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Candidate support pack

PDA Diploma in Management

Management: Strategic Change

(DV7W 36)

MANAGEMENT DEVELOPMENT

© Scottish Qualifications Authority Strategic Change

PUBLISHING INFORMATION

First edition

Published date: November 2008, amended August 2009

Publication code: CB 4559

First Published 2008

Published by the Scottish Qualifications Authority

The Optima Building, 58 Robertson Street, Glasgow G2 8DQ

Ironmills Road, Dalkeith, Midlothian EH22 1LE

www.sqa.org.uk

The information in this publication may be reproduced in support of SQA qualifications. If it is

reproduced, SQA should be clearly acknowledged as the source. If it is to be used for any other

purpose, then written permission must be obtained from the Publishing Team at SQA. It must not be

reproduced for trade or commercial purposes.



TABLE OF CONTENTS

PAGE

ACKNOWLEDGEMENTS 3

ABOUT THE PROGRAMME 5

INTRODUCTION MANAGEMENT: STRATEGIC CHANGE 11

SECTION ONE 1. ANALYSE STRATEGIC CHANGE 13

1.1 The characteristics of strategic decisions 14 1.2 Levels of strategy 17

1.3 Characteristics of strategic management and operational management 21

1.4 The three strategy paradigms (lenses of strategy) 22 1.5 Types of change 29 1.6 Proponents of the design lens 32

SECTION TWO 2. ESTABLISHING STRATEGIC POSITION 47

2.1 Positioning in the external environment 48 2.2 Internal environment analysis 51 2.3 Strategic drift 56 2.4 Barriers to market entry 57 2.5 Benchmarking and best practice 58 2.6 Drivers and resistors to organisational change 60 2.7 Contextual factors 65 2.8 Impact of internal resources on an organisation’s ability to

bring about change 68 2.9 Impact of organisational competence on an organisation’s

ability to bring about change 70 2.10 Organisational culture and change 72

SECTION THREE 3. DETERMINING DIRECTION FOR CHANGE 77

3.1 Strategic development directions 78 3.2 Methods of strategy development 93

3.3 Success criteria for judging strategic options 100 3.4 Choosing suitable strategic options 109

REFERENCES 111


© Scottish Qualifications Authority 3 Strategic Change

ACKNOWLEDGEMENTS

SQA would like to acknowledge the input of Resource Initiatives and its writers to the development of

this Management Diploma support material.

SQA would also like to acknowledge the valuable contribution that Scotland’s colleges have made to

the development of Higher National qualifications.



INTRODUCTION

Welcome to the Diploma in Management Development Programme. This pack forms part of the

learning programme which has been designed to assist you in meeting the requirements of the HN

Unit Management: Strategic Change (DV7W 36), one of the mandatory Units of the Diploma in

Management. We hope that you enjoy your studies.

Other learning packs available to support the Diploma in Management are as follows:

Management Research (DV81 36)

Management: Develop Strategic Plans (DV87 36)

Management: Organisational Leadership and Development (DV8A 36)

Management: Developing Self Management Skills (DV86 34)

Management: Leadership at Work (DV88 34)

Management: Plan, Lead and Implement Change (DV8C 35)

Managing and Working with People (DV82 34)

Manage Operational Resources (DV7X 34)

Creating a Culture of Customer Care (DJ42 34)

The material is a comprehensive learning package which will provide assistance particularly if you are

undertaking this Unit as an open or distance learning student. While this pack will assist you in

developing your knowledge, understanding and skills, you will also benefit from tutor support and

interaction with your peers.

In order that you are able to get the most out of the pack you need a full understanding of how it is

designed and structured. Please read the next few pages of this introduction very carefully.

Good luck with your development as a manager!

About the programme



THE LEARNING PROGRAMME

This learning programme has been developed to help you develop your knowledge and skills, to help

you achieve your Diploma in Management. It has been designed as a flexible blended learning

solution which comprises two parts.

1. A workbook containing most of the resources that make up the programme.

2. Tutor support provided through the assessment centre you are registered with.

Please read the remainder of this introduction to find out more about the programme and how the

different components have been designed to support your development as a manager or aspirant

manager.

THE WORKBOOK

This workbook is broken down into sections which link directly to the HN Unit Management: Strategic

Change. The workbook is designed to provide a framework for your learning, leading you through the

development in a logical way and introducing the essential requirements of strategic change.

Each section contains the following features.

An introduction — at the beginning of each section you will be given the overall aims of the section,

telling you what you will achieve following your period of study.

Technical data and discussion — the bulk of the section will be made up of relevant information and

discussion. It is broken down into chunks and will be structured to assist your learning. Within this text

there will be features which again are aimed to help you.

Megabyte boxes — boxes are used within the text to illustrate important information. Each box has

‘Megabyte’ printed at the top to remind you of key learning points associated with the text.

Activities — as part of your study it is important that you are able to relate your learning to your

current or future role as a manager. The boxes indicated by ‘activity’ describe things you need to do

to connect your study to your place of work.* It is important that you complete these activities, as they

will help you apply your learning.

*Please note that if you are not currently employed or in a position where you are able to gain access

to the required information via your workplace, you should develop your activities based on an

organisation you are familiar with. This could perhaps be an organisation you have been employed by

in the past.



Research — this box indicates that at this point in your study you will need to further develop yourself

by carrying out additional research using reference materials, via books or websites, or using

situations/opportunities at your place of work. Your tutor will also give you guidance. This research is seen as an essential part of your personal development within the programme. Time spent on research will be invaluable to you in the long term.

Highlighted text — bold and Italic text is also used to highlight important points in the text.

TUTOR SUPPORT

When you enrol on this programme, you will be linked to a tutor, who will support you within your

development. Your tutor will be available to help you with difficulties and support you as you complete

the different parts of the development process. Tutors will provide you with support as you complete

the activities associated with the programme.

HINTS ON STUDYING

As mentioned earlier, this blended learning programme is a very flexible method of study. It is

important, however, that you structure your learning to get the most out of it and, as such, you should

think carefully about the following:

WHEN TO STUDY

Try to get into a regular study routine. Set time aside for study, but be ready to give and take a bit.

Miss one of your planned sessions if you must, but try to make up for it later.

As well as planned time, grab the odd moment. It is surprising how much you can achieve in 15

minutes.

SET TARGETS

Set yourself targets. Set realistic targets that you can achieve and stick to them. A realistic target is

one you know you can achieve. Your tutor will help you set targets which are realistic.

WHERE TO STUDY

A word of advice — do not think that you can study anywhere. You need to be able to concentrate.

So if you have a few spare minutes to do some learning, find somewhere suitable which will allow you

to concentrate. For all your periods of study, find somewhere where you will not be distracted. It is

surprising how you can find places which are quiet and away from distractions. But remember, be flexible — if the place where you normally go is being used then find an alternative.



HOW TO APPROACH YOUR LEARNING

Once you have organised your time and you are familiar with the requirements of the workbook, it is

time to start your learning. Prepare yourself: get a pad, a pen or pencil, and an area to work. Once

prepared, read the introduction and think about what you are going to learn about. Think about how

your learning will influence what you do in the workplace, and how it connects to your work role or

prospective work role.

GETTING STARTED

It is now time to start working through the workbook. Learning using this workbook does not simply

mean reading its content. You must be active in your study, get involved, ask questions and make

notes.

Much of your success will depend on your own efforts, so stick with it and don’t give up!

ACHIEVING YOUR DIPLOMA IN MANAGEMENT

We have mentioned already that the programme has been specifically designed to help you achieve

your Diploma in Management. Each of the sections of the workbook relates directly to one of the

Outcomes found in the Unit Management: Strategic Change. The activities that you will complete as

part of this programme link specifically to the Evidence Requirements of the Unit.

To achieve the full Diploma in Management award you will need to successfully complete the Higher

National Units listed below:

Management: Developing Self Management Skills (DV86 34)

Management: Leadership at Work (DV88 34)

Management: Plan, Lead and Implement Change (DV8C 35)

Managing and Working with People (DV82 34)

Manage Operational Resources (DV7X 34)

Creating a Culture of Customer Care (DJ42 34)

Management: Graded Unit 1 (DW2X 34)

Management: Organisational Leadership and Development (DV8A 36)

Management: Develop Strategic Plans (DV87 36)



Management: Strategic Change (DV7W 36)

Management Research (DV81 36)

and five optional credits from a range of Units.

The pack has been produced to help you achieve your Diploma in Management and also for you to

develop as a manager. We hope you find it enjoyable and informative.



This workbook will give you an understanding of strategic change. It aims to further develop your

understanding of change management linked to the development of strategy. It looks at the

development of strategy through to the implementation of change methodology at a strategic level.

As you progress through the workbook you will develop an understanding of strategy and link this to

the concept of change at a strategic level.

By the end of the programme you will be able to:

• analyse different strategy concepts and their implications to strategic change

• establish an organisation’s strategic position

• determine directions and methods to implement strategic change

Within the section there will be activities which allow you to put the theory into practice and thereby

generate evidence of competence towards the HN Unit Management: Strategic Change.

There will also be further reading suggestions and links to additional information you may wish to

pursue throughout your study.

Introduction Management: Strategic Change



INTRODUCING THIS SECTION

In this section we will be analysing the concept of strategic change and its implications. As you work

through this section you will further develop your understanding of change management to look at

strategic change and its implementation.

Specifically the section will look at:

• the characteristics of strategic decisions

• levels of strategy

• the characteristics of strategic management and operational management

• strategy paradigms

• types of change

• different strategy paradigms for different types of changes

By the end of the section you will be able to:

• analyse strategy and understand its different levels

• understand how strategy influences change and change management

• understand different types of change and their strategy paradigms

Section One Analyse Strategic Change



1.1 THE CHARACTERISTICS OF STRATEGIC DECISIONS

Before we can look at strategic change, it is important that you develop an understanding of what

strategy is and how it impacts on the decision-making process. As part of this you have considered the

requirements of strategy in the Unit on strategic business planning where we introduced a definition of

what strategy is, taken from Johnson, Scholes and Whittington (2005).

Strategy is:

’the direction and scope of an organisation over the long term, which achieves advantage for the

organisation through its configuration of resources within a changing environment and to fulfil

stakeholder expectations’

So, in other words, implicit within any development of strategy is the concept of change. A changing

environment will demand of an organisation a change in strategy, if the organisation is to maintain its

advantage. Similarly if stakeholders demand a change in direction, strategy may need to be modified if

the position of the organisation in the external environment is to be maintained. It is therefore possible

to see the interdependence between strategy and change.

Working through this section you will therefore look further at organisation strategy and its

development in respect to change. It will explore how strategy should be developed to support and/or

drive the process of change.

1.1.1 STRATEGY DEVELOPMENT

We will start looking at strategy by considering the different ways it is developed. One approach that is

commonly used to create strategy is the concept of ‘strategic fit’ and ‘strategic stretch’.

Strategic fit

‘Strategic fit’ is where mangers develop strategy by identifying opportunities in the environment of the

business and organising its resources to take advantage of these, ie trying to match the resources and

capabilities of the organisation to the opportunities open to it.

Strategic stretch

‘Strategic stretch’ (or ‘leverage’) is the process of innovation and development involved in finding new

opportunities and creating a competitive advantage from an organisation’s resources and

competences.



In summary, ‘fit’ means:

• matching the organisation’s resources and the market opportunities

• finding a correct market position based on the current market environment

And ‘stretch/leverage’ means:

• building resources within the organisation

• increasing strengths through the development of organisational competences

• creating new value(s) for stakeholders

• changing the rules of the game, ie changing the market to suit your competences

When developing strategy, however, it is rarely as cut and dry as this. Strategy is more likely to be a

balance of fit and stretch, for example making sure that the company is producing goods or services

that meet market needs and also has the resources of people and materials to maintain production at

the correct level.

The ‘core competences’ of an organisation are those competences that are necessary to underpin the

organisation’s competitive advantage. However, other competences may also be developed to support

strategy. This is not only a question of making sure that the correct resources are available, but also of

identifying existing resources and competences which can be used as a basis for creating new

opportunities in the future.

Take some time to find out more about core competences. Refer to:

Prahalad, C. K. and Hamel, G. (1990) The Core Competence of the Corporation.

Harvard Business Review, May/June, 33, 79–91

Prahalad, C. K. and Hamel, G. (1996) Competing for the Future. Boston: Harvard

Business Press



Issues with the concept of ‘fit’

1. The implied ‘static’ orientation. Fit seems to imply a match between resources and

opportunities at a single point in time. However, this does not take into account the

dynamic nature of the business environment. Zajac et al. (2000) suggest that

understanding dynamic fit requires that anyone wishing to look at strategic fit must also

address the question of strategic change.

2. The multidimensionality of strategic fit. Fit is not just a simple matching of one

competence to one opportunity. Often it may be that combinations of competences are

required, or that the opportunity will only be partially realised. As a result it is very difficult

to measure accurately how successful an organisation is at achieving strategic fit, given

that organisations face multiple environmental and organisational situations that can affect

strategic fit. There is therefore a possible issue with a firm’s seeking to balance a fit

between its strategy and its environmental situation versus a fit between its strategy and

its unique competences. It is worth noting that this issue becomes more important if

strategic fit is viewed in more dynamic terms. This is because the desirability of changing

strategy in response to changing environments becomes much more uncertain when it

moves an organisation away from its traditional or ‘distinctive’ competences (Prahalad and

Hamel, 1990).

Issues with the concept of ‘stretch’

1. Stretch is dependent on identifying competences and core competences. Failure to

successfully determine what these are, relevant to the external organisation, may result in

a mismatch in their application and leave the organisation vulnerable with respect to

meeting the need for change.

2. With stretch the focus is on the internal development of the organisation. There is

therefore a danger that changes within the external environment will be ignored or simply

not recognised as important. This may result in the organisation developing to suit its own

needs and not to suit the needs of the external environment.



1.2 LEVELS OF STRATEGY

As well as acknowledging the different options for strategy development, it is important to

acknowledge that strategy can occur at different levels relevant to the type of organisation being

talked about.

There are typically three levels of strategy:

1. Corporate strategy

2. Strategic business unit (SBU) strategy

3. Operational strategy

1.2.1 CORPORATE STRATEGY

Corporate strategy is the overall strategy that integrates the strategies of all the businesses within an

organisation. It usually describes the overall mission, the financial and human resource strategies and

policies that affect all businesses within the corporation, the organisation structure, the management

of the interdependencies among SBUs, and any major initiatives to change the scope of the firm such

as acquisitions and divestments.

This strategy is usually developed from a ‘strategic centre’. This is often called a ‘corporate parent’ as the strategic centre is in charge of the individual SBUs. For example, Whitbread

(www.whitbread.co.uk) is the corporate parent of Premier Inns, Costa Coffee, etc.

Find out more about the paradox of fit versus stretch by referring to:

Price, A. D. and Newson, E. (2003) Strategic Management: Consideration of

Paradoxes, Processes and Associated Concepts as Applied to Construction. Journal of

Management in Engineering, 19(4), 183–192

Zajac, E. J., Kraatz, M. S. and Bresser, R. K. F. (2000) Modeling the Dynamics of

Strategic Fit: A Normative Approach to Strategic Change. Strategic Management

Journal, 21, 429–453



1.2.2 STRATEGIC BUSINESS UNIT (SBU) STRATEGY

A strategic business unit is a part of an organisation where there is a distinct external market for goods

or services that is different from another SBU. The identification of an organisation's strategic business

units is essential to the development of strategies at this level since these will vary from one SBU to

another. There are two issues that need to be addressed when defining an SBU.

1. If each product and each geographical branch of a business, etc is considered to be an

independent SBU, there are an immense variety of competitive strategies that could be

applied to the single organisation. This would create a lack of focus and inefficiency, making

the development of corporate-level strategy almost impossible.

2. On the other hand, the concept of the SBU is important in properly reflecting the diversity of

products and markets that actually exist.

There are two broad criteria which can help in avoiding these issues and hence in identifying SBUs

that are useful when developing business-level strategies.

External criteria for identifying SBUs are about the nature of the market for different parts of the

organisation. Two parts of an organisation should only be regarded as the same SBU if they are

targeting the same customer types, through the same sorts of channels, and facing similar

competitors.

Internal criteria for identifying SBUs are about the nature of an organisation's strategic capability — its

resources and competences. Two parts of an organisation should only be regarded as the same SBU

if they have similar products/services built on similar technologies and sharing a similar set of

resources and competences. This usually means that the cost structure of the ‘units' will be similar.

Developing a SBU strategy

Sometimes called ‘competitive’ strategy, SBU strategy is all about how a SBU can achieve competitive

advantage in its market. Specific strategies for gaining competitive advantage will be explained later in

the Unit but the main issues which a SBU strategy addresses are as described below.

Competitive advantage is described as:

• the ability of an organisation to outperform rivals on its primary goal

• something which distinguishes the organisation from others (eg unique resources)

• something which is significant — that is it offers advantages that are sustainable and not

due to temporary circumstances or chance

• advantages are strengths of the firm, vulnerabilities are weaknesses



It is important that any advantage is sustainable, as this means it is likely to continue in the longer

term. Sustainability depends on such things as:

• product life cycles

• rate of technological change

• time to develop new skills and competences

• time to develop other sources of advantage (eg brands)

• how aggressive your competitors are

1.2.3 OPERATIONAL STRATEGY

Operational strategy is very narrow in focus and deals with day-to-day operational activities. Some

examples of operational activities (depending on the organisation/SBU) include:

• human resource management: hiring/firing, allocation of staff, etc

• stock control: ordering supplies, managing stock rotation/levels, etc

• marketing: advertising, market research, etc

• manufacturing: product design, development and creation

• service provision: after care, complaints, etc

• sales

Usually an SBU will have its own operational strategy. Operational-level strategies are informed by

strategic-level strategies, which in turn are informed by corporate-level strategies. Although in

Advantages are strengths of the firm, vulnerabilities are

weaknesses.



small/medium enterprises (SMEs) there is not usually a ‘physical’ difference between levels, there

should still be a conceptual difference between levels.

Remember:

Corporate Strategy: Overall purpose and scope of an organisation

Strategic Business Unit Strategy: How an individual business will

compete to succeed

Operational Strategy: How the component parts of an organisation

deliver the corporate and business strategies

Organisational Strategy

Review a named case study or an organisation you are familiar with and

identify examples of corporate, SBU and operational strategy. Your report

should also explain the relationships between the strategies.

Refer to the Interactive Activities on SQA’s website

(http://www.sqa.org.uk/sqa/30913.html) for a further insight

into strategic development. Go to Strategic Change/Analyse

Strategic Change/Strategic Development.



1.3 CHARACTERISTICS OF STRATEGIC MANAGEMENT AND OPERATIONAL MANAGEMENT

Operational management provides control and supervision for organisations, while strategic

management provides a sense of purpose. Companies, schools, universities, hospitals, football teams

and so on are all organisations which have a purpose, whether this is to make profits, maintain a

market share, promote educational achievements, provide good healthcare or win football matches.

Operational management is essential because it provides basic management functions. If these are

not carried out, the organisation will be unproductive, inefficient and generally fail in its purpose.

It is important that you are able to understand the difference between strategic management and

operational management. In simple terms strategic management is:

• made in ambiguous/uncertain situations to help determine the direction of the organisation

• usually complex in nature as it needs to take into account various internal and external

factors

• usually organisation-wide, with long-term implications

Operational management on the other hand is usually:

• routine: issues are generally predictable; each day is roughly the same as the next

• localised: functionally specific; decisions made do not often have organisation-wide

consequences

• restricted to short-term implications

Strategies and Operations

Using an organisation you are familiar with, identify aspects of management which are

strategic and aspects which are operational. Explain each of your classifications.



1.4 THE THREE STRATEGY PARADIGMS (LENSES OF STRATEGY)

So far we have considered strategy, explained its meaning and how it is used to support the need for

change. For strategy to be effective as a driver of change managers need to be able to develop it

effectively. There are three ways of looking at strategy development, also known as strategy lenses.

1. Strategy as design — fit

2. Strategy as experience — stretch

3. Strategy as ideas — emergent/chaos

Let us now look more closely at these three lenses.

1.4.1 STRATEGY AS DESIGN

Strategy as design is the view that strategy development can be a logical process in which the forces

and constraints on the organisation are weighed carefully through analytical and evaluative techniques

to establish clear strategic direction. This creates conditions in which carefully planned implementation

of strategy should occur. This is perhaps the most commonly held view about how strategy is

developed and what managing strategy is about. It is usually associated with the idea that it is the top

management's responsibility to do all this and that therefore they should lead the development of

strategy in organisations.

There are a number of assumptions that should be taken into account with this design viewpoint.

These are that:

• strategy development is a logical and structured process of analysis and decision making

• decision makers have access to all the information they need and can act rationally

• strategy making is separated from strategy implementation

• strategic planning is a means of managing complexity and controlling organisations.

Below is a diagram showing how a typical design lens strategy is developed:



As the diagram shows, in the strategy development phase stakeholder needs are identified and used

to form the mission, vision, strategy and objectives of the organisation. Strategy develops when both

the internal environment (organisational competences, strengths and weaknesses) and external

environments (economic, industrial and market) are examined to help form the desired future mission,

vision, strategy and objectives of the organisation.

Strategy is implemented through strategic plans and action programmes (which must be adjusted

depending on the behaviour of the external environments). These plans will determine how the

organisational structure and internal systems, the related employees and other resources are used to

achieve the desired future state.

Tools and techniques of the design viewpoint

As mentioned before strategy is about the overall purpose of the organisation. In order to identify an

organisation’s purpose a MOST analysis may be conducted.



MOST stands for:

• Mission: where the organisation intends to go

• Objectives: the key goals the organisation wishes to achieve

• Strategies: the options available for achieving the objectives

• Tactics: how the strategies will actually be put into action

Generally speaking, it is very difficult to conduct a MOST analysis from outside an organisation, as it

will be difficult to get access to the valuable strategies and tactics

Situation analysis tools include:

• SWOT analysis (there will be more on this later in the Unit)

• PEST(EL) analysis (see workbook for Management: Plan, Lead and Implement Change)

• industry analysis — five forces and strategic groups (see workbook for Management:

Plan, Lead and Implement Change)

There are a few potential drawbacks with the strategy as design process. These are that:

• it may not lead to creative new strategies and organisational innovation

• in practice many strategic plans quickly become out-of-date and are ignored

• strategic planning may be reduced to a bureaucratic numbers exercise or ritual

• there is often considerable subjectivity and potential bias, despite claims of rationality

• decision makers rarely have all the information they need, at the time they need it

1.4.2 STRATEGY AS EXPERIENCE

Strategy as experience is the view that future strategies for organisations are based on the adaptation

of past strategies, influenced by the experience of managers and others in the organisation. The

culture of the organisation is central to this view, as strategy is seen as a result of the assumptions

and ways of doing things embedded in the culture. In so far as different views and expectations exist,

they will be resolved not just through rational analytic processes (as in strategy as design), but also

through processes of bargaining and negotiation. Here the view is that there is a tendency for the

strategy of the organisation to build on and be a continuation of what has gone before.



There are a number of assumptions that should be taken account of with this experience viewpoint.

These are that:

• strategy development builds on existing strategies in an adaptive fashion — change is

gradual

• strategy is not planned as in the design approach — it develops as a series of strategic

moves that build on previous moves

• strategy development is the outcome of individual and collective experiences of

individuals and taken-for-granted assumptions

One of the key characteristics of the experience view is the use of mental models as part of an

organisation’s culture. Individuals build mental models over time to make sense of the way in which

the world works. These allow people to make decisions quickly but can be a source of potential bias in

decisions. Mental models are shaped by experiences and the nature and culture of the organisation.

Collectively mental models become the organisational ‘paradigm’. This is the set of assumptions held

relatively in common and taken for granted in the organisation.

Examples of paradigms:

• What do customers really want?

• Who are the important competitors?

The following diagram illustrates how strategy results from experience.



There are a few potential drawbacks with the strategy as experience process. These are that:

• it is backward looking and rarely leads to creative strategy or innovation

• it may not make enough use of analytical techniques and rational approaches to strategic

decision making

• in periods of rapid industry change the paradigm can become a serious barrier and source

of resistance to organisational change

• biases held by managers can be hidden, which can result in poor decision making

1.4.3 STRATEGY AS IDEAS

Neither of the above lenses is especially helpful in explaining innovation. If strategy is as design then

the only strategies which would be used would be entirely rational and hence have a minimum of risk

associated with them. This is clearly not always the case. Similarly, if strategy is as experience then

only strategies that have been tried before will be attempted. So how do new ideas come about?

This lens emphasises the importance of variety and diversity in and around organisations, which can

potentially generate genuinely new ideas. Here strategy is seen not so much as planned from the top

but as emergent from within and around the organisation as people cope with an uncertain and

changing environment in their day-to-day activities. (See the Strategic Planning Unit for information on

prescribed and emergent strategy creation.) Top managers are the creators of the context and

conditions in which this can happen and need to be able to recognise patterns in the emergence of

such ideas that form the future strategy of their organisations. New ideas will emerge, but they are

likely to have to battle for survival against the forces for conformity to past strategies (as the

experience lens explains). Drawing on evolutionary and complexity theories, the ideas lens provides

insights into how innovation might take place.

There are a number of assumptions that should be taken account of with this ideas viewpoint. These

are that:

• strategy is the emergence of order and innovation from the variety and diversity that exists

in and around organisations

• innovation rarely comes just from the top of organisations but comes from anywhere in the

organisation or the outside world

• industries in complex and fast changing environments provide insights into how innovative

strategies get created



• insights can also be gained from complexity theory and evolutionary theory

• change can be both incremental and transformational

Leaders are important to the ideas viewpoint because they:

• create an environment (culture) in which many new ideas can emerge

• bring interesting people into the organisation

• encourage experimentation, even if there are many failures

• open up organisational boundaries

• manage tensions between order and chaos, informality and strict controls

Strategy as ideas is the least formal viewpoint, which is why it is necessary to ensure there are rules

for strategic development in place. This can include:

• how-to rules: describe how processes are to be executed to make the organisation

unique

• boundary rules: focus managers on which opportunities can/cannot be pursued

• priority rules: help managers rank the accepted opportunities

• timing rules: synchronise managers with the pace of emerging opportunities

• exit rules: help managers decide when to pull out of yesterday’s opportunities

There are a few potential drawbacks with the strategy as ideas process. These are that:

• it can expose the organisation to greater degrees of risk and uncertainty that need to be

managed

• many traditional leaders find this hard to implement in practice

• strategic planning may still be required for control and to satisfy stakeholder needs



An organisation which has successfully applied the strategy as ideas lens is

GlaxoSmithKline (GSK). GSK created centres of excellence for drug discovery

(CEDDs) with the aim of encouraging an entrepreneurial mindset and overcoming

research and development productivity problems. Take some time to research how

GSK implemented this process. A good place to start is a Merrill Lynch presentation

to investors from 2003 found at www.gsk.com.


(http://www.sqa.org.uk/sqa/30913.html) for a further insight into

the three lenses. Go to Strategic Change/Analyse Strategic

Change/The Three Lenses.



1.5 TYPES OF CHANGE

We have talked so far about the development of strategy. It is now important to link this to change and

the different types of change. There are four types of change:

1. Routine (or Continuity): little or no change over time. Not often viewed as change as such

but it can be argued that in a dynamic environment even maintaining the status quo will

require changes to be made.

2. Incremental: change occurs over a series of ‘small steps’. Examples of incremental

change might include continuous improvement as a quality management process or

implementation of new computer system to increase efficiencies. As a result of the small

impact incremental change tends to have on an organisation, its leaders do not always

recognise the change as such.

3. Transformational: change is drastic and usually occurs quickly. An example of

transformational (sometimes called radical or fundamental) change might be changing an

organisation’s structure and culture from the traditional top down, hierarchical structure to

a large amount of self-directing teams. Another example might be ‘business process re-

engineering’, which tries to take apart the major parts and processes of the organisation

and then put them back together in a more effective fashion.

4. States of flux: change is uncontrolled, and often occurs as a result of a change in the

external environment, usually unexpected. This means a period of adjustment is

necessary to bring the business back to where it was. A period of flux may therefore finish

with very little actually changing.

These types of change can be visualised in the diagram below:



It is possible to match the different types of change shown to the different strategy paradigms as

follows:

1. During periods of continuity the design strategic lens is likely to be most appropriate for

developing effective strategy.

2. In times of incremental change either the design or the experience strategic lens could

support the development of effective strategy.

3. Clearly the uncertainty created during a state of flux makes the ideas lens the most

appropriate for developing an effective strategy.

4. As transformational change may or may not be planned. The experience strategic lens is

generally the best for effective strategic development, however if it is planned, the design

lens may also apply to a certain extent. If it is unplanned then the ideas lens would apply.



Find out more about other ways of viewing change including:

• Lewin’s ‘transitional’ change, ie unfreezing the existing organisational equilibrium -

> moving to a new position -> refreezing in a new equilibrium position

• Balogun and Hailey’s change paths, ie evolution, adaptation, revolution or

reconstruction based on nature of change (incremental or ‘big bang’) and desired

result (transformation or realignment)

Lewin, K. (1951) Field Theory in Social Science. New York: Harper and Row

Balogun, J. and Hailey, V. H. (2004) Exploring Strategic Change. Harlow: Prentice Hall

Types of Change

It is important for you to be able to explain the different types of

change. Review an organisation you are familiar with and explain the

types of change that apply or have applied to it. You should illustrate

your answers with supporting evidence.



1.6 PROPONENTS OF THE DESIGN LENS

Having considered the different design lenses and the different types of change, it is now important to

consider the different strategy paradigms for the different types of change. We will do this by

considering the work of Chandler, Ansoff, Porter, Mintzburg and Stacey. The preference of these

leading intellectuals for the different lenses is as follows:

• Chandler, Ansoff and to some extent Porter are proponents of the design school

• Mintzburg supports strategy development through experience

• Stacey supports strategy development through ideas

1.6.1 ALFRED CHANDLER (1918–2007)

The historian Alfred Chandler (1962/1998; 1977; 1990) substantiated his structure follows strategy

thesis based on four case studies of American conglomerates that dominated their industry from the

1920s onward (1962; 1998). Chandler described how the chemical company Du Pont, the automobile

manufacturer General Motors, the energy company Standard Oil of New Jersey, and the retailer Sears

Roebuck developed over time by identifying four sequential stages:

1. acquisition of resources such as employees and raw materials and the build-up of

marketing and distribution channels

2. establishment of functional structures to increase efficiency

3. adoption of growth and diversification strategy: diversification into new markets/products

to overcome limits of home market

4. the creation of the then revolutionary diversionalised form to manage large conglomerates



into types of change. Go to Strategic Change/Analyse

Strategic Change/Types of Change.



He described strategy as the determination of long-term goals and objectives, the adoption of courses

of action and associated allocation of resources required to achieve goals; he defined structure as the

design of the organisation through which strategy is administered. Changes in an organisation's

strategy led to new administrative problems which, in turn, required a new or refashioned structure for

the successful implementation of the new strategy. Chandler's thesis argued that new organisational

forms are no more than a derivative of strategy as he defined it. His three-step approach designs an

organisational structure to match a defined strategy:

1. Select a basic organisation design

2. Modify the design as needed

3. Supplement it with coordinating mechanisms and communication arrangements

Chandler's key addition to management literature was to connect strategy and structure — since a

restructuring effort is a result of a change in strategy, a company must first review its strategy, then

pursue a different structure.

The adoption of new technology or the penetration of a new market warrants a review in strategy,

which in turn merits an organisational restructuring. The emergence or evolution of new organisational

structure occurs neither in isolation nor by accident.

Professional management is essential to increase the chance of successful strategy implementation

efforts. Management must devote constant attention to develop a corresponding administrative form.

With his work (Chandler, A. D. (1962/1998) Strategy and Structure: Chapters in the History of the

American Industrial Enterprise. Cambridge, MA: MIT Press) on the theory that structure follows

strategy, Chandler demonstrated the relevance of business history and ensured that it would become

part of educational programmes in many universities.

His work helped him establish strategy as an important topic for organisations and aided the

transformation of McKinsey & Company as a specialist in organisational (re)structuring into a strategy

consultancy firm.

Criticisms of Chandler’s work

The thesis is oversimplified. The relation between structure and strategy is not necessarily one

dimensional. Mintzberg argued that the current organisational form can also be regarded as

constraining strategic change. Current views such as that of Pettigrew hold that structure and strategy

are to be regarded as equal to one another. Rumelt concludes that structure also followed fashion.

Changes in the market structure have implications for a firm's strategy and structure. Chandler stated

that a ‘fit-to-market’ between an organisation's form and its market structure reduces its internal co-

ordination costs and provides a better match between the firm's product portfolio and its tactical



customer needs. The ‘fit-to-market’ relationship should be secondary to the ‘fit-to-strategy’ connection

so as not to inhibit necessary strategic changes. Commercial management and its related bonus

schemes represent the ‘fit-to-market' component in a firm and tend to defend the current status quo. In

his case studies, Chandler described the need for leadership to make changes, but did not regard

strong leadership as a prerequisite for an efficient corporate reorganisation.

The thesis was not based on broad empirical study. The relationship between strategy and structure

was described only for a large organisation's growth and diversification strategy. In turbulent

environments, the unorchestrated emergence of new forms and strategies occurs.

1.6.2 IGOR ANSOFF (1918–2002)

Igor Ansoff is credited with being the originator of the strategic management concept, and was

responsible for establishing strategic planning as a management activity in its own right. His landmark

book, Corporate Strategy (1965), was the first text to concentrate entirely on strategy, and although

the ideas outlined are complex, it remains one of the classics of management literature.

Until the publication of Corporate Strategy, companies had little guidance on how to plan for, or make

decisions about, the future. Traditional methods of planning were based on an extended budgeting

system which used the annual budget, projecting it a few years into the future. By its nature, this

system paid little or no attention to strategic issues. With the advent of greater competition, higher

interest in acquisitions, mergers and diversification, and greater turbulence in the business

environment, however, strategic issues could no longer be ignored. Ansoff felt that in developing

Take some time to review Chandler’s work using the following references.

Chandler, A. D. (1962/1998) Strategy and Structure: Chapters in the History

of the American Industrial Enterprise. Cambridge, MA: MIT Press

Chandler, A. D. (1977) The Visible Hand. London: The Belknap Press

Chandler, A. D. (1990) Scale and Scope: The Dynamics of Industrial

Capitalism. Cambridge, MA: Harvard University Press



strategy it was essential to systematically anticipate future environmental challenges to an

organisation, and to draw up appropriate strategic plans for responding to these challenges. In

Corporate Strategy, Ansoff explored these issues and built up a systematic approach to strategy

formulation and strategic decision making through a framework of theories, techniques and models.

Ansoff developed a new classification of decision making, partially based on Alfred Chandler's work.

This distinguished decisions as either: strategic (focused on the areas of products and markets);

administrative (organisational and resource allocating); or operating (budgeting and directly

managing). Ansoff's decision classification became known as strategy–structure–systems, or the 3S

model. Sumantra Ghoshal has since proposed a 3Ps model — purpose, process and people — to

replace it.

Ansoff argued that within a company's activities there should be an element of core capability, an idea

later adopted and expanded by Prahalad and Hamel (1990) (more on this later). To establish a link

between past and future corporate activities (the first time such an approach was undertaken), Ansoff

identified four key strategy components:

1. product–market scope — a clear idea of what business or products a company was

responsible for

2. growth vector — this offers a way of exploring how growth may be attempted

3. competitive advantage — those advantages an organisation possesses that will enable it

to compete effectively — a concept later championed by Michael Porter (more on this

later)

4. synergy — Ansoff explained synergy as ‘2 + 2 = 5’, or how the whole is greater than the

mere sum of the parts, and it requires an examination of how opportunities fit the core

capabilities of the organisation

Also responsible for the creation of the Ansoff matrix, variously known as the ‘product–mission matrix’

or the ‘2 x 2 growth vector component matrix’, the Ansoff matrix remains a popular tool for

organisations that wish to understand the risk component of various growth strategies, including

product versus market development, and diversification. The matrix was first published in an article

called Strategies for Diversification (Ansoff, 1957) (more on this later).

Interestingly the issue of turbulence underlies all of Ansoff's work on strategy (which would make you

think he would be a proponent of the ideas lens). Ansoff recognised, however, that if some

organisations were faced with conditions of great turbulence, others still operated in relatively stable

conditions. Consequently, although strategy formulation had to take environmental turbulence into

account, one strategy could certainly not be made to fit every industry.



These ideas are discussed in Implanting Strategic Management (1984), where five levels of

environmental turbulence are outlined as:

1. repetitive — change is at a slow pace, and is predictable

2. expanding — a stable marketplace, growing gradually

3. changing — incremental growth, with customer requirements altering fairly quickly

4. discontinuous — characterised by some predictable change and some more complex

change

5. surprising — change which cannot be predicted and which both develops, and develops

from, new products or services

Criticisms of Ansoff's work

Although frequently referred to by other strategists, Ansoff’s work has not become more generally

recognised in comparison with that of other theorists. This is possibly due to the complexity of his work

and its reliance on the disciplines of analysis and planning.

Also, other theorists were working on similar themes to Ansoff at similar times. In the 1960s Ansoff's

notion of competence was not unique, although Ansoff seems to have been the originator of his 2 x 2

growth vector component matrix. During the 1980s and 1990s, it is likely that much work by other

theorists about strategy formation under conditions of uncertainty or chaos (for example Ralph Stacey

— more on this later) owed something to Ansoff's theory of turbulence, though it is difficult to evaluate

the extent of the debt.

A debate between Ansoff and Henry Mintzberg over their differing views of strategy has been reflected

in print over many years, particularly in the Harvard Business Review. Ansoff has often been criticised

by Mintzberg, who dislikes the idea of strategy being built from planning which is supported by

analytical techniques. This criticism is based on the belief that Ansoff's reliance on planning suffers

from three fallacies: that events can be predicted, that strategic thinking can be separated from

operational management, and that hard data, analysis and techniques can produce novel strategies.



Take some time to review Ansoff’s work using the following references.

Ansoff, I. (1965) Corporate Strategy. New York: McGraw–Hill

Ansoff, I., DeClerk, R. P. and Hayes R. L. (1975) From Strategic Planning to Strategic

Management. New York: Wiley Interscience

Ansoff, I. (1979) Strategic Management. London: MacMillan

Ansoff, I. (1984) Implanting Strategic Management. Englewood Cliffs: Prentice Hall

Ansoff, I. (1988a) The New Corporate Strategy. New York: Wiley

Journal articles

Ansoff, I. (1957) Strategies for Diversification. Harvard Business Review,

September/October, 35(5), 113–124

Ansoff, I. (1988b) The Firm of the Future. Harvard Business Review,

September/October, 43(5), 162–174

Hussey, D. (1999) Igor Ansoff's Continuing Contribution to Strategic Management.

Strategic Change, November, 8(7), 375–392



1.6.3 MICHAEL PORTER (1947–)

Porter has generally been viewed as at the leading edge of strategic thinking since his first major

publication, Competitive Strategy (1980), which became a corporate bible for many in the early 1980s.

Before Competitive Strategy, most strategic thinking focused either on the organisation of a company's

internal resources and their adaptation to meet particular circumstances in the marketplace, or on

increasing an organisation's competitiveness by lowering prices to increase market share. These

approaches, derived from the work of Igor Ansoff, were bundled into systems or processes which

provided strategy with its place in the organisation.

In Competitive Strategy, Porter managed to reconcile these approaches, providing management with

a fresh way of looking at strategy — from the point of view of industry itself rather than just from the

point of view of markets, or of organisational capabilities. It was in this book that he developed the

value chain for which he is well known. Porter proposed that to be able to survive competition and

supply what customers want to buy, the firm has to ensure that all value-chain activities link together

and fit, as a weakness in any one of them will impact on the chain as a whole and affect

competitiveness.

Porter is also well known for his five industrial forces (2001). In recent years, for example, Porter has

revisited his earlier work and emphasises the acceleration of market change which means companies

now have to compete not just on a choice of strategic front, but on all fronts at once. Porter has also

said that a company that tries to position itself in relation to the five competitive forces misunderstands

his approach, since positioning is not enough. What companies have to do is ask how the five forces

can help to rewrite industry rules in the organisation's favour. Porter argues that many internet

companies are competing through unsustainable, artificial means, usually propped up by short-term

capital investment. He also argues that while the excitement of the internet appeared to throw up new

rules of competition, the first wave of excitement is now clearly over, and the old rules and strategic

principles appear to be re-establishing themselves. He gives examples such as:

1. the right goal — healthy long-term return on investment

2. value — a company must offer a set of benefits which set it apart from the competition

3. a company's value chain has to do things differently or do different things from rivals to

reflect, produce and deliver that value

4. trade-offs — make conscious deliberate sacrifices in some areas in order to excel, or even

be unique, in others



5. all the different components in the value chain must fit together, reinforcing each other to

create uniqueness and value: it is this which makes a core competence — something that

is difficult to imitate

6. continuity — not only from a customer perspective but also in order to build and develop

skills that bring competitive edge

Porter foresees that as most businesses embrace the internet it will become nullified as a source of

advantage, while traditional strengths such as uniqueness, design and service relationships will re-

emerge. For Porter the next phase of internet evolution will be more holistic, with a shift from e-

business to business, from e-learning to learning, within which the internet will be a communications

medium and not necessarily a source of advantage.

Porter’s ability to abstract his thinking into digestible chunks for the business world has given him wide

appeal to both the academic and business worlds. It is now common practice for organisations to use

value chains, and the five forces have entered the curriculum of pretty much every management

programme.

Porter's later thinking on strategy links consistently with his earlier work. This lends support to the idea

that his ideas stand the test of time and may form the basis of even more innovative thinking.

Criticisms of Porter’s work

Porter has been criticised by some academics for inconsistent logical argument in his assertions.

Critics have also labelled Porter's conclusions as lacking in empirical support and as justified with

selective case studies.



Take some time to review Porter’s work using the following references.

Porter, M. (1980) Competitive Strategy: Techniques for Analysing Industries and

Competitors. New York: Free Press

Porter, M. (1983) Cases in Competitive Strategy. London: Collier Macmillan

Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance.

London: Collier Macmillan

Porter, M. (1986) Competition in Global Industries. Boston: Harvard Business School Press

Porter, M. (1990a) Competitive Advantage of Nations. London: Macmillan

Journal articles

Porter, M. (1987) From Competitive Advantage to Corporate Strategy. Harvard Business

Review, May/June, 65(3), 43–59

Porter, M. (1990b) The Competitive Advantage of Nations. Harvard Business Review,

March/April, 68(2), 73–93

Porter, M. (1996) What is Strategy? Harvard Business Review, November/December, 74(6), 61–78

Porter, M. (1998) Corporate Strategy: The State of Strategic Thinking. Economist, 23 May,

21–22; 27–28

Porter, M. (2001) Strategy and the Internet. Harvard Business Review, March, 62–78

Porter, M. (2008) The Five Competitive Forces that Shape Strategy. Harvard Business

Review, January, 78–93



1.6.4 HENRY MINTZBERG (1939–)

Mintzberg's impact on the management world began with his book The Nature of Managerial Work,

published in 1973, and a seminal article in the Harvard Business Review, ‘The Manager's Job:

Folklore and Fact’ (1975), written two years later. Based on detailed research and thoughtful

observation, these two works established Mintzberg's reputation by showing that what managers did,

when successfully carrying out their responsibilities, was substantially different from much business

theory. Mintzberg's approach is broad, involving the study of virtually everything managers do and how

they do it. Central to his work is a fundamental belief that management is about applying human skills

to systems, not applying systems to people. This forms the basis of the experience lens.

The relationship between strategy and planning is a constant theme in Mintzberg's writing and his

views on the subject are perhaps his most important contribution to current management thinking. In

his 1994 book The Rise and Fall of Strategic Planning, Mintzberg’s main concern is with what he sees

as basic failings in the traditional approach to planning. These failings are:

• processes — the elaborate processes used to create bureaucracy and suppress

innovation and originality

• data — `hard' data (the raw material of all strategists) provides information, but `soft' data,

Mintzberg argues, provides wisdom. ‘Hard information can be no better and is often at

times far worse than soft information’

• detachment — Mintzberg dismisses the process of producing strategies in ‘ivory towers'.

Effective strategists are not people who distance themselves from the detail of a business

‘... but quite the opposite: they are the ones who immerse themselves in it, while being

able to abstract the strategic messages from it’

He sees strategy ‘not as the consequence of planning but the opposite: its starting point’. He has

coined the phrase `crafting strategies' to illustrate his concept of the delicate, painstaking process of

developing strategy. He argues that while an organisation needs a strategy, strategic plans are

generally useless as one cannot predict two to three years ahead. Mintzberg further explores strategy

in his co-authored book Strategy Safari (Mintzberg, Ahlstrand and Lampel, 1998). In an attempt to

define what strategy is, 10 schools of strategic thought are outlined with a discussion and critique of

each.

Henry Mintzberg remains one of the few truly generalist management writers of today, and he has

applied his ideas on management to the management education field, believing that this area is in

great need of reform. He was instrumental in setting up an International Masters in Practising

Management in 1996, which seeks to change the traditional way in which managers are educated.



Mintzberg's work covers such a wide perspective that different readers see him as an expert in

different areas. For some people he is an authority on time management, and he has written some of

the most thoughtful and practical advice on this subject; for others he is the champion of the hard-

pressed manager surrounded by management theorists telling him or her how to do their job; and for

yet another group, he is a leading authority on strategic planning. For most people, however,

Mintzberg is the man who dared to challenge orthodox beliefs and, through the scholarly presentation

of research findings, and some truly original thinking, changed our ideas about many key business

activities.

Criticisms of Mintzberg’s work

Some of Mintzberg's critics say he exaggerates the ill influence of the MBA, especially in his book

Managers Not MBAs (2004). In this book he argues MBAs ‘train the wrong people in the wrong way

for the wrong reasons’, that is young people with little managerial experience should not be wielding

such clout in the corporate world, just because they nailed a case study or two in a setting far removed

from real life. According to Mintzberg, MBA programmes tend to attract people whose self-esteem

often outstrips their competence; they then dangerously bolster their confidence so that they believe

they are capable of managing and making executive decisions even though they have not done it

before. Applicants apply because they believe that an MBA leads to fortune. His critics argue that

greed, both individual and corporate, existed long before anyone had heard of MBA programmes, as

did inflated egos and managerial incompetence.



Take some time to review Mintzberg’s work using the following references.

Mintzberg, H. (1973) The Nature of Managerial Work. New York: Harper and Row

Mintzberg, H. (1979) The Structuring of Organisations: A Synthesis of the

Research. New York: Prentice Hall

Mintzberg, H. (1983a) Structures in Fives: Designing Effective Organisations. New

York: Prentice Hall

Mintzberg, H. (1983b) Power In and Around Organisations. New York: Prentice Hall

Mintzberg, H. (1989) Mintzberg on Management: Inside our Strange World of

Organisations. New York: Free Press

Mintzberg, H. (1994a) The Rise and Fall of Strategic Planning. Hemel Hempstead:

Prentice Hall International

Website: www.henrymintzberg.com

Journal articles

Mintzberg, H. (1987) Crafting Strategy. Harvard Business Review, July 65(4), 66–75

Mintzberg, H. (1990) The Manager's Job: Folklore and Fact. Harvard Business

Review, March 68(2), 163-176 (Originally published in 1975, the article includes a

retrospective commentary by the author.)

Mintzberg, H. (1994b) The Fall and Rise of Strategic Planning. Harvard Business

Review, January/February, 72(1), 107–114



1.6.5 RALPH STACEY

A relatively new name in management theory, Stacey is definitely making waves. Central to Stacey’s

thinking is that the notion that public and private sector organisations can function like machines is a

myth. According to Stacy it is a myth that has ‘led to managerialism, marketisation of the public

sector’. Ways of managing public sector organisations by setting targets, monitoring performance and

publicly naming and shaming ‘non-performers’ are increasing the organisational complexity they are

meant to diminish. This approach, according to Stacey, does not take into account the fact that the

unexpected can happen and people in organisations can react in messy ways that rely on personal

miscommunication and unconscious processes.

He has done pioneering work applying complexity theory to management. His approach challenges

the myth of the manager who is in control of organisations and emphasises instead the importance of

relationships at work with all of their complexity. He has devoted many years to addressing the

theoretical foundations of how the complexity sciences are used to understand sources of stability and

change in organisations. Stacey’s work on complex responsive processes elucidates a view that shifts

our understanding of complexity from adaptive systems to responsive processes of relating.

One aspect of his work is the inherent limitations of models. Stacey believes constructing a model of a

whole system involves shearing away detail and focusing on what is judged to be important. The

model can, therefore, never encompass the whole. In other words, the whole is always absent, not

least because the whole is evolving.

There do not appear to be many official criticisms of Stacey’s work, but this may be because it is still

too early for the full impact of his work to have been realised.



Take some time to review Stacey’s work using the following references.

Stacey, R. (1991) The Chaos Frontier: Creative Strategic Control for Business.

Oxford: Butterworth Heinemann

Stacey, R. (1992) Managing the Unknowable: Strategic Boundaries Between Order

and Chaos in Organisation. San Francisco: Jossey–Bass

Stacey, R. (1996) Complexity and Creativity in Organisation. San Francisco:

Berrett–Koehler Publishers

Stacey, R. (1999) Strategic Management and Organisational Dynamics: The

Challenge of Complexity. New York: Financial Times

Analysing Strategy

Now you are familiar with the three strategic lenses, consider how each lens can be

applied to an organisation you are familiar with. Which of the three do you think offers

the best explanation of what has happened and is happening? Write a report to

explain your choice.




In this section we will be looking at how to establish the strategic position of an organisation. As you

work through this section you will develop an understanding of the models used to establish strategic

position and the influences that can impact on the change process.


• models describing the organisation’s position in relation to its external environment

• internal environment of the organisation

• strategic drift

• barriers to market entry and how they can be overcome

• best practice benchmarking

• drivers and resistors in organisational change situations

• importance of contextual factors

• impact of internal resources on an organisation’s ability to bring about change

• impact of organisational competence on an organisation’s ability to bring about change

• impact of organisational culture on an organisation’s ability to bring about change


• understand and apply models for establishing an organisation’s position

• understand the internal environment of organisations

• understand the factors that are likely to influence and impact on the process of change

Section Two Establishing Strategic Position



2.1 POSTIONING IN THE EXTERNAL ENVIRONMENT

As shown in the first part of the Unit, regardless of which lens is being used, having an understanding

of the external environment is very important to any organisation undertaking change. There are a

number of models that have been developed to help organisations examine the external environment

they operate within. You have already been introduced to some models as part of the Unit

Management: Plan, Lead and Implement Change, and Management: Strategic Planning. In this

section we aim to build on this knowledge to look at some of the practical aspects associated with their

implementation as a method for positioning an organisation.

2.1.1 SCENARIO BUILDING

Scenario building is where a number of visions of the future or ‘scenarios’ are created. This requires

looking at the external environment and seeing how it might be different in the future, then seeing how

this new future may affect the organisation. Usually used in helping to create strategic plans,

scenarios can be used to gain support for proposed changes to an organisation’s strategy, or to allow

managers to look at the potential impact of the changes being made.

Potential drawbacks of scenario building:

• Scenarios are formed from opinion about what the future might be like. Try to make sure

the information used to base the scenarios is not biased towards a particular viewpoint

• If you base your scenario not far enough in the future, by the time the scenario is

completed, the timeframe may have already passed

• The further into the future your scenario is based, the less likely it is that it will be

accurate, hence when creating scenarios for the distant future do not look at too detailed

factors: stick to big events/situations. For example, population numbers are growing as

people live longer. In X number of years this will precipitate a national/global housing

shortage

Remember you can use PESTEL to examine the external environment

Political, Economic, Socio-cultural, Technological, Environmental Legal



2.1.2 PORTER'S FIVE FORCES FRAMEWORK

Porter’s five forces framework examines the market forces that impact on the organisation. This is

particularly useful in helping to establish the ‘current state’ of the organisation and may highlight why

there is a need for change in the first place. The five forces are:

• supplier power

• buyer power

• barriers to entry

• industry rivalry

• threat of substitutes

When using the framework, be aware that the business environment is dynamic. The framework can

serve as a ‘snapshot’ of the current market/industry situation, but is unlikely to stay like that for very

long, especially once any changes are made to the organisation, ie competitors will often change as

well, either in response to your organisation’s changes, or for their own benefit.

Revisit the Unit Management: Plan, Lead and Implement Change and review the

scenario-building model and its applications. See link HNC Management

Development, Management: Plan, Lead and Implement Change (DV8C 35).



2.1.3 BOSTON MATRIX

Another modelling tool is one you have been introduced to as part of the Unit Management: Develop

Strategic Plans: the Boston Consulting Group (BCG) matrix, or growth-share matrix. It has a number

of applications.

• In larger organisations it can be used to establish the relative positions of the SBUs in the

organisation’s portfolio (or the SBUs in your competitors’ portfolios) and identify which

SBUs require investment, or should be sold

• It can be used to identify the positions of specific products (both yours and your

competitors’) and determine which products need to be improved/discontinued

• Analysis of competitors SBUs/products can help to identify any specific threats in the

marketplace, and also identify what may be worth using as a benchmark for any future

SBUs/products to aim for

Revisit the Support Material Management: Plan, Lead and Implement Change and review

Porter’s five forces and their application in change management. See link HNC

Management Development, Management: Plan, Lead and Implement Change (DV8C 35).

Revisit the Support Material Management: Develop Strategic Plans and review the

Boston matrix model. See link HNC Management Development, Management: Develop

Strategic Plans.



2.2 INTERNAL ENVIRONMENT ANALYSIS

We have considered so far the environment external to an organisation, but now we must consider the

environment on the inside of an organisation and look at the ways in which we can analyse its

potential influence on any change process linked to the external environment. There are models that

can be used to support the analysis of the internal environment which you again will be familiar with as

a result of studying the Unit Management: Plan, Lead and Implement Change.

2.2.1 ORGANISATIONAL LIFE CYCLE MODELS

When most people think of organisational life cycle models, they tend to think of the classic ‘s-curve’

like so:

It is worth noting that most growth models focus on small/medium enterprises (SMEs) because even

multinational organisations start small. Hence most start with the conception of the organisation.

The concept of ‘life stages’ was proposed by Edith Penrose (1959) in her book The Theory of the

Growth of the Firm. Penrose compared organisations to caterpillars; at each stage the organisation

undergoes changes in management practices and style, organisational structure, degree of internal

formality of systems and strategy in such a way that the Stage 5 organisation is completely distinct

from the Stage 1 firm.



The five stages can be explained as follows:

1. Existence: the young organisation soon after conception; unsurprisingly, it is not very big

or complex in nature.

2. Survival: at this point an organisation will begin to attract attention from competitors.

Larger organisations may attempt to ‘squeeze out’ smaller firms through price wars or a

massive advertising campaign. Most small organisations do not make it past this stage

and may be forced to close.

3. Growth: once the organisation has established itself, investment can be made into growth

(both in terms of size and market share). Some organisations stay in this stage until either

acquired by another organisation or the owner decides to retire and close the organisation

down with them. (This is rare as it usually only occurs in organisations where there is no

management team which could feasibly ‘buy-out’ the owner.)

4. Consolidation: after a period of growth the organisation will need time to reflect on the

changes that have occurred and either plan for another period of growth or (if the

maximum amount of growth has been achieved) maturity.

5. Resource maturity: when growth is no longer an option, many organisations will begin to

stagnate if left unchanged (hence the drop on the curve). This can be avoided by

restructuring the organisation, entering into a merger, or acquiring another SBU to invest

in (more on this in Section 3).

While this serves as a good basis for exploring growth, it does not really focus on what causes this

growth or how organisations change with each stage. There have therefore been a number of ‘stage

models’ proposed, for example Steinmetz’s Three Critical Phase Model (diagram below from

Steinmetz, 1969, pp. 29–36).



This model assumes that when an organisation reaches a certain size (either naturally or by design) it

is forced to move to the next ‘critical phase’. This model was expanded by Greiner in 1972.



organisational life cycles. Go to Strategic Change/Establish

Strategic Position/Organisational Life Cycles.



2.2.2 GREINER’S FIVE PHASES OF GROWTH

This model is based on the principle that growth stages are the result of ‘management practices that

work well in one phase [of the firm’s life cycle] bringing on a crisis in another’ (Greiner, 1998).

Central to the model is the idea of growth propagated by ‘crises’. These crises occur as a result of

change being needed. For example:

Stage 1 (growth through creativity) leads to a crisis of Leadership — more sophisticated

knowledge required, forced to hire additional executives

Stage 2 (growth through direction) leads to a crisis of Autonomy — hierarchy too centralised,

requirement to relax control mechanisms for middle managers to allow greater flexibility

Stage 3 (growth through delegation) leads to a crisis of Control — control lost as a result of too

much control being given further down the hierarchy

Stage 4 (growth through coordination) leads to a crisis of Red Tape — tightening of controls

results in increased bureaucracy resulting in conflict throughout organisation over ‘red tape’

Stage 5 (growth through collaboration) leads to a crisis of ? — remains undefined, due to ‘lack of

empirical evidence’, but the result of ‘interpersonal collaboration’

Take some time to review Greiner’s work, etc using the following references.

Greiner, L. E. (1998) Evolution and Revolution as Organisations Grow. Harvard

Business Review, May/June, 55–67

Deakins, D. and Freel, M. (2006) Entrepreneurship and Small Firms. 4th edition.

Berkshire, McGraw–Hill Education

Scott, M. and Bruce, R. (1987) Five Stages of Growth in Small Business. Long

Range Planning, 20(3), 45–52



Common critiques of organisational life cycle models can be summed up as follows:

1. Very few firms reach Stages 3–5. Greiner, Scott and Bruce allow ‘conscious decision to

remain’ (Greiner, 1998) in a stage, as do Churchill and Lewis (1983), who also give

‘break-off’ paths for disengagement/failure, but following and completing the path is

implied throughout.

2. Cannot go back or skip stages, yet, in reality, some firms may move incredibly fast

through stages, or even start further along.

3. No option for hybrids stages, yet firms may be attempting to ‘survive’ at various stages

depending on the environment.

4. Within the model crises occur in a non-random manner despite the inherent uncertainty of

the business environment. Also, growth does not necessarily result in, nor lead to, crisis.

One other critique is that there ‘may be different models of growth, such as growth by acquisition’

(Storey, 1994), as mentioned before. However, in Greiner’s experience ‘most acquisitions involve a

larger company in a later stage of the model acquiring a smaller company in an earlier stage’. Hence

the model would remain unchanged.



phases of growth. Go to Strategic Change/Establish Strategic

Position/Phases of Growth.



2.3 STRATEGIC DRIFT

One of the main causes of change in an organisation is strategic drift. This can occur where an

organisation’s strategy does not ‘fit’ (as mentioned earlier in the Unit) or moves away from changes to

its operating environment. One famous example is Marks and Spencer, which was recognised as

‘losing its way’ until new management took over.

Generally speaking strategic drift can be recognised by:

• highly homogenous paradigm/culture, ie everyone thinks the same

• strong power blockages to change, usually from upper management, but may also be

the result of strong unions

• lack of market information, in particular managers being unaware of the external

environment and the behaviour of their competitors

• little toleration of questioning/challenge; related to the culture: if questions are not

encouraged then no one inside the organisation will notice the strategic drift

• ‘we’ve tried this before and it didn’t work’ mentality; this shows a failure to recognise

that environments change, and that it is possible that the original implementation was

flawed

• deteriorating performance; usually a sure sign, unless this can be attributed directly to

specific economic forces

• reliance on price/cost/competition; this is a very reactive approach meaning that

management is failing to think strategically

Organisational strategy must be aligned with or slightly ahead of changes in the environment otherwise

strategic drift will occur.



2.4 BARRIERS TO MARKET ENTRY

The positional models above can all be used to identify the organisation’s current situation. The most

common form of change for an organisation is the introduction of a new product/service to the market.

As a result, managers will need to be aware of any barriers to entry which may exist. The models we

have looked at as part of this section provide an appropriate mechanism for identifying barriers:

Porter’s five forces framework: Rather obvious really as one of the forces is ‘Barriers to Market

Entry’. This means managers must look at any potential barriers from the industry itself.

Scenario building: When creating scenarios, make sure you recognise that your competitors will also

be reacting to the changes in the environment and hence the barriers to entry are likely to have

changed as well.

Boston matrix: Before entering a market, use the growth-share matrix to analyse the current

competitors/products. This will let you identify any of the major players (high share of the market) and

hence identify any particular competitors who may wish to create barriers to entry.

Life cycle models: While the models themselves do not necessarily imply particular barriers to entry,

they can be used to work out the ‘stage’ your competitors are operating at. This should give you an

idea of how they may react to your attempts to enter the market. For example using Greiner’s (1998)

phases, a Phase 4 organisation would be likely to use its resources to create barriers (through

dropping their prices for example), where a Phase 1 organisation would attempt to create barriers

though innovation, making any new entries obsolete.

Some examples of barriers to entry include:

• Patents: Giving the organisation the legal protection to produce a patented product for a

number of years. Means competitors cannot enter with a similar product.

• Limit pricing: Firms may adopt predatory pricing policies by lowering prices to a level that

would force any new entrants to operate at a loss.

• Cost advantages: Lower costs, perhaps through experience of being in the market for

some time, allows the existing monopolist to cut prices and win price wars.

• Advertising and marketing: Developing consumer loyalty by establishing branded

products can make successful entry into the market by new firms much more expensive.

This is particularly important in markets such as cosmetics, confectionery and the motor

car industry, where brand loyalty is key and ‘image’ is everything.



• Research and development expenditure: Heavy spending on research and

development can act as a strong deterrent to potential entrants to an industry. Clearly

much R&D spending goes on developing new products, but there are also important spill-

over effects which allow firms to improve their production processes and reduce unit

costs. This makes the existing firms more competitive in the market and gives them a

structural advantage over potential rival firms.

• Presence of sunk costs: Some industries have very high start-up costs or a high ratio of

fixed to variable costs. Some of these costs might be unrecoverable if an entrant opts to

leave the market. High sunk costs (including exit costs) act as a barrier to entry of new

firms (they risk making huge losses if they decide to leave a market). This acts as a

disincentive to enter the industry.

• International trade restrictions: Trade restrictions such as tariffs and quotas should also

be considered as a barrier to the entry of international competition in protected domestic

markets.

2.5 BENCHMARKING AND BEST PRACTICE

As mentioned in the Unit on Strategic Planning, benchmarking is the process of identifying ‘best

practice’ in other organisations and applying this to your own organisation. Best practice is the

recognised ‘best way’ of doing something. This does not mean that the absolute best way has been

established yet, but that it is the best way so far.

Benchmarking can be used to gain support for possible changes to an organisation. It can be argued

that if another organisation has implemented certain changes successfully then perhaps your

organisation should do the same (Johnson et al., 2005).

Some examples of benchmarking are described below.

Industry/sector benchmarking

This type of benchmarking involves looking at the comparative performance of other (usually

competitive) organisations in a similar sector, then identifying the qualities that make them ‘better’.

Strategic benchmarking

Used if there is a need to improve overall performance by examining the long-term strategies and

general approaches that have enabled high-performers to succeed. It involves considering high-level

aspects such as core competences, developing new products and services, and improving capabilities

for dealing with changes in the external environment. Note: Information on exactly how strategies are

developed may be difficult to find. Changes resulting from this type of benchmarking may be difficult to

implement and take a long time to materialise.



Performance or competitive benchmarking

Considers the performance characteristics of key products and services. This is particularly useful if

trying to justify changes to product lines or investment in research and design.

Process benchmarking

Focuses on improving specific critical processes and operations. Process benchmarking involves

producing process maps to facilitate comparison and analysis. This is best used when attempting to

change internal systems.

Functional benchmarking

Usually involves looking at different business sectors or areas of activity to find ways of improving

similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic

improvements.

Johnson et al.’s (2005) ‘best-in-class benchmarking’ may also be applied here. This is where,

regardless of the industry, there may be a recognised ‘leader’ in a particular aspect of business. Best-

in-class benchmarking involves comparing an organisation’s performance against this ‘best-in-class’

organisation.

Aside from the general issues regarding benchmarking highlighted in the strategic planning Unit, ie

you only get what you measure, benchmarking only highlights the differences in performance, not

necessarily the reasons for the differences. However, there are three issues with basing changes on

the results of benchmarking:

1. Every organisation is different, so it might be that these changes were just better suited to

their organisation/industry/product, etc. Simply put, just because it worked for them does

not mean it will work for you. This is especially true when using best-in-class

benchmarking.

2. It is a reactive process. Since benchmarking looks at what has already been done, any

advantage gained by being the first to implement these changes will be lost.

3. There is a fine line between benchmarking and copying/reverse engineering. This is

particularly true when dealing with specific products/logos, etc. Benchmarking is not a

justification to copy your competitors as this may lead to legal action.



2.6 DRIVERS AND RESISTORS TO ORGANISATIONAL CHANGE

For an organisation to bring about change it must have the required strategic capability. There are a

number of drivers and resistors to organisational change which, combined, make up this capability.

We will now look at some of the possible drivers/resistors in more detail.

Critical success factors

Critical success factors are the factors which must be implemented successfully for anything to be

successful. For example in the case of a new product this may include factors such as price and

functionality. In the case of strategic change an example might be to implement a new customer

database; the critical success factors would include ensuring the organisation has the proper

equipment (computers, servers, network capabilities, etc), ensuring staff are properly trained, and so

on. Critical success factors are useful when planning change as it ensures that everyone involved is

clear as to what must be done to be successful.

Threshold and unique resources

Related to critical success factors, threshold resources are the resources that an organisation MUST

have in order to implement change. This often includes tangible resources (eg cash) and intangible

resources (eg time). Usually these are the same as your competitors or at least easily copied. We will

look further at the role of resources later in this section.

Threshold, core and redundant competences

Competences are things that the organisation ‘does well’. As a result they are often less tangible and

harder to describe than resources. This includes internal systems of work, areas of expertise and so

on. As with resources, there are threshold competences (the minimum competences needed to

compete in a market) and competences which lead to competitive advantage (core competences).

Competences that are not relevant or not sufficiently high to help implement change are known as

redundant competences. We will look further at competences later in this section.

Benchmarking is not copying; it is about continuous

improvement through comparison.



Knowledge management (KM)

Knowledge management comprises a range of practices used by organisations to identify, create,

represent, and distribute knowledge. ‘Knowledge’ is often difficult to define, but can be illustrated as

part of the continuum between data and wisdom as follows:

• data: unprocessed raw facts, numbers or observations

• information: relevant/timely/meaningful data

• knowledge: result of analysis and processing of information

• wisdom: insight and judgement concerning the use of knowledge

Knowledge can be individually or group owned. The effective management of knowledge is often

important for development of core competences. Practical knowledge management technologies are

often based on IT (intranets and tools for collaborative working). A lot of KM systems require

knowledge to be stored in some way. This is why knowledge management tends to focus on ‘explicit’

(formalised, ‘spelt out’, documented) knowledge rather than ‘implicit’ (undocumented, personal, ‘know-

how’) knowledge.

Knowledge is often viewed as a resource and as such it can be a source of competitive advantage as

a core competence. Knowledge is also a source of competitive/business intelligence and hence

enables a faster response to environmental changes.

Take some time to refresh your understanding of core competences by referring to:

1. The SQA support material on Management: Organisational Leadership and

Development

2. Prahalad, C. K. and Hamel, G. (1990) The Core Competence of the

Corporation. Harvard Business Review, May/June, 33, 79–91



Successful KM requires the following factors:

• a culture which values and fosters knowledge

• breaking down hierarchies and boundaries

• the right people

• incentives for creating and sharing knowledge

• use of appropriate technologies

Benchmarking

As mentioned above benchmarking can be used to aid in justifying changes based on the success of

the benchmark organisation/product. However benchmarking can also highlight the need for changes

when internal benchmarks start to become less successful, For example, an internal benchmark might

be a particularly good month for customer satisfaction. If over the course of the next few months

customer satisfaction levels drop then clearly there is a need for change.

2.6.1 FORCE FIELD ANALYSIS

The purpose of force field analysis is to create a force field diagram. This simply represents the driving

forces and restraining forces that relate to a central question or issue. From a change management

viewpoint, driving forces are therefore those forces that push and support change, and restraining

forces are those that will fight against it or stand in the way of change.

Organisational Capability

Examine an organisation you are familiar with and identify its capability for change, in

terms of its critical success factors; threshold and unique resources; threshold, core

and redundant competences; knowledge management; and benchmarking.



Forces may be internal or external, for example an internal driving force may be a particularly strong

leader; an external driving force may be the introduction of a new competing product; an internal

restraining force may be a lack of funds; an external restraining force may be that the economic

environment is too turbulent to predict, with any confidence, the outcome of a change. Remember,

change will not occur if the restraining forces are greater than or equal to the driving forces.

Driving forces for change would include such things as:

• new personnel

• changing markets

• changing attitudes towards work

• internationalisation

• social transformation

• increased competition

• new technology

Restraining forces would include such things as:

From people:

• fear of failure

• loss of status

• inertia

• fear of the unknown

From the organisation:

• strength of culture

• sunk costs

• lack of resources

• contractual agreements



There are a few issues with using the force field analysis:

• It presents a unidirectional model for change, ie you can never go back

• It fails to appreciate that change is often a dynamic and complex process

• It can create cultures and organisations which cannot adapt to continuous change

• Ultimately it is inappropriate to organisations operating within rapidly changing

environments

Remember that the influence that forces have is not necessarily equal. An assessment of a force’s

influence needs to be made as part of the analysis.

Force Field Analysis

Revisit the support material for Management: Plan, Lead and Implement Change

and review the force field analysis. See link HNC Management Development,

Management: Plan, Lead and Implement Change (DV8C 35). Once you are

familiar with the model complete a force field analysis for a business or

organisation you are familiar with.



2.7 CONTEXTUAL FACTORS

Organisations are not only affected by their environment, but also the ‘context’ in which they operate.

An organisation may choose to foster a specific image in order to appeal to customers. However this

image may also limit the options available to the organisation. It is therefore important to examine the

contextual features of the organisation before attempting to make any changes, that is it is important

to understand the context within which an organisation operates.

The context is defined by features similar to those given below.

Organisational culture: The internal processes and attitudes. We will look at this in more detail later

in this section.

Stakeholders: Often seen as ‘whom does the organisation serve?’ An organisation does not exist as

an entity independent of its stakeholders. The internal stakeholders (employees, management, etc)

expect the organisation to provide certain things, for example payment for work done, good working

conditions. External stakeholders (suppliers, customers, etc) expect the organisation to conduct

themselves in a certain way, for example during negotiations or in response to customer complaints.

Mission and objectives: One way for organisations to make their context clear for stakeholders (from

the organisation’s point of view anyway) is through a mission statement. This is a brief statement

which includes the purpose and values of the organisation. This is not intended to be a desired state,

but more of a promise of achievable objectives and the recognition that the organisation has a

responsibility to its stakeholders. Example mission statements: ‘To enable people and businesses

throughout the world to realize their full potential’ — Microsoft; ‘Organize the world's information and

make it universally accessible and useful’ — Google.

Prioritising purposes: While the mission and objectives are a statement of intent, it does not really

explain what the organisation’s reason for existing is. Microsoft’s example above could just as easily

apply to a management consultancy or recruitment firm as much as a software company. Hence

organisations must also include their purpose when examining their context. Most larger organisations

will have a number of purposes (as will some smaller organisations). For example, it is possible that

one of Microsoft’s purposes is to create and develop effective, secure operating environments for PCs

(ie Windows), but also to create fun, secure information transfer capability for PC users (MSN

messenger). When you take into account all the other applications, services, etc that Microsoft

provides, it is clear that not all of these purposes can be given the same level of importance so

purposes must be prioritised.



Business ethics: Business ethics is a code of conduct that the organisation abides by in all its

dealings. This may be imposed upon an organisation by law (for example the Data Protection Act) or

by a governing body (for example the Association of Chartered Certified Accountants). Often the

ethics of an organisation may be based on the personal ethics of the founder, for example the Body

Shop is well known for its opposition to animal testing of cosmetics. Business ethics can often be

restricting in terms of what an organisation is allowed to change. However, often clearly defined and

followed ethics will have a positive impact on stakeholder relationships. This means that stakeholders

are less likely to oppose change if they believe the ethics will be adhered to as part of the process.

There are three levels of business ethics as described below.

1. At the macro level, there are issues about the role of businesses and other organisations

in the national and international organisation of society. Expectations range from laissez-

faire free enterprise at one extreme to organisations as shapers of society at the other.

There are also important issues of international relationships and the role of business on

an international scale. This is the first issue, the broad ethical stance of an organisation,

which is concerned with the extent to which an organisation will exceed its minimum

obligations to stakeholders and society at large. Managers need to understand the factors

that influence these societal expectations of organisations, particularly in relation to how

inclusive or exclusive they are expected to be to the interests of the various stakeholders

discussed above.

2. Within this macro framework, corporate social responsibility is concerned with the specific

ways in which an organisation will move beyond the minimum obligations provided

through regulation and corporate governance, and how the conflicting demands of

different stakeholders will be reconciled.

3. At the individual level, it concerns the behaviour and actions of individuals within

organisations. This is clearly an important issue for the management of organisations, and

in particular the role of managers in the strategic management process.

Corporate Governance: In the paper A Board Culture of Corporate Governance (2003) Gabrielle

O'Donovan defines corporate governance as ‘an internal system encompassing policies, processes

and people, which serves the needs of shareholders and other stakeholders, by directing and

controlling management activities with good business savvy, objectivity and integrity. Sound corporate

governance is reliant on external marketplace commitment and legislation, plus a healthy board

culture which safeguards policies and processes'. While similar to business ethics as it highlights the

way an organisation deals with its stakeholders, corporate governance tends to be more process

orientated, encompassing systems for monitoring and control. Organisations should be aware when

developing corporate governance that if it is too strict it is likely to stifle creativity.



Ultimately this would mean that the organisation would lack the capability for innovation and change

from within (too much ‘red tape’).

Understanding and applying these contextual features should allow you to start to define context and

understand how and why organisations function.

2.7.1 DETERMINING CONTEXT WITH SWOT

As an analytical process SWOT can be useful in helping to determine the contextual factors that are

impacting on organisations. SWOT analysis looks at the strengths and weaknesses of the

organisation and relates them to the opportunities and threats from the business environment,

specifically, looking at how the strengths can help to minimise threats and take advantage of

opportunities, and how opportunities can help to deal with weaknesses. Factors both internal and

external to the organisation are considered. It can be useful in establishing context, an understanding

of how an organisation fits in its chosen environment.

You should by now be familiar with the process of completing a SWOT, but here are some additional

tips that may help you apply the process effectively.

Tips for looking at Strengths and Weaknesses

• Strengths and weaknesses are always relative to something, eg industry average or best

practices

• Do not forget to assess the firm relative to competitors, potential entrants and providers of

substitute products

• Most SWOT analyses are static snapshots in time; they rarely project forward to show the

future situation

• Keep the list of critical strengths and weaknesses short and perform thorough analysis of

the key ones

• Prioritise and weight the importance of each strength and weakness

• Consider how weaknesses might be turned into strengths and how strengths can become

weaknesses

Tips for Opportunities and Threats

• Keep the number of opportunities and threats down, say to five to seven of each

• Prioritise and weight each threat or opportunity to uncover the most important

• Think how threats can be turned into opportunities



• How can opportunities be linked to firm strengths?

• Opportunities are often (but not always) external

• Threats are also often (but not always) external. Note: generally the same things that

create opportunities may also create opportunities for competitors, hence they may also

become threats

2.8 IMPACT OF INTERNAL RESOURCES ON AN ORGANISATION’S ABILITY TO BRING ABOUT CHANGE

Internal resources are essential to the provision of change within organisations. Different types of

resources were covered in the Unit on Strategic Planning. In the case of strategic change, remember

that resources need to be available throughout the change. Unique resources are the resources that

your organisation has which give it a competitive advantage over its competitors. These are difficult to

copy and, ideally, are better than your competitors, for example a patent is a unique resource. In terms

of strategic change, a unique resource might be specialist knowledge regarding regulations that need

to be complied with, which will affect the speed of the change. An emphasis on an organisation’s

internal resources is a key element of the strategy as experience lens which was explained in Section

1.4.2.

The link between resources and the process of change was introduced as part of the Unit

Management: Plan, Lead and Implement change. It identified that a resource audit is an important

next step in a change project, to be addressed once the requirements of a change project have been

defined and its implementation planned. Resource audits were introduced, together with the different

types of resources that need to be considered such as financial resources, human resources, physical

resources, operational resources and intangible resources.



into SWOT analysis. Go to Strategic Change/Establish

Strategic Position/SWOT.



The availability of internal resources is fundamental to the process of change and the ability of an

organisation to bring about change. It should be considered at the planning stage so that the proposed

development is developed according to the resource availability and capability. It is important to

remember that change happens with all organisations, despite the approach/es followed by the

organisation.

Resource utilisation and performance should be considered during the change process so that

variations from the planned resource usage can be determined and acted upon to avoid wastage and/

or under utilisation.

Revisit the support material for Management: Plan, Lead and Implement Change and review

the section on the resources necessary within the process of change. See link HNC

Management Development, Management: Plan, Lead and Implement Change (DV8C 35).

Internal Resources and Change

Take some time to analyse a change process that has been implemented in an

organisation you are familiar with. Write a report summarising how the resource

requirements were identified and then monitored and controlled throughout the

change process. Identify the impact that resource availability had at all stages of the

process.



2.9 IMPACT OF ORGANISATIONAL COMPETENCE ON AN ORGANISATION’S ABILITY TO BRING ABOUT CHANGE

In the Unit Management: Organisational Leadership and Development you have considered the role of

competence in supporting the vision of an organisation. More specifically core competences were

looked at in relation to how they impacted on the development of organisation vision. Core

competences within an organisation were identified as an important part of vision. An organisational or

core competence can take various forms, for example technical/subject matter knowledge, a reliable

process, and/or close relationships with customers and suppliers.

If a core competence yields a long term advantage to the company, it is said to be a sustainable

competitive advantage. A core competence can also be a combination of complementary skills and

knowledge based within a group or team that results in the ability to execute one or more critical

processes to a world class standard. The idea of core comeptences is also associated with the

strategy as experience lens in Section 1.4.2. The building of core competences depends on the

internal resources an organsiation has and the way it makes use of them.

Organisational competences can therefore be seen to influence change. They can stimulate and act

as triggers for change where organisations are able to develop their core competences to expand their

range of products and services. A good example is Canon, who have used their core competence in

one particular area to expand their range of products.

Core competences can also be seen as limiting factors capable of restricting change. For example, if

the planned strategy requires competences that the organisation does not have, then either the

strategy will fail, or contigencies need to be built into the process. By assessing any planned change

against the core competences of an organisation it is possible to identify how effective the change

may be.

Refer to the support material for the Unit Management: Organisational Leadership and

Development and revisit the section on core competences and vision. See link HNC

Management Development, Management: Organisational Leadership and Development



Organisational Competence and Change

Take some time to analyse a change process that has been implemented in an

organisation you are familiar with, with specific reference to the organisational

competences. Write a report which introduces the change process, and identifies

how the organisational competences have influenced the outcomes.

Find out more about strategy and how it can impact on an organisation and its

ability to change by referring to: Kay, J. (2006) The Hare and the Tortoise. London,

The Erasmus Press (ISBN 0-9458093-1-9). In particular, take a look at pp. 25–27,

which discuss the difference between resources and core competences.



2.10 ORGANISATIONAL CULTURE AND CHANGE

Culture is often defined as ‘the way we do things around here’. Culture involves both the explicit way

of working (the formal systems and processes in place and how they operate) and the tacit level of

operation (the informal and semi-formal networks and other activities that people employ to get things

done and by-pass, subvert or seek to influence the more formal processes).

When dealing with change, it is important to recognise that different organisations have different

cultures and that within organisations different functional areas and teams also have their own way of

doing things, ie their own cultures. The culture of an organisation has a considerable impact on its

ability to change, which affects both the type of change undertaken and its speed. There are two

aspects of the issue of culture and change. Firstly, the importance of working with the existing culture

when seeking to effect any change; and secondly, how to go about changing the culture itself.

Culture can be transmitted to an organisation’s stakeholders by:

• the philosophy of the institution — themes like equity and diversity, widening participation,

striving for excellence in teaching, research reputation, etc

• the mission statement

• the criteria for evaluating and rewarding performance, job progression, etc

• the approach to change which is adopted

• the way in which leaders act

• the informal history of the organisation that is shared in stories and legends about key

people and events that have affected the organisation



into bringing about change. Go to Strategic Change/Establish

Strategic Position/Bringing about Change.



2.10.1 THE CULTURAL WEB

One way of illustrating the culture is through drawing a cultural web. You should already be aware of

the cultural web from the Unit on Management: Plan, Lead and Implement Change.

The cultural web consists of a number of elements:

• The paradigm, which is the set of assumptions about an organisation which is held in

common and taken for granted in the organisation

• The routine ways the members of the organisation behave towards each other, and which

link different parts of the organisation. It is particularly these routines which are ‘the way

we do things around here’. At their best they can help to drive change as they could speed

up the change process; however, they can also represent a ‘taken-for-grantedness’ about

how things should happen which is extremely difficult to change

• The rituals of organisational life, such as training programmes, promotion and

assessment, point to what is important in the organisation, reinforce the routines and

signal what is especially valued

• The stories told by members of the organisation to each other, to outsiders, to new

recruits and so on, embed the present in its organisational history and highlight important

events and personalities, as well as ‘mavericks’ who deviate from the norm

• Other symbolic aspects of organisations, such as logos, offices, cars and titles, or the type

of language/terminology commonly used can become a representation of the nature of the

organisation

• The formalised control systems, measurements and reward systems that monitor and

hence emphasise what is important in the organisation, and focus attention and activity

• Power structures are also likely to be associated with the key constructs of the paradigm.

The most powerful managerial groupings in the organisation are likely to be the ones most

associated with core assumptions and beliefs about what is important

• In turn the formal organisational structure, or the more informal ways in which

organisations work, are likely to reflect power structures and again emphasise what is

important in the organisation



Cultural differences need to be taken into account when introducing change: going against the

predominant culture will make achieving change more difficult; working with it and recognising the key

levers can help facilitate change.

A paper put together by the University of Luton, looking at change in Higher Education institutions,

suggests that one way of considering how change and culture are related is to use the ‘change

quadrants model’. This considers the organisational culture and the nature of the change and

characterises each as either warm or cold.

• Cold Culture: uses rules, regulations, systems, structures and procedures to drive

direction

• Warm Culture: uses shared norms and values together with a common understanding of

direction

• Cold Change: the result of an emergency situation

• Warm Change: driven by personal and professional desires

Some key points when using this model:

• Be wary of forcing a cold change through a warm culture

• A cold change is easier to communicate than a warm one

Take some time to find out more about the cultural web. Refer to Johnson, G. (1998)

Mapping and Re-mapping Organisational Structure, in Ambosini V, G. Johnson and K.

Scholes (eds) Exploring Techniques of Analysis and Evaluation in Strategic

Management. Hemel Hempstead: Prentice Hall



2.10.2 CHANGING CULTURE

A change of culture, values or beliefs is the most difficult sort of change to effect. There are two broad

strategies that can be adopted: crisis change or co-ordinated incremental change.

A major crisis can provide a useful basis for effecting a change in culture since it can force

stakeholders to recognise the need for change and that the culture needs to be different. The

upheaval that such crises generate can then be used to identify the new culture and embed it in

practice. It has been known for crises to be created specifically with the intention of creating the right

climate to assist with a change in culture.

As seen earlier in the Unit, incremental change is slower; however, it requires concerted movement on

a number of different fronts, all designed to support the implementation of the new culture. This is

because changing the culture in an unco-ordinated way is unlikely to have any long-term effect.

Listed below are some questions for you to consider when attempting to change culture:

1. Are you clear about the characteristics of the new culture that you wish to create and how

these differ from where you are now?

2. What change to internal processes would help embed the new culture?

3. How will the changes be communicated to stakeholders?

4. How will existing stakeholders be ‘developed’ into the new culture? (Training individuals

and letting them go back to their original workplace is likely to lead to reversion to old

ways. Training may best be done on a team or departmental basis. New ways of doing

things then need to be immediately practised.)

Take some time to find out more about the ‘change quadrants model’. Refer to:

www.effectingchange.luton.ac.uk



5. Do you promote the new culture in job advertisements and associated literature? Do you

actively look for the required attributes when recruiting new employees? Are new

employees inducted into the required culture? (New employees will rapidly adopt the

standard local culture. If they are trained and supported to the new culture then they can

act as examples for new practices. Untrained and unsupported they will adopt the old

ways.)

6. How will managers visibly demonstrate the new way of doing things? (Leading by

example is often a good way to gain commitment from stakeholders.)

7. How will old practices be challenged? Will there be the opportunity for a public

discussion? Will an ‘authority’ figure be brought in to support/recommend the changes (‘If

someone with their experience says it’ll work then it must be true.’)

8. What procedures can be put in place to acknowledge and reward the new ways of

working? Will there be a punishment for the old ways of working?

9. How can good practice be identified and supported?

10. Do you need a change policy or plan to help create the new order?

Organisational Culture

Examine an organisation you are familiar with and complete the following.

1. Use the cultural web to draw the overall culture of your organisation.

2. Based on your own experience, use the change quadrant to identify how previous

changes have generally been perceived.

3. Finally describe any sub-cultures where different strategies or tactics need to be

applied or that require different forms of negotiation and communication.




In this section we will be looking at how to determine the direction for change and the methods that

are to be used to support the development of strategic change. As you work through this section you

will develop an understanding of strategic position and the influences that can impact on the change

process.


• strategic development directions

• methods of strategy development

• success criteria for judging strategic options

• choosing suitable strategic options


• understand development directions

• understand the development methods available to support strategic change

• judge and select appropriate development methods

Section Three Determining Direction for Change



3.1 STRATEGIC DEVELOPMENT DIRECTIONS

Once the need for strategic change has been recognised there are a number of directions the

organisation may choose to take to implement the required change. To start, let us consider the

development of direction for change and in particular the design lens as introduced in Section 1. As a

manager you may choose this approach as the one which will best fit the development requirements

of your organisation. It is worth considering the following strategies.

3.1.1 PORTER’S 1985 GENERIC COMPETITIVE STRATEGIES

Michael Porter (1985) considered how organisations can be competitive. He recognised that

organisations wishing to compete must have a potential advantage over their competitors. He

proposed three primary strategies for competition which can provide direction for change.

1. Cost leadership

This strategy is fairly straightforward and is achieved by becoming the lowest cost producer in the

industry. The idea is that if costs are low then prices can be dropped below those of your competitors,

leading to greater sales/profit margins. This can be achieved through economies of scale (ie it costs

less to manufacture/buy large volumes of products), or the creation of efficiencies through processes

(for example between the stages of Porter’s value chain).

2. Differentiation

Diversifying to provide a unique product, feature or service which must be valued by the customer.

The idea is to achieve competitive advantage by offering better products or services at the same price

or enhancing margins by pricing slightly higher. In public services, the equivalent is the achievement of

a ‘centre of excellence' status, which could attract higher funding from government (for example

universities try to show that they are better at research or teaching than other universities).

The extent to which differentiation approaches will be successful is likely to be dependent on a

number of factors:

• Has the organisation clearly identified who the strategic customer is, ie the end user of the

product/service? The extent to which the organisation understands what is valued by the

strategic customer can be dangerously taken for granted by managers. This is a reminder

of the importance of identifying critical success

• It is important to be clear who are the competitors. For example, is the business

competing with a wide competitor base or with a much narrower base, perhaps within a

particular market segment?



3. Focus

A strategy for targeting niches, possibly attacking well-defined market segments; can be either cost or

differentiation based. The main idea is that focusing on the customers in a specific market segment

should allow the organisation to provide either better value for money (cost based) or a unique

product/service (differentiation).

3.1.2 ANSOFF MATRIX

The Ansoff product–market growth matrix was originally developed as a marketing tool by Igor Ansoff,

in 1957. The matrix allows marketers to consider ways to grow the business via existing and/or new

products, in existing and/or new markets. There are four possible product/market combinations. This

matrix helps companies decide what course of action should be taken given current performance,

hence the matrix became increasingly used in strategic decision making.

The four strategies are as follows:

Products

Present New

Present Market

Penetration

Product

Development

New Market development Diversification

Mar

kets

Take some time to assess Porter’s three strategies, identifying for each a practical

example of where the strategy has been successfully applied. Refer to: Porter, M.

(1985) Competitive Advantage: Creating and Sustaining Superior Performance.

London: Collier Macmillan



Market penetration (existing markets, existing products)

Market penetration occurs when a company enters/penetrates a market with current products. The

best way to achieve this is by gaining competitors' customers (part of their market share). Other ways

include attracting non-users of your product or convincing current clients to use more of your

product/service, with advertising or other promotions. Market penetration is generally seen as the least

risky way for a company to grow.

The ease with which an organisation can pursue a strategy of market penetration may be dependent

on:

• market growth rate: when the overall market is growing, or can be induced to grow, it is

easier for organisations with a small market share, or even new entrants, to gain a share

• resource issues, which may be driving or preventing market penetration. Building market

share can be a costly process for weakly positioned businesses. Short-term profits are

likely to be sacrificed, particularly when trying to build share from a low base

• the complacency of market leaders, which can sometimes allow lower share competitors

to catch up because they are not regarded as serious competitors (ie they are not like the

current competitors)

Product development (existing markets, new products)

An organisation with a market for its current products might embark on a strategy of developing other

products catering to the same market, for example McDonalds is always within the fast-food industry,

but recently introduced a range of rolls and salads. Frequently, when a firm creates new products, it

can gain new customers for these products, hence new product development can be a crucial

business development strategy for firms to stay competitive.

Sometimes this may be achieved with existing capabilities. However, product development may

require the development of new capabilities. Despite the attractiveness of product development, it may

not always be in line with stakeholder expectations and may raise uncomfortable dilemmas for

organisations. For example, powerful stakeholders may oppose product development.

Market development (new markets, existing products)

An established product in the marketplace can be tweaked or targeted to a different customer

segment as a strategy to earn more revenue for the firm. For example, Lucozade was first marketed

for sick children and then rebranded to target athletes.



There are three main ways that market development can occur:

1. Exploitation of current products in other market segments where similar critical success

factors exist

2. Development of new uses for existing products

3. Geographical spread, either nationally or internationally, into new markets

Option three requires an organisation to select attractive and profitable national markets and to identify

the appropriate entry mode. Some factors that require particular attention in comparing the

attractiveness of national markets are:

• macro-economic conditions reflected in indicators such as the GDP and levels of

disposable income which help in the estimation of the potential size of the market.

Companies must also be aware of the stability of a country’s currency, which may affect

its income stream

• the political environment may create significant opportunities for organisations. It is

common for regional development agencies in many counties to provide investment

incentives to foreign investors

The infrastructure of national markets will also be an important factor in assessing the attractiveness

of national markets for entry, in particular:

• existing transport and communication infrastructure

• availability of necessary local resources such as appropriately skilled labour

• tariff and non-tariff barriers to trade, a key factor in deciding between exporting and local

production; the higher these barriers are, the more attractive local production will be

• the similarity of cultural norms and social structures with the organisation's home country

can provide an indicator of any changes to established products, processes and

procedures which may be required

• the extent of political and legal risks which an organisation might face when doing

business in the country; in broad terms political risk relates to the effect that political and

social events or conditions may have on the profitability of an organisation's activities and

the security of its investments



4. Diversification (new markets, new products)

Diversification is defined as a strategy that takes the organisation into new markets and products or

services, and therefore increases the diversity that a corporate parent must oversee. Virgin Cola,

Virgin Megastores, Virgin Airlines, Virgin Telecommunications are examples of new products created

by the Virgin Group to leverage the Virgin brand. This resulted in the company entering new markets

where it had no presence before.

Three potentially value-creating reasons for diversification are as follows:

1. There are efficiency gains from applying the organisation's existing resources or

capabilities to new markets and products or services. These are often described as

economies of scope, by contrast to economies of scale. If an organisation has under-

utilised resources or capabilities that it cannot effectively close or dispose of to other

potential users, it can make sense to use these resources or capabilities by diversifying

into a new activity. Sometimes these scope benefits are referred to as the benefits of

synergy, by which is meant the benefits that might be gained where activities or processes

complement each other such that their combined effect is greater than the sum of the

parts.

2. There may also be gains from applying the organisation's corporate managerial

capabilities to new markets, products and services. In a sense, this extends the point

above, but highlights skills that can easily be neglected. At the corporate parent level,

managers may develop a capability to manage a range of different products and services

which, although they do not share resources at the operational unit level, do draw on

similar kinds of overall corporate managerial skills.

3. Having a diverse range of products or services can increase market power. With a diverse

range of products or services, an organisation can afford to cross-subsidise one product

from the surpluses earned by another, in a way that competitors may not be able to.

The matrix illustrates that the element of risk increases the further the strategy moves away from the

existing product and the existing market. Hence, product development (requiring, in effect, a new

product) and market extension (a new market) typically involve a greater risk than penetration (existing

product and existing market); and diversification (new product and new market) generally carries the

greatest risk of all. In his original work, Ansoff (1957) stressed that the diversification strategy stood

apart from the other three.

Diversification usually requires new skills, new techniques, and new facilities. As a result it almost

invariably leads to physical and organisational changes in the structure of the business which

represent a distinct break with past business experience.



3.1.3 BOWMAN’S STRATEGY CLOCK

Related to Porter’s generic strategies, Bowman’s strategy clock was proposed in 1996. The ‘clock’

provides suggested strategies for competition based on an analysis of the products of the

organisation. This analysis is based on product/service ‘price’ and ‘perceived added value’ (the value

the customer believes is gained from the product). Both of these are subjective and generally require a

comparison with other products currently available.

Assuming that there are a number of providers, customers will choose which offer to accept

depending on their perception of value for money. This consists of the combination of price and

customer-perceived product/service benefits of each offering (shown graphically as the strategy clock

below). Since the positions on the ‘strategy clock' represent different positions in the market where

customers (or potential customers) have different ‘requirements' in terms of value for money they also

represent a set of generic strategies for achieving competitive advantage. Since these strategies are

‘market-facing' it is important to understand the critical success factors for each position on the clock.

The consideration of each of these strategies will also acknowledge the importance of an

organisation's costs, particularly relative to competitors.



Ansoff’s theory. Go to Strategic Change/Determining Direction

for Change/Ansoff’s Theory.



(Bowman and Faulkner, 1996)

Option 1 — Low price/low added value (‘no frills strategy’): This strategy is commonly considered to be

appropriate only on a segment-by-segment basis.

Option 2 — Low price: This strategy calls for the company to position itself as the 'low cost leader'.

The company risks low margins and a price war.

Option 3 — Hybrid: The company establishes a low cost base and reinvests to keep prices low, while

still seeking differentiation.

Option 4 — Differentiation: There are two versions of this strategy:

1. without price premium: perceived added value by user, ie the company adds value to the

product in hopes of gaining market share despite lower margins

2. with price premium: perceived added value sufficient to bear price premium, ie the

company adds enough value to the product to justify its relatively high price and so

increase margins



Option 5 — Focused differentiation: Perceived added value to a particular segment, warranting price

premium, ie the company adds enough value to the product for a specific customer segment to justify

a price premium

Option 6 — Increased price/standard value: With this strategy, the company raises prices without

adding value to the product in hopes of higher margins. Unless the product is the industry standard,

however, the company risks losing market share, unless competitors follow suit.

Option 7 — High price/low value: This strategy applies only to monopoly situations, which means

unless the business has a monopoly (and generally speaking this is illegal) then this strategy is likely

to fail.

Option 8 — Low value/standard price: This strategy invariably leads to loss of market share as lower

priced/better value options will be preferred.

Price-based strategies (Options 1 and 2)

Price-based strategies seek to gain competitive advantage through prices that are more attractive to

customers than competitors’ prices. There are two broad approaches. First is the no frills strategy

(Option 1 on the strategy clock), which combines a low price, low perceived added value and a focus

on a price-sensitive market segment. It can be viable because there may well exist a segment of the

market which, while recognising that the quality of the product or service might be low, cannot or

chooses not to afford to buy better-quality goods. In summary:

• the products or services are commodity-like

• there may be price-sensitive customers, who cannot afford, or choose not to buy, better-

quality goods

• the buyers have high power and/or low switching costs, so building customer loyalty is

difficult — for example with petrol retailing

• where there are a small number of providers with similar market shares

• where the major providers are competing on a non-price basis, the low price segment may

be an opportunity for smaller players to avoid the major competitors; examples are:

retailing — Matalan, discount warehouses — Cost Co

Second is the low price strategy (Option 2 on the strategy clock), which seeks to achieve a lower price

than competitors whilst trying to maintain similar value of product or service. If a business unit aims to

achieve competitive advantage through a low price strategy,



it has two basic choices in trying to achieve sustainability.

1. Try to identify and focus on a market segment which is unattractive to competitors. This

way avoids competitive pressures to erode price below levels that would achieve

acceptable returns.

2. A more challenging situation is where there is competition on the basis of price. Here

tactical advantage may be gained by reducing price, but it is likely to be followed by

competitors with the danger of a slide into margin reduction across an industry as a whole,

and an inability to reinvest to develop the product or service for the long term.

Clearly a low price strategy cannot be pursued without a low cost base. Low cost in itself,

however, is not a basis for advantage if competitors can also achieve the same low costs. The

need is for a low cost base that competitors cannot match. In summary:

• requires a source of advantage which enables the firm to produce at a lower average cost

than its competitors

• this cost advantage must be difficult to imitate

• pricing must be comparable with other standard products

• the cost leader must achieve parity on the basis of differentiation relative to its competitors

(product must offer accepted industry standards)

• must be the cost leader, not one of many vying for the position

Sources of cost leadership include: economies of scale, experience, product/process design, input

costs, capacity utilisation, efficiency.

Risks associated with a cost leadership strategy include:

• an inability to sustain when technology changes or competition imitates

• if, in reducing costs, the product/service offered falls below an acceptable standard of

quality

• strategy is beaten by cost focusers



Low price strategies can be successful if:

• the company is the cost leader (has cost advantages over competitors in the same market

segment/s); this must be sustainable

• all sources of cost advantages are exploited, and competences are developed in low cost

management; the danger is a low (perceived) value product or service

• the market segment(s) must be price sensitive, but this may mean focusing on certain

market segments

Differentiation (Option 4)

A differentiation strategy is based on the ‘uniqueness’ of the product/service being offered. As

mentioned above this may result in a ‘price premium’, which customers must be willing to pay due to

this uniqueness.

Uniqueness may arise from:

• product features, eg Windows Vista

• service, eg delivery, credit

• after-sales service, eg warranties, Customer Service Agreements

• speed, eg pizza delivery

• location, eg fast food or coffee bar outlets on every corner

• durability, eg Duracell

• technology, eg iPod

Hence

• the product/service must be unique or different from that offered by competitors

• extra value must be created for the customer

• customers must be willing to reward the company for differentiation by payment of a

premium price, or increased market share, or both

• the cost of achieving differentiation should be lower than benefits achieved



Success of a differentiation strategy depends on:

• clear identification of who the customer is and an understanding of what is valued by the

customer

• clear identification of who the competitors are and the value they offer, so that you can

establish which sources of differentiation would be difficult to imitate

• the recognition that bases (sources) of differentiation may need to change

• the organisation may be unable to sustain this strategy as competitors imitate the product

or service

• the bases of differentiation might become less important to the customers

• costs get out of control, become too high

• competitors following a differentiation focus strategy achieve greater success in major

segments

Focused differentiation (Option 5)

A focused differentiation strategy seeks to provide high perceived product/service benefits, justifying a

substantial price premium, usually to a selected market segment (niche). In many markets these are

described as premium products and are usually heavily branded. For example, in the alcoholic drinks

market premium beers, single malt whiskies, wines from particular chateaux, all compete to convince

customers that their product is sufficiently differentiated from their competitors' to ‘justify' significantly

higher prices. In the public services, national or international centres of excellence (such as a

specialist museum) achieve unit levels of funding significantly higher than the more generalist

providers.

Key points include:

• A choice may have to be made between a focus strategy (Option 5) and broad

differentiation (Option 4) if sales are to grow

• Pursuing a focus strategy may be difficult when it is only part of an organisation's overall

strategy. This is a very common situation

• Focus strategies may conflict with stakeholder expectations

• New ventures often start in very focused ways, for example new ‘leading-edge' medical

services in hospitals. It may, however, be difficult to find ways to grow such new ventures.



• Moving from Option 5 to Option 4 will mean a lowering of price and therefore cost, whilst

maintaining differentiation features

• The market situation may change such that differences between segments may be

eroded, leaving the organisation open to much wider competition. Customers may

become unwilling to pay a price premium as the features of the ‘regular' offerings improve,

or the market may be further segmented by even more differentiated offerings from

competitors

Generally speaking focused differentiation is best:

• when products may be tailored to specific or local customer needs

• when markets can be easily segmented or certain needs are overlooked by existing

product offerings

• where the firm may lack resources to operate across the whole market

Risks with a focused differentiation strategy are that:

• new competitors may enter and further segment the market

• attack may come from mass market competitors who identify the segment as attractive;

this may become more common as the differences between segments may be eroded

over time, making bases of focus redundant

Hybrid (Option 3)

Hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of

competitors. Here the success of the strategy depends on the ability to deliver enhanced benefits to

customers together with low prices, whilst achieving sufficient margins for reinvestment to maintain

and develop the bases of differentiation. It might be argued that, if differentiation can be achieved,

there should be no need to have a lower price, since it should be possible to obtain prices at least

equal to competition, if not higher.

However, the hybrid strategy could be advantageous in the following circumstances:

• If much greater volumes can be achieved than competitors then margins may still be

better because of a low cost base

• If an organisation is clear about the activities on which differentiation can be built (ie

potential core competences), it may then be able to reduce costs on other activities



• As an entry strategy in a market with established competitors. This is often used when

developing a global strategy. Organisations search for the ‘loose brick' or ‘weak link’ in a

competitor's portfolio of businesses (perhaps, for example, a poorly run operation in a

specific geographical area), then enter that market with a superior product and, if

necessary, a lower price. The aim is to take market share, divert the attention of the

competitor, and establish a foothold from which they could move further

Failure strategies (Option 6, Option 7 and Option 8)

As mentioned above, the basis of these strategies is that customers seek value for money, hence any

strategy that involves high(er) costs for standard or low-value products is bound to fail, except if all

your competitors are doing the same thing (ie price fixing) or you have the monopoly, both of which

are not likely/legal in many places.

One other possibility is ‘stuck in the middle’ strategies. These are neither low cost nor well

differentiated, hence it could be argued that they have no basis for competitive advantage. Frequently,

this type of strategy is a manifestation of the firm’s inability to make choices on how to compete. This

means they are easily attacked from all sides (in terms of cost or quality). The only way these

strategies can be successful is if the industry structure is favourable or other competitors are also

stuck in middle.

Take some time to find out more about Bowman’s strategy clock and its application

in establishing strategic direction. Refer to: Bowman, C. and Faulkner, D. (1996)

Competitive and Corporate Strategy, London: Irwin Professional



3.1.4 THE CHANGE KALEIDOSCOPE

The change kaleidoscope was proposed in 2002 by Balogun and Hailey. Central to the model is the

‘design choices’ facing ‘change agents’ (instigators of change). In Balogun and Hailey (2004) the

model was developed, and defined six design choices as follows:

Change path: the type of change to be undertaken in terms of the nature of the change and the

desired end result. The reason why this is distinct from change type is that in some circumstances it is

necessary to undertake an enabling phase of change before it is possible to undertake the actual

changes required.

Change start point: where the change is initiated and developed, which could be summarised

simplistically as top down or bottom up (but, as seen in the Unit on Strategic Planning, there are other

choices).

Change style: the management style of the implementation, such as highly collaborative or more

directive.

Change target: the target of the change interventions, in terms of people’s attitudes and values,

behaviours or outputs.

Change levers: the range of levers and interventions to be deployed across sub-systems: technical,

political, cultural and interpersonal.

Change roles: who is taking responsibility for leading and implementing the changes?

As seen in the diagram below, these choices are central to the model.



Bowman’s strategy clock. Go to Strategic Change/Determining

Direction for Change/Bowman’s Strategy Clock.



The model also attempts to put the culture of an organisation on a par with the other contextual

factors, mentioned earlier in this section, required for change, hence they are in a circle. In particular:

Time: How quickly is change needed? Is the organisation in crisis or is it concerned with longer-term

strategic development?

Scope: What degree of change is needed? Realignment or transformation? Does the change affect

the whole organisation or only part of it?

Preservation: What organisational assets, characteristics and practices need to be maintained and

protected during change?

Diversity: Are the different staff/professional groups and divisions within the organisation relatively

homogeneous or more diverse in terms of values, norms and attitudes?

Capability: What is the level of organisational, managerial and personal capability to implement

change?

Capacity: How much resource can the organisation invest in the proposed change in terms of cash,

people and time?

Readiness for change: How ready for change are the employees within the organisation? Are they

aware of both the need for change and motivated to deliver the changes?

Power: Where is power vested within the organisation?



3.2 METHODS OF STRATEGY DEVELOPMENT

Once a strategic direction has been chosen there are three main ways in which strategy can develop:

internal development, mergers and acquisitions, and strategic alliances.

3.2.1 INTERNAL DEVELOPMENT

Internal development is where strategies are developed by building on, and developing, an

organisation's own capabilities. It is a strategy that can be described as relevant to the experience

school as described in Section 1. For many organisations, internal development (sometimes known as

‘organic development') has been the primary method of strategy development for several reasons.

• For products that are highly technical in design or method of manufacture, businesses

may choose to develop new products themselves, since the process of development is

seen as the best way of acquiring the necessary capabilities to compete successfully in

the marketplace

Strategic Direction

Examine a named case study or an organisation you are familiar with and identify and

explain the direction of strategic change in terms of the models introduced to you in this

section.

The kaleidoscope model is a relatively new concept. Take some time to find out

more about how it is used to support the change process. Type “kaleidoscope

model” into a search engine, such as Google.



• A similar argument may apply to the development of new markets by direct involvement.

Market knowledge may be a core competence creating competitive advantage over other

organisations that are more distant from their customers

• Although the final cost of developing new activities internally may be greater than that of

acquiring other companies, the spread of cost over time may be more favourable and

realistic. Also the slower rate of change which internal development brings may also

minimise the disruption to other activities

• An organisation may have no choice about how new ventures are developed. In many

instances those breaking new ground may not be in a position to develop by acquisition or

joint development, since they are the only ones in the field

• The problem is not confined to such extreme situations. Organisations wishing to develop

by acquisition may not be able to find a suitable target for acquisition, for example this is

particularly difficult for foreign companies attempting to enter Japan

• Internal development also may avoid the often traumatic political and cultural problems

arising from post-acquisition integration and coping with the different traditions and

incompatible expectations of two organisations

One type of internal development is ‘consolidation’. This is where organisations protect and strengthen

their position in their current markets with their current products (similar to ‘market penetration’ in the

Ansoff matrix). Often this will require reshaping and innovation of the products and services of the

organisation. This in turn will require attention to how an organisation’s resources and competences

should be shaped and developed to maintain the competitive position of the organisation.

Consolidation may require reshaping by ‘downsizing’ or withdrawing from some activities. There are a

number of reasons for this. For example:

• The product has reached the end of its life cycle. Products, like organisations, have a

specific life cycle, which follows the s-curve (as seen in Section 2). Even when demand is

strong, the ability to compete profitably will vary through the stages of the life cycle.

Knowing when to withdraw from markets can be crucial

• In some markets, the value of a company’s products or assets is subject to changes over

time, and a key issue may be the astute acquisition and disposal of these products, assets

or businesses. This is particularly important for companies operating in markets that are

subject to speculation, such as energy, metals, commodities, land or property

• The company has serious competitive disadvantages, eg it is unable to secure the

resources to achieve the competence levels of the leaders in the marketplace



• Prioritisation of activities is always necessary, so downsizing or withdrawal from some

activities releases resources for others, for example the shift in the range of services

offered by local government over time

• The expectations of dominant stakeholders, eg the objective of a small entrepreneur may

be to ‘make a million’ and then retire. This would lead to a preference for strategies that

make the company an attractive proposition to sell, rather than be guided by longer-term

considerations of viability or growth

3.2.2 MERGERS AND ACQUISITIONS

Acquisition is where strategies are developed by taking over ownership of another organisation; this

can be hostile or consensual. As a strategy it is generally associated with the design school as

described in Section 1. Mergers are where two organisations combine to form a larger organisation. A

merger can resemble an acquisition, but result in a new company name (often combining the names

of the original companies) and in new branding. In some cases, terming the combination a ‘merger’

rather than an acquisition is done purely for political or marketing reasons.

There are many different motives for developing through acquisition or merger. These include:

• The speed with which it allows the company to enter new product or market areas. In

some cases the product or market is changing so rapidly that acquisition becomes the

only way of successfully entering the market, since the process of internal development is

too slow

• The competitive situation may influence a company to prefer acquisition. In markets that

are static and where market shares of companies are reasonably steady, it can be a

difficult proposition for a new company to enter the market, since its presence may create

excess capacity. If, however, the new company enters by acquisition, the risk of

competitive reaction is reduced

• Deregulation is a major driving force behind merger and acquisition activities where

regulation has created a level of fragmentation that is regarded as sub-optimal, for

example telecommunications, electricity and other public utilities. This gives an

opportunity for acquisition organisations to rationalise provision and/or seek to gain other

benefits, for example the creation of ‘multi-utility’ companies offering electricity, gas,

telecommunications and other services to customers

• There may be financial motives for acquisitions. If the share value or price/earnings (P/E)

ratio of a company is high, the motive may be to spot and acquire a firm with a low share

value or P/E ratio. An extreme example is asset stripping, where the main motive for the



acquisition is the short-term gain by buying undervalued assets and selling them on in

pieces

• An acquisition may provide the opportunity to exploit an organisation's core competences

in a new arena, for example global expansion, or it may be to gain competences of an

organisation that may have been lacking in the acquirer, for example an organisation may

be acquired for its Research and Design expertise, or its knowledge of a particular type of

production system/business process

• Cost efficiency is a commonly stated reason for acquisitions, particularly in public services

(by cutting out duplication or by gaining scale advantages)

• Learning can be an important motive, for example an established company close to

reaching maturity in the life cycle model may have achieved efficiencies or expertise that

would be difficult to match quickly by internal development. The necessary innovation and

learning would be too slow

• Institutional shareholders may expect to see continuing growth and acquisitions may be a

quick way to deliver this growth. Be aware that this sort of acquisition may result in value

destroying behaviour as explained in Section 1. This is particularly likely if the ‘parent’

does not have sufficient knowledge of the industry within which the acquired business

operates

• Growth through acquisitions can also be very attractive to ambitious senior managers as it

speeds the growth of the company. In turn, this might enhance their self-importance,

provide better career paths and greater monetary rewards

• There are some stakeholders whose motives are speculative rather than strategic. They

favour acquisitions that might bring a short-term boost to share value. Other stakeholders

are usually wary of the speculators since their short-term gain can destroy longer-term

prospects

Remember, stakeholders will not necessarily share the

same motives.



3.2.3 STRATEGIC ALLIANCES

A strategic alliance is where two or more organisations share resources and activities to pursue a

strategy. As a strategy it is generally associated with the experience school as described in Section 1.

This kind of joint development of new strategies has become increasingly popular. This is because

organisations cannot always cope with increasingly complex environments (such as globalisation)

from internal resources and competences alone. They may see the need to obtain materials, skills,

innovation, finance or access to markets, and recognise that these may be as readily available

through co-operation as through ownership. Alliances vary considerably in their complexity, from

simple two-partner alliances co-producing a product to one with multiple partners providing complex

products and solutions.

Motives for creating an alliance include:

• the need for critical mass, which alliances can achieve by forming partnerships with either

competition or providers of complementary products. This can lead to cost reduction and

an improved customer offering

• co-specialisation, allowing each partner to concentrate on activities that best match their

capabilities. For example, alliances are used to enter new geographical markets where an

Take some time to find out more about mergers and acquisitions using the following

references.

1. Glaxo Wellcome purchased SmithKline Beecham in 2000 to become

GlaxoSmithKline (www.gsk.com)

2. America Online Inc. and Time Warner merged in 2000 to become AOL–Time

Warner (www.timewarner.com)

3. Royal Dutch Petroleum Co. and Shell Transport and Trading Co. were ‘merged’

(although technically already part of the same organisation) in 2004 to become

Royal Dutch Shell (www.shell.com)

4. More on mergers and acquisitions can be found in Gaughan, P. (2000) Mergers,

Acquisitions and Corporate Restructurings. 2nd edition. New York: Wiley



organisation needs local knowledge and expertise in distribution, marketing and customer

support. Similarly alliances with organisations in other parts of the value chain (see Unit

Management: Develop Strategic Plans), eg suppliers or distributors, are very common

• learning from partners and developing competences that may be more widely exploited

elsewhere, for example the first steps into e-commerce may be achieved with a partner

that has expertise in website development. However, the longer-term action may be to

bring those activities ‘in house’

Types of alliance include:

• joint ventures: organisations remain independent but set up a newly created organisation

jointly owned by the ‘parents’. Examples include large civil engineering projects, or major

aerospace undertakings (like the European Airbus). May take a long time to implement, so

not appropriate for rapidly changing markets

• networks: informal collaboration between two or more organisations where there is mutual

advantage in doing so. Most appropriate in situations where the intended strategy does

not require separate, dedicated resources (like in a joint venture)

• franchising: franchise holder undertakes specific activities such as manufacturing,

distribution or selling, whilst the franchiser is responsible for the brand name, marketing

and probably training

• licensing: common in science-based industries. This involves the licence owner giving the

licence holder the right to use the product/logo/digital media, etc in a particular way for a

fee, for example licensing the right to manufacture a patented product

• subcontracting: an organisation gives specific parts of a process to another organisation.

Also known as outsourcing, this is particularly popular in the IT industry

• co-production: where the customer (or employer) works with the organisation to create the

product, etc. For example, the governments PAYE system for tax collection has

organisations working out the tax for their employees.

Examples of strategic alliances:

• Alliances are common in the public sector, for example health, police, social services and

education agencies work together to tackle social problems such as drug/alcohol abuse.

• Similarly alliances between the private and public sector occur, for example the Public

Finance Initiative (PFI) in the UK was established to allow public sector organisations to



gain competitive advantage through partnerships for the development and maintenance of

capital items, particularly property.

• Well-known commercial alliances include: Amazon.com and the Royal Mail, where the

Royal Mail delivered all the products purchased via Amazon.com; and Microsoft and IBM,

where Windows was installed on all IBM computers.

3.2.4 SELECTING A METHOD

In this section we have considered some of the commonly used methods for implementing a process

of change. For you as a manager it is important to be clear about the opportunities that each of these

methods offers you. You should consider these opportunities in the light of the different lenses

described in Section 1 and try to assess how things are done by an organisation. Understanding the

organisation will go a long way towards selecting the most suitable method of achieving the change

required.

Find out more about the different types of change by referring to: Doz, Y. and Hamel, G.

(1998) Alliance Advantage. Boston: Harvard Business School Press



3.3 SUCCESS CRITERIA FOR JUDGING STRATEGIC OPTIONS

Success criteria are used to judge the likely success or failure of a strategic development option.

There are three main success criteria:

1. Suitability is concerned with whether a strategy addresses the circumstances in which an

organisation is operating — the strategic position, based on its business environment.

2. Acceptability is concerned with the expected performance outcomes (such as the return

on investment or risk) of a strategy and the extent to which these would be in line with the

expectations of stakeholders.

3. Feasibility is concerned with whether a strategy could be made to work in practice.

Assessing the feasibility of a strategy requires an emphasis on more detailed practicalities

of strategic capability.

3.3.1 SUITABILITY

Suitability requires a broad assessment of the extent to which new strategies would fit with the future

trends and changes in the environment, exploit the strategic capability of an organisation, and meet

the expectations of the stakeholders. Each of these factors is looked at in more detail in the other two

success criteria. Suitability can be thought of as the rationale of a strategy and whether it ‘makes

sense’ in relation to the strategic position of an organisation.

Strategic Development

Examine a named case study or an organisation you are familiar with and describe

the methods used to implement a change process. Reference should be made to

the lens that best applies to the approach taken by the organisation.



Establishing suitability of directions

In this Unit we have looked at what makes a number of strategic directions suitable. Looking at these

directions in terms of their business environment, strategic capability and stakeholder expectations,

their suitability can be summarised in the following table.

Strategic direction Why this option might be suitable in terms of:

Environment Capability Expectations

Ansoff Matrix

Market penetration Gain market share for advantage

Exploit superior resources and competences

Better returns at low risk by exploiting current strategies

Product development Exploit knowledge of customer needs

Exploit R&D

Better returns at medium risk by exploiting current strengths or market knowledge

Market development Current market saturated New opportunities for: geographical spread, entering new segments or new uses

Exploit current products

Diversification Current market saturated or declining

Exploit core competences in new arenas

Better returns at higher risk by ‘sweating the assets’

Other Methods Internal development First in field

Partners or acquisitions not available

Learning and competence development Spread of cost

Cultural/political ease

Consolidation Withdraw from declining markets Sell valuable assets (speculation) Maintain market share

Build on strengths through continued investment and innovation

Better returns at low risk by exploiting current strategies

Merger/acquisition Speed Supply/demand Profit/earnings ratios

Acquire competences Scale economies

Returns: growth or share value Problems of culture clash

Joint development Speed Industry norm

Complementary competences Learning from partners

‘Required for entry’ Dilutes risk Fashionable

It is also important to understand why strategies might be unsuitable, particularly if managers have a

bias towards a particular strategy. The choice would be biased in the sense that it would not properly

address all three of the above factors about an organisation’s strategic position, for example the desire

to chase market opportunities without the necessary competences or funding, or the pursuit of a

strategy against the wishes of a powerful stakeholder.



It is the relative suitability of options that matters. There may be options available to organisations that

are more suitable. Some useful frameworks for assisting in understanding the relative suitability of

different strategic options include:

• ranking strategic options against a set of factors concerning an organisation’s strategic

position

• using decision trees: these also assess strategic options against a list of key factors,

however preferred options emerge by progressively introducing requirements which must

be met (such as growth, investment or diversity)

• scenarios which attempt to match specific options with a range of possible future

situations and are particularly useful where a high degree of uncertainty exists. Suitable

options are ones that fit the various scenarios, so several need to be considered, possibly

in the form of contingency plans

The elements of the strategy may not be internally consistent. The competitive strategy (such as low

price and differentiation), the development direction (such as product development or diversification)

and the development method (internal acquisition or alliances) need to be consistent. Strategies are

unlikely to succeed if these three elements do not work together. Since organisations are likely to be

developing and changing elements of a strategy incrementally over time, it is quite probable that

strategies will become internally inconsistent resulting in declining performance.



3.3.2 ACCEPTABILITY

Acceptability is more subjective than suitability, as it is much harder to establish what the

stakeholders’ expectations are. The following table summarises some frameworks that can be useful

in understanding the acceptability of strategies together with some limitations of each of these.

Criteria Used to understand Examples Limitations Return Profitability Financial return of

investments Return on capital Payback period Discounted cash flow (DCF)

Apply to discrete projects Only tangible costs/benefits

Cost–benefit Wider costs/benefits (including intangibles)

Major infrastructure projects

Difficulties of quantification

Real options Sequence of decisions Real options analysis Quantification Shareholder value analysis (SVA)

Impact of new strategies on shareholder value

Mergers/acquisitions Technical detail often difficult

Risk Financial ratio projections

Robustness of strategy Break-even analysis Impact on gearing and liquidity

Possibly too much focus on finances

Sensitivity analysis Test assumptions/robustness

What is analysis? Tests factors separately

Stakeholder reactions Political dimension of strategy

Stakeholder mapping Game theory

Largely qualitative

Return

Returns are the benefits which the stakeholders are expected to receive from a strategy. It is important

to remember that there are no absolute standards as to what constitutes a good or poor return. It will

differ between industries, countries, and also between different stakeholders. There are a number of

different approaches to understanding return. The four examples above are:

Profitability analyses: Traditional financial analyses have been used extensively in assessing the

acceptability of strategies. Three of the most commonly used approaches are forecasting the return on

capital employed (ROCE), payback period, discounted cash flow (DCF) (see support material for the

Unit Management: Develop Strategic Plans for how to use these).

Cost–benefit: The cost–benefit concept suggests that a money value can be put on all the costs and

benefits of a strategy. This includes tangible and intangible returns to people and organisations other

than the ones responsible for the project or strategy. In practice monetary valuation is often difficult as

opinion plays a significant role. The major benefit is in forcing people to be explicit about the various

factors that should influence strategic choice.



Real options: The previous approaches assume some degree of clarity about the outcomes of a

strategic option. This is not the case for strategies where the precise costs and benefits only become

clear as implementation proceeds. It is possible to suggest that strategy should be seen as a series of

‘real’ options (ie choices of direction at particular points in time as the strategy takes shape as a result

of the previous choices that were made). The benefit of this approach is that it can provide a clearer

understanding of both strategic and financial return and risk of a strategy by examining each stop

(option) separately as it occurs. This approach can be seen in the ‘stage-gate’ approach to research

and design projects (proposed by Robert Cooper in 1988 and still used today. Explanation can be

found at www.prod-dev.com). Real options bridge the somewhat rigid DCF approach and the intuitive

approaches (such as scenarios).

Shareholder value analysis: SVA is an attempt to address many of the limitations and criticisms of

traditional financial analyses. In particular, how ‘value’ is created from the point of view of

shareholders. The shareholder value measure used most commonly is total shareholder returns

(TSRs), which in any year is equal to the increase in the price of a share over the year plus the

dividends per share earned in the year, all divided by the share price at the start of the year. More

widely value-based businesses use this measure to set themselves overall performance goals. SVA

has been criticised for emphasising short-term returns. However, the idea of valuing a strategy may

serve to give greater realism and clarity to otherwise vague strategies.

Risk

Risk concerns the probability and consequences of the failure of a strategy. This risk can be

particularly high for organisations with major long-term programmes of innovation or where high levels

of uncertainty exist about key issues in the environment. Risk can be more than just financial, eg risk

to brand image or risk of missing an opportunity. At the core of developing a good risk assessment is a

good understanding of an organisation’s strategic position. The concepts that can be used to establish

the detail within a risk assessment mentioned above are as follows.

Financial ratios: The projection of how key financial ratios might change if a specific strategy were

adopted can provide useful insights into risk, for example the change in capital structure. Strategies

that would require an increase in long-term debt will increase the gearing of the company and hence

its financial risk. Other considerations include liquidity, ie the less liquid an organisation becomes as a

result of the strategy, the more financial risk will increase. See the support material for the Unit

Management: Develop Strategic Plans for more on ratios.

Sensitivity (What if) analysis: This allows each of the important assumptions underlying a particular

strategy to be questioned and challenged. In particular, it seeks to test how sensitive the predicted

performance or outcome (eg profit) is to each of these assumptions. Often these assumptions will be

tested using extremes and then determining if this has an impact on managers’ confidence in the

strategic decision.



Stakeholder reactions: You should be aware of the importance of stakeholders from the

Management: Plan, Lead and Implement Change Unit of the HNC. One way to establish possible

stakeholder reactions is through ‘stakeholder analysis’. Once the stakeholders are identified and their

possible reactions have been established, then it increases your ability to manage these, and hence

increase the acceptability of a strategy. For example:

• a new strategy might require a substantial issue of new shares, which could be

unacceptable to powerful groups of shareholders, since it dilutes their voting power

• plans to merge with other companies or to trade with new countries could be

unacceptable to unions, government or some customers

Remember competitors are stakeholders too, hence their reaction must be considered. When

examining competitor behaviour, it may be useful to look at game theory.

Remember competitors are stakeholders too, hence their

reaction must be considered.



3.3.3 FEASIBILITY

When considering feasibility we consider if a strategy can actually work in practice. It is important to

consider feasibility in respect to both finance and resources.

1. Financial feasibility

Obviously if the organisation does not have the funds to support the change then it cannot happen.

The two main ways to assess financial feasibility are:

• cash flow forecasting which seeks to identify the funds which would be required for any

strategy and the likely sources of those funds. This should highlight whether a proposed

strategy is likely to be feasible in financial terms and the timing of new funding

requirements

• break-even analysis: this is a simple and widely used approach to assess the feasibility of

meeting targets of return (eg profit) and combines a parallel assessment of acceptability. It

also provides an assessment of the risk of various strategies, particularly where different

strategic options require markedly different cost structures. See the Unit on strategic

planning for different methods of break-even analysis

Take some time to find out more about stakeholder analysis and game theory using

the following references.

1. Freeman’s Equity, Economic and Market stakes — originally proposed in .

Freeman, R. E. (1984) Strategic Management: A Stakeholder Approach.

Boston: Pitman

2. Mitchell, R., Agle, B. and Wood, D. (1997) Towards a Theory of

Stakeholder Identification: Defining the Principle of Who and What Really

Counts. Academy of Management Review, 22(4), 853–886

3. Entry to game theory (http://en.wikipedia.org/wiki/Game_theory). It is a

huge subject, so focus on the impact the ‘Prisoner’s Dilemma’ has on

business.



Resource feasibility

A wider understanding of the feasibility of specific strategies can be achieved by identifying the

resources and competences needed for that strategy, eg geographical expansion in the home market

might be critically dependent on marketing and distribution expertise, together with the availability of

cash to fund increased stocks. In contrast, a different strategy of developing new products to sell to

current customers is dependent on engineering skills, the capability of machinery, and the company’s

reputation for quality in new products. A resource deployment assessment can be used to judge the

extent to which an organisation’s current capabilities would need to change to reach or maintain the

threshold requirements for a strategy, ie

• Do we lack any necessary resources?

• Are we performing below threshold on any activity?

• How can unique resources be developed to sustain competitive advantage?

• Which unique resources already exist?

• Which core competences already exist?

• Could better performance create a core competence?

• What new resources or activities could be unique or core competences?

The key issue is whether these changes are feasible in terms of scales, quality of resources, or

timescale of change. In practice, the implementation of strategies may throw up issues that might

make organisations reconsider whether particular strategic options are in fact feasible. This may lead

to a reshaping, or even abandonment of strategic options.



into judging strategy options. Go to Strategic Change

/Determining Direction for Change/Judging Strategy Options.



3.3.4 SPECIFIC SUCCESS CRITERIA

We have looked at a number of methods for implementing strategy. The following are some of the

specific criteria required for making these methods successful.

Internal development

This is unlikely to succeed when the organisation does not have the required competences/resources;

this includes financial, human and physical resources.

As with any changes, this requires the support of the stakeholders, in particular those responsible for

implementing the internal development.

Mergers and acquisitions

Parenting issues will need to be addressed (see Section 1) to ensure value is added and not

destroyed. There will be a need to be decisive about key roles (post-merger). Middle managers also

need to be brought on board quickly to remove the internal uncertainties and ensure that there is no

loss of external focus (eg on service to customers).

An inability to integrate the new company into the activities of the old means that the expected

synergistic benefits of the acquisition are not realised. There will inevitably be a need for decisions

regarding whether to remove or retain executives of the acquired company.

Where the motive was about organisational learning through the transfer of knowledge, it can be

difficult to know exactly which knowledge to transfer. Managers themselves in the acquired

organisation may be unclear about the reasons for their success (or failure).

Under-achievement often results from problems with ‘cultural fit’. This is particularly a problem when

the acquired company is from another country. This may cause a ‘culture clash’ as different business

models and/or organisational routines are aligned with one another.

Strategic alliances

The success of alliances is dependant on how they are managed and the way in which the partners

foster the evolution of the partnership. Of particular importance are:

• A clear strategic purpose for the alliance together with senior management support, as

alliances require a wider range of relationships to be built and sustained. This can create

cultural and political hurdles which senior mangers must help to overcome

• Compatibility at the operational level requiring effort by partners to achieve strong

interpersonal relationships at these lower levels too and not just between senior

managers. In cross-country partnerships this will include the need to transcend national

cultural differences



• Defining and meeting performance expectations. This requires the willingness to

exchange performance information. This would include clear goals, governance and

organisational arrangements concerning activities that cross or connect the partners.

However, it can also be important to keep the alliance simple and flexible and allow the

alliance to evolve and change rather than prescribing it too rigidly at the outset

• Trust — probably the most important part of a successful alliance. Trust can be

competence based, ie each partner is confident the other has the resources and

competences to fulfil their part in the alliance. Trust is also character based, ie whether

partners trust each other’s motives and are compatible in terms of attitudes to integrity,

openness, discretion and consistency of behaviour.

3.4 CHOOSING SUITABLE STRATEGIC OPTIONS

To conclude this section it is worth considering how best to decide on the strategic option. It is a

decision that all those involved in strategic change have to make whilst giving consideration to the

factors specified in this workbook. For you to be effective in this role you need to be able to assess the

organisation you work for, determine its overall approach to strategy development, and identify if it

favours:

1. Strategy as design — fit

2. Strategy as experience — stretch

3. Strategy as ideas — emergent/chaos

In identifying the option it is important to be clear on which approach best fits your organisation and

will best meet the needs of the required change.

You also need to understand the organisation’s strategic position in respect to both internal and

external environmental factors. Using analytical tools will help provide an illustration of where the

organisation is and how it may need to develop to achieve a strategic change.

Finally, it is about selecting the best option for change based on the assessments made of the

organisation. If you are the instigator of change then you will need to match the methods to the

organisation, so that the strategy can be implemented effectively.



Strategic Review

Examine a named case study or an organisation you are familiar with. Identify and

explain its strategy (or strategies) for change and determine the degree of success

achieved. Describe what influenced the selection of the strategic option(s) and

recommend alternative strategic options that could have been used.

If you would like to test your learning on the theory of strategic

change, please refer to the Interactive Activities on SQA’s

website (http://www.sqa.org.uk/sqa/30913.html). Go to Strategic

Change/Determining Direction for Change/Test your Learning.



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