Gurus On Business Strategy
Gurus On Business Strategy
Gurus On Business Strategy
on
Business Strategy
Tony Grundy
TONY GRUNDY
First published by Thorogood 2003 Reprinted 2004 Thorogood 10-12 Rivington Street London EC2A 3DU Telephone: 020 7749 4748 Fax: 020 7729 6110 Email: info@thorogood.ws Web: www.thorogood.ws
Tony Grundy 2003 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying, recording or otherwise, without the prior permission of the publisher. This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out or otherwise circulated without the publishers prior consent in any form of binding or cover other than in which it is published and without a similar condition including this condition being imposed upon the subsequent purchaser. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher.
A CIP catalogue record for this book is available from the British Library. HB: ISBN 1 85418 222 6 PB: ISBN 1 85418 262 5 Cover and book designed by Driftdesign. Printed in India by Replika Press.
Special discounts for bulk quantities of Thorogood books are available to corporations, institutions, associations and other organisations. For more information contact Thorogood by telephone on 020 7749 4748, by fax on 020 7729 6110, or email us: info@thorogood.ws
Dr Tony Grundy is Director of Cambridge Corporate Development and Senior Lecturer in Strategic Management at Craneld. He is an independent strategy facilitator (contact: 01494 873934 or a.grundy@craneld.ac.uk).
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Contents
List of illustrations Introduction What have the strategy gurus got to tell us? ONE A taster of the gurus Introduction What is strategy? Understanding the external environment Understanding competitive advantage Strategic options and decision-making Implementation Learning and control Conclusion TWO Key strategic concepts Introduction The key concepts THREE The business strategy gurus Igor Ansoff (a major guru) Chris Argyris Christopher Bartlett and Samantha Ghoshal (major gurus) G Bennett-Stewart Blackadder Boston Consulting Group Cliff Bowman Braybrooke and Lindblom
ix 1 1 5 5 5 9 15 19 21 22 22 23 23 23 37 40 46 48 49 51 53 55 58
Campbell A and Goold (major gurus despite being in the UK) Alfred Chandler (a major guru) A De Geus Eliyahu Goldratt Robert Grant Tony Grundy (the alternative guru the author) Gary Hamel and S K Prahalad (major gurus) Charles Handy (a major guru and from the UK) P Haspeslagh and D Jemison Gerry Johnson and Kevin Scholes (UK gurus) Rosebeth Moss Kanter (a major guru) Kaplan and Norton (major gurus) Kurt Lewin (a major guru albeit a long time ago) P Lorange and J Roos Henry Mintzberg (a major guru) Ian Mitroff Kenichi Ohmae R T Pascale (a major guru) Tom Peters (a major guru) Nigel Piercy Michael E Porter (a major guru) J B Quinn Alfred Rappaport Peter Senge (a major guru) A Slyvosky J C Spender E Stalk Sun Tzu (a major guru, now deceased) David Ulrich (a major guru) P Wack Jack Welch (a major guru) George Yip
60 63 65 67 69 71 77 80 82 84 86 88 90 91 95 98 102 104 106 109 111 117 120 124 127 129 130 132 134 136 138 140
vi
FOUR
Champneys health resort and the business strategy gurus Introduction Background Strategic analysis Strategic choice Implementation Champneys strategic breakthroughs Implementing the strategic breakthroughs A summary of Champneys strategic change breakthroughs Key lessons from the Champneys case Champneys Some options for competitive strategy Organisational strategy Options Case postscript Conclusion Summary of key points
141 141 142 143 150 153 159 160 165 166 167 170 172 172 173
FIVE
Marks & Spencer and the business strategy gurus Introduction Marks & Spencer The position mid-1990s Marks & Spencer Recipes for success Marks & Spencer The position 1997 2001 Marks & Spencer Turning to the future Conclusion
174 174 175 178 184 191 192 193 193 193 194 195 196 197 198
SIX
Checklists for managing strategy Introduction Organic business development strategies New product strategies New market strategies Selling more to existing customers New value-creating activities New distribution channel strategies
vii
New technologies Strategic and nancial planning processes Restructuring strategies Information systems strategy Management buy-out strategies Alliance and joint venture strategies Setting strategy and objectives Acquisition evaluation Negotiating the deal Integration Operational strategies Conclusion SEVEN Conclusion gurus and the future
199 200 201 202 203 204 206 207 208 209 210 211 212
References
214
viii
List of illustrations
1 2 3 4 5 6 7 8 9
Strategy process PEST factors Porters ve forces Strategic option grid, Grundy 2003 Ansoff grid SWOT analysis Gap analysis The BCG matrix Perceived use value/relative price
9 10 11 19 41 42 44 53 54 72 73 95 98 102 108 112 120 120 122 124 135 150 160 163 176 185
10 Growth drivers 11 The strategy mix 12 Deliberate and emergent strategy 13 Uncertainty importance grid 14 Kenichi Ohmaes three Cs 15 Stakeholder analysis grid 16 Business value system football industry 17 Value drivers 18 Cost drivers 19 Value over time curve 20 Scenario development 21 The uncertainty tunnel 22 Octopus 23 Force eld analysis at Champneys 24 Champneys stakeholder analysis 25 A brief summary of M&S nancial performance 1994 1990 26 M&S nancial performance 1997 2002
ix
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Introduction
What have the strategy gurus got to tell us?
There are a number of reasons why it might be worth knowing about the Strategy Gurus. You might just want to be familiar with their names, and a few of the concepts which they have given us. You may want to go more deeply into what they have to say, providing a fuller framework for understanding some management issues in the organisation around you.This might extend to having a process for doing strategic thinking yourselves. You may wish to expand your learning of leading management thinking, perhaps as a preliminary to doing an MBA. And nally, you may be keen to use some Guru concepts more directly and practically on some of your own issues. This book addresses all of these needs.
INTRODUCTION
These are some very important and practical lessons which can make a very real difference to how well we manage. In this book we will develop those themes, giving you at the same time an overview of both the major and the minor strategy gurus. This guide to strategy gurus is structured by topic as follows:
FOUR AND FIVE Two integrative case studies illustrating the gurus perspectives with checklists for managing strategy
An in-depth study of Champneys Health Resort and the relevance of the Strategy Gurus A detailed look at the considerable management challenges encountered by Marks & Spencer.
INTRODUCTION
Introduction
Strategy is a much used, but much misunderstood, concept in management. In this introductory chapter we therefore begin by using the gurus to answer the question What is strategy? We then look at what the main gurus say on managing the external environment. Our next port of call is the notion of competitive advantage what is this and why is this important? This is followed by a section on strategic decision-making. Another important area is implementation and change management. Many good strategies fail because they are badly implemented and not because they are not robust. In the nal phase the monitoring of the strategy needs to be considered, through learning and control.
What is strategy?
Strategy can be dened in a number of ways. The design school strategy theorists, who consider strategy to be a part of a well formed, logical planning process (Ansoff, 1965, Porter 1980, 1985) might dene strategy as:
Moving from where you are to where you want to be in the future through sustainable competitive advantage.
Strategy can also be dened much more uidly, perhaps even as emergent strategy. Strategy in this mode is dened by Mintzberg (1994) as:
According to Mintzberg, strategy thus may not be something which is within a formal plan, but is more likely to be discovered intuitively. This can be achieved by reecting on what has actually already happened, or what is currently happening, or what is about to happen. Whilst these conceptual denitions are useful (to a point) much of strategic management is hidden behind theoretical language. To demystify the concept let us now look to an unusual source.
A further denition of strategy (which is perhaps more off-the-wall is that drawn from Blackadder (the Television comedy) which is in turn derived from everyday usage). Quite simply, strategy is The Cunning Plan.
A cunning plan is something which has some, or even all of the characteristics of the following: Where there is a major constraint, there is some non-obvious way of getting around it Where there is a stretching objective, there is a way of getting there in a way which secures maximum advantage, or at minimum cost, or in minimum time Is likely to involve looking at the problem or opportunity from a novel and perhaps surprising perspective
Is fundamentally simple at bottom May well incorporate solutions from unrelated areas of experience (e.g. from other industries)
(For more on the cunning plan, see the section on Blackadder as a guru in Chapter 3.)
We rolled our eyes and resumed our long search. Finally we realised we had come out of a different exit and we found the car. On the journey home, as an amusing piece of in-car entertainment, I got us both to brainstorm more cunning plans for how we might have found it. These included: ELEVEN CUNNING WAYS FOR FINDING OUR CAR 1 2 Borrowing a very large ladder from Octogan, who run the Grand Prix. Climbing up the mobile phone ariel (adjacent to the car park (with a radioactive proof suit)). Going on the Big Wheel adjacent to the car park. Asking to take over from one of the cameramen who track the Grand Prix with telescopic cameras mounted on incredibly tall platforms. Climbing on the roof of one of the more central cars without damaging it. Chartering a helicopter (at 1000 an hour). Parachuting down on the car park (a bit dangerous, though). Waiting until all the cars had gone (perhaps not-so-cunning-this one). Calling in the SAS to home in on our car with laser sights.
3 4
5 6 7 8 9
10 Contacting the Pentagon to obtain high resolution/magnied pictures of the car park (either by Blackbird spy-plane or by spy-satellite). 11 Bribing the steward 200 to call in his entire team to help us nd it (the best one very simple).
The above example illustrates: The need for creative and innovative thinking in developing a strategy and not merely analysis. The equal need to be creative in challenging constraints and in acquiring and deploying resources for competitive advantage.
The imperative to make trade-offs between options in coming to a strategic choice, and particularly to assess the implementation difculty ahead.
The importance of understanding the potential for opportunities which may not be self-evident in the external.
We now turn to environment, our nal point above understanding the external environment.
External analysis
Competitive positioning
Strategic options
Implementation
The external environment is (and has always been) a major preoccupation of strategy. Ansoff (1965) underlined the need for scanning the wider environment review. Many of the strategy consultants still (today) employ models which have roots in Ansoff. Ansoffs environmental scanning breaks down into strong signals (for example, the onset of a sudden recession) and weak signals (for example, the slowing of growth on demand for letters post in the UK around the turn of the century) due at least in part to the explosion in the use of e-mail.
One of the most under spread models for environmental scanning is SWOT analysis (Ansoff 1965). SWOT analysis (strengths, weaknesses and, more particularly, opportunities and threats analysis) can help to identify external changes with a direct or indirect impact on your business. Whilst SWOT is an extremely common strategic technique and perhaps the dominant one in most organisations it might be accused of being limited and even dangerous. Its deciencies include: Inefficiency (Professor Cliff Bowman of Cranfield School of Management jokingly calls this a Stupid Waste of Time). Subjectivity especially of its strengths. Incompleteness: especially of the threats and also weaknesses listed. Inadequate interpretation (what is its so-what?) For example, what is really important in it, and what strategic options does it suggest (Grundy 2003). Environmental scanning can be done at a variety of levels. For instance, we can consider the PEST factors at large in the environment. At the most general level these begin with the PEST factors (or the Political, Economic, Social and Technological factors) see Figure 2. Equally important are the factors driving growth (within the market itself) or growth drivers (see Chapter 2), (see Figure 10). Next, within the market itself, are the ve competitive forces (Porter 1980) (see Figure 3).
Political
Technological
Economic
Social
10
After SWOT analysis Porters ve forces is one of the most prominent techniques taught on MBA courses.
Potential entrants
Industry competitors
Suppliers
Buyers
Substitutes
It would be remiss to omit mention of futures and scenarios in considering the external environment. A scenario is dened as being:
11
Scenarios draw from a number of our earlier environmental analysis techniques in their development. In particular they will require thinking about: PEST analysis: to explore changes in the wider industry context, and their knock on effect. The growth drivers: to consider shifts in those factors driving growth, in terms of new ones coming in, old ones becoming less inuential, or even turning into brakes on growth. Porters ve forces: to explore changes in the structure and dynamics of the industry (for example from low to high rivalry, from low bargaining power of the buyers to medium bargaining power). The industry mind-set: the industry mind-set is dened (Grundy 1994, 2003) as being: The set of perceptions, assumptions and expectations in the industry which determine how key players add value and compete with one another This concept is also implicit in Hamel and Prahalad (1994) who argue that Porters forces should not be seen as givens but as open to innovation, challenge and to disruptive competitive behaviour. This concept helps us to understand Porters ve forces from a psychological viewpoint indeed it has been suggested (Grundy 2002) that this could be a competitive force missed by Michael Porter).
12
According to HSBCs Head of Strategy Development Mike Guest: I think there is something missing here in Porters ve forces, we also need to think about the industry mind-set. In our industry it is probably the most important competitive force. In learning about futures more generally, there is nothing better to read than Hamel and Prahalad (1994). In sharp contrast to the majority of the literature on scenarios (what tends to be highly (and unnecessarily) technical and remote) Hamel and Prahalads thinking is a breath of fresh air. Perhaps for a change we nd gurus who are really in touch with the practical issues which managers face, for example: How do I think differently about my industry? and How do I avoid accepting my current competitive advantage as a given? For in many markets both market attractiveness and competitive position are not givens, but they are asking for someone to change the rules of the game. For example, in the mid-1990s the author performed a Porters ve forces of the strategy consulting industry. This suggested that: The bargaining power of the buyers in the market was low to medium. The entry barriers were high (brand is very important as well as competence and experience. Rivalry was low between consulting rms. Supplier power was medium/high (to hire someone to be competent in strategy consulting was very expensive due to scarcity of analysis and process skills). The threat of substitutes was high (see below).
Focusing on the nal force, substitutes, I realised that this was a negative force (companies either wanted to do it themselves) or they were so frightened of being ripped off by the strategy consulting rms that they would either try to do it themselves, or maybe even not do it at all (properly).
13
This gave me a rather important and profound set of insights, namely: 1 2 Substitutes was the force I had to work on and not the others. The business I was in (being a strategy consultant) could be redened as Avoiding Strategy Consultants so I train them to do it themselves. 3 If I was able to help major companies to avoid strategy consultants with more value, at less cost and in less time, then I would have Porters elusive sustainable competitive advantage. 4 This would be easy for me and difcult for the big strategy rms because: a) they would need to shoot themselves in the foot to compete with me and b) they couldnt possibly compete with me because they sell in terms of teams and weeks (their mind-set), whilst I sold in terms of myself (and days).
Quick example
Another quick example of the use of scenarios and of futures was that of a major retailer who, in the mid/late 1990s was contemplating entering the homeshopping market. At that time they had limited market presence on that emerging market. Their (independent) consultant said to them: I am not sure that competing from where we are now is going to be particularly helpful. Why dont we simply imagine the market in 2002? The team looked at their future homeshopping market which seemed in (post-Internet) to be substantial and potentially protable and thus interesting. They said to their consultant: This is a pretty big and attractive market given the PEST factors, the growth drivers, and the competitive forces. Their consultant then said: Well, where do you want to be in it? Their response was, Well, given that we are Bestco, we want to be dominant in it. So that is your starting point, said their consultant (and the rest was history).
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EITHER
Delivering superior value advantage to your target customers relative to your competitors
OR
Delivering equivalent customer value to your target customers relative to your competitors but at lower cost
Kenichi Ohmaes book The Mind of the Strategist (1982) is short, brilliant in style, and succinct. It is an extremely lucid and relevant account of the basis of competitive strategy. Somewhat more heavyweight is Porters Competitive Advantage (1985). The book was published during the last year of my MBA in 1985. It represented a major advance in thinking about strategy. Already, in 1980, Porter had put himself both globally and eternally on the map with his thoughtful and well researched book on Competitive Strategy. This was centred on: His ve competitive forces (see Figure 3) and Applying life-cycle analysis not just to products/markets, but to entire industries (and many of his insights are just as relevant today).
15
Competitive Strategy is superbly structured taking the reader through the evolution of markets, and examining how the ve competitive forces change over the industry life-cycle. Competitive Advantage (of 1985 vintage) was perhaps more of a breakthrough in jargon than one of intellectual advance. It was a superbly packaged book. Instead of thinking about SWOT analysis, we were now encouraged to think about securing an incremental competitive advantage, over and above that of our competitors. The idea of competitive advantage already existed implicitly in economics but, Porters brilliance here was to turn an essentially economic idea into one which was an every day, catchy, management notion. And this certainly caught on. Every business school in the world jumped on the (then) bandwagon of competitive advantage. Possibly the strategy world has never seen anything like this level of excitement since. Indeed since that time there have been a lot of confusions about Porters notion of generic competitive advantages. These were perhaps motivated in part by genuine mistrust of generic prescriptions but also, perhaps to be just a little tinge of academic rivalry. Surprisingly, since 1985 Porter appears to have regarded his work on competitive strategy as more or less nished at least at the business/corporate strategy level) and has moved onto better things (looking at countries as quasi strategic business units). Many have critiqued his work, few have built from it. Whilst Porter brought together perhaps the rst, truly comprehensive and detailed account of the analytical needs for developing a competitive strategy, it is a pity that so few have sought to rene his ideas further. MBA students who have relied to so far only on secondary texts of Porters work (some examples are Johnson and Scholes (1989) or Grundy (1994, 2002)) would do well to avoid being lazy and to read Porter in the original.
16
Turning back now to Porters more controversial, second work Competitive Advantage, the more novel areas of this book are: The suggestions that these are a number of generic strategies (or ideal forces of strategy), including differentiation (or high valueadded strategy) costs leadership (having the lowest costs) or focus (competing on a narrower area). The prescription that if you do not make a strategic choice and if you try to pursue a number of different generic strategies simultaneously then you will lose focus within your strategy, and this will undermine your strategic success. The key reasons why there is likely to be tension within an organisation pursuing differentiation and cost leadership styles of strategy simultaneously include: The customer might get confused with contradictory brand messages. Common processes may result in it being difcult to cope with the opposing demands of these polar, strategy styles. The organisational culture and mind-set is unlikely to be able to cope with the imperative to switch styles of competing, depending upon what product market is being serviced at that particular moment in time. To get around this limitation companies might try to have it both ways nevertheless, for example by: Offering superior value for money with the trade off being that there is a more limited product offering, thus gaining economies of scale over a smaller volume (Marks and Spencers clothing strategy 1990-1997). Creating a back ofce for commodity-type activities, whilst attempting to differentiate through the brand, the core product, and through sales process (this was the UK bank, Abbey Nationals strategy). However, this strategy can prove difcult to sustain where the customers are affected by quality problems in obtaining routine servicing from the back ofce.
17
Having decentralised business units who do not need to get confused by conicting mind-sets. (For example, British Airways set up the budget airline Go to compete with EasyJet in the late 1990s. But this proved hard to sustain both because of competitive conditions and the difculties of reporting to a corporate parent with a different mind-set. Go was then bought out and subsequently EasyJet bid to become its new corporate parent company in 2002.)
Looking back at Porters book on Competitive Advantage which was, and is still now a very helpful concept one cannot help feeling that its battle-cry might (inadvertently) have sometimes led to an inappropriate mindset. For although companies pursue competitive advantage they are often motivated to excel in some areas, this is frequently done to the detriment of others. In many ways an even more pertinent concept is that of: Avoiding competitive disadvantage for so many companies fail to grow a sustainable competitive advantage not because they are not able to differentiate or achieve low cost positions, but because they undermine the effective delivery of customer value.
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This went as follows: Thank you for your patience, we value your call, please listen to this pleasant music to prevent you from getting bored, said the electronic voice. Einstein Finance, the (human) teleoperator then said (eventually). Thank you for answering at last, but I have now passed the ultimate intelligence test and wish to withdraw all my money forthwith, said the author.
Options Criteria Strategic attractiveness Financial attractiveness* Implementation difficulty Uncertainty and risk Acceptability (to stakeholders)
* Benefits less costs net cash flows relative to investment
FIGURE 4: STRATEGIC OPTION GRID, GRUNDY 2003
Option 1
Option 2
Option 3
Option 4
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Besides looking to the academic gurus we should also look at who are leading the way in terms of applying strategic analysis tools in dealing with ambiguous, uncertain and even intractable decisions. A number of major companies have now used/are adopting this technique, for example: Diageo Ford HSBC Microsoft Nokia Standard Life Tesco
The ve criteria on the strategic option grid can be scored using: very attractive moderately attractive less attractive
These scores are then added up at the bottom to see what is (prima facie) the most attractive option. Note that if something is very difcult it is scored as a one tick and not a three likewise with high uncertainty and risk. These scores are only as good as the cunning plan implying a high degree of creativity rather than merely analysis. Once the scores have a preliminary estimate, you should then check them out with bottom-up techniques (as follows), and with carefully selected data analysis: Strategic attractiveness Financial attractiveness Implementation difculty PEST factors, Porters ve forces, growth drivers (Grundy/Ohmaes/Porters competitive advantage) Value and cost drivers (see shareholder value theory later in the book) Force eld analysis (Lewin)
20
Whilst the gurus describe strategic decision-making as being typically emergent, (Mintzberg 1994) messy (Braybrooke and Lindblom (1963) and incremental (Quinn 1980), using the strategic option grid gives at least some clarity to senior managers in future direction. In practice strategy tends to move through different states of degree of form and logic, as we will see in the section in Chapter 3 on Grundy The Strategy Mix (Figure 11). Effectively, the Strategic Option Grid (Grundy 2002) therefore brings together (in practical terms) the disparate insights of a variety of gurus.
Implementation
Whilst the design school (Ansoff, Porter, Hamel and Prahalad) tend to focus on deliberate external strategy, process theorists tend to focus on emergent strategy and on organisational factors. It is this rare to nd rounded accounts of implementation in the strategy literature (except perhaps for Johnson and Scholes, 1987). As the book develops we will see the need to draw from the more behavioural work of theorists like Peters (1982), Kanter (1983) and Pascale (1990), some analytical techniques, notably: Force eld analysis (Lewin 1935). Stakeholder analysis (Piercy 1989).
21
Conclusion
Whilst strategic theory is well developed in terms of external analysis there are far less well developed frameworks of strategy implementation, learning and control. The organisational literature (as would nd) tends either not to be too helpful as it just accepts what is however bad, or it is dominated by prescriptive gurus like Peters. This gives pointers for new avenues of strategy and guru development for the future.
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Introduction
In this chapter we now dene the key concepts of strategy, link them to each other and also the main gurus as sources.
Alliances
An alliance is a longer-term partnership between two or more organisations. Alliances can be relatively loose and tactical through to strategic. A strategic alliance involves a reciprocal commitment by the various parties to longer-term collaboration which involves the mutual deployment of resources. These resources could involve money, time and attention. These resources may be supplied to a specic venture (perhaps structured as a company), or on an on-going basis. (Linked concept to acquisitions.)
23
Benchmarking
Benchmarking involves some comparison of performance and of some underlying capability in order to achieve learning and change. Customer benchmarking entails comparison of customer needs against supplier delivery (Ohmae 1982). Competitive benchmarking involves understanding differences between delivery of value to customers, or cost (or both) between at least two players (Grundy 2002). World-class benchmarking involves comparison with the best in the world, either within or outside your industry. Internal benchmarking looks at the learnings from comparison of different operations within your ownership. Cyclical benchmarking looks at performance levels either between economic cycles or over an entire cycle. (Linked concept to competitive advantage.)
Buyer power
This is the degree of pressure which buyers have over companies in terms of price, discounts, delivery times, quality levels and penalties for poor quality. Buyer power will vary by market, segment, distribution channel and customer. It will also vary according to whether it is a primary supply or a secondary supply (e.g. spares in the latter case buyer power is usually lower) (Porter 1980). (Linked concept to Porters ve forces.)
Breakthrough
A breakthrough is a major shift in a companys competitive position, organisational capability and nancial performance (or all three) (Grundy 1994, 2002). (Linked concept to gap analysis.)
Capability
This is the overall ability of a company to compete (Ulrich and Lake 1990). (Linked concept to competencies and HR strategy.)
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Competitive advantage
This is about either adding superior value to your target customers or similar value at lower cost (relative to your competitors). (Linked concept to capability, resource based theory, imitability.) (Porter 1985.)
Core competence
A core competence is a particular skill area which a company has which will enable it to add value to its customers, and to manage its cost base. An example of a core competence is Virgin Groups expertise in brand development (Hamel and Prahalad 1994). (Linked concept to capability, resource based theory.)
Competitive positioning
This is a distinctive way of competing (Porter 1985). (Linked concept to generic strategies.)
Competitive strategy
The scope of what business you are in, the relative focus on differentiation, focus on cost leadership strategy, and the resources and competencies used to deliver that generic strategy (Porter 1985; Hamel and Prahalad 1994). (Sometimes called business strategy linked concept to corporate strategy.)
Competitive rivalry
The extent of competition between existing rivals within an industry (Porter 1980). (Linked concept to Porters ve forces.)
Corporate strategy
This is the scope of existing businesses which a group is in, the intended future businesses (and the strategy to develop them) and the way in which the corporate centre adds value to them. (Ansoff 1965; Campbell and Goold 1994; Porter 1987).
25
Cost drivers
The direct or indirect factors both within and outside the business, now and in the future, which generates cash outows (Grundy 2002; Rappaport 1986). (Linked concept to value drivers.)
Cost leadership
This is a strategy which aims to achieve the lowest unit costs either within an industry or within a particular strategic group (or grouping of like-minded and similar competitors) (Porter 1980). (Linked concept to differentiation, focus strategies.)
Cost of capital
This is the level of nancial return required to achieve minimal satisfaction of suppliers of capital (both from shares risk capital, long-term loans and other methods of longer-term nancing) (McTaggart et al. 1994; Rappaport 1986; Reimann 1990). (Linked concept to shareholder value.)
Culture
This is the set of characteristic values, attitudes and behaviours which are characteristic of an organisation, or of a part of it (Kanter 1983; Pascale 1990; Peters and Waterman 1982). (Linked concept to style, strategic leadership, paradigms and values.)
Deliberate strategy
This is a strategy which takes detailed account of a) market attractiveness, b) competitive position, and c) changes in the markets and in customers needs and d) competitor intent, (Ansoff 1965; Mintzberg 1994; Porter 1985). (Linked concept to emergent strategy, strategic intent.)
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De-merger
This is the unbundling of a business, or of a group of businesses, into standalone units. This unbundling splits up these into groupings with differing growth, competitive strategies, industry sectors, future potential, prospects, financial performance, and perceived attractiveness to shareholders (Campbell and Goold 1994).
Differentiation
This is a generic strategy, aimed at generating either more real or perceived value to its target customers than its competitors. (Linked concept to cost leadership, focus strategies) (Porter, 1985.)
Diversication
This is a shift into either new products, new markets, new channels to market, new technologies, now geographic domains or into new competencies (or into a combination of some of these) (Ansoff 1965; Porter 1987). (Linked concept to gap analysis.)
Divestment
This is a decision to sell, close or automatically downscale an operation (Campbell and Goold 1994).
Dominance
This is a competitive position which is so strong a player has either the controlling market share, the number one brand, unique access to superior resources or technology, the lowest unit costs (by far), the standard setter, or leadership of industry mindset (or a combination of these things) (Sun Tzu). (Linked concept to sustainable competitive advantage.)
Emergent strategy
This is a pattern in a series of strategic actions or decisions (Mintzberg 1994). (Linked concept to deliberate strategy.)
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Entry barriers
Entry barriers are the perceived and real costs, difculty and risks of entering a particular market. Entry barriers might relate a) to entirely new market entry, or to entry into a new geographic market (by an existing player) (Porter 1980). (Linked concept to Porters ve forces).
Exit barriers
Exit barriers and the perceived costs, difculty and risks of exiting a particular market (Porter 1980). (Linked concept to Porters ve forces).
Financial strategy
This is the sourcing and deployment of sources of capital to get the best balance between cost, risk and return. (Linked concept to shareholder value) (Rappaport 1986.)
Focus strategy
A focus strategy is a generic strategy which is deliberately limited in its scope of markets, products, or technologies (and some or all of these) (Porter 1985). (Linked concept to differentiation and cost leadership.)
Gap analysis
This is the difference between a companys goals and its likely performance given current strategies (Ansoff 1965). (Linked concept to breakthroughs, diversication.)
GE (or General Electric Grid sometimes called the Directional Policy Matrix)
This is the trade off between inherent market attractiveness (based on growth drivers and Porters ve competitive forces) and the relative competitive position of either a group or of an individual strategic business unit. (Linked concept to positioning.)
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Generic strategy
This is a particular style of competing involving the company choosing not only how it will compete, but also of how it will not compete. Differentiation, cost leadership and focus strategies are all examples of generic strategies (Porter 1985). (Linked concept to competitive advantage.)
Governance
Why do organisations exist and how can their strategies be regulated? This brings in ethical concerns as highlighted by Handy (1989, 1994).
Global strategy
A global strategy is a strategy which deals with strategic issues across national borders, and cultures. By global we do not necessarily mean everywhere or necessarily everything. A global strategy may well focus just on a subset of issues, including: market, product development, technology, distribution, organisation, nance, acquisitions and alliances (Bartlett and Ghoshal 1984; Yip 1992).
Growth driver/brakes
A growth driver is any external factor which might either increase volumes sold, or prices over a particular time period in a market. A growth brake is any external factor which might either decrease volumes sold, or prices again over a particular time period in a market. (Grundy 2002) (Linked concept to Porters ve forces, PEST analysis.)
HR strategy
An HR strategy is a set of intentions, priorities and plans which aim to shift the capability of an organisation over time to meet present and new challenges (Ulrich and Lake 1990, Grundy 2003, forthcoming). (Linked concept to capability.)
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Imitability
Imitability is the relative ease with which competitors or new entrants can imitate a particular company strategy. (This is closely coupled with sustainability Grant 1991, Porter 1985.) (Linked concept to competitive advantage.)
Industry mind-set
The industry mind-set is the set of perceptions, expectations and assumptions prevalent in a particular industry (Grundy 1994, 2002). (Linked concept to Porters ve forces.)
Integration
Integration is the process of adding value to an acquisition either through absorption, change or development (Haspeslagh and Jemison 1991). (Linked concept to acquisitions.)
Legacy
The legacy of a strategy is the sum of issues from the past. These issues will include the existing resource base and skills, and past strategic decisions (both their successes and failures).
Logical incrementalism
This is the relatively haphazard process through which strategic decisions are made largely as add-ons, or changes, or deletions to current strategies. Logical incrementalism is to be contrasted with more visionary strategies (Quinn 1980).
Marketing strategy
A marketing strategy is a coherent plan for how to compete in a number of markets, with a clear denition of priorities and with targeted market and nancial goals.
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Mergers
Mergers involve two businesses or groups coming together on a more-orless equal footing. (Having said that, many mergers are pretend mergers they clearly involve one company and one set of managers taking over another one) (Haspeslagh and Jemison 1991). (Linked concept to acquisitions.)
Mission
A mission is a concise and memorable statement of the purpose of why we are in business and of what business we entered into, and how we are going to compete distinctively in them. It should also be inspirational. (Linked concept to vision, strategic leadership.) (Campbell and Goold 1994.) Many mission statements do not actually pass the above test, being either too long, or too generic (and little more than motherhood statements). In fact many mission statements can actually dilute competitive strategy, and even destroy shareholder value by encouraging the coverage of markets of dubious attractiveness and where there is little real, shareholder value (Campbell 1994). (Linked concept to strategic intent, vision.)
PEST factors
These are the political (and regulatory), economic, social and technological forces impacting on its wider environment (Ansoff 1965). (Linked concept to growth drivers.)
Paradigms
A paradigm is how we do things around here. It is a very close, if not identical concept to culture (Johnson and Scholes 1987). (Linked concept to strategic change, culture, values.)
Positioning
A positioning is the external and internal commitment to serve a particular product/market segment and to compete in a certain way. Positioning implies strategic choice by taking one strategic position you are implic-
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itly not (at least at present) taking other possible positionings. (Linked concept to emergent strategy.)
Process school
This is the school of strategic thought which regards process as far more important than the analytical content of strategy and also of analytical techniques (Mintzberg 1994).
Options
The range of alternative strategies or ways of implementing them (Winnie the Pooh, Milne 1926 which encourages one to avoid doing the same thing over and over again (like bumping ones head going downstairs, over and over again)).
Scenarios
A scenario is an internally consistent storyline or picture of the future (De Geus 1988, Wack 1985). (Linked concept to transitional events, uncertainty.)
Shared values
These are the deeply held rules guiding behaviour which are shared through all or part of the organisation (Peters and Waterman 1982).
Shareholder value
This is the perceived or real value of the future discounted cash ows likely to arise from the sum of the business strategies of a group, less the costs of head ofce. By perceived we mean perceived by the shareholders (as measured by stock market valuation). By real we mean the internal economic value of these strategies, and of their future potential. Besides the existing
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business strategies of a group we also need to include its opportunity stream, which also has a value (Rappaport 1990; Reimann 1990; McTaggart et al. 1994). (Linked concept to nancial strategy.)
Stakeholders
A stakeholder is anyone (internal or external to the business) who is either a decision-maker, adviser, implementer, or victim of the strategy (Piercy 1989, Grundy 2002).
Strategic assumptions
These are the explicit and implicit expectations about the state of the market or of the future success of a companys strategy (Mitroff 1993). (Linked concept to scenarios, assumptions).
Strategic change
This is the incremental or more radical adjustments of a companys competitive strategy and organisations to react to, anticipate and to pre-empt external changes (Johnson and Scholes 1987; Kanter 1983).
Strategic t
This is the extent to which a new strategy is consistent with, and adds value to overall objectives and intent and to other strategies (Johnson and Scholes 1987).
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Strategic intent
The desires, decisions and initial development of resources to achieve particular strategic goals (Hamel 1994). (Linked concept to vision, deliberate strategy.)
Strategic leadership
This is the symbolic embodiment of the strategy in the attitudes, beliefs, behaviours and statements of the Chief Executive and/or his top team (Kanter 1983; Peters 1982). (Linked concept to mission, vision.)
Strategic management
The process of scanning the environment, identifying and prioritising options, resource mobilisation and implementation to pro-actively shape the environment and to create sustainable competitive advantage (Ansoff 1963; Porter 1985).
Structure
The organisational framework for channelling the people resource to deliver the strategy without excessive cost, complexity, and time. (Chandler.)
Style
The way in which the organisation is actually run, e.g. participative, autocratic etc. (Campbell and Goold 1987; Peters 1982.)
Substitutes
These are the other ways of satisfying customer needs as perceived from a buyers point of view (Porter 1980).
Supplier power
This is the extent of negotiating power of suppliers to the industry (Porter 1980).
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Sustainability
Sustainability can be applied to either growth drivers, the level of competitive pressure generally (Porters ve forces) or to a companys own competitive position. It is the extent to which a strategic situation can be perpetuated without undue cost, difculty or threat (Porter 1985).
Synergy
This is the creation of incremental value through the sum (whether at the business or corporate level) being more than its parts (Campbell and Goold 1994).
Transitional event
This is an external or internal event what takes either the company or its environment into a new competitive world. (This concept is used in scenario development.)
Value creation
This is the potential of a business strategy, decision or project to generate incremental cash ow in the future to exceed the cost of capital (Grundy 1998; McTaggart et al, Rappaport 1986).
Value destruction
This is the potential for a strategic decision or business unit to produce future negative cash ows or positive ones which are not adequate to cover the cost of capital (Grundy 1998b). (Linked concept to value creation, value dilution, shareholder value.)
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Value dilution
This is the potential for the above to make some (accounting, prot) but actually not meet the cost of capital fully (Grundy 1998b). (Linked concept to value creation, value destruction, shareholder value.)
Value drivers
These are direct or indirect factors both within and outside the business, now and in the future, which generate cash in-ows (Grundy 1998b, 2002, 2000e, Rappaport 1986). (Linked concept to cost drivers.)
Values
These are the underlying preferences and rules which guide organisational behaviour (Johnson and Scholes 1987; Kanter 1983; Peters 1982). (Linked concept to culture, paradigms.)
Vision
This is a picture of the future which is either of the market or of ones own position or intent. (Linked concept to strategic leadership, mission, strategic intent.(Peters 1982))
Uncertainty
This is a hard to quantify risk. (Linked concept to scenarios, strategic assumptions(Mitroff 1993.))
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These are our gurus in alphabetical order, and the main things which they are famous for: Ansoff corporate planning, diversication, deliberate strategy, environmental scanning Argyris Bartlett and Ghoshal Bennett-Stewart Blackadder Boston Consultancy Group Bowman Braybrooke and Lindblom strategy and learning global competition EVA (economic value added) the cunning plan the BCG matrix Perceived use value/relative price strategy as muddling through Boston Consulting Group the BCG matrix Campbell and Goold Chandler De Geus Goldratt Grant strategy and styles, the role of the centre strategy and structure scenarios the theory of constraints the resource-based theory (of competitive advantage) Grundy (the alternative guru) strategy and shareholder balance, breakthrough thinking, strategy implementation, HR strategy, strategic behaviour, valuing strategic thinking, acquisitions, HR strategy etc
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Handy Haspeslagh and Jemison Johnson and Scholes Kanter Kaplan and Norton Lewin Lorange and Roos
the virtual organisation strategic management of acquisitions the strategy process (and paradigms) strategic change and catalysts the balance score-card force eld analysis, organisational resistances strategic alliances
McTaggart, Kontes & Mankins shareholder value Mintzberg strategic behaviour, organisational forms, emergent strategy Mitroff Ohmae Pascale Peters Piercy Porter uncertainty analysis competitive positioning contention in strategy, the seven s model the seven S model, organisational challenge stakeholder analysis Porters ve forces, the generic strategies, industry dynamics, the value chain Quinn logical incrementalism (within strategic decision-making) Rappaport Senge Slyvosky Spender Stalk Sun Tzu shareholder value the learning organisation value migration strategic recipes (for decision-making) time-based competition strategies and dominance
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Ulrich
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New
This model (with renements) is still used by major strategy consulting rms today (see Figure 1 for a renement of this).
MARKETS
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STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS
The Ansoff Grid: this grid was one of the key early strategy grids. Its virtue is its simplicity: it compares business development across existing versus new products against existing versus new markets: its core hypothesis is that: Development into both new products and new markets simultaneously increases risk substantially and disproportionately. Whilst being a cautionary warning, the extensive research on relative success of diversication indicates, perhaps surprisingly, that diversication of this kind does not necessarily reduce performance provided that the company is exploiting its core competencies. Diversication, therefore, is not necessarily a fatal move indeed to an extent some degree of diversication is positively associated with superior performance. The essential proviso here is that the company is innovative and in a relevant way to its markets.
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Environmental scanning
Igor majored on the need to keep an ongoing track of environmental change. In particular, he emphasised the need to be sensitive to weak signals in the environment, for example, signals that you are entering a new economic/competitive era. Often Ansoffs weak signals are anything but weak. September 11 was a signal and not such a very weak one to be prepared for major global disruption on a scale not seen since the Cuban Missile crisis (which threatened World War III) in the 1960s. The deliberate versus the emergent school of strategy in the early 1990s Igor did battle with Henry Mintzberg over the various merits/demerits of having a deliberate versus an emergent strategy. The long battle in various academic journals ended with about a 4-4 draw with both sides failing to vision the argument discursives. Reading these diatribes one cannot help feeling that this was essentially an articial disagreement and that one should draw from both schools of thought, probably equally in deciding how to manage, strategically.
Gap Analysis
Gap analysis (see Figure 7) is one of the most fundamental and most forgotten techniques of strategic management Figure 7 shows: Future performance given a do nothing state of the business. Future performance given current plans. Future objectives (or Hamel and Prahalads strategy as stretch (1993)).
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Existing business
Time
FIGURE 7: GAP ANALYSIS
The central issue to focus on here is that new (breakthrough) strategies should be created to ll the gap whilst gap analysis is an essential feature of any robust strategic plan it does have some drawbacks. The disadvantages of gap analysis are that: It can provoke panic to nd things to throw into the gap unless managers have a grounding in how to be strategically creative and also in how to appraise these potential breakthroughs. It can limit managers aspirations to those objectives dictated by medium-term nancial objectives, rather than by the art of the possible (as per Hamel and Prahalad (1994) who we expand on later). Surprising, Ansoffs gap analysis has virtually dropped out of the mainstream corporate strategy literature and is probably only used by about twenty per cent of companies in practice. The few people who have come across it appear to be marketeers, who have learnt about it through their marketing courses. The author wonders how major (and more modest) corporations actually develop plans without using gap analysis. (The reality is that it would appear that many plans are mere pretences as the gap to just hidden in halfgrounded forecasts). Probably what actually occurs is that when performance droops top management recover at least some of the gap, albeit temporarily,
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by Beating Managers Up, i.e. by putting more pressure on them to perform during the annual operating cycle or by reducing cost budgets.
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Chris Argyris
Who is Chris Argyris?
Chris Argyris is a social psychologist by training, and was drawn to strategy through his interest in management behaviour in teams and also learning in teams. Chris is Professor of organisational behaviour at Harvard University. Chris has focused (over several decades) on how individuals respond to changing organisational situations and how organisational learning becomes the basis for diagnosis and action.
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G Bennett-Stewart
Who is G Bennett-Stewart?
G Bennett-Stewart is a US-based management consultant who coined the idea of EVA.
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Blackadder
Who was Blackadder?
Blackadder was a famous TV series starring Rowan Atkinson as a jovial character set in the past.
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A cunning plan thus typically: starts off with the objective what do I really, really want? in this case, remembering the settings. brings together some possible solutions in a novel combination for looking at how you might remember something you have forgotten. at least one of these solutions is relatively surprising and not obvious it certainly is not an obvious solution. but the total package (the whole cunning plan) is relatively simple at bottom. and also, preferably, relatively hard to imitate.
In summary, Blackadders denition of strategy, the cunning plan, is a useful and light antidote to some of the heavier guru books on strategy.
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Question marks
Cash cows
Dogs
The grid is split up into four main quadrants: North west: stars growth businesses. South west: cash cows harvest businesses. North east: question marks emerging businesses. South east: dogs businesses which are candidates for divestment.
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Typically over its lifetime a business might start off as a Question Mark, then become a Star, and then in maturity become a Cash Cow, fading eventually into a Dog. The matrix thus helps not only with portfolio analysis but also with the life cycle analysis of company products. The BCG matrix (or grid) is a crude way of evaluating portfolio strategic business units. However, it suffers from a number of dangerous disadvantages as follows: Relative market growth is only one dimension of attractiveness, ignoring the PEST factors and Porters ve forces. Relative market share is only one variable of competitive positioning (you need to consider also: brand, product quality, service, responsiveness, unit costs etc). The denition of relative market share can be fudged depending on market denition (e.g. niche local or global). The presumption that you should divest of Dogs is potentially dangerous and inappropriate: actually, under the BCG denition, most businesses are actually dogs. The matrix can easily be taken to imply that the positionings are givens and nal they are not, but are merely starting points for thinking imaginatively about the strategic business unit.
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Cliff Bowman
Who is Cliff Bowman?
Cliff Bowman is Professor of Strategic Management at Craneld School of Management in the UK.
High
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In the grid in Figure 9 the best quadrant to be positioned in is where there is a very high perceived use value, and low relative price (top left). This leads to more sustainable growth and a strong competitive position. The weakest position is to have a low perceived use value and a high relative price the symptom of a company that has become complacent and lost its way. More difcult again is where you have a high perceived use value but the relative price is very high, too. So, for example, the author is organising a business trip to Microsoft in Seattle. He has only three options to y direct with British Airways: economy (1,150), British Airways World Traveller Plus slightly better than economy (1,550) and business class (over 6,000!). Microsoft are incredulous about the 6,000, and require much persuasion to pay World Traveller Plus. And who are Microsoft? One of the most successful companies in the world (as at 2002)! Perhaps British Airways has problems, here? Bowman has also worked excessively on the tacit competencies which often play a major role in determining competitive advantage. For instance, in one of his cases it turned out that the main ingredient in one Companys competitive edge was the particularly clever way in which the sales force got client buy-in. To identify these tacit competencies is often very hard from the inside of an organisation, as they are taken for granted. It often needs some customer input, some independent observations of key value creating activities vis a vis customers, and outside facilitation. Whilst being thoroughly researched, Cliff Bowmans work is a refreshing antidote to strategy theories which seem remote and practical.
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Also, his comparison of perceived use value (or PUV) against price helps us with Porters assertion (see later section on Michael Porter) that you cant pursue a differentiation and cost leadership simultaneously to be successful. For Bowman, the essence of competitive strategy was to be found in providing greater perceived value (relative to price) relative to your competitors.
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managing strategy. This debate was very helpful as very senior managers had previously been getting somewhat confused and frustrated at apparent contradictions in the centres role/their roles. Campbell and Goold obviously realised quite quickly that whilst their typology was insightful and useful it required renement. Campbell and Goold then furthered this work by extensive empirical research on synergies within Groups. Perhaps, not surprisingly, they discovered that the economic value of synergies is highly elusive. The main reasons for this appear to be: Managers main (and natural) preoccupation is with harvesting the value of their own business limits, rather than in collaborating in the hoped-for delivery of value with other business units. Internal, political rivalry, which reduced cooperation in many companies. Structurally, it is difcult to manage synergies across organisational and cultural boundaries. Without recognising a rewarding managers explicitly for harvesting synergies, managers simply will not do it. Besides their earlier ground-breaking work (along with Marcus Alexander), they also contributed to strategic thought with their thoroughly researched book on corporate parenting, Corporate Level Strategy (1994). This looked at the conditions for corporate parents actually adding value to their business portfolios, through identifying opportunities, avoiding value-destruction, through inuencing stand-alone businesses to do certain strategic things, and through synergies. One of their main concepts is that of parenting advantage very simply it asks what the corporate parent is really good at, rather than merely competitive advantage primarily. One of their main ndings was that synergy value is highly elusive, and is often not really worth trying to manage. This is due to their complexity and their lack of appeal, and to the common agendas of different stakeholders.
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Typically many companies are organised around more arbitrary lines than the above, (especially in the much earlier period of the1960s) and often contain a mass of different business models. By extolling the virtues of think market rst, organisation second, Chandler helps us to dene organisational structure more effectively.
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A De Geus
Who is De Geus?
De Geus was a former senior strategic planner at Shell who was instrumental in developing its scenario process, who moved into more academic work.
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Eliyahu Goldratt
Who was Goldratt?
Goldratt was a writer whose novel The Goal focused on decision-making by identifying the most limiting constraint at each stage of the decisionmaking process, resolving it, and moving on to the next one.
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Robert Grant
Who is Robert Grant?
Robert Grant was a US strategy academic who challenged Porters views on the basis for competitive advantage. He suggested that competitive advantage was more frequently to be discovered in access to distinctive or unique internal resources, rather than a choice between the different forms of generic strategies externally (see Porter 1985).
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Internet takes off Press commentary Ignorance about the future Dot com hype
Growth drivers
Growth brakes
FIGURE 10: GROWTH DRIVERS
Linking strategic decision-making and shareholder value: Grundy (1992) looked at why strategic decisions can be hard to put an (economic) value on, and how to deal with the problems of interdependency, intangibles, and uncertainty. Most of these problems dissolved when a number of qualitative methodologies were used (like Mitroffs uncertainty-importance grid see Mitroff). Grundy (1998b, 2002a) expands these concepts into a more rounded account of the constellation of value-creating activities (the business value system) and in managing key value and cost drivers which is a more exible concept. Grundy also suggested Porters value chain (that conventional strategic analysis) is typically limited to dening the problem/opportunity within its current diagnosing denition, rather than challenging the art of the possible. In particular, he put forward the idea of a sixth competitive force, (to complement Michael Porters ve forces) of the industry-mind-set. The industry mind-set is dened as the set of expectations, perceptions and assumptions currently prevalent in an industry.
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He also evolved a more rened version of Mintzbergs two forms of strategy into ve. These comprise (see Figure 11): Deliberate strategy. Emergent strategy. Submergent strategy (escalating commitment to a wobbly strategy). Emergency strategy (disparate attempts to turn it around). Divergent strategy (sorting the mess out, afterwards).
Deliberate strategy
Detergent strategy
Emergent strategy
The strategy mix is a helpful diagnostic tool which purports the current predominant form of strategy prevalent in an organisation.
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The authors research into strategic behaviour at BT (or how its managers interact to develop and discuss strategy) also highlighted that: Many internal disputes about strategy are due to implicit (and not so well revealed) personal agendas. To work well as a strategic team, a very large and complex number of organisational factors need to be aligned. Surprisingly the use of analytical techniques can (of itself) dissolve a large proportion of political and inter-personal difculties. On a more process-related topic, the author has developed a useful management process for dealing with strategic acquisitions (Grundy 2002). This process integrating strategic, and nancial, and organisational perspectives. The authors research into HR/organisational strategy suggests that this should be owned by line management, and not by HR. It also indicates that the analytical processes required for strategy implementation provide effective ways of dealing with less tangible HR/organisational strategy issues. Finally, the authors research with Brown (Grundy and Brown 2002b), highlighted that strategic thinking (and more specically, strategic thoughts) can generate considerable shareholder value. Unfortunately, managers tend not to dene the economic value created by them, and this tends to undermine the strategic thinking capability in many organisations.
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Core competencies
A core competence is a cluster of skills which either enables us to compete, or gives us a distinctive way of competing. Unfortunately, it is not always easy to identify an organisations core competencies from the inside, as these competencies are often taken for granted and of a tacit nature. It is often easier to assess these from the outside, particularly by examining customers perspectives of the organisation. For example, Ryan Airs core competencies are: Low cost mind-set. Low cost management and operational processes.
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Offsetting these competencies are also Ryan Airs not-so-good competencies in: Media management. Handling customer complaints. Dealing with customers as individuals.
Core competencies will change over time and these changes need to be built into future organisational strategy.
Finally, Hamel and Prahalad underline the importance of innovation in strategy and of introducing more playfulness into strategic thinking sessions, thus de-emphasising planning bureaucracy.
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Ease of reading difcult (but only due to the volume of their work, so dont let this put you off). This book needs to be read over a period of weeks, chapter by chapter.
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The main idea of the balanced score-card is that one needs to measure and manage all of these indicators and in balance, rather than primarily nancial performance. The original balanced score-card covers certain aspects of strategic control (customer satisfaction) well but not others, such as: relative strength vis a vis competitors innovation capability development
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It also tends to over-emphasise short-term nancial measurement over and above the generation of longer-term shareholder (or economic) value. But its biggest limitation is probably that it is very difcult to implement in most organisations certainly without a lot of tailoring simplication and renement. The authors own experience, for example, of helping implement a tailored, balanced score-card process within a division of HSBC is that: You need to identify your own, high-level, balanced score-card headings relevant to your industry, organisation, and strategic agendas (a maximum of ve). These headings need to be broken down into more specic, micro measures (perhaps three to ve). The top team should not focus on all measures equally and simultaneously, but should focus each quarter in the year on a smaller number of areas where there is a performance gap.
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Enablers and constraints might include for example: leadership, culture, resources, heyday, context, project management and existing workload/ overload. An example of force eld analysis is to be found in Chapter 4 on the Champneys Case. Force eld analysis creeps into MBA courses often in modules on strategic change. It is also taught on HR courses and is used by a minority of HR consultants/facilitators to examine implementation difculty. Grundy and Brown (Strategic Project Management, Thomson Learning, 2002) have attempted to popularise its use again.
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This helped him to understand how organisational structures change over time to respond to market and company life cycles, and to thus adjust to strategic change. His book Structures in Fives is perhaps a more comprehensive account of organisational structures than Handys.
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Most famous for his characterisation of strategy as messy and haphazard (sometimes however, falling into a coherent pattern of one form or another or an emergent strategy), he acted as a healthy counterbalance to the prescriptive theorists (like Ansoff and Porter). Figure 12 gives an illustration of how the forms of strategy may operate: Deliberate strategies can be realised or unrealised, whilst emergent strategies simply materialise through action. His weighty book The Rise and Fall of Strategies of Learning (1994) argues that conventional planning processes are inappropriate to the more uid decision-making process characteristic of most organisations. Mintzberg (et al) also wrote one of the most enlightening books on strategy of recent times called Strategy Safari. This likened the various schools of strategy (deliberate, process, visionary etc.) to the different kinds of animals which one would literally see if one were, as it were, on safari. This is well worth a read, and will not put you to sleep!
FORMS OF STRATEGY
DEL
IBE
RAT
ES
TRA TEG
REALISED STRATEGY
UNREALISED STRATEGY
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EME RG EN TS
Y EG AT R T
EASE OF READING
Strategy Safari easy, essential reading. The Rise and Fall of Strategic Planning medium. The Structuring of Organisations and Structures in Fives more difcult.
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Ian Mitroff
Who is Ian Mitroff?
Ian Mitroff is a Californian-based strategy guru with a direct, challenging style and who provided us with a framework for surfacing strategic assumptions. Mitroff is Professor of Business Policy at the University of Southern California.
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Very certain
TRAVEL ZONE
COMPLACENCY ZONE
Lower importance
Very important
DANGER ZONE
Very uncertain
Mitroffs uncertainty-importance grid is an essential technique for scenario development. Typically a number of assumptions in the Danger Zone can be used to draw out a story-line for a future which is signicantly different from the present. The uncertainty-importance grid can be used for: Acquisitions. Alliances. Restructuring. Managing strategic projects. Market entry. New product launch.
For example it has been used to track BMWs strategic decision to acquire Rover Group in 1994. (See Grundys Breakthrough Strategic Thinking, Pitman, 1984 and Be Your Own Strategy Consultant, Thomson Learning, 2002.)
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The grid suggested some major downsides to this decision including: Rovers high unit costs. The likelihood of major investment in Rover. The possibility of culture clash. Life cycles: Rovers four-wheel drive models maturing (the Discovery range). As a result of these uncertainties actually crystallising, Rover lost 900 million on a turnover of around 4,000 million in its last year of ownership by BMW in 1999, this being a salutary warning to those overlooking this essential technique. When using the uncertainty-importance grid it is important to make sure that: The assumptions are spelt out in full remember to ask the question: what is the big thing which we have forgotten? The assumptions need to be set out quite explicitly and with predetermined parameters. Sometimes a highly critical assumption needs to be broken down into its sub-assumptions.
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Kenichi Ohmae
Who is Kenichi Ohmae?
Kenichi Ohmae was one-time Head of Strategy Consulting, McKinsey Japan. Ohmaes concise book The Mind of the Strategist is a classic introductory book which is very accessible. This accessibility has assumed its very ready availability on book shelves for twenty years.
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CUSTOMER
? Value
COMPANY
COMPETITORS
COST
LOST
FIGURE 14: KENICHI OHMAES THREE CS
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The seven Ss are indeed a useful checklist for making sure that in a particular organisational issue one has covered all the main angles. Separately, it is often useful to map the various interdependencies between the individual components of the seven Ss, for example: Between strategy and structure. Between structure and style. Between style and share values etc.
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Effectively this earlier model was based on the need for organisational alignment (following a deliberate strategy school model). Unfortunately, many of Peters and Watermans earlier success stories actually went into decline (for example, IBM), causing him to revisit and even reverse earlier thinking. Peters and Waterman were caught out here by changing industry competition, by complacency within the highly successful companies, and by sample, corporate life cycle effects. Tom Peters went on (in Thriving On Chaos) to stress the antithesis to this alignment thinking by underlining the need for challenge, some disruption and also for breaking the corporate mind-set, especially in more mature organisations. Peters used the success of this later book to build a platform for worldwide Peters workshops to spread the Thriving On Chaos doctrine. Peters targeted corporate soft spots like internal mistrust and even the role of the HR departments whose control-led mind-set often reduced companies competitive advantage, rather than added to it.
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Ease of reading would be relatively easy if Peters wrote a little more succinctly. Otherwise medium to difcult.
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Nigel Piercy
Who is Nigel Piercy?
Nigel Piercy was Professor of Marketing at Cardiff University. He is now a Professor of Marketing at Craneld School of Management.
STAKEHOLDER ANALYSIS
FOR
Coalition building
Attitude NEUTRAL
Leave alone
AGAINST LOW
Distract or fragment
MEDIUM Influence
FIGURE 15: STAKEHOLDER ANALYSIS GRID
A stakeholder can be dened as anyone inside or outside of the business who is either a decision-maker, adviser, implementer or victim of a strategy and of how it will be implemented.
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The grid can be used: to analyse stakeholder positions (and their underlying agendas). to anticipate changes in who they are, or in their position. to devise cunning inuencing plans. to reduce and dissolve organisational politics.
The grid has been developed in the authors own writings and is in everyday use at: CGNU, HSBC, Microsoft, Royal Bank of Scotland, Standard Life and Tesco.
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Competitive Strategy (1980) contains not just Porters ve competitive forces but also a comprehensive account of the evolution of markets throughout their life cycles. Porters ve competitive forces address the question of why are some markets more attractive (in terms of long-term protability) than others? The answer is that they are more attractive than others because of structural reasons. This is down to (according to Porter), ve key forces, namely: The bargaining power of the buyers. Entry barriers. Competitive rivalry. Substitutes. The bargaining power of the buyers.
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Porter advises that each force should be appraised in terms of its relative attractiveness (high, medium or low). Porters ve forces can give you a number of outputs: A better prioritisation of markets by their inherent attractiveness. A list of the critical success factors in the market, i.e. what things has any player got to get right/avoid getting wrong strategically to succeed. Providing insights for the criteria for judging yourself against competitors. Ideas for changing the rules of the game (e.g. by reducing rivalry by acquisitions, shortening the value chain by going direct etc to the end-market) of value-creating activities.
THE VALUE CHAIN
Porters value chain splits company operations into a number of generic components, namely: In-bound logistics. Manufacturing. Servicing. Sales and marketing. Administration. Out-bound logistics.
Essentially Porters value chain is an (economists) input-output model of how value is created in a business. It draws our attention to the internal choices which a company makes in determining how it is going to compete. The model can also be applied to an industry level, to look in particular at different ways of distributing products or services. In its modern form it has been called the business model to indicate that it is specic to a particular business Porters headings above (like in-bound logistics) are not terribly helpful. Also it has been subsumed into the Business Value System (Grundy 1998b) where not only is it drawn to be specic to a business, but instead of it being drawn as a linear, input-output analysis,
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it is depicted as more of a system (Senge 1990). (See Figure 16) In more recent years his value chain has probably waned in popularity on business school courses. Not only is it perhaps one of the least exciting strategy tools to teach, but it does not often tell you an awful lot without a good deal of tailoring effort to a specic industry context.
Sponsorship
Merchandising
Brand
Match performance
Player acquisition
Training
Porters generic strategies comprises of: differentiation, cost leadership, and focus. A differentiation strategy is one where you set out to add more value to your target customers (perceived and real) than your competitors do. This incremental value is manifest in either higher prices or discounts avoided, or both. A cost leadership strategy is one where you achieve parity of value with your competitors, but at a lower cost. Both generic strategies lead to above-average protability.
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A focus strategy is where you have narrowed your competitive strategy to concentrate only on your target customers and their specic needs, and potentially also your product range. This aims at recouping the advantage of specialisation, either through more appropriate targeting of needs or by economies of scale within a narrower area of the market, thereby achieving lower costs. Porter suggested that you must choose which generic strategies you should focus on, and that if you dont, then your strategy will not succeed and you will get stuck in the middle. (Like Rover Group, which aimed to be differentiated in some products, cost leadership in others, covering a wide area of the market and yet sometimes focusing on niches within the organisational structure within different strategic business units.) The arguments for supporting this prescription are that: there are good empirical case studies to support it (like Rover Group). culturally, it is very hard to have a differentiation and cost leadership mind-set simultaneously, even where activities are semi-insulated from each other. The arguments against it are that: More exible operations can sometimes ne-tune the delivery or competitive strategies. An organisation may have a mixture of superior value creating competencies (leading to motivator factors (Grundy 1998b, 2002) along with those more basic standards (or the customers hygiene factors), and that you may therefore just need to juggle these when prioritising how to compete. Porter has also contributed to our thinking on Strategy and the Internet. Unsurprisingly Porters thoughts on the Internet were that: The ve forces would be generally worse, as the Internet made information more freely available (helping buyers, and increasing rivalry). The Internet also, potentially, reduces long-term barriers to entry. This meant longer-run margins would not be so good.
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But, there might be temporary advantages through simplifying the industry value chain, helping to reduce costs, until customers and competitors bargained that value away.
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Ease of reading Competitive Advantage is relatively difcult but well worth it. Competitive Strategy is probably still a must read.
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J B Quinn
Who is J B Quinn?
J B Quinn was a major thinker within the process school of strategy. Quinn played a major inuence in suggesting that strategic management was not primarily about analytical, rational activity, but was very much dependent upon strategic action. Strategic action means that strategy evolves in a way which is virtually impossible to distinguish from everyday management action.
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The practical advantages of logical incrementalism are that: Strategic decisions tended to be made on the basis of existing competencies and knowledge, thus reducing exposure. By making them incrementally, this made it more possible to digest their implementation (as managers would have to execute strategies before moving on to new ones). Their economic value could (in theory) be better targeted, monitored and controlled. This style of strategy provided (again, in theory), ample opportunity to learn. On the downside, the practical disadvantages of logical incrementalism are that: Managers would typically not anticipate where a particular decision might lead them next. Like a poor chess player, managers would tend to think about their current move primarily, their next move little, and the one after probably hardly, or not at all. Where a series of strategic moves did not necessarily t together well then over time this would create something of a strategic mess. (Quinn called this disjointed incrementation.) Quinns work was very thoroughly researched. In his study of strategic decision-making in major corporations there was ample evidence of logical incrementalism at work. But just as we saw in our discussion of Henry Mintzberg (1994), another (and more famous) strategy guru, just because this is how managers typically do it does not mean that they cannot do it another way. Nor does it mean that they should not do it another way. The authors personal view (both from empirical research (see Grundy and Brown, 2002) and from over twenty ve years business experience managers can benet from using strategic thinking to manage in a more holistic way. Indeed, when they are shown how to do this, not only are they able to be less incremental but they certainly want to. The experience of managers at Lex, John Menzies Group, Oxford University Press, Standard Life, Tesco and many others, testies to the suggestion that shifts in strategy style towards more holistic thinking are at least partly sustainable.
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Alfred Rappaport
Who is Alfred Rappaport?
Alfred Rappaport was a key founder of the Shareholder Value movement. As long ago as the early-mid 1980s he helped lay the foundation for a more explicit focus in strategy formulation for managing it to create shareholder value.
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Examples of value drivers and cost drivers for a new, innovative supermarket trolley are continued in Figures 17 and Figures 18.
New trolleys
Ease of use
Suppliers
New trolleys
Investment cost
Operating costs
Design sophistication
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Rappaports own denitions of value and cost drivers are actually much more tangible, and much closer to the direct generation of the nancial numbers themselves. For example, Rappaport lists sales growth and margin as value drivers. From the authors viewpoint, these denitions are somewhat limited, as they focus too closely to the directly quantifying nancial numbers. Frequently it is more interesting to dene them in terms of the underlying system which actually generates these intermediate variables (or Grundys Business Value System (1998b)) The earlier examples above of word-of-mouth value drivers and number of branch heads per branch for cost drivers are perhaps more useful. One useful insight from Rappaport, however, is that margin level is often a more important value driver than sales growth. Often growth actually destroys rather than creates shareholder value, especially when the growth is not of particularly high quality (for instance where there is a relatively unfavourable set of Porters ve forces).
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An example of its application to customer experiences and value is shown in Figure 19 which involves the curtains falling down, the pole damaging the resident, the subsequent pain and the hotel losing the visitors car keys for a while.
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Savings loans Changes in family structure Disposable income Types of customer More leisure More crime
Economic growth
Change in government
Unemployment
House moves Create secure home Substitutes leisure pursuits Do it yourself market growth
Competitive rivalry
Exists
Supermarket entrants
Margins
Pressure groups
Push to diversify
Other options
The idea of the learning organisation did become very popular, but in practical terms few companies have actually managed to get the idea taken seriously by top managers.
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Having said this, the learning organisation is a useful step on the way towards getting companies to exploit their natural organisational capability (Ulrich 1990) more effectively. Also, Senges idea of systems thinking is useful in developing scenarios (Wack 1985), and also in developing Porters (1985) value chain into something more tailored and interactive the Business Value System (Grundy 2002). Senge is most closely linked to process the artists including Mintzberg who has even gone as far as to suggest that strategic planning is simply unworkable. There are also some links with Kaplans balance of score-card in terms of its focus on the softer issues as well as the harder issues in evaluating performance.
Ease of reading difcult The Fifth Discipline is not the most accessible book.
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A Slyvosky
Who is Slyvosky?
Slyvosky is founding partner of Corporate Decisions, an international strategy consulting company.
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Finding new ways of adding distinctive value (or the customers motivator factors things that make switching to other sources of supply virtually unthinkable Grundy 1998, Grundy and Brown 2002).
Transforming the organisation (Pascale 1990, Peters 1982), and competing from within (Ulrich 1990).
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J C Spender
Who is J C Spender?
J C Spender is Professor of Strategic Management at Strathclyde University.
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E Stalk
Who is Stalk?
Stalk is a writer who realised that Ohmae/Porters concepts of competitive advantage appeared rather static, and did not take into account the edge which can come through momentum through time.
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nailed facing his or her desk, and probably as an automatic prompt on their lap-tops as well!
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changing role, few HR staff appear to a) fully understand it, b) be capable of executing that role.
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P Wack
Who is Wack?
Wack is a former senior strategic planner at Shell during the period when Shell was using scenario development to anticipate major and unexpected shifts in the business environment.
Amplifiers
Precursors
Dampeners
FIGURE 21: THE UNCERTAINTY TUNNEL
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Scenario story-telling is a uid process, possibly drawing from PEST factors, the growth drivers and Porters ve forces. But it is also helped considerably by using Mitroffs uncertainty-importance grid, as used also by Shell (see Figure 13). Companies where the uncertainty-importance grid has now been introduced, coupled with scenario development include: Amerada Petroleum, BT, Direct Line, HSBC, Standard Life and Tesco.
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George Yip
Who is George Yip?
George Yip has taught at Harvard, the University of California and was also Professor of Strategic Management at Cambridge University. He is also a consultant to leading corporations.
He also looks at the cost/benets of being global, across products and services, marketing, competitive moves, and organisation. Rare for more US-based thinking (originally), he is less prescriptive in his views, taking a more diagnostic view of the otherwise cloudy concept of global and also taking a contingency approach to its applicability (i.e. being global depends on the context).
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Introduction
Let us now turn to a case study which illustrates the relevance of the strategy gurus (mentioned in brackets) and is based on a documentary on BBC television in 1996 and also on interviews with Champneys Managing Director. This case illustrates: Acquisitions Breakthroughs Competitive advantage Competitive positioning Competitive strategy Cost drivers Deliberate and emergent strategies Differentiation Divestment Future thinking HR strategy Integration Legacy Logical incrementation Marketing strategy Mission Paradigms Options Shared values Stakeholders Stakeholder value Strategic t Strategic change Strategic leadership Strategic intent.
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Background
Champneys Health Farm is located at Tring, Hertfordshire, UK. Champneys is a select, rural retreat for its members who reside principally in and around the Home Counties, England. Traditionally it is a most exclusive retreat, charging near-Savoy prices for its luxurious and relatively exotic services in body and skin care generally. But by the recession of the 1990s Champneys was suffering considerably. Falling demand meant that its cash ow had deteriorated to the point where it experienced an annual cash decit of one million pounds. Its previous owners decided that enough was enough, and sold out to foreign investors (acquisitions). In business terms, Champneys was in dire need of strategic change (Johnson and Scholes, Kanter), no longer having strategic t to the environment. So its new, foreign investors decided that a new breath of life needed to be injected to secure Champneys future. In late 1995, Savoy trained Lord Thurso was recruited to spearhead Champneys recovery. It had been recently acquired by a new Middle Eastern owner who it would appear existed after the acquisition, needed an integration strategy. (Haspelagh and Jemison.) As its new Chief Executive, Lord Thurso set about formulating a turnaround plan which would secure Champneys a viable future. At this time Champneys also featured on a BBC2 production, Trouble at the Top. Some of the quotes by Lord Thurso are taken from that television programme and some from interviews with one of the authors. Because Champneys prided itself on its exclusive customer service, this turnaround strategy needed to be managed with great sensitivity to the people issues. (Peters, Ulrich and Lake.) This case study is structured along Johnson and Scholes three phases of strategic management: analysis, choice, and implementation.
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Strategic analysis
In the tradition of turnaround specialists, Lord Thurso set himself a tight deadline to formulate and project manage his strategic turnaround plan. This was just one month. In the course of that month Lord Thurso was to spend the bulk of his time listening to Champneys various stakeholders, (Piercy) particularly: its members, and regular customers; its staff; and its current managers.
A number of strategic breakthroughs were born out of Lord Thursos strategic thinking as follows: Sampling Champneys treatments (by Lord Thurso). Simplifying management processes. Improving management reporting processes. Management restructuring. Management recruitment. The communication plan. The strategic vision. Developing a business strategy. Customer database. Maintaining organisational morale. Culture change. Getting rid of Health-for-Life. Premises strategy. The business case and its approval.
To begin with, when Lord Thurso took over Champneys he weighed in at 16 stones. As a parallel agenda, Lord Thurso undertook to reduce this weight coincidentally in parallel with what became Champneys own corporate
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slimming exercise. Most important in those early days for Lord Thurso was to sample Champneys exotic, health-generating treatments, being his rst project to help turn the business round, in order to understand customer value delivered and competitive advantage (Ohmae, Porter). Lord Thursos early diagnosis within the turnaround project indicated that Champneys suffered from a number of underlying legacy problems, including: A legacy of under-investment (and decay), due to past shareholder value destruction (Rappaport). A decline in standards generally. An over-zealous attempt to market Champneys time-shares to customers outside Champneys core customer base (this was an inappropriate deliberate strategy, Mintzberg). Promises made to members which could not be kept. A top-heavy management structure (which was a major cost driver, rather than a lean one (Peters), and a lack of strategic leadership. Relatively poor (or inappropriate) management and nancial controls. A lack of sense of strategic direction generally.
Champneys difcult situation was brought about by a combination of unrealistic past deliberate strategy (Mintzberg), a lack of organisational alignment (Peters and Waterman, Senge, Ulrich and Lake) and muddling through and incremental thinking (Braybrooke and Lindblom, Quinn). Lord Thurso wisely negotiated a remuneration package which would not disadvantage him in recommending possibly unpalatable options highlighting the linkages between strategic thinking, reward structure, and shareholder value (McTaggart et al). Reecting on this situation (in an interview in 2000), on the strategic choices available (Johnson and Scholes), Lord Thurso elaborates: There isnt any money and my job is to get the value out bang, bang, bang. They take difcult decisions with easy. In a way, what I was doing was not far short of that. You arrive, the thing is absolutely bleeding to
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death and the shareholders are not going to be able to bale it out a great deal more and you have to have a plan for dealing with the emergency situation. Thats when you whip the patient into an ambulance and off to hospital. The thing was absolutely in the shit that is a technical term. Lord Thurso continued: When I rst started I had an option, which was to recommend closing the business down, and I would be paid, I would have a kind of parachute, so I was free to say: Look, I am sorry, I dont feel that the business is viable, the only way out is to chop it up and sell all the bits off [recaps on the process during the rst months]. Lord Thurso, on his rst inspection of the property after taking over tells us (BBC2): It is clearly very tired. These rooms would have been considered ve star when they were built but clearly the expectations of ve star has changed. It is bland, it is grey, it is a very dead, dull room, it has no colour and it has zero on the excitement scale. Also, Champneys strategic positioning (Ansoff, Porter) itself seemed to be unclear and its marketing strategy: I have asked the question of everybody what are we selling? and I get a lot of long-winded answers; the real answer is that no-one has thought about it. (BBC2) He also reects (1997 interview): I had also decided it was as plain as day that the previous strategy, there was this wonderful name Champneys, which is true, it is the great opportunity. But what had been created in the past was the infrastructure for a hundred million pound company even though it was only a ten million pound company.
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It had all these people here who were called brand managers. And none of them understood what a brand was. And that was the extraordinary thing. None of them understood the elementary concept of a brand being a promise made to customers that has values and a character. If you said to them what does Champneys mean? the answer was, they hadnt thought it through. Whilst Champneys thought it had a deliberate strategy, it was probably more emergent (Mintzberg) indicating the kind of bureaucracy which Peters and Waterman twenty years ago suggested was irrelevant. Many of these issues must have been apparent almost as soon as Lord Thurso drove up Champneys drive. As soon as he arrived he found a mass of memos from his managers. Lord Thurso says (BBC2): There are piles and piles of paper. It is a fairly classic thing. There are too many managers sending memos to each other. And I am suspicious of any company that is capable of generating so much paper when they are told they are expecting a new Chief Executive. Also (1997 interview): When I arrived here there were huge reports on everything. I said to them, Look I just dont read them. I dont mind reading a novel by Tolstoy or Dick Francis, but I am not going to read that! The following reveals Lord Thursos quite different management style which was one of leadership (Pascale): I tend to communicate by getting up and sitting in someones ofce. I loathe memos. In my last company I banned them completely for two months. I said the next person who writes a memo will be red it was amazing, we didnt have a single memo written for two months. It was brilliant, people actually started talking to one another. (1997 interview) The above thinking clearly agged-up two signicant strategic breakthroughs simplifying management processes and improving management reporting processes.
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At the same time management lacked the fundamental information that it required for managing shareholder value it was based on inappropriate accounting data (BBC2): We do not have good nancial information, in fact not only is it not good it is actually awful. The management accounts that I have seen are mathematically correct but they are not informative. So, besides simplifying the management process, a further strategic breakthrough would need to be improving management reporting processes. He continued on structure (Chandler, Handy, Mintzberg, Peters): There was a management structure which didnt work. The management reports were gibberish. I asked simple questions Do you know what your cash ow is? and the guy couldnt tell me... They didnt produce balance sheets. They produced huge, thick reports, full of graphs, trend analysis. But the one thing that they didnt do was to produce reports where you could nd prot, where you could nd cash ow. I said we will really have to start from scratch. I remember sitting on the lawn on holiday wearing my Panama hat and a tee-shirt and my kilt, and smoking a cigar trying to read through two years of drivel, the management accounts... I can usually work things out and I just couldnt make it work. But instead of rolling out a strategic turnaround plan straight away, Lord Thurso spent precious time soliciting the views of all its key stakeholders, especially of its disgruntled customers focusing on diagnosis (Johnson and Scholes). This enabled him not only to be absolutely sure that his chosen path was the right one in deliberate strategy terms but also, in behavioural terms, was owned (Kanter), and didnt produce a reaction due to the organisations shared values.
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This period of listening was primarily so Lord Thurso could establish a rapport with his new staff and thus to provide a platform for inuencing them effectively. He told me: To be honest, I had already made up my mind before I arrived here what I would do. I had actually decided before the day that I started that I was going to take a million pounds out of the costs. (1997 interview) He continued: I wanted them to have thought that I had thought it through. They wouldnt have understood that I was capable of thinking it through very quickly, and that it was really clear what had to be done. It was really a very simple problem and it needed some pretty straightforward solutions. After I arrived I said I will have a month and I will take no decisions until the end of the month. It was a good thing. I did fractionally amend certain decisions but ninety per cent of it was exactly what I had thought (previously). (1997 interview) Strategic thinking does not necessarily need a lot of time to accomplish unlike Mintzbergs characterisation of it with his attack in The Rise and Fall of Strategic Planning. Nevertheless it is important to ensure that parallel strategic thinking occurs, even at a simplied level and at a slower speed in the rest of the organisation. This does not come naturally easily to those senior managers who are particularly bright. Lord Thurso realised intuitively that Champneys was the kind of situation which could so easily blow up if a number of stakeholders (Piercy) decided, rightly or wrongly, that he was the wrong man for the job. Quite quickly Lord Thurso concluded from his own personal course of treatments that his operational staff were a real asset to be retained, nurtured and grown. Lord Thurso said: The closer I get to the front line the better I nd the troops are. And that is very pleasing because if you have good ofcers and lousy soldiers you have got a lot of work to do, but if you have good soldiers and lousy ofcers, then you have to work to train or change the ofcers. (BBC2)
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In some contrast, Lord Thurso found the management which he inherited, although up to the task of managing in a more steady state environment, not really up to a turnaround. The top-heavy management structure was not only an expense that the business could not afford; it also impeded the recovery plan, inviting two further interrelated breakthroughs management restructuring and management recruitment. Lord Thurso reects in late 1997 just how serious the problems at the old Head Ofce had become: And there was a business over there that had been completely neglected at Head Ofce. There was a ipchart in every ofce, which to me was a symptom of this very introverted style the moment anybody had a meeting someone was on a ipchart. The whole thing was driven by the processes rather than by the objectives. If there were objectives they were tacked onto the process. People worked hard and interacted and interfaced and essentially went around in circles. There was no questioning of why are we here? or What is the meaning of the universe? It was quite clear that I had to make a very clear, that I had to make a very denitive statement that there was a complete change coming. It wasnt quite as bloody as it looked, because I re-deployed quite a lot of the people I had here back into the units. That refocused them on where the action was. I described it once as this Head Ofce was once a great black hole which sucked energy out of the units. Things vanished into it never to be seen again. Whereas my idea of Head Ofces is that it should be a tiny, tiny star in the sky, twinkling light down, completely out of the way. (Interview) Here Lord Thurso is giving a steer on the value-adding activities of the corporate centre (Campbell and Goold.), and is using contention deliberately (Pascale).
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Strategic choice
As Lord Thurso said (illustrating Senges systems thinking) (interview 2000): I think life is all about circles and not straight lines. You can jump onto the circle anywhere you like. Number one, it is having a vision call it a vision, call it an objective, call it a goal, it is the idea of where you want to go. The beginning of strategic thinking is where you are working out the vision strategy, then its mapping out the ways in which you could deliver that, like policies you put in place. Overall, a series of moves in chess is a strategy. Each move is a tactic. He continues, on the role of leadership and vision, or strategic intent (Peters, Hamel and Prahalad): The leader has to ensure that there is a vision, that there is a clear idea. Whether the leader dreams that idea up himself or whether that idea is produced by a process of consultation, it doesnt really matter. He then has to make sure that there is a strategy for prosecuting it. At this point it is now worthwhile doing an exercise on what you would see as being the possible strategic options facing Champneys. This can be done at three levels: 1 Options for competitive strategy competitive positioning (Ansoff, Ohmae, Porter). 2 3 Options for organisational (or HR) strategy (Ulrich and Lake). Options for the change process (Kanter, Pascale).
To help you to think about level 1) consider once again the following lines of enquiry: these are depicted as the Octopus or Option Octopus (Grundy 2002) which is an extension of the Ansoff grid (see Figure 22): Which market sectors should Champneys be in? Where? (Geographic options.) Which customers should it target and what areas of value creation? (Rappaport, Grundy.)
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Are there different means of value delivery and resource bases? Are there alliance or acquisition possibilities? (Haspeslagh and Jemison, Lorange and Roos.)
Might Champneys divest or outsource any activities as a group? (Campbell and Goold.)
Divestment or outsource
OPTIONS
Value creation
Acquisitions Alliances
Value delivery
Here we see the need to be quite creative and uid in your strategic thinking. As Lord Thurso reects (interview, 2000): future thinking The guy at the top must always be mentally in the future.
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Note: a number of suggestions of possible answers are contained later in this book, somewhere, but it is advisable not to peep at these rst.
This kind of reection needs to be done in some specially created thought or helicopter space (and time) (for strategic thinking (Mintzberg). Lord Thurso reected (interview, 2000), illustrating that: The guy at the top is probably the only person spending his time thinking six to nine months ahead of the business. The most important single thing is thinking ahead. The rst thing is one, with door shut, with phone switched off, gazing at this ceiling, running what-ifs through my mind Turning now to the organisational structure (which will facilitate the strategy Chandler), assuming that you are going to reposition Champneys back to its traditional up-market focus, what future organisation would you really, really want.
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Implementation
But knowing this posed a major dilemma for Lord Thurso if he were to move very fast and introduce a new, slimmed down management structure, the shock might topple the organisation, undermining morale at the cutting edge of customer service. In these situations there is probably no single right answer. Arguably, by leaving the Champneys managers in suspense for one month, he prolonged the agony of uncertainty. But on the other hand, by at least listening to them over this period he would have a better idea of who was, and was not, able to make the transition and also how many managers in simple, nancial terms, he could take with him. He continues (interview, 1997) highlighting the need to create some sense of crisis (Pascale, Senge): First of all I wanted a huge change and I wanted that to sink in quickly. I wanted the troops, the army in the resort to go Hey this guy might know what he is talking about! I also felt that I only wanted to do it once. I wanted it to be viciously quick for two reasons, one was to make a point and the other thing was to say to people thats it. It is done. And that undoubtedly worked. Lord Thurso decided that Champneys above all needed a new strategic vision. (Hamel and Prahalad).
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Strategic vision
Lord Thursos own vision for Champneys is profoundly simple. Lord Thurso prefers the idea of vision to mission principally because mission statements are harder to grasp onto, particularly in terms of the behaviours which are implied by them (1997 Interview) (Campbell et al): If you cannot remember a mission statement (I cannot remember our old one), if you have to refer to something, thats wrong. To me, any mission statement which is we will have care for our customers, be nice to our staff, be nice to grey squirrels on Sundays, you know, you have gone to sleep. It has got to be something that encapsulated the spirit. Nowhere else makes you this good (Champneys) yes, it is a spirit statement. Thats why, NASA says: To get a man on the moon makes sense. At Champneys it is: Nowhere else makes you feel this good and that should apply to the staff as well. Potentially, Lord Thurso faced major resistance to his plan, (and these defensive routines (Argyris, Kanter) especially from his senior managers who expressed their loyalty to their previous MD and to his past strategy (during the television documentary). In business terms there was little alternative but to severely reduce the number of his central management team. Lord Thurso addressed the team at a management meeting (BBC2): Please view my arrival not as something disastrous but actually as an expression of support by our shareholders. The problem in a nutshell is that we are losing money. You are all intelligent people and therefore you will know that there will be a cost-cutting exercise. We have an expression in the tness centre of no pain, no gain but there will be pain. We are with the cost of Head Ofce losing as a company approximately one million pounds in cash terms per year. It is my intention and target that by the end of the next year we will be cash-breakeven. The direction I have decided to follow is to put Champneys absolutely and without doubt at the top of the tree.
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He had decided to tell them collectively of his decision so that he delivered two clear and separate messages. The rst message was that there was an impelling need to restructure and reduce the management resource, effectively downsizing (Kanter, Peters). The second message was to specic individuals that they were, or were not, to be members of the future team. Within the restructuring project there would be two sub-projects diagnosing current skills and dening the future skills needed to deliver the strategy. Indeed, besides developing an overall strategic vision, a further project was also required developing a business strategy. Key sub-parts of this strategic project were: a marketing strategy for current activities, a review of wider strategic options, a customer services strategy, and nally a premises strategy. This was also related to a further strategic project: to enhance Champneys customer database. The key factors which needed to line up to deliver the vision of Champneys nancial turnaround through nowhere else makes you feel this good were: * Restructuring and cost reduction. Appropriate business strategy. Promises now fullled through exit from health for life. New management team. Staff enthused. Financial support for development. Appropriate investment. Word-of-mouth (resumes).* No major adverse environmental change.**
** factors over which Champneys had relatively little inuence. The nal alignment factor no major adverse environment change could be analysed down and positioned separately on the uncertainty grid, particularly for: no increase in competition, substitutes not being a major threat, no major economic stagnation after 2000 etc. (Johnson and Scholes.)
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Coming now to Champneys change process, Lord Thurso had a number of options in communicating his strategy. One alternative, for instance, would have been to speak to individuals separately both to communicate the need for the change and whether or not they still had a job. This alternative approach would have had the merit of removing the period of uncertainty during which his managers would have been concerned about their job security. But equally it would have meant that whilst Lord Thurso was interviewing his managers some would have heard about the organisational change sooner than the others. These simple logistics highlight the behavioural implications (Argyris) of making a strategic change in an organisation. For whichever way Lord Thurso played it, the effect on individuals feelings perhaps of hurt and fear might have ramications in their future and also that of the remaining team. Thinking through options in this area is always a major area for applying strategic thinking. The impact of these redundancies was obviously severe on the managers. Champneys Property Manager, Willie Serplis, attempted to put a brave face on it as he came smiling to the television interview following his meeting with Lord Thurso. His smile quickly faded as he tells us (BBC2): Do you want to ask the question then... How are you? Not very happy. I just lost my job which is better knowing but what can I do? You want to be angry with someone or something but it doesnt make sense. You can dress it up in all the esoteric bullshit you know downsizing, redundancy but the reality is, for no fault of my own I have just been red... Lord Thurso himself looked emotionally strained when he was asked how he felt about this part of the process, showing that it is draining to be a Change Master (Kanter): I would nd it hard to sleep if I felt that anything I was doing was wrong in any way. I dislike doing it, but it is a necessary operation that has to be done on the company. All that one can do is to do it as humanely and professionally as one can. Most of them have been angry because at the end of the day we all like to think that we have a value in an organisation and effectively when
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you are made redundant someone is saying that you dont have a value in the organisation. When I say that it isnt to do with your performance it is to entirely do with the nancial structure of the company, it actually doesnt help them very much. (BBC2) One can imagine the atmosphere within the Management Block at Champneys as the reality sank in that it was the end of an era. Also those staying realised that they would be expected to achieve a quantum shift in the level of effectiveness if the business were to come back into prot. The above account highlights a further, short-term project: maintaining organisational morale (Ulrich and Lake). It was then Lord Thursos turn to address his operational staff. Lord Thurso appeared to be in a lighter mood as he informed his staff not merely about the severity of the situation but also of the fact that he was not planning other job cuts. He continued: The last part of the strategy and the bit that does concern all of you is that New Court and the concept of a headquarters is going to be quite radically scaled down. There are twenty-two people sitting here and we have probably half that for the number of places that I actually have available. You are intelligent and you will have worked this out. And therefore some people are going to have to be made redundant... And I do recognise the pain that this will cause you. I am sorry that some of you will be going, but please understand that it is nothing to do with you and your capability. It is simply about how this business has been run over the past few years and the requirement to put it on a proper cash footing. In order to restore a viable differentiation strategy (Porter) he tries to give staff a stretching vision: Finally, I would like to give you a little thought. All my life I have been involved in giving rst-class service to people and I believe it is a wonderful thing to do. Be always ready to say yes whenever a client or guest comes to see you and asks for something and you are tempted to say no. Stop, think, and that will help us to create a level of service unheard of in this country.
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Besides dealing with internal stakeholders (Piercy), Lord Thurso had to manage the expectations of the Champneys members, whose business was needed to secure a successful future. These members had been disappointed in the past by its prior management who had, perhaps, set up expectations about improvements in standards that had not, or could not have, been delivered. Lord Thurso then decided to end the previous managements scheme for time-sharing not only to those sales activities but also to buyingback the time-share. Getting out of this business area proved to be one of the most difcult projects. Lord Thurso was quick to realise that the Health-For-Life time-sharing scheme, which was a diversication, needed to be halted (BBC2) as it was value destroying (Rappaport, Reimann, Grundy): From what I have seen the constant push-push-push on Health-ForLife has given the wrong impression in the marketplace. I think maybe we should cut that right back. Apparently this was an issue which emerged only during his fact-nding. After being assured by his senior managers that there were not any other burning issues to be brought to his attention (other than the cash ow, said his nance director) he discovered that (interview, 2000): Some of the key issues I did not realise until later. The fact that the timeshare was totally critical and I would need to do that was something which I didnt realise. When I rst got here one thought yes, thats a time-share business I will have to rev it up. He also determined that the physical facilities and amenities at Champneys (its hard to imitate, superior resources Grant) did not provide a sustainable foundation for its future marketing strategy which was aimed at repositioning Champneys as an exclusive resort (BBC2): What a great architect friend of mine once described as the wow factor. What we have got here is the er factor. What we need is a wow factor. So, besides the organisational changes which Lord Thurso instigated, he also set about developing an ambitious project to revitalise the physical
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fabric of Champneys to restore its competitive advantage (Porter). This included: A major upgrade in the entrance and facade to the central building and to the driveway itself. A possible conversion of the Management Block to produce twenty additional treatment rooms. This, Lord Thurso hoped, would provide the spur to expand Champneys customers. These renovations, Lord Thurso hoped, would provide a further benet, signalling to Champneys employees that Champneys was genuinely going to be set on the road to a prosperous future.
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Although cost savings of half a million pounds per annum were achieved relatively quickly, it proved much slower to improve sales through improving customer condence. But within one year Champneys managed to breakeven. So, Lord Thurso was able to then put into effect his plan to obtain enough investment to reposition Champneys as an outstanding health resort. The overseas investors were able to give Lord Thurso the vote of condence he needed in order to move onto Stage Two of the turnaround a major upgrading programme whose implementation became a further strategic breakthrough. So, at last, all the planks of Lord Thursos future strategy were in place. We have now told the story of Champneys strategic change (Johnson and Scholes) but mainly from the point of view of the business. But if we look at this situation from a more behavioural point of view, we nd that this dimension has perhaps even more importance than more tangible areas of change.
We will see these eshed out in a later section, which summarises the key strategic projects. The key forces enabling Champneys change programme included Lord Thursos leadership, the clarity of the strategy, and the support of lowerlevel operational staff. The most important forces were thus more behavioural in nature. These highlighted that: Lord Thurso had introduced a number of key enablers (Lewin) into the strategic change through his own leadership, a new strategy, a thorough restructuring and particularly in making some fresh appointments. (This was, in effect, a cunning plan, Blackadder.)
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Whilst there were a number of constraining forces, these were overall weaker than the enabling forces. Even these, Lord Thurso managed to eradicate or mitigate with his cunning change plan.
But, we always need to ask the question What is the One Big Thing we have forgotten? Probably it is the traditional culture of Champneys which was the missing constraining force from the 1998 picture we see in Figure 23.
New leadership
Enabling forces
Existing bureaucracy
Cash constraints
Organisation morale
Middle managers
Constraining forces
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Lord Thursos own larger-than-life character was a crucial ingredient in signalling that the changes necessary were very, very real, and also the need for stretch (Hamel). He reects on the progress of his customer service project, which is also closely linked to the ongoing project of culture change (1997 interview): But the key at the top should have a kind of evangelical fanaticism about what the strategy is. Unless you have this, you are not going to manage to convince people. For example, last year I called our plans Going from Good-to-Great. And we didnt go from Good-to-Great, we got better. So I said This is Good-to-Great part two. We could be back here next year doing part three or even part four. But one day we will get there and I aint leaving here until we do. I believe that all human beings are capable of change for the better. This may be an optimistic view. But I therefore start from the premise that it is better to work with people rather than change them. I nd that the grass on the other side of the fence is not often greener. (Echoing Kanter and Peters.) When you are sorting out a business and getting the headcount right, yes you have to cut to get it right. But some people would go in and say, I cant work with that General Manager and re them and get another one. And then after six months you get another one. Personally I prefer to say Why is this not working? Let us look at it and actually help this person. I nd that you then get staff who are more loyal. But this involves recognising that staffs agendas (Piercy) may not be nicely aligned with the vision. Lord Thurso tells us about the practicalities of achieving the necessary culture change another breakthrough strategy to radically shift old behaviour patterns (1997 interview), indicating that change of this kind can take a long time (Johnson and Scholes, Welch): If I am honest with you I am only a small part the way through. All the things, these wonderful things that managers do, that is all part of our game. But the guy at the bottom says Sod you, I only have forty hours to do my job. What he is saying to you is if you want me to do this, give me a reason.
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And that guy at the bottom isnt going to say, Wow, that guy at the top he is a zing, now I will suddenly smile at customers. There has got to be something in it for him. And part of it is being controlled, led, cajoled, pushed into it. And a part of it is being rewarded, feeling nice, all of the rest of it. It is a huge culture change that virtually every company in this country needs to actually genuinely understand what a customer-orientated organisation is. I have grave difculty in thinking of a truly customer-orientated organisation in the United Kingdom. I mean, there must be one somewhere. You do have to have a strategy. You can ght battles without a strategy and have success but it is a pretty haphazard thing. You have got to have a clear idea of where you are going, but equally you have to recognise that the achievement of the strategy will be a series of tactical steps. (Mintzbergs deliberate strategy, Sun Tzu ghting battles.) It is also necessary to look at how implementation difculty changes over time. Initially, Lord Thursos turnaround project faced severe difculties. But once the new structure was put in place, and once Lord Thursos new vision for the organisation had been unveiled, this difculty would be mitigated. As time progressed this difculty increased at certain times as the organisation found a new stability and sought to resist further changes. In turn this difculty was then reduced once Lord Thursos programmes to improve customer service and to shift attitudes began to bite. Looking now at the key stakeholders (Piercy), who had an inuence on this strategic change, we see that: before Lord Thurso unveiled his turnaround strategy the balance of inuence in the organisation was against him (especially the existing middle and senior managers). but by introducing new stakeholders (including two new senior managers), exiting some old ones, and by appealing directly to the staff, the balance of inuence was reversed in Lord Thursos favour (see Figure 24). Figure 24 is an impressive turnaround in the balance of power within the organisation again down to Lord Thursos cunning plan.
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FOR
Attitude
NEUTRAL
MIDDLE MANAGERS
HIGH
To understand the inuence patterns of these stakeholders (Piercy, Grundy and Brown Be Your Own Strategy Consultant) we must also bear in mind some additional factors: The agendas of stakeholders are not xed but will change over time vis-a-vis the various projects as new issues arise and as perceptions change within the organisation (Grundy). At any point in time agendas may be uid and ambiguous, particularly at the start of the turnaround. Key stakeholders, particularly middle managers, may not have any clear attitude at all. Although they may have some core agendas (such as I want to hang onto my job) these might be very limited. And even here, core agendas might be conditional on Champneys being seen as a congenial atmosphere to work in, given its new leadership. Never assume therefore that attitudes and underlying agendas of stakeholders are always givens.
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Individuals within one group will inuence the agendas of others within the group. Through the informal network opinion leaders will signal their approval or disapproval of particular actions (as a system Senge).
You may need to break down the strategy into a number of substrategies as stakeholder positions will vary according to what is being implemented (Grundy). For instance, a stakeholder may approve of Lord Thursos plans to renovate the buildings, also approve of his plans to end the Health-For-Life promotion, but be violently against running a smaller department.
We will now summarise Champneys strategic breakthroughs (Johnson and Scholes), which then provided the vehicle for turning strategic thinking into reality (Grundy Strategic Project Management).
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Management reporting. Customer database enhancement. Organisational projects for a responsive organisation (Ulrich and Lake).
Management re-structuring. Management recruitment. Maintaining staff morale. Culture change. Communication plan. Organisational skills diagnosis.
Later on we expand on the rst bullet point above, strategic programmes, by examining some options for Champneys competitive strategy (Porter) which have been thought about in the past. Not only do the above strategic breakthroughs gain in attractiveness through being part of a set of aligned and mutually supportive programmes, but they also gain through reduced implementation difculty.
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practical tenacity in implementing that vision, and a continual openness to the environment of strategic change through strategic thinking. Achieving headway depends on building a sufcient stakeholder platform (Piercy) to leverage off. This involved (at Champneys) key appointments of a new Finance Director and Property Manager and winning over Champneys front-line staff. The difculty over time of a strategic change or particular strategic project will vary over time (Grundy and Brown, Strategic Project Management). The shifts in difculty need to be anticipated and managed rather than just coped with, which requires strategic thinking to sense the future. There are invariably more options which can be addressed through strategic thinking than most managers normally think about (Ohmae).
Geography (see Bartlett and Ghoshal, Yip): the US tourist market middle-Eastern market continental Europe via franchise (on cruise liners).
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Customers: the pamper yourself customer the stressed-out person the exploratory, alternative treatments type the health fanatic men (in their own right).
Value creation (see Rappaport, Grundy): more focus on guiding customers through treatments after-care between visits, as part of a continual better life process, e.g. through help-line, home visits more focus on stress and life style.
Change of use to, for example (Ansoff): a management centre an up-market retreat therapy for worn out, rich people, including pop stars, football stars weekend dating activities.
Value creating activities (Grundy, Slyvosky): franchising smaller Champneys centres (actually now implemented).
Alliances (Lorange and Roos): with a food company (to market Champneys brand) with a restaurant company (who might deliver food to Champneys recipes) with a cruise line or other up-market leisure providers.
Acquisitions (Haspeslagh and Jemison): to acquire and develop a second site, with a different catchment area (for example, in the North of England or in Scotland).
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Divest or outsource (Campbell et al): perhaps to sell some of Champneys land, as a highly exclusive set of ats to sell Champneys to another buyer (Haspeslagh and Jemison), either: as soon as possible after the business was turned around, or on the back of the rise in property prices in 1998-2000.
Interestingly, the most common options most people come up with are to make Champneys more exclusive and to re-market it to its core market, which is actually the option which Lord Thurso adopted. Most groups who work on this case study underestimate the cost of this strategy (Champneys invested around 6.75 million) and fail to think through the possibilities for Champneys coming under greater competitive pressure (Porter). Also, Champneys traditional positioning might (some day) be not quite in tting with customer demand. Occasionally groups do come up with the sell the business or divestment option, reecting in part the tendency to hang onto what you have already got, rather than thinking who might be the best corporate parent for a particular business (Campbell et al). Some lines of enquiry possibly open up then peter out. For instance, Lord Thurso reects (2000 interview) on diversication (Ansoff): For example, we looked at opening restaurants. Now I am not saying that we wont open restaurants, but I have put it to one side for a while. We happen to produce stunningly good food. I have had conversations with a supermarket chain but at the end of the day if you go to Birds Eye, for example, or Nestle they very quickly say Actually, we can invent a brand and in the short-term your name, Champneys, wont help us. It is an area which remains of interest to me.
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The range of options which can be generated for Champneys underlines the need to think much broader about options through strategic thinking, than is conventionally done (Grundy). Each of these options can then be mixed with others through a mix-andmatch process, for example Champneys could hold alternative treatment sessions at one-day sessions for professional, stressed-out people (with their partners), delivered through an alliance (Lorange and Roos) with an upmarket hotel group.
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Breaking this down into sub-options: The Finance Director might have been supplied for the rst nine months on a loan basis to help sort Champneys out. After that a Financial Manager could sufce, once Champneys became steady-state. The HR Managers role might be part-time, subsumed into that of the General Manager supported with some outside HR consultancy. It would be crucial that the Financial and Commercial Director or the Marketing and Sales Manager had the competencies (Hamel and Prahalad) to develop the sales database. Here we see conventional structure thus semi-dissolving with a number of leaders managing uid, strategic projects rather than making the assumption that for every value-creating activity there must be a role, there must therefore be an incremental person, and therefore there must be a cost. (This invites a Handy-esque view of the ideal organisation.) Following the Champneys case study, the following is a useful exercise.
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Case postscript
In August 2002 (and after Lord Thursoe had left the business to become a full-time politician in 2001), Champneys was sold to the Henlow Grange Leisure Group which owns two other health farms in the UK and was seeking to develop overseas. Commentators at the time were somewhat surprised by that: 1 because Champneys was much more up-market than the Henlow Group; 2 it had (arguably) a much higher standard of leadership and of customer service; 3 there appeared little that Henlow could bring to Champneys either in the way of its core competencies, accelerating market development, or through cost synergies.
Conclusion
The Champneys case study gives us a fascinating real-time account of how strategic thinking (Mintzberg) can be used to guide strategic change (Johnson and Scholes). It also highlights that there may be many options which can be created even in an apparently tightly constrained situation, and thus there can be many strategic degrees of freedom (Ohmae). These options can then be manipulated by mix and match to evolve even better, and potentially cunning, strategies. The case study also highlighted the equal importance of thinking through cunning options for implementation (Blackadder).
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Finally, Champneys underlined the need to create a joint sense of personal and business need to do strategic thinking. Lord Thursos nal reection is (2000 interview): There are very, very few people who just do that with no pressure at all [think strategically]. If you are comfortable, well paid, good job, and good prospects on the horizon, when the companys making money, unless someone says growth is necessary then you wont think about it.
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Introduction
This case study on Marks & Spencer presents some considerable management challenges. When a company as successful as Marks & Spencer appears to lose its way then it is far from obvious as to the most appropriate strategy which it should adopt (Johnson and Scholes). It is all too easy to try to manage incrementally within the current mindset (Quinn). Alternatively, in desperation sometimes strategies may be adopted which although innovative merely plunge the company into even deeper crisis, becoming unrealised (strategic drift Mintzberg) or submergent (Grundy). This case study illustrates: Acquisitions Alliances Bargaining position Bureaucracy Competencies Competitive advantage Competitive positioning Competitive strategy Competitive rivalry Contention Corporate strategy Core competence Cost drivers Culture Deliberate strategy Demergers Differentiation Diversication Divestment Dominance
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Economic prot Emergency strategy Emergent strategy Entrants Financial strategy Focus strategy Gap analysis Global strategy HR strategy Legacy Logical incrementalism Paradigms Options Resource-based competitive advantage
Scenarios Supplier base Shareholder value Strategic change Strategic t Strategic leadership Substitutes Sustainability Vision Uncertainty HR strategy Legacy Logical incrementalism Paradigms Options
The main case study is set out as follows: Marks & Spencer its position mid-1990s. Marks & Spencer its position 1997-2001. Future options for Marks & Spencer.
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M&S must have been exposed to many opportunities over the past ten to twenty years which would have been strategic temptation but had, by and large, chosen to build on its core business and capability (Hamel and Prahalad). Where M&S had come unstuck in parts of its global development (Bartlett and Ghoshal, Yip) and in acquisition (Haspeslagh and Jemison) is where it had stepped outside its (then) core capability (Ansoff, Ulrich and Lake). But these setbacks may well have prevented M&S from fully capitalising on other avenues for strategic development, nearer to home, for example, into other service industries in the UK and elsewhere. M&Ss core business focused on high street retailing, and core products are clothing for all the family womens, mens and childrens. This general business contributed nearly 3.8 billion of turnover. In 1994 it had also built a very successful niche food business which now amounted to a surprising 2.6 billion of turnover (40 per cent of the group). In the 1990s M&S had successfully diversied (Ansoff) into personal nancial services (although this business is still relatively small compared with the core). Growth has been primarily of an organic nature and overseas ventures (acquisitive and organic) have met with variable success. The most successful ventures appear to have been organic and have involved alliances with local companies from whom M&S has been able to learn (Lorange and Roos). M&Ss gross prot divided by turnover (or gross margin) had increased from 32.8 per cent in 1990 to 35.1 per cent in 1994 with no decreases yearon-year during the severe UK recession in the early 1990s. This was a truly impressive achievement and represented a very hard act to follow. How could M&S sustain this stretching performance into the late 1990s? This was to present a huge challenge. M&Ss annual report and accounts did not, unfortunately, give a breakdown of operating prot by type of trading activity indeed M&S is not (legally) obliged to. However, it is safe to conjecture that the 20 per cent of business activities (by number of activities) which have formed over 80 per cent of prot generation are (as an approximation): mens and womens clothing; the food business.
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This left home furnishings, childrens wear, men and womens shoes, nancial services and other products as generating probably around 20 per cent of prot. Also over 80 (in fact 87) per cent of activities were then located in a single country the UK. Increasingly, M&S was beginning to source from non-UK suppliers, having overcome its earlier hesitation. A summary table of M&S results is shown in Figure 25. This shows a remarkable stability in the mix of corporate business over a four-year period. Its rst half interim results for the 1994 year end highlighted relatively sluggish growth in food sales (at 3.9 per cent) relative to general business (posting an impressive 8.9 per cent growth). This highlighted perhaps the tougher competitive constraints impacting on its UK food business. It also highlighted why M&S might be tempted into a major push for growth outside the UK. If we go back even further in time (to 1985), M&S had achieved a compound rate of growth in turnover of around 8 per cent in nominal terms over nine years. On the other hand, during much of that period we saw fairly high annual doses of ination, particularly in the overheated late 1980s and into the earlier part of the recession in the UK. So what was perhaps more impressive was M&Ss stability and consistency of development rather than its percentage real growth per se. 1994 Turnover General Foods m 3786 2632 58% 40% 2% 100% 13.3% of sales Earnings per share
FIGURE 25: A BRIEF SUMMARY OF M&S FINANCIAL PERFORMANCE 1994-1990 (Source: M&S Annual Report and Accounts, March 1994).
1992 m 3371 2358 98 5827 635 58% 40% 2% 100% 10.9% of sales 13.5p
1990 m 3221 2306 81 5608 305 58% 41% 1% 100% 5.4% of sales 6.9p
20.9p
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The main driver of increased economic prot (Rappaport) over 1985 to 1994 was the improvement in operating margin, up from 9.4 per cent of turnover to 13.0 per cent. This kind of improvement could come in a number of forms higher prices, fewer or lower discounts, or supplier productivity improvements/M&S holding supplier prices down, and delaying refurbishments. Much of that improvement came through M&S exercising its very strong bargaining position vis--vis suppliers. But if that were to be the case, then did M&S have much further scope to squeeze suppliers or otherwise improve margins? Did it need to seek other avenues for development to sustain its earnings growth? These were questions raised perhaps prophetically by commentators at the time (Grundy, 1994).
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In the mid-1980s M&S began to lose ground to new competitors, such as Next, which targeted M&S and offered quality clothes with just that bit more fashion increasing rivalry (Porter). This attack was good for M&S, which for a period regained much of the initiative. M&S had also had a variable track record overseas and had had a number of disappointments both in North America (for instance in Canada where M&S traded for 22 years, according to the Financial Times, 1994) and in Europe. Like many companies which have developed a very strong market penetration of a single national country, M&S had found it hard to adapt its strategic and growth recipes to quite new and different business environments (Yip). For example, in Spain, it was said that while local people liked M&S underwear, etc, they found the original clothes offered ugly (Financial Times, 1994). This invited the question as to whether M&Ss merchandising in Spain was originally driven by a tailoring of the UK offering, rather than by working backwards from local tastes reecting inappropriate deployment of competency (Grant, Ulrich and Lake). Whatever one thinks of this global development strategy, there is no doubt that M&S was seeking to exploit those opportunities in a big, albeit still somewhat cautious way. According to an investment analyst in the City of London (Channel 4): I think a much bigger proportion of its prots will come from continental Europe over the next 10, 15, 20 years. There is room for growth in France, maybe into Germany. But I also think that there are very exciting prospects in the Far East. It is already well established in Hong Kong and of course the great unknown is whether it might get into China. In fact M&S intended to double its selling space in continental Europe over the 1994-1997 period, with Germany and Italy (in addition to France and Spain) on the agenda. (The rst German stores were announced in March 1995 Financial Times, 28 March).
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According to Sir Richard Greenbury, then Chairman, who appeared to get carried away by globalisation (Yip): There isnt a retailer, a big one, in the world today that can probably say that he is going to stay in his home-based economy, and just do well there. I mean all the great retailers are having to face the facts that they have yet to take their skills abroad, one way or another. (Channel 4.) Perhaps M&S was now much better placed to understand how to exploit its talents internationally than during its earlier experimental efforts. Maybe by recruiting more staff of other nationalities (especially in senior roles) would have helped, so as to adapt the M&S philosophy to other environments. This may seem to be a minor issue at rst sight but could, in the longer term, be major as it shapes the mindset of management. M&Ss competitive advantage in 1994 (Ohmae, Porter, Grant) was based (in order of ease of imitation, beginning with the most difcult things to imitate rst) on: M&S brand. Value-for-money (as of 1994). Very high market share in niche markets (e.g. luxury food and womens underwear). Supplier linkages and innovation. Systems. Sites.
M&Ss brand was then supported by a reputation for value for money and also by its reputation for customer service (and its supporting culture). Around these core competencies were clustered M&Ss supplier linkages and innovation which were also core sources of competitive advantage (Grant). According to one City of London investment analyst (Channel 4): Marks has styled itself the manufacturer without factories They probably do have the closest relationship with suppliers of any UK retailer.
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Whilst this list of (then) competitive advantages was impressive, these were potentially ones which could evaporate quickly especially vis a vis nimbler opposition (Stalk). One analyst reected on this: I think they are a very self-condent company, and provided that they remain self-condent and not complacent I dont think that thats a problem. But I think that retailing is a notoriously ckle business. You have to keep on reinventing it and reinventing it year after year, season after season. You have to make sure that your clothes are fashionable, that the styles and colour are what people actually want. (Channel 4) Some felt that (even then) M&S had become too rigid as an organisation (indeed in Mintzbergs organisational forms, a bureaucracy. Sir Richard Greenbury, chairman, espoused the dilemmas of maintaining discipline versus encouraging individual spontaneity: You must have discipline. You cant have everybody doing their own thing. And big businesses do become bureaucratic and they do become inexible. But the day that they become so bureaucratic and inexible that the free thinker, the maverick, the entrepreneur, the fellow or the woman who doesnt do it the conventional way those people must be given an opportunity to express their talents. But did he really mean it? According to one (brave) joiner from another retailer (a department store) who took another view: People just dont say anything. No one will speak against the Chair, because they say it shouldnt be done. You can just see peoples faces changing (when you say critical things). People just dont believe you, when you say something bad about Marks & Spencer, so you just dont bother. (Channel 4) M&S also had some critical areas of competitive disadvantage as follows: M&S perhaps had an over-cautious approach to managing its strategic development (at least in terms of organic development in the UK except for nancial services), and its culture generally;
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Its apparent lack of exibility (for example in refusing to take nonM&S credit or debit cards (until very recently perhaps too much deliberate and not enough emergent strategy (Mintzberg)));
Its UK-centred mind-set. This did not particularly affect its UK business but may have hampered its international development (Bartlett and Ghoshal), perhaps seriously.
As regards organisational rigidity, let us note the comments of another analyst (Channel 4): They [M&S] will certainly tend to be dismissive of criticism from outside. When you think about it, when a company is incredibly successful and Marks & Spencer has been, and still is, then your starting base has got to be, that what anyone outside is saying is potentially wrong, and that they know the best way to do things. They have been doing it like that for 20, 30, 40, 50 years and it works for them. (Its paradigm (Johnson and Scholes) did seem to have been frozen in the past.) One of the most distinctive elements of this culture was the attention to microscopic detail at most senior levels. On the UK Channel 4 television programme, Sir Richard Greenbury, chairman, interjected at the start of a meeting to discuss current M&S foods to point out that: I had the potato and leek [soup] last night and it has got lots of cream in it and it has got no potato in it. You know, if you have potato and leek then I like it to have a sort of powerful taste and it was, it was rich, it was too liquid, it just didnt gel with me. This management style felt very much more like Braybrooke and Lindbloms muddling through rather than anything visionary like Kantnar, Peters or Pascale, and certainly not a learning organisation (Senge). As a result of this input in a later scene the food group merchandisers were seen taking notes of his comments as if they were about to change the formula. Yes, this intervention was an example of M&Ss great strength (Retail is Detail). But how could this level of detailed intervention be possible in the
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future if M&S were ever successful in generating up to a quarter, a half, or even more sales outside the UK? Could M&S truly become a substantial and successful international retailer with this apparently high degree of centralised, top-down direction and control in its merchandising? (Bartlet and Ghoshal.) Also, the issue of M&Ss (then) deliberate strategy (Mintzberg) to refuse to take other credit or debit cards might have been seen as justied in terms of the virtue of strategic choice saying no to a costly strategy with such a cost driver (Rappaport). However, the costs of excluding (or reducing) the business of many customers lacking M&S charge cards were considerable, if unquantied. Some customers maybe either have found it difcult or possibly too inconvenient to acquire M&S cards (for example, tourists). Again, the history of M&Ss attitude to non-M&S cards was symptomatic of a twin competitive strength and weakness. As one analyst (Channel 4) put it: You are looking at a company which essentially you have to characterise as a family dynasty, everyone is schooled in the history and in the traditions. I think the disadvantage of this kind of culture is that it can make it inward looking, it can perhaps breed a kind of arrogance. Hinting that it would it very, very difcult to implement value migration (Slyvosky). Turning to M&Ss global business, although M&Ss brand strength had power and although M&S still had a clear market and product focus, it did not necessarily have complete t with local cultures (or at least did not originally, as the various examples quoted earlier illustrated). Also, although M&S still had a strong supplier base this was offset by signicant difculties of logistics and attendant higher costs internationally. It was only in the late 1990s that M&S had been able to lift European sales. This success was achieved by exporting its outstanding value campaign from the UK, and thus by reducing its prices and its margins signicantly.
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This can be made more concrete by dening specic criteria: Value brand and reputation, market share, unique underlying skills and management skills. Cost cost base, market share. Speed distribution, unique operational skills and management skills (Stalk). M&Ss traditional brand strength was supported by the M&S reputation for value for money and also its reputation for customer service (and its supporting culture). M&Ss supplier linkages and product innovation were also its traditional sources of competitive advantage (Grant). From the previous section, M&S had an impressively strong bundle of multiple and reinforcing sources of competitive advantage during the period of 1990-1996, but it had become somewhat bureaucratic and rigid, and not particularly receptive to change (Peters, Porter). By around 1997, M&Ss business portfolio was of varying competitive strength (for instance, between clothing, food, other items and nancial services, UK and internationally). Although M&S had some impressive product lines, particularly womens lingerie and its niche foods business, this was offset by a number of strategically and (probably) nancially less interesting business areas.
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The diversied area of nancial services (Ansoff) also represented a potentially attractive opportunity to M&S. The particular strengths which M&S brought to this arena were its: brand awareness (if tarnished in recent times); reputation for quality and, at the same time, value for money; and focus on a narrower product line.
M&S did not, around 1997, change its strategic direction fundamentally other than to change the design focus of its clothes in an attempt to become more fashionable. During the period 1997-1999 a number of external market shifts crystallised (Ansoffs weak signals): 1 Despite continued economic recovery, consumers became more discerning. Where they were asked to pay a premium, they appeared to want a brand and that brand was (at least in the young and middleage groups) not M&S. 2 Because of an increase in the sales of substitute items (Porter) including mobile telephones, computers (including access to the Internet) and in overseas holidays (through cheap ights), a squeeze was put on the retail sector generally. M&S proved to be not well placed to withstand this. 3 Competitive rivalry for upmarket foods increased signicantly, for example, by Tescos Finest lines, imitating M&Ss differentiation/ focus strategy (Porter). 4 M&Ss global expansion (perhaps predictably) faltered, with a Uturn on investment in territories such as Germany. 5 New entrants to the UK retail market, like Gap and Matalan, (Porter) began to take more share of the younger market, pushing M&S up the age range where it was under increasing attack from Next and Debenhams. 6 The fashion cycle was accelerating so that the two-seasons-a-year merchandising process at M&S became unwieldy and obsolescent (Stalk).
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Meanwhile, M&S continued to pursue its global expansion plans whilst its UK position came under increasing attack. This was reected in M&Ss more recent results, as set out in Figure 26:
Turnover
2002
351 8135
365 8195
350 8225
275 8243
216 7842
Operating prots
644
471
512
1103
1022
9.6p
13.0p
28.8p
26.2p
FIGURE 26: M&S FINANCIAL PERFORMANCE 1997-2002 (From Annual Report and Accounts, 2002)
M&S did make some major changes to its strategy in the period 1998-2000, as follows: It decided to partially abandon its dependency on its traditional brand, St Michael. Ambitious plans to develop more exciting merchandising ideas came from its Autograph range. Trialled in its more prestigious stores, the plan was to get well known designers to design expensive, up-market clothes to be sold in a separately demarcated section of M&S. (This strategy met with only partial success, and by 2001 signals were given that M&S was to rethink this strategy.) Its previous chairman, Sir Richard Greenbury, eventually retired from the board. Sir Richard had overseen M&Ss success in the earlymid 1990s, but now admitted (Money Programme, 2000) that its nancial success was at least partially due to cost-cutting (Porter).
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With hindsight it was admitted that, given the investment in greater service by players like Tesco, this strategy might have been unwise. (Apparently the negative effects of this lower service strategy were not apparent to Sir Richard as stores would eld all their part-timers on the days of his visits. He claimed not to have been aware of this practice.) Following considerable boardroom acrimony (beyond contention) of the like that even Peters and Pascale could hardly have envisaged), Sir Richard was replaced by a successful retailer, Luc Vandevelde, who stated his aim was to turn around M&S within two years. M&Ss advertising campaign (on TV and on billboards) featured a normal sized, but attractive, lady taking her clothes off to celebrate her size 14 body aiming to appeal to Ms and Mrs Average UK. Unfortunately, Ms and Mrs Average UK did not want to identify with that image, so the campaign backred. M&S tried to enliven its underwear with alliances with Agent Provocateur appearing to push very aggressively into more adventurous and sensual markets. This again proved unsuccessful, and the M&S standalone lingerie shop pilot was halted. (Perhaps this venture was an over-reaction to highly visible criticisms of M&Ss boring bras which we see later!) M&S recruited George Davies (ex Next) to form an alliance to create a new sub-brand, called Per Una. By May 2001 George Davies was reported to be having problems in timely sourcing for the new range. By 1999, M&Ss dividend per share was only just covered by current earnings, whereas in previous years it was twice covered by earnings. In 2000, its prots after tax and after exceptional items were 258.7 million compared with a 258.6 million dividend, leaving a surplus of just 0.1 million. At one shareholders meeting one angry shareholder and customer brandished an M&S bra, claiming that it was so fundamentally unexciting that it was no wonder that customers were alienated an apparent lack of strategic t caused by strategic drift. Whilst M&S still has an enviably well-known brand and a deep customer loyalty in some market segments, there is no question that its brand had
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been signicantly tarnished by internal events, by its market failures and by adverse commentary from many sources. The half-year results to September 1999 revealed that M&S had made a number of changes, aimed at inuencing both internal and external performance drivers: 1 In management its long-standing chairman left the board and a number of other top-level management changes were made. (This was not a period which could easily be characterised as one of strategic leadership.) A number of television documentaries around the time suggested that Sir Richard had been somewhat autocratic based on sources inside M&S. Whilst this style suited the 19921995 recessionary period it appeared not to be fruitful during 1996-1999, when M&S needed to become faster, more exible and refocused. His exit followed a boardroom battle which involved Keith Oates, then a senior director, making a pre-emptive strike for the chief executives role whilst Sir Richard was away on holiday. Keith Oates also then resigned. A marketing director was appointed (for the rst time) and was recruited from outside. 2 In its supplier base M&S moved fast to cut the less effective parts of its UK supplier base. Whilst this helped to reduce costs this also produced further bad publicity as thousands of manufacturing staff (not employed by M&S) lost their jobs. (Unfortunately, not all of these savings were to help M&Ss bottom line, as they were needed to substantially reduce prices.) 3 In marketing and promotion M&S began to advertise more aggressively and to introduce more aggressive promotions. 4 In its credit card policy M&S decided to allow stores to accept credit cards for the rst time in its history. This was to occur by Spring 2000. 5 Repositioning of the stores by offering better value for money and improved service, and by better display and presentation of merchandise.
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By late 2000/early 2001, M&S appeared to be in ever deeper trouble suggesting an unrealised deliberate turnaround strategy (Mintzberg). According to the Financial Times (January 24, 2001), Christmas trading had been even worse and, in the 16 weeks to January, group sales were down 3.1 per cent (down 5.1 per cent on a comparable store basis). Clothing, footwear and gifts were down 9.3 per cent. On the plus side, there was an improvement of 2.9 per cent in food. The 25 new concept stores were only 4 per cent ahead, despite expenditure of 60 million on retting. Mr Vandevelde, Executive Chairman, had given himself two years to turn the store around but time appeared to be running out. Perhaps unfairly, one analyst, Tony Shirt of Credit Suisse First Boston said: You cannot really say that there is a strategy here at all the only strategy seems to be not to completely muck it up, rather than to recover. Everything is being run very defensively. (Grundys emergency strategy.) In March 2001 M&S announced new steps to turn the company around through some re-engineering (Hammer and Champy), including: Job cuts of 4,400. Closure of many European stores (divestment). Closure of a small number of UK stores. Closure of the Direct catalogues business. Sale of half of its Manchester agship store to Selfridges. A share buy-back when property sales had gone through, Brooks Brothers in the US, and Kings Supermarkets (Times, March 30, 2001) attempting to manage M&Ss shareholder value (Rappaport) (nancial strategy). Its Chairman asked for a further three years to successfully turn around the business. This would be through a return to a back-to-basics policy of classically-stylish clothes aimed at the 35+ age group customers (Mail on Sunday, April, 2001). Casual observation of M&Ss actual customer base during lunchtimes in its Marble Arch store in June 2001 indicated that around ninety per cent of its customers were between 35 and 60.
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In May 2001, there were demonstrations outside M&Ss Marble Arch store against its cuts and against the closure of M&Ss European outlets (which appeared not to have been handled particularly well in PR terms). 2001 prots showed another fall of 36 million (on 1999) and Luc Vandevelde said he did not know whether sales would grow in 2002 (Guardian, May 23, 2001). In 2001 there was a further re-structuring charge of 335 million. This represented the third consecutive year of declining prots. In a television interview Mr Vandevelde said that M&Ss strategic drift and decline Johnson and Scholes (before his arrival) had occurred over a ve-year period and it would take about ve years to reverse. Some key statistics were: Like-for-like sales down by 2.6%. Clothing and general merchandise down by 6.3%. Food sales up by 2.6%.
Luc Vandevelde also announced that M&Ss head ofce would move to a new headquarters in Paddington Basin in around two years time, helping a change in culture. Interestingly a new bonus scheme (the rst of its kind at M&S) was to be introduced, offering big pay-outs even if M&Ss prots continued to plunge (according to reports). Apparently this was to ensure that successful business areas would not be penalised for poor performance elsewhere in the group. This attracted major adverse Press commentary in May-June 2001. Luc Vandevelde was (in 2001) still assembling his new management team, the last of the old guard having left. Roger Holmes, CEO designate (headhunted from Kingsher in January 2001) was still nding his feet and was putting the nal nishes to the new team. Press comment was concerned that this team lacked really experienced retailers with air (core competencies). Thus, M&S clearly still faced an enormous challenge to turn itself around, having tackled these changes increment-by-increment (Quinn).
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Drawing the helicopter view out of this analysis, it would not have taken seven hundred pages of a strategy consultants report (which was rumoured to have been presented to M&S top management in 2000) to have realised that: M&S strategy needs still to be fundamentally rethought. and Incremental tinkering with that strategy is not going to work. The scene was therefore set for M&S to conduct a more radical review of its strategic and nancial options
Conclusion
The Marks and Spencer case study provides us with a graphic account of the relevance of the strategy gurus in the context of strategic change. Where might M&S now be if it had performed the kind of Helicopter analysis which we provided for you in the case study and hopefully was also suggested by your own options, which might have resulted in an unbundling/rebirth of M&Ss corporate portfolio?
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Introduction
In this short chapter we give you some useful supplementary checklists for managing your strategy as follows: Organic business development strategies. Strategic and nancial planning generally. Restructuring strategies. Information systems strategies. Management buy-out strategies. Alliance and joint venture strategies. Operational strategies.
These checklists are useful for live business strategies and also for MBA coursework, and for MBA projects and dissertations.
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3 4 5 6
Selling more to existing customers. New value-creating activities. New distribution channels. New technologies.
Lets now look at some core checklists for each of the areas outlined above.
Are there any wonderfully innovative features (which add real value) to the product?
If these exist, how easily can these be imitated? How consistent is the organisations capability and mind-set with this product, and what implementation issues might this raise?
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What other changes in the organisation (for example, to key business processes or to organisational structure) are needed?
Will the sales force and distribution channels accommodate the new product effectively without destruction, disruption, a dilution of sales of other products?
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What channel strategy options exist and which of these is a) most attractive inherently (in terms of its use and value-added generally), b) one where we have greatest competitive advantage?
What are the most critical uncertainties about that market and how can we minimise our exposure to these?
Will entering this particular market foreclose options to enter other markets?
To what extent will market conditions vary internationally, and which of these markets should we really give highest priority?
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Which of our key competitors is currently active with these customers and how can we erode their share?
How can we make it unbelievably easy to buy from us (and to buy more from us)?
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New technologies
New technologies may be a turn-on to middle managers but a turn-off to top managers (whose main focus is to extract short and medium-term values out of the business). We may therefore need some testing questions in order to screen innovative technology projects: Does the technology actually t with our present or emerging denition of the business(es) we are in? Do we really understand the technology? What other things (other than technology) all have to line up to deliver real value? (Use a Wishbone analysis.) Are we doing the project mainly because of its sheer technological edge, and because it is inherently exciting or because it will generate real value, and value that we can actually harvest? What key value and cost drivers are impacted on by the new technology? What new skills do we need to fully exploit any new technology? To what extent do we have to change our mind-set in order to get the very best out of the new technology? Where the technology relies heavily on the Internet, how easy is it for our business model to be copied or imitated? How quickly will the new technology spread and where there are customer turn-offs in its use, how can these be mitigated or removed? How rapidly might the technology be superseded by further technologies and how vulnerable does this therefore make our strategy? What substitute technologies are available which are in many respects better right now? How should we project manage the introduction of the new technology?
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Restructuring strategies
Restructuring strategies are now undertaken on an almost routine basis by most larger organisations. Restructuring is often managed in relative isolation from other projects and is also positioned as geared towards delivering more shorter-term benets. Restructuring, if managed as a strategy, can be handled much more effectively than this, especially if the following questions are addressed: Is the rationale for the restructuring fully thought through and does this reect not merely current needs but anticipate pending changes in the business? Is there a history of frequent re-structuring which has resulted in a permanent (and unnecessary) state of instability in the organisation? (If so, how can this be managed more strategically in the future?) Has the restructuring put managers into articial positions without genuine business benets which are patently transparent and which will aggravate organisational ambiguity? Are new appointees genuinely capable of being effective in their roles given their skills, their style, and also the degree of teamworking within the organisation? Has the restructuring been communicated in such a way to lay bare the business-led reasons for the restructuring? What is the timing of announcement of restructuring has it been deliberately timed so as to prevent reection and debate and thereby result in simmering resentment? How does the restructuring complement other projects or initiatives in the business and how should it be managed alongside these?
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Are changes in information systems seen as a) primarily of a technical issue; versus b) as also generating important and more difcult people-related and political issues? In the latter case, does the organisation have the necessary tools (like stakeholder analysis) and processes to gain maximum ownership for change?
Who are the key stakeholders: a) of the end outputs of information systems; and b) as agents within the change process itself?
Is there a risk of overrun against required timescales which might result in an expensive and disruptive crash programme or a dilution of project benets?
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Has the proposed management team the ability and balance to produce a quantum improvement in business performance or does it smack of more of the same?
What tangible changes will be made to support the symbolic event of the buy-out? For example, changing the company name, relocating premises, throwing out all the old stationery, reorganising managers old ofce layouts, removing unnecessary status symbols; and how will these be project managed?
Is there a robust strategy for improving the competitive position of the business or are the buy-out plans mainly aimed at producing the right set of numbers to please venture capitalists? How will this strategy be project managed?
Has the buy-out team got clear milestones for progress which are achievable but stretching?
How will the issue of an exit route to sell the business on (where this is applicable) be managed by the management team throughout the lifetime of the buy-out. (Are we managing the buy-out result effectively?)
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Formation
What is the fundamental purpose of the alliance what distinctive value does it add? Why is it likely to be better than other possible alliances?
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What are the different options for structuring and resourcing the alliance?
To what extent is the alliance well-timed? How are the various needs and competencies of the alliance partners genuinely complementary?
To what extent are these needs and competencies in tension or in potential conict?
To what extent is the alliance genuinely (therefore) a positive sum game (or an arrangement where all parties are signicantly better off through participating in the alliance)?
What is the potential for the alliance leading on into a full acquisition, longer-term?
Culturally, are the alliance partners likely to get on with each other: well, satisfactorily or, perhaps, badly?
Have all partners got sufcient interest and commitment in the alliance to make it genuinely effective?
Will an alliance with another partner(s) only give us a temporary advantage as it will trigger other alliances in the industry?
What are the potential risks and downsides to sustaining our core competencies by depending upon the alliance?
Can we learn about how our partners do things really well and apply them elsewhere in our business without our partners becoming antagonistic?
How long (realistically) do we think the alliance is likely to last? Who (if anyone) is likely to become the more dominant partner in the alliance, and if this is not likely to be us, what is the potential value of us being in the alliance?
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Development
What investment is the alliance likely to require over time, and are alliance partners both able and willing to commit this when the time arrives? What senior management (and other scarce skills) is the alliance likely to need, and who will support this requirement? How will alliance partners conduct any reviews of performance and steer the strategy forward? In the event that the alliance takes off even more successfully than anticipated, how will it cope with this, particularly with regard to: people; structures; nancial resources.
What processes for change of partners (including new ones coming in, old ones leaving or changes in partner stakes) be managed? How will alliance development be project managed (for example, what will its key milestones be)?
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More specically, what are our most important objectives for an acquisition project, and are these good or bad? Good reasons for making an acquisition might include: Increasing our own shareholder value so we can add tangible value to the acquired business. To acquire scarce capabilities (for example, management or technical skills) that we can apply elsewhere. To build our own competitive advantage.
Bad reasons for an acquisition project might include: To grow the business (as an end in itself). To enhance our own, personal careers. Because we feel threatened by increased competition. Because others are doing it, and we might get left behind.
Acquisition evaluation
Acquisition due diligence is often biased towards internal appraisal. To counter this please ask the following questions: How inherently attractive are the markets which our target is on (consider its growth drivers and the level of competitive pressure)? What is our targets underlying competitive position, and is it okay, average or weak? What is the basis of its competitive advantage, and is this likely to be sustainable given anticipated market and competitive change? How does it add distinctive value to its customers (if at all) and, if so, how does it capture this in the form of nancial (and thus shareholder) value? How competitive is its cost base (and as against existing players and new entrants and/or distribution channels)?
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Are any of its products or markets moving into maturity or decline (life-cycle effects)?
What is the strength of its management? How vulnerable is it likely to be to key staff leaving? Given our integration plans, how difcult (and uncertain) is integration likely to be?
Where does the business currently make most/least money, and where does it destroy shareholder value (at the present time)?
Where is the business likely to make most/least money in the future? What can we (genuinely) bring to the party in the way of valueadded to the acquisition?
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Are we absolutely clear as to what we are bringing to the party versus what value is already inherent in the acquisition (so we avoid, in effect, paying twice)?
Are there in-built check-points within the deal-making process for whether we carry on or not?
Who will have the ultimate say over what we are prepared to offer?
Integration
Integration is an activity where strategic management will pay off in a very big way. Please consider the following questions: What key synergies are anticipated to be harvested through the acquisition? What changes are required in order to achieve these synergies to products, services, operations, systems and processes, structures and people? Who are the key people who are essential both to protect and develop the business? How can they be convinced that it is worth backing the organisation following this period of pronounced uncertainty associated with the acquisition? For example through: Selling the benets of the acquisition in terms of future opportunity for their own development and reward. Providing them with a clear role in integration and further development. Spelling out openly the criteria for success and failure. Protecting their self-respect through active incorporation of core best practices into a new paradigm. Having a clear and well communicated strategy for steering change.
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Is it planned to announce changes in leadership and structure quickly as opposed to playing a wait-and-see game with the result of mounting uncertainty?
Will changes in systems and control routines be handled with delicacy and sensitivity, and will sensible timescales be set to make changes? Where systems and control changes are required from day one are there arrangements to support this externally?
How will the issue of any culture change be handled, especially where it is intended to integrate a large part of operations? Does this reect any pre-acquisition diagnosis of the key differences in culture between both organisations?
How will learning about the acquisition be secured in terms both of what we have got for our money (both internal and eternal capability) and also on the effectiveness of integration process?
Operational strategies
Besides the more purely strategic projects including organic development, acquisitions and alliances, there may also be some major operational projects. These can be grouped (for convenience) under the two main headings of: Operations expansion. Cost management and efciency.
Operations expansion
Based on the checklists dealing with selling more to existing customers/selling to new customers, etc (from Organic Development), what is the potential for relatively easy-to-do expansion? To what extent can capacity be increased: by physical expansion? without physical expansion (and by the cunning plan)? by appropriate out-sourcing?
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What productivity targets (by each and every incremental resource) need to be established?
Conclusion
The above strategies can be used both as checklists and also as suggested questions to help structure strategic workshops.
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The last couple of decades have been a fertile market for the strategy gurus. Most of these gurus have (especially the major ones) come from the US, and an even higher proportion from Harvard. Only a handful of European (and even fewer UK thinkers) can really make pretence of having guru status. The Harvard Centre of gravity for gurus does seem to be almost self-perpetuating. Indeed, when the author himself sent a well-researched article to the Harvard Business Review he got only an impolite, standard letter, saying that only a few submissions were ever even looked at. (This is wildly at odds with the practise of other strategic management journals.) The author could not help suspect that you had to know someone on the inside (i.e. the editorial board) even to get someone to take a quick look at it. No doubt there are many extremely good and insightful ideas emanating from other non-US business schools, and consultants. And how often did we ever see MANAGERS writing in the Harvard Business Review? Virtually never, which seems very odd. So probably, Harvard Business Review will continue to be populated by the type of gurus which we have covered in this book with little fresh blood, and also relatively little international diversity. This may be one of the factors which accounts for the lack in part of new ideas in the strategy industry, particularly over the last ve to ten years (apart from Hamel and Prahalad and one or two others). So where might the new ideas come from? What we sadly need is some new, revitalised form of Competitive Strategy, one which is no longer trapped in traditional, industry, corporate and business boundaries?
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Perhaps a rst step would be to simply imagine working with amnesia, having forgotten the Strategy Gurus completely, but having knowledge of all the other functional disciplines. Would anything be really missing from the world, what would have to be reinvented, and what might turn out to be quite different, and new? Let me speculate for a moment. we would obviously need to think about the future, and how we might manage it, so we might well nd a need for FUTURE MANAGEMENT. As a practical start in this I propose a new form of strategy, or CONTINGENT STRATEGY, which is dened as: An intended strategy which will be triggered on future conditions of alignment. The logic behind Contingent Strategy is that it would be folly to implement a strategy unless the world was aligned (at the time), to its success. As many strategies are fraught with uncertainty it only seems sensible to manage any commitment. Hopefully this single form of strategy will provide a clue to Future Management. I will leave the reader to ponder this Tony Grundy 2003
CONTACT DETAILS
SEVEN CONCLUSION
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Grant, R, The Research-Based Theory of Competitive Advantage. The Implications for Strategy Formulation, California Management Review, p1435, Spring 1991 Grundy, A N, Corporate Strategies and Financial Decisions, Kogan Page, London, 1992 Grundy, A N Implementing Strategic Change, Kogan Page, London, 1992 Grundy, A N, Strategic Learning in Action, McGraw Hill, Maidenhead Grundy, A N, Breakthrough Strategies for Growth, Pitman Publishing, London, 1994 Grundy, A N., Exploring Strategic Financial Management, Prentice Hall, 1998b Grundy, A N, Harnessing Strategic Behaviour, F T Publishing, London, 1998 Grundy, A N and Brown, L, Strategic Project Management, Thomson Learning, London, 2002 Grundy, A N, Acquisitions and Mergers, Capstone Publishing, Oxford, 2002b Grundy, A N and Brown, L, Be Your Own Strategy Consultant, Thomson Learning, London, 2002 Grundy, A N, Growth, Capstone Publishing, Oxford, 2002d Grundy, A N, Shareholder Value, Capstone Publishing, Oxford, 2002e Grundy, A N and Brown, L, Value-Based HR Strategy, Butterworth Heinnemann, Oxford, 2003 (forthcoming) Hamel, G and Prahalad, C K, The Core Competence of the Organisation, Harvard Business Review 68, No 3, pp 79-91, 1990 Hamel, G and Prahalad, C K, Strategic Intent. Strategy as Stretch and Learning Leverage, Harvard Business Review 67, No 3, p 63-76, 1989 Hamel, G and Prahalad, C K, Strategy as Stretch and Learning, Harvard Business Review 71, No 2, p 75-84, 1993 Hamel, G and Prahalad, C K, Competing for the Future, Harvard Business School Press, Boston, 1994
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Time management and personal development John Adair and Melanie Allen 9.99 Sales management and organisation Telephone tactics Companies dont succeed people do! Inspiring leadership The book of ME Peter Green 9.99 Graham Roberts-Phelps 9.99 Graham Roberts-Phelps 12.99 John Adair 24.99 Barrie Pearson and Neil Thomas 24.99 Roger Mason 12.99 Greville Janner 12.99 Kim Tasso 29.99
The complete guide to debt recovery Janners speechmaker Dynamic practice development
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