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Corporate Management in Action
Level: Postgraduate Diploma in Business Management
Date 11th Nov 2010
Lecturer : Dr. SAMTA RAI
Timings 9:30 am 1:30 pm
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Analyse the dynamics between strategic,
management and operationalLevels
Evaluate the relationship between corporate level, business level and
operational level strategy. In particular, how the lower level supports, drivesand implements the level above it
Differentiate the key aspects and the role of management, at each level
Compare and contrast the top down perspective with the bottom up
Perspective
Understand how resources and competences need to be integrated
to enable corporate success
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Strategy
According to Johnson & Scholes, Strategy is the direction & scope of anorganisation over the long term, which achieves advantage for the organisation
through its configuration of resources within a changing environment & to fulfil
stakeholder expectations.
The characteristics of strategic decisions
The long term direction of an organisation
The scope of an organisations activities it means should the organisation
concentrate on one area of activity, or should it have many?
It should bring advantage for the organisation over competition
Strategic fit with the business environment Organisations need appropriate
positioning in their environment, for example in terms of the extent to which
products or services meet clearly identified market needs
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Strategy is about exploiting the strategic capability of an organisation, in terms of
its resources & competences, to provide competitive advantage and/or yield new
opportunities.
Strategy should meet the expectations of powerful actors in and around the
organisation.
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LEVELS OF STRATEGY
There are three levels of strategy which we can consider:
Corporate strategy,
Business strategy and
Operational strategy.
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LEVELS OF STRATEGY
Corporate Strategy
( Business you should bein )
Business Strategy
( Tactics to beat the competition)
Operational / Functional Strategy
( Operational methods to implement the tactics)
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Corporate Level Strategy
Corporate level strategy fundamentally is concerned with selection of businesses
in which your company should compete and with development and coordination of
that portfolio of businesses.
Corporate level strategy is concerned with:
Reach defining the issues that are corporate responsibilities. These might
include identifying the overall vision, mission, and goals of the corporation, the
type of business your corporation should be involved, and the way in whichbusinesses will be integrated and managed.
Competitive Contact defining where in your corporation competition is to be
localized.
Managing Activities and Business Interrelationships corporate strategyseeks to develop synergies by sharing and coordinating staff and other resources
across business units, investing financial resources across business units, and
using business units to complement other corporate business activities.
Management Practices corporations decide how business units are to be
governed: through direct corporate intervention (centralization) or through
autonomous government (decentralization).
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Business Unit Level Strategy
A strategic business unit may be any profit center that can be planned
independently from the other business units of your corporation.
At the business unit level, the strategic issues are about both practical
coordination of operating units and about developing and sustaining a
competitive advantage for the products and services that are produced.
At the business unit level, the strategy formulation and implementation dealswith:
Pricing, Positioning and differentiating the business and/or products against
rivals Business-level cross-functional process management
Anticipating changes in technology and customer perceptions and adjustingthe strategy to accommodate them.
Influencing the nature of competition through strategic actions such as virtual
integration and through political actions
Building strategic partnerships and co-innovating with other business units,
partners, and customers.
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Functional Level Strategy
The functional level of your organization is the level of the operating divisions anddepartments. The strategic issues at the functional level are related to functional
business processes and value chain.
Functional level strategies in R&D, operations, manufacturing, marketing, finance,
and human resources involve the development and coordination of resources
through which business unit level strategies can be executed effectively andefficiently.
Functional units of your organization are involved in higher level strategies by
providing input into the business unit level and corporate level strategy, such as
providing information on customer feedback or on resources and capabilities on
which the higher level strategies can be based.
Once the higher level strategy orstrategic intent is developed, the functional units
translate them into discrete action plans that each department or division must
accomplish for the strategy to succeed.3
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In other words, the functional or operational level is concerned with how the
component parts of an organisation deliver effectively the corporate and business
level strategies in terms ofresources, processes and people.
Questions to ponder
Differentiate the key aspects and the role of management, at each level
Compare and contrast the top down perspective with the bottom up
perspective
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Capabilities and Competences
Strategic Capability
Strategic capability is the resources and competences of an organisation needed
for it to survive and prosper.
Capability-based strategies are based on the notion that internal resources and
core competencies derived from distinctive capabilities provide the strategy
platform that underlies a firm's long-term profitability. Evaluation of these
capabilities begins with a company capability profile, which examines a company's
strengths and weaknesses in four key areas:
managerial
marketing
financial
technical
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Then a SWOT analysis is carried out to determine whether the company has the strengths
necessary to deal with the specific forces in the external environment.
This analysis enables managers to identify:
external threats and opportunities, and
distinct competencies that can ward off the threats and compensate for
weaknesses.
The picture identified by the SWOT analysis helps to suggest which type of strategy, or
strategic thrust the firm should use to gain competitive advantage.
Stalk, Evans and Schulman (1992) have identified four principles that serve as guidelines to
achieving capability-based competition:
Corporate strategy does not depend on products or markets but on business processes.
Key strategic processes are needed to consistently provide superior value to the
customer.
Investment is made in capability, not functions or SBUs.
The CEO must champion the capability-based strategy.
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Strategic capabilities and competitive advantage
Resources
Threshold resources
Tangible
Intangible
Competences
Threshold
competences
Unique resources
Tangible
Intangible
Core competences
Threshold
capabilities
Capabilities
for
Competitive
advantage
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Unique resources - Unique resources are those resources that critically
underpin competitive advantage and that others cannot easily imitate or obtain.
Core competences - Core competences are the skills and abilities by which
resources are deployed through an organisations activities and processes such
as to achieve competitive advantage in ways that others cannot imitate or obtain.
Pg. 96, 98 & 104 handout.
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A firms resources should meet the following criteria in order to help it achieve
strategic capability
Resources should be
Valuable
Rare
In-imitable and
Non-substitutable
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Cost Efficiency
Managers often refer to the management of costs as a key strategic capability.
So it is.
Customers can benefit from cost efficiencies in terms of lower prices or more
product features for the same price. For many organisations the management
of costs is becoming a threshold strategic capability for two reasons
Customers do not value product features at any price.( if the price rises too high they will sacrifice value and opt for lower price). So
the challenge is to ensure that an appropriate level of value is offered at an
acceptable price.
Competitive rivalrywill continually require the driving down of costs because
competitors will be trying to reduce their cost so as to under price their rivalswhile offering similar value.
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If the cost is to be managed effectively, attention has to be paid to key cost
drivers as follows
Economies of scale
Supply costs
Product/process design
Experience
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Cost
efficiency
Economies of scale
Supply costs
Experience
Product/process
design
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Critical to sustaining these core competencies are their:
Durability - their life span is longer than individual product or technology life-cycles, as are the life spans of resources used to generate them, including
people.
Intransparency - it is difficult for competitors to imitate these competencies
quickly.
Immobility - these capabilities and resources are difficult to transfer.
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Limitations in managing strategic capabilities
Competences are valued but not understood
Competences are not valued
Competences are recognised, valued and understood However, the danger
can be that top management may seek to preserve such capabilities by over-
formalising and codifying them such that they become set in stone.
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Developing strategic capabilities
Adding and changing capabilities
Extending capabilities
Stretching capabilities
Entrepreneurial bricolage (make creative and resourceful use of whatevermaterials are at hand)
Ceasing activities that are not central to the delivery of value to customers
should be done away with, outsourced or reduced in cost.
External capability development ( through alliances and joint ventures)
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Managing people for capability development
One of the lessons of this chapter is that strategic capability often lies in theday-to-day activities that people undertake in organisations, so developing the
ability of people to recognise the relevance of what they do in terms of the
strategic capability of the organisation is important. More specifically:
Targeted training and development
Staffing policies
Organisational learning
Develop peoples awareness that what they do in their jobs can matter at the
strategic level.
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Diagnosing Strategic Capability
The Value chain ( Already covered in one of the previous sessions)
Benchmarking
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Benchmarking
This section considers the value of benchmarking, which can be used as a way of
understanding how an organisations strategic capability, in terms of internal
processes, compare with those of other organisations.
Benchmarking is the process of comparing one's business processes and
performance metrics to industry bests and/or best practices from other industries.
Dimensions typically measured are quality, time, and cost. Improvements from
learning mean doing things better, faster, and cheaper.
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There are different approaches to Benchmarking :
Internal or historical benchmarking
Internal or historical benchmarkingis the internal procedure for comparing results
from past performance to current or forecasted performance.
The danger is that this can lead to complacency since it is the rate of improvement
compared with that of competitors that is really important.
Industry/sector benchmarking
Competitive or Industry/sector benchmarkingenables an organization to compare
its performance with competitors trading in the same industry or sector. An
overriding danger of industry norm comparisons ( whether in the private or public
sector) is however, that the whole industry may be performing badly and losing out
competitively to other industries that can satisfy customers needs in different ways.
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Best-in-class Benchmarking
Best-in-class benchmarkingis similar to industry or sector benchmarking. However
managers would compare their organization to the market or sector leader i.e. the
best-in-class wherever that is found and therefore seeks to overcome the
limitations of other approaches. For example, British Airways improved aircraft
maintenance, refuelling and turn around time by studying the processessurrounding Formula One Grand Prix motor racing pit stops. A Police force wishing
to improve the way in which it responded to emergency telephone calls studied call
centre operations in the banking and IT sectors.
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Benefits of benchmarking
It is an effective approach for achieving operational change. Benchmarks are thecatalyst that moves an organization to higher levels of performance.
Since customer requirements are so rigorously defined, benchmarking improves
customer orientation.
It focuses upon the processes that improve results - not simply results.
Performance measures are often improved as a result of benchmarking.
Decision making improves because the organization has enhanced customer
knowledge, process focus, and performance measures.
Benchmarking improves innovation and creativity since self-imposed barriers to
success are removed.
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Potential pitfalls with benchmarking.
Benchmarking needs to be supported and driven by senior leaders.
Prerequisites (such as organizational structure, processes) need to be in place.
Selecting the wrong benchmarks.
Not gaining management support for plans resulting from benchmarks.
Surface comparisons Benchmarking compares inputs ( resources), outputs
or outcomes; it doesnt identify the reasons for the good or poor performance of
organisations since the process does not compare competencies directly. For eg.,
it may demonstrate that one organisation is poorer at customer service than
another but not show the underlying reasons. However, if well directed it could
encourage managers to seek out these reasons and hence understand how
competences could be improved
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Handout on Benchmarking
Illustration 4.6
Benchmarking healthcare