Strategy Implementation

Strategy Implementation Textbook:

Exploring Corporate Strategy, Johnson and Scholes, latest edition, Pearson Education

Reference Books: 1. Competitive Strategy, Michael Porter2. Competitive Advantage, Michael Porter3. Strategic Management – Concepts and Cases,

Thompson and Strickland, 13th edition, Tata McGraw Hill

Evaluation

End-trim = 50% Mid-trim = 30% Assignment = 5% Quiz = 5% Class Participation = 10%

Strategy Implementation

Directions and Methods of Development Strategies in different industry environments Value Chain use for Cost Advantage and

Differentiation Framework for Making Competition irrelevant Organizational configurations and strategy Enabling Resources Managing Change

Ch. 7 Directions and Methods of Development

Development Directions

Development directions are the strategic options available to an organisation, in terms of products and market coverage, taking into account the strategic capability of the organisation and the expectations of stakeholders

Strategy Development Directions

Existing New

Existing

New

Markets

Products

Strategy Development Directions

Protect/buildConsolidationMarket penetration

Existing New

Existing

New

Markets

Products

Strategy Development Directions

Protect/buildConsolidationMarket penetration Product Development

Existing New

Existing

New

Markets

Products

Strategy Development Directions

Protect/buildConsolidationMarket penetration

Product Development

Market development

Existing New

Existing

New

Markets

Products

Strategy Development Directions

Protect/buildConsolidationMarket penetration

Product Development

Market development

Diversification

Existing New

Existing

New

Markets

Products

Methods of Strategy Development

Methods of Strategy Development

Internal Development Build on and develop an organisation’s own

capabilities Organic development

Mergers and Acquisitions Take over ownership of another organisation

Strategic Alliances Two or more organisations share resources and

activities

Motives for Internal Development Only one in field Core competence in product manufacturing Develop new markets – direct involvement to

increase understanding & create core competence

Spread cost over time – easier for companies with low resources

Avoid cultural clash

Motives for M&As Speed Competitive Situation – lower competitor reaction Financial motives

Extreme example is that of Asset Stripping Lack of resources Cost efficiency (by merging) to avoid duplication Stakeholder expectations

Ambitions of senior managers Empire building

Types of Strategic Alliance Loose

Networks / Opportunistic Alliances Contractual

Licensing Franchising Subcontracting

Ownership JV Consortia

The TOWS Matrix

Success Criteria for Strategic Options

Suitability Whether strategy addresses circumstances in which

organisation is operating

Acceptability The expected performance outcomes (e.g. risk/return) Meeting expectations of stakeholders

Feasibility Whether strategy can be made to work in practice Linked to strategic capability

2. Acceptability Criteria Return1. Profitability

• ROCE

Assessing profitability

2. Acceptability Criteria Return1. Profitability

• ROCE• Payback Period

Assessing profitability

2. Acceptability Criteria Return1. Profitability

• ROCE• Payback Period• DCF (Discounted Cash Flow)

Assessing profitability

2. Acceptability Criteria Return2. Cost-benefit

• Projects should be undertaken if • Benefit / Cost > 1

3. Real options• Sometimes, clarity might emerge over time• Expand / Extend / Contract / Defer / Closedown

Real Options Framework

Volatility

Low

High

0.0 1.0

Value-to cost

Real Options Framework

Volatility

Low

High

0.0 1.0

Value-to cost

Never Invest

Real Options Framework

Volatility

Low

High

0.0 1.0

Value-to cost

Never Invest Invest Now

Real Options Framework

Volatility

Low

High

0.0 1.0

Value-to cost

Never Invest Invest Now

Probably

Never

Invest

Real Options Framework

Volatility

Low

High

0.0 1.0

Value-to cost

Never Invest Invest Now

Maybe

Invest

Now

Probably

Never

Invest

Real Options Framework

Volatility

Low

High

0.0 1.0

Value-to cost

Never Invest Invest Now

Maybe

Invest

Now

Maybe

Invest

Later

Probably

Never

Invest

Real Options Framework

Volatility

Low

High

0.0 1.0

Value-to cost

Never Invest Invest Now

Maybe

Invest

Now

Probably Never

Invest

Maybe

Invest

Later

Probably

Never

Invest

Return2. Cost-benefit3. Real options4. Shareholder Value Analysis

• TSV = Incr. in SP over last year + Dividends SP at the start of the year

Criteria for assessing Acceptability Risk

Financial ratios E.g. High long term debt means high risk

Sensitivity analysis (What-if analysis)

Stakeholder reactions

3. Feasibility

Financial Funds flow forecasting Break-even analysis

Resource deployment Resources and competences needed

Key Points (1) Three elements of strategic choice

Competitive strategy Direction of development Method of development

Four categories of development directions Protect and build Product development Market development Diversification

Key Points (2) Three methods of strategy development

Internal development Mergers and acquisitions Strategic alliances

Three success criteria for strategic options Suitability Acceptability Feasibility

Range of analytical techniques for evaluation of strategic options