UNIT 1 STRATEGY BASICS

WHAT IS STRATEGY?
Long-term direction A means to achieve the plan and the objectives... A course of action aimed at allowing an organisation to achieve its objectives and satisfy its mission The core of a companys strategy concerns its markets and its products and is about choosing:

where to compete which business segments Geography Demography

how to compete on what basis shall we compete. Price Differentiation product or process or both

Strategy has been described as A means to achieve a sustainable competitive advantage.

Competitive advantage some product or process aspect that gives reason for customers to buy from you eg reputation for customer service

Competitive disadvantage - some product or process aspect that gives reason for customers NOT to buy from you e.g. testing products on animals

OVERVIEW -THE STRATEGIC PLANNING PROCESS

Internal Environment

Mission & Objectives

Position & Appraisal

Strategic Options

Evaluation & Choice

Implementation

Review & Control

External Environment

Strategic planning process what does it include? Board of directors responsible for setting strategy Analyse the stakeholder environment, consider validity of mission and ordering of objectives Research of strategic capability internal environmental analysis to assess the strengths and weaknesses involved Research of the external environment looking to identify and assess the opportunities and threats Position audit bring all the environmental analyses together and assess where are we now Strategic option generation, selection and implementation. Review and control continuous exercise to assess viability

The Setting of Strategy

INPUT PROCESS OUTPUT

BOARD OF DIRECTORS

EFFECTIVE STRATEGY
SUITABLE FEASIBLE ACCEPTABLE

1. INFORMATION & RESEARCH 2. MISSION & OBJECTIVES 3. LABOUR 4. TIME 5. BUDGET 6. POLITICS 7. IT

CORPORATE GOVERNANCE 1. EXECUTIVE DIRECTOR QUALITY 2. NON-EXECUTIVE EXPERTISE 3. NON-EXECUTIVE CREDIBILITY 4. TRANSPARENT PROCESS 5. EFFECTIVE REMUNERATION 6. ETHICAL & SOCIALLY RESPONSIBLE

The systems approach to management problems provides a useful examination tool. It is applied above to the setting of strategy but can be applied to any strategic context Input the provision of data, information and knowledge which is gathered via research of the environments Process the provision of a team which provides a range of opinion and expertise which is crucial given the subjectivity of strategic context Output the output of one process is often the input into another process. Formal reports required with narrative, numerical and pictorial content

TYPES OF STRATEGY
Corporate strategy (Which)
It raises the question of which businesses shall we be in? This may involve consideration of acquisition and diversification and will see an organisation being in more than one business. Corporate strategy is concerned with Entering new industries; Leaving existing industries.

Business strategy (How)

Having selected a market, the organisation must develop a plan to be successful in that market. The aim is to compete successfully in the individual markets that the company chooses to operate in. Business strategy is concerned with how to achieve advantage over competitors and avoid competitive disadvantage. Corporate strategy affects the organisation as a whole whilst business strategy will focus upon strategic business units (SBUs). An SBU will be a unit within an organisation for which there is an external market for product distinct from other units.

Functional strategy
This is concerned with how the component parts of the organisation in terms of resources, people and processes are pulled together to form a strategic architecture which will effectively deliver the overall strategic direction. Operational strategy is concerned with Human resource strategy; Marketing strategy; Information systems and technology strategy; Operations strategy.

These could be unique to the SBU and benefit from being individually focused or the corporate unit may seek to centralise them and so benefit from synergy.

Strategy Types Types

Div 1
F1 F2 F3

Corporate centre Div 2

F1 F2

Div 3
F3 F1 F2 F3

One corporate strategy Three business strategies A choice for functional strategies

THE BOARD OF DIRECTORS

What is corporate governance?
The system by which companies are directed and controlled. The Board of Directors are responsible for the governance of their companies. This is where strategy is set. Board responsibilities are as follows: Setting the strategy; Providing leadership to effect the strategy; Supervising the management of the business; Reporting to shareholders on stewardship.

Relevant aims of corporate governance (for Paper 6) To increase the disclosure to stakeholders in general; To ensure that companies are run on ethical grounds and do not operate illegally; To provide increased confidence in the company for existing and potential investors and thus promote investment in companies and subsequent economic growth; To increase transparency at the board level of operations.

Corporate governance seeks to improve the confidence of stakeholders in the companies that operate within an environment. Better confidence sees improved investment by stakeholder groups.

Key ideas
Board operation Regular board meetings to assist in retaining full and effective control over the company and to monitor the executive management; Clear division of responsibility at the head of the company to ensure a balance of power. No one individual should have ultimate control; Include non-executive directors of sufficient calibre; Formal schedule of matters for decision and minutes to ensure control; Boards to make full presentations at the AGM with question and answer sessions afterward.

Non-executive directors To bring an independent view to strategy, performance, resources and standards of conduct; Free of any interference which would distort judgement to be vigorously independent; Formal selection process for the board as a whole; Recruited on basis of experience and expertise; To provide added credibility.

Executive directors The decision makers; Full disclosure of remuneration along with explanation of any performance-related element; Executive reward to be subject to the recommendations of a remuneration committee.

Reporting and controls Objective is to present understandable and balanced view of position. Directors responsibility statement to be published. To generally improve the disclosure regarding board operation.

The role of the strategic management accountant

The management accountant is a support resource. Provides information to assist the decision-making process Information that assists a decision is relevant information Thus the MA is the professional who decides and provides relevant information to senior management to assist decisions What they can do: Report on costs and revenues actual, budget and forecast information Be part of the team involved in producing budgets, forecasts and plans; Narrative work commentaries and periodic reporting; Measures performance and adapt the measurement mix to suit the environment Develop systems that capture data, convert to information and subsequently knowledge

Usually prepares a formal periodic report which contains information: Narrative Numerical Pictorial