BUSINESS STRATEGY - 3

STAKEHOLDER

A stakeholder is anybody who has an interest in an organization and who will be affected by the decisions that the organization makes. By anybody I mean individual people or I could mean groups or I could mean organisations. What I mean by interest is that if the organization does well they will benefit positively in some way. And if the organization does badly or goes bankrupt they will be negatively affected in some way. For example, employees are stakeholders of an organization. They are interested in the business and want the business to do well because if the business does well they will continue to work there and get their salaries. If the organization does badly they will lose their jobs and not get their salaries.

STAKEHOLDER ANALYSIS

A stakeholder analysis is all about:

Finding out who your stakeholders are,

the interest they have in the organization

the influence they have on what the organization does

help you to understand them.

Interest

Some stakeholders have a little interest in the organization. Some stakeholders have a lot of interest in the organization.

Influence / Power

Some stakeholders have a little influence in the organization. Some stakeholders have a lot of influence on what the organization does.

Example of Interest and Influence / Power

For example, employees have a lot of interest in the organization because it is the organization that gives them a job and pays them a salary for doing that job. They also have a lot of influence over what the organization does. They can stop doing their jobs

and go on strike. This will affect the organization very badly because the work will not get done and the organization will lose money.

STEPS IN THE STAKEHOLDER PROCESS

These are the steps to be followed when doing a stakeholder analysis (Mindtools, 2012):

Step 1 – Identify Your Stakeholders

Step 2 – Prioritize Your Stakeholders

Step 3 – Understand Your Key Stakeholders

LULU HYPERMARKET’S STAKEHOLDERS

These are the stakeholders of Lulu Hypermarket. This shows Step 1 of the stakeholder analysis.

Owners

Employees

Suppliers

Community

Government

Sponsor

Creditors

Customers

Their bank/s

Potential customers

Investors / shareholders

Some of these are internal stakeholders and some are external stakeholders as shown in Table 1.

TABLE 1: INTERNAL AND EXTERNAL STAKEHOLDERS OF LULU

Internal Stakeholders External Stakeholders

Employees Suppliers

Shareholders/Owners Potential customers

Creditors Government

Board members Community

Sponsor Banks

Internal stakeholders are people who are already committed to serving your organization . They are all effected by wages and job stability. Managers may get bonuses so they want the business to be very successful. Owners/Shareholders want the best for the company so they make more money.And if something happens to the company they will be effected.

External stakeholders are people who are not directly working within the business but are affected in some way from the decisions of the business. Customers are interested in prices and quality of the product. Suppliers are intersted in the success and stability of the company so they can ensure they will have a customer in the future. The Government is interested as company's (especially large ones) pay taxes and emply people.

When identifying stakeholders and rating their level of interest and involvement in the project, it will become important to use some sort of a tool — a rating scale, an influence diagram, or a chart form to identify the level of power, influence, interest, or impact that the stakeholder may have on the project.

POWER/INTEREST GRID

All stakeholders have an influence on the organization and they all have an interest in the organization. Some of these stakeholders have more influence than others and some have more interest. This is shown in Figure 1.

Figure 1: Stakeholder Power / Influence and Interest Matrix

Source: (Bryson 1995: 71 -5).

This diagram shows step 2 of the process of stakeholders analysis and shows that when an organization analyses its stakeholders it will put it stakeholders into one of four boxes or quadrants according to how much interest and power/influence these stakeholders have on the organization. Figure 1 also shows who the most important stakeholders are and who the least important stakeholders are. By putting the stakeholders into these different boxes or quadrants the organization will be able to

develop strategies for their stakeholders in a better way because they will base their strategies on how much power each stakeholder has and how much interest they have.

Figure 2 shows the strategies that should be used for each group of stakeholders.

FIGURE 2: STRATEGIES FOR EACH GROUP OF STAKEHOLDERS

Source: Power versus interest grid adapted from Eden and Ackermann (1998: 121-5, 344-6).

Figure 2 shows that for each group there will be a different strategy because of the different level of interest and influence

UNDERSTANDING STAKEHOLDERS BETTER

To help the organization understand their stakeholders better, they should ask themselves these questions (Mindtools, 2012):

What financial or emotional interest do they have in the outcome of your work? Is it positive or negative?

What motivates them most of all? What information do they want from you? How do they want to receive information from you? What is the best way of communicating your message to them? What is their current opinion of your work? Is it based on good information? Who influences their opinions generally, and who influences their opinion of you? Do some of these influencers therefore become important stakeholders in their own

right? If they are not likely to be positive, what will win them around to support your

project? If you don't think you will be able to win them around, how will you manage their

opposition? Who else might be influenced by their opinions? Do these people become

stakeholders in their own right?

These questions should be asked in Step 3 of the stakeholder analysis process.

It is important that we ask these questions. For example, we can find out more about our customers when we ask these questions. These questions will help us to find out the buying roles in a family. These roles are:

Initiator

Influencer

Decision maker

Buyer

User

By knowing who initiates the buying process we will be able to target this person. By knowing who is the influencer we can target this person. By knowing who is the decision maker, we can target this person. By knowing who is the buyer we can target this person. By knowing who is the user we can target this person. Each of these persons will receive a different message from us and together all our messages will translate into a purchase.

QUESTION 2

This question is about three types of strategies that an organization can follow:

Substantive strategy

Limited growth strategy

Retrenchment strategy

SUBSTANTIVE GROWTH

Substantive growth strategies are those companies that want to grow quickly and fast and who think that their sales will be high enough to carry or absorb the increase in costs will go for a substantive growth strategy.

The following are the strategies in substantive growth:

horizontal and vertical integration,

related and unrelated diversification.

Horizontal integration and Vertical integration :

(Google images ,2012)

Source: http://bizdharma.com/blog/what-is-vertical-and-horizontal-integration/ (2012, 887-9)

Vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace.

Example of vertical integration: while you are relaxing on the beach sipping chilled cold drink, the brand that you see on the bottle is the producer of the drink but not necessarily the maker of the bottles that carry these drinks. This task of creating bottles is outsourced to someone who can do it better and at a cheaper cost. But once the company achieves significant scale it might plan to produce the bottles itself as it might have its own advantages (discussed below). This is what we call vertical integration. The company tries to get more things under their reign to gain more control over the profits the product / service delivers.

Types of Vertical Integrations:

There are basically 3 classifications of Vertical Integration namely:

1. Backward integration – The example discussed above where in the company tries to own an input product company. Like a car company owning a company which makes tires.

2. Forward integration – Where the business tries to control the post production areas, namely the distribution network. Like a mobile company opening its own Mobile retail chain.

3. Balanced integration –A mix of the above two. A balanced strategy to take advantages of both the worlds.

Horizontal Integration:

Much more common and simpler than vertical integration, Horizontal integration (also known as lateral integration) simply means a strategy to increase your market share by taking over a similar company. This take over / merger / buyout can be done in the same geography or probably in other countries to increase your reach.

Examples of Horizontal Integration are many and available in plenty. Especially in case of the technology industry, where mergers and acquisitions happen in order to increase the reach of an entity.

Related and unrelated diversification:

Related diversification is when a business adds or expands its existing product lines or markets. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification.

Un-Related diversification is when a business adds new, or unrelated, product lines or markets. For example, the same phone company might decide to go into the television business or into the radio business. This is unrelated diversification: there is no direct fit with the existing business.

LIMITED GROWTH

A limited growth strategy is suitable for those organizations that do not want to have to borrow money to grow the company. Limited growth can be achieved for companies who want to grow through sales. Also, those companies who do not want to give managers the chance to focus on managing the business and at the same time being able to spend time on growing the business.

Limited growth strategies are:

Market penetration

Product development and

Market development.

These strategies are shown in Figure 3.

FIGURE 3: LIMITED GROWTH STRATEGIES

Source: Google Images, 2012

Figure 3 shows that:

1. Market penetration - involves selling more established products into existing markets, often by increased promotion or price reductions or better routes to market, for example online.

2. Product development - involves developing new products or services and placing them into existing markets.

3. Market development - entails taking existing products or services and selling them in new markets.

4. Diversification - involves developing new products and putting them into new markets at the same time. Diversification is considered the most risky strategy. This is because the business is expanding into areas outside its core activities and experience as well as targeting a new audience. It also has to bear the costs

of new product development.

RETRENCHMENT

This strategy is the right one for organizations who are facing tough economic times. The organization will cut down on its activities and so will not do so many activities. They will sell assets, discontinue unsuccessful product lines, dismiss employees, restructure debt and maybe even liquidate the organization. all this will save them money and allow them to be prepared to grow when things change and the situation improves. .

Retrenchment strategies are:

Divestment

cost reduction,

turnaround,

bankruptcy or liquidation.

Divestment

Divestment is a form of retrenchment strategy used by businesses when they downsize the scope of their business activities. Divestment usually involves eliminating a portion of a business. Firms may elect to sell, close, or spin-off a strategic business unit, major operating division, or product line. This move often is the final decision to eliminate unrelated, unprofitable, or unmanageable operations.

Cost reduction

“Cost reduction is to be understood as the achievement of real and permanent reductions in the unit cost of the goods manufactured or services rendered without impassing their suitability for the use that is intended”- ICWA London.

In other words the process of identifying and eliminating unnecessary costs to improve the profitability of a business is a cost reduction program. It may be implemented when a company is having financial problems and must "tighten its belt." In some cases, the firm is initiating a policy to eliminate waste and inefficiency.

Turnaround

The concept or meaning of turnaround strategy covers following points:

1. Turnaround strategy means to convert, change or transform a loss-making company into a profit-making company.

2. It means to make the company profitable again.3. The main purpose of implementing a turnaround strategy is to turn the company from

a negative point to a positive one.4. If a turnaround strategy is not applied to a sick company, it will close down.5. It is a remedy for curing industrial sickness.6. Turnaround is a restructuring strategy. Here, a loss-bearing company is transformed

into a profit-earning company, by making systematic efforts.7. It tries to remove all weaknesses to help a sick company once again become strong,

stable and a profit-making institution.

Bankruptcy / liquidation:

Bankruptcy is a legal status of an insolvent person or an organization, that is, one who cannot repay the debts they owe to creditors. And when a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders. Hence Creditors liquidate assets to try and get as much of the money owed to them as possible. They have first priority to whatever is sold off.

QUESTION 3

BACKGROUND

This question is about the strategy that American Airlines has chosen.

AMERICAN AIRLINES:

Founded in 1930, American Airlines, formerly American Airways, Inc. began trading on the New York Stock Exchange on June 10, 1939. Originally headquartered in New York City, where it continues to maintain a strong presence, American moved its headquarters to Fort Worth, Texas, in 1979 and has since become one of the largest airlines in the world, contributing nearly $100 billion to the U.S. and international economies. It has helped create more than 900,000 jobs worldwide, and supported approximately 1,400 non-profit organizations worldwide.

The combined network fleet numbers almost 900 aircraft. In 2009, American carried approximately 85.7 million passengers, about equal to one-third of the U.S. population.On an average day, American Airlines alone will…

Fly about 275,000 passengers

Receive more than 239,000 reservations calls.

Handle more than 300,000 pieces of luggage.

Fly about 3,400 flights.

STRATEGIC OBJECTIVES

These are their strategic objectives, that is, what they want to achieve.

Growth

Achieve $1 billion in annual revenues with $60 million in profits by 2011

Maintain a net profit rate equal to or better than the best world class companies in our industry by 2011

Have investment policies and fiscal procedures to foster aggressive growth and profitability by 2001

Have a comprehensive business development plan 2001

Have 6 projects in 3 countries 2001

Management

Have a management team capable of meeting our strategic objectives. Have a complete management team.

Safety

Have an injury free workforce.

Administrative

Have standardized cost management and financial systems. Have standard operating procedures.

Employees

Have a comprehensive career development program.

Achieve an employee turnover rate less than 5%. Define and communicate organizational roles, responsibilities, and expectations

for all employees.

Physical plant

Have all digital equipment. Have a replacement equipment financing plan. Have a technology development and implementation plan.

Quality

Complete the ISO 9000 certification of all projects. Achieve zero errors and omissions claims. Achieve compliance with federal, state and local environmental mandates.

STRATEGY

Given the analysis from Ansoff matrix, there are two main strategies SW will focus on:

Penetration strategy: Continue to penetrate US market

Market development: To venture into international route in Vietnam

RESOURCE REQUIREMENTS

To implement this new strategy, SW needs the following resources:

Physical Resources:

Aircrafts - For both US and VN market

New distribution outlets in US

Local VN office

People Resource:

VN office staff

VN air crews

Director in charge of VN operation

Director in charge of US operation

Initial Start-Up Cost:

Operations and procurement of airport service

Launch of new office

Promotions

PRIORITY

Because the VN is a new operation, it is important that HQ of SW to set priority by having a Director who has the right experience and who understands the VN culture and who has worked in VN and understands how people work and think there. He needs to have this experience so that he can make sure that he has the right people in the office with the right experience so that the office can be a success. He will know what knowledge, skills and competencies the staff need to make the office a success. He will send them on training courses to acquire the right knowledge, skills and competencies.

TABLE 1: ACTION PLANS

This table outlines the action plans, person responsible and start and end dates for each strategic objective.

Objective Code

Objective Due Date

Responsibility Impact on Revenue

List of Actions Start date End Date Success Indicators

A1 Achieve $1 billion in annual revenues with $60 million in profits by 2013

Dec 2013

Marketing Director

Sales of $120m

Monthly ticket sales $10m

Operate on a 60% gross profit margin

Jan 2013 Dec 2013 Meeting monthly targets

A2 Maintain a net profit rate equal to or better than the best world class companies in our industry by December 2013

Dec 2013

Finance Director EBIT of $40 billion

Operate on a operating profit margin of 40%

Jan 2013 Dec 2013 Meeting monthly targets

A3 Have investment policies and fiscal procedures to foster aggressive growth and profitability by 2013

Dec 2013

Finance Director Sales of $120m; GP of $60m; EBIT of $40m

Revise Investment Policies and Fiscal Procedures Manual

Jan 2013 March 2013

Weekly monthly targets

A4 Have a comprehensive business development plan for 2013

Jan 2013 Marketing Director

Achievement of $120m in sales by year end with $60m gross profit and $40m EBIT

Make sure BDM’s have monthly targets for 2013

Make sure BDM’s know their monthly targets

Dec 2012 Dec 2012 Weekly progress reports from BDM’s showing sales for the week and potential sales for the next week and variances on targets

A5 Have 6 projects in 3 countries in 2013

Dec 2013

Marketing Director

Finance Director

Operations Director

Human Resources Director

Get the $120b in sales by year end 2012

Identify the 6 countries Dec 2012 Dec 2012 Weekly report back meetings to monitor progress

Set up the infrastructure

Jan 2013 Feb 2013

Start generating income

March 2013

Dec 2013

A6 Have a management team capable of meeting our strategic objectives

Dec 2012

Human Resources Director

Achievement of sales and profit objectiveds

Determine people resource requirements for each functional area

Oct 2012 Oct 2012 Daily progress reports

A7 Have a complete management team

Dec 2012

Human Resources Director

Achievement of sales and profit objectives

Recruit, select and train management

Oct 2012 Nov 2012 Weekly progress report

team

Construct an Organisation Chart showing all positions and incumbents

A8 Have an injury free workforce

Dec 2013

Health & Safety Director

Achievement of sales and profit objectives

HSE Awareness campaigns

Jan 2013 Dec 2013 Monthly awareness campaigns and report backs on progress

A9 Have standardized cost management and financial systems

Feb 2013 Finance Director

Information Systems Director

Achievement of sales and profit objectives

Streamline finance systems

June 2012 Feb 2013 Monthly progress reports

A10 Have standard operating procedures

Dec 2012

Marketing Director

Finance Director

Operations Director

Human Resources Director

Information Systems Director

Achievement of Sales and profit objecgtives

Draw up operation procedure manual

June 2012 Dec 2012 Monthly progress reports

A11 Have A Comprehensive Career Development Programme

Dec 2012

Human Resources Director

Line Managers

Achievement Of Monthly Sales And Profit Figures

Succession Plan

Talent Management Plan

Career Plan For Each Individual

June 2012 Dec 2012 Monthly Progress Reports

A12 Achieve An Employee Turnover Rate Less Than 5%

Dec 2013

Human Resources Director

Line Manager

Achievement Of Monthly Sales And Profit Figures

Profit Sharing For Employees

Bonuses Based On Performance

Salaries Higher Than Industry

June 2012 Dec 2013 Monthly Progress Report

Norm

A13 Define and communicate organisational roles, responsibilities, and expectation for all employees

Dec 2012

Human Resources Director

Line Managers

Achievement of monthly sales and profit targets

Job descriptions for all staff

Performance feedback sessions for all staff each month

Coaching scheme introduced

June 2012

June 2012

Jan 2013

Dec 2012

Ongoing

Ongoing

Monthly review meetings

A14 Have all digital equipment

June 2013

Finance Director

Information Systems Director

Achievement of monthly sales and profit figures

Digitalise everything

June 2012 June 2013

Monthly review meetings

A15 Have a replacement equipment financing plan

Dec 2012

Finance Director

Department Heads

Achievement of monthly sales and profit figures

Draw up the plan June 2012 Dec 2012 Monthly progress meetings

A16 Have a technology development and implementation plan

Dec 2012

Information Systems Director

Finance Director

Achievement of monthly sales and profit figures

Draw up the plan June 2012 Dec 2012 Monthly progress meetings

A17 Complete the ISO certification

Dec 2013

All Department Heads

Achievement of monthly sales and profit targets

Complete the documentation and submit for approval

June 2012 June 2013

Monthly progress meetings

A18 Achieve zero errors and omissions claims

Dec 2013

All department heads

Achieve monthly sales and profit targets

Systems in place to ensure no errors and omissions

June 2012 Dec 2012 Monthly progress meetings

A19 Achieve compliance with federal, state and local environmental mandates

Ongoing Finance Director

All department heads

Achieve monthly sales and profit targets

Systems in place to comply with mandates

June 2012 Dec 2012 Monthly progress meetings

CONCLUSION :

This assignment focused on stakeholders analysis, strategies and action plans.

1. It’s in my opinion that knowing your stakeholders are important because they generate an initial list of people that are interested and will be affected with the happenings in the business and because Stakeholders can greatly influence the intended outcome and success of a project. Knowing and identifying your stakeholders better and dividing them into categories like important, less important and very important will give you an understanding of who can enable or block a decision. For example the media may be a potential stakeholder but their involvement has to be treated with caution particularly in high conflict situations.

I believe that you can then use the opinions of the most powerful stakeholders to shape your projects at an early stage. Not only does this make it more likely that they will support you, their input can also improve the quality of your project

By acknowledging them, you can anticipate what their reaction to your project may be, and build into your plan the actions that will win their support.

2. In my opinion Small projects typically don't have to worry about understanding and managing the stakeholder community. You usually have to deal with a sponsor (the person that requested the work) and that's about it. But if you have a large and diverse stakeholder community then it does make sense to perform a stakeholder analysis.Performing a stakeholder Analysis is a good idea because it helps you identify and understand your key stakeholders and win their support. Familiarizing yourself with the stakeholders need s will initially make your job a lot easier and performing a stakeholder analysis during the planning stage can greatly influence the development of an effective project strategy.

A Stakeholder analysis goes through a process which will help you determine the various stakeholder groups, their needs, and how you will satisfy their needs which are all equally important for a good stakeholder management.It will also give you a look at each stakeholder and determine how important he or she is to the success of your project so the business can make decisions accordingly.

3. The steps I have identified may not be complete but are enough to know and analyze your stakeholders better.For a briefed analysis a step can be added which is to profile each identified stakeholder.

Though the provided approach is efficient and provides a quick review of all stakeholders, completing a more detailed, narrative profile is strongly encouraged. This will allow for a greater understanding of each stakeholder and how to get each stakeholder involved.A detailed stakeholder profile can include, but is not limited to, the followingtypes of information :

Types of Information Collected in a Detailed Stakeholder Profile

Identified RoleMotivation for Being in the ProjectHow will the project benefit them?

Perceived Expectations and Goals in Relation to the ProjectDo the stakeholder’s goals and expectations support or conflict with theproject goals?

Level of Importance for the Success of ProjectWhat resources might the stakeholder bring to the project? What is thestakeholder willing to organize for the project?

Potential Negative Impact on the Project§What can the stakeholder prevent from happening? Are there anystakeholder interests that conflict with project goals?

Level of Influence over the Project for Decision-MakingWhat is the stakeholder’s power and status in relation to the project?Does the stakeholder control key resources? Does the stakeholder haveinformal influence or personal connections that will affect the project?What power does the stakeholder have over implementation of theproject or over other stakeholders?

Intention to Participate According to the Project DesignDoes the stakeholder want to be involved or merely need to beinformed about the project and its process? How much does thestakeholder need to participate to make the project a success?

Intended Use of the Project or the Project ResultsHow will the stakeholder directly benefit from the project and how willthis affect the stakeholder’s motivation?

Or even a LADDER OR PARTCIPATION step can be used for further analysis and to know how each one of them is contributing to the project.

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4. I believe it is equally important for a deeper understanding to draw up a power matrix plotting the power the stakeholder has over setting the rules for your business against the operational power (resources, funding, people).Power interest grid classifies stakeholders in relation to their power and the extent to which they are likely to show interest in the actions of the organisation. And it can be used to indicate the nature of the relationship which should be adopted with each group, which are basically the strategies to follow.

5. In my opinion asking question to your stakeholders does help you better engage with them.If you need to know more about your key stakeholders, If you need to know how they are likely to feel about and react to your project, if you also need to know how best make them participate in your project and how best to communicate with them. Just asking questions will give you answers to all these needs.The phrase “keep your friends close and your enemies closer” comes to mind here. Someone who is a strong supporter you will want to keep that way so keeping them informed as progress is made and ensuring you know what they expect as time moves on is essential with this type of stakeholder.

6. I believe knowing about the three types of strategies will guide you towards the right strategy to choose in a right way.However I cannot right away buy an oil company therefore I have to horizontally integrate my way through it.These are the ways with which one can decide which step to take next.

Or even if a strategy calls it retrenchment as a whole. It still works to either turn around a business unit, to divest or simply cut-off a particular unit. Henceforth giving you a direction of how a business can be profitable.

7. I feel we should draw up an action plan because it is a process which will help you to focus your ideas and to decide what steps you need to take to achieve particular goals that you may have. It is a statement of what you want to achieve over a given period of time. Preparing an action plan is a good way to help you to reach your objectives : don't worry about the future, start planning for it!

SOURCES:

http://www.referenceforbusiness.com/management/De-Ele/Divestment.html#ixzz2CakYkGII

http://www.investopedia.com/terms/l/liquidation.asp#ixzz2Caoo2OLA

http://www.aa.com/i18n/amrcorp/corporateInformation/facts/amr.jsp

http://en.wikipedia.org/wiki/Ford_River_Rouge_Complex

http://www.slideshare.net/tutor2u/business-strategy-retrenchment

http://influenzatraining.org/documents/s18763en/s18763en.pdf