Strategic Management and Business Analysis

How can managers analyse their current and future business strategies? The first part of
this textbook introduces the fields of business analysis and strategic management to
provide students with an understanding of the key questions that need to be asked to
understand an organisation’s options.
The second part of the book provides tools and techniques to help organise and improve
corporate strategy. Uniquely, the authors provide resources to assess aspects of strategic
goals that are sometimes overlooked, such as financial performance, ethical and
environmental considerations and business models. They cover a diverse range of
companies from supermarkets like Aldi and Tesco to Caermory Whisky and also
Chinese manufacturing.
This textbook is perfect reading for students who want to apply strategic thinking to
organisations and it benefits from the inclusion of new case studies throughout the text as
well as ten extended cases in the third part of the book.

Wyn Jenkins is an independent education consultant and teacher.

David Williamson is an Associate Dean at Staffordshire University.

‘Understanding the linkages between research concepts and the actual practice of
management can be a challenge for those charged with making strategic decisions in a
dynamic business environment. In this book, Jenkins and Williamson help managers focus
their efforts on the right questions, provide frameworks to answer them, and offer
contemporary illustrative case studies. An excellent, unpretentious and utilitarian book.’

Anthony J. Ward, Senior Lecturer,

University of Chester, UK

‘This textbook takes a refreshing view on strategic management. The four essential
questions of strategy provide a “real life” perspective as to what strategy is about.
I commend the authors’ effort to bring strategy to life and showing its intricacy, complexity
and how it operates within an uncertain realm. The balance of theory, examples and case
studies from a variety of regions will help engage both students and lecturers.’

Veronique Ambrosini, Professor, Monash

University, Australia

‘In Strategic Management and Business Analysis, theory and practice go well together. As a
teacher, I note that there is often a need for attention to applied case studies in order to
improve students’ understanding of the business world. Teaching theory alone is not always
so fruitful, and the understanding of Strategic Management should include a balanced mix
of synergies between theory and practice. Williamson and Jenkins provide sound support in
this direction.’

Fei Peng, Associate Professor, Shanghai Lixin

University of Commerce, China

‘The textbook is an improved and updated version of the existing very successful edition by
the same authors that I have used extensively at the MBA level. It is organized in a logical
and understandable manner and contains the most important and useful information for
both the researcher and the business analyst. It is written by experts who have excellent
credentials both as academics and business practitioners at international level.’

Georgios Blanas, Professor and Dean of the Business

and Economics School, University of Applied
Sciences of Thessaly, Greece

‘This text excellently combines the academic concepts that are necessary to understand
Strategic Management, with current business cases and business world examples unlike
other comparable texts. The authors provide a user-friendly text that is clear and well laid
out from the outset and easy for students to follow.’

David Floyd, Senior Lecturer, The University

of Lincoln, UK
Strategic Management and Business
Analysis
Second edition

Wyn Jenkins and David Williamson

First published 2016
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2016 Wyn Jenkins and David Williamson
The right of Wyn Jenkins and David Williamson to be identified as authors of this work has
been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents
Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form
or by any electronic, mechanical, or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or retrieval system, without permission
in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks,
and are used only for identification and explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Jenkins, Wyn.
Strategic management and business analysis / Wyn Jenkins and David Williamson. – 2 [edition].
pages cm
Includes bibliographical references and index.
1. Strategic planning. 2. Business planning. 3. Management. I. Williamson, David, 1954- II.
Title.
HD30.28.J455 2016
658.4’012–dc23
2015023196

ISBN: 978-1-138-81764-7 (hbk)

ISBN: 978-1-138-81765-4 (pbk)
ISBN: 978-1-315-74556-5 (ebk)

Typeset in Bembo
by Sunrise Setting Ltd, Paignton, UK
Contents

List of illustrations vii

Introduction x
Acknowledgements xii

PART I
The four big questions you need to ask 1

1 The first big question: where is the organisation now? 3

2 The second big question: what options are open to the organisation? 19
3 The third big question: what is the best way forward for the organisation? 32
4 The fourth big question: how is this to be achieved? 40

PART II
Helping you answer the four big questions 59

5 Organisation structure and strategy 61

6 Strategy-making processes 86
7 Organisation environments 99
8 Market-based competitive advantage 120
9 Organisation resources 130
10 Financial performance and investment appraisal 149
11 Corporate responsibility and strategy 159

PART III
Case studies 167

12 Analysis and synthesis 169

13 Caermory Whisky 175
vi Contents

14 Continuum and the Mackenzie Group of companies 181

15 KH: change in the Third Sector 192
16 Loyalty and competition in a changing marketplace: the supermarket
challenge 197
17 Wm. Morrison Supermarkets Plc – Part 1 (1899–2007) 201
18 Wm. Morrison Supermarkets Plc – Part 2 (2008–2015) 211
19 Tesco: losing ground in the UK 227
20 Aldi: a low-cost retail giant’s distinctive business practices 243
21 British retailer Sainsbury’s: on the road to recovery 256
22 Bags of luck 279

Index 293
List of illustrations

Tables
1.1 Examples of results indicators 12
2.1 The product, market, resource matrix (PMR matrix) 22
2.2 Business model audit table 27
2.3 Business model audit table applied to a university 29
4.1 Examples of results and performance indicators 42
4.2 Reward follies 43
4.3 Before and after activities 50
4.4 Causes of and antidotes to decline 52
4.5 Investors in People framework 55
5.1 BCG data table 71
7.1 Business model parts 104
7.2 Business model parts: example of a UK car supermarket 105
7.3 Examples of macro-environmental forces 114
7.4 Porter’s Diamond 115
7.5 Life cycle stages 116
7.6 Trajectory change and resources 117
8.1 Selected car prices for 2012 127
8.2 Top ten best selling cars in the UK in 2012 128
8.3 Car sales by segment in the UK in 2012 128
9.1 An outline value chain model for analysing an organisation’s activities 137
9.2 Value chain analysis of a supermarket 139
9.3 Types of assets 141
9.4 Strategic postures matrix 144
10.1 Profitability ratios 152
10.2 Liquidity ratios 153
10.3 Gearing or leverage ratios 154
10.4 Activity ratios 154
10.5 Stock market ratios 155
10.6 Product life cycle stages and associated strategies 155

Figures
1.1 Corporate strategy and business strategies 4
1.2 Understanding strategy in organisations 4
1.3 The iterative nature of strategic analysis 5
viii List of illustrations

1.4 The analytical process 7

2.1 SWOT map 21
2.2 De-positioning of product or service 24
2.3 Repositioning of product or service 25
2.4 Business model–resources matrix 26
3.1 Organisation paradigm and rate of change required matrix 35
3.2 Power/interest matrix 36
3.3 Options analysis procedure 38
4.1 Organisation paradigm and rate of change required matrix 46
4.2 Force-field analysis 49
5.1 The multi-divisional structure 63
5.2 Functional organisational structure 65
5.3 Autonomous profit/cost centres 66
5.4 Coordination through formal planning 67
5.5 Matrix organisation structure 67
5.6 Communication and coordination in a small supermarket 69
5.7 Communication and coordination in innovative organisations 69
5.8 Boston Consulting Group growth/share matrix 71
5.9 Industry attractiveness matrix (General Electric business/industry
strength matrix) 74
5.10 Parenting fix matrix 83
6.1 Cultural web 91
8.1 Generic strategies 121
8.2 The impact of increasing price sensitivity 126
9.1 Two aspects of competitive advantage 131
9.2 A simple input and output system 136
9.3 Value chain 137

Case tables
1 Table 13.1 Caermory 20-year-old malt 179
2 Table 14.1 Continuum Scotland: outsourcing and exporting to China 184
4 Table 16.1 UK grocery market share 2013 and 2015 198
5 Table 1 Profit Table 205
6 Table 1 Approximate Market shares of grocery retailers in March 2015 212
6 Table 2 Profit Table 224
7 Table I Tesco UK Like-for-Like Sales 230
7 Table II Market Share of Top Retailers in the UK 231
7 Table III UK Continuing Operations 232
7 Table IV Tesco–strategy for Revival 233
7 Exhibit I Tesco Five-Year Financial Summary 235
7 Exhibit II Tesco around the World – 2011 235
9 Table A Volume of Retail Trade UK 238
7 Exhibit V Tesco – Group Retail Statistics 238
8 Exhibit IV The World’s Richest People (2006) – Top 25 252
8 Exhibit V The 11 Secrets of Aldi’s Success 252
8 Exhibit VI Geographic Distribution of Aldi Stores (As of early 2007) 253
9 Table I UK Grocery Market – Share of Major Players (1990–1994) 260
9 Table II UK Grocery Market – Share of Major Players (1995–2000) 261
 List of illustrations ix

9 Exhibit I Top 15 Marketers out of the Marketing’s Power 100 (2008) 270
9 Exhibit II Financial Performance of Sainsbury’s between 1996–2000 271
9 Exhibit VI J. Sainsbury’s Financial Highlights of 2001–2008 272
9 Exhibit IX Comparison of Market Shares Held by Leading
Supermarket Chains in the UK 273
10.1 Profit and Loss Account (year ending 31 December), 2006–2010 287
10.2 Balance Sheet (year ending 31 December), 2006–2010 287

Case figures
6 Figure 1 Tesco Share price change 1996 to 2015 207
7 Exhibit VI Tesco Stock Price Chart 238
9 Figure I Market Share of Major UK Retailers–12 weeks ending
June 15, 2008 257
9 Figure II Market Share of Major UK Retailers–12 weeks ending
June 17, 2007 258
9 Figure III Grocery Market Share in UK (As of July 2003) 262
9 Exhibit VII J. Sainsbury plc Share Price between October 19, 2004
and November 5, 2008 273
10.1 Business Process 282
10.2 Material Handling 284

Some of the more complex tables in this book use line separators for clarity
Introduction

Our experiences have indicated that students and managers benefit greatly when they apply
systematic analytical frameworks to strategic problems. This book is designed to help
managers evaluate the strategic health and position of an organisation by asking the reader
to follow the easy-to-understand framework provided in Part I of the book. The framework
encourages the asking of important questions, and then supports the answering of these
questions by directing the reader to the support materials provided in Part II of the book.
To investigate the questions even further, and to witness the richness of the subject, we also
encourage readers to access the original sources, theories and frameworks cited in the text.
The book invites the reader to be the practitioner and to apply the strategic questions
in three main ways:

1 By encouraging the evaluation of the reader’s own organisation.

2 By encouraging students and managers to access publicly available company and
market data and to take on the role of a potential investor.
3 By encouraging the use of case studies, with students and managers acting as
consultants.

The book has three parts with the second and third parts supporting the framework
outlined in Part I.

Part I
This outlines the framework for strategic analysis and provides the basis for:
 Analysing the strategic position of ‘real life’ and ‘case study’ organisations;
 Generating and evaluating strategic options; and
 Understanding and implementing strategic change processes.

Part II
The chapters in this part answer the questions posed in Part I. By exploring the issues
surrounding these questions they also introduce the student and manager to the wider
academic literature.
 Introduction xi

Part III
This part contains advice on analysing case studies and elaborates on how the framework
introduced in Part I can be used in case study analysis. We hope you find the case studies,
which are from a number of different kinds of organisations, interesting and challenging.
We hope you will be able to decide if all the models put forward can be adapted to use in
different contexts. We encourage you to use data from observations and from secondary
sources.
Acknowledgements

We wish to thank:

 Ms Sun Li Jing for preparing the drawings used at the beginning of Chapters 1–4
and 12;
 The case study writers: Anni Hollings, Chris Taylor, David Floyd, Mizan Rahman,
Nyeem Uddin Ahmed, Keith Moreton; and
 Ms Sinead Waldron of Routledge for her support and encouragement.
Part I
The four big questions you
need to ask

The big questions in strategic management

Strategic management is concerned with shaping the destiny of an organisation. It is about:
 Putting an organisation into an optimum business position.
 Sustaining and improving that position by the deployment and acquisition of appropriate
resources and by monitoring and responding to environmental changes.
 Monitoring and responding to the demands of key stakeholders.
For organisational strategists to achieve these aims they must be able to answer the following
questions:
1 Where is the organisation now?
2 What options are open to the organisation?
3 What is the best way forward for the organisation?
4 How is this to be achieved?
Our framework is based around these questions, and the better the answers to these questions
the better the chance of developing and implementing winning strategies. However, answering
these questions can be very difficult and the questions have therefore been broken down into their
component parts to make the process more manageable.

Guidance note 1.0

We are not trying to suggest that effective strategic management can be achieved by using
frameworks and models blindly – we are suggesting that strategic models are useful practical
tools when employed by managers and students who understand the limitations of the
models, the limitations of the data available and the theory dependency of data collection.
Our experience indicates that the appropriate and questioning use of models is an effective
vehicle for learners, full-time students and practising managers to gain insights into strategic
management problems and processes. We believe that it is important to always remember
that models are imperfect representations of complex realities, which should be used to aid
thinking not as a substitute for it. Our aim is to develop the knowledge and skills that will
allow potential and current managers to participate in the development of organisational
strategy.
This page intentionally left blank
1 The first big question: where is
the organisation now?

1.1 Introduction
It is logical to answer this question at two distinct organisational levels:

1 The corporate level or multi-strategic business unit (SBU) level.

2 The single business or SBU level.

Guidance note 1.1

A strategic business unit (SBU) can be defined as a unit that produces products or services for
which there is an identifiable group of customers. Divisions or units of organisations are frequently
defined on this basis, for example an adhesive company will have an automotive division, a
packaging division and a DIY division, and a university will have different faculties and/or schools.
Units can also be defined geographically (for example Australian and European divisions). In some
organisations divisions are defined both by product group and geographical location (for example
Australian Automotive Division). The corporate centre normally allows the divisions to operate
with varying degrees of operational and strategic autonomy within an overall centrally controlled
framework. Organisation structures and centre-division relationships are discussed in Chapter 5.
4 The four big questions you need to ask

CORPORATE

Business strategy 1

Business strategy 2

Business strategy …

S T R A T EG Y

Figure 1.1 Corporate strategy and business strategies

Performance
Products Synergy
&
Customers fit
Structure
Competitive
THE
advantage Parenting
ORGANISATION

Stakeholders Processes

Environment Resources Markets

&
capabilities

Figure 1.2 Understanding strategy in organisations

Figure 1.1 outlines the basic corporate model. In multi-business organisations, each business unit
can be judged in terms of its own performance, and how that performance contributes to the
performance of the total corporate organisation. Within the corporate whole, individual businesses
have to be managed and business strategies pursued. The overall corporate strategy and the
strategies of sister businesses will influence the strategy of an individual business. Figure 1.2
provides an overview of the major variables that have to be considered when trying to understand
the strategies of an organisation.

1.2 The analytical process

To understand a complex corporate (multi-divisional) organisation we have to have a process that
considers the whole as an entity, and as the sum of its parts. Equally, a business unit or individual
company cannot be understood without considering its wider environment and linkages, including
linkages arising from its ownership structure because this influences both its management style and
its access to resources. Because corporate- and business-level analyses are interwoven we use an
algorithm that helps the reader to ask key questions about the businesses being studied in the
context of their ownership relationships.
 Where is the organisation now? 5

Preliminary Business analysis Summative

corporate analysis leading to an corporate analysis
assessment of the leading to an
strategic position assessment of
of each business the strategic
position of the
organisation as a
whole

Continuous revision until all evidence is considered

Figure 1.3 The iterative nature of strategic analysis

When using the algorithm we recommend that you:

 Move backwards and forwards within the procedure until the assessment of the data leads to a
natural conclusion (see Figure 1.3).
 Recognise that the data you are analysing may be limited.
 In light of the inherent limitations of the analysis, arrive at your conclusions with care.
 Be prepared to argue for your conclusions from the available evidence, remembering that
managers have to operate in situations of incomplete knowledge.

The analytical process is divided into three related parts:

1 Preliminary corporate analysis

2 The analysis of business units
3 Summative corporate analysis

The complete algorithm is presented in Figure 1.3. The questions posed in each of the three
parts of the algorithm are then presented in the remainder of this section to allow the reader to
obtain an overview of the analytical process.

Each question in the model is discussed in more detail in Sections 1.3–1.5. In Chapters 5 to 11
the theories and models suggested are evaluated in greater detail.

1.2.1 Preliminary corporate analysis algorithm

PC1 What products and markets does this organisation supply/serve? What are its business
units?
PC2 What is the formal structure of this organisation?
PC3 What are the financial and business results of each business? What is the contribution of
each business to the overall financial performance of the whole?
PC4 What is the product market mission of each business? Is the business an industry leader
or follower? How do they fit together?
6 The four big questions you need to ask

PC5 Who are the major stakeholders in the organisation? What are the issues that are
important to these stakeholders?
Now conduct an analysis of each business.

1.2.2 Individual business analysis algorithm

B1 Who are the consumers of the unit’s goods and services?
B2 Why do its customers choose this business unit’s products? What need is being met? What
are the key success factors in this market? Do the organisation’s managers have a clear idea
of these key success factors? What measures are considered important? Why?
B3 What are the trends in key results indicators for this business? Are these measures available?
B4 What are the characteristics of the organisation’s environment? What are the factors that
exist outside the business unit that impact on its ability to provide goods and services?
What is likely to change and what is likely to remain the same? Are there new business
models that will challenge the now established order?
B5 What are the resources (see Guidance note 1.2) within and around the organisation that have
allowed the organisation to provide products that customers will buy? To what extent can
the business results be explained by an understanding of an organisation’s resources? What is
the business model used by the organisation? Does the organisation actively encourage
dynamic capability development? Are resources being used to develop future resources?
B6 What is the dominant logic/organisation paradigm that guides this business’s decision
making and contributes to the way strategy develops? To what extent does the organ-
isation configure its resources and systems that help it prepare for the future? Do the
business’s key players have a coherent vision of what they want the business to be in
the medium and long term? Are this business’s ambitions a coherent part of the vision for
the corporate whole? Does the organisation have systems and a culture that allows it to
exploit developments in its environment?
B7 What is this business’s articulated view with regard to corporate social responsibility
(CSR)? How does the reality of this behaviour reflect this articulation?
B8 What are the strengths and weaknesses of the business?
B9 What are the opportunities and threats that exist for this business?
B10 What is the strategic position of this business from a market-based perspective and a
capability perspective? What are its immediate and long-term prospects? Is there
evidence that this organisation can sustain itself in the future?

Now feed this analysis into a summative corporate analysis.

1.2.3 Summative corporate analysis algorithm

SC1 What is the relationship between the corporate centre and the individual businesses?
What are the key indicators of performance for each business – why are these key?
SC2 What are the relationships between the individual businesses? Are they supporting,
neutral or disadvantageous?
SC3 What are the factors outside the organisation that influence the organisation’s activities?
SC4 What are the strengths and weaknesses of the organisation?
SC5 What are the opportunities and threats that exist for this organisation? What is the
overall strategic position of the organisation from a capability and market perspective?
 Where is the organisation now? 7

Guidance note 1.2

Organisations own resources that allow them to function. Capabilities are the abilities to use
collections of resources to enable organisations to carry out activities. The resources of an
organisation are both physical and intangible. Resources and their associated capabilities are
accumulated over time and include investment in plant, location and brand equity, and
encompass the skill, ability and knowledge that organisation members have individually or
collectively. Their resources and capabilities allow them to undertake activities to contribute to
the transformation of inputs into outputs (see Chapter 9). The rituals and habits that link these
resources together and which enable them to develop can be difficult to imitate and can therefore
be sources of competitive advantages. Competitive advantage stems from ownership or access
to resources that create outputs that are difficult to imitate, either in terms of product/service costs
or product/service customer perceived benefits, that is to deliver what a customer perceives as
better value than an alternative product. However, changes in a business’s environment can lead
to change in both customer perceptions of value and in the technology that is used to deliver
customer desired value. So understanding the nature of the environment is also very important in
any organisation analysis. Indeed Teece (2009: 4) has observed that being able to sense oppor-
tunities and threats in their own environment is a critical part of dynamic capability (processes by
which firms reconfigure and develop resources to cope with changing environments).

Guidance note 1.3

Analysis is a process of data sorting and classifying followed by evaluation. The initial questions in
the algorithm emphasize the importance of understanding the key influences on, and the activities
of, the organisation, while later questions lead into the evaluation of those activities. This allows
the analysts to be creative and to move from the ‘what’ questions outlined to the development of
their own ‘why’ and ‘how’ questions. This is depicted diagrammatically in Figure 1.4.
In many classroom-based exercises the data for a full analysis will not be available (in fact in
most situations the data will be incomplete). Even when company accounts are available there
is no requirement for divisional accounts to be published. Most analysis is therefore limited by a
lack of data – but the good analyst recognises these deficiencies and highlights them. Managers
have to make decisions with limited data, and it is therefore important to acknowledge the
limitations of the data and the caveats that this may place on conclusions drawn. Competent
data sorting and ordering, followed by creative interpretation, allows managers to minimise
their decision-making risks in situations of incomplete knowledge.

Data collection/ Ordered

Creative
written case description
interpretation
study of data

Figure 1.4 The analytical process

8 The four big questions you need to ask

1.3 Preliminary corporate analysis

Q-PC1 What are the business units and what products/markets does each unit supply/serve?

This can be difficult to answer because some organisations operate in more than one business area
and they do not have neatly structured and easily identifiable product groups or SBUs. It is also
possible for companies to have structures that reflect the views of their senior managers and owners
on how they should operate, or that these structures are an outcome of history and previous
conveniences. This means that we should look beyond organisation structure when answering this
question. It is possible, for example, to classify businesses according to the markets they serve or
with the technology they employ. From a technological/supply-side perspective an industry can
be defined as a group of companies that find it easy to switch their production facilities to
manufacture each other’s products. Grant (2008) suggests that the automotive industry is usually
defined to include the manufacturers of light vans and trucks because these can be relatively easily
manufactured on the same plant as cars (the difficulty lies in deciding what is ‘relatively easy’).
From a market/demand-side perspective, if customers consider the products of the two firms to be
substitutes for each other, then the two firms can be considered to be competing in the same
market as each other. Defining industries by supply-side criteria can lead to wider definitions than
those obtained by using demand-side criteria. Deciding which definition to use therefore depends
upon the situation we wish to come to grips with. Ansoff (1987) has observed that many answers
to the question ‘what business are we in?’ are too broad to be meaningfully understood. For
example, are Morgan cars in the same automotive industry as Ford? These issues will be discussed
further in Chapter 8.
The way a single business or corporate portfolio is described is therefore important because it
delineates the unit of analysis – the analysis of Morgan’s environment is a very different task from
the analysis of Ford’s environment. Ansoff (1987) consequently defines mission in terms of
customer needs, and the role of the firm is to meet customer needs through the deployment of
resources. An SBU can therefore be conceived as an organisational unit that is focused on supply-
ing the needs of specific customer groups through the deployment of specific resources.

Academic concepts:
 Market segmentation (Guidance note 1.5)
 Industry analysis (Chapter 7)
 Portfolio analysis (Chapters 4 and 5)

Q-PC2 What is the formal organisation structure?

In order to be strategically effective an organisation needs to communicate its strategy internally

and externally, and the structure of an organisation can either help or hinder this communication.
The way an organisation is configured can therefore impact on strategy implementation, how
stakeholders are served, on strategy creation and development, what environmental signals are
noticed, and what resources and skills are developed.
Organisation structures are also useful to the analyst because they give clues to those roles and
activities that the company considers important – organisation structures are symbolic in that they
indicate functions and activities that are considered important to the organisation. Organisation
structures and unit size can also give clues to the balance of power between divisions and the
corporate centre.
 Where is the organisation now? 9

An important issue within and across units is the extent to which there is a common thread
(Ansoff, 1987). Consequently, for a single business organisation competitiveness is enhanced if
there is a fit between activities (Porter, 1985), and for corporate organisations if there is a fit
between units (Porter, 1987; Prahalad and Hamel, 1990) and if there are any ‘parenting’ benefits
derived from the centre (Campbell et al., 2014).
Advances in technology and consumer wants can affect the efficacy of an organisation’s structure
and the relationship between the centre and individual businesses.

Academic concepts:
 Organisation structures (Chapter 5)
 Value chain analysis (Chapter 9)

Q-PC3 What are the financial and business results of each business? What is the contribution
of each business to the overall financial performance of the whole?

This should be carried out at an early stage of the analysis. It is important to remember that
comparisons over time and with other organisations are useful ways of gauging organisation
performance.

Q-PC4 What is the product market mission of each business? Is the business an industry
leader or follower? How do they fit together?

Portfolio models can be used to evaluate the performance of individual businesses within the
corporate whole, although this should not be done until each individual business is analysed so that
the data that is fed into the portfolio models is as robust as possible.
Portfolio models have been criticised but are useful if constructed from both a strategic and
financial perspective (see Chapter 5), when the earlier caveat – that models should encourage
strategic thinking and not smother it – is adhered to.
Alongside this caveat, it is important to consider the performance of individual units in
conjunction with trends in other non-financial indicators of performance. For example, relatively
low financial performance may be the result of historically low sales due to poor marketing, and this
trend may be reversible. Indeed some corporate parents have acquired low financially performing
companies or unwanted subsidiaries of other companies because they are confident that they can turn
them around through improving marketing effectiveness, production efficiency or culture.

Academic concepts:
 Financial and strategic performance analysis (Chapter 10)
 Portfolio analysis (Chapter 5)

Guidance note 1.4

Analysts are often concerned with judging firms over relatively long periods (months and
years) using financial results indicators. A key priority for a strategy analyst is also
investigating how a firm routinely monitors its strategy implementation. For example,
manufacturing needs to ensure that systems are controlled so that rejects are minimised and
customers receive products when they want them, and airline and train companies have to
10 The four big questions you need to ask

transport passengers on time and in acceptable comfort (depending on the level of fare). Thus
company analysis should not be confined to identifying resources and activities but should
include, wherever possible, an identification of and the performance of the systems and
routines that control an organisation’s resources and activities.
Parmenter (2010) discuses four kinds of measures:

1 Key results indicators (how well you have done in critical success indicators) such as turnover,
profit, return on sales (ROS), return on capital employed (ROCE) customer satisfaction
over a period of time. These are the figures that outsiders use to make quick judgements
about organisations and they are important for investor and stakeholder confidence.
2 In contrast key performance indicators are about current performance and how well the
company is carrying out important activities at the moment. They are non-financial
measures and are measured frequently, and can be signalled to key executives as well as
line managers and operators, for example late trains or aircraft, cumulative reject levels in
manufacturing, lateness of delivery, breakdowns in manufacturing.
3 Performance indicators are concerned with average performance over longer periods and
may be concerned with issues that are not causing immediate problems, such as the
number of sales calls by representatives or monthly sales figures. However, trends in
these areas are also critical to the business concerned.
4 Results indicators are those factors that are below the key results indicators. They are not
less important than key results indicators, rather they are components of key results that
can help managers make decisions about future strategies and their implementation, and
also to identify products to focus on and what products need revaluating.
B Financial: revenue per product, profit per product, government funding per
project, etc.
B Non-financial: production per day, student retention/achievement per course, etc.

Q-PC 5 Who are the stakeholders in the organisation?

It is important to identify those people and organisations that have an interest in the company
being analysed. Since suppliers and customers of each business are organisational stakeholders, a
broad discussion of stakeholders could include a myriad of people and organisations. The focus
should therefore be on identifying stakeholders that have the power to influence corporate level
activities. These can include large shareholders, governments and trade unions. The power and
interests of these stakeholders affect the processes by which strategy develops at the corporate level
and in each individual business.

Academic concepts:
 Stakeholders and strategic processes (Chapter 6)

1.4 Individual business analysis

Having developed a view on the organisation’s corporate strategy through the answering of the
preliminary corporate analysis questions, our attention now shifts to the analysis of individual
 Where is the organisation now? 11

businesses within the corporate ‘whole’. When each business has been analysed, the corporate
analysis can be resumed and issues such as shared competences and resources and the nature of the
fit between businesses can be examined.
To answer the big question ‘where is the organisation now?’ for each individual business, it is
better to ask smaller and related sub-questions. This ensures that important component questions
are not overlooked and that all appropriate data and information is collected.

Q-B1 Who are the consumers of the business unit’s goods and services? How are they
communicated with?

It is a good idea to identify the people and/or organisations that purchase the business unit’s
products and, wherever possible, to classify them into groups or segments. By doing this we can
produce data to estimate the proportion of the available market that the organisation serves. It is
important to remember that the data can also be used to compare the performance of the company
to that of its competitors, which can be an ongoing comparison if the data is collected regularly.

Guidance note 1.5

A market segment is defined as a group of consumers who can be classified on specific
dimensions. Consumers may be individuals, in which case classification is along dimensions
such as age, income, lifestyle and socio-economic group. Consumers can also be
organisations, in which case classification is along dimensions such as volume usage,
manufacturing or service process and inventory control process. The segment must be easily
identifiable and distinguished from other segments (Hooley et al., 2008).
A description of an organisation’s products and the market segments that use them is a
description of the organisation’s product market mission. In consumer markets the person
who uses the product is often the person who pays for the product. In industrial markets
purchases are made by organisations and the people in manufacturing and purchasing
departments are key decision-makers. In public sector organisations the purchaser and the
user can be different, for example school pupils and their parents as distinct from local and
national government. In any strategic analysis it is important to identify purchasers as well as
users (see Chapter 6 for a discussion of stakeholders).

Q-B2 Why do customers choose this business unit’s products? What need is being met? What
are the key success factors in this market?

Marketing and psychology texts will discuss in-depth why people buy products or services. For our
purposes we will simplify the answer: customers buy a product because they perceive that its
purchase will improve their ability to achieve desired objectives (meet wants and needs, provide
utility). Different customers will also have different perceptions of their needs and these needs will
be contextualised within their utility potential. Put simply, some purchasers will be prepared to pay
for a basic product and no more, whilst others will be prepared to pay a premium for a
differentiated product, that is they will be prepared to pay for benefits that derive from additional
features. Models that are useful in discussing these topics are those concerned with identifying
12 The four big questions you need to ask

product and service competitive advantage. They are also useful when we try to develop
explanations for organisational performance.

Academic concepts:
 Competitive advantage and success factors (Chapters 8 and 9)

Q-B3 What are the trends in key results for this business?

An organisation’s performance can be assessed by financial and non-financial measures. For

organisations in the private sector, financial success is the only long-term guarantee of survival,
whereas for non-private sector organisations the criteria upon which success is judged can be more
complex. But whatever the company, great care has to be taken to ensure that appropriate
indicators are used. These ideas were discussed in Guidance note 1.4 (and see Table 1.1).

Guidance note 1.6

Table 1.1 Examples of results indicators

For-profit organisations
Financial indicators Non-financial indicators

Sales turnover Market share

Earnings per share Product quality
Return on sales (ROS) Brand recognition
Asset utilisation ratio (sales/assets)
Share prices
Return on capital
employed (ROCE)

Not-for-profit organisations (e.g. college)

Financial indicators Non-financial indicators

Unit cost of education Student attendance

Revenue generated from fee-paying students Student retention
Revenue generated from funding agencies Student achievement
Former students’ employment
Inspection grades

Academic concepts:
 Financial and strategic performance analysis (Chapter 10)
 Portfolio analysis (Chapter 5)

Q-B4 What are the characteristics of the markets that this business serves? What are the
factors that exist outside the business unit that impact on its ability to provide goods
and services? Can trends in results be explained by this analysis?
 Where is the organisation now? 13

There are three areas that need to be considered when we answer this question:

1 The organisational environment;

2 The competitive environment and the characteristics of the markets that the business
serves; and
3 The wider national, international, socio-economic, political and technological environments,
including digital communications and social media, terrorism, ecology.

We also need to consider what is likely to change and what is likely to remain substantially the
same. Is the environment relatively stable or chaotic? How predictable is change?
An analysis of a company’s organisational environment provides a platform for understanding how
a company’s business strategy is related to the overall corporate strategy, and whether there is
synergy or allergy between business units in the performance of their operational activities. It can
also shed light on any explicit or implicit competition between business units for funds, which is
why it should also be discussed within the corporate strategy part of the algorithm (see Q-SC3).

Academic concepts:
 Corporate parenting (Chapter 5)
 Environmental analysis (Chapter 7)
 Industry analysis (Chapter 7)
 Strategy development processes (Chapter 6)
 Strategy and CSR (Chapter 11)

Q-B5 What are the resources within and around the organisation that allow the organisation
to provide products that customers will buy? To what extent can the business perform-
ance be explained by an understanding of an organisation’s resources?

In order to supply services and products an organisation requires resources. These can include skills
and knowledge that are held tacitly within the organisation. Strategic analysis should therefore seek
to understand the relationship between market success (the sale of products and services) and the
resources that are utilised to produce and deliver those products and services. What is the business
model used by the organisation? Does the organisation actively encourage dynamic capability
development? Are resources being used to develop future resources?

Academic concepts:
 Resources and competitive advantage (Chapters 8 and 9)
 Organisation culture (Chapter 6)
 Strategic processes (Chapter 6)
 Dynamic capability (Chapters 4, 5 and 9)

Q-B6 What is the dominant logic/organisation paradigm that guides this business’s decision
making and contributes to the way strategy develops? To what extent does the or-
ganisation configure its resources and systems that help it prepare for the future? Do the
business’s key players have a coherent vision of what they want the business to be in
the medium and long term? Are this business’s ambitions a coherent part of the vision
for the corporate whole? Does the organisation have systems and a culture that allows it
to exploit developments in its environment?
14 The four big questions you need to ask

Prahalad and Bettis (1986) coined the phrase dominant logic to describe the logic that managers and
others use to comprehend and justify the organisation’s purpose and environment. This is important
because managers make decisions on the basis of this view. If their logic gives them a view of their
environment that is consistent with the production of competitive products now and in the future,
then the organisation has a chance to thrive. If it does not, the organisation will decline until its
management is able to implement a recovery strategy or the business is liquidated. In a multi-
company organisation where managers from different businesses have to interact, the ability to
operate with different dominant logics can be very important. This is especially true for corporate
level managers because it is likely that they will have to operate within a number of dominant logics,
which increases the level of complexity and difficulty that they will have to deal with. Johnson (1988)
developed the concept of an organisation paradigm supported by a cultural web, and this is important
because it provides a framework through which the dominant logic concept can be operationalised.

Academic concepts:
 Organisation paradigms, dominant logic and strategic processes (Chapter 6)
 Dynamic capability (Chapters 4 and 9)

Q-B7 What is this business’s articulated view with regard to CSR? How does the reality of
this behaviour reflect this articulation?

In this question issues of actual and articulated approaches to CSR should be evaluated, and can be
linked to ideas of vision and culture discussed in B6.

Academic concepts:
 Corporate social responsibility and business ethics (Chapter 11)

Q-B8 What are the strengths and weaknesses of the business?

This question leads the analyst to assess the individual businesses from an internal perspective. A key
issue is whether it is a strength or a weakness for the business to belong to the corporate whole. More
generally, does the business have a balance of strengths and weaknesses, do strengths exceed weaknesses
or do weaknesses exceed strengths? (See Q-B10 for a more detailed discussion of this issue.)

Q-B9 What are the opportunities and threats that exist for this business?

This question leads the analyst to assess the business from an external perspective (see Q-B10 for a
more detailed discussion of this issue).

Guidance note 1.7

In our analytical approach we have outlined how corporate and business strategies are
interwoven. The purpose of the analysis is to determine the overall strategic strengths and
weaknesses of each business and the corporate whole, so that we can assess the prospects for
the organisation based on the available information. From this assessment we can make
judgements on the choices open to the organisation and the strategic options it might pursue.
This is discussed more fully in Chapters 3 and 4.
 Where is the organisation now? 15

Q-B10 What is the strategic position of this business?

This involves an assessment of strengths, weaknesses, opportunities and threats (that is SWOT
analysis), and is likely to include an analysis of the following issues:

 What are the organisation’s strengths and weaknesses?

 Does the organisation have more strengths than weaknesses, a balance of strengths and weak-
nesses or more weaknesses than strengths?
 How dynamic is this organisation’s environment?
 How attractive are its markets?
 What are the key performance indicators for this business? What are the trends in these
indicators?
 Is it financially strong?
 Should it be optimistic about its future or will it be fighting for survival?

The process of answering these questions will inevitably lead to a discussion of options and
whether the company should pursue any of the identified options.

Academic concepts:
 SWOT

1.5 Summative corporate analysis

Q-SC1 What is the relationship between the corporate centre and the individual businesses?
What are the processes by which strategy develops in the business units and in the
organisation as a whole?

Campbell et al.’s (1995a, 1995b) research indicates that successful organisations develop relation-
ships between the parent and its subsidiary that vary from the distant to the close. They have
developed a typology that classifies these relationships as:

 Strategic planning relationships

 Financial control relationships
 Strategic control relationships

Strategic planning relationships are defined as relationships in which the centre actively
participates in strategy development and implementation. This is an appropriate relationship
when the portfolio is made up of related businesses and centre managers have a ‘feel’ for the
businesses in the portfolio. It can encourage the development of long-term perspectives and lead
to businesses sharing and developing capabilities that can confer strategic advantage to a number
of product groups. In inappropriate circumstances it can lead to irrelevant procedures and
unnecessary paper work, lack of ownership of tasks by those undertaking them, demoralisation
of divisional managers and strategy being developed by senior managers who are out of touch
with the marketplace.
Financial control relationships are defined as relationships in which the centre’s main concern is
setting financial targets but delegates strategy development to the business unit. It is appropriate for
corporations that are unrelatedly diversified, where the direction and control from the centre is
16 The four big questions you need to ask

targeted at motivating managers. This can motivate managers to focus on short-term performance
and quickly identify short-term weaknesses in strategy. It does not, however, encourage
cooperation across units or the development of long-term strategies.
Strategic control relationships are considered intermediate, lying somewhere between financial
control relationships and strategic planning relationships. In these relationships strategies are developed
by the business units and approved (or not) by the centre. The constraints found in the financial control
style can also be found in strategic control relationships, and yet the emphasis on short-term financial
performance can be offset by the incorporation of strategic objectives into the agreed strategy.
The organisational paradigm can also have an important influence on strategy development.

Academic concepts:

 Corporate parenting (Chapter 5)

 Strategy development processes (Chapter 6)

Q-SC2 What are the relationships between the individual businesses? Are they supporting,
neutral or disadvantageous?

Is there a strategic fit between the businesses in the organisation portfolio (that is the companies
that make up the corporate entity)? Do they share value chain activities? Are there common and
shared capabilities that allow synergies across the organisation as a whole and confer competitive
advantage on to specific units? Do the activities of some businesses reduce the effectiveness of
others in the portfolio?

Academic concepts:
 Resources and competitive advantage (Chapters 8 and 9)
 Portfolio analysis (Chapter 5)
 Corporate parenting and strategic fit (Chapter 5)

Q-SC3 What are the factors outside the organisation that influence the organisation’s activities?

It is important to recognise the factors outside the organisation that influence its behaviour at both
the corporate and business levels. The various factors that impact on the performance of individual
businesses also have a cumulative effect on the organisation as a whole. Indeed, the rationale for
unrelated diversification has been the spread of risk. The nature of the business environments can
also impact on the way the centre manages its relationships with its subsidiaries. Contemporary
thinking in government, consultancies and business schools can also influence the way
organisations behave. Examples of this include:

 The way that organisations in the 1950s and 1960s implemented strategies of corporate
unrelated diversification.
 The way that many public sector organisations in the UK in the 1980s and 1990s were either
privatised or required to operate in quasi-markets using the management tools developed from
the private sector.

Academic concepts:
 Environmental analysis (Chapter 7)
 Where is the organisation now? 17

Q-SC4 What are the strengths and weaknesses of the organisation?

The strengths and weaknesses of each business should be taken into account and the impact of
these on the corporate entity should be considered. The strength and weakness assessment should
revisit the questions covered earlier and should relate to:

 The financial and business performance of each business.

 The contribution of each business to the overall financial performance of the whole.
 The strengths and weaknesses of each business.
 The fit between each business.
 The impact of stakeholder, including management and ownership, interests and actions, on
the organisation.
 The appropriateness of the organisation structure.
 The relationship between the corporate centre and the individual businesses.

Q-SC5 What are the opportunities and threats that exist for this organisation?

The opportunities and threats faced by each business should be taken into account and the impact of
these on the corporate entity should be considered. The opportunities and threats assessment should
consider:

 External opportunities and threats:

B The impact of outside factors on each business.
B The net effect of outside factors on groups of individual businesses.
B The sum of the effect of outside factors on the corporate whole.
 Internal opportunities:
B The possibility that some internal resource or strong capability may be the source of a
market opportunity not yet obvious from external monitoring.

Q-SC6 What is the overall strategic position of the organisation?

A key question in answering this question relates to whether the corporate portfolio is balanced
and if it is self-funding and financially strong. Also, are the individual businesses more effective in
the corporate portfolio than outside the portfolio, and if they are, why? The analysis of the
question should also include an assessment of the following issues (which are very similar to those
given for an individual business unit):

 What are its strengths and weaknesses?

 Does the organisation have more strengths than weaknesses, a balance of strengths and weak-
nesses or more weaknesses than strengths?
 Does the organisation’s management have a clear vision of where they want this business to
be? Does it have a clear view of its opportunities and threats? Is it in a position to manage
threats and seize opportunities?
 Should it be optimistic about its future or will it be fighting for survival?

The process of answering these questions will inevitably lead to a discussion of options and
whether the company should pursue any of them (as it did for a single business unit).
18 The four big questions you need to ask

Academic concepts:
 Portfolio analysis and strategic fit (Chapter 5)
 Corporate parenting (Chapter 5)
 Dynamic capability (Chapters 4 and 9)

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