Summary of Textbook Business Concepts, Models, and Strategies

SITUATION ANALYSIS

Macro-Environment Analysis

PESTEL

1. Political
2. Economic
3. Socio-cultural
4. Technological
5. Environmental protection
6. Legal

Industry and Sector Analysis

Michael Porter’s 5 Forces

1. Bargaining power of suppliers
2. Bargaining power of customers
3. Threat of new entrants to the industry
4. Threat of substitute products or services
5. Rivalry amongst current competitors in the industry

Competitive Advantage of Nations

Michael Porter’s diamond (all 4 components are inter-connected in a diamond shape)

1. Factor conditions: human resources, physical resources, knowledge, capital, infrastructure
2. Demand conditions: sophistication, high demands, similarity with global markets, saturation
3. Related and supporting industries: high quality suppliers
4. Firm strategy, structure, rivalry: long-term vs short-term orientation of shareholders, prestige of an industry, tough/easy rivals

Scenario Planning

Mercer

1. Identify key drivers/factors
2. Build model that incorporates the key drivers/factors
3. Produce 7 to 9 mini-scenarios
4. Group mini-scenarios into 2 or 3 larger scenarios
5. Write the scenarios
6. Identify key issues to be addressed that are critical to the long-term survival of the organisation

Value Chain of an Organisation

Michael Porter

1. Primary activities
   1. Inbound logistics
   2. Operations
   3. Outbound logistics
   4. Marketing & Sales
   5. After sales support
2. Support activities
   1. Firm infrastructure
   2. Human resource management
   3. Technology development
   4. Procurement

Resources of an Organisation

9 M’s

1. Machinery
2. Make-up – culture, goodwill, brand, patents
3. Management
4. Management information – ability to innovate, generate ideas
5. Markets
6. Materials
7. Men
8. Methods – how activities are carried out
9. Money – financial situation

Analysis of an Organisation’s fit with the Environment

SWOT analysis

1. Strength (of firm)
2. Weaknesses (of firm)
3. Opportunities (in the environment)
4. Threats (in the environment)

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STRATEGY OPTIONS AND STAKEHOLDER MANAGEMENT

Strategy Formulation / Strategic Options

Using SWOT analysis

• Convert weaknesses to strengths, and threats to opportunities. Match strengths with opportunities.

TOWS matrix (by Weirich). Four classes of strategies can be developed based on a 2×2 matrix of Strength/Weakness vs. Opportunities/Threats

1. SO strategies employ strengths to seize opportunities
2. ST strategies employ strengths to counter or avoid threats
3. WO strategies address weaknesses so as to be able to exploit opportunities
4. WT strategies are defensive, aiming to avoid threats and the impact of weaknesses

Generic Criteria to Assess Strategic Options

1. Feasibility – Can it be done? e.g. all resources available
2. Suitability – Should we be doing this? e.g. considering the strategic position of the company, is this approach appropriate
3. Acceptability – Is this acceptable to all our stakeholders? e.g. risk, return

Stakeholder Mapping and Management

Mendelow’s 2×2 matrix of Power vs. Level of Interest

1. (Low, Low): Minimal effort.
2. (Low, High): Keep satisfied.
3. (High, Low): Keep informed.
4. (High, High):  Strategies must be acceptable to them.

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ORGANISATION CULTURES

Types of Organisation Cultures

Roger Harrison (popularised by Charles Handy in ‘Gods of Management’)

1. Power culture (Zeus) – Dynamic entrepreneur who rules with snap decisions.
2. Role culture or bureaucracy (Apollo) – Formal hierarchical structure, well-established rules and procedures.
3. Task culture (Athena) – Project teams and task forces to get the job done.
4. Existential culture (Dionysus) – Organisation’s purpose is to serve the interests of the individuals within it (e.g. barristers)

Miles and Snow (grouped according to their approach to strategy)

1. Defenders like low risks, secure niche markets, and tried and trusted solutions (e.g. retailers). Doing the things right (efficiency).
2. Prospectors like to expand, increase market presence, move into new areas (e.g. exploration and mining companies). Doing the right things (effectiveness).
3. Analysers try to balance risk and profits. Have core stable products like defenders, and move into areas that prospectors have already opened up.
4. Reactors do not have viable strategies, live from hand to mouth.

Denison (organisation culture placed in 2×2 matrix of “Environmental responses required” vs. “Organisation’s strategic orientation”)

1. (Internal, Stablity): Consistency culture.  Management preoccupied with efficiency.
2. (Internal, Change/flexibility): Involvement culture. Satisfaction of employee’s needs  is necessary for optimum performance (e.g. orchestra).
3. (External, Stability): Mission culture. ‘Customer’ oriented (e.g. hospitals, church).
4. (External, Change/flexibility): Adaptability culture. Corporate values encourage inquisitiveness and interest in the external environment (e.g. fashion companies).

Deal and Kennedy (Corporate Cultures) group cultures using a 2×2 matrix of “Willingness of employees to take risks” vs. “How quickly they get feedback on whether they got it right or wrong”

1. (Slow feedback, Low risk): Process culture (It’s not what you do, it’s the way that you do it). E.g. banks, financial services, government.
2. (Slow feedback, High risk): Bet your company culture (Slow and steady wins the race). E.g. oil companies, aircraft companies, architects.
3. (Fast feedback, Low risk): Work hard / play hard culture (Find a need and fill it). E.g. sales and retail, computer companies, life assurance companies.
4. (Fast feedback, High risk): Hard ‘macho’ culture (Find a mountain and climb it). E.g. entertainment, management consulting, advertising.

Components of the Cultural Web

1. Symbols
2. Stories
3. Power structure
4. Organisational structure
5. Controls
6. Routines and rituals
7. At the centre of the web, is the paradigm (set of assumptions that are largely held in common and are taken for granted in the organisation)

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ORGANISATION STRUCTURE

Components of an Organisation Structure

Henry Mintzberg’s theory of organisational configuration

1. Strategic apex. If in strong control, leads to a simple (entrepreneurial) structure.
2. Middle line (managers). If in strong control, leads to a divisional form.
3. Operating core (professionals). If in strong control, leads to a professional bureaucracy.
4. Support staff. If in strong control, leads to an adhocracy (complex and disorderly).
5. Technostructure (procedures and standards). If in strong control, leads to a machine bureaucracy.

Ways of Structuring an Organisation

1. Functional
2. Multidivisional
3. Holding (Berkshire)
4. Matrix (Lockheed)
5. Transnational (share global resources, act local)
6. Team-based (business process based)
7. Project-based (ad-hoc)

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INTERNATIONAL BUSINESS

Management Orientation in the Management of an International Business

Perlmutter (4 orientations)

1. Ethnocentrism: focus on domestic market and sees exports as secondary.
2. Polycentrism: adapts totally to local environment.
3. Geocentrism: adapts portions to local environment to add value. Thinks globally, acts locally.
4. Regiocentrism: same as geocentrism but views the world in regions.

Stages of Evolution of a Global Business

Ohmae (5 stages)

1. Exporting using foreign intermediaries
2. Overseas branches
3. Overseas production
4. Insiderisation with full functional organisations overseas (i.e. multinational)
5. Global company that achieves global efficiencies while recognising local differences to retain local responsiveness (i.e. geocentric orientation)

Types of Global Businesses

Bartlett and Ghoshal. Places organisations in a 2×2 matrix of “Pressure to Globalise” vs. “Requirement for local adaptation and responsiveness”

1. (Low requirement, Low pressure): International environment; ethnocentric; international division (e.g. paper, textiles).
2. (Low requirement, High pressure): Global environment; geocentric; global product divisions (e.g. chemicals, construction).
3. (High requirement, Low pressure): Multinational environment; polycentric; national or regional divisions (e.g. fast food, tobacco).
4. (High requirement, High pressure): Transnational environment; polycentric; integrated systems and structures (e.g. pharmaceuticals, motor vehicles).

Modes of Entry to Foreign Markets

1. Exporting
   1. Indirect: Goods are sold abroad by other export houses from the home country.
   2. Direct: Goods are sold directly to customers overseas (e.g. to wholesales, retailers, or final users).
2. Overseas Production
   1. Licensing or franchising
   2. Contract manufacture: Contract manufacturer manufacturers on behalf of the contractor. Contractor does the marketing.
   3. Joint venture / consortium / strategic alliance
   4. Wholly owned overseas production (acquisition or organic growth)

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MANAGING STRATEGIC BUSINESS UNITS

How a Corporate Parent can Add Value to its Strategic Business Units (SBUs)

Johnson, Scholes & Whittington (JS&W). Three approaches a corporate parent can create value

1. Portfolio manager: Improve SBU performance, strip assets, dispose under-performing elements, install new management
2. Synergy manager: Pursues synergies through shared use of competences and resources
3. Parental developer: Deploy own competencies to improve SBUs’ performance

Assessing Benefit SBUs can Derive from a “Parental Developer” Corporate Parent

Ashridge model assesses strategic fit using a 2×2 matrix of “Feel – Fit between SBU Critical Success Factors and parental skills)” (i.e. can the parent help in their core business?) vs. “Benefit – Fit between SBU opportunities and parental skills)” (i.e. how much can the parent really value-add to the existing SBU?)

1. (Low, Low): Alien businesses. Have no place in the portfolio.
2. (Low, High): Ballast businesses. Need little assistance.
3. (High, Low): Value trap businesses. Parent does not have relevant skills to help.
4. (High, High): Heartland businesses. Benefit from parent.

Assessing Potential Acquisitions

Michael Porter

1. Better off test
   • Will the company being acquired be better off after the acquisition?
   • Will it gain competitive advantage from being in the group?
   • Will the group be better off as a result of acquiring the company?
2. Attractiveness test
   • Is the target industry structurally attractive?
3. Cost of entry test
   • Will the future cash flows from the acquisition (appropriately discounted) be greater than the amounts paid to acquire it?

Strategies for Parents to Manage SBUs

A parent can deploy four policies towards its SBUs

1. Build – Forgoes short term profits in order to increase market share.
2. Hold – Maintains current position.
3. Harvest – Seeks short term profits at the expense of long term development.
4. Divest – Release resources for use elsewhere.

Boston Consulting Group (BCG) Growth-Share matrix classifies an SBU by placing it in a 2×2 matrix of “Market Growth” vs. “Relative Market Share”.  Relative Market Share is a ratio of a company’s market share over the market share of its largest competitor (not itself). The strategy follows.

1. (Low, Low): Dogs. Strategy: Divest or Hold.
2. (Low, High): Question marks. Strategy: Build or Harvest
3. (High, Low): Cash cows. Strategy: Hold or Harvest
4. (High, High): Stars. Strategy: Build

General Electric Business Screen (GEBS) places an SBU in a 3×3 matrix of “Business Strength” vs. “Market Attractiveness”. Strategy follows.

1. (Unattractive, Weak): Divest
2. (Unattractive, Average): Harvest or Divest
3. (Unattractive, Strong): Develop for income
4. (Average, Weak): Harvest
5. (Average, Average): Develop selectively for income
6. (Average, Strong): Invest selectively for growth
7. (Attractive, Weak): Develop selectively. Build on strengths
8. (Attractive, Average): Invest selectively and build
9. (Attractive, Strong): Invest for growth

Shell directional policy matrix places an SBU in a 3×3 matrix of “Enterprise’s competitive capabilities” vs. “Prospects for sector profitability”. Strategy follows.

1. (Unattractive, Weak): Disinvest
2. (Unattractive, Average): Phased withdrawal
3. (Unattractive, Strong): Cash generation
4. (Average, Weak): Phased withdrawal / Custodial
5. (Average, Average): Custodial / Growth
6. (Average, Strong): Growth / Leader
7. (Attractive, Weak): Double / Quit
8. (Attractive, Average): Try harder
9. (Attractive, Strong): Leader

Definitions for Shell directional policy matrix strategies

1. Leader – major resources are focused upon the SBU.
2. Try harder – could be vulnerable over a longer period of time, but fine for now.
3. Double or quit – gamble on potential major SBU’s for the future.
4. Growth – grow the market by focusing just enough resources here.
5. Custodial – just like a cash cow, milk it and do not commit any more resources.
6. Cash Generator – Even more like a cash cow, milk here for expansion elsewhere.
7. Phased withdrawal – move cash to SBU’s with greater potential.
8. Divest – liquidate or move these assets on a fast as you can.

Classification of Public Sector Activities

Montanari and Bracker places public sector activities in a 2×2 matrix of “Public or political need / popularity” vs. “Ability to serve effectively (i.e. resources are available)”

1. (Low, Low): Back drawer issue. Either cut or try to increase support.
2. (Low, High): Political hot box. Public wants, but not enough resources.
3. (High, Low): Golden fleece. Targets for cost cutting.
4. (High, High): Public sector star. Essential.

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COMPETITIVE STRATEGIES

Competitive Strategies

Michael Porter: Three generic strategies.

1. Cost leadership (across industry)
2. Differentiation (across industry)
3. Focus (on a particular market segment)
   • Cost-focus
   • Differentiation-focus

A focus strategy can achieve competitive advantage because ‘broad’ businesses will commit one of two errors:

1. Underperformance in meeting the needs of a particular segment. This offers an opportunity for a differentiation-focus player.
2. Overperformance in meeting the needs of a particular segment. This offers an opportunity for a cost-focus player to cut out what is not needed.

Bowman’s Strategy Clock places competitive strategies in one of 8 squares (think of a 3×3 matrix but the centre square is excluded). The two axes are “Perceived added value” vs. “Price”

1. (Low, Low): No frills strategy.
2. (Low, Medium): Low price strategy.
3. (Low, High): Hybrid strategy.
4. (Medium, Low): Destined for failure.
5. (Medium, Medium): N/A
6. (Medium, High): Differentiation strategy.
7. (High, Low): Destined for failure.
8. (High, Medium): Destined for failure.
9. (High, High): Focused differentiation strategy.

Weirich’s TOWS matrix. Four classes of strategies can be developed based on a 2×2 matrix of Strength/Weakness (internal factors) vs. Opportunities/Threats (external factors)

1. SO strategies use strengths to maximize opportunities (maxi-maxi)
2. ST strategies use strengths to minimise threats (maxi-mini)
3. WO strategies minimise weaknesses by taking advantage of opportunities (mini-maxi). Or minimising weaknesses to take advantage of opportunities.
4. WT strategies minimise weaknesses and avoid threats (mini-mini)

Classifying Strategies that Lead to Growth

Ansoff uses a growth vector matrix (or product-market matrix) to classify growth strategies into 4 types. It is a 2×2 matrix of “Market” vs. “Product”

1. (Present, Present): Market penetration. Other options added by Lynch (in a market options matrix) are withdrawal, demerger, privatisation.
2. (Present, New): Market development.
3. (New, Present): Product development.
4. (New, New): Diversification. Either related diversification (vertical or horizontal integration) or unrelated diversification (conglomerate).

Other methods of growth

1. Organic
2. M&A
3. Joint ventures
4. Franchising
5. Alliances (e.g. airline code share)

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PERFORMANCE MEASUREMENT

Measuring Performance

Balanced Scorecard: Set KPIs in 4 perspectives:

1. Financial perspective
   • How should we create value for our shareholders to succeed financially?
   • KPIs include ROCE, growth, profitability.
2. Customer perspective
   • How should we appear to our customers? What do new and existing customers value from us?
   • KPIs include quality of products/services, reliability, cost, delivery, relationships, loyalty.
3. Internal business process perspective
   • What business processes must we excel at to achieve financial and customer objectives? How can we improve internal processes and decision making?
   • KPIs include quality of decisions/work, efficiency, and timeliness.
4. Innovation and learning perspective
   • How can we sustain our ability to change and improve? How can we continue to create value and maintain our competitive position?
   • KPIs include skills and process.

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BUSINESS PROCESS RE-ENGINEERING AND SUPPLY CHAIN MANAGEMENT

Business Process Re-engineering (BPR)

Harmon’s Process-Strategy matrix: Place each business process in a 2×2 matrix of “Process complexity and dynamics” vs “Strategic importance”. Quadrant determines what to do.

1. (Low, Low): Simple processes. Automate with COTS products or outsource (e.g. payroll, credit card approval)
2. (Low, High): Complex but not core. Hard to automate, so outsource (e.g. advertising, logistics and distribution, staff counselling)
3. (High, Low): Important but simple. Automate to improve efficiency using Six Sigma (e.g. sales order processing)
4. (High, High): Complex and important. Careful process improvement (e.g. product development)

Porter and Miller’s Information Intensity Matrix identifies how IT can be used for different products and services. It is a 2×2 matrix of “Information intensity of the value chain” (how product value is transformed through activities and linkages in the value chain) vs. “Information content of the product” (what the buyer needs to know to obtain the product and to use it to obtain the desired result).

1. (Low, Low): Use IT to seek out linkages to other value chains or within own value chain so as to lower cost. E.g. cement
2. (Low, High): Use IT to manage the value chain linkages optimally. E.g. oil refining (complex, sophisticated process)
3. (High, Low): Use IT to enhance product delivery. E.g. fashion
4. (High, High): Use IT to enhance product delivery + Use IT to manage the value chain linkages optimally. E.g. banking, airlines

Supply Chain Management Options

1. Vertical integration (e.g. the old Apple)
2. Vertical disintegration (e.g. PC market)
3. Virtual integration. Both core and non-core business functions are handled by external organisations. The company only owns the brand and the customer (e.g. Virgin Mobile).

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RISK MANAGEMENT

COSO (Committee of Sponsoring Organisations of the Treadway Commission) Enterprise Risk Management Framework

8 Components

1. Internal / control environment (risk attitudes, appetite, ethical values, risk management philosophy)
2. Objective setting (normal corporate objectives)
3. Event identification (of risks that prevent objectives from being met)
4. Risk assessment (likelihood, impact)
5. Risk response (avoid, reduce, transfer, accept)
6. Control activities or procedures
7. Information and communication (reporting and feedback)
8. Monitoring (internal and external audit, risk audit)

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BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY

Resolving Ethical Dilemmas

American Accounting Association (AAA) Model

1. What are the facts of the case?
2. What are the ethical issues in the case?
3. What are the norms, principles, and values related to the case?
4. What are the alternative courses of action?
5. What is the best course of action that is consistent with the norms, principles, and values identified in Step 3?
6. What are the consequences of each possible course of action?
7. What is the decision?

Levels of Corporate Social Responsiblity

Carroll

1. Economic
2. Legal
3. Ethical
4. Philanthropic

Organisations’ Ethical and Social Responsibility Stances

Johnson and Scholes

1. Short-term shareholder interest
2. Long-term shareholder interest
3. Multiple stakeholder obligations
4. Shaper of society

General Social Responsibility Stances

Gray, Owen and Adams (Accounting and Accountability). 7 viewpoints

1. Pristine capitalists – Maximize profits only.
2. Expedients – Have social and moral requirements if it is in the business’ economic interests.
3. Proponents of the social contract – Business should be conducted in a manner that makes it deserving of continuing, i.e. conform to ethical norms of society.
4. Social ecologists – Business should not harm the environment.
5. Socialists – Business should be fundamentally changed to provide equality, the capitalist class should not be oppressing the working class.
6. Radical feminists – Business should reward cooperation and reflection rather that conflict and competition.
7. Deep ecologists – Humans have no greater rights to resources or life than other species.

Aspects of Sustainability

Global Reporting Initiative (GRI)’s triple bottom line (TBL, 3BL, 3Ps)

1. People (Social)
2. Planet (Environmental)
3. Profit (Economic)

Accounting for Costs of Environmental and Social Externalities

Full Cost Accounting (FCA) accounts for externalities (Externalities are costs or benefits that the market fails to take into account)

1. Tier 0 – Usual costs (basic capital and revenue costs)
2. Tier 1 – Hidden costs (overheads)
3. Tier 2 – Liability costs (contingent liability costs, e.g. fines)
4. Tier 3 – Less tangible costs (loss of goodwill, reputation risk)
5. Tier 4 – Environment focused costs (costs to ensure that project has zero environmental effect)

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MARKETING

Marketing Mix (4Ps and extended 7Ps)

1. Product
2. Price
3. Place
4. Promotion
5. People (extended)
6. Processes (extended)
7. Physical evidence for services (extended)

Ways Internet can Improve Marketing Effectiveness

McDonald and Wilson (developed at Cranfield): 6 I’s of Marketing

1. Independence of location
2. Industry structure
3. Interactivity
4. Individualisation
5. Integration
6. Intelligence

Types of Buying Behaviour

Organised into a 2×2 matrix of “Difference between brands” vs. “Buyer involvement”

1. (Low, Few): Habitual – Buys out of habit, e.g. newspaper
2. (Low, Significant): Variety seeking – Experiment with different products, e.g. shoes, biscuits
3. (High, Few): Dissonance reducing – Highly involved because the purchase is expensive / infrequent, e.g. paint, cement
4. (High, Significant): Complex – High value purchase with lots of information analysis, e.g. car, house

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QUALITY MANAGEMENT

Capability Maturity Model Integration (CMMI) for Software Development

1. Level 0 – processes incomplete or not performed
2. Level 1 – initial capability, processes not standardised, depends on individuals’ competence.
3. Level 2 – repeatable, established processes for each project
4. Level 3 – defined, having a master set of processes that each project can customize from
5. Level 4 – managed, quantified control techniques and quantified quality goals
6. Level 5 – optimising, continuous improvement.

Six Sigma

1. The range of permitted tolerance must equate to +/- 6 standard deviations from the mean of the entire output.
2. Improvement projects follow 5 phases (DMAIC)
   1. Define customer requirements
   2. Measure existing performance
   3. Analyse existing process
   4. Improve the process
   5. Control the new process

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PROJECT MANAGEMENT

Triple Constraints

1. Cost
2. Time
3. Scope (quality, quantity)

Project Management Maturity Model for Organisations

1. Level 1 – Common knowledge
2. Level 2 – Common processes
3. Level 3 – Singular methodology
4. Level 4 – Benchmarking
5. Level 5 – Continuous improvement

Project Analysis Techniques

1. Fishbone analysis
   • Centre bone is main problem, branches break down into smallest underlying causes
2. Performance driver analysis (for past/current performance)
   • Identify performance drivers and performance brakes, and the strength of influence of each one
3. From-to analysis
   • For each category (e.g. structure, comms practice, cost), identify current state and desired state, and determine how to get there
4. Force field analysis (for project planning)
   • Identify enablers and contraints forces. Ask the following:
   • What is it about each force that allows it to be identified as an enabler or a constraint?
   • How great is its potential influence on the change process?
   • What other, less obvious factors does it depend on?

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CHANGE MANAGEMENT

Types of Change

Balogun and Hope Hailey’s contextural features model places change in a 2×2 matrix of “Nature of Change” vs. “Scope of Change”. Scope refers to the extent the existing paradigm must be replaced.  Nature refers to whether it is incremental or a fast jump.

1. (Realignment, Incremental): Adaptation
2. (Realignment, Big Bang): Reconstruction
3. (Transformation, Incremental): Evolution
4. (Transformation, Big Bang): Revolution