Strategy and Management Control system

Micro and Macro environmental changes Strategic analysis The basic frame work: Strategy as a link between the firm and its environment Micro and Macro environmental changes The firm Goals and values Resources and capabilities Structure and system Strategy Strategic fit Fundamental of strategy as the link between the firm and its external environment is the notion of strategic fit. For a strategy to be successful it must be consistent with the firm external environment and with its internal firm goals, resources and capabilities and the structure

Strategic analysis Strategic analysis Analysis of firm Goals, values and performance , analyzing capabilities and resources Analysis of macro , industry and competitive environment Internal analysis External analysis

Creating value Successful strategy is creating value Continuously creating customer value Firm value Shareholder value

Value Creation

The Basic Value Chain Margin Margin Technological Development Service Marketing & Sales Human Resource Mgmt. Support Activities Outbound Logistics Firm Infrastructure Procurement Operations Inbound Logistics Primary Activities

Value Chains are part of a Total Value System Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain 69

INTERNAL RESOURCES, CAPABILITIES, AND CORE COMPETENCES 1 1 1

Strategy Analysis STRATEGY The The Firm-Strategy Environment-Strategy Goals and Values Resources and Capabilities Structure and Systems THE MACRO INDUSTRY ENVIRONMENT Competitors Customers Suppliers STRATEGY STRATEGY The Firm-Strategy Interface The Environment-Strategy Interface 5

Rationale for the Resource-based Approach to Strategy When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus. Resources and capabilities are the primary sources of profitability.

The Links between Resources, Capabilities and Competitive Advantage INDUSTRY KEY SUCCESS FACTORS COMPETITIVE ADVANTAGE STRATEGY ORGANIZATIONAL CAPABILITIES RESOURCES TANGIBLE INTANGIBLE HUMAN Financial Physical Skills/know-how Capacity for communication & collaboration Motivation Technology Reputation Culture

Appraising Resources RESOURCE CHARACTERISTICS INDICATORS Financial Borrowing capacity, Profitability Debt/ Equity ratio Internal funds generation, Efficiency, Credit rating Tangible Net cash flow Resources Physical Plant and equipment: Market value of size, location, technology fixed assets. flexibility. Scale of plants Land and buildings. Alternative uses for Raw materials. fixed assets Technology Patents, copyrights, know how No. of patents owned R&D facilities. Royalty income Intangible Technical and scientific R&D expenditure Resources employees R&D staff Reputation Brands. Customer loyalty. Company Brand equity reputation (with suppliers, customers, Customer retention government) Supplier loyalty Human Training, experience, adaptability, Employee qualifications, Resources commitment and loyalty of employees pay rates, turnover.

Diagnosing the firm current strategy Strategy formulation Assess the current situation Identify the current strategy of the firm and assess how well that strategy is doing in terms of financial performance Identify the inadequacies of firm value drivers and reason for deviations-Internally driven or external driven Strategic or operational level actions

Income statement for Ashanti plc for the year ending 31 March 2011 2010 2011 £m Revenue (Note 2) 2,240 2,681 Cost of sales (Note 3) -1,745 -2,272 Gross profit 495 409 Operating expenses -252 -362 Operating profit 243 47 Interest payable -18 -32 Profit before taxation 225 15 Tax -60 -4 Profit for the year 165 11 Notes: 2. All sales and purchases are made on credit 3. The cost of sales figure can be analyzed as follows: 2010 (£m) 2011 (£m) Opening inventories 241 300 Purchases 1,804 2,378 2,045 2,678 Closing inventories -300 -406 Cost of sales 1,745 2,272

Balance sheet of Ashanti plc., as at 31 March 2011 Non-current assets Property, plant and equipment (at cost less depreciation) Land and buildings 381 427 Fixtures and fittings 129 160 510 587 Current assets Inventories at cost 300 406 Trade receivables 240 273 Cash at bank 4 - 544 679 Total assets 1,054 1,266 Equity £0.50 ordinary shares (Note 1) Retained earnings 263 234 563 534 Non-current liabilities Borrowings - 9% loan notes (secured) 200 Current liabilities Trade payables 261 354 Tax due 30 2 Short-term borrowings (all bank overdraft) 76 291 432 Total equity and liabilities Notes: 1. The market value of the shares of the business at the end of the year was £2.50 for 2010, and £1.50 for 2011. 4. A dividend of £40m had been paid to the shareholders in respect to each of the years. 5. The business employed 13,995 at 31 March 2010 and 18,623 at 31 March 2011. 6. The business expanded its capacity during 2010 by setting up a new warehouse and distribution center in the south of Wales

The World’s Most Valuable Brands, 2006 Rank Company Brand Rank Company Brand value value ($bn.) ($bn.) 1 Coca-Cola 67.5 11 Mercedes Benz 20.0 2 Microsoft 59.9 12 Citi 20.0 3 IBM 53.4 13 Hewlett-Packard 18.9 4 GE 47.0 14 American Express 18.6 5 Intel 35.6 15 Gillette 17.5 6 Nokia 26.5 16 BMW 17.1 7 Disney 26.4 17 Cisco 16.6 8 McDonald’s 26.0 18 Louis Vuitton 16.1 9 Toyota 24.8 19 Honda 15.8 10 Marlboro 21.2 20 Samsung 15.0 http://www.interbrand.com/best_brands_2007.asp Source: Inter brand

Defining Organizational Capabilities Organizational Capabilities = firm’s capacity for undertaking a particular activity. (Grant) Distinctive Competence = things that an organization does particularly well relative to competitors. (Selznick) Core Competence = capabilities that are fundamental to a firm’s strategy and performance. (Hamel and Prahalad) 15 16 16

Identifying Organizational Capabilities: A Functional Classification FUNCTION CAPABILITY EXEMPLARS Corporate Financial management GE Management Strategic control IBM, Samsung Coordinating business units BP, P&G Managing acquisitions MIS Speed and responsiveness through Wal-Mart, Dell rapid information transfer R&D Research capability IBM Development of innovative new products Apple, 3M Manufacturing Efficient volume manufacturing MASS , Toyota Continuous Improvement Flexibility Design Design Capability Apple, Nokia Marketing Brand Management P&G Quality reputation Johnson & Johnson Responsiveness to market trends Sales, Distribution Sales Responsiveness PepsiCo, & Service Efficiency and speed of distribution Dell Customer Service Singapore Airlines Caterpillar