Strategic Management – Revision session 01 By; Nilantha Perera,

Strategic decisions Exhibit 1.1 Integrated approach: if the operations are not in line with strategy then the the strategy will fail Change : heritage and culture issue in mergers and acquistions Exhibit 1.1

The risk of strategic drift Irregular surface is punctured equilibrium where punctured equilibrium is the tendency of strategy to develop incrementally with periodic transformational change Johnson, Scholes & Whittington (2005) Exhibit 1.4

The PESTEL framework (1) The PESTEL framework categorises environmental influences into six main types: political, economic, social, technological, environmental legal Thus PESTEL provides a comprehensive list of influences on the possible success or failure of particular strategies.

Carrying out scenario analysis (1) Identify the most relevant scope of the study – the relevant product/market and time span. Identify key drivers of change – PESTEL factors that have the most impact in the future but have uncertain outcomes. For each key driver select opposing outcomes where each leads to very different consequences.

Carrying out scenario analysis (2) Develop scenario ‘stories’ - That is, coherent and plausible descriptions of the environment that result from opposing outcomes Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios. Scenario analysis is used in industries with long planning horizons for example, the oil industry or airlines.

The five forces framework (1) Figure 2.2 The five forces framework Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved

Blue ocean thinking ‘Blue oceans’ are new market spaces where competition is minimised. ‘Red Oceans’ are where industries are already well defined and rivalry is intense. Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served. A ‘strategy canvas’ compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces.

Strategy canvas Figure 2.9 Strategy canvas for electrical components companies Source: Developed from W.C. Kim and R. Mauborgne, Blue Ocean Strategy, 2005, Harvard Business School Press

Core Competencies Resources Core Competence Capability Capability Inputs to a firm’s production process Core Competence A strategic capability YES Does the capability satisfy the criteria of sustainable competitive advantage? Capability Integration of a team of resources The source of NO Capability A nonstrategic team of resources 42

Exhibit 4.1 Influences on Strategic Purpose Governance structure Strategic Purpose Corporate values Mission Objectives Stakeholder expectations Social responsibility and ethics 4-11

What is Corporate Governance? Corporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation. 4-12

Exhibit 4.2 The Chain of Corporate Governance 4-13

Exhibit 4.7 Stakeholders of a Large Organisation 4-14

What is Stakeholder Mapping? Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities. 4-15

Exhibit 4.9 The Power/Interest Matrix 4-16

Business Level Strategies Exhibit 5.1

The Strategy Clock Exhibit 5.2a Note: The strategy clock is adapted from the work of Cliff Bowman (see D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995.) However, Bowman uses the dimenstion ‘Perceived Use Value’. Exhibit 5.2a

The Strategy Clock Exhibit 5.2b

Game Theory The inter-relationships between the competitive moves of a set of competitors Strategist must anticipate competitor reactions Core assumptions: Competitor will behave rationally and try to win Competitor is in an interdependent relationship with other competitors Competitors are aware of the interdependencies and of the moves that competitors could take

Implications of Game Theory To benefit from game theory strategists need to: Put themselves in the position of the competitors Take an informed, rational view on likely competitor actions Choose best course of action Identify if there is any competitor strategy which might lead to their domination of the market Take steps to eliminate the strategy

A Prisoner’s Dilemma Exhibit 5.6

Principles of Prisoner’s Dilemma A dominant strategy Outperforms all other strategies whatever rivals choose May be a lesser pay-off than could logically be achieved A dominated strategy A competitive strategy pursued by a competitor, which outperforms the company whatever it chooses Equilibrium Each competitor gets the best possible strategic solution given the response from the other

What is a Corporate Parent? The corporate parent refers to the levels of management above that of the business units, and therefore without direct interaction with buyers and competitors. Small business like a local builder…… 7-24

Exhibit 7.1 Strategic Directions and Corporate-Level Strategy Value creation Corporate parenting Portfolio management Diversification Penetration Consolidation Development Scope decisions 7-25

7-26

Exhibit 7.2 Strategic Directions (Ansoff Matrix) 7-27

Value-Adding Activities Envisioning Coaching and facilitating Providing central services and resources Intervening 7-28

Exhibit 7.5 Portfolio and Synergy Managers and Parental Developers 7-29

Portfolio Matrices Growth/Share (BCG) Matrix Directional Policy (GE-McKinsey) Matrix Parenting Matrix 7-30

Exhibit 7.7 The Growth Share (BCG) Matrix 7-31

Exhibit 7.8 The Directional Policy (GE-McKinsey) Matrix 7-32

Exhibit 7.9 Strategy Guidelines Based on Directional Policy Matrix 7-33

Exhibit 7.10 The Parenting Matrix 7-34