Strategy in A Complex World Semester 2 Week 3-4 Making Strategy

A number of potential strategic Futures.

Risk trade-offs between Strategic Paths

Option Development and evaluation process

Strategic Alternatives Mimic Competitors Balance Strengths/Weaknesses Seek new businesses/markets ‘Breakthrough’ or ‘Outpacing’ Strategy 16 20

Strategic Alternative Withdraw Reserve “Right to Play” Feints and Spoiling actions Neutralize competition (acquisitions, litigation) 16 20

Capabilities & intellectual resources: Physical resources Available within firm or on open market Financial resources: Cash and cashflow Ability to borrow funds or issue equity Assets that can be sold Improved working capital management Capabilities & intellectual resources: Existing resources Capacity to learn and innovate

RESOURCES Human resources Existing staff (training needs?) Recruitment (are skills available?) Reputational assets Established brands (where important) Reputations established in other businesses Relational assets Relationships with local administrations, opinion formers, alliance partners Time to outpace competitors to deliver results to stakeholders

Will option be acceptable to key stakeholders? Does it meet requirements of controlling stakeholders: Growth, financial returns, risk, ethics Does it upset other powerful stakeholders Top managers, staff, competitors … Loss of power, status, money Changes to existing “relational contracts” Can change be “managed” without a damaging conflict

Is the option coherent... ...within itself? ...with rest of strategy? Brand values and reputation: Culture/architecture Value chain & resources ...with rest of strategy? retained elements of existing strategy other new proposals Note: ‘coherent with’ ≠ ‘same as’

Strategic Improvements Change competitive stance: Move resources between businesses Reposition product up/down-market Change value chain Enhance cost-effectiveness, reliability Change architecture, e.g.: Improve information gathering and communication Enhance motivation Usually need to change all three together to keep strategy “consistent”

Evaluating strategic options: The RACES criteria RESOURCES ACCEPTABLE COHERENT EFFECTIVE SUSTAINABLE Does firm have? Will the proposal be to key stakeholders? Is this option with rest of strategy? Will proposal be in resolving targeted issues? Will the proposal deliver a competitive advantage?

Operational Excelence Financial Perspective Increase ShareHolder Value Strategic Maps Customer Intimacy Technology Driven Operational Excelence Customer Perspective Trusted Advisor Deliver Added Value Flexible Solutions Frequent Repeat Business Internal Perspective Capture and Utilise Knowledge Build Sustainable Relationships Integrate Processes Effective Cost Management Improve Resource Management Learning and Growth Perspective Develop Relationship Skills Improve Industry Knowledge Engender Innovation More Succesful Career Planning Operational Management Skills Financial Perspective Increase ShareHolder Value Add New Revenue Stream

Appraising the strategic importance of resources and capabilities 14 ©2012 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

The links among resources, capabilities and competitive advantage ©2012 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Analysing resources and capabilities: the interface between strategy and the firm ©2012 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

FOR REFERENCE

Effectiveness and sustainability Will proposal be effective in resolving targeted issues? Does the proposal stand up to detailed analysis of the competitive context… Fit with industry success and survival factors Does it achieve adequate financial returns? Will the proposal deliver a sustainable competitive advantage? Will valuable strategic resources result

Why firms Merge or Acquire Horizontal mergers in mature industries: Reduce competition, buy time to restructure Synergies; enhanced legitimacy and bargaining power Consolidator strategy in fragmented industry scale, reach, reputational assets, pricing power Geographic roll-up; product or market extension Industry convergence Resource acquisition (often of small firms) Boost target’s cashflow and profits Improved asset management Managers’ power and status – or fear of losing them

Balancing the different criteria Rarely a clear ‘winning option’ Option should normally be rejected if: resources clearly not available or obtainable Effectiveness low Frequently a trade-off between acceptability and effectiveness: Options that work best in market may involve uncomfortable organizational change Not all proposals expected to meet sustainability criterion – but those that do merit preference

Divestment may be an option Liquidation Sale to an external buyer Float-offs Management buy-outs and management buy-ins.

Advantages of management buy-outs