business strategy - organisation

8/9/2019 Business Strategy - Organisation

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© Business eLearning

Business Strategy (BMGT30300)


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Module schedule

•Two hour plenary per week focusing on thekey concepts and tools of strategy

• Two hour tutorial per every fortnight focusingon the application of these key concepts andtools through case study analysis Thetutorials will also deal with additionalreadings.

PLEASE ATTEND YOUR REGISTERED TUTORIAL

• Assessment: – Mid-Term MCQ examination: 30%

– Final exam (closed book): 70%

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Required reading:

"Crafting and Executing Strategy" byThompson, Strickland, Gamble, Peteraf, Janes

and Sutton (2013). Publisher: McGraw Hill.

Additional readings

Links to additional readings will be available in

the Reading Folder in BlackBoard.Certain readings will be e-mailed by us to yourUCD Connect email address.

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What do we mean by ‘strategy’

•What is our present situation?• Business environment and industry conditions

– Firm’s financial and competitive capabilities

• Where do we want to go from here?

– Creating a vision for the firm’s future direction

• How are we going to get there? Crafting an action plan that will get us there

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What is it all about?

•Strategy is all about How :• How to outcompete rivals.

• How to respond to economic and marketconditions and growth opportunities.

• How to manage functional pieces of thebusiness.

• How to improve the firm’s financial and marketperformance.

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To what end?

•A firm strategises:• To improve its financial performance.

• To strengthen its competitive position.

• To gain a sustainable competitive advantage

over its market rivals.

• A creative, distinctive strategy:

• Can yield above-average profits.

•Makes competition difficult for rivals.

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•Strategy is about competing differently fromrivals

● Doing what they don’t do or doing it better!

● Doing what they can’t do!

● Doing that which sets the firm apart andattracts customers.

● Deciding what we should or should not do toproduce a competitive edge.

● Can be described as adopting a particular ‘position’

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•Competitive Advantage• Meeting customer needs more effectively, with

products or services that customers valuemore highly, or more efficiently, at lower cost.

• Sustainable Competitive Advantage

• Giving buyers lasting reasons to prefer a firm’sproducts or services over those of its

competitors.

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Strategic choices

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Low-cost providerDifferentiation on

features

Focus on

market nicheBest-cost provider

Building Competitive Advantage


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Strategy – design or process?


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Relationship between strategy and thebusiness model

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Realised

Strategy

Competitive

Initiatives

Business

Approaches

Business Model

Value Proposition

Profit Formula


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An organisation’s business model

♦ How the business will make money :● By providing customers with value.

The Customer’s value proposition

● By generating revenues sufficient to cover

costs and produce attractive profits.

The firm’s profit formula

It takes a proven business model - one thatyields appealing profitability - to demonstrate

viability of a firm’s strategy.

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Elements of the Business model

• The Customer Value Proposition

• Satisfying buyer wants and needs at a pricecustomers will consider a good value.

• The greater the value provided (V) and thelower the price (P), the more attractive thevalue proposition is to customers.

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•The Profit Formula• Creating a cost structure that allows for

acceptable profits, given that pricing is tied tothe customer value proposition.

V—the value provided to customers P—the price charged to customers

C—the firm’s costs

• The lower the costs (C) for a given customer

value proposition (V–P), the greater the abilityof the business model to be a moneymaker.

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• Adapting Business models to changingenvironments => See textbook,Illustration capsule 1.2

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Reinventing your Business Model

Johnson, M., C. Christensen and H. Kagermann (2008) “Reinventing your Business Model” Harvard Business Review


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Does it all make sense? Testing the ‘strategy’

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Successful

Strategy

The Strategic

Fit Test

The Performance

Test

The Competitive

Advantage Test


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Testing the ‘strategy’ ..some recentsuggestions

• Will the strategy beat the market?• Does the strategy tap a true source of advantage?• Is the strategy granular about where to compete?• Does the strategy put the firm ahead of trends?• Does the strategy rest of privileged insights?• Does the strategy embrace uncertainty?• Does the strategy balance commitment and

flexibility?• Is the strategy contaminated by bias• Is there conviction to act on the strategy?•

Has the strategy been translated into an action plan?

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Source: Bradley et al. 2011 (McKinsey Quarterly)


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Why Crafting and Executing Strategy isImportant

•Strategy provides:• A prescription for doing business.

• A road map to competitive advantage.

• A game plan for pleasing customers.

• A formula for attaining long-term standoutmarketplace performance.

• Good Strategy + Good Strategy Execution = Good Management


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The Road Ahead

•Strategy is about asking the right questions:• What must managers do, and do well, to make

a firm a winner in the marketplace?

• Strategy requires getting the right answers:

• Good strategic thinking and good managementof the strategy-making, strategy-executingprocess.

• First-rate capabilities and skills in crafting and

executing strategy are essential to managingsuccessfully.


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Chapter 2

Charting the organisation’s direction

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Key issues

• Appreciating why company managers need a clear

strategic vision of where a company needs to go andwhy?

• Understanding the importance of setting bothstrategic and financial objectives?

• Understanding the importance of tightly coordinatingstrategic initiatives taken at various organisationallevels

• Appreciating the importance of achieving operatingexcellence and execute its strategy proficiently?

• Understanding the role and responsibility of acompany’s board of directors in overseeing thestrategic management process?

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What does a strategic process entail?

•Developing a strategic vision, a mission, andarriving at a set of values.

• Setting objectives for measuring performance andprogress.

•Crafting a strategy to achieve those objectives.

• Executing the chosen strategy efficiently andeffectively.

• Monitoring strategic developments, evaluating

execution and making adjustments in the visionand mission, objectives, strategy, or execution asnecessary.

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Figure 2.1

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Stage 1

• Developing a Strategic Vision:• Delineates management’s future aspirations

for the business to its stakeholders.

•Provides direction -

“where we are going.

”

• Sets out the compelling rationale (strategic

soundness) for the firm’s direction.

Uses distinctive and specific language to set the

firm apart from its rivals.

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The Dos The Don’t s

Be graphic Don

t be vague or

incomplete

Be forward-looking anddirectional

Don t dwell on the present

Keep it focused Don

t use overly broad

language

Have some wiggle room Don

t state the vision inbland or uninspiring terms

Be sure the journey is

feasible

Don

t be generic

Indicate why the

directional path makesgood business sense

Don

t rely on superlatives

only

Make it memorable Don

t run on and on


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Why communicate the vision?

• Why Communicate the Vision:• Fosters employee commitment to the firm’s

chosen strategic direction.

• Ensures understanding of its importance.

• Motivates, informs, and inspires internal and

external stakeholders.

• Demonstrates top management support for

the firm’s future strategic direction andcompetitive efforts.

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Landing the strategic vision

• Put the vision in writing and distribute it.• Hold meetings to personally explain the

vision and its rationale.

• Create a memorable slogan that capturesthe essence of the vision.

• Emphasize the positive payoffs for

making the vision happen.

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Crafting the mission statement

•The Mission Statement:• Uses specific language to give the firm its

own unique identity.

• Describes the firm’s current business and

purpose -“who we are, what we do, and whywe are here.”

• Should focus on describing theorganization’s business, not on “making aprofit”- earning a profit is an objective not amission.

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Linking vision and mission with corevalues

• Core Values

• The beliefs, traits, and behavioral norms that

employees are expected to display in conducting the

firm’s business and in pursuing its strategic vision

and mission.

• Become an integral part of the firm’s culture and

what makes it tick when strongly espoused and

supported by top management.

•Matched with the firm

’s vision, mission, and strategycontribute to the firm’s business success.

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Stage 2: Setting objectives

•The Purpose of Setting Objectives:• To convert the vision and mission into specific,

measurable, timely performance targets.

• To focus efforts and align actions throughout the

organization.• To serve as measures for tracking a firm’s

performance and progress.

• To provide motivation and inspire employees to

greater levels of effort.

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2 important types of objectives

• Financial Objectives

• Communicate top management’s targets for financialperformance.

• Are focused internally on the firm’s operations andactivities

• Strategic Objectives

• Are related to a firm’s marketing standing and competitivevitality.

• Are focused externally on competition vis-à-vis the firm’srivals.

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How is your firm performance assessed?(See slides from lecture 1)

Five performance objectives set for your firm:

1. Grow earnings per share at least 8% annually

2. Maintain a return on equity investment (ROE) of

15% or more annually.

3. Maintain a B+ or higher credit rating.

4. Achieve stock price gains averaging about 8%

p.a.

5. Achieve an image rating”

of 70 or higher

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Examples of Strategic Objectives

Gaining x % market share

Achieving lower overall costs than rivals

Overtaking rivals on product performance or quality of customer service

Deriving x % of revenue from sale of new products over last x years

Having broader or deeper technological capabilities than rivals

Having wider product line than rivals

Having better brand name than rivals

Having better distribution capabilities

Consistently getting new or improved products to market ahead of rivals


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Shortcomings of financial data

• Good financial performance is not enough:

• Current financial results are lagging indicators of past decisions

and actions which do not translate into a stronger competitive

capability for delivering better financial results in the future.

• Setting and achieving stretch strategic objectives signals a

firm’s growth in both competitiveness and strength in themarketplace.

• Good strategic performance is a leading indicator of a firm’s

increasing capability to deliver improved future financial

performance.

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The Balanced Scorecard

• A balanced scorecardmeasures a firm’soptimal performanceby:

• Placing a balancedemphasis on achieving

both financial and strategicobjectives.

• Avoiding tracking onlyfinancial performance andoverlooking theimportance of measuring

whether a firm isstrengthening itscompetitiveness andmarket position.

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The Balanced Scorecard (Kaplan and Norton, 1992)


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Stretch objectives

•Setting stretch objectives promotes bettercompany performance because stretch targets:

• Push a firm to be more inventive.

• Increase the urgency for improving financial

performance and competitive position.• Cause the firm to be more intentional and focused in

its actions.

• Act to prevent complacent coasting and easy

achievement of ‘ho-hum’ performance outcomes.

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Th d f h t & l t


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The need for short & long termobjectives

• Short-Term Objectives:• Focus attention on quarterly and annual

performance improvements to satisfy near-

term shareholder expectations.

• Long-Term Objectives:

• Force consideration of what to do now to

achieve optimal long-term performance.

• Stand as a barrier to an undue focus onshort-term results.

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The need for organisational coherence

•Breaks down performance targets for each ofthe organisation’s separate units.

• Fosters setting performance targets that support

achievement of firm-wide strategic and financial

objectives.

• Extends the top-down objective-setting process

to all organizational levels.

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Stage 3: Crafting strategy

•Strategy Making:• Addresses a series of strategic how ’s.

• Requires choosing among strategicalternatives.

• Promotes actions to do things differentlyfrom competitors rather than running with theherd.

•Is a collaborative team effort that involvesmanagers in various positions at allorganisational levels.

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The strategy-making hierarchy

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The Strategy-making Hierarchy


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Strategic intent

• An organisation exhibits strateg ic intentwhen it relent less ly pursues an

ambit ious strategic object ive,

concentrating the full force of its resources

and competitive actions on

achieving that objective!

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Characteristics of strategic intent

• Indicates firm’s intent to making quantum gains incompeting against key rivals and to establishingitself as a winner in the marketplace, often againstlong odds.

•Involves establishing a performance target out ofproportion to immediate capabilities and marketposition but then devoting the firm’s full resourcesand energies to achieving the target over time.

•Entails sustained actions to take market shareaway from rivals and achieve a much strongermarket position.

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Stage 4: Executing strategy

•Converting strategic plans into actionsrequires:

• Directing organisational action.

•Motivating people.

• Building and strengthening the firm’s

competencies and competitive capabilities.

• Creating and nurturing a strategy-supportive

work climate.

– Meeting or beating performance targets.

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Managing the execution process

• Staffing the firm with the needed skills andexpertise.

• Building and strengthening strategy-supportingresources and competitive capabilities.

• Organising work effort along the lines of bestpractice.

• Allocating ample resources to the activities criticalto strategic success.

• Ensuring that policies and procedures facilitaterather than impede effective strategy execution

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Managing execution (cont.)

• Installing information and operating systems thatenable effective and efficient performance.

• Motivating people and tying rewards andincentives directly to the achievement ofperformance objectives.

• Creating a company culture and work climateconducive to successful strategy execution.

• Exerting the internal leadership needed to propel

implementation forward and drive continuousimprovement of the strategy execution processes.

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Stage 5: Evaluating performance &


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Stage 5: Evaluating performance &initiating adjustment

• Evaluating Performance:

• Deciding whether the enterprise is passing the three

tests of a good strategy - good fit, competitive

advantage, strong performance.

• Initiating Corrective Adjustments:

• Deciding whether to continue or change the firm’s

vision and mission, objectives, strategy, and/or

strategy execution methods.

•Based on how open the organisation is to reflectionand learning.

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Role of BOD in corporate governance

• Obligations of the Board of Directors:

• Critically appraise the firm’s direction, strategy, and

business approaches.

• Evaluate the caliber of senior executives’ strategic

leadership skills.• Institute a compensation plan that rewards top

executives for actions and results that serve

stakeholder interests.

• Oversee the firm’s financial accounting and reporting

practices compliance.

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Tutorial One (Weeks 2 & 3)

• Case Study: Reinventing Accor page 456• • 1 Analyse Accor’s Business Model and Strategy • • Readings

• • Johnson, M., C. Christensen and H. Kagermann

(2008) “Reinventing your Business Model” HarvardBusiness Review , Dec.

• Boston Consulting Group (2009 )“Business Model

Innovation” • Collins and Porras (1996) “Building your Companies

Vision”. Harvard Business Review, Sept/Oct.


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Week Two Lecture

Chapter Three

Analysing the External Environment

business strategy - organisation

Documents