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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