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Flashcards in SBL P3 Business Analysis ACCA Deck (227):
1

Strategic Planning

 

• considers the longer term (think of a time-horizon of about five years or beyond)
• considers the whole organisation.

• it gives direction to the whole organisation, and integrates its activities
• it considers all stakeholders
• it looks at how to gain a sustainable competitive advantage
• it relates the organisation, its resources and competences to its environment.

2

Strategy

Aim of fulfilling S/K expectations. 3 main groups to influence: Environment, Strategic capability, Expectations of Stakeholders

Strategic decisions - made under conditions of complexity and uncertainty; they have wide impact on the org and often lead to major change

Strategy: pattern of activities that seeks to achieve objectives of orgn and adapt its scope, resources & operations to environmental changes in the long term

3

Strategic Planning Process

  • Set missions
  • Establish objectives (Repeat after 7)
  • Internal & External appraisal / Sk/h Appraisal (Repeat after 7)
  • Generate strategic options
  • Strategic choice
  • Plan & implement strategy
  • Review & Control

4

Advantages of Strategic Planning

forces organisations to look ahead

improved fit with the environment

better use of resources

provides a direction/vision

helps monitor progress

ensures goal congruence

5

Disadvantages of Strategic Planning

can be time consuming and expensive

may be difficult in rapidly changing markets

can become a straightjacket

some unplanned for opportunities may be missed

can become bureaucratic

is less relevant in a crisis

6

Functions of Planning

What does planning do?

PRIME

Planning - objectives define what the plan is about

Responsibility - objectives define the responsibilities of managers and depts

Integration - objectives should support one another and be consistent; this integrates the efforts of different depts

Motivation - the first step = Objectives must be created for all areas of performance

Evaluation - performance is assessed against objectives and control exercised

7

MbO Management by objectives

SMART Goals and objectives should be

Specific

Measurable

Achievable

Realistic (or results focused)

Time-Related

8

JS&W Characteristics of Strategic Decisions

Complex

High degree of uncertainty

Implications for organisational culture

Massive impact on operational decision-making

Affect the org as a whole

Integrated approach reqd

Lead to change

 

9

JS&W 6 areas for decision making

  1. Org LT direction
  2. Scope of orgs activities
  3. Advantage in competition
  4. Adapting their activities to fit the business environment (evolving with customer reqmts)
  5. Exploit special resources and special competences
  6. S/K values and expectations

10

Planning Models - Strategy

  1. JSW: Rational Model - Strategic Planning
  2. Mintzberg: Emergent Strategies
  3. Lindblom: Incrementalism
  4. Free-wheeling Opportunism

11

Planning Model

JSW Strategic Planning (Rational Model)

Time span several years

  1. Strategic Analysis (SWOT PESTEL Cost/Benefit, Environment, Capability, Expectations)
  2. Strategic Choice (Market, Price, Location, Resource, Direction and method)
  3. Strategic Implementation (Make it happen)

12

Planning Model

Mintzberg: Emergent Strategies

-Strategic planning results from a number of ad-hoc choices, perhaps made lower down the hierarchy

-Objective of strategy is unclear and elements still develop as the strategy proceeds, continuously adapting to changes

-Strategy is evolving, incremental and continuous

13

Planning Model

Lindblom: Incrementalism

Involves small scale extensions of past practices "incrementals" which is more successful as likely to be more acceptable as consultation, compromise and accommodation were built into the process

- Rational planning impossible and likely to result in disaster if actively pursued

14

Planning Model

Free-wheeling Opportunism

  • Don't like planning really
  • Once set up and established, owner loses interest
  • Prefer to see and grab opportunities as they arise
  • Planning takes too much time and too constraining
  • Enjoys taking risks

15

Free-wheeling Opportunism - advantages

  • Flexible and can spontaneously adapt to a rapidly changing situation
  • None of the procedural constraints that formal strategic planning has
  • Decisions can be made rapidly and implemented, giving the org a competitive advantage
  • Supports & encourages an innovative culture in org

16

Free-wheeling Opportunism - Disadvantages

  • No long term vision for future
  • Threats may not be seen in advance
  • In large undertakings, sub-optimisation will occur when it is used No clear objectives to work towards

17

 

Factors to consider when determining planning method

- Size and leadership style

- Org culture and structure

- Nature of its activities

- Skills and aspirations of its managers

18

J&S

The Strategy Lenses Coming together of three areas

Strategy is likely to come from a variety of sources and a combination of Planning Models. Johnson and Scholes suggest that strategy will be formed through the coming together of three 'strategy lenses'

Strategy as design - rational top down process; mgrs analyse/evaluate strategic constraints to establish clear & rational course of strategic action

Strategy as experience - worked in past, uses this to predict future

Strategy as ideas - innovation & diversification of ideas come from all EEs

19

Environmental analysis

Environment may be divided into 3 concentric layers:

-macro environment

-industry/sector

-competitors & markets

FORECASTING

The layers and the elements within them all interact with one another

20

The Environment - Analysis of Macro Environment

PESTEL

Key drivers of change

OT of SWOT

Porters Diamond

21

The Environment - Analysis of Industry or Sector

  • Convergence
  • Porters 5 forces
  • Life Cycle Model

22

The Environment - Analysis of Competition and Markets

  • Collaboration
  • Strategic groups
  • Market segments
  • CSFs
  • Cycles of Competition

23

The Environment - Forecasting Analysis

  • Regression
  • Time Series

24

Macro Environment

PESTLE

Political taxation policy, government stability and foreign trade regs.
Economic interest rates, inflation, business cycles, unemployment, disposable income and energy availability / cost.

Social population demographics, social mobility, income distribution, lifestyle changes, attitudes to work / leisure, levels of education and consumerism.
Technological influenced by govt spending on R&D, govt and industry focus of technological effort, speed of technological transfer and rates of obsolescence.
Ecological/environmental org produce goods with min environmental damage

Legal influences e.g. taxation, employment law, monopoly legislation and environmental protection laws

25

Macro Environment

Key drivers of change

Market globalization (consumer tastes, improvements in global comms/logistics)

Cost globalization (economies of scale, experience effects, sourcing efficiencies, exch rate, high costs of product development)

Govt activity and policy (free trade, technical standardization)

Global competition (competitive forces, exit/entry strategy)

26

Economies of scale - Environment

Arise when a business grows to the extent that it is able to increase its input of all 4 types of productive resource: land, labour, capital and enterprise. The effect is to cause the whole structure of short-run costs to fall

27

Environmental Protection Policy

-Key aspect of corporate social responsibility

-Green pressure groups increased membership & influence #-Employees are increasing pressure on the businesses in which they work on safety and public image

-Legislation is increasing almost by the day

-Environment risk screening has become increasingly important

28

How green issues impinge on business

- Consumer demand for products that appear friendly

- Demand for less pollution from industry

- Greater regulation by govt eg recycling targets

- Demand that businesses be charged with the external cost of their activities

- Scarcity of non-renewable resources

- Opportunities to develop products and technologies that are environmentally friendly Taxes

29

6 ways business & environmental benefits can be achieved

1. Integrating the environment into capital expenditure decision

2. Understanding and managing environmental costs

3. Understanding and managing life cycles costs

4. Introducing waste minimisation schemes

5. Measuring environmental performance

6. Involving management accountants

30

Industry / Sector Analysis

Porters Five Forces - (use to assess if industry attractive)

Influence the state of competition in an industry, and collectively determine the profit potential of the industry as whole

Threat of new entrants to the industry

Threat of substitute products or services

Bargaining power of customers

Bargaining power of suppliers

Rivalry amongst current competitors in the industry

Govt - the 6th force - Policies - can encourage /restrict

31

Industry / Sector

Convergence review

Past: carried out separate PESTEL and 5 Forces analysis for mobile phone industry, mp3 industry, camera industry

Present: started to converge and many products (Apple i-Phone) offer all  features.  This convergence is likely to increase as technology advances ∴ companies facing greater levels of substitutes than before

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Scenario Planning

Use PESTEL and 5 Forces

Focuses on the 'most likely’ potential future market state

Gives best case and most likely scenario

Time consuming and expensive to carry out

33

Scenario building

1. Decide drivers for change

2. Bring drivers together into a variable framework

3. Produce 7-9 mini scenarios

4. Group mini scenarios into 2-3 larger scenarios

5. Write the scenarios

6. Identify issues arising

34

Industry scenario analysis (5 types)

Approaches:-

*Assume most probable - puts too much faith in scenario process / guesswork

*Hope for best - firms design strategy based scenario most attractive to them - wishful thinking

*Hedge - firm chooses strategy that produces satisfactory results under all scenarios. Not optimal.

*Flexibility - firm plays a "wait and see" game. Safer but sacrifices "first-mover" advantages

*Influence - firm tries to influence future by influencing demand for related products in order that its favoured scenario will be realised

35

Analysis of Environment

Porters Diamond

Factor conditions physical resources: land, minerals weather, capital , skills, motivation, price, industrial relations, infrastructure.

Demand conditions: demand for product / service. Determines how buyers responds / perceives - creates pressure to innovate.
Relating and supporting industries: Supported by a network of related industries.  Assist growth
Firm strategy, structure and rivalry: organisational goals can be determined by ownership structure. Unquoted companies may have slightly longer time horizons to operate in because their financial performance is subject to much less scrutiny than quoted companies.

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Diamond - Demand conditions

No cultural impediments to communications

Perceived demand of home market

Sophisticated and demanding buyers

Anticipation of buyer needs

Rate of growth

Early saturation eg US customers needs high customer service

37

Influencing the diamond

Clustering is key to national competitive advantage.

Cluster - linking of industries through relationships that are either vertical (buyer-supplier) or horizontal (common customers, technology, skills). Govt can influence context and create clusters

38

Linear regression analysis

Also known as the "least squares technique" Derives line of best fit Y=a+bX Y - dependent variable X - the independent variable a - intercept of the line on the Y axis b - gradient Don't extrapolate past set span - cannot be used to predict future reliably

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Limitations of Simple Linear Regression

1. Assumes linear relationship between variables

2. Only measures relationship between two variables

3. Only interpolated forecasts tend to be reliable (extrapolation no good)

4. Regression assumes historical data continues into the future

5. Interpolated predictions are only reliable if there is a significant correlation

40

Correlation

Relationships between two variables and is measured by r (Pearsonian correlation coefficient).

Closer r is to +/-1 the stronger the relationship between the two variables. If r>0.8: strong positive correlation

Two variables might be:

(a) perfectly correlated
(b) partly correlated
(c) uncorrelated

41

The coefficient of determination

r2 is always between 0 and 1

Higher, the more confidence one can have in the equation

Example: "factory overhead is a function of machine-hours with r2 = 0.80," ⇒ "80% of the total variation of factory overhead is explained by the machine hours and the remaining 20% is accounted for by something other than machine-hours." The 20% is referred to as the error term

42

Time series analysis

Series a b c d e

Moving average M: average of a + b or c + d

Centred average C: average of M1 and M2

Variation: M1 - b or M2 - c

43

Time series analysis - advantages

Accurate

Can be non-linear

Identifies seasonal variations

44

Time series analysis - disadvantages

Based on historical data

Less useful in the long term

Complicated

Seasons may change

45

Forecasts

Delphi Techniques:- Selecting panel of experts, each asked to produce an independent forecast. These f/casts are shared and each then goes to produce a revised f/cast. Process continues until they are in agreement and a definitive f/cast is produced Sales force opinions:- Sales mgr gathering input from the sales team and collating their opinions into an aggregate f/cast Executive Opinion:- arise from meetings of high level mgrs during which they develop f/casts based on their knowledge of their own individual areas of responsibility Market research:- Involves use of customer surveys to evaluate potential demand

46

Critical Success Factors

-Essential areas of the business that must be performed well if their mission, objectives and goals of the business are to be achieved -Performance requirements

-Features valued by customers e.g. profitability, market share

 

CSFs are measured by KPI

47

Key Performance Indicators

Quantitative - Sales, Costs, ROCE

Qualitative - Market share, Customer returns

Relative or absolute - Complaints per customer (not total complaints)

Value for money - effectiveness and efficiency

 

Example

CSF: Health & Safety

Indicator: Accident record

Mechanism: Inspection of records

48

Disadvantages of Non Financial Performance Indicators

- Setting up time consuming and costly

- Complex system that managers find difficult to understand

- No clear set of NFPI that org can use

- Comparison with other orgs limited

49

Ashbridge College Model of Mission

Links business strategy to culture & ethics through 4 separate elements:

PURPOSE - why does org exist & who for

VALUES - beliefs / moral principles that underlie org's culture

STRATEGY - provides commercial logic i.e. What is our business? what should it be?

POLICIES & STANDARDS OF BEHAVIOUR - provide guidance on how the org's business should be conducted (Mission leads to motivation) Reflects the values or expectations of stakeholders and answers the question 'what business are we in'

50

Strategic Capabilities

Individual factors that are valued by customer and hard to copy.

Assess RESOURCES and COMPETENCES against capabilities

For competitive advantage:

Unique resources - special needs of business (tangible and intangible)

Core competences - Abilities that lead to competitive advantage

Competency - Organisational Knowledge

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Strategic Capability and Resource Audits

Resource audits look at SW of SWOT. Tangible and Intangible Resources

9 Ms model - factors:-

Machinery       Mgmt

Make-up (culture, structure, brands)

Mgmt info        Markets

Materials         Men and women

Methods          Money

52

Product Life Cycle (Can be applied to industry as well as product)

Stages:

Introduction       Growth

Maturity               Decline

Senility

Consider the following cost factors for each stage:

Product development / improvement

Marketing costs               Competition costs

Production cost per unit and Total costs

53

Product Life Cycle - Introduction

(Consider customers, R&D, company, competitors, profitability)

Characteristics: slow sales growth, high unit costs

Strategic capability: Marketing skills to stimulate demand

A development stage comes before inception / introduction

54

Product Life Cycle - Growth

(Consider customers, R&D, company, competitors, profitability)

Characteristics: sales will rise, unit costs falls

Strategic capability: Resources and production capacity to meet demand

55

Product Life Cycle - Maturity

(Consider customers, R&D, company, competitors, profitability)

Characteristics: growth rate slows, profit good

Strategic capability: Competitive skills and support/defence of CSFs

56

Product Life Cycle - Decline

(Consider customers, R&D, company, competitors, profitability)

 

Characteristics: sales decline, falling profits

Strategic capability: Ability to find and exploit new growth opportunities If fail, next step...

Senility: Characteristics: loss, falling sales

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Contents of Mission Statement

Purpose

Strategy

Policies, standard of behaviour

Values

58

Advantages of Mission Statement

Help resolve stakeholder conflict

Set the direction of the organisation

Communicate values /culture internally

Helps the marketing process by communicating with customers

59

Disadvantages of Mission Statement

Full of meaningless terms like "best" - staff don't know what to aim for

Written retrospectively to justify past actions

Ignored by managers

Might simply be a public relations exercise

60

Stakeholders - types

Internal - employees

External - Govt, unions

Connected - Customers, suppliers, banks

61

Mendelow Matrix: Stakeholder Mapping

to help analyse stakeholders

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4 models of corp gov

1. Anglo saxon - fast in action but short termist and unresponsive to external criticism

2. Rhine - has more robust gov and takes a long view of investment

3. Japanese - values consensus, takes a very long view and makes decision slowly. Accountability and gov may be poor

4. Latin - emphasises the role of the state: investment likely to be for the very LT but gov may suffer from political activity

63

Implications of governance for strategy

• Increasing power of governance bodies.
• Increasing SH power, ensuring companies are run with S/H interests prioritised.
• Greater pressure on boards to formulate strategy and be seen to control the businesses concerned.
• Greater scrutiny of quoted businesses, resulting in more short-termism.
• Greater emphasis on risk assessments, so directors may feel pressured to undertake lower risk (and hence lower return) projects.
• Greater scrutiny of mergers and acquisitions in particular­­

64

Integrated Reporting

Recognises that Org is evaluated not only from financial perspective, but that a wider spectrum of stakeholders need to be considered for organisational reports.

These stakeholders are increasing concerned about areas such as governance and the organisation’s impact on society as a whole.

65

Integrated Reporting - Contents

  • Re-emphasising mission and values
  • Insight into progress made towards strategic goals
  • Communicate or reinforce its strategy to its S/K
  • Progress through relevant measures of strategic performance.
  • Failure to meet set targets can be commented upon and remedial actions, if appropriate, can be outlined.

66

Porters Value Chain

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Using the value chain

A firm can secure competitive advantage in several ways:

- Invent new or better ways to do activities

- Combine activities in new or better ways

- Manage the linkages in its own value chain

- Manage the linkages in the value network

Use to decide how individual activities might be changed to reduce costs of operation or to improve the value of the organisation’s offering

68

Value network

The organisation’s value chain does not exist in isolation. There will be direct links between the inbound logistics of the firm and the outbound logistics of its suppliers, for example. An understanding of the value system and how the organisation’s value chain fits in to it will therefore aid in the strategic planning process.

69

Shell Directional Policy Matrix

Designed as a guide to strategy

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Porter Competitive Strategy Options

Cost Leadership

Differentiation 

Focus 

71

Strategy Clock

Analyses strategies in terms of price and perceived value added. Customer will buy from the provider whose offering most closely matches their own view of the proper relationship between price and perceived benefits

Each position has its own CSF since each position is defined in market terms.

72

Strategy Clocks - positions

1 No frills (Ryan Air)

2 Low price (Dell)

3 Hybrid (IKEA)

4 Differentiation (British Airways)

5 Focused differentiation (First Class Service on Airlines)

6, 7, 8 Strategies destined for ultimate failure (high price, low perceived added value due to rival options) (iPad)

Price v Perceived Benefit (Quality)

73

Strategy Clock - Diagram

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Competitive Advantage for Success

Theory holds that relative opportunity costs determines the appropriateness of particular economic activities in relation to other countries

Competitive Strategy for Success: cost leadership, differentiation, focus

Consider how, benefits, threats, suitability

Valued, rare, robust

75

Price based strategies

SUSTAIN BY

• further cost efficiencies,
• winning price wars, or
• accepting lower margins.

76

LOCK IN STRATEGY

This approach can work for both price-based and differentiation-based strategies. It happens where a business’ products become the industry standards. Examples are:

• Microsoft Windows
• Dolby
• Internet explorer

77

Hyper-competition

where the frequency, audacity, innovation and aggressiveness of competitors creates an environment of constant movement and change. Examples are seen in:

• the impact of the internet on the music business
• technological developments in telephony
• bio-engineering/pharmaceuticals.

Repositioning on the Strategy Clock required

78

Benchmarking

Process of gathering data about targets and comparators, that permit current levels of performance to be identified and evaluated against best practice.

Compare competitive position to rivals

Adoption of identified best practices should improve performance

Historical benchmarking - internal comparison of current against past performance.

Unsatisfactory as can induce complacence

UK public sector: league tables are example of this approach.

Best in class benchmarking - looks for best practice wherever it can be found. Involves making comparisons with similar features or processes in other industries.

79

Advantages of benchmarking

Set targets / best practice

Monitoring performance between departments

Find area for improvements

Shows efficiency of the creative process

80

Disadvantages of benchmarking

Time consuming / costly

Specific / meaningless (can be about doing things right rather than doing the right thing)

Hard to gather info Info historic and maybe beyond our control

Distorts attention to benchmarked areas only (yesterdays solution to tomorrows problems)

Staff may feel threatened

Doesn't identify reasons

Depends on accurate info

81

Strategic Choice - Models to use

TOWS matrix

Ansoffs matrix

Strategy Evaluation

82

TOWS matrix

Exploits SWOT strategies:

SO - use strengths to maximise opportunities (maxi maxi strategy)

ST - use strength to minimise threats (maxi mini strategy)

WO - minimise weaknesses by taking advantage of opportunities (mini maxi strategy)

WT - minimise weaknesses and avoids threats (mini mini strategy)

83

Ansoffs Matrix

Growth Vector Matrix

Describes how a combination of a firms activities and new products can lead to growth

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84

Strategy is assessed by considering:

EVALUATION of Strategic Choice

Suitability - consider OT of SWOT

Acceptability - stakeholders like? Cash? Risk/Return

Feasibility - consider SW of SWOT For each item above draw a conclusion

 

Use the above to evaluate Financial Choices

85

Strategic Development

Logical incrementalism

Develops strategy in small experimental steps.

Resource allocation procedures may lead to the emergence of strategy, as may the cultural processes that make up the paradigm

Simple and static conditions permit the planning approach.

Stable but complex environments promote decentralisation of strategic development.

Assess: Suitability, Feasibility, Acceptability

86

Alternative Methods of Strategic Development

 

Acquisition

Organic growth

Joint venture

Franchising

87

Acquisition - Advantages

it is a quick way to grow

there can be synergistic gains

acquire the necessary strategic capabilities

overcomes barriers to entry

can choose a target that fits best (see portfolio analysis later)

enhances reputation with finance providers

88

Acquisition - Disadvantages

can be very expensive

synergies are not automatic

can lead to cultural clashes

there may be legal barriers to overcome (e.g. competition law)

all parts of the target are acquired (including its problems)

requires good change management skills

89

Organic Growth - Advantages

can spread the cost

no cultural clashes or control issues

can be set up in any way

may get access to government grants

easier to terminate

can be developed slowly (less risk)

90

Organic Growth - Disadvantages

lack of experience in new areas

less attractive to finance providers

there may be barriers to organic entry

it may be too slow

no access to skills, reputation etc. or other strategic capabilities required for success

managers may be spread too thinly

91

Joint Venture - Advantages

can share the set-up and running costs

can learn from each other

can focus on relative strengths

may reduce political or cultural risks

it is better than going it alone and then competing

92

Joint Ventures - Disadvantages

can often lead to disputes

may give access to strategic capabilities and eventually allow the partner to compete in core areas

there may be a lack of commitment from each party

requires strong central support which may not be provided

transfer pricing issues may arise and performance appraisal can be complicated

93

Franchising - Advanatages

receive an initial capital injection

can spread brand quickly

easy to terminate

a good way to test the market before full investment

franchisee may provide better local knowledge

franchisor management can focus on strategic rather than operational issues

94

Franchising - Disadvanatages

share profits

may give access to strategic capabilities and eventually allow the partner to compete in core areas

there may be a lack of goal congruence

there is a loss of control over quality, recruitment etc.

there may be a lack of consistency across franchises

it may be difficult to attract franchisees

 

95

Corporate Parenting

Looks at the relationship between HQ and individual business units. This will become more important if a business follows the route of growth through acquisitions – the aim will be to become a good "parent" to new subsidiaries.

Goold and Campbell (1991) identified three broad approaches or ‘parenting’ styles reflecting the degree to which HQ becomes involved in the process of business strategy development.

 

96

3 approaches to parenting style Goold & Campbell Theory

Strategic Planning - Head office decides everything

Financial control - Subsidiary decides how to get there within set financial targets Strategic

Control - in between of above two

97

3 approaches to Corporate Strategy JSW

Rational for adding value

A well-managed corporate parent should be able to add value. In their book, Exploring Corporate Strategy, Johnson, Scholes and Whittington identify three corporate rationales or roles adopted by parents in order to do this:

Portfolio Manager - ran all subs separately eg Virgin

Synergy Managers - Integrate as far as possible eg Tesco

Parental Developers - Provide help when needed

98

BCG Matrix

Where does SBU fall e.g. Can use to consider where a new SBU would fall

Market means whole industry, not parent group of companies

Can also use for different products

 

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99

BCG

PROBLEM CHILD / QUESTION MARK

Need little capex

Strategy - build / harvest

100

BCG

STAR

Requires capex in excess of cash generated

Strategy - build

101

BCG

DOG

May be ex cash cow fallen on hard times

Strategy - hold or harvest

 

102

BCG

CASH COW

Need little capex

Strategy - hold or harvest

103

Strategic Characteristics of Public Sector

- influence of ideology on strategy

- external influence and control by govt

- political constraints on funding and strategic choices

- reqd to provide a universal service

- competition for resource inputs

- demonstrate best value in outputs

- demonstrate in social outcomes

104

Ashridge Model

Considers where SBU or product should move next

Assess benefits SBU can derive from HQ

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105

Factors affecting organisational structure

 

The links between strategy and structure

The influences that have a bearing on organisational structure and design include:

• strategic objectives
• nature of the environment
• diversity
• future strategy
• technology
• people.

106

Basic Structural Types

- Entrepreneurial: quick flexible decisions, too slow for large companies, Lack of specialism / expertise in some areas

- Functional / Bureaucratic: people are organised according to the type of work that they do

- Multidivisional: divides  org into semi-autonomous divisions that may be differentiated by territory, product, market

- Holding company: extreme form of Multidivisional in which divisions are separate legal entites

- Matrix: attempts to ensure co-ordination across functional lines by embodiment of dual authority in org structure

- Transnational: attempts to reconcile global and scale with local responsiveness

- Team: extend matrix approach by using cross-functional teams

- Project: extend matrix approach by using cross-functional teams; Projects naturally come to an end and so project teams disperse

107

Advantages of centralisation

Control - senior mgmt have greater control over activities and sub-ordinates

Corporate view - senior managers can make decisions from the point of view of the org as a whole

Balance of power - between different fxns and depts

Experience counts - senior mgrs more experienced

Standardisation - procedures throughout org

Lower overheads - authority in one place so no duplication of mgmt effort

Leadership - useful in times of crisis

108

Advantages of decentralisation

Workload-it reduces stress and burdens of senior management

Job-provides subordinates with great job satisfaction by giving them or saying what they do

Local knowledge-subordinates may have better knowledge and senior management

Flexibility and speed-delegation should allow greater flexibility and quick response to change.

Training-management at middle and lower levels groomed for eventual senior management positions

Control by establishing appropriate subunits or profit centres to which authority is delegated, the system of control within the organisation might be improved

109

Organisational configuration (Mintzberg theory)

Way of expressing the main features by which both formal structure and power relationships are expressed in organisations

Theory suggests there are five ideal types of organisation each of which configures five standard components in a different way.

Each component of the organisation has its own dynamic which leads to a distinct type of organisation.

 

110

Mintzberg Theory

Building blocks and co-ordinating mechanisms

Org structure exists to co-ordinate the activities of different individuals and work processes and that the nature of co-ordination changes with the increasing size of an organisation. Building Blocks:

• strategic apex – higher levels of management
• technostructure – provides technical input that is not part of core activities
• operating core – members involved in producing goods
• middle line – middle and lower-level mgmt
• support staff – support that is not part of the operating core
• ideology – beliefs and values.

111

Mintzberg

Simple Structure

Environment: Simple/ dynamic

Internal factors: Small, Young, Simple tasks

Key building block: Strategic apex

Key co-ordinating mechanism: Direct supervision

112

Mintzberg

Machine Bureaucracy

 

Environment: Simple/static

Internal factors: Large, Old, Regulated tasks

Key building block: Techno-structure

Key co-ordinating mechanism: Standardisation of work

113

Mintzberg

Professional Bureaucracy

Environment: Complex/ static

Internal factors: Professional control, Simple systems

Key building block: Operating core

Key co-ordinating mechanism: Standardisation of skills

114

Mintzberg

Divisionalised

Environment: Simple/static, Diverse

Internal factors: Very large, Old, Divisible tasks

Key building block: Middle line

Key co-ordinating mechanism: Standardisation of outputs

115

Mintzberg

Adhocracy

Adhocracy - complex and disorderly, little formalisation of behaviour, relies on expertise of its members, but not through standardised skills.

Environment: Complex / dynamic

Internal factors: Young, Complex tasks

Key building block: Operating core / Support staff

Key co-ordinating mechanism: Mutual adjustment

116

Mintzberg

Missionary

Environment: Simple/static

Internal factors: Middle-aged / Simple systems

Key building block: Ideology

Key co-ordinating mechanism: Standardisation of norms

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Mintzberg

Link between the structures and the building blocks

As the business and its structure grows, different building blocks develop and can become more important:

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Classification of control processes

Organisations and their strategies are managed and controlled by the formal and informal processes at work within them. There are a number of different possible processes, any or all of which may operate alongside one another. These processes may be:

• formal or informal
• focused on inputs or on outputs
• direct or indirect processes.

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Strategic Alliances

Co-operative business activities, formed by two or more separate organisations for strategic purposes.
Ownership, operational responsibilities, financial risks and rewards are allocated to each member, while preserving their separate identity and autonomy.
Long-term collaborations bringing together the strengths of two or more organisations to achieve strategic goals.
Can also help result in improved access to information and technology.
Used also to retain some of the innovation and flexibility that is characteristic of small companies.
Used to extend an org’s reach without increasing its size.

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Shamrock organisation

Also known as the flexible firm has a core of permanent managers and specialist staff supplied by a contingent workforce of contractors and part-time and temporary workers. Popular during recessions

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Virtual Organisation

Geographically distributed network with little formal structure, probably held together by IT applications, partnerships and collaboration Aka cybernetic corporation Depend on electronic linking in order to complete the production process

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Missionary Organisation

Org welded together by ideology or culture. There is job rotation, standardisation of values and little external control. This relates to ideology, the force for cooperation. This kind of configuration features simple systems and network relationships in team structures. It works well in a simple and static environment.

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Boundaryless Organisation

Aim of BO is to remove barriers to growth and change and ensure EEs, org, customers and suppliers can collaborate, share ideas and identify best way forward for org. Boundaries found in orgs are:

• Vertical boundaries - remove boundary between authority
• Horizontal boundaries - remove boundary between functions
• External boundaries - remove boundary between customers & suppliers

3 main types of BO:

• Hollow structure – where non-core activities are outsourced
• Modular structure – where some parts of product prdn are outsourced 
• Virtual structure – where org made up of collaboration of other org parts

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Major challenges for org structures

- Flexibility of organisation design

- Effective systems

- Globalisation

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Types of change

Within Organisation

Change required, extent and speed of it

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Harmans Process Strategy Matrix

(Business Processes)

Reviews Process Importance & Complexity to assess it

According to Paul Harmon a process-strategy combines strategic importance of a process with process complexity and dynamics

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Commoditisation of business processes and outsourcing

Commoditisation is the evolutionary process that reduces all products and services to their lowest common denominator

• There is comparability between the firm’s processes and the competences of outside suppliers.
• There is standardisation of processes making it easy to assess whether the process will be improved by outsourcing and to find appropriate outsource agents.
• The costs of outsourcing these services can be lower than the cost of providing them internally.

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Advanatges of Business Process Outsourcing (BPO)

• Cost savings (currently the main decision-making factor).
• Improved customer care.
• Allows management to focus on core activities.

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Disadvanatges of Business Process Outsourcing (BPO)

• as more processes become commoditised, it is more difficult for organisations to differentiate themselves from rivals
• problems finding a single supplier for complex processes, resulting in fragmentation
• firms are unwilling to outsource whole processes due to the strategic significance or security implications of certain elements
• inflexible contracts and other problems managing suppliers
• problems measuring performance
• data security.

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Improving processes

AKA

Business Process Re-engineering or Redesign (BPR)

Business Process Management (BPM)

Business Process Improvement (BPI)

Redesign: starts with a clean sheet of paper

Simplification: eliminates redundant process elements

Value added analysis: eliminates activities that do not add value

Gaps and disconnects: target problems at departmental boundaries

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Business process re-engineering

Challenges basic assumptions about business methods and objectives they are designed to achieve.

IT useful BPR: fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance ie cost quality, service and speed. Planning, analysis, redesign, development, transition

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IT substituting products - examples

1. Video conferencing subs for air transport

2. IT is the basis for new leisure activities (computer games) which subs for TV or other pursuits

3. Email subs for postal deliveries

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Advantages of Using Generic Software Solutions

• Cheaper to buy than bespoke solutions are to develop.
• Available almost immediately.
• System bugs discovered by vendors before sale
• Good packages are likely to come with good training and on-screen help facilities.
• New updated versions of software likely to be available on a regular basis.

• The experience of many users with similar needs has been incorporated into the design
• Different packages will be available for different operating systems or data structures.

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Disadvantages of Using Generic Software Solutions

• Do not fit precisely org needs – compromise may be necessary
• Org is dependent upon an outside supplier for maintenance of  software; many software suppliers are larger than most of their customers, and are therefore difficult to influence.
• Different packages used by org may have incompatible data structures.

• Using same packages as rival organisations removes opportunity of using IS for competitive advantage.

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Implementation of IT system

  • data migration – transferring data from old to new
  • training – training staff on new system
  • changeover – introducing new system to business operations

Changeover techniques

• Parallel running
• Direct changeover
• Phased

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ERP systems

Based on limited standardised modules. Organisation must adapt to the standard system rather than designing its own most appropriate and efficient process. However, adapting a standard package to local requirements, destroys the advantage of purchasing the standard package and introduces further complications.

Harman's view: you begin with a solution. Rather than analysing what happens currently and then developing an improved system, ERP forces the organisation to adjust itself to the requirements of the software

Davenport's view: process standards will have a positive effect on how business is conducted.

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Barriers to entry and IT

Porters 5 Forces

Can raise entry barriers by increasing economies of scale, raising the capital cost of entry or effectively colonising distribution channels by tying customers/suppliers into the supply chain or distribution chain

IT can surmount entry barriers - use of IT can dec the costs of selling/distribution and even substitute for traditional methods entirely eg internet banking

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Bargaining power of customers re IT

(state evidence and if high or low)

 

Porters 5 Forces

1. IT can raise switching costs by locking customers into networks

2. Customers info systems can enable a thorough analysis of marketing info so that prdts and services can be tailored to the needs of certain segments

3. Customers also have access to improved info; this can increase their bargaining power

4. Suppliers can gain access to larger number of customers, reducing their dependencies on a few large buyers

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Bargaining power of suppliers and IT (state evidence and if high or low)

 

Porters 5 Forces

1. Increasing the number of accessible suppliers. Supplier power can derive from various factors such as geographical proximity and the fact that the org requires goods of a certain standard in a certain time. IT enhances supplier info available to customers

2. Closer supplier relationships. Suppliers' power can be shared. CAD can be used to design components in tandem with suppliers. Such relationships might be developed with a few key suppliers. The supplier and the org both benefit from performance improvement, but the relations are closer.

3. Switching costs. Suppliers can be integrated with the firm's administrative operations, by a system of electronic data interchange

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Threat of new entrants

(state evidence and if high or low)

 

Porters 5 Forces

2 considerations:- Barriers to entry, Response of competition

Barriers to entry:- Scale economies Product differentiation Capital requirements Knowledge requirements Switching costs for customers Access to distribution channels Cost advantages of existing producers, independent of economies of scale: Patent rights, experience and know how, govt subsidies and regs, favoured access to raw materials

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Threat from substitute products

(state evidence and if high or low)

Porters 5 Forces

Eg video conferencing instead of overseas travel

Threat high if: Sub offers an attractive to alternative to the industry's product in terms of price and performance - buyer's cost of switching to the sub is low

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Rivalry amongst competitors

(state evidence and if high or low)

Porters 5 Forces

Factors determining the intensity of competition

-Market growth (slow)

-Cost structure (high fixed costs)

-Switching (suppliers can compete)

-Capacity (high vol business)

-Uncertainty (of what other firms are doing)

-Strategic importance (success is prime strategic objective)

-Exit barriers (make it difficult for an existing supplier to leave the industry eg FAs, redundancy pymts, mgr reluctance, govt pressure)

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IT and the state of competitive rivalry

1. IT can be used to support a firm's competitive strategy of cost leadership, differentiation or focus.

2. IT can be used in a collaborative venture, perhaps to set up new comms networks. Some competitors in the financial services industry share the same ATM network

Strategic group = competitors and collaborators

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E BUSINESS

E business : transformation of key business processes through use of Internet technologies

E-commerce: E-business that includes a financial transaction.

6 benefits:

  • costs are reduced
  • capability is increased
  • communications are improved
  • control is enhanced
  • customer service is improved
  • competitive advantage may be achieved, depending on competitors' reactions

Obstacles to adopting e-business: lack of skills, Internet use and awareness in businesses and population; and fears about privacy, effectiveness, cost, security etc

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Stages of E-Business

  • Web presence
  • E-commerce
  • Integrated e-commerce
  • E-business

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Risks to Computer System

• Dissatisfied employees might deliberately modify or destroy information in the system.
• A hacker or industrial spy might break into the system.
• Viruses or malicious software could be introduced.
• Accidental mistakes could be made on input to the system.
• Inadequate security of the hardware or data.
• Faults in the hardware system.

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Controls on a Computer System

  • General
  • Application
  • Software
  • Network

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E BUSINESS & VALUE CHAIN

  • Disintermediation - intermediaries removed eg Amazon
  • Reintermediation - establishment of new intermediary roles for traditional intermediaries that were dis-intermediated eg Kelkoo
  • Counter-mediation - creation of a new intermediary by an establishment company in order to compete via e-business with established intermediaries eg B&Q setting up DIY.com to help people do their own DIY

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Push supply chain models

• Products are built, distributed, and ready for the customer demand.
• Product design is led by the manufacturer.
• Product quality is often determined by RM suppliers and component manufacturers.
• Little product personalisation to customers.
• Low set-up costs and economies of scale are possible.
• Inventories are built up waiting for customers to demand them (a push system is sometimes referred to as a Make to Stock (MTS system)).

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Pull supply chain models

• Planning for a product starts when the customer places the order and creates firm demand.
• Product design is often customer led (a pull system is sometimes referred to as a Make to Order (MTO system)).
• Personalisation of the product by the customer is possible.
• Inventory levels are minimised (systems such as JIT and TQM can be used).
• Lead times can be much higher.
• Set-up costs are higher and economies of scale are not always possible.

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Restructuring the supply chain

 Vertical disintegration: various diseconomies of scale or scope have broken a production process into separate companies, each performing a limited subset of activities required to create a finished product.

Vertical integration: style of ownership and control with companies united through a hierarchy and sharing a common owner.  Difficult to determine where one legal entity ends and another starts. Operate as a single organisation with shared goals, processes and sometimes corporate cultures.

Virtually integration: core business functions, as well as non-core functions, take place in external organisations. Tightly organised, often difficult to determine where one legal entity ends and another starts.

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Benefits of e-procurement

  • savings in labour and procurement costs
  • better inventory control
  • better control over suppliers (may even be able to influence their design and production)
  • reduction in errors

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Risks of e-procurement

  • become over reliant on the technology
  • there may be staff resistance
  • cost savings may fail to materialise
  • prices may become out of date or uncompetitive

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E BUSINESS RAPPA'S 9 BUSINESS MODELS

CUB SIM MAA

Community model - Where users themselves invest in a site e.g. by the contribution of content, money or time. This can be combined with other models, e.g. advertising or subscription

Utility model - Model based on metered usage or pay-as-you-go

Brokerage model - Those that bring buyers and sellers together and facilitate transactions

Subscription model - Where consumers pay for access to the site, usually for high added value content e.g. financial information

Infomediary model - Collecting data about consumers and their purchasing habits and selling this information to other business

Merchant model - selling of goods and services on the traditional retail model

Manufacturer model - Direct selling by the creator of a product or service to consumers, cutting out intermediaries

Affiliate model - Offering financial incentives to affiliated partner sites

Advertising model - supported by advertising revenue, a website will provide content and services together with advertising e.g. Banner ads

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Stages of Marketing

Stages for marketing a product:

  1. Market analysis - identify gaps / opportunities in business' environment
  2. Customer analysis – divide potential customers into segments with similar purchasing characteristics
  3. Market research – determine characteristics of each segment e.g. size, potential, level of competition, unmet needs
  4. Targeting – deciding which segments to target (PESTEL, 5 forces and forecasting)
  5. Marketing mix strategies – developing a unique marketing mix for each segment in order to exploit it properly.

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Marketing mix 4Ps

Set of controllable variables and their levels that the firm uses to influence the target market

Product, price, place and promotion Place - channel, logistics

Service: People, processes (ticketing system), physical evidence (tickets)

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E Marketing

The application of the Internet and related digital technologies to achieve marketing objectives Developing an effective e-marketing plan:

SOSTAC

Situation analysis - where are we now

Objectives - where do we want to be

Strategies - how do we get there

Tactics - what are the individual steps we need to take

Actions - what are the things we need to do

Control - what we will measure to know we are succeeding

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E Marketing 7Ps

  • product
  • price
  • promotion
  • place
  • people/participants (e.g. having adequately trained staff and support services)
  • process (e.g. payment and delivery processes)
  • physical evidence (e.g. website layout and navigation).

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Pricing Methods

BBC

CGL

N

PPPPP

Bait pricing – lowest priced model advertised in the hope of attracting customers to the line and decide to buy a higher priced item from the range.

Bundle pricing – 2+ products packaged together & sold 1 price

Captive product pricing – must buy two products. First one cheap to attract customer (customer is captive) but 2nd expensive

Cost plus pricing – cost per unit calculated + mark-up

Going rate pricing – prices are set to match competitors.

Loss leaders – sold at a loss with expectation that customers will then go on and buy other more profitable products.

Negotiated pricing – price through bargaining

Penetration pricing – a low price is set to gain market share.

Perceived quality (or prestige) pricing –high price is set to reflect/create an image of high quality.

Periodic discounting –temporary reduction in prices for a limited period

Price discrimination – different prices for the same product in different markets, e.g. peak/off-peak rail fares.

Price skimming – high prices are set when a new product is launched. Later the price is dropped to increase demand (customers willing to pay more  been ‘skimmed off')

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Factors Determining Price

  • Cost (ensure all costs are covered)
  • Customers (how much customers willing to pay)
  • Competitors (how much competitors are/will be charging)
  • Corporate objectives (what we are aiming to achieve e.g. low price may be necessary when we are trying to break into a new market).

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The elasticity of demand

The relationship price and demand is also affected by the elasticity of demand for the product

Low elasticity products (i.e. where a large change in price only creates a small increase in volume) the normal strategy is to increase prices slightly so that overall revenue and profits increase. (The opposite applies when elasticity is high.)

Inelastic products are usually ones where there are few substitutes and customer needs are high (such as utilities and petrol).

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E-marketing 6Is

Used to develop plans to accommodate the characteristics of the new media

  • Interactivity
  • Intelligence
  • Industry structure
  • Integration
  • Individualisation
  • Independence of location

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Customer Life Cycle

Selection

Acquisition

Retention

Extention

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Reasons for Segmenting Markets

Better satisafaction of customer needs - one solution will not satisfy all customers

Growth in profits - some customer will pay more for certain benefits

Revenue growth - segmentation means that more customers may be attracted by what is on offer, in preference to competing products

Customer retention - by targeting customers, a number of different products can be offered to them

Targeted communications - segmentation enables clear communications as people in the target audience share common needs

Innovation - by identifying unmet needs, companies can innovate to satisfy them

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Bases for Segmentation

Geographical - relies heavily on personal selling. Can be combined with socio-demographic segmentation

Psychological or Lifestyle Segmentation - people's subjective feelings and attitudes towards a particular product/service/life

Behavioural segmentation - attitudes to and use of product, and benefits they expect to receive. Considers usage rate, impulse, brand loyalty, sensitivity. (Sensory segment, Sociables, Worriers, Independent)

Socio Demographic Segmentation - based on social, economic and demographic variables

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Project management

Integration of all aspects of a project, ensuring that the proper knowledge and resources are available when and where needed, and above all to ensure that the expected outcome is produced in a timely, cost effective manner.

Successful - if completed at specified level of quality, on time and within budget

Quality - end result should conform to project specification.

Budget - without exceeding authorised expenditure

Timescale - progress must follow the planned process, so that the 'result' is ready for use at the agreed date.

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Project life cycle

• initiation
• planning
• execution
• control
• completion

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Projects - Contents of a Business Case

• an assessment of the current strategic position
• the constraints that are likely to exist for any project
• the risks that might arise for the project and how these will be managed
• an assessment of the benefits and costs of performing the project and how these will be managed

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Risk Management Matrix

(assessing risk found during a project)

Leads to plans on how each risk should be dealt with

Can trf by: Insurance, disclaimer, Waiver, Inductions

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Project - key drivers

The key drivers of any project will be the business strategy and the organisational objectives. Before work commences on a project, it is important that these drivers are understood and discussed. This is known as driver analysis.

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Projects: Assess Benefits of

Benefits should be

(1) Observable
(2) Measureable
(3) Quantifiable
(4) Financial

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Project Appraisal

Assessment of the financial rewards that may be derived from the project. Appraisal methods:

• accounting rate of return (ARR)
• payback period
• net present value (NPV)
• internal rate of return (IRR)

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Project Appraisal: ARR

Accounting Rate of Return

Decision criteria

• The ARR for a project may be compared with the company's target return and if higher the project should be accepted.
• Faced with a choice of mutually-exclusive investments, the project with the highest ARR should be chosen.

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Project Appraisal: Pay back period

The time a project will take to pay back the money spent on it. Based on expected cash flows and provides a measure of liquidity.

It is often assumed that the cash flows occur evenly during the year.

Decision criteria

• Compare the payback period to the company's maximum return time allowed and if the payback is quicker the project should be accepted.
• Faced with mutually-exclusive projects choose the project with the quickest payback.

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Project Appraisal: NPV

The net benefit or loss of benefit in present value terms from an investment opportunity.

Represents the surplus funds (after funding the investment) earned on the project. This means that it tells us the impact on shareholder wealth. Therefore:

Decision criteria

• Any project with a positive NPV is viable.
• Projects with a negative NPV are not viable.
• Faced with mutually-exclusive projects, choose the project with the highest NPV.

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Project Appraisal: IRR

Internal Rate of Return

This is the rate of return at which the project has a NPV of zero.

Decision criteria

• If IRR is greater than cost of capital, project accepted.
• Faced with mutually-exclusive projects choose the project with the higher IRR.

The advantage of NPV is that it tells us the absolute increase in shareholder wealth as a result of accepting the project, at the current cost of capital. IRR simply tells us how far the cost of capital could increase before the project would not be worth accepting.

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Project Plan

• communicate what has to be done, when and by whom
• encourage forward thinking
• provide the measures of success for the project
• clarify time, resources, and money required for project
• determine if targets achievable
• identify activities the resources need to undertake.

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Project Initiation Document

PID

Formal, detailed document which contains planning information extracted from other sources such as

• business case
• the dissemination plan
• the risk assessments
• Gantt charts

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Contents of Project Plan

Overview of project

Project resources

Detailed Plan

Evaluation Plan

Dissemination Plan

Exit and Sustainability Plan

 

 

 

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Project Control

Controlling the project means:

• taking early corrective action when needed
• balancing project effort
• looking for where effort can be reduced
• making changes early rather than late.

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Post Project Review

It typically involves:

• disbanding the team and ‘tying up loose ends’
• performance review
• determination of lessons learnt
• formal closure by the steering committee.

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Project Management Software - Advantages

• Improved planning and control.
• Improved communication.
• Improved quality of systems developed.

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Project Management Software - Planning

Planning:

• The ability to create multiple network diagrams.
• The ability to create multiple Gantt charts.
• The ability to aid in the creation of the PID.

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Project Management Software - Estimating

 

• The ability to consider alternative resource allocation.
• The ability to create and allocate project budgets.
• The ability to allocate time across multiple tasks.

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Project Management Software - Monitoring

• Network links to all project team members.
• A central store for all project results and documentation.
• Automatic comparison to the plan, and plan revision.

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Project Management Software - Reporting

• Access to team members.
• Ability to create technical documents.
• Ability to create end of stage reports.

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SBU Strength Matrix

Public Sector

NFP

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NFP - Measures for Service Efforts

VFM?

Input measures- economy

Output measures - effectiveness

Output measures - achievement of objectives

Efficiency measures - Inputs v outputs

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NFP

Cost efficiency

Price competition makes cost efficiency fundamental to survival

Achieved in 4 main ways

1. Exploitation of scale of economies

2. Control of the cost of incoming supplies

3. Careful design of products and processes

4. Exploitation of experience effects (experience curve, as output increases, cost per unit falls)

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Value management in NFPs

An alternative strategy model developed for use with government organisations focuses the attention of managers on three key issues:

• public value to be created
• sources of legitimacy and support for the organisation
• operational capacity to deliver the value.

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Funding strategies for NFPs

Need core costs covered:

• Costs that will always need to be funded, regardless of the number of projects and
• Fundamental to the organisation’s survival, even if they cannot be directly associated with any specific outcome.

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NFP

Funding Strategies Required

  • Infancy
  • Growth
  • Maturity
  • Maintenance

Funding strategy different at each stage

 

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NFP

Factors to consider when choosing a financing package

cc cages

  • Cost
  • Control
  • Cash flow
  • Availability
  • Gearing
  • Exit routes
  • Security

(GOVT, EQUITY, DEBT)

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Problems with standard costing in modern environments

(Activity Based Costing Preferred)

• Products are often non-standard
• Standards can become quickly outdated
• Production is highly automated
• Often an ideal standard is used
• Modern envmts more concerned with continuous improvement
• Modern managers need more detailed info
• More 'real time' performance measures are needed

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Cost Drivers & Pools for ABC Costing

• A cost pool is an activity that consumes resources and for which overhead costs are identified and allocated. For each cost pool, there should be a cost driver.
• A cost driver is a unit of activity that consumes resources. An alternative definition of a cost driver is a factor influencing the level of cost.

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Advantages of ABC

• More accurate cost per unit ∴  pricing, sales strategy, performance management and decision making improved
• Better insight into what drives overhead costs.
• Recognises that O/H costs are not all related to prdn and volume
• Allows mgmt of cost drivers by mgrs (drivers identified)
• Derives realistic costs in complex business environment.
• Can be applied to O/H costs, not just production O/H.
• Easy to use in service costing as in product costing

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Disadvantages of ABC

• Benefit limited if O/H costs are primarily volume related or if the O/H is small proportion of overall cost.
• Impossible to allocate all O/H costs to specific activities.
• Choice of both activities and cost drivers might be inappropriate.
• Can be more complex to explain to S/K of the costing exercise.
• Benefits obtained might not justify costs.

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Dealing with Risk

EV

EV summarises all the different possible outcomes by calculating a single weighted average (Long run average or mean).

Not the most likely result; average outcome if the same event was to take place thousands of times.

EV = Σpx

x represents the future outcome

p represents the probability of the outcome occurring

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Purpose of Budgeting

(1) Planning
(2) Control
(3) Co-ordination
(4) Communication
(5) Motivation
(6) Evaluation
(7) Authorisation

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Master or Functional Budget

Master budget: entire organisation; brings together the departmental or activity budgets for all the departments or responsibility centres within the organisation.

Functional budgets: eg sales budget.

 

When a key resource is in short supply and affects the planning decisions, it is known as the principal budget factor or limiting budget factor.

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Variance Reporting

Factors to consider before investigating

• size of the variance
• whether favourable/adverse – firms often treat adverse variances as more important than favourable
• correction costs versus benefits
• ability to correct
• past pattern
• budget reliability
• reliability of measurement/recording systems.

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The Strategic Role of HR

Strategic analysis, HRM can generate strengths and opportunities for a business (or poor HRM might create weaknesses and threats).
Strategic choices, HRM can help a business to develop and sustain competitive advantage.
Strategy into action, HRM can play a vital role in creating good project managers, redesigning processes, achieving a flexible organisational structure etc.

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Goals of HRM

4Cs

Strategies to be successful HRM must be effective in 4 areas (4C's):

• commitment (requires good motivation and leadership)
• competence (requires good recruitment, assessment, training, staff development)
• congruence (requires good job design)
• cost-effectiveness (normally comes from the achievement of the others).

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Approaches to Leadership

transformational or charismatic leaders who provide a vision, inspire people to achieve it by instilling pride and gaining respect and trust. These leaders appear to be particularly effective in times of change and uncertainty


transactional leaders who focus on managing through systems and processes. These leaders are likely to be more effective in securing improvement in stable situations.

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Transactional leadership

• Clarify goals and objectives and the focus is on short term
• Focus on control mechanisms
• Solving problems
• Maintain status quo or improve current situation
• Plan, organise and control
• Guard and defend existing culture
• Positional power exercised

Suitability

This is best suited to static, predictable environments.

 

 

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Transformational leadership

• Establish long-term vision
• Create a climate of trust
• Make people solve their own problems by empowerment
• Change the current situation. Every threat is seen as an opportunity
• Train, coach, counsel and mentor people
• Change culture
• Power comes from relationships and influencing people. The pressure exerted is subtle and has greater finesse

Suitability

This is best suited to environments where change is inevitable and may be unpredictable

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Approaches to Job Design

scientific management (have very specific job roles, strict limits and controls over employee actions, and a standardisation of job roles across staff levels)
job enrichment (belief that it could improve job satisfaction and hence performance by meeting the need for factors identified by Herzberg as motivators (achievement, recognition, attraction of the job itself, responsibility and advancement))
Japanese management (TQM, with every employee taking responsibility for quality, taking part in quality improvement activities and carrying out QC of their own work; cellular manufacturing to improve flexibility, with assembly of complete components carried out by a team of flexible, multi-skilled workers)

business process re-engineering. (involves establishment of a more horizontal structure with work carried out by self-managed teams with a degree of autonomy; makes extensive use of IT to enable new forms of working and collaborating within an org and across organisational boundaries)

 

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Factors to consider when choosing a job design

 

• the organisation's goals
• the need for staff motivation
• the need for control over staff actions
• ethical issues
• legal issues.

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Methods of Establishing HR Development

 Systematic approach

  • Focuses on needs
  • Often off-the-job
  • Formal
  • Can be employee driven
  • Needs a predictable environment 

 Integrated approach

  • Creates a learning culture
  • Happens within the organisation itself
  • Uses coaching and mentoring
  • Uses competency frameworks
  • HRM closely linked with other key activities

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Competency Frameworks

Competences are expressed in visible, behavioural terms and reflect the main components of the job which must be demonstrated to an agreed standard and must contribute to the overall aims of the organisation. Competency frameworks cover the following categories:

• communication skills
• people management
• team skills
• customer service skills
• results-orientation
• problem-solving.

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Aims of Knowledge Management

Capture, organise and make widely available all the knowledge the org possesses,

Organisational knowledge - the collective and shared experience accumulated through systems, routines and activities of sharing across the org. Is a strategic capability

Data then info then knowledge

Knowledge - trends in information

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Knowledge Management

Success is dependent on how effectively information is turned into useful knowledge that is then applied to products and processes.

KM: how to acquire, share, retain and use info, knowledge and experience, and how to build on and develop it.

Explicit Knowledge: formal e.g. content of reports, spreadsheets or manuals

Tacit Knowledge: informal, not written down, and includes knowledge, understanding of good practice and mgmt skills.

Both types of knowledge need to be managed.

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How do we create knowledge

4 processes using info:-

1. Comparison with earlier experience

2. Consequences - the implication of info

3. Connections - relationships between items

4. Conversation: discussion with others

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Analysing the Business Overall

People play a vital role in supporting strategy, facilitating organisational change and making business systems work efficiently.

To maximise business opportunities it is important that changes and opportunities are assessed across a wide range of views.

The POPIT (or four-view) model provides details of the key aspects that should be considered in managing changes within any business system:

People, Organisation, Processes, IT

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Emergent Strategy

set of actions that is consistent over time, has not been stated in a formal plan and has developed or emerged outside the formal plan and between planning reviews

Focuses on learning – there are many different ways that organisations can learn to add value to their product or service through areas such as process redesign and e-business.

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Strategic innovation

Creation of growth strategies, new product categories, services or business models that change the game and generate significant new value for consumers, customers and the organisation.

Focuses on control

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Unrealised Strategies

Unrealised strategies - come about because:

• Org’s underlying assumptions turn out to be invalid
• Pace of development overtakes it
• Changes in org’s external environment, e.g. changes in the market for the goods and services that the firm produces and in the nature of the competition facing the company
• Organisation’s internal environment changes.

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Cristicisms of Rational Strategic Planning Process

Ignores the effects of:

• cultural influences in maintaining strategic stability and sometimes resisting strategic change
• power structure within the organisation
• effect of politics and the relative influence on the decision-making of different individuals and groups.

 

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Strategic Drift

Where the organisation’s strategy gradually, if imperceptibly, moves away from the forces at work in its environment.

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Types of strategic change

 

Change can be classified by the extent of the change required, and the speed with which the change is to be achieved:

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Organisational Culture

Culture is the set of values, guiding beliefs, understandings and ways of thinking that are shared by the members of an organisation and is taught to new members as correct. It represents the unwritten, feeling part of the organisation.

Culture is ‘the way we do things around here’ (Charles Handy).

Culture is a set of ‘taken-for-granted’ assumptions, views of the environment, behaviours and routines (Schein).

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6 physical manifestations of the

Cultural Web

CROPS S

THE ORG PARADIGM AND VALUES

  • Control systems
  • Rituals and routines
  • Organisational structures
  • Power structures
  • Symbols
  • Stories

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Change Management

Orgs find that some elements of the cultural web are easier to change than others e.g. may be easier to change the formal organisational structure than it is to change long established routines and habits.

Change management looks at how these changes can be achieved effectively and efficiently

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Forcefield analysis

Consists of the identification of the factors that promote and hinder change.

Promoting forces should be exploited and the effect of hindering forces reduced

Factors encouraging and facilitating change (driving forces)
Factors that hinder change (restraining forces).

There will be resistance to change - factors: social, personal, job

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Leadership Styles

Ways to deal with resistance:

  • Participation
  • Education & communication
  • Power / coercion
  • Facilitation & support
  • Manipulation & co-optation
  • Negotiation

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Change Kaleidoscope

to help managers design approach to change

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The business change lifecycle

DRAID

  • Definition – creating a project to achieve this alignment
  • Realisation – assessing the success of the alignment
  • Alignment – determining the type of change required

  • Implementation – putting design into action and managing its success
  • Design – determining the detail changes required

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