Chapter 1 Introducing Strategy

I DEFINITIONS
Strategy and strategic decisions are typically associated with issues like these: The long-term direction of an organization. The scope of an organizations activities (ex: should the organization concentrate on one area of activity, or should it have many?) Advantage for the organization over competition Strategic fit with the business environment: organizations need appropriate positioning in their environment, for example in terms of the extent to which products or services meet clearly identified market needs The organizations resources and competences.2 following the resource-based view of strategy, strategy is about exploiting the strategic capability of an organization, in terms of its resources and competences, to provide competitive advantage and/or yield new opportunities. The values and expectations of powerful actors in and around the organization. These actors individuals, groups or even other organizations

Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations. Characteristics of strategic decisions: Complexity Uncertainty
Integration is required for effective strategy Relationship and networks (suppliers, distributors, customers)

Change

Operational decisions are linked to strategy Strategic decisions are about: The long term direction of an organization The scope of an organizations activities Gaining advantage over competitors Addressing changes in the business environment Building on resources and competences (capability) Values and expectations of stakeholders

Strategic decisions are likely to: Be complex in nature Be made in situations of uncertainty Affect operational decisions Require an integrated approach (both inside and outside an organization) Involve considerable changes

Competence in particular operational activities might determine which strategic developments might make most sense.

II LEVELS OF STRATEGY
1) Corporate-level strategy (the top level) 2) Business level strategy 3) Operational strategy

Corporate-level strategy is concerned with the overall purpose and scope of an organization and how value will be added to the different parts (business units) of the organization. This could include issues of geographical coverage, diversity of products/services or business units, and how resources are to be allocated between the different parts of the organization Business-level strategy is about how to compete successfully in particular markets how the various businesses included in the corporate strategy should compete in their particular markets (for this reason, business-level strategy is sometimes called competitive strategy) In the public sector, the equivalent of business-level strategy is decisions about how units should provide best value services. This typically concerns issues such as pricing strategy, innovation or differentiation, for instance by better quality or a distinctive distribution channel. A strategic business unit is a part of an organization for which there is a distinct external market for goods or services that is different from another SBU. Operational strategies are concerned with how the component parts of an organization deliver effectively the corporate and business-level strategies in terms of resources, processes and people.

III) VOCABULARY
Mission Goal Vision or strategic intent Objective Strategic capability Business model Control Overriding purpose in the line with the values or expectations of stakeholders. General statement of aim or purpose Desired future state: the aspiration of the organization Quantification (if possible) or more precise statement of the goal Resources, activities and processes. Some will be unique and provide competitive advantage How product, service and information flow between participating parties The monitoring of action steps to: Access effectiveness of strategies and actions Modify as necessary strategies and/or actions Long-term direction

Strategies

Strategic capability is concerned with the resources and competences that an organization can use to provide value to customers or clients. Unique resources and core competences are the bases upon which an organization achieves strategic advantage and is distinguished from competitors A small entrepreneurial start-up will need a strategy statement to persuade investors and lenders of its viability. Public sector organizations need strategy statements not only to know what to do, but also to reassure their funders and regulators that what they do is what they should be doing.

IV) STRATEGIC MANAGEMENT

The term strategic management underlines the importance of managers with regard to strategy. Strategy involves people, especially the managers who decide and implement strategy => human element of strategy For managers, strategic management involves a greater scope than that of any one area of operational management. Strategic management is concerned with complexity arising out of ambiguous and non-routine situations with organization wide rather than operation-specific implications => challenge
Strategic management

It includes understanding the strategic position of an organization, making strategic choices for the future and managing strategy in action

The exploring corporate strategy model

Environment

Capability

The Strategic position

Culture

Purpose

Business Level

Corporate level

Strategic Choice

International

Innovation

Evaluation

Processes

Organising

Strategy in action

Resourcing

Changing

Practice

Position, choices and action should be seen as closely related, and in practice none has priority over another.

A Strategic Position
The strategic position is concerned with the impact on strategy of the external environment, an organizations strategic capability (resources and competences) and the expectations and influence of stakeholders

The environment. The organization exists in the context of a complex political, economic, social, technological, environmental (i.e. green) and legal world. The strategic capability of the organization made up of resources and competences. One-way of thinking about the strategic capability of an organization is to consider its strengths and weaknesses The aim is to form a view of the internal influences and constraints on strategic choices for the future. The major influences of stakeholder expectations on an organizations purposes. Purpose is encapsulated in an organizations vision, mission and values. Cultural influences can be organizational, sectorial or national. Historical influences can create lock-in on particular strategic trajectories.

Strategic choices involve understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development. There are strategic choices in terms of how the organization seeks to compete at the business level. Pricing Differentiation How to compete How to collaborate

Corporate-level strategy = with the scope, or breadth, of an organization These include diversification decisions about the portfolio of products and the spread of markets. International strategy is a form of diversification, into new geographical markets. Most organizations have to innovate constantly simply to survive. Innovation choices involve issues such as being first-mover into a market, or simply a follower, and how much to listen to customers in developing new products or services. Entrepreneurship choices are many, but include choices of funding, building key external relationships, and timing of exit. Organizations have to make choices about the methods by which they pursue their strategies. Mergers/acquisitions and/or strategic alliances with other organizations. Strategy in action is concerned with ensuring that strategies are working in practice. It considers the strategy development processes Intended strategies are the product of formal strategic planning and decision-making, but the strategy that is actually pursued is typically somewhat emergent, including bottom-up initiatives, rapid responses to unanticipated opportunities and threats, and sheer chance. The strategy lenses are four different ways of looking at the issues of strategy development for an organization
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Strategy as design Strategy as experience Strategy as ideas Strategy as discourses

1) Strategy as design
This takes the view that strategy development can be a logical process in which the forces and constraints on the organization are weighed carefully through analytic and evaluative techniques to establish clear strategic direction.

2) Strategy as experience
Future strategies of organizations are heavily influenced by the experience of managers and others in the organization based on their previous strategies. As different views and expectations within the organization exist, they will be resolved not just through rational processes, as in the design lens, but through processes of bargaining and negotiations.

3) Strategy as ideas
The ideas lens emphasizes the importance of promoting diversity in and around organizations, which can potentially generate genuinely new ideas. People respond to an uncertain and changing environment with a variety of initiatives. Interactions between people coming from different countries and with different point of view.

4) Strategy as discourses
This lens sees strategy in terms of language. Managers spend most of their time communicating Language becomes a resource for managers by which to shape objectivestrategic analyses to their personal views and to gain influence, power and legacy. Managers need to communicate the final decisions => importance of language and communication

Summary chapter 1
Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.

Strategic decisions are made at a number of levels in organizations. Corporate level strategy is concerned with an organizations overall purpose and scope; business-level (or competitive) strategy with how to compete successfully in a market; and operational strategies with how resources, processes and people can effectively deliver corporate- and business-level strategies. Strategic management is distinguished from day-to-day operational management by the Complexity of influences on decisions, the organization-wide implications and their long-term implications.

Strategic management has three major elements: understanding the strategic position, making strategic choices for the future and managing strategy in action. The strategic position of an organization is influenced by the external Environment, internal strategic capability and the expectations and influence of stakeholders. Strategic choices include the underlying bases of strategy at both the corporate and business levels and the directions and methods of development. Strategic management is also concerned with understanding which choices are likely to succeed or fail. Managing strategy in action is concerned with issues of structuring, resourcing to enable future strategies and Managing change.

the study of strategy has moved on from the original business policy and strategic planning traditions, to develop two main streams: strategy content, concerned with the nature of different strategic options; and strategy process, Concerned with processes such as strategic decision-making and strategic change. More approaches are currently developing, such as complexity theory, strategy discourse and strategy-as-practice.

Strategy is also a kind of job. It is done full time by strategic planners and strategy consultants. Strategy is also an important part of the responsibilities of many managers: not just senior managers and managers responsible for strategic business units, but also those managers needing to influence their organizations overall strategic direction.

Organizations strategic issues are best seen from a variety of perspectives, as suggested by the four strategy lenses. A design lens sees strategy in logical analytical ways. An experience lens sees strategy as the product of individual experience and organizational culture. The ideas lens sees strategy as emerging from ideas within and around an organization. The discourse lens highlights the role of strategy language in shaping understandings within organizations, and points to the importance of being able to talk this language effectively.

IMP= commentary pages 63 to 80 book

Chapter 2 The Environment

Analyze to anticipate influence environmental change

I)

Macro environment

PESTEL framework can be used to identify how future trends in the political, economic, social, technological, environmental (green) and legal environments might impinge on organizations To identify key drivers of change

Economics refers to macro-economic factors such as exchange rates, business cycles and differential economic growth rates around the world; Social influences include changing cultures and demographics, for example ageing populations in many Western societies; Technological influences refer to innovations such as the Internet, nanotechnology or the rise of new composite materials; Environmental stands specifically for green issues, such as pollution and waste; Legal embraces legislative constraints or changes, such as health and safety legislation or restrictions on company mergers and acquisitions. Key drivers for change are the high-impact factors likely to affect significantly the success or failure of strategy.

II)

The industry or sector

An important aspect for most organizations will be competition within their industry or sector. An industry is a group of firms producing the same principal product or service. a group of firms producing products that are close substitutes for each other This idea can be extended to a sector Porter analysis => the five forces framework helps identify the attractiveness of an industry or sector in terms of competitive forces. Compulsory for the organization to understand the competitive forces of the sector or industry. Cf schema p 94, book

5 forces the threat of entry into an industry The threat of substitutes to the industrys products or services The power of buyers of the industrys products or services The power of suppliers into the industry The extent of rivalry between competitors in the industry

a) Threat of entry
How easy it is to enter the industry obviously influences the degree of competition. Threat of entry depends on the extent and height of barriers to entry. Barriers to entry are factors that need to be overcome by new entrants if they are to compete successfully. Typical barriers are: Scale and experience, if its a large scale of production it will be very costly to enter in the market. (Investment requirement for the entry) Access to supply or distribution channels (through direct ownership vertical integration, through customer or supplier loyalty, e-commerce) Expected retaliation: Retaliation could take the form of a price war or a marketing blitz. Just the knowledge that incumbents are prepared to retaliate is often sufficiently discouraging to act as a barrier. Legislation or government action: legal restraints -> patent protection, regulations on market Differentiation: it means providing a product or service with higher perceived value than the competition

b) The threat of substitutes

Substitutes are products or services that offer a similar benefit to an industrys products or services, but by a different process. Substitutes can reduce demand for a particular class of products as customers switch to alternatives. The price/performance ratio is critical to substitution threats Extra-industry effects are the core of the substitution concept => consider the distant threats and constraints. The more threats of substitution there are, the less attractive the industry is likely to be.

c) Power of the buyer

Buyer power is likely to be high when some of the following conditions prevail: Concentrated buyers (where buyers can easily switch between one supplier or another, they have a strong negotiating position and can squeeze suppliers who are desperate for their business) Low switching costs (If the buyer has some facilities to supply it, or if it has the possibility of acquiring such facilities, it tends to be powerful. Buyer competition threat It is very important that buyers are distinguished from ultimate consumers. Thus for companies like Nestl or Unilever, their buyers are retailers such as Carrefour or Tesco, not ordinary consumers

d) Power of suppliers
Suppliers are those who supply the organization with what it needs to produce the product or service. The factors increasing supplier power are the converse to those for buyer power. The supplier power is high where there are: Concentrated suppliers (Where just a few producers dominate supply, suppliers have more power over buyers) High switching cots (If it is expensive or disruptive to move from one supplier to another, then the buyer becomes relatively dependent and correspondingly weak Supplier competition chains (Suppliers have increased power where they areable to cut out buyers who are acting as intermediaries) If their power is high, suppliers can capture all their buyers own potential profits simply by raising their prices.

e) Competitive rivalry
Competitive rivals are organizations with similar products and services aimed at the same customer group (its not substitutes)
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Competitor balance. Where competitors are of roughly equal size there is the danger of intense competition as one competitor attempts to gain dominance over others. Conversely, less rivalrous industries tend to have one or two dominant organizations, with the smaller players reluctant to challenge the larger ones directly High fixed costs: (high investment on capital equipment or initial research -> high rivalry) companys goal: reduce costs by increasing the volume of sales. 1) Cut their price 2) competitors follow 3) price war Industry growth rate: in strong growth, an organization can growth with the market & Lowgrowth -> price competition and low profitability

High exit barrier: to increase competition (by declining industry) some persist in the market (if they have capacities) Ex: high redundancy costs or high investment in specific assets such as plant and equipment that others would not buy.
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Low differentiation: high competition because there is little to switch between competitors

Implication of five forces analysis

= To have an insight view of the environment = To know if its good that the company compete or not
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Which industry to enter or leave?

The 5 forces: to identify the relative attractiveness of the company and sector. Industries are attractive when the forces are weak.
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What influence can be exerted?

The industry structures can be influenced by deliberates managerial strategies -> organizations can build barriers to entry by increasing advertising spend to improve customer loyalty.
How competitors are differently affected? Not all competitors will be affected equally by changes in industry structure, deliberate or spontaneous. It depends if its big or small players

The forces can be used to adjust the service offer or focus on key issues.

Key issues by using the five forces framework 3 issues

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Defining the right industry

Most industries can be analyzed at different levels. Industries have different segments. The competitive forces are likely to be different for each of these segments and can be analyzed separately.
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Converging industry

Convergence is where previously separate industries begin to overlap (se chevaucher) in terms of activities, technologies, products and customers

Industry boundaries are continuously changing. Ex: Technological change has brought convergence between the telephone and photographic industries as mobile phones increasingly include camera and video functions
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Complementary products

Complementors are products or services for which customers are prepared to pay more if together than if they stand alone Ex: Dell and Microsoft are complementary -> computers and softwar are complementary products Complementors raise two issues. 1) complementors have opportunities for cooperation (complementors may cooperate to increase the value of the whole cake) 2) the potential for some complementors to demand a high share of the available value for themselves

The dynamics of industry sector

3 approaches to understand changes in industry structure
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the industry life-cycle concept the notion of hypercompetitive cycles of competition comparative five forces analyses

1) The industry life-cycle change

The power of the five forces typically varies with the stages of the industry life cycle Description of the industry life cycle 1- Industry begin small 2- Period of rapid growth 3- Period of share out 4- Period of slow or maturity (no growth) 5- Stage of decline (old age) The development stage: experimental one with few players, little rivalry and high differentiated products Next stage: high growth, low rivalry, plenty of market opportunities Downside of the growth: due to low barriers to entry, the power of suppliers The shake-out stage begins as the growth rate starts to decline, so that increased rivalry forces the weakest of the new entrants out of the business Maturity stage: barriers increase, control over distribution, economy of scale and experience benefit to the players

Product or service tends to standardize Decline stage: period of extreme rivalry (especially when high exit barriers) Not the same length of the industry life cycle depending on industry, and some companies may have a small mature period if they set up innovative products.

IMPRIMER COURBE P 102

2) Hypercompetition and competitive rivalry

Constant competitors interactions -> price cuts are matched and innovations imitated. The sequences of competitors move s are called cycles of competition Some industries are hypercompetitive (high and intensely competition -> intense interactions) Aggressive interactions of competitors into negative downward cycles for all concerned Competitors attack and counter attack The cycle of competition concept underlines the fact that industry structures are not natural, but are often created and reshaped by the deliberate strategies of competitors. IMPRIMER SCHEMA PAGE 103 Changes in the business environment and moves by competitors erode the competitive position of organisations which, in turn, respond by counter-moves. Competition moves through cycles and any competitive advantage is temporary.

The competitive dynamics between organisations competing in different product or geographical markets (as in Illustration 2.4) is known as multi-point competition, in other words competition at multiple points in a businesss portfolio of businesses. The possibility of multi-point competition does not necessarily increase competitive rivalry. Indeed, it can reduce competitive rivalry by raising the costs and risks of aggressive moves and counter-moves. Hypercompetition occurs where the frequency, boldness and aggressiveness of competitor interactions accelerate to create a condition of constant disequilibrium and change.
Comparative industry structure analysis The industry life cycle and cycles of competition notions underline the need to make industry structure analysis dynamic.

III)

Competitors and market

An industry or sector may be too high a level to provide for a detailed understanding of competition. The five forces can impact differently on different kinds of players. For example, Ford and Porsche may be in the same broad industry (automobiles), but they are positioned differently: they face different kinds of buyer power and supplier power at the very least.

These competitor differences are captured by the concept of strategic groups. Customers too can differ significantly 1) Strategic groups Strategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases. There are many different characteristics that distinguish between strategic groups but these can be grouped into two major categories:
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The scope of an organization s activities such as product range, geographical coverage and range of distribution channels used, number of market segment served); the resource commitment (such as brands, marketing spend and extent of vertical integration, size of an organization, product or service quality)

Strategic groups can be mapped onto two-dimensional charts for example, one axis might be the extent of product range and the other axis the size of marketing spend. One method to establish key dimension is looking to the growth of profitability and compare with the low performances. Strategic groups are useful for:
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understanding competition analysis of strategic opportunities analysis of mobility barriers

understanding competition: focus on direct competitors and not the whole sectors analysis of strategic opportunities: focus on the attractive strategic space within an industry analysis of mobility barriers: as it has a cost. Strategic groups are therefore characterised by mobility barriers, obstacles to movement from one strategic group to another. 2) Market segments A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market. The concept of market segment focuses attention on differences in customer needs. Understanding of what customers (and other stakeholders) value and how an organization and its competitors are positioned to meet these needs are critical to understanding strategic capability. CF PAGE 111 MARKET SEGMENTATION Important issues: Customers need (segmentation of consumer behavior and purchase value) Relative market share (within a market segment): build relationships, achieve advantages in segments How market segments can be identified and serviced: influence by trends

3) Strategic customers

The strategic customer is the person(s) at whom the strategy isprimarily addressed because they have the most influence over which goods or services are purchased To target and analyse the right customers 4) Understanding what customers value critical success factor Critical success factors (CSFs) are those product features that are particularly valued by a group of customers and, therefore, where the organisation must excel to outperform competition. From the potential providers viewpoint it is valuable to understand which features are of particular importance to a group of customers (market segment). Strategy canvas= way to compare competitors and potential in different segments First, 5 critical factors: the producers reputation aftersales service delivery reliability testing facilities technical quality then, competitors profiles to finish, segment choice

IV)

Opportunities and threats

Identifying these opportunities and threats is extremely valuable when thinking about strategic choices for the future SWOT analysis A strategic gap is an opportunity in the competitive environment that is not being fully exploited by competitors. Taking advantage of a strategic gap is an effective way of managing threats and opportunities. Blue oceans are strategic gaps in the market, opportunities that are not being fully exploited by competitors. Red ocean strategy: if organisations simply concentrate on competing head to head with competitive rivals this will lead to competitive convergence where all players find the environment tough and threatening. In terms of Porters five forces, strategic gaps are where rivalry is low.

With the concept of strategic gaps, six types of opportunity are particularly important, as follows 1- Opportunities in substitute industry 2- Opportunities in other strategic groups and strategic spaces 3- Opportunities in targeting buyers (There may be opportunities in targeting neglected strategic customers or neglected influencers) purchasing decisions. 4- Opportunities in complementary products and services 5- Opportunities in market segment (Looking for new market segments may provide opportunities but product/service features may need to change. 6- Opportunities over time

Summary
Environmental influences can be thought of as layers around an organisation, with the outer layer making up the macro-environment, the middle layer making up the industry or sector and the inner layer strategic groups and market segments. The macro-environment can be analysed in terms of the PESTEL factors, from which key drivers of change can be identified. Alternative scenarios about the future can be constructed according to how the key drivers develop. Industries and sectors can be analysed in terms of Porters Five Forces barriers to entry, substitutes, buyer power, supplier power and rivalry. Together, these determine industry or sector attractiveness. Together, these determine industry or sector attractiveness, and can be influential for overall performance (see Key Debate, Illustration 2.6). Industries and sectors are dynamic, and their changes can be analysed in terms of the industry life cycle, hypercompetitive cycles of competition and comparative five forces radar plots. In the inner layer of the environment, strategic group analysis, market segment analysis and the strategy canvas can help identify strategic gaps or opportunities. Blue ocean strategies characterised by low rivalry are likely to be better opportunities than red ocean strategies with many rivals.

Chapter 3 Strategic capability

Organizations = not identical, with different capabilities Its difficult for organization to copy capabilities of other companies If an organisation is to achieve competitive advantage, it will do so on the basis of capabilities that its rivals do not have or have difficulty in obtaining. The resource-based view of strategy: the competitive advantage and superior performance of an organisation is explained by the distinctiveness of its capabilities. I) Foundation of strategic capabilities

Strategic capability is the resources and competences of an organization needed for it to survive and prosper. Resources Threshold capabilities Threshold resources Tangible Intangible Capabilities for competitive advantages Threshold competences Competences

Unique resources Tangible Intangible

Core competences

a) Resources and competences Tangible resources are the physical assets of an organisation such as plant, people and finance. Intangible resources3 are nonphysical assets such as information, reputation and knowledge. 4 categories Physical resources Financial resources Human resources Intellectual capital (as an intangible resource includes patents, brands, business systems and customer databases) The term competences is used to mean the skills and abilities by which resources are deployed effectively through an organisations activities and processes.

b) Threshold capabilities

Terms Strategic capabilities

Threshold resources

Definition The ability to perform at the level required to survive and prosper. It is underpinned by the resources and competences of the organisation The resources needed to meet customers minimum requirements and therefore to continue to exist

Ex Equipment and athletic ability suited to a chosen event

A healthy body (for individuals) Medical facilities and practitioners Training venues and equipment Food supplements Individual training regimes Physiotherapy/injury management Diet planning

Threshold competences

Activities and processes needed to meet customers minimum requirements and therefore to continue to exist Resources that underpin competitive advantage and are difficult for competitors to imitate or obtain Activities that underpin competitive advantage and are difficult for competitors to imitate or obtain

Unique resources

Exceptional heart and lungs Height or weight World-class coach

Core competences

A combination of dedication, tenacity, time to train, demanding levels of competition and a will to win

Threshold capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market : it could be threshold resources or threshold competences. Identifying and managing threshold capabilities raises at least two significant challenges:
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Threshold levels of capability will change as critical success factors change or through the activities of competitors and new entrants. Trade-offs may need to be made to achieve the threshold capability required for different sorts of customers.

c) Unique resources and core competences An organization achieves competitive advantages because it has core competences.

To survive and prosper, an organisation needs to address the challenges of the environment that it faces In particular it must be capable of performing in terms of the critical success factors that arise from demands and needs of its customers. The strategic capability to do so is dependent on the resources and the competences it has. These must reach a threshold level in order for the organisation to survive. The further challenge is to achieve competitive advantage. This requires it to have strategic capabilities that its competitors find difficult to imitate or obtain. These could be unique resources but are more likely to be the core competences of the organisation. II) Cost efficiency

Management of costs= key strategic capability For many organisations the management of costs is becoming a threshold strategic capability for two reasons:
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Customers do not value product features at any price. If the price rises too high they will sacrifice value and opt for lower price. everyone is forced to keep costs as low as possible, consistent with the value to be provide Competitive rivalry will continually require the driving down of costs because competitors will be trying to reduce their cost so as to underprice their rivals while offering similar value.

Key cost drivers

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Economies of scale may be especially important in manufacturing organisations, since the high capital costs of plant need to be recovered over a high volume of output

EXPERIE NCE

ECONOMY OF SCALE

COST EFFICIENCY

PRODUCT/ PROCESS DESIGN

SUPPLY COSTS
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III)

Capacities for achiveving and sustaining competitive advantage

Summary if the capabilities of an organization do not meet customer needs, at least to a threshold level, the organisation cannot survive; and if managers do not manage costs efficiently and continue to improve on this, it will be vulnerable to those who can. GOAL= achieve competitive advantage What strategic capabilities may provide this competitive advantage? a) Value of strategic capabilities if an organisation seeks to build competitive advantage it must have capabilities that are of value to its customers. b) Rarity of strategic capabilities Competitive advantage might be achieved if a competitor possesses a unique or rare capability, or based on rare competences that provide sustainable competitive advantage. Ease of transferability. Rarity may depend on who owns the competence and how easily transferable it is
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Sustainability. It may be dangerous to assume that competences that are rare will remain so. Rarity could be temporary. If an organisation is successful on the basis of a unique set of competences, then competitors will seek to imitate or obtain those competences. So it may be necessary to consider other bases of sustainability. Core rigidities : difficult to change -> risk : damage the organization

c) Imitable strategic capabilities core competences are likely to be the skills and abilities to link activities or processes through which resources are deployed so as to achieve competitive advantage. Criteria They must relate to an activity or process that underpins the value in the product or service features as seen through the eyes of the customer. The competences must lead to levels of performance that are significantly better than competitors. The competences must be difficult for competitors to imitate or inimitable. Complexity of core competences Internal linkages. It may be the ability to link activities and processes that, together, deliver customer value.

Complexity Internal linkage External linkage

Culture and history Taken for granted activities Path dependency

Robustness of strategic capability

Casual ambiguity Characteristic ambiguity Linkage ambiguity

External interconnectedness. Organisations can make it difficult for others to imitate or obtain their bases of competitive advantage by developing activities together with the customer on which the customer is dependent on them. This is sometimes referred to as co-specialisation. Cutlture and history Core competences may become embedded in an organisations culture. Casual ambiguity Characteristic ambiguity where the significance of the characteristic itself is difficult to discern or comprehend. Linkage ambiguity where competitors cannot discern which activities and processes are dependent on which others to form linkages that create core competences. d) Non substitutability of strategic capability Risk of substitution

Product or service substitution Competence substitution Managers need to consider how and to what extent it has capabilities which are (i) valuable to buyers, (ii) rare, (iii) inimitable and (iv) non-substitutable. e) Dynamic capabilities Dynamic capabilities are an organisations abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment. Dynamic capabilities may be relatively formal, such as systems for new product development or procedures for agreement for capital expenditure. They may take the form of major strategic moves, such as acquisitions or alliances by which new skills are learned by the organisation. Or they may be more informal, such as the way in which decisions get taken faster than usual when a fast response is needed. They could also take the form of embedded organisational knowledge about how to deal with particular circumstances the organisation faces, or how to innovate. IV)

Organisational knowledge

Organisational knowledge is the collective experience accumulated through systems, routines and activities of sharing across the organization. Explicit and tacit organisational knowledge. Organisational knowledge maytake different forms. Explicit knowledge is codified, and objective knowledge is transmitted in formal systematic ways. It may, indeed, take the form of a codified information resource such as a systems manual. In contrast, tacit knowledge is personal, context specific and therefore hard to formalise and communicate. Communities of practice. The sharing of knowledge and experience in organizations is an essentially social and cultural process relying on communities of practice21 developing and sharing information because it is mutually beneficial culture of trust V) Diagnosing strategic capabilities

a) The value chain and value network The value chain describes the categories of activities within and around an organisation, which together create a product or service. Primary activities are directly concerned with the creation or delivery of a product or service.

For example, for a manufacturing business: Inbound logistics are activities concerned with receiving, storing and distributing inputs to the product or service including materials handling, stock control, transport, etc.

 Operations transform these inputs into the final product or service: machining, packaging, assembly, testing, etc. Outbound logistics collect, store and distribute the product to customers, for example warehousing, materials handling, distribution, etc. Marketing and sales provide the means whereby consumers/users are made aware of the product or service and are able to purchase it. This includes sales administration, advertising and selling. Service includes those activities that enhance or maintain the value of a product or service, such as installation, repair, training and spares. CF SCHEMA PAGE 144 Support activities help to improve the effectiveness or efficiency of primary activities: Procurement Technology development Human resource management Infrastructure The value chain can help with the analysis of the strategic position of an organisation in two different ways: generic description of activities and in terms of costs and value of activities. The value network The value network24 is the set of interorganisational links and relationships that are necessary to create a product or service. managers need to understand this whole process and how they can manage these linkages and relationships to improve customer value. Which activities are centrally important to an organisations strategic capability and which less central? A firm in a highly competitive market may have to cut costs in key areas and decide it can only do so by outsourcing to lower-cost producers. Another firm may decide that it is important to retain direct control of centrally important capabilities, especially if they relate to activities and processes that it believes are central to its achieving competitive advantage. Profit pools refer to the different levels of profit available at different parts of the value network. The make or buy decision for a particular activity or component is therefore critical. This is the outsourcing decision. Partnering

f)

Activity map

It tries to show how the different activities of an organization are linked together. Page 150 how competitive advantage is achieved and the relationship between competences and competitive advantage include:

 Consistency and reinforcement. The different activities that create value to customers are likely to be pulling in the same direction and supporting ratherthan opposing each other (for example, in Plasco an open management style facilitated rule bending and in turn flexibility). Difficulties of imitation. It is more difficult for a competitor to imitate a mix of linked activities than to imitate any given one. In Plasco such linked activitieshad been built up over years, culturally embedded, were complex and causallyambiguous the lessons of section 3.4.3. If the multinational competitor of Plasco decided to try to compete on the same basis of flexibility it would have no comparable experience to draw on to do this. Trade-offs. Even if imitation were possible it could pose another problem for competitors. For example, Plascos international competitor might place in jeopardy its current position with its existing customers that it is satisfying through more standardised mass production. Benchmarking Historical benchmarking. Organisations may consider their performance in relation to previous years in order to identify any significant changes. The danger is that this can lead to complacency since it is the rate of improvement compared with that of competitors that is really important. Industry/sector benchmarking Best-in-class benchmarking Measurement distortion Surface comparisons

SWOT SWOT summarises the key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy development. The aim is to identify the extent to which strengths and weaknesses are relevant to, or capable of dealing with, the changes taking place in the business environment. it examines strengths, weaknesses, opportunities and threats in relation to competitors. Managing strategic capability Limitation in managing strategic capability
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Competences are valued but not understood. Competences are not valued. Competences are recognised, valued and understood.

Developing strategic capabilities Adding and changing capabilities Stretching capabilities Extending capabilities Entrepeunerial bricolage Ceasing activities External capability development Managing people for capability development Strategic capability lies in the day to day tasks Trainee and development programme Staffing policies might be employed to develop particular competences. Organizational learning Develop peoples awareness that what they do in their jobs can matter at the strategic level.

SUMMARY
Strategic capability is concerned with the adequacy and suitability of resources and competences required for an organisation to survive and prosper. Strategic capabilities comprise resources and competences, which are the way such resources are used and deployed. If organisations are to achieve competitive advantage, they require resources and competences which are both valuable to customers and difficult for competitors to imitate (such competences are known as core competences). The continual improvement of cost efficiency is a vital strategic capability if an organisation is to continue to prosper. The sustainability of competitive advantage is likely to depend on strategic capabilities being of value to customers, rare, inimitable or non-substitutable. In dynamic conditions, it is unlikely that such strategic capabilities will remain stable. In such circumstances dynamic capabilities are important, that is the ability to change strategic capabilities continually. Ways of diagnosing organisational capabilities include: Analysing an organisations value chain and value network as a basis of understanding how value to a customer is created and can be developed. Activity mapping as a means of identifying more detailed activities which underpin strategic capabilities. Benchmarking as means of understanding the relative performance of organisations and challenging the assumptions managers have about theperformance of their organisation. SWOT analysis as a way of drawing together an understanding of strengths, weaknesses, opportunities and threats an organisation faces. Managers need to think about how and to what extent they can manage the development of the strategic capabilities of their organisation by stretching and adding to such capabilities and by the way they manage people in their organisation.

CHAPTER 4 Strategic purpose

We have to take into account the purpose of the expectations of stakeholders.

Stakeholders are those individuals or groups who depend on an organization to fulfil their own goals and on whom, in turn, the organisation depends. Influence of strategic purpose

governance structure

strategic purpose
Social responsability and ethics

stakeholder expectations

1) 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.2 It has become an increasingly important issue for organisations for three main reasons.

The separation of ownership and management control of organisations (which is now the norm except with very small businesses) means that most organizations operate within a hierarchy, or chain, of governance. Corporate scandals Increased accountability to wider stakeholder interests has also come to be increasingly advocated

a) Governance chain The governance chain illuminates the roles and relationships of different groups involved in the governance of an organisation.

 Principal-agent model 2 risks: the misalignment of incentives and control & self interest

the governance chain helps highlight important issues that affect the management of strategy: Responsibility to whom? Who are the stakeholders? The role of institutional investors (different regarding the country) Scrutiny and control: for the activities of the agent The governance chain, then, typically operates imperfectly for at least five reasons: (i) a lack of clarity on who the end beneficiaries are; (ii) unequal division of power between the different players in the chain; (iii) with different levels of access to information available to them; (iv) potentially agents in the chain pursuing their own self-interest; and (v) using measures and targets reflecting their own interests rather than those of end beneficiaries. In such circumstances it is not surprising that there are attempts to reform corporate governance and that governance structures are changing around the world. b) Different governance structure The governing body of an organisation is typically a board of directors. A shareholder model of governance: Here shareholders have the legitimate primacy in relation to the wealth generated by the corporations, though proponents argue that maximising shareholder value benefits other stakeholders too.

An alternative model of governance pursued in various forms is the stakeholder model. This is founded on the principle that wealth is created, captured and distributed by a variety of stakeholders.

Benefit

Shareholder model For investors: -higher rate of return - Reduced risk For economy Encourage entrepeneurship Encourage inward investment For management independance For investors:

Stakeholder model For investors clother monitoring of management long term decision horizon for stakeholder deterrent for high risk decisions

Disadvantages

For management

difficulties to monitor management for the economy the risk of short termism and top management greed

potential interferences slower decision making reduce independence For the economy reduced financing opportunities for growth

c) how governance body influence strategy? Strategic management can be entirely delegated to management with the board receiving and approving plans/decisions. The board can engage with management in the strategic management process. But this has many practical problems concerning the time and knowledge level of (particularly) non-executive directors to perform their role this way. Boards must be seen to operate independently of the management of the company. So the role of non-executive directors is heightened. Boards must be competent to scrutinise the activities of managers. So the collective experience of the board, its training and the information at its disposal are crucially important. Directors must have the time to do their job properly. So limitations on the number of directorships that an individual can hold are also an important consideration. However, it is the behaviour of boards and their members that is likely to be most significant28 whatever structural arrangements are put in place. d) Ownership choice Within governance structure -> different form of ownership Private or public ownership of equity is an issue for commercial organisations. Sale of all or part of the company may be a choice faced by the board of directors of a business which has a responsibility to provide shareholders with a return on their investment Acquisition of another business may also be considered. Acquiring other businesses may raise significant issues about the purpose of the corporate entity. Mutual ownership and partnerships have been the tradition in some sectors. Insurance companies and building societies were traditionally owned by their customers rather than by shareholders. Privatisation of public sector bodies has occurred in many countries. Historically, most public sector bodies were tightly controlled by central or local government. Governments took decisions to privatise in order to require organisations to face up to market forces, become more aware of customer needs and competitive pressures, and so as to provide access to private sector capital. 2) Business ethics and social responsibility Business ethics at 2 levels: macro level & at the individual level

a) Corporate governance responsibility Corporate social responsibility (CSR) is concerned with the ways in which an organisation exceeds its minimum obligations to stakeholders specified through regulation. contractual stakeholders such as customers, suppliers or employees have a legal relationship with an organisation, and community stakeholders such as local communities, consumers (in general) and pressure groups do not have the protection of the law.30 CSR policies of companies will be particularly important to these community stakeholders. An organisations reputation35 is important to its long-term financial success The laissez-faire view (literally let do in French) represents an extreme stance where organisations take the view that the only responsibility of business is the short-term interests of shareholders and to make a profit, pay taxes and provide jobs. Social action=> good business sense They may well also set up systems and policies to ensure compliance with best practice (for example, ISO 14000 certification, the protection of human rights in overseas operations, etc.) and begin to monitor their social responsibility performance. the performance of an organisation should be measured in a more pluralistic way than just through the financial bottom line. Companies in this category might retain uneconomic units to preserve jobs, avoid manufacturing or selling anti-social products, and be prepared to bear reductions in profitability for the social good. Shapers of society regard financial considerations as of secondary importance or a constraint. These are activists, seeking to change society and social norms. b) The role of individuals and managers Concerning: Exployee welfare, working conditions, job design, intellectual property, environmental issues, products, marketing and markets, suppliers, employment, community activity, human rights

Stakeholders expectations the decisions managers have to make about the purpose and strategy of their organisation are influenced by the expectations of stakeholders

Government Suppliers Competitors Trade organisations Employee Union Customer advocate groups Customers Activists groups Financial community Owners/shareholders

FIRM

Economic stakeholders, including suppliers, competitors, distributors (whose influence can be identified using the five-forces framework and shareholders Socio/political stakeholders, such as policy makers, regulators and government agencies who will influence the social legitimacy of the strategy. Technological stakeholders, such as key adopters, standards agencies and owners of competitive technologies who will influence the diffusion of new technologies and the adoption of industry standards.

Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities. The matrix helps in thinking through stakeholder influences on the development of strategy. Level of interest: low and high Level of power: low and high Minimal efforts, keep informed, key players, keep satisfied Power is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action Corporate values Core values are the underlying principles that guide an organisations strategy A vision statement is concerned with what the organisation aspires to be. A mission statement aims to provide employees and stakeholders with clarity about the overall purpose and raison dtre of the organisation. A vision statement is concerned with what the organisation aspires to be. Its purpose is to set out a view of the future so as to enthuse, gain commitment and stretch performance.

Objectives are statements of specific outcomes that are to be achieved. Objectives both at the corporate and at the business unit level are often expressed in financial terms. SUMMARY The purpose of an organisation will be influenced by the expectations of its stakeholders. The influence of some key stakeholders will be represented formally within the governance structure of an organisation. This can be represented in terms of a governance chain, showing the links between ultimate beneficiaries and the managers of an organisation. There are two generic governance structures systems: the shareholder model and the stakeholder model. There are variations of these internationally, but some signs that there is convergence towards a shareholder model. There are also ethical dimensions to the purpose of an organisation. At an organisational level, this takes the form of its stance on corporate social responsibility. However, individual managers may also be faced with ethical dilemmas relating to the purpose of their organisation or the actions it takes. Different stakeholders exercise different influence on organisational purpose and strategy, dependent on the extent of their power and interest. Managers can assess the influence of different stakeholder groups through stakeholder analysis. An important managerial task is to decide how the organisation should express its strategic purpose through statements of values, vision, mission or objectives.

Chapter 5 Culture and strategy

The problem of strategic drift

Historical Influences

Cultural Influence

The cultural web

Managemen t Implication

Strategic drift is the tendency for strategies to develop incrementally on the basis of historical and cultural influences but fail to keep pace with a changing environment.

The tendance towards strategic drift

5 reasons The problem of hindsight. (environment) Building on the familiar Core rigidities. (capabilities) Relationships become shackles (fer) Lagged performance effects (isoler) : in terms of the performance A period of flux => The next phase (phase 3) may be a period of flux triggered by the downturn in performance.

Transformational change or death As things get worse it is likely that the outcome (phase 4) will be one of three possibilities: (i) the organisation may die (in the case of a commercial organization it may go into receivership, for example); (ii) it may get taken over by another organisation; or (iii) it may go through a period of transformational change. Why history is important? Managers organisational experience Avoiding recency bias. Managers can give too much weight to recent events or performance, forgetting past patterns, resulting in either undue optimism or undue pessimism. Misattribution of cause of success? What if questions It can encourage them to imagine what might have happened had there been other influences in the environment, different responses from customers or competitors, or different initiatives or leadership within their organisation. Detecting and avoiding strategic drift. Path dependency is where early events and decisions establish policy paths that have lasting effects on subsequent events and decisions Organisational culture is the basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-forgranted fashion an organisations view of itself and its environment An organisational field is a community of organisations that interact more frequently with one another than with those outside the field and that have developed a shared meaning system A recipe is a set of assumptions, norms and routines held in common within an organizational field about organizational purposes and a shared wisdom on how to manage organizations Legitimacy is concerned with meeting the expectations within an organisational field in terms of assumptions, behaviours and strategies A paradigm is the set of assumptions held relatively in common and taken for granted in an organization Cultures influence on strategy Managing culture & culture as driver of strategy The cultural web shows the behavioural, physical and symbolic manifestations of a culture that inform and are informed by the taken-forgranted assumptions, or paradigm Routines are the way we do things around here on a day-to-day basis.

Symbols are objects, events, acts or people that convey, maintain or create meaning over and above their functional purpose Rituals are activities or events that emphasise, highlight or reinforce what is especially important in the culture.

SUMMARY
The history and culture of an organisation may contribute to its strategic capabilities, but may also give rise to strategic drift as its strategy develops incrementally on the basis of such influences and fails to keep pace with a changing environment. Historical, path-dependent processes play a significant part in the success or failure of an organisation and need to be understood by managers. There are historical analyses that can be conducted to help uncover these influences. Cultural and institutional influences both inform and constrain the strategic development of organisations. Organisational culture is the basic assumptions and beliefs that are shared by members of an organisation, operate unconsciously and define in a basic taken-for-granted fashion an organisations view of itself and its environment. An understanding of the culture of an organisation and its relationship top organisational strategy can be gained by using the cultural web.