ADVANCED LEVEL

PAPER NO. 13 STRATEGIC MANAGEMENT

UNIT DESCRIPTION

The aim of the paper is to strengthen the strategic thinking capability of the candidate in
formulating and implementing a corporate strategy that can help organisations build a sustainable
competitive advantage.

LEARNING OUTCOMES
A candidate who passes this paper should be able to:

 Analyze an organization’s environment and formulate an actionable business strategy that

is grounded in theory and practice from multiple business disciplines
 Demonstrate an ability for critical and strategic thinking
 Develop and implement a realistic strategic plan
 Understand the strategic decisions that organisations make in strategic management
 Effectively react to and incorporate emerging issues in strategic management.
CONTENT
1. Overview of Strategic Management
− Concept of strategy
− Purpose of strategy
− Characteristics of strategy
− Advantages and disadvantages of strategic planning
− Strategy approaches
− Strategic versus tactical decisions
− Patterns of strategy development

2 History of the Organisation and Culture

− History of the Organisation

− Importance of history
− Path dependency
− History as a resource
− Historical analysis
− Mission: stated and perceived
− Organisational culture
− Influence of culture on strategy
− Undertaking cultural analysis
− Hofstede’s Cultural Dimensions Theory
3 Strategy Levels and Intent

− Corporate strategy
− Business strategy
− Operational strategy
− Functional strategy
− Vision statement
− Mission statement
− Strategic objectives
− Statement of corporate values

4 Strategic Management Process

− Steps in the strategic management process

− Strategic management in different contexts
− Uncertainty and strategic drift
− Limitations of strategic management

5 Strategic Analysis: The External Environment

 − Policy and administrative framework
− Political environment
− Economic environment
− Sociocultural environment
− Technological environment
− Ecological environment
− Legal environment
− Key drivers for change
− Industry and sector analysis
− Tools for external analysis
− Competitor Analysis

6 Strategic Analysis: The Internal Environment

− Distinctive resources and capabilities as a basis of competitive advantage

− VRIO- value of resources and capabilities, rarity, inimitability, organisational
support
− Organisational knowledge as a basis of competitive advantage
− Diagnosing resources and capabilities
− The value chain and value system
− Activity systems
− Benchmarking
− Strengths and Weaknesses
− The Balanced Scorecard and Strategy map
− Critical success factor analysis
− Scenario planning
− Gap Analysis
− SWOT and the business model
▪ Key features of corporate culture
▪ Health cultures that aid strategy execution
▪ Unhealthy cultures that impede strategy execution
▪ Influence of culture on strategy
▪ Undertaking cultural analysis
7 Business Strategy and Models

7.1 Generic competitive strategies

▪ Cost leadership strategy
▪ Differentiation strategy
▪ Focus strategy
▪ Hybrid strategy
▪ The Strategy Clock
 7.2 Interactive strategies
▪ Interactive price and quality strategies
▪ Cooperative strategy
▪ Game theory
7.3 Business models
▪ Value creation. configuration and capture
▪ Business model patterns
8 Corporate Strategy and Diversification

− Strategy directors
− Diversification and performance
− Vertical integration
− Value creation and corporate parent
− Portfolio matrices
▪ The BCG (growth/share) matrix
▪ The directional policy (GE- McKinsey) matrix
▪ PIMS (Profit Impact on Marketing Strategy
▪ Parenting matrix
▪ The Scenario/vision – building approach

9 International Strategy

− Internationalisation drivers
− International business environment and challenges
− Geographical sources of advantage
▪ Locational advantage: Porter’s Diamond
▪ The international value system
▪ International strategies
▪ Market selection and strategy
▪ Internationalisation and performance

10 Strategy Development Processes

10.1 Strategic thinking

▪ The paradox of logic and creativity
▪ The art and science of strategic thinking
▪ The “Deep Dive” analogy: acumen, allocation of resources and action
10.2 Strategy formation
▪ Deliberate strategy developers
▪ Emergent strategy developers
▪ Logical incrementalism
▪ Strategy as an outcome of political processes
 10.3 Implications for managing strategy development
▪ Strategy development in different contexts
▪ Managing deliberate and emergent strategies

11 Matching Organisational Structure to Strategy

− Value chain activities to be performed internally

− Value chain activities to be outsourced
− Aligning structure with strategy
− Organisational structure
▪ Simple structure
▪ Functional structure
▪ Divisional structure
▪ Matrix structure
▪ Multinational structures
▪ Project-based structures
▪ Strategy and structure fit
− Delegation of authority
− Systems
▪ Planning system
▪ Performance targeting systems
− Configurations and adaptability
▪ The McKinsey 7-Ss
▪ Agility and resilience
− Collaboration with external parties and strategic allies (network structure)

12 Leadership and Strategic Change

− Strategic Leadership vision and change

− Theories of leadership and change
− Types of strategic change
− Levers for strategic change
− Methods of introducing strategic change
− Strategic leadership roles and effectiveness
− Strategic change: revolution versus evolution
− Diagnosing the change context
− Managing major changes
− Problems of formal change programmes
− Managing corporate politics
− Managing complexity
− Leadership in practice
13 The Practice of Strategy

− The strategists
▪ Top managers and directors
▪ Strategic planners
▪ Middle managers
▪ Strategy consultants
− Strategising
▪ Strategy analysis
▪ Strategy issue-selling
▪ Strategic decision making
▪ Communicating the strategy
− Strategy methodologies
▪ Strategy workshops
▪ Strategy projects
▪ Hypothesis testing
▪ Business cases and strategic plans
− Strategy Implementation
▪ Relationship between strategy formulation and implementation
▪ Plans Programs and budgets
▪ Steps for effective strategy implementation
▪ Resource allocation

14 Strategic Control

− Evaluation and control in strategic management

− The strategic control process
− Monitoring evaluation and reporting
− Measuring corporate performance
− Strategic information systems
− Strategic surveillance
− Guidelines for proper control
− Balance Scorecard as a tool for control
− Sustaining organisational effectiveness

15 Contemporary issues and Case Studies in Strategic Management

 CHAPTER 1
OVERVIEW OF STRATEGIC MANAGEMENT
− Concept of strategy
The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and
“ago” (meaning leading/moving).

Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed strategic
planning process”.

A strategy is all about integrating organizational activities and utilizing and allocating the scarce
resources within the organizational environment so as to meet the present objectives. While
planning a strategy it is essential to consider that decisions are not taken in a vaccum and that
any act taken by a firm is likely to be met by a reaction from those affected, competitors,
customers, employees or suppliers.

Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need to
take into consideration the likely or actual behavior of others. Strategy is the blueprint of
decisions in an organization that shows its objectives and goals, reduces the key policies, and
plans for achieving these goals, and defines the business the company is to carry on, the type of
economic and human organization it wants to be, and the contribution it plans to make to its
shareholders, customers and society at large.

Features of Strategy
1. Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it deals
with probability of innovations or new products, new methods of productions, or new
markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision
and direction of an organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”.
 − Purpose of strategy
The purpose of strategic planning is to set overall goals for your business and to develop a plan to achieve
them. It involves stepping back from your day-to-day operations and asking where your business is
headed and what its priorities should be.
Strategic planning is necessary to determine the direction for your organisation. It focuses your
efforts and ensures that everyone in the business is working towards a common goal. It also
helps you:

 agree actions that will contribute to business growth

 align resources for optimal results
 prioritise financial needs
 build competitive advantage
 engage with your staff and communicate what needs to be done
Another significant purpose of strategic planning is to help you manage and reduce business
risks. Growing a business is inherently risky. Detailed planning may help you to:

 remove uncertainty
 analyse potential risks
 implement risk control measures
 consider how to minimise the impact of risks, should they occur

− Characteristics of strategy
1. Strategy is a systematic phenomenon:
Strategy involves a series of action plans, no way contradictory to each other because a common
theme runs across them. It is not merely a good idea; it is making that idea happen too. Strategy
is a unified, comprehensive and integrated plan of action.

2. By its nature, it is multidisciplinary:

Strategy involves marketing, finance, human resource and operations to formulate and
implement strategy. Strategy takes a holistic view. It is multidisciplinary as a new strategy
influences all the functional areas, i.e., marketing, financial, human resource, and operations.

3. By its influence, it is multidimensional:

Strategy not only tells about vision and objectives, but also the way to achieve them. So, it
implies that the organisation should possess the resources and competencies appropriate for
implementation of strategy as well as strong performance culture, with clear accountability and
incentives linked to performance.
 4. By its structure, it is hierarchical:
On the top come corporate strategies, then come business unit strategies, and finally functional
strategies. Corporate strategies are decided by the top management, Business Unit level
strategies by the top people of individual strategic business units, and the functional strategies
are decided by the functional heads.

5. By relationship, it is dynamic:
Strategy is to create a fit between the environment and the organisation’s actions. As
environment itself is subject to fast change, the strategy too has to be dynamic to move in
accordance to the environment.

Success of Microsoft appears to be very simple as far as software for personal computers are
concerned, but Microsoft strategy required continuous decisions in a turbulent and dynamic
environment to remain leader.

6. The purpose of strategy is to create competence (things firm does better than
competitors), synergy (between different parts of the organisation and their
activities) and value creation so as to attain vision and mission.
An organisation can reach its destiny (vision) only if it can create value for the firm and its
stakeholders (mission). Value creation involves economic value addition (profits for the
company), customer value addition (Value customers perceive in relation to competitors), people
value addition (Value gained from enabling employees to be most productive resource.) so as to
fulfil the needs of all concerned.

7. Strategy requires searching for new sources of advantage:

To achieve sustainable long term competitive advantage the firm must invent new rules and new
games to become unique and create wealth. Simply copying the leader means value is destroyed
for all the firms. Thus to look different, strategy differentiation is a must.

8. Strategy is almost always the result of some type of collective decision-

making process:
The vision, mission, objectives, and corporate strategies are determined by top management.
Business Unit strategies are decided by heads of business units and functional plans by
functional heads. But the top management consent is a must. It is the senior management which
resolves paradoxes between the conflicting objectives, existing functions and future activities,
and the resources allocation.
-Advantages and Disadvantages of Strategic Planning
Advantages
1. Facilitates communication between managers. One of the goals of strategic managers is to
facilitate the collaboration of functional managers to achieve synergy between different parts of
organization. Managers in finances, marketing, operations and human resources are essential for
an organization but they often compete rather than collaborate. Even worse situation is with
separate SBUs. Strategic planning is in place to facilitate the collaboration between these
managers.

2. Identifies strategic goals and strategic intent. CEOs are usually the people who create goals
and envisions the future of the company. Nonetheless, they are often engaged in many other
activities and have less time to search for the best strategic fit.

3. Reduces resistance to change. It is strategic planner's job to inform the whole organization of
strategic changes, company's plans, current situation implications and what changes are expected
to be done. Thorough explanation of this information to managers in every level, reduces
resistance to change as managers are less uncertain about the future.

4. Improves resource allocation. New products, services, strategies, goals or objectives require
resource allocation (moving people from one team to another or moving the facilities into
another country), which is done more efficiently when aligned with strategic objectives.

5. Leads to sustainable competitive advantage. Competitive advantage is often achieved

without strategic planning but if the company wants to achieve sustainable competitive
advantage it has to plan strategically.

Disadvantages

1. Costly to perform for small and medium businesses. Strategic planning, the same as
marketing or proper human resource management, adds a lot of expenses to an organization.
Managers or strategic planners have to be hired, additional efforts are required towards analysis
of external and internal environments and some tools have to be designed to properly implement
strategic planning process. Although all of this is done to some extent by all organizations (who
doesn't monitor firm performance or analyze competitors?), mainly the large enterprises are the
ones capable to hire competent personnel to implement strategic plans.

2. The process is very complex. Strategic planning process consists of many steps that are
connected to each other and must be constantly adjusted. Some unexpected factors also appear
that may change the whole strategy and as a result, strategic planning process.
3. Low rate of successful implementation. Due to its complexity and heavy commitment to
strategic goals, strategic planning is rarely implemented successfully. Often, the poor
implementation is the reason for failure, although it is more often the case of misaligned
operational and strategic goals.

Strategy approaches
As business environments have grown more diverse in recent decades, picking the right approach
to strategy for each context has become increasingly important. We believe there are five broad
approaches to strategy:
 Classical: clear phases of analysis, planning, and execution; useful in predictable and
stable contexts, such as mature categories that grow with GDP (confectionary and
cosmetics, for example)
 Adaptive: continual experimentation and scaling up of what works; useful in
unpredictable environments in which new technologies or business models drive
changing offerings and patterns of demand
 Visionary: use of imagination to create a game-changing product, service, or business
model, followed by persistence in the creation and development of a market; useful when
a firm can have a significant influence over the environment rather than merely adapting
to it
 Shaping: collaboration in environments that are simultaneously unpredictable and
malleable, requiring companies to leverage ecosystems and platforms
 Renewal: execution of necessary, radical moves when the environment is harsh or there
has been a protracted mismatch between strategy and environment, with limited time and
resources to analyze and deliberate a course of action

Five approaches to the strategy process

But despite this broadening array of approaches, the process of developing and realizing strategy
within most companies follows still the “strategic planning” mostly associated with classical
strategy:
Classical planning
An initial direction from the executive team is followed by various kinds of analysis, like market
modeling (projecting category growth and future share) and financial forecasting. This process
takes some time because ideas have to be analytically verified and consolidated, with the final
call made by the executive team. An example is the strategy process in the core business of
Mars. As past president Paul Michaels noted, “We plan because we operate in relatively stable
markets.” After consultation, plans are set from the top by a small group: “That’s me, the CFO,
and a few others.”
Such a planning process is ill-suited to less classical environments – there, other strategy
processes are needed:
Adaptive Experimentation
Experimentation happens in short cycles of testing and picking winners. Key ingredients of the
process are the ability to collect and read signals to detect business opportunities; free flow of
data throughout the company, enabling teams to identify opportunities with little central
supervision; and the culture and organizational mechanisms to enable failures to be easily
discontinued and successes to be scaled. Zara enacts its adaptive strategy in this way, identifying
emerging trends via real-time market experiments with its clothing styles and making small
commitments that can quickly be scaled up.
Visionary Imagination
Imagination works in iterative cycles, taking a starting point – often a desire, or a frustration that
a need is not being met – and elaborating it into a worked-out proposal or prototype. In popular
stories of imagination, like that of Steve Jobs, this process is assumed to occur in the head of one
person. But in fact it is a social process: at Apple, Steve Jobs elaborated his ideas by iterating
with Jony Ive and others. Key ingredients of this process are the richness of mental models
brought to bear on the initial ideas; a willingness to be patient with ideas still in formation;
effective learning from prototypes; and a determination to persist until a market has been created.
Shaping Collaboration
When an environment is malleable yet unpredictable – meaning it would be unwise to commit to
a long-term visionary effort – an ecosystem or platform-based approach is appropriate. The
strategy process here is about supporting effective collaboration to shape an unpredictable
environment to the advantage of the company and others whose interests coincide. This requires
building a highly responsive organization; Alibaba leads here, aiming to become a self-tuning
organization, with “as many operating decisions as possible made by machines fueled by live
data” drawn from its ecosystem.
Renewal pragmatism
When the environment becomes so harsh that the company’s viability is threatened, immediate
corrective actions are required. There is little scope for comprehensive analysis or engagement,
internally or externally. Rather, a few critical turnaround initiatives must be driven from the top.
An example is American Express in the harsh environment from 2008 to 2009. “First we had to
deal with the cost issue...we had to act immediately,” explained then-CEO Ken Chenault,
emphasizing the need to analyze the firm’s cost structure as a basis for quick cost-saving
decisions, followed by “selectively investing in growth.”

 Strategic versus tactical decisions

Strategy Vs. Tactics: The Difference

About 2,500 years ago, Chinese military strategist Sun Tzu wrote “The Art of War.” In it, he
said, “Strategy without tactics is the slowest route to victory. Tactics without strategy is the
noise before defeat.” Tactics and strategy are not at odds with one another—they’re on the same
team. (And they have been for many centuries!) Here’s how we define the tactical vs. the
strategic:
 Strategy defines your long-term goals and how you’re planning to achieve them. In other
words, your strategy gives you the path you need toward achieving your organization’s mission.
 Tactics are much more concrete and are often oriented toward smaller steps and a shorter
time frame along the way. They involve best practices, specific plans, resources, etc. They’re
also called “initiatives.”

As an example, an HR strategic plan may include the following two strategic goals over the next
five years with related tactical plans that include detailed actions.

Strategic goal: Recruit, develop and retain a high-quality and diverse staff.

Tactical plan:

 Obtain salary survey data to benchmark the compensation of all positions.

 Conduct job fairs at local schools with diverse student bodies.
 Develop an effective exit interview program to understand why high-performers leave the
organization.
 Conduct an employee survey to gather data on job satisfaction and engagement.
 Provide effective in-house training for managers and supervisors and identify and
allocate funds for external training.

Strategic goal: Implement flexible work arrangements.

Tactical plan:

 Identify the types of flexible work arrangements available and feasible for the workplace.
 Survey employees to identify the flexible work arrangements of most interest.
 Create policies and procedures for the flexible work arrangements that are implemented.
 Review the strategic goal and related policies and procedures annually to meet changing
circumstances.

What makes a good strategy?

A solid strategy reflects the core values of the organization. Your strategic team should gather
input from across the organization to ensure there’s alignment between the strategy and each
department’s priorities. All strategies should be actionable.

When creating a good strategy, focus on the desired end result (the goal). Your strategy is the
foundation for all activities within the organization, and how it’s crafted will guide decision-
making as your teams work to achieve those goals. For example, if a furniture company has a
goal to expand market share, its strategy could include offering the most competitive prices and
always being in stock of common offerings. Leadership teams will make decisions that prioritize
lower costs.
What makes a good tactic?

A good tactic has a clear purpose that aids your strategy. It has a finite timeline during which
specific activities will be completed and their impacts measured.

A tactic for the furniture company would be to analyze manufacturing processes to minimize
waste and inefficiencies, thereby decreasing cost and, by extension, prices for customers. The
company can clearly measure the success of the tactic by comparing their costs before and after
the analysis.

Overall, the rule of thumb for understanding the difference between strategy and tactics is,
“Think strategically, act tactically.

 Patterns of strategy development

Development of a Strategy is concerned with the long-term and future decisions. The
organizations formulates, analyses, selects and implements a strategy. Later, the organization
follow-up, evaluate and improve the strategy in view of the competitor’s attack and / or counter
attack. Thus, the strategic development is a continuous process rather than a momentum
upspring.

Different Patterns of Strategic Development

The different patters or forms of strategy development include:

1. Incremental strategy development,

2. Intended and realized strategies
3. Emergent, opportunistic and imposed strategies.

1. Incremental strategy development:

Organizations, mostly change infrequently and strategies are formed gradually or through piece
meal change. During these periods some strategies are changed, some are remained constant,
some are unchanged. During the periods of flux, strategies change but not in a very clear
direction. The strategic moves include: product launch, service addition, acquisition, divestment,
domestic expansion, overseas expansion etc.

2. Intended and realized strategies

It is viewed that, strategy is developed by managers in an intended, planned fashion. It is also
viewed that strategy is formulated in terms of resource allocation, structure etc. The strategy then
comes about or is realized in actually. Thus, the strategy is conceived of as a deliberate,
systematic process.
3. Emergent, Opportunistic and Imposed Strategies
Strategies always may not be formulated based in plans and intentions. The strategy which is
formulated based n the organizational direction, and is developed over the time is called
emergent strategy. The strategy which is formulated to utilize the opportunities offered by the
environment and to utilize the strengths of the organization is called opportunistic strategy. The
strategy which is formulated due to the environmental threats and the weaknesses of the
organization is called imposed strategy. The strategies like divestment, retrenchment, cost cut
are the examples of imposed strategy.
Different Views of Strategic Development:
The different views of strategic development include:

1. the natural selection view of strategic development,

2. the planning view of strategic development,
3. the logical incremental view of strategic development,
4. the cultural view of strategic development,
5. the political view of strategic development and,
6. the visionary view of strategic development.
The Natural Selection View of Strategic development:
The natural selection view of strategic development states that the organizations cannot influence
the environment and they respond to the change in the environment. Strategies developed under
such circumstances are similar to national selection. Changes in organization structure,
organization process and systems would also take place in response to the environmental
variations. Manager’s strategic choice in such organizations, is limited.

The Planning View of Strategic development:

The strategic decision making is viewed as a systematic planning process. This planning process
comprises of (a) setting of objectives, goals, procedures, programmes and tactics, (b) analyzing
internal environmental factors in order to know the strengths and weaknesses of the organization,
(c) analyzing the external environment to know the organizational opportunities and threats, (d)
formulating all possible strategic alternatives (e) evaluating these alternatives (f) selecting the
alternative which suits the best to the organization’s strengths and weaknesses and environment’s
opportunities and threats, planning and implementing the best solution.

Limitations of planning view of strategic development:

This view suffers from the following limitations

 This view does not take into consideration the behavioral aspects of the people who make
the strategies and implement them.
 Strategies are formulated and implemented by the corporate planning staff of the
company. Therefore, the middle level and lower level managers are not involved in the
process.
 The employees, contribute only to a part of the strategic plan and they do not understand
the total process.
 The strategy, in this view is thought as a plan.
 CHAPTER 2
HISTORY OF THE ORGANISATION AND
CULTURE
− History of the Organisation
The history of organizations describes an evolutionary flow of the methods by which human
beings structure the activities necessary to their survival. Organization is essential for human
activities that provide the basic physical needs of food, clothing, and shelter. Under conditions
of chronic change, humanity has endeavored to develop the most effective method of
organizing these activities to compete for survival and meet the challenges of a particular era.
The rise of organizations is marked by the constant adaption to changes in the technological,
cultural, political, and economic environments.
− Importance of history
History is important to study because it is essential for all of us in understanding ourselves and
the world around us. There is a history of every field and topic, from medicine, to music, to art.
To know and understand history is absolutely necessary, even though the results of historical
study are not as visible, and less immediate.

Allows You to Comprehend More:

1. Our World

History gives us a very clear picture of how the various aspects of society — such as
technology, governmental systems, and even society as a whole — worked in the past so we
understand how it came to work the way it is now.

2. Society and Other People

Studying history allows us to observe and understand how people and societies behaved. For
example, we are able to evaluate war, even when a nation is at peace, by looking back at
previous events. History provides us with the data that is used to create laws, or theories about
various aspects of society.

3. Identity

History can help provide us with a sense of identity. This is actually one of the main reasons that
history is still taught in schools around the world. Historians have been able to learn about how
countries, families, and groups were formed, and how they evolved and developed over time.
When an individual takes it upon themselves to dive deep into their own family’s history, they
can understand how their family interacted with larger historical change. Did family serve in
major wars? Were they present for significant events?

4. Present-Day Issues

History helps us to understand present-day issues by asking deeper questions as to why things
are the way they are. Why did wars in Europe in the 20th century matter to countries around the
world? How did Hitler gain and maintain power for as long as he had? How has this had an
effect on shaping our world and our global political system today?

5. The Process Of Change Over Time

If we want to truly understand why something happened — in any area or field, such as one
political party winning the last election vs the other, or a major change in the number of smokers
— you need to look for factors that took place earlier. Only through the study of history can
people really see and grasp the reasons behind these changes, and only through history can we
understand what elements of an institution or a society continue regardless of continual change.

− Path dependency
What Is Path Dependency?
Path dependency explains the continued use of a product or practice based on historical
preference or use. A company may persist in the use of a product or practice even if newer, more
efficient alternatives are available. Path dependency occurs because it is often easier or more
cost-effective to continue along an already set path than to create an entirely new one.

Understanding Path Dependency

Scholars describe path dependence in the context of the historical-institutionalist approach to
political science. The theory behind the approach is that institutions change less than might be
expected and constrain advancement. The reason for the lack of change is that policymakers
make assumptions, make cautious decisions, and fail to learn from experience.

Path dependency can also be a result of an inability or a reluctance to commit to change because
of the cost implications. A town that is built around a factory is a good example of path
dependence. Ideally, a factory is located at a distance away from residential areas for various
reasons. However, factories are often built first, and the workers' homes and amenities are built
close by. It would be far too costly to move an already established factory, even though it would
better serve the community if it were located on the outskirts of town.

Path dependency can influence strategies within companies, sometimes to the detriment of the
business. For example, most companies have a core product or system that establishes its market
presence. Over time, rival products and methods might appear in the market that represent more
competitive or lucrative opportunities. Path dependency can contribute to a reluctance or
inability to invest in forward-thinking innovations. The introduction of digital photography, for
example, presented such a challenge to the camera film manufacturers.
 − History as a resource
Collective memory has become an increasingly important topic in social and human sciences
over the past thirty years. Beyond the interest for how we understand history, collective memory
research has explored how the past has been used to defend certain understandings of the world
(for instance nationalist ideologies), political actions (as in the case of intractable conflicts), or
collective identities (particularly when they are seen as reflecting the historical 'essence' of a
national group). That is, how the history is used as a resource for the present. However,
theoretical conceptualisations have more directly focused on how collective memory is
produced, and less so on how it is mobilised for the present. I
− Historical analysis
Historical analysis is a method of the examination of evidence in coming to an
understanding of the past. It is particularly applied to evidence contained in documents,
although it can be applied to all artefacts. The historian is, first, seeking to gain some certainty as
to the facts of the past.

Historical interpretation is the process by which we describe, analyze, evaluate, and create an
explanation of past events. We base our interpretation on primary [firsthand] and secondary
[scholarly] historical sources. We analyze the evidence, contexts, points of view, and frames of
reference. Yes, it is a complicated process, but historical thinking improves with practice.
Interpretation might explore causality (what made something happen), processes (revolutions,
economic depressions), conflicts (social class, race, gender), historical outcomes (effects of past
events), or many more topics (creative thinking).
So what are primary sources in history?

"Material that contains firsthand accounts of events and that was created
contemporaneous to those events or later recalled by an eyewitness. … Primary sources
emphasize the lack of intermediaries between the thing or events being studied and
reports of those things or events based on the belief that firsthand accounts are more
accurate. Examples of primary sources include letters and diaries; government, church,
and business records; oral histories; photographs, motion pictures, and videos; maps and
land records; and blueprints."

Historical anaysis requires synthesizing (combining) a variety of evidence, primary and

secondary (critical thinking). Historical thinking involves the ability to arrive at meaningful and
persuasive understandings of the past by applying all the other historical thinking skills, by
drawing appropriately on ideas from different fields of inquiry or disciplines and by creatively
fusing disparate, relevant (and perhaps contradictory) evidence from primary sources and
secondary works. Additionally, synthesis may involve applying insights about the past to other
historical contexts or circumstances, including the present. These insights (secondary sources)
may come from social science theories and perspectives and/or the writings of other historians
(historiography).
Another view of historical interpretation

Interpretations are in essence thoughtful efforts to represent and explain past events.
Interpretations include 3 vital elements:

1. Purposeful, thoughtful efforts--Interpretations are conscious reflections on the past, not

simply irrational spur-of-the-moment opinions. Take time to apply logic and organization
to your explanation of the past-not merely emote or react to the evidence.
2. Representations--Interpretations are efforts to give an audience an image or description of
the event/issue being focused on. We cannot recreate the past perfectly, but we can try to
represent faithfully how events transpired by ground our version in the historical
evidence.
3. Past events--Interpretations are the reflections of those of us studying the past, not of the
participants in those events. We refer to the collection representations of the past done by
historians as historiography. The views of participants from the past constitute our
primary sources or historical evidence. Without the process of reflection removed from
the event by time the creator of the view is inevitably partially influenced by the impact
the person/event had on them.

− Mission: stated and perceived

A mission statement, by definition, boldly states your organization’s core purpose. It answers the
question “why do we exist?”. Your mission needs to boldly state why you exist and why you do
what you do. The best mission statements express your core propose and why you exist with
clarity.

In terms of language, we always recommend mission statements be written in present tense with
the use of concrete language. Writing in present tense allows your mission to be easily
deciphered from your vision statement, which is written in future tense. Solid language leaves
little room for interpretation to what exactly your mission statement means.

What Makes a Mission Statement Powerful?

A mission statement acts as an organization’s compass: guiding the organization’s decisions to
achieve its core purpose and reason it exists.

While the vision statement articulates the organization’s future state, the mission directly relates
to the vision by articulating the greater reason why that vision matters. A powerful mission keeps
the organization on track and rallied around the direction the organization is headed. The mission
statement is the foundation on which good strategy is based, so it’s important to take your
mission seriously and to get it right.

As business leaders, we are put under a lot of undue stress to generate a perfect, short,
sing-songy mission statement. The result is meaningless drivel, leaving everyone irritated and
underwhelmed. Employees don’t want to hang back conceptualizing about wishes and dreams.
But don’t let being pragmatic get in the way of this important stage of building a strong
foundation of consensus for the organization.
If time isn’t dedicated to articulating your mission on the front-end before developing strategy,
the result will likely be goals and objectives without a crystal-clear strategic direction.

Mission statements generally answer at least one of these core questions:

 What is our organization’s reason for existing?

 Why is it special to work for this organization?
 What is our business and what are we trying to accomplish on behalf of whom?

Checklist for a Great Mission Statement

When evaluating the quality of your current or newly drafted mission statement, it’s important
your mission meets these four simple criteria:

1. Your Mission Must Be Foundational

It clearly states why your organization exists.

2. It’s Original
It’s unique to your organization. If you were to read the mission statements of all the
organizations in your industry, yours would be different than your competition.

3. It’s Memorable
Memorable = motivating to employees, prospective employees and customers.

4. It Fits on a T-Shirt
Peter Drucker famously advised that your mission statement should be short and compelling
enough to fit on a t-shirt your staff would actually wear

− Organizational culture
An organization's culture defines the proper way to behave within the organization. This culture
consists of shared beliefs and values established by leaders and then communicated and
reinforced through various methods, ultimately shaping employee perceptions, behaviors and
understanding. Organizational culture sets the context for everything an enterprise does. Because
industries and situations vary significantly, there is not a one-size-fits-all culture template that
meets the needs of all organizations.
A strong culture is a common denominator among the most successful companies. All have
consensus at the top regarding cultural priorities, and those values focus not on individuals but
on the organization and its goals. Leaders in successful companies live their cultures every day
and go out of their way to communicate their cultural identities to employees as well as
prospective new hires. They are clear about their values and how those values define their
organizations and determine how the organizations run.

What Is Organizational Culture?

An employer must begin with a thorough understanding of what culture is in a general sense and
what their organization's specific culture is. At the deepest level, an organization's culture is
based on values derived from basic assumptions about the following:

 Human nature. Are people inherently good or bad, mutable or immutable, proactive or
reactive? These basic assumptions lead to beliefs about how employees, customers and
suppliers should interact and how they should be managed.
 The organization's relationship to its environment. How does the organization define
its business and its constituencies?
 Appropriate emotions. Which emotions should people be encouraged to express, and
which ones should be suppressed?
 Effectiveness. What metrics show whether the organization and its individual
components are doing well? An organization will be effective only when the culture is
supported by an appropriate business strategy and a structure that is appropriate for both
the business and the desired culture.

Culture is a nebulous concept and is often an undefined aspect of an organization. Although

extensive academic literature exists relating to the topic of organizational culture, there is no
generally accepted definition of culture. Instead, the literature expresses many different views as
to what organizational culture is.

Organizational culture can manifest itself in a variety of ways, including leadership behaviors,
communication styles, internally distributed messages and corporate celebrations. Given that
culture comprises so many elements, it is not surprising that terms for describing specific
cultures vary widely. Some commonly used terms for describing cultures include aggressive,
customer-focused, innovative, fun, ethical, research-driven, technology-driven, process-oriented,
hierarchical, family-friendly and risk-taking.

Because culture is difficult to define, organizations may have trouble maintaining consistency in
their messages about culture. Employees may also find it difficult to identify and communicate
about perceived cultural inconsistencies.

Factors That Shape an Organization's Culture

Organizational leaders often speak about the unusual natures of their company cultures, seeing
their domains as special places to work. But organizations such as Disney and Nordstrom, which
are well-known for their unique cultures, are rare.

Most company cultures are not that different from one another. Even organizations in disparate
industries such as manufacturing and health care tend to share a common core of cultural values.
For example, most private-sector companies want to grow and increase revenues. Most strive to
be team-oriented and to demonstrate concern for others. Most are driven, rather than relaxed,
because they are competing for dollars and market share. Some of the cultural characteristics that
distinguish most organizations include the following.

VALUES
At the heart of organizations' cultures are commonly shared values. None is right or wrong, but
organizations need to decide which values they will emphasize. These common values include:

 Outcome orientation. Emphasizing achievements and results.

 People orientation. Insisting on fairness, tolerance and respect for the individual.
 Team orientation. Emphasizing and rewarding collaboration.
 Attention to detail. Valuing precision and approaching situations and problems
analytically.
 Stability. Providing security and following a predictable course.
 Innovation. Encouraging experimentation and risk-taking.
 Aggressiveness. Stimulating a fiercely competitive spirit.

Degree of Hierarchy
The degree of hierarchy is the extent to which the organization values traditional channels of
authority. The three distinct levels of hierarchy are "high"—having a well-defined organizational
structure and an expectation that people will work through official channels; "moderate"—
having a defined structure but an acceptance that people often work outside formal channels; and
"low" —having loosely defined job descriptions and accepting that people challenge authority.

An organization with a high level of hierarchy tends to be more formal and moves more slowly
than an organization with a low level of hierarchy.

Degree of Urgency
The degree of urgency defines how quickly the organization wants or needs to drive decision-
making and innovation. Some organizations choose their degree of urgency, but others have it
thrust on them by the marketplace.

A culture with high levels of urgency has a need to push projects through quickly and a high
need to respond to a changing marketplace. A moderate level of urgency moves projects at a
reasonable pace. A low level of urgency means people work slowly and consistently, valuing
quality over efficiency. An organization with high urgency tends to be fast-paced and supports a
decisive management style. An organization with low urgency tends to be more methodical and
supports a more considered management style.

People Orientation or Task Orientation

Organizations usually have a dominant way of valuing people and tasks. An organization with a
strong people orientation tends to put people first when making decisions and believes that
people drive the organization's performance and productivity. An organization with a strong task
orientation tends to put tasks and processes first when making decisions and believes that
efficiency and quality drive organization performance and productivity.

Some organizations may get to choose their people and task orientations. But others may have to
fit their orientation to the nature of their industry, historical issues or operational processes.

Functional Orientation
Every organization puts an emphasis on certain functional areas. Examples of functional
orientations may include marketing, operations, research and development, engineering or
service. For example, an innovative organization known for its research and development may
have at its core a functional orientation toward R&D. A hospitality company may focus on
operations or service, depending on its historical choices and its definition in the marketplace.

Employees from different functions in the company may think that their functional areas are the
ones that drive the organization. Organizational leaders must understand what most employees
perceive to be the company's functional orientation.

Organizational Subcultures
Any organization can have a mix of subcultures in addition to the dominant culture. Subcultures
exist among groups or individuals who may have their own rituals and traditions that, although
not shared by the rest of the organization, can deepen and underscore the organization's core
values. Subcultures can also cause serious problems.

For example, regional cultures often differ from the overall culture that top leadership tries to
instill. Perhaps aggressiveness that is common in one area may not mesh with a culture
emphasizing team building. Or an organization with a culture built around equality may have
trouble if the national culture emphasizes hierarchy and expects people to bow to authority.
Employers must recognize those differences and address them directly.

− Influence of culture on strategy

Organizational culture includes the shared beliefs, norms and values within an organization. It
sets the foundation for strategy. For a strategy within an organization to develop and be
implemented successfully, it must fully align with the organizational culture. Thus, initiatives
and goals must be established within an organization to support and establish an organizational
culture that embraces the organization’s strategy over time.

5. Flexibility and Adaptability

Organizations that remain flexible are more likely to embrace change and create an
environment that remains open to production and communication. This provides a model that
welcomes cultural diversity and helps clarify strategy implementation. Culture within an
organization can serve many purposes, including to unify members within an organization and
help create a set of common norms or rules within an organization that employees follow.
6. Characteristics of Stability
A stable culture, one that will systematically support strategy implementation, is one that
fosters a culture of partnership, unity, teamwork and cooperation among employees. This type
of corporate culture will enhance commitment among employees and focus on productivity
within the organization rather than resistance to rules and regulations or external factors that
prohibit success.
7. Goal Unification
Flexible, strong and unified cultures will approach strategy implementation and affect
implementation in a positive manner by aligning goals. Goals can come into alignment when
the organizational culture works to focus on productivity and getting the organization’s
primary mission accomplished. This may include getting products delivered to customers on
time, shipping out more products than the organization’s chief competitor or similar goals.
This will create a domino effect in the organization that ensures that all work performed by
each individual in the company and work group focuses on performance and on the strategic
importance of the company.
This allows culture to align with strategy implementation at the most basic level. For this level
of unification to work, goal setting must align with and be supported by systems, policies,
procedures and processes within the organization, thereby helping to achieve strategy
implementation and continuing the cultural integrity of the organization.
8. Process Implementation
Part of cultural alignment and strategy implementation involves process implementation.
Processes include utilizing technology to facilitate goal attainment and the results a company is
looking for when working with customers to meet their needs. While most of the time the hard
problems and needs of an organization get met, the culture becomes neglected in the process.
That is where processes come into place and strategy implementation gradually comes into
existence to uphold and maintain organizational culture and strategies.
 9. Cultural Alignment
When culture aligns with strategy implementation, an organization is able to more efficiently
operate in the global marketplace. Culture allows organizational leaders to work both
individually and as teams to develop strategic initiatives within the organization. These may
include building new partnerships and re-establishing old ones to continue delivering the best
possible products and services to a global market.

− Undertaking cultural analysis

Rapid change, intense competition and increased complexity in markets are making it
challenging for organizations to stay competitive. In such a frenzied environment, it’s even more
important for companies to increase their agility in both their business processes, and decision-
making abilities. This agility will help them resolve problems faster, accelerate innovation, and
reduce the “flash to bang time” for deploying products and services. And for organizations to be
agile, they need to manage change effectively and quickly.
In an environment replete with new digital companies, start-ups, and traditional companies,
organizations are realizing the value of Organizational Change Management (OCM) and the
assured results it can deliver. OCM is increasingly critical for companies to succeed, because it
recognizes the complexity of the organization’s culture and human behavior and can predict,
address, and prevent dips in productivity during a change initiative. When a cultural analysis, or
the ability to interpret cultural representation and practices, is applied to OCM, it can provide
organizations with the “as-is” state and identify the “to be” state. This can then help the
organization re-align its culture to support its objective.
Understanding culture can be useful in two ways. First, cultural insights tell us if employees are
willing to accept change; and second, a cultural assessment is likely to determine the root cause
of the problems that impede stronger performance. This awareness and understanding will
reduce the barriers brought on by change and the people affected by it. A cultural analysis can:

 Provide a snapshot in time of the major beliefs and values of the organization that
influence communication practices, interactions and required skills
 Reveal the unseen communication practices, such as important rituals and routines or
ways power is exercised for ethical or unethical purposes
 Provide insight for new job orientation and job promotion practices
 Assist the change management process by uncovering cultural strengths and potential
problem areas

Cultural analysis is gaining importance to support today’s digital evolution. When borrowing
practices from Agile and DevOps (or more specifically, Business Development Operations
(BusDevOps)), it can help the organization transform and manage change more effectively.
Both Agile and BusDevOps play a significant role in an organization’s change initiative. While
Agile helps improve a major IT function (i.e., delivering software), DevOps helps improve the
interaction and flow across the length of the IT function’s lifecycle. Research has shown that the
largest element requiring adjustment during an organization’s digital change is predominately the
development of talent and skills to support the digital environment. When employees have the
skills required to act in a new way, they are more inclined to embrace the desired changes, both
in mindset and behavior. Understanding the variances within the “as-is” and “to-be” capabilities
helps establish the gap analysis and mitigation plans to ensure that the people affected by the
change are fully supportive of the new digital environment.
So, how does an organization evolve from the “as-is” to the “to-be” state? There are two ways.

 First, the creation or amendment of the formal levers of change, including leadership
policies, role definitions, and people interactions, which address the processes and
structures that support digitization. This activity organizes the introduction of new digital
channels into traditional operation models; and
 Second, the informal levers that include key behaviors, role models, and networks, which
help employees think, feel, and behave in new ways.

Using these formal and informal levers in an integrated fashion can help people adapt to new
ways of doing business, and enable companies to deliver the multi-model channel of digitization
customers want.
From a cultural perspective, training is important to ensure team members have the skills
necessary for managing and using the new digital technologies. But training is not the only
cultural dimension that should be considered. A few ways to enable cultural change to support
digitization include:

 Matching strategy and culture: Too often a company’s strategy, imposed by the
leadership, is at odds with the ingrained practices and attitudes of its culture. Executives
may underestimate how much an organization strategy’s effectiveness depends on
cultural alignment. Culture trumps strategy every time. Understanding the organization’s
strategy, mission and goals, (and how the employees play their part in supporting the
goals), promotes inclusion, value and support.
 Focusing on a few critical shifts in behavior: Trying to “boil the ocean” is a fruitless
effort. Identifying which cultural shifts are essential in support of the digital footprint is
key, and listening to the employees both from the formal and informal communication
channels can provide additional mechanisms for change.
 Measuring and monitoring: Like any change, it is important to measure and evaluate how
your cultural changes are progressing. Dynamic KPI’s allow executives to see how
change is progressing and if required, when to present more rigor to redirect the effort to
support the success of the changes.

In any major change initiative, the management and people affected by the transition need to
evaluate, and profit from the strong cultural attributes of their company to build momentum and
create lasting change. Companies that are able to do so, establish a “culture led” approach to
change and substantially increase the agility, success, and sustainability of their transformation
initiatives.

− Hofstede’s Cultural Dimensions Theory

Hofstede’s Cultural Dimensions Theory, developed by Geert Hofstede, is a framework used to
understand the differences in culture across countries and to discern the ways that business is
done across different cultures. In other words, the framework is used to distinguish between
different national cultures, the dimensions of culture, and assess their impact on a business
setting.

Hofstede’s Cultural Dimensions Theory was created in 1980 by Dutch management

researcher, Geert Hofstede. The aim of the study was to determine the dimensions in which
cultures vary.

Hofstede identified six categories that define culture:

1. Power Distance Index

2. Collectivism vs. Individualism
3. Uncertainty Avoidance Index
4. Femininity vs. Masculinity
5. Short-Term vs. Long-Term Orientation
6. Restraint vs. Indulgence

a) Power Distance Index

The power distance index considers the extent to which inequality and power are tolerated. In
this dimension, inequality and power are viewed from the viewpoint of the followers – the lower
level.

 High power distance index indicates that a culture accepts inequity and power
differences, encourages bureaucracy, and shows high respect for rank and authority.
 Low power distance index indicates that a culture encourages organizational
structures that are flat and feature decentralized decision-making responsibility,
participative style of management, and place emphasis on power distribution.
b) Individualism vs. Collectivism

The individualism vs. collectivism dimension considers the degree to which societies are
integrated into groups and their perceived obligations and dependence on groups.

 Individualism indicates that there is a greater importance placed on attaining personal

goals. A person’s self-image in this category is defined as “I.”
 Collectivism indicates that there is a greater importance placed on the goals and well-
being of the group. A person’s self-image in this category is defined as “We”.
c) Uncertainty Avoidance Index

The uncertainty avoidance index considers the extent to which uncertainty and ambiguity are
tolerated. This dimension considers how unknown situations and unexpected events are dealt
with.
  A high uncertainty avoidance index indicates a low tolerance for uncertainty, ambiguity,
and risk-taking. The unknown is minimized through strict rules, regulations, etc.
 A low uncertainty avoidance index indicates a high tolerance for uncertainty, ambiguity,
and risk-taking. The unknown is more openly accepted, and there are lax rules,
regulations, etc.
d) Masculinity vs. Femininity

The masculinity vs. femininity dimension is also referred to as “tough vs. tender,” and considers
the preference of society for achievement, attitude towards sexuality equality, behavior, etc.

 Masculinity comes with the following characteristics: distinct gender roles, assertive, and
concentrated on material achievements and wealth-building.
 Femininity comes with the following characteristics: fluid gender roles, modest,
nurturing, and concerned with the quality of life.
e) Long-Term Orientation vs. Short-Term Orientation

The long-term orientation vs. short-term orientation dimension considers the extent to which
society views its time horizon.

 Long-term orientation shows focus on the future and involves delaying short-term
success or gratification in order to achieve long-term success. Long-term orientation
emphasizes persistence, perseverance, and long-term growth.
 Short-term orientation shows focus on the near future, involves delivering short-term
success or gratification, and places a stronger emphasis on the present than the future.
Short-term orientation emphasizes quick results and respect for tradition.
f) Indulgence vs. Restraint

The indulgence vs. restraint dimension considers the extent and tendency for a society to fulfill
its desires. In other words, this dimension revolves around how societies can control their
impulses and desires.

 Indulgence indicates that a society allows relatively free gratification related to enjoying
life and having fun.
 Restraint indicates that a society suppresses gratification of needs and regulates it through
social norms.
g) Country Comparisons: Hofstede Insights

Hofstede Insights is a great resource to understand the impact of culture on work and life. It can
be accessed here to understand how the different dimensions differ among countries under the
Hofstede’s Cultural Dimensions Theory.
 CHAPTER 3
STRATEGY LEVELS AND INTENT
Strategic intent is the term used to describe the aspirational plans, overarching purpose or
intended direction of travel needed to reach an organizational vision.

Beneficial change results from the strategic intent, ambitions and needs of an organisation.

Strategic intent drives organisations to maintain competitive advantage or seek a new one (i.e.
change). The strategic intent leads to the development of specific change initiatives within a
portfolio structure. Specific initiatives, aligned to the strategic intent, are selected on the basis of
available capabilities and resources that can be deployed.

− Corporate strategy
Corporate strategy is a unique plan or framework that is long-term in nature, designed with an
objective to gain a competitive advantage over other market participants while delivering both on
customer/client and stakeholder promises (i.e. shareholder value).
Another, much simpler corporate strategy meaning is to see it as a set of decisions where a
company would place its bets for the future. Given that every organization has a limited amount
of resources, it needs to decide how it will prioritize the use of these resources.

What are the Components of Corporate Strategy?

There are several important components of corporate strategy that leaders of

organizations focus on. The main tasks of corporate strategy are:

1. Allocation of resources
2. Organizational design
3. Portfolio management
4. Strategic tradeoffs
 − Business strategy
− Operational strategy
− Functional strategy
− Vision statement
A vision statement describes the company's purpose, what the company is striving for, and
what it wants to achieve. Most writers of vision statements find that it's a rewarding and
inspiring process. It gives them the chance to articulate the characteristics that influence the
organization's strategy.

Writing a vision statement is part of the strategic vision planning process. It takes planning, time,
and consideration. It’s important for boards of directors to give the process of writing their vision
statements the adequate time because it’s a critical step in building a business. In simple terms, a
vision statement is a written document that describes where an organization is going and what it
will look like when it gets there.

A vision statement can be short or long. The length of the vision statement can be telling about
the company. A vision statement describes the company’s purpose, what the company is striving
for, and what it wants to achieve.

The importance of a vision statement

1. It Aids Decision Making

As a business owner, here is a question that you should ask regularly: do your employees – high-
level to entry-level – use your original concept as a guide for decision-making? Whether it is an
operational decision or a strategic one, your vision should be the go-to source for driving critical
business choices.

If nobody in the company – yourself included – is referring to your original vision, and everyone
is putting forward resolutions for the immediate benefit, then this is the beginnings of a company
that is losing sight of its perspective.

Remember, no matter how inconsequential a decision may be, every measure should assist the
business in obtaining its vision.

2. It Helps Attract and Motivate Talent

In the modern job market, young professionals are no longer guided by just earnings potential;
social responsibility, professional growth and a meaningful role are all driving factors that
business owners and hiring managers have to consider.

Within this context, how then can you attract the right people and, more importantly, keep them?
The answer is motivation, and one of the best ways to motivate employees is by getting them to
invest in your vision, which should be as inspiring to them as it is to you and your investors.
A great vision statement makes this process a lot easier, allowing candidates and employees to
identify immediately that your goals and your vision align with theirs.

3. It Helps to Maintain Focus

In business, there will always be something to test your resolve. From a sudden drop in market
share to a decline in profit margins, things will inevitably happen that will make you second
guess your decisions.

This is where your vision statement is important.

By referring to it, you can prevent the ship from veering off course and heading in an entirely
different direction, thereby preserving your corporate values and remaining loyal to existing
clients who have chosen your brand over others in the same niche. When times get tough, it is
about weathering the storm clouds and ensuring that you don't compromise your original vision
or principles.

4. It Creates a Legacy
If you have ambitions of creating a stable, lasting organisation, then a strong company vision
statement is integral to this.

You might only be a humble startup right now, comprised perhaps of a handful of employees
specialising in accounting, marketing or corporate outreach. Eventually, however, your startup
will transform into an industry juggernaut that has multiple head offices, a global workforce and
a three comma valuation.

Of course, whether you hit such heights or not, the fact remains: the vision of the business should
be designed to outlast you, regardless of if you decide to sell or circumstances dictate that you
step aside. That can only happen if everyone is on board with the original vision of the company.

5. It Prioritises Your Resources

Unless you somehow possess an infinite capital stream, your business is likely to be operating on
limited resources, especially at first. While the likes of Amazon or Apple can inject new
capital freely, most companies do not possess such a luxury.

Was this necessarily your vision in the first place, though? To depend on infinite resources to
advance your corporate objectives? Hardly.

6. It Helps Define Your Company Culture

Employee morale is a significant workplace issue, leading to haemorrhaging productivity levels
and low job satisfaction across the developed globe. There are several reasons to understand why
turnover rates are climbing, but one way to assess the situation is to put a spotlight on
your internal company culture.

7. It Instills Strategic Leadership

Every business owner has their own unique leadership style; from the democratic approach to
ruling with an iron fist, different companies benefit from different management techniques.

Therefore, to fully understand how you will manage your team, you need to look to the founding
prescience. Is your company's vision to master the art of customer service? Then perhaps it is a
mixture of transformational and democratic. Is the culture to maximise profits by any means
necessary? Then maybe the leadership definition is a blend of autocratic and coaching.

Regardless of your goals, management strategies – old or new – always need to consider the
vision statement.

− Mission statement
A mission statement is a summary of an organization's goals and values. The quality and content of a
company's mission statement can affect every part of a business, including its customers and employees.
Employees can benefit from understanding why a mission statement is important in their work and the
overall success of the company they work for.

Companies have mission statements to unify the efforts of all employees toward a long-term goal. Some
departments or teams will develop a more specific mission statement that focuses on their unique
function, but company-wide mission statements must be broad enough that every employee can relate to
their main ideas. Mission statements communicate a company's values to their community to generate
interest in the solutions their company creates.

Nine reasons why a mission statement is important

A mission statement encompasses an entire company or project, so there are several reasons why
a mission statement is important. A mission statement is essential throughout all aspects of a
company, influencing it in these key ways:

 Creating identity
 Attracting talent
 Guiding culture
 Developing purpose
 Improving performance
 Building community
 Envisioning the future
 Aligning behaviors
 Encouraging critical thinking

− Strategic objectives
Companies often create specific and measurable goals for progress. Strategic objectives allow
businesses to plan steps that help make their vision a reality. Understanding what strategic
objectives are and why they're important can help you better take part in and shape these
objectives through your contributions to the workplace. In this article, we explain and give
examples of strategic objectives companies use to meet these goals.

What is a strategic objective?

Strategic objectives are purpose statements that help create an overall vision and set goals and
measurable steps for an organization to help achieve a desired outcome. A strategic objective is
most effective when it is quantifiable either by statistical results or observable data.

Businesses create strategic objectives to further the company vision, align company goals and
drive decisions that impact daily productivity from the highest levels of the organization to all
other employees.

Importance of Strategic Objectives

1. Fulfill a Strategy

While the vision describes the goal, a strategy is the choice of how to reach that goal. A small
business might choose a growth strategy to achieve a goal tied to an increase in market share,
for instance. Objectives, meanwhile, are steps to some particular end. The particular purpose of
strategic objectives, then, is to set targets that, step by step, further the company’s strategy.

2. Deal in the Concrete

Often, a company’s mission and vision have some degree of vagueness. For instance, a
bakery’s mission might declare that the business exists to make high-quality baked goods that
customers demand at every meal. The bakery’s vision might picture becoming the No. 1
breakfast destination in the Southeast. But how? One purpose of strategic objectives is to
ground the lofty in concrete with specific and quantified targets. Our bakery might plan to
open two new locations and increase breakfast profits by 25 percent this year. Concrete
strategic objectives allow everyone to agree on what, exactly, the company must achieve.

3. Guide Goal Setting

While a small-business owner sets strategic objectives, it’s up to those below, operating in
their respective spheres, to realize those objectives. Middle managers concern themselves with
marketplace competition, while at the operational level, front-line managers work with
customers and supply products and services. These middle and operational managers, too, must
set goals and targets. Another purpose of strategic objectives is to serve as a guide when
managers formulate goals. For example, a functional manager might expect employees to
increase sales of a certain product to support a larger goal of profit growth.
4. Create Company Unity

Good strategic objectives -- that is, those that are specific, measurable and have a deadline
attached -- unify the activities of everyone throughout a small business. Employees and
departments don’t work at cross purposes, pursuing their own agendas, but instead work with
the larger picture in mind, all moving in the same direction. Because the goals are specific,
employees and managers can measure progress, reform ineffective practices and provide or
earn incentives. This focuses efforts on achievement -- not only the achievement of strategic
objectives, but eventually, of the vision.

− Statement of corporate values

A value statement shows the “soul” of the company.
A values statement lists the core principles that guide and direct the organization and its
culture. In a values-led organization, the values create a moral compass for the organization and
its employees. It guides decision-making and establishes a standard against which actions can be
assessed.

The value statement should show what the company believes in. It’s the backbone which
can be referred back to as context for what to do next, how to act, and so on. Think of it as
a set of guidelines which demonstrate the “soul” of the company to whoever reads it.

1. It Simplifies Decision-Making

By getting your priorities straight from the get-go, future decisions can be based on which option
benefits your core values the most. In other words, a value statement creates a template for future
decision-making, allowing you to save time and focus more on developing strategies.

2. It Diminishes the Fear of Failure

The amount of money made is often used as the measure of success in an endeavor. But if every
decision you make aligns with your value statement, then every outcome can be just as
rewarding – knowing that it brought you closer to fulfilling your company’s purpose.

3. It Motivates Employees

The low employee engagement rate is a lingering issue in workplaces worldwide. According to
statistics, only 29% of the U.S. workforce are fully engaged and committed to their organization.
This is mainly because paychecks become their sole motivators in companies that lack a concrete
value statement. But if they know they’re contributing to a bigger cause, then not only will they
work harder, they’ll also feel more connected with the company culture.
 4. It Fosters Customer Loyalty
Surveys reveal that 34% of consumers will spread the word about a brand that is fair, honest, or
pursues ethical actions. 48% says that a company’s ethics is determined by employee treatment.
By creating a value statement that resonates with both your employees and your target audience,
you will surely win their trust and loyalty
 CHAPTER 4
STRATEGIC MANAGEMENT PROCESS

− Steps in the strategic management process

The strategic management process means defining the organization’s strategy. It is also defined
as the process by which managers make a choice of a set of strategies for the organization that
will enable it to achieve better performance.

Strategic management is a continuous process that appraises the business and industries in which
the organization is involved; appraises it’s competitors; and fixes goals to meet all the present
and future competitor’s and then reassesses each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing the
internal and external factors influencing an organization. After executing the
environmental analysis process, management should evaluate it on a continuous basis and
strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of
action for accomplishing organizational objectives and hence achieving organizational
purpose. After conducting environment scanning, managers formulate corporate, business
and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s structure, distributing resources,
developing decision making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management
process. The key strategy evaluation activities are: appraising internal and external
factors that are the root of present strategies, measuring performance, and taking remedial
/ corrective actions. Evaluation makes sure that the organizational strategy as well as it’s
implementation meets the organizational objectives.

These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic
management plan will revert to these steps as per the situation’s requirement, so as to make
essential changes.
 Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each component
interacts with the other components and that this interaction often happens in chorus.

− Strategic management in different contexts

Although all businesses share common fundamental principles, they can also differ in many ways,
such as the following:
 private companies have objectives such as making a profit or increasing their market share;
 public-sector organizations may exist to provide a service;
 a not-for-profit organisation, such as a club, exists to provide facilities and entertainment for
its members.
Likewise, there are differences between organizations in terms of their strategies.

Small Businesses
These are likely to have a limited range in terms both of their markets, and their range of products or
services. This will tend to limit their strategic issues, with a major consideration being that of
competitiveness and of trying to expand. Obviously small businesses have fewer resources than their
larger counterparts. Perhaps somewhat surprisingly this means that, if anything, the importance of
applying the basic elements of strategic management effectively is even more important. The small
business organisation simply cannot afford to make strategic mistakes. Despite this, however, the
smaller business is likely to have fewer specialist managers and particularly will often lack skills and
expertise in some of the areas required for effective strategic management. So, for exa ple, the
smaller business will often find it difficult to prepare accurate forecasts or to conduct specialist
marketing research. Because of this, the smaller business will often need to turn to outside help and
consultancies for some of their strategic management skills. Planning in the smaller business is often
less formal than in its larger counterparts, but is often easier to communicate throughout the
organisation. Often strategic management will be done by one person, the owner/manager.
A smaller business is limited in the ways it can compete: for example, it would not normally be able
to compete on cost leadership. Because of this, the small business is likely to concentrate on using
the advantages which accrue from its small size such as personal service, flexibility, etc.

The small business is likely to find it more difficult to raise finance and so growth is sometimes
difficult to achieve. For the same reason, the smaller business may find it difficult to pursue growth
through new product development. Finally, in the small business the character, skills and vision of its
owners are likely to be much more significant in business success or failure than in larger
organizations.
Multinational Companies
By their nature these are complex organizations and, unlike small businesses, their strategies will be
linked to the control of a range of businesses or divisions spread across a number of different
countries, thus adding complications due to financial and language differences, as well as differences
of culture. Strategic management in these circumstances will be the concern of a large number of
managers, whose day-to-day decisions must be within the overall strategy of the company. The
control of a wide range of business centers which are widely spread geographically
means that the necessary control systems, whether centralised or decentralised, must be very
sophisticated. The often widespread geographical coverage of such organisations also heightens the
importance of the cultural and political elements of the environment which therefore become
especially important in the planning process. Crucial to such organisations are the issues of
centralisation versus decentralisation in structure and planning systems, together with the related
issue of global versus local strategies.
Finally, the allocation of resources between different parts of the business is extremely important, but
also potentially complex. Great care must be taken in such organisations to balance the business
portfolio.

Manufacturing and Service Organizations

These differ in important ways, reflecting their differing objectives.
In the case of the manufacturer, it is the quality of the product which creates the company's
competitiveness and, therefore, its strategy will be closely linked to the product.
In the case of service provision, the competitiveness of one organisation with respect to its rivals will
depend on less obvious aspects, such as the public's perception of the company, based on publicity
and image-marketing strategies as, for instance, in getting the strength of a particular insurance
company around you.
Thus those at the sharp end of the service provider will be more likely to be in control of company
strategy, whereas it is those at senior levels in manufacturing companies who will have the greater
influence.
Service products have a number of characteristics which give rise to special considerations for
strategic management in service organisations. Service products are essentially intangible, which
means they cannot be touched or stored; and they are "inseparable", in that the service provider is
inevitably present when the service is consumed. These characteristics mean that the following are
key issues in the strategic management of service providers:
 the difficulty of differentiating service products to gain a strategic competitive advantage.
 The importance of synchronizing demand and supply.
 The importance of supplier reputation and hence word-of-mouth in customer choice.
 With service products we need to consider an extended marketing mix, with the three
additional elements of "process", "physical evidence" and "people".

Voluntary and Not-For-Profit Organizations

This class includes charities, foundations, clubs, learned societies, trade associations, professional
bodies, etc. Although they do not exist to make a profit, many of these organisations end the year
with a surplus of income over expenditure from their trading activities. They will also have income
from membership fees, donations and bequests. Where they differ financially from commercial
organisations is that they apply their income and surpluses to furthering the purpose of the club,
society or charity and not to paying dividends to shareholders.
 Because of their dependence on funding from sponsors rather than clients, it is easy for the
efforts of not-for-profit organisations to be concentrated on lobbying for resources, which makes it
difficult for them to have a clear strategic plan.
 In the case of voluntary organisations, their basis for existence is deeply rooted in particular
shared values and these have an important influence on the development of strategy.

Innovatory Organizations
Companies such as Hewlett-Packard have a strategy which encourages employees to develop new
ideas in order to keep their business at the cutting edge of the computer sector in which they operate.
Hewlett-Packard's way of doing this is to set aside work time each day specifically for the purpose of
allowing their employees to pursue such activities. This is not a new concept in business, since the
General Electric Company (GEC) were concerned with the same strategy 30 years previously. GEC
used the ability of the company to meet customer needs at minimum costs for developing,
manufacturing and marketing new products. The company – or an integrated segment of it –
exploited new scientific and technical knowledge, in manufacturing and marketing as well as
engineering, to lead competition in aggressively applying such knowledge in the creation and
marketing of new products. To do this they took account, not only of innovation, but also of the
ability to capitalize on new ideas at the right time and at a cost, and the quality required, that would
appeal to the customer and make the new product successful.

Professional Service Organizations

Services such as medical, accountancy and the law still see traditionally-based values as an important
part of their enterprises. Often these organizations take the form of partnerships, which consist of two
or more persons carrying on a business together. This form of organisation appeals to professional
people, since they can retain a large amount of individual freedom of action and maintain their
personal relationship with clients, whilst gaining the advantages of larger amounts of capital and of
expertise than would be available to individuals. In terms of strategic management in such an
arrangement, the main difficulties arise where differences of opinion have to be resolved in order to
pursue an agreed policy. In view of recent changes for medical partnerships, with the advent of
budget holders and the development of large medical centers, professional service organizations in
future are likely to find themselves becoming more competitive and having to adopt strategies similar
to those of profit-making organizations.

Public-Sector Organizations
It is important to recognize that the public sector comprises a very diverse set of business
organizations. In fact, it has a number of sub-sectors, including regulatory bodies, local authorities,
social and health services, education providers, some trading companies, advice services, police and
defense, and many others. Each of these sub-sectors to some extent has its own special characteristics
with regard to strategic management. However, recognizing this, it is possible to point to some of the
distinct factors affecting strategic management in the public-sector organisation. Perhaps the most
significant is the influence of political considerations in the development of and constraints on
strategic plans. Compared to the private sector public-sector organizations are very much more
accountable for their decisions to outside parties and, indeed, to the public in general. Decisions by
managers in such organizations will often be taken in the context of such political/regulatory
requirements: for example, a requirement to buy from domestic suppliers. Many public- sector bodies
operate within laws and regulations designed to prevent corruption and favoritism, which entail very
formal and bureaucratic structures and procedures which can be resistant to change.
 − Uncertainty and strategic drift
Each organization in a certain moment of its development is faced in front of a crisis. It is a
situation, in which a physical person, a group, or an organization, is not capable of coping with
the usage of normal routine procedures. Or in practice, the crisis is a change—sudden or
permanent—which originates an urgent problem and requires an immediate intervention for its
solution.

Strategic Uncertainty is defined as the Situation where the current state of knowledge is such
that (1) the order or nature of things is unknown, (2) the consequences, extent, or magnitude of
circumstances, conditions, or events is unpredictable, and (3) credible probabilities to possible
outcomes cannot be assigned.

Strategic drift can be defined as a gradual deterioration of competitive action that results in the
failure of an organization to acknowledge and respond to changes in the business environment.
Drift is a reflection of a static outlook, which over time becomes more distant from the reality of
shifting conditions in the economy, technology and consumer demand. The consequence of
strategic drift is a decline in competitive advantage through managerial inertia, an increase in
operating costs and the decline of innovation and market adaptability.
Symptoms of strategic drift

It is problematic for executives to recognize strategic drift from inside the organization. Internal
culture and cognitive inertia will impair judgment and the ability to detect behavior that is
disharmonious with the external environment.

What indicators or what symptoms does the executive team need to monitor to diagnose the need
to change? There are a set of symptoms that can be monitored to alert the organization. Strategic
drift is likely to set in when the following internal and external conditions are observed over an
extended period of time, (typically measured over a number of years):

 Homogeneous mind set at managerial and board levels. Whilst homogenization creates a
common culture and more harmony within the organization, it impedes the strategist’s
ability to recognize and adapt to external changes in technology, the economy, society or
the regulatory environment.
 Preservation of the status quo sets in with a tendency to resist changes within the value
chain, to keep matters as they are and to discourage innovation in:
 Organizational structure and human resources
 Technology adoption
 Product innovation
 Procurement policies
 Supply chain management
  Internal operations
 Distribution methods
 Marketing and sales
 Customer relationship management

Preservation of the status quo leads to resistance to change or resistance to any form of
improvement. In this situation, managers veer towards a defensive strategy that is more
concerned with reducing the risk of loss than increasing the chance of gaining competitive
advantage. Strategy would focus more on cost reduction as a means of remaining competitive,
rather than developing product attributes and added value. Marketing strategy becomes product
or process oriented (selling what we make) rather that customer oriented (developing products
that customers want). A product and process orientation has inherent strategic risks. Not only
does it ignore the needs of the consumer, it also removes the organization’s focus on where the
market is going and what products will be in high demand in future.

 Lack of focus on the external environment. The behavior is symptomatic of companies

that have enjoyed the benefits of monopolistic or oligopolistic market structures. An
internal focus can be costly as was evident in the case of Microsoft and the international
regulatory environment.

Causes of strategic drift

We have seen that a homogenous mind set, preservation of the status quo, internal focus, and a
decline in performance are the main symptoms of strategic drift. The causes of strategic drift are
found in the characteristics of cognitive mapping and organizational culture.

 Cognitive mapping

Cognitive mapping is created through the mental images and concepts that are built to visualize
and assimilate information. Cognitive maps are also referred to as mental maps, mind maps,
schemata and frames of reference. Top management takes decisions based on the mental maps it
has constructed for its industry, which in turn has direct effects on strategy reformulation and
subsequent industry structure. Strategic decisions are based on intuitive and cognitive constructs
of managers’ cognition.

Cognitive maps are built on both intuitive and logical thinking. When strategists develop
cognitive assumptions, they are often limited by intuitive thinking. Economists and
organizational theorist describe the limitation of intuitive thinking as bounded rationality – a
rationality that is constrained by partial information, past experience or personal bias. Managers
tend to find solutions that have worked in the past and that are satisfactory rather than optimal. In
other situations, logical thinking may become activated and analytical thinking that weighs all
the options intervenes. There are interesting overlaps and interactions between intuitive iterative
thinking and rational incremental thinking.

The process gives rise to agreement and disagreement that is often the basis of negotiating
different cognitive maps developed by various groups of industry participants. Research on
cognition in industry shows that there is a difference between what has traditionally been defined
as an objective environment and how top management perceives the world around them. The
difference gives rise to lack of awareness of shifting environments and the eventual drift from
the strategic action required to remain competitive.

 Culture

Strategic drift is a reflection of a culture of conservatism in strategic thinking and perception. In

some cases it is not merely an inability to recognize that the context is changing but a mental
disposition to not even think about it.

Strategic drift iZ likely to occur when cognitive processes and managerial assumptions are
unable to acknowledge or to shift with changes in the external environment. The strategic
decisions made within an organization are framed by culture, which in turn develops around
organizational structure, hierarchy, routines, internal controls, symbols and shared narratives.
The paradigms of managerial assumptions provide the foundation of organization culture and
have a strong influence on decision making.

In mergers and acquisitions, the respective cultures of the parties involved are likely to trap the
new larger organization with incumbent managerial paradigms, which could lead to outdated
assumptions and strategic drift. Incompatible cultures may not be the downfall of mergers. It is
the inefficient integration and development of the incumbent cultures which may cause strategic
inadequacies. In the early days of integration, much attention is given to drawing synergies
through cost reduction at the expense of developing new strategies. The leading party in a merger
tends to force its managerial culture and mode of operation on the target organization. Managers
assume that the methods deployed to run the original organization will function equally well in
creating a new strategy involving new corporate partners. The misplaced paradigm often leads to
the inefficient distribution of physical resources and tacit capabilities and eventually leads to
strategic drift.

Avoiding strategic drift

Avoiding strategic drift requires a disciplined approach to implementing the strategic plan and a
degree of flexibility and maneuverability to adapt the plan to changing needs. Aligning an
organization’s strategy with incremental and radical changes in the industry landscape requires a
methodical approach.

There are three main approaches of avoiding drift: developing an early warning system,
developing strategic resilience and encouraging organizational flexibility. The following
activities will help prevent the wearing out of an organization’s strategy and provide a constant
check on the compatibility of internal strategy making and external variables:

1. Encourage diverse perspectives. Encourage diversity in managerial culture, skills and

perspectives to avoid the buildup of a homogenous mind set.
 2. Champion innovation. Reward and incentivize initiatives that bring about positive
change in the organization’s processes and discourage managerial behavior that is
intolerant of innovation.
3. Promote an external focus. Encourage a focus on the external environment of evolving
technology, consumption patterns and industry competition. This can be done through a
coordinated flow of information for decision makers and influencers within the
organization.
4. Industry benchmarking and market research can be used to challenge prevailing
assumptions on the best way to enact strategy. Benchmarking at the level of the products,
processes and markets would bring to light new trends and practices. Data collection
should include environmental indicators such as economic variables, sector growth and
weak signals of new ideas, products, inventions and innovations that have not yet become
trends, but are likely to have an impact on the organization in the future.
5. Monitor performance in terms of both market and financial indicators. A decline in
market share is a clear signal that the company strategy is misaligned with external
realities and not cognizant of the opportunities for growth.

The activities implemented to detect and detract from strategic drift encourage the view of
strategy as an evolving process. Sustaining business performance is based on the dynamic
capacity to generate new strategies and business models as economies, industries and markets
evolve.

− Limitations of strategic management

Strategic management involves long-term plans and objectives that allow a company to
leverage capabilities, increase opportunities, and achieve competitive advantage. Although
there are many advantages to strategic management, such as reducing the resistance to change
and promoting collaboration, there are also disadvantages. The strategic management process
is complex, time consuming, and difficult to implement; it requires skillful planning in order to
avoid pitfalls.
 A Complex Process

Strategic management involves continuous assessments of critical components, such as

external and internal environments, short-term and long-term objectives, organizational
structure, and strategic control. These components are interrelated, so a change in one
component may affect other areas.

For example, in an economic downturn, a company may need to reduce its workforce. The
external factor, which is the poor economy, changes the internal environment, which is the
number of people employed. Then, a company may need to review objectives and make
necessary adjustments. All of these factors ultimately influence a company’s management,
leadership and structural systems, which have a bearing on decision-making.
  Time Consuming

Managers spend a great deal of time preparing, researching and communicating the strategic
management process, which may impede day-to-day operations and negatively impact the
business. For example, managers may overlook daily issues needing resolution, and
inadvertently cause a decrease in employee productivity and short-term sales. When issues are
not resolved in a timely manner, higher employee turnover can result. This could force a
company to redirect critical resources, putting strategic management initiatives on a sidetrack.

 Difficult to Implement

The implementation process requires a clearly communicated plan, implemented in a way that
requires full attention, active participation, and accountability of not only company leaders, but
also of all members across the organization. Managers must continuously develop and improve
synergies among employees to ensure buy-in and to garner support for the company’s
objectives and mission. There are instances where this can become particularly challenging.
For example, if a manager was involved in the strategic formulation process, but not equally
involved in the implementation process, he in turn may not feel accountable for decisions
made.

 Requires Skillful Planning

Although strategic plans help reduce uncertainty in meeting long-term objectives, the planning
process itself provides opportunities for missteps. An organization needs to anticipate the
future, which involves various degrees of change as well as risks. In order to avoid pitfalls,
managers need to have the right skill sets to plan the strategy and mitigate risk factors. For
example, managers should monitor as well as develop business contingency plans to address
possible future changes in the external environment, such as market conditions, competitive
forces, and economic factors that may negatively affect the business.

 Other Companies Strategize Too

Michael Porter, the guy who literally wrote the book on strategy and who created the
framework that many companies still use today, strongly advocated that strategy does not
equal operational effectiveness. His term “operational effectiveness” is defined as
“performing similar activities better than rivals perform them.” How the company performs
comes down to several factors, like the technology and resources they have for completing
their work, the humans who are tasked with getting it done and the leaders who have the
responsibility to get everyone across the finish line.

The difference-maker is when companies can look at their competitors and find a way to make
themselves stand out. Instead of simply offering similar products or services, companies
need to offer something that the others do not. They need to add better value, make their
product unique, offer higher-quality service or do whatever else it takes to win. Unfortunately,
too many companies are too focused on what they are doing to be paying attention to what the
others are doing — or vice-versa, and that is a recipe for failure.
  Foresight and the Future

Data makes no promises. Numbers, market forecasts, expectations — these are all best-guess
scenarios and they all rely on having favorable winds blowing in one’s direction. The trouble
with data and research, too, is that it can often be flawed or limited in all kinds of ways,
especially when it reflects the market and a company’s competition.

Having great data and spot-on research can often be a costly endeavor and maintaining
such data to ensure it stays accurate can mean allocating valuable human resources to stay on
top of said data. But the costs are high enough to be prohibitive to keep them current, which
can often mean that companies can make future decisions based on obsolete data, and that is
a problem.

The idea of being data-savvy and knowing the numbers around not only your operations but
the external market and your competitors is not a bad thing — it is a great initiative. It is just
that the realities do not always mesh with ideals, and when that is the case, you need smart a
management team who knows how to duck and jump when the day-to-day is not matching with
what data has foretold.
 CHAPTER 5

STRATEGIC ANALYSIS: THE EXTERNAL ENVIRONMENT

− Policy and administrative framework

What is Policy Framework
It is a document that sets out a set of procedures and process on records management.
A policy framework is a logical structure that is established to organize policy documentation
into groupings and categories. It provides a set of principles and long-term goals that form
the basis of making rules and guidelines, and to give overall direction to planning and
development of the organization.

The strategic management framework provides a detailed overview of the strategy process
adopted by many organizations.

This framework separates the strategy process into three high level activities: defining vision and
mission, formulating strategy and implementing strategy.

Stage 1: Vision and Purpose (or Mission)

As with the VMOSA framework, the first activity that needs to be completed when following the
Strategic Management Framework is the creation of an organizational vision and mission.

The organization’s vision and mission then go on to be a constant point of reference throughout
the remainder of the organization’s strategy process.
Stage 2: Strategy Formulation
The second stage of this framework takes an organization through the process of formulating a
strategy. This is done in several sub-stages.

Analysis
The first part of strategy formulation is analysis of the current state. It’s impossible to decide on
and create a strategy if you don’t understand the lay of the land, so analyzing a wide range of
factors is the first stage of the strategic process.

At this stage organizations consider and analyze a range of factors including: the wider economy,
their industry and their own specific capabilities, strengths and weaknesses. There are a wide
range of strategic analysis tools that can help with this stage of thinking.

Analysis might mean a lot of time doing research…

Strategy Formation
Once an organization understands the current state and has a detailed analysis of their
environment, their industry and themselves, they can start to look forward and consider the
opportunities and threats that they may face.

With this combined understanding of the current state and some future analysis, it becomes time
to start thinking about what specifically the organization will do. At this stage, the organization
starts to focus on how it will compete in its chosen market place or environment.

In essence, these activities are the creation of the organization’s strategy.

Goal Setting
The last part of the strategy formulation stage of the Strategic Management Framework is to
create goals and targets relating to the organizations defined strategy. It’s great to know what
you’re going to do at a high level, but for your strategy to be useful it needs to include specific
detail to manage towards. To help with this, many organizations use Balanced Scorecards.

− Political environment
Political-legal forces include the outcomes of elections, legislation, and court judgments, as well
as the decisions rendered by various commissions and agencies. The political sector of the
environment presents actual and potential restriction on the way an organization operates.

Among the most important government actions are: regulation, taxation, expenditure, takeover
(creating a crown corporation, and privatization. The differences among local, national, and
international subsectors of the political environment are often quite dramatic. Political instability
in some areas makes the very form of government subject to revolutionary changes.
In addition the basic system of government and the laws the system promulgates, the political
environment might include such issues as monitoring government policy toward income tax,
relative influence of unions, and policies concerning utilization of natural resources.

Political activity may also have a significant impact on three additional governmental functions
influencing a firm's external environment:

* Supplier function. Government decisions regarding creation and accessibility of private

businesses to government-owned natural resources and national stockpiles of agricultural
products will profoundly affect the viability of some firm's strategies.

* Customer function. Government demand for products and services can create, sustain, enhance,
or eliminate many market opportunities.

* Competitor function. The government can operate as an almost unbeatable competitor in the
marketplace. Therefore, knowledge of government strategies can help a firm to avoid
unfavorable confrontation with government as a competitor.

In general, the impact of government is far-reaching and increasing.

− Economic environment
Economic forces refer to the nature and direction of the economy in which business operates.
Economic factors have a tremendous impact on business firms. The general state of the economy
(e.g., depression, recession, recovery, or prosperity), interest rate, stage of the economic cycle,
balance of payments, monetary policy, fiscal policy, are key variables in corporate investment,
employment, and pricing decisions.

The impact of growth or decline in gross national product and increases or decreases in interest
rates, inflation, and the value of the dollar are considered as prime examples of significant
impact on business operations.

To asses the local situation, an organization might seek information concerning the economic
base and future of the region and the effects of this outlook on wage rates, disposable income,
unemployment, and the transportation and commercial base. The state of world economy is most
critical for organizations operating in such areas.
− Sociocultural environment
The sociocultural environment of a business is customs and value, which directs business
practices. It is created by the demographic characteristics of its leaders as well as their leaders.
This can be evident in the company’s vision and mission statement. The value of a company is
reflected in its Sociocultural environment policies. For example, a company with a strong
family-focused culture will provide more employee benefits-focused on this value. This
company can offer flex-time, maternity leave, and daycare services or discounts for both its
employees, flex-time, both father and mother.

The business environment of the business market also influences the company’s business
practices. For example, when McDonald’s started opening stores in India, then he had to keep in
mind the sociocultural environment because most of his new customers did not eat beef and had
many vegetarians. So they had to consider menu changes to meet the needs of their new
customer base.

− Technological environment

Technological forces influence organizations in several ways. A technological innovation can

have a sudden and dramatic effect on the environment of a firm. First, technological
developments can significantly alter the demand for an organization's or industry's products or
services.

Technological change can decimate existing businesses and even entire industries, since its shifts
demand from one product to another. Moreover, changes in technology can affect a firm's
operations as well its products and services.

These changes might affect processing methods, raw materials, and service delivery. In
international business, one country's use of new technological developments can make another
country's products overpriced and noncompetitive. In general,

Technological trends include not only the glamorous invention that revolutionizes our lives,
but also the gradual painstaking improvements in methods, in materials, in design, in
application, unemployment, and the transportation and commercial base. They diffusion
into new industries and efficiency" (John Argenti).

The rate of technological change varies considerably from one industry to another. In electronics,
for example change is rapid and constant, but in furniture manufacturing, change is slower and
more gradual.

Changing technology can offer major opportunities for improving goal achievements or threaten
the existence of the firm. Therefore, "the key concerns in the technological environment involve
building the organizational capability to (1) forecast and identify relevant developments - both
within and beyond the industry, (2) assess the impact of these developments on existing
operations, and (3) define opportunities" .

These capabilities should result in the creation of a technological strategy. Technological

strategy deals with "choices in technology, product design and development, sources of
technology and R&D management and funding" .
The effect that changing technology can have upon the competition in an industry is also dealt
with other chapters. Technological forecasting can help protect and improve the profitability of
firms in growing industries.

− Ecological environment
For any business to grow and prosper, managers of the business must be able to anticipate,
recognize and deal with change in the internal and external environment. Change is a certainty,
and for this reason business managers must actively engage in a process that identifies change
and modifies business activity to take best advantage of change. That process is strategic
planning.

The following diagram provides examples of factors that are agents of change and need to be
considered in the strategic planning process. Explanation of these factors is found below.

− Legal environment
The current legal allowances or requirements within countries or territories in which an
organization operates. This includes health and safety requirements, labor laws, and consumer
protection laws.

− Key drivers for change

There are seven different catalysts or drivers of organizational change. All seven drivers must be
addressedto accurately scope your change effort and plan its rollout strategy. The relationship bet
ween the drivers is depicted in the model below, followed by their definitions.
Notice that the first four types of drivers are quite familiar to most executives, while the last thre
e are relatively
new areas of attention. Not surprisingly, we consistently find that the problems most organizatio
ns have with
their change efforts come from inadequate attention to these less tangible drivers (culture, leader
and
employee behavior, and leader and employee mindset). This is especially true with transformatio
nal change,
so be sure to pay special attention to these drivers! They are essential to your Case for Change, e
specially in determining the accurate type and scope of your change.
 − Industry and sector analysis

Industry analysis is a market assessment tool used by businesses and analysts to understand the
competitive dynamics of an industry. It helps them get a sense of what is happening in an
industry, e.g., demand-supply statistics, degree of competition within the industry, state of
competition of the industry with other emerging industries, future prospects of the industry
taking into account technological changes, credit system within the industry, and the influence
of external factors on the industry.
Industry analysis, for an entrepreneur or a company, is a method that helps to understand a
company’s position relative to other participants in the industry. It helps them to identify both the
opportunities and threats coming their way and gives them a strong idea of the present and future
scenario of the industry. The key to surviving in this ever-changing business environment is to
understand the differences between yourself and your competitors in the industry and use it to
your full advantage.

Types of industry analysis

There are three commonly used and important methods of performing industry analysis. The
three methods are:

1. Competitive Forces Model (Porter’s 5 Forces)

2. Broad Factors Analysis (PEST Analysis)
3. SWOT Analysis

 Competitive Forces Model (Porter’s 5 Forces)

One of the most famous models ever developed for industry analysis, famously known
as Porter’s 5 Forces, was introduced by Michael Porter in his 1980 book “Competitive Strategy:
Techniques for Analyzing Industries and Competitors.”

According to Porter, analysis of the five forces gives an accurate impression of the industry and
makes analysis easier. In our Corporate & Business Strategy course, we cover these five forces
and an additional force — power of complementary good/service providers.

1. Intensity of industry rivalry

The number of participants in the industry and their respective market shares are a direct
representation of the competitiveness of the industry. These are directly affected by all the
factors mentioned above. Lack of differentiation in products tends to add to the intensity of
competition. High exit costs such as high fixed assets, government restrictions, labor unions, etc.
also make the competitors fight the battle a little harder.

2. Threat of potential entrants

This indicates the ease with which new firms can enter the market of a particular industry. If it is
easy to enter an industry, companies face the constant risk of new competitors. If the entry is
difficult, whichever company enjoys little competitive advantage reaps the benefits for a longer
period. Also, under difficult entry circumstances, companies face a constant set of competitors.

3. Bargaining power of suppliers

This refers to the bargaining power of suppliers. If the industry relies on a small number of
suppliers, they enjoy a considerable amount of bargaining power. This can particularly affect
small businesses because it directly influences the quality and the price of the final product.

4. Bargaining power of buyers

The complete opposite happens when the bargaining power lies with the customers. If
consumers/buyers enjoy market power, they are in a position to negotiate lower prices, better
quality, or additional services and discounts. This is the case in an industry with more
competitors but with a single buyer constituting a large share of the industry’s sales.

5. Threat of substitute goods/services

The industry is always competing with another industry producing a similar substitute product.
Hence, all firms in an industry have potential competitors from other industries. This takes a toll
on their profitability because they are unable to charge exorbitant prices. Substitutes can take two
forms – products with the same function/quality but lesser price, or products of the same price
but of better quality or providing more utility.

2. Broad Factors Analysis (PEST Analysis)

Broad Factors Analysis, also commonly called the PEST Analysis stands for Political,
Economic, Social and Technological. PEST analysis is a useful framework for analyzing the
external environment.

To use PEST as a form of industry analysis, an analyst will analyze each of the 4 components of
the model. These components include:
1. Political

Political factors that impact an industry include specific policies and regulations related to things
like taxes, environmental regulation, tariffs, trade policies, labor laws, ease of doing business,
and overall political stability.

2. Economic

The economic forces that have an impact include inflation, exchange rates (FX), interest rates,
GDP growth rates, conditions in the capital markets (ability to access capital), etc.

3. Social

The social impact on an industry refers to trends among people and includes things such as
population growth, demographics (age, gender, etc.), and trends in behavior such as health,
fashion, and social movements.

4. Technological

The technological aspect of PEST analysis incorporates factors such as advancements and
developments that change the way a business operates and the ways in which people live their
lives (e.g., the advent of the internet).

 SWOT Analysis

SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and Threats. It can be a great
way of summarizing various industry forces and determining their implications for the business
in question.
Importance of Industry Analysis

Industry analysis, as a form of market assessment, is crucial because it helps a business

understand market conditions. It helps them forecast demand and supply and, consequently,
financial returns from the business. It indicates the competitiveness of the industry and costs
associated with entering and exiting the industry. It is very important when planning a small
business. Analysis helps to identify which stage an industry is currently in; whether it is still
growing and there is scope to reap benefits, or has it reached its saturation point.

With a very detailed study of the industry, entrepreneurs can get a stronghold on the operations
of the industry and may discover untapped opportunities. It is also important to understand that
industry analysis is somewhat subjective and does not always guarantee success. It may happen
that incorrect interpretation of data leads entrepreneurs to a wrong path or into making wrong
decisions. Hence, it becomes important to collect data carefully.

− Tools for external analysis

Porter’s five forces
Porter's five forces of competitive position analysis was developed in 1979 by Michael E. Porter
of Harvard Business School as a simple framework for assessing and evaluating the competitive
strength and position of a business organisation.
This theory is based on the concept that there are five forces which determine the competitive
intensity and attractiveness of a market.

Porter’s five forces helps to identify where power lies in a business situation. This is useful both
in understanding the strength of an organisation’s current competitive position, and the strength
of a position that an organisation may look to move into. Strategic analysts often use Porter’s
five forces to understand whether new products or services are potentially profitable. By
understanding where power lies, the theory can also be used to identify areas of strength, to
improve weaknesses and to avoid mistakes.

The five forces are:

i. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is
driven by:
• the number of suppliers of each essential input
• the uniqueness of their product or service
• the relative size and strength of the supplier
• the cost of switching from one supplier to another.

ii. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is
driven by:
• the number of buyers in the market
• the importance of each individual buyer to the organisation
• the cost to the buyer of switching from one supplier to another.
If a business has just a few powerful buyers, they are often able to dictate terms.

iii. Competitive rivalry. The key driver is the number and capability of competitors in the
market. Many competitors, offering undifferentiated products and services, will reduce
market attractiveness.
iv. Threat of substitution. Where close substitute products exist in a market, it increases the
likelihood of customers switching to alternatives in response to price increases. This
reduces both the power of suppliers and the attractiveness of the market.
v. Threat of new entry. Profitable markets attract new entrants, which erodes profitability.
Unless incumbents have strong and durable barriers to entry, for example, patents,
economies of scale, capital requirements or government policies, then profitability will
decline to a competitive rate.
SWOT Analysis
SWOT analysis is one of the most popular strategic analysis models. It involves looking at the
strengths and weaknesses of your business' capabilities, and any opportunities and threats to your
business.

Once you identify these, you can assess how to:

 capitalise on your strengths

 minimise the effects of your weaknesses
 make the most of any opportunities
 reduce the impact of any threats
A SWOT analysis gives you a better insight into your internal and external business
environment. However, it does not always prioritise the results, which can lead to an improper
strategic action.

One way to make better use of the SWOT framework is to consider the customer's perspective
when making strategic plans and decisions. You can do this by applying importance-
performance analysis (IPA) to identify SWOT based on customer satisfaction surveys.
 PESTEL
PESTEL or PESTLE is an abbreviation for Political, Economic, Social, Technological,
Environmental and Legal. By analyzing these 6 categories, the data provided will offer an
overview of the external environment and will serve as a support for the strategic planning
process.
Advantages:

 It offers and overview of the current external environment;

 Analyzes what external forces can influence the company;
 Provides a useful input for SWOT analysis.
Value chain analysis (VCA)
It is a process where a firm identifies its primary and support activities that add value to its
final product and then analyze these activities to reduce costs or increase differentiation.
Value chain represents the internal activities a firm engages in when transforming inputs into
outputs.
Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to
recognize, which activities are the most valuable (i.e. are the source of cost or differentiation
advantage) to the firm and which ones could be improved to provide competitive advantage. In
other words, by looking into internal activities, the analysis reveals where a firm’s competitive
advantages or disadvantages are. The firm that competes through differentiation advantage will
try to perform its activities better than competitors would do. If it competes through cost
advantage, it will try to perform internal activities at lower costs than competitors would do.
When a company is capable of producing goods at lower costs than the market price or to
provide superior products, it earns profits.

M. Porter introduced the generic value chain model in 1985. Value chain represents all the
internal activities a firm engages in to produce goods and services. VC is formed of primary
activities that add value to the final product directly and support activities that add value
indirectly.
Four Corner Analysis

The Four Corners Analysis, developed Michael Porter, is a model well designed to help
company strategists assess a competitor's intent and objectives, and the strengths it is using to
achieve them. It is a useful technique to evaluate competitors and generate insights concerning
likely competitor strategy changes and determine competitor reaction to environmental
changes and industry shifts. By examining a competitor's current strategy, future goals,
assumptions about the market, and core capabilities, the Four Corners Model helps analysts
address four core questions:
 Motivation - What drives the competitor? Look for drivers at various levels and
dimensions so you can gain insights into future goals.
  Current Strategy - What is the competitor doing and what is the competitor capable of
doing?
 Capabilities - What are the strengths and weaknesses of the competitor?
 Management Assumptions - What assumptions are made by the competitor's
management team?

Advantage of Porter's Four Corners Analysis

Porter's Four Corners tool has been around for a long time and it's earned a place for itself as a
useful and respected management tool. The real advantage of this approach is:
 Try to get inside the mind of the opposition
 Explore the beliefs and assumptions of your competitors.
 Use past behavior to predict future action, but actively tries to see if there is likely to be
a shift in their strategy.
 − Competitor Analysis
A competitive analysis is a strategy where you identify major competitors and research their
products, sales, and marketing strategies. By doing this, you can create solid business strategies
that improve upon your competitor's.

A competitive analysis can help you learn the ins and outs of how your competition works, and
identify potential opportunities where you can out-perform them.

It also enables you to stay atop of industry trends and ensure your product is consistently meeting
— and exceeding — industry standards.

Let's dive into a few more benefits of conducting competitive analyses:

 Helps you identify your product's unique value proposition and what makes your
product different from competitors', which can inform future marketing efforts.
 Enables you to identify what your competitor is doing right. This information is critical
for staying relevant and ensuring both your product and your marketing campaigns are
outperforming industry standards.

 Tells you where your competitors are falling short — which helps you identify areas of
opportunities in the marketplace, and test out new, unique marketing strategies they haven't taken
advantage of.

 Learn through customer reviews what's missing in a competitor's product, and consider
how you might add features to your own product to meet those needs.

 Provides you with a benchmark against which you can measure your own growth.
 CHAPTER 6
Strategic Analysis: The Internal Environment
In internal analysis examines an organization’s internal environment to assess its resources,
assets, characteristics, competencies, capabilities, and competitive advantages. In short, it allows
you to identify your organization's strengths and weaknesses, which can help management
during the decision-making, strategy formulation, and execution processes.

This article will look at why an internal analysis is a key ingredient in any effective strategy and
provide insight into the tools you can use to conduct one yourself.

We'll cover:

 Gap Analysis
 Strategy Evaluation
 SWOT Analysis
 VRIO Analysis
 OCAT
 McKinsey 7S Framework
 Core Competencies Analysis

An internal analysis will highlight an organization's internal strengths and weaknesses in relation
to its competencies, resources, and competitive advantages. Once complete, the organization
should have a clear idea of where it's excelling, where it's doing okay, and where its currents
deficits and gaps are. The analysis will arm management with the knowledge to make full use of
its strengths, expertise, and opportunities. It also allows management to develop strategies to
mitigate any threats and compensate for identified weaknesses and disadvantages.

Suppose you wait to begin your strategy formulation until after you've completed your analysis.
In that case, you will ensure your strategic plan has been formulated to take advantage of your
strengths and opportunities as well as to offset or improve weaknesses and reduce threats, such
as those from rivals and competitors. Your organization can then be confident that you're
funneling your resources, time, human capital, and focus effectively and efficiently.
Internal Analysis Tools

Before undertaking an internal analysis, you'll need to decide which tools you'd like to use to
conduct the analysis. Many tools and frameworks exist and each is valuable for a certain
purpose. To help you choose the right tool, we've compiled a list of some popular and effective
internal analysis tools with a description of what each of them will help you achieve.

GAP Analysis

GAP analysis is an internal evaluation tool that allows organizations to identify performance
deficiencies. A GAP analysis helps you compare your current state to your desired future state,
identify and understand the gaps that exist between the two states, and then create a series of
actions that will bridge those gaps. This is important because it helps management identify if
their organization is performing to its potential, and if not, why. In addition, this helps to
pinpoint flaws in resource allocation, planning, production, etc.

While other internal analysis tools, such as SWOT analysis, offer a more comprehensive study of
the internal environment, GAP analysis can be more targeted towards fine-tuning a single
process instead of the company as a whole.

Strategy Evaluation

A strategy evaluation analyses the results of a strategic plan's implementation. It's useful to
undertake a strategy evaluation at regular intervals during your strategic implementations. For
example, you might opt to conduct an evaluation every six months, every year, or at the
conclusion of your implementation. The strategy evaluation process involves looking back at the
goals in your strategic plan and assessing how well your strategic management initiatives fared
in achieving them.

SWOT Analysis

The SWOT analysis is one of the most well-known and most common business analysis tools
around. It gained popularity thanks to its simplicity (it covers both an internal and external
analysis), but it's also known for its efficacy. The name SWOT is derived from the factors in its
grid (strengths, weaknesses, opportunities, and threats), which form the SWOT matrix.

This tool can be used to create a sustainable niche in your market and grow your market share.
The SWOT analysis allows organizations to uncover the external opportunities they have the
strength to exploit while simultaneously minimizing the internal factors that cause weaknesses. It
also helps to reduce the risk of impending threats. Using this tool, organizations are able to
distinguish themselves from competitors by understanding their unique capabilities and sources
of competitive advantage, which can help them compete in their given marketplace.
 For example, a SWOT analysis may uncover that some of a company's strengths are its talented
employees and strong organizational capabilities, that its greatest weakness is its reliance on
problematic supply chains and scarce raw materials, that it has an opportunity to take advantage
of low interest rates, but that the growth of Amazon threatens it. The company can then use this
analysis to develop strategic alternatives that will help it meet its goals.

VRIO Analysis

The VRIO framework is a great tool for assessing an organization's internal environment. It
looks at an organization's internal resources and categorizes each based on the overall value it
contributes to the organization. VRIO is a framework that allows organizations to identify their
competitive advantages and promotes the development of consistency to turn them into
sustainable competitive advantages.

If you're looking to develop a strategy that builds on your organization's competitive advantage,
but you've yet to define what that is, VRIO analysis is the tool you need. . It walks through how
you can use it to not only identify competitive advantages in your own organization but to
transform them from short-term competitive advantages into sustained ones.

OCAT

The Organizational Capacity Assessment Tool was designed for non-profit organizations looking
to assess their internal environments. OCAT assesses how well your organization performs
across 10 internal dimensions, including:

 Aspirations
 Strategy
 Leadership, Board & Staff
 Funding
 Marketing & Communications
 Advocacy
 Business Processes
 Infrastructure & Organizational Structure
 Culture and shared values
 Innovation and adaptation

The results of the assessment help non-profits evaluate and improve their organizational
capacity.

McKinsey 7S Framework

Another popular and battle-tested tool is the McKinsey 7S Framework. McKinsey 7S is ideal for
organizations looking to improve alignment between departments and processes. The model can
 be used to assess an organization's current state in comparison to a proposed future state and
evaluate the gaps and inconsistencies between them. McKinsey 7S prompts you to analyze seven
internal aspects of your organization that should be aligned if your organization is going to reach
its full potential. The seven elements are:

 Strategy
 Structure
 Systems
 Shared Values
 Skills
 Style
 Staff

Core Competencies Analysis

The core competency analysis is an internal analysis tool that helps organizations create
strategies that move them ahead of their competitors. The basic premise of the analysis is to
identify the organization's core competencies — the combined resources, knowledge, and skills
of an organization that create unique value for its customer. Once organizations have identified
their core competencies, strategies can be created to focus on only what the organization does
well and what provides unique value to the customer. Compared to other types of analyses, this
one puts a greater emphasis on intangibles instead of focusing solely on tangible resources.
− Distinctive resources and capabilities as a basis of
competitive advantage
Developing Your Resources and Capabilities into Competitive Advantages
Before you begin the process of developing resources into competitive advantage, you need to do
an extensive analysis to guage who has the competitive potential.

Assessing the competency and potential of your workforce is the first step of the analysis. The
next is to start taking measures to develop them into a sustainable competitive advantage and
finally appropriate the returns from the sustained competitive advantage.

Below are three steps for achieving the same and enhancing your bottom line:

 Identify key responsibilities and capabilities

 Leverage transferability
 Replicability
Identify the key resources and capabilities

Gaining complete visibility into your resources’ strengths and weaknesses is the key to make
data-driven decisions and maximize profitability. Once you know what your resources are
capable of, you can use their talent to the maximum potential.
At the same time, it’s your job to focus on their weaknesses and help them develop these skills. It
will eventually enhance their competitive edge.

Leverage transferability

Transferable or portable skills are competencies that can be utilized for multiple tasks. They are a
great way to ensure that your firm’s competitive advantage is at its’ sustainable best. Resources
are encouraged to develop multiple skills with the same proficiency.

With the market volatility, comes a wide range of ad hoc project demands. When your resources
can utilize their primary and secondary skills to different project tasks, they can fulfill these
demands at ease. This transferability will help them deploy their personnel and capabilities at
best, regardless of where they are placed.

Replicability
You may face situations when your resources may not have the capabilities you are looking for.
These capabilities are either expensive to hire or difficult to replicate. In such cases, you can
make an extra effort and build these capabilities from the ground up. Taking insights from the
history and the previous patterns, you can replicate them to ensure you do justice to your
projects. Your project’s quality is not compromised in this case.

− VRIO- value of resources and capabilities, rarity,

inimitability, organizational support

The VRIO framework is an internal analysis tool, used by organizations to categorize their
resources based on whether they hold certain traits outlined in the framework. This
categorization then allows organizations to identify the company resources that are competitive
 advantages. There are four dimensions that make up the framework, which create the acronym
VRIO:

 Valuable
 Rare
 Inimitable
 Organized

We'll go into more detail about each of the dimensions in a moment. First, we would like to
explain why the VRIO analysis is such a popular tool. Jay B Barney conceived the VRIO
analysis in 1991. Though we should mention, Barney originally conceptualized the framework as
VRIN, the last dimension in the framework was refined over the years and the N in VRIN
became an O. The framework is simple to understand, easy to use, and can provide enormous
value for organizations looking to stay ahead of competitors. This has made the tool an obvious
choice for many companies looking to analyze their internal environment.

The premise of identifying a firm's resource as a competitive advantage is whether it passes

through the dimensions of the framework.

Let's now take a look at the different dimensions:

2.1.1 Valuable

When a resource is valuable, it's providing the organization with some sort of benefit. However,
a resource that is valuable and doesn't fit into any of the other dimensions of the framework, is
not a competitive advantage. An organization can only achieve competitive parity with a
resource that is valuable and neither rare nor hard to imitate.

2.1.2 Rare

A resource that is uncommon and not possessed by most organizations is rare. When a resource
is both valuable and rare, you have a resource that gives you a competitive advantage. The
competitive advantage achieved from a resource that is both valuable and rare is usually short
lived though. Competitors will quickly realize and can imitate the resource without too much
trouble. Therefore it's only a temporary competitive advantage.

2.1.3 Hard to Imitate

Resources are hard to imitate if they are extremely expensive for another organization to acquire
them. A resource may also be hard for an organization to imitate if it's protected by legal means,
such as patents or trademarks. Resources are considered a competitive advantage if they're
valuable, rare, and hard to imitate. However, organizations that aren't organized to fully take
advantage of the resource, may mean the resource is an unused competitive advantage.

2.1.4 Organized to Capture Value

An organization's resource is organized to capture value only if it is supported by the processes,

structure, and culture of the company. A resource that is valuable, rare, hard to imitate, and
organized to capture value is a long-term competitive advantage. A resource can not confer any
advantage for a company if it’s not organized to capture the value. Only a firm that is capable to
exploit valuable, rare, and imitable resources can achieve sustained competitive advantage.

− Organisational knowledge as a basis of competitive

advantage

Organizations that efficiently capture and share internal knowledge and information
are consistently reporting improved company success over competitors who don’t. With that in
mind, it’s easy to understand why companies are implementing knowledge management
initiatives to gain a competitive advantage in their industries.

The effective use of vast and varied knowledge and resources relies on sophisticated tools used
to curate and communicate around company data. When these tools are implemented, companies
increase their ability to eliminate departmentalization, spur innovation, and respond to the
changing business world quickly.
Knowledge Management’s Competitive Advantage

Simply put, knowledge management allows organizations to get the right information to the right
people at the right time. Given the rapid rate at which consumers’ expectations and the industry
landscape changes, defining the right information, the right person, and the right time can be
tricky, if not impossible.

An effective knowledge management strategy enables an organization to create, apply, and share
information, breaking down silos and increasing usage of valuable data. The right strategy
sustains organizational objectives as technologies evolve, keeps companies on the bleeding edge
of industry trends, and pushing one step ahead of the competition at all times.

A different knowledge-management approach

A key challenge that managers face when approaching knowledge management is their inability

to capture value from the information their organization has. A former Hewlett-Packard chief

executive officer once noted, “If only HP knew what HP knows, it could be three times more

productive”. While many other executives agree on this statement, it may not convey the full

picture. The statement implies that with more knowledge comes better performance, which is not

necessarily the case. Having more data, information or knowledge can be an overkill if there is

lack of knowledge about how to use it.

Quantity of knowledge can lead to quality, but only if used well. For this reason, managers need

to think about knowledge management differently. The hierarchy of knowledge management

(with data at the bottom, knowledge at the top and information in between) needs to be viewed in

an upside-down way. The most critical piece of knowledge for success can only be identified

after having set very clear and specific business objectives. Those objectives then determine

which knowledge is needed to extract the most business value. Then, based on that knowledge,

the information needed is identified, and then the data. Such an approach works in the opposite

direction to the conventional approach, in which the focus is on acquiring as much data and
knowledge as possible. But it stands to be one of the best approaches to achieving sustainable

competitive advantage from knowledge-management efforts.

Technology is an accelerator.

Based on the results-driven knowledge-management approach, technology’s role becomes

secondary to that of people. People are the actors, and technology is simply the tool. Research by

the Cranfield School of Management about the advantages gained by using information

technology discovered that benefits are realized from knowledge management only when people

do things differently. Technology helps people do whatever they do more efficiently, but it is not

creative enough to devise new ways of working for people. Only people can do that, and thus it

is people who are the source of true sustainable competitive advantage. Whereas having

powerful technologies, much like having cost leadership, gives the organization only a short-

term competitive advantage. Companies such as Microsoft and Adobe understood this and turned

this understanding into actionable knowledge-management strategies to become well-renowned

and respected brands.

Conclusion

Tangible resources are a source of strength but not a source of lasting competitive advantage.

Only intangible capabilities such as creativity, talent and innovation are. Companies would do

well to obtain the data and the information they need based on the requirements to achieve

business objectives. Those objectives can be market share, adoption rate, profitability or any

other business measure. Knowing that people hold the seed of lasting competitive advantage for

an organization, talent retention becomes of crucial importance.

− Diagnosing resources and capabilities

Creating a sustainable formula to stay relevant in the long haul is a major goal for any
organization. The strategy that you develop to achieve this goal eventually determines your
bottom line. To bring this strategy to fruition, stakeholders and managers need to analyze their
resources and capabilities carefully. After all, these capabilities will drive the quality,
innovation, operational efficiency, and reputation of your business.

However, when you are gauging your workforce’s skills and competencies, you need to look
beyond the quantifiable measures. The qualitative measures constitute the extensive analysis of
resources and their capabilities. This blog explains the role of this analysis in the formulation of
an effective business strategy. Along with that, the best practices are mentioned to help you do
so.

The resource and capability matrix

What exactly do we mean by capabilities here?
It is simply a collection of the skills, experience, and qualifications your resources possess. In
addition, capabilities mean what we develop with time to meet the future dynamic demands. The
skills of your resources are the elements that are used to generate a product or an output.

The significance of resource analysis in strategy formulation

As already discussed, the aim of our strategy is to build a sustainable competitive advantage.
Now how does resource analysis help? You analyze and filter the resources to keep the right
amount of skills and competencies at your firm. This helps you focus on developing a finished,
quality product using their capability.
The products developed by your talent pool drive customers, brand loyalty, and profitability.
Once these aspects are addressed, you are automatically maintaining your competitive edge.
Overall, an extensive resource analysis defines the success of your business strategy.

− The value chain and value system

Porter’s value chain and value system

The ability of your company to compete successfully is about everything the company does and
how everything is organised. The value chain is a useful way of looking at the whole
organisation while the value system helps you to look at how you fit into a bigger picture.
A value chain is a business model that describes the full range of activities needed to create a
product or service. For companies that produce goods, a value chain comprises the steps that
involve bringing a product from conception to distribution, and everything in between—such as
procuring raw materials, manufacturing functions, and marketing activities.

A company conducts a value-chain analysis by evaluating the detailed procedures involved in

each step of its business. The purpose of a value-chain analysis is to increase production
efficiency so that a company can deliver maximum value for the least possible cost.

Components of a Value Chain

s
In his concept of a value chain, Porter splits a business's activities into two categories, "primary"
and "support," whose sample activities we list below. Specific activities in each category will
vary according to the industry.

Primary Activities
Primary activities consist of five components, and all are essential for adding value and creating
competitive advantage:

1. Inbound logistics include functions like receiving, warehousing, and managing

inventory.
2. Operations include procedures for converting raw materials into a finished product.
3. Outbound logistics include activities to distribute a final product to a consumer.
4. Marketing and sales include strategies to enhance visibility and target appropriate
customers—such as advertising, promotion, and pricing.
5. Service includes programs to maintain products and enhance the consumer experience—
like customer service, maintenance, repair, refund, and exchange.

Support Activities
The role of support activities is to help make the primary activities more efficient. When you
increase the efficiency of any of the four support activities, it benefits at least one of the five
primary activities. These support activities are generally denoted as overhead costs on a
company's income statement:

1. Procurement concerns how a company obtains raw materials.

2. Technological development is used at a firm's research and development (R&D) stage—
like designing and developing manufacturing techniques and automating processes.
3. Human resources (HR) management involves hiring and retaining employees who will
fulfill the firm's business strategy and help design, market, and sell the product.
4. Infrastructure includes company systems and the composition of its management
team—such as planning, accounting, finance, and quality control.

Value system and competitive advantage

Value activities are the discrete building blocks of competitive advantage. How each activity is
performed with its economics will determine if a firm is high or low cost relative to its
competitors. The firm's competitive advantage comes from the way activities fit and reinforce
one another. By seeing the company's value chain and its value system as a whole, the firm can
tailor its competencies to fit together to provide a superior value proposition to the customer.

− Activity systems
The most basic activity theory lens, or unit of analysis, is the activity system, defined as a group
of people who share a common object and motive over time, as well as the wide range of
tools they use together to act on that object and realize that motive.
From an activity theory perspective, an activity system is the minimal unit of analysis for
understanding human actions. The components of an activity system include the subject
(individual or group) from whose point of view the activity is analyzed and the object (the
individual or group who is acted upon) and the dynamic relations among them mediated by
various artifacts (sings, tools, instruments). This basic structure (subject, object, artifact) has
been expanded to include other meditational elements of rules, community and division of labor.

An activity system consists of all the activities that specific communities participate in to
complete the community’s goals. Discursively, activity systems consist of all genres needed in
order to complete the community’s goals, or, in other words, genre systems which consist of
typified and stabilized for now genre conventions that enact the community’s goals and
purposes. Without shared goals and purposes, however, the activity system would break down.

Activity systems are also constrained by divisions of labor and by rules. In the university, for
instance, the labor is divided among the participants—students are responsible for completing
assignments; instructors are responsible for grading assignments; administrators are responsible
for making sure grades appear on students’ transcripts. In the university, we also operate with a
set of rules for participating in classroom and laboratory learning.

The rules in many respects are our mutual agreement about how the activity will be carried out
so we can all progress toward the outcome of learning. One way that activity theory helps you
more fully understand the “context” of a community and its tools is by providing a diagram
outlining the important elements and their relationships. Figure 1 shows the conventions activity
theory researchers use to present what they view as the critical components of every activity
system. The “nodes” in the system are the points on the triangle—think of these as the specific
aspects of a “context” that activity theory can help you consider more fully. The arrows indicate
the reciprocal relationships among these various aspects. The labels we’ve provided to describe
some of the components of each node in the system.
 − Benchmarking
Benchmarking is a common practice and sensible exercise to establish baselines, define best
practices, identify improvement opportunities and create a competitive environment within the
organization. Integrating benchmarking into your organization will result in valuable data that
encourages discussion and sparks new ideas and practices. At its best, it can be used as a tool to
help companies evaluate and prioritize improvement opportunities.

Benchmarking can allow you to:

1. Gain an independent perspective about how well you perform compared to other
companies
2. Drill down into performance gaps to identify areas for improvement
3. Develop a standardized set of processes and metrics
4. Enable a mindset and culture of continuous improvement
5. Set performance expectations
6. Monitor company performance and manage change

Types of Benchmarking
Benchmarking is the competitive edge that allows organizations to adapt, grow, and thrive
through change. Benchmarking is the process of measuring key business metrics and practices
and comparing them—within business areas or against a competitor, industry peers, or other
companies around the world—to understand how and where the organization needs to change in
order to improve performance. There are four main types of benchmarking: internal, external,
performance, and practice.

1. Performance benchmarking involves gathering and comparing quantitative data (i.e.,

measures or key performance indicators). Performance benchmarking is usually the first step
organizations take to identify performance gaps.

What you need: Standard measures and/or KPIs and a means of extracting, collecting, and
analyzing that data.

What you get: Data that informs decision making. This form of benchmarking is usually the first
step organizations take to identify performance gaps.

2. Practice benchmarking involves gathering and comparing qualitative information about how
an activity is conducted through people, processes, and technology.

What you need: A standard approach to gather and compare qualitative information such as
process mapping.

What you get: Insight into where and how performance gaps occur and best practices that the
organization can apply to other areas.

3. Internal benchmarking compares metrics (performance benchmarking) and/or practices

(practice benchmarking) from different units, product lines, departments, programs, geographies,
etc., within the organization.

What you need: At least two areas within the organization that have shared metrics and/or
practices.

What you get: Internal benchmarking is a good starting point to understand the current standard
of business performance. Sustained internal benchmarking applies mainly to large organizations
where certain areas of the business are more efficient than others.

4. External benchmarking compares metrics and/or practices of one organization to one or

many others.

What you need: For custom benchmarking, you need one or more organizations to agree to
participate. You may also need a third party to facilitate data collection. This approach can be
highly valuable but often requires significant time and effort. That’s why organizations engage
with groups like APQC, which offers more than 3,300 measures you can use to compare
performance to organizations worldwide and in nearly every industry.
What you get: An objective understanding of your organization’s current state, which allows you
to set baselines and goals for improvement.

2. Benchmarking Process:

The benchmarking process is a process in which all the different steps are included which helps

all the companies from similar or different work field find out their strengths and weakness.

These steps provide all the aspects of the companies which can provide them an actual success

rate of their company.

1. Determining aspects of the company:

In this phase of benchmarking the company identifies all the aspects of their company which can

help them determine their benchmarking criteria with the rest of the company.

Therefore, in this phase of work the company finds out all the important aspects of their

companies, which can rank them as one of the best in the industry and also can deliver

information such as their success rate and the element of their work order.

2. Planning and research:

In this planning and research phase, the company provides necessary information about the

different aspects of their company. After understanding all the aspects of the company, the

company arranges for the planning phase where these aspects of companies are examined for the

goodness sake of the company and finally it goes through a research phase where all the planned

aspects are researched completely for the best of the companies.

 3. Collection of data:

At this stage of benchmarking, all the data collected from the planning and research department

are maintained through some sort of methods and measures. Therefore, these methods help the

company provide the final and comparative aspects of the company which can consider

themselves different from the rest of the company. And the final data collected through this

collection stages are considered as a fact of comparison.

4. Examination:

In this stage of benchmarking all the findings and output delivered by the planning and research

department are examined for the purpose of the overall development of the company.

Therefore, this stage examines or analyzes all those findings from the previous phase to deliver

the final word of benchmarked aspects of the company.

5. Development:

At this stage of benchmarking the final examined data collected from the examination stage can

be provided with the necessary recommendation of the development of the company.

After examining the output of the benchmarking aspects of the company, the same company will

create some development programs within the company to improve the working efficiency of the

company.
 6. Incorporation:

In this final stage of benchmarking all the aspects that are examined and developed are finally

incorporated in the company for the overall development of the company. After finding the

aspect which needs to be incorporated in the company, the company can provide a particular

supportive environment for such a change in the company.

Therefore, all the necessary facts and those matters of the company which can turn it into a

successful company needs to be incorporated in the company.

− Strengths and Weaknesses

Advantages of Benchmarking:

There are several advantages of benchmarking. Most of the common benefits of benchmarking

help to improve the productivity of the company. Moreover, these advantages can provide a clear

picture of the key factors of benchmarking in the company. And increased productivity elements,

display the successful features of the company.

1. Implements creative ideas:

One of the common type of benchmarking where in which all the beneficial aspects of the

company are creatively implemented for the overall development of the company.

The benchmarking process helps the company find out their key features and after finding out

the key features of their company, that company compares it with another company to complete
the picture. And if there are any filling to be needed, then the company starts implementing

creative ideas for the company.

2. Increased competitions:

Most of the time while doing business and while running a successful company, that company

faces some strong competition from the rest of the companies. And that competition helps the

current company to maintain their position even better in terms of their success rate of the

company.

Therefore, as per the statement of the benchmarking process, it definitely increases healthy

competition among different companies.

3. Developing improvement:

It is clear about benchmarking that it deals with those findings of the company and another

company which helps them find their position in the business market.

And if there are any chance or space available for improvement in the company activities, then

the company needs to develop those improvements in the company for the growth of the

company in its own terms.

4. Identifies essential activities:

One of the best possible advantages of benchmarking is that it can help all the companies to

identify their own essential activities that can improve the profits of the company.
Therefore, after benchmarking it is very much important for all the companies to be identified in

the list of companies, which is in a run and where it can deliver the victory of their company

effectively.

5. Quality of work:

Because of benchmarking once the company identifies their strengths and weakness compared

with the rest of the company, then it is quite clear that all the aspects of the company need to be

improved at a time to time basis.

And finally, the company can deliver some sort of ways which can deliver quality in their

working order. Therefore, benchmarking makes things clear and creates some sort of awareness

among the company’s working environment.

6. Increased performance:

As it is explained earlier that the benchmarking process, identifies all the features and elements

of the company which can lead them towards its success. And eventually, it also provides

essential signals regarding the need and wants of the company.

Once the company finds out about the actual requirements of the company, then it can increase

its work performance as per the comparison aspects.

Disadvantages of Benchmarking:

As the company can receive some sort of benefits from these benchmarking processes, then it is

quite obvious that the company can be covered with some of the disadvantages as well. And

those disadvantages are as follows.

1. Stabilized standards:

Most of the company compares their working environment with another company which is

earning quite well in a similar field of work. After finding out the reason for the improved

success rates, the company can incorporate those ideas of that company to improve their

productivity. And eventually, they stabilize their standard to that one aspect, without its course of

action.

2. Insufficient information:

Sometimes it happens that while comparing the aspects of different companies, the information

acquiring company can be left behind with their information-gathering techniques. And that is

why it can face tremendous loss in their business because of insufficient information about the

company.

Therefore, it is very essential for all the companies that they need to be sure of their information

about that another company.

3. Decreased results:

Most of the time when a company sets its standard and try to improve that standard by

implementing some new and creative ideas, then at that time the company need to look at those
companies which are doing quite good in their similar type of business. And analyze the actual

problem in their company.

Once the company finds out the actual reason, then they need to research well about the element

that whether it is feasible for the company or not.

4. Lack of customer satisfaction:

Most probably during the benchmarking process, the company finds out those outputs which can

need to be improved and developed for the sake of the overall growth of the company. Hence,

for that, the company needs to look into matters which can increase their productivity along with

their customer satisfaction.

Therefore, instead of incorporating the ideas that another company used in their company, it can

check for its feasibility in their own company.

5. Lack of understanding:

As most of the companies keep an eye on their competition instead of their own growth, it is

quite clear for all the company that such type of obsession with another company can not lead

the company anywhere.

Therefore, it is advisable for all the companies that they need to understand the need for

benchmarking in their company instead of spying on another company.

 6. Increased dependency:

Most of the companies think that benchmarking helps them improve their company position as it

helped those successful companies to be in the top. But most of the companies forget that those

companies which made themselves to that top position have earned their hard work.

Therefore, instead of depending on the ideas which made that company successful, they

can build their own network to make them independent for a better future.

− The Balanced Scorecard and Strategy map

The Balanced Scorecard is a strategy management framework created by Drs. Robert Kaplan
and David Norton. It takes into account your:

 Objectives, which are high-level organizational goals.

 Measures, which help you understand if you’re accomplishing your objective
strategically.
 Initiatives, which are key action programs that help you achieve your objectives.

Characteristics of the Balanced Scorecard Model (BSC)

Information is collected and analyzed from four aspects of a business:

1. Learning and growth are analyzed through the investigation of training and knowledge
resources. This first leg handles how well information is captured and how effectively
employees use that information to convert it to a competitive advantage within the
industry.
2. Business processes are evaluated by investigating how well products are manufactured.
Operational management is analyzed to track any gaps, delays, bottlenecks, shortages, or
waste.
3. Customer perspectives are collected to gauge customer satisfaction with the quality,
price, and availability of products or services. Customers provide feedback about their
satisfaction with current products.
4. Financial data, such as sales, expenditures, and income are used to understand financial
performance. These financial metrics may include dollar amounts, financial ratios, budget
variances, or income targets
  Strategy Mapping

The strategic planning methodology is a tool that is used for communicating a strategic plan. The
tool is suitable for achieving high-level business goals. It helps communicate-high-level details
across your business in an easy-to-understand model. The strategic planning model offers an
array of benefits including:

A simple and straightforward visual representation that is easy for organization and businesses to
refer to during the development process

It helps unify all company goals into one business strategy and comprehensive plan

It can help you determine your key basic steps and goals

It helps you establish how your business objectives affect others in real time

 Strategy Map

A strategy map is a visual tool designed to clearly communicate a strategic plan and achieve
high-level business goals. Strategy mapping is a major part of the Balanced Scorecard (though it
isn’t exclusive to the BSC) and offers an excellent way to communicate the high-level
information across your organization in an easily-digestible format.
 A strategy map offers a host of benefits:

 It provides a simple, clean, visual representation that is easily referred back to.
 It unifies all goals into a single strategy.
 It gives every employee a clear goal to keep in mind while accomplishing tasks and
measures.
 It helps identify your key goals.
 It allows you to better understand which elements of your strategy need work.
 It helps you see how your objectives affect the others.

− Critical success factor analysis

Critical Success Factors (CSF) are specific elements or action areas a business, team, or
department must focus on and successfully implement to reach its strategic objectives.
Successful execution of these success factors should generate a positive outcome and create
meaningful value for the business.
CSFs are important because each one works as a guiding compass for a company. When they are
explicitly clarified to everyone at the company, they function as a reliable point of reference for
focus and for determining success.

Many companies also use their critical success factors for a project to determine whether they
should proceed with a new business initiative or activity. For example, an organization may
determine that a proposed initiative does not directly support a particular success factor and may
distract from their overall strategic goals, waste precious time, and drain resources.

While it’s not a hard and fast rule, it’s common practice to limit the number of critical success
factors for a project to five or fewer. Keeping the number of factors manageable helps guarantee
that each factor has a clear impact on strategic priorities and other elements of your business.

How do CSFs support Strategic Management?

Critical success factors should be developed to link and align with the strategic goals of a
company. They are used to determine how a business unit, department, or function can reach its
specific goals and facilitate forward progress toward the organization’s strategic goals. These
factors also influence how individual employees and teams support and do their part in
contributing to strategic plans and objectives.
Each CSF is identified to support the achievement of a specific strategic goal and guide the
creation and tracking of Key Performance Indicators (KPIs). For example, the diagram below
illustrates where CSF fit in the achievement of a strategic goal.
3. How to Identify Critical Success Factors?

Critical Success Factors are usually identified through data gathering, analysis, and discussion.
While some companies may choose to bring in consultants who have more experience
establishing critical success factors, there are four steps you can take to help determine the
critical success factors that support the strategic goals of your business.

1. Examine the key elements of your long-term strategic goals. How have these
goals been influenced by SWOT analyses (Strengths, Weaknesses, Opportunities, and
Threats) or changes to your overall agenda? This deep analysis will help you better
understand the end goal and make it easier to identify CSF on which to focus.
2. Review and discuss the organization’s overarching strategic goals with key
stakeholders. Don’t formalize critical success factors until you’ve gathered data. You
can get this by talking to employees and customers, hosting focus groups, and reviewing
recent trends. Do your best to quantify how your organization is doing today, rather than
how you were doing at some point in the past, so you can plan for the future. You can
begin by talking with senior executives and discuss the potential CSF that might best
contribute to success of the long-term strategic goals.
3. Ask leaders and team members for their ideas and feedback. Clearly
communicate with employees about the organization’s long-term strategic goals. Then,
 use what you learned during the discussion with senior leaders as a framework for an
employee feedback session. For example, you might ask, “What factors do you think we
should focus on to achieve these goals?”
4. Combine the information received from employee feedback and group
discussions to pinpoint which factors are key to achieving your goals. With ideas
coming from all over the company, you’re sure to find one that nails down exactly what
you should focus on. You can then implement those factors into your company-wide
strategic plan. Ensure that people know exactly what they need to contribute to the CSF.

− Scenario planning
Scenario planning is making assumptions on what the future is going to be and how your
business environment will change overtime in light of that future.More precisely, Scenario
planning is identifying a specific set of uncertainties, different “realities” of what might happen
in the future of your business.

It sounds simple, and possibly not worth the trouble or specific effort, however, building this set
of assumptions is probably the best thing you can ever do to help guide your organization in the
long term.
 For example, Farmers use scenarios to predict whether the harvest will be good or bad,
depending on the weather. It helps them forecast their sales but also their future investments.
Military institutions use scenario planning in their operations to cope with any unlikely
situations, anticipating the consequences of every event. In this case, scenario planning can mean
the difference between life and death.

Scenario planning might not have such dire consequences in your organization, but if not done,
you risk opening the door to increased costs, increased risks, and missed opportunities.

The process to create your own scenarios is very simple. You will have to:

 Identify your driving forces:

To begin with, you should discuss what are going to be the big shifts in society, economics,
technology and politics in the future and see how it will affect your company.

 Identify your critical uncertainties:

Once you have identified your driving forces and made it a list, pick up only two (those that have
the most impact on your business). For example, two of the most important uncertainties for
agribusiness companies are food prices and consumer demand.

 Develop a range of plausible scenarios:

The goal is now to form a kind of matrix with your two critical uncertainties as axis (see the
above example). Depending on what direction each of the uncertainties will take, you are now
able to draw four possible scenarios for the future.
 Discuss the implications:

During this final step, you should discuss the various implications and impacts of each scenario
and start to reconsider your strategy: set your mission and your goals while taking into account
every scenario.

▪ Key features of corporate culture

Establishing strong company culture is important to moving your company towards success. A
strong corporate culture means that your workplace is a nurturing and fun environment, resilient
to challenges, clarity of purpose, and committed to excellence.

1. A Clear Vision and Mission

A strong corporate culture starts off with a clear vision and mission. You know what you want
and how to get it. Usually vision and mission are a phrase that gives your company and
employee purpose. But it is not simply enough that this purpose is stated; for an organization to
have a clear vision and mission, they must understand it. Each employee understands what is
their purpose, the role that they play, and what responsibility do they shoulder. Employees who
know what is their purpose and adapt their decisions to that purpose. Having a clear vision and
mission can also boost understanding between supplies, business partners, and customers. Vision
and mission are the basic, but most essential element of identity in corporate culture.

2. Code of Conduct
Apart from purpose, a code of conduct is a set of guidelines that are needed to realize their goals.
The code of conduct establishes the spirit of commitment and trust within the organization. This
guideline is communicated all over the company to build the proper behavior and mindsets that
are needed to correspond to coworkers, handle clients, interact with partners, and promote
professional conduct.

3. Teamwork
The corporate world is highly competitive; employees have to gain advantage over their peers to
retain their positions or be promoted to a higher one. An organization may have competitors, but
it should not be. Strong corporate culture involves learning to work with each other in teams.
Every employee in the organization and their team is moving towards the same goal and they are
at the same side. Unity is encouraged and should be appreciated.

4. Adapting to Change and Facing Challenges

When organizations face changes, employees tend to be distracted. It is usually fear of the
unknown and what change that would bring. This fear of uncertainty incapacitates development
and ability to be flexible makes employees distracted from their vision and mission. Upholding a
strong culture motivates to face these challenges that seem to be difficult to win over; the resolve
to realize the organization’s vision is stronger than the fear of the uncertain. Managers and team
leaders should give proper support to keep their employees in track despite the difficulties.
 5. Communication
Through communication, employees get a clear understanding on how what their organization is
trying to achieve. It is a simple way for the organization to reach out and listen to their
employees’ voice regarding management, departments, and colleagues. Feedback that are
received clearly, productively, and with sensitivity to variety of personalities, temperaments, and
cultures. This promotes a culture of sharing sentiments and knowledge; the organization also
promotes a culture that shows genuine care for their employees.

6. Thriving Workplace
A healthy working environment demonstrates corporate responsibility of their employees. Not
only should you have high standards on results, you should also have a high standard on your
employees’ wellbeing. Not only through a physical and mental aspect, a strong corporate culture
should also consider the thriving working environment that enhances employees’ skills and
talents. A healthy working environment motivates employees to work, be absent less often, and
are more motivated which is a win for everyone.

 The Importance of Culture in Strategy Execution

Developing a strategic plan is vital to an organization’s success. An organization must be
able to efficiently execute that strategy to achieve its performance improvement goals. The
organization’s culture is often the most important determiner in successful execution.

At the core, implementing strategy depends on two essential elements:

 Building and sustaining an organizational culture that facilitates and accelerates

change
 Fostering a sense of personal accountability for strategy execution ownership at every
agency level – from administrative assistant to senior leadership

In other words, constructing a culture that creates the flexibility and understands and accepts
the responsibilities for change is key.

Creating an organizational culture that is open to change starts with a senior leadership team
that communicates an agency’s strategic priorities often and effectively.

Each person in the agency contributes to its success. Everyone should feel personally
accountable. A case study involving telecommunications giant AT&T revealed that effective
collaboration between teams, a commitment to an employee’s personal action plan, and open
dialogue with senior management led to an environment in which employees at all levels felt
that their opinions counted. As part of the study, the participants developed measurable goals
and plans to communicate clearly and created feedback mechanisms to senior leadership. The
atmosphere the participants built led to improved strategy execution and higher performance.
Senior leaders can focus their teams with a simple, yet important, framework to make
strategy happen and achieve results:

1. Make strategy clear: Make strategic vision and goals clear and inspirational
2. Make strategy real: Translate strategy into a living execution plan that matters to
people; don’t let it sit on a shelf

3. Make strategy happen: Capitalize on existing beneficial behaviors, and take action to
adjust undesired or obsolete behaviors as needed

4. Make efforts from strategic planning last: Change organizational processes to reinforce
desired behaviors for the long term and enable alignment with an organization’s culture

The most effective organizations understand that simply writing a strategic plan does not
guarantee success – it is just a vision. Meaningful progress only occurs through creating and
reinforcing a culture of change, top-down employee buy-in, strategy ownership,
implementation, and accountability.

▪ Unhealthy cultures that impede strategy execution

The distinctive characteristic of an unhealthy corporate culture is the presence of
counterproductive cultural traits that adversely impact the work climate and company
performance. There are five particularly unhealthy cultural traits.

1. Change-Resistant Cultures
a. In less adaptive cultures where skepticism about the importance of new developments and
resistance to change are the norm, managers prefer waiting until the fog of uncertainty clears
before steering a new course.
b. Change-resistant cultures encourage a number of undesirable or unhealthy behaviors—risk
avoidance, timidity regarding emerging opportunities, and laxity in product innovation and
continuous improvement.

2. Politicized Cultures
a. What makes a politicized internal environment so unhealthy is that political infighting
consumes a great deal of organizational energy.
b. Often with the result that political maneuvering takes precedence over what is best for the
company

3 . Insular, Inwardly Focused Cultures

a. The not-invented-here mind-set
b. Tends to develop when a company reigns as an industry leader or enjoys great market
success for so long that its personnel start to believe they have all the answers or can develop
them on their own.
4. Unethical and Greed-Driven Cultures:

Companies that have little regard for ethical standards or that are run by executives driven by
greed and ego gratification are scandals waiting to happen.
5. Incompatible Subcultures
a. Values, beliefs, and practices within a company sometimes vary significantly by
department, geographic location, division, or business unit.
b. Incompatible subcultures arise most commonly because of important cultural
differences between a company’s culture and that of a recently acquired company or
because of a merger between companies with cultural differences
▪ Influence of culture on strategy
Meanwhile, strategic management is the process in which a management team develops a
mission and vision, objectives and goals, roles and responsibilities and values which ensure the
success of the organization. Organizational culture significantly influences the performance of an
organization. Furthermore, strategic management helps in making the organizational culture
through developing the vision, mission and values. So the appropriate strategic management
would improve the formation of a culture of integrity, competitive work ethic, embracing
technology, value creation for customers and shareholders.

Organizational culture refers to the beliefs and principles of a particular organization. The
organizations follow the culture which has a deep impact on the employees and their relationship
amongst themselves. Organizational cultures are special and offer strategic strengths and it
makes complete sense that organizations would think about culture in strategic management. A
high-performing team of an organization need consider that has a corporate strategy of providing
a fun and people-oriented environment friendly. This would not ally well with a sluggish culture
or one with very traditional and employees. Whereas, it is necessary for the company to hire fun,
friendly and customer-oriented workers and provide an environment that is fun and rewards great
customer-friendly behavior through create unique organizational culture.

There are several factors which affect the organization culture, Firstly and the major factor
affecting culture is the employees the organization. The employees are the main assets of an
organization and contribute effectively in its successful functioning. It is essential for the
employees to be loyal towards the organization and try the best hard in furthering its brand
image. The employees in their own way contribute to the culture of the workplace which unites
the employees who are otherwise from different back grounds, families and have varied attitudes
and mentalities. The culture gives the employees a sense of cooperation and unity at the
workplace in an organization.

On one hand, the attitudes, mentalities, interests, perception and even the thought process of the
employees affect the organization culture. Organizations with majority of encourage healthy and
benign competition at the workplace and employees are always on the toes to perform better than
the fellow worker. Every employee understands clearly with his responsibilities, roles and strives
hard to accomplish the duties within the desired time frame in accordance with the set guidelines.
The new employees also make great efforts to understand the work culture and make the
organization a better place to work. It is the culture of the organization which selects the best
from each team member. The culture develops a habit in the individuals which makes them
successful at the workplace. Starbucks is an example of organizational culture with a people-
oriented. The company offers health care and tuition reimbursement benefits to its part-time as
well as full-time employees, provides employees above minimum salary and has creative
perquisite for instance weekly free coffee for all associates. As a result of these strategies, the
company benefits from a turnover rate lower than the industry average with its own
organizational culture. The culture promotes healthy relationship and environment amongst the
employees.

Secondly, the leadership of organization is the other factor affecting the organizational culture.
Organization Culture is the purport of the psychology and attitudes which are communicated by
the leadership team to the employees and the ethics, beliefs and values which are incorporated
for execution of work and achieved business objectives. Now that organization culture is
connected with internal controls and control environment clearly. It is defined by
the leadership of the organization. The chief executive officer is the torch-bearer of organization
culture. The vision, mission and strategy communicated by the senior management are the link
which holds the organization together and moves everybody in the same direction. Lack of clear
direction, frequent and abrupt changes and arbitrary decisions in mission, vision and strategy
contribute to the negativity in the organization culture, which also results in varieties of
departments having different work cultures and working in a counter-productive manner.
Additionally, business operations also would be impacted directly by effectiveness and
efficiency. For example, Larry Page and Sergey Brin who are the leaders of Google Inc still play
an active role in the day-to-day affairs. That being said, they have constructed a organizational
culture that deeply believes in delegation. Each of employees are encouraged to speak their mind
from the first day, and even decisions classically reserved for management that hiring are done
through a collaborative process.

Thirdly, the team work also affects the culture of the organization. Team work is cooperative and
emphasizes cooperation among employees. The organization culture brings all the employees on
a common platform. The employees must be treated fairly and no one should feel ignored or left
out at the workplace. It is essential for the employees to adjust well in the organization culture
for them to deliver as best as they can. In team work organizations, members tend to have more
positive relationships with their coworkers and particularly with their managers

The above mentioned three aspects clearly indicate that organization culture has a significant
impact on strategic management. Every organization has its particular style of working which
often contributes to its culture. The beliefs, principles, ideologies, and values of an organization
structure its culture. The culture of the workplace controls the way employees conduct
themselves as well as with people outside the organization. The way of employees interact with
their workplace is decided the organizational culture. A healthy culture encourages the
employees to stay highly motivated and loyal to the management. The culture of the workplace
also goes a long way in facilitating healthy competition at the workplace that makes the
individuals a successful professional.

▪ Undertaking cultural analysis

Rapid change, intense competition and increased complexity in markets are making it
challenging for organizations to stay competitive. In such a frenzied environment, it’s even more
important for companies to increase their agility in both their business processes, and decision-
making abilities. This agility will help them resolve problems faster, accelerate innovation, and
reduce the “flash to bang time” for deploying products and services. And for organizations to be
agile, they need to manage change effectively and quickly.
In an environment replete with new digital companies, start-ups, and traditional companies,
organizations are realizing the value of Organizational Change Management (OCM) and the
assured results it can deliver. OCM is increasingly critical for companies to succeed, because it
recognizes the complexity of the organization’s culture and human behavior and can predict,
address, and prevent dips in productivity during a change initiative. When a cultural analysis, or
the ability to interpret cultural representation and practices, is applied to OCM, it can provide
organizations with the “as-is” state and identify the “to be” state. This can then help the
organization re-align its culture to support its objective.
Understanding culture can be useful in two ways. First, cultural insights tell us if employees are
willing to accept change; and second, a cultural assessment is likely to determine the root cause
of the problems that impede stronger performance. This awareness and understanding will
reduce the barriers brought on by change and the people affected by it. A cultural analysis can:

 Provide a snapshot in time of the major beliefs and values of the organization that
influence communication practices, interactions and required skills
 Reveal the unseen communication practices, such as important rituals and routines or
ways power is exercised for ethical or unethical purposes
 Provide insight for new job orientation and job promotion practices
 Assist the change management process by uncovering cultural strengths and potential
problem areas

Cultural analysis is gaining importance to support today’s digital evolution. When borrowing
practices from Agile and DevOps (or more specifically, Business Development Operations
(BusDevOps)), it can help the organization transform and manage change more effectively.
Both Agile and BusDevOps play a significant role in an organization’s change initiative. While
Agile helps improve a major IT function (i.e., delivering software), DevOps helps improve the
interaction and flow across the length of the IT function’s lifecycle. Research has shown that the
largest element requiring adjustment during an organization’s digital change is predominately the
development of talent and skills to support the digital environment. When employees have the
skills required to act in a new way, they are more inclined to embrace the desired changes, both
in mindset and behavior. Understanding the variances within the “as-is” and “to-be” capabilities
helps establish the gap analysis and mitigation plans to ensure that the people affected by the
change are fully supportive of the new digital environment.
So, how does an organization evolve from the “as-is” to the “to-be” state? There are two ways.

 First, the creation or amendment of the formal levers of change, including leadership
policies, role definitions, and people interactions, which address the processes and
 structures that support digitization. This activity organizes the introduction of new digital
channels into traditional operation models; and
 Second, the informal levers that include key behaviors, role models, and networks, which
help employees think, feel, and behave in new ways.

Using these formal and informal levers in an integrated fashion can help people adapt to new
ways of doing business, and enable companies to deliver the multi-model channel of digitization
customers want.
From a cultural perspective, training is important to ensure team members have the skills
necessary for managing and using the new digital technologies. But training is not the only
cultural dimension that should be considered. A few ways to enable cultural change to support
digitization include:

 Matching strategy and culture: Too often a company’s strategy, imposed by the
leadership, is at odds with the ingrained practices and attitudes of its culture. Executives
may underestimate how much an organization strategy’s effectiveness depends on
cultural alignment. Culture trumps strategy every time. Understanding the organization’s
strategy, mission and goals, (and how the employees play their part in supporting the
goals), promotes inclusion, value and support.
 Focusing on a few critical shifts in behavior: Trying to “boil the ocean” is a fruitless
effort. Identifying which cultural shifts are essential in support of the digital footprint is
key, and listening to the employees both from the formal and informal communication
channels can provide additional mechanisms for change.
 Measuring and monitoring: Like any change, it is important to measure and evaluate how
your cultural changes are progressing. Dynamic KPI’s allow executives to see how
change is progressing and if required, when to present more rigor to redirect the effort to
support the success of the changes.

In any major change initiative, the management and people affected by the transition need to
evaluate, and profit from the strong cultural attributes of their company to build momentum and
create lasting change. Companies that are able to do so, establish a “culture led” approach to
change and substantially increase the agility, success, and sustainability of their transformation
initiatives.
 CHAPTER 7
BUSINESS STRATEGY AND MODELS
7.1 Generic competitive strategies
A firm's relative position within its industry determines whether a firm's profitability is above or
below the industry average. The fundamental basis of above average profitability in the long run
is sustainable competitive advantage. There are two basic types of competitive advantage a firm
can possess: low cost or differentiation. The two basic types of competitive advantage combined
with the scope of activities for which a firm seeks to achieve them, lead to three generic
strategies for achieving above average performance in an industry: cost leadership,
differentiation, and focus. The focus strategy has two variants, cost focus and differentiation
focus.

1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of
cost advantage are varied and depend on the structure of the industry. They may include the
pursuit of economies of scale, proprietary technology, preferential access to raw materials and
other factors. A low cost producer must find and exploit all sources of cost advantage. if a firm
can achieve and sustain overall cost leadership, then it will be an above average performer in its
industry, provided it can command prices at or near the industry average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that
are widely valued by buyers. It selects one or more attributes that many buyers in an industry
perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its
uniqueness with a premium price.
 3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation
focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on
differences between a focuser's target segment and other segments in the industry. The target
segments must either have buyers with unusual needs or else the production and delivery system
that best serves the target segment must differ from that of other industry segments. Cost focus
exploits differences in cost behaviour in some segments, while differentiation focus exploits the
special needs of buyers in certain segments.

▪ Hybrid strategy
The hybrid strategy facilitates the sale of product at lower prices than the competitor while
at the same time offering higher quality for the product. The hybrid strategy blends the elements
of differentiation and low-cost to offer products to customers with a competitive edge.
The postulate of the incompatibility of cost and differentiation advantages is considered
disproved from a current viewpoint. Thanks to modern production technologies and
organizational structures, it is now possible to achieve both high quality and productivity at the
same time. More importantly, pursuing singular generic strategies is considered to be no longer
sufficient in today’s competitive environment. Increased competition and cost pressures as side
effects of globalization as well as changing customer expectations require companies to adopt a
multidimensional strategic approach. These days, most customers expect to get everything at
once: differentiated, high-quality products combined with excellent service at a low price.
Hybrid strategies that integrate cost and differentiation advantages represent a way for
companies to respond to these changes in the competitive environment more flexibly and
effectively and stay competitive. Recent empirical studies have shown that companies that
pursue a hybrid strategy may achieve higher performance than those companies using a singular
strategy .
Two types of hybrid strategies can be distinguished:
 Sequential or „outpacing“ strategies first concentrate on one of the two strategic
options, and then the other. For instance, an innovative company may first undergo a
phase of differentiation in which it markets a new product that offers high value to
customers and can be sold at a premium price. Next it needs to push back any
competitors that will inevitably appear on the scene by making a strategic shift to gaining
cost leadership. Through product and process standardization, the company will lower
prices enabling it to sustain its competitive advantage. With the development of new
products, the cycle repeats.
 Simultaneous strategies aim to generate cost and differentiation advantages at the same
time. One way to achieve that is mass customization, that is by producing customized
 products at a price similar to those of mass-produced products. Customization may be
achieved through design or mixing-and-matching of components (e.g., Dell).
Some key success factors for the implementation of hybrid strategies are innovative strength,
close orientation towards customer needs, and organizational learning. In addition, just like
generic strategies, hybrid strategies require companies to make consistent strategic decisions how
to pursue competitive advantages and align resources and capabilities accordingly. Otherwise,
they may indeed fall into the “stuck in the middle” trap.

▪ The Strategy Clock

Bowman’s Strategy Clock is a comprehensive and easy to use strategy tool that provides options
for positioning within a market based around price and perceived value. It’s commonly used in
conjunction with tools such as the Ansoff Matrix and can be seen as an alternative or extension
to Porter’s Generic Strategies.

The Bowman’s Strategy Clock was developed by the two famous economists Cliff Bowman and
David Faulkner. The main focus of the model is to make the companies aware of their position in
the market as compared to their competitors.

It is purely a marketing model that helps the companies to analyze their position in the market.
As per Bowman, the factor of competitive advantage is then the factor of cost advantage as it
works as a distinctive element for the company and harps on the strategic positioning and the
overall positioning of the product in the market.

The Bowman’s Strategy Clock highlights the aspects on how a company can position
its products or service offerings in the market based on the two dimensions. First is about the
price whereas the second is about the perceived value of the product, service, and the
overall brand.

Harping on both the dimensions and its various combinations with the Bowman’s Strategy
Clock, there are eight possible and effective strategies that a company can opt and all these eight
strategies are divided over the four quadrants. All these eight strategies are displayed in a clock
format adhering to the name of the model.

The management of the company can choose its position from the Bowman’s Strategy Clock that
offers it the most competitive advantage in the market as compared to its competitors and results
in its growth and overall development and attainment of its business objectives.

And if the management of the company is able to understand these eight crucial and fundamental
strategic positions of the model, it will enable them to analyze and evaluate the current strategy
in a better and optimal manner. As a result, the model can help them to make the necessary
changes and improve the competitive position in the market and in the minds of the customers.

7.2 Interactive strategies

Interactive price and quality strategies

Agile product pricing strategies is one of the biggest questions retailers face for a
reason. The relationship between an item’s price and its quality — and perceived
value to consumers — is oftentimes the deciding factor in shaping whether or not
purchase ever takes place.

In such an increasingly crowded marketplace, the concept of cash cow

marketing has been called into question, leaving sellers in the eCommerce space
and beyond to reevaluate how they approach their respective businesses.
Fortunately, the Price Quality Matrix presents a simple way to leverage product
value and address the pricing dilemma head-on.

What Is the Price Quality Matrix?

Designed by Philip Kotler, the Price Quality Matrix centers on the cross -section
between the two metrics that lend the model its name. By determining the position
of your products or services relative to the competition, retailers can use the price
 and quality of each item to identify where they stand in the market. Of course, this
knowledge can then be incorporated directly into your decision -making process
when it comes time to devise a pricing strategy. Just think of it as another way to
assess your relevance in today’s fast -paced and ever-changing business landscape.

So it’s important to ensure that the quality of your offer complements your price
point accordingly. Based on Kotler’s nine -variable model, let’s take a closer look at
the possibilities that result depending on how price and quality interact with each
product or service.

 Premium (high price/high quality): When a product’s high price is matched

by its quality, this creates an image of a premium item that consumers consider a
worthwhile investment, such as Apple products.

 Overcharging (high price/medium quality): Even if a product’s quality is

sound, it can be tricky to elevate the price point beyond what the product offers.
Tread carefully in this scenario.

 Rip off (high price/low quality): In case the name of this category isn’t a
dead giveaway, steer clear of this one at a ll costs, as selling a subpar product for
such a high price point is a surefire way to stir bad word of mouth when consumers
get wise.

 High value (medium price/high quality): Conventional wisdom says that

your price should surpass your product quality sinc e the implication is that your
business will be able to turn a profit more easily. Yet, it may be worth it to offer a
high-quality product at a slightly lower price upfront to build word of mouth.
 Average (medium price/medium quality): As its name implies, these
products are the very definition of “you get what you pay for.” Generally,
consumers know that the value they receive from a given product is in line with the
price point. It’s always a good idea to offer a lower -priced alternative of premium
products to encourage engagement.

 False economy (medium price/low quality): The aforementioned danger in

overpricing your products applies here as well, though to a lesser extent. You’re
better off developing a better product or dropping the price to fall more c losely in
line with your product offering.

 Superb value (low price/high quality): The best-case scenario for

consumers, a high-quality product with a low price can be tricky to pull off and
could end up getting into your bottom line.

 Good value (low price/medium quality): Consumers are always on the

lookout for an affordable, quality product. To foster long -term customer loyalty, it
might be worth it to feature your medium -tier products at a slightly lower price
point.

 Economy (low price/low quality): There’s something to be said about

economy options. In your business, this may simply be a free version of a product
that offers fewer features. However, it’s an easy gateway to establish more
profitable customer relationships down the line and well worth consi dering.

▪ Cooperative strategy
A cooperative strategy (or cooperation strategy) concerns an attempt by an organization to
cooperate with other firms in the achievement of its objectives.

The cooperation may serve to reduce costs, sure up supply chains, reduce competition, add
resources/knowledge/skillsets, and create other synergies.

The cooperation can be between suppliers, buyers, unrelated businesses, or even competitors -
the antitrust law may be implicated.

Generally, this cooperation is carried out in the form of a strategic alliance.

4. Structure for a Strategic Alliance?

The three common structures for a strategic alliance are as follows:

Joint Venture

A joint venture is similar to a general partnership.

Two or more companies come together for a specific purpose for a specific period of time.

The companies work together as partners in promoting their business interests.

The result is a separate and new legal entity with each company serving as an owner.
Equity Strategic Alliance

This is an alliance through which two companies invest money in the other.

As such, there is co-ownership between the companies.

Generally, the arrangement is a merger of equals and each equity partner receives equal control,
authority, recognition, and ownership interest.

Non-Equity Strategic Alliance

This is a contractual relationship whereby two or more companies coordinate efforts and share
resources.

It can also include a commitment concerning operations and the relationship between the
companies.

Generally, there is no co-ownership between the firms.

Any sums of money exchanged or invested are earned as part of service or supply contracts
between the companies.

▪ Game theory
Game theory is a theoretical framework for conceiving social situations among competing
players. In some respects, game theory is the science of strategy, or at least the optimal decision-
making of independent and competing actors in a strategic setting.

The key pioneers of game theory were mathematician John von Neumann and economist Oskar
Morgenstern in the 1940s. Mathematician John Nash is regarded by many as providing the first
significant extension of the von Neumann and Morgenstern work.

The focus of game theory is the game, which serves as a model of an interactive situation among
rational players. The key to game theory is that one player's payoff is contingent on the strategy
implemented by the other player.

The game identifies the players' identities, preferences, and available strategies and how these
strategies affect the outcome. Depending on the model, various other requirements or
assumptions may be necessary.

Game theory has a wide range of applications, including psychology, evolutionary biology, war,
politics, economics, and business. Despite its many advances, game theory is still a young and
developing science.
 ny time we have a situation with two or more players that involves known payouts or
quantifiable consequences, we can use game theory to help determine the most likely outcomes.

Let's start out by defining a few terms commonly used in the study of game theory:

 Game: Any set of circumstances that has a result dependent on the actions of two of
more decision-makers (players).
 Players: A strategic decision-maker within the context of the game.
 Strategy: A complete plan of action a player will take given the set of circumstances that
might arise within the game.
 Payoff: The payout a player receives from arriving at a particular outcome. The payout
can be in any quantifiable form, from dollars to utility.
 Information set: The information available at a given point in the game. The term
information set is most usually applied when the game has a sequential component.
 Equilibrium: The point in a game where both players have made their decisions and an
outcome is reached.

7.3 Business models

A business model is an outline of how a company plans to make money with its product and
customer base in a specific market. At its core, a business model explains four things:
 What product or service a company will sell.
 How it intends to market that product or service.
 What kind of expenses it will face.
 How it expects to turn a profit.
Because there are so many types of businesses out there, business models are constantly
changing — and although we'll discuss some of the most common types below — there is no
one-size-fits-all model that can be applied to every business.

▪ Value creation. configuration and capture

Value Creation. Value can be created in two ways: First, by producing an offering (a good or
service) that is worth more to customers than its cost to produce; and second, by preventing the
production of an offering that is worth less to the market than its production cost. Clearly,
expending more to produce something than its market price destroys value. Value must be
created and delivered to customers before any of it becomes available for capture by your
company. Value creation is the “buy low” part of the old adage, “buy low, and sell high.”

Value Delivery. This phrase is a bit of a misnomer because it implies that all you need to do is
be willing and able to deliver something to be successful. If we take a more customer-centric
view, we will realize that value is less “delivered” by you, and more “accepted” by your
customers. The ultimate decision to do the deal always lies with the customer. Customers are
willing to accept and use your value because of their awareness of your company (nurtured by
your marketing message), their belief that your offering will solve a business problem
(reinforced by your sales approach), and their expectation of improved operations (made credible
by your customer service practices). If you can provide effective marketing, sales and support,
then you will inevitably be asked to transfer more value to an ever-expanding number of willing
customers.

Value Capture. This is the stage at which your organization gets paid. The question is, how
much of the total value should you take? Simple math dictates that you would get whatever
amount is left after subtracting your costs of value creation and delivery from the offering’s sales
price. But it’s never that simple because of other considerations; such as, your competitors’
pricing, the amount of surprise-and-delight you are trying to create for your customers, and your
longer-term market strategy—just to name a few. For example, you could divide some of the
excess value (above and beyond a reasonable profit margin for you) with your customers so that
their value-capture opportunity exceeds expectations.

▪ Business model patterns

Pattern #1. Unbundling

Not so long ago, large generalist companies ruled the market. Recently, their strengths – size,
reputation, integration – lost luster and gave way to the creativity, speed, and flexibility of small
specialist businesses.
Separating unrelated activities

The model shows the dynamics of some businesses that have proven more viable than large
monolithic vertical corporations of the past. Over a time, a company ‘unbundles’ into three
fundamentally different business areas. Those three may coexist in one organization, but they
better be different entities, to avoid conflicts and undesirable trade-offs.

Pattern #2. Long Tail

The Long Tail business model brings in focus an assortment of niche products that sell relatively
infrequently. They add value in an online environment:

 Aggregate sales of niche items can be as profitable as bestsellers due to low inventory
cost of online retail.
 Strong platforms make niche content readily available to interested buyers.
 Virtual space is ideal since it’s limitless, accessible and friendly towards various tastes.

The concept was dubbed ‘long tail’ by Chris Anderson in 2004. He believes 3 triggers gave rise
to this phenomenon in the media industry:
  Democratisation of tools and production
 Democratisation of distribution
 Falling search costs to connect supply with demand

Merits of Long Tail

 Increased revenue: since both hits and misses are equal in terms of revenue, the money
can add up quickly to a huge new market.
 A better way of marketing: it makes up for our poor understanding of the market
demands – when consumers are offered infinite choice, the true shape of demand is
revealed.
 Non-discriminatory: popularity no longer has a monopoly on profitability.
 Infinite shelf-space effect: no shelf space to pay for in online sales.
 Low-cost: no manufacturing costs; hardly any distribution fees.

5. Pattern #3. Multi-sided platform

2.5.1 Multi-sided platforms on a BMC

 Success with Multi-sided platforms

 Advertisement and marketing platforms: Google’s VP is providing extremely targeted

text advertising globally over the Web. Of the three customer groups – searchers, content
owners, and advertisers – only the last one is paid.
 RE sales & rentals: Airbnb has built a platform to bring together homeowners and
travelers looking for short-term rentals. Both groups are paying users.
 Social networking sites (SNS): Facebook is on a world’s mission to power connectivity
by providing a free platform for customer segments with various VPs. Among the other
freebies, it provides tools and APIs for developers. The key paying segment is
advertisers.
 Professional networking sites: LinkedIn is a platform to leverage the power of
connectivity between job seekers and recruiters, marketers/advertisers and business. It
offers free basic tools as well as paid solutions for all these categories of users.

Pattern #4. FREE

In this model:

 at least one of the customer segments continuously uses the product/service free of
charge
 different patterns make the subsidized offer possible
 non-paying customers are financed by another customer segment

Merits of FREE

 It’s irresistible. That’s the most powerful VP. I mean, who doesn’t like freebies?!
 Best marketing tactic. Given that sales and marketing eat up a lion’s share of business
funds, freebies are a great lead-generating tool (the free model invests heavily into the
engineering of a great product, which at the same time becomes its marketing strategy –
much leaner than the traditional marketing). Thus product development overlaps with
customer development.
 Ensures market leadership. A large base of free users creates market value in making
the product attractive to investors as potentially monetizable (think WhatsApp). Having a
large market share (albeit not paying) positions you as a market leader, which is self-
reinforcing in the tech industry. The financial markets and acquirers realize that market
leadership is worth a significant premium over niche players that may have more
revenue.

Challenges of FREE

 Psychologically, it’s hard to get a user to pay for what once was free.
  Working out an effective monetization strategy is tricky. A general mistake is to calculate
the costs based on these:
o similar products’ costs;
o ‘expert’ opinion;
o ‘we worked hard so we’ll charge $X’ idea.
 Making the most valuable features ‘paid’ is risky if not fatal. You may lose a
considerable number of users if your basic free product becomes less attractive.

6. Pattern #5. Open

Before: Closed Innovation After: Open Innovation

 The smart people are here  Let’s work with outsiders

 Do it ourselves  We can benefit from the outside research
 We need control  We should profit from others’ input

What’s the logic behind the open business model? An organisation is no longer a citadel, nor a
chamber of secrets.

Since R&D is costly or slow, acquiring R&D from external sources can be less expensive or
faster-to-market. On the other hand, sharing the unused internal intellectual property creates new
revenue streams.

This philosophy results in the two vectors:

 Inside-out: innovation occurs when organizations license or sell their intellectual
property or technologies, particularly unused assets.
 Outside-in: innovation occurs when an organization brings external ideas, technology, or
intellectual property into its development and commercialization.
 CHAPTER 8
CORPORATE STRATEGY AND DIVERSIFICATION
− Strategy directors
Ask any Board of Directors if they need a Strategy Director and more often than not the answer
will be no. They will quickly point out that Strategy is everyone’s job, it is not something that
should be considered a bolt-on. They will point out that it is the job of the CEO to set strategic
direction and the job of the board to implement strategy based on the guidelines provided.

They might also argue that it is a good thing to allow for a certain amount of divisional
autonomy as after all they are closest to the way their part of the organisation works. No doubt
they will cite the many occasions in the past where a strategy department has been set up and
become an isolated ‘ivory tower’ that comes up with great ideas but has no idea about living in
the ‘real world’.

And of course they would be correct. Especially if they really believe that the role of the Strategy
Director is to ‘come up with great ideas’ or to be responsible for defining the strategy and to tell
the board what needs to be done. It is here that the biggest mistake is frequently made. No one
person or department can be held responsible (and accountable) for strategy. Clearly the CEO
owns the strategy and he or she may well set out a general direction but in a very real sense, the
CEO actually ‘owns’ very little. Yes the buck stops at the CEO, but the CEO simply sets out a
path and checks every now and then that the right path is being taken. The Board of Directors
have specific responsibilities. They might be sales, marketing, operations or finance or any other
areas that the company has been organised around. So it is imperative they are part of the
strategy decision making process.

Introducing a Strategy Director in a traditional way, would be a mistake. As the Board of

Directors point out, strategy is everyone’s job. But to not have a Strategy Director is a mistake as
well. Leaving the job of strategy to everyone will result in nothing getting done. It is what
Franklin Covey describes as the ‘Whirlwind of our day jobs’. If you have not seen the Franklin
Covey video The Four Disciplines of Execution, we highly recommend it. The key question to
be asked is not “Do you need a Strategy Director?” but “What does a Strategy Director do?”

So let’s get this straight. A Strategy Director does not own the Strategy. That’s right, let me say
it again, the Strategy Director does not own the Strategy. The Strategy Director directs the
strategy, he or she ‘owns’ the strategic process. If you start from this premise you have a whole
different ball game. First it presents the question: What is the strategic process? Well if you
haven’t got one then you have just taken your first step towards understanding why you need a
Strategy Director.
A common reason for less-than-desired performance of a whole strategy or even a strategic
objective is that the leadership team does not remain engaged. This is not because they don’t
want to be engaged but because there is no process in place that causes them to drive the
engagement. The objectives and initiatives they have put in place have been ad-hoc, unrelated
and have not been carefully monitored. By putting in place a robust process, and a person to
drive that process, turns the strategy into a business-as-usual activity. Regular reviews are put in
place and often these are combined with operational reviews (where it makes sense to do so).

It is less important to determine which strategic process you are going to follow than it is to have
one in place. The Balanced Scorecard, as described by the Balanced Scorecard Institute, provides
an end-to-end strategic process that fully integrates with ‘normal’ business processes and
activities. For more information on the Balanced Scorecard strategic process take a look at
our Balanced Scorecard Training programme.

So yes, you do need a Strategy Director. A person that is going to take on the task of driving the
strategic process. Someone who can engage at the top-most level but is equally comfortable
rolling up his or her sleeves and digging into the minutia of the detail to ensure a positive
outcome.

− Diversification and performance

One of the most challenging decisions a company can confront is whether to diversify: the
rewards and risks can be extraordinary. Success stories abound—think of General Electric,
Disney, and 3M—but so do stories of such infamous and costly failures as Quaker Oats’ entry
into (and exit from) the fruit juice business with Snapple, and RCA’s forays into computers,
carpets, and rental cars.

Diversification is a technique that reduces risk by allocating investments across various financial
instruments, industries, and other categories. It aims to maximize returns by investing in different
areas that would each react differently to the same event.

Most investment professionals agree that, although it does not guarantee against loss,
diversification is the most important component of reaching long-range financial goals while
minimizing risk. Here, we look at why this is true and how to accomplish diversification in
your portfolio.

What makes diversification such an unpredictable, high-stakes game? First, companies usually
face the decision in an atmosphere not conducive to thoughtful deliberation. For example, an
attractive company comes into play, and a competitor is interested in buying it. Or the board of
directors strongly urges expanding into new markets. Suddenly, senior managers must synthesize
mountains of data—including internal-rate-of-return calculations, market forecasts, and
competitive assessments—under intense time pressure. To complicate matters, diversification as
a corporate strategy goes in and out of vogue on a regular basis. In other words, there is little
conventional wisdom to guide managers as they consider a move that could greatly increase
shareholder value or seriously damage it.

But diversification doesn’t need to be quite such a roll of the dice. Yes, it always will involve
uncertainty; all major business decisions do. And indeed, there is a wealth of good advice about
how to approach diversification.1 But my research suggests that if managers consider the
following six questions, they can push their thinking still further to reduce the gamble of
diversification. Answering the questions will not lead to an easy go-no-go decision, but the
exercise can help managers assess the likelihood of success.

The issues the questions raise, and the discussion they provoke, are meant to be coupled with the
detailed financial analysis typical of the diversification decision-making process. Together, these
tools can turn a complex and often pressured decision into a more structured and well-reasoned
one.

Thus, when managers consider whether or not to diversify, they should ask themselves the
following questions:

What can our company do better than any of its competitors in its current market?

Just as it is important to take stock of the pantry before going shopping, so is it crucial for a
company to identify its unique and unassailable competitive strengths before attempting to apply
them elsewhere. The first step, then, is to determine the exact nature of those strengths—which I
refer to in general terms as strategic assets.

How is such an assessment usually done? Incompletely, I’m afraid. The problem is that most
companies confuse identifying strategic assets with defining their business. A business is
generally defined by using one of three frameworks: product, customer function, or core
competencies.2 Thus, depending on its approach, Sony could decide that it is in the business of
electronics, entertainment, or “pocket-ability.”

When facing the decision to diversify, however, managers need to think not about what their
company does but about what it does better than its competitors. In one sense, pinpointing
strategic assets is a market-driven approach to business definition. It forces an organization to
identify how it might add value to an acquired company or in a new market—be it with excellent
distribution, creative employees, or superior knowledge about information transfer. In other
words, the decision to diversify is made not on the basis of a broad or vague business definition,
such as “We’re in the entertainment business.” Rather, it is made on the basis of a realistic
identification of strategic assets: “Our excellent distribution capabilities could radically improve
the performance of the acquired company.”

Before diversifying, managers must think not about what their company does but about what it
does better than its competitors.

Consider the case of Blue Circle Industries, a British company that is one of the world’s leading
cement producers. In the 1980s, Blue Circle decided to diversify on the basis of an unclear
definition of its business. It was, the company’s managers determined, in the business of making
products related to home building. So Blue Circle expanded into real estate, bricks, waste
management, gas stoves, bath-tubs—even lawn mowers. According to one retired executive,
“Our move into lawn mowers was based on the logic that you need a lawn mower for your
garden—which, after all, is next to your house.” Not surprisingly, few of Blue Circle’s
diversification forays proved successful.

Blue Circle’s less focused, business-definition approach to diversification didn’t answer the more
relevant question: What are our company’s strategic assets, and how and where can we make the
best use of them?

One company that did ask that question—and reaped the rewards—is the United Kingdom’s
Boddington Group. In 1989, Boddington’s then chairman, Denis Cassidy, assessed the
company’s competitive situation. At the time, Boddington was a vertically integrated beer
producer that owned a brewery, wholesalers, and pubs throughout the country. But consolidation
was changing the beer industry, making it hard for small players like Boddington to make a
profit. The company had survived up to that point because its main strategic asset was in
retailing and hospitality: it excelled at managing pubs. So Cassidy decided to diversify in that
direction.

Quickly, the company sold off the brewery and acquired resort hotels, restaurants, nursing
homes, and health clubs while keeping its large portfolio of pubs. “The decision to abandon
brewing was a painful one, especially because the brewery has been a part of us for more than
200 years,” Cassidy says. “But given the changes taking place in the business, we realized we
could not play the brewing game with the big boys. We decided to build on our excellent skills in
retailing, hospitality, and property management to start a new game.” Boddington’s
diversification resulted in the creation of enormous shareholder value—especially when
compared with the strategies adopted by regional brewers that decided to remain in the business.
It also illustrates what happens when a company moves beyond a business-definition approach
and instead launches a diversification effort based on its strategic assets.

What strategic assets do we need in order to succeed in the new market?

Once a company has identified its strategic assets, it can consider this second question. Although
the question seems straightforward enough, my research suggests that many companies make a
fatal error. They assume that having some of the necessary strategic assets is sufficient to move
forward with diversification. In reality, a company usually must have all of them.

To diversify, a company must have all the necessary strategic assets, not just some of them.

The diversification misadventures of a number of oil companies in the late 1970s highlight how
dangerous it is to go up against a royal flush when all you have is a pair of jacks. Companies
such as British Petroleum and Exxon broke into the mineral business they could exploit their
competencies in exploration, extraction, and management of large-scale projects. Ten years later,
the companies had dropped out of the game. The reason: in addition to the oil companies’
capabilities, the mineral business required low-cost extraction capabilities and access to deposits,
which the oil companies lacked.

Consider as well the experience of the Coca-Cola Company, long heralded for its intimate
knowledge of consumers, its marketing and branding expertise, and its superior distribution
capabilities. Based on those strategic assets, Coca-Cola decided in the early 1980s to acquire its
way into the wine business, in which such strengths were imperative. The company quickly
learned, however, that it lacked a critical competence: knowledge of the wine business. Having
90% of what it took to succeed in the new industry was not enough for Coke, because the 10% it
did not have—the ability to make quality wine—was the most critical component of success.

As in poker, the lesson for companies considering diversification is the same: you have to know
when to hold them and when to fold them. If a company is holding only a pair of strategic assets
in an industry in which most players have a better hand, there’s no point in putting money on the
table—unless, that is, the next question can be answered in the affirmative.

Will diversification break up strategic assets that need to be kept together?

If managers have cleared the hurdles that the preceding questions raise, they then need to ask
whether the strategic assets they intend to export are indeed transportable to the new industry.
Too many companies mistakenly assume that they can break up clusters of competencies or
skills that, in fact, work only because they are together, reinforcing one another in a particular
competitive context. Such a misjudgment can doom a diversification move.Managers need to ask
whether their strategic assets are transportable to the industry they have targeted.

− Vertical integration
Vertical integration is where two businesses at different stages of the supply chain join together.
For instance, a business that relies on another for its supplies may find that it is unreliable, which
is affecting business. In turn, it may vertically integrate with its supplier in order to reduce late
deliveries and increase efficiencies.

Businesses will look to integrate in order to obtain greater control of the supply chain. Suppliers
need buyers and buyers need suppliers. Yet there is a competitive aspect involved. There is
nothing to stop either the supplier or buyer from doing their business elsewhere. By vertically
integrating, the supplier no longer worries about having custom, and the buyer no longer worries
about unreliable deliveries.

At the same time, the combined company benefits from the profits of both companies. This can
effectively allow it to offer lower prices to the final consumer. For instance, chocolate
manufacturing has many stages of the supply chain. Two of which are the processing of the
cocoa beans, and another to manufacture the final chocolate bar.

Vertical integration occurs when the chocolate manufacturer (e.g. Mondelez) purchases a cocoa
bean processor that is buying its beans from. As a result, the manufacturer can pay exactly the
marginal cost – rather than profiting the processor. In turn, consumers may see lower prices in a
competitive market place.

Vertical Integration Examples

Amazon

Amazon has vertically integrated much of its business. Not only does it act as a marketplace for
buyers and sellers – but it also offers its own products and services, as well as its own
distribution channel. So in effect, it has 3 stages in the supply chain. It sources the products,
markets and sells them on its website, and then distributes them.
Carnegie Steel

Carnegie was a massive steel manufacturer in the late 19th century. It vertically integrated by
acquiring companies before itself in the supply chain. The process of making steel requires raw
material extraction – iron ore and coal. It then requires those materials to be refined before it is
then sent to Carnegie Steel to manufacture into the final goods.
Carnegie Steel owned both the miners that extract the raw materials, as well as the refineries –
thereby owning virtually the whole supply chain.
Ikea

Ikea is known as a flat-pack retailer that sells mostly wooden furniture, but also other fixtures
and fittings. It is the last in the supply chain as it directly sells to the final consumer.
In 2015, Ikea made a huge step in ensuring complete vertical integration by purchasing a
Romanian forest. The company added to this by purchasing forestland in Alabama in 2018 –
aligning the companies aim to create a sustainable supply chain.
Not only does it now control much of the raw material production, but it also controls the
manufacturing process through its subsidiary – Swedwood, which was renamed in 2013 to Ikea
Industry. So it controls the production of the wood, the manufacturing process, and the final
distribution through its retail units.
Netflix

Netflix is known as a provider for streaming services – the end of the supply chain where there is
direct interaction with the consumer. It provides a platform for produces of films, TV, and other
content. However, the company was reliant on third-parties to provide new content that its
subscribers would like. At the same time, it had to pay a premium – particularly for big shows.
In 2013, Netflix decided to vertically integrate and enter the production business. So in turn, it
not only produced shows and films but also provides the distribution network through its
streaming services. This strategy has become vital as it has helped differentiate it from
competitors and control the type of shows that are made available.

Types of Vertical Integration

There are three kinds of vertical integration:

Forward Vertical Integration

Forward vertical integration is where one company mergers, acquires or expands with a firm that
is ahead of it in the supply chain. In its most basic form, the supply chain contains the raw
material extractors, the manufacturers, and the retail distributors.
Forward vertical integration is where the company essentially mergers or buys its customer. For
instance, EA sports manufacturers and designs video games. It is in the middle of the supply
chain, so forward vertical integration would occur if it was to purchase a retailer such as Target
or Gamestop.

Also known as upstream integration, this type of vertical integration is not so common.
Generally speaking, it is the big retailers and the companies at the end of the chain that has the
greatest purchasing power. This allows them to be the ‘predator’ rather than the ‘prey’ – meaning
the firms at the end of the chain have the money to purchase companies behind them, whilst the
opposite is true for firms earlier in the supply chain.
Part of the reason forward vertical integration is not common is because the companies at the end
of the supply chain are usually very condensed. By contrast, there are thousands of suppliers that
could only dream of integrating upwards. For instance, thousands of cocoa bean farmers supply
Mondelez. Yet there is no way a small farming business in Columbia could afford to purchase or
merge with Mondelez.
Backward Vertical Integration

Backward vertical integration is where a company joins with another that is at a stage before
itself in the supply chain. In other words, it integrates with one of its suppliers. For instance, Ikea
is dependent on manufacturers of wood. When it integrates with the manufacturer, we see
backward vertical integration.
It is known at backward vertical integration because the firm is behind in the supply chain. So in
a basic supply chain of raw material extraction, manufacturing, and distribution – the distributor
could merge with the raw material extractor or the manufacturer and be classed as backward
vertical integration. This is because they are at the stage behind in the supply chain.
Also known as downstream integration, this type of vertical integration is quite common. This is
because big businesses at the end of the supply chain tend to have the purchasing power to
consume their suppliers.
Balanced Integration

There is a third type of integration – balanced integration. This is quite simply a combination of
both backward and forwards integration. For instance, balanced integration would be where a
company mergers’ with both a company that is before it in the supply chain, as well as one that is
after.
Therefore, balanced integration involves two transactions – one downstream, and another
upstream. For example, Hershey relies on cocoa bean suppliers to provide it with its raw
materials – it also relies on distributors such as Walmart and Target to sells its products.
An example of balanced integration would be if Hershey’s were to acquire both its coca bean
suppliers AND a distributor such as Target. Obviously, this is a very rare type of integration that
infrequently occurs – mainly due to the cost, but also due to potential legal disputes that may
arise due to monopoly control of the vertical supply chain.

Advantages of Vertical Integration

1. Reliability
Many businesses face problems with their suppliers. This might be late deliveries, poor service,
or failing to update and adapt to new trends. At the same time, suppliers may be situated in a
location that is unfavourable – meaning deliveries take longer and are more likely to be late.
Through vertical integration, firms are able to benefit from a close co-operation between both
parties. It controls that part of the supply chain, so difficulties can be ironed out. For instance,
proximity issues may be addressed by moving facilities closer to each other.

2. Power over Suppliers/Buyers

Suppliers and buyers of goods may find themselves in a position whereby they are negotiating
disadvantage. In other words, the company they are dealing with has many other options, whilst
the company itself only has a few.
At the same time, certain players in the market might be difficult to work with, but are necessary
in order to do business. By vertically integrating, businesses are able to avoid dealing with such
companies, or at least better dictate terms and prices with them – after all, it owns one of its
competitors.

3. Economies of Scale
It must be said that vertical integration does not benefit from economies of scale as greatly as
horizontal integration. This is because the two companies are at different stages of the supply
chain – so any overlap of industry expertise is unlikely to prove useful.
We also have the fact that it won’t benefit from an increase in production as the industries are
completely different. Therefore, any cost benefits from lower unit costs will not occur under
vertical integration – at least not to the same extent.
At the same time, there are economies of scale that can be achieved. Often businesses will have a
number of suppliers, but if one is now integrated, it may make sense for it to become the sole
provider. Therefore, it could benefit from lower unit costs through increased production from the
supplier’s end.
There can also be some efficiencies achieve through an organisational perspective. Fewer
employees are needed in jobs that overlap – HR and finance are examples. So fewer departments
will be needed – saving costs in that regard.

4. Flexibility
When two firms at different stages of the supply chain join together, the feedback connection is
enhanced. When trends or tastes are changing, this can be pro-actively fed back to the integrated
suppliers who can then work on alternative solutions.
If we look at the Zara example again. It owns both the manufacturing and designing of its
clothes. This allows it to have a greater say on what consumers like and want more of. The retail
stores have the statistics and in turn, those can translate into actionable trends.
For instance, black leather trousers may not be selling well, so within a week, some alternative
clothes can come in to replace them. The problem with having a supplier is that the buyer is not
necessarily the only customer – so to drop everything and start something new is not plausible.
Yet for an integrated company, it is.

5. Lower Consumer Prices

Each stage of the supply chain obtains some level of profit. So through vertical integration, the
new firm is able to capture both sets of profits. At the same time, it can benefit from several
economies of scale – thereby allowing it to charge lower prices.
In a competitive market, these cost savings are likely to be passed onto the consumer – providing
it with a competitive advantage.

Disadvantages of Vertical Integration

1. High Costs
Vertical integration can be very expensive. Not only are there the financial costs, but also the
time and effort to purchase as well as integrate the new firm. There are then additional costs such
as moving factories and other facilities so they are closer to the purchasing company.
These can potentially prove to be wise investments, but at the same time, they are difficult to
reverse. Once the investment is made, it can either be a success or failure – but the costs are
significant nevertheless.
 2. Management Difficulties
Owning a manufacturing business is very different from a retailer. Being a successful retailer
does not make for a successful manufacturer. Some of the existing management may be kept on
board to help in this regard. However, it can be very difficult for them to work in a new
environment by which they have to answer to the parent company.
Conflicts can arise as a company goes from being independent to be told what to do – especially
when the parent company has little experience in the industry. At the same time, there are also
likely to be very different cultures at both companies. Those who work in the factories are
different from those who work for the retailer – so may resent being given instruction from
management.

3. Loss of Focus
Integrating a new company is a lot of work. Integrating a company that is at a different stage in
the supply chain is even more difficult – particularly due to the lack of experience in that field.
At the same time, management may struggle to focus on its core competencies and instead focus
on the integration and management of the new firm. This is why many companies often sell off
divisions within their company as they can become more work than they are worth – thereby
losing focus on the core of its business.

4. Reduced Flexibility
Vertical integration can provide some level of flexibility by allowing information to feed
backward in the supply chain. That allows integrated suppliers to adapt more quickly to new
trends. However, if the integrated supplier is making products A and B – it may then need to
make product C instead. Yet it may not have the equipment to do such.
This requires time and investment to move production to another product. If the integrated
supplier is now the only supplier – it reduces the firm’s flexibility. It has to wait and invest in
moving production. However, if the firm had several suppliers that specialize in different
products, it would be able to go straight to them than having to invest time in moving production.

− Value creation and corporate parent

Value Creation: Value creation primarily occurs when the parent sees an opportunity for a
business to improve performance and has the skills, resources and other characteristics for
helping the business to seize the opportunity.

The complexity of transitional business conditions creates a need for creating value through
aggregation of different businesses in complex corporate enterprise, which gives it the character
of a multi-business firm. Businesses could be defined as being whatever the enterprise chooses to
operate as organizationally separate profit-responsible units. Such business entities are often
referred to as Strategic Business Units (SBUs) and they are organized as largely separable
 businesses with control over the main strategic levers that affect their performance. Besides this
organizational definition, the businesses could be defined in economic sense relating to Strategic
Business Opportunities (SBOs), which are clusters of product-market transactions able to
sustain a successful focused business, with financial independence.

Processes of merger, acquisition, divestment, and the other processes of

transformation continually create new challenges to corporate management towards providing
better performance of aggregated businesses than they would achieve if they were independent,
stand-alone entities. It is corporate strategy that should guide key decisions in the businesses and
coordinate their business strategies. But, for most corporate enterprises, the corporate strategy is
simply the sum of business strategies, with some broad objectives and statement of business
mission. Therefore, senior managers who are responsible for defining the overall corporate
strategy, often recognize that something in their strategies is wrong. They may
conceptually change strategy through offering some financial guidelines, and determine which
businesses are “core”. This affirms creating advantage through parenting (Parenting
Advantage), which, as a principle, should guide decisions about the nature of the businesses in
the portfolio and about its structure.

Namely, multi-business corporate enterprises consist of businesses and a corporate hierarchy of

line managers, functions, and staffs outside these businesses, which refers to as the corporate
parent that is responsible for making corporate decisions. Parent could be defined as all
those levels of management that are not part of customer-facing, profit-responsible business
units, or, simply, whatever is left outside the business units but within the enterprise. The role of
parent is multiple and, among other things, includes making decisions about new businesses to
support or acquisitions to make, determining the structure of enterprise, defining budgeting
and capital expenditure processes, setting the corporate values and attitudes. The businesses
better perform in aggregate under the parent’s ownership than they would if they were
independent entities. Also, the parent must add more value than cost to the businesses in the
portfolio.

There are basically three styles of corporate parenting as follows;

1. Financial control. Under this style the role of the corporate parent is to monitor
and evaluate the financial performance of investment portfolio of the respective business units.
The corporate managers act as agents on behalf of shareholders and financial markets to identify
and acquire viable assets and businesses. The business unit managers are given the
autonomy to carry out business activities and make decisions at their level. However the
corporate parent sets performance standards for control purposes.
2. Strategic planning. Under this style the role of the corporate parent is to enhance
synergies across the business units. This may be achieved through: envisioning to build a
common purpose, facilitating cooperation across businesses and providing central services and
resources.
3. Strategic control. Under this style the corporate parent leverages its resources
and competences to build value for its businesses. For example a corporate could have a
valuable brand or a specialist skill. The corporate parent uses its parenting capabilities to seize
opportunities for growth.

But, more ambitious aspiration for the parent is its ability to gain parenting advantage – it
should aim to be the best possible parent for its businesses. In aggregate, the businesses under its
“patronage” should perform not only better than they would as standalone entities but also better
than they would under “patronage” of any other parent. Corporate strategy should clarify how
and where the enterprise can achieve parenting advantage. The link between parenting
advantage and corporate strategy therefore parallels the link between competitive
advantage and business strategy. Competitive advantage is in the heart of successful business
strategies. It guides strategic analysis and provides a basis for assessing alternative action plans.
The concept of parenting advantage plays a similar role at the corporate level. It should be the
fundamental test for judging corporate strategies and the guiding principle in corporate-level
decisions, guiding the decisions towards better market opportunities and higher corporate
performance.

There are nine propositions for achieving parenting advantage and, consequently, for
successful implementation of corporate parenting strategy.

1. Justifying the Parent: Many of the businesses in multi-business corporate enterprise

could be viable as stand-alone entities. Since the corporate parent has no external customers for
its product/services, it can justify itself if it influences businesses collectively to perform better
than they would as independent entities. The challenge for the corporate parent to justify itself is
important because it focuses attention on whether and how its activities do add value, which
leads to the elimination of worthless and bureaucratic routines in the activities of enterprise.
2. Parenting Advantage: Corporate parents compete with each other for the ownership of
businesses. Therefore, for keeping their stakeholders (especially businesses), the parents
must add more value to the businesses in the portfolio than other rival parents would. This
objective, which is referred to as achieving parenting advantage, should be one of the most
important objectives of corporate strategy. Namely, parenting advantage should be the guiding
criterion for corporate-level strategy, rather as competitive advantage is for business-level
strategy.
3. Value Destruction: All multi-business enterprises have tendencies to destroy value. It is
corporate hierarchy, especially senior management, that inevitably destroys some value. Value
destruction drivers (so-called information filters) are related to the tendency of business
managers to filter the information they provide to corporate management in order to present their
businesses in the most favorable light. For avoiding value destruction, corporate parents must be
more disciplined, which implies avoiding intervention in businesses unless they have specific
reasons for believing that their influence will be positive, or avoiding extension of their portfolio
into new businesses unless they are sure that they will be able to add value. So, good corporate
strategy should recognize the tendencies of value destruction and be designed to minimize their
influence as much as to maximize value creation.
4. Lateral Synergies: Since there is existence or potential for lateral linkages between the
businesses in corporate enterprise, the main role of parent managers should be to create synergy.
It primarily includes their pursuing of real synergy opportunities, and their positive interventions
in the lateral relationships between businesses. The parent managers should also focus their
efforts only on those synergies that need central intervention as well as encourage so-called
market place relationships between business units. So, the importance of lateral synergies in
creating value in corporate enterprise requires from corporate parents to pay relatively more
attention to other sources of value creation, in particular their ability to improve performance in
each individual business as an independent entity.
5. Value Creation: Value creation primarily occurs when the parent sees an opportunity
for a business to improve performance and has the skills, resources and other characteristics for
helping the business to seize the opportunity. This means that the parent enhances both the
individual performance of the business and the value of linkages between the businesses, and
creates value by altering the composition of the business portfolio performing its corporate
development activities. The conditions for value creation are important because they force
corporate parent to think about major opportunities for added value through the corporate
strategy and also help corporate parent to focus its efforts on building special competences or
skills that fit the particular opportunities targeted by the businesses.
6. Corporate Office and Management Processes: The importance of the size, staffing
and design of the corporate office as well as managing corporate processes (such as planning,
performance targeting and monitoring, etc.) are not in question, and managers devote
considerable attention to them. But if corporate functions and processes are not developed as an
integral part of the overall value adding corporate strategy, they may lead to little or no
improvement in performance. For parent managers it is far more important to possess the skills
that are suitable for the parenting opportunities targeted by the corporate-level strategy
7. Diversity: It is a fact that highly diverse corporate enterprises are more difficult to
manage than less diverse ones. So a vital managerial guidance for corporate parent is provided
by creating valid measures of diversity. In that sense, diversity is best measured in terms of the
differences in parenting needs and opportunities between businesses in portfolio. To avoid
excessive diversity, corporate parent should build its portfolio around businesses with similarities
in terms of parenting needs and opportunities.
8. Stretch and Fit: Corporate parent must realistically consider the speed with which it can
build new skills and understand new types of businesses. It is supposed to search for new
opportunities continuously and refine and extend parenting skills, which encourage innovative
ideas and help eliminate many disasters of excessive corporate ambition. Therefore, enterprises
that do push forward into new businesses will prosper more if they choose those businesses that
are compatible with parenting skills that they can develop. It is better to choose a narrower range
of businesses where greater fit can be created. Good corporate strategy should maintain a balance
between the stretch for new opportunities and fit with the parent’s existing skills.
9. Business Unit Definition and Corporate Structure: Business units (businesses)
represent the basic “building blocks” in any multi-business corporate enterprise. Business unit
definition and, consequently, corporate structure have a profound impact on both the value
creation opportunities and the value destruction risks for the corporate parent. They impact the
behavior and aims of business managers and the size and nature of parenting opportunities.
Inappropriate business definitions lead to compromised business strategies and missed
opportunities for parenting value creation. Therefore, decisions on unit definitions and corporate
structure should be determined by careful analysis of their likely impact on value creation.
Getting the unit definitions and corporate structure right is an important precondition for a
successful corporate strategy.

− Portfolio matrices
▪ The BCG (growth/share) matrix
The growth share matrix was created in 1968 by BCG’s founder, Bruce Henderson. It was
published in one of BCG’s short, provocative essays, called Perspectives. At the height of its
success, the growth share matrix was used by about half of all Fortune 500 companies; today, it
is still central in business school teachings on strategy.

The Boston Consulting Group (BCG) growth-share matrix is a planning tool that uses graphical
representations of a company’s products and services in an effort to help the company decide
what it should keep, sell, or invest more in.

The growth share matrix is, put simply, a portfolio management framework that helps companies
decide how to prioritize their different businesses. It is a table, split into four quadrants, each
with its own unique symbol that represents a certain degree of profitability: question marks,
stars, pets (often represented by a dog), and cash cows. By assigning each business to one of
these four categories, executives could then decide where to focus their resources and capital to
generate the most value, as well as where to cut their losses.

How Does the Growth Share Matrix Work?

The growth share matrix was built on the logic that market leadership results in sustainable superior
returns. Ultimately, the market leader obtains a self-reinforcing cost advantage that competitors find
difficult to replicate. These high growth rates then signal which markets have the most growth potential.

The matrix reveals two factors that companies should consider when deciding where to invest—
company competitiveness, and market attractiveness—with relative market share and growth rate as
the underlying drivers of these factors.
Each of the four quadrants represents a specific combination of relative market share, and growth:

1) Low Growth, High Share. Companies should milk these “cash cows” for cash to reinvest.
2) High Growth, High Share. Companies should significantly invest in these “stars” as they have
high future potential.
3) High Growth, Low Share. Companies should invest in or discard these “question marks,”
depending on their chances of becoming stars.
4) Low Share, Low Growth. Companies should liquidate, divest, or reposition these “pets.”

As can be seen, product value depends entirely on whether or not a company is able to obtain a leading
share of its market before growth slows. All products will eventually become either cash cows or pets.
Pets are unnecessary; they are evidence of failure to either obtain a leadership position or to get out
and cut the losses.

▪ The directional policy (GE- McKinsey) matrix

Sometimes called the “GE/McKinsey matrix”, the directional policy matrix is a way of
categorizing and prioritizing opportunities (see Figure D.3). It can be customized to unique
content and made relevant to the individual strategic position of the company in its market place.
The grid plots “market attractiveness” against “business strength” and allows management to
prioritize resources accordingly. It is created in the following way:

(i) Identify and define the strategic business units in a company.

(ii) Debate and agree the factors contributing to market attractiveness in the markets under
discussion.

(iii) Agree the factors contributing to business success.

(iv) Rank and rate the market attractiveness and business strength features.

(v) Rank each business or product unit against these criteria.

(vi) Plot the SBUs on the matrix.

(vii) Represent the total size of the market and the business’s market share by a pie chart at the
appropriate plot on the matrix.

Employing the GE- McKinsey Matrix

The following steps are useful in effectively employing the matrix.

1. Determine the attractiveness of the business unit.

The requires looking at the potential of the industry, including the size, growth rate, profitability
(margins), competitive landscape, and environmental factors affecting the industry. In
determining attractiveness, managers may employ other models, such as a SWOT analysis,
PESTLE analysis, or other approach to better understand the industry. The manager would then
assign weights (1-10) to the importance of each industry factor identified as making the industry
attractive. 1 is not important while 10 is very important. The total of weights for the important
factors should equal 10. This provides a percentage strength for each factor. For example, if
competitiveness is a 5, growth rate may be a 3, and profit margins may be a 2. Once each factor
is given a weight, examine these factors for the SBU being evaluated. Use a 1 to 10 scale and,
again, the total value assigned to each factor should equal ten. 1 is not positive, 10 is very
positive. So, if the relevant SBU has a 7 for competitiveness, 2 for growth rate, and 1 for profit
margins. Now, take the weight for the factor and multiply it by the rating of the company by that
factor. In our example (5 x 7) + (3 x 2) + (2 x 1) = 43

2. Determine the competitive strength of each business unit.

Identify the competitive strengths of value to the SBU, such as the market share, growth rate,
profitability, brand strength or reputation, and customer service. Decide which of these
competitive factors are most important and, just as we did with desirability of the industry, give
them weights (1-10). If the growth rate is most important, it will receive a higher value. Values
for all competitive factors must add up to 10. Again, this gives a percentage weight to the factor.
Rate these factors for each business unit being analyzed on a scale of 1-10. Again, all combined
ratings for the SBU must equal 10. Calculate the total value of the SBU by multiplying the
weighted factor x the SBU rating (7 x 5) + (2 x 3) + (1 x 2) = 43. You will do this for each
business unit.

3. Determine the position of each SBU in the matrix.

Now that we have an industry attractiveness score and a competitive strength score for each
SBU, we can plot them on the matrix. Each SBU should be represented by a circle that
demonstrates the SBUs market size relevant to other SBUs. The circle may be a pie chart
demonstrating the percentage of market share of the company.

4. Determine the strategic possibilities for the SBUs.

Next, a diagonal line is drawn corner to corner (low strength & attractiveness to high strength &
attractiveness). SBUs located above or to the left of the diagonal line would be deserving of
additional investment. Those below are either divested or receive less funding. Alternatively, if
they are generating revenue, this revenue is redirected to SBUs worthy of additional investment.
This is commonly referred to as a harvest or divest strategy. Those falling very close to the line
are generally on hold or maintain with regard to investment or resources. The company may
increase or decrease investment depending upon the rankings of other SBUs.

5. Projecting the potential or future for the SBUs.

The projections for the industry and the SBUs competitiveness must be taken together. A
promising SBU in an unattractive industry may need to be divested of resources. Likewise, a
non-competitive SBU in a promising industry may be attractive if there is potential for growth
with adequate investment of resources.

Advantages
 Analyze the key areas the business portfolio needs to be improved by the company
decision.
 It allows the business managers to monitor their products performance in the market.
  It operates on a more complex portfolio framework compared to the BCG matrix
 It helps in maximizing results with little effort.
Disadvantages
 It is costly to manage
 Synergies that exist between more business are not taken into consideration
 The service of an experienced business analyst is required to interpret the company
strength and attractiveness.

▪ PIMS (Profit Impact on Marketing Strategy

The Profit Impact of Market Strategies (PIMS) is a comprehensive, long-term study of
the performance of strategic business units (SBUs) in thousands of companies in all
major industries. The PIMS project began at General Electric in the mid-1960s. It was
continued at Harvard University in the early 1970s, then was taken over by the Strategic
Planning Institute (SPI) in 1975. Since then, SPI researchers and consultants have
continued working on the development and application of PIMS data.
According to the SPI, the PIMS database is "a collection of statistically documented
experiences drawn from thousands of businesses, designed to help understand what
kinds of strategies (e.g. quality, pricing, vertical integration, innovation, advertising) work
best in what kinds of business environments. The data constitute a key resource for
such critical management tasks as evaluating business performance, analyzing new
business opportunities, evaluating and reality testing new strategies, and screening
business portfolios."
The main function of PIMS is to highlight the relationship between a business's key
strategic decisions and its results. Analyzed correctly, the data can help managers gain
a better understanding of their business environment, identify critical factors in
improving the position of their company, and develop strategies that will enable them to
create a sustainable advantage. PIMS principles are taught in business schools, and
the data are widely used in academic research. As a result, PIMS has influenced
business strategy in companies around the world.
The main function of PIMS is to highlight the relationship between a
business's key strategic decisions and its results. Analyzed correctly, the data
can help managers gain a better understanding of their business environment,
identify critical factors in improving the position of their companies, and
develop strategies that will enable them to create a sustainable advantage.
PIMS principles are taught in business schools, and the data are widely used
in academic research. As a result, PIMS has influenced business strategy in
companies around the world.
▪ Parenting matrix
Parenting Fit Matrix summarizes the various judgments regarding corporate/business unit fit
for the corporation as a whole. This matrix emphasizes their fit with the corporate parent Fit.
 Parenting Fit Matrix composes of 2 dimensions: Positive contributions that the parent can
make and the negative effects the parent can make. The combination of these two dimensions
create 5 different positions:

1. Heartland Businesses
2. Edge-of-Heartland Businesses
3. Ballast Businesses
4. Alien Territory Businesses
5. Value Trap Businesses


Heartland Businesses: Heartland Businesses should be at the heart of the corporation’s future.
These Heartland Businesses have opportunities for improvement by the parent, and the parent
understands their critical success factors well. These businesses should have priority for all
corporate activities.
 Edge-of-Heartland Businesses: In these businesses some parenting characteristics fit the
business, but other do not. The parent may not have all the characteristics needed by a unit, or
the parent may not really understand all of the units strategic factors. E.g.: a unit in this area may
be very strong in creating its own image through advertising — a critical success factor in its
industry. The corporate may however not have this strength and tends to leave this to its
advertising agency. If the parent forced the unit to abandon its own creative efforts in favor of
using the corporation’s favorite ad agency, the unit may struggle. Such business units are likely
to consume much of the parent’s attention, as the parent tries to understand them better and
transform them into Heartland Businesses.
 Ballast Businesses: Ballast Businesses fit very comfortably with the parent corporation
but contain very few opportunities to be improved by the parent. Like cash cows may be
important sources of stability and earnings. But if environmental changes, ballast could move to
alien territory. Therefore corporate decision makers should consider divesting this unit as soon as
they can get a price that exceeds the expected value of future cash flows. E.g.: IBM’s mainframe
business.
 Alien Territory Businesses: Alien Territory Businesses have little opportunities to be
improved by the corporate parent, and a misfit exists between the parenting characteristics and
the units strategic factors. There is little potential for value creation but high potential for value
destruction on the part of the parent. The corporation must divest this unit while it still has value.
 Value Trap Businesses: Value Trap Businesses fit well with parenting opportunities, but
they are a misfit with the parent’s understanding of the units. This is where the corporate
headquarters can make its biggest error. It mistakes what it sees as opportunities for ways to
improve the business units profitability or competitive position. E.g.: To make the unit a world-
class manufacturer (because the parent has world-class manufacturing skills) it may not notice
that the unit is primarily successful because of its unique product development and niche
marketing expertise.
 ▪ The Scenario/vision – building approach
Scenario building can be described as a story which is based on the analysis and understanding
of current and historic trends and events. It includes a consistent description of possible future
situations. The development of sets of narrative scenarios helps to identify possible pathways
towards a vision of the future. Scenario building can be done by an individual or by a
stakeholder group and should focus on the main issues covered by the vision.
Advantages

▪ Improves strategy development by making stakeholders more aware of risks and

constraints
▪ Helps think about number of possible alternative developments
▪ Raises awareness for possible future situations and helps people to be prepared for
these situations

Disadvantages

▪ No objective way which combines all the different factors

▪ Can get quite complex – a restriction of five scenarios keeps the process well-
arranged
▪ Focus should lie on probability rather than on desirability
▪ Separating internal from external factors is not easy. A facilitator can help classify
these factors
 CHAPTER 9
INTERNATIONAL STRATEGY

Internationalization drivers
Internationally active companies are more effective and competitively viable. Nevertheless, there
are some conditions in this regard: a stable return on sales, free cashflow, experience and know-
how. And what’s more, an existing demand in the target market. So, here are six key drivers for a
successful internationalisation.
1. Consideration of local situation
When in Rome, do as the Romans do! Other countries may have different market and
price structures as well as the customers may have other socio-economic characteristics. That
means the own structures probably have to be adapted.
2. Organisational structure
It has to be decided whether the company will have a central headquarter or adecentralised
organisation by country. Best is a flexible combination of both.
4. Active management of risk

Concerning the “Handelsblatt” analysis “Leitfaden zur Planung von Auslandsexpansionen“

the biggest difficulty during internationalisation is the lack of legal compliance and the
protection of intellectual property. This is why it is important to draw up corporate guidelines
and a detailed finance plan.
5. Financial resources
According to an empirical study by IKB Deutsche Industriebank, companies with
high equity capital are more successful abroad. Besides, the access to long-term
and reliable financial sources has to be safe as it is important for high
investments, competitiveness and the backup of initial abstraction.

6. Personal resources
Skilled and experienced staff is one of the main key factors. Among foreign
experiences, language skills according to the country are very important.
Additionally, knowledge about the fiscal, bureaucratic and legal framework
conditions is indispensable.

6. Market relevant factors

To brace oneself for the new market, a thorough, profound market-, competition- and
customer analysis is necessary. Together with an outline of the competition and sensitivity and
risk analyses to define the market entrance strategy and the marketing mix. Last but not least, a
broad network of partners is the key factor to become successful in the target market.
 − International business environment and challenges
5 COMMON CHALLENGES OF INTERNATIONAL BUSINESS

1. Language Barriers
When engaging in international business, it’s important to consider the languages spoken in the
countries to which you’re looking to expand.

Does your product messaging translate well into another language? Consider hiring an interpreter
and consulting a native speaker and resident of each country.

It’s also critical to consider the languages spoken by your company’s team members based in
international offices. Once again, investing in interpreters can help ensure your business
continues to operate smoothly.

2. Cultural Differences
Just as each country has its own makeup of languages, each also has its own specific culture or
blend of cultures. Culture consists of the holidays, arts, traditions, foods, and social norms
followed by a specific group of people. It’s important and enriching to learn about the cultures of
countries where you’ll be doing business.

When managing teams in offices abroad, selling products to an international retailer or potential
client, or running an overseas production facility, demonstrating that you’ve taken the time to
understand their cultures can project the respect and emotional intelligence necessary to conduct
business successfully.

3. Managing Global Teams

Another challenge of international business is managing employees who live all over the world.
When trying to function as a team, it can be difficult to account for language barriers, cultural
differences, time zones, and varying levels of technology access and reliance.

To build and maintain a strong working relationship with your global team, facilitate regular
check-ins, preferably using a video conferencing platform so you can interact in real time.

4. Currency Exchange and Inflation Rates

The value of a dollar in your country won’t always equal the same amount in other countries’
currency, nor will the value of currency consistently be worth the same amount of goods and
services.
It’s also important to monitor inflation rates, which are the rates that general price levels in an
economy increase year over year, expressed as a percentage. Inflation rates vary across countries
and can impact materials and labor costs, as well as product pricing.

Understanding and closely following these two rates can provide important information about the
value of your company’s product in various locations over time.

5. Nuances of Foreign Politics, Policy, and Relations

Business doesn’t exist in a vacuum—it’s influenced by politics, policies, laws, and relationships
between countries. Because those relationships can be extremely nuanced, it’s important that you
closely follow news related to countries where you do business.

The decisions made by political leaders can impact taxes, labor laws, raw material costs,
transportation infrastructure, educational systems, and more.

Other Challenges

11 biggest challenges for international business:

1. International company structure

2. Foreign laws and regulations
3. International accounting
4. Cost calculation and global pricing strategy
5. Universal payment methods
6. Currency rates
7. Choosing the right global shipment methods
8. Communication difficulties and cultural differences
9. Political risks
10. Supply chain complexity and risks of labor exploitation
11. Worldwide environmental issues

 International company structure

If your aim is to be competitive globally, you must have a team in place that’s up for the
challenge. One fundamental consideration is the structure of your organization and the
location of your teams.

For instance, will your company be run from one central headquarters? Or will you
have offices and representatives “on the ground” in key markets abroad? If so, how will these
teams be organized, what autonomy will they have, and how will they coordinate working across
time zones? If not, will you consider hiring local market experts who understand the culture of
your target markets, but will work centrally?
Coca-Cola offers one example of effective multinational business structure. The company is
organized into continental groups, each overseen by a President. The central Presidents manage
Presidents of smaller, country-based or regional subdivisions. Despite its diverse global
presence, the Coca-Cola brand and product is controlled centrally and consistent around the
world.

While Coca-Cola is a vast international brand, the structure of your business and the number,
nationality, and level of expertise of your team will vary depending on your industry, product,
and the size of your business.

Foreign laws and regulations

Along with getting your company structure in place, gaining a comprehensive understanding of
the local laws and regulations governing your target markets is key. From tax
implications through to trading laws, navigating legal requirements is a central function for any
successful international business. Eligibility to trade is a significant consideration, as are
potential tariffs and the legal costs associated with entering new markets.

Airbnb ran into trouble in 2014, with a crackdown on advertised rental properties falling outside
local housing and tourism regulations. The company was forced to pay a €30,000 fine for a
breach of local tourism laws in Barcelona.

It’s important to note that employment and labor requirements also differ by country. For
instance, European countries stipulate that a minimum of 14-weeks maternity leave be offered to
employees, while on the other hand, there is no such requirement for U.S. employers. With the
complexity involved in foreign trade and employment laws, investing in knowledgeable and
experienced corporate counsel can prove invaluable.

Beyond abiding by official laws, engaging in international business often requires following
other unwritten cultural guidelines. This can prove especially challenging in emerging markets
with ill-defined regulations or potential corruption. In response, companies doing business in the
United States must abide by the Foreign Corrupt Practices Act, which aims at eliminating
bribery and unethical practices in international business. A good rule of thumb is to beware
of engaging in any questionable activities, which might be legal but could have future
reputational repercussions.

 International accounting

Of the main legal areas to consider when it comes to doing international business, tax
compliance is perhaps the most crucial. Accounting can present a challenge to multinational
businesses who may be liable for corporation tax abroad. Different tax systems, rates, and
compliance requirements can make the accounting function of a multinational organization
significantly challenging.

Accounting strategy is key to maximizing revenue, and the location where your business is
registered can impact your tax liability. Mitigating the risk of multiple layers of taxation makes
good business sense for any organization trading abroad. Being aware of tax treaties between
countries where your business is trading will help to ensure you’re not paying double taxes
unnecessarily.

A focus on tax efficiency is often the aim of international accounting efforts. In the European
Union, companies may benefit from the Common Consolidated Corporate Tax Base proposal,
whereby companies with operations around the EU can limit tax liability to one corporate center.
Tax consolidation is a feature of several multinationals’ decision to be headquartered in Dublin,
as Ireland is known for its “business-friendly” corporate tax policy. Well-known companies with
operational headquarters in the Republic of Ireland include Google, Facebook, and Intel.

 Cost calculation and global pricing strategy

Setting the price for your products and services can present challenges when doing business
overseas and should be another major consideration of your strategy. You must consider costs to
remain competitive, while still ensuring profit. Researching the prices of direct, local-market
competitors can give you a benchmark, however, it remains essential to ensure the math still
works in your favor. For instance, the cost of production and shipping, labor, marketing, and
distribution, as well as your margin, must be a taken into account for your business to be viable.

Pricing can also come down to how you choose to position your brand — should the cost of
your product reflect luxury status? Or will low prices help you to penetrate a new market?
Swedish furniture giant Ikea, known in Europe for its low-cost value, struggled initially in
China due to local competitor costs of labor and production being much cheaper. By relocating
production for the Chinese market and using more locally sourced materials, the company was
able to successfully cut prices to better reflect its brand and boost sales among target consumers.

Wherever you’re looking to launch your product or service, here are four useful strategies to help
you find the right price:

 Universal payment methods

The proliferation of international e-commerce websites has made selling goods overseas easier
and more affordable for businesses and consumers. However, payment methods that are
commonly accepted in your home market might be unavailable abroad. Determining acceptable
payment methods and ensuring secure processing must be a central consideration for
businesses who seeks to trade internationally.

Accepting well-known global payment methods through companies like Worldpay, as well as
accepting local payment methods, such as JCB in Asia or Yandex Money in Russia, can be a
good option for large international businesses. Accepting wire transfers, PayPal payments,
and Bitcoin, are other possibilities, with Bitcoin users benefiting from no bank or credit card
transaction fees. Despite the risk of fluctuating value, the lack of fees is one of the reasons
a number of online companies, including WordPress, the Apple App Store, Expedia, and a
number of Etsy sellers accept Bitcoin.

 Currency rates
While price setting and payment methods are major considerations, currency rate fluctuation is
one of the most challenging international business problems to navigate. Monitoring
exchange rates must therefore be a central part of the strategy for all international businesses.
However, global economic volatility can make forecasting profit especially difficult, particularly
when rates fluctuate at unpredictable levels.

Major fluctuations can seriously impact the balance of business expenses and profit. For
instance, if your company is paying suppliers and production costs in U.S. dollars, but selling in
markets with a weaker or more unpredictable currency, your company could end up with a much
smaller margin — or even a loss. One way to protect yourself against large fluctuations in
currency is to pay suppliers and production costs in the same currency as the one you’re
selling in. This may mean switching to more local production where possible in order to better
balance your outgoings and sales revenue.

Another option for mitigating the risk of unpredictable currency rates can be setting up a forward
contract and agreeing a price in advance for future sales. Of course, this potentially means
missing out on greater profit should rates shift in your favor. However, it can protect your sales
from the risk presented by unstable currency.

 Communication difficulties and cultural differences

Good communication is at the heart of effective international business strategy. However,

communicating across cultures can be a very real challenge. At Hult, developing cross-cultural
competency and communication skills are a core focus inside and outside of the classroom.

Effective communication with colleagues, clients, and customers abroad is essential for success
in international business. And it’s often more than just a language barrier you need to think about
— nonverbal communication can make or break business deals too. Do your research and
know how different cultural values and norms — such as shaking hands — can and should
influence the way you communicate in a professional context. Being aware of
acceptable business etiquette abroad, and how things like religious and cultural traditions can
influence this, will help you to better navigate potential communication problems in
international business.

Political Risks

An obvious risk for international business is political uncertainty and instability. Countries
and emerging markets that may offer considerable opportunities for expanding global businesses
may also pose challenges, which more established markets do not. Before considering expansion
into a new or unknown market, a risk assessment of the economic and political landscape is
critical.

Issues such as ill-defined or unstable policies and corrupt practices can be hugely problematic
in emerging markets. Changes in governments can bring changes in policy, regulations, and
interest rates that can prove damaging to foreign business and investment.

A growing trend towards economic nationalism also makes the current global political landscape
potentially hostile towards international businesses. For instance, companies like Facebook
are banned in China, partially in preference for national social networks and also due to
government regulation over internet content. Monitoring political developments and planning
accordingly can mitigate political risks of doing business abroad.

 Supply chain complexity and risks of labor exploitation

When it comes to sourcing products and services from overseas, managing suppliers and
supply chains can also be a tricky process. Unfortunately, the length and complexity of supply
chains increases the chance of working with suppliers who have unethical — and even illegal —
business practices. Of growing concern is the risk in international business of forced labor
and worker exploitation.

In October 2015, the UK passed the Modern Slavery Act in response to this often-hidden human
rights violation. Recent research led by a partnership between Hult International Business School
and the Ethical Trading Initiative revealed that an astonishing 77% of businesses believe that
modern slavery exists at some point in their supply chains.

To raise awareness and help local and international businesses respond more effectively to this
issue, their published research report presents case studies of businesses who have implemented
practices at the leading edge of the fight against modern slavery. As the research team continues
to bring their findings to light, developing and supporting ethical and sustainable business
practices remains a focus in the Hult classroom.

 Worldwide environmental issues

As the environmental risks and effects of climate change are becoming better
understood, sustainability is high on the agenda of many major global corporations. Recent
international legislations and proposals, such as the UN’s Sustainable Development Goals, have
put environmental issues at the forefront of international business development. The Ashridge
Centre for Business and Sustainability at Hult researches innovative ways that organizations can
develop and implement more environmentally sustainable business models.

On a practical level, if you’re considering expanding your business overseas, it’s important to be
aware of the country-specific environmental regulations and issues associated with your industry.
Some key considerations include how your production methods might impact the local
environment through waste and pollution.

Beyond a legal or ethical incentive to be more eco-friendly, establishing environmentally

conscious business practices can attract new, forward-thinking consumers to your company.
With a number of brands such as Dell, Renault, and MUD Jeans leading a shift towards
the circular economy, there is an opportunity and demand for changing production methods and
consumer behavior to establish a more sustainable future for the environment and society as a
whole.
 − Geographical sources of advantage
Types of Competitive Advantages

Types of Competitive Advantages

Nations, regions, and economic sectors can develop competitive advantages over others.
However, competitive advantages are usually not permanent since they can be gained but also
lost. There are three major dimensions over which competitive advantages can be challenged:

 Added value. A high added value implies technical or managerial expertise that is very
difficult to replicate and could even be protected by patents. This implies that a product is
systematically offered at a lower cost or of higher quality than a competing product.
 Scarcity. Often related to the existing market size or the resources sector. If a market for
a good is relatively small and thus scarce, potential competitors may be unwilling to enter this
market. A good that has a mass-market (low scarcity) is also subject to intense competition.
 Imitation costs. A simple product tends to have low imitation costs, and competitors can
thus easily enter the market. A complex product, such as a high tech device, is much more
difficult to replicate and often protected by patents.

Depending on the combination of these dimensions, an actor may find itself at some level of
competitive advantage concerning its competitors. If the added value provided is high and the
imitation costs are also high, an actor can be in a situation of sustained competitive
advantage and achieve market dominance with high levels of profitability. On the other range of
the spectrum, if a good has limited added value (cost parity or even a higher cost), is concerning
a mass-market, and can easily be replicated. The concerned actors are facing a situation
of competitive disadvantages that usually implies low profitability. Globalization has placed
pressures on each of these dimensions by making a larger array of resources available (labor,
parts, and raw materials) as well as a larger number of actors that can potentially compete.

▪ Locational advantage: Porter’s Diamond

Michael Porter’s Diamond Model (also known as the Theory of National Competitive Advantage
of Industries) is a diamond-shaped framework that focuses on explaining why certain industries
within a particular nation are competitive internationally, whereas others might not. And
why is it that certain companies in certain countries are capable of consistent innovation,
whereas others might not? Porter argues that any company’s ability to compete in the
international arena is based mainly on an interrelated set of location advantages that certain
industries in different nations posses, namely: Firm Strategy, Structure and Rivalry; Factor
Conditions; Demand Conditions; and Related and Supporting Industries. If these conditions
are favorable, it forces domestic companies to continiously innovate and upgrade. The
competitiveness that will result from this, is helpful and even necessary when going
internationally and battling the world’s largest competitors. This article will explain the four
main components and include two components that are often included in this model: the role of
the Government and Chance. Together they form the national environment in which companies
are born and learn how to compete.
 1. Firm Strategy, Structure and Rivalry
The national context in which companies operate largely determines how companies are created,
organized and managed: it affects their strategy and how they structure
themselves. Moreover, domestic rivalry is instrumental to international competitiveness,
since it forces companies to develop unique and sustainable strenghts and capabilities. The
more intense domestic rivalry is, the more companies are being pushed to innovate and improve
in order to maintain their competitive advantage. In the end, this will only help companies when
entering the international arena. A good example for this is the Japanese automobile industry
with intense rivalry between players such as Nissan, Honda, Toyota, Suzuki, Mitsubishi and
Subaru. Because of their own fierce domestic competition, they have become able to more easily
compete in foreign markets as well.
2. Factor Conditions
Factor conditions in a certain country refer to the natural, capital and human resources available.
Some countries are for example very rich in natural resources such as oil for example (Saudi
Arabia). This explains why Saudi Arabia is one of the largest exporters of oil worldwide. With
human resources, we mean created factor conditions such as a skilled labor force, good
infrastructure and a scientific knowlegde base. Porter argues that especially these ‘created’ factor
conditions are important opposed to ‘natural’ factor conditions that are already present. It is
important that these created factor conditions are continiously upgraded through the
development of skills and the creation of new knowledge. Competitive advantage results from
the presence of world-class institutions that first create specialized factors and then
continually work to upgrade them. Nations thus succeed in industries where they are
particularly good at factor creation.
 3. Demand Conditions
The home demand largely affects how favorable industries within a certain nation are. A larger
market means more challenges, but also creates opportunities to grow and become better as a
company. The presence of sophisticated demand conditions from local customers also
pushes companies to grow, innovate and improve quality. Striving to satisfy a demanding
domestic market propels companies to scale new heights and possibly gain early insights into the
future needs of customers across borders. Nations thus gain competitive advantage in industries
where the local customers give companies a clearer or earlier picture of emerging buyer needs,
and where demanding customers pressure companies to innovate faster and achieve more
sustainable competitive advantages than their foreign rivals.
4. Related and Supporting Industries
The presence of related and supporting industries provides the foundation on which the focal
industry can excel. As we have seen with the Value Net, companies are often dependent on
alliances and partnerships with other companies in order to create additional value for customers
and become more competitive. Especially suppliers are crucial to enhancing innovation
through more efficient and higher-quality inputs, timely feedback and short lines of
communication. A nation’s companies benefit most when these suppliers themselves are, in
fact, global competitors. It can often take years (or even decades) of hard work and investments
to create strong related and supporting industries that assist domestic companies to become
globally competitive. However, once these factors are in place, the entire region or nation can
often benefit from its presence. We can for example see this in Silicon Valley, where all kinds of
tech-giants and tech-start-ups are clustered in order to share ideas and stimulate innovation.
4. Government
The role of the government in Porter’s Diamond Model is described as both ‘a catalyst and
challenger‘. Porter doesn’t believe in a free market where the government leaves everything in
the economy up to ‘the invisible hand’. However, Porter doesn’t see the government as
an essential helper and supporter of industries either. Governments cannot create competitive
industries; only companies can do that. Rather, governments should encourage and push
companies to raise their aspirations and move to even higher levels of competitiveness. This
can be done by stimulating early demand for advanced products (demand factors); focusing on
specialized factor creations such as infrastructure, the education system and the health sector
(factor conditions); promoting domestic rivalry by enforcing anti-trust laws; and encouraging
change. The government can thus assist the development of the four aforementioned factors in
the way that should benefit the industries in a certain country.
5. Chance
Even though Porter originally didn’t write anything about chance or luck in his papers, the role
of chance is often included in the Diamond Model as the likelihood that external events such as
war and natural disasters can negatively affect or benefit a country or industry. However, it also
includes random events such as where and when fundamental scientific breakthroughs occur.
These events are beyond the control of the government or individual companies. For instance,
the heightened border security, resulting from the September 11 terrorist attacks on the US
undermined import traffic volumes from Mexico, which has had a large impact on Mexican
exporters. The discontinuities created by chance may lead to advantages for some and
disadvantages for other companies. Some firms may gain competitive positions, while others
may lose. While these factors cannot be changed, they should at least be monitored so you can
make decisions as necessary to adapt to changing market conditions.
 Porter Diamond Model in Sum
Porter’s Diamond Model of National Advantage explains why some industries in some countries
are so much more developed and competitive compared to industries elsewhere on the planet. It
basically sums up the location advantages that Dunning is referring to in his Eclectic
paradigm (also known as OLI framework). The Diamond Model could therefore be used when
analyzing foreign markets for potential entry or when making Foreign Direct
Investment decisions. It is adviced to also conduct a macro-environment analysis and an industry
analysis by using PESTEL Analysis and Porter’s Five Forces respectively.

▪ The international value system

▪ International strategies
Any company that ships worldwide or provides services to consumers or businesses in other
countries is considered a global company. An international strategy is usually the first
approach most businesses take with global expansion: exporting or importing goods and services
while maintaining a head office or offices in their home country.

Global expansion as a business doesn’t have a one-size-fits-all approach. As companies grow

and scale, they may choose to invest more in their target markets.

In fact, companies choose from a variety of models, including:

 Transnational Strategy: Transnational businesses operate with a central or head office
in one country that coordinates local subsidiaries in international markets. This organizational
structure means that there is one overarching brand and center of operations that determine
 overall decision-making and supply chain management, harnessing the power of scale.
Companies McDonald’s, Nike, and Coca-Cola use this model.
 Multi-Domestic Strategy: When businesses use completely different sales, marketing,
and product strategies based on the specific companies they’re operating in. Rather than one
global brand, there are many smaller, country-specific brands tailored to local tastes and local
customers. Big-name wellness brands like Johnson and Johnson use this model.
 Global Strategy: When businesses define one global brand, making little to zero changes
for other markets. Tech giant Apple is a great example of this - the technology is the same (with
a few minor changes in keyboards) wherever you go.

Companies don’t often choose one model forever. What may start as an international strategy
can morph into a transnational or multi-domestic one?

What International Business Strategies Look Like in Practice

Any international business strategy balances two sides of one graph:

1. Global integration: How centralized operations are vs. globally distributed
2. Local responsiveness: How customized a product or service is to a local economy vs.
completely standardized

Choosing an international business strategy gives you several advantages:

 A global, standardized brand that is immediately recognizable
 More efficient processes and consolidated management with economies of scale
 Lower costs with centralization and streamlined operations
 Simpler product portfolio

However, there are some trade-offs companies make by pursuing an export-driven

strategy:
 High taxes and tariffs for import and export
 Coordinating supply chain management
 Customer service, especially with time zones, languages, etc.
 Driving demand and awareness
 Localization and translation (Don’t worry — we can help with that!)

5 International Strategy Examples

A successful international business model focuses on a single point of operations while

exporting products and services around the world.

While not every global business looks exactly the same, in practice, it means international
businesses must take a big-picture, standardized approach to their exports and imports, even as
their operations remain small.

Take five of these successful global brands:

1. Moet & Chandon: Owned by LVMH, the iconic champagne is known to be one of the
best since 1842 — and one of the most popular in a $700 million market, boasting a celebrity-
packed history from Napoleon to the Oscars. Owning over 2,000 acres of vineyards across 200
crus, every bottle is grown, produced, and shipped from France.
2. Red Bull: Most Americans have no idea that Red Bull is an Austrian brand, not an
American one. While today’s business model is more transnational, they began as a small
exporting manufacturer in 1987, giving out free samples to adrenaline junkies in the United
States and exporting from their offices in Europe. Now, the leading energy drink does more than
$2 billion in sales every year.
3. Porsche: Cars use hundreds of parts manufactured from around the world. But most of
today’s big-name car brands — even international ones like Toyota, GM, or BMW — have
production plants in the US, Mexico, and Canada to serve North American customers. Luxury
brands like Porsche may use parts from all over the world, but they’re still assembled in
their flagship factories in Zuffenhausen and Leipzig, Germany.
4. Victoria’s Secret: The popular 2000s lingerie chain looks and feels exactly the same
regardless of where in the world you’re purchasing clothing — sizes, colors, and styles. While
their manufacturing comes from around the world, they rely primarily on an export model and
opening stores in smaller locations like malls and airports as their point of entry.
5. Netflix: Streaming giant Netflix uses a robust translation strategy with subtitles in 62
languages to scale their business without needing to invest in local infrastructure. With over 200
million subscribers in 190 countries, there are plenty of local options to explore. While the
library of available shows in places like India, Brazil, or Japan may change due to licensing
agreements, the top-watched shows like House of Cards, Peaky Blinders, Black Mirror, and
more remain the same.

▪ Market selection and strategy

The market selection process should result in a prioritized market portfolio; a prioritized list of
markets worthy of investment and pursuit. The markets selected should hold the growth potential
needed to achieve the desired revenue objectives. Unfortunately, the market selection process is
fraught with problems. Most of which can be tied directly to the way markets are traditionally
defined to begin with. When looking at markets through a jobs-to-be-done lens, we see that a
market should be defined as a group of people who are trying to get the same job done. This
insight has a significant impact on the market selection process and on the quality of the markets
that we select for pursuit.

Market Selection Strategy Myths

Companies often define their markets around the product or technology they are selling. We
hear, for example, companies say they are in the MP3 market, the semiconductor market, or the
toothpaste market. We see companies size their markets, and market opportunities, by
determining the dollar volume of the products being sold. Using that calculation, they decide to
invest or divest in a market based on trends in revenue growth.
But here is the problem, and the myth. A product is not a market. Every product will one day
become a thing of the past. Vinyl records and cassettes gave way to CDs and MP3s, but those
formats too will fade. But just because a technology or a product becomes obsolete doesn’t mean
the market disappeared. It means that the market (the people who hired the product to get a job
done) moved on to buy another product; one that helped them get the job done better.

We see markets through the customers’ eyes

We define a market the way customers do, as the combination of the people (job executors)
trying to get a job done, and the job they are trying to perform. For example, carpenters (job
executors) who are trying to cut a piece of wood in a straight line (the job) constitute a market.
So do interventional cardiologists (jobs executors) who are trying to restore blood flow to an
artery (the job). By defining a market as a customer and job, we end up with a stable unit of
analysis upon which to base our market selection decisions.

Using this thinking, we can easily see that even though the market for iPods is now decreasing,
the market for people listening to music continues to thrive and grow.

Defining a market around a product or technology leads to highly inaccurate market-sizing

calculations and a poor market selection strategy. Companies end up selecting a market for
pursuit that is falling off a cliff (as Microsoft did when they invested in the Zune), while missing
out on the real opportunities for growth (such as the opportunities Pandora discovered with its
online listening product).

Image showing market participation

 ▪

CHAPTER 10

STRATEGY DEVELOPMENT PROCESSES

10.1 Strategic thinking

▪ The paradox of logic and creativity
It is mutually agreed that the converses of intuition and analysis generate tension during
the strategic thinking process. Researchers and contributors to strategic management making the
case for logic argue that for strategy to be effective, the strategic thinking process must involve
extensive formal analyses and objective collection and processing of data both from within and
without the corporation. Rational reasoning enables managers gain an accurate perspective on
the different options available before identifying the strategic option that best serves the
organization’s cause: achieving its goals and objectives. Logical analysis encompasses assessing
internal and external risks, strengths and weaknesses, market need and so on; so that strategy can
be thought out to fit each of the above factors.

In contrast to logical thinking, creative thinking involves taking a “leap of imagination” without
any logically defined reason for taking such a leap. Creative thinking is a divergence from the
rules governing rational argumentation towards problem-solving. Strategic thinking from this
perspective is therefore not governed by previous arguments or analyses, but is the generation of
action plans using intuition. The strategy thinker will use intuitive judgement to derive a vision
for the future. Proponents of this approach argue that it is the best way to define problems and
generate innovative solutions since rationality has the potential to frustrate the process of
generating novel insight, which, they say, should be the objective of strategic thinking.
▪ The art and science of strategic thinking
Strategic thinking is simply an intentional and rational thought process that focuses on the
analysis of critical factors and variables that will influence the long-term success of a business, a
team, or an individual.

Strategic thinking includes careful and deliberate anticipation of threats and vulnerabilities to
guard against and opportunities to pursue. Ultimately strategic thinking and analysis lead to a
clear set of goals, plans, and new ideas required to survive and thrive in a competitive, changing
environment. This sort of thinking must account for economic realities, market forces, and
available resources.

Strategic thinking requires research, analytical thinking, innovation, problem-solving skills,

communication and leadership skills, and decisiveness.

Why is Strategic Thinking Important?

The competitive landscape can change quickly for any organization. New trends may emerge
quickly and require you to take advantage of them or fall behind. By incorporating everyday
strategic thinking into your work and life routines, you will become more skilled at anticipating,
forecasting, and capitalizing on opportunities.

On an individual level, thinking strategically allows you to make a greater contribution in your
role, become more essential to your organization, and prove that you’re ready to control greater
resources.

What is Strategic Thinking in Business?

During an organization’s annual strategic planning process, leaders often compile, analyze, and
synthesize external and internal data and ideas to develop its strategic intent and build a strategic
narrative. This document will guide the company into the future for a defined period of time.
Leaders then choose and plan specific actions that will accomplish these strategic initiatives.

Businesses also need to schedule a time for strategic thinking and reviews throughout the year.
Leadership teams should periodically examine their strategic initiatives to ensure execution is
taking place, review, and sustain the effort across the organization.

What is Strategic Thinking in Leadership?

Business leaders and stakeholders use strategic thinking and analysis to decide what product mix
they’ll offer, what competitive landscape to compete in (or not compete in), and how limited
resources will be allocated such as time, employees, and capital. They must decide how to best
structure enroll others to achieve important objectives and to avoid putting resources at
unnecessary risk of loss.

What are the Components of Strategic Thinking?

If you’re working on your company’s strategy, you’ll need to engage in analysis, problem-
solving, decision making, and leading through change.

As you create a strategic direction or plan, you’ll analyze:

 Business opportunities and vulnerabilities

 Feasible of each idea or risk
 The costs associated with each move you are considering
 The likelihood that various tactics will be effective
 Methods of aligning objectives with the overall plan
 The effects of competitors, suppliers, customers, and new substitutes might have on your
strategic plans
As you discover obstacles during the planning process, you’ll problem-solve by:

 Gathering relevant information about the problem

 Clearly defining the problem from a strategic point of view
 Brainstorming possible solutions
 Imagining further challenges and how to overcome them
 Delegating assignments of various parts of this strategy to key associates
Strategic thinking requires agility and decisiveness in choosing a plan and sticking with it.
However, you have to be aware of new, more promising opportunities. It is a balancing act
between consistency and flexibility. You and your team will:

 Make sure decisions are well-informed by thorough research

 Choose objectives and accompanying metrics
 Prioritize objectives
 Follow a standard decision-making process
 Build consensus, when necessary
During strategic planning, you will need to communicate ideas to your staff and gather feedback
from them. You’ll then utilize effective channels to communicate a compelling vision of the
completed plan to all employees and keep them focused on their contribution to the plan.

How to Improve Strategic Thinking Skills

There are five steps to improving your strategic thinking skills:

1) Set aside time to reflect and plan for the future, identify trends, prioritize tasks, and determine
where to allocate resources

2) Uncover your own biases so you can think more clearly about strategy

3) Listen to subject matter experts and opinion leaders in your organization to obtain higher
quality information you can use in your strategic thinking

4) Learn to ask good questions to uncover better options and plans—questions such as “Is this
idea from a credible source?” and “Is this idea logical?”

5) Explore all the consequences of different strategies and directions

▪ The “Deep Dive” analogy: acumen, allocation of

resources and action
To maximize your resources and profitably grow the business on a consistent basis, there are
three disciplines of strategic thinking you can develop to continually ground your business in
solid strategy:
1. Acumen: generating key business insights.
2. Allocation: focusing resources through trade-offs.
3. Action: executing strategy to achieve goals.

Discipline #1: Acumen.

One of the interesting paradoxes of strategy is that in order to elevate one’s thinking to see “the
big picture,” one must first dive below the surface of the issues to uncover insight. A strategic
insight is a new idea that combines two or more pieces of information to affect the overall
success of the business and lead to competitive advantage. An iceberg illustrates a universal
phenomenon when it comes to insights. If the iceberg represents the body of insights for a
particular market, all too often companies battle one another using the insights represented by the
tip of the iceberg. Above the surface of the water and in plain sight for everyone, these insights
require no extra effort to acquire, and offer the path of least resistance to those too lazy to do any
real thinking. Since they are readily available to the entire market, they quickly lose value when
it comes to developing a strategy steeped in the differentiation required to gain competitive
advantage.
Hidden below the surface are insights represented by the largest portion of the iceberg. The
large size of the underwater portion doesn’t indicate a large number of insights. Instead, this
larger portion indicates the greater effect of these insights on the business if they are unleashed.

Acumen Question: What is the key y insight driving this initiative, project or activity?

Discipline #2: Allocation.

While it’s one thing to have a neatly written strategy on paper, the truth is the actual or realized
strategy of an organization is a result of the resource allocation decisions made by managers each
day. Therefore, it is critical to have a firm understanding of resource allocation and how to
maximize its potential for your organization. With multi-billion dollar companies such as United
Airlines and General Motors going through bankruptcy, it’s obvious in today’s market that
having the most resources guarantees nothing. It’s how we allocate resources that truly matters
Once the insights have been generated through the Acumen discipline, one has the key ingredient
in making resource allocation decisions. The definition of strategy begins with “The intelligent
allocation of limited resources...”. Resource allocation is at the core of strategy. Discussions of
strategy boil down to how to allocate limited resources to maximize business potential.

Allocation Question: What trade-offs will I make to focus resources?

Discipline #3: Action.

It’s often assumed that once a sound strategy has been formulated, the execution of that strategy
will take care of itself. Research seems to indicate otherwise. A survey of more than 400
companies published in Training & Development Magazine showed 49 percent of business
leaders report a gap between their organization’s ability to articulate a strategic vision and their
effectiveness in executing that vision. Additionally, 64 percent of Unfortunately, 90% of
directors and vice presidents have never had any learning & development opportunities on
strategic thinking 5 executives did not believe their organization had the ability to close that gap.
The effective action or execution of strategy involves the discipline to focus on the important
issues, not the urgent ones filling up our email Inbox.

Action Question: What actions can I take to achieve advantage?

10.2 Strategy formation
Strategy formation creates strategy, designing new businesses and organizations to carry out
those businesses. Formation involves exploration, the search for new advantages and business
possibilities. Strategy formation creates a theory of business and its accompanying hypotheses.
Strategy formation, or creation, is an aspect of strategic management.
▪ Deliberate strategy developers versus Emergent strategy developers

WHAT IS A DELIBERATE STRATEGY?

A deliberate strategy is one that arises from conscious, thoughtful, and organized action on the
part of a business and its leadership. It’s typically generated from a rigorous analysis of data,
including metrics such as:

 Market growth
 Segment size
 Customer needs
 Competitor strengths and weaknesses
 Technological trajectories

A deliberate strategy is often employed by large businesses or corporations that are firmly
established within their markets. History and stability provide them with enough data and
experience to plot out a long-term strategy (sometimes called a five- or ten-year strategic plan)
and confidence in their ability to project that far out into the future. While useful, deliberate
strategy comes with challenges.

Deliberate strategy only works effectively when everybody understands what the organization is
trying to accomplish.

WHAT IS AN EMERGENT STRATEGY?

An emergent strategy is one that arises from unplanned actions and initiatives from within an
organization. It’s typically viewed as the product of spontaneous innovation, and often a direct
result of the daily prioritization and investment decisions made by individual contributors, such
as middle managers, engineers, financial staff, and salespeople.

Compared to a deliberate strategy, an emergent strategy is often more flexible. Though the
organization still has goals that it’s working toward, there’s flexibility to adjust those goals and
pursue other opportunities or priorities as they emerge. As such, many startups leverage an
emergent strategy in their earliest stages.

For an emergent strategy to work well, employees and managers alike should constantly look at
the periphery—not just in the direction of the end goal.
When to Use an Emergent or Deliberate Strategy

It’s important to remember that the right strategy for a particular business depends on several
factors. That being said, emergent and deliberate strategies are often pursued by companies
facing certain circumstances.

Consider an Emergent Strategy If…

As a general rule of thumb, an emergent strategy may be the right choice for your business if the
future is uncertain, and it isn’t clear what the right long-term strategy should be. By embracing
an emergent strategy, you remain nimble enough to make adjustments as more data becomes
available, while still knowing that you’re working toward a goal that makes sense.

Typically, an emergent strategy is most useful during the early phases of a company’s life, after a
product launch, or when the competitive landscape is substantially changing.

When embracing an emergent strategy, it’s crucial to ensure that all employees are empowered
to surface and elevate new ideas as they emerge so your organization can coalesce around those
that are most promising.

Consider a Deliberate Strategy If…

Once a winning strategy is clear, it will likely make more sense to pursue a deliberate strategy
that can set your company on course to achieve its strategic goals. Deliberate strategy is a better
fit once a company has reached a certain level of maturity and stability, at which point it can
shift away from survival toward growth.

Typically, the difference between success and failure when implementing a deliberate strategy is
how well each person or department executes their tasks. Therefore, the strategy must make
sense to everyone within the organization—from individual employees to top-level managers.

▪ Logical incrementalism
The incremental approach is identified with Quinn (1980) through the influence
of Lindblom (1959). Logical incrementalism is a process approach that, in effect, fuses strategy
formulation and implementation. Incremental approaches view strategy as a loosely linked group
of decisions that are handled incrementally. Decisions are handled individually below the
corporate level because such decentralization is politically expedient.

The strengths of the approach are its ability to handle complexity and change, its emphasis on
minor as well major decisions, its attention to informal as well as formal processes, and its
political realism.
 The major weakness of the approach is that it does not guarantee that the various loosely linked
decisions will add up to fulfilment of corporate purposes.

Why Should You Use Logical Incrementalism in Your Organization?

Quinn asserted that incrementalism is one of the most suitable models for the majority of the
strategical changes. Wondering why it is so? Following are the reasons for it:

1. It is more practical.
2. It is more responsive to the uncertainty that comes with strategic challenges
3. It responds to the reality of logical
4. It embraces the practical theories and the power of the “Science of muddling through”
5. It employs a real-options frame of mind that is well suited to handle extreme complexity,
uncertainty, and progressively ‘evil’ nature of strategic issues.
6. It adapts the functional and logical elements of formal, traditional analytical processes,
and processes that determine and handle the psychological shifts and power inherent in strategic
change.

The model demonstrates a natural process of change, the way it should happen. However, critics
of this model view it as ineffective in general.

This model is most effective when used to bring a well-crafted plan into general acceptance

10.3 Implications for managing strategy development

▪ Strategy development in different contexts
The strategic implications are the major consequences arising from not understanding and
tackling the multitudinous impact of forces and dynamics of change that can often impact a
business from various angles:
 political, regulatory and legal
 economic and monetary
 social-cultural
 technological
 ecological and environmental

Strategic planning impacts the management's performance because it directly influences the
ability of the resulting strategic plan in getting the commitment and support of the human
resources of the organization in order to maximize the output or consequences of implementation
of the plan. The strategic plan is important in the development of any business organization.

The strategic plan provides basis for the activities in the business, thereby significantly impacting
the performance of these activities and the performance of the entire organization. Some of the
most important aspects of strategic planning include the vision, mission, values and the strategy
used in the organization of interest. In addition, other factors in the strategic planning activity of
the organization include the timeliness of the strategies, as well as variables like the business
situation, the available courses of action, and the desired outcomes. The aim is to develop a
strategic plan that suits the business condition based on an accurate evaluation of the internal
factors and external factors influencing the operations of the organization.
Marketing Implications: A company with customer-focused strategic objectives will have a
corporate strategy that impacts its marketing. When a corporation can envision and project the
long-term profit implications of a customer, it can modify its strategy to capture as much of that
customer's lifetime value as possible. In addition, a company with strong customer satisfaction
can identify that as a competitive advantage and leverage its relationship with loyal customers by
introducing new products or services

Knowledge-Based Synergies: Another strategic implication is the impact of knowledge on the

company as a whole. A corporate strategy may involve introducing new products or opening up a
new location each year. As a company does this repeatedly, it builds a knowledge base. It can
leverage that knowledge base and transfer knowledge from one business unit to another, or enter
a new market by working with a partner and sharing knowledge with its partner.

Technology Implications: A corporation’s strategy has technological implications. For example,

a company may shift from advertising in newspapers to advertising in online blogs or
newsletters. A company may have an expansion goal but realize that opening new offices would
be too expensive. Instead it opts to build out its information technology infrastructure servers,
hardware, and software and tech support to support employees working from home.

Personnel Needs: Corporate strategy has implications for personnel. The strategy dictates how
fast a company expands, what products and services it provides and how the company grows, for
example, through increased sales and marketing or through acquisitions. The pace of growth
impacts how many people a corporation will need to hire.
 CHAPTER 11
MATCHING ORGANISATIONAL STRUCTURE
TO STRATEGY
− Value chain activities to be performed internally
− Value chain activities to be outsourced
− Aligning structure with strategy
− Organizational structure
Organizational structure aligns and relates parts of an organization, so it can achieve its
maximum performance. The structure chosen affects an organization's success in carrying out its
strategy and objectives. Leadership should understand the characteristics, benefits and limitations
of various organizational structures to assist in this strategic alignment.

Let’s go through the seven common types of org structures and reasons why you might consider
each of them.

1. Hierarchical org structure

It’s the most common type of organizational structure––the chain of command goes from the top
(e.g., the CEO or manager) down (e.g., entry-level and low-level employees) and each employee
has a supervisor.

Pros

 Better defines levels of authority and responsibility

 Shows who each person reports to or who to talk to about specific projects
 Motivates employees with clear career paths and chances for promotion
 Gives each employee a specialty
 Creates camaraderie between employees within the same department

Cons

 Can slow down innovation or important changes due to increased bureaucracy

 Can cause employees to act in interest of the department instead of the company as a
whole
 Can make lower-level employees feel like they have less ownership and can’t express
their ideas for the company
 2. Functional org structure

Similar to a hierarchical organizational structure, a functional org structure starts with positions
with the highest levels of responsibility at the top and goes down from there. Primarily, though,
employees are organized according to their specific skills and their corresponding function in the
company. Each separate department is managed independently.

Pros

 Allows employees to focus on their role

 Encourages specialization
 Help teams and departments feel self-determined
 Is easily scalable in any sized company

Cons

 Can create silos within an organization

 Hampers interdepartmental communication
 Obscures processes and strategies for different markets or products in a company

3. Horizontal or flat org structure

A horizontal or flat organizational structure fits companies with few levels between upper
management and staff-level employees. Many start-up businesses use a horizontal org structure
before they grow large enough to build out different departments, but some organizations
maintain this structure since it encourages less supervision and more involvement from all
employees.

Pros

 Gives employees more responsibility

 Fosters more open communication
 Improves coordination and speed of implementing new ideas

Cons

 Can create confusion since employees do not have a clear supervisor to report to
 Can produce employees with more generalized skills and knowledge
 Can be difficult to maintain once the company grows beyond start-up status

4. Divisional org structure

In divisional organizational structures, a company’s divisions have control over their own
resources, essentially operating like their own company within the larger organization. Each
division can have its own marketing team, sales team, IT team, etc. This structure works well for
large companies as it empowers the various divisions to make decisions without everyone having
to report to just a few executives.

Depending on your organization’s focus, there’s a few variations to consider.

5. Market-based divisional org structure

Divisions are separated by market, industry, or customer type. A large consumer goods
company, like Target or Walmart, might separate its durable goods (clothing, electronics,
furniture, etc.) from its food or logistics divisions.

Market-Based Divisional Org Chart Example (Click on image to modify online)

6. Product-based divisional org structure

Divisions are separated by product line. For example, a tech company might have a division
dedicated to its cloud offerings, while the rest of the divisions focus on the different software
offerings––e.g., Adobe and its creative suite of Illustrator, Photoshop, InDesign, etc.

Product-Based Divisional Org Chart Example (Click on image to modify online)

7. Geographic divisional org structure

Divisions are separated by region, territories, or districts, offering more effective localization and
logistics. Companies might establish satellite offices across the country country or the globe in
order to stay close to their customers.

Pros

 Helps large companies stay flexible

 Allows for a quicker response to industry changes or customer needs
 Promotes independence, autonomy, and a customized approach

Cons

 Can easily lead to duplicate resources

 Can mean muddled or insufficient communication between the headquarters and its
divisions
 Can result in a company competing with itself

5. Matrix org structure

A matrix organizational chart looks like a grid, and it shows cross-functional teams that form for
special projects. For example, an engineer may regularly belong to the engineering department
(led by an engineering director) but work on a temporary project (led by a project manager). The
matrix org chart accounts for both of these roles and reporting relationships.

Pros

 Allows supervisors to easily choose individuals by the needs of a project

 Gives a more dynamic view of the organization
 Encourages employees to use their skills in various capacities aside from their
original roles

Cons

 Presents a conflict between department managers and project managers

 Can change more frequently than other organizational chart types

6. Team-based org structure

Team-Based Org Chart Example (Click on image to modify online)

It’ll come as no surprise that a team-based organizational structure groups employees according
to (what else?) teams––think scrum teams or tiger teams. A team organizational structure is
meant to disrupt the traditional hierarchy, focusing more on problem solving, cooperation, and
giving employees more control.

Pros

 Increases productivity, performance, and transparency by breaking down silos

 Promotes a growth mindset
 Changes the traditional career models by getting people to move laterally
 Values experience rather than seniority
 Requires minimal management
 Fits well with agile companies with scrum or tiger teams

Cons

 Goes against many companies’ natural inclination of a purely hierarchical structure

 Might make promotional paths less clear for employees

See why forming tiger teams is a smart move for your organization.

7. Network org structure

Network Org Structure Example (Click on image to modify online)
These days, few businesses have all their services under one roof, and juggling the multitudes of
vendors, subcontractors, freelancers, offsite locations, and satellite offices can get confusing. A
network organizational structure makes sense of the spread of resources. It can also describe an
internal structure that focuses more on open communication and relationships rather than
hierarchy.

Pros

 Visualizes the complex web of onsite and offsite relationships in companies

 Allows companies to be more flexible and agile
 Give more power to all employees to collaborate, take initiative, and make decisions
 Helps employees and stakeholders understand workflows and processes

Cons

 Can quickly become overly complex when dealing with lots of offsite processes
 Can make it more difficult for employees to know who has final say

Consider the needs of your organization, including the company culture that you want to
develop, and choose one of these organizational structures.

− Delegation of authority

The delegation of authority refers to the division of labor and decision -making
responsibility to an individual that reports to a leader or manager.

It is the organizational process of a manager dividing their own work among all their
people. It involves giving them the responsibility to accomplish the tasks that are delegated
to them in the way they see fit.

Along with responsibility, they also share the corresponding amount of authority. This
ensures that tasks can be completed efficiently and that the individual feels actually
responsible for their completion.

On one level, delegation is just dividing work into tasks that others can do.

At its best, delegation is empowering people to do the work they are best suited to. It allows
them to invest themselves more in the work and develop their own skills and abilities. It
also allows the manager to do other important work that might be more strategic or higher-
level.

In other words, delegated authority is more than just parsing out work. It is truly sharing
responsibility, ownership, and decision-making. Delegated authority is shared authority.
Delegating authority can also improve efficiency by making more employees accountable
for their own work and activities. Less time and energy is spent on monitoring and micro -
managing employees who are capable and competent. Your team becomes more capable and
able to achieve higher performance as a result.

Delegation is about entrusting another individual to do parts of your job and to accomplish
them successfully.

Central elements of how to delegate authority

There are three central elements involved in the delegation of authority:

Authority

In the context of a company, authority is the power and right of an individual to use and
allocate their resources efficiently.

This includes the ability to make decisions and give orders to achieve the organizational
objectives and goals.

This component should always be well-defined. Everyone with authority should know the
scope of their authority.

Essentially, it is the right to give a command, meaning the top-level management always has
the greatest authority.
There is a symbiotic relationship between authority and responsibility. So, authority,
especially authority in management, should always be accompanied by an equal amount of
responsibility if the task is to be completed successfully.

Similarly, there has long been a relationship between power and influence. Learn what this
relationship should look like in our article: Power versus influence: How to build a legacy
of leadership.

Responsibility

This refers to the specifics and scope of the individual to complete the task assi gned to
them.

Responsibility without adequate authority can lead to:

 Discontent
 Dissatisfaction
 Conflicts
 Frustration for the individual

While authority flows from the top-down, responsibility flows from the bottom-up. Middle
management and lower-level management hold more responsibility.

Accountability

Unlike authority and responsibility, accountability cannot be delegated. Rather, it is inherent

in the bestowment of responsibility itself.

Anyone who sets out to accomplish a task and take on a job in a company becomes
accountable for the outcome of their efforts.

Accountability, in short, means being answerable for the end result. Accountability arises
from responsibility.

Authority flows downward, whereas accountability flows upward. The downward flow of
authority and upward flow of accountability must be the same at each position of the
management hierarchy.

The importance of delegation

 Delegating has been shown to improve task efficiency and benefit the organization in
ways that aren't obvious at first.
 Delegating can actually increase organizations’ income and overall efficiency.
 Not only does delegation empower others in the organization, but it also helps
optimize the performance of the group.
 Delegating empowers your team, builds trust, and motivates.
  Thoughtful delegation, with support, is also a way to stretch and develop people
within the work. This is often more powerful than through periodic professional
development.
 And for leaders, it helps you learn how to identify who is best suited to tackle tasks
or projects..
 Of course, delegating tasks can also lighten your workload.
 Delegation empowers employees by enabling them to demonstrate their capability to
take on new work.

Delegation Steps

− Systems
▪ Planning system
Planning helps an organization chart a course for the achievement of its goals. The process
begins with reviewing the current operations of the organization and identifying what needs to
be improved operationally in the upcoming year. From there, planning involves envisioning the
results the organization wants to achieve, and determining the steps necessary to arrive at the
intended destination – success, whether that is measured in financial terms, or goals that
include being the highest-rated organization in customer satisfaction.
 Efficient Use of Resources

All organizations, large and small, have limited resources. The planning process provides the
information top management needs to make effective decisions about how to allocate the
resources in a way that will enable the organization to reach its objectives. Productivity is
maximized and resources are not wasted on projects with little chance of success.
  Establishing Organizational Goals

Setting goals that challenge everyone in the organization to strive for better performance is one
of the key aspects of the planning process. Goals must be aggressive, but realistic.
Organizations cannot allow themselves to become too satisfied with how they are currently
doing – or they are likely to lose ground to competitors.

The goal setting process can be a wake-up call for managers that have become complacent.
The other benefit of goal setting comes when forecast results are compared to actual results.
Organizations analyze significant variances from forecast and take action to remedy situations
where revenues were lower than plan or expenses higher.

 Managing Risk and Uncertainty

Managing risk is essential to an organization’s success. Even the largest corporations cannot
control the economic and competitive environment around them. Unforeseen events occur that
must be dealt with quickly, before negative financial consequences from these events become
severe.

Planning encourages the development of “what-if” scenarios, where managers attempt to

envision possible risk factors and develop contingency plans to deal with them. The pace of
change in business is rapid, and organizations must be able to rapidly adjust their strategies to
these changing conditions.

 Team Building and Cooperation

Planning promotes team building and a spirit of cooperation. When the plan is completed and
communicated to members of the organization, everyone knows what their responsibilities are,
and how other areas of the organization need their assistance and expertise in order to complete
assigned tasks. They see how their work contributes to the success of the organization as a
whole and can take pride in their contributions.

Potential conflict can be reduced when top management solicits department or division
managers’ input during the goal setting process. Individuals are less likely to resent budgetary
targets when they had a say in their creation.

 Creating Competitive Advantages

Planning helps organizations get a realistic view of their current strengths and weaknesses
relative to major competitors. The management team sees areas where competitors may be
vulnerable and then crafts marketing strategies to take advantage of these weaknesses.
Observing competitors’ actions can also help organizations identify opportunities they may
have overlooked, such as emerging international markets or opportunities to market products to
completely different customer groups.

▪ Performance targeting systems

 Performance targets are a powerful management tool that can help you deliver the kind of
strategic changes that many growing businesses need to make. The top-level objectives of your
strategic plan can be implemented through departmental goals, and setting targets based on KPIs
is an ideal way of doing this.

For example, a company seeking to expand on the basis of its product design capabilities might
target year-on-year increases in the number of patents it secures, of new products it launches, or
of its licensing income. The specifics will depend on which KPIs best capture the dynamics in
the market.

Setting SMART targets

It's a familiar acronym, but a very useful one - your targets should be SMART - specific,
measurable, achievable, realistic and time-bound:

 Using KPIs ensures your targets will meet the first two criteria, as all KPIs should, by
definition, be specific and measurable. For more information about KPIs, see the page in this
guide on choosing and using key performance indicators.
 Achievable - you need to set ambitious targets that will motivate and inspire your
employees, but if you set the bar too high you risk deflating and discouraging them instead. Look
back at your performance data for recent years to get a sense of what kind of performance boosts
you've seen before - this will give you a sense of what is feasible.
 Realistic - setting realistic targets means being fair on the people who will have to reach
them. Make sure you only ask for performance improvements in areas that your staff can actually
influence.
 Time-bound - people's progress towards a goal will be more rapid if they have a clear
sense of the deadlines against which their progress will be assessed.
Assigning responsibility and resources

Once you have identified the targets based on your KPIs that you believe will deliver the
strategic growth you're aiming for, make sure you follow through by assigning clear
responsibility for delivering each of them.

It is fine for your top-level strategic objectives to be abstract and business-wide, but your KPI
targets should be concrete and clearly owned by a department or individual.

Hitting your targets is unlikely to be a cost-free process, so be ready to make the necessary
resources available when needed. Also, undertake regular reviews to assist with motivation and
to make changes if the progress made isn't as expected.

− Configurations and adaptability

▪ The McKinsey 7-Ss
McKinsey 7S model is a tool that analyzes firm’s organizational design by looking at 7 key
internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to
identify if they are effectively aligned and allow organization to achieve its objectives.

10. Understanding the tool

McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert
Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Since the
introduction, the model has been widely used by academics and practitioners and remains one of
the most popular strategic planning tools. It sought to present an emphasis on human resources
(Soft S), rather than the traditional mass production tangibles of capital, infrastructure and
equipment, as a key to higher organizational performance. The goal of the model was to show
how 7 elements of the company: Structure, Strategy, Skills, Staff, Style, Systems, and Shared
values, can be aligned together to achieve effectiveness in a company. The key point of the
model is that all the seven areas are interconnected and a change in one area requires change in
the rest of a firm for it to function effectively.

Below you can find the McKinsey model, which represents the connections between seven areas
and divides them into ‘Soft Ss’ and ‘Hard Ss’. The shape of the model emphasizes
interconnectedness of the elements.
The model can be applied to many situations and is a valuable tool when organizational design is
at question. The most common uses of the framework are:

 To facilitate organizational change.

 To help implement new strategy.
 To identify how each area may change in a future.
 To facilitate the merger of organizations.

7s factors
In McKinsey model, the seven areas of organization are divided into the ‘soft’ and ‘hard’ areas.
Strategy, structure and systems are hard elements that are much easier to identify and manage
when compared to soft elements. On the other hand, soft areas, although harder to manage, are
the foundation of the organization and are more likely to create the sustained competitive
advantage.

Hard S Soft S

Strategy Style

Structure Staff

Systems Skills

Shared Values

Strategy is a plan developed by a firm to achieve sustained competitive advantage and

successfully compete in the market. What does a well-aligned strategy mean in 7s McKinsey
model? In general, a sound strategy is the one that’s clearly articulated, is long-term, helps to
achieve competitive advantage and is reinforced by strong vision, mission and values. But it’s
hard to tell if such strategy is well-aligned with other elements when analyzed alone. So the key
in 7s model is not to look at your company to find the great strategy, structure, systems and etc.
but to look if its aligned with other elements. For example, short-term strategy is usually a poor
choice for a company but if its aligned with other 6 elements, then it may provide strong results.
Structure represents the way business divisions and units are organized and includes the
information of who is accountable to whom. In other words, structure is the organizational chart
of the firm. It is also one of the most visible and easy to change elements of the framework.

Systems are the processes and procedures of the company, which reveal business’ daily activities
and how decisions are made. Systems are the area of the firm that determines how business is
done and it should be the main focus for managers during organizational change.

Skills are the abilities that firm’s employees perform very well. They also include capabilities
and competences. During organizational change, the question often arises of what skills the
company will really need to reinforce its new strategy or new structure.

Staff element is concerned with what type and how many employees an organization will need
and how they will be recruited, trained, motivated and rewarded.

Style represents the way the company is managed by top-level managers, how they interact, what
actions do they take and their symbolic value. In other words, it is the management style of
company’s leaders.

Shared Values are at the core of McKinsey 7s model. They are the norms and standards that
guide employee behavior and company actions and thus, are the foundation of every
organization.

The authors of the framework emphasize that all elements must be given equal importance to
achieve the best results.

Using the tool

As we pointed out earlier, the McKinsey 7s framework is often used when organizational design
and effectiveness are at question. It is easy to understand the model but much harder to apply it
for your organization due to a common misunderstanding of what should a well-aligned elements
be like.

We provide the following steps that should help you to apply this tool:

Step 1. Identify the areas that are not effectively aligned

During the first step, your aim is to look at the 7S elements and identify if they are effectively
aligned with each other. Normally, you should already be aware of how 7 elements are aligned in
your company, but if you don’t you can use the checklist from WhittBlog to do that. After
you’ve answered the questions outlined there you should look for the gaps, inconsistencies and
weaknesses between the relationships of the elements. For example, you designed the strategy
that relies on quick product introduction but the matrix structure with conflicting relationships
hinders that so there’s a conflict that requires the change in strategy or structure.

Step 2. Determine the optimal organization design

With the help from top management, your second step is to find out what effective organizational
design you want to achieve. By knowing the desired alignment you can set your goals and make
the action plans much easier. This step is not as straightforward as identifying how seven areas
are currently aligned in your organization for a few reasons. First, you need to find the best
optimal alignment, which is not known to you at the moment, so it requires more than answering
the questions or collecting data. Second, there are no templates or predetermined organizational
designs that you could use and you’ll have to do a lot of research or benchmarking to find out
how other similar organizations coped with organizational change or what organizational designs
they are using.

Step 3. Decide where and what changes should be made

This is basically your action plan, which will detail the areas you want to realign and how would
you like to do that. If you find that your firm’s structure and management style are not aligned
with company’s values, you should decide how to reorganize the reporting relationships and
which top managers should the company let go or how to influence them to change their
management style so the company could work more effectively.

Step 4. Make the necessary changes

The implementation is the most important stage in any process, change or analysis and only the
well-implemented changes have positive effects. Therefore, you should find the people in your
company or hire consultants that are the best suited to implement the changes.

Step 5. Continuously review the 7s

The seven elements: strategy, structure, systems, skills, staff, style and values are dynamic and
change constantly. A change in one element always has effects on the other elements and
requires implementing new organizational design. Thus, continuous review of each area is very
important.

Agility and resilience

Agility is the ability to move or respond with ease and speed. The best-performing athletes
demonstrate this with their extraordinary, swift moves in sports like soccer, basketball, tennis or
hockey. When facing a new reality, in order to remain of value, companies and their internal
continuous improvement teams that pivot as if it was preplanned are agile.

Resilience is observed in those who adapt successfully when experiencing threats of or actual
hardships, tragic events, trauma, or other significant sources of personal or work-related stress.
Early 2020 has provided an abundance of stressors to many of us, personally and professionally.
Relationships and businesses have failed; others have grown stronger or adapted to stay relevant
or provide new value.

In a world where longstanding business models are being disrupted (many at the hand of a
staggering rate of technological advances), you won’t get ten paces without hearing terms like
agility and resilience being thrown around. This dynamic has seen the rise of brands like
Amazon/Whole Foods, Netflix, and Uber as well as the demise of others like Kodak who failed
to see and respond quickly enough to changes in the market. If you’re reading this and thinking
that this isn’t something that applies to you, you’re sadly mistaken. Even historically stable
industries are being disrupted in ways that require the ability to adapt and transform in order to
thrive.

The belief that organizations must master the ability to innovate and drive new products and
services to market in order to beat out the competition has contributed to the focus on agility as a
critical success factor. These organizations must “fail fast”, quickly learn from mistakes, and
adapt to changing market conditions in order to outperform their competitors in the long-term.

Another term that has promulgated organizational life in recent years is resilience, or the ability
of an individual or organization to bounce back from the adversity that has thrown them off
course. A prime example of this can be observed in the case of Amazon’s Fire Phone. The
company took a big risk that failed but they didn’t let it derail them. They kept moving forward.
The speed and efficiency at which an organization can recover from adversity can be the
difference between success and failure and resilience at the individual, team, and organizational
levels all play a role.

1. Rightsize Teamwork, Instead of Driving Teamwork

The most successful companies are those that are best able to create a “flexible fabric” of
effective interconnectedness that spans the organization. This allows organizations to utilize
people’s time efficiently so that time is not wasted in chaotic situations. Knowing when and how
to collaborate and work together or separately based on the situation is key.

2. Drive Stability, Instead of Focusing Too Much on Driving Change

Another key dynamic tension highlighted by this research is the need to temper the need to
constantly “drive change” by ensuring an adequate focus on, and appreciation of, creating
stability to help organizations perform. When people are frayed by constant change, having
 stable systems and processes to rely on to ground themselves and enhance their ability to absorb
and recover from disruptive change.

3. Relentless Course-Correction, Instead of Periodic Performance Reviews

The final critical factor is an organization’s ability to create a shared value of continuous
monitoring and adaptation in order to adjust to changing conditions. Continuous monitoring and
adaptation help organizations to correct deficiencies as well as identifying potential opportunities
before their competitors. The integration of processes and tools that help people to adjust to this
relentless focus on continuous course correction can help them to move past their discomforts
with effectively managing performance issues.

− Collaboration with external parties and strategic allies (network structure)

A common pain point of project management is the ability to get people to collaborate when
required. In fact, external collaboration can be critical to business success. Even while we
recognize the value of people working together, it can be difficult to achieve this on a constant
basis. In order to understand how a project manager can succeed in a project through
collaboration tools, it is first essential to grasp what factors comprise an outside influence and
how to avoid missteps in the planning process.

External Collaboration
Knowledge sharing that occurs outside of an enterprise is what is considered “external
collaboration.” One example of effective external collaboration occurs between a brand and their
digital presence. Social media is widely considered as a net to catch consumer opinions. This
type of external collaboration means taking these opinions on social media, analyzing them and
using the message receive to enact change.

Who is External?
A brand can communicate with a variety of people to steer their message. As a marketer, once
you have an understanding of “what is external collaboration,” it is time to examine these facets
for reaching your goal.
There are a multitude of collaboration tools on the market but they all have the ultimate end
game of getting people talking about your brand. Some examples of people whose opinion may
matter to your product/service include:
 Customers
 Vendors and Suppliers
 Startups
 Competitors
 Venture Capitalists
 Schools
 Government
 Inventors/Patent Holders
 External collaboration is about listening to the people that surround your company and adapting
to your audience. In order to do so, you must find ways to hear them.

Collaboration Tools
There are quite a few different methods for working with external groups—none of which is the
perfect answer on its own. The following are some techniques to garner outside opinions and
collect helpful feedback data:
 1-1 Partnerships
 Hackathons
 Social Media Polls
 Intermediaries
 Crowdsourcing
 Joint ventures and Alliances
 Corporate Labs and Accelerators
 Competition and Challenges
 Platforms and Communities
The idea is that once you find a plentiful source of valuable information, stick with the method.
The more a project manager can ascertain from outside opinions and ideas, the better they can
align it with their target audience.

The Total Impact

Communication is the key to an external influence having an effect on the outcome of your
product or service. One key aspect of external collaboration is striving to belong to the best
ecosystems that impact your industry. It’s keeping an ear to the rails, staying abreast of current
trends, giving people what they ask for and then collecting their thoughts.
Sure, the customer is always right, but don’t you want to know why they have the opinion that
they do? That is the key to fueling continuous improvement and the smart management of your
company message. The total impact of external communication is that you’re simply listening to
outsider opinions that matter. Innovation is all about people and you can’t break thresholds by
ignoring the very individuals you seek to impress.

Strategic Alliance
A strategic alliance is an arrangement between two companies to undertake a mutually beneficial
project while each retains its independence. The agreement is less complex and less binding than
a joint venture, in which two businesses pool resources to create a separate business entity.

A company may enter into a strategic alliance to expand into a new market, improve its product
line, or develop an edge over a competitor. The arrangement allows two businesses to work
toward a common goal that will benefit both.

The relationship may be short- or long-term and the agreement may be formal or informal.
Understanding the Strategic Alliance
While the strategic alliance can be an informal alliance, the responsibilities of each member are
clearly defined. The needs and benefits gained by the partnered businesses will dictate how long
the coalition is in effect.

Advantages and Disadvantages of a Joint Alliance

Strategic alliances can be flexible and some of the burdens that a joint venture could include. The
two firms do not need to merge capital and can remain independent of one another.

A strategic alliance can, however, bring its own risks. While the agreement is usually clear for
both companies, there may be differences in how the firms conduct business. Differences can
create conflict. Further, if the alliance requires the parties to share proprietary information, there
must be trust between the two allies.

In a long-term strategic alliance, one party may become dependent on the other. Disruption of
the alliance can endanger the health of the company.

Example of a Strategic Alliance

The deal between Starbucks and Barnes&Noble is a classic example of a strategic alliance.
Starbucks brews the coffee. Barnes&Noble stocks the books. Both companies do what they do
best while sharing the costs of space to the benefit of both companies.

Strategic alliances can come in many sizes and forms:

 An oil and natural gas company might form a strategic alliance with a research laboratory
to develop more commercially viable recovery processes.
 A clothing retailer might form a strategic alliance with a single manufacturer to ensure
consistent quality and sizing.
 A website could form a strategic alliance with an analytics company to improve its
marketing efforts.
 CHAPTER 12: Leadership and Strategic Change
12.1 Strategic Leadership Vision and Change
The leadership change vision and strategy give the organization a picture of what the
future looks like after the change is implemented. It tells organizational stakeholders
why they should let go of the past, sacrifice and work hard in the present, and follow
senior leadership into the future.

If done correctly, a change vision and strategy creates a sensible and appealing picture
of the future that provides guidance for organizational decision-making.

Sensible and appealing are important here!

Managers and employees especially will want to know that the proposed change is
feasible and desirable. If either is missing, they will not embrace the change.

Think about it this way: It is not in the managers and employees best interests to make
the necessary sacrifices now for a future that is worse than the present. This operates
against human self-interest.

Senior leadership and the guiding coalition must develop a compelling message that
will tell managers and employees that the future is a desirable place to go. When they
do this, they have a much better chance of gaining the cooperation of others.

According to Dr. John Kotter, Harvard Business School professor and entrepreneur, every
successful change management project has a clear change vision.

A change vision is simply:

 What the organization, department, product, or service will look like after the specific
changes have occurred
 The picture of the desired state that the change will bring to the organization
The concept helps connect essential steps and actions that need to happen to make the outcome a
reality. Furthermore, the change vision statement should be easy to understand.

Simply put, everyone from an entry-level employee to the CEO should have a clear and solid
understanding of the change vision.

A clear strategic vision removes ambiguity as to where change managers should focus
their efforts. It puts everyone on the same page and therefore helps reduce confusion.
Managers are less likely to offer different interpretations of what change is desirable.
And they are also less likely to provide conflicting solutions on how to achieve the
change.

When you form a strategic vision and initiatives, you can look forward to the following benefits:

1. Clear objectives allow you to make decisions easier and avoid pursuing wasteful
projects.

If the vision is clear to all, it will be easier to identify what initiatives will best achieve it. It will
also be easier to spot and eliminate irrelevant and counterproductive initiatives. Then the
organization can focus its resources on the most advantageous actions, plans, and projects to
achieve successful change. Plus, the company won’t be wasting time and resources on making
unproductive decisions and initiatives.

2. A clear target motivates people to take the action necessary to reach it.

A clear vision will motivate stakeholders because they'll see the benefits they can expect from
the change. As discussed previously, people tend to resist changes that remove them from their
comfort zones. But if they understand how they will benefit from the changes, they're more
likely to put up with short-term sacrifices.

Furthermore, even if the outcome won't be all roses, people are more likely to rally around a
common cause they understand. That means:

 What the vision is

 Why it is necessary
 How the outcome of continuing along the same path is worse than adopting the change

3. A vision helps to coordinate the efforts of the parties involved.

If managers see the big picture, it's easier for them to coordinate and assign responsibilities and
tasks. A clear vision also helps team members to see how their efforts are producing desired
results. Clarity, in turn, will improve the efficiency of the organization’s efforts.

4. The change initiatives are the stepping-stones needed to reach

the vision.
The vision needs to be clear to make sure initiatives align with it. If the initiatives are specific
and in line with the vision, the organization is more likely to achieve the desired change.

− Theories of leadership and change

In the past half century, the study of leadership has grown, offering many new theories and
frameworks for exploring what it means to be a leader, and how to do leadership well. We
outline five current leadership theories, and offer resources and suggestions for integrating the
theories into your own leadership practice. We will explore:

1. Transformational Leadership
2. Leader-Member Exchange Theory
3. Adaptive Leadership
4. Strengths-Based Leadership
5. Servant Leadership

The earliest theories of leadership were the Great Man Theories, which emerged in the late
1800s. (Perhaps you can see one primary fault with these theories, just from their name: they
assumed only half the world’s population could even be considered for leadership.) The Great
Man concept evolved into trait-based theories of leadership, which defined leadership by a
leader’s characteristics, most of which were considered innate. You were either lucky enough to
be born with them, or you weren’t. (Starting, first, with a Y chromosome.) For many of us, our
first understanding of leadership may have aligned with these theories: leaders were often men
with dominant personalities. We still see this theory at play unconsciously today, when someone
is overlooked for a leadership role because of a quiet personality.

In the middle of the last century, the study of leadership shifted from the study of traits to the
study of behaviors: not who the leader is but what the leader does. This allowed for an
understanding that leadership could be developed in others. The most prominent leadership
theories today build on this understanding, and begin to integrate the perspective of followers
and the contextual circumstances in which leaders and followers interact. As business, and our
understanding of human nature, grows more complex, leadership theories and frameworks
should evolve to accommodate the new contexts and understandings.

Theories of leadership must wrestle with the moral implications of a leader’s motivations. As
you’ll see in several of the theories below, many theories would answer the question of Hitler
with a firm no: Hitler was a dictator, but not a leader. He had positional authority, but did not
show true leadership.

To begin our exploration of leadership theories, let’s start with one of the most researched and
referenced today, transformational leadership.
 11. Transformational Leadership
The concepts of transformational leadership were brought to prominence by political sociologist
James MacGregor Burns, in the late 1970s. Burns identified two types of leadership,

 Transactional: where a leader influences others by what they offer in exchange, the
transaction;
 Transformational: where a leader connects with followers in such a way that it raises the
level of motivation and morality.

Those two words – motivation and morality – are important, as it demands that transformational
leaders be committed to a collective good. This may be a societal good, such as starting a
community center or improving air quality, or a more personalized good, such as helping direct
reports reach their own potential.

12. Leader-Member Exchange Theory

The concept of individualized concern has some carry-over to our second theory, Leader-
Member Exchange Theory (LMX). To understand this theory, you only need to think back to
junior high: almost every student could be divided into two categories, popular or unpopular.

LMX theory explains that in any group or organization, there are in-group members and out-
group members. In-group members work well with the leader, have a personality that fits with
the leader’s, and are often willing to take on extra tasks or responsibilities. Out-group members
are less compatible with the leader; they may hold dissenting opinions, have clashing
personalities, or be less willing to take on extra assignments. Not surprisingly, in-group members
are more likely to earn promotions; out-group members are more likely to leave.

A ct i vat i n g LMX th eory :

For followers, applying the concepts of LMX theory is easy: align yourself with the leader, take
on extra tasks, and expect positive results. For leaders, LMX offers a greater challenge, because
making your team as productive as possible will mean finding ways to turn out-group members
into in-group members. Individualized concern, the final factor of transformational leadership,
may offer one path to converting out-group members.

Additionally, LMX theory has important implications for improving diversity and inclusion. If
minorities, women, or people with disabilities routinely identify as out-group members, the
leader should ask the question, “What is required to be an in-group member here, and are we
creating unintentional barriers for others?”

13. Adaptive Leadership

Adaptive leadership, one of the most recent leadership theories to emerge, says a leader is
someone who mobilizes people to take on tough challenges, like inclusiveness. Adaptive
challenges are challenges where solutions aren’t readily apparent.
Adaptive leadership makes a distinction between leadership and authority. Authority is positional
and requires power; leadership, in contrast, requires influence and the ability to mobilize.

A ct i vat i n g adapt i ve l eadersh i p:

Individuals can show adaptive leadership through practicing six behaviors, identified by scholar
Ronald Heifetz:

 Get on the balcony: step out of the fray to gain a new perspective.
 Identify adaptive challenges: adaptive challenges usually stir emotions; recognizing the
nature of these challenges and their complexities helps clarify the path forward.
 Regulate distress: create a safe emotional space for addressing the tension of adaptive
challenges.
 Maintain disciplined attention: encourage focus.
 Give the work back to the people: seek collaborative approaches.
 Project leadership voices from below: listen especially to out-group members, the
marginalized, and the external community.

14. Strengths-Based Leadership

Running as an undercurrent through many of these theories is the idea of strengths: an attribute
or quality that makes an individual or group successful. In-group members are often valued by
the leader for their specific strengths. When an adaptive leader “gives the work back to the
people,” the leader is signaling trust in the people’s strengths and competency.

Strengths-Based Leadership is the concept of identifying and leveraging your own strengths, and
the strengths of others, to achieve results. The concept draws from the field of positive
psychology, and from the work of the Gallup Organization and their popular StrengthsFinder 2.0
assessment.

Much of the research and discussion regarding strengths-based leadership centers around self-
assessments of specific characteristics. Gallup proposes that strengths fall into four talent theme
categories: executing, influencing, relationship building, and strategic thinking. Understanding
your set of strengths, and those of your colleagues, can help you improve team cohesion and
productivity because when we work in the area of our strengths, we often feel more engaged and
energized.

A ct i vat i n g st ren gths -based l eadersh i p :

Strengths-based leadership is more of a mindset than a formal theory. To better understand the
concepts, leaders should take the StrengthsFinder 2.0 or another assessment tool. Additionally,
leaders should recognize and affirm the strengths of others, and find opportunities for people to
work in their area of strength.
 15. Servant Leadership
Our final theory to explore is servant leadership, which originated in the writings of Robert
Greenleaf. Servant leadership requires leaders to place the needs of others over their own self-
interests. Greenleaf believed leaders have a social responsibility to care for the disenfranchised
and to serve first; he proposes shifting power to those who are being led.

Acti vati n g servan t l ead ersh i p :

 Listening: servant leaders must listen first.

 Empathy: servant leaders must “stand in the shoes” of another person.
 Healing: servant leaders care about the well-being of their followers.
 Awareness: servant leaders are attuned to the contexts of others.
 Persuasion: servant leaders offer clear and persistent communication to advance change.
 Conceptualization: servant leaders are visionary and provide a clear sense of goals and
direction.
 Foresight: servant leaders anticipate the future.
 Stewardship: servant leaders take responsibility for their role as a leader.
 Commitment to the growth of people: servant leaders are committed to help others
develop.
 Building community: servant leaders pursue unity and relatedness with others.

− Types of strategic change

Strategic change is the movement of a company away from its present state toward some desired
future state to increase its competitive advantage. Many companies have gone through some kind
of strategic change as their managers have tried to strengthen their existing core competences
and build new ones to compete more effectively.

Three kinds of strategic changes that most of the companies pursue at least one of them
are:
1. Reengineering:
Business process reengineering is the redesign of business processes and the associated systems
and organizational structures to achieve a dramatic improvement in business performance. The
business reasons for making such changes could include poor financial performance, external
competition, and erosion of market share or emerging market opportunities. BPR is not—
downsizing, restructuring, reorganization, automation, new technology, etc.
It is the examination and change of five components of the business:
(1) Strategy
(2) Processes
(3) Technology
(4) Organization
(5) Culture

2. Restructuring:
Restructuring is another kind of change strategic managers use to implement strategic change to
improve performance.

There are two ways of restructuring:

1. Reducing the level of differentiation and integration by reducing divisions, departments or
hierarchy levels.
2. By reducing the number of employees to bring down operating costs. For example, when Jac
Smith took over as CEO of General Motors in 1992, GM had more than twenty two level in the
organization hierarchy and more than 20,000 corporate managers. Smith soon restructured the
company to bring down the hierarchy levels to twelve and corporate managers to 10,000.
Restructuring also involves changes in relationships between divisions or functions.
Restructuring and downsizing becomes necessary due to:
I. Unforeseen changes in business environment,
II. New technological development turns the existing technology obsolete,
III. A reduction in demand due to widespread recession,
IV. Excess production capacity
V. High bureaucratic and operating costs
VI. To build and improve the competitive advantage
VII. Companies have not paid attention to monitoring their basic business processes.
VIII. Companies have not made the incremental changes to their strategies and structures that
could enable them to contain/reduce costs and adjust to changing conditions.

3. Innovation:
Innovation is the process by which organizations use their skills and resources to create new
technologies or good and services so that they can change and better respond to the needs of their
customers. An organization that is prone to innovation can succeed dramatically. For example,
Apple Computers succeeded in computer industry due to its innovation of personal computer.

Innovation, one the one hand, brings change, one the other entails a high level of risk because the
results of R and D activities generally lack certainty. Innovation can lead organizations to change
they want, it can also lead to the kind of change, they do not want.
Organizations that depend on innovation as the way to achieve competitive advantage should
adopt adjustable structures such as matrix or cross-functional team- structures that give people
freedom to experiment and be creative.

− Levers for strategic change

Seven Levers of Change

The Levers of Change are actions that leaders can take to engage employees in a change. In
addition, they are actions to harness the knowledge and enthusiasm of those already engaged.
The levers are the backbone of the Tipping Point computer simulation.

Organizations can only change when people in them change. They change when engaged
employees recognize both why the change is needed and its potential value. The change levers
set employee engagement in motion and give it momentum. Using them well demonstrates
commitment from leaders. It ensures employees have the necessary tools and skills, and provides
support and rewards for the change. Above all, the levers are not a formula. They represent seven
areas that require attention and planning for successful change management.

The Seven Levers of Change are:

i. fostering personal contacts between advocates of the change and others,

ii. prudently using mass exposure,

iii. hiring expertise only when required,

iv. listening to resisters and shifting resistance, if necessary,

v. providing the requisite tools and infrastructure,

vi. leading by example or “walking the talk”, and

vii. rewarding successes in implementing the change.

None of the levers alone is a “silver bullet”. Used properly they can reinforce each other to create
synergy that moves the change forward. There are many examples of specific actions that fit into
each lever, which will vary across organizations and changes. For every change, we need to
carefully evaluate each lever and apply it as needed. Moreover, working in combination the
levers can make any important change programme effective, cost-effective and sustainable.

− Methods of introducing strategic change

Strategic change is the implementing of changes to important characteristics of a business, for
instance in response to new market threats or opportunities. Upper management and the Chief
Executive Officer in particular bear responsibility for this change.

The planning and implementing of strategic change is an important aspect of the role of manager.
Strategic change is basically having a certain strategy and then making changes to it. A strategy
is a long-term plan to achieve certain objectives. Strategies are aimed at the future, and should be
aimed at lasting change. This is necessary to stay relevant in a highly evolving market.

Tools for strategic change management

An organization might come up with the perfect five-year plan day, but the next day something
might happen that changes everything. That’s why management has to manage all those plans
and change them when needed.

This is necessary if you want to stay relevant in your industry. Every industry will have new
opportunities, and it’s important that the strategic plan is flexible enough to benefit from these.

A key part of this is identifying new opportunities, as well as threats. They then have to initiate a
change plan. Below we’ve listed some tools that can help support these processes.

i) SWOT Analysis

A SWOT analysis creates an overview of an organization’s threats and opportunities, as well as

its strengths and weaknesses. A company’s strengths can be used to take advantage of new
opportunities. These strengths can also be used to minimize threats. By taking advantage of new
opportunities, the organization’s weaknesses are lessened.
ii) Kotter 8-step Model

With the 8-step Change Model, the required change can be implemented, either to capitalize on
new developments or to minimize threats.
The 8-step Change Model for strategic change management consists of eight steps. The first
three steps of the model are all about creating the right environment for change.
The following four steps are about involving and stimulating the organization and its employees.
The final step is the implementing and maintaining of sustainable change.

iii) A clear management vision

That same John Kotter, Harvard Business School professor, notes that any project that involves
change requires a clear vision.
A change vision is how the organization, department, product or service will look in the future
when a specific change has occurred. This vision describes the organization’s desired state.

The concept of a change vision is important to link the essential steps and activities that are
necessary for the desired outcome; strategic change management.
It’s important that the change vision is unambiguous and solid for upper management as well as
all other employees.

iv) Creating and sharing a change vision

There are a number of best practices when it comes to creating a robust and durable change
vision:

 Ensure that the vision is easy to understand;

 The vision has to be easy to share;
 The vision has to be intellectually strong;
 Ensure the vision is emotionally appealing.
The message that the change vision has to communicate should be easy to understand. The
message also has to be logical, specific, and explain why the change is necessary in relation to
today. It’s also important to be succinct.

If the message is written on paper, it shouldn’t take up more than half a page. If the message is
communicated verbally, it shouldn’t take more than 60 seconds.

The message itself has to be strong and to the point, and have emotional appeal. An intellectually
strong vision means that the vision is logical and correct.

v) Strategic leadership

Strategic leadership mainly refers to managers’ ability to push through a strategic change vision
for the organization and communicate it to employees. The goal of strategic leadership is, among
other things, to stimulate employee motivation by engaging them with the strategy.
One of the core aspects of strategic leadership is the developing and stimulating of an open
environment in which employees predict the organization’s needs in the context of their own job.
Managers can use various rewards or incentives to encourage employees to deliver quality.

Functional strategic leadership refers to managers’ ability to recognize the potential of

employees and tie it to specific activities. This requires a high level of objectivity and the ability
to monitor the entire work environment.

vi) Communicating Charisma:

Managers as leaders need to persuade employees that the vision is urgent and to motivate them to

achieve it. Charisma is a leadership characteristic that can help influence employees to take early

and sustained action. Charismatic leaders are dynamic risk takers, who show their depth of

expertise and well deserved self-confidence, express high performance expectations, and use
provocative language to inspire the followers. Charismatic leaders are respected and trusted by
employees as they introduce change and tend to be emotionally committed to the vision of such

leaders.

vii) Stimulating Learning:

Transformational leaders develop people’s capacity to learn from the experience of change. This

process is called double-loop learning. The employees, who are double-loop learners, develop

the ability to anticipate problems, prevent many situations and to be more ready for the next

change to be introduced in the future.

viii) By ensuring employee security:

Along with shared rewards, existing employee benefits need to be protected. Security during a

change is essential in the form of protection from reduced earnings when new technology and

methods are introduced. Seniority rights, opportunities for advancement etc., are to be

safeguarded when a change is made.

ix) By communication and education:

Support for change can be gained by communication and education. All individuals or groups

that will be affected by change must be informed about the change in order to make them feel

secure and to maintain group cooperation.

x) By stimulating employee readiness:

Employers should be helped to become aware of the need for a change. Change is more likely to

be accepted if the people affected by it recognize a need for it before it occurs

To summarize strategic change management

Strategic change refers to implementing changes in important aspects of a business. Managing

and adapting strategies is also called strategic change management.

In most cases, upper management is responsible for strategic changes. They should
also effectively communicate the robust change vision to the entire organization.
Strategic change is necessary to anticipate changing market conditions. There are a number of
tools available for this. Change in a strategic respect is often prompted by developments in the
internal and external environment of a business. These can be identified using a SWOT Analysis.
After a proper plan has been prepared in order to act on these changes, 8-step Change Model can
be used to actually implement it.

− Strategic leadership roles and effectiveness

The transition from the operational level to the strategic level is an important process that every
leader needs to overcome. It involves many challenges. Many leaders face difficulty to pass this
step and they fail to overcome it. Due to the rapid changes in the business environment and the
growing competition and changing attitudes of employees from one generation to other
generation, it is necessary for organizations to develop strategic leaders who are able to
formulate and implement strategies which deliver the desired results to achieve sustainability. In
contrast to operational leadership, whose role is limited to managing only the day-to-day
operations, leaders who transform from operational leadership to strategic leadership need to
play different types of roles to achieve long-term strategic results. This will help their
organizations to grow and gain competitive advantage. It will also help them to implement the
change management process easily and quickly. The importance of each role depends on the
status of the business that the leader is associated with. The strategic leader generally plays nine
roles in the organization while displaying his leadership style.

The essential purpose of strategic leadership is to change the trajectory of an organisation – from
one taking it to its default future to one that leads to an improved future: a process that involves
developing strategy and executing strategy.

a) Developing strategy involves understanding the influence of the exogenous forces that
are changing the organisation’s context – and its resulting default future – exploring
strategic opportunities and making an informed choice on strategic intent.

b) Executing strategy involves turning strategic intent into operational reality. Most
importantly it involves engaging people intellectually, emotionally and physically.

c) Strategic productivity is the core goal of strategic leadership.

d) Another goal that comes hand in hand with strategic productivity is to create an
atmosphere where people can foresee the organization’s requirements while doing their
work. Employees at a company are encouraged to pursue their ideas by strategic
executives. Strategic leaders utilize a more extensive compensation and incentive system
to motivate productive and high-quality staff to work at a higher level for their company.
To elevate strategic leadership to its full potential, it’s vital to use creativity, vision, and
planning to help someone achieve their aims and future aspiration.
These Nine Roles of the Top Strategic Leadership Are:

1.Navigator— In this role, the leader works quickly and clearly to deal with difficulties, solves
problems and takes advantage of various opportunities to influence existing work and people.
The Navigator role of the leader makes the leader to analyze a large amount of conflicting
information, understand the root cause of the problems and identify the feasible and optimal
solutions.

2. Strategist— The strategist role of the leader enables the leader to develop a long-term
strategy and set targets to match the vision of an organization. The strategy is focused on
creation of future plans and required actions immediately. The strategist role enables the leader
to provide a direction to the organization to achieve the desired vision.

3. Entrepreneur-— In this role, the leader acts an entrepreneur. He/she identifies and takes
advantage of opportunities and expands business by creating innovative products, services or
markets. Thinking like an entrepreneur and owner of the organization, the leader generates new
ideas, takes advantage of opportunities or proposals and transforms them into a new path. The
leader develops the ability to solve problems easily through his acumen and shrewdness and
creates a new style of leadership.

4. Mobilizer— Playing the role of mobilizer, the strategic leader mobilizes all kinds of
resources and develops teams and partners to work with them by leveraging the synergy of wide
variety of talent. Also, he / she builds a capacity that allows rapid implementation of work in
order to achieve complex objectives.

5. Talent advocate - In this role, the strategic leader identifies talented and skillful employees,
internally and externally and stays in touch with them to tap their talent as and when required. He
/ she creates a culture of talent development by encouraging innovative ideas, by providing
training, by empowering the talented employees to reach their highest possible abilities.

6. Captivator— Playing the role of a captivator, the strategic leader continues to build
confidence among employees, and creates positive feelings and a culture of belongingness. In
this role, the leader converts the talent of employees into a useful outcome for the organization.
Also, he convinces employees to accept his leadership style, synchronizes it with the vision of
the organization and empowers them achieve the vision.

7. Global thinker— The other important role played by the strategic leader is as a global
thinker. The leader understands and respects all types of diversity in the organization and designs
the strategies and action keeping the diversity factor in mind. He thinks from a very high macro
level perspective and keeps identifying global opportunities.

8. Change driver— Organizations need to adapt to the dynamic business environment by

making changes on a continuous basis. The strategic leader plays an important role as a change
driver. The leader creates and develops change management strategies and evolves techniques to
make the employees accept the changes from time to time. The leader convinces the employees
by projecting the fruitful outcomes of the changes.

9. Enterprise guardian - In this role, the strategic leader acts as an enterprise guardian. He / She
keeps a constant check on the status of the organization by keenly observing the business
environment and guards the enterprise from any disturbances. The leader refuses to negotiate
over long-term gains. He / She takes bold and wise decisions with courage and risk taking
attitude for a long-term benefit to the organization. The leader takes the onus of failure and
shares the success with all the employees. Keeps away from emotions and personal relationships
when it comes to the achievement of results. He / She becomes popular in the organization and
outside by taking bold, useful but unpopular decisions.

Strategic change: revolution versus evolution

Organizational change can be quick or slow. It can be classified as revolutionary and

evolutionary, as two valid, different ways of changing organizational culture and structure. Too
often the business requires a change - Which one should it be?

A Revolutionary or Evolutionary?

The revolutionary change is immediate, dramatic, and forced down –a high-pressure mandate
from above coming from “upstairs” when senior leadership says that it must be done. Once the
decision is made, a room for discussion may be accepted, but the change is going to take place
one way or another. It can take a day, a week, or a month, and sometimes even a quarter, but the
change will occur.

The evolutionary change is gradual. The approach is built collaboratively. The senior
management needs to be engaged, but they are not driving the change. Leadership tends to
empower people all through the organization to take on the change. The change occurs in small
chunks, and every person is to understand the change and embrace it.

Revolutionary change

Advantages

 High chances for the change to take effect.

 The change will be quick.
 No resources issues. All the required resources will be allocated.
  No internal politics. Full Political cover by management to eliminate opposition.
 Looks good on external reports and communication.

Disadvantages

 Culture and DNA. Change may “break” the culture and DNA.
 Implemented changes often rolled back and followed by new changes with a risk of going
into loops of changes.
 Leadership changes: if the change does not provide the benefit expected, or fails, the
people who lead it will be replaced.
 A shift of priority: other processes are being put aside. All focus of the company is on the
change.
 Engagement. As not all people understand the change and the reasoning, not everyone is
engaged, so the solution applied often leaves pain points or gaps.
 Attrition. As a result of the change, the people are leaving the organization, as they don’t
understand it, or find themselves shifted to a different role.

Evolutionary change

Advantages

 Culture and DNA. With high probability, if the change is successfully implemented, it
will become part of the culture. As more people have been involved in the design and
implementation, more people identify with the change.
 Being designed by the people. More likely that the change fits the organization, and more
likely to be successful.
 More hands around it, lead to more ideas and solutions.
 More people involved in the process leads to more people supporting it and engaging.

Disadvantages

 Wrong direction. Changes may be introduced that do not move the organization towards
where it needs to go. Although successful doesn’t bring the needed results.
 Too many ideas. No central decision, no one clear owner, and it’s harder to reach one
direction.
 Require veterans and skilled people that are not easy to find, and that are willing to be
part of this process.

− Diagnosing the change context

Organization diagnosis is an incredibly difficult mode of skill to both understand and
communicate. It is primarily a professional skillset born out of the inefficiencies and cultural
deficiencies in the corporate and public sector world. Academics have been theorizing that,
with the right model or the right framework, we are able to quantify or benchmark a
solution to tailor nearly all organization shortcomings. While grand in scope, this idealism is
rooted in history and the lessons learned of the past. That’s primarily what makes Organizational
Development & Change (OD&C) so compelling. Each situation and each problem an OD&C
professional must tackle is truly unique and based on a multitude of factors, such as corporate
values or cultural norms. One must extract insight and case studies from the past to better
prepare for the future. While OD&C models from the 1970’s may not be applicable to a
contemporary office culture, they remain steadfast in their ability to inform and better prepare
the OD&C professional to meet the problem head on and come to a more cultivated, well-
rounded (or more modern) solution. Ultimately, OD&C diagnosis is a mental framework that
provides guidance to professionals and academics so a better, more productive workforce
world can take root.

Listed are some knowledgeable steps, when well-executed, that can supplement a successful
delivery of change diagnosis (large or small):

I. S etti n g E xp ectati o n s Is Key to Fu tu re Ad op ti on and Prev en ts

Wi th d raw al of th e C h an ge
You (and your team) must be honest and forthright about your own capabilities to execute an
organization development analysis. Are you great at merging teams (or ideas), leading or
facilitating focus groups, designing surveys, or maybe visualizing the data to better correlate to a
greater operational story? It is critical that the organization development (OD) professional set
expectations with the client or sponsor from the beginning. If the requirements are out of line
with your abilities or maybe the expectations not in-line with your understanding of the current
organization’s problem, then you will need to create room for discussion. An OD professional
has the responsibility to set expectations and requirements before data gathering efforts occur to
better ensure you are not misusing stakeholder time or become too entrenched on a path of
misalignment with the business sponsor’s needs.
ii. E xecu ti n g th e Ri gh t Mod el Is I mp orta n t (B u t Not E veryt h i n g)
When you are selecting an OD&C model or framework to provide inspiration, remember that
these models are born out of practicality to a particular case study or scenario. From
the McKinsey 7-S to Open Systems Model or a custom Venn diagram, real world case studies
have inspired OD professionals and academics to try and quantify workforce realignment
strategies. You will be at your best when you can accurately and informedly disseminate
between which OD&C model is applicable to which situation. This will involve extensive
research and experience (in addition to failing once or twice) so you will know, based on an
organization’s situation, which model may suit the visualization and communication of the
diagnosis results aspect of the engagement. However, remember that the model or framework is
not everything and, especially in OD&C, there are a multitude of other factors that impact your
choice of communicating data, such as cultural workforce landscapes and human
psychology/emotional response which feeds more strongly into “knowing your audience”.
iii. Kn ow i n g You r Au di en ce (Is E very th i n g)
Finally, a very important element to succeeding as an OD professional, especially in the
assessment and feedback phases of the diagnosis, is the interpretation and understanding of
everyone’s roles. When presenting your findings, you must make an effort to empathize with
your audience and draw from their reactions. For example, maybe you are in a focus group and
can follow-up with compelling questions based on a participant’s emotional cue. In addition, you
may have an opportunity to speak with executive-level decision makers so your results and data
should be translated into high-level but effective forms of communication. You must place you
and your team in a position to anticipate questions at every level of the diagnosis: operations,
technical, financial, executive, and compliance. Knowing who you are talking to and why is key
to not only conveying your OD engagement story but building the confidence you will need with
the sponsor/client/organization.

After an OD&C diagnosis is completed, we are left with a bucket of statistics, measurements,
benchmarks, and qualitative insight. What we do with this information plays a crucial role in
having a long-term, solidified impact on the organization. In addition to how these pieces of
evidence should be visualized, we also need to understand the key stakeholders and the roles
they will play in disseminating that information. If a consultant or OD&C professional presents
key findings too soon or too late or, in some cases, misrepresents the data then the entire
diagnosis is called into question by the client and the organization. One must visualize, state, and
connect their data-gathering efforts to the overall purpose set by the initial requirements and
expectations. The data gathered will play a critical role in ensuring the change effort or
recommendation made by the OD&C professional is warranted and lasting.

− Managing major changes

Change management is defined as the methods and manners in which a company describes and
implements change within both its internal and external processes. This includes preparing and
supporting employees, establishing the necessary steps for change, and monitoring pre- and post-
change activities to ensure successful implementation.

Significant organizational change can be challenging. It often requires many levels of

cooperation and may involve different independent entities within an organization. Developing a
structured approach to change is critical to help ensure a beneficial transition while mitigating
disruption.
Changes usually fail for human reasons: the promoters of the change did not attend to the
healthy, real and predictable reactions of normal people to disturbance of their routines. Effective
communication is one of the most important success factors for effective change management.
All involved individuals must understand the progress through the various stages and see results
as the change cascades.

Most organizations today are in a constant state of flux as they respond to the fast-moving
external business environment, local and global economies, and technological advancement. This
means that workplace processes, systems, and strategies must continuously change and evolve
for an organization to remain competitive.

Change affects your most important asset, your people. Losing employees is costly due to the
associated recruitment costs and the time involved getting new employees up to speed. Each time
an employee walks out the door, essential intimate knowledge of your business leaves with them.

What is Effective Organizational Change Management?

A change management plan can support a smooth transition and ensure your employees are
guided through the change journey. The harsh fact is that approximately 70 percent of change
initiatives fail due to negative employee attitudes and unproductive management behavior. Using
the services of a professional change management consultant could ensure you are in the winning
30 percent.

Key steps to effective organizational change management.

1. Clearly define the change and align it to business goals.

It might seem obvious but many organizations miss this first vital step. It’s one thing to articulate
the change required and entirely another to conduct a critical review against organizational
objectives and performance goals to ensure the change will carry your business in the right
direction strategically, financially, and ethically. This step can also assist you to determine the
value of the change, which will quantify the effort and inputs you should invest.

2. Determine impacts and those affected.

Once you know exactly what you wish to achieve and why, you should then determine the
impacts of the change at various organizational levels. Review the effect on each business unit
and how it cascades through the organizational structure to the individual. This information will
start to form the blueprint for where training and support is needed the most to mitigate the
impacts.

3. Develop a communication strategy.

Although all employees should be taken on the change journey, the first two steps will have
highlighted those employees you absolutely must communicate the change to. Determine the
most effective means of communication for the group or individual that will bring them on
board. The communication strategy should include a timeline for how the change will be
incrementally communicated, key messages, and the communication channels and mediums you
plan to use.

4. Provide effective training.

With the change message out in the open, it’s important that your people know they will receive
training, structured or informal, to teach the skills and knowledge required to operate efficiently
as the change is rolled out. Training could include a suite of micro-learning online modules, or a
blended learning approach incorporating face-to-face training sessions or on-the-job coaching
and mentoring.

5. Implement a support structure.

Providing a support structure is essential to assist employees to emotionally and practically

adjust to the change and to build proficiency of behaviors and technical skills needed to achieve
desired business results. Some change can result in redundancies or restructures, so you could
consider providing support such as counseling services to help people navigate the situation. To
help employees adjust to changes to how a role is performed, a mentorship or an open-door
policy with management to ask questions as they arise could be set up.

16. Measure the change process.

Throughout the change management process, a structure should be put in place to measure the
business impact of the changes and ensure that continued reinforcement opportunities exist to
build proficiencies. You should also evaluate your change management plan to determine its
effectiveness and document any lessons learned.

− Problems of formal change programmes

1. Employee resistance

Resistance to change can start anywhere in an organization. Executives may not want to spend
money. Departments may not recognize broader organizational needs, as long as their system
works. The result? Key stakeholders and decision-makers may not immediately see how the
changes will benefit the organization holistically.

Further resistance can come from a change in the routine. Employees may worry about what
might happen to their role and their job. Even after the change, employees may still resist if they
feel new workflows make their jobs harder.

You need a multifaceted approach to overcome this hurdle.

  Be transparent. Workers want to know the reason for the change, not just the high-level
benefits it will provide. Acknowledging problems and explaining how this change will
solve them can build buy-in and cooperation.
 Provide ample training. An effective training program for new technology, workflows,
and processes is vital for a smooth transition.
 Get management and executives involved. Employees want to see leadership engaged
and invested in the effort. When executives get involved, it shows that a clear plan is in
place. It also improves communication and makes it easier for both managers and
executives to respond to employee concerns.

2. Communication issues
Communication deserves extra attention. It's the area where many organizations stumble. Many
businesses communicate value to their customers clearly, but they often struggle with internal
communication with employees.

Common communication downfalls include:

 Limited, or too little, communication

 Not enough channels of communication (i.e., email, in meetings, website)

 Failure to keep all stakeholders informed and involved in follow-ups.

Every change management plan should ensure clear, consistent communication across all
channels to engage in a constructive conversation between staff and management.

Your communication should also include essential details. Tell people when events will happen
and what to expect. Successful information communicates the correct information.

Fortunately, you can prevent communication issues with advanced planning. Make a
communication strategy part of your change management plan. Detail who will do what.
Determine a schedule ahead of time that includes the channels you'll use, such as:

 Email

 Intranet

 Mail
3. Implementing new technologies
Few changes cause as many headaches for people at all levels of an organization as
implementing technology. New equipment, tools, and workflows change the way everyone
works.

Without a well-directed plan, the disruption can significantly decrease productivity instead of
increasing it, leading to frustration. This can happen even if the new technology automates
systems and workflows to require fewer steps and simplify the workload!
Often, situations like this occur because of a need or desire to get new technologies up and
running fast, reducing training and transition time.
4. Conflicts
Change can evoke emotions like uncertainty and fear, leaving staff to take their frustrations out
on each other. Conflict is a common unintended consequence, so it’s your responsibility as a
leader to help staff overcome difficulties.

Conflicts will disrupt your schedule, so whenever possible you must intervene and mitigate
issues.

Be alert to proactively tackle the root of the issue, and find a solution that incorporates staff
input.

An active leader will dive into the problem while working in accordance with
their organizational change management. Patience is key, and you should resonate with staff by
showing your side of the story, and understanding theirs.
A problem that highlights snags in your change process is well worth exploring, where you must
be readily adaptable.
5. Planning

Change will fall by the wayside without correct planning.

You’ll reap the benefits of a systematic procedure, which underlines the exact nature of changes,
and what needs to happen for these changes to stick.
For example, if you’re introducing a new system, you’ll need to appreciate whether it’s
compatible with the old system, and how you will transfer essential information as you make a
transition. Successful planning involves delegation, to maximise the potential of staff and
ultimately increase efficiency.
With all duties covered, you can create a successful timeline for change, which accounts for
downtime and unintended consequences.
6. Setbacks
Setbacks are inevitable, but you can reduce their impact by identifying them before they happen.
Never presume your steps towards change will be flawless. Your method won’t be foolproof, and
it’s difficult to accurately foresee the future. When something goes wrong, maintain a positive
mental attitude, implementing measures to prevent recurrences. If your team pitches in to help,
delay will shorten considerably.
Expecting setbacks is one thing, but identifying challenges in advance will ensure you’re well
prepared. When a challenge surfaces, you can assess whether it’s a one off, or a critical outcome
that requires a reshaping of your change process.

17. Lack of Communication

A failure to communicate intended changes can break you. Speculation and rumors will sweep
your organization, and a lack of trust will make it difficult for staff to embrace change, especially
when they’re uninformed on what’s required from them.
Employees need to know what’s going on, because uncertainty will disrupt your workforce. It’s
preferable for them to understand planned updates, otherwise they’ll be less aligned with your
objectives and feel disconnected.
Keep employees up-to-speed, whether you coordinate regular meetings or set up brainstorming
sessions. Communication should be two-way, because staff can help your change procedures
with valuable ideas.

18. Failed Embrace

Initiating a plan of action is great, but it’s of no use if staff aren’t fully committed to your plans.
You should encourage an organizational embrace of new philosophies, to break down the
barriers set up during the process.
Decision making starts at the top, but attitude to change needs be consistent throughout. Set the
precedent as a leader, and your willingness to change will trickle down. Everyone needs to be on
board, from management to remedial staff, otherwise you risk facing dissension.
Though you might not get everyone on board from the beginning, by practically showing how
change will improve company procedures, those with reservations will soon be converted.

− Managing Corporate Politics

All workplaces are political to some extent, simply because people bring their personal emotions,
needs, ambitions, and insecurities into their professional lives.

We all want to be successful, but we don't always agree with one another about what this means
or how we should achieve it. Office politics arise when these differences of personality and
opinion become difficult to manage.
And we often care deeply about the decisions that we make, or that others make about us, so we
seek to influence people's choices. We can be straightforward or underhand about this.

Understanding the human ritual of politicking is essential for everyone in business.

Practicing these eight tips will help you navigate your way through tricky political waters:
1. Play nice
Courtesy, respect, politeness and office etiquette start and end with you. Show your coworkers
kindness, and encourage them to do the same.
2. Fight fair
Sometimes the game of office politics can get downright nasty, and there's nothing you can do
but get in the ring. But before the fur starts to fly, focus on the issue, not the person. Address
behaviors, never the individual. Handle confrontations privately, fairly and without judgment.
3. Keep your cool
Nothing that happens at the office is worth a heart attack. In the big scheme of things, will the
issue matter in a week? A month? A year? As you keep things in perspective, you will also be
less prone to turning incidents into catastrophes. Strive for equanimity at all times.
4. Forgive and forget
If you've been maligned, candidly address the issue at the source. Then shake hands and move
on. Bearing grudges or, worse, returning fire will serve only to damage your own reputation.
5. Don't play favorites
Motivational speaker Earl Nightingale once said, "Treat everyone as though they are the most
important person in the world, because to them they are." Great advice. Remember, no one is
better than anyone else.

19. Keep it zipped

While office gossip and chatter can be titillating, it can also be cruel. Think of gossip as spam or
junk mail and hit the "delete" button. When people approach you with juicy details about Mr. or
Ms. So-and-So, politely put a stop to the conversation and exit. When gossipmongers realize that
no one is listening, they'll quiet down and get back to work.

20. Hire intelligently

If you're in a hiring capacity, screen potential new hires carefully. Ask candidates how they feel
about workplace politics and how they might react in difficult situations.
 21. Acquiesce

Accept the fact that office politics happen in every workplace. If you spend all of your time
worrying about water-cooler chatter, you'll never have time to manage your own projects. Some
degree of complacency will keep you sane.

If your job is a hub of office politics and makes it difficult for you to do your job well, it's not
worth the hassle. Need help looking for a better job? Join Monster for free today. As a member,
you can upload up to five versions of your resume—each tailored to the types of jobs that
interest you. Recruiters search Monster every day looking to fill top jobs with qualified
candidates, just like you. Additionally, you can get job alerts sent directly to your inbox to cut
down on time spent looking through ads. Ditch the workplace politics for a job that lets you,
well, do your job.
22. Understand the Informal Network
Once you know where the power and influence lie, it's time to examine people's interactions and
relationships to understand the informal or social networks.

Watch closely (but discreetly and respectfully) to find out who gets along with who, and who
finds it more difficult to interact with others. Look for in-groups, out-groups or cliques . Notice
whether connections are based on friendship, respect, romance, or something else.
Finally, try to decipher how influence flows between the parties, and whether there are any
interpersonal conflicts, or examples of bullying.

23. Develop Your "People Skills"

As we've seen, politics are all about people, so strong Interpersonal Skills will stand you in
good stead when it comes to building and maintaining your network.
Reflect on your emotions, what prompts them, and how you handle them. If you can learn to
self-regulate, you'll be able to think before you act. This kind of emotional intelligence helps you
to pick up on other people's emotions, too, and to understand what kind of approach they like or
dislike.

24. Don’t play favorites

You obviously want to make every effort to retain your top performers — but not at the expense
of anyone else. Establishing special rules that only seem to apply to select individuals will
undoubtedly spur resentment.

Perceptions matter. If you’ve reprimanded people for being late to conference calls, you can't
turn a blind eye when your MVP continually bows out. In the same vein, if you allow your
closest ally to work a flexible schedule, others should be granted the same opportunity.
Giving preferential treatment can lead recipients to develop a sense of entitlement, while
upsetting everyone else. Establish a reputation for being fair and enforcing policies evenly.

25. Be a good role model

Your employees take their attitudinal cues from you, so practice what you preach. Display a
positive attitude in the face of adversity, steer clear of gossip, and never openly criticize the
decisions of your own boss or peers.

The bottom line is you can’t completely eliminate the negative aspects of organizational politics,
even when staff are working remotely. But when you’re supportive, loyal and team-oriented,
employees will be far more likely to follow your lead.

26. Step in when necessary

Colleagues are bound to disagree at times. Power struggles, territorial tiffs and petty problems
will occur. While you can’t afford to insert yourself into every minor squabble, don’t sit by if
conflict is hurting productivity and getting in the way of business priorities.

When it is clear intervention is necessary, schedule a meeting or call and listen objectively to the
concerns of all parties involved. If you come to realize that one person is often the source of
friction, swiftly connect with him or her individually.

Manipulation, mudslinging, sabotage and spotlight stealing are all highly corrosive (and
potentially contagious) behaviors. Don’t let one self-serving bad apple spoil the bunch. Your
willingness to address discord early on — and head-on — will go a long way toward maintaining
a healthy environment.

13. Neutralize Negative Politics

You can help to make a workplace become more positive by not "fuelling the fire" and joining in
negative politics.

For example, avoid passing on rumors without taking time to carefully consider their source,
credibility and impact. And don't rely on confidentiality. It's safer to assume that whatever you
say will be repeated, so choose carefully what "secrets" you reveal.
Remain professional at all times, and don't take sides, or get sucked into arguments or
recriminations. When a conflict arises, remember that there doesn't have to be a winner and a
loser. It's often possible to find a solution that satisfies everyone.
If you're voicing concerns or criticism of your own, be confident and assertive but not
aggressive. And make sure that you take an organizational perspective, and not simply a selfish
one.

− Managing complexity
Why is this important?
All companies must grow. It’s an imperative that drives companies to create new products and
services, enter new regions, and move into new businesses. As they expand, they inevitably
become more complex. Their organizational structures develop layers upon layers, their
reporting lines become tangled, and their people – from senior management through to the front
line – find it harder to get work done.

When time, energy, and resources are spent on activities and interactions that don’t create value,
complexity starts to damage a company’s performance. But complexity isn’t always a bad thing.
When we analyzed drivers of perceived value creation, we found that some of the most important
tend to create complexity as well as value.1 The number of customers you have; the number of
products or services you deliver; the extent to which people cooperate and multi-task within your
organization; the number of countries you operate in; and the number of people you employ all
increase the level of complexity in your company as well as helping you to make more money.
Handled well, this kind of complexity helps rather than hinders your company’s performance.
On the other hand, some factors destroy value as well as adding complexity. The amount of
regulation in your industry and how quickly it changes; the extent of duplication of activities,
roles, and responsibilities in your organization; the frequency of change in your organization
structure; and the rate of new entry and change of strategy by your competitors all tend to make
your company less profitable and more complex. This is the kind of complexity that you may
well want to tackle.

Managing complexity well can create three major benefits:

 Higher returns. In research with 1,150 senior executives of major companies (each of
which had at least 1,000 employees), we found that the companies reporting low levels of
complexity (those where it was “easy to get things done”) had the highest returns on
capital employed and the highest returns on invested capital.

 Lower costs. In our experience, four out of five organizations that reduce complexity
also reduce their costs. Some have saved almost 20 percent of personnel costs by
eliminating activities that create complexity but add little value.
  Improved employee satisfaction. Reducing complexity removes barriers to getting
things done. When one retailer managed to cut the time it took to develop and approve
some new products by almost half, it also took care of the frustration experienced by
product development and operational staff at the same time.

Six Simple Steps to Managing

1. Understand What Your Employees Do
In most companies, managers know what people are supposed to do – but not WHAT they do
and WHY they do it. Managers should find out “why they do things that could be potentially
disastrous in terms of productivity”, — such as, What resources do they have for problem-
solving? What hinders them from achieving their goals?
When you don’t engage or interact with your employees frequently, you miss lots of
opportunities to optimize productivity and improve their feelings about their work and your
company. The better you can understand your employees, the easier your job is to keep them
happy and satisfied with their work.
Happy Employees = Productive Employees
Understanding what your employees go through daily, alerts you to your organization’s
problems much faster — making managing complexity much simpler.
2. Reinforce the “Integrators”
Integrators are the employees who have both the interest and the power to make others
cooperate. For example, people in positions like hotel receptionists usually lack formal power.
Still, they are interested and able to get housekeeping and maintenance workers to address
problems quickly, so they don’t have to hear customer complaints.
Find a way to empower employees who naturally befriend coworkers and inspire them to
improve working conditions and product or service quality. The more empowered they are, the
more they’ll influence your company and culture positively.
Reinforce their actions by publicly recognizing the good things they’re doing for the company as
a whole. Make sure you’re specific and detailed with your praise so co-workers can model that
same behavior.
3. Give More People More Power
The real key to performance is combining cooperation with autonomy. The problem with
standard approaches to an increasingly complex business environment is that by creating new
layers, processes, and systems to deal with these challenges, you also sacrifice people’s
autonomy. That makes your organization less agile.
One of the effects of smart simplicity is to balance autonomy and cooperation. It gives people
enough power to take the risk of interpreting rules, using their judgment and intelligence.
Suppose more employees have the authority to make decisions in your organization. In that case,
that means they can solve problems on their own.
Promote and practice collaboration between employees and allow them to have as much freedom
over their jobs as possible. Simply letting them choose when they work and how the work gets
done can make a huge difference in how much effort they put into their jobs.
 4. Take Away Resources
Having fewer resources means people have no choice but to rely on each other, fostering
cooperation. Take steps to streamline resources and processes to create an environment of
unavoidable cooperation and collaboration to get things done.
Think of a household with several people living in it. If those people own multiple televisions,
there is no need for them to cooperate about what to watch. But, if you take away all the
televisions except one, they’ll have to cooperate.
Do they want to watch baseball or Shakespeare?
5. Make Sure Your Employees Eat Their Cooking
People work better when they understand — and have to live with — the consequences of their
actions.
Too many times, people have no idea how the work they do fits into the bigger picture. People
focus on performing the duties they've been tasked with, oblivious to how their work impacts the
quality of the products or the people they work with.
For example, a car company’s products were famously hard to repair, so they sent their engineers
to work in that department. Confronted with the repair problem themselves, these engineers
quickly found solutions to make cars easier to fix — solving the problem.
When you require employees to face the consequences of their actions, they begin to understand
how their work fits into the entire process. They’ll make fewer careless mistakes and pay more
attention to their work quality.
6. Don’t Punish Failure — Punish the Failure to Cooperate
If people are afraid to fail, they’ll hide issues from you and your peers. Reward people who
surface problems — and address those who don’t come together to help solve them.
Supervisors with low EQ (emotional intelligence) can poison your culture with arrogant and
overly-dismissive behavior. A toxic work environment like this fosters distrust and destroys
morale. Less-confident employees become afraid to speak up for fear of being criticized and
shunned. Others become cynical. This can result in everyone being too busy watching their own
back no longer caring about the company.
If your employees don't alert you to issues, your organization's problems will likely go unnoticed
until they become critical and disrupt your day-to-day business operations.
Reward employees who present problems with your willingness to analyze and evaluate the
situation in an unbiased, non-judgmental manner. Address problem employees by establishing
boundaries and calling them out on their inappropriate behavior logically and in a non-
confrontational way.
Present them with evidence to back up what you’re saying and be firm about your expectations
going forward, as well as what the consequences are should they refuse to act professionally.

− Leadership in practice
12 Good Leadership Practices
Here are 12 leadership practices that the best leaders should be actively doing.
1. Mentor relationships
While a good company culture includes room for employees to grow, good leaders will go above
and beyond to provide training, support, and opportunities for their workers who show strong
potential. Adapting your leadership style to best accommodate your best employees is an
excellent example of a good leadership practice. Especially in today’s time, when many
employees are struggling with the adaption to remote work, being a consistently strong and clear
mentor and support system for employees is essential.

2. Promote relationships – not just competitiveness

While having some friendly competition among coworkers is not a bad thing, it certainly
shouldn’t be the only measurement leaders look at when reviewing employees. A good
leadership practice is one that fosters and encourages a good working relationship between
employees. A good connection among team members will help with team-building, and will
increase productivity over all.
3. Encourage employees to advance
A good leader is happy for their employees when they advance enough to take on new challenges
and a new job. While high turnover of talent on any leader’s team is generally not something a
leader strives for, succession of individuals and the betterment of the company talent pool is
regarded as a success.
4. Take chances on people (within reason)
A good leadership practice is to not stay bound within certain limitations. When hiring, for
example, a good leader should have the ability to see beyond just education on a resume.
Potential employees who have proven themselves capable of accomplishing difficult tasks in
other areas could prove to be positive additions to the team.
5. Always be on the lookout for new talent
Just because you don’t need to fill a position at the moment, doesn’t mean you should stop
looking for new talent. Networking with prospective new employees is a great leadership
practice, as it’s prudent to always have a backup plan. Meeting new people, knowing their
strengths, and gauging their potential interest level in working for you one day will be very
useful information to have when you are next looking to fill a position. Networking may be a
challenge for some currently, given the isolation many organizations are feeling from their usual
circles, but this doesn’t mean you should stop in your efforts of identifying new talent that will
help the success of your business in the long-run.
6. Make your goals public
Any great leader who truly wants to succeed should have a series of clearly articulated goals that
are viewed as priority. A critical leadership practice is to make the goals known amongst your
entire team; share and establish clarity of direction as to how each direct report can support in the
execution of these goals. When employees are aware of your goals as a leader, it allows them to
reference it whenever they’re making decisions that will affect the company long-term, and also
to understand what they’re working for, and why.
7. Give real-time feedback
While annual reviews – and more frequent ones – are important, it can also be very beneficial to
give feedback in the moment. If something positive is accomplished, praise in the moment will
elicit a desire to continue doing well. Similarly, catching bad work early on will make it much
easier to correct and coach how to avoid it in the future. Especially when employees are feeling
stuck and isolated from their team while working from home, staying consistent in your efforts to
check in on their progress and accomplishments, and praise or provide constructive criticism
when necessary, will help keep them feeling more involved and appreciated.
8. Compliment sandwich
This is a leadership practice that most people have heard of, and for good reason – it remains a
very effective way of evaluating an employee’s performance. Essentially, it is a practice where
the leader compliments or praises the employee for something they’ve done well. That is
followed by a critique – something they didn’t do as well, or could work on more – and then
another complimentary statement. The idea behind this is that it is easier to accept criticism if it
is bookended by praise.
9. Reviews based on the company’s values
It’s easy to review employees based purely on metrics, but they don’t always tell the full story. A
good leadership practice is to consider the company’s core values when evaluating how an
employee has been performing. Often it is said that ‘It’s not just what you do but how you
behave along the way’ that makes one truly successful.
10. One-on-ones
One-on-ones are important for a variety of situations, including, coaching, feedback, and even
just chatting to see how an employee is getting on. They allow you, as a leader, to form a deeper
bond with each of your workers. One-on-one conversations can yield insight that may be missed
in a group setting. It also provides opportunity for employees to express concerns they may have
that they wouldn’t want to bring up in a public setting. Setting up one-on-ones when working
remotely is not as challenging as some may think. With the use of current technology, you can
make one-on-ones a permanent part of your business calendar, checking in with all your
employees regularly despite not being in a shared working space.
11. Short, regular meetings to discuss issues
Some problems that spring up need to be solved quicker than others, and can’t wait for a yearly,
quarterly review or even the weekly scheduled one-on-one. It’s a good business practice to set
aside some time every day specifically dedicated to going over any issues that are affecting the
company. These meetings can be short check-ins or lengthier meetings, depending on the need.
Similar to one-on-ones, these can be easily incorporated into your business practices when
working from home. Virtual meetings are one of the most widely used tools today, and for good
reason. Take advantage of the benefits of the popular technology platforms and schedule regular,
weekly virtual meetings with your team to maintain morale and encourage progress.
12. Trust your team to do the work
The best leadership practice a good leader can have is to trust their team to do the work they give
them. Leaders should be able to effectively delegate the necessary tasks to the right employees.
Trust is something that needs to be built over a period of time, and will be based on an
employee’s ability to do the work they’re given, the responsibility they take on, the relationships
they form with their team, and more.
 CHAPTER 13
13 The Practice of Strategy
The strategists
▪ Top managers and directors
he term "top management" refers to a relatively small group of people include president, chief
executive officer, vice president, and executive vice president. Because the insights of these
executives play such a critical role, a number of writers have stressed the importance of matching
the characteristics of these executives with the firm's strategies.

The strategic management process of today tends to be dominated by the chief executive officer
(CEO).

The role of the CEO in strategic management is as follows:

1. The CEO must understand that strategic management is his responsibility. Parts of this
task, but certainly not all of it, can be delegated.
2. The CEO is responsible for establishing a climate in the organization that is congenial to
strategic management.
3. The CEO is responsible for ensuring that the design of the process is appropriate to the
unique characteristics of the company.
4. The CEO is responsible for determining whether there should be a corporate planner. If
so, the CEO generally should appoint the planner (or planners) and see that the office is
located as close to that of the CEO as practical.
5. The CEO must get involved in doing planning.
6. The CEO should have face-to-face meetings with executives for making plans and should
ensure that there is a proper evaluation of the plans and feedback to those making them.
7. The CEO is responsible for reporting the results of the strategic management process to
the board of directors.

The chief executive officer (CEO) is responsible for the final decisions, but its decisions is the
culmination of the ideas, information, and analyses of others.

Other Roles
1. Special Situations that Require Substantial Board Attention
After much data collecting, analyzation, and collaborating with management, the board should
feel assured about the strategic plan and the direction of the company. As more serious situations
come up that could impact the strategic plan, boards may need to become more involved.
Questions may arise that require boards to make new decisions about debt and equity that affect
the capital structure.
Takeovers, mergers, and acquisitions are sometimes an integral part of corporate strategy. These
are pivotal events that may provide opportunities for external growth, as well as considerable
risks for the company and its shareholders.
2. Choosing Metrics to Monitor Strategy Implementation
Boards have a variety of options for metrics to help them monitor different areas of the business
including finance, operations, organizational issues, products, sales, marketing, and vendors.

Working on corporate strategy is a complex process. The role of the board of directors in
strategic management is directly linked to the CEO’s role in the process. Both parties need the
ability to collaborate and communicate about strategic planning using a highly-secure electronic
platform like BoardEffect. Board management software is the right digital tool to help boards
and their management staff to find the balance in the short and long-term strategic planning
development process.

3. Competent delegation of decision-making power to leaders from different levels of the

organizational structure;
4. Taking action aimed at reducing the resistance of employees by involving them in the
implementation actions;
5. Clear segregation of powers by appointing a person or a special team, whose task will be to
monitor and coordinate the strategy implementation process.
6. Management of Company Risks

In light of the accountability to the shareholders, the BOD frequently weighs up a company's
risk of missing the corporate objectives and the consequences that this would have on dividend
distribution, or the financial return to the company. The Board will usually task the CEO to
design a portfolio of risk-mitigation strategic decisions that the company might pursue, and the
BOD will review these and ensure the business is not taking unnecessary risks.

 Strategic planners

These are people who carry out organizational strategic planning. They set priorities, focus
energy and resources, strengthen operations, ensure that employees and other stakeholders are
working toward common goals, establishing agreement around intended outcomes/results, and
assess and adjust the organization'

A strategist is a person with responsibility for the formulation and implementation of a

strategy. Strategy generally involves setting goals, determining actions to achieve the goals, and
mobilizing resources to execute the actions. ... It involves activities such as strategic planning
and strategic thinking.

Roles
 1. Strategy Formulation

In the process of formulating a strategy, a company will first assess its current situation by
performing an internal and external audit. The purpose of this is to help identify the
organization’s strengths and weaknesses, as well as opportunities and threats (SWOT Analysis).
As a result of the analysis, managers decide on which plans or markets they should focus on or
abandon, how to best allocate the company’s resources, and whether to take actions such as
expanding operations through a joint venture or merger.

Business strategies have long-term effects on organizational success. Only upper management
executives are usually authorized to assign the resources necessary for their implementation.

2. Strategy Implementation

After a strategy is formulated, the company needs to establish specific targets or goals related to
putting the strategy into action, and allocate resources for the strategy’s execution. The success
of the implementation stage is often determined by how good a job upper management does in
regard to clearly communicating the chosen strategy throughout the company and getting all of
its employees to “buy into” the desire to put the strategy into action.

Effective strategy implementation involves developing a solid structure, or framework, for

implementing the strategy, maximizing the utilization of relevant resources, and redirecting
marketing efforts in line with the strategy’s goals and objectives.

3. Strategy Evaluation

Any savvy business person knows that success today does not guarantee success tomorrow. As
such, it is important for managers to evaluate the performance of a chosen strategy after the
implementation phase. Strategy evaluation involves three crucial activities: reviewing the
internal and external factors affecting the implementation of the strategy, measuring
performance, and taking corrective steps to make the strategy more effective. For example, after
implementing a strategy to improve customer service, a company may discover that it needs to
adopt a new customer relationship management (CRM) software program in order to attain the
desired improvements in customer relations.

All three steps in strategic planning occur within three hierarchical levels: upper management,
middle management, and operational levels. Thus, it is imperative to foster communication and
interaction among employees and managers at all levels, so as to help the firm to operate as a
more functional and effective team.
  Middle managers

When middle managers participate in the strategic planning process, organizational

performance usually improves. Higher-quality decisions result when both senior and middle
managers, instead of only senior managers, are involved in the thought process. Middle
managers are more engaged in executing the plan when they understand their connection to the
organization and its vision.

Roles
1. Stakeholder Involvement

Strategy and execution are not mutually exclusive. The best strategic planning usually includes
as many stakeholders as possible. The planning team might include the CEO and board
chairperson, middle managers who will be in charge of implementing the plan, and clients. The
CEO and board might focus on the vision, mission and values of the organization, while
middle managers conduct strategic analysis with clients and staff to determine goals.

2. Agenda Setting

Middle managers are well positioned to consider the situational context when developing
strategic projects. Because of this, they should function as agenda-setters for the planning
team, suggesting the issues to be addressed. They also transfer the strategy from the executive
offices into the organization.

3. Strategic Alignment

Middle managers can be effectively involved in strategic planning in other ways. In a process
known as strategic alignment, senior management develops the overview and then middle
managers develop objectives for their departments that support this overarching strategy.
Groups of middle managers might assemble before beginning the strategic plan to submit
input, or individual middle managers may rotate into the planning process at various points.

4. Success or Failure

Several factors can support or stop effective middle-management involvement. Factors that
support involvement include a cooperative corporate culture, a management team that listens
and the stress of competition. Factors that impede involvement are middle management's fear
of negative consequences and uncertainty or reduced business activity.

 Strategy consultants
Strategy consulting, often referred to as strategy consultancy, strategic advisory or boardroom
consulting, is regarded by the majority of consultants as the most 'high-end' and prestigious
segment within the professional services industry. A strategy is defined as “a plan with the aim
of realizing long-term goals," and organizations regularly engage with strategy consultants for
support in developing and implementing business strategies. The strategy consulting domain
focuses on supporting private sector clients with the development of corporate, organizational or
functional strategies and helping public sector organizations and institutions with economic
policy.

What does a strategy consultant do?

Strategy consultants are hired by clients to support them with strategic decision making, which
includes the development of strategy and, to an extent, also the execution of strategic plans. As
the responsibility for strategic decision making falls under the mandate of CxO's and (senior)
management, strategy consultants typically work for executives and high-ranked managers. By
doing so, strategic advisors can help companies with the definition of their vision, mission and
strategy, support them with market entry into a new market or with a shift towards a new
business model. Governments and institutions are supported with economic policy setting, while
in the case of mergers & acquisitions, strategy consultants typically support the strategic
activities of the M&A process such as setting the M&A strategy, executing the commercial due
diligence, creating the merger business case and/or designing the integration roadmap.

At the same time, the work of strategy consultants can cover all major functional strategies,
spanning strategic work across the full value chain. For example, strategic advisors can be asked
to define commercial strategies in the sales & marketing domain, draft pricing, customer channel
and product market combination strategies. In the case of HR, consultants can contribute to
human capital strategies, including talent management business cases. While in the field of
operations, strategy consultants are picked to draft operating models and tie those with higher-
level business objectives.

In light of the rise of digital and technology as an enabler of strategy, or even a key competitive
differentiator according to some, digital strategy has grown into a large service area within
strategy consulting over the past few years. Digital strategists support customers with, among
others, creating IT strategies, providing plans on how to embrace technology into business
strategy, ensuring business functions are well positioned to adopt systems and tools, as well as
high-level IT architecture work.

Strategy consultancy firms

Across the globe, there are thousands of consulting firms that provide strategy consulting
services. Yet, the number of firms that have a global reach and reputation is limited to a much
smaller number active in the top of the market. Analysts typically distinguish between two types
of firms: 'pure-play' strategy consulting firms (i.e. focus exclusively on strategy & operations)
and 'strategy practices' of multi-service firms (a service line of a generalist consulting firm that
provides strategy services).

− Strategizing
Strategic management, strategizing for short, is essentially about choice—in terms of what the
organization will do and won’t do to achieve specific goals and objectives, where such goals and
objectives lead to the realization of a stated mission and vision.

Strategizing includes all practical actions performed by people to devise long-term goals
(mission, vision), plans (strategies), course of action (processes, structures). Strategizing is very
common in industry, business, military, politics and government. Strategizing is strongly
connected to strategic thinking. Managers should think strategically of all important areas
of company development to achieve long term objectives and success.

▪ Strategy analysis
Strategic analysis is a process that involves researching an organization’s business environment
within which it operates. Strategic analysis is essential to formulate strategic planning for
decision making and smooth working of that organization.

Strategic analysis is essential if a company has a goal and a mission for themselves. All leading
organization who are well known for their achievements have years of strategic planning being
implemented at various stages.
 Types of Strategic Analysis
1. Internal strategic analysis:
As the name suggests, through this analysis organizations look inwards or within the
organization and identify the positive and negative points, and establish the set of resources that
can be used to improve the company’s image within the market. Internal analysis starts from
evaluating the performance of the organization. This includes evaluating the potential of an
organization and its capacity to grow.
The analysis of the strengths of the company should be oriented to the market, focusing on
the client. The strengths only make sense when they help the company to fulfill client’s needs.
When doing an internal strategic analysis one should also know the weaknesses and limitations
that a company faces existentially or in the future.

2. SWOT analysis
It is one of the most reputed techniques for internal strategic analysis. There is no better way to
benefit from a strategically performed analysis than to use it to detect the strengths,
opportunities, weaknesses, and threats that your project may suffer.

Performing SWOT analysis will help you create a strong and long term vision through strategic
planning for your organization. The important thing is to constantly evaluate the environment in
which the company operates, and act accordingly. It is essential for an organization to take into
account the SWOT principle in order to be able to plan efficiently. Through a thorough SWOT
analysis companies will be able to prevent a number of problems that can arise if there is no
systematic analysis.

3. External strategic analysis:

Once the organization has successfully completed its internal analysis, the organization needs to
know about external factors that can be a hindrance in their growth. To do so, they need to know
how the market functions and how consumers react or behave to certain products or services.
Measuring customer satisfaction is a common external analysis method. PESTLE analysis is one
of the most widely used external analysis techniques. The process one is most likely to adopt
when using a PESTLE technique is relatively a simple one.

Strengths of Strategic Analysis

1. Strategic analysis allows you to have clarity of the internal positive attributes of the
organization that are under control. By knowing these positive attributes an organization can
focus on the factors that lead to positive performance and can replicate the strategy wherever
applicable.
2. It helps identify strength of both internal as well as external resources, such that it leads
to an increasing competitive advantage.
3. It offers you the internal components that add value or offer a competitive advantage to
your business. When you have a reasonable competitive advantage over you competitors half
the game plan is clear. The only aspect that would need clarity is what is not going the
company’s way.
 Weaknesses of Strategic Analysis
1. Strategic analysis can generate too many ideas, but doesn’t help to choose which one is
the best.
2. Sometimes too much time is spent on existential problem solving, such that there is little
or no time left for innovating new products or making service level changes at the
organizational level

▪ Strategy issue-selling
Strategic issue selling: is the process of winning the attention and support of top mgt and other
important stakeholders for strategic issues. Since senior managers rarely have time to deal with
all issues, strategic issues compete for top management attention. What gets to the top is not
necessarily the most important issue though. Four aspects need to be considered in seeking
attention:

1. Issue packaging: strategic importance of the issues needs to be underlined, particularly by

linking it to critical strategic goals or performance metrics for the organization.
Presentation of issue should be consistent with the cultural norms and clear and packaged
with a potential solution.
2. Formal or informal channels: formal channels such as annual business reviews that CEO
carious out with divisional heads, annual strategy workshops of top teams, line
interaction with operational mangers. They are not enough to sell strategic issues;
informal are crucial and include ad hoc conversations with influential managers in
corridors, journeys over meals..etc
3. Sell alone or in coalitions: a coalition of influential supporters adds credibility, validity
and weight to the issues. If other managers are un-persuaded then the CEO is unlikely to
be persuaded either.
4. Timing: managers should time their issue selling carefully, i.e if the organization is facing
a short term performance crisis then it is clearly not a good time.

▪ Strategic decision making

Managers of successful businesses do more than simply find a way to make money and sell stuff.
Not only do they handle the day-to-day tasks of selling, they also think of the big picture and
make decisions that will get the company to where it wants to go. This is called strategic
decision making, where decisions are made according to a company's goals or mission. This
type of decision making guides the choices that are made, aligning them with the company
objective. It requires out-of-the-box thinking as managers need to consider future scenarios that
may or may not happen. It's these scenarios that will determine in which direction a company
will go.
Mission and Vision

Strategic decision-making should start with a clear idea of your company's mission and vision
– the reasons you exist as a business. Your business may be dedicated to providing
environmental solutions, or you may simply want to make as much money as possible. Either
way, if you know what you want over the long term, you'll be better positioned to infuse these
aims and principles into your daily decisions. Start by writing your mission and your vision.

This statement can be as simple or complex as you wish, depending on the degree of formality
you use in your everyday business decisions as you run your company. Even if your mission is
only one sentence – the act of thinking about and articulating this sentence will help you
develop a better idea of what you want. Having this written statement will also enable you to
communicate your long-term vision to your employees and to other stakeholders, to get them
on board with the strategic decisions you make.

Long-Term Goals

Long-term goals are the concrete embodiment of your mission and vision. A vision is an idea,
and long-term goals are expressions of how these ideas play out – with milestones and real-
world objectives. These goals are critical to the strategic decision-making process, because
they guide your choices, and provide measurable and quantifiable ways to assess whether you
are successfully aligning your company's direction with the values you've articulated to guide
your business.

If your business designs environmentally friendly technologies, you might create a long-term
goal of wanting to be carbon-neutral within five years. With this goal in mind, you'll then make
strategic decisions aimed at reducing your carbon footprint during that time.

Short-Term Goals

It's easy to lose sight of the strategic decision-making process when you're focusing on short-
term goals and decisions that concern day-to-day activities and issues. Short-term goals and
decisions usually relate to immediate needs, such as improving cash flow so that you can cover
outstanding bills. Despite the immediacy and urgency of these goals, your strategic decision-
making process should still enable you to proceed with an eye toward both your vision and
your longer term objectives.

If your values are centered around sustainability, and your company's official company car
dies, it would be more consistent with your mission to finance a fuel-efficient replacement than
to buy a cheap gas guzzler.

▪ Communicating the strategy

Aligning your team is always challenging. Aligning your team so they can act quickly, when
there are still many uncertainties ahead, is even more challenging.
 Use visuals to make your communication more effective
Visuals help make information more memorable. When it comes to explaining complex
processes with multiple inputs, using text or verbal communication alone can often leave gaps in
understanding. Research has been done to indicate that communicating with visuals helps to
increase retention of information.
One way you can use visuals to make your communication more engaging AND effective is to
visualize the main inputs of your strategy.

The 5-step framework to communicate strategy

When it comes to communicating a strategy to your team, it can be difficult to know where to
start. Here is a simplified 5-step framework you can follow to communicate strategy effectively
to your team.
 1) Start with your vision
Narrative is a powerful tool for communication. People like to know where they fit into your
organization’s narrative.
When communicating your vision, establish the problem you are aiming to solve with your
strategy:

 Who does this problem impact?

 What are the human emotions associated with this problem?

Your vision should tie back to your organization’s mission statement. This will help
contextualize your strategy within your organization’s overarching narrative, which can help
motivate your team to want to impact that narrative through their work.
Not every project you embark on will be glamorous or inspiring in nature. For example, you may
need to communicate a strategy for improving your organization’s analytics tracking and
reporting.
Yawn, right?
But if you tie the project back to the human impact it will have–for example, more clarity for
your organization and the ability to make more informed decisions, which can lead to more
confident execution on tasks and less frustration at the unknowns–you can still make the project
meaningful for the team members involved.
2) Set clear and measurable objectives
One of the biggest mistakes a lot of small organizations make is not identifying specific,
measurable goals for their projects. If the outcome of a project isn’t measurable (even if there
isn’t a perfect way to measure it), it will be difficult to know whether or not you actually
achieved your goal.

Some common types of project objectives are:

 Financial objectives: revenue growth, sales targets, profit margins, returns on invested
capital, diversified revenue base
 Business objectives: product launch, team growth, opening or closing an office)
 Technical objectives: implementing new technology, automating a process, prototyping
a product
 Quality objectives: increase NPS score, reduce customer support response time
 Performance objectives: number of successful product releases, delivering within a
given budget or timeframe
 Compliance objectives: compliance with certain regulations, meeting and exceeding
health and safety regulations, meeting legal regulations
 Marketing objectives: increase social media engagement, increasing site traffic,
increasing sales leads, increasing brand awareness

Communicate to your team what specific metrics the success of the project will be measured
against. If you’re giving a presentation, dedicate an entire slide to these primary objectives:
 3) Break down your strategy into inputs
Once you’ve communicated your high-level objectives, break down how your team will achieve
them. This will ground your abstract vision in real, actionable steps.
Another way to look at it is to communicate the outcome of your strategy (the goal) and the
different concurrent tracks your team needs to follow to get there (inputs).
When it comes to breaking down your strategy into inputs, it helps to consider
both leading and lagging indicators (or leading and lagging metrics).
Communicating your strategy to your team using both leading and lagging indicators can help
them better contextualize the goals in their everyday processes.
4) Outline clear milestones
You’ve got your vision, your high-level goals and your inputs. Now you need to communicate
your strategy’s timeline.
Communicate to your team:

 What are our touch-points throughout this project?

 When are the deadlines for these deliverables?

Visualize your timeline using a roadmap or timeline infographic to help make the process more
concrete in the minds of your team.

5) Identify ownership
A crucial part of implementing a strategy is for everyone involved to have a clear understanding
of what their responsibilities are. From my experience, when the individual contributors on your
team have a strong sense of ownership, they are more likely to rise to the challenge.

Confusion about who owns what can lead to missed opportunities, roadblocks in
productivity, and a general lack of efficiency.

When communicating your strategy to your team, clearly identify who will own what.
Furthermore, make it clear why they are owning that particular area of the strategy. This is a
great opportunity for you to call on your team members’ strengths.
Essentially, you want your team to feel like the A-team they are.
It’s also important to define what ownership means in the context of your strategy. Does it mean
ownership of tracking a specific set of metrics? Does it mean finding solutions to certain
problems? Does it mean coordinating a specific process?
The more clarity you can provide from the outset, the easier it will be for your team to hit the
ground running.

Once you’ve communicated your strategy, how do you keep your team aligned?
You’ve communicated your strategy to your team. Everyone on your team says they understand
the goals and their individual roles. You feel motivated. Your team feels motivated.
But your work isn’t done. Now it’s up to you to make sure your team stays on track and aligned
with the goals you’ve set.
 Tie back inputs to your high-level objectives, often
When it comes to keeping your team aligned on your goals, repetition is key.
When everyone on your team is plugging away at their individual tasks, it can be easy for people
to get lost in the weeds.

Some ways you can help keep your team aligned on your high-level objectives are:

 Repeat them in your weekly/monthly team meetings

 When your team reports on their progress, steer the conversation
 When scoping projects, measure the results by their impact on your leading indicators

That last point is an important one. It can be easy to get distracted by ideas that are nice to have,
but may be better off tabled until later. When you need your team to act on a strategy fast, it’s
important that everyone’s time and efforts are focused on things that will get the results you
need.

-Strategy methodologies
Strategic planning is an integral part of any business’ success, and it will ensure your business is
heading in the right direction. Furthermore, it helps outline your objectives as it's crucial to
helping business owners make their everyday decisions.

With the best strategic planning methodology in place, your business will be proactive as
opposed to being reactive. You will seamlessly increase your operational efficiency with proper
strategic planning and projects. Your profitability and market share will increase significantly.
Your business will be more relevant in its respective industry since you will serve your customer
base better. However, as important as strategic planning is, many businesses have yet to emulate
this opportunity. Also, a single strategic model isn’t better than other models.

With strategic planning, businesses identify their strengths and weaknesses, choose what not to
do, and determine which opportunities should be pursued. In sales operations, having a clearly
defined strategy will help your organization plan for the future, set viable goals, and achieve
them.

So, how do you get started with strategic planning? You'll begin with strategic planning models
and tools. Let's take a look at nine of the most prominent ones here.

 Goal-based Strategic Planning Methodology

Businesses that start with using basic strategic planning methodology shift to goal-based
strategic planning methodology over time. The model is suitable for established organizations or
businesses seeking for more complex strategic planning methodologies. It is the most frequently
used strategic planning model.

It starts with an analysis of a business’ weaknesses, threats and opportunities. Goal-based

strategic planning methodology also focuses on your business’ internal and external factors and
threats and competition. Next, you can use the strategic planning model to identify issues and
goals which you can use to prioritize your business objectives.

 Alignment Model

This strategic alignment model (SAM) is among the most used. It’s made up of two parts—
strategic fit and functional integration. What that means is that the model aligns business and IT
strategies. To do this requires identifying the key goals of an organization and then what the
steps are to reach those goals. The plan must maximize the process to best achieve those goals.

There are four perspectives to guide you in this model:

 Strategy execution, which is that the business strategy is driving the model.

 Technology potential, which also sees the business strategy as the driver, but with an IT
strategy to support it.

 Competitive potential deals with using emerging IT capabilities to create new products
and services.

 Lastly, there’s the service level, which is focused on creating the best IT system in the
organization.

Here, business strategy is important, but only the launching pad.

 Organic Model Of Strategic Planning

The organic model takes an unconventional approach because it focuses on the organization’s
vision and values, versus plans and processes. With this model, a company uses “natural,” self-
organizing systems that originate from its values and then leverages its own resources to achieve
goals, conserve funds, and operate effectively.

n the simplest form, there are three basic steps to follow when implementing the organic model
of strategic planning:

1. Stakeholders clarify vision and values. This is a collaborative process that could
involve both external and internal stakeholders—who’s in the meeting depends entirely
on your organization’s ultimate purpose for the planning. The goal is to establish
common visions and values for all stakeholders.
2. Stakeholders create personal action plans. The unconventional aspect of this model
comes into play here. Divided into small groups, stakeholders determine the actions and
responsibilities for each person to work toward the vision (according to the values).
3. Stakeholders report results of action plans. Each person will take ownership of their
plan and update the group on their progress. This is a communal approach to
accountability and the progress reported can lean toward qualitative, versus quantitative,
results.

 Real-Time Strategic Planning

Similar to the organic model, real-time strategic planning is a fluid, nontraditional system. It’s
primarily used by organizations that need to be more reactive, and perform strategic planning in
“real time.” For these companies, detailed, long-term plans tend to become irrelevant within the
typical three- to five-year planning cycle because the environment they operate in rapidly
changes. Many nonprofits use this model—for example, a disaster relief agency needs the ability
to respond quickly and adapt its strategy to immediately address a crisis.

Real-time strategic planning involves three levels of strategy: organizational, programmatic, and
operational. For the first level, you’ll define the organization’s mission, vision, market position,
competitors, trends, etc. Then, the programmatic strategy requires research into the external
environment to identify approaches and offerings that would help the organization achieve its
mission. The research should cover opportunities, threats, competitive advantages, and other
points to spur strategic brainstorming.

The final operational level analyzes internal processes, systems, and personnel to develop a
strategy that addresses “in-house” strengths and weaknesses. Looking at all three levels as a
whole, strategy leaders can form criteria for developing, testing, implementing, and adapting
strategies on an ongoing basis, allowing for quick and thoughtful responses when needed.
  Porter’s Five Forces

Porter’s Five Forces is an older strategy execution framework (created by Michael Porter in
1979) built around the forces that impact the profitability of an industry or a market. The five
forces it examines are:

1. The threat of entry. Could other companies enter the marketplace easily, or are there
numerous entry barriers they would have to overcome?
2. The threat of substitute products or services. Can buyers easily replace your product
with another?
3. The bargaining power of customers. Could individual buyers put pressure on your
organization to, say, lower costs?
4. The bargaining power of suppliers. Could large retailers put pressure on your
organization to drive down the cost?
5. The competitive rivalry among existing firms. Are your current competitors poised for
major growth? If one launches a new product or files a new patent—could that impact
your company?
The amount of pressure on each of these forces can help you determine how future events will
impact the future of your company.
  Gap Planning

Gap planning is also referred to as a “Need-Gap Analysis,” “Need Assessment,” or “the

Strategic-Planning Gap.” It is used to compare where an organization is now, where it wants to
be, and how to bridge the gap between. It is primarily used to identify specific internal
deficiencies.

In your gap planning research, you may also hear about a “change agenda” or “shift chart.”
These are similar to gap planning, as they both take into consideration the difference between
where you are now and where you want to be along various axes. From there, your planning
process is about how to ‘close the gap.’

 SWOT Analysis

A SWOT analysis (or SWOT matrix) is a high-level model used at the beginning of an
organization’s strategic planning. It is an acronym for “strengths, weaknesses, opportunities, and
threats.” Strengths and weaknesses are considered internal factors, and opportunities and threats
are considered external factors.
  Balanced Scorecard

The Balanced Scorecard is a strategy management framework created by Drs. Robert Kaplan
and David Norton. It takes into account your:

 Objectives, which are high-level organizational goals.

 Measures, which help you understand if you’re accomplishing your objective
strategically.
 Initiatives, which are key action programs that help you achieve your objectives.
 Strategy Mapping

The strategic planning methodology is a tool that is used for communicating a strategic plan. The
tool is suitable for achieving high-level business goals. It helps communicate-high-level details
 across your business in an easy-to-understand model. The strategic planning model offers an
array of benefits including:

A simple and straightforward visual representation that is easy for organization and businesses to
refer to during the development process

It helps unify all company goals into one business strategy and comprehensive plan

It can help you determine your key basic steps and goals

It helps you establish how your business objectives affect others in real time

 Strategy Map

A strategy map is a visual tool designed to clearly communicate a strategic plan and achieve
high-level business goals. Strategy mapping is a major part of the Balanced Scorecard (though it
isn’t exclusive to the BSC) and offers an excellent way to communicate the high-level
information across your organization in an easily-digestible format.

A strategy map offers a host of benefits:

 It provides a simple, clean, visual representation that is easily referred back to.
 It unifies all goals into a single strategy.
 It gives every employee a clear goal to keep in mind while accomplishing tasks and
measures.
 It helps identify your key goals.
 It allows you to better understand which elements of your strategy need work.
 It helps you see how your objectives affect the others.

 VRIO Framework

The VRIO framework is an acronym for “value, rarity, imitability, organization.” This strategic
planning process relates more to your vision statement than your overall strategy. The ultimate
 goal in implementing the VRIO model is that it will result in a competitive advantage in the
marketplace.

Here’s how to think of each of the four VRIO components:

 Value: Are you able to exploit an opportunity or neutralize an outside threat using a
particular resource?
 Rarity: Is there a great deal of competition in your market, or do only a few companies
control the resource referred to above?
 Imitability: Is your organization’s product or service easily imitated, or would it be
difficult for another organization to do so?
 Organization: Is your company organized enough to be able to exploit your product or
resource?
Once you answer these four questions, you’ll be able to formulate a more precise vision
statement to help carry you through all the additional strategic elements in your plan.

 Baldrige Framework

The Malcolm Baldrige National Quality Award is “the highest level of national recognition
for performance excellence that a U.S. organization can receive.” Created in 1987, the goal of
Baldrige is to help organizations innovate and improve, while achieving their mission and vision.
 The award is currently open to manufacturing, service, small business, nonprofit, government,
education, and healthcare sectors.

When applying to win the Baldrige award at the national level, organizations undergo a
competitive process that involves the implementation of the Baldrige framework. The
framework outlines the “Baldrige Criteria For Performance Excellence,” where organizations
must demonstrate achievement and improvement to an independent board of examiners in these
seven areas:

 Leadership
 Planning and strategy
 Customers
 Measurement, analysis, and knowledge management
 Workforce
 Process
 Results
To implement the Baldrige framework in your organization, start with two questionnaires that
help you self-assess based on the seven Baldrige Criteria categories, and get a snapshot of your
strengths and opportunities for improvement.

 Issue-Based Strategic Planning

The issue-based strategic model is oriented in the present and projects into the future. It aims to
identify the major challenges your organization faces now—in other words, you start with the
problems to iron out issues before expanding, shifting your strategy, etc. This is typically a short-
term (6-12 months), internally-focused process. Issue-based planning is ideal for young or
resource-restricted organizations.

The leadership team or stakeholders identify the major issues and goals as a first step. Next, your
organization will create action plans to address the issues, including budget allocation. From
there, you will execute and track progress. After an issues-based plan has been implemented and
the major issues you identified are resolved, then your organization might consider shifting to a
broader, more complex strategic management model.
 ▪ Strategy workshops
Strategic Workshops are meetings that are designed to encourage a group of key people in your
organization to contribute to the strategic direction of the organization in a relaxed and ‘safe’
environment.

Strategy workshops are an important element of our strategy creation process since they allow
the key people in your organization to contribute to the strategy development. These people
may, for example, include senior managers and decision makers, as well as people who have
knowledge that is important to the process.

The primary purpose of the workshop is to obtain information that will be useful when
developing a strategic plan for the organization. This information helps the group to agree
organizational goals and vision, as well as actions that need to be taken in order to move the
organization from there it is to where you want it to be.

The workshops, which are run by an independent, experienced facilitator, make extensive use of
Oval Mapping to generate, capture and manage information about the goals and aspirations, as
well as ideas, issues and opinions that people have for the future of the organisation. The number
of workshops that are held will depend various factors, including the number of people involved
in the process and the amount of information that is required.

Allowing people to gain an insight into the views of others (which they may not have considered
before) helps to increase their understanding of the strategic issues and possible solutions. This
leads to the creation of a shared vision that can be used as the catalyst for change within the
organisation.
This is, therefore, a powerful tool in the strategy development process, helping to facilitate the
development of a consensus strategy, as opposed to a compromise strategy, which often results
from other strategic development processes.

Steps to a successful strategy workshop

1. Setting specific goals: Strategy work is a broad field with many facets that can hardly all be
discussed during a single workshop. Set yourself specific goals what questions should be
addressed and answered during the workshop. Focus on strategy development or
implementation. Concentrate on clearly outlined questions such as business innovation, M&A, or
the entry into new markets.
2. Selecting the right participants: The selection of participants should be based on the goals of
the workshop. Make sure to have a good mix of people that reflect the different perspectives on
the topic at hand. Besides internal stakeholders, such as managers and employees from different
divisions and hierarchy levels of the organization, you may also want to invite external
stakeholders, such as customers, suppliers, and partners. This helps to bring more objectivity into
the discussion and gain a more holistic picture.
3. Informing participants in advance: A week or two before the workshop starts, email all
participants the agenda so they have sufficient time to prepare themselves. Also, let participants
know which information about their departments or fields of activity will be needed during the
workshop (e.g., SWOT analyses). This way, they will be ready to get to work right away during
the retreat.
4. Decision making: Workshop participants should be aware whether they are supposed to make
decisions that will be supported by the senior leadership or just recommendations that senior
leadership will take into consideration. Both is perfectly legitimate, provided it is clearly
communicated to avoid any disappointment or frustration. If participants are to make decisions,
it should be also determined whether these must be made unanimously or by majority.
5. Open discussions: All participants regardless of their position within the organization should
be given the opportunity to speak freely and to be heard. If necessary, let the participants write
down their ideas and views on certain issues on a piece of paper. To assure anonymity, make
sure paper and pens are all the same color.
6. Choosing a facilitator: Rather than facilitating the workshop yourself, get help from a
professional and experienced workshop facilitator who ensures that the workshop goals and
timelines are met. Outside facilitators also have the great advantage that they are able to maintain
a neutral position throughout brainstorming and debate and ask uncomfortable questions which
people from inside the organization might not dare to ask. Many strategy consulting agencies
offer such workshop facilitating services. Use them to ensure that time is used efficiently.
7. Recording the minutes of the workshop: Again, leave the work to someone else who does
not participate in the discussions himself/herself and can focus solely on the task of recording the
minutes of the workshop.
8. Methods: Avoid giving long PowerPoint presentations that force participants to just passively
sit and listen. Instead, apply creative and motion-based methods which require participants to use
both their minds and bodies. Role playing, for example, is an excellent way to engage people,
make them feel more relaxed, and encourage them to look at issues from different perspectives.
9. Location: If you have the budget to hold your workshop off-site in a quiet rural setting, then
do so. It will help participants to fully concentrate on the issues at hand, to reflect, and to think in
wider terms. Strategic thinking is easier when you leave your familiar working environment, yet
are not overwhelmed by external stimuli, as it is often the case in metropolitan city, for instance.
10. Follow-up plan: At the end of the workshop, your work is not done yet, unfortunately. The
results and next steps need to be documented and communicate to all participants (for example,
via email or intranet). Everyone should know and understand what he or she is expected to do
and until when. Also make sure to inform participants about what happened after the workshop.
The participants have a legitimate interest in knowing whether or not their efforts have resulted
in decisions and actions by senior management. This will affect their willingness to actively
participate in future strategy workshops. Finally, seek feedback from the participants in order to
obtain comments and suggestions on how to make your next strategy workshop even more
successful.

▪ Strategy projects
Strategic Project Management (SPM) is the process of thinking about your Projects in light of
their connection to your strategic plan. In other words, Strategic Project Management is about
forming clear links between your Projects and Strategic Objectives.

The premise of Strategic Project Management is that 'Projects' should actually work to achieve
the goals and objectives outlined in your strategy.

This is why thinking in terms of strategic project management is key. Strategic Project
Management isn't just about the process of project-managing big and important projects, it's
about designing and managing your portfolio of Projects to ensure that it supports your strategy,
by ensuring that:

 The mix of Projects is appropriate and sufficient to deliver your Strategic Objectives
 Your Projects are appropriately resourced
 If timelines and resourcing have to be changed, Projects are prioritized accordingly based
on the strategic plan, and impacts reflected in the plan.

▪ Hypothesis testing
Hypothesis testing is an act in statistics whereby an analyst tests an assumption regarding a
population parameter. The methodology employed by the analyst depends on the nature of the
data used and the reason for the analysis.
Hypothesis testing is used to assess the plausibility of a hypothesis by using sample data. Such
data may come from a larger population, or from a data-generating process. The word
"population" will be used for both of these cases in the following descriptions.

▪ Business cases and strategic plans

A business case is developed during the early stages of a project and outlines the why, what,
how, and who necessary to decide if it is worthwhile continuing a project. One of the first things
you need to know when starting a new project are the benefits of the proposed business change
and how to communicate those benefits to the business.

While the project proposal focuses on why you want a project, it will only contain an outline of
the project: business vision, business need, expected benefits, strategic fit, products produced,
broad estimates of time and cost, and impact on the organization.

In contrast, the business case, which is first developed during the project initiation phase, has
much more detail and should be reviewed by the project sponsor and key stakeholders before
being accepted, rejected, canceled, deferred, or revised.

Depending on the scale of the business change, the business case may need further development
as part of a detailed investigation. Therefore, it should be developed incrementally so that time
and resources aren’t unnecessarily wasted on the impractical.

Why you need a business case

Preparing the business case involves an assessment of:

 Business problem or opportunity

 Benefits

 Risk

 Costs including investment appraisal

 Technical solutions

 Timescale

 Impact on operations

 Organizational capability to deliver the project outcomes

Preparing the business case enables you to take a disciplined approach to critically examine
the opportunity, the alternatives, the project stages and the financial investment to make a
recommendation for the best course of action to create the business value.

When the time is taken to develop a solid business case, the investment proposal is much
more informed. In turn, this will increase the benefits and value of the project and reduces the
risks. There is also a much greater likelihood of securing support to proceed with the
investment.

A business case is required when you need to:

 Demonstrate the value of a proposed product or service would generate for your
organization;
 Obtain board approval for investment;
 Decide whether to outsource a particular function;
 Relocate business operations and manufacturing facilities;
 Prioritize projects within your organization that are competing for funding and
resources;
 Secure the financial funding and resources to implement the project.

By well-documenting the business case, you can proficiently present the recommendation to
stakeholders whose support is required for approval. The documented business case will
provide confidence and a level of certainty that the considered proposal will be successful.

− Strategy Implementation
Strategy implementation is the process of turning plans into action to reach a desired outcome.
Essentially, it’s the art of getting stuff done. The success of every organization rests on its
capacity to implement decisions and execute key processes efficiently, effectively, and
consistently. But how do you ensure that implementing a strategy will be successful?
7 KEY STEPS IN THE IMPLEMENTATION PROCESS

1. Set Clear Goals and Define Key Variables

The first step of the process is straightforward: You must identify the goals that the new strategy
should achieve. Without a clear picture of what you’re trying to attain, it can be difficult to
establish a plan for getting there.

One common mistake when goal setting—whether related to personal growth, professional
development, or business—is setting objectives that are impossible to reach. Remember: Goals
should be attainable. Setting goals that aren’t realistic can lead you and your team to feel
overwhelmed, uninspired, deflated, and potentially burnt out.

To avoid inadvertently causing low morale, review the outcomes and performances—both the
successes and failures—of previous change initiatives to determine what’s realistic given your
timeframe and resources. Use this past experience to define what success looks like.

Another important aspect of goal setting is to account for variables that may hinder your team’s
ability to reach them and to lay out contingency plans. The better prepared you are, the more
successful the implementation will likely be.

2. Determine Roles, Responsibilities, and Relationships

Once you’ve determined the goals you’re working toward and the variables that might get in
your way, you should build a roadmap for achieving those goals, set expectations among your
team, and clearly communicate your implementation plan, so there’s no confusion.

In this phase, it can be helpful to document all of the resources available, including the
employees, teams, and departments that will be involved. Outline a clear picture of what each
resource is responsible for achieving, and establish a communication process that everyone
should adhere to.

Implementing strategic plans requires strong relationships and, as a manager, you’ll be in charge
of telling people not only how to interact with each other and how often, but also who the
decision-makers are, who’s accountable for what, and what to do when an unforeseen issue
arises.
3. Delegate the Work

Once you know what needs to be done to ensure success, determine who needs to do what and
when. Refer to your original timeline and goal list, and delegate tasks to the appropriate team
members.

You should explain the big picture to your team so they understand the company's vision and
make sure everyone knows their specific responsibilities. Also, set deadlines to avoid
overwhelming individuals. Remember that your job as a manager is to achieve goals and keep
your team on-task, so try to avoid the urge to micromanage.

4. Execute the Plan, Monitor Progress and Performance, and Provide Continued Support

Next, you’ll need to put the plan into action. One of the most difficult skills to learn as a manager
is how to guide and support employees effectively. While your focus will likely be on delegation
much of the time, it’s important to make yourself available to answer questions your employees
might have, or address challenges and roadblocks they may be experiencing.

Check in with your team regularly about their progress and listen to their feedback.

One effective strategy for monitoring progress is to use daily, weekly, and monthly status reports
and check-ins to provide updates, re-establish due dates and milestones, and ensure all teams are
aligned.

5. Take Corrective Action (Adjust or Revise, as Necessary)

Implementation is an iterative process, so the work doesn’t stop as soon as you think you’ve
reached your goal. Processes can change mid-course, and unforeseen issues or challenges can
arise. Sometimes, your original goals will need to shift as the nature of the project itself changes.

It’s more important to be attentive, flexible, and willing to change or readjust plans as you
oversee implementation than it is to blindly adhere to your original goals.

Periodically ask yourself and your team: Do we need to adjust? If so, how? Do we need to start
over? The answers to these questions can prove invaluable.
 6. Get Closure on the Project, and Agreement on the Output

Everyone on the team should agree on what the final product should look like based on the goals
set at the beginning. When you’ve successfully implemented your strategy, check in with each
team member and department to make sure they have everything they need to finish the job and
feel like their work is complete.

You’ll need to report to your management team, so gather information, details, and results from
your employees, so that you can paint an accurate picture to leadership.

7. Conduct a Retrospective or Review of How the Process Went

Once your strategy has been fully implemented, look back on the process and evaluate how
things went. Ask yourself questions like:

 Did we achieve our goals?

 If not, why? What steps are required to get us to those goals?
 What roadblocks or challenges emerged over the course of the project that could have
been anticipated? How can we avoid these challenges in the future?
 In general, what lessons can we learn from the process?
While failure is never the goal, an unsuccessful or flawed strategy implementation can prove a
valuable learning experience for an organization, so long as time is taken to understand what
went wrong and why.

▪ Relationship between strategy formulation and

implementation
Strategy Formulation vs Strategy Implementation
Following are the main differences between Strategy Formulation and Strategy Implementation-

Strategy Formulation Strategy Implementation

Strategy Formulation includes planning and decision- Strategy Implementation involves all those means related
making involved in developing organization’s strategic to executing the strategic plans.
goals and plans.

In short, Strategy Formulation is placing the Forces In short, Strategy Implementation is managing forces
before the action. during the action.
Strategy Formulation is an Entrepreneurial Strategic Implementation is mainly an Administrative
Activity based on strategic decision-making. Task based on strategic and operational decisions.

Strategy Formulation emphasizes on effectiveness. Strategy Implementation emphasizes on efficiency.

Strategy Formulation is a rational process. Strategy Implementation is basically an operational

process.

Strategy Formulation requires co-ordination among few Strategy Implementation requires co-ordination among
individuals. many individuals.

Strategy Formulation requires a great deal of initiative Strategy Implementation requires specific motivational
and logical skills. and leadership traits.

Strategic Formulation precedes Strategy Implementation. STrategy Implementation follows Strategy Formulation.

▪ Plans Programs and budgets

Budgeting is the tactical implementation of a business plan. To achieve the goals in a
business’s strategic plan, we need a detailed descriptive roadmap of the business plan that sets
measures and indicators of performance. We can then make changes along the way to ensure that
we arrive at the desired goals.
Translating Strategy into Targets and Budgets

There are four dimensions to consider when translating high-level strategy, such as mission,
vision, and goals, into budgets.

1. Objectives are basically your goals, e.g., increasing the amount each customer spends at
your retail store.
2. Then, you develop one or more strategies to achieve your goals. The company can
increase customer spending by expanding product offerings, sourcing new
suppliers, promotion, etc.
3. You need to track and evaluate the effectiveness of the strategies, using
relevant measures. For example, you can measure the average weekly spending per
customer and average price changes as inputs.
4. Finally, you should set targets that you would like to reach by the end of a certain period.
The targets should be quantifiable and time-based, such as an increase in the volume of
sales or an increase in the number of products sold by a certain time.

Goals of the Budgeting Process

Budgeting is a critical process for any business in several ways.

1. Aids in the planning of actual operations

The process gets managers to consider how conditions may change and what steps they need to
take, while also allowing managers to understand how to address problems when they arise.
 2. Coordinates the activities of the organization

Budgeting encourages managers to build relationships with the other parts of the operation and
understand how the various departments and teams interact with each other and how they all
support the overall organization.

3. Communicating plans to various managers

Communicating plans to managers is an important social aspect of the process, which ensures
that everyone gets a clear understanding of how they support the organization. It encourages
communication of individual goals, plans, and initiatives, which all roll up together to support
the growth of the business. It also ensures appropriate individuals are made accountable for
implementing the budget.

4. Motivates managers to strive to achieve the budget goals

Budgeting gets managers to focus on participation in the budget process. It provides a challenge
or target for individuals and managers by linking their compensation and performance relative to
the budget.

5. Control activities

Managers can compare actual spending with the budget to control financial activities.

6. Evaluate the performance of managers

Budgeting provides a means of informing managers of how well they are performing in meeting
targets they have set.

▪ Steps for effective strategy implementation

There are six steps in our process guide to strategy implementation that you can follow and
ensure that your strategic plan evolves from just a plan, into a strategic implementation:

1. Define your strategy framework

2. Build your plan
3. Define KPIs
4. Establish your strategy rhythm
5. Implement strategy reporting
6. Link performance to strategy
 7 Key Steps in the Implementation Process

1. Set Clear Goals and Define Key Variables

The first step of the process is straightforward: You must identify the goals that the new strategy
should achieve. Without a clear picture of what you’re trying to attain, it can be difficult to
establish a plan for getting there.

One common mistake when goal setting—whether related to personal growth, professional
development, or business—is setting objectives that are impossible to reach. Remember: Goals
should be attainable. Setting goals that aren’t realistic can lead you and your team to feel
overwhelmed, uninspired, deflated, and potentially burnt out.

To avoid inadvertently causing low morale, review the outcomes and performances—both the
successes and failures—of previous change initiatives to determine what’s realistic given your
timeframe and resources. Use this past experience to define what success looks like.

Another important aspect of goal setting is to account for variables that may hinder your team’s
ability to reach them and to lay out contingency plans. The better prepared you are, the more
successful the implementation will likely be.

2. Determine Roles, Responsibilities, and Relationships

Once you’ve determined the goals you’re working toward and the variables that might get in
your way, you should build a roadmap for achieving those goals, set expectations among your
team, and clearly communicate your implementation plan, so there’s no confusion.

In this phase, it can be helpful to document all of the resources available, including the
employees, teams, and departments that will be involved. Outline a clear picture of what each
resource is responsible for achieving, and establish a communication process that everyone
should adhere to.

Implementing strategic plans requires strong relationships and, as a manager, you’ll be in charge
of telling people not only how to interact with each other and how often, but also who the
decision-makers are, who’s accountable for what, and what to do when an unforeseen issue
arises.

3. Delegate the Work

Once you know what needs to be done to ensure success, determine who needs to do what and
when. Refer to your original timeline and goal list, and delegate tasks to the appropriate team
members.

You should explain the big picture to your team so they understand the company's vision and
make sure everyone knows their specific responsibilities. Also, set deadlines to avoid
overwhelming individuals. Remember that your job as a manager is to achieve goals and keep
your team on-task, so try to avoid the urge to micromanage.

4. Execute the Plan, Monitor Progress and Performance, and Provide Continued Support

Next, you’ll need to put the plan into action. One of the most difficult skills to learn as a manager
is how to guide and support employees effectively. While your focus will likely be on delegation
much of the time, it’s important to make yourself available to answer questions your employees
might have, or address challenges and roadblocks they may be experiencing.

Check in with your team regularly about their progress and listen to their feedback.

One effective strategy for monitoring progress is to use daily, weekly, and monthly status reports
and check-ins to provide updates, re-establish due dates and milestones, and ensure all teams are
aligned.

5. Take Corrective Action (Adjust or Revise, as Necessary)

Implementation is an iterative process, so the work doesn’t stop as soon as you think you’ve
reached your goal. Processes can change mid-course, and unforeseen issues or challenges can
arise. Sometimes, your original goals will need to shift as the nature of the project itself changes.

It’s more important to be attentive, flexible, and willing to change or readjust plans as you
oversee implementation than it is to blindly adhere to your original goals.

Periodically ask yourself and your team: Do we need to adjust? If so, how? Do we need to start
over? The answers to these questions can prove invaluable.

6. Get Closure on the Project, and Agreement on the Output

Everyone on the team should agree on what the final product should look like based on the goals
set at the beginning. When you’ve successfully implemented your strategy, check in with each
team member and department to make sure they have everything they need to finish the job and
feel like their work is complete.

You’ll need to report to your management team, so gather information, details, and results from
your employees, so that you can paint an accurate picture to leadership.

7. Conduct a Retrospective or Review of How the Process Went

Once your strategy has been fully implemented, look back on the process and evaluate how
things went. Ask yourself questions like:

 Did we achieve our goals?

 If not, why? What steps are required to get us to those goals?
 What roadblocks or challenges emerged over the course of the project that could have
been anticipated? How can we avoid these challenges in the future?
 In general, what lessons can we learn from the process?
While failure is never the goal, an unsuccessful or flawed strategy implementation can prove a
valuable learning experience for an organization, so long as time is taken to understand what
went wrong and why.

Factors That Support Strategy Implementation

Effective execution of strategies is supported by five key components or factors. All five must be
present in order for the organization to be able to carry out the strategies as planned.

1. People
There are two questions that must be answered: “Do you have enough people to implement the
strategies?” and “Do you have the right people in the organization to implement the strategies?”

The number of people in your workforce is an issue that is easier to address, because you can
hire additional manpower. The tougher part of this is seeing to it that you have the right people,
looking into whether they have the skills, knowledge, and competencies required in carrying out
the tasks that will implement the strategy.

If it appears that the current employees lack the required skills and competencies, they should be
made to undergo the necessary trainings, seminars and workshops so that they will be better
equipped and ready when it’s time to put the strategic plan into action.

In addition, the commitment of the people is also something that must be secured by
management. Since they are the implementers, they have to be fully involved and committed in
the achievement of the organization’s objectives.
 2. Resources
One of the basic activities in strategy implementation is the allocation of resources. These refer
to both financial and non-financial resources that (a) are available to the organization and (b) are
lacking but required for strategy implementation.

Of course, the first thing that comes to mind is the amount of funding that will support
implementation, covering the costs and expenses that must be incurred in the execution of the
strategies. Another important resource is time. Is there more than enough time to see the strategy
throughout its implementation?

3. Structure
The organizational structure must be clear-cut, with the lines of authority and responsibility
defined and underlined in the hierarchy or “chain of command”. Each member of the
organization must know who he is accountable to, and who he is responsible for.

Management should also define the lines of communication throughout the organization.
Employees, even those on the lowest tier of the organizational hierarchy, must be able to
communicate with their supervisors and top management, and vice versa. Ensuring an open and
clear communication network will facilitate the implementation process.

4. Systems
What systems, tools, and capabilities are in place to facilitate the implementation of the
strategies? What are the specific functions of these systems? How will these systems aid in the
succeeding steps of the strategic management process, after implementation?

5. Culture
This is the organizational culture, or the overall atmosphere within the company, particularly
with respect to its members. The organization should make its employees feel important and
comfortable in their respective roles by ensuring that they are involved in the strategic
management process, and that they have a very important role. A culture of being responsible
and accountable for one’s actions, with corresponding incentives and sanctions for good and
poor performance, will also create an atmosphere where everyone will feel more motivated to
contribute to the implementation of strategies.

These factors are generally in agreement with the key success factors or prerequisites for
effective implementation strategy, as identified by McKinsey. These success factors are
presented in the McKinsey 7s Framework, a tool made to provide answers for any question
regarding organizational design.

▪ Resource allocation
Definition 1: Resource allocation is the process of assigning and managing assets in a manner
that supports an organization's strategic goals.

Definition 2: Resource allocation is a central management activity that allows for strategy
execution. The real value of any resource-allocation program lies in the resulting
accomplishment of an organization's objectives.

A number of factors prohibit effective resource allocation, including an over-protection of

resources, too great an emphasis on short-run financial criteria, organizational politics, vague
strategy targets, a reluctance to take risks, and a lack of sufficient knowledge.

Managers normally have many more tasks than they can do. Managers must allocate time and
resources among these tasks. Pressure builds up. Expenses at too high. The CEO wants a good
financial report for the third quarter.

Strategy formulation and implementation activities often get deferred. Today's problems soak up
available energies and resources. Scrambled accounts and budgets fail to reveal the shift in
allocation way from strategic needs to currently squeaking wheels.

The relationship between resources and strategy is two-way. Strategy affects resources and
resources affect strategy.

Resources can be evaluated from several different perspectives:

The most prevalent way of evaluating them is by functional areas:

 Finance, research and development, human resources, operations, marketing.

A second way of evaluating resources is by type:

 Financial, physical, human, and organizational.

A third way of evaluating resources is in terms of their tangibility.

Tangible resources (e.g., a plant or the number of employees) can be observed and measured.
Less tangible resources (e.g., corporate name) are also important though their characteristics and
importance are harder to evaluate.

Why You Need Effective Resource Allocation

1. Flexible For All Size
Large organizations might be dealing with multiple projects. Effective allocation of
resources helps project managers to plan to assign resources to project and manage them
effectively.
So whether it is about 1 project or 10 projects, if you are allocating resources properly,
then you can handle them all without any hassle.
 6. Save Money
Effective resource allocation leads to no waste of money. It lets you know the performance
of team members in a project. Hence it can be easier for you to assign tasks to the resource
according to their skills.
7. Boost Productivity
It is the first and foremost reason to choose resource allocation.

If you have finished a project or task before the deadline without compromising the quality,
then definitely it will enhance your business productivity. No more time loss, no more
extra efforts, and no more extra labor charge.
Resource allocation helps you to know who is overloaded and who is free at that instant. So
you can assign tasks to the available resource without much workload.
8. Improve Time Management
To run a project efficiently, it is important to know how long it takes the resources to
complete the projects or tasks. Sometimes resources lag actual time. But this deficiency can
make a large difference. Proper allocation of resources can set the actual es timate hours to
complete the tasks.
9. Improve Staff Morale
By allocating resources wisely, you can see who is leading and who is lagging.
In most cases, project managers can’t be able to figure out which team member is putting
his/her best effort.
But if you are allocating your resources wisely, then you can identify who is doing what,
who is lagging or leading, who is taking more time to complete a project as compared to
the estimated hour(s). By filtering these factors, you can easily get the most deserving .
So without harming their self-confidence, you can encourage them to work better.
10. Predict the Future Project Plan
Proper resource allocation can help you to identify the presence of the team member(s) or
employee(s) in a particular task and it makes easier for you to assign tasks as per their
availability.
Seeing the project requirement and deadline, sometimes one resource can be assigned to
multiple tasks. By allocating resources, employees can prioritize their tasks and execute
them based on their priorities.
The project can be completed without much hassle and the future planning of the project
can be done flawlessly.
11. Strategic Planning
When a company sets its vision and goal, resource allocation plays a vital role. Proper
allocation of resources can help to achieve and fulfill project needs. So ultimately vision
and strategic goals can be done effectively by eliminating existing risks.
12. Manage Team Workload
Let a project is running over schedule and you need to adjust the team’s workload to
deliver the project on time without any obstacle.
Here, resource allocation can help you in managing team workload. It can help you to
check the task list of team members and let you know who is overloaded with tasks and
whose schedule has more capacity.
Now you can rearrange the task to balance the workload and no one will get overloaded.
As a result, it increases the team’s effectiveness and later it leads to successful project
completion.
13. Maintain an Accurate Time Log
Knowing exactly how long it takes team members to complete a task is a vital part in
running project efficiently. Sometimes team members run-out actual working hour(s). In
those cases, business growth suffers a big loss.
By allocating resources you can draw an accurate picture of actual time taken by t he team
members to complete the project.
14. Eliminate Risk
Identifying the potential risks beforehand can definitely bring amazing results to the
project. By taking preventive actions, you can eliminate all the risks and complete projects
on time.
 CHAPTER 14
Strategic Control
Strategic control is a way to manage the execution of your strategic plan. As a management
process, it’s unique in that it’s built to handle unknowns and ambiguity as it tracks a strategy’s
implementation and subsequent results. It is primarily concerned with finding and helping you
adapt to internal or external factors that affect your strategy, whether they were initially included
in your strategic planning or not.

The various components of the strategic control process generate answers to these two questions:

1. Has the strategy been implemented as planned?

2. Based on the observed results, does the strategy need to be changed or adjusted?
In many senses, strategic control is an evaluation exercise focused on ensuring the achievement
of your goals. The process bridges gaps and allows you to adapt your strategy as needed during
implementation.

The difference between operational and strategic control processes.

In contrast to the large amount of data and extended time frame required for strategic controls to
take effect, operational controls monitor and evaluate day-to-day functions to correct any
problems as soon as possible. Operational controls may be either manual or automated, and can
involve people, processes, and technology. When successful, they flag potential risks, identify
misalignments between plans and actions, and effectively implement changes to stay on course
with your strategy.

For example, if there are technical malfunctions or performance is below expectations,

operational control processes can initiate a course correction quickly. This could include
updating an IT system or retraining particular employees, respectively. Or, imagine a factory that
produces widgets. If the number of widgets drops below expectations or the error rate rises above
expectations, a process control alert should be triggered to make the proper operational change.

Strategic control, on the other hand, might then evaluate whether your hiring criteria and
employee onboarding processes need adjustment in order to achieve your strategy.

− Evaluation and control in strategic management

Strategic evaluation and control is the process of determining the effectiveness of a
given strategy in achieving the organizational objectives and taking corrective action wherever
 required. Anyway, the steps in the strategic evaluation and control process are shown by the
following figure:

 Determine what to measure:

Managers need to specify what implementation process and results will be monitored and
evaluated. Measurement must be found for all important areas, regardless of difficulty. It’s
complicated, but you must prioritize what to manage because you cannot observe and assess
every minute factor that might impact your strategy. The strategists must mention the degree of
tolerance limits between which the variance between actual and standard performance may be
accepted.

 Establish a standard of performance:

Standards are detailed expressions of strategic objectives. Standards should be set not only for
output but also for intermediate stages. If appropriate means are available for measuring the
performance and if the standards are set in the right manner, strategy evaluation becomes easier.
Setting control standards, which can be quantitative or qualitative, helps, determine how you will
measure your goals and appraise improvement. The measurement must be done at the right time
else evaluation will not meet its purpose.

 Measure Actual Performance:

Once standards are set, the next step is to measure your performance. Measurement helps
compare actual performance with standards. Measurement must be made at predetermined times.
Measurement can then be addressed in monthly or quarterly review meetings. For measuring the
performance, financial statements like – balance sheet, profit, and loss account must be prepared
on an annual basis.
 Compare actual performance with the standard:

If actual performance results are within the desired tolerance range, the measurement process
should be stopped here. Competitive benchmarking can help you find out if any gaps between
targets and actuals are normal for the industry, or are signs of an internal problem. The
organization can use both quantitative and qualitative criteria for a comprehensive assessment of
performance. It helps to find out deviations.

 Take corrective action:

Once you’ve determined why performance deviated from standards, you’ll decide what to do
about it. If actual performance results fall outside the desired tolerance range then, actions must
be taken to correct the deviation. If the strategists discover that the organizational potential does
not match with the performance requirements, then the standards must be lowered. Depending on
the cause of each deviation, you’ll either decide to take action to correct performance, revise the
standard, or take no action. If the performance is consistently less than the desired performance,
the strategists must carry a detailed analysis of the factors responsible for such performance.

Four Types of Strategic Control

1. Premise Control
Your business strategy is based on an assumed premise of how things will occur in the future.
Premise controls allow you to examine whether this assumption still holds true once you
actually put your ideas into action. Premises may be affected by environmental factors such as
inflation, interest rates and social changes or by industry factors such as competitors, suppliers
and barriers to entry. These controls will help you recognize changes in the premise so you can
adapt your strategy accordingly.
2. Implementation Control
Once you design a strategy for your business, you will need to implement it. As you take the
steps necessary to put your plan into action, use implementation controls to ensure no
adjustments to your strategy are necessary. Two basic types of implementation controls are
monitoring strategic thrusts and doing milestone reviews. The former means you analyze the
tactics you're using to gain market share. The latter allows you to conduct a full-scale
assessment of your business at designated points in your strategy.
3. Special Alert Control
You will need mechanisms in place to assess the position of your business in the case of
sudden events, such as natural disasters, product recalls or market spikes. Special alert controls
allow you to reconsider the relevancy of your strategy in light of these new events. Prepare
how you will handle these special alerts with procedures to be followed, priorities to keep and
tools to be used.
 4. Strategic Surveillance Controls
As a small-business owner, you need to protect your business from external threats that may
hinder the success of your strategy. Strategic surveillance controls allow you to monitor
multiple sources for these threats. Continually safeguard your strategy by following trade
journals, attending conferences and keeping awareness of industry trends to meet these risks as
they arise.

-The strategic control process

Strategic Control Techniques

There are four primary types of strategic control:

5. Premise Control
Every organization creates a strategy based on certain assumptions, or premises. As such,
premise control is designed to continually and systematically verify whether those assumptions,
which are foundational to your strategy, are still true. These are typically environmental (e.g.
economic or political shifts) or industry-specific (e.g. new competitors) variables.

The sooner you discover a false premise, the sooner you can adjust the aspects of your strategy
that it affects. In reality, you can’t review every single strategic premise, so focus on those most
likely to change or have a major impact on your strategy.

6. Implementation Control
This type of control is a step-by-step assessment of implementation activities. It focuses on the
incremental actions and phases of strategic implementation, and monitors events and results as
they unfold. Is each action or project happening as planned? Are the proper resources and funds
being allocated for each step? This process continually questions the basic direction of your
strategy to ensure it’s the right one.

There are two subcategories of implementation control:

 Monitoring Strategic Thrusts Or Projects

This is the assessment of specific projects or thrusts that have been created to drive the larger
strategy. This early feedback will help you decide whether to continue onward with the strategy
as is or pause to make adjustments.

You can pre-determine which thrusts are critical to the achievement of your goals and
continually assess them. Or, you can decide which measurements are most meaningful for your
thrusts or projects (such as timeframes, costs, etc.) and use that data as an indicator of whether a
thrust is on track or not, and how that may subsequently affect the strategy.
 Reviewing Milestones
During strategic planning, you likely identified important points in the implementation process.
When these milestones are reached, your organization will reassess the strategy and its
relevance. Milestones could be based on timeframes, such as the end of a quarter, or on
significant actions, such as large budget or resource allocations.

Implementation control can also take place via operational control systems, like budgets,
schedules, and key performance indicators.

7. Special Alert Control

When something unexpected happens, a special alert control is mobilized. This is a reactive
process, designed to execute a fast and thorough strategy assessment in the wake of an extreme
event that impacts an organization. The event could be anything from a natural disaster or
product recall to a competitor acquisition. In some cases, a special alert control calls for the
formation of a crisis team—usually comprising members of the strategic planning and leadership
teams—and in others, it merely means activating a predetermined contingency plan.

8. Strategic Surveillance Control

Strategic surveillance is a broader information scan. Its purpose is to identify overlooked factors
both inside and outside the company that might impact your strategy. This process ideally covers
any “ground” that might be missed by the more focused tactics of premise and implementation
control. Your surveillance could encompass industry publications, online or social mentions,
industry trends, conference activities, etc.

This graph clearly depicts the application of the four techniques for strategic control and how
they function alongside each other:
 Six Steps of the Strategic Control Process

Whether your organization is using one or all four of the previous techniques of strategic
evaluation and control, each involves six steps:

 Determine what to control.

What are the organization’s goals? What elements directly relate to your mission and vision? It’s
difficult, but you must prioritize what to control because you cannot monitor and assess every
minute factor that might impact your strategy.

 Set standards.
What will you compare performance against? How can managers evaluate past, present, and
future actions? Setting control standards—which can be quantitative or qualitative—helps
determine how you will measure your goals and evaluate progress.

 Measure performance.
 Once standards are set, the next step is to measure your performance. Measurement can then be
addressed in monthly or quarterly review meetings. What is actually happening? Are the
standards being met?

 Compare performance.
When compared to the standards or targets, how do the actuals measure up? Competitive
benchmarking can help you determine if any gaps between targets and actuals are normal for the
industry, or are signs of an internal problem.

 Analyze deviations.
Why was performance below standards? In this step, you’ll focus on uncovering what caused the
deviations. Did you set the right standards? Was there an internal issue, such as a resource
shortage, that could be controlled in the future? Or an external, uncontrollable factor, like an
economic collapse?

 Decide if corrective action is needed.

Once you’ve determined why performance deviated from standards, you’ll decide what to do
about it. What actions will correct performance? Do goals need to be adjusted? Or are there
internal shifts you can make to bring performance up to par? Depending on the cause of each
deviation, you’ll either decide to take action to correct performance, revise the standard, or take
no action.

Using a Balanced Scorecard for Strategic Control

The entire strategic planning, implementation, and control process takes significant effort and
thought. It requires a lot of buy-in from your leadership team. It also requires employees to
understand why their actions are important and continuously work toward achievement of
goals—even if those goals shift over time.

A Balanced Scorecard helps tie your overall strategy to those day-to-day activities, giving more
clarity about the what and why of strategic implementation to the entire company. You’ll be able
to do both operational and strategic control within one framework, linking the two processes and
getting everyone on the same page. The Balanced Scorecard approach can provide a clear
prescription as to what companies should measure during implementation to enact strategic
control.

Conclusion

Putting strategic control in place is critical to a successful strategy implementation. Without

proper controls, your strategy won’t have the gut checks required to ensure it remains relevant,
on track, and performing at or above standards.
 Managing these controls can be made easier by using software to track KPIs, measures, and the
external factors around your strategy.

-Monitoring Evaluation and Reporting

A monitoring and evaluation strategy enables at a high level, an effective strategy to allow for
the ongoing review, analysis and understanding of the performance of a project (or program)
through its life. This sets a framework to enable correct and accurate reporting, provide a basis
for continuous improvement and mechanisms to evaluate the successes and challenges faced by
programs in the hope of learning from these issues.

There are several aspects to this strategy;

i) Defining measurable benchmarks

If something has not been defined it cannot be measured.
The underlying benefit of establishing a monitoring and evaluation strategy is to provide an
indication of how well a project or program is tracking. If the requirements have not first been
defined, then what are the actual results going to be compared against to provide an accurate
picture of performance.

To initiate the definition of benchmarks, it is important to consider the following;

 the baseline data; either set by the client, sponsor or other relevant authority or the data
that existed prior to the implementation of the project- showing the situation prior to that
being impacted upon by the project
 the stakeholders and impacted community; through consultation, their needs,
expectations and any other important metrics should be considered. These will provide useful
‘outside’ perspectives which can be used an input into the strategy and later, where relevant
translated into objective outcomes for measuring and reporting
 Where possible use quantifiable, objective measures to allow for parity of understanding
when being monitored, evaluated or reported amongst multiple parties. Where quantitative
information is not practical, clearly explaining explicit requirements; with the inclusion of
tests for what is and what is not acceptable will assist.

ii) Communicating the benchmarks

There is no point establishing quality control limits if they are not known.
Project personnel as well as in some cases external stakeholders need to understand the
benchmarks which will be used in monitoring the effectiveness of the project.
These benchmarks not only provide a basis for the evaluation of project performance, but in
many cases, are linked to performance bonuses or related outcomes. If these are being used in
your projects, they must be clear- or this will lead to issues.
Important considerations for communicating benchmarks:
 Have the benchmarks been approved? There are cases where overcommunication or early
communication can be destructive for your program. Take into consideration this scenario;
you have worked with your stakeholders and established some benchmarks, prior to gaining
approval for these benchmarks they are communicated to your project team, contractors and
other relevant parties. Can you identify the issues? What if these benchmarks are not
approved, what if the parties feel the benchmarks are unfair, what if the parties commence
work to meet these benchmarks.
 Have the benchmarks been validated? In many cases benchmarks are developed by a
senior team through the use of analogous (mainly historic) methods- past program
performances are considered as are previous industry performance. In many cases it is hard to
draw a direct link between past programs and current ones; as after all a project (composite of
a program) is a unique endeavour. It is as a result important to validate the benchmarks and
standards to ensure currency and relevance to the program.
 Communicate prior to establishment; whilst I have addressed the issues associated with
premature communication, it is important that benchmarks are communicated and accepted by
relevant personnel prior to being bound by them. The best case (although initially costly) is to
involve stakeholders through the entire process; identify the benchmarks, validate and accept
as opposed to simply being instructed that these need to be satisfied.

iii) Establishing monitoring plans

A monitoring plan should start with the end in mind; what do we want to know? This could be
based upon:

 reporting requirements; “we need to communicate program progress with the board on a
monthly basis”;
 quality requirement; “we need to know if a defect variance of greater than 2% exists
within our products”
 business requirements; “we need to know if our member base drops below 10,000”
 risk requirements; “we need to know if this risk rating reaches above 17”
 client needs, legislation and a multitude of other factors.

It is important to establish what is important, what we are going to monitor, how it will be
monitored, by whom and the frequency. These aspects form the basis of most monitoring plans.

iv) Establish review plans

Review plans are similar to monitoring plans; they provide for an analysis of the actual
performance against the baseline or agreed benchmarks. The difference normally lies in the fact
that whilst monitoring occurs concurrent to the program, reviews are generally associated with
being performed at the conclusion of a stage, gate or project.
Monitoring is generally the inspection to report, control and where required take corrective
active actions to bring the performance to plan; or in some cases adapt the plan. Reviewing is a
retrospective analysis of performance where causation factors (reasons) are identified and linked
to deviations from expectations. The review is looking at past information to improve future
situations.
Once developed the strategy requires implementation. The strategy should be, when newly
developed, trialed in a controlled environment prior to being applied to a high-risk program.

− Measuring Corporate Performance

There are possibly as many interpretations of the term organizational performance as the studies
that have used the construct.

Performance measures are a metrics along which organizations can be gauged. Most executives,
investor and stakeholders watch and examine measures such as profits, stock price, and sales in
an attempt to better understand how well their organizations are competing in the market, as well
as future predicted results. But these measures provide just a glimpse of organizational
performance.

Using a variety of performance measures and referents is valuable because different measures
and referents provide different information about an organization’s functioning. As well, many
commonly used measures, including accounting ratios, are highly past-focused. These indicators
show stakeholders the end-results of past decisions, but do little to predict future firm
performance. Strongly managed organizations must develop a deep understanding of what events
or actions support strong(er) performance (i.e., increased product training for sales force leads to
increased sales the following quarter), and then ensure these measure these as well.

What to Measure

Financial Measures

Financial measures of performance relate to organizational effectiveness and profits. Examples

include financial ratios such as return on assets, return on equity, and return on investment. Other
common financial measures include profits and stock price. Such measures help answer the key
question “How do we look to shareholders?” Such measures have long been of interest to senior
management and investors.

Financial performance measures are commonly articulated and emphasized within an

organization’s annual report to shareholders. To provide context, such measures should be
objective and be coupled with meaningful referents, such as the firm’s past performance. For
example, Starbucks’s 2009 annual report highlights the firm’s performance in terms of net
revenue, operating income, and cash flow over a five-year period.

Customer Measures

Customer measures of performance relate to customer attraction, satisfaction, and retention.

These measures provide insight to the key question “How do customers see us?” Examples might
include the number of new customers and the percentage of repeat customers.
Starbucks realizes the importance of repeat customers and has taken a number of steps to satisfy
and to attract regular visitors to their stores. For example, Starbucks rewards regular customers
with free drinks and offers all customers free Wi-Fi access. Starbucks also encourages repeat
visits by providing cards with codes for free iTunes downloads. The featured songs change
regularly, encouraging frequent repeat visits.

Internal Business Process Measures

Internal business process measures of performance relate to organizational efficiency. These

measures help answer the key question “What must we excel at?” Examples include the time it
takes to manufacture the organization’s good or deliver a service. The time it takes to create a
new product and bring it to market is another example of this type of measure.

Organizations such as Starbucks realize the importance of such efficiency measures for the long-
term success of its organization, and Starbucks carefully examines its processes with the goal of
decreasing order fulfillment time. In one recent example, Starbucks efficiency experts challenged
their employees to assemble a Mr. Potato Head to understand how work could be done more
quickly. The aim of this exercise was to help Starbucks employees in general match the speed of
the firm’s high performers, who boast an average time per order of twenty-five seconds.

One key aspect for organizations producing physical goods (as compared to services) are supply-
chain management indicators. Both Walmart and GM are examples of the increased profits that
can result from effective management of the supply chain through initiatives such as “just-in-
time”’ supply-chain management. Of course, to reduce supply inventory, data must be both
timely and accurate (or else you run out of key parts and the production line stops…). In the
1990s (pre-Internet) Walmart acquired their own satellite system that allowed them to collect
sales by item and ordered replacement to restock their shelves every eight hours, while GM kept
only enough tires for four hours of car assembly at any one time!

Learning and Growth Measures

Learning and growth measures of performance relate to the future. Such measures provide
insight to tell the organization, “Can we continue to improve and create value?” Learning and
growth measures focus on innovation and proceed with an understanding that strategies change
over time. Consequently, developing new ways to add value will be needed as the organization
continues to adapt to an evolving environment. An example of a learning and growth measure is
the number of new skills learned by employees every year.

One way Starbucks encourages its employees to learn skills that may benefit both the firm and
individuals in the future is through its tuition reimbursement program. Employees who have
worked with Starbucks for more than a year are eligible. Starbucks hopes that the knowledge
acquired while earning a college degree might provide employees with the skills needed to
develop innovations that will benefit the company in the future. Another benefit of this program
is that it helps Starbucks reward and retain high-achieving employees.
 Ways to Measure Corporate Performance

The Balanced Scorecard

To develop a more predictive set of organization performance measures, Professor Robert

Kaplan and Professor David Norton of Harvard University developed a tool called the “balanced
scorecard.” Using the scorecard helps managers resist the temptation to fixate on financial
measures and instead monitor a diverse set of important measures (Figure 2.7 “Beyond Profits:
Measuring Performance Using the Balanced Scorecard”). Indeed, the idea behind the framework
is to provide a “balance” between financial measures and other measures that are important for
understanding organizational activities that lead to sustained, long-term performance. The
balanced scorecard recommends that managers gain an overview of the organization’s
performance by tracking a small number of key measures that collectively reflect four
dimensions:

1. financial focus,
2. customer focus,
3. internal business process focus, and
4. learning and growth focus.

Organizations select unique indicators within each area that are directly linked to the
organization’s strategic goals. Indicators often selected include employee training and corporate
culture attitudes, internal business processes, customer requirement conformance and
satisfaction, and risk assessment and cost–benefit data. As a management system, it helps
identify measures to be taken by providing feedback concerning external outcomes related to
internal processes. This allows for the alignment of daily business activities with long-term
organizational goals and performance.
 − Strategic Information Systems
Definition 1: Systems management is the process of planning, implementing, and monitoring of
information systems that support the mission, goals, and objectives of an organization. The
features of a strategic information system are:
1. Information Security
2. Data Integrity
3. Data Security
This is the process of aligning your brand with the different channels you’re using. Each channel
has its own audience, and as a brand owner, you need to know who your audience is and what
they want.

Definition 2: Strategic information systems (SIS) are information systems that are developed
in response to corporate business initiative. They are intended to give competitive advantage to
the organization. They may deliver a product or service that is at a lower cost, that is
differentiated, that focuses on a particular market segment, or is innovative.
Strategic information management (SIM) is a salient feature in the world of information
technology (IT). In a nutshell, SIM helps businesses and organizations categorize, store, process
and transfer the information they create and receive. It also offers tools for helping companies
apply metrics and analytical tools to their information repositories, allowing them to recognize
opportunities for growth and pinpoint ways to improve operational efficiency.

Strategic Information System involves having a long-term vision, define business objectives,
setting goals, and taking steps to reach those goals and address organizational issues.
Strategic Information System keeps the organization focused on its vision and organizational
transformation. It is used to provide information about the current situation of an individual,
group or organization. It is a conceptual system that helps in understanding the present and the
future environment in which an individual or organization operates.
A strategic information system (SIS) is a business information system (BIS) with the features
Systematic approach to collecting, storing, and retrieving data; Integration with other systems. It
is essential for your company to have a clear vision, business plan, strategy and organization
structure. It’s important that your employees are aligned with these strategies, so that everyone
has the same goals in mind.
Importance and advantages of Strategic information system

 Strategic information system provides a connection between demands of organization and

latest information technology. This tactic helps an organization to get hold of the market
by utilizing Information tech to meet its challenging requirements to the continuous
variation in the corporate environment. Helps them evolve their business strategy, helps
with knowledge management and operations management.
 Information system strategy is a critical aspect of an organization’s management decision
for its growth, expansion and supply chain management. Information technology and
competitive intelligence can work wonders for a business. The integration of the data
system and its function within the organization can be handled easily by enabling open
access and use of management systems. Besides that, it also enables the classification of
different opportunities for the use of information systems for different strategies. It gives
the surety that only useful resources or the use of resources which are less are allocated to
the applications and to use the scarce resources in a sustainable way and have a better
impact factor. With the System Information Strategy, it ensures that the Information
system functions accordingly and supports the business goals and objectives of the
organization at the different levels.
 There are several instances of strategic planning which have helped the organizations to
help create and sustain the resources in this competitive market over the past years and
has allocated several effective benefits and simply continued to provide for the survival
of these organizations which have used these systems. These systems are often termed as
‘strategic concepts of the organization.’ To give the maximum performance of the
firms financially in a fluctuating market, the correlation between Strategic Management
and Information System is significant fundamentally. Understanding of management
information system is equally helpful & an asset to the organization.

Uses of Strategic Information System

 Creating Hurdles for the Entry of a Competitor: In this, a firm uses information
systems to supply products and services that are hard to duplicate or that are used
primarily to aid highly specialized networks of business. This strategy stops the entry of
competitors in the market as they find the cost of giving such services at a very high
price.
 Improving Marketing by Generating Database: Information system also gives the
firms and organization an edge over their competition by generating stronger databases,
utilizing big data and product differentiation to enhance their sales and marketing tactics.
It treats existing information as a useful resource. For instance, a business firm may use
its updated databases to monitor the purchase of the customers and to locate many
segments of the market.
 Locking customers and suppliers: It is an essential way of getting the advantage of
competition by making the customers and suppliers permanent. In this information
systems strategy are implemented to provide benefits to the customer and the suppliers so
 that it may change their mind and it becomes hard for them to switch over to the other
competitor so that they continue to provide the services.
 Lowering the costs of the products: It may help the firms lower their costs and allowing
them to give products and services at a much smaller cost than their competitors. Thus
such a strategy can provide the expansion and growth of the firm.
 Leveraging technology in the value chain: In this way, the organizations pinpoint the
particular activities in the business, where competitive market strategies can be applied
and where the strategically information systems can be more effective.

--Strategic surveillance
Compared to premise control and implementation control, strategic surveillance is designed to be
a relatively unfocused, open, and broad search activity.

"... strategic surveillance is designed to monitor a broad range of events inside and outside
the company that are likely to threaten the course of the firm's strategy."

The basic idea behind strategic surveillance is that some form of general monitoring of multiple
information sources should be encouraged, with the specific intent being the opportunity to
uncover important yet unanticipated information.

Strategic surveillance appears to be similar in some way to "environmental scanning." The

rationale, however, is different. Environmental, scanning usually is seen as part of the
chronological planning cycle devoted to generating information for the new plan.

By way of contrast, strategic surveillance is designed to safeguard the established strategy on a

continuous basis.

− Guidelines for proper control

The proper performance of the management control function is critical to the success of an
organization. After plans are set in place, management must execute a series of steps to ensure
that the plans are carried out. The steps in the basic control process can be followed for almost
any application, such as improving product quality, reducing waste, and increasing sales. The
basic control process includes the following steps:

1. Setting performance standards: Managers must translate plans into performance

standards. These performance standards can be in the form of goals, such as revenue from
sales over a period of time. The standards should be attainable, measurable, and clear.
2. Measuring actual performance: If performance is not measured, it cannot be
ascertained whether standards have been met.
3. Comparing actual performance with standards or goals: Accept or reject the product
or outcome.
 4. Analyzing deviations: Managers must determine why standards were not met. This step
also involves determining whether more control is necessary or if the standard should be
changed.
5. Taking corrective action: After the reasons for deviations have been determined,
managers can then develop solutions for issues with meeting the standards and make
changes to processes or behaviors.

− Balanced Scorecard as a tool for control

Organizations are interlinked and their strengths derive from that interlinkage more than they do
from standalone activity.

There is a linkage between the results the organization seeks for its shareholders, the strategy it
adopts and the various activities it carries out as part of its day-to-day operation.

The creation of loss of value occurs if the organization is casual about those linkages and fails to
capture the learning that occurs every day to improvise and strengthen its operations.

Measurement is the central theme in the balanced scorecard developed by Norton and Kaplan
(1996).

Balanced scorecard considers four interlinked internal perspectives – the financial, customer,
operations and organizations to develop and define value.

The scorecard was initially used as a performance improvement tool but later it became popular
as a strategy implementation tool as it emphasizes measurement.

Balanced Scorecard emphasizes “what cannot be measured cannot be improved” and the
scorecard either measured quantitatively or qualitatively.

If profitability is the result of increased sales and lowered operating costs and investments then
the organization should be able to translate the implication of lowered costs of operations and
investments into marketing, sales, procurement, and maintenance targets for the front line.

Lowered costs of production translate into lower prices. The strategy sought to be attained for
shareholders must be translated across the functional areas so as to be discernible to those who
perform the daily operations.

The strategy is not fully realized if the description of strategy in terms of what it wants to do for
customers, the position it wishes to occupy in the market, is not converted into specific attainable
and measurable targets for the lowest-level employee.
The Balanced Scorecard maintains a ‘balance’ between financial measures (such as profit, return
on investment, cash flow, increase in market share, and periodical sales growth) and non-
financial measures (such as customer service, product quality, morale of employees, business
ethics, corporate social responsibility, reduction of pollution, and community involvement).

-Sustaining organizational effectiveness

In an ever-shifting workplace paradigm, the idea of ten-year plans has started to fade. Instead,
businesses are focusing on strategies that allow their brand to respond to change quickly. They
hope to learn how to adapt to new habits that keep improving performance.

What is a sustained performance in an organization?

Sustained performance in an organization is achieved when the business remains true to its
purpose and values over time while navigating the changing business landscape in a proactive
 and agile way. Leaders play to the strengths of the organisation and, at the same time, invest time
in continually identifying areas to improve and taking action.

Implementing resilient life practices for employees with a conscious leadership style allows
businesses to adapt to new challenges more quickly while consistently fulfilling the
organization’s values.

Other key areas in delivering sustained performance are values-based recruitment, employee
engagement, and performance management.

It is the combination of focus areas which helps to develop a robust values-driven culture
throughout.

When sustained organisational performance achieved, some of the indicators are as follows:

 High performance liberated on all levels in the context of the organisation

 Employees react well and with resilience to environmental challenges and changes.

 Strong and mutually rewarding relationships formed with stakeholders.

 Leaders and teams bounce back quickly from major organizational setbacks.

As a result, leaders, and teams spend more time in a state of flow in which everyone can
comfortably obtain high levels of performance, satisfaction, and engagement.

How is Sustainable Performance Achieved?

One key aspect of achieving sustained performance is organisational alignment. This was when
every aspect of the company tuned to the same set of values. These are clearly defined and
enacted throughout, at leadership, middle management, and front line levels.

 Conscious Leadership

Leaders are in the best position to facilitate change towards sustained performance. This is why
executive leaders need to model resilient practices and lead by example. Gone are the days where
leadership focussed on issuing tasks to employees and monitoring performance. Leaders must
treat their teams with compassion and empathy to achieve the best levels of performance in a
shifting paradigm that focuses more and more on emotional connection and values-driven
leadership.

 Resilient teams

Sustainable, high performance is not an immediate effect of resilient individuals. Instead,

specific skill development and training are often needed to teach employees how to build
relationships and unleash their peak potential.

To achieve resonance within a team, all employees must have a common goal in mind and
socially invest in the brand’s values. Being in tune with the brand’s purpose and aligning
themselves with the organization’s values allows employees to focus on critical priorities. It
enables them to make values-driven decisions.

Clarity from the start about priorities and values makes it easier to resolve conflicts and avoid
misaligned goals.

 Values-based culture

The first step towards achieving cultural alignment is a clear definition of the organizations’
values. Both leaders and employees should relate to these values and, more importantly, live by
them in practice. A brand’s values-system also features in the recruitment and selection process.
Candidates can be assessed by whether they are a good fit for the current and desired culture.

Leaders and teams that demonstrate these values should be rewarded and encouraged. At the
same time, contrary behaviors cannot be tolerated. When all members of an organisation are on
the same page and live by the same habits and values, a more harmonic, happy, and effective
workplace is created.
 CHAPTER 15
Contemporary issues and Case Studies in Strategic
Management
Contemporary Issues
Issue 1

As a contemporary issue in strategic management, corporate governance involves the

management of companies in the most efficient way to achieve its objectives. Most companies,
which have embraced corporate governance in both the West and the East, avoid failures such as
the one of Enron Corporation and the current financial crisis. Managers with the responsibility of
corporate governance practice the agency and stewardship theory to protect the interests of
stakeholders.

The board has a fiduciary role of protecting the interests of stakeholders over and above their
own. The main aim of corporate governance is to ensure accountability of each stakeholder in the
organization. When people know they are accountable, they minimize the risk of failure and
reduce conflict of interest in the organization. In the end, the organization achieves its goals and
becomes a leader in the industry.

Issue 2

In recent years, two management trends that seem significant in response to international
competition are the adoption of Japanese management practice and the renewed efforts to
achieve excellence in product and service quality.

Theory Z management. Given the recent success of Japanese companies, management writers
have been carefully analyzing Japanese organizations. The most notable publication in this area
is Ouchi’s Theory Z. Ouchi showed that American and Japanese firms are essentially different
along seven important dimensions:

1. length of employment
2. mode of decision making,
3. locations of responsibility,
4. speed of evaluation and promotion,
 5. mechanism of control,
6. specialization of career path
7. and nature of concern of the employee.

Ouchi’s theory Z proposes a hybrid form of management that incorporates techniques from both
Japanese and North American management practices. In a very short time, his ideas have been
well received by practicing managers.

Achieving excellence. In their best seller on America’s best-run companies, In Search of

Excellence, Peter and Waterman found eight basic principles that reflected these companies,
management value and corporate culture. The eight principles of excellent companies are:

 Bias toward action. Successful companies value action, doing, and implementation.
 Closeness to the customer. Successful companies are customer driven; a dominant value
is customer need satisfaction.
 Autonomy and entrepreneurship. Organization structure in excellent corporations is
designed to encourage innovation and change.
 Productivity through people. People are encouraged to participate in production,
marketing, and new-product decisions.
 Hands on, value driven. Excellent companies are clear about their value system.
 Sticking to the knitting. Successful firms are highly focused. They do what they know
best.
 Simple form, lean staff. The structural form and systems of excellent companies are
elegantly simple, and few personnel are employed in staff positions.
 Simultaneous loose-tight properties. Excellent companies use tight controls in some
areas and loose controls in others. A tight, centralized control is used for the firms core
values. In other areas employees are free to experiment, to innovate, and to take risk in
ways they will help the organization achieve its goals.

Application of these principles in the best-managed companies tends to produce an environment

that fosters entrepreneurial pursuit of new opportunities and adaptation to change.

Issue 3

Redesigning the Organization As business environments become more complex, more

competitive, and less predictable, survival requires that companies perform at a higher level with
a broader repertoire of capabilities. Building multiple capabilities and achieving excellence
across multiple performance dimensions requires managing dilemmas that cannot be resolved as
simple tradeoffs. A company must produce at low cost, while also innovating; it must deploy the
massed resources of a large corporation, while showing the entrepreneurial flair of a small
startup; it must achieve high levels of reliability and consistency, while also being flexible. All of
these dilemmas are aspects of the underlying conflict between achieving operational efficiency
today, and adapting for tomorrow. Reconciling these conflicts within a single organization
presents huge management challenges. We know how to devise structures and incentive systems
that drive cost efficiency; we also know the organizational conditions conducive to innovation.
But how on earth do we do both simultaneously?

Among the new developments in organizational design, two major trends may be discerned. The
first is the design of organizations to facilitate the development and deployment of organizational
capability. The second is the design of organizations to permit rapid adaptability.

Issue 4

Increased strategic partnerships with market research firms

Buyers prefer to engage with service providers that provide quick and flexible solutions
compared to those that adhere to defined frameworks and policies. In line with this, several
consulting firms such as BCG and McKinsey are engaging with market research firms such
as Gartner and Forrester to cut short the TATs associated with gathering data and providing
actionable insights by spending more time on formulating strategies.

Issue 5

Growth in technology automation

New technologies that automate certain consulting functionalities such as research, modeling,
and analysis are considered to be important complements to consulting professionals’ skills

For instance, asset-based consulting is a technology-driven innovation which shortens project

lead times and provides more functionality at lower costs. In 2014, KPMG spent USD 51
million on asset-based consulting to create cloud-based software and automate the finance and
accounting process for clients at cost-effective prices.

Issue 6

Increased online collaboration among stakeholders

Increasing number of on-demand consulting options led to the emergence of an innovative

service delivery model, wherein, consulting services are offered via online platforms.

For instance, Wikistrat, a business consultancy, operates a global network of more than 2,000
SMEs working collaboratively on an online platform to help buyers identify solutions to strategic
challenges.
Link for case studies: https://www.slideshare.net/djsexxx/strategic-management-case-studies-mg