INTRODUCTION TO CORPORATE STRATEGY

Also by Richard Pettinger

Introduction to Management Introduction to Organisational Behaviour Preparing and Handling Industrial Tribunal Cases Managing the Flexible Workforce

INTRODUCTION TO CORPORATE STRATEGY

Richard Pettinger

MACMILLANBusiness

© Richard Pettinger 1996

All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission.

No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 T ottenham Court Road, London W1P 9HE.

Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

First published 1996 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world

ISBN 978-0-333-61105-0 ISBN 978-1-349-24671-7 (eBook) DOI 10.1007/978-1-349-24671-7

A catalogue record for this book is available from the British Library.

10 9 8 7 6 5 4 3 2 105 04 03 02 01 00 99 98 97 96Copy-edited and typeset by Povey-Edmondson Okehampton and Rochdale, England

I Contents

List of figures, tables and boxes IX

Preface xv

Acknowledgements x1x

1 Introduction: the context and background of effective strategy 1 Introduction 1 Elements 2 The rules of strategy 10 Sources of strategy 10 Conclusions 26

2 Strategic management in practice 28 Introduction 28 Strategic performance targets and indicators 33 Effective staff 42 The Chief Executive 47 Developing the human resource 50 Change agents and change catalysts 53 Conclusion 56 Work assignments and discussion questions 57

3 Strategic and environmental analysis 58 Introduction 58 Means and methods of strategy analysis 59 Conclusion 79 Work assignments and discussion questions 79

4 Generic strategies 81 Introduction 81 Models 81 Key factors 99 Conclusion 119 Work assignments and discussion questions 121

5 Competitive activity 122 Introduction 122

v

v1 Contents

Competition 122 Rivalry 126 Competitive positioning 129 The threat of entry and barriers to entry 133 Exit barriers 138 Risk 141 Segmentation 143 Nature of offerings 150 Conclusion 157 Work assignments and discussion questions 158

6 Ethics and standards 159 Introduction 159 Models and frameworks 161 Conclusions 182 Work assignments and discussion questions 183

7 Behavioural influences on strategy 185 Introduction 185 Negativity 185 Positivity 189 Motivation 192 Perception 195 The behavioural needs of customers and consumers 197 Conclusion 200 Work assignments and discussion questions 202

8 Sectoral strategies 203 Introduction 203 Manufacturing and production strategies 203 Service strategies 212 New products, research and development 219 Public service strategies 226 Conclusion 231 Work assignments and discussion questions 232

9 Strategy development 233 Introduction 233 Expansion and growth strategies 234 Brands and branding 238 Consolidation 246 Withdrawal, retrenchment and contraction 246 Diversification 247 Synergy 249 Integration 249

Take-overs and acquisitions 251 Mergers 252 Collaborative strategies and alliances 252 Managerial aspects of joint ventures and collaboration networks 254 Other influences 257 Conclusion 261 Work assignments and discussion questions 262

10 Implementation Introduction

263 263

Gaining commitment 263 Priorities 263 Assumptions 264 Activities 264 Making strategic decisions and choices 266 Harmonisation of activities 270 Resource allocation 273 Control mechanism and activities 274 Critical paths and networks 275 Monitoring and review processes 277 Organisation design 277 Human resource strategies 281 Marketing strategies 283 Purchasing and supply strategies 284 Distribution strategies 285 Strategic drift 285

Contents VII

Other problems in development and implementation 287 Projections of success 291 Ad hoc strategies 292 Conclusions 292 Work assignments and discussion questions 292

11 Strategies for change and the management of change 294 Introduction 294 Forces for change 294 Barriers to change 299 Change management 304 Customers 307 Culture change 308 Other factors 309 Changes in technology and production 311 Changes in name 312 Conclusions 316 Work assignments and discussion questions 319

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12 Conclusion: the future 320 The future 320 Changes 320 Contractors and specialists 326 Management as a distinctive field of expertise 327 Changing structures 328 The future of public services 328 Health and education 329 Other public sector services 329 Conclusions 331

Bibliography 333

Index 335

I List of figures, tables and boxes

• Figures

1.1 1.2 1.3 1.4

1.5

2.1 2.2 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 4.1 4.2 4.3 4.4 4.5 4.6 5.1 5.2 5.3 6.1

Elements of strategy 8 Sources of strategy (1) 11 Matching opportunities with capabilities 12 Sources of strategy (2): matching opportunities with capabilities and capacity 15 Sources of strategy (3}: matching strength and capabilities with potential 16 The complexity of strategic management 29 Strategy, aims and objectives 31 SWOT analysis model 60 STEP analysis model 61 Industry structure analysis 63 The components of a competitor analysis 64 Product life cycles 65 Selling profitable products and services 65 Product life cycle illustration 66 Product portfolios 70 The Boston Group matrix 71 The Shell Directional Policy Matrix 72 The value chain 76 Product/market matrix of H. I. Ansoff 82 Competitive scope: the competitive advantage model 84 Strategy, price and perceived added value 85 Price, quality, value: the trainer 99 Critical factor mix 100 A model of product and market growth 102 The competitive position 123 Market mapping analysis 130 External pressures on the competitive position 134 The effects of social and ethical pressures on strategy determination 162

8.1 Features of customer service 214 8.2 Input of new product ideas 223

IX

x List of figures, tables and boxes

8.3 New product development: six-step model 223 8.4 Screening and development model 224 9.1 Porter's five forces model of competition applied to related

diversification and expansion 250 9.2 A basis for involvement in project work 256 9.3 The organisation in its environment 258

10.1 The implementation strategy 265 10.2 Decision-making 267 10.3 Investment and profitability analyses 270 10.4 Implementation activities 271 10.5 The process of choice 272 10.6 The planning and implementation process 273 10.7 Network and critical path plan 276 10.8 Planning and implementation mixes 283 10.9 Strategic drift 286 11.1 Force field analysis: drives and restraints 300 11.2 Traditional/rational model of change 306 11.3 A model for the introduction of change and major contentious

issues 306

• Tables

2.1 Performance targets and indicators: Norweb plc 40 4.1 Contrasting views of the market 83

• Boxes

Authoritative definitions of strategy 2 Vision 3 Vision: the Body Shop 4 Business policy 4

1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16

Commitment: the corporate mission of British Airways Customers and clients 6 Stakeholders and interested parties 6 The characteristics of the customer and client The brilliant organisation 16 Progress 17 Barriers to Progress: Summary Politicking 20 The bunker mentality 'It cannot be done' 'It must be done' Intuition 25

21 22

22

19

12

5

List of figures, tables and boxes xi

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13

The military comparison 30 Aims and objectives 31 Examples of appropriate performance measures Performance targets 34 Performance targets in public services 37 Norms, expectations and going rates 39 Objectives: A Training and Enterprise Council Elements of strategic management 42 Dimensions of effective staff 43 Nike 45 Qualities of excellence: intrapreneuring 46 Villains 46 Fallen idols 47

2.14 Chief executives and identity 47 2.15 Chief executives and public relations 49 2.16 Management and staff: Toshiba 51 2.17 Staff management: other examples 52 2.18 Use of consultants 53

34

40

2.19 Job descriptions: the case of the invisible job 55 2.20 Rogues as change agents 56 3.1 The life of products: the fire allegory 68 3.2 Some notes on costs 73 3.3 Initiatives 75 3.4 Added value: the model employer concept 78 4.1 Differentiated alternatives 86 4.2 Differentiation and price 88 4.3 One product strategies (1) 91 4.4 One product strategies (2) 92 4.5 One product strategies (3) 92 4.6 Chess 93 4.7 Radian 96 4.8 Effects of radical strategies 97 4.9 Defensive strategy 98 4.10 Price, quality, value, time, volume illustrations and examples 101 4.11 Perfume wars 104 4.12 'Sail with the Mail for £1' 104 4.13 Price 106 4.14 Utility watchdogs and price 109 4.15 Location 111 4.16 Short termism 115 4.17 Lead time (1): Christmas toys 116 4.18 Lead time (2): defence equipment 117 4.19 Lead time (3): sectoral examples 118 4.20 Funeral insurance 118 4.21 Generic position: Sainsbury's 120

x11 List of figures, tables and boxes

5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 7.1 7.2 7.3 7.4 7.5 7.6 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13

A marketing view of competitive positioning 131 High -tech extension 131 Competitive positioning: cars 132 Market size 138 Population sectors and segments 144 A note on the family 145 Personality: cola wars 148 The traditional life cycle 149 Reality and illusion 151 P&O 155 Profit impact of market studies 155 The range of product, services and offerings 156 Obligations to stakeholders 159 Ethics and language 163 'Fly it? They own it' 167 Trappings 169 Equality of opportunity in the UK and EC 172 Wendy 173 Caveats to the model employer approach 173 Clean up 175 Shared values 176 Corporate citizenship (1) 177 Corporate citizenship (2): Disasters 178 Redlining 180 Respect and regard 180 Origins and ethics: a summary 182 Behavioural aspects and influences on strategy 186 Perrier 186 Negativity and control 188 Negatives 188 Milton Keynes 191 Back to basics 200 Unit manufacturing: examples and illustrations 205 The unit/batch grey area 205 Batch production: examples and illustrations 206 Scientific management 207 Mass production: examples and illustration 208 Flow production: examples and illustration 209 'Our cars don't work' 209 Dependence and dominance 210 My Little Pony 212 Meeting and exceeding expectations 213 Benefits, expectations and satisfaction- example: the restaurant Substitution in the service sector 216 Staff training and development in the service sectors 217

215

8.14 8.15 8.16 8.17 8.18 8.19 8.20 8.21 8.22 8.23 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 9.12 9.13 9.14

10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 11.12 11.13

List of figures, tables and boxes xm

Attitudes, values and beliefs in the service sectors Product range extensions 219 W ellingtons 220 New products: Tesco 220 Product range development: Barbie 221 New products: Sony 222 Elements of successful new product development UK national training policy in the 1980s and 1990s Privatisation of public services 228 A note on the voluntary sector 229 Impenetrable sectors? 235 Market domination 237 Strong brands and brand names: examples 239 Developing and building a brand 240 Brand development 241 Brand acquisition and take-over 242 The name 243 Threat to brands 243 Brand leadership: soap operas 245 Unrelated diversification 248 Diversification 251 Hook-ups and associations 253 Project strategies 255 Commitment and constant improvement 260 Critical factors 269 Functional pressures 272 The characteristics of organisation Organisation types and formats The time clock 281 Investment 289 Mitsubishi 289

278 279

The involvement of unions as stakeholders Labour gluts and responsibility 297

290

The turbulence of the business sphere in the 1990s End phasing 302 Myths and legends 302 Behavioural barriers to effective change

307 307

Staff and change 305 Consultation and change Consultation and disasters Bone-deep beliefs 311 Name change (1): merger Name change (2): divestment Name change (3): accentuation Name change (4): rejuvenation

313 313

314 314

303

218

226 227

297

x1v List of figures, tables and boxes

11.14 Logo 315 11.15 Catalysts for change 316 11.16 Agents of change 317 12.1 Joint ventures 325

I Preface

The current state of the commercial and social environment has caused the questioning of every form of business and public service practice hitherto accepted. Patterns of consumption, the global nature of trade, production expertise and organisation practices have all become subject to scrutiny and inquiry in recent years. There are few, if any, safe and protected markets or spheres of activity. In particular the success of the Japanese and the other countries of the Pacific Rim - Taiwan, Malaysia, Korea, Indonesia and the Philippines - in penetrating and holding global markets has caused organisa­tions in the West to rethink their entire approach to product excellence, delivery, durability and price, and to revolutionise their approach to customers and consumers, and hitherto accepted concepts of quality, satisfaction and value. This is also true for the education, health and other services provided by societies, both in respect of their content, in the ways in which they are delivered and also who is to be responsible for them. Parts of this are within the control of organisations and their managers; much of it indeed creates opportunities for change, development, growth and advancement. Some of it, however, is clearly outside this control and a key ingredient for effectiveness lies in the ability to understand this and to create successful directions and operations within these constraints. Recent events that have contributed to this have included the collapse of the USSR in 1989, the Gulf War of 1991, the currency crisis of 1992, the enlargement and ordering of the EC; and all have placed significant limitations on the ways in which business and public services are conducted.

This is the broad context in which corporate strategy is studied. Strategy and direction emerge from examinations and analyses of the environment at large and in the particular parts where the conduct of activities is envisaged; and from the creation and development of organisations and expertise that are capable of pursuing these activities. It is, therefore, a process based on series and patterns of decisions, interactions and forces.

More specifically, corporate strategy is concerned with matching organisa­tional capability and capacity with the demands and restraints of the markets to be served and the pressures of the wider environment. Within this broad statement some basic principles of effective strategy can be identified. Clarity of purpose and direction, absolute standards of honesty and integrity, and high levels of confidence and respect are found in all successful organisations. There are particular requirements also in the establishment of product and service quality, and in dealings with both customers and the community. There are also

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certain requirements in the creation of organisation forms, style of manage­ment, and attitudes and approaches to the staff employed to carry out the work. Finally, high levels of expertise are required to translate this into practice, providing successful and effective activities.

The ability to view the organisation and its activities strategically - to take this overview and the longer perspective that this implies, and to relate this to the desired outcome of activities - is therefore a distinctive and critical part of the expertise for managers. Determining the purpose and direction of the organisation, the means by which this is to be achieved and the measures of success and failure to be accorded rests with the Chief Executive, top manage­ment and directors. Implementation, however, is the responsibility of everyone if a direct relationship between strategy, operations and activities is to be achieved. Everyone therefore needs to understand the organisation's purpose and direction. All need to know where they fit into the wider scheme and what their contribution is. They must understand the interrelationship between all these interacting forces and the particular business activities and functions. They must also be integrated into the monitoring, evaluation and review processes that are devised in order to measure progress and, where necessary, to take remedial action.

The academic base on which corporate strategy is studied is derived from two main standpoints: extensive studies of great numbers of organisations in all fields of activity; and the assessment of those features, principles and qualities that ought to be present in successful organisations. The outcome of this has been a transformation of the approach taken to the field of corporate strategy.

It is apparent that there is a direct relationship between clear and unambig­uous purpose understood by all concerned and organisation success and effectiveness. Clearly everyone is involved; strategy is not the exclusive remit of a coterie of directors. Neither is strategy exclusively concerned with planning: this is rather the means by which resources are allocated and controlled in the pursuit of the desired direction. Management and supervision must engage in a broader field than merely the completion of the day's work; there is a strategic context to be found in the organisation and direction of operations and activities. This in turn is critical to the effective ordering and scheduling of these activities; it provides a different context from that tradi­tionally regarded as the best form of practice; and it has direct implications for the design of organisations and the ordering of work practices and schedules which in turn affect everyone and everything involved. This reinforces the point made earlier that strategy is a process rather than a linear series of activities and events. It involves the direction, management and control of these interacting forces and functions, and an acknowledgement of the strengths, capabilities and limitations of the organisation in its dealings with its markets and environment.

It follows from this that the ability to think strategically is required of all managers and that they must be trained and developed in this critical feature of their expertise. There are concepts, techniques and tasks to be learned; a body of contemporary and historic material to be studied so that these lessons can be

Preface xvii

taught and assimilated; and quality, skills and expertise to be developed in the field. The outcome of this is an understanding of the range, scale and complexity of the tasks of strategic management: that this is a professional activity based on this body of knowledge and expertise; that a critical function of this consists of the ability to understand and manage the strategy process; and that it applies to a greater or lesser extent to all managers.

The book introduces and addresses each of these themes. Four key elements may also be identified: analysis, formulation, development and implementation. This is the basis on which distinctive aspects of the process are then addressed: the adoption of a unique generic position; the means by which this is enhanced; the abilities and qualities needed to compete; and the context of the particular sectors in which activities are contemplated. The softer, less precise forces and elements are then considered, including ethics, key players, confidence, devel­opment and wider perceptual and behavioural influences on organisations, customers and environment. Strategy implementation is presented using the themes of achieving commitment to purpose, assessing that which is possible and feasible given the various constraints that exist on all activities, and devising suitable sub-strategies for the conduct and harmonisation of distinctive sets of activities. There is a separate chapter on the particular issues surround­ing change. The final chapter is a short illustration and discussion of those factors that affect or are likely to affect the nature of activities in the future.

The text is illustrated throughout with figures, diagrams, examples and illustrations. These reinforce the matters for consideration and give constant pointers and sources of reference for general discussion and for developing a deeper understanding of these issues. At the end of each chapter are questions for discussion and assignment work. Some of these address the material of the particular chapter, while others require this material to be developed through additional research on the part of the reader.

As to the terminology used, the following is a useful introduction. The word 'organisation' denotes anybody, in any sector of commerce, business or public service; 'company', 'firm', 'authority', 'hospital', 'school' and so on are used where a more precise definition is required. 'Policy', 'strategy', 'purpose' and 'direction' are used more or less interchangeably as are 'product', 'service' and 'offering'. 'Management' is normally used as a general statement of responsi­bility or definition of executive function. However, the aim has been to avoid as far as possible the use of management course and business school jargon.

The book is intended for students on undergraduate, diploma and masters' courses at universities and colleges, and for those following part-time or open courses of study leading to recognised management qualifications. It is also a useful general reader for those seeking to broaden their general understanding of the field of organisation strategy.lts specific value is as an introduction to the range and complexity of qualities, concepts, skills and attributes necessary in the formulation of policy and direction; it is therefore most likely to appeal to those on business, public policy and strategic management courses. It also has general value as an introduction to the background and environment in which

xvm Preface

organisation direction and choice is based and the processes behind this. More generally still, it is a useful introduction to the interactive processes between organisations and their environment which must be understood if success is to be achieved.

RICHARD PETTINGER

I Acknowledgements

Many people have helped in and influenced the preparation of this book. I am indebted to the staff and students of University College London, especially John Andrews, Barbara Young, Victor Torrance, Bev Nutt, David Kincaid and Ram Ahronov of the Bartlett; and to Andrew Scott and Graham Winch of the University's Management Centre. I am also grateful to Paul Griseri of the London Guildhall University; and to Roger Cartwright of the Management Centre at Oxford College of Higher Education. Jane Powell and Stephen Rutt at Macmillan have been a constant source of strength and support. I am also very grateful to Kelvin Cheatle; Jonathan Rice; Anthony Impey; Mark Genney; Stephen Frank; and to Rebecca Frith for typing and editing the manuscript.

RICHARD PETTINGER

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