledge, new systems, or lack of analyst experience.
Change
aversion

Vagueness

Taken for
granted

Tacit
knowledge

New
system

Inexperience

Interview

NG

Observation

NG

VG

NG

VG

Protocol analysis

NG

NG

VG

VG

VG

Document analysis

NG

NG

VG

Workshop

VG

NG

VG

NG

VG

Prototype

VG

NG

VG

VG

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Standard
software packages

Page 109

Establishing
software requirements

Assessing
software packages

Selecting
software packages

Skidmore & Eva: Software packages maybe assessed against ten high-level requirement categories, each of which is
made up of more detailed specific requirements. Not all high-level categories will receive the same weighting.
Imperatives are non-negotiable, absolute requirements and must be established very early on in the project.

1
2

3
4
5

Typical
Typical
Weighting
Weighting
6 Supplier social responsibility
Functional requirements support
2
30
business or operational functions
10
7 Initial implementation requirements relates
10
Non-functional requirements still
to installation; file creation and conversion; setup;
essential, but not related to business
and training
functionality eg legal compliance
2
8 Operability requirements documentation,
10
Technical requirements IT details and
support, upgrades, legal protection (source code
preferences may include imperatives
in escrow)
Design requirements mostly relate to
5
will almost always be
9 Cost constraints
20
system flexibility
imperatives but time and
cost trade-offs against
15
Supplier stability requirements to
2
other issues may be
ensure continuance of technical support
10 Time constraints
considered
includes financial position, reputation,
insurance, legal status, quality status

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Standard
software packages

Page 110

Establishing
software requirements

Skidmore and Eva propose a five phase selection process

1 Obtaining potential suppliers

Admin  Package requirements


Project  Evaluation procedures
Client project management procedures

3




Second pass selection

Objective reassessment of suppliers claims using specific


test scenarios. Suppliers may perform against a script or
client staff may use demonstration packages

Client

Response format 

Visits to reference sites to see package in operation


Financial investigation of suppliers
Implementation

Long-tem relationships
Client dependency on vendor can be mitigated





First pass selection

4
5

Selecting
software packages

Aim is to produce a short list of, say, 3 candidates. Based


on information in tenders assessed against the 10
requirement categories.

Identify potential suppliers


Advertise general system requirements
may be legally required in public sector
Research market trade directories, internet
Allow for early wastage
Invitation to tender
A complex document with details of




Assessing
software packages

Maintain good relationship


 Escrow agreement
Continuous evaluation for early warning of problems
Contingency plan to move elsewhere

Need for testing should be minimal; standard package


documentation likewise; though attention to both may be
needed to integrate interfaces. Training in the use of the
package (provided by vendor) and wider effects (provided by
client). File creation and conversion required.

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11: E-business
Topic List
Principles of e-business
Organisations and their customers
Hardware and software infrastructure
IT controls, continuity planning and
disaster recovery
IT and strategy
Supply chain management
E-procurement

E-business is relatively new, but is a rapidly expanding


and very important area of strategy building for many
organisations.

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Hardware and
software infrastructure

IT controls, continuity
planning and disaster recovery

IT and
strategy

E-business is the transformation of key business processes through the use of Internet technologies (IBM). If a financial
transaction is involved, the process becomes e-commerce. (E-business and e-commerce are often confused. Note the
distinction: a transaction must be involved to constitute e-commerce.)
E-business features

Adopting e-business

Purposes
 Increase revenues
 Improve channel efficiently (eg improved communication)
 Control and automate operations
 Reduce costs
 Gain visibility
E-business adoption pyramid









Challenges traditional business models by


replacing traditional intermediaries
Global markets accessible to small companies
New economics of information - much
available free of charge
Speed of access, communications and
transactions
Customised product offerings to precisely
defined target segments
Emergence of new, web-based intermediaries
Work becomes independent of location
New business partnerships

Mature capability
E-HR
Web-conferencing
E-collaboration
E-invoicing
E-procurement
Document management
Web portals
Company intranet
Email, internet, company website, remote working
Initial capability

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Benefits of e-business







Cost reduction in procurement and headcount needed to handle customers


Capability increase penetration in new countries; help reduce inventory levels held
Communication improved, more interactive communication with customers
Control better monitoring and control
Customer service enhanced basic enquiries can be dealt with via a website
Competitive advantage will be dependent on competitors use of e-commerce.

Barriers to e-business
Smaller businesses may regard e-business as irrelevant to them for reasons of size, cost of implementation or
typical customers not being users.
Other barriers
 Critical mass of internet users required this will vary by country
 Lack of ability or interest in credit transactions
 Different languages and cultural attitudes (eg to risk) will affect willingness to trade online
 Security concerns
 Skills required/training needs
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and their customers

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Hardware and
software infrastructure

Exchange initiated by

Varieties of e-commerce

Business

Consumer

Page 114

IT controls, continuity
planning and disaster recovery

IT and
strategy

Delivery by
Business

Consumer

B2B Business models

B2C Business models

eg bpp.com

eg Amazon.com

C2B Business models

C2C Business Models

eg Priceline.com

eg eBay.com

Changes to channel structures


Disintermediation direct selling instead of using distributors, wholesalers or brokers, ie online purchases
direct from suppliers
Reintermediation
new intermediaries eg Amazon, Expedia
Countermediation the creation of a new online intermediary by an established company eg Opodo

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Generic models (Rappa)

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Classification by characteristics

Brokerage

Bring buyers and sellers together and


facilitate transactions

Value proposition

How the customers need is


fulfilled

Advertising

Website services supported by advertising


(eg banner ads)

Revenue

Infomediary

Collecting and selling purchaser


information about consumers and their
purchasing habits

How revenue arises (eg fee,


advertising, subscription)
Planned market space (ie products
and services offered)
Nature of existing competition

Market opportunity
Competitive
environment

Merchant

Direct selling by retailers

Competitive advantage Superior offering vs competitors

Manufacturer

Direct selling by producers

Affiliate

Financial incentives to affiliate partners

Community

Users contribute to a website

Market strategy
Organisational
development
Management team

Subscription

Users pay a fee for access to a site

Utility

Metered usage as pay-as-you go

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The marketing plan


How the work required will be
accomplished
Nature of the group responsible for
making the business model work

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Hardware and
software infrastructure

IT controls, continuity
planning and disaster recovery

IT and
strategy

E-business architecture

Infrastructure

Players

E-business services
Application layer

E-commerce software systems; Customer


Relationship Management systems; Performance
enhancement; Supply chain management; data
mining and content management systems

Microsoft, IBM, Ariba,


BroadVision, Peoplesoft,
Siebel, Akamai

Systems software layer

Web browser, operating systems; server software and Microsoft, Sun, Linux
standards; networking software and database
Oracle, Sybase, IBM,
management systems; encryption software
Microsoft,Verisign

Transport or network layer

Web servers. Physical network routers and


transport standards (TCP/IP)

Storage/physical layer

Permanent magnetic storage on web servers. Optical


backup. Temporary storage in RAM

Content and data layer

Web content for Internet, intranet and extranet sites. PayPal, CyberCash,
Customers' data. Transactions data. Payment
Microsoft, Real Networks,
systems.Streaming media solutions. Hosting services Apple, IBM

IBM, Dell, Sun, Cisco,


Lucent

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Internet technology
TCP/IP. Internet technology is based on the Transmission Control
Protocol and Internet Protocol, (TCP/IP) which allowed several
smaller, predecessor networks running on different software to
be linked.
Client/server architecture. Client computers access services
from server computers. Each computer has a unique IP address.
World Wide Web and Hypertext. The world wide web is a
system of interlinked computer-stored documents. The links are
provided by hypertext address hyper links.
Alternative Internet access technologies
Interactive digital TV (IDTV) allows interactions via a cable TV
link or phone line for terrestrial or satellite broadcast.
Mobile phones can be used for m-commerce and web access
using Wireless Application Protocol (WAP), General Packet
Radio Service (GPRS) and 4th generation (4G) technology.
Wireless Fidelity (WiFi) Hotspots also allow wireless connection
to the Internet, largely for notebook computers.

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Protocol stacks. Interaction between computers


is carried on at several levels, from the physical
wiring, through the processes of transferring and
checking data to the final presentation to the
user. The Open Systems Interconnection (OSI)
standard uses 7 layers; these can be linked to the
4 layers of the TCP/IP protocol stack.
Intranets allow email and information sharing
within the protection of a firewall and are used
for a wide range of organisational purposes.
Extranets are web-based extensions to intranets
that provide accessibility to external users outside
the firewall. Security is a major issue and external
users must have usernames and passwords.
Extranets are the basis for many closely linked
business partnerships and network organisations;
they allow rapid business transactions such as
looking at a supplier's product catalogue
database and making an order.
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Hardware and
software infrastructure

IT controls, continuity
planning and disaster recovery

IT and
strategy

IT controls
For an organisation's IT assets to operate effectively adequate control measures must be put in place.
Controls are needed to prevent

Four types of control

 Theft

 Physical access controls

 Fraud

 Logical access controls

 Human error

 Operational controls
 Data input controls

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Continuity planning is focused on ensuring the survival of an organisation and its operations from both
internal weaknesses and external threats.
Disaster recovery is part of continuity planning. It is focused on the continuation of an organisation's IT
infrastructure in the event of a disaster occurring.

Causes of disasters

A good disaster recovery plan


should provide for

 Fire and floods

 Standby procedures

 Hackers

 Recovery procedures

 IT systems failure

 Personnel management

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Hardware and
software infrastructure

IT controls, continuity
planning and disaster recovery

IT and
strategy

Contents of a disaster
recovery plan
 Defines staff responsibilities
 Priorities
 Back-up and standby arrangements
 Communication with staff
 Public relations
 Risk assessment
Hardware duplication allows IT systems to function in cases of a systems breakdown.

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Hardware and
software infrastructure

IT controls, continuity
planning and disaster recovery

IT and
strategy

The Internet has the capacity to transform many businesses via the introduction of new technology and skills and, eventually,
the re-positioning of the offering to fit the new market conditions.
Organisations can visualise the necessary changes at three interconnected levels.
Level 1 The simple introduction of new technology to connect electronically with employees, customers and suppliers
(eg through an intranet, extranet or website)
Level 2 Re-organisation of the workforce, processes, systems and strategy in order to make best use of the new technology
Level 3 Re-positioning of the organisation to fit it into the emerging e-economy
A strategy for e-commerce should be considered at the highest level of management, and based on the standard criteria for
strategic choice:
Suitability. For most companies, e-commerce will be a supplement to more traditional operations, with the website forming a
supplementary medium for communication and sales. The marketing mix must remain internally consistent so that the
website and associated processes send the same messages as the traditional operation.
Acceptability. The e-commerce strategy must be acceptable to important stakeholders. Distributors are particularly important
here.
Feasibility. Feasibility is a matter of resources. The fundamental resource is cash, but the availability of the skilled labour
needed to establish and administer a website will be crucial to the e-commerce strategy.
Objectives, costs, benefits and budgets must be considered, and a coherent position established.
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Hardware and
software infrastructure

IT controls, continuity
planning and disaster recovery

IT and
strategy

The e-business strategy process


There is a 2-way relationship between corporate strategy and e-business strategy. E-business strategy both supports and influences
overall corporate strategy.
Differences between traditional strategy and e-business strategy
Traditional business strategy
Planning horizons Predictability and long-term execution plans
Process models
Prescriptive strategy: the three elements
(analysis, development and implementation) are
linked together sequentially
Planning cycles
One time development effort

E-business strategy
Adaptability and responsiveness within a short time period
Emergent strategy: the distinction between the three
elements may be less clear and they are interrelated

Power base

Iterative strategic development because the pace of change


is rapid
Positional power and strength in the market place Success based on manipulation of critical information

Core focus

Production and factory goods orientation

Customer orientation

Strategy is developed by continuous planning with feedback (Kalakota and Robinson)


1

Knowledge building and capacity evaluation

E-business blueprint detailed plan for implementation

Comprehensive e-business design (address customer needs)

Application development and deployment

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Stages of e-commerce development (Rao et al)


Stage 1

Stage 2

Stage 3

Stage 4

Presence

Portals

Transaction integration

Company integration

Content
Window to the Web
No integration
E-mail

Profiles
2-way communications
E-mail
Order placing
Cookies
No on-line financial
transactions

B2B/B2C
B2B
Communities
Full integration
E-marketplaces
E-business
Auctions
Uses e-commerce systems to
manage CRM and supply
3rd party emarketplaces
chain
Low-level collaboration
Value chain integration
On-line financial transactions
High-level collaboration

Such models can help management to understand the actions and resources required in their organisation,
since these very from stage to stage. They can also assist overall planning and control of development.
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Supply
chain management

Traditional: push model







Long term sales forecasts drive production and


inventory holding
Production pushed onto distributors using sales
promotions
Unresponsive to demand despite buffer inventories
Bullwhip effect - unco-ordinated amplification of minor
feedback signals leads to wide variation in production
and inventory levels, potential obsolescence

E-procurement

E-commerce: pull model








Demand drives production and inventory holding


Emphasis on response to customer needs and
preferences; responsive to changing demand
Lower inventories; higher service levels
Reduced bullwhip effect: reduced obsolescence
IS enhances responsiveness and makes system
practical by providing fast and accurate information
flows

IS and the value chain








Inbound logistics: MRP, ERP, JIT


Operations: MRP, ERP, CAD/CAM, CIM
Outbound logistics: inventory control, delivery routing
Marketing & sales: EPOS, website sales, CRM
Service: CRM, work scheduling

 Procurement:EDI, JIT, ERP


 Technology development: CAD, simulation
 HRM: employee records, skills database
Potential value improvements:
 Improved links both internal and external
 Improved information flows
 Cost reduction: automation, re-engeneering

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Taking advantage of IT (Porter and Millar)

Identify and rank competitive advantage


opportunities for IT eg reduce cost, enhance
differentiation, improve links between activities.

Investigate how IT can spawn new


businesses eg exploitation of new information
categories

Develop a plan to exploit IT. This will have


wide organisational implications.

Page 125

High

IT can enhance
efficiency of
operation

IT can enhance
delivery of product

High

Low

Sophisticated
IT needed for
delivery

Determine role of IT in industry structure.


Radical change may be possible.

Oil refining

Banking,
Airlines

Low

Information content of the product

Less
sophistication
needed

Assess information intensity in products and


processes. High level indicates potential for IT.

Information content of the value chain

Information intensity matrix

Cement

Fashion

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Supply
chain management

3 approaches to supply chain integration


1

Vertical integration: the flow of goods is through a


single integrated organisation

Vertical disintegration: economies of scale and


diseconomies of scope break the chain into distinct
pieces. These pieces must be co-ordinated.

Virtual integration: the virtual organisation


integrates all functions including core operations so
that separate organisations operate as one.

E-procurement

Increased pressure for supply chain


responsiveness


Increased competition arising from easier


market entry
 Increased volumes and speeds of data flow
 More demanding customer requirements
 Threat of disintermediation at all stages of the
supply chain

Two interrelated forms of integration at tactical (operational) level:




Forward physical flow of goods between suppliers, manufacturers and customers

Backward flow of information and co-ordination of data

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Supply
chain management

E-procurement

Benefits of e-procurement
Cost reduction

Might include process efficiencies, reduction in the actual cost of goods and services, and reduced
purchasing agent overheads

Reduced inventory
levels

Knowing product numbers, bid prices and contact points can help businesses close a deal while
other suppliers are struggling to gather their relevant data

Control

The ability to control parts inventories more effectively

Wider choice of
supplier

In theory, resources can be sourced from suppliers anywhere in the world, perhaps at much lower
prices than could be obtained if the organisation only considered local suppliers

Improved
manufacturing
cycles

Moving to e-sourcing speeds up the sourcing process dramatically but the increased efficiency and
speed can also put the rest of a supply chain in chaos if it is not prepared to step up its performance
to meet the increased speed in the purchasing link of the chain

Intangible benefits

Staff are able to concentrate on their prime function and there is financial transparency and
accountability

Benefits to suppliers Reduction in ordering and processing costs, reduced paperwork, improved cash flow and reduced
cost of credit control

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Supply
chain management

E-procurement

Risks of e-procurement






Control over potential for unauthorised purchases; can suppliers deliver the required quality?
Organisational risk that processes do not work or users do not adapt to them
Data security issues: access, storage, protection, back-up.
Management may lose spending control
Supply chain needs to be able to operate much more quickly else it could destabilise the system
Methods of e-procurement

 Procurement websites protected by password and username


 Prices may be set, or bids may be invited. Transactions may be completed by periodic billing.
 Paperless purchase and payment system may be provided by purchasing card effectively a limited
distribution credit card

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12: E-marketing

Topic List
E-marketing
Customer relationship management

This chapter is concerned with the way that Internet


technology can be used to build and sustain marketing
relationships.

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E-marketing

Customer relationship
management

E-marketing has been defined as the application of the Internet and related digital technologies to achieve
marketing objectives (Chaffey).
Functions of Internet marketing

Specific benefits of Internet marketing

 Creating company and product awareness

 Global reach

 Branding via website advertising

 Lower cost

 Offering incentives

 Ability to track and measure results

 Lead generation via interaction

 24 hour marketing

 Customer service

 Personalisation/one to one

 Email databases

 More interesting campaigns

 Online transactions

 Better conversion rate

Any online e-communication must be consistent with the overall marketing goals and current marketing
efforts of the organisation.

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Developing an effective e-marketing plan


SOSTAC planning framework (Paul Smith)
E-BUSINESS STRATEGY
Opportunities and threats,
PESTEL factors. Analysis of
demand, competitors,
resources and intermediaries
Marketing
research;
Analysis of webserver log files
Tasks
Resources,
Partnering &
outsourcing

Situational
analysis
Control

Objectives

Actions

Strategy

Tactics

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Use SMART mnemonic.


Assessment of online
revenue contribution
Target market strategy segmentation, positioning
7Ps - product, price, place,
promotion, people, process
and physical evidence

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E-marketing

E-marketing planning
Competitor analysis

Customer relationship
management

Scan competitor websites; benchmark e-commerce services

Intermediary analysis

Search portals for new approaches; research competitor intermediary policy;


identity and compare intermediaries

Marketing audit

Measurement: acquisition costs, leads, sales, ROI. Use web analytics to measure
impact of leads; sales and brand effects delivered over the Internet; create online
CRM capability

Objective setting

Online revenue contribution

Strategy

Online value proposition; identify target online segments

Tactics

Use Internet to vary the extended product


Consider new channel structures
Automate processes: autoresponder, FAQs, virtual assistants
Online branding
Online marketing communications eg email selling, search engine advertising

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Characteristics of the media of e-marketing the 6 Is


Plans should accommodate and exploit the 6 I characteristics
Independence of
location

Global reach of electronic products and services opens previously inaccessible


markets for exploitation

Industry structure

Redesign of business processes; new market boundaries and segments; ITenabled services

Integration

Widespread, effective use of detailed customer information throughout business


enables value added through product configuration, pricing, delivery and so on.

Interactivity

Customers can participate in a marketing dialogue; communications and


responses can be specifically targeted.

Individualisation

Tailored products, services and communications

Intelligence

Detailed customer information can be collected via interactivity

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Customer relationship
management

E-marketing and the marketing mix (7Ps)


1

Product

interactivity, more information, opportunities to customise and augment the product

Price

the Internet has made pricing very competitive; increased price transparency and the
ability to shop around

Place

new market places and channel structures. Since the Internet has global reach,
customer convenience is very important.

Promotion

reach more customers; target more specifically; use of email; banner advertising

People

people can be replaced with automated processes, such as FAQ pages on web

Process

new processes are required for online marketing, linking to other operational systems

Physical evidence customers experience such as ease of use of website, navigation, availability and
overall performance. Responsiveness to email enquiries is a key aspect.

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One of the most complex decisions involved in the marketing mix is setting the price of the goods.
Eight step process for determining price
 Select a pricing strategy (eg low price or high price)
 Assess target market's evaluation of price and its ability to pay
 Determine the nature and price elasticity of demand
 Analyse demand, cost and profit relationships
 Evaluate competitor's prices
 Determine the basis for pricing
 Select a primary strategy
 Determine the final price
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Customer relationship
management

Online branding
A brand is a means of differentiating essentially identical products. It is effective to the extent that its production
can generate positive associations (brand values) such as quality, style, value for money, advanced technology.
Visual identity is the basic element of ordinary branding: this remains important online, but the domain name
assumes equal significance.
Online brand options

Migrate traditional brand online

The values of the traditional brand may be


inappropriate to the online extended product, so a
variation may be required in the name or another
element of the brand.

Works if brand is well-known, but online failure


can taint original brand.

Partner with existing digital brand


A combination a brand names and values may be
ideal for new online product offering. It can also
protect against imitations.

Extend traditional brand

Create a new online brand


Appropriate especially if the existing brand values
do not relate well to the online experience. Basic
rules of branding apply.

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E-marketing

Customer relationship
management

Customer relationship management


is the establishment, development, maintenance and optimisation of long-term mutually valuable relationships
between consumers and organisations.

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Retention

Extension

Add value

Add value

Add value

Promotion
Incentives
Services
Profiles
Customer service
Direct e-mail

Extranets
Personalisation
Community
Promotions
Loyal schemes

Customer selection

Acquisition

Customer selection

Customer selection

Phases of CRM in e-business and e-commerce management (Chaffey)

Direct e-mail
I learning
On-site
promotions

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E-marketing

Customer relationship
management

Modern computer database systems enable rapid processing and analysis of customer data for relationship
marketing purposes.

Differences between transactional and relationship marketing


Transactional

Relationship

Importance of single sale

Importance of customer relationship

Importance of product features

Importance of customer benefits

Short time scale

Longer time scale

Less emphasis on service

High customer service (customer centric)

Quality is concern of production

Quality is concern of all

Competitive commitment

High customer commitment

Persuasive communication

Regular communication

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Customer acquisition online


1

Search engine optimisation of web page design


can put a supplier high up in search engine listings
thus generating more enquiries from intending
purchasers.

Viral marketing attempts to harness the online


equivalent of word of mouth by providing easy
to send web pages and links, and by promoting
discussion.

Newsgroups and discussion forums may be


offered in house or sponsored externally to promote
contact with existing and potential customers

Banner advertising on websites may be paid


for per click or action, for example.

E-newsletters can nurture prospects.

Email is used for advert communication to


established address databases.

Link building and partnership compaigns provide


mutual hyperlinks and co-ordinated ecommunications

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Customer relationship
management

Business and consumer markets' buyer behaviour on the internet


Differences

B2B

B2C

Market structure Fewer buyers but larger purchases. Demand largely derived from
consumer demand eg, car industry buys steel because consumers
buy cars

Many buyers with smaller purchases

Nature of the
buying unit

Buying unit differs more rational approach, more people


involved

Individuals or families

Type of
purchase

Purchase products to meet specific business needs want a


customised product package. Emphasise economic benefits

Type of buying
decision

Purchase products to meet individual or


family needs.
Purchase from intermediaries
Business purchases involve a more complex decision-making process Buy on impulse or with minimal
with formal, lengthy purchasing policies.
processes

Communication Existing customers can be contacted directly. Information is


placed on the web to support customers and encourage loyalty.
differences
Website content should be tailored to the needs of users,
influencers and deciders

Promoting the website uses methods


such as banner ads and search
engines

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Applications of database marketing techniques (Allen et al)


Project

Method

Identify the best customers

Use RFM analysis (Recency of the latest purchase, Frequency of purchases


and Monetary value of all purchases) to determine which customers are most
profitable to market to.

Develop new customers

Collect lists of potential customers to incorporate into the database.

Tailor messages based on customer Target mail and e-mail based on the types and frequency of purchases
usage
indicated by the customer's purchase profile.
Recognise customers after purchase Reinforce the purchase decision by appropriate follow-up.
Cross-sell related and
complementary products
Personalise customer service

Use the customer purchase database to identify opportunities to suggest


additional products during the buying session.
Online purchase data can prompt customer service representatives to show
that the customer is recognised, his or her needs known and his or her time
(for example, in giving details) valued.

Eliminating conflicting or confusing


communications

Present a coherent image over time to individual customers, however different


the message is to different customer groups. (For example, don't keep sending
'dear first-time customer' messages to long-standing customers!) Remember
the Integrated Marketing Communications approach

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E-marketing

Customer relationship
management

Datamining is a set of statistical techniques used to identify trends, patterns and relationships in data. It may be
predictive or descriptive.

Customer relationship management


Three aspects:
1

Operational CRM

supporting front office business processes such as call centres

Collaborative CRM

covers direct interaction with customers

Analytical CRM

analyses customer data for a variety of purposes, eg risk assessment or fraud


detection; retention or lapsing rates

CRM systems focus on four general areas:


1 Sales automation: lead management, order taking, sales support
2

Service management: help desk, problem tickets, FAQs

Marketing automation: prospects database, campaign management

Management reporting: tables, graphics, analysis of data

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CRM solutions
Applications
 Electronic marketing: eg email campaigns

CRM system functionality

 Target mailing: based on sales history

 Scalability: the ability to expand the system as


the scale of operations increases.

 Sales analysis: details of sales achieved can


indicate prospects for further, related sales

 Multiple communication channels such as


phone, WAP and email.

 Order building: order takers can be provided


with customer details, purchasing habits and
order history.

 Workflow: automatic rule-based routing


through the system

Back office integration


Existing data must be integrated with the CRM
system so that loose ends are minimised; eg an
order taker must have access to inventory records
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 Databases are fundamental for storing


customer-related information
 Customer privacy: eg data encryption, must
be a high priority.

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Notes

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13: Project management


Topic List
The nature of project management
The project lifecycle
Building the business case
Practical aspects of project planning
Project management
Controlling projects
Project management software

The syllabus emphasises the relationship between


project management and strategy.

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business case

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Practical aspects
of project planning

Project
management

Controlling
projects

Project
management software

A project is an undertaking that has a beginning and an end and is carried out to meet established goals
within cost, schedule and quality objectives. (Haynes, Project Management)

Project management objectives

Quality
Budget
Timescale

The outcome must meet the specification.


Authorised expenditure must not be exceeded.
Deadlines must be met.

Why projects go wrong

Project management problems









Need for team building


Identified difficulties
Unexpected problems
No client benefit before completion/delayed benefits
Management of specialist input
Wide range of stakeholders










Unproven technology
Changing client specifications
Politics at all levels/lack of management support
Poor project management
Over optimism
Poor leadership by technical experts
Poor planning
Poor control

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The processes involved in project management can be summarised as follows.


Plan/replan
project

Take
corrective action

Compare actual
progress to
project plan

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Perform
tasks

Measure
progress

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Practical aspects
of project planning

Project
management

Controlling
projects

Project
management software

Projects and strategy


Project management can make major contributions to business strategy.
 Rapid environmental development forces organisational response: a project management approach to
strategic change may be fruitful. Project management and change management are intimately linked.
 Much strategic implementation can be configured into projects.
 Many projects emerge in a bottom-up fashion: they must be screened to ensure that they support overall
strategy, and managed with strategic awareness so that they deliver what the organisation actually needs.
 The process of developing strategy is often fragmented and incremental; the development of strategy may
be improved by treating it as a project to be managed.
 A breakthrough project is a project that will have a material impact on either the businesss external
competitive edge, its internal capabilities or its financial performance. (Grundy and Brown)

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The project lifecycle

Selection of project from pool of proposals using strategic


criteria: suitability, acceptability, feasibility
Definition of objectives, scope, opportunities, threats, risk,
cost, difficulty, stakeholders
Techniques: fishbone analysis, performance drivers, gap,
from-to and stakeholder analyses
Initiating tasks: naming of project sponsor and manager,
preparation of project initiation document and business case,
identifying constraints (scope, time, cost)




Definition

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Design
Detailed planning for activity costs,
quality, time, risk.
Creation of budgets
Work breakdown structure,
dependencies and interactions, network
analysis, PERT, use of project
management software to generate plans
Resource allocation

Development
Aim: to improve the organisations overall ability to manage projects.
Immediate review to provide rapid feedback where urgent action is
required eg training, procedure change
Longer-term review to determine overall success. Consideration of
lifetime costs
Benefits realisation

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Delivery
Assembly and use of resources
People management
Control of progress
Progress reports
Completion (or abandonment)
Handover
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Practical aspects
of project planning

Project
management

Controlling
projects

Project
management software

The business case is used to secure funding, then revisited and revised during the life of the project.
Elements of a business case










Introduction
Management summary
Description of current situation
Options considered
Analysis of costs and benefits
Investment appraisal
Impact assessment
Recommendations
Appendices and supporting information

A business case should be based on the ability to


measure each benefit and estimate expected
improvements.
Benefits can be classified as either observable,
measurable, quantifiable or financial.
OBSERVABLE: Measure by experience/judgment
MEASURABLE: Can be measured but can't quantify
expected improvement at outset.
QUANTIFIABLE: Can reliably forecast level of
improvement from benefit at outset.
FINANCIAL: Quantified benefits that have had a financial
formula applied to it to produce a financial value.

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Evaluation of Costs and Benefits


Approach

Decision of criteria

Advantages

Accounting
Rate of
Return
(ARR)

Acceptable projects
achieve target ARR
Select project with highest
ARR




Consistent with ROCE



Result expressed as a percentage 


Ignores time factor


Based on profits not cash
Difficult if comparing investments of
different size

Pay back

Period (PP)


Acceptable projects have


PP shorter than target PP
Select project with shortest
PP





Quick and easy to calculate



Easily understood

Emphasises importance of liquidity 

Ignores cash flows after pay back date


Ignores many risks
Not linked to promoting increases in
organisational and shareholder wealth

Net Present 
Value
(NPV)


Acceptable projects return


a positive NPV
Select project with highest
NVP




Consider all costs and benefits


Allows for timing of costs and
benefits
Aligns with business objective of
increasing wealth

Acceptable projects have


IRR greater than cost of
capital
Select project with highest
IRR




Internal
Rate of
Return
(IRR)

Page 151

Consider all costs and benefits


Allows for timing of costs and
benefits

Limitations





Does not relate directly to shareholder


wealth
Ignores scale of investment
Can be unreliable it cashflows are
unconventional
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Practical aspects
of project planning

Project
management

Controlling
projects

Delivering the benefits







A benefit owner should be assigned to each individual benefit


Change owners may also be required to ensure benefits are fully realised
A benefits realisation plan should be included as part of the business case

Benefits realisation plan




Full description of each benefit, change and responsibilites (ie benefit


owners and change owners)







Measures for each benefit


Measurements to establish current baseline
Agreed ownership of changes and actions
Evidence to be used to assess success of each change
Benefit dependency network identifying benefit and change relationships

Project
management software

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Practical aspects
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Project
management

Controlling
projects

Project
management software

Work breakdown structure is the analysis of the project into units stages and tasks. It establishes time
estimates, resource and materials estimates, and identifies direct and overhead costs.
Gantt charts plan and record activities
ACTIVITY

TIME

1
2
3
4
5

Resource histograms plan and control resources


UNITS
8
7
6
5
4
3
2
1
7

Network analysis plans and controls the sequence


of activities. The critical path through the network
determines the minimum time the project will take.
Float time allows for some flexibility in the use of
resources.
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14

21

35

42

B
D

DAYS

28

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Practical aspects
of project planning

Project
management

Controlling
projects

Project
management software

The person who takes ultimate responsibility for ensuring the desired result is achieved on time and within
budget is the project manager. The project manager has responsibilities to management (eg to keep them
informed), to the project itself, and to the project team (eg ensuring that the team has the resources required).
Skills required

Duties of the project manager











Planning
Obtaining resources
Teambuilding
Communication
Co-ordinating project activities
Monitoring and control
Problem resolution
Quality control










Leadership and team building


Organisational ability
Understanding of the way that groups interact
Written and spoken communication skills
Interpersonal/negotiation skills
Technical knowledge of the issues involved
Problem solving
Change control/change management

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A group differs from a random collection of people in


that its members perceive themselves to be a group.
They have:

Development of the team Tuckman

 A sense of identity
 Loyalty to the group
 Purpose and leadership

Forming. The team is still a collection of individuals


jockeying for position. Aims, norms and personalities
are probably unclear and no leader is likely to have
emerged.

Multidisciplinary team
Members have different skills, knowledge and
experience. Such teams can solve problems with
cross-disciplinary aspects.

Multi-skilled team

Storming. There may be open conflict as objectives


and norms are set and revised. Trust increases.
Norming. The team settles down and creates
norms for output, worksharing and individual needs.
Performing. The team is sufficiently integrated to
perform its task.

Members all have a range of skills, enabling


greater flexibility of work patterns.
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Practical aspects
of project planning

Project
management

Controlling
projects

Project
management software

A contingency approach to team effectiveness (Handy)


GROUP
LEADERSHIP
MOTIVATION PROCESSES PROCEDURES
STYLE
THE OUTCOMES

THE GIVENS
1. The groups members

1. Productivity

2. The groups task


3. The groups
environment

INTERVENING FACTORS

2. Group satisfaction

Members: Belbin identified that the members of effective teams play different roles within the team
Task: Degree of urgency, complexity and importance influence both group and manager
Process and procedures: A team that tackles its work systematically will be more effective than one that muddles through
Motivation and leadership: High productivity outcomes may be achieved if work is arranged so that satisfaction of
individuals needs coincides with high output. Style of leadership can also affect the outcome.

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Team roles Belbin


Effective teams have members who between them are capable of fulfilling nine vital roles:
1
Co-ordinator
Presides and co-ordinates; balanced, disciplined, good at working through others. Mature
and confident.
2
Shaper
Highly strung, dominant, extrovert, passionate about the task itself, a spur to action.

Introverted, but intellectually dominant and imaginative; source of ideas and proposals
but with disadvantages of introversion.
Monitor-evaluator
Analytically (rather than creatively) intelligent; dissects ideas, spots flaws; judges
accurately.
Resource-investigator Sociable, extrovert, relaxed; source of new contacts, but not an originator; explores
opportunities.
Implementer
Practical organiser, turning ideas into tasks; trustworthy and efficient, but not excited.

Team worker

Supportive, understanding, diplomatic; popular, uncompetitive and mild.

Completer

Attends to details and delivery; conscientious and anxious.

Specialist

Dedicated, knowledgeable, single-minded.

Plant

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Practical aspects
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Project
management

Controlling
projects

Project
management software

A progress report shows the current status of the project, usually in relation to the planned status. Where
actual progress is slower than planned, slippage has occurred. Slippage can be dealt with using a variety of
options:






Do nothing

Add resources to make up lost ground
Work smarter to be more efficient

Replan
Reschedule, ie change the phasing
Introduce incentives to enhance individual performance
Change the specification

If the plan is to be changed, ask the following questions:


What are the consequences of not implementing the change?
What is the impact of the change on time, cost and quality?
What are the expected costs and benefits of the change?
What are the associated risks? (Use a risk assessment matrix)
If a project starts to slip, but has a fixed deadline and cannot be delayed, a project manager should consider
fast-tracking and crashing.

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Risk management

Benefits realisation

Can be viewed as a six-stage process:

Undertaking a project should bring benefits. Part of the


completion review is the measurement of benefits
realised. This requires a measurement of the state before
project start, the creation of a benefits profile stating
benefits anticipated and measuring of benefits actually
achieved.

Plan approach based on attitude to risk

Identify and record risks in risk register

Assess risks
Probability
Consequences
Plan and record responses
Avoidance
Mitigation
Transfer
Absorption
Implement risk management strategies

5
6

Post completion audit


An organisation should undertake a formal review of the
project once it has been completed to examine the
lessons that may be learned and used for the benefit of
future projects.

Review risk management approach and


actions for adequacy

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business case

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Practical aspects
of project planning

Project
management

Controlling
projects

Project management
software

Project management software can be used to help project planning and control.
Planning Software can be very useful for scheduling resource usage (network diagrams; Gantt charts;
what if? analysis)
Estimating Store data about tasks to provide more accurate estimates for similar tasks in future
Monitoring Monitor actual progress, and automatically update the plan for critical path. Should help provide
an early warning of any risks to the project.
Reporting Progress reports can be generated to help co-ordinate activities.
Advantages

Disadvantages

 Enables quick re-planning

 May be difficult to use

 Document quality

 Unnecessary for small, stand-alone projects

 Encourages constant progress tracking


 What if analysis

 Managers spend too much time producing


documents rather than managing the project

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14: Finance
Topic List
Finance and strategy
Financial management decisions
Cash forecasts
Obtaining equity funds
Bank loans and loan capital
Budgets
Evaluating strategic options
Ratio analysis
Comparison of accounting figures

This chapter considers the important issues to be


evaluated when assessing alternative financial strategies
for an organisation.

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Cash
forecasts

Obtaining equity
funds

Bank loans and


loan capital

Budgets

There are three broad issues of finance


1







Managing for value


Creating value for shareholders
Revenue/cash generation
Dividend payments/share price
Understanding cost and value drivers
Obtaining value for money (public sector)





3

Financial expectations of stakeholders


Employee salary expectations
Shareholders dividends or capital growth?
Trading partners expecting solvency and liquidity
Customers expecting value for money

Funding strategies
Degree of financial risk accepted and implication of
proposed strategies for gearing

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management decisions

Cash
forecasts

Page 163

Obtaining equity
funds

Bank loans and


loan capital

Budgets

In seeking to attain the financial objectives of an organisation, a financial manager has to make decisions on three topics:

Investment decisions

Financing decisions

Investment decisions include:

Financial decisions include:






 Long-term capital structure:


need to determine source, cost
and risk of long-term finance.

New projects
Takeovers
Mergers
Sell-off/divestment

The financial manager must:


 Identify investment opportunities
 Evaluate them
 Decide optimal funding

 Short-term working capital


management:
balance between profitability and
liquidity is crucial.

Dividend decisions
Dividend decisions may affect views
of the companys long-term
prospects, and thus the shares
market value.
Payment of dividends limits the
amount of retained earnings available
for re-investment.

Consider interaction of decisions, eg paying out dividends leaves less funds available to finance investments.

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Cash
forecasts

Obtaining equity
funds

Bank loans and


loan capital

Budgets

Cash forecasting should ensure that sufficient funds will be available, when needed, to sustain the activities of
an enterprise at an acceptable cost.
A cash budget or forecast is a detailed budget of estimated cash inflows and outflows incorporating both
revenue and capital items.
Cash forecasts can help in planning the structure of an organisations finances
 How much cash is required
 When it is required
 How long it is required for
 Whether it will be available from anticipated sources
A business will also need to take account of economic variables (such as inflation, interest rates) and
business variables (such as changes in the competitive environment).
Cash deficits will be funded in different ways, depending on whether they are short or long term. Businesses
should have procedures for investing surpluses with appropriate levels of risk and return.

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management decisions

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Cash
forecasts

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Obtaining equity
funds

Bank loans and


loan capital

Budgets

Equity is the issued ordinary share capital plus reserves which represent the investment in a company by its
ordinary shareholders.

Retained profits are a source of equity funding.


This approach is flexible and does not change the
pattern of shareholdings. However, shareholders
may prefer the cash to be distributed as dividends.

Page 165

Equity shares maybe issued to:


 Raise cash
 To obtain a stock market listing
 To take over another company (by issuing shares
to the shareholders of the other company)

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Page 166

Cash
forecasts

Obtaining equity
funds

Bank loans and


loan capital

Budgets

Overdrafts and loans


Overdrafts are used for short-term financing needs. A maximum facility is granted; the bank will want any longterm balance reduced. Overdrafts are repayable on demand; security may be over specific assets or over the
whole business.
Loans are medium and long-term. The organisation wont be subject to the publicity requirements or costs of a
loan stock issue on the stock exchange, but will have to make regular interest payments. Security or restrictive
covenants may be imposed.
Overdrafts






Designed for day to day help


Only pay interest when overdrawn
Bank has flexibility to review
Can be renewed
Wont affect gearing calculation

Overdrafts
v
loans

Loans






Medium/long-term purposes
Interest and repayments set in advance
Bank wont withdraw at short notice
Shouldnt exceed asset life
Can have loan-overdraft mix

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Loan capital or loan stock is debentures and other long-term loans to a business. It has a nominal value,
which is the debt owed by the company, and interest is paid at a stated coupon on this amount.

Example
Company issues 10% loan stock
Coupon is therefore 10% of the nominal value
So, $100 of stock will receive $10 interest each year (gross before tax)

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Financial
management decisions

Cash
forecasts

Budgets convert strategic plans into specific targets


Mission
Strategic objectives
Sets overall direction

Shows how mission will


be acheived

Promote forward thinking


Helps co-ordinate aspects of organisation
Motivates performance
Provides basis for system of control
Provides system of authorisation

Limitations of budgets






Benefits may be in conflict with each other


May demotivate if unattainable
Slack may be built in
Focus on short-term
Unrealistic budgets may lead to poor decisions

Obtaining equity
funds

Strategic plans
Shows how objectives will
be pursued

Benefits of budgets






Page 168

Bank loans and


loan capital

Budgets

Budgets
Short-term plans and targets to
fulfil strategic objectives

Features of successful budgetary control systems












Senior management take system seriously


Clear responsibilities and accountability
Targets are challenging but achievable
Established data collection, analysis and reporting routines
Targeted reporting
Short reporting periods
Timely reporting
Provokes action

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Page 169

Evaluating
strategic options

Ratio
analysis

Comparison of
accounting figures

Relevant costs and marginal costing are useful for evaluating strategic options.

Accepting/rejecting special contracts

Make or buy decisions

 Determine contribution (revenue less costs)

 Use marginal costing to identify contibution for


both options

 Accept if positive contribution


 May be other factors to consider, eg negative
contribution but may lead to more lucrative
contracts

Efficient use of scarce resources


 Most profitable combination is where the
contribution per unit of the scarce resource
(eg labour) is maximised

Page 169

 Select highest but there may be other factors to


consider

Closing or continuation decisions


 Determine contribution to overall organisation
made by individual department
 Departments that make a positive contribution
should not be closed even if it makes a net loss
overall (fixed costs incurred regardless)
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Evaluating
strategic options

Remember!

Comparison of
accounting figures

Consider the requirements of the question and the contents of the scenario carefully before
calculating ratios. The examiner will be looking for relevant ratios accompanied by meaningful
comments, including appropriate comments on the limitations of ratio analysis.

Liquidity ratios

Profitability and return






Ratio
analysis

Return on capital employed (ROCE)


Profit margin
Asset turnover





Current ratio
Inventory turnover
Account receivable
days




Quick (acid test) ratio


Account payable
days

Debt and gearing


Stock market ratios





Debt ratio (Total debts: Assets)


Capital gearing (Proportion of debt in long-term
capital)
Interest cover
Cash flow ratio (Cash inflow: Total debts)





Dividend yield
Earnings per share
Price/earnings ratio




Interest yield
Dividend cover

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Evaluating
strategic options

Comparisons with companies in


different industries

Comparisons with other


companies in same industry

Investors aiming for diversified


portfolios need to know
differences between industrial
sectors.

These can put improvements


on previous years into
perspective if other companies
are doing better, and provide
further evidence of effect of
general trends.

 Sales growth
 Profit growth
 ROCE
 P/E ratios
 Dividend yields

Page 171

 Growth rates
 Retained profits
 Non-current asset levels

Ratio
analysis

Comparison of
accounting figures

Comparisons with previous


years






% growth in profit
% growth in turnover
Changes in gearing ratio
Changes in current/quick ratios
Changes in inventory/receivables
turnover
 Changes in EPS, market price,
dividend
Remember, however:
 Inflation can make figures
misleading
 Results in rest of
industry/environment, or economic
changes to give context
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Notes

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15: Human resource management

Topic List
Strategic leadership
Job design
HRM and knowledge work
An overview of job design
Staff development

This chapter looks at the various ways that staff can


contribute towards organisational success, through
effective management of the workforces efforts.

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Job
design

Page 174

HRM and
knowledge work

An overview
of job design

Staff
development

Trait theories

Behavioural theories

Pre-suppose that some people are inherently suited to


leadership positions. They have been criticised as rooted in a
class-based social structure; it is widely accepted that
leadership is about behaviour and can be taught.
Nevertheless, there is evidence that some personal traits can
support leadership effectiveness.

Range from McGregors Theory X and Theory Y through the concept


of a spectrum of leadership styles developed by Lewin, Likert, and
Tannenbaum and Schmidt, to Blake and Moutons 2 axis model.

Transformational theories
Contrast with transactional theories (all others on this page).
Transformational theories emphasise teams, change and
vision to deal with rapid development in the environment. Van
Maurick lists 5 expectations of modern leaders:






Change organisations from within


Empower others
Team work and delayering
Clarity of purpose and direction
Visionary strategies

Contingency theories
Adair
Effective leaders attend to task needs, group needs and individual
needs
Fiedler
Leadership style depends on personality; effectiveness depends on 3
situational variables
 Position power authority
 Task structure clear, well-defined
 Leader/subordinate relations
Task orientated approach suitable when situation very favourable or
very unfavourable in less extreme cases, a people centred
approach is more effective.

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HRM and
knowledge work

An overview
of job design

Staff
development

JOB DESIGN is all about organising work four approaches are identified.
1

Scientific Management

The pursuit of productivity via efficient methods


use of 'work study' (one best way to do a job); leads
to deskilling, alienation and quality problems.

Japanese model

Flexible manufacturing, with emphasis upon quality


and the minimisation of waste, via multi-skilled
workers. Brings problems of control, so depends on
social mechanisms that enchance commitment.

Job enrichment

Making work more meaningful importance of


motivation and non-monetary rewards. Makes full use
of ability, provides task identity and closure,
autonomony and feedback.
4

Re-engineering

Business process re-engineering also affects job


design when entire tasks within the process have to
be altered to promote efficiency.

All job design must reconcile the need to exploit specialisation and the division of labour, with the need to
integrate and control the fragmented activities that result.
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design

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HRM and
knowledge work

An overview
of job design

Staff
development

Approaches to job design


Features

Assumptions about
motivation
Pay piecework

Job design

Scientific
Management

Prescribed standard
methods

Extreme specialisation. Split of


planning and doing

Human
relations/ job
enrichment

Work groups. Combination Social needs. Achievement,


of tasks. Some control over growth, responsibility
planning

Less extreme, with some


control tasks shifted
downwards

Japanese
style

JIT, TQM, consensus,


Social processes of clan
lifetime employment, loyalty control

Multi-skilling to achieve
flexibility

BPR

Strong leadership from the Emphasis on market discipline Process teams. Empowerment.
top. Exploitation of IT.
and serving the needs of the
Multidimensional jobs
Abandonment of traditional customer
structures and methods

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HRM and
knowledge work

An overview
of job design

Staff
development

Knowledge is a vital strategic asset and must be managed. Since it primarily exists in the brains of
employees, they must be managed in a way that stimulates learning and creativity.

The move to knowledge work


From

To

Type of work

Individual

Project teams

Focus

Task performance

Customers, problems, opportunities

Skills and knowledge

Narrow

Specialist but with wide interest

Feedback and results

Rapid

Slow

Employee loyalty

Organisation and career within it

Peers, profession

Contribution to success

Individual support to the wider strategy A few major successes

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design

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HRM and
knowledge work

An overview
of job design

Staff
development

Human resource development (HRD) can be viewed as an investment in strategic capability, since it improves both skills
and commitment. Investment in people is akin to investing in any other type of asset people become human capital.
This can be either top-down (driven by management) or bottom-up (empowered employees recognise their own skills
gaps).

Competences
The required outcomes expected from the performance of a task in a work role, expressed as performance standards
with criteria.

Succession planning
Succession planning provides for continuity of leadership and facilitates management development at all levels, by focusing it
on objectives that support overall strategy.
 The plan should focus on future requirements
 Top management should drive the plan, not the HR specialists
 A pool of talent and trained ability is a more useful asset than simple identification of succession candidates
 Assessment should be objective and not given precedence over development

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16: Strategic development

Topic List
Realised strategy
Developing intended strategies
Developing emergent strategies
Challenges and implications

This chapter is devoted to looking at the wider processes


by which strategies come into existence.

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Realised strategy

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Developing
intended strategies

Developing
emergent strategies

Challenges and
implications

The 'strategy as design' lens sees strategy as an essentially managerial process. Understanding of the strategic position
informs strategic choice: and this choice creates intention. Strategy into action is about how that intention is realised. A fully
realised strategy can also arise in the ways illustrated by the two other strategy lenses, experience and ideas. Such strategies
emerge rather than being the result of any kind of complex, top down management process.
Also, remember that managers intentions may not actually be realised: this can happen for a variety of reasons, such as
lack of resources, failures of forecasting, lack of control and so on.

Emergent strategy
Realised strategy

Intended strategy
Unrealised strategy

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Formal strategic planning systems


Formal strategic planning systems
Strategic position
Vision mission
PESTEL

SWOT

Position
audit

The strategic planning approach is formal, logical,


detailed and costly. It is thorough because it involves
a large planning staff. However, it is no longer
popular, largely because it is unwieldy and slow to
respond to changing circumstances.
An important aspect of the formal approach is its
comprehensiveness. Even when strategy is not
made in this fashion, the rational model of strategy
offers a useful checklist of activities and decision
areas that may be of value to strategic planners in
avoiding obvious errors.

Strategic choice

Generate options eg generic


strategies, market based
strategies
Graduate options

Strategic implementation
Projects
Resources
Change
e-business
etc

Page 181

Feedback control

See your Study Text for a more comprehensive


version of this diagram.

Actual performance

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Realised strategy

Advantages






Identifies risks
Forces managers to think
Forces decision-making
Formal targets enable control
Enforces organisational coherence
and co-ordination
Disadvantages








Not proven to bring advantage


May become over formal and reduce initiative
Assumes internal politics do not exist
Assumes managers know everything
Divorces planning from doing
Cannot cope with shocks and discontinuities

Page 182

Developing
intended strategies

Developing
emergent strategies

Challenges and
implications

Large scale planning departments were used in the mid 20th century
to operate the formal approach. More recently, other more flexible
techniques have been used.
Workshops and project teams
 Can be set up at any level to consider problems
 Can work within overall strategic direction from above
 Can undertake strategic analysis
 Can generate new ideas and approaches
 Can work on strategic change
Consultants
 Can lend authority and credibility to top management
 Can bring fresh approach to confused situations
 Can bring wide experience and knowledge
 Can have wide range of roles in change management
 May assist with strategic decisions
Imposed strategy
Powerful external stakeholders can constrain decisions about
strategy. Very obvious in public sector where government policy sets
the framework for decisions.

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Realised strategy

Page 183

Developing
intended strategies

Developing
emergent strategies

Challenges and
implications

Emergent strategies do not arise in a random way: they require extensive management
Strategies may emerge through a process of
logical incrementalism: the deliberate
development of strategy by experimentation and
learning from partial commitments.
 Generalised view of goals
 Constant environmental scanning rather than
firm forecasts
 Combination of strong core business and
experiments with options by project groups
 Formal and informal processes of development

Page 183

Resource allocation routines


Strategy can emerge from bids for funds by intermediate
level managers: top management set the strategic context
and choose from the options presented.
Political processes within the organisation can have
major influence on the negotiation among internal and
external interest groups. These processes can influence
both information flows and strategic analysis. They can
also lead to innovation.

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Developing
intended strategies

Developing
emergent strategies

Challenges and
implications

Danger!
Strategy can emerge from the assumptions and practices of the paradigm. This brings experience of past
success to the problem. However, this process can lead to strategic drift, especially if major organisational
change is required.

Strategic drift
Occurs when strategies progressively fail to address the strategic position of the organisation and
performance deteriorates.

Johnson, Scholes and Whittington suggest that strategic drift arises because organisations prefer small
adjustments to large ones.

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Page 185

Developing
intended strategies

Developing
emergent strategies

Challenges and
implications

You need to remember that there is no single correct way to develop strategy an effective strategy may result from the
simultaneous working of several processes. Strategy development is likely to vary at different times and in different contexts.
As part of strategic management, an organisations environment can be analysed in terms of complexity and change:

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Page 186

Developing
intended strategies

Developing
emergent strategies

Challenges and
implications

At the end of the syllabus, review the subject of strategy as a whole, and think how all the components fit together, using the
relational diagram of syllabus capabilities for P3 as a guide:
Strategic position (A)

Business and
process
change
(D)

Strategic action (C)

Strategic choices (B)

Project
management
(F)

Information
technology
(E)

Financial
analysis
(G)

People (H)

Remember the importance of having an overall strategic perspective (position, choice, action).

Remember also the need for all the components of an organisation (middle and bottom layers) to fit with, and support,
that overall strategy; and finally remember that sometimes stategy can emerge from those middle and bottom layers
rather than being imposed by the strategic apex.

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Notes

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Notes