chapter 7
TRANSCRIPT
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Strategy Implementation
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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
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Evaluation
End-trim = 50% Mid-trim = 30% Assignment = 5% Quiz = 5% Class Participation = 10%
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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
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Ch. 7 Directions and Methods of Development
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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
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Strategy Development Directions
Existing New
Existing
New
Markets
Products
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Strategy Development Directions
Protect/buildConsolidationMarket penetration
Existing New
Existing
New
Markets
Products
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Strategy Development Directions
Protect/buildConsolidationMarket penetration Product Development
Existing New
Existing
New
Markets
Products
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Strategy Development Directions
Protect/buildConsolidationMarket penetration
Product Development
Market development
Existing New
Existing
New
Markets
Products
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Strategy Development Directions
Protect/buildConsolidationMarket penetration
Product Development
Market development
Diversification
Existing New
Existing
New
Markets
Products
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Methods of Strategy Development
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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
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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
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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
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Types of Strategic Alliance Loose
Networks / Opportunistic Alliances Contractual
Licensing Franchising Subcontracting
Ownership JV Consortia
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The TOWS Matrix
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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
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2. Acceptability Criteria Return1. Profitability
• ROCE
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Assessing profitability
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2. Acceptability Criteria Return1. Profitability
• ROCE• Payback Period
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Assessing profitability
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2. Acceptability Criteria Return1. Profitability
• ROCE• Payback Period• DCF (Discounted Cash Flow)
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Assessing profitability
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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
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Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
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Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest
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Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest Invest Now
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Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest Invest Now
Probably
Never
Invest
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Real Options Framework
Volatility
Low
High
0.0 1.0
Value-to cost
Never Invest Invest Now
Maybe
Invest
Now
Probably
Never
Invest
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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
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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
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Return2. Cost-benefit3. Real options4. Shareholder Value Analysis
• TSV = Incr. in SP over last year + Dividends SP at the start of the year
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Criteria for assessing Acceptability Risk
Financial ratios E.g. High long term debt means high risk
Sensitivity analysis (What-if analysis)
Stakeholder reactions
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3. Feasibility
Financial Funds flow forecasting Break-even analysis
Resource deployment Resources and competences needed
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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
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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