Strategy Implementation

Strategy Implementation
 Textbook:
 Exploring Corporate Strategy, Johnson and
Scholes, latest edition, Pearson Education
 Reference Books:
1. Competitive Strategy, Michael Porter
2. Competitive Advantage, Michael Porter
3. Strategic Management – Concepts and Cases,
Thompson and Strickland, 13th edition, Tata
McGraw Hill
Evaluation

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

 Directions and Methods of Development

 Strategies in different industry environments
 Value Chain use for Cost Advantage and
Differentiation
 Framework for Making Competition irrelevant
 Organizational configurations and strategy
 Enabling Resources
 Managing Change
Ch. 7
Directions and Methods of Development
Development Directions

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

Existing

Markets

New
 Strategy Development Directions
Products
Existing New
Protect/build
Consolidation

Existing Market penetration

Markets

New
 Strategy Development Directions
Products
Existing New
Protect/build
Consolidation

Existing Market penetration Product Development

Markets

New
 Strategy Development Directions
Products
Existing New
Protect/build Product Development
Consolidation

Existing Market penetration

Markets
Market development
New
 Strategy Development Directions
Products
Existing New
Protect/build Product Development
Consolidation

Existing Market penetration

Market development
Markets
Diversification
New
Methods of Strategy Development
 Methods of Strategy Development
 Internal Development
 Build on and develop an organisation’s own
capabilities
 Organic development
 Mergers and Acquisitions
 Take over ownership of another organisation
 Strategic Alliances
 Two or more organisations share resources and
activities
Motives for Internal Development

 Only one in field

 Core competence in product manufacturing
 Develop new markets – direct involvement to
increase understanding & create core
competence
 Spread cost over time – easier for companies
with low resources
 Avoid cultural clash
Motives for M&As
 Speed
 Competitive Situation – lower competitor reaction
 Financial motives
 Extreme example is that of Asset Stripping
 Lack of resources
 Cost efficiency (by merging) to avoid duplication
 Stakeholder expectations
 Ambitions of senior managers
 Empire building
Types of Strategic Alliance
 Loose
 Networks / Opportunistic Alliances
 Contractual
 Licensing
 Franchising
 Subcontracting
 Ownership
 JV
 Consortia
The TOWS Matrix
Success Criteria for Strategic Options

 Suitability
 Whether strategy addresses circumstances in which
organisation is operating

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

 Feasibility
 Whether strategy can be made to work in practice
 Linked to strategic capability
2. Acceptability Criteria
 Return
1. Profitability
• ROCE
Assessing profitability
2. Acceptability Criteria
 Return
1. Profitability
• ROCE
• Payback Period
Assessing profitability
2. Acceptability Criteria
 Return
1. Profitability
• ROCE
• Payback Period
• DCF (Discounted Cash Flow)
Assessing profitability
2. Acceptability Criteria
 Return
2. Cost-benefit
• Projects should be undertaken if
• Benefit / Cost > 1

3. Real options
• Sometimes, clarity might emerge over time
• Expand / Extend / Contract / Defer / Closedown
Real Options Framework
Value-to cost
0.0 1.0

Low

Volatility

High
Real Options Framework
Value-to cost
0.0 1.0

Never Invest
Low

Volatility

High
Real Options Framework
Value-to cost
0.0 1.0

Never Invest Invest Now

Low

Volatility

High
Real Options Framework
Value-to cost
0.0 1.0

Never Invest Invest Now

Low
Probably
Never
Volatility
Invest

High
Real Options Framework
Value-to cost
0.0 1.0

Never Invest Invest Now

Low
Probably Maybe
Never Invest
Volatility
Invest Now

High
Real Options Framework
Value-to cost
0.0 1.0

Never Invest Invest Now

Low
Probably Maybe
Never Invest
Volatility
Invest Now

Maybe
High Invest
Later
Real Options Framework
Value-to cost
0.0 1.0

Never Invest Invest Now

Low
Probably Maybe
Never Invest
Volatility
Invest Now

Maybe Probably
High Invest Never

Later Invest
 Return
2. Cost-benefit
3. Real options
4. Shareholder Value Analysis
• TSV = Incr. in SP over last year + Dividends
SP at the start of the year
Criteria for assessing Acceptability
 Risk
 Financial ratios
 E.g. High long term debt means high risk
 Sensitivity analysis (What-if analysis)

 Stakeholder reactions
3. Feasibility

 Financial
 Funds flow forecasting
 Break-even analysis
 Resource deployment
 Resources and competences needed
 Key Points (1)
 Three elements of strategic choice
 Competitive strategy
 Direction of development
 Method of development
 Four categories of development directions
 Protect and build
 Product development
 Market development
 Diversification
 Key Points (2)
 Three methods of strategy development
 Internal development
 Mergers and acquisitions
 Strategic alliances
 Three success criteria for strategic options
 Suitability
 Acceptability
 Feasibility
 Range of analytical techniques for evaluation of
strategic options