CORPORATE STRATEGY AND PLANNING

224 Pages·2008·1.09 MB·English

Business Management
Study Manuals
Advanced Diploma in
Business Management
CORPORATE STRATEGY
AND PLANNING
The Association of Business Executives
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The Association of Business Executives (ABE) and RRC Business Training
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Advanced Diploma in Business Management
CORPORATE STRATEGY AND PLANNING
Contents
Unit Title Page
1 An Introduction to Corporate Strategy and Planning 1
Introduction 3
What is Strategy? 3
Levels of Strategy 8
Establishing Strategic Intent 9
The Strategic Management Process 10
Patterns of Strategic Development 13
Strategic Management and Business Planning 16
Strategic Management in Different Contexts 19
2 Strategic Analysis 1: The External Environment 23
Introduction 24
Corporate Planning 24
Environmental Analysis 25
Competitor Environmental Analysis 27
Interpreting Environmental Analysis 33
Tools for Competitor and Market Analysis 39
3 Strategic Analysis 2: The Internal Environment 49
Introduction 52
Resources, Competences and Strategic Capability 52
The Process of Internal Appraisal 55
Techniques For Conducting an Internal Appraisal 59
Interpreting Internal Analysis 69
4 Strategy Development and the Bases of Strategic Choice 73
Introduction 74
Strategic Development Options 74
Basis of Strategic Choice – Corporate Purposes and Aspirations 79
Basis of Strategic Choice – Competitive Advantage 82
Basis of Strategic Choice – Enhancing SBU Strategy 86
5 Strategic Direction and Methods of Development 91
Introduction 92
Alternative Strategic Directions 92
Alternative Methods of Strategy Development 99
Unit Title Page
6 Strategy Evaluation and Selection 107
Introduction 109
Evaluation Criteria 109
Strategic Fit and Synergy 110
Assessing Suitability 110
Assessing Acceptability 117
Assessing Feasibility 124
Selection of Strategies 128
Selection of Mission Statements and Key Objectives 129
7 Implementation and Control 1: Organisation 137
Introduction 138
Strategic Architecture and Control 138
Importance of Organisational Design and Structure in Strategy
Implementation 140
Alternative Organisational Structures 142
Influences on Organisational Design 146
Issues in Organisational Design 148
8 Implementation and Control 2: Resources 157
Introduction 154
Role, Scope and Importance of Resources in Strategic Implementation
and Control 154
Resource Configuration 155
Resource Plans 162
Information as a Resource 170
9 Managing Strategic Change 177
Introduction 179
What Constitutes Change and the Organisational Processes Involved 179
Types of Strategic Change 184
Diagnosing the Need for Change 185
The Four Areas of Designed Change 187
Managing the Change Process 191
Roles in Change Processes 198
10 Issues and Developments in Modern Corporate Strategy 201
Introduction 202
International Trade and Globalisation 202
Stages in the Development of International Organisations 206
Strategic Issues 209
Social Responsibility 212
Business Ethics 213
Environmental Issues 216
Planning in the Innovative and Entrepreneurial Organisation 217
1
Study Unit 1
An Introduction to Corporate Strategy and Planning
Contents Page
Introduction 3
A. What is Strategy? 3
The Need for Strategic Planning 3
Approaches to Strategy 4
Advantages and Limitations of Formal Corporate Strategic Planning 5
Strategic versus Tactical Decisions 7
B. Levels of Strategy 8
Corporate Strategy 8
Business Strategy 8
Operational Strategy 8
C. Establishing Strategic Intent 9
Mission Statement 9
Goals, Objectives and Strategies 10
D. The Strategic Management Process 10
Patterns of Strategy Development 11
A Strategic Model 11
Key Steps/Elements in Strategic Planning 12
E. Patterns of Strategic Development 13
The Development of Strategy 14
Uncertainty and Strategic Drift 15
F. Strategic Management and Business Planning 16
Elements of a Business Plan 16
Goals and Objectives 18
Policies, Strategies, Tactics and Control 18
Levels of Management Action 19
(Continued over)
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2 An Introduction to Corporate Strategy and Planning
G. Strategic Management in Different Contexts 19
Small Businesses 20
Multinational Companies 20
Manufacturing and Service Organisations 20
Voluntary and Not-For-Profit Organisations 21
Innovatory Organisations 21
Professional Service Organisations 22
Public-Sector Organisations 22
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An Introduction to Corporate Strategy and Planning 3
INTRODUCTION
All organisations need to be able to manage strategies.
In this Unit we shall consider the role and importance of corporate strategy and strategic
management in modern organisations.
An outline of the key elements in the process of corporate strategic planning will be given,
and the major patterns and drivers of the development of strategy within organisations will be
explained.
We will also discuss the application and development of corporate strategy in different types
of organisation.
Objectives
After studying this unit, students should be able to:
 explain the role of corporate strategy and strategic management in modern
organisations and assess its importance;
 outline the key elements in the process of corporate strategic planning;
 explain the major patterns and drivers of strategy development within organisations;
 discuss the application and development of corporate strategy in different types of
organisation.
A. WHAT IS STRATEGY?
Dictionary definitions of strategy tend to emphasise it in terms of a military context, such as
"the science of forming and carrying our projects of military operations, generalship", but also
add "finesse in carrying out any project".
In management terms, to paraphrase Koontz and O'Donnell, they describe it as "a decision
about how to use available resources to secure a major objective in the face of possible
obstructions……such as competitors, public opinion, legal status, taboos and similar forces".
Strategy implies action as well as decision-making and involves consideration of the
environment in which it operates.
The term "corporate strategy" relates to strategy applied by organisations of all types, both
private and public, and of all sizes both large and small.
The Need for Strategic Planning
Management of an organisation may be described as achieving given objectives through the
efforts of other people, and so strategic management is concerned with the establishment of
a medium- to long-term strategy by top management within an organisation.
Corporate strategy is that which is undertaken on behalf of a corporation, as opposed to that
of an individual; although we all adopt strategies on our own behalf as we pursue what
Blackadder's assistant Baldrick would refer to as "a cunning plan".
In order to achieve corporate objectives a strategic plan has to be established. This identifies
each major element so that provision can be made for it within the overall plan. Without this
planning those who are responsible for the activities which must be carried out in order to
achieve the objectives, i.e. the operational or tactical managers, are unable to select the
necessary tactics.
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4 An Introduction to Corporate Strategy and Planning
Provided there is a strategic plan set up by top management there is no need for tactical
managers to be fully informed of its detail; all they have to do is develop trust in senior
managers so that they follow out their instructions.
Managers at all levels in an organisation have some responsibility for involvement beyond
the task they currently have in hand. The more senior the manager, the broader this
responsibility is and the further forward in time it extends.
Thus, for example, a senior manager in a large corporation such as BT is planning for 20
years ahead in telecommunications, whereas a first line manager is planning the best way to
replace or repair a customer's phone line.
Approaches to Strategy
Strategic planning has been recognised in the last 40 years or so as a necessary topic for
managers to study.
Strategic Management
This movement was largely due to Hofer and Schendel who showed how the strategic
management approach evolved from the policy formulation and the "initial-strategy" approach
of the 1960s.
 The policy formulation approach established the need for managers to create rules
which set the parameters within which a functional area exists, and define what the
functional area can and cannot do.
 The initial-strategy approach was defined by Chandler (1962) as being the
determination of long-term goals and objectives for an organisation, and the setting up
of the necessary courses of action too achieve these, together with the allocation of
resources necessary for this.
Strategy as a Process
Ansoff, Andrews et al started with Chandler's approach and refined it to introduce the idea of
strategy being a process.
This work has been further extended by Mintzberg and Walters, and they have defined
strategy as being a "pattern in a stream of decisions".
Objectives, Policy and Strategy
Hofer and Schendel created a composite definition of strategy which suggests that a
strategic management approach can only be based on the idea that attainment of objectives
is added to policy and strategy.
Thus:
 specific objectives are set;
 a policy is formulated to establish rules;
 routine strategic planning sets out where we want to be and how we can get there;
 tactical planning details the necessary actions to be taken in order that strategies are
achieved;
 a control function is put in place in order to monitor progress towards achieving
objectives.
Strategic Planning
There is a need for all managers to be involved in strategic planning in order to establish
tactical plans within their area. Senior managers establish policy for more junior ones within
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An Introduction to Corporate Strategy and Planning 5
the corporate policy so that strategies and tactics at all lower levels comply with those set at
corporate level.
Advantages and Limitations of Formal Corporate Strategic Planning
Corporate strategic planning is essential if an organisation is to survive, let alone expand. No
organisation can remain on a plateau; if it is not going up then it is going down, since all other
organisations in the same sector will always be trying to increase their own market share to
the detriment of its competitors.
Successful strategic planning involves looking ahead and making decisions based upon
future likely conditions. In some cases this will lead to decisions to diversify into other
markets, and where these, or other, decisions fail then the organisation can be left in real
trouble.
Such an example of a failure to diversify was seen a few years ago when many finance
suppliers, such as building societies, decided to enter the estate agency sector at a time
when house selling was buoyant and then had to withdraw, losing a lot of money, when the
market was flooded with competition.
There are limits to what corporate strategic planning can achieve, since pressures can be
brought by groups of stakeholders, i.e. shareholders, management, workforce, suppliers,
etc., who feel threatened by such decisions.
A recent example of a large company having to bow to such pressure is provided by Marks
and Spencer. A decision to close its European stores, in an attempt to reduce company
losses, met with great opposition from employees likely to be affected by such a decision.
Those employed in Paris were especially vocal in their opposition, together with the unions
representing Marks and Spencer's employees, and the management has been forced to back
down and to review its position.
Many of the models of how strategies are developed in organisations are based on the
notion that strategies can and should be systematically and formally planned following a set
of relatively rigid steps and procedures. Johnson and Scholes refer to this notion of strategy
development as a "design" view of strategy. Conventionally most textbooks and courses on
strategic management and planning have promoted and adopted this design view of strategy
and, as a result, many companies have formalised strategic planning systems often carried
out by a formal corporate planning department.
There are a number of suggested advantages of having formalised strategic planning
systems, some of the main ones being as follows:
Advantages of Formalised Planning Systems
(a) Formalised strategic planning provides what many would term a logical but certainly a
structured means of analysis and thinking about complex issues and problems. There
is no doubt that strategy development is complex, and formal planning systems attempt
to help resolve and deal with this complexity by suggesting a series of distinct steps
and stages which the manager can follow in the development of strategic plans.
(b) It is argued that formal and structured planning systems force managers to take a
longer-term view of strategic options and directions than they would otherwise. So, for
example, the stages of environmental and competitor analysis which form a key part of
most formalised corporate planning systems encompass planning horizons of three
years at the minimum, and in some cases up to 20 years.
(c) Formalised and structured planning systems, it is suggested, enable effective control
and evaluation. So, for example, because objectives in formal planning systems are
usually precisely specified, and because strategic direction is determined in advance,
the measurement of strategic performance is facilitated.
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6 An Introduction to Corporate Strategy and Planning
(d) Co-ordination between different functions and managers throughout the organisation
can be increased with highly formalised and structured planning systems. This is
because very often a formal planning system will require the different
functions/managers to work together towards the achievement of corporate objectives
in a manner specified in the corporate plan. Furthermore, formalised strategic plans
will normally specify and communicate to managers what they are required to do in the
context of the strategic plan.
(e) Related to co-ordination, formalised strategic planning also helps ensure that the
required resources to implement strategic plans are understood and made available.
(f) Finally, formalised planning systems can sometimes help to motivate individuals
towards the achievement of strategic objectives, particularly where they are involved in
the planning process and feel, therefore, that they have some degree of ownership of
and commitment to the process.
Disadvantages of Formal Planning Systems
(a) Highly formalised strategic planning systems may not always adequately reflect the
people and cultural elements of the organisation.
(b) Individual managers may feel absolved from any strategic planning responsibilities,
these being left to the specialist strategic planners. As a result, line managers may not
feel they own strategic plans.
(c) Highly formalised strategic plans can be restrictive, particularly where the environment
is changing rapidly. This may result in lost opportunities and a gradual loss of strategic
fit.
(d) Highly formalised strategic planning can become very cumbersome and over-detailed
requiring large amounts of analysis and information, often resulting in information
overload.
(e) Strategic planning can become a substitute for action, i.e. it can become an activity in
its own right divorced from the actual activities and plans of the organisation.
Decline of Formal Corporate Planning Departments
We can see that highly formalised and structured strategic planning has both advantages
and disadvantages. Although the design model of strategy development is still the most
prevalent model in textbooks and many organisations, it is increasingly recognised that
highly formalised and structured approaches to developing strategic plans are becoming less
appropriate and effective especially where this process is carried out in a formal corporate
planning department. Many organisations have now begun to move away from having such
a department, and instead have more informal planning systems at line manager and
strategic business unit level, albeit within an overall corporate framework
One main reason for this trend is the increasingly volatile and changing nature of the
environment which requires much more flexibility and speed of planning. Planning systems
now need to be more ideas-based and flexible, with less formalisation and adherence to
strict procedures and steps. In addition, and related to this, is the increasing emergence of
strategies from various levels of the organisation, rather than the top-down approach to
strategic planning which tends to accompany the highly formalised and structured systems.
It is increasingly recognised that, in today's environment, probably a more effective approach
to developing strategic plans is to have some structure to the planning process whilst
remaining flexible and, above all, not allowing the strategic planning process to become an
end in itself.
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