Components of GSM GSM 1 GSM Workshops 1 –PMS 1 –IBS GSM Analysis –Business Frameworks –Business Economics –Business Policy GSM 2 GSM Workshops 2 –PMS 2 GSM Process –Managerial Processes –Strategic Management –Practising Strategic Thinking

GSM Conceptual Roadmap Clash of Ideas Integration models Integration principle Two halves of the learning loop Embodiment in GSM Paradigm shift Rationalistic Processual Evolutionary 5P’s WOB/WOM Argyris Kolb de Geus Organisational Learning Thinking concepts Language Strategic conversation Integration PMS 1 IBS 1 BF BE BP PMS 2 MP SM PST Business Plan

What is Strategy?

What is GSM Analysis?

The Concept of Strategy makes use of 5 broad categories of information Structure Culture Environment Resources and capabilities (relative to the competition) Strategic focus J. Bower

What is strategy ? Strategy is associated with - being skillful in 2 thinking worlds: “World of Business” - WOB Think on behalf of the organisation “We” v. Other organisations Skillful interaction to improve position How can we improve the situation ? “World of Management - WOM Making it happen (organisation is a whole system of people) No longer “ABC Co”, but: 100’s of individuals with different motivation, now need to influence behaviour

Two perspectives, two worldviews The MOC school of thought WOM Internal Bottom-up strategy Organisational dialogue Motivational Aim = Goal achievement Process The Strategy school of thought WOB External Top-down strategy Rational reasoning Cognitive Aim = Gain high ground Context/analysis

Learning and Continuity Fast structures Learns Absorbs shocks Discontinuous Innovation/revolution Proposes Gets all the attention Slow structures Remembers Integrates shocks Continuous Constraints/constancy Disposes Has all the power

Purpose of strategy: Achieving convergence Understanding the Business Environment (Scenarios) Understanding the Organisation (Business Idea) If not: Address competencies If so: Address business choices Is this the right company for these future environments ? Multiple plausible futures System of distinctive competencies

The Principle of “Making Money” Rent model of the organisation Buyer’s value system Seller’s Distinctive Competencies The offering Value Total system optimisation

Reconceptualising Business Boundaries Inputs Products Inputs Customer Value Company System Company Competencies + Customer Value System From: To:

Economics: scarcity and added value LIMITED RESOURCES UNBOUNDED WANTS LIMITED RESOURCES + UNBOUNDED WANTS => SCARCITY SCARCITY => CHOICE => OPPORTUNITY COST APPLICATIONS: –Individual choice: paid employment vs leisure vs education –National economy: health vs education vs defence vs –Use of managerial time: specialise or do everything? –Introduction of new models by a car manufacturer IT IS ALL ABOUT TRADE-OFFS R1

The concept of value Criterion of business success: added value (AV) AV = value of outputs less value of inputs AV=VQ - VI R1

What is value ? Suppliers: seek to sell a good when the price exceeds the costs of its inputs. Consumers: seek to purchase when their subjective valuation of it exceeds its asking price. A transaction will take place when both parties benefit from it. Note two sources of value here: –to consumers (consumers' surplus) –to producers (producers surplus = rent = economic profit = firms' added value) R1

More on added value Added value appropriated by the firm (economic profit) = Value appropriated by the firm as sales revenue (R) less costs of inputs employed (C) C = cost of materials and semi-manufactured inputs + cost of labour +capital costs R1

Added value for three companies R1

Alternative measures of “profit” net output = revenue - materials costs operating profit = net output - wages and salaries added value = operating profit - capital costs AV is a complete measure of economic profit as it subtracts all input costs (VI) from revenue (VQ). BEWARE: A potential source of error - confusion of the terms added value and value added R1

Calculating added value R1

Specialisation and value R1

OTHER BENEFITS OF SPECIALISATION Learning effects Scale effects. IMPLICATIONS FOR BUSINESS FOCUS CORE ACTIVITIES STICK TO THE KNITTING OUTSOURCING SO WHY DO WE HAVE? DIVERSIFICATION R1 Specialisation and value