CIMA E3 Notes - Enterprise Strategy - Chapter 1.pdf

7/22/2019 CIMA E3 Notes - Enterprise Strategy - Chapter 1.pdf

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CIMA E3Course Notes www.astranti.com

Strategic Business Coaching Ltd 2013

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CIMA E3

Enterprise Strategy

Course Notes

By Nick Best


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Chapter 1...............................................................................4Formulating a business strategy ...................................................4

1. Business strategy .............................................................................. 52. Levels of Strategy............................................................................. 73. Approaches of Strategy Formulation ...................................................... 84. Planned Strategies ............................................................................ 85. Emergent Strategies (Mintzberg) ..........................................................116. Incrementalism ...............................................................................127. Freewheeling Opportunism.................................................................138. The three strategic lenses..................................................................13

Chapter 2............................................................................. 16Mission and objectives............................................................. 16

1. Mission .........................................................................................172. Mission Statements ..........................................................................173. Objectives .....................................................................................194. Effective Objectives .........................................................................215. Stakeholders ..................................................................................226. Corporate Social Responsibility (CSR) ....................................................25

Chapter 3............................................................................. 29External analysis .................................................................... 29

1. External Analysis .............................................................................302. PESTEL analysis...............................................................................303. Porters Five Forces .........................................................................324. Evaluating overseas markets Porters Diamond.......................................365. Environmental uncertainty .................................................................38

Chapter 4............................................................................. 43Internal Analysis .................................................................... 43

1. Internal Analysis..............................................................................442. The Resource Audit - The Nine MS .......................................................443. Porters Value Chain.........................................................................464. Supply Chain Management..................................................................495. Product life cycle ............................................................................526. Boston Consulting Group (BCG) Matrix ...................................................54

Chapter 5............................................................................. 60Financial evaluation of current position ....................................... 60

1. Financial analysis ............................................................................612. Financial ratios ...............................................................................623. Ad-hoc financial evaluation in the CIMA P3 exam......................................67

Chapter 6............................................................................. 70Corporate Appraisal ................................................................70

1. Corporate Appraisal - Swot Analysis ......................................................712. GAP analysis...................................................................................723. End of the strategic analysis stage........................................................73

Chapter 7............................................................................. 75Strategic Choice and Evaluation .................................................75

1. Strategic Choice..............................................................................76

2. Porters Generic Strategies ................................................................763. Strategy Clock ................................................................................79


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4. Strategic direction ...........................................................................805. Methods Of Strategic Development .......................................................836. Corporate political activity and non-market strategies ...............................877. Strategy Evaluation ..........................................................................878. Ethics and strategic choice.................................................................88

Chapter 8............................................................................. 93Strategic Implementation Change management ............................ 93

1. Strategy Implementation ...................................................................942. Change management ........................................................................943. Types of change ..............................................................................954. Effective management of change .........................................................975. The process of change ......................................................................996. Culture and Change........................................................................ 100

Chapter 9........................................................................... 106Strategic Implementation Information systems ........................... 106

1. Information.................................................................................. 1072. IS strategy ................................................................................... 1073. Steering committee........................................................................ 1124. Levels of management, information and control..................................... 1135. Information systems at different levels................................................ 1156. E-commerce................................................................................. 1197. Using business strategy models to identify IT needs................................. 120

Chapter 10 ......................................................................... 125Strategic Implementation - Marketing ........................................ 125

1. Marketing .................................................................................... 1262. Defining a marketing strategy ........................................................... 1273. The Marketing Mix ......................................................................... 128

4. Marketing Research........................................................................ 1315. Segment - Target Position .............................................................. 1326. The Management accountants role in marketing.................................... 1367. Branding ..................................................................................... 1408. Relationship marketing ................................................................... 142

Chapter 11 ......................................................................... 144Strategic Implementation Organisational Structure...................... 144

1. Structure..................................................................................... 1452. Types of organisational structure ....................................................... 1453. Centralisation Versus Decentralisation................................................. 1514. Structure and strategy .................................................................... 152

5. Business process reengineering and lean systems.................................... 152

Chapter 12 ......................................................................... 156Strategic Review And Control .................................................. 156

1. Strategic Review And Control............................................................ 1572. Performance Measurement............................................................... 1573. Balanced Scorecard........................................................................ 1614. Performance pyramid ..................................................................... 1635. Benchmarking............................................................................... 1646. Critical Success Factors ................................................................... 1657. Internal Control ............................................................................ 166


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CIMA E3 Course Notes

Chapter 1Formulating a business strategy


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1. Business strategyStrategy

A strategy is a plan of action designed to achieve a goal or objective. Theaim of a strategy is to gain some kind of competitive advantage or to help toexploit future opportunities.

A strategic plan tends to be an overall guide to the way forward rather thana detailed step by step approach due to the tendency of the real world tobe uncertain. In the example of a chess game, a strategy provides theover-riding approach that the player will take to win the game, but theexact set of moves they undertake will vary depending on the opponentsmoves.

Strategy in business

Applying this to a business scenario, according to the CIMA officialterminology a business strategy can be defined as:

"A course of action, including the specification of resources required, toachieve a specific objective"

Or, more complete definition is given by Johnson, Scholes and Whittingtonas:

The direction and scope of an organisation over the long term, whichachieves advantage for the organisation through its configuration ofresources within a changing environment, to meet the needs of the marketsand to fulfil stakeholder expectations

Business strategy therefore is concerned with the overall management of anorganisation and includes the management of and taking decisions about:

a) Productsb) Marketsc) Locations (production and sales)d) Structuree) Personnelf) Buildings and machineryg) How to compete


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Key features of strategic management

The key features of strategic management are:

Long term approach decisions are made over the long term, often forperiods exceeding one year

Focused on organisational objectives the aim being to ensure that theplan of action achieves the most important objectives for a wide group ofkey stakeholders

Aligned with internal strengths and weaknesses the aim should be tocapitalise on the business strengths and overcome any key weaknesses.Devising a strategy will often follow a position audit of the business to

ascertain the businesses current position.

Adapted to the changing business environment so that changes inpolitical, economic, social and technology factors are taken account of,while adapting to industry changes, such as competitive threats, supplyissues or changing customer needs.

The importance of strategy

Strategic management of businesses is important for the following reasons:

Provides a clear direction, focusing management decision making Adapts the organisation to the changing environment ensuring its

continuing survival and success

Ensures competitiveness through understanding and adapting tocompetition

Focuses in building key competences to meet customer needs Co-ordinates all elements of the business in a structured planned

approach.

Directors role in strategy

Ultimately it is the directors responsibility to decide on and take decisionson strategy in the organisation. Typically strategy will be discussed andagreed in board meetings. Larger organisations often have a smalldepartment whose role is to analyse the business, markets and competitorsand devise strategy for the board to discuss and agree upon.


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The directors have a fiduciary duty to make strategic decisions which are inthe best interests of the company and its shareholders, and as such it isimportant that due diligence undertaken before key contracts resultingfrom strategic decisions are signed. This might include an analysis of keysuppliers prior to long term supply agreements or review of an acquisition

target by an independent accountancy firm prior to purchase.

2. Levels of StrategyThere are three different levels on which strategy can be set:

Corporate Strategy

The corporate strategy provides the direction for the business as whole,

including all parts of the business. It includes consideration of:

The overriding purpose and scope of the business Which businesses and markets should the organisation operate in? What should the core competencies be? Resources and financing How to compete How to integrate and structure the business

For a company such as Diagio, one of the worlds leading premium drinks

businesses with brands such as Guiness, Smirnov and Johnie Walker amougstits group. It needs to decide which products to include in its brands, whichmarkets to operate in and so on. In 2002 Diagio sold Burger King as theymoved out of the food industry into a focus on Premium Branded Drinks.This was a corporate level decision.

Business Strategy

Each business unit or subsidiary of the business is likely to have differentgoals, competitors, suppliers, manufacturing approaches, IT, financialrequirements and so on, and so each strategic business unit (SBU) needs its

own strategy. This covers:

Which competencies? Which products? Which markets? Tactics to beat competition in this market Business resources (people, buildings, machinery, processes) How to compete in this business area?

In Diagio, different strategies will be required for each drinks brand and

each regional market due to the different nature of the products andmarkets. These are business level strategies.


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Operational/Functional Strategy

Each functional area within each business unit will then have its ownstrategy, so there will be strategies in each department e.g. HR, IT,production, finance and marketing.

These should be designed to be consistent with the business strategy of theSBU.

3. Approaches of Strategy FormulationThere are a number of different approaches to the development ofstrategies within organisations.

Planned strategies Emergent strategies Incrementalism Opportunism

These will be examined one by one in the following sections.

4.

Planned StrategiesStrategies can be consciously and formally planned in advance, either by thedirectors or by a specialist department. This provides a clear, justifiablestrategy based on the information available about the companys currentposition, environment and competencies. As such the strategy developedshould be well thought through and effective.

Planned strategies are often used in large organisations, and are particularlysuitable where the industry is subject to relatively little change.

Planned strategies tend to consist offour of distinct stages:

Strategic Analysis

Defining the direction (e.g. Mission and objectives) External analysis of the business environment (e.g. PESTEL analysis,

Porters 5 forces)


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Internal analysis of the firm (e.g. Value chain, Resource audit,Product analysis)

Corporate appraisal (e.g. SWOT analysis)Strategic Choice

Selecting strategic options Choosing options the firm is going to take (including financial

evaluation using techniques such as NPV, IRR and Payback period).

Strategic Implementation

Putting the strategies into practice including polices and strategies for:

marketing finance R & D IT Human Resources Project management Change management Structure

Strategy Evaluation and control

Evaluating the success of the strategy by measuring actualperformance against objectives

Taking control action by amending future strategies and objectives.


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Rational planning model

The stages of strategic planning can also be shown using the rationalplanning model, which is an alternative way of showing the same process.

Mission andObjectives

Corporate Appraisal

Environmental

Analysis

Strategic Options

Position Audit

StrategicEvaluation

Strategic

Implementation

Review and Control

Criticisms of planned strategies

While planned strategies provide logical focused, well organised strategiesthey have also been criticised:

Time commitment they can be very time consuming to create, for largebusinesses often taking many months, and may be out of date by the timethey are published

Cost costs include staff time, collecting information, using strategyconsultants


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Lack of flexibility - The organisation can become constrained by a fixedplan and as a result not take new opportunities that arise or adapt tochanges in the business environment (e.g. a new competitive threat).

5. Emergent Strategies (Mintzberg)Emergent strategies are strategies which emerge out of the course of thebusiness rather than having been formally planned. They could perhaps bedue to opportunities which present themselves (e.g. a competitor comes upfor sale) or threats which need to be addressed (e.g. a competitor developsa new product and the company must follow suit to remain competitive).

NOWGeneral idea of goalsAnd future directionPlanned strategy

Failedstrategiesdiscarded

Emergentstrategiesincluded

Realised strategy

Craftin

g

Emergent strategies can be combined with the successful elements of theplanned strategy to define the way forward for the business. The process ofbringing these together is called crafting a strategy.

In the example of a development of a new product, that needs of the newproduct would need to be crafted alongside those of the existing business,


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including production timings and approaches of both existing and newproducts, combined marketing strategies, allocation of funds to differentproduct lines and the use of human resources for each area.

This is more appropriate for businesses in a changing environment, such as

high technology, where restriction to one planned strategy may be acompetitive weakness.

It is also most commonly used in smaller organisations where theorganisation relies less of formal plans and processes and more on theknowledge of key managers and staff who can be very flexible to change.

6. Incrementalism

In fast changing environments it may be unrealistic to effectively undertakethe full strategic planning process. Instead it is more practical to develop ashort term strategy based on the consensus of opinion of majorstakeholders.

An incrementalist approach was adopted by many businesses during theecomonic downturn of the late 2000s as uncertainty made it hard to makeaccurate long term predictions.

The strategy is then developed regularly using a series of small scalechanges as dictated by the changing environment.

Another situation where incrementalism is common in the public sectorwhich while not a rapidly changing environment, is one where there are awide variety of stakeholder needs to satisfy. It can thus be hard to agreeclear long term objectives to keep every stakeholder content, and thus ashorter term middle ground view is taken that satisfies all groups.


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7. Freewheeling Opportunism

NOW

Take advantage of opportunities as they arise

Little plan or direction, but very flexible and dynamic

In this model there is no formal approach to strategy development.

Directors dictate the business direction through taking whateveropportunities are available at a particular point in time. This allows the

business to be very flexible and take opportunities that companies using amore formal approach to strategy development would be slow to take.

Freewheeling opportunism is most common in small companies with anentrepreneurial leader who can direct and focus their organisation downeach new track based on the opportunities they identify and wish to pursue.The lack of formal processes makes change quick and easy.

8. The three strategic lensesAccording to Johnston, Scholes and Whittington, business strategy canconsidered from three different perspectives.

Strategy as design

A strategy is planned based on internal and external analysis and logical andrational thought. e.g. Rational model


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Strategy as experience

Strategy comes from learning from and adapting to real-world experiencee.g. Emergent strategies (and to a lesser extent incrementalism)

Strategy as ideas

Strategy comes from the continuous application of new innovations andbusiness and process change. This depends on staff and structuralflexibility, entrepreneurship and idea generation.


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CIMA E3 Notes - Enterprise Strategy - Chapter 1.pdf

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