chapter 7
TRANSCRIPT
Strategy Implementation
Strategy Implementation Textbook:
Exploring Corporate Strategy, Johnson and Scholes, latest edition, Pearson Education
Reference Books: 1. Competitive Strategy, Michael Porter2. Competitive Advantage, Michael Porter3. Strategic Management – Concepts and Cases,
Thompson and Strickland, 13th edition, Tata McGraw Hill
Evaluation
End-trim = 50% Mid-trim = 30% Assignment = 5% Quiz = 5% Class Participation = 10%
Strategy Implementation
Directions and Methods of Development Strategies in different industry environments Value Chain use for Cost Advantage and
Differentiation Framework for Making Competition irrelevant Organizational configurations and strategy Enabling Resources Managing Change
Ch. 7 Directions and Methods of Development
Development Directions
Development directions are the strategic options available to an organisation, in terms of products and market coverage, taking into account the strategic capability of the organisation and the expectations of stakeholders
Strategy Development Directions
Existing New
Existing
New
Markets
Products
Strategy Development Directions
Protect/buildConsolidationMarket penetration
Existing New
Existing
New
Markets
Products
Strategy Development Directions
Protect/buildConsolidationMarket penetration Product Development
Existing New
Existing
New
Markets
Products
Strategy Development Directions
Protect/buildConsolidationMarket penetration
Product Development
Market development
Existing New
Existing
New
Markets
Products
Strategy Development Directions
Protect/buildConsolidationMarket penetration
Product Development
Market development
Diversification
Existing New
Existing
New
Markets
Products
Methods of Strategy Development
Methods of Strategy Development
Internal Development Build on and develop an organisation’s own
capabilities Organic development
Mergers and Acquisitions Take over ownership of another organisation
Strategic Alliances Two or more organisations share resources and
activities
Motives for Internal Development Only one in field Core competence in product manufacturing Develop new markets – direct involvement to
increase understanding & create core competence
Spread cost over time – easier for companies with low resources
Avoid cultural clash
Motives for M&As Speed Competitive Situation – lower competitor reaction Financial motives
Extreme example is that of Asset Stripping Lack of resources Cost efficiency (by merging) to avoid duplication Stakeholder expectations
Ambitions of senior managers Empire building
Types of Strategic Alliance Loose
Networks / Opportunistic Alliances Contractual
Licensing Franchising Subcontracting
Ownership JV Consortia
The TOWS Matrix
Success Criteria for Strategic Options
Suitability Whether strategy addresses circumstances in which
organisation is operating
Acceptability The expected performance outcomes (e.g. risk/return) Meeting expectations of stakeholders
Feasibility Whether strategy can be made to work in practice Linked to strategic capability
2. Acceptability Criteria Return1. Profitability
• ROCE
Assessing profitability
2. Acceptability Criteria Return1. Profitability
• ROCE• Payback Period
Assessing profitability
2. Acceptability Criteria Return1. Profitability
• ROCE• Payback Period• DCF (Discounted Cash Flow)
Assessing profitability
2. Acceptability Criteria Return2. Cost-benefit
• Projects should be undertaken if • Benefit / Cost > 1
3. Real options• Sometimes, clarity might emerge over time• Expand / Extend / Contract / Defer / Closedown
Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest
Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest Invest Now
Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest Invest Now
Probably
Never
Invest
Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest Invest Now
Maybe
Invest
Now
Probably
Never
Invest
Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest Invest Now
Maybe
Invest
Now
Maybe
Invest
Later
Probably
Never
Invest
Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest Invest Now
Maybe
Invest
Now
Probably Never
Invest
Maybe
Invest
Later
Probably
Never
Invest
Return2. Cost-benefit3. Real options4. Shareholder Value Analysis
• TSV = Incr. in SP over last year + Dividends SP at the start of the year
Criteria for assessing Acceptability Risk
Financial ratios E.g. High long term debt means high risk
Sensitivity analysis (What-if analysis)
Stakeholder reactions
3. Feasibility
Financial Funds flow forecasting Break-even analysis
Resource deployment Resources and competences needed
Key Points (1) Three elements of strategic choice
Competitive strategy Direction of development Method of development
Four categories of development directions Protect and build Product development Market development Diversification
Key Points (2) Three methods of strategy development
Internal development Mergers and acquisitions Strategic alliances
Three success criteria for strategic options Suitability Acceptability Feasibility
Range of analytical techniques for evaluation of strategic options