EXPLORING STRATEGY

- PEARSON -

MODULE 2
STRATEGIC INTERNATIONAL BUSINESS DEVELOPMENT
EXPLORING STRATEGY - PEARSON

Table of Contents

Introducing Strategy ...................................................................................................................... 3

PART I - The Strategic Analysis ........................................................................................... 5

1.1 Macro-Environment Analysis ................................................................................................... 5

1.2 Industry and Sector Analysis .................................................................................................... 7

1.3 Resources and Capabilities Analysis ........................................................................................ 9

1.4 Stakeholder and Governance Analysis .................................................................................. 12

1.5 History and Culture Analysis .................................................................................................. 14

1.6 The Strategy Lenses Strategic Analysis .................................................................................. 15

PART II - The Strategic Choices ........................................................................................ 17

2.1 Business Strategy and Models ............................................................................................... 17

2.2 Corporate Strategy and Diversification ................................................................................. 19

2.3 International Strategy ............................................................................................................ 20

2.4 Entrepreneurship and Innovation ......................................................................................... 22

2.5 Mergers, Acquisitions and Alliances ...................................................................................... 24

2.6 The Strategy Lenses on Strategic Choices.............................................................................. 27

PART III - Strategy in Action ............................................................................................. 28

3.1 Evaluating Strategies ............................................................................................................. 28

3.2 Strategy Development Process .............................................................................................. 29

3.3 Organizing and Strategy......................................................................................................... 30

3.4 Leadership and Strategic Change .......................................................................................... 33

3.5 The Practice of Strategy ......................................................................................................... 35

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Introducing Strategy

Strategy is the long-term direction of an organization.

Three Horizons for Strategy

Profit Potential

HORIZON 3: Create viable options

HORIZON 2: Build emerging businesses

HORIZON 1: Extend and defend core business

Time

The core of a strategist’s job is defining and expressing a clear and motivating purpose for
the organization.

There are six ways in which organizations typically define their purpose:
• Mission Statement aims to provide employees and stakeholders with clarity about
what the organization is fundamentally there to do.
• Vision Statement is concerned with the future the organization seeks to create.
• Values Statement communicates the underlying and enduring core ‘principles’ that
guide an organization’s strategy and define the way that the organization should
operate.
• Objectives Statement defines specific outcomes that are to be achieved.
• Scope Statement defines the three dimensions: customers/clients, geographical
location, activities.
• Competitive Advantage Statement describes how the organization will achieve the
objectives in the face of competition.

Strategies can exist at three main levels:

• Corporate-level Strategy is concerned with the overall scope of an organization and
how value is added to the constituent businesses of the organizational whole.
• Business-level Strategy is about how the individual businesses should compete in
their particular markets.
• Functional-level Strategy is concerned with how the components of an organization
deliver effectively the corporate- and business-level strategies in terms of resources,
processes and people.

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The Exploring Strategy Framework:

STRATEGIC POSITION Analyzing

different impacts on Strategy
• Macro-environment
• Industry-environment
• Strategic Capability
• Stakeholders
• Culture

STRATEGY IN ACTION
STRATEGIC CHOICES
Formation and
Defining Directions and
Implementation of
Methods for Strategy
Strategies
• Business Strategy and Models
• Strategy Performance and
• Corporate Strategy and
Evaluation
Diversification
• Strategy Development Processes
• International Strategy
• Organiying
• Innovation
• Leadership and Strategic Change
• M&A, Alliances
• Strategy Practice

The Strategy Checklist:

STRATEGIC ANALYSIS STRATEGIC CHOICES STRATEGY IN ACTION

What are the macro-environmental How should business units compete? Are strategies suitable, acceptable
opportunities and threats? and feasible?
How can the organization manage Which businesses to include in a What kind of strategy-making process
industry forces? portfolio? is needed?
How are the stakeholders aligned to Where should the organization What are the required organization
the organizational purpose? compete internationally? structure and systems?
What resources and capabilities Is the organization innovating How should the organization manage
support the strategy? appropriately? necessary changes?
How does culture fit the strategy? Should the organization buy other Who should do what in the strategy
companies, ally or do it alone? process?

Strategy is being explored in different contexts:

• Small Businesses • Multinational Corporations • Public Sector and NGOs

Strategy can be explored through different lenses:

• Strategy as Design • Strategy as Variety
• Strategy as Experiences • Strategy as Discourse

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PART I - The Strategic Analysis

1.1 Macro-Environment Analysis

The Macro-Environment consists of broad environmental factors that impact to a greater or

lesser extent many organizations, industries and sectors.

Macro-
Environment

Industries
and Sectors

Competitors
and Markets

Organization

How to analyze the Macro-environment in order to minimize threats and to seize

opportunities:

PESTEL Analysis FORECASTING

• Political • Megatrends
• Economic • Inflexion Points
• Social • Weak Signals
• Technological
• Ecological
• Legal SCENARIO Analysis

Example - BP’s PESTEL:

Opportunities Threats
Government Support P Global Instability Saudi
Arabian Policy
New Growth Regions E Slow World Economic Growth
Business Mergers
S Lower Car Usage

New Production Technologies T Fuel Efficiency Technologies

E Climate Change

L Pollution Liabilities
Decarburization

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From an Economic perspective, the macro-environment is influenced by factors such as

currency rates, interest rates and fluctuating economic growth rates.

Economic Cycles
Cycle Growth Rates

Infrastructure Cycle

Investment Cycle

Stock Cycle

1 8 20 Years

An important Social aspect is the Organizational Field, a community of organizations that

interact frequently with one another. These are partly economic but also emphasizes social
interactions with political organizations, legal entities, professions and trade unions, …

It is important to carry out the macro-environmental analysis of Technology in order to

identify areas of potential innovative activity. There are five primary indicators of innovative
activity:
• Research & Development Budgets • New Products Announcements
• Patenting Activity • Media Coverage
• Citation Analysis • Published Technology Roadmaps

In regard of Legal aspects formal and informal rules vary between countries. There are three
varieties of Capitalism:
• Liberal Market Economies (USA, UK, …)
• Coordinated Market Economies (Germany, Japan, …)
• Development Market Economies (Brazil, China, India, …)

Forecasting takes three fundamental approaches based on varying of certainty:

Single Point Forecast Range Forecast Alternative Futures

Low UNCERTAINTY High

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Scenarios offer plausible alternative views of how the macro-environment might develop in
the futures, typically in the long term. The scenario process is illustrated below:

Identify Identify
Develope
Define Key Impacts Monitor
Scenario
Scope Drivers on Progress
'Stories'
(PESTEL) Strategies

1.2 Industry and Sector Analysis

An Industry is a group of firms producing products and services that are essentially the
same.
A Market is a group of customers for specific products or services that are essentially the
same (e.g. a particular geographical market).

Potential
Competitors Customers Entrants
•Conentration •Concentration Industry Analysis Suppliers
•Concentration •Scale and
and Balance •Low Switching •High Switching Experience
•Industry Costs Cost •Access to
Growth Rate •Buyer •Supplier Channels
•High Fixed Competition Network Effects Complementors Substitutes Competition •Expected
Costs Threat Threat Retaliation
•High Exit •Low Buyer •Differentiated •Legislation or
Barriers Profit Products Government
•Low •Impact on Action
Differentiation Quality •Incumbency
Advantages

Industry Types and Dynamics Examination

Industry Evolvemnt through Industry Life
Underlying Industry Types Comperative Industry Analysis
Cycles

Competitor Groups and Segments Examination

Groups of Competitors with similar Strategies Groups of Customers with similar needs

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Steps in Industry Analysis:

1. Define the Industry Clearly

a. Vertical Scopes, Stages of Industry Value Chain
b. Product or Service Scope
c. Geographic Scope
2. Define the Actors of each of the Five Forces and, if relevant, define different groups within
them and the basis for this
a. Competitors that face the same competitive forces
b. Customers and Customer Groups
c. Suppliers and Supplier Groups
d. Potential Entrants
e. Substitutes
3. Determine the underlying Factors and Total Strength of each Force
a. Main underlying Factor for each Force
b. Strength/Weakness of each competitive Force
4. Assess the overall Industry Structure and Attractiveness
a. Attractiveness of Industry
b. Most important Competitive Forces
c. Profitability
d. Positioning of Competitors
5. Assess recent and expected future changes for each Force
a. Potential positive/negative Changes
b. Changes of Industry Structure by New Entrants/Competitors
6. Determine how to position your Business in relation to the Five Forces
a. Possibility to exploit Weak Forces
b. Possibility to neutralize Strong Forces
c. Possibility to exploit Industry Change
d. Possibility to influence and change Industry Structure to your advantage

The Industry Life Cycle:

Development Growth Shake-out Maturity Decline

Low Rivalry: Low Rivalry: Increasing Stronger Buyers: Extreme Rivalry:
High differentiation High growth and Rivalry: Low growth and Many exits and price
Key: Innovation weak buyers, low Slower growth and standard products, competition
entry barriers some exits high entry barriers Key: Cost and
Key: Growth Ability Key: Managerial and Key: Market Share Commitment
Financial Strength and Cost

Comparative Industry Structure Analysis

In 5 Years Now

Rivalry

Entry Threat Substitudte Threat

Buyer Power Supplier Power

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Some Characteristics for Identifying Strategic Groups:

Scope of Activities Resource Commitment

Extent of Product/Service Diversity Extend of Branding
Extend of Geographical Coverage Marketing Effort
Number of Market Segments served Extent of Vertical Integration
Distribution Channel uses Product or Service Quality
Technological Leadership
Size of Organization

Some Bases of Market Segmentation:

Type of Factor Consumer Markets Industrial Markets

Characteristics Age, gender, ethnicity Industry
Income Location
Family Size Size
Life-cycle Stage Technology
Location Profitability
Lifestyle Management
Purchase Situation Size of Purchase Application
Brand Loyalty Importance of Purchase
Purpose of use Volume
Purchasing Behavior Frequency of Purchase
Importance of Purchase Purchasing Procedure
Choice Criteria Choice Criteria
Distribution Channel
Users preferences for Product Product Similarity Performance Requirements
Characteristics Price Preference Assistance from Suppliers
Brand Preference Brand Preferences
Desired Features Desired Features
Quality Quality
Service Requirements

A Strategy Canvas compares competitors according to their performance on Key Success

Factors in order to establish the extent of Differentiation such as:
• Critical Success Factors (CSFs) are those Factors that either particularly valued by
customers or provide a significant advantage in terms of cost.
• Value Innovation. A value innovator is a company that competes in ‘Blue Oceans’.
Blue Oceans are new market spaces where competition in minimized; the contrast
with ‘Red Oceans’, where industries are already well defined and rivalry is intense.

SWOT analyses shape many companies’ strategy formulation.

1.3 Resources and Capabilities Analysis

Resources are the assets that organizations have or can call upon (‘what we have’) and
Capabilities are the ways those assets are used or deployed (‘what we do well’).

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Threshold Resources and Capabilities are those needed for an organization to meet the
necessary requirements to compete in a given market and achieve parity with competitors
in that market.

Distinctive Resources and Capabilities are required to achieve a competitive advantage

These core competences can be assessed by:
• VRIO Analysis
• Value Chain System Analysis
• Activity System Analysis
• Benchmarking
• SWOT

VRIO analysis:

V Value: Do resources and capabilities exist that are valued by customers and enable
the organization to respond to environmental opportunities or threats?
R Rarity: Do resources and capabilities exist that no (or few) competitors possess?
I Inimitability: Are resources and capabilities difficult and costly for competitors to
obtain and imitate?
O Organizational Support: Is the organization appropriately organized to exploit
resources and capabilities?

Value Chain System:

Value Chain describes the categories of activities within an organization which, together
create a product or service.

Primary Activities Support Activities

Inbound Logistics Firm Infrastructure
Operations Human Resources
Outbound Logistics Technology Development
Marketing and Sales Procurement
Service

Most organizations are also part of a wider Value System, the set of inter-organizational
links and relationships that are necessary to create a product or service.

Supplier Channel Customer

Value Chain Value Chain Value Chain

Supplier Organization Channel Customer

Value Chain Value Chain Value Chain Value Chain

Supplier Channel Customer

Value Chain Value Chain Value Chain

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Activity System:

Benchmarking is used as a means of understanding how an organization compares with

others.

SWOT provides a general summary of the Strengths and Weaknesses explored in an analysis
of resources and capabilities and the Opportunities and Threats explored in an analysis of
the environment.

Strengths (S) Weaknesses (W)

Opportunities (O) SO Strategic Option WO Strategic Option
Generate options here that use Generate options here that take
the strengths to take advantage advantage of opportunities by
of opportunities overcoming weaknesses
Threats (T) ST Strategic Option WT Strategic Option
Generate options here that use Generate options here that
strengths to avoid threats minimize weaknesses and avoid
threats

Dynamic capabilities mean an operation’s capability to renew and recreate its resources and
capabilities it can help firms sense and seize opportunities and reconfigure ordinary
capabilities in changing environments.

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1.4 Stakeholder and Governance Analysis

Stakeholders are those individuals or groups that depend on an organization to fulfil their
own goals and on whom, in turn, the organization depends.

Stakeholders
Owners, Employees, Customers, Suppliers, Communities

Purpose
Vision, Mission, Values, Objectives

Governance Ethics

Strategy

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Stakeholder Mapping identifies stakeholder power and attention in order to understand

political priorities.
Exclusive

Public Entreprenerial
Corporations Businesses

Profit
Professional

Personal
Management

Focus
State-owned Family
Enterprises Businesses

Mixed

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 organization.
There are two generic structure systems: the Shareholder Model and the Stakeholder
Model.

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1.5 History and Culture Analysis

A useful way of thinking of the influence of history is the concept of Patch Dependency,
where early events and decisions establish ‘policy paths’ that have lasting effects on
subsequent events and decisions.

Another reason why history can be considered as important for organizations is because it
can serve as an important Resource.

Culture can be defined as a set of taken-for-granted beliefs and values that are shared
within a particular group/organization. It defines an organization’s identity in four layers:

Values

Beliefs

Behaviours

Paradigm

‘Culture eats Strategy for breakfast’; the influence of Culture on Strategy Development:

Development of Corporate
Culture Implementation
Strategy Performance

Not Satisfied

STEP 1
Tighter Control

STEP 2
Develop New
Strategy
STEP 3
Change to New
Culture

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The Cultural Web of an Organization:

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.

1.6 The Strategy Lenses Strategic Analysis

The four Strategy Lenses are as follows:

1. DESIGN LENS: it views strategy development as a logical process of analysis and

evaluation.
Rationality

Innovation Legitimacy

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2. EXPERIENCE LENS: it views strategy development as the outcome of people’s taken-

for-granted assumptions and ways of doing things.
Rationality

Innovation Legitimacy

3. VARIETY LENS: it views strategy as the bubbling up of new ideas from the variety of
people in and around organizations.
Rationality

Innovation Legitimacy

4. DISCOURSE LENS: it views language as important both for understanding and

changing strategy and
Rationality

Innovation Legitimacy

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PART II - The Strategic Choices

Strategic
Choices
Business Strategy
Strategy Methods
Choices about How to pursue
business positioning strategies: organic,
relative to acquisition or
competitors alliance
Strategic
Directions
Choices of products,
industries and
markets to pursue

2.1 Business Strategy and Models

It is an important Strategic Choice what Business Strategy and what Business Model a
company (stand-alone small businesses) or a Strategic Business Units (SBU/Division) of an
organization decides to adopt in its market.

Business
Models
• Value Creation
• Value Configuration
• Value Capture

Business
Strategy

Interactive Generic
Strategies Strategies
• Hypercompetitive • Cost Leadership
Strategy • Differentiation
• Cooperation • Focus
• Game Theory • Hybrid

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BUSINESS MODELS
Business Models describe a value proposition for customers and other participants, an arrangement of
activities that produce this value, and associated revenue and cost structures. Its patterns are:
• Razor and Blade
• Freemium
• Multi-sided Platforms

GENERIC STRATEGIES
Competitive Strategy is concerned with how a company business unit or organization achieves
competitive advantage in its domain of activity. Competitive Strategy therefore involves issues such as
costs, product and service features and branding. In turn, Competitive Advantage is about how a
company, business unit or organization creates value for its users which is both greater than the costs of
supplying them and superior to that of rivals.

Cost-Leadership Strategy involves becoming the lowest-cost organization in a domain of activity through:
• Input Cost
• Economies of Scale
• Experience
• Product/Process Design

Differentiation Strategy involves uniqueness along some dimension that is sufficiently valued by
customers to allow a price premium.
• Product and Service Attributes
• Customer Relationships
• Customization
• Complements

Focus Strategy targets a narrow segment of domain of activity and tailors it products or services to the
needs of that specific segment to the exclusion of others.
• Cost Focusers
• Differentiation Focusers

Hybrid Strategy combines different generic strategies.

• Organizational Separation
• Technological or Managerial Innovation
• Competitive Failures

INTERACTIVE STRATEGIES
Hypercompetition implies that an organization might want to consider interactive price and quality
strategies in the light of competitor moves.
• Threat Assessment
• Differentiation Response
• Cost Response

Cooperative Strategy is the achievement of advantage over other competitors through collaboration
between some organizations.
• Suppliers
• Buyers
• Rivals
• Entrants

Game Theory encourages an organization to consider competitors’ likely moves and the implications of
these moves for its own strategy.
• Get in the mind of the competitors
• Think forwards and reason backwards

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2.2 Corporate Strategy and Diversification

Corporate Strategy is about what business areas (products and markets) to be active in, and
this will determine which business unit(s) to buy, the direction(s) an organization might
pursue and how resources may be allocated efficiently across multiple business activities.

There are four basic directions for organizational growth:

Existing

Market New Products

Penetration and Services
(i.e. Acquisition of (i.e. Diversification,
competitors,...) Markets Vertical Integration,...)
Existing

New
Products Services

Market
Development Conglomerate
(i.e. Diversification,
Diversification
Vertical Integration,...)

New

Drivers for diversification are as follows:

• Exploiting economies of scope
• Stretching corporate management competences
• Exploring superior internal processes
• Increasing market power
• Responding to market decline
• Spreading risk
• Managerial ambition

There are five main types of activity by which a corporate parent can add value:
1. Envisioning
2. Facilitating Synergies
3. Coaching
4. Providing central services and resources
5. Intervening
However, there are three ways in which the corporate parent can destroy value:
1. Adding management cost
2. Adding bureaucratic complexity
3. Obscuring financial performance

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BCG Matrix uses market share and market growth criteria for determining the
attractiveness and balance of a business portfolio.

Existing

Market New Products

Penetration and Services
(i.e. Acquisition of (i.e. Diversification,
competitors,...) Vertical Integration,...)

Markets
Existing

New
Products Services

Market
Development Conglomerate
(i.e. Diversification,
Diversification
Vertical Integration,...)

New

The Parenting Matrix has two key dimensions:

1. The capability of the understanding of the parent company for the business
2. The benefit for the parent company of the business
and divides businesses into four kinds:
• Heartland Business • Value Trap Business
• Ballast Business • Alien Business
Parent companies should concentrate on actual of potential heartland businesses for which
they have special managerial expertise. Other services should be outsourced or acquired.

2.3 International Strategy

Firm Specific and

Internationalization Drivers
Geographic Advantages

International
Strategy

Market Selection

Mode of Entry

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Internationalization Drivers are determined by:

• Market Drivers
o Similar customer needs and tastes
o Presence of global customers
o Transferable Marketing
• Cost Drivers
o Scale of Economies
o Country-specific differences
o Favorable logistics
• Governmental Drivers
o Reduction of barriers to trade and investment
o Liberalization and adaption of free markets
o Technology standardization
• Competitive Drivers
o Interdependence between country
o Presence of globalized competitors

Firm Specific and Geographic Advantages

Firm Specific advantages include the organization’s unique strengths in resources and capabilities.

Geographic Advantages are benefits grounded in specific local conditions. They become associated with
specific types of enduring competitive advantage: for example, the Swiss private banking, the northern
Italians leather and fur fashion goods, and the Taiwanese in laptop computers.

International Strategies
The key problem is the extent to which products and services may be standardized across national
boundaries or need to be adapted to meet the requirements of specific national markets.
Strong
Efficiency Gain from Internationalization

Global Transnational
Strategy Strategy
Strong
Weak

Flexibility Needs for Local Market Requirements

Multi-
Export
domestic
Strategy
Strategy

Weak

Market Selection
Countries can be compared using standard environmental analysis techniques (PESTEL, Five Forces,…)
and/or the CAGE framework (Cultural, Administrative, Geographical distance, Economic distance).

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Entry Mode
• Licensing
• Franchising
• Joint Ventures
• Wholly owned Subsidiaries

A competitor entering a market from overseas typically starts with considerable

disadvantages relative to existing local competitors, which will usually have superior
knowledge of the local market and its institutions, established relationships with local
customers, strong supply chains and the like. One way to shrink this disadvantage is through
cooperation with local partners. The staged international expansion model proposes a
sequential process whereby companies gradually increase their commitment to newly
entered markets, as they build knowledge and capabilities.

2.4 Entrepreneurship and Innovation

Entrepreneurship

Innovation

Innovators and Imitators Innovation Diffusion

Entrepreneurship is a process which individuals, teams or organizations identify and exploit

opportunities for new products or services that satisfy a need in a market.

Entrepreneur or
Entrepeneurial Team

Business
Opportunity

Environemtnal Resources and

Trends and Capabilities
Market Gaps

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The entrepreneur or team drives and integrates the various parts of an entrepreneurial
process including scanning and spotting trends in the environment linking these to existing
resources and capabilities or acquiring appropriate ones and recombining them. This
normally includes a team and the managing of relationships with other partners and
sometimes other and bigger companies.

Opportunity Recognition

Feasibility Analysis

Business Plan

Industry Conditions and Competitor Analysis

Business Model and Strategy

Financing and Funding

Stages of Entrepreneurial Growth

Size

EXIT
Sell/IPO?
MATURITY
New Growth?

GROWTH
Management?

START-UP
Capital?

Time

Innovation involves the conversion of new knowledge into a product, process or service
AND the putting of this new product, process or service into actual commercial use.

Innovations do not just come from scientific research, but can be pulled by users in the
external market.

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Product and Process Innovation over Time

Innovation Rate

Dominant Design
Established

Product Process
Innovation Innovation

Time

Diffusion is the process by which innovation is spread among the customers. Its pace is
determined by product and demand features such as:
• Degree of Improvement
• Compatibility
• Complexity
• Experimentation
• Relationship Management
• Market Awareness
• Network Effects
• Customer propensity to adopt
The pace of diffusion typically not steady. It has the shape of an S-Curve that reflects a
process of initial slow adoption of innovation, followed by a rapid acceleration in diffusion,
leading to a plateau representing the limit to demand.

“Fail fast, fail cheap, try again”

2.5 Mergers, Acquisitions and Alliances

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Organic Development
There are five principal advantages:
• Knowledge and Learning • Strategic Independence
• Spreading Investment over Time • Culture Management
• No Availability Constraints
Corporate Entrepreneurship refers to radical change in the organization’s business, driven
principally by the organization’s own capabilities.

Mergers and Acquisitions

A Merger is the combination of two previously separate organizations in order to form a
new company.
An Acquisition is achieved by purchasing a majority of shares in a target company.

Strategic Motives for M&A:

• Extension • Capabilities
• Consolidation
Financial Motives for M&A:
• Financial Efficiency • Asset Stripping or Unbundling
• Tax Efficiency
Managerial Motives for M&A:
• Personal Ambition • Bandwagon Effects

Target Choice in M&A:

• Strategic Fit. This refers to the extent to which the target firm strengthens or complements the
acquiring firm’s strategy.
• Organizational Fit. This refers to the match between the management practices, cultural
practices and staff of characteristics between the target and the acquiring firms.
This two criteria are important components for ‘due diligence’ – a structured investigation
of target companies that generally takes place before a deal is closed.
Post-Acquisition Integration Matrix:
Low Acquired Firm Level of Autonomy high
high

Intensive Care Preservation

Knowledge Transfer

Re-Orientation

Absorbation Symbiosis
Low

When a business no longer fits the corporate strategy, it may be sold. This is termed
Divestiture or Divestment.

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Strategic Alliance
Strategic Alliance is where two or more organizations share resources and activities to
pursue a common strategy.
Collective Strategy is about how the whole network of alliances, of which an organization is
a member, competes against rival networks of alliances.
Collaborative Advantage is about managing alliances better than competitors.

Types of Strategic Alliance:

• Equity Alliances (Joint Venture, Consortium Alliance)
• Non-Equity Alliances (Franchising, Licensing, Subcontracting)

Strategic Alliance Motives:

Scale Alliance Access Alliance

A
Inputs Outputs Outputs
A B
B

Collusive Alliance Complementary Alliance

A A
Outputs
Inputs Outputs

B B

Alliance Evolution
Termination
Commitment of Resources

Maintenance Extension

Start-up Amicable
Seperation

Negotiation

Evaluation

Sale/Divorce
Time

It may take many years to introduce alliance management processes. For alliance capability
to succeed there needs to be consistent sponsorship and support from top management.

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Acquisition Alliance Organic

Development
High Urgency Fast Fast Slow

High Uncertainty Failures are potentially Losses are shared and Failures are not
saleable buy option is possible saleable
Soft Capabilities Culture and valuation Culture and control Cultural consistency
Important challenges challenges
Highly Modular Avoid to buy the whole Ally just with relevant Develop a new venture
Capabilities company partner unit

M&A function tasks before closing a deal include:

• General strategic decisions via information gathering and analysis
• Technical execution including target investigation (due diligence)
• Negotiation skills
• Planning for integration
To do this a firm should have an M&A department that:
• Collects M&A data
• Defines and formalizes M&A process
• Develops checklists and templates
• Establishes M&A committee and round tables
• Collects and distributes information
• Applies accumulated knowledge to transactions
• Establishes a central, company-wide steering committee to support specific
transaction

2.6 The Strategy Lenses on Strategic Choices

The four lenses applied to strategic choices:

1. DESIGN LENS
o Consider all options
o Ensure fit between choice and purpose
o Maximize returns
2. EXPERIENCE LENS
o Challenge standard responses
o Respect cultural differences
o Adjust competitor analysis
3. VARIETY LENS
o Look beyond top management
o Learn from acquisitions and partners
o Expect surprises
4. DISCOURSE LENS
o Watch your language
o Distrust others’ language
o Look out for managerial interests

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PART III - Strategy in Action

3.1 Evaluating Strategies

Strategy Performance Measures

• Economic Performance • Effectiveness
o Sales growth o Operational Efficiency
o Market share § Customer Satisfaction
o Profit margin § Product Quality
o Return on capital § Innovation
§ Profitability
o Social Responsibility
o Environment

Strategy Performance Comparison

• Organizational Targets • Trends over Time
• Gap Analysis • Comparator Organizations

Strategy Evaluation Criteria

• Suitability
o Does the proposed strategy address the key opportunities and threats?
• Acceptability
o Does the proposed strategy meet the expectations of stakeholders?
§ Is the level of risk acceptable?
§ Is the likely return acceptable?
§ Will stakeholder reactions be positive?
• Feasibility
o Would a proposed strategy work in practice?
§ Can the strategy be financed?
§ Do people and their skills exist or can they be obtained?
§ Can the required resources be obtained and integrated?

Strategy Evaluation Techniques

• Ranking
• Screening through Scenarios
• Screening for Bases of competitive Advantage
o Value
o Rarity
o Inimitability
o Organizational Support
• Decision Trees
• Life Cycle Analysis

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EXPLORING STRATEGY - PEARSON

Industry Life Cycle Strategy Portfolio

STAGES OF INDUSTRY LIFE CYCLES

Development Growth Shake-Out Mature Decline
Strong -Fast growth -Attain cost -Reinforce cost -Consolidate -Drive out
-Leadership -Reinforce industry remaining
Competitive
-Differentiate differentiation through competitors
Position
-Broaden Scope advantages acquisitions -Exploit market
-Drive out -Harvest weaker power
weaker activities -Cut unnecessary
competitors by -Cut unnecessary costs
innovation or costs
price wars
-Acquire weaker
competitors
Middling -Fast growth -Catch up -Harvest weaker -Retrench -Seek alliances
-Differentiate -Differentiate activities -Turnaround -Seek mergers
Competitive
-Focus -Focus -Seek alliances -Seek alliances -Exit by sale
Position
-Find niche -Seek mergers -Seek mergers -Exit by closure
-Exit by sale
Weak -Find niche -Turnaround -Seek alliances -Seek alliances -Seek alliances
-Catch up -Retrench -Seek M&A -Seek M&A -Seek M&A
Competitive
-Seek alliances -Exit -Exit -Exit
Position
-Seek M&A

3.2 Strategy Development Process

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Siemens Strategic Planning Calendar

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Corporate Assessment of Interim Plans Strategic
market corporate reviewed by plan
Level developments and feedback management agreed
opportunities to board and
establish 5-year budget
goals by market. finalized

Divisional Growth Development of combined

targets to strategic and financial plans
Level divisions

Business Panning Coordination between

guidelines divisions and businesses
Level and key
questions

Strategic direction from the continuity of prior strategic decisions:

3.3 Organizing and Strategy

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EXPLORING STRATEGY - PEARSON

Structure
There are five structural types:
• The Functional Structure divides responsibilities according to organization’s primary specialist
roles such as production, research and sales.

Advantages Disadvantages
• Chief Executive is in touch with all operations • Senior managers overburdened with routine matters
• Reduces/simplifies control mechanisms • Senior managers neglect strategic issues
• Clear definition of responsibilities • Difficult to cope with diversity
• Specialists at senior and middle management • Coordination between functions are difficult
levels • Failure to adapt

• The Divisional Structure is built up of separate divisions on the basis of products, services or
geographical areas.

Advantages Disadvantages
• Flexible (add or divest divisions) • Duplication of central and divisional functions
• Control by performance • Fragmentation and non-cooperation
• Ownership of strategy • Danger of loss of central control
• Specialization of competences
• Training in strategic view

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EXPLORING STRATEGY - PEARSON

• The Matrix Structure combines different structural dimensions simultaneously, for example
product divisions and geographical territories or product divisions and functional specialisms.

Europe USA Far East

Product
Group A

Product
Group B

Product
Group C

Advantages Disadvantages
• Integrate Knowledge • Length of time to take decisions
• Flexible • Unclear job and task responsibilities
• Allow dual dimensions • Unclear cost and profit responsibilities
• High degrees of conflict

• Multinational Structures
Low

Global
International
Product
Divisions
Local

Divisions

Global Coordination
High
Low

Independance

Local Transnational
Subsidiaries Corporations

High

• A Project-based Structure is one where teams are created, undertake a specific project and are
then dissolved.

Strategy and Structure Fit:

Functional Divisional Matrix Multinational Project
Diversification
Internationalization
Innovation

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EXPLORING STRATEGY - PEARSON

Systems
Input Control Systems Output Control Systems
Direct Control Planning Systems Performance Targeting
plan and control the allocation of focus on the output of an
resources and monitor their organization such as products,
utilization. quality, revenues, profits, customer
satisfaction, operational effectiveness
and innovation.
Indirect Control Cultural Systems Internal Markets
aim to standardize norms of behavior typically involve some formalized
within an organization in line with system of contracting for resources or
particular objectives. inputs from other parts of an
organization and for supplying
outputs to other parts of an
organization. (Service-Level
Agreements)

The McKinsey 7-S Framework

Structure

Strategy Systems

SUBORDINATE
GOALS
Mission
Vision
Objectives

Skills Style

Staff

3.4 Leadership and Strategic Change

Leadership is the process of influencing an organization in its efforts toward achieving an

aim or goal.

Leadership Roles:
• Top Managers • Middle Managers
o Envisioning future strategy o Implementing top management
o Aligning the organization to deliver strategic plans
that strategy o Strategic Advisors
o Embodying change in strategy. o ‘Sense making’ of strategy
o Reinterpretation and adjustment of
strategic responses
o Local leadership of change

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Leadership Styles:
• Transformational (or charismatic) Leaders emphasize building a vision for the organization.
• Transactional Leaders emphasize ‘hard’ levers of change such as designing systems and controls.
• Situational Leadership encourages strategic leaders to adjust their style to the context they face.

The Change Kaleidoscope:

A Forcefield Analysis compares the forces at work in an organization acting either to

prevent or to facilitate change. The task is to persuade those who are neutral or even
against change to move into the camp of those who favor it.

Types of Strategic Change:

Fundamental Change

Revolution
Evolution Clear Strategic Direction
Exploit existing Change Top
End

Capabilities Management
Search new Capabilities Change Culture
Gradual Change

Monitoring Change
Rapid Change

Nature of Change (Speed)

Turnaround
Result

Crisis Stabilisation
Adaption Change Management
Gain Stakeholder
Gradual Change
Support
Claryfying targe markets
Financial Restructuring

Reorganisation
EXPLORING STRATEGY - PEARSON

Increasing Revenue Reducing Costs

Ensure marketing mix tailored to key market Reduce labor costs and reduce costs of senior
segments management
Review pricing strategy to maximize revenue Focus on productivity improvement
Focus organizational activities on needs of target Reduce marketing costs not focused on target
market sector customers market
Exploit additional opportunities for revenue Tighten financial controls
creation related to target market
Invest funds from reduction of costs in new Thigh control on cash expenses
growth areas
Establish competitive bidding for suppliers; defer
creditor payments; speed up debtor payments
Eliminate non-profitable products/services

Levers for Strategic Change:

Strategic change is often launched as a top-down initiative supported by formal methods of

programme and project management.

3.5 The Practice of Strategy

Different types of people potentially involved in strategy are:

Top Managers and Directors
They are members of the board and most of them should clearly be separated from operational
responsibilities, so that they can focus on overall strategy.
• CEO (=Chief Strategist)
• Top Management Team (Executive Directors with operational responsibilities)
• Non-Executive Directors (No executive management responsibility offering an external and
objective view on strategy; i.e. Chairman of the board, part-time board members as consultants.

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EXPLORING STRATEGY - PEARSON

Strategic Planners
They are those with a formal responsibility for coordinating the strategy process. Their main tasks are:
• Investigating acquisition targets • Directing strategic initiatives
• Monitoring competitors • Collecting information and analyzing
• Helping to make plans • Managing the strategy process
• Monitoring implementations • Support special projects

Middle Managers
They are heavy involved in operations and therefore their role to strategy implementation is limited.
Their role in strategy making is:
• Being a source of information • Reinterpretation and adjustment of strategies
• Ensure that strategies make sense • Champions of strategic ideas

Strategy Consultants
They are often used in the development of strategy. Their main tasks are:
• Transferring knowledge • Implementing strategic change (Project
• Promoting strategic decisions Planning)
• Analyzing, prioritizing and generating
options
Fundamental Change

Board Narrow
Participation Participation
End

Strategy workshops Project Teams

Gradual Change

Rapid Change

Nature of Change (Speed)

Result

Open Limited
Participation Participation
Ongoing Strategic Meetings and Project
Conversation Teams

Reorganisation

A typical Strategic Plan has the following elements:

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