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ACCA Passcards
Paper P3
Business Analysis
Passcards for exams
up to June 2015
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Page i
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
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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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Page iii
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!
Page iii
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Page iv
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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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.
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
What is
strategy?
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Levels of strategy
in an organisation
Page 3
Elements of
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.
Page 3
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What is
strategy?
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Levels of strategy
in an organisation
Page 4
Elements of
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).
What is
strategy?
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Levels of strategy
in an organisation
Page 5
Elements of
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
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What is
strategy?
8:51 PM
Levels of strategy
in an organisation
Page 6
Elements of
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
Page 8
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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The organisation
in its environment
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The macro
environment
Page 9
The competitive
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
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The organisation
in its environment
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The macro
environment
Page 10
The competitive
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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The organisation
in its environment
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The macro
environment
Page 12
The competitive
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 organisation
in its environment
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The macro
environment
Page 13
The competitive
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.
Page 13
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The organisation
in its environment
8:53 PM
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.
Page 14
The competitive
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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The organisation
in its environment
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The macro
environment
Page 15
The competitive
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
Page 15
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

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Notes
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Page 17
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
Page 18
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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Page 19
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.
Page 19
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Competition
dynamics
Design
Product
Page 20
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
Page 21
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
Page 21
Products
Convenience (everyday) goods
Shopping (higher value) goods
Speciality (unique) goods
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Competition
dynamics
Page 22
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
8:53 PM

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

Page 23
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8:53 PM
Competition
dynamics
Page 24
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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Page 25
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.
Page 25
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.
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8:53 PM
Competition
dynamics
Page 26
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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Page 27
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
8:55 PM
Page 28
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
8:55 PM
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
Page 29
Page 29
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
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The organisations
resources
8:55 PM
Cost
efficiency
Page 30
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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Page 31
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.
Page 31
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The organisations
resources
8:55 PM
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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8:55 PM
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.
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The organisations
resources
8:55 PM
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
5/28/2014
The organisations
resources
Cost
efficiency
8:55 PM
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
8:55 PM
Cost
efficiency
Page 37
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
Page 37
5/28/2014
The organisations
resources
Cost
efficiency
8:55 PM
Page 38
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


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
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Managing
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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Ethics and the

organisation
8:56 PM
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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Ethics and the

organisation
8:56 PM
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
Ethics and the

organisation
5/28/2014
8:56 PM
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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Ethics and the

organisation
8:56 PM
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.
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Ethics and the

organisation
8:56 PM
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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Ethics and the

organisation
8:56 PM
Social
responsibility
Page 47
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.
Ethics and the

organisation
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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
Page 49
Ethics and the

organisation
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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
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Notes
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Page 53
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.
Diversification
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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

Page 55
Diversification
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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
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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Page 57
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.
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Diversification
The corporate
parent
8:57 PM
Page 58
The corporate
portfolio
Generic
strategies
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
Diversification
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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
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.
Page 59
Diversification
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The corporate
parent
Page 60
The corporate
portfolio
Generic
strategies
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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Diversification
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The corporate
parent
Page 62
The corporate
portfolio
Generic
strategies
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.
Diversification
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The corporate
parent
8:57 PM
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
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.
Page 63
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Diversification
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The corporate
parent
Page 64
The corporate
portfolio
Generic
strategies
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
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Diversification
The corporate
parent
SUSTAINING A PRICE BASED

STRATEGY
8:57 PM
Page 66
The corporate
portfolio
SUSTAINING DIFFERENTIATION
Generic
strategies
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
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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.
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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
8:59 PM
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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Challenges
and concepts
8:59 PM
Types of
structure
Page 75
Processes
Relationships
Collaborative
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
8:59 PM
Types of
structure
Page 76
Processes
Relationships
Collaborative
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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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.
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Challenges
and concepts
8:59 PM
Types of
structure
Page 78
Processes
Relationships
Collaborative
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
8:59 PM
Types of
structure
Page 80
Processes
Relationships
Collaborative
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
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Challenges
and concepts
8:59 PM
Types of
structure
Page 82
Processes
Relationships
Collaborative
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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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
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Challenges
and concepts
8:59 PM
Types of
structure
Page 84
Processes
Relationships
Collaborative
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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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
8:59 PM
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
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.
Page 91
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
8:59 PM
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.
Page 93
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.
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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9:00 PM
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.
The background to
process change
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The business change

lifecycle/POPIT
Page 98
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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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
Page 99
Processes
The background to
process change
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The business change

lifecycle/POPIT
Page 100
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
The background to
process change
5/28/2014
The business change

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.
Page 101
9:00 PM
1
2
3
4
Page 101
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.
The background to
process change
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The business change

lifecycle/POPIT
Page 102
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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Page 104
Notes
5/28/2014
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Page 105
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).
Process
redesign patterns
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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.
Process
redesign patterns
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Standard
software packages
Page 107
Establishing

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.
Page 107
Process
redesign patterns
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Standard
software packages
Page 108
Assessing
software packages
Establishing
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
Process
redesign patterns
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Standard
software packages
Page 109
Establishing
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
Page 109
Process
redesign patterns
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Standard
software packages
Page 110
Establishing
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.
Principles of
e-business
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Organisations
and their customers
9:02 PM
Page 112
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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11: E-business
Principles of
e-business
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Organisations
and their customers
9:02 PM
Hardware and
Exchange initiated by
Varieties of e-commerce
Business
Consumer
Page 114
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)
Page 115
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
Page 115
The marketing plan

How the work required will be
accomplished
Nature of the group responsible for
making the business model work
11: E-business
Principles of
e-business
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Organisations
and their customers
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Hardware and
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.
Page 117
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.
11: E-business
Principles of
e-business
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Organisations
and their customers
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Hardware and
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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11: E-business
Principles of
e-business
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Organisations
and their customers
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Hardware and
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.
Principles of
e-business
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Organisations
and their customers
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Hardware and
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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11: E-business
Principles of
e-business
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Organisations
and their customers
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Hardware and
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
Page 131
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
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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E-marketing
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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E-marketing
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
management

is the establishment, development, maintenance and optimisation of long-term mutually valuable relationships
between consumers and organisations.
Page 137
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
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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E-marketing
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
management
Datamining is a set of statistical techniques used to identify trends, patterns and relationships in data. It may be
predictive or descriptive.

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
Page 143
Databases are fundamental for storing

customer-related information
Customer privacy: eg data encryption, must
be a high priority.
12: E-marketing
5/28/2014
9:05 PM
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Notes
5/28/2014
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Page 145
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.
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 146
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
Page 147
Perform
tasks
Measure
progress
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 148
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)

9:05 PM
Page 149
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
5/28/2014

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
Page 149

Delivery
Assembly and use of resources
People management
Control of progress
Progress reports
Completion (or abandonment)
Handover
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 150
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
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
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
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 152
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
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 153
Practical aspects
of project planning
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.
Page 153
14
21
35
42
B
D
DAYS
28
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 154
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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Page 155
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.
Page 155
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 156
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
Page 157
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 158
Practical aspects
of project planning
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.
5/28/2014
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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
Page 159
The nature of
project management
5/28/2014
The project
lifecycle
9:05 PM
Building the
business case
Page 160
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.
Finance
and strategy
5/28/2014
Financial
management decisions
9:06 PM
Page 162
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
Finance
and strategy
5/28/2014
9:06 PM
Financial
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.
Page 163
14: Finance
Finance
and strategy
5/28/2014
Financial
9:06 PM
Page 164
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.
Finance
and strategy
5/28/2014
Financial
9:06 PM
Cash
forecasts
Page 165
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)
14: Finance
Finance
and strategy
5/28/2014
Financial
9:06 PM
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
5/28/2014
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Page 167
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)
Page 167
14: Finance
Finance
and strategy
5/28/2014
9:06 PM
Financial
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
5/28/2014
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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)
14: Finance
5/28/2014
9:06 PM
Page 170
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
5/28/2014
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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
14: Finance
5/28/2014
9:06 PM
Page 172
Notes
5/28/2014
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Page 173
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.
5/28/2014
Strategic
leadership
9:06 PM
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.
5/28/2014
Strategic
leadership
9:06 PM
Job
design
Page 175
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.
Page 175
5/28/2014
Strategic
leadership
9:06 PM
Job
design
Page 176
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
5/28/2014
Strategic
leadership
9:06 PM
Job
design
Page 177
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
Page 177
Strategic
leadership
5/28/2014
9:06 PM
Job
design
Page 178
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
Page 180
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
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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
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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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Page 184
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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Realised strategy
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

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First edition 2007, Eighth edition June 2014

Printed in the UK by RICOH

All rights reserved. No part of this publication may be

BPP Learning Media Ltd

Competitors and customers

Human resource management

Stakeholders, ethics and culture

Organising for success

Managing strategic change

Business process change

This chapter gives you an overview of the fundamentals

Areas for decision making

Long term direction

Impact operational decisions

Adapting activities to fit business

Affect whole organisation

Four elements of mission

Purpose and planning

OBJECTIVES: SMART and PRIME

Three main levels of strategy in an organisation

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

Johnson, Scholes and Whittingtons model of strategy

Strategy into action

Made at corporate and

Action is not simply a linear model.

Need to recognise the interdependencies between position (analysis),

The context of strategy

The public sector

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

Not for profit organisation

Diverse sources of funds, strong underlying values and purpose

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

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

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

Understanding the changing environment is one of the

Five forces (Porter)

Competitors and markets Strategic groups

Competitors and markets

Governments oversee framework in which business

These operate in both a national and international

Many aspects of business activity are subject to legal

Fiscal policy (taxes, borrowing, spending)

Demography is the study of human population and

Many strategies are based on exploiting technological change

Culture in society provides a framework for understanding

Technological developments affect all aspects of

New products and services become available

Possible green issues for businesses to consider:

Scarcity of non-renewable resources

Greater regulation by governments and

Opportunities to develop new environmentally

Businesses may be charged for the external cost

Converging tastes; improving communications.

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

Increasingly sympathetic to free trade.

High levels of international trade encourage global competition. The

Firm strategy, structure and rivalry

Endowments of inputs to production

Buyers in the home market set fundamental

Related and supporting industries

Scenario construction (Mercer)

Identify drivers of change

Arrange drivers in a viable