Stakeholders are those individuals or groups that depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends.
Levels of strategy (1) Operational strategy Business-level strategy Corporate-level strategy News Corporation diversifying from print journalism into social networking. Website and marketing improvements at My Space to attract more users. MySpace engineers increasing processing Capacity. concerned with the overall purpose and scope of an organisation and how to add value to business units. concerned with the way a business seeks to compete successfully in its particular market. concerned with how different parts of the organisation deliver the strategy in terms of managing resources, processes and people.
Top managers frequently formulate and control strategy but may also involve others in the process.
Middle and lower level managers have to meet strategic objectives and deal with constraints.
All managers have to communicate strategy to their teams.
All managers can contribute to the formation of strategy through ideas and feedback.
Organisations may also use strategy specialists :
Many large organisations have in-house strategic planning or analyst roles .
Strategy consultants can be engaged from one of many general management consulting firms (e.g. Accenture, IBM Consulting, PwC).
There are a growing number of specialist strategy consulting firms (e.g. McKinsey &Co, The Boston Consulting Group
The exploring strategy model Figure 1.4 The Exploring Strategy Model
Strategic position The Strategic Position Environment Culture Purpose Capability The strategic position is concerned with the impact on strategy of the external environment , the organisation ’ s strategic capability (resources and competences), the organisation ’ s goals and the organisation ’ s culture. Fundamental questions for Strategic Position: • What are the environmental opportunities and threats ? • What are the organisation ’ s strengths and weaknesses? • What is the basic purpose of the organisation? • How does culture shape strategy?
Strategic choices Strategic Choices Business- level Innovation International Corporate- level Acquisitions & Alliances Strategic choices involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued. Fundamental questions for Strategic Choice: • How should business units compete ? • Which businesses to include in the portfolio ? • Where should the organisation compete internationally? • Is the organisation innovating appropriately? • Should the organisation buy other companies, form alliances or go it alone ?
Strategy in action Strategy in Action Processes Changing Evaluating Organising Practice Strategy in action is about how strategies are formed and how they are implemented. The emphasis is on the practicalities of managing . Fundamental questions for Strategy in Action • Which strategies are suitable, acceptable and feasible? • What kind of strategy-making process is needed? • What are the required organisation structures and systems ? • How should the organisation manage necessary changes ? • Who should do what in the strategy process ?
The Strategy Checklist - The 14 fundamental questions in strategy Strategic Position Strategic Choices Strategy in Action
What are the environmental opportunities and threats?
What are the organisation ’ s strengths and weaknesses
What is the basic purpose of the organisation?
How does culture shape the strategy?
How should business units compete?
Which businesses to include in the portfolio?
Where should the organisation compete internationally?
Is the organisation innovating appropriately?
Should the organisation buy other companies, ally or go it alone?
Which strategies are suitable, acceptable and feasible?
What kind of strategy-making process is needed?
What are the required organisational structures and systems?
How should the organisation manage necessary changes?
Strategy is the long-term direction of an organisation. A ‘ strategy statement ’ should cover the goals of an organisation, the scope of the organisation ’ s activities and the advantages or capabilities the organisation brings to these goals and activities.
Corporate-level strategy is concerned with an organisation ’ s overall scope; business-level strategy is concerned with how to compete; and operational strategy is concerned with how resources, processes and people deliver corporate- and business-level strategy.
Strategy work is done by managers throughout an organisation, as well as specialist strategic planners and strategy consultants .
Research on strategy context, content and process shows how the analytical perspectives of economics, sociology and psychology can all provide practical insights for approaching strategy issues
The Exploring Strategy Model has three major elements: understanding the strategic position , making strategic choices for the future and managing strategy-in-action .
Strategic issues are best seen from a variety of perspectives, as exemplified by the four strategy lenses of design, experience, variety and discourse .
Monopolistic industries - an industry with one firm and therefore no competitive rivalry. A firm has ‘ monopoly power ’ if it has a dominant position in the market. For example, BT in the UK fixed line telephone market.
Oligopolistic industries - an industry dominated by a few firms with limited rivalry and in which firms have power over buyers and suppliers.
Perfectly competitive industries - where barriers to entry are low, there are many equal rivals each with very similar products, and information about competitors is freely available. Few (if any) markets are ‘ perfect ’ but may have features of highly competitive markets, for example, mini-cabs in London.
Hypercompetitive industries - where the frequency, boldness and aggression of competitor interactions accelerate to create a condition of constant disequilibrium and change.
Hypercompetition often breaks out in otherwise oligopolistic industries (e.g. mobile phones).
Organisations interact in a series of competitive moves in hypercompetition which often becomes extremely rapid and aggressive as firms vie for market leadership.
Strategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases .
These characteristics are different from those in other strategic groups in the same industry or sector.
There are many different characteristics that distinguish between strategic groups.
Strategic groups can be mapped on to two dimensional charts – maps. These can be useful tools of analysis.
Characteristics for identifying strategic groups Figure 2.7 Some characteristics for identifying strategic groups
Strategic groups in the Indian pharmaceutical industry Figure 2.8 Strategic groups in the Indian pharmaceutical industry Source : Developed from R. Chittoor and S. Ray, ‘Internationalisation paths of Indian pharmaceutical firms: a strategic group analysis’, Journal of International Management , vol. 13 (2009), pp. 338–55
Understanding competition - enables focus on direct competitors within a strategic group, rather than the whole industry. (E.g. Tesco will focus on Sainsburys and Asda)
Analysis of strategic opportunities - helps identify attractive ‘ strategic spaces ’ within an industry.
Analysis of ‘ mobility barriers ’ i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group.
Critical success factors are those factors that are either particularly valued by customers or which provide a significant advantage in terms of cost.
Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them).
Different industries and markets will have different critical success factors (e.g. in low cost airlines the CSFs will be punctuality and value for money whereas in full service airlines it is all about quality of service ).
Environmental influences can be thought of as layers around an organisation, with the outer layer making up the macro-environment , the middle layer making up the industry or sector and the inner layer strategic groups and market segments .
The macro-environment can be analysed in terms of the PESTEL factors , from which key drivers of change can be identified. Alternative scenarios about the future can be constructed according to how the key drivers develop.
Industries and sectors can be analysed in terms of Porter ’ s five forces – barriers to entry, substitutes, buyer power, supplier power and rivalry. Together, these determine industry or sector attractiveness.
Industries and sectors are dynamic , and their changes can be analysed in terms of the industry life cycle , comparative five forces radar plots and hypercompetitive cycles of competition .
In the inner layer of the environment , strategic group analysis, market segment analysis and the strategy canvas can help identify strategic gaps or opportunities.
Blue Ocean strategies characterised by low rivalry are likely to be better opportunities than Red Ocean strategies with many rivals.
The most important reason for environmental analysis is to identify OPPORTUNITIES AND THREATS
The Strategic Position 3: Strategic Capabilities
Organisational knowledge is the collective intelligence, specific to an organisation, accumulated through both formal systems and the shared experience of people in that organisation.
Some of this knowledge is ‘ Tacit ’ knowledge that is, more personal, context-specific and hard to formalise and communicate – so it is difficult to imitate, for example, the knowledge and relationships in a top R&D team.
Benchmarking is a means of understanding how an organisation compares with others – typically competitors.
Two approaches to benchmarking:
Industry/sector benchmarking - comparing performance against other organisations in the same industry/sector against a set of performance indicators.
Best-in-class benchmarking - comparing an organisation ’ s performance or capabilities against ‘ best-in-class ’ performance – wherever that is found even in a very different industry. (E.g. BA benchmarked its refuelling operations against Formula 1).
Strategic capabilities comprise both resources and competences.
The concept of dynamic capabilities highlights that strategic capabilities need to change as the market and environmental context of an organisation changes.
Sustainability of competitive advantage is likely to depend on an organisation ’ s capabilities being of at least threshold value in a market but also being valuable , relatively rare, intimable and non-substitutable.
Ways of diagnosing organisational capabilities include:
Benchmarking as a means of understanding the relative performance of organisations.
Analysing an organisation ’ s value chain and value network as a basis for understanding how value to a customer is created and can be developed.
Activity mapping as a means of identifying more detailed activities which underpin strategic capabilities.
SWOT analysis as a way of drawing together an understanding of strengths, weaknesses, opportunities and threats an organisation faces.
Corporate social responsibility (CSR) is the commitment by organisations to ‘ behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large ’ . 1
1 World Business Council for Sustainable Development.
Corporate social responsibility stances Table 4.2 Corporate social responsibility stances
Questions of corporate social responsibility – internal aspects (1) Table 4.3 Some questions of corporate social responsibility
Questions of corporate social responsibility – external aspects (2) Table 4.3 Some questions of corporate social responsibility (Continued)
Is the action legal? . . . If no, stop immediately.
Does it comply with our values? . . . If it does not, stop.
If you do it would you feel bad? . . . Ask your own conscience if you can live with it.
How would this look in the newspaper? . . . Ask if this goes public tomorrow would you do it today?
If you know it ’ s wrong . . . don ’ t do it.
If you are not sure . . . ask; and keep asking until you get an answer.
Stakeholders of a large organisation Figure 4.3 Stakeholders of a large organisation Source : Adapted from R.E. Freeman, Strategic Management: A Stakeholder Approach , Pitman, 1984. Copyright 1984 by R. Edward Freeman.
Stakeholder conflicts of expectations Table 4.4 Some common conflicts of expectations
Stakeholder mapping: the power/interest matrix
Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities.
Figure 4.4 Stakeholder mapping: the power/interest matrix Source : Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems , Cambridge, MA, 1986
An important managerial task is to decide how the organisation should express its strategic purpose through statements of mission, vision, values or objectives.
The purpose of an organisation will be influenced by the expectations of its stakeholders.
The influence of some key stakeholders is represented formally within the governance structure of an organisation. This can be represented in terms of a governance chain, showing the links between ultimate beneficiaries and the managers of an organisation.
There are two generic governance structures systems: the shareholder model and the stakeholder model though there are variations of these internationally.
Organisations adopt different stances on corporate social responsibility depending on how they perceive their role in society. Individual managers may face ethical dilemmas relating to the purpose of their organisation or actions it takes.
Different stakeholders exercise different influence on organisational purpose and strategy, dependent on the extent of their power and interest. Managers can assess the influence of different stakeholder groups through stakeholder analysis.
The Strategic Position 5: Culture and Strategy
The paradigm is the set of assumptions held in common and taken for granted in an organisation.
is built on collective experience
informs what people in the organisation do
influences how organisations respond to change.
Culture ’ s influence on strategy development Figure 5.6 Culture ’s influence on strategy development Source : Adapted from P. Gringer and J.-C. Spender, Turnaround: Managerial Recipes for Strategic Success , Associated Business Press, 1979, p. 203
The history and culture of an organisation may contribute to its strategic capabilities, but may also give rise to strategic drift as its strategy develops incrementally on the basis of such influences and fails to keep pace with a changing environment.
Historical, path-dependent processes play a significant part in the success or failure of an organisation and need to be understood by managers. There are historical analyses that can be conducted to help uncover these influences.
Cultural and institutional influences both inform and constrain the strategic development of organisations.
Organisational culture is the basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisation ’ s view of itself and its environment.
An understanding of the culture of an organisation and its relationship to organisational strategy can be gained by using the cultural web .