Purpose of Strategic and Business Analysis

Chapter 1 The Purpose of Strategic and Business Analysis

Answer 1
(a)
Strategic business unit (SBU)
A SBU may be defined as ‘a division within a large organization that has a significant degree of autonomy, typically being responsible for developing and marketing its own products and services.’

There is a hierarchy of strategies within an organization. These strategies may be divided into three distinct levels:
(1)     Corporate strategy is the most general level of strategy in an organization. Corporate strategy is ‘concerned with what types of business the company as a whole should be in and is therefore concerned with divisions of scope.’ (Johnson and Scholes)
(2)     Business strategy defines how an organization approaches a particular market or the activity of a particular business unit.
(3)     Functional strategy (also called operational strategy) involves decisions of strategic importance but which are made or determined at operational levels.

The strategies of a strategic business unit are thus in the middle of this hierarchy. SBU strategies should be consistent with the strategies both above and below it in the hierarchy.

Corporate strategy
It is important that SBU strategies fit with the overall direction of the company, its purpose and scope as set out in its corporate strategy.
(1)     Purpose. A strategy developed at the SBU level should aim to meet the objectives of the strategies set at the higher corporate level.
(2)     Scope. The SBU’s strategy should align with the direction of the corporate as a whole. For example, decisions such as which products/services should be developed, how the SBU might gain competitive advantage, and how the SBU may segment its market.

A strategic business unit must obey corporate strategic priorities, for example to work to ensure that the overall performances of the group matches promises made to shareholders. It must also work to maximize synergies and avoid action that may undermine corporate strategy, such as inter-divisional competition for clients or actions that undermine brands.

 

Functional strategies
Functional strategies are also called operational strategies. These decisions include product pricing, investment in plant, personnel policy, and so on. It is important that these strategies link to the strategic business unit strategies and through those strategies, in turn, to the corporate strategy, as the successful implementation of these is necessary for the fulfillment of both corporate and business objectives.

An SBU strategy must determine the functional strategies to ensure that finance, IT, marketing, production and other functions are pursuing courses of action that contribute to the realization of business goals, rather than ‘empire building’ or ‘doing his own thing’. In addition, the various functions should be mutually supportive, for example, IT should support a marketing strategy that leads to a financial advantage for the firm.

In conclusion, successful implementation of strategy will depend upon there being congruence in planning, implementation and control at each level within the organization’s strategic hierarchy.

(b)
There is a hierarchy of strategies within an organization. These strategies may be divided into three distinct levels:
(1)     Corporate strategy is the most general level of strategy in an organization. Corporate strategy is ‘concerned with what types of business the company as a whole should be in and is therefore concerned with divisions of scope.’ (Johnson and Scholes)
(2)     Business strategy defines how an organization approaches a particular market or the activity of a particular business unit.
(3)     Functional strategy (also called operational strategy) involves decisions of strategic importance but which are made or determined at operational levels.

Functional strategies
Functional strategies are also called operational strategies. These decisions include product pricing, investment in plant, personnel policy, and so on. It is important that these strategies link to the strategic business unit strategies and through those strategies, in turn, to the corporate strategy, as the successful implementation of these is necessary for the fulfillment of both corporate and business objectives.

Functional strategies are the detailed strategies of departments such as finance, sales, IT, marketing, production and human resources management. Functional strategies must support the overall corporate strategy of an organization.
Functional strategies must ensure that finance, IT, marketing, production and other functions are pursuing courses of action that contribute to the realization of business goals, rather than ‘empire building’ or ‘doing his own thing’. In addition, the various functions should be mutually supportive, for example:
(1)     IT should support a marketing strategy that leads to a financial advantage for the firm.
(2)     Human resources need to ensure that new production staff recruited have the right skills.

In the development of functional strategies the communication process is both top down and bottom up. This ensures that people at all levels are aware of the plan and have a stake in implementing it.

In conclusion, successful implementation of strategy will depend upon there being congruence in planning, implementation and control at each level within the organization’s strategic hierarchy.

Answer 2
What is a mission?
A mission can be defined as a business’s basic function in society. It is often visionary, open-ended and has no time limit for achievement. It is its reason for being. Mission is concerned with the overriding purpose and core values of PV company based on the values and expectations of its stakeholders. It should be distinguished from vision. Vision represents the overall aspiration for the future of PV company whereas PV company’s mission is what business it is in, in other words why it exists.

Benefits of developing a mission for PV company
There are many good reasons for PV company developing a mission especially given the lack of direction and range of views that currently exist. The staff have no common agreement on what the priorities and objectives of the company should be.

A mission will help PV company clarify why it exists and the scope and boundaries of PV company’s activities. Knowing its reason for existence and its range of influence will help PV company decide on its purpose.

PV company needs to set goals, aims and objectives to achieve its mission. Goals flesh out the mission in concrete terms. Objectives are quantified and aims are unquantified goals. A clear mission will enable PV company to set goals more clearly as these should support the mission. It will assist PV company in providing a basis for consistent planning decisions and in translating the organization’s purposes and direction into objectives suitable for assessment and control.

A mission would also act as a yardstick by which plans are judged and help to make decisions more consistent. It could be used to evaluate possible future strategies. It should cover elements of strategy, for example the competence and competitive advantages by which it hopes to prosper.

The mission would help PV company frame its goals and ethics. For example, should the company be opposed to animal testing of products or excessive packaging?

The values stated in the mission should relate to the culture and should capture the basic, often un-stated beliefs of the people who work for PV company.

A clear mission would help key stakeholders understand what PV company is doing especially those outside the organization. This could help to provide a consistent understanding and purpose between the different interest groups and stakeholders connected to PV company.

Many organizations write their missions down in a mission statement and this would help PV company to communicate its mission in wider society and reinforce the key elements of the mission.

Answer 3
ZF’s proposed approach to strategy is the rational planning approach. The rational planning approach has three stages: strategic analysis, strategic choice and strategic implementation. The model represents a formal, planned approach to strategy development. This approach is typically rigid; strategies feed down in a top-down approach. MT, perhaps because he is an entrepreneur, prefers strategies that ‘emerge’ to those that are planned. Emergent strategies develop out of patterns of behaviour. They are unconscious patterns which eventually have long-term strategic effects. However, they do need to be grasped by management and used for the benefit of the organization. SO ad hoc responses can be turned into strategies in time if they are successful. They are also flexible and reactive rather than proactive.

Advantages of formal, rational approach to strategy
1.      A fundamental element of the formal approach is continuing environmental analysis. This would be important for S Software Development Company, as software development is a fast-moving, competitive environment.
2.      Formal or planned strategy helps the organization to take a long view and avoid short-termism while at the same time providing a sensible approach to the uncertainty of the future.
3.      It guides the allocation of resources.
4.      It coordinates the activities of the various parts of the organization, ensuring the integration of operational management decisions into the higher strategy, the wider organizational context and longer term goals.
5.      It sets a standard by which the actual performance of the organization is measured and controlled.
6.      It comforts providers of finance in particular and encourages suppliers and employees to think in terms of a long-term relationship.
7.      The process of forming strategy requires wide and complex input so it can have a beneficial effect on managers’ personal development and awareness and can assist with management succession planning. This will be particularly important in ensuring that when MT retires the company will not lack direction.

Drawbacks of formal approach
The concept of formal processes for strategy generation and their limited success in practice has led to criticisms of both the rational model and the very idea of strategic planning as a separate business activity.
1.      The formal approach encourages a sense of omniscience and control among planners: this is dangerous because of the inherent unpredictability of the business environment, as an entrepreneur, MT has already had experience of.
2.      There is an associated problem of detachment: planners’ tendency to assume that strategy can be divorced from operations is inappropriate. Planners rarely have to implement the strategies they devise and feedback occurs too late or is badly filtered. Similarly, more junior managers, not directly involved in the planning process may misunderstand or resist the plans they are required to implement.
3.      The idea of the learning organization has been applied to strategy on the basis that an organization’s strength and weaknesses can be in constant flux and strategy should reflect current developments as a kind of learning process itself.
4.      The expense and complexity of the formal approach are inappropriate for smaller businesses.
5.      Goal congruence between different business stakeholders is one of the aims of formal strategic planning. However, this advantage is not applicable in the case of S Software Development Company. The goals of the company are likely to be the same as those of the owners, MT and ZF. Indeed it could be argued that the rational approach does not work for small businesses because the success of the business depends on MT’s ideas. MT may not be interested in growth, which the rational approach assumes to be a strategic aim.

Answer 4
(a)
Mission and objectives
Mintzberg says that mission ‘defines the organizations basic function in society, in terms of the products and services it produces for its clients’. A wider definition of mission would include reference to four elements.
1.      Purpose would differ among types of organizations, but would define why the organization was created.
2.      Strategy would define the nature of the organization’s activities and would therefore cover Mintzberg’s definition quoted above.
3.      Policies and performance standards as overall imperatives can be included in mission to emphasise their importance.
4.      Values are the pervasive beliefs and attitudes that underpin the organization’s culture.

Mission is therefore the overall definition of what the organization exists to do.

Objectives are specific, well, defined targets whose attainment will support progress towards achieving the mission. They translate the generalized aspirations of mission into more specific, measureable and concrete terms that can be used to organize the organization’s work and provide specific targets to measure its success against. They therefore flow from and support mission.

While an organization generally has only one mission, it is likely to have many objectives. This will be arranged in a hierarchy, with a relatively small number of high level objectives directly derived from and supporting the mission, and each of these being broken down into a cascade of supporting departmental, functional and even individual supporting objectives.

(b)
Strategic objectives for the airline
It is commonly considered that objectives should be specific, measurable, attainable, realistic and time bounded, that is SMART. The last quality in the list is probably inappropriate for many strategic objectives, since they will have continuing applicability.

Highest level of customer service
A high level of customer service is clearly a major part of N Airline’s strategic vision and is intended to constitute its chief point of differentiation from its competitors. This might give rise to an objective such as the one below.

‘To provide the highest level of customer service on the ground and in the air as measured by customer survey, unsolicited feedback and competitor benchmarking.’

The quality of customer service achieved will depend largely on the people who deliver it. HRM objectives might therefore be regarded as subordinate to the overall customer service objective. However, N Airline may wish to elevate its HRM objective to the strategic level in order to underscore its commitment to and dependence on its staff.

‘To optimize recruitment, selection, training, development and remuneration practices so that all staff have the ability and motivation to deliver the highest level of customer service.’

Careful management of costs and revenues
N Airline’s business model will inevitably involve a level of costs higher than those incurred by its rivals. This must imply higher revenues from higher ticket prices, which, in turn, will limit its market. Careful management of costs and revenues will be required if the company is to avoid cash flow crises. This is quantifiable in terms of gross and net margin, but the problem will be to set targets that are both adequate and attainable. An objective might be defined in terms such as those below.

‘To manage the company’s costs and revenues so as to facilitate the attainment of its objectives for customers and staff while generating a gross margin of X% and a net margin of Y%.’

Answer 5
(a)
Vision and mission
Vision represents the overall aspiration for the future of S City Policy (S), whereas S’s mission is what business it is in, in other words its reason for being. Mission is concerned with the overriding purpose and core values of S based on the values and expectations of its stakeholders.

The mission will also state the basic function of S in society in terms of the services it provides. It will also be concerned with the scope and boundaries of the organization.

(b)
Benefits of developing a mission for the police force
There are many good reasons for S developing a mission especially given the lack of direction and range of views that currently exist. The staff have no common agreement on what the purpose of the police force is.

A mission will help S clarify why it exists and the scope and boundaries of S’s activities. Knowing its reason for existence and its range of influence will help S decide on its purpose.

S needs to set goals, aims and objectives to achieve its mission. Goals flesh out the mission in concrete terms. Objectives are quantified and aims are unquantified goals. A clear mission will enable S to set goals more clearly as these should support the mission. It will assist S in providing a basis for consistent planning decisions and in translating the organization’s purposes and direction into objectives suitable for assessment and control.

A mission would also act as a yardstick by which plans are judged and help to make decisions more consistent. It could be used to evaluate possible future strategies. The mission would help S frame its goals and ethics. The values stated in the mission should relate to the culture and should capture the basic, often un-stated beliefs of the people who work for S.

Many organizations write their missions down in a mission statement and this would help S to communicate its mission in wider society and reinforce the key elements of the mission.

(c)
Culture and framework models
Culture is the ways of understanding and behaviour shared by a group of people. It is important because it involves the basic assumptions and beliefs of individuals and therefore profoundly affects how people respond and their behaviour at work. Culture is the taken for granted ways of doing things and routines that develop over time.

P wants implement changes but how these are perceived and their ultimate adoption depends on the culture in place, S has a strong culture and this is throwing up barriers to P’s plans to make changes.

Culture is supported by beliefs and these make clear what is important and need to be shared by everyone in the organization. It is essential that they are reinforced and widely accepted. This leads to the development of norms of behaviour.

P has a problem because she must somehow influence and change the beliefs and norms of behaviour in S which no longer fit with the changing needs of the organization. There are models explaining culture that she could use to understand the organization and its cultural features.

McKinsey’s seven S framework is a well-known model. It focuses on the hard and soft aspects of organizations that influence culture. The systems, structure and strategy elements of the seven S framework represent the hard or overt aspects of S’s culture. The softer/covert elements are style, staff and skills. P could use the seven S framework to classify aspects of S’s culture, and determine the existing aspects of culture which need to change. For example:

1.      Systems are the procedures for getting things done. In S this would be the formal and informal operational procedures that will ensure the Police Force operates effectively.
2.      Structure is the way the organization organizes itself to support the Force’s activites. This includes coordination between different areas.
3.      Strategy is the course of action including what resources are needed to get something done. In S this would be the actions that are planned in response to environment change in order that the Force can achieve its objectives.
4.     Style is how S is managed and led. Management leadership are key as they signal to staff what is important.
5.      Skills are the key capabilities of the Force. Any changes from a new mission and thus priorities and focus, may result in new skills being needed and s becoming redundant.
6.      Shared values/super-ordinate goals touches on culture as they represent the guiding beliefs of employees in the Force as to why it exists. Where the objectives and priorities change but the shared values do not keep up, this will lead to conflict.
7.      Staff are the people in the organization who will have their own priorities.