Chapter fourteen Analyzing Strategic Management Cases

Topics  Why?  Steps involved in conducting a case analysis.  Better decisions from conflict-inducing discussion techniques  How to get the most out of case analysis.

Why Analyze Strategic Management Cases?  The process of analyzing, decision making, and implementing strategic actions raises many good questions  Why do some firms succeed and others fail?  Why are some companies higher performers than others?  What information is needed in the strategic planning process?  How do competing values and beliefs affect strategic decision making?  What skills and capabilities are needed to implement a strategy effectively?

Why Analyze Strategic Management Cases?  Case analysis  Simulates the real-world experience  Forces you to choose among different options  Set forth a plan of action based on your choices

Why Analyze Strategic Management Cases?  Cases include:  Detailed description of a challenging situation faced by an organization  Usually includes a chronology of events and extensive support materials  Financial statements  Product lists  Transcripts of interviews with employees

Skills Developed from Case Analyses  Evaluate many different elements of a situation at once  Differentiating between the factors that are influencing the situation  Understanding that problems are often complex and multilayered  Dig deep  Being too quick to accept an easy solution will probably fail to get to the heart of the problem Differentiate

Skills Developed from Case Analyses  Envision explanation that might not readily be apparent  Imagine different scenarios  Contemplate the outcome of a decision  Deal with uncertainty and incomplete knowledge  Missing data  Information may be contradictory  Speculate about details and consequences that are unknown Speculate Differentiate

Skills Developed from Case Analyses  Look at the big picture  Have an organizationwide perspective  Integrate the information into one set of recommendations affecting the whole company  Changes made in one part will affect the others  Integrate the impact of various decisions and environmental influences on all parts of the organization Integrate Speculate Differentiate

How to Conduct a Case Analysis  Prepare for a case discussion  Do your homework  Investigate  Analyze  Research potential solutions  Gather the advice of others  Become immersed in facts, options, and implications

How to Conduct a Case Analysis  Put yourself “inside” the case  Think like an actual participant  Strategic decision maker  Board of directors  Outside consultant  Try different perspectives  One of the most challenging is as a business founder or owner  Hiring an outside consultant may not be an option

Five Steps for Conducting a Strategic Management Case Analysis Become familiar with the material  Read quickly through the case one time  Use initial read-through to assess possible links to strategic concepts  Read the case again, making notes  Evaluate application of strategic concepts  After forming first recommendation, thumb through the case again to assess consequences of actions you propose Step One

Step Two Identify problems  Some cases have more than one problem  Avoid getting hung up on symptoms  Articulate the problem  Writing down a problem statement gives you a reference point when you proceed through the case analysis  Some problems are not apparent until after you do the analysis Five Steps for Conducting a Strategic Management Case Analysis

Step Two Conduct strategic analyses  Determine which strategic issues are involved  Use strategic tools to conduct the analysis  Five-forces analysis  Value chain analysis  Contingency frameworks  Financial analysis  Test your own assumptions about the case Step Three Five Steps for Conducting a Strategic Management Case Analysis

Financial Ratio Analysis Techniques Short-term solvency, or liquidity, ratios: Current ratioAbility to use assets to pay off liabilities. Quick ratioAbility to use liquid assets to pay off liabilities quickly. Cash ratioAbility to pay off liabilities with cash on hand. RatioWhat It Measures

Long-term solvency, or financial leverage, ratios: Total debt ratioHow much of a company’s total assets are financed by debt. Debt-equity ratioCompares how much a company is financed by debt with how much is it finance by equity. Equity multiplierHow much debt is being used to finance assets. Times interest How well a company has its interest obligations covered. ratio Cash coverageA company’s ability to generate cash from operations. ratio RatioWhat It Measures Financial Ratio Analysis Techniques

Asset utilization, or turnover, ratios: Inventory turnoverHow many times each year a company sells its entire inventory. Day’s sales in How many days on average inventory is on hand before it inventory is sold. Receivables How frequently each year a company collects on its credit turnover sales. Days’ sales in How many days on average it takes to collect on credit receivables sales (average collection period). Total asset How much of sales is generated for every dollar in assets. turnover Capital intensityThe dollar investment in assets needed to generate $1 in sales. RatioWhat It Measures Financial Ratio Analysis Techniques

RatioWhat It Measures Profitability ratios: Profit marginHow much profit is generated by every dollar of sales. Return on assetsHow effectively assets are being used to generate a (ROA)return. Return on equity How effectively amounts invested in the business by its (ROE)owners are being used to generate a return. Market value ratios: Price-earnings How much investors are willing to pay per dollar of current ratio earnings. Market-to-book Compares market value of the company's investments to ratio the cost of those investments Financial Ratio Analysis Techniques

Step Three Step Four Five Steps for Conducting a Strategic Management Case Analysis Propose alternative solutions  Develop a list of options first without judging them  Do nothing is often a reasonable alternative  Evaluate alternatives  Can the company afford it?  Is the solution likely to evoke a competitive response?  Will employees accept the change?  How will it affect other stakeholders?  How does it fit with the vision, mission, objectives?  Will the culture or values of the company change?

Step Four Make recommendations  Make a set of recommendations that your analysis supports  Describe exactly what needs to be done  Explain why this course of action will solve the problem  Include suggestions for how best to implement the proposed solution  The solution you propose must solve the problem you identified Step Five Five Steps for Conducting a Strategic Management Case Analysis

Preparing an Oral Case Presentation Organize your thoughts Begin by becoming familiar with the material. Compare notes about key points of the case and share insights among team members. Make an outline. RuleDescription Emphasize strategic analysis Purpose of case analysis is to diagnose problems and find solutions. You may need to unravel the case material as presented and reconfigure it in a way that can be more effectively analyzed. Three major categories Background/Problem Statement10-20% Strategic Analysis/Options60-75 % Recommendations/Action Plan10-20% Emphasis should be on analysis. You may need to reorganize the material so that the tools of strategic analysis can be applied.

Be logical and consistent Rambling presentations are hard to follow, may confuse the listener, and fail to evoke a good discussion. Present arguments and explanations in logical sequence. Support with facts and appropriate financial analyses. Be sure solutions address the problems you identified. RuleDescription Defend your position Anticipate what others might disagree with and be prepared to defend your views in class discussion. Be aware of the choices you made and implications of your recommendations. Be clear about your assumptions. Be able to expand on your analysis. Share presentation responsibilities Strategic management case analyses are often conducted by teams. Each member should have a clear role in the oral presentation, preferably a speaking role. Coordinate the different parts into a logical, smooth-flowing whole. Preparing an Oral Case Presentation

How to Get the Most from Case Analysis  Keep an open mind  Take a stand for what you believe  Draw on your own personal experience  Participate and persuade  Be concise and to the point  Think out of the box  Learn from the insights of others  Apply insights from other case analyses  Critically analyze your own performance  Conduct outside research

Using Conflict-Inducing Decision-Making Techniques in Case Analysis Groupthink Devil’s Advocacy Dialectical Inquiry Use conflict-inducing decision-making techniques to help prevent groupthink and lead to better decisions.

Symptoms of Groupthink and How to Prevent It  Symptoms  Illusion of invulnerability  Belief in the inherent morality of the group  Stereotyped views of members of opposing groups  Application of pressure to members who express doubts about the group’s shared allusions or question the validity of arguments proposed  Practice of self-censorship  Appointment of mindguards Groupthink

Symptoms of Groupthink and How to Prevent It  Preventing groupthink  Leaders must encourage group members to address concerns and objectives  Leaders should adopt impartial stance  Leader should encourage members to discuss deliberations with trusted associates and report perspectives back to group  Invite outside experts, challenge group’s viewpoints and positions  Divide into subgroups, meet at different times, reconvene to resolve differences  Hold a “second chance” meeting Groupthink

Using Conflict to Improve Decision Making  Devil’s advocacy  One of the groups (or members) acts as a critic to the plan  Devil’s advocate comes up with problems of the proposed alternative and suggests reasons for not adopting it  Forces the group to take a hard look at its proposed solution  Can be demoralizing  May not lead to better suggestions Devil’s Advocacy

Using Conflict to Improve Decision Making  Dialectical inquiry  Identify proposal and information used to derive it  State underlying assumptions  Identify counter plan (antithesis)  Engage in debate  Identify a synthesis (best components of each alternative)  Can be very time consuming  May result in undesirable compromises (original solution was better) Devil’s Advocacy Dialectical Inquiry